Atlas Copco AB

Thank you, operator. And a very warm summary welcome to all of you to this second quarter earnings call for the Atlas Copco Group. Very happy to have you all on board. Before I hand over to Wagner to start giving more comments on the results, I will already now, as usual, implore you to not ask more than one question at a time when the Q&A session starts, so all of the callers have the possibility to raise their question. If there is more time available at the end, we can of course take more follow-up questions. and also that we have a tight deadline, so we will finish the call sharply at the end of the hour. But that being said, I will hand over to Wagner. So, Wagner, I guess we can say that we are overall quite happy with this second quarter report.

Yes, indeed, Peter and welcome to this conference call. We are quite happy to report our record order intake. coming from several market segments i would say of course the highlight is the semiconductor definitely a very nice growth but not only i think we saw our industrial compressor business developing well our industrial vacuum scientific vacuum our industrial assembly tools and also power equipment did very well. And I should also mention that our gas and process compressors also have a quite good growth in the quarter with a lot of decisions being taken in the quarter where they were very well positioned to get the orders. So also good to see our service business continue to grow in all divisions and in all regions. I think we are quite happy with that development as well. That is part of our strategy to capture the aftermarket potential. Our revenue as a consequence also grew organically, that we see a good development there. Our profit margin was stable year on year, and we saw a sequential improvement that we are also quite happy to see. If we look a little bit deeper in our adjusted profit, I think we see a good year on year improvement and sequential improvement as well. And while we ramp the production that has requirements for stock and a bit of receivable, we still deliver solid cash flow. And we continue to roll up our acquisition strategy, this time Five companies were acquired in the quarter. One to highlight is Laco Technologies that will enable us to supply equipment for leak detection that are important in several market segments, including space business. So then translated this level of activity, good orders. If we look to the consolidated picture for the group, we had a good improvement in our orders received year on year. So basically we have added more than 10 billion Swedish kronor in our order book. So that was really, really good development. organic growth of 26%. Our revenues grew 8% organically, Good part of the growth came from vacuum technique, but the others, all the business areas had positive development when it comes to revenue. And like I mentioned, the adjusted profit increased in absolute terms 12% with a margin of 21%. So good profit development and also earnings per share, good development, cash flow and the return on capital employed at 24%. That was a decrease year on year, but we also see a sequential improvement when it comes to capital employed. So then when you look to the orders received, we see that we basically have grown in all regions, very strong development. uh in most of the regions uh the only negative development we have is in the middle east african middle east but the driver is the middle east not too many decisions being taken there during the situation but we even in in the middle east we have a solid platform we are now supporting our customers to restore production and there are a lot of projects in the pipeline the environment does not allow our customers to take decision but even in the Middle East, we are very well positioned with good project pipeline. But then talking about Asia, very nice development, 47%, basically coming from all business areas. CT had a very nice development, vacuum technique, very strong development. a little bit lower but still positive in industrial technique and power technique also positive development basically all business areas have grown in Asia in Q2 so quite happy China as well we had positive developments in most of our product lines the highlight was mainly in the semi business but not only compressors, power and also industrial technique in some specific markets doing very well in China. So then we go all the way to the Americas. You see North America 49% growth and also they're very strong in all business areas and also very strong in industrial technique. to start with, with very good growth. We saw new projects, some projects in automotive and mainly connected to Production relocation, where we are very well positioned with the latest developments where we create new capabilities of automation and also new capability when it comes to flexible production lines. Our customers, they need more flexibility and then we manage to benefit. Power technique, solid grow inorganically and organically. So very strong growth. VT as well, we saw very nice growth in the semiconductor market, but again, not only in North America, but also some investment in metallurgy and other segments doing well. And compressor technique also did very well in North America, where the main driver was gas and process compressors connected to LNG. But not only, industrial gas is also doing quite well. South America, 16%, also doing quite well, basically, in all product lines that we have. And Europe, I would say I'm very proud about the development in Europe. It's 7%, not comparable with Asia and North America. But in the other hand, considering the situation, I think we are quite happy with that achievement. And also most of our business areas has grown organically in Europe, which we are quite happy about. that has if we add up this result is translated then in a good organic growth when it comes to orders receive eight percent in revenues organically also our acquisitions are doing quite well you see five percent we have then one acquisition in the semi market that is doing quite well, quite happy with the development. You see the orders plus five, revenues plus four. They also are building a nice other book that they can work in the coming quarters as well with an invoice. We still see currency headwinds in the quarter. And that brings us to a year-to-date orders received of 96 billion Swedish Krona orders invoice of 85. So going to the split of our organic growth, we see Now all the BAs doing quite well. It's good to see as well a bigger contribution coming from vacuum technique. Now 25% of the orders received in the last 12 months with 59% organic growth, 19% in compressor technique, but also quite happy to see 14% in