Epiroc AB (publ)

Hello, and a warm welcome to Epiroc Q2 results presentation. In Stockholm today, we have our CEO, Helena Hedblom, our CFO, Anders Lindén, and myself, Karin Larsson, head of IR. We're all trying to keep a safe distance from each other throughout the day. We have one hour for this call today, and we will allocate the time as we always do, which means Helena will start with an introduction. Anders will take you through the financials, and we will end with a Q&A session. In the Q&A session, we would like you to keep it short if possible. One question with one follow-up, please. And thank you in advance for helping us with this. So without further ado, Helena, please, the stage is yours. Thank you.

Thank you so much, Karin. And also from my side, welcome to the EPROC Q2 presentation. As we expected, it has been a challenging quarter, and we will cover the development in detail later in the presentation. But also in times like this, it is important with clear priorities. And in the quarter, as always, we have had a strong focus on the health and well-being of our employees and our business partners. We have also prioritized the aftermarket to help our customers to stay up running. And we have focused on lowering our cost. But at the same time, we have also invested more than we have ever done in innovation to enable future growth and to secure that we will be in the lead of technology moving forward. And we have also continued to invest in the activities that will take us to our sustainability goals for 2030. If we then move to the highlights of the quarter, well, it is clear that the pandemic had an impact on us. As an organization, we are experienced. We have been through challenging situations before. And also this time, we have demonstrated our agility. I'm happy to see how fast the organization has responded to the situation across the organization. But it was a rapid change. In the early part of April, it was clear that this was going to be tough. Countries in lockdown, mobility restrictions, it impacted our customer activities. And a large number of customers, both within mining and within infrastructure had to be temporarily closed. So it had an impact on our orders and on our revenues. But the situation improved towards the end of the quarter. June was clearly better than April and May, but still lower activities than what we saw in Q1. So we have throughout the quarter focused on lowering our cost structure, and this has given us resilience in our profitability. We also managed to deliver a strong cash flow in the quarter. And we saw an increased interest in our automation and digital solutions. And I will come back to that later on. Mindful of time, Anders will take you through the financials in details, but our orders dropped 17% organic and revenue dropped 15% organic. The drop in revenue impacted our profit. The profit is also impacted by low capacity utilization in our factories, as some were closed during part of the quarter. But we managed to save cost throughout the organization, but there was still a negative impact on the operating margin in the quarter. Still, I think given the drop in revenue, we showed resilience in our profitability, adjusted margin at 18.7%. I think given the situation, a good level. We also managed to reduce our working capital and the operating cash flow was better this quarter compared to last year, close to 2 billion SEK. I will now try to take you through the different developments in the different regions in the world. because there has been a large difference in activities in the different countries, and this is still the case. If we start with North America, clearly we saw a drop in activities, both related to mining as well as infrastructure. The activity has recovered somewhat, but it's not yet back to the level we saw in Q1. If we move to South America, it is a mixed picture. Countries that have been in complete lockdown, like Peru and Argentina, there we saw a significant drop in activity. But on the other hand, mining in Chile as well as in Brazil have kept steady high throughout the quarter. In Europe, we saw a drop in activities, mainly within infrastructure in the southern part of Europe. And activities has come back since restrictions has been eased in Europe. If we move over to Africa, we could also clearly see there a significant drop in activities, mainly in South Africa that has been under lockdown. But that situation has also improved in June. If we then move over to Asia, it