Ladies and gentlemen, welcome to the Atlas Copco Q3 2018 report. Today, I am pleased to present CEO Mats Rahmström 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, a warm welcome to everybody on the call for the third quarter report from Atlas Copco conference call. We will follow a very well-known format for you. Mats Rahmström will take us through his own comments about the quarter, then we will open up for questions. 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 as many people as possible queuing up for questions to have a chance. We'll come back to that in a few minutes, and I'll hand over to Mats. Thank you.
Thank you, Hans Ola. I will start on page number two. I know everyone is eager to discuss the numbers, we think it's essential to share a little bit about our strategy as well from time to time. We have called this point, strategy in action, the picture is actually from our technology center in Bretten in Germany, very close to the German car manufacturers. Some of the topics that, during the quarter, the questions we got, Hans Ola, myself, and Daniel, has been around how can we help the car industry to build lighter cars. We also talked about automation, and can we really key up and be partners with the new battery manufacturers around the world. I thought this picture actually speaks more than a thousand words.
In this innovation center, we bring in customers, and here we share the four technologies that we offer. It's adhesives, it's the self-pierce riveting, it's the flow drill technologies, and the titanium. The first question was a little bit automation. Are we ready for that? You can see in every station, it's rigged with robots, and we can use any manufacturers. This is one of the ways for us to show how we can help them with automation. It can also build in different materials. The car to on the right this is aluminum, and the customer can actually then bring in their own models to test this, and that is behind closed doors here. 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 of how we help them with the future technologies of mixed material. If I go to results on page three, we think it is a solid month with SEK 5.2 billion in profitability and 22.5% margins, the adjusted margins, to still one of our better quarters. 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. We also flag a little bit about MVI for next quarter, but that they will bring up under IT day later on. On the orders received growth, we can see that the compressor is up 4%, and I only talk organic now since we have such help from currency.
Industrial up four, the power equipment came in at 13, 19 for vacuum then.
I guess.
Right. We can see continued service growth, specifically, I must say I am happy for Semi, since they still have high utilization in the factories. That continues strong for us. The revenue growth of 6%, in one or two business areas, we think we could have done somewhat better, I will come to that. Page number four, orders received, we discussed there was a decline of 1% organically. If you look at the operating profit, we talk about an adjusted level of 22.5%, and the 23.8% included the Henrob release last year. Of course, it's also adjusted then for long-term incentives. We think it's a higher comparison versus 22.2% from last year. If you look at the graph, you can see that from a revenue perspective, it's the second-best quarter we have had.
From orders received, sequential, of course, it is down, but still, if you take away the last two quarters, it is still on a high level. On slide five, you can look at our sales geographically. I start from the left side, you can see North Americas. Actually, quite strong growth, it came out of all the business areas were up in North America. Hopefully, if I call it the new NAFTA agreement, might help us as well. We have seen stronger growth in U.S. compared to Canada, hopefully that will change now over time. For us, being the industrial part is Brazil, is the main part, that continues to be a strong recovery of business for us. Europe, which is down 31% of our business, that was a little bit of a mixed bag.
Compressor Technique up 5%, Industrial Technique down 5%, VT down, PT up 24%, which was very strong. The biggest pieces was still Asia for us, you can see 34% of our business, this is -9%, that is mainly then part of the VT and the Vacuum Technique, coming out of Korea, China. You look at the other business areas, PT down slightly or flat. IT is up 22%, CT is up 4%, taking out the VT for Asia, it would be up 7%. It is very linked to the semi industry in Asia. Slide six, just a reminder about the organic growth, the same scenario there, down, it indicates in -1%. If you take away the Vacuum Technique, of course, Vacuum Technique had both, we had strong, it might not be fair, but then it will be a positive 5%.
