Sandvik AB (publ)

A warm welcome to Sandvik's presentation of the second quarter results 2025. My name is Louise Cheddar, Head of Investor Relations. And of course, beside me, I have our CEO Stefan Widing and CFO Cecilia Felton. We will, as we usually do, start with the presentation, present the quarterly highlights, and after that, we will move on to the Q&A session. And with this short introduction, I will hand over to you, Stefan.

Thank you, Louise. And also from me, welcome to the second quarter report of 2025. If we summarize the quarter, of course, we have to start with the order intake, which is at an all time high level. We see a strong momentum in mining and also in powder solutions. We see a positive development in the software business, aerospace and some of the smaller segments. I'll come back to that. While, of course, demand in general engineering, automotive and infrastructure continues to be soft. Order intake was stable year on year, but organically it grew by 10%. Total revenue decreased by 5%, but organically it grew by 3%. We consider this to be a solid quarter from a profitability point of view, with an adjusted EBITDA of 5.6 billion, corresponding to a margin of 19% versus 19.6% last year, and a rolling 12 of 19.4, which is the same as we had a year ago. And considering the significant currency headwinds and the fact that we have fully mitigated the tariffs in the quarter, we consider this to be a solid result. We also have savings from our restructuring programs with a positive bridge effect of over 200 million in the quarter. Adjusted profit for the period was 3.7 billion versus 3.9 last year. And we had a strong cash flow of 5.1 billion versus 4.2 in the same period last year. We also continue to make progress in our strategic priority areas. We see strong revenue growth in the software business, in surface mining and in parts and services. We have booked, as you know, our largest battery electric vehicle order ever in the quarter. And we have also continued to make acquisitions that is expanding our reach in faster growing segments. The innovation of the quarter that I want to highlight is VeriCut Optimizer. This is a product that won Sandvik Sustainability Award in 2025. It's a collaboration between VeriCut, which is a business unit in intelligent manufacturing, and Seco Tools, which is a division within machining. And it's a joint solution that increases our customer relevance and stickiness. It's a product that increases or optimizes the numerical control or NC program, which is the program you run on the CNC machines to run the machining process. And it will help you to optimize the process in terms of efficiency and productivity. If you were at our Capital Markets Day, you saw this product being demonstrated live also during the factory tour. If we go through the market regions and segments, starting with the geographical perspective, Europe was down 4%, and here cutting tools was down low single digits. North America was up 32%, driven by a strong mining. Cutting tools was stable. Asia down 5%. Cutting tools in China was down mid-single digits in China. However, here I want to note that if we would include the Shoshuano acquisition, which is still reported in structure, and also compensate for the workday effect in China, we were actually stable in China in the quarter. So it shows probably a better picture of the underlying market, as well as showing that our local premium segment that we now have exposure to through Shoshu Anno is growing at a higher pace than our traditional exposure that we've had in China. And then we have the remaining regions, which is primarily driven by mining, all being positive. If we take a market segment perspective and start with mining, of course, as you have seen, a very strong momentum pretty much across the board. But I want to highlight specifically the strength in North America, Australia and South America in the period. General engineering continues to be weak. It's down mid-single digits. Europe is down mid-single, while North America and China are down low single digits. Infrastructure is also, let's say, fairly subdued. The uptick we saw in North America at the beginning of the year has turned into a more flattish development. It's a mixed picture however where demolition tools and attachment tools have a stronger development while aggregates is still having a weaker demand picture. Automotive, weak, down high single digits. Both Europe and North America down high single digits. In Asia, we are also down. In China, we are down low double digits. But also here, if we would include Shoshuano, we would be down mid single digits. So they clearly have a stronger presence in the Chinese automotive supply chain. Aerospace, good momentum, definitely reported only up low single digits. Europe is down low single digits, but the underlying demand is strong. It's a timing issue. So that's why we still show it as positive here in this picture. North America up double digits and here we clearly see the impact of the main customer in North America coming back and ordering products again, which is very positive. Aerospace in China was down high single digits. Then the other segments are stable. Here, I want to highlight positive development in some of the segments, such as defense, rail, shipbuilding, and consumer electronics, while more, let's say, traditional industrial segments, such as machine tools and pumps, were negative. But overall, stable development here. Europe stable, North America up, high single digits. China down mid-single, but if we include Susano, stable as well. Going down into order intake and revenues, and here we have reported numbers, and despite the high organic order intake in the quarter, you see a flattish development because it's offset by currency in the reported numbers. But of course, a very healthy book to build of 108%. And our order backlog is actually now also at an all time high level, which of course is positive as we go forward. If we look at this from an organic perspective and structure, but at fixed exchange rates, you can clearly see the momentum in the order intake. It's actually the fifth quarter in a row now with positive organic order intake, but first time in a while that we have a double digit number there. Revenues up 3%, as I said, also here a quite clear trend since Q1 of 24, where it has gradually been improving and now turned clearly positive at the 3%. So good to see. Profitability, margin of 19%, 5.6 billion, down 8.5% versus last year. We consider this to be a resilient margin given that there are key segments that still have low volumes and we have significant currency headwinds. Currency is diluting by 40 basis points. In the bridge, there are some additional currency impacts that we'll come back to in the organic part of the bridge as well. And as I said, on the rolling 12, we are flat versus a year ago at 19.4%. Going into the segments, starting with mining, very solid momentum. We really see a broad-based demand across the board, with also record high order intake for the business area. The strong order intake growth is driven by equipment divisions, which is up 50%, but also high single digits growth in parts and services. Also, the service business continues with very good progress. So total order intake increased by 5% and organically at 18%. If we strip out the large orders, we still increased by 14%. So of course, 2.1 billion in large orders is a lot this quarter, but we also had a very strong quarter last year. So it was fairly tough comps. But what this shows is also that it's not only the big orders, also the small orders and mid-sized orders are coming in strongly right now. Margin of 20.3 versus 20.8. On the low side, we believe, definitely because of a low leverage, driven by some currency effects in the organic bridge as well, is re-evaluation of unhedged balance sheet items. You might have questions around that. Let's come back to that in the Q&A in that case. We can spend some more time on it. And then also an European go-live that has caused underabsorption in the quarter because of inability to deliver fully in one of the divisions. Tariffs fully offset in the quarter through, for example, pricing actions. Some savings in the quarter, 37 million. Exchange rates actually accretive to the margin by 30 basis points because the impact on the top line is larger than the impact on the bottom line. If we add all of these things together, a little bit of maybe a strange picture, we'll come back to the bridge if you have further questions on mining margin. Positive, of course, we are now also ramping up to meet the high demand from a production point of view. In the quarter, we opened up a new production line for surface drill rigs in Finland. And we have also launched a new auto mine surface fleet solution to further support our strategic focus to grow in surface mining. And we already talked about the BEV order that we announced in April. Rock processing also see a solid momentum in mining, but infrastructure continues to be at a lower level. Total order intake decreased by 3%, but organically it grew by 8%. And they also received two major orders in the quarter, totaling 145 million. Margin of 14.6%, down versus last year where they were at 15.1%. Here they had good contribution from their savings, but a very negative impact from exchange rates. So savings of 15 million, but 100 basis points dilution from exchange rates. Also here tariffs was fully offset in the quarter. We have launched an important innovation with a fully upgraded jaw crusher range in the quarter and of course also completed the acquisition of OSA demolition which is strengthening our demolition and recycling offer. And then machining and intelligent manufacturing. Demand for cutting tools declined year on year at low single digits. We saw strong development in powder with double digit growth. Software orders increased low single digits. We had very tough compares with solid double digit growth last year on the order side. But software revenues continued to grow at high single digits. Aerospace, as I mentioned, developed positively and then primarily driven by North America. Total order intake decreased by 7%. Organically, it declined barely by 1%. And then we continue to see a stable development into June in the first two weeks. We can also say here, if you look at the quarter two, we did see a stable development on the daily order intake throughout the quarter compared to Q1. If you do the math, it's slightly up by 1%, but from our point of view, the market has shown a stable development and continues to do so. And I think considering what we could fear in the beginning of April, I think this is still a solid development for the business in the quarter. Margin of 19.6%, good price execution and strong savings of 153 million, but offset then by volume declines and the currency impact that diluted the margin by 60 basis points. They also had structure diluting by 30 basis points. Tariffs also here fully offset in the quarter with tariff surcharges. Also here, we have launched several important innovations. I mentioned one already in the quarter, and of course completed the acquisition of Verisurf in intelligent manufacturing. And with that, I hand over to you, Cecilia.

