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.

So then to sum up the quarters, so we have seen a strong demand within mining, represented 78% of our orders. We saw organic growth for both equipment as well as service. We landed large orders in the size of 820 million, out of which two of them were for connectivity, wireless connectivity. A mixed infrastructure demand with a solid demand for tunneling and civil engineering and weaker demand in construction. Record high revenues and reduced inventory. That's good to see. Margin being impacted by the weak construction and revenue mix, but the actions start to bite and we continue. Record high cash flow of 4 billion in the quarter, and most importantly, proven innovation leadership and value creation for customers. So looking ahead, we expect in the near term that the underlying mining demand, both for equipment and aftermarket, will remain at a high level while the demand from construction customers is expected to remain weak. Perfect.

Thank you very much, Helena and Hortan. Good presentation and very quick, and I know we have a lot of questions. So operator, you may please open the line.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Gustav Schwen from Handelsbanken. Please go ahead.

Yes, hello. Thank you. Gustav from Handelsbanken. I have two. I'll take them one by one. If we start with the total attachment margin, I'm struggling to understand the sequential development here. I guess it looks like you have some seasonality historically, but that has typically been on lower deliveries as well, which is not the case this year. I guess the magnitude has also been a bit smaller. With the similar M&A dilution as you have in Q3, How do we get to the 300 bps lower margin sequentially? Is there some mixed effect? Are there specific costs to point to, or is there something else that sticks out? That's the first one.

Okay. So I would say there are two reasons. One is decisionality, as you mentioned before. We usually are a bit weaker in Q4 from a margin perspective within tools and attachment. And then the second one, we had some – I call it partly one-time related cost in the business. When we look into what we can do more efficiently overall in the business, we also encountered some one-time related cost in Q4, which we should not have in Q1 again.

Right. Do you want to give us a rough sense of the magnitude there?

I would say they're at least meaningful enough that we mention them now. I mean, we all, you can say in all quarters, we have some cost, which we don't expect that, you know, if you run a big company, that will happen. But in this quarter, for tools and attachment, they were definitely larger than they would be normally and therefore should not be repeated in Q1.

All right. Secondly, on the equipment deliveries, which were strong in the quarter, I mean, you're obviously mentioning more normalized lead times. You've had an equipment book to bill under one for the past year. But when I look at the difference between orders and sales in the past, thank you.

I think we have been struggling with this, is the output, as we have said in the last stage. There is still more equipment on its way out. When you look at the, we'll say, the book to build on equipment, also remember that some of the, we have taken quite a lot of large deals, and they usually have delivery plans which could be over several years. So that is always something to consider when we talk about large deals. So it's not that all of that will materialize in six to nine months.

All right. Thank you.

Thank you.

The next question comes from Michael Harlows from Morgan Stanley. Please go ahead.

Thank you for the presentation and thank you for taking questions. I was wondering if you could tell us a little bit more about the weakness that you expect in construction markets. Would you think that it is realistic to expect those markets to inflect at some point during the year, might be H2, not H1? And then if you could also update us on your acquisition strategy. Are there some areas in the business that you would like to reinforce through inorganic growth? Thank you.

If we take the construction, which is then mainly related to housing and deconstruction, there are two components in this. So we have seen, you know, clearly lower demand, you know, through the year. we don't near term see an uptick in demand. However, the depletion of the inventory that has been there in our channels, that was a reduction of inventory starts to come. It's not finalized yet, but at least for every quarter we're coming closer to that, which of course will give us better absorption in our factories, etc. When it comes to The acquisition strategy, we have done a lot of acquisitions the last couple of years. When we look at what we are always evaluating, it's things we can do to strengthen our position within these three technology shifts that are shaping the industry, so within automation and electrification and digitalization, but also aftermarket. to strengthen the aftermarket. So it's no change in M&A again, but I would say smaller bolt-on acquisitions, that's what we're looking at.

Thank you. That was very helpful.

The next question comes from Chitrita Sinha from JP Morgan. Please go ahead. Good afternoon. Thank you for taking my questions.

My first one is on Stanley. So last quarter, the profitability was around mid-single digit. So can you comment on how that has developed in the Q4? Is that broadly stable? And whether the impact of the inventory step-ups that you mentioned previously is done now?