Slide six, you can see currency have been helping us with 2% throughout the year, it is of course strengthened with the dollar and the euro, it is now taking us 7%. We go to slide eight. We can see the split of the Atlas Copco Group now. Compressor Technique being the dominant part, having done 4% growth for the quarter. Vacuum Technique, approximately 50% of Vacuum Technique today is semi, the other part is industrial and high in service. Industrial Technique continued to be strong, there we have approximately 60% being related to the car industry. As I said, the Power Technique had a very strong quarter with 13% growth. Slide nine talks about Compressor Technique. I start with the graph. We can see that it was a record for us, on revenues.
It is still a challenge on some of the components, they do a tremendous job to keep competitive lead times. They still fight week by week to help our customers to get their product in a good way. You can also see then that orders received was the second best quarter that we have had up 4%. Very solid margin at 23.7%. We continue to bring new products to the market. It is very, very important for innovation for us to bring new features to our customers. This is the new GA product. It is a VSD+, you know the VSD technology. We have improved that even further, this one might be up to 10% even more efficient than the old generation. We think this might be a good product for our customers to invest in.
On slide 10, you have the Vacuum Technique, as we indicated orders in Q2, you could see that activity level on semi was less than we have seen in the previous quarters. As I said earlier, the capacity installation, this is what we see when they're hesitating, but if it's technology-driven, they have continued to invest. Underlying demands for the industry, we don't see a change in that. We still believe very much in this market. 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. You can see with these revenues that we have had, we still deliver close to 25% operating profit.
The innovation part here is the iXH Mk2 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 the acquisition of Brooks Automation. It's cryo pumps and cryo coolers, very linked to our semi business. It's for the tool makers, principally. We think it's a very good match. We already know the customer. We add all the new technologies in the same organization. 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 growth of 4%. I think that was okay.
It is one of the areas that we had expected ourselves a little bit more invoicing, it was related to component shortages, specifically actually from one supplier that moved the factory. They have made a commitment to us to catch up during Q4 and get back to normal lead times. A solid margin there as well, 23.3%. There we are investing a little bit in more coverage in Asia, and we're also investing a little bit in the more digital solutions for service. We have improved a little bit higher cost in this business area for this year. A little bit the concerns we see for the coming quarters could also be an opportunity. Of course, we can see that car manufacturing and sales is declining somewhat. Those of you that follow know that that's not a direct correlation to our business.
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 engine? Should we go hybrid? Should we go electric vehicles? I think most of them, the major suppliers said 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 a mixed material is also an interest for them. What has added, I think, a little bit on the discussion is a little bit the trade wars and the manufacturing footprint, where do they need to manufacture for the future? I think that's something they're discussing internally.
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 powertrain as well. We can see this as being discussed. On the other side, they're in a good position when they take decision, and it drives actually tooling and equipment sales if they move on any one of these strategies. That's a little bit the activity. We 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're also taking away in China some of the subsidies on smaller cars. That's a little attack. Innovation part. This is a Desoutter product. On the left corner is a new controller, new tools. One of these controller can handle up to 20 tools, which in principle means that you can do mass customization. You can have a bunch of these tools in the same station. You can reprogram them for every car that comes across. You can also do rebalancing of line if you want to run 15 hours or 16 hours. You can move one process, 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. That's the QUISS. It is principally a 3D dimensional camera that can give us traceability on adhesives.
We will integrate that to our product, and we also sell that as a standalone. Power Technique, strong growth, 13%. Rental business was doing quite okay. The power and fluid division that we created this half 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. The main driver has been the rental business, and the quarters have been pretty flat, I must say. You can see the margin being 16.5%. It's a little bit structural, of course, since last year, but I also think step by step it takes efficient to improve our margins here as well. On the innovation side, very interesting product. This is a new generator that we will launch in five different versions.
