Earnings call transcript: FLSmidth & Co. sees strong Q1 2025 growth

FLSmidth & Co. reported robust financial performance for the first quarter of 2025, marked by significant revenue growth and a notable increase in stock price. The company achieved group revenue of DKK 12.6 billion, alongside an adjusted EBITDA margin of 13.9%. Following the earnings release, FLSmidth’s stock surged by 8.7%, reflecting investor confidence in its strategic direction and improved guidance.

Key Takeaways

• FLSmidth posted a group revenue of DKK 12.6 billion, with an adjusted EBITDA margin of 13.9%.
• The company’s stock price increased by 8.7% post-earnings announcement.
• Full-year guidance for the adjusted EBITA margin was raised to 13-13.5%.
• Strong growth was observed in the Pumps and Cyclones segment, with a 10% year-over-year increase.
• The company secured significant orders in India, enhancing its market position.

Company Performance

FLSmidth’s performance in Q1 2025 demonstrated resilience and strategic growth, particularly in its Pumps and Cyclones segment, which saw a 10% year-over-year increase. The company has focused on enhancing its service offerings, now representing 65-70% of its business, while reducing non-core activities. This strategic shift has allowed FLSmidth to maintain market leadership in technology and expand its market share. InvestingPro analysis shows the company maintains a healthy financial position with a current ratio of 2.07 and moderate debt levels, earning a "GOOD" overall financial health score. For deeper insights into FLSmidth’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Financial Highlights

• Revenue: DKK 12.6 billion
• Adjusted EBITDA Margin: 13.9%
• Reported EBITDA Margin: 12.6%
• Gross Profit Margin: 34.4%
• Net Working Capital: 12%
• Cash Flow from Operations: Decreased by 12% compared to previous year

Outlook & Guidance

FLSmidth has raised its full-year guidance for the adjusted EBITA margin to 13-13.5%, reflecting confidence in its operational efficiencies and market strategies. The company also increased its Mining division EBITA margin guidance to 14-14.5% and is exploring potential acquisitions to bolster growth. Long-term targets include achieving a reported EBITA margin of 13-15%. With a P/E ratio of 24.31 and revenue growth of 4.23% in the last twelve months, the company demonstrates strong fundamentals. InvestingPro identifies multiple positive factors, including the company’s prominent position in the Machinery industry and its consistent profitability - discover 5 more exclusive ProTips with an InvestingPro subscription.

Executive Commentary

CEO Mikko emphasized the company’s transition towards becoming a "quality company," highlighting the strategic focus on core technology and market leadership. CFO Roland noted improvements in cash flow expectations, reinforcing the company’s financial stability and growth prospects.

Risks and Challenges

• Supply Chain Disruptions: Potential impacts from global supply chain issues could affect operations.
• Market Saturation: Increasing competition in core markets may pressure margins.
• Macroeconomic Pressures: Economic fluctuations could impact demand and pricing.
• Regulatory Changes: New regulations may affect operational costs and compliance.
• Currency Fluctuations: Exchange rate volatility could impact financial results.

FLSmidth & Co.’s Q1 2025 earnings call highlighted strong financial performance and strategic advancements, positioning the company for continued growth in its core markets.

Full transcript - FLSmidth & Co. (FLS) Q1 2025:

Mikko, CEO/Presenter, FLS (E.F.L. Smith): Welcome to E. F. L. Smith quarter one twenty five earnings call. We are very pleased about the result that we were able to deliver on quarter one.

The highlights are that we exceeded expectations with the order execution in Service, backlog management, supply chain, the improvements what we have done in that area are now visible in higher than expected revenue. And of course, service revenue is driving the profitability, very pleased for that one. Order intake both in capital and service is in line with our expectations. And we see areas for growth inside those numbers and we are seeing growth in consumables and also pumps and cyclones related capital orders. So those are two areas that we’ve seen year on year growth.

Adjusted EBITDA, 15.1%. It means that we are now in the category of quality company. That is a big milestone for us. We want to become and be the quality company in 2025. It means high quality order intake for products, high quality order intake for services, predictable high margin revenues.

In Cement, we reached the agreement for exclusivity with a potential buyer. And now we have a period of exclusivity where we are aiming for closing of the sale of the cement. At the group level, we are welcoming two new presidents, Julian to be President for Mining Products for Capital Business and Tony Larksonen as our Head of Services expected to join June. We also seized non core activities, so that is now officially closed, so that segment does not exist. And there’s more backlog and which is now part of the mining capital.

