Flowserve Corporation Price & Performance (FLS)

Mining product market continues to be weak. But in the weak market, we are getting the product orders and technology orders that we want. We continued improving our profitability and are posting record profitability in many areas. [indiscernible] we are in the middle of the sale process. And we are happy with the order intake for services which is significant for the process. We continue to progress in all our Science Waste targets. We're also winding down The non core activities and discontinued reporting that segment going forward. And that is well ahead of the original plan of winding it down in three years. We are one year ahead of this schedule. I pick up one area from sustainability, which is most important to me and to our customers, it is safety. We are not yet meeting the targets what we have for safety improved between '23 and twenty four has been improvement but that continues to be our focus area going forward. And that is the most important KPI on this chart for me and to our customers. Strong quarter for the order intake in Services. We noted in the last quarter that the quarter three this year was slightly weaker But then if you look at the average of the four quarters for the year, we are at the level that we planned in the beginning of the year.

Very happy with the service order intake. In products, continue to win critical product orders that we want to win, especially in the HPCR space. That has been big success for the year. If you look at the order intake for the last quarter, it's just shy of 4,000,000,000 for me that is a good level. And also mix is important to highlight that if you look ahead, mix between service And products, 73% Optimal for us would be 65% to €70 but that of course depends on the status of the capital market. Important to note that we are back on track in service revenue We had a couple of quarters that we were a little bit behind and now the revenue for the service SEK 2,800,000,000.0 is at good level. So we are happy with that one. And then product revenues deliveries reflect basically backlog and timing of the backlog. But I'm especially happy about service revenues in this page. Adjusted EBITDA margin of 40% for quarter four, That's for the organization and for myself. It's a tremendous result. Very happy about that one. And then if you look at underneath reported margin EBITDA improvement year on year, about four percentage points.

You don't often see that fast improvement in profitability. So we are really happy with this result. And it's reflecting transition that we do in the company It is like a train that continues nice steady continuous improvement. Have done it so far and continue to do so in the future as well. Few highlights for 70 service order intake, six fifty, 700 anywhere, there are parts we are happy. Then it shows that it's year on year like for like small growth or steady service business a good profitability. At the same time, we've done portfolio choices for [indiscernible] cement that we don't take projects. We focus on service and products only. And now it's also reflective in the revenues. So the revenues of the products are going down quite fast. By choice. We don't want to do loss making bad business in cement. The level of revenues is good. And also mix is getting better. It's 66% service but it continues to improve going forward. Service is the key number here to look at both in orders and revenues because of the sale process. And also happy to report that Cement has met the long term EBITDA target that we announced in the Capital Market Day and we are there quite early.

And there was a little bit of lack of confidence after the capital market that we could ever reach 8% EBITDA in seventh now we've done it in two years. [indiscernible] Also one area we're extremely proud is that we're out of the NCA at record time. It has been internally and externally painful process but now we are out of it and we are moving the remaining tiny backlog to the mining products, mining capital business. [indiscernible] We have few people remaining, thus dealing with the backlog related matters. Fully provided for but for all intents and purposes, we are closing down the segment. And that is our second achievement from the organization. Then I hand over to Roland for more detailed numbers. Thank you for that, Mikko. Having a look at the quarter's consolidated financial performance, a revenue of €5,330,000,000 with a gross profit margin of 33.7%. SG and A of a bit more than SEK 1,000,000,000 and an adjusted EBITDA margin of 12.1%. And after tax, the financial cost of profit and loss for the group of €360,000,000 If we have a look at the gross margin, I think I'll just spend two minutes explaining reclassification we have done.

