FLSmidth & Co A/S

CSE:FLS

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, welcome to the FLS Interim Report First Quarter 2018. Today, I am pleased to present CEO, Thomas Schulz; and Group CFO, Lars Vestergaard. [Operator Instructions] And as a reminder, this call is being recorded. I will now hand the call over to the speakers. Please begin your meeting.

[Thomas Schulz, Group Chief Executive Officer]

Hello, everybody. A nice welcome here out of Valby, Copenhagen in Denmark to all our participants in the webcast for our Interim Report Quarter 1 2018. At first, to the key highlights. We announced a few days ago that we have from 1st of July this year on a new operating model. Now to the quarter 1, strong organic growth and service order, strong free cash flow and in February 1, large mining order received within 3 years. As a side comment, we have quite a significant currency headwind. Now to the market outlook. Actually no change of the message to before, good aftermarket momentum. The mining CapEx is continuing the positive trend and stable outlook for cement. We keep the guidance as we announced it before. Revenue DKK 18 billion to DKK 20 billion and EBITA margin 8% to 10%. For us, safety is very important. We informed you that we will change from LTIFR to TRIFR, which is the total recordable injury frequency rate and you'll see here on the slide, from 2011 on, how our performance is. Since of the beginning of the year we include all the contractors under our regime into the figure. We had a result of 3.3 versus a target of being on 3.2 or below. It is important to say that we had in 2017 a negative trend where we are not pleased with, and we are ongoing with special efforts and focus to improve our safety performance. Now to the reorganizing or organizing for growth. As we informed in the press release on the 25th of April this year, we will from 1st of July 2018 working in the new structure. That means the third quarter result will be -- will have the first time the figures of the new structure. Why are we doing that? It is a structure to get our productivity improvement offering closer to our clients all over the world. It helps us and it enables us to be more simple organized internally to implement digitalization towards our customers in a more efficient way. What we do is that we out of 4 divisions who are responsible for everything what happens in that division, we will go into 2 industries; cement and mining. And both industries will sell everything what they have through 7 regions. It is clear that the group functions as we had it before, as the support for our business will stay on, and digital, our digital organization will be group-wide and it will be no different by geography or industry how we act in digital. This is from our point of view a natural next step in our organization to offer all our productivity improvements towards all our clients around the world. If you look on that slide, you see on the left side the actual -- the current organization with 4 divisions and the country where we do a lot of business through more than 25 what we have today and combined group function. Tomorrow, we will have 2 main industries, cement and mining, responsible to develop the lifecycle offering, responsible to develop the productivity improvement and 7 regions responsible to sell and service exactly that lifecycle offering towards the customer. It makes it for us and the new structure easier to implement internally as well as towards the customer or digital approach, which we see as one of the biggest, if not the biggest business opportunity out of the last decade for our FLSmidth Group. Group functions as before support throughout the organization. Next slide shows what the group executive management and the top management in the company will look like. You see that the GEM will contain out of 5 positions besides the CEO and the CFO, the Chief Digital Officer, what we already announced, will be a significant position and organization in our structure as well as the head office of the cement industry and the mining industry. On top of that, we have 7 regions with the Head of Region, to serve all our clients in the geography in all countries and all areas where they sit with sales and service for that what the industries developed on lifecycle. Now to innovation. We are always very proud to give you one of the things what we develop and offer to our customers in these quarterly announcements. This time it's again, an improvement and an offering in the digital part. It is a new system, process control system, for the mining industry, for the milling process of SAG mills, which is a very important part of grinding in the mining industry and it's a process control which not only