Flsmidth & Co. A/S (FLS) Q4 2025 Earnings Call Transcript

Good morning, everyone, and welcome to the annual report release call, and today here with me is presenting Roland Andersen, our chief financial officer, and I'm the new CEO for FL Schmidt, Toni Laaksonen. Briefly about my background, I have a 20-year industrial background from different companies, and most of that from the mining industry, and before joining the group, I was the CEO of a stock-listed company in Finland. Before the CEO position, I was with the service business line in FLS and spent like eight months over here leading the service team and now taking over the CEO position. I'm very excited to start working with the entire group across the world. Then, a few strategic highlights from last year. 2025 was the big milestone in the FLS history. One big transformation in the company was the divestment of the cement business. We became a pure-play mining supplier for technologies and services, which is a huge milestone for the whole company. Then on the other hand, at the same time we were strengthening our offering commercially both with our service business line and products, cyclones and valves. With both businesses we saw a solid Organic growth throughout the year, which was then strengthened in Q3 and Q4. Then, on the other hand, with the products business, we saw an uptick during the Q4, but otherwise, the market was pretty soft during the year and subdued, we saw certain engineering activities, but it was not a steady market as such, which we had with services and PCV. Therefore, we continue to de-risk the products business, and now we are more focused on the product side, and we are not anymore as a project supplier as such. Then, on the other hand, from the financial point of view, we had a very solid EBITDA margin, we continued to improve that compared to last year's, we hit almost 16% as a total for the full year, and then from the free cash flow point of view, excluding the M&A activities, we had a strong year, hitting 640 million DKK. So, solid financial results as such. Then, on the other hand, we introduced the share buyback program last year, which is also a big milestone for the company. It was in total 1.4 billion DKK, which is a very big commitment from the company to support the shareholder value. So, several strategic highlights throughout the year and milestones for the company. Then from the sustainability point of view, we had good success in many fronts, and to take a few highlights from the picture, I would say that we still have improvement opportunities with our safety, we are aiming for zero harm, and we still have 2.3 as an average injury rate, which is too high. We are making all the proactive actions to take the number down continuously, and we have certain global programs which we are driving to get to the zero harm level. Then on the other hand, one improvement area is definitely the scope tree, where we are doing a lot of work with our equipment and technology range to make improvements. But then the other aspects I would say that we were developing well throughout the year, and now for this year we will have a new baseline when the cement business has been divested and we are just fully focusing on the mining technologies. Then a few words on the market conditions. As mentioned about the products, the market has been subdued. We have been de-risking and focusing more on the product business instead of the full-blown big projects, and that's of course impacting us. But then on the other hand, with the services and PCV, we have been seeing stable development, and we see that that development continues this year. The commodity prices have been increasing, especially copper and gold, gold prices being very high, but then still that's not impacting on the customer decision making in the short term. Of course, the long term decision making might be impacted, but that's not meaning that they would release any large scale mining projects in the short run. The engineering activity has been very high in some countries, but of course that means that the engineering activity covers both brownfield and greenfield sites, and the majority of the activities are with the brownfield operations at the moment. The customers are, therefore, they are not sanctioning the Greenfield projects as fast as maybe people would like to see from the market point of view, and we believe that in Q4 or in 2017, we would see more action related to the project business. On the cold side, we have been seeing certain smaller projects being activated due to the high cold price, and there we see certain potential, especially with the smaller equipment deliveries, although the cold sides do not consist of major projects as such. Then deep diving into the business lines and starting from the services, the Q4 results were very strong, with service order intake up plus 14% organically compared to last year, and then revenue up plus 15% compared to 24. So very solid quarter, and there with services we were gaining backlog, which was not delivered in Q3, so Q4 was catching up with our supply chain and catching up with the backlog, which resulted in very healthy revenue level in Q4. Then, when looking at the total year, the organic growth was plus 4%, which was the normal level, I would say, in that sense, that that's something that we expect as a yearly development for the business. Revenue-wise, we were up plus 9% as a total, so healthy results from that. Revenue and order intake point of view. Growth markets were specifically in South America and Africa. Then from the margin point of view, an excellent end for the year driven by the high revenue results. We achieved more than 20% EBITDA, adjusted EBITDA margin, which is on the high end, I would say, for the service business line. So a clear uptick there and the revenue level was supporting it. From the products point of view, the year was subdued, as mentioned previously, so order intake organically declined for the full year, minus 5%. Certain uptick was visible in Q4, there we were gaining a few orders, more than in a normal quarter, but then when balancing out the quarters, the organic growth was negative. From the revenue point of view, we were declining minus 28%. Which also demonstrates that the market activity is not the highest at the moment. From the profitability point of view, good development in Q4, as we were gaining up with our deliveries and increasing our revenue, that resulted in a healthy result compared to the previous quarters, and we were on the black numbers, so this was an extremely positive quarter in that sense, but then when balancing out the full year, we were still in negative figures, so there is still room to develop on the product side. With pumps, cyclones, and valves, an excellent year from the growth point of view. Plus 12% order intake growth organically and the same with revenue. So we were driving consistently the business up and that was also helping us with the results. And we have been seeing continuous growth with the PCV business throughout the quarters. So very healthy activity over here. And of course the deliveries are smaller, focused on the mine improvements and replacements. And therefore this business has been more active during last year and this year. Also, the profitability remained at a very good level with BCV, so 25% was the entrance resulting in Q4 with our margin level, which was then a bit above compared to the previous quarters. So, on average, very good development with our margins with pumps, cyclones and valves. And then I hand over to Roland.

