FLSmidth & Co A/S

CSE:FLS

Earnings Call Transcript 2018-Q3

[Operator]

Hello, ladies and gentlemen, and welcome to the FLS Third Quarter 2018 Interim Report. Today I am pleased to present CEO Tom Schultz; and Group CFO Lars Vestergaard. [Operator Instructions] As a reminder, this is being recorded. Speakers, please begin.

[Thomas Schulz, Group Chief Executive Officer]

Hello, everybody. Welcome, everyone around the world, for our Quarter 3 announcement of our company, FLSmidth here out of beautiful Valby in Copenhagen, Denmark.This is the first time that we have a quarterly announcement in the new structure, and you will of course see out of that some different information throughout the whole package.Now, about Quarter 3. It was the strongest order intake for 6 years, and it was strong in cement and it was strong in mining. We had low revenue and with that a relatively low related operating leverage in the quarter, and a positive free cash flow. We had quite strong performance all over in mining, and we took already in the quarter actions to improve further our efficiency in the cement business.Market outlook. When we look into the mining market, it is still continuing positive, not bullish, but positive with good comments out of our customer group in mining all over the commodities. We have a stable outlook for cement. We keep the guidance maintained and of course, we see the revenue in Quarter 4 significantly picking up.Safety performance. Safety is a measurement how we interact in the company, with our customers, with our suppliers, and we had in Quarter 3 a TRIFR of 3, which is a slight deterioration to Quarter 2 from 2.9. We have a target to be below 3.2, but as you see on the left side where we show the TRIFR since 2011, we have quite good performance improvement here. But we are not satisfied with the overall level, and we invest a lot. We invest really a lot in getting safety more and more on the TRIFR down. And for example, the coming week we have a so-called training week, where one part is further safety improvement.Another area where we are actually quite proud for several quarters to present, is our innovation run. This time, it's a wear part for coolers in the cement industry, where we have an installation out of our own house where these kind of crossbars, the Wave Grate for Cross-Bar coolers, can be installed of more than 200 units. What does it bring as a benefit, as a productivity improvement? It brings higher production up to 10%, and it brings lower power consumption up to 10% down.This proven performance is and will be manufactured in our own sites, and it's another step-stone in that to help our customers, to support our customers, and in this case in the cement industry, to get more profitable.Now, to the figures. You see the revenue split for Quarter 3 2018. Let me start with the mining part. We had 52% of the revenue coming out of mining, with a record high EBITA margin of 13.3%. It is quite a long time ago that we were in that range of total mining business, top performance. On the cement side, which accounted for 48% of the revenue, we achieved in the quarter 2%. Our capital business versus service business, the split is 43% to 57%.If we then look into the order intake for the quarter, we had the strongest order intake in six years, and you see on the left side that we had especially on capital orders, a very, very good run. The red line shows the revenue, and it's obvious that the [ positive gap ], as we call it, between order intake and revenue is increasing which gives us quite a good momentum into the future. On the right side, you see that both industries actually contributed a lot into that record order intake.Let me start with mining. We had close to 20% growth in Quarter 3 2018 versus Quarter 3 2017, which was actually the start of a higher order intake growth level. So we had now the fourth quarter in a row with significant order intake growth in mining.On the right side, you see cement with an unbelievable 160% growth. If you take out DKK 1.9 billion, which is roughly the level of the two big announced orders a few weeks ago in Central America, you see that still the growth of the business in cement was significant on top of these two large orders. Where is the growth coming from? We have in mining, as well in cement, a very good run on small-size, mid-size capital orders, which is great and shows our strong appearance in the market.Now to the market outlook. We have still a positive outlook in mining. We see that CapEx is increasing. Our customers are not changing that view. And it is in line with that what we say for several years, that the recovery is happening. Not bullish, but in a good way forward. And that is how we would like to phrase the market outlook, as in the last few quarters, a good positive momentum, nothing to get bullish about it, and nothing to get concerned about it.We have activities in more or less all commodities. Of course, copper and gold is for us at FLSmidth quite important, but it is a good run in the market too. We have stable OpEx-related spend, which is in line with the recovery in mining market and customers' primary focus is on productivity and driven by digitalization and innovation.In cement, cement is stable but we have significant regional differences as we announced before, and we have the same situation as in the quarters before -- that only a few tenders are out for large orders, and the intense pricing competition we don't see a change in the market yet. We have a quite good activity in cement on small and mid-sized order opportunities. Customers' primary focus is productivity improvement. No matter if it's about reduction of production cost or environmental footprint, or anything else.Now from cement into special activity, what we already did in Quarter 3. It's a profit improvement in cement. As said, we have a stable outlook for large cement projects, but it is on a fairly low level. We have an ongoing pricing pressure. Despite the fact that we get really a big fair share out of the premium large orders, we took the decision to improve our efficiency and to reduce cost in that large project-related cement business. We had to give to more than 100 people in cement, large, predominantly large projects, notice to leave our company. This is, of course, not good, but the expected improvement of DKK 80 million in 2019 on the EBITA side if everything else being equal, is for us the way to go not to come under pressure anytime, to go for any deal, at any cost, and any risk. We don't want to be there.The activities, what we do since several years now to invest in the white spots to be closer to our customers and to digitalization and standardization is ongoing, and we see as management and as group that our high order intake in cement, despite or besides the two large orders, is actually improve what we do.On the right side, you see the split of the cement business into service as well as capital revenue, and the EBITA line. And you see that we had since 2017 actually an upcoming 12 months rolling profitability, and that's what is purely coming out of internal measurements and internal activities. And we will, with that profit improvements action, go on with that agenda.And with that, I would like to give to Lars, our CFO.

