FLSmidth & Co. A/S (FLS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the FLS conference call. [Operator Instructions] And as a reminder, this call is being recorded. Today, I'm pleased to present CEO, Thomas Schulz. Please begin.

Hello, everybody. I welcome each and everyone around the world for the information on the signing date for the acquisition of the ThyssenKrupp Mining business for us, FLSmidth, here out of Copenhagen. When we look at from the bigger picture, this is a milestone decision what we do to build, yes, further on our productivity provider #1 position in the world. We come similar as ThyssenKrupp Mining looks today from being a big project and some service company and made in the last 5 to 10 years, the journey towards the productivity provider #1 in the mining industry, built on sustainability and digitalization. That acquisition is a significant acceleration on our ambition to be leading in that sector. If we look into this transformational acquisition at first for the shareholders, there is restructuring potential, there is a big potential in the ThyssenKrupp Mining business to take it out to carve it out of the whole group structure. There is a big potential in towards higher growth towards significant higher profitability based on our business model to focus more on products and especially aftermarket, and there is quite a big package of cost synergy potential of around EUR 50 million in it. For customers, we are now, again, in the top 10 of the peer group into the mining industry and actually the leading one in the direct competing situation in technology and in size. We are then able from the pit to plant to offer any solution no matter who supplied the original equipment and services and, of course, for greenfield too. That is an unbelievable ballot and not to bypass supplier for our customers. Our improved geographic coverage and stronger aftermarket setup out of the FLSmidth culture will make us as a combined group significantly more attractive. If we then look into the third pillar on the employees, the strong talent pool, what we get because the maturity over the around 3,000, 3,500 employees by far the maturity are mining people. And they will join us. We have then a significant talent pool. We get great people on board with a great skill set, with a traditional setup to make good technology for several hundred years. And of course, we offer here a good path for development for each individual. When we then look into what we actually acquired, ThyssenKrupp Mining is the leading full-line supplier in the pit side. They have a total installed base over 15,000 units and around 5,000 are active. They are around the world with engineering centers and service centers, very much fitting and complementary to that what we have. It's around 3,000 and 3,400 employees. And as I said before, by far, the majority are business people, not overhead, not group functions, not headquarter people. They have more than 900 active patents. They are market leading and a lot of technologies. The in-pit crushing system to electrify the mine site, to digitalize the mine site, that is where we have the big potential. They have market-leading technology, for example, in grinding with the high-pressure grinding rollers, which is their invention where they have a fantastic reference list competencies and innovation. That combined with, that, what we have is very strong. The revenue is around EUR 780 million or close to DKK 6 billion for the year 2020. And the year 2020 is, of course, the worst business here after the second world war with the COVID impact and the figures are very much inflated negatively about that. If we then look into the strategic rationale, this acquisition will accelerate our growth and profit ambition and gives us in the group around 75% focus on mining. It is definitely a significant better, stronger value proposition for our customers. We cover more customer groups. We cover a bigger part of the value chain. We are very difficult to bypass any decision of investment on the mine side. We have a significant opportunity here to do the same as we did with our mining business in the last 5 to 10 years to bring it from the project service business into the product project and big service business. The aftermarket potential is significant. It gives us the possibility to be the driver of sustainability and digitalization from pit to plant in all the commodities. And the value creation with the synergy potential, what we have is quite significantly. If we look into the growth ambition what we have, here on the left side, you see a peer group analyzed. And you see where ThyssenKrupp and us are together with Cement, but the Mining block and both together, we are leading in that market in the mining space. And with the revenue, what we then generate and have in the mining space, we are one of the big players. And scale matters in mining tools, big investments of the mining industry will be only done with the suppliers who can prove that they are in size, in innovation and in capacity, big enough to play in that league. Then we look into the market. We have, since 2016, '17, a little bit up and down development in the CapEx spend in the commodity space. On the other side, we have a significant higher commodity price levels. We have well-performing end customer, but we have the lowest CapEx spend versus production rate, what we could measure ever. And the miner has to invest if they would like to keep that these production rate. If they would like to work on these deep leading ore grade deposits, if they would like to invest in more greenfields, that is where we will play and where we can help them and support them to do the business better in the future, especially under digitalization and sustainability parameters. If we then look into the value proposition for the customer in detail, here you see on the top line, where we, as FLSmidth, with the dark blue color play very strong and on the second line, the ThyssenKrupp mining business. And you see that our strong play is actually in the plant, the combination, the recovery benefication refining. That is where we play very strong. We play very strong in the laboratory equipment, too. And we have some identified areas in the minerals material handling. Whereas ThyssenKrupp plays very much in the pit side and with some extraordinary important products on the processing side, too. This is a very much complementary combination of 2 companies, which creates a fantastic setup in the whole market space. We are then able to offer to the customer from the analyze of that what they have in the deposits to the concentrate, any kind of digital and sustainable solutions and making them more productive means more profitable. That's very compelling. Then if you come to the geographic coverage. What you see here is a map where the triangles are FLSmidth side and the circles are ThyssenKrupp mining side. And the reddish color in the countries is where ThyssenKrupp is bigger than we are, and the blue one is vice versa, where FLSmidth is bigger. And you see it's quite complementary by especially knowing where mining business happens in the world, you see that with that acquisition, we get a fantastic good coverage throughout the world in the mining space. A target what we had already with the implementation of regional structure and industry structure in the year 2018. This is a step change ahead and gives us a significant better balance between the different business developments in the different areas in the world. If we then look into the business mix, especially with the aftermarket, we are around 60% aftermarket in the mining business. ThyssenKrupp today is around 30%, a little bit more than 30% in 2020. 2020 is the COVID year. The year where not a lot of capital business was awarded to the suppliers where it was quite difficult for the mining suppliers to do business at all. The potential to bring that ThyssenKrupp mining business into the range what we have, so that we are together in the range of 60% aftermarket is there. We proved it already with our own mining business that we were able to do it, and we will be able to do it with the ThyssenKrupp Mining business too. Out of that, what is it with sustainability and digitalization. It's not only about the technology. It's actually about the market. And when you look on the left side, the premium market gets bigger through the demand on sustainability and digitalization because this is not easy to do. You need a lot of innovation. You need a lot of [indiscernible] to cover that up to make an emission-free mine site. It's nothing what you can do through simple production. You really have to have good innovation and competence. That [indiscernible] premium market will grow and the combined company will play very well in that. And when you look on the right side, about different approaches of the 2 areas and the 2 companies what they do. If we look, I would like to highlight here one area, the HPGR, the high-pressure grinding roller mill. The combination, we are leading in the SAG mill part and then in the grinding part of that, a combination of both leading technologies will offer the industry a highly productive, sustainable solutions. And that's under the influence and value creation out of the whole line from the pits to plant creates a fantastic productivity improvement for our customers. Then when we look into the driver of sustainability in-pit brushing to electrify the mine site. This is what ThyssenKrupp a big, big role in the industry, significantly bigger than anyone else. We have a lot to offer from digital from sustainability. They have a lot to offer an in-pit crushing and making the pit completely electrified. Both combined digitalization gives a full line setup, which helps customers simply to earn more money in a better environmental footprint. Out of that, I would like to give to Roland regarding the value creation.