is a mixed picture. With China has recovered well, activities are back on a good level, while India is still impacted, both by the lockdown when it comes to infrastructure as well as mining. And then moving over to Australia, Australia has been very strong throughout the quarter. So all in all, it is fewer customers today that are temporary closed than we saw in April and May. If we then move over to our operation, all our manufacturing sites and all our distribution centers are fully operational today, and the supply chain is up running in a stable way. So to summarize the status, the situation is clearly better now compared to when we entered into Q2, but the situation is still fragile in many parts of the world. So there is no doubt that we still are impacted by the pandemic. Operational excellence is one of my key priorities for the coming years for EPROC, and this is of course more important than ever given the situation. So we have taken a number of long-term actions and from these we expect savings of 500 million SEK annually as from Q3 2020. We still have some actions to go and we expect more savings to kick in in the later part of this year. And that is related to the planned layoffs that we have announced in Sweden. We have given notice to 425 employees in Sweden. We have of course also made a number of short-term actions in the quarter and that has supported the operating margin. We continue the work developing our supply chain. For our customers this means better availability of parts and on tools and here we have good progress. For us, it means a more efficient supply chain. And here we also have good progress when it comes to the ratio of sea and air shipment. So we're shipping more and more by sea. And that can also be seen in our CO2 emission from transports. Unfortunately, freight costs have risen sharply in the quarter. So we don't really see the effect on the transport cost. Another priority for myself is the aftermarket, of course. So this is key now and always. And this is where we can make the difference for our customers. And the positive trend continues. The number of customers that want us to service their fleet is increasing. And for us, it is about supporting our customers and create long-term relationship potential for future growth. And it, of course, gives resilience over a cycle. But, of course, aftermarket is driven by the activity levels. And as mentioned, this was impacted in Q2. Still, service held up very well. It's minus 3% organic on orders compared to last year. Compared to Q1, however, it's down 6% organic. As you can see on tools and attachment, we had a larger drop, and this is mainly related to country mix, some countries that have been heavily impacted by lockdowns and restrictions. But our aftermarket business is expected to be resilient and to grow over time. And then over to my favorite topic, innovation. So as I said, we continue to invest more than we have ever done in innovation to safeguard our leadership position for the future. So we want to be the enabler for safe, sustainable and productive mining and infrastructure. And this is why we keep investing in R&D also in times like this. So we're up 6% in investment in R&D year over year. And as I said in the beginning, there is a clear interest for our automation and digital solutions. So we have received in the quarter multiple orders for automation, both for underground as well as for surface solutions. And one example is the order that we also did a press release on to Codelco in Chile. Here is multiple underground units with all our automation and connectivity features embedded in the deal. We also continue to see a strong interest in our battery offering. And we recently signed an agreement with Vale in Canada and offer batteries as a service. And here we will also provide charging stations. We have also launched a new core drilling rig for exploration, which is safer and mobile. And we have extended our range for silent demolition tools with concrete busters. Then over to sustainability. So we have high ambitions, and it is encouraging to see the positive development of many of our non-financial KPIs. For example, on safety and on CO2 from transports. In the quarter, we also announced the details of the goals for 2030. So we will further advance the group's ambition related to climate change, safety, ethics and diversity. So with that, I conclude this very brief introduction and I leave it over to you Anders to take us through the numbers.

