Earnings Call: Q1 2021

May 5, 2021

Hello, everybody. I welcome you to our quarter 1, 2021 result and interim report together with our group CFO, Roland. If you look into the key highlights for that quarter, we had a solid order intake. Revenue was as expected. And with that, a EBITA margin of 5.1%. That margin was positively impacted by a higher service share and the first order results out of the business improvement activities from the last 1 year. The quarter showed quite a positive cash flow and with debt reduction in the net debt. And our reshaping of cement industry continues, which means to make it profitable again and positioning it into the green cement agenda. If we then look into the market, we have definitely a short term recovery in mining as an In cement, it will be a mid term recovery. And we have clearly in the first half of this year, quite a significant impact still from the pandemic. Out of that, we keep our guidance maintained. And the quarter one actually proved that, that we will fulfill the midterm of the guidance in the revenue, as well as in the margin. Now to look into the mining market. Mining is in a commodity growth cycle. That's clear. It's a positive outlook. It's driven by the different investments of the governments around the world with the big packages as well as underlying the huge movement into what we call the green transition. That drives a significant mineral demand. At the same time, some of the commodities struggle with supply. That of course creates high commodity prices and we have high levels, which is very positive and another indicator of a growth cycle in the mining industry. But at the same time, we see a strong correlation between the pandemic and the business activities. And the pandemic is more and more a country specific, a geography specific thing. Out of that, to manage the pandemic, to manage the mine sites and to manage the huge demand for supply, large capital investments, any kind of disturbance is deferred and postponed. If we then look to ourselves and that, our local organizations, our regional structure definitely supports us very much in that pandemic. And in that line, our agile supply chain gives us a lot of opportunities to maneuver in these critical times. If you look to the right side regarding the mining revenue, we are down 7% on organic growth. That means minus 7%. And when you look into service and capital, service is down 4% And capital is down 24%. If you take into these figures the currency, then service is more or less on the same level as we had in the Q1 2020. Out of that combined, we delivered 8.8 percent EBITDA margin for the mining business, out of a 7.3 what we had in quarter 1, 2020. Now we look into the order intake. And in the order intake on the left side of the slide, let me start with the overall. It's a minus 31% versus Q1 2020. Service is 6% down versus last year And the capital is 48% down. But when we look into the capital, we had several large orders last year in the figures. And actually the base orders in, that means smaller orders below 200,000,000, substitution equipment and so on, actually in this quarter, Q1 2021, amount to more or less double to that what we had last year at the same period. Organically, it was a minus 27% growth what we had in the order intake in mining. If you then look to the right side of the slide, from Q1 2019 to Q1 2021, You clearly see that the pandemic in Q2, Q3, partly in Q4, Q2, had an impact on our order intake. And that of course is what we will see then as an effect in the revenue already in quarter 1, but so in Q2 and in the year 2021. But it's definitely with the result out of the quarter 1, a step in the right direction out of that pandemic situation and back into the growth cycle. If we out of mining look then into cement. Cement already moved with a low business activity into the pandemic. But the pandemic in itself gave another step down. And that step down was quite significant. Despite that, sustainability and digitalization is definitely what all the customers, if they invest anything, ask for. There is the same, exactly the same in cement as well as in mining, the strong correlation between the pandemic situation in a geography and the business activities. And it's so close to correlation that you actually can say in the moment when restrictions open up, we have better business activities and vice versa. Out of that situation that Cement is very sensitive to any local crisis, as well as the uncertainty of their end market, no matter that the big investment packages from the different Governments around the world will come. Of course, big investments, capital investment, OpEx investment, as much as they can do, they defer. The same in cement, as well as in mining for our structure, our region structure, our local service organizations, as well as our Agile supply chain helps us a lot to be still strong on our customers. If you then look to the right side, we have a -23 percent organic growth in the revenue. It's -15 percent in service and -41 percent in capital. And that is, of course, clearly a result out of the order intake behavior what we saw in the middle towards the end of last year. Our EBITDA was negative. It was minus 1.7 percent and we couldn't repeat the positive 1.8% from quarter 1, 2020. If we then look into the order intake, we had a +7 percent order intake versus Q1 2020, which is definitely a positive highlight. The main contribution here was a 29% growth on the capital part, which then brought us from the 464 to 598, which is a good movement. If you then look to the right side, where we track from quarter 1 'nineteen to quarter 1 'twenty one, you see that we are actually now having 2 quarters in a row where our revenue is lower than our order intake, which of course we like to see. The other thing what you see is that we in service move step by step out of the pandemic. Both is positive. But as you see too, if you look towards the 2000 Beginning of 2019, we are definitely a step down in the cement industry towards the years before 2019, but higher than we were at the low points in the year 2020. Out of that, I would like to give to Roland for the financial performance. Thank you for that, Thomas. And let's just have a quick glance at the group's financial performance for Q1 'twenty one. So as Thomas mentioned, order intake down by 19%, and our revenue is down organically 13% compared to The same quarter last year, we managed to improve our gross margins and also with lower SG and A cost. Our EBITA margin ended at 5.1% versus 5.0% at the same quarter last year. And clearing financial costs and taxes, a net profit for the group of NOK 54,000,000 for the quarter. If you look a little bit at our revenue, revenue was the lowest for some quarters and decreased 13% organically. But good news here is that our service revenue now equals 65% of the total revenue pie versus 58% in the same quarter last year. And also, we managed to improve our gross margin. Gross margin It's now 25.2 percent for the quarter versus 23.1% in the same quarter last year and also up 1.1% compared to Q4 in 2020. And on the right hand side here, we see that actually both our industries, both Mining and Cement, managed To improve gross margin, both industries managed to improve their service share of total revenue that is supporting margins. And that is despite relatively low travel level in both