Interim report Q1 2020 April 23, 2020 Helena Hedblom, President - - PowerPoint PPT Presentation

Interim report Q1 2020

April 23, 2020 Helena Hedblom, President and CEO Anders Lindén, CFO

Direction forward

Innovation Aftermarket Operational excellence

2

Sustainability

• Impact on operations
• High customer activity

– Continued growth in service – Stable equipment demand, sequentially – Order intake somewhat higher than in Q4

• Lower revenues

– Negative impact from Covid-19

• Improved underlying margin
• New members of Group Management and a

more efficient working structure

• Challenging Q2
• Efficiency actions initiated

Key highlights Q1 2020

3

Limited effect on Q1 results from Covid-19

1 515 1 810 1 898 2 162 1 930 2 263 1 927 2 016 1 932 18.4 18.4 19.7 20.5 19.7 21.3 19.0 19.6 21.2 19.6 20.2 21.0 20.4 20.3 21.7 21.3 20.7 20.9 10 20 30 40 50 2 000 4 000 6 000 8 000 10 000 12 000 Q1 2020 Q1 2019 Q1 2018 9 651 Q2 2018 Q3 2018 Q3 2019 10 158 Q4 2018 Q2 2019 9 843 Q4 2019 8 233 10 558 9 785 10 626 10 280 9 134 Operating margin, % Revenues, MSEK

• Adj. Operating margin, %

Operating Profit, MSEK

• Order intake declined 3%, -4% organic
• Revenues declined 7%, -8% organic
• Operating profit at MSEK 1 932

– Items affecting comparability of MSEK +21 (costs related to efficiency improvement -44 and LTI +65) – Positive contribution from currency

• Margin improved to 21.2% (19.7)

– Adjusted margin 20.9% (20.3) – Margin supported by currency, but diluted by lower revenues

• Operating cash flow at MSEK 1 532 (472)
• Board proposes to the AGM to decide only on

the first installment of the dividend of SEK 1.20 per share

4

Key financials Q1 2020

10 000 9 800 10 200

• 4%

Q1 2019 Organic 0% Currency Structure & Other Q1 2020 9 772 +1% 10 063

• 3%

Orders received, MSEK and change, % Revenues, operating profit and margin

Covid-19

Impact Equipment

• Operational, but with negative impact on

supply of components

• Equipment manufacturing closed in India

and Italy

• Challenges with commissioning

Current status

Impact Aftermarket

• Our sales, service and distribution in the field

are operational in most places, with restrictions

• Consumables manufacturing closed in India,

South Africa and Canada

• Some mines have temporarily stopped or

reduced activity

• Construction customers also impacted

5

Actions with short-term impact

• Reduce additional workforce and consultants
• Work-time reductions and temporary layoffs
• Reduce expenses

Actions with long-term impact

• Efficiency initiatives with expected annual savings of

more than MSEK 500

• Consolidation of manufacturing
• Supply chain program

Q1 2020

Efficiency improvements

6

• Solid development in service

– Service products

• Rock drilling tools affected by optimization of the

product offering

Q1 2020

7

Increased resilience through the aftermarket

19 895 19 113 21 348 23 822 26 829 26 987 5 000 10 000 15 000 20 000 25 000 30 000 2015 2016 2017 2018 2019 March 2020 +6%

28% 45% 27%

Revenues in the quarter

Equipment Service Tools & Attachments 72% Aftermarket (66)

Aftermarket revenues, MSEK

12 months figures.

• Epiroc, in partnership with automation specialist

ASI Mining, to convert Roy Hill’s haul trucks to autonomous use

• HATCON – remote monitoring for hydraulic

attachments using MyEpiroc platform

• Epsilon premium tricone bits
• DM30 II SP – Rotary blasthole drill

Q1 2020

Leading the way in innovation

DM30 II SP – Rotary blasthole drill

8

New long-term sustainability goals

• Halve CO2 emissions

– From operations – From transport – From our equipment

• Health and safety

– No work-related injuries

• Code of Conduct

2030 goals

• Diversity and inclusion

– Double the number of women in operational roles

9

Financials

Profit impacted by items affecting comparability

Q1 2020

Operating profit and margin

11

* Q1 2018-Q4 2018 includes costs related to the split from Atlas Copco. * Q1 2018-Q4 2019 includes change in provision for long-term incentive plans. * Q1 2020 includes items affecting comparability of MSEK +21. Costs of efficiency actions of MSEK -44 and change in provision for long-term incentive plans of MSEK +65.