controls the feed and the speed and the flowery density, it uses other sensors, other technologies, other artificial intelligence like acoustic to read and to predict and to gather where -- what will happen with the unit, with the SAG mill, with the mill liner and how we can influence the whole process in a way that we get production up, power consumption down, et cetera. When we look into, when we test it, when we play it through we see a production increased up to 6%, which is quite significant on the mine side and lower power consumption between 3% and 6% and very important, a dramatic reduce maintenance cost up to 45% by having predictive maintenance on the mill liners. For example, to hear, to see, to get before things happen with the mill liners which would bring an uncomfortable and very unprofitable breakdown -- unexpected breakdown. Altogether, it's clear that it reduce the environmental impact what grinding has quite a lot. Now to the business. On that slide you see on the left how our total Mining and our total cement business perform. We had in quarter 1 9.5% EBITA margin on the Mining business and on the cement 6.5%. I would like to highlight here the cement business. We had in quarter 3 last year quite a low point with only 4.4% EBITA margin and we said already at the end of 2016 that the pricing pressure leads us and guides us to having internal counter activities as you see now with the gradual improvement of the EBITA now in the -- for the second quarter in a row to 6.5% of these measurements that these investments and standardization, value engineering, et cetera really pays off. We have in the quarter 1 59% of our business in service, and it clearly shows that we are still at the low capital amount of business time in our cycle in the cement as well as in the mining industry. Let us look into the total service business. On that slide on the left, you see the order intake of all our service activities in FLSmidth Group, and what we can say proudly, good performance of our colleagues, it was the strongest order intake quarter since 2012. And that's where the currency headwind of 9% -- negatively 9%. So that was a strong setup, a strong performance. The revenue didn't show the same performance but as you know, there's always a kind of a lagging between 1 to 2 quarters in the service business. If we then look into the total order intake for our company. On the left side, you see the development quarter-by-quarter since beginning of 2016 and the quarter 1 2018 had a minus 10% growth versus quarter 1 2017. What is the reason behind? The reason behind is that we couldn't repeat the very strong order intake of 3 larger orders at the beginning of 2017 in cement, at the beginning of this year. But the underlying order intake, the order intake of smaller orders or nonlarge orders was actually very healthy. So we see the order intake development in quarter 1 as expected and more on a slightly positive side. Then, on the right side you see the order intake by division. Customer Service with a good performance. Product Companies, slightly down. The reason for that lies in one part of the business and our environmental, filter technology business, where we were awarded with quite large orders at the beginning of last year and we couldn't repeat that this year. That's a little bit the lumpy business because it's big project business within the Product Company division. Mining, again showed quite a significant growth and that proves from our point of view the message what we sent already several months ago mining is through to trough. Cement, as we said, did -- were -- was not able or didn't repeat the 3 large orders what we had in quarter 1 2017. Now to the market outlook. There, I have to say it will be exactly the same message what we had last quarter. We see continuing optimism in the mining industry. We see that the mine has booked and announced more spend in 2018 than they had for 2017, that in itself a change. And that is the reason why we see that the trough was in '17. The outlook for '18 is on a positive trend. The commodities which are very or -- this commodity copper which is so important for us and which is important for the industry, actually for the whole world, we see as quite well developing, but actually more or less all commodities are performing on a quite healthy commodity price level. If we then look into cement, the same as before, significant regional differences, but there are only a few tenders out for large premium orders and the intense pricing competition is ongoing. For both industries in common and quite good, is the OpEx aftermarket business and the customer focus is on productivity improvement. With that, I would like to give to Lars for the financial performance.

