Epiroc AB (publ) ($EPIA)

Hello, and a warm welcome to the Epiroc Q1 results presentation. My name is Karin Larsson, Head of IR Media here at Epiroc. And by my side, I have our CEO, Helena Hedblom; and our CFO, Hakan Folin. As always, they will briefly present the results before before we do a Q&A session. You know the drill. Helena, please go ahead.

Thank you, Karen. So Epiroc delivered a strong start to the year with solid operational performance and record high orders received in the first quarter. Organically, orders increased 23% to SEK 18.3 billion and this year than both the previous year as well as previous peaks. The demand was supported by historically high mineral prices in segments to which we have a large exposure, such as copper and gold. . The equipment orders increased 44% organically, and the service orders increased 12% organically. We also noted double-digit growth in Exploration and Tools, improved somewhat, although geopolitical instability creates uncertainty. Revenues grew organically by 2% and adjusted operating margin increased to 20%, supported by organic measures such as disciplined execution and cost-saving initiatives. As we had currency headwinds, tariffs and higher input cost for tungsten in the quarter, the improvement is particularly pleasing to see. Looking deeper into orders. In total, orders increased 11% year-on-year. Currency was still a headwind and impacted negatively by 12%. The organic increase was 23%, driven by strong demand from mining customers and was supported by several large mining equipment orders. The large orders amounted to SEK 1.3 billion compared to roughly SEK 300 million in the previous year. And please note, as from this quarter, we say that large orders are SEK 150 million and above compared to SEK 100 million previously, and the numbers presented on this slide are restated. Equipment growth was again very strong, and this time at 44% organically despite tough comps of 29%. Sequentially, compared to the previous quarter, group orders increased 17% organically, driven mainly by the high mining activity activity, but we also had a seasonally better demand from infrastructure customers. Our strong order intake shows that customers value our reliability, strong service, high parts availability and equipment that performs. So thank you to all 19,000 employees around the world for relentlessly delivering tangible value to our customers. Moving on to innovation. In the quarter, we noted that demand from autonomous surface [indiscernible], our technical solution behind the world's largest fully autonomous Mixed fleet mine Roy Hill was recognized as Engineering Product of the Year at the 2026 Digital Engineering Awards, further underlying Epiroc's leadership in automation. Across our portfolio, innovation for improved safety and efficiency continues to support growth. In exploration, our new uphole brake improves safety in deeper and more technically demanding exploration drilling. And in [indiscernible] delivers higher fuel efficiency, lower operating cost and simpler operation through an upgraded control system. And finally, in underground operations, customers have responded very positively to our MT-66 SE drive, the successor to the MT-65, the world's highest as payload underground truck and compared with a conventional diesel truck in the same size class, it delivers up to 11% higher ramp speed up to 7% lower fuel consumption and higher productivity through greater payload and more efficient cycles, all without any changes to the mine's infrastructure. So let me now show some customers in Australia. [Presentation]

On the demand side, aftermarket demand was strong, driven by mining. We had especially strong demand for mid-life upgrades in the quarter, which will be translated into revenues within the next few quarters. Within Tools & Attachments, we also saw an initial recovery in the demand for [indiscernible]. Our aftermarket represented 69% of revenues in the quarter, which is 2 percentage points more than the same quarter last year. As you know, we include served market definition. . Glad also to say that we have agreed to acquire Eventspec in South Africa, which will strengthen our service offering further. They provide high-quality spare parts and services mainly to mining companies in South Africa. The company has around 120 employees and had revenues in 2025 of around [ SEK 160 million ]. And the acquisition is expected to close in the third quarter this year. Moving on to operational excellence. Our efficiency measures are clearly gaining traction. In the quarter, these measures supported the organic EBIT contribution of SEK 138 million corresponding to approximately 0.5 percentage points despite external headwinds from tariffs and increased prices of tungsten. The margin progress we are seeing is gradual, structural and sustainable. And so this is not about short-term fixes, but about systematically strengthen how we operate. Cost discipline remains high across the group, and we are seeing improved workshop efficiency, particularly within Equipment and Service, where execution and productivity are improving step by step. We have also taken a number of targeted actions to mitigate higher input cost in Tungsten which is impacting our tools business in the Tools & Attachment business area. And actions include intensified collaboration with suppliers through surcharges and continued rollout of our drill bit recycling program. And as in previous quarters, we continue to mitigate tariff impacts as well. So with this, I hand over to Hakan to cover the financials.

