Epiroc AB (publ)

So hello everyone and thank you for joining Epiroc Q1 results presentation. My name is Mattias Olsson and I'm Head of Corporate Communications here at Epiroc. Today I'm covering for Karin Larsson who is on parental leave. This time we are doing only a conference call as we have the Annual General Meeting coming up this afternoon. But still we will follow the same format as we always do. First our CEO Helena Hedlom and our CFO Håkan Tholin will briefly present the results before we do the Q&A. It is possible to listen to the presentation and Q&A over the internet, but the questions will be handled over the phone. So now we turn to page two, and Helena, please go ahead.

Thank you, Mattias. So it was a strong start of the year. The demand continued to be on a high level, and orders received reached a new record of 13.8 billion. The organic growth was 18%. And there is a strong demand for our equipment, both for our solutions within automation, digitalization and electrification, as well as for our aftermarket offering. We've won six large orders above 100 million set in the quarter and several sizable orders below that threshold. And many of these included battery electric vehicles and automation. The development for our service products remained robust and the order intake was record high. The revenues almost reached the level of the record fourth quarter 2021 and our reported operating profit was record high. And the adjusted operating margin came in at 23.3%. The supply chain challenges that we talked about when we reported Q4 in January are still there, and our teams are really walking that extra mile to be able to supply our customers. And I would say that we are managing well given the circumstances. We see cost increases on components and general inflationary pressure, but we have been actively working with price management during last year and this year. The war in Ukraine and the resulting humanitarian catastrophe is truly horrifying, and we take the situation very seriously, and we hope that a resolution soon will be found to end the war. For us, our primary concern is the safety and well-being of our colleagues, and of course it has also impacted us financially in the quarter. We will come back with some more details later on. Also, the COVID-19 pandemic had some impact, mainly sick leave in the beginning of the year, but the impact was reduced and it was very limited at the end of the quarter. So then over to the key financials, and Håkan will come back with more details later. So I repeat, record order intake at 13.8 billion, organic growth for equipment was 18%, and service even higher, up 22%, and tool for attachments up 11%. Organic revenue growth was 14%, also here with double-digit growth for all the segments. So we are still building backlog and we see longer delivery times, just as we mentioned last quarter. And many of the large orders that we have received will be delivered in 2023. Adjusted margin came in at 23.3%, which is higher than last year. So now I turn to page four. And as you know, we are a leading productivity and sustainability partner to our customers. So let me start with innovation. So we introduced a more powerful surface blast hole drill rig, the DM30XC, which can be equipped with our rig control system with several additional safety and productivity features. Also, we now have Mobius for drills. Mobius is a system that enables multi-vehicle command, control, and monitoring to maximize productivity and safety. We are a true partner to our customers. I have often talked about the technology shifts that are happening in our industry. Customers are investing in automation, in digitalization and electrification. And we win orders for these solutions. And we have even received repeat orders now for battery electric vehicles in the quarter. So that's good to see. I want to mention the large order for equipment, including battery electric machines and automation solutions from the Canadian Malaitic Partnership. We also won a large order from them in 2021, and we will also provide service and spare parts, as well as expertise on electrification solutions. And the quote on the slide is from the general manager of the Odissei mine. It is really a collaboration and we share their ambition on safety and productivity. Then a few words about the aftermarket. So this continues to develop strongly with record orders received. And this is very good to see. Customer activity continues to be high, which supports the strong growth. Our structured work towards our customers is also paying off. And we are winning service contracts as well as orders for our other service products. And also more and more machines are delivered with connectivity. We have not seen so much of it earlier, but now we see examples of customers that are placing orders for parts to safeguard deliveries. It is, however, difficult to estimate how big of an impact this has. Aftermarket represented 69% of the revenues in the quarter. On operational excellence, on page 6, we continue to work with our supply chain excellence. And in the quarter, we inaugurated a regional distribution center in Belgium that will serve our customers in Europe, in Middle East, and parts of Africa with both spare parts and rock drilling tools. It is, however, a challenging situation within the supply chain, and we are taking some precautionary measures to safeguard availability of components. The work to improve efficiency in administration and service also continues, and no new main initiatives were taken in Q1, but the earlier initiatives taken show positive results. Then over to sustainability, and if I start with people, we are pleased to see that the share of women employees and managers continued to rise in both categories with 0.5 percentage points since December. When it comes to injuries, on the other hand, we see a negative development with more work-related injuries, even if we have not had any severe injuries in the quarter. We have many newly employed people, and we can see, for example, that they have higher injury frequency rate on our additional workforce. And this is not a good development, and we are taking measures to bend this trend. On planet, I'm pleased to announce that we have entered into a partnership with SSAB around fossil-free steel. And this is exciting. We will initially use fossil-free steel in the production of a prototype underground mining machine that will be produced in our factory in Örebro. And the plan is to increase the usage of fossil-free steel over time. We have lower CO2 emissions from operations, mainly due to higher share of renewable energy and installation of solar panels. For transport, the CO2 emissions have increased, mainly due to higher volume transported. So, now I will leave the speaking line to Åkan, and he will give you some more details on the financials.