[Lars Vestergaard, Group Executive VP & CFO]

Thank you. And when we look at the numbers there is the 2 first lines in the chart actually explains quite a lot of the numbers this period. We had a very good activity in order intake, so more than DKK 5 billion in order intake. At the same time, we had a very low activity -- level in terms of converting the backlog into revenue. So we had DKK 4.2 billion in revenue. So the activity level started out quite good in the beginning of the year with good order intake but low revenue and that actually explains quite a lot of the numbers we have on the coming pages. If you look at the EBITA margin, we are at 8.1% versus 8.5% last year. What drives the relatively low margin in the first quarter is the low operating leverage as they have low revenue that translate into a low-margin, which we, of course, expect to improve as we go through the coming quarters where we will have higher revenue. It's also worth noticing that we had 8% negative currency on both order intake and revenue. If we look at the cash flow statement, we had a very strong start to the year. You can see net working capital improved by DKK 140 million in the cash flow statement, so we had DKK 340 million in cash flow from operations in the first quarter which is an improvement of DKK 200 million compared to last year. So very good performance from our organization on cash flow for the first quarter. It's worth noticing that we, in the second quarter, did settle an ongoing dispute in our discontinued operations, and we have paid out more than DKK 200 million in the beginning of the second quarter. So we will have a reversal of the strong start to the year in the second quarter.If we then turn into the revenue, we had DKK 4.2 billion in revenue and when you look over the chart you can see that this is a fairly low level compared to what we've had historically. You can also see that it's substantially lower than order intake, so what I talked about on previous page. If you look into the 4 divisions, you can see in particular Customer Service, was lower than last year which, of course, doesn't help our margins. Product Companies was relatively high despite some currency headwind. In here, we had a very strong performance by Airtech, which is our big project business in Product Companies that sells air pollution control but it comes with a lower margin than the average. So that puts a little bit of pressure on the margins in Product Companies. Minerals continues to run with the low revenue, but we have now had a number of quarters with a substantially higher order intake than what you can see in the revenue line. And we expect in the remainder of the year that some of this higher order intake will start to convert into higher revenue in minerals. No big change in cement in the first quarter. If we look into the gross profit, the gross margin level stable compared to the last quarter and slightly down compared to last year. If you look into the 4 divisions, it's good to see that both capital divisions have improved margins compared to last year. Where we see slight weakness is in product companies where we are executing these bigger projects in Airtech, which carries a lower-than-average margin in the product companies. If you look into comparable products within all industries, we do not see deteriorations in any of the segments. So what you see on this page is primarily mixed impact. If we look at the cost levels, it continues to trend down. If you look at where we are compared to last year, of course, a big improvement is coming from FX, but overall we are satisfied with the level of SG&A we have. And, of course, as we go into the coming quarters with higher revenue, we see the operating leverage from this level of SG&A cost. Margin, yes, if you look at the bridge from last year to this year, we had DKK 372 million last year. We have an impact from lower revenue, an impact from lower gross margin, which is partly offset by SG&A. The bridge we have here is not currency adjusted. So, of course, there is quite a bit of currency in these numbers. Working capital, this is where our organization did a really good job in the first quarter. You saw a very strong improvement in trade receivables. You saw a good improvement in the WIP assets. So we're good at invoicing our customers. So we are now below 10% which is a very good level. We will, in the remainder of the year, see a little bit of upwards pressure on networking capital but we continue to keep the target that we will be below 10% at the end of the year. But very strong performance in the beginning of the year. On our capital structure, equity rates at 38% net debt-to-EBITA is at 0.7%. Our net debt was down to 1.2% at the end of first quarter. It is higher when we get to the end of the second quarter as we have paid our dividend, and we have settled this legacy case and discontinued operations. If you turn to return on capital employed, up 1% compared to last year. It comes from a combination of higher EBITA as well as lower capital employed. And as we go through the year, we continue to see this number improving as we get the benefit from higher revenue and thereby better EBITA. And we will change into the new organization, as Thomas mentioned, at the end of the second quarter. The way we will look at the business from that point is, of course, we have the 2 industries, which are the technology owners and who will define the way we -- our offerings to customers. So we'll have 2 cost buckets where we have the cement cost in the industry as well as the mining costs in the mining industry. Then we have the majority of sales and admin cost sitting in the regions and there we will have another layer of cost where a lot of the cost will be earmarked to both industries, so the salespeople will be dedicated to cement or mining. And then we have group costs which is shared between the 2 regions. We will report -- or the future segments, we will report on is cement and mining, and we will provide the restated historical dates. We expect to provide them when we go live with the second quarter numbers. But, of course, we will only operate in this structure when we report the third quarter numbers. So you will get, yes, the numbers in the new structure when we release the third quarter numbers. But, of course, we will provide the restated historical numbers expectedly around when we release the second quarter numbers. And then back to you, Thomas.

[Thomas Schulz, Group Chief Executive Officer]