Thank you, Helena. I will start then on group level. And our group revenues decreased 8% to SEK 14.4 billion. However, with an organic increase of 2%, but we had a negative impact from currency by as much as 12% in the quarter. Q1 is normally a weaker quarter when it comes to invoicing, and we now have a lot of machine on its way to our customers. The operating profit EBIT amounted to SEK 2.8 billion. That includes items comparing -- sorry, items affecting comparability of minus SEK 22 million, which is fully explained by a change in provision for our share-based long-term incentive programs. If we look at the margin, the operating margin was 19.8%. The adjusted operating margin, when we then exclude the items affecting comparability, increased somewhat to 20.0% to compare with 19.9% in the previous year and actually 19.6% in the previous quarter. And I would say that this is an achievement given the headwinds that we have talked about. So despite the tariff costs increased input cost for tungsten, we have a positive organic contribution, which is explained by efficiency measures we have taken in previous quarters. And as Helena just mentioned, net impact on our group EBIT from tariffs is just below 0.5 percentage points. If we then move on to the Business Area Equipment & Service. Here, we have orders, which amounted to SEK 14.2 billion, and that corresponds to a strong 27% organic increase and currency impacted negatively also here and here it was minus 12%. And to repeat what Helena already said, there was a strong underlying growth within equipment, where we saw as high as 44% organic growth. And the large orders, which we now define as orders above SEK 150 million, totaled SEK 1.3 billion, which is up from SEK 280 million in Q1 2025. But even if we saw a large increase in large orders, even if we were to exclude this, we would still have delivered a double-digit growth which then indicates that we have a broad-based and strong underlying demand within Mining Equipment. Exploration was also again strong, which is encouraging them for mid and long term. And for explanation, it's particularly strong when it comes to gold. On the Service side, we had an organic increase of 12%, and this was supported by Circular Solutions and, for example, Midlife upgrade. We have talked a lot about nickel in our calls in the last year and now the comps for nickel, which was weak in '25, have eased somewhat. I would still say, though, the comparables have eased, but we still have many customers which have their nickel mines still under care and maintenance. If we look sequentially instead, orders received increased by 17% organically. And then on the revenues for the same business area, they were SEK 10.8 billion, and that corresponds to an organic growth of 2%, and again, negative impact from currency, minus 10%. On the revenue side, the organic increase for service was 3%, while equipment actually had an organic decrease of minus 1%. And therefore, the mix between service and equipment shifted towards slightly more service revenues. The EBIT for Equipment & Service was SEK 2.6 billion, and that corresponds to an EBIT margin of 24.0%. We had a positive organic contribution explained by disciplined execution in the measures we have taken in previous quarters. And also if we look sequentially, we had organic improvements in the margin. Then I will move on to the other business area, Tools & Attachment. Here, orders received decreased by 2%, but we had a negative impact of minus 11% from currency. And therefore, Organically, orders for the business area increased by 9%. In total, orders were SEK 4.1 billion to be compared them with SEK 4.2 billion in the first quarter in the previous year. And the growth here we are seeing is mainly driven by mining, but we also see an initial recovery in the demand for attachment used in construction. And when we look sequentially instead, orders received increased by 16%, again, partly due to the strong mining, but we also in Q1, we have seasonally better demand from our infrastructure customers. So next slide then. Revenues for Tools & Attachment. They increased 5% organically and were SEK 3.6 billion. Operating profit EBIT decreased 12% to SEK 404 million, which is down from SEK 461 million in the previous year. And we had a margin here at 11.3% versus 12.1% in the previous year. And we had currency headwind, and we also had increased input costs for tungsten and tariffs, which impacted the margin negatively. Sequentially, we also have the increased input cost for tungsten, which had a significant negative impact on the margin. When we presented the Q4 results in January, I said that the full year impact on this business area EBIT would be a few tens of percentage points. Given that the tungsten prices since then have continued to increase substantially. We now anticipate this number to be higher for the full year and the most severe impact we have seen now in Q1. Helena mentioned this already. We have taken several actions to offset these cost increases. And as for now, we anticipate that the negative impact will be reduced gradually during the year. What I would like to emphasize, though, is that despite all the headwinds, we actually have a positive absolute organic contribution, and we have good traction on efficiency measures that we have already taken. So moving on to the next slide, where we look at cost. And we start with costs for admin, R&D and marketing. They were 8% lower than Q1 last year. We are continuously working on being more efficient. We have made good progress on admin and marketing both year-on-year but also sequentially. In percentage of revenues, it was 17.4% and it was 17.5% last year. Net financial items were quite low at minus SEK 84 million, clearly lower than what we had last year, SEK 207 million, and this was, to a large extent, driven by lower interest rates. Our tax expense, minus SEK 657 million, in line with last year's and also corresponding to an effective tax rate of 23.8%, which is also within the guidance rate we have of 22% to 24%. Moving on to the cash flow [Audio Gap] we compare them with SEK 1.6 billion in the previous year. Main explanation is lower profit level and also net financial items. Cash conversion rate 12 months is now at 88%, while it was at 100 a year ago. Working capital, which is obviously a meaningful factor for the cash flow. And when we compare it to previous year, the net working capital have increased to 3%, so it's now NOK 23.5 billion, and it also increased sequentially compared to Q4. Increased inventories is the main explanation after a period of strong equipment orders. Our lead times are still at normal levels, but given the strong order intake, we are now ramping up production, which means that we are increasing inventories as we are building more equipment, but we will see increased output and deliveries in the coming quarters. And when we look at the average net working capital in relation to revenues, it was now 37.4% compared to 36.9% in last year. Next slide on capital efficiency. Our net debt decreased to SEK 10.5 billion. That's down from SEK 12.3 million last year, and our financial position is strong with a net debt-to-EBITDA ratio of 0.71 and that has strengthened further than from 0.76 last year. Return on capital employed, 18.5%, down from 20.3% explained by lower profit level, and please note then that all these numbers are rolling 12 months figures. At the end of the quarter, we had a cash position of SEK 9.2 billion. And if you join our Annual General Meeting next week, the Board is proposing for the AGM to decide on a total dividend of SEK 4.6 billion of which half of that will be distributed already in May, and the next installment will be paid out in October. And with that, I hand back to you, Helena.

