Epiroc AB (publ)

Thank you, Karin, and hello everyone. So starting with the highlights. So the mining activity continued to be strong in the quarter as anticipated, and our large orders amounted to 950 million SEK, which is up from 550 last year. And the demand picture within mining is stable at the high level, and there is a lot of business cooking, or in other words, the pipeline of potential large orders is solid. The construction market, on the other hand, weakened further in the quarter and impacting the aftermarket business negatively. In the quarter, we completed the acquisition of Stanley Infrastructure and we also announced the acquisition of ACB+. Together, we will be a leader within attachments and quick couplers, providing customers with a more complete range of productivity solutions. Long term, the construction market is attractive with an anticipated annual growth rate over 4-5% and with attachments used for deconstruction and recycling of steel and copper expected to grow even more. When it comes to profitability, we had a lower margin compared to the previous year and there are several reasons as to why and we will go through it soon. However, efficiency measures were carried out as planned in the quarter and sequentially the number of employees for comparable units decreased with around 450 in the quarter, mainly within service and manufacturing. Within automation and electrification, many exciting things are happening. For example, we have successfully deployed a battery electric trolley truck system for underground mining with ABB and Boliden. Moving on to slide three, providing some more insights on the development on orders received. So our orders increased 6% versus last year to 16.3 billion, and it corresponds to an organic increase of 1%. The demand picture was mixed. We had a positive 7% contribution from acquisitions, mainly the Stanley Infrastructure acquisition, which came into the books on April 1st. Sequentially, compared to the previous quarter, we achieved 5% organic growth driven by mining equipment. Moving on to slide four, innovation, one of our strategic focus areas. So within automation, I'm excited about our solutions, including mixed fleet, both for surface and underground applications. which create great value for our customers. Increased productivity, improved safety and lower emissions are some of the benefits confirmed by our customers. On the 3rd of July, we acquired the remaining shares of ASI Mining, one of our collaboration partners in the Roy Hill project in Australia. In this project, we are converting a mixed fleet of around 100 haulage trucks to driverless operations. and thereby creating the world's largest autonomous mine of mixed fleet. There is high demand from customers that want to connect machines from different manufacturers and have these work together fully autonomously. And we are the one-stop shop for mixed fleet automation and remote control solutions, regardless of manufacturer or type of equipment, partly thanks to acquisitions such as ASI Mining and RCT. And around recycling is increasingly important for our mining and construction customers. So by recycling and reusing steel and metals, also such as tungsten, the need to extract virgin material is reduced. And our recycling program for carbide inserts from drill bits is expanding into even more markets. Another innovation highlight in the quarter was that we successfully deployed a battery electric trolley truck system for underground mining in close collaboration with Boliden and ABB. And this brings the mining industry closer to realizing the all electric mine of the future with sustainable, productive operations and improved working conditions. Another strategic focus area is the aftermarket. I'm now on slide five. We had a strong organic service growth of 5% supported by midlife upgrades and a strong demand for mixed fleet automation. The construction demand on the other hand weakened, impacting not only attachments but also tools used at construction sites. Important markets such as the United States and Europe were especially weak. When it comes to operational excellence, now on slide 6, our adjusted operating margin EBIT was down to 19.7% from 21.6% last year. Efficiency measures were carried out as planned in the quarter and actions have been taken to strengthen efficiency and the number of employees for comparable units has decreased with around 450 in the quarter. And further measures to strengthen efficiency have already been initiated. We are also taking initiatives within our sourcing. It is a cross-functional effort, including R&D and marketing, that will lead to increased resilience within sourcing and delivery, improve the cost efficiency, and also ensuring compliance within sourcing. And as a reminder, on the 1st of May, we split our tools and attachments division into two divisions. in order to sustain optimal focus on each business line and continue fostering profitable growth externally the reporting segment will however remain unchanged moving on then to the people slide number seven safety is always our and my top priority and i'm glad to see further improvements here the total recordable injury frequency rate decreased further to 4.7 a meaningful decline from 5.5 previous year. As we completed the Stanley infrastructure this quarter, we have grown our EPPROC family meaningful, but we have also completed the acquisitions of ASI Mining, Yieldpoint and Waco. So a warm welcome to all new employees, and we hope that you will enjoy being part of the EPPROC family and share our values of innovation, commitment and collaboration. At EPROC our work is driven by trust and responsibility in a culture where everyone contributes and feels valued. So we see continued good progress when it comes to increasing the proportion of women and the share of women employees is now 19.2% and women managers are now at 23.6% both up meaningfully compared to last year. Moving to slide 8, where we have our planet goals. Our CO2e emissions from operations decreased 32% thanks to a higher share of renewable energy and installation of solar panels. The CO2e emissions from transport, however, increased 11% due to higher volumes delivered. So we have ambitious climate goals that were science-based validated already in 2021. In June, we got a significant acknowledgement of our work to reduce emissions. Time magazine listed Eproc as the world's 95th most sustainable company. And among manufacturing and industrial production companies, we were number seven. So well done to the whole organization. I will now give the word to Håkan to talk us through and discuss the financials.

