For the first part of this call, all participants will be in a listen only mode. And afterwards, there will be a question and answer session. I will now be handing over to Harz Ola Meyer. Please begin your meeting.
Thank you very much. And I say also welcome to everybody participating to this Q2 release comment from Atlas Copco. I'm very pleased to have here with me today Mats Schonstrom, his first, if I may say so, record losing quarter report. And he will give his comments personal comments in a few seconds only. But before I hand over to Mats, I would like to say that following his comments, we will go to the Q and A session.
And there, just like last time, I would ask everybody to restrain to one question per person, please. And then we will have time to circle back for follow-up questions later on. And I appreciate very much if you can stick to that, please. So without any further ado, I hand over to Mats. Thank you, Hans Ursula, and welcome, everyone.
I will start on Slide 2, which is the Q2 in brief. And as you can see, we're starting principally with the heading that we have a strong order growth and record profit for the quarter. And proud to see that orders received is continuing in all our business areas, especially stronger than in vacuum and mining. And also healthy cash flow, considering the growth rates that we have had over the last quarter. I go to Slide number 3.
And you can see in principally the numbers listed. And I will highlight to start with the graph in the corner. And we could not beat the strong Q1 sequentially, but you can also see that Q2 was clearly the best order to see the 2nd best order to see in quarter we have had. The second thing is the profit.
So you can see that we reported SEK 20.6
percent in profitability, and that's adjusted. If you take that away, you have the SEK 21.5 percent, and it's mainly the noncash option cost. And you also start to see
a little bit of split cost from Epiroc there.
I go to Slide 4. So you have different regions. And as you can see, we have a very good balance between our main regions, being America, Asia and Europe, which is the first column principally. And in those three areas, we have growth in all our business areas this quarter. So that's a really strong performance.
And I'd like to highlight also that I'm very pleased with the development in Asia and especially in China. South America, you can see positive as well. This is mainly driven by the mining, but also CP stepping up their performance. Africa, it's a little bit negative, but still we can see development in mining, of course. Australia, it's principally the negative.
It's mainly from the comparison from last year when we had some big automation orders in drilling. Slide 5 indicates the quarters and organic growth. And we can now see that we have 4 consecutive quarters with organic growth, and that we are pleased with that. Slide 6 gives you the sales bridge. In the structural changes, you have mainly lay volumes
in the CSK today on vacuum. Currency is still favorable, but we
could get a little bit headwind in the future, but Hans Ole will update you on that a little
bit later.
And still then healthy organic growth. Slide 7. You can see the split between the different business areas and being compressor being the dominant player here, but vacuum is growing quite rapidly as well.
Compressor Techniques, Slide 8, then represents 34% of our business.
And you can see if you look
at the order graph, you can
see that they were very strong in Q1 and even stronger in Q2,
which is
on record level for us. And there, we can also see good traction for our products in Asia and gaining ground in China as well.
Very strong margin on 23.4
percent, which is very good for the business area.
Vacuum technique, if you looked at the expectations a
little bit towards our performance, you can see this is where the biggest deviation is. But also looking at the graph, you see that this orders received level is actually quite high compared to where we have been in the past. And still, it represents an organic growth of 25%. Operating margin, 25.1 percent, still very strong. And I guess you can ask if this would be a peak or do we see the market being flat.
But as we indicated before, the semi business is a little bit volatile in demand. But then we look at macros in the vacuum business. We see increased prices on chips, which we find strong. We see the utilization in the platform. We operate between 80% to 90%, and I think that is still in the area where they make investments.
The end user markets for memory and chips is increasing. And also, we see that China taking a stronger position in this marketplace. So the macro long term to be in the vacuum for us is very positive. We have a good position as well. To make it more sustainable, we invest heavily in the product portfolio for industrial vacuum, but also recurring business for services in semi and industrial.
Take the next slide, which is industrial technique. They have strong demand still from the motor vehicle industry, and we see a high activity level there as well. One of the things that has been discussed a lot both in India and in summary, for us, the electric vehicles.
For us, that is
a very good thing. If you look at a car with a hybrid, then of course you get 2 engines and that would be very positive for our development. If you take something that is pure electric, then of course, you will get less tightening than on the powertrain. But on the other side, you will get more from the bigger business for battery and the battery tightening. And we also make sure that we have a lighter vehicle, which is very good for our newer technologies, adhesives and selfless riveting.
