Ladies and gentlemen, welcome to the Atlas Copco Q2 Report 2016. Today, I am pleased to present CEO Ronnie Leten and CFO Hans Ola Meyer. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Speakers, please begin.
Thank you. My name is Hans Ola Meyer. I am the CFO of the group, and I welcome you all to this Atlas Copco second quarter conference call. Today, me and our CEO, Ronnie Leten, are calling in from the center of compressed air in the world, i.e., Antwerp in Belgium. I also have to say that whilst we are on the second quarter conference call, our thoughts go to the victims of the dreadful acts in Nice last night. As we have airports and flights to catch after this call, and considering the security increases that might have happened, I am sorry to say that we have to finish sharp by 4:00 P.M. today. That means that I would, again, urge anyone that poses question to restrict to one question to allow time to a few more people on the call. That would be very helpful.
Our IR department, led by Mattias Olsson, will do everything they can to cover up for the remaining questions after the call. With that, I will immediately hand over for the first comments by Ronnie on the sales and results of the first quarter. Second quarter, sorry.
Yeah. First quarter we had a couple of months ago.
Yeah.
Welcome all to the call. As Hans Ola already indicated, I will go through and try to maybe already preempt some questions, so you can really specify on one. Q1 or Q2, sorry, they were the same, was, we can say, coming back to the last two, three quarters, maybe a bit the same view with one exception, that I see the overall industrial businesses we have, that had a solid development. We saw, and maybe for those who have been following Atlas Copco very closely, they saw that, they also had record orders for Compressor Technique as well as for Industrial Technique, which I think is something to mention. On the other hand, we also have another part in our group, and that's the mining and construction demand. That, compared to last year, was weaker.
Although, I have to say, if you look sequential, we saw a better mining and rock excavation business, if you take it sequentially. When it comes to operating margin, sequentially an improvement. I will also elaborate a bit later. Again, if you look to the different business area where the sequential improvement is MR. That is the main takeaway, the other three business areas have done, compared to previous time, at a good, solid development level. Operating cash flow was at a solid level. Also, every business start that worked on reducing the working capital. Summarized, I can say I'm reasonably pleased with the order development. Of course, it can always be better, I see that the focus on one hand on good innovation, that really creates productivity for our customers.
New products, they give good return, I will elaborate also a little bit when I talk about the different business areas. I'm very pleased to see that hard work in silence is paying off, that is always good, when you lead a company, that also is giving results. That, I think, is the summary. If we look to the figures, the next slide, heading with the figures in summary. You can see the figures. It's rather straight, solid development or operating profit of close to SEK 4.8. Adjusted even a little bit more. A soft 19%, we can say, if we take it as it is. That giving also the currencies and some of the items affecting compatibility in line of where the business is cruising today.
Hans Ola will elaborate a bit more on when he looks to the flow-through bits on the currency. When we look now to the next slide, where we see the different regions, I will start maybe best with Europe. You see a zero. Of course, again, if I took it from an aggregated level, a solid industrial part, mining a bit down, that is mining construction then, because that's where that part is headed under. We had a challenging comparison for Construction Technique as we had last year a record to order income on that part. It means, an okay Europe, I would say. I go to Asia, where I can say that all countries were at a good level. Where India was maybe the leading performer, where all business areas were very strong in India.
When we talk about China, we still see a very solid Industrial Technique. We had an okay mining and rock excavation, a bit softer construction. On Compressor Technique, it was solid. We had a very solid Compressor Technique in China with exception on the gas and process units. The larger units were softer. This I've been saying now for three, four years, the business is getting relatively smaller and smaller. It will have less and less effect on our figures. Anyhow, a good Asia. I then go to the other side of the world, I go to North America. Before I go in a little bit more in detail, I would like to give a comment on the minus five, which you say, oh, what is this?
