Hello everyone, and welcome to this FLSmidth Q4 and full year 2023 results presentation. My name is Jannick Denholt, I am the Head of IR. As always, we have to caution you that we will be making forward-looking statements in this call, so you know that. Today we put together a little agenda for you guys. First we'll have a presentation of the results, we'll touch upon the guidance for the coming year, and then we'll give you guys a strategic update on how we've been progressing over the past year since we launched our strategies a year ago at the Capital Markets Day. To help me do that, I'm joined today by this esteemed team of gentlemen. I have the CEO Mikko Keto with me, we have Roland Andersen, our CFO, and we have Josh Meyer, our Head of Mining Services.
With that, I'll hand over the word to you, Mikko.
Thank you, Jannick. I will firstly highlight the 2023 performance. It has been a transformational year for FLSmidth. And if I look at the mining business, we've succeeded with our transformation. We delivered what we promised quarter by quarter. We've exceeded the speed of transformation that we even planned internally. So profitability improvement continued. Posting adjusted EBITDA margin 10.8%, and also reported margin has seen significant improvement. Integration of mining technologies and cost out, as a result, has been faster than anticipated. So we're taking out lots of headcount, closed offices, so it has been successful. At the same time, we are moving more into growth mode in mining, and we established new business line: Pumps, Cyclones, and Valves to address our greater growth ambition in that area. Cement business posted a good result as well. We've been addressing the underlying issues of too heavy SG&A structure.
We've been addressing the pricing and focus on the service. Even with the one-off gain, the annual EBITDA would have been 5.1. We continue pruning the portfolio, selling non-core cement assets. We made a decision to look at the investment of the cement business as a whole. Non-core activities, exits from those, have been faster than anticipated as well. The starting backlog for 2024 starts to be quite small, and it doesn't pose a big risk for the company anymore. For most of our sustainability targets, we saw significant improvement. We will be appointing advisors to advise us on the sale of the cement asset in the coming days. At the same time, we are preparing cement to be sold. As a part of that, we continue our journey to focus on growing the service, not doing projects focused on the products.
We continue to focus also on addressing the SG&A base, which is still slightly too high. So we continue all those activities, and at the same time, we prepare assets for sale. There's only one KPI where we did not exceed our targets, and that was safety. And in safety, we saw improvement within the year. In the fourth quarter, we are addressing our in-house operations in North America where we saw an issue. But if you look at MissionZero, Scope 3, Scope 1, and 2, we also saw improvement. Less water use, more [wind managers]—all improved apart from the safety. And safety is now our key agenda point for 2024. I'm also pleased with the service order intake for quarter four. It is +1% year-on-year. But if I look at organic service order intake growth, it is high single digit.
So organic order intake growth in service was at a good level year-on-year. Products order intake reflects that there were no large orders in the final quarter of the year. In the comparison year 2022, we had two large orders reported at the time. On the positive note, we saw a good start for January where we got two significant HPGR orders in the first weeks of the year. All in all, I'm happy with the order intake for quarter four, with the delay in timing of the products orders. Revenue reflects that our execution of our product business is successful. So it was a fairly heavy execution quarter for products. Service execution deliveries were as anticipated.
If you look at the fourth quarter compared to the year before, it is slightly heavier in the mix on the product side, which is again, in turn, reflected in EBITDA. We posted good EBITDA, adjusted and reported on quarter four, despite the mix being a bit heavier on the products than on the aftermarket. Good improvement at an annual level and also a strong quarter to finish off the year. If I look at then the cement order intake, cement order intake for products was our own choice. If you look at a year ago order intake, it was too much projects. Now we are very strict. We don't do projects in cement. We do products and service only. And also, typically, if you do projects as we did a year ago, then there's lots of non-FLSmidth content with no aftermarket.
So now we follow stricter policies to sell products and services. On the positive note, we saw stabilization of the service market, meaning that service order intake was at a flat level. At the same time, profitability of the order intake is improving. Order intake profitability at a good level, less capital order intake because we don't participate in the projects. This is exactly what we plan to do. At the EBITDA level, it shows that the value of volume works. We continue to post good EBITDA results in the cement. Even if we take out the adjustment for one-off gain from sale of one of the product lines, it's a good result. The mix is still quite heavy on products. As we are progressing in cement, the mix will be more service-centric and therefore supporting further improvement in profitability.
