Good morning, wherever you are, and a very welcome to the second quarter conference call for Atlas Copco. We are here present in the mine underneath our headquarters in Nacka, Stockholm, but we also welcome, of course, everyone participating on the conference call. We will do this as we normally do. Ronnie, to my left, our CEO, will go through his comments to the quarter report, and then we will open up for questions and answers. Without too much waste of time, I hand it over to you, Ronnie.
Okay. Thank you, and a warm welcome. I will, as usual, go straight to the slides, so we have more time for questions. This, slide number three I'm on now, Q2 in brief. If I summarize the picture of the quarter, what we have seen, it is pretty the same trend as we saw in Q1. Maybe with a little bit changes in the latter part of the quarter, where we can say that some of the mining business was a little bit better in that latter part of the quarter. Again, what we said last time, motor vehicle business is doing well, aerospace is doing well, and semicon is doing very well. That's also what you see here, when we talk about sequential order growth in industrial compressors and tools, it comes from that area.
Stable order intake and mining equipment, I will elaborate later a little bit more on that. Of course, when you have a strong semicon and then having a company like Edwards, of course, you also have a good tailwind there. Still a good development on the business on service. Our strategy, which we start many years ago, is still rock solid and continues to grow, and we see still more to take. That makes me happy. A strong development in North America, and I'm sure for most of you, this is not a surprise. If I go to the next slide, that's more on the figures. I will not elaborate more on that. You can read it yourself on the slide. Organic growth, after many quarters, with negative, that's good news.
I think when it comes to the margin, we'll elaborate later a little bit more on that, but still, in 18.6%, still more work to do on MR, on the Mining and Rock Excavation. Which is the biggest gap that we have with last year. If I then go to operating cash flow, I'm also pleased to see that we come back to, yeah, the figures where I believe we should be with this volume. The next slide on the geographical part, let me start with Europe, and I will comment excluding Edwards, so that we compare comparable business with last year. Otherwise, it becomes very complicated for all of this. In Europe, we see a positive development, a slight positive development in CT.
A bit with a mixed view, but different countries that do positive, otherwise a little bit negative, but still positive, and the same is on the Industrial Technique business area. Of course, held by the motor vehicle, by the aerospace, Airbus. Okay, that business is where we in, so it is what it is. If we take North America, yeah. What can I say more? Everything is positive, that's great to see that. Otherwise, you will not make this +13%. We have done a couple of nice spot on acquisitions, especially in Texas, that will also help us strengthen our foothold in that market.
South America, a minus, a bit of a mixed one where we saw a lower Mining and Rock Excavation, a little bit positive CT, and a flat CR, construction, which makes it -2%, and that is also an area where we have to watch. What about Brazil? It's not because they lost 7-1 to the Germans, that the economy should go flat, at least, I think we should watch that as an area. I think you will hear me talking more about that if we go further in the presentation and also in the quarter. We then shift east and we take Asia. Yeah, -3%. It was not so strong in, or even weak, I should say, in China and India.
That is an area where we still have not found back the real growth if we take it as a total company. Of course, Industrial Technique does great. The small to medium-size compressors, I think it's fine. It's doing on, the big tickets is difficult there. The same is on the Construction Technique area. It's a tough market there. We take Australia, see that, +32%. The guys on the mining side, they are back, we had a couple of good orders there. There we saw the latter part of the quarter, a good development. I then go to the next slide, I have to say there you have the view on the organic growth. We see a slight positive, let's hope this is the beginning of a long journey.
I then go on the sales bridge, the next slide, maybe to take away, and Hans Ola will talk a little bit more on that, on the currencies. Flat more or less year-over-year. That is finally coming to a more, hopefully, a positive part for us. I take it here by business area very quickly, as I will elaborate further on that, strong Industrial Technique on growth. The others are reasonable flat. Of course, when you look to CT, when you miss a little bit large orders, it is of course still difficult to really have a good, strong growth. I'm not talking about Edwards, as you have seen here on the structural change, this is a strong plus. Let me go immediately to the different business areas, I take Compressor Technique.
I can maybe ask you, where are the big orders? Where are the large orders? That would be nice if we can come back to this part to get them up. We see a positive development in Europe, North America, as I mentioned already before, and a tougher Asia. Large orders, large compressors, still soft if we compare with 2011, 2012. A very good Edwards. Of course, I've been talking about the semicon, but we also see that general vacuum and the service are growing. The company is in good shape. We are very pleased the first two quarters with Edwards, so we are working hard to come close together and have a great future in front of us. Service continue to grow. I'm very pleased to see that, and it was a very solid growth here. Operating margin, a bit better than the first quarter.
