Hello, everybody. I welcome you all around the world here to our beautiful Copenhagen, the headquarter of our company, FLSmidth, for the Q3 report in the year 2021.
The highlights for the quarter, we had quite a strong order intake and revenue. We had a really good improvement in the EBITDA, especially in cement. We had a higher net working capital, and with that, a negative cash flow.
In the quarter three, we issued successfully new shares. The market outlook in mining, good momentum. This is growth cycle. In cement, midterm recovery definitely expected. Midterm, long-term, quite a good outlook. The demand actually in both industries for green solutions is very high.
We maintain the guidance, which means on the revenue DKK 16 billion-DKK 17 billion and on the EBITDA margin 5%-6%.
As we flagged before, on the full year, we will have around DKK 100 million costs incurred based on acquisition activities.
On top of it, as we announced yesterday evening, I will leave that position at the end of this year, and Mikko Keto, our good colleague from mining, will take over from the first of January next year. Mikko is with us already since the first of January of this year.
He has a significant good track record in mining and other industries in multiple leadership functions. His attitude, value set, ethics fits into FLSmidth as he would be born here. I'm very happy. We and the board, myself, we are very happy that Mikko will take that role.
That role, based on the thyssenkrupp acquisition, will be in the future so much in the overlap with the mining president position based on being 75%-80% mining when the thyssenkrupp acquisition is done, that we combine the role. This will give FLSmidth a very strong focus on profitability, on the MissionZero, on the thyssenkrupp execution, what already Mikko is leading since he is on board here into our company.
You will meet him, of course, on several occasions in the near future. Out of that, into the mining market, it is a positive outlook. It is a green transition. It is a long-lasting growth cycle where we are in, which is driven by e-mobility, green energy, and of course, all the infrastructure work what we need to fight against the climate change. The commodity prices are on a high level.
Yes, they are volatile, but we all can remember the times in the darkest hour of the mining recession 4 or 5 years ago, where we were in copper less than half of that what we have today. We have high production rates out in the industry.
The industry moves back into normal activity, but customers stay cautious with their large capital investments, actually a combination out of the COVID and sustainability permitting talk. If you look to the right side of the slide, mining revenue is 20% up organically.
The service, 4%, and the capital, 52% up. The reason for the service is we have good order backlog, but of course, some of the restrictions, logistic things were not enabling us to deliver the full potential.
As you see, when you look back, gradually we move more and more positively, which is good to see. On a very positive note, our EBITDA margin improved from 9% to 9.5% in quarter three. In the 9.5% is roughly DKK 30 million M&A costs included. If we then look into the order intake, on the left side you see the order intake for the quarter three comparison.
There we have a 19% growth in the service, again, a strong performance, and a 6% growth in capital business. On the right side, you see from quarter three 2019 to quarter three 2021, the development of the different elements of our business in mining.
For example, if you look into the service part, you see that we are more or less on that where we were in 2019. Actually, the order backlog looks similar like in 2019, so that we are not always comparing with the COVID impacted year, which is for us and management and the way forward, quite important to see. Overall, quite a good move out of that very low activity year in 2020.
Out of that, we go on the TK acquisition. As you know, we had the signing a few months ago where we flagged and informed the market that we are on the way to take over the thyssenkrupp mining business into our group. It's roughly a revenue of DKK 5 billion.
What you see is, and what we can report on is the timeline for closing is completely on track. We are absolutely pleased with the performance, what we get out of our future colleagues, as well as what we do ourselves to get that business on board.
Generally, I have to say the market approach of the thyssenkrupp mining colleagues, management, well done, guys. You fight good, and that's great to see. We are happy when we have you on board. One thing what we would like to mention here is our equity issue. That is completed. That was quite successful. We raised DKK 1.4 billion to fund the acquisition. On the other side, the EV is reduced to DKK 2.1 billion. That means a reduction of more than DKK 330 million.
The reason for that is that the India business of thyssenkrupp Mining is excluded from that transaction. The background for that is, at first, we are very strong as FLSmidth in India already. You know that roughly each fourth colleague of us is Indian citizen, and the activities from thyssenkrupp Mining are, for us, strategically not important. It has no effect on the transfer.
It has no effect of IP technologies. We keep, of course, the synergy effect, what we announced, exactly on the same level. Out of that, I would like to go into cement. Cement has quite a lot of talk, and more and more actually real facts around green offering. We are unbelievably well-positioned there. If you followed a little bit the COP26, how much we as FLSmidth were there and helping and supporting a lot of discussions and initiatives there.
This green solution is the future for cement premium. That's clear. We have an overcapacity in a lot of regions. Customers are still actually deferring big investments. They are on cash preservation. We see with the stimulus packages, with the infrastructure bills around the world, that this business will come strong after the midterm or in the midterm. What is it? What will drive it? I give one example.
