Epiroc AB (publ) (EPIA) Earnings Call Transcript & Summary

Hello, and a warm welcome to the Epiroc Q4 Results Presentation. My name is Karin Larsson, Head of Investor Relations and Media here at Epiroc. With me to present the results, I have our CEO, Helena Hedblom; and our CFO, Hakan Folin. As always, we will have a brief presentation, and then we will have time for Q&A after the presentation. So, Helena, over to you. Thank you.

So, a warm welcome also from my side. So let's start with a few words on the full year. So, 2023 was an intense year, defined by major achievements and partnerships. So, overall, our order intake increased 11% to SEK 59.3 billion, supported by a strong mining business, while the demand from construction customers decreased. In the year, we won several large orders from customers that have been customers or should I say, partners of Epiroc for many years. And one example is the largest order we ever received, SEK 700 million, which was from Kamoa Copper in the Democratic Republic of Congo. And this order shows the importance of a consistent commitment and delivery on the service side. And as you know, we focus a lot on improving and strengthening our service presence. And every quarter, we open up new service workshops at or close to customer sites, and we also work hard to safeguard high availability of parts and consumables for our customers. And this service commitment led to more equipment orders and growing consumables business in 2023. On the automation side, we had a particularly strong development. So, we won several large orders and the interest for mixed fleet automation was higher than ever before. So, by using our solutions for mixed fleet, our customers can strengthen productivity significantly on machines produced by other manufacturers. And as you know, we acquired Remote Control Technologies, RCT, in December last year, and it is growing strongly, which further strengthens our market leadership in the automation space. So, all in all, acquisitions contributed with 9% to the order growth in 2023. The acquired businesses within electrification are also growing well. And many of them are enabling businesses which, in short, means that the solutions we bring help customers get the battery electric vehicles to perform their best. Our dedicated battery electric architecture means that all our battery electric machines are more productive than the diesel equivalent. So, we have a high proportion of recurring orders for battery electric equipment, which means that our customers see the benefit of our solutions. And one customer among many that understands this is Boliden. And they gave us a large BEV order during the year and with them, we also collaborate to develop an electric trolley truck system. And ABB is also an important partner in this development. Another supplier with whom we have strengthened the collaboration during the year is the Swedish steelmaker, SSAB. And with their help, we can now produce certain equipment with fossil-free steel. Our revenues grew 21% to over SEK 60 billion, a milestone and our operating profit was also higher than ever before. Our cash-generative business enables us to invest for the future, both when it comes to R&D, as well as acquisitions. And our investments in R&D were at all-time high, roughly 3.2% of revenues. And we completed 3 acquisitions, and we announced another 2 in the year. We also celebrated 150 years since our foundation and also 5 years as a stand-alone company under the Epiroc brand. And since the end of 2017, the last full year as part of Atlas Copco, we have increased our order intake with 75% revenues with 92% and operating profit EBIT with 122%. This is a strong performance that we can be proud of. And together as a team, we have shown strength and resilience, and we have overcome major and unpredictable challenges in the recent years. For example, we have managed to the COVID-19 pandemic well, and we exited our fourth largest market, Russia, as a result of the war in Ukraine. And it is the Epiroc colleagues who actually makes it happen at Epiroc. We have more than 20,000 passionate colleagues who share a relentless ambition to bring value to our customers, not only today, but also in the future. So, thank you, all colleagues for your hard work and your commitment. If we then look into Q4, specifically, the words I will use to describe the quarter are very much the same as for the year. So, we had a strong mining business. We won several large orders and in total, these large orders amounted to SEK 1.2 billion. Of course, every order regardless of size with every customer is important, but one of the orders that stood out was our largest order ever for digitalization. So, we will strengthen safety and productivity at Codelco's El Teniente copper mine in Chile by supplying digital solutions to them. And the total order value for this multiyear order is SEK 250 million, of which SEK 50 million was booked in the quarter. So, it's pleasing to see the strong demand also in the digitalization space. Within construction, the customer activities remained weak in the quarter as anticipated. And we do expect that the construction weakness will remain for the foreseeable future. So, we have taken and we'll still take actions to adjust the organization to the lower level of construction demand. On a positive note, we had good equipment output and strong revenues in the quarter. And this, in turn, led to improved and strong cash flow. Our cash-generative business and our strong financial position enabled us to invest for long-term growth, for example, in acquisitions. And in the quarter, we announced 2 acquisitions, and one of them is Stanley Infrastructure. So, together, we will become a stronger supplier of excavator attachments, especially in the US. We are set to capitalize on the strong growth trends in deconstruction and recycling and its strong and innovative brands includes, LaBounty, Paladin, Pengo and Dubois. So, Stanley Infrastructure has estimated revenues in 2023 in the range of $450 million to $470 