Epiroc AB (publ)

Hello, and a warm welcome to the EPIROC Q4 and full year results presentation. My name is Karin Larsson. I'm head of IR and media here at EPIROC. And with me today to present the results, I have Helena Hedbom, CEO, Hortan Folin, CFO. As we have a lot to present today, and you online, you already know the procedure, we will start without further ado. So please, Helena, the stage is yours.

Thank you, Karin. So I will start with the highlights for 2024. So we achieved record heights for orders received and revenues with an overall good demand for our equipment and services. The growth was supported by acquisitions, but also the strong development within mining. The demand for drilling equipment and tools for infrastructure projects was solid, but the demand for attachments used in construction was weak. The operating profit margin decreased, impacted by mainly the weaker construction demand and dilution. Obviously, also the higher proportion of construction following the acquisition of Stanley infrastructure is impacted, and so does the strong growth in strategic growth areas, such as service agreements and circular services with more labor contents, as well as digital and automation solutions. In total, we had an adjusted operating margin EBIT of 19.8%, a level that we are determined to improve. During 2024, we executed efficiency actions according to plan, and both Håkan and I will tell you more about this later on. As we enter 2025, EPPROC stands strong to grasp the next horizon of profitable growth in strategic growth areas. We have increased our portion of recurring and resilient revenue streams by having more service agreements and closer collaboration with our customers in areas such as automation, digitalization and electrification. So let me tell you more about our achievements within automation. We increased the number of driverless machines by 21% in 2024, and the automated mixed fleet number now exceeds 3,450 machines. So it is pleasing to see that our customers trust our abilities, which have translated into a strong demand for solutions for mixed fleet automation for all types of driverless machines. And the demand has been strong for tele-remote solutions, for fully automated drill rigs, as well as for mixed fleet solutions within load and haul, which is very much fleets consisting of other OEMs machines. We also had strong growth for our digital solutions. And if you joined our capital market stay in September, you might recognize this slide. In 2024, orders increased by more than 30% for the digital solution division. And our safety solutions are world-leading, and I and we, we feel proud to make our customers' operations safer. Because in the end of the day, to come home safely after work is what matters the most. Also within electrification, we have had good progress in 2024. The electrification revenues of group total were 4.2%. And we have noticed that our first movers are happy with their BEV fleet with utilization more than doubling in 2024. In total, 39 mining sites globally have ordered battery electric equipment since we launched our 2018 generation of BEVs. And of the sites with BEVs in operation, 28% have already ordered more. And let me be clear, our electric trucks, loaders, and drill rigs are designed and purposely built to exceed the productivity of the diesel versions. And the vast majority of our orders within electrification are for these new innovative machines. But we do also offer conversions. but that's when you take an old diesel machine and make it electric. But that is a small portion of the business today, and the productivity gains are not comparable with the purpose-built machines. 2024 was also a good year when it came to product launches. We know that different customers have different demands and need different solutions. And some of the products launched during the year where the mine truck MT66S eDrive, which has an electric drivetrain and is powered by the strongest engine yet in EPROC's lineup of underground mining trucks. It is 11% faster up ramp versus previous versions. And the mine truck MT42SG Trolley, which combines the power of a battery electric mining truck with a trolley system, leading to new level of productivity gains. It's up 50% faster than the diesel equivalent. And we have also launched more pure BEVs, the ScoopTram 18SG and SmartDock D65BE, both more productive than their predecessors and ideal for tough conditions and large mining operations. And finally, then, the PitViper 271E, which is an electric high-performance rotary blast hole drill rig designed for surface mining applications. So, moving on then to Q4 2024. The mining customer demand remained strong, especially for solutions within automation and digitalization. Our large orders amounted to 820 million and included two large orders for wireless connectivity solutions for mines. Robust and reliable wireless networks are crucial for supporting mining automation and digitalization, which are strategic growth areas for us. Our tools division also had a good quarter driven by mining customers. The demand from infrastructure customers was mixed with solid demand from customers within tunneling and civil engineering, whereas the demand from construction customers remained weak. In total, our orders received in Q4 increased 12% to 16.2 billion, and we had 5% organic growth. Again, the demand from mining customers was strong, while it was solid in infrastructure and weak in construction. Our acquisitions growth was 7%, mainly relating to the acquisition of Stanley Infrastructure, which came into the books on April 1st, 2024. As we have already covered the topic of innovation, I would like to speak about the aftermarket, which is another strategic area for us. So by providing reliable aftermarket