Epiroc AB (publ)

Hello and a warm welcome to the Epiroc Q3 results presentation. My name is Karin Larsson, head of IR and media here at Epiroc, and by my side I have our CEO Helena Hedblom and our CFO Håkan Folin. As always, they will briefly present the results before we do a Q&A session. You know the drill. Helena, please, the stage is yours.

Thank you, Karin. And also from my side, a very warm welcome to all of you. So before we dive into the numbers, I want to begin with something that lies at the heart of everything we do, safety. The past few months have been a sad reminder that mining remains a dangerous industry. One incident that stands out is the groundfall at the Red Chris mine in British Columbia in Canada this July. Three workers were trapped 280 meters underground and within just 24 hours Epprock was called in to deploy our RCT tele-remote automation kit on a non-Epprock loader. And we did it. And the machine was then operated remotely, digging through collapsed ground toward the refugee station. So after more than 60 hours underground, all three miners were safely rescued. So this moment is a powerful testament that fast action, automation and collaboration can save lives. Because at the end of the day, the best thing that comes out of a mine is the miner. During the quarter, we celebrated several important milestones. Since I just shared an example around safety, let me highlight three more that underscore our leadership in this area. First, we reached a major breakthrough at Hancock Iron Ore Roy Hill Mine in Australia. So all 78 mining trucks, non-Epprock ones, have now been converted from manual operation to fully autonomous using Epprock's LinkOA solution. And this is a great achievement which really positions Epprock at the forefront of mixed fleet automation globally. My second highlight is our strategic partnership with Hindustan Zinc Limited, the world's largest integrated zinc producer, which awarded us with a large contract for a collision avoidance system in the quarter. All of their mines in India will in the future be equipped with our collision avoidance system. And as with most of our solutions, it is OEM-agnostic, designed to work seamlessly across any vehicle platform, and is a cost-effective way to significantly enhance safety across existing fleets. And thirdly, I would also like to mention the celebration of our Pit Viper rig turning 25 successful years with a full decade of autonomous drilling. And the rig has revolutionized surface drilling by combining power, safety and energy efficiency. With over 90 million meters drilled autonomously and significant emission reductions, the pit viper has set a new benchmark for sustainable and productive mining operations worldwide. So turning to the customer activity then in Q3, the demand in mining remained high, especially within exploration. And after a prolonged period of subdued demand for construction-related attachments, we're now seeing a small recovery in order intake as the destocking phase nears completion. On the financial side, our operating margin declined, primarily due to tariffs and cost relating to efficiency measures. That said, the actions we've taken, particularly within tools and attachments, are beginning to show positive results. And Håkan will elaborate on EBIT and margin development shortly. Finally, I'm also pleased to report that our operating cash flow increased by 38% in the quarter to 2.5 billion, supported by an improvement in working capital. Looking into the details on the orders, in Q3 in total, orders received decreased 2%, hampered by currency, which impacted with minus 9%. In total, our orders amounted to 15.1 billion and organic order growth of 7%, despite tough comparisons of plus 6% in the previous year. That reflects a high mining activity. We achieved the strongest order growth in equipment, tools and exploration. Large mining equipment orders, which are lumpy in nature, amounted to 600 million SEK. And it's encouraging also in this quarter to see that many of our equipment orders include our latest technologies, both in automation and electrification, leading to higher productivity, increased safety, reduced energy consumption and a lower total cost of ownership for our customers. And again, we now see a recovery in the order intake for attachments as the destocking phase is largely complete. And that is both in Western Europe as well as in the US. Sequentially, compared to the previous quarter, orders received were unchanged organically. So let me turn to innovation, where we continue to lead the way. And I will start with Powerbit X, a revolutionary drill bit fortified with diamond protection. At Remote Goldmine in Canada, Machine Rogers International has tested our diamond-coated Powerbit X with outstanding results. Bitlife increased from just 5 to 10 meters to over 700 meters, boosting productivity by 125% per shift. Monthly bit usage dropped from 70 to just 12. And with no need for regrinding, carbon emissions fell by 90% per drill meter. And as autonomous drilling becomes more and more important globally, the demand for high-performance drill bits, such as the PowerBit X, is essential to unlock new levels of productivity and sustainability. I would also like to give you some more information about our collaboration with Hancock Iron Ore Roy Hill Mine in Australia, because it truly is a unique achievement. All 78 haul trucks have now been converted to fully autonomous operation, creating the world's largest OEM-agnostic automated mine. The non-Eproc fleet is operating seamlessly under Eproc's automation system, and the real-time traffic management is handled remotely from operations center located 1,100 kilometers away in Perth. And to date, this autonomous fleet has safely moved over 250 million tons of material and traveled more than 6 million kilometers, which corresponds to going around the globe 150 times. The final phase of the project is on track for completion by year end and to deliver these high-end mixed fleet automation projects you need the highest connectivity quality and that we have managed with the help of Radlink, a fully owned connectivity provider. In Q3, we recognized 300 million in revenues from this project, and we expect recurring revenues going forward. And after years of development and learning, we are confident that this solution is both productive and safe, and we are now ready to scale to more mines. So let me share a video of our Link OA offering. Link OA

