Good afternoon, good morning, good evening, depends on where you are participating from, to this Q3 release conference call and presentation of Atlas Copco's 3rd quarter. We will do a very proven concept. We will take 10, 15, sometimes even 20 minutes of comments from Ronny, our CEO, and then we will all concentrate on the questions and answer session. We will take about an hour. And before we kick off with Ronny, could we just have the operator repeat the procedures for the questions and answer session, please?
Yes.
Excellent. Thank you very much. And of course, it's allowed to put questions also here in Naka in the Atlas Copo mine. So with that, Ronny, take it away.
Thank you, Hans Ola. Good afternoon, all of you. And let's go immediately, as I'm used to do, straight to the slides. And I will go immediately to Q3 in brief. I must say, when looking to the quarter, I'm pleased.
I'm pleased with the quarter 3 and why? Solid organic growth, solid profit and last but not least, very good cash flow. So that made me when you got the figures giving a bit of a smile. We also get and that's a long time ago, we got in every business area, we got growth. And that was also a nice experience to get.
Another event what happened during Q3 is we announced that we will have a 5th flag, the vacuum technique. It was not a big surprise for most of you following Atlas Copco. And we have a new leader there, Geert Volans, which you will have the possibility to meet when you come to the Capital Markets Day. And of course, beside a couple of other acquisitions, we also closed, labeled and CSK completely. So in summary, a solid quarter and that is a time when you like to be a CEO to lead an organization like this.
When you come to the figures, most of you have already seen it, so I will not spend much time on that. If you look maybe on the operating margin, what you see there, what is the difference between last year and this year, it's the dilution of the acquisition. The labeled CSK bring it a bit down and maybe a bit surprised for you, but still a bit of a negative currency effect, especially in this quarter compared to last year. The rest, I've already elaborate on that. Sorry that we missed the cash flow.
SEK 5,000,000,000 would have been nice, but okay, it's just not SEK 5,000,000,000. And the cash flow, the majority of the improvement is also coming from good work on the net working capital. But Anzu will elaborate a bit more on that. Then if we look to the geographical part, I will start with North America. You see only a +1, and I think I need to give you a bit insight on that.
You see Canada and Mexico were weak, and that comes from mining, where you had a weak and most of the business is mining there, so it was weak in that area. When you come to U. S, we also had a weak mining. And industry in total, if you take it, was okay. It was definitely positive We then go to South America.
I think it's not a surprise when I say that Brazil was weak, weak overall. But on the other hand, you had Bambina region and Chile, which had a solid development. And that is driven again from the mining business. If I then go and maybe I'll take Europe, where we see a plus, plus 7, a flat industrial technique, which is not a surprise because we are running at a very good level. Construction was a bit mixed, but was positive, but a couple of businesses which were positive and a couple which were a bit negative and then also a strong East Europe and Russia in that area, where mining was solid, mainly in East Europe, Russia and CV was, in general, it was slightly up.
But as you also have been able to read in the write up, you saw also that the medium the small to medium size industrial compressors was a bit weaker. 1 country, which was tough, weak surprise was UK. If you then go to Asia, solid China, solid India. So of course, and that means then you have a very solid region there. And on top of that, held by a strong Korea, which is then semicon driven, so vacuum driven was good.
If you go to China, more specific, you see that mining and construction is tougher where the other businesses are okay. In India, you can more or less say everything was okay. We then go to Africa, plus 22, more or less all businesses doing well with a bit softer construction business. And last but not least, Australia, of course, the comparison was very easy. As you remember, last year, we had a cancellation.
And if you then get some orders, you come up to a 42% plus. So that was on the region. If, okay, the order quarter, I will not elaborate so much on the statistics. The sales bridge, It's very obvious what you see here, a +7 percent obviously received. So that's always nice to see.
And that should be result in more revenue in the period to come. If I then go immediately to the business areas, which is Slide number 10 here. Solid and even record order intake. As a complete business area with a strong organic growth. Solid vacuum solution, even if it's actually strong.
On the other hand, a tough situation in gasoline process. And as I've been saying already several quarters, and it continues to be tough. And also here, we will take more measures as we go into the next quarter to adapt to the new norm in that business area, which we have to do unfortunately, because I don't see immediately a turn up in that segment. And then last but not least, very solid service development. Profitability, given the dilution from acquisition, a very solid profit margin and okay, labeled and CSK, you have already seen that before.