Everyone talks about climate change, huge change of weather conditions. A lot of humans are living on the coastline.
We have to protect them. We have to build infrastructure. Look into that what Japan yesterday announced. We will be heading that. We will offer green cement technologies to make it happen and to protect the people. That's our position. That's our MissionZero. For that, the sustainability and digitalization investments, what we did, will greatly pay off.
If we then look to the performance of our in the revenue in quarter three, it's a 22% organic growth, where the capital business got a 61% increase and service is 5% down. Where does that come from? We actually, in the reshaping activity, let some of the business go.
We announced that fabric filter and so on. We de-risked the company by minimizing our exposure into some of the O&M areas. That all in that quarter added up that we didn't have growth in the service part. On a very positive note, from a not good -4.8% EBITDA, we improved to 0.2%.
A big thank you to my organization to make the reshaping in that way that we already can show a positive bottom line in the quarter 3 2021. Well done. If we then look into the order intake, another good story when we look especially into service, where we are very much focused on, we have a 44% increase in service for cement, which is great.
In capital orders, with these relatively low figures, to get a larger order in or out moves the needle quite a lot. That is -18% then in the quarter. Organically, it's a 17% growth in a market which is fairly under pressure.
If we then look to the right side, again, from quarter 3 2019 to quarter 3 2021, you see that we are coming out very well out of quarter 2, the main hit in the COVID time. Especially the service has now the 5th quarter in a row in order intake growth in service, which is phenomenal and quite great. Out of that, we look into the supply chain situation, logistics, procurement.
There's a lot of talk in the global economy, not only in cement and mining, actually more in other industries, about the challenges. What we can say is we are, of course, not inert against these challenges, but the impact on us is low in quarter 3 and absolutely in line with our expectations. Where does it come from? We have a business model which is close to asset light.
We invested significantly in the last 5, 6, 7 years into procurement, logistics, supply chain setup, and that pays off. We are quite agile and proactive in that area. From that point of view, we can mitigate to a certain extent these challenges by being flexible and actually moving from one continent or country where we have restrictions or anything else into others. That makes us only with a low impact.
Out of that into R&D. We are always proud to show something, this time about mining. It is the REFLUX Flotation Cell. To describe it fairly quickly, in it, this cell delivers the same performance as 3-4 times bigger conventional flotation cells, and actually on a lower energy consumption and for some of the deposits, for a higher recovery.
This is again, a technology where we take an existing one, improving it for sustainability reasons to come closer to our MissionZero target, where we promise to be in the position to offer technology to be emission zero in the year 2030 in mining too. Out of that, I would like to give to Roland, our CFO, for the financial performance.
Thank you for that, Thomas. A quick glance on the group's financial result for the quarter. As Thomas mentioned, the revenue is moving forward 22%. We're keeping our gross margin largely flat, and that means that the company is moving forward also in EBITDA, to DKK 305 million and improving EBITDA margin from 4.6% to 6.5% compared to the same quarter last year.
After clearing financial costs and taxes and so on, profit and loss for the group equals DKK 95 million. If you look at our revenue growth of 22% compared to the same quarter last year, most notable here is that our total capital revenue or our capital revenue out of total revenue increases from 38% to 48%.
If we look at the right-hand side, we're also increasing, you know, total revenues compared to previous quarter. More notably, we are largely back at the level we saw in Q3, not 2020, but in 2019, which in many ways is a more relevant comp.
Our gross profit increased in nominal terms for the quarter, and our gross margin stayed largely flat. You know, the increase of capital revenue out of total revenue from 38%-48%, obviously weighs down on this margin percentage. Also a little bit of extra logistics cost and so on sits in this margin percentage, but no more than we had expected. On the right-hand side, we see that mining is the one carrying most of this, so a slight decline in gross margin.
The same actually for cement, a larger share of capital revenue, but the reshaping activities in cement now starts to kick in and also truly sit in the numbers and hereby improving gross margin.
Our SG&A ratio improved down to 14.6%, DKK 682 million for the quarter. In that number, we carry DKK 30 million of acquisition costs related to TK, a little bit of cement reshaping costs, and also our sales cost is up a notch, driven by an increased level of travel and so on compared to the same quarter last year. In general, our SG&A is well under control. Our head count is kept flat, and that also gives us some leverage from the significant increase in revenue that we have seen this quarter.
All in all, thereby improving our EBITDA strongly. We're moving forward to DKK 305 million, and the EBITDA margin is up from 4.6% to 6.5%. This is driven both by mining and cement. Cement that is now back in small but black ink territory for the quarter EBITDA-wise.
On the right-hand side, we see that the improvement in EBITDA is largely driven by the revenue pickup. Then there's a few other things up and down for acquisition costs and reshaping costs and so on. Ending up in DKK 305 million for the quarter in EBITDA.
