Good morning from Copenhagen, and welcome to the FLS Quarter Three earnings call. I'm extremely happy about the FLS result and where we are at the moment. If we reflect where we are coming from, we are fairly close to completing the major transformation of the company. I'm especially happy about service and PCV performance, which are now at a good level, 80% of the business. 80% of the business is high margin, low risk, recurring, with a fantastic growth potential. Also, another major milestone has been the closing of the cement sale. That is a major milestone for FLS. For the quarter, we are extremely proud about the service development. Service orders increased organically, 10%, and the positive market momentum will continue.
We are also looking that this positive development would continue in quarter four, and then also that we will highlight our growth ambitions in service in our capital market day in quarter one. When we look at the product business, we've done lots of portfolio pruning over the last two, three years. We stopped taking material handling orders, we closed down the business, we do not do any conveyors, so we focus only on high-technology products with a big aftermarket potential. It has been quiet on that side in terms of orders, but we are extremely busy with the engineering orders and engineering work that we do for the future orders. PCV, fantastic performance year- to- date, nine months, not so high on the quarter because of a lack of the project orders. One of the best developments in PCV has been that we are converting a lot.
We continue to be successful converting brownfield third-party installed base out and replacing third-party pumps for the FLSmidth KREBS pumps. That is a big success in that part of the business. We are in the low end of the guidance in terms of revenue for the year, but we will deliver EBITDA result that we promised to the market. There are also positives regarding cash flow that Roland will highlight that has been asked about by some of you in the past. Good progression in all sustainability targets. You also see highlight, which is part of our pro-strategy. We sold the largest filter tailing system in the world during the quarter. That also plays to our pro-strategy that we want to be leader in all core products, typically large, heavy equipment for the big mines because they generate big aftermarket for us.
That is one example of the big wins, which on the headline number is not so significant, but then huge generation of the aftermarket in the coming years. Overall market is same as in the previous quarter. We see both service and PCV market remaining stable, and we can continue growth in both of those segments, incremental growth in the coming quarter and then hopefully then also in the next year. We will highlight the growth strategy for those in the capital market day. Engineering activities higher than maybe for a very long time. We have engineering orders for projects that have not been sanctioned. In practice, it means that we know what product orders we will get when the project is sanctioned, but also means that we do not know exactly timing because it depends on the customer releasing the project.
Still good level of activity in gold, but the headline value of a small gold project is always smaller, so that it is then $20 million type of business there. We have turned the corner in service, and now we start to see growth in service, and we continue building on that one. We have done lots of changes to the service business this year, and we expect that there will be big payback now that starts to be visible then in the future. Signs are that the updated organization and the improvement in many areas starts to pay off. We see order intake growth despite there has been no project-related orders. Because if you get project-related orders, it means that you sell project spare parts, wear parts. We have not had any support from that one, so it is really organic, true service growth for the existing install base.
Therefore, I'm really happy about that one. Service profitability is a bit on the low side because of the low revenue month, but a good baseline for services is around 20% EBITDA. There will be slight variations, as we discussed last time, depending on volume, low volume, high volume type of quarter. There will be some variation, but for me, the baseline for FLSmidth service is around 20%. We talk about that product market activity is slow at the moment, but of course, there's a big, big underlying trend in critical minerals. There will be shortage of copper in the coming years, and we see fantastic potential for this business when the market will come back. We have a good position, especially in big copper plants.
If you think about the copper market in the world, about 20 mines will generate about 40% of the world copper. If you turn that, what it means to us, it means that roughly 70% of the world copper goes through our charity crisis. We will be giving some more data on this one than in the capital market day. Big copper, critical minerals is where we play. When that market will come back, you will see a trend changing in the product business. You need to also bear in mind that we focus on quality of the order intake, means that we do not do third-party content through our books, we do not do EPC, we do not do any loss-making material handling business, we do not do conveyors, we do not do stackers, we do not do reclaimers.
All that is gone because that is bad business and no aftermarket. Everything we have in the order intake of products is there to generate aftermarket. Again, relationship between product business and then service and PCV is about 20% product business, 80% high profit, low risk, recurring business in our books. This will be still swingy in the coming quarters, but we've done a cost out in product business line. We right-sized the organization. We are taking about 250-300 people out from the organization, but we focus on having core engineering capabilities to support all our important products. Because of low volume, this will be swingy, but the target is that this business will be break-even on steady state toward the end of next year. As I said earlier, the organization is super busy. They are doing engineering orders, engineering for future projects.
We know that there will be what we describe as a ketchup bottle impact at some point in the future, maybe toward the end of next year when we start to see the new capital orders coming in, projects being released, sanctioned by the customers. PCV is our best business. This is the most valuable part of FLSmidth. How we are running PCV is that it is a standalone business, high level of independence, go-to-market is independent from the rest. The synergy element in FLSmidth is that we can sell pumps, cyclones, valves as a part of the project bundles, and then sometimes sharing the service facilities between the service business line. This is a very independent business. It is independent go-to-market, independent support, independent manufacturing, customer support, and sales.
