Ladies and gentlemen, welcome to the Atlas Copco Q3 2018 Report. Today, I am pleased to present CEO, Mats Ramstrom and CFO, Hans Ola Meyer. For the first part of the call, all participants will be in listen only mode and afterwards, there will be a question and answer session. Speakers, please begin your meeting.
Thank you very much, and warm welcome to everybody on the call for the Q3 report from Atlas Copco conference call. We will follow a very, very well known format for you. Mats Romsdjan will take us through his own comments about the quarter, and then we will open up for questions. So I don't think we need to do. We will try to stick, as I always say, to one question at a time and let so many as many people as possible queuing up for questions to have a chance.
But we'll come back to that in a few minutes, and I'll hand over to Mats. Thank you.
Thank you, Hans Ulla. I will start on Page number 2. I know everyone is eager to discuss the numbers, but we think it's essential that we could share a little bit about our strategy as well from time to time. So we have called this point strategy in action. And the picture is actually from our technology center in Breton in Germany, very close to all the German car manufacturers.
And some of the topics that during the quarter, the questions we got, Hans Ole, myself and Daniel, has been around how can we help the car industry to build lighter cars. We're also talking about automation. And can we really key up and be partners with the new battery manufacturers around the world? So I thought this picture actually speaks more than 1,000 words. So in this innovation center, we bring in customers.
And here we share the 4 technologies that we offer. So it's adhesives, it's the self pierce riveting, it's the glue drill technologies and the tightening. The first question was a little bit automation. Are we ready for that? And you can see in every station then it's rigged with robots.
And we can use the M8 manufacturers. So this is one of the way for us to show how we can help them with automation. We can also build in different materials. The car, on the right hand piece is aluminum. And the customer can actually then bring in their own models to test this, and that is behind closed doors here.
So this is a very successful way for us to come in early to the business cycle and to really bring customers to us and share competence. This was just one example how we helped them to the future technologies of mixed material. Then if I go to the result on Page 3. We think it's a solid amount with SEK 5,200,000,000 in profitability and 22.5 percent margins, the adjusted margins. So it's still one of our better quarters.
And as we flagged for already in previous quarter, we expected a lower semi, and that was confirmed. We can see that customers are a little bit hesitant to invest in capacity. They continue to invest in technology. And then we also flag a little bit about MBI for next quarter, but that we will bring up on the IT Day later on. On the orders received growth, you can see that compressor is up 4%, and then we'll talk organic now since we have such a help from currency.
Industrial, up 4% and the power equipment came in at 13% and then 19% for vacuum done. We can see continued service growth. And specifically, I must say happy for semi since they still have high utilization in the factories. So that continues strong for us. And the revenue growth of 6%.
And in 1 or 2 business days, we think we could have done somewhat better, and I will come to that.
Page number 4,
all this received we discussed was a decline of 1% organically. If you look at operating profit, we talk about an adjusted level of 22.5 percent and the 23.8 percent included the Henrobl release last year. And of course, it's also adjusted for long term incentives. So we think it's a fair comparison versus the 22.2 percent from last year. And if you look at the graph, you can see that from a revenue perspective, it's the 2nd best quarter we have had.
And from all this we've seen, sequential, of course, it's down. But still, if you take away the last two quarters, it's still on a high level. On Slide 5, you can look at our sales geographically. If I start from the left side, you can see North Americas. Actually, quite strong growth, and it came out of all the business areas were up in North America.
And hopefully, the if I call the new NAFTA agreement might help us as well. We have had seen stronger growth in U. S. Compared to Canada, and hopefully, that will change now over time. South America, for us, being the industrial part is Brazil.
It's the main part, and that continued to be a strong recovery of business for us. Europe, which is down 31% of our business, there was a little bit of a mixed bag. Compressor Technique up 5%, Industrial Technique down 5%, BP down, PP up 24, which was very strong. The biggest pieces was still Asia for us. And you can see 34% of our business.
And this is minus 9%. And that is mainly then part of the VQ and the vacuum coming out of Korea and China. If you look at the other business areas, the GT is down slightly or flat. IT is up 22%. CT is up 4%.
So taking out DT for Asia, it will be up 7%. So it's very linked to the selling industry in Asia. Slide 6. Just to remind you about the organic growth and the same scenario there then. It indicates a minus 1.