Thank you for that, Tony. So let's just have a quick glance of the consolidated financials revenue of a bit more than 4 billion gross profit at 34.6. And with a significant reduction in SG&A, we end up with an adjusted EBITDA margin for the group of 18%. Below the line, we decided to take an impairment charge on our deferred tax assets in Denmark. This is predominantly due to the macroeconomic and geopolitical developments around the world. And it's a pure accounting, non-cash impairment charge to our P&L. The tax losses live indefinitely and are in no shape or form lost. And when also finalizing discontinued activities in connection with the handover of our cement business, profit for that period was minus 282 Danish million. Our gross margin remained high through 2025, predominantly as a result of mix, service, and PCV business was a relatively high part of our revenue throughout the year. So, a healthy end to the year of 34.6% gross margin. SDNA cost for Q4 is 19% down on the same period last year. Both a drop in Danish Kroner, but also a reduction in SDNA as a percentage of revenue. And that indicates that we are moving forward on right-sizing our organization and moving into our new operating model. Most of the last savings have been taken in the support functions, and then we have ramped up and invested a little bit in the commercial front and both in our PCV business, but also bits and pieces in the service business. And adding all that up, a relatively high revenue quarter in Q4, healthy gross margin, SG&A at a lower level, means an 18% adjusted EBITDA margin for that quarter. This is by no means a run rate number. It's an exceptionally good quarter for us and, of course, a home run in terms of ending 2025. And the higher revenue towards the end of the year in Q4 also means that we were invoicing and had a relatively higher trade receivables level New Year's Eve. Product business line with a higher revenue were finalizing a few projects, and that means that we reduced our prepayments from customers and also a bid on work in progress. All in all means that our working capital in Q4 compared to Q3 went up by 573 million. And despite a relatively high EBITDA, that's partly offset by the optic in networking capital, leaving us with a modest cash flow from operating activities of plus 3 million Danish kroner for Q4, and the free cash flow adjusted for M&A activities was plus 70. Just a quick recap of the P&L. So 14.6 billion revenue adjusted beta margin for the year 15.9 and a modest profit for the year of 8 million Danish kroner, which reflects that we have lost a bit more than 700 million on discontinued activities. So the cement business that is now finally out of Eiffel Schmidt and also the tax impairment charge of 600 million Danish kroner. Cash flow from operating activities for the year ended just shy of a billion, roughly in line with what we had expected. Our share buyback program that we launched last year is about to come to an end. By the end of Q4, we had a leverage ratio of 0.8x. And just last night, we announced an intention to launch a new share buyback program, given we get the authorization from the AGM by the end of March. Then we intend to launch it after we have printed our Q1 result in May. And that also means that we are returning quite a fair bit to the shareholders in 2026. In 2025, ordinary dividends were 461 and a share buyback of 1.4. This year, we will propose ordinary dividend of 231 and a share buyback program of 1 billion. This year, we have introduced a new way of guiding. We're done with the transformation and no longer see the need for... for directly guiding on our revenue in terms of Danish Kroner. So we will convert to guiding on organic revenue growth. Organic means fixed currencies. And for the group, we're guiding 2026 at minus one to plus four percent organic revenue growth. And we expect to post an adjusted EBITDA margin of between 15.5 percent and 16.5 percent. A little bit of underlying flavor or assumptions to that guidance. Underlying, we expect the service business line to grow 2% to 5% organically. The product business line will decline by minus 5% to minus 15%. Sounds like a wide range, but it isn't really. It's plus minus 150 DKK or so. And that can easily happen when you execute larger product bundles or smaller projects, either because of delays on our side or changes in scope and timeline and so on on the customer side. So hence why that span. And then we expect our pumps business to post an organic growth rate of 4 to 7 percent, and that gives us the full guidance of minus 1 to 4. For those of you that like to do the reported revenue growth in Danish Kroner, we can say that with the FX effects as per Monday, 16th of February, our DKK revenue growth would be about minus 2 to plus 3% growth. On the margin side, we came out of this year at 15.9. We'll guide next year 15.5 to 16.5 percent EBITDA margin. We'll adjust for about 100 million Danish krona equal to around a percentage around it. One of our items predominantly related to our ERP implementation and principal company model. And on the other hand, as some of you recall, we are selling our former corporate headquarters. In Denmark, and that cash comes in as extraordinary other operating income in Q1, and that means an extra plus 5% that we will also adjust for, and that means when we do that, the expected reported EBITDA margin will be around 19% to 20% margin. And with that, I'll give it back for a few comments to Tony.