I'm extremely proud of the speed of exit from NCA. If I look at the starting backlog for the new year, it is about DKK 500 million. That is a significant reduction at an extremely fast pace what we've been able to achieve year one, quarter one, and we are it. And at the end of the year, we are done with the NCA, and we are discontinuing the reporting segment as a whole. Then I hand over to Roland for the more financial details.
Thank you for that, Mikko. So looking at the group's result for Q4, a revenue shy of DKK 6 billion and a 6% improvement in our gross profit margin. EBITDA margin reported of 6.9%. We have two non-cash items posted here on net financial items. We have an impairment charge on an associated company in Australia of about DKK 60 million that sits in financials as non-cash. And under discontinued activities, some of you will recall that we had a cash bond pulled against us back in 2021. And that was sitting under other receivables. That is now deemed non-collectible. So that has been posted of DKK 150 million under discontinued activities, also as non-cash items. And that means that our discontinued activities will pretty soon come to an end during the course of this year. Gross margin increased by 6% year-on-year, primarily driven by our mining business.
Also, the discontinuation of our non-core activities helped with that. Cement is on a good level gross margin-wise as well, but up against a relatively strong comp here for 2022, where we closed out a few O&M contracts and a few other one-offs. So all in all, good progression in the group's gross margin. Our SG&A cost started to come down. Efficiency gains and synergy takeout positively impacted this, and partly, of course, offset by the integration costs related to integrating TK mining technologies. Our group EBITDA margin also continued up here. Q3 2023 is impacted by the sales in cement. So reported 6.9% and adjusted 9.2%. If we look at the right-hand side bridge, which is comparing to Q4 from last year, we had a not-so-impressive 0.0% in Q4 last year.
If we add back integration costs and Russia wind-down costs, then we were at an adjusted group level of 3.2%. This quarter, revenues are slightly lower. We have improved our gross margin significantly, and also SG&A is coming down, and that is leading to a 9.2% adjusted group margin. So moving quite considerably forward. If we deduct the integration costs, 2.5% here, then a reported EBITDA margin for Q4 2023 of 6.9% for the group. Net working capital has improved significantly in Q4. We have done a number of things. So first of all, introduced more sophisticated steering of our inventories. So more diligent planning of that. But also, we've been around the corners in the company and have done a few impairment charges. That is, of course, of non-cash nature. Trade receivables, we had a good collection quarter as we traditionally had.
And also in receivables, we have done a few extra impairment charges that predominantly relate to projects taken over from TKs. Trade payables were also positively impacting the reduction that has more to do with timing. And then we are getting back on track in terms of keeping our work in progress in negative territory with milestone payments and so on. Under other liabilities sits the DKK 150 million from the discontinued activities. So a number of adjustments to this one, some of cash nature, some of non-cash nature. And that means that net working capital is ending the year at 5.7% of revenue. And with that, our CFFO for the group ends up at DKK 931 million for the quarter. We had a few investments and also the final payment to TK of DKK 78 million here in Q4. And that means that Q4 ends with a free cash flow of DKK 727 million.
We are reducing our debt correspondingly, and that means that we end the year with a leverage ratio of 0.4x. So well in line with our capital structure targets. No need to dwell with this one. This is the results in line with guidance and in line with what we announced on the 29th of January. Group revenue of DKK 24 billion, Adjusted EBITDA margin of 8%, and reported EBITDA margin of 6% for the year. If we look at the guidance number, this is also unchanged compared to what we announced in January. So a mining business for 2024 of DKK 16 billion-DKK 17 billion and Adjusted EBITDA margin of 11.5%-12.5%. We will be calling out one-off costs in mining of DKK 200 million.
This is predominantly used to continue the transformation of moving the company into a so-called principal company model, ERP changes, and other stuff we need to do in that respect. But also a little bit the final separation from cement. Cement here is guided at DKK 4 billion-DKK 4.5 billion and Adjusted EBITDA margin of 5.5%-6.5%. We're calling out DKK 100 million here as one-off costs predominantly related to the finalization of the separation. And also a little bit of help we need from externals to prepare the cement for sale. As Mikko mentioned, we will be appointing advisors in very few days. Non-core activities, DKK 250 million-DKK 350 million in revenue, and then a loss of DKK 200 million-DKK 300 million. And that means that we will conclude that segment this year. And we still expect the total loss from that segment to be DKK 1 billion since inception in Q4 2022.
