Good day and welcome to the FLSmidth conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Group CEO, Mikko Keto. Please go ahead.
Good afternoon and good morning, everybody. This is a historic day for FLSmidth. It's a major milestone in our development to become a pure-play, 100% mining-focused company. We started this journey back in 2023 when we defined the strategy of pure play, and thereafter we separated two businesses, and now we concluded the journey by selling the cement business, so this is a major milestone to our company, and now we are achieving a strategic goal of becoming a 100% mining product and services-focused company. Jonathan, if you go to this slide number three, please.
We have a few other milestones that we announced recently. The divestment of cement business is the announcement of today, and maybe I'll give a little bit of a color of the process, of the sale process. So it has taken almost a year and a half.
We had a 90-100 expression of interest to start with. End of last year, we got non-binding bids for cement, then we got binding bids, and the outcome is exactly what we expected in terms of the value. It has been market-tested. It has been a thorough process over the year and a half. We really market-tested the value, so we are very pleased with the outcome, and as I said at the beginning, we are fully focused now on growing the core mining business. Also, the news that we announced recently is the sale of the Valby head office and the significant cash injection to the company as a result of that one, and therefore, we also announced today the share buyback program. Because in all intents and purposes, after selling of the head office, we are a debt-free company.
So we can actually grow and invest into growth and do the share buyback program at the same time because of our financial health. So we can do both. It's not one or the other. And we are very pleased to reward our shareholders for the share buyback program. But at the same time, we will invest into growth of the core mining businesses, both organically. And then we also continue to look at suitable acquisitions. So summary of the deal is that on page four, that we have now concluded the sale, signing of the agreement to Pacific Avenue Capital Partners, the potential buyer that we announced a few weeks back. And we are expecting the closing of the deal in the second half of 2025. And because the buyer is a financial sponsor, we don't expect any issues with the closing. It's more formalities of the regulatory approvals.
And then I hand over to Roland regarding the financial transaction details.
Thank you for that, Mikko. Let's jump to slide five, please. So financial details of the transaction. And we have sold the cement business at a total initial consideration of EUR 75 million, approximately DKK 550 million. There will be customary adjustments to that number, debt-like items, transaction costs, and other bits and pieces. And the resulting net cash gain will be positive but limited. There is a deferred consideration or earn-out element of up to EUR 75 million and other DKK 550 million . And that is conditional on delivery of certain objectives that will not be disclosed. Next slide, please. And this means going forward that FLSmidth's financial guidance will be adjusted. And the adjustments to reflect the outlook for the mining business only. So FLSmidth Group will be the same as FLSmidth Mining. As we move forward, there will only be our mining division pure play.
That financial guidance for full year 2025, we keep unchanged today. A guidance of a revenue of around DKK 15 million and an adjusted EBITDA margin of 14%-14.5%. We adjust the EBITDA margin with about DKK 200 million. That is going to transformation costs and a bit to the separation cost for this cement business that will come to an end during the second half of 2025. Let's go to the next slide, please. Slide 7, other financial implications of the transaction. With this deal here and the signing today, we will move our cement business down in the balance sheet as asset held for sale. In the P&L, it will be treated as discontinued operations as from Q2 and the Q2 interim financial report.
As part of the transaction, we will fair value in the balance sheet the assets and the liabilities that go to seller. And that will result in an impairment accounting charge of approximately DKK 700 million that we will take in Q2. And it will be an accounting loss with no cash impact. And all this will be accounted for in our Q2 interim financial report. Next slide, please. And as Mikko mentioned, it has been a busy week for us. Monday, Tuesday, we announced the sale of our corporate headquarters here in Valby at a total net cash gain of DKK 730 million. That's a deal that will conclude by end of Q1 next year, 2026. So it doesn't impact our financial guidance for 2025. And we expect an accounting gain from that on group level of around DKK 690 million.
All this means that even though we are looking a bit ahead, we're looking at our mining business that are doing quite well. As we outlined by end of Q1 this year, cash generation is improving. And that's why after these two deals, we will be basically debt-free. So we have decided to announce a share buyback program already today. And that is planned to start off on June 25. That means next Wednesday morning, we will go live. And we plan to buy back of up to DKK 1.4 billion , equal to about 4.6 million shares. And that will be concluded before the AGM next year. So it's been quite a busy week for us in FLSmidth, but we are also very happy, as Mikko said, that we have reached some significant milestones here just before the summer holiday in the northern hemisphere.
And with that, I'll give it over to Q&A.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Christian Hinderaker with Goldman Sachs. Please go ahead.
Good afternoon, everyone. And congratulations on the announcement. I've got a couple of questions. Maybe just starting with an attempt on the time frame in terms of the objectives in the earn-out or contingent consideration. How do we think about that? And if you're not commenting, perhaps on the quantum of what's measured for the contingent consideration or earn-out, can you comment on the metric? Is this growth margins or sort of set in the terms of absolutely debt? I'll stop there.