Thank you, Helena, and I will continue with slide 9, group revenues and EBIT. Our revenues decreased 1% organically. In total, though, they increased to 16.5 billion, up from 15.9 billion last year. The adjusted operating margin was 19.7%, and the lower margin than compared to last year is mainly explained by overall higher cost level, negative mix effects within service, and also dilution from acquisition, which was 0.9 percentage points in the quarter. As Helena said, efficiency measures were carried out as planned in the quarter. The number of employees excluding acquisitions decreased with around 450 sequentially, and this was mainly within service and manufacturing. Further measures that we have already initiated will lead to a similar reduction of employees in the second half of the year. And in this quarter, we took 104 million in restructuring costs, and we do not foresee further restructuring costs in the third quarter for the actions that we have already initiated. If we then take a look at the EBIT bridge, and this is now on slide 10. In absolute term, our EBIT came in at 2.9 billion. This was down from 3.4 billion last year. But in this, we had items affecting comparability of 325 million. And these were including transaction integration costs related to acquisition of 130, restructuring costs 104. We have made a provision for earn out for the acquisition of RCT of 73. And then also for the long-term incentive program, 18 million Swedish kronor. And the reported operating margin in EBIT was 17.7%. In the bridge, you can see that we had a negative impact from organic and structure. Currency, however, supported the margin. And I do want to remind you that this is a bridge effect. So it's comparing the outcome in this quarter with the same quarter last year. In Q2 2023, we had a negative absolute bridge effect of 243 million and a negative margin effect of 2.7 percentage points. And some of that is now being reversed. So all in all, we ended up with an adjusted EBIT of 3.2 billion and an adjusted EBIT margin of 19.7%. If I then move on to the segments and slide number 11, and I will start with equipment and service. And these segments enjoyed a strong demand for mining. Year on year, the orders received organically increased 3% to 12.4 billion and including 950 million in large orders. And this should be compared with 550 million in large orders in Q2 2023 and 400 million in the previous quarter. And we have said this before and we'll say it again. Large orders are lumpy by nature. Sometimes you get more and sometimes you get less in a certain quarter. But we still see that there is a lot of business cooking out there in order for us to hopefully grab large orders also for the coming quarters. One of the large orders we received in the quarter was from Hindustan Sink in India, 250 million kroner. They ordered a fleet of mine tracks as well as rigs for rock enforcement, phase drilling, and production drilling. If we look sequentially, so if we compare with the previous quarter, our orders increased 9% organically. On slide 12, we have the equipment and service revenues, which were up 1% organically to 12.5 billion, an overall flat year on year. We had 44% equipment revenues in the segment, which is actually the same level as we had last year. So that means that the equipment service mix effect was flat this time. But if we look within service, however, we had some negative mix effects. We had a few items affecting comparability in total negative 142 million. These consist of the earn out for RCT, 73 million that I mentioned before. And this is an acquisition then developing better than anticipated. And then we have to provide more for the earn out. And then we also had restructuring cost of 69 million. And we did mention reduction of employees before on group level. And this is also the case in this segment. And our action here are very specific. I can almost say that you can say that they are pinpointed since this is actually a segment where we see good growth. But it is about strengthening our efficiency within this segment in the long run. If I then move on to the profit bridge for equipment and service, which you find on slide 13, we started with a profit of 3 billion last year and ended now with 2.7. Adjusted our EBIT was 2.9 billion, which is then corresponding to a margin of 23%, sorry, 23.2%. And you can compare that with same quarter last year when we had 23.9%. The lower margin is mainly explained by higher cost and then, as I mentioned, negative mixed effects within service, while currency contributed positively. The illusion from acquisition was 0.1 percentage points. Action has been taken. As I said, we should not forget, though, that we are experiencing strong growth from our mining customers. So we need to take these actions very carefully to safeguard a profitable growth also onwards. If I can quickly move on to the other segment, tools and attachment, on slide 14. Here, our orders increased 24% to 3.9 billion. This was up from 3.2 billion last year and supported by the acquisition of Stanley Infrastructure, which was included the entire quarter as we closed the acquisition on April 1st. In total, acquisitions impacted the growth positively with 31%. Organically, though, we saw a decrease of 6% as the demand from construction customers remained weak, and this was impacting both attachment and also rock drilling tools used within construction projects. The demand for rock drilling tools for mining customers, on the other hand, was good. Sequentially, order intake decreased 10% organically for this segment, explained by weakened demand in important markets such as the US and Europe, as Helena mentioned. The