Epiroc AB (publ)

Hello everyone and a warm welcome to Epiroc Q3 results presentation. My name is Karin Larsson. I'm head of IR here at Epiroc and with me today I have our CEO Helena Hedblom and our CFO Håkan Folin. We will do like we always do. That means that Helena and Håkan will briefly present the results before we do a short Q&A session. And that will be done over the phone. All in all, we have one hour for the presentation today. And I know you are all eager to hear more about this strong set of results. So without further ado, Helena, please, the stage is yours.

Thank you so much, Karin. And also from my side, welcome. Yes, it was indeed a strong quarter. Demand remained high. Excluding Russia, the order intake increased 5% organically. The aftermarket developed well with a particularly strong growth in service. Orders up 22% organic year over year. We also won a handful large equipment orders totaling more than one billion, and many of them included automation, digitalization and electrification solutions. And these solutions help our customers to increase safety and productivity, as well as lower emissions, which is critical regardless of business climate. We have published three large orders, but we have also some smaller ones worth mentioning. In Africa, we got an order for our collision avoidance system for more than 60 underground machines to increase safety. And in Australia, GTMEC, one of our recently acquired companies, got their largest order ever for electrical infrastructure solutions for a tunneling project, about 70 million. We also successfully managed to increase the output in the quarter despite supply chain challenges. And this translated into record revenues. We also did well on compensating for increasing cost. And this led to a record adjusted margin. So profitable growth indeed. So we are a productivity and sustainability partner to our customers and together we drive the transformation in the industry. And we emphasize innovation and we continuously expand our offering. And we also complement our innovations with acquisitions that accelerate our efforts. And we have signed five acquisitions this quarter, which shows that we are executing well on our acquisition plan. And we have more in the pipeline. So I will tell you more about innovations and acquisitions later on. Briefly then on the financials, as Håkan will present more details later on. Reported orders were 12.3 billion. And all orders in Russia have now been removed from the order book. Excluding Russia, our orders were 13.3 billion, corresponding to an organic order growth of 5%. Revenues increased 28% to record high 12.8 billion, corresponding to 12% organic growth. And reported operating profit, but also record high at 2.9 billion. We took another provision related to Russia amounting to 150 million and the adjusted margin was 23.9% up from 23.4%, also a record. The cash flow came in at 1.8 billion versus 1.6 last year. Not bad, but I think we can do better on working capital going forward. So now some comments on innovations, attractive acquisitions and partnerships that strengthen our leading position. I will start off with innovations. We have launched our new Boomer E10 and E20 phase drilling rigs, and they are suitable both for the mining and construction industry. So with the tele remote features, the operator can now monitor the machine safely from a control room and still be as much as 25% more productive. Both rigs are available with optional battery electric driveline for zero emission tramming, of course. Another interesting innovation is the auto-bolt reload. In short, it is automation for bolting and it removes the need for manual interference. And this is key for operator safety. Since the end of June, we have been very active on the acquisition front with five completed or announced acquisitions. We started off with RNP Mexico. They developed, manufactures and sells rock drills and related components, serving both mining and the construction customers, mainly in Latin America. AARD mining equipment, they are specialized in low-profile underground machines and they complement our underground offering and strengthening our position in Africa. Then we have Redlink. They provide wireless connectivity solutions. And robust wireless networks are vital to support mining automation, including autonomous and tele-remote solutions and digitalization, which in turn strengthens safety and productivity. Then we have GeoScan. GeoScan provides digital geological imaging solutions to