If you look at, despite the slowest quarter, if you look at the year-to-date performance, 9% organic, we actually are doing really well here. I am really, really proud of this business. I have a live feed from Head of this business, Pat Turner. Whenever we are converting out significant competitors, I always get a WhatsApp message from him. We in the head office and also in the PCV always celebrate these conversions because that is meaning that we are gaining market share. We do not see any prospect of significant variation going forward in PCV. EBITDA margin, it is stable, and it is all about how fast we can grow the business. Low risk, high profit business. These numbers include both capital products and also service. Handing over to Roland for more detailed financials.
Thank you for that, Mikko. Adding up the three business lines, which is now our continued business, yields a revenue of DKK 3.4 billion, almost DKK 3.5 billion, 34.7% in gross margin. Netting out our other operating income and also our transformation separation costs with one-off nature, our Adjusted EBITDA equals DKK 530 million and adjusted EBITDA margin of 15.3%. Profit and loss from our continuing operations after tax and finances is then DKK 298 million, and adding discontinued total profit for the period for the group is DKK 394 million. Our gross margin compared to same quarter last year is up. It is driven by a better mix, obviously, also better mix within the business lines, and also compared to last same quarter last year, our non-core activity segment is obviously out of the numbers. SG&A cost is in a good trend downwards, as we have talked about for a while now.
Now it sits in the numbers. The total DKK 664 million in the continuing business includes our transformation and separation cost of DKK 52 million in Q3. All that means that our underlying earnings in combination continues, so we are now at 15.3% EBITDA margin for the quarter, absolutely in line with our expectations. Our networking capital is flattish Q1Q. We have had a good run on trade receivables collections, and we have, so to speak, spent that in building inventory up, especially in the service business line, but also a bit in the PCV, and we expect that most likely to continue in Q4. Our networking capital ratio on the continuing business is 12.4%. Also, again in Q3, we had a healthy cash flow.
Cash flow from operating activity is DKK 478 million, and netting off investments, a free cash flow of DKK 358 million, so a couple of good quarters cash flow-wise the last two quarters. That means that our leverage remains low, 0.6x, like we had it last quarter. At the same time, our share buyback program is progressing well. We are a bit more than half done yesterday, and we will continue steaming forward with that. As Mikko mentioned, we have adjusted our guidance to the lower end of our previous guided interval on revenue. Previously, we guided DKK 14.5 billion-DKK 15.0 billion, and we are now saying we will be in the lower end of that range, so around DKK 14.5 billion. The Adjusted EBITDA margin of 15.0%-15.5% remains unchanged.
When we talk about Adjusted EBITDA, we are excluding transformation and separation costs of around DKK 200 million for the full year in 2025, and we are also taking out what we call other operating net income of one-off nature. This year, this has been sell-off of a few sites and a service center in a small site in Turkey and a few other bits and pieces we took over from TK that is now starting to leave the balance sheet. With that, I'll give it over to Q&A.
We will now begin the question and answer session. To ask a question, you may press star and one on your telephone keypad. If you are using a speakerphone, please pick up your handset before asking the question. If at any time your question has been addressed and you would like to withdraw your question, please press star and two. Our first question comes from Chitrita Sinha with JP Morgan. Please go ahead.
Yeah, good morning. I have three questions, please. My first question is just regarding the comment and the release on execution in the quarter, and just wondering what level of confidence you have for Q4 deliveries and then 2026 as well.
Yeah, you mean release basically revenue, how well we do revenue in the fourth quarter?
Yes, exactly.
Yeah. We expect that service to improve. It was a low revenue quarter for service, and we were building backlog book to bill, and we are expecting service to improve in revenue. And PCV to do well as well. Normalize that there would not be build-up on the book to bill so much on fourth quarter.
Okay, understood. My second question is just on the product orders. I mean, of course, it can be quite lumpy, and you're talking about some softness there. But even taking into account the India order, I guess the underlying order intake was weaker than the DKK 500 million-DKK 800 million that you've previously spoken about. Looking into Q4, maybe even into 2026, I mean, is the DKK 500 million-DKK 800 million still the ballpark that we should be thinking about, or perhaps could the range be a bit lower? Thank you.
Yeah, thank you for that. I think that range was before the business line split, right? So that included the capital part that now sits in PCV. So I think it's important to remember that DKK 100 million-DKK 200 million sits in PCV on a quarterly basis, roughly. And that means that DKK 500 million-DKK 800 million is now maybe closer to DKK 400 million-DKK 700 million or so.
Okay, really clear. My final question is just on the pumps, cyclones, and valves business. Could you give the magnitude of the order in the comparison period just so we can understand the underlying development?
Yes, I think that's a rough guess, right? We have included comparison numbers to the extent that we can, but it may be 100 that is of large nature or so.
Thanks a lot. Thank you.
Service and conversions continue at a good rate, and we were missing a bit of that boost from projects where PCV is part of the bundle.
Thank you.
Our next question comes from Christian Hinderaker with Goldman Sachs. Please go ahead.
Morning, Mikko. Morning, Roland. My first question is on modernizations, where you talked about some adverse timing effects. I guess first off, can you remind us the scale of that within service over a typical year? Do those third quarter effects in any way relate to some of the production issues that are facing customers, Grasberg, QB2, Cobre Panama, etc.? I guess just curious why growth there is soft when your nearest peer is growing double digit in that area and calling out quite a strong backdrop.