Thank you, Hakan. So to wrap up, the first quarter clearly demonstrates the strength of our business. We delivered record-high order intake with strong organic growth driven primarily by mining. Mining demand remained robust across all regions, while we also started to see early signs of improvements in infrastructure and construction from a low level, but moving in the right direction. And looking ahead, we expect mining demand to remain high in the near term. And for construction customers, we anticipate somewhat improving demand, supported by gradual market normalization and customer interest in productivity-enhancing solutions. So with a strong order book, proven innovation and a clear focus on execution, we are well positioned as we move forward. So thank you, and over to you, Karin.

Thank you, Helena. Thank you, Hakan. Before we move into the Q&A session, just a quick reminder that we will be hosting our Capital Markets Day on June 8 to June 9 in Orebro in Sweden. Many of you have already signed up, and we're really looking forward to hosting you. To those of you that were worried about transport back to [ Arlanda ] Airport already on Tuesday evening, or in other words, you are not joining the Volvo Capital Markets Day, I have good news. We will adapt the program and add buses to safeguard that those of you that need to get on the plane around 7:00 p.m. on Tuesday, will do so. . We have around 20 seats available for the Capital Markets Day as of now. And if you don't know, if you were registered or not, the answer is not far away. All registered and approved guests have received a calendar invitation for the event. So if you don't have the calendar invitation in your calendar, you need to sign up. Thank you. Operator, you may open the line for questions.

[Operator Instructions] The next question comes from Edward Hussey from UBS.

Maybe just the first question for me is on the drop-through within Equipment & Service. Obviously, a very strong performance. I calculate a 66% organic drop-through. Do you mind just kind of helping us bridge how that sort of performance happened. I mean, I guess, normal operating leverage in the business should be maybe 30% to 40%. So 66% of a step above that. Do you mind just sort of giving us a bit of color in terms of the sort of difference between the two?

So maybe I can start. So what we have been focused on has been to improve our service operation, which is pure efficiency measures. We have a set with roughly 7,500 service technicians. So there is always work to be done there in addressing efficiency. So that we -- that is one area. The other area is efficiency measures were taken within the overhead structure. So that is more admin. The consolidation of customer centers, for example, is one of them, but also, I would say, general efficiency measures when it comes to transactional HR, finance, those type of more back-office structures. But then I will also, of course, with an increased volume now in our factories, that, of course, also gives higher absorption in our factories. So we have a good development when it comes to overhead variance in our manufacturing footprint in Equipment and Service as well as in Tools & Attachment.

Okay. And maybe just 1 follow-up on that was just in terms of the actual service mix itself, so the internal service mix, did that improve in revenue terms year-on-year?

No. I would say...

If you look at the whole B -- I guess your question is specifically on service. If you look at the whole B, then we had more service this year compared to Q1 last year. But if you look within service specifically, I would say the mix is rather similar this quarter as in Q1 2025. .