Thank you, Helena. The COVID-19 impact was indeed large for us during the quarter. I've been in finance for 35 years and I've never experienced such a quarter. As a CFO, of course, this was hard to handle. foresee and to plan for. But I fully share Helena's view that our managers and leaders, in fact the entire organization has managed well to quickly adapt to this situation. Our reported operating profit was 1 billion 418 million SEK, of which 165 million SEK related to items affecting comparability, which we can divide into two different parts. First, the changing long-term incentive programs of 91 million SEK. Again, I would like to point out that this is a good thing for the shareholders. An increase in share price leads to a higher cost for the long-term incentive program and vice versa. Epirog A share was around 98%. at the end of quarter one and around 116 at the end of June. And we will, mind you, see this change and impact in our income statement every quarter going forward. The second part, 74 million restructuring costs, mainly planned activities and not so much COVID-19 in these numbers. And before you ask, I would like to mention that government grants around the world have not had any material impact on Epiroc. And we have not utilized any support related to short-term work in Sweden. If we look at the bridge, I would like to mention four things on this slide. The profit, obviously negatively impacted by the lower volume and also by currency. Closing the adjusted operating profit at 18.7 for the quarter. Secondly, of the total drop of 4.5 percentage points versus last year, around 3.5 percentage points came from organic. The reported margin of 16.8%. But if we add back the restructuring costs and the LTIs, we arrive at the adjusted margin of 18.7%, as mentioned before. Thirdly, on the flow-through, it was negatively of about 40%, driven largely by the volume drop, of course, but the under-absorption in both the production and in service was difficult to manage. We adapt where we can, but in COVID-19 times, normal adjustments are not always doable. The sharp volume drop was very difficult to manage. Finally, on currency in the quarter, it had a negative impact on the P&L, but on the margin it was neutral. But if we look forward here, I think it would be good to mention that with the currency or exchange rates by the end of June, we will have quite a negative impact on the bridge in Q3 compared to last year. If we then go into the segments and start with equipment and service, orders received 15% down organically. Service orders minus 3% organically, as mentioned. Service is activity-based and organic. That was, of course, impacted by restrictions and the lockdowns. And remember that we saw both complete and partial lockdowns in many of the countries where Epiroc operates. Equipment orders down 29%. Also here, remember last year at this time, we were quite on a good level while we saw a softening demand already during the second half of 2019. Also mentioned, we did get a large order from Codelco in Chile. Sequentially, we did about minus 10% organically compared to the first quarter of this year. On the revenue side, minus 13% organically, operating profit for the segment of 1,441,000,000 SEK. including the restructuring costs of 17, which leads to an adjusted margin of 22.7, which can compare to 25.5 last year. If you then look at the bridge for equipment and service, it looks similar as for the group. The organic decline of 13% in revenue led to a margin effect of about 3 percentage points. The main reason for the lower margin here compared to last year is the lower volume. Part of this under-absorption in production and in service operations in the lockdown countries This was worse in the beginning of the quarter and improved towards the end of the quarter. And as a consequence, the flow through was negative of about 40% from these challenges with sharp demand drop and rapid change. If we then move over to tools and attachments, orders received minus 22%. Organically, the decline relatively larger for hydraulic attachments, where the share of distributed sales is larger. And also here we saw a large variation among the countries depending on how restrictions were implemented. Also revenue were minus 22% organic. And I will take the profit details on the next slide. The large decline in revenue under absorption and the temporarily closed manufacturing facilities and the restrictions around the world had an impact, a large negative impact on tools and attachments. A reported margin of 7%, volume and organic had the largest impact. And during the quarter, several factories have been closed, partly for a longer or shorter period of time due to the restrictions. And the majority of the restructuring costs in the segment are related to the moving of the production in Canada from North Bay to Montreal, as we announced earlier. And this leads to the adjusted margin of 9.8%. As mentioned, we are lowering the costs, and to see the costs going down is, of course, a good thing. This allows us to prioritize, and as Helena mentioned, for example, in innovation. The graph here includes a minor currency effect, also taking it down, but the majority year over year, as well as sequentially, are falling. on organic savings, and that is clearly showing a downward trend. And it is the administration and marketing costs coming down and being reduced, while the R&D investments have been increased somewhat. Tax expenses are on a normal level for the quarter, and we keep our guidance here to stay below the 25%. Looking at the capital structure, we have continued a strong financial position. We have a net cash position still, strong cash flow for the quarter, even if we paid 1.4 billion in Q2 in May as dividend in accordance with the revised proposal from the board. Yes, we have a strong financial position, and this has not changed. So what about the second part of the dividend? That is ultimately a question for the board and shareholders. And as we are now just through half the year, if the situation allows, we will come back on that later during the fall. We did also increase our borrowing, our funding with 2 billion SEC in response to the COVID-19 uncertainty and also the uncertainty going forward for the future. Networking capital and capital in general, we decreased nominal terms 18% versus last year, of which 6% was currency. The main reason is lower receivables, and as such, we did see good collections during the quarter, and we also managed to lower the inventory organically somewhat, despite all the COVID-19 challenges. Return on capital employed at 22.7%, quite a drop from 30.8% of last year. mainly from the lower profit and increased capital, where cash had a large impact. There is also still a small impact year over year from the IFRS 16, but that is minor and fading out during this year. In total, for cash and IFRS 16, the impact on return on capital employed was approximately 5%. On cash flow. Over time, every company has to turn profit into cash, and Epiroc is no exception. During the challenging situation, we had a strong cash flow in the quarter. So what do we see here? The operating cash flow improved with half a billion compared to last year. The lower profit obviously had a negative impact, but we managed to release working capital to compensate. mainly as the receivables decreased, but also some from lower inventory, and naturally the lower payables had a negative effect. Taxes paid were also lower. but in line with the tax cost in the income statement. If we look at the development over time, the net profit has turned into cash flow. In the recent quarters, the cash flow has been strong, operating cash generation. So to summarize Q2, a strong cash flow during very challenging times. And with that, I conclude the financial part and hand over to Helena again.