Our net working capital went up for the quarter after five consecutive quarters in a row of reducing net working capital. We went up to 10.4%. On the right-hand side, we see this is primarily driven by an increased level in activity and revenues.
We are building a little bit inventories to circumvent the logistics challenges, but also to be able to deliver a higher level of service and aftermarket business. Trade receivables is up, driven by an increased invoicing activities predominantly from our projects towards the end of the quarter, but also from our service and aftermarket business that did quite well through August and September.
That means that we end the quarter at a net working capital of about DKK 1.7 billion, largely in line with our expectations and also what we previously have communicated. The increase in net working capital leads to a negative cash flow for the quarter, cash flow from operations and also free cash flow. If you look at the right-hand side, we are increasing the EBITDA significantly, but net working capital is increasing.
That means cash flow from continuing activities of DKK -48 million. We then have a negative cash flow from our discontinued activities of DKK -144 million, and thereby the group's cash flow, free cash flow ends at DKK -253 million for the quarter.
Our capital structure, as Thomas mentioned, we issued new equity of DKK 1.4 billion in the quarter by way of a direct placing. That money is meant for consideration of the TK Mining business that are expected to close the second half next year and thereby also be fully paid.
On the right-hand side, that also means that currently our net NIBD position is zero, cash position is zero, and a leverage of 0.0x. If we exclude the capital increase, our leverage would have been 1.4x coming out of Q3. That lead us to guidance.
Our guidance is maintained for the full year 2021, a revenue of DKK 16 billion-DKK 17 billion and an EBITDA margin of 5%-6%. There's still some uncertainty due to the pandemic and potential logistics issues for Q4 around the guidance. With that, I'll give it back to Thomas.
Thanks a lot, Roland.
Of course, as in all quarters, our in-house sustainability performance. It is important as a leading provider of sustainable solutions into mining and cement, of course, to report and to show what we do internal. I always highlight the safety performance, and this year is not a good performance. We actually dropped back. We are on 1.8. We do a lot of activities to come back on track.
Last year, we had 1.0 on the safety target, but it seems to be not only us, with more activity out in the market and COVID measures are lower down, that the safety situation worsened a little bit. All activities are in place to show a better performance next year, what we definitely expect. Quite important in the quarter too is actually on the mine site.
We had the MINExpo in Las Vegas, and the first time we showed the MissionZero mine concept to offer customers with existing plants, planning for greenfield, new, sustainable, more sustainable related offerings into the mining industry, which was unbelievably well-received.
On the other side, with our cement colleagues, there we have the first commercial offering for carbon capture, and that is what we do in collaboration with our colleagues from CarbonCure. Out of that, to wrap it up, strong order intake, good revenue, really good EBITA improvement and guidance maintained for this year. With that, I would like to go to the Q&A.
Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad and your answer queue.
After you're announced, please ask your question. Once again, if you would like to ask a question, that's zero one on your telephone keypad now.
Our first question comes from the line of Magnus Kruber from UBS. Please go ahead. Your line is now open.
Hi, Thomas. Magnus Kruber here from UBS. A couple of questions from my end. First, on the revenue guidance. I mean, given the very solid print in the quarter, I think even the upper end of the guidance looks conservative. If I look at your prior years, I think in the past 10 years, I think you've never delivered a lower revenue in Q4 than in Q3.
The lowest sequential improvement you have was DKK 400 million last year in the context of COVID. If we should see similar sequential improvement this year, that puts us around DKK 70.5 billion for the full year. Yes, what am I missing here in terms of the revenue guidance?
Hey, Magnus. Thanks for the question. What we see is that we go towards the DKK 17 billion. That is what we give a comment on the guidance. The important thing here to know is that we have to see how the end of the year, which is, as you rightly said, normally always a strong finish, how that develops with logistics and other things. If that works very well, then it could be a good quarter. If it works really not well, then it could be not a good quarter. That is what the guidance actually covers in it.
I know you always think, oh, we are too cautious or too conservative, but we know that some impacts on logistics, I take, Ningbo Harbor in China or any other event, can have quite a harming situation in the short term, not in the long term. December in itself is very important for us. That actually is the reflection on it.
Okay. Got it. Thank you so much. Secondly, of course, again, this very solid revenue in the quarter and the margin, of course, also impressive in the context of that. Could you help us a bit on how you saw the mix in OE deliveries in the quarter between larger projects and other OE and what we should expect into Q4? I mean, given the implications for sequential margin development, the mix there is quite important to get the numbers into.
Very good question. Yeah. At first, you see, of course, in the EBITA improvement, the leverage regarding the top line, cost versus top line. You see in the quarter too that we have significant higher capital business than we had a year ago. With that, the margin development actually was good, but it was really more the leverage because the product mix was on the contrary. You see that in the gross-margin development. Overall, as expected, I have to say. There was no surprise in it. Good performance of the organization.