So we have decided to reclassify IT related costs [indiscernible] SG and A to gross profit. And the reason why we're doing it is that it follows typically the staff related its staff related IT costs And that means that we get swings in the SG and A as and when Blue Collars move in and out of the P and L. And secondly, it belongs more rightfully on the production costs. The way we have done it we have reclassified in twenty twenty three, EUR127 million of IT costs from SG and A to gross profit, and we have put it all in Q4 twenty twenty three. So that's negatively impacted. By this reclassification. Similarly, we have reclassified 100 DKK127 million for the year 2024. '4, so negatively impacting gross margin in Q4. It's a pure cure incidence that is one hundred and twenty seven million for both years. So if we look at the gross profit hereafter, it's basically like for like that the gross profit from Q4 last year to Q4 this year is increasing significantly. And also Q on Q, Q3 to is improving despite of the reclassification. Gross profit is increasing both in Mining and Cement and even NCA had positive gross profit this time as we're closing out the last business pieces.

Before virtually shutting that The segment [indiscernible] And that moves us to SG and A. Where we have the same pre classification. This is obviously negatively impacting this sorry, positively impacting this one as out and moved to production cost. And hereafter, we have a €1,885,000,000 in €51,000,000 of those are called out as transformation and separation costs. And then we have restructuring provisions in that quarter also predominantly severance in both Mining and Cement, of about DKK200 million. Gruberbiette, as Mikko also went over combining it obviously also moves forward to an adjusted EBITDA of 12.1% and reported group EBITDA margin of 11.1 And there on the right hand side, our traditional margin bridge. So taking integration costs out from last year brings us to an adjusted group of 9.2 Then we have less revenue now in CA out and capital revenue down in mining and a bit also in cement. Gross margin significantly improved and then negative flow for in SG and A and others. Leaves us with adjusted group EBITDA margin of 12.1% and then we have transformation and separation cost of 1% and that gives us a group EBITDA margin 11.1%. Net working capital slightly better in Q4 than Q3, predominantly driven by significant trade receivables collections.

And then a few other bits and pieces moving work in progress and offset by trade payables increase. [indiscernible] If we then look at the combined cash flow, that gives us a CFFO of June and deducting CFFI including disposals of €222,000,000 leaves us with a free cash flow the quarter of $422,000,000. That we spent on reducing our debt and that means that we come out of the year with a leverage ratio of 0.4x and an IBT of $847,000,000 Then we are ready with new full year guidance for the year 2025. And we expect mining to deliver revenue of about €15,000,000,000 plus minus. And an adjusted EBITDA margin of 13.5% to 14%. [indiscernible] we'll be calling out one off cost to transformation and separation of about €2,000,000 as one off cost for the full year 2025. In Cement, we will be guiding revenue of about SEK 4,000,000,000 and an adjusted EBITDA margin of SEK 9,000,000,000 to SEK 9.5 And excluding DKK50 million transformation and separation costs. And adding that up, group will deliver revenue of about SEK 19,000,000,000 and adjusted EBITDA margin of 12.5% to 13%.

And reported EBITDA margin of 11% to 11.5 Our transformation work streams are progressing quite well. We still have some simplification to do and the operating model also needs to fall in place during the course of 2025 moving service centers and a few other adjustments will continue to follow that closely. Commercial investments and risk management and derisking is is basically done. It's not like we won't do it anymore, but we will stop reporting on it as a strategic initiative. This is now fully ingrained as part of doing business in FLSmidth. And similarly for Cement Risk Management and Derisking, is fully implemented and also the simplification and the operating model is roughly done. So we will stop reporting on that And that means that this follow-up slide here will be a bit simpler as we we move forward. NCA is virtually done. And will exit the P and L as from '25 and onwards most likely. And thereby back to Mikko.

Just highlighting some of the key priorities for 2025. Just as a reminder on the map, world we launched in the Capital Market Day where we define the core [indiscernible] value over volume and so forth. I hope that this is the last year of our major transformation. Of course, everything is transformation in a bit when you are pushing forward. But hopefully, the most of the big tickets items are done this year and completed. And therefore, we are creating foundation for future growth.