No, no. If I should answer that, thank you for that question. We cannot comment on that. And I think with regards to time frame, it's at least a couple of years ahead of us or maybe even later.
Okay. Thanks, Roland. Maybe then shifting to the buyback in the release, you've noted expectations to account for a portion of the shares at the AGM next year. What sort of proportion should we think of there relative to the proportion to share-based incentives that are mentioned?
So I think this is a share buyback for now. And then once we come closer to the AGM next year, then we will decide if and how we extend it further.
Okay. [uncertain].
Maybe another point is that we continue to invest into the business because we are in all practical terms, we are debt-free. So we can do both. So we will invest into growth. And at the same time, we can do share buyback. So it's not one or the other.
Thank you, Mikko. Maybe finally, you've mentioned, and I think we touched on it earlier, Roland, the cash proceeds from the divestments. You're saying that after the adjustments for debt-like items, transaction costs, etc., there's a limited net cash gain. Is that relative to the initial DKK 550 million or the total DKK 1.1 billion?
Yeah, that would be relative to the initial DKK 550 million.
Okay. Thank you.
The next question comes from Chitrita Sinha with J.P. Morgan. Please go ahead.
Thanks, Mikko and Roland. This is great news indeed. Two questions for me. I guess, firstly, are there any stranded costs that we might need to be aware of with regards to the sale this year?
Yeah. So there will be a bit of, okay, go ahead, Mikko.
So there will be some, and it's related to the Transitional Service Agreement. So that, for example, IT, we will detail that a little bit later in more detail. So there will be some. It means that we do support the seller, whether HR services, IT services, and so forth. And the compensation, what we get for that one may not fully cover our cost of support. So there will be some stranded costs that will go out of the business in six to nine months. And I think we haven't quantified that in detail. There's some.
Okay. Very clear. Thank you.
Just to put this, so these are not tremendously high amounts, and it's fully included in the guidance we have given.
Okay. Okay. That makes a lot of sense. Thank you very much. And then secondly, just on the share buyback, obviously, this is the first one since 2012, big announcement. How are you thinking about the capital allocation policy from here on out? I mean, you mentioned that this shouldn't impact your decision to grow, but will it impact the way you think about maybe M&A deals, maybe the capacity to be able to do the larger ones as opposed to the bolt-ons? Thank you.
Actually, we are open both for the larger acquisitions as we discussed in the past and bolt-ons, and then we just become much more active in our management of cash so that if we have excess cash, we can hand it back to the shareholders, and then if we need funding for major acquisitions, we are confident that we can do it, so we become much more active in management of our cash going forward, but that's why I highlight the fact that our M&A targets, bolt-ons, but also major M&A, we can go after, so this is not limiting that.
Thank you very much.
I think the conclusion of today is that our underlying business is performing considerably better also with regards to cash conversion. And that also means that we can get closer to our capital structure target of 2x. And currently, after the Valby and the deals today, we will be debt-free. So we have significant headroom up to that level. So that's how we start working with our capital structure policy.
The next question comes from David Farrell with Jefferies. Please go ahead.
Hi. Afternoon. Thanks very much for taking my questions. I've got two, please. Just in terms of the initial small positive net cash gain, is there going to be any tax that will need to be made in relation to the disposal of the cement business, please?
That is very, very little. So that's included in the adjustments.
Okay. Great. Thank you. And then the second one, coming back to M&A around the mining business, I'm just kind of wondering to what degree your time has been kind of preoccupied with the cement disposal that may have limited your ability to really pursue the M&A funnel for mining over the last year?
I think it's fair to say that from a management point of view, from my time and Roland's time and also the M&A team's time has been spent a fair bit on this one. And that's why we are very excited about this milestone because now we are 100% mining-focused. We can pursue the bolt-ons, bigger acquisitions with new vigor. And I'll say that it's fair to say that it has occupied a fair bit of our time. But we do have a funnel that we are looking at. And I think what we can now do is that we become much more active with the funnel, engaging with the targets and so forth. So I think that's why it's important to achieve the pure play status, selling cement, and then we are all in mining. So it's a fair question and no comment.
Great. Fantastic. Hopefully, it's not too early in the day for a beer once the conference call has concluded to celebrate.
Definitely not.
As a reminder, if you would like to ask a question, please press star then one to join the question queue. The next question comes from Christian Thorn with SEB. Please go ahead.
Thank you. And also congratulations from my side on a very good deal. Two questions. You mentioned that some legacy contracts and the air pollution control assets are not included. Can you just elaborate a bit on why and what you are left with here?
Yeah. So maybe I can start with that. So the air pollution control is a little bit a business that is linked to a sell-off we did a year, year and a half ago, if you remember. And so that is for sale in a separate track. And with regards to the bigger contracts, there are a few bigger ones that we can better handle here than a potential acquirer can handle. They're fully provided for. And there are some both legal and also one with a few technical outstandings that we will handle from here. So that's just how we got the deal. So we keep those. They're fully provided for. They won't be material in any way, shape, or form for the mining business. So that's what we've done.
