Welcome. To those of you who don't know, my name is Yannick. I'm heading up IR at FLSmidth, on behalf of the IR team in particular and FLS, we've been looking very much forward to this day. It's been a long time coming. It's been many years since we last had a CMD. Finally, we're here. A few practicalities. Just welcome to everyone online. Those online, just so you know, we are around ballpark 80 people in the room. We have around 100 out sitting in the virtual world right now. Welcome all to you guys. In the room we have a mix of investors, analysts, financial, media, so you know. We have a few company announcements out this morning. I presume you guys have seen that.
We promise you we will talk a lot more about that during the day. A few matters that we need to address. This one, I won't read it up. Promise. It's at least done. Forward-looking statements, we'll talk a lot about the future here, of course, then that's cleared. A few practicalities. Safety, there's sockets for people with computers. I've seen people walking around with hot coffee. Be careful you don't trip over those, so we don't run into that issues. For the online participation, when we reach the Q&A, it should be pretty intuitive how to join on that. I'll have an iPad, and then we'll make sure that you also can answer questions as well from here from the room. Those in the room during the Q&A, there'll be some microphones.
I'll point to you, see if you're allowed to talk, and then to make sure we talk into the microphone when we ask a question, just to allow for a good experience for those online. With that, I think it's just all over to... Hope you guys will have a great day. We look forward to it, and I think there's one who's probably looked even more forward to it, our CEO, Mikko Keto. I'll hand it over to him. Welcome.
Thanks very much, Yannick.
You introduce that.
Yeah. I'm extremely excited to be here. I was hoping to make this even earlier, but latter part of last year, we were still calculating the TK mining numbers, so we couldn't actually organize it earlier. This has been a long time coming, and we have lots of topics to talk to you about. We are doing full transformation of the company, and we'll walk through all the details of that one with you today. Before going to the actual topics, I'm actually very proud of the top team of FLS and what we've already done in 2022. If you think about some of the milestones, what we achieved, what we'll talk about in more detail today. Anette Tandrup, Head of Legal, interesting year. Antitrust, closing on the TK deal, and then embargo against Russia. Lots of activities there.
I would say really big achievement. Corey, who's our head of HR, think about the year. TK acquisition, closing of the deal, full integration. We took 10% of the workforce down because of synergy savings and also transformation in Cement. Significant challenges for HR organization to do everything at speed. Moving on to Roland, our CFO. We did full transformation to global P&L from regional P&L in H1 of the year. Is significant change. Now we have reporting that we can see globally product line profitability by Capital, by Service, and combined. It's a big achievement for the finance organization. In many ways, Roland is my co-pilot in many things going forward.
We have new members in the management team, Josh and Chris, who basically created from scratch full business line, product line organization, and integrating TK fully into that organization in two or three months. Asger, head of Cement. We did a quickest transformation I've ever seen in my professional career. We took delayed Cement in two or three months. We did significant change very quickly. Mikko T. The best news about IT was that I realized after closing of TK deal that I haven't spoken to him for two weeks. I saw him in the corridor, and that's best news what you can have actually when you're integrating large company into FLSmidth. You never heard about IT. Everything just worked, and that was best news. I didn't even think about him. Sorry about that.
That didn't come to my mind. It's a big achievement that we didn't have any IT issues for the transactions, for the emails, no nothing. That was big achievement. I will say that, when you look at the team today, it's quite different what it was in the beginning of last year. There has been some rotation, and this transformation is not everybody's cup of tea, as you may know. This team can deliver that. What happened over the last year, I highlighted that through the people and what they've done and achieved and delivered. Other thing is that if you look at the underlying legacy FLSmidth performance, it is improving. That is evidence that it works what we've done.
Of course, we use the same medicine. For the underperforming assets that we acquired from TK's Mining business, we use exactly the same principles to turn that business around. Short-term challenges, we are quite aware of the macro challenges, what there is ahead of us. That's why we accelerated our synergy program in mining, increased synergy targets, and made it faster. In cement, we decided we cannot waste any time in transforming the cement operation because cement might be facing even more severe recession. Both industries are supported by megatrends, especially mining. There's a huge megatrend support for mining industry as a whole. We know that sooner or later, cement, green cement, will come. We will not wait for that. We do transformation for the cement operation, and which is not volume driven.
We decided that we give you investors, analysts, more transparency for the business by separating pure play mining, which is a future mining asset that we are going to have, and performance of that, then cement standalone and non-core activities. If you look at the past performance of FLSmidth, the NCA assets, which are half originating from FLSmidth, other half from TK, have been polluting the good mining numbers. By making firm decision to exit certain product lines and run it down, we are able to show the performance of the mining and cement in a clean format. I'm happy that investor relations, it shows the right graphic. On the bottom, it's mining going up, cement going up, and then NCA, we are running it off or selling if there's a suitable buyer.
When you go to business school, this is almost like simple mathematics that engineering plus projects plus conglomerate equals low performance. In most of cases, that is true. On the other hand, if you look at technology, product, service, pure play equals high quality of earnings. It's actually very simple if you think about it. If you look at us, if you look at the other companies... But it's a big transformation for FLSmidth. We used to be engineering and projects company, dominantly in cement, so it's a big culture transformation for the whole company. A leadership of the P&L is quite different from leadership of technical product line or projects or than engineering. That requires new type of leadership. The P&L holders are business lines and product lines underneath.
I talked to many of you about the business model for the P&L. It's inspired by what is called Atlas Copco model, developed in Sweden, many years ago. It's based on the fact that you have proper ultimate P&L units, which are the business lines. We are having, pushing down the same responsibility for the product lines. We can look at all the businesses and product lines in three dimensions. We can look at performance by product, capital, and by service, and then we can look at the life cycle, which is combo. When we made the decisions for the non-performing NCA assets, we were looking at the life cycle.
Somebody told us, "Hey, we can make a good margin on spare parts on this one." If spare parts are 10% of the total life cycle turnover, you cannot have the organization that is 90% underperforming, 10% is okay business, but you have huge resources supporting that one. All views are important: product, service, and then combo when you're looking at the decisions. Transformation drivers, one key is speed. The ones who know rallycross, which is where you drive really fast, in the forest for the cars, as they're saying is that speed corrects mistakes. If you make a small mistake, you kinda hit the curb, you just go faster, and we do exactly the same. Speed corrects mistakes, and that's why we want to go fast and get everything 80%, 90% right.
If we try to get everything 100% right, it will never happen. You never do a transformation. If you look at the core values, and you look at the P&L management, you cannot really do so-called Atlas Copco model not having those values: trust, empowerment, accountability. Each and every product line manager is accountable for his or her result, leadership position in technical terms, financial performance, supply chain, and procurement. We've done a small tweak to our model in the beginning of the year. We merged products business line and system business line because when we exited NC Assets system business line became too small. We plugged in a couple of product lines from that business under Chris Reinbold . It's everything's under product business line. That will give us three two -dimensional management product service life cycle.
We also did one more tweak in so-called Atlas Copco model, is that now procurement is part of the business line. Procurement is integral part of the business if most of the supply chain is outsourced. In that regard, it was important that business lines take more control of that. Actually, I highlighted you in the beginning already that we'd done a lot, and we decided that we execute first, get results, and then talk about it. Traditionally has been a little bit of lack of trust on our ability to execute, deliver our plans. We decided we need to show to you, to the market, to shareholders, investors, that we can actually execute what we say.
That's why we took very seriously H2, Q4 challenges and say that we do it now, we don't do it tomorrow, we do it this year. The different functions business holders will go through what we've done this year, so it's really important. We've done maybe 40% of the transformation already, 60% yet to go. One of the biggest changes for the company is actually almost hidden if you look at the screen. We don't have a FLS mixed strategy. We have one for mining and one for cement, pure play, and that is a big change for the company. That is really big change. Not one strategy, but two strategies. We are running mining and cement more and more independently. We will carve out cement. We will make it independent business.
At the same time, we feel that we are best owner for turning around cement, and Asger will show what we've done in the Q4, and we are well on our way to transform cement to totally different type of operation compared to the past. This came out this morning, long-term financial targets. We decided to go back long-term to non-adjusted EBITDA numbers, so it's clean EBITDA. We will be adjusting over the next couple of years because of the integration, but long-term, we want to go back to clean EBITDA numbers. So when you are looking at this one, it's clean EBITDA. Also, that our target is not too much volume dependent. We know that we can actually achieve EBITDA 13-15 in mining regardless of the volume development.
We're expecting positive development in service. We are not banking on huge top-line growth to achieve that target. We know exactly how to get to that number. We've done bottom-up analysis based on product lines, capital, service, combo, different market. We know exactly how to get there. We are confident that it's not just number in the air. Same for cement. We know that we can deliver 8%, again, regardless of the volume. We are planning to grow service. Mix will get better. We're addressing the fixed cost. If the cement market is not growing as fast as we expect or we cannot grow service as fast as we planned, we can still hit the 8% mark. We know actually how to get there.
Just reminding you that this underpinning everything what we do, it's our absolute commitment, Mission Zero, which is technology and solutions to our customers to deliver net zero. This underpinning everything what we do. We come back to this one in more detail in latter parts of the day. In very simple terms, if I think about summarizing my key message, it is we can improve our performance, and there's evidence looking at the legacy FLSmidth numbers we get there. We are undergoing huge transformation, total transformation of the company. We will look totally different what we were a year ago in two years' time, totally different. Also that, top team, who you have here today, can execute. I don't care if they are slick presenters or not, the main criteria is ability to execute. That is everything.
I'm handing over to my co-pilot, Roland, and, you go through a little bit more details in them.
Exactly. Speed corrects the errors. I think this morning, our 2022 numbers were fresh out of the print, so let's just quickly glance them. If we say that we're in line with guidance, but in mining we are in the top end and a little outside guidance. We guided DKK 14.5 billion-DKK 15 billion revenue for 2022 and ended at DKK 15.1 billion. The adjusted EBITDA margin of 10.6% also a little out of the range, and then a reported number of 7.6%.
The difference between adjusted and reported here is DKK 252 million that we use for integration costs for TK and a full-year write-off in Russia of DKK 200 million. The cement business is in range, DKK 6.3 billion revenue versus a range of DKK 6 -DKK 6.5 billion, and EBITDA margin of 3.3%. The non-core business is actually on target, and that's a little bit suspicious, remembering that we have talked about how volatile and uncontrollable that is. We're pretty much on top of that backlog and the run off is continuing according to plan. I mean that the group ends at DKK 21.8 billion in revenue and 6.4% in adjusted EBITDA margin.
We are quite happy about this. This is just to tick it off today. This is not a 2022 session. That's where we are, preliminary and unaudited. Let's just briefly recap. We acquired TK and signed the deal last year on 21, in July. The reason why we did that, we thought it was good timing to invest more in mining. We thought TK had an interesting portfolio of products and services that complement our own offerings quite well. We also acknowledged that TK had a service business that was okay-ish. We think we can do it better, we can groom it better, and we can make it more profitable, and that's what we're going to do, and Josh is going to talk about that.
TK have spent quite some money in some digital and sustainability products and offerings that will complement our technology and offerings also. Obviously, TK is highly synergetic as we have been long-term competitors. They're present in the same countries and regions as we are. That's why we decided to do it. It's obviously strengthening our competitive position. We 1st of September said welcome to 2,000 highly qualified employees from TK, and we started with a backlog of DKK 5.2 billion. A little bit in number terms, for some of us that are interested in that, if we look at cash in, cash out in this business, we paid DKK 2.1 billion. We will throw DKK 800 million after taking out the synergies and integrating it fully.
We also acknowledge that some of what we later defined as non-core activities is loss-making on their side, DKK 600 million, so a cash out of DKK 3.5 billion. We will harvest at least DKK 506 million in synergies, and we will have interesting products and a service business that we will groom to a profitable level, like the guys will talk about later on today. If we do the numbers, then payback is fully synergized less than four years. For us, that's just reconfirming this was the right deal to do. DKK 560 million in synergies and a takeout cost of DKK 800, we decided to raise that post-closing when we had done the numbers and a little bit more aggressive planning on the takeout speed.
The synergies will be back-end loaded during 2023. As Mikko alluded to, we have started it. We will take out about 800 positions in mining. We have started that in Q4. It's still ongoing in Q1. That impact will start to phase in over the course of the business. There will be more structural synergy takeouts towards the tail end of 2023 that has to do with when we can start merging legal entities and combining order entry modules and so on. A large part of this will be headcount reduction, so these are people in double roles. There's also a substantial part on facilities and in combined pools of procurement.
The DKK 5.2 billion we acquired in the backlog, there has been some attention to that. We have decided to move DKK 1.8 billion over to our non-core activity segment. We'll come back to what that is. That is out. It is loss-making. It'll be run off. 30% of the DKK 5.2 billion is service business, healthy service business that we want and that we will groom further. Then, Chris Reinbold or Products have inherited about 20 large projects in our continuing business, not necessarily exactly with the terms and margins that we wanted, but it sits in our continuing mining business and will be run off over the next two years. Just illustrative here, saying why have TK Mining been loss-making?
If we compare to our existing business, TK on average is posting 15% less margin in their products or capital business and 10% less in their service business. We think we know exactly how to do that. It's not only synergies, it's also the way that we commercially integrate them in our product group and business line setup. In FLSmidth, we have been talking about de-risking. We want to de-risk the company. We want to de-risk the business lines, both in mining and in cement. We've done a number of initiatives. We have established a governance body, a risk management board that oversees this.
We have introduced risk quotas. A certain part of our revenue every single calendar years can be revenue that stems for projects with risks above a certain level. Risks can be especially difficult countries, it can be especially difficult customers, it can be especially difficult solution, high complexity, high engineering. It all can add to a risk scale that we use internally. We introduced this in by the end of Q4, start of Q1. If we look at our order backlog, we can see that not only is the order backlog growing over the course of 2021 and 2022, but we're also reducing the risky part of it. This is actually saying we are building our backlog.
We're reducing the risky part of that backlog, so everything else, quality of earnings in that backlog should be better. Former TK Mining will go exactly through the same process, and that happened, you know, 1st of September. From now on, building the backlog on the acquired business is common standards in legacy FLSmidth and in ex-TK. Just to recapping, we, post-closing of TK, we had detailed a product review. We have decided, when we designed our new product portfolio to keep best of breed, so to speak. We have done that, we have also decided that some of the products, both in legacy FLSmidth and also in the acquired TK Mining business, well, is no longer strategically important for us. Strategically important means that, either it's loss-making, it's pretty a critical point.
It's not building on our service or aftermarket business, we can't see any commercial viable solution to bring it back to decent levels. It's typically characterized by high risk, execution risk, a lot of engineering at fixed price terms, something that is very difficult to steer. We decided to exit that, and we have moved that to a separate reporting segment. We have three segments moving forward: mining, cement, and non-core. Non-core is not an adjusting item in the mining. It's a separate segment. When we did that, we moved DKK 1.8 billion from ex-TK and DKK 1.8 billion from our own business, a starting backlog of DKK 3.6 billion. On average, we will lose EBITDA of 20% on that business, there will be some exit costs.
We said over the three-year period where we run off this business, DKK 3.6 billion will result in a loss of DKK 1.2. Just this morning, we posted the first loss of DKK 4.4 billion. We will come back to guidance, where we'll be guiding for 2023 that this segment will turn over DKK 800 million-DKK 1 billion and lose between DKK 250 million and DKK 350 million. That leads us to guidance for 2023. In our opinion, this is a bit more clean than 2022. 2022 is a mix of legacy business, four months of TK, three months of moving out NCA, not so transparent in terms of run rate projections and so on. These are clean numbers.
Mining, in this case, is all our continuing service business from legacy FLSmidth and from TK. It's all our continuing products business from legacy FLSmidth and from TK. Clean. The adjusted margin of 9%-10% we are guiding is an adjusted margin, and that means that we have restructuring costs below that line. For 2023, we're guiding DKK 550 million to use for the synergy take out and the structural changes we have planned when we merge the two entities. Revenue DKK 16 billion-DKK 17 billion, adjusted guidance of 10%, 9%-10% for Mining. Cement is a clean number. We're not adjusting EBITDA in Cement, we are planning for Cement to be flat in 2023 over 2022.
With a continuous improvement in margins, irrespective that recession may sit in the cement industry. Asger will come back to more flavor on that. For our non-core, as we discussed, the DKK 800 million-1 billion in revenue and a loss of DKK 250 -350 million. That means that the group will turn over DKK 23 -24.5 billion, and the adjusted EBITDA margin will be 6%-7%, and EBITDA reported 4%-5%. There were a few questions on what we are adjusted for. We're only adjusting for the DKK 550 million in mining, so the restructuring cost in mining. We're not guiding on the reported number in mining. We actually took that out for clarity.
Obviously, inserting 550 there will bring the adjusted margin closer to 3% lower, so 6%-7% or so. In the group, we're adjusting for the 550, not for the non-core. Non-core is a reporting segment, you add up the three segments, and then we have the bottom line. Good. Just a little clarification, this is important for us. Our underlying FLSmidth business is now pushing 11%-12%. TK, the continuing part of TK Mining in 2023 is expected to dilute our earnings by 2%. This is important because at least to us internally, it proves that what we're doing works. The legacy business is moving forward with a few percentage points, and TK is still diluting us in 2023. This will change. This will change.
We will take out the synergies in the case as we have planned. We will commercially integrate TK. Pretty fast, TK will be up at the same level as our legacy business. We will continue to improve towards our new long-term targets. Chris and Josh will speak more about all the many concrete initiatives we're doing to do exactly that. Yeah. Key points, we're doing better in our legacy business, FLS. We think that's proof of concept. We're walking the talk. We think it was a great acquisition. We did with TK Mining. There's a lot of good stuff. There's also some integration and some hard work ahead of us the next one or two years.
We have decided to exit all the non-profitable, non-strategic important business in the company and put it in a separate segment so you guys and we all can follow it stringently until it hopefully leaves the P&L in 2025. That will pave the way for the margin pickup.
Thank you very much, guys. We'll head over to a bit of Q&A. That's basically how we tried to tailor the agenda for today. We'll do it in the sessions. We'll do a Q&A. Hopefully on this, there'll be Q&A throughout the day. We know you guys like that. We have Mikko and Roland sitting ready. There can also come questions from online. If anyone dares to ask a question, raise their hand, then there will be a. Shall we do Lars Topholm because you asked about Q-guidance this morning? We'll have a microphone for you. Please, give the first one.
Lars Topholm from Carnegie. I have two questions. One is on the integration cost going forward. You guide DKK 550 for 2023. There was a little in Q4 2022. Just to confirm, 2024 and beyond, we're looking at a number somewhere between DKK 150 million and DKK 200 million. A second question, you guide on EBITDA, but there's quite a bit of traffic between EBITDA and EBIT. How do you optimize that? How do you take that into consideration when you measure your value creation? How do you see the trend in that market? If I look at the history, the amortization-related, the acquisition-related part of amortizations become smaller and smaller. That will presumably continue. The non-acquisition-related amortization becomes bigger and bigger.
how should we think about that going forward?
Maybe I will first comment some of the activities, what are the kind of synergy savings what we are targeting this year. We are doing a business simplification for mining. The last we addressed the resources more in the regional organization. This year, we focus on the back end, more the kind of product line, business line end, and support functions. Business simplification means that we are starting to get ready for the principal component model. We are merging legal entities, releasing resources from the kind of more for administrative duties. We will see similar reduction in the workforce this year, if not more than last year.
Exit cost in some of the countries, like Germany and a few others are really expensive, so they will be quite significant, cost when exiting resources.
The first thing is we have said that we're going to spend about DKK 800 million to get the synergies out. We spent DKK 250 in 2022, so we'll spend the remaining DKK 550 in 2023. We'll do everything we can to have full run rate impact as from 1st of Jan 2024. On EBITDA and what's over and under EBITDA, you know, we will strive to be crystal clear on adjusted EBITDA and what we adjust for. Why do we use EBITDA? We've been thinking a bit about that before this event, right? The entire industry here is using EBITDA. The entire industry is also using adjusted EBITDA, to be honest. We have decided to stick to EBITDA.
