You and good afternoon. I want to see. This is one of our latest top product in the mining business. Our top two largest truck, underground truck, which is a very successful product. You see we are committed to the mining business for those who maybe have a doubt about that. Q4 in brief. I will try to make this presentation short. I'm sure there will be a lot of questions around the result, but also around a couple of events announced recently. I'm very pleased with the result. It's, you can say, record orders, record revenue, record operating profit, and record cash flow. What you wish more as a CEO. That's also in all business areas and in all regions. I think everything more or less we can say all stars were very well lined up this quarter.
A very good work from all the people in the organization. We had a couple of events, of announcements, and I will just do that very briefly to make sure you don't forget. You see Mats Rahmström will take over from me from the 27th of April. You see, it's a bit like the sales. The CEOs becomes also taller. We have a great future in front of us. There is a high correlation between the tallness of the CEOs and the growth, of course, of our company. I'm really looking forward to the future. The proposal also, what we will do and that we announced the 16th of January, that we will do a split of proposal split in the AGM 2018. Just to remind you, it is a while. It will take a bit of time for us to do that.
Before it happens, this will be mid-2018. Last but not least, we also announced that we divest the Road Construction Equipment division, which we also announced, and that will take place within a couple of months in reality. Just for your sake of understanding, all figures which we will talk about is without Road Construction. For those who get confused about a couple figures, just look first that we have taken out Road Construction. If you go to the figures quick, I will not go through all of them. One figure I would like to highlight, organic growth 7%, and the last one here, operating cash flow, SEK 6.5 billion. It's a real strong figure. You see also the small asterisk. It's included discontinued operation, but I can say there was not a big contribution from the divested business.
It's more or less a clean, strong cash flow. If we take a quick brief on 2016. 2016 was a mixed year. It started tough. If you remember, Q1 was a tough quarter for us. The latter part of the year had been doing well. You see also the last quarter was a strong quarter. All in all, if we take the year and compare it with all previous years, it was a record profit, record orders, and cash flow. That we can say. What is also good to see is that our commitment to service and the whole transformation we go through with our business, that that is also still keeping on. We keep developing our most profitable business, which is our service business. We got strong growth in Vacuum.
You have seen that. We have decided, since we were able to expand that business with a couple of acquisitions, Leybold and CSK to be more specific, we also decided to make it a dedicated business area. It can really run for its own future, and it makes it much more transparent for those who are following the company. We did 13 acquisitions during the year, so we have been busy. The board of directors also will propose to the annual meeting a dividend of SEK 6.80, which is around 8% increase when we compare with last year.
The rest, okay, the figures here, I talked a little bit about the increase, the organic growth, the 6%, the structural 4%, organic 3%, structural and a little bit negative currency, because in the year we still have a negative currency on the top line. The rest, I think good development on service. I mentioned that already, and we had also a strong Compressor Technique as well as in Industrial Technique. The total operating cash flow, which I'm really proud of, you see more than SEK 18 billion in the year. That was a very nice achievement. Of course, from a good profitability. We missed just the SEK 20 billion. Of course, you know that our cash conversion is high, making this more than SEK 18 billion. If you then go quick to the geographical split.
It was a long time if I was able to talk that everything is positive, and you see it here. It start in North America, a +8%, it's still good continuation of that continent. All countries in that continent did well. Europe, 14%. I should make a remark. Of course, you know, there is partly a big part of Leybold in, but even if we exclude Leybold the acquisition, it was a strong quarter in Europe. We see the +29% in Asia, a very strong China, a very strong Korea, and an okay India, make it also a +29%. If you take these three together, which is more or less, what is it? Almost more than 75% of the business, we had very strong development. Where is weak?
See South America, I think it's not a surprise for any one of you. It is Brazil, which is the biggest, which still is suffering and make it not such a good quarter in that. Even with a weak Brazil, we were able to come up with a +1% growth in that one. The rest of the continents, you can see what it is. We go to organic growth graph. I'm very pleased to see two quarters in a row. We have a good development. There is growth in the air, so that's good. We also see if you take for the total company, excluding currency, also that we have now four quarters in a row where we have growth. Okay, I'll admit the first two were a little bit on the soft side, but still positive. If you take it really literally.
Now we have the last two quarters, +10%, which is, I think, a good development given the business where we are in. If you take the sales bridge, I don't go much on that. You see structural orders received in the quarter +7%, volume +7%, currency +5%. We all know strong dollar, weaker pound, but that helps of course. And then, of course, a little bit weaker Swedish krona compared to the dollar. If you look to the year where we have a minus, which I already mentioned, you see the shifts during the year on the currency. Then we go to the different business area. We also put in here on the pie chart before I go to the different business areas, you see also Vacuum, which will start reporting from the 1st of January.
