Ladies and gentlemen, welcome to the Atlas Copco Q3 2017 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. Hans Ola Meyer, please begin your meeting.
Thank you very much, and very welcome. Good morning, good afternoon, good evening to everyone participating on the call regarding our Atlas Copco third quarter report 2017. We will start, by the way, by me handing over the word to Mats Rahmström, our CEO, and then we will, in a short time, go over to Q&A. Please, Mats.
Thank you, Hans Ola, and hi, everyone. I will start with slide number two called Q3 in brief, stating then strong order growth at 17%. As you know, we focus a lot on innovation and product development, and it's good to see for us that we really get traction for the new product now and that they deliver clear values to our customers, so we really appreciate to see that trend. We said that specifically then Vacuum with strong growth and also Mining. I would also highlight the CT performance with a 14% organic, which I think is a very good performance as well. When we look geographically, we can see that we have double-digit growth in principally all regions, and it's quite a unique situation for us and a very good performance.
A record profit, as you have seen, business with and without the one-time cost that we have. I would also recognize the cash flow and the hard work that is done on the net working capital. We have the split project, and I think, congratulations to team working here. Very well done, and they are still on target to make sure that this happens in a good way if we get approval then at the AGM next year. You can also see that we have finalized the Road Construction, which we're happy about, and now the Power Technique business area can focus more on the core business that it still have. I change page to slide three, then we have the figures. I will not take you through every figure.
You can see, of course, the gap between orders received and revenues. I will cover a little bit the supply chain per business area later on. In basically you can see that Vacuum is meeting demands in a very good way, and that is also valid for Industrial Technique and Power Technique. PMR, we did very good improvement of 15%, but we would like to get even more out of the mining business area. CT down to 2%, this is where we struggle a little bit to get the volumes out into according to our investment question. Profit SEK 6.2 billion or I guess SEK 6.1 billion.
You can see, it's the one-time cost, which I think that we will cover a little bit later on, but these numbers are record numbers. Highlighting again the SEK 5 billion in cash flow, which I think is the third best quarter that we have had. I change to slide four, which we see the geographical split for our business. Double-digit growth, as you can see in green, which I think is strong for us. The other thing that I recognize in this picture, and that is the strategy that we have to be equally strong in the three regions. You can see if you add up the Americas, it's 29% of our business. Europe is 29%, and now also Asia being 30%, which gives us good sustainability over time. Slide five.
I can confirm that the recovery with the last 12 months have been very solid, you can see the five consecutive months of organic growth. Slide number six, which we say sales bridge . In the structured part, you still have Leybold which will go out for the next quarter, which will come into organic. You see that we have a little bit of headroom in CapEx, and then this level that would remain in Q4 and Q1 as well. A very positive volume on 17. On slide seven you have the split in between the different business areas, and the Mining part, which is 25%, which is then suggested to become the Epiroc split. The other change I think you can see is the Vacuum, growing in the group and now at 17%.
Now we get into the different business areas, starting with the Compressor Technique. If you look at the graph and the orders received, it's 14% for the quarter three, very solid quarters and quite a new level for us. We can see this is spread out through the different divisions, and this month you also see an increased activity in the gas and process business. The downside here a little bit is the invoicing, where we like them to give our customers good service in terms of deliveries, and I think they're doing a fantastic work. We have right now increased lead times for some of the compressors. If we stay basically on this level for the coming two quarters, we estimate that we will be back on ordinary lead times during Q1 next year.
Also like to highlight on that they put a lot of new products in the market, which I think gives clear benefits to our customer, and I think that product portfolio and safety in general looks very interesting. We change to Vacuum Technique on slide nine. Very strong orders received, which is led by semi and bats. I would say industrial and high vacuum, and also service is developing in a very good way. This split is still approximately 60% is semi, and the other 40% is the other businesses. They keep up well and are thus gaining market shares and industrial for sure. We look at the operating margins, which is on a record level, and we are very happy about that.
With the currency and the mix and the volume we have at this point, this is a good result. You should have in mind that we continue to invest in the business, manufacturing for increase of all the divisions. We also increase our sales coverage, mainly in Industrial Technique and high, and also then the same thing for service. The statement we have done in the past is still valid. We believe that the Vacuum Technique will be in par with the CT over a business cycle, although the service part might be slightly lower in the Vacuum part. You also discuss a little bit the volatility in this business. As you can see, since we have a quiet [inaudible], we haven't seen much volatility, but it's still there. It could come.