All right. Thanks, Roland. Excellent results, I would say, last year, and I also want to use this opportunity to thank our employees for their efforts. Great contribution for the results. And then also our customers. I want to thank them for their collaboration with us. So a good year indeed for FLS. Then a few words on this year and the way forward. So, of course, we are now in a good position, from the company point of view we have. Cash, credit limits available. Financially, we are in a strong position, which then means that we can start investing in the growth journey. So, we are looking for organic expansion opportunities actively, but on top of that, there are selective M&A cases, which we would like to explore this year, and we have been actively developing our pipeline. Through this, we want to be closer to the customers to support them even more in the future and help them to improve their operations. Then, at the same time, we continue improving our customer offering, so we are looking into the portfolio, how we can drive that forward, so that the miners can improve their productivity, reliability and sustainability by utilizing our technologies and services. Then on the other hand, it's super important that our supply chain and delivery experience is great for the customers and therefore we are continuously driving forward with our supply chain improvements, accountability within the organization, but at the same time securing that we are cost conscious when doing the exercise and securing that the cost level remains competitive throughout the organization. Through that, we want to ensure that the margin stays at the same level or even higher when moving forward based on our forecasts. And then, of course, we want to ensure that the growth journey continues from here. Then, we, of course, want to balance the investments so that we are utilizing a certain amount of money into our internal and external growth opportunities. But at the same time, we want to have the shareholder returns secured so that we have the combined financial flexibility for both. Company and the shareholder purposes. So those are the key teams when moving forward. And then, of course, we are continuing to do the strategic planning for the company, so that we have the long-term plan available also for the external markets, and based on our current expectations, we will host the Capital Markets Day in September, when we would then release the full strategy for the coming years. And now it would be time for the questions.

Thank you very much. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to a similar roster. Your first question comes from Chitrita Sinha with JPMorgan. Please go ahead.

Good morning, all, and congratulations on the new role, Tony. Thank you for taking my questions. I have three, please. Maybe firstly, if I could just start on the product margin, clearly a very strong result in the quarter. And I know there have been initiatives that have been implemented to reduce the break-even point in the business to DKK 3 billion. I guess how much of this benefit came through in the quarter and how much is left to do? I'm just trying to understand what we can expect for next year, especially as volumes will be down. Thank you.

Thank you for the question, and thanks for the congratulations. So, when looking at the quarterly figures, of course, the product's volume was high in Q4, and that was higher than maybe the normal quarter. And that was a big part of the profitability improvement. So, we still have work to do to improve the profitability level. We have taken many actions last year to improve the margin level, but still work remains to be done this year to get to the overall black figures. But the volume impact in Q4 was significant with the products and that was driving up the profitability level.

