Ladies and gentlemen, welcome to the Atlas Copco Q1 Report 2017. Today, I'm pleased to present the CFO, Hans Oehlemeyer. For the first part of this call, all participants will be in listen only mode and afterwards there will be a question and answer session. Speakers, please begin.
Thank you very much. Actually, where we are sitting today, we hear you a little bit badly, operator. I hope the rest of the participants have a clearer line. But I just wanted to say that if anyone else is having the same problem, we'll try to see if we can fix it. But anyway, before that, welcome also from my side, Hans Ulra Meijer, the CFO of the group.
I have with me as usual, well until today at least as usual Roni Lettin, our CEO, will take over in a few seconds. Today, we also have our Annual General Meeting and it starts in a very short time. So this call, we will have to restrict to 1 hour exactly. So we will try to be a little bit short, but also for the Q and A session, I suggest that all of you lined up ask one question and then we'll see how we can continue on to give some chance to more people than a few to pose their specific questions. So with that, I hand over to Ronny
to take us through the first couple of slides. Yes.
So thank you, Hansoula, and good afternoon to all of you. Maybe I can start to summarize the quarter. I believe it was this time a very solid quarter. And to stay a bit in a tradition, I am very happy. But as you all know, not satisfied yet.
As I know, there is always a better way. So we believe we can always do a bit better on that side. But anyhow, it was a very
strong
growth in all business areas, record orders in equipment as well as in service. Otherwise, you will not make €30,000,000,000 €31,000,000,000 It was a double digit growth in all regions and that was since long that we haven't seen that. And it was particularly strong order growth in vacuum as well as in mining. Solid order operating profit, 37% up. Of course, we are helped by currency.
We should not deny that. And you will see that later on in the flow through bridges. And of course, we are also positively affected by the volume. So I'm very, very happy to see this development. If I go then to slide with the figures, where you can see the orders received organic growth 18%.
It was a long time ago that we got that, making it almost SEK 32,000,000,000 in the quarter. It was great to see that operating profit, which was if we take it adjusted for items affecting comparability and you know this is the long FDI programs that we have with the options. It was almost €5,900,000,000 21%, which was a very, very solid operating profit. Later on, Hans Ole will elaborate a bit on the cash flow on the quarter. So I will now elaborate more on the figures.
If you look on the geographical spread, next slide, I think the takeaway is that we see that every continent has a double digit development and that is great even South America where we know that Brazil is still not growing as all of us would have liked hoped. But the rest is really doing extremely well. If we take the order organic order growth per quarter, you see that the last three quarters, we see a continuous recovery and that continues. So that is good to see. And if you really go back, you see that mid-twenty 12 actually that was the time it really flipped over then of course in the wrong to the wrong direction.
But now we see definitely a continuation of the recovery. So a really good CapEx positive CapEx cycle. Sales bridge, structural changes, it's mainly labeled in CSK where we have a good development in these two acquisitions and we have a couple of smaller ones, but it's good. Currency is big, mainly also it's coming from the Swedish kroner and still a good solid dollar. Price is slightly positive, but I believe that is something what we will see in the quarters to come and then volume already elaborated on that.
But very, very strong orders received. And also when you look to the revenue, SEK 28,000,000,000 is a long time we got that one. I will go immediately then to compressor technique, a very robust organic growth, almost double digit, just below that, but a very solid steady growth for service. And you know that is really what we would like to see. And then the yellow canaries, the medium the small to medium sized compressors had a double digit growth and I think that is a very good sign.
We like to see that part and also an increase in all regions as you see on the slide. Operating profit, 22.5%, percent, very solid. I'm very pleased to see that type of development, especially you take into account that we have a bit of negative effect from some of the acquisitions we have done lately. So we track the profitability a little bit down, but it is definitely closing to our magic 23%. Then vacuum, what can I say on that?
Very pleased I'm very pleased with the development. If you see on the graph, we have over the last 2, 3 years almost doubled that business, of course, by acquisition but also by organic growth. So a strong growth for the semiconductors in the logic as well as in the memory. And we also see a good development in the industrial vacuum as well as in the high vacuum. Labeled, our latest bigger acquisition, if I can say it that way, is on track as well as CSK in Korea is on track.
