Earnings Call: Q3 2020

Nov 3, 2020

Hello, everybody. I welcome all people around the world for our Interim's Report, Quarter 3 2020 here out of Copenhagen. The key highlights what we have. At first, if we compare quarter 3 2020 with quarter 3 2019, we had a continued negative impact from the pandemic, order intake on order intake on revenue and EBITDA, And we had a quite strong cash flow in the quarter. But what we saw too is that we had an increase in order intake and EBITDA versus the quarter 2 this year and quite a stable revenue. And our business improvement program is already completed at the end of this quarter. The market outlook. We see short term recovery in mining and we see no short- to mid term recovery in cement. The visibility based on the pandemic stays low. The guidance narrowed now to on revenue around DKK16 1,000,000,000 and on EBITDA 4.5 percent to 5%. How does the market look like? Let us start with cement. What we see in cement is that customers are on total cash preservation. They are of course, sensitive to any crisis, to any disturbance in their business, and we have at the moment around the world quite a lot of it. So, all non critical, absolutely, only the critical investments happen and the non critical are all postponed. When we then look into the sites outside China around 95% of the cement plants are in operation which is a slight improvement the 92%. But what is as important is that most of these plants are operating with reduced capacity which is clear an indication of overcapacity in the market. If we then look into mining, very high production rates. We see that the travel restrictions limit site assess and we see that our technical service is quite limited to go to customers to help them in productivity improvement. But we see the industry fundamentals in mining quite good. We see quite a good cash flow. We see good commodities on the customers. Close to 100% of the sites are in operations. And the only thing what they don't want to have is at the moment disturbance of producing more based on a good favorable market with the commodity prices, which generates for them quite a lot of profit and cash flow. If we then look into our own operations, around 80% of our employees are back on worksite. We see still reduced operational activities in India and travel restrictions are still more or less all over the world. And now with the increasing infection rates we see actually more and more political comments on more travel restrictions coming back. If we then look to our supply chain, our sub suppliers, they are similar picture as with our own operations. What we actually got up to with our suppliers in the root cause of the pandemic is that we are significantly faster together with our partners to switch suppliers if we have any disruption out of the pandemic. Now to the Business Improvement Program. The business improvement program was started in the quarter 3 2019 and we said that we need the full year to generate the program. We actually are done at the end of September, at the end of quarter 3, which means the run rate at the end of quarter 3 is the €150,000,000 EBITDA improvement what we had as a plan for the program. But when you look on the cost side, we had DKK 25,000,000 cost in the quarter 3. The total program in total created DKK 192,000,000 cost, which is a DKK 12,000,000 cost overrun to that what we actually announced with $180,000,000 And that has several reasons. One of them is simply the timing issue what we were faced with in some countries to act properly based on legal regulations there. The program itself included site consolidation, further enhanced logistics setup and reduction of workforce of 7 50 employees, all done as we wanted to do it. Very important in that we say the non sustainable cost savings, that means temporarily cost savings are, for example, like furlough, lower travel costs are not included in that program. Then when we look into the pandemic, now we have a little bit more visibility, especially in the mid- to longer term, how things are developing. We see in cement that the recovery will be not short, more mid term. We see in cement that the talk and the activity on digitalization dramatically increased and is quite positive. But it's not balancing out the lack of business activities in the regular business for cement. And we see and the discussion and the push for more green cement, which is very positive because that is high-tech what you need. What does it mean with the green cement? It means actually that we see more and more demand from customer side to offer them ideas and technical solutions. And if that drops in what we believe in more governmental regulations, then they will invest into that part of the business and that new part of the business significant more than we see. But that will hit us not in the short term, not in the next 1 to 2 years with all the planning phase. What else do we see? We see actually cement in the midterm as a multi commodity industry similar like mining. That means that not only limestone as a commodity will be used for producing cement. There is a lot of discussion about clay. There are other secondary tertiary material what can be used in that part of the production, which makes out of that single commodity limestone based cement industry with a relatively low technical entry barrier, a multi commodity higher technical entry barrier industry. But fact is that cement, contrary to mining, is underperforming and has significant lower market activity. Our operating model, what we implemented in 20 18, actually enables us to manage both industries more independent, which means we have mining actually on a growth path. If I take our business, the 1st 9 months we have 11% order intake versus last year, for example, in mining. And at the same time with cement quite down, we are able to manage both in a different way in what we do. But the combination on the synergies are definitely there. It's not only the technology overlap. It's not only the engineering overlap. It's in the procurement, in the supply chain, in the setup, in the service what we see. And of course, at the moment service business in both industries is quite down. But we have quite a leverage out of having a combined go to the customer model in the different countries. Out of that, yes, we have to do more in cement to avoid further under absorption. And that is what we already flagged in August with an additional program of $70,000,000 where we had already $21,000,000 in the quarter 3 and $49,000,000 is expected in quarter 4 to reduce our cost base versus that what we see coming as a business in the near future. At the same time, the focus on getting a clear allocation, value creation in the 2 industries is clearly what management does. That means what we want to invest in mining, for example, has to come out of the mining performance. What we want to invest in Cement has to come out of the Cement performance. At the same time, we focus on deleveraging our synergies as much as we can. Out of that, into the guidance. We have a guidance for this year of 15.5 and we narrowed that down now to around 16,000,000,000. We realized 12.2 actually in the development of the October where we see in Europe, North and South America increasing infection rates. And you know that we have the strongest month in the year in December and disruptions in supply in assess to sites and assess to customers will then, of course, have a direct impact on the revenue, and that is what we have here in the guidance. Out of that, we narrowed the guidance on the EBITDA down to 4.5% to 5%, out from 4.5% to 6% what we had in August. We delivered up to end of September a 4.4%. The total business improvement cost is in the guidance and that ramps up now to DKK 222,000,000 for the year. Now more into the figures, the order intake. The order intake declined 5% organically, but increased compared to the quarter 2. If we look to the left side, you see the split between mining and cement and in the 2 industries the split between service and capital. Let us start with mining. Mining is organically down 2%, 12% in the reported figures. And you see that actually service is the bigger hit when capital is more or less similar business as last year. Then in cement, we are 16%, down 12% organically with a less FX impact, as you can see. Their capital is more or less the same as before, but please don't forget that we had last