Thank you Liliana, and we are now on page 8. Before we go into the details and analysis of the financials, some words on our exposure to Ukraine and Russia. We have received orders and revenues have been recognized in Ukraine and Russia during Q1, predominantly in January and February. In 2021, our revenues was almost 300 million in Ukraine and about 2.4 billion in Russia. We have only sales and services in this market. At the end of March, when we closed quarter, we had orders on hand of about 1.8 billion. And it is uncertain if and when these orders will be delivered and invoiced. If we look at the balance sheet in Russia, we have working capital, cash, and fixed assets of about one billion Swedish kroner in total. It's very little fixed assets, and the majority is inventory and customer receivables. There's limited operations at the moment. Some service and deliveries are made in Ukraine for customers that are still operational. We post our deliveries to Russia on March 1st, and it is a highly complex and fluid situation. There are continuously changing sanctions as a response to the Russian invasion, and even if the sanctions are not targeting the mining industry as such. And at the same time, Russia is proposing legislation to counter sanctions and company actions. And in addition to the sanctions, there are also continuous challenges with logistical flows and financial transactions. So, we are closely monitoring the situation. We will continuously evaluate the implications for our colleagues' business and operations, both in the short and in the long term. Now, if we then look at the development in Q1, and we are on page 9, our operating profit increased by 41% to 2.6 billion, and we achieved a record operating profit again. The reported margin was the highest ever at 23.7%, and it was supported by a positive change in provision for our LDI program. But if we instead then look at the adjusted operating margin, we saw an increase now in Q1 up to 23.3% from 23.0% last year. And this is actually only 10 basis points from the best quarter we've had so far, which was Q3 2021. And if we look into the details on the profit, and we do that via this profit bridge then, the organic growth, volume, and price contributed 443 million and 1.6 percentage points to the margin. Parents supported the operating profit, but was more or less neutral or actually diluted somewhat the margin to 20 basis points. Structure and acquisitions together was positive 193 million, and this is due to the LTI program. The change in provisions for the program was positive, as I mentioned, in this quarter with 43 million, and in Q1 last year it was actually negative with 149 million. Acquisitions have a negative impact on the profit and the margin, and the dilution of the margin from acquisitions is about one percentage point. This is mainly related to a few of our technology acquisitions where revenues are still relatively low. During the quarter we had, as Helena mentioned, challenges in the supply chain and early in the quarter, high sick leave in many of our operations due to COVID-19. But when we combine all these factors and when we look at the adjusted margin, all in all it brings us down to 23.3%. Now I will zoom in on our two segments. We start with equipment and services, where orders receive increased 20% organically to a record high level of 10.5 billion. We have, as I mentioned, six orders above 100 million each. And on top of that, we have many medium-sized equipment orders as well. All in all, 5.3 billion in equipment orders. But as we have said before, equipment orders are by nature lumpy. But still, the underlying demand for the small and medium-sized order is at a high level. If we instead look at the organic growth in service, it was actually fairly impressive with 22%. And as mentioned, we see examples of customers that are placing orders for parts to safeguard deliveries. But clearly, the high demand is definitely there. We had a good contribution from acquisition, 4% on the order growth, and then also currency contributed to 8%. On the revenue side, we had a 17% increase organically with strong growth both in equipment and in service. And I will cover some more details on profit and margins on the next slide. And we are now at slide number 12. So the operating profit increased 26% to $2.1 billion. The operating margin was 26.1, supported by strong organic growth, diluted by currency and also by acquisitions. The organic growth contributed to the margin with 1.2 percentage points, but this was offset by dilution from the acquisition. And currency was also somewhat deterred today. On the mix, the share of service revenues was slightly lower compared to last year, 68% compared to 60% in Q1. Now, on page 13, and we switch them to tools and attachments. Here we also had good growth. Orders increased 11% organically. The order intake reached record high 3.3 billion Swedish kronor, where we got support by currency with 8% and acquisitions by 3%. And both hydraulic attachment and the rock drilling tools had solid growth during the quarter. And also seasonality was there for the strongwater intake, supporting strongwater intake in the first quarter. Revenues increased by 10% organically to 2.9 billion, and also operating margin improved compared to Q1 last year. If you look at the profit bridge then for tools and attachment, operating profit increased 35% to 520 million, supported by the organic growth, currency, and also by acquisitions. We had some one-time cost last year, which is reflected in the structure and the positive margin impact from that. Margin impact from acquisitions was fairly small. But all in all, the operating margin improved quite a lot, up to 18.1%, and four tools in attachment. This was the third quarter in a row with a margin of above 18%, which we consider being a solid level. If we then dig into cost, net financials, and tax, it's good to see we have good cost control. We saw sequentially somewhat lower costs. Compared to last year, costs are higher. There are more activities. We also continue to invest in R&D at the high level. Some of these costs are also volume-related. We have a current impact on the cost, and we also have acquisitions performed during last year's impact. But measured at the percentage of revenue, the costs were lower both sequentially and year-on-year. Net financial items were minus 63 million. They were minus 33 last year. Volatility here is mainly exchange rate differences, and interest net was quite stable. During the quarter, the income tax expense was $564 million. That corresponds to an effective tax rate of 22.0% versus last year, 24.2%. There are lower tax rates in some countries, and this is having a positive impact on our tax rates. Then a look on the cash flow on page 16. Our operating cash flow in the quarter was $867 million. it was positively impacted by the higher operating profits. Compared to last year, we paid higher net financial outcomes and also taxes, and these payments vary between the quarters, but now for this quarter, they were somewhat higher. We increased working capital with nearly 1.2 billion in the quarter. We do tie up more capital when we grow, and on top of this, we are taking proactive decisions a secure availability of parts and components, which means that we do increase inventory a bit more often. Also, for working capital, currency and the cost and price increases have an impact on the total level. Cash conversion left 12 months was at 8%. Now, on the capital efficiency, on the next slide, you can see the increase in working capital compared to 2004. It's higher than Q1 last year, up 23% in total, and 14% when you include currency and acquisitions. As mentioned, we do tie up more working capital when we grow, but when we compare it to revenues, it is actually lower at 28.9%, slightly lower than Q4, and actually more than 4% lower than the same time last year. Capital employed is also increasing, mainly due to growth and acquisitions. But at the same time, return on capital employed continues to improve mainly due to the higher operating confidence to 27.7%. Finally, then, for me on page 18, on the capital structure, we have a net cash position of 1.9 billion. It gives us good flexibility going forward. It's lower than last year mainly due to acquisitions and also distribution to shareholders. Note also that later today we will have our annual general meeting. The proposal for dividend is 3 Swedish kronor per share. In absolute terms, that's 3.6 billion that will be distributed in two parts to our shareholders, half in Q2 and half in Q4. And with that, back to you, Hjalmar.

