Good morning, wherever you are, and very welcome to the Second Quarter Conference Call for Atlas Copco. We are here present in the mine underneath our headquarters in Naka, Stockholm. But we also welcome of course everyone participating on the conference call. We will do this as we normally do. Ronny to my left, our CEO, will go through his comments to the quarter report and then we will open up for questions and answers.
So without too much waste of time, I hand it over to
you Roni. Okay. Thank you and a warm welcome. I will go as usual go straight to the slides and so we have more time for questions. And this slide number 3, I'm on now Q2 in brief.
Let's 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. But again, what we said last time motor vehicle business is doing well, Aerospace is doing well and semicon is doing very well. And that's also what you see here when we talk about sequential order growing in industrial compressors and tools comes from that area stable order intake and mining group and I will elaborate later a little bit more on that. And of course, when you have a strong semicon and then having a company like Edwards, of course, you also have good tailwind there. Still a good development on the business on service.
So our strategy, which we started many years ago, is still rock solid and continues to grow and we see still more to take. And so that makes me happy. And a strong development in North America and I'm sure for most of you this is not a surprise. If we go to the next slide and 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 was negative. So that's good news. I think when it comes to the margin, we will elaborate later a little bit more on that, but still an 18.6 percent still more work to do on MR on the mining and rock excavation, so which is the biggest gap that we have with last year. And if we then go to operating cash flow, I'm also pleased to see that we come back to, yes, the figures where I believe we should be with this volume.
Now the next slide on the geographical part. And let me start with Europe. And I will comment excluding Edwards, so that we compare businesses comparable businesses with last year. Otherwise, it becomes very complicated for all of this. In Europe, we see a positive development 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. So that but okay, that business is very in. So it is what it is. Then if we take North America, yes, but can I say more? Everything is positive.
So that's great to see that otherwise you will not make this plus 13%. And then we have done a couple of nice pop on acquisitions especially in Texas. So 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 a minus 2. And that is also an area where we have to watch.
What about Brazil? It's not because they lost 71 to the Germans that the economy should go flat, but 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 then we take Asia, yes, a minus 3. And it was not so strong in even weak, I should say, in China and India.
So 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 compresses, I think it's fine. It's doing on, but the big tickets is difficult there. Same is on the construction technique area.
It's a tough market there. And then we take Australia see that plus 32. So the guys on the mining side they are back. So we had a couple of good orders there. So there we saw the latter part of the quarter a good development.
If I then go to the next slide, so I have to say that you have the view on the organic growth. We see a slight positive. So let's hope this is the beginning of a long journey. If I then go on the sales bridge, the next slide maybe takeaway and Hans Ole will talk a little bit more on that on the currencies, but flat more or less year on year. So that is finally coming to a more hopefully a positive part for us.
If I take it here by business area very quickly as I will elaborate further on that a strong industrial technique on growth. The others are reasonably flat. Of course, when you look to CT when you miss a little bit large orders, it's of course still difficult to really have a good strong growth. And then 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 and then I take compressor technique. I can maybe ask you where are the big orders? Where are the large orders? That is would be nice if we can come back to this part to get them up. But 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. Very good, Edwards. Of course, I've been talking about the semicon, but we also see that general vacuum and the service are growing. So the company is in good shape. So 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. So I'm very pleased to see that and it was a very solid growth here. Operating margin, a bit better than the Q1, not there where I would like to be. So we are working on that, meaning it means better price management, new products, but of course also adaptation on cost.
And last week, we also announced a new leader in this organization, Nico Delvaux. Some of you know him. He was heading the construction business area, but I think he has a long legacy and experience in compressor technique. So 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, yes, very solid development coming from motor vehicle and aerospace. They do very well. Also the latest acquisitions we did they are contributing good. So we have a good development there. So the momentum in that business area is there and the momentum in the business in the market is also there.
So the tailwind is there. So that's good to see. And the margin, I don't need to comment more on that. You can read it yourself. I think it's a very solid 22% plus.
So that's good. And that's also the area of the league where they need to be or they have to be. Mining and rock excavation, stable order intake for equipment and service. And as I mentioned already, see the latter part of the quarter was a bit better. Solid North America, Australia, we sold some orders in Andina, so Peru and Mexico.