Okay. And then just 1 more question for me. You mentioned the autonomous orders. I seem to remember you said following the delivery of the Roy Hill project that you're basically going to open up the order book. Is this -- how -- is this sort of what happened in the quarter? And is this one of the big drivers for the equipment growth? And do you mind just maybe giving us a sense of how material this was during the quarter?

So what is supporting the order growth in this quarter is Autonomous Solutions related to drill rigs. So it's fully autonomous drill rigs and quite a lot towards South Australian, where we have a very strong position. So it's not related to truck automation. But it's the same system we're using for both now. So of course, we lever into the strength of the platform also on the rig side. .

The next question comes from Klas Bergelind from Citi. .

So a couple of questions from me. So first, on the -- coming back to the E&S margin. I mean, it's obviously great to see that the drop-through is improving, and it seems like the self-help actions are biting, and it's a bigger driver than the improving mix. But I still wanted to ask if there are any positive one-offs above the line. Obviously, inventory days are moving higher, which is to support the backlog deliveries into the second half. But did you see any overproduction effect boosting EBIT? And also, Hakan, on other operating income and expenses in the P&L that moved to a positive SEK 267 million, just wondering what's going on here? Is this cost out or something else? And how should we think about this line going forward?

If we start -- I can start and then you can continue. But we have no, let's say, one-off that I would say, explains well say, the good drop-through. So this is structural efficiency measures that we have taken that supports the margin development. We produce to order. And on the equipment side, there is almost [ zero ] speculation orders. I wouldn't say that there is any way overproduction. So it's more that we're ramping up, and that gives, of course, better fill rate in our factories, as I explained.

And if I take the second question then on operating expenses, that line in the P&L, it's very much related to revaluation of outstanding AR and AP. And if you follow the dollar during the quarter versus the Swedish krona, then it started slightly above 9%, it was actually below 9% for a while. But then it went up again just by the end of the quarter, up to 9.57%, I think, was the final rate. And then when we revalue our outstanding receivables, especially then at the end of the quarter, when they are in U.S. dollars, then we get a quite positive impact on those. So that's very much where that line comes from. And that is part when we then add FX portion in the bridge. That is 1 portion of this negative SEK 0.6 million in the FX. That was a positive. And then we have other...

No, totally understand, yes. Yes, it's not double counting. I totally get it, okay. So then on the -- my second one is on the P&A margin. If you could say, Hakan, what the underlying margin was in the quarter ex the [ tungsten ] impact. And then on the compensation, great to hear that you think this was the worst quarter. But when you say that this effect will level off, is this because you were a bit late introducing the surcharge. So the full surcharge effect will come already in the second quarter. I mean, obviously, the actual tungsten absolute number should probably go up right in COGS, but just interested in that dynamic and how quickly you can fully compensate through the year?

Yes. And I wouldn't say that we were late, but it's not just pressing a bottom and then you fix all the pricing. We are also under contract with customers. So it takes some time. And obviously, it's a competitive situation as well. But in the quarter, it was actually more than 1 percentage point impact on the Tools & Attachment business area. And what we are expecting is that we will gradually reduce that over the year, but it's not just -- it's not going to be gone in Q2. There will be a gradual decrease over the year.

Got it. My absolute final one is on the buildings below sales growth out of the backlog. And obviously, it's back-end loaded in terms of your deliveries through the year, but do you see increased bottlenecks or lead times getting more extended? So just trying to understand when you think about sort of the sales trajectory in equipment as you go through the year. What kind of lead times should we assume now in Equipment?

So we are at normal lead times. So I would say that the low growth number here is mainly related to -- this is a timing issue, and we have seen gradually increased output from our factories, but then, of course, you have a lead time overseas to reach the end market, but we don't have any bottlenecks in the system. So I think we are ramping up according to plan. And during my years in this company, we've done this many times. So I think this follows the normal -- a normal ramp-up phase. .

The next question comes from Max Yates from Morgan Stanley.

I wanted to ask firstly about the equipment orders. And obviously, we've taken a pretty significant step up this quarter, both in large orders and base business. Could I just get a sense of the large order pipeline. I don't want to pin you to a number, but when we think about kind of individual orders and opportunities over the next few quarters. Is it conceivable to stay at least sort of somewhat around this level? And is there anything in the kind of large order equipment business that you think is seasonal, whether that's kind of CapEx budgets being replenished and all the customers coming back and ordering immediately? Or do you just more see this as a as a reflection of the strong environment and high commodity prices. So effectively, just trying to gauge sort of to what extent this was a kind of one-off boost or at least we should be continuing at somewhat around the SEK 7 billion level going forward?

