Atlas Copco AB (OTC:ATLKY) Q2 2025 Earnings Call Transcript

Atlas Copco AB (OTC:ATLKY) Q2 2025 Earnings Call Transcript July 18, 2025

Atlas Copco AB reports earnings inline with expectations. Reported EPS is $0.14 EPS, expectations were $0.14.

Operator: Welcome to the Atlas Copco Q2 2025 Report Presentation. [Operator Instructions] Now I will hand the conference over to CFO, Peter Kinnart. Please go ahead.

Peter Kinnart: Thank you, operator, and thank you, everybody. Welcome, everybody, to this quarterly earnings call for the second quarter for the Atlas Copco Group. Together with me is Vagner Rego, and we will together join — drive you through this presentation. We will try to be crisp and sharp, so we leave enough time for you to raise your questions based on the published results. But before I hand over to Vagner, I would like to restate, as usual, that I would like to ask you to only raise 1 question at a time so we give everybody the opportunity to at least raise their most important question. And if we, of course, get through all of people online with their questions, then of course, we can come back for a second follow-up question should you have. But with that no further ado, I will hand over to Vagner Rego.

Vagner Rego: Thank you, Peter, and welcome to this conference call. Before we continue with our presentation, first, you can see 2 vacuum pumps that we utilize in our scientific vacuum division. They are used in mass spectrometry and has been a good development also in the quarter for this type of products. Going further then into the Q2 summary, you can see that in terms of equipment sales, we have seen a quite mixed demand with the divisions performing quite differently. If I look then to Compressor Technique, we had a negative development in orders driven mainly, but not only for — by Gas and Process compressors. I was happy to see that equipment vacuum was flat, not a positive growth in semi, but positive growth in industrial and scientific vacuum.

But it was good to see the overall business area, good development. Orders for industrial assembly and vision solutions were basically unchanged. And there, we still see a quite difficult environment in automotive. So — and when it comes to power, Power Technique products, starting with power, air products and pro products, there, we had a quite positive orders received, good development when it comes to orders. If we then look to the service business, there, we had a very good development. Our service business within the business areas, plus our rental business is developing very well. We are quite happy to see that we continue to grow our service business. As you know, as you have seen, we had quite strong currency headwind that impact the absolute value.

And then revenues have been impacted as well negatively. Two — three business areas had negative organic growth when it comes to revenue, while Compressor Technique had a positive development. As a consequence, operating profit was also impacted by currency in one hand. In the other hand, we had a positive contribution coming from the combined volume, price and mix effect. Cash flow is healthy, and that allow us to continue to do investments in our own facilities, in our own company, but also in acquisitions that we managed to add another 5 companies in our portfolio. So going then into the Q2 financials. So the decline, we had around SEK 40 billion in orders received, a decline of 1% organic. We go more in detail on the decision, but it continues this quite mixed demand in the market.

Q&A Session

Revenues, as you can see as well, minus 2% decline and operating profit of SEK 8.4 billion. That means that represents a margin of 20.6%. So solid cash flow and also quite a good return on capital employed, although it’s going down, but 26% is a solid level. If we then go to the development around the regions, I think if I start with Asia, we had a flat development, 0 growth in Asia. If I give you a little bit more color, we see a positive development in Industrial Technique, mainly driven by orders in the electronic area. So within our industrial part of the business. So positive development in Industrial Technique. Also vacuum is developing quite positively in Asia for us. And while PT was flat and CT was negative, Compressor Technique was negative, mainly driven by lower orders in equipment, specifically in China.

So when it comes to — if we then go to Europe, we see minus 2%. And there, we saw negative development in Compressor Technique, Vacuum Technique and Industrial Technique and a bright spot in Europe was Power Technique, where we had a quite good development in orders received. When it comes to North America, we had a quite flattish month, positive in Power Technique, but Vacuum Technique was negative, mainly driven by the semiconductor market, where a couple of key accounts was not investing as before. And then you see the development in South America and Africa and Middle East continues to be very good. So with that, if we then look into our sales bridge, we see that we still have a positive contribution coming from our acquisitions of 2% in both in orders received and revenues.

We see also the currency developing negatively, minus 9% in our orders received, minus 8% in our revenues. And then the organic, like we mentioned before, minus 1% in orders, minus 2% in revenues. So it was a mixed clear picture of a mixed demand for us. If we then see the contribution by business area, we saw that in the last — we can see in the last 12 months, Compressor Technique has a contribution of 46% in our orders with minus 7% now organic. Vacuum Technique, very good to see positive organic development of 3%, also positive development in Power Technique, plus 10% and flat development in Industrial Technique. So if we then go more in details and talking about Compressor Technique, we had an organic development of minus 7%. If we start then with the industrial compressors, it was down, overall down, but mainly driven by larger compressor.