We are very confident about our performance and therefore, we increase our guidance for the full year. Regarding ESG and sustainability, we are advancing with most of the KPIs well ahead of the plan and last year, only area which requires continued attention is safety, and safety mainly inside our own operations, not at the customer sites. On the left, we are also highlighting areas that are high interest for the customer in the area of sustainability, recycling of mill liners. We launched that in Antofagasta in Chile, CORSA flotation cell and then we got an order for largest tower mills, vertical mills in the world with significant energy savings. We’ve been looking at tariffs and potential impact for the company.

And the conclusion is that it does not have any material impact on our operations nor for the profitability. We have fairly significant footprint inside USA, and most of the commercial terms are such that the customer will carry the extra cost of the tariff. And this is also one reason we were able to raise guidance for the full year. We don’t expect anything material negative coming out of the tariffs. Tariff impact on the whole global economy is a different thing.

Of course, if the global economy would go into recession, that would impact all the companies around the world. But tariffs as such directly will not have a material impact on FLS. When we are looking at the market, service market is stable and active. We had a slight softness in the first part of the year in North America, but it seems that the North America market in services, OpEx is back in the business, so that softness is gone. Product market continues to be similar to last year.

We haven’t really seen any change in the market. And the activity in EPCMs, what we actually referred in the previous calls, when visiting Chile a couple of weeks back talking to major EPCMs, everybody is still super busy, everybody is short of resources to attract, to do the work. That work is still study work, preparation for the project, and we are expecting activity in the actual execution to pick up toward latter part of twenty twenty six. We continue to be leader in technology and that is very significant Even on the smaller capital order intake, we are highlighting the fact that we are getting significant orders there in terms of technical references and cementing our position as a market leader. This is something that we wanted to highlight to you what we have done for the portfolio.

This have had impact on profitability and also for the volumes. So we have given up quite a bit of volume to improve quality of earnings. NCA backlog, non core backlog, when we started winding down the business was about EUR 3,500,000,000.0. We had a lot of third party content in projects. On average, 30% of what we sold and delivered was third party.

And we’ve been scaling down labor, basic labor services in all parts of the world. As a result, it have had roughly 3,000,000,000 impact on our volumes. But as a result, in our estimate, the EBITDA percentage has gone up between 34%. So the portfolio choices ensure that we have a high quality order intake, high quality revenue and therefore very predictable business model. At the same time, we have a full portfolio for mining flowsheet.

We have the best and fullest portfolio there. So we have not given up any critical elements in the process plant. We have everything what one needs to build the plant. Regarding order intake, we are happy with the order intake. It’s at the level what we expected.

We are still estimating service order intake to be stable for remainder of the year and typically around DKK2.6 billion to DKK2.8 billion. So this quarter was right in the middle of that estimate. As I presented about portfolio pruning, with the portfolio what we have and what are the cases in the marketplace, we are happy with the 1,000,000,000 order intake. Inside that EUR 1,000,000,000 order intake is also increased conversions of the pumps, meaning that the site sales selling pumps to existing installations and also winning key orders for technology. To highlight what I mentioned in the previous slide about scope, we announced yesterday Lloyd’s iron ore, which is one of the future flow sheets for mining in iron ore beneficiation.

We announced flotation order. There was opportunity to take 30% more volume by having third party content in our order, but we recommended customer to go direct to third parties rather than passing that through our books. So by choice, we took the product order, technology order and recommended customer to go direct to third party regarding non core technology. So we are very disciplined at the moment when we are taking orders, talking to customers so that we stick with the technology and services in our portfolio. As I said in the beginning, the big success of the quarter was service, backlog and order backlog management and order execution.

It shows that we’ve done improvements there to the previous year, where the revenues were slightly behind order intake. So now we can do the catch up. So very pleased about that improvement over the course of latter part of last year and the first quarter. And that, of course, ensures that we can deliver good result for the quarter and for the year. I said in the beginning that I feel that we are entering into category to become high quality company.

And adjusted EBITDA of 15.1%, reported 13.7% is a sign of that one. We’ve every quarter continues, we are pushing up the profitability, improving the quality of the order intake, quality of the revenues and is finally showing what we are doing and we are very proud of the result. This has been hard work for two or three years and now we see the benefit of that one. And therefore, we also increased our guidance for the year. We can’t talk too much about cement sale, but we have entered into exclusive agreement for the potential buyer, Pacific Avenue Capital Partners, which is a financial sponsor private equity fund.