I would have to say, that we have a negative effect. It's mainly in U.S. in this period due to orders from, say, one big international customer or two big international customers in which now the reporting of the sales is done in different countries in the world. If we correct the figures of adapting, I should better say, because the figures are correct. If adapting the figures for that reporting of that sales, then it is a slight negative. It's not the minus five, then you have a slight negative point to that. If I give a bit of reflection on North America. We had a very solid development in the industrial business, again. I think the service business was very strong. The small units, the small to medium sizes, were also at the good level.
Remember that last year, quarter two was still the quarter before the oil crisis. It was still a very solid amount. It's only next quarter when we do another type of comparison. We had also very solid construction, that was doing fine in North America, unfortunately, mining was rather weak in that region. I go to South America. Of course, we all know Brazil is a tough environment now. There are a couple of positive spots in Brazil. It's not that it is dead, we can say that the business is rather difficult, challenging in that area. We go Africa and Middle East, where I can say, of course, overall mining weak with maybe a couple of good spots here and there.
Of course, when it comes to Compressor Technique, which is one of the bigger players there, especially in Middle East, it was a rather tough environment in that area. Overall, we could say, maybe the surprise takeaway is that, I see a solid Asia, that is good and industrial. The industrial part is in Europe and North America at a good level. I would like to go to the next slide. Here, the order growth. I will skip that one, we go to the sales bridge. Straightforward figures where you see that the volume in orders is slightly down. Price zero, which is slightly positive, of course, we don't report after the comma. We have structural change with a couple of acquisitions which we had in the quarter. I would like to go to the slide heading, Compressor Technique.
The comments per business area. Here we see an order intake. I said it's record order intake, as I mentioned already, and an organic growth that is fantastic to see, a very solid service business. Very stable ordering come for vacuum and compressors, that is continued to do a good development. If we then go to elaborate a bit on the gas and process are the largest one, which were still soft. Of course, Asia had a very good development where India was the champion of the quarter. Margin, very rock solid. Margin is good to see that that is a clean, good result, close to 23%, and that's even included the vacuum business. A very good result. Acquisitions, we are very pleased to see also, a couple days ago, that we got the last approval from the authorities.
We will now prepare for all the closing of the deal, and that is expected to take place, we can say opening the 1st of September, where we will have Leybold under the belt. I think when it comes to acquisition, we had a couple of small distributors, and also we had another company in Germany, Schneider, which we acquired during the quarter. To summarize, a very solid Compressor Technique and vacuum business. Very well done from the team. Industrial Technique, I would say here, I remember also most of you on the phone were a bit concerned about what was going to happen last quarter, because we had, at that time, a negative organic growth.
Where I tried to explain that we were comparing with a very big order in one of our businesses, which you don't get every quarter, but that the trend is still solid. You see also here, a very solid organic growth. The trend continues, and it's mainly in the automotive and coming, of course, from new products overall. A very solid overall business in Industrial Technique. Also in the service business, it works fine. The margin, I think, was a good look at solid 22-plus margin. Of course, if you compare to last year, you can say a little bit lower. Of course, you have a bit of effect of a bit of currencies. It's a bit of product mix where you sometimes have bigger projects where gross profits are slightly down. It's not that they're bad, but of course, in the mix it plays. It was definitely in line of my expectation. Mining and Rock Excavation.
Here we see a slight decrease organically. Still, I call it the weak demand for equipment. It's maybe the new norm which we have to accept. Service business, sequential stable. Year-on-year, a little bit down. That is good to see also that there are no further mines closed, at least not where we are involved, because that's the ones we are tracking. That stayed flat. It's good to see that our consumable business is, year-on-year, is stable, which I think is a very good achievement.
That's also mainly coming from new products which we bring into the market, which makes good sales, as this market is, of course, a bit under pressure by, of course, lower volume from before. Of course, then competition plays, and the only way to work in this is to work with innovation. The margin, up sequential. We are not there where we all like to be, like I used to say, I'm very happy, but of course, not satisfied. I really see that the team is working, let's say, like hell to prove that they can do it. It's great. I was very pleased to see that they bent the trend and didn't accept the margin which they had in quarter one, but definitely now came with a good, solid 17%. Let's see what will come in the next quarter.