You see also that we put that in so that you get a little bit used to our five legs that we have. Compressor Technique. Record orders in the total and revenue and profit. It was a real strong development there. Of course, we got strong development from the Vacuum solutions, but if you take even excluding that, we saw a good organic growth also for, say, the traditional CT business. That is good to see also. Positive development on service and industrial compressors. Where it's still a bit tough is on the Gas and Process, although we can say that the quarter compared to last year quarter was positive, but it's still on the low level. Still a business where it's tough to be in now. And operating margin, a solid 22.7%. Industrial Technique.
What can we say more than it keeps developing a good motor vehicle business, which was strong Asia, which also makes us good that we are in the future areas for development and also a steady growth on the service side. Last but not least, a solid operating margin. We even can use another word, a very good operating margin at 24% and +1%. Mining and Rock Excavation. Ladies and gentlemen, an order growth of 9%, it was a long time that we could say that. We saw good development for underground equipment. I'm pleased to see that. A solid development in the service scope. From that point of view, we are back in the black figures. That was great. Hard work from all our collaborators.
What makes me most proud is that we are back on track on the operating profit. Remember that profitability in the beginning of the year. Hard work, really taking measures where we need to take measures. I would say congratulations to the team. That is the way I believe we should be, and I'm sure also more to come in that area. Construction Technique, also there, solid growth. Of course, we should know it was a bit of a softer quarter last year, okay, the +16% will say maybe makes you drifting away. It was a good order income, but if you look also to the graph, you see that Q4 last year was a bit weaker, the comparison was a bit easier to do. A solid Portable Compressor business, that's good. A little bit tougher Rental business. Why is that?
We all know the oil and gas, which is a part of their end market, is still tough. We know about the Middle East, we know the Houston area. That is areas where they normally do very well, and that was a bit tougher. That is also the reason why the profit is SEK 13.9. Remember, this is excluding the road construction, that means also that the profitability is a bit higher here, or should be higher. Of course, the reason why it is only on that part is mainly from the Rental business. What we write here, the sales mix, which makes it softer. I'm coming to the overview of the figures, and Hans Ola will from now on take over. I think I have mentioned the figures.
You see also here the operating profit going from SEK 4.8 to almost SEK 5.8, SEK 1 billion more profit in the quarter. I'm very pleased to see that happen. From this, Hans Ola.
Thank you. Just a few slides onwards, then look a little bit at the numbers. As usual, we have seen the operating profit. We also have some financial costs and expenses, that was SEK 167 million, a little bit less than last year. The most important thing is normally what is to be expected. I think that roughly SEK 200, SEK 200 plus is what we think is a normal run rate going forward on the financial items. You find them not on this slide as a number, but the difference between operating profit and profit before tax, of course. Somewhere a little bit north of SEK 200 going forward is what we think is the run rate right now. We also have a tax expense. It correlated to a little bit less than 25% in the fourth quarter. We had some positives compared to the recent quarters.
Here, I would say, of course, you see immediately that something was very strange last year. Some of you will also remember, as it said in the footnote, that we had a very large tax provision, non-cash at that time, a tax provision last year at this in Q4. You can also see that if we would adjust for that, the tax expense was just short of SEK 900 million. It was actually a relatively low number last year. I could say right away that I know that you have struggled to understand the reports this time because we have had that tax provision in last year. We have the discontinued operations this year. There are lots of numbers that is not easily seen comparable with last year.
We've tried to help you in this slide to show continuing operations, and then we have the separation of the discontinued. On earnings per share, you see 3.49 is what is the quarter earnings per share. That, if we include the impairment for the sale of Dynapac, it will go down to 2.01. That you can find back in the quarterly report. That makes it somewhat easier. What I'll leave you with is that on the tax expense, I mentioned a little bit short of 25% in Q4. What we expect going forward is somewhere in the region of 27%, again, seen as a sort of a normalized run rate right now. The other thing that has affected these numbers in this quarter is a favorable currency development in the market.
Ronnie alluded to it already, a stronger dollar, a relatively weak Swedish krona, and that has helped the profit in this quarter by about SEK 500 million compared to the same situation a year ago. Currency in itself has helped with about SEK 500 million. If we look in the same way for next quarter, for Q1, in comparison with Q1 last year, we believe that there will again be somewhat of a similar positive bridge purely from currencies when you compare Q1 last year with Q1 this year. These are the things on that I think we go over, and we look at what we call profit bridge. It's just a way to try to separate the one-time items and acquisitions effects and currency effects to the rest.
