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

Ladies and gentlemen, welcome to the earnings call of FLSmidth for quarter 2 and first half of the year. The usual presenters, myself, Mikko Keto; and my colleague, Group CFO, Roland Andersen. And the usual forward-looking statements that you need to bear in mind. If I highlight the quarter, the company transformation is progressing well. It's progressing exactly as we planned and a bit faster. Other main takeaway from this one is that the exit from NCA is progressing much faster than even I anticipated when we started the journey 9 months ago. If you look at the Mining order intake growth of 6%, for me that is pretty okay. If I dive into mining order intake development, in the product orders, there has been some timing, as you saw some orders coming in immediately after closing our second quarter. And when we went through the pipeline of quotations and wins, we are basically winning the business that we want to win. Service order intake was slightly below my personal expectation for the quarter. And the main reason for that one was the timing of some capital service orders in the latter part of the quarter in Chile, where customers optimized the fiscal year result and then placing the orders then 2 weeks later. So the small timing issue there in Chile, in particular, for the service order intake. But the underlying business in Mining is solid, is healthy and it will support our transformation and future profitability. In Cement, we saw a decline as we anticipated. It's exactly as the macroeconomic kind of forecasting indicated to happen for the Cement market in the middle of the year. And in Cement, we are focused on transforming the cement operation into a lighter, more streamlined and more of a service-centric business. And that transformation is ongoing. And with this order intake what we saw is a significant decline. But also we can look at the mix. We've a 65%, 60% service mix in our revenues going forward. And also in Cement, we didn't take any bad business in. So all the order intake what we got in, in Cement is meeting the quality criteria for us, meaning profitability/risk. So it's there. And we continue rightsizing the organization to ensure the profitability of the business. In sustainability, there has been good development. And I will go into that detail in a minute. If we then have a few highlights for the performance bucket. Transformation is progressing well. One of the indicators is that we are roughly at the same level in the headcount as prior to acquiring thyssenKrupp mining with about 2,000 people. So we are down in the headcount about 13%. NCA backlog has been reduced to DKK 1.4 billion even before closing of the KOCH deal, and we raised our guidance for the Mining as a result. All, apart one, sustainability indicators are improving. We are putting more emphasis now on the safety. And the reason for the decline there is heat-related incidents. And we are fully aware that operating and working in hot environments under the sun requires more attention. So we have all our eyes on that improvement. Then if you look at the order intake for Mining, the product order intake is for me at a good level. And there is always a timing issue in the capital orders. And we saw some larger packages of products ordered in the quarter, Northern Star in Australia, in particular. But then we also saw some orders slipping into quarter 3. But there's a timing challenge in the capital product order intake. But we are winning the market share and we are winning the orders that we want to win, and we are winning them with the prices and decencies that we elected to have. So I'm very pleased about quality of the order intake in products. As I said in the beginning, a slight kind of a disappointment for service order intake, and that had to do with the couple of last weeks of the quarter and in Chile, in particular. Some of the customers decided to postpone, delay a couple of the larger orders until the next fiscal year. And we saw those orders coming in then in July. But underlying health of the service business in Mining is really good. And also the mix of the service is getting better. We are seeing more -- in relative terms, more orders coming in in categories of spare parts and wear parts as we are migrating away from basic labor services, which has inherently lower margin. So all in all, I'm pleased about the development in this area. Revenues, it just indicates our ability to execute. We can execute products. We can execute service extremely well. And that's why the revenue growth is very significant. Also, the mix is close to optimal, 65% of the sale of the service. And longer term, of course, that is very close to the optimal of what we want to have. This is actually one of my favorite slides. I love this page. I look at it a lot because it is summarizing where we are in our transformation journey. 10.8% adjusted EBITA shows that quarter-by-quarter we are progressing our journey and we see quality of the earnings getting better and better quarter-by-quarter. As is discussed in the past, the order intake backlog quality starts to be very good for the FLSmidth. We still have a dilution impact of mining technology, TK, which is less than 2 percentage points toward the end of the year. And we still are executing some lower-margin contracts from the backlog that dates often back -- the deal-making days back to 2, 3 years ago, and we are just executing those. But all in all, this is summarizing the journey where we are on and how we can improve our performance quarter-by-quarter. If we then look at the order intake for Cement. This is pretty much what we expected to happen in the cement market. And there are a couple of takeaways from this order intake. We are disciplined, refusing to take low-margin loss-making orders in cement products and capital business. We don't do it. And that has been questioned by some of you in the past, if you see the decline in the market, whether you are disciplined enough to ensure the quality of the orders. We are very disciplined in the capital business. And our focus is that the mix between service and products would be above 60%, preferably around 65%. And of course, order intake despite seeing the decline, significant decline, we see the mix getting better. And our full focus is on transforming the Cement operation to become more service-centric. We started the transformation in the beginning of the year, but we are not yet done. It will take time. And of course, we are working against the market which is not very good. We are able to generate consistent EBITDA out of the Cement business with our actions today. 4.3% EBITA for the quarter is also, well, not ideal mix. So in reality terms, we executed a fair bit of capital in relation to the service. Over time, we want this relationship to move into 60%, 65% to service ratio. And we're also understanding that significant cost out is needed in Cement operations to meet the lower demand and having SG&A and COGS at the level that is supporting the profitability. And backlog quality also in Cement in terms of profitability and risk is pretty good. One of the major achievements in my opinion in our transformation journey what we started less than 9 months ago is the NCA exit. We've been extremely determined for the exit, and one might say that we've been borderline aggressive with our exit. And therefore, we achieved the result. End of the quarter that backlog is down to DKK 1.4 billion, bearing in mind that KOCH Solution sell is not completed yet. So a very fast progress here. And we are estimating that we are out of the NCA end of next year. And that is at least a year earlier than our base scenario it was when we started the journey. I'll hand over to Roland for some of the more details of the financials.