It's good to see. I was extremely pleased to see that effect, how quickly they can really react on that. Of course, unfortunately or fortunately, we still have the possibility to increase the efficiency and which we'll keep doing. Construction Technique. We compare with a very solid quarter last year, we should not forget that. That makes the comparison tough. We got lower demand for some equipment in some areas like you see Brazil, Africa. China was weak, it hits, of course, then the top line. On the other hand, we saw some growth in North America, that is good. The margin is at a reasonable level because we also know, all of us, that we would like to see that a little bit up.
Of course, with the pressure on the under absorption in certain areas, it is not so easy to do. There we are. I will go to the next slide where we have the P&L and I think the figures I have already commented on that, and I think I will hand over to my colleague here, Hans Ola.
Great.
Explain everything about the currencies and the banking.
We will try to keep it so that we have some time for questions as well. I think that apart from the operating profit development that Ronnie has already covered pretty well, we have, as you have all seen, probably that the financial net became much more negative than last year. We had SEK -350 roughly against SEK -220 last year. The main reason for the difference in that is not so much the interest cost as you could see from the report, but it's other financials. What is that? The majority of that is that we, in the second quarter, bought back some of our 2017 maturity bonds from the market, and that carries a negative one-time effect, which we then recover, if I use that word, every month following that by paying a lower interest rate on new borrowing. That was the majority.
The balance or the rest of the negatives were primarily devaluation effects and actually including also some negative effects from the Brexit, or let's say, the Brexit effect on the GBP. Things that should not be repeated. Hopefully, if we look forward to the next quarter, I think that a net of interest net of around slightly more than SEK 200 million is probably a good expectation or thereabouts, at least. We come to the normal, to the tax cost, which is significant cost of course. You can also see there that just as in the first quarter, we have the same type of effect of the big Belgian tax issue that we have, where the EU has declared that the profit treatment in Belgium is not in line with the State aid rules according to the EU.
The Belgian state has appealed that decision. We have done as well as we wrote in the report. Until we have those things declared and settled, we will have to see that our tax rate will probably hover in this area between 27%-28%, is our best estimate at the time. If we look at the earnings per share, I think with this one time, if I call them like that, or unplanned negative one-time negative effects on the financial net, it probably would be better to talk about the SEK 2.70-SEK 2.75 earnings per share, the underlying number for this quarter. I'll come back to the tax of Belgium later on when we look at the cash flow statement. Next slide, which I think is number 13, is showing the profit bridge. It's pretty straightforward on a group level, as you can see.
We have a negative effect of provisions for long-term incentives or options. We have a big negative from currency, we don't have, as last year, any restructuring in the same way that we had in the second quarter, which helps us in this bridge. It becomes a positive explanation there. Otherwise, you can see that by and large, the currency is what we have lost in terms of profit. If we look by business area on the next slide, again, not any dramatic revelations from this slide, really. There is a flow-through, whether it's a positive as a flow-through of increased revenues, as in CT. The same, negative in MR and Construction Technique, it's understandable ratios, I would say.
You also see that for this period, we don't have very much help from the acquisitions in terms of margins, but that can sometimes be with the effect of right depreciation of intangibles, et cetera, which weighs quite heavily in the beginning of acquisitions. Otherwise, I think I'll leave that slide, and I'll talk a little bit about the balance sheet on slide 15. Actually, not a lot to comment. You can generalize it a little bit and say that compared to last year, it's basically the cash that is a little bit more than from June last year. If you compare with December, the beginning of the year, it's actually the late deterioration of the Swedish krona in the last part of second quarter that really explains it, I would say.
We have to translate foreign currencies to a higher number, that basically explains the difference with December. I move on to the cash flow. Let us get that off the table right away. You see a huge tax payment in the second quarter, you also see further down in the table that since this is not really at all any operational flow, we adjust the operating cash flow for this tax payment in Belgium. One question you could have is of course, that why do you pay if you are appealing? Why are you then almost accepting the payment? No, we don't. Obviously, we pay because in that way we can stop the charging of interest cost.
