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Welcome to the Investor Presentation for FLSmidth Result for Quarter 1 '22. My name Mikko Keto, and I am here joined by Roland. And as you can see from the pictures, we're happy faces. So we are very pleased for the result of the first quarter. Sun is shining outside, the office in Copenhagen. So life is quite good at the moment.
Forward-looking statement, please note that there's a high level answer because of geopolitics and other events. So when we are making future statements, you need to use disclaimer on back of your mind. Then starting, with more somber note regarding war in Ukraine and impact it has for the people and for the business. We told to the market that we were forecasting DKK 1.5 billion revenues out of Russia this year.
In the first quarter, we realized about DKK 380 million out of DKK 1.5 billion. And there's still high level of uncertainty what will happen during this year for the difference between DKK 1.5 billion and DKK 380 million. We are winding down our activities in Russia and of course, it has an impact on our profitability as well. We talk about employees, we talk about supply chain, sub-suppliers, customers, but we are winding down activities in Russia and that comes with a cost. And therefore it has some negative impact on our profitability this year.
The highlights for the year or for the quarter. The main highlight is that Mining business is growing fast in terms of order intake, both capital and service. Second highlight is that Cement is profitable, very important points for the business.
And third point is that we can deliver, which is visible in the revenues. We'll talk about orders in a minute and I'd like to highlight that the 4 lots orders in Mining capital product orders. So we are fully committed to derisking our portfolio to make sure that then when we see those orders as revenues in 1.5 years of time, 2 years of time, we execute orders with [ asset ] margin.
We have announced partnership with the Microsoft and AVEVA where we used those platforms to accelerate digitalization and sustainability ambitions what we have in-house. We will talk about details of that at the later date, but those are important partnerships. TK acquisition is progressing well. And I come back to that in a minute about in which countries we got clearances. And then on MissionZero sustainability, credentials, we got an important order for clay calcination for Cement business.
We are guiding the market that we keep the guidance, but then on Mining EBITA margin, we will be at the low end of the guidance because there is a cost from winding down the business in Russia. A very significant growth in order intake in Mining, 30% growth in service, 60% growth in capital business. But you, of course, need to bear in mind that capital business is quite spiky, so you will see variation between the quarters and typically I will encourage you to look at the trend of the capital order intake.
We still have a theme, value over volume, especially for the capital business. We started derisking the portfolio, which is maybe not so evident in this picture where we see significant growth, but we've taken more product orders and we turned down -- we made no bid decisions on some of the riskier products and projects. It's quite evident now in the market that we have pricing power. So if I look at the order intake quality in terms of profitability and risk, we're advancing there. And the pricing power is based on products, technology what we have and also our supply chain. Supply chain is increasingly important decision criteria for our customers.
Just highlighting couple of large product orders that we have received during the quarter. Australia is a single product ship loader. Argentina is mills and cyclones. Brazil is kiln and a dryer. Southeast Asia, Mills are thickeners. What we've done with these orders and in rest of the business that we spend time scoping out the content that is not good for us in terms of risk and profitability. We focus on core technology, core products of ours. And all these cases have evidence of that one.
The message in the revenue of Mining is that we can deliver. We can deliver and therefore we saw increase in service revenue and we saw significant hike in capital revenue. And that mix has an adverse impact on the overall margin. So we saw margin staying flat. And the best comparison point between last year, first quarter and this quarter is adjusted EBITA margin because we did not see too much of the TK acquisition cost in the first quarter last year.
So in very simple terms, EBITA has stayed flat despite significantly higher sale of the capital business.
The good news out of the TK Mining acquisition and integration planning and antitrust process is that we got unconditional clearances in very significant markets: Australia, South Africa, Peru and Chile. Those are the key Mining markets. There are still few countries where we are expecting clearance, but this evidence that those countries saw no need to require any remedies as a result of this acquisition. So very pleased about that one.
We will open up this approach to the risk and profitability management, even more in the Capital Market Day in maybe fourth quarter this year. But what we are doing now is that we go for strict global P&L management where we have 3 main P&L units: service, products and systems.
And as you can guess, the profitability and risk is low in service business, low-risk in products and higher in systems business, which is more engineered products, higher risk products like stackers, reclaimers and the types. And then in each business line, we have a fairly self-sustained product lines and the product lines are, for us, EBITA units and they are like LEGO blocks that we can performance manage and actively manage our portfolio across the business.
At the same time, we started derisking the capital business, which means that we are targeting more for the product business and less projects. And we defined risk categories starting from service, low-risk products, bundle products, process packets and there onwards. And then we are also looking at complexity of the product. As I said, in system business, we have more complex products and deliveries compared to the products' business line, which is more standardized. And we will be setting quotas for higher risk business and then higher margin targets to cover the risk in those deliveries. And we will implement very systemic approach for this one, quota-based. And we've done the definitions, we started to work and we will bring this more under control in latter part of the year.
