Earnings Transcript for EPOKY - Q4 Fiscal Year 2024

Karin Larsson: Hello, and a warm welcome to the Epiroc Q4 and Full Year Results Presentation. My name is Karin Larsson. I'm Head of IR Media here at Epiroc. And with me today to present the results I have, Helena Hedblom, CEO and Hakan Folin, CFO. As we have a lot to present today and you online you already know the procedure, we will start without further ado. So please Helena, the stage is yours.

Helena Hedblom: Thank you, Karin. So I will start with the highlights for 2024. So we achieved record highs for orders received and revenues with an overall good demand for our equipment and services. The growth was supported by acquisitions, but also the strong development within mining. The demand for drilling equipment and tools for infrastructure projects was solid, but the demand for attachments used in construction was weak. The operating profit margin decreased impacted by mainly the weaker construction demand and dilution. Obviously, also the higher proportion of construction following the acquisition of Stanley Infrastructure is impacting and so does the strong growth in strategic growth areas such as service agreements and circular services with more labor contents as well as digital and automation solutions. In total, we had an adjusted operating margin EBIT of 19.8% a level that we are determined to improve. During 2024, we executed efficiency actions according to plan and both Hakan and I will tell you more about this later on. As we enter 2025, Epiroc stands strong to grasp to the next horizon of profitable growth in strategic growth areas. We have increased our portion of recurring and resilient revenue streams by having more service agreements and closer collaboration with our customers in areas such as automation, digitalization and electrification. So let me tell you more about our achievements within automation. We increased the number of driverless machines by 21% in 2024 and automated mixed fleet number now exceeds 3,450 machines. So it is pleasing to see that our customers trust our abilities which have translated into a strong demand for solutions for mixed fleet automation for all types of driverless machines. And the demand has been strong for teleremote solutions for fully automated drill rigs as well as for mixed fleet solutions within load and haul which is very much fleet consisting of other OEMs machines. We also had strong growth for our digital solutions. And if you joined our Capital Markets Day in September you might recognize this slide. In 2024 orders increased by more than 30% for the Digital Solutions division. And our safety solutions are world leading and I -- and we feel proud to make our customers' operations safer because in the end of the day to come home safely after work is what matters the most. Also within electrification we have had good progress in 2024. The electrification revenues of group total were 4.2% and we have noticed that our first movers are happy with their BEV fleet with utilization more than doubling in 2024. In total, 39 mining sites globally have ordered battery electric equipment since we launched our 2018 generation of BEVs. And of the sites with BEVs in operation 28% have already ordered more. And let me be clear our electric trucks loaders and drill rigs are designed and purposely built to exceed the productivity of the diesel versions. And the vast majority of our orders within electrification are for these new innovative machines. But we do also offer conversions but that's when you take an old diesel machine and make it electric, but that is a small portion of the business today and the productivity gains are not comparable with the purpose-built machines. 2024 was also a good year when it came to product launches. We know that different customers have different demands and need different solutions. And some of the products launched during the year were the mine truck MT66SE-drive which has an electric drivetrain and is powered by the strongest engine yet in Epiroc's lineup of underground mining trucks. It is 11% faster up ramp versus previous versions. And the Minetruck MT42 SG trolley, which combines the power of a battery electric mining truck with a trolley system, leading to new level of productivity gains. It's up 50% faster than the diesel equivalent. And we have also launched more pure BEVs, the Scooptram 18SG and SmartROC D65 BE, both more productive than their predecessors and