And if you will take away the vacuum, of course, vacuum headquarter, we have strongs. It might not be fair, but then it will be a positive 5. Slide 6. You can see currency have been helping us with 2% here throughout the year. And it's, of course, strengthened with the dollar and the euro.
So it's now tailwind of 7%. Let me move to Slide 8. We can see the split of Atlas Copco Group now, compressor technique being the dominant part and having done 4% growth for the quarter. Vacuum, approximately 50% of vacuum today is semi, and the other part is industrial and high in service. Industrial Technique continued to be strong, and there, we have approximately 60% unit relating to the car industry.
And then as I said, the Power Technique had a very strong quarter with 13% growth. Slide 9 talks about compressor technique. I think I'll start with the graph. We can see that it was a record for us on revenues. It's still a challenge on some of the components, but I think they do a tremendous job to keep competitive lead times.
But they still fight week by week to help our customers to get their product in a good way. And you can also see then that orders received was the 2nd best quarter that we have had and up 4%. And very solid margin at 23.7. We continue to bring new products to the market. It's very, very important for innovation for us to bring new features to our customers.
This is the new GA product. It's a VSD plus I think you know the VSD technology. So we haven't proved that even further. And this one might be up to 10% even more efficient than the old generation. So we think this might be good products for our customers to invest in.
And on Slide 10, you have the vacuum technique. And as we indicated ordered in Q2 then, you could see that activity level on semi was less than we have seen in the previous quarters. As I said earlier, then the capacity installation, this is what we see when they're hesitating. But if it's technology driven, they have continued to invest. And the underlying demands for the industry, we don't see a change in that.
We still believe very much in this market. And short term, we can also see that utilization of the plants are high, and we continue to build on our service business in this segment. And you can see with these revenues that we have had, we still delivered to 25% operating profit. The innovation part here is the IXH Mark II generation, mainly for semi, but also it's a dry pump designed for very harsh environments and building modules for different configurations. It's a really good product for that segment.
We announced acquisition of Brooks Automation. It's cryo pumps and cryo coolers that are linked to our semi business. It's for the toolmakers in principle. We think it's a very good match. We already knew the customer.
We add on new technologies in the same organization. And we are going through the process now, and it's still on plan to be closed in Q2 next year Q1 next year, sorry. Industrial Technique, organic group of 4%. I think that was okay. It is one of the areas that we had expected ourselves a little bit more invoicing, and it was related to component shortages, specifically actually from one supplier that moved the factory.
They made a commitment to us to catch up during Q4 and get back to normal lead times. Solid margin as well, 23 0.3%. There we're investing a little bit more in coverage in Asia, and we're also investing a little bit in the more digital solutions for service. But we have improved a little bit higher cost in this business area for this year. The little bit of concerns we see for the coming quarters could also be an opportunity.
But of course, we can see that car manufacturing and sales is declining somewhat. Those of you that follow you know that that's not a direct correlation to our business. But we can also see that there is an opportunity or challenge for our customers to decide a little bit for the future on how they're going to spend their CapEx. It could be the drivetrain discussion. Should we go combustion engines?
Should we go hybrid? Should we go electric vehicles? And I think most of them, the major suppliers that we're going to need an offering in the electric. Light weighting of the products is, of course, essential. It Doesn't really matter which way you go.
So mix material is also an interest for them. What has manufacturing footprint, where do they need to manufacture for the future. So I think that's something they're discussing internally. And the last topic, I think, might be more European based. But the diesel discussion, I think you all follow that.
That, of course, will change quite a bit in German premium car manufacturers if they need to go another way in terms of power chain as well. You can see this as being discussed. On the other side, we're in a good position when they take position, and it drives actually tooling and equipment safety if they move on any one of these strategies. So but that's a little bit the activity. And you can see that this discussion with the trade wars in China, I spent a week in China to try to understand.
They say that they see a little bit less activity, and that's a little bit also why we guide a little bit for this. They also taken away in China some of the subsidies on smaller cars. So that's a little bit back. Innovation part. This is a distributed product.
On the left corner, there's a new controller and new tools. 1 of these controller can handle up to 20 tools, which implicitly means that you can do mass customization. You can have a bunch of these tools in the same station. You can reprove them for every car that comes across. You can also do rebalancing of line if you want around 15 hours or 16 hours.