We can never be sure about the outcome at the end of the day, that might take quite a long time until we know what the verdict from the appeal will be. In that meantime, we would like to stop the clock from interest charges. That's why we have paid it to an escrow account, as it's called. The other things in that is that we released good money from the working capital, which compensated basically for the lower profit that you can see from the operating profit level compared to last year, and some other minor changes in the cash flow. A solid SEK 3.5 billion, I think with the level of profit that we have right now, we are pleased with that. With that, I leave it to Ronnie for the outlook.
The real sentence, as you can see, it remain at current level. That's at least at the moment what we see. It's mainly, you can say, if I make a bit remarks on that outlook, solid industrial development, what we expect. Of course the a bit unpredictable mining, which is for me, still not really transparent enough that, okay, where will it really be the next quarter? I think also, it's a bit maybe the same also on the construction side, which is partly also influenced by some of our businesses in the Renfrew exposed to oil and gas. By this, I would hand over to the questions.
Yeah. Please, operator, could you just give the final instructions and then we'll kick off the questions and answer session.
Thank you. As a reminder, if you do wish to ask a question, please press zero one on your telephone keypad. Our first question comes from line of Klas Bergelind from Citi. Please go ahead. Your line is now open.
Yes. Hi, Ronnie. Hi, Hans Ola. It's Klas from Citi. My question is on mining. South America, Australia is now doing better. It's also interesting to see that consumables are bottoming, and that's typically a leading indicator for CapEx. We know about the large order with BHP, could we talk a little bit about quotation activity? When you guide for flat demand, I assume that you see flat demand for mining as well. I'm just thinking, why can't mining move higher here a bit quarter-on-quarter, given the increases we see in commodities?
Yeah, that, I think, you have heard my outlook a bit where I say the, I call it a bit the unpredictable part of the mining, there is definitely activities on the mining. It's not that it is standstill. There is quotation level. Of course, the decision process is not the quickest one. That is the reason why I'm a bit more reluctant to sound positive in that area. Why is someone taking so much time to make a decision? He is also uncertain. That is the underlying part. What we see, and that is also what we got here in Australia, of course, we see mines more and more focusing on automation, remote running the machines. That is really an activity where we spend a lot of time, and also our competitors spend time on that.
Into the consumables, I try to explain a little bit that you don't read too much out of it. I think we did a good job with new products. Of course, you can also be the positive guy and say, "Yeah, I think the volume is going up and there is more there," I would not go on that one. Although, if you see the activity level, the volumes are not low. What is happening is, that we see some, that I've mentioned many times, then you also, if you follow the mining, you see some mines closing. There is movements going on the other hand, the most productive ones, they're doing good output. It's a matter of us to see that we are on the right place.
There's a lot of movements going on, not only on the service side, but also in the consumer business. There again, is innovation. New products is the answer to compensate for that.
Can I just ask a very quick follow-up?
Yeah.
On industrial compressors in China, which is now improving. This is one of the first signs where we see industrial demand increasing in China outside of construction, improved housing starts, et cetera. Ronnie, do you think it's further momentum here into the second half? Or was this just a couple of large orders booked in the quarter?
Yeah. If I listen to, let's say, the guys and the girls on the ground, they sound less negative on China. Again, I'm really trying to pick my words not to bring you really an excitement, but I think it is less negative, let's call it like that. I'm not calling to be over positive. There is some development on the industrial side in certain sectors, and that is what we have been working on. It's also a lot of self-help. We started to be more aggressive with our innovation. What does it mean? The time to market. We spent a lot of work in China to accelerate our innovation and our product offer, and that also has brought some successes. I'm very proud on the organization that they were doing that.