power technique and also 11% in industrial technique considering their exposure to automotive is also very good now going more in details in the in the business areas starting with compressor technique quite happy to report organic growth into industrial compressors and we see good development in most of our regions when it comes to industrial compressor sharp growth in in gas and process and there the main drivers were LNG vessels and on-site LNG So those are the main market, but not only. We also got quite the major orders for industrial gases. We continue as well to create opportunities for the future. Just yesterday evening, we have announced another acquisition, Aeroclimat, that will continue to help us to deliver on our strategy when it comes to optimized utility room. we see that there are quite a lot of potential. We are very strong in the utility room, compressor room or utility room. They need cooling, they need heat and heat pump. I think that will create opportunity to upgrade utility rooms in the future. That is the main reason for the acquisition and give us R&D and production capabilities. It's important also to mention that we had quite a lot of decisions taken in GAZEN process. GAZEN process were orders received were above 15% of orders received from CT. So it was good to be well positioned with a very good quotation pipeline when customers feel more comfortable to decide. I think we were quite well positioned there. So revenues continue to grow organically, 3%. Profitability was lower than previous year, but 24.1%, it's a good level. We believe the most important for CT is to keep their focus on organic growth. We have the inorganic strategy, but organic growth is extremely important to continue. they had some effects coming from the the acquired entities when it comes to profitability but that's a good level and we will continue our focus on organic growth we continue our focus on innovation here is another example of of industrial gases, on-site generation of industrial gases, nitrogen or oxygen, and here is a new product. And this is also another segment that has helped us to continue to grow organically. And we continue the product development there. Good to see organic growth in compressor technique. now going to vacuum technique was very strong demand 59% organic growth and there we see when it comes to the semi-market basically orders came from all the markets all the major markets orders came from advanced nodes but also from mature nodes China was also very strong, quite happy to see the development there. But not only, I think it's worth mentioning that our industrial and scientific vacuum are doing very well. There we see in advanced batteries investment, battery storage systems, so that required quite a lot of vacuum. We saw good investment there. But not only metallurgy is also an important segment in some regions where they need to invest in special alloys that They don't want to depend from one country or another, or even for defense. And we were very well positioned to get orders. We also see more investments in R&D space where scientific vacuum benefits from that. research in general and that we see an increase investment that our scientific vacuum is positioned to do very well in that market. Solid growth in service in both division industrial and also semiconductor service. Happy with the with the way we start to scale up production now, 90% organic growth. We believe that is not enough for the order book we have. We will continue to scale up production. The same when it comes to operating profit, 21%. Peter will go more in details, but we will see continued gradual improvement as we improve further the volume. return also good to see now a bend in the trend when it comes to return on capital employed. And we also have a nice pipeline of projects of new of innovation in for the semiconductor that's another example on abatement systems where we come with a new product that has better efficiency extended mean time between services that's pretty much aligned with what our customers in that market segment needs requires so going to industrial technique So we're quite happy to report 11% organic growth. And I think a good part of that is because of the investments we have done in the last two years in five acquisitions that create the capability to do more automation in industrial technique for the automotive market. But not only, we also have invested in R&D to support our customers to have more flexible production line. And this time that they need to do consolidation, move production from one place to another, mix different products. I think that technology, I think is very well perceived by our customers. And I think we got quite good orders in that market segment. But not only, also general industry did quite well. I think we have also developed some dedicated products for some market segments that are doing quite well. I could mention electronics, I could mention I could mention if you need in the data centers, you have to assemble a lot of components into racks. And I think that we managed to capture part of that business as well. Revenues also went up. A good profit development driven by the 11% organic growth. Any stable return on capital employed. So as you can see, they keep on investing in innovation. And this product is specific for when you need to assemble a lot of electric components. So I think they did quite well in the quarter. PowerTechnique also notable growth for equipment, 14% organic growth. Most of product lines developed very well. main driver here is the for sure the US where we saw quite a lot of order for portable compressors and also for generators as well for rental companies and if there are investment in the infrastructure they definitely capture part of that investment we good to see specialty rental growth also in new market segment like we have invested in in the pump rental business we also see the good development there so good growth and also their service business revenues also going up and when it comes to profit also good to report a bend in the trend because over the quarters the profit was declined because of acquisitions and some investments. But now it's the second quarter now in a row that we see that improvement in the profitability, in the profit margin. And I think that's good. We are happy with that trajectory. return on capital employed lower because there we have done a major acquisition last year that is still growing to that cycle. So then they continue to invest as well in R&D. Here is an example of a dedicated product for the American market, a product that is utilizing water well drilling. So With that, perhaps I will move to you, Peter, please, that you can take over.