Thank you, Anders. So if I then take a moment to summarize what we just have presented, I would like to highlight the following. So the COVID-19 pandemic, it had a big impact on us, but I'm proud how fast we managed to adapt to the new situation. Service is proving its resilience, even if it is impacted by closed markets in the short run. We do our best to remain the innovation leader, We advance in regards to sustainability and we have a strong cash flow. So all in all, a great job done by the organization. So then looking forward, what to expect onwards? Well, we still see that the situation is fragile in many countries. So we expect that the demand both for equipment and for aftermarket will continue to be negatively impacted by the pandemic in the near term. And with that, we can start the Q&A session. So operator, if you would mind open up the line for questions.

Thank you. If you wish to ask a question, please dial 01 on your telephone keypad now to enter the queue. Once your name is announced, you can ask your question. And as previously mentioned, please limit yourself to one question and one follow-up question per turn. If you find your question is answered before it's your turn to speak, you can dial 02 to cancel.

so once again that's zero one to ask a question or zero two if you need to cancel and our first question comes from the line of class bergland of city please go ahead your line is open um yes hi elena nandesh it's classroom city so so the first one is on exit rates in in services and in tna in june so looking at the tna takes a big hit from construction and all the all the all the shutdowns which are which we're seeing from others and that should be temporary but how did we end the quarter was that down five percent versus the 22 percent down for the quarter perhaps and then on services it's obviously good to see that you're only down three percent does that mean that june grew hilly enough for you and by how much i will start here

So if we start, I can start on the comment on the activity levels. So as I said, you know, we saw a sharp drop in both April and May, and the activity levels improved in June. So there is clearly more, and this is mainly activity related, more and more mines and construction sites were opening up during May. But May was still quite large impact, and we saw activities coming back. We have not shared the numbers on how much, but I can say that it's much better in June compared to April and May, but it's still lower than the activity levels we saw in Q1, and that is both for infrastructure as well as for mining. And as I described, it's very much, I would say, a big difference between the different countries in the world.

Okay, thank you. The effective one is on the outlook, and it sounds pretty cautious, but I just want to confirm that this is more a prudent message, Helena, from you, rather than seeing equipment orders falling further sequentially from the 2.4 billion, because we are at a quite low level currently. And obviously, the mining backdrop seems pretty solid when we look at commodity prices out there. I mean, almost weather orders could improve at least for mining from the 2.4 billion. I appreciate that you want to be prudent, but I just want to understand that better, whether you're guiding for lower demand versus the 2.4 or if it's going to be stable to up from current levels.

We're guiding what say, of course, as we said, you know, when we guided for Q2, we guided a significant drop compared to Q1. When we guide now for the near term, you know, we still compare it with what say what we saw before the pandemic. So we do not see that the situation, you know, from what we see right now, we don't see that the situation will deteriorate from where we are right now, what we saw in June. But as I said, it is a fragile environment in many countries, and it all depends on how the pandemic will develop and what restrictions governments will put in place.

Okay, now that's clear. then then my final one is is the question that we all get and that is your relative position versus sandvik and we have talked about this before but i just want to i just want to discuss this with you you are more exposed to drilling where equipment is less mobile and perhaps don't follow the same automation trend always with automatic dispatching and so forth Do you think the drilling exposure in this quarter in particular, you know, your relatively bigger exposure to tunneling in infra is hurting you a bit right now versus peers?

No, I wouldn't say that. As you say, we are traditionally stronger in drilling, but I wouldn't say that there has been any change in the quarter. I think on the equipment side, this is very much, it comes in batches or in large orders or in orders when a mine decides to do a replacement or to expand. So that will always go up and down in the quarter. So I wouldn't say that it's an exposure. Of course, it's different customers, but more depending on when they take the decision to actually make the investment.

The question is obviously whether there are any market share shifts between the two of you.

No, I wouldn't say that. I don't think you should draw a lot of conclusions on a quarter like this. And also, of course, you always compare with what happened last quarter.

Thank you, Elena.

Thank you. Our next question comes from the line of Max Yates at Credit Suisse. Please go ahead. Your line is open.