So that was also an area where we saw good development, but a bit lower in Asia. So that is an area where we are not seeing the development. Consumables increased sequentially. I think that's a good sign. If we have that, I think I like to see that.
And then now I'm hearing talking really of production consumables. So not the exploration consumables because that's still down. But the production consumables is up and that's a good sign for that. Yes, 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 into good development. And I saw also more activity on the service side. So if you ask me on the mining and rock excavation, I saw where I maybe before what Seth said, it's a flat development maybe with a bit of a negative outlook.
I would say maybe negative trend as maybe better said, but I would now say it's flat, but maybe with a bit positive trend. So let's hope I am right in my reading of the analysis of the payers. Margin 18.1 percent 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, because we have taken here and there some extra costs which go in. So that make it also that the margin as you can see compared to last year was lower and is lower. And this will be I think for a bit for a couple of other quarters that we will see lower margin.
Of course, I hope next quarter that is a little bit better that 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. Then we come to construction technique, a bit of a mixed development. Asia was negative and you have seen also in mining and rock excavation that was negative. Yes, solid North America, it's 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 2, 3 years on new products and investing in the presence in the market that they get some successes.
So I'm very pleased and proud that we get it there in this competitive market. And the same is for the construction and demolishing tools where we also see some dynamics coming into the market. Why is it that why I said that mixed order development is mainly due to the portable energy equipment decrease of orders. And that's mainly in the larger portable compressors. So what we internally say the double access 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. And so that we didn't get many orders for that one. And a good development in specialty rental that continues to develop. And also here also 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 at the scope. But I think an operating margin which is dependable giving the mix here. Then I'm coming to the total group. I think I went through all the different figures here.
You see revenue plus 7, percent, operating margin minus 4 percent at 18.6 So 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. Then I would say I hand over to Hans Zola, because I'm sure he will talk more about earnings. Some interesting topics.
Yes, I hope so.
Let's take it on that note. So as you can see Roni 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 noticed that there was less negative than Q2 last year. The main difference as you could pick out probably from the comment was that we had some financial exchange differences.
This was very negative last year. And since that was not repeated this year, it was 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. And 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 and we have also paid the dividend in Q2.
On the other hand, we have a continuous positive cash flow. So 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 of just above 23%, a touch lower than Q1, but it's that type of a level where we are right now. So I would say going forward 23% to 24% is had higher tax rate last year.
And 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. So that was a while ago since that was the case. If I move on, thank you. You're much quicker than I am. Thank you.
So here perhaps on this famous profit bridge I start out by talking perhaps about the currency. And we have a negative currency impact if you compare where the average exchange rates last year 2nd quarter 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.
So when we have weakening of the Swedish krona I. E. Strengthening of other exchange rates then or currencies then we get the revaluation effect in that quarter of our receivables, I. E. The working capital.
So 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. So perhaps a couple of €100,000,000 positive per quarter in comparison with the same quarter last year is one should expect on the EBIT on the operating profit line. So 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 Techniques 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. And here is the same comment really as we made in the Q1 that we have increased the cost on R and D and some of the service presence related costs primarily in the market. And the volume increase is just not big enough, significant enough to compensate for that yet. But you can also see that gradually the margin is coming back compared to the Q1 in compressor technique. So 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 1st 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. So I don't think if there are more questions, of course, you're happy to come back to that. And I move instead on to the balance sheet.
I don't offer very much details here, but the increase of the total assets has continuous as you can appreciate is really due to the acquisition of Edwards primarily. But one should also remember that when we get and I'm coming back to these currencies that when we revalue the whole balance sheet when the Swedish krona drops, it of course increases the numbers. And that impact from year end is about SEK 3,000,000,000 in the increase. And that hits inventory numbers, receivables and everything in the balance sheet, of course. And that leads us to the cash flow, dollars 2,900,000,000 in operating cash flow the way we define it.
And you can see that in if you look through a couple of changes like on the financial items, which is really not result oriented. It's only cash flow items of financial nature. And if you look at change in working capital, you see a big swing from last year that compensates each other more or less. So 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. So that's in very quick summary on the cash flow.