So the integration work and the plans what we had before the acquisitions are on track. And the operating margin, we had a very good flow through, which also Hans Ul will elaborate a bit on that later, but made it almost 25% on operating margin. Taking even taking into account the acquisition of Leibold and Swiss K with Raggeddown. And thus technique continues to develop good double digit growth 16%, which is very good to see in all the different areas, but of course strong still in automotive. But we see a bit the same sign as we see on the small to medium size compressors, also general industry doing well and service continues.
And the operating margin is solid, rock solid 23 plus EBIT margin. Mining and Rock Excavation, 28% organic growth, which is great. As you know, we have a significant business in service and consumables and these businesses are not growing 30%, 40%, 50%. But this time, we had a double digit growth in the service and consumables, which is very good. That's an understatement, I would say, but I'm very pleased to see that.
But the equipment orders almost doubled. So we missed with a couple percent is the doubling compared to quarter 1 2016, so which is a very strong order income for equipment. And the profitability, a very good improvement, but going from 15% to 20%, which is seen that we definitely can have a good development in mining and rock excavation. So I'm very pleased to see this development going through and we're looking forward to next good quarters in that area. Construction technique, and this is operating without the Dynapac divestment.
So hopefully, it's every for everybody clear. But also here we see a good order up double digit, 10% as it says, strong equipment demand. But also what is good to see that specialty rental is coming back with a good growth. As you know, that was a bit affected by the oil and gas in Houston and the Middle East, but that is more or less recovered and good development on service. Operating profit, a very solid 16.4%.
And by this, I would hand over to Hans Zola to elaborate a bit on the P and L.
Yes. I'll take a few slides from there and then come back to Ronny. On the Slide number 13, you see the numbers that you've already seen, the strong improvement on the operating profit margin. We'll come back to that in a second. On the financial items, which then is between the operating profit and profit before tax, We have a slight increase compared to a year ago and it basically comes down to that we have actually a little bit more gross debt.
We borrowed very handsomely long 10 year money last year, which we are not at all displeased with at this moment. But it means that since extra cash that we also have in the balance sheet doesn't pay very much right now, We have a little bit higher interest net than last year. Going forward, I think we've taken into dividends and whatnot that comes out. It will not have any big impact because we're taking it primarily from cash. But somewhere in the same region as that we are talking right now, I would guess, is a good estimate.
Then if we turn to the tax items, of course, in absolute, tax goes up quite heavily, but in line with the profit improvement. So the effective tax rate stays exactly the same at 27.2%. As long as the situation continues as we know it right now, I. E, for the next couple of quarters, you should expect something similar for the near term going forward on the tax side as well. We move then to the next slide number 14, what Ronny touched upon.
You can say this way of separating currency and onetime items and acquisitions and the LTI program effect gives us, so to speak, the organic improvement. And that is a very strong almost 40% flow through, which I think is indicating that we have seen some very recent strong increases when it comes to revenues and activity in the company. And then of course, the flow through of profit is specifically strong in that phase of the upturn. And particularly on the next slide, you can see that on 2 business areas, more than the others, even though all of them are having a nice flow through of profit. And it's vacuum technique and mining and rock excavation that I'm talking about.
And here, of course, the revenue levels have quickly come up very strong, even more than in the other business areas suddenly and then the flow through is very strong, I would say. When we go to the next slide, the balance sheet, we come to the cash flow also. But really, you can see on the balance sheet that the cash generation is there. And of course, before we give back some dividend, it has increased the balance sheet quite a lot only from that. The other things to note from last year is, of course, acquisitions give more fixed assets and that you can clearly see compared to last year.
And on the passive side, it's not much drama to be honest. You can see that there certain impact of a weaker Swedish krona on all lines, but also this increase of gross debt that I talked about before. All that profit and balance sheet items turn into cash flow or should at least, And I think we're happy to see that it does. Of course, SEK 3,500,000,000 in operating cash flow is very nice, even though it doesn't compare so strong towards Q4 where we had a record, record generation of cash. There are 2 items basically.
The profit is fine. That indicates a stronger cash generation. But then we have net financial items, which only partly is seen in the profit and loss statement. But from a cash point of view, we have a number of internal currency exposures that we hedge with internal loans, etcetera. And when you roll these over from time to time, it creates also movements on cash that over time will be compensated.