Thank you, Stefan. All right, so let's dive into the numbers then in a bit more detail. And as usual, let's start with the growth bridge on the right-hand side here, where you can see that, as Stefan said, we had strong organic order intake growth of 10% and revenues grew organically by 3%. Structure contributed positively with 1%, but you can also see the strong currency headwinds, minus 11% on order intake and minus 10% on revenues. Adjusted EBITDA, 5.6 billion, corresponding to a margin of 19%. Net financial items came down year over year, and I will go through this in a bit more detail in a few minutes. tax rate excluding items affecting comparability and also on a normalized basis at 23.5 percent so in line with the guided range networking capital came down slightly compared to last year. This is calculated on a 12-month rolling basis to 29.6%. We also had a good cash flow in the quarter, 5.1 billion corresponding to a cash conversion of 94%. Rows improved year over year while EPS came down driven by currency. If we then continue with the EBITDA bridge, starting with the organic column, you can see that we had a low leverage of 15%. And here we had good leverages both in machining and intelligent manufacturing and also in rock processing. But in mining, leverage was 12% impacted by the two items that Stefan mentioned earlier. Currency then had a negative impact on top line of 3.1 billion minus 702 million on EBITDA and that gave a dilution of 0.4 percentage points. Structure was slightly dilutive and then all in all that brings us from a margin of 19.6% last year to 19% this year. If we then continue down the P&L, looking at the finance net, you can see that it came down year over year, and this is mainly driven by the lower interest net. And that's a result of a combination of both lower borrowed volumes, but also lower yield cost, which you can see here at the bottom of the table. Tax rate then on a reported basis, 23.6%. And you can see that items affecting comparability only had a small impact on the effective tax rate in the quarter. And the normalized tax rate was then in line within the guided range. Networking capital, if we start looking at the graph on the left here, you can see that it's flattened out and now slowly, gradually starting to trend downwards. And on the right, you can see that networking capital levels have come down for both mining and the rock processing business areas. As I said, free operating cash flow was good in the quarter, 5.1 billion. And if you look at the table first, you can see that EBITDA adjusted for non-cash was largely in line with last year's levels. CapEx was a little bit lower, and we also had a smaller networking capital build-up this year compared to last year. And if you look at the trend line on the left, you can see that on a 12-month rolling basis, we are now at a cash conversion of 98%. Financial net debt increased sequentially to 37 billion driven by the dividend payments that we had in the second quarter. And this also caused a seasonal uptick in financial net debt over EBITDA to 1.3. Capitalized leases increased slightly sequentially, the pension liability came down somewhat, which then resulted in a net debt of 45 billion. Looking then at outcome versus guidance, as I said, the currency impact was minus 702 million in the second quarter. And then if we look on a year-to-date basis, CapEx is now at 2 billion, interest net at 0.5 billion and normalized tax rate at 23.7%. And looking ahead then at the third quarter and full year, here we expect a negative currency effect of 800 million in the third quarter. And this is based on the currency rates on the last of June. For the full year guidance, we have revised the capex downwards from the previously five billion to four and a half. And this is partly driven by currency, but also lower anticipated spend in machining. Then for the interest net and the tax rate, we have left guidance unchanged. And with that, I will hand back over to you, Stefan.