year already a relatively low capital order intake. Service is 24% down. On the right side, you see since quarter 3, 2018, the split between service and capital and the red line shows the revenue. When you look that, you see that Q2 and Q3 are definitely a step down in the service business to all the development what we had before. That business will come back. It is not the demand side which blocks us. It's not the activity side which blocks us, especially in mining. It is simply the limited assess and willingness of customers to let us on-site. And that business is a big part in the aftermarket. We always report it around 25%. And that, of course, creates quite a lot of additional business. When the pandemic, when the restrictions are dropping off, you will see that business rebounding quite quick. Out of that into the revenue, we had a 68% Mining business and a 32% Cement business in the quarter 3. The EBITA margin for Mining was 9%, which was an improvement versus quarter 2, where we had 7.8%. In cement, we were more or less on the same negative level, of minus 4.8% versus a minus 4.9% in quarter 2. The split between capital and service is that we had 38% in capital business and 62% in service business, which is a slightly higher or a higher share of service business in the quarter 3. And it comes predominantly out of the weakness in capital business in the mining part. Out of that, to the financial performance to Roland. Thank you, Thomas. And let's have a look at the P and L. So our revenue declined in the quarter by 19%, which equates 12% organically. Gross margin percentages declined 0.7%, primarily driven by the Cement business, and we ended up with an EBITDA of DKK177 1,000,000 compared to DKK377 1,000,000 last year. EBITA margin of 4.6 percent. And we then end up with a profit for the group of DKK43 1,000,000 for the quarter, which is considerably lower than the same quarter last year but an improvement from the smaller loss we saw in Q2. On the number of employees, we have reduced approximately 1400 people since the same quarter last year, and we have reduced by 5.60 employees since the previous quarter. If we adjust the EBITA margin for business improvement cost and other one offs, then an underlying adjusted EBITDA margin of 6.3% applies. Our revenue decreased by 19%, 12% organically. It's primarily driven by cement as mining was 1% up organically. Mining capital 4% up and the service business were down 13%. The cement suffered a 56% drop in the capital business as this was severely hit by the pandemic, but also a smaller backlog coming into the year. If we go to the gross profit slide, gross profit declined last year in line with our revenue compared to same quarter last year. Gross margin percentage is down by 0.7%. And on the right hand side, we can see this is primarily cement driving that and cement is negatively impacted by the pandemic, by lower capacity utilization and also by one offs in Q3. Mining is largely fed and have a slightly higher capital share in the quarter compared to the same quarter last year. If we look at our SG and A costs, SG and A cost is declining, improving by 6%. As a percentage of revenue, it has increased to 16.4% compared to 14.1% at the same quarter last year. In nominal terms, it's declining Q on Q compared to Q2 this year. And adjusted for business improvement costs, SG and A have improved by 10% and are down to DKK602 1,000,000 for the quarter. And on the next slide, EBITDA development, EBITDA of $177,000,000 for the quarter, up on Q2 and, of course, €200,000,000 down on the same quarter last year. If we look at the right hand side on the bridge comparing this quarter 2020 with the same quarter last year, Last year, we posted a DKK377,000,000 EBITDA. Decrease in revenue this year, driven by pandemic, also by lower backlog, equates DKK 214,000,000 decline. We have in the quarter have business improvement cost of $46,000,000 Then there is a smaller decrease in our gross margin. And this quarter, we estimate the pandemic net savings to be $11,000,000 and that's the net of savings from travel, furloughs and so on, compensated by cost to protective gear and lower capacity utilization and so on. And then a run rate improvement of $65,000,000 to SG and A lead us to $177,000,000 EBITDA for the quarter. Then let's have a look at working capital. Working capital continues to be reduced. We are now at 10.9 percent of revenue and total net working capital is now below DKK 2,000,000,000. This is partly driven by lower activity, but especially driven by steering and initiatives on inventories and also on our trade receivables. Considerable efforts have been made in clearing up outstandings for customers, finalizing projects, moving them to final acceptance and also collecting long outstanding receivables. And we have been quite successful with that. That all nets up to a DKK 370,000,000 improvement in net working capital for the quarter, of which DKK 61,000,000 is due to currency effects. Now our net working capital is anticipated to increase in Q4. That has to do a little bit with the activity. It has to do with the flow of incoming, outcoming, timing of payments. And we also expect to use our supply chain financing a little less in Q4, primarily due to the fact that cement will be a smaller part of the total activity level in Q4. If we then look at the cash flow, Slide 15. For continuing activities, EBITDA adjusted was DKK 267,000,000. And a large impact to that is obviously the net working capital. And that's leading to a cash flow from operations of $610,000,000 for the quarter. Obviously, bringing the company to an improved cash conversion, we need to improve EBITDA as net working capital will not be continuously positive in this flow next quarter and also in the time moving forward. So we are pretty much clear on that. On group level, cash flow from operations, dollars 594,000,000 investments of $105,000,000 in line with the same level as same quarter last year, leads to a free cash flow of $489,000,000 for the quarter. If we then look briefly on our capital structure, this is now well in line with our internal targets and an equity ratio of 40%. Our NIBD was reduced, primarily driven by the reduction in net working capital of 3 62,000,000 dollars We improved our leverage ratio by 1 notch to 1.4x for Q3. And net interest bearing debt is expected to increase in Q4, driven by the increase in networking capital, but we also have to clear the acquisition proceeds for Knowledgescape in Q4. And lastly, then when calculating the leverage ratio, we're using last 12 months EBITDA and coming out of 2020 we will have 3 quarters with a relatively low EBITDA. So just the mathematics of that will lead the leverage ratio to come up somewhat. And with that, I'll give it over to Thomas again. Yeah. Thanks a lot, Ronen. So the we talked a lot about since the Capital Market Day in 2019 actually quite intensive what we do on sustainability. And we see for both industries in a common way a significant inflow of more demand of new technologies to cope with the sustainability targets and to make it actually less emission driven both mining and cement. But to do so and to offer that into the industry, you have to have your own house in order too. And we have here kind of a summary of some of the sustainability performance measurements what we have in our company. And this is for the 1st 9 months this year. We are performing again better on the safety with a 1.2 on the TRIR. Yes, of course, the pandemic kept a lot of people working from home. But at the same time, where we had assessed, it was significantly more tricky to go there and to find the right way to make it happen. So the performance of safety of our organization is outstanding in such a high load and volatile time. Another part, another KPI what I would like to highlight here is our relative carbon footprint which dropped from 2.4 to 2.1. And of course, it's a measurement in, tons versus 1,000,000 dKK revenue. We have a significant reduced revenue this year. That means the step down from 2.4 to 2.1 is actually quite intensive in the whole setup what we have which is a good performance, too. Last but not least is with the supplier assessment. You see that we are far off the target of 800 what we gave ourselves beginning of this year before the pandemic hit us. It's actually nothing else than a reflection of limited site access. And you can imagine we have that