And then I think I'll leave it back to you Ronny to end with the outlook. Sophisticated
statement. So 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 net. So it's also more or less the same view what we have on the 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.
So it's a bit 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. And China the big tickets the mining part construction part is that somewhere coming? I see on the small medium sized compressor, industrial techniques side that I think is going well.
And Europe also has a bit of a mixed view where you see the southern part of Europe. And I'm talking about Italy, France, Spain, although it's on a lower level, but we see some growth. So that's 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 doing they're performing at the same level. But of course, when you come to the central part, what is Germany going to do, of course, that's as a big economy in Europe is very important. So if you see it's pluses and minuses. Now you're going to wonder why Ronny 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 no 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. But I have a continuous good positive view on the Q3 as I did on the Q2 in Q1.
So that is what I would like to say on the outlook. Maybe go to the questions then.
Thank you, Ronny. We go over to the question session then. And of course, we have the conference call participants and we have the people here in Naka here present. Can I ask the operator please to repeat the procedure for the questions
please?
Excellent. And then we will switch between the two parties here. And I think we'll start to get organized. We start here in Stockholm. I have a couple of hands here.
So if we do we have a microphone here? That's always good the telephone conference listeners to hear your question as well.
Thank you. It's Guillermo Peigne from UBS. Thanks, Roni. 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 3 main mining region areas Latin America, South Africa and Australia? Then second regarding your relatively poor incrementals in Compression Technique. Incrementally, so going forward, those expenses you were referring to R and 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. Yes.
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 Anzula has also mentioned it, we have of course invested in R and D. We invested in a lot of feet in the street, which we keep doing and it's not the intention to withdraw that. But we have done too much.
And don't say that we have done too much in R and 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. But in certain areas where we have invested where the volume is not coming and I don't see and that is where as we speak we adapting the suit that is happening and that has been happening the last weeks to adapt. So if you see sequentially you will see, I'm sure, an improvement as I'm standing here.
And that is in a couple divisions. It's happened here and there. It happens also on the a bit on the what we used to say the overhead, which we are reducing and adapting to a faster organization. But that's gone. 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's internal. On the continent and the mining, more or less I have ditched a little bit in my presentation, but I'll try to summarize it again.
Australia, I see the last yes, 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 continent and giving driven by mainly the copper, that cost 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 for that. There's also, I think, in Brazil Vale has kept investing in iron ore. We saw that. So that has been stayed at a very high level since it has never dropped more or less.
So that continues, but not the real high growth you have, but 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, because that is I mentioned that in the beginning also we saw a good demand on the consumer side and that comes from North America. Africa and then mainly I think South Africa with the strikes and all that it's so difficult to get through it. We on the consumable side, it's slow because some of the platinum market, they don't work. Yes, no, they agreed, but then someone else people is on strike.
So you don't get it yet. And 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. And then what was weak this quarter was actually Asia, like Indonesia. And you know why it's very obvious.
So also China was not really strong. So that was rather on the softer side.
Okay. So we had another question here in Stockholm. Thank you. Andreas Bok from Nordea. We're in a world of very low inflation globally.
A lot of companies are having problem raising prices. Could you help us understand your pricing power in like CT and MR just right now compared to where it was 1 or 2 years ago? Yes.
I think in our business, because you always try to get small increases when it comes to prices every year. And if you take it on first the service part, which is then inflation driven. And if you get an inflation of 2%, 3%, yes, you can get it in the contract. When you get only an inflation of 1% or 1.5%, yes, only get 1%, 1.5% and even then negotiated maybe it can even be lower. So that is more difficult to get just the easy price increases.
But 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're okay you really do value based pricing. That's a totally different way of pricing. And that's the way we work in on the service side in CT and industrial technique. It works maybe a little bit less on construction and on the mining side.
So 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 get. That's on the surface. When it comes to equipment, it's very easy. This comes when you have a new product.