I think with all the services that we do not have multi-year contracts in our book, we like to kind of steady going. As I said earlier, how we book things is transactional. We do not like to book kind of multi-year contracts at one go because then it creates a kind of fluctuation in order intake. Our business is mostly spare parts, wear parts, and then there has been modernization, like kind of modernization of mill, for example, that we are doing in South America, replacing kind of critical parts of the mill shells and that sort of thing. How we do things is that we try to keep it steady rather than booking multi-year contracts at one go because service should be stable. That is one thing regarding our philosophy of bookings. 80% of the business is wear parts and spare parts, and of course, a big part of the spare parts, there is an element which goes to modernization, and typically that part of the spare part, what we call capital spares, because you are refurbishing, upgrading mill maybe once in every 10-15 years, not more often.
In spare parts, recurring is in rough terms maybe 70%, and capital spares, which are often part of modernization, is 30%. That is a viable part of the service business. Regarding the sites, Cobre Panama was the biggest PCV customer in our books. That was when the site is still not active, I think for two years or more. It was a big loss for PCV, but we have recovered that one. That, of course, year-on-year comparison, no impact anymore. Grasberg is a customer of ours, so that will impact our service and PCV business in 2026, but we believe that we can compensate Grasberg kind of lack of business because of the disaster there at the site. QB2, we are actually very active at the site, helping customers to kind of fix some of the underlying issues.
We actually do a lot of work for QB2 in helping customers to resolve the technical challenges that they had at the site. Maybe only one, which is at Kamoa-Kakula, which is an HPGR customer, it has less of an impact because it is an HPGR service site for us. Mainly, the biggest impact is Grasberg, and we believe that in the APAC area, we are able to compensate with the increasing other businesses in the region.
Thank you, Mikko. That is great, Tara. You mentioned success in the pump field trial conversions. I just wonder if you can elaborate on that in terms of the composition of those wins, in terms of regional mix or metals exposure.
I think we are typically working in the major sites. Our strong presence is in the large, kind of typically most common, copper site in South America. That is the most. We are focusing on converting large pumps where our performance basically is superior against the other competition. We have quite a good success for the mill discharge pumps, which is the large pump after the mill, which is high wear rate, high aftermarket. We are focusing on kind of high-value conversion. It is typically where we are strong. Otherwise, we have good presence at the site, which is big copper.
Thank you. Maybe just an expansion there. Obviously, PCV, you have made a lot of progress in terms of improving that product in recent years and obviously seeing some wins, which is nice. I guess just curious about, as you seek to grow that business, and indeed maybe other peers have sort of followed suit in terms of strategy, how do we think about pricing in that segment going forward?
I do not see any pricing pressure because conversions are always technical decisions. It is never a price decision because for the mining site, it is not a big kind of CapEx or item to replace the pump, and you can convert it to OpEx as well. We do not have any pricing pressure on the conversions. Pricing pressure is only if the pumps are part of the project bundle and there is a pricing pressure for the full bundle. That is the only case where there is pressure. Regarding our go-to-market, I think it is different from the competition because, as I said, you can think of it almost as an independent business. It is the most valuable part of FLS. We run it independently with a synergy in capital sales, in the project sales, synergy sometimes sharing the same service asset as the rest of the service.
If you look at the pumps, it's an independent business, and that's how you should run it with a synergy in capital sales, a synergy sharing some of the assets. You can look at it as an independent business.
Thank you very much.
The next question comes from Kristian Tornøe with SEB. Please go ahead.
Yes, thank you. Mikko, you mentioned that the service revenue was low in Q3, and you expect that to pick up. Again, we see service orders up, quote unquote, but revenue down. Can you just elaborate a bit on what's slowing it down in the third quarter?
We made a massive transfer of the kind of resources to the shared service locations, and there was a little bit longer time in certain admin part of the business, so executing orders. It is something that we knew is going to happen, but it is nothing significant. The underlying business in terms of supply chain performs well in terms of sub-suppliers of the full supply chain. I would say the slowness a little bit in internal order execution is having some impact, but we knew that when you change the operation model, there is always a small slowness there, but it has been fixed, and therefore there are no underlying issues in execution of the service in terms of revenues.
Okay. Here in the beginning of Q4, you were back at sort of a normalized execution level again?
Yeah, we are expecting that we recover. I do not have an exact number in my mind, and of course, we do not even know it, but we do not have a kind of significant, we do not have underlying execution issues in service. The supply chain is in good shape.
Fair enough. My other question was just on the impact of high gold and copper prices. I am just curious whether this increased cash flow to your customers is having any impact on your direct dialogue with customers. Equally, you mentioned this record high engineering activity. To what extent do you think that is influenced by very high metals prices?
Inside our baseline numbers, if you look at the full year, and we do not announce smaller contracts, there is quite a lot of activity in gold. One area where we have seen this is Africa and Central Asia, which are kind of where more and more small gold mines are developed. Of course, the CapEx for smaller gold mines is always less, but we have a good position there.