So completely in line with our expectations. If we add up all that, the group will turn over between DKK 20 billion and DKK 21.5 billion. We will have an Adjusted EBITDA margin of 9%-10% and then a reported EBITDA margin of 7.5%-8.5%. In the cement numbers, we assume that the sale of the MAAG Gear business will conclude in Q1, and we are on track to close that deal soon. The mining EBITDA guidance bridge that we also announced on the 29th of January. So compared to a full year margin, adjusted margin of 10.8%. If we take out the integration costs, the EBITDA margin for mining would have been 8%. We're moving forward and calling out 3% in integration costs that won't reoccur. We will have additional cost synergies of 2.5%. Then there's a bit of an inflation element of our SG&A cost base.
We have reinvested in the commercial front end that Josh Meyer here will come back to in a second. Then we're calling out the 1.5%, which is the DKK 200 million in transformation and separation costs. So an underlying implied reported EBITDA margin of 10%-11% corresponding to an Adjusted EBITDA margin of 11.5%-12.5%. So moving forward in 2024 as planned. With that, I'll give it back to Mikko.
A few highlights for the long-term outlook. Mining is an extremely attractive industry. The long-term growth is driven by green transition, both in energy and EV vehicles and the rest. So that will be one of the growth drivers for long-term demand for the commodities. We are about 50% exposed to the commodities that are needed in green transition.
Economic growth. Still, many population-rich countries, emerging middle class or middle class living standards will drive the growth. Those are the two key growth drivers for the whole mining industry. It is clear from all the forecasts that demand will succeed or is greater than supply. There will be investments into new mines. There will be lots of investments in the mining industry. Short-term, there's a more quiet period, meaning that this year we are expecting service to be stable or small growth. We are expecting still to see some more delays in the capital investments. The start of the year has been good for FLSmidth in the products business. We expect the capital business to be a bit slower this year.
Service, we continue to push for the growth and building foundation for long-term growth with our initiatives that Josh will go through in a minute. The current environment is still uncertain. In most of the countries, customers still face challenges with the permitting, licensing of the operations. Geopolitical turmoil is impacting the mining industry because it's a global industry. And of course, macroeconomics regarding inflation, interest rates still continue to impact us. But long term, we are sitting in the industry, which is one of the best and most fastest-growing industries over time, yet being cyclical.
If I then look at our strategic initiatives or foundations that we communicated during the Capital Market Day and how we are doing, we are building the core of the business, which means that we've been exiting NCA assets, which were heavy loss-making, risky assets, mainly material handling and ports, stacker reclaimers, and that type of operations. We are largely done with that exit, and remaining backlog for this year is very small. We separated cement and mining, and we decided to divest cement assets. We've integrated thyssenkrupp mining, what we call mining technologies, faster than anticipated. And we've taken aggressively, proactively out synergies for the whole business. And that's why we are getting DKK 600 million run rate synergies starting this year. Now we are focusing on business simplification, which means ERP system. We have many of them. They're out of date.
Looking at Principal Company Model, simplify the way we do business and how we run the business, all the processes and tools. That will make business scalable for growth long term. More simple processes, simple tools, the scalability comes. We are investing into commercial front end. As Roland said, with the investments into pumping business, we have a new business line, pumps, cyclones, valves, where we expect faster-than-market growth. At the same time, we acquired and invested in mill liner manufacturing. We continue becoming more service-centric operations as a whole. We will see in the coming years growth in consumables. We see growth in pumps, cyclones, and valves. We will support the growth with selective mergers and acquisitions. We are building foundation for future growth. I will hand over to Josh, who will then go through some of the initiatives in...
Actually, sorry, Roland, who will go through the synergies. And then followed by Josh, who will cover the initiatives in more detail.
Thank you, Mikko. Yeah, as Mikko mentioned, we have concluded the integration of mining technologies by the end of 2023. And if we step back a bit, when we concluded the deal or signed the deal back in July 2021, we estimated that we were able to take out synergies of DKK 360 million and that we would spend integration costs of DKK 560 million doing so. A couple of weeks into the ownership period in October 2022, a month or two, it became clear that we were able to take out a higher number in synergies. So we upped that estimate to DKK 560 million and estimated that we would need up to DKK 800 million in integration costs doing so.
