Ladies and gentlemen, welcome to the Handler's Copco Q2 Report 2016. Today, I am pleased to present CEO, Roni Lettin and CFO, Hans Ole 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. And my name is Anzula Mayer. I'm the CFO of the group, and I welcome you all to this Atlas Copco's 2nd quarter conference call. Today, me and our CEO, Roni Lietten, are calling in from center of Compress there in the world, I. E, Antwerp in Belgium.
I also have to say that whilst we are on the Q2 conference call, our thoughts go to the victims of the dreadful acts in this last night. And as we have airports and flights to catch after this call and considering the security increases that might have happened, I'm sorry to say that we have to finish shop by 4 today, and 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. And our IR department led by Matthias Olson will do everything they can to cover up for the remaining questions after the call. So with that, I will immediately hand over for the first comment by Ronny on the sales and results of the Q1
of Q2, sorry. Yes. Q1, we had a couple of months ago. So welcome all to the call. And as Hans Ole already indicated, I will go through and try to maybe already pre empties some questions so you can really specify on 1.
Q1 or Q2, sorry, had to wait the same, was, we can say, coming back to the last 2, 3 quarters, maybe a bit the same view with one exception that I see the overall industrial businesses we have that had a solid development. And we saw and maybe for those who have been following Arthroscopco very closely, they saw that, but they also had record orders for compressor technique as well as for the industrial technique, which I think is something to mention. But on the other hand, we also have another part in our group, and that's the mining and construction demand. And 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 we take it sequentially.
When it comes to operating margin, sequentially an improvement. I will also elaborate a bit later. And again, if you look to the different business area where the sequential improvement is MR. That is the main takeaway and other three business areas had done compared to previous time at a good solid development level. Operating cash flow was at a solid level.
So also every business start that worked on reducing the working capital. So summarized, I can say, I'm pleased reasonably pleased with the order development. Of course, it can always be better, but I see that the focus on one hand on good innovation, so that really creates productivity for our customers. So new products, they give good return. And I will elaborate also a little bit when I talk about the different business areas.
So I'm very pleased to see that, that hard work in silence is paying off and that is always good that you yes, when you lead the company that also is giving results. So that I think is the summary. If we look to the figures, the next slide, heading with the figures in summary, yes, you can see the figures. It's rather straight solid development or operating profit of close to 4.8 percent. So that's an adjusted even a bit a little bit more so.
And a soft 19%, we can say, if we take it as it is, so that giving also the currency then some of the items affecting compatibility in line of where the business is cruising today. And Anzula will elaborate a bit more on when he looks to the flow through bids on the currency. When we look now to the next slide where we see the different regions, and I will start maybe best with Europe. You see a 0. Of course, it again, if I took it from an aggregated level, a solid industrial part, mining a bit down and that is mining construction then because that's where that part is headed under.
And then we had a challenging comparison for Construction Techniques as we had last year a record order income on that part. So it means, yes, an okay Europe, I would say. If we then 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. And on compressed technique, it was solid.
We had a very solid compressed technique in China with exception on the gas and process units. So the larger units were softer. But this I've been saying now for 3, 4 years, so the business is getting relatively smaller and smaller. So it will have less and less effect on our figures. But anyhow, a good Asia.
If I then go to the other side of the road and I go to North America, I would before I go in a little bit more in detail, I would like to give a comment on the minus 5%, which you say, oh, what is this? There, I would have to say that we have a negative effect in and it's mainly in U. S. And this period due to orders from, say, 1 big international customer or 2 big international customers in which now the reporting is of the sales is done in different countries in the world. And so if we correct the figures for of adapting, I should say, better say because the figures are correct, But if adapting the figures for that reporting of that sales, then it is a slight negative.
So it's not the minus 5%, but then you have a slight negative point to that. So but 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. And remember that last year, quarter 2 was still the quarter before the oil prices.
So it was still a very solid month. It's only next quarter when we do another type of comparison. We had also very solid construction, so that was doing fine in North America. But unfortunately, mining was rather weak in that region. If I then 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 debt, but we can say that the business is rather, yes, difficult, challenging in that area. And then 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. And of course, when it comes to compressive technique, which is then one of the bigger players there and especially in Middle East, it was a rather tough environment in that area. So overall, we could say maybe the price take away 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.
Then I would like to go to the next slide, yes, 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 0, which is positive, but of course, we don't report after the comma. And then we have structural changes with a couple of acquisitions, which
we had in the quarter.