industries. And also the impact of our business Improvement program from last year had its positive impact to the gross margin. If you look at our SG and A cost, they decreased by 11% to 648,000,000. This is predominantly driven by our business improvement activities from last year and also some lower travel cost levels. If we look a little bit forward, SG and A costs are expected to creep up a little bit as we will Continue our cement reshaping and also our ongoing M and A activities are being expensed here. If we then jump to the EBITA margin slide here, EBITA margins are Lastly on change, the 5.1% versus 5% same quarter last year. And if we look at the bridge on the right hand side, obviously, the drop in revenue here is A contributor to the reduced EBITDA level, but our efforts in improving the gross margin is yielding an additional 81,000,000 supported by both business improvement activity, but also a larger service share and a decrease in SG and A and the other buckets Supported primarily by business improving activities and also somewhat lower travel costs, adds positively DKK68 1,000,000 To the EBITA and we will end the quarter with DKK190 1,000,000 EBITA for 2021. And if we then jump to the development on our net working capital, that improved for the 4th Consecutive quarter in a row, both in nominal terms to about 1.6 But also the net working capital ratio as a percentage of last 12 months revenue continued the positive trends downwards. And if we look at the right hand side, this quarter was positively impacted by prepayments from customers That needs to be seen in connection with clearance of certain payables on those projects and also work in progress. And also we had reduced the utilization of our supply chain financing. But in combination with the strong focus By the organization on receivables, net working capital improved by NOK74 1,000,000 for the quarter, a result we are quite concerned with. And moving to the cash flow, we are then Posting another positive cash flow for the quarter. And if we look at the right hand side, a Cash flow from operations on group level of €285,000,000 DKK and we invested 53,000,000, It's just a little bit low, primarily due to timing. And adjusted for a few small technical things, We posted free cash flow for quarter 1 of NOK 232,000,000. And that on the next slide lead us to be well in line with our capital structure targets. Equity ratio is above 40% and the free cash flow with the free cash flow, we reduced our net interest bearing debt to NOK 1.577 €1,000,000,000 and this is also after having cleared dividend payouts to our shareholders as approved on the AGM in Q1. Also our leverage ratio here reduced from 1.6x by the end of 2020 to 1.4x Coming out of Q1. And that leads us to the guidance slide. And let me just add a little bit Of color to that, we maintain our full year guidance with a revenue of NOK 15,500,000,000 to NOK 17,000,000,000 And an EBITDA margin of 5% to 6%. And when we communicated the guidance back in February when we released our annual report, We assumed a pandemic impact throughout first half, and this is definitely still the case. Since then, the pandemic Has gone from bad to worse in certain parts of the world, especially South America, Chile, Peru, Brazil and especially in India. And this will impact activity levels in Q2 and potentially into Q3. These are areas of the world where we have significant commercial and Operational activity. When we then get towards the second half of the year, exactly as we said in February, we assume That top line will start growing again, especially in mining, but with an increasing share of capital revenue. Cement reshaping will continue according to our plans, expectedly with higher share of costs in the coming two quarters relative to Q1. And with those comments in mind and on the back of a Q1, Lastly, as expected, we maintain and reiterate our full year guidance. And with that, back to Thomas. Thanks, Roland. As a leading solution provider into mining and cement industry, Leading in mission 0, leading in sustainability, of course, we show what our own performance is. This quarter, I would like to highlight the achievements during the quarter. We have approved decarbonization targets for FLSmidth by the science based target initiative. We joined the Coppermark, an international framework established from the copper industry to demonstrate responsible production practices. And that makes us, especially management, unbelievably proud of our organization all around the world in very difficult times, in very partly in very difficult and challenged geographies, we had a lost time injury frequency rate of 0.1. For the ones who follow us longer, our ambition is to be on nil. And an 0.1 is already very, very close to it, and an standing performance in a very, yeah, challenging volatile time. Well done. If we then look into innovation and again, a sustainability part this time in mining, it's about a new automatic filter press. Standard regular filter presses recover between 85% to 87% of the process water. Here with that new highly digitalized unit, we are able to recover 93% to 95% of the process water. Not only that it has a fantastic good sustainability water related impact for the miners, for the customers utilizing that technology. It has on top of it a significant reduced downtime by an improved design. Both contributes to higher productivity and with that to higher profitability of our customers utilizing that technology. When we then look into the key message, what we have to send, we had a cash focus and we delivered Our business improvement activities deliver the result, too. We had a sequential improvement in the order intake, both is based on a strong management culture and a strong organization around the world. Our regional setup, our agile supply chain has proven beneficial for our business. And we see great opportunities within the digital and the sustainable solutions. On the other side, we see continued negative impact from the pandemic. Countries like in Latin America, India, these are outbreaks or new waves just appeared here in the quarter. And we foresee that we will have geographies in the future where that will happen again and again. So our forecast for this year that we see a significant impact of the pandemic up to the mid of the year is actually from our point of view proven right. We see mid term recovery for cement and especially in the green cement, which is a demand of high-tech in cement. And we go on with our reshaping to improve profitability and to position us there. Our focus is to navigate through the pandemic. The customers, cash, cost and pricing are in high focus. We further strengthen our cement as well as strengthening our mining setup in the organization. And M and A, of course, like the discussions what we have with Thyssenkrupp about their mining business, is on the list. Ongoing is our mission 0 ambition to fulfill that, as well as to be innovative and digitalizing as much as we can and that on top of standardization. To look into the Q1, we had a positive we have a positive outlook for mining, definitely significant more positive Short term then for cement. Cement will recover in the midterm. Our order intake and revenue declined year on year, But was a solid quarter. We had an EBITDA margin of 5.1%. We reduced again net working capital and net debt. And out of that, what we