Hello and welcome to the Deutsche Bank Deposit Receipts and Personal Investor Conference, DBV. I'm Zafar Aziz from the Deutsche Bank team. I'm pleased to announce that our next presentation will be from Epiroc AB. Before I introduce our speaker, a few points to note. Please submit your questions in the questions box. Also, all of today's presentations will be recorded and can be accessed via the Deutsche Bank website, adr.db.com. At this point, I'm very pleased to welcome Epiroc AB that trades in Stockholm under the symbol EPIA and on the OTC using the symbol EPOAY.
Thank you very much for that introduction. My name is Karin Larsson, and I'm Head of IR and Media here at Epiroc. At my side, I have Alexandra Apell. We are going to introduce you to Epiroc AB today. Thank you, everyone, for taking the time. The mission for Epiroc is to accelerate the productivity and sustainability transformation in our industry. I'm sure you have heard this hundreds of times from all companies, but the main difference is that we actually, with our technology, help people stay out of mines, thereby not dying. We also help customers to reduce emissions by having new technologies such as electric tramming solutions and batteries, and thereby not wasting energy or money unnecessarily. That is how we actually accelerate the productivity and sustainability transformation in our industry.
Hopefully, by the end of this presentation, you will share our view that we're doing exactly this. What is Epiroc? We are a productivity partner, and we have roots from 1873. If we start to the left on this slide, you will see that it's a big portion of yellow, and that's recurring aftermarket. About two-thirds of our revenue stream is recurring aftermarket, such as service revenues. We have revenues in more than 150 countries, 19,000 employees globally. We have an EBIT margin of 19.6%, and these are rolling 12-month 2025 Q1 numbers. We are basically a very global company, but our origin is in Sweden, and we have our headquarters in Stockholm. We serve two attractive customer groups, and it's the mining industry and the construction industry. Mining, as you see here on the graph, is 78% of our exposure.
Within mining, you see that copper, gold, and iron ore are the three most important commodities. It is our true belief that by 2030, both gold and copper will be in deficit. It is also our belief that the construction customers, even though it is 22% of the exposure today, will have good growth in the years to come as well. The customers we serve also have an important purpose because they drive urbanization, and they make sure that our life on this planet is possible. You need a lot of minerals to have a good life. Our strategy is very much also our investment case. If we start on the bottom, Epiroc has been a very successful company for many years, and our origin is from Atlas Copco, as you might have heard about. It is really a very, very strong culture.
A lot of people compare Atlas Copco, Epiroc, with companies such as IKEA, if you heard about them, or even the Swedish Handelsbanken. What we do with this strong culture is that we focus on attractive niches, and that means niches where customers are, where the equipment has a really, how should I say, critical. It is performance-critical equipment that you do not want to break down. I will give you one example. In the end of a tunnel in a mine, if your drill rig breaks down, the rest of the mine stops. Therefore, you are very willing to pay for a good piece of equipment in the tunnel that you can also have good service and aftermarket related to it. We drive the strategy with innovation, aftermarket, and operational excellence. We always believe that there is a better way to do things.
By doing all this together, we will create out-performance. We will speak about the financial targets and our achievements a bit later in this presentation. The most important portion here is the innovation part. With this, I would like to leave the word to Alexandra.
Thank you, Karin. I will start to spend a little time on innovation. We do spend a little bit north of 3% of our top line on R&D annually. If you remember on one of the previous slides, around 70% of our business is aftermarket related. That part of the business gets very limited R&D spend. I mean, that piece of the business, the equipment side of the business, gets a vast majority of the R&D spend. We are a very, I would say, asset-lagged company that we do source quite a lot of the direct material that goes into our machines, etc. The very core components and the technologies that is really our core get a lot of care and attention.
We do have a lot of collaboration partners and suppliers, etc., that also do a lot of innovation on their end. We are really leveraging the innovation to remain our technology leader within our space. I would like to talk about one of the three mega trends that we are seeing within our own business. First, we would like to start with automation and basically how automation enables productivity and sustainability transformation. On this picture here, you can see our largest surface drill rig, the so-called Pit Viper. What we have identified when we have a Pit Viper that is fully automated versus if you have a human operator operating the machine is that the productivity increases up to 22% higher per drill meter, and also the cost per drill meter is up to 40% lower.
The CO2e footprint is also substantially lower for going with the automation solution. This is a project that we are super excited about. This is something we are developing in Australia together with a customer called Roy Hill. Here we are creating the world's largest OEM-agnostic autonomous mine. This is a very remote mine site. It is 1,100 km away from Perth. Here, the customer has 78 mine trucks, not a single Epiroc machine on site, but Caterpillar machines and Hitachi machines. They are trusting our technology and letting us automate their fleets to operate 24/7 at this mine site. I mean, the upside for the customers is huge. Normally for this remote mine site, there is a lot of fly-in, fly-out.