Thank you for that, Mikko. So adding the whole thing up, in the quarter 2 2023, a revenue of DKK 6.4 billion and an adjusted EBITA of 6.7%. DKK 97 million worth of integration costs sits in the P&L. And the reported EBITA margin ends at 5.2%. After financials and tax, the profit and loss for the group of DKK 118 million. Gross margin is improving for -- gross profit is improving for the group. It's driven forward both by the gross margin in Mining and in Cement, but partly offset by the negative gross profit still sitting in non-core -- our non-core activities bucket. Our SG&A cost compared to same quarter last year. Now we carry the full load of the former thyssenKrupp mining business and also a chunk of our integration costs sit in SG&A, about 16.9% of revenue for this quarter. Our adjusted EBITA, as Mikko mentioned, 6.7%. We will try to outline the bridge here a little bit. So same quarter last year, 6.1%. Acquisition cost worth of 2%. And therefore, last year 8% adjusted. Since then, we have added revenue predominantly from ex-TK's mining business. NCA is pulling back in our gross margin and as also mining technologies is diluting on group level around 1.5% and a few other items. And then the adjusted group EBITA margin ends at 6.7%. Deducting the DKK 97 million in integration costs, it ends at 5.2% for the quarter. Net working capital improved slightly for the quarter, 10.1% of revenue. There's a few moving items. We improved receivables a bit and also improved the work-in-progress. On the offsetting part, we continue to spend a chunk of the prepayments from our customers, but net-net a slight improvement. And consolidating that up, it ends with a positive cash flow from operations for the group of DKK 372 million. A few investments and also acquisitions were made. And then free cash flow for the quarter of good DKK 218 million. And that means that our financial gearing remains at a level with the previous quarter at 1.0x. And we're still well below our capital structure targets. Financial guidance were latest lifted up on August 8. And that means from Mining, we are now guiding a revenue of around 17% with an adjusted EBITA between 10% and 11%. Cement guidance was adjusted in August when we sold the AFT media business. So we changed the initial revenue guidance from DKK 6 billion to DKK 6.5 billion to around DKK 6 billion. And the EBITA margin is now 5.5% to 6.5% and that is driven from the original guidance of 4% to 5% only by the sale of AFT media business. So that means that Cement underlying is still in line with the original guidance. Non-core activity is unchanged, DKK 0.8 billion to DKK 1 billion in revenue expected and a loss between DKK 250 million up to minus DKK 350 million for the year. And that means that the group is now around DKK 24 billion in revenue with an adjusted EBITA of 7.5% to 8.5% and EBITA margin reported between 5.5% and 6.5%. I think it's important to mention here that we expect the Mining EBITA margin to be diluted by less than 2% by mining technologies ex-TK. We still expect to spend around DKK 550 million for the full year, taking out synergies and integration cost. And the guidance for the non-core segment here, the loss in this year is part of the loss to the lifetime of the non-core activities of DKK 1 billion in total. And that's improved from DKK 1.2 billion in loss from the outset. Then we continue to have a good transformation progress. We still target DKK 560 million in annual run rate. Cost synergies to be taken out by the end of 2023. If you look at the number of headcounts, employees in the Mining segment as it looks today have been reduced by 800. Since we took over TK's mining business, NCA have reduced by about 200 people. And the simplification in Cement since we started last -- mid last year means that a more lean organization, delayered organization. And also with presence in less countries have reduced the needed manpower by about 700 people. Also, our risk management and derisking continues. A much higher part of our revenue is now in the category we call lower risk orders, and that goes both for Cement and for Mining. On group level, we started out with about 150 offices after taking out -- or taking over thyssenKrupp's mining business. We target to get down to 80. And since then, we have closed about 40. Admittedly, low-hanging fruits, but still progressing may be slightly ahead of our plans. Importantly also to note that our pure play separation of our Mining business and Cement business into 2 separate company groups is progressing on track. So we expect the legal entity separation in 2 separate corporations to be completed during the course of next year, and that's also on track. And with that, I think we give it over to Q&A.