Regarding the mix in the capital. Because you see the mix with service and capital already presented. If it's smaller units and bigger deliveries, it's actually mixed out of both.
We had a low impact of logistics challenges, so we were able to deliver in the quarter, some of the bigger stuff, too. It was actually quite, I have to say, a normal quarter.
Okay. In terms of the mix into Q4, is there any sort of notable change in the invoicing of the larger orders from Q3 into Q4 that we need to account for?
Thank you for that, Magnus. To the extent that we are able to convert the backlog, you should expect the same type of capital service mix in Q4. Also that will weigh on the margin for Q4.
Okay. Got it. Thanks so much. Then, yeah, finally, if I would, I think that, I mean, I noticed the equipment orders adjusted for the announced order appeared to be down a little bit year-over-year in the quarter, which surprised me given the solid backdrop. Is that just down to the normal lumpiness, or how should we think about that into next year?
You know how it is. In some cases you are lucky to get it into a quarter or others are jumping out. We announced an order then at the beginning of October that could have been in the Q3 too. Then the picture immediately looks completely different. So we have a good order pipeline. We see that. The mining industry looks very, very healthy.
We definitely can't complain about that. Good future ahead of us in it. This is simply from one quarter to another, the variation. Nothing special, and our competitiveness is actually quite good.
Brilliant. Thank you so much.
Thank you, Magnus.
Our next question comes from the line of Claus Almer from Nordea. Please go ahead. Your line is now open.
Thank you. Yeah. First of all, Thomas, congratulations with your new job. I have two questions. I will do it one by one. The first question goes to the service orders, which both within cement and mining was relatively strong. Is this a new level or do you see a positive impact from customers, you know, placing orders ahead of a possible lockdown? That'll be the first one.
Yeah. Thanks for the congratulations, but I actually hope that you congratulate us for a good quarter three. If we look into the service part, if you take mining, we are in line with the industry in it. We have a strong run. Actually, you see that the stationary equipment suppliers into the mining industry are on the same level. Actually, the mobile ones are on a higher level or were, at minimum, in the last few quarters.
That reflects the accessibility of the mine sites because the demand is there. They have high production rates. They have high commodity prices. We see that service level actually not dropping back. You will see variances quarter on quarter, up and down. In general, we are actually at 2019 level and taking it from there.
In cement, that is of course a very strong performance, especially of our regional organization, to have a 44% increase. In that of course, we promote to help customers in the cement part with upgrades and retrofits to fulfill on one side, more sustainability regulations and on the other side to tackle that with the overcapacity. That of course came in the quarter quite well.
We have a very strong position in that, and that is what you see reflected. Do we expect that this journey, what we see now for 5 quarters in cement, each quarter higher order intake? I would wish for, but that's unrealistic. But we will have a good aftermarket time in cement too. Don't expect that it will go on now with that growth rate. That's unrealistic.
Still growth.
You will more see the same picture like in mining. Some quarters with growth, some with a little bit down based on when we come into next year or mid of next year, when we compare with stronger quarters this year. You will see different percentage figures. Because one thing what we should not forget, all the figures of all the suppliers in 2021 are compared with an extremely low year, 2020.
We expect that we are on a similar level, slight growth up, a little bit down. Yeah, you can say a new norm, but I would more look, that is what we do, not so much to 2020. We look more to 2019 to compare with. That is more realistic comparison.
Sure. Okay. My second question goes to the pricing. Given the improving activity level in general, are you starting to see a better, should we say, contribution margin in the backlog? Are you actually able to price up in your order intake?
Yeah. What we see is at first, you know that the pricing has two sides. One, what we get towards the customers, and one, what we get towards our suppliers. Our suppliers enjoy quite a cost increase.
We are able with our, as I said in the presentation, I think really good, supply chain procurement and logistic organization to tackle that in a good way. What we see there, we are able to get that towards the customer and to communicate that in a positive way. That is already in itself quite a big figure. If that situation what we see is ongoing longer, what we believe a few quarters more, that gives of course, companies like us the possibility to raise the pricing more and more. We are not the only one.
You see McDonald's now out with price increase. Of course, we utilize that too, not only over the Big Mac Index. With that, we will come out of that situation stronger in the pricing situation. We see pricing actually neutral to more positive in that range.
Okay, that sounds good. That was all for me. Thanks.
Thanks.
Our next question comes from the line of Max Yates from Credit Suisse. Please go ahead. Your line is now open.
Thank you very much. Good morning, everyone. Thomas, just my first question would be around the margins and thinking a little bit further forward in mining. You used to have an 11%-13% margin target for mining. It looks like you'll be around 9% this year with still DKK 100 million, so nearly 1% of impact from the thyssenkrupp cost. I just wanted to get your perspective on, you know, when you think back to when you did have that margin target for the division. How has business changed or how has the market environment changed? Because clearly from a volume perspective, things are looking relatively good.