We will most likely have an adjusted EBITDA in 2023, maybe a little bit in 2024, and then we should be back to reported numbers. Our long-term target is also reported numbers, clean numbers. Now, we're following the accounting standards, right? Some of our intangible investments will be amortized below EBITDA. There's no special thinking about that for us. You know, we'll do the intangible investments we will do. It's primarily software platform. There's some product developments also. That means that the split below PPA and amortization is changing. I don't want to be arrogant about this, but these are not super big numbers. That's one thing. The second thing is we will give you information so that you could estimate that part.
We will give you CapEx guidance and also a little bit of granularity on where it sits. That's why we have decided, to do so.
Thanks. Well, just before we take one from the room, I'll just take one from the online as well. Ole, you mentioned, 20 large contracts, with the risk attached to them. How visible are they for you? Can there be big hiccups? Should we expect big nasties over the period of the execution, or what is your faith in those?
Rather than having huge execution risks, we see bigger risks for the commercial terms, so that the pricing has been too low and then because we are exiting an NCA, the most riskier part of the portfolio. We don't see so big technical risks in execution because it's a product portfolio what we are keeping. We see that more poor terms and conditions, poor pricing and then therefore that is kind of impacting the books.
Good. We have, Christian.
Thank you. Christian Thorning, SEB. Two questions. Can you first quantify how much of the cost synergies have you included in your 2023 guidance? Secondly, just to clarify this two percentage point margin dilution from TK, is that on top of the cost synergies? When we bridge your 2023 guidance to what you can deliver in the future, we should take the cost synergies and remove, or add, you can say, the twothree percentage point. Or is it the same thing?
Included in this guidance is maybe DKK 100-DKK 150 in synergies, most of that sits in TK. TK underlying is actually a bit worse. What we have to do now is take out the full synergies. You can decide whether does that sit in legacy or not legacy, right? Synergies are not one or the other. When we merge the organization, we will select best athlete for all the double roles. Same in the product portfolio, best products that we need and so on. That's the underlying synergy assumption for 2023.
The rest will come when we take out the synergies and once and when, the product business line and the service business line get commercially up to, the standards that we require from our products and from our service business. That is a gradual pickup over the next two years.
Yes. Should we, Claus?
Claus Almer from Nordea. The first question goes to Q4 2022, if that's okay. You beat your own guidance, at least on the margin side. What did actually drive the better performance both within cement and in mining? That'll be the first question.
This is not, you know, it's fresh out of the print, right? Q4 is our strongest quarter, both in cement and in mining. We are not that far off our guidance. We had a bit positive impact from our capital portfolio, that's primarily why Q4 ended slightly better than we expected. It is not a run rate number. It's not a run rate number, Claus.
Sure, because when you beat on full year, it all comes from Q4. When you look at the Q4 isolated, you know, it is a meaningful beat versus guidance.
It's a meaningful beat, absolutely. It's a little higher than we expected, then there's a few year-end adjustments to it and so on.
Okay.
We will talk more about that in February.
Fair enough. The second question goes to the guidance for 2023 mining legacy, this, 11%-12%. The run rate for legacy in Q3 at least was 12.1%. Either you are conservative or, you know, the run rate will go down. How should we think about that?
We should think about it that also in the FLSmidth legacy business, we have some backlog left that needs to be run off in 2023. We need to take out synergies, we need to run the simplification and integration efforts, and that will take, you know, efforts and energy in that business. You know, we're not going to make a full year run rate of 12.1 you saw in Q3 for the full year 2023.
Meaning there will be more cost than DKK 550 million you are, you're adjusting for.
Claus, if you look at our legacy business in Q3, that was especially good quarter for us. It was clean, legacy. We did not have the TK in. We have a number of things we need to do in 2023. You know, 2023 legacy is not going to be at that level. We're not far off, right? We're saying 11 to 12.
Sure. Okay. of course-
Who's counting?
Yeah, yeah. Of course if you look at that acquired assets even in remaining part of the business, they are underperforming. Our estimate is that it's dilutive impact is 2%. It could be a bit higher, could be a bit lower, but we don't know exactly because of course it's, we know that business less well compared to the FLSmidth part of the business because in FLSmidth legacy we know all the details. That will create a kind of a burden for the year to come.
Good. Thanks. We'll take a question from online, probably to yeah, to both of you. In August, you announced three new business lines, but now we can see you've all reduced it to products and service. How is this different from service capitals before, and how does that make you get greater visibility? Why is this different?
Actually, when we had the three business line, most of the NCA assets, if not all, came from the system business line, and it had a few remaining product lines that we wanted to keep conveying In-pit crushing and co-conveying, and then IPCC, the kind of crushing stations, and a few others. We have a few product lines which were part of the system business line, but in relative terms it became so much smaller, it made sense to combine all capital under one management. We still have a full visibility for the, as I said, in three imensions: by product, by service, and combined. It just became too small, and then it didn't justify the kind of excess management around it.
Also that we call it product because we are product and product line-centric even though we supply full flow sheets.
I don't want to be too technical, but previously, projects was a big thing in the company. When we offered a project, you know, project manager was the king, and that means that he would call up the crusher guys and say, "I need the crushers a little cheaper here. Then I need a few mills and then the pumps, and then I can add it up to a margin that is decent on projects." When we moved to what Mikko's referred to an Atlas Copco model, we moved to product line responsibility and accountability. It means that the pumping guys are being measured on their bottom line. If they feed into a combined delivery, they have their pricing requirements. It's globally steered. This is the pricing.
If you want crushers added to it and you want a few mills in between, that's fine. That's the combined price, and we take a price then for executing on top. You know, if you've seen an organization work like this is significantly different. This is significantly different. If we can't make that combo earnings, we will no bid. It's not in itself a goal to get this monster project, flat-flagship lighthouse thing. This will in itself more prudently steer margins.
Thanks. I thought you, next one over there.
Yes. Hi, good morning. Christian Hinderaker from Goldman. I wanted to ask on the market backdrop in terms of the constraints we've seen to Greenfield CapEx, particularly in the context of your ambitions to reduce focus on large scale projects. I just wonder, you showed a bar chart earlier, that effectively you focus more on smaller business. How much of that is led by the market versus your own actions to avoid project tenders? Then also secondly, in terms of the integration with TK, how that might be affecting your project bid activity.
If I look at the capital business, I would say that the growth of the capital business has not been impacted by a decision not to do projects, large projects, and it's about scoping. We focus on bundle of products, which is full flowsheet, and then giving performance guarantee for that bundle. It just means that we don't do excess, we don't do third party, we don't do civil works, we don't do any of that EPC stuff. In that sense, if I look at our wins and losses last year from the deals, I don't think we lost anything based on that decision. Also that EPCMs are very influential in decision-making regarding large CapEx. Typically, they are managing or even buying on behalf of the customer, and EPCMs like our approach.
They like us to do products giving performance guarantee for our kind of full package, but they don't actually want to do us to do the rest because that's their business. Actually, we have less conflicts with the EPCMs with this model. We provide full projects, but it's a bundle of products and guarantee for the performance, which is basically a flow sheet.
Good. I think a good proxy for the value is in our NCA business. The DKK 3.6 billion over three years indicates a bit more than DKK 1 billion that we forego on top line, then we avoid a -20% EBITDA loss. I think that's a win-win.
Yep. I think we have, time for one last question. I think.
Over there.
Oh, over there. Vlad first. Sorry, Gustav.
Good morning, gentlemen. Thank you so much for taking my question.
Right.
Look, first two perhaps will be on the guidance or maybe on what's not in the guidance. First of all, very keen to hear your thoughts on the order intake trajectory in 2023. You're obviously constructive on the mining cycle. You have a bigger footprint with TK. Does it mean that orders, we expect orders to grow in 2023? Secondly, if you can help us to understand the moving parts on the free cash flow trajectory for 2023 as well. Key headwinds, key tailwinds. I just checked Bloomberg consensus this morning. It's about DKK 500 million positive, your thoughts on this number as well. Thank you.
If I comment the market, I believe that the mining market will be flat on CapEx this year because of also recessional pressures. Even though there's a mega trend demand increase over time, I believe that there might be some impact from the macroeconomics, meaning that then the CapEx market would be flat compared to good 22. Then we are aiming to grow the service part of the business because service part of the business is we believe that everybody's running the mines operations at the full capacity, and that gives us opportunities to grow the service. The capital market flat and then opportunity to grow in the service market. That's my kind of short-term projection.
I think, you know, the cash flow is going to be a little technical. I think the starting point would be the group's reported EBITDA for 2023. You can make assumptions on some of the provisions that we are disclosing in the PPA on TK. Will some of that turn into actually used cash? Apply 2% of CapEx, good proxy. A tax rate that is slightly lower in 2023 than in 2022 also for cash proxies. Slightly higher interest from from the financial from interest rate going up and so on. You will end at the free cash flow. We do not expect all the provisions just to turn into cash outflow like I know you and I have discussed.
Not at all, and especially not in one single year.
Good. With that, the rude timekeeper will disrupt. We'll move over to a 10-minute break. Coffee outside. I would invite you all to enjoy our MissionZero mining table down there. If you haven't seen it's interactive, so you can actually see what the pit to plan means and what are the benefits of some of the products that we'll see after the break. See you soon.
Welcome back from the break. I hope you enjoyed some coffee and refreshments. The next topic is that we will go through the mining strategy. If you start just glancing what is our starting point, the guidance for the year and also the commodity exposure. Our commodity exposure is quite ideal. We are mainly exposed to copper, and then 40% copper and then gold 15%. Along with our commitment, we are exiting coal by 2030, that part is replaced by increase in battery metals, which is just collection of different minerals, and also that we can do more in iron ore. Looking at this one is pretty good exposure for the future. We discussed about the restructuring, the focus in 2023 will be we simplify our operations.
We take the cost out of the back end. We're done most of the trimming what we need to do in the front end regional organization. Now the focus is simplifying the way we operate. Roland will mention principal company model. We are looking at everything. We are looking at consolidating operations to fewer locations. We are looking at having less legal entities. All that complexity has significant cost. At the same time, we will have geo-hubs for support functions for finance, HR, and that type of thing. It's really taking costs out of the back end. I would say that most of the heavy lifting regarding restructuring is complete end of this year. We still are running off the NCA, but internal restructuring should be more or less done end of the year. We discussed about speed.
We want to read fast. It's all about uplifting our performance. Performance uplift is the focus then. Longer term, we are looking at totally new areas to grow. We have a fairly prominent place in the mining market, and we'll come to the competitive landscape in a minute. There might be limits how much we can grow in a few years of time. We are looking at totally different avenues to grow, but not material handling. When you look at this one, CORE'26, you might ask what's new there. It's actually how we execute it is new. We have a long-standing commitment for sustainability between MissionZero, technology solutions to our customers, and ESG. When I started, we didn't have a service business at all. Service was support function.
Service is fully-fledged business line with very ambitious targets, and we are the partner for customer in their operations. You need to pay in mind, mining market is not CapEx market, it's OpEx market. In technology, we want to be number one or number two in everything where we play. Chris will go through the portfolio. In most areas, we are number one or number two. In some areas, we still need to do better, but our starting point is really good. It's a performance uplift. Without minerals, there's no green transition. In English language, you're not supposed to use double negatives, but you could say that without minerals, there's no nothing. If you look at the model, look at this building, look at cars, look at everything. Without minerals, there's no nothing.
This world is yet to realize how much minerals are needed for green transition. Green transition is talked about in politics, in different forums, but there's still lack of realization how much more minerals are needed to support that one. Lithium gets most of the attention when you talk about green energy technologies and minerals. EV, electric vehicles, lithium, that's the most common what people focus on. Look at everything else. You have a copper, you have a cobalt, nickel. You have a whole variety of minerals what are needed for green transition depending what is the application. That's why I said that is we are happy to be exposed to copper 40%, because still the largest single mineral in the world with a huge deficit going forward is copper. You've seen these graphs in many, many publications.
Copper is the metal of electrification. You look at how it's a multi-use commodity. There are many things driving copper use, not only green transition. If you look at looking at the future projections, there's not enough copper. Copper plant is huge process plant. Lithium plant is quite small. If you look at huge process plants in Chile, in other countries, they are massive CapEx investments. It needs to double to build the deficit. This is just in simple terms, how many new mines are needed by 2030. Everybody's predicting that then the CapEx is skyrocketing because of this one. There's a small but. It's not going to happen. This will not happen. You know it, I know it, because of the licensing, permitting, and also lack of appetite for growth CapEx by mining companies.
There are some mining companies who are focusing on growth, but many mining companies are also focused on value over volume, meaning that, the demand will support long-term price development. If you look at the demand pattern and deficit for supply, it's simple laws of economics. The world needs much more growth CapEx. If you look at this estimate, this is also our estimate, and much of the CapEx in here is actually maintenance CapEx. It's not growth CapEx. Because ore grades are declining, you need to process more to get same volume of concentrate out. Much of this, even this is maintenance CapEx, not growth. It means that the mining market is great market long term for the next 5, 10, 15, 20 years.
I don't see mega boom investment to growth, a huge number of new plants coming up anytime near in the near future. Building a copper plant takes about 10-12 years. If you think about 2030, there will be no surprises to anybody about copper plants ready for operation at time. Everything what is available in 2030 is more or less under construction, under planning today. If they are not, it will not be there in 2030. Same for the smaller plants, lithium plant, maybe the cycle is 8 years, is 2023. We know all the future lithium plants by year 2030. We know them, and we know it's not enough.
Maybe also the point when you look, when I saw the previous graph, the mining market is OpEx market. Sometimes, so people are obsessed about what's the CapEx plan, but mining is really OpEx market. If you look at then, mining companies spending OpEx, spending on CapEx, it's really OpEx market. For our performance in the coming years, regardless of the curve of the CapEx investment, we'll be doing all right because we will focus on service. Two-thirds of the business will be service, so we will be all right. All these three main drivers support the mining market. Green transition is only one. The middle class, emergence of middle class in population-rich countries, India, Indonesia, Bangladesh, you name it, population-rich countries, and there's more and more middle class emerging, and all that is driving the mineral use, copper use.
Underlying industry challenge, as I said, much of the CapEx is maintenance CapEx because ore grades are getting worse, you need to invest more processing to get the same volume of concentrate out. We invested a lot for the, for the flowsheet competence. When we talk about flowsheet is pit to plant, basically the core is concentrate the plant, processing plant. We have a full range of products for all applications, all key commodities, and all different types of ores. The flowsheets are very different in different operations. You need to have a full portfolio to be able to be partner for customers to look at the optimization of the flowsheet. If you don't have full flowsheet, they will not talk to you. They will talk to somebody else.
You might have individual product companies doing this and that, but partner for customers to look at how to optimize copper plant, gold plant, lithium plant, you need to have full range of competencies. Chris will go through more in detail this one. If you talk about competition, there has been significant consolidation in the mining supplier space. Last one, our acquisition of TK Mining. If you look at then the ones who have a full flowsheet or almost full flowsheet and then can support customers when they are running the operation, so service capability, optimization capability in the OpEx phase, we have one competition and one competition only. In the CapEx phase, there are some individual product companies who are competing at the product basis.
Most of the mining market is going the direction that customers want to have partners designing the flow sheet, EPCIs, but also suppliers. Then if they don't like one of your products, they might use product company to complement your portfolio. If I look at the table or large customers who's on the table, there's only two options. The entry barrier has been very significant for mining. There hasn't been any new players coming to mining. Customers is not very price sensitive either because it's OpEx market, it's OpEx operation, middle of nowhere in remote places. Entry barrier is huge. Nobody's making buying decisions if somebody's selling a piece of product, 5% or 10% cheaper.
It doesn't matter because all about how well you're able to run your operations, how well the supplier is able to support you in your wherever your mine is, what kind of repair center you have, what kind of capabilities, higher technical capabilities you have. Installed base is key. We are very customer-centric organization. Now we are also becoming more profit-centric, which I don't believe are contradicting each others because we are providing lots and lots of value to customers and, and we can price that value. We have one of the largest installed base in the world in mining. We'll talk about HPGR today. It takes 20 years to build the installed base. Nothing happens in the market in the space of one year, two year, five years. Five years is nothing in mining. It's all about historical installed base.
The mining equipment, heavy equipment, they're running 20 years, 30 years. It takes such a long time to build the installed base. Once you have it, you can service that one. Also, that it means that you are present in those markets. As a newcomer, it's really expensive to build a presence. We are present in most of the sites in the world. We are present in all of the markets. Strongest commodities, copper, gold, nickel, zinc, lithium, we are fairly strong there. Iron ore, we could do more. It's more market limitation and our own action. We have a good portfolio for iron ore. Looking at the growth markets, it seems that North America is changing its attitude for licensing mining operations. There is positive talk in politics, relaxing licensing for critical commodities in North America.
We believe that North America, which is a really strong market for us, will continue to grow. Our biggest market, South America, is super important as well. Africa remains, of course, key mining market. One of our biggest growth markets is actually Central Asia. Kazakhstan, Uzbekistan, super important markets. We have a great market position in Kazakhstan, and that's really thoroughly mining country. There will be growth CapEx in Kazakhstan, and we are part of that. We announced something last year that we are flowsheet supplier for a big plant. Kazakhstan is very important for us. Australia, we could do better. We have good presence there, portfolio right. We need to go over the market. Indonesia, Mongolia, and also that we are redefining strategic work with Chinese investors.
Chinese investors are investing into mines a lot outside China. We are defining strategy how we work with the main Chinese mining operators to get our fair share of the business. We are in the right market. It's absolutely great market. All the mega drivers, mega trends are supporting the mining market. We have a unique position with our portfolio today. Crucial was that we added TK. HPGR is a key product in our portfolio, a few others. Chris will go through that one. We actually have a best portfolio out of anybody in the mining market for the ones who are supplying the concentrate to plant. It's really in our hands to make most out of it. On that note, I will give floor to Chris.
Thank you, Mikko. Good morning. My name's Chris Reinbold. I'm leading our products business line here at FLSmidth, and it's a pleasure to be with you this morning. Look forward to giving you a little bit more information about our product business, how we operate. Mikko and Roland shared a lot this morning about how we're structurally transforming. This has been going on now for several years. This is not a new strategy that we're just launching today. It's a refinement of our strategy. In 2021 and 2022, we were launching an internal initiative we called Productivity at Work, which was changing the way we operate, and I'll talk more about that this morning. We're transforming the product portfolio. Roland talked about the non-core activities business.
When we acquired TK Mining Technologies, we went through a strategic portfolio review, moved some of those product areas and some legacy FLSmidth areas into non-core activities. I'm not involved with that in the Products Business Line, but what's left in the Products Business Line, we also did some portfolio pruning, some active decisions to discontinue offering some products. It's not just all about the non-core activities. Even in the remaining Products Business Line, we took a methodical approach. Within 100 days after the acquisition closure of September 1st, we defined our active product portfolio so that we could make it clear to our customers and focus our resources internally on the products that we felt would be the best to go after each market.
What we're doing now is we're taking some of the better attributes from each of the legacy FLSmidth products and the legacy TK Mining Technologies and bringing some of those together. Even if we discontinued one product or another, each of those products typically had some features that certain customers like or we thought were advantageous. It was great to see our engineers get together formerly as competitors, now as colleagues, and say, "Hey, how does this work? What's better?" We're trying to implement some of those improvements into our products as we move forward. Aside from the product portfolio, if we talk about the way we operate, and I'll talk more about that in a minute, certainly Mikko and Roland talked about this, it's really been a fundamental change in the way we execute orders and go to market.
We're strengthening our ability to execute, deliver consistent margins, not have big losses. Some of that is because we're going from, as was described earlier, a project and product company to a product-focused company going forward. Inherently, we're reducing the risks, eliminating a lot of labor at site, eliminating a lot of civil work, a lot of big structural steel works, transitioning to a product-centric business where we can control the supply chain, the execution, the delivery of the product to the customer. These actions are helping us transform and strengthen the business and will lead to continued growth. Some of that growth you've not seen in 2022. It's been a little bit muted. Our underlying product business has seen significant top-line order growth as well as order intake contribution margin expansion.