[Operator Instructions] We'll take our first question from Christian Hinderaker of Goldman Sachs.

I've got 3 questions, starting with the mix change that you mentioned, Mikko, in Mining service. You've tried shift away from basic labor services towards spares and wears. Can you please quantify the total mix for the aftermarket business in terms of labor services, spares and any discretionary refurbishments or other components that might be relevant?

We don't give out the kind of detailed percentages. But toward the end of the year, the labor part will be insignificant. So basically -- I mean it doesn't really kind of -- what do I say? -- move the needle in terms of profitability. So it will be insignificant toward the end of the year. We are exiting a couple of the last large service contracts. So it means that we do only professional services, which is kind of high expertise services and, of course, the volume there is much smaller. And in upgrades & retrofits, we are focusing on kind of a standardization of the kind of standard packages. For example -- I'll just use an example, that we would do upgrade to all our installed base of high-pressure grinding with kind of a -- with the pro version. So that will be the kind of standard upgrade for all 150, 160 HPGRs what we have out there. So that is a standard upgrade & retrofit. And we don't go into this kind of highly engineered non-standardized engineering projects where you upgrade. So it means that also the upgrade, retrofit will be low risk and more standardized compared to the past. But it will be dominantly -- I would say that by far there is dominantly spare parts and wear parts, the aftermarket, beyond this year.

Second question then is on the long-term margin target for 2026. Within Minerals, 13% to 15%. Bear with me as I just walk through this. The consensus has DKK 19.3 billion of revenue for 2026, which implies given that margin range of DKK 2.7 billion of adjusted EBITA at the midpoint. If you take the new 10% to 11% margin guide as the base for this year, you then need to find an incremental DKK 1 billion or so of incremental profits in the next 3 years, which is about a 60% uplift versus the 2023 number. You've got DKK 560 million of run-rate in synergies targeted by next year. So that leaves around DKK 440 million or so to come from the other 6 building blocks in the bridge. Just trying to understand scaling those and the proportion that might be considered volume agnostic, i.e., the simplification dynamic you mentioned and also the derisking versus, say, shift in mix towards aftermarket.

