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 SEC, 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 Plus. 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 of four to 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 Mixfleet, 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 Mixfleet of around 100 haulage trucks to driverless operations and thereby creating the world largest autonomous mine of Mixfleet. There is high demand from customers that want to connect machines from different manufacturers and have these work together fully autonomously. We are the one stop shop for Mixfleet 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 Bolid and NABB. 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 Mixfleet automation. The construction demand on the other hand weakened, impacting not only attachments, but also tools used at construction sites. Important markets such as United States and Europe were especially weak. When it comes to operational excellence, I'm now on slide six. Our adjusted operating margin EBIT was down to .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 attachment 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 EPROC family meaningful but we have also completed the acquisitions of ASI Mining, YieldPoint and Waco. A warm welcome to all new employees and we hope that you will enjoy being part of the EPROC 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 .2% and women managers are now at 23.6%, both up meaningful fully compared to last year. Moving to slide eight where we have our planet goals. Our CO2 emissions from operations decreased 32% thanks to a higher share of renewable energy and installation of a solar panel. The CO2 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 the 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 nine, 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 .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 similar reduction of employees in the second half of the year. And in this quarter we took 104 million in restructuring cost 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 cost related to acquisition of 130, restructuring cost 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 Swiss 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 have ever supported 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 .7% at 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 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 from 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 will 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 for the coming quarters. One of the large orders we received in the quarter was from Hindustan Sink in India, 250 million pruner. They ordered a fleet of mine tracks as well as rigs for rock enforcement, face 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 and 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 reaction 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. And just that 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 mix effects within service while currency contributed positively. Pollution from acquisition was .1% points. Action have 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 then quickly move on to the other segment, tools and attachments on slide 14. Here our reward is 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 from mining customers on the other hand was good. Sequentially order intake decreased 10% organically for this segment explained by weekend demand in important markets such as the US and Europe as Helena mentioned. The weak development in construction also impacted the revenues for tools attachment negatively down 10% organically. In absolute terms though up 17% supported by the Stanley acquisition. And 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 4.5 billion. And the profit bridge of page 16 you can see then the margin headwinds. 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% to the tools attachment margin. 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 22-24%. 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 then by a lower build up 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 .8% of revenues. If we dig into the details then we had an increase of required inventory both year on year and sequentially as well as a higher level of receivables given the increase in sales while payers 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 EBTA 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 plus and this will provide our customer with a more complete range of productivity solution and quick couplers 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 four to five percent 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 news. Transaction integration costs were 130 million in the second quarter. We also had cost in the first quarter and but now after Q1 and Q2 we will not have more transaction or integration cost. The Stanley infrastructure EBIT margin in Q2 was low double digit if we adjust for items affecting comparability and you 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 impact. Previously we have provided you with the guidance for the full year dilution of EBIT margin in TNA for 0.5 to 0.7 percentage points 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 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 percent. 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 plus and we are accelerating our leadership within automation especially within Mixfleet 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 Eprock as the world's 95th most sustainable company. So all in all a busy quarter for us at Eprock 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 the 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 Våkan 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 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 five on your telephone keypad to enter the queue. If you wish to withdraw your question please dial pound key six on your telephone keypad. The next question comes from Andrew Wilson from JP Morgan. Please go ahead.

Hi good afternoon and 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 that'd be really helpful to understand. Thank you.

So if I start on the on the service mix of course as we you know we have different components within service and different quarters we grow different you know and of course you know we have we have parts we have service contracts we have different type of rebuilds but I would say so that that always plays a role 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 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 lower demand there related to construction and so that is something that we are that's part of also this very selective initiatives that Håkan mentioned that we are you know a big portion of the of the people that left both during 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 in in US and consolidating volumes so I think we say timing wise you will you know we expect to see a gradual improvement here quote you know step by step here but it's a fairly big big adjustments in cost structure that have have taken out now during Q2 but of course we don't see we don't see that effect yet in the numbers

and then if I think 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 or they also they're less than half than the amortizations that we will have each quarter

okay thank you

okay the next question comes from Max Yates from Morgan Stanley please go ahead

thank you good afternoon I just wanted to ask about the the margins in equipment and service and I guess

