Epiroc AB (publ)

Hello and a warm welcome to the Epiroc Q4 and full year 2025 results presentation. My name is Karin Larsson, head of IR and media here at Epiroc and by my side I have our CEO Helena Hedblom and our CFO Håkan Folin. As always, they will briefly present the results before we do a Q&A session. You know the drill. Helena, please go ahead.

Thank you Karin and hello everyone. So I will start with the highlights for the year. So with 79% of our orders deriving from mining, I'm glad to say that the mining demand remained robust in 2025. The customer activity was strongest in gold, copper and zinc, while nickel was softer. Over mining exposure, gold and copper now together represents 65% of orders. In the year, our customers continue to prioritize brownfield expansions and productivity upgrades, as well as exploration, especially in gold and copper. Infrastructure, which is 21% of our orders received, was more mixed. Drilling rigs and equipment for larger civil engineering projects showed stable demand, whereas attachments for use in construction work remained weak. On a positive note, the destocking among distributors for attachments came to an end towards the end of the year, and now we are positioning us for growth. Despite currency headwinds weighing on orders, revenues as well as profit, we managed to grow our orders organically in 2025 by 7% to 63 billion and revenues by 2% to 62 billion. And the adjusted operating margin for the year was 19.6%, somewhat lower than in the previous year, 19.8%. And it's explained by tariffs, product mix, and some inefficiencies. So let me, however, be clear. In 2025, we had a strong focus on cost savings and increased efficiency. And in some areas, such as in attachments, we have done well. But in others, we are still working on improving. During the year, EPROC delivered many innovations that enhanced safety, productivity and sustainability for customers worldwide, reinforcing our leadership in automation, electrification and digitalization. And some are built on proven solutions, like the new EPROC PCD drill bits, which is the next generation of the popular PowerX bit. And in this new version, we have seen customers going from 7 meters drilled per standard bit to 400 meters per bit, and often more than that. And with an increased use of automation within drilling, we anticipate good future demand for these type of products. Other innovations that are not upgrades but rather groundbreaking are these. So in 2025 we completed the conversion of the Roy Hill mines mixed fleet to driverless operation in Australia, creating the world's largest OEM agnostic autonomous mine. So what began as a bold vision is now reality. 78 haul trucks and around 250 ancillary vehicles operate now autonomously 24-7 in a mature production scale solution. Underground, we advanced mixed fleet automation at Newmont's Cadia mine, also in Australia, fully automating one production level 1,200 meters below ground using our OEM agnostic deep automation system. And this integrates loaders, rock breakers, water cannons and inspection robots into a single platform, enabling complete remote operations from a surface control room. And the results in both these projects have been impressive. Improved safety by removing personnel from dangerous zones, higher productivity through continuous operation and record-breaking daily tonnage almost every month. At year end, we had more than 3,900 driverless machines, EPROC and non-EPROC machines in operation, which is an increase of 13% compared to 2024. Moving on to electrification and starting with a highlight that includes both automation and electrification. So in 2025 we won our largest order contract ever, 2.2 billion SEC over five years. We will deliver around 50 fully autonomous and electric surface blast hole rigs to Fortescue in Australia. and this includes cable electric pit wipers 271 e-rigs and battery electric smartrock d65 be e-rigs and these driverless machines will be operated remotely from fortescu's integrated operations center in perth which is more than 1500 kilometers away and will increase productivity while also reducing carbon emissions I would also like to highlight the five kilometer battery trolley line inaugurated at Boliden's Rävliden mine in Sweden, based on our mine track MT42SG trolley solution, developed in close collaboration with ABB and Boliden. This innovation is delivering remarkable results. Productivity is up 23%. ramp speeds are up 50%, maintenance costs down by 25% and diesel consumption reduced by 80%. And the energy regeneration during downhill hauls further boost efficiency. Production officially started during the year and interest from other customers is high. In total, our electrification revenues amounted to 3.8% of group revenues in 2025. There are 40 mines globally that have ordered our BEVs, battery electric vehicles, and the majority of our BEV orders in 2025 came from these pre-existing customers. They have seen that the electric solutions bring many advantages, including increased productivity as well as reduced ventilation cost. For example, in the Asmang black rock mine in South Africa, our BEV fleet has led to 11% more tons per hour and has reduced energy cost by 18%. So a final slide of innovations in 2025 before moving into the quarterly results. So safety is at the core of everything we do. And in 2025, we took an important step forward by partnering with Hindustan Sync to implement a digital collision avoidance system in all their mines in India. And the solution combines advanced sensor technology, real-time positioning and intelligent alerts to ensure operators have full situational awareness. It's designed to integrate seamlessly with Epiroc's existing automation and digital platforms, creating a connected ecosystem that enhance both safety and