Maybe I'll give a few comments and then hand it over to Roland. So if we split the transformation between service and products, in service, we're pretty far. So basically, end of the year in order intake, it starts to be visible revenue. Basically, we have equalized difference between FLSmidth and Mining Technology. And as we discussed earlier that we have seen a significant uplift in order intake margin between last year and this year, because last year up to this point it has been really high inflation times. So we've basically done the kind of big leap there in terms of order intake, profitability. And I think now what I see happening in service is that we reached a level in order intake what we need to support the '26 target already end of the year. But then in -- then that is turning into revenues. But then, of course, then the churn is much longer. In the capital business, we are still executing contracts that have been signed well before we acquired thyssenKrupp mining. So we are in early parts of some of those deliveries that were signed 1.5 years ago, 2 years ago. So it means that we still have a low margin revenues flowing through our books for the next 2 years. So it's kind of -- but the new order intake we have -- we made no compromises in the quality of the order intake for products. So that everything needs to meet our standards. So we haven't -- as I said earlier, I'm happy with the order intake, the volume. I think we are winning what we expect to win. And the margin and decencies are roughly at the level that we expected. So of course, then impact of that kind of low margin product revenue will be less and less over time. And then we still have -- we are not yet done with the cost out of the synergies. So we have a way to go there. But Roland, I think if you want to.

Yes. I think you pretty much touched most of it, Mikko, right. So Christian, I'll have to point you back to our Capital Markets' presentation, where we had the bridge. And significant levers we are still pulling is, of course, the synergy outtake. So we'll significantly reduce number of offices and also people employed in the Mining business. We will concentrate in smaller but bigger sites or hubs. We work dedicated with product pruning both within service and also within products. So there's an element of that. And then there's an element of the backlog currently being built becoming better than what we have historically. And then we will reach the long-term target of 13% to 15%. We started this year at 9% to 10%. Now we're guiding up to 10% to 11% and then continue to push up. And that will enable us to close that gap to the long-term targets in 2026 or before.

That is very clear. Maybe finally just on Cement. Just curious why the revenue guidance is unchanged. Obviously, we sort of had 2 updates in a relatively short period. But given you're signaling a slowdown in market demand, is that just backlog conversion and so maybe we expect a slower pace of revenues next year. And I guess -- I just wonder how confident you are in the current backdrop progressing your aftermarket penetration rate.

Yes. So we are reiterating the guidance for the revenue in Cement today. Initially, we actually set out with the guidance of DKK 6 billion to DKK 6.5 billion. And now we are saying around DKK 6 billion when we sold AFT. And why can we do that? We can do that because we have backlog conversion. So assuming we continue to execute the way we executed in first half, then we will hit the -- around DKK 6 billion. So we are confident about that.

Yes. And also about what I commented earlier that we are going through all the service transformation. We are making the business and organization much more service-centric. It has been 100% capital products project-centric organization. So the transformation will take a bit of time, but we are well on our way. And we are implementing a new operating model, a new organization, all that. So it will take time to kick in. But we've seen some early positive results for some of the countries where we are longer in that transformation, that, despite the market, we've been actually able to maintain and even increase in certain cases the kind of order intake. But it's a -- of course, we are -- even in service transformation, we are kind of fighting against the market, which is kind of depressed and going down. So the question is that what happens for the overall market. But also that -- then if you look at the whole P&L of Cement, we -- as I said earlier, we make no compromises with the quality of the order intake. So we don't take bad business in to have -- employ people. So we know that the organization requires continuous rightsizing and especially the support functions. If I look at the mix of the people what we have today, around 3,000, there will be significant adjustment and especially in the support functions, which are far too heavy. Then we are looking at other measures to save costs in Cement. We are looking at COGS. We are looking -- of course, there might be still something -- some portfolio decisions that we need to make for Cement. But it's -- we are -- it's as planned. But now we need to, of course, accelerate that process on back of the kind of weak market conditions. But we want to ensure the profitability of the business, and we are less obsessed about the top line.

We'll take our next question from Andrew Wilson of JPMorgan.