Just wondering, kind of in your perspective, is there any reason versus the environment when you gave those targets and compared to today, assuming you execute on your backlog and the market continues to grow, which CapEx indications would suggest it will. Is there anything fundamentally different today versus when you had that target?
Yeah. At first, the fundamental difference what you have is, we come out of that COVID situation. COVID is. Forget about the virus and so on. You have to look into the logistic challenges.
Logistic challenges cost money. That's as simple as it is. What we do, and you saw that a little bit in the net working capital movement in the quarter, we are trying to supply as quick as we can, because if you stay in the supply time as agreed with the providers, with the logistic providers at the beginning of the year, actually, the additional cost is not high. If you move one week out, it gets unbelievably expensive. That is an uncertainty what we see in the next few quarters still hanging over us.
You have higher commodity prices, which goes into that whole calculation too. Of course, we are very much and actually we are quite good in bringing the prices towards the customers up, but you always have a little bit of lagging effect in that too. These two give a kind of an uncertainty that I can't stand here and say, "we are then coming back into the old range or so." Takes a little bit more time. We will see. I think we move or we see we move in the right direction, and we will communicate if we have more clearance on it. Absolutely open to the market how we see then the longer term part.
Okay. That's helpful. Maybe just then, Roland, if you could help us with just when we think about your purchasing agreements, any sort of hedging that you have on raw materials, is there anything when you look at your sort of hedges and or the way that you purchase raw materials or the agreements with component suppliers that mean that current commodity prices are not sort of fully reflected in your cost of goods, your cost of goods sold so far, and that we should see those kinda meaningfully rise from here based on commodity price increases that happened earlier in the year? I'm just trying to understand if there's any lagging effect that you would expect to come through in your business for the next couple of quarters.
Yeah. Thank you for that. That's a good question. It links a bit back to what Thomas is saying. First of all, in many of our larger contracts, we have price adjustment clauses. That's one way of hedging it.
As Thomas says, there may be delays from when these adjustments happen until we can implement in our commercial terms, right? It hangs a little bit in our Q2 and in our Q3, may also be in Q4 and Q1. These are things that we are working quite intensively with. As Thomas also said, I think we are mitigating relatively well.
I wouldn't see a large commodity exposure risk on the company. That's one thing. The second thing is, actually for many of the commodities, increasing commodities is also good for our customers because many of these guys are actually living from this. It's, you know, a balanced picture. I think that, you know, our hedging or mitigation policies works quite strongly for the company.
Okay. Just my final question, I just wanted to ask on the sort of new technologies that you talk about. I mean, the one that I hear a lot about is in-pit crushing, both from you and from the industry. I just wanted to know, I mean, could you put any sort of numbers around or help us understand kind of how mature this is within the industry? I mean, is it literally a couple of pilot projects? Is this something where it is actually a kind of meaningful product within your order intake?
I'd just love to know kind of a little bit more about sort of where we are actually in the rollout there and kind of how applicable this is across the entire industry or whether it's only really in more specific mining applications.
As a mining engineer, I really love that question. Thank you very much. To make a long story short, this in-pit crushing technology is offered to the industry for 3-4 decades. What we see now with the sustainability run, with the run to how to say we have open pit mines not so open any longer, and to get more energy efficiency, to electrify, to replace trucks which are difficult to electrify with belt conveying systems and in-pit crushing.
This, in the last two years or one and a half years, is a hell of a run on that technology. We have a lot of cases where we work with clients, how to mitigate it or how to bring it into their pit in existing pits, and especially with greenfield. When we look into what does it mean?
It means actually for the customer not to have a truck fleet of 200 big trucks, to have two or three belt conveying systems and crushers in the pit. If we look into one of these installations, we talk normally if it's a bigger pit, a bigger copper mine and so on, we talk in the range of EUR 100 million for such an order.
It can be significantly more, can be somewhat less based on what the customer already has. If you look into how many hundreds of open pit mines we have and some of the greenfield are going open cast, open pit too. That makes it, especially for the greenfield, very viable to go into in-pit crushing because the design of the pit looks different than in the conventional method.
From that point of view, this is a big business to come in from the industry and to finalize it. A big part or one part of the thyssenkrupp mining acquisition is actually targeting that business. Our colleagues at thyssenkrupp Mining, as well as the business that we took over from Sandvik, the Sandvik Mining Systems, they are experts in that.
We have all the equipment, we have all the competence to be favorably positioned there. That's the reason why whatever is out in the market, we work on.
Okay. I mean, I completely agree. It sounds and makes a lot of sense. Is this something that is largely sort of still under discussion or have we actually seen sort of orders flowing through? I understand that it's kinda talked about, but I'm just trying to understand whether kind of we're still in discussions or it has actually translated into do we have working examples out there, not just from you, but from any client?