You can move one process to another process in these battery tools. It's a really smooth progress to deliver on the Industry 4.0. We also made a small acquisition in Germany to strengthen our technology for adhesives. It's the quiz. Is it principally a 3 d dimensional camera that can give us traceability on the adhesives?
So we will integrate that to our product, and we also send that as a standalone. Power Technique, strong growth, 13%. Rental business was doing quite okay. Also, the Power and Flu division that we created just half a year ago, approximately actually with the focus now, we can see strong sales numbers. We are not a leading supplier in these segments, but step by step, we're getting a little bit better.
But the main driver has been the rental business, and the quarters have been pretty flat, I must say. And you can see the margin being 16.5%. It's a little bit structural, of course, since last year, but also think step by step, it takes decision to improve our margins here as well. On the innovation side, very interesting product. This is a new generator that we'll be launching 5 different versions.
They use the VSD technology both for the engine but also for the fan, which takes down a little bit energy consumption. And the other big benefit for rental companies is that the footprint is 20% less than the present technologies. We think this might be a very good fit for enterprises around the world. If I summarize a little bit before I hand over to you, Hans Ola, A strong quarter. Revenue, 2nd best.
Orders received up there, but not as strong as Q1, Q2 this year. We continue to deliver new innovative products to the market, which we think is the long term driver for us to really give them tangible value for what we do. We continue to invest in Asia with better coverage as well. And in some areas, I mentioned that on the revenue technically, we hopefully then catch up a little bit in Q4 again.
Good. So on the rest of the financial numbers below the operating profit, which by the way I happen to look back 2 years and I saw that it was about the same level as we had in Q3 2 years ago, slightly better this time. And then I realized that Epiroc was part of the group as well at that time. So the pretty good solid operating profit level. If we look down the income statement, we used to already in the report that the financial net was almost well, more than half compared to the same quarter last year, and it's related to the things that we commented in Q1 and Q2 that we have had some repayment of old dollar denominated loans primarily, and that has reduced the interest rate quite considerably.
And also, of course, it's affecting the amount of money that we borrowed a year ago compared to now. I think going forward that around this level, about SEK 100,000,000 or so per quarter is what we should expect before anything major changes in the balance sheet, but that's the guidance. If we look at the tax, you have seen a 24.6% tax rate this quarter, lower than last year. I have been guiding you on this one to the level of 25% or even 25% to 26 following the developments that happened a few years ago. If you remember, in Belgium.
Now we have another trend, and that's nice because corporate income tax levels are coming down. We are enjoying already a lower income tax rate in the States. We are seeing gradually a lower income tax rate in Belgium, and there is the second step is still to come. I think though for the near term outlook, I think this is pretty representative, this level that we have right now. And when we move further on, perhaps we can update that later when we get into the Q1 of 2019, but this is roughly the level that we think is representative.
Finally, it's nice to see the return on capital employed above 30%. Again, very strong. The reason you don't see a comparison is, of course, that it was a very difficult mix of separating out Epiroc specifically on the capital employed side with all the internal transactions. But 32% at least is a very, very strong number, of course. Moving into Slide number 14 then, this is the whole group.
You can see that we have, of course, both on revenue and operating profit enjoyed a better translation, but also a certain better transactional currency situation. So that has helped. You also see the other big part, which is a big onetime profit that also Mats alluded to in internal in Industrial Technique last year in Q3, which took away the about SEK 380,000,000 only on that point from last year's profit. So but if we move to the next Slide 15, you can also see by business area perhaps a little bit of more messy slide than normal, a good okay so called flow through on compressor technique. We grow revenues organically about a little bit more than $1,000,000,000 and a little bit more than $250,000,000 in the profit.
So I've said many times before, you cannot take one specific quarter as a trend. You cannot say that this is exactly what will be when we report next time, just as we have had the quarters when we have been closer to 50% in this percentage point. So it is something we continue to say that for the business areas, something in the region of 30% is probably when you have both downturn years and upturn years taken into account. That is what we should expect from flow through in this column. Then you see 2 divisions with negative revenue growth in the quarter.
And Mats have talked about industrial technique and the vacuum technique. Here, the impact on the operating profit in the vacuum technique is, of course, a little bit accentuated by the fact that semi is the one that is dropping more or is explaining the drop. And as you have all come to conclusion already in previous quarters, there the margin has been higher than in the rest of the business area. So that gives a little bit of an extra negative effect. But in relation to the operating profit in total, of course, these numbers are still relatively small, if I say it like that.