Thanks Håkan for those financial details. So to summarize then, it was a strong start of the year, 18% organic growth and record order intake. It's encouraging to see the strong demand for our equipment, for our solutions, both within automation, digitalization and electrification, as well as for our aftermarket. 14% organic revenue growth and a record operating profit. And I am pleased with a solid 23.3% adjusted operating margin. We are delivering this at the same time as there are many challenges. There are constraints in the supply chain and in transport, and there is a war in Ukraine. So I really hope that a resolution soon will be found to end the war, and our thoughts are with all affected colleagues. So then a few words about the future. Looking ahead, we continue to see a strong demand overall, and therefore we expect that demand, both for equipment and off-market, will remain at a high level in the near term. And please remember that this is a comment on underlying demand. So thank you all for listening, and now it's time for the Q&A.

Thank you, Helena and Håkan. Please keep the questions short. And please limit to one or maximum two questions. It will make it easier for us, as well as give more of you the chance to ask questions. So please operator, open the line for questions.

Thank you. Just as a reminder, if you wish to ask a question, please dial 01 on your telephone keypads now. And if you find your question is answered before it's your turn to speak, you can dial 02 to cancel. Our first question comes from the line of Claes Berglind at City. Please go ahead. Your line is open.

Thank you. Hi, Helen and Håkan, Claes at City. So first on the drop-through in equipment and service, I'm interested around the product mix. It looks to me that the backlog from a product standpoint now has a higher margin into this year as you have more automation and battery capacity. uh in the mix and i'm talking margin not just price and it seems like i mean this can be an offsetting factor versus the worsening mix from equipment versus service if we can start here if this is correct thank you very much yeah i would say in in general we are you know we are selling more and more advanced machines uh

And if we look on what we, a lot of the orders that we gained last year included both the battery technology as well as automation and more, I would say, of the more advanced machines. So clearly there is a positive product mix towards more advanced machines.

Very good. And then just to confirm if there were no other one also, can there be 43 million LTI impact, no provision releases? no capital gains. I just want to make sure that this is a clean drop through at 36%. Yes, that's correct. Okay, very good. The final one is just on pure pricing. Back when we looked at you within Atlas during the super cycle years before the financial crisis, pricing was running at 4% plus on a yearly basis. Now we have cost inflation at the new higher level. and very strong demand. I mean, it might not look like a super cycle when we look at mining capex because of permitting issues, etc. But is this where pricing is running at, Helena, currently sort of a mid-single digit level?

So I think we always work very actively with pricing. And as I said many times before, it's very much tied to the value that we generate for our customers with more and more innovation, more advanced equipment and services. Of course, in the situation, we see costs are trending up. We have been very active, actively working with pricing during last year, and we have continued that work also now in Q1. So, you know, I think there's always more you can do, of course, of pricing. But I think we, you know, I'm happy to see, you know, how well we have managed so far.

All right. Thank you.

Thank you. Our next question comes from the line of Mathias Holmby of TMB. Please go ahead, your line is open.

Thank you so much for the time. You mentioned you see examples of customers placing orders to safeguard spare parts. Would you say that you've seen any trends like this on the equipment side as well, or is it the strong equipment or the intake that you report the reflection of the true underlying demand?

I think on the second-hand market side, we see it more just as safeguard availability and uptime. On equipment, we see that customers, you know, the mining houses are preparing for expansion. So a big portion of the orders are related to expansion or brownfield expansion or even greenfield expansion. So, of course, that is planning the plants that is now materializing, that has been there for quite some time. So I don't see it's more that you will say to be in the queue and of course to prepare for expansions that will happen then during 2023.

Thank you. A quick one on the Russia-Ukraine exposure as well. You've helped us a lot with plenty of numbers there. I'm just curious if you could quantify a bit the actual impact in Q1. Is it safe to assume roughly one twelfth of the exposure that you've mentioned, given that you say January and February? You had some, but not so much in March.

We had in total, we had around, on order intake, we had around 900 million from Russia and Ukraine in general.

That's very clear. Thank you so much.

Thank you. Our next question comes from the line of Guillermo Pena of UBS. Please go ahead, your line is open.

Hi, good afternoon, and thank you for taking my question. Maybe just to focus in a little bit more on the operating leverage as per before, and I was looking at the admin marketing and R&D expenses up YOY, but they're actually down sequentially. Can you specify what actions you're putting in place, and how sustainable are they as we go forward?

In Q4, we had the... I would say we had a few... Slightly higher cost, you can almost call them one-time item within admin and R&D, etc. There was no huge ones, there was no construction, but there were a few at the same time during Q4. So I think Q4 was maybe a bit too high and Q1 is a bit more representative of where we should be. Then, of course, we have still not started really to travel all that much yet. given the COVID situation, that that happened maybe towards the second half of the quarter. But in first quarter, that part, then travel, exhibitions, et cetera, was still on a low level. But Q1, I would say, is more representable than Q4. But as we said before, if we continue to grow as we want to, we will also invest in higher R&D, and there will be some additional admin costs, although we are, of course, trying to limit that as much as possible and be as efficient as possible.

Thank you. And can I follow up maybe with one question regarding R&D expenses? Do they go down sequentially?

No, I would say they are more or less on the same level. So we continue to invest in R&D. We see that as a top priority for us. We continue to invest on the same level.

Thank you. Back in line.

Thank you. Our next question comes from the line of Max Yates at Credit Suisse. Please go ahead. Your line is open.