There, of course, you see that the group for every revenue SEK, excluding currency and other things, was generating almost half of that in operating profit. A very strong flow-through. If we go to the next page, you can see it by business area, and the same thing is shown here. It's basically the similar situation in three business areas, and the fourth one has very low numbers in it, so you can't make out a very good percentage of it. That Construction Technique has suffered quite a lot from a negative sales mix between last year and this year. The others all represent a strong flow-through so that the revenue growth have really turned into profit in this quarter.
One of the main reasons is that we have seen orders start to come in better at the end of the year, and then you get the better absorption in the factories. Without adding much cost, you get higher revenue, and that turns into a good profit development in the fourth quarter. On the balance sheet, it starts to become big numbers, SEK 115 billion in total assets. The only thing to mention really is that you see that we have made some acquisitions, and that has turned into higher intangible assets at the top. In other words, goodwill. You also can see that the businesses have done very well when it comes to inventory management. In spite of the growth, there is almost a flat development on inventory.
I'll talk a little bit more about that when we come to the next page, which is the cash flow. Here again, Ronnie mentioned SEK 18 billion for the full year and SEK 6.5 billion in what we call operating cash flow. It includes everything but acquisitions and dividends and these kinds of things. It's really a strong cash generation quarter. I think that sums up some of the operational or financial comments that I had. I'll hand it over.
We can do this together?
We can do this together.
Now-
Earnings and dividends.
I think you see what Hans Olav already said. If you take it fully included with the impairment, we come up to SEK 11.32 for the year.
If we adjust.
If adjusted.
Yeah.
That included then, what I say. I think what I said before, the proposal is SEK 6.80 per share for the dividend.
Yeah.
That-
I think that's the proposal. Of course, it's not decided yet, but we have it as from today-
Yeah
as the board's proposal.
It is what it is now.
It is what it is, yeah.
We come to the most important sentence of this presentation, where you see that we changed it somewhat. We said it's expected to improve somewhat. What is a bit the thinking behind that? What I see or what we see is that there is good development in China. If I take it back a year ago, I was maybe a bit more careful, but we see good development in China for the semi and flat panel. You see also demand for energy products. That area is coming. Of course, there is still headwind when you go to shipyards or steel plants and all that, but it really is an area which is turning, and that's turning in favor for our products, for our demand. Europe, I'm slightly positive on Europe, and the same is on U.S.
I'm not going to say that we're jumping on the tables, but if we take these three together, China, Europe, and U.S., which is more or less 70% of our sales, have a slightly positive approach. Of course, we get a bit of headwind. Like I mentioned already, there is for large investments, the oil and gas, it's still tough, and we have not seen really big orders coming on that part. It's still difficult. Shipyards, as I mentioned, that is also a bit difficult. If you take it from the segments, semi and flat panel. The demand for more energy efficient products is positive. Mining, you see our figures. Is it getting a little bit more positive? Okay. That's at least what we think. Of course, we're not talking about booming, don't twist away.
What I said, okay, on the oil and gas, we don't see big orders. On the other hand, you see the oil price a bit better. If you see the statistics in Houston of the rigs used, it gets a little bit more positive. That's also what we see in our business. By this, Hans Ola, I suggest we go for the questions.
We continue. Please, can the operator please repeat the procedure for the questions on the conference call, please?
Absolutely. Ladies and gentlemen, if you have an audio question for the speakers, please press 01 on your telephone keypad and you will enter a queue.
As usual, I look around the room. There seems to be very few hands in the air for the moment in Nacka, we go straight to the first question on the conference call then.
Our first question comes from the line of Klas Bergelind from Citi. Please go ahead. Your line is open.
Yes. Hi, Ronnie. Hi, Hans Ola. It's Klas from Citi. A couple of questions, please. Firstly, looking ahead and thinking about where the margin can go in Mining and Rock. Some suppliers in mining seem to be of the view that the margin can go back to previous peak levels, even if volumes don't return, as the cost-cutting has been structural. We have higher raw materials. Pricing is still weak. I think Caterpillar yesterday talked about the need to increase incentive compensation. The flow-through view is good right now, shouldn't incremental fade when growth returns as costs go back up? I struggle to see for you why the margin should return to the 24%-25%.
