Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Epiroc AB (EPIAF, Financial) reported strong mining activity with large orders amounting to SEK950 million, up from SEK550 million last year.
- The company completed the acquisition of Stanley Infrastructure and announced the acquisition of ACB+, enhancing its leadership in attachments and quick couplers.
- Epiroc AB (EPIAF) achieved a 6% increase in orders received, corresponding to an organic increase of 1%, driven by mining equipment.
- The company successfully deployed a battery-electric trolley truck system for underground mining, advancing towards zero emissions.
- Epiroc AB (EPIAF) was recognized by TIME Magazine as the world's 95th most sustainable company, highlighting its efforts to reduce emissions.
Negative Points
- The construction market weakened further, negatively impacting the aftermarket business.
- The company's adjusted operating margin decreased to 19.7% from 21.6% last year, due to higher costs and negative mix effects within service.
- Epiroc AB (EPIAF) experienced a 1% organic decrease in revenues, despite a total increase to SEK16.5 billion.
- The tools and attachments segment saw a 6% organic decrease in orders due to weak demand from construction customers.
- The company incurred SEK104 million in restructuring costs and anticipates further employee reductions in the second half of the year.
Q & A Highlights
Q: Can you elaborate on the service mix weakness and how long it is expected to persist? Also, could you provide details on the size and timing of cost savings?
A: The service mix varies each quarter due to different components like parts, service contracts, and rebuilds. High activity levels and midlife rebuilds are ongoing, but efficiency measures are being implemented. Under-absorption is mainly in tools and attachments due to lower demand. Cost structure adjustments are expected to show gradual improvement, with significant changes already made in Q2.
Q: What are your expectations for equipment and service margins in the second half of the year?
A: Margins are expected to improve due to cost-saving measures and efficiency actions taken in Q2. While FX impacts are considered, the underlying margin level should remain stable around 23%, assuming no significant market changes.
Q: Can you provide insights on the large orders received in the quarter and the outlook for the second half?
A: Large orders amounted to SEK950 million, with a solid pipeline for future orders. The orders came from various regions, including Africa, Asia, and Australia. The pipeline looks promising, with no significant hesitation from customers.
Q: How is the construction market impacting your business, and are there any signs of improvement?
A: The construction market remains weak, with low activity levels in the US and Europe. Destocking activities are ongoing, impacting demand. Long-term growth opportunities exist, especially with the Stanley acquisition, but short-term challenges persist.
Q: What is the status of your inventory levels, and how are you addressing them?
A: Inventory levels are improving, with a positive organic development. The integration of Stanley impacted inventory levels, but actions are being taken to optimize and reduce inventory further.
Q: Can you provide details on the headcount reduction and its impact on profitability?
A: The headcount reduction of 450 employees in Q2 will show full cost impact starting from July. An additional reduction of around 450 employees is expected in the second half of the year, focusing on areas with weaker performance.
Q: How is the digital business performing, and what is the timeline for margin improvement?
A: The digital business is heading in the right direction, with increased sales and improving profitability. The timeline for margin improvement varies by acquisition, but a gradual improvement is expected quarter by quarter.
Q: What are your expectations for the tools and attachments segment in the second half of the year?
A: Assuming the market remains stable, profitability should improve due to actions taken. However, a significant improvement in the segment will also depend on market recovery.
Q: How do you view the copper market and its impact on your business?
A: Higher copper prices typically lead to increased exploration and higher equipment utilization. Short-term impacts are expected in the aftermarket, with higher demand for consumables and services. Long-term, greenfield projects will be necessary to meet demand.
Q: Can you provide more details on the cost increases and their impact on margins?
A: Cost increases are mainly due to labor, with freight costs trending down. Efforts are being made to address direct material costs, which constitute a significant portion of overall costs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