If we look to smaller compressors, more getting close to be flat and larger compressors is more — it was more negative. And most of the large compressor projects are in China. And I think there, you see the main driver for a lower development in industrial compressor, but not only. I think Europe was slightly negative there as well, good development in the U.S. So I think I would say that China had an important impact. When it comes to Gas and Process compressor, we saw a significant decrease. But then we need also to remember that this — we talk about large orders, not too many orders. Sometimes when we get an order, it can go up to SEK 200 million in one order. So — and we have a tough comparison last year and last quarter as well. And we don’t see — we didn’t see too many projects being decided in Q2 2024.

There are a lot of hesitation in the market, and customers did not decide as we usually were seeing. So positive note, service continued to grow in all the regions. I think we are quite happy with the development of the service business in Compressor Technique. Also, we had organic revenue, solid profitability supported by the increase that we had in volumes and also affected by the currency and acquisition. Return on capital employed remains at a solid value at 82%. And we keep — and here, as an example of innovation, we share a different application. We are investing in filtration products. And here is one example of product that utilized in filtration for liquids. So quite a good development on revenue and profitability and headwinds when it comes to orders in Compressor Technique.

Vacuum Technique, like I said before, we are happy to see a positive development, driven mainly by industrial compressors, industrial vacuum and scientific vacuum together with service. We still see slightly negative development in the same — the semiconductor equipment business. So although we see solid development in Asia, I have mentioned as well before, we see negative development in semi in Europe and North America. Revenues down 5% organic, and the profitability was around — was 18.9%, supported by the activities that we are doing to improve the cost base. So we have announced in January a restructuring plan that this is still ongoing, and we started to see the benefit in the bottom line. Of course, we had the currency having that also played a role in Vacuum Technique, where Peter will explain more in details, but we are happy to see the positive effects from our sourcing and restructuring activities.

So — and then as an example of innovation, we have our new GHS pump VSD+. This product was released at the beginning of the journey when we started with vacuum when it was still being Compressor Technique, and now we came with a new range of products to further drive innovation and efficiency. That is Vacuum Technique. If we then go to Industrial Technique, we saw a decline of 1% and the equipment — demand for equipment in automotive was flat. And here, we have some parts of the business that are doing really well with — if you take, for instance, everything connected to automation, quality assurance and flexible production line, upgrades to have a more flexible production line. That is going quite well, I would say, even with organic growth and everything connected to new production line, like dispensing equipment and vision equipment.

I think there is a bit more difficult because we don’t see too many projects like we used to see. So overall demand for the general industry was stable. So — and that includes that we got a quite important order for electronic industry and the service business remained basically unchanged. Revenues, there, we have quite a lot of headwinds when it comes to revenues down 12% with an operating margin of 17.1% that had a quite significant impact coming from currency as well and a positive organic development. Also there, we are implementing some measures that we see good results. As an example of innovation and there, we continue to do our efforts to innovate our products, this is a manual torque range that has been — has received the Red Dot Award in 2025.

We are quite happy with the award as well. If we go then to Power Technique, we had a solid order development of 10%. I think it was quite encouraging to see perhaps the level previous year was not so strong, but I think very nice development. Basically, several product lines in power, in industrial flow, in portable flow, they all developed quite well. Specialty rental as well had a quite good development. Unfortunately, we haven’t seen good revenues. It was down 1%. But of course, we had a quite tough comparison. We were last year catching up with our backlog. So we had quite solid stronger revenues. And with the orders we get now, revenues should come in the future. Operating profit margin, 17.1%. That was also negatively affected by currency, but not only also there, we are investing in this Industrial Flow division.

Like we mentioned in the previous quarter, we’ve decided to create — to separate the portable flow from the industrial flow. There is a new division we are investing. We still don’t fully harvest on that. We start to see the first signals, especially in the U.S. that we are moving in the right direction. So as an innovation, we have this new dryer that is focused for portable application — portable and rush applications to be used with our portable compressors. So — and then if we look then to our profitability, we have reached in the quarter 22% EBITDA. With that, I transfer to you, Peter, then you can continue on other lines of our profit margin.

