FLSmidth & Co A/S

CSE:FLS

Earnings Call Transcript 2018-Q2

[Thomas Schulz, CEO]

Hello, everybody. I welcome you around the world here in our nice office in Valby in Copenhagen in Denmark for our Q2 2018 interim report.

Let us start directly with the key highlights. We had a very strong order intake in minerals, not only in CapEx, in aftermarket too, we had improved profitability, but a negative cash flow and we went with a new operating model on 1 of July this year live. Market outlook, ongoing positive aftermarket momentum, mining CapEx continued quite positive trend, stable outlook for cement. We keep the guidance maintained on all areas.

Before we go into our technical and financial figures, we are always informing about our safety performance. Safety is unbelievably important for us. We could change the trend out of the last few quarters back on that what we are used to in the last few years to improve it. We delivered up year to date 2.9 TRIFR, which is definitely an improvement against 2017 and definitely below the target what we put for 2018. This is a result out of a stronger focus and a lot of investments monetary wise and time wise from our organization. Well done.

Then, the other part, what we are proud of to present is of course the innovation, what we bring to the market. This time, it's not about one single unit, it's about the plant, it's about a modular plant. What are we doing here? We do with that modular plant immediately recovery of valuable commodities out of mining waste material. If we take chrome out of platinum waste, as an example, we can build up that modular plant within a few weeks. We can go immediately live, immediately produce chrome, what is sellable to the market. With that, we reduced the waste exposure. With that, we increase the productivity of our customers. This is very important with our productivity improvement scheme. On top of it, we can offer an outcome based business and payment model. That means as much as produced as more of that money we would get paid.

If we then look into the financial figures, first, into the revenue split for the quarter 2 2018. Mining slightly up versus quarter one, with 58% of the total with a EBITA margin of 9.9 and cement, 42% of the total with a EBITA margin of 4.9. As always, I remind and I inform that the return on capital employed in cement is far above 20%. We see in the capital business versus the service business that capital is slightly starting to increase and that is related of course with the good momentum in the mining industry for the capital business.

If we then look into the order intake on the next slide, you see on the left side the total order intake for the group divided in service as well as capital order intake and the red line describes the revenue. We had a very good quarter for the order intake, it's 10% up versus quarter 2 2017 without any large order in the quarter 2018. Service order intake was up 2. It is actually on a good level, but we see that the momentum, what we have in the mining industry and the cement industry for smaller parts are really taking care or taking off.

If we then looking to the right side of the slide, by division. We see an order intake, organically - an order intake for customer service of 6% and product companies, flat and minerals and fantastic 109% growth in order intake organically and in cement, 11% down, only 11% down.

Let us start with cement. In cement, we had quite a good run on smaller and midsized orders and couldn't repeat one large order what we had in the quarter 2, 2017. In minerals, we had no large order in the second quarter in, but quite a lot of sizable mid-sized orders in the quarter and with the growth of 109% organically, this is a fantastic good performance. The order intake in the product company dropped a little bit in - with minus 5%, nil percent in the organic growth and that has to do with the non-repeat of larger orders of environmental technology and what we call the Airtech business. And the order intake for the aftermarket or for CS actually performed on a quite good level.

With that, to the market outlook. Let us start with mining, definitely continued positive demand trend. We see that what was discussed, what was out in pre-feasibility studies and feasibility studies now goes into CapEx. We have a positive outlook for 2018. Activities is more or less in all commodities, large interests in copper and gold, but we see, for example, in minerals, material handling, interest rising too. There is an increased OpEx related spend, but everything what we do, if it's CapEx, if it's OpEx, it's all productivity improvement related.

If you then look into cement, cement has selected opportunities in the different regions in the world and you saw maybe on Saturday that we announced that we under signed a contract in Middle America for two larger cement orders. Important to look when we or important to see in cement is that despite the fact that we only have a few tenders for large orders out and despite the fact that we have intense price competition still ongoing, not more, not less than before, we see quite a good level of mid-sized order opportunities in the market. The customer focus here is of course production cost and environmental footprint, actually the same or similar like in minerals or in mining where we have the productivity improvement as the main theme.

