Epiroc AB (publ) (EPOKY) Q4 2022 Earnings Call Transcript

Epiroc AB (publ) (OTCPK:EPOKY) Q4 2022 Earnings Conference Call January 31, 2023 8:00 AM ET

Company Participants

Karin Larsson – Vice President, Investor Relations

Helena Hedblom – President and CEO

Håkan Folin – Senior Vice President Controlling and Finance (Chief Financial Officer)

Conference Call Participants

Lars Brorson – Barclays

Klas Bergelind – Citi

Vladimir Sergievskii – Bank of America

James Moore – Redburn

Andreas Koski – BNP Paribas Exane

Anders Idborg – ABG Sundal Collier

Operator

Karin Larsson

Hello, and a warm welcome to this Epiroc Q4 Results Presentation. My name is Karin Larsson, and I’m Head of IR here at Epiroc. With me today, I have our CEO, Helena Hedblom; and our CFO, Håkan Folin. They will briefly present the results before we do a Q&A session. Please note today that you need to register in advance to receive the phone numbers to the Q&A session. The link is provided in the invitation as well as on our homepage.

So with this, Helena, please, the stage is yours.

Helena Hedblom

Thank you, Karin. So starting with the full-year highlights for 2022. A strong performance in a challenging market. On the demand side, the customer activity remained high, and we won many large equipment orders, and we had a strong development in the aftermarket.

During the year, we handled significant supply chain challenges, including disruptions as a consequence of the war in Ukraine. And in March, we stopped deliveries into Russia, which at the time was our fourth largest market. But despite all this, the organization executed well and we delivered record results and profitable growth. So well done to everyone.

We also launched many groundbreaking innovations, and we made several acquisitions that help customers increase safety and productivity as well as reduce emissions. Demand is continuously increasing for electrification, digitalization, and automation solutions, and we strengthened our position as a market leader in these areas. So all in all, it was a record year for Epiroc.

So moving on to the fourth quarter then, the demand remained high. That said, large equipment orders are lumpy in nature. And in the fourth quarter, we did not receive as many large orders as in the previous quarters. We had around 400 million of large orders in Q4. Service continued to grow strongly, supported by a high customer activity.

So after a period of strong growth, the easing supply challenges in combination with a good output level from our production sites led to record high revenues and operating profit. We also had a high acquisition pace in the quarter, and we finalized four acquisitions with a combined annual revenues of SEK 1.9 billion. And on top of this, we signed another two.

We also launched many innovations, but some of them are more game-changing than others. And one example is our collaboration with Roy Hill and ASI Mining in Australia to create the world’s largest autonomous mine. And the goal is to convert Roy Hill’s haul trucks regardless of OEM supplier from manned to autonomous use.

And you might remember our announcement a few years back. Well, the testing phase has been a success. In fact, the mixed fleet that is now running autonomously proved to be more productive and safe than manual use. I will tell you more about this later on.

Another successful milestone is Avatel’s first commercial blast in Agnico Eagle’s Kittila mine in Finland. The Avatel is the world’s first semi-automated charging system for underground use. It is and will be a game changer for the mining industry as it significantly improves safety during the charging cycle. The Avatel has been created in collaboration with Orica, a world leader in commercial explosives and advanced blasting systems.

So a few words on the financials in the quarter. In total, our orders increased 18%, though with some help from currency and acquisitions. Organically, excluding Russia, we achieved 3% growth. We did, as I said, not received as many large orders as in the previous quarters. Large orders are lumpy, but we still have a good pipeline of potential orders ahead.

And in Q1, we have already announced one large order from African Rainbow Minerals for use at a platinum mine in South Africa. In total, the orders received in the fourth quarter was SEK 13.7 billion, and sequentially, it’s up 4% organically.

Our revenues were record high at SEK 13.9 billion and grew 8% organically, and our adjusted margin increased to 23.7%. Our cash flow was lower than last year and amounted to SEK 1.5 billion. So after a period of strong growth in equipment with long lead times due to supply chain disruptions, we have a large portion of work in progress as well as receivables.

