Technology-led acquisitions that have added circa-US$650 million to Epiroc’s revenues have accelerated the 150-year-old company’s repositioning as a service and tech-oriented capital equipment business, analysts heard at its 2023 Capital Markets Day in Sweden.
CEO Helena Hedblom said at the forum in Orebro that technology was the key to unlocking customers’ generally low machine utilisation rates and flat-lining safety levels. Tech was also pivotal to sustaining sector-leading Epiroc earnings margins, she said.
Atlas Copco’s global mining and construction machine and parts business was rebranded and relaunched on the Stockholm Stock Exchange as Epiroc in 2018. Atlas Copco was formed in 1873.
Hedblom said the company’s 23 acquisitions since the formation of Epiroc had materially moved the company’s top line and deepened customer engagement around the world. Drivers of the M&A activity included the standalone attractiveness of individual firms, and their strategic fit and synergies. Epiroc was also targeting additions that helped it maintain a No.1 or No.2 position in market growth segments such as automation, digitalisation and electrification.
Hedblom said automation, electrification and digitalisation “will change the mining and construction industries in the coming 10 years”.
“We have developed this portfolio over the last 5-6 years and we continue to find more opportunities,” she said.
“We are step by step going away from selling parts and hours.
“We’re selling value now, which is where we can make a difference.”
One major deal, the acquisition of 50-year-old Australian company RCT, was “an exciting one” that typified Epiroc’s transaction ethos, she said.
The company had logged more than 700 RCT mining machine control system implementations and plus-1500 “machine-agnostic solution” deliveries on more than 150 different equipment models in over 70 countries. Suffice to say it magnified Epiroc’s existing status in mining’s growing equipment control and automation market.
“To my knowledge this puts us in a leading position when it comes to automation [in mining],” Hedblom said.
This is disputed by Epiroc’s major rival, Sandvik.
Hedblom said automation and digitalisation equalled “profitable growth and recurring revenue [from] hardware, software and licence fees”, plus the enhanced aftermarket penetration rate of more technologically-advanced machines.
Higher equipment utilisation drove increased demand for Epiroc services and parts, she said.
“Utilisation of our equipment sits at around 30% for underground and 40% for surface, so of course this is where the biggest opportunity for our customers lies,” Hedblom said.
“Using technologies is a key opportunity [for improvement].”
Statistically, safety in mining and construction had plateaued in mature markets. Technology was the key to real change, Hedblom said.
She said acquisitions had significantly enhanced Epiroc’s standing in the collision avoidance system (CAS) space. The company showed analysts data suggesting 30-40% of mine fatalities were linked to vehicle interaction control failures. Hedblom said she believed governments would have little choice but to legislate requirements for level 9 CAS implementation in underground mines “across all the regions”, following South Africa’s lead.
Service (47%) and tools and attachments (21%) contribute 68% of Epiroc’s revenues, capital equipment the balance. The company now has more than 7400 employees in service – “the biggest and also the most profitable” part of Epiroc, said CFO Hakan Folin – 300-plus customer sites with service contracts, more than 100 service workshops, and five remanufacturing centres.
“Connected” machines would drive 33% additional cumulative parts revenue for Epiroc surface drill rigs over 10 years and plus-14% higher cumulative parts revenue for underground equipment over seven years, the CMD heard (not including labour/services contributions).
Folin said strong positive cash flows and the company’s comfortable gearing level meant it had “plenty of opportunity and room to invest in growth, both organic growth but also inorganic growth”.
Meanwhile, Epiroc underground division president Sami Niiranen was forecasting “hockey-stick growth” in mine electric equipment demand between now and 2030.
Epiroc would have a “full range of emission-free underground products [on the market] by 2025”.