you were doing kind of roughly 24 percent margins in 2Q, 3Q, 4Q last year most set earning companies I speak to are guiding to negative effects in 3Q and I assume you're also going to have a -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 impact it's a big 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 that has been related to equipment and service which that means that we should start seeing the cost improvement during Q3 in the equipment and service segment

okay okay but just on that most most every company the every set company that I have under coverage gives margin 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 line it feeds through to ebit and I guess what I'm trying to understand is are you are you able to help us at all like do you think your margins of equipment and service get worse before they get better

well I would say we actually saw them get better in this quarter they were better than they were in last quarter right

okay so so this should be a sensible underlying level so that is 23 ish we should be comfortable with for the rest of the year

we don't guide specifically on margins as you know but we don't see we don't feel that you know this quarter was sensationally good in any way and that we that's not possible to hold up to that level

okay that's helpful that's that's all I wanted to know thank you

the next question comes from Christian Hinder Eker from Goldman Sachs please go ahead

afternoon Helena Hockan I hope you're well first question is on large orders you've booked 950 million in 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 results 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 you know 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 you know so some of these orders we got late and some of the customers don't want us to to to disclose what they then do press release so but if I look at if you say you know this is very bulky as as as we have you know described every quarter I think in this quarter you know it was good to see so many large orders you know coming through and when we look at at the pipeline the pipeline looks very solid and it's and it's 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 I don't see that hesitation it can of course sometimes be that that the decision happens one week too late and that can create swings between between quarters but in general in the conversations with the mining clients which I mean on weekly basis you know I don't see any any shifting behavior so so I think it's it's it's good to see that that momentum and also that I think what is good is to see also that that you know the replacement replacements are coming through in a good way

thanks Elena maybe follow up then on 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 tna specifically

so so I think we see we continue to see you know soft soft and weak weak and say the demand weakened in in the quarter and we see both say destocking activities happening with the distributor also with with some of the oems at the same time it has also been very low activities if you look in in in us and in europe you know both germany france for example which are our you know construction side what we are what we are focusing on of course now we with the stanley stanley acquisition also long term this is this is let's say a growth opportunity for us and and we have now created a say 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 the cost structure given the the 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 with when it comes to the destocking unfortunately so so that is still impacting the the the demand

thank you maybe just final one i can squeeze in on on your own inventories they were up 780 million sequentially how much of this and how can i think you might have mentioned it relates to the integration of stanley and other acquisitions just curious there as to what the organic changes

the organic change is actually in the right direction it's down so if we exclude acquisition of especially of stanley because that's where we have large items we are down on the inventory uh from end of q1 to end of q2

thank you

uh the next question comes from vlad sierdzevsky from barkley's please go ahead

yes good afternoon thank you very much for the opportunity i have two questions for this uh first one is to hawk on uh 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 uh second one perhaps to helene 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 cycle 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 by acquisition we do but if you uh 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 uh that's a relevant number to use going forward and

then some comments on on the demand side i think like we'll say short term right now what we see is this very very what's a low activity levels of course driven by the by the by the interest rate but also the inflation i think what what we are of course eager to see taking office the investments in infrastructure projects is you know driven by the .s.d. commitment if you look on on for us for example there's quite a lot in the pipeline that that will support this long term so that's of course we are watching on the mining side when i look at this pipeline of business cooking the there was a when we have we look at this you know an 18 months ahead there is not that many green fields in that in that pipeline yet however of course if we look at this long term there is clearly a need when it for for greenfield especially within copper to keep up the production level and meet the demand in in you know a couple of years from now but i'll say midterm if we talk 18 months not so many initiatives on on greenfield

excellent thank you very much if i can follow up quickly on the inventory level hokon how far do you think from the inventory levels you would be happy and comfortable with

so how far away we are from being comfortable is that

on the inventory level how far from 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 well i mean we started moving in the right direction now but we are not where we want to be so and we still have quite a bit to go