So the percentage exercise here, we don't even do. Industrial take 8 months commented on a conscious investment in certain cost items like coverage and R and D on top of a somewhat low revenue quarter. And then Power Technique, which I think is representative of a reasonable quarter without fine tuning the analysis too much. If we go to the Slide 16, balance sheet, a solid financial position is what it represents with a net debt to EBITDA of about €500,000,000 So we have ample room to continue to do acquisitions primarily is what we spend our strong financial position on. And then, of course, also distribution to shareholders, but in that order, as we have said many times before.
I give other comments on that and go to cash flow on Slide 17. And there, you can see a number which is not really comparable with last year because as the note says, it included the whole upper rock business last year. If we we can do a rough calculation of continuing operations, of course, and then it comes out roughly in line with this year's SEK 3,400,000,000 in operating cash flow. The big difference between this quarter and last year is that we were still releasing cash from working capital at that time. And since the revenues have grown tremendously from a year ago to now, we are instead investing a little bit in this quarter in the working capital.
That's primarily so the difference even if I do the analysis on continuing operations. And of course, profit is higher this year in continuing operations than last year. We then turn and I also turn I give the word back to Mats
to comment a little bit on the outlook. So let me end term outlook for Q4. Let me try to guide you a little bit what we see in the market in terms of activities. It's one of the more difficult one. Q4 is one of the months where a customer might say they want goods earlier or they want to push it into the next year.
So that's a little bit difficult for us to evaluate that from time to time. But what we see, when we start on semi then, It's mainly then, as I said, we can the industrial vacuum, I would say, even if it was kind of flat, we don't see negative trend there at all. We continue with service both in industrial account structure of the semi business, how many will place orders in Q4 and how many will place orders during next year. We are not concerned about the market. We know that the investments will come.
The difficult part is to determine when they actually place the order and then when they want deliveries. The motor vehicle industry has a number of fantastic years. We don't think it's falling off the cliff by any means, but we can see that a lot of the turmoil that had discussed a little bit earlier influenced a little bit the decisions. They hesitate a little bit in terms of where to manufacture and how much. So you can see that some of the decisions take a little bit more time than in the past, and that's why we said we see a little bit less activity in Q4 than in Q3.
On the other side then, the very positive to the construction market, which drives a little bit the rental business and the PT business, we don't see that changing. Oil and Gas, we also see more activity there, which is influencing some of our bigger compressors. And of course, generally, industry was very positive for the power technology sorry, the industrial technique but also for the industrial compressors, we don't see that changing either. So there's a capital segment in the market that we will say. Say.
It's a mixed demand picture, and we concluded it in this way. The customer demand is expected to be somewhat lower, mainly due then to semiconductor out to motor industries. Or
not? No, I think
we terminate there. I think that was a good summary of the Automattuck. So let's turn back the word to the operator for the Q and A session.
Thank you. The first question is from Graham Phillips from Jefferies.
My question Can you talk a little bit about the other markets? So you're saying half is semiconductors. What sort of growth, growth in orders do we see? And if semiconductor if the overall business is down 19%, does that mean semiconductors is down 40% And what is this sort of split between sort of memory and logic? Is there anything you can sort of talk about there?
And will deliveries be in the 4th quarter down that sort of order of magnitude? And what will that have in terms of a mix to the drop through margin? And as you say, it can vary quite substantially between plus and minus when you're talking about a decremental margin rather than an incremental margin.
If I start at least, I mean, really discuss the details down to the divisional levels. But as we have indicated then, industrial was a little bit flat in the quarter. But we don't see that as the real trend for the market. We see that as more as a general industry market. So we think that, that is an opportunity for us to continue to grow.
I also think that is the area where we have the most product innovation, and step by step, we've increased the depth of our product, which we will do for the Atlas Copco and Belgium and the label brands.
On the margins? Yes. On the margins, yes, you have seen a number of years or a number of quarters at least where we've had a good market situation and a good strong order growth and revenue growth and the vacuum technique business area has delivered very strong margins. And of course, as Mats alluded to a couple of times already, it is, however, a key account exposed business area. And then I'm talking about the semi, which now represents as an area about half of the business, as Mats said.