Unfortunately, what we still see is the big ticket, the gas and process, it is still low. Like I said in the beginning, it is already going down now for two, three years, it gets smaller and smaller, it becomes less and less significant then.
Thank you, Ronnie.
Thank you. Our next question comes from the line of Guillermo Peñuela from UBS. Please go ahead. Your line is now open.
Hi, good afternoon. Guillermo Peñuela from UBS. I wanted to ask a question regarding actually Construction Technique. It is actually a number of quarters now that we see weak volumes, obviously on weak market conditions, but also positive pricing. To be honest, I think the margins holding up at a good level. Is this the case that this is probably you're willing to lose market share, so to say, in order to keep profitability in this business as we speak?
Yeah. I think one is when it got holding up the margin is also in some of the divisions they have done a lot on two things. They did a couple of restructuring, and that I think also, if you look back in your notes last year, we closed two plants. That, of course, has to click in. I think also a couple new products which we launched, which we also presented at the Bauma, which took place a couple months ago. That is the positive side. Whereas the negative side, I think it's still tough in road construction. We know Brazil, Australia, Russia, Middle East, I think is a very low activity and that, of course, that bites, unfortunately for these guys. Then I hinted a bit when I was explaining on the geographical part that the specialty rental and then the Middle East was tougher.
You had a couple positive and a couple negative parts. It's a bit of pity for them that they cannot show even a better result. If they didn't get this road construction and specialty, you would have seen even a better profitability. It is what it is.
Thank you. A really tiny, brief follow-up. The autonomous mining order. I guess in the future, we're going to see many more of these. I was wondering about whether you could guide us as to the size of the tickets on average going forward or in the past or some kind of reference for us to understand.
I hope that the future is for all of us in the business, because that is, I think, definitely the new productivity which we can create as equipment provider, not only Atlas, but also our colleagues in this business, because that is the new one, the future of the mining, the mine of the future, because less and less people, more safe, so more productivity that will take. These tickets, they can go from, let's say, from half a million to a couple of million SEK, depending on how the customer is releasing the upgrades, if we think about upgrades. Because this order was definitely, I call it the midlife upgrade of different machines. You also get the new machines which we are going to sell. Most of them have already got this facility embedded already.
I'm sure within a couple, maybe one or two years, we even don't talk, maybe a bit longer, but maybe three years, we will not talk about that specifically because it becomes the new normal. It's a good momentum for equipment providers like us, and also for service providers, because that creates new opportunities for the mines themselves.
Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Markus Almerud from Kepler Cheuvreux. Please go ahead. Your line is now open.
Hi, I'm Markus from Kepler Cheuvreux. To continue mining, I was very happy, I got to say, to see the margin bounce back. It was also a pretty big bounce. Can you explain a little bit what went on here between the quarters and just to try to understand what kind of direction we should see in coming quarters? Was there a lot of mix here? We thought we saw consumables and the service being weak in the first quarter and stable in this quarter. If you could just explain the different parts and the different drivers. Thanks.
You're talking bounce back sequentially, of course.
Yeah, exactly.
No doubt, we had a better currency situation, thanks primarily by what happened at the end of the period, so to speak. We had a particularly weak USD in the beginning of the year, and that straightened out, and it even improved at the very end of second quarter due to the Brexit. That is clearly a big reason for across the business areas, they have all been favored by that. The rest is, of course, that it is volume related, because we do have significantly higher revenue in the second quarter. However, on that point, it is not a huge impact on the margin because when it swings like that, you normally get much more of equipment sales. Of course, the ratio between equipment and service and consumables, is normally quite important for the total overall margin of the business. In short, it was primarily the effect.
Let's agree on that this is not going from 14% operating profit to 20%, it is relatively small improvements. Very positive, as you say, but as it is about the percentage point, to be honest, most of that comes from the currency help, actually, and the rest is the volume component.
Okay. Perfect. If I can just ask, do you answer the question in a different way? If you would have stripped out the automation order, the autonomous automation order, would you have still grown the equipment order sequentially?
In where?
In MR.