Peter Kinnart: Thank you, Vagner. Net financial items were negative, but slightly slower than last year, interests were basically on the same level, but the financial exchange differences were more positive compared to last year. We also had a small additional positive impact from the bonds we bought back from the market, as a kind of onetime small effect there. Then the profit before tax at SEK 8.4 billion and the tax expense at SEK 1.9 million, which is 22.4% effective tax rate. You see that last year, we had this very unusual low effective tax rate of 17.6%. That was mainly due to the fact that we then released a provision of SEK 510 million related to a high-tech tax incentive that we have in China. So this is not the normal.

So the 22.4% is actually much more close to what we expect to see. And in fact, for the third quarter, we expect an effective tax rate of around 22.5% going forward. If I then move on to Slide #12, I would like to dig in a little bit deeper into the profit bridge because there’s quite a lot of different impacts here. First of all, we have the LTI programs that we exclude, which is SEK 258 million, a little bit positive for this year, and SEK 176 million, negative for last year. Then we have had last year restructuring costs in Vacuum Technique, where we started basically with the first leg of our restructuring activities in that case, mostly around the industrial and scientific vacuum space, which is added back. The acquisitions are slightly dilutive as you can see.

But then the headline, I would say, of the bridge here is then, on the one hand, quite a strong negative currency impact as Vagner already explained as well. But then I would say, on a positive note, a positive drop to for the overall group performance with despite, let’s say, a negative top line volume/price mix effect here on the top line. So where does it come from? Well, basically, the price/volume mix effect in total is the main reason for this improvement plus a lot of smaller other items that together add up to this amount and this margin improvement. On the currency side, there is a mixed bag of different things. Considering the height of the amount, I would like to specify a little bit more in detail. First of all, the translation impact.

Well, all the currency impacts were basically negative in absolute terms. The translation impact, however, in relative terms was accretive to the margin. The normal transaction effect, excluding the operating exchange differences, was on the other hand, negative and they basically compensated each other. And the whole remaining part was then related to balance sheet revaluations. So basically payables and receivables that we evaluate at the period end rate. And for the majority, I would say roughly half of that is related to intercompany payables and receivables. And then the other half is kind of related to the external exposure we have. And we, as a group, are basically long in U.S. dollars and we are short in euro, and given the strong development of the dollar over the quarter, starting with a very deep drop in April and then followed by a continued decline in June, led to this very significant currency impact, reducing the margin quite significantly.

But again, once we were able to identify that, I think the positive that we take out of it is that we see a positive drop through. And if you look in more detail on each of the business areas, then I think you can see that 3 out of the 4 business areas have actually a positive drop through and all of the business areas are basically struggling a bit with the currency development across the board. Some more than others. In Compressor Technique, it was a negative impact, but relatively mild. And then the positive drop-through was driven by increased organic revenue volumes, which I think was quite positive here, resulting in a fantastic margin of 25%. On Vacuum Technique, the currency impact was quite significant. But also here, very pleased to see that the impact of all the efforts that the division and the business area is doing are really starting to kick in and starting to pay off, resulting in a better underlying margin than the previous quarter.

And it’s related to the restructuring activities, of course, on the one hand, excuse me, but also related to initiatives around product cost reduction, to sourcing initiatives and many other things that are ongoing at the same time within the [indiscernible]. On Industrial Technique, also here, quite a significant currency impact, mostly linked to the fact that this is largely Europe-based manufacturing environment with exposure to all of the areas in the world, of course, and then quite a big impact. But also here, a positive drop-through for the business area, improving the margin somewhat, but then, of course, completely compensated by the negative impacts on the currency. So despite the negative volume development, price — volume price/mix development still a better margin ultimately than if you exclude the currency, of course.

Power Technique, here, we also saw a negative currency effect but much softer as well here than for the others. And that has to do with how the business is basically spread out across the globe and where the manufacturing is taking place. So they are a little bit less exposed than some of the others. But here, we saw a negative impact on the margin from the volume/price mix and other items, partly as Vagner indicated, mix was a negative item, but also the investment in the division, where we are trying to put in the right resources in place to really leverage the capabilities of the industrial flow business, for example, which are pulling down the margin for the time being a little bit. How do we see the currency for the near term — to be honest, it’s probably the most difficult question to ask at this point in time, looking at how the currencies have developed over the last quarter, but all things being equal.