It's bound to react more volatile than, for example, the CT business that you have followed for many decades now. We see in good times that the margin has surpassed the CT business area. And when the markets go down or the revenue falls, we also expect that it will react in the other direction more than what the CT business area does when the market saw the revenues fall. But we are also pretty confident that just as compressor technique has been very stable now for a while around 23% or even more than 23% margin. And the VTE has done even more, 25%, sometimes even 26% profit margin.
It's those type of differences that we expect to see. Also, if the markets turn negative or the revenue trend starts to turn negative, our expectation is definitely not that we see a completely different vacuum technique performance when revenue falls. But it's certainly so that being a distance above CT in good times means that it will also be, of course, lower with this type of key account pattern and more volatility. It can also turn more negative in when that situation comes as it's now as we have in this quarter. The reason I compare with CET is that we have said many times is that structurally, as we see and also, of course, built on the strategic initiatives of growing the industrial part of vacuum technique business area and also growing consistently the service share of the business for reliance purposes.
We don't really see a good reason why vacuum technique over a business cycle should not perform roughly in line with compressor technique. But in the swings, both up and down, there is more sensitivity and there is more volatility due to this more concentration to a few key accounts, more concentration to a few geographies, more concentration to 1 industry.
To add to that, I think on the Agility side, the Semi side is where we are building in temp workforce 3x more temps than in any other divisions. So given a little bit of time, I think we should be able to adjust our structure in a way as well. So I think they're ready for up and down swings. And this we have to accept in this industry, where it's driven by a number of key accounts
globally. Okay. And just one final up.
And so have you reduced the workforce of fixed costs in anticipation that there will be, say, a 40% ore in semiconductor at those particular facilities?
I mean, we have adjusted in some of the facilities in the semi division, yes. But it's not that we do it in anticipation of a 40% downturn or something like that. No, if that was your question, no. But we rely, of course, on the structure that they have been with a lot of temporary work was to be able to quickly adjust. That's for sure.
But we are still at a heavy, heavy at a rather high level of revenue, as you have said, and that also means deliveries and the activities are still on a high level.
Next question is from Klas Bergman from Citi.
It's Klas from 50. First, also on vacuum technique. When I back to South Africa, it's down 35%, 40% roughly on the equipment side in semis. And when we look into next year, we at least have NAND CapEx down 30%, which is vacuum intensive. It's like a good proxy for equipment orders.
How about cancellations, which could come
on top? How does the backlog look right now? Should we get concerned that you can have cancellations, which could see total volumes looking worse?
We made the same reflection and talked to the team. As I said, now we have a lot of orders on hand. Should we not get more out on revenue side for the quarter? But then we have reached that. And if any, it might be smaller cancellation, but that would be normal.
It's more that the customer have put only the big orders for us, and that's what we have seen so far.
Okay. Just a quick follow-up on your guidance. 3rd quarter orders weaker, I guess, as a price for you as well outside semis, and you're guiding for somewhat lower demand against this lower level into the Q4. You're mentioning semis and automotive as the key drivers. But just so we get this right, are you then saying that you expect industrial side to stabilize in the Q4?
Or is that your seasonality? There was a weakness there that we spotted in CT in Europe and Asia. And then on automotive, Asia is holding up. You're guiding for further softness in MDI. So is that Asia that you now expect to weaken?
The China data there has been pretty grim. And obviously, CapEx could slow with a lag versus the weaker production.
There were so many questions. I don't know if I can start with you, but I can try. On the MBI side, I think that looking throughout the year in Principadan, U. S. Has been the one that's been performing on the lower level, and we have seen continued growth in Asia, and that has really drive driven the business.
What we see now is that it's still on a high level, but what they communicate with the customers that they see a little bit of concerns for the economy and principally linked a little bit if that is real or not to the trade wars and all these things. And they say so I think they see that the customers that normally have invested quite heavily are a little bit hesitant to give them the order. And that's a little bit what they say. You don't see a major shift. But comparing with sequentially, we see less activity.
And on industrial? I think if you mean industrial, generally, industry accounts, we do not see that. We would say that we had strong growth in Q3. And we expect Year on year growth. Year on year, yes.
Sorry, Matt. I meant CT in Europe
and Asia. I spotted some sequential weakness there, but maybe that was your seasonality.
We have we don't a global business talking too much about seasonality. I think it's relevant in power technique where we commented that. And then on the others, we see, perhaps not because of true seasonality, we see that Q3 is still affected. If you look through the graphs over the years between Q2 and Q3, yes, if you call it seasonality or something else, I don't know. But it's not the strongest quarter normally.
