Epiroc AB (publ)

Hello and a warm welcome to the EPIROC Q2 results presentation. My name is Karin Larsson, Head of Investor Relations and Media here at EPIROC and joining me today are our CEO Helena Hedblom and our CFO Håkan Folin. As this is a very busy reporting day in Sweden, we aim to keep this call shorter than usual and expect to wrap up already within around 45 minutes. And as always, we will have a Q&A session after Helena and Håkan have presented the results. You know the drill. Helena, please go ahead.

Thank you, Karin. So, we delivered a strong second quarter supported by continued high customer activity and strong demand in mining. Orders received increased 13% organically to 17.3 billion SEK. The organic equipment orders grew 30% and service orders increased 6%. Invoicing was, as anticipated, strong in the quarter and increased 11% organically to 16.7 billion. Our profitability improved further, up 17% year-on-year, translating into an EBIT margin of 19.9%. Adjusted, which is only the LTI program, the margin was 20.1%, compared to 19.7% last year. and the improvement was driven by efficiency measures implemented over recent quarters and high invoicing. Looking more into the details on the orders, we're up 13% both in total and organically to 17.3 billion and the growth was driven primarily by mining and our equipment orders increased organically by 30%. The large orders amounted to 720 million, and these are mainly brownfield and replacement orders. Exploration was one of the strongest growing businesses, and this is encouraging as exploration activity is an important indicator of long-term confidence in the mining industry and future project development. And the investment sentiment within infrastructure and construction projects has improved, which led to stable order development. So this is the ninth consecutive quarter in which we have achieved organic order growth, and I remain optimistic also on the pipeline onwards. Business cooking looks strong and there are many large tenders in which we are involved in. The tenders are mainly within copper and gold and within brownfield and replacement. We also continue to see encouraging adoption of our automation and digital solutions as customers increasingly integrate these technologies into their operations. Our relationships deepen and our position as a long-term productivity partner strengthens. So let me move on to innovation, an important driver of our long-term value creation. This is why customers choose us. And what is particularly encouraging is that our innovation agenda is very closely aligned with our customers' priorities. So in June, we welcomed around 150 customers from across the world to the EPROC World Expo, where we showcased how technology can help address some of the industry's most important challenges. Deeper mining, lower ore grades, increasing safety requirements and the need for higher productivity. A common theme across many of the solutions we presented was to increase safety. And the best way to increase safety is to remove people from dangerous environments. And we showed our customers that we continue to expand the boundaries of what can be done remotely and autonomously Thank you for your patience. We had some technical problems here in the studio and now we're back. So I would like to continue then on innovation. So electrification is another area where we continue to lead And during the EPROC World Expo, we showcased our growing battery electric offering, including the Mindtrak MT66S eDrive, as well as unique and appreciated charging and battery solutions. And finally, we continue also to focus on sustainable productivity, whether through circular solutions, smarter ground support, optimized mine design or advanced service offerings. And our ambition is to help customers produce more with fewer resources and a lower environmental footprint. The strong engagement level that we saw at EPROC World Expo is very encouraging. So please let me share a video from the event.

Epiroc World Expo is a convergence of mining knowledge and it's a convergence of technology and it's a place where we learn from our customers and hopefully our customers take something away from us.

I think the highlight this week for me being with Epiroc and at the World Expo is the vision that Epiroc has. It's clear that they have a vision to be the supplier of the future and to really make sure that they have the customer relationship as well and walk that road with them.

It's great to see so many customers that have joined us for a couple of days here in Örebro from so many countries and we are super excited of course to demonstrate our latest capabilities when it comes to technology.

It's been really good, a good few days, starting off with various case studies and seeing how different mine owners and operators are dealing with various challenges at their various locations. It's also been a good opportunity over the last few days to network with new people and also see the issues they're dealing with and the solutions they're coming up with.

measure and analyze we've got customers here we've got suppliers here and then we've got our own colleagues and our own people here and we're showcasing equipment we're showcasing technology we're talking about solutions we're having conversations that can't be had over teams meetings that can't be had sometimes at depth down in the mine so it's good to come here and be able to open the doors and have those conversations

So let me now turn to our aftermarket business, one of Epiroc's key strengths and an important contributor to resilience and profitability. Aftermarket accounted for 64% of revenues in the quarter, with service representing 41% and tools and attachments 23% of group revenues. Service orders increased organically by 6%, while tools and attachments grew 4%. Demand for our service solutions remains solid, reflecting the value customers place in availability, reliability and operational performance. and are confident about our leading aftermarket offering and position, both in the short and in the long run. Through our strong local presence and expanding service footprint, we help customers improve productivity and safety while maximizing equipment uptime. Håkan, would you mind presenting the financials, please?