The future of autonomous haulage is here. LinkOA for Haulage is the OEM-agnostic automation solution designed to maximize efficiency, flexibility, and performance in mixed fleets. Automation shouldn't limit your fleet choices. LinkOA works with any haul truck, regardless of OEM, and is backed by retrofit experience across dozens of makes and models. It offers the flexibility to scale without locking mining operations into a single truck supplier, whether you're upgrading existing fleets at brownfield sites or deploying new trucks at greenfield operations. Beyond automating trucks, this technology creates new opportunities in mine design by enabling narrower roads, tighter switchbacks, and optimized intersection choreography. LinkAway helps unlock more aggressive and efficient layout, ultimately improving site productivity. LinkAway for haulage is optimized to meet demanding KPIs, maximizing truck availability, improving productivity, and reducing costs to support aggressive business cases for autonomy. Epiroc is committed to delivering high performance in real mining environments, even those that are less than perfect. Built for the toughest mining environments, LinkAway for Haulage performs reliably in extreme heat, sub-zero temperatures and rugged terrain, all while meeting prevailing safety standards. With high system availability and minimal unplanned downtime, it keeps your operation productive under pressure. With nearly two decades of mining automation, LinkAway for Haulage has driven millions of kilometers autonomously and hauled hundreds of millions of tons. It's a proven leader, delivering reliability and results at scale.

Our aftermarket revenues accounted for 66% of total revenues in the quarter, with the tools and attachments representing a growing share of the mix. The strong demand from the mining sector continued to drive solid revenue growth across both tools and service. For attachment, we see that the destocking phase is nearing completion, which is encouraging. But it's still low levels and the second half of the year is typically seasonally weaker for our construction customers. So moving on to operational excellence, then we continue to take actions to strengthen our resilience and drive profitable growth. Our tariff mitigation strategy includes optimizing logistics and distribution flows, leveraging our global manufacturing footprint and adjusting our supplier base, including key inputs like steel. Of course, we're also implementing price increases to compensate. We are consolidating production sites with particularly strong progress in our attachment division. And the closure of our SM facility and the transfer of production to Kalmar is well underway. And Kalmar has now emerged as a central hub for breakey production with state-of-the-art technology and automation. In parallel, we are investing in Nashik in India to create a global production and R&D hub for equipment, both surface and underground. And the new facility will include production halls, prototyping labs and outdoor test tracks. This investment aligns with our Make in India strategy and strengthens our presence in a key growth region. Another measure that we take to improve efficiency is to consolidate several of our customer centers into larger regions. And as we announced in September, we have implemented business areas. Equipment and service is led by Jess Kindler and tools and attachment is under the leadership of Jose Manuel Sanchez. And the business areas will increase customer focus further and secure the strategic direction of EPROC going forward. So moving on to our sustainability performance on safety, I'm pleased to report that our total recordable injury frequency rate improved yet again, and is now 4.1, down from 4.4. And this reflects the strong engagement across EPROC to safety. We ended the quarter with about 19,000 employees, and of our workforce, women now represent 20.3%, and our managers, women, represent 24.9%. Both metrics up meaningful since last year. On the environmental side, our CO2 emissions from operations increased by 7%, primarily due to expansion of operations and reduced availability of renewable energy. Our transport-related emissions rose by 2%, driven by higher delivery volumes. And while these increases are not where we want to be, they are a direct result of our growth, and we remain committed to reducing our footprint going forward. And also in the quarter, EPROC was awarded a gold medal by Ecovadis, placing us in the top 2% globally among more than 150,000 rated companies. And this recognition reflects our strong performance in sustainability, ethics, labor practices and procurement. So with this, I invite Kåkan to speak about the financials.