The good news in the Cement business is that the service business is growing. We are very careful about the capital business, where we focus more on products and technology deliveries and less on projects. And we will implement similar principles for risk and quota for Cement as we are doing for the Mining. I'm really proud of our Cement business that they posted positive EBITA margin for the quarter. And here the best measure is adjusted EBITA because 3.6% is including one of gains from sale of the property. So for the first quarter, we are posting profitable result. And that is the focus in Cement profitable growth only. We don't go after volume. We focus on service, we focus on products and then we focus on MissionZero credentials in everything what we do.
Then I hand over to Roland to continue with more detailed financials.
Thank you for that, Mikko, and adding up the numbers, more than 40% growth in order intake, 27% growth in revenue, leaving us with EBITA of DKK 302 million and EBITA margin of 6.4%. Clearing financial costs, clearing taxes leaves us with a net profit of DKK 123 million consolidated for the first quarter. If we look at the combined revenue, it's growing by 23% and as Mikko says, it shows that we can deliver. It's notable that the capital share of total revenue is significantly up compared to the same quarter last year and this is driven by Mining.
Also, it's clear that our order intake now, the book-to-bill ratio is significantly above 1, i.e., we're generating significantly more orders than we are executing revenue. If we look at our gross profit, our gross profit is moving forward in terms of DKK 1 million.
However, compared to the quarter last year, our gross margin is down. And this is primarily in Mining where the capital share of total revenue is significantly higher, but also a little bit from inflation and from longer lead times in the supply chain. Cement is more stable with regards to capital and service split. And the impact from reshaping is now starting to sit in the numbers and bringing Cement forward also on the gross margin for the quarter. If you look at our SG&A cost, they are up by 12%, driven by both extraordinary costs of DKK 37 million related to the TK integration and also netted back a gain of DKK 23 million from a sale of property in U.S. that sits in our Cement business. There's also a little bit of wage inflation and some higher travel costs compared to the same quarter last year. However, in terms of revenue, our percentage is now down to a bit more than 15% of revenue.
Our EBITA margin is moving forward on consolidated basis to 6.4% from 5.1% same quarter last year. And it's predominantly driven by revenue. Our gross margin is slightly down as we talked about predominantly because of the higher share of capital revenue and that leaves us with a reported EBITA margin of 6.4%. If we adjust for both the TK integration cost, but also the income from sale of property, the adjusted margin would be 6.7% for the quarter.
If we look at our net working capital, as expected networking capital increased in Q1. We have decisively chosen to raise our inventory levels, a few places in the world predominantly to cater for potential uncertainty in delivery times in the supply chain. That's also a little bit of currency in this number. And then as expected, we have executed significantly on the capital backlog and thereby also built work in progress. So an expected increase in working capital of about DKK 300 million for the quarter.
Total net working capital ratio is still well below 10%, 11%, so sits at 7.3% for the quarter. And that leaves us with a slight negative cash flow for the quarter. EBITDA of DKK 366 million correcting for the change in net working capital and also tax has been paid, leaves us with minus DKK 70 million in CFFO, cash flow from operations for the group. CFFI here is positive due to the sale of property in U.S. and that leaves us with a free cash flow of minus DKK 35 million for the quarter.
Our capital structure in terms of equity ratio is largely unchanged. Our net interest-bearing debt remains negative. We still have cash sitting waiting for the TK acquisition to be paid out when it expectedly closes during second half of 2022.
And with regards to our 2022 guidance, we maintain our guidance. However, we will make a position for Mining. And that means that we expect to trend towards the lower end of the EBITA margin guidance of 8.5% to 9.5%. And this is predominantly driven by the war in Ukraine that leads just to lose revenue in Russia and also incur significant costs in terms of winding down the business that we have in Russia. We maintain the guidance for Cement and also the guidance for group remains unchanged.
And with that, I'll give it back to Mikko.
Some of the highlights regarding sustainability, I would like to highlight that we have some part of last year where we saw negative development in safety. Now, we are back on track. We have renewed focus on that one so that's important to note, heavily focused on that by the management around the globe. And second highlight is that the clay calcination installation in Ghana, it's one of those credentials and references that Cement needs to build to be the market leader in sustainability. It's really important reference case for us. And then partnership for the Microsoft and AVEVA, both accelerating our journey in digital related services and then sustainability. Those are the highlights here.
Then before going to the Q&A, maybe summary of the quarter is that super order intake in Mining, both in service and capital and with the capital you need to bear in mind that there's significant quarterly variations. It's evident that we have a pricing power. We can compensate the significant inflation in the cost base with the price increases. So we don't see profitability errors as a result of inflation.
We continue derisking portfolio. We are doing it more and more tighter and tighter quarter by quarter and also highlighting the fact that we can deliver. And it has some impact on increase in inventories and few other things, but we focus that we can deliver, both in the capital and service. And the final highlight is that we have a profitable Cement business.