Thank you, Lars. Yes, for several years, we promote our theme managing the cycle, or in other words being focused on the 3 Cs, customer, cost and cash. We think that we have the company quite in a good shape, if it comes to all the points what we can influence on our own. One element to do that -- one element to drive that is, of course, to announce to make it public how our internal KPIs are driven and how we are managing the company in that way. If you look to the left, you'll see the actual KPI listing and return on capital employed up, order intake and EBITA down as it was explained where it comes from. The net working capital is the first time for years, for a very long time, below the 10%, the magical 10%. And as Lars said, it is definitely management high focus to keep that below 10%. Our safety measurement improved, but still on a too high level. We have to be honest here. And we have, in our quality indicator, what we call DIFOT, delivery in full on time. Again the seasonal effect at the beginning of the year where versus the end of last year a slight deterioration happened, which is in our business to explain out of the seasonal behavior. Very important are our strategic focus areas especially for the long-term: to be the productivity provider #1; request that we are focused on all customer setups wherever they are and wherever and, however, they operate in the world. Important for that are our people, the innovation and the sustainability what we provide and what we are trying to run faster and more intensive. Digitalization, I said it before, is a huge great positive business opportunity for us. We said it, you have digital approach then you are in the business. You don't have it, you are not in cement and mining in the future. The reorganization -- the organization for growth, the site that was the customers, of course, the digitalization has a big part in that too. Short-term, we have a good run on extending our wear parts business. We gave targets on the Capital Market Day, and we will fulfill them. We are quite sure about that. We grow our product business, and we will grow it more into the geography, into more countries, into more customers and our standardization agenda is ongoing. Out of that, on the guidance -- group guidance slide, we will keep our guidance on all areas and we are quite satisfied with the development. To wrap it up, we had a strong service order intake in quarter 1 2018 with a solid free cash flow. Yes, some currency headwind. We keep the guidance and from 1st of July, 2018, we have a new operating model. And with that, I give back to the moderator regarding the Q&A session.

[Operator]

[Operator Instructions] And the first question comes from the line of Kristian Johansen from Danske Bank.

[Kristian Tornøe Johansen, Senior Analyst]

So my first question is about this standardization and procurement, which drives up earnings in cement. How should we think about this going forward? Will it sort of have an accelerating positive impact or will you start -- I mean, using some for -- to absorb the price pressure, and it will more be a stable earnings effect going forward?

[Thomas Schulz, Group Chief Executive Officer]

So, yes, the standardization approach and the procurement approach has, of course, a mid to long-term effect mainly that we see now because we do it. Lars is actually the boss of It. You can say that if it comes to procurement. The standardization is run in the business. We do that for several years now and now, gradually we see the positive coming out of it. Cement is a good example for it because the pricing pressure is not lowering in the cement business and we get a higher profitability that really comes out of own activity. We will not stop that, and of course, to come back into the 10% to 13% EBITA margin range, what we have as a target range, this ongoing activity is an essential part of it.

[Kristian Tornøe Johansen, Senior Analyst]

Okay, that's clear then. Then my other question was regard your discontinuing operations, so you highlight you've had this payment in Q2, you also write that you expect a conclusion on the divestment in Q2, so first question is, do you expect to get paid? I mean, if you look at your own acquisition of Sandvik's assets you're actually getting paid to take this over. Is it going to be a similar model for bulk material handling? Or will you have a cash inflow? And if so, when will that hit?

[Thomas Schulz, Group Chief Executive Officer]

Yes. Actually, I have to say, at the moment where we are in the negotiations that we are not able to talk about it. That's -- what I can answer is the target is to close it in the middle of the year, as we said it before. But you can imagine we are now in May. It is not possible to talk really about it. If that is close and so on information will come.

[Operator]

And next question is from the line of Jonathan Hanks from Goldman Sachs.

[Jonathan Lloyd Hanks, Research Analyst]

I just wanted to ask if you could clarify on how big an impact the investments you flagged in your sales force and in R&D dragged on EBITA margins for the group in the quarter, particularly in Customer Services that would be helpful.

[Lars Vestergaard, Group Executive VP & CFO]

Yes. So we, of course, flagged that we would have higher sales cost in 2018 compared to 2017 with a fairly -- well, not a too big number, and we did hire a number of salespeople in Customer Service as well in Product Companies. It is not a substantial number. So when I look into the EBITA performance in Customer Service, it is primarily, a slightly adverse mix that drives the lower margin. As you know, we have a different kind of business, spare parts, which is very high, and we have maintenance which is lower and in the first quarter, we had more maintenance business than in the comparison period last year. So it's mainly a mixed issue driving the lower level. We are quite pleased with the efforts from our sales, investments in more salespeople, and we are starting to get the orders in from that. So that is, I guess, if you look at the group numbers, improving our numbers rather than dragging down.

[Jonathan Lloyd Hanks, Research Analyst]

Okay, very clear. And then just on the very strong order growth in Customer Services this quarter, could you comment a little bit on the mix within that? Was that driven, again, by more by maintenance or services opposed to spare parts? Or was it pretty broad-based?