said, we are very confident to stay in the midpoint of the guidance and the revenue as well as in the profitability. And with that, We would like to go to the Q and A. Thank you. Our first question comes from the line of Artem Tocarenko from Credit Suisse. Please go ahead. Your line is open. Yes. Good morning, everyone. Thank you for taking my questions. I have a couple, please. My first question is Around your messaging, I guess, when we were at the end of the Q4, you were sort of guiding to a broadly flat H1 'twenty one versus H2 last year, then throughout the quarter, the message has been much weaker on sequentially Weaker results in Q1 and Q2. So I guess my question is what has changed throughout the quarter? Where have you seen major improvements? And keep in mind that there has been results are much better than your recent message. Should we take this as Q2 and Q3, Some of the weakness will be postponed towards Q2 and Q3, or that's not what we should expect. Yes. At first, thanks, Akim, for that question. Actually, the message what we send is that what we fulfilled if it comes to the revenue and the EBITDA, because we had actually quite low revenue in the quarter, one of the lowest, if not the lowest for several years. A 3.7% is not a great result to make that fairly outspoken. Then the 5.1% is in line with the guidance, but that is what we said. We see throughout the year with the pandemic impact that we are in between the 5% to 6%. Coming back to the revenue, if you take that times 4%, we are not in the revenue guidance. We are below that. So it's from that point of view fully fulfilled. Where we were slightly better than expected was in the order intake. And that came out in March, where we think in service there was a kind in the mining industry of a restocking event. And we saw that in some countries when they opened up for 2 weeks, we had that in Latin America, then they stocked up and then it was shut down again. So the pandemic has a big impact in the quarter and will have a big impact in the quarter 2, too. Right. Okay. Maybe I ask differently. Could you talk a little bit about sustainability of your margins in the mining business? How should we think about progression of mining margin throughout the year? And maybe more broadly on the group level, how do you see phasing of revenues and margins throughout the rest of the year to get to the midpoint of your Guidance, please. Yes. So thank you for that, Artem. I think for Q1, We were the margins were supported by business improvement activities and also by a healthy service level. And moving into Q2 and considering the pandemic development in areas of the world that are important for us, I think such stepping into Q2 activity wise is a fair assumption. And also, we assume that The cement reshaping activities will be more costly in Q3 and potentially also Q3 than we saw it in Q1. So that is a few data points to that. In second half, we still assume that mining will start grow again. And that will be with a larger capital share than you have seen in Q1, Q2. And obviously, that will weigh down on our margin expectations. So that's how you should think about the year. Right. So just to check as a follow-up to this question. In terms of the very strong margins in Q1, Is it fair to say that some of maybe the phasing of order backlog was different to what you expected and some of the maybe bigger capital orders Took longer to deliver and hence the mix was better or it's a wrong assessment? Yes. No, actually not. We guided on and we informed as much as we saw it and very transparent that we actually saw in the first half of the year a significant weaker business activity versus the second half of the year based on the pandemic. The thing what we see is, and we measure that with a very high data point density. The thing what we see is in the moment, when an area opens up our business activity immediately jumps up and vice versa. That correlation is so I never saw in the business such a strong correlation. So out of that, we have up to the middle of the year. That is what we foresee, still a significant impact of the pandemic. And that is calculated in and that is actually what we see. We think with the what we see now in Latin America, what we see in India proven as we forecasted for the year. Okay, understood. Thank you. And my last question, and apologies for taking too much of your time, but my last question is On Mining Capital Business and Services Business, I guess you had CHF 200,000,000 large order, but the base Level order intake was very strong. So could you maybe talk a little bit about how you see sustainability of these levels of order intake in Q2 and Q3? Thank you. It is at first, as I said, the pandemic has an impact. If we have assessed to the sites, then we can negotiate and discuss with the customer how to improve Supply, how to improve productivity. And then these space orders are coming in relatively good because mining is in a growth cycle. They have good commodity prices. They have a very good outlook and we have a fantastic good offering for them. If we are not allowed to go in, that will be very low to nil. Then, we work with the miners to replace some of the equipment if we allow to be on-site to replace some of the equipment to ensure that they can go on to supply in a lot of cases over the 100% capacity what they normally have on the site. So that we go fast and replace smaller equipment and then go out again that we are not disturbing the supply a lot. So the base orders is actually based on that predominantly. How do we see that going forward? We think towards the end of the year That will be a good business, definitely. We have to see how the impact of the pandemic up to the middle of the year is. This order intake, same like with service, is a reflection of the opening or closing down of the assess of the sites, actually both in Cement and in Mining. Understood. Thanks very much. Thanks a lot. Our next question comes from the line of William Ashman from JPMorgan. Please go ahead. Yes. Hi, everyone. Thanks for taking my questions. I just had a question on your sort of mining EBITA guidance where you're saying that it will grow in the H2 this year. Just given that we've Already seen growth in Q1. I'm just trying to think what that implies for Q2. I mean, are we expecting a fairly weak Top line in Q2 and therefore EBITA, just to make that guidance make sense? Yes. Thank you for that, William. I think so important to understand here is that we had high share of service in Mining in Q1. And that positively impacted the margin. Now moving forward, mining will also be impacted by COVID, especially Q2 potentially into Q3. And then from there on, we expect growth to come back also in mining. But we have a large relatively large Order backlog that came in last year that we will start to execute on Q2, Q3 and then coming through the year into 'twenty two. And that will change the relative relation of revenue in mining between capital and service. And that will weigh down on the average margin. And that's why the when we guided in February, we said that mining For the year, it will be high single digit EBITA margins, and that still stand throughout the year. Okay. That's clear. I just had a follow-up on the previous question around the Sort of order sustainability in mining going forward. So from what I understand, there was some Restocking and maybe