Then for the Q&A. Then we move onto the Q&A.
[Operator Instructions] Our first question comes from the line of Magnus Kruber from UBS.
Magnus Kruber from UBS. A couple of questions from me. First, if we start with the aftermarket orders in Mining, obviously very strong, is there something there in particular this quarter that drove the solid order intake, perhaps some spare parts order or something associated with other large announced orders?
And also, how should we think about the conversion of the backlog at this stage as you expect an acceleration through this year or is there anything else holding back invoicing of the service backlog?
So we saw significant order intake in more profitable part of the service in spare parts and wear parts. And we saw also what I said about pricing power that we are getting- we are able to compensate inflation plus maybe a bit more about the pricing. So it has been really triggered by the kind of most profitable part of the service. Some growth in labor related services, but longer term, we are looking more to move away from the basic labor services because of the low profitability and then transforming into high expertise service company. So over time you see relative reduction of the labor services and then higher sale of the Spares & Wears.
And we saw some of that already in the first quarter so that growth was really healthy in Spares & Wears and upgrade retrofit was quite stable, so good growth in healthy part of the business.
And we have been -- there have been slightly longer lead times. You asked about the conversion. We've seen slightly longer lead times for this Spares & Wears because of logistics, but it's not really impacting the customer operations and our kind of future revenues too much, but it's a longer lead time than in the past, but we are working with a supply chain. We are working with an increase in inventory so that we can ensure excellent service level to our customers. So Roland commented upon slight increase in inventories for that reason.
Got it. But it wasn't quite as strong a sequential pick up there. So there's nothing unusual about this. So nothing that's related to the larger orders that you announced on the OE side?
No, it was broad-based and it's driven by the customers being almost whatever's record profitable, but is really, really profitable businesses, what our customers are running and of course, uncertainty about Russia production, it makes even more incentive for the rest of the world, North America, South America, Australia, many other countries to kind of maximize the production, what they can bring to the market. And that has positive impact for the Spares & Wears as well. Nobody's holding back anything. And also that we see the point of impact also for the CapEx that the business case is, for example, if you're lithium producer, it's super good and almost regardless of your CapEx, whether it's up or down 50% or 40% or 60%, the business case has improved significantly for many commodities. And that is driving also the CapEx.
Perfect. And also, could you talk a little bit about the component availability and the availability of logistics? I mean, to what degree are these impacting your cost level and your invoicing capabilities at this point? It seems to have been doing well so far, but how do you see the balance over the years as getting difficult, more difficult or is it sort of stable, improving?
So lead times are getting along in some of the components. It's more impacting capital business. So if you talk about service business, then we talk about maybe lead time instead of 60 days is 70 days. Or instead of 30 days, it's 40 days. So it's still within a kind of reasonable kind of frame.
But in the capital business, in some of the capital goods, mills, for example, large capital goods then, lead times for large mills have gone up maybe for 1 year to 2 years. So we see more that the delay or longer lead that's between order and then delivery in big capital orders and customers are also sometimes splitting the orders so that if they have a project, then they're looking at the long lead time orders prior to ordering the rest and customers are planning for that one already or have been doing so for the last 0.5 year.
Interesting. And then finally, could you comment a bit more on how we should think about the backlog conversion on the larger project in Mining? That would be very helpful. I mean, given you have a balance this year on maybe DKK 600 million in Russia for the rest of the year. Can you speak a little bit about that and what you expect?
So in terms of backlog conversion, I think we are roughly on track compared what we had planned to, but obviously the Russia situation will lead us to redirect some of the equipment that was meant for Russia somewhere else. So some of that revenue will be delayed compared to our initial thinking. But the anticipation is now that we can partly compensate the Russian revenue loss with redirecting some of the resources, some of that equipment to other places in our backlog that will then be accelerated. So slow, but partly mitigating.
The comment from last quarter about the stronger Q1 to Q3 and the weaker Q4, if that's still largely relevant?
So Q4 will largely be unchanged. So the large orders was expected to be delivering Q1, Q2 Q3 and then the split would slowly but surely change.
Our next question comes from the line of Max Yates from Crédit Suisse.
Just my first question is a clarification on the Mining guidance. I think you mentioned that the margins would be at the lower end of the prior guidance because of winding down of the Russia business. I just wanted to understand, is that just a function of not delivering and that causes inefficiencies or are you actually taking any above-the-line charges or provisions related to that business? Therefore, I'm just trying to think about kind of, is it just to do with deliveries or actually, is it kind of a provision that you've taken that would subsequently drop out next year?