through yeah thank you very much

the next question comes from class bird lined from city please go ahead

thank you hi hokan and helena clasar city 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 on stanley hokan could you repeat there what you said on the inventory i understood from earlier today that you didn't have any inventory adjustments to ebit in the quarter and in light of that the clean ebit margin runs seven percent when i lift out 44 million of ppa looks quite weak for stanley and obviously it's tough construction markets out there but if you could just confirm that thank you

and we wrote in the in the presentation you will see that we didn't write a specific figure but wrote low double digit ebit a and then that's to be that's to be compared with what they had last year when they had 16 percent ebit a 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 no so yeah so just to confirm there was no inventory write as part of the ebit if i take out the 44 million ppa i get to seven percent clean ebit margin for stanley i just want to confirm that

then what we what you have no inventory write down 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 get we basically get no margin and that had an impact as well

it's

it's included in the ebit so if you want to adjust for that you will 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 uh add back to get the super clean margin okay perfect okay yeah okay cool my my second one is from the gross margin if i had back the 104 million of restructuring that i think you have in there then the the gross margin is 36.6 percent um like i thought but you obviously you don't get the positive mix here of service being being bigger than equipment that you've had over the last couple of quarters and if we take out currency whether it's a you know bridge impact like 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 this service which has mixed benefit right so i'm just curious about the moving parts within organic thank you

but i think on the on the organic on the organic side of course we you know we we have a growing digital business and and so it's of course partly that that those acquisitions that are growing with the margin that is step by step improving but not you know to the same level as as we'll see the other business but then we also have this this will say different components of service that i explained earlier as well so of course depending on how we how we grow the different parts we can also have an impact here but also there we have we'll say the the cost increase yes

so an overall cost increase which then is higher than the price increases that we're in price increases but the cost increases obviously labor etc has been has been high over the last year

and and then here's my final question on this you're talking about sort of you i think you said if i heard it correctly that sgna 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 it 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 as you know as we you know this is very much a mixed picture if we look on it organically overall overall we are up one percent so the mining is you know the strong mining is very much compensating for the for the softer construction and they and the pipeline looks very solid so this also where we need to be very we'll say precise in what we're doing because otherwise we can jeopardize we'll say the the mining activities and the growth in mining so so you know where we are focusing our let's say efforts is very much in the areas you know the areas where we are not performing so that could be that could be in a specific service contract it could be you know one one product it could be one factory etc so that is the type of preciseness we are we are working towards and that's it looks okay it's a rough number when you look at the 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 jeopardizing the long-term growth without jeopardizing you know the the long-term position from 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 250 million and and so it was a little bit difficult to track sort of where you got these etc could you comment helene i was 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 the one in australia which was 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

um

the next question comes from john kim from deutsch 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 q2 numbers and is it fair to say that the pricing should get better through these quarters as is

i would say you know it it takes longer time for the market to say you know for you for us to see it but if you say what the correlation is very often if i if i look historically at how what we have seen with higher prices of course we see increased activities in exploration but also we see customers drilling more hours uh so so so pushing the machines trying to maximize the output and that you can see that are not really consumable towards mining uh and you can see that on different type of services like like rebuilding and trying to bring the equipment up to the the highest uh so short is what we what we expect is very much on the aftermarket where you can see um unfortunately there on the and that is we'll say 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 will say lowers the activity levels there on on you see that as well when it comes to the number of which often sets this increase in mining when it comes to pricing

we we don't will say our own pricing work is very much tied to our our our capabilities when it comes to innovation the value that we deliver etc so so we we don't would say we don't we work independently on where the prices where the quality prices are with our pricing activities

okay helpful and previously i believe the equipment business was impeded a bit by units either waiting for export logistics and or being stuck at final production centers for for parts of certification can you comment on that as to whether that's the time better or worse

so that is improving so so we have put a lot of focus on that the last the last quarters