Sure Helena, I would be happy to do so. Our revenues increased 10% to 16.7 billion and that corresponds to 11% organic growth. We had high equipment invoicing and it's now 36% of group revenues coming from equipment which is meaningfully higher than we saw in the previous year. And this is due to that we have successfully ramped up our production after having a quite long period of strong equipment growth. And doing that, our lead times remain at normal levels. Our EBIT increased 17% to 3.3 billion. That corresponds to an operating margin of 19.9% compared with 18.7% a year ago. Items affecting comparability were minus 33 million, and they are fully related to the share-based long-term incentive program. If we look at the adjusted EBIT, our operating profit increased 12% to 3.35 billion and the adjusted operating margin improved to 20.1% from 19.7%. And as Helena just mentioned, the organic improvement is thanks to efficiency measures that we have taken in previous quarters as well as a high level of invoicing. It's also worth noting that the impact from tariffs was lower than in the previous quarter. In Q1, we said it was 0.5 percentage point on the margin. And the lower level now is both because we have taken mitigating action and also that the tariffs themselves are at an absolute lower level. Currency was a headwind on EBIT, but the positive effect I just mentioned more than offset the currency. So overall, we are pleased to see that our strong execution is yielding results on the bottom line. And with that, let me turn into equipment and service. This was yet another strong quarter, and the orders received increased 70%, all of this being organic, to 13.4 billion. The demand for exploration customers was particularly strong with high double-digit growth, while activity in infrastructure and construction remained rather stable. Equipment orders increased by 30% organically, supported by 720 million in large orders. And I would say that the vast majority of orders that we win are from existing customers that either they replace Epiroc Fleet or they expand their current operations. And the mining equipment business is rather sticky and lumpiness of large orders, I would say it depends more on replacement timing than anything else. Service orders in the quarter continue to develop well, increasing organically by 6%, reflecting both high customer activity and also an aging fleet. As shown in the bridge, the growth was entirely organic and there was no material impact from currency or structure. And then on to revenues and profitability in equipment and service business area. Revenues increased by 12% to 12.8 billion and this corresponds to a 13% organic growth and the development was supported by continuous strong mining activity, high equipment deliveries and a solid service growth. If we look at the mix then, equipment revenues represented 46% of revenue compared to 44% in Q2 2025. So the underlying mix is negative on the profitability. Still, we were able to improve the operating margin to 23.1%, which is up from 22.5% in the same quarter a year ago. On the right hand side, on the slide, if we look at it adjusted, the margin improved slightly to 23.1% from 23.0. The key driver here for the margin improvement is high invoicing as well as efficiency measures that we have taken. Now moving on to the other business area, tools and attachments. Order received increased here with 3% to 3.9 billion. Organically, the growth was 4%, while currency then had a negative impact of 1%. Demand for rock drilling tools, ground support consumables, and other mining-related products remained healthy, whereas demand from construction customers was rather stable. The tools and attachment revenues increased by 5% to 3.9 billion, and this correspond to a 7% organic growth, while currency had a negative impact of 2%. EBIT increased by 30% to 488 million, resulting in an operating margin of 12.7%, compared with 10.3 a year ago. If we look at it adjusted, again on the right-hand side of the slide, EBIT increased by 3% to 488 million, while the adjusted operating margin was 12.7% compared with 12.9% in the previous year. And if we look at the bridge then, the underlying business contributed positively to EBIT, again supported by efficiency measures that we have implemented, and this more than offset the headwind that we got from currency. The increased input cost for tungsten, which, as you might remember, impacted the tools and attachment margin with more than one percentage point in the previous quarter, has been mitigated to a large extent. The surcharges to customers as well as the recycling program are contributing positively, and the negative impact is therefore significantly less now in the second quarter. So, moving on to the next slide, here we look at the cost, and the cost for admin, R&D, and marketing, they were higher in absolute terms, but lower in relation to revenues compared to Q2 last year. So in percentage of revenues, it was 16.2% this year versus 17.0 last year. Net financial items came in at minus 130 million, which was almost exactly on the same level as last year when we had 131 million. On the tax side, the tax expense was 760 million, and this corresponds then to an effective tax rate of 23.9%, which is in the guidance we have given of 22 to 24%. Moving on to the cash flow. Our operating cash flow came in at 1.9 billion, and you can compare that with 1.1 billion in the previous year. Main explanation for the improvement is that we have higher operating profit and we also paid lower taxes. And when we look at the cash conversion rate, which we do on a 12-month basis, it's now at 93%, which is in line with last year and an improvement from Q1. Okay, if I then turn into networking capital, it amounted to 24.9 billion at the end of the quarter, which is an increase of 10% compared with a year ago. But as a share of revenues, however, networking capital improved slightly to 37.1% from 37.5 a year ago. So why have we then increased our working capital? Well, it's mainly driven by higher inventories, and higher inventories are reflecting then the high activity level we see in the market. Inventories increased by 4.6 billion compared with last year, but accounts payables increased with 2.6 billion, which is then partly offsetting the inventory buildup that we have seen. On the capital efficiency side, our net debt decreased to 11.4 billion, down by almost 2 billion from 13.3 last year, and we do have a strong financial position. Our net debt to EBITDA ratio is as low as 0.75 to be compared with 0.82 last year. Our return on capital employed was 19.3%. It's down from 20.2%, which is explained by lower profit. And here, I would like to remind them that these figures are rolling 12-month figures. And sequentially, we actually had the first positive improvement in return on capital employed for quite some time. And it was up from 18.5% in Q1. And before I hand back to Helena, I would like to leave you with a bit broader and a more long-term perspective. In June 2018, Epiroc was listed, so it's now eight years ago. We were listed as a standalone company. And since then, I would say that we have proven that we can successfully convert customer demand into profitable growth and strong cash flow generation. So if we look back to 2018, our orders have increased by 80%. But more importantly, we are translating that growth into an even stronger development in earnings and in cash flow. We can see that on the revenues, which have increased by 83%, same as the adjusted EBIT, but the earnings per share as much as 94%, and the operating cash flow has actually more than doubled since when we were listed eight years ago. And we do take extra pride in having an EBIT and an adjusted EBIT that over time are more or less the same and they are up 8% per year. So basically what you see is also what you get. And these results are created thanks to that we have a continuous focus on ensuring we have profitable growth. And with that, I will hand back to you, Helena, on some comments on the outlook and the summary.

