Hello, welcome to the Epiroc Q1 results presentation. My name is Karin Larsson, Head of IR & Media here at Epiroc. With me today, I have Helena Hedblom, Chief Executive Officer, and Håkan Folin, Chief Financial Officer. They will very soon and briefly present the results before we do the Q&A. Before we start, if you have not already signed up to our Capital Markets Day in Örebro in Sweden in June, please do. There are limited seats, and we are rapidly approaching the full capacity. As we are piggybacking on a global underground customer event the very same week, you will get to see exactly what our customers get to see when it comes to our solutions within automation, electrification, and digitalization.
I'm convinced that this will be a very exciting tour, and we hope that you all can join. Helena, please.
Thank you so much. Yes, a warm welcome everyone to join us in Örebro. I think it will be a fantastic event. We've had a strong start to this year. The customer activity in the quarter remained high, and we achieved a record high order intake of more than SEK 15 billion. Acquisitions contributed strongly to the order intake, and our organic order growth, excluding Russia, was 1%. We won several large equipment orders, and service continued to perform well, supported by mid-life upgrades of customers' equipment. A wide and attractive offering in combination with the excellent work by our 7,300 committed service technicians contributed to the strong development in service. Our revenues increased 25% to SEK 13.9 billion, with strong contribution from both organic and acquired growth. Operating profit, EBIT, increased 20% to more than SEK 3 billion.
The adjusted operating margin was 23%, supported by organic growth and currency, while acquisitions diluted the margin. Supply chain challenges, mainly on the outbound transport side, were still a constraint in the quarter, impacting inventory and cash flow negatively. More will come on this later. Acquisitions are an important contribution to our growth. Year to date, we have closed three acquisitions with combined revenues of SEK 2.4 billion. Also on this topic, you will get more information within shortly. We are clearly leading the way in autonomous mining. For example, did you know that our autonomous surface drills reached another milestone?
They have now successfully drilled the equivalent length of more than one lap around the world. We are more than happy to showcase our market leading solutions within automation for both loading, haulage, and drilling, both on surface as well as on underground.
One project that is attracting a lot of attention is our collaboration with Roy Hill, the iron ore mine in Australia, to create the world's largest single autonomous mine. This project is so interesting that it gets its own slide today. In the quarter, this project resulted in our largest ever automation order, 500 million SEK. We are converting Roy Hill's mixed fleet of almost 100 mine trucks to driverless operation. The operators in Perth will be monitoring the trucks from a safe distance, 1,100 km away from the mine site. The autonomous haul trucks will run 24/7, and none of the trucks are from Epiroc. They are Caterpillar and Hitachi trucks. This project will make Roy Hill the world's largest autonomous mine. In addition to these mine trucks, we will also convert around 200 utility vehicles to driverless operation.
Another highlight is that we are going to the Moon. We have signed a long-term collaboration agreement with a global lunar resource development company, ispace, to provide them with technology for its future Moon missions. This is about being on the forefront of technology, and more details on this will come later this year. That is also why we're acquiring innovative companies, because they support us in being on the technological forefront, which contributes to growth. As I said, year to date, we have closed three acquisitions with combined revenues of SEK 2.4 billion. With acquisition of CR, Epiroc expands its offering of essential consumables and related digital solutions.
Mernok Elektronik strengthen our position as a world leading provider of automation and safety solutions for mining operations. AARD Mining Equipment adds an offering of low-profile underground machines for mines with low mining heights.
I also would like to highlight the launch of our Scooptram ST18 SG, which is a green series, and it's the most powerful loader yet in Epiroc's growing fleet of battery electric vehicles. Compared to using a diesel loader with similar capacity, the Scooptram ST18 SG eliminates 365 tons of CO2 equivalent emissions annually, which corresponds to 100 diesel cars. Of course, with mid-life upgrades, the machine life can of course be prolonged as well. The Scooptram ST18 SG also reduces the need for ventilation, which is a major cost item for underground mines. As you know, Epiroc is not only about mining, it is also about construction.