So I would say that we are pretty much set up for this change, although electric VLC vehicles is a rather small part of the total fleet. They also have bunch of new products coming. The one on the picture is really aligned with automated lines. And this tightening equipment, you'll be able to put on the robot, for example. And we will take the opportunity on the Capital Markets Day to show you more about this interesting product portfolio.
Mining and rock, we were positive in Q1, and we said it was a lot of replacement business. But now we also see it's replacement business, but we also see a little bit of brownfield investments, whether they go deeper or higher. So that's a positive signal we have there. 19.8% margin, and you can see that they have a little bit of a backlog to catch up on deliveries. And I think we have a good plan in place to build on our capacity.
You can also, of course, see that there is a balance now that we have so much more equipment towards the service, and that might have a smaller impact on bottom line. Construction Technique, we have changed the name to Power Technique, mainly to mirror the segments we would like to be in. So it's opportunity for us to be in construction, but also more into industrial applications. And we can see very good traction for our new portable compressors also in the Chinese market, which is normally a challenge and also a good development of our specialty rental business. And you can see an increased operating margin for Power Technica as well.
Then we have the full income statement, and I think it's suitable to hand over to you, Arndtol.
Thank you, Mats. Well, Mats already touched upon the operating profit performance. So let me just go further down the income statement. We had a couple of specials, if I say so, in the financial items, actually both this year and last year Q2 in 2016. The negative in this one, which was one off, is an adjustment of the expected interest charge for this now infamous Belgian tax dispute that we talked about a lot last year.
And what we have done is we have received then the updated
methodology
from authorities how to calculate the interest due for 2011, 'twelve, 'thirteen, 'fourteen, etcetera, which becomes part of the package. So we have updated that, which was in Swedish krona, 125 million effect. With that, we have fully provided for the capital that has been challenged, the capital cost and also the interest charges. And you as you have seen probably, it also affected a little bit the cash flow, which I can come back to later. We also had costs related to the Epiroc split in the interest, and that was a compensation to certain bondholders of the public bonds issued by Atlas Copco.
So without those, we are still in that region of SEK 200,000,000 to SEK 230,000,000, depending a little bit on what quarter. But I also think that, that is the type of level one should expect for the most the next coming quarters to have an idea of the normalized level. If we go further down, we come to the tax expense. Of course, it's a bigger number this year, but it's actually a slightly lower effective income tax cost. But I would say here as well, if we are we have been around between 27% 28% in effective tax rate ever since we got this new treatment of the Belgian situation.
And I think that, again, going forward in the nearest quarters, I think 28% is probably something that is to be expected, if nothing specific happens. If we turn then to Slide 14, we can look a little bit deeper into the operating profit bridge. For the group, you can summarize it and say the best effect came from volume, price and mix and others or so to speak. The organic improvement gave the biggest contribution to the profit improvement. But also currency was a significant positive in the quarter.
You see there that in absolute value, which is one thing, we have calculated that it's about SEK 500,000,000 positive effect compared to the same period last year. Going forward, as Mats alluded to, we see a little bit of a different situation, partly because we had a recovery of the dollar gradually last year into Q3, and we have a gradual decrease in the last couple of months and also in the last couple of weeks. When we estimate and look forward, if everything stays as it is today, I would assume a slightly negative comparison on this in the same way that Q2 had a positive year on year effect. But it's difficult to predict exactly how much it will be, but it will certainly not be minus €500,000,000 but this would be slightly negative.
My assumption.
If we then go further, you see also that the specials noncash valuation of options has a cost that is higher than the same period last year and also acquisitions and other onetime items that the Epirox split of €70,000,000 for example, is also diluting the margin somewhat. If we take again, I'll just repeat, if we take the onetime items and the share based LTI program and adjust for those, then we come up to a 21.5 percent operating margin. The next slide has it a little bit more by business area or it has it by business area. I'd like to comment right away that the way that this is done is, of course, that the currencies and other special items, onetime character, is isolated from the organic development. And of course, when you see compressor technique and vacuum technique, the so called flow through of revenue increase seems extraordinarily high.