weak development in construction also impacted the revenues for tools and attachments negatively, down 10% organically. In absolute terms, though, up 17% supported by the Stanley acquisition. I'm now on slide 15. The EBIT, if we adjust 465 million of items affecting comparability, which was transaction integration cost for M&A, also restructuring cost, came in at 448 million, which corresponds to an EBIT margin of 11.2%. In the profit bridge of page 16, you can see then the margin headwind. In structure, we had the transaction and integration cost that I mentioned, 130 million kronor, and also restructuring cost of 35 million. And we also had dilution from acquisition. If we adjust for the items affecting comparability, The dilution from acquisition was 2.2 percentage point to the tools and attachment market. And the organic weakness then is mainly explained by under absorption and also product mix. Moving on to cost on slide 17, both year on year and sequentially, the cost for administration, marketing, R&D increased in absolute terms with the acquisitions explaining the increase. As a percentage of revenues, though, we are down sequentially, and we hope to continue this trend in Q3, given the actions that we have taken. Net financials were higher, explained by higher interest-bearing debt. Income tax, we had at 23.0%. This is up somewhat from 22.6%. And we do still stick to our guidance that the tax rate should be between 22% and 24%. Next slide, number 18, is on our operating cash flow. If we start looking at the graph to the right, which shows a positive development where we can see now that our cash conversion rate is 90% in the last 12 months, which is meaningfully higher than where we were a year ago when we were at 54%. In the table to the left, you see the operating cash flow, which increased year on year from 1.5 to 1.6 billion. The lower profit had a negative impact on the cash flow, but this was compensated by a lower buildup of working capital. And speaking of working capital, we have more details now on slide 19. It was up 12% year on year, both in total and also adjusted for acquisition and FX, and now represents 37.8% of revenues. If we dig into the details then, we had an increase of acquired inventory both year-on-year and sequentially, as well as a higher level of receivables given the increase in sales, while payables were lower. If we look sequentially and exclude acquisitions, we actually had a positive inventory development, mainly due to the increased sales of equipment. The next slide is about capital efficiency, and this is then slide 20. We ended the period with a meaningfully higher portion of debt. We're now at 15.8 billion versus 9.1 billion a year ago. And after having acquired Stanley and also paid a dividend of 2.3 billion, we now have a net debt to EBITDA of 1.04 times at the end of the quarter. Return on capital decreased to 22.4, and this was negatively impacted by intangible assets such as Goodwill. If we then shift a little bit of focus on slide number 29, and we look at why we are building a position for future growth within attachment. And in short, you can summarize this slide as we're building a leading position within attachment and quick couplers, given the acquisitions we have made of Stanley Infrastructure and also ACB+. And this will provide our customer with a more complete range of productivity solutions. And quick cuppers then, they are essential for excavator companies that strive to work with different types of attachment in an efficient and productive way. Long term, as Helena said and we talked about before, the construction market is attractive with an anticipated annual growth rate of 4-5%. And attachment used for deconstruction and recycling of steel and copper are expected to grow even more. So this is us positioning to capture future profitable growth. On slide 22, we have some financial impact from the acquisition of Stanley Infrastructure. Most things on this slide we have actually shown to you before, but I will therefore concentrate on the news. Transaction integration costs were 130 million in the second quarter. We also had costs in the first quarter, but now after Q1 and Q2, we will not have more transaction or integration costs. The Stanley Infrastructure EBIT A margin in Q2 was low double digit if we adjust for items affecting comparability and also the impact from step-up valuation of inventory. And if I pause there a bit and talk about what is the step-up value of inventory, Well, when we do the purchase price allocation for the acquisition, Stanley, we value the inventory to market value instead of cost. And then this has an impact in terms of lower gross profit as we sell the finished goods. This impact will last until we have turned all of that inventory around, which will be for three quarters. So basically until the end of 2024, we will have that impact. Previously, we have provided you with the guidance for the full year dilution of ABTA margin in TNA for 0.5 to 0.7 percentage point from the acquisition. And we do still stick to that comment. Given the weakening demand in the second quarter, the anticipated dilution is currently at the higher level of the range. But we have identified and taken actions which will mitigate the effects of lower demand. For example, we will consolidate the manufacturing footprint for Stanley Infrastructure in North America, which is affecting around 130 employees. Also for the group, we stick to this margin comment as this acquisition and its impact on both revenue and profit is smaller now than we originally anticipated. So with this, I will conclude the financial comments and leave the word back to you, Helena.