Understood. Thank you. My second question is just on, I guess, the outlook in products. Two large orders were booked in the quarter, but then you've obviously mentioned this hesitancy in customers allocating capital to these larger projects. So, I mean, what is the catalyst for these customers to make this decision? And then is it possible to increase the small, medium-sized orders, given where we are at with commodity prices? Or should we continue to expect that 400 to 700 million run rate?

Yeah, so with the projects, I would say that the engineering activities have continued active, but then, of course, the customers are thinking about their risk level when doing the investments. The greenfield cases, the bigger cases involve more risks, and that's one factor which has been like delaying those cases and delaying the sanctioning of the projects. Many of the customers, they have been seeking for improvement opportunities with their current operations and that we have been also seeing M&A activity within the minors and through the M&A, they have been improving their performance within selected sites and they have such plans in place for the future. So, we believe that... Based on the engineering activities, we would see more maybe sanctioning next year and probably in the end of the year. But in the short term, I wouldn't say that there is too much like big projects being sanctioned. Then, as mentioned in the presentation, with the cold projects, we have been seeing more activities and smaller cases. And the customers are actively seeking for improvement opportunities with their current operations and possibly some smaller mines. And of course, we are in... In those discussions, actively, and we are participating in them through all the business lines. And some of the impacts are then visible with our PCV business line, some with services, where we have upgrades and modernizations. And then, of course, this will, to a certain extent, help products. From the order intake point of view. But then, when looking at the revenue, normally it takes a bit longer for the products business revenue to come through the profit and loss statement.

Thank you very much. Final question just on capital allocation. So obviously you've spoken about this as one of the priorities for next year, but just trying to understand maybe in order in terms of what your priorities will be, given you've announced a share buyback this year, but maybe the dividend was lower than what we saw last year. Thank you.

Thank you for that one. So, obviously, our dividend policies say that we will... We distribute in dividend 30 to 50 percent of our net profits, and net profits were close to zero. So we chose a number of dividend that was slightly outside that range, and then a share buyback of one billion. And then we have an M&A pipeline that we are currently developing, and I think we expect maybe one or two of the targets in that pipeline to. to come through in 2026. That's never certain, but that's what we expect. So we have balanced sort of what we may need in terms of M&A, what we could return to shareholders, and then at the same time, thinking about that our leverage ratio can be slightly higher than the 0.8x we came out of 2025 with.

Very good. Thank you so much.

Thank you. Your next question comes from the line of Christian Enderaker with Goldman Sachs. Please go ahead.

Morning, Roland, and welcome, Tony. I want to start, and apologies for a bit of reiteration of the last question, but if we think about the X large order numbers, OE was down in organic terms quite considerably, and you had about 515 of underlying orders. I guess if we map the comments in your release and also from peers that are reported in terms of decision-making on large projects being subdued but smaller product. activity-related investments continuing. You know, that narrative, frankly, is just at odds with the Q4 numbers, which are obviously driven by large order growth. You've also seen the BHP Vicuna investment. I guess that was yesterday or earlier this week. I guess, what are we missing here in terms of that dislocation? Because the numbers tell a different story to the narrative.

Yeah, maybe some clarification on that one. So if you look into our numbers last year, there was also maybe certain shift between the quarters. So Q2, Q3 were not that strong with the products. And then for certain reasons, some of the customers wanted to just sign the deals just before the year end. So, some of the signings were postponed throughout the year, and we were seeing pretty low quarters, and then... The order intake went up in Q4 because of the fact that the customers were signing those delayed cases. They just wanted to finish the year so that they have a clear way forward. So, if you then balance out the order intake between the quarters, that gives maybe a more stable and clear impression on the situation.

Thank you, Tony. Maybe secondly, on the exit margin in products in the fourth quarter, you'd said at the three key results that the segment would likely be loss-making until we were exiting 2026. Clearly, you're running well ahead of that. I guess curious about the phasing of profitability through the quarter. I appreciate you had a good delivery period in 4Q25. Should we think about there being an implied volume threshold for being breakeven within products? How do we think about the phasing in 2026?