I've got 2. And if I can start just on the just the market size of the service side in both Mining and Cement. I guess at the moment -- because of the actions that you're taking in a number of different areas, I guess there's an element where the growth rates are quite hard externally to sort of see almost what they should be. So I guess my question is kind of through the cycling in the kind of the next 5 years or so, what do you think the growth rates in those 2 businesses should be if we just think about the service component? I'm just trying to kind of isolate that underlying growth or underlying growth opportunity maybe versus what you're seeing at the moment. Maybe I'll start there.

I think if I start with the Mining and prospect, I think also in Mining we used to be kind of project capital-centric organization. And -- but inherently, the aftermarket is healthier in Mining compared to the Cement. So therefore, the -- we are confident that we can grow against the market. Whatever is the market condition, we can grow above the market rates. And we know that we have a pretty good kind of capture rate on the spare parts, but wear parts, consumables parts is an area that we can grow faster than market. And let's say that if the market or the cycle's average is 3% to 6%, we will be able to grow faster than the market. But it's more in the consumables, wears area than in spare parts. Spare parts are securing basically the kind of capture. I mean, of course, we can incrementally improve in the spare parts as well, but the big opportunity is in wears. Then going to the Cement aftermarket. We've analyzed the global aftermarket, all cement plants that are supplied by FLSmidth. And what we saw is that there are huge differences in the share of wallet between the markets. And comparing our capture rate for the aftermarket in North America compared to some other markets, of course, bearing in mind that there are some fundamental differences in how the different markets operate, but we see opportunity there to grow the service just based on our installed base. There can be a situation that there are no single new cement plant. Everything is about the installed base, and we have a good installed base and a service base to develop in cement. And as I said earlier, wherever it stabilizes, we can grow faster than the market. But of course, depending on the overall market rate, that, if the market goes down fast and we are going down only a little bit, we are increasing our share of the wallet. But Cement is even more project-centric history in FLSmidth than Mining and we are starting from very kind of undeveloped kind of service operations. So there's opportunity there. But of course, now we are facing headwinds from the market at the same time. But I believe that we can grow the service in Cement. And of course, if you look at the P&L, if you can do 65% service and then rest products, then surely it's pretty good for the P&L as well. And the positive thing in Cement is that the order intake margins are actually good. They are -- we've been able to push the margins higher than what I anticipated a year ago. So that it's really healthy. So that the spare part margins on order intake in Cement, they are very good. And also in the products, we are at a good level. And the big issue is now with the volume, is the kind of SG&A burden that we have, especially from the support functions. So that is kind of -- well, that SG&A burden it actually -- the business would look quite healthy and vibrant. But as we are downsizing historically from a large organization -- I think it's easy to say downsizing, but then it takes quite a lot of hard work.

Maybe if I can ask a second one, and it's -- I guess it's possibly a little bit longer term. But if you think about the Mining and the Cement separation -- and obviously, that plan is in progress, so I appreciate this might be early. But is the intention that, that will be kind of done without adding any cost to the businesses? By which I mean if we look at the Cement margin today and the ambitions for the Cement margin -- if it was to stand as a stand-alone business, is there any additional cost that needs to go in that from a kind of support back office, functional compliance, et cetera? Or can we think about business cost already being factored in when we sort of think about the longer-term targets and ultimately where we think Cement might get to? Hopefully, that made sense.

So the answer is a little bit both. So the reason why we are separating them is because they are very different in size and also in footprint in terms of where we have offices. And once we get that rightsized, we can scale down a lot on offices, support functions, infrastructure, ERP platform, yada yada. And that's -- then it becomes a small and more lean organization to run. Then, of course, in the absolute top layers, there's a little bit of dissynergies if you establish a separate corporate structure. But the advantages of doing this is by far outpacing the dissynergies that will be in terms of adding a few support functions on top. So net-net, a lot of savings by delayering, scoping into the relevant market, boots on the ground in the markets where our customers are and not 40 or 50 countries, where we generate 80% of our revenue in less than 10. That's the plan.

We'll take our next question from Claus Almer of Nordea.

Also a few questions from my side. The first question, Mikko, is to you. You mentioned during your presentation that you saw some orders slipping from Q2 to Q3. Could you put some numbers to that effect? That would be the first one.