We have a number of totally new customers in Central Asia, and in those customers, typically if you help them to build a plant, then it supports the kind of healthy aftermarket in the coming years. Behind the kind of slowness in copper, which is the big numbers, we've seen healthy activity in gold, and there are new gold mines popping up here and there. Typically, licensing is easier because the footprint is smaller, and now they are coming up in the regions where the licensing is faster and permitting is faster. That's why I'm highlighting Central Asia as a region and Africa where the activity is high. Copper is still in waiting, and we are a leader. That's a sweet spot to us.
Big copper, as I said, if you would calculate how much of the world copper goes through our equipment and our kind of crushing and milling, we have an outsized market share there compared to the rest of the kind of mining. When the copper will come back, we have a huge benefit that we are incumbent existing supplier to most of the big copper mines. Typically, you have a significant benefit and higher chance of winning expansion if you're an existing supplier to the kind of previous two lines. Most of the engineering activity goes for the at the moment where we are really busy is copper plant expansions, adding a line, adding capacity. That is where the activity is high at the moment. We do not know when customers will sanction, release the projects. There have been continuous delays.
Typically, mining industry, everybody does it at the same time. When it starts to happen, that is why this part is super cyclical. In the meanwhile, we focus on 80% of the business, which is service and PCV, and we are adjusting our cost base. We are not actually dependent in our performance too much on the capital cycle. That has been the whole idea, that service PCVs, 80% high profit, recurring, growing. The extra bonus is that when copper cycle will come back and we get new install base that we can service. The whole business model is like that.
Understood. Very clear. Thank you so much.
Our next question comes from Casper Blom with Danske Bank. Please go ahead.
Thank you very much. Most of all, actually, a couple of follow-ups. You've just touched upon, Mikko, that it takes sometimes a bit longer to execute orders given your moving to shared service center. Is that also the comment that you gave in the introduction to the quarterly report where you state that you recognize that you need to do more to strengthen order execution? Is that specifically that, or are there other areas also where you think that execution is not good enough yet? That's the first question.
In terms of order execution and revenue, we've been improving our supply chain a lot, meaning that concentrating the few critical suppliers, helping them to improve the performance, and also streamlining our internal operations. Historically, we've had not super efficient internally. Now the quicker wins in order execution are actually in our hands. It's FLS internal, kind of how we process orders, how we do all that.
It is continuously improving and still not where it should be, but it is all right. Regarding capital business order execution, we are in better control of the backlog than ever before in the history of this company. The kind of risky stuff is out. We know exactly what is going on. There is more predictability now in the product business for the revenue. I think, and also maybe to highlight, that we have done the new ERP system in Tucson PCV operations, and you have not seen any negative impact from that one. We are slowly but carefully improving the internal operations that ensure the execution. PCV, the biggest pump factory we have in the world, has a new ERP system that they have been running, and we have not really seen significant issues during that transition to ERP.
I think I'm confident that this low-risk approach to the internal processes that we do improvements in the way that it does not upset the company in terms of operation. I do not know if I really answered your question.
But probably as far as we can take it. A second follow-up on the comment that Roland gave about what to expect on product orders. You mentioned DKK 400 million-DKK 700 million per quarter in product orders. I suppose that is only until you expectedly see some sort of turnaround at some point. When that turnaround hopefully comes in towards the end of 2026, any kind of idea how fast we could see it improve and to what kind of levels? I mean, are we talking about doubling, or can you give any kind of indication?
Yeah, I think we address that in the capital market more in detail because I think we are in the low end of the cycle, and we are super, super disciplined what we are taking in because in the low end of the cycle, you have a we promise actually to the market because I remember when we started transformation, said that somebody asked, "Hey, if there's going to be a low end of the cycle, do you have a kind of can you stomach that take only good orders in and don't take anything that you regret later?" I think we've been super disciplined in our portfolio and what orders we take in, making sure that when the business will turn, we only have a high-quality backlog. We will detail those estimates. What would that be in the high end of the cycle?
Now we are looking at the low end of the cycle, and then we will show you some estimates what it could be, but we do not want to do that before the CMD.
Fair enough. If I may just follow up, Mikko, when you say you have been disciplined, and full respect for that, I think it is the right thing to do. I think also maybe you came to a point where maybe you were a little bit too disciplined. With the new heads and services and products, are you now sort of taking the orders that you should, or are you still missing out on something where you may be a little bit too conservative?
I do not think so. I think now we turned the corner in service as well that if you remember that we exited basic labor, so that service is also basically spare parts and wear parts to 80%. Of course, that's all high-profit, low-risk business. A part of those spare parts go to the upgrades refurbishment. If you look at then the world market, I think what has been moving is actually small mines and kind of maybe not and the regions that are not in our sweet spot. As I said, our sweet spot is basically critical minerals, copper in particular. When the South America, North America copper is quiet, then you see that one because we are dominating the market in largest of the equipment, largest mills, large HPGRs, all that type of things.