And criteria for going into exclusive period, the Pacific criteria is that buyer needs to be willing to take full perimeter of cement. And also, we’ve been assessing about deal certainty. So full perimeter deal certainty were the key selection criteria for choosing Pacific to be shortlisted for the exclusive period for us. Seventh, order intake on the low side, slightly disappointing quarter for quarter one for Services. And we are expecting some recovery in coming quarters.

Revenue very much in line with the expectation. And you can see that I’m going through the Cement result quite fast, because our expectation is that we could conclude the negotiations for The Pacific in the coming weeks and months. Adjusted EBITDA margin for Cement, 9.5% and reported 8.6%. Very proud of this one. It shows that same medicine what we’ve done for mining, derisking, focusing on service, pricing, all that is resulting in higher relative profitability as before.

Then handing over to Roland.

Roland, CFO, FLS (E.F.L. Smith): Thank you for that, Mikko. So having a look at the consolidated financial performance, as Mikko mentioned, product portfolio, our pruning of our product portfolio as well as NCA is now out of the book. And hereafter, our revenue for the group is billion And adjusted EBITA margin for the group of 13.9% and then reported EBITA margin of DKK12.6 billion. And net profit and loss for the group of million. Gross profit continues up at a long time high, 34.4%.

It’s driven by both mining and cement, and both segments had good share, relatively strong share of service revenues in the quarter. Our SG and A cost compared to same quarter last year are flat and compared to Q4, it’s down. It reflects that we continue our simplification and getting our global organization in place. Our administration costs have started to come down and it’s offset so far by strategic investments in the sales side. So s a bit up, a a bit down, but the combination will come down in the quarters to come throughout the remainder of the year.

So we will be at a different lower level as we come into 2026. Group EBITDA continues up, as mentioned by Mikko, thirteen point nine percent. And on the right hand side, we do the EBITDA margin bridge where it’s clear that most of this for this quarter is driven by a very healthy gross margin percentage. Our net working capital in line with our expectation 12%. Payables are somewhat down and offset by work in progress as then a bit reductions in trade receivables too.

That means our cash flow improves around CFFO minus 12% compared to minus $352,000,000 at the same quarter last year and a free cash flow for the quarter after M and A of minus SEK 120,000,000. And that means that our leverage ratio is flat on Q on Q, o point four x, well below our capital structure target. And as we got off to a good start in mining, good start to the year in mining, we lift our financial guidance for the mining division from previously 13.5% to 14% to now 14% to 14.5%. The Cement guidance remain unchanged. That means that the group’s guidance increased on adjusted EBITA margin from previously 12.5% to 13% to now 13% to 13.5%.

And our reported EBITA margin for the group is lifted also half a percentage point to 11.5% to 12%. And with that, I’ll give you back to Miko just to wrap up before we take Q and A.

Mikko, CEO/Presenter, FLS (E.F.L. Smith): So as a summary, we are very confident about our performance at the start of the year and for the full year, and that’s why we upgraded our guidance. Supply chain works well now, both for service and capital, and we do have alternative sources for supply depending how the tariff situation will continue. So I have full confidence on that one. And it will not have any material impact on our profitability. And for the portfolio pruning, we’ve reached the target portfolio, meaning that we have become product technology company, although 65% to 70% share of the service.

So we are totally different profile as we were when we started this transformation journey. And we have all the key products in our portfolio. We have not given up anything that is significant to the customers. And it’s evident now that the investment into commercial front end is paying off, and we see growth in consumables and pump cyclones and valves as well. So both businesses show year on year growth.

And also that we are very happy that we have chosen Pacific and entered exclusive negotiations about divestment of full cement perimeter. And as I said before, criteria for selection is was full perimeter and then deal certainty. So those were selection criteria for the party to be to go exclusive. And then we go to the Q and A, please.

Moderator/Operator: Thank you. We will now begin the question and answer session. Your first question comes from Christian Hinderaker from Goldman Sachs.

Christian Hinderaker, Analyst, Goldman Sachs: My first one is on the mining service mix. I guess curious whether basic labor contracts are now at zero. And how do we think about the percent of service sales or orders more broadly across consumables, capital spares and refurbishments this quarter? And maybe you can remind us on the typical lead times for those pieces. And then you flagged in the report hesitancy around capital equipment.