ideal for tough conditions and large mining operations. And finally then, the Pit Viper 271 E, which is an electric high-performance rotary blast hole drill rig designed for surface mining applications. So moving on then to Q4 2024. The mining customer demand remains strong, especially for solutions within automation and digitalization. Our large orders amounted to SEK 820 million and included two large orders for wireless connectivity solutions for mines. Robust and reliable wireless networks are crucial for supporting mining automation and digitalization, which are strategic growth areas for us. Our Tools division also had a good quarter, driven by mining customers. The demand from infrastructure customers was mixed with solid demand from customers within tunneling and civil engineering, whereas the demand from construction customers remained weak. In total, our orders received in Q4 increased 12% to SEK 16.2 billion, and we had 5% organic growth. Again, the demand from mining customers was strong, while it was solid in infrastructure and weak in construction. Our acquisitions growth was 7%, mainly relating to the acquisition of STANLEY Infrastructure, which came into the books on April 1, 2024. As we have already covered the topic of innovation, I would like to speak about the aftermarket, which is another strategic area for us. So by providing reliable aftermarket support, tools and attachments, we can build and maintain strong relationships with our customers, and it ensures that customers can maximize the lifespan and efficiency of their equipment. And in aftermarket, we also include digital solutions that enhances the equipment's performance and safety. And in the quarter, our orders were driven by a high mining activity level with particularly good demand for digital solutions and tools. And the organic growth for service was strong at 7%. The weak construction market did, however, impact the orders, mainly the attachment business. In total, the aftermarket represented 63% of the group's revenue. Regarding operational excellence, we continue to implement efficiency measures. Sequentially, in Q4, we reduced the workforce with another 135 people. So in total, in 2024, we have reduced our workforce with around 1,135 employees and further measures are ongoing. But I would like to emphasize here, as we have said previously that in a growing demand environment, as within mining, it's really important to be very specific in the efficiency measures we take because we need to safeguard and make sure that we still remain the preferred productivity partner for our customers. On the inventory side, we had sequential reduction of inventory with about SEK 1 billion, which is partly driven by our improved work in final modifications. We have done a good job in this, and the lead times are back to more or less normal levels now again, which means six to nine months. On people, we continue to focus on a strong safety culture, and we have improved our safety score further. And we will never compromise on safety, and I'm glad to see that our actions have led to further improvements. Our employees in absolute numbers increased, which is because of acquisitions. And year-end, we had 18,874 employees. Another achievement is that we have increased not only the number of women, but also the proportion of women. We have made particularly good progress in markets such as Brazil, India, South Africa, Australia and Mongolia. Moving on to the Planet part then we have reduced emissions from operations with another 9% on rolling 12% basis and we do a lot of efforts here. For example, higher share of renewable energy and installations of solar panels at our facilities. Our emissions from transport increased to 8%, which is mainly explained by more aftermarket deliveries including air freight. In the quarter, TIME Magazine and research firm Statista named Epiroc, as one of the "World's Best Companies in Sustainable Growth 2025". In total 500 companies were evaluated, based on financial growth and environmental stewardship including metrics like carbon emissions, water consumption and renewable energy use. An Epiroc was ranked 166 overall. And among Sweden-based companies Epiroc was the highest ranked. So before handing over to Håkan, I would like to thank all colleagues your hard work and dedication has brought Epiroc closer to achieving our 2030 sustainability goals. So Håkan, can you please run us through the financials then.

