Epiroc Capital Markets Day Fika 2020 Video: World of Epiroc Purpose
Provide an update on Epiroc’s strategy for profitable growth Topics: • Epiroc Group • Strategy and foundations for success – Sustainability and a strong company culture are our foundation – Focus on attractive niches and outperformance – Innovation – Aftermarket – Operational excellence Capital Markets Day Fika (CMDF) • Fika is the Swedish practice of taking a break to enjoy coffee or tea together, often with something sweet such as a cinnamon bun. Speakers in order of appearance
Helena Karin Larsson Sami Niiranen Jose Sanchez Jess Kindler Anders Lindén Mattias Olsson Hedblom Vice President President President President CFO SVP Corporate
Investor Relations President and CEO Underground Surface Parts & Services Communications
Q&A
Start Break
4 2020: President and CEO
2017: Senior Executive Vice President Mining and Infrastructure, Epiroc, Sweden
2013: President, Rock Drilling Tools Division, Atlas Copco, Sweden
2011: General Manager Rock Drilling Tools Division, Helena Hedblom Atlas Copco, Sweden
2008: Vice President R&D, Atlas Copco Rock Drilling Tools Division, Sweden President & CEO 2002: Manager Material Development, Atlas Copco Rock Drilling Tools Division, Sweden
1997: Product Manager, Flux Cored Wire, Avesta Welding AB, Sweden
M.Sc. in Material Technology from the Royal Institute of Technology, Stockholm, Sweden
Epiroc Group We put safety first, always Safety by choice, not by chance
• Covid-19 pandemic – Ensure health and well-being • SafeStart® – Safety awareness and safety skills – change behavior • Live Work Elimination – Identify and remove exposure to potentially hazardous energy sources that could cause serious injury • Positive trend on lost-time injuries – Fewer injuries and lower injury rate A leading productivity and sustainability partner
We provide customers in selected global mining and infrastructure niches with • innovative, safe and sustainable drill rigs, rock excavation and construction equipment, and tools • world-class service to enhance productivity • solutions for automation and interoperability We are a 147-year old start-up with 14 000 employees collaborating with customers in 150+ countries We have a strong, proven and value-creating business model Strategy and foundations for success
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Operational Innovation Aftermarket Focus on attractive niches excellence Outperformance
Sustainability and a strong company culture being our foundation Strategy and foundations for success
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Operational Innovation Aftermarket Focus on attractive niches excellence Outperformance
Sustainability and a strong company culture being our foundation Sustainability and a strong company culture are our foundation
Strong company culture • Employer of choice We want to be a vital part of the ”sustainable society. • Innovative and efficient people processes We want to foster an innovation culture with employees who • High-performing organization flourish and deliver sustainable • Best-in-class talent business results. acquisition, retention and cultivation • Decentralized governance model that leverages functional excellence
10 Sustainability and a strong company culture are our foundation
• Sustainability embedded in everything we do We want to enable the We live by the We invest in • Our innovation agenda goes ”transformation of the mining highest ethical safety and standards well-being hand in hand with our and infrastructure industries to customers’ sustainability become sustainable. We grow agenda We use together with resources passionate responsibly people and • Competitive advantage and efficiently courageous leaders • Driver of long-term growth
11 Long-term sustainability goals 2030 goals
Safety and Health Operations
• No work-related injuries • Halve CO2 emissions in operations Balanced workforce • 90% renewable energy in own • Double the number of women in operations operational roles Transport
Walk the talk • Halve CO2 emissions from transport • Have all employees and business partners Products comply with our Code of Conduct • Offer a full range of emission-free products • Responsible Sales Assessment Process • Halve CO2 emissions from machines sold (in implemented 2030 compared to machines sold in 2019) Suppliers
• Require 50% reduction of CO2 emissions from relevant suppliers
12 Strategy and foundations for success
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Operational Innovation Aftermarket Focus on attractive niches excellence Outperformance
Sustainability and a strong company culture being our foundation Attractive hard-rock niches
Mining Infrastructure 77% of order intake* 23% of order intake*
Surface civil Underground civil Deconstruction and Underground mining Surface mining Exploration engineering and engineering recycling urban development
Customer characteristics Customer characteristics • Large customers • Large number of customers • High expenditure per customer, while limited share of customers’ total • Lower expenditure per customer capex and opex • Equipment moving from worksite to worksite • Equipment remains in the mine, only moving within the site • More project-based business • Continuous operations
*January - September 2020 14 Performance
Revenues and operating margin Return on capital employed
22 70 000 40 50 000 20.3 21.0 20.6 19.4 19.9 19.6 20 18.9 19.3 45 000 18.1 35 17.1 60 000 32.0 18 16.8 40 000 30 16 27.4 27.6 50 000 33 313 35 000 14 25 29 518 +9% 40 849 30 000 38 285 40 000 21.6 12 36 596 31 364 20 23 086 25 000 10 21 674 28 663 30 000 27 102 20 000 8 15 15 000 6 20 000 10 4 10 000 10 000 5 2 5 000
0 0 0 0 2015 2016 2017 2018 2019 2020 12m Sep. 2017 2018 2019 2020 Q3
Revenues 12 months, MSEK Adjusted operating margin, %* ROCE, 12m, % Operating margin 12 months, % Avg. capital employed, MSEK
*Adjusted for items affecting comparability. Items affecting comparability include change in provision for long-term 15 incentive plans and restructuring costs. Costs related to the split from Atlas Copco were classified as items affecting comparability in 2018. Mining and infrastructure trends
Near term Long term • Demand stable but fragile in the near term • A growing world… • Covid-19 – Increases the underlying need for infrastructure and minerals – Restrictions vary among countries – All distribution centers and manufacturing facilities • … with increasing challenges to meet the are operational demand… – Capacity is being adapted to the demand – Driving cost of hard rock excavation • Mineral prices at good levels • …and strong focus on safety and sustainability • Average fleet age increasing
16 Key highlights Q3 2020 Recovery in orders and solid results
Demand improved, +10% organic • Moderate impact from Covid-19 restrictions • Strong development in our resilient service, +9% organic • Customers taking investment decisions Strong interest for automation, digitalization and electrification • Several orders won • Successfully deployed unique solutions for mixed-fleet automation Solid results and cash flow • Efficiency actions executed according to plan • Margin improved to 20.9% (19.0), adjusted margin 21.7% (21.3) • Operating cash flow at MSEK 1 355 (1 883) Second dividend proposed
17 We expect that the demand, both for equipment and aftermarket, will remain stable in the near term. That said, there are uncertainties regarding the Covid-19 development and related restrictions, which can have an adverse effect on the demand.