Thank you, Håkan. So I will then summarize the quarter. So we had strong demand from mining customers with large orders at 950 million. And the business cooking looks promising. And on the service side, we had an organic growth of 5%. Construction, on the other hand, was weak and also weakened further in the quarter, which impacted the aftermarket negatively. We have taken actions as planned and we will take more to improve profitability. And restructuring costs for this have already been taken. We are building a leading position within attachments with our acquisitions of Stanley Infrastructure and ACB+. And we are accelerating our leadership within automation, especially within mixed fleet, by acquiring the remaining share of ASI Mining. And together with Boliden and ABB, we have deployed a battery electric trolley truck system for underground mining. helping the mining industry towards zero emissions. And we got a significant acknowledgement of our work to reduce emissions from Time Magazine, who listed Epiroc as the world's 95th most sustainable company. So all in all, a busy quarter for us at Epiroc, and we keep on working hard to provide customers with the right solutions for the future. So together we make it happen. And finally, then, looking ahead, now on slide 24, in the near term, we expect that the underlying mining demand, both for equipment and aftermarket, will remain at a high level, while the demand from construction customers is expected to remain weak. So, thank you, and over to you, Karin.

Thank you, Helena. Thank you, Håkan. Both well presented. And as you know, we're hosting our Capital Markets Day in Vegas in connection to the world's largest mining exhibit, Mine Expo, in September. To those of you that would like to join us in person, you will get to see many new innovations and meet and interact with most of our division presidents, actually. But if you cannot make it in person, you're also most welcome to join online. And please note that if you want to join online, you also have to sign up for the CMD. So with this, operator, thank you, and please open up the line for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Andrew Wilson from JP Morgan. Please go ahead.

Hi, good afternoon. Thanks for taking my question. I guess I just want to try and dive into some of the details around the margin and appreciate you've kind of given some of the levers for the current challenges. But could you try and help sort of quantify a little bit? I'd just like to understand better the service mix weakness that you talk to. Can you just elaborate a little bit on the driver of that and how long we expect that to persist. And also, could you help us a little bit on maybe the size and also the timing of some of the cost savings? And then finally, and maybe it's just repeating what you said, but trying to put some numbers around it, but the inventory revaluations within Stanley, can you just repeat that and try and help us a little bit with the quantum so we can build that in over the next three quarters as well? I appreciate they're quite specific questions, but it'd be really helpful to understand. Thank you.

So if I start on the service mix, of course, as we have different components within service and different quarters, we grow different. And of course, we have parts, we have service contracts, we have different type of rebuilds. But I would say that always plays a role in how that mix plays out in a quarter. I think all in all, what we see is that there is a high activity level out there We see that, as we also comment on the orders, we continue to gain a lot of orders on midlife rebuilds. So, of course, depending on the mix, we go for growth when it comes to service. But at the same time, we also work with efficiency. So as Håkan mentioned, quite a lot of the efficiency actions we took during Q2 is also towards the service segment. When it comes to under absorption, that is mainly in the, I would say, tools and attachment segment and with the lower demand there related to construction. And so that is something that we are, that's part also of this very selective initiatives that Håkan mentioned, that we are a big portion of the people that left both during Q1, but also now during Q2 and The initiatives we have initiated that will be executed now in Q3 are related to address that under absorption. And one part of that is also related to Stanley, as Håkan explained. So we are closing down one entity in US and consolidating volumes. So I think, timing-wise, we expect to see a gradual improvement here, step by step here. But it's a fairly big adjustment in cost structure that we have taken out now during Q2. But of course, we don't see that effect yet in the numbers.

And then if I take the third question you had on the size on the inventory step-up value, to make it simple, you can say there are less than half of the overall PPA for Stanley infrastructure. Sorry, there are less than half than the amortizations that we will have each quarter.

Okay, thank you.

The next question comes from Max Yates from Morgan Stanley. Please go ahead.

Thank you. Good afternoon. I just wanted to ask about the margins in equipment and service.

And I guess you were doing kind of roughly... 24% margins in 2Q, 3Q, 4Q last year. Most SEC earning companies I speak to are guiding to negative FX in 3Q. And I assume you're also going to have a year-over-year drag from some of these higher costs, which are still going to be there. I guess the reason I ask is because if you didn't have that FX, tailwind this quarter your margins would have been somewhere between 20 to 21 and I guess what's very hard for us to see from the outside is I don't know whether your margins in the second half are going to stay roughly around 23 or whether with negative FX ongoing costs they're going to drop somewhere between 20 to 21 and it's obviously a massive difference that people have very low visibility on so is there any way whether you can help us understand Are your equipment and service margins about to go to 20 to 21 in the next couple of quarters? Or are we going to see the effect of these initiatives quite quickly? Thank you.