Thank you. Just my first question would be around the lockdowns that we're seeing in China. And I just wanted to understand whether China makes up a large part of your components or whether you've seen any more difficulties in recognizing revenues and producing as a result of shortages of parts coming out of China. That's my first question.

We have seen some more challenges on the inbound and also on the outbound related to the situation in China. We are not so much dependent on our equipment. supply chain is very regional. It's Europe for the factories in Europe, it's North American related for the factories in the US and then Asia and we both have India and China. So some impact but I would say maybe not more than we have seen before. It's almost two years now with challenges in the supply chain. So we have been facing difficulties, I would say, throughout the last two years in different locations, different harbours or different airports, etc.

Okay, and just a quick follow-up was on acquisitions. You obviously have been very active in the last couple of years. I was just wondering, in obviously the more volatile environment that we're in currently, is it fair to say most of the acquisition discussions have stopped while you focus on operations and obviously some of the challenges in Europe, or would you say we still should expect over the next six months a reasonable flow of acquisitions to come through, perhaps more on the bolt-on side? Thank you.

Yeah, so we are still very active on the acquisition side, and of course they still They don't come evenly spread out over a year, but I think we have not stopped working with that. So I think you can expect that we will come with acquisitions during this year as well. And it will be more bolt-on, as you said.

Perfect. Thank you. Thank you. Our next question comes from the line of Lars Forsson of Barclays. Please come ahead. Your line is open.

Thank you. Hi, Helena, Håkon, Mathias. Maybe just to follow up on the larger order impact, but in krona terms as opposed to in unit terms, six large orders, and I hear a lot more mid-sized orders, which I guess is defined probably 50 to 100 million. I wonder whether there are any materially larger orders than the 100 million level. And maybe more generally, Helena, as you think about going forward, we move to a lot more electric units where all average order sizes are typically moving a lot higher. So I wonder whether we should think of your sort of order trajectory at the period to come as seeing a lot more impact from larger orders as you define it today, i.e. above 100 million, and how to think about that dynamic in terms of impact from larger and, I guess, large midsize orders.

I think it's a difficult question. If we look at the large orders we had in this quarter now, it's in the range of 800 million SEK. And you are correct that if it's a large order that is fully autonomous and fully electrified, then the value of that order will be larger. I think when we look at this, we see that customers are taking decisions now to do brownfield expansions, replacement of a larger fleet and also greenfield investments. So that is very much what is building up these equipment orders that we have seen so far. But you are correct that the value will be higher if it includes our latest technologies.

Secondly, if I can follow up on the, shall I say, non-answer to the earlier question around pricing, the 4% level, I wonder whether I could press a little bit for the like-for-like pricing trajectory at the order level today. I appreciate mix is a tailwind, but what are we seeing from pricing standpoint? And maybe if you can't be specific at the revenue line, are we at a point where we are pricing through all of the raw mats and kind of logistics cost? Can you talk a little bit about the price-cost equation in the quarter, please?

I would say it's a fairly dynamic situation right now with cost increases especially related to the disruption in Europe related to the situation here with Russia and Ukraine. But we are working extremely actively when it comes to pricing and we are staying on top of this as we speak. And I would say we have a strong pricing power to start with and then of course it's all about agility and speed in execution. As I said, I'm happy with the work so far, but we of course will have to continue this work because it's a fairly fluid situation on the cost side right now.

Just a quick follow-up to Håkon and then I'll close out. On the cash conversion level, You know, you're sitting at an 80% level on an LTM basis, obviously very weak in the first quarter. I appreciate there was some one-off items there. Are we past the worst now? It looks like we are from an inventory build standpoint. How to think about the cash conversion level in the second half, Håkon? Can we return back to that sort of 100% level that you've been trailing at before we enter 2022?

In terms of the inventory build-up, I think it's fair to say that we have done that now during Q1, especially in order to safeguard and make sure we have all components necessary. Then are we through the worst or not? I think that's difficult to answer, but it really depends on how the supply chain evolves. When we entered this year, we were saying that, okay, it's probably going to be tough in Q1, maybe Q2, but the second half of the year is going to be much easier. And then we have the situation in Ukraine. So I would say that we have done the most part of the inventory build-up, and if we are through the worst or not, then what can it look like second half of the year? I think that depends very much on how the overall supply chain situation evolves.

Understood. Thank you. Thank you. Our next question comes from the line of Andrew Wilson at JPMorgan. Please go ahead. Your line is open.