If we then look into the financial performance, Lars please.

[Lars Vestergaard, CFO]

Thank you, Thomas. And when we look into the numbers for the second quarter, there is one important point that really explains where we are in the full year and that is the difference between our order intake like in our line and our revenue line. We had a strong order intake as Thomas mentioned with more than 5 billion in order intake. Revenue was again below our order intake and that really explains quite a bit of our numbers and we'll get back to that.

Order intake was up 10%. Revenue up 3%. EBITDA up 12%. Profit was up 124% with a more or less unchanged number of employees and we'll go through the details in the coming pages.

When we come into the cash flow, this is one of the weak spots in our numbers. As announced, we had to pay out some settlements related to some legacy projects that cost us more than 200 million, which hits our quarter two. So you can see change in provisions is a cash out of 300 million. Working capital was a cash out. We will explain that on the future pages, but it is very much related to the orders we have booked and how we are in the face of executing these.

Then if we go down to investments, we bought a foundry in US where that we have historically least. That happened in quarter two. So there was a cash outflow of nearly 100 million from that - acquisition of that foundry that we have been operating for many years. We also had the 60 million of cash in from the Sandvik acquisitions of mining systems.

If we turn into the revenue line, if you look at the left hand chart, this is a key chart. You can see for quite a while, we have been booking more orders and we've had revenue, which of course indicates that in coming periods, we should see a pickup in revenue and in particular when you look at the guidance for the full year, this higher order intake then revenue is really what explains how you can get from the 8% we've had to year-to-date to the midpoint of the guidance where we should get some operating leverage out of that.

If you look into the four divisions, customer service and product companies were slightly down. You saw a good pick up in mining and higher revenue in cement too. And of course, these developments gives us an adverse mix when we start to talk about the gross margin. When we look for the remainder of the year, we see increasing revenue in both customer service, product companies and minerals and slightly more flattish development in cement. So mix should improve a little bit during the rest of the year.

If we look into gross profit, we went down 0.4 compared to last year. The majority is what I explained about the mix between the four divisions. When you look into the four divisions, CS and - customer service and product companies more or less on the same level as last year. We saw a drop in minerals. We had some extra cost to finalize a project so that's in the numbers for the second quarter. In cement, you see quite a good increase compared to last year - in last year's numbers, we had some one-off costs related to O&M. So year-on-year, if you take out the one-off cost in last year's, there is only a slight improvement in cement.

SG&A costs, SG&A cost is slightly down compared to last year. If you adjust for currencies and one-off costs, we are slightly up. So this is a key point in our number to - in what we do to get that down for the remainder of the year. If we look out in the rest of the year, we expect SG&A to run at a level that is in between what we had in the first and the second quarter. So there was a little bit more cost in the second quarter than what we believe is the run rate number that we have in our numbers. We continue to focus on deploying more sales resources where we can find growth and taking efficiencies out in admin cost, so that remains a priority for us.

EBITA margin is up from 7.5 to 8.1. If we look into the bridge, we had a number of one-off costs last year, so that improved the result by 92 million. Revenue was higher. We had a deterioration in gross margin of 77 million. It's due to mix as well as the cost we had in minerals to close out some - one project. And then we had a slightly increase in SG&A cost.

If we look into working capital, if you compare the working capital level to the same period last year, you can see we are down 500 million. The ratio increased somewhat compared to first quarter and of course this is a key priority for us to maintain the downward trend we've had in the last couple of years. If we go into the components, we had in the second quarter an increase in inventories. This inventory buildup is really to deliver on the order intake that we have taken, in particular in CS and product companies, so it's a natural consequence of the order intake. No alarms in that number. Trade receivables were more or less unchanged in the second quarter, but down compared to the end of last year. So good performance here. Where we had another increase is in the WIP assets and the prepayments and these follow like the normal patterns of how we execute projects. So sometimes, we have some milestone payments, sometimes, milestone invoicing, sometimes, we don't and in this quarter, we did not meet a lot of invoicing milestones and that's what explains the increase. There are no nasty surprises in working capital that is not related to the ordinary course of business. So we will get this back on a downward trend for the remainder of the year.