Then basically counting the dimes by the end of 2023, we have now taken out about DKK 100 million in synergies, and we have spent DKK 733 million doing so. So we did a bit more for a bit less. These synergies predominantly come from overlapping functions in the organization. So it's headcount-driven. But there have also been duplications in facilities, a little bit in the manufacturing and the service centers. And then a chunk in our supply chain and our procurement integration. We continue to right-size and to simplify our business. And that means over and above the integration, we have been taking out offices, reduced our geographical footprint from 150, and we will be around 90 here during Q1. That sounds like a big number. It's obviously the low-hanging fruits and maybe the smaller sites.
By the end of 2024 into 2025, we expect that we will take out another 10, which is obviously bigger sites for us or consolidate ourselves at fewer, but bigger sites around the world. Also, the headcount will be reduced further during the course of 2024 across the business, both in cement and in mining, as we consolidate ourselves around the world. We continue to de-risk our order backlog. We are well progressed now. So we started in 2021 with our risk strategy. And at that point in time, we were about 50%-50% between what we really wanted here, it's referred to as preferred scope, versus high complexity, extended scope, higher risk, lower margin type of business. And out of 2022, that split was closer to 70%-30%. Now we are closer to 73%-27%.
I think we expect that percentage number to go up a notch more until we are happy. It means that our backlog now is a considerably better quality in terms of margin, lower risks, and hopefully lower risk of surprises as we move forward from here on. This is exactly in line with what we wanted to do strategically.
All right. Thank you, Roland. Give it over to Josh.
Thanks. That's a great lead-in, obviously, to what I'm about to speak to here. I'm going to touch back on some of the strategic initiatives that we launched or discussed at Capital Markets Day a year ago this time. On the cleaning up of our backlog or the reconciling our business to the areas that we really want on the service side, there was really one area we had highlighted as a pruning exercise, and that was around basic labor. If we look at where we finished in 2023, we were down to about 5% of our total service order intake in basic labor services. We've put a lot of work into exiting contracts and closing out this portion of the business to give us a much healthier backlog and order intake level moving forward. We were successful in exiting two contracts in 2023.
Another is expiring this year, and we've since negotiated one additional exit. So we'll be down to around DKK 200 million or less than DKK 200 million in our 2024 numbers. And essentially, we are at a completely immaterial level as we now progress through the coming years on the execution of those outstanding contracts. So this is an area we're really proud of on cleaning up that backlog and focusing on the parts of the business we really want to be in, such as our service centers. This is an area we inherited a portion of through the thyssenkrupp Mining acquisition. And it's been a significant addition to our capabilities and competencies within our service portfolio. We have now been able to start some of the rationalizations and align the functions and activities taking place in those service centers so that we have some more specialization.
We're now able to start utilizing those facilities for a broader offering of activities to our traditional FLS install base as well. We've continued to invest in our service centers and have put about DKK 200 million into optimization and growth of those service centers since the acquisition of TK. We will continue to invest in these, and we see them as a substantial differentiator for us moving forward. As we highlighted last year, our service centers are significantly differentiated from that of the competition, and we believe are one of our strategic advantages moving forward. At the same time, we highlighted the investments we were making and our growth ambitions for mill liners. In 2023, we were able to achieve our growth targets, which were quite ambitious. Now, our starting base, as we highlighted previously, was very small.
By 2026, we remain on track with our expectation of quadrupling that business from our 2023 base. We've invested in a new rubber plant in South America that's progressing well. We announced an acquisition earlier last year in Iowa in the United States. We are now well along our way on refurbishing that facility. We are looking for additional growth opportunities in terms of potential acquisitions in this area. Now, from a growth and development perspective, we're adding resources in the field, and we have very clear definitions of where we believe we provide a significant advantage and where we can grow this business from a customer or mine site by mine site basis. We also highlighted that our installed base is a significant advantage for us as a company. Specifically, I'm highlighting here HPGRs again. Our strong leadership position in HPGRs was built over multiple decades.
Mikko highlighted just a short while ago that we were extremely proud to be able to announce the first two major HPGR orders issued by any customer to any manufacturer since the time of our acquisition of thyssenkrupp Mining Technologies. That was for a total of five units. So we further expanded our installed base and our leadership position in this critical product category. At the same time, I highlighted that we're investing in our service centers as a clear differentiator for our ability to capture the aftermarket or service opportunity that HPGRs generate. At the same time, we have been successful in recapturing a portion of the business that had not been serviced by the prior TK mining technologies.