Evotec industrial technique, also here, a good organic growth. So it continues to develop Strong service, strong Asia, more specific China and India, we knew that. So it keeps developing over there, and we have a good presence and gaining share in that growth. Record revenue, that's also good. And the margin, as you can see on the red curve, it is rock solid.
We are definitely here predictable and even growing. So what do you want more? Mining and rock, maybe for you some of you, a surprise organic growth. Of course, don't forget, we had a bit of cancellation. As you remember what I said when I was commenting on Australia.
But on the other hand, there are some replacement orders. I should not deny that part. So there were some good equipment orders. You have seen, I have commanded already on Russia, Chile and a bit here and there. So that's good.
The service business year on year down, but sequential is up. And we also know why it's year on year, why it's down. It's mainly from some closures, which we had on in the mines of mines we've closed where we had some service contracts. To answer your question, do you see more closures? Not I've not seen any more.
I've not heard any more. So that's maybe also why sequentially we are actually up. And last but not least, it's also good to see that we have consumables up. I'm very pleased to see the profitability. Remember, the Magic 18 is reached.
So now I have to think about a new target for them. But I'm very pleased that they made that. I think congratulations to the organization that really worked on that, of course, and that comes from hard work, unfortunately, adapting the suit. But on the other hand, also a bit better absorption because of a little bit more volume, which helps in that. It's not so much currency.
So it's really the hard work and the absorption. Organic growth, if we take that, total was plus 1. Not organic, the order growth was +1. Organic was slightly down, and that was supported by the acquisition. Equipment was up, but what we see is here specialty rental is a bit lower, and that comes mainly from the oil and gas business.
So you see that in the Middle East. You see that in the Texas region, if I can call on that, which were good markets for specialty rental, which is a bit weaker and that is low. And that also is pulling down or makes the operating margin a bit tougher to reach for construction rig and only made it 10.9. So by this, Anzula, I'm coming to your territory, because the rest, I think, I have said. So I suggest you take over here.
A few comments on the income statement and balance sheet and cash flow as we normally do. What you can see here is, of course, the total numbers, but a few comments, perhaps what is buried inside. Some of it is written in the report and some I will give you now. We always talk about the FX effect. And compared to last year, we had a negative impact on the operating profit with Q3 last year of SEK 75,000,000.
You are all following what is happening as we speak on the currency side. We have 2 currencies right now that are oversold. I shouldn't say that because oversold is a judgment, but are very much sold, and that's the Swedish krona and the pound sterling. And you have seen that, that is positive for us. We have a strong connection with the strong dollar is good for us and the weak Swedish krona is not hurting us.
I don't know how that will play out, but if we take that as the today's situation, it indicates a much more positive bridge with Q4 last year going forward, probably somewhere in the region of SEK 200,000,000 to SEK 300,000,000 positive compared to the slight negative in Q3 over Q3. But that is judging what we see today on the currencies, and we don't know if that sticks. If we move down a little bit from the operating profit, financial net included a little bit of extra cost from buying back an old bond loan that we had in the market. And we used most of those proceeds to sorry, we used proceeds of a new loan that we managed to get at a very low interest rate, 0.6 percent roughly for 10 years fixed. We used those proceeds to pay back the old bond loan.
But that had a certain onetime cost of about SEK 70,000,000, SEK 80,000,000 in the quarter. If we then move further down in the so underlying, you could say that the financial net was really pretty well in line or the interest net was pretty well in line with last year. And I also expect that going forward, we will see roughly a close to €200,000,000 negative is a good expectation for the interest net. I should say also that we had, of course, in the operating profit, as you have read in the report, we also had a negative from the revaluation of the long term incentive program or the option plan program that we have, which affected us negatively, EUR 166,000,000 in the operating profit already. And on the tax side, 28% tax rate in the quarter, which is roughly where we have expected to be in 2016.
And I think that's the level that you should expect also going forward. Of course, you see that it was much lower in 2015. And the reason is, of course, the debate in Belgium that Belgium has with the European Union about the deductibility of certain costs in Belgium, that has an effect of 3% to 4% on our tax rate in itself. So with that, we can move on to the next page, which is the profit bridge. I don't think it's very dramatic on the group total level.