not only for our service technicians, we have it actually for our quality and managers too which then puts more digital systems on the spot to follow-up the qualities what we have. And when we then talk about digital and R and D and innovation, this time we come with a patent pending clay calciner system where we are able proven able to reduce around 40% of the CO2 by using a special clay or regular clay in as a commodity into the cement plant with a special system of FHL Schmidt products, single FHL Schmidt products, what we built together into a system. And we can offer that actually to roughly 50% of the world and known deposits around the world, which we think is for the future a significant step in the right direction to deliver emission 0 approach in 2,030. So what is the key message in the Q3? Big thank you in that key message to my organization because our business improvement program safety I talked about. We have low cases of COVID impact around the world and that all in a time with a lot of headwind. So we finalized that business improvement program a quarter earlier than it was planned for. Our cash focus definitely has delivered quite good results on the accounts receivables, on the inventory management. We have a sequential improvement in mining and mining looks actually as an industry versus all other industries not only cement actually as a promising spot. And we see a significant increased digital opportunity. And the talk what we had in the last few years about sustainable solution get more into real actions. And when sites are opening up we actually think that this will contribute into our result. On the negative side, it is a negative impact from the pandemic. There is no question mark on it especially in the aftermarket service assess. And we see no short to mid term recovery in the cement part. And that triggers additional rightsizing what we already started in the quarter 3 and hope to finalize then in quarter 4. Our focus is to navigate the company together with our customers, together with our suppliers, especially with our colleagues through that pandemic, our cash focus, our cost focus and our customer focus stays on. And in that, sustainability and the mission 0 got a significant spin and drive throughout the pandemic, the same like the innovation and the digitalization. On that note, the KnowledgeScape acquisition would reflect before was done at the end of October. And as Roland said, the impact on the cash will come in the Q4. And this pandemic clearly shows that standardization and modularization investments, what we do and go on to do, is very important for a good performance in any crisis year. Out of that, the key highlights: continued negative impact from the pandemic, more positive outlook for Mining than Cement, strong cash flow, order intake and EBITDA improved versus quarter 2 2020 and we narrowed the guidance. With that, I would like to open up for the Q and A. Thank you very much. The first question we have is from Mr. Magnus Cooper from UBS. The floor is yours. Thomas Rowland, Magnus here with UBS. First, could you talk a bit about the backlog gross margins you have at the moment in Cement and Mining, respectively, compared to what you delivered underlying in Q3? Yes. Hey, Magnus. The we don't see a change of the gross margin in what goes into the order backlog not in Cement not in Mining. It's the same development as we had it before. Perfect. Thanks a lot. That's very useful. And then also I wanted to ask you about the use of clay instead of clinker in the cement costs. I mean, 40% reduction is clearly meaningful. And I think Lafarge Holmstrom also discussed this on the earlier Q3 results. Could you comment a bit on what it takes in terms of investment for an average cement plant to produce cement with this new technology? And what opportunity does it give you so on a monetary basis, so to speak? Yes. This is a very good question because it's a technical one. I try to make it very short. It is really based on the plant what you have. In some plants we actually have already some installations in. In some others we really have to build completely new. What we see, the customers who are mostly interested they actually get it completely new. The investment level of such an installation, I can't share that. But it's a bigger part. This is not to do with €1,000,000 or €2,000,000 or €3,000,000 to make that clear. It's a bigger investment. It's a new process line what you build up there. And of course with all the infrastructure around going then into the packing plant coming out of the material what you deliver. So it's actually a bigger investment. And in, yeah, you can say in the scope of a smaller full cement line. If the tonnage what is expected out of that production is high enough. Okay. So it's sort of comparable in terms of CapEx versus a normal plant, should I say? Yes. Yes, you can say that. If you put more digitalization and, yeah, especially digitalization on it, it actually can go up. But then you have a higher tonnage to produce and you can manage more different kind of clay and variances in the clay quality. Without getting too technical but clay has normally alumina in it like if you take kaulinit, that's the English word, that is in aluminum silica oxidant hydrate what you have. And that one of course requests a different setup than a simple calcium carbonate. So you have simply more elements in the clay and then you have to take care more of it which makes a smaller plant actually a little bit heavier on the investment side. Okay. That's very useful. Actually even more so. I think did you mention that some plants are already able to do this, modern technology? There are other systems and other materials, other commodities what you can use to replace limestone. And with that, you would reduce the CO2. Could be secondary or tertiary material like fly ash, tertiary material or kind of recycling material as a secondary material. And there we have then buy material to look, can we put it through the normal cement process or do we need a special calciner or anything else to install with all the infrastructure around? Got it. And just the final one on that. Did you say that you could offer this product to 60% of the world already? When we look around the world how many deposits are theoretically available, then we see actually for some types like the kawalinet, ilnet as well as mectid clay, quite a lot of deposits around the site. But we have to look, of course, together with our customers if they would get assessed to these sites and what the clear quality of each of these sites is. Because clay has, in difference to limestone a significantly more complex chemical setup and structure. And that, of course, makes it more difficult to produce cement out of it, which we like to hear because then you need more competence to do so. That sounds very promising. Thank you so much for that. Thank you, Magnus. Thank you very much. Next, we have Mr. Arsen from Credit Suisse. The floor is yours. Good afternoon. It's Arthorn from Credit Suisse. Thank you for taking my questions. My first question is around your guidance. Could you maybe talk about the reasons for reducing it to the lower end of your initial guidance provided just recently and specifically whether you see any delay in delivery of your backlog and also margins whether the quality of the backlog has proven to be maybe somewhat worse than you said? Yes. Roland, you take that with the margin thing. I take that with the why we lowered. The lowering of the guidance actually comes out of the October. We see in the October a significant raise of infection rates. In Europe, we see that in U. S. And we see it now coming at the end of October, beginning of November in Latin America too. We hear the reactions out of the governments in the different areas and we had to calculate in restrictions and further restrictions and more restrictions to assess sites and to supply in. As everyone knows, our quarter 4 is our strongest quarter in the year, normally in a non pandemic year by far. And especially the December is the strongest revenue quarter in the year revenue month in the year. Any disruption of that will lower our possibility to generate revenue. It will not disappear. It will then go over into next year and so on. But in that quarter, we will then have an issue to perform better or as normal with the Q4 as we normally would do without a pandemic. And