Only one question? Okay. Okay. Maybe we can first say what was the reason why the margin was so low, to start with that. I think we got, in the equipment, serious under absorption, because we know that in some businesses, the equipment sales dropped with 60%-70%. You have to make decisions. What do you do with your engineers? What do you do with your facilities? We kept on that. Once you get a little bit better absorption on your equipment, of course, that flow-through will be positive again. That where it's today, a bit up. When you sell more equipment, their profitability is not so high as you have that in your service business, you get another mix effect.
I think if volume develops like this and currencies, because you should not forget currencies in certain countries like Australia, South Africa, Brazil, which can also hit a little bit. I think when currencies are developing, get it despite of us, and we get a little bit more volume, I think we should get a reasonable improvement on our margin. Will it be 24%-25%? I will take that question, and I will put it forward next week to the business of Mining and Rock. It said they expect from you 24%-25%. Next time, Klas, you should ask me the question again.
He didn't. If I just add on a little bit, Klas, to your observation about the flow-through. That's also our view, that if you have an improvement in the beginning, as we have said many times now, you get the good absorption of the costs. When it starts to become quarter after quarter of a somewhat sequential and continuous growth, our business model will show, i.e., we don't have a lot of fixed costs. We cannot expect to have a tremendous high flow-through percentage in the normalized or over a period. That I agree with you. The volume in the next couple of years will decide how high the margin can come. That is, of course, impossible to say. I recognize what you say about the flow-through. That cannot be seen as a normal one going forward.
You get the R&D and all that part.
Absolutely.
Okay. You heard me saying I'm pleased with the 20%, the two should always be there.
Yeah.
That's okay. I'm only thinking higher raw materials. Pricing is still weak when we serve with the miners, and you obviously need to pay your sales people. You haven't paid them for a while, I suppose. To the same extent you did at the peak.
Just of course now I'm shooting maybe myself in the foot. I think when you go higher raw material prices, I think also normally that's also a good argument to increase prices for products. One is most of the time compensating from that part, because also when that means also our customers make more profit, a lot of things go a little bit easier.
Yeah. My second question is on pricing. Cat has announced price increases as cost inflation is higher, and we can see it in their numbers. We can't see pricing moving higher up for you yet. Are you moving prices in the market, or do you think that your asset-light business model can cope with the cost pressures?
Yeah. Of course, prices is always a battle, and with a low inflation environment, it's even more difficult. We work on that. There is a slight positive price increase. It's not as we used to have, because, you see also the inflation is much less than before, we all see the statistics on inflation, the wages. There is definitely more and more argumentation and justification for getting better prices. I'm not so negative on that part.
My final one, very brief, on VT and the impact from currency. Hans Ola, out of the SEK 270 million in the breach in VT, how much was VT and how much was the impact from the weaker pound, if you could?
Well, there is a good positive effect on VT, let's come back to specific numbers when we have them reported as a separate business area. We will do that in Q1, Klas. Of course, you know that the pound has developed in a certain way. They are strong in sales in Asia and also North America. Of course, they have benefited.
Korean won.
Yeah, the Korean won is also an important factor for them, not so much for Compressor Technique. Of course, they have benefited more on that, without going into details.
Thank you, guys.
Yeah. Thank you. Next question on the conference call, please.
Thank you. Our next question comes from Peter Sollien from Handelsbanken Capital Markets. Please go ahead. Your line is open.
Thank you. Could I please continue with the CT and Vacuum bridge to open up that box a bit? The Compressor pure margin was slightly weaker than I expected. On the other hand, the Vacuum one was very strong. Could you help us maybe, Hans Ola, with the profit bridge for Vacuum to begin with? Also explain a bit on the pure Compressor side, what diluted the profitability, if it was mix or simply that the leverage there were weaker.
Yes, I understood. I repeat again, I cannot go into details of the profit bridge since we don't have reported numbers per VT and CT. Let's come back to that. As I said to Klas before, they have a stronger positive help from currency in the numbers. It's also important to make that, perhaps I should have made it immediately, that the Compressor Technique business area in this quarter reported a SEK 50 million positive from a release of pension provisions and some negatives from restructuring. Both these two items were in Vacuum Technique. Of course, the numbers you see on the website for Vacuum Technique are somewhat inflated by that, and you can make out how much. It's not that CT had the positive and Vacuum the negative effect and so on. It was both in Vacuum Technique.
I think on the qualification of what you said, a little bit lower margin than expected on CT, I'll let Ronnie explain a little bit and comment that.
Yeah. Of course, Peter, when you look, the figures are the figures. When I look them by business line or divisions as we call them, I think the service business is at a good, solid profit. If I take the industrial compressors, good profitability, our medical business at the same level. Where we get a little bit headwind, it's mainly on the Gas and Process business. There we have low volume, and we also taking some costs, which we have not reported separately as restructuring, but at the same time as we do restructuring, we're also cleaning certain areas because, okay, that makes it again stronger for the future. It's fantastic that you guys spotted that is one of the reasons. Then we had a bit of transaction cost from here and there from certain small acquisitions, which maybe brought it down.