Not there where I would like to be. We are working on that. It means better price management, new products, of course, also adaptation on cost. We do that. Last week, we also announced a new leader in this organization, Nico Delvaux. Some of you know him. He was heading the Construction Technique business area. I think he has a long legacy and experience in Compressor Technique. I think that will be a good leader for this business area. Of course, now we are looking for a new one in Construction Technique. Industrial Technique. Very solid development coming from motor vehicle and aerospace. They do very well. Also, the latest acquisitions we did, they are contributing good. We have a good development there. The momentum in that business area is there, and the momentum in the business, in the market is also there.
The tailwind is there. That's good to see. The margin, I don't need to comment more on that. You can read it yourself. I think it's a very solid 22%+, that's good. That's also the area of the league where they need to be or they have to be. Mining and Rock Excavation Technique. Stable order intake for equipment and service. As I mentioned already, see the latter part of the quarter was a bit better. Solid North America, Australia. We saw also some orders in Andina, Peru and Mexico. That was also an area where we saw good development, but a bit lower in Asia. That is an area where we are not yet seeing the development. Consumables increased sequentially. I think that's a good sign. If we have that, I think I like to see that.
Now here we're talking really of production consumables. Not the exploration consumables, because they're still down. The production consumables is up, and that's a good sign for that the machines are used, the production is going on. There is high production for iron ore. Copper is doing well. We see also the prices going in a good development. I saw also more activity on the service side. If you ask me on the Mining and Rock Excavation Technique, I saw where maybe before I would have said it's a flat development, maybe with a bit of a negative outlook. I would say maybe negative trend is maybe better said, but I would now say it's flat, but maybe with a bit positive trend. Let's hope I'm right in my reading of the analysis of the figures.
Margin 18.1%, still affected by some lower volume, but also dilution of some of the acquisitions we had done previously and don't get the real volume. We have taken here and there some extra costs which go in. That make it also that the margin, as you can see compared to last year, was lower and is lower. This will be, I think a bit for a couple other quarters that we will see lower margin. I hope next quarter that is a little bit better. The measures we are taking, that of course they also yield results, and that is what I meant also with further efficiency measures are to be taken and now will be taken. We come to Construction Technique. A bit of a mixed development.
Asia was negative, and you have seen also in Mining and Rock Excavation, it was negative. Solid North America is not a surprise. I'm very pleased to see that the road construction equipment guys, with all the effort we have been doing over the last two, three years on new products, in investing in the presence in the market, that they get some successes. I'm very pleased and proud that we get it there in this competitive market. The same is for the construction and demolition tools, where we also see some dynamics coming into the market. The bit, why I said the mixed order development is mainly due to the Portable Energy equipment decrease of orders, and that's mainly in the larger portable compressors.
What we internally say, the double-axle and the real almost the 20-foot container, portable compressors, which you use in water well, which you use in exploration. That market is rather soft. That we didn't get many orders for that one. A good development in Specialty Rental that continues to develop. Also here we keep investing in new fleet in the market. Margin 13.4% with a little bit headwind from currency here. They had that part and I think also a bit of a negative mix. I think it's not a surprise when you sell more road construction equipment and less Portable Energy equipment, that you have a negative mix for those ones who are following Atlas Copco. I think an operating margin which is dependable given the mix here. I'm coming to the total group.
I think I went through all the different figures here. You see revenue +7%, operating margin -4%, but an 18.6%. We're coming closer and closer to the figures of last year in absolute. What is the reason of the difference? It's primarily on the Mining and Rock Excavation where we have the biggest difference and where we still need to catch up, and a little bit difference when it comes to the profitability in CT, but also we are working hard to bring it on the same level as we were last year. I would say I hand over to Hans Ola, because I'm sure he will talk more about earnings.
Some interesting topics.
Yes, I hope so.
Let's take it on that note. As you can see, Ronnie has spoken about the operating performance on the operating profit levels. I won't dwell on that too much until we get to the bridges and so on. On the financial items, you notice that there was less negative than second quarter last year. The main difference, as you could pick out probably from the comment, was that we had some financial exchange differences. That was very negative last year. Since that was not repeated this year, it seemed like an improvement. What we have always said is that when we look ahead, we cannot predict those exchange differences in the financial net, but we can look at the financial net, the interest net. The interest net we expect to be somewhere in this region that we reported in Q1 also going forward.
Perhaps a little bit more negative because of the big payments. We amortized the loan, we have also paid the dividend in second quarter. On the other hand, we have a continuous positive cash flow. I'm not talking about big variations to the current trend, but perhaps somewhat. If we move further down, we come to the tax. We had a relatively low tax rate this quarter, just above 23%. A touch lower than Q1, but it's that type of a level where we are right now. I would say going forward, 23%-24% is probably what one should expect. It helps us compared to last year again, because we had higher tax rate last year, you can actually see, which we're very happy to see, that in absolute terms, we are actually making more net profit this quarter than last year even.