Then I would like to go to the slide heading compressor technique, so the commence per business area. And 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 order income for vacuum and compressors. So that this continued to do a good development. And if we then and I will elaborate a bit on the gas in process, the largest one which were still soft.
And then of course, Asia had very good development where India was the champion of the quarter. Margin, very rock solid margin. It's good to see that, that is a clean good result, close to the 23% and that's even included the vacuum business. So a very good result. And acquisitions, we are very pleased to see also a couple of days ago that we got the last approval for the from the authorities.
So we will now prepare for all the closing of the deal, and that is expected to take place, yes, say, opening the 1st September, where we will have labeled under the belt. I think when it comes to acquisitions, we had a couple of small distributors and also we had another company in Germany, Schneider, which we acquired during the quarter. So summarize, a very solid compressor technique and vacuum business. So very well done from the team. And dust technique, I would say here, I remember also you 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, but 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.
And you see also here a very solid organic growth. So the trend continues, and it's mainly in the automotive and coming, of course, from new products overall. So a very solid overall business in Industrial Technicals. In the service business, it works fine. And the margin, I think, was a good to rock at solid 22 percent plus margin.
Of course, if you compare it to last year, you can see a little bit lower. Of course, you have a bit of effect of a bit of currencies. But on the other hand, and it's a bit of public 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 at it was definitely in line of my expectation. Mining and Rock Excavation.
So here, we see a slight decrease organically. Still, I call it, the weak demand for equipment. So it's maybe the new norm, which we have to accept service business sequential stable, year on year a little bit down. So 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. So that stayed flat.
And then also it's good to see that our consumable business is year on year is stable, which is, I think, is a very good achievement. And it's also mainly coming from new products, which we bring into the market, which makes, yes, a good sales as this market is, of course, a bit under pressure by, of course, lower volume from before. And 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.
But like I used to say, I'm very happy, but of course not satisfied. But I really see that the team is working, let's say, like health to prove that they can do it. And so 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 1, but definitely now came with a good solid 17%. So let's see what will come in the next quarter, but it's good to see.
It's I'm was extremely pleased to see that effect how quickly they can really react on that. But of course, unfortunately, we still have the possibility to increase the efficiency and which we'll keep doing. Construction technique, so we compare with a very solid quarter last year, so we should not forget that. So that makes the comparison tough. We got lower demand for some equipment in some areas you see Brazil, Africa, China was weak.
So it hits, of course, then the top line. But on the other hand, we saw some growth in North America. So that is good. And 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. But of course, with the pressure on the under absorption in certain areas, it is not so easy to do.
So there we are. Then I will go to the next slide where we have the P and L, and I think the figures have already commented on that and I think I will hand over to my colleague here, Hansula, to explain everything about the currencies and the tax.
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 Ronny has already covered pretty well, Then we have, as you have all seen probably that the financial net became much more negative than last year. We had minus €350,000,000 roughly against minus €220,000,000 last year. And 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 and what is that. Well, the majority of that is that we in the Q2 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 of 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 pound. So things that should not be repeated. If we look hopefully, if we look forward to the next quarter, and so I think that a net of interest net of around slightly more than $200,000,000 is probably a good expectation or thereabouts at least. If we then go down further, we come to the as normal to the tax cost, which is significant cost, of course.
And you can also see there that just as in the Q1, we have the same type of effect of the big Belgian tax issue that we have where the EU has declared that the EU. The Belgian state has appealed that decision. We have done as well as we wrote in the report. But 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 these one time, if I call them like that or unplanned negative one time negative effect on the financial net, it probably would be better to talk about the $2.70 to $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 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 and we don't have as last year any restructuring that in the same way that we had in the Q2, which then helps us in this bridge. It becomes a positive explanation there.
But 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 flow through of increased revenues as in CT, the same but negative in MR and construction technique, but it's understandable ratios, I would say. And then, of course, you also see that for this period, we don't have very much help from the the acquisitions. But 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. And 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 Q2 that really explains it, I would say, then we have to translate foreign currencies to a higher number and that basically explains the difference with December. I move on to the cash flow and as I alluded to before, let us get that off the table right away. You see a huge tax payment in the Q2, but 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 because of course we can never be sure about the outcome at the end of the day and that might take quite a long time until we know what the verdict from the appeal will be and in that meantime, we would like to stop the clock from interest charges and 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, but a solid SEK3.5 billion.