And we are committed to take the construction industry to the next level. So at the CONEXPO 2023 exhibit in Las Vegas, we showcased a full range of our latest innovations to make the construction industry more sustainable, efficient, and environmental friendly. Products shown included two surface drill rigs in the SmartROC series, smart grouting systems, a down-the-hole hammer, a V-shaped drum cutter, and new digital tools as well as related aftermarket solutions. Please enjoy this video that shows how we lead by innovation within construction and aggregates. In total, the aftermarket had a good development in the quarter. Excluding Russia, the service orders grew 11% year-on-year. One of the reasons for our success in service again and again is the footprint. We have more than 7,300 committed service technicians all around the world.
A relevant customer offering with high availability in combination with an older fleet age drives demand, and the demand for larger components and mid-life upgrades was high in the quarter. The tools and attachments had a somewhat weaker development in the quarter, but sequentially it was strong, and Håkan will talk about this more. Coming to operational excellence then. In Örebro, where we will host our Capital Markets Day that Karin talked about, is one of Epiroc's global manufacturing hubs. We employ around 2,900 people in the city, out of a global workforce of almost 18,000 in April. We recently inaugurated a heat treatment plant in the city. Heat treatment is an essential part of rock drill manufacturing.
The new plant, built through an expansion of the current workshop, will be able to run 24 hours a day thanks to automation. Energy efficiency is a key focus for the design. For example, residual heat will be recycled internally to heat buildings as well as externally to Örebro's local heating system. The building also has solar panels. Our rollout of regional distribution centers continues, and in short, with regional distribution centers in Örebro, Ghent, Johannesburg, Singapore, Nanjing, Allen, Mississauga, and Santiago so we can increase the service and availability to our customers while reducing lead times. This will have a positive effect on inventory levels as well. In general, we always try to find areas to improve, and we have many initiatives ongoing. On the sustainability side, we have a mixed development, starting with people.
At the end of the quarter, we were almost 7,600 employees, but after closing of the acquisition of AARD Mining Equipment in April, we are almost 18,000 employees, up from 13,000 in 2018 when we were listed. The proportion of women employees and women managers at the end of the period increased to 18.6% and 23.5% respectively. We are making good progress on gender diversity. To foster an even more inclusive and diverse culture, we have launched a new genderless parental leave policy granting a minimum of 12 weeks of paid parental leave across the global organization. On the safety side, we have recently been moving in the wrong direction, but several initiatives are in place, and actions have been taken to reduce injuries.
Our CO2-equivalent emissions from operations decreased, driven by several initiatives, including the installment of solar panels and a higher share of renewable electricity. The emissions from transport have ever increased due to the higher volumes delivered. With this, I leave the word to Håkan to cover the financials.
Thank you, Helena. Orders received increased 10% to more than SEK 15 billion. This is the highest level ever achieved for Epiroc. Out of this, four orders are what we consider being large ones, which is above SEK 100 million. This totaled SEK 900 million for these large orders. In other words, it indicates that we have a continued high investment willingness. The larger order was the one that Helena already talked about from Roy Hill, amounting to SEK 500 million. For orders received, we had good contribution from our acquisitions. In total, 10%, where our orders on hand were approximately SEK 400 million or 3 percentage points. Excluding Russia, the organic growth was 1%. Sequentially, meaning compared to previous quarter, orders received increased 12% organically.
Moving on to revenues, they increased 25% to SEK 13.9 billion, which corresponds to an organic growth of 8%. I will cover the cash flow and also the profit bridges in the coming slides. If we start by looking into the profit bridge details, our operating profit increased 20% to SEK 3.2 billion, and the only item we have affecting comparability is SEK 26 million in change in provision for the share-based long-term incentive program. The adjusted EBIT margin was 23.0%, supported by organic growth and currency, but diluted by acquisitions. For the group, the dilution to the margin from the acquisition was 1.2 percentage points. Moving into the segment and starting with Equipment & Service, orders increased 7% to SEK 11.6 billion, and organic order growth, excluding Russia, was 2%.
Acquisition contributed with SEK 6, and currency with another SEK 6. For equipment specifically, orders received was SEK 4.9 billion, which was down versus last year. Excluding Russia, it was down 7%. For service, the strong growth trend remained. Order increased 25% to SEK 6.6 billion. Organic growth, 6%, which reflect the continued high activity level and also good demand for mid-life upgrade. If we exclude Russia, the orders received increased 11% organically. Looking sequentially, orders received increased 5% organically for the segment, again indicating that we have a good customer activity level. If we move to revenues, they increased 10% organically. Acquisition contributed with 9%. In total, revenues grew 26%. The operating margin was 25.3%. It was down from 25.8% last year.