Thank you for that, Thomas. And as Thomas mentioned, we also estimate this deal to be highly synergetic. We are estimating a EUR 50 million, annual EBITDA level of synergies that would be fully implemented by the end of 2024. We are also estimating about EUR 75 million in integration costs, cost to complete the synergies that will be spent over the 3 years from '22 to '24. And let's just remember, the assumption here is that closing will happen in second half of 2022 in order for these years to apply. Another important thing with the synergy here is that this business is a carve-out. And that means that serve retains the entire headquarter structure, and we will take over the operations of this business. And that's a considerably overhead that we actually leave behind. And then we will run the mining business in the existing FLSmidth structure, that is, as you know, a more lean setup in terms of group and headquarter costs. And already there, we have a cost leverage. Geographical overlap, obviously, also offers a great part of the potential synergies and good transactionalization. If we look at the left side here, we expect most of the synergies to come from our site operations, production facilities and engineering. There will also be administrative and support function synergies, but a lot of that, as I mentioned, will be left behind. Procurement synergies, there will be some of and to a smaller extent, sales and service as we actually want the front line to be the one -- from day one, driving -- especially the increased sales and growth in service and aftermarket business. And then there will be some synergies from rationalizing the product portfolio and also combine our R&D efforts. And on the right-hand side, we have given our first estimates on how we think that the phasing of the EUR 50 million run rate synergies will flow into the P&L and also how we spend the integration cost. And between signing and closing, we expect to spend about 20% of the implementation costs, 50% in year one after closing and the remaining 30% in year 2 plus after closing. And the synergies will run in with 15% first year after closing, 80% after 2 years, and then we are at 100% run rate in 2 to 3 years after closing. And with the assumption on closing in the second half of '22, that means fully synergized by the end of 2024. And if we move to the next slide, transaction highlights, we also have to pay for this thing and the enterprise value has been agreed at EUR 325 million. And as most of you know, this is a price that we have agreed on a so-called debt-free and cash-free basis. Reality is never like that. There will be different liabilities, lease liabilities, pension liabilities and so on that will be deducted. And there will also be cash in the acquired entities that will be added. And currently, we estimate the equity value at EUR 241 million and this will be -- finally be down once we close the business expecting next year. And that also means that we are acquiring this business at an EV to EBITDA fully synergized and normalized at less than 4x post integration. And, yes, so synergies, we touched upon EUR 50 million full year run rate synergies and EUR 75 million cost to implement. We have secured funding for this acquisition through debt facilities, and we expect to supplement that with equity before the transaction closes. We plan to seek approval at an EGM to raise up to 20% new equity. At the current market conditions, we expect to raise 15%, maybe up to 20% new equity market conditions depending. And if we should say a little bit about targets then we expect TK Mining to be net profit and cash flow positive from '24 on a stand-alone basis. And then in addition, we will get the net effects from the synergies. We also expect the service targets or the share of service revenue of the acquired business to push the 60% level as we move forward. And just to say a little bit about the bridge -- about the negative earnings in 2020 and then these targets in '24, I think it's Important to remember that 2020 was the COVID year also for TK. They had some restructuring costs in 2020. At the point in time, secondly, when we acquired this business, it would be lifted out of the headquarter structure in Germany. We will, from day one, start to push sale of service and aftermarket business to the installed base that will be margin accretive for this business. And on top of that, we will add synergies. And fifthly, the management team is currently restructuring this business. They're doing considerably better from the numbers we have seen for '21. So we are confident that this is a deliverable plan. And with regards to risks related to this business, as you know, we have been working on this in more than 6 months. We have assessed the business and the projects that we acquire our customary arrangements. We have done thorough due diligence review that has been given, that is [indiscernible] from the seller. We are taking our customary insurance coverage for projects and for professional and liabilities. And for known issues and issues highlighted in the due diligence, we have done risk-sharing arrangements with the seller. And then we expect the transaction to close in first half of 2022, primarily conditional on merger control approvals. And just the next steps, we have just signed and agreed to acquire TK Mining here late July. We will start immediately filing to relevant authorities, primarily merger control authorities to get the necessary approvals. That will run expectedly 12 months, maybe a little less, maybe a little more. So I'd expect closing in second half of '22. We will, one of these days, invite for an FLSmidth extraordinary general meeting and ask for authorization to issue up to 20% new equity. And we will then execute that transaction between signing and closing and most likely sooner than later depending on the market conditions. And with that, we give it over to Q&A.