That was a while ago since that was the case. If I move on. Thank you. You are much quicker than I am. Thank you. Here, perhaps on this famous profit bridge, I start out by talking perhaps about the currency. We have a negative currency impact if you compare where the average exchange rates last year, Q2 was compared to this year. We are not back to the same level in our mix of currencies. However, in Atlas Copco, as we have explained many times before, we do not hedge forward. The exchange rates have an impact in the quarter when it happens. When we have a weakening of the Swedish krona, i.e. strengthening of other exchange rates or currencies, then we get the revaluation effect in that quarter of our receivables, i.e. the working capital.
Hence, you could say that we see the positive move lately of the currency rates versus the Swedish krona rather quickly, and that is what you see in Q2. If we look again forward, Q2, Q3, Q4, we expect this to be the case also going forward, and even more so. Perhaps a couple of SEK 200 million positive per quarter, in comparison with the same quarter last year, is one should expect on the EBIT, on the operating profit line. That was the case, and that had a slight positive impact on the profit margin, of course. The rest is easier perhaps to explain if we move to the next slide and look a little bit at the business areas.
Easy to explain, Compressor Technique perhaps not because we have a positive volume growth in the quarter compared to last year, but we have a negative operating profit in organic. Here is the same comment, really, as we made in Q1, that we have increased the cost on R&D and some of the service presence-related costs, primarily in the market. The volume increase is just not big enough, significant enough to compensate for that yet. You can also see that gradually the margin is coming back compared to Q1 in Compressor Technique. That is the positive trend, at least. Some other things to point out is perhaps that you see some negative impact on the acquisitions.
They are very small, and they are very early, and that is not unusual that we have a little bit of a negative impact, even losses in the first couple of quarters on these small acquisitions. Edwards in Compressor Technique is a completely different story, as you can appreciate from the numbers there on acquisitions. If there are more questions, of course, we are happy to come back to that. I move instead onto the balance sheet. I don't offer very much details here, but the increase of the total assets as continuous, as you can appreciate, is really due to the acquisition of Edwards primarily. One should also remember that when we get, and I am coming back to these currencies, that when we revalue the whole balance sheet, when the Swedish krona drops, it of course increases the numbers.
That impact from year-end is about SEK 3 billion in the increase. That hits inventory numbers, receivables, and everything in the balance sheet, of course. That leads us to the cash flow, SEK 2.9 billion in operating cash flow, the way we define it. You can see that if you look through a couple of changes like on the financial items, which is really not result-oriented, it is only cash flow items of financial nature. If you look at change in working capital, you see a big swing from last year that compensates each other more or less. At the end of the day, we generate roughly the cash we did last year, except for that we make a little bit less profit on the EBIT line.
That's in very quick summary on the cash flow, then I think I'll leave it back to you, Ronnie, to end with the outlook.
Sophisticated statement. As you've seen, the outlook is more or less the same as the one we used, we brought in Q2, at the end of Q1. It's also more or less the same view what we have on the market. We see still a continuous good development in North America. I don't see any signs that that will change. I said also last time, Brazil, what will happen, what will be there. It's maybe a little bit negative what we see there. Asia, China, India, of course now with India, the elections have finished. Let's see if they pick up on the growth. China, the big tickets, the Mining part, Construction part, is that somewhere coming? I see on the small, medium size compressor, Industrial Technique side, that I think is going well.
Europe also has a bit of a mixed view where you see the southern part of Europe, I'm talking about Italy, France, Spain, although it's on a lower level, but we see some growth. That's the positive. I think also U.K. is doing fantastic. U.K. and U.S., you can put more or less in the same sentence. They're performing at the same level. Of course, when you come to the central part, what is Germany going to do? Of course, that's a big economy, Europe is very important. As you see, it's pluses and minuses.
Now you could wonder why, Ronnie, as you said, increased somewhat, and that is a bit, I feel that what we have seen on the mining side, where I said last time I was flat negative, that I would say now I'm flat positive, and that made me say, okay, to conclusion more or less for the outlook, that is where we are standing. It's not that suddenly we see everything sunshine everywhere. That's for sure not the case. I have a continuous good positive view on the third quarter as I did on the second quarter and the first quarter. That is what I would like to say on the outlook. Maybe go to the questions then.
Thank you, Ronnie. We go over to the question session then. Of course, we have the conference call participants, and we have the people here in Nacka here present. Can I ask the operator please to repeat the procedure for the questions, please?
If you'd like to ask a question, please press 01 on your telephone keypad.
Excellent. We will switch between the two parties here. I think we'll start to get organized. We start here in Stockholm. I have a couple of hands here. Do we have a microphone here? That's always good for the telephone conference listeners to hear your question as well.