But you can see that it swings quite heavily from 1 quarter, 1 year to the same quarter next year. And the other point is the working capital. It's not surprising, of course, that we consume more working capital when the business is growing like it is right now. But I should also point out that it is not the strongest quarter for cash generation from working capital in Q1. We always have a little bit of negative.
Why didn't we see that last year Q1? Well, at that time, the underlying business was actually shrinking and now it's growing. So for us, this is a solid, to use a good word from Ronny, solid performance in our mine. So with that, keep it short and I leave it over to you again, Ron.
Okay. Hansula and then we come to the near term outlook slide with the famous one sentence where we said that we believe that the demand also improves somewhat. Now just to elaborate a bit on that and also to make everybody clear how to read that. First, I think when we talk about demand, so the environment of the business where we are living in and this is also sequential development. So that is, I think, is important to understand that.
But to elaborate a bit more on that, we have seen in and during Q1 and we saw that already in Q4 actually that we saw a solid improvement and we saw that also that improvement confirmed. Now for Q2, we expect this improvement to continue. So for the climate overall in the business, we see that. However, and one should not forget that some of the customer segments are already on a very high level. So that I think you should bear in mind when you integrate this, yes, this very, we should say, critical sentence, but I think to give a short sentence maybe a better one to how to read that.
And I'm sure during the call, you will get a couple put a couple of questions around this. So that is what I would like to say about this. Excellent.
Thanks, Roni. And before we turn into Q and A, just one quick one and that will spare us a few questions on it. So I'll take it right away. I forgot to say that the impact of currency, which we saw in the Q1 to be about SEK 570,000,000 on the operating profit level. The best estimate we have today is that it will stay roughly on that level comparing Q2 last year to Q2 in 2017 this year.
So roughly about the same. That's what we expect. Thanks a lot. With that, operator, can I ask you to repeat the procedures for the questions, please?
Our first question comes from the line of Klas Bergelind from Citi. Please go ahead.
Your line is now open.
Yes. Hi, Ronny and Zola. It's Klas from Citi. My first question is on pricing there in Mining and Rock. Very strong demand and this has been ongoing since the Q3 of last year.
And we are hearing a little bit about lead times getting a bit extended, not across the whole mining space, but where you are operating in underground hard rock, where demand is very strong. Despite this, we're looking at pricing being flat for you in the quarter, which is a little bit surprising to me. Could you talk more about what you see in terms of price negotiations in Mining and Rock and whether we should see pricing improve here in the next couple of quarters? Yes.
It's a good question, Claus. Of course, that on pricing and pricing is all has to do with 2 things. I think pricing has to do when you create more value for the customer coming from innovation. And I think you have heard me saying this already many times. So that is part where we see that we get compensating for the value we create for the customer.
And second is a bit the competitive landscape where we're in. I believe when the business get a little bit more disciplined and that will lead to some price inflation for us. That is what I see coming. Of course, what I would like to see and that is also how you should read our price index here is in the service part and in the consumable parts, we need a bit of inflation apart that to get that. I think on the equipment, competition is still there.
But I must say, I don't hear our guys to be too negative on the price. So I expect some positive outcome in the quarters to come, like I already mentioned when I did the call about that. But we're still living in a competitive world, so don't underestimate and the volumes are not there where they used to be.
Thank you, Claus. I hate to interrupt. I hear almost without you saying it that you have more questions. But can we turn to the next question please and then we'll circle back if we have time Claus?
Our next question comes from the line of Guillermo Pinieur from UBS. Please go ahead. Your line is now open.
Good afternoon. Guillermo Pinieur from UBS. Good afternoon, Roni. Good afternoon, Han Sola. And I wish you the best of luck, Roni and to Mats.
You have easy comps going forward as I see them. So I wanted to ask a couple of questions actually, one regarding the Vaccine Technique backlog. Can you quantify the backlog as it stands now in terms of maybe size relative to sales and also pipeline of projects going forward?
Yes. First, when it comes to luck, I think the more I train, the more luck I have. So luck is not in our business. It's hard work. And I'm sure also Mats thinks the same on that one.
When it comes to I had to say this, Geron, this was an opening.