And I think with the level of profit that we have right now, we are pleased with that. So with that, I leave it to Ronny for the outlook. Yes. So
the real sentence, as you can see, it remain at current level. That's at least the demand, but what we see and it's mainly you can say if I make a bit remarks on that outlook, solid industrial development, what we expect. And then, 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. And then I think also and there's a bit maybe the same also on the construction side, which is partly also influenced by some of our businesses in the Randstad and exposed to oil and gas. And by this, I would hand over to the questions.
Yes. So please, operator, could you just give the final instructions, and then we'll kick off the question and answer session.
Our first question comes from the line of Klas Bergelind from Citi.
Yes. 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.
That's typically a leading indicator for CapEx. We know about the large order with BHP, but 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. You're thinking why can't mining move higher here a bit quarter on quarter given the increases we see in commodities?
Yes. And that I think you have heard my outlook a bit, but let's say the I call it a bit the unpredictable part of the mining because there is definitely activities on the mining. It's not that they stand still. There is quotation level, but of course, the decision process is not the most of the quickest ones. So that is the reason why I'm a bit more reluctant to sound positive in that area because why is someone taking so much time to take a decision because he is also uncertain.
So that is the underlying part what we see and that is also what we got here in Australia because we see mines more and more focusing on automation, remote running the machines. So that is really an activity where we spend a lot of time and also our competitors spend time on that. Then into the consumables, I tried to explain a little bit that you don't read too much out of it. I think we did a good job, I think, with new products. Of course, you can also be the positive guy and say, yes, I think the volume is going up and there is more that, but I would not go on that one.
Although, if you see the activity level in the volumes are not low, what is happening is and that is we see some and that I've mentioned many times and you also if you follow the mining, you see some mines closing, so there is movements going on. But on the other hand, the most productive ones, they're doing good output. So it's a matter of us to see that we are on the right place. So there's a lot of movements going on, not only on the service side, but also in the consumer business. And there again is innovation.
New products is the answer to compensate for that.
Can I just ask a very quick follow-up? 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, I. E. Improved housing starts, etcetera. Ronny, do you think it's the momentum here into the second half?
Or obviously, you had a couple of large orders booked in the quarter?
Yes. If I listen to, let's say, the guys and the girls on the ground, they sound less negative on China. And 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, But there is some development on the industrial side in certain sectors, and that is what we have been working on. There's also a lot of self help where the and that 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. So 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. But like I said in the beginning, it gets it is already going down now for 2, 3 years.
So it gets smaller and smaller. So it becomes less and less significant
then. Our next question comes from the line of Guillermo Peigne from UBS.
Guillermo Peigneux 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. And to be honest, the margin is holding up at
a good level. Is this the case
that this is probably only you're willing to lose market share, so to say, in order to
keep profitability in this business, as we speak?
Yes. I think one is when it's up to holding up the margin is also in some of the divisions that have done a lot on 2 things. We did a couple of click in. I think also a couple of new products, which click in. I think also a couple of new products which we launched, which we also presented at Bauma, which took place a couple of months ago.
So that is the positive side. Whereas the negative side, I think it's still tough in the old construction. We know Brazil, Australia, Russia, Middle East, I think is a very, very low activity and that, of course, that bites unfortunately for these guys. And then I hinted a bit when I was explaining on the geographical part that the specialty rental and then the Middle East was tougher. And so you had a couple positive and a couple negative part, and 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. But it is what it is.
And 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?
Yes. 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 Aplus, 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. But these tickets, they can go from, let's say, from $500,000 to a couple of $1,000,000 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. But you also get the new machines, which we are going to sell. Most of them have already got this facility in their embedded already.
So I'm sure within a couple, maybe 1 or 2 years, we even don't talk, Maybe a bit longer, but maybe 3 years, we will not talk about that specifically because it becomes the new normal. But 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. Our next question comes from the line of Markus Almond from Kepler Cheuvreux. Please go ahead. Your line is now
open. Markus from Kepler Cheuvreux. To continue mining, I was very happy, I got to say, to see the margin bounce back, but there was also a pretty big bounce. So can you explain a little bit what went on here between the quarters and to try to understand what kind of direction we should see in coming quarters? So was there a lot of mix here?
I mean we saw consumables and the service being weak in the Q1 and stable in this quarter. So if you could just explain the different parts of and the different drivers.