Thank you. Let's do a conclusion. Again, we believe this is a strong quarter despite the challenging macro environment that we're operating in. We see a strong demand in several of our key segments and also some signs of bottoming out in the weaker ones. We believe we have executed a swift response to the current tariffs that are in effect and being able to fully offset them in the quarter. It's a good profit margin considering the volume challenges in the weaker segments and the currency headwinds that we are experiencing. And then also a strong cash flow, as you have seen. We continue also executing on our strategy. We have introduced a new important solution with AutoMind surface fleet. We have strengthened our position in software through the Verisurf acquisition and we have won the largest battery electric fleet order to date. I think we have proven our ability to deliver through challenging periods. It is a lot of uncertainty also going forward with, let's say, daily announcements around potential new tariffs. We will, of course, continue to take mitigating actions to limit the impact of any new tariffs if and when it happens. But we have a solid platform to execute from. We have strong capabilities. And again, I think we have proven that we can deliver also through challenging times. Thank you.

Right. Thank you, Stefan and Cecilia. It's now time for the Q&A session. So operator, we can take the first question, please.

We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to only use handsets while asking a question Anyone who has a question may press star 1 at this time. The first question comes from Sina Chitriyaphan, JP Morgan. Please go ahead.

Hello, thank you for taking my questions. I've got three, please. So firstly, on the mining order intake, I mean, clearly it was very strong and it has been more than 16 billion now for two quarters, excluding the large orders. How should we think about this underlying development into H2? That's my first one.

Yeah. I mean, the reason why the order intake is strong, it's driven by high commodity prices. We can see gold and copper customers clearly investing into capacity and to maintain production levels or increase them if possible. We also have a record old fleet still, which of course is also something that supports demand. And we are making good strategic progress, as we said, on the surface. So from our point of view, this is an underlyingly strong demand. And as long as commodity prices stay where they are, we see no reason for why the demand picture will not continue to be strong. Larger orders can, of course, come and go a little bit between the quarters. But underlying strong demand, very healthy pipeline. That's how we see things going forward.