Thank you, Håkan. And I would like to add a comment then on our success over time. When I ask our customers why they choose us, they very often say that our people at Epprock make the difference. We are present in remote areas, committed to finding and innovating new solutions to improve their operations, and most importantly, we are there when it counts as a true partner. So let me conclude by summarizing what has been another strong quarter for EPROC. We continue to see high customer activity, particularly in mining, resulting in organic order growth of 13% and orders received of 17.3 billion SEK. We also delivered strong revenues supported by high equipment invoicing and a resilient aftermarket business. Profitability improved with an adjusted operating margin above 20%, reflecting both solid operational execution and the benefits from efficiency measures implemented across the group. At the same time, we maintained strong cash generation and continued to strengthen the quality of our business. And in the near term, we expect mining demand to remain high and demand from infrastructure customers to increase somewhat. So thank you.

Thank you, Helena. Thank you, Håkan. So it's time for the Q&A session. And thank you for your patience earlier when we had the technical issues. We will make sure you will get your questions answered. So operator, please open up the line.

The next question comes from Gustav Schwen from Handelsbanken. Please go ahead.

Margin. Firstly, if I can ask on the revenue mix within service. If I remember this correctly, you had a fairly high share of parts and kits in Q1 invoicing, but at the same time, a pretty high share of midlife rebuilds in the order intake. Can you give us a sense of how service mix this quarter compares to Q1? That's the first one.