Normal flow through, if you look in the column, which says volume, price, mix and other, we lose a little bit of volume on revenue when currency and acquisitions are eliminated. But the effect on the profit is pretty normal from that. And the currency numbers are pretty small, so don't read too much into a plus on the revenue and a negative on the operating profit. If we then look a little bit more to the different business areas, you can see that we have a very strong result, if you like, or a flow through on the compressor technique business area. I would say we've also had quarters where it has been a pretty low flow through and this oscillates a little bit between 1 quarter and another.
It's also true that particularly in the vacuum business, we've had a good flow through to profit of the very strong revenue development that we have had lately. Industrial Technique is perhaps the opposite reflection, not so much profit from the SEK 140,000,000 in extra revenue compared to last year. They are taking some investments into the organization, but it's because they have continuously been having organic growth for quite some time. I don't read too much into that as an indication of a poor development of profit going forward, but it's just a note. Mining and rock, not much to say.
They are negative on the revenue and that filters through to the profit. And on Construction Technique, they are working with adjustments as we speak on certain things, consolidating certain operations to try to adjust the suit to the lower revenue volume that you have seen coming in that in the numbers that Roni already showed. So that looks like a little bit of a big flow through. So that's on the profit side. On the balance sheet, I of course, it looks like a hefty increase.
In 9 months, we've gone from SEK 103 billion to SEK 116,000,000,000. It's roughly the cash generation is about SEK 2,000,000,000 of that explanation. Acquisitions have increased assets with about EUR 8,000,000,000 and currency, another EUR 3,500,000,000. So it's really acquisitions and currency that take up the big part. So other things to comment, I don't think.
We can see if you have any more questions later on. Moving on to cash flow. Yes, a strong one, as Ronny said. Not so much stronger than last year, which was already a very good cash flow quarter. You can see that it's the release of working capital that is extra helping this year.
And then there are a number of other things that go back and forth, but that is basically the big explanation why we are even higher in cash flow this quarter than last year. Year to date, as you can see, it's almost exactly the same number as last year. So with that, we have a joint point. Yes. Okay.
So
November 15, a big day. So you're all welcome. We have our Capital Markets Day. And why do I take it up here? We will be at the center of the universe of compressive technique.
So we will spend time with you in visiting, say, the levels and the plant and showing new innovation and why is this business area doing so well. But second one, what we also do, we will also lay out the vacuum strategy. So get Collins with a couple of people, they'll really try to explain you why Vacuum is such a good asset to have. So if you want to hear it, okay. Sign up.
Sign up, November 15 is the place to be. We try to be very efficient there from morning until, or is it 4 or something? Yes. So you will be able to fly out back to London or back to Frankfurt or even back to Stockholm.
Don't wait too long to sign up because we can't expose too many people.
You should say the first time we get a special price. Yes, yes, okay. Okay. Okay. Enough on that.
So then before we go to the questions, here the outlook, why I stay or we stay on this level. You see we have this first, this outlook is demand outlook is sequential. So don't read it wrongly. So that's important to know. We see also that vacuum and industrial technique today is running at a very solid level and even went up, where CT where I see some possibilities.
But on the other hand, you heard me also saying about the gas and process on the gas and oil and gas business where, okay, where on one hand, I see possibilities, but also see some headwind. And then, of course, we have CR and MR of Construction and Mining and Rock, where on one hand, there is certain positive expectations. But on the other hand, you also heard me saying there is also a bit of headwind then. That made me concluding on this level. So most likely, I will get more questions on that side,
conference after that. Yes, go ahead, Guillaume.
Thank you very much, Hans. Thank you very much. Ronny, it's Guillaume Pena from UBS. I was actually going to ask you about the outlook precisely and maybe some granularity on the Compressor Technique division. And now that you're going to have a 5th leg, so when you talk about vacuum, can you provide us with what kind of growth the intake you got in the vacuum part of the business versus the traditional compressors?
And maybe a follow-up later for Hans Ole.