Thank you, very clear. And then secondly, on the large South 32 order, I mean, it seemed like in 2024, the demand was a bit more muted on battery electric vehicles. Do you expect to pick up into 25 and beyond?

Difficult question to answer, actually. I mean, we had, let's say, a boost in 22-23 with over 10% of order intake and load and haul being BEVs. Now we're back to sort of high single digits. 24 was less than that. I don't think we will come back to sort of the boom we saw in 22, 23. I think we will see a gradual increase going forward. We definitely see interest. I met one of our key customers in Mexico just a few weeks ago. They went with the BEVs. They see the benefits. They are saying for our expansions, we'll continue with BEVs. We're not going back to diesel. There are many customers that have not seen that light yet. And there are, of course, still challenges with the total cost of ownership or mining infrastructure in many mines. I think this was a good sign in that the trend is still there, but I think we will see a slower and more gradual shift than we thought a few years ago.

My final question is on the machining side. I mean, an ordered development of only negative 1% is a pretty good result given all the uncertainty in the market. And obviously now we've got PMIs, which indicate maybe perhaps more positive outlook. I guess my question is, what are you seeing in your conversations with customers? Is this something that's being reflected with regards to sentiment?

No, but let me qualify that answer. I mean, on the one hand side, we have seen a stable development now in Q1, in Q2, despite all the uncertainty. And I think that's a positive. I agree, we are seeing PMIs sort of inching upwards and in most regions they are just below 50. So it's sort of close to a tipping point, turning positive. And those two are the positives. But on the other hand, we have the uncertainty around tariffs going forward, what will happen, causing, let's say, question marks on the investment side. So these are the two sides of this. So as I say as well, I think we see some signs of bottoming out in some of the segments that have been weak. But there is still a cloud related to the tariffs, and I think that we also hear from customers. I think for things to really be able to turn positively, we need to have a resolution. We need to know what the trade conditions will be between the major trading regions, at least, so we can make investments and sort of look to the future.

I think in terms of the year-over-year development, we will now start to face easier comparables during the second half of the year.

Yes, absolutely. So that, of course, is a positive. But from a sequential point of view, as we said, so far we see more of a stable development than anything.

Thank you very much.

Thank you.

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

Hello. Thank you for the presentation, and thank you for taking questions. The first one would be on your aftermarket orders. Should we consider that this quarter's growth rate is a reflection of the underlying demands, or are there other factors that we should consider? And then on the margins of the mining business, would it be possible for you to give us an indication of what they would have been excluding the ERP costs and the revaluations and what we should take into account for the rest of the year? Thank you.

Yes, I can start with the first one. On the orders for aftermarket, I would say, if you look at parts and services, which is a subset of what we say is aftermarket, we see it is reflective of underlying demand. It is reflective of a larger fleet, a fleet that is being utilized to the maximum, a relatively old fleet. and customers that want to focus on getting the maximum outcome out of their production. And I could say also some other good things that they have done in the division to be sort of a good partner to our customers. So I think that's really reflective of the underlying market. Then, if you take the total aftermarket, which also includes consumables such as rock tools and ground support, Here, we have a negative impact in the Rock Tools division coming from this ERP go-live. This ERP go-live caused some issues in delivery in the quarter, which led to under-absorption, which is what we highlighted in the margin comment, but it actually also had a negative impact on their invoicing. Yeah, so that's where we are.

Yeah, and on the margin side, as I mentioned, mining had a leverage of 12%, and their normal leverage would be at around 30, and the delta between these two are those two items. So it's the under-absorption coming from the ERP go-live, and then also the currency impact from re-evaluation of unhedged receivables and payables. And I think on the ERP side, we have still not resolved all issues at the end of the second quarter, so we might see part of an impact also into the third quarter in that division. On the balance sheet revaluations, There, on the mining equipment, we are hedging. We can be very precise. We can hedge each order separately. But for high-volume businesses like parts and services, we cannot hedge every single transaction. Instead, we need to base our hedging on forecasts. And even though we have very big volumes and we are quite good at the forecast, so the percentage that is exposed is quite small, we can still have an effect like we did in this quarter because we had very significant currency swings. So even exposure is small with such big currency movements, we still got a hit. But in terms of size, it's a difference between a normalized average of around 30% and the 12% where we ended up.

Thank you. Very helpful.

The next question comes from Klaus Bergelen, Citi. Please go ahead.

Yes, hi, Stefan and Cecilia, Class of City. So my first one is on machining and intelligent manufacturing and the cutting tool volumes, looking at orders. Cutting tools down low single-digit, powder adding a bit more than 1% against a tough comp, and then software up low single-digit, also against a tough comp when I back out the growth drivers. On the cutting tools down low single-digit, that would imply that volumes accelerated a bit quarter on quarter, at least on my math. Was there any front-loading here, Stefan, ahead of likely accelerating surcharges? We've seen that cutting tool volumes can move ahead of potential price increases. We've seen that in the past. So I'm keen to understand if that happened this time as well. Thank you.