That's been muted a bit by some of the TK acquisition impact, but also because we're still running off, as Roland said, these legacy orders, and we will continue to see that reflected in the financial results through 2023 at least. I'm going to talk today about what Mikko described, our leading product portfolio. We're quite proud of that. We've been in the business a long time, which is key in mining. We don't develop experience and customer acceptance overnight. We've got, we think, a leadership position in many products. We've got a full flowsheet leadership position. We've got process expertise, technology experts. Some of you may say we had that three years ago. We had that five years ago, which is true. It's been strengthened now with the TK acquisition that I'll talk about.
We did have those things, so why were we underperforming? Why were we not living up to the potential that we had in FLSmidth and the mining capital business to deliver the margins that our shareholders expect? I would say this slide here is one of the most important ones in my presentation because this doesn't just talk about our great products and flow sheet that we have and that we had three or five years ago, but talks about how we're actually executing going to market. Some of these comments on here might seem like a small organizational change, shouldn't have a big impact, but it's fundamentally changing our operating model, as Mikko described earlier, going to global P&L responsible product groups.
That means that our, excuse me, 8 product group managers in the products business line, they are basically managing the global business for the product lines in that product group. That means sourcing, it means proposal development, pricing decisions, how we execute. Do we produce internally? Do we rely on our third-party supply base? All of these things they're running as their own fully global P&L business. That's dramatically different than how we operated even just a few years ago in FLSmidth. We were a region P&L organization, which has some advantages and can work. For our global product lines, it was really suboptimizing what we were doing globally. We might be pricing very aggressively on a product in South America, same product we might be capturing a lot more value in North America.
There was really, number one, not the financial transparency to really detect that, and that's a lot of what Roland and the finance organization has helped us with. Now we're looking at our global demand for these products, so we can optimize our pricing, optimize our capacity, and not take a suboptimal regional view of that. It's not just a simple org change or just saying we're moving to P&L, it actually has structural impacts. Mikko showed earlier our core values that we're launching with the strategy plan here internally with our employees. Two of those are empowerment and accountability. They might seem obvious, but these actually were not core values that we had in our earlier strategy.
They were words that we talked about, with the model that we had, it was difficult, frankly, for people to be empowered in some cases and to be accountable. It was actually the operating model that was preventing our good people, well-intentioned people, from really executing to their full potential. Now, with this structure, with global P&L, global product groups, they're number one empowered, they have all the resources, they have all of the freedom within our normal financial controls to operate, but they also have the accountability. We have the ability to track global profitability by product line, by product group. For product lines or product groups that are not performing, we can take the necessary turnaround actions to get them back on track.
That's a, that's a visibility that we didn't have even just about two years ago in FLSmidth. The other thing here is a product-centric global value chain approach. What does that mean? It's kind of a mouthful, but what it means is in the past in FLSmidth, the way we executed projects, we may win a project, for example, for a thickener in South America. A thickener is a large tank with a rake that rotates, separates, clarifies the solids from the liquids. From the outside, it doesn't look like there's a lot going on there, but there's actually a lot of technology built into that product. It is an important product for us. It's a leadership position product for us.
If we were, in the past, executing one of those in South America, it would be our local team taking care of that execution. They would quote the thickener. They would get some technical input from our product management experts in Salt Lake City. They would prepare the proposal, sometimes cost plus, unfortunately. They would offer it to the customer. If they want it, then they would go out for bids on the material. As you can imagine, probably heavily South American supply base centric. Oftentimes we ran into execution problems, overruns, risk. I'm not trying to denigrate our colleagues in South America. It's our most important region from a demand perspective. We have great team down there, but the operating model wasn't right. Same thing might be happening in Australia with that same product, completely disconnected. What's happening today?
Today, we have all of those thickener orders. In this case, that product executed out of Salt Lake City. The same engineers, the same procurement people, same designers working on those orders with our supply base. We get the repetition, we get the expertise, we don't make continued repetitive mistakes, and we can optimize where we want to sell these around the world with our limited capacity to meet the global demand.
The difference with the product-centric global value chain is we're establishing for each of these product lines and have been over the last 18 months the preferred strategic suppliers for some of the key components globally, whether it's motors, drives, even structural steel fabrications, obviously looking at emerging market sourcing, India, China, Vietnam, et cetera, but controlling that, again, centrally, globally with a well-thought-out process, not an ad hoc sub-optimized regional approach. Big transformational change for us.
It's been a big transformation for our people. The leaders that we have now in these product group roles we think are the right people to take us forward with that empowerment, with that accountability. Let me talk now about our product portfolio a bit. The dark blue here represents FLSmidth, and we're showing two other key competitors, and then the rest are grouped together as others. As Mikko said earlier, we believe we're number one or number two in many product areas. This is a reputation, a position that in mining is built up over decades, in some cases many decades. It's very difficult to penetrate some of these product areas if you're just developing a new product. We've tried that. We've had some success, but it takes a long time.
The other thing you see in this graph, hopefully, is that we're strong not only in one product area or a few, but across the whole flow sheet. This is loosely from left to right a depiction of the flow sheet from pit to plant that Mikko talked about or that you see depicted over here on our 3D MissionZero mine table. We've, through the TK Mining Technologies acquisition, we've really strengthened our position in some of these areas. If we talk about in-pit crushing and conveying, where we're a market leader, we've become stronger with the TK Mining Technologies acquisition. Similarly with overland conveyors. In the case of gyratory crushers, we're very strong in that with our legacy FLS offering, even stronger now with the TK Mining Technologies from a market share perspective. Then the high-pressure grinding roller, HPGR, that you've likely heard about.
It's a newer technology in our industry. It's only been around for a few decades, but it's preferred for certain ore types, certain mining circuit applications. We introduced this product about 10 years ago, really struggled to get traction in the market, very low market share. With the TK Mining Technologies acquisition, we went from almost nobody in that product line to the market leader. That's a key core benefit we get with the HPGR technology resulting from that acquisition. It's got a very significant aftermarket service potential as well. This is our assessment of market share but being number one or two means more than just market share. It means how do the customers view us. Do they view our technology as an advantage for them? Do we get some favorability for that? Do we have a strong aftermarket service offering?
These are the things that give us some pricing power in the marketplace. We're not trying to be number one or number two just to beat our chest and for the sake of it. We do that because it's going to give us a better position when we're negotiating with our customers, when we're providing a full flow sheet offering where we can get the highest value possible out of the marketplace. As Miko said earlier, there's really only 1 other competitor in the industry that has a flow sheet that approaches the full capability that we have. We're really seeing that now with the consolidation that's taken place in the industry. This is an example of a large copper processing plant. This is a depiction of an actual project that we delivered a few years ago in Asia.
We provided all of the equipment that you see on the left of the screen here, which fills out this flow sheet. Not every piece of equipment. There are a few third-party bought outside pieces, but almost all the equipment in this flow sheet we provided. It's impressive to go to this site and see all of the FLSmidth blue logos throughout. We obviously have a very strong service presence there and a very strong service potential going forward. What does this mean, though, with supplying these bundles of products, which gives us that overall full flow sheet offering? It's important to note that we're not getting into big EPCM-type project supply. Mikko made this distinction earlier. We're not competing with our EPCM customers who are also partners with our mining customers. We don't want to do civil works.
We don't want to have hundreds of people at site, which leads to a lot of cost overruns and disruptions. We don't want to have to be buying a lot of structural steel that might get delayed to site or be subject to big inflationary risks. With our strategic product-centric global sourcing strategy, we're able to maintain the capacity from our supply base for our products. We're able to control material inflation even over the last 18 months, which has been the most erratic inflationary period in my 30-plus-year career. We're able to mitigate that somewhat with this product-focused supply. We're able to do this across all of the key mineral flow sheets that Mikko talked about, copper, iron ore, zinc, and in particular in a growing demand now is for the battery metals, including lithium.
Active product management means, number one, having the financial transparency to really be able to track our product portfolio and look at what products are performing and which are not. Also service intensity here, which is really just a simple measure of what's our aftermarket service order activity in relation to our capital activity. The product group managers that we have in the products business line, their primary goal is capital order intake revenue margin, of course, but they have a secondary goal, which is the total lifecycle for their product. Our product group manager for Mills is interested not only in our capital sales, but also in the working with Josh Meyer, who you'll hear from shortly, and his whole service team on the aftermarket.
If we get a big order for mill components like we did last year in South America, it's not just our service team going after that, it's our new product capital teams that are focused on going in and convincing the customer that we're the right people to work with. We are focusing the portfolio. Obviously, we want to increase the products where we're more profitable on the capital side, but we're also looking at the aftermarket potential more than we were in the past. One of the products I'll talk about later, pumps, which wasn't probably getting enough focus in FLSmidth from the, from the effect that the capital sales are going to have on the aftermarket derivative service potential going forward. We're much more attuned to that now.
I'd like to talk for a few minutes about our Milling and Grinding product group. We believe we're the undisputed leader in milling and grinding. Prior to the TK Mining Technologies acquisition, we were very strong in the horizontal mills, the SAG and ball mills, which are workhorses in the industry. We have more 40-foot SAG mills installed around the world than all of our competition combined. We've also installed the world's largest capacity SAG mill. We're definitely a strong player in that. We've been making these for many, many years, decades, and have built up a strong reputation in the marketplace. With the acquisition of the TK Mining Technologies business, we bring the number one player in high-pressure grinding rolls. Now we have both technologies.
You hear a lot in the market, even you guys probably hear a lot about high-pressure grinding rolls and changing the grinding circuit and the advantages of that. That's true for certain ore types, it's true for certain mines, certain mining circuits, but not for all. SAG and ball mills are still prevalent. They're going to be important for decades into the future. The advantage that we have, we have both technologies. If it's a particular mining site where SAG and ball mill circuit makes sense, we can be the leading provider of that. If it's an HPGR circuit, HPGR with a ball mill or HPGR in a pebble crushing circuit, we can also be the leader there. We really think we are the one-stop shop for milling and grinding.
In addition, with our vertical mills, that time won't permit me to get into here, but we've got a lot of other technologies that make us that milling and grinding leader. Another area I'd like to talk is our crushing portfolio. This is part of our crushing and screening product group. We've been making gyratory crushers in FLSmidth for over 100 years. This is a product that was introduced in the early 1900s. Obviously, it's been updated over time. The capacities have grown, safety features have grown. We now have, we think, the industry-leading top service gyratory crusher, which allows our mining customers to perform maintenance from the top of the gyratory crusher, and these are very big animals, not have to have people go underneath, which is, may have some inherent safety risks.
We've also introduced more recently a patented self-aligning main shaft insertion, which allows the our customers to more quickly and efficiently replace that main shaft when it becomes necessary. With the TK Mining Technologies portfolio addition, we bring the Gi Jaw product. This was a product that was quite popular in Australia and for underground mining, we've even strengthened our leading gyratory crusher portfolio with this additional technology that we can offer. We talked about in-pit crushing and conveying before, Mikko mentioned it. TK Mining Technologies was quite strong in this area. We had some experience as well in FLSmidth. What TK Mining Technologies brought is really they had developed a standardized modular approach to these crushing stations. When you see one of these crushing stations, like the photo on the screen here, it looks like a big project.
In reality, these are pre-engineered, preassembled modules that can come together at site, lowering our risk profile, lowering the execution profile, fitting in with our model and strategy of a de-risked portfolio where we can deliver higher margins. Today, with our strength in the in-pit crushing and conveying, semi-mobile crushing plants, where we think we're a leader, along with our product crushing technology that goes inside of it, the gyratory crusher, jaw crushers, ABON sizers, together, this makes us very powerful. We had a press release 2 weeks ago where we announced we're supplying what will be the world's largest gyratory crusher, along with our crushing station, to a leading copper miner in South America. We're very confident in that technology because it's a slight extrapolation of what we're producing.
One of the growth areas that we really have potential to grow, and we talked earlier, Mikko's indicated the mining market is expected to be relatively flat this year from our vantage point. One area we do want to grow is in our pumps, cyclones, and valves business. This is one of the areas from the earlier market share chart where we can't claim we're number one or number two. We think we're number two to number three. We want to become a clear number two with pumps for the mining industry. The good news is we think we have the right product. Our patented wear ring technology, which allows our mining customers to adjust the pump while it's operating, is preferred by our mining customers.
It's a key technology. We do not need to embark on a big R&D effort here or introduce new risky technology to the marketplace to grow. We also don't want to get into a price war. The way we're going to grow here is we're putting resources out closer to our customers' mine sites, site salespeople, site service people, to a much greater extent than what we had before. They are going to, we believe, drive conversions of pumps from the competition to us, and then we're going to have the presence there to service those pumps. This is going to provide a significant service annuity for our service business line going forward, and we're quite excited about this area. One more example of the full flow sheet technology here is with a relevant growth area in the industry, green minerals getting a lot of attention, lithium.
We're very active in lithium. even though it's growing a lot, it's still small volume, obviously, relative to copper or some of the other minerals. We've got the products for this lithium industry. We've got the full flow sheet capability, not completely full flow sheet in some of the lithium areas, but we're working to fill that out. The other thing we have that we haven't talked about yet, in Salt Lake City, we have a mineral testing research center. This is what we believe is an industry-leading OEM center where we, every day, are doing hundreds of ore sample testing for our clients, assays for their own use, but it's also work we're doing to model new process pilot operations that could be used in their mines.
We have the metallurgists, the process experts to work with the ore samples from the specific prospective mine sites, help them model the right flow sheet to apply the right equipment for their application. There's a lot of interest in lithium. There's a lack of supply, as Mikko indicated, strong anticipated demand moving forward. We're active in all of these areas, whether it be hard rock spodumene, whether it be clays in Nevada, for example, or whether it be the lithium brines and also the emerging DLE, direct lithium extraction technologies. There's a lot of new startup players in these areas. They're coming to FLSmidth.
They want to work with us because we have the technologies, we have the testing capability, we have some process expertise to marry with theirs and help the industry really ramp up lithium production and meet the needs of the electrification of the economy. Let me close with a few key summary messages for you. Number one, de-risking the portfolio. That doesn't just mean moving some things over to non-core activities. It means in the remaining portfolio, only working with products where we can not have on-site risk, where we can build in standardization and repetition. We want to deliver consistent performance and improve margins. We're seeing that already with our operating model. You're not seeing it yet because it's being masked by legacy execution, TK integration costs, Russia wind down costs, all of these things.
We're quite excited, quite confident that we're going to get to the targets long-term that were shared this morning because of what we're seeing in our execution going forward. We do have significant growth potential yet. Even though we're a market leader in many of these areas, we're not just going to grow with the market. We're going to grow faster in pumps on the capital side, which is going to drive our service business.
We're also want to be a big player in the emerging lithium growth demand, and we think we have the right technologies for that. Finally, the repeated full flowsheet capability makes us one of few key suppliers in the industry that our mining customers want to work with, need to work with, and then working to make sure the underlying products are number one or number two in their space. Thank you for your attention.
Look forward to talking to you more throughout the day. Now I'd like to turn it over to my colleague, Josh Meyer, who heads up our Service Business Line.
Thank you very much, Chris. Hello, everyone. I recognize I'm what stands between you and lunch, so I'll try to keep this quick, and I'll try to also keep it informative. As Chris said, my name is Josh Meyer. I'm responsible for our service business line here at FLSmidth. Just as Mikko said, the fact that I can say I'm responsible for running our service business line is a big change, and I'll highlight and underscore why that is so important in just a few minutes. Before, however, I get into the what we're doing or how we're doing it within the service business line, I want to talk quickly about why.
Everyone talks about service in the mining industry and the importance of service, and I think everyone in this room understands fundamentally that service is the profitability driver for not only us but for most of our peers. However, it's not just the profitability that makes service so critical and why service is one of the four, one of the four key focus areas of our new CORE'26 mining strategy. It's also, hands down, the most stable part of the business. It's not like some industries, counter-cyclical, however, it is far less cyclical than the capital business. At the same time, Chris and Mikko alluded to the tremendous potential that we have as a result of our position over many years as industry leader on the capital side of the business. That translates into the fact that it is also, by far, our largest opportunity.
Lastly, as I'll highlight in just a little bit, it is the area where we can have the most impact on the industry and on our customers in terms of their own productivity, their own financial performance, and their sustainability targets. Service is critical to who we are. We've talked about service for a long time, but part of that transition or that journey of becoming a service-centric business started with convincing ourselves and every one of our colleagues within the company about why service is so critical. Our targets and what we believe to be a healthy balance for the business moving forward is about a 2/3 to 1/3 ratio between service and capital business, and that's the aspiration or our target over time, is to maintain that mix in our revenue. How do we get there?
The path is relatively simple and straightforward. I would argue that when you look at the name of our strategy, CORE'26, it applies absolutely fundamentally to the service business. I'll share with you in this, the next slide, some of the things we're doing to strengthen our core. We have a solid base. We have not executed well on it. Strengthening our core is at the foundation of the growth that will come in our service business. At the same time, Chris talked about how we start to migrate to a more service-centric business model. That's not just about having a service business line and putting the resources in place to create the service business, but it's about transforming the way we do business across the company. That's efficiencies in our supply chain. That's designing for serviceability.
That's putting our focus, energy, and effort on the products that generate the most service potential down the road. That transformation is well underway. That recognition is well underway, and it has broad-based implications for us as a company. Lastly, I would love to tell you that our entire service portfolio is fantastic. Unfortunately, we have some dogs there as well. We're addressing those, and I'll talk to that in just a minute. We can offset the pieces that we're going to prune with incremental growth to be able to provide overall growth in our service business to achieve those 2/3, 1/3 targets that I just mentioned.
At the same time, fundamentally, we believe improve the profitability of our service business and of the company as a whole, and that comes from transforming the way that we go to market, and I'll talk to that in just a few moments. Chris spent a lot of time on a slide that was very similar to this, and he underscored very clearly how transformative this business line migration or what Mikko referred to as an Atlas Copco model was for the capital business. I would argue that it is equally, if not more fundamental to the service business. Mikko said earlier to all of you that we had seen our service business as a support function. When I joined the company, I had regional presidents saying to me, "Well, we'll determine what we need for support.
We'll tell you what we need from the service business." We've completely flipped that on its head. Those same regional presidents are now part of the service business line. We control from the supply chain and procurement all the way down to the sales and service execution teams led by those regions that are now the interface with customers. We've taken much of that control and centralized it so that we're now focusing on the profitable parts of our business. We're driving a consistent approach. We're fixing many of those process inefficiencies that Chris mentioned that came with a highly decentralized organizational structure. Now we're driving those efficiencies. We're gaining pricing controls. We're gaining supply chain controls that we never had under our prior organizational structure. This is truly transformative.
In the few months that we've already been operating under this structure, we have some very tangible examples of how it is impacting directly our business. Mikko alluded to and Roland alluded to some of the synergy savings and the focus we had on our regional organizations. We've already been able to execute on eliminating 800 synergy savings opportunities or executing on 800 headcounts of synergy savings on duplications of roles between the acquired TK Mining Technologies and the historical FLS go-to-market organizations. At the same time, I mentioned that we're pruning some parts of our business. We have a tremendous number of headcounts and resources dedicated to basic labor services that we don't believe or convinced clearly add no significant value in the value chain, yet require tremendous costs and organizations to support. We're well on the path of executing on that exit.
You've already seen, and you'll see further details in February when we release the details of our financials, we are already increasing the value capture and that's demonstrated through the improved underlying margins in our service business. What does that really translate to? It means that we've been able to not only control our costs, but we've also been able to execute on pricing. Our prices have outpaced inflation, meaning we are capturing a larger portion of that value, and it is our intent moving forward not only to capture that through process controls, but by transforming the way we go to market, and I'll show you that in just a few moments. We've created this new business model or this new business line. How does it look? We've divided the business into 5 service groups or service areas.
The first two on the left are what you would historically think of as a traditional parts businesses, right? Spare parts and consumables or what some might call wear parts. They're fundamentally different even though they're parts. The left are all the bits and pieces that make up the machinery that we sell. It's a much more captive business, and it's an area where we haven't had tremendous process controls, and we haven't had a methodical approach to executing on the business. Simplification and standardization have a tremendous impact on that portion of our business. Consumables, if you think about an automobile, consumables would be tires and filters and windshield wipers. They're the things that are designed to wear out.