that is calculated in, which means we narrowed the 15.5 to 17 to around 16,000,000,000 dKKK. We don't see any cancellation in orders related with the pandemic or these things out of the normal at all at the moment. This is a pure scenario technique what we use to forecast how that quarter will go and that is what we reflected in the risk. Out of that with the revenue, automatically we have then the EBITDA guidance down to 4.5% to 5%. Now to the back lock maturity. Yes. So I think this all stacks up to the fact that things take a little bit longer. It's a little bit more complex. So at least the margins will not be improved. What we will see in Q4 is that our EBIT program starts to have impacts. And also we hope for a slightly higher share of the service business. And that will, under certain circumstances, bring us into the higher end of the guidance. Okay. And actually, my second question, it basically flows nicely from what you'd touched on the margin improvement or lack of margin improvement in Q4. Could you maybe talk a little bit about how you think about retention of the cost savings, which you managed to achieve and plan to achieve and specifically for 2021 because your adjusted margins are much lower than what consensus is currently expecting for coming years? Yes. So what do we think about our cost savings? So we have identified the improvement program, right? And that has sustainable cost savings included. We have consolidated sites, and we have rightsized the organization. So there will be some firm steering on keeping that on the right level. And also the site consolidation will, by its nature, kick off efficiencies and sailings. So that's the way we're going to steer it. And then we expect as and when hopefully the especially the mining industry will start growing that there will be operating leverage. But there is a lot of uncertainty on when that this will clear up and the complexity and things take longer in both executing the backlog, but also book to bill just means that there's no immediate margin pickup or operating leverage until that starts lifting. Okay. But maybe just to check on this. In terms of the revenue decrease which you are seeing, could you give any color on how much of that is driven by pricing? The revenue decrease by pricing. No, that has nothing to do with the pricing. This is completely a different thing. It's purely it's not the customer, not the supplier, not us. It's actually the in between to get goods from A to B. That is the thing where we are concerned about based on that what was announced as political reaction on the significantly increasing infection rates. We know that the governments are more mature. But when you look to the infection rates and what is expected now to come based on that it's quite concerning in the Europe area, in North America and in South America. All three areas are of course by far the largest part of our business. And that is what we had to reflect in the revenue guidance. Okay. Thank you. And my last question is around the services business. In Cement and Mining separately, could you maybe talk a little bit about the aggregate run rates which you've seen in terms of the orders compared to the growth rate you saw in Q3? Thank you very much. So it was a little bit difficult to understand the question. But if it comes to service, then the following. What we have roughly, a quarter of our business is technical service where our local or international service technicians go to the site and working with the customer to improve the productivity on the site. That is our main contribution into cement as well as mining. In that, it's not only that we sell then the hours or a complete group of service people over a long period of time. In that root cause, of course, we sell upgrades, retrofits, wear parts, spare parts, actually the whole offering what we have in aftermarket partly into Capital Business 2. At the moment in cement they defer everything what they can, what is not absolutely necessary because they are cash constrained. They are very nervous about their local market. And before they invest anything, they have to see that their market gets less critical. On the mine side, it is a different thing. They produce very high rates. They do everything to produce more and they, at first limit the assess to the site and second don't want to have disturbance. Everyone who knows mining industry very well is as longer that situation goes as by far more aftermarket business will come later to keep the plant in operation. So it's a pure matter of time when that business drops in back and we are back on the old track to grow the aftermarket business. So we are actually, especially if it comes to mining, quite positive on the service outlook. Thank you very much. Thank you very much. Next, we have Ms. Farley from Carnegie Investment Bank. The floor is yours. This is Rolleki from Carnegie. So a few questions on my side. The first question is relating to a potential effect from the EU Green Deal. Do you see this potentially more environmentally friendly President as a lifeline to your team at this point? Very good question. And I was asked today by media quite a lot about that. Of course, any political direction into green supports our mission 0 and of course our business fundamentals. That's clear. Why can we say that? We need our customers as well as us, we need clarification about the regulation what is demanded in the different jurisdictions, means in the different countries or states. If that is clear, then customers can decide which kind of technology they would like to go for. What we hear a lot in the mining industry is we are very much a tech tailing systems where we are quite leading. The customers say we would like to have that new tailing system and we can do this and that and that, but we don't know what the requirement of the country is where we have the mining operation in. So, make it as flexible as possible, which at the end of the day delivers more and more discussion rounds with the customers before a decision can be taken. In cement, it is really not only the CO2. There is actually quite a lot of focus on SOX and NOX and quite a lot on particles, on simply particles in the air. And there the regulations are missing in quite a lot of countries to get tougher, stronger as our customers predict. And if that is clarified, it will give definitely like we had with the Neshap years ago in America, quite a push on the cement part to make further investments to fulfill these regulations. So, any political vote for country leaders in democracies or non democracies, more green, of course, will support our Mission 0 and with that, of course, the fundamentals for our business. All right. Thank you. And second, if we are to see further COVID-nineteen restrictions, do you see that as a trigger for further cost savings? Or do you expect to just stand by and wait? Very good question again. We actually had the business improvement program out of the non good performance of us in last year with the profit warning to make that clear. That was the birthday of that business improvement program. Then we extended it with the pandemic impact. The very good thing in that with my organization is they actually over delivered in such a difficult time, which I think is giving from my point of view is a lot of respect what we have to show here. But what we saw in cement, different than in mining, that we have with an already low pipeline going into the pandemic and now is a lower one and lower activity level in the pandemic in cement, that additional measurements to avoid under absorption in the quarters to come have to be taken. And that is what we flagged in August with a program of €70,000,000 Let's assume that it goes on as we see it at the moment, then further special programs we don't see to come. If it would deteriorate dramatically, then of course we will react on that. And we can, we can. You know that in a cyclical industry you have to have the flexibility to ramp up fast if business comes back and to ramp up down if business goes away. And we can do that in both directions. We are well prepared for that. That the ramp down this year took longer than we normally would need was purely out of the legal regulations in countries like Italy, South Africa, India and so on where we were not allowed to reduce our cost base for quite a while in the year. But if we need we do in both directions. We