Operator: Hello, and a warm welcome to the Epiroc Q2 Results Presentation. My name is Karolina Laforst, Head of Investor Relations and Media here at Epiroc. And joining me today are our CEO, Helena Hetblom and our CFO, Håkan Folin. As this is a very busy reporting day in Sweden, we aim to keep this call shorter than usual and expect to wrap up already within around 45 minutes. And as always, we will have a Q&A session Helena and Håkan have presented the results. You know the drill. Helena, please go ahead.
Helena Hetblom: Thank you, Karolina. So we delivered a strong second quarter supported by continued high customer activity and strong demand in mining. Orders received increased 13% organically to SEK 17.3 billion, and organic equipment orders grew 30% and service orders increased 6%. Invoicing was, as anticipated, strong in the quarter and increased 11% organically to 16.7 billion. Our profitability improved further, up 17% year on year, translating into an EBIT margin of 19.9%, adjusted, which is only the LTI program, the margin was 20.1%. Compared to 19.7% last year. And the improvement was driven by efficiency measures implemented over recent quarters and high invoicing. Looking more into the details on the orders we are up 13% both in total and organically to SEK17.3 billion. And the growth was driven primarily by mining and our equipment orders increased organically by 30%. The large orders amounted to $720 million, and these are mainly brownfield and replacement orders. Exploration was 1 of the strongest growing businesses and this is encouraging as exploration activity is an important indicator of long term confidence in the mining industry and future project development. And the investment sentiment within infrastructure and construction projects has improved, which led to stable order development. So this is the ninth consecutive quarter in which we have achieved organic order growth, and I remain optimistic also on the pipeline onwards. The business outlook looks strong, and there are many large tenders in which we are involved in. The tenders are mainly within copper and gold and within brown field and replacement. We also continue to see encouraging signs for our automation and digital solutions as customers increasingly integrate these technologies into their operations, our relationships deepen and our position as a long term productivity partner strengthens. So let me move on to innovation and important driver of our long term value creation. This is why customers choose us. And what is particularly encouraging is that our innovation agenda is very closely aligned with our customers priorities. So in June, we welcomed around 150 customers from across the world to the Epiroc World Expo, where we showcased how technology can help address some of the industry's most important challenges: deeper mining, lower ore grades, increasing safety requirements and the need for higher productivity. A common theme across many of the solutions we presented was to increase safety. And the best way to increase safety is to remove people from dangerous environments. And we showed our customers that we continue to expand the boundaries of what can be done remotely and autonomously. Thank you for your patience. We had some technical problems here in the studio, and now we are back. So I would like to continue then on innovation. So electrification is another area where we continue to lead. And during the Epiroc World Expo, we showcased our growing battery electric offering, including the mine truck MT66 SE drive as well as unique and appreciating charging and solutions. And finally, we continue also to focus on sustainable productivity, whether through circular solutions, smarter ground support, optimized mine design or advanced service offerings. And our ambition is to help customers produce more with fewer resources and a lower environmental footprint. The strong engagement level that we saw at Epiroc World is very encouraging. So please let me share a video from the event.
Video: Epiroc World Expo is it is a convergence of mining knowledge. And it is a convergence of technology, and it is a place where we learn from our customers, and hopefully our customers take something away from us. I think the highlight this week for me being with Epiroc and at the World Expo is the vision that Epiroc has. it is clear that they have a vision to be the standard of the future, and to really make sure that they have the customer relationship as well and walk that road with them. it is great to see so many customers that have joined us for a couple of days here in from so many countries and we are super excited, of course, to our latest capabilities when it comes to technology. it is been really good. A good few days starting off with various case studies and seeing how different mine owners and operators are dealing with various challenges at the various locations. Also been a good opportunity over the last few days to network with new people and also see the issues they are dealing with and the solutions they are coming up with. Measure and analyze. We have got customers here. We have got suppliers here. Then we have got our own colleagues and our own people here, and we are showcasing equipment. We are showcasing technology. We are talking about solutions. We are having conversations that cannot be had over Teams meetings, that cannot be had sometimes at depth down in the mine, so it is good to come here and be able to open the doors and have those conversations.