We see the macro demand for these type of products. If you read a little bit the reports out there, we still believe this is a very strong business and good business to be in. That doesn't mean that every quarter is still and probably a little bit up and down. You also see the Chinese investments, where they're funding money to make sure that they are part of this industry, [inaudible] . We were to get more sustainability aspect investment in industrial and scientific, also called high, and also the service. That's our contribution to make it more sustainable over time. Both the CT and the Leybold acquisition have delivered on par and above expectation.
I think if you look at the with exception on the Q1, you can see a good sequential angle for the Vacuum Technique this design. We're also working a lot with the product portfolio, very interesting product for semi, but an even more rapid expansion on the product portfolio for industrial. Vacuum Technique, slide 10, 11%. Here we can see a little bit of the indications from the U.S., where they've seen a little bit less production and less sales. That's not a direct correlation with our activity since they are more product-based and new models. I will say that there is an increased activity around assembly technologies related to aluminum, high-strength steel, composites. I think it's summarized in piece that mixed material, which over time we are well-positioned with the fastening equipment and also self-pierce riveting equipment.
On the general industry side, in the past, what we have called off-road, has been the biggest segment, but that's been still segment for a number of years, but now we can also see increased activity in this area. The adjusted margin [inaudible] is 22.0%. In mining, slide 11, 22% growth. We have stated it before, but we still see an adjacent business. We see adjacent businesses definitely being the main driver for us. We have not seen that many green themes at this point. Also saying that the prices on met coal have been favorable for us, especially on where we are positioned. I would say that also that the big mining houses, they really look for productivity, which is beneficial.
You can also see that the grades they're looking for takes time with control goods. Over the last year we have noted down basically 70 mines that have been closed or have been under care maintenance. Care maintenance normally means that they still have equipment there. There are very few of these mines that have actually been opened, so that we haven't seen. I think it's around three or something that we have indicated that has opened. On the delivery side, this is driven by underground intrinsically, others are coming along good as well. On the delivery side, I would say it's mainly then sub-supply. We have the capacity to do the final assembly. We have the capacity to do the quality checks and the logistics.
It's mainly working together with our sub-suppliers, and some parts you need to do a little bit structured to see if you can have the resource and things like that. It takes a little bit of time to adjust to such a big move in terms of orders received. Same here, that, if the volume stays approximately this level, we will be back to at normal lead times during Q1. There could still be surprises of course, that is our best estimate today. Last is Power Technique, organic growth of 9%. I think this is the business area where you see a little bit of seasonality in the numbers. One of the most competitive market is China and Asia, we can also see a growth in this area, I'm pleased about that.
Now of course, now with the Road construction out, I think we can get back and really focus on this business as well. By that, I think I hand over to Hans Ola.
Thank you, Mats. Just continuing on the next page, group total, it's slide number 13. A few things since it was a couple of extraordinary things in the quarter, just commenting briefly on those. In the operating profit, we have an extra help of SEK 81 million as we wrote. Consists of SEK +380 million in Industrial Technique, mainly consisting of a contingent payment for the purchase for the acquisition of Henrob, which is not unusual that we have a part of the purchase price agreed conditioned upon certain factors as big projects coming through or revenue growth or something like that. All of them that was in the plan initially from the seller did not materialize.
In conjunction with that, there is also a small correction of the intangible values for that specific acquisition, and that is embedded in this SEK 380 million. We also have on the common group functions, we have in total SEK -299 million impact, the big part there comes from split related costs. One is a clear one-time thing. Again, it is an impairment or a write-down of a capitalized IT cost, the reason is that Epiroc, the future Epiroc, have already decided upon certain things for their strategy.
One of them being that they go for an integration of IT systems with what they have in the production facility, which means that they will not follow what the rest of Atlas Copco does in the implementation of an SAP ERP system in customer centers. Hence, since that decision is already taken, we have impaired, we have written down there for a proportion of that investment, and that is SEK 170 million. On top of that, we also have SEK 70 million of other split related costs, the same amount as in Q2. Finally, we have the usual change or revaluation of the liability we have for long-term incentive programs, and that was a SEK -59 million this quarter. All in all, SEK +81 million in that.