a bit of preordering ahead of anticipated lockdowns in some key markets. And can I would expect this to then reverse In the Q2, given these markets won't be as open as possible, is that a fair way to look at it? I think that's a fair assumption. That's clear. I take only now India as an example. The situation in India actually started at the beginning of April. That means at the beginning of Q2. We have similar situations, Not that traumatic, but with lockdown and restrictions in Latin America and several areas. And Latin America for us, especially in mining, is very, very important. So we see clearly that correlation and we know when we deliver such a solid quarter that we have to inform very much in detail why that looks actually quite strong here and there, And that we are cautious towards the middle of the year. But we are in line with that what we said, actually in the quarter four announcement, that the pandemic versus business, the correlation is unbelievably close. On the day, and we measure that, On the day when we get an opening, we have more business activities. On the day where we have a shutdown and the customer decides to limit the assess to the site, we immediately see that it goes down. And that is what we forecast and we think we are and we see that we are proven with our forecast. Okay. Thank you. Just one final question for me is just on the €70,000,000 of costs that were outlined in cement. I think €40,000,000 were taken in 2020. But You haven't given a Q1 number. I'm just wondering how much was taken in the Q1 and how much should we think about it for sort of Q2 and Q3? Yes. So we're not really disclosing the one offs now, but we are saying that cement will be negative for the year. And we're also seeing that the reshaping cost in Q3 and Q2 and Q3 Will be more than in Q1. So you should think about the cement losses to be More losses in Q2 and in Q3 compared to Q1. Okay, understood. Thank you very much. Thank you, William. Our next Question comes from the line of Magnus Kruber from UBS. Please go ahead. Hi, Thomas, Roland Magnus here. A couple of questions from me as well. And following up on Artem's question originally on revenues, could you help us a bit with how the revenue recognition trended through the quarter? And if your Ability to invoice or finalize projects improved towards the end of the quarter and into Q2. I think my understanding as well was that Somewhat concerned about invoicing in Q1, is it all backlog and COVID and so on? Yes. Magnus, thanks a lot for that question. At first, from a business point of view, regarding the revenue, of course, we have to have access to the sites, Otherwise, it's not revenue. And for our larger projects, we see actually quite a lot of them postponed since the pandemic actually started. So the low revenue, what we had actually in quarter 1 as a result out of that. Where we can supply quick, We try to do that. And normally quick supply is more towards the service part than towards the capital part. And that drives what we see for the year. That's actually the reason why we say that this year, the normal seasonality what we have a weak quarter 1 in top line and then a strong quarter 2, a weaker quarter 3 and a very strong quarter 4 is broken, is broken. That will not happen in quarter 2. That is not what we see because the pandemic doesn't allow us to do that. If it comes to the mining part, it is unbelievable healthy industry to be in. And that is, of course, what we have to maneuver when we inform you. On one side, we have a big demand. We have a good hot list. All looks great In that mining industry, on the other side, if we can't act because we are limited in the assess and so on, then of course it will not end up in our figures. And that is what we guide on and what we say. So out of that, we didn't see an increase in revenue activity actually towards the end of the quarter so much. It was in the order intake where we had, especially in Latin America, 2 weeks where it opened up. We could supply some service and we got actually quite activity then on the service order intake. Okay. Got it. Thank you very much, Thomas. And I think Roland, you said something about sidestepping on revenues In Q2 from Q1, could you clarify that comment, please? I said something. Sorry, can you repeat that? Yes. I think to Arten's question before, you said something about sidestepping on revenues in Q1. Yes. So what we're saying is, obviously, if there was an element of restocking by the end of March, you would expect that to be taken out a little bit of April. And also the pandemic impact to Q2 in regions that are important to us Well, is what Thomas is talking about a broken seasonality? So we won't expect a Significant pickup in Q2, and that's what I call sidestepping. So an activity level in Q2, similar to the one we saw in Q1. And then in addition, accelerated activities on the cement reshaping, Then I think you have what you need for revenue and also margin modeling. Excellent. Thank you. Thank you very much. And just one final one. Can you talk a bit about The impact you expect on margins from the invoicing on the larger projects in mining as they come through into the second half? And a help there would be very useful. Yes. Impact of margin, when we're talking about the capital and service split, Our margins on service are considerably higher than it is on capital. But there's no other significant change in that compared to what it was last Yes. So just the fact that our revenue composition in second half will be more to capital as we see it now Means that the average margin will be subdued from that. Is that the question? Yes. But you also have a larger proportion, yes, not capital, but also from From the project business, it would be interesting to see what those larger orders will have an impact on, like what their projects margins are effectively. Of course, there is purely mathematically, there is on one side, as we call it, the product mix between capital and service, which has, if capital goes up, a negative impact on the contribution margin, gross margin part. But of course, you get leverage into the cost structure because you drive normally then a higher volume. But that only takes off if you are really higher in the revenue. And we have to see how that develops then towards the end of the year. What we calculated in actually, based on that what we have in the order backlog, what we have in the contracts With the milestone deliveries and the expected activity level quarter by quarter led us to the overall revenue guidance of 15.5 to SEK 17,000,000,000 That is what is calculated in. To get a positive, More than normal positive effect on the EBITDA, you significantly have to deliver higher volume. We had that at the end of 20 'nineteen, I think, where we had a huge, especially in cement, a huge revenue come in with more or less the same cost structure, which was very positive on the profitability line. Do we foresee that in any quarter this year? Not in that magnitude. Perfect. Thank you so much. Thank you. Our next question comes from the line of Michael Peterson from SEB. Please go ahead. Hi. Thanks for taking my question. The first one goes So the restarting effect you mentioned a couple of times, can you try to quantify this? No. The, we have it's not restructuring, it's reshaping. And reshaping has 2 elements. And we talk here at Cement. Restocking, I