[Lars Vestergaard, Group Chief Financial Officer]

Thank you. And when you look at the numbers, you can get the majority of what we're working on in the two first lines. As you can see, we had a substantial increase in the order intake, which of course will become revenue in the future. What's visible here is that the market have picked up in particular in mining, where we have very strong growth and had that for a while. But remember that a lot of the order intake we get is project order intake in mining, and that of course have a time lag until it becomes revenue. And that's the transition time we're in now, where the sales activities we have done have paid off and turned into order intake, but it has not yet turned into revenue.What we saw in the third quarter was a lower revenue than we expected. What we've seen in the market is that some customers are not able to receive the projects in the speed that was agreed up front, so therefore, we see a little bit of delay on the customer side in receiving the projects that we're executing.If we go through the P&L, the gross margin is stable. We had a slightly higher absolute EBITA due to higher revenue. Financial costs were substantially better, and then the days continued operations was substantially better than last year, giving a substantial increase in net profit for the year.If we then turn to the cash flow statement, we have as you can see, we picked up in the third quarter and had a good cash flow from operations. We had DKK 357 million for the group. When you look into the continuing activities, so taking out the business we held for sale, it was a very strong DKK 519 million versus DKK 400 million last year. And if you then look into investments, you can see we had a big pick-up in investments. That comes primarily from R&D investments that we capitalized as well as IT investments, and some investments into our facilities around in the world. But the majority came from R&D investments.So overall, a good pick-up in cash flow in the third quarter. If we turn into revenue, this is where you can see we have a lower revenue than expected, and you can see the gap between order intake and revenue is increasing. What's worth to note on this page, is if you look at Quarter 4 in [ '14 ] where we had DKK 5.5 billion in revenue, so a good pick-up in -- sorry, in '16, and in '17 we had a strong pick-up in the fourth quarter. And that is also what we are expecting to deliver in '18, where we historically have had a lot of shipments in the fourth quarter and we do see more shipments in fourth quarter than what we've had during the year.If we look into revenue, you can see that mining went slightly down, and cement went up. And that of course, as mining is our higher-margin part, that puts pressure on our mix. And when we look into the gross margin in a few pages, you will see that actually both parts performed very well.Order intake versus revenue, I think this one shows really the key thing we have to discuss today, which is we have had a very strong order intake. Revenue have not yet picked up. Historically, there have been, what you can say, a year's lack between order intake and revenue. And if you look at this chart, you can see that the order intake started to pick up around a year ago. So we are at the inflection point where the higher order intake we have will start to become revenue. So as we go into Quarter 4 and '19, this higher order intake will start to be turned into revenue.Gross margin was stable year-on-year. When you look into the two divisions, you saw a good increase in mining and a good increase in cement. And it's of course the mix that makes the group margin stable.So our SG&A costs were 16.6% of revenue. The absolute number was in line with what we expected and of course, it was higher than last year. But when you look at the chart, you can see that last year was unusually low. So SG&A cost is in line with what we planned. The SG&A cost includes extra costs to digitalization. There are some costs related to the efficiency improvements in cement. So in this cost base, you have some underlying cost increases. And as you know, we had a very strong order intake and the sales cost for this extra order intake is of course also in this cost line.When you look into the margin, it's flat compared to the rest of the year so no improvements in the margin. If you look at the bridge, you can see that we have a positive impact from higher revenue and then we had some extra costs. And that explains the movement from last year into this year. And of course, as long as our revenue is not increasing more than it does, we are not expecting our EBITA margins to come up. So the reason why we keep our guidance as we do is of course that we expect a higher revenue in the fourth quarter, and through operating leverage that will give us, we expect, a very strong fourth quarter. And that is really what should drive the higher EBITDA margin that we are seeing in the future.Our working capital ratio went down to 9.9%, so below the 10% that we are expecting. When you look into the components, you can see we had improvements in prepayments and on our WIP assets, we also were able to invoice more customers, and we got paid. As you can see, the receivables did not increase.Our capital structure is strong, 37% equity ratio, net debt-to-EBITDA is at 1.1%. Not a lot to say on this. We expect further debt reduction in the fourth quarter.And then when we turn in to return on capital employed, we are up from 10% to 10.7%, and what really should drive this number up is the increase in revenue that will increase the absolute EBITA substantially through operating leverage as well as just more business. So that is really what will take this business up. It's also worth to see that the EBITA margin mining is the highest we've had for many years, at 13.3%. We of course have a very good mix in mining in this quarter, but it is a very strong performance in our mining business.And with that, back to you, Thomas.