If we adjust the operating margin, I think Mats already mentioned that it corresponds to 21.7% instead of 22% as reported. If we look a little bit ahead on the matter of the split costs, it was very high this quarter as I just explained. Going forward, we think that the next quarter we will have of normal split cost a little bit more than what we have seen so far in the last two quarters. Then we will continue to update you how it will look until the actual split in the middle of next year. We expect it to be gradually a little bit higher in these quarters to come.
On this page, we also have the income tax expense, and there we actually managed to have slightly less than 27% this quarter compared to 28% the last time. I think somewhere between those numbers is the best guess I can say. 27%-ish is something that we count with going forward in the next few months as well. Finally, in the numbers is of course also impacts from currencies. We have written in the report already that if you compare these two periods on the slide, Q3 this year with Q3 last year, in the way that what would have happened if we had the same currency rates as last year, then we would have had SEK 270 million better result. That's how you should read that number.
It's also important to say that if we move forward to Q4, this type of bridge analysis will increase in negativity, we will have more than double the negative bridge in Q4, but that relates of course only to the fact that we know what happened last year. It's important to stress that the currency situation in Q3, we expect it to be pretty similar to Q4 this year. It's only the comparison with last year fourth quarter that is more negative than this quarter, of course. If we move a slide, we have the famous revenue bridge or revenue and profit bridge. As you can see, it's another quarter of pretty good profit generation, considering the adjusted revenue growth if we take out currency impacts and other things as acquisitions.
If we look a little bit more where does it come to, move to page 15, you see again that we have a good contribution from the revenue growth in all areas, of course, it's higher than the average in both CT and Vacuum Technique. Reasons are not very different from what we have commented before in Q2, that we are in a phase where the revenue growth is yielding good flow through. We also know that we are investing, we are adding capacity in costs as well as in investments. It's still not a reasonable figure to count with as sustainable flow through going forward. Again, it's the type of phase where we are right now that has yielded good results.
We move on to page 16, balance sheet. I have nothing much to add really, just pointing out that, of course, the increase in the balance sheet is entirely due to that we generate a very healthy cash generation, as you can see. We move to page 17, which is the cash flow. Indeed, a similar operating cash flow in this quarter as last year, third quarter. You can, in a very summarized way, you can say that the better profit generation is compensated by that we don't release as much working capital as third quarter last year because of the growth environment that we are seeing right now. That's the very quick summary of the operating cash flow. With that, I, we will soon be clear with our comments.
I'll soon hand over again to Mats for a final word. I wanted to highlight on page 18 that we are coming close to the yearly Capital Markets Day. It will be held here in Stockholm on November 14. It's as you can see, you can register on the web. We're almost getting sold out, so I just urge you to hurry up before we have to start charging for the seats, which I would think unnecessary. No, I'm just kidding. Hurry up. I think it's an excellent opportunity to understand really the innovations that Mats talked about from those that really know, and that doesn't mean myself in that respect, many others. On top of that, we will of course update on three of the business areas.
It's MR, it's Vacuum Technique again, which was also there last year, but I'm sure that you understand that we receive quite a lot of questions on that. Then we have also Industrial Technique presenting that. With that, page 19, over to you, Mats.
It's a little bit about the near-term outlook. As you can see, we have stayed with the previous quarter, that the overall demand for the group is expected to remain at the current high level. Our thinking about that is that between 2016 to 2017, you can see quite a significant change in orders received. You can also look at the three quarters On a completely new level for us, and we don't foresee in the near future that activity will rise a lot or go down a lot, and that's the reason why we have stayed on this statement.
Thanks, Mats. That concludes the presentation, so I hand over the word to the operator, and then we'll go into the Q&A session.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad now. Our first question comes from the line of Graham Phillips from Jefferies. Please go ahead. Your line is open.
Yes, good afternoon. Thanks for taking my questions. A couple of questions. First of all, on Vacuum, can you talk a little bit about the split in organic order growth between industrial vacuums and semiconductors, and how the margins vary between the two? You keep citing, of course, and I understand that, obviously semiconductor can be quite lumpy. Are you particularly over-dependent on one customer versus the other? What is your exposure to China again, which you're citing is obviously building up capacity in semiconductors?
Thank you. On the Vacuum Technique growth, the strongest growth is for the semi industry still, which has been the case for quite some time. What is important to note is that both high vacuum and industrial vacuum, the other two equipment divisions, are growing very nicely in this quarter, as are the service business, particularly the one related directly to the semi industry. That's on the how does it split the growth, basically.