Hi, good afternoon. Thanks for taking my questions. Can I start with just one on the aftermarket side? And I think it's probably more of a conversation around the consume vault. But I'm just interested if you think there's been any market share opportunities, or indeed if you've taken market share, versus maybe some of the pirate suppliers. I'm just thinking in terms of your customers kind of coming to you, given you have supply. And if that has been the case, do you think that's going to be a sustainable share win, or do you think people will go back to kind of some of these alternative suppliers?

Yeah, so if you look on the last, I would say, the last year, we have been focusing a lot on prioritizing the aftermarket, also in the situation when there's been, let's say, a shortage of components. And we are up on availability, clearly up on availability when it comes to the aftermarket products, which is good to see. And I think we are, I would say that we are taking share in the aftermarket, and we're I think that if we look on this long term, of course, when we can demonstrate the value from our offering, that is the best chance for us really to demonstrate the productivity and uptime and utilization section on our products. So I think we will have a good possibility to be at this new level. And some of the smaller players also, you know, they have difficulties really to manage the situation and to survive long term. So, of course, it's, you know, I'm pleased to see the growth. Of course, the growth is much more than the underlying activity. Look on the aftermarket. So clearly we are taking shares.

Great. And if I can just follow up with a second question. It's just around the demand guide or near-term demand guide. I'm just interested in the positives to me seem fairly obvious with regards to obviously where commodity prices are and electrification and some of the trends we've already touched on on this call and others. I'm just interested in sort of how you weigh that in terms of what do you think of the downside risk when you look to the outlook? Because to me that would seem, from a market perspective, less clear than perhaps the number of positives which we can talk to. So I'm just interested in terms of sort of how you weigh that in terms of thinking about your guide.

But if we look on, as you say, commodity prices or at a very high level, there is also a need for more assets to come on board. We see that with exploration activities. I think the mining industry in general has been underinvested for some years. We also see aging of the fleet continues. So there is a lot of healthy underlying trends for us that will continue to drive demand. And then I would say also the ESG dimension of the mining industry where we we finally see now battery electric vehicles taking off in a really nice way, which is really good to see. We have a number of orders on battery machines now in Q1. So I think, you know, there's a lot of, even if we would end up in a scenario where there will be less of a growth in the world, I still see that the mining industry, there is a healthy situation and healthy demand for us, you know, in the coming years.

Understood. Thank you.

Thank you. And our next question comes from the line of James Moore at Redburn. Please go ahead. Your line is open.

Yes. Good afternoon, everyone. Hi. Hello there. Thanks for taking my questions. I really have two, but they're both about the strong 5.2 billion equipment order. And really, I'm trying to understand the mix of that. I wondered if there's any way you could help us break down what you think is greenfield, brownfield replacement within that. That's my first question. Maybe it would be helpful to go one at a time.

I would say it's still roughly 50-50 with the expansion. That is both brownfield, greenfield and then roughly 50% replacement.

You talked about the autonomous and BEV orders. Is it time for you to perhaps help us all understand a little bit what percentage of your value order intake is now coming from these more advanced machines? Can we assume that you're greater than 10% or are we not at that level or are we materially above that level?

It's still, I would say, small in size, but it's a good momentum. So if you look on quarter to quarter, sequentially, it's a very good development. On batteries. Yes, exactly, on batteries. On automation, that is going strong and has been going strong for several years now.

Is there any way you could help us quantify what is sort of automated, non-automated, and battery versus diesel?

I think we have not shared those numbers so far. But when we look at it from, as I said earlier here, if you look on the technical level of how technically advanced the equipment leaving the factories are, it's more and more advanced machines going out every quarter. which also means that they are prepared for automation, for example, and connectivity.

Thank you very much.

Thank you. Our next question comes from the line of Aurelio Calderon of Modern Stanley. Please go ahead, your line is open.

Hi, good afternoon. Helena Hutton. Thanks for taking my question. I've got to, I'll go one at a time, if I may, please. The first question is around your exposure to Russian. You've quantified 1.8 billion of orders on hand. I wonder if you could also quantify if you have any down payments you've taken against those orders or any off-balance sheet guarantees that you may have for those Russian deliveries?

We do have some advance payments for some of the equipment, yes. We haven't quantified that, but it's a portion of the 1.8, yes.