[Thomas Schulz, Group Chief Executive Officer]

Thank you, Lars. So we always announce and inform the market each quarterly announcement about the management agenda, and with our overall managing the cycle KPIs which is the three C's: Customers, Cost, and Cash. We have an improvement in the return on capital employed, in the order intake, in the net working capital, and year-to-date with the safety performance. The EBITA is not on a level as we are satisfied with, that's clear. That's the low revenue recognition which is driving that, and as Lars said, the fourth quarter will show a significant up in the revenue part. And the DIFOT is on the same level. DIFOT is a measurement of quality, how fast we respond and how we get things up. It's on the same level as we had it in Quarter 2.The strategic focus areas, they don't change, of course. Especially the long-term ones. But it is important to inform the market that innovation, digitalization, customer focus, the people element, the sustainability element, is getting more and more track in the market. This is very important. Digitalization, for example, is today as we said, an enabler to make good business and we think we are in that case, if you look into the order intake and customer response, in a good way to be leading-positioned in both industries. Short-term it's about the wear parts. We showed a new innovation in wear parts. We have a good run in wear parts. We grow the product sale. You heard me saying at last that our mid-sized and small-capital order in cement as well as mining in the quarter increased quite a lot. We are not stopping to standardize. We are not stopping to get more efficiency, and our well-functioning and highly-appreciated in the market reorganization from 1st of July will help in that journey.If we then look for the group guidance, we keep the group guidance as it is and we expect the midpoint in the revenue and related with the revenue recognition in the area or in the midpoint for the EBITA guidance too. Out of that, of course, the return on capital employed guidance will be fulfilled too.Now, to wrap it up, out Quarter 3 2018, strong order intake both in mining and in cement; positive profitability and run in mining, very strong performance; stable outlook for cement; we had a low revenue recognition and with that a low operating leverage, which will change in the fourth quarter; and we keep the guidance.Out of that, I would like to open for Q&A.

[Operator]

[Operator Instructions] Our first question is over the line of William Ashman at JPMorgan.

[William Henry Ashman, Analyst]

You've been very clear on sort of Q4 expectations, of the leverage picking up. My question is more on 2019, and how we should think about the investments in digitalization and efficiency improvements, and can you quantify those? And then also, what kind of drop-through we should expect on sort of equipment on the aftermarket side? Thank you.