Thank you, Helena. Our revenues in the quarter decreased 3% to 15.2 billion, which is corresponding to an organic increase of 5%, and currency impacted negatively by 8%. The aftermarket represented 66% of revenues in the quarter, which is one percentage point lower than in the comparing period, The meaningful difference is, however, for service, where we have two percentage point lower revenues this year compared to the previous period, which is then a negative mix impact. The operating profit, our EBIT, was 2.8 billion, and it includes item effect and comparability of 94 million. These are mainly related to efficiency measures we are taking. The change in provision for the share-based long-term incentive program was rather small at 1 million. The adjusted operating margin decreased from 19.7 to 19.0%, and the margin was negatively impacted by tariffs. We worked hard to mitigate the negative effect of tariffs, as Helena just told you. That said, still, the net estimated effect on the margin in the quarter was roughly half a percentage point on group level. The EBIT impact from currency was negative in absolute terms, minus 230 million, but it was actually positive with 0.2 percentage points on the margin. And this is mainly due to that we have some revaluation of internal profits. If we then move on to equipment and service, so for this segment, orders amounted to 11.4 billion, corresponding to a 6% organic increase. And also here, we have the negative currency impact, 9% for this segment. There was a strong underlying growth within equipment. It was plus 10% organic. The large orders, and we define them as above 100 million, They were 600 million in the quarter. We can compare this with Q3 last year when they were actually 1.4 billion. So 800 million difference there. The large orders are, as we always say, they are lumpy in nature. When we look ahead, we see many interesting projects and tenders that we are involved in. Service had an organic increase of 2%, with the strongest growth achieved within what we call our traditional service operations. And within digital specifically, we achieved good growth in our safety solution, which is an area within digital that comes with high gross margins, so that is pleasing to see for us. If we look at it sequentially, orders received were flat organically for the segment. If we then look into revenues for equipment and service, we achieved 11.5 billion, which corresponds to an organic growth of 6%. And again, negative currency impact, 9% on the revenues. Equipment revenues were strong, increased 10% organically. Service revenues increased 3% organically. We recognize revenues from the Roy Hill project, around 300 million in the quarter, and that is diluting to the margin. This is, as we have talked about many times before, an innovation project, and we are very happy with the milestones we have achieved now. Another thing impacting margin negatively was reduced customer activity in the nickel segment. And if we compare year to date with the same period last year, we have lost about half of our business in nickel due to many mines being under care and maintenance. That means they are not producing at the moment. EBIT in total amounted to 2.4 billion. That includes 101 million in item effect and comparability in cost for mainly efficiency measure. Last year, we had a net of plus 208 million SEC in items effect and comparability because we had a positive revaluation effect of shares of ASI mining and also impairments of intangible assets. If we move instead to the right-hand side of the slide, we have the adjusted EBIT, which was 2.5 billion, corresponding to a margin of 21.9%, down from 22.9% last year. And we have a similar margin pattern here as for Group, with tariffs burdening both EBIT and also margin in a meaningful way. And also FX is similar as it is for the Group. As we talked about before, we have a lower portion of service this year, which then impacts the mix. If we then move on to the business area tools and attachment, and here orders received increased 1% in total, but if we look at it organically, they were up 8% to 3.7 billion. Currency, on the other hand, impacted negatively here as well by 8%. The growth was mainly driven by mining demand, which was translated into a strong tools demand. But also, following a prolonged period of low demand for attachment used in construction work, we are now seeing a small recovery in the order intake. And it's not really because underlying demand has increased, but the destocking phase among distributors is now largely complete. Sequentially, orders received were flat, positive growth within mining, attachment seasonally weak. Revenues for tools and attachment increased 4% organically and amounted to 3.7 billion. Operating profit, or EBIT, increased 2% to 436 million. That corresponds to a margin of 11.8%, which is up from 11.3% last year. And we see that efficiency measures we have taken, especially within attachment, are starting to yield results. And the positive effects from this are compensating more than fully for the increased cost we are getting from tariffs within this business area. The adjusted EBIT margin increased to 11.6%. And then we also had some small positive amounts where we were reversing some costs for previous restructuring measures. So all in all, a good trend when it comes to T&A for margin. We continue to demonstrate strong cost control across the organization. Administration, marketing and R&D expenses were lower, both year on year, but also sequentially. And that, of course, is a strong focus internally to have operation efficiency. Net financial items came in at 236 million negative versus 264 million last year. Interest net improved to minus 181 million, and that was minus 250 in the previous year. For taxes, we had a tax expense at 630 million, which is an effective tax rate of 23.9%, which is still within the range we have indicated of 22 to 24%. This slide shows our operating cash flow. It increased by 38% to 2.5 billion. That's up from 1.8 billion last year. We had a positive impact by lower working capital tied up and also lower taxes paid in the quarter. And the cash conversion rate, which we measured on a rolling 12-month basis, was at the end of the quarter 105% compared to 88% at the same quarter last year. And coming to working capital, if we compare to the previous year, our net working capital decreased by 7%, now to 22.6 billion. Excluding the effect of acquisitions and currency, net working capital increased slightly, mainly due to increased receivables. We have put and we are putting a lot of effort into being more efficient, especially when it comes to inventory. Despite having a strong organic growth in equipment this year, we have actually improved here. And we see that the average net working capital in relation to revenues in the last 12 months have decreased from 38% to 37%. And that's obviously something that makes me, as a CFO, glad to see. So my last slide for today is on capital efficiency. Our net debt decreased to 11.1 billion. It was down from 15.2 billion last year, supported then by the strong cash generation that I showed previously. We do maintain a solid financial position. We have a net debt to EBITDA ratio of 0.73, and one year ago that was 0.97. Our return on capital employed was 19.3%. It's down from 21.5%, explained by higher intangible assets, including goodwill and also lower profit. And with that, over to you again, Helena.