Thank you for that, Christian. I think we are not really running ahead of ourselves, I think. I understand that Q4 looks like a significant home run, but we always said it's volatile, both the order intake, but really also the execution of the backlog. And a few things were finalized in Q4, and that meant a higher revenue and the contribution margin, the gross profit was throwing through to the bottom line. So our Q3 was not particularly great, as we can all remember. And the, I won't say restructuring, but the adjustments we do in the product business line continue. And we still expect to spend most of this year doing that so that the product business line around a billion, three billion in revenue, 2.83 billion, needs to be break even on a run rate basis in Q4 next year. So that's still the thinking. There has been no change in that. And yeah, so that's how it is.

And maybe finally, as we think about the order intake, but maybe also the revenue delivery, how is pricing developing, and what are your expectations for the year ahead?

Yeah, so thanks for that. So from the pricing point of view, I would say that the market remains at the stable level. So the stable development, which we are seeing from the... From the sales development perspective with the PCV, with our pump cycles and wells, and with services, similar development is visible in pricing, so we are not seeing any major fluctuation due to the material costs or so on, so pretty stable development there due to the activity level.

Thank you, Johnny. Thank you. Your next question comes from Klaus Almer with Nordea. Please go ahead.

Thank you. Yeah, and also from my side, first and foremost, a very warm welcome to you, Tony. I have two questions, and the first one is also about the order intake in Q4. You said that, you know, VQ2, Q3, and then a lot of that came in Q4 instead. It's also a negative read into Q126, so your pipeline has more or less been used, and you need Q126 to build a new pipeline. That would be the first one.

I would say that that's not the case in this situation, so in many industries, we are seeing similar development that the customers are utilizing their capex budget, which they have for the year in Q4, and then that means in several cases that there's more activity, and that was also visible in our figures. Quite often there is some sort of an uptick with the Q4 figures and that's normal in many businesses. We didn't like... Front load in this case, anything for Q4, so we should see pretty stable development in Q1.

Sounds great. And then a second question regarding the order intake, and compared to your internal, let's call it bonus KPIs, order intake, missed expectations set out in the start of 2025. Was that broad-based, or was it products, or where did you see the miss?

Yeah, so I think the board had high expectations, Tomiko and myself, so that target was set pretty high, and then it was set in Danish Kroner, and so we have had considerable FX headwind, and I understand, Klaus, you read the magic pace in the remuneration committee, which is where you pick that up, so that's the reason.

And then just a final question regarding your 2026 guidance, this, you know, you could call it broad revenue growth guidance or five percentage points, but the margin is only one percentage point. So is that really the possible difference between ending in the lower end of the revenue growth guidance?

Yeah, Klaus, so there's only one answer to that, and that is yes, Wyatt, but we need, I was trying to explain that, we need a little bit of a band in the product business line, because execution can swing a bit month by month, queue by queue. Due to our own way of executing, but also very much due to the customer's decisions to either change or delay or re-scope or, you know, things will happen. Then I think both in POMP's business and also in our service business line, we have a number of initiatives coming up. And we are actually a little uncertain, you know, how fast can we make the rubber hit the ground, so to speak. Pumps have done a lot of good jobs, a very good job in 2025, and that can't continue. So, you know, we are looking at the whole thing for the pump business and saying 4 to 7. I think that's... That's also, even by comparing to Pearson and so on, a good ambition. And then I let Tony maybe comment a little bit on the service business line, where we are closer to the same level as we saw in 2025.

Absolutely so. The range is now between two to five percent. Of course, with services, our baseline is a bit higher than with the pumps. And then it means that in percentages, it gets more difficult to grow the business faster. But then in DKK, of course, the growth is high, even if we reach like a four percent level as like last year. So, the comparable, let's say, level from last year is the full year figure, about 4%, and based on that, we see that similar development would happen this year within the range of 2-5%. And we have a solid plan in place that how to make it happen by using our resources and investments.

Sounds great. Thank you so much for the answers.

Thank you. The next question comes from Alex Jones with Bank of America. Please go ahead.

Great. Good morning. Thanks for taking my questions. Two, if I can. Maybe first, Tony, as you step into the CEO role and based on your experience at FLS for the past eight months, could you outline a little bit where you'd like to put a particular focus as you step up on improvement or other efforts and any changes of emphasis you'd already like to highlight for us at this early stage? Thank you.