think Sorry, I didn't get you. Sorry, restocking. The restocking is actually Restocking, yes, or pre ordering. Yes. What happened is or what we see in the mining industry is and partly in cement too, in some areas, of course they produce. And in cement, they didn't want to invest and in mining, they couldn't invest based on restrictions, no matter that they had the money. Then an area like Chile, Peru, which is very important for us, opens up and they know that there's a high risk that they shut down again. So then they go in and ask immediately, what oil can you supply? Can you come over in doing that? And that's the restocking. And we had that effect in the second half of March. That is what we see. That's a restocking effect in it. Okay. I was asking you if you couldn't quantify it, let's say, like 1,000,000 or percentages. That granularity, we can't give. Sorry. Okay. And then maybe a Question regarding the business improvement. Can you try to quantify that for Q1? I know last year you had €15,000,000 in savings, €53,000,000 in costs and netting up for €40,000,000 So in Q1 2021, What is the positive effect from the Business Improvement Program? So we're not really quantifying that, but it's significantly less, Michael. We will leave it at that. Significantly less. And the Cement business, which is the one we're talking about here, This is negative by NOK 23,000,000 and it will be more negative in Q2. Yes. What we can say is, in that respect, the reshaping, and that is what I actually started before with, the reshaping has Two elements in it. 1 is to improve profitability and we really target to be positive in cement next year again to make that very outspoken. The other part is to reposition cement, because the green cement with a lot of sustainability digitalization in it is not only that you go into a new demand area, you have to let other things go. And that is like operation maintenance contracts and so on. Things which are not contributing in the future to our mission 0. You have to let go. We announced that we sold some product lines, some businesses around Christmas. That's all in that reshaping. So if this is not a pure cost improvement program where we then normally report the figures on it, this is a bigger thing. We moved cement out of the regular limestone high CO2 contributing business into the leading Sustainability, Green Technology, Building Material Supplier, that is actually what we do. And that is more than only cost out or getting things more simple and so on. It has a big element of innovation, has a big element of education and so on. Okay. Thanks so much. Our next question comes from the line of Nick Houssen from RBC Capital Markets. Please go ahead. Yes. Hi. Thank you for taking my question. I have a couple. My first one is about the mining order backlog. And I'm just wondering, how do you see the mining order backlog in comparison to the beginning of previous up cycles? And then within that backlog, how big is the proportion of large orders within that? And by backlog, sorry, I also mean pipeline, the non recognized orders? Yes. It's actually a very good question. And if you take previous cycle, I actually have to go quite a long time back, which is the so called super cycle, what we had 10 years ago. What we see is, at first, this growth cycle, what we have in front of us, is not driven by 1 country. It is driven by 2 main elements in mining. 1 is the COVID and all the special investments what the governments do around the world. There is a lot of direct and indirect commodity and cement driven business in it, which is very positive in the mid to long term. No question mark. And the other one is the green transition. And the green transition means more digitalization, more electrification, more green energy with new grids and so on. And that drives especially the copper, for example. And that is, from our point of view, more solid, better long term, longer lasting than actually the China development driven super cycle. Why is that important? Because we look, of course, always half a cycle ahead, very detailed. Half a cycle is roughly 5 years. And if you have a super cycle, then you have a super downturn too. And here we have a solid growth cycle, which then will be not That traumatic peak and trough as we saw it in that, let us call it China driven super cycle what we had roughly 10 years ago. So this the fundamentals are quite solid in it. And it's all over to commodities because When you go more digital, when you go more electrical, it's not only one element which is important. It's the whole variation. And that is really the positive in it. Okay. Thank you. And just Related to that, so you use the word super cycle in the press. There have been reports that we might be in that. Was just wondering if you could tell us how your customers are communicating about what they're expecting in terms of Demand and whether it differs meaningfully from what you just said. And then also, if maybe if you could comment about the Capacity utilization at your customers' mine site, are they capable of expanding production by, say, 10% with their existing sites. So would they need major greenfield projects to be able to take to a significant upswing in demand? Yes. At first, I only used the word super cycle for that what happened at the end of the 2000s and up to 2011, maybe 2012, not for this growth cycle. We are not a big fan of that wording for that what happens now in mining. I will not use that word for that. 2nd, you had the question before regarding what we had in the backlog And to show that how solid that is, we had in the super cycle significant more larger projects in the backlog. We are today more a service and a product company, significant more service and a product company than we were 10, 15 years ago. So our backlog is more, how to say, fragmented in smaller orders and not into very, very large, a lot of very, very large orders. Then regarding the sub supply, the supply chain sub suppliers, we don't see a shortage of that. We have a very agile supply chain. We track of course price increase, price decrease, currency variances and so on. And we can maneuver very quick from one country into another to get supply from there. So we have no sign of any bottleneck in the supply. And we don't see that if the business comes back and that how we see it coming back that this will be an issue. We don't see that. The only disruption what we have in the supply chain and that actually since the beginning of the COVID outbreak is on the logistic part. When we have to cross borders or we need capacity on container ships and so on, that is where we have to look into how to organize But that's at the moment really not a big thing for us. So sub supply chain is not an issue for us. And we have actually a good argument in it, Not only that cement has lower business activity, our supply chain financing is on a lower point because Most of our suppliers agree with our payment terms. And that's all okay. It's a good indicator. Okay. Thanks very much. Our next Question comes from the line of Christian Johansen from Danske Bank. Please go ahead. Yes, thank you. So As I understand you, this window in the second half of March in Latin America is primarily what boosted your mining services orders. But is that also what can explain the uptake in the medium sized mining capital? Partly yes, partly yes, definitely. But we had