can have more people to make more business happen or less people if we don't see enough business in front of us. All right. Thank you. Then Thad, if you don't mind. So there have been some rumors that you would potentially acquire parts such as Chisin Klipsch. Do you have a timeline of a decision in this regard? And can you say something about that? Yes. It's actually more than a rumor because there was out of Germany, our company name was listed too as an interested party in cement and in mining. We can't say more to the timeline and so on. You actually have to ask this group for that. Generally, what I can say with M and A is we've said that before that in a crisis and then towards an end of a crisis, it's always a good time to look around for unorganic growth, means M and A. We are a company who is only interested in non hostile M and A because we are interested in the competence. And there I'm when we would do that, of course, for us important is that we have a better customer offering performance. And very important, this is actually the main key that we create a positive shareholder return on it. If we don't see a positive shareholder return, then we will not do it no matter how much media talks about it. I have to be very, very clear on that. All right. Thank you. That's all I have. Thank you. Thank you very much. Next we have Mr. Mikael from SEB. Please go ahead with your question. Hi, thank you for taking my question. And the first is regarding the mining orders. If you can talk a little bit about like the sequential improvement from Q2 going into Q3, Is this driven by timing or a general improvement in the market? Yes. I think the quarter 2 was a shock wave through the industry. People were paralyzed no matter that the fundamentals of mining are quite good. It was simply they were working with how can I protect my site? And that of course postponed a lot of decisions. What we see is we have a very healthy pipeline in mining. It's actually looking good. There's no other word to say. What we see too is that in quarter 3 there were more decisions taken on smaller equipment which we think is good too. Needed investments. There's more to come if they would like to keep rates up and if they would start or ongoing to reduce their own or to improve their own productivity. What we don't see is a movement on the large projects. And that has to do that at the moment they are completely focused on delivering as much as to produce as much as possible. Some of them only work with a third of their own colleagues on-site to reduce the risk. So they are completely focused on that. If the COVID gets less as an impact, if the site assess is more back to the normal, not 100%, but more back to the normal. And if it gets a more normal way of working with the pandemic, then the boards and the top managements on the miners will go on to decide for all these feasibility and engineering orders and so on what we have to go into the bigger projects. We are quite confident about that because it's needed to keep that mining industry up and running and the time for mining is quite good when you look into the commodity prices. Okay. Thank you. And my second question is, if you look at Q4, you're talking about this not a lot of movement out movements on the larger projects. But do you see it likely as the decisions are made in Q4? Or is it more like a 2021 story? As a reference, Metz Autotech, they talked a lot about large orders that was soon to be signed and that was likely to be in Q4. So I was just trying to get an idea of how you see the development of the larger orders if it's Q4 or it's 2021? Yes. Difficult to say because the decision on large projects are quite often then in the boardroom and that could be done on a day that it happens or that it gets postponed to the next board meeting, which is then in the quarter. I'll give an example. We enjoyed several large orders at the beginning of the year. What we actually believed that we would get them in the mid of 'nineteen, in the second half, beginning of the second half 'nineteen. And it was postponed out of Board meeting. So it's very difficult to predict. Fact is they will come. We are, of course, very happy if we get them in quarter 4, but I would not go that far out to say they come or they don't come. It's very difficult to predict. And you can imagine, this is an industry where 30 large customers actually cover quite a lot of it. So, we talk with each and every one individually. So we get the clear feedback. It's not guessing. They don't know themselves quite often. Okay. Thank you. Okay. Thank you. And then a final question. You mentioned that you got a medium sized project order in cement. Can you comment on the size of that? Is it like between €100,000,000 €200,000,000 or? The medium size, it's more capital orders pumps, crusher screens single equipment which is normally not in the range of €100,000,000 It's definitely lower but a bigger amount which is quite good to see. What we see too is there is for some of the customers especially if it comes to sustainability related issues like tailings management, activity levels where we have, of course, quite everything in house, no matter if it's the conveying system, the pumps, the filter technology. No matter what it is, we can offer everything out of in house. And that, of course, gives us quite a strong market position. Okay. Thank you very much. Thank you. Thank you very much. Next, we have Mr. Charles from Nordea. Please go ahead, sir. Hi, this is Charles Ammann from Nordea. I have a few questions regarding the backlog. But first of all, Thomas, did you say you didn't see any cancellations in the backlog? Or did you see any major cancellations? I'm a little bit confused about that. Yes. That will be the first one. You know, Claus, we always have a little bit here and there. That's normal in the business. But we had no major cancellation in the backlog. Okay. The effect maybe Claus maybe the reason why you are why it's a little bit difficult to see is, of course, there is an FX effect in the backlog and it's quite a big one. Sure. Looking at the percentage of the backlog to be delivered in 2020, When you try to do the math, can you maybe provide a bridge from how much of the backlog you sold after Q2 that will be recognized as revenue this year and now probably would be delayed until 2021. What is that movement? That detail, we can't do this. The percentage you see there, the 21%, that's our best estimate for now under given assumptions on the COVID development. And that is reduced compared to our first guidance, so to speak. Sure. I'm trying to calculate the in and out orders. And if you don't know so much has been pushed out to 2021, if you just assume that's unchanged, then in and out orders have been rather weak in the quarter. So maybe you could provide some details about the timing of orders when that will convert to revenue. So what you can assume that about 5%, you know, we're saying 21% of that is delivered in Q4. And we can assume that 5% is reduced number. It's reduced by 5%. Okay. Okay. That's helpful. And then also coming back to your assumption for the guidance, what scenario have you actually embedded in the guidance? Do you see a repeat of what happened back in March April? Or is there up or down side to all depending on how COVID-nineteen trends in each couple of months? Yes. I knew that you will ask that. And I tried to make it as short as possible. What we calculate in a scenario technique are all possible models. And we have that in a formula. And with that, you actually calculate permanently the worst case and the best case. And then you look that it narrows, that the worst to the best case narrows, and then you take the middle line, that's the likely. So that's the scenario technique what we use. And when we looked into what happened in October, we see in Europe significant increase in infection rates. And we know that the others will follow, and already we see that they start to follow in the Americas. Both ENA as well as to a large extent as well as North and South America are a big part of our business. If we would take exactly the same measurement relatively to the infection rates, there would be most likely no business happening in November December. That is not what we see. We see actually a significant better behavior of the different governments in around the world. And we see that the lockdowns, despite double, triple