18 Demand stable but fragile
Mineral production impacted by disruptions 120 Covid-19-related disruptions 115 impact production output (of
110 total production capacity 2020 estimate): 105 100 • Gold: -5% 95
90 • Copper: -5%
85
2018 2019 2021f 2022f 80 2020f
Copper production, kt, index Gold production, tonnes, index
Source: Citi 3Q 2020 Commodities Market Outlook Source: McKinsey, October 2020, preliminary estimates 19 (BMI, MineSpans, USGS, Press Search) Favorable hard rock exposure
Gold Infrastructure 20% 23%
17% Copper 14% Other
2% Zinc 3% 9% Coal 5% 7% Nickel, Lead Platinum Iron
Estimated order exposure YTD 2020 “Other” includes silver, tin, manganese, cobalt, uranium, other gemstones than diamonds, granite, 20 limestone, dimension stone, potash, phosphorate and chemical & fertilizer minerals etc. Mineral prices at good levels
180
170
160
150
140
130
120
110
100
90
80
70
Dec. Dec. 15 Mar. 16 Jun. 16 Sep. 16 Dec. 16 Mar. 17 Jun. 17 Sep. 17 Dec. 17 Mar. 18 Jun. 18 Sep. 18 Dec. 18 Mar. 19 Jun. 19 Sep. 19 Dec. 19 Mar. 20 Jun. 20 60 Sep. 20
21 The Epiroc average fleet age increasing
Equipment fleet, by year of commissioning Aging profile of the fleet • 27% of the equipment is older than 10 years • The average age is about 7.2 years • Utilization/running hours, maintenance, midlife services, etc. impact the condition of the machines
2016 or later 2011-2015 2006-2010 2005 or earlier
Data based on orginal commissioning date 22 Long term: Market dynamics attractive!
A growing world… Increases the underlying need for infrastructure and minerals We have a strong position and the right solutions to … with increasing challenges to meet customers’ challenges meet the demand… Driving cost of hard rock excavation Safe and sustainable solutions, increased productivity and lower total cost of ownership …and strong focus on safety and sustainability
23 A growing world… Increases the underlying need for infrastructure and minerals
• Population growth • The global construction market • Total global mining capital expected to grow by expenditure (drill-to-mill) • Strong urbanization trend low-mid single digit expected to grow by mid-high – By 2050, 2 in 3 people will live in urban areas* single digit • Production expected to grow • Economic growth low-single digit – World real GDP expected to grow about 3% annually until 2030**
* Source: UN World Urbanization Prospects **Source: OECD (2018), GDP long-term forecast (indicator). doi: 10.1787/d927bc18- 24 en (Accessed on 18 November 2020) … with increasing challenges to meet the demand… Complexity challenges and increasing cost of hard rock excavation
Average overall equipment Depletion of ore grades expected to Trends towards underground effectiveness is low within mining, % remain between 0.5%-2% in the mining expected to be strong foreseeable future in the coming years 3.0 +55% Underground mining 29 2.5
2.0 Open pit mining 38 1.5 36 33 33 1.0 29 23 In addition: Mining productivity levels 0.5 down roughly 30% (vs. 2000) with 0.0 strong productivity focus as a result 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2019 2025 2030 2035 2040 Underground average ore grade (Wt by paid Copper)* % of Underground production, Copper** Surface average ore grade (Wt by paid Copper)*
**McKinsey and MineLens, 2018 MineLens, McKinsey, October 2019 *The graph was obtained from Wood Mackenzie’s Copper 25 mine cost service, a product of Wood Mackenzie …and strong focus on safety and sustainability
Safety Environment • Our objective is for zero • Reduce GHG emissions by 30%. workplace fatalities, injuries and – Anglo American occupational illnesses. • Maintain operational emissions – Freeport McMoran in FY22 at or below FY17 levels. • The health and safety of our Net Zero by 2050. people is our top priority and we – BHP believe all fatalities and injuries • Reduce absolute emissions by are preventable. 15% and emissions intensity by – Glencore 30% by 2030. • We believe all incidents and – Rio Tinto work-related health risks are • 33% carbon neutral by 2050. preventable – Vale – Rio Tinto
26 The right solutions to meet customers’ challenges
Service and maintenance
We have a strong position and the right solutions to meet customers’ challenges Productivity enhancing solutions Safe and sustainable solutions, increased productivity and lower total cost of ownership Automation, electrification and digitalization
27 Strategy and foundations for success
.