We have had some recent successes in the launch of our HPGR Pro technology, which not only provides a very strong improvement in performance for our customers, but also then generates additional service opportunities for us as FLSmidth. Lastly, we had highlighted that the growth of the PCV business was a major component of our service growth strategy. As Mikko highlighted, we had some strong successes in 2023 through the formation of our PCV growth strategy, delivering 8% year-over-year growth in our PCV business, which has prompted us to double down and have since launched or announced the formation of a dedicated PCV business line reporting into Mikko as part of our group executive management team. We have now established a 15% compound annual growth rate target for that business for the coming years.
We've continued to add headcounts dedicated to the business and are investing in the supply chain and capabilities to back that growth and are clearly demonstrating our successes in those areas up to this point. So with that, I will hand it back over.
Thank you for that, Josh. Maybe just summing up on what we have now touched upon, this is the EBITDA margin bridge that we showed at the Capital Markets Day in January last year. As you know, we're now guiding for this year, 11.5%-12.5% adjusted. If we deduct the transformation cost, that equals a guidance of 10%-11% on a reported EBITDA margin guidance. Our long-term target is a clean reported mining EBITDA of 13%-15%. So in terms of delivering on this bridge, we have delivered more than half of our simplification synergies taken out. There's more to do, the bigger tickets or a few bigger tickets left to do. We have done most of our de-risking. There's a bit more we can do, and we'll do it during the course of 2024.
Hopefully, that will then take volatility significantly out of earnings compared to where we used to be. As Josh is talking about here, returning to growth, especially in service, is important, and we are starting that up. There's a bit more to do in the service business line on mix and so on, as Josh has mentioned. On the product side, we have indicated that we expect softness this year on the product side. There's definitely more to do on the growth side, but it will be less impactful on our margin uplift. And also in the product business line, there's a bit more portfolio mix to do. And with that, we will be on target to move into our reported EBITDA margin targets during the course of 2026. Let's give a bit of direction on the cash flow.
Last year, we indicated that the transformation exercise and what we had to do on projects and reducing risk and taking synergies out would make our cash flow a little volatile in 2023 and 2024. I think it's fair to say that's also what we have seen. For 2024, we still expect volatility in our cash flow. We expect CFFO to be positive, but not higher than we have seen in 2023. For those of you that would like to model this a few years out, I'd like to add a few guiding statements here. Our net working capital out of 2023 was at 5.7%. As we migrate the business away from projects and more service business, we expect to tie up inventories. There will also be receivables and other working capital items and less negative work in progress and so on.
That means that we would expect our net working capital to hover up against 12%-15% of revenue during the course of 2026, so 12%-15%. CapEx is expected to be 2%-3% of sales. In 2023, it was 2.3%. That is relatively predictable, we believe. Our effective tax rate is still at a high level. It will be so also in 2024, most likely, and in 2025. After that, once we move into full PCM, we expect the tax rate to start dropping below 30% during the course of 2026. Our provisions are also a bigger ticket in our balance sheet. There's three big items in the balance sheet that we classify as the first is our warranty provisions. And secondly, we have a restructuring bucket. And then lastly, another bucket, a lack of a better word.
Now, warranty provisions will continue to be there. These are provisions we give on all our products, product bundle deliveries, projects if they are done, and also on certain parts of our service business. So expectedly, warranty provisions will stay roughly at the level where they are today, and they will grow with the development in our business activity. So it's fair to expect that around DKK 900 billion ± moving forward. Restructuring, as the name indicates, has to do with our restructuring activities. There's been a lot in 2023. We've been taking out synergies. We've been restructuring in Germany and also significant changes in our non-core business and in Brazil. And that means that we have provided as soon as you make the decision, you do the restructuring provisions, and then it will turn to cash relatively fast thereafter.
We have about DKK 360 million provided for restructuring by the end of the year. Expectedly, that will turn to cash during the course of 2024. Now, it will never turn to zero. We will have restructuring activities and other stuff as we move forward, but it'll be considerably less than it is now. Other bucket here is a big ticket that has to do with loss-making contracts. Some of that sits in the PPA from TK. Some of it is accrued as we have been going, and some has to do with legal cases and so on. Expectedly, that will run off as we close our NCA business, close out some of the projects we took over from TK. Also, hopefully, some of the legal cases will be rounded down.