Okay, thanks. My second question is around market share in OE. I appreciate you've already answered on aftermarket, but on OE, that historical strength that you had in surface railing, maybe lagging a bit more in underground, has that changed at all? How do you see the competitive dynamics evolving in OE, especially in the mix between underground and surface?

But I think it's a very stable situation, stable dynamics among the players. And we see that also on the activities and the orders. It's good growth both on surface and a lot of activities both on surface as well as on underground. I would say it's very much a stable market share landscape.

Great, thank you.

Thank you. Our next question comes from the line of Will Turner at Goldman Sachs. Please go ahead, your line is open.

Hi there. I have a handful of questions. The first one I want to go on in a bit more detail on the working capital developments in the quarter. I know you mentioned how some of it is due to you restocking ahead of or building up a safety stock. But how much of the inventory growth is just down towards to the inflation of your supply chain, which may then become a headwind later on in the year?

So when you say a headwind to the supply chain, do you mean, because we have both kind of, we have the headwind when we talk about our incoming goods, but also when it comes to, you know, getting things out. So it's a bit of a combination there. So what do you mean exactly?

So when we look at the inventories, is it mainly the buildup? Is it mainly the building of the stock or is it just inflation of inventories as well? Like if you could break it down a little bit more granularly.

What I'm, What I try to say is it's both. I mean, our components that we are buying have increasing costs. So from that point of view, you know, we get the items on inventory, you get actually higher inventory value. But on top of that, we have also deliberately then filled up a little bit more than we would otherwise have done in terms of just making sure we manage the very rough supply chain situation we have right now.

It's a mix. Okay, great. And I guess more broadly, going forward, would it be reasonable for us to expect lower operating leverage going forward, given the comments on, for example, higher R&D? There could be a less favorable mix if we do start to see greater greenfield activity from miners. and then also comments on travel expenditures recurring in the second half of the year. Do you think, from our perspective, it would be reasonable to set that operating average to lower?

Not really. I mean, we also talked on the positive side. We are working actively with pricing. Helena has talked a lot about good demand for our battery-driven vehicles, etc., And also, I think we demonstrated that quite well this quarter. We had a very good flow through around 35% or something like that. So not necessarily.

Okay, great. Thanks.

Thank you. And our next question comes from the line of Andreas Koski at BNP Paribas. Please go ahead. Your line is open.

Thank you very much. I can start with a question on your service business. Looking at the sequential growth, I think it was 6%, but I would assume FX accounted for a fairly large part of that. So could you elaborate a bit of what you're seeing in terms of sequential demand for volumes or organic growth? The reason for asking is of course to better understand what kind of year-over-year development we should expect in the coming quarters when comparables are getting tougher. Do you think you will be able to continue to grow double-digit?

I think if we look on, you know, we have been growing very nicely, you know, for several quarters now on service. If you look on the actual activity levels, there is, of course, a completely different level as such. So what is supporting the growth is very much us then taking new service contracts, and it's also growth of service products. So there is a component here when it comes to midlife rebuilds. when it comes to, you know, engineered solution. And now we also have the service products where we can redo a diesel machine to a battery electric, etc. So, of course, that type of orders will be, you know, not the same every month and every quarter. So I think it's a little bit, you know, maybe historically we looked at this as, you know, when you had only service contracts and selling parts, It was one type of dynamic, but now we can have really nice quarters as well with good growth coming from service products, which will be that one quarter and it's not that you will actually have the same quarter afterwards. So I think that is important to keep in mind when looking at it and comparing quarter by quarter.

Okay. And then secondly, I know there has already been a discussion about pricing, but where have you been able to push through the largest price increases? Is that on equipment or on the aftermarket business? And could you also give us a better understanding of what your cost inflation was relative to your price increases? Thank you.

I think, of course, you know, from... If you look on, we're turning the aftermarket orders into revenue quicker than we're turning equipment orders into revenue. So we are more agile when it comes to pricing in the aftermarket than we are on the equipment side. So that's the answer to your first question there. And as I said, on the cost increases, it's very much... It's complex and it's a fluid situation, I would say, especially the last two or three months here. And I would say specifically now since the situation here in Ukraine and Russia. So to be very active and work with dynamic pricing is key to make sure that we can compensate for the cost increases. And so far we have managed well.

And then a very quick one on the cash flow statement, and I'm sorry if Håkan mentioned this and I missed it, but the capital gain losses and other non-cash items line of minus 196 million SEK in the quarter, what was that related to?