And why do I say a foundation? I said in the beginning, we make no compromises on order intake quality and quality of the earnings. There will be no nasties when the growth comes up. Comes back from the backlog. So we want to have a [indiscernible] good backlog to execute when the market is back. One of the focus areas today is that we see lots of volatility in the supply chain. And we still have can improve the supply chain a lot. Operating in all key supply markets And of course geopolitics is creating new dynamics for that supply chain market And sometimes there are also opportunities that we can take advantage of in this in this instance. So we continue to optimize procurement, supplies and logistics for improved efficiency and reliability. We're also looking to expand our market presence We still have a few white spots in the market that we don't [indiscernible] and then we will be driving sales excellence. How we deepen customer intimacy and create strong relationships will have some ideas that we believe that nobody else is doing in the market that we can take take us much closer to the customers' business planning customers' operations than typically is done.

So we are launching those initiatives during the year. And we continue to try product innovation and first market references. And that's why, for example, the win in India for the Lloyds HPTR was particularly important because that is the biggest, largest modern HPGR in the market. And then it's setting us apart from anybody else in the market. So we are by far the largest player in HPCR market and at the same time we have largest ones that will be in operation in India. We continue to transform the company. One Mining, which is simplifying the way we're doing business, simplifying operations at the same time looking at principal company model. And we talked earlier about new corporate model means that we will have a lean and lean and mid head office model And then most of the resources are close to customers. Part of the business lines and regions. Are then in shared services setup in our global business centers, in Mexico, Romania and India. And that will generate us efficiency not only cost savings, but efficiency and scalability when the market will come back. And we are, of course, middle of the disposal of the cement asset.

And then we go to the Q and A. We will now begin the question and answer session. First question is from Christian Tor Tono, Feb. Please go ahead.

Yes.

Thank you. A couple of questions from my side. So maybe just first of all, on your market view, has anything changed I recall, Niko, you've said that you sort of hope mining product orders could start to pick up towards the end of the year the beginning of next year. Would that still be your view?

My view is similar to what we discussed last [indiscernible] the level activity $25,000,000 is going to be very low. So we see no improvement in '25. So it's at historically very low level of investment. But we are hoping to pick up in 2026 And we refer to the level of activity in EPCMs regarding study work but we don't see those activities turning into projects in 2025. So of course, there is activity in 2025, but [indiscernible] But it's going to be another slow year for capital business. Service is stable. And And but there's a price pressure around capital and service So in heavy capital equipment, we will see deflation in absolute prices means that when we are getting savings in procurement, those savings will be handed over to the customer in form of the absolute price reduction. So we've seen deflation in heavy capital equipment in 2024 and I think we continue to see that in 2025. So the CapEx capital equipment prices are going down in absolute terms. Which are then compensated by the procurement savings.

Understood. Second question is on the transformation and separation costs of €200,000,000 you expect for mining in 2025. Can you maybe just elaborate exactly what this goes to and most specifically, do you expect any of such cost in 2026 as well? Yes.

So there will thank you, Christian.

There will be cost related still to close a few sites we have out there, legal entities and so on. Not 100% done with the carve out of cement. And also the move from from certain of our countries to global business centers will require transformational cost in nature. In terms of our One Mining There will be cost that we will capitalize there will be a a part of this one off that also goes to that And there will also be some in 2026, whether we call it out or not, that we have not decided [indiscernible] [indiscernible] even if we call it out, are still having our long term target of 13% to 15% as in a reported EBITDA number.

Understood. Quite clear. And then if I may, just the very last one here. This reclassification of the IT cost, why do you do the reclassification in Q4? I'm just thinking ahead what we get Q1 numbers, when we then look at SG and A for Mining where it's reclassified in Q1 twenty twenty five and not reclassified in Q1? Yes. So we will do like for like from Q1 and onwards When you do a reclassification, there's also some audit requirements. I cannot just do a quarter of it and then reopen historical quarters. So we had to do it the way we did it. And I appreciate it's not super pretty, but from Q1, we will make sure we do like for like comparisons. And for your forward looking analytics and so on, you just use the 127 divided by four per quarter. That is very easy. Excellent. That's all from me. Thank you.

Next question is from Claus Almer Norte. Please go ahead.

Thank you. Yes, also a few questions from my side. But first of all, congratulations with a very strong performance in 2024 and not least in Q4. You mentioned this divestment of cement that you wouldn't give a lot of color, but could you possible say a little bit about timing? Is it first half? Is it second half? Is it dragging out? That would be very helpful. If you some more details. That was the first one. Thank you for that, Claus.