So back to one of my favorite topics, innovation. I did already mention the milestone we achieved with Avatel, and safety is, as you know, always prioritized. Another purpose with our innovations is to reduce emissions. And therefore, we are particularly happy to take our battery electric offering one step further. We are collaborating with SSAB, a Swedish quality steel manufacturer, and we have created a 42 tons battery electric mine truck made by fossil-free steel.

So to use fossil-free steel in this mine truck saves 10 tons of carbon emissions per bucket. And on the topic of electrification, we have the widest offering in the market today, and we see great demand for all our battery electric machines. In fact, we received the first battery electric order from an underground infrastructure customer in the quarter for a tunneling project.

So it’s good to see that our offering is also attractive for the infrastructure segment as well. In addition to providing the best machines, we also provide critical battery electric infrastructure solutions on site, which enable the electrification. And as we have a standardized approach to our battery solution with all its benefits, we also take this approach when it comes to the charging solutions.

So in Q4, we joined the CharIN, which is a leading global association with over 300 members promoting interoperability based on the combined charging system. So we want to make it easy for our customers to do the transformation into electrification.

And finally, then back to the world’s largest autonomous mixed fleet solution, of which we are very proud of, of course. I will show you a short movie where Roy Hill can tell you about the project, the success and the next step.

[Video Presentation]

So to make our customers more successful is something that really inspires me. And if you didn’t know it, I actually started my career working in the R&D department. And I have learned by experience that even though we invest more than ever in R&D, around 3% of revenue, we cannot do all by ourselves.

So to really drive and accelerate the transformation, we collaborate with the best, and we also acquire companies as well. And since the end of September, we have announced and completed six acquisitions. Four acquisitions of companies with combined annual revenues of more than SEK 1.9 billion and 700 employees were completed. So let me briefly present all of them.

So CR is a strong player in ground engagement tools. So by this acquisition, we are entering into a new niche of productivity increase in consumables. Mernok Elektronik gives us products and capabilities to roll out the highest level of collision avoidance systems in the world. Remote Control Technologies makes Epiroc the world-leading automation solution provider, not only for surface and underground rock drilling, but also for underground loading and haulage. And the solution enables automation of any brand. So the key in this solution is that we can now just as with electrification, retrofit any machine out there. And this is valuable to customers that wants to speed up the automation journey.

Wain-Roy strengthens our presence in the North American construction market and increases our manufacturing capacity for advanced attachments in that region. Radlink is a provider of wireless communication infrastructure, both on surface and underground and enables a smooth implementation of automation.

And then we have Geoscan. It complements Epiroc’s offering with orebody knowledge. So it’s short — in short, it’s an automated way of analyzing the drill core and make the drilling process more productive.

As a matter of fact, I have one drill core with me here. So this is how it looks like. In addition, I can mention one acquisition that was announced already before the quarter, but not yet finalized AARD Mining Equipment, and it complements Epiroc’s underground offering with low-profile equipment, which is commonly used in Africa. So this also gives us a good manufacturing footprint in South Africa.

And speaking of footprint. At year-end, we had more than 7,100 service technicians. So our relentless focus on aftermarket and service has proven to be right so many years now. And in total, our aftermarket revenues represent 65% of our revenues. And the fourth quarter was strong in service with high customer activity and organic growth of 4%.

If we exclude Russia, it was actually up 11% organic, and it was strong all over the line. We continue to land large rebuild orders and even further widening our offering. The realization of the Parts & Service division is now in place. So we will be closer to the customer. We will be more precise in our offering. We will be faster in responding to our customer needs. And we will be a stronger productivity partner. Tools & Attachments on the other side had a somewhat weaker development. Sequentially, the organic order growth was plus 4%. However, it was down versus Q4 last year when attachments had a particularly strong development. And just as in Q3, exploration is somewhat weaker.

So my next slide is about operational excellence. So one important success factor is to deliver spare parts and consumables when customers need them. And in the quarter, we opened a new regional distribution center in Santiago in Chile. It will further strengthen our service to customers in the South American region by improving availability and optimizing inventory levels.