[Operator Instructions] Our first question comes from the line of Nick Housden from RBC.

I think I'll start with the service business of the assets that you've acquired. You did partially add to my original question by saying that you can get the acquired assets up to 60% services. But firstly, why is it currently so much lower than FLSmidth's current level. And how long do you think it will take to get up to the roughly 60% level? Will that be by 2024? Or is that more of a long-term project? I'll start with that.

Yes. Very good question. So the target business of the combined company is 60%, around 60% in the service business. What we already have with that -- what we have is own average FLSmidth Mining business. We were on a similar level in the aftermarket, roughly 10 years ago with the mining business. It's actually not -- nothing what we saw before this 30%, 35% aftermarket and mining. Where does it come from? It's the old weakness of engineering service companies only to be focused on the next big deal and not so much on the little nitty gritty bits and pieces. Years back 2012, '13, '14, we did a lot to improve that. We changed the business model, the way from purely focused 70%, 75% project business into a strong focus on the aftermarket and products and only projects where it's profitable and when it can work out. And the same what we did over the last, yes, 5 to 10 years in FLSmidth, we will do exactly with ThyssenKrupp, with the big advantage that already the business model vision, way of working, structure, reaching customer says, it is already existing. The -- the -- more than 3,000 people will come into our organization and fill up that structure of what we have. And giving us with that, filling up in the business, more potential to do aftermarket, what we already know what to do and how to do it to reach the 60%. We expect actually quite a fast speed and bringing the service business up percentage-wise versus the total.

Great. Secondly, obviously, as you mentioned, 2020 is not really a fair comparable year. I'm just wondering what may be a more underlying rate of profitability is to the assets that you're acquiring, maybe a 5-year average, if you have that information?

Yes. We simply don't have those data because this is a carve-out by nature, and it's also mixed in other businesses with TK. But I think what we can say is that the run rate numbers we now get on a quarterly basis is considerably better, considerably better.

Great. And then the final one is just about the size of the order backlog that you're acquiring and whether there are maybe any unattractive long-term projects that we should be aware of?

So the -- we had in reality, actually 6, 7 months work to come to that signing point. And be assured, the main work that we did was to analyze the risk. So risk mitigation was #1 for us. And we think that we have with the reps, warranties, the whole setup shared risk approach and so on, quite a good agreement together with the seller on it. We went through as much as we were allowed as competitors through all the projects. And of course, the projects, what they got, we didn't get. We know the customers, we know the industry very well. And we've said, we know how to -- how we had to evaluate the different risks in the project. And we use the FLSmidth system to evaluate if it's high risk, low risk and so on. And that is what we covered with reps, warranties, the whole package, how we build up the deal. So from this point of view, we don't see any significant risk coming into our books.

Next question comes from the line of Will Turner from Goldman Sachs.

I was wondering, could you share a little bit more about the history of the ThyssenKrupp Group Mining business. How long has it been loss making for? And what was the impact from COVID last year? So like how were 2019 margins compared to the 2020 loss? And then I kind of related to this, you've touched on some points, but why do you think they've been loss making over the years. So what do you think has been the cause of that have been in the loss making situation?

Yes. The -- at first, when you look into the peer landscape, all the companies still being on service and aftermarket disappeared, are getting acquired or disappeared off the market, western companies. And that is a development what we see now for 10 years. And we took that by knowing that this will happen on our own company to develop into a product and strong service company in the mining part. And the same we will do with ThyssenKrupp. And we then look into the profitability of the ThyssenKrupp business. ThyssenKrupp is a huge company, around 200,000 employees, a lot of different divisions, a lot of group structure, headquarter structure, what big companies, of course, always have. But the cyclical business as the mining business is limited, what you can take in best times as these so-called group costs. And to carve it out, to sell it off is actually the right thing what ThyssenKrupp is doing. And they say that themselves that they are not the right owner for that. So the overhead structure, what they allocate into that business is significant and has a significant impact on the bottom line. On top of it, when you have that situation, this cost allocation and so on is quite demotivating for an organization and very difficult for an organization to know where to focus on. And that is a structure as we have a significant easier. We know if we make an aftermarket deal on the day what we earn and what it impacts us. We know on the day when we make a project, what the profitability, what the impact short term, long term and so on is. And that is what we will provide. When we then look into the profitability of that business, the underlying business, it is actually significantly better than the year 2020 can show. Because in the year 2020, very big impact from COVID and on top of it, the impact of the turnaround what they already started to initiate in 2019 by seeing that they are not performing where they would like to perform. And as Roland rightly said, we are limited in that what we can share. And the figures now look significantly better. And our trust against the whole organization and the management, what we saw, what they promise and what they delivered is quite there. But that costs money in 2020, and that is what you see in the results besides COVID, very loud and clear.