They use the VSD technology both for the engine, but also for the fan, which takes down a little bit the energy consumption. The other big benefit for rental companies is the footprint is 20% less than present technologies. I think this might be a very good fit for rental companies around the world. If I summarize a little bit before I hand over to you, Hans Ola. A strong quarter. Revenue, second 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. In some areas, I mentioned that on the revenue, especially for Industrial Technique, we hopefully then catch up a little bit in Q4. Good. On the rest of the financial numbers below the operating profit, which, by the way, I happened to look back two years and I saw that it was about the same level as we had in Q3 two years ago, slightly better this time. Then I realized that Epiroc was part of the group as well at that time. A 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 more than halved compared to the same quarter last year.
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, that has reduced the interest rate quite considerably. 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 million or so per quarter is what we should expect before anything major changes in the balance sheet. 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 25-26, following the developments that happened a few years ago, you remember, in Belgium. We have another trend, that's nice because corporate income tax levels are coming down.
We are enjoying already a lower income tax rate in the U.S. We are seeing gradually a lower income tax rate in Belgium, 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. When we move further on, perhaps we can update that later when we get into the first quarter 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. 32% at least is a 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, also a better transactional currency situation, that has helped. You also see the other big part, which is a big one-time profit that also Mats alluded to in Industrial Technique last year in Q3, which took away about SEK 380 million only on that point from last year's profit. 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 SEK 1 billion and a little bit more than a quarter of a SEK billion in the profit. 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 quarters when we have been closer to 50% in this percentage point. 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. You see two divisions with negative revenue growth in the quarter, and Mats has 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.
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. That gives a little bit of an extra negative effect. In relation to the operating profit in total, of course, these numbers are still relatively small, if I say it like that. The percentage Here we don't even do. Industrial, I think Mats commented on a conscious investment in certain cost items like coverage and R&D, on top of a somewhat low revenue quarter, and 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 0.5.
We have ample room to continue to do acquisitions, primarily, is what we spend our strong financial position on. Then, of course, also distribution to shareholders, in that order, as we have said many times before. I skip other comments on that and go to cash flow on slide 17. There, you can see a number which is not really comparable with last year, because as the note says, it included the whole Epiroc business last year. We can do a rough calculation of continuing operations, of course, and then it comes out roughly in line with this year's SEK 3.4 billion 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.
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 the difference, even if I do the analysis on continuing operations. 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.
Let me turn outlook for Q4, where we 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. That's a little bit difficult for us to evaluate that from time to time. What we see, when we start on semi, it's mainly down, as I said, the industrial vacuum, I would say, even if it was kind of flat, we don't see a negative trend there at all. We continue with service both in industrial and semi being positive for us.
The one that's difficult to predict is actually the key 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 when they want deliveries. The motor vehicle industry have a number of fantastic years. We don't think it's falling off a cliff by any means, but we can see that a lot of the turmoil that I discussed a little bit earlier influence a little bit to the decisions. They hesitate a little bit in terms of where to manufacture and how much.
We 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, we are 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 are also seeing more activity there, which is influencing some of our bigger compressors. Of course, general industry was very positive for the Industrial Technique, but also for the industrial compressors. We don't see that changing either. There's a couple of segments in the market, we will 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 to semiconductor and automotive industries.
I don't know if you want to add there also.
No, I think we terminate there. I think that was a good summary of the outlook. Let's turn back the word to the operator for the Q&A session.
Thank you, ladies and gentlemen, if you do have a question for the speakers, please press 01 on your telephone keypad now. The first question is from Graham Phillips from Jefferies. Please go ahead, your line is open.
Yes, good afternoon. Thanks, Mats, Hans Ola. My question will be on Vacuum Technique. Can you talk a little bit about the other markets? You're saying half is semiconductors. What sort of growth in orders do we see? If the overall business is down 19, does that mean semiconductors is down 40? What is this split between memory and logic? Is there anything you can talk about there? Will deliveries be in the fourth quarter down that sort of order of magnitude? What will that have in terms of a mix to the drop-through margin? 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, we don't take it really indicated that industrial was a little bit flat in the quarter. We don't see that as the real trend for the market. We see that as more as in general industry markets. We think 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 increase the depth of our product portfolio for the Atlas Copco Edwards and the Leybold brands. On the margins.