I would say this is strong given that acquisitions diluted the margin with 1.3%. I would like just to highlight that as of January 1, we have moved the exploration consumables from the Tools & Attachments segment to the Equipment & Service segment. The logic for this move is to gather all exploration-related activities under one umbrella. We have restated the segment figures for 2022, and you can find a lot more details about this in our key figures that we have online. The bridge for this segment is rather straightforward. Absolute contribution on profit from the acquisition was positive, however, diluted to the margin of 1.3%. We managed to mitigate this, the majority of this through the strong organic contribution, so indicating we had a good flow-through.
Moving on to Tools & Attachments, here, orders received increased 19% to SEK 3.5 billion. The organic order growth, excluding Russia, was -7%. Worth mentioning here is that Q1 2022 was a particularly strong quarter when it comes to hydraulic attachments, therefore we had tough comparables. Acquisitions contributed with 24% of orders received, where our orders on hand from the acquisition of CR was approximately SEK 400 million or 13 percentage points. Sequentially, we have a good growth, orders received increased 33% organically. On the revenue side, we had strong development. Revenues increased 21%, also here with a strong contribution from acquisitions. The EBIT margin, sorry, the EBIT increased 12% to SEK 532 million, which corresponds to a margin of 17.0%.
The acquisition of CR has been somewhat dilutive, 1.2 percentage point, and this includes the amortization of intangibles and also some one-time related M&A cost. If we continue on the cost topic then, we have maintained cost control in the quarter, while at the same time having a high activity level and a strong growth. We are also investing more than ever in R&D, it was above 3% of the revenues in the quarter. Net financial items amounted to SEK 197 million, which is up meaningfully from last year, it's because we now have a net debt position, as well as the interest rates have increased quite a lot. This was also reflected in our net interest, which was SEK 89 million this year versus SEK 16 million last year.
On the tax side, our effective tax rate was 22.6%, which is fairly stable, and it's also in line with our guidance of a tax rate between 22% and 24%. On the cash flow, supply chain challenges, mainly on the outbound transport side, were still a constraint in the quarter. This has an impact on inventory and hence also on the cash flow. If we dive into a bit more details here, the container rates have decreased significantly. Also inbound transport, which is done mainly on containers, has started to improve. That has given us a good input for production. We saw in the good quarter it was a strong production quarter for us.
The issue we have is rather on the outbound side, with so-called roll-on/roll-off ships, that is still not working as we would wish, and this leads to us having a fair, too big amount of equipment in transit on the way to the customers. This of course then has an impact on the inventory. The operating cash flow was SEK 338 million. This is something we're not satisfied with, but we do expect, especially that inventory ratios will improve throughout the year. If we move to working capital and we compare to previous year, our working capital, excluding acquisitions and currency, increased with 32%. The increase is mainly explained by the strong growth, especially within services. Sequentially, inventory is also impacted by the produced machines that are in transit on their way to customers.
The problem in the supply chain remain, but mainly then on the outbound transport side as mentioned. This is not we're not happy with level of inventory nor the cash flow impact from it, but on the other hand, the strong growth that we have seen in service is partly explained that we have very good availability of parts ready to be delivered to our customers. The average net working capital in relation to revenue in the last quarter was 32.8%. As said, we have actions in place, and we expect to see an improvement on the working capital development throughout the year. A few words on the capital efficiency as well. We ended the quarter with a net debt level at SEK 7.3 billion.
The change is to a very large explained by the acquisitions we have made. We now have a net debt- t- EBITDA ratio of 0.52x. As we are now in a net debt position, I thought it might be useful to give some more details about our financing situation. The average tenure of our loan facilities was at the quarter end 3.3 years, and we have an average interest duration of 15 months. On top of this, we also have an unutilized revolving credit facility, which is SEK 4 billion. On the right-hand side of the slide, you have the capital employed development, and you can see that it was flat versus last year at 27.7%. I will give a very quick comment on dividend as this is actually the same slide as was presented in our last quarterly presentation.
Here the board proposes to the annual general meeting, which is on May 23, that we pay SEK 3.4 per share in dividend, which corresponds to 49% of net profit. It is also an increase of 13% from previous year. With this, thank you very much, and back to you, Helena.