They require regular replacement, and they generate a tremendous opportunity. We have not seen that as a core part of our business in the past and have not invested. We're now bringing on capacity and capabilities to execute there. The third piece is professional services. This is the labor, field labor and the service centers that essentially are where we put our people in contact with our customers to be able to deliver on our commitments from a service perspective. Upgrades and retrofits is where we execute on planned work on existing installations. It's intended to improve the efficiencies of a customer's equipment or to extend the life. We've, based on our project-based approach historically, taken on very complex projects in this area. There's tremendous opportunity for us to improve our margins and our quality of our earnings through simplification and standardization in this space.
Lastly, I'll touch very briefly on digital and Mikko Tepponen will explain further after lunch. We are now moving digital into the service business and bundling it together with our service offerings to transform the way that we deliver on our, on our service promises rather than seeing digital as a standalone hardware and software. This is an extension of Chris's chart that showed that we are a market leader in essentially all product types across the flow sheet or in most product types across the flow sheet. As I mentioned earlier, the fact that we have had a clear market leadership position means that we also have a phenomenal install base that generates phenomenal aftermarket opportunities.
The fact that our equipment stays in operation for 20, 30, 40 years means that we have tremendous potential from a single installation for many, many years. We have been underperforming in many regards in the capture of our service potential. I'm going to speak very briefly about a few examples in just a moment of how we take those different buckets of service groupings and marry them with these various product groups. It's the intersection of those service groups with an understanding of our position and the opportunities generated by each of these products that creates our ability to capture that potential. Mikko talked about and Chris talked about, and I just highlighted how the installed base is a tremendous benefit for us.
Ironically, one of the areas where, as Chris highlighted, we don't have a clear market leadership, in fact, we have a relatively small portion of the overall capital business, is in pumps. Pumps, unlike many other products, are very captive in terms of the ability to capture the service business. Generally, the company that sells the capital or the pump also captures the aftermarket. Now, pumps, ironically and positively for us, are unlike many of the other products in that they're high volume and they can be changed out even in an existing mine operation. The path to growth for service on pumps comes through the work that Chris highlighted of our dedicated resources focus and the teams we've put in place to execute on pump installations. Growth in capital, in capital side of pumps generates our aftermarket opportunities.
Not only are we investing in the ability to grow our capital pumps business, but we are also investing in the supply chain and the individuals needed in the field to be able to capture that business. The opposite extreme is SAG mill and ball mills. Once a ball mill is installed, it doesn't get replaced. I don't think anyone here could find a single example globally of a mill that was changed out after installation. Once it's there, it's there for 20, 30, 40 years. We have clear market leadership in mills, yet we have tremendously underperformed in our capture of that installed base. Much of the opportunity in mills is generated by the mill liners.
We have not seen mill liners as a core part of our business, and we have not invested in the way necessary to have the capacity and the capabilities and the IP to capture a large portion of mill lining. Over the last six months, we have invested in new facilities that will come online in 2023. We've established partnerships with key suppliers, and we've brought on board expertise that will allow us to grow in this area. The last example I'll use is HPGRs. Chris and Mikko have talked about the HPGRs. There's been a lot of discussion in the market about HPGR technology as of late, and as Chris highlighted, this is an area that through the acquisition of TK Mining Technologies, we are now the clear market leader. What differentiates our ability to capture service potential in HPGRs is our service centers.
The service centers are where the true execution of the aftermarket in HPGRs comes. We're going to be focusing on expanding and growing our service center competence. This is one of the key portions of our acquisition of TK Mining Technologies. The service center competence and capacity that we acquired is hands down the best in the industry. While you may see maps of service centers from a whole variety of players, I think we can say very clearly that we have not only an exceptionally broad footprint that represents or overlaps with the potential and opportunities that Mikko talked about, but we have the competence and capacity that no one else has. We can now leverage those, that acquired capability to also benefit our historical FLS portfolio.
There's a tremendous amount of capacity and capability that extends beyond HPGRs into the entirety of our flowsheet. Then I want to take you back to one of my opening comments about the opportunity that service generates for customer and for FLSmidth value generation. Simple example, continuing on HPGRs. If you look at the overall TCO or total life cycle cost of an HPGR over a 20-year lifespan, the initial CapEx spend represents a relatively small portion of the total cost of ownership. In fact, if we were to change the pricing of an HPGR up or down by 10%, it has rounded up to a 1% overall impact on TCO over that 20-year life cycle. Has zero, obviously, impact on energy consumption, zero downstream impact on sustainability. All we've done is change the cost this much.
Yet that's been a tremendous area of focus, not only for us, but also for our customers, given the magnitude of that initial investment. Where we can really have an impact is in the aftermarket. It's in services. We use an example of HPGR Pro installation. This is a offering available through our upgrades and retrofits portfolio executed in our service centers. A single HPGR Pro installation can reduce the total cost of ownership over that 20-year life cycle by 12%. It can reduce energy consumption by 20%, and it can remove 2,800 tons of CO2 on an annual basis. That's the equivalent of taking 600 cars off of the road, one single HPGR. If we're going to generate opportunities for partnership and loyalty from our customers, this is clearly where it comes.
Chris also mentioned that in the past, we haven't always been maybe as systematic as we could be in our pricing. Historically, on the service business, we've done a lot of cost plus. How do our costs translate into these types of benefits? There's no connection. We're increasingly migrating to capturing the value that we generate, at least a portion of that, through our pricing models. Part of this business transformation is very largely about changing the way we go to market and migrating away from cost plus pricing to value-based pricing and market-based pricing. Underpinning all of that, and Mikko Tepponen will talk to this in greater detail after lunch, is how we migrate from selling the hardware and software that makes up our tremendous digital portfolio. Instead of selling it as a standalone offering, integrating it into our services.
Now we've launched at PERUMIN in fall of last year, our PerformanceIQ portfolio. Essentially what we've done is taken all of those dozens and dozens of independent individual digital offerings and pulled them together in ways that make sense for our customers, that deliver value, that allows us to capture a portion of that value and to ultimately be able to validate all of the things that we talked about earlier in terms of the savings that we generate and the benefits. It starts with something as simple as providing, in a clear, consistent way, data-based information to allow decision-making by our customers all the way up to some of the pilot projects that we have underway at the moment on real-time monitoring and dynamic adjustment to full flow sheets to optimize into customers' operations.
When we do that, we have transformed the business and become a clear partner for our customers. Similar to the others, I've got three key takeaways for you. The first is we have implemented a service-centric business model. We're well on the way of execution. We're already seeing in the very early stages clear examples of the benefits, and we expect that to continue for the foreseeable future. We have an enormous potential driven by our clear leadership position on capital and the installed base that comes with it for growth. We have very clear initiatives, priorities, and focus on driving differentiation and value for our customers and then capturing a portion of that value to bring improved profitability for us as a company. With that, I will hand it over to Yannick for the Q&A.
Thanks. Yes, I know, under promise, over deliver. I know Josh actually promised you guys lunch. That's not going to happen. Not right now at least. Let's take time for a little bit of a Q&A, so we go to lunch around 20 past, and then we have 40 minutes of lunch. Let's get the first question out. Someone has that already. Well, we will start here then. Same ones. We'll have a mic, please.
Yeah. Thanks. A couple of questions to both of you. You mentioned in lithium, you didn't have the complete flow as of yet, but you were working on getting it. Does that imply M&A? If it does, which specific areas would you be looking at? If it doesn't require M&A, so you don't control the full flow sheet, how are you going to work with partners on maybe bidding for complete installations? On the service business, a very good presentation. This is said with all respect, having followed FLSmidth for some 25 years, service has been in focus many times, not much happened.
What I wonder is, can you do something to show us some milestones that makes us certain that now you're actually on track to achieve your milestones? For example, I'm thinking about are you going to disclose, for example, your growth in the sale of pumps, which I understand is an important driver for the service business? Will you disclose margins on the service business? Maybe referring to slide 66 of your presentation where you showed the service potential just on your own installed base, can you put some more specific numbers on how much of that potential are you capturing today? Will it be possible to show us going forward how that hopefully increases?
Questions, for you guys.
Oh, I didn't know we were limited to two, but I'll stop. It was actually just one.
Okay.
I can pick up the guidance comment, and I think, we don't give details of the product line performance, but we can follow the product line performance by capital and by service, and then we can look at the margins. There have been significant improvement in service margin in legacy FLS's business year-on-year, so very significant. It's not a small number. We can see that it's working.
Do you want to take lithium first?
Yeah. Yeah. To your question, Lars, on lithium, there's... I mean, we strive to be the full flow sheet provider for all of the minerals, but we're not doing that just dogmatically. I mean, there are some product areas that might have a very low service potential. If we talk specifically about lithium, let's talk about lithium brine, for example. There's agitator tanks, very low service potential, not a lot of inherent technology there that might deliver the kind of returns we're looking for in capital. It doesn't mean we have to provide every potential piece of equipment. The important processing equipment we strive to provide, we just announced a couple of days ago, we had a press release, indicating that we're going to be providing some pyro processing technology for a Finnish lithium maker. This is our pyro technology preheater, kiln, cooler.
This is important technology for spodumene, and we've been playing in many projects in that area. For the traditional lithium brines that sit there and evaporate, there's less potential for us, very little to no aftermarket. We have provided filter presses, clarifiers, other equipment in that area. For the new DLE type technologies that are emerging and people are looking at, there's a lot of activity with our filter press technology that we're looking at. If we don't deem it to be important to go after one of those particular product areas in the flow sheet, we are in discussions with some partners on, for example, some material handling equipment like conveyors, where we cannot take the risk on ourselves, there's not much aftermarket, but still be an important provider to those lithium miners.
On the service piece, I guess I'll let Roland speak to or make the decisions down the road of what level of clarity are we provide on the details of the individual piece parts of our revenue and profitability. As Mikko said, we've already demonstrated significant improvement. I think what changes and I figured it would potentially be you that asked that question, but it was on the minds of most everyone here is, all right, what's fundamentally different? I think it ultimately boils down to two things, it's resources and it's execution. If I look at what do I mean by that?
When I first got here middle of last year, almost immediately, I became aware of a project, a quite significant project, where we had delivered a tremendous amount of capital equipment, and it took us over six months to provide suggested parts stocking list and pricing. Can we really say we were a service-focused company if that's the case? When I asked, "Who's responsible for that?" We had asked Chris's team in the global product line to essentially put together those parts lists and manuals as part of their spare time. We've now put dedicated individuals and resources in place whose sole focus it is to not only create those manuals, parts lists, and pricing, but to do that way in advance of the delivery of the equipment.
It starts with the mindset shift getting those resources in place to be able to deliver that we have not done historically. We've talked about it a lot in the past, but we didn't necessarily align our resource allocations or our focus to the execution of those things. That's fundamentally the change that's happened, is we've started to lead the discussion and the decision with how is this generating service potential? What are we doing to capture the service opportunities that this drives? Whereas in the past, as was alluded to earlier, we talked about how do we capture this great big project opportunity, how do we project manage it? That's not the thing that's driving long-term profitability and customer intimacy.
Josh, a very short follow-up on that.
In the microphone, please. A short one there. We need other people as well.
It's super short, Yannick.
Good.
I know lead times are long. Is it possible to measure your service potential capture on projects you won the last year versus your total base? Is the number higher?
We've seen improvements already in the back half of this year. As you alluded to, supply chains were a limiting factor throughout part of the year. Based on our current backlogs and our current win rates, we believe that by the end of this year, we will see significant improvements in our market capture, share of wallet, performance across most of our customers.
With that, I'll follow up on a question from online. Someone actually asking specifically about your service penetration in the acquired HPGR installed base. How do you manage to fend off the rising competition in this marketplace? How do you ensure you get the capture, not someone else?
I mentioned, and I'll let Chris complement this, if you'd like, but I mentioned earlier that service centers are a clear differentiator, in this, in this area. There's tremendous opportunity on HPGRs to do roll refurbishments. Our service centers have unique capability and competence to be able to take the rolls, rebuild them, re-mill them, re-tap them, and optimize the studs. We have, hands down, the deepest know-how and knowledge of the HPGR technology, which allows us to also then optimize the studs themselves or the wear parts that go into those rolls so that we can generate the best performance for our customers.
Having that installed capacity in our service centers and then marrying that with the know-how of the HPGR technology and how it operates ensures that we capture the vast majority of the opportunity created by the HPGR products. I mentioned we do have a couple of areas in the world where we're investing in growth, where our service center competence or capacity needs to catch up with the growing installed base. For the most part, where we have installed base, we also have tremendous service center capabilities that no one else has.
Good. Yeah. Anyone here? Claus, you were first and fast.
Claus Almer from Nordea. A question to both of you and Chris and Josh, I'm sorry. When you talk to the clients or the miners, how is FLS being perceived? All those changes you have talked about today, is that well perceived by the clients, or is still a lot of work on the other side? That would be the first one.
I think on the capital side, First of all, we're humble when we talk with our customers. We've got a lot of competition in the industry, but we do have a situation with our installed base and with our full flow sheet capability and desirable products that does put us in an advantageous position. Especially over the last couple of years, where there were a lot of supply disruptions due to COVID, there was a ramp-up in CapEx demand in the mining industry. Part of the challenge that our customers were having was how quickly could they get equipment, how quickly could they get new mills, how quickly could they get new thickeners, et cetera.
Our changing strategy, which really started in 2021 to go to global product management with a product-centric supply chain strategy paid off for us because we were working with suppliers continuously building up additional strategic suppliers that we were getting preferential capacity, preferential deliveries in some cases, which allowed us to be more valuable to our mining customers to be able to get them the equipment faster. That's just an ongoing activity. When you have a globally managed product line with procurement, engineering sitting all together in one P&L, the velocity that they can perform those kind of actions and transactions is much faster than traditional type of project setup. I think our mining customers view FLSmidth as a quality supplier with good technology. We're not perfect. For sure, we have issues. We sometimes have late deliveries.
We sometimes have issue with the product that need to be overcome. I think how we try to differentiate ourselves is how we respond to those issues, to respond quickly with our service capability, with our engineering technology experts to try to address the issue in the field. They view us as somebody, I think, that can help them achieve their goals, which are higher output, better efficiency, better productivity. I think We believe we're uniquely positioned to help our customers in that regard. Many of them tell us that. They also like some of our new emerging technologies, even though there's a relatively slow adoption rate in this industry for new technologies. It's quite conservative.
Some of the novel technologies we have, for example, on fast flotation or reflux technologies are very appealing to our mining customers who are looking in how to get that higher output. Coming back to the question on the HPGR, maybe just quickly because it ties into that. You know, as an OEM, the way we stay ahead of other people coming in and getting our aftermarket consumables business and wear business, we have to continue to innovate and bring new features to the product. If we talk specifically about the HPGR Pro, that's a relatively new model that our colleagues from the former TK Mining Technologies were introducing and now we have in the portfolio. It has rotating side plates. It's got a different stud layout. It's got a stud detection system.
These are all things that will help generate the improved output productivity that Josh mentioned on his slide earlier. Similarly, our Knelson Gold concentrators
Staying ahead of the curve with new liners for separating the minerals that perform better. This is how we stay ahead of other people that are trying to come in and take our aftermarket consumable business.
If I may be a little bit rude, and as Lars also said, we've heard this many times. If I've asked you three years ago if you were part of FLSmidth at that time, the reply was probably a little bit of the same. I'm more trying to address what is actually the miners, you know, the reaction to miners with all the changes you have done for the last couple of years. How do you see this, you know, reflecting in order intake or conversations and so on?
I might actually take the NCA question because how we made a decision regarding the portfolio because we are, of course, exiting some products what the same customers have that Chris and Josh are serving. Late September, I made a world tour. Before we announced the decision, I went to Australia, I went to South America, spoke with all key players. I explained the reasons for our customers' top management for exiting this business, offered our support in migrating to other suppliers. At the same time, basically we affirmed the kind of decision that we need to exit this business. We actually took that discussion prior to the announcement, face-to-face with the customers' top management. We continue to support them in migrating to other suppliers still this year. We believe that they've been happy with the support so far.
The same approach applies to the exit of basic labor services, for example. As Mikko said, nobody likes to hear, no customer likes to hear you're exiting a business. The key to that is how you transition and provide ongoing support or alternatives so that they can continue to operate that portion of their business seamlessly. We've put a tremendous amount of focus on not only NCA, but the other parts of the business that we are reducing or exiting. Far, our customer reception has been, I think, quite positive, particularly as we have generated or have been able to demonstrate that we're redirecting that focus to areas that have much bigger impacts on their operations. Specifically and tangibly, we haven't seen drop-offs. In fact, we've seen increases, significant increases in order intake and in our backlog.
It isn't impacting in any negative way our overall successes with customers.
Looking at the foot on the street, so those who are actually going to execute on this, what's their reactions? Are they buying in to the new thinking? It's a totally different way of working, I guess.
Lars, did you speak to him about the cultural journey? This is obviously a cultural journey. I mentioned at the beginning the two-thirds, one-third split and helping people understand why that's so fundamental. While we talked about service and we talked about getting back to our core for a while, I would argue that a lot of the team didn't quite understand what that meant. You can't just say it once and it sinks in and everybody knows what they need to do. We've put a lot of effort and energy also on bringing the team on board. We will continue to do so. We're doing a lot of internal strategy training and explanation at the moment and over the coming months.
Broadly, I would say, yes, the employees and the field force that's the sharp end of the stick with our customers are on board and are supportive of the journey. They have to deal with some of those hard discussions. Sometimes there's course correction opportunities when someone takes a beating for something that maybe they weren't prepared to explain. We go back, assist them. As Mikko said, we'll work with them and their customers to help reinforce the message and explain our transition path. That support has been appreciated and has worked in continuing with customer satisfaction and loyalty. A long way of saying, yes, we're putting a lot of effort on bringing our employees and team members along with us on this journey. So far, they seem to be accompanying it well.
Thanks.
On that short answer, we unfortunately have to go to break. Time is running when you're having fun. Practicalities here, we'll be back at one. You have around 40 minutes when you get out. At least this is not for those in the virtual presence. This is at least news for the room. When you walk down the stairs where you came, just do a quick U-turn. You walk onto the stairs. There's the restaurant. Please help yourself in the buffet. There's a dedicated room next to the buffet. There should be signs saying FLSmidth Capital Markets there hopefully. Otherwise, it's called, I think it's even called the cattle room. Have fun in there. Enjoy your lunch. After lunch, we'll dive into how digital and operations, they support our mining business. Then we'll deep dive into cement as well.
See you in 40 minutes sharp.
Welcome back, everybody, from lunch. My name is Mikko Tepponen. I'm the Chief Digital Officer, and I will talk to you how digital supports our ambitions. We as FLSmidth, we've been delivering digital solutions already for quite some time. I think our first automation solution was delivered in 1969. We've continued to deliver those digital capabilities for our customers ever since. It's however, been the last couple of years where we sort of really emphasized, lifted up at digital as a strategic priority, continued to invest into it through acquisitions, as well as then building internal capabilities to the point that nowadays it's 50% of our R&D investments that are digital by nature or other R&D development that have a critical digital component into them. The mining industry, as such, is a laggard when it comes down to digital maturity.
Miners are conservative and not that eager to implement new solutions. It's also in their priorities at the moment. They need to get much more out of production. They need to also move some of their operations from those remote mine sites into a central setup. That is where we as FLSmidth come to play. We've also been on a journey where we've started off much more as a technology player that, okay, how do we build this technology, digital technology? What does it mean? It's really been the last couple of years when we focused on how do we make money out of it? How do we turn that into commercial opportunities? Josh mentioned earlier the PerformanceIQ and our launch of it. That is really about how does digital turn into supporting our business. Chris mentioned that we are a full flowsheet provider.
It's been talked a couple of times here and there as well. We are that as well when it comes down to digital. There was, I think 15 years ago, Apple launch, there's an app for that. If it's a mining application from pit to plant, there's an app for that. FLSmidth has the capability of providing that. That is really all about providing our customers the operational insights, the reliability solutions, the optimization solutions. Those are the apps that we want to provide for the industry. As you can see, that's what we have. We've taken a very conscious approach that we're not a platform provider. We don't want to provide our customers a digital platform like some others. We are the app provider.