On orders, we have less midlife upgrades in this quarter compared to Q1. I would say on revenue, it was not really that big difference, but on orders received, it's a difference.

Okay, and when we think about the invoicing of those midlife rebuilds you took in Q1, should we expect that to have a negative mixed effect as we head into Q3?

Typically, midlife rebuilds are also planned over longer times, so you seldom do it, you don't turn them as quickly as you turn parts and service, you know, the traditional parts and service business and that part of the business you typically turn in one month. Midlife upgrades upgrades can be spread out over six, seven months, for example. So I would say it will come gradually. It's not that it will be like the month after we have received the orders.

Okay, thank you. And then looking at your equipment sales now, you are pretty much at historical peak levels. So we don't really know what happens on higher invoicing levels. I mean, how much would you say adding another billion in invoicing due to operating leverage, or maybe put this way, at what level of equipment sales do you think doesn't have a negative mix effect within equipment service? Thank you.

I think it's fair to say that there will, of course, be a mix effect when invoicing a lot of equipment, but at the same time, the last machines that we deliver, we have very good flow through in that P&L. So, of course, we're growing now very nicely on equipment, but that's also a timing issue because eventually that will start to generate aftermarket, of course.

Okay, but to push a little bit, is there a level of equipment sales where you wouldn't see this impacting your margin?

I don't think I will comment on that because that depends totally, I would say, on what type of equipment you have in that order stock. But there will always be a difference, I would say. I wouldn't say that there will be not a mix effect. There will be a mix effect.

Okay, thank you.

The next question comes from Chit Sinha from JP Morgan. Please go ahead.

Yeah, so I think we had higher growth in... And this can vary between the quarters. As I mentioned, we had fewer midlife upgrades in this quarter compared to last quarter. But the pipeline, of course, with an aging fleet, the potential for midlife upgrade is great out there. So I would say that... What I read in the aftermarket is that it's high activity levels everywhere now. given the commodity prices and of course customers trying to maximize the production levels.

And if you don't mind me adding here as well, I want to highlight that midlife upgrades are also a very profitable business for EPROC.

Thank you.

The next question comes from Alex Jones from Bofe. Please go ahead.

Yeah, can I just follow up, first of all, on the service growth question? You know, I guess if I average the past two quarters, you've done 9%, which is sort of the high single-digit range we've come to expect in the long term. But, you know, one of your peers just talked about sort of upside potential to that, given an ageing fleet, more advanced machines, and digital as well. So, you know, should we expect a high single digit going forward in service or do you see the potential to actually be more in the double digit potentially going forward and, you know, including strong spare parts growth, which is what your peer highlighted?

I think we have, of course, our financial target, which is 8% growth. Of course, a big portion of that needs to come from the aftermarket. But as you rightly point out here, with an aging fleet, with more technology in the equipment, our ability to capture customer share is increasing, I would say, for every quarter that we put more and more technology out in the market. So I would say that, but high single-digit is also, you know, it requires, of course, a lot of activity to capture that. But of course, the opportunities, and I've said that, I think many times as well, and we said it at the Capital Markets Day as well, continue to see one of the biggest opportunity for us to continue to grow the aftermarket business.

Okay. And then just secondly, on large orders, the 720 million this quarter, is that sort of disappointing in the current market environment? I recognize your comments about it being lumpy quarter to quarter, but should we think about this being a sort of abnormally low level given that lumpiness and potentially higher numbers ahead or given the activity you see in the market, is this sort of a reasonable level within normal fluctuations? Thank you.

I think it's normal fluctuations. If we look, we had higher numbers in Q1, so it varies quite a lot between the quarters. But if I look on the pipeline and the size of the tenders that are out, it's fairly big tenders. So I would say I'm more looking into the underlying activity levels, which is also healthy in this quarter. But the lumpiness will always be there depending on when customers take their investment decisions.

Thank you.

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

Hi, Helena. Hi, Arkan. Thanks for the presentation. I want to ask again on service orders, I'm afraid. Last quarter, obviously, a 12% organic growth. You said that the midlife was driving that and was above the service growth level. Last quarter, was anything single digit? And then as we think about that six percentage point deceleration, is there anything else in the service mix that slowed or you're saying it's all just the midlife services?