When I look at the pipeline of large orders out there, it looks very healthy. There's a lot of expansion projects ongoing in the world, brownfield expansion. There's a lot of replacement orders out there. So I would say it looks strong across -- towards, I would say, in all regions, especially towards gold and copper, where we have a strong position, but also that we see the underlying activities is also healthy. So I wouldn't say that there is anything say, extraordinary. I think what I see is that the geopolitical situation that we are in the world. It's bringing countries and governments to the position that controlling the value change is a strategic topic. And we see also a lot of governments working on shortening the permitting time, giving a faster permit to expand mines, et cetera. And of course, a very strong commodity prices are helping as well, customers to take the decision. But when I look at the pipeline, it's a very healthy pipeline. And our fleet out there is also older than ever, which, of course, gives a good support also for replacement. So -- then, of course, there could also -- it's always the lumpiness of large orders. This quarter now, we had SEK 1.3 billion. A year ago, we had only SEK 300 million. So of course, that lumpiness, you can't really predict quarter-by-quarter. But when I look at it from an 18-month perspective, which is how we look at the business cooking or the pipeline, it looks healthy.

Okay. That's great. And then just second one, when you think about your capacity, obviously, given the strong Equipment growth, the revenues will follow, at what point does your kind of capacity become an issue? Can we grow the equipment business 10%, 15% for a couple of years before we have any capacity issues? How should we think about that?

I don't see capacity as an issue on the Equipment side. So we have a very, very good footprint. We have a large footprint in U.S. We have in Europe, in Sweden. We have in India, in Nashik as well as in Nanjing. We also have worked during the last, I would say, 5, 6 years in making sure that we can leverage this footprint in a better way, so we can produce the same product in several locations that, of course, supports also the ramp-up. We also are investing and expanding our footprint in India as we speak. So that will come on board that space or that new factory will come on board later this year. But we are not running full shifts in all these facilities. So there's much more room for -- to increase capacity because here it's more manning for us. That's what is to increase assemblers, but space we have.

More a matter of getting the manning in, training them because it's not simple operations, making them able to produce our equipment. Getting our suppliers to a teens their production, so we can get the components, but it's not about really our own facilities or space. It's more ramping up to the level where we want to be, which is what we are in the process of doing right now.

Okay. And just very finally, you've called out in the last 12 months some issues at the [ Kamoa ] mine that's affected your service business. I see from the kind of customer, they've had some challenges again this quarter. Did that have any impact on your Service business and your Service orders this quarter? And would you expect it to in the coming quarters?

So we have had an impact -- during last year, we had a quite big impact. That's gradually, I would say, it has gradually improved. And I wouldn't -- there is always there is always -- it's not something that I would like to point out as an issue in this quarter. I think we are back on healthy levels in ammo. But as you say, they still have a they are not back to the same production level as before.

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

John Kim from Deutsche. A couple, if I may. You're seeing any prebuy or abnormally strong activity in your divisional exposures, ahead of anticipated price increases?

Yes, it's, of course, always difficult to to see if it is, say, prebuying or not, given also the high activity level in -- especially in mining, -- but what we -- what there might be some prebuying on the tooling side, given that the carbide prices has turned up so rapidly. So that's the only area where I feel that there could be some prebuying, but we have not really -- there's no verification that, that is the case, but that would be a logic reaction given the very wet a steep increase in tungsten also during this quarter. .

And one of the things I think we're seeing globally is kind of cost implications of the conflict in the Middle East. I'm just wondering if you could give us a bit of color or context on your energy cost, logistics cost and how you're handling pricing through the year? Are you putting preemptive increases up in Q2? Is that not a feature -- is it normal that you do quarterly should we expect a large price upcoming?

Energy cost is not a big part of our production cost since we do very little manufacturing ourselves, we do more assembly -- so we are not, I would say, energy for us is not really material from a cost standpoint. But of course, for -- would this continue could have indirect impact for our customers, of course, that cost for energy, if it stays up high. But for us, as a company, it's not material. .

What is more likely that we will feel is if logistic cost and also shipping time extends, that might have a bigger impact on our direct energy cost and -- but of course, if we get higher logistic costs, getting the equipment out or tools out, then we usually try to push that through to the customers. .

Final question, if I may. You've seen kind of a change in the Section 232 tariffs with regards to that old source of origin. I know you're a big producer in the U.S. on the Pit Vipers. Can you talk us through your exposures here -- and what sort of pass-through provisions you have in your contracts?