Thank you, Håkan. So, to summarize the quarter, our focus on safety has made us into the safety leader in our niches, and we have several good examples in the quarter, with the most meaningful being the successful rescue of workers after 60 hours in a collapsed mine. We are also glad to provide all Hindustan's zinc mines with collision avoidance systems. We have shown that we are the mixed fleet automation leader with a key milestone achieved in the Roy Hill project. And the iconic Pit Viper drill rig has set the benchmark for sustainable and productive mining operations worldwide. The organic order growth of 7% reflects a high mining activity and that the destocking phase within attachments larger is complete. And the actions taken in tools and attachments are yielding results and our strong operating cash flow gives us financial flexibility to invest both organically and inorganically moving forward. And we have a strong cash flow and Epiroc stands strong to capture growth. With more than 60% of our mining orders deriving from gold and copper mines and with an increasing willingness by the industry to invest in both existing and new mines, exploration demand specifically has increased. And we have never had a stronger offering than we have today. So in the near term, we expect mining demand to remain high, while demand from construction customers is expected to be stable at a low level. Thank you.

Thank you, Helena. Thank you, Håkan. Well done. So it's almost time to move into the Q&A session. But before we start, I would like to share a quick note. On June 8 to 9 next year, 2026, we will host our Capital Markets Day in Örebro in Sweden. And this year we are actually planning for something special, so get ready to create lasting memories. We will issue a press release once the registration opens, but I recommend you to mark the dates in the calendar already now. And also, so you know, Volvo will host their Capital Markets Day on June 10 in Eskilstuna, and that's just one hour away from Örebro. And we will coordinate the logistics to make it easy and worthwhile for you to attend both events. And now let's begin with the Q&A session. I know you're eager, but please keep it to one question at a time. And operator, you may open the line. Thank you.

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 Christian Hinderaker from Goldman Sachs. Please go ahead.

Morning, everyone, and thanks for the opportunity to raise some questions. I want to start on the margins, if I can. You've been taking some cost actions here, but if I look back, I think we've now had maybe absent the last quarter of Q2, 11 quarters of year-on-year decline in profitability. I guess as we look ahead to the next 12 months, I'm curious as we should expect a positive or rather accelerating bridge effect from those cost savings or are we at full run rate in terms of the cost saving impact in the bridge today?

Well, I think that we have taken a number of efficiency measures during many quarters now, including consolidation of sites. Of course, it's just a portion of that that we have in the result in the quarter. So I think you can expect that more of this will be shown in the coming quarters ahead.

Thank you, Helena. And maybe just on the nickel market, I'm a little bit surprised at the impact on the business there, if I'm not mistaken. I think that's around 1% of your commodity mix. Maybe I have the wrong figures. Yeah, can you help us understand that? Is this effectively service-led, i.e., you've got service contracts on these sites and obviously unable to book revenue?

how do we think about um the potential path uh i guess back to full operations there yeah any other color would be helpful we have seen it during quite many many quarters now that the nickel mines uh they have a challenge uh and and uh we and and you know towards several of these mines we had service contracts so so that so the impact is mainly i would say on on on service And of course, that means that we will have to ramp down operation and do a lot of mitigating actions then to compensate for that. But that is mainly, you know, so it's, and it has been ongoing for quite some time, but we see it, you know, and of course, I think, you know, this is quite normal when prices are low that customers put part of the mines in care and maintenance or they lower their output levels.

And exposure was more close to 3% than 1%. So that's why if we get a bigger hit on 3%, it's of course more meaningful than hit on 1%.

Thank you.