That's where we, when that market will come back, then that's where we are dominant. It depends also which part of the world, which segment is moving. If you look at the demand estimates for copper in the future, you can see that current capacity in the world is not able to fulfill the demand. Short-term, customers are focused on maximizing profitability, dividends, share buyback, but the CapEx will come back to copper. There are lots of plans in South America for expansions, but when they are released, we do not know exactly.
Thanks a lot for the flavor. Thanks.
The next question comes from Claus Almer with Nordea. Please go ahead.
Thank you. Yeah, also a few questions from my side. First of all, congratulations with the strong margin you again achieved in the quarter. The first question goes to the PCV and the order intake. It is a bit difficult to compare the momentum given how strong Q3 last year was. How did Q3 actually develop compared to your own expectations? That would be the first one.
It was in line with the expectation because the project activity was slow. I think now with the low smaller reporting segments, if you look at quite a lot kind of rolling averages year-to- date, over two, three, four quarters, that will tell a story. I think because the size of reporting segments, there is more variability. If you look at year-to-date development, organic 9% is, I think, fantastic. I do not think anybody is growing faster than the pumps market. We expect that to continue at a good level.
We have plans to more boost even further the PCV sales. As I said, it is quite independent business. If you look at it, its underlying profitability, how steady it is, is really, really valuable part of FLS. We are investing in that business as we speak. We are taking cost out from other parts of the business. We are investing, as Roland has highlighted quite a few times, into frontline to make sure that we are close enough to the customers. Yeah, it is a fantastic business, and we expect to continue to grow that. Look at it a little bit over the quarters. One quarter is just a kind of snapshot of the business.
Sure. Okay, thanks. My second question goes to these backlog delays we have heard about or learned about during this year. The project that has been delayed from this year, what drives the delay? Secondly, has a new delivery date been agreed with the customers?
I think in the projects, there has been some discussion with the customers, for example, that they want to receive the equipment so early and that type of thing. It is more customer-related in the projects. In service, it is okay, the revenues, but it could be higher in the quarter. In services, it is more internal, not supply chain related, that we are in the process of fixing. In project business, in the capital, usually it is more customer-dependent, that customer wants us to delay something or we are trying to resolve some of the issues related to that particular project.
I do not really have a concern for the revenues and order execution. You are right that we need to get back on track in service so that we can estimate better and generate more revenues. There is no big underlying issue, as I said. Supply chain works. We are getting orders, and it is more the internal process and admin that has caused some small delay. It is not massively big, but it is having some impact.
Mikko, I know the change of your revenue guidance has been both impacted by these delays, but also FAs. It is a little bit difficult from the outside to know what is what. I guess it is what I know, DKK 500 million-DKK 1 billion of revenue that has been delayed from 2025 into the future. Should we expect that to come in 2026 instead, or is it even far out before the revenue recognition would happen?
Yeah, so Claus, we expect that to come in 2026. Now, what happens to FX is a different thing. The delays that we talked about in the products business and also us getting in place in the global business centers, order execution, and so on, and service business line, that will slowly improve and improve revenues in Q4 and also first half of next year. It is not lost.
Sure. That sounds great. Thank you so much.
Thanks.
The next question comes from Tore Fangmann with Bank of America. Please go ahead.
Hi. Thank you for taking my question. Just one more from me. You have flagged the near-term demand from the small gold projects. Could you maybe elaborate a little bit on the size of potential orders? Basically, what does near-term actually mean for you? Is it something that we will see in the next one or two quarters already, or just something maybe into 2026? Thank you.
The quarters are so small that they are part of the baseline that we do not announce. As we said a few times, we do not have so many day-to-day small products and orders there. Everything is related to expansion or new CapEx or new project. Those baseline figures, if you look this year, include the gold projects. They are below our reporting threshold typically. In that sense, it is part of the baseline business. You will not see any massively big orders in that business because most of the new plants are smallish, and the CapEx is small, but it is still a good business for us, and we have a good position there.
Thank you.
The next question comes from Lars Topholm with DNB Carnegie . Please go ahead.
Yes, a couple of questions from me. First, a household question to the order backlog in products, which is up from DKK 4.9 billion to DKK 5.1 billion, even though your revenue is DKK 300 million higher than your order. I just wonder how that can happen.
That I have to come back on, Lars. That I have to come back on.
That is okay, Roland. Second question, Mikko, you mentioned in PCV, there is a capital business and a service business. Of course, I guess the capital business is somewhat subdued for all the reasons you have mentioned. I just wonder if there's a difference in the margin between those two parts of the PCV business and if there is any implication for your ability to defend current margins into an upturn?
The margin in the service side, which is most of the aftermarket, it's most of the business, let's say, depending on the quarter, let's pick 70%-75%. That is very steady and good in terms of margins. The only margin differences are in the product. Let's say that the product part of the business is 25% or 30%. Within that mix, if we sell product as a part of the project, then it's much lower margin than if we sell the conversion because conversion product is a technical decision by the site.
Price doesn't matter if the product performs. In that sense, it has small impact. You're talking about within that 25%, that there's a difference that if it's a project order for product, then it's lower margin, and if it's a conversion, then it's higher. We can defend the margin. Variability is so small, but it's all in that kind of, let's say, 25% bucket and mix between project-related orders and conversions.