I wonder whether that’s positive or negative currently for refurbishment and modernization. I’ll start there.

Mikko, CEO/Presenter, FLS (E.F.L. Smith): Looking at the service, we have only one large labor service contract left. So in that sense, we might say that there’s no materiality starts to be quite small. So you can consider that the portfolio is something what we want to have. Instead of basic labor service, we have professional services, which is high level services. Then looking at the service mix, the highest sales, spare parts.

Second highest is wear parts or consumables. And then the remaining maybe 25% or 30% maximum is then professional services, upgrades, refurbishments. But by far, the largest portion is spare parts and consumables, but we don’t give out the exact percentages. Then we haven’t seen any big hesitation in upgrades and refurbishment. So in what we see in the activities exactly as before.

So we have seen no hesitation to do needed the refurbishments or upgrades. And it’s more about timing of the operations. For most of the customers, it’s not the financial decision. It’s more operative decision when it’s good time to do those upgrades. And then we’ve seen some customers in South America, for example, upgrading and repairing meals.

We’ve seen those orders actually coming in. And then you ask about capital spares versus recurring spares. So it’s not an exact number, but in rough terms, the 70% of the spare part is annually recurring and 20% is not annual recurring. But of course, that 30% will not go to zero maximum every year, but there’s volatility there. So spare parts, 70% annual recurring 30% is basically capital spares and there’s more variability there.

Christian Hinderaker, Analyst, Goldman Sachs: Thank you, Mika. Very clear. Maybe the second one then just in terms of the SG and A cost ambitions, obviously, good improvement on gross margins. But how do we think about the SG and A progress as we look ahead?

Roland, CFO, FLS (E.F.L. Smith): Yes. So the way to think it is that the savings will come in gradually over the year. So we did a lot in Q4. We also have done something in Q1. And there’ll be more pruning as we go through the year.

So it’ll come in drift wise. In Q1, we still have a lot of people working here. We’ve done most of the salary increases as from first of Jan in most of the world. And yet, as you see administration costs is coming down, sales are slightly up and the combo will come down slowly but surely throughout the year. So we’re not going to give you numbers yet.

We’ll move forward and then it will come by the end of the year.

Christian Hinderaker, Analyst, Goldman Sachs: You, Roland. Maybe just a quick one. Cement gross margin delivery, I think you had an inventory write down last year in Q1. At the time, it wasn’t quantified. Are you able to

Klaus Kelle, Analyst: help us now with that magnitude?

Roland, CFO, FLS (E.F.L. Smith): No. No, we’re not giving that granularity. I think the gross margin as you see it now is a relatively clean number. That should be helpful.

Christian Hinderaker, Analyst, Goldman Sachs: Thank you.

Moderator/Operator: Thank you. Your next question comes from Casper Blom from Danske Bank. Please go ahead. Your next question comes from Carsten Almer from Nordea. Please go ahead.

Casper Blom, Analyst, Danske Bank: You. Yes, also a few questions from my side. The first one is, as you also mentioned in the presentation, is this growth you had within Pump and Cyclones of 10% year over year. And you also had some comments about the nature of this growth. But could you put some more color to is it mainly successful testing in the mining sites that is triggering some conversion?

Or it’s more the usual customers that is buying more pumps? That will be the first question.

Mikko, CEO/Presenter, FLS (E.F.L. Smith): So it’s dominantly conversions because the project activity is quite slow. So the sale of the project sales, meaning that it’s part of the project package, the pumps and cyclones is much below the normal level. So it’s mainly success converting other brands out and replacing those with the Krebs, F. L. Smith brand.

So it’s dominant driven by site sales and conversions.

Casper Blom, Analyst, Danske Bank: Congratulations. So we have been discussing this in the past that you could actually offer these pumps at a rather huge discount and still making a good business case out of it. But it is growing 10% in the order intake means, I guess, that you are getting a decent price on these pumps and cyclones. That a correct assumption?

Mikko, CEO/Presenter, FLS (E.F.L. Smith): So typically, you see big discounts on pumps, you see as a part of the capital package, so that if they are part of the big package, sometimes you see discounts there. But typically, if you do site sales, you get full price because reason to change out other pump is never commercial. It’s always performance. So in that sense, there’s no price competition at the site level. You see price competition when you are bidding a large package and then pumps as a part of that package.

With the site sales, our product margin for pumps is actually at a really good level because it’s a technical sale, performance sell, it’s not a price sell.