No, that's fine. That's fine.
On the vacuum, of course, there is still a good pipeline. And I know it's not always easy to read for all of us what's going on here. But when you come to the vacuum, when it comes to the logic and the memory, we still see a good pipeline in the market. So our visibility is not, say, 12 months, but our visibility is a couple months, and we still see a continuous good development in that market. I think on the industrial vacuum, there I think it's more or less the same behavior as we have seen on the small to medium sized compressors.
So we see a positive trend there and that we also believe to continue. That goes together with the CapEx cycle what we see happening seems to be in the world. Of course, we have a couple of businesses which have sporadic demands that you can be on solar or it can be on flat screen. And that visibility with all due respect for everybody is very difficult. This time, we had some good orders for flat screens.
So that made it a very solid even better quarter than I had expected. But on the other hand, the base business, industrial vacuum as well as so logics and memory is doing well.
Thank you. I'll go back in line for the next question.
Thank you, Exaxe. Next question please.
Our next question comes from the line of Peter Frieland from Handelsbanken Capital Markets. Please go ahead. Your line is
open. Thank you. So my question will also circle around the vacuum business and the impressive profitability. Is you mentioned still dilution obviously from labels. Maybe you could help out here to understand the large margin improvement.
Is label also doing much better? How much is actually mix here helping? And how much is then the high drop through as revenues come in before you add fixed cost? Please could you help us to understand the sustainability high margin here?
Okay. Peter, yes. I think a question which we had all expected, of course, when we saw that. But one thing is and we go back to our Capital Markets, what was it in November in Antwerp where we were guiding a bit and where we also were we just got labeled in CSK under the belt. So we were still working on that.
One thing we can say that the acquisitions these two acquisitions do much better than I had expected. They do better in 2 ways. They do better on top line development. So that means also there is some positive flow through and utilization. And second also the integration goes smoother than we had expected.
So we were able already to do a couple of changes, which helped to improve the bottom line. So the leakage is still there, but it is less. So that's one. Then second, the margin, we see a very solid high development of sales in the logic and in the memory that leads that our factories are well utilized. So you can say 20 fourseven.
You remember my statement last quarter, Friday, Friday, Friday that's still happening. So we get an extremely high flow through. And you can I think also when you look back to the flow through bridge Hans Zula presented, you see that? And of course, that comes through the bottom line. So and that is so we have less leakages from acquisition, high flow through due to high utilization, meaning and then also in the right mix, meaning in the semi, which is where we have today the high margin leading to this type of profitability.
But coming back to the other question from the previous Gomero that I think we see for the next coming quarter still a good utilization of our factories and the output will still be at a good level. Or something must happen, whatever, you never know on the geopolitical thing, but let's take that away. So this is the let's talk about the controllables and not about the non controllable.
That's very clear. Thank for that and good luck also for me and I get back in line for my solar question.
Thank you.
So
operator please next one in line.
Our next question comes from the line of Lars Borsen from Barclays. Please go ahead. Your line is open.
Hi. Ronny Hansola. LastDay Today, Ronny, good luck. It's been a job well done. I did want to just follow-up quickly on the pricing trends, more so across the group and for mining specific.
A little bit surprised to see flat pricing across, particularly the BAs that have been strong for a while and where the supply chain is tightening, not least, of course, in BT. Could you help us a little bit with how you see pricing trends through the rest of the year more broadly across the group outside of mining? And maybe as a follow-up to that, the flow through in CT is currently 30%. It's obviously good to see margins up this quarter after disappointing trend in 2016. Do you think there's a leg up here in terms of incrementals as price increases come through and presumably mix improves?
Yes. On the pricing, like I said in the beginning, and then Klas from Citi was asking that question, I believe this will finally come to a more positive part because the market is flipping as you can see. And you also have seen other businesses because we are not the only one who have got better orders received part. You hear that also I see our suppliers talking about pricing. So that topic is coming back on the agenda.
You can say, okay, why is it not there yet? I'm sure we also are spreading the gospel in price increases. There is always a bit of a lagging on that, but it's definitely moving to a positive price development, which maybe if you remember 2 if we take it 2 years ago, I think maybe we could say the trend was going downwards. Now I see the trend going up. That is one.