Yeah. On the margins, 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. The Vacuum Technique business area has delivered very strong margins. Of course, as Mats has alluded to a couple of times already, it is, however, a key account exposed business area, 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.
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 markets or the revenues fall. 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 BT 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. 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 when that situation comes, as we have in this quarter. The reason I compare with CT 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. 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 one industry.
Go ahead.
Thanks.
To add to that, I think on the agility side, the semi side is where we have built in temp workforce three times more temps than in any other divisions. Given a little bit of time, I think we should be able to adjust our structure in a way as well. I think they're ready for up and down swings, and this we have to accept in this industry, for it's driven by a number of key accounts globally.
Okay, thank you. Just one final up then. Have you reduced the workforce, the fixed costs, in anticipation that there will be, say, a 40% fall in semiconductor at those particular facilities?
We have adjusted in some of the facilities in the semi division, yes. It's not that we do it in anticipation of a 40% downturn or something like that. Now, if that was your question, no. We rely, of course, on the structure that they have built with a lot of temporary workforce to be able to quickly adjust. That's for sure.
Okay.
We are still 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.
Okay, thanks, Mats. Thanks, Hans Ola.
Thanks.
Next question is from Klas Bergelind from Citi. Please go ahead, your line is open.
Yes. Hi, Mats and Hans Ola. It's Klas from Citi. First, also on Vacuum Technique. When I back this out, I get this down 35%-40% roughly on the equipment side in semis. When we look into next year, we at least have NAND CapEx down 30%, which is vacuum intensity. It's like a good proxy for equipment orders. How about cancellations? 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 and said, now we have a lot of orders on hand. Should we not get more out on revenue side for the quarter? We have bridged that and if any, it might be smaller cancellation, but that would be normal. It's more that the customer have postponed a little bit the orders for us, and that's what we have seen so far.
Okay. Just a quick follow-up on your guidance. Third quarter order is weaker. I guess it's a surprise for you as well, outside semis. You're guiding for somewhat lower demand against this lower level into the fourth quarter. You're mentioning semis and automotive as the key drivers. Just so we get this right, are you then saying that you expect the industrial side to stabilize in the fourth quarter, or is that your seasonality? There was a weakness there that we spotted in CT in Europe and Asia. On automotive, Asia is holding up. You're guiding for further softness in MVI. Is that Asia that you now expect to weaken? The China data there have been pretty grim, and obviously CapEx could slow with a lag versus weaker production.
There were so many questions that I don't know if I kept up with you, I will try. On the MVI side, I think that looking throughout the year in principle, U.S. has been the one that's been performing on the lower level, we have seen continued growth in Asia, that has really driven the business. What we see now is that it's still on a high level, what they communicate with the customer is that they see a little bit of concerns for the economy in principle, linked a little bit, if that is relevant, to the trade wars and all these things. They say, I think they see that the customers that normally have invested quite heavily are a little bit hesitant to give them the order, that's a little bit what they say. You don't see a major shift.
Comparing with sequentially, we see less activity.
On industrial?
If you mean industrial, general 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, yeah.
I meant CT in Europe and Asia. I spotted some sequential weakness there, but maybe that was your seasonality.
Yeah. A global business, talking too much about seasonality, I think it's relevant in Power Technique, where we have commented that. On the others, we see, perhaps not because of true seasonal, but 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. 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 must talk about.
Thank you.
Next question is from Lars Brorson 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. In my book, that's substantially lower, not somewhat lower. I appreciate you guide on demand outlook, not on your orders, but would it be fair to say that Q3 has come in, Mats, somewhat worse maybe than you expected at the time of Q2? Just on the Q4 outlook, is it the same issue, the same customers that's leading you to maintain this lower guidance into Q4? Is it more broad-based weakness?