Hakan Folin: Absolutely. Thank you, Helena. So let's start with the group revenues and EBIT. The revenues increased 11% to NOK 17.3 billion and this is a record for us and it was up 4% organically. Our EBIT was more or less flat at SEK3.4 billion, impacted mainly by the weaker construction market, but also by the strong and very positive demand for our solution in strategic growth areas. Helena mentioned the Digital Solutions business before and that's definitely one of these areas. The adjusted EBIT margin was 19.7% and acquisition diluted this margin with 1.4 percentage points. If we then look at the bridge, in Q4 2023 we had a reported margin of 21.5% and we had no organic margin contribution this year. We actually had a contribution in absolute terms, but not from a margin perspective. Currency gave us a small positive contribution, while we had a negative margin impact from structure. And last year we had a large positive structure impact. And as this is a bridge effect we reverse it now in this quarter and therefore you see this negative impact. I will tell you more when I present the segment what this relates to. In total, for the group, we ended with a margin of 19.9% and with an adjusted operating margin of 19.7%. And I said before, the decrease compared to last year mainly due into the dilution from acquisitions of 1.4 percentage points. Moving on to the segment and starting with Equipment & Service. The strong mining demand also translated into orders. And it's easy here to think that this is mining exposure only but we do have rigs for us in tunneling project and inquiries which means that the mix demand within infrastructure that Helena mentioned before also impact here. And the demand from customers engaged in projects relating to Infrastructure and Civil Engineering that was rather flat, whereas the activities within quarries from which you take out rock for construction was weaker. In total the orders were up 5%, and that was also the organic development in the quarter. Our large orders were around SEK140 million higher this year and it's particularly pleasing that we have SEK250 million in Digital Solutions orders here that we define as large. And it's a proof point that our offering is appreciated by our customers that are keen on adapting to the new technology trends such as, Automation. If we look at revenues for Equipment & Service they increased by 6% organically to SEK13.3 billion. The operating profit however was down slightly to SEK3.1 billion. And in this number we have another earn-out for the acquisition of RCT which is a sign that this business is performing very well and RCT is mixed fleet automation. Moving on to the bridge then in Q4 2023, Equipment & Service had 25.6% in margin. And in Q4 2024, we had a margin of 23.4%. And the main reason for the change lies within structure. So last year we had a capital gain from a property sale or last year in Q4, 2023 actually and that is now being reversed in the bridge. Organically, the strong growth in for example Digital Solutions and Circular service is impacting the margin mix negatively and within service then specifically. So year-on-year, you see that organic margin contribution is negative. And when we started the year, we spoke about inefficiencies and costs. We have taken actions. We have executed according to plan. The adjusted operating margin when we exclude items affecting comparability improved to 23.6% from 23.3%. And we are improving both year-on-year, but we're actually improving sequentially as well within this segment. Moving on to Tools & Attachment. Here we had mixed demand in this segment. We actually still achieved a positive organic growth of 3%. The total order growth was 39% mainly explained by the acquisition of Stanley Infrastructure. The orders received amounted to SEK 3.9 billion and sequentially they were up 5% organically. So, with an organic growth for the first time since Q1, 2022 and the positive also sequential growth are we now done with the construction weakness. Well, this is hard to say. In this segment, we also have the tools, we delivered to mining customers and that is compensating the weak demand from the construction customers. And it's actually therefore we have the organic order growth in this segment. The revenues in Tools & Attachment increased 30% to SEK 3.9 billion, which actually corresponds to a negative 1% organic development. The margin was 8.4%, both adjusted and the reported and it was impacted by dilution from acquisitions which was four percentage points and mainly then relating to Stanley infrastructure. The bridge in Tools & Attachment is rather straightforward. We had an EBIT of 8.1% in Q4 last year. And in Q4, 2024, we ended up with 8.4%. Organically, it was down explained by the construction market weakness which is then impacting the attachment. Tools on the other hand supported by the strong mining environment had a good performance. And I just mentioned that we had four percentage point dilution from acquisition, but still you see 1.2 percentage point positive in structure. And the reason here is the bridge effect. In Q4, 2023, we took cost of SEK 158 million related to the closure of the Essen manufacturing plant and they are now being reversed in the bridge and therefore you get that impact. So, coming to one of the most important slides, how are we doing then in terms of controlling our costs? Year-on-year, we are up in absolute terms. We should remember that we have increased our investment in R&D. And if we exclude acquisitions, we have actually reduced the cost by 2% compared to the previous year. So I would say that we are seeing that some of the actions we have taken are starting to kick in. Sequentially, we are also up and a part of this is explained by seasonality where we normally have higher costs in Q4 than we have in Q3. Net financial items were SEK 301 million, which is considerably lower than last year even though the interest rate net is higher. And the main explanation for this is currency translation effect. Our tax expenses were SEK 747 million higher than last year. The effective tax rate is also higher. And I would say, this is explained by geographical mix depending on in which country we are earning the money and what tax rate you have in each country. So, how well the company translates profit into cash is important. And in this quarter, our cash conversion rate was 104%, which without any doubt is a very strong number. And our operating cash flow was a record high. It increased more than 60% year-over-year and it was almost SEK 4 billion. And the reduction of inventory due to the strong invoicing of equipment is really a positive contributing factor here to the cash flow. If we then move on to working capital, it did increase year-over-year. It's up 12% to SEK 24.3 billion. Also in relation to revenues, we had an increase. The main explanation here is acquisition and also currency. So when we look at this year-on-year, we don't really see any progress. But if we turn the page and instead focus on the sequential development, it clearly looks better. So between Q3 and Q4, the working capital was more or less flat and our inventory was reduced by SEK 1 billion. Our receivables increased by SEK 1.5 billion and payables increased by -- and that's, of course, given the strong sales we had and also payables increased by SEK 600 million. If we look at it in relation to sales, working capital decreased sequentially. So this has been a strong focus point. We talked about it many times before. And also onwards, we will keep on pushing for increased efficiency when it comes to working capital. Regarding capital efficiency, we ended the year with a net debt of SEK 14.8 billion and the increase is driven by the acquisitions we made. Our net debt-to-EBITDA ratio was 0.93% and sequentially, that's down from 0.97%. Return on capital employed 20.6% and it's, of course, impacted by acquisitions and the associated intangible assets such as goodwill. Finally then on dividend. Today the Board proposed to our Annual General Meeting, a dividend per share of SEK 3.80 to be paid in two equal installments where the record dates are May, 12 and October, 14. And this equals a cash outflow of SEK 4.6 billion and it's a payout ratio of 53% of the EPS or earnings per share. And just a reminder then on our dividend policy, it says that we shall provide long-term stable and rising dividends to our shareholders and that the dividend should correspond to 50% of net profit over the cycle.