[Thomas Schulz, Group Chief Executive Officer]

It is actually -- there are 2 factors. We had a relatively weak winter when we look throughout the locations of our customers, which normally drives them a little bit, more service business in that time. And the second part is yes, there were quite a lot of negotiations of maintenance contracts in the first quarter. So that's a combination out of it.

[Operator]

And next question is from the line of Lars Topholm from Carnegie.

[Lars Topholm, Co]

A couple questions on my side. On the Product Companies, you mentioned that the margins are hurt by Airtech representing a bigger proportion of revenue. I wonder if you can give us some color as to how that mix is expected to develop over the coming quarters and also looking into 2019. And then the second question, in the Q1 report you write that because the mining outlook is now better, some of the orders in your backlog that are on standby might become active again and begin to generate revenue later this year or next year. Does that mean the proportion of backlog that will be converted into revenue per quarter should accelerate? And also, of course, the contribution from those sleeping orders becoming alive, the contribution to EBIT, will that be with full gross profit impact? And then just as a final question, more household question. But regarding the new structure, should we expect any one-off cost? And if so, what is the magnitude and in which quarter will they be booked?

[Lars Vestergaard, Group Executive VP & CFO]

Yes, so if we look into the product companies and the margin level, we are seeing that we keep the margins and most of the business and it is the mixed impact from the higher order intake in Airtech that is driving down. So in individual businesses, it's actually okay. As we look through the year, we see that the level we have at now is the level we will remain at for the remainder of this year. Of course, there would be uncertainties around that number. When it comes to the backlog, we've had a number of big projects that have been on hold and they have been reactivated. So we will start to have the higher portion of the backlog that converts into revenue for the remainder of this year, and it will be with normal margins level. So actually, that is, I think, the only thing we can really give you as insight here is that it's all in the guidance and there are no anomalies in terms of lower margin or anything like that.

[Thomas Schulz, Group Chief Executive Officer]

Now to the -- regarding the new structure, there are no one-off cost planned and assigned, and we would have been giving that directly to the market if that would have been planned. I have to say that we, in 2016, with the corrective actions, we announced and we informed the market quite well that we go into the one phase to the customer approach in the countries, I call it the geography. Because we are not only looking into country structures in the current organization. Now we move in a regional structure where we will cover more countries, and that is actually quite prepared already over the last several years. It is -- let me say like that, a logical next step to get our productivity improvement offering, our lifecycle offering and more and more our digital offering to any client anywhere in the world.

[Lars Topholm, Co]

Can I ask one additional question, please?

[Thomas Schulz, Group Chief Executive Officer]

Yes, please.

[Lars Topholm, Co]

Which goes to some of the orders you have won because it strikes me that the time between cash minerals approving, the actual guide expansion and you giving the order was very short. I believe you also won orders to Billiton's expansion of Spence in Chile. And again, with a very short time between approval and putting out orders. So my question really is, how come you get orders so quickly after project approval? Is this because these orders do not go into a tender minus increasingly tied by what they have already or how should I see this?

[Thomas Schulz, Group Chief Executive Officer]

Yes, you are really aware of the industry, that's actually great. Lars, the thing is, that the order of what you talked about, of course, there is a life before. There was a lot feasibility studies and so on over the years. It was not that public. It was not that big because we're in a recession, and our mining customers didn't want to talk so openly about it because they were, of course, under a lot of pressure to save cash, to save money and so on. Then the way how, especially these 2 customer acted from the decision to do it and then giving an order, was, of course, with tender, with the normal way how you do that in the industry. But you see the professionalism of these customers how quick they could realize that into an order decision. Of course, things what drag out decisions like environmental permits and so on, we're not hitting here in between or other things like that you need to find 3, 4, 5, 10 banks to finance it that were not -- that was not coming in between, and that of course shortens tender time. That will be not -- I know it is a pity, but it will be not for all the deals like that.

[Operator]

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

[Klaus Kehl]

Yes, hello, I am Klaus Kehl from Nykredit Markets. Three questions from my side. And first of all, I must say that I'm pretty impressed by the order intake in Customer Services and cement. So I was wondering whether you could talk a little bit about whether this is a sustainable run rate going forward? Or there is any positive one-offs in the numbers? And second -- secondly, could you try to give us some comments about the likelihood of large orders in both mining and cement in the next 3 quarters? And finally, Lars, did I hear you say that you expect to have a networking capital below 10% end of '18? That would be my 3 questions.