And then, of course, comparing the currency rates against last year, we still continue to expect a negative effect, but this quarter was heavily affected by the revaluations. And if the currencies would stay exactly where they are today, then that devaluation impact would be significantly lower. So still a negative impact, but significantly more moderate we expect than we have seen this quarter. Then on the balance sheet, I think it can be fairly short. If I compare balance sheet of last year June to this year, June, then we have had more, of course, acquisitions that have added to the equation, which, on the other hand, has been offset or more than offset even by the currency development of the balance sheet items. And then on the other hand, also some organic growth of the balance sheet items, which was mainly linked in to the cash development, which was quite healthy as well throughout the quarter.

Of course, also here to take into account that we paid the first installment of the dividend of 2024 into 2025. On the equity side, also here, no major things to comment on besides the fact that it’s mainly the equity that changes as a result of the profitability and the payout of the dividend and the revaluation of the equity as a result of the currency development. Then on Slide #15, we have the cash flow. This cash flow, as you can see, is not a record cash flow. It was actually even a little bit less strong than last year, which is also why we felt that to qualify it as healthy was good because the level is still quite reasonable with SEK 6.1 billion operating cash flow. And the decline is mainly coming in this case, from the operating cash surplus, basically, let’s say, the lower operating profit that we have seen in the quarter.

There are, of course, other movements in there like the working capital that was a little bit up in view of certain deliveries of projects that need to happen in the third quarter. But that was also offset partly by increase of liabilities. So those are, I think, the main items when it comes to the cash flow. And with that, I would like to hand over again to Vagner, who will comment on the near-term outlook.

Vagner Rego: Very good. Thank you, Peter. And here, once again, this is our forward-looking statement is a sequential guidance between Q2 and Q3 this time and is not a straight projection of our orders received. We try to do our best estimation about what is going to happen with our customer activity level in the coming quarter. So we also need to consider that the uncertainties in the geopolitical scenario remains in place. I don’t see any change. I think we all follow the news and what is going — what is happening in the global economy. I think we don’t see that — we don’t see light at the end of the tunnel that the environment is going to be better. So that’s still very difficult to predict. And then to give you guidance, of course, we look into our business.

I must say that this quarter, we went even deeper to understand what was going on in terms of the activity level. And then based on the information we get from our divisions in their engagement with our customers and everything that we see in the market and based on the — and the expectations as well of our divisions, we come up with this guidance that while the outlook for the global economy continues to be uncertain, and I think that we all agree with that, we expect that the customer activities will remain at the same level.

Peter Kinnart: Okay. Thank you, Vagner. We are almost ready for the Q&A, but just I would like to still steal 1 minute of your attention referring to our Capital Markets Day, which will take place on November 26. So if you haven’t done already and have not been informed so far, please try to save the date. I think it will be definitely worthwhile to take part. This time, it will take place in Stuttgart and in Bretten. In Stuttgart, we will start with the general presentation of the group, but we will focus also on Industrial Technique and Vacuum Technique this time. And then in the afternoon, we will go to Bretten, where we have our innovation centers, which is focused around all kinds of fastening and joining technologies, where we will then showcase different products and different solutions we can offer to our customers within the Industrial Technique business area, but also innovations that we are bringing to the market from our Vacuum Technique business area.

So I think definitely worthwhile to spend your time to join us there. And the registration link will be sent out after the summer. But November 26 can already be highlighted in your agenda as an exciting day to look forward to in the later part of the year. But with that, enough talking, I will give the word back to all of you to shoot your questions at us and we will try to do the best we can to answer them satisfactorily.

Operator: [Operator Instructions] The next question comes from Michael Harleaux from Morgan Stanley.

Michael Laurent Harleaux: Just one, if you could give us some color on the underlying drivers of the weakness of the demand for the large Gas and Process category that would be very helpful.

Vagner Rego: Thank you for the question, Michael. Yes, what we see now, it’s quite a lot of hesitation from our customers to place orders. So — and then like I mentioned during the presentation, we do have some large orders. And then if you have 2 or 3 customers hesitating or further analyzing asking more questions, so then you can have a quarter where orders can be quite weak. So on the other hand, what I can say the activity level in this type of the products remain quite healthy. We see quite a lot of projects, but I think the main question is the hesitation how we see customers taking longer to decide to place the orders. A lot of discussions, but we — no orders. But it’s also fair to say I don’t see signals we lose more orders as well. I think that’s the clear signal. The projects are there, are alive. It’s a matter of time now to the customers decide.

Operator: The next question comes from Daniela Costa from Goldman Sachs.