Okay. That's very useful. And kind of like you said, things are improving already. So can you give us an idea of just how they've been performing in 2021 lately, so far?

We are not really allowed to disclose that, right? But what we're saying is that they're doing considerably better on a run rate basis than in 2020 and is still improving. That's what we can see.

And it is without all the advantage by being carved out of a significant group structure what a big company like ThyssenKrupp Group, of course, provides the business with.

The next question comes from the line Magnus Kruber from UBS.

I was -- sort of wanted to explore the same angle on the margins there because obviously, the EUR 50 million will bring you into black here if you look at 2020 numbers. So to assess this properly, I mean, it would be very helpful to have a more up-to-date number on what they are running. But I appreciate it's not possible to comment that. I mean if you look at the project business in Thyssen now, and on the pure product business, how large proportion is that of group sales? And is that something that you expect to sort of phase out over the next 2 years or so? How do you look at that?

We have the same, if I may say so, weakness as we had. Every little business was defined as a project business. But when we look into -- when we analyze through as much as we could with the due diligence, quite of that what is today a project business, which is around 2/3, more than 60% of the current business in 2020 is actually product business. And why is it defined as project business? Fairly simple, because the whole organization was built up like a project organization than whatever you do it gets project business. It was exactly the same what we had in FLSmidth in 2013, absolutely no difference. When you look into our figure setup and what we do today, we have, in the whole group, around 25% project business left coming from 75% down. And if we only look into mining, it's -- around 20% of our mining business is project business. Around 60% is aftermarket, around 20% is product. And that's out of the year where the capital business was very, very low in 2020. So the transformational potential, what we have and what we see by simply implementing a real product line management structure as we already have it in FLSmidth and where we will implement the onboarding business into will immediately improve not only the profitability, it will immediately improve innovation, customer intimacy and tap the big potential of aftermarket business. ThyssenKrupp is quite good in crushing and grinding if it comes to products. And these products have a huge way, a huge consumption of parts. That is what we will leverage. That is not what we see leveraged enough at all in the current business. There's a huge potential of refurbishment and improving and digitalization of installments in the pit side where we think with our region setup, what we have already today and getting the new colleagues on board in the regions, we immediately can leverage and perform significant on a higher share for aftermarket. The profitability of that business what ThyssenKrupp is in the line of that what you can expect in the market. So out of that, the year 2020 from a purchasing point of view is actually a favorable year because we look into a company to acquire out of a disaster year based on the COVID mainly. And that's from a timing point of view, when we look ahead on the CapEx spend in the mining industry, it's actually perfect fit from a timing point of view.

Got it. And then to sort of go back to that. Did you say about 60% discount in sort of product business as you define it for FLSmidth?

Now what I said is that we have in our mining business currently, around 60% aftermarket, around 20% product business and around 20% project business. That should give answer, yes.

Okay. And for TK, what would that be then for then the corresponding mix?

Yes. So for TK, their project business is currently -- what they call project business currently 70% and it's split 50-50 projects and products. Now what you will then see us do when we hopefully close a deal is be more restrictive in terms of how we accept projects and into our backlog and at the same time, start pushing for some upsell of service and aftermarket business. And that is why the split will relatively fast improve in favor of the service and aftermarket business as a percentage of total revenue. But you will probably see maybe in the short run, a slight decline in the revenue before we start growing again, but it will be highly margin accretive.

Got it. So the mix shift to the 60% in aftermarket share, that comes more from growing the aftermarket rather than a stepping away from the project business.

It comes from both. It comes from both.

Okay. And I'm not sure if you can comment anything. But if you look at the current aftermarket of the TK business, as you see -- as you look at the aftermarket for FLSmidth, is the margin level comparable to what you see for your business?

Yes. So TK's major issues have been in their projects business and not so much in the service and aftermarket business. So the service and aftermarket margins for TK assembles what we see in our own business more. So they are relatively sound.

Only today from a cultural point of view, from a mentality -- organizational mentality point of view, the same as we were not to forget that. We had exactly 100% the same setup and experience. They are all focused on making the next big deal. The little nitty-gritty bits and pieces are not attractive in such an organization enough. And to create accountability, visibility and clear performance measurement helped a lot to know where to focus a lot in the future.

Got it. And just one final one, if I could. Is there any product group you would sort of have to highlight that's a potential sticking point in any antitrust process?

No.

Where you see the highest overlap, no, nothing.

And the next question comes from the line of Debashis Chand from Societe Generale.