Okay. Thank you. And then a bit more of housekeeping. So obviously, when we now need to reset our models and move cement to Discontinued operations, obviously, it's very clear what you are making in terms of EBITDA on the cement side. But is there anything on your net financials and tax rates on the group level after this change we should be aware of?
No, there's no major changes, but we will be a bit more clear on this once we announce our Q2 results, but there won't be material swings neither in the tax rate nor in the working capital level, and also our investment level is around 3% in the ongoing business, but we'll be a bit more specific in Q2, but nothing material for the models for now.
Excellent. Thank you.
The next question comes from Casper Blom with Danske Bank. Please go ahead.
Thanks, Roland. Also congrats from my side on achieving this milestone. I know it's been high on the agenda. Just to challenge you guys a little bit with the comment that you are looking into a quite limited net cash gain on the first EUR 75 million, and then the obvious uncertainty whether or not you will receive the other EUR 75 million, would it be fair to say that you are more or less looking at a neutral net cash impact and more or less giving away cement to get rid of it? Is that a fair way of thinking about this, or is that wrong?
I think maybe I'll comment keeping it away. I think we run a thorough process between, as I said in the beginning, 90-100 interested parties. And this is actually the best market-tested price what you can get for the asset. And because it's a one-and-a-half-year process, so we know that it's the best price. And I think we've been totally realistic about the low value of the asset because you need to continue to invest into restructuring it by the new owner. You need to continue to invest in new business. So I think we knew the detail that we couldn't disclose to the market. So I think that's why I said in the beginning that it's meeting our expectation for the value of the cement. And in that sense, I feel that we didn't keep it away. It's best market-tested price what we can get.
I think, Roland, if you want to comment on the net cash proceeds.
No, I think that's a fair way of putting it, right? And that's exactly why you structure the deal like this. So there's a certain EV and then the customary adjustments. And if everything goes hopefully the way we hope it will go, there will be some sort of earn-out to us as well. So we have been a long time on the way, as you all know. So I think this is the market value.
Yeah. Well, I'm not challenging that you haven't been going through a thorough process. It's just basically sort of understanding that it is a relatively little value that cement business.
That is correct.
Thank you.
The next question comes from William Mackie with Kepler Cheuvreux. Please go ahead.
Yeah. Good afternoon. Congratulations on breaking free from your legacy and the ability to be free to look to the future. I just wanted to housekeep, really, and come back to the stranded cost/legacy cost issue. As you support the transition of the business to its new parent with some of these related activities in business services, those are going to be recorded above the line in the mining business. Is that correct? And what sort of level of charge or cost do you think it will be annualized, which eventually you will be able to transfer? So when we think about our models into 2026, 2027, where is the delta as the service support costs shift to the new parent? That's the first one. And again, probably similar question with regard to the legacy entities that you're retaining on the contracts.
Will you be able to account for those below the line and discontinued, or are they going to remain in the corporate items?
Maybe I'll start with the SG&A program first so that we have an SG&A program in the company in the mining business so that we know that the kind of SG&A levels we had in the past or still have is not sustainable. And we are running SG&A reduction program. And any stranded cost will be transmissible as a normal mining cost. So it means that it will not, as Roland, it will not change our guidance. It will not change our targets. But of course, there's some sticky cost still for a period of time. But it's not so material that it would impact our guidance or kind of financial performance. But it's like a track in the cost reduction program. So we are speeding up the SG&A reduction program.
And of course, then we might have a look at the stranded cost, and then we just take that out as well as soon as we can. But in all intents and purposes, kind of, I think from a modeling point of view, you shouldn't add any extra cost as a stranded cost. But of course, for us internally, it's kind of a bit more challenge to take the existing cost out, but we will do it, so.
Yeah. I think that was pretty clear. So the cost program will sort of take care of that. And the so-called transitional service agreements we have with the buyer here will run out in the course of six months. And there's one that runs most likely three more months, and then that is completely out. And with regards to the retained projects, the reason why we mention it is actually housekeeping. And they are fully provided for, and they will sit in the cement backlog. There's also smaller bits and pieces of our old non-core segment that are being rounded off. So that will sit there. We have zero P&L impact and very little cash impact. It's more caretaking of a few outstanding issues. So it will not move below the line.
Thank you very much.
This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.
Mr. Keto, in the beginning, this is a historic milestone for FLSmidth. And then it's fully fulfilling our strategy that we put forward in 2023. And this is pure play, pure play mining, pure play cement. And as we discussed during the call, now we are all in mining equipment and services business, and we don't have any other business to give us any distraction. So I'm very optimistic about how we can perform in mining this year and also in the coming years. So very excited about this milestone. And that's my closing remarks.
So thanks very much for the call and your time. And I think as a part of the second quarter results when we announce it and have an earnings call. Thank you very much for your time.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.