China. Was it China?
Yeah, China.
In principle, I think of course we have seen a lot of investment in China over the last two years from the already established players. What we now see is of course the quite an interest that could be developed from the Chinese would like to step into this business in principle. That's what we've seen.
Is there any margin difference, sorry, just between the industrial and semiconductor, and again, you know, how, what proportion is coming from China specifically?
Asia is the biggest area for Vacuum, and China is one of the biggest countries for them.
Okay.
When it comes to profitability, we have one business area, and hence I refrain from commenting on the margin differences between the two. As you have understood from previous calls and from previous presentations, with this type of strong growth in semi, we are having a very strong profitability in this phase. We have absorbed the Leybold acquisition, for example, in the Industrial and High Vacuum segments and not on the Semiconductor. Hence, I think the calculations I see from you guys is pretty well on the right track, if I say so.
Okay. Thank you. The other question was on cash flow. I mean, the net- debt position is coming considerably better than I'd expected. I run through it. I mean, I can see the intangible figures in the cash flow statement are about double from the previous quarter. The interest income, well, there's actually an interest inflow in cash flow, but there's an interest expense in the P&L. Obviously, very good working capital control. A very good low CapEx and R&D budget, which obviously you're saying is potentially going to be increasing or you are increasing in terms of investment. There's a lot of sort of weeds in there about whether you can give me any specific help on the cash flow statement.
You are obviously generating good cash flow. I guess the final question is what is the capital allocation policy? 'Cause it looks like you could well have net cash by the year end.
Well, we're approaching with some speed, I agree with that. Of course, as we have always said, we will have a look, we always have a look together with the board on how is the balance sheet composition, and you saw the numbers on the balance sheet. Of course, every year, these discussions, which are ongoing, lead to a certain capital allocation decision. Let's not preempt that. Let's rather come back to that when we are in the Q4 report, when those decisions are actually taken.
I can only repeat that as we have said so many times before, that we have no intention of becoming a bank, we are also using the cash in what we hope to be in a clever way, i.e., investing in the right objects rather than just investing because we generate cash. The capital allocation is an issue that comes up continuously in the discussions. Here and now it's not the time to give any specific comments more than what I just did.
Okay, thanks. If I could just pick two things out of the cash flow statement. We're seeing interest inflow when, of course, the P&L's got an expense. We're also seeing intangibles have doubled from a year ago. Is there any guidance you can give on that?
You know, when you mention the depreciation, that is an add back to the operating profit. We've already touched upon that we have two specific items in this quarter that will not be repeated. The high add back on depreciation is a one-off, you can say. We will go back to a more normalized level in the next couple of quarters, unless there are other things that we have to amortize or whatever. That's on that one. When it comes to the financial net, as you can see further down in the cash flow statement, we always reconcile towards what we call the operating cash flow.
The big swing versus last year is really because we had some equity hedge impacts on the cash flow, which we then eliminate further down in the cash flow statement, if you, if you follow me, Graham.
That's, and that's why that line seems to be indicating a much stronger cash flow than last year. If you really look at the bottom of the same page in the, in the handout, you will see there is a big swing, almost SEK 1 billion on that, which we don't consider operating cash flow.
Okay, thanks. I'll get back in line. Thank you.
And before-
And the next-
Before we take the next question, I was too slow when we started. I hope we, Graham managed to sneak in, please restrain to one question because we have many on the line I've been warned, so please do that. Thanks.
The next question comes from the line of Klas Bergelind from Citi. Please go ahead, your line is open.
Yes. Hi, Mats and Hans Ola. It's Klas from Citi. The first one is on vacuum. I want to come back to the margin here. This year sees very strong growth in semi, so this is creating a positive mix for the margin. Looking into next year, however, it looks like semi will slow when we look at the CapEx out there, and now industrial vacuum is picking up. That to me suggests that the mix will turn negative next year, a high margin semi slowing versus lower margin industrial vacuum growing. Could we talk a little bit about how you look at the margin in this context, whether the sales help on services and in Leybold can compensate, or should the margin trend down, and by how much?
I can start with the negative a bit on the market outlook then. First, what we see this CapEx index a little bit from quarter- to- quarter or month- by- month, quite some big swings in there, so we don't read much into that actually.