Daniela C. R. de Carvalho e Costa: I just wanted to follow up on some of the comments you had on the margin and maybe if you could dig a bit further, especially on Vacuum Technique, which was sequentially down from 1Q. And in Industrial Technique, you mentioned functional costs. Even the contribution margin ex FX is a bit lower. So is there anything else more of an exceptional nature, restructuring costs, tariffs? And then how should we think about those evolving in the coming quarters?

Peter Kinnart: Thank you for your question, Daniela. Maybe a good point that you raised is, of course, the burning question of the tariffs, which I didn’t even address during the call. And I think the comment we can make with regard to the tariff is that where we are today, we haven’t really seen a significant impact at all of the tariffs on our bottom line. We’ve been able to increase prices a little bit. We’ve worked with surcharges with certain customers, et cetera. But on the other hand, we’ve also worked a little bit on certain logistic flows without really moving production structurally from one location to the other. And that has helped us to mitigate basically the impact. So if we talk about tariffs, we talk about anything between 0%, minus 0.1% maybe impact, but really, really minor at the moment.

Of course, taking into consideration that maybe there is still an impact of stock that is already available that is not exposed to tariffs, et cetera. So remains to be seen how things play out. We don’t really know exactly what kind of tariffs will be in place to begin with. But at least no major impact so far. And I think the actions we’ve taken have helped us to mitigate. When it comes to VT then specifically, your question about the margin, well, I think the currency impact is, as I said, very significant for Vacuum Technique. Also, the revenue volumes are down, as you can see from the bridge on the top line. But despite a drop in revenues, which we have already seen also in previous occasions, we are able to reduce the impact from a cost point of view and as a result, get actually a better margin, better drop-through for Vacuum Technique.

And that signal today in second quarter is stronger than it was in the first quarter. And that at least gives us, let’s say, a positive feeling about how the future will look, and we expect that we will continue to see the impact of those efforts we have done with restructuring and so forth into the margin and the production cost as well as in the functional cost of the business area.

Operator: The next question comes from Klas Bergelind from Citi.

Klas Henrik Bergelind: [indiscernible] at Citi. So back to Compressor Technique, obviously, investment decisions pushed the right given the hesitation out there looking at large orders, and that shouldn’t improve anytime soon, but no further declines quarter-on-quarter here, at least if we read your outlook right. But on Gas and Process, could you help us, Vagner, with the order pipeline there at the moment? This is obviously a lumpy business. We know that vessel contracting looking at LNG is down a lot and carbon capture and other sort of decarb areas are fading from the peaks. But what are you seeing in terms of pipeline customer negotiations? Are there still interest to place orders, do you think once the hesitation eventually abates?

Vagner Rego: Yes. Of course, always difficult to predict, but I think we see a lot of activity. I don’t see cancellation in projects. Of course, nothing above the usual. You always have new projects coming in, projects dropping out. But I think the activity level is quite healthy. On the Gas processing side, I think it’s quite healthy. If you take some particular specific region, if I look to North America, for instance, I see increase in the activity level there. Other areas might have decreased, but there, we see increase. We are quite active coating. But of course, customers are not deciding, but I think the activity level has increased even in some specific areas. But of course, we still need to see, like you rightly said, customers need to decide to go to final investment decision, which we have not seen.

And sometimes they have decided, but we still haven’t seen the order even if we know that we have good chances there are LOI in places, but those are not firm orders. So I think there are quite a lot of activities. You are right when you pointed out carbon capture. To be specific, Q2 last year, we had a huge order for carbon capture in the Gas processing plant. And now we need to see if this market will continue to evolve. But there are many other opportunities that are ongoing in this. For LNG, it’s another market segment that’s important. We are also doubling down. I think it’s important to communicate on larger compressors for air separation. We have come with new technologies that we have invested a bit in AI that allow us to even come with more efficient product.

I think it’s exciting what we have for the future. But we need to have a better environment and that will allow us to the customers to decide with a bit more comfort, let’s say.

Klas Henrik Bergelind: Got it. So a quick follow-up. What is the share of Gas and Process today? It used to be 10% of CT. It went up to 20%, I think, maybe even more at the peak? Where are we now in the quarter?

Vagner Rego: Yes. We normally say that it’s around 10% class. It varies, sometimes can be slightly higher when we get some LNG orders, but I think we have been communicating around 10%.

Klas Henrik Bergelind: And then super quick, just balance sheet revaluation out of the currency drag. Obviously, like the quarter-on-quarter effect, Peter, given that we had this massive sort of move in the dollar. I wonder whether that also played a role to the currency or if this is only sort of transaction and translation on the average rate?