productivity. And on the attachment side, we have successfully launched the Epbrock Insight, a telematics solution engineered to transform fleet management of attachments. So by combining advanced asset tracking with real-time data insights, users get better control and visibility across their fleets. And already now we have more than 5,500 connected attachments worldwide with more than 400 customers. And for us, it means valuable insights to further improve the products as well as to help our customers with proactive maintenance. So looking into the fourth quarter, we delivered a strong performance driven by robust customer activity within mining. Our orders received grew organically by 11% and mining activity remained high, particularly in gold. Organic equipment growth reached 22%, underscoring strong momentum. And our large mining equipment orders amounted to 670 million compared to 820 million last year. signaling continued widespread underlying demand. And also our service grew well organically at 6%. The growth in exploration demand was high, driven by a combination of a stronger exploration market and a leading offering of advanced exploration drill rigs and drilling tools. And demand in infrastructure and construction remained stable, with a health activity level for larger civil engineering projects, whereas the demand for attachment was seasonally low. Our revenues grew 4% organically and our adjusted operating margin came in at 19.6% compared to 19.7% last year. So despite currency and tariff headwinds, we managed to deliver an organic contribution of 0.6 percentage points. So we have been and we are taking actions to safeguard profitable growth and I'm glad to see that our progress, the progress in the quarter. So looking deeper then into orders, in total orders declined 1%, but the decline is fully explained by currency. So organically, our orders increased 11% to almost 16 billion. Again, within mining, customer activity remained high, while the demand from infrastructure and construction customers remained stable. Sequentially, compared to the previous quarter, group orders increased 7% organically, driven by mining. Our aftermarket represented 63% of revenues in the quarter, which is the same as in previous year. We had a good demand for rock drilling tools and service for mining, while the demand for attachment used in construction was seasonally weak. As we are mainly exposed to the northern hemisphere in our attachment business, the first half of the year is normally stronger, with Q2 being the best, while Q4 is normally one of the weaker quarters. Within service, which represents 41% of our revenues, we achieved the highest growth within our traditional personal service business. In total, the organic service revenue growth was 4% in the quarter. Historically, since 2018, we have managed to grow our service business revenue by 8% per year, and we aim to return to these levels. We have a large and aging fleet. It now sits at 8.6 years on average and an increased technological height on the fleet, which supports a good foundation for growth. In addition, we have initiatives in place to capture more of the customer share already in 2026 by working more precisely with pricing, leveraging our alternative offering, as well as find other ways of sourcing. Then we can increase this share. And if you are new to EPROC, let me briefly explain the customer share. It's the proportion of EPROC machines that we serve in some form or another. And the last few years, we have had a customer share north of 50%, whereas roughly a third of the fleet has an actual service contract with us. So there is, in short, good potential to grow. Moving on to operational excellence. Over the past year, we have navigated a complex and demanding external environment. On almost daily basis, geopolitical decisions impact global trade, so we keep on taking decisive actions to strengthen our resilience and drive profitable growth. The negative net tariff impact on our operating margin was just below 0.5% in Q4. And our mitigating actions include optimizing logistics and distribution flows, leveraging our global manufacturing footprint, and adjusting our supply base, including key inputs like steel. Of course, we're also implementing price increases to compensate. and we pay close attention to tariffs news and regulations and we are ready to act if or when things changes we are also consolidating customer centers and production sites and we have during 2025 consolidated sites in germany in us and in south africa and we continue to consolidate and this year we are moving the tools manufacturing site in canada to mexico So to become even more efficient in production, we invest further in India. which is now our fifth largest market when it comes to number of employees. We have more than 1,300 employees in India and we are creating a global production and R&D hub for both surface and underground equipment. But it's not only about producing. India is a rapidly growing domestic market and we are already growing at high double digits there. So our increased footprint can safeguard this growth and our deliveries onwards. Moving on to next slide then, people and planet. So safety first, of course, and we have had good progress during the year on safety. Among our 19,055 employees, the total recordable injury frequency rate decreased yet again to 3.9, down from 4.3 last year. Much of our focus is to increase safety awareness in our new entities as well as for external workforce in production and service. On the environmental front, we achieved a reduction in emissions in operations driven by renewable energy initiatives. However, transport-related emissions rose due to the increased air freight and route adjustments linked to tariffs. Håkan, would you mind going through the financials?