We got because you're talking bounce a bounce back sequentially, of course, Yes. Yes. And no doubt, we had a better currency situation, thanks primarily by what happened at the end of the period, so to speak. But we had a particularly weak dollar in the beginning of the year and that straightened out and it even improved at the very end of Q2 due to the Brexit. So that is clearly a big reason for the across the business areas.
They've all been favored by that. The rest is, of course, that it's volume related because we do have significantly higher revenue in the Q2. However, on that point, it's not a huge impact on the margin because when it swings like that, you normally get much more of equipment sales. And of course, the ratio between equipment and service and consumables is normally quite important to for the total overall margin of the business. So in short, it was primarily the effect and let's agree on that, that this is not going from 14% operating profit to 20 percent.
It's 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.
And then if I can just ask Guillermo's 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, I mean, we mentioned this order because it's a significant important order. I mean, it's not that it's a huge order.
And right off the top of my head, I didn't do the numbers on that. No, I don't know either. So I can't say. But 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 Roni alluded to before. So but I don't have it.
It would not make a huge difference on the global basis, obviously not.
Our next question comes from the line of Lars from Barclays.
Can I just follow-up on the mined consumers? And sorry to belabor the point, but can I just understand, Ronny, 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 3 years we are seeing consumables stable year over year, improving quarter over quarter. I understand you had to put that down lastly 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. And 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. I and that is what I tried to and I'm not trying to talk it down. I'm only trying to say what I and my conclusion.
I don't see a real, real trend break. Of course, there is positive more positiveness 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 an 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 were 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. And 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.
But 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. So which is maybe already good news. And on the other hand, even if they buy new products, innovative products, it means also that they need that.
But it also means for us most likely that, yes, we gain some share in certain areas. But of course, the difference difference is not huge. I think it's slightly flat, you can say, slightly positive flat.
And 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? And again, to me, I've certainly been surprised to see 2 down quarters in services. Yes.
Yes. I think I'm really on servicing sequential flat. I think also the consumables would see how successful they are. But my big question marks, my uncertainty sits in equipment and that can shift because there you don't see a real continuity yet. And I explained that, I think, in one of the first questions we got this morning here or this afternoon here.
So that makes my visibility on that, although we have quotations, we have lands that we are really happy on.
Our next question comes from the line of Andre Kukhnin from Credit Suisse.
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 4 out of 4 industrial segments across CT and Industrial Technique. So can you take a step back and can
you tell us how much of that
is just normal seasonality? Or is there actually underlying improvement you're seeing? And if there is underlying, then is it markets? Or is it your share gains?
Yes. Thank you. I think it is at least improvement where that 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 still good activities in Europe. I see in U.
S. I see a booming India. I think a not so weak Russia. And I think I see some good spots in Asia and then more specific in China and Korea. And that counts for compressors, counts for the vacuum and counts for the endoplasmic.
Is it really going No, we're really entering in the double digit growth. No, no. That definitely, I don't want to say that and I don't believe that. But 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 breaks it down.
And okay, if they good, they were part of the arthroscopical business. If they were better, also part of the arthroscopical business. So that but if I take the what I used to say my yellow canaries and the medium small to medium size and also the tools business, I think I see positive reasonable positive development. And it all depends a bit you have still had some negative because if you take South America and stuff, We all know about Brazil, which is a big market. We should not underestimate.
It's also a big market for us because we have a strong market share there. So if that market drops, yes, you get a double dipper.
Very clear. Interesting. Can I just follow-up on MR Mining after a mining margin improvement? Hansel, you said FX, but year on year in the bridge, I think FX is the same impact in Q2 versus Q1. So could you clarify how that made a positive contribution?
Because 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 earlier? Or was there really something that was in Q1 was exogenous and helped?
I mean now with the reporting Q2 at 'seventeen, 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. And what I meant was not related to the year on year bridge because there, as you say, there is from the margin impact not so. So it's negative for MR, clearly negative year on year. Sequentially was what I was talking about and there it has been a help for all business areas including MR, but they also have the effects of self help and some revenue impact also from better volumes in the second quarter. But 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. So we have to be honest. And so it has helped also the MR improvement. But to say that it's just a fluke and then we will fall back again, that's not our projection either.
So the ship is not yet in the harbor. No. More to do.
Our next question comes from the line of Andreas Lee from JPMorgan.
I have a question on labeled, 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 don't know whether you can provide us some kind of update on where the business stands at the moment as it joins your group.