Peter Kinnart: Absolutely, Klas. The revaluation effect on the balance sheet was really very significant. The normal translation and transaction effect that we normally see, they were kind of in balance. One was positive on the margin. The other one was dilutive to the margin. They basically kind of compensated each other. So what remains from a margin development perspective was mostly linked to those revaluations, which is also why we believe that if we look to the next quarter, the impact of that currency effect should normally be — even though it will still be there, of course, because our revenues will still continue to be affected based on average exchange rates by the currency development, given the current state of the dollar, et cetera, and also transaction effect will continue to play.

But I would assume that all things being equal, and that I, of course, say with a lot of caution, all things being equal, that revaluation effect should normally be significantly lower if the currency rate remains where it is. And so we think potentially maybe SEK 600 million could be maybe an amount that we would still see negative on the bottom line. But as I said…

Klas Henrik Bergelind: Exactly. Yes, it’s very important because — yes, because the quarter-on-quarter effect is obviously what matters here. And unless the dollar is moving a lot quarter-on-quarter, then yes, that should abate. So that’s good to hear.

Peter Kinnart: Thank you, Klas. We need to move on to the next one.

Operator: The next question comes from Rory Smith from Rory.

Rory Smith: It’s Roy Smith, from Oxcap. Actually, Michael and Daniela and Klas did a good job of asking my first few questions. So I’ll try something else. Vagner, your comments around not seeing the light at the end of the tunnel, no improvement in the near-term outlook. Obviously, mix demand in the quarter just seen in FX, big headwinds there and then some mix and investment headwinds in several of the business areas maybe going forward still. Would you consider at this point, expanding the restructuring program in Vacuum Technique to the other business areas? And what can you say today about your expectations for margins across the group in 2026?

Vagner Rego: First of all, I think what we did in Vacuum Technique was really necessary. You see the drop in the orders now. And I think we had to take actions. We did. I think it doesn’t mean that the other business areas they are not doing, they are doing. Smaller programs that you definitely — we don’t highlight too much, but a lot is happening. And depending on the business area, you can act as a divisional level. For instance, if you have a division that is in a certain market segment that has a little bit more headwinds now, they are already adjusting. I think that — but regarding to demand, the one thing that I want to highlight, I think the main point here, the demand is mixed, meaning we have business line or product lines that are doing very, very well.

And there are product lines that are not doing so well. Like I mentioned in Industrial Technique is a good example. You see if you take the product lines connected to automation, connected to quality assurance, so — and flexibilization of the production line, they are doing quite well. So — and then you take the ones more focused on projects that is connected to new production line, then there is a bit more difficult because you see lower CapEx in that area. So in a lot of investments or some investment, let’s say, going to have a more flexible automation, more flexible production. That’s one example. The same can be applied for Compressor Technique. If you take now the new division that we have created, the Air and Gas application division there, we are investing in the organization and you see now the quotation level going up, orders received is improving.

So of course, it’s not big enough to make a huge difference in Compressor Technique, but the direction is very good. So there are several examples like that. And that’s why I think our main header is that the demand is mixed.

Peter Kinnart: And if I may add maybe a comment to that, we also announced in the previous quarter restructuring cost within Industrial Technique. So there are multiple activities ongoing. But that is, in a way, kind of the beauty of the decentralized model that we run is that we have 24 divisions, and they all are in different phases in different parts of the cycle. Some are, as Vagner’s explained, are doing really well. Service can be developing very strongly. So you don’t want to go out with a general marching order to say, hold all investments because there are still things that we need to continue to do. While on the other hand, the ones that are, of course, in a little bit more stormy waters need to make the adjustments that are necessary.

Rory Smith: Great. And any guide rails on 2026 margins?

Vagner Rego: We normally don’t guide on margins.

Operator: The next question comes from Alex Jones from BofA.

Alexander Jones: If I can go on VT, you talked about industrial activity having increased in terms of orders. Can you give us a sense of whether that’s actually sort of underlying improvement or whether there’s just a comp effect there, and generally what the sentiment is from customers?

Vagner Rego: Yes. Good — I think there, if we go back last year, we had quite a lot of headwinds coming from the solar and lithium-ion battery in the industrial vacuum. That is not really what is bringing now the orders. I think what we have done as well because we were nicely positioned to benefit from solar, from lithium-ion battery, from steel degassing, some major market segments that are not as strong as before. So then we concentrate to go more into a diffuse market, and now we start to harvest on that. I think these activities are now paying off. Together with the scientific vacuum that is more OEMs and last year, we had a little bit of destocking on the OEM side, now they come to a normal pace and then they started to place orders as well. So — and therefore, we had a positive development.