Okay. That's very cool. A question on the cash flow. You have a lower use of supply chain financing. I guess that hurts your cash flow. I wonder if you sort of neutralize that, what would the cash flow impact be?
Yeah. I think utilization of that supply chain financing out of the quarter was about DKK 300 million, right? The DKK 100 million belongs to cement. The continued business would have 200 left. We roughly say that half of that is improving net working capital, so 100.
Cash flow is actually a notch better than what we can see in the raw numbers.
You can say that excluding the supply chain. A third of that supply chain is disappearing with the cement business. There was a lot of the cement customers on that, and we have been unwinding that over the last six months or so.
One final question. How should I think about absolute SG&A costs going forward? I'm thinking Q4 and 2026 versus the current run rate.
SG&A costs will come down from where they are today. There is some FX back and forth in that, of course, but we are still not done taking costs out.
The whole idea is that we make a platform that is totally scalable, both in service products and PCE, so that we have a lean kind of corporate center, lean SG&A, and then we can scale with the volume. We are still addressing the kind of support function costs, pushing activities out from expensive countries to cheaper countries and getting efficiency. As I said, products business line have taken out 250-300 people, and it is not sitting in yet with the SG&A reduction. Of course, there is some inflation always in the labor cost as well, but you will see improvement in absolute terms. Also, that full benefit is visible when the market will come back and we keep it the same. We are becoming a highly scalable platform for the future growth.
That is very, very clear. Final questions on my side. You have previously mentioned that to close the margin gap to a Metso, you need it to be one third larger and you need it to do M&A. I just wonder, is that still your view? Are you actively looking at anything? Should we expect bolt-on acquisitions, say, before the end of 2026? What's the status there?
We have a number of bolt-ons in the pipeline. Of course, timing is a little bit difficult to say, but we have now when we focus on selling and shutting down the bad businesses, kind of exiting cement, getting rid of the material handling businesses. We do not know when those will kick in, but we do have an active pipeline and we will detail in CMD, to your disappointment, based on some of the earlier comments that we are in limbo. But we have a good pipeline and now we are focusing—instead of selling, we are focused on buying.
Very clear, Mikko. Thank you so much for answering my questions.
Thanks.
The next question comes from William Mackie with Kepler Cheuvreux. Please go ahead.
Oh, hi. Good morning. Thank you for fitting me in. A couple of questions, three actually areas. So firstly, sticking with products, Mikko, you've talked about lowering the structural cost base and reaching a break-even by the end of 2026. Could you just share some of the core assumptions about reaching break-even with regard to—are you thinking volumes flat and you've brought the cost base down to reach break-even, or are there some assumptions for growth embedded in your 2026? And at what point should the products area start to reach a kind of normalized margin through cycle margin flight path? That's the first question.
We do not expect growth in 2026 yet. We are building the baseline based on the kind of steady volumes and then to be close to break-even end of the year. We are taking costs out where we can. At the same time, we need to have enough engineering capacity because we are winning future orders now because engineering activities are ongoing. All the initiatives to bring the cost level down are completed over the next six to nine months, and then the full benefits should kick in before end of the year. It is just a kind of headline estimate so that whether it is zero or +1 or -1 , it is just a kind of thereabouts.
We want to make it scalable so that when the market will come back and we will estimate what is then the upside in the kind of peak market that we can support the business with the same SG&A and just scaling the engineering resources we have in India. I think we will again detail that we are actioning it as we speak, but we will detail the impact then in CMD.
Following on from that and the discussion about cleaning the product portfolio, to what extent should we look at the 2025 numbers as you having fully exited the non-attractive conveyors, material handling, and other areas that you have mentioned as lower margin and less attractive? Has that all left the portfolio, or is there more of a transition effect that will take place this year and into next?
Normal transition effect. If you look at the business today, most of the business is coming from nine to ten core product areas, and those nine to ten core product areas generate most of the aftermarket. It is complete. The portfolio we have is basically—yeah, that portfolio change is complete now.
Thank you very much. The second question area was related to service. Perhaps you would just run through the major changes you have made to the reorganization, which we have touched on a couple of times, and the verticals, either regional or the verticals you are now focused on, but perhaps more specifically in relation to working capital. Are you happy with the footprint? I saw you have invested in inventories to raise service levels this quarter. Is that process now over, or should we expect further growth in inventory days?
First, about footprint, we still have some white spots in the market. If we look at the global market where we are less present, we will continue increasing coverage either with targeted acquisition or investing our own resources. We still need to continue that work. The business is basically what is called the Atlas Copco model. The commercial is driven by the global business line and product lines. The sales front is, of course, in front of the customer. We are investing a lot to sales excellence. We are upping the organization, has been not commercial enough in the front end, and that kind of organization update continues. The operation model is what we want to have. It is working well. Now it is more about people, getting the right people in the right places. Inventories continue to increase.
I think, Roland, the kind of net working capital continues to go up. If you look at the peer group, it will be four percentage points possibly, call it that.
Yeah. Thank you for that. As I said, we will continue to invest in inventories, right? The 12% may be going up from here. Also, on the capital market, they will give you more longer-term numbers on that. The intention is to support both the PCV business and the SBL business with inventories a bit closer to customers. Not dramatically up from where we are today, but more proximity.