I mean, this remote mine site is more or less like a small city, and it has all types of conveniences for the miner operating. I mean, you can lower the number of people at the mine site. Also, you get a productivity increase. I mean, you can operate more hours a day. If you take 78 mine trucks and you can run the mine for more hours, I mean, multiply that for a year, and then you get a real productivity increase with this new technology. We are super excited about this technology, and we are so happy that Roy Hill is letting us do this together with them.
Yeah, and we have many customers also standing in line to learn more about this project and to potentially do the same. This is for us right now an innovation project. It is a very interesting project, and we get a lot of attention from it.
Also on automation, our take on this is that we strongly believe in what we call mixed fleet automation. That is what we are doing, for example, with Roy Hill, where we are automating not only our own equipment, but also other OEMs' equipment to operate fully autonomously. Here we are the clear market leader, and we have put over 3,450 driverless machines onto the market.
This is, to our knowledge, the largest provider of mixed fleet OEMs in this industry in the world. In fact, most other OEMs do not do mixed fleet at all. We are very proud of this, of course. Electrification, yeah, that is my slide. Automation is one of the strong trends that we see. Electrification is another. I know a lot of people discuss carbon emissions, but honestly, our customers are main and foremost interested in actually making good money. If you look to where the carbon emissions derive from in a mine, you will see that it is not from the machines that we produce. It is actually from the ventilation. To the right, we see a copper mine in Australia where, of their emissions, 35% of the emissions are ventilation-related.
If we then quickly move to the left of the slide, you see that more than 35%, in fact, 40% roughly, of the cost, of the OpEx cost of running a mine underground is ventilation. As the mines go deeper every day and wider every day, you need to increase your fan capacity. Eventually, you need to return, you know, when your fan is at maximum and your mine is still expanding, you also need a new ventilation shaft. That can be very expensive. The foremost important thing here with electrification is to save money, but it is also very positive that you save emissions. How do we do in electrification? 4.2% of the group revenues are electrification-related. It is not only BEV, it is also electrical infrastructure.
If we look to BEV specifically, and BEV means battery electric vehicles, we have seen that the utilization rates of our machines out there have more than doubled in 2024. We have 39 mining sites globally that have ordered BEV equipment, and a third of those roughly have already ordered more machines. You wonder why not all of them. This is a quite new technology. Having a third of the fleet already now of the mines that have BEVs wanting more is actually a very, very positive indication that they're happy with what they have. We have also done a lot of product launches. If you see here on the list, you will see that we have the Minetruck MT66 S eDrive, and that means that's the largest underground truck with payload 66 ton, which we now have as a hybrid.
It is diesel and electric drivetrain together. We also have Minetrucks underground with a trolley. It is by going like a tram when it is going up ramp, but when it goes in the tunnels, you can actually have it with battery. We have surface equipment and loaders and also big surface drill rigs in cable electric and in electric versions. Electrification is something we really believe in. Another, yeah, exactly. Looking to the combination of automation and electrification in combination, we actually have very good news from April 15 this year when we announced our largest contract in Epiroc's history. Together with Fortescue in Australia, we will develop a very, very energy-efficient mine for them. They have ordered around 50 machines of the cable electric Pit Vipers, the big surface drill rigs, and battery electric Smart Trucks, which are smaller surface drill rigs.
That amounts to AUD 350 million over five years. This really shows that we will, you know, we are in the forefront of the technology, even though we are in a global context a quite small company.
Perfect. Now we have covered two of the three mega trends that we see within our industry. I would need to go through the last one, digitalization. Here, I mean, remember that mining industry has historically been an extremely analog industry, and there are some low-hanging fruits that we can help our customers to increase their productivity. For example, increase their safety and productivity. For example, with our solution, we can help the customers lower the evacuation time by up to 25%-50%. We can also help the customer optimize their mine productivity production plans that is from drill to mill, and we can help them increase their production output by up to 8%.
As you notice, a lot of what we do is productivity-driven and cost-driven for our customers.
As always, safety is what is most important for us and also for our customers. What we can offer to the market is something called collision avoidance, level nine. Basically what it does and what it can help the customer with is that the machine will stop by default if some obstacle is in front of it. Safety is always on everyone's lips, and here we really want to be the leader within our field.
Yes, a lot of accidents, deadly ones, would be avoided if more mines actually went to this collision avoidance level nine system. Looking to Epiroc, we've spoken a bit about innovation and equipment, but equipment is actually only a third, a bit more than a third of the revenue stream. We have to the left here, and we have underground equipment and surface equipment. I would say underground, we have a very, very strong, if not market-leading position, underground in drill rigs, loaders, and trucks. If you take the surface equipment, we are very strong in surface drill rigs, but we are not active in surface trucks. We are not competing with the big mining equipment names on the surface trucks. We have a big portion. The biggest portion is the service revenue stream, 43%, obviously also the most profitable one.