[Thomas Schulz, Group Chief Executive Officer]

I'll try to go through. Digitalization, of course, we will have an increasing spend on that, and it goes actually today already into final products, to the end customer, as well as interims into develop new processes, new equipment and new services. It's actually all over. I guess besides customers and cash, the most discussed in the company, and quite a lot of discussion on the cement and as on the mining customer side. If we then look into 2019, we are not guiding today for 2019. That's clear. But we see with that order backlog, with that momentum what we have in the market, not only out of Quarter 3. I know that having the 6-years high is quite positive, but we have for several quarters now quite a good growth. And that will carry us into next year. And to answer that with digitalization, digitalization is an enabler to get order intake and to make revenue out of it. I think that describes most of what was asked.

[Lars Vestergaard, Group Chief Financial Officer]

And of course you asked the question about equipment and aftermarket, what the drop-through is. And we do expect that there's a very high degree of drop-through, as we have spare capacity in the system that can do that without adding more cost. So very high drop-through from aftermarket and equipment.

[Operator]

We now have the line of Robert Davies, Morgan Stanley.

[Robert John Davies, Equity Analyst]

Hello, Thomas, can you hear me?

[Thomas Schulz, Group Chief Executive Officer]

Now I can hear you. Hello.

[Robert John Davies, Equity Analyst]

Yes, hello, thank you. So you had something fairly similar just around the expectations, I guess, looking into 2019. I can see we've got at the moment, sort of a DKK 1.5 billion increase in sales next year, roughly a 20% drop-through. Historically, what has been the sort of gross margin on the OE business, and typically the flow-through you see from that gross margin that comes through? I guess I'm just looking at -- it looks at the moment like the numbers are fairly generous for next year. And I'm just trying to get a sense of how you're thinking about it, especially given the incremental step-up in investments on the digitalization side. Is it fair to think that this average drop-through that you've seen in the last few years might be a bit lower than average in 2019?

[Thomas Schulz, Group Chief Executive Officer]

No, actually not. Actually when you talk about e-business, we are not separating the digital business as a single business. We know exactly, we have automation business which goes in the direction of digital since 1960. And the real 100% e-business, what you see which is more software and kind of a service to help to improve software setup and data collection, this is in itself not a huge business. But you will in that market more and more not sell anything if your services, your aftermarket products, your capital products, your processes, your plans, are not more digitalized. It's an enabler. You don't have it, you are not a premium supplier. That is what we believe, and that's the reason why we invest a lot in it. So it is, and we will not -- we don't see that we will report on that, because it's all over. It would be not fair to cut that out and try to make a statement of these kind of figures. A customer orders from us, let us say, a grinding circle, and of course, they expect it's digitalized. And if it would be not, then we would not get the inquiry. That's the level of the situation what we have out in the market, which is for us and for all other premium suppliers, quite positive. It's not about to sell the cheapest, biggest mill in the market. It's about to sell and to operate and to help the customer to earn money on the most efficient grinding circle, and that is always a good time for premium suppliers.

[Robert John Davies, Equity Analyst]

And then maybe just sort of coming back on the first part of the question, the way to think about just at the group level if you step back, the sort of gross margin differential between the OE and the aftermarket part of the business? I know you sort of give a sort of aggregate number, but what sort of number should we think about in terms of gross margin on the OE side at a group level, and the typical flowthrough that you would see from that?

[Lars Vestergaard, Group Chief Financial Officer]

I think if you go back to our -- the structure we had until the middle of the year, you can see where quite a big, clear picture of what is the capital business giving and what is the service business giving in terms of margin. And when you look into 2019, the gross margin is more impacted by a change in mix than it's impacted by what you can say, drop-through. As we will be expecting more capital business, that of course puts a mix pressure on our gross margin for next year. So that's really the key driver for what changes the gross margin next year. We're not seeing a dramatic shift in the gross margin and individual types of business, so if you look into aftermarket you see stable gross margins. In capsule business we see fairly stable gross margins. But the mix will have an impact on our group gross margin.

[Operator]

Our next question is of the line of Jonathan Hanks of Goldman Sachs.