[Thomas Schulz, Group Chief Executive Officer]

Yes. At first, to the service. It is a lumpy order intake in revenue in the total service business. Because maintenance contracts are bigger, large, we had a good run in the first quarter on it. That is not a new level where we go each quarter more on top and further up, that the market is simply not there for that. But what we see is that we got over the last few years a significant good share in the industry and that our model what we offer, the productivity improvement is very, very attractive to the mining as well, we should not forget the 7 customers, too. Then to the large orders, we know exactly which kind of orders and feasibility, prefeasibility studies in cement as well as in mining anywhere in the world is ongoing. We know that. We tracked that. We are always asked and invited and involved, and we can say that the pipeline for cement is there. The only thing where we have to say it's not in the same speed as a year ago or 1.5 years ago. And you see that things are dragging out, has a lot to do with, yes, permits and the financing of the deal. Then we look into mining. The pipeline in mining for large orders looks definitely significantly better than, yes, 1, 2 years ago, clearly. But it's not that it will come all like a catch-up effect in 1 quarter this year. It takes a while until that comes out step-by-step. And there are several reasons for it which would actually make that meeting very, very long if I have to -- or if I would explain that. But one thing is, of course, permit, and the engineering capacities and capabilities in the industry after a 6 years recession that has to get rebuilt and trust has to get rebuilt and facts and figures has to get rebuilt and then it will go forward. And last question was actually for Lars.

[Lars Vestergaard, Group Executive VP & CFO]

Yes. And you heard me completely right to say that we have an ambition and a target to be below 10% at any point in the cycle on working capital. For us, this is a very good indicator on whether we are on top of our business or not. And with what we can see and what we have ongoing, it is definitely a clear target for us to remain below the 10%.

[Klaus Kehl]

Can I ask a follow-up question?

[Lars Vestergaard, Group Executive VP & CFO]

Of course.

[Klaus Kehl]

You have had this target today about the net working capital for quite a while, I can't remember, I don't know, 3 or 4 years. But now you're getting really, really close. So what I'm wondering about is obviously, you have an ambition to go below 10% but do you think it's realistic?

[Lars Vestergaard, Group Executive VP & CFO]

I mean, we are below 10%. So actually, if we end up the year at 10% that would be moving back from where we are today. So that's definitely something we are convinced we can get below because we are below. But it's not -- I mean, there are lots of things in working capital that moves and it's not completely predictable. But this is something that is very important for management and the organization here to not go back to the levels that we've been at in the past. So 10% is a definite target.

[Thomas Schulz, Group Chief Executive Officer]

Yes, and maybe that one-word because it's in the annual report you can read quite fairly in how the net working capital is build up. The good networking capital run where we had years back during the boom times was heavily supported by huge advance payments from customers. When you look into the figures, we are not enjoying that tailwind today. So the setup of net working capital, what we have today, is managed on all areas to the absolute maximum and we are now on 8.9% for the quarter, and we really don't like to get figures in the wrong direction. We have a mental problem with that. So our target is to stay below that.

[Operator]

And next question is from the line of Clause Almer from Nordea.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

A few questions from my side. More to Topholm's question regarding those projects in the backlog that has been on hold. As I understood, the answer -- the effect is already embedded in the guidance. But if you read the Q1 report, it's only saying they could be reactivated. So how should I read that? That'll be the first question.

[Thomas Schulz, Group Chief Executive Officer]

I think if you look at our guidance, it's fairly broad. And one of the reasons why it was broad was that we knew that some of these projects were looking like they could be reactivated. So if you look, it's DKK 2 billion in difference between the bottom and the top end of the guidance. So, of course, we can have that in there.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

Should we then read you or your answer today that you are more optimistic about the effect i.e. we are heading for the high end of the guidance range? Or...

[Thomas Schulz, Group Chief Executive Officer]

No, you should not say that because, of course, we had a very good picture when we made the guidance that these projects were starting off again. So it was just a little bit more cautiously mentioned in the report.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

Okay. And then I'll just try in another way, can you say the delta we could see this year from these effects. So whether it will succeed or you will not succeed getting these projects reactivated because you can't keep the whole range.