So basically, there's a couple of finer points. One finer point was that the service order intake for Mining was slightly below what we anticipated. And then when we investigated, there was a delay in Chile from our customers. Some customers pushing the, what is called, kind of large service orders, capital spare part orders to the next quarter. So it's not fundamentally changing the picture in service. So it's -- we believe that -- and we -- what we see is a healthy service market. But maybe if you look at just the kind of top line, then that took a bit of a dent there. So that is then -- and we saw those orders coming in the following months. So it's not that it was -- nothing was canceled. So it was timing. And then in the product business was a significant order from Ma'aden from Saudi. And that was kind of a touch-and-go, whether it's kind of quarter 2 or quarter 3. And we decided that we don't look at quarters. We -- it requires the best possible contract for us in terms of decencies. And then it closes when it closes. So we don't want to hurry up anything just to kind of meet the quarter and make compromises. So it's -- so the baseline service I would say that, yes, it's kind of back on track after the kind of small blip in the last 2 weeks of the quarter.

So Mikko, is it kind of a couple of DKK 100 million within service that was pushed to Q3? Or just getting more a magnitude of the effect here?

I think what we said earlier in the year that the steady state was like quarter 4 and quarter 1 kind of average. So that has been kind of a baseline estimate. So you can -- of course, can be up or down from the baseline, but that's kind of a steady state at the moment for service.

Okay. Then a question regarding the Cement division. In the report, it is mentioned that the underlying margins are stable and the profitability of the order intake is improving. So just to be sure, the quality of backlog is better in what we see in the P&L right now, I guess. Does also the comment about the pipeline implies same margins as in the backlog? Or is the pipeline actually having a better margin than in backlog? So that would be the second question.

So Claus, I think there's a slight uptick in the future revenue margin compared to today, because backlog is -- of course, in service, the backlog is turning to revenue quite fast. So I think -- so it's kind of a small uptick. But then the bigger issue with the P&L, is that for the decline in the volume, we adjusted the cost level in quarter 4, after quarter 4 for the kind of -- for the volume level at the moment. And of course, when volume is dropping 30%, then we are burdened by too high SG&A. So basically, the result is hindered by the SG&A. So that's why we need to do the rightsizing of Cement to adjust to new market conditions. So it's like a self-help more inside the company rather than -- so we can have a profitable business with a low volume, but it requires a light, more simple operational model and, of course, full focus on service.

We'll take our next question from Nick Housden of RBC Capital Markets.

I've got 2. And the first one is on the product order intake for Mining. So you mentioned that for some of the larger order decisions, you're seeing delays and you mentioned political and sort of permitting uncertainties there. But then even if we strip out the effect of the large announced order, it looks like there was still a pretty sharp decline in, I guess, what would be the smaller and medium-sized orders. So I'm just wondering if you've seen a sort of slowdown in those decisions as well or is that kind of purely down to some of the portfolio derisking that you've spoken about?

I think it's a bit of both. So I think when we said that we are derisking portfolio -- I can't give the exact number, but whatever large orders we get in, we've scoped out maybe 20% to 30% non-product content. So most of the kind of large orders that we get, which are today products or a bundle of products we could have extended scope, steel structures, this and that, which could basically impact easily 20%, 30% for the volume. But of course, that's low or no-margin high-risk sort of content. We don't want to have that. But we've seen slowness a little bit in the activity of the small, medium-sized mining players because then, of course, they are more dependent raising capital from the market rather than kind of being able to self-fund like the top-tier players. And there we see some slowness. Nobody is canceling anything, but just cost of capital, raising capital takes a bit longer time. And that will be a bit more in North America and the commodity that may be impacted is gold and -- because lithium is a hot kind of scenario, a hot potato. So you are able to secure the offtake of that production and kind of lock that in. But I think a slight slowness in activity, in particular, for smaller gold-related opportunities. But lots of players are kind of executing plans as previously.