Thank you. I will conclude the presentation. We had a strong start to 2023. We see high customer activity, both for equipment and aftermarket. We have proven that we can deliver profitable growth. We have improvement potential on inventory and cash flow, but we are confident that we will see a positive development onwards. We have expanded our offering by acquisitions and further strengthened our position as the market-leading productivity partner. We have, following the acquisition of RCT, market-leading solutions and position within automation. Finally, we are committed to provide the best solutions to accelerate the transformation towards a more productive and sustainable industry. Innovation is key to achieve this. To foster innovation and creativity, we encourage our employees to take on responsibility, be open-minded, inclusive, and last but not least, dare to think new.
Onwards, we expect that underlying demand, both for equipment as well as aftermarket, will remain at a high level in the near term. By that, Karin.
Thank you, Håkan, Helena. Thank you very much. With this impressive picture of two autonomous Pit Vipers in one of the largest copper deposits on the planet at one of Anglo American's copper mines in Peru, I open up the Q&A session. Operator, please open up the line.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad.
Hi, good afternoon. Hi Helena. Hi Håkan. Hi Karin. Just one question from my side. It's regarding Håkan's comments on the roll-on/roll-off issues that are impacting the outbound transport. I know that you mentioned that throughout the year you expect this to be solved. I wanted to get a little bit more clarity as to when. Is this something that we will start to see improvement in Q2, or is this second half-weighted, or when would you expect the majority of the outbound transport actually to be unleashed and therefore you are able to decrease significantly your lead times on deliveries? Thank you.
Yes. I think we have, you know, certain lanes we see improvements on, both when it comes to lead times as well when it comes to predictability, and then certain lanes there is still challenges. I would rather say second half of the year.
Thank you.
The next question comes from Klas Bergelind from Citi. Please go ahead.
Thank you. Hi, Helena and Håkan. Klas Bergelind at Citi. My first one is on the drop-through. You had very strong service growth while equipment sales was weaker because of the supply chain issues. That leaves us with a better mix than I thought. The drop-through is good, but still a bit lower than I thought despite the better mix. Can I just clarify if you had any extra cost in the organic element of the bridge linked to, for example, recent M&A or if there is anything else going on, if price cost in any way is getting a little bit worse? I'll start there.
No. The M&A related cost would be in structure. Those are not in. As I mentioned, especially for Tools and Attachment segment, we had some M&A related costs, but that's not in the organic part. No, I wouldn't say that we have any specific cost related in the organic piece. I think flow-through was okay. It was not great, but I would still say it was fairly okay. Then that can vary a bit between quarters. In terms of in general, the cost inflation, I would say that we are overall, as we have been now for a while, widely compensating for cost inflation. No, nothing really special in the quarter, I would say.
Thank you. My second one is on infra, which is 5 percentage points lower as part of orders. We obviously have infra stimulus in the U.S., which should be supportive, but we're hearing of weaker trends in Europe. Can you, Helena, talk through where you see the weakness on the infra side by region and by divisions, the drill rigs in E&S versus the hydraulic attachments in T&A, please?
Yeah. We see slower activity levels within housing, as well as aggregates, while I would say underground tunneling is still going very strong. When you look especially at T&A, of course, we had also very strong comparison last year, as Håkan mentioned. There we see the impact in Europe. We see actually slower activity levels when it comes to housing and aggregates, both in U.S., in Europe as well as China.
Thank you. My very quick final one is on the greenfield share. We're hearing from others that this share is increasing a bit, and our own work suggests that as well. I'm curious to what you hear, Helena, on the split between replacement brownfield and greenfield at the moment.
I would say in the quarter, we had a bigger portion. You know, this can vary between the quarters, of course. For us it was a bigger portion related to brownfield expansion in the quarter than previous quarters. I share your view there. If you look in the overall pipeline, there is, you know, a good pipeline with greenfield investments as well.
Thank you.
The next question comes from Andrew Wilson from JP Morgan. Please go ahead.
Hi. Good afternoon. Thank you for taking my questions. I have two. I think one's a slight follow-up on Klas' question, I guess involved price. I'm just interested in terms of your expectations going forward with regards to continuing to push through price and also if there's a big difference in terms of the pricing dynamics between the two business areas, please.