And that means that that other bucket, which was about DKK 1 billion in the balance sheet by end of 2023, expectedly should drop to maybe around DKK 500 million ± DKK 100 million. So I hope you understand. This is a little uncertain with regards to size, but also with regards to timing. But I hope that this gives a little bit of directional guidance on where this should ideally go, everything else equal. And then just to reemphasize our capital allocation policy, once we get through 2024 into 2025, 2026, when cash flow hopefully stabilizes a bit, also our cash conversions should start to increase. We still expect leverage to stay below 2.0x. And we have a dividend payout ratio target of 30%-50% of our net profit.
Now, we will allocate some of the cash generation to investments, bolt-on investments, predominantly to support Josh's service business line, but also in competences like digital and in sustainability. There are no big targets out there currently. It can be DKK 100 million, DKK 300 million, maybe DKK 500 million bolt-ons. There haven't been any. So it's not like a big ticket that sits here. And that means that if our even when our cash conversion starts to increase, we will consider introducing either jumbo dividends or introducing a share buyback program. But so far, I think we need to come through 2024, and then we will come back with an updated stance on this. And with that, I'll give it back to Mikko.
A few closing remarks. We are progressing well. Faster than anticipated with all transformation efforts. And that includes processes, includes tools for ERP, globalization of the way of working.
We have a target that we have scalable platforms, we have a scalable business model, and that we have a small government, small head office. All the people are closer to the business and the business lines and product lines and customers. That will still continue for another one or two years, but it will create a platform for long-term growth and makes the SG&A and fixed costs scalable. We will make no compromises to quality of earnings. We focus on continue to focus on de-risking, pricing, and growing the service and healthy products. There will be no compromise in that. As Josh explained, we are creating a foundation for long-term growth. All these initiatives will support growth in the coming years. It will be not overnight kind of kicking with any of these initiatives, but it's a foundation.
We see that supporting our long-term growth initiatives. Then in addition, we are looking at growth through acquisitions. And we have no doubt in our minds that we would not meet our targets. We will meet all our long-term targets as Roland indicated. We know exactly how to do it. We know exactly how to deliver that one. And none of that is volume-dependent. We have all the actions in place. We will be there. We deliver what we promise. And furthermore, I would like to invite you to Salt Lake City. Where is it? Salt Lake City, where we have a meet-the-management event in September. Salt Lake City is our global technology center for mining, and most of the product lines are based in Salt Lake City. We have the biggest laboratory in the world for mining. We have a performance center for digital services.
So it's a unique facility, unique operations what we have in Salt Lake City. I would like to invite you all to visit us and meet the management and see our operations there. So it definitely will be worth your time. So please mark the date, participate in this event. And then we go for the Q&A part of the presentation.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from the line of Claus Almer with Nordea. Please go ahead.
Thank you. Yeah, I have a few questions. The first one is trying to figure out what is the underlying profitability. And you mentioned, Roland, about the pruning, about the cleanup of the balance sheet. Have all those initiatives come to an end so in 2024 we should not expect these types of non-repeated costs? That would be the first one.
Yeah, thank you for that, Klaus. So as we mentioned, there's still a bit more transformation to do in 2024, but we clearly took some big tickets in 2023, and there'll be less of that expectedly in 2024 as we move forward. But it also means that, of course, if you look at Q4, we have taken some impairment charges and so on. It indicates that underlying profitability has been good.
And of course, Klaus, if you look at the gross-profit development and then month and quarter by quarter, a little bit look at the mix between service and capital. If it's more capital and products-heavy execution and revenues, then of course that has some impact on that gross-profit.
I would say that the gross-profit development is one of the best indicators for underlying profitability, then taking into account mix between products and service for the month or for the quarter.
Sure. Just before going to my second question, so Roland, just to be sure, so those possible cleanup costs in 2024, will they be part of the one-off cost, or should we expect also, let's say, non-repeated cost that is not singled out as one-off cost?
They will not be part of one-off costs. So we will be very strict with the DKK 200 million in one-off costs that would only have to do with the split from cement and then with us moving from the structure we have today to what we call a principal company model, where we move a lot of our activities, our data, our product data, and so on, to one single ERP instance, the so-called principal company model or the one mining company. Everything else will be operational costs.
Okay. Then, Mikko, coming back to your question or your answer regarding gross margin. I totally agree that this should give a good indication on the underlying performance. Unfortunately, both in Q3 and Q4 2023, I guess you had some cost associated to this transformation program, which you have not quantified. Maybe you could give some color to the underlying margin, either in gross margin or in EPGA in Q4 for the mining division. That would be very, very helpful. Thanks.