How we deliver those applications is that we deliver them as standalone solutions for our customers, also into our competitors' equipment at times. Most importantly, like Josh mentioned earlier, we're combining and bundling them with the traditional services. We are bundling the digital capabilities with those professional services parts to really drive the value home for our customers. It is oftentimes the customer doesn't need another shiny tool telling, "This is what's going on in your production." They need the actions to really drive those productivity gains out. We're not doing that alone. We focused on acquisitions and continue to do that. In 2020, we acquired KnowledgeScape for advanced sensors and optimization. As mentioned earlier, with dss+ Mining, we've acquired sort of added digital capabilities, for example, as an example here on conveying and many other things, HPGR as well.
We're working with technology partnerships. Microsoft, as a great example, we're working with their cloud data artificial intelligence solutions. AVEVA, those who've been following mining industry for a while, know that a lot of our mining customers, they're using AVEVA and especially OSIsoft that AVEVA has acquired as core of their data operations. We're putting our applications on top of their platform so that they can be de-sort of delivered for our customers faster, more cybersecure. They're kind of in our sort of world, the App Store for us. Let's look at perhaps two concrete examples on this. These are kind of showing that there's massive potential around this topic when it comes down to our customers and both for ourselves as well. On the left hand side here, you see the thickener example.
Chris mentioned thickeners as one part of our flow sheet, as a big pool with the rake. That big pool with the rake can be run in many different ways. Here's an example for one single installation, just one of those big pools, what it means for the customer. If we optimize the operation of that thickener, we can really increase the water recovery significantly, 14% here, leading into $100+ million annual savings for our customers. That 14% might be an arbitrary number. What does it mean? That, for this one single piece of installation, means 2% of the annual household water consumption of all of Denmark. The potential both for sustainability and profitability for the customers are huge. What does it mean for us as FLSmidth?
We have less than 5% of our 2,000+ of those thickeners that we have globally available come today with this optimization capability. We move forward, we intend to utilize those digital capabilities to continue and bundle, sell those for our customers combined with the services that we offer. We've heard about pumps also from Josh and Chris. Throughout, we want to grow our install base, our market share. There's an app for that. There's an app for our customers to monitor how the pumps are operating. Are they operating to the optimal? Most importantly, there's the same app we can use internally, both for our field technicians as well as our salespeople, to really drive and see how can they help their customers better. We're really building on that customer intimacy.
It can be a very direct customer benefit or it can be more of an internal benefit that we're aiming for. Digital has also an internal component. You heard Mikko talk about us simplifying, being more streamlined, both of our processes and our operations. We need to de-complex. We need to be faster, speed corrects mistakes, and so forth. From a process and IT perspective, we're really driving home the new operating model and that transformation. Driving on those global processes means that we need to drastically simplify our IT landscape, so really reducing how we operate. That is just to, of course, we can reduce the IT systems. What does that mean? A very practical example here is that we've from 2021 to 2022 drastically reduced the time it takes ourselves to quote on a spare part. Why is that important?
It's because if the faster you quote the part, the more likely you are to actually win the order from the customer. Really in sort of hitting that hit rate, improving that, and making us work, be more efficient, and in the same time, actually be much more customer-centric and serve our customers better. No discussion around digital is complete if we don't talk about the risks that is kind of inherent into it as well. Cybersecurity, of course, being the biggest one of them, and that is really where a lot of times our customers and ourselves are facing this, the ransomware attacks, everything else you all read and heard about all of these. For us, cybersecurity really comes in two ways. One is that we need to secure both the equipment that we deliver for our customers, because that equipment has some brains into it.
There is a computer always that goes with all of these pieces of equipment that we deliver for our customers, but also the digital solutions that we're just talking about. How do we secure that. We have implemented cybersecurity design principles, and we're comprehending to this highest industry standard and certification, which is the IEC 62443. Besides the external part, of course, cybersecurity is also very much about protecting FLSmidth as a company, and that continues through the awareness, continuing implementing network segmentation, zero trust policy, and so forth and so forth. Again, as usual, as my counterparts previously, three key takeaways. We are indeed digitalizing the entire flow sheet. What is most important there is we're bundling those digital solutions with our traditional services to really give the customer the productivity gains. Those productivity gains are very, very tangible for our customers.
In many cases, they're the fastest way for the customers to get sustainability, productivity gains is through the digital solutions. We're working on driving the sustainability, profitability, efficiency targets for our customers. We, as FLSmidth, intend to, of course, benefit from growing that digital capability with our customers. Finally, we're simplifying and streamlining both the IT and processes in FLSmidth to really drive the operational performance, and also that we can serve our customers faster and better. With that, I hand it over to my colleague, Asger, to talk to you about operations. Thank you.
Thank you, Mikko. Welcome to operations, I'll spend some minutes on explaining how we see operations and supply chain not only as a differentiator, you already heard Chris and Josh allude to some of the things that we're working on the business lines, but also that how we see us as the custodians of the customer experience. It's about lead time, it's about DIFOT, delivering full on time, our quality. Then again, I mean that customers are in contact with us through mobile apps, as you also seen with Mikko, our IntelliX system. If you're not doing things as they would like to, then we instantly know about it. FLSmidth and Mikko talked to the change we are undergoing from engineering to a product technology. We have more than 125,000 deliveries a year to customers.
That's 13 - 14 each and every hour round the clock. Mines and cement plant, they are not located the most touristic places in the world. It's really in our DNA to deliver in the outskirts of mountains, deserts, et cetera. Even through COVID, we have a DIFOT target of 90%. We did not take that much of a hit, this is beating industry best practice. A few years ago, when we boldly said that we would half our supplier base from 15,000 to 7,500, there were some smiles and business was shaking with the head. 1,450 suppliers make 90% of our spend. 1,490. 450, sorry. That enable us to work strategically with our suppliers, share capacity planning.
Some of the large fabrication suppliers, we can deploy our own people, so we have an in-house office there with suppliers. Also through a situation with very fluctuating raw material prices, we're able to control much better and also put bots in. We have robots, digital solutions, so preferred suppliers, as Chris talked to you about. If they're a little bit bold during an inflation pressure, we take them off the robots, I get the most hunted guy in the world. They can come back once we sort of have settled things. It's a different way of working. At the same time, we were one of the first to embed nearshoring.
Bringing back production to South America, U.S., Europe, Denmark, instead of having a single source to China and India, and thereby also standing on a few more legs instead of just one. That also means that we've been able to, you'll see that more in a few weeks, that get our freight logistics cost. We peaked at around 5.5% during the most turmoil times, and now we're back to our 19 reference here, around 5% or 4% of our revenue for that. We often work very closely with our customers because we offer sometimes better solutions than their normal shippers.
It's really about, I mean, in unrest, wars, natural disasters, we are global companies, we'll always be exposed to changes, having a very resilient supply chain and working very closely with our great colleagues in the factories. During China lockdown, we've had a close in Qingdao of maximum 10 days in China. In India, three flagship factories there, a maximum of 21 days. I will give you a glimpse into the machine room in a few seconds, but to understand that the key priorities for our supply chain going forward to support particularly our service growth, but also the product part, is to safeguard the supply chain. We will continue to have a target of 90% of our DIFOT. We will continue to digitalize our logistics operations.
We work with, as an example, the Lama software, where we can put all historical orders for the past five years in and estimated orders for the next years, and then see how we can optimize it. It's not a linear optimization. You can optimize on speed, on price, congestions, and then see which shippers offer the best opportunities. We work with two, three global ones. Then the regional execution is empowered to work with another four to six ones, so we at all times can service our customers. Again, driving synergies also with the TK integration, reduce our standard cost. We use our factories as the driver of standardization and modularization.
Again, having the opportunity to support the growth. You heard Chris and Josh, we want to grow in mill liner, we want to grow in pumps, and there we need to have an agile, flexible supply chain to support that growth at lowest possible cost so that there's more in the pocket for us. During the aftermath of COVID, the inflation of pressure, we've developed price baskets for each of our components and products, so we on a daily basis can see the components of rubber, copper, steel, freight, logistics, warehousing, how that match up, and then we can take decisions, proactive decision ahead of the game instead of sitting afterwards, 1, 2 months after the fact, and you can do nothing about it. The factories, they serve as a gate process for insourcing, outsourcing, make, buy.
Approximately 40% of our activities, one way or the other, will hit our factory supply chain. We call it asset light, but we also call it asset right. What is not strategic for us, we outsource. There are so many. There are thousands of Max Müller and Max Sachs of the world with truck suppliers, et cetera. I mean, we don't need to have all those very fancy, very expensive machines. We can supply those components being machined with suppliers next door. When it comes to support the growth of pumps, there we have enhanced our manufacturing facilities in Tucson, Arizona, to support the growth there. We made sure that our service centers and our flagship factories and regions can do assembly of pumps and testing.
As Josh said, we are building the world's most advanced automatic mill liner factory in Chile as we speak, and that will be up running here in a few months' time. These are example on how we see it, not only at asset light, but asset right. Both for mining and for cement, sustainability is on top of the mind, and that also goes for us. By 2025, 30% of our suppliers spent will have signed to the Science Based Targets. It is easier to work with a little less than 1,500 suppliers than 15,000 when you work on these things.
If I should sum it up, a truly global manufacturing setup where we are situated around in the various geographies for flexibility, continue to drive efficiencies, modularization, standardization, the synergy realization that Roland and also Chris and Josh talked about for the TK, and then having the sustainability mindset on top of our head. Thank you.
Thank you, Asker. With that, we'll move over to a short Q&A with Asker and Mikko Keto as well, on digital. Anyone daring a question, otherwise we'll take one from online. There's one over here. We'll go there.
Yes. Hi, Christian Hinderaker from Goldman Sachs. I wanted to ask around the integration of TK Mining. Obviously some of the major challenges there perhaps are integrating the logistics, positions and the sort of service center map that's been discussed earlier this morning. Can you talk about some of the biggest benefits of that integration that you've seen to date, then also what you see as the biggest hurdles in the coming quarters? Thank you.
When I said the 1,450 suppliers, that's post the selection of the suppliers. We spent the first two weeks together with colleagues from TK on defining, deciding on the suppliers to be. You have a small window of opportunity before the suppliers get a little bit sort of on their back being too assured that they are the continued. We actually had a very healthy influx to the FLSmidth supplier base from the TK supplier base.
I can actually continue on, even though the question was not on the digital, but just a brief comment on that is that equally on the integration of TK Mining with FLSmidth opens an opportunity. We talk a lot about streamlining and having a harmonization of the IT landscape and the systems and the solutions and whatnot. This is now the perfect time to also sort of streamline and consolidate on that system base.
Yes. I'll take one question from the online. How significant is digital spending for your revenues today? You flagged the 50% of spend on R&D going into digital components, but how big is it today and how big is the potential? Are you going to overtake all of Josh's business or how is this going to fly?
It is, of course, the main purpose continues to be on supporting how do we grow the service business and the products business and our ongoing business. It is sort of, I would say, significant already. It is over DKK 1 billion, when it comes down to purely digital. Even though that might say that, okay, it's a small % of our overall revenue, it is still kind of for an industrial player, quite significant. It will continue to grow both from the perspective of that digital growing on its own, as well as then most importantly, really to support the sort of the entire business.
Yes. We have a question from Vlad.
Thank you. Vladimir Sergievskii, Bank of America. You acquired TK, you obviously acquired the sizable project business, which is working through multi-year lump sum contracts. Originally, obviously, those projects were won by Thyssen and therefore designed on Thyssen's systems on engineering, procurement, et cetera, et cetera. How are you managing those? Are you using Thyssen's systems or you migrated them to your own?
Where the orders have been placed, then of course we continue with those suppliers. We also took a good chunk in of the TK suppliers in certain geographies where that is sort of their way of proving to us that they can also supply for the future.
From the systems perspective.
Mm
We're heavily integrating. There's only one common way of working as we move forward. Chris and Josh both alluded to that we have really-
Mm
... one team going forward.
Mm.
That is also how we work on the system side.
Yeah.
We are streamlining heavily. That's why I'm saying-
Mm
... that we're moving from 1,000 application. That includes also the acquired dss+ application landscape. We all only work in one way as we move forward.
Thank you.
Yes. Claus Almer.
Claus Almer from Nordea. A question regarding all these suppliers, both, you know, the FLS suppliers, but also from, coming from TK. Have you seen any major differences in the sourcing prices? Maybe a second question to that, a bigger volume, does it mean bigger discounts?
I mean, I think TK had a more luxurious lifestyle on the indirect suppliers, where they had what we had index 10, where we had index four to five . There are some good opportunities in aligning on the indirect suppliers. That's for us the usual light gas rental, but also we see paint, fasteners as kind of indirect service categories because it's very commoditized categories. On the direct, it's a more social. There were a few suppliers where we had carefully to then introduce new ones because we actually shared, the two of us were quite big. In general, it's been a good opportunity for optimizing the business.
Do you then get bigger volume discount?
Yes.
Thank you.
That was a very, very subtle yes. Yeah. I'll take one here from online. There's obviously been, or is a lot of talk about energy crisis, and there's been a lot of concerns and, from the supplier end, how are we exposed to that? Certainly, you can say if Russia gas completely cut off. Can you talk a little about how our risk approach to the supply chain issue, also mention a little bit about nearshoring. The significance of the components of the raw mats, the suppliers and logistics that intertwined in this sort of macroeconomic turmoil and geopolitical turmoil we're in.
Yeah. That's again, I mean, you say, I mean, really cutting down to less than 1,500 for 90% of the spend, that's one risk mitigating action because, I mean, you get to know them, you have people there, you can see it.
Mm.
It's I mean, the worst thing that I mean, that's when people certainly are belly up. I mean, we do whatever we can do to check. We have all kind of financial checks, also online, get all our inputs, and everything is digitalized. People working with those supplier groups, they can, on a click on the iPad, see on a day-to-date basis how we're actually doing and how we're performing to the benchmark. We have this PPV that we measure each and every month, purchase price variance, so we can see what have we paid the past three years for certain components, what are we paying now, should we wait a little bit, should we close it immediately? We can see how the energy prices move up and down.
Then of course, when we all could listen in and read in the media six months ago that Germany were going to go completely into black, then we benefit from having more feet around, that we have a more regionalized approach to our supplier footprint. Then we of course work with suppliers to avoid being too dependent on areas. When you're in South America or even the States, I mean, the kind of energy crisis we talk about almost each and every day here in Europe, I mean, that's not even on the radar there. I mean, there are different issues. On the inflationary pressure, I mean, we're used to working in India, Chile, Brazil, some of the Asian countries where they're used to having inflation between 5% and 15%.
I mean, Turkey lately is also an important country for us for sourcing, and they have inflation, I mean, two digit up. It always about balancing and mitigating what you do.
Yes. Anyone else? Otherwise, I think we have time for... Oh, Vlad, one follow-up.
Yeah, so a really quick one. Obviously, you're procuring so many different components. Are there any signs of deflation starting to creep up anywhere?
Deflation?
Deflation.
Yeah. I mean, you can see that freight prices have come down. I mean, I think some of the shipping lines, they are vomiting a little bit these days. I mean, you see steel price come down. I mean, it's, there's a lot of exposure when you see things going up, but people tend to forget when it's coming down. I mean, privately, here in the weekend, I could buy electricity for EUR 10. I mean, a few months ago it was DKK 10. That's also where we need then to be very sharp on getting the discounts when things come down.
Okay. Yeah. We have time for one more. I'll take one online. Mikko, you said you're digitalizing the entire flow sheet. But as we've heard, Chris and Josh talk about this, of obviously specific areas of the flow sheet where you can say the biggest growth opportunities are. What's the single largest or two single largest digital opportunities? Where is it? Is it pumps? Is it milling, grinding? Where is it? Where's the money going to be made? How's the business model behind that, revenue model behind that?
It is truly what Josh also mentioned and alluded, that we are really, have been focusing on building these different components and those service offerings that we offer for our customers. It can be from really optimizing the entire flow sheet, which we do for certain customers, but it's really going to come down to exactly those smaller bits and pieces and chunks of the flow sheet. Really taking that thickener example as a good one, Very few of them are already today installed, and we have 2,000 plus in install base. Like I said, it's one of those solutions again that we could easily do that as well as for our competitors' equipment, to be honest.
There is massive opportunity on scaling on some of those bits and pieces of flowsheet, and then the combination, and really to go into that, being able to turn that value into sort of concrete benefits for us. I think our approach also from a digital perspective originally has been very much a kind of a cost-plus pricing, and now we're moving more and more utilizing the digital solutions to really verify also for the customer, "Look, here's the real value that we're providing for you. Here's the DKK 125 million that you're getting out of this single piece of solution. Do we sell it for you as a service? Do we sell it to you as a subscription, as a one-off?
How do we do it? That's where we're moving more and more into those subscription-based business models, and that's the key of the transformation. Can be across exactly the entire flow sheet.
Good. The watch just went to 0, that was good timing. Thank you for that. We will excuse you, Mikko, and thanks for joining up. Asker, you are allowed to stay on stage. We will shift gears. As Mikko alluded to early on, you know, Asker is also taking charge of our cement business right now. We'll move away from mining for a little bit. With that, Asker, we'll leave the floor to you to tell us what GREEN'26 is all about. The floor is yours.
Yeah. I deliberately went for some water to give a small breaker here. I'm since 1st of September, also the President of the cement business. I have really been looking forward to share the strategy. I spoke to a few of you during lunch. There are a lot of opinions about cement. For some of us, some of you around, cement has also been the has-been business. I can tell you for me, for our team, it's the to business, to-be business. We're moving from the has-been to the to-be. I will elaborate a little bit on how we have changed our operating model. It's been quite some busy months, as Mikko said. How we are, as we speak, changing our service model. Very inspired by Josh and his team, what they're doing on the mining side.
Also how we are working on our products and technology offerings to drive the green cement. It's very much driving profitability and making sure at the same time that we are in control of the products and technologies that will really drive the green cement. Once we have, we are in full control of our service model and our profitability, then we can talk about growth. We cannot avoid cement. Just look around here. The coastal protections, we are near the waterside. I mean, a hell of a lot of cement in offices, bridges, wind turbines. I spent time a few weeks ago with people that are working with some of the windmill producers. They really believe green cement is around the corner, and then it's more sustainable to build the towers in cement than in steel and other stuff.
Dams and pipes. Two, three, two numbers that strikes me. We are now in 2023. The 20 years in this century, China alone has spent more cement than U.S. did 100 years before. 75% of the infrastructure we need in 2050 has not been built yet. We are in the center of Copenhagen in Denmark, Capital Markets Day. Denmark hosts 6 million people. There are 6 billion people in the world that would like to live like us with what it takes of housing, et cetera. When you compound that, Wouter corrected me. I said that Manhattan each and every month towards 2050.
He said, "No, no, Asker, it's New York City." When you have an industry where there's so much demand, and it's also by far one of the most polluting industries, there will be a push for green cement, and we want to drive that. Today, we'll look also into the market because you can look at all kind of macroeconomics. The way we look at it, we take it bottom up, and we say, "Okay, our playing field are 3,027 cement plants globally." We are present with 1,598. The core business of us, and we had lengthy discussion to define core in a cement plant. We believe it's where you have the pyro, and we have the pyro with 469 plants. This is the playing field. This is what will take us to 2050.
They will build a few here and there, but there will be a lot of tuning and optimizing of these existing ones, we want to be present there. Just the fact that we are actually present with half of them makes a big of difference for us. We've been working, like with the mining transformation, three curves, fit for purpose. I will go very much into detail of that. How we then want to drive the service growth. With those things, when we're beyond 2026, how we want to drive the green. We have already seen this slide before for the two service and product line in mining. We have already nowDefine a service P&L and a product P&L, which was the usual, the past products and capital, and capital systems. Standardized our service offerings.