We've seen some changes during Q1 in terms of tariffs. We had the change in 232 that came now actually after Q1. And then we also had this EPA tariffs that were ruled illegal and which were then replaced by this 10% -- the general 15% were replaced by 10%. I would -- without going into too much detail, I will say that those 2 changes, net-net, they will be somewhat positive for us. .

The next question comes from Christian Hinderaker from Goldman Sachs.

I want to start on large orders. I'm curious as to the decision-making around the increase in the definition there, SEK 250 million. Is that about price? Or is there some other basis? And then as we think about the [ 1,280 ] figures for the quarter, was there any contribution there from call off on the 4 to SKU contract? I know that, that launched about 12 months ago?

So there was nothing from Fortescue in Q1 on orders. For -- we have kept this SEK 100 million as the limit for large orders since we created Epiroc, which given, I would say, the size of the deals that we're landing, but also we say the total package that we normally sell, it's -- we felt that it's better actually to increase this, especially the more we include also a different type of digital solutions, automations in a large deal. It's a more relevant number to have SEK 150 million as the number. .

Fair enough. On T&A then, you've called out double-digit growth in North America. I'm interested to hear if that's all attachments. And then in Europe, still a decline. Any indication of benefits from the German fiscal plan? Is there any sort of regional callouts to make in Europe? And I guess just more broadly across [indiscernible], how do we think about the balance of those 2 in terms of demand in the quarter? .

So it's -- it was strong in North America. And that is supported both -- it's both attachment and its tools. The -- when we look into Europe, I wouldn't say that we have started to see an impact from this package in Germany yet. But however, the sentiment out there among the dealers is becoming more and more positive, and we also see that is demonstrated in the order intake. . And if I look on the demand, we are -- it's strong in both areas. But as we have explained, it's from a low level of the attachment side, which I think is important to remember. So it's lower growth in attachment and it's higher on the Tools business.

The next question comes from Alex Jones from Bank of America.

First, if I can start on the on orders in the quarter, clearly very strong. You talked a little bit about help there from nickel in particular, but I guess that's going to remain the case for a couple of quarters to come. So can we expect service to remain a double-digit growth business for the next few quarters or anything exceptional there that you don't think can continue?

So we see high activity levels across the different regions. And this is very much about taking customer share and working with the fleet. It's a good balance, I would say, on the growth we see in service. But in this quarter, it was also supported by a strong demand for mid-life upgrades. And that, of course, comes and goes. But I'm pleased to see that we can show these numbers in growth of service. . So I would say we are -- we will do our utmost to keep on growing our Service business. And as we have also talked about for many years, the fleet -- we have the fleet out there, so it's very much up to ourselves. We have high availability, the best service technicians and a very structured approach in how to capture this customer share of existing fleet. But pleasing to see the development here of the last, I would say, last 2 quarters.

Great. And then just on capital allocation on the M&A side. You announced a small deal this quarter. Can you talk a little bit about?

Yes. We have our pipeline and it's close to core, and it's areas that we -- and companies that we know well and that we've been working with for a long time. Then timing is everything. I think we have for some years now, stayed focused on integrating the acquisitions we have done and making sure that we realize the values that we expected. But acquisitions will always be also -- it's a long process, of course, but we have a solid pipeline. So hopefully, we can also continue. Now we announced one in the aftermarket this quarter, very similar to some of the other acquisitions we have done in previous years as well. So it's -- we stay with the themes, which is closing the product gaps or regional gaps, strengthening the aftermarket but then also could be technology capabilities that we would like to add.

The next question comes from Rory Smith from Oxcap.

Rory Oxcap. Most of them have been asked. I just wanted to come back to this point on service growth, the orders, double-digit order growth and revenue growth just just plus 3% in the quarter and how that relates to the customer share comment that you made. Are there any numbers that you can put around that customer share? And I guess, a kind of broader, higher-level comment on how that is going, not just in the quarter, but how you see that going through the course of this year as we talk about autonomous trucks, autonomous drill rigs, et cetera, how that kind of -- those actions are helping that? Any more color on that would be really helpful. That would be my first question.