And that's the reason why we always do this 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. Also you can increase a little bit the prices and you create more value for the customer. So he is also happy although you share a bit of the value with him or with her. So that is the way it works. And 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, because you meet professional purchase people and you cannot of course, you can you cannot fool them and you should not fool your customer first. That's the basic thing. But of course these people of course they do negotiation. But you say, hey come on you see the value based, you have also life cycle cost reduction and that's the way it works. Now if you come back last year on the mining part, you remember all of you, you were bombarding with me of I got 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 need to do 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.
But we succeed and the only way we have is new products, new products, new products and a little bit better every time than the competition.
Good. So we take 2 questions from the conference call please.
Our first question comes from Erik Karlsson from AKO Capital. Please go ahead.
Thanks for taking my question. Ronny, 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 of what can be further improved in that business aside from taking back the investment in sales and service a little bit? Or what are the other things that you think can be improved in that business?
We should start growing more. I think Erik that is the part I think we should get more market share. And in all the different product portfolios in every continent. That is the main part. We are 2 or 3 times larger than any of the competitors.
We invest maybe 4 times and 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. So 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. So that's part how you do that. Of course, it's feet in the street, not street in the feet, but feet in the street, yes. Yes. It's the multi brand.
It's more focusing in this market going direct to indirect. These parties, yes, but we need to work on that. That is yes. Of course, in the same time, I saw some investments, which we have been doing, which say, hey, when will that ever give return? And that is what I withdrawing and adapting and to create a little bit faster organization in certain areas, better cooperation in certain markets, yes, be faster in the market.
And you said, bloody hell, why is this Ronny now talking? It's a 20.5% EBIT business and he start to pushing and kicking to get it better. But I feel that that is a business where we should be a solid 22%, 23% EBIT. And that is where I'm yes, get a little bit irritated if it doesn't come. And we cannot blame we don't we cannot blame the currency and we cannot blame the weather.
I think we still don't have 100% market share. So there is still more to take.
Sounds very good. Thank you very much.
Thanks, Erik. Next question?
The next question comes from Mr. Andre Kuegner from Credit 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 sort of extraordinary one off charges going in. Could you maybe help us quantify how much of it is just happening kind of on 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? And on that, kind of 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?
Well, we can take turns. I that what you referred 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 lead here and there. We are present all over the world.
And if there is 5 people in one country and 10 in that and 8 in that, it doesn't make very much sense of combining that to a big package because it is not the package. So 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 Q1? Because 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.
And it is important to understand that that has a one time effect in that specific area so to speak. But otherwise our philosophy is really to take it as we go. So 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 the that's in the numbers and it's not out
of the numbers. So but elaborate a bit further. If you look forward, of course, what these adaptations what we do, what Han Solo said 4 here, 5 there, where we have taken the cost. Of course, these should yield bottom line improvement and that's also where we are working on. So 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. And that should come you should see some already next quarter and the quarter to 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. So 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. And what just on that bit of the whether you need to do a lot more in 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, but we will do as we speak we are still reducing. And that's spread all over the world. There's no country who is yes under special protection or something, everything everywhere we can do some improvement here and there. And that is the next coming 2 quarters. There's still some extra cost 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. And of course that also brings certain volume under absorption in some factories. So that's also what you see maybe you don't see in the figures, but they are as embedded in the figures. And that will also go on in the next coming quarters, because I'm not sure that there will be on the level of inventory where I will be happy the next month. Or you think so Hanzula?
Few months. Yes, few months, yes.
Got it.
So 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. So 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 JPMorgan. Please go ahead.
Good afternoon, everybody. It's Alex at JPMorgan. The first question I had was we heard from SKF yesterday about a deterioration in what they were seeing in Europe and demand on the demand side as we went through the quarter, so in the last 2 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?
Yes. Of course, I also read that from Tom. But I must disappoint you, I didn't see that actually in our figures. No. If you we are CapEx and I think SKEV is more volume driven production volume driven.
So that's I think it is a totally different cycle. And as I mentioned previously already, I saw a good development in Spain, Italy, France, where we saw and the U. K. Where we saw some good development. It was a bit when we do compare quarter to quarter, it was a bit softer in Germany.
But of course, we were comparing with a strong quarter last year. So I think it was more or less a continuation not much growth, but it was a normal quarter. So I don't see that the same as what he wrote.