As late as last week, we sent out a virtual catalog on how to penetrate third-party cement plant with our service offerings. We've implemented key account management. We have started now to focus in on products and technology where we can make a difference in driving green cement. That has given value capture already. We've been tracking each and every day, week, month in the last quarter to see how the medicine applies to the patient, and the patient is improving. We use that as vitamins to boost further on our service offerings. Really three chapters: our operating model, then our service business, and then the green offering. Start with the operating model and our starting point, very unsatisfactory financial performance. You know this as well as I do. Not gloomy in the past, this morning we sent out 2022 preliminary non-audited.
I hope I said it right, Roland. 3.3% on a DKK 6.3 billion revenue. The two important messages here, we see the EBITDA coming up and we're not driving growth. We focus on the profitability. Lessons learned is that's also why we also institutionalized the risk management board. There have been too many large projects in the past. Some of you have also commented on our very heavy regional footprint, actually in places where our customers are not. Ongoing transformations, because some of you will say, "Asger, we heard this before." I actually heard that at lunch. But with insufficient focus and limited impact. We have been damn busy, and I would sort of say it, I mean, if in the past we probably overpromised and overdelivered.
Now we want to be a little bit more sort of humble so that you can have some nice surprise. We have actually delayered our organization. We've gone from 10 layers to four. We've taken out the regions. When we met in the top one in GMF, you actually commented on why the hell do we have these heavy regional layers in cement business? When we zoomed in and looked at it, they were actually in the wrong places compared to our customers. They're out. That means we have been able to reduce our business part of the organization with around 500 people. Again, with the mindset of delivering a sustainable EBITDA. Also a critic to the way we operate, that we are very engineering heavy projects and thus very cyclical in our approach to the market.
That's also one of the reasons why we completely converted that we want to zoom in on the service part. What have we done to become more resistant to recession? We have reduced our underlying cost base, 10 to four, no regions. We're working a lot. Have done already a lot of initiatives to make fixed cost variable. Then again, doing more service. I spent time with some of our big customer groupings and they say, "Asger, please get your people out to our plants. Help tuning, facilitating spare wares, because we need to have more capacity out of those plants." Then having those discussions, because green will not be one big splash. It's not like an iPhone launch or the first iPads. It will happen plant by plant, customer by customer, country by country.
Some countries are ahead on the green transition, some are lagging behind. Some of these very big groupings, having more than 50 plants, they're also adjusting to this change, but it will happen. There we are working now very hard on few products, few technologies to support our green transition. We have already done a lot on the operating model, and we see the results coming in. Then we work on our service business. Again, starting point was a lot of talk, but little action on the service. We go back to our mapping because now we know where all the cement plants are and where we have the core, that's the little dark green dot in the corner. Then how much penetration we have in those lead countries.
The bubble down to your left, 46% you can see, that's rest of the world. For us, it's important because we've started to work with resellers, agent distributors, because we cannot be everywhere where we do not have scale. They will feel part of our organization, and we look to other industries, how they're doing it. 469 core customers, penetration of 1,598. Here, the key to winning is distribution that we are there. We are physically on the sites together with our customers. We have already now 184 digital solution where we can track the production of our customers through iPhone, iPads, computers, and help servicing, supporting them on energy savings, efficiency improvements. We have another 200.
They are not yet online, but that's one of the near-term actions to make sure that also those 200 get online. We're building up a digital control tower to really, like a spider, have our small powers in each and every plant, again, to support and facilitate. It doesn't have to be complex. We have a very simplistic growth aspiration working on our service. First, increase share of wallet with the 469. It's not all of them we have there. Some of them we forgot to visit. It's around 390 we are constantly having a business relationship with. They increase the share of wallet from 20% to 40%. Again, looking into other industries, and where been working before, I mean, 40% is not an unrealistic target. Close the white spot.
If we have delivered a pyro with people living there for one to two years in the community building that plant, then it's ridiculous that we are not having service business there. The test we've done, they would like us back. Then again, it is very important point, we're able to penetrate third-party plants with our services, our digital solutions, our equipment, so that we also start, as an example, I mean, Indonesia, there are 24 now, they have closed three, there are 21 big cement plants. We have the pyro of eight. We are present with four, so the four close the white spots, then increase the share of wallet with the eight, and then start working on the gap up to 21. We have our own organization.
Indonesia is one of the countries where we are present with our own organization. It has not to be too complex. There, what are then our products doing? Where it makes sense to drive our service business, then we also offer the products. It's not the other way around, that we have people flying around to look for where maybe a potential new cement plant will be built in five years. It needs to support our service business. We believe we are in good control of our operating model. We also see good traction on what we do on the service. Knowing that green will happen, we also start working on our products and technologies to support the green transformation.
With such a demand for cement being one of the largest CO₂ polluters, that is, sorry Annette, it is embarrassing. We don't want to be part of the problem, we want to be part of the solution. Our team is already very busy in designing the first carbon neutral cement plant. That is in the doing. We have zoomed in on the products we have and how they support on fuel efficiency, on clinker substitution. We have there already now fueled more than 50% of our R&D project budget this year towards supporting those initiatives. There was, three days ago on CBS, thanks, Chris, for sending that. CBS had a cast on a startup where they're using different materials than clinker. We actually know the startup.
We work with a number of different startups, university, research institution to see what is the next. I mean, how can you maybe even get beyond the CO₂? Because on this graph, you will see the 60%, that's the nice colors here, 10-15, 10-15, 30-40. The better we get there, they will eat on the 40. There will still be a residual on the 40% where we need different technologies, different partnerships to work on that. We are already engaged in a number of very exciting works in Europe on making it possible to really cut down on the CO₂ emission on the plants. We're working like crazy to make sure that, the energy island in the North Sea is specified with green cement.
We find it a little bit ridiculous, again, being here on the Capital Markets Day in Denmark, that the two largest infrastructure, construction sites, the Fehmarn Belt and the Lynetteholmen, were specified without green cement. While at the same time, we can see both in UK, France, Germany, now they started to specify green cement for very large infrastructure projects and big sports stadiums, et cetera. It's coming, and it's coming faster than most people would actually think. When we put our puzzles together on the green journey, even for us, it was a little bit surprising how much we actually have already and how we can tweak it and really work the different kind of mindset with university, research institute, still making sure we secure the IPs and then closing this gap. Operating service and green.
We have not taken into account any growth from the green in what you've seen in the 26, but if we don't start working it on now, then we're too late. By the way, as we see it, we're the first ones really putting a lot of true intention into working on this. The last one I have here is probably the one you're interested most of, our bridge to the 8%. The known one is the 3.3%. We know exactly what we've done on the operating model. We know exactly how things have materialized during the last quarter. The simplification, that's the 10-4. Cutting away middle management regional structures we don't need to service our customers. That's why we guide 4-5. Then we are in the process of working with supporting administrative functions and de-risking our...
further de-risking our business. Of course the service. That will take us to around 8% in 2026. There we will also make sure we fuel enough money, good intentions on working with the green transition, because we want to drive the green transition. We've been in cement so many years that we have a responsibility and obligation to be part of that journey too. It needs to be after we've fixed our profitability issue. The key to unlock the green is our distribution network that we are present with as many cement plant as possible, because it is not a big splash. It will happen site by site, plant by plant. Thank you.
Do you want to finish up?
I want to finish up.
You want to finish up.
It's a little bit repetitive, but we have really made cement fit for purpose. We'll continue to work on that. It's a dynamic thing. Key for us is service, and our products capital will support where we can then generate more service. De-risking through risk management board, every time we look at capital opportunities, we want to see what kind of service can we get through that. Then it will happen, and we better be ready for when it happens.
Thank you, Asger. Power three repetition is sometimes good. Maybe they understood the message. Let's see. We'll take 15 minutes of Q&A. Anyone went? We have Christian in the first one. Ninja will come here with a microphone.
Christian Thorning, SEB. The 8% target for cement, you've said it's regardless of top-line development. What is the top-line assumption? Because you're not chasing growth. I mean, can you keep the 3.6 level, or should we expect that revenue should actually be declining? That's the first question. Secondly, in order to position yourself for this green transition, what is the R&D need? I mean, what investment need do you have?
I might comment the guidance that we are coming back to a guidance that it's related to the cross the national product growth, because typically that is correlating pretty well with the cement. Of course, we are trying to penetrate service more and then the service set to increase. I think we come back to the kind of top-line guidance later.
I can say that for us, it's also important for our organization, the way we work together, that profitability is the priority number 1. I spent some time with some of the big customer groupings, and their feedback to us was also, I mean, we would like you to be profitable. They're actually not that price sensitive on the service business, because they really want that to work well. For them, it's a concern if you're not profitable. I mean, therefore, it's the driver to be successful in service, and service is very linked together. Then once we fix that, then we can talk about how then you have a pretty efficient growth engine.
R&D spend?
R&D spend, we've taken pretty much what we have, added a few here and there. As I said, 50% of that, instead of the usual product improvements here or there, then we really target it towards the green journey.
Well, would you have to accelerate R&D spend significantly? I guess that's where I'm asking.
When we see we can afford it with the profitability targets, then and it gets traction, then of course, I mean, then we'll do more. Again, it's important that also we see, I mean, we take a product technology, but technology see that it sticks with the customers. What we do now in Greece as an example, and in France and Norway, that it works, and then we take that and then expand. Again, not, no big splash. I mean, really take it side by side, customer by customer, country by country, because it works one place, then we can easily leverage to the rest of the world.
Roland will talk later about bolt-on acquisitions, and in regard to cement, it might be the acquisition of critical IP, for example, not necessarily acquisition of a business.
Yeah
We are looking at acquisition IP in the kind of, as a kind of bolt-on acquisition as well.
Yes. You can just hand over the microphone there to Lars.
Yeah. Mikko, in your introduction you mentioned that today you are de facto operating cement as a carve-out. Asger, if you succeed, who's going to own cement? Will it be a real carve-out or does it have to be under the FLSmidth umbrella?
we've actually looking at who's best one to turn things around in cement. We internally discussed that let's think like a private equity now. Let's, we decided let's look at the cement business like a private equity will look at it, but let's make it turn around fast. I think the medicine what we've taken, delayering, consolidating is exactly what any other owner would do, but we actually can do it faster because we have, we know the business. At the moment I believe that we can create cement to be valuable asset for FLSmidth, but we will, create a carve-out entity, and that is strategic optionality. Then we can make a decision later whether it's part of FLSmidth or not.
At the moment we feel that we are best one to do the turnaround. Longer term what we communicated is basically strategic optionality. We'll create an independent entity so that optionality is real.
Yes. Peter Testa.
Thank you. It's Peter Testa from ABG. It's regarding your EBITA bridge. I wonder if you could turn it a little bit more operational for us, and give us a bit of decomposure of decomposition how that step is going to translate into gross margins, i.e., the individual cost margins in the P&L. Also, to give us a little bit more to work with sort of the margin differential between service and products. Thank you.
I think, I mean, a little bit later Roland will come into some of the very concrete ingredients on the EBITA bridge. If you don't get the answer there, then, feel free to ask one more time, because there Roland takes both the mining and the cement EBITA bridge and what we do there.
Vlad.
Thank you very much. I'm very much interested in the carve-out comment, Mikko. What does carve-out means? Would you mean that effectively you will be duplicating some functions like, I don't know, support functions, et cetera, if this is carved out? If you're not going to duplicate those functions, then how can it be a carve-out?
So basically we have a plan or a kind of preliminary plan for the carve-out. In very practical terms it means that cement has dedicated support functions. Not a set of support functions allocating cost to cement. While cement is consolidating footprint to maybe 14 countries from 40 countries, so that for the 40 countries they don't need to have any support functions. In reality that if you build that support functions into cement, it's actually much lower SG&A. It requires that consolidation what we've done and are doing. Of course, without that there will be no savings, just shifting money from one pocket to another. Secondly, it's a very practical dedicated support functions during this year.
We are looking at once we have the target number of legal entities, and principal company models, or if we are operating for a few legal entities only, then we can look at legal carve-out of, for cement. Of course Roland needs to look at then the balance sheet and that type of things, what that means. Basically, that leaves then the IT and some of the manufacturing which is shared. That might be, beyond 2023 that the IT landscape, if we can separate the IT and then manufacturing that, how we are treating units where we do manufacturing for both. These are in very practical terms.
We are, hopefully kind of 80% done with the carve-out end of the year, in operational, from a operational point of view, leaving IT and then joint manufacturing units that we still need to do some work.
Super. If I can ask about the targets for cement. You mentioned margin as a key target. Begs the question, what's the role of new equipment business? Because the smaller new equipment is, the bigger the margin.
You're right, but you still see the need in the cement plants we're optimizing that you shift some of your core equipment. That's also what we are now targeting back to the R&D question, that we're able to do those shifts of equipment. We don't need to build a whole plant. I mean, we can take in and out what's needed. Certainly some of the products are really high in demand because of the energy efficiency that because of the rising energy prices. Then again, I mean, what I said is that we want to do it where it drives further service, where we have more intimacy with our customers, then we will go in and do it. If it doesn't give us more service business, why should we?
I mean, because it just drives down the margin and the profitability, and our target number one is to improve profitability.
Yes. Claus, you have one more.
Claus Almer from Nordea. Giving you a 2026 target, which is, you know, impressive giving the performance for the last couple of years, what is the biggest risk to not or to achieve or not to achieve, but not to achieve this? Where do you see the biggest, you know, hurdles to overcome?
The whole world comes to a standstill. I mean, there's no demand for any kind of cement. All the lines comes down. I mean, we build, as I had the slide, I mean, I know Jannik will distribute the whole deck, so you can go in and read the detail, the recession slide. We saw during COVID that capital really came down big time.
There was still good demand for the service business. That's also what we hear from the family-owned companies, the big customer groupings, ask to get their people out here. We need you. We're cutting a little bit back here and there, but we still need to have the lines dry, running like crazy. Make sure you have the spares and wears we need and the people available.
Only external factors is the risk?
Yes.
Fair enough. Secondly, this transition you're going through, it doesn't take any one-off cost like we've seen with the mining sector, assigning its mining division?
I mean, we paid for what we pay through the guidance for 2022 and the guidance 2023. It's non-adjusted as Roland also alluded to in his opening.
2026 are more thinking about on the way to 2026, will there be some one-off cost?
We not put that in. It will be absorbed by in the business, so it's not that, we are planning for any adjustments.
Okay. That was all for me. Thanks.
Yeah.
Yes. Oh, Christian.
Christian Thorning, just with a follow-up. Asger, as we've clearly seen illustrated, you have two fairly important roles in FLSmidth today.
Yeah.
It wouldn't appear to be optimal for the long run, at least. How long are you going to continue with that?
I think that's for me because that was finally my decision. We've done actually tweaking the organization because as you said, it both elements of the portfolio cement, which is primary role of Asker is really big portfolio item for us, really kind of a full-time role. Operations is important role as well, equally important. We, what change we've done is that we are moving procurement into business lines. The remaining part of the operations is manufacturing to centralize manufacturing excellence, where we have really good head for that one, really strong person heading that one. We have logistics, which is small team of super experts, managing logistics. Third one is category management, making sure that we don't leave money on the table when we are combining volumes.
We felt that that role is something that Asker can look after also in addition to his primary role, which is cement. There are still synergies in those remaining elements because we have some of the manufacturing plants which are shared, and we are still looking at taking synergies out of the categories across the board. Then logistics is quite easy to share. We don't see that as operational risk, and also that we have shown last year that we can perform well as for this team. I think the team is really good and, of course, long term we might look at different setup, but coming to this year, it works fine.
Business lines are assuming as per kind of Atlas Copco model, a bigger role in procurement, which will be as part of their portfolio.
Yes. We'll take, we have time for one question at the end. It will be from the online world. Asger, looking at the R&D green portfolio and saying this is not even necessarily part of the current strategy period, it's what's to come afterwards, but you prepare for it. What's the commercial sort of scale viability? We know some of these orders that you've announced on the clinker, calcination, all that it's still in the early stages. How's the, yeah, commercial scale of these? When are they up and running? Can they be piloted elsewhere, et cetera?
A little bit to my answer before that, we take it, side by side. We're doing the stuff in Greece, we're doing France, Norway, and, when we do these things right, it's easy to scale to, a broader, audience out in the world. It's again, because it doesn't come as a big splash. It's also important that we work on these things because it becomes part of the service offering. We have people there that can work with the customer, they can use these things. Back to your question on the, products. I mean, you can take products in and out as an add-on to some of those, green stuff that we're doing. So I'm quite comfortable.
The risk would have been if we were not already in our boiler suits working on these things, because then we'll be forgotten the platform when the train that starts to speed up when the green cement hits, and it will. It will. I mean. There I believe we have really, really good firm foothold, bridge set there on what we're doing.
Good. Good. I can see the clock is running here anyway, so we'll do one final coffee break, then we'll shift gears. We'll see how sustainability actually is a business driver for us as a company, we'll leave the final stage for Roland to just discuss on a lot of the numbers as you all like, and a little wrap up of Mikko. We'll be back in 15 minutes for the final session.
We have a couple of more exciting topics: sustainability, we go for the performance and long-term targets. We talked a lot about sustainability, for us, it's a huge business opportunity. It's something that we want to do, we need to do because it's our responsibility, as Aske said. It's our responsibility in cement, it's our responsibility in mining. At the same time, it presents a huge positive business opportunity in both industries. When we talk about sustainability, we have two elements. We talk about Mission Zero, we were ahead of the competition, ahead of the industry when we launched that one. It talks about our technology, our solutions, where our customers can reach their net zero targets. ESG is keeping our own house in order.
I will introduce youngest member of the team today, ask him to wear a suit so that he can look older. Wouter, please go ahead.
Actually thought Asker was the youngest member of the team. That's a good surprise. Good afternoon, everybody. My name is Wouter de Groot. I am the Head of Sustainability. I will kick off this session on sustainability by diving a little bit deeper into the environmental aspect before handing over to Cori and to Annette to talk about the social and governance. Environment is, of course, an area that we need to manage from our own impact. We've worked on that for many years. As already mentioned many times during the presentations today and by Mikko now, it's also an area where we see increasingly a business opportunity for us. Customers, both in mining and cement, are setting increasingly aggressive targets to improve their sustainability performance, to help to drive down costs and to meet the regulation.
They're looking for partners in their supply chain, technology leaders that can help them achieve these targets. At the same time, they're also looking again in their own supply chain to say, "How are the technologies that we are using at our mine sites and at our cement plants being manufactured? Under which conditions where they are being sourced from?" In order to meet the demands, to cater for these growing demands from our customers, we are increasingly taking a value chain perspective.
We're looking across the entire value chain, starting in our supply chain, all the way to the point where our technologies are used by our customers and say, "How can we improve our impact?" What you see here on the slide, and maybe what you've seen already a number of times over the last couple of years, is that the relativity of our footprint is completely skewed towards the use of our products at the customer sites. This is also why cement and mining have such a significant CO2 emissions, as Asker already mentioned. What we're doing now is to address every aspect of the value chain. For that, we have set specific targets, the Science Based Targets. By just setting these targets, we are now aligning the methodology on how we measure our improvements with that of many of the mining and cement customers.
The way we go about addressing these targets is essentially to look at each of the different scopes. Asger already talked about what we're doing in terms of bringing down the emissions in our supply chain. Progressively, we are shifting our purchase or spend towards suppliers that have set similar decarbonization targets. In our own operations, to walk the talk, but again, also to save costs, we are aiming to be carbon neutral by 2030. The last part is really addressing the largest part of our footprint, the use of our sold products when they're generating emissions. For that, we have set what we call an economic intensity target. An economic intensity target is essentially a metric that indicates how CO2 intensive are your products when they are in use at customer sites, and this being expressed as a function of your order intake.
In plain terms, essentially, what we're trying to do is to cut this number in half. What we want to do is to grow from green. The way we do that is by increasingly putting more energy efficient equipment in the markets. By selling more digital and by selling more service. What that essentially means is that our business strategy is directly supporting our sustainability targets. As Asger already talked quite a lot in detail how we are working towards bringing down the emissions in the supply chain. If we just touch upon the Scope one and two emissions, right? This is our own operations, so we're looking at various ways to bring down the emissions and the energy consumption.