million, corresponding to around SEK 4.7 billion. They have an EBITDA margin in the mid to high teens and about 1,380 employees. So, we expect that this acquisition will be completed towards the end of the first quarter. And the purchase price is $760 million, equivalent to around SEK 7.8 billion, and it is an all-cash transaction with secured financing through a bridge facility. The other acquisition is Weco Proprietary Limited, which manufactures precision-engineered rock drilling parts and expands Epiroc's portfolio of spare parts in the growing and very important African region. And on the topic of large orders and partnerships, I already mentioned a few large orders, but I also would like to tell you about the ones I haven't. So, in Q4, we received an order from Shandong Gold Group, one of China's largest gold mining companies valued at about SEK 350 million. Epiroc has supported the development of Shandong Gold Group with various underground mining equipment since 1986. And another long-term customer is Eti Bakir in Turkey, who gave us a large recurring order in the quarter. It amounted to SEK 280 million and includes MT42 Battery-driven mine truck. Our MT42 is up to 10% more efficient than our diesel equivalent. And I dare say that it is the most productive battery electric truck in the market in this size segment. On the innovation side, we have several interesting things going on, but sometimes, it is the small improvements that drive sales and customer share. And our new range of drill bits and roads, the Epiroc gray line, are specifically developed for the European quarrying and surface construction drilling. Manufactured with high-quality steel, they increase rock drilling efficiency, and they are ideal for less demanding rock conditions. In the aftermarket, we had a mixed demand picture. So, for service, we achieved an organic order growth of 6%, which reflected a continued high activity level, as well as a continued good demand for larger rebuilds. The demand from construction customers remained weak, which impacted the Hydraulic Attachment business negatively. And the strong mining demand was however, reflected in the consumers business for which revenues increased year-on-year. In total, the aftermarket represented 64% of our revenues in the quarter, unchanged from last year. And the reason for the number being the same is to a large extent explained by our acquisition of CR. The company with annual revenues of around SEK 1.7 billion is growing well and has strengthened our position in ground engagement tools, such as cost lips, teeth and protected routes installed on mining buckets and loaders. Operational excellence is a strategic area for us, and we always have initiatives to improve the way we do things. On the supply chain side, especially within parts and service, we see a positive trend when it comes to availability. With several new distribution centers rolled out, the parts availability has been on a very high level consistently this year, which has led to higher customer share and stronger customer relationships. And this in turn also results in more equipment orders. As I said before, we experienced a mixed demand picture and we need to adjust the organization to match the level of demand it meets. And this means that in Tools and Attachments and particular in attachments, we need to do more and improve profitability. We have several actions implemented, but let me emphasize what we said in Q3, this is not a quick fix. One example of an action taken to improve the profitability for hydraulic attachments, is the consolidation of our European manufacturing in this space by planned closing of the manufacturing plant in Essen, in Germany. For mining, on the other hand, we see good demand for underground equipment in particular. We had a very strong quarter on all lines, and we need to further strengthen our production capabilities. So, we have, for example, in the quarter, secured an additional facility in Örebro, Sweden, which will increase our assembly capacity and improve our capabilities to produce early stage and prototype machines. On the topic of sustainability, we have seen good progress in the quarter, especially on safety. But that said, in January, we lost a service technician in a road traffic accident. So we are deeply saddened by this, as our thoughts go out to his family, friends and colleagues. And we're also sending our thoughts to those who sustained injuries in the accident of which 2 further colleagues, Epiroc colleagues and we sincerely hope that they will recover as soon as possible. And then on a more positive note, our company is growing at year-end. We had 18,200 employees and the increase is mainly explained by acquisition. And in addition, we have more than 1,700 colleagues in external workforce that also contributes to the success of Epiroc. We have improved the share of women employees and managers further and diversity in all its forms, is still a prioritized topic for us. And for comparable units, we have reduced CO2 in operations with 25%. And this is really an achievement and it's driven by several initiatives, including the installation of solar panels and a higher share of renewable electricity. On the transport side, our emissions are 2% higher, which is mainly explained by higher volumes delivered. So, before handing over to Hakan, a few words on the people side. Our highly appreciated President, Sami Niiranen will leave for a position outside the group. He has done a great job. So, thank you, Sami. And luckily, we have many competent colleagues ready to take on new challenges, and we are happy to have appointed Wayne Symes, as Sami's successor. Wayne has almost 15 years within the group in different positions and most recently as Vice President, Global Customer relationships, and he embraces our values, including putting customers first and building for long-term sustainable results. So, with Wayne's strong background, experience and positive attitude, I'm convinced he will be successful in his new role. So, Hakan, please take us through the financials.