Casper Blom, Analyst, Danske Bank: Sounds good. Should we expect this 10% -ish level to continue throughout the year? Or is it an easy comp from last year?

Mikko, CEO/Presenter, FLS (E.F.L. Smith): We are pausing for year on year growth and whether it’s 10 or six or seven or eight, we don’t know. But I think it’s a very promising start for the year. And of course, there’s some variability between the quarters, but we are confident that we can grow year on year, but we don’t give exact percentage of our internal targets.

Casper Blom, Analyst, Danske Bank: Of course not. Okay. Then my second question is, I guess, to you, Ronen. So you did 15.1% EBITA margin within Mining Q1. How should we see this level compared to the 13% to fifteen percent twenty seven guidance range?

Roland, CFO, FLS (E.F.L. Smith): Yes. So thank you for that, Claus. It’s so first of all, the 15% is an adjusted number. And as I’m sure you’ve seen, half a percentage So I think you should look at it as a good quarter. It’s an adjusted number.

Our reported number for the quarter is 13.6%. So we are pushing towards the long term range. I’ll leave it at that, Charles.

Lars Topholm, Analyst, DNB Carnegie: Sounds

Casper Blom, Analyst, Danske Bank: great. Fair enough, Hodan. Well done in this quarter. Think that was all for me.

Moderator/Operator: Your next question comes from Thor Fangmann from Bank of America.

Thor Fangmann, Analyst, Bank of America: Two from my side. The first one would be your mining peers are more positive on mining equipment demand, strong growth rates here. So my question is, are you losing some market share here? Or is this rather due to the changes you made to your portfolio? Would be my first question.

I’ll come back with another one. Thank you.

Mikko, CEO/Presenter, FLS (E.F.L. Smith): We’re actually not losing any market share. We are rather increasing in the market share because we are as I said, we are focusing on core technology. We don’t take third party content in. And yesterday, we announced significant order from India for the iron ore flow sheet. The same customer gave us an order for the largest HPTRs in the world, which we flagged before and there we are basically dominating the market and also that 18 vertical mills and now we got the flotation.

And there’s quite a lot of competition for the flotation. It seems that our technology was superior there. So we don’t think that we are losing any market share. We are rather increasing market share in some of the products, but there’s a big impact that for the last order, as an example, we left more than 30% of volume to the table because we did not want to take third party content inflowing through our books. And so that was a decision where we are very disciplined about quality of earnings, quality of the order intake.

Whenever we can, we always push third party content out. And then, of course, results that the deal, what was announced yesterday, is 30% smaller than what was on offer. But it was our conscious decision to focus on quality of the earnings, technology and products, not third party content in signing that agreement.

Thor Fangmann, Analyst, Bank of America: Very, very well understood. Thank you. And my second question would be, so you had a very strong margin now in mining in Q1. So I’m just asking as compared to this, the guidance range that you lifted up just looks like a small raise to me? And is this because you expect the revenue catch up effect that you had in Q1 to cease over the coming quarters and thereby losing some operating leverage?

Or are there some other reasons for this? Thank you.

Roland, CFO, FLS (E.F.L. Smith): I think that there’s a few considerations, right? So first of all, we had zero five percentage point of what we did in Q1 was asset sales. We also had a relatively strong asset graph. We had 74% revenue from service business, which is not a continued thing. And secondly, it’s relatively early in the year and a lot of turmoil in the world and, you know, just adjusting upwards, yes, a lot of uncertainty around certain parts of the world.

So we found this prudent. This is what we can stand by and what we are confident we can deliver and that was behind the upward adjustment.

Moderator/Operator: Your next question comes from Lars Topholm from DNB Carnegie. Congratulations

Lars Topholm, Analyst, DNB Carnegie: with the quarterly results. A couple of questions from me. On the gross margin of 35.1% in Mining, how should we think about that looking ahead?

Mikko, CEO/Presenter, FLS (E.F.L. Smith): Yes. And I think we’ve indicated 32, 30 four, even up to 35 if if the service content is really high. But good average is around 33, which is sustainable. And depending on the mix, if it’s really like now high service mix, it can be pushed about 35%. But underlying, if we start from the product margin in the company, we don’t see big changes in product margin in order intake or revenue.

And then if we, of course, manage the under absorption or the other line items, I think around SEK 35,000,000 is sustainable throughout the year.