in the order intake, when you look into mining, We had a larger capital order in it, around €200,000,000 Not to forget about that. There was an SNO that always comes in, Yes, lumpy, as we always say, not actually a nice word, but it comes like that. And then, of course, the opening up or shutting down, of course, opens time windows to get then capital orders, especially if it comes to smaller equipment to help here and there quite quick. I can make it like that, Christian. The order intake was better in the quarter 1 than we foresee it, slightly better than we were foreseeing it. Revenue, profitability, product mix and so on actually more or less in line with that as we expected and SBC the full year. And just to clarify, these restrictions have been forced again. So this window was closed in the beginning of April? Partly, the problem is I can't give you a country information because we have some miners still keeping it open and some actually earlier shutting it down. It's actually side by side, customer by customer. It is quite a detailed view what we have to have, and we have that. Okay. I understand. Then my second question on the Gross margin improvement year on year, you state both this capital service mix and your business improvement as the reason for it. Can you quantify how big of a portion of the margin improvement is coming from your business improvement initiatives? No, we're not quantifying that. But it's a mix. It's a fair mix, Christian. I'll put it that way. It's quite beneficial to our gross margin when our service business, relatively speaking, is higher. And also we had significant run rate impact Q by Q from the business improvement program, both on gross margin level and So on SG and A. So fair mix. That's how I will say it. Fair enough. That's fine. Great. That was all for me. Thank you very much. Our next question comes from the line of Laurence Ergad from ABG. Please go ahead. Thank you, Thomas and Roland for the presentation and taking the questions. My first one is in terms of the mix of the large and small orders in the mining capital orders, where we see there's quite good Growth in the lower parts of the size of the orders. And here you're flagging that there's some stocking effects in Latin America and in India. [SPEAKER DOCTOR. RUDOLF STAUDIGL:] Rudolf Staudigl:] Could you talk about the timing from order to execution? Can you confirm if the orders needs to be executed faster than normally due to the stocking effects? Yes, if it comes to service, normally you can say when you get a service order, in average, you take a quarter roughly to realize it into revenue. If it comes to smaller capital orders, 2, 3 quarters. If it comes to larger, 4 and more quarters. That's roughly the line. Then you put the layer of the COVID above it. That means, when a customer sees, now I can open up, Then I open the gate, come in. Then of course, we try to do it faster. That's clear. And we try to be prepared for that. What we up to now actually could prove that we are. What you should be careful in the first half of the year is to use the normal business operandi in it, that the normal way from 1 quarter, for example, in aftermarket 1 quarter to the next, you get it realized into revenue. Because it really depends that we can go there. Otherwise, it's not revenue. Otherwise, it's not in. That's very important. Then regarding the smaller, the bigger amount of smaller orders, It lies actually a little bit in the nature of the operation of mine sites, why we saw that movement. Of course, we have very competitive offering. That's number 1. Number 2 is what we offer is productivity improvement, which means we help our customers to produce more, to go on to supply more. And at the moment, there is more demand than supply. So they really do everything as much as they can. At the same time, smaller investments, smaller capital units need less or create less disruption in the process flow on a mine site because you stop for a shorter time when you replace a pump, a crusher, a screen, a part of a filter press and so on, then refurbishing a whole line. And that helps the clients to go on to supply a lot. That explains, the significant higher share of smaller orders too. And last but not least, we are very vocal towards our customers. If you do this, then you get that improvement in percentage. We can calculate that. And they can make quick decisions if that works or not. And smaller investments, they can locally decide. They don't need big board decisions and so on. That all together is a part of that explanation why we saw a significant better, what we call base order situation in quarter 1, 2021 then quarter 1, 2020. And just a follow-up, you mentioned 2 to 3 quarters is, let's say, a normal business cycle where you deliver Or you gain an order and so you execute on the order and gain revenue on the smaller orders, 2 to 3 quarters. In these very unordinary times, what would you say it was now? That's, you have to ask me by country and partly by my insight. It's very difficult to say. It's really difficult to say. But when we came I understand there's a big spike in India. Yes. India is a problematic area. Latin America in terms of the smaller orders? Yes. Latin America in the second quarter will have a challenge. That is what we see. And that's not a surprise because we thought and we saw that up to the mid of the year, the pandemic will have a significant impact. Okay. That's very clear. And then my second question was on the Heidelberg cement order that you mentioned. Here there is an element of carbon capturing, Which is something that you haven't really talked about too much before, but we're hearing it from many customers that this in carbon capturing, it will be a large Part of the CapEx in order to reduce CO2, how are you looking at that part of, let's say, the industry? Very positive. It's part of the sustainability. It's carbon catcher, it's clay calcining. It's the overall CO2 improvement. You saw the European taxation, with €50 talks out of countries in the south of Denmark, now €60,000,000 to €100,000,000 Euro coming up and when you then see the profit level on the cement industry, for example, in Europe, then it will get Problematic for our Cement customers in the future. And we see with the legislation coming up, less and less possibilities to have exceptions of these kind of, taxations. What does it mean? Customers seek then and we already whatever we do in cement is already related with sustainability. They seek for solutions to get the CO2 down and carbon capture is Of course, an element in it. Where can we contribute in it? We are actually specialists in relation to cleaning gas and cleaning systems and working with, let's say, hot Environment, no matter if it's the clinker, that means hot material or hot gas. And that, of course, is for carbon capture in some areas quite beneficial. And we extend that offering and the partnership and the work together with other companies fully focused on it Because we are not in drilling, we are not in the storaging of CO2. That's not where our expertise is and it will be not. But we offer technologies to make all these things easier and simpler. And that comes out of Cement Technology. This is really close to our heart, Part on the core part, core business what we have. Do you suspect that you will get more similar orders in the carbon capturing Markets like the