The definition of somewhat could of course be discussed. 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. There are a number of accounts that are still investing, and there's still the same one that are not investing as much. We don't see this as spreading or anything like that. It's more structural, and probably when we talk about it in the coming quarters, we might say it's the other way around, that someone stepped up the investment and someone is not investing.
Beyond temp workers, what action are you taking on cost? If I could just ask to de-risk the earnings for semi OE going into 2019.
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, et cetera. There it's already partly in the structure and partly being executed as we speak.
Maybe I made smaller changes in the temp workforce, still have in mind that there's still a lot of orders to be delivered. We say we have a readiness for another scenario as well, if needed.
Thank you.
Next question is from the line of Markus Almerud from Kepler Cheuvreux. Please go ahead, your line is open.
Hi, Markus from Kepler here. Just coming back to Klas's question about the industrial side. If we can just ask, you have sequential falling compressor orders, looking at industrial vacuum, you also see a sequential fall in orders, you're right. At the same time, you see strength in general engineering. How do I put those two together? If 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? Can you maybe talk about different regions than North America, China, and Europe?
I can start, Mats. 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 one quarter and another, and the attempt to give a guidance on our customer space, so to speak, which we try to do in this near-term outlook. The reason we struggle is, of course, that we don't give a projection on the order intakes since many years. To translate between a customer trend or general economic trend, that is, of course, not so easy to reconcile every quarter. 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 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 how will they actually decide on the timing. We're trying to make more than just month-by-month expectance 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's also what we feel. It comes back to how we react to it, and Mats already talked about that.
I think it's a good comment on the, what if I define it as the trade wars. Over the last quarter, I think that has been more in discussion than previously. There are some companies that have a direct impact. We have fairly little. Some of our customers do, but that is more the unease they feel right now in terms of what will actually happen, how will this impact different markets. The underlying demand, if you look at traditional segments like off-road, they're doing really well. We get good orders from that. We have aerospace is also strong, so some of the general industry market is performing really well. This is, of course, linked on the industrial compressors. The uncertainty, it has increased with all the discussions. We have the Turkey situation. We have the Iran, where we have completely stopped quoting 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. There is a little bit of things that make it a little bit more uncertain than normal.
Okay, perfect. Thank you. 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, it would be helpful.
Thank you for reminding me, Marcus. You saw we referred to SEK 470 million in absolute value, that is. That doesn't mean that it's relative to the margin impact. The 470, we believe that it will be a couple of hundred million SEK positive in Q4, just judging where the numbers are today or where the exchange rates are today compared to Q4 last year.
Perfect. Thank you very much.
Thank you.
The next question is from the line of Ben Uglow from Morgan Stanley. Please go ahead, Ben. Your line is open.
Good afternoon, Mats. Good afternoon, Hans Ola. Thank you for taking the question. Two quick questions, please. 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 semi customers. Last quarter, the impression was that this was a kind of problem, a localized issue with two or three 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 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.
What I'm trying to understand is this a sort of general market trend or is this really down to what XYZ in Korea or ABC in China is doing? Can you just flesh out how that's changed quarter-on-quarter? The second question is, in China, if we strip out vacuum, your +7, I think was the number given. Can you just tell us how that +7, how your orders evolved during the quarter sequentially in China, i.e., did we see a material difference from July, August into September? That was it. Thank you.
I think I'll start with the vacuum question. I think Q1 and Q2, we had significant orders from China. Those have not repeated itself in Q3, Q4, probably. That we say then we see a little bit lower demand. They still selected to a number of key accounts, but those key accounts are very big.
We don't see this spreading throughout or anything like that. When we look at our key accounts, it's principally the same accounts. Have in mind then that the capital of these big orders, I visited a semi plant in China two weeks ago, and the investment is SEK 6 billion for that plant, and they were planning on building two more, and we had a very high market share. If you get one of those projects and you don't repeat, of course, it changes it in quarter effectively.
That's the way we see it, and I think I just repeat myself a little bit.
Yeah.
On the other part, of course, as we have never done before, we will not start now then to comment on each month in the quarter.