So as Mikko says, the cement process, we're in the middle of of selling the cement. We're in the middle of the process. And I think politely, we will say that we don't have any more comments to that for now. So as soon as we have news, we will disclose it to the stock exchange.

Fair enough. Hopefully, you're not in the middle, but in the end of the process, Hopefully, exactly. I think it's important to say we will sell the cement business. So it's still intention to sell the cement business. Perfect. And going to the mining guidance, to what degree have you included a impact from the added sales people and also the investments in service centers you announced yesterday? That's so in the guidance, it's fully included.

So I wanted to include this impact Yes. Impact have been included. These service centers are not that heavy on manpower. We started service centers up in '24 and the ones we are now These are not huge factories with hundreds and hundreds of employees. But running cost have been included in guidance for 2025.

Where Klaus, we've been adding people is pump cycles of valves businesses, people to the front end, and we see the payback from that investment in 2024. So we are increasing our markets in pumps And how we measure the market share is that conversions how many competitors we converting out and what's the kind of competition balance. So we see see actually that investment left front end is paying off.

I was also more thinking about the revenue impact. I know there will be some costs, but do you also see a revenue impact already in 2025? That was actually the question.

We see some. That's not a lot.

That will come gradually.

And then just my final question, cash flow, and I know you don't guide on cash flow, but in past calls, you have given some color to what we should expect and given the guidance for €25,000,000 for the mining, cash flow should be pretty solid. So could you give a bit help on what we should expect for 2025?

Yes. So we expect to improve CFFO in 2025 over €24,000,000,000 but you should not expect it to come higher than $1,000,000,000 Okay. That's very clear. Thank you. That was all from my side. Thanks.

Next question Please go ahead.

Yes. Good morning, Mikko, Roland. Thank you you for the time. First question relates to mining service. And maybe conceptual. But when we think about your product categories, you've called out your focus on building pump and valves and GPM RG capture rates But how would you describe your capture rates across the service business in relation to the installed base? And what is the up side opportunity across some of those categories? I'll follow-up with the second one.

So the capture rates are highest in our pumps business because we have a design in the pumps, which is a little bit more difficult to copy. So it's extremely high. In pumps. So oversimplifying, if we get the pump aftermarket or service as a result. In HPGR, it has been improving. Dusenkrupp before acquisition lost some business to third parties. And we've been gradually steadily, gradually winning it back. We've signed kind of long term HPCR service contracts in the quarter four, for example, four, five years with an important customer And it's still too low but we see significant recovery in HPCR aftermarket, but of course, we have a good success in the equipment sales as well. So that continues to be one of our focus areas.

Thank you. Staying with Mining, the second question relates to the OE business. You talked about a rising level of project preparation activity. Maybe you could speak to which parts of the world are beginning to see a pickup around perhaps critical mineral strategies or copper, for example. And then more specifically, you called out deflation in heavy cap capital equipment. I mean, why is that deflation? Is that something to do with an increased competitive tension? Or is there a separate factor?

So where we most likely see the pickup first will be in copper. And expanding existing operations. We see very little greenfield activity And of course, greenfield is dependent on licensing and we don't know yet what's going to happen in U. S. But it's the area which will pick up soon is this copper expansions South America and then a few important copper assets elsewhere. So that's where we see the quickest recovery Of course, gold prices is record high. But of course, when the price is super high, then all the gold producers don't want to interrupt their operations. They just want to get everything out what they can as long as it's kind of for this 2,900 or so So it's but Kopi South America will be first one to pick up and then others will follow later. And also that copper price has been good or it was Okay last year, but we see some pickup in the beginning of the year course, if that continues throughout the year, that's a kind of support the sentiment to kind of release some of the work or turn studies into projects. And deflation is It has to do with the when I talk about capital, when I talk about heavy capital that with the large castings and where the material cost is very significant.