Sure. You were late this time, Claes. You're usually first, or you're sleeping at the phone, or you're in vacation mode already. Maybe. As I said, you asked about an acceleration. As I said, if you look at it quarter over quarter, Q1 to Q2, on the daily order pace, it's actually up 1%. So we would say stable on that, in that sort of plus minus 1% can be, let's call it natural variations. So we are not reading an acceleration into it, even if of course we are happy that it was slightly better. We have not seen any sort of pre-buy acceleration in order intake and so on. The price increases in machining sort of the letter went out end of April price increases happened. early may so what we have done to try to avoid this is to actually have a very short period from announcement to implementation and we could not really see any pattern like that in the business okay and then on the okay well that's that's good to hear um

On the cost inflation from tariffs, you managed obviously to offset it, as you said that you would in the previous quarter's call. But how do you feel about price versus cost in looking at the third quarter? Those that have reported in the U.S. so far have talked about the impact being more felt in the third quarter as the higher inventory is moving through with a lag, i.e. higher cost inventory. I'm wondering if you also feel confident that this can be fully offset when you look at the third quarter's data, particularly for machining solutions.

I mean, overall, as you know, we are continuously working with price. For machining, price versus inflation was slightly accretive in this quarter, and this is due to the timing of when we make the price increases versus when the inflationary pressure comes. So we are continuously working with this, and if needed, we will continue to work with price also in a more agile way going forward.

So to be very clear, we don't expect any negative impact in Q3 because there's always also a natural, even if you with many customers can raise prices quickly, there are also bigger customers. There is some lag also coming through the price component, so to say. So I understand the dynamic you're talking about. We don't expect that to have a negative impact in Q3.

Okay, my final one, and I promise to be quick, is on the powder side, and particularly tungsten. I think that's nearly 80% of your 5% to 10% volume impact from powder. You had a very tough comp last quarter, but I still get this to be up around 30%, 40% in the quarter, adding about 1% to your growth. Comp is getting easier. The restrictions seem to still be in place. So number one question is, can this accelerate sort of further and add to growth in the second half? And then number two on the margin, you obviously have some framework agreements here, so you don't get the margin benefit through immediately. But I'm just wondering whether this can be supporting the margin as we go through the rest of the year as well. Thank you.

On powder volumes, it's difficult to speculate in terms of what the orders will be going forward. We definitely see high demand, both in terms of volume demand, but also of course ATP prices have increased, so we also get the price component. But again, I don't want to speculate what happens going forward. I think there should definitely be a positive demand environment. What the numbers will end up being, I don't dare really say. One thing to be aware of is that, of course, regardless of the demand picture, we also have constraints in our supply. There's a certain amount we can take out of the mine. we have other supply agreements with other mines we have the scrap that we buy but what we are also seeing is that competition for scrap is heating up with sort of scrap dealers trying to cut in between and now um and of course on just a general production capacity so of course the order intake will also be limited by how much we can produce and our capacity but overall positive for sure but i don't know if you want to say anything about the margin part

On the margin, I can just say that the powder business is, of course, dilutive to the total margin for machining. And even though we can see some strengthening in the powder business margin, For the reasons Stefan mentioned, it will also mean higher raw material cost for the cutting tools division. So it's a positive in one end and a negative in another end, as not all material is sourced internally from our own mine.

Exactly. Thank you very much.

It's a complicated picture to ask on that one.

All right, we can take the next question.

The next question comes from Andreas Koski, BNB Paribas. Please go ahead.

Thank you. And good afternoon. So on tariffs, can you give some sort of indication of how large price increases were necessary to offset the tariffs in Q2, both for the group and MIM, Manufacturing Intelligence Manufacturing, and what the corresponding number would be in Q3? Because I presume that tariff headwinds will accelerate quite strongly in the coming quarters. And do you expect to fully offset tariffs also in the coming quarters? Thank you.

Shall I? I can start.

You can add if you want to.

So for machining, if you look at top line development, tariffs had a year-over-year impact of 0.6% in terms of growth. For the other business area, it was not really material, so a smaller impact on the group. In terms of the level of the price increase, we're not more specific than that, but we're largely in line with our main competitors.

Yeah, and as we said before, we don't expect this to turn into more of a headwind going forward, unless the tariffs change, of course. But because we have done the price increases we need to do, then there is always a little bit of lag in implementation, and that will also come in handy in terms of if there are, as mentioned before, inventories costs that are going up a little bit. So we have tried to do this in a way that we have to do it once, and then we should be done with it. And provided there are no more tariffs or material tariffs impacting us, we consider this to have been handled.