In MR. Well, we mentioned this order because it's a significant, important order. It's not that it's a huge order. Right off the top of my head, I didn't do the numbers on that.
I don't know.
No. I can't say. The reason primarily we mentioned it is, of course, we think it's a significant indication of what will come in terms of progress and interest, as Ronnie alluded to before. I don't have it. It would not make a huge difference on the global basis, obviously not.
Okay. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Lars Brorson from Barclays. Please go ahead. Your line is now open.
Thanks very much, Hans Ola and Ronnie. Can I just follow up on the mining consumables? Sorry to belabor the point, but can I just understand, Ronnie, what it is you're saying around the underlying demand trends on consumables and mining aftermarket more generally? Obviously, it's the first time in three years we are seeing consumables stable year-over-year, improving quarter-over-quarter. I understand you to put that down largely to market share gains given product introductions here. Can you talk a little bit about what you see in terms of the market trends and also perhaps through the quarter, whether you saw any change to trend sequentially, during the course of Q2? Thanks.
I didn't see so on the trend in the quarter, I didn't see much differences in that part. Of course, it's not always easy to look, if you really want to try to make a conclusion out of a top-line development in a certain sector. If you take the new product launches, which we've taken, and you get a boost from that part. That is what I try to, and I'm not trying to talk it down, I'm only trying to say what I see and my conclusion. I don't see a real trend break. Of course, there is more positivism in when you look to the quotations, people really try to do that. I think they know what to do. There is also more clarity which mines are closed. It's more on execution level. There's less uncertainty on that part.
That's for sure, and that is good because that means that you know which projects will go through, which works will they do, and the ones which they will not do. Where before, maybe 6 months or even 12 months ago, you never know because there were more rumors. Okay, this mine will be closed, and that will be done. I think that is more or less, I'm not saying that it comes to an end, but that's more clear. Business needs clarity because then people can take initiative, then orders are coming, then people start to work on efficiency, and that is what we see today. I'm not going to support Lars to say that, okay, now suddenly the whole consumable business is going up because there is much more volume. What it says is definitely that the volume has not dropped. That is for sure.
Which is maybe already good news. On the other hand, even if they buy new products, innovative products, it means also that they need that. It also means, for us, most likely that, yeah, we gain some share in certain areas. Of course, the sequential difference is not huge. I think it's slightly flat, you can say. Slightly positive flat.
Just to be clear, sorry, is your outlook into Q3 predicated on a continuation of those trends, i.e. another down quarter in services as you see it now? Again, to me, I'd certainly been surprised to see two down quarters in services.
I think I'm really on service seeing sequential flat. I think also the consumables will see how successful we are. My big question marks, my uncertainty sits in equipment, and that can shift because there you don't see a real continuity yet. I explained that, I think, in one of the first questions we got this afternoon here. My visibility on that, although we have quotations, we have discussions and all that, it's only when it lands that we are really happy.
Thanks.
Thanks, Lars.
Thank you. Our next question comes from the line of Andre Kuklin from Credit Suisse. Please go ahead, your line is now open.
Good afternoon. Thanks very much for taking my questions. Can I just start with the industrial side and come back to maybe slightly broader picture there? You've now, I think, reported sequential growth in four out of four industrial segments across CT and Industrial Technique. Can we take a step back and can you tell us how much that is just normal seasonality, or is there actually underlying improvement you're seeing? If there is underlying, then is it markets or is it your share gains?
Yeah. Thank you. I think it is at least improvement where I maybe sounds a little bit more conservative to the previous question from Lars. On the mining side, I would say I would go on the other side for the industrial part, because I see some still good activities in Europe. I see in U.S. I see booming India. I think a not so weak Russia. I think I see some good spots in Asia, and then more specific in China and Korea. That counts for compressors, counts for the vacuum, and counts for the industrial thing. Is it really going, no, we really entering in the double-digit growth? No. That definitely I don't want to say that, and I don't believe that. There is some growth where we had before a little bit tougher.