We've had a very strong CapEx year in 2017 with NAND and DRAM up, and they had the China push, et cetera. When we look at sort of the overall CapEx picture, it seems like it's slowing considerably. Even if you have the technology shift, there should be slower growth, I would have thought.
I think where you get, depending on what source of information, we have said many times that if you go by quarter and quarter, it is almost impossible to predict anything. If we looked in the next coming year, we actually see a lot of interest, a lot of activity level that points in a relatively good, even though we are at a high level, at a good demand level going forward.
You also know that even if we have a high activity, when that materialize in orders and deliveries is unpredictable even for us. Absolutely. It's not easy to predict.
On the margin, I refer back to the answer to Graham. Of course, we cannot, there is a reason we report the business area, not the divisions.
You in your analysis, I think, as well as the others come to that, well, semiconductor business must make a higher margin than the rest, considering that they have swallowed the Leybold acquisition, and you're quite right. The only thing about the negative mix, first of all, we have to see what the future brings on the top line, of course. If that would happen today, it's a game of mathematics. Yes, it would have an impact. When and how quickly does it happen? If we want to expand the industrial service business, for example, which we do, and if we want to grow further on high vacuum and particularly on the industrial vacuum even more, which we think is the potential to do, obviously, that will not match the current profitability of the semi business.
That goes without saying. We repeat again that we look forward, without going into details on quarters, et cetera. We believe that there is nothing preventing Vacuum Technique as a business area to have a similar profitability pattern as Compressor Technique has over a business cycle.
Maybe just a quick follow-up, Hans Ola. I just want to ask you on CT, final one, I promise, is on the revenue recognition. It was a bit slower than I thought, and you guys highlighted bottlenecks there in compressors. Is that helping pricing, or is pricing on new orders just up because of innovation, new products that you launched last year that is now showing up in the bridge? Or is that connected, or is it just that we get that price push in the bridge from innovation?
Well, I mean. Oh, sorry.
No, go ahead.
I start. I mean, just on the technical aspect of the sales bridge. That's where you started, Klas, on the 1%. It is the same way as we have always done that, right or wrong, is that we look at exactly the same offer a year ago with the same offer this year, and we compare what the net price we get out of that, and that is pretty similar to last year. Whether sometimes it's rounded to 1%, and last quarter it was rounded to 0%, don't read too much into it in terms of new development. We're happy to see that if anything, it moves in the right direction. When you link it to innovation, I think Mats can take it further from there.
Yeah. I think that like-for-like products, of course, with inflation rate as we have today, it's more challenging than in the past. I think innovation is the one that drives productivity at our customers, and the value for them, and that is the opportunity for us to gain a little bit on price and margins. You also have bigger projects right now where you normally bundle a little bit of different, products, then you can have bigger margins on those things as well. Innovation is the driver for pricing.
Just to conclude, if there is a project sale, we cannot have exactly the same configuration next year in a project sale, we don't include it even in this price bridge because we can't. Just like a new product is not included, these type of comparisons are not included in that price bridge even.
I think it would be good to go back to the gross margin, Klas, a bit to see how that's developed over the year. I know it's not the only one component in there, but at least it gives an indication.
Yeah. We're very happy to see that margin expansion on the gross profit level.
Thank you.
Thank you.
Next question comes from the line of Peder Frölén from Handelsbanken. Please go ahead. Your line is open.
Thank you. Hi, Mats. Hi, Hans Ola. One question. If you look at aftermarket, in the entire company, if we call it service, the entire aftermarket business, how much is that growing compared to your sort of group order intake of 17%? I mean, at the Capital Markets Day a couple of years ago, you had sort of 8% for the last bunch of years you've seen on service growth. Is that too high a number, currently 8% now? Could you help us to understand the numbers on VT, MR, and CT in relation to the group?
Well, the service business, as you say, if we bundle it and we call it the recurring revenue streams and so on, is growing roughly at what you just indicated, the long-term average. It's very seldom that we see that service growth can match equipment growth when we are in an upturn like we are now, or falls anywhere near as quickly as equipment sales falls when we go down. That you know. As I said, so it's in the high single-digit growth. That's where you find it if you compare it with the overall 17.
Is it fair to assume that VT is above that number and, maybe, MR is in line and CT is slightly lower? Is that fair?