[Jonathan Lloyd Hanks, Research Analyst]

I just wanted to check, how do the gross margin in your cement equipment order book compare to what's going through your P&L? I suppose what I'm trying to get at is, how much of this DKK 80 million of savings that you're achieving through restructuring, how much do you hope to retain and how much do we think about us putting in the bridge? Thanks.

[Thomas Schulz, Group Chief Executive Officer]

We don't see a change of profitability in the deals. What we do today versus what we did yesterday to make it like that. We have a stable profit situation but it's of course on a low level, based on the intense pricing pressure. So when you look from that point of view, and we have the graph on that one slide, how we see the overall EBITDA development, it is clear that we have to take another step of what we call profit improvement, efficiency improvement, in cement to come back on an EBITA growth path for the whole cement business. So you make it like that, it doesn't -- it doesn't deteriorate because that's always the question when we see, for example, I'm very open here. We get a big order, like out of Central America, and then the announcement is, oh, it will be very, very low in margin. No, it's on the level as we see it in big projects for quite a while. And it's very important to understand with that cost improvement, what we adjusted in the third quarter, but more with the investment into [ wide spots ], the digitalization, standardization. We are in a position that we don't need to go for any order at any cost and any risk. So this -- we are not following this pricing pressure trend to go into unbelievable low profitable or profitable projects when we receive it. We have a good position in that. We are the premium leader and we would like to get paid for it.

[Operator]

We are now over to the line of Kristian Johansen at Danske Bank.

[Kristian Tornøe Johansen, Senior Analyst]

I just had a question on the cement service business on slide 8, the graph you show indicates a pretty clear picture of a declining trend over the past couple of quarters of cement services. You can, of course, argue that it seems to have stabilized here in Q3, but just if you can elaborate a bit on sort of the decline we've seen in the past couple of quarters, and what we should expect going forward?

[Thomas Schulz, Group Chief Executive Officer]

This trend change is of course there, but it's quite minor. Where does it come from? We actually have more activity. We are more successful in selling bits and pieces and services in the cement aftermarket, but what we miss is of course the big first-time [ spares ] out of large orders, because the amount of large -- we only got the two-as-one package and not many in between. And that drives a lot of aftermarket business. Second, we have an O&M business in areas where customers are not earning a lot of money at -- since for several quarters. This is not new. And that is reflected in less aftermarket sales into the O&M businesses, too. These two elements actually explain everything in that so-called drop of the aftermarket in cement. If you would calculate that completely in and showing you would see that we actually underlying in the sale of bits and pieces all over the world actually improved, and we expect more to come out of that especially with the new organization, what we have, where we are closer to our customers in all geographies.

[Kristian Tornøe Johansen, Senior Analyst]

Okay. And then looking forward, should we then expect that first-time spares and O&M would remain stable at these levels and the positive trend in the remaining part will continue too?

[Thomas Schulz, Group Chief Executive Officer]

Of course, we have always a little bit of seasonality in it. We should not forget that. That's typical for aftermarket. But we expect that we are actually through the trough in the aftermarket in cement based on that. Because where we are today with the O&M, where we are today with the relatively low level of large orders what you can have, we don't see that this is deteriorating more.

[Operator]

We now go to the line of Claus Almer at Nordea.

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

A few questions from my side, also. The first question is about your comments about customers was not ready to receive your deliveries here in Q3. Could you please add a bit more flavor to this topic, and is it more a Q3 issue or will that also move into Q4 and 2019? That'll be the first question.

[Thomas Schulz, Group Chief Executive Officer]

Yes. A good question. You know that to have a high revenue recognition in the quarter after that order intake, what we enjoy since Quarter 3 2017, especially out of mining, we need the milestones. The delivery of bigger packages to the customer. We only can do that if the customer gives us green light that we can supply and taking it from the truck directly into the plant. If it then lands, then we can have it as a revenue. If customers, what we saw in the Quarter 3 not a lot, but substantial, move that ahead or postpone that a little bit, or in timing, then it can drop out of the quarter and then the revenue is low. That's the situation. And we always have that. And as more capital business we have, that's more fluctuation we will have. We saw that in the last two years where we were able to have a significant higher revenue recognition in the fourth quarter. So our capability in the company is not at all blocking. We have no supply constraints, more or less no supply constraints. We have enough labor on board to make it happen. But what we recognized is that after that long recession, especially in mining, close to 6 years when we look into some of the commodities and geographies, it takes customers longer to receive the goods versus that we all planned for. So today, we can say that the order intake revenue recognition tends more into 5 quarters when before the recession we had 3 to 4 quarters. That's definitely what we see. And to give that comment directly too, we don't see any hesitation to take the goods or anything like that. It's not business-driven. It's purely project management-driven.