Yes. So thank you for that. So we have not taken any extraordinary write-downs or charges, but obviously, winding down the business in Russia will lead us to lose a certain margin that's admittedly not the largest margin we have. And then there's also cost of refurbishing equipment. There's significant cost to legal assistance in terms of what we need to do. And there will be re-routing costs related to whatever option we will choose to do. So it's a number of extra operational costs and also a certain loss of margin. That's how we should think about it. There's no write-down of assets in Russia. We don't have a lot. We have offices. We also have a few spare part warehouses and so on, but they have not been taking charges on those. And we haven't impaired anything in the backlog either.
Okay. And just the second question, I mean, we're obviously in a kind of fairly inflationary environment. So just when we think about the large orders that you're taking now, obviously it's quite difficult to sort of understand where logistics costs will be in 6, 12 months' time where wages will be. So could you just walk us through kind of exactly what you do potentially around surcharges hedging on kind of projects that we're taking at the moment that kind of can help us get comfortable, the subsequent margins on these will be perhaps the ones that you're kind of assuming today? How does that work in practice?
So for the large capital orders we have back-to-back arrangement for our key sub-suppliers. If I use, for example, mill, as an example, which is maybe 90% material cost. So when we get customer order, at the same time, we have a commitment from foundry and casting supplier for their price. So we are fixing sub-supplier price at the same time as we are creating customer price. And we have a kind of window of 1 or 2 or 3 weeks when we can do that. So when we are quoting, we say that price is valid for 2 weeks or 3 weeks. And then if we don't have agreement for the customer before that, we need to price check from sub-supplier because sub-suppliers are giving similar type of commitment. So we are kind of locking in the most critical parts of the supply. So most of the material cost, what is in the product cost is actually locked.
And then we are more and more looking at logistics as a cost plus so that if we are organizing logistics, then we say that we do cost plus that we cannot even forecast the cost of logistics, either customers organizing the pickup or then if we organize that one, then we typically have more cost plus type arrangement because that's the only way to control the kind of the logistics cost.
I said about pricing power that we have a certain target margins for the capital goods. And then despite the inflation, the cost base, we've been able to secure the target margins for capital goods and then be more now focus on derisking the order so that we can actually execute and deliver with the as-sold margin. So I think we are pretty much there with kind of order intake margin, but then we have still work to do derisking the portfolio so that we don't have any margin erosion at the time of delivery. So that's now the focus.
Okay. Maybe just 2 very quick ones. So just firstly, as we moved into kind of this quarter and obviously things with China logistics, China lockdowns have accelerated. So I'm just wondering whether kind of across your suppliers as we move into this quarter, have you seen any material disruption in your ability to sort of finalize and finish deliveries or manufacturing of or assembly of your offering and delivery to customers? Has that impacted you at all?
So we have a fairly agile logistics and supply chain. So we see month-on-month variations with the on-time delivery from suppliers and from us to our customers. But as you said, there's a flare-up of the restrictions suddenly in China, in Shanghai. Then month later you have a kind of a big issue in a port of Los Angeles that -- for the incoming goods. But we've been able to navigate that one and if I look at second and third month of the quarter for the Spares & Wears, for example, we saw the improvement in on-time delivery between second and third month.
So there are, of course, challenges every now and then, but we've been able to improve those. So now we again see improvement in OTD. So that's why I said that I'm actually proud of our supplies and logistics. IT has been -- it's not perfect because nothing can be perfect at this time, but it's actually, we believe that it's one of the reasons why we are getting orders, why we are competitive, because customers get a nice feeling that it's kind of under control. Far from perfect, but well under control.
Fantastic. Very quick housekeeping one just on thyssen integration cost, do you have any sort of guidance of what those costs could be in Q2? Should we anticipate -- I think you had DKK 42 million of costs last year. Is there any guidance within 110, what the costs could look like in Q2?
I would anticipate similar level in Q2 what you saw in Q1.
Our next question comes from the line of Gustaf Schwerin from Handelsbanken.
A few questions for me. Firstly, on the DKK 1.5 billion in sales for Russia this year, how much was that expected to be service and therefore to be winding guidance on sales now? Does that imply that you can sell a majority of the equipment in terms of Russia to other geographies? First one.
Yes, so by far the majority of the expecting Russian revenue was capital business. And the second part of the question is that, that equipment we will pursue to have redirected under other orders and that will partly mitigate that revenue loss out of Russia. That's how we're thinking about it.
Okay. Secondly, on the order intake, how much was Russia in Q1?
Next to nothing, because we don't take any new business. There was some something out of existing contract, something, but we don't take any new business in Russia, so basically nothing.
You did excellent till a couple of months into the quarter. But okay, limited numbers.
Lastly, on the gross margin decline in Mining, can you give a rough indication of how much inflation was dragging year-over-year?
The inflation, if I think about product cost, which is -- have a significant impact on capital business. So it varies a lot between different products, but, kind of, inflation, if you look at global inflation in North America and Europe, I think in many product it's higher than that, but it depends really a lot of type of product what we talk about, but it's quite significant.
But in terms of how it impacts our gross margin, if that was the question, it would be less, probably less than 1%.