And I would agree it should not be seen as a normalized flow through rate. And many of you know that from before that a single quarter can certainly give very high or very low percentage numbers, And I don't think one should read too much into it. When it comes to vacuum technique, of course, we have seen in the last couple of quarters, and it was accentuated now in Q2 that the increase of revenue on a still more or less the same type of capacity installed that we have had for a few quarters, which gives a very strong effect on the bottom line. As Mats also pointed out, we have an order intake that has been extremely high, and revenues are trying to catch up, which means that we are doing as we speak and we're going to do more capacity adjustments to cope with that. And some of it is coming on stream as we speak.
Some of it will come on stream a little bit later in this year and so on and so forth. So it shows a little bit of a dramatic number, but I urge you not to make any projections based on those flow through numbers there. The group number is 39%, of course, a little bit more normal in a recovery period like we have right now. I turn to the balance sheet on Slide 16. And I think it's not very dramatic developments from December 31 to June now.
A little bit more has happened since a year ago. But if we look at December to June, in very short summary, we are accumulating more cash, and that makes a difference. So and then there are some effects from currency translation in there. But I don't think there is so much more to comment right away. If I turn to the cash flow on Slide 17, a very strong cash flow.
Of you might recall that we've had operating cash flow even at €6,000,000,000 1 quarter. But I would put this number that we now report almost SEK 5,000,000,000 in relation to the fact that we are growing heavily right now and that normally consumes working capital, whereas in this quarter, you can see that we actually released a little bit of net working capital, which I think is a very good achievement. You can also appreciate that we have a couple of special items in funding of pension debt, in currency hedges of loans, which has no profit and loss impact, and it's really more financial effects that it has nothing to do with the operational generation of cash flow. And the same, of course, goes for the fact that we have now paid all of the due taxes for the Belgium dispute. And if you put that together with last year's number, you see that we are close to SEK 3,000,000,000 that we have paid to a special account.
But of course, the appeal goes on, and that can go on for many years. So a good strong cash flow to back up the improved revenues and operating profit. And with that, I think we reach the final slide, which talks a little bit what to expect going forward, and I hand it back to Mats.
Okay. So we said that we will remain on current high level, and I think that mirrors a little bit what we see at least then as a very, very strong Q1 followed by a very strong Q2. And we still see a high activity level among our customers, of course, in mining. I think you can recognize that from the numbers as well. I commented a little bit on vacuum as well.
It will probably be a little bit volatile, but in general, the trend looks very good for that as well. Industrial Technique, I think the currency is on a high level, and we see still a good base for growth coming in that way. And we are developing our Power Technique business in solid way, I
would say. Great. Thank you much. Then we come to the Q and A session. And I would then only receive my wish from 20 minutes ago.
Please restrain to one question per person in the first round, and then we'll see how much we can cope with at the end of the call. But I'll leave it over to the operator to repeat the procedures for the questions, please.
Thank you. Our first question comes from the line of Charles Peyelin from Citi. Please go ahead. Your line is now open.
Yes. Hi, Mats and Arzola. It's Klas from Citi. My question is on Fashion Technique. The sales came in below my expectations.
To what extent is this driven by bottlenecks in production? And if you could comment on pricing, your customers in Asia are now increasing prices for the first time in 7 years. I thought pricing would be stronger for you there, particularly if there are bottlenecks. Do you think pricing can increase more in fact into the second half?
I think first for demand, we still have big project orders coming in both on semi and flat panels, and that volatility will remain. But we feel it will be over time, it will be less and less. And we will try to strengthen that ourselves by the focus on industrial recurring service business. On the pricing, I think that industry has always been driven by that the suppliers should reduce their pricing. And the way we counter that is always with new innovative products to bring something new valuable to the customers.
And over time, I think we have done that quite successfully.
I think the gross profit levels group, which you don't see for business area, indicates exactly what Mats is touching upon. We talked last quarter and a couple of quarters before about the questionable information value of our price component in the bridge due to Mats' comments. And we will see how we can cope with that in the future. But I think it's a very valid point what Matt said now that price for us is not really the best denominator for future profitability, that's for sure. The price in this bridge, I would say.
Yes. And the price in the bridge is principally comparable products from 1 year to the other. But everything that's new or project is actually outside, so it might not give you the best picture of the actual price development.