And as Roni started out, I mean, it's mostly investment decisions in our case. Yes. It carries more consumption. Sure.
I mean 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 Hanzola, 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? Yes. Or what? Yes, yes. I have to explain it of course because other companies don't show the same sudden impact.
But 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 Q2 compared to last year, we would have had a negative impact from that. But then it turned to positive. And to quantify exactly how much is what and so on that it's not that we are minus 300 in average and then it turns into plus 60. It's not that.
It's much it's more subtle than that. But it has a positive. Otherwise, it would have been negative. Let's leave it at that. And then 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. And yes, I'll look around the room and we continue on the conference call please.
Our next question comes from Mr. Ben Marthin from Bank of America. Please go ahead.
Yes. Thank you. Hi, Ronny. Hi, Hans Ola. First question please just on the Construction Equipment outlook.
You say you expect it to increase somewhat, but I'm guessing that we've seen a slightly weaker outlook or weaker developments in China maybe slightly weaker in Latin America? Just where do you see the improvement in Construction Equipment? Thank you.
I don't recall that I said that we increased somewhat on construction. But I think what I see on the construction 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. But 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 order a little bit earlier this year than last year. So that means also that will stop a little bit earlier this year to order more. So that's one thing when you read the figures or analyze the figures you should take into account. So Europe, North America, I think positive. South America, depending a bit course on the mining part, but that will happen because that comes also in slipstream.
But I was not so negative on CRO 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. So and that's a very good nice business for us because you need a lot of compresses.
And we also saw that the construction business and especially the area where we are in China is also weak I can say. I'm blunt to say that. So roughly said a weak Asia, if I make it easier myself. Weak Asia positive North America, okay. Europe seasonality corrected and maybe a flat South America if I know really summarize it quickly.
Thank you. And if I can maybe just 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 orders or earnings that we need to bear in mind? And 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?
Yes. On the earnings guidance, we don't normally don't do and Hansula will maybe say Roni stop. But Eva, I think we should do because we are 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. But earnings for sure if you look to the orders on hand what we have given the order income of the last two quarters. So 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 any in the projections any profit warning or hiccups so that there were better orders in. So I would say on that part continue. On the order received side, yes, 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 are still at yes, they still have a strong tailwind so on the semi con.
So 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 the Q3, but that is just the order is not gone. It's just not falling in the quarter where we report. But again, I think for the next outlook I and I've mentioned also a strong semicon and then you should read synonym a good orders received expected for Edwards.
That's at least where I'm standing.
And perhaps just a 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. And 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.
Yes. But maybe for all of us to help you and then more specific on that part, you can see that per month now they have an orders received now around $100,000,000 a little bit higher. So between $100,000,000 $105,000,000 that's where they are cruising now. Elaborating of coming back what Hans Zula said, that came in that level was they were moving on say September, October. So then they were moving on.
Before if we take the first and the Q2 last year, they were running around 80%, 85% in the month. So that is and the main reason of the increase is semicol. Of course, they had been growing in service. They had been growing in general vacuum, Then we talk about single digit growth.
Got it. Very clear. Thank you.
Well, we continue. We have more questions from the telephone conference.
Our next question comes from Mr. Markus Almodov from Morgan Stanley. Please go ahead.
Hi, Markus 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. And I assume it's just sharp fall in sales with which it should level out going forward. When should we expect the savings that you took in Q1, the €75,000,000 program to have full effect? That's my first question.
And then my second question is on the large orders, you said the latter part on mining was better. You also mentioned a couple of 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?
Yes. I will take the question. I think the general feeling is that it's more positive. There is much more optimism in on the mining side than I think if you talked 3, 4 months ago. How solid is it?
Come back within 3 months. We'll see what it is. Of course, you've seen also the pricing of certain commodities. If you take the copper price, I think of course, yes, if it goes a little bit higher, so that gives, of course, a bit of relief for certain projects. So that makes people, yes, a bit more positive.
So, yes, yes, that's a good fact. When it comes to the exploration that I have not seen any movement there. I have not heard anyone talking any signs of life even on the bids because that's what we follow very closely. So it's debt, really debt. Then your first question when is the €75,000,000 going to Sorry?