Helena Hedblom: Thank you, Hakan Folin. So, then to sum up the quarter. So we have seen a strong demand within mining represented 78% of our orders. We show organic growth for both equipment as well as service. We landed large orders in the size of SEK 820 million, out of which two of them were for connectivity, wireless connectivity. Mixed infrastructure demand with solid demand for tunneling and civil engineering and weaker demand in construction. Record high revenues and reduced inventory. That's good to see. Margin been impacted by the weak construction and revenue mix but the actions start to bite and we continue. A record high cash flow of SEK 4 billion in the quarter, and most importantly, proven innovation leadership and value creation for customers. So looking ahead, we expect in the near term that underlying mining demand both, for equipment and aftermarket, will remain at a high level, while the demand from construction customers is expected to remain weak.

Karin Larsson: Perfect. Thank you very much, Helena and Hakan. Good presentation and very quick, and I know we have a lot of questions. So operator, you may please open the line.

Operator: [Operator Instructions] The next question comes from Gustaf Schwerin from Handelsbanken. Please go ahead.

Gustaf Schwerin: Yes. Hello. Thank you. Gustaf, Handelsbanken. I have two. I'll take them one by one. If we start with the Tools & Attachment margin, I'm struggling to understand the sequential development here. I guess it looks like you have some seasonality historically but that has typically been on lower deliveries as well, which is not the case this year. And I guess the magnitude has also been a bit smaller. With the similar M&A dilution as you have in Q3, how do we get to the 300 bps lower margin sequentially? Is there some mix effect? Are there specific costs to point to? Or is there something else that ticks up? That's the first one.

Hakan Folin: Okay. So, I would say, there are two reasons. One is the seasonality, as you mentioned before, we usually are a bit weaker in Q4 from a margin perspective within Tools & Attachment. And then the second one, we had some, call it, partly one-time related costs in the business when we look into what we can do more efficiently overall in the business. We also had -- we also encountered some one-time related costs in Q4, which we should not have in Q1 again.

Gustaf Schwerin: Right. Do you want to give us a rough sense of the mandate there?

Hakan Folin: I would say, they're at least meaningful enough that we mentioned them now. I mean we all -- you can say, in all quarters we have some costs, which we don't expect that -- if you run a big company, that will happen. But in this quarter for Tools & Attachment, they were definitely larger than they would be normally and therefore, should not be repeated in Q1.

Gustaf Schwerin: Perfect. Secondly, on the equipment deliveries, which were strong in the quarter. I mean you're obviously mentioning more normalized lead times. You've had an equipment book-to-bill under one for the past year. But when I look at the difference between orders and sales in the, say, past instance? Thank you.

Helena Hedblom: I think we -- what we have been struggling with is the output, as we have said in the last stage. There is still more equipment on its way out. When you look at the, I'll say, the book-to-bill on equipment, also remember that some of the -- we have taken quite a lot of large deals, and they usually have delivery plans, which could be over several years. So that is always something to consider when we talk about large deals. So it's not that all of that will materialize in six to nine months.

Gustaf Schwerin: All right. That's very clear. Thank you.

Operator: The next question comes from Michael Harleaux from Morgan Stanley. Please go ahead.

Michael Harleaux: Thank you for the presentation, and thank you for taking questions. I was wondering if you could tell us a little bit more about the weakness that you expect in construction markets. Would you think that it is realistic to expect those markets to inflect at some point during the year, might be H2, not H1. And then if you could also update us on your acquisition strategy? Are there some areas in the business that you would like to reinforce through inorganic growth? Thank you.

Helena Hedblom: If we take the construction, which is then mainly related to housing and deconstruction, there are two components in this. So we have seen clearly lower demand through the year. We don't near term see an uptick in demand. However, the depletion of the inventory that has been there in our channels, that was a reduction of inventory starts to come. It's not finalized yet, but at least we have for every quarter, we're coming closer to that, which, of course, will give us better absorption in our factories, et cetera. When it comes to the acquisition strategy, we have done a lot of acquisitions in the last couple of years. We are -- when we look at what we have -- what we are, I would say, always evaluating, it's to things we can do to strengthen our position within these three technology shifts that are shaping the industry, so within automation and electrification and digitalization, but also aftermarket to strengthen the aftermarket. So it's no change in M&A agenda. But I would say smaller bolt-on acquisitions, that's what we're looking at.

Michael Harleaux: Thank you. That's really very helpful.

Operator: The next question comes from Chitrita Sinha from J.P. Morgan. Please go ahead.

Chitrita Sinha: Good afternoon. Thank you for taking my questions. So my first one is on Stanley. So last quarter, the profitability was around mid single digit. So can you comment on how that has developed in the Q4? Is that broadly stable? And whether the impact of the inventory step-ups that you mentioned previously is done now?