Thank you, Wagner. So moving from operating profit to the rest of the income statement, we have net financial items that are slightly higher, but no meaningful change, you could say, fundamentally. Profit before tax, 9.1 billion versus 8.4. and income tax expense of 2.1 billion, somewhat higher than the same quarter last year with an effective tax rate of now 22.8. We think that this tax rate will probably remain at around the same level, maybe even be slightly lower in the coming quarter, 22.8. Maybe if all stars align, we will end up at maybe 22.5. going forward. Let's say small change, this is more or less the level that we see in the near term continuing. If I then move to the next slide and talk a little bit about profit bridge for the group, then you could say nominally very flat margin, 20.6, 20.6 in the second quarter of 2026 as well. But first of all, there is the impact of the LTI programs where basically part of that profitability is eaten up. The acquisitions are also somewhat dilutive for the overall margin development. The currency, on the other hand, is slightly positive. and that has mainly to do with the fact that last year we had very negative operating exchange differences which basically this year are not there at all I would say we have very minor positive operating exchange differences so basically the fact that in the bridge the previous year negative development comes back as a positive now resulting in this net improvement of the margin thanks to currency but More importantly, I would say, is the fact that we have a good drop through for the margin, given the fact, of course, that we have quite a significant volume price improvement. The revenues have gone up quite a bit. then there are of course some elements that partly offset it but still a higher margin than we had last year resulting in basically a better adjusted margin this year as well when it comes to the foreign exchange differences or overall the currency impact on the income statement if I look a little bit forward for the moment we still have quite negative values on the top line and then a minor negative on the operating profit when it comes to the next quarter I would expect that the top line impact of exchange rates will be very very minor and also on the operating profit normally a very minor impact of course depending on how the currency is developed might be somewhat negative somewhat positive but let's say for now knowing what we know we would expect something basically like zero currency impact in absolute terms on the bottom line if I then dig into the bridges of the individual business areas then starting with compressor technique like Wagner already mentioned So I think organically, or we end up with 24.1%, somewhat lower than last year at 25. Of course, 25% is a margin that we really enjoyed for quite a while now being on an absolutely high level. acquisitions on the other hand are eating up a little bit of that very high margin they are somewhat dilutive and that of course is given by the fact that in the first year we add a lot of costs for integration for IT security other type of things and we are not able to fully mobilize all the synergies yet So it is not illogical, let's say, to have some negative traction from acquisitions in the beginning. The currency for the moment is also slightly negative on the margin. Not that much, minor impact, but still bringing the margin a little bit lower. And then when it comes to the drop through there, of course, we see a little bit lower margin, but again, 24.1% still the highest margin in the group from all the business areas. And given the fact that we have organic growth, I think we're very pleased to see that development. and realizing that volume at a margin of 24.1%, we are still quite pleased with. As we have always said, organic growth is absolutely the top priority. And then the absolute volume value development of the profitability is then what follows out of that, which is, we think, more important than sticking to this absolute 25% profit margin. Then vacuum technique. I would say, first of all, also somewhat dilutive effect from the acquisitions We have, of course, done quite a few there as well. Farin already mentioned LACO. We also have the joint venture in China, for example, developing well from a top line point of view. The margins are still a little bit lower, but also over time we expect that we are able to develop that further. Also here we have the initial integration cost. And of course, important to mention both for CT and VT that the bottom line is at least positive in absolute terms compared to the revenues. currency is quite positive for vacuum technique vacuum technique has had the biggest impact from these operating exchange differences and of course that comes from last year at least so that comes back this year as a positive but then the strong development of the vacuum technique revenues also results in a reasonable drop through I would say adding a decent percentage to the overall margin for vacuum technique we need to consider of course that the demands on vacuum technique and specifically on semi are very extraordinary, knowing that