Then on the flow to bridge from CT and the 30%, I am pleased. I'm not so worried about CT. And I hinted also that there is a bit of a delusion on acquisitions and a bit here and there. We are cruising around 23 plus part on that was we take a bit here and there what we need to do. But there is a good development going on.
So that I think is not something to worry about. It's still rock solid and working. Of course, we and you know, we still have the gas and process part where that breaks it down a bit. As long as that is not yet there, okay, you have a bit of dilution. But on the other hand, you get a positive one on the small to medium size on the oil freeze.
We see service coming up. So one is compensating a little bit on that one. But I always put the magic 23 there for City, which is if we do a bit of adaption for acquisition, it is definitely there. Thanks. Great.
So we continue with the questions please.
Our next question comes from the line of Markus Almerud from Kepler Cheuvreux. Please go ahead. Your line is now open.
Markus Almerud from Kepler Cheuvreux. A quick question about mining and rock. So NOK 7,900,000,000 is actually the 4th highest quarter you've had in terms of order and taking absolute terms, even including 10, 11 and 12? And can you talk a little bit about if the current metal prices sustain, is
there a lot of do you see a
lot of pent up demand out there?
Do you expect the current levels to kind of be sustainable with
if metal prices stay where they are and that replacement investment will continue? And also if you could talk a little bit about which metals are primarily driving right now?
Yes. Which metals, I think, it's rather obvious. I think it is the copper, the zinc that and a little bit of lead here and there, which is coming on replacement. Yes, you can Anzule say, yes, some a bit of gold there. But that I think that is where we are main there.
It's not the iron ore area which is bringing. And of course, one should know this is mainly for underground because we don't see really the surface business coming up. That is still at a very low level. This is replacement underground. And mid-twenty 12, it really dropped.
So we are now, what is it, 5 years further. That brings it, yes, I think at certain moment, I have to come to make a confession to replace these machines. The metal prices, I think when what I see on the zinc and copper, they're good. I think that is not the problem. I see the mine is making profit.
So that is not, I think, the major issue. So I believe also when you look to our orders received, which is still the biggest part is service and consumables, which I still believe we can do better there, especially on the service part. We do we still don't service all our equipment. And I'm not talking about competition, but even our own equipment. So we still have a long way to go there to harvest that also on the consumables.
There is still a lot where we can work on that. And on top of that, then we get the automation and all that part. So I'm looking for the time being or if nothing is happening, I still see a reasonable development on the mining side. So I'm less conservative as and you know me on that one. I don't trust all the time the mining sector.
But what I see now and hear, I am reasonable positive here. Okay. Thanks a lot, Greg.
Our next question comes from the line of Ben Maskely from Morgan Stanley.
Can you talk a bit about the separation of NewCo and how that's progressing? What's customer feedback been since you announced it? And are you incurring any extra costs related to the split at the moment? And then Hansel, at what point, I can't remember, will you give us an update on tax and balance sheet implications of it?
Yes. Maybe I take a quick first on the customers and our people. Of course, in the beginning, especially internally, as there were no rumors leaking, no gossips going on, of course, then yes, it was a thunderstorm with a blue sky. So but that was a couple of days. I must say today, all the organization is back in town focusing on the customer, winning orders and focusing on the future.
So from that point of view, I don't see any direction from the separation and the business development. And now by this, I will hand over to Hans Ulijn Cost as you were the project leader for this man.
Yes. It's as we have said before, it's a project that is not about splitting operations really. It's about splitting legal entities and information systems. And of course, that sounds easy in a way. It's not.
I can tell you it's 1,000,000 details that have to be planned and that have to be executed in the right order. But it's good, of course, that it doesn't affect directly those that are concerned with the customers, As Ronny said, we haven't worked up a lot of costs as of yet related to the transaction. So it's not meaningful even to talk about it in Q1. As we move forward Q2, Q3, Q4, we might indicate or even give some indication on how the cost is developing. We have said all along that don't expect it to be a hugely costly exercise even though the size of the 2 companies is rather substantial.