higher infection rates, that they will not be as traumatic and in panic as we saw in April and in May. So, what we look into the quarter 4 is in that conservative approach with that what we have to have based on that what we learned out of the COVID in October is more or less a similar level as in Q3 to make it like that on the revenue side. As you know, Claus, normally the quarter 4 is our strongest quarter and quarter 3 is our 2nd weakest. So then you see the impact on the guidance what we have. Okay. That makes sense. Then just my final question that goes to the cement division. John, now you talk about the whole potential from converting to play. But still, you are keeping or you're actually highlighting maybe a more a negative short to mid term outlook for that division. So can you try to provide some color to the discussions you are having with cement plant owners? Do they listen to you? Or do you think that this will be a long and hard work until they understand the potential from your technologies? Very good question because what you see is and now I only talk about the limestone based regular as we call it regular cement business. What we know for 140 years. We see that going into the pandemic was already low and weak, not only with us, the whole supply industry doesn't look pretty at all. And then in the pandemic, it got a step down. And we don't see that this will recover in the short term. That means in the next 1 to 2 years. Why can we say that? Because we talk with the customers what they think, what they invest and what they wanted to invest and all the pipeline gets postponed and quite a long time postponed. Because they say, I'm not sure how they handled with the pandemic. When we have if vaccination comes, it will hit into my country. So all the additional line or refurbishment what we want to do, we postpone. It will come, but I can't tell you when. In mining, they tell us next quarter or 2 quarters. In cement, it really goes without the timing information. Then we have the other part of the industry, which is very, very tiny and which is mainly demanded by media and politicians and NGOs and now starting to get demanded and discussed by the cement associations, like the European Cement Association which came out a few months ago and saying we have a mission 0 target for 2,050 with their clients. And there we see that the cement industry sees we need to do something. We make 8% of the world's CO2. They will not allow that in the future. We have to do something. So they start now to look into new technologies, pilot plants, sending in people for training and so on. When you then take that until it comes to a decision to order something, that will take a while. And then when the decision to order something comes then quotations have to be made and so on. So we don't see a green business hitting us in a significant part before 1 to 2 years. That is not what we see. So we have on one side the regular business down in a kind of a valley of trough And the green business takes longer time until it comes. And that is exactly the spot we are in. And that is the reason why we took these tough measurements on an additional program. Okay. That makes sense. Thank you so much, George. I hope you're well. Thank you, Clausen. Thank you very much. Next, we have Mr. Robert from Morgan Stanley. I have a couple of questions. The first one was just around Cement. I guess, obviously, you've had a couple of quarters of negative profit development. Just wondered how you sort of thinking about what you can do, I guess, in the current depressed demand environment to improve profitability there and just sort of, I guess, the time line that you're thinking about in terms of returning that business back into the blank book in my first question? Yes. At first that comment. This is not good that we have a negative business now the Q2 in cement. That is really not good. And you see that with the measurements and that we have 1400 people out, more than 50% related with the cement business in the company. And that we clearly say that we have a capital allocation that we manage them more independently is a clear signal into that too and that we take additional measurements. What we can say is since I'm here we had several rounds where the cement business went down based on profitability. In these days the pricing pressure which was dramatic And we always recovered the profitability out of own activities. The market didn't help us to make that fairly clear. The market didn't help us. And we see that in the future too. The market will not help us. We delivered last year close to 6% EBITDA. For this year, we planned actually to be in the range of 7% EBITDA. And we have a target long term 7% to 8% EBITDA. So we were actually on a good run. So we have to take and that is what we had to take in incentives to make our profitability internally up. And that's a pure internal thing. You see that with 1400 people out, the business improvement and so on. To make a long story short, our intention is, of course, to get as quick as possible profitable on the bottom line again. The demand or the workload what the organization does to realize that is fantastic. And we have to deliver that alone for the organization. We are a well performer in the cement industry. We are not stopping to invest in R and D. We are not stopping to invest in sustainability and digitalization. But we have to get profitable on the bottom line. And we work on it to get that as quick as possible realized. So we don't think about a negative result for next year to make it like that. Okay. Understood. And then my other question is just sort of following up on one of the early ones really, just around some of the volatility on the mining OE side that was for the last three quarters, it's been quite volatile. As you said, you had the big orders in the first quarter, very difficult 2Q and then a kind of more normal 3Q. Going forward, I guess, what is your sort of working assumption internally of what we expect in 20 21? Are you expecting a kind of more back end loaded year with COVID sort of dragging in the 1st 6 months and then orders kind of catching up? Are you expecting kind of more smoother activity now things are kind of try to get a bit more normalized governments, as you said, a little more sort of settled down into their working routine? What are you expecting in terms of volatility around the mining going through next year? Thank you. Yes. Of course, we don't guide on 2021. But what we can say is, we normally have the weakest quarter, quarter 1, then a strong quarter 2, a weaker quarter 3 versus quarter 2 and a very strong quarter 4. And mining is a little bit in that spot because it already makes more than 60% of our business. And if we look into next year, yes, the main thing is really the COVID, how that is handled. How that is handled? How is that working? Is a vaccination coming? Yes or no? Where is it coming? And that makes, of course, next year more difficult to predict. But generally, based on the sentiment what we hear from customers is that a lot of delivery, a lot of activity will be more in the second half of the year than in the first half of the year. Because the if you have a mine site or several mine sites in different countries, to bring them back to normal if COVID is out or pandemic is better under control takes a while. So their prime target is to step up the sites to get the aftermarket done so that their production rates are staying on. And on the last thing is are then the big investment decisions. So we think the next year will be more year end loaded than first half loaded, which is different to this year where we had a better start because there was no pandemic of the year versus the second half. Thank you. And then my final question is just really around sort of a follow on I guess on COVID and site access disruption and those sort of things. I guess, what are you doing to tackle that issue of not being able to access side of our own field services, not having the sales engineers on the ground that can maybe generate some BOE sales that you would have done before. Is that just something that you're just going to have to write out and make the best of until it gets better? Or are you actually gaining any traction through Zoom or meetings or having people virtually go around the site? What are you doing there just to adapt to the new way of looking? Yes. It's actually multiple things what we do. At first, we are so happy that we had the reorg in the mid of 2018 where we created 7 regions with local organizations. If we would not have that, if we would be still a more global direct company, we would have a huge problem, bigger problem than we have today, definitely. So that helps. 