Okay. Can I ask a quick follow-up just on mining Iraq and the drop through? When I look back at previous upturns, you typically have to stay in a high drop through of around 50% for 2 to 3 quarters before costs go back in. Now we're quickly fading here versus quarter 1. If you hire more salespeople, did you invest more in Mining 4.3% or R and D?
Or what is
the reason for the lower drop in Mining and Rock?
I think I tried to say just before, Klaus, that just 63% for some business area in 1 quarter is not the perfect information carrier of flow through. 30 7 or 39 for me is good. If it has been 50 the quarter before, it can be for very many different reasons just mathematically. So I don't read anything. Of course, they are recruiting.
Of course, they are ramping up capacity and trying to speed up deliveries of components in order to be quicker in deliveries. But in terms in times of quick recovery, we have seen this many times before that there can be a struggle to get all the components where you compete with the same for the same material or components with many capital goods sectors, not only our competitors. And that, I think, is a little bit behind that development right now. But nothing more than normal in a shop up joint situation.
But my final point is to comprise in this.
I think we covered that or you mean mining prices?
I mean mining because if have bottlenecks on solar
where you drop through it, it's
coming under pressure. That should be followed in pricing, a bit stronger for you.
But that is relating to exactly the same explanation that Mats just gave generically and also for vacuum technique, I would say. Okay. Thank you. Thank you.
Our next question comes from the line of James Moore from Redburn. Please go ahead. Your line is now open.
Good afternoon, everyone. Hi, Hans Werner, Matt.
My question is on vacuum margin and growth. Do you think the 25% margin is sustainable and on growth? You're up 20% organically in the first half or EUR 1,000,000,000. And I'm trying to get my head around how much that was up 35% in 70% in the rest and whether it's artificially skewed by something like a Galaxy 8 that should come down year. Just concerned about that.
Okay. Now on the margin, of course, we do everything we can to try to keep it as high as possible. But I think what we have communicated internally at least that we try to stay above the 20%. And of course, it's many variables in terms of pricing and volumes and things like that as well. But I think that we do a lot of work internally to make sure it's more and more sustainable over time.
And I think I mentioned it a little bit earlier with the strong focus on industrial, which is actually developing quite nicely and also the service for both industrial semi. So and we also look a little bit at agility in our manufacturing base to see that we can ramp up and ramp down to maintain a good capacity versus the demand in Q3.
Just to add on
to AbsTeMak so that there
is no misunderstanding. It's, of course, not an internal projection that everything about 2020 is fine in the next quarter. We that's certainly not what we mean is that the agility and sustainability of this business is very much in focus. And just like compressor technique to take one close by example, we are making everything we can to cope with even less favorable demand situations, not only from semi but also general, so that we can maintain in those situations also a next next quarter's profit margin, we are not doing that this time either. So it's clearly so that as long as they operate on this high level, it generates very, very strong profitability.
That's for sure. But we want more growth. Yes, we want more growth. So as you've heard us say before that the ultimate bottom line for Atlas Copco is value creation, whether you call it EVA or OVA or whatever. And that's exactly the main focus.
Obviously, we don't plan to be less efficient if everything else stays the same.
I understand all the EVA points. I'm just really trying to understand whether we're talking about over 30 percent growth in semi versus single digits and whether there's a specific impact on the Galaxy 8, which is
a big Samsung product.
This could be down in the first half next year in semi alone.
Yes. But I forgot the Galaxy question, James. I'm sorry for that. But no, we see, as Mats alluded to, we see that the industry is getting less over time, and we have alluded to it in the Capital Markets Day last year, that we don't see the same type of enormous swings between trough and peak in the industry. And that is, of course, very healthy and very good for us.
And it goes with the consolidation of the industry and the ever increasing demand for new memory capacity, etcetera, etcetera. Now in this quarter, we don't have any super deals that suddenly changes the whole spectrum. We haven't made 2x the profit on some deals that will suddenly evaporate next quarter. No, I can't say that we see anything of that nature in this quarter, James.
Our next question comes from the line of Lars Pluegtschamps from Barclays. Please go ahead. Your line is now open.