Already today, we have distribution centers in Sweden, in U.S., in South Africa, in Belgium and next in line is Singapore. And speaking about inventory, with a net working capital of SEK 18.6 billion, we can certainly do better, and Håkan will elaborate on this later. But following a period of strong equipment growth with lead times of around nine to 12 months and extended freight times, it’s naturally to tie up capital.

Another improvement is the new organization for battery assembly in Orebro in Sweden. So with a strong and accelerating demand for our battery electric offering, we need to safeguard that we are efficient and have scale in production. So looking at units, the battery electric machines are still representing a small portion of all machines sold. But year-on-year, we have seen the numbers increase threefold. Our standardized approach when it comes to BEVs has many advantages.

It enables a quicker rollout of new BEV models, and it gives us scale advantage in production going forward. So in short, we are ready to meet the increasing demand.

So moving on then to another favorite topic is sustainability. At year-end, we were almost 17,000 employees in the group, roughly 1,300 were added through acquisitions throughout the year. So if you are listening, a warm welcome to the Epiroc family. Our commitment to increase the number of women in operational roles as well as Managers is visible in the numbers. So both the proportion of women employees and women Managers at the end of the period increased.

We’re putting a strong focus on inclusion and diversity at Epiroc. And personally, I’m convinced that diversity leads to increased creativity, innovation and ultimately, better results for Epiroc. So it’s then pleasing to see that Epiroc was named a European diversity leader by Financial Times in the quarter, and we scored a top 20% position. In our annual employee survey, our Inclusion and Diversity Index improved as well.

One thing that did not improve though, was the total recordable injury frequency rate, or in other words, the frequency of recordable work-related injuries of illness for each one million hours worked. And already today, we have many initiatives in place to improve this and more will be added. I want every Epiroc employee to know that this is really on top of agenda.

Moving on to the environmental impact then. Again, we have lowered our emissions from operations, 31% year-on-year. And this improvement is driven by several initiatives, including the installation of solar panels and a higher share of renewable electricity. However, due to a strong period of growth, the emissions from transport have increased in absolute numbers despite an improved mix, where we utilize sea freight to a greater extent than ever before.

So with this, I hand over to Håkan to cover the financials.

Håkan Folin

Thank you, Helena. Eight quarters in a row, our profit has increased. We ended the year at a record level of SEK 3.2 billion, corresponding to an increase of 25%. And if we add back the cost for the long-term incentive program, we landed an adjusted operating profit at SEK 3.3 billion. The margin adjusted came in at 23.7%, which is a great achievement from the organization.

If we look into the details, our operating profit increased 25% to SEK 3.2 billion. We had a strong organic contribution of 2.5 percentage points. We got some help from the currency as well, but some headwinds from acquisitions. And on the group, we had a dilution effect from acquisition, which was 0.8 percentage points.

Item affecting comparability was minus SEK 67 million, which is representing the provisions for the share-based long-term incentive program. Previous year also included a positive revaluation effect related to Mobilaris of SEK 167 million. The reported operating margin was 23.2%. And as I said, excluding items affecting comparability, it was 23.7%.

We go into a bit more detail then and start with Equipment & Service. And excluding Russia, the orders received increased 7% organically. Of the total growth of 24%, acquisitions contributed a bit 14% and currency with another 12%. The orders received also included orders on hand from the acquired companies, and these have a positive impact of approximately 11%, mainly RCT and Radlink.

And of the four completed acquisitions in the quarters, three of these are reporting into Equipment & Service. For equipment specifically, excluding Russia, orders received increased 1% and while the increase as much as 11% for service, excluding Russia. So as you see, we continue our very strong growth journey in our service business. And this is driven by two things. It’s a combination of a high activity level among our customers as well as an increased customer share. We had a strong organic development in revenues, up 12%, and I will cover the profit bridge now on the next page.

So the operating profit for Equipment & Service increased 22% to SEK 2.8 billion. It was supported by strong organic growth in currency, but negatively impacted by dilutions from acquisitions. And just as with the group, the previous year was impacted by this positive revaluation effect for Mobilaris. Operating margin was down — was 25.7%, down from previous year or SEK 27.3 million. However adjusted, the margin was up to 25.7% versus 25.4% last year. Dilutions from acquisition was 1.1% in the segment.