I understand what you're after, is there a sort of a shock in September?
Nice July. No, it's not something of that sort really that we see or that we build upon.
Okay.
We're just talking about the quarter actually, that's what we are continuing to do.
Understood. That's helpful. One quick follow-up. I don't know if you've sort of made a public disclosure or whether you can tell us, roughly what is the service or how should we think about that business as a proportion of the semiconductor side?
Mats alluded to about half of the business, that is the semi exposure currently, roughly, for VT.
How big is this kind of aftermarket?
Yeah. That is including the service part of it.
The bulk of that exposure is of course the equipment, but that is what has changed dramatically. If that turns to sort of a 40/10 or something, or 40% equipment and 10% service for the semi part, but it's somewhere in that region.
Okay. That is very helpful. Thank you both.
Thanks.
Next question is from Sebastian Kuenne 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 a bit clumpy in that business. They were very strong in 2017, part of 2016, and now they are weak. Shipments, is there any reason why we should think that the semi part of Vacuum will underperform the semiconductor 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 2019? Just your performance versus the market, and if we can just talk about the shipment and exclude the order intake issue. That's the first question.
To start with maybe, yes, orders received is not in level with the last three quarters, but we still think it's in quite okay level, and we delivered close to 25% on the revenue, so we don't think it's too bad. We, of course, follow all the indexes around the world regarding CapEx investments for the coming years. We have learned at least that it gives us not so good guidance. Some speculate in a negative growth for CapEx, but the majority still speculates 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 ourself 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 is very healthy to say the least.
Really profitable.
I think you talked about, I don't know if.
I might.
Yeah. On is it the market share movement, are we losing or are we gaining? Looking into 2019, I think that's what your question was about, Jean.
Yeah. Versus the overall semiconductor equipment market and versus the vacuum market within semi. Is there any reason why your business could underperform the semi equipment and the vacuum equipment market in 2019?
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?
Yeah. 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?
I think if you look at semi, there is a handful of competitors in that segment. We believe that we are the leading brand globally. We are in a strong position with new products as well to continue to gain market shares. 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 three brands, with a lot of new products, considering the growth numbers we have had, we cannot see it in any other way than we have gained our market shares. That market, I think, we can continue for many years to fuel with new technologies, and actually change the way they handle vacuum in industrial vacuum.
We run into, from time to time at least, rather old technology. We can give them a better product with better energy efficiency and like that. We think we are gaining position in both those segments.
Okay. 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. We don't have the same type of open disclosure as you can see from a year-to-year comparison. It was a negative in that year-to-year, they, of course, have a positive impact from currencies.
Quarter-on-quarter was positive or negative?
Was negative, yeah.
Thank you.
Thank you. Yeah, I think we have time to take one more question. 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. We take one more question from the call.
The final question for today is from Max Yates from Credit Suisse. Please go ahead, Max. Your line is open.
Thank you. Just a quick question on compressor margins. 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? Then secondly, more broadly, when you think about compressors 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? 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 delivered significant cash and profit generation at sometimes at 22-ish, sometimes 23, and this time even 23.7% 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 know this, it was reported 103% return on capital employed this last 12 months. For us, it's very easy. We continue to pour money and efforts into the business, and we're very happy with this profit margin level. It's all about making sure that it's bigger and that it's as strong five years from now.
That's basically what we aim for.
Okay, maybe one very quick follow-up. Obviously, across 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 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 to look at acquisition. They are really good margin businesses, and we're looking for growth. We have presented very clear strategy targets for what kind of segments we like to be in, and we look very much at the standalone attractiveness for different segments. When we have that defined, principally, we ask the presidents to start to list candidates that could be a good fit for us from a synergy standpoint, from a culture standpoint. Of course, if valuations come down, maybe some make up their mind that they want to do something differently, 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 like to do.
Okay, great. Thank you.
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 is one 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. With that, thank you so much for calling in, and have a good weekend.
Thank you.