1 515 1 810 1 898 2 162 1 930 2 263 1 927 2 016 1 932 181 233 18.4 18.4 19.7 20.5 19.7 21.3 19.0 19.6 21.2 19.6 20.2 21.0 20.4 20.3 21.7 21.3 20.7 20.9

• 3

3 6 9 12 15 18 21 24 3 000 500 1 500 4 000 1 000 2 500 3 500 2 000

• 8

Q1 2018 Q2 2018 126

• 21

Q3 2018 Q4 2018 95 Q1 2019 39 2 160 Q2 2019 Q3 2019 115 Q4 2019 Q1 2020 1 610 1 991 2 024 2 154 1 989 2 302 2 131 1 911 59 Operating margin, % Operating profit, MSEK Items affecting comparability*, MSEK Operating margin, adj., %*

Epiroc Group – Profit bridge

Looking into the numbers

12

44 65 1 600 1 800 2 000 1 911 Organic Q1 2019 +91 +1.1 pp Structure and other +133 +1.3 pp

• 222
• 0.9 pp

1 930 1 932 LTI Adjusted operarting profit Currency Q1 2020 Items affecting comparability, excl. LTI

• 1%

“Structure and other” includes operating profit/loss from acquisitions and divestments MSEK +1, costs of MSEK -44 related to efficiency improvements, split costs of MSEK +10 = -7-(-17), and change in provision for long-term incentive programs MSEK +124 = +65-(-59). “Items affecting comparability” includes change in provision for long-term incentive programs MSEK +65 and costs of MSEK -44 related to efficiency improvements.

Margin: 19.7% Margin: 21.2%

• Adj. margin: 20.9%

• Orders received -3% organic
• Service orders +12% organic

– High customer activity

• Equipment orders -17% organic

– Investment decisions postponed

• Revenues -8% organic
• Operating profit at MSEK 1 595, including costs

related to efficiency improvements of MSEK -34

• Margin at 24.2% (24.2)

– Supported by currency and mix – Negatively impacted by lower revenue volumes and costs related to efficiency improvements – Adjusted margin 24.8%

Q1 2020

13

Segment: Equipment & Service

7 100 7 300 7 200 7 400 Q1 2019 Structure & Other Currency Organic 7 248 7 101 +1% 0%

• 3%

Q1 2020

• 2%

Orders received, MSEK and change, %

7 442 7 947 7 190 7 116 7 248 7 677 6 874 6 710 7 101 5 943 7 325 7 178 8 094 7 115 7 702 7 334 7 740 5 10 15 20 25 30 35 40 2 000 4 000 6 000 8 000 10 000 24.2 Q4 2018 Q2 2018 22.9 Q1 2018 23.9 23.2 24.6 23.9 Q3 2018 Q1 2019 25.6 Q2 2019 26.3 Q3 2019 Q4 2019 Q1 2020 24.2 6 579 Order intake, MSEK Operating margin, % Revenues, MSEK

Orders received, revenues and operating margin

14

Equipment & Service – Profit bridge

34 1 800 1 600 1 400 1 500 1 700 Currency Structure and other Q1 2020 Items affecting comparability Adjusted

• perating profit

Organic Q1 2019

• 33
• 0.5 pp

1 719 1 595 1 629

• 185
• 0.8 pp

+94 +1.3 pp

• 5%

Margin: 24.2% Margin: 24.2%

Looking into the numbers

• Adj. margin: 24.8%

• Orders received -7% organic

– Negative for both rock drilling tools and orders for hydraulic attachment tools

• Revenues -5% organic
• Reported margin of 13.5% (14.2)

– Costs related to efficiency improvements MSEK 10 – Adjusted margin 13.9%, supported by currency, but negative impact of the lower volumes

• Consolidation of production in Canada

Q1 2020

15

Segment: Tools & Attachments

2 600 2 700 2 900 2 800 Structure & Other 2 760 Q1 2019 Organic Q1 2020 Currency

+2

2 619

0%

• 7%
• 5%

2 550 2 470 2 285 2 306 2 760 2 826 2 665 2 517 2 619 2 245 2 452 2 382 2 440 2 605 2 926 2 765 2 503 5 10 15 20 25 30 35 500 1 000 1 500 2 000 2 500 3 000 3 500 13.6 13.3 13.9 12.4 11.8 12.8 13.6 Q2 2018 12.8 Q1 2018 12.4 Q3 2018 13.3 Q4 2018 2 505 14.2 14.2 12.2 Q1 2019 14.6 14.6 Q2 2019 Q4 2019 5.7 Q3 2019 12.5 Q1 2020 13.5

• Adj. operating margin, %

Revenues, MSEK Order intake, MSEK Operating margin, %

Orders received, revenues and operating margin Orders received, MSEK and change, %

16

Tools & Attachments – Profit bridge

Looking into the numbers

390 240 270 360 300 330 60 371 Currency

• 11
• 0.4 pp

10 Q1 2020 Adjusted

• perating profit

Structure and other +46 +1.7 pp Items affecting comparability 347 Q1 2019

• 69
• 2.1 pp

Organic 337

• 6%

Margin: 14.2% Margin: 13.5%

• Adj. margin: 13.9%

• Lower comparable costs

– Expenses adjusted for change in provision for LTI and items affecting comparability

• Net financial items MSEK -46 (-100)

– Interest net MSEK -33 (-39)

• Tax expense MSEK -464 (-456)