Operator: The next question comes from John Kim from Deutsche Bank.

John-B Kim: If we could stay on the topic of VT, I think you mentioned in the early part of the presentation that you saw less activity from key accounts in semi cap. Can you give us a bit of color there whether this is a timing issue? Or is it a situation where you’re seeing a significant play in investment around CHIPS Act and subsidies? Any color here would be helpful.

Vagner Rego: Yes. What I can say, maybe a bit repeating what we have mentioned, Asia continue to be strong. I mean all the major countries, we see positive development. And of course, all those key accounts, there is 1 year, they place nice orders. The next year, they need to, let’s say, implement what they have ordered, get their production at the right yield and so on and so forth. And then you might have changes in the key accounts. But overall, in Asia, it’s very good. Europe has been weak, especially because it’s connected to automotive and that the market is not doing so well. And then U.S., you have — I think there is a major account there that is not — doesn’t have a CapEx budget as before. And I think the U.S. is the main headwind we have when it comes to semi.

Operator: The next question comes from Andreas Koski from BNP Paribas Exane.

Andreas Juhani Koski: I want to come back to Compressor Technique and the organic order decline of 7%. I understand that you’ve seen a significant decrease for Gas and Process compressors. But as you mentioned earlier, it accounts for a fairly small part of the business area. So I just want to better understand to what extent the weakness that we saw in industrial compressors contributed to the minus 7%. Did also industrial compressors decrease in absolute numbers similar to what you saw in Gas and Process compressors?

Vagner Rego: You should consider Gas and Process was half of the decline. And then the other half was industrial compressor. Industrial compressors in size is much bigger than the Gas and Process compressor. So in relative terms, it is smaller. So…

Andreas Juhani Koski: Yes. If I may, could you indicate that the revaluation impact in the quarter amounted to roughly SEK 700 million, SEK 800 million, or did I misunderstand it?

Peter Kinnart: No, that is approximately right. I think that’s around about the amount that we had in operating exchange differences for the quarters, revaluation of balance sheet. Not the regular translation and transaction effects.

Operator: The next question comes from Sebastian Kuenne from RBC.

Sebastian Kuenne: I would like to dig again a bit deeper into the currency or earnings bridge with currency impact. So if I run the calculation, you lost about 200 basis points on margin from currency. And if you say translation effect was the majority here. So SEK 700 million would be translation and the remaining SEK 740 million would be transaction and balance sheet. I just try to figure out how big the transaction impact was, how big the balance sheet impact was? You mentioned earlier, SEK 600 million you see as a rough number for the — for the first quarter, but SEK 600 million would then mean no negative margin impact. right? Because you have maybe SEK 3 billion on revenues and SEK 600 million on earnings, that’s 20% drop-through, that’s basically no margin impact. So can you just clarify how big balance sheet revaluation was and whether you really see no headwind from currency in Q3?

Peter Kinnart: Yes. So what I indicated earlier, and I think also what I just mentioned on Sebastian’s — on previous question, sorry, is that we talked about SEK 700 million to SEK 800 million roughly on operating exchange differences and that the remainder of the transaction effect, the normal transaction effect, let’s say, excluding operating exchange and translation were from a margin perspective, offsetting each other. Both amounts were negative, but the translation effect was not as high as you indicated, was a bit lower. And again, I cannot predict the exchange rates period end exchange rates for the next quarter. So I can only assume that if the exchange rate doesn’t move that there would be absence of an operating exchange difference more or less.

And so therefore, the currency effect would be significantly lower than the SEK 1.5 billion we’ve taken this quarter. And so that’s how we end up based on some of our calculations that there would still be a negative effect considering that last year’s average rates were better as well as the transaction effect was based on different rates at the time. And so therefore, we still think a negative currency effect looking forward in the third quarter. But excluding operating exchange differences, you would end up in the range of maybe SEK 500 million, SEK 600 million, potentially SEK 700 million. It’s hard to really nail it down 100%, but that’s, I think, about the range, which we think could be the currency impact. Then of course, the reality will be different because things will start moving as the quarter progresses.