Operational Innovation Aftermarket Focus on attractive niches excellence Outperformance
Sustainability and a strong company culture being our foundation Strategy and foundations for success
.
Operational InnovationInnovation Aftermarket Focus on attractive niches excellence Outperformance
Sustainability and a strong company culture being our foundation To be and remain the innovation leader
What does it mean? • Drive the change in our industry • Best-in-class products • Cutting-edge automation, digitalization, and electrification • Foster an innovation culture Actions • Relentlessly invest in product development • Clear portfolio-road maps • Efficient use of resources • Leveraging innovation by collaboration
30 Foster an innovation culture
• Creative, bold and open-minded employees • Imagination to develop new ideas • Drive to bring solutions to market • Ambition to grow to the next level • Willingness to take on responsibility
31 Innovation opportunities
Opportunities • Investing more in R&D than ever • Using domain knowledge and connected machines to capture digital opportunities • Leveraging footprint to maximize potential of closeness to the end markets • Having state-of-the-art simulation tools for efficiency and time to market • Using M&A and partnerships to create leadership in new attractive niches and to drive revenue growth and long-term value creation • Epiroc Labs: Scouting tomorrow’s technology and solutions
32 Innovation underground Introduction
Automation Digitalization Electrification • Increasing demand • Lowering the hurdle to enter • Largest battery-driven • Market-leading position connectivity with Mobilaris product portfolio • Proven and commercially • Connectivity • Battery as a Service viable mixed-fleet automation • Conversion of existing • Innovations diesel equipment – Multipurpose drill rig • Full range of emission-free – Auto Charger with Orica underground equipment by 2025
33 2020: President Underground division and member of Group Management 2018: President, Underground Rock Excavation Division, Sweden
2016: General Manager, Atlas Copco, Finland
2014: General Manager, Atlas Copco, Ghana Sami Niiranen 2012: Marketing Manager, Atlas Copco, Sweden 2007: Global Business Manager and Regional President Business Manager, Atlas Copco, Sweden Underground division 2004: Key Account Manager, Atlas Copco, Finland
2002: Nuclear Waste Management, Finland
1997: Mining Engineer in Finland and Australia
Innovation underground A leader in automation, digitalization and electrification Timeline for underground equipment
– 2010 2010 – 2020 2020 – • Rig Control System (RCS) • Increased demand for automation • Interoperability (mixed fleet) • Single-machine automation • Digitalization creates opportunities • Information management • Electric-hydraulic drilling equipment • Electrification strategies • Serial production of battery vehicles • Data collection • Partnerships and collaboration • New business models
35 Automation highlights
Connectivity North Russia & America Örebro Central Asia • Certiq Sudbury Europe Asia, • My Epiroc Denver M. East, India • Mobilaris Mining Intelligence Automation • Growing numbers of automation projects Africa • ~90 automated production drills Australia South • ~50 automated loaders America Johannes- Santiago burg Perth • ~670 drills with full automation capability • Regional application centers established Connected machines
Application centers
36 Highest level of loader automation 6th Sense – Smart. Safe. Seamless.
• Automation for multiple loaders, operated and monitored from control room Operator station • Safer work environment by removing people from hazardous areas Multiple loaders • Higher fleet performance through
automated traffic control Light curtains • Optimized load-haul-dump cycle IT infrastructure with autonomous functions Barrier cabinet
37 The world’s first mixed-fleet automation underground 6th Sense – Smart. Safe. Seamless.
First equipment supplier to provide unique mixed-fleet automation solution • Successfully proven in production in the Newcrest Cadia mine - one of the largest gold mining operations in Australia • Epiroc and Maclean vehicles in advanced automation interoperability • Production and secondary reduction mining vehicles working on the same production level while being operated from the surface
38 The future of mining and hard rock excavation
Projects
Stope optimization Optimized haulage system Rapid tunneling Digital information excavation excellence flow excellence
Technology
Dashboards Sensor data logging Onboard API Mobilaris Onboard My Epiroc Predictive maintenance
39 To be and remain the innovation leader
New!