Absolutely. Thank you, Helena. So, we are indeed a growing company. Our orders increased 7% organically in the quarter and amounted to SEK 14.4 billion. We see a high activity within mining, and we won, as Helena said, several large mining orders. Construction customers, on the other hand, are still cautious and hesitant. Our revenues were strong. They were up 8% organically to SEK 15.6 billion, and I will cover the profitability and cash flow development on the following slides. So, our operating profit or EBIT increased by 4% and amounted to SEK 3.4 billion. And in this figure, we have items affecting comparability of SEK 120 million, and these contributed then to the higher profit versus last year. Items affecting comparability include positive impact from a capital gain on sale of a property. We had restructuring costs and also earn-outs related to acquisitions. If we look at the adjusted EBIT margin, it was 20.7%, while the recorded one was 21%, both down versus last year, and this is mainly explained by the weakness in Tools & Attachments and also dilution from our acquisitions. And the strong growth of our acquired companies impact the margin negatively both on structure, but also organically. And in structure, the dilution from acquisition was 0.7 percentage point on group margin. In total, currency contributed positively in the quarter. We have discussed this topic before. And basically, we have revenue streams and we have inventories in many countries around the world, and this leads to several different effects on the margin. The translation effect is rather straightforward, slightly negative as the Swedish krona strengthened in Q4. However, other items such as revaluation of balance sheet, also currency and internal profit elimination, in total, they were positive in the bridge. Now, moving into the segments, and we start with Equipment & Service. Here, orders received increased by 8% organically to SEK 11.6 billion. We had a strong order growth in equipment, driven by several of these large orders. And we have announced orders that we consider large orders being above SEK 100 million, we have announced SEK 680 million, but we actually have received large orders in the total of SEK 1.2 billion, which is a record high for Epiroc. And we believe this clearly shows that many of our customers are committed to invest, and we also have the financial strength to do so. For mining contractors, for smaller customers, there's high activity in general, but of course, some customers are impacted by the higher interest rate. And we have said this before, but please note that large orders are lumpy by nature, and they come and go and they're not steady in between the quarters. If we look into service, we had an organic growth of 6%, reflecting continued high activity level and good demand for larger rebuilds. And if we look at structure for Equipment & Service, you will see a negative contribution. And this is explained by the fact that previous year, so in Q4 previous year, we had orders on hand from acquired companies, mainly RCT and Radlink, and that had a negative impact on structure. In fourth quarter, the contribution from acquisition was positive with 5%. Revenues increased 8% to SEK 12.6 billion in the quarter. And if we look sequentially, so we compare Q4 with Q3, orders received increased by 5% organically for this segment. When it comes to profit and margin for equipment and service, there are a few comments to be made to explain what actually happened between the quarters. The operating profit increased by 12% to SEK 3.2 billion. Items affecting comparability was positive with SEK 280 million, mainly explained by the sale of property. As I mentioned before, it was in Japan, and it rented SEK 436 million and then we had earn-out payments for acquisition of SEK 58 million and other costs of SEK 98 million. And the earn-out related to our digital and automation acquisition is because they have grown better than anticipated, and therefore, we have to pay more earn-out than what we actually had provided for at the time of the acquisition. And in the other costs, we have, for example, write-down of an IT platform. The operating margin was 25.6%. Adjusted operating margin decreased to 23.3% from 25.5%. And the decrease has several explanations. We did have support from currency, but acquisitions contributed negatively. And the dilution from the acquisition was 0.5 percentage points. And even if most acquisitions are now in organic, moved from structure to organic, they are still growing strongly, but at a lower margin. And this also has an impact on the overall margin for the segment. And then, we have increased our investments in R&D, in sales and in service. And if you really dig down into the details, we also have a somewhat lower share of service in the quarter, which has an impact on the margin for the segment. So, all in all, many things moving when it comes to equipment and service. But I would like to underline this, the good thing is, the business is growing well and the demand is still strong for our Equipment and Service. If I then move on to Tools & Attachment, it's a bit of a different picture. Here, orders received decreased organically by 6% to SEK 2.8 billion. The demand remained weak, mainly then within the hydraulic attachment. Infrastructure on the other hand, held up rather well. Revenues decreased by 4% to SEK 3.0 billion. Normally, we say that Q1 and the first half of the year are strong periods for construction, but we anticipate that construction customers will remain cautious, while activity will remain