But on service growth, I think there are a number of different, I would say, areas that we're working on, of course, to make sure that we get more service contracts but also that we get availability in place so that we can capture the pure part sales -- and this is very much about making sure that you are the most trust-worthy supplier in that particular mine or that particular region. And we have been -- we have a very structured approach. I've been saying that we have a little bit more than 50% customer share over many, many years because in a way, we are building this opportunity ourself. But it's moving -- it's trending in a positive way. And of course, the ambition here is to continue to grow this business in a structural way. And with the environment we see now with very high activity levels, that also supports that customers want to keep existing equipment up running at the highest productivity and that's why we see more mid-life upgrades as a product or as a service. But also, of course, that the machines are running with high engine hours and high end in hours also consumes more parts. So there is a correlation between the activity level and I would say, the growth. But I think -- but to your point here, we are step-by-step improving the customer share. And at a certain point, I will have to change the number. But so far, we say that we have a little more than 50% customer share.

Okay. That's brilliant. And then as coal, but from memory, what was that customer share? Where did that peak, I guess, at the peak of the last cycle -- can it get back there? And do you think you need to invest more significantly in your sort of downstream service network costs? In order to do that or you're happy with the sort of organic progression from here from that 50% to a higher number?

I would say when we had the mining peak before, we were at a lower customer share in the aftermarket. So this is something that we have gradually worked on since -- I would say, since 2011, 2012, especially since the creation of the Parcel Service division that happened as Atlas Copco time. So I would say that for us, it's a very structured approach, and it is very much the closeness to our customers that is key. So that service network with workshops, et cetera., that is something that we are investing in constantly, especially with new countries, embarking on a mining journey. . Then of course, we are early on and making sure that we have a strong footprint. And this is about both having workshops in place but also to train local people in that region or in that country. So this is something we don't talk so much about it, but Hakan and myself, we are taking decisions like that more or less every quarter to do this type of investments in new workshops with very good returns. This is not, let me say, a lot of money to get that presence and that footprint. And it matters a lot for our cases, very strong signals to customers, and it's is very much a prerequisite to be -- and to grow the Service business. We have a number of good examples where we have been very early on, and we have taken these rather small investments and build a very strong relationship and a strong business with customers.

And then just -- just finally from me. Obviously, you've got the sort of intention to get net working capital as a percentage of sales down over time. But just given what you see in terms of deliveries for Q2, how should we think about that improving or maybe getting worse in Q2?

First of all, it's rolling 12 months figures, the working capital over sales ratio. And then I would say we are still ramping up production and getting deliveries out. So for us, right now, the most important thing is that we really get get the equipment to our customers as soon as possible. While we continue to ramp up, so we can meet deliveries versus the order intake we have had now for a few quarters. So I wouldn't be too optimistic on the working capital development in the second quarter as such. But long term, definitely, yes, we think we can do better than where we are right now. But for now, it's really more about making sure we ramp it up as much as we can. One other factor playing into the working capital development and on the inventory side is, of course, the tungsten then prices as well given how much they've increased that also has an impact on the inventory levels.

The next question comes from Andreas Koski from BNP Paribas.

Two questions on the margins. So firstly, on the E&S margin. I think the service share of sales was at its highest level in a couple of years. So I guess you had a margin-supportive mix. But based on the strong order intake in equipment, we should see equipment grow as share of sales in the coming quarter. So is it fair to assume that the incremental margin on the equipment side will be higher than the business area margin, i.e., is it fair to assume an equipment drop-through of around 30% or more?

You're 100% right, of course, when it comes to the mix situation that this was from a profitability point of view, a good mix in this quarter. It's fair to assume that the equipment we sell -- the kind of incremental equipment we sell will come with a better margin than the average margin for the Equipment business. I think we will stop there and not say exactly where it is versus the [ 24 ] that we have now.

Okay. So it might not be accretive to the business area margin? That's what you see?

Well, I said I didn't answer it really your question I said it's better than the average equipment margin.

Okay. Understood. So then secondly, on the gross margin, I mean, 35.5%. It's still down 300 basis points year-over-year and meaningfully lower than the 37.4% that you have achieved on average between 2022 and 2025 with the current group structure and now possibly higher sales volumes going forward? Is it possible to improve the gross margin to the levels that we have seen in previous years? .

If I may just start with one -- we had a question before on the currency side, on the operating expenses, which were quite positive. But all in all, currency was negative. So a large of the negative items you see on the gross margin. I think that's one thing you have to remember when you look at the development of the gross margin as well.

Okay. So at current FX rates, we should not expect gross margin improvements or...

I think we can still -- I mean, we are always striving to do better all the time. So I wouldn't say we cannot see better gross margins. But I think that's one of the explanations why you see quite a big decrease on the gross margins.

Okay. Understood. And then lastly, on your PCD bids. Do they also contain lots of tungsten? So will the input cost go up also on your PCD EBIT for -- is there a possibility that you will gain share in that part because of higher tungsten prices? And if that's true, have you already started to see signs of that? .