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

Thank you. My first one is on the drop-through in E&S. So equipment sales are growing faster than service. So that is one negative drag. And then you're highlighting tariffs. then product mix which is nickel which you just touched on and then it seems like 300 million of sales linked to roy hill was more in dilutive as well so quite a lot of negatives and what i'm first trying to understand is is in roy hill i was under the impression that mixed lead automation was a pretty good margin relative to that connectivity business if it's just temporary should the modern improve from here and from when and then also on the on the on the sort of general mix within service Parts and kits. I mean, nickel, as you alluded to, is a small part. Why is parts and kits not growing more, helping the mix, given that you have almost a 40% margin in that business and given the strong activity at the miners? Thank you.

If we start with the Roy Hill, yes, of course, this will be a profitable business long term. When we do a development project like this, when we nail the technology, of course, we have quite a lot of R&D expenses related to a product like this. So I think you should see this as a one-time thing that is dilutive. Because when we scale, and this was the same thing when we did... when we rolled out automation for our own equipment many, many years ago. But mixed-fit automation is a profitable business, both underground and it will be a profitable business on surface as well. When it comes to partner service, we have a negative impact then on the activity levels in nickel. But I wouldn't say that when it comes to the growth of parts, that is very much our own ability to capture the customer share, I would say. So it's not related so much to the activity level. Of course, it can be a little bit related to where the fleet is, or from an age perspective, if it's larger component rebuilds, etc. But I think it's more our ability to capture the customer share of our own machines. So I wouldn't say that it's so well correlated to the, let's say, activity level as such. But of course, this is where we are working hard with our strategies to continue the growth journey we've had for many, many years when it comes to growing parts as well.

Yeah, the reason why I ask, Helena, is that parts and kits, according to your capital market state slides, if you back out currency, were meeting 21 to 23. And part of that was probably overordering, good pricing, and then it went negative in 24. But since then, it hasn't really recovered. And I appreciate nickel is used as an example, but it's such a small part of the business. Yeah, that's why I'm asking why parts and kits are not accelerating, given that your peers are basically growing that low double digit at the moment. Thank you.

I think it's more related to our own fleet, but also, of course, that we have not been as successful the previous quarters when it comes to growing our customer share. So that is, as it has been for many, many years, a strong focus area, of course, for us to continue to grow the parts business.

Okay, quick follow-up on the tariff impact about 50 bps net impact in the quarter. Section 232 on steel and aluminium started from August 18th. You probably had some inventory covering you through August and September. It would be helpful to know if you think the 50 bps net impact of the margin will increase from here into the fourth quarter. Thank you.

We expect that the net impact will come down in Q4. But we have been impacted because a lot of the mitigating actions we have taken, it takes some months to get it right, of course, and also when it comes to price increases, but also redirecting of flows, changing supplies, etc. So we expect the impact to be lower in Q4.

Absolute final one for you, Håkan. You said that in T&A, the possible effects from the savings are fully compensated from the impact of the tariffs in T&A. So is then the group comment of 50 basis points very geared to ENF on the margin, or how should I read that comment? Thank you.

No, you shouldn't read it like that. We have tariffs impact definitely for tools and attachments as well, quite a lot. But given that we are due, we started with efficiency measures earlier, especially on the attachment side, given that that dropped, what is it now, two years ago. So it's more that we see more impact from the efficiency measures in T&A, and therefore they are able to offset the tariffs. But it does not mean that we have lower impact of tariffs in T&A.

All right. Okay. Thank you.

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

Hi, good morning. I'm wondering if we could talk a little bit about the cadence and delivery in the ENS business over the next year or so. I know there's a lot of good efforts on automation and digitization. I'm wondering when we're going to see positive mix effects there. And if you could also extend that comment to aftermarket when you see that mix normalizing. Thank you.

But I think we see that when I look at the orders received, and I think I've said that in many of the calls here in the quarters, that more and more of the orders includes higher degree of sophisticated machines, so it's with different type of automation or different type of fossil-free machines. And of course, Over time, when that translates into revenue, that will have a positive impact for us. So the more advanced machines we're putting on the market, that both helps the equipment, margin of cost, but it also helps us to capture a larger share in the aftermarket, because these are... much more advanced machines also to serve. And we have a good correlation in how much we capture when it comes to the aftermarket of the more advanced machines. So for us, it's very good. The more advanced machines we're pushing out in the market, that is good for us long term.

And if we could just, if I could do a quick follow-on, in terms of tariff impacts in 232, how should we think about Q3 versus Q4? Is it fair to say that some of the Q3 sales were booked out of things, out of inventory, perhaps at lower costs? Thanks.