I'm just looking at the closing period and more than one year for closing. So just to follow up on the last question, like, do you see any kind of major roadblocks in terms of antitrust issues coming through with -- some degree overlap on business or regional. So I guess you mentioned not much on the product side, but anything on the regional side, you might to highlight. I'm just trying to understand like what will take more than a year for the business deal to close.

Yes. The -- of course, we have to make merger filing all over. That's clear. And of course, the project business has, from time to time, can create in one country, a huge business in a year when you get one big order. And then the next 2 years, it disappears again. So the -- from a geography point of view, this is a moving thing. But we actually don't see a significant, how to say, issue regarding merger filing in any jurisdiction. But we are -- we have 12 months to go. We see when we compare the offerings, what we have, we have less significant -- less overlap than similar M&As out of the decent time out of the last few quarters and areas which are named the same doesn't mean it's the same offering. I take grinding as an example. We are very strong on SAG mills. We are only very, very little on HPGR, and ThyssenKrupp is little on SAG mills, but very strong on HPGRs. Both are in grinding, but in complete different technologies and offerings, where we have no or -- more or less no overlap. So that risk regarding merger filing, we actually see as low.

And just looking at your comment on the negative free cash flow year 2023. So I was trying to miss, like, what kind of -- in terms of initial adjustment, what kind of free cash flow burn are you expecting from the business, say, over the next 3 years?

So what you're saying about the cash flow of the acquired entity that it will be...

Yes.

Net profit accretive in 2024, then it will be cash flow positive in 2020. And then in addition, you get the net effects of the synergies.

Yes, sure. Now just on a more broader question. I just want to understand what this deal could mean for the similar business? Like does this push forward the timeline on your assessment of the Cement business performance recovery potential means. Is like -- will there be any shift in your kind of decision or like the long-term viability of Cement business if it doesn't perform according to your estimates?

Yes, it is -- if I understood it right, well, it was about the Cement business. The cement reshaping, as we announced it already several quarters ago, is ongoing, no change. And we already announced and made it fairly loud and clear in different quarterly announcement that we already, since last year, managed the business significantly more separate than we had it before. In the future, we will have around 75% Mining business, around 25% Cement business. And we see clearly a positive future for Cement. It is not short term, it's mid- to long term, but we already see out of the Cement business and the announcement, what we did with clay calcination and so on, that there is a huge demand coming up for cement. And the interesting part, I highlighted that before, very often, Cement will be in the future, a multi-commodity industry, more similar like bulk minerals business in the mining industry. Because it will be not only limestone, which will be the resource to produce cement. These -- yes, synergy potential, what we then see already between Mining and Cement will be, of course, going on in the future. And Cement will have the advantage with the knowledge background out of mining. But of course, we already said last year, that it is important when you have a difference in size and/or development of the market as we see it between mining, quite positive in the outlook, Cement more subdued in the short term that we have to have a management structure, which is more separated in managing the 2 businesses, so that the top management is putting the capital allocation right and making the right operational day-to-day decision. And that is already what we implemented. That's part of the reshaping of Cement.

And the next question comes from the line of Klaus Kehl from Nykredit.

Can you hear me?

Yes, bit loud.

First of all, a question about this restructuring plan that TK is having on their own. Is it correctly understood that the company -- or you expect the company to be profitable in 2024 on their own? And then on top of this, we should expect the synergies that you're talking about to be absolutely clear.

Yes. Exactly, that's correctly understood. So TK is currently undertaking a significant restructuring of the business that we're acquiring that has been on its way for a year or 2 years. They are ahead of their own plans on that, and we expect them to be on their own stand-alone basis to be positive in 2024. So on top of that, there will be the net effect of the synergetic initiatives that we will implement.

Okay. And then if I try to do a little bit forward and try to add some of these synergies, then I get to a point where the company will be close to break even on EBIT level in '23. Would that -- does that sound like a reasonable assumption? Or am I way off?

So I think you should look at 2024 and 2025, right? So we're giving you EV to EBITDA of less than 4x. And if you say EV is 3.25%, synergies of EUR 50 million, then the underlying EBITDA run rate will be 30% plus. That's how we should look at it. And then we're today telling you that they are well underway on their own. There will be initial initiatives once the deal closes in terms of our implementation of synergies and also the impact of distancing them from the headquarter structure in Germany will add cost savings. So that is the bridge towards that earning level. It's meaningful.

Yes, that's meaningful. But now you have mentioned these overhead cost a couple of times and they sound like there are some very heavy overhead costs. Could you give us any indication of what the level is and what are we talking about?

Are we trying to really do that? I know you will say it's very meaningful, but it's a chunk of cost that we will leave behind. And it's one of the building blocks towards the EUR 80 million plus that we just deduced.

Next question comes from the line William Ashman from JPMorgan.

My first one is really a follow-up on the services target, 60% discussion. And I'm curious to know whether you need to invest more here to build the service or whether the existing sort of capability, FLS, can drive the change and whether this investment is captured in the guidance.