If we then move on to Tools & Attachments, order increased 5% to SEK 2.9 billion. Excluding Russia, orders received decreased 4% organically. We had positive contribution from currency, 10%, acquisition, 2%. Sequentially for Tools & Attachments, orders were up 4% organically. And as Helena said, Q4 last year, attachment had a particularly strong development, so the comparables are tough.

The profit bridge for Tools & Attachment is rather easy this time. Operating profit increased 9% to SEK 523 million, and operating margin was 17.5%. It was supported by currency, but negatively impacted by higher costs. We had somewhat lower output from our manufacturing site, thereby impacting under absorption costs as well as some M&A-related costs in the quarter. And as you have seen, we announced two acquisitions within this segment this quarter.

Continuing then on the cost side. Our cost increased in the quarter and around half of the increase versus last year is due to acquisition and currency. Also, the strong growth, higher activity levels as well as investments in R&D are also part of the explanation.

Cash flow in the quarter was SEK 1.5 billion, operating cash flow. Normally, Q4 is a strong cash flow quarter. And even if we had good contribution from profit, we also had a few headwinds. Main one is the change in working capital, but also taxes paid and net financial items limited the operating cash flow to some extent.

This slide is a new one. As I think that the working capital development requires some additional comments. Working capital was up 33% year-on-year if we exclude acquisitions and currency. This is not the level where we’re happy about, but there are a few things that explain the development here.

Following a period of strong equipment growth where we have lead times over around nine to 12 months and extended sea freight lead times as well, inventory is building up. And in addition, there are disruptions in the supply chain that also impact the aftermarket negatively.

And on top of that, the general cost inflation on input material has an impact on our working capital level. But this is definitely a focus area for us, and we expect to see a positive development of the working capital ratio in the coming year.

If we then move over to capital efficiency. The high acquisition pace is, of course, reflected in our net debt and also in our capital employed levels. And after paying SEK 4.2 billion for acquisitions in the quarter and also paying SEK 1.8 billion in dividend, we ended the period with a net debt level of SEK 3.7 billion. And this corresponds to a net debt-to-EBITDA ratio of 0.28. Our return on capital employed has improved this year by almost two percentage points from 26.1% up to 28.0%, and this is mainly due to our improved operating results.

Next slide now is about dividend. We have a goal of providing long-term stable and rising dividend to our shareholders. And the dividend should correspond to 50% of net profit over the cycle. And the Board proposes to the AGM, which is on the 23rd of May, that we should pay SEK 3.40 per share in dividend, which is equivalent to 49% of net profit, and it’s also an increase of 30% from previous year. The dividend will be paid in two installments, record dates on May 25 and October 24.

And before I leave the word back to you, Helen, again, I would just like to emphasize that these strong financial results that had the honor to present today, it’s really coming from a teamwork by everyone here at Epiroc. So thank you all for a very good 2022.

Helena Hedblom

Thank you, Håkan. So then I would like to briefly conclude the quarter. Our employees are our greatest asset, and I’m proud of all the hard work and all the achievements. It was a strong, but challenging 2022. We had a high customer activity in Q4. We delivered profitable growth with record high operating profit. We dare to think new and take innovations to the market that will transform the industry.

So as we enter 2023, Epiroc stands stronger than ever. And in the short-term, we expect that the underlying demand, both for equipment and aftermarket will remain at a high level. So thank you, and Karin, over to you.

Karin Larsson

Yes. Thank you, Helena. Thank you, Håkan. Well done. Before I open up the Q&A session, if you don’t or if you haven’t already signed up to our Capital Markets Day in Orebro in June, please do. We have limited seats and registrations is open. So now with this beautiful picture of our Smart Truck T35E, the world’s first ever top hammer battery electric drill, I open up the Q&A session. And today, we do it, so you need to register first. Operator, please open the line.

Question-and-Answer Session

Operator

[Operator Instructions]. The next question comes from Lars Brorson from Barclays. Please go ahead.