At the end of next year, we will move into a new headquarter, literally 500 meters down the road here, and that new headquarter will be the first office building in Denmark that will get the highest sustainability certification. Really we're trying to walk the talk here as well. At the same time we are also focusing on continuous improvements, energy efficiency, shifting towards renewable energy at our different manufacturing and facilities. A couple examples here on the slide from China, where and from Chile, where we're installing solar panels on the warehouses, on the super centers, on the manufacturing centers.
Because this is the right thing to do, but also because the payback is increasingly getting better on these installations and it is tailing towards the specific targets that customers are now setting for their own Scope three, which is our Scope one and teo. Speaking of customers, the majority, the main focus of our sustainability work continues to be focused on helping our customers bring down their sustainability impact and improve their performance. With that in mind, just to take us through a little bit how miners are operating, right? Essentially, miners try to do two things. They try to do more from the same, so, increase productivity. Now increasingly the focus is also on doing more with less. That's the sustainability aspect of that. What we're seeing increasingly is that these things are going very much hand in hand.
When we improve on one lever, it has an impact on some of the other ones. As said, miners linked to this are setting stronger, more impactful targets. These are some of the examples of the tier ones, right? You can see that everybody's trying to improve already in the short term, reducing their CO2 emissions by 20%, 30%. Both the cement and the mining industries have pledged that they want to be carbon neutral by 2050. In order for that to happen, the technologies needs to be ready by 2030. We know that the replacement rate in our industry is slow, the adoption is not as fast as it should be, so technologies really need to get into the market.
In order to really deliver on that and to help the customers, we introduced at the last Capital Markets Day our MissionZero program, which was at that point in time, essentially a promise to the market that we wanted to help miners and the cement companies to enable to operate with zero emissions by 2030. The program essentially consists of two parts, a technology part and then a commercial part. The technology part is something that we have been working very actively since essentially we introduced the program. You already heard it from Chris, and maybe you've seen it also during the breaks, we introduced what we call the MissionZero Mine. What we did was to look across the entire flow sheet of mining operations and say, "Where are the key hotspots in terms of energy, CO2, and water? What can we already do today?
Where can we improve? Where do we need to invest from an R&D point of view to really deliver on the promise that we made to enable zero emissions by 2030? The team has been working quite hard, and we are now introducing specific MissionZero flow sheets for the various strategic commodities, copper, gold, lithium. This is quite exciting because it's not only articulating our vision from a technology point of view, how we really deliver on the promise that we have made in the MissionZero program, but it's also resonating really well with the mining customers, particularly some of the junior players out there.
Over the coffee break, we were talking a little bit about permitting and how that's still a big challenge because there are a lot of ESG considerations and concerns with the regulators out there to give new permits out there.
Quite recently, Jos Meyer and myself met with a customer in Australia, who is in the process of getting a permit, and we introduced the MissionZero flow sheet to them, and they say, "Guys, this is great because this is essentially an off-the-shelf concept that we can take forward to the regulators and help them to see how we actually try to do sustainable mining." While it's an opportunity for us to really demonstrate how we are the leader across the flow sheet, also from a sustainability point of view, it is helping in that other end of the value chain to say, "How do we help the regulators to see that mining can be done sustainable?" Quite excited about that, and I think it's really again highlighting the efforts that have been done by the team over the last 3 years to put us in pole position.
That's really on the technical aspect and how we bring our promise to life. What we're also trying to do, of course, is to drive this then commercially. In order to do that, we're really trying to find the right proof points that validate that these technologies are working in the market, because this is still the name of the game in both mining and cement, right? We need to come with the proof points, what we call the value propositions that highlight that technologies are working. Again, what we're trying to do here is to drive profitable sustainability. We have talked quite a bit today already about the SAG mills.
Just to highlight again the magnitude of milling, Chris mentioned it already, but milling and mining, milling and grinding combined consumes 3% of the global energy, sorry, global electricity consumption out there. That's just one part of mining, 3% of all the electricity in the world is used for that. You can see also the magnitude of that. You see a little guy here on the far right and how he sort of compares to the different SAG mills out there. That guy is probably the height of Mikko. If it would be me, you probably wouldn't even see me on the slide here. Really to show what is the magnitude of these mills and what we have done in the last number of years, Mikko T.
was talking about it already, is to really see how digital can help in the sustainability agenda. The LoadIQ technology that we got through the acquisition of the Knowledge cape is really helping in that, because the problem with these gigantic SAG mills is that it's almost hard to really optimize them. We feed the ore into the mill. They come in different size and shapes, large parts, smaller, soft and hard. To optimize the mill based on the differences of these loads is really hard. The LoadIQ technology is really scanning essentially what is the type of ore that's been fed into the mill, and based on that allows the operator to optimize how fast we run the mill, but also what type of throughput and how much throughput we need to put in the mill.
That knowledge that we get from this digital solution helps to improve on the energy consumption and really helps to improve on the throughput. We often talk about, okay, we do a technology and that helps them to improve on the sustainability, but you can also turn it around, and that's what we're doing here. By improving on some of the sustainability parameters here, we're also really generating significant increased profits for our customers. This LoadIQ technology that was installed in one of our customers in Middle America, by running it for roughly 250 days, it increased revenue for over $100 million by improving on your throughput and by reducing your energy consumption.
Again, sustainability and profitability are really going hand in hand, and our focus is to continue to drive these value propositions, these proof points out there to increase the adoption of sustainable technologies. Our efforts in this area, in the wider sustainability ESG area, are slowly also helping us to improve our various rating scores. We have improved quite a bit in the last couple years in our Sustainalytics score, our CDP. Still a bit of work to be done, but it's slowly sort of bearing fruits here. At the same time, we are trying to anticipate this growing and tightening set of regulations out there. EU Taxonomy is a game changer, particularly for Europe, both for our customers but also for us. The Corporate Sustainability Reporting Directive is driving a lot of needs in terms of more proof points.
We are really moving towards a business setup that is catering for these new requirements, but really still focusing on driving sustainable profitability and profitable sustainability. Just to sum up before I hand over to Corey, again, the industry is moving fast. Customers are increasing their demands. They're looking for the one, two partners that really can help them across the flow sheet to meet their targets, to help them to meet the regulation, to get permits faster, but also to drive down costs and increase profitability. With the introduction of Mission Zero, essentially three years ago, we put ourselves in pole position to be that leader in the industry. With the Mission Zero flow sheet, I think we have now also demonstrated that we are the technology leaders there. We're getting increasingly a number of proof points from the installed installations.
Digital and service will help us further. Again, in order to increase the adoption in the industry and address the global challenge that we have as society, we need to continue to work with our customers. We need to accelerate the adoption of the technologies. If we do that, we become also a really attractive company to attract new talent. With that, I'll hand over to Corey.
Thank you, Wouter. Good afternoon, everyone. As Wouter said, my name is Cori Petersen, and I have the pleasure of looking after people, health, safety, and environment at FLSmidth. As you can hear from my colleagues, it's been a really busy couple of years. We have a CEO who likes to race from one activity to another, which keeps us all quite busy. I'm happy to share with you a few of the things that have been on our social agenda. The good news is that we have a very talented, motivated, competent, and passionate workforce that is with us and able to put all of these things into action. In 2019, when we announced MissionZero, we also set some internal targets related to our social agenda.
Along with these targets, we needed to have some initiatives in order to help us achieve those targets. We want to make sure that we focus on the entire employee life cycle. We can't just focus on attraction and hiring and then ignore them when they get on board. Conversely, we can't just focus on creating the best workplace and ignoring the attraction and trying to get people to join us. One of the targets that we set was that in order to achieve our gender diversity targets, we needed to bring in more women. In order to do that, we set a fill rate.
For one out of every three positions across the organization, we've been able to fill one out of every three with a woman. It's one thing to bring in a pipeline, but we also need to continue to develop that pipeline. We've done this by promoting all of our positions internally across the organization, so employees can see that they have growth and development opportunity, that they have mobility across the world if that's something that they choose to do. 24% of our positions have been filled internally over the last year. This is possible because employees put together a development plan. They talk with their leader about where they want their career to go and what it's going to take for them to get there.
We really place a high emphasis on creating that development plan and that developmental conversation with their leader. Wouter talked a lot about sustainability and how do we commercialize MissionZero and how do we make it part of the way we operate within the organization. For this, we've done a lot of work around the sales incentive plan. Our sales rep have part of their commission or their incentive based upon how many flagship products that they sell related to MissionZero. One of the things that I am most proud about in terms of our performance on our social agenda is that in 2021 and in 2022, we spent DKK 50 million focused on internal equity, on closing the gender pay gap, and to ensure that our employees globally have a livable wage.
We will continue these efforts and a few more things, as you can imagine in the years ahead. When it comes to diversity, equity, and inclusion, we know that there are organizations out there who are leading the pack in this space, and we can do better, no doubt about it. In 2023, we're going to establish a global DE&I council. We want to learn from other organizations what they've done in this space, take those best practices, and apply them around the globe. I also have heard, been paying attention to you this morning, there's a little bit of skepticism about whether or not we can pull this off. One of the things that is critical to making this happen is strong and visible leadership. We have a new leadership team, I hope you can hear the alignment amongst us today.
We have developed and we will roll out a new leadership framework where leaders will be focusing on how they lead the business, but equally important on how they lead their people. It is important that leaders can take our strategy and translate that strategy to their teams. What does it mean in day-to-day activities? They need to help employees understand the role they play in achieving our strategy. A leader is also key in removing obstacles. They need to also continuously drive improvements. What can we do in terms of efficiency, productivity, systems to drive our performance forward? That is the role of a leader. It is also important that they focus on the people, of course, that is their job.
We want leaders to focus on developing talent, producing talent, helping people grow and develop in their careers, but also removing obstacles and barriers and driving better collaboration across the business. It's one thing for the top team to be aligned, but we need that alignment everywhere in the organization, and the leader's role is to help drive that collaboration. Last but not least, we want leaders to understand how are they performing, what is their own personal proficiency with leading the business and leading people, and where do they need to improve, and that will be a key focus for them. I'll talk a little bit more about what we're doing on the mental health and wellbeing side in just a minute. As I mentioned, in 2019 we rolled out some gender diversity targets.
By 2030, we want 25% of our workforce to be made up of women, and we want our management ranks to be made up of 25% women. You can see year-over-year, we've made pretty good progress in this space. We still have a little bit of room to go, but it's something that we will continuously work on. With the acquisition of TK Mining this year, they actually helped us improve the number of women across the organization. When it came to the number of women in management, we actually just stayed flat. We were tracking a little bit higher than that going into the acquisition. Good news is we've remained flat, and we will continue to grow that. We are a culture rich in diversity, though, in cultural diversity.
If you look at our organization, we are 12,000 employees operating in 60 countries with over 100 different nationalities. For that, it really does create a very enriching, great organization to work in. I'd just like to give you a couple of examples of how we will build diversity, gender diversity through the organization, as well as cultural diversity. You know, Joshua is new to the management team, and the service management team is fairly new to our organization. When he was building his team, he made a concerted effort to focus on cultural diversity as well as gender diversity. In this aspect, there's as many different nationalities as there are management team members, and he's already achieved the gender diversity target.
Well, you've heard a lot about our strategy and where we're going, you also know that a strategy is nothing without execution. It's nothing more than the paper it's written on if we don't execute. We also know that in order to execute, we need a committed and engaged workforce. For this, we've been working with engagement for the past 2 years. Every single month, our employees participate in an engagement survey, a pulse survey. We have 12 different drivers that we ask them about on a rotational basis. Takes them about 5, 7 minutes once a month to answer these questions. Here you can see our overall engagement score is sitting at 75%. Our participation rate is actually better than the benchmark. We have 75%-80% of our population who regularly participates in this survey.
You can see how quarter-over-quarter, our employee net promoter score has also improved. You can imagine as we go through a transformation and we continue to run at this breakneck speed that we are, that we can expect some dips in our engagement. That's natural. What's really important is that we continue to work with engagement, that we continue to talk about it, that leaders get their dashboard, they understand what their employees are thinking and feeling, and that they have those conversations to address it. We don't want to put it under the rug. I wanted to highlight three of the drivers where we're scoring quite high. One is on meaningful work. Employees find purpose. They really the MissionZero ambition really resonates with them, and that's something that they're proud of.
They also feel that we have a pretty equal organization where we focus on equality and opportunity, that we operate with a high degree of care, both in management as well as across the board with colleagues. What does it mean in terms of care? Well, in this engagement survey, we also ask about the mental health and well-being of our colleagues. We know that physical safety is a license to operate. It's the right thing to do, we certainly want our employees to work in an environment of zero harm. We also place an emphasis on the mental health and well-being too.
This is where we ask employees how well they think they're able to manage the demands of work at FLSmidth or life outside of work, how well are they supported by leaders, and how involved are they in decisions that actually impact them. Here you can see we also score quite high, better than the benchmark. Earlier today, Mikko talked about our values. You also heard Chris mention the values. This is something fairly new to our organization. Of course, we had values, but we weren't really talking about them and using them in our day-to-day work.
As a leadership team, as we talked about this strategy and where we're going and the culture that we need across our organization in order to execute and deliver different maybe than how we have in the past, we talked a lot about what kind of environment and behaviors do we need to see across the organization, We came up with these five values. These values will be rolled out in the coming weeks as we roll out our strategy. I can say they've been pretty well received by our organization thus far, and we really believe that these will help us execute differently and behave differently than we have. Three key messages as per the theme that I'd like to leave you with. We know that diversity and inclusion, they go hand in hand.
We can't have one without the other. We know that this drives growth. We know that this drives innovation and creates a better workforce. We will continue to work on this as we move forward. Living our values, creating that culture of accountability, of performance, that is going to be key to us recognizing and realizing our strategy. Last but not least, none of this can happen without the workforce behind us and ensuring or with us and ensuring that they are engaged and understand the role that they play in helping us achieve this strategy. Thanks for your time. With that, I'll turn it over to Anette.
Thank you, Corey. My name is Annette Terndrup. I'm Head of Legal and Strategy. As you've heard throughout the day, relentless focus on execution and strong governance of the risk we accept are very important to our transformation journey. I would like to share with you a little bit about how we work with governance and compliance in FLSmidth. We have a robust governance structure with a classic distribution of rights and responsibilities between the different parties in the structure. We adhere to external rules and regulation, and we ensure that adherence is internally anchored through our policies and guidelines and training. I will share with you in a moment that compliance is very high on our agenda. To nshow proper anchoring of this important topic at board level, we have since 2015 had a compliance chair.
The compliance chair meets every quarter with our compliance manager to look at the compliance risk picture and discuss the trends in the cases that come in via our whistleblower hotline. To FLSmidth, good and strong governance is first and foremost rooted in responsible, honest, and ethical business behavior. In our code of conduct, we set out what that entails to us. We fully recognize that you cannot hope to regulate every dilemma, and we therefore encourage our colleagues to use sound judgment, to rely on the values that Corey and Mikko and Chris have spoken to, and to reach out for guidance whenever necessary. The mining and cement industry face sustainability challenges. We have an obligation to help our customers reduce their environmental footprint significantly. That is expected of us as a responsible citizen, and we are very proud to play our role. Responsible citizenship come in many forms.
To FLSmidth, it also entails taking responsibility for trying to help address the compliance issues that the mining industry does face. We are therefore a founding member of Compliance in Mining Network, which is a collaboration between companies in the industry who together work at improving the standards. Identifying, managing, and mitigating risks are core elements in strong governance, and they're very important to our transformation. With, amongst other, our focus on de-risking our portfolio, and we have set up risk management boards in both mining and cement to help with this. The industries we serve and the countries we operate in make compliance a very important part of our DNA.
I would like to share with you a little bit about how we work with ensuring compliance with our code of conduct, how we address trade compliance, and also I would like to share with you an initiative that we're going to be launching in human rights. Bribery is illegal in all countries in the world. It is completely contrary to our values, and we have a zero tolerance policy. Now, ensuring that zero policy, or tolerance policy is lived and that there is adherence to our code of conduct requires a lot of different elements. One of them is top management commitment and anchoring, which I've talked to you about, and another important element is training. Every employee, including executive management, has to undertake mandatory training in eight different areas, including some of the ones you see here: bribery, conflicts of interest, and so forth.
When we put together the training, we seek inspiration from the cases that come in via our whistleblower hotline or the question we get asked in compliance to make it as useful and relevant for our colleagues as possible. We also ensure that our board of directors receive relevant training. Trade compliance, all about ensuring adherence to international sanctions and embargo regulations. At FLSmidth, we've insourced the resources who deal with this because we believe knowledge of the industries, and not least of our offerings, is absolutely essential to ensure adherence. When our business was heavily influenced by the war in Ukraine last year, we were happy to see that our setup was able to deal with these challenges.
We were able to, in a fairly short period of time, to undertake screenings of all of our Belarusians and Russian customers, and every shipment had a screening check before it was shipped, where we looked, amongst other, for dual use and prohibited items. Russia's invasion of Ukraine, the subsequent international reaction with the host and float of sanctions, have shown us not only how incredibly difficult trade compliance is, but also that going forward, we need a more proactive, holistic risk assessment in this area. It is no longer sufficient to look at whether a sale is permitted when we enter into it. We also need to understand whether it will remain permissible throughout execution. That is one or even two years sometimes for us, this, that makes this a very difficult and challenging area for us to work with.
Respect for people is core to how we do business at FLSmidth. In 2023, we will be launching a salience assessment to identify the human rights most at risk of severe impact by our operations. This assessment will form the foundation for us being able to make a more targeted approach in this area. Detailed knowledge of the relevant facts is key to proper compliance. Undertaking due diligence is important. It's also challenging, it's one of our focus areas. We have for several years had a policy whereby a lot of our business partners are subjected to a due diligence check. As you can see, all of our sales agents are, for instance. What do we look for? We look to see who are the real owners. Are there any sanctions or human rights or environmental issues, involvement in bribery and so forth?
We source the information from a variety of sources. We use sanction screening tools, look at wanted lists, company registration information, and yes, we also look at the internet because there's a lot of relevant information out there. Part of the process is also that we share the due diligence report with the relevant business colleagues, and it forms part of the assessment of how to proceed with the sale. Sometimes we speak to our customers about the issues we identified to see how they are dealing with it. Due diligence is a dynamic process. Facts change. The business environment evolves. This area therefore requires continuous and updated efforts on our part.
We do take our responsibility seriously in this area, and if there are severe findings, we will turn the business down. You have throughout the day heard about our sustainability ambitions, a little bit about our financial ambitions, and in a short while, Roland will give you even more flavor of our financial ambitions. Obviously, management's incentive-based remuneration must support the delivery of these ambitions. At FLSmidth, we have a combination of short- and long-term incentive programs and a mix of KPIs, some financials like EBITDA margin, but we also have a sustainability-linked KPI. The weighting of this KPI will be doubled from 2023 to reflect the increased strategic importance of this area. We strongly believe that the combined package we have will help deliver on the ambitions we are setting.
To sum it up, to FLSmidth, strong governance is rooted in responsible, honest, and ethical business behavior, and it is core to our transformation journey. We have strong and well-anchored risk management across all of our operations. Compliance is core to us. We are in challenging industries, and we fully recognize that continuous focus is required in an ever-changing world. With that, I will hand over to Roland.
Thank you for that, Annette. Summing the whole thing up, we have a few busy years ahead of us. We will integrate TK fully over the next couple of years. We have decided to accelerate the synergy takeouts, we will move fast forward in order to do that by the end of this year. That means that run rate synergies will kick in from the back end of this year. NCA will run off over the next two to three years. Hopefully, we'll be able to divest a piece of it, but otherwise, that backlog will run off.
That means that during the course of the planning period, our financial expectedly would improve gradually as we move forward, then ultimately deliver our long-term targets by the full year or in the full year of 2026. If we put on the group glasses, we will run a significant restructuring of the group. Most of my colleagues here have talked into it. The first thing is the core thinking of a pure play setup. We will carve out or already have carved out our non-core, non-strategic assets. They will run off and disappear. We will establish a corporate structure where we have a clean mining company and a clean cement company. It means a full legal carve-out. We will split the balance sheets, so we have two separate companies.