Okay. Great. That was really helpful. And then sort of on a related note just about China. So it seems like pretty much every month that goes by we get more bad, unencouraging data coming out of China in terms of the economic recovery or lack of economic recovery there. Is that something that your customers are bringing up in conversations that you're having with them? Or are they still kind of feeling pretty confident and looking more, I guess, towards the electrification story sort of 3, 5 years out?

Yes. I think when we talk to our customers, they seem to be still very kind of optimistic, bullish about the kind of longer-term prospects of mining. And of course, most of the decisions are not done on an annual basis. So that if you make a decision of an investment, then it's for next 10, 20, 30 years. So you never make investment based on the kind of outlook of today. But of course, then different commodities are impacted differently so that -- I think our kind of exposure to copper is really a good one. It's 40% copper in the order intake, and that's quite typical for us. So I think that's extremely good commodity to be in. And maybe the commodity most impacted by any potential slowdown in China would be then iron ore. And iron ore exports of FLSmidth is relatively small. So if you look at the mix, number one is copper -- gold, where we see that there has been some slowness. But we actually got good gold up there in the last quarter. But -- and then in the smaller commodities iron ore. But iron ore is typically may be the most impacted by the China.

We'll take our next question from Tomi Railo of DNB.

Coming back to the previous question on the mining orders, just wondering -- we have seen this a couple of quarters. Stripping out the announced large orders, we are looking at sort of unannounced order level of roughly DKK 800 million. Would you be able to say how much TK was of that and if this is sort of a good proxy for quarters to come in terms of base order activity for small and medium-sized activity?

The largest product that -- what we acquired from TK is HPGR, high-pressure grinding mill. And in the world there has been no large HPGR orders for the last 12 months. So it means that the impact of the TK for the product order intake is kind of tiny. And of course, if you look at kind of annual average order intake for the HPGRs, it's kind of not very even. They might have a year that there's no single order for that because it's really specialized heavy capital equipment. Some year there might be 10, 15. But there has been no significant HPGR orders in the world regardless of the supplier for the last year. And I think that, of course -- they will come, but it's more about timing. So the big [ increase ] of opportunity is actually in servicing, the largest installed base what we have for the HPGRs and then the repair centers that we acquired. So for kind of for the last 6 months, it has been more the service opportunity from mining technology rather than capital. But capital will come. We are the market leader there. And also that it -- we are looking at possibility to retrofit all our HPGRs and upgrade them in the world. So it's -- so you need to look at it more through the lens of the service rather than capital.

Okay. That's good. Second question. In terms of second half guidance, you are essentially guiding for a pretty sort of stable mix in revenues first half and second half. Any insight to sort of a seasonality between third and fourth quarter? Fourth quarter should be perhaps again the biggest?

I think we're still steaming forward with our derisking approach. We had a relatively good service quarter in Q1. And seasonality traditionally is Q4. So the guidance is 50-50.

And finally -- apologies if I have missed this, but what was the TK synergy, achieved synergy number for the first half? Have you told that?

Yes. So we're staying currently in the numbers, DKK 20 million to DKK 30 million per quarter. And we will be around DKK 150 million to DKK 200 million for the full year because the last wave of synergy takeouts will come very late in the year.

[Operator Instructions] We'll move next to Elliott Robinson of Bank of America.

I was just wondering how you're seeing demand in emission-zero products relative to your wider product base? And is there any sort of like areas either by size of mine, order size, commodity or geographical region where this demand is further boosted?

Elliott, I think we see the demand from mining to look at energy efficiency of the operations. And of course, we have certain products which are kind of market leaders in energy efficiency. And so we see the kind of -- all the new decisions by the mining companies are emphasizing energy efficiency. And in the process plant, the energy efficiency usually comes from power consumption and -- or the piece of equipment. And then the latter part of sustainability is kind of capture of the recycling of the water end of the process. But we see that it's part of all the decisions. So it's -- because that's very much in line also what the cost that if a -- if the product is more energy efficient, of course, it's running cost is lower because almost 50% of the -- or, let's say, 40% of the mine -- process plant cost is energy. So energy efficiency is driving the decision. So in that sense, we see that in many areas we are leading the pack in terms of technology, like pyro. We have by far the best pyro solution in terms of -- for lithium, which is -- in terms of emissions. But still some customers might opt for cheaper solution. But if they opt for kind of the most sustainable solution for the pyro, it's ours. But we see that to be really driving especially the larger mining company decisions. Then sometimes smaller ones, they are kind of balancing between the cost of the most optimal solution from a sustainability point of view against the cost. But all the kind of major players, they are driving all their decisions with a sustainability kind of lenses in their eyes.