So hence, it's why we still want to talk about or we see and we listen to the input, we still hear a good demand level with the extra comments of some hesitance on capacity buildup that in timing, so to speak, that much to offer that.
Next question is from Lars Boesel from Barclays. Please go ahead. Your line is open.
Thanks. Hey, guys. Sorry to go back to semi OE, but it is an important part still of your business. I'm just trying to square your outlook at the time of the Q2 report somewhat lower for what seems to be, and I agree with the numbers mentioned earlier, something that looks like on your semi OE side down 40%, probably 50% sequentially in terms of order intakes now. And then in my book, that's substantially lower, not somewhat lower.
I appreciate you guide on demand outlook, not on your orders. But it would be fair to say that Q3 has come in, Matt, somewhat worse maybe than you expected at the time of Q2? And just on the Q4 outlook, is it the same issues, the same customers that's leading you to maintain this lower guidance into Q4? Or is it more broad based weakness?
The definition of somewhat could, of course, be discussed. But yes, we have seen that a number of orders have been postponed into the future, although, as I said, no significant cancellations. When we look into Q4, I would say it's a key account structure, and there are a number of accounts that we're still investing, and there's still the same one that are not investing as much. So you don't see this spreading or anything like that. It's more structural.
And probably when we talk about it in the coming quarters, you might say it's the other way around that someone stepped up the investment and someone is not investing.
And beyond temp workers, what action are you taking on cost? If I could just ask to derisk the earnings for semi OE going into 2019?
Yes. This is what we tried to comment before that we have on the Agility side, we have the number of temporary workforce is the highest we have in any of the business areas, etcetera. So there it's already partly in the structure and partly being executed as we speak.
And maybe I made smaller changes in the temp workforce, but still have in mind that there's still a lot of orders to be delivered. But we say we have a readiness for another scenario as well if needed.
Next question is from the line of Markus Almerich from Kepler
Markus von from Kepler here. So just coming back to Klas' question about the industrial side. So if I can just ask, so you have sequential fall in compressor orders. And looking at industrial back, we also see a sequential fall in orders. You're right.
But then at the same time, you see strength in general engineering. So is there a way to I mean, how do I put those 2 together? And could you talk a little bit about trends? If I understand you right, the underlying demand is pretty unchanged for both those businesses. Is that correct?
And can you maybe talk about different regions than North America, China and Europe?
Well, I can start much. The even though it's not the semi business with huge key accounts, of course, there are certain differences between the actual orders that we receive in 1 quarter and another and the attempt to give guidance on our customer space, so to speak, which we intend which we try to do in this near term outlooks. It is not the reason we struggle this, of course, that we don't give a projection on the order intake since many, many years. And then to translate between a customer trend or general economic trend, that is, of course, not so easy to reconcile every quarter. And I think that's what we are trying to say on the general industry side of it.
We don't read everything into a quarter compared to sequential development for orders. We have other ways also of judging whether the activity is still there and what the customers are talking about for the near future. All of that is, of course, a little bit more difficult when there are geopolitical and trade war related uncertainties. It becomes even more tricky to understand what how will they actually decide on the timing. But we're trying to make more than just month by month expect those figures for orders into this near term outlook.
If we stood now in the beginning of July and looked out on the demand patterns and now do it again in October, I think everybody would agree that if there is any direction, it's a little bit more uncertainties around that. That's also what we feel. But it comes back to how we react to it and Nazz already talked about that.
I think it's a good comment on the or if I define it as the trade wars. Over the last quarter, I think that has been more in discussion than previously. Even if I mean, there are some companies that have a the unease they feel right now in terms of what will actually happen, how will this impact different markets. But the underlying demand, if you look at traditional segments, like off road, I mean, they're doing really well. We get good good orders from that.
We have Aerospace is also strong. So some of the general industry market is performing really well. And this is, of course, linked to us and the industrial compressors. But the uncertainty has increased with all the discussions. We have the Turkey situation.
We have the Iran where we had stopped floating there. You have the Russia situation with some of the major companies there where we have to be very cautious in form of the sanctions. So there is a little bit of things that make it a little bit more uncertain than normal.
Okay. Perfect. And then if you could just very quickly, just a housekeeping question. Maybe I missed it, but if you could just help us with the FX impact for the next quarter if currencies stay unchanged as they usually do would be helpful.