It's nothing else that has slowed, so it's healthy growth in all components of service, but fewer midlife upgrades. And the midlife upgrades can be a sizable amount as well. So that can, of course, create swings between quarters.

Thank you. And then as we think about the cost efficiencies, you talked about those being a margin boost, but if I look at your SG&A sums, they're up 5% year on year. Admin spends up 7% both year on year and quarter on quarter. Should we think about those savings efforts then as just being on the production side, their ambitions to reduce costs on SG&A? How do we think about that?

Yeah, so it's a combination, but what we see in the result is it's a clear improvement in our absorption rates in our factories. Of course, we have been consolidating sites and also been working on the efficiency in our production sites, as well as in service, where we see also better coverage in our workshops. But there is also, of course, a variable portion in our function cost, which is very much related to volume, logistics, for example.

So it is a bit of gassing and breaking at the same time with this strong order growth that we have. We need to make sure that we can accommodate everything while at the same time we want to make sure we drive efficiency in the back office functions as well. So when we looked at it as a percentage as we showed in the presentation, yes, it's positive, but we're obviously also looking at it just like you did in absolute terms, trying to make sure we are as efficient there as well.

Thank you both. Maybe a quick housekeeping one, Håkan. Can you help quantify the tungsten effect quarter on quarter?

Sorry, quantify the? Tungsten. Okay. I would say last quarter we talked about it on the BA level and then we said it was more than 1%. I would say for this quarter on BA level, it's more or less negligible.

Thanks.

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

Hi, good afternoon. I wanted to see if we could get a little bit more color on what you're seeing in the cadence around exploration capex. I think previously you had spoken to business cooking healthy pipelines. Could you also comment a bit on speed to FID? Are you seeing any changes in behavior, people speeding up, slowing down, given the various things that have happened on geopolitics and the rest of it this year? Thanks.

So on exploration, we see good activity levels both on equipment as well as on consumables. If I look on it from a regional perspective, there is a lot of exploration ongoing in Africa, for example, but also in the Middle East. with high activity levels, which is maybe a little bit new areas compared to the traditional mining markets, but it's a lot of exploration ongoing, close to existing mines, which is more than brownfield exploration or planning for expansion projects. I do see when I look at the business cooking map of larger investments that some new countries are establishing here as players in this industry. Moving forward, we see projects in Argentina, for example, that has been there for a long time, but now start to materialize, etc. So I would say, I do believe that this geopolitical situation that we are in, that also drives the need to secure value chains from different directions, of course, in the world, but that clearly drives the need for exploration. And here we are very well positioned with With our total portfolio and our solutions, we have a strong presence here, and we are capturing that opportunity as we speak.

Can you comment at all on speed of decision, FIDs getting slower, faster, about the same?

I wouldn't say that... If I say... If it's the permitting time you're referring to, I would say that a lot of governments are, of course, working towards that to shorten the time from a decision to you actually can start mine. If you can say that generally that has an impact in the world, I'm not sure I can do that yet, but it's a lot of ambition in that direction to speed up the processing time for permitting. Okay, thank you.

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

Thank you. Could I just ask about your incremental margins in the quarter? You know, I understand these kind of a volatile each quarter. You were at sort of 66% in equipment and services. That's kind of fallen close to 30 this quarter. I guess I'm just trying to understand, you know, you've been through a period where margins have fallen kind of pretty consistently over the last couple of years. I guess, should we be expecting, as you go through a period of kind of cost rationalization, that we see sort of above average incremental margins, you know, over the next kind of six to eight quarters. You know, I'm just trying to sort of think about how do we kind of visualize some of the, or see some of these kind of internal actions that you're taking across some of the efficiency savings and service, some of the factory closures in the infrastructure business. When we think about actually modeling this, that would be the logical line where I would expect to see kind of above-trend margin recovery over the next two, three years as the business is growing. So any way you can help us think about that would be helpful.