Hakan Folin: I can take that. Yes, the impact from the step-up values that is now done after Q4. Second -- or rather on your first question, actually, in terms of profitability, some of those onetime related costs that I mentioned on the Tools & Attachment as such was within STANLEY Infrastructure. So from that point of view, sequentially, it was on a lower level.

Chitrita Sinha: Understood. Thank you. And then I have a follow-up on just the question on infrastructure demand. Could you please comment on the regional development between North America and Europe? Is there anything that regionally is changing? Or is it broadly stable sequentially?

Helena Hedblom: I'd say we see the same pattern both in the US as well as in Europe. For us in Europe, it's Germany and France that are big markets for us. But I would say it's the same pattern. It's a little bit different on different type of products that is being used in these two markets. And therefore, we see also this inventory reduction is happening a little bit at a different pace in the different parts -- if you compare Europe compared to US. But overall, I would say it's a slow environment when it comes to housing.

Q – Chitrita Sinha: Thanks very much.

Operator: The next question comes from Klas Bergelind from Citi. Please go ahead. The next question comes from Edward Hussey from UBS. Please go ahead.

Q – Edward Hussey: Hi, there. Thanks for taking my question. Just going back to the margins within STANLEY. So acquisitions are 4% dilutive to G&A this quarter, 3.9% last quarter. Obviously, last quarter you also had some one-offs relating to restructuring, plus this quarter, you'd probably expect that inventory effect to be less negative. And you would expect some positive effects from the restructuring to begin to come through. So I'm just wondering, if you could just try and explain underlying, why it is that it's got worse. I mean, was it purely these one-offs? And if it was, can you just give us a bit more help in terms of what is one-off actually related to?

Helena Hedblom: I would say, it's this one-offs, but also that Q4 is normally seasonally, a weaker quarter. And that has been the trend for -- within this segment also many years -- over the years, with our attachment business.

Hakan Folin: And I would say, for the actions we have taken within STANLEY, for example, then consolidating three sites into one. We will start seeing the impact of that in 2025. We have not really seen that so far.

Q – Edward Hussey: Okay. Thank you. And I guess just on that inventory point as well. I mean, you say, it's now done with, but was it a worse effect in Q4 than it was in Q3?

Hakan Folin: No, was similar.

Q – Edward Hussey: Okay. Thanks very much.

Hakan Folin: Thank you.

Operator: The next question comes from Klas Bergelind from Citi. Please go ahead.

Q – Klas Bergelind: Here we go. Hi, Helena, Hakan, Karin. Klas at Citi. So first on the drop-through in E&S, Hakan it's now positive year-over-year against the easy comp of last year, you're doing around 17%. I had a little bit more than that, which would have been sort of a flat stack drop-through. I'm just trying to sort of bridge that as service versus equipment was in line with my forecast are now in balance. So on the mix in service, so did circular and digital, grow much faster quarter-on-quarter versus parts and kits. I'm just trying to understand, if the service mix are you within service worsened, if you can start there?

Hakan Folin: The simple answer would be, yes. It's not huge, but slightly, yes.

Q – Klas Bergelind: Are you seeing any sort of pickup on the parts and kits side? Because, you see a lot more activity at the miners on copper production, they're beating estimates and so forth? Or is that too early?

Helena Hedblom: I would say, that that is of course, something always that this is to drive customer share. So I wouldn't say, that it's maybe not related so much to the actual use of the equipment. There it's more, let's say, the larger components and the larger rebuilds that are way more tied to that. So I would say, this is more our own I would say, ability to grasp that customer share of pure parts.

Q – Klas Bergelind: Okay. My very final one is on perhaps, a little bit more, big picture question, Helena. When you look back at the M&A that you've done, over the last couple of years, first on the software mixed fleet automation side. Do you feel that you now have the right platform to grow from, that it's now perhaps more the focus to move, more to a combination of growth and margin improvement rather than doing much more M&A in software? And maybe, the same question on construction, should we see STANLEY infrastructure maybe as an outlier, given the strategic nature of getting embedded in direct foothold in North America or are you keen on more construction-led M&A? The questions reflect very much the conversations, we have with investors that are wondering about the M&A strategy.