Helena Hetblom: So let me now turn to our aftermarket business, 1 of Epiroc's key strength and an important contributor to resilience and profitability. Aftermarket accounted for 64% of revenues in the quarter with service 41% and Tools and Attachments 23% of group revenues. Service orders increased organically by 6%, while Tools and Attachments grew 4%. Demand for our Service Solutions remained solid, reflecting the value customers place in availability, reliability, and operational performance. And I am confident about our leading aftermarket offering and position both in the short and in the long run. Through our strong local presence and expanding service footprint, we help customers improve productivity and safety while maximizing equipment uptime. So, Håkan, would you mind presenting the financials, please?
Joakian Folin: Sure, Helena. I would be happy to do so. Our revenues increased 10% to 16.7 billion and that corresponds to 11% organic growth. We had high equipment invoicing, and is now 36% of group revenues coming from equipment, which is meaningfully higher than we in the previous year. And this is due to that we have successfully ramped up our production after having a quite long period of strong equipment growth, And doing that, our lead times remain at normal levels. Our EBIT increased 17% to 3.3 billion. That corresponds to an operating margin of 19.9%, compared with 18.7% a year ago. Items affecting comparability were -SEK 33 million and they are fully related to the share based long term incentive program. If we look adjusted EBIT, our operating profit increased 12% to SEK 3.35 billion, and the adjusted operating margin improved to 20.1% from 19.7 And as Helena just mentioned, the organic improvement is thanks to a efficiency measures that we have taken in previous quarters as well as a high level of invoicing. it is also worth noting that the impact from was lower than in the previous quarter. In Q1, we said it was 0.5 percentage points on the margin. And the lower level now is both because we have taken mitigating action and also that the tariffs themselves are at an absolute lower level. Currency was a headwind on EBIT, but the positive effect I just mentioned more than offset currency. So overall, we are pleased to see that our strong execution is yielding results on the bottom line. With that, let me turn into Equipment and Service. This was yet another strong quarter, and the orders received increased 17%, all of this being organic, to 13.4 billion Demand for exploration customers was particularly strong with high double digit growth, while activity in Infrastructure and Construction remained rather stable. Equipment orders increased by 30% organically, supported by $720 million in large orders. And I would say that the vast majority of orders that we win are from existing customers that either they replace Epiroc fleet or they expand their current operations. And the mining equipment business is rather sticky and lumpiness of large orders. I would say it depends more on replacement timing than anything else. Service orders in the quarter continued to develop well, increasing organically by 6%, reflecting both high customer activity and also an aging fleet. And as shown in the group, sorry, as shown in the bridge, the growth was entirely organic, and there was no material impact from currency or structure. And then on to revenues and profitability. In Equipment and Service business area. Revenues increased by 12% to SEK 12.8 billion, and this corresponds to 13% organic growth. And the development was supported by continued strong mining activity high equipment deliveries and solid service growth. If we look at the mix then, equipment revenues represented 46% of revenue, compared to 44% in Q2 2025. So the underlying mix is negative on the profitability. Still, we were able to improve the operating margin to 20.1%, which is up from 22.5 in the same quarter a year ago. On the right hand side on the slide, if we look at it adjusted, the margin improved slightly to 23.1% from 23.0 The key driver here for the margin improvement is high invoicing, as well as efficiency measures that we have taken. Now moving on to the other business area, Tools and Attachment. Order received increased here with 3% to SEK 3.9 billion Organically, the growth was 4%, while currency then had a negative impact of 1%. Demand for rock drilling tools, ground support consumables and other mining related