Of course, when you look to our figures, and again, the bigger tickets are also part of our business and that drags it down. Okay, if they were good, they were part of the Atlas Copco business. If they were bad, they're also part of the Atlas Copco business. If I take the, what I used to say my yellow canaries and the small to medium-size, and also the tools business, I think I see a reasonable positive development. It all depends a bit, you have still had some negative, because if you take South America, it's tough. We all know about Brazil, which is a big market, and we should not underestimate. It's also a big market for us because we have a strong market share there. If that market drops, yeah, you get a double dipper.
Very clear. Interesting. Thank you. Can I just follow up on more mining margin improvement? Hans Ola, you said effects, but year-on-year in the bridge, I think effects is the same impact in Q2 versus Q1. Could you clarify how that made a positive contribution? We're obviously all very keen to find out whether there is still a further curve there with management making progress towards that 18%. I think that was mentioned before. Are we getting there early or was there really something that was in Q1 that was exogenous and helped?
Now with reporting Q2 at 17%, of course, it is more Q1 that stands out than Q2, if I put it that way, if you look at the most recent year of margins. What I meant was not related to the year-on-year bridge, because there, as you say, there is from a margin impact, it's negative for MR, clearly negative year-on-year. Sequentially was what I was talking about. There it has been a help for all business areas, including MR. They also have the effects of self-help and some revenue impact also from better volumes in the second quarter. We should not boost ourselves and say it's a fantastic profit quarter. If we wouldn't have had some better currencies than in Q1, it would have been a little bit lower margin. We have to be honest.
It has helped also the MR improvement. To say that it's just a fluke and then we will fall back again, that's not our projection either.
The ship is not yet in the harbor.
No. More to do.
Very good. Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Andreas Thulesius from J.P. Morgan. Please go ahead. Your line is now open.
Yeah. Good afternoon.
Ronnie and Hans, hello. I have a question on Leybold, which we now start consolidating in the second half. Maybe you could provide us a bit of an update on the business in terms of what you see from the impact on the financials as well, in terms of are there any integration costs or amortization we should be aware of for the second half? I do not know whether you can provide us some kind of update on where the business stands at the moment as it joins your group.
Yeah. Of course, before all this release of the antitrust authorities, I think we got all the selected data, because you should know we were competitors until a couple days. That is one thing. We were not allowed to do that, to get all the details on that part. When I talk, you should take that into account. When we look at the top line, the industrial vacuum where they are in, and that was also during the sales process last year, we saw that there was a soft development, although of course the seller likes always to do upselling, but of course we have to do our work and our due diligence in a proper way.
Knowing the market, okay, we have made always assessments, it is more or less in line of our assessment, what we made, whatever, 12 months ago or something, that we worked on that. That business is still on the soft side.
When we comment on vacuum, you have to remember that we have a large share of semiconductor exposure in vacuum, which has done very well.
Yeah.
They don't.
Yeah. The high vacuum and all that part. Of course there are businesses which are good in the vacuum and there are business which are a little bit soft in the vacuum. That is on the Leybold, the top line. When it comes to the bottom line, of course we will come to that later on a bit more detail, but I can already say that from a profitability point of view, that you should not expect too much from it this year. We will have to do some integration cost and all type of work that needs to be done. I prefer to take that, the sooner the better, because if you just take all the rebranding we need to do, I'll just take an example.
Yeah, that's a cost that comes and that goes with the transaction and we have to take it over the P&L and we take it. This year, don't expect too much. I think within a couple of weeks, we will have all the details and then, we will also make sure you will get a bit more information from IR, which they will then bring on that one. That is to do that then. Like I said, the rebranding is an area which we will do, then you have a couple people here and there, so that.
It's not rebranding in the marketplace of, let's say to Atlas Copco-
Oerlikon
We are getting rid of a part of their brand name, so to speak.
The Oerlikon is not.
No, you're right.