Understood. That's great. And then just one question on the cutting tools business. You are saying that the daily orders increase by 1%, and I understand that that falls within the normal volatility between the quarters. But can you talk a bit about what you've seen in Europe and especially Germany? Because if I look at German industrial orders, they are now growing again for the first time since 2022 and on a three-month growing basis. They are up by 5% year over year. And if I look at SMMs or SMS organic growth in the past, we've seen quite a good correlation between German industrial orders and the organic growth for SMS. If you can comment a bit what you are seeing in Europe and especially Germany. Thank you.

Yeah, I don't think we can say we have seen any, let's say, specific impact in Germany in the quarter from a volume point of view. We are seeing, though, coming back to PMIs, that Germany is improving, definitely, from coming from very, very depressive levels, now being very close to the 50 level. I think this, what is it called, this cycle they have, I've got the name now, It's still showing, though, that they are not in expansion mode yet either. Orders, of course, is the starting point, and then that will lead to business. This is also, of course, what we are a little bit referring to when we say that there are some signs that things are bottoming out, even though we're not there yet. So no impact in the quarter, but that's definitely a positive sign, as you say.

That's great. Thank you very much and have a great summer.

Thank you.

The next question comes from Edward Jussi, UBS. Please go ahead.

Hi there. Thanks for taking my question. Just going back to the powder business, I was just wondering if you could perhaps give a bit more color in terms of the split between volumes and price in the order intake.

Did we talk about the powder business? No.

In the powder business, yeah. Between volume and price.

Yeah, okay. We haven't been specific about that. So what we can just say that both are contributing, let's say, very positively. But we haven't given the exact split. On the price, you can, of course, I mean, the ATP notations are, of course, public information. And that's a very good indication of price on the powder side.

That's very helpful. Thank you. And then just quickly on the metal cutting side, in terms of pricing, my understanding was last year you sort of had maybe pricing in the 4% to 5% region. You were talking about covering cost inflation, and that was what you were sort of penciling in for cost inflation for the year. If you look at pricing quarter on quarter, has it sort of got worse or has it got better in underlying metal cutting?

You're referring to price realization or what is your... Yeah, exactly, price realization.

I'm trying to back out volume growth within metal cutting and just trying to get a bit more color around that, if that's okay. If you want to.

I think the best indication that I can give is that over the last two quarters, we have continued to mitigate price or inflation with price. This quarter now, we're slightly ahead, so it's slightly accretive to the margin. It's difficult to be more specific than that. Yeah, no, exactly.

For competitive reasons, we don't want to be more specific than that.

Okay. That's very helpful. Thank you.

The next question comes from James Moore, Rothschild & Co. Please go ahead.

Yes. Hi, everyone. Thank you for the time. I've got three quick ones, if I could. The first is really just coming back to the machining price, the letter in April, and acting it in May. Just trying to understand whether in machining price cost was neutral in the second quarter. And as we look at the third quarter compared to the second quarter, do you think those incremental actions could be actually accreted queue on queue or just neutral queue on queue? That's really the first question. Maybe one at a time.

Yeah, price versus inflation was slightly accretive in the second quarter. So we're slightly ahead with the price increases versus how we expect inflation to trend. Because of course, when we do the price increases in the beginning of the year, and also when we looked at the tariffs we tried of course to anticipate what inflationary pressure will be like in terms of future price increases we cannot give any specifics more that for all of our divisions and business areas we of course continuously monitoring if we need to do any additional price increases going forward

I was just more referring to a full three months as opposed to one and a half months of the prices that you've enacted versus the baseline of current inflation and tariff levels, whether it was incrementally positive.

All right. Yes, in that sense, of course, we will get a bigger impact from the tariff surcharge if you just look at the upside in the third quarter. But there is also, as some of you mentioned in your questions, also anticipated inflationary pressure coming. So we're not anticipating this to be an additional upside per se. There are also other moving parts, I think, offsetting this.

Thanks. On mining aftermarket, I understand rock tools are in with the classic spares and other service businesses. Would it be possible to sort of break it out a little bit? Is the underlying spares and service business continuing it on an order level at the more normal, organic, high single-digit level? And is it that all of the delta between that and plus three is rock tools? So I don't know, rock tools minus 20%, 30% due to the ERP system, or is there also some underlying slowing in the rate of year-on-year growth for the underlying spares and service business?

The portion service is continuous at high single-digit growth. Then you have rock tools, which is more adverse then. And then you also have ground support, which is growing, but at a lower rate than portion services. So those are the three components.