Not so much, I would say. So I think we expect the impact from tariffs to go down in Q4, because we have been quick in adjusting prices, redirecting flows, as well as changing suppliers. So we expect it to trend down now in Q4. Some of the tariffs also between US and Canada, that impacted in Q3 will not be there now moving forward. So this is, of course, a very evolving landscape. But as it looks like right now, if the tariff stays as is, we expect it to go down.

Okay, thank you.

The next question comes from Michael Harlows from Morgan Stanley. Please go ahead.

Hello, thank you very much for the presentation and for taking our questions. I was wondering if I could ask you one on R&D. It looks like this has come down significantly, and I was wondering if this is maybe an active decision to protect margins. And then another one would be on tariffs, if you could explain to us if the hit is on components or on finished products. That would be great. Thank you.

I can start with the R&D question. If you compare Q3 this year with Q3 last year, in Q3 last year, we did impairment of intangible related to some acquisitions. And those were booked on the R&D line. And that was more than 300 million SEC, if I remember correctly. I think it was close to 350 million. So when you compare Q3 last year with Q3 this year, that's the main reason for the explanation. And no, we have not slowed down R&D in order to secure margin. We're investing as much as ever within R&D.

And if we look on the tariffs, they are impacting both finished products, if we take machines, equipment, they're impacting components, so spare parts. They are impacting consumables as well as attachments. So it's across all different products, but in different ways. Where, of course, we have high steel content, then that has an impact. like consumers, for example, or attachments.

And if I may ask a follow-up, when you put your prices up, does that put you at a competitive disadvantage versus your competitors or not?

I wouldn't say so, because we have a very similar manufacturing footprint, all of us, if I look on all the global OEMs. And there is not that many players that are positioned in the U.S. We have a strong footprint in the U.S. already, with both consumables and, of course, with attachment manufacturing as well as equipment manufacturing. So I wouldn't say that we have a disadvantage in any way.

Thank you. That was very helpful.

The next question comes from Rory Smith from Oxgab. Please go ahead.

Good morning, Helena. Good morning, Hakan. Thank you for taking my question. I just wanted to come back to this services growth. I guess I was a little surprised to see only 2% organic growth. there in ENS, particularly given where commodity prices are. But I guess your answer to Klaas' question was to sort of don't read too much into activity levels or commodity prices at least. and it's more around customer share or winning share of customer wallet. In that case, could you just sort of update us on the actions that you've taken to sort of either recover or improve that in recent quarters and how that positions you for 2026 and how we should think about service growth going into 2026. That would be helpful.

Thank you. When we look at developing the service and parts and service business in general, it's a lot about having the supply chain in place with high availability of the parts, making sure that we have the best service technicians. out there but also that we are more tailoring our offering because different customer types need different type of value proposition and this could be anything from developing our products and our offering but also to develop other channels to get a better reach. So for some of the segments, it's not. If we take, for example, the construction segments where we have a big share also of equipment, there is a different value proposition needed to capture that growth. But of course, it's a lot about making sure that we... we are efficient in our service operation and that we have many years with very successful growth in our service business. And that's due to the different strategies that we have implemented over the years. And of course, we are continuing to implement these strategies and continue to. And I think the regional focus for us when it comes to our setup in parts and service also gives us... even a better understanding of who we are losing that other part to, because this is local players that are doing things in a different way. And of course, we need them to make sure that we can beat them and to have an offering that is competitive to these local mom-and-pop shops.

That's helpful. Thank you. And if I could just squeeze in a follow-up, The outlook for – well, I guess a question on the outlook. You said construction customers expected to be stable at a low level, but the orders there in T&A obviously are high single digits, and you're calling the end of destocking. I think you did answer it in a previous question, but – Just any color there on the outlook, why that kind of is a little bit more cautious than what the quarter might imply?

We are more cautious because we don't see that activity level out there. If we look on the activity level in the market, we don't see that that is picking up yet. But however, for us, it means a higher order intake because this destocking phase has come to an end. And that is good because what has impacted our results over the last two years is, you know, under absorption in our factories due to that, you know... inventory reduction on top of then a lower activity level. So it's positive for us because that gives us, it helps us with absorption in the factories. And we see that already. We have better load in our factories now in the attachment division.

So the underlying demand in the market, that's what we expect to remain low at a stable level. But I hope what we have seen now in Q3 and we expect in Q4 is that the apparent demand, what the dealers and distributors are buying, that is now at a higher level than it was before. But overall, we don't see any change in that the activity is actually taking off.

Thank you.