Yeah. We have orders already in. It's orders in the order backlog, but they are smaller ones where we replace here and there. Don't forget, if a customer in an existing plant go into that, then the design has to change. It's a little bit a bigger thing. The most important is that we are not going to the customers any longer to offer it. It's actually that the customers come to us to get a quote on it. That's really a breakthrough. The order pipeline for it looks good, and they will come. It's not only discussions.
Okay. Great to hear and good luck in the future, Thomas. Thank you very much.
Thank you.
Our next question comes from the line of Lars Topholm from Carnegie. Please go ahead. Your line is now open.
Hello?
I had a couple of questions. I know it's probably difficult to answer, but if I look at Cement Q3 and compare to Q3 2019, you are sort of back to the pre-pandemic level in terms of order intake, but 20% below in sales. If I look at mining, you are back on order intake and slightly up on sales. I wonder if you have any soft assessment on how order intake and sales might have been affected by the pandemic. That's the first question. A second question is to your slide about the RFC technology. If customers can get much more out of a flotation cell, how is CapEx per capacity unit affected?
Because presumably it means less business for you to sort of generate the same amount of copper or gold. A third question, I can see that after H1, you wrote that the use of supply chain financing had slightly increased, and after Q3, you say it has increased. I wonder if you can put a number on the increase in comment on how this affects your net working capital position.
A final question, to the DKK 113 million in cash withdrawal from your discontinued business, I just wonder what the dispute is about and now you treat it as a receivable.
If you are wrong and the customer is right, would it then be DKK 113 million that is booked as an expense, or how should we look at that from an accounting perspective? Thank you.
Yeah. Hey, Lars. Good to have you here on the call. At first, with the cement and the order conversion into sales, what we have in cement is that big part of the cement market worldwide is still looking into not to spend too much cash and too much investment money. On top of it, of course, based on the restrictions, cement is more local organized.
They, most of these clients we work with are not having this global setup and global internal company company logistic as we see it in mining. That's actually the reason regarding the realization of the order intake into sales. We have the REFLUX Classifier question. It is as it is with all equipment in the processing part, it never, ever fits to all sites and everywhere.
It is specialized. You can replace copper, we see in gold, we see it in some other commodities and especially deposit specific quite a utilization of that technology. It doesn't reduce our offering.
Actually, it increase because when we look into conventional flotation, then we buy a lot of steel, the tank, all the beams, everything around the building, actually. That is the part what we reduce. The relative portion of our equipment versus the total supply for flotation installation is getting significantly bigger. With that, our margin improves, relatively too, because we don't need to buy a lot of, let's say, unintelligent steel like beams and stairways and handrails and I don't know what else.
The third question was on.
The third question, I think that was supply chain financing, Lars. Thank you for that. You're right, we haven't given you the number. What we're saying is that it's significantly less than it was by end of the year last year, and there it was DKK 1 billion. Today it's less than half. It's not big swings between the quarters up and down. That was on supply chain financing. On the time-
It increased. Sorry. It increased in Q3, right? When it increases, you book payables at 150 days of credit-
Yeah.
which boosts your net working capital, which is still a drag on cash flows. I wonder if you can put a number on the drag on cash flow if you-
Yeah, that's a very little number.
It, it-
No, I understand the question, Lars. We are sitting at a relatively stable amount of supply chain financing that is less than half of what it was when we came out last year. It's going a little bit up and down, and this quarter it has gone up. The impact on net working capital is negative, right. That's right. It's a very little number.
Okay. Thanks.
You had a question on the Samman case.
Yes, exactly. We already flagged it in the interim report. The fact is that we have a very extraordinary situation which we don't like, and we rejected the claim that the customer took a performance guarantee. This is very rare, not only in a year, this is very rare in my whole time here in the company. That happened. Of course, we rejected the claim with everything we have, and we strongly believe that we are on the right position there. We know that we are on the right position. I can't lend more confidence on that than I just do. If we would see any risk of it, then we would treat it differently.
Yeah. To your question, Lars, we have treated that as a contingent liability. It's under other receivables. It means that if against all our expectations we will have to pay it has to be expensed.
Okay. That's clear. Just getting back to my first question, Thomas, on cement order intake being on par with pre-pandemic levels. Is it too optimistic to interpret that as there might be a slight underlying improvement in that market if a level on par with pre-pandemic levels is still dragged down to some extent by the pandemic, or is this just wishful thinking?
I make it like that. If you remember back in 2019. 2019 was already a very low year. This was not a good year for cement. We had a good revenue recognition in the Q4. Actually, when we look at the order intake and the activity level in 2019, that was not a good year. To go back in cement on 2019 level is not satisfying. The second thing is it's predominantly service where we really perform here, and that is the green agenda and the help with upgrade and retrofit, where we invested in the reshaping a lot. You remember that we took our fabric filter, then the Möller brand, and a lot of capital stuff where we think it's not core and/or was not profitable.