products remain healthy, whereas demand from construction customers was rather stable. Tools and Attachment revenues increased by 5% to SEK 3.9 billion, and this correspond to a 7% organic growth while currency had a negative impact of 2%. EBIT increased by 30% to $488 million, resulting in an operating margin of 12.7% compared with 10.3% a year ago. If we look at it adjusted, again on the right hand side of the slide, EBIT increased by 3% to $488 million, while the adjusted operating margin was 12.7% compared with 12.9% in the previous years. And if we look at the bridge then, the underlying business contributed positively to EBIT, again supported by efficiency measures that we have implemented. And this more than offset the headwind that we got from currency. The increased input cost for tungsten, which as you might remember, impacted the Tools and Attachment margin with more than 1 percentage point in the previous quarter has been mitigated to a large extent. Surcharges to customers as well as the recycling program are contributing positively, and the negative impact is therefore significantly less now in the second quarter. So moving on to the next slide. Here, we look at the cost. And the cost for admin, R&D and marketing, they were higher in absolute terms. But lower in relation to revenues compared to Q2 last year. So in percentage of revenues, it was 16.2 this year versus 17.0% last year. Net financial items came in at -SEK 130 million, which was almost exactly on the same level as last year when we had SEK 131 million. On the tax side, the tax expense was $760 million, and this corresponds then to an effective tax rate of 23.9%, which is in the guidance we have given of 22% to 24%. Moving on to the cash flow. Our operating cash flow came in at SEK 1.9 billion, and you can compare that with SEK 1.1 billion in the previous year. Main explanation for the improvement is that we have higher operating profit and we also paid lower taxes. And when we look at the cash conversion rate, which we do on a 12-month basis, it is now at 93%, which is in line with last year and an improvement from Q1. Okay. If I then turn into net working capital. It amounted to SEK 24.9 billion at the end of the quarter. Which is an increase of 10% compared with a year ago. But as a share of revenues, however, net working capital improved slightly to 37.1% from 37.5% a year ago. So why have we then increased our working capital? Well, it is mainly driven by higher inventories, and higher inventories are reflecting then the high activity level we see in the market. Inventories increased by $4.6 billion compared with last year, accounts payables increased with SEK 2.6 billion, which is then partly off offsetting the inventory buildup that we have seen. The capital efficiency side, our net debt decreased to SEK 11.4 billion, down by almost SEK 2 billion from SEK 13.3 billion last year and we do have a strong financial position. Our net debt to EBITDA ratio is as low as 0.75, to be compared with 0.82 last year. Our return on capital employed was 19.3%, down from 20.2%, which is explained by lower profit. And here, I would like to remind them that these figures are rolling 12 months figures. And sequentially, we actually had the first positive improvement in return on capital employed for quite some time, and it was up from 18.5% in Q1. And before I hand back Helena, would like to leave you with a bit broader and a more long term perspective. In June 2018, Epiroc was listed it is now 8 years ago, we were listed as a stand alone company. And since then, I would say that we have proven that we can successfully convert customer demand into profitable growth and strong cash flow generation. So if we look back to 2018, our orders have increased by 80%, but more importantly, we are translating that growth into an even stronger development in earnings, and in cash flow. We can see that on the revenues, which have increased by 83%, same as the adjusted EBIT, but the earnings per share as much as 94% and the operating cash flow has actually more than doubled since when we were listed 8 years ago. And we do take extra pride in having an EBIT and an adjusted EBIT that over time are more or less the same, and they are up 8% per year. So, basically, what you see is also what you get. And these results are created thanks to that we have a continuous focus on ensuring we have profitable growth. And with that, I will hand back to you, Helena.
