Epiroc AB
STO:EPI A
Earnings Call Analysis
Q4-2023 Analysis
Epiroc AB
In 2023, the company experienced a dynamic year with an impressive 11% increase in order intake amounting to SEK59.3 billion, bolstered primarily by a robust mining sector. A key highlight was the largest order in the company's history, valued at SEK700 million, from Kamoa Copper in the Democratic Republic of Congo. The focus on customer service excellence, such as new service workshops, and a burgeoning consumables business contributed to this growth. The integration of acquisitions like Remote Control Technologies, which augmented the company's lead in automation, drove 9% of the order growth, indicating strategic M&A success.
As part of its growth strategy, the company also made significant inroads in electrification with its battery electric machines outperforming diesel counterparts, reflecting the company's commitment to innovation. Additionally, record revenues of over SEK60 billion marked a 21% rise, along with the highest-ever operating profit, signalling strong financial health facilitated by a high 3.2% reinvestment into R&D. Over five years since rebranding to Epiroc, the company has achieved monumental growth in order intake, revenue, and EBIT, further emphasizing its strategic diligence. Although facing global pressures such as the pandemic and geopolitical turmoil, including an exit from Russia due to the Ukraine war, the company navigated through challenges with foresight and resilience.
Securing large mining orders totaling SEK1.2 billion underscored the company's industry dominance, including a milestone digitalization order from Codelco's El Teniente copper mine in Chile. On the construction front, customer activity lagged; the company proactively adjusted its organizational structure in response to reduced demand, underscoring operational agility. Notable acquisitions like Stanley Infrastructure and Weco Proprietary Limited positioned the company for growth in excavator attachments and the African market, respectively. The Aftermarket remained stable at 64% of revenues, bolstered by the acquisition of CR, enhancing the company's product offerings in mining buckets and loaders.
Operational excellence remained a key strategic focus, with supply chain improvements in parts and service availability marking positive shifts. To realign with shifting demands, the company sought profitability enhancements, including the closure of the Essen manufacturing plant in Germany. A spike in demand for underground equipment necessitated increased production capacity, manifesting in securing an additional facility in Örebro, Sweden.
The financial results reflected a robust quarter with order growth, revenue increases of 8% to SEK15.6 billion, and a 4% uptick in EBIT. Marginal reductions in EBIT margins were attributed to acquisitions, emphasizing the cost versus benefit analysis of expanding the business portfolio. A leadership transition was announced with Wayne Symes succeeding Sami Niiranen, echoing the company's strategy for continuous management evolution.
The Equipment & Service segment saw an 8% organic increase in orders to SEK11.6 billion while Tools & Attachment faced a 6% decrease due to subdued demand in the hydraulic attachment space. This juxtaposition illustrates the importance of maintaining diversified business lines, enabling the company to leverage strength in one area to offset challenges in another.
The company's unswerving commitment to future-facing technologies is evident with R&D expenses 17% higher than in Q4 of the previous year, representing a considerable investment increase of nearly SEK500 million in 2023 relative to 2022. Moreover, financial resilience was maintained with a healthy effective tax rate of 22.2%, coupled with an improved operating cash flow reaching SEK2.4 billion and a solid cash conversion rate of 66%.
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Hello, Helena. So Epiroc today reported its financial results for the fourth quarter and full year 2023. First of all, how would you summarize the year?
Well, it's a strong year with major achievements. We ended the year about SEK 60 billion in revenue. So that's a milestone. 21.8% in adjusted operating margin. We have seen strong activity levels when it comes to mining, both on the [ quick mine ] side and aftermarket, while construction has been slower throughout the year.
But all in all, I would say a very strong year. The largest equipment order ever we landed to DRC, to Kamoa in DRC during the year. And also recently, in Q4, we landed the largest digitalization order. So in many aspects, a very, very exciting year.
And if we look specifically at Q4, what is your take on the quarter?
We see very similar picture. So very strong, stable demand from Mining. We grew 13% in Equipment, 6% in Imports & Service, while then Tools & Attachment had a decrease organic of 6%, and that is driven by the slower activities in housing and aggregates. So it's on the attachment side. Consumables is still growing at a healthy pace.
So that is the demand picture. Lower margin, 20.7% adjusted operating margin. So we are taking a number of efficiency measures to address that, mainly in the Tools & Attachment segment. But then in Q4, we also announced the acquisition of STANLEY Infrastructure in the later part of the quarter. So that's, of course, an exciting news as well.
Yes. Please tell us a little bit more about this acquisition of STANLEY infrastructure. It is the largest acquisition that Epiroc has ever made once the acquisition is completed. Please tell us about STANLEY and the reason for acquiring STANLEY Infrastructure.
So we -- of course, the construction segment today show a weak demand. But we believe strongly in this segment long term. Both the deconstruction side, the recycling trend is clear. And STANLEY Infrastructure, having a very strong position in U.S., complementary products to our offering when it comes to attachments, together will be a very strong player in the attachment space. And we're looking -- very much looking forward to welcome 1,400 of the STANLEY employees into Epiroc.
And looking ahead, Epiroc said that in the near term, it expects that the underlying mining demand, both for equipment and aftermarket, will remain at a high level, while demand from construction customers is to remain soft. Can you expand on this?
Yes. So the commodity prices are still holding up. When we look at the age of our fleet out there, part of this fleet will have to be replaced during the year. We also see projects in the pipeline when it comes to brownfield expansion within mining. So we expect that mining will continue to be on a healthy, solid level.
We also have, of course, the ESG trend, the focus on ESG, on technology, on automation, on digitalization supporting that. Then when it comes to infrastructure, we expect that we will not see a change short term in demand when it comes to housing and aggregates, but we still see that infrastructure tunneling, et cetera, will keep up well.
Any final words?
No, I think it's -- we have been growing 21% in 2023 on revenue. It's a strong performance. We have landed -- we have closed 3 acquisitions. We have signed another 2. And of course, STANLEY, as I mentioned, being the largest one so far. So it's a great achievement by the organization and the employees. So I would like to say thank you to everyone in Epiroc for another great year.
Thank you, Helena.
Thank you.