Really helpful. And just finally, if I could try, on the revaluation, on the unhinged balance sheet items and the ERP go-live impact. If I was to take the difference between 12% and a 30% drop through, it would feel like a couple of hundred million of impact from those two items. I wanted to check that that was fair for the rough magnitude of it. And would it be fair to say that they're kind of half-half, or is one of them the dominant impact?

I would say it turns out to be a little bit less than what you calculated in terms of impact. I would say it's roughly half-half between the two.

That's very kind of you. Thank you very much. Have a great summer.

Thank you. Thank you.

Don't implement a new ERP. It's expensive.

All right. Do we have more questions online?

Yes. The next question comes from Schwering Gustav, Handelsbank.

Please go ahead. Yes. Hello. Thank you. Can I ask another one on the equipment demand for mining, Stefan? Your comment that you now need to ramp up manufacturing capabilities. I can't remember us talking about this in recent quarters, but we're also seeing very healthy order levels. Is this a comment that we should read anything into? Is it just a reflection of the backlog you're sitting on and keeping normal lead times? Or are you actually more confident now in this strong pipeline converting into firm order. Thank you.

It's, of course, it's, let's say, an assessment of the complete picture that we have to do. And when we do that, we are now sitting with a record high order backlog. We have lead times that in some products are getting close to the pain point for customers. And at that point, we risk losing orders if we cannot deliver in time. And of course, if we saw this as a very temporary, you know, we got a couple of major orders, that would not be a problem. But as I said, we see underlying demand on both smaller and midsize orders being strong. We see, you know, healthy pipeline for also some larger deals. and on top of that we know that our equipment is the fleet is aging so if we put this all together we we do see a need to increase production capacity to be able to meet the demand that we expect and of course that's always a risk you take especially in today's world but to preserve let's say our position with our customers we feel this is the right thing to do We have, of course, as you know, a new Lord & Hall factory in Malaysia that comes in very handy from a timing point of view. We have, as I said, expanded production capacity in temporary, hired over 100 or several hundred new people. So, of course, this is a sign that we have a belief in that the backlog will stay strong.

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

Hi, can you hear me?

Yes.

Okay, brilliant. I'm wondering if you could just comment on price cost or price receptivity on consumables, whether the tariff-led price increases have been accepted by larger miners. consumables you mean what sorry what do you refer to when you say that uh parts and service wear items okay okay what i think you'd generally tool into aftermath put into aftermarket

Yes, I can take that one. And the answer is yes. Of course, there's always discussion with customers, but we typically in our, for example, with major customers, global framework agreements, we have currency clauses. Partner services have currency clauses. And the same is also now with tariffs. We did, as this was not entirely unexpected already last year, we made sure to review contracts and commercial agreements to make sure we have also tariff clauses in the contracts. They are not everywhere, but a big part of them have that, which makes it sort of more automatic. And then some additional conversations with customers as well. It has been accepted.

Great. And in terms of the guidance given at the CMD about operational leverage and mining of, I think, 30%, does that incorporate the increased level of investment and spend that you're having to put into the business right now?

Yes. I mean, that's... Yes, I mean, it's part of growing. The leverage, of course, assumes growth. And in the growth, we assume a certain investment to expand capacity as well. There might, of course, in certain periods be, let's call it step changes. For example, the new load and hold factory in Malaysia, when that went live, it put some pressure on... or it was a little bit dilutive to margins until it's been ramping up. So in that sense, it can impact leverage short term, but that's behind us now. And the things we're talking about now in terms of additional production lines and so on, they are there because we need them. So they go sort of fully into... They have a very positive return immediately, so to say, since we have already sold the products they are producing.

Great, and just a quick follow-on. Are there any more step changes this fiscal year in the costs?

Nothing material planned, no. In terms of major site investments or new sites coming along, no. We're more working with ramping up production in existing production facilities.

And if it was, you would have seen it in the CAPEX guidance, but as you saw, we rather took down that.

Okay, good stuff. Thank you.

Thank you.

The next question comes from Sebastian Cunha from Royal Bank of Canada. Please go ahead.

Hi. Thank you for taking my questions. I would like to understand a bit better the dynamics in the order intake in mining. So you speak of minus 13% currency impact. At the same time, you say that prices are fully adjusting. And you then report plus 18% order growth organic. Simplified, could I now assume that, okay, you pass that 13% currency impact onto your customers for any new contract, and that out of the 18% growth, you have basically a 13% currency and then 5% volume. Is that the right approach? Do these price adjustments happen so quickly, or do I make a mistake here? Thank you.