to open up the bottleneck to to improve our our safe flow through in these workshops uh in the different parts of the world so we see that that is that is turning in the right direction that is also supporting them the the revenue on on equipment and the improvement in inventory level technically is also coming from the equipment side that we have managed to get more equipment out Okay, helpful. Thank you. The next question comes from Ben Helan from the United States. Bank of America, please go ahead. Thank you. I just wanted to go back to these equipment and services marching comments. So, you know, you talked about mix with in-service. Can you help us understand what in-service is lower profitability and what is higher profitability? It sounds from your comments that these mid-life upgrades have been growing very strongly and the implication would be that they are just not as profitable as the rest of service. So, if you're going to actually help us understand that, what is it within service that is driving these mix? And then 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 labor, but what do you think on freight? What do you think on raw materials and component costs? If you could just give us the comment on that, that would be super helpful. Thank you. So, on mid-life, you know, 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, you know, 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 mid-life 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. So, it's creating a dilution, if you would say,

like that for the mix effect. When it comes to cost increases, of course labour is one component. I think freight costs, we see trending down. So, that one is something we are addressing. We're also doing 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 our cost. So, that's why we're putting a lot of effort into that area as well. Do you want to add anything more, Kanna? I forgot my text in the chat. Okay. Thank you very much. The next question comes from Magnus Kruger from Nordea. Please go ahead. Hi, Lena Håken from Magnus. A couple of questions to the head count on production with Stone and the Cordic. Could you add some colour on when those came through? If there are any additional head count production coming through outside of Stanley in the coming quarters? Ideally, you can add some colour to what that meant for our profit coverage in the quarter. So, the 450 head count that went out in the quarter came 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 from July. And then we also said that we expect during the second half of the year, we expect an additional approximately the same

level

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.

Fair enough. And so far, there'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 actually in Q1, we were down around 100. We said there was more interest than attachment. Given that that's where we saw the weakness first and then when we saw weaker margin in equipment and service, we acted there as well. So in Q2, more than half of these 450 are within equipment and service. Going forward, as mentioned, around 130 in Stanley. But then the rest is spread. There's some more interest in attachment, but there's still more in equipment and service. And 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. It's where we have reduced additional workforce. We have also reviewed service contracts where some of them have not been as profitable. We have reduced our staff spending money in those and exited some of them. And service contracts can obviously be anywhere in the world. So you cannot really say it's exactly in these geographies. 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 in. We have 3% on equipment and service. 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 it as fast as possible? Absolutely. Thank you so much. Thank you. So the last question I would pose. The next question comes from James Moore from Redburn Atlantic. Please go ahead. Hello everybody. Thanks for taking some questions.

I wanted to ask within the service margin and looking specifically at digital, is that still broadly at the same level or is it heading in the wrong direction at the moment or starting to head in the right direction and what's the time frame 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

much core and profitable from day one like RCT that we 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 between the business and the company. It's not really a very high entity we have acquired. On the other hand, our expectation is that we should see a gradual improvement. If we look at this at one bulk, we should see a gradual improvement within the digital business quarter by quarter. Thank you. Just a brief question. I listened to all the actions and the bridge comments. A lot of moving parts. Broadly, as we move into the second half, that's still going to be a challenged period for profitability and we are seeing a lot of growth in the digital business. 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 action? I think if we let's assume that the market is exactly where it is right now, which we obviously don't know, but I think we mentioned before we don't really see any growth in the digital business. 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 TNA. Is there a sort of anchor target for what you think? And the total margin is once we get to the cost base that you aim to get to within your plans, whether that's in 2025 or 2026, that we could start on how the anchor of the forecast is getting back to TNA? I would say we want to see an improvement of these actions already towards the end of the year. But then we are also the action that we are taking. We are taking actions that will help from where we are at the moment. But if

we are really going to see an improvement in the tools and attachments segment, we also need to see the market bounce back.

Just lastly, on copper deficit, you mentioned your thoughts on the 25 deficit over the years. We are 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, the slavours of EV so in the 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 the net because I think we also need to remember that the timeline before you

find an asset, you start to explore it, you start to do the investment, there are maybe two or three years to put the infrastructure in place before you actually can get to start to get production up or actually to go 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 a less risky way of expanding. But at a certain point you will run out of ore and you will have to invest in the green field. We will provide more color as a chapter to market on the copper also in our view. Unfortunately, we need to interrupt you guys here because it is 2 and I know all of you are eager to listen to someone else now. 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.