Yeah, thanks for that. So, one activity, of course, which is visible in the plans and which is also... Closely related to my background is M&A, so I have been doing a lot of M&A activities in the past in my previous roles, and maybe that's one flavor which I'm bringing now in, and that's of course then part of the journey this year, and will be then part of the plan which we will then release as part of the Capital Markets Day. So that's definitely one focus area. And now the transition of the company into a pure play mining allows us to do that. We are in a financially healthy position, and we have made the divestments, and now there's the timing. The timing is right now to make the M&A activities active and start executing them. So, therefore, that will be one big part, and then, of course, I have certain products background from the past, and one part of our journey needs to be that we get the products business to the black figures, and, of course, I will be working with our products business line team to make that happen and supporting them.

Excellent. Second question to follow up on the M&A, you talked about one to two targets potentially converting this year. Are there particular areas of the business where you're seeing opportunities or progress on those targets, or is it really broad across the different areas you previously highlighted?

So, at the moment, we are screening the targets, I would say, across the business lines, so all business lines are active and evaluating opportunities from the marketplace, and then we have quite many opportunities in the pipeline in different phases, and based on the pipeline activity, We assume that a couple of cases could land this year, but as Roland mentioned previously, of course, there is uncertainty always with the M&A cases, but the activity level is rather good, I would say, and based on that, we believe that some cases will take place by the end of the year.

Thank you. Your next question comes from the line of Lars Tophol with B&B Carnegie. Please go ahead.

Thanks, and also from my side, welcome, Tony. Looking forward. A couple of questions from me also. So, Roland, you made some comments on the network and capital and certain of the moving parts being affected by... The high revenue in Q4. I wonder if you can give some outlook on the expected network and capital development in 2026.

Yeah, thank you. Thank you for that, Lars. So how we see it play out is, of course, Q1 will be an aggressive collection month. So that's one thing. And then, secondly, both the service business line, but also the pump business, have plans to build up, in a disciplined way, inventories as we move forward. So, that's two opposite moving parts in the network and capital. Work in progress and prepayment for customers are a little bit depending on... When, how we get orders in and how they are structured and so on. But I think guidance-wise, you should expect that networking capital is at a new level now around the 2.4 billion as we move through 2026.

Okay, and then I have a question about CapEx guidance.

Yeah, that's a good one, Lars. So, you know, internally, we are trying to lower the level a little bit, but, you know, you should expect 2% to 3% of revenue in CapEx.

That is very clear. Then I had a question to the service order intake in Q4, because it's in eight quarters. And of course, I know there's also volatility here, but I wonder what's driving it. Is it new customers? Is it increased scope on existing? Service contracts. I know what you put into the order and take is the expected revenue generated on a contract in the next 12 months. So I wondered some color on that and maybe if you could also comment on whether this improvement is a step change or just a blip. Thanks.

Yeah, so as discussed previously in the call, We would still continue to highlight the fact that it was just an individual quarter, where we saw the jump, and that there was transitioning of the orders between the quarters, that's for sure, and then we received a bit more bookings due to the year-end activities, which the customers were having, and then, of course, When the average level is calculated, that's then a balanced view and around 2.2 billion. So, again, we would highlight the fact that it's good to compare. The average level to our forecasts for this year and not looking at the individual quarter because especially the bigger project cases might go back and forth between the quarters and there's uncertainty with them and that the bookings are not that. A clear and stable as with the service business. Then on the other hand, we're looking at the service side of it with the orders. There we might have some individual like a bigger upgrade. Orders, modernization orders, which might also cause some fluctuation between the quarters. So the most stable business as such is definitely the PCV, the bumps business, where the order intake is at the stable level and has been growing quarter by quarter. But all this fluctuation caused by the bigger cases, bigger modernizations, upgrades. That's then sometimes visible, especially in the year end.

Then a final question, if I may. I don't know to what extent you can answer it, but Cascabel made a revised feasibility study, of course, ahead of that asset being traded just at the end of last year. I know in the original feasibility study, F.L. Smith was listed as supplier of... All the equipment for the concentrator. Is that also the case in the revised outcome?

I think we can't comment on that, Lars. We can't comment on that.

That's fair enough. I had to try to ask. Thanks a lot, guys.

Thank you. Your next question comes from the line of Christian Tornow with SCB. Please go ahead.