Our capital structure is in line with our measures, 37% equity ratio, 1.2 times net debt to EBITA. What's worth to point out on this page is the increase we had in net debt. So in the right hand of the chart, you could see our net debt went up quite a bit in the second quarter. We paid the dividends, we had the negative CFFO where we settled the old legacy case we had. And then, we acquired a foundry and this really explains the negative movement we had in net debt in the second quarter. We expect the downward trend to return in the remainder of the year.

If we go to return on capital employed, we increased from 9.8 to 10.4. And as we look out through the remainder of the year, we will get more operating leverage, as we get higher revenue. That will give us a higher EBITA and therefore drive a higher return on capital employed.

So to summarize, the key for the rest of the year is really that we have had higher order intake that will translate into higher revenue and when we keep our SG&A cost at the same level as we've had in the first half, we should get more operating leverage and our EBITA margin should come up in the remainder of the year and also the return on capital employed.

And with that, over to you Thomas.

[Thomas Schulz, CEO]

Thanks a lot, Lars. So we went live of a new operating model, 1 of July and the new operating model is actually out of four divisions into two industries and seven regions. The two industries, cement and mining what we cover, they own and they develop the lifecycle offerings, what we have for our customers. The regions are owning the customer relation and selling and serving this lifecycle offering. This new organization will enable us with a common way of working in digital to take a leading function in digitalization of both industries in these areas where we need that to go and to communicate with our customers and to make our whole business environment digital. Group functions are supporting the industries and the regions. Important to say is that we see and we feel and we think it's proven with the high order intake what we see and the activity level on us in cement as well as in mining, that it's the right way to get closer to the customer to tackle regional differences as well as promoting more and more to productivity, provide that number one position, what we need to have to be market leading.

If we then look in the restated historical data for mining and cement reporting segments. On the left side, you have the mining with the revenue bar and the order intake bar as well as the red line for the EBITA margins, starting in 2004 to 2017. It is actually a kind of a role model of that what happened in the mining industry in the cycle. Coming from a low point to another low point, coming from 2003, 2004 into 2017, 16-17, where we had the mining trough. And what you see is that the trend of the EBITA is going out of that recession more positive and we are definitely positive on the growth rates to come in the next few years as well as the profit improvement.

Then on the right side, we have cement. The same from 2004 to 2017 with revenue, order intake and the EBITDA line and there, you can see that the boom time actually ended in 2008 in reality for the cement industry. That means we are, for 10 years, in a kind of a slightly up and down situation and we kept at FLSmidth, our business quite stable, but we informed in 2016 that we need more to do internally to get the profitability up what we do and that trend of slight increased profitability relatively to the mining EBITA run, you will see onward going with our company.

Out of that, I would like to come to the management agenda and you know that on the left side of that slide, we give a trend to the quarter 2 - comparison 2018 to 2017. There, we clearly can say our return on capital employed is up, our order intake is up, despite lack of large orders, our EBITA is up, our net working capital is up despite the fact that the net working capital versus quarter one is worse. What is positive, what I said at the beginning, our safety record is better than before. We have only one slight deterioration and that is on the delivery in full on time. Regarding - an 88% to 87% performance, which is still on a good level.

Now to the strategic focus areas. To be the productivity provider number one, which creates us and which gives us the possibility to run on a higher order intake, then, we're following good revenue and profitability, is only to realize if we focus on customer innovation, digitalization, people and sustainability. With the organizational change, we do that intensified on the customers, innovation. We do quite a lot since quite a while, we have leading position there. Digitalization is a big part of that reorganization and people of course do and sustainability is a key mark for us to go forward. The short term activities to expend in wear parts, to grow the products, to standardize more is spilled into the new organization to improve that more as we already do and we see definitely positive development in all of these three area.

Out of that, to the group guidance for 2018. We keep the group guidance and of course, as we communicated, we see the second half of the year as we had it in 2016 and 2017, stronger - financially stronger, especially through the leverage on higher revenue.