Well, it was a nice try at least, Peder, but I think don't see it that's too different. There's not a big difference, so you start to get into very, very, very detailed analysis. They are of course not exactly at the same level, all of them, but there is not a big difference. They actually are growing all of them in this quarter.
Okay. Follow-up, sorry, but, another try. Installed base, vacuum pumps, semi industry, market share, 50%, 75%? Any figure to give us ahead of the CM day? Come on, guys.
You said it yourself. Nice try, but let's defer that question, right?
Okay. It was worth a try. Thank you. Good second quarter.
Thank you, Peder.
Thank you.
Next question comes from the line of Lars Brorson from Barclays. Please go ahead. Your line is open.
Hi. Thanks. Hi, Mats, Hans Ola. A quick follow-up on previous questions, then a question on Compressor Technique. I was hoping, Hans Ola, you might be able to help us understand what exactly you're doing to address the supply chain bottlenecks in Vacuum and also CT, and how we should think about the scale or the cost headwinds that may come from that, and ideally the timing of this. I mean, is this a one to two quarter effort and a drag, or is this more of a, you know, one to two year drag in terms of particularly VT margins?
If I start with [inaudible] then, intrinsically, we would like always to have a little bit of free capacity, since this business is a little bit unpredictable when they will engage in spot manufacturing. We continuously, intrinsically, I think I've done a couple of boards now, and intrinsically every quarter we do some new investments. Right now we are building up the capacity in both South Korea, and also trying to match then the new capacity need in China. This is the main two focus areas for Vacuum Technique on the manufacturing side. Did you say?
Yeah, I think CT was also a question on the, on the ramp-up and the drag. The CT one is.
I think basically only self-supplies. We have the capacity, both in China and in Antwerp, and we have the main hubs to manufacture more. We make sure that we are high on our self-supplies agenda, weekly, daily to make sure that, as I said a little bit earlier, if we see that we can continue to catch up a little bit, then nothing changes. We think that we will be back on our ordinary lead times during Q1 next year, the way the customers were a little bit earlier.
On VT, this sounds more incremental rather than a meaningful step up in the near term in terms of cost. Is that fair that you continue to add capacity and will so over the next few quarters and possibly years?
Yes, that is correct. I think the delivery times on these machines that they range between six to eight months, so we need a little bit, a little more time to make sure that we have the capacity when we get the orders.
Thank you. If I just can on Compressor Technique, you sounded maybe a little less excited about 14% organic growth than I would have thought. We haven't seen that since, well, I think 2011. Three things specifically for me. Can you help me understand what the order growth was in gas and process? Was there anything unusual there in terms of very large gas and process orders that swung it for you? Secondly, why was CT services flat in North America? I thought that was one of the key growth areas for you. Then, thirdly, could you give us a little bit of flavor for your outlook into Q4 for CT? Is it flat outlook for the group or true also for that division or for business area?
How many questions have we got?
Yeah. Three or four I counted.
Which one was the first one?
Well, I think you asked if I start, and then we catch up with all of your questions. Well, at least one of them. I think it was CT. Was it something on gas and process?
Yeah, I think that Well, I think I actually, even if you didn't have it in writing, I think I added the CT perform on in 14%.
As I said.
It's a strong one, especially if you look back a little bit, the three, four years without organic growth. I think that's very good, and that's also an indicator that we see good traction from the products that we launched into the market. That's good. On gas and process, I mean, it's not a major part of our business. Even if they had a good month, you would not see a significant impact on the complete business. Yes, they did have a good month.
Sorry, just services in North America, which was flat and outlook into Q4. If you could help me with that would be helpful.
The outlook in general or.
No, for CT specifically.
No, we don't comment specifically. I mean, there is nothing in the new trend. Sometimes, of course, in the report you see that there is a mentioning of a service that was slightly lower sequentially or that it was down in one region but strong in the world. It's not that we try to sneak in the sort of a warning of a new trend. Other than if that was the case, we would be more explicit than that for our own sakes, if I said so. It's more a transparent way of saying that it's not a continuous straight line development over every quarter everywhere, in even in service divisions. It's not like that. So don't read too much into it as a projection going forward. Okay?
All right. Thanks.
Thanks.
Next question comes from the line of Markus Almerud from Kepler Cheuvreux. Please go ahead. Your line is open.