We refocused and invested quite a lot in offering customers, competent services to help them now, today, to reduce the environmental footprint what they have. That pays off. No matter that it's a 44% increase, of course, we compare that with 2020, which is not a great year at all for cement. Nineteen was already not a good order intake year for cement.
That's fair enough. Thank you very much for taking my questions. Good luck going forward, Thomas.
Thanks a lot, Lars.
Our next question comes from the line of Laurits Kjærgaard from ABG. Please go ahead. Your line is now open.
Thank you, Thomas and Roland. I'd like to congratulate you on a strong Q3. Very impressive. Thomas, today you have been very upbeat. It seems from my perspective on today's conference call about the future of FLS. I understand that you've been offered a new position, and congratulations. May I ask you, why are you leaving FLS?
At first, I don't see that I'm more upbeat than I was before. Thank you for the question, actually. No matter that we really rehearse which kind of words I use and which tone. It is difficult. Don't take it as an upbeat. It's the same as before. The company is in a good shape. We have a good balance sheet. We have a fantastic, good, strong management team. The best management team what I enjoyed. Since I'm an FLSmidth, I can say that loud and clear. A top organization around the world. This is important. Our MissionZero is good.
I have to say I'm unbelievably happy, and the board so too, to have such a competence like Nico in the company to take them the next step of the company's development. That I leave is clear. It has to happen. That's with the role of a CEO, and I'm definitely of the opinion that CEOs should not stay too long. A change from time to time sure is quite good, and I'm already one, if not the longest lasting in the whole sector, and maybe in the C25 too. If we then look into why timing now, take the thyssenkrupp acquisition as one argument. We have the signing, now the integration planning comes, and in the middle of next year, most likely we have the closing, and then the full impact of the performance will be in 2024.
It is never ever good that the manager is leading the integration planning, but then not being available to make the execution. That would mean I would have to stay up to 2024, which is from my point of view and board's point of view, definitely too long for a CEO to stay. It is logical that it's now the time. Our succession planning process, which is an ongoing thing and what we do for years and it's quite well done, is a logical step that you can trigger it. On the other side, Mikko is in since first of January, and his performance throughout the year in leading the thyssenkrupp, in leading mining, really brought us, the board and myself, to the conclusion now this is the time to do it.
It is from a personal point of view, of course, sad. I can say that too, because I don't like to leave, but that's the way it is. That's life. The company will have a good future, of course.
Mitch, just a quick follow-up. I completely understand the rationale and the points, but nevertheless, Mikko has very much been given the role of integrating TK Mining in FLS from the former manager, i.e. you. Wouldn't it have been better perhaps for him to have made the decision back in the day, as the CEO, because now he's very much given the role to integrate it?
You mean that he should have been taking the role earlier?
Yes.
Yeah. That's, of course, another. As you see, we didn't do that. As you see, board and myself and top management had other thoughts on it. When you look into the CV of Mikko, he worked in Metso, he worked in Nokia, he worked in KONE. He has a very broad range. Of course, it's always good if a CEO is an internal recruit. I came from outside, was a challenge for all the people working with me, I guess, and maybe for me too, a little. With Mikko, he, as he acts today, it is as he would be forever already in the company. This is a fantastic smooth transition. Yeah, great.
Okay, fair enough. Just on your guidance, usually many of your customers, they stock up in Q4, shut down operations for maintenance, et cetera. So a great opportunity for FLS to generate sales also from aftermarket services. I think the dynamics were discussed a little bit before, but I didn't find it too clear. Are some of the revenue pulled forward from Q4 into Q3, given the more cautious Q4 assumptions relative to normal season? Or is there something fundamentally going on in Q4 which we should be aware of?
Yeah, thank you. Thank you for that, Lars. There's nothing fundamentally we should be aware of. Yes, we had a strong Q3 revenue-wise, strong conversion, strong end in September and high invoicing and so on. At the same time, you know, we are still uncertain of our full ability to execute the backlog, convert the backlog to revenue, through Q4 and into December. You know, hence, that's why we are saying if everything goes, you know, reasonably according to our expectations, we will trend towards the upper end of the revenue range. That's how we're thinking about it.
There's no sales which have been put forward from Q4 into Q3?
No, no.
Just a last question. If we look on the nine-month results on the number of employees in Cement, they are down 22%. It's almost 1,000 people. At the same time, order intake is up 24% in the same period. Do you have enough employee capacity to execute on the orders? I'm just wondering about the dynamics there between the two numbers.