Yes, thank you. A couple of questions from my side as well. So, first question on the SG&A cost. If we look at SG&A cost before transformation and separation cost, it's been fairly stable for the past three quarters. Should we expect... Is this run rate going forward as well, or is there potential for another leg down on the SDN?

Yeah, so thank you for that, Christian. I think we should expect a bit further cost out, but the last bits and pieces will come a bit slower. So towards the end of this year, then we're done.

Okay, so it will take a slight decline throughout the year, is what you think?

Yeah, a slight one, yes.

The second question is just on your amortizations in the quarter. You are writing down projects no longer in use. Can you elaborate on what these projects were?

That's a little bit of a cleanup. So we had different IT projects and so on. So in connection with the SDNA reductions we have done, there has been bits and pieces in the balance sheet also that we are writing down. So it's a small stuff, clean up type of thing.

And then just my last question. So previously, Roland, you have been kind to help us a bit on your cash flow from operations expectations. So where do you roughly expect that for 26?

So roughly the cash flow from operations, you know, we'd say between 700 up to a billion. That's a good starting point.

Next question comes from Kasper Blom with Tansk Bank. Please go ahead.

Thanks a lot, and also welcome, Tony, from my side. Most of my questions have been answered, but just one left here regarding the impairment on the tax asset. Maybe one for you, Roland. Could these 600 million that you impair on the tax asset... Can you talk a bit about to what degree this is due to a lower expectation of earnings the next five years, or is it more due to a lower expectation of being able to transfer tax payments to Denmark? And as a second to that one, if you could talk a little bit about your journey on bringing down your tax rate over the coming years.

Thanks, Kasper. So it's a number of things, right? So first of all, Of course, the macroeconomic and geopolitical uncertainty. And then secondly, it's also so that the European Stock Market Authority have actually this year sort of emphasized that we should double-click on the usability of our tax assets. So we have done that. And then, thirdly, we internally are moving or redirecting our principal company a little bit because U.S. is currently imposing tariffs on everything that comes into U.S. So if we are telling it via Denmark and then over to U.S., it may not be the smartest thing to do. So for a few operational reasons, things are being slightly delayed and combination with the authorities sort of. What shall I say? Indication that it will be a good opportunity to revisit this. We have taken the decision to take this impairment now. Our plans otherwise, ERP, principal company model, and so on, are moving forward. Our ETR will continue to go down as we have expected, and we still expect it to be below 30% in 27 and onwards, so there's no change to that. And then, of course, this is an accounting impairment. The underlying tax assets or deficits live forever. They are eternal, and there's no cash impact to this one.

Understood. Just to be crystal clear, can you sort of confirm that the tax asset impairment is not related to you having lower expectations of activity for the next five years?

Confirmed, yes. Thank you.

Thank you. Your next question comes from William Mackey with Capital Chevrolet. Please go ahead.

Yeah, good morning to you all. Welcome, Tony. Thank you for making the time. As per the last comment, I think you've pretty much ticked every box on my Q&A list, maybe with the exception of... So organic growth drivers, as you move the business to focus on growth and away from transformation, you've touched a little on inorganic and stepping up the M&A machine. But when you look across the business, I think, you know, when I look at your service growth target for this year, it doesn't look very ambitious if I incorporate some pricing assumption. So maybe more detail on how you build up the organic growth assumption there, similar for pumped cyclones valves. And perhaps overall, how do you see your future prioritization of corporate resource to drive the organic growth? Thank you. All right. Thanks for that, Will.

From the service point of view, I would comment that the major difference compared to PCV, our pumps, cyclones and wells, is that the service business line consists of a different mix of activities. Like I said, we have upgrades, modernizations over there, site services, spare parts, consumables and so on. So, it might be so that some of them are growing at a bit, let's say, faster rate than the others, and then the mix is around the forecast, which we were providing out. Like mentioned in the call, with the upgrades, we are seeing much more like fluctuation. They are more like a product business, and therefore this impact, of course, needs to be taken into account. Then, as you have been seeing, we have been taking down and divesting certain businesses and de-scaling the products side and de-risking it. So, of course, that's to some extent impacting on certain site services, which we are not doing anymore. So, when taking all these aspects into account, we see this stable growth continuing in line with last year, and the average should be very much in line with them. With the last year's figure and more details, of course, about the growth plans we will provide in the CMD presentations then later on this year. But, of course, in general, I can say that this year we are doing resourcing. Facility investments and so on, which will then help the service business to be closer to the customer and to be faster with our service support.