I can take that. Yes, the impact from these step-up values that is now done after Q4. Second, or rather on your first question, actually, in terms of profitability, some of those one-time related costs that I mentioned on the tools and attachment as such was within Stanley infrastructure. So from that point of view, sequentially, it was on the lower level.

Understood. Thank you. And then I have a follow-up on just the question on infrastructure demand. Could you please comment on the regional development between North America and Europe? Is there anything that regionally is changing, or is it broadly stable sequentially?

I would say we see the same pattern both in the U.S. as well as in Europe. For us in Europe, it's Germany and France that are big markets for us, but I would say it's the same pattern. There's a little bit difference on different type of products that has been used in these two markets, and therefore we see also this inventory reduction is happening at a different pace in the different parts, if you compare Europe compared to U.S. But overall, I would say it's a slow environment when it comes to housing. Thank you very much.

The next question comes from Class Berglind from Citi. Please go ahead. The next question comes from Edward Hussey from UBS. Please go ahead.

Hi there. Thanks for taking my question. Just going back to the margins within Stanley. So acquisitions of 4% relative to TNA this quarter, 3.9% last quarter. Obviously last quarter you also had some one-offs relating to restructuring. Plus this quarter you would probably expect that inventory effect to be less negative and you would expect some positive effects from the restructuring to begin to come through. So I'm just wondering if you could just try and explain underlying why it is that it's got worse. I mean, was it purely these one-offs? And if it was, can you just give us a bit more help in terms of what this one-off actually relates to?

I would say it's these one-offs, but also that Q4 is normally seasonal, you know, a week, a quarter. And that has been the trend for, you know, within this segment. Also, you know, many years, you know, over the years with our attachment business.

And I would say for the actions we have taken within Stanley, for example, then consolidating three sites into one, we will start seeing the impact of that in 2025. We have not really seen that so far.

Okay, thank you. And I guess on that inventory point as well, I mean, you say it's now done with, but was it a worse effect in Q4 than it was in Q3?

No, it was similar.

Okay, thank you very much.

Thank you.

The next question comes from Klaas Bergland from Citi. Please go ahead.

Here we go. Hi, Helena Håkan-Karin, Klaas at Citi. So first on the drop-through in ENS, Håkan, it's now positive year-over-year against the easy comp of last year. You're doing around 17%. I had a little bit more than that, which would have been sort of a flat. I'm just trying to sort of bridge that as service versus equipment was in line with my forecast. I am now in balance. So on the mix in service, so did circular and digital grow much faster quarter on quarter versus parts and kits? I'm just trying to understand if the service mix, i.e. within service, worsened, if we can start there.

The simple answer would be yes. It's not huge, but slightly yes.

Are you seeing any sort of pickup on the parts and kit side? Because you see a lot more activity at the miners on copper production. They're beating estimates and so forth. Or is that too early?

I would say that that is, you know, that is, of course, something always that, you know, this is to drive customer share. So I wouldn't say that it's... maybe not related so much to the actual use of the equipment. There it's more, I would say, the larger components and the larger rebuilds that are, I would say, more tied to that. So I would say this is more our own, I would say, ability to grasp that customer share of pure parts.

Okay. My very final one is on perhaps a little bit more big picture question, Helena. When you look back at the M&A that you've done, of the last couple of years, first on the software mixed fleet automation side. Do you feel that you now have the right platform to grow from, that it's now perhaps more the focus to move more to a combination of growth and modern improvement rather than doing much more M&A in software? And maybe the same question on construction. Should we see Stanley infrastructure maybe as an outlier given the strategic nature of getting better indirect foothold in North America? Or are you keen on more construction led M&A? The questions reflect very much the conversations we have with investors that are wondering about the M&A strategy.

We have a very good platform now when it comes to the digital side. And it's, of course, it has taken us some years to put the full assortment together. and also to scale, but I'm super pleased to see now that we are up 30% on orders in 2024 on digital solutions. So I think this is, now it's time to start harvesting this and really get the scaling going. On construction also with the Stanley acquisition and ACB Plus I would say as well, we have a very good now, platform to leverage for organic growth moving forward. So I don't see any big acquisitions within software or within construction moving forward. I think we have a very solid platform now. If anything, it will be to add on smaller things, built on things, but I think we have a very solid platform now to really focus on organic growth moving forward in these segments.