high within mining, which actually supports them the rock drilling tool business. But for hydraulic attachment, we expect continued weak development. If we look sequentially for these segments, the order development was actually flat organically. Operating profit then for Tools & Attachment was weak in the quarter. The weaker demand impact us in any way. We have lower revenues. We have under absorption. In manufacturing, we also have a negative product mix, where attachment is the part being weaker. We had an EBIT of SEK 243 million in the quarter. But remember, this includes then the restructuring cost of SEK 158 million for the planned closure in Essen, Germany and that resulted in a lower reported EBIT margin of 8.1%, but the adjusted margin was 13.4%. Adjusted margin had a positive contribution from currency, but acquisitions diluted with approximately 0.7 percentage points. And again, as Helena has said, we are taking actions in this segment to make sure that we improve the profitability. And a few words on the general cost, we've said it before, we invest in our business. Our R&D expenses are, for example, 17% higher than they were in Q4 last year. And for the full year, R&D expense in relation to revenues, were 3.2% and they were 2.9% in 2022. And in absolute numbers, it corresponds to almost SEK 500 million more being invested in 2023 compared to 2022. That increase is also partly explained by acquisition as they also, of course, invest in order to develop their business. Net financial items were SEK 435 million, negatively affected by exchange rate differences and also higher interest paid. Net interest was minus SEK 110 million. Tax expense, in line with previous year, we had an effective tax rate of 22.2%, somewhat higher than last year, 21.4%, but still well within our communicated range of between 22% to 24%. Moving on to operating cash flow. It has improved both sequentially and year-over-year. It increased to SEK 2.4 billion from SEK 1.5 billion previous year and was actually the best operating cash flow in a quarter in a long time. Positively impacted that we have lower buildup of working capital, we also have lower net financial items paid, lower taxes paid and maybe most importantly, then improved operating profit. And on the right-hand side, you can see the cash conversion rate, which is calculated 12-month rolling, and this was now at 66%, which I would say is good to see. You usually say that you need 3 data points to create the trend. And as you can see, we have now 3 data points moving in the right direction, and I believe now that we are back on track when it comes to cash flow. Something that still needs some improvement, though, is the working capital. Compared to last year, working capital have increased by 17% to SEK 22 billion. And if we exclude the effect of acquisitions in currency, it increased by 20%. The increase is mainly explained by a long period of strong growth, both in equipment and in service, with corresponding higher level of inventories and receivables. And as we have talked about before, a meaningful portion of the inventory is equipment that is in transit from our factories out to the final customer site. The good thing is that in the quarter, we managed to deliver quite well to our customers, which resulted in an inventory decline from Q3 to Q4. However, transport issues are still remaining, especially in what we have discussed before and talked about the so-called RORO capacity in shipping. And that actually limits our ability to get our equipment delivered out to our customers. For our regional distribution center that ties a meaningful portion of our spare parts, we also see a slow sequential improvement on the inventory side. And as you can see in the middle of the slide, the average net working capital in relation to revenues was 35.2 percentage points. Then over to capital efficiency. We have a net debt position of SEK 7.8 billion. Since last year, the main use of cash has been paying dividends, acquiring companies, and we have also tied up more working capital given that we are growing the business. We have a solid cash-generating business. And at the quarter end, we had a strong financial position with net debt-to-EBITDA of 0.49, which enabled us to seize opportunities and invest for profitable growth. And as you know, we invest organically and inorganically. And on the inorganic side, even after the acquisition of STANLEY, we will still have a strong financial position. And currently, we have outstanding and committed financing of a total of SEK 11 billion and 63% of this is green or sustainability linked. If we exclude the short-term financing, basically commercial papers, and we only look at the long-term financing, the corresponding figure is as high as 70%. On the return on capital employed, we are down somewhat compared to previous year. We measure this as a 12-year metrics. And you can see that we are still well in a good level of 27%, slightly lower than at the end of '22, but higher than at the end of '21. So, finally, a few comments on the dividend before handing over to Helena again. Our goal is that we should provide long-term stable and rising dividend to our shareholders. And the dividend should correspond to 50% of net profit over the cycle. The Board will now propose us to the AGM, which is on May 14, that we should pay SEK 3.80 per share, which is an increase of 12% compared to last year, and it's also equivalent to 49% of our net profit. The dividend will, as usual, be paid into installments, one in May and one is October. And with that, back to you, Helena.

