Atlas Copco AB

Thank you, operator, and thank you, everybody. Welcome, everybody, to this quarterly earnings call for the second quarter for the Atlas Copco Group. Together with me is Wagner Rego, and we will together join, drive you through this presentation. We will try to be crisp and sharp, so we leave enough time for you to raise your questions based on the published results. But before I hand over to Wagner, I would like to restate, as usual, that I would like to ask you to only raise one question at a time, so we give everybody the opportunity to at least raise their most important question. And if we, of course, get through all of people online with their questions, then, of course, we can come back for a second follow-up question, should you have it. But with that, no further ado, I will hand over to Wagner Rigo.

Thank you, Peter, and welcome to this conference call. Before we continue with our presentation, first you can see two vacuum pumps that we utilize in our scientific vacuum division. They are used in mass spectrometry and has been a good development also in the quarter for this type of products. Going further then into the Q2 summary, You can see that in terms of equipment sales, we have seen a quite mixed demand with the divisions performing quite differently. If I look then to compressor technique, we had a negative development in orders driven mainly, but not only by gas and process compressors. I was happy to see that the equipment vacuum was flat, not a positive growth in semi, but positive growth in industrial and scientific vacuum. But it was good to see the overall business area good development. Orders for industrial assembly and vision solutions were basically unchanged. And there we still see a quite difficult environment in automotive. So, and when it comes to power, power technique products, starting with power, air products and pro products, there we had quite positive orders received, good development when it comes to orders. If we then look to the service business, there we had a very good development. Our service business within the business areas plus our rental business is developing very well. We are quite happy to see that we continue to grow our service business. As you know, as you have seen, we had quite a strong currency headwind that impact the absolute value. And then revenues have been impacted as well, negatively. Three business areas had negative organic growth when it comes to revenue, while compressor technique had a positive development. As a consequence, operating profit was also impacted by currency in one hand. In the other hand, we had a positive contribution coming from the combined volume, price and mixed effect. Cash flow is healthy and that allows us to continue to do investments in our own facilities, in our own company, but also in acquisitions that we managed to add another five companies in our portfolio. So going then into the Q2 financials. So the decline, we had around 40 billion SEC in orders received, decline of 1% organic. We go more in detail on the distribution, but it continues this quite mixed demand in the market. Revenues, as you can see as well, minus two decline. and operating profit of 8.4 billion SEC. That represents a margin of 20.6%. So solid cash flow and also quite a good return on capital employed, although it's going down, but 26% is a solid level. If we then go to... the development around the regions i think if i start with asia we had the flat development zero growth in asia if i give you a little bit more color we see a positive development in industrial technique mainly driven by orders in the electronic area so within our industrial part of the business. So positive development in industrial technique. Also vacuum is developing quite positively in Asia for us. And while PT was flat, NCT was negative. Compressor technique was negative, mainly driven by lower orders in equipment, specifically in China. So when it comes to, if we then go to Europe, we see minus 2%. And there we saw negative development in compressor technique, vacuum technique and industrial technique. And a bright spot in Europe was power technique, where we had quite a good development in orders received. When it comes to North America, We had quite a flatish month, positive in power technique, but vacuum technique was negative, mainly driven by the semiconductor market, where a couple of key accounts were not investing as before. And then you see the development in South America and Africa and Middle East continues to be very good. So with that, if we then look into our sales breach, we see that we still have positive contribution coming from our acquisitions of 2% in both in orders received and revenues. We see also the currency developing negatively, minus nine in our orders received, minus eight in our revenues, and then the organic, like we mentioned before, minus one in orders, minus two in revenues. So it was a mixed, clear picture of a mixed demand for us. If we then see the contribution by business area, we saw that in the last, we can see in the last 12 months, compressor technique has a contribution of 46% in our orders, with minus seven now organic orders. vacuum technique very good to see positive organic development of three percent also positive development in uh power technique plus ten percent and flat development in industrial technique so if we then Go more in details and talking about compressor techniques. We had an organic development of minus 7%. If we start then with industrial compressors, it was down, overall