one you had in the hydroxymen throughout 2021? We think, let's see if it's 2021. But we see that this is an area where we will get more orders definitely. There is, when you look into the startup range, Quite a lot of new ideas what to do with CO2. And as more as come, as more we can contribute. That's very clear. Thank you very much. Our next question comes from the line of Robert Davies from Morgan Stanley. Please go ahead. Yes. Thank you for taking my question. My first one was just trying to get a little bit more color between your typical contributions from smaller from smaller versus bigger projects. The reason I asked that was that you mentioned a couple of times site access issues and being able to more easily install some of these Smaller pieces of kit. Just if you could give us a little more color maybe specifically on this quarter and then versus what you typically see. I know it's very hard to pick big orders, but just on average, How big a proportion of your business would typically be small installations, quick projects, quick kind of work around rather than A bigger project or a bigger installation on a typical quarter. Thank you. Yes. The on a quarter, especially with larger projects, it's not a real fair comparison because it's a because it's a too short timing. But we gave on the Capital Market Day in 2019 that our ambition is to have the large Capital business in total for the group below 20%, the large orders. That is our ambition. And that we want to be in the north of 50% with the aftermarket and everything what is in between is product business, what we call then the base order part. So that's roughly what we run for. It is company intention since very long time that we decrease the dependency on large projects. Then regarding the contribution on it, Of course, it's clear that the aftermarket is the most profitable part and it's clear that the large projects are the least profitable. The reason for that lies in the large project business what we get there is a lot of external into it, which is normally on a significant lower margin than our own staff. And that makes the overall profitability lower. And then it's clear that when we go into base orders and smaller capital orders that the profitability lies in between the projects in the aftermarket. That's roughly how we see it. But it's Impossible to say on a quarter because if you get one large order in or not, it makes a hell of a big difference. Yes. No, I hope that. Yes, understood. And then just, you've referenced a couple of times of this sort of catch up effect in the quarter. Just be Kind of interested in a couple of angles on that. So I guess, is it fair to assume you're assuming a sort of normalization into the Q2 after that catch up effect? You mentioned it was only Mid March, you really started to see that coming in. I just wondered if that had continued into April, and I guess we're only Not far past April, no. So I guess, did that sort of catch up effect continue at all into April? I think, I don't know, catch up effect. I think we used the word restocking So that's one thing. And to the extent that it was restocking just before shutdown in Chile and it would be fair to say that Yes. April will then be correspondingly lower on May also. But what we're also saying about Qs is that we're moving sideways. So a Q2 on activity level equal to Q1 may be slightly higher, would be fair to assume. Okay. And then my final one was just, I guess the long you mentioned, obviously, there's a more mid term recovery trajectory in cement rather than short term in mining. Just curious, has there been any sort of change of view around holding on to that mining business? I know you obviously, you mentioned the release, you were in discussions with Tissna around their mining assets. Is that should we take that as an indication that you're kind of trying to double down on mining and Hence we get out of cement or just is a good opportunity to sort of push forward on the mining business, just be kind of interested in the latest thought process around Cement, given the kind of longer term horizon before you think that business is going to do better? Thank you. We are very happy to have cement business in our group. We have a lot of synergies between mining and cement. And actually in the pandemic actually it's more than proven what the synergy effect is between the 2. What we say in cement is mid term recovery will come and it will be the highly digitalized, actually more high-tech, sustainable green cement where we are after. There the competition is significantly lower. It's not a mid market business. It's not commoditized and so on. It has a lot of very positive elements. And I gave a few months ago and I stick with that or we stick with it, we see cement being in the future a multi commodity industry where clay and other secondary and tertiary resources will play a bigger part in it. And limestone will be still a part of it, But others will come up and that makes it that complex that it's actually high-tech needed to make a good business for our customers. So from that point of view, the outlook is good. But of course, we use that crisis for getting the business profitable again and on the other side to position it there. And I said it before, it is very important to understand when you reposition a business that you are not only opening up new avenues where you can offer something, you have to shut down or to let go other things where you don't want to play in it any longer because it tracks you down in your new avenue. And that is exactly what we do with the cement part. And in mining, it's a short term recovery because all the fundamentals are so much on green as I never saw it since I'm here in Eiffel Schmidt, which is already more or less exactly 8 years, which is great. But as I said before, the miners have to reprioritized their task list away from the pandemic, what they will do if pandemic is not that big issue any longer, as well as looking into how to have a sustainable long term related higher supply into the demand what we see coming. And that will trigger a lot of investments, especially in the processing side. And it sounds very bullish and it is Because processing is a big, big impact for depleting ore grades, more Sustainability regulation on it, this is the field to play in the long term. This is where the growth cycle will play a lot. That's our clear belief. Okay. That's great. Thank you very much. Our next question is a follow-up question from William Ashman from JPMorgan. Please go ahead. Yes. Hi. Thanks for taking a follow-up. I just had a sort of question on input costs So your ability to sort of pass those through to the miners, I mean, given miners are much more focused on costs Currently versus sort of prior cycles. I'm just wondering how that dynamic works with you in your projects and products? Thank you. Yeah. Thank you. At first, customers, especially the mining customers, are more focused on getting a technology which helps them to fulfill all the regulations, then on cheap supply. That actually changed. And I have good some good examples. You remember 5, 6, 7 years ago, There was a lot of talk that the miners only will source in China and very cheap and so on. We see actually that the miners are looking for the original, the OEM suppliers, the original suppliers. Why? Because there is a clear understanding if it comes from the