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

So just to be sure, so all of those things have been sold or normalized here in Q4 and that's why you're keeping, let's say, your full-year guidance? Is that how we should understood it?

[Thomas Schulz, Group Chief Executive Officer]

You should understand that, of course, we have a base business in the fourth quarter. On top of the base business in the fourth quarter we have then the year-end rally where we had in one year the Quarter 4 on [ DKK 4.9 billion ], something like that. And then there are quarters where you have what we call an overhang, where milestone movement of quarters before go into the fourth quarter, and then you can have a higher-than-this figure, what we had in the fourth quarter 2017. Like, for example, I am now very specific, in the Quarter 4 2016 with DKK 5.5 billion. So the year-end rally, we call it. It's maybe not a fair wording in it, but there's always something like that. Of course, customers would like to close the year and having all the goods. You see actually in our net working capital that we are well-prepared to take that and to exercise that through.

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

Okay, then maybe you'll [ do more for the same traffic ]. Do you see your customers trying to, let's say, protect [Technical Difficulty] by postponing them all day-to-day orders? You know, the volatile or -- long-term prices?

[Thomas Schulz, Group Chief Executive Officer]

We hear, of course, in -- not from our customers. We hear out of the analyst group and in the media and so on, that there are supply, some supply issues stated. We don't see that. We hear that customers are postponing. We don't see that. What we see, and we informed about it for quite a while actually, we have -- or customers have -- a higher bureaucracy. It is today to come through borders with the trade barriers. It takes simply more time. We have more environmental permitting. We have more cautious customers when they receive goods. And of course, with the digitalization and the more complex to have a higher productivity improvement, we believe it is a little bit more tricky for customers to build the infrastructure and everything as we compare 10, 15 years ago. But we don't see any, how to say, business- or political-related or world-economy-related delay. We don't have that. And to give a little bit of flavor, what we do is we ask the customer, line by line, because we talk here about the bigger mid-sized orders and the larger orders, and we are in constant discussion and we have open debate about when they would like to have the goods.

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

And just a final one question, to Lars. Capitalization, what should we expect in Q4?

[Lars Vestergaard, Group Chief Financial Officer]

I think Q3 had a very high level of capitalization. We are starting to invest more into R&D than we've been doing throughout the downturn. So if you look at the ideas we have, the things we're working on in R&D, we are expecting a higher level going forward than what we've had in the last couple of years. So I would say in the fourth quarter, I expect it to be probably lower than in the third quarter. But going forward, it is expected to be higher and in particular, in digitalization we will be investing more. And a lot of these investments are investments into products that will come as income in the coming years, and therefore they will be capitalized.

[Operator]

We are now over to the line of Johan Eliason at Kepler Cheuvreux.

[Johan Eliason, Analyst]

I noticed that you mentioned that there is continued price competition on the cement side, especially for the large orders. Now, I wonder if you'd speculate a little bit, of what could happen with your German competitors obviously doing a lot of changes right now. Do you think this is good or bad, or doesn't it change the potential for price development in the cement industry going forward? Thank you.

[Thomas Schulz, Group Chief Executive Officer]

It's not about if I like it or if I don't like it. It's actually about how the market situation is and what we can realize. In such a tough, intense pricing pressure, what we have since several years now and for quite a lot of quarters, we hear of course comments from the peer group. We only believe what we see in reality, and the reality shows us pricing pressure is not going away. So we will not sit and wait until it gets for us a situation that we have to go for any deal to have enough revenue against our cost base. That's the reason why we do a dual approach, which means on one side we had to let and to inform more than 100 colleagues to leave in that -- predominantly in that business. But don't underestimate our investments into white spots and digitalization and standardization, which in the mid- to long-term will bring us on a significant higher EBITDA level. So from that point of view, I have no opinion about what my peers, especially if you mention the national part, the German peers have or not have.