I think if I can start by trying to repeat a bit what I said in the call regarding FX is that what you see is a bridge impact. It's a bridge impact comparing with the same period last year. It's not an absolute impact. You cannot just put it back on the margin and say this is what it would have been without the FX. And then gradually we will see the, if you look at the number of people that have actually left the company this quarter, quite a large portion of that has been related to equipment and service, which means that we should start seeing the cost improvement during Q3 in the equipment and service segment.

Okay, but just on that, every company, every set company that I have under coverage gives FX guidance for the next quarter. So all of those are pointing to negative effects. I understand it moves around, but Typically, when you see negative effects on your top line, it feeds through to EBIT. And I guess what I'm trying to understand is, are you able to help us at all? Do you think your margins of equipment and service get worse before they get better?

I would say we actually saw them get better in this quarter. They were better than they were in last quarter, right?

Okay, so this should be a sensible underlying level. That is 23-ish we should be comfortable with for the rest of the year.

We don't guide specifically from origins, as you know, but we don't feel that this quarter was sensationally good in any way and that's not possible to hold up to that level.

Okay, that's helpful. That's all I wanted to know. Thank you.

The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.

Afternoon, Helena Hocken. Hope you're well. First question is on large orders. You've booked $950 million in the quarter. That's broadly in line with the $938 million average last year, but obviously well above the $215 that you'd pre-announced. Was that incremental step up the result of orders coming in late in the quarter, or is this more about customer restrictions on you producing a press release? And then if it's the former, what should we make of that order development heading into the second half, given that you've said the pipeline's solid, but maybe there's some hesitation around the timing and commitments from customers?

Yeah, so it's a combination. So some of these orders, we got late, and some of the customers don't want us to disclose what's saved and do a press release. But if you say this is very bulky, as we have described every quarter, I think in this quarter it was good to see so many large orders coming through. And when we look at the pipeline, the pipeline looks very solid. And it is a combination of replacement of... old equipment and also expansion, brownfield expansion. So, you know, when I look at that pipeline, I don't see that hesitation. It can, of course, sometimes be that the decision happens one week too late and that can create swings between quarters. But in general, in the conversations with the mining clients, which, I mean, on a weekly basis, you know, I don't see any shifting behavior. So... I think it's good to see that momentum and also that, I think what is good is to see also that the replacements are coming through in a good way.

Thanks, Helena. Maybe follow up then on the outlook and in terms of demand. I think you've changed the wording on the construction demand from soft to weak. How do we think about that change in narrative? And then in Q2 specifically, Can you talk a little bit about the dynamics you're seeing in customer inventory levels? Was that an impact on your growth in T&A specifically?

So I think we continue to see soft and weak. And as I say, the demand actually weakened in the quarter. And we see both destocking activities happening with the distributor, also with some of the OEMs. At the same time, it has also been very low activities if you look in US and in Europe. Both Germany, France, for example, which are construction markets, has been low activity levels the last month. I think on the construction side, what we are focusing on, of course, now with the Stanley acquisition also long term, this is, let's say, a growth opportunity for us. And we have now created a dedicated division around this, and we are focusing on making sure that we are as efficient as possible now, but of course that we also address the cost structure given the development. But I don't, I have not, you know, I don't think we are, we are not yet out from that situation when it comes to the destocking, unfortunately. So that is still impacting the demand.

Thank you. Maybe just a final one I can squeeze in on your own inventories. They were up 780 million sequentially. How much of this, and Håkan, I think you might have mentioned, it relates to the integration of Stanley and other acquisitions. I'm just curious there as to what the organic change is.

Yeah, the organic change is actually in the right direction. It's down. So if we exclude acquisition, especially of Stanley, because that's where we had large items, we are down on inventory from end of Q1 to end of Q2.

Thank you.

The next question comes from Vlad Sergevski from Barclays. Please go ahead.

Yes, good afternoon. Thank you very much for the opportunity. I have two questions, please. First one is to Håkon. How much PPA amortization related to Stanley you recognize this quarter? And will it be a straight line amortization? So basically the number we can use going forward. And second one perhaps to Helena as well on the demand environment. Are there any signs of grid shoots in construction activity which are already perhaps pointing to a better environment, let's say six months down the road? And the more long term question on demand on mining. Is there any chance for a meaningful greenfield project cycles in the coming years, or we are in the environment when demand will continue to be mainly driven by brownfield activity, which is already at a very good level.

If I start with the first one then on PPA, we usually don't specify it by acquisition, we do, but if you look at the difference between EBIT A and EBIT within tools and attachment in Q1 and in Q2, you can basically calculate it backwards, and then you get that it's a little bit more than 40% million Swedish kronor. And yes, that's a relevant number to use going forward.