Yes. I think when it comes to the vacuum, and of course, we will learn together also to read and especially now with labeled and CSK together on that part, it becomes not so easy for you all to read and announce. For us, it's a new area. But what we can say on the vacuum, the semi comp that the debt of high vacuum has gone very well, strong, high level. We also all expect certain cyclicality on that, and my thinking about it, we'll see.
I still don't see dark clouds in the there, so still a reasonable continuation. The other part of the vacuum, the industrial vacuum, if I can call it, is more a look alike. If I talk about industrial compresses, small to medium sized industrial, it's more or less I see the same pattern. And I'm also learning as you are learning on this, That is what we see where I believe there is some market to take, mainly also market share. That is the mission what we do.
But I see on the big size, I don't see any light coming. Of course, we get orders, but we don't get happy when we are not growing. So there I expect still tough times. And then you have a bit the whole area around oil free, the medical, which has some point. But we got some positive points and then you got a couple of negative points.
So maybe slight positive as I summarize my own long explanation.
So but in the quarter, is it fair to assume that Bakken delivered most of the growth, all of the growth, all of the growth? Yes, yes, yes, yes, yes, yes, for sure. Most of the growth. Most of the growth, yes. Yes.
The rest was negative? No, no, no. And then yes, thank you. And the second question is basically of the $100,000,000 to $200,000,000 assumption on the currency. I wanted just basically to maybe try to narrow it down into how much of it will be actually the biggest pound.
So what's the pound impact, so to say, in Q4?
It's nowhere near the dominant factor in our bridges. Even if it collapses yet another level, it will not have that big an impact that the dollar and the euro development has. Well, let's say the dollar, Swedish krona and the euro. If you get that answered, then you explain always the big part of the movement. In the but I'm as I said, I mean, our pound exposure is relatively neutral nowadays because we had a positive exposure when we didn't have so much of cost and What's the Yes, exactly.
And but that we have now. So it's not definitely not a big negative nor a big positive. Us. Euro, krona and the dollar is determining the big things for us. And that's why I say €200,000,000 to €300,000,000 for Q4.
Next year, you will see a bit better when million for Q4.
Next year, you will see it a bit better when we report vacuum separately. So then you would see it in the bridge. And we can comment. Then you see it in this flow to bridge.
Yes. One other question here.
Anders Schulz Lund, Swedbank. I'm coming back to your outlook again. Given the very strong order intake that surprised on that side, is that the reason why you are not more bullish on your outlook because you compare with the relatively strong order intake? Or how should we interpret it? Yes.
You read to me, you read me very well rounded. That is for sure. And also, although you see a lot of people being optimistic about mining, we should also look in our figures with all the respect. We do good work, and I'm not going we also should see when we make the comparison, we had a cancellation. Yes, sequentially, it goes a bit up.
I will not talk it fully down, but I'm not going to say that we suddenly will get every quarter double digit growth. I hope I'm wrong. I really I hate to be wrong, but now I hope to be wrong, but I don't believe it. And that's the reason why I'm a bit. And in vacuum, also, like I explained to Mario, it's a high value.
It's already high the last quarter, okay, because sometimes people wait a little bit for ordering. Invoicing is something else, but Also in the industrial technique area, you saw the general industry was coming up, not only the automotive sector. You have other areas and Yes. You should also know that I think over the last 3, 4 years, we invested we took a couple of spot on acquisitions in aerospace, in the semiconductor, in the phone business or the low talk. Also in the high talk, and that is where we get some traction.
We get some share in the general business. That is what I want to get at the end in the tools business, in industrial technique business, of course, a broader exposure than only what is 50% on motor vehicles. So that is the mission. And yes, it gets something, yes. And finally, the big compressors versus small and medium size.
It used to be the vice versa, that small and medium size starts to grow 1st and then the bigger items later. Yes. I think what we see, of course, if I split them now in 3 instead of in 2, the big oil and gas, what we did what the ones as big as this whole is a tough business. And you see as the gas imports and you see that in order of our colleagues, which are even going bigger. And there are not much there is not much investment going on in fuel gas boosters because sometimes we get there is not much in expanders.
There is not much. So it's rather low. And that make me also really mention that specifically. I think when you come to, say, the smallmedium size and the big ones in the middle, there I see some reasonable development coming in. And you see them in the U.