That's good to hear.

Thank you.

The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.

Yes, good afternoon, everyone. I wanted to start on the gross margin, 34.7% on my math. That means it's only been lower twice historically, second quarter of 22 and fourth quarter of 17. Is that entirely the dilution impact on Stanley and the mixed discussion or is there something else that I've missed?

I'd say it's to a large extent a few factors. Stanley, as you mentioned, mix, maybe not sure exactly which mix you refer to, but I would say there are two mix components. We have a high share of equipment in this quarter, same amount as we had in Q4 last year, but clearly higher than what we had in Q3, for example. So equipment mix is definitely one. And then the third one then would be the service mix that we talked about earlier when we discussed more here.

And then maybe moving down the P&L, if we just talk about SG&A, I think it was $2.5 billion versus $2.8 billion in consensus. Can you just talk a little bit about what proportion of these costs are volume-driven versus volume-agnostic? Just want to understand whether $1 billion is now for each of marketing and admin costs a reasonable run rate given the cost actions you've taken.

I would say, Don, They are short-term. They are not so volume-driven. Obviously, long-term, they are as we grow the business or make acquisitions, et cetera. But in a quarter or in a half year, they are not very volume-driven.

Thank you. And then maybe just finally, just these one-off.

We can, especially if you think about SG&A, if you also add there, when I show this graph, it also includes R&D. R&D, obviously, that's up to... what budget Helena and myself gives the division so that we can choose to pull down if we would like to. But obviously, we'd like to invest in innovation, so we still allow them to spend that money on good and useful R&D.

Sure. Understood. And maybe just finally, just these one-offs you mentioned, the property sale, and then also I think you talked about one-offs in T&A. Can you just explain why the property sale wasn't a one-off? And then in T&A, if there was a margin impact, why is the reported and adjusted margin for the quarter both at 8.4%? I didn't clarify that.

Thanks. Sorry, both of those were last year. Sorry, it's a problem now we went to 2025. Both of those were in 2023 in Q4. So we had a positive impact in 2023 from selling this property in Japan in the equipment and service segment, and we had a negative impact in the tools and attachment segment when we took the restructuring cost for SM in Q4 2023, not in Q4 2024. Then in tools and attachment, we had no items affecting comparability.

Understood. Thank you.

Good.

The next question comes from John Kim from Deutsche Bank. Please go ahead.

All right, good afternoon. I'm wondering if you could comment on what you're seeing in the Stanley book of business right now and if we could expect kind of more formal guidance on synergies on that business. Is it too early? Is it going to come through as you execute the strategy? How should we think about that?

That was Stanley asked about synergies for the Stanley business, right? Yeah, so Stanley, if I look on this, you know, the products are very complimentary. So we had a strong set of products. Stanley Infrastructure came with another set of products. Also the footprint, if you look on our strength in different markets are also different. We have a very strong position in Europe. Stanley had a very strong position in North America. So clearly on the sales synergy, this is in our own hand, and that is something that we are starting to leverage now to really take the, we'll say, the products through maximizing the potential with the channels as well as with a very strong set of the brands that we have acquired as well. So on the sales side, that one is ongoing as well. So that is, we'll say, has nothing to do with the environment that we are in or demand. That is our... us maximizing the potential now we have with these two sets of product lines. And I would like to add to that as well that the acquisition of ACB+, which is then this coupling unit that you put on an excavator to improve the productivity, that is also a very crucial solution when it comes to really driving productivity in this segment. and something that also is going to, say, help our customers to become more productive.

Helpful. Just a quick follow-on to that. If we think about 25 and beyond, do you have a definitive view as to the cost structure you want to employ? How should we think about headcount for production centers this next year?

Yeah, so we have this – The way we are running manufacturing is very much we try to always have additional workforce in our structure so that we can flex as volume goes up and down. That is something that we are always working with. If I look on the, you know, we have reduced over 1,000 employees this year or last year. That is a combination of both in service as well as in manufacturing. in the entities where we see that we have low utilization or lower volumes. So we are very precise, but we're also consolidating sites, and that is something that we are continuously reviewing to become more efficient and effective long term.