If I really look to it, I am not at all disappointed with the profitability level of CT. There is nothing to worry about.
No, that's great clarification. That's what I expected. You mentioned service growth, sort of across the board. Could you help us a bit about the growth level of service for the entire company on organic level? Also to Hans Ola, if I may. Inventory to sales continue to come down. Inventory is flat. We have seen that sort of development for some time now after the inflation in the emerging markets expansion up to 2008. What would you say would be a correct inventory to sales ratio for the new Atlas Copco?
Yeah, that last one I will also take, Peter, because you take that because that's a management question that you ask. No, on service, it is fair to say a mid-single digit development. Maybe on that part, you should put yourself, I think I don't have the figures by the comma in my head, but it was that level you should really take into account.
Not 5%.
No, a bit lower.
A couple of %.
Mid five. On inventory, what we really have been doing over the last two, three years, if you see our net working capital, of course, it's not always easy when you get the acquisitions, and you see it in the cash flow. There you can see it. You see that we have been able to reduce our net working capital, I think. That is mainly on the inventory side, where we have done good development, so in most of the business areas, also in MR. I'm very pleased. I believe there is still more to take, and that's the reason I want to say that. I think we have the payables where we also have worked hard the last two, three years, and with a good success. On the receivables, it's more or less at the same level.
Okay, the quality of receivables is also a little bit improved. From that total, the net working capital is a better quality and is a bit lower than if we take it over the two, three years. I believe, now to summarize 2017, that we still can do more. There still can come cash out of the net working capital. That's my belief.
I get back in line with more questions. Thank you.
Thank you.
Thank you. Next question, please.
Thank you. Our next question comes from the line of Ben Maslen from Morgan Stanley. Please go ahead. Your line is open.
Thank you. Hi, Ronnie. Hi, Hans Ola. Just coming back to the vacuum margin, which I think a lot of people are focused on. Can you just say how much Leybold contributed in the quarter in terms of EBIT or the EBIT margin that it is currently running at, I guess pre and post PPA, if that makes a difference? Thank you.
You remember since the acquisition, we have indicated that including the PPA, which is actually what is affecting the numbers you see, we are running at the sort of a mid-single digit type of profitability, that because it can be slightly different between one quarter and another. I am not referring exactly to the fourth quarter then, but something of that nature. Then we have ambitions, of course, gradually as the business grows, that also the profitability comes up to the levels that we have indicated before. Whatever way you count, whatever numbers you make without having them from me, you come to a very strong Edwards, let's call it, or Vacuum Technique without Leybold and CSK acquisitions, is very strong, and that comes back to what we said before.
This very strong top-line development has given quite a lot of flow-through of profitability in this phase where the growth is there. We are sometimes surprised how you can ramp up capacities in that short period of time as they have been able to do. You have the numbers on the website for VT margins, you see that they are, at this point in time, higher than CT, even though we report them here as one business area for the time being. Again, it is A, it is a little bit helped by this net items affecting, then in spite of the dilution from Leybold, they are at that high level. That is an impressive number in the fourth quarter.
Yeah. On Leybold, Ben, I think you heard what Hans Ola said on the margin, because we have the plan which is in place to have the strategic plan to bring it to a good profitability level.
Which are the restructuring-
Yeah, which is the work that is what Hans Ola hinting to, that will take us two to three years. That because it's moving of operations, it's reducing here, is investing there, that is taking place now as I'm speaking of.
Thank you. Then maybe just following up on Vacuum Technique. There is very strong momentum in those markets at the moment. Industry peers have said it looks good going forward, what do you see in terms of, you've got a very high base coming into 2017 in terms of orders. What scope do you see to still grow off that base this year? Thank you.
Yeah. A good question. If we take the horizon we have, which is 3-6 months, more or less, and that is talking to the TSMCs, the Intels, and the Samsung of this world. The guys who I really have the day-by-day contact are still positive. The high pace, like you said it, I think, they don't talk it down. They don't talk it up in the same magnitude as we had it, but they continue to be positive. Also, the flat screen investment is also what there is momentum, so that's mainly also in China, as you know. That's good investment. Yeah. You have not heard me, and I've said it even in my outlook when I said to expect to be somewhat higher, it's taken into account that we expect that semi flat screen and everything around that keeps that level.