If I look on the tools and attachment business or segment, we started, of course, activities there, and there we have clearly seen the improvements. And of course, when you look at it from a flow-through perspective, we turned that part earlier than we turned equipment and service, but it's good to see now as a group, we are delivering profitable growth. Our focus is to make sure that we continue to do that and we continue to stay focused on efficiency measures. So it's a solid quarter, but I'm still not happy with the margin. So there is more that we can do, of course. So we don't say, We continue to work on our efficiencies at the same time as Håkan said. Of course, we need to capture the opportunities. We're growing in a very strong way now across the different businesses, but the focus on efficiency is still here.

Maybe just as a follow-up, because I appreciate you've said the equipment and service business looks a bit different from a mixed perspective. I guess when we think about the margin recovering and the fact that you were kind of tools and attachment margin levels that on average were 18% in 21 and 22, do you think as we start to get an infrastructure recovery, those kind of margins are possible again or would you also put this division in the category where the mix is just different because of Stanley and even with synergies with Stanley, We shouldn't really be aspiring to get back to those kind of levels. I guess just any kind of framing of how to think about midterm margins and tools and attachments.

Well, we were at 18%, as you said, I would say maybe a more, that was very high 18, even one quarter, we were at 19% for T&A, but I think maybe a more normalized margin for that business that time was around 17%. And if we looked at what has changed, the big change is, of course, the acquisition of Stanley and that the market is where it is. But Stanley, when we acquired them, were between 15% and 20% on EBIT A level. And if the market comes back, we should be able to get back to that same level for Stanley. And then we also need to recover them for our other attachment business. But there's nothing structurally or fundamentally that has changed in the market. So with the market coming back being strong again, we see opportunities to get back to that level. Then, of course, we need to take into account the A part of Stanley.

That's helpful. Thank you very much.

Thank you.

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

Hi, thanks for taking my questions. Just two from me. The first question is just on a follow-up on equipment revenue growth. Obviously, a very strong core setter, but we sort of only saw book-to-bills pick up significantly in Q1, and you usually have lead times of about nine months in the business. I'm just interested to hear why we saw such strong acceleration in Q2 and why it wasn't a bit more sort of back-end loaded.

It takes some time to ramp up because it's both our own operations where we need to put people in place, train them, etc. But we have gradually increased the pace, I would say. throughout the year, but then of course you also have the lead time depending on where you ship the machines, so there is also the lead times on sea. So I'm very pleased to see the output from the factories, the ramp-ups are going according to plan, And that generated the strong revenue growth here in the quarter. And we are at a new level of output in the factories. So I'm very pleased with how the organization have ramped up and continue to make sure that we can safeguard the lead times, because that's also crucial in an environment that we are in.

And even though you referred to the order intake in Q1, and that was exceptionally strong, but we actually had quite good order intake also in the second half of 2025. So we didn't start the ramp up after Q1. We started it, I would say, already during the second half of 2025, and therefore, able them to at least get part of the strong orders out already in Q2. But like Helena said, with the order intake we've had now for a number of quarters and with the ramp-up in the factory, we expect equipment revenues to continue to be strong into the second half of 2026.

Okay, that's helpful. Thank you. And then maybe just one other on equipment and service margins. Obviously now we've seen two strong quarters from an organic perspective in the margin bridge. I guess the question here is just that we've also seen inventories picking up, and we've also seen a relatively low gross margin. So I'm just wondering, is one of the strong drivers behind the equipment and service margin picking up the fact that factory utilization is much higher? And if that's the case, is it sustainable to keep the factory utilization where it is into the future?

Yes, I would say the factory utilization is... The expensive part is when you ramp up, when you train a lot of assemblers, that's when you take the hit. So I would say we're performing well now in the factories across, I would say, both on the equipment side, but also on the consumables and on attachments. And then we have this variable way of working, so it's very much additional workforce that we add. which of course creates the flexibility and agility. But I'm expecting us to be able to have an efficient manufacturing performance during the coming quarters as well.

Okay, maybe just to follow up on that. If you continue to get strong orders through, are you going to have to invest more in manufacturing capacity? What kind of utilization rates are you at at the moment in your factories?

We're adding shifts, and that's what we have been doing in several of our factories, but we also have a very strong set of dual capabilities, so we can produce the same equipment in several of our manufacturing sites in the different parts, so we're leveraging that work that we have put in place the last, I would say, five, six years, so that we can ramp up in parallel now, both in India, in China, in Sweden, as well as in the US. I don't see any challenges on the capacity side. It's more to get people on board and train them. And of course, to get the components into the factories. That's more of a sourcing exercise.