The next question comes from Edward Hussey from UBS. Please go ahead.

Hi, guys. Thanks for taking my question. Just the first one. Do you mind just maybe quantifying the difference in tariff impact between the two divisions?

We rather stick to say that it's roughly half a percentage point on group level.

Okay, thank you. And then just on going back to this service, sort of, I mean, it seems like it's sort of underperforming, as you've been saying, in terms of customer share. Is this partly to do with trying to move to getting service agreements in place? And secondly, is this something that we should continue to think about going forward? Or like, how should we think about development from here?

No, I don't think it's related to that. When we enter into service agreement, we normally capture twice as much as we do if we're only selling parts individually. So for us, it's good when we bring in a service contract because that generates that stability and that's recurring revenue maybe for three to five years. So I wouldn't say that that has in a way impacted it. I would say it's more our ability to capture share on existing fleet, but also that, as I mentioned earlier, we have had an impact from the nickel segment with a couple of service contracts that are under current maintenance. And, of course, then that revenue stream is lost for the time being. Of course, when the nickel price moves up again, then that revenue stream will come on board again.

Okay, thanks. I mean, just on that customer share there, can I ask where is it going? Is it sort of, you know, local players, pirates, or is it to your biggest competitor? I mean, what should we think about?

No, it's not to any other OEM. So it's always, I would say, local players doing service jobs and pirates. That's always, you know, it's very seldom, you know, competitors. I have never seen it, to be honest.

Okay, and is it simply just a pricing question? Or is it, and going forward, is it going to be a risk to pricing for you?

I wouldn't say that it's pricing. I think also a lot of mines want to shop. They want to spread their risk. So I would say rather it's, you know, we need to, I think we have, if you zoom out and look at this over, you know, the last five, six years, we have been successful in growing our service business. Now we have had, you know, lower growth numbers for the last couple of, for the last, I will say, years. And that is what we need to get back to, to, you know, higher single digit numbers. But it's all in our hand, I would say. It's not related to, but of course, you know, price is one part of this, but also there it's important really to drive innovation because with higher with higher a better value proposition that also gives opportunity for us to continue to grow to grow the the parts the parts and service business so for me it's very much linked to how advanced machines we're putting on the market and and that's that's promising to see because we are putting more and more advanced machines on the market every quarter okay thanks and sorry for hogging the mic they're just very quickly final one just in equipment service

the the headwinds due to internal service mix do you mind just giving some rough quantification whether what the kind of level was this quarter i think what we said was we have lower share of service than we typically have and the services where we have the best profitability so if we have more equipment that's usually comes with a lower margin than if we have more service so i think that's what we were trying to explain in the in the presentation

but i mean i guess for a few quarters you've had an internal service mixed headwind as well is that is that still an issue or is that no longer an issue i wouldn't say it's something that stands out in this quarter at least okay thank you very much the next question comes from vlad sergevski from barclays please go ahead

Yes, good morning. Thanks very much for the time. Two questions from me. Number one, are you seeing any increase in competition in your surface rotary drill rig segment, where Epiroc, of course, has historically been the absolute dominant force?

No, no, we are not. I would say, you know, we have a very strong position in the surface segment and I don't see any changes there.

Understood. And then the question on demand in mining equipment. Obviously, you continue to highlight demand as being at high level, but your new equipment orders, if I exclude large orders, were up more than 20% year over year. Is it just a function of the base was lower and that helped, or indeed the high level of demand is perhaps getting a bit higher?

We had strong organic growth also in Q3 last year. So we were up 11% in equipment orders in Q3 last year. And now on top of that, we are up 10%.

And that's exactly the question. The question is, you obviously continue to keep high level of demand commentary. But my question is, is high level of demand improved compared to what it was before? Has this level got higher? Or it's still the same high as it was a year ago?

But when I look at the pipeline, I look what we have ahead of us when it comes to expansion of existing mines, when it comes to the replacement. Of course, the fleet continues to grow older. When I look at the expansion initiatives, when it comes to brownfield expansion, we also in this quarter won equipment orders for greenfield expansions. that is, of course, I see a positive outlook when it comes to equipment moving forward. And I think this is... We say hi, and we have said that for many quarters, but when I look at it, it's... And of course, I think it's also due to the geopolitical situation in the world that there is a lot of initiatives now going on to really push permitting, et cetera, in different countries to make sure that we safeguard value chain of minerals. And that is good to see. And we also see that when we look at the exploration activity, exploration stood out with very strong demand in the quarter. And that activity is very much related then to copper and to gold, which of course is promising, you know, that needs to happen for brownfield and greenfield expansions also to happen.