High-performance bolting Fully mechanized charging Full range of battery-electric vehicles
New generation Boomer launch in 2021
Mechanical rock excavation High-performance face Fully autonomous fleet and production drilling
Today and into the future
40 Today and into the future New!
Automation footprint in underground drilling Moving toward automating the whole drilling continues with new generation Boomer and explosives charging process • A true development rig, fully equipped for multi- • Orica and Epiroc have jointly developed a semi- task operation and automation automated explosives delivery system, enabling • Battery-electric driveline option safer and more productive blasting operations in underground mines
41 Video: Avatel™ The first-of-its-kind: Semi-automated explosives delivery system
42 Why electrification is a good idea Now!
• To protect people from dangerous fumes, noise and heat • To avoid costly capex investments in ventilation • To reduce energy consumption (ventilation is a large part of opex) • To meet zero emissions in a fossil-fuel dependent industry
43 Electrification highlights
Electrification customers around the world The broadest electric offering in the market • Battery-electric equipment • Battery-technology platform to other OEMs – Jama – Railcare • Battery as a service • Battery retrofit • Second life solutions
Battery-electric vehicles in operation/orders
44 Video: Electric at the Arctic Circle
45 Innovation Surface Introduction
Automation Digitalization Electrification • Leading the transformation • Data management and • Long history of electrification • Proven solutions in all analytics • Full range of emission-free regions in the world • Connectivity surface products by 2030 • Expanding autonomous – Ericsson collaboration offering for mixed fleets
46 2020: President Surface division and member of Group Management 2015: President Drilling Solutions division, Atlas Copco, USA
2007: General Manager, Atlas Copco, Chile
José Manuel 2002: General Manager, Atlas Copco, Mexico
Sánchez 1998: Short-term assignment, Atlas Copco, France 1996: Product Manager Surface Drilling President Exploration & Area Manager Americas, Atlas Surface division Copco Sweden 1994: Reg. Underground Rock Excavation Manager & Marketing Manager, Atlas Copco, China
1988: M.Sc. Mining from Madrid School of Mines, Master in Marketing & Sales Management
Innovation Surface Building a legacy
Pit Viper 351 celebrates 20 years! • Durability and effectiveness – The first Pit Viper is still successfully operating on site in British Columbia with 96 000 drilling hours logged to date • Proven reliability and low life-cycle cost – In September 2020, the drill was running at 92% mechanical availability • Flexibility of low-carbon option with electric power drill
48 Intelligent power: Pit Viper 271 XC series
XC • Extra capacity Advanced rig control • Increased safety • Live work elimination Increased productivity and reliability
49 Future-proof: New generation of SmartROC D65
Greater application versatility and usability • More capacity • Automation options Advanced rig control • Increased safety • Live work elimination Increased sustainability • Less oil in hydraulic system and reduced fuel consumption up to 20%
50 Two decades of automation From own drills to mixed-fleet surface operations
– 2010 2010 – 2020 2020 – Pit Viper Automation Pit Viper Automation Pit Viper Automation • 2006: Standardization on Rig Control • 2012: 90%+ Pit Vipers ordered with • Transforming our customers’ value System (RCS platform) for Pit Viper increased functionality chain by delivering premier surface series automation solutions through • 2014: First Generation Autonomous Pit partnership Viper: Weekly production up 26% and drill rig utilization up 21% • Mixed-fleet capability
SmartROC Automation SmartROC Automation SmartROC Automation • 2010: SmartROC product family • 2020: Autonomous SmartROC D65 • 2002: Rig Control System (RCS), rigs at the same mine • 2015: First BenchREMOTE ROC Manager, AutoPos • 2020: Autonomous Pit Viper & • 2019: First Autonomous SmartROC D65 • 2006: First Hole Navigation System SmartROC D65 rigs • 2009: COP Logic Advanced
51 Surface Automation Footprint 19 million meters drilled autonomously
First Autonomous BenchREMOTE Electric station in Sweden BenchREMOTE station
First Autonomous SmartROC D65 First Teleremote First Remote site in Canada in Ukraine
BenchREMOTE station BenchREMOTE First Remote station in Morocco
First Autonomous BenchREMOTE in USA station BenchREMOTE station First Autonomous in Mexico
First Teleremote First Autonomous First Autonomous First Multipass in Papua New Guinea in Peru in Chile Autonomous in South Africa BenchREMOTE BenchREMOTE station station First regional rollout in First Autonomous First Remote BenchREMOTE station Australia drill in coal operations in Chile in Australia BenchREMOTE First Autonomous station BenchREMOTE drill in operations station in Australia First Autonomous First BenchRemote in South Africa station First Autonomous site in Australia 52 Status at the end of September 2020 Autonomous results Examples of Pit Viper in action
The compounding effect of Fuel consumption per meter drilled incremental software releases
The compounding effect of -23% incremental software releases 100 +41% extra production • 1.8 million meters saved of 77 +19% extra production wasted drilling • Over 240 000 extra operational hours from Tele-Remote 15 • 6.8 million extra meters drilled 10 gained from AutoDrill 5
0 2014 2015 2016 2017 2018 2019 2020 2021 2022 2014 2015 2016 2017 2018 2019 2020 2021 2022
Annual productivity gain, % Fuel consumption per meter drilled, index
53 Video: Epiroc Surface Automation Chile
54 Going beyond automating own equipment Automation support to our customers across the value chain
Automate own equipment to remain #1 in drill Mixed-fleet surface automation productivity and Total Cost of Ownership • Mixed fleets in drilling • Only commercially proven fully autonomous drill • Full interoperable mixed-surface fleets solution on the market • First OEM-agnostic automation provider for • Market leading capabilities in blast-hole drill haulage (in partnership with ASI Mining) automation • Continuous focus on equipment and fleet optimization