Lars Topholm, Analyst, DNB Carnegie: That is very clear, Nico. Then you have previously commented that in Mining, to close the margin gap for metal, you need more top line. And now it seems you are close to spinning off the Cement business. How should we think about that top line growth, which I guess has to be inorganic? When will we start to see Mining do M and A?

Will this be one big or many small acquisitions have what words could you put on that?

Mikko, CEO/Presenter, FLS (E.F.L. Smith): So if I first focus on kind of organic growth potential, which is more incremental. And I think, as Roland said earlier, we’re still pushing for the SG and A and efficiencies. We can get we can actually become still much more efficient. So we are not happy with the SG and A level what we have at the moment. So I think still continued work on SG and A and efficiency will actually close the gap quite well.

But of course, then it becomes a volume question. We actually then bolt ons, I think we have authority to do from the Board and then bigger acquisitions, then we would need to debate for the Board and come out with strategic direction for that one. But bolt ons, we still continue to do when those become available. But bigger ones, think, strategic moves, I think, yes.

Lars Topholm, Analyst, DNB Carnegie: So maybe I’m just twisting and turning your words to me, Cooper. But you sound more comfortable in closing most of that gap for Metso organically than when we spoke six or twelve months ago. Is that just me or is that correct?

Roland, CFO, FLS (E.F.L. Smith): So I think Lars, if I can just so our long term target is 13% to 15% reported EBITA margin, right? What Metso does is a little bit different. When then when so that’s what we stick to, just to for the avoidance of doubt. Now what we are saying is in order to get potentially better than that as we move forward, we will need to grow. So we will grow better than the market in our service business and we will grow with the market with the current product portfolio as we have now in our products business.

Then on top of that, we will do bolt on acquisitions and potentially larger acquisitions if we can get them. That will bring us potentially further than our current long term targets in 2026.

Lars Topholm, Analyst, DNB Carnegie: That’s very clear, Oleg. Thanks, Hans. And then a final question. Now you, of course, highlighted you’re beginning to look like a quality company. And if I may be cruel here, quality companies have positive cash flows.

So can you comment a bit on the bridge to a positive cash flow? But maybe more interestingly, comment on what the cash flow looks like in Mining isolated. I mean you do an EBITDA of five fifty nine before special items. If I add back, let’s say, 50,000,000 of your total EUR 68,000,000 in depreciation, that’s an EBITDA of EUR $6.00 9,000,000. I assume most of the working capital change applies to mining.

Then you are, in round numbers, at 180,000,000. That’s before tax and before CapEx, which basically means there’s no cash flow lift. Is that rough calculation approximately correct? And what moving parts plays in when you look a little bit ahead where I assume you have an ambition of making a positive free cash

Roland, CFO, FLS (E.F.L. Smith): No, no, that’s not at all cruel, Lars. You’re absolutely right. That’s what needs to come. So the way we look at cash flow, Q1 is never a great cash quarter. This was better this year and considerably better than last year.

This is the quarter with the bonuses relatively seasonally low and also tax payments and yada yada. But what we are saying this year, we expect CFFO to be better than last year of SEK $640,000,000, but no more than SEK 1,000,000,000. And then we can all run our numbers on the directional CapEx, 2% to 3% of revenue we are giving. And then we’re also saying that our provisions on especially other provisions needs to come to half over the next two to three years. And when that happens and that will come in lumps, then our free cash flow will positive and it has to be positive.

Agree with that. So that’s the type of guidance we give on that for now.

Lars Topholm, Analyst, DNB Carnegie: And can you put a word on the net working capital rates relative to sales in mining stand alone?

Roland, CFO, FLS (E.F.L. Smith): Yes. So most of our balance sheet is mining, and that includes the net working capital. So most of it is mining. And that also means if you want we’ll we’ll give later guidance if and when cement will leave the company, we’ll give an update on on the ratios and so on. But that means you can assume that the current level of working capital will stay, albeit with a lower revenue in mining, of course?

I think that’s what you

Lars Topholm, Analyst, DNB Carnegie: on your margin journey and on that growth journey, should the working capital changes in mining increase?

Roland, CFO, FLS (E.F.L. Smith): So the net working capital, if that stays in nominal terms and revenue become the pure mining revenue, then our ratio will be higher. It won’t have a negative cash flow impact. It will be a mathematical change in the ratio, and the ratio will be more in line with peers.