[Johan Eliason, Analyst]

And do you think that could be a structural opportunity for you to do something with this German peer over time, or is the market share, is [indiscernible] or speculated of potentially a merger or anything like that? Already too high, you think?

[Thomas Schulz, Group Chief Executive Officer]

Yes. We have, of course, the capabilities management-wise, financial-wise, to do M&A. You know we are crystal clear since 2014 what we are doing with our money. We have capitalized properly what we are, paying dividend, what we do, having organic investments what we do a lot. Digitalization and so on, and then looking of course in M&A. We did one as you know in mining, for mining systems out of Sandvik, from Sweden. Regarding cement, we are the most or the biggest offering in the cement market. Whatever you have with cement, we can be with you. So that's a fact. We are really a powerhouse in that. And that, of course, we have to keep in mind when we look into any appetite for M&A. But of course, as a good management, we look into all opportunities.

[Operator]

[Operator Instructions] Klaus Kehl at Nykredit Markets.

[Klaus Kehl]

Two questions from my side. First of all, you mentioned that you have laid off I think it was, was it 100 people in the cement business? I was just wondering whether there are any one-offs related to that here in either Q3 or that will be here in Q4? That would be my first question. Secondly, order intake is -- order intake is at least from my point of view, very strong here in Q3 and I was just wondering, and I know there was at least two large cement orders. But still, I'm positive [ these two price ]. So could you just comment whether there are also some, I don't know, large unannounced orders included in the order intake? And could you also perhaps give us some kind of flavor of what the beginning of Q4 has looked like in terms of order intake? Thank you.

[Lars Vestergaard, Group Chief Financial Officer]

If we look at the one-offs, we had one-offs in Quarter 3. We will have one-offs in Quarter 4. They are all part of the guidance. As we've said for a little while, we want to get away from adjusted EBITA because we believe that when you have a cyclical business like ours, you will always have one-offs. And therefore, we want to have a clean number where we take responsibility for all the costs. So they are, they are one-off costs and they are included in the guidance.

[Thomas Schulz, Group Chief Executive Officer]

Then regarding the business and what we see, we have in the order package what we got, of course a lot of small and mid-sized orders in cement. They are not of that size and strategic importance to announce it. Because we have that, and we always had. We have now a very good level. We got good market leverage. We are very good in grinding, we are very good in the products. We really got strong market positions all over. When you talk about large or mid-sized orders, for us a large order is not only the financial thing. It shows maybe a complete new technology on a big new line. If we built the biggest cement line ever for example, or the most efficient, then we would like to announce that or the customer, very often in more or less of 90% of all the cases, actually the customer would like to have us announcing it. So to make a long story short, the majority of the order, capital order intake in cement, is actually in the smaller capital order side. It's not that we have a lot of, or that we have large orders just not making it to announcement. We don't have that. This market is fairly low, only a few tenders are out.

[Klaus Kehl]

Okay, and a follow-up. Do you have any comments to the beginning of the order, any comments to the order intake in the beginning of Q4?

[Thomas Schulz, Group Chief Executive Officer]

Yes, we normally don't guide on the quarter. That's -- we are not doing that. We have ongoing normal business situation, that is what we can say.

[Klaus Kehl]

Okay, thank you, and then a follow-up to the one-off [ sharing ] in second half of '18. And I understand that they are included in your guidance, but still could you quantify them for us?

[Lars Vestergaard, Group Chief Financial Officer]

You have -- you always have one-offs, and you have them in both directions. So if you sell a building, you can have one-off income and things like that. So it's -- it's not a dramatic number in the second half, but it is a number that has an impact. We don't want to give these numbers anymore because it is part of our business to ensure that we have the right manning level at any point in time, and it's included in the guidance. So that's as specific as we would like to be on this.

[Operator]

Okay. That was the final question for today's call. So gentlemen, can I please pass it back to you for any closing comments at this stage?

[Thomas Schulz, Group Chief Executive Officer]

Yes. I would like to say thank you for all the questions and all the participation, and I wish you a safe trip no matter where you are, and hope to see you soon. Thanks a lot.