Yes. Yes. So of course, before all this release of the antitrust authorities, I think we got all the selected data because we have because you should know, we were competitors until a couple of days. So that is one thing. So we not always have we were not allowed to do that to get all the details on that part.
So then when I talk, you should take that into account. Now when we look to top line, the industrial vacuum where they are in it and that was also during the sales process last year. We saw that there was a soft development, although, of course, a seller likes always to do upselling, but of course, we have to do our work and our in due diligence in a proper way and knowing the market, okay, we have made those assessments. So it is more or less in line of our assessment, what we made, whatever, 12 months ago or something that we worked on that. But it's still that business is still on the soft side.
And 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 and they don't. So Yes.
And the high vacuum and all that part. So there is of course, there are businesses which are good in the vacuum and a bit in the business which are a little bit soft in the vacuum. So that is on the label, the top line. And when it comes to the bottom line, and 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 because we will have to do some integration costs and all type of work that needs to be done. And I prefer to take that the sooner the better because if you just take all the rebranding we need to do, cost that comes.
And yes, we that goes with the transaction and we have to take
it over the P and
L and we take it. So this year, don't expect too much. We will 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. So that is to do that then. We are doing because like I said, the rebranding is an area which we will do.
Then you
have a couple of people here and there. So that And it's not rebranding in the marketplace of, let's say, Coca Cola. But we are getting rid of part of their brand name, I would say. The Oerlikon
is not that. We are not allowed to use the Oerlikon, so we know it again. But you will get within a couple of weeks, if you allow Matthias to ensure he's 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 ourselves in detail.
And we can repeat for everybody that this is, of course, coming into the group then as of 1 September, as we said, and we will try to help you. Overall, given what Roni said on the top line comments, what we have guided when we bought the business from a profitability point of view. We shouldn't expect that they are running at very different performance levels by and large, but we will update you, as Ronny said, a little bit more come into the Q3.
Yes. And 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. So should we therefore assume then the cost savings you talked about in Q1 to mainly only help in the second half?
Yes. I think, of course, Hans Ole has explained a little bit that, of course, some of this is helped by currency. We do that, of course. And 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 AA, we were running in the wrong direction.
Type. And some of the biggest help came from partly from currencies and the rest still need to come. And that the self help harvesting is in process.
Our next question comes from the line of Peter Froelen from Handelsbanken.
Yes, can you hear me?
Yes, yes.
Yes, we are there.
So I need to ask on the guidance again. I'm sorry about this. But mean, as I look at it, acquisition contribution will increase quarter on quarter. The FX negative impact might diminish a bit also, and we see some positive signs. So
why what do you need
to have a slightly better demand in your outlook? I mean, that's really how much wiggle room do you actually have? I figure that it's wise to have a sort of a steady demand in your outlook, but the fact is that demand was organically 4 percentage points better quarter on quarter in Q2. So could you please again just give us the
reason why we shouldn't expect more to come?
Yes. Peter, if we were only having, let's say, the small to medium sized compresses, the vacuum and the industrial technique, you would have a sign immediately go together with your hinting guys where you are not positive. And you me talking and even in our title when I start talking about that we see the industrial part, yes, 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. So we see China with a couple of we see new products. Yes, I think Roni will be a bit more positive.
Yes, I agree. The thing is where I'm still uncertain is on my construction rock excavation, which is I have less confidence that, that will really take off like we all hope for. So that breaks it down. So I have an organization where on one hand, my left hand is happy and my right hand is concerned. And the 2 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 say, yes, I have to make my confession and then I say it is flat.
And for a short period ahead like the near term outlook, it's of course not the case that we expect big differences and then it becomes almost rolling the dice to indicate a slight up or a slight down. You see what I mean?
So that's why we stick with an unchanged. Yes. You should also see, Peter, I think a minus 1.2% or plus 1.2%, to be honest, that is unchanged for me. So I'm not sure.
I hear you. My follow-up just, Hans Solo, any FX guidance on
EBIT? We do have at the end of the period, as we said, that this is 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. It has improved. So we believe looking at last year, we believe more that it will be a fairly neutral. It could even be a slightly positive bridge to Q3 last year.
But mind you, that is also due to the fact that we had a negative impact in the Q3 last year. So pretty neutral would be my estimate for Q3 compared to last year.
Thanks a lot guys and have a good one.
Thanks. Hi,
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. And I'm sure that Matthias 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
and a good weekend. And 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