mining companies and complements our current offering within ore body knowledge. And ore body knowledge is very important to make the whole mining process more efficient. And finally, Wayne Roy will strengthen our presence in the North American construction market and increase our capacity for manufacturing advanced attachments in that region. So all in all, this means that we are executing well on our acquisition strategy, which is very pleasing to see. And all these companies will strengthen our market leading position and our aftermarket footprint. So a warm welcome to our new colleagues. And before I move to the next slide, I want to mention our green bonds. We issued green bonds amounting to 2 billion in September. And there was considerable interest and the proceeds will enable us to finance sustainable investments and achieve our sustainability goals for 2030, including halving our CO2 emissions. So now we will take a look at the aftermarket. The customer activity was high in the quarter and our service business developed very well with strong growth. Excluding Russia, the orders for service increased 22% organically and the growth reflects a high activity level, larger rebuilds and a meaningful order within electrical infrastructure, as I mentioned in the beginning. For tools and attachments, the development on orders excluding Russia was more or less in line with the previous year. We do see a somewhat lower order intake for attachments and exploration tools, which were very strong last year. On the positive side, it's good to see that we are reducing our orders on hand and we are shortening our lead times. An enabler to grow our aftermarket is connectivity and the number of machines delivered with connectivity is growing. Another way of growing our aftermarket is to have the most skilled service technicians. And currently we have roughly 6,600 around the globe. And to increase customer focus and build even stronger relationships, we will establish regional parts and service divisions as from 2023. And the regionalization of the service business will also improve internal performance and efficiency. In short, increase operational excellence. And we are in a constant improvement mode, as you know. Over the last few years, we have changed our supply chain. We have created a more focused organization and realized our distribution network. And we have seen some good results despite the challenges within the supply chain. We have improved in availability. We have reduced environmental footprint as we ship less with air freight. And in Q3, we also successfully managed to increase equipment output from our factories. Our ambition going forward is to continue to improve availability, efficiency and inventory cost. We always strive to do better. And that leads me to the topic of sustainability. In a world where speed and digitalization are ever more important, it's vital that we attract the right people to future-proof our organization. And this includes attracting and retaining people that are collaborative, creative, and adaptable. And for this, we need to utilize the whole talent pool And it's pleasing to see an increased share of women employees and women managers in EPPROC. It's less encouraging to see the development within safety. The total recordable injury frequency rate has increased compared to last year. And we are now increasing our efforts even further to bend this trend. And this includes additional training and dedicated task force teams for certain entities. We must make sure that all EPROC employees come home safe and sound after a working day. On carbon emissions, the trend is better. In our operations, we decreased our emissions, and in relation to sales, we also decreased our emissions in transport. However, in absolute numbers, the emissions from transport have increased as we deliver higher volumes. And then a few words on Russia. It has been more than eight months since the war started in Ukraine, and it is truly horrifying. We stopped all deliveries to Russia on March 1st, and it is our assessment that it's currently not possible to conduct business in the country. So all orders in Russia have been removed from the order book, which impacted the reported orders received with one billion. We also took a provision of 150 million in the quarter, which is in addition to the provision taken in the second quarter of 400 million. And the provision is related to receivables, inventories and restructuring cost. So Håkan, please guide us through the financials.