Helena Hedblom: We have a very good platform now, when it comes to the digital side. And it's -- of course, it had taken us some years to put the full assortment together, and also to scale. But I'm super pleased to see now that we are up 30% on orders in 2024, on digital solutions. So I think this is – now, it's time to start harvesting this and really get the scaling going. On construction also, with the STANLEY acquisition and ACB+ I would say, as well. We have a very good now platform to leverage for organic growth moving forward. So I don't see any big acquisitions within software or within construction moving forward. I think we have a very solid platform now. If anything it will be to add on smaller things built on things, but I think we have a very solid platform now to really focus on organic growth moving forward in these segments.

Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.

Christian Hinderaker: Yes, good afternoon, everyone. I wanted to start on the gross margin 34.7%. On my math that means it's only been lower twice historically, second quarter of 2022 and fourth quarter of '17. Is that entirely the dilution impact on Stanley and the mix discussion? Or is there something else that I've missed?

Hakan Folin: I'd say, it's to a large extent, a few factors as mentioned mix, maybe I'm not sure exactly which mix you referred to, but I would say there are two mixed components. We have a high share of equipment in this quarter, same amount as we had in Q4 last year, but clearly higher than what we had in Q3 for example. So, equipment mix is definitely one. And then the third one then would be the service mix that we talked about earlier when we discussed margin.

Christian Hinderaker: And then maybe moving down the P&L. If we just talk about SG&A, I think it was SEK 2.5 billion versus SEK 2.8 billion in consensus. Can you just talk a little bit about what proportion of these costs are volume driven versus volume agnostic. Just want to understand, whether SEK 1 billion is now for each of marketing and admin costs a reasonable run rate given the cost actions you've taken?

Hakan Folin: I would say, they are short term, they are not so volume driven. Obviously, long term, they are as we grow the business and make acquisitions et cetera. But in the quarter or in the half year, they are not very volume driven.

Christian Hinderaker: Thank you. And then maybe just finally just this one-off...

Hakan Folin: Especially if you think about SG&A, if you also add there when I show this graph, it also include R&D. R&D obviously that's up to what Helena and myself gives the division so that we can choose to pull down if we would like to. But obviously, we'd like to invest in innovation. So we still allow them to spend that money on good and useful R&D.

Christian Hinderaker: Sure. Understood. And maybe just finally just these one-offs you mentioned, the property sale and then also I think you talked about one-offs in T&A. Can you just explain why the property sale wasn't a one-off? And then in G&A, if there was a margin impact why is the reported and adjusted margin for the quarter both at 8.4%. I didn't clarify that. Thanks.

Hakan Folin: Sorry, both of those were last year -- sorry, it's problem now when we're into 2025. Both of those were in 2023 in Q4. So we had a positive impact in 2023 from selling this property in Japan in the Equipment & Service segment. And we had a negative impact in the Tools & Attachments segment when we took the restructuring cost for Essen in Q4, 2023, not in Q4, 2024. Then in Tools & Attachment, we had no items affecting comparability.

Christian Hinderaker: Understood. Thank you.

Operator: The next question comes from John Kim from Deutsche Bank. Please go ahead.

John Kim: All right. Good afternoon. I'm wondering if you could comment on what you're seeing in the Stanley book of business right now. And if we could expect kind of more formal guidance on synergies on that business? Is it too early? Is it going to come through as you execute the strategy? How should we think about that?

Helena Hedblom: That was Stanley after one synergies for the standard business right?

John Kim: Correct.

Helena Hedblom: Yes. So Stanley, if I look at this the products are very complementary. So we had a strong set of products. Stanley Infrastructure came with another set of products -- also the footprint, if you look on our strengths in different markets are also different. We have a very strong position in Europe. Stanley had a very strong position in North America. So clearly on the sales synergy, this is in our own hands and that is something that we are starting to leverage now to really take the say the products through maximizing the potential with the channels as well as with a very strong set of the brands that we have acquired as well. So on the sales side that one is ongoing as well. So that is -- we say has nothing to do with the environment that we are in or demand. That is our -- us maximizing the potential now we have with these two sets of product lines. And I would like to add to that as well that the acquisition of ASB plus which is then this coupling units that you put on excavator improve the productivity. That is also a very crucial solution when it comes to really driving productivity in this segment and something that also is going to say help our customers to become more productive.

John Kim: Helpful. Just a quick follow-on to that. If we think about 2025 and beyond do you have a definitive view as to the cost structure you want to employ. How should we think about headcount or production centers is next year?

Helena Hedblom: Yes. So we have this -- the way we are running manufacturing is very much we try to be -- to always have additional workforce in our structure so that we can flex as volume goes up and down. That is something that we are always working with. If I look on the -- we have reduced over 1,000 employees this year or last year that is a combination of both in service as well as in manufacturing in the entities where we see that we have low utilization or lower volumes. So we are very precise but we're also consolidating sites. And that is something that we are say continuously reviewing to become more efficient and effective long term.