And then some comments on the demand side. I think like we'll say short term right now, what we see is this very low activity levels, of course, driven by the interest rate, but also the inflation. I think what we are, of course, eager to see taking off is the investments in infrastructure projects, you know, driven by the ESG commitment, if you look on for US, for example. There's quite a lot in the pipeline that will support this long term. So that's, of course, what we are watching. On the mining side, when I look at this pipeline of business cooking, when we look at this 18 months ahead, there is not that many green fields in that pipeline yet. However, if we look at this long term, there is clearly a need for green fields, especially within copper, to keep up the production level meet the demand in a couple of years from now. But I'll say mid-term, if we talk 18 months, not so many initiatives on Greenfield.

Excellent. Thank you very much. If I can follow up quickly on the inventory level. Håkon, how far do you think from the inventory level you would be happy and comfortable with?

Sorry, how far away we are from being comfortable? Is that...

On the inventory level, how far from the level when you say, yes, this is a great level of inventory I'm happy with?

I would say we still have quite a bit to go. I mean, we started moving in the right direction now, but we are not where we want to be. So we still have quite a bit to go.

Thank you very much.

The next question comes from Klaas Berglind from Citi. Please go ahead.

Thank you. Hi, Håkan and Helena. I was a bit late on the call. A lot going on, so hopefully you haven't touched on this already. But I just wanted to zoom in on Stanley. Håkan, could you repeat what you said on the inventory? I understood from earlier today that you didn't have any inventory adjustment to EBIT in the quarter. In light of that, the clean EBIT margin runs 7% when I lift out 44 million of PPA. It looks quite weak for Stanley, and obviously it's tough construction markets out there, but could you confirm that? Thank you.

We wrote in the presentation, you will see that we didn't write a specific figure, but we wrote low double-digit EBIT A. And then that's to be compared with what they had last year when they had 16% EBITDA. So yes, it's definitely lower than where it was last year and where it will be long term. And that's why also we are taking quite a lot of actions related to Stanley during the quarter.

Exactly. So just to confirm, there was no inventory write-down as part of the EBIT. If I take out the 44 million PPA, I get a 7% clean EBIT margin for Stanley.

I just want to confirm that. Then what you have no inventory right on, but when we do this purchase price allocation, we value the inventory to market value from cost to market value, which means if you simplify it, when we sell it, then we basically get no margin. And that had an impact as well. It's included in the EBIT, so if you want to adjust for that, you would need to take that away as well. And that will last for three quarters, so two more quarters. And I said then earlier in the call, maybe before you joined, that that was less than half of the PPA value.

Okay, so around 20 million add back to get the super clean margin. Okay, perfect. Yeah, okay, cool. My second one is from the gross margin. If I add back the 104 million of restructuring that I think you have in there, then the gross margin is 36.6%. like I thought, but obviously you don't get the positive mix here of service being bigger than equipment that you've had over the last couple of quarters. And if we take out currency, whether it's a bridge impact like Max alluded to, but if I just look at the organic, we're still down around sort of 3.7 percentage points year over year on slide 13. Could you just talk through how much is digital and how much is price cost Because no longer we have the services as mixed benefit, right? So I'm just curious about the moving parts within organic. Thank you.

I think on the organic side, of course, we have a growing digital business. And so it's, of course, partly those acquisitions that are growing. with a margin that is step-by-step improving, but not to the same level as, we'll say, the other business. But then we also have these different components of service that I explained earlier as well. So, of course, depending on how we grow the different parts, we can also have an impact here. But also there we have, we'll say, the cost increase. Yes.

So an overall cost increase, which then is higher than the price increases. We're still seeing price increases, but the cost increases, obviously, labor, et cetera, has been high over the last year.

And just my final question on this. You're talking about sort of, I think you said, if I heard it correctly, that SG&A is now sequentially lower X currency. So step by step, you're improving on the OPEX. But obviously, it's not a weak market. You can't cut OPEX too hard. So you're coming back to the earlier question, really. I'm just trying to understand, like, can you give us some sort of hint that estimated sales ambition into the second half? We have the gross margin. We can calculate that. But just so we get the OPEX level in the right place.

I think, you know, this is very much a mixed picture. If we look on it organically overall, we are up 1%. So the strong mining is very much compensating for the softer construction and the pipeline looks very solid. So this is also where we need to be very precise in what we're doing because otherwise we can jeopardize the mining activities and the growth in mining. So where we are focusing our or say efforts, is very much in the areas where we are not performing. So that could be in a specific service contract, it could be in one product, it could be one factory, etc. So that is the type of preciseness we are working towards. It's a rough number when you look at the total number of employees that is going out, but it's very precise, I would say, to address where we have the challenges without jeopardising the long-term growth, without jeopardising you know, the long-term position from a technology leadership standpoint.