support, tools and attachments, we can build and maintain strong relationships with our customers. And it ensures that customers can maximize the lifespan and efficiency of their equipment. And in aftermarket, we also include digital solutions that enhances the equipment's performance and safety. And in the quarter, our orders were driven by a high mining activity level with particularly good demand for digital solutions and tools. And the organic growth for service was strong at 7%. The weak construction market did, however, impact the orders, mainly the attachment business. In total, the aftermarket represented 63% of the group's revenue. Regarding operational excellence, we continue to implement efficiency measures. Sequentially in Q4, we reduced the workforce with another 135 people. So in total in 2024, we have reduced our workforce with around 1,135 employees. And further measures are ongoing. But I would like to emphasize here, as we have said previously, that in a growing demand environment, as within mining, it's really important to be very specific in the efficiency measures we take because we need to safeguard and make sure that we still remain the preferred productivity partner for our customers. On the inventory side, we had sequential reduction of inventory with about a billion. which is partly driven by our improved work in final modifications. We have done a good job in this and the lead times are back to more or less normal levels now again, which means six to nine months. On people, we continue to focus on a strong safety culture and we have improved our safety score further. And we will never compromise on safety, and I'm glad to see that our actions have led to further improvements. Our employees in absolute numbers increased, which is because of acquisitions, and year end we had 18,874 employees. Another achievement is that we have increased not only the number of women, but also the proportion of women. We have made particularly good progress in markets such as Brazil, India, South Africa, Australia, and Mongolia. Moving on to the planet part then, we have reduced emissions from operations with another 9% on rolling 12 basis, and we do a lot of efforts here. For example, higher share of renewable energy. and installations of solar panels at our facilities. Our emissions from transport increased 8%, which is mainly explained by more aftermarket deliveries, including air freight. In the quarter, Time Magazine and research firm Statista named EPROC as one of the world's best companies in sustainable growth 2025. In total, 500 companies were evaluated based on financial growth and environmental stewardship, including metrics like carbon emissions, water consumption, and renewable energy use. And EPROC was ranked 166 overall, and among Sweden-based companies, EPROC was the highest ranked. So before handing over to Håkan, I would like to thank all colleagues. Your hard work and dedication has brought EPROC closer to achieving our 2030 sustainability goals. So Håkan, can you please run us through the financials then?

Absolutely. Thank you, Helena. So let's start with the group revenues and EBIT. The revenues increased 11% to 17.3 billion, and this is a record for us, and it was up 4% organically. Our EBIT was more or less flat at 3.4 billion, impacted mainly by the weaker construction market, but also by the strong and very positive demand for our solution in strategic growth areas. Helena mentioned the digital solution business before, and that's definitely one of these areas. The adjusted EBIT margin was 19.7%, and acquisition diluted this margin with 1.4 percentage points. If we then look at the bridge, in Q4 2023, we had a reported margin of 21.5%, and we had no organic margin contribution this year. We actually had contribution in absolute terms, but not from a margin perspective. Currency gave us a small positive contribution while we had negative margin impact from structure. And last year, we had a large positive structure impact, and as this is a bridge effect, we reverse it now in this quarter, and therefore, you see this negative impact. I will tell you more when I present the segment what this relates to. In total for the group, we ended with a margin of 19.9%, and with an adjusted operating margin of 19.7%. And I said before, the decrease compared to last year mainly due then to the dilution from acquisitions of 1.4 percentage points. Moving on to the segment and starting with equipment and service, the strong mining demand also translated into orders. And it's easier to think that this is mining exposure only, but we do have rigs for use in tunneling project and in queries. which means that the mixed demand within infrastructure that Helena mentioned before also impacts here. And the demand from customers engaged in projects relating to infrastructure and civil engineering, that was rather flat, whereas the activities within quarries from which you take out rock for construction was weaker. In total, the orders were up 5%, and that was also the organic development in the quarter. Our large orders were around 140 million higher this year, and it's particularly pleasing that we have 250 million in digital solutions orders here that we define as large. And it's a proof point that our offering is appreciated by our customers that are keen on adapting to the new technology trends such as automation. If we look at revenues for equipment and service, they increased by 6% organically to 13.3 billion. The operating profit, however, was down slightly to 3.1 billion. And in this number, we have another earn out for the acquisition of RCT, which is a sign that this business is performing very well. And RCT is mixed fleet automation. Moving on to the bridge then, in Q4 2023, equipment and service had 25.6% in margin. And