With that, to summarize the key highlights for the quarter two, very strong order intake in, especially in minerals, new operating model since 1 of July, improved profitability, negative free cash flow and total guidance maintained.

Thank you. So we would like to open up for questions.

[Operator]

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

[Kristian Johansen, Danske Bank]

So in terms of the order intake, especially in minerals where you flagged you have gotten a fair share of medium sized orders, can you shed a bit of a light on the pipeline when we talk about medium sized orders and especially in regards to the challenges of getting permits issue, highlights for the larger orders?

[Thomas Schulz, CEO]

Thank you, Kristian. What we saw throughout quarter two is actually quite a high activity level of equipment orders and medium sized orders, retrofits, engineering orders to help customers to improve their current set up. A lot of these orders don't require a lot of permits. They are an extension, they get built, they were planned years before. That's one thing. The second thing of these - some of these mid-sized orders are actually tackling environmental footprint improvements too, so they are supported by the permit giving departments or governments in the area. Then the pipeline of that, we don't see a reversed trend of these kind of orders. We had a quite a good run in the second quarter. It had maybe a little bit to do with the upcoming vacation time and some of the areas where some of the clients wanted to close out order intake, before going on vacation. We had a little bit of similar picture last year.

[Kristian Johansen, Danske Bank]

So you're saying we shouldn't necessarily expect the same magnitude of medium sized dollars in Q3 and Q4?

[Thomas Schulz, CEO]

It will be a little bit volatile, but the order intake, what we see onwards, forward looking, is actually that we reached a new level, a significant higher new level now. When you look at the last four quarters now, we are on a significant higher level than the quarter - when years actually before and we don't see any concern or anything that would really can drop below that.

[Kristian Johansen, Danske Bank]

And then my second question is regarding these organizational changes and the costs related to that. Can you first of all quantify how much costs do you expect in connection with these changes and what should we expect in Q3 and Q4?

[Lars Vestergaard, CFO]

Yeah. So, as you see, we have no reported one-off costs in the second quarter. We of course had planned some costs in relation to the reorganization, but it's all kept within the guidance. So our plan is not to report any one-off costs in relation to this. There was of course a little bit into the second quarter and we will get a little bit into the third quarter, but it's all in the guidance and I think what you should plan in your models is that the SG&A cost for the remainder of the year is at the level of the average for the first two quarters.

[Operator]

Our next question comes from the line of Lars Topholm of Carnegie.

[Lars Topholm, Carnegie]

Yes. A couple of questions from me please. First of all, you mention in the reports that there have been mining orders that were put on hold and now they are coming back alive. I wonder - I know you're not going to mention individual projects, but can you tell anything about the magnitude of these orders and can you also tell whether this should lead to an accelerating backlog to revenue conversion for mining when I look into 2019 compared to 2018?

Then a second question is, when you had your mini Capital Markets Day a little over a year ago, you indicated that the incremental margin in minerals would be quite close to the gross margin, i.e., just below 20%. But now you have seen the order buildup and I just wonder if you can comment anything on pricing, comment on whether that assumption is still valid and something we should factor into our models?

And then a final question, which is about cement, because you and your Chinese colleagues have been complaining that Polysius were extremely aggressive on prices. Thyssen announced just recently that they have lost so much money on cement that they're now deviating from the volume strategy. Just wonder what your anticipation is for effect on your margins going forward. Is this a behavior change from Polysius you're already seeing in the market or anything you can comment on this?

[Thomas Schulz, CEO]

Yes. So at first, to the reactivation of old orders or in the backlog, that is, I think, we announced the name of that order already. No, we didn't. Then I can't. But what I can say is we see movement of one or some of these orders, Lars. The reason for that is they were stalled, they were not cancelled or stalled, they were parked and now when the business goes better, no matter that we have the volatility in the commodities, they get reactivated and they were already awarded to specific suppliers. So it's actually not what you can bid on and we reactivated or we got reactivated one of these orders. The magnitude in the business is not big to be honest, if it comes to the full year view.