Yes. Hi, Matt. Hi, Hans Ola. A question for me and maybe I just have a follow-up. First of all, on your demand outlook, Matt, I'm struggling a little bit to understand why this has been lowered to staying at the current levels.
I'm looking at demand trends, as you also pointed out, in VT vacuum that continue to be very strong. I'm looking at PMI numbers as you continue to support your industrial businesses, particularly in Europe. And as you point out on the mining side, we see some brownfield coming through now. I mean, I can't help but think that you've looked at consensus expectation and fella need to adjust this down slightly. Maybe you could just help us understand what is taking that outlook down from the previous level?
And it will be helpful if you could give some additional commentary around that.
I think the main part of my comments for vacuum is a little bit more long term. We can see the demand coming, and I'm talking maybe 1 to 5 years more. We can also see the investments that China is taking a strong position in the ships industry. I think that will come through as well. We are increasing our capacity in China to meet that demand.
More on the high level, I think we see that's quite a positive to be in line with what we have seen in Q1, Q2 to continue to have that level of activity we haven't seen in the past of our customer base. So we don't read it as so negatively.
The to just a follow-up on that, of course, you say we have lowered yes, lowered the growth expectations perhaps for the next near term quarters here. And but we wanted to put it in perspective to that as you asked the question. The so really it's like when you have your forecast for stock prices, Lars, that if the market already comes there quicker than you thought, you probably have to go to own this side. So I think the market has turned very and become very, very favorable on many market segments at the same time. So that we feel is very positive to remain at that current high level.
Can I just ask a follow-up on pricing, which I think was related to vacuum earlier? I was curious as to the broader group and what you're doing around pricing there. I mean, we haven't seen price move beyond your plus 0% in your order bridge for a few quarters now for a few years. I'd expect to see better pricing this quarter after 4 quarters of solid order growth across the business, particularly of course in mining, but also in vacuum. Can you help us understand a little bit better what you see in terms of pricing coming through in the second half of this year?
I think Matt's commented the most important comment is as we did. If you can just add, then of course, we introduced new products. And there, we believe that when we follow the requirements and demand from customers, we have pricing power, no doubt about it, but it's not reflected in the way we do the sales pitch here. You could then say, well, what about service and spare parts? Are you not increasing prices?
Yes, we are increasing prices. But in a low inflation environment, it's still, of course, not coming through in a big way compared to what is happening on the equipment side. So it's slightly positive, but it's still within the margin of 1%. That's why it's called 0 or 1 as in compressor technique. So I think we cannot elaborate more in detail on it, but that's the only extra comment perhaps.
I'll go back in the queue. Thanks.
Yes. Thank you.
Our next question comes from the line of Graham Phillips from Jefferies. Please go ahead. Your line is now open.
Yes, good afternoon. My question is around compressors and the gas compressor business. I see the statement is sort of quite negative about further deterioration there. Can you talk a little bit about what actions you could take? I mean, I think you sort of alluded to this on the last quarter call, but things seem to have got a bit worse.
I think it is correct that we saw a little bit of positive signals in Q1 in the oil and gas business. But I think in Q2, I think it's rather weak. What we do internally is in principle that we continue to work on new products, new portfolio, and of course, we are adjusting our capacity to the demand that we see right now. And
yes, and I think oil and gas is not the exclusive segment that we cover. There's air separation applications that we don't get really the big orders that we sometimes get. It is big orders in this compared to industrial compressors. It's a completely different pattern. So you can get a reasonably good quarter.
But now we don't feel that it has really changed the trend, let's say, of demand.
I mean, is there it's run from separate factories, if I'm right. I mean, what action was there any actions taken, charges taken, small or otherwise, in the quarter to try and rightsize this business?
I think we commented in the latter part of 2016 that although it was not always disclosed in a onetime specific action, yes, we have taken quite a lot of measures. And of course, we are following day by day, week by week what further actions can be taken, if any. So that's, of course, high on the agenda as long as the revenue and profitability is not at the level that we want it to be.
Is it a separate business unit within it? Can it be separated out? I mean would cost would downsizing it impact the rest
of the business, the rest of compressors? No, no, no. It will not.
Okay.
All right. Thank you very much.
Thank you.
Our next question comes from the line of Andreas Koski from Deutsche Bank. Please go ahead. Your line is now open.