Helena Hetblom: On some comments on the outlook and the summary. Thank you, Håkan. And I would like to add a comment then on our success over time. When I asked our customers why they choose us, they very often say that our people at Epiroc make the difference. We are present in remote areas, committed to finding and innovating new solutions to improve their operations And most importantly, we are there when it counts as a true partner. So let me conclude by summarizing what has been another strong quarter for Epiroc. We continue to see high customer activity, particularly in mining, resulting in organic order growth of 13% and orders received of SEK17.3 billion. We also delivered strong revenues, supported by high equipment invoicing and a resilient aftermarket business. Profitability improved with an adjusted operating margin about 20%, reflecting both solid operational execution and the benefits from efficiency measures implemented across the group. At the same time, we maintained strong cash generation and continued to strengthen the quality of our business. And in the near term, we expect mining demand to remain high and demand from infrastructure customers to increase somewhat. So thank you.
Operator: Thank you, Helena. Thank you, Håkan. it is time for the Q&A session, and thank you for your patience earlier when we had the technical issues. We will make sure you will get your questions answered. So operator, please open up the line. The next question comes from Gustav Schwen from Handelsbanken. Please go ahead.
Gustav Schwen: Margin, firstly, if I can ask on the revenue mix within service. If I remember the correctly, you had a fairly high share of parts and kits in Q1 invoicing, but at the same time, a pretty high share of midlife rebuilds in the order intake. Can you give us a sense of how service mix this quarter compares to Q1? that is the first 1.
Helena Hetblom: On orders, we have less midlife up upgrades in this quarter compared to Q1. I would say on revenue, it was not really that big difference. But on orders received, it is a difference.
Gustav Schwen: Okay. And when we think about the invoicing of those midlife rebuilds you took in Q1, should we expect that to have a negative mix effect as we head into Q3?
Joakian Folin: Typically, midlife rebuilds are also planned over longer time. So you seldom do it. You do not turn them as quickly as you turn parts and service, the traditional parts and service business. And that part of the business you typically turn in 1 month. Midlife up can be spread out over 6, 7 months, for example. So it is I would say it will come gradually. it is not that it would be like the month after we have received the orders.
Gustav Schwen: Okay. And then looking at your equipment sales now, you are pretty much at historical peak levels. So we do not really know what happens on higher invoicing levels. I mean, how much would you say adding another billion in invoice due to your operating leverage? Or maybe put this way, at what level of equipment sales do you think it does not have a negative mix effect within equipment and service? Thank you.
Helena Hetblom: I think it is fair to say that there of course will be a mix effect when invoicing a lot of equipment. But at the same time, the last machines that we deliver, we have very good flow through in that P and L. So of course, we are growing now very nicely on equipment but that is also timing issue because eventually that will start to generate aftermarket, of course. Okay.
Gustav Schwen: But to push a little bit, is there a level of equipment sales where you would not see this impacting your margin?
Helena Hetblom: I think that we will not I do not think I will comment on that because it is that depends totally, I would say, on the type. What type of equipment you have in that order stock. But there will always be a difference, I would say. I would not say that there will be not a mix effect. There will be a mix effect. Okay. Thank you.
Operator: The next question comes from Chit comes from JPMorgan. Please go ahead.
Chit: On service growth of 6% in the quarter, How does the outlook for aftermarket growth look in the coming quarters? I mean, put another way, can we expect the growth accelerating from here? I am just trying to contextualize it versus 1 of your competitors, which has reported double digit development in this quarter. Thank you.
Helena Hetblom: Yes. So I think we had higher growth in and this can vary between the quarters. As I mentioned, we had fewer midlife up upgrades in this quarter compared to last quarter, but the pipeline of course, with an aging fleet, the potential for mid life upgrade is great out there. So I would say that I do not know what I read in, in the aftermarket is that it is high activity levels everywhere now given the commodity prices and, of course, customers trying to maximize, let's say, production levels.
Joakian Folin: And if you do not mind me adding here as well, I want to highlight that midlife upgrades are also a very profitable business for Epiroc.
Operator: The next question comes from Alex Jones from Buffet. Please go ahead.
Alex Jones: Yeah, can I just follow-up first of all, on the service growth question? I guess, if I average the past 2 quarters, you have done 9%, which is sort of the high single digit range. We have come to expect in the long term. But 1 of your peers just talked about sort of upside potential to that given an aging fleet more advanced machines and digital as well. So should we expect high single digit going forward in service, or do you see the potential to actually be more in the double digit potentially going forward including strong spare parts growth, which is what your peer highlighted?
