Epiroc interim report Q2
April - June 2018 in brief:
- Orders received increased 21% to SEK 10,483 million (8,662), organic growth of 18%
- Revenues increased 25% to SEK 9,843 million (7,879), organic growth of 22%
- Operating profit was SEK 1,810 million (1,468), including costs of SEK 181 million (53) related to the split from Atlas Copco and change in provision for long-term incentive programs
- Operating margin was 18.4% (18.6), negatively affected with 1.8 percentage points (0.7) by the costs related to the split and incentive programs
- Basic earnings per share were SEK 1.09 (0.89)
- Operating cash flow of SEK 199 million (1,313)
- Epiroc listed on Nasdaq Stockholm on June 18 and refinanced as a stand-alone company
Another quarter with orders received above SEK 10 billion
The second quarter of 2018 continued on a strong note, as expected. Orders received increased organically by 18% and reached SEK 10,483 million. Revenues increased to SEK 9,843 million, with 22% organic growth. Our operating profit reached SEK 1,810, including costs of SEK 181 million related to the split from Atlas Copco and to change in provision for long-term incentive programs. The operating margin was 18.4%, negatively affected with 1.8 percentage points by the costs related to the split and incentive programs.
Demand development and trend
The customer demand for our equipment and services continued to be strong in all geographic regions, with particularly high order growth in South America and Africa/Middle East. The demand for equipment from our mining and infrastructure customers developed favorably, both for underground and surface applications. For mining, most of our equipment orders continued to be for expansion in existing mines. For infrastructure, orders for both rock drilling equipment and hydraulic attachments grew at a healthy pace. In addition, our aftermarket for service and rock drilling tools had a positive development in nearly all of our markets. Also, we note that the demand continues to be healthy in the beginning of the third quarter.
More output from our factories, but still work to do
I am pleased to see that we were able to increase our equipment deliveries compared to the first quarter. We continued to ramp up our capacity, including increased third-party final assembly in order to maintain our agility and asset utilization. In spite of the progress, we have to take some further steps to bring our capacity on par with the current demand. The increased volumes contributed to an improvement in the underlying operating margin with a satisfactory development in the Equipment & Service segment. The development in the Tools & Attachments segment was less satisfactory and actions to mitigate are in progress. The increase of working capital during the quarter had a negative impact on our cash flow. The bulk of the increase is driven by customer receivables and inventories due to our continued growth, but we are also addressing long-term inefficiencies with our ongoing supply-chain program.
The interest from our customers in automation and battery-powered equipment continues to be strong. Not the least, this was demonstrated by the initiative from LKAB, Europe's largest iron ore producer, to form a technology partnership with the ambition to set a new standard for sustainable mining with autonomous, digitalized and CO2-free equipment. Epiroc is proud to be one of the selected partners in this collaboration. I believe this initiative is indicative of the transformation that our customers are starting to undertake, but it is important to keep in mind that this transformation will take both time and significant development efforts. We continue to increase our activities and resources in this area, as well as in other areas. An example of this is a smart ventilation system that optimizes air quality, air flow and energy expenditure automatically and can significantly reduce energy consumption and ventilation costs for our customers.
Listed on Nasdaq Stockholm
June 18 was the birthday of Epiroc as a stand-alone company and the trading of our shares began on Nasdaq Stockholm. The split from the Atlas Copco Group and the listing process generated costs during the first half of 2018 and we will have some costs also in the second half of the year, albeit on a lower level. We now look forward to deliver shareholder value while continuing to serve our customers in an excellent way.
President and CEO
A presentation and teleconference will be held today at 14.00 CEST. Information is available at epirocgroup.com/en/investors.
This information is information that Epiroc AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact persons set out above, at 12.00 CEST on July 19, 2018.
Epiroc is a leading productivity partner for the mining, infrastructure and natural resources industries. With cutting-edge technology, Epiroc develops and produces innovative drill rigs, rock excavation and construction equipment, and provides world-class service and consumables. The company is based in Stockholm, Sweden, had revenue of SEK 31.4 billion in 2017, and has more than 13 000 passionate people supporting and collaborating with customers in more than 150 countries. Learn more at www.epirocgroup.com.