2nd, we saw the demand level before the pandemic out of the cement industry for remote controlled solutions, digital solutions, higher than in mining. That is now equal. We see quite a lot of push from mining too to have more remote control and remote support. We have 20 fourseven support. We have hundreds of sites which are controlled over us digital in mining as well as in cement and in mining. Still, cement is bigger in that. And we the few people what we can send, of course, we have in some cases they are in quarantine before and after. They go with digital equipment in. We install cameras. The customer is doing it. We have a significant more intensified contact, digital contact with customers. I'll give an example. We had several thousands of customers participating in online training courses during the high time of the pandemic. Because the people had the time, they were sitting at home and their bosses had then join these online training courses of F. H. Schmidt in mining as well as in cement. And we go on to do that. The service technicians which are not can which cannot travel around, they are on the digital systems to help customers through the digital system to go on with the production. And with that, we generate business today, not as much as we see in the service figures, but of course preparing the future. And not to forget, if you are in such a time, you have more engineering competence and expert competence available. And with that, of course, we look into and we work on special R and D things, what and standardization, modularization. You saw that in our business improvement program, the site consolidation was a part what we do as well as logistic setup to improve. And there you need quite a lot of man hours from your own organization into it. We have that available and we use the time. We actually think that we utilize the time quite well. That's great. Thank you very much. Thank you very much. Next, we have Mr. Nick Halston from RBC Capital Markets. The floor is yours. Was I was just wondering if you could provide us an update on how that situation is developing? That changed in the root cause of the quarter 3. It started actually as we had in quarter 3 as we had it in quarter 2. But in quarter 3, yes, if I can call it improved. And it was not only India. India we took as a quite as an example because the Indian government, of course, took measurements to keep people employed and not falling into panic as they called it and ordered then companies to go on to pay for own employees as well as which is clear as well as for contractors which was unique and had a ban on layoff. Other countries did similar things like Italy, Peru, South Africa. There are some smaller ones, too. And we guess there are more countries but these are, of course, places where we have quite a lot of people employed. Okay. Thank you very much. My second question, I see in your report, you say that you have managed to reduce your number of suppliers over the past few years from over 5,000 to around 1500 now. I was wondering how much of this has happened, say in the past year or so and how much more can we expect to come in the coming years? Yes. We it's actually a gradual improvement. It started actually with a slow pace until the picture was there. And that is already 7 years ago, 6 years ago. And then it got quite a lot of speed 3, 4 years ago when we had the systems more up and running because it's not only to decrease the amount of sub supplies. We replace with or we take 1 out of 5 or 10 or 2 and they get then regular something and then we implement digital systems, more personal contact, how we control, how we work together, payment conditions and so on. So it's actually it started 6, 7 years ago with a slow pace and it got quite a speed 3, 4 years ago. And now what we see is working more and more the cases through but the big improvements you will not see any longer. Okay. Thank you very much. Thank you. Thank you. Thank you very much. Next we have Mr. Yu Bi Wasley, founder of Sothee Generale. The floor is yours. Hi, this is Devishish Chan. Thanks for taking my questions. I just had a couple of follow-up questions. 1 of your peers were flying this morning an improvement in the situation, particularly related to the mine access. So just wanted to check if you are seeing kind of some development with the mine access getting better towards end of September or going into October as well. Yes. We see in the root cause of the quarter 3 an improvement of assessed to sites. That is what we see versus the beginning of the quarter. By saying so, we see with the comments out of October where the infection rates are going up that some of the customers are now starting to back off again. And I can make that as real as the reality is you have a remote mine site and you have no COVID case. And around you in the country where your mine site is, you are in one of the worst areas in the world. You can imagine that the measurements are quite significant. For example, you leave your country to travel into that mine site, you have to make a test. You come into the country, you have to show that test. If the test is not actual enough, they send you back or they put you in a hotel for 14 days. Then you go to the mine site. There you have to make another test if you are not coming out of a trustworthy country, as they call it. And then you have to wait 3, 4 days until you can assess the mine site. Then you assess the mine site and you are very limited in the contact what you are allowed to meet mine people, customer people on the mine side. That is what we see. Are there exceptions? Yes, there are. But the majority works like that. And we joined that. We are very cautious, too. It's very important we are very cautious, too. And we do everything to help customers and our own people to be COVID free. So every decision, every activity is actually then getting, how to say, longer, more complex and with less people to realize. That is actually the level how we see it. But there was an improvement over quarter 3, but we see now the comments what we get from both industries is getting slightly more negative based on the infection rate development. And to make that clear, they all look into Europe and Europe is really underperforming. And that is for them a warning signal because what we hear is what happens in Europe will happen next in my country where I operate. Thanks so much. My next question was, could you just tell us where you are with your standardization and modernization strategy? I mean, do you have kind of a time line when you want to convert of your equipment, a bit more modular and standardized? And then is it more focused on mining or is it for the entire group? Just on that and maybe if you have very quantified any savings associated with the strategy. Yes. We will not share the savings out of it because that's the underlying gross margin improvement program what we have ongoing. But what I can say is we have more products in mining based on the industry, based on the total offering what we have then in cement. And we have generally a bigger tendency of mining to be standardized than we have in cement. And that lies on the structure of our customers. If you may say so, one of the big five mining companies, if they get a crusher, they would like to have exactly the same wear and spare parts on that type of crusher so that their inventory level is the lowest possible. In cement, the majority of our customer group are the local high, which means they have 3, 4, 5 cement plants or cement lines And they are actually more looking into that what they get they can manage and their inventory fits to that. So the standardization need in cement is less from the customer side than we see it in mining. We run for modernization and standardization not only to have a lower cost base, we would like to generate what we call forecast to cash faster. That means from a quotation to an order delivery has to go quicker. And standardization makes that significant faster in the moment when you in the moment when you customize it, which immediately puts more risk, more