Yes. Thanks, William. The -- everything what we said regarding the bridge, the profitability outlook and so on is implementing that. It's all calculated in as much as we see it. And we see quite a lot because we did exactly the same a few years ago with our own organization. The reason that the aftermarket in ThyssenKrupp is underdeveloped, live simply in the fact that they were more or less 100% focused on big projects. And then you let the aftermarket being done by others and smaller companies or customers really have to not very heavy on the door to get anything. And of course, you don't develop bits and pieces for that business. We already did that. We have a significant larger offering in the aftermarket than a few years ago. We implemented in 2018, the region structure where we cover all areas, some more, some less. We get new colleagues on board that will help us to be everywhere, some more than some less in offering service and support to the clients. And then a lot of that what TK supplies and is supplying as well as what average mid supply than is supplying. You need people on the site to help customers to do the right decisions and to implement it and to realize it. That is where we are great. That is where our business model really takes off because we have the knowledge out of the process, because we still do some project business. We have the knowledge out of the product because we have minimum in the processing, all the core components, what we think are important for the processing part. And we do all kinds of services up to the level that we can take over mine site or lines on mines to operate them and to maintain them. That all together is where the ThyssenKrupp will come in, and we see their run out of the last 1, 1.5 years to do more in the aftermarket. They see that and they work on that. So it's a welcoming opening what we have for these colleagues to come into an existing structure. We don't need to build up anything new in structure. We don't need to build up anything really new in the offering in the aftermarket versus that what we not already would do and having on the less. Because our aftermarket percentage what we created, it's not only on our own equipment and offering. The offering can go to other brands, too. But it is in the mining industry, more and more important that you, as the OEM, provides the aftermarket. Mining industry is looking for the OEM supplier to provide the aftermarket phase. And that is what we can do with an installed base of more than 5,000 units from ThyssenKrupp Group better in a combined way between ThyssenKrupp and us. So the 60% is definitely not overstretched. We proved that we can do it, and we will do it again. The question is only the timing, how long it takes to come there if we have a favorable business environment and not locked down and limitations to go on site, it will happen quicker.

Okay. That's very clear. And then I just had a question around this project backlog. I know you sort of talked about after due diligence, you have some protections in place. So my question is really about what happens now until the close, given that ThyssenKrupp Group FLS will be competitors and run separately. How are you protected against ThyssenKrupp taking on any new projects with, say, unfavorable terms between now and the close?

William, we are still competitors. It's ThyssenKrupp's decision, and we trust that management team and that organization a lot. Otherwise, we would not have been bidding on it because in reality, what we take over our people. We take people and their competence, the IP, the reference, the installed base. That is what we take over. And we know that it will act properly. I have in the group working with that M&A as well as myself experienced to be on both sides of the table regarding acquisitions. And organizations behave when signing is done to make a good future because there is a day after closing where the new owner looks into. And you don't want to come [indiscernible] business. You really don't want to come. And we see that the management, which is in place today, and ThyssenKrupp already did a lot of good work in the last 1 to 2 years to get accountability up, which is in bigger companies like ThyssenKrupp, more difficult to create. And with the announcement of ThyssenKrupp to separate the business out, but they are not the right owner, that accountability increased significantly and with that, actually the bottom line performance. So from that point of view, we are quite -- yes, how to say, full of trust that they will do the right thing. And then the last thing what I have to say, we are competitors based on competition law. We are not allowed to tell ThyssenKrupp what to do and what not to do between signing and closing.

And we have another question from Magnus Kruber from UBS.

So I think you mentioned 5,000 units installed base for TK. How large portion of that are they servicing themselves at the moment? And do you have any sense for how large proportion you might deserve?

So the -- of course, we are not allowed to share a lot of data to make it like that or we don't know it, not myself, because we have to be in confidential teams and so on. But the fact is that the 5,000 units what they have are not served enough. Otherwise, you would have automatically a significant higher aftermarket share. And we know that if I'd look into our own business, this has nothing to do with TK. This is now about FLSmidth. When we started to come into a level of 40%, 45% range of the aftermarket by simply having an aftermarket structure fully focused on it, it's easy to achieve. It's really easy to achieve. Because you come from an own coverage of your own setup of maybe 20%, 25% to 40%, 45%, 50% of the own coverage of your aftermarket or your installed base regarding aftermarket. On top of it, if you would like, what we did to go higher, it is not enough to be only with the customer. You have to give the service people and the salespeople, of course, products to sell in the aftermarket. We did a lot. We developed a lot. We promised for 2019 to have more than 10% of our aftermarket out of the ware parts business. We over fulfilled that by having more own produced ware parts. That is, of course, where the ThyssenKrupp organization as well the installed base and customers will benefit from. They immediately can go. And it makes it easier for us to go to the customer because the original supplier is then FLSmidth and not ThyssenKrupp. So from that point of view, we see a significant upside in that. We are already well prepared to welcome the installed base and all the competence with the people. You will see quite a step change upwards.

Got it. And actually if I can ask the question a bit differently. Sort of if you go back to 2013, how large proportion did you service them? And what do you service now for yourself?

It was definitely -- now I have to be careful what I say because you will look into the annual report or into the quarterly. There was significant -- as far as I remember, the real service work, what we did was in the south of 40%. And then we had some other businesses in what we actually got rid of with some products and the business and so on, it was actually fairly low for a mining supplier in similar range as ThyssenKrupp is, maybe a little bit better because we are quite strong in pumps and cyclones, which TK doesn't have. That is the only differentiator in it. But otherwise, we were on the same level. And the same energy.

That's very helpful. That's good. And maybe also one bookkeeping question. Do you have any comment on the commodity exposure for the TK business?