Lars Brorson

Good afternoon Helena, Håkan and Karin. Three, if I can, probably two for Håkan. Håkan, first of all, on your recognition of orders in hand, from acquired companies or RCT and Radlink that’s about SEK 1 billion or so that you are recognizing automation license fees, I guess. Can you help us understand a little bit what exactly? So these are subscription contract, are they and you are now recognizing all of that in your order intake? And so when we model out structure impact in 2023 from these two companies, assuming you say, subscription contracts sort of two or three year duration, should we think of book-to-bill of some 0.6x, 0.7x? That would be helpful if I can start there, please.

Håkan Folin

So We haven’t gone into the split of these contracts, what they are. RCT, as I mentioned, the automation company, Radlink, it’s more about the infrastructure for the mine. So they have a somewhat different type of business, and we won’t specify exactly what type of contracts and how much comes from each of the companies. But some of them would be subscription fees, yes. But I’m sorry, I won’t go into too much of that details actually.

Lars Brorson

Okay. It will be helpful, of course, so we can model out that sort of structure impact correctly over the next few quarters. But I’ll leave it there.

Håkan Folin

We can look into and see if we can provide some more details going forward.

Lars Brorson

That will be helpful. Thank you, Håkan. And secondly, maybe a slightly bigger picture. Can you help me a little bit with thinking about equipment and service margins for 2023. I appreciate it’s not your favorite topic in terms of forward-looking guidance. I’m not looking for that, but consensus is looking for stable margins year-over-year. Can you help us maybe talk through some of the key headwinds and some of the key tailwinds you see to that? Maybe if I can help you along, particularly mix, which should be quite a meaningful headwind for you this year on margins. How to think about the ramp in equipment? Can we get to sort of a more normalized mix in equipment and served from what has been a very unusual mix over the last couple of years? And also within that, can I ask you to the ramp in battery electric deliveries in 2023? Should we think of that as being dilutive to your equipment margins and potentially quite a significant headwind? Thank you.

Helena Hedblom

No, I think the mix, of course, as we have talked about for many quarters, of course, with more equipment, we will expect — you can expect a mix effect. But I think as we have continuously been growing very successful as well in the aftermarket. So — but of course, when we get the pace up in production when it comes to equipment, of course, you will see that effect. I think on deliveries when it comes to battery machines, that will not, I would say, dilute or be more costly than other type of machines that we deliver.

Lars Brorson

Clear. So we shouldn’t think of battery electric deliveries ramping up as being diluted to your equipment margins?

Helena Hedblom

No, no.

Lars Brorson

Thirdly, and if I can, finally, Helena. Obviously, a big acquisition, I think the biggest in the five year history of Epiroc announced with CR. I thought, quite interesting entry into ground engaging tools. We didn’t get a chance to catch up after that announcement. Help us a little bit, if you would just briefly on some of the synergies you see with your core T&A business? And maybe talk a little bit about what you see in terms of driving, which you say, more of a premiumization of ground engaging tools, particularly, I guess, in construction applications?

Helena Hedblom

No, but we see great. The ground engagement tools business is very similar to tools and attachments, actually. It’s material, it’s heat treatment, it’s productivity product. So it’s very — the type of contracts that you have with customers are very similar to the consumables set up. But when it comes to us, it’s very also similar to our attachment business where it is OEM agnostic, and we can then put it on whatever carrier really. So I see this acquisition is a very strategic one. We’re moving into a new niche.

And of course, we have a strong footprint both when it comes to the Tools & Attachment sales force globally, but also we have a very good relationship with our surface customers where we already have people on site, for example, with maintenance people, et cetera. So that’s how I see it. Very good strategic fit.

I see also great opportunities in the construction area with these solutions as well as underground to produce more smart buckets. It’s also a portion of CR. They are very advanced when it comes to the digital solution and building intelligence into the buckets, and the — so I think also there, I see great opportunities.

Lars Brorson

Helpful. Thank you.

Operator

The next question comes from Klas Bergelind from Citi. Please go ahead.