Thank you. It's Guillermo Peigneux from UBS. Thanks, Ronnie. Thanks, Ola. Two questions, or maybe one and one follow-up. First, regarding the outlook for mining, could you elaborate a little bit in between regions, what do you see in the three main mining region areas, Latin America, South Africa, and Australia? Second, regarding your relatively poor incrementals in Compressor Technique. Incrementally, so going forward, those expenses you were referring to, R&D and I guess feet on the street on the service side, will be going up or do you think they are stable right now? Are you where you want to be in terms of those expenses? Thank you.
Yeah. I will start on CT as I've been still acting, and I'm the one to blame. I think I will answer that immediately. Like I said, and then Ola has also mentioned it, we have, of course, invested in R&D. We invested in a lot of feet in the street, which we keep doing, and it's not the intention to withdraw that. We have done too much. Don't say that we have done too much in R&D. I think that we should keep going on, and of course, always we can do better the time to reduce the time to market. In certain areas where we have invested, where the volume is not coming, and I don't see it. That is where as we speak, we adapting the suit. That is happening, and that has been happening the last weeks to adapt that.
If you see sequentially, you will see, I'm sure, an improvement as I'm standing here. That is in a couple divisions. It's happened here and there. It happens also on a bit of the, what we used to say, the overhead, which we are reducing and adapting to a faster organization. That come. I'm not backing off on that. That is without Edwards, because let's take Edwards again. That's a business which should perform better, and it's all internal. I cannot blame the weather in this case. It is internal. On the continent and the mining, more or less I have did it a little bit in my presentation, I'll try to summarize it again. Australia, I see the last, say, yeah, the latter part of the quarter, I should use the same terminology, otherwise I confuse you. I see a positive development.
I see a positive development on equipment, and I saw also good positive development on service demand. That is in the Australia area. South America, Peru, and Chile, if you take that as a component and giving driven by mainly the copper, that goes still good. I think, of course you can, in the quarter, you always have to see when is a big order coming and how you compare, but there is continuous good development on it. There's also, I think in Brazil, Vale has kept investing in iron ore. We saw that. That has been stayed at a very high level since it has never dropped more or less. That continuous, not a real high growth you have, you have a continuous good development. Where we've seen some good development is in North America. Lately, where I saw some positive development also on consumables.
I mentioned that in the beginning also, we saw a good demand on the consumable side, and that comes from North America. Africa, mainly South Africa, with the strikes and all that, it's so difficult to get through it. On the consumable side, it is low because some of the platinum market, they don't work. They agreed, someone else, people is on strike, you don't get it yet, that will take another 2, 3 months, I think it will come. I think the other part, when you talk about Ghana and gold, still so and so. What was weak this quarter was actually Asia, like Indonesia. You know why? It's very obvious. You saw also China was not really, really strong. That was rather on the softer side.
Okay. We had another question here in Stockholm. Yep.
Thank you. Andreas Koski from Nordea. We're in a world of very low inflation globally. A lot of companies are having problem with raising prices. Could you help us understand your pricing power in CT and MR just right now compared to where it was 1 or 2 years ago?
Yeah. I think in our business, of course, you always try to get small increases when it comes to prices every year. If you take it on first the service part, which is then inflation driven, if you get an inflation of 2%, 3%, yeah, you can get it in the contract. When you get only an inflation of 1%-1.5%, yeah, you only get 1%, 1.5%, and even then negotiated, maybe it can even be lower. That is more difficult to get just the easy price increases. It would be too easy if it was so organic to do it, because you come up with new value propositions, you make new proposals, you bundle the services in a different way where you really do value-based pricing.
That's a totally different way of pricing, and that's the way we work on the service side, in CT and Industrial Technique. It works maybe a little bit less on Construction and on the Mining side. That is working, and that still yields some positive compensation. I'm not saying that we are here getting the 3%, 5% as we sometimes used to get. That's on the service. When it comes to the equipment, it's very easy. This comes when you have a new product. That's the reason why we always do this one. When you hear us talking about innovation, incremental movements, first to motivate your own people, because your own salespeople, they love to go to the customer and say, "We have something new," because that gives them confidence. You can increase a little bit the prices, and you create more value for the customer.
He is also happy, although you share a bit of the value with him or with her. That is the way it works. That is the way it works in CT. In CT, as also in Industrial Technique, it works all about, say, productivity and efficiency, energy efficiency or productivity when it talks more on Industrial Technique. You meet professional purchase people, and you cannot fool them, and you should not fool your customer first. That's the basic thing. These people, of course, they do negotiation. You say, "Hey, come on." You see the value-based, you have also life cycle cost reduction, and that's the way it works. If you come back last year on the mining part, you remember, all of you were bombarding with me of, I got, "Huh?" I didn't like all these questions. I think you saw that.