But still, we will keep you posted on that. But it's not something to take into consideration right now. On that, we can also say that we still expect that the majority of the transaction cost will happen in the tax area where you can't avoid certain tax leakages when you cut out businesses in different parts of the world. But we will come back and when it's meaningful, we will give you some numbers on that. When it comes to the capitalization and the balance sheet going forward of the 2 companies, we don't want to preempt too much what the world will look like at that time and how the different developments have happened during 2017.
Well, what we know is that when we come to the Q4 and where you know we will always have our Capital Markets Day, we will be much more specific about what we intend and what the ambitions for these type of ratios will be. That's where we are. I could say right away that the project as such is progressing well. I already commented that there's €100,000,000 things. Perhaps €1,000,000 is too short.
But it's progressing and we will be in time to do it as planned and be able to present the dividend proposal of NewCo to the AGM in exactly 1 year's
time from now. So if I ask now, Ben, I will ask an extra question for you. Do you see a difference between what we expected in January and now already?
He's asking me, Ben, just so that you know. No, I don't see it very differently than we asked in January. So there you got some help, Ben, without asking a second question.
So that's good.
Got it. Thanks, Hans. Congratulations, Ronny.
Thank you, Max. So we go to the next question, please.
Our next question comes from the line of Alex Virgo from Bank of America Merrill Lynch. Please go ahead. Your line is now open.
Thanks very much. Good afternoon, gentlemen. Just a quick one, Ronny. I wondered if you might talk
a little bit about the demand outlook.
I think you gave the same overall demand outlook with the Q4 results. And obviously, Q1 was a lot stronger than expected. So what can we read into or how would you characterize perhaps some of the underlying demand that's captured within your near term demand outlook? Is it a reflection of catch up in replacement? Is it effective restocking that you expect perhaps to be less of an impact?
Or any color around that
would be really helpful. Thank you.
Yes. First, I think, of course, when it comes to the Q1 outlook, you can say, Ronny, you were wrong. I think maybe to improve somewhat, maybe the somewhat was definitely wrong because it was more than I expected. And that was mainly coming from the mining part and also the vacuum part, but also the rest the other business were, yes, stronger than I had expected. Okay.
You can say it's a little bit longer quarter. We have 2 working days more and here and that, of course, plays in service. But still, if you make a correction for that, I think I must say I was wrong on the right side, so to make a confession here. I think now I believe still in Q2 that when we listen to the market and see that, yes, that the whole climate, the business climate, to use another word for the demand, I still see developing in a positive way. I see a very, very solid Europe.
Of course, you never know what happens with France. Now we got the first tour of the election, but okay, what can happen next? Okay. Is that the negative part? Okay, hallelujah, I don't know.
But still, if I exclude that, I think I see a solid development going on in Europe. I see the same in North America. I see that. I see still a good development in the semicon when it comes to the logics and memory because the Internet of Things is at the beginning, I would say, in the world that develops. China is doing what it needs to do.
India is developing. There's maybe one country and we talked a little bit about where it's Brazil where it's still okay here and there and maybe you can then take another smaller one from a volume point of view South Africa. These are maybe the 2 ones where we get to say, yes, it's difficult. When it comes to the oil and gas, we see some traction coming that we get here and there orders. And that made us say, okay, yes, the demand sequential demand is solid and we believe in that part.
So of course, again, there are segments which are already on a high level. I can be wrong. So it's not that I'm here predicting another 20% increase sequentially. That is not but I have a positive outlook in in the next quarter. I hope that gives you a bit better view on what we saw because it's not easy in this predict.
But I'm a reasonable positive. And it's not that I'm leaving now that it's okay, Mats here, it's yours. I think we debate this before. We put this on paper. We debate this internally.
So it's not a vision from Roni on his own.
Very helpful, Roni. Thanks very much and all
the best for the future.
Thank you. Next
question comes from the line of Andreas Willi from JPMorgan. Please go ahead. Your line is now open.
Good afternoon, Anatol and Roni. I'm not going to say good luck given your earlier comments that it's all about hard work, but I wish you good training on your bicycle. To understand mining a little bit better, maybe you could help us there. Where are we in current equipment sales, equipment orders which were up 100%, where are we on the current level there? What do you think is a normalized replacement level?