55 The world’s largest autonomous mixed-fleet deployment
Epiroc, ASI Mining and Roy Hill in Australia • Phase 1 (Sept. 2020) – Automation of 2 truck models (Hitachi and CAT) – 2 autonomous light vehicles • Phase 2 (now) – 6 trucks in production – Prove KPIs • Phase 3 (next step) – 77 autonomous haul trucks – Autonomous light vehicles and loaders; totaling 300+ assets
56 Short break Strategy and foundations for success
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Aftermarket Strong aftermarket business provides resilience
Aftermarket revenues Covid-19
Creation of dedicated Epiroc, incl. hydraulic division for parts & -8% 28 000 attachments as from 26 829 services 2011 2015 +8% 26 000 24 764 23 822 24 000
22 000 20 845 19 895 20 000 +8% 19 113 18 000 18 000 17 400 17 200 15 900 16 000 14 000 14 000 11 900 12 000
10 000
8 000
6 000
4 000
2 000
0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 12m Sep. Aftermarket revenues, MSEK
2009-2014 Atlas Copco Mining and Rock Excavation Technique. 59 Broad aftermarket offering
• Service • Supply of • Midlife • Rock drilling • Hydraulic agreements spare parts services, tools attachments and audits and training, and components other service products
Service 43% Tools & Attachments 25% Aftermarket 68%
Share of Epiroc revenues 12 months until September 2020 60 Trends and customer values in aftermarket
• Safety and sustainability • Productivity and efficiency • Total Cost of Ownership (TCO) • Connectivity and digitalization
61 Maximize full potential within aftermarket
What does it mean? • Support safety and high productivity • Be a true long-term productivity partner • Build resilience over a cycle Actions • Accelerate connectivity efforts • Improve fleet management • Design aftermarket offering and channels to capture all segments • Support customers with a broader range of needs Aftermarket opportunities
• Aftermarket footprint – take a broader range of products through our network • Connectivity to enable real-time data of activity levels and need for aftermarket • Technological height of capital equipment • Connecting consumables with machines • Focus on creating value for our customers Connectivity to increase customers’ productivity 6th Sense ––Smart. Safe. Seamless.
Rock Drilling Tools Attachments • Smart consignment – Full control of inventory • Fleet management by monitoring operating and drilling tool consumption hours, location and service intervals of the tools • My Epiroc – access to all data and get notifications when it’s time for service
64 Video: HATCON
65 New innovative products
66 2020: President Parts, Service and Supply Chain and member of Group Management 2016: President Mining and Rock Excavation Service division, Atlas Copco, Sweden 2013: Director, PT Atlas Copco Nusantara, Indonesia 2012: Master of Business Administration, Jess Kindler Wharton School, USA 2005: Business Line Manager Atlas Copco CMT, USA President 2002: Worldwide Service Manager, Ingersoll Parts & Services division Rand Drilling Solutions, Garland, USA
2002: Captain, United States Army Corps of Engineers, USA 1998: Mining Engineer, Colorado School of Mines, USA
Parts & Services Broad service offering
Replacement Service Reman Midlife services Custom- Training Telematics parts and kits agreements solutions engineered products (connectivity) and audits solutions Tailored service products to different customer segments
Customer segmentation • Model allows improved differentiation in how to support different types of customers – H - High utilization – M - Medium utilization – L - Low utilization • Channels for improved presence
69 Service agreements
From parts provider to partner Service agreements revenues • Clear service-value proposition +31% 140 129 131 • Service agreements for 120 113 100 different demands 100 • Lifecycle management 80 • Data-driven services and 60 subscriptions 40 20
0 2017 2018 2019 Sept. 2020
Service agreements revenues, index
70 Midlife services
Extend equipment life Midlife services revenues • Replacing old with new +47% components, returning 180 166 equipment to maximum 160 147 140 129 productivity and operating 120 100 efficiency at a fraction of the 100 cost of a new machine 80 60 40 20 0 2017 2018 2019 Sept. 2020
Midlife services revenues, index
71 Complete midlife rebuild product portfolio + Custom engineered solutions
Customer values Custom-engineered solutions
• Extended product lifetime Tech+Midlife • Designed to match the machine Midlife PLUS Midlife
• Reduced operational cost PLUS Midlife Midlife Tech+ configuration
Midlife basicMidlife Midlife basicMidlife Midlife basicMidlife Midlife PLUS • Increased product • Latest version of components functionality and efficiency Midlife basic • Ensuring safety and productivity
Fleet Product Electrification standardization upgrades and and remote functional growth capabilities
72 Why connectivity is a good idea Improves communication and productivity
My Epiroc My Epiroc – connected equipment Certiq – equipment with connectivity • Instant access to all machine data, operational status, 7 000 4 500 4 000 6 000 performance metrics and 3 500 5 000 location 3 000 4 000 2 500 • Increase fleet efficiency, safety 3 000 2 000 and performance 1 500 2 000 1 000 1 000 Certiq 500 0 0 • A telematics solution that Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 gathers, compares and My Epiroc, connected equipment Certiq, equipment with connectivity communicates vital equipment information
Connected equipment include hydraulic attachments from June 2020 73 New business opportunities with electric solutions
Customer driven Innovation Growth area • Unique offering • New business model • Retrofit of installed base • Lower TCO • Modular design • New market segments • Energy efficiency • Remote services • Mixed fleet
Scooptram ST1030 Battery Scooptram ST14 Battery Railcare Jama
74 Digitalization driving customer success
Productivity Operation information and guidance
Reliability centered Reliability maintenance and Machine data and maintenance data analytics = Efficiency Systems and tools Improved machine availability, running cost and TCO Structure and guidance Processes and improvements