Excellent. Okay. Perhaps, last one. Do you get any signs of miners bringing back idle capacity over the past couple of months in response to what's happening with Russia, et cetera?
I don't think there's too much idle capacity, I think. With the current commodity prices, I think everybody's trying to maximize their products in most of the commodities. So that is also evident in our Spares & Wears business. Nobody's holding back anything, if you need to kind of get the Spares & Wears to keep running. And also that we see increase in the smaller, kind of, capital orders, which increase in capacity either in existing plants or then good level activity in lithium and gold, kind of, smaller new development. So we see that operators outside Russia is looking to compensate potential decline in the output from that region.
Our next question comes from the line of Aurelio Calderon from Morgan Stanley.
The first question is coming back to Magnus's question on the aftermarket order growth in Mining. Obviously very strong number. I wonder if you could break up a little bit, how much of that was pricing, how much you think could be down to some double ordering ahead of, as you mentioned, customers really increasing production or keeping production at very, very high levels. I'm just trying to sense, check what an underlying level of demand would be going forward once we strip out pricing and potential effects of double ordering, what would be the real volume number?
So real volume numbers actually, of course, slightly impacted by pricing, but it's less than the capital goods. So actually, the growth is real volume. Most of that is real volume growth rather than price and inflation on the cost base because of different types of business. So the product cost out of the Spares & Wears is significantly less than capital. So it's mostly volume growth. Of course, some smaller impact on pricing and, kind of, inflation of the materials, but it's mainly true volume growth.
So just to clarify, 30% growth that you had is mainly volume. Is that what you're saying?
Yes.
Okay. Perfect. And second question is, obviously when you look at the backlog for delivery, it's kind of, the backlog for delivery beyond the next few years has funded quite significantly. I think it's now standing at 2o-odd-percent versus 11% last year. What is driving that? Is it the nature of the project or is it the global supply chain, which is basically pushing your deliveries forward into the future?
So it's our allocation of the backlog you are referring to and I think it is. There was a little bit bad line. Then we have put the DKK 2.6 billion that relates to Russia. We have put that in the bucket saying, 2024 and later, because we don't know what's going to happen with it. So you need to take the backlog, pull out the DKK 2.6 billion and then we'll deliver the rest 40% this year, 40% next year and then some 20% from '24 and onwards.
I see. So it's just the effect of putting the DKK 2.6 billion of Russia into that bucket.
Yes.
Okay. And maybe a final question from my side and it's going back to this DKK 2.6 billion of backlog that you have in Russia. I think you mentioned your balance sheet exposure is quite small in terms of spare parts and so on. But I wonder if you have any warranties, any down payments within, I think you disclosed DKK 3.2 billion of continuing liabilities. Can you disclose how much of that is linked to this DKK 2.6 billion of backlog that you have in Russia?
We had some prepayments in Q4 last year and that related to the Russian business. So I think it's important to highlight there's some uncertainty on how that will end that we have decided to wind-down our business in Russia and we have a backlog of DKK 2.6 billion ahead of us. So, so far we expect that we'll be able to handle it, but as uncertainty as to how. I will not give details on our net work in progress and so on, on the Russian business, but say that we received a significant chunk of prepayments on the Russian projects in Q4 and we still have those.
Our next question comes from Will Turner from Goldman Sachs.
Just following on from the last question, actually, given the comments that you've made so far with material cost of procurement being the biggest, largest part of the capital business, when we look at that, obviously strong growth, is the largest part of that price increases? and has there obviously been meaningful volume growth there as well?
It's a largely non-price -- cost escalator related, but it's just significantly supported basically by cost increase in the material cost and our pricing target that is supporting the growth. So it will be less, if you think about, in terms of physical volume, but still dominantly just kind of proper order cost, not taken into account cost increase and then pricing targets, but it's definitely that is supporting the number. So it would be less than if you would take out the impact of the cost increase in the products and then our margins targets.
But, again, it's very product specific that in some products, the product cost escalates and has been very significant. In some other product areas, it's much less, so it's very product specific. So it's difficult to give you one number.
Okay. That's great. And then in terms of the outlook for the capital business, you emphasized how it's lumpy. I can understand why you're still pretty conservative, but can you just give us a bit more kind of color on how you're expecting the capital business to develop during the remainder of the year? And is there any particular vertical way of seeing, particularly high activity?
I think we will see some lower quarters in terms of order intake, because then of course, the first quarter's extremely high and some of this has to do also with the timing of individual orders. And it's not really in our hands, customers decide when they decide. But I still expect the healthy growth also for the capital business for the year. But there's, of course, uncertainty about global inflation, this and that, but of course, then as long as the commodity prices are good, it's supporting the growth.
But at the same time, we are putting more emphasis of selecting -- I discussed briefly about the model that we start putting quotas and higher-margin targets for the riskier stuff. So actually, we don't go for growth at any cost and then we will be more selective what orders we take in and it means that in some cases we don't go for the maximum volume or we will not go. I know that.