Paying off? Yes, paying off and giving. 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 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. And we are not there and I have no problem to say that in public. We are not there where I think where we should be. And this is all internally. Of course, if the market goes to drop another 20%, yes, hallelujah, then we talk different.
But curious despite of us the level, we should be higher in profitability. And that is what we are working on and adapting, yes, the capacity, adapting the inventory, doing cost decrease 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 and then we will see how many more questions we can take. So please go ahead another question from
Our next question comes from Mr. Sebastian Gautier from SocGen. Please go ahead.
Hi, good afternoon. Two quick questions. I mean, one on the FX just coming back on the FX issue. You talked about the year on year impact that given the evolution of assets, maybe could you tell us the what you expect on a quarter on quarter basis in Q3 versus Q2 in terms of impact or just a broad number? And 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 and Q3 order intake in absolute terms can be above Q2? Thank you.
Well, if I start sequentially on currencies you should I think I mentioned it briefly, but I might have missed that the current situation is what you see in Q2 basically. Of course, we had a movement during the Q2 to more favorable currencies, currency situation. We have a basket where we are long in many currencies and we are short in Swedish krona and in Europe. So that's basically the broad picture. Now there is not a huge difference then from today from Q2 into Q3 except for that it was a gradual weakening of the krona in Q2.
So of course, we have that with us. I cannot quantify for you Sebastian on that how much the impact is on a sequential basis. But 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.
So I think that's as much as we can say on the FX. But again, leaving you with the normally when we report in a quarter, you see the actualization of the result to current FX. That's basically what you should expect. And that's what so sequentially normally there is not much more to expect so
to speak. Yes. On the guidance, I think of course you should see when you listen to us on the guidance we talk about demand and we don't talk about earnings. We don't talk about received orders. We talk about demand.
So what do we see or what do we expect in the market? And of course, when you talk construction and you see also the order cycle even the demand order cycle causing construction there is certain seasonality in the world. And that I think you need to take its tools into account. That's what I mentioned because you don't have seasonality on the mining side or on compresses or industrial technique, forget it. It's mainly on the construction
side. Okay. Thank you. Thank you. Then the final question then, if we can take that.
And then 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 and just ask you guys given the sort of change in mix that you've seen over the past 2 years, the cost reductions that you've done? And 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 are you 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 sort of how much has the operating leverage changed given what you're doing?
I think this is will be an answer with a lot of conditions which gives 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. But if I take it rather both and Daniel, I'm really open to meet and explain a little bit further if we if you in one of say end or August when we meet we can talk a bit more on that. But I think what you can see is in MR over the last 2, 3 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. So that drags it down. That's 1.
2nd, we have done some feet in the street investments also there, which not yielding results of not return what we like to see. So that's another area where we have a bit of leaks where we some of them we can adapt, some of them we yes, we need to wait for a little bit of longer higher demand. Then a third one, we also have done a couple of investment CapEx we would need maybe say between 10% 20% more volume to come to a good flow through level in that area. So 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 a bit say a 20% more volume, I think we should come back to say a good solid margin.
I think it's a lot of it is internal. Again, it's like I said 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 who should do it.
So 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 over the 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 time frame 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 4, 5, 6 quarters in order to sort of get back to where we used to be on an average level forgetting about the peak levels?
Yes. I think you can see that is the horizon you should see also giving that we are adapting the inventory and other parts of that. Which should be say you will come in next year situation that is there you should put yourself on that. Yes.
Very good. Thank you.
With that, I know that we have some more questions from the participants, but 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 October for the Q3 report. But I also want to repeat that on the 19th November, we have the Capital Markets Day of 2014.
And it's like we have announced before, it will take place in the United States. But more firm invitations and details will come on that as soon as
we can. So should you not say that it is a Swedish we get there?
Absolutely. I was coming to that. It's not only Atlas Copco. It's actually 3 other big Swedish companies that have agreed to do the Capital Markets Day in the same area in the United States in the same week. So it's an excellent opportunity to get perhaps a little bit of benchmarking or whatever comparisons at least and
a bit of sun for the And
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.