The other thing regarding the pricing, you saw the company, Caterpillar, announcing price increase. They are very much famous for that and doing that. We are of course positive if that happens. Pricing normally happens between the closest peers in the market. We don't see a negative trend in pricing. We don't see that. So we have not additional pricing pressure or so. But at the same time, we don't see a release of the pricing pressure what we have in the market. We believe that we'll go more into next year and the year after, when more of our peers got orders and similar order intake levels as others get, then normally, this pricing pressure goes slightly step by step away.

And the last thing was with cement, what you call Polysius. In general, we are always pleased if peers in the market announce that they work more on a price increase than on volume - pure volume increase for any cost. That is of course what we take positively.

[Lars Topholm, Carnegie]

So just on the incremental margin in minerals, which you previously indicated could be close to 20%. Is that still a reasonable assumption?

[Lars Vestergaard, CFO]

When we plan ahead, Lars, it's very close to what we've had in the past, so slightly below 20%. That would be where I would model it.

[Operator]

Our next question comes from Jonathan Hanks of Goldman Sachs.

[Jonathan Hanks, Goldman Sachs]

Firstly, I just wanted to clarify then, just on minerals' gross margins this quarter. If you stake out the impact of, I think, it was a customer project, finalizing a customer project where the gross margin is in line with what you've had over the past few quarters, i.e., between 18% and 19%.

[Lars Vestergaard, CFO]

Yes. Very close to. So it explains the majority of the variation, but there are some small - some small mix effects in between, but it is a very substantial part of it.

[Jonathan Hanks, Goldman Sachs]

And then, I suppose, just more broadly, maybe just interesting to hear what your kind of mining customers have been saying about recent copper price volatility, it certainly seems like you're not seeing any impact in your order intake or even seems like - sounds like quotation activity is pretty good. If you help us understand a little bit how your customers think about it, that will be great.

[Lars Vestergaard, CFO]

Yes. I make it like that the, you saw in the commodity prices in the last few months actually a drop for most of the commodities, copper for example 15%. What we hear out in the market is of course a lot of talk on the customer side about it, which should, if you only would supply a service and equipment and projects as much as you would like to do it, which should concern, but there's another element in that talk what we hear from the customer, because they are not telling us we will not buy something. What they tell us is come over and help us and to get with a lower commodity price, a higher return. And that is what we call productivity improvement.

Actually, the situation where we are in is that most of our customers are really talking about which kind of added value can you give to us in form of a service or wear part, spare part, equipment, no matter what it is, so that we can tackle with this permanent good cash flow and good income, this volatility of the commodities what we see. And digitalization plays into that. Automation, digitalization plays into it, because not only that we have on the main sites, where you ought by geology and by the business, volatility what you get into your mineral processing plant, you have of course quite a high volatility out in the market and whatever you can deliver to them in any form to balance that more out to predict that better is very positively seen and that is what they invest. And to finalize that more or less everything, what we sell today is productivity improvement related.

[Operator]

Our next question comes from the line of Claus Almer of Nordea.

[Claus Almer, Nordea]

Also a question from my side. In the Q2 report, it is mentioned that you do see a few greenfield projects in the pipeline, is it possible to give an indication when these projects potentially could turn to firm order?

[Thomas Schulz, CEO]

What we - the normal way of greenfield orders is they start with a feasibility study or at first, the board allows to spend money for Greenfield. We hear that quite a lot out of boards that there is more money available. The second phase is to go in feasibility studies before they go out and ask for quotations. We see quite a few of feasibility studies out in the field. We see quite a lot of talk about it. That is in itself positive and we see that the pipeline, what we see mid-term and front of us gets filled up with more greenfield demand.

When that drops into our order intake or in the supplier's order intake, it is very difficult to predict. There is a rule of thumb when you look into the mining industry versus greenfield, when you come out of the trough, it starts low and each year it gets more. So we had only one real Greenfield this year, which came in to order intake and that was the order what we announced in quarter one. There are more in the pipeline, but when they drop in. If it's 18, mid of '19, end of '19, it's very difficult to predict. But it definitely looks better.