I think that is something that's coming to, say, a normal level that they see, okay, we need to work together. We can get more on automation. We can get more when we get a good value proposition on service. Will they always say that we are too high? Yes. I do the same when I buy something. It's a human reaction. We succeed, and the only way we have is new products, new products, new products. A little bit better every time than the competition.
Thank you. Good. We take two questions from the conference call, please.
Our first question comes from Mr. Eric Carlson from AKL Capital. Please go ahead.
Thanks for taking my question. Ronnie, CT is already a great business, of course, but given the change in management there, and perhaps you also being even closer to the business over the last couple of months, could you tell us a bit about your thoughts on what can be further improved in that business, aside from taking back the investment in sales and service a little bit? What are the other things that you think can be improved in that business?
We should start growing more. I think, Eric, that is the part, I think we should get more market share in all the different product portfolios In every continent, that is the main part. We are two or three times larger than any of the competitors. We invest maybe four times more than any other competitor in design and development. We have the best value proposition. We have the lowest life cycle cost. I don't understand why we not sell more, or why our customers don't buy from us. We need to work harder to get that into the market.
That's the main, and that is what I have been working on the last, say, 10 weeks to make them, I mean, the people in CT, more aware, "Hey, guys and girls, we can get much more of the market." That part, how you do that, of course, is feet in the street. It's the multi-brand. It's more focusing in this market, going direct, indirect. This part is what we need to work on that. Of course, in the same time, I saw some investments which we have been doing, which say, "Hey, when will that ever give return?" That is what I withdrawing and adapting and to create a little bit faster organization, in certain areas, better cooperation in certain markets, be faster in the market. That's an area where I think in CT we can improve. Is it a bad business?
You said it already, Eric. No. You said, "Bloody hell, why is this Ronnie now talking? It's a 20.5% EBIT business," and he start to pushing and kicking to get it better. I feel that that is a business where we should be a solid 22, 23% EBIT. That is where I get a little bit irritated if it doesn't come. We cannot blame the currency, and we cannot blame the weather, I think. We still don't have 100% market share, there is still more to take.
Sounds very good. Thank you very much.
Thanks, Eric. The next question.
The next question comes from Mr. Andre Kukhnin from Crédit Suisse. Please go ahead.
Good afternoon. Thanks very much for taking my question, and a quick follow-up as well. Just on MR, you seem to be taking out a lot of headcount there with not very much of extraordinary one-off charges going in. Could you maybe help us quantify how much of it is just happening on an underlying basis, and therefore impacting profitability? Not for us to net it out, but just to get a sense of where it can go when you actually stop firing people. What is the outlook for second half of the year? Do you still need to do much of the adjustment downward in your headcount in that division?
Okay. Are you taking it? Yeah.
We can take turns. I think that what you refer to is correct, that when we adjust, we normally do it as we speak, so to speak. We do it on a continuous basis. In many cases, there is quite a number of people that leave here and there. We are present all over the world, and if there is five people in one country and 10 in that and eight in that, it doesn't make very much sense of combining that to a big package, because it is not a package. Hence, that's our philosophy, and it would be wrong to try to isolate those costs all the time. Why do we do it now and then, like in the first quarter?
Sometimes it also affects the pure adjustment of one location where it is a significant event, and it is also a public event in that respect. It is important to understand that that has a one-time effect in that specific area, so to speak. Otherwise, our philosophy is really to take it as we go. I will disappoint you. I will not give you a hint that on the margin it has affected so much this quarter, and you should adjust last year with so much. We just have to accept that that is how we operate, and that's in the numbers, and it's not out of the numbers.
To elaborate a bit further, if you look forward, of course, these adaptations, what we do, what Hans Ola said, four here, five there, where we have taken the cost, of course, these should yield bottom line improvement, that's also where we are working on. If volume and mix more or less stays where we are, we should see an improvement on the bottom line. I would be extremely disappointed if that is not the case. That should come. You should see some already next quarter and the quarter after that. We should see improvement, because we are really taking out a significant amount of people every month we take it, every quarter we take people. That first take cost today, but on the other hand, we don't lose top line, so it must end up somewhere, and that's in the profit.
Indeed. Just on that bit of whether you need to do a lot more in the second half or are we kind of there?
There will be a bit more to do in the second half, not so much as we have been doing. We will do as we speak. We are still reducing, that's spread all over the world. There's no country who is under special protection or something. Everywhere we can do some improvement here and there. That is the next coming two quarters. There's still some extra costs to take. At the same time, one also should know that we are pushing hard on this Mining and Rock Excavation also that they reduce their inventory. Of course, that also brings certain volume under absorption in some factories. That's also what you see. Maybe you don't see it in the figures, but it's embedded in the figures.