We are not allowed to use the Oerlikon, so we don't. You will get, within a couple of weeks, if you allow, Mattias is also chasing everybody and because he wants to provide you with all the data, because he knows he will get the questions, and we will make sure that you get them as soon as we have them ourself in detail.
We can repeat for everybody that this is, of course, coming into the group then as of 1st of September, as we said, and we will try to help you. Overall, given what Ronnie said on the top line comments, what we have guided when we bought the business from a profitability point of view, you shouldn't expect that they are running at very different performance levels by and large. We will update you, as Ronnie said, a little bit more come into the third quarter.
Yeah.
In terms of the follow-up just on the mining margins again, if I look sequentially, the revenue increase and the profit increase, it seems to be mostly explained by operating leverage. Should we therefore assume then the cost savings you talked about in Q1 to mainly only help in the second half?
I think, of course Hans Ola has explained a little bit that of course some of this is held by currency. We do that, of course. Andreas, you have heard me talking straight last time, last quarter. Of course internally, the guys have taken activities and measures and adapting the suit, and making sure, okay, we make priorities on profitability, because I felt that we were running in the wrong direction, so we had to do other type. The biggest help came partly from currencies and the rest still need to come. The self-help harvesting is in process.
Thank you very much.
Thank you.
Thank you. Our next question comes from the line of Peter Björklund from Handelsbanken. Please go ahead. Your line is now open
Yes, can you hear me?
Yeah. We are there.
Thank you. I need to ask on the guidance again, I'm sorry about this, but as I look at it, acquisition contribution will increase quarter-on-quarter. The EBIT negative impact might diminish a bit also, and we see some possible positive signs. What do you need to have a slightly better demand in your outlook? That's really the question. How much wiggle room do you actually have? I figure that it's wise to have a steady demand in your outlook, but the fact is that demand was organically four percentage points better quarter-on-quarter, in Q2. Could you please, again, just give us the reason why we shouldn't expect more to come?
Peter, if we were only having, let's say, the small to medium size compressors, the vacuum and the Industrial Technique, I will sign immediately, go together with your hinting, hey, guys, where you are not more positive. You heard me talking, and even in our title, when I start talking about that we see the industrial part. I see more positive part also on the service side, the activity, because we see the utilization of the equipment, which is at a good level. We see China, we see new products. I think, Ronnie will be a bit more positive. I agree. The thing is where I'm still uncertain is on my Construction and also on the Mining and Rock Excavation, which is, I have less confidence that that will really take off like we all hope for. That drags it down.
I have an organization where on one hand, my left hand is happy, and my right hand is concerned. The two together, which is sometimes good to have as a business, but of course, if I want to make it in one line and aggregate it, I have to make my confession, I say it is flat.
For a short period ahead, like the near-term outlook, it's of course not the case that we expect big differences, it becomes almost rolling the dice to indicate a slight up or a slight down. You see what I mean? That's why we stick-
Yeah
with an unchanged.
You should also see, Peter, I think a minus one, two, or plus one, two, to be honest, that is unchanged for me.
Yeah.
I'm not so good.
I hear you. My follow-up, just Hans Ola, any effects guidance on EBIT?
We do have the end of the period, as we said, that this was positive, and our basket of currencies versus the krona and versus the euro and so on, which are the negative currencies in our exposure basket, it has improved. We believe, looking at last year, we believe more that it will be fairly neutral. It could even be a slightly positive bridge to Q3 last year. Mind you, that is also due to the fact that we had a negative impact in the Q3 last year. Pretty neutral would be my estimate for Q3 compared to last year.
Thanks a lot, guys, and have a good one.
Yeah, thanks.
I, operator, and all of you that I know already have questions on the call. We are forced, as I said before, to end the call here. I'm sure that Mattias and the IR department will do everything they can to help you, those that didn't get their questions asked. Otherwise, apart from that, I will just leave you with wishing you a very good summer.
A good weekend.
A good weekend.
Okay. See you guys.
Thank you.
Bye.
Bye-bye.
Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your line.