John Kim: Okay. Helpful. Thank you.

Operator: The next question comes from Benjamin Heelan from Bank of America. Please go ahead.

Benjamin Heelan: Hi. Good afternoon, guys. Thanks for taking question. Sorry to ask on T&A margins again, but I'm still a little confused about what some of these one-offs are. So can we just kind of go through them in a little bit more detail because I'm getting a lot of questions on it. I'm not really sure I understand exactly what's driven the pressure this quarter? And if Stanley is down again sequentially in Q4 versus where it was in Q3 it's obviously going to be around a low single-digit margin. It was I think roughly in the very low teens from an EBIT perspective when you bought it. So how should we think about the recovery of margins in Stanley in 2025 as these one-offs as you're kind of pointing to them will reverse? Is it going to be a significant snapback? Is it going to take more time? I really would -- I think we need a bit more color on that. And then on construction can you talk about the pricing environment and how the pricing environment in North America has been playing out over the past couple of quarters and how you see that into 2025? Thank you.

Helena Hedblom: Do you want to start?

Hakan Folin: I can start with the G&A margins then. Well as mentioned seasonality is one factor. If you look historically you can see that margins in T&A are usually lower in Q4 than. And then secondly we had a number of call and onetime related costs. It's very much about us trying to become even more effective and efficient in the business going into next year taking -- making sure we're doing the right action, cleaning up a few things and that did have an impact on the margin in Tools & Attachment in Q4. But as I said they were large enough to be meaningful to mention here and we don't expect it to come back in Q1. Then on the recovery of Stanley, I'll take that Helena and then I leave the last one for you. It obviously depends on the market. Now we have done a lot on efficiency improvements that we expect to see in 2025. We also had the step-up value of inventory. That's not going to happen again in that's over and done with. So we expect any to improve better in 2025 than in 2024. However in order for Stanley to get back to where it was at the year before we acquired it we obviously need the market to perform better as well. And that remains to be seen when that will happen.

Helena Hedblom: And on the question on pricing. So these are productivity solutions for our customers and always tied to the value that we add. So I don't see any, let's say, risk of pricing. We continue to work with pricing as we have always done in this segment as well. And because this is a very -- this is also a very small niche. And there that's how we target when we enter into a new segment, we target the attractive niches where we can work on productivity and by that also improve the value for our customers and work with pricing.

Benjamin Heelan: Okay. Thank you.

Operator: The next question comes from James Moore from Redburn Atlantic. Please go ahead.

James Moore: Good afternoon, everyone, and thank you for the time. Can I also get back to the T&A margin? Maybe I could try it a different way. Inventory step-up, I understand, it goes to zero next quarter. Was the fourth quarter inventory step-up, the same magnitude I would estimate SEK 20 million in the fourth compared to the third? I just want to be clear that the increased one-off costs are not also bucketed into the inventory step-up bucket. That would be the first question. I've got a few technical ones if I could.

Hakan Folin: The simple answer on the first one is yes. It's been the same in all three quarters. So, yes.

James Moore: That's great. And is it the same for the PPA, that's retaining three quarters.

Hakan Folin: You mean the intangibles the amortization of intangibles, the difference between EBITDA and EBIT. Yes.

James Moore: Yes. So coming back then to the underlying margin, which is the core of the question. Would it be fair to say that the SEK 40 million in the bridge, that's allocated to structure acquisition, is entirely acquisition and basically STANLEY and ACB, would that be fair to assume that the minus 40% on whatever the revenue is about SEK 900 million i.e. it's a minus 5% margin for the acquired revenues collectively. Would that be a fair assumption?

Hakan Folin: I think the fair assumption is if you take away the structure thing that we had last year, add some [ph] that I mentioned for Tools & Attachment segment, we had no one-time items this year, so from that point of view, yes you can do the math.

James Moore: Sorry, is that correct math? I'm not sure, because there's three buckets inside your -- because you don't do an adjusted EBIT bridge, you do an EBIT bridge, which always causes the confusions. So we got to do the one?

Hakan Folin: Yes. But what I tried to say was that the items affecting comparability last year was this cost for Essen of SEK 158 million that I mentioned before. And this year we did not have any items affecting comparability in that part of the bridge.

James Moore: I'm not referring to it. We're just going to the breakout in bridge, you talk about minus 40. Is that minus 40 million reflective of the acquisitions only?

Hakan Folin: Okay. Now I think I see what you mean. And yes, that would be it.

James Moore: Top line. So you break the 118 down into the three parts.