Yes, of course. Thank you. Starting on group level, our group revenues decreased 7% to 16.1 billion. And that's an organic increase, though, of 4%. And here we had currency impacting negatively by 11%. Aftermarket represented 63% of revenues in the quarter, which was the same level as in Q4 2024. So no mix effect between equipment and aftermarket. The operating profit and EBIT amounted to 3.2 billion, and this includes item effect and comparability of plus 58 million, mainly relating them to an insurance settlement gain, but also cost for efficiency measures. And finally, we had a change in provision for the share-based long-term incentive program of minus 4 million. Our operating margin was unchanged at 19.9%. The adjusted operating margin then excluding item effect and comparability decreased somewhat to 19.6% to compare with 19.7% in Q4 2024. And as Selena briefly mentioned, the margin was negatively impacted by tariffs with almost 0.5 percentage point. And this negative impact, despite a lot of efforts ongoing to mitigate, will remain in 2026, although at somewhat lower levels each quarter. However, despite the headwinds, we managed to achieve an organic profit improvement of 0.6 percentage point in the quarter, as you can see in the bridge on the right of the slide. If we then move on to the business area equipment and service, orders here amounted to 12.3 billion, which is actually a strong 13% organic increase and currency impacted negatively by 12%. And to repeat what Helena already said, there was a strong underlying growth within equipment where we had plus 22% organic orders received increase. And the large orders, the ones that are above 100 million Swedish kroner were at 670 million this quarter, which is actually down from 820 in Q4 2024. So with such an increase, but large orders actually at the lower level, it indicates a really healthy and widespread underlying demand. For service, we had an organic increase of 6% and we had here the strongest growth achieved in the traditional service operations. We don't often speak so much about regions, but today I would like to do that. And in local currency, orders received increased with double digits in North America, in Asia, Australia, in Europe and in South America. So in most our geographies. Well, they actually decreased in Africa and the Middle East, but that was against quite tough comparables. And the strong development in North America, which was up 29%, was supported by a large order of automated equipment, including then battery equipment. The nickel exposure, which impacted us quite negatively in the first three quarters of 2025, still remain in Q4 and still remains despite the recent increased mineral prices for nickel. We still have many customers with mines under care and maintenance due to these depressed nickel prices. However, in 2026, we will meet easier comps throughout the year. If we look sequentially, we had an 8% orders received increase organic, and this was driven then by the mining. If we then turn into revenues and also profit for equipment and service, for revenues we had 12.5 billion corresponding to an organic growth of 4%, and also here then a rather negative impact from currency, minus 10%. And the organic increase in revenues for both equipment and service was 4% respectively, which then means that the mix is the same as it was in 2024. EBIT for equipment and service was 2.7 billion, includes 30 million in item effect and comparability in cost for mainly efficiency measures. If we move to the right-hand side of the slide, we have then the adjusted EBIT. That was 2.8 billion and a margin of 22.1%. This is down from 23.6% last year, and here we have a similar margin pattern as for the group, where both currency and tariffs are burdening the EBIT and the margin in a negative way. If we instead compare to the previous quarter, so we compare with Q3, we had a small increase on the operating margin for equipment and service. Moving on then to the other business area, tools and attachment. Orders you see here decreased with 7%, negative 11% coming from currency, which then implies that organically we had a 4% growth for the business area. And in total, orders for tools and attachment were 3.6 billion to be compared with 3.9 billion in the fourth quarter of the year before. The organic growth was mainly driven by mining demand. As anticipated, the demand for attachment was easing the week and again still being at subdued level. Sequentially, we had a 1% increase in organic orders received. Next slide, and we're now at slide 15. Revenues for tools and attachment increased 4% organically and were 3.7 billion. And the operating profit, it increased actually as much as 65% to 537 million, which is up from 326 in the previous year. And this is the highest EBIT ever achieved in this business area. The margin came in at 14.9% versus 6.4% in the previous year, but we did get some help from an insurance settlement gain relating to the acquisition of Stanley. So what