Thank you, Hakan. So, then I will summarize the quarter. So the year and the quarter, was defined by major achievements and partnerships. We had a strong mining business, and we won several large orders. The demand is strong for automation and digitalization as well as for electrification. And the demand from construction customers was weak, but mixed. Infrastructure kept up well. We had a good equipment output in the quarter and improved cash flow. We have a solid financial position, and we will have so, also after the acquisition of STANLEY Infrastructure. We will continue to invest for the future. We will invest in R&D, in organic growth and acquire companies also onwards. We have had 5 successful years and are very grateful for all Epiroc colleagues that have contributed. I'm also grateful towards you, our shareholders for trusting Epiroc with your investments, and we will do our utmost to manage this trust and make 2024 to an even better year. So, looking ahead, not for the full year 2024, but in the near term, we expect that the underlying mining demand, both for equipment and aftermarket will remain at a high level. And demand from construction customers is expected to be soft. So, I would like to emphasize that this statement is referring to underlying demand trends and not absolute order levels for us at Epiroc. So, thank you, and over to you, Karin.

Yes. Thank you very much, Helena and Hakan. So, a lot of good things already. Let's see if we have any questions. But before we go into the Q&A, I would like to highlight the most important event this year. September '24, that's the date when we host our Capital Markets Day in Las Vegas, and we will do it in conjunction with the MINExpo, which is the largest mine fare in the world. You will get to see many of our machines and solutions, including what you see on the picture here, a large ground engagement tools in the bucket there, you can see big tooth, the lips and things like that. That's going to be very exciting. So, I hope you will join. We just sent out the registration, so you can register already now. So, Operator, without further ado, please open up the line for questions. Thank you.

[Operator Instructions] The next question comes from Klas Bergelind from Citi.

Klas Bergelind from Citi. So my first one is on the margin in E&S and the weaker drop-through. I understand that this was also driven by the very strong growth in previous acquisitions, such as RCT now part of organic with a lower margin than for the overall division. I think RCT was SEK 600 million of sales when you acquired it. What's the sales now? And how big is the margin difference versus overall E&S? And how quickly do you think you can lift the margin in RCT? And if you could also, Hakan comment on the progress on the general cost actions, I'll start there.