Yes. Of course, the -- they are more in the parts where we are quite weak. That's clear. And we are stronger in copper and gold. But we see that copper and gold is talking and investigating and doing significant more on the open pit mine to electrify. We see the demand, especially out of the copper industry for in pit crushing and so on, which was before mainly on the parts like iron ore, really shifting, which we see as an additional upside for the technology and the competence we get into our company.

Got it. And maybe as the final one I'm not sure if you can say anything about that. But I mean, on the standalone restructuring program TK is currently running, do you have any sort of number on what the target in terms of profit uplift or the cost associated with that.

No, we don't really have anything. We're trying to do what we can to enlighten you a little bit here, right, and how we bridge from 2020 and then to 2024. The way we're doing it. We can -- we don't have anything else we can disclose currently.

That's okay. That's I guess one final one then, sorry. Is there any time between now and close that you will be able to give any update on the run rate profitability of this business?

Not that I know of -- not that I can know us. Maybe on a quarterly basis on track or not on track. That's it.

And we have a question from the line of Robert Davies from Morgan Stanley.

My first one was just on the strategy to push up the aftermarket, the proportion of sales. Is there anything involved in terms of disposals within the assets that you're buying or form part of that strategy? Or is that just selectively stepping away from more of those project businesses? I'm just trying to get a sense of the kind of top line progression that you're assuming while getting the after market share up, so sharply over that relatively short period of time? That's my first question.

We have an existing region structure, which takes care of all the aftermarket and standard products. And that is where the new colleagues, 2 big parts will drop in and health and support to make that business. We know how to do that. They come with the competence where the installation is. They have the customer contact. They have the technical knowledge as well as the IP and that will immediately drop it in. It's a damn really fast thing. Day one, they will come in, immediately in the business. Then when we look into regarding projects, we are, of course, very much focused on aftermarket and looking that real product business gets stealth like product business with and not project business. But we will go on with project business. That's clear, too, because ThyssenKrupp a significant player in that and actually quite a successful one. Don't judge a company on 2 difficult years where one year is a heavy COVID impact. Don't judge a company on a huge mover and group structure, which was struggling and struggling with a lot of other things, too. That all hit financially the bottom line and that organization too, especially if the organization is relatively small. The ThyssenKrupp Mining is an old group, further technique with more than 100 years of competence, market leading in a lot of areas, still technology, market leading. And that is what we will get in and that is will we -- what we will combine with our market-leading approach. And that in itself immediately opens the door for a lot of aftermarket business.

Understood. And then just a couple of follow-ups. One was around the lag between orders and sales in the business, I'm just trying to get a sense. You mentioned 2020 was a difficult year, but there must be some sort of lag between orders and sales. I'm just thinking about into '21 and '22? Isn't there going to be a spillover effect into their sales number from orders that were weak due to COVID through 2019. So it's not -- I'm just wondering how quickly that sort of top line can really turn around if there's a significant lag between orders and sales.

Yes. So as I said in the root cause of the webcast, a lot of these Western companies being in projects and services disappeared or were taken over by ours. What is actually the reason for that? The reason is that we enjoyed from the end of 2011, the downturn in mining, which was going on for the longest time measures, and we measure since 1904 in the mining industry. We have then a recovery of the business with smaller projects and not processing related ones in '17 and then at the beginning of '18, and then it slowed down again. That, of course, that is what you see in the order book of ThyssenKrupp, too. Because there were not a lot of huge orders everywhere available. That, of course, impacted them, too. So out of that, what we will see then in the revenue creation in '21, '22 and so on is the result out of that with COVID and the mining industry, how it went through the whole recession and the downturn. On the other side, we see in the market a significant increase for brownfield sustainable solutions. And sustainable solutions is not, how to say, making a plant simply more green. It's actually sophisticated in-depth product engineering, service supply to make customers more productive take tailings management, where we, as FLSmidth, play a big role, but we still have some gaps there where the product range what ThyssenKrupp can fill up and offer more towards the customer. But when you make tailings management, this is an in-depth engineering project processing projects where you then end up with selling products and services to the market or to the customer. So from that point of view, the result in -- on the top line, on the revenue for '21, '22 is actually out of that where we come from a mining downturn as well as the COVID impact.

I see. And then my final question was just, I guess, a bigger picture question. Essentially, why not focus on the existing FLS assets and try to push margins higher, maybe target more acquisitions around digitalization? Or you obviously mentioned quite a lot around the digital strategy across FLS, which has been quite important to you. I just wondered why you decided to go after this particular asset rather than doing maybe small technology bolt-ons and focusing on the existing business you already had?

We did that. We actually did that in the last 2 years. We acquired quite a lot of companies. Last one was KnowledgeScape which was a pure digital company offering significant improvement in digitalization on grinding stations. We did that. And we are -- we will do that still. That's not the issue. But here, it is the transformational deal to make us in the growth ambition and the profit ambition what we have simply more around the world with all the customers, so that we are less depending if we have a COVID shutdown in Chile, for example. Because these things hit us. We are not well established everywhere in the world. And ThyssenKrupp Group will add quite a lot of competence in that. Then our offering, what we have, you will see in the future that the miner will be not so much interested if you take Russia A or B. They will be interested that what they put in and what they get out, that they get it for the best sustainable and productive parameters. And that is what you only can offer if you have a line offering, and we have that, we are then from pit to [indiscernible], the best in offering. Whatever customer would like to do, it will have an impact on the whole value chain what they have. It will come from digital and sustainability reasons. We can manage it, we can engineer it, we can offer the best solution, no matter what they already have. So out of that, it's not if we take ThyssenKrupp or AVAS, it is to take ThyssenKrupp and AVAS, and we will go on like that.