That will also go on in the next coming quarters, because I'm not sure that they will be on the level of inventory where I will be happy the next month. Or you think so, Hans Ola?
Right. A few months.
Yeah, a few months, yeah.
Got it.
Do we have another question here in Stockholm? Otherwise, we continue on the conference call, because we have a number of questions lined up there. We can come back to the audience here, but we continue on the conference call then, please.
Our next question comes from Mr. Alex White from JP Morgan. Please go ahead.
Good afternoon, everybody. It's Alex at JP Morgan. The first question I had was, we heard from SKF yesterday about a deterioration in what they were seeing in Europe on the demand side as we went through the quarter, so in the last two weeks of June. Can you talk a little bit about what you're seeing in Europe as the quarter progressed, and particularly in the last month or so?
Of course, I also read that from Tom, but I must disappoint you. I didn't see that actually in our figures, no. We are CapEx and I think SKF is more production volume driven. That, I think, is a totally different cycle. As I mentioned previously already, I saw a good development in Spain, Italy, France, and in U.K., where we saw some good development. When we do compare quarter to quarter, it was a bit softer in Germany. Of course, we were comparing with a strong quarter last year. I think it was more or less a continuation of much growth, but it was a normal quarter. I don't see that the same as what he wrote.
As Tom has started out, it's mostly investment decisions in our case.
Yeah, it's CapEx.
Ours is more consumption.
Sure. That's good. It's certainly not a disappointment, Ronny. It's good to hear. The second thing that I wanted to ask about was just, you provided a bit of detail on the FX and what you're expecting going forward, but Hans Ola, I was wondering if you can help us understand the magnitude of the balance sheet item moves, how much of a positive that was in EBIT year-on-year?
That specific revaluation, you mean?
Yeah.
Or what? Yeah. I have to explain it, of course, because other companies don't show the same sudden impact. To split that out is extremely. You come into models, and you come into mathematics that I don't think is valuable to go very much into. What I can say, clearly, and I think I already said it, but I can repeat, that if you take the pure comparison of exchange rates in second quarter compared to last year, we would have had a negative impact from that. Then it turned to positive. To quantify exactly how much is what and so on, it's not that we are -SEK 300 in average and then it turns into +SEK 60. It's not that. It's more subtle than that. It has a positivity, otherwise, it would have been negative. Let's leave it at that.
Going forward, of course, you will have more and more of a true better currency situation. I mean that the average rates will be slightly better for us than comparison last year, but you will not have the positive impact of constant revaluations all the time, given the currencies as they are today, of course.
Great. That's helpful. Thanks very much.
Thanks. I look around the room. We continue on the conference call, please.
Our next question comes from Mr. Ben Mosen from Bank of America. Please go ahead.
Yeah. Thank you. Hi, Ronnie. Hi, Hans Ola. First question, please, just on the Construction Technique outlook. You say you expect it to increase somewhat, I'm guessing that we've seen a slightly weaker outlook or weaker development in China, maybe slightly weaker in Latin America. Just where do you see the improvement in Construction Technique? Thank you.
I don't recall that I said that we increased somewhat on Construction Technique. I think what I see on the Construction Technique side today is that, of course, you have then seasonality, because that's another part, some part what we have then that you should take into account when you listen to me. I see still a good development and good momentum in North America. Actually, we saw also last quarter it was not so bad in Brazil even. You can wonder, but that was really a positive part. I think also in Europe, then of course seasonal corrected, because one thing what we should know in Europe, what has happened this year is that the rental companies in Europe ordered a little bit earlier this year than last year.
That means also they will stop a little bit earlier this year to order more.
Right.
That's one thing when you read the figures or analyze the figures you should take into account. Europe, North America, I think positive South America, depending a bit of course on the mining part, what that will happen because that comes also in the slipstream. I was not so negative on CR on South America. When it comes to Asia, that is another area. I see a weaker India. One part of that is, if you take one example, is the water well drilling, which is more or less coming to a stop, standstill. That's a very good nice business for us because you need a lot of compressors. We also saw that the construction business and especially the area where we are in China is also weak, I can say. If I'm blunt to say that.
Roughly said, a weak Asia, if I make it easier for myself. A weak Asia, positive North America, okay Europe, seasonality corrected, and maybe a flat South America, if I now really summarize it quickly.
Thank you. If I can maybe have a follow-up on Edwards. Is there any way you can just help us with the outlook for the second half? Is there any seasonality that we, in the orders or earnings, that we need to bear in mind? Of your guidance, would you expect a further sequential pickup in demand for Edwards, or do you think it's more flattish at what is a very good level?