risk on quality, more risk on liability on it and especially longer timing to get an order into cash. So this whole standardization, modularization will never end. We started a few years ago to focus on it and it will take quite a while until we are completely standardized through. Experiences out of other industries normally show that you take 1 to 2 times the lifetime average lifetime of your equipment. And that's quite a long time in Mining and in Cement. Understood. Thank you very much. Thank you very much. Next, we have Mr. Magnus Kuber from UBS. Thanks for taking my follow-up. Just 2 different follow ups actually. First, on the aftermarket side in both Mining and Cement. Could you just follow-up to Adam's question there? You asked about the exit run rate on organic orders you saw in the aftermarket for both Mining and Cement. Could you share that? Which run rate? I didn't hear the word. Yes. Should we say the order growth in September specifically, should we say? Okay. The what we see in the quarter regarding aftermarket is actually a function out of accessibility to the site combined with the production rates. That actually gives a picture. So we have actually not a big flag or change in that throughout the quarter. It's more or less the same level. On the other side, the talk, the sentiment in mining is significantly more positive than you see it in the figures. And we actually looked into and I had quite a lot of talks with several mining customers on it. I can bring it like that that they say we need that stuff but not at the moment because we would like to produce quite a lot because the commodity prices are so good. So they I don't want to say they don't want to get disturbed, but they produce a lot and they have not full manning on their sites. So they don't have the work available with additional people as well as they are completely focused on the production. Whatever they need, they need fast and quick. We have quite a high hit rate of calls and digital contacts to us to avoid that something breaks down and creates a downtime. But overall, from a financial what we can generate in order intake and in revenue, it's fairly on the same level throughout the quarter. We don't have a variance in the quarter. Perfect. Super. That's very clear. And the second follow-up related to the share of the rightsizing of the cement business with the makers by a strategic change? I mean, any color there you can add on the statement in the report? I think you said that we shouldn't see any EBITDA improvement from these measures. Is that sort of an impact on the lower volumes versus the savings? Or how should I think about the impact from that? Yes. The of course, important is when you have 2 industries or more, more than 1 industry in front of you, and they divert so much in the outlook and in the customer behavior. You have to keep accountability clear in the organization. And that is in line with what we already started in the mid of 2018 to have before Mining and Cement were each separated and fragmented over 3 divisions out of the 4. So from that point of view, we have a clearer picture on cement and mining and how cost allocation, capital allocation and so on is. And now with the cement outlook, we have a clear additional pressure to get cost reduced to avoid the ongoing under absorption, what we already have in the figures. You see that with a negative bottom line that we get that out, so that we have a chance to get a positive bottom line next year because we don't see that the business activity will change next year. We don't see that. Okay. Okay. So the ambition with it is basically to get back to breakeven in next year with these price hedging initiatives? I can't guide on next year. But a negative EBITDA in the business is not what we like at all. And I know my organization doesn't like it. And that explains maybe some of the fantastic good performance fast on the business improvement program to finalize it earlier and so on. It is a tough work what the guys have to do. And this is not the first time that on top of it. So all respect to that organization. And with that, of course, we do everything that we are here coming next year on a positive line. Absolutely. Thank you so much, Thomas. Thank you, Magnus. Thank you very much. We will have the last question from Mr. Asim from Credit Suisse. Your floor is yours. Hi, yes. Aspen, thank you very much for taking my follow ups. The first one is around money capital orders, a very good level. Just wanted to check if there is any catch up input from weak Q2 or if there are any big orders in the quarter? It is actually a good activity level on the mining side. There is a big demand out in the field. The reason why we and most likely other premium suppliers too are not getting more revenue in is simply the hesitation, accessibility and so on based on the pandemic. From a business environment point of view, it's a good time in mining. There is no other word to say. We were some people criticized us or me out of quarter 1 and then quarter 2 that I was too positive on mining. We don't think that we are too positive on mining. We give you the real picture of what we hear, what we see. Production rate as they are today, they can't go on forever without investing. It's not possible. At the same time, we see some of the mine sites running simply out of the commodity. There are new things new sites have to come online. And then the sustainability, especially water management, tailings management, has to get invested. Otherwise, they don't get the permit. So, and that all gives combined with a high commodity price level what we have in iron, in iron ore, in copper, in gold, wherever we look, more or less wherever we look, is of course a quite good situation. Sure. And 2 brief last questions, if I may. Just on the working capital comments or the reversal towards the Q4, Can you help with the magnitude scenarios? Ed, no, it's the how much we think the net working capital will jump back in quarter 4 was the question. So we're not guiding on those numbers, but there's no doubt that there's been a lot of focus on net working capital. So there's been some low hanging fruits. There's also been structural changes and it can't go on. So there will be an upward adjustment. Okay. And my last question is around your comment from this call on the TECENT business. I just want to check. As far as I'm aware, the business is losing around €160,000,000 of free cash flow per annum, which is around €1,000,000,000 of €1,000,000,000 kroner. So just as a theoretical scenario, do you think you have resources to handle that? Yes. The reason why I smiled a little bit is, of course, the figures are quite bubbling from Thyssenkrupp. At first, and that's very important to understand, a business which doesn't generate cash is not a business. A kind of a charity thing. That is how we see it. So cash focus is very important for us. Shareholder return on all M and A is the one and only measurement what we have. That kills every other idea. And if that can get proven, then we go on to look into. That's very important. Then the third thing, I think we have a significant competence in the company to make restructuring and to improve not so good business. If we look into the relative performance, I take now cement, relative performance of us versus peers, there is nothing where any employee of Everschmitt has to be ashamed of, absolutely nothing against any supplier in the premium part. So we have significant competences to improve business. Last but not least, everything is a cost if you have to do something and that gets into calculation of shareholder return. And if that is not positive, then we will not go for it. That's actually the only thing what I can say. So what then companies announce or not announce what they sell and how their financial setup is, that's we make our own view on it and how we would deal with it, what we would do with it and out of that then making a valuation about the shareholder return of that possible M and A. That's very helpful. Thank you very much for taking my thoughts. Thank you. Thanks a lot. Thank you very much. That's the end of our question and answer session. I would like to hand over the session back to the speaker. Please, sir. Thank you very much. I would like to thank all participants in our quarterly announcement, quarter free 2020 here out of Copenhagen. Stay safe and hope to see you soon. Bye.