Lars Topholm, Analyst, DNB Carnegie: Well, that I understand. But then if you look two, three years ahead, will it then stay at the current ratio in mining? Or will that ratio increase?

Roland, CFO, FLS (E.F.L. Smith): Expectedly, that will be increasing slightly as we become more of a service company.

Lars Topholm, Analyst, DNB Carnegie: Your

Moderator/Operator: next question comes from Klaus Kelle from

Klaus Kelle, Analyst: Yes. Hello. Two questions from my side as well. First of all, just getting back to these margins in Mining. And I guess, yes, we are all pretty impressed.

So I can ask in perhaps in a slightly different way. Have you had perfect execution in Mining in this quarter? Or yes, how should we think about that? That would be my first question.

Mikko, CEO/Presenter, FLS (E.F.L. Smith): I will say very good execution, but far from perfect. So I think we still have a room to improve. So I wouldn’t call it perfect, but I think improvement compared to the past. And if I look at the margins above our gross profit, that order intake margin for Capital and Service, they are stable year on year. And also the revenue product margin, top line margin is stable.

So most of the swing between the kind of 35% what we saw now and then maybe 33% even down to 32% is for the mix. So the underlying top line margins are rather stable. And of course, we are managing then the other line items between product cost and gross profit, the best we can, so we have full attention. But they are quite stable at the moment. So there’s no big movements in top line profitability, meaning product margin.

Klaus Kelle, Analyst: Okay, okay. And then also a question related to this pump and cyclone business. Could you talk a little bit about what kind of size this business has? Yes, we can’t see that in your numbers. And talk a little bit about your global market share and what kind of one way you potentially could have in this business?

Roland, CFO, FLS (E.F.L. Smith): So we’re not disclosing, you know, several product areas. But what we’re saying on PCV, which is sort of one area for us, is that we we have a market share of around 10% and that is set to grow. That is our ambition.

Klaus Kelle, Analyst: Yes. Okay. But you have a market share of around 10%. Okay. Then what’s the market size?

Roland, CFO, FLS (E.F.L. Smith): That’s a longer discussion, right? But you have a major market player, which is Weir, right? And then you have Metso in there as well and you have a tail end of players in that market. We’re not going to, on this call, give you the specific numbers you’re asking for. That is not disclosed.

Lars Topholm, Analyst, DNB Carnegie: Okay. Fair enough. Fair enough.

Klaus Kelle, Analyst: Last question about this business. Could you just mention whether this margin in this business is above or below your margins for the Mining business?

Mikko, CEO/Presenter, FLS (E.F.L. Smith): So it’s the highest if you look at the businesses all combined, the highest margin business what we have.

Moderator/Operator: Thank you. Your next question comes from David Barrel from Jefferies. Please go ahead.

David Barrel, Analyst, Jefferies: Good morning, everyone. Congratulations on the results. A couple of questions from me. Firstly, in terms of the Mining Service revenue growth, you specifically call out effective management of the order book there as driving that. Is that inferring that you’ve accelerated some Service revenue into the first quarter from the second quarter, and therefore, that kind of service product mix will swing back quite sharply in the second quarter?

Mikko, CEO/Presenter, FLS (E.F.L. Smith): So we actually not have done any acceleration. But if you look at last year, we’re a little bit falling behind. So in the steady market, we have a slightly higher order intake than revenue, meaning that we slightly fell behind. So I think now we are more on top of our kind of order execution, meaning that this will be more steady going forward. And so there was no acceleration.

It’s that we just fell a little bit behind last year, if you look at every quarter order intake and then revenue. So it’s a bit all kind of catch up, but there’s nothing unusual there. So we are letting everything to flow through the books and deliveries as they go through. So we haven’t done any extra acceleration, just a better management of backlog and then supply chain.

David Barrel, Analyst, Jefferies: Thanks for that clarification. And then my second question relates to the Cement disposal. Excellent news there. I think people maybe being a bit concerned given the macroeconomic backdrop that, that might be kicked down the road. Can you give a bit more detail as to when you moved into exclusivity conversations and whether or not Pacific Avenue have got their financing in place for a transaction?

Thanks.

Roland, CFO, FLS (E.F.L. Smith): So the information we give here is what we’re going to limit ourselves to give you that information. We are disclosing the parties’ name to send the signal that we are that the process is moving forward. And that’s where we’re gonna leave it at. It’s a delicate moment of that process. So, know, whether there will be a transaction or not, we will have to see.