So, we are growing very nicely on RCT as I've been sharing throughout the year. If I look on margin-wise, yes, it's diluting. But we see, of course, this is just a year into the acquisition. So, it's delivery according to plan, but we're growing faster than we expected. And that is also the case for several of the other acquisitions that we did the previous year. So, several of these technology companies, both in the digital space, as well as in the electrification space are growing really strong.

And if I answer that on your second question Klas, in terms of the cost, I would say it's moving along well. We have taken a number of actions, I would say, across the group in order to make sure that we get costs under even better control. Then one should also remember that we both need to push the gas and push the brake at the same time. We are running totally flat out more or less in our equipment factors. As Helena summarized the year, we have grown 21%. So, we are both investing at the same time and really pushing and driving, while we also need to make sure that we are prioritizing the right things. But it's moving along well.

And if I can come back to the sort of organic M&A dilution, if you can call it that. So I appreciate you don't want to give sort of hard numbers on how big the sales is in RCT. But we know the M&A dilution in structure right now. But if you could help us a little bit with your sort of organic M&A dilution, that would be very helpful.

We will not share that number, but it's partly explained the lower margin.

And I think one thing you can do, Klas, if you just want to see the very latest changes, of course, look at what the dilution was in Q3. And there you see the difference now what it is in Q4, then you can get, okay. The ones that actually moved just in the quarter, they contributed or diluted rather that much. You see what I mean?

Yes. My second one is on the drop-through in P&A. You're obviously going to get easier compares in attachments as you go through the year. I'm trying to understand how we should think about the drop-through in the first half? And I know, you typically don't guide on margin, but I'm still going to give it a go. You have the incremental cost cutting. I'm just trying to understand, are we going to stay at this low double-digit level in the first half and then gradually improving towards mid-teens in the second. It would be great to get some feeling on that the incremental cost cutting.

I think as long as construction will be softer, we will not be on the same level as we were maybe a year ago. But, of course, as we said, we are taking a lot of actions to correct let's say, the workforce in these factories. We're consolidating sites, and we're taking the normal type of cost measures. So, of course, some of this we will be able to bring back, and that is what we're working with. But there is a mix effect in this segment since consumables is growing well. And so that's a healthy part, while we have a fairly big challenge then now related to attachment. So, it's quite specific, and that is also where we're taking the actions, of course.

Very quick final one on the Red Sea issue. You said that RORO capacity has been a recurring issue on the outbound. And now we have the Red Sea issue on top. Any signs how this will impact you going forward? I don't think you've seen anything so far. And if you could say, how much do you buy on spot versus contract when we look at freight?

So, we have contracts on freight. We have not seen an impact yet on the Red Sea situation, but that will have an impact of roughly 2 weeks increased lead time, should we take another route for those flows. The situation when it comes to RORO capacity is still a challenge, and that is purely lack of capacity of RORO capacity globally in the world.

The next question comes from Andrew Wilson from JPMorgan.

I have got 2. The first one is a bit of a follow-up from Klas's question, I guess. Just on the margin, just trying to understand and appreciate that within this quarter, there are, as you identified, some very specific issues, some of which are going to ease and I guess, some of which are going to sustain. So I was just going to try and, I guess, ask for a little bit of help to understand that because it would feel that we still have a number of quarters where the organic acquisition impact as described it is still a headwind. I am interested if you're going to be increasing R&D incrementally again. You obviously kind of helped us a little bit on the bridge there. You've got some cost savings as an offset. The lower margin businesses clearly have been very successful in terms of the growth. So I guess, it's sort of how much of the -- if I can call them issues, if that's not unfair, that you can see in the Q4, are actually going to sustain for the first half and maybe even 2024 as a whole? Just to try and, I guess, help us a little bit on the cadence, even if not with specific numbers.

Yes. As I said, I think the acquisitions are moving according to plan from a margin standpoint with the integration and all of that. But we are growing faster than, which is in a way good, but of course, then the dilution is higher. So, of course, we are working, as always, to bring those acquisitions up to the level that we have planned. So, that work is ongoing. And of course, there are efficiency work needed when you acquire -- it has been a number of years now with a lot of inorganic growth, and that also gives opportunities when it comes to efficiency, of course. So, that's when we are addressing. When it comes to R&D, I think you can expect us to be on the same level in absolute terms. We have gone up slightly now in percentage the last year, but you can expect moving forward that we will more be on the same level in absolute term.