That's as always, of course, in the near-term outlook. When it comes to your question on full 2017, we don't have that visibility yet, and we will have to come back then on that one.
You maybe you should wonder how can they accelerate on this vacuum business so quickly because they didn't hint to that, and that was for me also a lesson I learned this quarter How the agility is working in our organization. If you take, like in Korea, I learned that you have Monday, Tuesday, Wednesday, Thursday, Friday, Friday.
Monday.
Monday. They go on, and it means that suddenly you can increase your capacity with 40%. That's the way it works in that country. That's also the way Samsung and TSMC expect you to be. That is really top of agility, which I must say, I learned last quarter.
Got it. Thanks very much. Have a nice weekend.
Thank you.
Thank you.
It's not in London, Friday, Friday.
No.
That's
Can we have another question from the telephone line?
Thank you. Our next question comes from the line of Andreas Willi from J.P. Morgan. Please go ahead. Your line is open.
Andreas Willi.
Yeah. Good afternoon, Ronnie and Hans Olav. Some of my questions have been answered. Maybe just a follow-up on your capacity question, an answer on the vacuum business and particularly on the semi side. Is there further room to go? Are you thinking about proper capacity expansion in that business? If you look back, Edwards seems to be above 30% EBIT margins now. How does that compare to where it was historically, at times when we had this boom in sales growth? How much of the improvement may be structural also in terms of the downside cyclicality? Historically, Edwards could go from a very high margin to a very low margin very quickly. What have you changed in the way that it's run in terms of making those very high margins more sustainable?
I think when you look to Edwards, I think also that process was already started before Atlas Copco acquired. They have done really a revamping or start a revamping of the whole supply chain and made it much more agile, much more fit for this agility which is required in this world. That what we have done is even, we took on that and we even start improve that. Like you said, there is always a better way. That was my saying, and there is a Friday, Friday, Monday. What you see and also to set up, to organize like that, to also make sure your supply chain is ready for that you can boost your capacity up and down also, so that you have cost agility and capacity agility. That, I think we have improved.
Another part that we have gradually improved is also to work further on the resilience. Are we there yet where I feel confident or feel satisfied? No, I think there is definitely more that we can do on the resilience part. When you look then to the profitability, what you said, 30%, of course, there is some extras in which you maybe should take out to make it. I think it can compete from a profitability point of view with a traditional CT. That is also where we position it. Now today, semi is a bit higher capacity, but we also get the hit from Leybold. As we go, we will always get some good summers and bad winters in the business. I think we can, and that's what I think I position myself, I think it's a lookalike of the CT business.
In that resilience strategy is of course growing the service business.
Yeah.
Which is happening as we speak, hopefully that is also something that will help us in the next cycle.
Yeah. You cannot compare, Andreas, I think, say the Edwards of six, seven years ago is not the same Edwards as we have today. You should take the Edwards over the last three, four years.
Good.
A follow-up question quickly on U.S. import exports. Is there any mismatch from your side that you see in terms of your local production versus imports and exports and how you could benefit from a potential tax reform? Do you pay a relatively high tax rate in the U.S. and could get a benefit there?
I think I did for myself also because we had today the board meeting, and I felt that for sure that question I'll got also in the board. I think for me, when something happens, there were two entrance I took. Is it changing our competitive landscape? In other words, are the competitors in compressors, in vacuum, in the tools, in the mining, do they have a more favorable American content? No, almost nothing. We play more or less same. If something happen, every competitor has the same pain or the same favors. The second one, of course, when you get import duties or whatever, barriers or walls or whatever, and you have to pay for it, you get a higher cost. It's always a bit of a lagging time before you can increase your prices. That could hit the profitability in that case.
That's the way I came to the conclusion when I made an analysis with a couple of my collaborators around that. Competitiveness, I don't see a big difference because we also produce in the U.S. We have several factories. Price, yes, if you get a higher cost, but again, that's also the same for everybody.
No big drama on the way.
No big drama. Let's hope it doesn't happen.
Thanks.
Thanks.
Thank you. Next question, please.
Thank you. Our next question comes from the line of Guillermo Peigneux-Lojo from UBS. Please go ahead. Your line is open.
Thank you. Good afternoon, Ronnie. Good afternoon, Hans Ola. Just a couple of follow-ups really. One is regarding under absorption and underutilization debate. I guess now you are a bit busier than before, especially on mining. I was wondering whether you could share with us the utilization rate levels of your plants, if you could. I have a follow-up later on.