I did not mention it before, so it's a valid question. Let me get back on that.

Okay, thank you.

Thank you. Our next question comes from the line of Vlad Sergeevsky of Bank of America. Please go ahead to your line.

Yeah, good afternoon. Can I start with a few quick clarifications on your Russian and Ukrainian exposure? So firstly, you mentioned 900 million roughly orders from there in the first quarter. Was there any large orders within this 900 million? Then secondly, when I look at the backlog, which you disclosed, 1.8, is it primarily for 22 execution or that's stretching beyond it? And finally, what's the kind of conflict level of book and term in those two regions, at least the rough level you could potentially give us?

On the first one, there are no large orders towards Russia and Ukraine in Q1. Can you repeat the second question? I think we cannot really hear it.

Yeah, absolutely. So 1.8 billion of backlog. Is it primarily for execution in 2022? Yes. Yes. That's great. And final point on that. What's the pre-conflict level of Bukantan, including services in those two regions, either within orders or within revenues, let's say per quarter?

So we had a revenue last year of 2.4 billion in Russia and roughly 300 million in Ukraine on orders that have been somewhat higher which has built up these orders on hand. But the exposure, if we look at what we had last year, 2021, it was 2.4 for Russia and 300 million for Ukraine.

That's very helpful. And the final one from me. If you can potentially talk about the order growth, please.

into your end market infrastructure and mining where the growth was strong if you potentially quantify the growth between those two end markets so we see strong activities in both infrastructure and mining if we start with infrastructure it's good activities both on equipment as well as on on the aftermarket and attachments mainly in in north america in europe If we look on mining, very strong activities related to copper, gold and iron ore. So it's positive, I would say, overall. And all regions.

That's great. That's very helpful. Thanks very much. Thank you.

Thank you. Our next question comes from the line of Christian Hindraker of Liberum. Please go ahead. Your line is open.

Yes, good afternoon, Helena, Hakeem, Matthias. Thank you for squeezing me in. I've got two questions, if I may. Firstly, as a follow-up on pricing, obviously the value-based strategy is well noted, but interested to understand if you've implemented any temporary price measures, maybe surcharges for raw materials that could roll off as inflation eases. And by extension, I'd be grateful if you could talk a little bit about what you're expecting in the quarters ahead with regards to your price planning and inflation. And then my second question is on T&A. You've had three quarters now with margins above 18%, which is obviously a very solid step up from a 13% average in 2019 and 2020. Clearly, we've got very strong underlying demand at the minute. And I'm just interested in how you see that margin in terms of its sustainability under what might be perhaps a more normal or less strong stage of the cycle in 2023 and beyond. Thank you.

So if we look on the way we have been working with pricing during last year and in Q1 is very much the traditional way of working with pricing, but we are also looking into temporary surcharges for the coming quarters. When it comes to the margin development for tools and attachments, I'm pleased to see now we have three quarters, about 18%, which is a clear step up. We have done a lot of cleaning up in the portfolio, also in the manufacturing footprint, etc. So I think we have a new level. Of course, we need to work hard to stay on this level, but the focus for that division now is very much in the growth. I think when we were Not performing so well on the modern side. We were hesitant to grow too much because it was diluted for F-BROC. But now, of course, it's a different story. So focus is very much growth.

Very good. Thank you.

Thank you. And we have one further person in the queue. That's Patrick Hussef of Darkens Industry. Please go ahead. Your line is open.

Yes, hi. Can you hear me?

Thank you.

I have two questions regarding the Russian order backlog. Could you elaborate on your discussion with Russian customers? How long can Russian mines operate given that you and others such as Sandvik have stopped delivering to Russia at this point?

Yeah, so we have stopped deliveries to Russia since 1st of March and it is a very fluid and complex situation with changing landscape when it comes to sanctions. And as Håkan said as well, challenges on both the logistics and on the financial transaction side. So I think it is too early to say, to be honest.

Okay, and the second one. How do you ensure, given this situation, that no deliveries arise in Russia via detours, so to speak?

No, so we have very strict control of and monitoring this from group level to make sure that there is no deliveries to Russia, you know, from any other country in the group. So we are monitoring this very closely.

Thank you.

Thank you. And as there are no further questions at this time, I'll hand the floor back to our speakers.

Okay, great. Thank you all for participating at the Q1 conference call and wish you