So obviously, we're going to get a number of quarters where it's running ahead of that given the pent up demand. But how do you assess the normalized level for equipment relative to where orders are currently so we get a better idea of where activity levels will be longer term when the pent up demand has materialized? And also do you see early discussions for bigger CapEx project that could come in when maybe that replacement demand starts to fade a little bit?
Yes. First, I think we should bear in mind that Q1 2016 was weak. And just to calibrate ourselves, because we get drifted away with the percentages that if we do because this is comparing quarter 1 last year with quarter 1 this year. So that's one thing. So it is we that was the weakest one more or less what we had on equipment.
But I still see good development, as I said in previous questions, and I see projects coming. People are talking different projects, replacement projects. And that was also taking place in 2015, 2016. Only the difference between 2015, 2016 nothing landed. It was a lot of talks but nothing came.
Now we see definitely that the orders are released. On the other hand, you see also on the exploration part, I think that we believe is still need to come. So if you ask me, okay, do you Vinito, I hope I'm right. But I believe we are not on say one peak and then dropping again. I think we still continues at a good very solid level on the equipment side.
But bear in mind, this is the figures you see also has service, has consumables. And there we see also good development. There also we got double digit growth, which is fantastic to see that. So that also get attraction. And there is there are still some projects going on in the talk.
So that develops at a good level. So and also and last then let's go, Automation, there is another part where you have midlife upgrades on automation. You get also replacement from equipment due to the fact that the new equipment has full automation and mines wants to go one step further. That is also helping the replacement cycle.
Thank you very much.
Our next Our next question comes from the line of Graham Phillips from Jefferies.
My question is on gas and process in Cyzor CT. Can you talk a little bit about how big that business is, what the drag is? And clearly, your market share is not as great in that as it is in air compressors. And what can you do when it seems to be dominated by GE and Siemens?
Yes. First,
I think where Siemens and GE is, we are even hardly competing with them because they start where we stop on the gas and process. So subsides. In terms of size, yes. So that is a very niche we are a very niche player in that area. But of course, it used to be, was it 15%, 16% of our total revenue of the business, which is now lower because, yes, the orders are not there.
So from that point, it's a smaller part of our business, but still significant. And we cannot say that 10%, 15% is not a big part of our business. It's start. And that is definitely not from a profitability point of view, not on the level where it used to be. Do I see some changes here?
I yes, you get one order here and a bit orders here, there, but not much. I think you see where we were strong and still are strong, but we don't see orders is in the air separation. But air separation you need for making steel plants. And okay, who is building more steel plants? No one.
And that was also we got a very good ride for many, many years in China because we had a very good offer for air separation in China. Yes, that business is gone. Another business where we were strong and still strong is in fuel gas boosters, yes, but there's not many orders going on for fuel gas boosters. There is another one on LNG ships, yes, okay? That is an area segment which is not there.
Yes, there is an order here and there. So we have certain sectors where we were strong, which are today, yes, not active. And that is what yes, we pay sort of the sale. We live from the service in this area.
Next question comes from the line of Klas Bergelind from Citi.
Just a quick follow-up. On demand on the industrial side and also in construction in Europe and in China, can we get a sense if China is still improving quarter on quarter? I think Sandvik said that they were flat in China sequentially. And then Europe, obviously, working days helping the growth there. But would you say that underlying demand has improved for you as the quarter progressed in Europe?
So if you could answer that. Thank you.
Yes. I think when it comes to Europe, it has developed positively and same on China. I'm very pleased to see the development in China. Yes, there are still and you just heard me talking when I was giving the answer on gas in process, there are certain segments in China which are debt, but we see also very good development in China and also we in certain areas we gain some share. If you look to Automotive, our Industrial Technique business is doing great in China.
If you look to the oil free compressors, it's doing great in China. We got some good orders on the mining and rock excavation business area in China. So there are sectors or segments in China who are doing well. If you are, of course, exposed to steel or to the marine business like shipyards, yes, then it's a dough business. But the businesses which we have been exploring so and moving your cheese, so we are looking to areas which are doing fine.
And I'm I was pleased with the quarter this time. And you see even service, which is always also good indicator to see in China because if utilization goes down, okay, in bosing and services also going down, but we saw a good utilization in China. So yes, it was a good quarter in China. Can I just
ask a very quick follow-up on Mining and Rock and the drop through? Given Mining 4.0 Autonomous, do you feel a need to make investments in R and D and in the front end going forward, which might lower the drop through? Obviously, the drop through will naturally slow as costs go back in, but will you have extra costs going forward here to ramp in automation?