Thank you. Hi, Mats. Hi, Hans Hubla. I would like to take the opportunity to ask you, Mats, a longer term question as you have been with Industrial Technique for a very long time. I think you have seen a mix shift within your Industrial Technique business with more battery driven handheld tools taking shares of nomadic driven handheld tools.
And this is also something you write about in your annual report. So I just want to hear your view about the risks for compressor technique with more and more battery driven handheld tools? Because compressor technique, I think, almost 40% of revenues are generated in the manufacturing industry? And how much of that do you think could, to some extent, disappear because of the mix shift that we are seeing in industrial technique and businesses like that?
I would say that, that shift in the car industry, for example, has already happened. So it's principally 90%, 95% of sales into the auto industry today is electric for battery. So that shift has already happened. And as you can see, it has very little impact on the compressor business. But I think it's a very valid question if there could be other applications, of course.
But we have not been able to identify anything major that would change the demand for compressed air. And we continuously find new applications that we go after.
So you would say that the manufacturing exposure that you have in compressor technique is not at risk from this?
You see a demand shift, as I said, which has already happened. And if you go into
You still have 40% in the manufacturing industry. So I understand in the automotive business.
Yes. But if you go into the general industry, that shift will go much, much slower because you don't have the volume. I mean, in the car industry, you make it 55 to 70 cars an hour. And it's more pilot build or project build in the general industry. And then you will not have as easy payback on a more expensive electric tool or battery tool.
Okay.
Thank you very much.
Our next question comes from the line of Peter Kleejian from Handelsbanken Capital Markets. Please go ahead. Your line is now open.
Thank you. Also a slightly longer term question. If you look at the vacuum business today, it's growing, as you mentioned initially, and showing the pie chart. But could you sort of tell us where you are now in terms of exposure to semi, to industrial, where you are on the aftermarket ratio? And maybe most importantly, what do you think these the ratio should be in the future?
I'm sorry, I thought you
had a few questions. Yes, I can take it, David, first on the new complement. Of course, in this period specifically, semi is completely dominating as a single customer segment. That's for sure. And if you put service and equipment together, you're easily covering closer to 60% than 50%, I would say, It's well above the half of the business.
What is very important for us and Mats alluded to it from a long term perspective, is to continue to grow also what was important for us in buying Edwards in the first place to utilize Atlas Copco's extensive network in the world to grow on industrial applications of come with innovative products in that segment. And we are actually very pleased with the development that we see there right now. And that's, of course, not going to change the exposure in the by quarter very much because semi is so big and so successful. But we are also not only growing on the industrial in general, also growing with a stronger focus on service part of the business, not the least to be prepared for a downturn that might or will come, but the timing is difficult to predict. So we see positive growth on the service.
But again, if you start from a level where, of course, the semi business is so much bigger, it will take some time until it really affects the proportion of the sales. We have talked about sort of a 25 percent if we take the whole business area, and we are in that range still. It doesn't move as long as the equipment grows so fast as it has done in the last year. You don't see it, so to speak, but you have to look at the absolute growth. And there, we are very pleased with that.
And I think on the industrial side also, it's more about the coverage. So that we go to market both in Atlas Cocobram. We go with the label brand and the Ed Watch brand with differentiated products and product offers and the value creation for our customers. So we see good development there. But as Hans Ulus said, it will take a little bit of time and also to build up the service network for these customers to take even more time, obviously.
Okay. Thank
you. Thank
you. Thank you, Teodor.
Our next question comes from the line of Alexander Bergl from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Thank you very much and good afternoon, gentlemen. Just a quick one as to whether you can give us a little bit more color around the growth in small and medium sized compressors just regionally? Or anything to call out in terms of market end market demand, that would be very helpful. Thank you.
I think, Kjell, it's mainly within the industrial competitors. You talk about the small and medium. And there we have seen a healthy demand, which is mirrored in the orders received we have seen in Q1 and Q2 And also a good recovery of business in Asia and China. You can see the strongest development, I mean, in Asia with this quarter.
Yes. It was more just to underline that what we see, if anything, in the last 2, 3 quarters happening gradually is a good solid growth in small and medium sized, which is run as a separate division or separate divisions compared to the large industrial compressors. And on the Leighton very often alluded to the Malteus yellow canneries because they signal that the general business climate was improving or deteriorating. And I think that gives us a little bit of confidence that it's broad and it's a good market environment that we see. To be perfectly honest, I don't recall any of the regions that really did bad for that business in the world.