Thank you for reminding me, Mikael. Now you saw we referred to SEK 470,000,000 in absolute value. That is that doesn't mean that it's relative to the margin impact. But the SEK 470,000,000, we believe that it will be a couple of SEK 100,000,000 positive in Q4, just judging where the numbers are today or where the exchange rates are today compared to Q4 last year.
Your next question is from the line of Ben Yiegel from Morgan Stanley.
Two quick questions, please. And I know it's been done to death a little bit on the vacuum side. But what I'm trying to understand is you've got a lot of key accounts, a lot of big semis customers. And last quarter, the impression was that this was a kind of problem, a localized issue with 2 or 3 of these key accounts. Is it fair for us to assume that now we are looking at something larger and more broad based?
Is this a general trend that you're seeing? Or is it or as per your opening remarks, China and Korea, we have a push out of a couple of large orders and it looks like a very big change. So what I'm trying to understand is, is this a sort of general market trend Or is this really down to what XYZ in Korea or ABC in China is doing? So can you just flesh out how that's changed quarter on quarter? And the second question is, in China, if we strip out vacuum, you're plus 7%, I think, was the number given.
Can you just tell us how that plus 7%, how your orders evolved during the quarter sequentially in China? I did we see a material difference from July, August into September? That was it.
I think I'll start with the vacuum question. We still I think in Q1 and Q2, we had significant orders from China. Those have not repeated itself in Q3, Q4 probably. So let me say then we see a little bit lower demand. They're still selected to a number of key accounts, but those key accounts are very big.
So we don't see this spreading throughout or anything like that. So when we look at our key accounts, it's principally the same accounts. But have in mind then that the capital of these big orders, I mean, I visited a semi plant in China 2 weeks ago. And I mean, the investment is $6,000,000,000 for that plant, and they were planning on building 2 more. And we had a very high market share.
But if you get one of those projects and you don't repeat, of course, it changes the whole quarter basically. So that's the way we see it. And I think I just repeat myself a little bit. And on the
other part, yes, of course, as we have never done before, we will not start now, Ben, to comment on each month in the quarter. But I understand what you're after is there is sort of a shock in September, but nice July. No, it's not something of that sort really that we see or that we build upon. We're just talking about the quarter actually, and that's what we are continuing to do.
Understood. That's helpful. And one quick follow-up. I don't know if you've sort of made a public disclosure or whether you can tell us, but roughly, what is the service or what how should we think about that business as a proportion of the semiconductor side?
In Mats alluded to about half of the business, that is the semi exposure currently roughly for VT. So how
big is the China aftermarket?
Yes. And that is including the service part of it. And so the bulk of that exposure is, of course, the equipment, but that is what has changed dramatically. So if that turns to sort of a 40% -ten percent or something or 40% equipment and 10% service for the semi part, but it's somewhere in that region. Okay.
That's very helpful. Thank you both. Thanks.
Next question is from Sebastien Crotere from Redburn. Please go ahead. Your line is open.
Hi, good afternoon. Sorry, it would be again on vacuum, but we know the orders are currently in that business. They were very strong in 'seventeen part of 'sixteen and now they are weak. But shipments, is there any reason why we should think that the semi part of vacuum will underperform the equipment semi equipment semi conductor equipment market next year? Have you lost any market share in the last few quarters or is it a vacuum density issue you are facing in 'nineteen?
So just your performance versus the market? And if we can just talk about the shipment and exclude the order intake issue? Is that the first question?
To start with maybe, yes, orders you see there's nothing level with the last three quarters, but we still think it's quite okay level and we delivered close to 25% on the revenue. So we don't think it's too bad. Then we, of course, follow all the indexes around the world regarding CapEx investments for the coming years. But we have learned at least that it gives us not so good guidance, some speculating negative growth for CapEx, but the majority still speculate that we will see an increase in CapEx spend for next year. We look at it.
We don't draw many conclusions, but we make ourselves ready for an upturn or a downturn if needed. The one other thing that we look at is pricing for memory and logic. You can see that's a little bit on its way down. On the other side, if you look at our customers, first, sales continue to be fairly strong. And also the margins they make, it's very healthy to say.
To say the least. At least
I think you talked about, I don't know if you yes, is it the market share movement? Are we losing or are we gaining and looking into 2019? I think that's what your question was about, Cerna.