Hi, Markus Almerud from Kepler Cheuvreux. If I can just move to mining for a bit, a lot of questions from vacuum. Starting with, I would assume that your order rates are pretty much close to historical highs, but that there is just replacement in brownfields. Can you just help us out with how the split between replacement and brownfields have progressed throughout the year? Then if I can ask on greenfields, if you have had any increase in discussions regarding greenfields, if you have a greenfield project, when would your equipment normally be ordered? Which would be the first project, the first type of equipment that your customers would order? Yeah, that would be helpful. Thank you.
Yeah. Where do we start? At the end, perhaps. As you know, depending on the type of project, obviously there is a lot of investments going into a new greenfield, but it's impossible to say how long time in advance we would be approached from an order point of view. It depends very much on the specific project, on the specific situations. I can't really say give you any good guidance on that. I could also say from where you started, yes, we have certain product categories that are already at levels which are pretty close to where we have been before, but not the whole Epiroc business area is at that level.
It looks extremely high compared to a year or two ago, but it's not really up to the very high levels we saw in 2012 and so on.
I think in the beginning then Q3, Q4, we saw more of replacement business in the networks.
It's also Q3, Q4 also.
Yeah. For this year, Q2, Q3, I'd say it's more of the case that it's the networks that's just taking a little bit into brownfield rather than only replacement.
Yes.
You got the copper order from Kazakhmys. Copper seems to be picking up, and copper prices are going up. Do you think that the current levels or the levels that you see fairly stable going forward as well?
Yeah. We don't see any change. It's not only that it's an average of someone going down from this level and another business area going dramatically up when we say the flatish for the group. It also relates to this business area.
Okay. Thank you.
Thank you.
Next question comes from the line of Magnus Kruber from UBS. Please go ahead, your line is open.
Hi, Mats. Hi, Hans. Magnus here from UBS on behalf of Guillermo. I just have a question also on mining. You say you had a sequential decline in service and spare parts now in Q3. Is there any seasonality in that? If you could help us explain how that looks on the consumable side, that would be very helpful.
Yeah. I think I'd just repeat what I said before that of course, if you have a world situation that is growing, there will from time to time be a region that is not growing. To go into all the details, whether it was a particularly successful last year quarter or whether the second quarter this year was particularly strong or whatever is the specific reason for it, is difficult to go into, if you say so. It's more an indication from a transparency point of view that whilst the total is growing very nicely on service, as I just said, it is not happening on a very straight line basis all over the place. Again, it might well be that that particular region does not have the same situation next quarter.
I cannot say.
Okay. Consumables up year-over-year at least, I guess.
Yeah. We don't have any area in specifically there that is not up in a very strong way compared to last year. Yeah, true.
Brilliant. Thank you so much.
Thank you.
Next question comes from James Moore from Redburn. Please go ahead. Your line is open.
Yeah. Hi, everyone. Mats, Hans, it's James here. My question also surrounds the strong order growth. Are there any large one-off orders in any of the big divisions, particularly thinking vacuum, compressor, mining? It looks like industrial compressor equipment, ex service and gas and process, you call out the U.S. and Asia as being strong. It must be sort of mid-20s just mathematically if service is in the single digits. Is that a year-on-year effect only? Have you seen specifically in the U.S. and in Asia, I guess China, seen a sequential daily uptick in equipment levels against the previous quarter's daily rate? If so, what's driving that?
I think I can start with the vacuum question at least. I guess it's the definition of what is a big order. In principally for us, it is big orders in that industry in general. That is, when you look at the key account list, we might look at 25 to 30 customers, dependent a little bit where they are in their business cycle. There are big orders normally.
I was just thinking of compressor.
Sorry, it doesn't stick out specifically in Q3 compared to either Q1 or Q2, on the other hand.
I was thinking on the compressor business whether there was anything large or lumpy in the compressor business in the quarter. Coming back to the compressor U.S. and Asian trends, could you maybe provide some color on that?
We did, we can repeat a little bit that when you looked at gas and process, which we comment after quite some time of always referring it to not recovering and so on, they have started to see activities, and it's doing well. Of course, they come from a much lower level of comparisons compared to the other businesses in CT. It is helping in the quarter from a growth perspective. It's not that we see that it's reflecting bad on any of the other. All the industrial businesses are growing nicely, as well as service. It's not a huge one-off.