So PCD bit also contains tungsten. So that's the the majority. But of course, with the layers that you put on top of Diamond, that enhances the life of the bit substantially. With the prices on tungsten as they stand today, it's quite clear that the gap there and towards PCD has narrowed quite a lot. And we will do everything we can to push this solution, of course, because this is a brilliant solution also from a productivity standpoint but also from an automation standpoint. . So -- but I think it's a little bit -- this is -- it's application driven. So it's not so that PCD will replace all the types of normal tungsten bits that we have. That's not realistic. But I do believe that there -- maybe not -- we have not seen that yet, but I do believe that we will see more and more interest in this solution in the coming quarters.

The next question comes from Vlad Sergievskii from Barclays. .

Congratulations with record orders, obviously, some impressive numbers out there. Could you talk about base new equipment orders, excluding large ones. Those I believe year-over-year and over 20% sequentially. Any particular driver for those to call out? Maybe your exposure to exploration spending played a positive role over here? .

So it's a good underlying activity both towards goal, towards [indiscernible] of few units towards the iron, and of course, for surface [indiscernible] applications, that's quite high value numbers, but also strong development towards exploration. And we have a very solid offering towards exploration with both equipment for surface exploration, underground exploration, both core drilling as well as reverse circulation after we acquired the assets from [indiscernible]. So we have a very strong position towards exploration now, and we are leveraging that strength with the uptick in activity level now, especially around brownfield exploration. So I'll say it's a combination. But there is nothing standing out. I would say it's more high level across the different regions on the underlying activity levels on equipment.

That's great. Production ramp-up is a nice topic always to talk about how advanced are you on this ramp up? When do you foresee yourself reaching the targeted production level?

That depends on where we are volume or quarter-by-quarter. But we have initiated all the work that we normally do when we're ramping up and we started that work during the autumn given the increase in order intake for equipment. And of course, we are increasing the speed now given the orders we have received here in Q1, but also what we see in the pipeline for Q2. . And as I said, it's about increasing manning, working close together with our sub-suppliers to safeguard that lead time stays as short as possible. And so far, so good on lead times. So it's key to keep lead times short, of course.

That's great. Final one for me. What sort of growth rates are you seeing in gold exploration in particular, right now, will you be prepared to share any rough ranges?

We see good growth, and it's -- we are -- of course, we have some, say, business with [ juniors ], but a majority of our business and exploration is towards large mining companies, and we see good exploration activities towards gold. And what is boosting this is also that we have a different offering today than we had some years ago, especially with reverse circulation products that came with [indiscernible] acquisition. .

The next question comes from Gustaf Schwerin from Handelsbanken.

Firstly, on the orders in equipment. Would you say that you have a larger share of rotary drill rigs as a percentage of total orders versus recent quarters. That's the first one.

We have a strong order intake for rotary drill rigs in the quarter and several of the large law orders were in that space together with full autonomous solutions as well. So that clearly supported.

Perfect. Secondly, on service revenue growth, can you give us a sense of how much parts and kits grew this quarter?

It was very -- it was a similar mix, I would say, between parts and traditional service, but then we had, I would say, an extra boost coming from mid-life upgrades, which is also more lumpy in nature because that is -- you do it once and then that is not coming back. all the machines.

Sure. But that was on orders, right? I was referring to revenues specifically -- it's parts and kits above the call it, [indiscernible]. .

If we think about if you think about what we define as service where we have both what we call partner services, and we have the digital part, then actually the parts and service business was growing somewhat faster than the digital business, if that was your question, Gustaf. .

Yes. Lastly, just adding to Andreas' question on the margins. If we take that higher order growth for midlife rebuilds in Q1, do you think that is a drag on the margin for Q2 and onwards? Or can you compensate that by leverage efficiency measures, et cetera?

I think we can compensate that because mid-life upgrades, when we started this journey, of course, when you are in the -- with the first time you do it, of course, you are less efficient. And the more you do it, the higher efficiency you get from the service workshops. So for us, it's positive to have to have midlife rebuilds. And it's a very -- it's a profitable product for us, and it keeps customers -- the stickiness to customers as well.

Would like to interrupt there. bias time is up. Thank you, everyone. And just on the revenues of service in Q3 and Q4, respectively, we had strong demand for traditional service, which, of course, has been invoiced now in Q1 and mid-life upgrade will come in later. But with that, I know we have a few of you in line. We will reach out to you after this call. Thank you very much, everyone, for taking the time.

Thank you.

Thank you very much.