Okay. That's great. I have a second question if that's okay. So your book-to-bill on the last 12 months basis is now below 1x. How should we sort of see this developing over the coming sort of quarters given the sort of order and revenue dynamics that you see?

So yes. So the book-to-bill is a little bit seasonal, right? And so traditionally Q1 is our lowest quarter in terms of order intake. That didn't happen this year. And then it builds up through second half. So Q4 is our strongest quarter, and that's where you would expect the highest book-to-bill, if that answers the question.

Well, I was thinking more on a 12 months basis, because you'll see some of big inflow of orders and now you're delivering on those. So I was just wondering whether you're going to see a period of lower orders and higher revenue and how long you're trying to sustain that. Or whether we should kind of see revenue moderate once you've gotten rid that initial backlog or the excess backlog relative to historic levels?

I'm not quite sure what the question is. But the service -- if we look at the service backlog, that will typically run off over the next 2 months to 6 months, maybe a bit longer. Whereas the products' backlog can be everything from 3, 6 months up to 2 years. So if -- and I think that's where this question is going. If demand is dropping, then you would see a delay until it hits through the P&L with the revenue. Is that where -- what the question was?

Yes, give or take. Yes, I guess that's fine. Yes, that's fine.

There's no seasonality in products' revenue, right? That's speced by the contract with the customer. Whereas [indiscernible] is different.

Yes. I think my question was more just -- I think more across sort of the mining equipment players you've seen a sort of bulking up of orders across capital goods. In general, we've seen higher backlogs relative to history. And it's more just a question of how you kind of see that backlog playing out and how long you'll sort of see reported revenues from this backlog level?

Yes. If you think about kind of products business, capital business, I think there's still noise from the past, meaning that NCA, Russia from the -- of course, Russia was out after the first quarter last year. But there's still kind of -- and also derisking, meaning that we are kind of giving up that excess kind of bad quality kind of part of the order. So I think the derisking plays a part as well. As I said, if we have a DKK 100 million order, we could easily make it DKK 130 million if we want it, but why would it take steel structures. And that's a helpful thing, content for your orders. So it's kind of -- I think it's stabilizing in terms of that, becomes more and more comparable. But there's still some noise from derisking NCA and a few other bits and pieces. So it's kind of a -- I think we are not yet on a steady state in terms of comparing apples-to-apples to the previous year. But it will stabilize now that now we've been running this year fully with the derisk strategy and that type of thing. So I think now it starts to be comparable what we do quarter-by-quarter, year-on-year. But I don't know, Roland, if you want to comment that further.

Yes. So if that was the question, then I misunderstood. But -- so the first quarter we will have this year's Q4, that will be like-for-like comparable, where our derisking approach is fully implemented, where NCA is separate in the segment, where Russia is fully out and where MT is -- our former thyssenKrupp mining is fully in. So there will be noise a little bit in the numbers again for Q3, and then we will have clean comps as and from Q4.

There are no further questions at this time. I'd like to return the call to our host for any concluding remarks.

No, I think I'd like to conclude that we actually have -- we are happy with the quarter. We are progressing well on our journey of transforming the company into kind of a higher quality and better quality of the earning's company, derisking, focusing on the core technology and service. I think we are well on our way. And the mining market is solid. And we talk about nuances of the mining market, but basically beyond those nuances, what we discussed is a really good market. And Cement saw the decline in the market. And we are fully adjusting the cement operations into a new volume scenario and focusing there also of transforming the company to be more simple, more straightforward run company with a more service focus. So we are well on our way. And I think the quarter result is evidence of that one. So thanks very much for your time, and I look forward to talking to you all soon again.