Again, like Mats said, in gas and process, even more so than vacuum as a business area, when we get orders that you notice, they are big. It tends to be lumpy, right?
Sorry. To re-explain it, to give you yellow canaries in U.S. and China, it looks from the statement as if the rate of growth in industrial compressors, U.S. and China, has accelerated. I just wondered if that is due to a weaker quarter last year or whether if you look at it sequentially on a daily basis, whether you've noticed a new sequential acceleration in the U.S. and Chinese industrial markets.
The reference is to year-on-year growth, as you say. That was good. From a sequential point of view or judging week- by- week, if it's accelerating or not, it's impossible to say. We are doing very well on the industrial segment in those regions.
Great. Thank you very much.
Yeah.
Thank you.
The next question is from Max Yates from Credit Suisse. Please go ahead. Your line is open.
Hi. Thank you. Just as a fairly simple question, are there any areas, particularly out of your order growth that you'd call out where you think you've taken market share? Or do you think pretty much the majority of your growth rates are in line with the underlying market trends? Thank you.
I don't know I could say anything in particular, we believe that the industrial performance in vacuum is one of the areas where I think that we are gaining market share, and that is mainly due to the synergies that we have between the brand where we launch new products. You can also say in Industrial Technique, I think that we are very strong in developing the market need, I should say more, they bring new technologies to the market, to the car manufacturing, truck manufacturers. Doesn't need to be head-to-head competition. It's more that it's changing the way you manufacture cars. We're helping them to develop.
By doing that, we think that's maybe the way for us to grow as well is that we have to change technology by that, increasing the market size in those areas.
A little bit the same goes for Compressor Technique.
Yeah.
I think that the pipeline and new products and the innovation speed there is certainly not hurting the market share development.
No, the brand is simply that, every time we launch something that is needed for the customer, we can see that we can increase.
Yes.
Okay. Just maybe one follow-up. Just on the MRET margin. If we go back to kind of 2012 when you were doing, you know, 24% margins, if you try and back out what the aftermarket has done within MRET, to get to kind of today's margins, it does look like it would have had to come down a little bit. I'm just trying to wonder whether as we start to see sort of volumes, metal prices recover, do you structurally think with your kind of conversations with miners, you will be able to price up the aftermarket going forward?
Do you think that fundamentally, kind of their attitude and the way they run their business has changed sufficiently that it will be difficult to ever get back to those margins, and particularly on the aftermarket side?
I think the, on the profitability on the, on the, on the service side of the business is very good. The reason for the whole business area, I should say, is very good, and it was very good at that time as well. On the equipment side, we still face more challenges to ramp up in the way that we have discussed, compared to where we were in 2012 and the beginning of 2013, reaching those levels that you referred to. That's basically the rationale. It's not that we tailor our business from, how can we price our products to reach say 23%, 23% or 24% margin. It's more comes from the whole organization, the whole structure of setup, should be more and more efficient.
Then of course, the margin should come from there. We don't make any forward-looking statements on if we can be at those levels or how long it will take and how big the demand would have to be to reach that. No, I can't help you on that one, unfortunately.
It's might not even be the number one focus either. I think Johan Halling and I have different discussion how to develop the business. It's more on the top line thinking, how do we accelerate the innovation? How do we bring new products to the market? How do we make sure we have the right coverage in the right regions? I think that's more the focus from our side to develop the business. Of course, if the customer then appreciates the value we bring, we will see that in the margin over time.
Not the least in the business there has 41% return on capital employed. That's a very good ending comment, I think. I say ending because time is running fast and we have fun. I hate to detour the questions that are still on the line, but I hope that our Investor Relations team or myself can help all of you the best way they can. I just leave the word to Mats for a final comment.
Yeah. I mean, I was just trying to promote the Capital Markets Day a little bit when I met you. Some of you at least, we were listening to your questions and the same goes for this call. In the Capital Markets Day, you will see then the Vacuum Technique management team being there, and you will also have the mining team there. We will say industrial. I think that there's a lot of question about mining and vacuum, I think you can have the opportunity then to ask your question there to management as well.
Great. Hope to see as many of you as possible in Stockholm on November 14. Until then, thank you very much for participating, and see you later, as we said, in November. Thank you.
Thanks.
Bye-bye.
This now concludes the conference call. Thank you all for attending, and you may now disconnect your lines.