Thank you. Just my first question is around the comments that you made on the impact from factory shutdowns and the underutilization. Is there any way that you could quantify what impact that had in the quarter and maybe thinking then about the flow through that you mentioned in the quarter of 40% Does that mean that kind of as we get into more normal production, we should see potentially better than that flow through as we go into the second half? That's my first question.

So it is clear that we see more and more interest around digitalization and automation, as I said. This is, of course, quite long lead times on projects like that. So I wouldn't say that it has not impacted the P&L in the quarter. If you look on the flow-through, as we said, it was a very sharp drop in revenue, and it was not possible to fully compensate for that in many parts of the world. And as we said, when we entered into Q2, we also had... six or seven factories that were temporarily closed because they were in countries that were in lockdown. So, of course, that had an impact on our flow through. But on the other hand, then we, as I said, we managed to save cost and mainly then on the functional cost on administration and marketing. But it has been, of course, the activity level have had an impact in the quarter. There's no doubt about that.

Okay. And just my second question is for Anders on FX. Would you be able to help us with kind of how you think about the impact on EBIT for Q3 at current FX rates? Because I was slightly surprised this quarter that we saw, obviously, last year, favorable FX rates and an actual benefit for margins. This quarter, we saw negative FX rates on the top line, but actually no corresponding margin impact, which doesn't really make sense given your transaction flows. So am I missing something with hedging? And if you could help us kind of thinking about what the margin or what the absolute EBIT impact could be in Q3 at current rates. Thank you.

Yes, I can help you with some, but not everything. And it is true that if we just look at the exchange rates development, and I will start there. We had about 5% on the top line. And, of course, you would expect that with no other, let's say, things influencing that that would be more clearly shown as a negative impact on the PNL but when we speak about a bridge then of course we need to understand what happened last year and when you have a let's say, swings in the currencies, and we had last year and even more so this year, the revaluation or what we typically refer to as period end effects can have quite a large impact, either, let's say, reinforcing or balancing out. We don't do hedging, operational hedging at all. It's a policy that we have. unless unless something extremely extraordinary but we don't do it as a principle we do have some let's say we do hedge our let's say loans in the financial net and that can also result in a swing in the financial net but not on the operating profit level Going into quarter three, I think given the exchange rate that we see now or what we compare with at the end of June, the top line currency effect will likely be stronger towards last year on the top line. And as such, we will see a negative impact versus last year, a little bit depending on period end effects. But yeah. We typically don't quantify due to this with the swings and the period end effects. We typically don't like to give a clear quantified guidance on the effect.

Okay, maybe you could then break out the revaluation effect on this quarter because it looks like it was favorable. as a result of there being no margin impact. Would you be able to break that out of what that contributed in?

Yeah, that's typically we don't disclose.

Okay. Thank you. Thank you. Our next question comes from the line of Maddy Singh of Bank of America. Please go ahead. Your line is open. Okay.

Yes, hi. Thanks for the call. A couple of questions. Firstly, I just want to understand the demand trends you saw in second quarter a bit more, especially if you compare with what Sandvik reported. They had around 10% organic decline in orders, and compared to yours, around 17%. So what explains this significant difference? And second question is just on the demand drop again, but how much of the drop you saw in second quarter you think is temporary or rather, you know, in other words, how much of these revenues or orders you lost in second quarter will actually come back to you, let's say, in third quarter or fourth quarter this year or later?

So as I tried to explain there, the demand, it was a big, it was a very turbulent quarter, with the biggest drop in April and May, and then activity levels came back in June. But it's still, as I said, it's still not to the level we saw in Q1. And that is, of course, because there is still, if you look on the production output in mining, in the world in Q2 and also in June, it is still impacted. So, you know, it has improved the activity level, but it's still lower than Q1. Of course, on the aftermarket side, mines that are temporary put under carry maintenance and then opening up, then of course when activities come back, then that aftermarket comes back. And that is true for both tools and attachments as well as for parts and service. I would say that the bigger part of the drop is, of course, related to temporary closed mine sites and temporary closed construction sites. If you look on the total... If you look under normal circumstances with the level we see on the mineral prices right now, I think a lot of the mines that are not, let's say, limited by restrictions, they are producing steady high levels. So I think that also tells something about, let's say, the overall dynamics in the market. Of course, in many places in the world still, there is restrictions.