was this then? Well, when large acquisitions are made, it's often standard that you have insurance for uncertainties in the valuation of the acquisition. And in this case, we could use this in our favor. If we instead look at the adjusted profit, then the margin was 12.3% to be compared with 8.4 a year ago. And this is then despite tariffs, currency and also continued weak construction market. The organic contribution to the margin was 5.2 percentage points. Much of this improvement is due to the hard work in adjusting the cost base within attachments and also within standard infrastructure. Again, market is still at the low level, but what we see is that we're well positioned to capture market growth and also market share once the construction market turns more positive. And while we are on tools and attachment, I would like to mention already now that this business area has quite an exposure towards tungsten carbides, especially in tools. And the prices for tungsten have more than doubled in 2025. And even if the financial impact in Q4 for us is still low, We are anticipating a margin headwind in 2026 of a few tenths of a percentage point for this business area. Mitigating the actions are already in place. For example, we have accelerated our drill bit recycling program and we have already communicated towards our customers that prices will be impacted and we are working proactively with suppliers both on price and on supply. leaving the business areas and moving back on group level and coming to cost net financials and tax in total the cost for admin r d and marketing were three percent lower and this is due to lower expenses within marketing while r d increased somewhat In percentage of revenues, it was 16.5 versus 15.9 last year. And we are continuously working on being more efficient on all of these cost items. Net financial items came in at 115 million, which is meaningfully lower than last year. Explanation is partly due to lower interest net, but also due to exchange rate differences on interest on that financial items. We had a tax expense in the quarter of 742 million, which is very much in line with last year and corresponds to an effective tax rate of 24.0% in a quarter, which also is then in line with our guidance of between 22 to 24%. Moving on to the cash flow. Our operating cash flow was strong at 2.6 billion, however, clearly lower than the previous year's record level, which was 4 billion in one quarter. In that quarter, we had more cash released from the working capital, but also in this quarter, we had somewhat lower profit as well as a bit higher paid taxes. The cash conversion rate is now 12 months rolling at 90%. It's not at the peak we had in last quarter of 105%, but still it's at a very solid and good level for a company which has quite strong organic growth. And then part of the cash flow, of course, is the development within working capital. If we compare to the previous year, net working capital decreased by 9% to 22 billion, down from 24.3%. However, if we exclude the effect of currency, the net working capital actually increased somewhat due to increased inventories, partly offset by increased payables. However, what I find most relevant is to look at our working capital in relation to revenues. And in the last 12 months, it has decreased to 36.9% versus 37.4%, which means we are using the working capital in a more efficient way now than we were a year ago. uh next slide then number 19 on capital efficiency our net debt decreased to 11 billion down from 14.8 last year and then of course supported by our robust cash generation our financial position is strong we have a net debt to ebta ratio of 0.73 which has improved them from the end of 2024 when it was 0.93 Return on capital employed was 18.9%. It's down from 20.6%. And this is explained by higher intangible assets, including goodwill, and also somewhat lower profit. And just as a reminder, these are rolling 12-month figures. At year end, we had a cash position of 9.6 billion, and I'm sure you wonder now what we will do with our cash. First of all, we will keep on investing in organic growth. That is a key priority for us. Then we will do bolt-on acquisitions close to our core. We have not been so active in 2025 on the acquisition front. So it's fair to assume that there will be a higher activity in 2026, but remaining close to our core in the businesses we know best. And finally, we will distribute cash through regular dividend to our shareholders. And that brings me to my last slide of today on the dividend. And here the board of director proposes to the annual general meeting an ordinary dividend to shareholders of 3.80 krona per share. which is the same as last year and equals 4.6 billion in total. It also corresponds to 53% of our net profit which is in accordance with our dividend policy and the dividend policy says we should have stable or increasing dividend and it should be half of the net profit over the cycle. So very much in line with our policy.