Thank you very much. The last question area related to PCV again. Great that you have an open WhatsApp line for product wins on your pumping business. What happens if you lose a competition? Do you also get a red WhatsApp line? More seriously.
Yeah, we do actually follow what somebody might call competition balance, what we are losing, what we are winning. It is quite evident looking at the losses and wins that it is mainly winning. Of course, you lose something every now and then as well. It is very positive what we see. It is building the confidence that we have a best product in the market. Traditional footprint has not been wide enough. Our local presence has not been wide enough. It has been not about product in the past, but it has been more about operation model. That is why running it independently, having dedicated PCV resources close to customers at sites, assembly, repair facilities near the site. That has been not about product. We knew that we have a winning product, but we have not had a winning kind of presence in front of the customers.
Now when we are improving presence, it seems that we are winning the business because technically the product is really good.
Thank you. I mean, there is one very large competitor in the market, and one of your German competitors gave a CMD and called out a number two position. How would you describe your market share in pumps, and where could it go?
I think we are number two in the market. Of course, if you start including water pumps and something that nobody should be interested in because there is no aftermarket, you can have a different market sense. If you look at what is really going to hardcore mining, which is mill discharge pumps and slurry pumps at the mining site, we know that we are number two in the market. The pumps market as a whole is huge. You have a world full of water pumps, but of course, you know that if you're at home, that you don't need to replace them ever, and they last forever. That is not our business. In the core mining, we know that we are number two.
Thank you very much.
Our next question comes from Klaus Kehl with Nykredit. Please go ahead.
Yeah, hello. There's been quite a few questions about this ongoing cost-out program, but you didn't really answer the questions about the absolute cost reductions going forward. Perhaps that's fair enough. Did you say that you have taken out 250 people, which is not reflected in your SG&A right now? Therefore, yeah, I can see that the cost saving in the P&L. That would be my first question.
That exercise is ongoing in the product business line, and they are not all SG&A resources. There will be resources also on the cost of goods sold. It sits in the gross margin. You can't move it directly one to one. You will see the headcount changing over the next couple of quarters. We are really pushing hard for the absolute DKK cost targets internally, but we don't communicate the absolute target externally. We continue, and I think once we are out of it, I think despite the decrease in the volume, which is because of portfolio changes, there was a concern that we would take bad business in just to kind of justify SG&A. We haven't done that.
When we kind of trimmed the portfolio to have right products in the portfolio, we are rather taking cost out than taking bad business in to justify higher SG&A. We have a really, really aggressive cost target internally, and sometimes you get to 80% of your aggressive cost target. That is why we do not communicate externally. You can continue to follow the absolute number in the SG&A line, and you can see that trending down.
Okay, but did you say 250 people? Or did I?
Yeah, that is the, but it is COGS and SG&A people. Sometimes you need to look at both. You have inefficiency both in COGS and SG&A. We are looking at it, because it is just a different line item, but it is still a cost.
Okay, got it. Then my second question is that, yeah, we talked quite a lot about gold, but what about silver? The silver price has also been skyrocketing here in 2025. Any comments to that, or is it a very small market for you guys?
It's a smaller market. We have some activity. We are working with a couple of silver customers who are looking at new investments. There is activity, but as a market it is smaller. We have a good position on silver. If you look at the size of the market, copper is biggest, gold is second biggest. That is why we talk more about that. Then you have a whole host of other commodities. There is some activity in silver, and we are working with a couple of cases there as well.
Okay, great. Thank you very much.
Our next question comes from David Farrell with Jefferies. Please go ahead.
Hi, thanks for squeezing my question. I've got two quick ones. Firstly, just could you talk about cash flow from operations? Clearly performing very well in the quarter. You've previously given guidance that this would not exceed DKK 1 billion for the year, but it's on trend to do so. Maybe you might like to clarify that guidance around CFFO for the year, please.
Yeah, thank you for that one. We still expect a positive CFFO in Q4. I think we'll have to say that CFFO for the year will be slightly above DKK 1 billion.
Okay, great. Thank you very much. My second question just comes back to kind of the dynamics between PCV and the products business in terms of thinking about some of these major tenders you've got going forward. How likely is it that kind of you would combine your teams to kind of tender together for a project and not allow the PCV business to operate wholly independently in that tendering process?
Basically, we have a capital sales team, which is project sales, and they are pulling together kind of portfolio from different parts of the organization, something from also from service, some first-time spares, some wear parts. They do also include the pumps. Regarding that big India case that we had, I do not know, in the first part of the year, we got all the pumps to that site. All parts of the process. It is independent. That is why I said the synergy areas for PCV's project sales, they are included in the bundle.
PCV gives a price and the kind of, but it's part of the bundle, but it's a sales channel for PCV in major capital opportunities. If you look at then the conversions at the site, it's totally independent. Of course, there's synergy that we have a service present at the site and PCV, so we are more present as a company. That is totally PCV independent and then services independent. We know that we get more out of the business if we run it kind of standalone, fully focused. Of course, the team is using capital sales or project sales as one channel to get into the bundles. The numbers are totally different. If it's part of the bundle, there's an incentive for the project sales team to sell those, but then the number still sits for the PCV.