Thank you very much, Helena. Let me start with the operating profit. It was very strong at 2.9 billion, negatively impacted by the provisions related to Russia of 150 million and also a change in provision for the share-based long-term incentive program of 14 million. Adjusted for this, the profit was above 3 billion, which is the highest level ever for Epiroc. On the margin side, we had tailwind from the strong organic growth, but acquisitions and currency diluted. The adjusted operating margin was 23.9%, up from 23.4% last year, and this was also record high. Looking into the bridge, the profit is rather straightforward, with a strong organic contribution. The margin impact from currency, however, might be different from what you had anticipated. Currency was positive in absolute contribution to profit, plus 260 million, but negative on the margin side. And this is largely explained by period end effects when revaluing local inventory. If we then move on to equipment and service, excluding Russia, the orders received were 10.5 billion, corresponding to an organic order growth of 8%. Currency contributed with 12%, while there was no contribution from acquisition. Previous years included order on hand from acquired companies of approximately 3%, and then we reversed that in the bridge, and that's why we get the 0%. For equipment, excluding Russia again, the orders declined 7% organically. As Helena said, we had a handful of large orders amounting to more than 1 billion. And the orders are rather diverse when it comes to metal and geography, but it's clear that our customers seek solutions to increase their productivity, safety, as well as improving their carbon footprint. For service, excluding Russia, the orders increased 22%, and this is of course really strong. The growth reflected a high activity level in both the mining and the construction segment. Revenues were also strong at 9.8 billion, as was the adjusted operating profit, both record high for equipment and service, and the adjusted margin was 26.2%. acquisitions and the regional structure. Helena has already covered that, so I will move on to the next slide. And also here, the profit is rather straightforward. We started with 1.9 billion last year. We add 480 million in organic contribution and then another 159 million from currency. And then we have the structure, which is mainly then the provision related to Russia impacting negatively. Reported operating profit of 2.4 billion and adjusted them for the provisions. It gives us a record high profit of close to 2.6 billion. Adjusted margin of 26.2% was marginally lower than last year. And here the positive contribution from organic growth was offset by a negative effect from currency. Dilution from acquisition was small, around 30 basis points. Moving on then to tools and attachment, and if we exclude Russia here as well, orders received were 2.9 billion, which correspond to an organic order decline of 2%. Last year, one should remember, we had a very strong organic growth of 14%, so comparables are rather tough here for tools and attachment. Currency contributed with 12%, while acquisitions were negative, minus 5%. And again here, previous year in the bridge included orders on hand from acquired companies of approximately 7%, which we then reversed now in the bridge. Revenues increased 12% to 3 billion, and this was almost entirely due to currency. And the adjusted margin was record high at 19.2%. So what has happened then if we look back a year in the bridge? Well, the positive effect year on year came mainly from currency, plus 74 million. Once we add back the provision related to Russia, we have a profit of 583 million. The adjusted margin increased to 19.2%, which is mainly then due to this positive currency contribution. And there was no impact, dilution or accretion from acquisition. So is this margin sustainable, you might ask? Well, we don't provide guidance on margin, but we are very pleased to say that tools and attachments now have five quarters in a row with a margin above 18%. Looking into cost, they are higher. The reasons are a combination of currency, acquisition, and we also continue to invest in the business with more activity in marketing and R&D. The high activity level is also reflected in higher cost for logistic resources as these are including admin cost. However, if we look in relation to revenues, the costs are relatively stable and they are actually somewhat lower than what we saw in Q2. Net financial items were minus 24 million. Last year, they were positive, and there we had a positive exchange rate difference. The interest net was 23 million, and given the overall higher interest rate level, this will be somewhat higher going forward. We had an effective tax rate of 22.0%, and looking ahead, an effective tax rate for us will be roughly between 22 and 24%. We continue to deliver solid cash flow, operating cash flow, and in this quarter it amounted to 1.8 billion, somewhat higher than last year. In the table, we see that the change in working capital was more negative than last year, and I will cover that also on the next slide. And this is the main reason as to why the cash flow isn't even higher than Q3 last year. So on the net working capital then, compared to the previous year and excluding acquisitions and currency, net working capital increased 23% to 7.7 billion. The increase is mainly in inventories, is explained by growth and in combination with challenges in the supply chain. The average net working capital in relation to revenues in the last 12 months is now at 30.4%. It's up from 29.8% last year. And you can trust me, this is very high on our agenda. I feel encouraged by the fact that we managed to increase our output in the factories this quarter, and we strive to continue to do that also in the fourth quarter. Return on capital employed improved compared to last year to 27.9%, and that's an increase of almost three percentage points. Our financial position remains strong. We have a net cash position of 1.5 billion. And a strong financial position allows us to invest in organic and inorganic growth. And we are quite active when it comes to acquisition, as you heard from Helena before. In the near term, we will close and pay for three acquisitions, and also we will pay for the second part of our annual dividend. And actually, this dividend will be distributed tomorrow, 1.5 kronor per share, and in total 1.8 billion. So Helena, that was it for me and back to you.