down. but mainly driven by larger compressor. If we look to smaller compressors, more getting close to be flat and larger compressors, it was more negative. And most of the large compressor projects are in China. And I think there you see the main driver for a lower development in an industrial compressor but not only i think europe was slightly negative there as well good development in the us so i think i would say that china had an important impact When it comes to gas and process compressor, we saw a significant decrease, but then we need also to remember that we talk about large orders, not too many orders. Sometimes when we get an order can go up to 200 million Swedish kronor in one order. And we have a tough comparison last year and last quarter. And we didn't see too many projects being decided in Q2 2024. There are a lot of hesitation in the market and customers did not decide as we usually were seeing. So positive note, service continue to grow in all the regions. I think we are quite happy with the development of the service business in compressor technique. Also, we had organic revenue, solid profitability supported by the increase that we had in volumes and also affected by the currency and acquisition. Return on capital employed remains at a solid value at 82%. And here, as an example of innovation, we share a different application. We are investing in filtration products. And here is one example of a product that utilizes filtration for liquids. So quite a good development on revenue and profitability and headwinds when it comes to orders in compressor technique. Vacuum technique, like I said before, we are happy to see a positive development. driven mainly by industrial compressors, industrial vacuum and scientific vacuum, together with service. We still see slightly negative development in the semiconductor equipment business. So although we see solid development in Asia, I have mentioned as well before, we see negative development in Europe and North America. Revenues down 5% organic and the profitability was around 18.9%. supported by the activities that we are doing to improve the cost base. So we have announced in January a restructuring plan that is still ongoing, and we started to see the benefit in the bottom line. Of course, we had the currency headwind that also played a role in Vacuum Technique, where Peter will explain more in details. but we are happy to see the positive effects from our sourcing and restructuring activities. Then as an example of innovation, we have our new GHS pump, VSD+. This product was released at the beginning of the journey when we started with vacuum, when it was still within compressor technique and now we came with the new range of products to further drive innovation and efficiency. That is vacuum technique. If we then go to industrial technique, we saw um a decline of one percent and the equipment for the demand for equipment in automotive was flat and here and here we have some some parts of the business that are doing really well with the if you take for instance everything connected to automation quality assurance and flexible production line upgrades to have a more flexible production line that is going quite well I would say even with organic growth and everything connected to new production line like dispensing equipment and vision equipment i think that is a bit more difficult because we don't see too many projects like we we used to see So overall demand for the general industry was stable. So and that includes that we got a quite important order for electronic industry and the service business remained basically unchanged. Revenues, there we have quite a lot of headwinds when it comes to revenues, down 12%, with the operating margin of 17.1%, that had a quite significant impact coming from currency as well, and a positive organic development. Also there, we have implementing some measures that we see good results. As an example of innovation, and there we continue to do our efforts to innovate our products, this is a manual torque range that has received the Red Dot Award in 2025. We are quite happy with the award as well. If we go then to power technique, We had a solid order development of 10%. I think it was quite encouraging to see. Perhaps the level previous year was not so strong, but I think very nice development. Basically, several product lines in power, in industrial flow, in portable flow, they all developed quite well. Specialty rental as well had quite a good development. Unfortunately, we haven't seen good revenues. It was down 1%. But of course, we had quite tough comparison. We were last year catching up with our backlog. So we had quite solid stronger revenues and with the orders we get now, revenues should come in the future. Operating profit margin 17.1, that was also negatively affected by currency, but not only, also there we are investing in this industrial flow division, Like we mentioned in the previous quarter, we decided to separate the portable flow from the industrial flow. There is a new division we are investing. We still don't fully harvest on that. We start to see the first signals, especially in the US, that we are moving in the right direction. So as an innovation, we have this new dryer that is focused for portable application portable and Rush applications to be used with our portable compressors So, and then if we look then to our profitability, we have reached in the quarter 22% EBITDA. With that, I would transfer to you, Peter, then you can continue. on other lines of our profit margin.