I think, you know, we always work with pricing in, you know, regardless of where we are, you know, over time. For us, it's, as I said many times, it's always very well connected with the innovation and what value that we bring to our customers. Of course, by being innovative also with business models, et cetera, and different types of, you know, our service offering, for example. I think, you know, for us, pricing is always something that we work with. I don't see that anything has changed really on that side. What was your second one? You had one more question.
Yeah, sorry. It was a follow-up in the sense of the different trends that you see between the two business areas.
Yeah.
Different kind of things that you'd point to with regards to that.
No. No, I wouldn't say that there is a difference. You know, if you tie it to innovation and with clear productivity improvements, you know, which create, you know, It's either ESG, sustainability, you know, value adding or productivity, value adding for our customers, then I say we have the same, we'll say, opportunity in both segments to work with price. With both prices and with innovation, of course.
Can I just for a second question, I'm not sure how sort of fair or easy this question is, but just with the M&A dilution in the bridge that we saw in the Q1, it was, I mean, it was frankly bigger than we expected. Is that something we should expect in the coming quarters? I appreciate the sort of the businesses which are in that line will obviously change as we go through the quarters. You know, is that a good starting point for thinking about the Q2, or would we expect the dilution to be smaller going forward? Thank you.
I think, it's a good starting point for you. We did have, as I mentioned, we had some one-off M&A related cost in the quarter this time, which we don't expect to have now in Q2. From that point of view, slightly less.
That's really helpful. Thank you very much.
The next question comes from Max Yates from Morgan Stanley. Please go ahead.
Hi. Could I just ask about the service orders? They're growing at 5%, but the order level is slightly below the revenues now, I guess partially because you've been delivering a lot and you've been able to service customers. I guess my question is, if we strip out price from that service number, I would imagine that the volumes you're doing in service are slightly negative, and I wonder if you could sort of help us understand what is happening there. Is this just that we've had very tough comps from the last couple of years? We maybe had some sort of pent-up demand that took place around servicing? Because I guess the underlying production activity, mine is still producing at high cost is still there.
I'm just trying to understand kinda whether this level of service, these kinda growth rates is what we should expect going forwards, or how best to think about that.
I think it's important, you know, if you go back and you look on the orders on hand we have within service, you know, a big portion of the growth is, you know, larger rebuilds. You know, mid-life rebuilds or larger rebuilds of larger components. That, of course, takes time to work through. That's like, you know, you bring in a machine and you rebuild it more or less. I wouldn't say that I don't see any change in activity levels out there. It's very, very high activity levels everywhere. Of course, between quarters, it can vary how much of these larger rebuilds that we land as orders received.
I would rather say that it's that component when you compare quarter- by- quarter rather than the underlying activity levels is very stable.
I think also it might be worth mentioning-
Okay. Sorry, mate.
You said 5%.
Sorry. Go on.
We have lost our fourth largest market as well. If we would exclude for Russia, it would actually have been an organic growth of 11%. We still see solid organic growth or very good organic growth even, I would say, for service.
No, that's fair. Maybe just to, would you be able to quantify kind of if we look back at the, I realize it will be lumpy quarter to quarter, but if we look back at sort of 2022, how much would you say these kind of refurbs and rebuilds make up of your service? These sort of larger refurb and rebuilds now make up of your service business in 2022 roughly?
I think we will come back to that during the Capital Markets Day because, you know, as we shared also last Capital Markets Day , this is, you know. It's this type of service products that we have, you know, built that offering over the years, and that is contributing very well to the growth. We will come back, you know, in a month from now and share more insights around this. This has been a key strategic focus areas for us, when it comes to service, and it's, you know, giving very nice results as well.
Great. Okay. Thank you.
The next question comes from Nick Housden from RBC. Please go ahead.
Hi. Thank you for taking the questions. Actually, I think, most of them have been answered. Maybe just a follow-up on the earlier question about the dilution to the margin coming from M&A. Can you maybe give us some sense, you know, maybe looking historically of how much you've been able to improve, the margins of the acquired companies after you've fully integrated them? You know, would you say that within, say, two to three years, you typically, you know, get the margin up to the group average, or do they remain some way below? Thanks.
I think, you know, we seldom find companies that, you know, come with the same margin as we deliver. Of course, there will be dilution initially. Ambition is, of course, always to bring it up to the level that we have, you know, in, let's say, in our normal offering. It would take different time depending on the type of acquisition as well. If it's very close to home or if it's, of course, it's new technologies, I would say it varies. It's difficult to say that it will take a you know, to say a time span there.