Not on the currency side. So there we have a little bit of a lag in terms of implementation. So I would say the currency impact that we saw in the second quarter is largely unmitigated in this quarter. It takes a little bit longer than two, three months to implement the price changes.

And then also you have to use a different dynamic between top line and margin here. On the top line, it's not something we in general mitigate. I mean, if we sell a machine for a million dollars, last year or this year, it's the same. And then when we bring it back to SEC, we might get, as we see now, like a 13% negative impact. But it's not that we can raise the price in dollars because of that. We will do things like that to mitigate the margin impact, but not the top line impact. That's also a lot of a translational impact versus a transactional impact. So I didn't quite follow your math there, but the way to see it, the plus 18% organic order intake, that of course has a certain price component, but it's primarily volume.

Yeah, so you would mitigate the margin only, I understand. Then if you look at the volume change in the order intake and mining, You briefly indicated, you know, we have an aging fleet and we have high copper and gold prices. If you had to put ratios between the two, how much is now starting replacement of that fleet that was put in place between 2007 and 2011 in the big cycle? And how much is really expansion of brownfields, greenfields?

So in Q2, we had 50% brownfield, 25% greenfield, and 25% replacements. Greenfield this quarter was higher than it's been for a number of quarters. It's typically been more around 15%, and then that being evenly distributed between brownfield and greenfield. and replacements. But we had, for example, the South 32 order this quarter, which was a big Greenfield order that is driving up Greenfield. But that's the split. It's been otherwise more, you know, 55, 15, 30, something like that.

Yeah, it means the fleet is still aging in a way.

Yes, we have not done any material, let's say, progress in making this fleet younger, that's for sure. Which is, of course, also why we see on top of the general demand picture, this is also a little, let's say, a buffer for us, which makes us more confident in going forward, which is also why we are ready to make these capacity increases now.

Okay, excellent. Final brief question. In your guidance for the FX impact, this is for the transactions, right? This is the 800 million that would impact EBIT from your revenues. The balance sheet adjustments for receivables would come on top. Is that correct?

Yes. So in the guidance, we have transaction and translation impact only. Re-evaluations of balance sheet items, we treat them as organic also in our leverage bridge. And that is because we want internally the organization to always work with optimizing their hedging. So we treat that part of currency as organic development in our follow-up. So it's excluding that. Okay.

And normally it should be around zero, just to be clear.

Yes, yes.

Exactly, and it should be a one-off, right? It should not recur like the revenue impact. Yeah, yeah. Understood. Thank you so much.

Thank you.

Appreciate it.

Okay, we can take one more question. Operator, please.

The next question comes from Tori Fangman, Bank of America. Please go ahead.

Perfect. Thank you for squeezing me in. Just one follow up from my side to John's question regarding your discussion on tariffs with customers. I appreciate you said you consider it is a one and done as of now. But could you tell us how difficult your surcharge discussions with your customers were? And would you see this difficulty changing materially if we get into a higher, for example, a 50% tariff environment? Or are your customers very, let's call it receptive when it comes to this? Thank you.

No, I mean, I've never met a customer yet that is receptive to a price increase. But let's say there is a and it is tough discussions. Let's be very clear on that. At the same time, there is some some level of understanding for that. This is basic. I mean, this is a tax. And, you know, 10%, that's half our EBIT. There is of course no way we will accept that that ends up in our P&L. And if we have to accept lower volumes, then we will have to accept lower volumes. That's not been the case. There are a few, I would say, isolated areas where, for example, dealers have said, I have inventory already, I'm going to pause ordering new things until I know what the long-term future is, in the hope that tariffs will go away. Of course, having the risk that they will go up further instead. So it's very tough discussions for sure. But at the end of the day, for us, this is not an option. If they don't want to buy from us, they can buy from someone else. But on the other hand, what we're seeing in the industry is that all peers, competitors, everyone is more or less doing exactly the same thing. So there is not so much options either from a customer point of view. Of course, the higher the tariff, the more difficult the conversation. So you cannot speculate on that. But on the other hand, the higher the tariff, the more you just have to do it, right? a 30% or a 50% tariff, it's impossible to digest. So you have the option of raising the prices or stop doing business, and then it's better to raise the prices. Longer term, we can of course do things like moving production and so on, but in the current environment where Things are being announced every day and then taken back three days later and so on. With this uncertainty, you're not making any investments at all. So things have to settle, then we can decide on a long-term strategy. Meanwhile, you have to resort to quick, shorter-term actions such as price increases. That's the only way you can deal with it.

Great. Thanks, Stefan.

Thank you.

All right. Thank you. It's time to conclude and thank you for calling in and for good questions, of course. And before we end the webcast, we want to wish you a very nice summer. Thank you.