S, you see that also in Asia, even in China. And it comes to the small to medium, like canaries, it's a bit mixed, Where you saw, yes, I mean, also softer Europe, where the U. S. Was okay, where you saw Asia, then China, India. India, very strong.
China, okay. Just to give a quick round. And of course, Brazil, I don't need to say that, I mean, yes, you know, on this. So it's a bit it's a question mark for me on Europe. What is this?
I always had difficulties to in the Q3 to read the yellow canaries in Europe because with the holiday and part of that. So I'll wait. Good. So should we turn to 2 questions from the telephone conference, please?
Yes. The first
Klas from Citi. A couple of questions, please. Firstly, on North America. Did I understand you correctly, is a weakness in general industry in IT, but better momentum in industrial compressors. So early cycle is getting worse, which I expected, but the larger compressors are also improving.
So my question is really are you taking market share? Or is actually demand improving on the larger side in North America?
I think if competition was not listening, then maybe I say we take market share. I think we do well, I think. And if you read our track record in launching new versions and new models, I think it gets attraction. Also, the whole area around energy is stronger than ever. So that is where people see and also see that energy is costing even.
People say oil and gas is lower, but we talk about electricity here. That is for sure. When you talk about general industry on the tools side, of course, there is also a transformation taking place in U. S. And that also gives certain effect on that.
But I would not read too much on that because that market is, for us, it's not the biggest reading that sector because it's also not fully geographically spread even not in the U. S.
No, it's just it's a lot
of focus on North America currently. And if short cycle is coming down, but sort of CapEx related investment is coming back, I thought that was interesting. But maybe
To elaborate on that, yes, I can go a bit to go further. I think we see more talks with rental companies when you go. We also we have a bit of exposure to that sector. And you see certain activity talks. I have not seen big orders, otherwise you will see them.
They are talking. So also the people on the oil and gas, if you talk to Texas, Texas, if you do that, you see a little bit more positive talk on that one. But okay, fine, we will see. On the other hand, when you look to Industrial Technique and the Automotive, it's on a high level, and we should not underestimate that. And don't forget, we are model driven and new models, then I think we also get more activity.
Okay. My second question is on the margin in vacuum technique. The 200 basis points increase seems to be largely driven by volumes. Or are there any other effects driving the margin here, increased share of services, etcetera? And then on Leibold, CFK and Schneider Drukluft and the margin, some 7% in the quarter, how much is PPA?
And where can the margins go to and by when? Are we still talking 15% margin in 2 to 3 years?
Yes. PPA, you take I will take the other part. Yes, the vacuum margin, if you do this type of volume in the semi com and in the high vacuum and where we go and then coupled even on the service, which is also then growing, you have a very good flow through. That's for sure. So it is not is, yes, volume driven, I can say that.
When it
comes to labeled and CSK, and of course, you will see also next year a little bit more on that as we get separate reporting. The level of this margin is singormidsingledigit, and that will take a bit of time. I don't see it much moving, I hope I'm wrong, next year. And why not? Because we have to do a couple of synergy projects.
So and that will take a bit of time to do that. And that we knew. When we boarded, we knew perfectly what we need to do, but it takes some time. So that is an area what we need to do.
And maybe you can And on the ambition, you mentioned it yourself that, I mean, obviously, we have that ambition still there about mid double digit margins. It's definitely what we are aiming for. But after integration and whatever you have to do to get there, But that's and on the dilution, of course, it's on the specific acquisition, which you have to remember is a small still a relatively very small part in the Q3 of vacuum business. But if you look at it roughly on 3 to 4 percentage points is what we would classify as being the PPA dilution, if you like.
Okay, perfect.
Not on the full vacuum
full year.
I would be in
the middle. But
one thing is, I think what we do, and that is also if you go back when we announced the whole vacuum journey, which we go through, our aim is to be the market leader and to make it a strong profitable business, which we believe we can do when we develop further. We are investing heavily, heavily and not on the balance sheet, but on the wheel over the P and L in the industrial scenery in the vacuum. So on R and D, in feed industry, in integration, this is going on. And this will take us some time. This is I would like to do it in 2 months, but it will take us maybe 2, 3 years.
And that we will elaborate a bit more also in the capital markets.
Good. My final question is on the growth on orders in compressors. It seems like it's roughly flat ex vacuum. But if we also try and back out gas and process, Ron, which was weak in the quarter, what was the growth then for CT given that compressors are now showing an improvement?