Klas Bergelind

Hi, Helena, Håkan. I’m Klas at Citi. So the first question I had was on seasonality and thinking about orders. We know construction-led demand is typically stronger as we enter the spring, but trying to understand the mining side better large orders can improve as they’re lumpy, as you said. But if we focus on underlying demand, do you think underlying first quarter orders could be higher quarter-on-quarter. And the reason for asking is that if we strip out the acquired backlog, calculate underlying orders in U.S. dollar to make this like-for-like, then expectations out there look pretty high, up 15% quarter-on-quarter. So yes, I’ll start there. Thanks.

Helena Hedblom

I think as we have said many times, the large orders are always lumpy. But I think what has been good during Q4 now is the underlying activity levels among in all regions, I would say. So — and also what we still see that roughly half of the capital equipment orders are for expansion projects. So 50% — roughly 50% is replacement and 50% is expansion projects. I think — so your question on if the underlying activity level will be higher in Q1, that was more.

I think it’s difficult to say. It will always vary when we have, of course, our definition of a large order and a lot of things can happen also with medium-sized orders that will — can tilt it between quarters. But as I said also, we have already announced one large orders already in Africa now in January. But the good thing, though, and what we are focused on is the underlying — it was the activity levels, and that is healthy.

Klas Bergelind

Yes. No, I totally get your comment on the market, what’s out there. I’m just trying to understand, I mean, if I look history, it looks like first is stronger than the default. But at the same time, trying to understand where the mining companies typically order more first or fourth, right? I totally get the construction piece, but that was really my question because the U.S. dollar taking out the acquired backlog, expectations look quite high?

Helena Hedblom

I don’t think I dare to comment on that one to be honest.

Klas Bergelind

My second and final one is on the drop-through, it’s very solid even if you adjust for a lower corporate line. And we’re seeing component costs going up a lot in the quarter. Value-add is going up quite a lot in Europe following the higher energy prices in the third and in the fourth. But you’re still surprised positively on the drop-through. So I’m trying to understand if you had much higher pricing moving through the backlog in the fourth quarter versus the third, and if pricing year-over-year now in the P&L, will fade? Or do you think you will have still a similar level of pricing running through the P&L as we go through the year? You’ve been very good at compensating on cost. I’m just trying to understand the price levels through 2023 and if they moved up a lot in the fourth? Thank you.

Håkan Folin

I would say it’s been a gradual increase throughout 2022. We were quite — or I would say, the organization out there were quite fast in terms of starting to increase prices, and we have continued doing that throughout the year. And like you say, cost inflation keeps going on. So we are all the time looking to see what we can do and increased prices, but also even more important, at the same time, add more value to our equipment that we are selling to our customers. So it’s been a gradual journey throughout the year. And I think looking at what we see in terms of cost inflation, we will need to continue with this journey also in 2023. Will we do it at exactly the same pace? Remains to be seen.

Klas Bergelind

Hiking from current levels, Håkan, if is that is what you’re trying to say? That’s the intention.

HåkanFolin

And again, by making sure that we actually add some value to our customers as well, they are not going to be prepared to just pay because we want to have a compensation. We need to bring something to them as well.

Klas Bergelind

Thank you.

Helena Hedblom

And of course, for us, we started with the aftermarket because that’s also what is turning faster. So I think in the beginning of the year, we had we got contribution from that. And then at the later part of the year, also the equipment started to give results.

Klas Bergelind

Thank you.

Operator

The next question comes from Vlad Sergievskii from Bank of America. Please go ahead.

Vladimir Sergievskii

Hey, yes. Thank you very much for taking my questions. I will start with housekeeping one on the order intake. Would you be able to give us the number in SEK 1 million or SEK 1 billion, which impacted the order intake from backlogs, which you recognized from acquired companies. I understand it’s about SEK 1 billion, but would you be able to give us any more precise number here, please?

HåkanFolin

I would say it’s close to SEK 1 billion. So I think that will be close enough, good enough, then it’s very close to SEK 1 billion. So I don’t have exactly the figure, but it’s not SEK 1.2 billion or SEK 0.8 billion. It is close to SEK 1 billion.