Thank you. The next question comes from David Farrell with Jeffries. Please go ahead.

Hi there. Hopefully you can hear me. My first question is around the ERP implementation that you've highlighted for this year, 100 million Danish kroner cost. Is there any risk to your operational delivery of that ERP system being implemented this year? Clearly, we've seen it across a number of companies where ERP implementation has created a knock-on effect in terms of their capability to deliver.

I think that our approach is that we go very focused ahead, and we built the pilot implementation, we test it out before we move on to the next one. So there may be disruptions here and there, but it will never impact the full business line. Then we'll find out, and then we back off and use whatever we have until it's fixed. So it's not the intention to do a massive rollout, and we would also be spending more than 100 million per year if we rolled out an entire region in one big bang and so on. So we are moving forward a bit more controlled, exactly, to avoid any operational disruptions.

Okay. And then a follow-up question, just in terms of your R&D spend, that looks to have fallen from 273 million Danish krona down to 184. Are you just being more focused in terms of where you're spending R&D now?

Yeah, so of course we continue developing our products and services. Some of the work is happening actually as part of the customer deliveries. So that's not classified as R&D, which is of course impacting on the budget. Then on the other hand, as you have been seeing, we have been divesting quite many, many businesses. That's also impacting on our R&D budget when moving forward. And then what we have been found like very useful is that when we do this collaboration with the customers, In the customer interface and then developing the service solutions or the technologies in connection with them, not as a separate R&D project, that has been very powerful. So a lot of cost is then allocated also to the projects and service deliveries, which we are then providing to our customer base. So maybe that explains some of the differences. Well, one example is the major Indian project, which we are doing. There we are operating this way when developing the solution to the end customer.

That's very clear. Thank you.

Next question comes from Klaus Kjell with Nycredit. Please go ahead.

Yeah, hello, gentlemen, Klaus Kiel from New Credit. And yeah, first of all, also welcome to you, Tony, and welcome to FLS and Denmark. And then a couple of perhaps boring financial questions to Roland. First of all, if we look at the discontinued operations, there's a big loss here in Q4 and also for the full year due to the divestment of cement. But just to be clear, is it reasonable to expect? The deadline in 2006.

Are you there, Klaus? Now I can hear you. Can you hear me? Okay. Thank you for that, Klaus. I'll just rephrase the question as I think I heard it. So you're asking whether the laws on discontinued business means that we are now done with that and there won't be any noise in the numbers in 2026. Is that the question?

Yes.

So that's the intention. That's the intention. So we have provided for what we think is going to be the final settlement with the buyer. And we have also provided for the so-called transfer service agreement we have with the supplier in terms of running the IT platform until they can take over and so on. And that is expected to be. Roughly what we need. If there are small bits and pieces here, then most likely we'll take it in the continued business and it won't be disruptive in any shape or form. That's the intention.

Then you mentioned that you would expect a tax rate, effective tax rate, below 30% in 27. Do you have any comments about the tax rate here in 26?

No. No. I'm referring to that. But last year was 34, and then we have 33, right? And then it's coming down to below 30 in 27. So let's see where we go. They won't be below 30 in 26.

Thank you very much.

Thank you. Your next follow-up question comes from the line of Lars Topholm with DNB Carnegie. Please go ahead.

Yes, a very quick one. Sir Roland, you talked about cash flow from operations this year of 700 million to a billion. Just to make clear, does that include the gain from the sale of the head office?

No, no. It doesn't.

Okay.

Very clear.

Thank you. No further questions. I would like to turn the conference back over to management for any closing remarks.

All right. Thanks for everyone for joining the call. It was a pleasure having you with us today. A few closing remarks from our perspective. So, as mentioned, we have a very solid year behind us. The company has been doing several strategic improvements, and based on them, we are now in a very good position to start the growth journey in the company's new phase of working. So now entering in this year, we have a very solid chance to gain more business, especially with our PCV. Service business line, and then get to the black numbers with our products business. So all in all, a good situation for FLS, and we are looking for the growth journey. Thank you for joining us.