And because we want to see when we execute these orders in 1.5, 2 years of time, we want to see the same margin as what we sold them to. And I said earlier that I feel that we've advanced a lot in our pricing in capital business, but we still have work to do derisking the portfolio. So we are taking derisking portfolio very seriously now.
Okay, great. And on the working capital, I was a little bit surprised with the large order intake -- large capital order intake growth that the working capital didn't go down more with higher prepayment. But going forward is this shift towards being more product-focused rather than systems focused? Meaning that you will probably see a higher working capital intensity in the future. And how should we expect that to develop?
So we are shifting -- you are right. What do you see in my some of the earlier commentary as well. We are shifting much more to become more product and service focused company. And then we started already restricting the so-called extended scope, what is sometimes available in the projects and we could do it, but we don't want to do it because it's high risk and low margin and then there's no aftermarket. Steel structures, this and that. You have lots of extended scope available when customers are building the plants, but we feel that we are not the best company to be involved in that type of the business. The other companies will do that better.
So we more strictly focus on our products, [ Pagano ] products and give a process guarantee for customer that basically our flowsheets performs to the standards and to the specs, but we are scoping out the rest. So that is clear trend and we started doing that already.
And we are not necessarily guiding on working capital, but what we have said is that the level of working capital in Q4 and also out of Q1, even though it went the wrong way, it's relatively low and a more realistic working capital level is 10% or 11% of revenues moving forward. So that's -- I think that's what you should be guided by.
Our next question comes from Claus Almer from Nordea.
Yes, I have a few questions, also. The first is about the greenfield opportunities. In the report, you mentioned greenfield opportunities in Australia and I think this is first time in a very long time that you're actually talking positive about greenfield projects. So is this meaning we should expect greenfield orders this year in order to pick up or it's more into next year or how should we actually understand this comment in the report? That would be the first one.
So there's been already some greenfield orders what we have today in our books. I think we announced a cold [ faucet ] order. So typically they are small at the moment. So typically large investments are more going for the copper and then iron ore but then there's lots of activity in lithium, other battery metals than gold and typically [ lows ] from investment point of view are they're small and lithium is extremely active as all of us know because of the high demand.
But lithium order for us is kind of medium sized order and typically bundle of products. So we see that kind activity quite high in different parts of the world, but then the timing is an issue because that has to do with the authorities giving operating license and environmental license and many countries kind of social license that they're able to start operation. But lots of activity, but it's not less in super large copper, kind of, iron ore investments. But battery metals and gold is active at the moment.
Okay. Just to be sure, so we should expect more greenfield orders this year, but in the same magnitude size as we saw in Q1?
I would say it's a stable development there but it's not making sometimes big headlines because from investment point of view, those are what we categorize large product orders. So for us, it's like a day-to-day business. It's low-risk, good product business, what we can do in those opportunities.
Sure. Okay. And then coming back to the remark about the order intake timing, you said something like, yes, it was very strong in Q1, but there could also be quarters with soft or lower activity level. That was at least as I understood your comment. Is that a comment about Q2 that now you have this very strong Q1, the pipeline might be a little bit tightened in Q1, therefore you have to use one or 2 quarters to move forward with the pipeline or how should we actually understand that comment?
So I wouldn't pay too much attention to the quarterly order intake. We celebrate, of course in the great quarter one, but then I'm typical looking at rolling averages for the capital business, because making estimate on quarter on quarter is quite difficult because it has to do with the customers' decision about award of the contract and that can be easily delayed by one quarter, 2 quarters. And we see much of that.
So it's unpredictable, but just noting that it's not going to be like the first quarter repeated every quarter. So there will be quarters that we see more muted with closing capital just because of timing. So it's good to look at over the course of the year, rolling 12 months and then you get the picture of what's happening in the capital business quarter on quarter comparisons, good in the service, but then more challenging for capital.
Okay. That makes sense. And then just final question as to the guidance for the Cement business, you did underlying 2% and including the gain, 3- plus-percent and you're keeping 1% to 2% for the full year. So how should we think about that? Is it cautious or are you predicting margins to decline in the coming quarters?
So it was 2% excluding that sale of the property. So the underlying business was 2%. And then that is within our target range and we know that we are not out of the woods yet regarding Cement business. So I think guidance is right in our opinion.
And then, we will continue focusing on the service business, product business and then try to, as I said earlier, derisk, reduce the project part of the business, because then that's best way to assure consistent quarter-on-quarter profitability. But as long as we have projects in the backlog, then there's more variations. So we go for the sustainable profitability also in Cement business. So that's why we are keeping the guidance the same. But we are, of course, on top of the guidance now and we will stick with our guidance.
Okay. And just a small final one about TK Mining. Looking from the outside in your view, all this price adjustment and the strong pricing environment and demand situation, should this also help TK Mining, given the product assortment they have?