We're happy about having such a large portion, but we can definitely do more there. We have something we report on, which we call tools and attachments, 23%. Here we do rock drilling tools that are interchangeable. They can be used on our equipment, but also competitive equipment. We also do attachments. You can use them on any excavator, and you use them when you tear down old houses, bridges, or other hard rock foundations. Basically, when you think about Epiroc, you should think about us being the company helping customers to remove hard rock or hard foundation in any form. That's what we do. We are hard rockers, basically. Speaking briefly about the service revenue stream being 43%, we will not give you the number of the fleet, but we have a lot of machines out there globally.
The fleet is larger than ever before, and it is also older than ever before. This is obviously a very positive driver for service growth in the future. Also, the more technology we have in the machines, such as automation and electrification, the more likely it is that the customer will also choose us to provide for the service in their, yeah, for their machine, basically. Tools and attachments, I spoke about it briefly. It is quite simple. You see to the left here on the pictures, that is what we do, the tools and the attachments. Basically, you have the best equipment, the best service, and the best tool. If it is maybe a tool or attachment, then you will have the best performance. The yellow circles here indicate where we are active. We do equipment, we do service, we do tools, and we do attachments.
We do not do excavator equipment, and we do not do service on excavator equipment. That we leave to someone else who's good in that.
Perfect. How have we performed since we IPO'd in 2018? Basically, we have grown revenues with 90% and also adjusted operating profit. When we speak about operating profit, we always speak EBIT.
EBIT is good, yes.
Yes, and that we have increased by 91%, and that relates to a K graph, 10% on both revenues and adjusted operating profit. The total shareholder return has been 154%. These figures are as per Q1 2025 rolling 12 months.
Exactly. You see a bit of weaker margin development here, 2024, also into 2025, and that's mainly explained by a weaker construction market in Western Europe and in the U.S..
Just a few words on our financial goals. Basically, over a cycle, we have a target to grow our revenues with 8%, and we have delivered that since the IPO. On EBIT level, the goal is to have an industry-special operating margin with strong resilience over a cycle. We also want to be capital efficient, and we also want to have the opportunity to make selective acquisition whenever we get the opportunity. We always think about you, the shareholders, and we want to pay out a lot of the profit that we make, and we have said that 50% of our profit should be paid out over a cycle.
Yes.
We did not speak about cash, but cash is king. You look how we then create, how much cash we create. If you look to the cash conversion rate, given that we have been in a quite strong demand environment for mining equipment the last few years, which ties quite a bit of inventory, et cetera, we are very proud of being so cash generative as we are, and that is because of the service and the recurring aftermarket portion of the business. Alexander mentioned in the beginning here, two-thirds, almost 70%, is recurring aftermarket business for Epiroc. We do create quite a bit of cash. We do pay it as a dividend. Yesterday, actually, we hosted our annual general meeting, and we approved the dividend of SEK 3.80. Good for that. Alexander, do we have any sustainability goals?
We definitely do. As always, safety is number one, so we do not want to have any work-related injuries. We have, I mean, we should, once you say that, we have science-based targets, validated targets for 2030, and we are working extremely hard to fulfill these targets. For example, we will try to halve the CO2 emissions from operations and from transports. Probably the trickiest one is from products sold, because when we have sold something, we do not really have control of that product. Here again, it is important for us to convince our customers that our automation solutions or electrical machines are performing better than the diesel ones. They want to buy the newest, the best technology machines.
Exactly. That is actually important. We will not launch any electric equipment that is not more productive than the diesel equivalent, because again, our customers are very productivity-driven, and they will only buy equipment if they know that they will get a better machine in the next version. That is a bit of a difference versus maybe the car industry, which is not always the case that you get a more efficient machine with a hybrid or with an electric version. Here you do. Q1?
Yeah, some highlights from Q1. We had a solid start into 2025. Strong mining demand and very strong equipment orders. We grow 29% organically. We had some large orders. I mean, large orders for us are always lumpy, so they vary from quarter to quarter. We did have SEK 600 million which burned off large orders in Q1. When it was, when we speak about infrastructure, the picture was more mixed. The larger infrastructure projects, the tunneling project, the civil engineering, so on, I mean, those projects were solid, but we do have a weaker construction market. We're basically affecting our attachment business. We also had higher revenues and operating profits, which was very nice to see.
Yes. That said, with a higher operating profit, even though the margin you saw was on a declining basis year on year, we have taken a lot of actions. In 2024, we actually let go of 6% of the workforce, and we are working actively on being more efficient in response to the weaker construction market, particularly. Looking ahead, Alexander, what do we expect?
In the near term, we expect underlying mining demand, both equipment and aftermarket, to remain at a high level, while the construction market is, however, expected to remain weak.
Yes.
Case, we will also discuss potential price increases with customers, unfortunately. Again, as you said, on a competitive basis, we are quite similar to our closest competitors. Yes. I think, unfortunately, the time is up. I see we have more questions. We will make sure to answer them. If you did not ask them now, please send us an email. We are more than happy to help you. You can reach out to ir@epiroc.com, and we will respond as soon as we can. Thank you very much for listening.
Thank you.