[Claus Almer, Nordea]

And just a second question regarding the cement division. I think you quoted saying that if you achieve in signing two orders this year, then your target will be met. Is that the one you announced the other day and what's the likelihood of this turn to a firm order in 2018?

[Thomas Schulz, CEO]

Yeah. That first comment was a pure mathematical one, because we announced that the order is relatively - both orders are relatively big and they will definitely bring us in cement in a very good position regarding the order intake for the year, but they are under signed contracts and what is, as we wrote it in the text, because we have to announce it, I have to say that when we under sign such a firm contract, we have to go public and we under signed it on Saturday morning, then we went immediately public with it. When it drops in is difficult to say. We expect it to drop in in the next few months, but it's difficult to predict because the customer would like to have it. We, of course, would like to have it, but of course there are banks and so on behind we have a say too and that's very difficult for customers and for us to predict.

[Claus Almer, Nordea]

And then just a final question, which both goes to cement and the mining sector. When it comes to financing, do you see a different environment to get financing of these larger projects.

[Thomas Schulz, CEO]

No. Actually not. We see - if it comes to financing and mining, that's not that big item. You saw in the presentation deck what I showed regarding innovation that we offer now different payment model. We can do that for fast realizing offerings and added values, what we have in the mining industry, but in general, in mining, we don't see that. In the cement industry, of course, that comes from time to time regarding financing and you saw that we renewed our, yes, we have to say strong relationship with CNBM in China just a few weeks ago and that gives us of course in the cement industry kind of positive angle too.

[Operator]

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

[Klaus Kehl, Nykredit Markets]

And two questions from my side. First of all, could you give us an update on the discontinued operations and when you would expect to have this finalized?

And secondly, what would you expect the net working capital to be in end of this year? Should we still expect it to be in the range of slightly below 10% or has something changed following Q2? That would be my two questions.

[Thomas Schulz, CEO]

Yeah. The pipe material handling sale is in the final stage. If I can compare it, because we have the European Championship on athletics, 100-meter race, we are roughly on meter 95. And we will in the near term where we expect to have the finding, the final closing under signing. Yes. If everything goes as we predicted. So we are close to finalizing that.

If it comes to the networking capital, Lars?

[Lars Vestergaard, CFO]

Yeah. So in networking capital, I mean, we had an increase in the second quarter, none of them are really problem related, so everything was due to ordinary course of business and we will do everything we can to get it down to the 10% at the end of the year. Of course, it takes a little bit of luck and there is some volatility in working capital, but 10% is definitely what we would be working towards.

[Operator]

Our next question comes from the line of Antti Kansanen of DNB Markets.

[Antti Kansanen, DNB Markets]

It's Antti from DNB. Few questions regarding the cement capital and revenue trends going into 2019. Could you provide a little bit color on how much of the cement capital backlog that you have currently you expect to deliver in this year, next year and then '20 and beyond as you do on a group level? That would be my first question.

And secondly on the larger orders that you announced over the weekend, what is kind of the hurdle that has to be cleared before the prepayments come from the customer side? And would this - if you - if we assume that you will close them in the coming couple of months, would this generate significant revenue in 2019 already?

And maybe thirdly, the framework agreement that was referenced with CNBM, is that something that could be a positive revenue growth driver for '19 and '20?

[Thomas Schulz, CEO]

Yeah. Let me start. I take that with when this announced order in Saturday, when will that get into order intake and then with that into revenue. If orders are on that large magnitude, it takes up to 24 months, between 12 - 18 months to 24 months that you really see a big effect in the revenue of these kind of orders. That's based on the nature of these orders, because at first, the construction and so on has to get built and that takes simply a while. And then we can start to deliver our equipment and when it's there, then we start to see revenue coming in before it's only the engineering part.