Data/reports and system integration Business intelligence
75 Presence is vital and a competitive advantage!
100+ service workshops 6 400+ 6 employees remanufacturing in service* centers 300+ 5 sites with service regional contracts with people Service centers distribution on site Remanufacturing centers centers
*Employees in Parts & Services division, excluding additional workforce 76 Keys to aftermarket success
Presence Efficient Technical Focus People and supply chain know-how leadership
77 Strategy and foundations for success
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Operational excellence Operational excellence
What does it mean? • To continuously improve performance, efficiency and effectiveness • ”There is always a better way” Actions for operational excellence
Build a strong process-excellence oriented organization to drive best in class service and supply chain performance • Supply-chain program • Service excellence with data-centric approach
Opportunities Improve agility by leveraging Improve agility by leveraging manufacturing footprint manufacturing footprint Supply-chain improvement program Service excellence using data-centric approach • Consolidating manufacturing Back office excellence
Build a more efficient organization • Cost-savings program • Back-office excellence • Digitalization and robotic process automation (RPA) 2017: CFO, Epiroc AB, Sweden
2016: VP Business Control, Atlas Copco Mining & Rock Excavation BA, Sweden 2011: VP Business Control, Atlas Copco Industrial Technique BA, Sweden Anders Lindén 2006: VP Finance & Administration, Atlas Copco Underground Rock Excavation Division, Sweden CFO 2000: CFO, Enlight AB, Sweden 1998: Financial Director, Xerox Document Supplies, Sweden 1993: VP and CFO, Atlas Copco Robbins Inc., Seattle, WA, USA 1986-1993: Various positions within Controlling & Finance at Atlas Copco, Sweden
1986: B.Sc. in Economics and Business Administration, Stockholm School of Economics
Operational excellence and financials Annual revenue growth of 9% 2015-2019
Solid revenue growth
50 000 Epiroc’s goal is to 45 000 achieve annual 40 849 +9% 40 000 38 285 36 596 revenue growth 35 000 ” 31 364 of 8% 30 000 28 663 27 102 over a business cycle and 25 000 to grow faster than the market 20 000
15 000 10 000 Growth will be organic and 5 000 supported by selective 0 acquisitions 2015 2016 2017 2018 2019 2020 12m Sep. Epiroc revenues, MSEK
82 Resilient operating margin
Operating profit and margin
16 000 25 Epiroc’s goal is to
14 000 21.0 have an 20.3 20.6 19.4 20 18.1 12 000 19.9 19.6 industry-best 17.116.8 18.9 19.3 ” 10 000 operating 15 8 136 8 000 7 385 7 186 margin 5 930 10 with strong resilience 6 000 5 175 4 548 over the cycle 4 000 5 2 000
0 0 2015 2016 2017 2018 2019 2020 12m Sep. Operating margin, reported, % Operating profit, MSEK Adjusted operating margin, %*
*Adjusted for items affecting comparability. Items affecting comparability 83 include change in provision for long-term incentive plans and restructuring costs. Costs related to the split from Atlas Copco were classified as items affecting comparability in 2018. Two reporting segments
Equipment & Service 25.0 Tools & Attachments 24.9 24.4 40 000 23.5 24.0 25 18 000 16 22.8 21.5 35 000 16 000 13.4 14 20.1 13.1 13.0 20 12.3 29 891 14 000 11.8 11.8 30 000 28 540 11.6 12 27 212 11.1 12 000 25 000 10 799 10 22 383 15 9 519 20 317 10 000 9 239 20 000 18 898 8 738 8 8 088 7 925 8 000 10 15 000 6 6 000
10 000 4 4 000 5
5 000 2 000 2 6 713 7 436 6 518 4 370 3 802 5 107 957 937 1 146 1 239 1 252 1 029 0 0 0 0 2015 2016 2017 2018 2019 2020 12m Sep. 2015 2016 2017 2018 2019 2020 12m Sep.
Operating margin, % Operating profit, MSEK Operating margin, % Operating profit, MSEK Revenues, MSEK Adj. operating margin, % Revenues, MSEK Adj. operating margin, %
84 Operating cash flow
Operating cash flow varies over the cycle Operating cash flow and cash conversion rate, %
• When the demand is good we grow and 8 000 7 677 300 increase working capital 7 000 6 688 250 • When the demand is poor we generate 6 000 5 630 cash and release working capital 200 4 880 5 000 4 610 158 151 146 4 000 3 884 150 114 Low capex needs 107 3 000 100 • Limited investments in other property, plant 71 2 000 and equipment 50 1 000 • Rental equipment, net 0 0 2015 2016 2017 2018 2019 2020 12m • Intangible assets mainly R&D and IT Sep.