Thank you, Wagner. Net financial items were negative, but slightly lower than last year. Interests were basically on the same level, but the financial exchange differences were more positive compared to last year we also had a small additional positive impact from the bond we bought back from the market as a kind of one-time small effect there then the profit before tax at 8.4 billion and the tax expense at 1.9 which is 22.4 percent effective tax rate You see that last year we had this very unusual low effective tax rate of 17.6. That was mainly due to the fact that we then released a provision of 510 million Swedish Krone related to a high tech tax incentive that we have in China. So this is not the normal. So the 22.4 is actually much more close to what we expect to see. And in fact, for the third quarter, we expect an effective tax rate of around 22.5% going forward. If I then move on to slide number 12, I would like to dig in a little bit deeper into the profit bridge. because there's quite a lot of different impacts here. First of all, we have the LTI programs that we exclude, which is 258 million Swedish Krone, a little bit positive for this year and 176 million Krone negative for last year. Then we have had last year restructuring costs. uh in vacuum technique which where we started basically the first leg of our restructuring activities in that case mostly around the industrial and scientific vacuum space which is added back the acquisitions are slightly dilutive as you can see but then the the headline i would say of the of the bridge here is then on the one hand quite a strong negative currency impact uh as Wagner already explained as well but then I would say on a positive note a positive drop through for the overall group performance with despite let's say a negative top line volume price mix effect here on the top line So where does it come from? Well, basically, the price volume mix effect in total is the main reason for this improvement, plus a lot of smaller other items that together add up to this amount and this margin improvement. On the currency side, there is a mixed bag of different things. Considering the height of the amount, I would like to specify a little bit more in detail. First of all, the translation impact was, well, all the currency impacts were basically negative in absolute terms. The translation impact, however, in relative terms was accretive to the margin. the normal transaction effect excluding the operating exchange differences was on the other hand negative and they basically compensated each other and the whole remaining part was then related to balance sheet evaluations so basically payables and receivables that we evaluate at the period end rate um for uh and for the majority i would say roughly half of that is related to intercompany uh payables and receivables and then the other half is kind of related to the external exposure we have and and we as a group are basically long in us dollar and we are short in euro and given the the strong development of the dollar over the quarter starting with a very deep drop in april and then followed by a continued decline in in june led to this very significant currency impact reducing the margin quite significantly. But again, once we were able to identify that, I think the positive that we take out of it is that we see a positive drop through. And if we look in more detail on each of the business areas, then I think you can see that three out of the four business areas have actually a positive drop through and all of the business areas are basically struggling a bit with the currency development. across the board some more than others in compressor technique it was a negative impact but relatively mild and then the positive drop through was driven by increased organic revenue volumes which which I think was quite positive here resulting in a fantastic margin of 25 percent On vacuum technique, the currency impact was quite significant. But also here, very pleased to see that the impact of all the efforts that the division and the business area is doing are really starting to kick in and starting to pay off, resulting in a better underlying margin than the previous quarter. And it's related to the restructuring activities, of course, on the one hand. on the one hand, excuse me, but also related to initiatives around product cost reduction to sourcing initiatives and many other things that are ongoing at the same time within the PA. On industrial technique, also here quite a significant currency impact, mostly linked to the fact that it's largely Europe based manufacturing environment with exposure to all of the areas in the world, of course, and then quite a big impact. But also here a positive drop through for the business area, improving the margin somewhat, but then of course completely compensated by the negative impacts from the currency. So despite the negative volume development, volume price mix development, still a better margin ultimately than if you exclude the currency, of course. power technique here we also saw a negative currency effect but much softer as well here than for the others and that has to do with how the business is basically spread out across the globe and where the manufacturing is taking place so they are a little bit less exposed than some of the others but here we saw a negative impact on the margin from the volume price mix and other items Partly, as Wagner indicated, mix was a negative item, but also the investment in the division where we are trying to put in the right resources in place to really leverage the capabilities of the industrial flow business, for example, which are pulling down the margin for the time being a little bit. How do we see the currency for the near term? To be honest, it's probably the most difficult question to ask at this point in time, looking at how the currencies have developed over the last quarter. But all things being equal. And then, of course, comparing the currency rates against last year, we still continue to expect a negative effect. But this quarter was heavily affected by the revaluations. And if the currencies would stay exactly where they are today, then that revaluation impact would be significantly lower. So still a negative impact, but significantly more moderate, we expect than we have seen this quarter. Then on the balance sheet, I think it can be fairly short. If I compare balance sheet of last year, June to this year, June, then we have had more, of course, acquisitions that have added to the equation, which on the other hand has been offset or more than offset even by the currency development of the balance sheet items. And then on the other hand, also some organic growth. of the balance sheet items which was mainly linked into the cash development which was quite healthy as well throughout the quarter of course also here to take into account that we paid the first installment of the dividend of 2024 into 2025. On the equity side, also here, no major things to comment on besides the fact that it's mainly the equity that changes as a result of the profitability and the payout of the dividend and the revaluation of the equity as a result of the currency development. Then on slide number 15, we have the cash flow. this cash flow as you can see is not a record cash flow it was actually even a little bit less strong than last year which is also why we felt that to qualify it as healthy was good because the level is still quite reasonable with 6.1 billion operating cash flow and the decline is mainly coming in this case from the operating cash surplus basically let's say the lower operating profit that we have seen in the quarter. There are, of course, other movements in there, like the working capital that was a little bit up in view of certain deliveries of projects that need to happen in the third quarter. But that was also offset partly by increase of liabilities. So those are, I think, the main items when it comes to the cash flow. And with that, I would like to hand over again to Wagner, who will comment on the near-term outlook.