But as we said, from a couple of years of a little bit of a struggle, China is coming back strongly.
Okay. Thank you. That's very helpful.
Thank
you. Our next question comes from the line of Edvard Basilelia from Societe Generale. Please go ahead. Your line is now open.
Hi, Mats. And on Sola, it is on Solzhen. Just a quick question on the vacuum. I mean, you've talked about the growth and the numbers. We've seen them.
But are there any areas that you are not yet present in and where you see particularly attractive that would offer that could offer synergy potentials going forward? Thank you.
I think we see that we have a significant market share in semi, as you've seen. There's a little bit lower technology in flat panel, and that mirrors also our market share a little bit that there is more competition in flat panels. And then we see that we are starting a journey on the industrial side of things, and that would include service as well.
And starting the journey was, of course, correct. And then we bought labels, which were already on that journey, so to speak. So it's
quite a long way
to go. Absolutely. But we are with the acquisition, we already took a step in the direction that we want to have a more balanced exposure.
I mean, if you look at this combined, of course, very clear market leader as well.
Okay. Absolutely. Just a follow-up, but I mean on vacuum, are there any specific product segments that you see would be very valuable for you going forward and the trends we see in semi, semi and industrial?
I think for semi, I think we have a good coverage, and it's intrinsically key account management. So the number of customers might be between 10 to 20 in the world. In industrial, I think it's not only the end user, but you also need the coverage working with the right distributor in each territory. So I think it's a little bit on channel management. And I don't think there is specific applications.
It's more like compressors, I would say. But it's everyone has a little bit of vacuum and a little bit of compressor in their industrial application.
I think the new areas that might be there to fill in is also very much targeted from our own R and D development, obviously. So it's not that we are looking to find huge gap that we can satisfy with an acquisition or something. That is not the way. But there might be small segments, of course, of markets where we need to strengthen our offer. But primarily, it's growing on the strength that we already have.
Absolutely. Got it. Thank you.
Thank you.
We have a follow-up question from James Moore from Redburn. Please go ahead. Your line is now open.
Well, thanks for taking the follow-up. It's just on the growth development in Mining. Last quarter, you kindly broke out double digit growth for Service and Consumables and near doubling for equipment. And I'd love to ask if you could help us a bit with either the 25% order or 16% sales growth development this quarter.
Talking mining and you're talking what is equipment and what is aftermarket, is that what you meant? Yes, please. Yes. The still in this quarter, of course, from a growth rate point of view, it's absolutely clearly so that, for example, underground equipment has had a very, very strong growth. The positive with the service parts is that it's growing much better than it did in the last couple of quarters.
And we actually have a number of indications where the closed or, let's say, temporarily or permanently closed mines that we reported on quite a lot during Q1, Q2 last year, we see a reasonable proportion of those that are already opened up again and in operation. And that seems to reflect well on our own service division. So the growth rates are stronger there as well. But in service, it's very difficult to grow year on year 50%, 60% like you could see when it comes to certain product areas at least. But with your we are trending the growth rates on service are higher than we have seen in the most recent quarters.
So is that to say that it accelerated by the double digit level you saw last quarter?
Yes. We are still above the double digit level.
Okay. All right. And just one other one was on currency, while I've got to you. I'm looking ahead. I get your comment about the next quarter.
But what I see is the one after that and the start of next year could be even more material negatives. Is there anything you could say at this stage as to how big you felt they could be?
I think we touched upon Q3, and we expect it from definitely, definitely from the top line, our sales bridge, it will compare negatively on currency definitely. And also from a profit bridge point of view, we believe that it will be somewhat negative Q3 to Q3. When we then move the quarter further to your point, it's just to look at what happened last year, and it will be more negative compared to Q4 last year and so on and so forth. So you're right that in that year on year comparison, we will probably have the most negative bridge if everything stays as it is today in Q1 next year. You're right about that.