Vladimir Sergievskii

Yes, that’s helpful. Thank you so much. And then if I do the simple exercise by subtracting this from your order intake and then converting it into dollars. The order intake in Q4 is frankly, quite materially lower in dollars compared to what it was at the beginning of this year. You had some phenomenal quarters in Q1, Q2, Q4 last year. And yet, during this period, your commentary on the order intake was that at a high level. Yet, the absolute number declined quite a bit. Would you be able to kind of comment on what was driving that?

HåkanFolin

Yes, I think that if you — Russia is obviously one big impact factor as well. If we look at the organic order intake, excluding Russia, it’s up 3% compared to the similar quarter last year. So from that point of view, we are still growing actually if we exclude Russia.

Vladimir Sergievskii

And then my final one, if I may, a more broader one. If you look at what the mining companies are reporting the big public ones. I mean the majority of them are actually missing their production targets for 2022. And absolute production levels of key commodities, be it gold, copper, et cetera, actually not impressive in 2022. Yet you and your peers are actually referring to very high customer activity and very high utilization. Would you be able to help us to reconcile those to sales? Because the idea would be if you utilize equipment more than you produce more.

Helena Hedblom

But I think it’s due to the aging fleet. So we have seen this over many years now that the fleet out there is growing older for every year. And older machines need more spare parts, larger rebuilds, et cetera. But also, I would say that there is a lot of larger rebuilds taking place. Finally, customers also need to do larger rebuilds. So we have also seen — that has really contributed to the growth during 2022.

Vladimir Sergievskii

Great, thank you so much.

Operator

The next question comes from James Moore from Redburn. Please go ahead.

James Moore

Yes, hi. Thanks for taking the questions. I wonder if we could talk about the profitability in Equipment & Service. I think the overall margin was flat, 26.1% year-on-year. I know you don’t disclose it, but would it be possible just to talk directionally about whether service profitability was flat also versus equipment? And how they independently move on a year-on-year basis? That’s the first question, if I could.

HåkanFolin

If we look at the segment as such, adjusted was up slightly from 25.4% to 25.7%, but more or less flat you can say like you alluded to. And I wouldn’t say there’s a big difference in the service margin. It’s fairly stable on a good level. So no major change.

James Moore

And if we look at the price — we talked about price, gross price earlier. So If we took a — look at the price/cost impact within your organic aspect of the bridge, could you just talk a little bit about how that’s developing your major competitor is currently certainly in the second half of ’22 seeing quite a significant dilutionary impact that they anticipate improving through the course of ’23? You mentioned that you were quite quick to respond. I’m just trying to think about whether you have been doing better so far or whether you’ve got an improvement ahead of there?

HåkanFolin

I wouldn’t compare us to our competitors, but I would say that we were, as we said before, we were the decentralized organization, we’re really quick out there seeing what was coming and making sure that we started adjust our pricing towards our customers. And that is, to a large extent, what you see in the organic — what we’re getting from the organic growth is, of course, a combination of increased costs that we are compensating for via the price and also volume-wise. But all in all, I would say, we were quite agile in terms of adjusting and in the organic portion there, it’s partly — it’s definitely partly price included as well.

James Moore

Thanks. And last of all, if I could, could I get back to this order backlog from the acquisitions being put into the orders received? What made you decide to include backlog in orders received because that’s not something you have done in the past? It’s not something that is explained by the nature of those businesses, could you help us…

Helena Hedblom

We have treated it in the same way historically as well.

HåkanFolin

And by doing that, what we actually want to do is we want to give you full transparency in terms of what you can expect us invoicing going forward. So that’s actually the reason why we have done that, and it’s the same way as we have done in previous quarters. But it’s not been the magnitude as you have seen in this quarter. That’s a big difference.

James Moore

But it’s fair to say that the base is closer to SEK 12.8 billion, if you like, and not SEK 13.7 billion. So we should think about sequential demand removing that SEK 1 billion because that was not new orders received in the quarter that was in previous.

HåkanFolin

Exactly, when you look into Q1, that’s the good way to look at Q4, yes. Thank you.