Helena Hetblom: I think we have, of course, our financial target, is 8% growth. Of course, a big portion of that needs to come from the aftermarket. But as you rightly point out here, with an aging fleet, with more technology in equipment, our ability to capture customer share is increasing, I would say, as we for every quarter that we put more and more technology out in the market. So I would say that but high single digit is also a story. It requires, of course, a lot of activity to capture that. But of course, the opportunities there, and I have said that, I think, many times as well, and we said it at the Capital Markets Day as well, continue to see 1 of the biggest opportunity for us to continue to grow the aftermarket business.
Alex Jones: Okay. And then just secondly, on large orders, the $720 million this quarter, Is that sort of disappointing in the current market environment? I recognize your comments about it being lumpy quarter to quarter, but should we think about this being an abnormally low level given that lumpiness and potentially higher numbers ahead? Or given the activity you see in the market, is this a reasonable level within normal fluctuations? Thank you.
Helena Hetblom: I think it is normal fluctuations. If we look, we had higher numbers in Q1, so it varies quite a lot between the quarters. But if I look on the pipeline and the size of the tenders, that are out, it is fairly big tenders. So I would say it is I am more looking into, let's say, the underlying activity levels, which is also healthy in this quarter. But the lumpiness will always be there depending on when customers take their investment decisions.
Operator: The next question comes from Christian Hinderaker from Goldman Sachs. Please go ahead.
Christian Hinderaker: Hi Helena, hi Håkan. Thanks for the presentation. I wanted to ask again on service orders, I am afraid. Last quarter, obviously, at 12% organic growth. You said that the midlife was driving that and was above the service growth level. Last quarter was anything single digit. And then as we think about that 6 percentage point deceleration, is there anything else in the service mix slowed, or are you are saying it is all just the midlife services?
Helena Hetblom: it is nothing else that has slowed. So it is healthy growth in all components of service. But fewer midlife upgrades. And the midlife upgrades can be sizable amount as well. So that can, of course, create swings between quarters. Thank you.
Christian Hinderaker: And then as we think about the cost efficiencies, you talked about those being a margin boost. But if I look at your SG&A sums, they are up 5% year on year. Admin spend is up 7% both year on year and quarter on quarter. Should we think about those savings efforts then as just being on the product production side? Are there ambitions to reduce costs on SG and A? How do we think about Yes.
Helena Hetblom: So it is a combination, but what we see in the result is it is a clear improvement in our absorption rates in our factories. Of course, we have been consolidating sites and also been, let's say, working on the efficiency in our production sites. As well as in service, where we see also better coverage in our workshops. But there is also, of course, a variable portion in our function cost, which is very much related to volume. Logistics, for example. So it is a bit of gassing and braking at the same time with this strong order growth that we have. We need to make sure that we can accommodate everything. While at the same time, we want to make sure we drive efficiency in the back of functions as well. So when we looked at it as a percent as we showed in the presentation, yes, it is positive. But we are obviously also looking at it just like you did in absolute terms, trying to be make sure we are as efficient there as well. Thank you both.
Christian Hinderaker: Maybe a quick housekeeping 1 for 0.25%.
Joakian Folin: I would say for this quarter on BA level, it is more or less negligible. Thanks.
Operator: The next question comes from John Kim from Deutsche Bank. Please go ahead.
John Kim: Hi. Good afternoon. Wanted to see if we could get a little bit more color on what you are seeing in the, cadence around exploration CapEx. I think previously, you had spoken to business outlook, healthy pipelines. Could you also comment a bit on, speed to FID? Are you seeing any changes in behavior people speeding up, slowing down given the various things that have happened on geopolitics and the rest of it this year? Thanks.