Yeah. On the earnings guidance, of course, we normally don't do. Hans Ola will maybe say, "Ronnie, stop." Eva, I think we should do because I think all of us are learning together as we are here on how is the dynamics in this part of the market and this part of the business. Earnings, for sure, if you look to the orders on hand, what we have given the order income of the last two quarters. I'm sure also on the earnings side, we will have a good Q3. I think it should continue at a good high level. I didn't see, in the projections, any profit warning or hiccup so that there were bad orders in. I would say on that part, continue. On the order of received side, yeah, I think the tailwind on the semicon is still solid.
If you read about the outlooks of different analysts and also listen to our own people, they still have a strong tailwind, on the semicon. From that point of view, I would say a continuous good development. Having said that, sometimes we get also very big orders there. Maybe they don't fall in a certain quarter, but the order is not gone, it's just not falling in the quarter where we report. Again, I think for the next outlook, and I've mentioned also a strong semicon, then you should read synonym, a good orders received expected for Edwards. That's at least where I'm standing.
Perhaps just the final. Edwards was not in our numbers last year, obviously, but it was a public company, and you saw the reports that they came in, and they did have a very strong second half of the year compared to the first half. That is, of course, something that is not making any sense in our bridge, but when we report how they are growing like for like, the growth will be somewhat affected by higher comparisons, of course.
Maybe for all of us to help you and Ben's more specific on that part. You can see that per month now they have an orders received now around $100 million, a little bit higher. Between 100 and 105. That's where they are cruising now. Elaborating of coming back what Hans Ola said. That came in, that level, they were moving on, say, September, October. Then they were moving on. Before, if we take the first and the second quarter last year, they were running around 80, 85 in the month. The main reason of the increase is semicon. Of course, they had been growing in service. They had been growing in general vacuum, but then we talk about single-digit growth.
Got it. Very clear. Thank you.
Well, we continue. We have more questions from the telephone conference.
[inaudible]
Our next question comes from Mr. Marcus Almerud from Morgan Stanley. Please go ahead.
Hi, Marcus Almerud here. First on coming back to the mining margin. If you adjust for currencies and the restructuring, the margin decline was actually quite strong sequential. I assume it's just a sharp fall in sales, which should level out going forward. When should we expect the savings that you took in Q1, the SEK 75 million program, to have full effect? That's my first question. My second question is, on the large orders, you said the latter part on mining was better. You also mentioned a couple large orders. Is it mainly those large orders or is it a general feeling? And also, are there any signs of life at all in exploration?
Yeah, I will take the question, I think. I think the general feeling is that it's more positive. There is much more optimism on the mining side than, I think, if you talk three, four months ago. How solid is it? Come back within three months, we'll see whether it is. Of course, you've seen also the pricing of certain commodities. If you take the copper price, I think of course, yeah, if it goes a little bit higher, that gives, of course, a bit of relief for certain projects. That makes people a bit more positive. Yeah. That's a good sign. When it comes to the exploration, I have not seen any movement there. I've not heard anyone talking, any signs of life, even on the bids, because that's what we follow very closely. It's dead. Really dead.
Your first question, when is the SEK 75 million going to Sorry?
Paying off.
Yeah, paying off, yeah. I think you should see that for next year. I think that you should not expect something really spectacular coming, and even maybe not next year either. I think where we are working on, and I elaborated here on another question before on that, we are adapting the suit. We are adapting our inventory and with the final result to have a better profitability. We are not there, and I have no problem to say it in public, we are not there where I think where we should be. This is all internally. Of course, if the market goes to drop another 20%, yeah, hallelujah, then we talk different. Ceteris paribus, the level we should be higher in profitability. That is what we are working on and adapting the capacity, adapting the inventory, doing cost adaptations here and there.
Okay. Thank you.
Thank you. We have time for at least one more question. Let's see how long it is, then we will see how many more questions we can take. Please go ahead, another question from-
Our next question comes from Mr. Sebastian Gruter from SocGen. Please go ahead.
Hi, good afternoon. Two quick questions. One on the FX, just coming back on the FX issue. You talked about the year-on-year impact, given the revaluation of assets, maybe could you tell us what you expect on a quarter-on-quarter basis in Q3 versus Q2 in terms of impact or just a broader number? On the guidance, usually there is some seasonality in Q3 versus Q2. Does your guidance now imply that we should not see the seasonality this time around, Q3 order intake in absolute terms can be above Q2? Thank you.
Well, if I start sequentially on currencies, you should, although I think I mentioned it briefly, but might have missed, that the current situation is what you see in Q2, basically. Of course, we had a movement during the second quarter to more favorable currency situation. We have a basket where we are long in many currencies, and we are short in Swedish krona and euro. That's basically the broad picture. There is not a huge difference than from today, from Q2 into Q3, except for that it was a gradual weakening of the krona in Q2. Of course, we have that with us. I cannot quantify for you, Sebastian, on that, how much the impact is on a sequential basis.