Yes. Yes, we have. We have an agile system if we would run into a squeeze, what we don't. Fact is that we took some business out. There were people related with fabric filter, Möller, and O&M, which normally always has quite a lot of people in one O&M contract. That is a big part beside the reshaping of the industry. Don't get concerned with that negative figure. A big part of it is actually to let business go, which is not profitable, not strategic important, and/or too high in risk.
Can you fabric filter, Möller and O&M, can we say how many of the 1,000 people are engaged with those three operations and how much then?
Yes.
is interested in reshaping?
I think I could, but I think this is getting too much into details, really.
Okay. Super. Thank you very much for taking my questions, and congratulations on your new job, Thomas. Thank you.
Thanks a lot.
Our next question comes from the line of Claus Gille from Nykredit Markets. Please go ahead. Your line is now open.
Yeah. Hello. Two questions from my side. First of all, if we look at Cement, what would be reasonable to expect for Q4, and especially in terms of earnings? Secondly, Thomas, you've been fairly bullish on the midterm outlook for Cement, but could you try to quantify that in any way? For instance, when could you be back with, let's say, revenues of DKK 6 billion-DKK 7 billion and then a EBITDA margin of 5% or anything? Any color on that would be helpful. Thank you.
Yeah, thank you for that, Claus. Maybe on the cement, as we have said, we are continuing the reshaping activities and cement will be negative for the year. That's still the case. Now we have turned black in Q3, and we expect to continue to do that in Q4.
The question regarding the midterm outlook. I can't guide on the midterm outlook and that is, that would be not fair to make it like that. We are upbeat about that, what the demand side shows. The demand side with the stimulus packages, with the infrastructure bills, with all the necessary communicated out of societies, governments, companies, communicated infrastructure investments to tackle the climate change. That is where we dwell on. If you look into, I take now the COP26 from this week and last week. Cement with 8% CO2 contribution in the world is seen as one of the, let us say, not so positive industries on Earth.
There's a huge push that cement gets from a technology point of view better, and with that, reducing significantly the CO2 and other emissions. We are in a top position there. We invested a lot in the last few years, or actually for quite a while, not only in digitalization and sustainability, in technology development. This is high tech, what they asked for. High tech, and that is where we play. Out of that, to finalize it, we had in the mid-2000s the situation that with the China boom, a lot of mid-market, more standard equipment, more commoditized equipment is hitting the cement industry. We saw that year-on-year, which challenges we had as a premium supplier. This market, the mid-market, took 60%-70% of the whole market range. I can give a figure.
We had roughly 60-70 new plants awarded to suppliers in the year 2012. In the year 2019, it was 6. That is what cement was about. Now with the request of sustainability and digitalization, the premiums are back, and we foresee that the premium market, which was before maybe 30-35%, will grow again. Will not get bigger than the mid-market, but definitely bigger than it is today as a share of the total cement. On top of it, the whole cement grows. That's the reason why cement will be, in a few years, a good business to be in.
Okay. Thank you very much. Good luck, Thomas.
Thanks a lot.
Our next question comes from the line of Debashis Chand from Societe Generale. Please go ahead. Your line is now open.
Yeah. Hi, thanks for taking my questions. I have two questions remaining. First question is on mining. Some of your peers are also flagging more of the larger size orders to come through next year. I appreciate you also have mentioned a strong pipeline, but do you share the sentiment or that's still too early to make such a call?
Yeah. We are not different to the peers in that we actually had quite a good run in the lead in the peer group, but that moves, of course, quarter to quarter, and we are positive on larger orders next year too. Absolutely.
Understood. My next question was on the mining service growth. I just want to understand how much was it driven by the pent-up demand, and, do you see, further runway for pent-up demand to continue in the coming quarters? Thank you.
Yeah. The situation what we have in the mining industry is that they, as we said, are still not completely through to make the large investments all over. COVID-related, and a big part of that is actually sustainability, because when you make today a big installation investment, then you have to be sure that the new rules which are coming and laws regarding water emissions and so on, that this new investment fulfills that all in the future too. That is where the governmental bodies and permitting bodies in the different countries have to finalize their setting of rules. If that is through and COVID is not a big issue any longer, then you will see significant more of these activities getting into the order intake.
When we look into the service part, service is, of course, a reflection of the production rates and at the same time, of lower investment into capital as I described at the beginning. That shows that we have a fundamental good base for service activities. When you look on the last three, four quarters, that is a little bit of bumpy road. Some quarters are higher, some lower in the order intake. That is normal in the mining service behavior based on that how customers in the different areas of the world and commodities like to order, not to order. We are quite positive that the demand for service in the mining industry stays as it is.
Great. Thanks, Thomas, and all the best for the new year. Thank you.
Thank you.
We currently have no further audio questions. I'll hand back to the speakers for any final remarks.
Thanks a lot for all the questions. Thanks a lot for all the good attention and participation here. We would like to say goodbye here from Valby and wish you a safe evening no matter where you are. All the best. Bye.
Bye.