Okay. Thank you.

The next question comes from Benjamin Helan from Bank of America. Please go ahead.

Hi. Afternoon, guys. Thank you for taking the question. Sorry to ask on T&A margins again, but I'm still a little confused about what some of these one-offs are. So can we just kind of go through them in a little bit more detail because I'm getting a lot of questions on that. I'm not really sure I understand exactly what's driven them. the pressure this quarter. And if Stanley is down again, sequentially in Q4 versus where it was in Q3, it's obviously going to be around a low single-digit margin. It was, I think, roughly in the very low teens from an EBIT perspective when you bought it. So how should we think about the recovery of margins in Stanley in 2025 as these one-offs as you're kind of pointing to them will reverse? Is it going to be a significant snapback? Is it going to take more time? I really would – I think we need a bit more color on that. And then on construction, can you talk about the pricing environment and how the pricing environment in North America has been playing out over the past couple of quarters and how you see that into 2025? Thank you.

Do you want to start? I can start with the T&A margins then. Well, as mentioned, seasonality is one factor. If you look historically, you can see that margins in T&A are usually lower in Q4 than in Q3. And then secondly, we had a number of call-in one-time related costs. It's very much about us trying to become even more effective and efficient in the business going into next year, making sure we're doing the right action, cleaning up a few things, and that did have an impact on the margin in tools and attachment in Q4. But as I said, they were large enough to be meaningful to mention here and we don't expect it to come back in Q1. Then the recovery of Stanley, I'll take that and then I'll leave the last one for you. It obviously depends on the market. Now we have done a lot on efficiency improvement that we expect to see in 2025. We also have this step-up value of inventory. That's not going to happen again in 2025. That's over and done with. So we expect Stanley to improve better in 2025 than in 2024. However, in order for Stanley to get back to where it was the year before we acquired it, we obviously need the market to perform better as well, and that remains to be seen when that will happen.

And on the question of pricing, so these are productivity solutions for our customers and always tied to the value that we add. So I don't see any, let's say, risk of, you know, pricing. We continue to work with pricing, as we've always done in this segment as well, because this is also a very small niche. And that's how we target when we enter into a new segment. We target the attractive niches where we can. work on productivity and by that also improve the value for our customers and work with pricing.

Okay, thank you.

The next question comes from James Moore from Redburn Atlantic. Please go ahead.

Good afternoon, everyone, and thanks for the time. Can I also get back to the T&A margin? Maybe I could try it a different way. Inventory step-up, I understand it goes to zero next quarter. Was the fourth quarter inventory step-up the same magnitude I would estimate, 20 million, in the fourth compared to the third? I just want to be clear that the increased one-off costs are not also bucketed into the inventory step-up bucket. That would be the first question. I've got a few technical ones, if I could.

The simple answer on the first one is yes, it's been the same in all three quarters, so yes.

That's great. And is it the same for the PPA that's the same in all three quarters?

You mean the intangibles, the amortization of intangibles, the difference between EBITDA and EBIT? Yes.

Yes. Coming back then to the underlying margin, which is the core of the question, would it be fair to say that the 40 million in the bridge that's allocated to structure acquisition, is entirely acquisition and basically Stanley and ACB. Would that be fair to assume that the minus 40 on whatever the revenue is, about 900 million, i.e. it's a minus 5% margin for the acquired revenues collectively? Would that be a fair assumption?

I think the fair assumption is if you take away the structure thing that we had last year, the SSN that I mentioned for the tools and taxing segment, we had no one-time items this year. So from that point of view, yes, you can do the math.

Sorry, is that the correct math? I'm not sure because there's three buckets inside your – because you don't do an adjusted epic bridge, you do an epic bridge, which always causes the confusions. So we've got to do the one –

Yeah, but what I tried to say was that the items affecting comparability last year was this cost for Essen of 158 million that I mentioned before, and this year we did not have any items affecting comparability in that part of the bridge.

I'm not referring to that. We're just going to the breakouts in the bridge where you talk about minus 40. Is that minus 40 reflective of the acquisitions only?

Okay, now I think I see what you mean, and yes, that would be it.

So you break the 118 down into the three parts.