Ultimately, during 2023, 2024, we will then have the listed entity on top, a few shared functions and so on, but otherwise, a lot will then be pushed to the two legal entities. Under the heading, we will run a program called Simplification. In cement and mining, that will progress with different speed. As we heard, Asger, he's moving swiftly forward in cement with his structure. It's a little easier because a lot of the structure is already centered around Valby. Doing the numbers and 90% of the business comes from 15 countries and being present in 40, there was no reason to wait. There was no reason to run an overall program in tandem with mining.
That's why Asger is well progressed. We will run a similar exercise in mining. We have a good look at our footprint. Where do we need to be? Where do we not need to be? Maybe close a few white spots and then consolidate ourself as we move forward over the next couple of years. At the same time, we'll secure the synergy takeout. We will move to a so-called principal model. A principal model means that we will consolidate all the central decisions on our offerings, on our products, on our solutions, and the core management authorities in one or maybe two units. As you hear speak here, most likely that will be Denmark and Salt Lake City.
Conceptually, from the economic theory, the principal are then the deciding body, and all the other countries will then do the sales efforts, proximity to the customers. All the previous competencies and stuff that were done regionally will now be assembled in one unit. You heard Chris talk a lot about that, but also Josh is moving in that direction. We will have a special work stream focusing on outsourcing. It means everything we do in-house that is not strategically important for us, we will outsource as we move forward to take complexity out of our organization and also get some efficiency. We talked a bit about de-risking. We'll be de-risking our projects, our business. We'll be firm on what we accept in terms of scope, especially in Chris's area.
We will firm up our requirements to terms and conditions and so on as we move forward. We are already well progressed, as we showed, in the allocation of the backlog between risky and non-risky business. All this is currently governed by a risk management board. Now, the impact of this is, some is very easy to quantify: closed offices, savings, and so on. The simplification in terms of organizational delayering and moving to a principal model will give us a lot of reduced complexity, and it will ease the running the business. It will increase leadership effectiveness. The delayering of Cement from a regional heavy structure to seven lead countries clustering with sales countries around it, much more efficient, much more transparent, easy for Asger to measure accountability, communicate, and get alignment.
Some of the more fresh questions from the front of table here, I perfectly understand it, but that's how we address it, that things will now be done, and that we can drive accountability. It will also enable Alina support function structure, back office and support functions. It will significantly simplify our IT and ERP landscape, finally, it will expectedly improve our tax structure. If we look at our footprint today, we are present with 150 offices, and we will cut that in half. That may sound dramatic, but 50 of these offices came in from TK Mining, so it's basically double location in the same place. Obviously, we will move or merge that into best fit, and then we're down to 100, and then there will be another 20.
We will consolidate ourselves in larger competence centers, we have had local sales and service offices, so we won't impact the proximity to the customer, we won't at all impact our ability to drive order intake. This is a pure efficiency, do it smarter exercise. The efficiencies of this is, of course, it'll be easier for us to take the synergies out, we will also need less people, especially in the back-office functions. As we mentioned, as we speak, mining has started to take out the synergies, we are reducing the mining business by some 800 people. Asker is in the process of reducing the cement business by some 500 people, as it was mentioned. That means over the next few months, our headcount will be down by 10%, about 1,300 people.
This will be visible for you in the KPIs that we will measure up against. There was some discussion on our revenue guidance during lunch. The way we will give you directional guidance on the mining business is that we anticipate the mining market to grow by 3%-6%. We heard Chris Reinbold talk about he will selectively manage the capital portfolio. There'll be some growth areas. There's also a few low-margin stuff that he will decommission. Our products business will grow with the market. Joshua Meyer is doing a similar exercise. He's also accelerating the efforts, our approach to the installed base and a few other things. The intention is that we will grow above the market in the service business.
The market growth is 3%-6%, so overall, our mining business will grow above the market 3%-6% from where we are in 2023. 2023 is the baseline for the KEGA. If we then look at our new long-term targets, we discussed our 2023 guidance. We're actually 11%-12% in our legacy business. Currently, the former TK Mining business is diluting that margin by 2%, so we're guiding 9%-10%. We will, during 2023, take out the synergies as we have planned, and the final commercial integration on products, offerings, terms, structures Chris and Josh talked about will be finalized this year and coming into 2024. Our underlying margin will be at least 11%-12%. From there on, the simplification program will start to kick in.
There will be significant savings from that, measurable cost savings, but also more difficult to quantify savings from increased effectiveness, leadership effectiveness, platform simplicity, et cetera, et cetera. Our de-risking efforts is already paying off. They will pay more off as we move forward. There will be a significant impact from us growing the service business significantly. There will also be impact from growing the products business and working more structured with the mix of the product mixes and thereby be margin accretive. That means that we will, by the full year or in the full year 2026, have a reported EBITDA margin of 13%-15%. There's no more adjustments planned. We have adjustments in 2023, where we allocate DKK 550 million to take out synergies. From there on, these numbers are clean reported numbers.
I think this is not a big, hairy, aspirational goal. We have line of sights to these numbers. As I hope we have, you know, given you the impression today, there are concrete plans below these items in the bridge. We know exactly what to do to get there. We also know what is critical to do and how we not get there. Of course, the better we are, this may happen a little sooner. We may also, if we have a little bit of tailwind, end in the upper end of the range. If, you know, things are not going exactly as we have planned, we will be closer to the lower end of the range. This is the margin targets for full year 2026. There was a few questions on Cement. Cement is a little bit more difficult.
Cement is cyclical, we are not immune to recession. There will be recession as we speak in some of the countries where we operate, and we think that will negatively impact order intake in the short term. From there on, when that hopefully stabilizes again, we will grow in products with the GDP in the markets where we operate. In Service, we expect to be a bit more stable because there's a few low-hanging fruits in our own business. Asger talked about that. You know, being more structured in terms of how we attack our installed base, closer pro-service proximity to the customers, simplification, moving to principal company model, and so on.
Those are specific drivers that means that we are convinced that we will be able to grow better than the market, even in a recessionary scenario. Long term, we will also in the Service business grow with in line with the GDP growth. CAGR, based on 2023, grow in line with GDP in the markets where we operate. That leads to the margin bridge. We will post 4%-5%. These are reported numbers in Cement, as Asker said. This year, we will implement a more simplified operating model, less countries, simplify the way we operate into principal model, ERP solution, and so on. Also, Cement will benefit from the fact that we are de-risking the portfolio projects and our terms and conditions accepted.
The service efforts will have significant impact on this in Cement, both with regards to growth and more sophisticated building a service-centric model, but also the mix of our offerings. There will be an element of product mix improvements also impacting. That will move us to 8% reported EBITDA margin for the full year 2026. Now as we move forward, directional expectations for cash flow conversion, we will be a more service-centric business, and a more service-centric business means that we will tie up a bit more working capital. We're currently at 9-10%. When we back away from too many wider projects, we will have less prepayments and so on.
Expectations are that as we move forward, we will tie up a bit more working capital over the next three to four years, but we will stay below 15%. You should expect the CapEx to be at the level of 2%-3%. We will spend that predominantly in sustainability supporting technology, especially in Cement, as and when they pick up in terms of earnings, we will plow some of that back in green developments. The structural changes and the simplicity in our setup will drive down the effective tax rate from the current level of 38% and somewhat lower. Capital allocation, we will allocate cash to reduce our debt, secure a strong balance sheet. We're currently well below 1.0x.
We will continue to allocate free cash flow to reduce debt. We will also continue to pay out dividend up to 50% of net profits, and we will allocate cash to selective investments, bolt-on M&A. There's no big tickets on our M&A agenda. This will be smaller stuff supporting our service business. It could also be companies that support our digital offerings and complimentary sustainability offerings, buying IP rights, smaller solution stuff that we can, that we can apply, for instance, in our Cement business. Once we start pushing our long-term targets, 2024, 2025, 2026, with these growth targets, cash generation will be significantly higher than it is today.
We will review the options for plowing back jumbo dividends or buy share buyback programs as excess cash will build up. Also on our financing side, we have decided to put our money where our mouth is, so committing a green facility here with an IB of EUR 150 million, with more basis points to be paid if we don't meet our sustainability targets and less basis points to be paid on the margin if we do meet our sustainability targets. With that, key messages, we will significantly simplify the group. It will be different paces between Cement and Mining. We have really focused on improving the quality of earnings, so it's value over volume. We are already walking the talk.
We have introduced a number of these measures. We will continue to push forward speedy to get things done.
Thank you, Roland. The last things that are standing in your way is, before we offer you a drink, and a little canape afterwards, I presume there's no questions to the financials part, but we'll take a guess. We have 20 minutes now for Q&A before the final wrap-up. You have an esteemed panel here, so, are there any questions in the room? Otherwise, I'll go to the online world. Yeah.
Two questions. I didn't understand, Roland, the comment on significantly higher cash generation, because margins 4%-5% up, that's DKK 1 billion in ballpark figures, and 5% more net working capital, that's also DKK 1 billion in ballpark figures. Where's the residual that translates into significantly higher cash generation? I have one to you also, Cori. Now you're laying off 1,300 people. How do you handle that from an HR perspective, and how can we make sure people you don't want to lay off actually stick around? Thanks.
On the cash generation, of course, you need to fill your modeling with growth. If you do that, assume our tax rate is coming down, and our restructuring is well underway and practically done mid-2024, there'll be significant cash generation compared to today. That's the short answer.
Great question, Lars. It is a challenge, and employees are seeing the transformation and where we're going, that's why it's important that I said we continue to work with engagement. We also are encouraging leaders to have stay conversations. There are many talented, competent people across our organization that we need to retain, that we want to retain, having those stay conversations is critical to that. We also leverage retention bonuses where we need to. We're also, as we roll out the strategy and transformation, going to have workshops with employees to help them manage through this change. Those are just a couple of examples of what we're doing. I should say, for those that exit, we also want to make sure that we're taking care of them.
We do offer some workshops, not only, outplacement, but other workshops to help them get a fresh start moving forward.
Yes. Vlad?
Thanks very much. Roland, I'll try another time on the cash flow, if I may, from a different angle. You compared it to current base, significantly more than today. Can I ask, in your internal projections today, or let's say simplistically 2023, is it above or below 0, if I may ask it this way? Second question is related to the interest costs. Obviously interest rates a bit higher. You have some variable interest rate debt. What sort of magnitude of interest costs increase in 2023 we are talking about versus 2022?
If we start, as I said at some point, start with 2023, assuming we are completing the synergy take out, then you have a clean 2024 number. EBITDA will be significantly above DKK 2 billion. You will have your working capital coming gradually over the next four years. You will have 2%-3% in CapEx. You'll have a little bit, hopefully lower tax rate than we have today. A finance cost that is customary for a company like ours with a leverage below one, and you know exactly what that is, I'm sure. There will be a free cash flow that is substantially higher than it is today. That will improve as we move forward and margins comes up, of course.
2025, 2026 will be the years where, you know, we will be debt-free.
Yes. I'll just take one question from the online. That's probably for you, Anette, actually. Given you've been able to recognize the revenue in Russia this year, how have you ensured that you haven't breached any international sanctions? How has that been possible?
Through a lot of hard work, I have to say. I'm sure a lot of you have witnessed the many rounds of sanctions that came. They were not necessarily very detailed or clear. We took a very cautious approach and also did halt in many cases the execution of our projects until we were absolutely sure that the shipments that were going ahead were full in alignment with the sanctions. In some cases, we stopped altogether. As we've mentioned today, going forward, we're now out of Russia.
Okay. Claus, did you have a question?
Claus Almer from Nordea. Roland, to you. The EBITA margin for 2026 for mining, how do you see that compared to key peers? Is that, you know, is there any difference why, a reason why that should be lower than your key industrial peers?
I understand the question, but I think we are focused on building a strategy plan here and a financial model where we have line of sight to the margins that we can deliver. We are in a transformation. We just did a significant acquisition. We need that integrated, and all that needs to be done, and that would lead us to 13%-15% in this business. I'll for now leave the competitors to do what they do on their earnings.
Fair enough. Cori, one question for you. For these retention bonuses and so on, is that part of the one-off cost or is that, you know, taken over the P&L?
That's mostly taken over the P&L.
Can you quantify, you know, any magnitude of this?
We haven't actually established a formal retention bonus. We deal with them more one-off, that's why it's managed through the P&L. We don't officially have a formal program, but where we need it, we use it.
Okay, thanks.
Mm-hmm.
Good. We'll just take quick one question online. Wouter, I believe that's for you. You've set an ambition to deliver solutions that enable zero water waste, zero emissions, zero energy waste by 2030. How far are the typical miner actually away from this if you look into the flow sheets? Where are they today?
Quite far, I would say. One of the interesting discussions that we had recently with one of our, I think, best customers is that they had initially set some concrete targets to significantly reduce their emissions, and mostly the miners tried to achieve that through the electrification of their fleet. What they're seeing now is that both due to technology and supply constraints, there is significant issues in reaching their targets through that type of technology. That essentially is, say, an opportunity for us because then they go back to saying, "How do we actually meet our mid- and short-term targets through energy savings, electricity savings?" Our technologies in terms of, for example, IPCC, so in-pit crushing and conveying, where we to some extent can replace some of these diesel trucks, are playing right into that.
I think the miners are increasingly still looking at some of the specific technologies that we are offering in this space, and then slowly try to accelerate to other technologies.
Good. Any questions from the room? Peter Testa, the floor is yours.
Thank you. I would actually just repeat my question from before, if you could operationalize the bridges down into the various operating line items. Secondly, I think a key for us today in reaching those targets has been execution. You mentioned your remuneration report, and I can see that EBITA has been a key factor there for quite some time. What is going to change in sort of the remuneration structure in order to promote you achieving those targets? Thank you.
You're asking for more operational, operationalizing the bridge. Is that what we're talking about? I think that, I think I was quite specific, actually. There will be less countries. There'll be less offices. There'll be organizational delayering. That means efficiency is taken out in terms of we need less people.
Yeah. I'm just wondering how this is the gross margin of SG&A?
Gross margin SG&A.
This is not necessarily SG&A. We have a lot of fixed costs sitting on COGS. Engineering pools, regionalized that are now being assembled in Salt Lake City and in Valby. Project expertise and other stuff, procurement that sits not in the SG&A but in the COGS pool. By cost line, it will come in various places in the P&L. Is that's what you're asking, right? Yep. Then remuneration. It's correct that in our STIP and in our long-term program, we have EBITA and EBITA margin targets, and that will continue. Was that the question?
We're actually increasing the target in our long-term incentive plan. We're increasing the weighting of the EBITA target going forward for the 2023 plan.
Yes. We'll just take one follow-up to you, Roland, on tax. Someone's asking if you're willing to lean out a little bit. What does a lower tax rate means and by when and some kind of level? What can you say?
Yeah. I'll be I'll not be happy if we're not moving below 30%.
By 2026? Is that the pace by end 2026?
End 26.
Okay.
2026, yeah.
Good. Any other follow-up questions from the room? No? We'll take, there's one more for you, Roland, here actually. If you could break down the directional guidance you've given for CapEx and networking capitals, as they ask, you talk so much about product services. Can you give a little granularity on the CapEx and the networking capital on a split on product services, so not just on a consolidated level?
I think, I think, a lot of the CapEx will move into developing the growth areas that Chris talked about. We're building a milling factory in Chile. We will push our pumping business further. There will also be a significant R&D development in the green solution, especially in cement, but also some in mining. It will, you know, it will support both, but it will be driven around products.
Yes. We'll take one final question maybe from the online, probably to you, Cory. You're changing a lot of things very rapidly. You're taking on board a lot of people. You also laid off a lot of people really fast. How can you ensure that the culture you want to instill to drive the execution, that it doesn't get lost in all of this speed transaction transformation? Anything specifically that can give people trust that it will happen?
That's a really good question, and I'll use Anette's answer earlier. It's really hard. There is no one silver bullet. We have to tackle this from many different angles, and that's why we're rolling out a new leadership framework, the values, the top team alignment, being clear on where we're going, the strategy workshops that we'll be rolling out next week, to employees around the world, and then again, helping those that are off-boarding and on-boarding do it in a way that's respectful and sustainable in the best possible way. There is no one clear answer. There are a lot of moving parts and pieces, and the good news is that we've got a really good organization that takes good care of people, and they want to make sure that we do that whatever we're working on, and that will continue.
Good. Lars, do you have a microphone?
It might be a slightly weird question for Anette and Cori, because the rest of the management team has only been around for like one, two years. You two have been around for longer. So in your words, what is the difference between the rest of the management team today compared to three years ago?
Nothing like putting us on the spot, Lars. Thanks.
You want.
Do you want to start?
I actually would sum it down to one word, and that is execution. I think you've heard a lot of in the different presentations today where our my colleagues have taken great care in sort of explaining to you how we're going to do it now. It's not that they are fundamentally different things that we use. These are conservative old industries, and there's nothing magical you can do. What you do, you can do right, and you can make sure you get done. I think it's the willingness to drive it through, and the understanding that that is necessary and that making plans in Valby is not going to cut it. That's how I would sum it up.
I would say in addition to that, it's accountability and commitment. I think, again, as I said earlier today, I think you feel that from this leadership team. There's a big commitment to the direction where we're going, and I think there's a big commitment to each other to make it happen, and that we all hold each other accountable. I would add on to execution.
Good. Any further questions? Otherwise, before, thank you to the panel. You're excused.
Thank you.
Before we leave it to our dear CEO, Mikko, to give a few final remarks, he's in the way of a few canapes and drinks, so let's see how long time you want to talk. Hopefully, you'll join us for that. Maybe have a chat, look at the MissionZero table if you haven't yet. Then kind ask from the IR as I am, then on the backside of your name tags you haven't seen, there's a little QR code. There's actually two. One of them is actually called evaluation. If I could ask your kindness of just quickly scanning that, press in a few quick answers, then, I'd be happy to as well. On behalf of IR, thank you for today. And Mikko, for you with the final word.
Thanks a lot. We started the journey about a year ago. How we started the journey, we actually went outside the company. We asked our M&A guy, Gonzalo, "Go to the investor, go to investment banks, ask what they think of us." They had a kind of benchmark point, Nordic capital goods mining peers. They looked at five years back and compared us to the rest of the companies. The conclusion was that most of the quarters, most of the years, most of the KPIs compared to any company were more or less the worst. We decided that let's look at the company like you would be private equity. Let's think like a private equity. Let's think about somebody who would like to transform the company, and let's make a plan.
That's how it kind of got started. We got into the mindset on investor, private equity, look at the company, how you can really do fundamental transformation for the company. That's how it got started. We all very well aligned, committed. Last year was actually quite difficult year, because if you look at what we've done in a space of 6 - 12 months, and there has been quite a lot of rotation in the management over the course of the year, because of course, transformation is not for everybody. You need to like it. You need to be able to execute. You need to able to accept the speed. I'm very pleased about the team who's remaining, that they passed everything with the flying colors last year.
Maybe first time in my career, this internal stuff, that I have a team that everybody's performing above the target. I never had that in my life before. Every single person in the management team is performing above the target. We do this kind of PDR rating. We did also assessment as a part of the kind of team building, team development, what is called Hogan Assessment, quite often done for the when you are kind of assessed for executive roles. Some of the kind of interesting details that team is extremely ambitious, every single one of us, and also driven and most people have a high level of execution focus as well. This is building me confidence, and I'm confident that we can deliver the plan.
What we promised you today is something that we know how to deliver. It's not a dreamland. We have a line of sight. As Roland said, we know exactly how to achieve the mining target, we know exactly how to achieve the cement target. There was question about speed, there was question about execution, that is too much. This year is still a year of transformation. Restructuring is maybe 40% done. We still have another year to go, and after that it's mainly performance uplift. It's full transformation of the company. We focus on quality of the earnings, and that's what we will deliver. I'd like to thank you for your participation, also online. If you spent the day with us, it's always tougher if you're calling in and looking at streaming.
I'd like to thank you, thank you for the good questions and your trust on us delivering the plan. We are 100% aligned in the top team, we are committed to execute the plan. After my closing, there will be opportunity for dialogue. I think as Yannick said, there's some food, drinks, and then there's a MissionZero table there you can look more closely. Thank you very much for your time. FL team, we will go out and continue executing after the day. Thanks a lot.