So we were at 2.9%. We have several ways not always, but that we're going to be around 3%. We were at 2.9% in 2022. Now we were at 3.2%. And I would say for 2024, we are more going to be around closer to the 3% than the 3.2%.

So, I guess if I kind of try and wrap that up, it's likely that this Q4 is a low point on the margin, but we probably shouldn't be expecting to get back to, I guess, the recent highs, given that you just have some of these headwinds to the margin given the growth that you're seeing in some of the acquisitions, is that? And I appreciate there's a lot of moving parts, and I'm trying to simplify it, but just to try and think about that kind of cadence through the first half.

Yes. I think that's, I would say, a realistic assumption. Then, of course, we're taking a lot of actions to say, when it comes to cost efficiency. But of course, we have been growing a lot, and several of these businesses are growing really nicely now, which, of course, is fantastic for the long-term success, but we're taking a hit now short term.

I would say it's a fair way of describing the picture and then one needs to remember that we are now in a market which is a bit different. Mining is still moving on very well, construction market, not. So, in total, obviously, the total market is a bit weaker now than it was 1.5 years ago.

And the second question I wanted to ask is just on the guidance, and it's recognizing, I guess, what you're really kind of communicating is, I guess, a similar picture sequentially, and I appreciate that it's customer activity rather than specifically absolute orders. Q1 is seasonally typically a very good quarter if we look historically. And I know that large orders can bounce around, but there's enough, I think, years to kind of at least draw that influence. You mentioned around construction expected to say we cannot maybe exhibiting that same seasonality, does that sort of help us and to some extent, made this guide simpler in that it really is a kind of customer activity to be flat Q1 versus Q4? And therefore, all else equal, the orders would be in a similar place? Or should we still be reflecting some of that usual seasonality in terms of customer activity and I guess, particularly in mining?

I think in mining, we expect activities to remain high. And as we said also, normally, construction is strongest in Q1, Q2. We don't expect that we will see that this year. But I think so far, if you look on both Q3 and Q4, we have compensated well. The mining activities have compensated well, even though we have a weaker construction, we still have managed to keep the orders up. And when we look at the pipeline when it comes to business cooking, we see good opportunities when it comes to equipment, both replacement, as well as expansion of existing mines.

And just to clarify and apologies I asked a lot of questions, very quick one. Does the mining business typically exhibit any seasonality? Or is it just the construction business?

I would say this is mainly the construction business where we see seasonality.

The next question comes from John Kim from Deutsche Bank.

Just a couple of follow-up questions. Can you give us a sense on the pattern or the, I guess, the profile of weakness in hydraulic attachments? Given activity levels last year, when should we lap the weak comps? Is the hydraulic attachments business now stable at a lower level or is it continuing to decline? That would be kind of question one. Question 2, can you just comment on asset intensity and STANLEY infrastructure? I'm trying to get a sense on how we should think about asset turns before you start driving better sales through the asset and how that might affect inventory forecast for 2024?

So, I think on the attachment side, we don't see, let's say, a change in demand. As I said in Q3, there are 2 components of this. There is a lower demand, but there's also destocking happening since we're going indirect. So, we see that, that is still the case. We don't see any shift between the quarters. I think the asset intensity when it comes to -- if we look on the manufacturing set up, for example, in STANLEY, is very similar to the setup we have in Epiroc when it comes to attachments. So, I don't see that there is any difference there in how we run it. Then, of course, they go indirect as well or only indirect, I would say, so I don't see any big difference between the 2 businesses.

Just a quick question on the logistics issue. Have you seen any change in behavior from your mining customers given the added time and difficulties in delivering products? Are people preordering or ordering earlier?

No. I would say there's not preordering. I think we saw things like that much earlier. I think container freight is working well. And the container freight is where we deliver parts and consumables. It is the RORO capacity, and that's what we use for transporting our equipment. That's where we have the challenge. So, I don't see any, let's say, preordering happening.

The next question comes from Christian Hinderaker from Goldman Sachs.