Klaus, the reason in 2023 why we are not calling out the costs related to that is because they are not material. The most significant one-off cost we've had in Q3 and Q4 has to do with the integration cost of TK. We're calling them out now in 2024 because they become more significant.
Would that mean if I look at your reported adjusted gross margin for Q4 mining, that is actually quite accurate for how that business did in that quarter?
Yes. Taking into account that the mix was a little bit product-heavy compared to the year before. If you look at the year before, it was 60% service and 60+% service and now a little bit less. So that has a small impact on that as well.
Okay. That was all from me. Thank you so much for the answers.
The next question comes from the line of Christian Hinderaker with Goldman Sachs. Please go ahead.
Yes. Good morning, everyone, and thanks for the time. I've got three questions, if I may. The first is on the revenue guide for cement. You've closed the year with a DKK 4.9 billion order intake and DKK 4.8 billion backlog. Just want to understand the building blocks in your assumptions for the 4%-4.5% sales guide. You're obviously scaling down to focus on quality, but I think the market's expecting another DKK 4.3 billion of orders in 2024. Presumably, some of that in service could convert to revenue this year. So just eager to understand the assumptions in that growth target. Thanks.
Yeah, thank you for that. So I think in cement, you need to focus on the last two quarters, right? And we're doing around DKK 1 billion a quarter in order intake in cement. And also, we're selling MAAG, and MAAG is DKK 400 million-DKK 500 million in revenue. The part of the backlog that has to do with projects from the past or products can be delivered after 2024. So that means that if you look at the incoming recognized, and that maybe a fourth of that or less can be delivered after 2024, it adds up to DKK 4 billion-DKK 4.5 billion. That's how you should think about it.
And also, we are expecting the mix of revenue to get better because if you look at the latest order intake for service versus the products, service order intake plays a much bigger part.
Over time, the mix is also supporting higher profitability as we are very selective with our product order intake.
Understood. Thank you. Maybe then pivoting to the PCV business. If we think back to the CMD around a year ago, you set out number one, number two positions in 11 of 13 product categories across the mining flow sheet. Pumps was actually one of the areas not in a top two position, and you'd cited just a 2% share of the market in valves. You've since added that new service center in the U.S. that you mentioned, and it's obviously a growth area for the business going forward. Can you just talk a little bit about the scale of that PCV segment and then also the 15% growth CAGR? Is that organic, or is there M&A in that assumption?
I think we don't give out the individual business line numbers, but I think Josh has been partially in his business, the aftermarket of the pump cyclones and valves. If you want to say a few words about that.
Sure. Thanks, Mikko. The service center that we're investing in in North America is predominantly a PCV service center. It's well on track. It will be operational later this year. That is a foundation for a fairly significant part of our expected future growth. The 8% growth rate gives us we were very happy with the progress given the late start. We essentially announced the growth starting at CMD, began putting those people in place and building that organizational structure. So the 8% demonstrated that we were able to pull through the growth that we were looking for. That 15% compound annual growth rate is predominantly expected to come organically, although, as I think Mikko highlighted, it would be one of the areas that if the right M&A opportunities came about, we would certainly be open to investing in organic growth as well.
We are more maybe North America-centric in our pumps and cyclones operations. One of the initiatives is that we globalize even more both the supply service and customer operations there. We make it truly global. We will be entering new markets with a strong kind of ability to serve our customers with a service center setup, sales resources, and then also support resources for the business. That's why we made it to be business line because we need more fundamental investment and change to the business rather than just adding sales resources. We will invest a lot into that business.
Thank you. Maybe one for Josh as well, if I may. You mentioned the service network in broad terms as a substantial differentiator versus peers. I just want to understand if that's simply on the basis of the number of facilities you now have post-TK or whether there are other specific factors you can draw out as lines of differentiation. Thank you.
That's a great question. Thank you. I wouldn't say it's necessarily in the volume. Volume of service centers is very difficult given how various manufacturers define their service centers. When I talk about our service center network, I'm predominantly talking about extremely high-capability facilities that can take some of our most complex pieces of equipment and essentially either could be available to manufacture them and can certainly do full rebuild or repair capabilities on them. So this is large machining, large assembly capabilities that I'm referring to. When we look at the service centers, the competence that we have today, it's spread across the globe. It is in all of the key mining activity areas where we have a strong presence. We're continuing to invest in kind of equalizing those capabilities based on the installed base in each of those locations.