Helena Hetblom: So on exploration, we see good activity levels, both on equipment as well as on If I look on it from a regional perspective, there is a lot of exploration ongoing in Africa, for example, but also in The Middle East. Where there is high activity levels, which is maybe a little bit new areas compared to the traditional mining markets. But it is a lot of exploration ongoing, close to existing mines, which is more than brownfield exploration or planning for expansion projects. I do see, when I look at the business cooking map of larger investments that some new countries are establishing here as players in this industry moving forward. We see projects in Argentina, for example. That has been there for a long time, but now start to materialize. Etcetera. So I would say, I do believe that this geopolitical situation that we are in, also drives the need to, say, secure value chains from different directions, of course, in the world. But that clearly drives the need for exploration. And here, we are very well positioned with our, let's say, total portfolio and our solutions. We have a strong presence here, and we are capturing that opportunity as we speak.
John Kim: Can you comment at all on speed to decision. Is FID getting slower or faster? Faster, about the same.
Helena Hetblom: Would not say that if I say if it is a permitting time you are referring to, I would say that a lot of governments are, of course, working towards that to shorten the time from a decision to you actually can start mine. If you can say that generally, that has an impact in the world, I am not sure I can do that yet, but it is a lot of ambition in that direction. To speed up, let's say, the processing time for permitting. Okay.
Operator: The next question comes from Max Yates from Morgan Stanley. Please go ahead.
Max Yates: Thank you. Could I just ask about your incremental margins in the quarter? So I understand these kind of volatile each quarter, you were at sort of 66% in equipment and services. that is kind of fallen close to 30% this quarter. I guess I am just trying to understand you have been through a period where margins have fallen kind of pretty consistently. Over the last couple of years. I guess, should we be expecting as you go through a period of kind of cost rationalization that we see sort of above average incremental margins over the next kind of 6 to 8 quarters. I am just trying to sort of think about how do we kind of visualize some of the or see some of these kind of internal actions that you are taking across, you know, some of the factory closures in the infrastructure business, When we think about actually modeling this, that will be the logical line where I would expect to see kind of above trend margin recovery over the next 2-3 years as the business is growing. So any way you can help us think about that would be helpful.
Helena Hetblom: I think if I look on the Tools and Attachment business or segment, we started, of course, activities there. And there, we have clearly seen the improvements. And of course, when you look at it from a flow through perspective, we turned that part earlier than we turned equipment and service. But it is good to see now as a group, we are delivering profitable growth And as our focus is to make sure that we continue to do that and we continue to stay focused on efficiency measures, So it is a solid it is a solid quarter, but I am still not happy with the margin. So there is more that we can do, of course. So we do not, let's say, we continue to work on our efficiencies at the same time as Hakan said, of course, we need to capture the opportunities. We are growing in a very, very strong way now across the different businesses. But the focus on efficiency is still here.
Max Yates: And maybe just as a follow-up because I kind of appreciate you have said the equipment and service business looks a bit different from a kind of mix perspective. I guess when we think about the margin recovering the fact that you were kind of tools and attachment margin levels that on average were 18% in 2021 and 2022. Do you think as we start to get an infrastructure recovery, those kind of margins are possible again? Or would you also put this division in the category where the mix is just different because of Stanley and, even with synergies with Stanley, we should not really be aspiring to get back to those kind of levels. I guess just any kind of framing of how to think about midterm margins in Tools and Attachments.
Joakian Folin: Well, we were at 18%, as you said. I would say, maybe a more that was very high 18%. Even 1 quarter, we were at 19% for T and A. But I think maybe a more normalized margin for that business that time was around 17%. And if we looked at what has changed, the big change is, of course, the acquisition of Stanley and that the market is where it is. So but Stanley, when we acquired them, were between 15-20% on EBIT level. And we do not if the market comes back, we should be able to get back to that same level for Stanley. Then we also need to recover them for our other attachment business. But there is nothing structurally or fundamentally that has changed in the market. So with the market coming back being strong again, we see opportunities to get back to that level. Then, of course, need to take into account the attachment part then of Stanley.