Sebastian Kuenne: Understood. And as a follow-up, I saw that volume price mix contributed 75 bps in this quarter, but the main support came from one- offs and from reduced share incentives. how much of the share incentive support do we get for the rest of the year? And how much can you raise prices…

Peter Kinnart: That’s something we cannot predict at all. It depends purely on the share price development. It’s linked to the LTI program. So we cannot give any forecast of that. But despite the period end exchange rates, we don’t know how they will plan out in the next quarter.

Sebastian Kuenne: So distributed shares is based on the share price actually. Understood.

Vagner Rego: Yes.

Operator: The next question comes from Gustaf Schwerin from Handelsbanken.

Gustaf Schwerin: Can I ask on the deliveries in Industrial Technique, which strike quite low. I’m wondering if there’s an element of timing on larger projects, or if this is more a reflection of order books getting depleted now?

Vagner Rego: Can you repeat the question? We missed the beginning of the question.

Gustaf Schwerin: Yes, sorry. So it’s on the deliveries in Industrial Technique. I think the strike is quite low in the quarter. So I’m wondering if there’s an element here of timing of larger projects, or if it’s more order books starting to get depleted?

Vagner Rego: No, I think the point we got orders indeed, but those are projects. It takes a bit more time to be able to deliver. So I think that is the main effect. You also should consider that the automotive business is quite in a changing environment. Sometimes they change priorities. It does not help with our planning. So — but fundamentally, it’s the project together with this element of constant change that we have now, I think changing priorities, what needs to ramp up or run down. I think that has an influence of that. Our acquisitions that we did in the U.S. dedicated for Industrial Technique are performing very well. And of course, the invoicing level is not as good. By far, it’s not as good as the orders. So they still need to catch up to further ramp up production.

Gustaf Schwerin: Okay. Sorry to push on this, but just to be very clear, could there be an element here of delayed deliveries, especially on the automotive side impacting Q2 deliveries?

Peter Kinnart: Yes. There is a constant change, but the lead times of the orders are also higher because it’s project based. You get the order, you need to organize the project. It’s not the items that we have in our inventory. Some we do, but depending on project, especially automation, we have got quite a lot of orders for automation. And then you need to work with the sales, with the line builders as well. It takes more time. The lead times are longer. I think that’s the main issue.

Vagner Rego: Now we have time for one last question. James Moore will be the one who will be asking that one.

Operator: The next question comes from James Moore from Rothschild & Company Redburn.

James Moore: I’ve got 2. One on China first, if I could. So the drop in large compressors, largely China, how is that — is that lumpy? Or do you see any indication that, that continues at the end of June and into July? Do you think that is the new normal or just a function of the normal degree of lumpiness that we see? That’s the first one, if I could.

Vagner Rego: I think there is more about large industrial compressors, still not as big as the Gas and Process compressor, large industrial compressors. The biggest part of the market is China. We see less activity level there.

James Moore: Answered earlier. My question was I think that, that was something that will persist into the third quarter and the second half, or whether you think it’s just a function of temporary volatility?

Vagner Rego: Of course, the overall uncertainty definitely plays a role, but it’s very difficult to see what is going to happen with the Chinese economy. If there is signal that the economy will strengthen with local consumption, of course, we could have some positive environment. I don’t see. I just believe it’s difficult to predict if it will go further up.

James Moore: Great. And then my last one, if I could, is just on the competitive dynamics given the weaker dollar and your Belgian compressor footprint. And given what we may be heading into on the 1st of August with a 30% European reciprocal tariff unless a deal is reached. Are you seeing any competitive dynamics at the moment with your potential cost disadvantage against your North American competitor? And do you think that with a step up to 30%, you’ve got to do something different in terms of production and shifting to Quincy or the likes?

Vagner Rego: Of course, that would be a quite steep increase. We don’t know what is going to happen, but then we might have to have a deeper look and what we are going to produce where. I think with the 10%, I think Peter explained, we managed to maneuver that quite well. I think it was a combination of things, changing flows, and I think we didn’t see a big impact. If that goes up, we will look into what is needed to be done. But it’s always a combination of things. It’s not only we stop producing in Belgium, we produce is a combination. That’s what we have seen. Maybe we do more kits here and do some final packaging in the U.S., then we will have a deeper look if that comes. But of course, we’re stating that there is always a lot of activity ongoing on that area.

Peter Kinnart: Okay. Thank you, James, for those last questions. And with that, we conclude the earnings call for the second quarter 2025. Thanks for all your questions and your patience listening to us today, and we wish you all a very nice summer and look forward to meeting you again once you’re back from the holidays.

Operator: The host has ended this call. Goodbye.