original supplier as a whole life cycle approach that it's better for the return of the miners. It's more sustainable and The whole system, the whole mine system, the whole value chain operates more solid. Then we see another trend, a so called defragmentation trend not to give a new investment to 20, 30 different suppliers, if possible to 2. Because the learning out of the last few years and actually out of the super cycle is as more interfaces between you have between different suppliers on the same line, as more problems you have. And that both actually works in favor of the few premium suppliers what we have in the industry. If that helps, William. Okay. Very clear. Thank you. Our next Question is another follow-up question from the line of Magnus Kuber from UBS. Please go ahead. Your line is open. One of my questions was actually on the cost inflation. So it doesn't seem like you will see any material Headwind from that and then most other companies talking about Q3 as a peak cost inflation quarter, is that something that you would Call out as well or is it immaterial for you as you see it now? We see that. We definitely higher commodity prices always triggers than higher sub Supplier prices, that's clear. And we are prepared for that. And of course, we do as other premium suppliers do, too, trying to bring that into the pricing towards the end customer. And you saw on our key notes for the quarter that pricing beside customer cost and cash has a very high importance. What is important in that is we are not under pressure regarding sub supplier capacity. And that, of course, helps a lot. The picture would look different as we see it as far as we can with our limited knowledge in other industries where they talk about Bottlenecks in the sub supply line. And then of course, you have a problem with your own cost structure and maybe how to get that towards your end customers into a price increase. Here in our business, in that how we are built up with our agile sub Supply and supply chain, we don't see these bottlenecks. So we are not under pressure. Of course, we see the increase. But if one of our suppliers, let's assume, theoretical gets out of line completely, then we switch over to another one. That's the way it is. And we are especially here in Denmark quite debated regarding our sub suppliers. We see it like that. You are part of the family, you go with us in good times and you go with us in bad times. If you don't want to go with us in bad times, don't walk with us at all. And that's exactly how we see it. We are not, how to say, inert and not touchable in it, but we think that we can manage it as good as it is possible. Perfect. Thank you so much. And just the final one, if you could refresh our memory a little bit on what You saw on temporary cost savings in Q2 last year and how much of those you have retained, I guess, exclusively on the Temporary working and specific actions that you took that will not be with us into the second quarter just to get the baseline right on that side? These are the questions what we really the Q2 Maybe I can answer this way. We ran our business improvement Program and the run rate impact was full up and running out of Q4. So you can assume that everything that we did then is now full run rate included. Okay, got it, got it. And on the temporary side, just for the short term working and so? Short term working. But that is I'm not quite sure that's before my time, but that is pretty much activity driven, right? So to the extent that our activity level is down, We can assume that these costs are out of the system. And if it comes in general to the cost Thank you so much. Magnus, if it comes in general to the cost. Of course, as more absolute amount of aftermarket business we have, as more cost we drive. Because that there you need feet on the ground and so on. That's clear, too. So there is in the capital product mix, of course, a cost element in it, too. And we were very loud and clear over the last few years how that works and so on, only to remind. Absolutely. Thank you. That's very good. Thank you. We have a question from the line of Artem Takarenko from Credit Please go ahead. Thank you very much for taking my follow ups. My first one is about Thyssen. Could you maybe Remind us about the most recent time line and also progress on your conversations. Thanks a lot. The negotiations and discussions with Thyssen Group are ongoing. We are still interested And they are still interested to sell it. But of course, the timeline is mainly driven by the seller, not so much by the one who is interested. We are very much interested to do things quick. That is what I can say. Understood. Thank you. And in terms of the capital structure, I guess, if such a deal will Require an equity raise. Is this something you will be prepared to do? So in terms of the capital structure, If the question goes to how we will fund a potential deal, that is too soon to say. We still need to know exactly how valuation Okay. But I'm just trying to understand the 3rd process. Like If a deal like this would require an equity raise, is this something you will be prepared to consider? That's a no go for you. Well, I understand the question, Arcemann. I think that was the answer. Okay. That's fair. And my last question is around the large order deliveries, which you expect towards the year end. I mean, considering that lots of industrial companies are talking about bottlenecks in the logistics chain, is this something Which could trigger some performance of those orders. How big is that risk? Yes. Regarding the postponement with the logistics, we see actually the main impact on the logistics based on the COVID restrictions. So what we look into is which area we supply, how is the COVID situation, and we know that can change overnight. And that is what we then calculate in. What is actually the logistic restriction? It could be the overall capacity, what is available to go into that territory. If it's a restricted territory, it's more difficult. We don't foresee with that what we have to supply, actually too much a problem with container capacity or so. Because we have a relatively long working time on it when we supply, we know that early enough to make it like this. What we have as restrictions or as a what can happen from a negative point of view if pandemic would hit Such a larger delivery is if the custom service offices are not properly set up to deal with going over the border of a country with the goods. Or it could be that if we need special equipment to load or unload. And then we can't keep the timeline based on having problems at the border by not getting clearance on that what we would like to supply. And these are normally the things where we have to look if that works out in a quarter or not. We see from customer general behavior, that's the reason why I bring that up actually with these loading and unloading tools, there's always more trend to finalize delivery towards the end of a quarter, so that they can close their books too. And if there is no pandemic, actually we can perform quite well, Understood. Thank you very much. Thank you. There are no further questions at this time. Please go ahead, speakers. Okay. Then I would say thanks a lot for a lot of very good questions here on our quarter 1 Webcast, we wish you all stay safe wherever you are and hope to see you soon in person in the near future.