And fair to say maybe that this is also changing. The situation mentioned by Elena is fragile, and we see in countries now in South America, South Africa, India, that it can change from, if not day to day, from one week to another.

But specifically compared to Sandvik, because Sandvik probably is also facing similar lockdowns and shutdowns. What differentiates your exposure compared to Sandvik here? Is it just the regional differences where maybe they have less exposure to the markets which are closed compared to you? Is that what you think is the driver behind the delta on organic decline?

If you look on our service, it's down 3%. So that, of course, you know, we have been, you know, in the markets that has been up running, we have also had good activities on the service side. But as I said on tools and attachments, that's mainly where the activities have been impacted. And if you look on attachment, we have a strong position in North America, in U.S., in Southern Europe, in India, for example, that has been impacted. So it is very much a country mix. And I think, of course, we have our strengths and our competitors have other strengths. So that could have an impact. But I can't comment on their performance.

Yeah. Okay. Thank you.

Thank you. And our next question comes from the line of Andrea Stosky of Nadia. Please go ahead. Your line is open.

Yes. Thank you. Good morning. Can you hear me?

Yes. Yes.

perfect so I have some questions on your on your savings and I'm sorry if you commented on this during your presentation but over the fear 500 million long-term savings that you expect from q3 how much of that impacted q2 already

Yeah, it's not fully implemented, but it's partially implemented, and we don't really quantify exactly how much. But it will be expected to be fully, let's say, annualized during the second half of this year.

Okay, but there is still a small part to come incrementally from Q2 into Q3.

There's still a material part coming, right?

But not of the 500. So they will say the activities related to the 500, we have more or less done everything. It's a smaller part remaining. But then, of course, on top of this, we have the layoff plan in Sweden for the later part of this year.

That's my follow-up question. So then you had short-term savings in Q2. How much was that, and how much of that will impact Q3?

So we have not so much. Of course, we have reduced travel and different type of spends. So we have done a number of temporary things in the quarter, but I wouldn't say that that has made a big impact on the savings. We are more focused on the permanent long-term efficiency savings, and that is what we have focused on executing. So our focus is clearly on the long-term permanent savings.

Maybe, Andreas, I don't know if you picked that up, but we have not utilized any of the support for short-term work in Sweden and government grants around the world, even though they have not been material in the PNL.

Yeah, I think that's very impressive. But then lastly, the additional savings that you expect from the end of the year, partly relating to the layoffs, what kind of amount should we expect from that? Is that another 500 million or... How much do you expect to save?

We have not quantified that, but it is, of course, a couple of hundred million at least. And I think it's two different things here. It's both one part that is volume-driven and it's one part that is pure efficiency-driven, long-term efficiency. Of course, depending on where the volume will be when we are in Q4, we will have to act according to that.

Understood. Thank you very much.

Thank you. Our next question comes from the line of Robert Davies at Morgan Stanley. Please go ahead, your line is open.

yes thanks for taking my question um my question was um something you'd highlighted uh particularly in the sort of first quarter the midlife refurbishment and upgrade activity obviously your aftermarket um quarter on quarter the growth stepped down i think it was from plus 12 to minor three um i just wondered if you could sort of split out how big an influence that has uh and once the sort of site access issues sort of get behind you and you move into the third quarter is that something Do you think we'll come back? How much sort of pent-up demand? Just a little bit more color on that would be helpful. Thank you.

So we continue with good activity levels when it comes to midlife and overhauls with, you know, larger overhauls and replacing larger components. So, of course, you know, also during a quarter like this, we have landed new service contracts. for example. So I would say, you know, of course we managed to offset part of the drop-in activities with our own activities, you know, growing the customer share and then developing these service products that we have developed for a couple of years now, since a couple of years ago. And we continue with good progress on it. So that has, of course, also supported us and will continue to support us in the coming quarters as well.