I see. And then maybe if I can just squeeze one last one in. I was just -- you mentioned not having sort of long-term historics, but -- do you have any sense of where the 2020 sales numbers are relative to the last sort of 4- or 5-year average? Do you think they're sort of within 5% of the top 20% of the top just be kind of interested to contextualize slightly where last year's numbers were, you see how much of an outlay they were.

I think that would be guessing. We have a little bit of an indication. But the carve-out nature also makes comparable -- comparability between the years a little difficult. So I'll refrain from that. I think what Thomas said about the backlog coming through difficult years enable you to model a revenue decline at least in the near-term years after closing. And then it starts to pick up again. That's the key takeaway from where we are, I think.

And we have one more question from the line of Max Yates from Crédit Suisse.

I just wanted to ask about the synergies and effectively, the cost savings that you'll make by removing Thyssen mining from the sort of larger parent company. And I just wanted to understand, are you assuming those cost improvements are in the underlying business, which will get profitable by 2024? Or is that part of your EUR 50 million synergy assumption? Just trying to understand sort of where the benefits of that disentanglement fall within those two improvements of the margin?

Yes. So the short answer here is that it is not included in the EUR 50 million. So the way you should think about it is that once we get together in one combo company, then we will be able to extract the EUR 50 million on top of the combo. But the acquisition of ThyssenKrupp be a bolt-on to our existing group structure. So that means by doing that, you will, sort of in one move, improve earnings immediately by assuming that you can bold TK on our group structure. It's not exactly that simple, but that's the thinking.

Okay. Well, I guess my follow-up to that is if I look kind of historically at acquisitions, you normally -- when you look at synergies, have the sort of combination the back office, head office costs and reduction of those is typically quite a big part of the synergies. So I was just wondering when if that's included in the sort of business getting profitable by 2024, where is the sort of majority of the cost synergies coming from? I assume it's early, but I'd love to hear any kind of color on that EUR 50 million that you could give.

Yes. So the way we think about that. So one thing is the headquarter sort of is handling it from the headquarter in nationwide. That's on its own. And then what we call administrative or support function, that is synergy is taken out of the operational structure. So we're getting an operational structure that are fully functioning, obviously, from day including administrative functions, back office functions, IT platform and so on. And once you start integrating, there will be synergies around that. And that's part of the EUR 50 million.

Okay. And just to sort of clarify the synergies further. I assume this is kind of entirely -- cost is the EUR 50 million. You haven't assumed any revenue synergies in there. But is that something kind of medium term that you would see as upside? Or are there some revenue synergies in that assumption?

So the EUR 50 million is just purely cost and efficiency combination savings. We have no revenue synergies, if that's where the question is pointing at. There will be revenue synergies, but we also think of dissynergies on the top line. So in that sense, they are sort of even stealing in our EUR 50 million estimate.

Okay. And just one very final one. Have you been able to understand a bit more about the sort of challenges that Thyssen has had in terms of profitability. Is it with these large projects, would you put it down to execution being too overly aggressive on chasing volumes? Or is it something else? I just really love to understand if you've got kind of the root cause of exactly what the problems have been in their projects business.

Without talking too much about ThyssenKrupp in general, when you have -- and we have some experience in that too. On the negative side, we definitely have. If decisions structures are too complex, too many headquarters, too many layers involved, then you get that automatically. Because when the problem pops up until it gets sorted out and approved the thought out, takes simply too long time. As larger the corporation is where you have that business in, it's more difficult, it's more risky that is. We built with -- in 2018 with the 2 industries as flat as possible, hierarchy level, to work these things out and getting quick done. Then, of course, the other part is in -- when you look into how ambitious are you to create in the time line, the return on that project. And that, of course, you have to have a clear model, a digital-based model, which works that out and gives wrong behavior in different entities or on people, no chance. We have already an average meta system. We run that after the disaster, what we had in 2019, unbelievable thorough through, and we see that an acquisition easily can adopt to that and coming into that. And last but not least, in project business, it is unbelievable important to have accountability through the transparency of your doing that when you get a deal that you see what is the impact in the organization, if you do it well or if you do it wrong, that's the best school if the people see it and being accountable for it. And the structure is we are more a pure play in mining with that versus a huge large cooperation where elevator business, deal business and a lot of communication is about that makes it, of course, for us as FLSmidth significantly easier to reduce that risk significantly. Because risk and projects is created by people and not to, I don't know, kind of a being anywhere in the world. And when the people are accountable and see what they contribute, they make the right decision. We have our own experience on that, too.

As there are no further questions, I'll hand it back to the speakers.

Thanks a lot for participation here on the webcast for the signing date for acquiring the ThyssenKrupp Mining business and hope to see you soon and stay safe. All the best to you. Bye.

This concludes the conference call. Thank you all for attending. You may now disconnect your lines.