So we've seen intense competition in the market. And in order to kind of compete successfully, we've been looking at different sources, developing new suppliers. So as a result, the market has seen reduction in heavy capital equipment prices but we've been able to compensate that in our savings, in our procurement. But of course, in the down market, you get a saving it goes fully to the customers that are making higher margins. So obviously, margins kind of stable small downside in Heavy Capital Equipment but the absolute prices, there's a deflation in the market.

Thank you very much, Mikko. The final one, in this fast changing world with regard to tariffs, I just wonder if you can speak to how the operational structure [indiscernible] border flows, particularly in North America, or The USA. And what if at all you are exposed to in the event that some of these worst case scenarios unfold?

We run the scenarios and I think if I look at mining supply market, I think our position is quite good because we do have a significant operations inside United States. And we also have a sourcing options for components from other markets. So it's very dynamic market. Nobody knows what's going to happen in one week's of time, but we've done all the All the analytics where we saw components and products from and we have alternatives. So think and also that we have a significant manufacturing operation inside U. S. For pumps and cyclones.

We have operation of midliners inside The United States. So we do have actually operations inside U. S. And therefore everybody will be impacted but I think in relative terms, we should be quite okay And of course, in In kind of where the product lines are also focused, most of our product lines are based in South West City, United States. So we actually quite U. S.-centric in our mining operations.

Next question is from [indiscernible] Please go ahead. Hi, everyone. Thank you for taking my question. My first one is on the mining OE side. Just on the base equipment level. Previously, I think it was said that the run rate that we can expect is about 500,000,000 to 800,000,000 DKK. Obviously in Q4, it was slightly better than this. So with your with the commentary that you've given for 2025, what kind of run rate should we expect for base OE levels?

Yes. So I think we're maintaining what we said also for 'twenty four. So base level €500,000,000 to €800,000,000 and then Bigger orders come when they come, that's a bit more erratic.

Okay. Thank you so much. And my second question is on provisions. I know this time last year you were guiding to provisions coming down both on the other [indiscernible] How should we model this going forward into 2025 from here?

Yes. So I think warranty is a relatively stable thing, right? Some Some slides out, some comes in. On restructuring, obviously, we have taken restructuring charges in Q3 and especially in Q4. And they should be expected to turn to cash over the next twelve months or so.

These are predominantly severance charges both in cement, but predominantly also in mining. So they will turn to cash. And theoretically, that should go to zero. So when we stop restructuring dramatically, that would be a zero thing Then the other bucket that is things from the NCA, things from we inherited from TK and so on. And some of that will have to be reduced over the next two to three years and what we said earlier said that there should be cut in half. And that will still be my best guess over the next two to three years. That's a hard one to to predict because that has to do when we do the settlements on individual projects. There's a few legal cases as well as bits and pieces. And that we solve as we go. There hasn't been a lot of out [indiscernible] So I think over the next couple of years, we will probably expect a bit more of that Thank you very much.

Next question is from Lars Topham Carnegie Investment Bank. Please go ahead. Yes, hello. Also congrats with solid quarter, very well done. I have a couple of questions. Firstly, I'm trying to figure out the underlying run rate of OpEx in [indiscernible] And of course, I understand now you booked €721,000,000 as OpEx in Q4. And then I add the €110,000,000 and deduct €28,000,000 to get what should we say a number where reclassification of cost is sort of probably annualized So that's a run rate of $8.00 €3,000,000 But then as you say, there has been significant provisions in Q4 that you have charged. I just wonder if you can specify the level of provisions net in mining in Q4 so we can get the underlying cost run rate That was question number one.

So we're doing this [indiscernible] in Q4 on group level, right? And the majority of that is mining. There's not an exact number for that, but the majority of that is mining. And I think it's a difficult one to break understand what you want to do last So we have provided a lot of severance. That means that certain people will leave over the next three to six months. So, expectedly, SG and A will start to come down Q by Q as we move forward. On the other hand, Q4 is a little bit of a seasonal low. SG and A bonuses and other stuff comes out in in Q1 and a bit also in Q2. So that will be slightly higher. So all in all, run rate will start to come down over the course of 2025. That's what I'm going to give you, right? And also, Also, we are guiding towards the long term targets next year We're also guiding on the gross profit, and that means that the residual that I think you call OpEx will lead you to 13% to 15% Re boarded [indiscernible] when cement is out, I think we have a better visibility for stranded cost as well because we simply don't know it at that time because when we have a buyer, then we have a service level agreements and they cover part of the cost of it.