Okay. Thank you very much.

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

Hi, Helena and Håkan, Claes at Citi. So, first on the margin in INS, I mean, the 66% drop we had in the first quarter was obviously against very little sales growth of 2% that you're now doing around 30% on 13% sales growth and have more equipment sales versus service, which is good to see. So it seems like the drop through is moving in the right direction. I was just wondering on the internal service mix going forward. You obviously have this six to 12 month warranty period in parts and kits. I would assume growth here should accelerate with the lag given the strong equipment orders last couple of quarters. You also talked at the CMD about that you're selling more large machines, advanced machines, so that can increase the customer share. So shouldn't parts and kits, which is the highest margin segment within service, increase going forward as a percentage of service? I'll start here.

Given the larger the fleet will be, and you are correct, the first year, the machines don't generate that much parts revenue, but when they come into the second year, that's when you start to leverage that strength. Of course, with the strong equipment quarters that we've had, that creates the potential for parts revenue in the coming. And this is for several years, of course. It could be six up to ten years, depending on the machines we put in the market.

Thank you. Then on the T&A orders, no diff in comp, but growth is 4% down from 9% in the first quarter. And it seems like construction didn't weaken quarter on quarter and mining is still strong. So what's going on there?

But mining is still strong. I would say more it can vary between quarters as well. But there is high activity levels in the consumables business, and we also start to see a more positive sentiment towards construction and infrastructure. Infrastructure has been strong, but also towards construction and on the attachments, so higher activity level, even though from a low level.

But there is nothing on, if I understand it correctly, you don't take the tungsten charge over the revenue line. So there's nothing like that explaining it.

What we said, I think we said in the Q1 call, or maybe it was at the CMD, we said that we had very strong tools order intake in Q1. And given that tungsten prices then were ramping up and we had customers with contracts for three months, we said that there might be a bit of pre-buy. And I think we have seen a little bit of that now in Q2 with a little bit lower level compared to Q1.

Fair enough. My absolute final one is on the T&A margin. So it was more than 1% impact from tungsten on the margin in the first quarter and no margin impact this quarter. That looks like a bit worse underlying margin improvement year-over-year in the second quarter versus the year-over-year X-tungsten improvement in the first quarter and currencies better quarter-on-quarter. Would you agree with that, that the margin sort of operating leverage was a bit weaker.

Yeah, you can say that if you exclude the tungsten impact. But of course, when we compare Q2 to Q2, both are, you can say then, without. But I understand what you're saying. I would agree when you compare Q1 to Q1, yes.

Is that just operating leverage then?

Yes. And now we will take the last question for today.

Thank you.

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

Thank you very much. Two questions, if I may. I'll start with the margin in equipment and service. First part of it would be, FX rates obviously has been detrimental to margin for five quarters. Given the human current FX, is it possible that Q3 will be a positive contribution to EBIT for the first time in a while? And Related to that, on the organic drop through margin in ANS, about 30% in Q2, despite the fact that mix is shifting towards equipment. Is it a reasonable number for us to target going forward?

If I start with the first one on FX, I think the good thing now with FX is that the comparables are more in line. You see that when we look at revenue and on orders, it's like one percentage point differences. The negative thing is that it's actually fluctuated quite a lot during the quarter. So as an example, the dollar versus ZEC was down at 9.20 something and then it closed at 9.71, which means we can get some hits on the balance sheet or up and down. So I would argue that if it stays where it is right now and it's more stable, then you will see less of an impact overall in Q3 than we have seen previously. And then you take the second one.

On flow-through, I think we are pleased to see that we're back to profitable growth and good flow-through. Then, of course, it can vary between quarters, but we continue to focus on our efficiency, as I mentioned here. But we are happy with the performance in the quarter and that we show positive flow-through now in both BAs. But we continue to work on the efficiency. That's a key focus area for us. At the same time, ramping up then and get as much revenue out as possible.

Thank you very much. Thank you, Helena, Håkan, everyone who asked questions. Sorry again for the technical difficulties we had before. And enjoy the reporting season. Thank you, everyone.

Bye. Thank you so much.