Cash conversion rate, 12 months, % (Operating cash flow / Profit for the period) Operating cash flow, MSEK
85 A strong financial position
Net debt and Net debt/EBITDA
0.5 6 000 0.43 0.39 0.4 5 000 Epiroc is to have an efficient capital 4 000 structure and have the flexibility to 0.3 0.24 ” 3 000 make selective acquisitions. The goal is 0.2 4 217 3 641 2 000 to maintain an investment grade rating. 0.1 2 416 0.05 1 000
0.0 483 0 BBB+ -1 191 -1 819 -0.1 -1 000 Epiroc is assigned a BBB+ long-term -0.12 -3 638 -2 000 issuer credit rating with a stable outlook -0.2 -0.20 -3 000 -0.3 -4 000
-0.4 -5 000 -0.41 -0.5 -6 000 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020
Net debt/EBITDA ratio Net cash (-) / net debt (+), end of period, MSEK
86 Priorities for use of cash
EPS, dividend and payout ratio
1. Continuously invest in Epiroc’s goal is to provide 5.00 4.89 100 4.50 organic profitable growth long-term stable and rising 4.50 90 dividends to its 4.00 80 ” shareholders 3.50 70 2. Invest in acquisitions that 3.00 60 support our organic efforts 49 2.50 47 50
The dividend 2.00 40 should correspond to 3. Cash distribution 1.50 30 2.40 50% of net profit 1.00 2.10 20 over the cycle 0.50 10
0.00 0 2018 2019*
EPS, SEK Dividend, SEK Payout ratio, %
* Proposal from the Board 87 Strong and proven operating model
Focused and Flexible High degree of Resilient Sharp innovation decentralized manufacturing direct sales and aftermarket focus business philosophy services business
Quick and 75% of product cost ~85% direct sales Aftermarket Excellence centers efficient for equipment is 68% of revenues around the world decision-making purchased Focused and decentralized businesses
Reporting Tools & Equipment & Service segments Attachments
Divisions Surface Underground Technology & Digital Parts & Services Tools & Attachments
Equipment Aftermarket
32% 68% of of sales sales
89 Implications of a decentralized organization
Advantages: Keys to success: • Entrepreneurial organization • Action-oriented culture with • Quick decision making and courageous leaders that dare adoption to shifting taking decisions environment • Governance model that • Strong ownership and encourages both ethical commitment to create results behavior and financial results • Creates strong internal • Clear communication on pipeline of good leaders strategy to get ”buy-in”
90 Quick adoption to shifting environment
Administration, marketing and R&D expenses
2 000 30 Lower costs:
1 745 1 708 1 663 1 671 1 640 25 • Full effect from savings 1 511 1 500 program (MSEK >500 p.a.) 1 360 20 18.0 17.9 • Quick adjustment to the 17.0 16.6 16.4 16.5 16.1 situation with permanent 1 000 15 savings
10 • Short-term actions maintained 500 • Reduced corporate cost 5
0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2019 2019 2019 2019 2020 2020 2020
A, M and R&D expenses in % of revenues A, M and R&D expenses, adj. for items affecting comparability, MSEK
91 Limited restructuring costs
Restructuring costs, absolute and in % of revenues 1 000 2.0
1.5
500 1.0
0.5
0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0 0.0 -0.2% -0.4 -0.4% -65 -0.5% -81 -120 -224 -0.7% -0.5 -173
-500 -415 -1.0
-1.6% -1.5
-1 000 -2.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD Restructing costs, MSEK in % of revenues Sep.
Restructuring costs 2009-2015 were reported under Atlas Copco Mining and Rock Excavation Technique business area Costs in 2014 and 2019, was mainly write down of assets related to discontinued businesses, 2014 Powercrusher and 2019 Handheld rock drilling tools. 2020 was moving manufacturing sites and long-term actions in ex. Sweden. Investing in R&D
Research and development expenses
1 800 2.9% 3.0
1 600 2.5 1 400 About 1 200 2.0 1 035 1 051 977 1 000 7% of our 795 1.5 800 662 employees 600 1.0 400 work in R&D 0.5 200
0 0.0 2016 2017 2018 2019 2020 12m Sep. R&D expenses 12 months, % of revenues R&D expenses 12 months, MSEK
93 End of September 2020. 7% corresponds to almost 1000 employees. Sharp focus on innovation
Collaboration enables leverage on R&D • Regional Application Centers (RAC) lowers hurdle for customers to entry automation • Majority of R&D spending goes into equipment and technology • Leveraging innovation globally by partnerships with customers, suppliers and others
94 Video: Epiroc Ericsson From Idea To Demo
95 We have a flexible manufacturing philosophy
Example of “core components” on a Boomer:
Did you know? 75% of product cost for equipment is purchased
We produce on orders (equipment) which enables quick and smooth adjustments in manufacturing levels in ups and downs
We only produce core-components to safeguard a flexible manufacturing set-up whilst protecting our innovations
96 Benefits of a flexible manufacturing philosophy
Limited investment requirements in manufacturing Return on capital employed
4.0 2 000 40 50 000 3.6 45 000 3.5 3.3 35 3.2 3.2 32.0 40 000 3.0 1 500 30 1 384 27.4 27.6 35 000 1 290 33 313 2.5 1 209 25 29 518 30 000 374 21.6 1 014 343 260 2.0 1 000 20 23 086 25 000 21 674 371 20 000 1.5 459 15 521 532 15 000 1.0 289 500 10 10 000 0.5 551 5 354 426 417 5 000
0 0 0 2017 2018 2019 2020 12m Sep. 2017 2018 2019 2020 Q3