We simply don't have the exact number for the stranded cost at the point of 70 parts yet.

But what I'm trying to understand is also the guidance because if you have 50 EUR15 billion in revenue with 32% gross margin, let's say that's a gross profit of 4.8%. You guide an adjusted EBITDA of 2% to 2.1% sort of in round numbers. And that means your cost run rate should be around €700,000,000 But if you have significant provisions in 2024, and don't have significant provisions in 2025 doesn't that actually imply Decrease in underlying profitability in Mining for 2025 or where? Are my calculations wrong?

No, I think that the way you should look at it is that we will come in and maybe have a relatively Hi, Q1 and then it will start to up over the course of the year. That's how you should think about it. And the guidance is not too low, if that was the question. [indiscernible] [indiscernible] your net working capital and your capital employed, so on group level, you have 10.4% in net working capital. I wonder if you can give the standalone number for mining And also you have EUR 17,800,000,000.0 in capital employed. I wonder also if you can say how much of that is mining? By far, the most I'm not going to give you the exact number because we are in the middle of of carving out and bits and pieces can change. But by far, most of the working capital, most of the goodwill, most of the balance sheet is mining. [indiscernible] By far, Okay.

And I understand you want precise numbers, Lars, but we we're not willing to give that until in a month or two. And then This is a finance. Thank you. Very much appreciated. That was actually all I had. Again, congrats with the solid Q4.

Okay, thanks.

Next question is from Toro Fangman, Bank of America.

Hello. Hi, and thank you for taking my question. My first question would be on could you just specify a bit more what has been the big driver of margin improvements in Q4 and especially the driver and the gross margin improvements and just going forward, how sustainable is it And then could you quantify a bit more of how much of SG and A savings we actually can expect going into '25 and twenty six.

I'll start by commenting the kind of order intake and product margins we see them remaining stable in service. Even though it's the staple and stable market in service, we expect that to remain at this level what we have. And then in the capital business, heavy capital equipment, occasionally we see small downside, small reduction in in order intake margins but we've been able to compensate that mainly with the Procurement savings. So starting really from the top which is order intake product margin, we see net net that being stable in the kind of coming years. We haven't we will not see significant kind of change one way or the other there. And I think Roland, you can call further down in the kind of line items.

Yes. So I understand the question in Q4 drove our gross profit. So we're a little bit positively impacted, of course, by positive split service compared to our OE business. And I think going forward, what we're saying is that our gross profit will be between 3133% and that you can count on for 2025% and also into 2026. And then we are guiding our EBITDA of €13,500,000 to €14,000,000 I understand you want the run rates on SG and A. We're a little hesitant in being specific on that. That also Lars was Was asking about, but that adds up to to our EBITDA guidance. And eventually, we will deliver on the long term targets, which is 13% to 15% reported Next year, Okay. Thank you. And I would have just one follow-up question on the pricing comment around the heavy equipment and mining that you've made. To me at least, this was news that we see negative pricing in mining right now. When has this started? And do you see the same like is it for every competitor basically? Or is it just something that currently you do to win more orders?

I think what we see of course is that because it's so slow the capital market. And then of course, the few ones which are moving, the case is, of course, customers are taking advantage of the of the kind of everybody fighting for the smaller part of the business. And that competitive pressure has, I think, are pushing down the price stuff with a kind of large casting, lots of steel and so the things. But then at the same time, of course, we are looking at savings in our procurement cost around the world. [indiscernible] but in absolute term so it has been going on now maybe for For six months, nine months, and then also we expect intense competition to continue still throughout the year. Because it's a bit the market is quite weak. But it's more the it's a little bit of the cost game in product cost that you need to find new source of supply, develop supply suppliers, post suppliers and get better costing. But it's but the top line prices are going down. And but also at the same time, we've been focusing on high quality orders. So we are not desperate for the volume.