Of course, but the ambition and the focus for us is, of course, always to lift the profitability quarter- by- quarter.
It's not only about lifting the profitability in the acquired company, because obviously when we buy a company, we usually see synergies with our existing business. It might be that you would still have the, if you say, the dilution in the acquired company, but we are compensating that by actually getting some synergies from the, from our current business.
Understood. That's helpful. Maybe just one more, and I have a feeling you might defer it to the CMD. Yeah, you've been adding a lot of automation capabilities, doing that internally and also through some quite active M&A recently. I believe in the past you've mentioned that something like 50% of the Epiroc and Atlas Copco branded machines out there in the mines are actually not under a service agreement with yourself. I'm just wondering if, in the past couple of years or so, if you've seen kind of big step change in your ability to recapture those units and bring them into the service portfolio.
Let us come back to that during the Capital Markets Day.
Okay.
Clearly-
Thank you.
... it's so that the new technologies, both when it comes to automation and electrification, you know, that gives us an opportunity to capture a bigger share of the fleet out there. We're doing that step by step. This is, it's clearly there, because of course the machines are more and more advanced.
Great. Thanks very much.
The next question comes from Sebastien Gruter from Redburn. Please go ahead. Sébastien Gruter, Redburn, your line is now unmuted. Please go ahead. The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.
Yes, good morning, everyone. Hopefully, you can hear me. I guess if I can summarize, you know, demand remains quite strong and a lot of the issues or, at least relative to market expectations came from the supply side with regard to margin and cash. I'm just interested, therefore, if you could quantify where lead times are today, and whether you think that that's likely to improve as we move through the year? Indeed, are those extended lead times potentially driving stronger demand as it currently stands to your mid-life servicing business as that's something that your competitors have flagged? Also maybe if you can help us understand whether those bottlenecks in shipping have specific geographic focus areas, and then I'll come back to the other two questions.
I think lead times will improve now when it's easing up on the inbound side. If you go back, during the last two years, we have had severe problems on the inbound side, of course, to the capital equipment division. That will clearly improve the lead times, overall lead times for equipment across throughout the year. If you know some specific lanes that are still troublesome is from Europe to Australia, for example, where there's still very prolonged lead times, and also the predictability is not where we need it. Of course, Australia is a big market for us.
I think of course there could be, you know, when we have prolonged lead times on equipment that drives demand as well when it comes to rebuilds. I would say it's also, you know, related to some of the fleet that we put on the market there during the peak. If you take the surface equipment that we put on the market 2011, 2012 is now ready for some larger rebuilds, for example. That also supports the demand. It's not only, let's say, related to say the supply chain issues, it's also related to whether the specific machines are in age.
Thanks, Helena. Maybe just coming back, and linked to that, are you able to provide some color on the working capital and inventory expectations? You've talked about an improvement in networking capital ratios as we move through the year. I guess the question is, do you think inventories can fall in krona terms, as we approach the end of 2023?
I would say that depends actually both on orders received, because the more orders received, the more components we order, so we are able to produce. It also depends on our revenue, how much we are getting out. What we said is that in terms of ratios, sorry, we expect to see an improvement throughout the year. I know that's not.
Thanks. Copy that.
I know that's not what you were asking for, but that's the answer you'll get.
Okay. Maybe then just finally, a little bit more granularity, if I may, on the dilution side. Obviously, AARD is the sort of newest entry. Just seems to be there's a bit of a knowledge gap here in the market with regards of profit, at the respective acquisitions. How should we think about relative profit for that business? Also, more broadly, the structural impact from the ex-exploration side transferring from T&A to equipment.
Do you want to comment on the dilution side?
AARD will be part of naturally, then will be part of Equipment and Service, and more specifically on equipment. I would say that for that part, we would not expect a major dilution coming from AARD.
Then over to the change we have done here, you know, to gather all the exploration under one umbrella. For the ones of you that has followed us over the years, you know, historically, we had that under one umbrella, and then we splitted it up, and now we're bringing it together again. We continue to see good growth opportunities in exploration, and we believe that, a structure like this will enable, us to capture, the growth opportunities. It's again.
Thank you.
You know, it's again trying to do things better, that's always what we strive for.