Yes, yes, overall semi, semiconductor equipment market and versus the vacuum market within semi. So is there any reason why your business could underperform the semi equipment and the vacuum equipment market in 2019?
Well, as a share, those equipment that we deliver, the pumps, in other words, and compared to the general spend in the industry, that's what you're asking.
Yes. Your performance, do
you see market share loss that will justify the lower order intake? Or you think it's just the lumpiness of orders? No, I
think we will if you look at semi, I mean, there's a handful of competitors in that segment. We believe that we are the leading brand globally, and we are in a strong position with new products that are going to continue to gain market shares. And we were very successful over the last couple of years when we see the start of the investments in China, and we continue now to build on the service business there. On industrial vacuum, going to market with 3 brands with a lot of new products, Considering the growth numbers we have had, we cannot see it in any other way that we have gained our market shares. And that market, I think, will continue for many years to fuel with new technologies and actually change the way they handle vacuum in industrial vacuum.
It's we run into, from time to time at least, rather old technology, and we can give them better product with better energy efficiency. And we like that. We think we are gaining position in both those segments.
Okay. And very quick question on the FX impact in vacuum on a sequential basis, just to assess the flow through, which was 40%, but that include FX and I think FX was quite positive compared to Q2. Can you give us a rough idea? Year on year was 160% but quarter on quarter?
It was a negative impact on the sequential. If we don't have the same type of open disclosure as you can see from a year to year comparison, but it was a negative in that year to year. They, of course, have a positive impact from currencies. And quarter on quarter was positive or negative? Was negative, yes.
Thank you.
Yes. I think we have time to take one more question. And for those that are still waiting on the line, which we regret, of course, a lot, we hope we can serve you from after the call as well as good as we can. But we take one more question from the call.
And the final question for today is from Max Yates from Credit Suisse. Just
a quick question on the margins. And I guess, firstly, within that, in the quarter, could you talk a little bit about whether you were having any negative impact from raw materials versus pricing and whether that had any impact on the margin? And then secondly, more broadly, when you think about sort of compresses into next year, when you look at the pricing environment and the cost base, obviously, we are back at peak margins now. Do you see any scope for margins to go higher next year? Or do you think this is the sort of level where they tend to top out and actually keeping them at this level would be a good achievement?
I think I will just echo your last comment there. Over quite a long period of time, Compressor Technique being the biggest business area that we have, have delivered significant cash and profit generation at sometimes at 22 ish, sometimes 23 percent and this time even 23.7 percent operating profit margin, but they've been extremely stable at that level. The reason it is stable and not ever increasing is, of course, that we prioritize to grow this fantastic return on capital employed machine. I don't know if you noticed, but it was reported 103% return on capital employed this last 12 months. And so for us, it's very easy.
We continue to pour money and efforts into the business, and we're happy, very happy with this profit margin level. And then it's all about making sure that it's bigger and that it's as strong 5 years from now. That's basically what we aim for.
Okay. And maybe one very quick follow-up. Obviously, across sort of the semis equipment supply chain, we've seen weakness across a number of companies. You obviously made the Brooks Automation acquisition. Do you broadly look at this kind of weakness across the supply chain as maybe the opportunity to utilize your balance sheet and pick up more assets?
Do you see that as sort of part of the strategy? I'm just trying to wonder how you think about your balance sheet given the weakness and maybe more attractive valuations in these assets than we've seen for a while.
When we look at each of the 21 divisions, I would say that in principle, every one of them is allowed them to look at acquisition. They are really good margin businesses, and we're looking for growth. So we have presented very clear strategy targets for what kind of segments we'd like to be in, and we look very much at the stand alone attractiveness for different segments. And when we have that defined principally, we asked the presidents to start to list candidates that could be a good fit for us from a synergy standpoint, from a country standpoint. And of course, if valuations come down and maybe some make up their mind that they want to do something differently, And we will be eager then to execute on that.
I cannot promise you that we will do more or less right now. But yes, we will have the ability to execute, and we know exactly what we'd like to do.
Thanks, everybody, for participating in the call. We
have done
our hour now. Before I leave you though, we did not comment on Slide 19, but I take the chance now before I let you go. There's 1 week to go to register for the Capital Markets Day on November 15 in Stockholm, Sweden. If you follow the link, you will get more details. But please, if you haven't done so already, sign up for the November 15 event then in Stockholm.
So with that, thank
you so much for calling in, and have a good weekend. Thank you.