James Moore

Okay. So your comment is stable at the high level we should compare to the lower number that 2.8%, just to be clear?

HåkanFolin

Yes.

James Moore

Yes, thank you. Thanks very much.

Operator

The next question comes from Andreas Koski from BNP Paribas Exane. Please go ahead.

Andreas Koski

Good afternoon. I hope you can hear me. I also want to ask on the acquired backlog that you recognized in order intake. Is all of that sitting in the service business or what’s the split between the different segments?

HåkanFolin

The vast majority of it is sitting in the service business as the larger acquisitions were part of service. If you take sorry, Tools & Attachment, the one acquisition we closed there was rather small, so more or less, all of it is sitting in Equipment & Service.

Andreas Koski

In Equipment & Service, but how much of hope that is relating to a service backlog?

HåkanFolin

Yes, the vast majority of…

Andreas Koski

One asked question earlier, it was about software, et cetera. Yes. Okay. And then secondly, on Battery Electric Vehicles. Would you like to share how large part of your equipment orders that came from battery electric machines in 2022? And if the Lion’s share of that is related to load and haul?

Helena Hedblom

So as I said, we have — it has really started to take off, and we have — it’s threefold up compared to the previous year. We have not shared the numbers, but in relation to 2021, and it’s up threefold.

Andreas Koski

Okay. And what was it in 2021?

Helena Hedblom

Lower.

Andreas Koski

Okay. But it’s in the billions or is it just a few hundred millions. Just if you could give an indication at least or…

Helena Hedblom

I will not indicate that. But I think also back to our offering, we have a very broad offering now when it comes to electrification in general. So it’s both equipment, it’s retrofits and it’s also electrical infrastructure. And it’s growing nicely.

Andreas Koski

Okay, thank you very much.

Operator

The next question comes from Anders Idborg from ABG Sundal Collier. Please go ahead.

Anders Idborg

Yes, hi. Good afternoon. So I just wanted to ask about the profitability of the acquisitions. I mean, you’ve done a few now. And I wanted to ask firstly on what happened in this quarter, if we look at the bridge on equipment and service, even if we add back that capital gain that you had last year, it looks like a slightly negative from structure. So is there any sort of initial adjustments there? So that’s number one. And number two, what should we expect in terms of dilution from the acquisitions that you’ve closed already?

HåkanFolin

For Equipment & Service, we had the dilution of the acquisitions of 1.1% in the quarter or 0.8% on group level and 1.1% in Equipment & Service. I don’t recall any other from the top — last year, as you mentioned, we had this Mobilaris revaluation effect, but no other major structure this quarter in Equipment & Service.

Helena Hedblom

But I think…

Anders Idborg

Am I wrong in thinking that’s a negative EBIT in absolute terms?

HåkanFolin

That you — that I think you’re wrong in thinking, yes.

Anders Idborg

Okay.

HåkanFolin

One should also remember, we are all the time showing EBIT and not EBITDA. So you will also have included in the dilution that we mentioned. You also have the amortization of intangibles.

Helena Hedblom

Well, I think also it’s fair to say that when we acquire companies, we sell and find the companies with the same profitability level or the margin level that we set that. So of course, that is also — I think we always see dilution in the beginning and then we work ourselves back to the level that we expect as a company. So I think that’s a general statement.

Anders Idborg

Okay. So put it this way, sorry, the level of dilution that you saw in Q4, that is pretty much what we should expect in Q1 as well.

HåkanFolin

In that neighborhood, then we didn’t have actually the acquisitions, the full quarter either. So if we look at when we have announced, when we closed the larger ones being Radlink and RCT, and they were not included in the full quarter. And then of course, once they included in the full quarter, it will be somewhat of a bigger impact.

Anders Idborg

All right, thank you.

Karin Larsson

Thank you very much, everyone. It seems like we have no further questions. So either everything was crystal clear or you are holding back your questions. And we’re happy to help you with those. Håkan, Helena and I, just reach out. And as always. We wish you successful investments, and we hope to see all of you soon again, thank you very much.

Helena Hedblom

Thank you.

Håkan Folin

Thank you.