The next question comes from Lars Brorson from Barclays. Please go ahead.
Thank you. Hi, Helena, Håkan, Kai. Three, if I could, one on services, one on T&A, and one on supply chain. If I can come back maybe to Max's question. I was also, you know, thinking that the book-to-bill in services was a bit of a head-scratcher. We hit the lowest level in seven years. We just had the highest level in Q4 in seven years. That was obviously partly because of the acquired companies and the orders on hand you reflected then. There's also some structural impact from the creation, I guess, of this new all-body solution. Even then, it looks a bit like an underwhelming book-to-bill, particularly for a Q1, which is seasonally a little bit bigger on book-to-bill.
I think what I've understood from your earlier answer, Helena, is this is very much a reflection of ramp on deliveries and some of the bigger service contracts, larger rebuilds that you've taken historically. Maybe my question really is, are we entering now a period of book-to-bill below one as we ramp up on these larger contracts and perhaps the order levels and demand levels start to normalize?
I think actually, you know, for us, it's actually healthy if we can work down the orders on hand we have on service. It's not related to service contracts because that's more, you know, ongoing at the same level all the time. It's more related to these larger rebuilds where you put machines out of production and rebuild them. For us, it's actually good if we can work that orders on hand down because that will free up more capacity in our workshops and for us to be able to take on more work.
I take that as a yes. We should brace ourselves for a period of below one book-to-bill.
It's, I would say it's, of course we, you know, there is also plenty of growth opportunities, as we have described many times. You know, we have a little bit more than 50% customer share. And of course we are, we are also now, you know, realized the parts and service divisions. So there is clear ambition to grow in this, in this area. But it's healthy for us to work down the, we'll say, the orders on hand we have on the larger rebuilds, because that is also, you know, for our customers, it's not good if we have long lead times on rebuilds.
That's clear. Helpful. Secondly, if I can ask to T&A, - 7% organic in the quarter ex- Russia. Wonder whether you can help us a little bit with the price volume dynamics within that. There were a couple of earlier questions around pricing in T&A, but, you know, you were early in pricing on both T and A, I guess. We are seeing some pretty heavy price moderation now. I wonder whether you are now starting to see a bit of price givebacks after last year's price hikes. If I can relate it to that, Helena, we've had four quarters of negative growth that's now annualizing. Should we expect T&A perhaps to start returning to growth, particularly maybe as China starts to recover over the next quarter or two?
Yes, I would say, you know, that is clearly the ambition. I would say when we look at this specific quarter, you know, it's very much hydraulic attachments that is coming in low on orders. As Håkan said, we had a very strong Q1 last year. The comparisons are quite tough. I would say, you know, overall the potential when it comes to tools and attachments is the same potential as within parts and service when it comes to driving the customer share. However, as I've said also before, it must be a profitable growth journey because we have worked for many years to lift the profitability to the level we are at right now. That's what we are looking at, you know, profitable growth opportunities.
There's plenty of opportunities out there.
Thank you. On the pricing question, are you able to say whether you're still positive to pricing in T&A?
You know, it's the same answer as I, you know, said before. You know, we are investing also in T&A when it comes to innovation and bringing more value to our customers. That gives us pricing power.
Understood. Thirdly, maybe one to Håkan, just briefly on supply chain. I understood your, Håkan, on operating cash flow is limited how much you can say in terms of the ramp through the year, the cadence in terms of improvement. Is this all working capital or... I mean, I know you're going through a bit of a build-out on your regional distribution centers as well, so running with some double inventories. Again, was to try to understand whether this is really all about a ramp in the equipment deliveries over the next quarter or two, or whether there's something maybe more structural as you build out the business that may hold back operating free cash flow? Thanks.
That is actually, I didn't go into that detail, but it's you're absolutely right. That's also one of the reasons when we are building up this regional distribution centers as Helena talked about, and we are doing it globally now, basically in, yeah, in all regions. When we build them up, you will in a way have a double inventory. The idea is that we take the inventory from our customer centers in different countries, and we put it in one regional distribution center, and then we send it out from the regional distribution centers. In that process, you will in a way have double inventory for some time. Yes, that's also part of the explanation and part of the reason why we expect to see an improvement. Now we have set up this regional distribution center.
Now it's time to get the efficiency out.
Helpful. Thank you both.
The next question comes from Gustaf Schwerin from Handelsbanken. Please go ahead.