If we, as I said before, what is the time when it can drop in and what is really what are the elements in it? The elements in it is not the customer, it's not the willingness. That the contract is under signed, there are clear targets in it, what we have to deliver, we can actually run, we are well prepared for taking these kind of orders in the existing structure, but of course, there are negotiations and agreements with the banks when they release the money. And only if we get the advance payment into our account and we have it, that is then the starting point where we move to first time anyone to work on that order. That's very important. And that is difficult to say when the banks are doing that, normally, they need board meetings and so on and again to talk with the client and then they decide when the timing will be and we will hear in the next few weeks and months if it happens fairly quick or when they intend to let it happen. So it's difficult to predict.

Then back to regarding cement -

[Lars Vestergaard, CFO]

So the question about how much of the cement backlog will be converted into revenue in the second half of the year? Our expectation is that we will have a flattish to slightly decreasing revenue in cement, as we go through the second half of the year. So less than half of the backlog will convert into revenue in the second half.

[Thomas Schulz, CEO]

Then the CNBM thing. CNBM is a huge company, a huge construction and building material company. They are actually the owner of Sinoma, a partner, a peer in the cement industry and it already delivers to us that partnership revenue and profit and so on, because we deliver equipment into Sinoma. We flagged that for quite a while that we are working with our peers in all different angles. That's the advantage of our business model and of course to work with the construction and building material part of CNBM, there, we look, when we go for EPC contracts, there we, of course, have them from time to time as a partner for the C part, what we always subcontract.

[Antti Kansanen, DNB Markets]

All right. Very clear. If I may follow up on the mining side and on the supplier issues here. Your Finnish competitors both have slight to a little bit of constraints on the supplier network, which is something that you haven't really talked about. Now you mentioned that you have acquired one foundry, is that something that we could see more to ensure enough supply chain? And why do you think that is the difference that you haven't faced these supplier constraints as much as your competitors, knowing that the demand has picked up in mining quite significantly?

[Lars Vestergaard, CFO]

First, regarding the foundry. The foundry has been a foundry that we have been operating for the last many years and is part of our Excel business in North America. It was on a lease and the lease came to an end and we decided that this kind of asset should really sit on the balance sheet, so we bought it and put it back on the balance sheet. So, no new capacity coming out of that.

Regarding supply constraints, we're not experiencing supply constraints yet within mining. So, it's not a big topic for us at this point in time.

[Thomas Schulz, CEO]

And not in cement too. We have no supply constraints. You know that we were working quite a lot over the last few years on value engineering and on getting our procurement fast, what we actually call forecast of cash and we see actually since several quarters quite a positive outcome of that.

[Operator]

And we have a follow up question from Lars Topholm of Carnegie.

[Lars Topholm, Carnegie]

I apologize if the question is a bit geeky, but the copper projects you see, can you say anything about the distribution between projects producing copper oxides and projects producing copper sulfides and can you explain how your technology matches each lease 2 copper types?

[Thomas Schulz, CEO]

As a mineral processing engineer, that's what I like. We have technologies for both kind of copper to make it like that. You know that one of the inventions, what we brought was the ROL and we are using - we are trying to test that actually on both kind of ores, no matter how the naming is because you never know what you can get positive out of it. We have no issue regarding the ore kind where we can quote to make it like this. We did a lot of R&D, we did a lot of new inventions and we mix or we set up equipment what we have in-house in different schemes to be quite a good technology provider into both.

Q

And there's a good competitive environment, the same within both ore types?

[Thomas Schulz, CEO]

No. There are of course in, you have differences. Some of the suppliers are coming more out of that type of ore and ours move out of that type. In general, what we have with our, what we call, process line, global process line managers, we are matching actually all these lines quite well. But of course, we have in one part a longer reference list than in another part. And when you have a longer reference list, it's easier to quote and to have a market leading function. But we decided actually roughly three years ago to focus very much on that where we didn't have such a long reference list to prepare that and we see that we got actually orders in quarter 2, I have to say where we didn't have a chance before to get in and to capture orders.

[Operator]

[Operator Instructions] As there are no further questions at this time, I'll hand back to our speakers for the closing comments.

[Thomas Schulz, CEO]

Thank you very much for the participants here and maybe as well as around the world. I wish you a safe trip wherever you go. See you soon. Bye.