So we will not go after the because earlier there was there was a question to us when we started transformation Does your can you hold your nerve when the market market is quiet? And yes, we can. So we don't take material handling business in, which is extremely low margin high risk. So we are true to our commitment for quality of the earnings. So we are selective. We are picking up the orders that we want to win and also that which has a kind of significant return through the aftermarket. But it's there's deflation in heavy equipment equipment for the last would say nine months.

Okay.

Thank you.

Next question is from Christian Hindaracker. Goldman Sachs. Please go ahead.

Good morning, Mikael. Good morning, Roland. Thanks for the time. I want to start on the SG and A cost, if I may. Dollars 4,200,000,000.0 for the year. They were €4,300,000,000 in 2023. But then you've reduced the employee number at the firm quite significantly down around 1,600 people or 17.5% of the employee count. I appreciate you've got slightly lower revenues, but I want to understand how it is that SG and A costs are only down modestly relative to that shift in headcount. Maybe we can start there.

Yes. Thank you for that, Christian. So So 2024 has been again a restructuring year, right, where we have made people have also been closing down closing down sites and offices moved to bigger sites but fewer of them. And that has a underlying run rate. Also a lot of the employees some of the employees that we let go are blue collar workers That's among others why we are reclosing SG and A here, so that part follows the blue collar workers that sits under production costs. And lastly, we've also outsourced a bit, and that is pulling down the head count, but not necessarily cost in the outset So savings of outsourcing only came come over the course of the years as we progressed both on IT, on finance and other operational back office support So that's why we don't see SG and A come down significantly yet coming out of 2024. Thank you, Roland.

Maybe a bit of an issue on here, but can you give us a bit more color on the deferred tax asset that you've got in Note 4.3? It's DKK2.1 million on a net basis. That's about 10.5% of your revenue. 2.5 times the tax you paid last year. Just want to think about how we can think about if there's a release of that and what impact it could have on future profitability?

Yes. So the future the tax asset predominantly sits in Denmark. But we also have tax assets in U. S. A bit in Chile and a bit in a few other countries. So the faster we move our principal company model to the right structure where most of [indiscernible] The handling and the substance and the decisions are made in Denmark we'll make use of that tax asset And that's how we're going to get to a more normalized effective tax rate As we progress beyond 2026, I think we are releasing or I don't think I know, we're releasing a tech report where we give a bit more granularity Maybe just a quick final one on the service network expansion. I don't know if you've given a number there in terms of we talked about the potential SG and A implications or rather sorry, cost implications in the round. Have an indication of what the CapEx spend might be and over what timeframe?

That's not going to be a lot. That's going to be less than Am I going to say a number here? Less than DKK 30,000,000? That's not a lot over the next eighteen months or so.

And we also some of the service centers, we are building it up over time so that we start a little bit more asset light then we are building as the business is coming in. So it's it's not a massive number, but it's more the presence and then as the business growing in those service centers, then we also adding more machining, more type of equipment in the shops.

I think some of this has already started, right? So some of the CapEx sits already in 2024 and then Then we hit the ground running over 25.

Thanks.

This call I'd like to thank you for your time. And as I said in the beginning, we feel that this has been a good year for FLS in a kind of weak market. And of course, the whole idea is that as I said earlier, that we return to growth in the coming years, but there's still a creating foundations for the future growth. And then hopefully then when the market will come back, we are ready for that market. And then we have a quite scalable SG and A, quite scalable cox structure with our new operation, what So we are able to take full advantage of the market recovery. So we are optimistic about FUTS and happy about '24 and As I said earlier, using a train reference so that we hope to be like a train that continuously kind of continue our kind of profitability and performance improvement for now known as [indiscernible] That's why we are extremely focused on quality of the order intake, quality of the backlog, not to have any nasties coming up [indiscernible] Thanks very much for your time.