But that was the intention with that statement. And we cannot give you the details that level of detail that you’re asking for.

Thor Fangmann, Analyst, Bank of America: Okay. Thanks. I thought

David Barrel, Analyst, Jefferies: it was worth a try.

Roland, CFO, FLS (E.F.L. Smith): Fair enough.

Moderator/Operator: Thank you. Your next question comes from Casper Blom from Danske Bank. Please go ahead.

Casper Blom, Analyst, Danske Bank: Thank you. And sorry for being silent earlier. I had some technical difficulties. A couple of questions also. Ola, I just wanted to follow-up on your comment regarding provisions.

You mentioned that other provisions were to roughly half over the next couple of years. Is it still also fair to assume that you’ll be spending your restructuring provisions this year?

Roland, CFO, FLS (E.F.L. Smith): Yes. So theoretically, restructuring provisions should come to close to zero. It never will. But most of that will be spent this year, yes. Other provisions that we talk about is a bit more unpredictable for us because it’s a it’s a bucket of stuff from from from the past that we are solving as we move forward.

And they and, know, some of that may may come soon, some of it may take some more time. And we’ll do it once and we’re ready to to solve it and then we will pay it out or release it. Right? So that’s how that works. That’s why it’s so hard for us to say whether it’ll be one year, it’ll be five years, so on.

But for the planning purpose, you need to assume that we will cut that in half over three years.

Lars Topholm, Analyst, DNB Carnegie: Okay.

Casper Blom, Analyst, Danske Bank: That is super clear. Then a second question, maybe a little bit of speculative, but your current headquarters in Valpo and the potential sale of that, is there any update on potential timing of that?

Roland, CFO, FLS (E.F.L. Smith): No. But we are running the process. So currently, bidders are showing interest, and then we’ll see where we go with that. So it is in process, we are set to move from here to the new location beginning of the new year.

Casper Blom, Analyst, Danske Bank: Okay. But is it then also the target to have sold it when you’re moving?

Roland, CFO, FLS (E.F.L. Smith): Yes, yes. We’re not going to give it away. But the intention is that we will sell it and then move. That’s the intention.

Casper Blom, Analyst, Danske Bank: Okay. Very clear. And then just a final one. You mentioned that you would probably get back with more details on the, I could say, targets for mining when you close the sale for cement. Should we expect sort of a separate announcement in connection with also selling cement?

Or will it be more sort of an update that you give us on the following quarter or etcetera? Just any kind of flavor as to what to expect in terms of communication on that.

Roland, CFO, FLS (E.F.L. Smith): So I’d like to come back to that in a bit more structure. But I hope if and when we sell the business, we will announce it. And then new targets, long term targets will only come later on. But directional guidance on working capital and CapEx spend and so on will come soon thereafter.

Moderator/Operator: We have a follow-up question from Thor Fangmann from Bank of America. Just

Thor Fangmann, Analyst, Bank of America: one very quick clarification. So I just understood in a way that the 15.1% margin in Mining was supported by 50 basis points coming from an asset sale. Could you just clarify this? And then one question, why did you not adjust for this? Yes.

Roland, CFO, FLS (E.F.L. Smith): So in the P and L, we have a line called other income. And that’s when we do bits and pieces. And there’s been a few smaller asset sales that add up to about zero five percentage point, 50 basis point, yes, that’s right, for the quarter.

Thor Fangmann, Analyst, Bank of America: But you did not adjust for this downward. So it should be basically, if we would adjust for this, we would have been at 14.6% basically?

Roland, CFO, FLS (E.F.L. Smith): That’s right, Jess.

Thor Fangmann, Analyst, Bank of America: Thank you.

Moderator/Operator: Thank you. This concludes our question and answer session. I would now like to turn the conference back over to the company for any closing remarks.

Mikko, CEO/Presenter, FLS (E.F.L. Smith): Thanks very much for the questions. And if I summarize the quarter, it has been a good quarter for us. And as we discussed earlier, we are moving in the territory of becoming quality company, high quality order intake, high quality revenues. Our SG and A is going down and we are pushing for the efficiency. And we are happy with the portfolio that we have.

We have a leading technology for all of the key flow sheets for in mining, copper, gold, iron ore, now we are building in India. So very pleased for quarter. And we have a high level of confidence for full year despite the geopolitics and uncertainty. And for that reason, we increased the guidance. And thanks very much for your time, and look forward talking to you soon again.

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