Quick final one just on the 950 million large orders in mining. There was a bigger share of unannounced orders this quarter. I mean, I think you only announced 215 million and so it was a little bit difficult to track sort of where you got these, etc. Could you comment, Helena, on like

where do you see this increased activity because it is quite a quite a big step up quarter on quarter in mining while construction is getting weaker so so several of them came from africa so we had you know good good large orders from from africa that is is you know existing customers ordering more but also you know asia as well as australia uh the one in australia which was uh you know sizable that was the replacement order uh which is of course super good to see that we we continue to that our customers continue to trust us thank you

The next question comes from John Kim from Deutsche Bank. Please go ahead.

Thanks for the opportunity. Just a question around activity levels and velocity in Q2. Given the uptick in copper pricing in the period, how would you characterize how that actually translated into your Q2 numbers? And is it fair to say that the pricing should get better through these quarters as production expansion is tight and copper pricing is stronger?

Question mark? I would say, you know, it's it takes longer time for the market to say, you know, for us to see it, but if you say, the correlation is very often, if I look historically at what we have seen, with higher of course, we see constructivities in exploration, but also we see customers drilling more hours. So pushing the machines, trying to maximize the output, and that you can see then on really consumers towards mining. And you can see that on different type of services like rebuilds and trying to bring the equipment up to the, what's it, the highest possible productivity level. So short and light is what we expect. It's very much on the aftermarket where you can see a higher push and more focused efforts from our customers. Unfortunately, when it comes to consumers, and that is the other way around when it comes to construction, of course, we have lower activity levels on the construction equipment that we have out there, and that lowers the You see that as well when it comes to the number of drill meters in construction is trending down, which often sets this increase in mining.

When it comes to pricing, our own pricing work is very much tied to our capabilities when it comes to innovation, the value that we deliver, etc. So we work independently on where the commodity prices are with our pricing activities.

Okay, helpful. And previously, I believe the equipment business was a impeded a bit by units either waiting for export logistics and or being stuck at final production centers for parts of certification. Can you comment on that as to whether that's the same, better or worse?

So that is improving.

So we have put a lot of focus on that the last quarter to open up the bottlenecks. to improve our safe flow through in these workshops in the different parts of the world. So we see that that is turning in the right direction, that is also supporting them, the revenue on equipment. The improvement in inventory level organically is also coming from the equipment side that we managed to get more equipment out. Okay, helpful. Thank you. Next question comes from Ben Helan from Bank of America. Please go ahead. Yes, thank you. I just wanted to go back to these equipment and service discharging comments. So, you know, you talked about mix within service. Can you help us understand what in service is lower risk? profitability and what is high profitability it sounds from your comments that these midlife upgrades have been growing very strongly and you know the implication would be that they are just not as profitable as the rest of service so if you're actually help us understand that what is it within the service that is driving these mix and I guess the second comment you talked about the general cost increase across the business can you talk about the components of that you talked about labour but What are you seeing on freight? What are you seeing on raw materials and components and costs? If you could just give us the... around that, that would be super helpful. Thank you. Yeah, so on midlife, you know, I would say the quarter when you do the mid-life, then you have a lower margin. But, of course, you have prolonged the life of that machine, which leads to maybe another three years of parts consumption.

So over that life of that equipment, that is consolidated a good business. So that is what we need to be. The service products, that's a way of prolonging and making sure that you actually use more large components over the life cycle of a machine. So I would say that the mix effect we're talking about, it is related to that we're growing nicely on this midlife rebuild, but also the digital business. as we have commented, we are growing faster on that business, which is, of course, great, but we are not there yet, margin-wise, where we, you know, so it's creating a dilution, if you would say, like that, mixed effect.

When it comes to cost increases, of course, labor is one component I think freight costs we see trending down so that one is I think we are addressing we're also doing a a lot of work on the direct material.

As I mentioned in my presentation, there's a lot of focus on the direct side of COGS, which is the big portion of

of our costs, actually. It's a big part. So we're putting a lot of effort into that area as well. Do you want to add anything, Håkan? Okay. Thank you very much. The next question comes from Magnus Kruber from . A couple of questions about the head count reduction we saw in the quarter. Could you add some color on when those came through? If there are any additional head count reduction coming through outside of Stanley in the coming quarter? And ideally, you can add some color to what that meant for our profit margin in the quarter. So the 450 headcount that went out in the quarter came back. gradually throughout the quarter, which means that from a cost point of view, we have not seen the full impact of those 450 yet. That will be seen starting basically from July. And then we also said that Reduction throughout the rest of the year.