I would love to do that, I don't have that like that because we don't mesh. I don't follow it up in detail. Of course, the factory managers followed it up, I don't have any aggregate level on that one. I can tell you that we still have capacity to increase, the orders can come. Especially on the mining side, although we look, we said, okay, it's positive. We have good increase, now relative on the mining side. Still the magnitude of the equipment is not from that level that the capacity suddenly becomes under problem. There is still under absorption, you can take it. That goes back to the question, I think it was Klas who asked about the margin. There is still room for the.
Yeah, I understand. I wanted to ask how much room.
I don't know. I don't calculate it like that, never. Of course, what we do, Hans Ola and I, is we look to the profitability on the equipment side and the profitability on the service side, and that is what we track.
Yeah. Then the follow-up is, maybe it's also a follow-up on Klas, but is pricing sequentially rather than year-over-year. Can you share with us whether you are trying to or you have seen an improvement on the pricing trends sequentially rather than year-over-year? Have you seen any willingness from your customers to accept maybe higher tickets on some of your new products?
Yeah. First, when you come to price, you should make this difference between service pricing and equipment pricing. Service pricing, it goes a bit with the inflation, which helps you. Then of course, with new contracts where you have to position you and see, okay, where is the competitiveness? There, okay, you have to, it's every year a bit of a negotiation to see what is the labor content, how much labor increase you have, labor cost increase you have. That is never be a big one, especially when there is no big inflation. When it comes to products, I think you know our products and our customers are not buying every day. These products which you bought in 2012 and you buy a new one in 2017, yeah, they are not comparable. It's again, a new offer.
What we try is when we have a new design is always to create more value for the customer, what we call boost the benefits for your customer. On the other hand, you try to get a part of that benefit. You try to get that. That is the way it works, then you come in the competitiveness. Is it really going strong? No. You see it because we reported even zero, but it's not negative. That is what we watch. We had several discussions internally. It's maybe now the time to work a bit on that part. It's also, again, different in every-- I need maybe 20 minutes to explain you which business is doing great, which is a bit less. Maybe next time when we meet, ask the question again, I will explain you a bit.
Thank you very much. Have a good weekend as well.
Yeah. Do it.
Thank you. More questions we have, I know.
Thank you. Our next 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. Firstly, Hans Ola, if you could just come back to us, maybe if you haven't got the figure now, but the PPA charge, I think was SEK 924 million in 2015. If you could give us an idea of what it was in 2016 and what perhaps the run rate going forward will be. The second question is around the +4% organic orders in Compressor Technique on its own, excluding vacuum. The comments you made around Gas and Process. In the text it's quite positive, actually, in terms of improvements. I think it's the first time for over a year or so that it's been positive. You're citing the Middle East as well, which is surprising.
Given that that's perhaps a swing in the profitability of the underlying Compressor Technique margin, perhaps you could give us an idea of what that may mean in terms of improvement into next year. Just finally, around the Vacuum Technique margin. Was it right then, if I understood what you're saying, is the restructuring and the net of the provision of the pension change or positive number there was SEK 50, and that's all in the Vacuum Technique EBIT number, which was SEK 1,131 on the website. That meant it was only SEK 1,081.
That's correct. It was all in VT.
Okay. There were some more charges separately in Compressor Technique, I think you indicated as well.
There is always in every quarter, as Ronnie has commented many times, that we do things on a continuous basis. Try to prepare for whatever downturn in the future or better efficiency or anything. These type of things are always more or less in the numbers, and it's true also this quarter, let's put it that way.
Yeah, sometimes a little bit more than others.
Sometimes a little bit more than others.
Yeah. That is a bit what I was alluding in the previous question when it was CT, when I said, I think most divisions are okay except Gas and Process, which is tough on volume level, lower absorption. On top of that, we're doing a bit more of cleaning up to do that.
Yeah.
To answer your orders. Yeah, you spotted right. I think quarter on quarter it has improved, but it's still at a low level. That is what I was hinting. Of course, you see that because sometimes these orders are in China, some these orders are in U.S., because they're so low, if you get one. It makes a difference in that quarter-
Yeah
in that region. This time it was in the Middle East.
Is there anything specifically around the immediate end markets for that could make us feel that things have improved from this low level or?
No, I'm not at all on that camp that this has improved. Of course, there are always some business, but in specific that business where we are, I don't see yet really light. It's the oil and gas. If you talk to the Shell guys and the Statoil people, you will see, okay, they're still in their shrinking mode and really very careful. That means also, of course, there is not much money for the contractors. Of course, on the other hand, oil price is more positive. The utilization of the rigs is a little bit higher. Yeah. Will something coming? Of course, we will never know because there are good indicators, but I have not seen that yet.