Of course it should. And it's the right comment. Because of course, I don't have a clean room access, but I see the market activity. So what we discussed in the past that we are expecting better mix between capital and service. So that is from our point of view, good, but of course, TK will have some impact from Russia as well. So I think we expect more balanced mix between service and capital and then orders and revenues having some impact from Russia as well because just knowing from outside the activity of TK Mining.
Our next question comes from the line of Vlad Sergievskii from Bank of America.
Can I start with following up on [ bridged expectations ] your services orders in Mining? Can you comment on book-to-bill? It's around 1.4x and I don't think you have ever seen these levels in the past. What's driving that? Is it basically because what used to be book [ ensure ] on 3 quarters before is now being pre-ordered by the customer?
So if I think about starting from customer activity, quite often if you're building a new plant, you place long lead time items first and in some cases might be mills. And large mills, the delivery time is very long. So it can be 2 years, for example. And that means that it's getting longer between book and then we can actually bill it. And then of course, POC progress reporting on that one has some impact on that. I don't know if you want to comment. But basically times are getting longer in capital equipment compared to the past, significantly longer.
Yes, that makes sense. I was also thinking about services part. The services also quite extended. And I'm wondering, what's really driving that. Is it some potential preordering from your customers due to supply chain constraints at all as I see or not?
I think maybe also that all the Mining or most of the Mining companies are extremely profitable at the moment. And kind of maintenance- they don't want to take any risks in having any issues in operations because the end product price is so good. So they take all the measures and it might mean that they're taking some more easily order spare parts also to the site to make sure that if something happens, then they have a part available at the site.
So I think overall good business climate in Mining and with our customers is creating incentive not to hold back any spares orders that maybe not trying to optimize too much what they have in stock at the site. So it has to do with that kind of making sure the operations run smooth and that is showing that increase in spare parts orders.
That's very helpful. And I have 2 quick ones unrelated to that. So one is on Russia. So you mentioned some potential headwinds to margins from unwinding of Russian business. Would you be able to give any comment on the cash flow implications from this unwinding? Is it positive, neutral, negative?
And also there was some increase in work-in-progress assets during this first quarter. Would you be able to comment what was that increased related to?
Yes, so cash flow impact, it's uncertain how that will play out. As I indicated before, we still have a meaningful prepayment amount on the Russian business. And there's some work in progress, but the work in progress is also built by other capital business around the world. So it's too soon to say how that will play out.
Our next question comes from the line of Klaus Kehl from Nykredit.
Klaus Kehl from Nykredit. A follow-up question related to Russia. I know this is a very complex situation and you probably have some contractual obligations towards the clients and yes, it must be more or less a nightmare. But the point is that you still have DKK 2.6 billion in the backlog related to Russia. So if you are not able to deliver these projects to Russia, how easy would it then be for you to sell it to other clients? That would be my first question. And I guess it also comes down to whether I should more or less take this out of the backlog or I should keep it in the backlog assuming you could sell it to other countries?
So I think first of all, the DKK 2.6 billion is a big number, but a big chunk of that has not even started yet. So what we are currently unwinding is our existing business in Russia and a few projects under execution. So that's what we are focusing on. So that means what has already been produced and equipment that we have on hand or on site that can be used to deliver other parts of the backlog. So it's not both. So that means that this equipment would be used to other parts of the backlog. And internally in FLSmidth, most of DKK 2.6 billion is gone. It's not going to happen. We just don't know yet how we will unwind it.
But the situation is helping that around the world there's quite a lot of demand for the capital goods and their longer lead times. So that helps deployment of the backlog elsewhere.
Okay. So for instance, if it's mills for delivery in '24, just to say something, then you can deliver the mills to, let's say, South America rather than Russia. Is that correctly understood? And then probably you would have something top do...
We are exploring those options and for the really latter part of the backlog, if you haven't even started production, it might be that we have booked a slot in the supply chain for the production, but physical production may not have started yet. It means that it's easier then to direct that to somewhere else, because you can still send specs even a bit, because it's not in physical production.
And as Roland said, now we are focusing on goods that are in production or almost ready to be shipped. And that is now the focus or semi-finished, but the ones we are not in active production yet, it's more easy because it's sometimes even directing that reservation of slot that we have in the supply center somewhere else. So now we are dealing with the short term priority, which is what we have in our hands or in production.
Okay. Okay. Got it. And then my second question is that you've talked quite a lot about the derisking the portfolio, derisking order intake, derisking backlog. How come you talk that much about this right now? And when have you started to implement this change?
When I was heading the Mining business last year, I started doing that, but we are squeezing it more and more. And why we do it is that you see that the margins are quite low for some of the capital revenue, what we have going through our books now. And then we've seen some kind of cost overruns because of the risk involved in certain products. And we have pretty good information now when we have visibility for the product line EBITA, our product line profitability that we know better which are the riskier products from a kind of profitability point of view and then what scope not to go after.