And I would add to that, it's a bit difficult to say exactly how it was one year ago, but if we go back maybe two or three years, we can definitely see that the projects are becoming larger. What we have gotten as a contract, for example, this Fortescue water that we talked about before, but also what we see going forward, there are larger projects out there than what we saw at least three years ago. Yes.

Super. Thanks very much.

The next question comes from Torfang Man from Bank of America. Please go ahead.

Thank you. Hi, Helena. Hi, Håkan. Thank you for taking my question. One on the exploration orders that you mentioned, you said quite some strength in exploration. Could we see this as an early indicator that we now, that they finally see like a really like strong recovery and also then connected with this, the timing of large orders? Is this coming closer? So basically trying to gather here if this is just a direct lead indicator to firstly see the exploration and then basically start seeing stronger orders for the equipment as well.

Thank you. For us, having a strong offering in exploration is super important from exactly what you're saying because it is an early indicator and we see that drill meters are trending up. We see that activity level of the fleet out there, existing fleet is trending up. We also have a strong product offering when it comes to equipment for exploration and we are very close to the exploration contractors in the world. So for us, it is a positive when we see these numbers that the orders are coming in on exploration because that is what, if we look back into quite many years now, The number of drill meters in exploration has not been sufficient if we look at it from an industry standpoint, which has led to that too few mines. It has not led to expansion projects or greenfields coming on board. So it's extremely important that exploration... you know, continues and increases because that's what will safeguard the output of, for example, copper in the coming 10 years. It's, of course, always long lead times when it comes to establishing a new mine. So for us, we see it as an early indicator. So I'll share that view with you.

And just as a follow-up here, maybe from your experience, can you maybe just share in past cycles, how long has it roundabout taken between the jump up in exploration orders to then see it even further downstream?

I think that depends on where it happens in the world. It's also a big difference if it's brownfield exploration or if it is greenfield exploration. If it's greenfield exploration, that takes longer time before greenfield comes on board. That could be seven years. If it's brownfield exploration, that goes much faster. That can be maybe a year or two years. Perfect. Thank you so much.

next question comes from gustav schwen from handelsbanken please go ahead yep morning i have two follow-ups uh firstly on the equipment service uh if we take the 300 million invoicing of roy hill is it fair to assume that that was done at around zero percent margin or maybe even losses which would then take say underlying equipment and service margins to at least 22.5%. That's the first one.

No, it was not done with a loss. It was positive margin.

But was it low single-digit margin?

No, we won't go into exactly. It was like we said, it's still a development project, but now we got to invoice quite a bit, which meant that I was at least with some margin, but we won't go into exactly how much it was. It was below group average.

Okay. Secondly, on the service orders, again, growing below trend for a few quarters. You mentioned nickel, but it doesn't sound like the production issues at the copper miners are having a meaningful effect on growth there. If I remember this correctly, we did discuss Camoa Copper weighing on service growth quite recently, or did we get that wrong?

No, that's correct as well. So we have mentioned DRC during a couple of quarters. Beginning of the year, it was the unrest in the northern part of DRC that impacted. We also have an impact this quarter in Kamua. So their production has been hampered by the seismic activities that they have been under. So that revenue stream is not yet up to where it used to be. So we still have an impact from Kamoa.

Do you mind sharing some kind of impact on service growth in Q3?

The impact from Kamua, you mean? Yeah. No, we will not share that. But it's a big fleet. It's a big contract we have there. We have been, you know, if you go back, some of the largest orders, we have one when we announced it a couple of years ago, the largest underground order that went to Kamua. So, of course, this is a meaningful business. But that is, you know, we expect that to come back here in Q4. Yeah.

They resumed operations end of Q3, so that should be back in our books again in Q4.

All right. Quickly, lastly, on service growth here, you've made a large personal service contract in recent years, increasing penetration quite a lot. How far away are we from that actually translating into higher capture rate now for parts and kits as well? Thank you.

I think for the contract, we capture more. That we see. But it's always also depending on the age of the fleet, how much you capture. Because the high value components, you replace them when you are a couple of years in. So it's always depending on... It's not linear, the amount of larger components, and that's where the big value sits. So it also has to do with the age of the fleet and in the different type of contracts where we have then put service contracts in where we have a larger fleet, for example. Okay, thank you. Thank you.

Thank you, everyone, for good questions. And I do know we have a few still on the line. Alexander and I, we will make sure that we reach out to you after this call. But thank you, everyone, for taking the time. Thank you, Helena Håkan. Good presenting today and successful investments. Thank you.

Thank you very much, everyone. Thank you.