Thank you. And then maybe my follow-up is just really around what your customers are telling you in terms of their CapEx decisions. I mean, we've seen CapEx. push-outs and delays of those projects that have been pushed out or kind of sort of delayed. What are the customers telling you in terms of their sort of planned timelines? Are those push-outs done indefinitely? Are they done on a sort of we'll review them in sort of a three-month basis? Can you throw any color or any light on the sort of timeline of trajectory of the delays they're looking about? Are we expecting these to kind of come back in 2021? Is it just not known yet? Any more color there would be helpful. Thank you.

there are there are a couple of customers that has just pushed pushed out everything into into 2021 and of course that is the ones that are struggling the most right now maybe from from you know lower metal prices or you know low efficiency but i would say majority of the customers are you know the plans are still there it's more that the decisions are being pushed out in time and i think in in q2 now You know, all the focus has really been on handling the health crisis. So I think, you know, that is what I hear and what I see. As I said, you know, strong interest still around what, say, or maybe an increased interest around automation and digitalization, because that will really help. or say the mining industry to handle a pandemic like this long term in a way so that you don't need as many people on site. So I would say, you know, we always have this business cooking map on the large projects and they are still there. It's just that it takes longer time for the customers to make the decision.

Thank you. Maybe the follow-up on that was just around the automation spend. Is that something that customers are sort of looking at regardless? Do they sort of replace the current spending with that? Do you see it kind of tick up, I guess, because the other part of the business has gone down? How is the automation and digitalization bit sort of trended specifically in this quarter, say, versus 12 months ago?

But there is a clear interest. So there is more and more, more and more, I would say, interest around. And also we see that that is picking up. More and more customers want these solutions and that support. So I think if anything, I think, you know, that investment will continue, you know, as planned. And that is what I hear from all the larger mining houses. You know, the technology piece is that because the mining industry needs it from a productivity standpoint and safety standpoint.

Thank you.

We have one further question in the queue so far. So just as a reminder to participants, if you do wish to ask a question, please dial 01 on your telephone keypad now. And our next question comes from the line of Felicitas Bismarck of Deutsche Bank. Please go ahead. Your line is open.

Felicitas Bismarck Yes. Thank you very much. Most of my questions have been answered. especially given that one of your peers and you yourself say the market is going to stay a little bit longer, lower, and with the currency in mind, how does pricing normally react to these scenarios?

Yeah, so we, of course, you know, pricing for us is all about adding more value. And that is what we continue to do with better features, more value for our customers around productivity and safety. So we have also in this quarter managed to increase prices slightly. And we will continue with that.

And one quick question. You keep stressing that you didn't make use of short-term work schemes. May I ask why? Why not?

So we have been focused on adjusting the organization permanently instead. And that is to create, let's say, to position Epiroc from an efficiency standpoint long-term. So we took that decision quite early in April. Okay. Okay.

Thank you. Thank you. And we've had one further question come through so far. That's from the line of Max Yates at Credit Suisse. Please go ahead. Your line is open.

Thank you. Just a quick follow-up. I wanted to ask a little bit about consolidation in the industry and acquisitions in M&A. Obviously, we've seen share prices for some companies come under quite substantial pressure. So how much of a priority right now is M&A, and how do you think about the balance between trying to get an attractive valuation, attractive deal versus obviously trying to protect margins in your own business and manage what is quite a challenging environment. I guess what I'm asking is in this current environment, is M&A a priority or do you think about that as something kind of further down the line as the business gets back on sort of more stable footing or even more stable footing, I should say?

M&A is always a high priority for us, and all the divisions are always working with different segments and different targets. So there is no difference. If anything, I think we have, of course... put a lot of efforts now we can't travel etc so we have spent quite a lot of time but for us it's very much understanding the segments understanding the strategic fit and not jump on something just because it's low valuation right now so we do our homework and then when we are ready we will act

And do you have a preference towards smaller technology-driven acquisitions, or are you also considering larger M&A where you see synergies, opportunities, and create value via that avenue?

I believe that there is a lot to do within core and close to core, and a lot of that has to do with technology, as you say, position Epiroc as a technology leader, but also related to the aftermarket, there is good potential. So I'd rather see it built on smaller ones.

Okay, understood. Thank you very much.

thank you once again if there are any final questions please dial 01 on your telephone keypads now as there are no further questions coming through at this time i'll hand back to our speakers for the closing comments

Okay, thank you very much. Good questions, as always, and it was a good message. Thank you, Helena and Anders. We wish you a safe summer, successful investments, and in case you have any questions outstanding or you read something and want to know more, Helena Anders and also Mattias Olsson, of course, we're happy to help you. Just reach out. Thank you very much, and thank you.

Thank you. Thank you so much.