We started actually de-scoping the project already last year so that we go more for the products, bundle products, process packets and avoid even EPS. We never do EPC in Mining, but even EPS, we are shrinking all the time, the portion of that one.
Then we are putting different products to this category. Let's say crusher's quite standard. Mills is mass customized. It's almost standard, smaller variations, but then if you talk about stackers reclaimers, sometimes conveyors, there's much bigger engineering element, both in the product cost but also in the actual design and execution and typically, that's inherently more riskier.
And of course, we want to make sure that we cover that risk for the margin, risk provision and then Ts and Cs so that we are not so exposed.
So, we started that journey already last year, but I think we will make a much stronger implementation now this year. And it's also, we are looking at Cement business. We are looking all the Mining business. And then that P&L for example, for global P&L product line, EBITA will give us visibility what we need to performance and derisk risk even more.
Okay. And if you say you started [ the past ], when will this then start to show up in your P&L? Will that be in '23?
The first line should be in '23, but there's lead time between 12 and 24 months. So when we started last year, it should show up maybe end of this year and then into '23 and into '24. So it's a little bit of a lead time in this. Now, we are flagging that we are doing it and I think that's the important point.
Our next question comes from the line of Gustav Hagéus from SEB.
So my first question is in relation to your revenue split between service and capital. You came in at 56% service and 45% capital in Q1, which is very close to what you previously guided for. But I was wondering is it still looking to be the same for the next couple of quarters? And what about 2023 now that we've seen a very big increase in especially capital orders? So what should we expect in regards to the split in '23 and beyond?
Thank you for that. So when we guided, we guided roughly this split and that of course included the Russian orders. And to the extent that we can sort of back them out and then place them elsewhere in the backlog, that will still be capital revenue. So I think you should assume that this split continues for another, at least 2 quarters and then starts to converge to back to where it was. That's how I would think about it. It all of course depends on the backlog now coming in over the next 2 or 3 quarters. But I think it's important also to note that the orders coming in now is a lot more product orders and less project orders and that would be accretive to the margins compared to what you've seen in Q1.
All right. Then my next question, now that we are hopefully getting closer to the closing of the transaction of TK Mining, I was wondering if you could perhaps elaborate a bit on exactly how you expect to realize the synergies from this transaction? For instance, if you could put a number on your expected employee overlap or redundancy or where you expect to kind of get the main synergies from this transaction.
Yes. So as we said before and there's no change to that there's a lot of opportunities in this transaction. There's overlap in assembly and operations. We have overlap in engineering. We have overlap in the physical footprint and also in certain parts of the support functions. So all that needs to be integrated and merged and that's where the synergies will come from. And then hopefully we will also see more than planned for, from procurement and supply chain initiatives.
All right. Perfect. Just my last question. Now that you announced another clay calcination order in Q1, which is nice to see that your green ambitions are starting to yield some revenue. You talk a lot about your focus on sustainable profitability in Cement. So I was just wondering if you could tell us anything about the margins for these kind of perhaps small but strategic projects that you're also doing and want to do more of in the future.
So we also see same shift in Cement that it will become more service and product technology oriented business and we do less projects. Some of these orders, the scope is maybe more than what we would like, but we want to get these technology references. But we will also implement similar quota model for the Cement the quota for the riskier part of the business out of total business so that we can always keep it under check so that if it's smaller, then we can sometimes do something which is needed for the reference but low margin. It'll be very strict management for that also.
If there's no green credentials references that we can gain a lot strategically, we don't want to do that. So it's a couple of those orders. Now, they're credible. We develop technology together with customers. We are leading player in that area. That's important. But we are very selective going forward with any project orders.
Perfect. Thanks. And then if I can just add a very last question. You were talking about especially volumes and risk that you won't take volume over profitability. And so through that, you're lowering the risk. But now, you also told us that most of your [ DKK ] improvement in the quarter was from increased revenue. And is there any risk that perhaps lowering volumes in order to lower risk could have a negative impact on your margin instead of a positive one?
We will do careful portfolio analysis. I was talking about business line EBITA. Then we talk about product line EBITA. And once we have a fairly good understanding already today, we make it even better so that we need to be active in our portfolio management in terms of what products we have, what we don't have, what we do, what we don't.
So it's about choices. And choices sometimes mean that we choose not to do certain things that will reduce a volume a bit, but at the same time, the EBITA percentage goes up. And we are forming a strategy, a fairly solid strategy for that. And we are using then -- once we have TK numbers in, we will have a Capital Market Day where we detail our strategy going forward, but it'll be very much profitability focused in addition to the MissionZero.
Thank you very much for your time and spending time with me and Roland and thanks very much for the questions. And I look forward meeting you soon either face to face or online. Thanks a lot. Have a great day. Thank you.