Hakan Folin: Yes. For now, yes -- so that's a -- that's what I tried to say if you do the math, that's where you get, yes.

James Moore: Yes. So we're talking about going from a mid-single-digit positive margin. Presumably ACB is positive, I don't know, but presumably on Pure STANLEY, we're talking about from a mid-single-digit positive margin to mid-single-digit negative margin is a very big swing. Could you say whether there's one-off cost aspect of that is 100 bps, 300 bps, 700 bps and I think we would like to have some clarity on what is simply the one-off aspect dropping out and what the underlying EBIT margin of STANLEY is looking like in the quarter? Before we sort of turn to the question what was true underlying profitability improvement is done.

Hakan Folin: Yes. It's not only STANLEY. It's also ACB+ as part of the acquisitions. So you have both those companies in there and ACB+, as Helena mentioned, the main market for us Germany, France, U.S. France is also from a construction point of view weak and Q4 in Europe seasonally weak as well. So, you have both of those companies in there.

James Moore: And the rough magnitude, could you actually provide the magnitude?

Hakan Folin: No, we prefer not to split those acquisitions. We normally don't. But you -- I mean you can judge by the size of them. If you look at the revenue obviously, STANLEY is more impact for the ACB+.

James Moore: Maybe I'll just try another way sort of keep going on. But STANLEY margin potential that I think you believed you could get back to a double-digit margin at some point during the course of this fiscal year. Do you still believe that you can do that?

Helena Hedblom: Yes, we still the long-term that we can get back to. And of course, we see fantastic opportunities when it comes to sales synergies. Right now, it's a tough market environment and we are taking the actions that we need to take to adjust, and be ready for when the market starts to take off again. But there is more we can do just to work on the synergies between the, was say the previous offering we had in Epiroc and offering we now have with the Stanley infrastructure products.

James Moore: Thanks very much. I do appreciate that.

Helena Hedblom: Thank you.

Hakan Folin: Thank you, James.

Operator: The next question comes from Magnus Kruber from Nordea. Please go ahead.

Magnus Kruber: Hi everyone. I am Magnus from Nordea. Two questions from me. I'm sorry I'm going to refer to the same the same topic. Could you talk a little bit about the nature of the T&A one-offs? Is there any -- is it purely operational? Or is there any provisions in there which could sort of indicate that there is some cost out going through '25 that we could benefit from at some point?

Helena Hedblom: Pure operational, I would say.

Hakan Folin: Well I think you mean if there are -- if we have taken costs now that will have a positive impact later on. Yes.

Helena Hedblom: Yeah. Yeah.

Hakan Folin: Yes that's the case, if that's what you meant, Magnus, right?

Magnus Kruber: Yeah. Exactly, that's right. And then separate also good to see that you have good orders in the Digital business. I think it's at 30% or 34% in the year. So how much further do we need to scale before this stops to be sort of a mix headwind in another 30%? Or are we talking about 100? How much extra do you mean.

Helena Hedblom: Yeah. But I think we start to -- what we see here now is that we have a very -- as I mentioned earlier we have a full offering now. So it's not that we scale in each and every component of this. We managed to bundle the solutions now and that's also why the scaling goes faster. So the deals we are negotiating when it comes to digital today, consists of many components of our offering. But we believe in this both long-term and I would say mid-and short-term digital to digitize mining is one of the -- I would say fastest way to improve productivity for our customers. So it's more a matter of our ability to scale it and use our global footprint in the different markets. But I'm really pleased to see the traction. And we will continue to push this, a lot during 2025 as well. So here it's about the growth. It's about we see huge potential when it comes to growing this business. And of course with scaling counts also we'll say the flow-through.

Magnus Kruber: But how much is that? Sort of how much do we need? Is it the doubling we are looking at to get kind of an understanding of how long this mix issue will be with us?

Helena Hedblom: Look, on -- I think with the orders received we have the increase in orders received of course you will start to see that will start to be shown in the impact during 2025. And hopefully we will continue to outgrow with this business and really let's say and that of course will continue then to deliver better scaling of digital business is that's the trick there because it's not really more cost related when you scale.

Magnus Kruber: Got it. Thank you so much.

Helena Hedblom: Thank you.

Karin Larsson: Again, Karin here. There are no further questions, but I'm sure you have a lot of thinking to do. So Helena, Hakan and I, Alexander as well, we will be ready for you if your questions please reach out. Some of you have booked calls we will take them in proper order. And then we have some booked calls in the afternoon. But please reach out. I'm sure we will help you further onwards. Thank you very much. And we wish you successful investments all of you. Thank you.

Helena Hedblom: Thank you.