Operator: The next question comes from Edward Hussey from UBS. Please go ahead.
Edward Hussey: Hi, thanks for taking my questions. Just 2 for me. The first question is just on a follow-up on equipment revenue growth. Obviously, a very strong quarter But we sort of only saw book to bills pick up significantly in Q1. And you usually have lead times of about 9 months in the business. I am just interested to hear why we saw such strong acceleration in Q2 and why it was not a bit more sort of back end loaded.
Helena Hetblom: Yes. So it takes some time to ramp up. Of course, it is because it is both our own operations that is where we need to put people in place, train them, etcetera. But we have gradually increased the pace, I would say, throughout the year. But then, of course, you also have the lead time depending on where you ship the machines. So there is also the lead times on sea. So I am very pleased to see the output from the factories, the ramp ups are going according to plan. And that generated the strong revenue growth here in the quarter. And we are at a new level of output in the factories. So I am very pleased with, let's say, how the organization have ramped up and continue to then to make sure that we can safeguard the lead times because that is also crucial in an environment that we are in.
Joakian Folin: And even though you referred to the order intake in Q1, and that was exceptionally strong, but we actually had quite good order intake also in the second half of 25. So we did not start the ramp up after Q1. Started it, I would say, already during second half of 25. And therefore, able then to at least get part of the strong orders out already in Q2. But like Helena said, with the order intake we have had now for a number of quarters, and with the ramp up in the factory, we expect equipment revenues to continue to be strong into the second half of 26.
Edward Hussey: Okay. that is helpful. And then maybe just 1 other on equipment and service margins. Obviously, you seem to strong quarters from an organic perspective in the margin bridge. I guess the question here is just that we have also seen inventories picking up, and we have also seen a relatively low gross margin. So I am just wondering, is-- 1 of the strong drivers behind the equipment and service margin picking up The fact that factory utilization is much higher, And if that is the case, is it sustainable to keep the factory utilization where it is into the future?
Helena Hetblom: Yes. So I would say the factory utilization is the expensive part is when you ramp up and you train a lot of assemblers. that is when you take, I would say, the hit. And so I would say that we are performing well now in the factories across, I would say, both on the equipment side, but also the consumables and on attachments. So and then we have this variable way of working. So it is very much additional workforce that we add, which, of course, creates the flexibility and agility But I am expecting us to be able to, let's say, have efficient manufacturing performance during the coming quarters as well. Okay. that is helpful. And maybe just a follow-up on that. I mean, do you get-- if you continue to get strong orders through, are you going to have to invest more in manufacturing capacity? I mean, are you at, like, what kind of utilization rates are you at the moment in your factories?
Joakian Folin: Yes. So we are adding shifts. So and that is what we have been doing in several of our factories. But we also we have very strong set of dual capabilities, so we can produce the same equipment in several of our manufacturing sites. In the different parts, we are leveraging that work that we have put in place the last, I would say, 6 years so that we can ramp up in parallel now, both in India, in China, in Sweden as well as in U. S. I do not see any-- do not see any, let's say, any challenges on the capacity side. it is more to get people on board and train them. And of course, to get the components in to the factories. But that is more a sourcing exercise.
Operator: The next question comes from Klas Bergelind from Citi. Please go ahead.
Klas Bergelind: Hi, Håkan. Klas of Citi. So first on the margin in E&S, I mean, the 66% drop that you had in the first quarter was obviously against very little sales growth of 2%. You are now doing around 30% on 13% sales growth and have more equipment sales versus service? Is good to see. So it seems like the drop through is moving in the right direction. I was just wondering on the internal service mix going forward. You obviously have the 6 to 12 month warranty period in parts and kits. So I would assume growth here should accelerate with a lag given the strong equipment orders last couple of quarters. You also talked at the CMD about that you are selling more large machines, advanced machines so that increase the customer share. So should not parts and kits, which is the highest margin, segment within service increase going forward as a percentage of service?