in Q4 2024, we had a margin of 23.4%. And the main reason for the change lies within structure. So last year, we had the capital gain from a property sale, or last year in Q4 2023 actually, and that is now being reversed in the bridge. Organically, the strong growth in, for example, digital solutions and circular service is impacting the margin mix negatively and within service then specifically. So year on year, you see that the organic margin contribution is negative. And when we started the year, we spoke about inefficiencies and cost. We have taken actions. We have executed according to plan. The adjusted operating margin when we exclude items affecting comparability improved to 23.6% from 23.3%. And we are improving both year on year, but we're actually improving sequentially as well within the segments. Moving on to tools and attachment, here we had mixed demand in this segment. We actually still achieved the positive organic growth of 3%. The total order growth was 39%, mainly explained by the acquisition of Stanley Infrastructure. The orders received amounted to 3.9 billion, and sequentially they were up 5% organically. So, with an organic growth for the first time since Q1 2022, and the positive also sequential growth, are we now done with the construction weakness? Well, this is hard to say. In this segment, we also have the tools we deliver to mining customers, and that is compensating the weak demand from the construction customers, and it's actually therefore we have the organic water growth in this segment. The revenues in tools and attachment increased 30 percent to 3.9 billion, which actually corresponds to a negative 1 percent organic development. The margin was 8.4 percent, both the adjusted and the reported, and it was impacted by dilution from acquisitions, which was 4 percentage points, and mainly then relating to Stanley infrastructure. The bridge in tools and attachment is It's rather straightforward. We had an EBIT of 8.1% in Q4 last year, and in Q4 2024, we ended up with 8.4%. Organically, it was down, explained by the construction market weakness, which is then impacting the attachment. Tools, on the other hand, supported by the strong mining environment, had a good performance. And I just mentioned that we had four percentage point dilution from acquisition, but still you see 1.2 percentage point positive in structure. And the reason here is the bridge effect. In Q4 2023, we took cost of 158 million related to the closure of the manufacturing plant, and they are now being reversed in the bridge, and therefore you get that impact. So coming to one of the most important slides, how are we doing then in terms of controlling our cost? Year on year, we are up in absolute terms. We should remember that we have increased our investment in R&D, and if we exclude acquisitions, we have actually reduced the cost by 2% compared to the previous year. So I would say that we are seeing that some of the actions we have taken are starting to kick in. Sequentially, we are also up, and a part of this is explained by seasonality, where we normally have higher costs in Q4 than we have in Q3. Net financial items were 301 million, which is considerably lower than last year, even though the interest rate net is higher. And the main explanation for this is currency translations effect. Our tax expenses were 747 million, higher than last year. The effective tax rate is also higher. And I would say this is explained by geographical mix, depending on in which country we are earning the money and what tax rate you have in each country. So how well the company translates profit into cash is important. And in this quarter, our cash conversion rate was 104%, which without any doubt is a very strong number. And our operating cash flow was record high. It increased more than 60% year over year, and it was almost 4 billion krona. And the reduction of inventory due to the strong invoicing of equipment is a really positive contributing factor here to the cash flow. If you then move on to working capital, it did increase year over year. It's up 12% to 24.3 billion. Also in relation to revenues, we had an increase. The main explanation here is acquisition and also currency. So when we look at this year on year, we don't really see any progress, but if we turn the page and instead focus on the sequential development, it clearly looks better. So between Q3 and Q4, the working capital was more or less flat. and our inventory was reduced by 1 billion. Our receivables increased by a billion and a half, and payables increased by, and that's of course given the strong sales we had, and also payables increased by 600 million. If we look at it in relation to sales, working capital decreased sequentially. So this has been a strong focus point. We talked about it many times before, and also onwards, we will keep on pushing for increased efficiency when it comes to working capital. Regarding capital efficiency, we ended the year with a net debt of 14.8 billion, and the increase is driven by the acquisitions we made. Our net debt to EBITDA ratio was 0.93, and sequentially that's down from 0.97. Return on capital employed, 20.6%, and it's, of course, impacted by acquisitions and the associated intangible assets, such as Goodwill. Finally then on dividend, today the board proposed to our annual general meeting a dividend per share of 3 krona and 8 euro to be paid in two equal installments where the record dates are May 12 and October 14. And this equals a cash outflow of 4.6 billion and it's a payout ratio of 53% of the EPS or earning per share. And just a reminder then on our dividend policy, it says that we shall provide long-term stable and rising dividends to our shareholder, and that the dividend should correspond to 50% of net profit over the cycle.