We will, of course, not have this famous revaluation again, if the currency stays where they are, then we've enjoyed that in Q2, and then that will not help us. Comparing with Q3 last year is a different story, but that I also commented already before. I think that's as much as we can say on the FX. Again, leaving you with normally when we report in a quarter, you see the actualization of the result to current FX. That's basically what you should expect. Sequentially, normally, there is not much more to expect, so to speak.
Okay.
Yeah.
On the guidance, I think, of course, you should see when you listen to us on the guidance, we talk about demand, we don't talk about earnings. We don't talk about received orders. We talk about demand. What do we see or what do we expect in the market. Of course, when you talk construction and you see also the order cycle, even the demand order cycle, of course, in construction, there is certain seasonality in the world. That I think you need to take into account. That's what I mentioned, because you don't have seasonality on the mining side or on compressors or Industrial Technique. Forget it. It's mainly on the construction side.
Okay, thank you.
Thank you. The final question, if we can take that now, we have to close.
Our final question comes from Mr. Daniel Schmidt from SEB. Please go ahead.
Yes, hello, good afternoon. Can I just try to turn the question around when it comes to the margin potential in Mining and Rock? Just ask you guys, given the sort of change in mix that you've seen over the past two years, the cost reductions that you've done, then just leave the under absorption behind us and look a couple of quarters out, if there is still sort of stability in order intake and sales. What top line do you need in order to get back to the very high margins that you used to have, or let's say 23%, 22%, to be somewhere in between where you were and where you are now? How much has the operating leverage changed given what you're doing?
I think this will be an answer with a lot of conditions which is, because you also have country mix, you have product mix, you have certain under absorption in certain products, because we have invested compared to this high level of margin we have. If I take it rather bulk, Daniel, I'm really open to meet and explain a little bit further if you, say, end of August when we meet, we can talk a bit more on that. I think what you can see is in MR, over the last two, three years, we have done a couple of acquisitions, which don't bring the same margin level yet, because otherwise we should have not done it, as we were before. That drags it down. That's one.
Second, we have done some feet in the street investments also there, which are not yielding results of not return what we like to see. That's another area where we have a bit of leaks, where some of them we can adapt, some of them we need to wait for a little bit longer of a higher demand. A third one, we also have done a couple of investment, CapEx investments, where we need more volume. There, again, I'm coming to you to more to your area. We would need maybe, say between 10%-20% more volume to come to a good flow-through level in that area.
If you maybe take it, given all the measures we are doing, a bit of luck with certain mix and country mix and product mix, if they come back as it used to be, forget the leakage of the acquisition and, say, a 20% more volume, I think we should come back to, say, a good solid margin. I think a lot of it is internal. Again, it's like I said it in CT, I think I cannot blame the weather, which is fantastic. I was talking yesterday when I was preparing the board, I was talking to one of my direct reports. It's great. It's only us. We should do it.
It's easy, because if it is a market situation where we get severe competition with price pressure here and there, and we get squeezed, or with products we are late, then I would be nervous. This is something what we need to do ourselves. Unfortunately, it takes a little bit too long time, but that's the only thing.
Thank you. Very good. Could you just say anything about the timeframe that you're working at, given a sort of a scenario where you don't see any further drop like you're talking about now, you're actually saying that it's improving slightly. Are we looking at the coming four, five, six quarters in order to sort of get back to where we used to be on an average level, forgetting about the peak levels?
I think you can see that is the horizon, you should say. Also given that we are adapting the inventory and other parts of that. It should be, say, you will come in next year situation. You should put yourself on that.
Very good. Thank you.
With that, I know that we have some more questions from the participants, we have to break now. We are, of course, ready to take those questions through the investor relations department or to myself after the call. I would just like to end by reminding everybody, first of all, thanking everybody for coming here and participating in the call. We have the next opportunity to meet on the 20th of October for the Q3 report. I also want to repeat that on the 19th of November, we have the Capital Markets Day of 2014, it's like we have announced before, it will take place in the U.S. More firm invitations and details will come on that as soon as we can.
Should you not say that it is a Swedish week in the U.S.?
Absolutely. I was coming to that. It's not only Atlas Copco, it is actually three other big Swedish companies that have agreed to do the Capital Markets Day in the same area in the U.S. in the same week. It's an excellent opportunity to get perhaps a little bit of benchmarking or whatever comparisons at least that could be.
A bit of sun for the Swedes.
A bit of sun being in Carolinas. With that, on that sunny note, we thank everybody and wish you a nice continuation of the summer. Bye-bye.