Capex, % of revenues Intangible assets, net, MSEK ROCE, 12m, % Rental equipment, net, MSEK Property, plant, and equipment, net, MSEK Avg. capital employed, MSEK
97 Accumulation of cash has a negative impact on ROCE
ROCE, reported ROCE, excluding cash
40 50 000 40 37.9 50 000 Financial Goal: 45 000 35.0 45 000 35 35 32.0 31.6 40 000 40 000 • Improve capital efficiency 30 30 28.5 27.4 27.6 33 313 35 000 35 000 and resilience 25 29 518 25 21.6 30 000 30 000 • Investments and acquisitions
20 23 086 25 000 20 23 221 22 746 25 000 shall create value 21 674 20 825 19 469 20 000 20 000 15 15 15 000 15 000 10 10 10 000 10 000 5 5 5 000 5 000
0 0 0 0 2017 2018 2019 2020 Q3 2017 2018 2019 2020 Q3
ROCE, 12m, % ROCE, 12m, % Avg. capital employed, MSEK Avg. capital employed ex. cash, MSEK
98 High degree of direct sales and services
Sales in Revenues by region* Top 10 markets in % 85% of revenues 2019 North America • Australia 11% 150+ direct sales Asia / Australia 22% 27% countries and services • USA 10% • Canada 8% • Russia 7% • Chile 6% South America Top 10 14% • South Africa 6% Africa / Middle East • China 4% customers represented 14% Europe • Peru 4% 17% of revenues 23% • India 3% • Sweden 3% in 2019 *12 months until September 2020
99 Resilient aftermarket business
The aftermarket share of revenues is 68%
60 000 75 70 71 68 55 000 67 66 70 63 65 50 000 60 45 000 40 849 55 40 000 38 285 50 36 596 35 000 45 31 364 13 861 40 30 000 28 663 14 238 11 687 27 102 35 25 000 10 276 8 510 7 710 30 20 000 25
15 000 20 26 829 23 821 24 764 15 10 000 19 895 19 113 20 845 10 5 000 5 0 258 279 243 226 159 145 0 2015 2016 2017 2018 2019 2020 12m Sep. Equipment revenues, MSEK Common group functions revenues, MSEK Aftermarket revenues, MSEK Aftermarket share of revenues, %
100 Direct sales implies ”higher” working capital
Relentless focus to improve net working capital Net working capital • Educating the organization 30 000 45
40 • Follow-up and monitor 25 000 35.9 34.4 35 31.9 31.8
20 000 30 Supply-chain improvement program 25 • Significantly improved availability for spare 15 000 14 062 13 127 parts and rock drilling tools 12 158 20 9 991 • Inventory level can still be improved 10 000 15 10 • Lower transport costs, offset by Covid-19 5 000 5 • Reduced transport emissions – more sea freight 0 0 • Further gradual improvements expected 2017 2018 2019 2020 12m Sep. Avg. Net working capital/revenues, % Avg. Net working capital, MSEK
101 CO2 emissions decreasing Supply-chain improvement program
Transport CO2 emission, spare parts and rock drilling tools, tons An absolute CO2 saving of 36 541* ton in two
120 years translates into: 110 -34% • Greenhouse gas emissions from 7 894 100 100 passenger vehicles driven for one year 90 82 80 • CO2 emissions from 4 217 homes' energy
70 66 use for one year 60 • Greenhouse gas emissions avoided by eight 50 wind turbines running for a year 40
30 • Carbon sequestered by 604 213 tree
20 seedlings grown for 10 years
10
0 2018 12m Sep. 2019 12m Sep. 2020 12m Sep.
Transport CO2 emission, spare parts and rock drilling tools, tons
102 * Rolling twelve months Q32020 vs Q32018. https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator Financial goals for value creation
Goals Description 2015 – 2019 2020 12m Sep.*
Compound annual Growth Annual revenue growth of 8% over a business cycle. growth rate 9% -11%
Industry-best operating margin, with strong Average Profitability resilience over the cycle. operating margin 18.6% 19.6%
Improve capital efficiency and resilience. Capital efficiency Average ROCE Investments and acquisitions shall create value. 26.1% 21.6%
Have an efficient capital structure and have the flexibility Capital structure to make selective acquisitions. The goal is to maintain Rating BBB+ an investment grade rating. Provide long-term stable and rising dividends to its The dividend for 2019 corresponds to Dividend policy shareholders. The dividend should correspond to 50% of net profit over the cycle. 49% of net profit
*12 months until September 2020. Operating margin as reported, including change in provision for share-based long-term incentive programs and restructuring costs. (Adj. margin 20.6%) 103 Q&A Epiroc’s key strengths
Leading Strong and High and resilient Driving the future History of value productivity proven operating aftermarket in intelligent creation for all partner in model exposure mining and stakeholders attractive niches infrastructure
105 United. Inspired. Performance unites us, innovation inspires us, and commitment drives us to keep moving forward. Count on Epiroc to deliver the solutions you need to succeed today and the technology to lead tomorrow. epiroc.com Disclaimer - Some statements in this presentation, or in conclusion to it, are forward-looking and the actual outcome may be different. In addition to the factors explicitly commented upon, the actual outcome may be affected by other factors such as macroeconomic conditions, movements in foreign exchange- and interest-rates, political risks, competitor behavior, supply- and IT-disturbances. You may not copy or use any data and information in this document except when expressly permitted by Epiroc and/or other suppliers and companies.