– Effective tax rate 24.6% (24.9) – Guidance: below 25%

Q1 2020

Administration, marketing and R&D expenses

17

Costs, net financials and tax

1 386 1 569 1 482 1 637 1 663 1 745 1 671 1 708 1 640 16.8 15.9 15.4 15.5 17.0 16.4 16.5 16.6 18.0 5 10 15 20 25 30 500 1 000 1 500 2 000 Q3 2019 Q2 2019 Q3 2018 Q1 2018 Q4 2018 Q2 2018 Q1 2019 Q4 2019 Q1 2020 Expenses in % of revenues A, M and R&D expenses, adj. for change in LTI provisions and restructuring, MSEK

Q1 2020

• Net cash position of MSEK 1 191

– Previous year net debt of MSEK 3 641

• Net debt/EBITDA ratio at -0.12 (0.39)
• Strong financial position

– Long-term financing in place

• First maturity in 2022

– Revolving credit facility (RCF) of MSEK 4 000 maturity extended to 2025

• Board proposes to the AGM to decide only
• n the first installment of the dividend of

SEK 1.20 per share

18

Capital structure

Net debt and Net debt/EBITDA

1 982 2 125 2 012 483

• 1 191

0.39 0.43 0.24

• 0.12
• 0.4
• 0.3
• 0.2
• 0.1

0.0 0.1 0.2 0.3 0.4 0.5 0.6

• 2 000
• 1 500
• 1 000
• 500

500 1 000 1 500 2 000 2 500 3 000 Q1 2019 Q2 2019 Q3 2019 0.05 Q4 2019 Q1 2020 Net debt/EBITDA ratio Net cash (-) / net debt (+), end of period, MSEK

Q1 2020

• Net working capital decreased 6%

– Reduction in both trade receivables and inventories – Trade payables also lower, which partly offset the improvement year-on-year

• ROCE at 26.2% (31.0)

– Impacted by cash, acquisitions and IFRS 16

19

Capital efficiency

Capital employed and ROCE Net working capital

12 158 14 062 14 174 13 457 31.8 34.4 35.3 32.6 35.3 10 20 30 40 5 000 10 000 15 000 20 000 Q1 2020 2018 Q1 2019 2019 Q1 2020 14 348

• Avg. NWC/revenues, %

Avg.NWC, MSEK End of period, NWC, MSEK

23 086 29 518 31 092 29 720 33 801 32.0 27.6 26.2 31.0 26.2 10 20 30 40 10 000 20 000 30 000 40 000 50 000 60 000 70 000 2018 2019 Q1 2020 Q1 2020 Q1 2019

ROCE, 12m, % End of period, capital employed, MSEK

• Avg. capital employed, MSEK

MSEK Q1 2020 Q1 2019 Operating profit 1 932 1 930 Depreciation, amortization and impairment 440 472 Capital gain/loss and other non-cash items 110

• 84

2 482 2 318 Net financial items received/paid 263

• 157

Taxes paid

• 385
• 651

Change in working capital

• 519
• 720

Investments, incl. rental equipment*

• 279
• 441

Pension funding and other**

• 30

123 Operating cash flow 1 532 472 Acquisitions and divestments

• 15
• 449

Operating cash flow

Q1 2020

20

* Investments include rental investments, net, other PPE, net, and intangible assets, net. ** Other includes adjustments for currency hedges of loans and proceeds to/from other financial assets, adjusted for divestment of Payment Solutions credit portfolios.

666 199 777 2 242 472 1 506 1 883 2 827 1 532 1 081 1 321 1 412 1 623 1 374 1 680 1 341 1 511 1 422 500 1 000 1 500 2 000 2 500 3 000 Q4 2019 Q1 2019 Q4 2018 Q3 2018 Q1 2018 Q2 2019 Q2 2018 Q3 2019 Q1 2020 Operating cash flow, MSEK Net proft, MSEK

Operating cash flow and Net profit

Summary and

• utlook

• Impact on operations
• High customer activity

– Continued growth in service – Stable equipment demand, sequentially – Order intake somewhat higher than in Q4

• Lower revenues

– Negative impact from Covid-19

• Improved underlying margin
• New members of Group Management and a

more efficient working structure

• Challenging Q2
• Efficiency actions initiated

Key highlights Q1 2020

22

Limited effect on Q1 results from Covid-19

Q2 comment

“We expect that the demand both for equipment and in the aftermarket will be lower and that the effects of the pandemic will have a significant negative impact on revenues and profit in Q2.”

Q&A

• United. Inspired.

Performance unites us, innovation inspires us, and commitment drives us to keep moving forward. Count on Epiroc to deliver the solutions you need to succeed today and the technology to lead tomorrow.

epir epiroc.com

• c.com

Disclaimer - Some statements in this presentation, or in conclusion to it, are forward-looking and the actual outcome may be different. In addition to the factors explicitly commented upon, the actual

• utcome may be affected by other factors such as macroeconomic conditions, movements in foreign

exchange- and interest-rates, political risks, competitor behavior, supply- and IT-disturbances.