But I don't like really to start giving absolute values in terms of projecting how that will look. But in the next quarter, at least, we believe it will be slightly negative, yes. And what is important to repeat perhaps is that if we are now looking at the level of in Q2 of 8 $60, $8.70 I just take the dollar to the kroner as a proxy of all the currencies, of course. We are now looking more at 8.30, 8.40 level perhaps. And but it's important to remember that the profitability we have in Q2 is at least not reflecting what we had last year in currencies.
As you well know, we don't hedge ahead. So it's pretty well updated to the current level, but slowly getting a little bit worse as we see it today, but at least we are not losing on profitability the same way as we are losing on the bridge component, of course. So that's just to remember that we don't have the hedging effect that suddenly will turn very, very negative for us in Q1 next year or something.
Our next question is a follow-up question from Lars Ploujian from Barclays. Please go ahead. Your line is now open.
Thanks, Hansel. I did want to just talk briefly about mix both in mining and in CT, if I could, within the quarter. You help us understand what the sales mix in mining was this quarter? That is OE, Production Services versus consumables.
Yes. We
I don't have the exact numbers for it. We tend to be a little bit cautious on monthly and quarterly values because they seem sometimes they can be a little bit erratic. But as we just said, if you look at the order intake and the same for revenue actually on a year on year basis, obviously, we have the sales mix against us. We have grown much more on equipment than we have on service and consumables, and that is never helpful. Although, of course, part of that negative is compensated by also having a little bit better absorption in the factories, obviously.
But it normally doesn't help that much. And that's why you see a relatively stable sequential development of the operating margin, even though you see you would expect that it should continue to improve. But we were already at the reasonable level of revenues in Q1 sequentially, and we didn't increase so much. We should also remember that from the currency effect compared to Q1, we already had a negative comparison in Q2. We sort of peaked in Q1 from our currency basket point of view.
So we don't give you all the numbers of these bridges because we think that it's not very valuable to dig into a detail where there are hundreds of components that affect our profitability. But cutting it short, the mix effect is negative on a year on year clearly. And on a sequential basis, it's not such a big difference actually compared to Q1.
No, I understood all of that. I was just hoping you could give a little bit of a quantification around that because clearly, mining margins is where, at least relative to expectations, you're disappointed somewhat perhaps because we're underestimating that adverse mix shift we're seeing from services to OE. And so therefore, the question was more what is that magnitude? Or in other words, where are OE margins currently? If you could help us with that, that would be very helpful.
Yes. That would be a novelty if I help you with that. So I won't. But I think what my answer you should read into it is that we are affected by exactly what you say yourself, whether it's been underestimated or not. But of course, the sales mix is not helping currently because we are growing so much on certain parts of the equipment.
Understood. If I finally just could sneak in the question around mix in CT. I mean, obviously, the 100 basis point improvement year over year in CT was very happy to see that, but you're also seeing some favorable sales mix. Could you help us a little bit with the order of magnitude of that and what you see in the second half? Presumably, that will, to some extent, reverse if some of these larger gas and process orders start to get invoiced in the second half?
The reason for the comment is what you touched upon. Of course, if you have a good quarter, a big quarter for gas and process and then you don't have it next time, it will be affecting the sales mix and hence the margin because the margin is far from what we have on the industrial compressors and the service on industrial compressors, for example. But I cannot quantify and I won't quantify exactly what is what in that move from 2022 to 2023 and so on. It's really just to understand that this is not a level which has everything in the positive territory with a perfect mix, with a perfect currency basket. The comment is there to say, well, we do 23.4%.
But of course, it's not all components that are helping that. I think what we want to say is that it's a good level. We have always talked about compressor technique being a 22%, 23 percent margin business. And I think, again, to come back to what Mats said, our focus is on growing value and on growing. And if we can do that at these margins, we are super happy.
Great. Thanks.
Thank you. Okay. I think we have exhausted the hour operator. So I think that if there are any further questions that come up, our Investor Relations department and myself, we are, of course, available for any questions coming after this call. But I thank you very much.
Thank you much Ulf, for your Q1 comments Q2 comments, I should say. And we thank everybody on the line, of course, for 14th November. And you can just is the 14th November. And you can just put it down as a little bit of a note in your calendars and there will be much more information coming on that later on. So without more comments from our side, we hope to have the whole speak and see you in October when we comment on the Q3 results.
Thank you very much.
Bye bye.