Yeah, for now, yeah, so that's basically, that's what I tried to say, if you do the math, that's where you get, yes.

Yes, so we're talking about going from a mid-single-digit positive margin, presumably ACB is positive, I don't know, but presumably on pure Stanley, we're talking about going from a mid-single-digit positive margin to a mid-single-digit negative margin, a very big swing. Could you say whether there's one-off cost aspect to that? Is 100 bits, 300 bits, 700 bits? I think people would like to have some clarity on what is simply the one-off aspect dropping out and what the underlying EBIT margin of standing is looking like in the quarter before we sort of turn to the question of what the true underlying profitability improvement is.

Yeah, it's not only Stanley. It's also ACB Plus is part of the acquisitions. So you have both those companies in there. And ACB Plus, as Helena mentioned, the main market for us, Germany, France, U.S. France is also, from a construction point of view, weak. And Q4 in Europe, seasonally weak as well. So you have both of those companies in there.

And the rough magnitude, could you actually provide the magnitude?

No, we prefer not to split those acquisitions. We normally don't. But you can judge by the size of them if you look at the revenue. Obviously, Stanley is more impactful than HB+.

Maybe I'll just try another way. Sorry to keep going on. Stanley margin potential. that I think you believed you could get back to a double-digit margin at some point during the course of this fiscal year. Do you still believe that you can do that?

Yes, it will still be long-term that we can get back to. And, of course, we see fantastic opportunities when it comes to sales synergies Right now it's a tough market environment and we are taking the actions that we need to take to adjust and be ready for when the market starts to take off again. But there is more we can do just to work on the synergies between the previous offering we had in FBROC and the offering we now have with the Stanley infrastructure products.

Thanks very much. I do appreciate it.

Thank you. Thank you, James.

The next question comes from Magnus Kruber from Nordea. Please go ahead.

Hi, Lena Håkan, Magnus Nordea here. Two questions for me, and I'm sorry, I'm going to revert to the same topic. Could you talk a little bit about the nature of the TNA1? Is it purely operation, or is there any provisions in there which could sort of... indicate that there is some cost of going through 25 that we could benefit from at some point.

Pure operational, I would say. What I think you mean is if we have taken cost now, that we'll have a positive impact later on. Yes, that's the case. If that's what you meant, Magnus, right? Yeah, exactly. That's right.

And then separate also good to see that you have good orders in the digital business. I think it's at 30 or 34% in the year. So how much further do we need to scale before this stops to be sort of a mixed headwind? Do we need another 30 or are we talking about 100 or how much extra do we need?

But I think we start to, what we see here now is, you know, that we have a very, as I mentioned earlier, we have a full offering now. So it's... It's not that we're scaling each and every component of this. We manage to bundle the solutions now, and that's also why the scaling goes faster. So the deals we are negotiating when it comes to digital today consists of many components of our offering. But we believe in this, you know, both long term and I would say mid to short term, the digital, to digitize mining is one of the, I would say, fastest way to improve productivity for our customers. So it's more a matter of our ability to scale it and use our global footprint in the different markets. But I'm really pleased to see the traction, and we will continue to push this a lot during 2025 as well. So here it's about growth. It's about we see huge potential when it comes to growing this business. And, of course, with scaling comes also, we'll say, the flow through.

But how much is that? How much do we need? Is it a doubling we're looking at? We have to get a kind of understanding of how long this mix issue will be with us.

I think, you know, if you look on, you know, I think with the orders received, we have, you know, the increase in orders received, of course, that you will start to see, that will start to be shown in the impact during 2025. And hopefully we will continue to outgrow with this business and really, let's say, and that, of course, will continue then to deliver better and better. Scaling of digital businesses is, that's, That's the trick there because it's not really more cost-related when you scale.

Thank you so much.

Thank you.

So me again. Karin here. No further questions, but I'm sure you have a lot of thinking to do. So Helena, Håkan, and I, Alexander as well, we will be ready for you. If you have questions, please reach out. Some of you have booked calls. We will take them in proper order. And then we have some booked calls in the afternoon. But please reach out. I'm sure we will help you further onwards. Thank you very much, and we wish you successful investments, all of you. Thank you.

Thank you.