in certain locations, certain factories, we need to basically more than double the output of the company to get to the demand from the customer is not just a slight increase. It is really quite transformative to more than double the output within a short period of time. And that means that we need to invest, first of all, in direct labor to make sure that we can make the products. but also in some other costs that we initially during the restructuring phase have basically cut down to make sure that we protect the profitability now we need to catch up and that of course means we need to put some investments there which are to some extent bringing down the the very strong impact of the revenue volume development that we see in semi particularly then I will move to industrial technique starting with a margin of 17.1 percent also quite a positive impact from the currency as industrial technique had also been quite exposed to the currency development last year. But especially then when it comes to the organic development of the business, very strong performance with very solid drop through. And I would say, of course, on the one hand, we have the revenue volumes that are improving, but on the other hand, also really seeing the full impact of the old restructuring activities that the business area has gone through during the last year. And that, of course, results in very nice operational efficiency leverage in the margin there. And then last, Power Technique. Also here, as Wagner explained earlier, a nice improvement of the margin. We actually see that the acquisitions we have done in Power Technique are not only accretive from an absolute value point of view in terms of profitability, but are even accretive from a margin perspective, which is, I think, very positive to notice. Currency impact for power technique is virtually nothing. They have also had less issues with currency in the last year, I would say. And then finally, organically also here we see an improvement thanks to volume price development. On the other hand, we've had due to all the investments we have made in the rental fleet in order to push that business forward also to invest and replace some competitive products, especially on the dewatering side with some homemade products in the fleet. that results in somewhat higher depreciation costs which has a little bit of a detracting impact and other operational inefficiencies in the rental business particularly and also a little bit of an unfavorable mix so that in the end pulls down a little bit the drop through but still adding to the margin quite nicely if I then move on to the next slide I will give a few comments on the balance sheet I think the main impact I would like to highlight is first of all if we look year over year the addition of all the acquisitions that added quite a bit of volume to the balance sheet secondly the development of inventories and receivables which goes hand in hand with the business development we have seen the revenue increase and the increased production we need to push out the factories add some inventories the additional invoicing obviously creates more receivables But good to note that relatively speaking, the working capital in comparison to revenues is actually improving gradually over time now. The cash, of course, went down a little bit, given the fact that we have made the first installment of the dividend during the second quarter. And then when I moved to the equity liability side, the equity a little bit down compared to December, mostly because on the one hand, we have taken out the full dividend from the equity. on the other hand we've added of course the profitability of the last two quarters while on the other hand we see mainly the non-interest bearing liabilities moving upwards partly because of payables increasing hand in hand with inventories you could say while also the second installment of the dividend has been moved from the equity to the non-interest bearing liabilities so I think that is in a nutshell the main items on the balance sheet I would say nothing spectacular there And cash flow, as we already indicated earlier, despite the fact that we have this steep ramp up going on in semiconductor, but also all the other business areas doing well on orders and therefore also having to increase quite a bit on the production side, we see still quite solid cash flow coming out of the second quarter, mainly based on a very strong operating cash surplus, adding at least a billion to that one and it is slightly offset by somewhat higher tax payments but mainly then the say the investments we need to make in working capital high receivables higher inventories somewhat offset or partly offset by the payables that also increase hand in hand with the inventories so that leads us then to overall a cash flow of 6.8 billion which I think is given the fact that we need to put a lot of money into the operations at this moment generating quite good efficiency from a working capital perspective. So with that I've come to the end of the explanations on the different financial statements and I will hand back now to Wagner to comment a bit on our near-term outlook.