Helena Hetblom: I will start here. Given, let's say, larger the fleet will be, and you are correct, the first the first year, the machines do not generate that much parts revenue. But when they come into the second year, that is when you start to leverage that strength. So of course, with the strong equipment quarters that we have had, that creates then the potential then for parts revenue in the coming. And this is not it is for several years, of course. it is could be 6 up to 10 years, depending on the machines we put in the market.
Klas Bergelind: Then on the T&A orders, no difference in comps, but growth is 4%, down from 9% in the first quarter. And it seems like construction did not weaken quarter on quarter. And mining is still strong. So what is going on there?
Helena Hetblom: But mining is still strong. I would say more it is it can vary between quarters as well. But there is high activity levels in the consumer business, and we also start to see more positive sentiment towards Construction and Infrastructure. Infrastructure has been strong, but also towards construction and on the attachments. So higher activity level or even though from a low level.
Klas Bergelind: But there is nothing on sort of, if I correctly, you do not take the Tungsten charge over the revenue line. So there is nothing like that explaining it.
Joakian Folin: No. What we said, I think we said in the Q1 call or maybe it was at the CMD, we said that for we had very strong tools order intake in Q1. And given that tungsten prices then were ramping up and we had customers with contract for 3 months, we said that there might be a bit of pre buy, and I think we have seen a little bit of that now in Q2 with a little bit lower level compared to Q1.
Klas Bergelind: Fair enough. My absolute final 1 is on the on the T&A margin. So it was more than 1% impact from Tungsten on the margin in the first quarter and no margin impact this quarter. That looks like a bit worse underlying margin improvement year over year in the second quarter versus the year over year ex Tungsten improvement in the first quarter and currencies better quarter on quarter. Would you agree with that the margin sort of operating leverage was a bit weaker.
Joakian Folin: Yes. You can say that if you exclude the tungsten impact, But of course, when we compare Q2 to Q2, it both are, you can say then without. But I understand what you are saying, and I would agree when you compare Q1 to Q1.
Klas Bergelind: Yes. That just operating leverage then? Yes.
Operator: And now we will take the last question for today. The next question comes from [Inaudible]. Please go ahead.
Analyst: Sure. Thank you very much. 2 questions if I may. I will start with, the margin in equipment and service. First part of it would be FX rate obviously, has been detrimental to margin for 5 quarters. Given the current FX, it possible that Q3 will be a positive contribution to EBIT for the first time in a while? And related to that, on the organic drop-through margin in E&S, about 30% in Q2, despite the fact that mix is shifting towards equipment. Is it a reasonable number, for us to target going forward?
Joakian Folin: If I start with the first 1 on FX, I think the good thing now with FX is that the comparables are more in line. You see that when we look at revenue and on orders, it is like 1 percentage point differences. The negative thing is that it is fluctuating. Quite a lot during the quarter. So as an example, the dollar versus SEK was down at 9.20-something and then it closed at SEK 9.71. Which means we can get some hits on the balance sheet. So I or up and down. So I would argue that, you know, if it is more if it stays where it is right now and it is more stable, then you will see less of an impact overall in Q3 than we have seen previously. And then you take the second 1.
Helena Hetblom: Yes. So on flow through, I think we are pleased to see that we are back to profitable growth and good flow through. Then, of course, it can vary between quarters, but we continue to focus on our efficiency, as I mentioned here. So but we are happy with the performance in the quarter and that we show positive flow through now in both BAs. So we-- but we continue to work on the efficiency. that is that is a key focus area for us. At the same time, ramping up then and get as much revenue out as possible.
Operator: Thank you very Thank you, Helena, Håkan, everyone who asked questions. Sorry again for the technical difficulties we had before. And enjoy the reporting season. Thank you, everyone. Bye. Thank you. Thank you so much. Thank you.