It really has much more to do with the competence and capabilities within those service centers than necessarily the volume of them.
Understood. Thank you.
The next question comes from the line of Lars Topholm with Carnegie. Please go ahead.
Yeah, just a couple of quick questions from me. First of all, congrats with a good Q4, not least the cash flow. Speaking of that, I wonder if you can put some comments on to what extent the net working capital should ramp up in 2024 from this very low level of 5.7%. And then a second question is just the transition and separation cost in 2023. How big were those? So I can compare sort of apples to apples on your adjusted EBITDA guidance. Thank you.
Yeah, thank you for that, Lars. So on the cash flow side, on net working capital, we would expect that to hover between where it is today and up to 10%, maybe up to 11% during the course of 2024. And I wouldn't expect it to come higher than that in 2024. And then on those costs for 2023, I think that's also what Klaus asked for. And we're not calling those out. And the reason why we're not doing it is because they were not large. So the real work in mining on that PCM starts now.
Okay. Thank you. That was all from me.
As a reminder, if you wish to register for a question, please press star, followed by one. The next question comes from the line of Klaus Kehl with Nykredit. Please go ahead.
Yeah. Hello, Klaus Kehl from Nykredit. Two questions from my side. First of all, we had another major hiccup in discontinued operation in this quarter. Should I consider this the last hiccup that we will see, or do you still have some tricky projects that you need to execute on? That would be the first question.
Thank you. That's a good question. So I think I respect your comment there. So that cash guarantee was pulled against us in 2021, and now we're expensing it. And that means that basically everything on the discontinued is out of the book. So we will clean that discontinued business up over the next coming months, and then you will not hear about that anymore than it's out. So yes, the risks on that is out.
Is that a promise that we won't hear any further about discontinued operations after Q1 or Q2?
Yeah. Yes.
Okay. Great. Second quarter. Sorry, second question. You have had a fairly solid order intake here in Q1 on the announced orders, at least. Will these announced orders, will they help your top line in 2024, or will it more be in 2025?
So most likely, those will be start to deliveries toward the end of the year, and revenue will be dominantly in 2025. Typically, order to delivery cycle with heavy capital equipment is quite long. We see some revenues because we do POC, heavy capital equipment as well. So we see some POC toward the end of the year, but the actual delivery will be then on the following year.
Okay. Great. And then perhaps, yeah, final question. It's been about a month since you announced the plan to divest the cement business. Have you seen any early interest or any input from clients or anything, or what has happened, yeah, since you announced that?
So basically, now we're in the process of appointing an advisor to help us with the sale of the asset. We are preparing a data room with all the details. Then we continue preparing cement as a business for the sale, meaning, as I mentioned earlier, we continue addressing SG&A issue what we have there. We continue cost out. We continue to focus on the service. And there's some interest in the market what we've seen, but it's, of course, early indications as informal because if there's interest, we register the interest for the cement. Once we start the process, then we start further discussions. But there's some interest in the market for the cement.
Okay. Great. Thank you very much.
Ladies and gentlemen, t hat was the last question. I will hand over back to FL Smidth for a closing remark.
So I would like to, with my closing remarks, remind you that what we discussed in the Capital Markets Day and the transformation that we are going through, and I'm very pleased about what we've been able to deliver in 2023 in terms of speed of execution, speed of transformation, and that we are very proud of. And at the same time, the top line profitability, you see continuous progress in the gross profit. When, of course, when you look at further down the items, you still have lots of noise and cost from the transformation activities. But rest assured, we focus on quality of the earnings. We make no compromise with the quality of earnings when we take new business in, whether it's capital or service. And we remain committed to that principle.
At the same time, we are building leadership position with all our product areas we operate in. As we discussed earlier, we are number one or number two in most of the products what is in our portfolio. We continue addressing our market position in pumps with further investment and focus on the business. We continue that. Also with the actions that Josh highlighted, we are building a foundation for long-term growth. It will be not immediate. Sometimes, like a mill liners, we are starting from a very low base. We grew business last year 50%, but the actual number is still quite small. Over the years, over the coming months, it will yield dividends also for the top line. We are committed to quality of earnings and also long-term profitable growth.