Okay, that's clear. Thank you.
The last question comes from Xin Wang with Barclays. Please go ahead.
Morning, guys. Thank you for taking my questions. I'll be quick. The first one is adjust the EBITA margin in the quarter. Is there any one-off in there? Any disposal impacts or provision release?
Yeah, provision release, not so much, but what we have had, we've sold a few summer houses, so that's an income. We have our transformation and separation costs. Both are netted off. It is DKK 52 million in costs and DKK 22 million in income. Net-net, DKK 30 million out.
That's very clear. Thanks very much. My second question is on HPGR. ThyssenKrupp has recently decided to re-enter the mining equipment market through its cement arm. They will offer a suite of products, including HPGR. Do you think they will be able to capture more market share in equipment or recoup some of the installed base in aftermarket?
Absolutely not, because we have all the service facilities close to the mining sites, and we have a much better supply chain. We have a totally different supply chain to what thyssenkrupp has. It is much better in terms of the cost. We have service repair centers around the world. They may make a noise, but we have zero concern about them. I think they are not capable of entering the mining market. It is just kind of a, we are not really concerned at all. I think we have done so many improvements since we took over the business.
Great. Thanks very much. My last question maybe is a follow-up on the service business. I think you've given this rough split of the business being 80% spare parts. Can you maybe give us a rough idea of the relative profitability of different types of service orders as well?
I think typically we don't give the details, but if you, that 80%, if it's wear parts and then spare parts. So the spare parts is higher than wear parts, but we don't give for competitive reasons. We don't give the details. Basically, within that 80% spare wear mix, spare is higher, wear parts is lower. As I said, for competitive reasons, we cannot give more detail.
Okay, understood. Thank you very much.
The last question comes from Gustav Sundby with Handelsbanken. Please go ahead.
Yes, morning. Just one topic I want to take up. Mikko, did I just hear you right that you're not planning for higher product size in 2026?
Talk about the product versus service mix?
If I heard you right on the profitability improvement in product, I think you just said on a previous question that you're not really planning for higher volumes year- over- year. Did I get that right?
Yeah, yeah, yeah. If I look at the market, this market estimate that we expect 2026 to be still flat, this market, and then we are expecting pickup toward end of 2026 and in 2027. That is how it looks. You're right. Do not plan for growth in 2026. We might see the pickup toward end of 2026. It is basically the same as what we saw last year. We are super busy with all engineering orders and engineering, and we expect that we see more and more kind of sanctioning of the expansions and projects then toward end of the year. So you're spot on.
Okay, the final one, because that's relevant. I mean, I know we're one quarter away from talking about 2026, but if I try and discuss the trajectory here a bit, your run rate gross margin is now sitting around 35%. Maybe a bit higher over time, but then it's hard to see a big negative mix shift next year, given what you just said on products and the fact that PCV orders have been growing faster than service year- to- date. With the SG&A pace that we're seeing now and what you have previously communicated on ambitions here, Mikko, mathematically, we could get to a pretty high margin number for next year. I'm just curious if we're missing something in this reasoning, and if you can share some thoughts. Thank you.
I think you're missing a number of things there, Gustav. First of all, we cannot discuss the 2026 guidance here, but the service business this year is not growing. It is not growing in nominal terms, and we have significant FX headwinds. There is no reason to believe we will be a bigger company next year when we look at the order intake. It will take a little longer to get to the percentages that may have been indicated earlier on SG&A out of revenue. I think we will talk a bit more about this in the capital market day and how it is going to play out going forward.
I think, of course, you are looking at full potential of the business, which is really good. Also, we will need to get a little bit more support from volumes as well. e are highlighting growth ambition in service and PCV in CMD. I think based on that one, you can better estimate kind of what numbers we can hit and when. As we indicated, service EBITDA is kind of steady, hovering around 20, and then PCV is same at what it is today, and then turning around the capital business.
Okay, I will just try to push it before I let you go. Even without sort of estimating any big change here, I mean, I do not see a mix shift next year. If you take current gross margin and you assume that at some point the one-off costs will end, that takes you to a significantly higher level than what we are seeing right now. Yeah, I guess that is my question/statement.
Gustav, I think you are fishing for guidance for 2026, so we are not going to engage. On a one-on-one basis, I'm happy to take you through whatever assumptions you have made and how it may or may not stack up, and I think we should do that. We cannot have guiding statements here now, and we will have a lot more about this in the CMD.
Sure, sure. Okay, thank you.
To understanding.
Ladies and gentlemen, this was our last question. I would now like to turn the conference back over to the management for any closing remarks.
Yeah, thank you very much for the call. I think we have a really good situation at the moment. We completed the portfolio changes, what we needed to complete. We are today 80% service and PCV, high margin low-risk recurring business for the growth potential. Also, we are sitting in the good position long-term, being leader in critical minerals, copper in particular. I think I'm quite upbeat about longer-term performance of FLS, and we continue to build on this one. Thank you very much for your time.