Okay.
if you see the comparison, because you say, but it's positive. Yeah. I think last year it was even worse.
Okay.
Right.
Industrial compressors was
Yeah
down in the U.S. again, with everything that's going on there, do you feel that the mood has changed in that particular area at all?
Yeah. On the Industrial Compressors, I say course is positive. I don't want to blow it up here. I think it's good development in China, it's good development in Europe, and it's good development in the U.S. Even with the things what is happening, I think it's a good development there.
Okay. Just finally, the PPA.
You are absolutely right in your assumption that I don't have it in my head. I take note, and I will give you whatever I can say. Otherwise, it will be in the annual report of course. We can come back to you on that.
Okay. Thank you.
Yes. We can still have a few more questions. Let's take two more questions, and then we will have to wrap it up.
Thank you. Our next question comes from the line of Markus Almerud on Kepler Cheuvreux. Please go ahead. Your line is open.
Yeah. Hi, Marcus Almerd here. Just a couple of quick ones. First of all, you're right that the Africa, Middle East, did not see an increase in buying equipment. Is that a sign that both copper and gold, which is Middle or in Africa, is weak? Are there any commodities where you see stronger growth than others? Is it just a question here of orders being very low and just a couple of more orders just swings a lot? That's my first question, please.
Yeah. I think you are already giving the answer. Yes. I think that is for Middle East, Africa, I think we had a very year-on-year soft development in primarily South Africa because that's the biggest part. Of course, you can see a bit on Tanzania side, but it was soft there. I think what makes the difference and why is it, is it's around copper, zinc. That is where you see investments going on now. When we talk about the plus on the mining side, these are the two commodities which drive this.
Okay. I just wanted to ask you about follow on to the previous question about industrial compressors, and just talk about industrial products in general. Do you see the same kind of trends? If you could talk a little bit what you saw sequentially in North America in particular throughout the quarter. Was any increasing strength for industrial products in general, or is it kind of flattish, but there is better mood? Is it more talk or do you actually see it in numbers and did accelerate throughout the quarters? Thanks.
Definitely the mood is positive. If I talk to our guys from a business point of view, the mood is, there is slight positive on that area. I think that, of course, you cannot expect in that business that it goes more than double-digit, but it is positive. I am, like I said, also when I was elaborating on the outlook, when I mentioned really U.S., and I mentioned U.S., I didn't talk about North America, say U.S. That is what I hear from our people, the feet in the street, they are positive.
Okay. Thank you.
Thanks a lot. Then we have a final question, or we have to stop.
Yes. Our final question comes from the line of Lars Brorson from Barclays. Please go ahead. Your line is open.
Hi, Ronnie and Hans Ola. Thanks. I'll keep it to one, and then maybe just a quick follow-up. Just on mining, you've given us year-over-year order trends for your mining segments for the last five years, and now for consumables, you've taken it out and replaced it with a revenue trend. I wasn't too pleased about that. Can you help me with the year-over-year order trend in consumables in Q4? More generally, on consumables, how is gold price volatility impacting that part of your business? Taking from your somewhat more cautious outlook, it sounded like Ronnie, on mining, how should we think about the shorter cycle business here, going into 2017? Thanks.
Yeah. It's more that when it comes to recurring revenues, like consumables and service, normally there is not a big difference between orders and revenue. It's not where we have large orders on hand that distorts between one quarter and another. Don't read too much into it. It's perhaps just a slip of the pen almost. It's been, as we have said for the last two quarters, I think that consumables have come back, and we've done better than in the previous years. Then in a single quarter like Q4, yeah, it doesn't necessarily have to match that trend every quarter. We have seen a slightly positive trend in the last half year or something.
You can count on that, Lars, what Hans Ola said, it's a positive trend on the consumables.
I guess the point is if I exclude FX, sorry, Ronnie, if I exclude FX, the order intake was down sequentially, and I'm trying to understand what it is sequentially that is not improving for you outside of civil.
I think you need to take the seasonality in and here and there. If I see our factories, the utilization of our factories, if I just take that one, it's significantly good or higher, I was going to say.
Yeah.
It is a positive trend, Lars, that for me, that is also what made me saying, because it's a bit of a quality check for me when I see orders coming in mining and I see the service doing well, my next question is always, what is our consumables doing? That has a positive trend that time.
Okay. Thanks, guys.
Good. With that, I thank everybody for participating, and wish you a very nice weekend. I hope to hear and see you back after the first quarter release, which will be on the 26th of April, if I'm not completely wrong. Thanks for attending today. Bye-bye.