[Lars Vestergaard, Group Executive VP & CFO]

So the answer is, some of the bigger projects in the backlog are reactivated. Some of it will be revenue in '18 and some of it will be revenue in '19. So it's not all '18 impact. And I will not move out of the guidance and give you any indications whether we are closer to the top or the bottom by this because it was, actually to a very large extent known that these projects would start up when we made guidance.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

Sure, okay. It was worth trying to get a little bit more color.

[Lars Vestergaard, Group Executive VP & CFO]

Yes, no problem.

[Thomas Schulz, Group Chief Executive Officer]

Good try.

[Claus Almer Nielsen, Senior Analyst of Capital Goods and IT]

The second question goes to greener brownfield. Maybe we get an update on this tendering activity. All these issues about getting a relevant permit, if in a negative scenario, could we see the whole effect be postponed to 2019 or it's more a delay in 2018?

[Thomas Schulz, Group Chief Executive Officer]

No. Actually, we have in the guidance, we have in that what we gave out last quarter already that's in, there is no change on view. I know it's, as Lars said to me, this will be very boring with the message above the market -- market outlook because it's the same as before and that's exactly the case. We have that tougher behavior out in the world with more feasibility studies scrutinizing the permits more and so on that we have that for quite a while. That's nothing new developed in quarter 1 or beginning of quarter 2. So it is as we predicted. It is a positive trend in the mining industry. I know that we are called tough waders of the industry. Fact is we don't see a catch-up effect or a huge rebound in 2018. We see a positive trend. We head -- well, we enjoyed now 3 quarters in the Minerals division with significant growth rate. Yes, from a lower level, but it shows where positive trends goes. On the revenue side for that, I have to say that too, it takes in our business 1 to 1.5 years from order intake into revenue in the larger projects that comes on top too. So we are not changing the outlook. We are not changing anything on the guidance and that has nothing to do that we are conservative or tough waders or anything. We believe, we feel that we have a very good view into the market mining, as well as cement how it will develop.

[Operator]

Next question is a follow-up from the line of Lars Topholm.

[Lars Topholm, Co]

Yes. It's a question on Antofagasta's Los Pelambres mine, because I believe the service and maintenance contract you announced 5 years ago expired by the end of last year. Has it been extended or are there any news yet?

[Thomas Schulz, Group Chief Executive Officer]

Yes. Actually, normally we don't disclose information with the customer, you know that. As long as we don't announce it in the press release or stock announcement. But I think we do a very good job there. And we will ongoing with that good job.

[Operator]

[Operator Instructions] And next question is an additional follow-up from the line of Kristian Johansen from Danske Bank.

[Kristian Tornøe Johansen, Senior Analyst]

So my question is around the Product Companies division. So when you created that not that long ago, it was with the ambition to drive cross-sales synergies, which at least have been a bit difficult for us to see in the reported figures. So first of all, what will happen with these product companies in the new organization? And does that mean that you have sort of, like, given up on that part of the strategy?

[Thomas Schulz, Group Chief Executive Officer]

Yes, I can answer the second part immediately. No, absolutely no. My colleagues in the product companies did and do a great job to collaborate, but you can imagine that the collaboration is, for the product companies in the cement industry, quite close together and the collaboration of the product companies in the mining industry is very close. But there is not so much collaboration needed on the business term between the cement and the mining product companies. And so we take the mining-related ones into the mining industry and the cement-related ones into the cement industry. We have, of course, business which is for both. And we do a lot cross group out of these already. What are we doing now with -- if we look into the Product Company division in the new structure, I make it like that before we had, let us say, 200 salespeople in the Product Company division in one of this product companies and now they have 5x -- 10x more, 6x more sales people and service people around the world running for that product range in that regional setup. So it's a logical step of that what we did with the Product Company division to collaborate more into now that industry and regional structure.

[Operator]

And there are currently no further questions registered. So I'll hand the call back to the speakers. Please go ahead.

[Thomas Schulz, Group Chief Executive Officer]

Thank you very much for all the questions, and to attend our quarter 1 2018 announcement. I wish you -- we wish you a safe trip, safe life wherever you are. And see you and listen to you very soon. Goodbye.

[Operator]

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