And what we mentioned was we are looking at consolidating the footprint of Stanley infrastructure and taking down the number of people there. We said that's around 130 people. So then Of course, there will also be quite a bit outside of Stanley infrastructure during the second half of the year.

Okay, so you have 450 now and then an additional 450 for the balance of the year. In the same level.

It's not going to be exactly 450, but it's one part.

That's fair enough. And so far, it's been a lot in equipment and service. Could you say a little bit anything about the regions or the profit bridge impact so far that would be helpful for the rest of the year?

Yeah, if you look at it, actually, in Q1, we were down around 100. Then we said it was more in tools and attachments. given that that's where we saw the weakness first. And then when we saw a weaker margin in equipment and service, we reacted there as well. So in Q2, more than half of these 450 are within equipment and service. Going forward then, as mentioned, around 113 in Stanley, but then the rest is spread. There's some more in tools and attachments, but there's still more in equipment and service. Geographically, I would say it's a little bit everywhere it's where we have people you can say it's in our production facility this is where we have reduced additional workforce and we have also reviewed service contracts and where some of them are not in a profitable we have reduced our staff and many in those and exited some of them and service companies that can obviously be anywhere in the world so you cannot really say it's exactly in this geography it's quite well spread actually Thank you so much. And like Helena said before, since we are still growing, we have an organic order intake on group level. We have 3% on equipment and services. We need to be rather precise here. We cannot just do one size fits all, but we need to see where are we at the moment growing, where are we not growing as fast, how can we make this as fast as possible. Absolutely. Thank you so much. So the last question now is posed. The next question comes from James Moore from Redburn Atlantic. Please go ahead. Hello, everybody. Thanks for taking questions.

I wondered if I could ask within the service margin, and looking specifically at digital, is that still broadly at the same level? Or is it sort of heading in the wrong direction at the moment or starting to head in the right direction? And what's the timeframe on digital? That's the first question. Maybe we start there.

I would say it's heading in the right direction. So we are seeing progress if we compare with where we have been before. We are seeing that We have increased sales, as Helena mentioned before, and we also see profitability moving in the right direction. Timeline, I would say, it varies.

This digital business comprises very much of acquisitions, some of them being very mature and profitable from day one, like RCT that I mentioned before, and some of them being more startup companies. and smaller companies. So it's hard to say that it doesn't really follow a specific curve. It really varies by entity we have acquired. On the other hand, our expectation is that we should see a gradual improvement If we look at this as one bulk, we should see a gradual improvement within the digital business quarter by quarter. Thank you. And can I switch to T&A? I listened to all the actions and the bridge comments. A lot of moving parts. But broadly, as we move into the second half, that's still going to be a challenged period. profitability and could we end up being at a similar level to where we are now on an adjusted basis or do you expect that to already start to pick up with the actions I think if we let's assume that the market is exactly where it is right now, which we obviously don't know, but as I mentioned before, we don't really see any green shoots. So let's assume it stays exactly here. Then we are taking a lot of actions, which means that when those actions kick in, we should start seeing an improvement in profitability as well for DNA. And is there sort of an anchor target to what you think And the types of margin is once we get to the cost base that you aim to get to within your plans, whether that's in 25 or 26, that we could somehow anchor off the forecast getting back to you. Well, I would say no. We want to see the improvement of these actions already towards the end of the year. But then we are also the actions we held from where we are at the moment. But on the other hand, if we're really going to see any

improvement in the tools and attachment segment, we also need to see the market bounce back.

And just lastly on copper deficit, Elena, you've mentioned your thoughts on the 25 deficit over the years. We're getting closer. Do you think now with what's clearly been potentially arguably a worse than expected construction environment given interest rates and China being pretty sluggish, and those two blocks being a large proportion of the world's copper demand, say, versus EV, solar, battery, wind, and the likes. Do you think that that deficit is now sort of pushing to the right, or do you still feel like that is the natural point?

I think it is, because I think we also need to remember the timeline before you find an asset, you start to, you know,

you start to explore it, you start to do the investment, you know, there are maybe two, three years just to put the infrastructure in place before you actually can get to start to get production up or out. So I think time is ticking, but of course, I would say everyone is, and I think that is why we continue to see everyone trying to push around the field more and more, because as long as you can do that, that is of course less risky way of expanding. But at a certain point, you will run out of ore and you will have to invest in greenfield. We will provide more color at the cap. unfortunately need to interrupt you guys here because and I know all of you are eager to listen to someone else now and But thank you very much. We will all be here for you. Have a nice summer. And we wish you successful investments. Thank you. Thank you, everyone.