Yes. Thank you very much. Sorry for coming back to the lead times. I mean, if we look at the decline in equipment orders year-over-year, I mean, how far would you say that that number is actually, say, from underlying demand due to the outbound problems? Have you actually sort of seen firm orders being pushed forward on that issue? That's the first one.
No, I wouldn't say that. I think all OEMs, you know, we face the same type of challenges when it comes to both the inbound and of course the outbound, and that has been the case throughout the last couple of years. I wouldn't say that we see any change in demand. Customers are prepared to wait for equipment, even though the lead times are, you know, longer than it has been historically. I would say that step by step, we, you know, when the sea freights are becoming more predictable and shorter, then of course we, you know, lead times will improve. We see that already to certain regions.
That's clear. I mean, generally, when we think about equipment demand for this year. I don't know if you can answer this, but I mean, do you see volumes growing this year? CapEx is maybe not always the best leading indicator, but that continues to look very good. Any comment on that would be helpful.
I mean, we look at the underlying activity levels always. Of course, we look at the age of the fleet that, you know, will lead to replacement orders. We also follow the tracking the brownfield investments, of course, and the greenfield investments. Of course, we are at high levels. Also the ESG agenda for the mining houses is also, you know, pushing the need for upgrades of the equipment. As we have said many times, when we comment on the equipment side, it's more the underlying activity levels. That is what I'm looking at, you know, the medium and the small and medium-sized orders because that's the broad set of customers and how they their mood, so to say.
Of course, we have the large deals coming on top of this, which in some quarters they are there and that's great, and some quarters we have less of these large orders. When I look at the underlying activity levels, it's a very healthy underlying activity level.
Perfect. Thank you, Helena.
Please state your name and company. Please go ahead.
Hello, can you hear me?
Yes.
Yes.
Hi, it's James Moore from Redburn. Helen, Håkan , one question if I could. You mentioned that you see a positive forward pipe in terms of order business. I wondered if you could talk a bit about the mix of business and where you really see strength, whether it's from the customer type, whether it's larger miners. I get the sense that smaller and explorers have had some availability of capital lending issues, whether it's hard rock over soft, whether it's underground over surface, or whether you're seeing a mix towards copper. Just I'm really thinking in terms of commodity mix, hard, soft mix, customer mix, where you're seeing that forward pipe looking strong relative to your normal mix.
I think what I see is that, you know, I see high activity levels among the large players as well as the mid-size players, I would say, in the different regions. You know, for us, we are more or less fully towards hard rock. We are not tracking, we'll say, the softer formations, but so it's more or less it's hard rock, and it's very much related to copper. In the quarter, we had more towards iron, but that was due to the Roy Hill order, which is an iron ore mine. I think if I look over the last year-two years, it has been very much towards copper, and that's also reflected when we look at the exploration activities that is ongoing.
It's also, predominantly towards copper and then, of course, gold.
Can I follow up with that just to say that, you know, mine planning has extended significantly and NIMBYism all around the planet has extended without a massive amount of exploration in the last few years. How do you see the equation being solved with respect to what's needed in copper over the next five, 10 years? Do you think it'll be about extending existing mines more, or do you think that there will be more of a copper greenfield story coming at some point? And what are you looking for to see whether that's really starting, given the, given the lead times on new mines?
No, but it, for me, it's clear that there is a clear gap between the supply and demand for copper. You know, the grades when it comes to copper is also going down. The exploration so far, if we look in to close this gap, has not been successful enough. I think we will continue to see high activity levels around copper when it comes to exploration. More projects needs to come on board. As you well said, the lead time before, you know, from when you identify a resource until you actually have production up running, that's a long lead time, especially to establish if it's a greenfield.
I think that is also why we see more and more exploration activities going on in a brownfield environment. You know, mining companies trying to identify more assets so that they can reuse existing infrastructure.
Very interesting. Thank you.
That was the last question. Thank you very much. James, thank you for highlighting the upcoming deficit. In the last Capital Markets Day, we actually said deficit by 2030 in copper and gold. Let's see what we will have to say about that in June. Thank you very much, Håkan, Helena, all the good questions. As always, if anything was unclear, reach out. We're happy to help you. Hope to see you soon again, and hopefully also in Örebro. Thank you.
Thank you.
Thank you very much.