I will never going to give in on that. I think when it comes to a business, when you develop a business and you open the door that you can invest forever and you don't need to deliver, that is thin ice. So yes, do we need to invest 4, 4.0 on automations? I think you remember maybe the Capital Markets Day where Johan at that time did the presentation. I think yes, And we as we speak, we do investments in this and we will definitely keep doing that investment.
Do we need to do more? Yes, for sure, if we can do more. But to use that really as an alibi to justify lower margins, I would have difficulties to swallow that part on that. I think that's not the case yet or and I hope never.
But of course, as you link it to the flow through clause, of course, there will be quarters when you won't see 50% flow through, not because of what Ronny is commenting now, but generally speaking, that investments will continue.
Yes, but the 50% is
not No, no, no. It's absolutely not sustainable.
Of course,
but I think it should normally what we see as automation and mining is a profitable business.
Okay. Thanks, Roni. All the best.
Thank you.
Perhaps a few more follow ups from the early questions. But do you have more questions, operator?
We do have a couple more questions in the queue. The next one comes from Guillermo Pina from UBS. Please go ahead. Your line is now open.
Hi, Guillermo, again, thank you for taking my question. Just regarding to your commentary actually on Mining and Drug Excavation and coming back to the questions on demand sustainability, I went back actually on your quarterly statements and services and consumables, which were improving since the Q1 2016 and probably leading the way to the equipment recovery now seem to be losing some of the growth or the steam in Q1 on a sequential basis I'm talking about. Is there any seasonal commentary around that softness? I'm not saying it's declined, but it grows slightly versus growth in the Q4 and the Q3. Is this just basically a normalization of the growth rate towards protection at the mining sites?
Or is there any trend that you want to highlight here?
No, no, no. And you really take us by sophistication now because I look to the utilization and of course you always have maybe more invoicing at a certain moment for especially for consumables in certain regions, it goes on. But there is nothing really as I'm thinking as I'm speaking on consumables, definitely not. It continues to grow slightly and up on that one. So that's one.
I think also on the service, because there I see utilization of people and hiring enough people, which is also positive. So it's still in the positive part. So on that one, I am definitely not concerned or worried.
Thank you so much.
Thank you.
Your next question comes from the line of Rizk Mady from Berenberg. Please go ahead. Your line is now open.
Yes. Hi, Roni. Hi, Anzola. Just a quick one for me. Can you please give us the current split between aftermarket and new equipment in your mining business?
And then similar question for CT compressors. What is the proportion of small and medium sized compressors versus large ones now versus 2012 levels please?
If we take on the service side, on Mining and Rock, we're still in that area of close to 70% represented by consumables and service. And then I'm talking revenues really. When it comes to orders, of course, when you have a very strong quarter compared to the previous year, then it might move a little bit. And over time, it will probably moderate a little bit from those high levels of service and consumables as equipment picks up. When it comes to the other, we don't disclose these numbers between large and small.
What we know if you
go back 5 years as
you did is that we have made further acquisitions in the small range. So you asked about how much have the small compared to the big ones changed. And I think that it's difficult and I certainly don't have it in my head about some organic comparison in that but and not the split either. But we have made some acquisitions on the smaller and medium sized compressors, as you know. So in that respect, the weight has shifted a little bit towards that without impairing the high profitability level, as you have seen.
So with that, I'm sorry to cut you a little bit on that last question, but I hope you got some answer back.
Yes. Thank you.
Thanks a lot. Good. And then let me just finish off by thanking everybody for participation in the active interaction. And finally, also, even though I have other opportunities, thank you, Ronny. Did well on this call, but on many, many, many other calls as well.
So thanks.
Thank you. Good luck. Yes. Thank you. Yes.
Good luck. Yes. So thank you guys all over there. And just to give you a bit of comfort, I stay shareholder. So I wish you all the best and also wish Mats all the best in the years to come.
So with that, thanks a lot. Now we head towards the Annual General Meeting. Hope to speak to you again, if not before, in July when we release the 2nd quarter results. Thank you.