I now have 2. As
we said to the previous question here, I mean, it's not vacuum, it's not representing all the growth in compressor techniques. So there are even including gas and process, there is a slight growth in compressor techniques.
It's not double digit. No, no.
We Yes,
yes, yes, yes. So
thanks. Thank you.
The other question from the telephone conference, yes.
The next question comes from the line of Peter Frohnen from Handelsbanken.
My first question is on the cash flow and maybe the inventory side. You released the net working capital. At the same time, we saw sort of inventory to sales quarter on quarter, while you normally see sort of a decline. Maybe you could shed some light here and perhaps even more importantly in combination with the outlook, I mean you not reduced inventory as much as you usually do in the quarter. You do have a very strong order situation in vacuum and then sort of a flat outlook.
Maybe you could shed some light on how that equation actually looks like. My second question would again then be on the compressor side. If we look at your numbers, we can see that CT is flat in orders, while vacuum is plus almost 40%. And in the city flat order situation, you're right that service is doing all right, industrial compressor is doing all right. And then basically, it's mostly gas and process left.
So my question is really how weak is gas and process? And if you compare that to a historic level, what are we running at now, I was expecting that, that couldn't go much further down. So that's those are my two questions.
Thank
you. Yes, on the cash flow. I'm not sure I fully agree with you about a poor inventory reduction in Q3. Of course, it has a little bit of a challenge because you have the acquisitions coming in and you also have a little bit of quarter to quarter currency moves, which tends to drive up the reported numbers. In fact, we think that the cash flow part of the working capital the working capital part of the cash flow is a good indicator because a lot of that comes from inventory reduction actually.
So I don't see that you should expect that it's something that is really an indicator for Q4 or something like that. I can't read that data into the numbers.
Okay. So maybe the volume component of inventories actually down quarter on quarter then? Okay. That's great. Thanks for
the Absolutely down. It's basically it's CT does a lot to that and also MR. And the other 2 are more Less money also. Less
money, yes. Yes. On that, Peter, I think we are really getting traction internally in the organization. That was a bit frustration in all of us that we but it's moving in the right direction. When you come to your question around compressors and gas and process is very low.
And that's also the reason why I'm really talking about that. And you would see also we need to do some more on adapting the suit on that. It's low and it drags down the full CT part of that. I think the other if we take away that part, you and you know we on the service, we don't grow double digits, that you also know. So it has some growth.
And you can see more or less the equipment in the same context or in the same level, not in that.
That's my point. Then the eGASM process needs to be down 20 plus percent because it still lights 50% of competitors. Or am I wrong here?
No, no, you are very close.
It's a tough And perhaps one extra comment on that. We have said that Natuzzi's gas and process is not the biggest part of CT by a long shot, but it's very lumpy. So sometimes you actually have a good quarter even in a bad trend. And I think that is a little bit the explanation also why it looks so negative in this year on year comparison.
Thanks a lot. I'll get back in line.
Thanks. Do we have any more follow-up? Yes, a question or a repeat, I think, here in Stockholm, yes? Okay. Yes.
So we give it to a new question instead. Andreas Bok from Karel Asset Management. A question on pricing. Pricing is 0, I think,
in all the divisions this quarter.
Where do you think we will start to when and where will we start to begin seeing positive pricing?
You say pricing, there are 2 drivers in the whole pricing in of May. You can say 3 because you can say one with a very negative one is competition, which is a negative. The other one that's in the positives is innovation, coming up with new products and all that go. And the third one is inflation, is the inflation that helps us. You should also know the way we report, you have a big part is service.
And that I think you can say, yes, you need to do innovation in service, but that is not so easy to get done and then really make it in the category pricing to really get a positive if you don't have a strong inflation. We get some, but steady low. So that is what you should read out of our figures. It's of course, there is price pressure in the different areas, but of course, we also get with a positive flow through. Otherwise, you don't make this profitability, if you don't like.
But today, if you see industrial prices, because I see it on one hand to sell to you, but also I buy from him, it's both. And that is where we need to see efficiency, innovation to keep the margin on the right level. When would you see some I think you will see next year some coming.
When the Central Bankers succeed.
Yes. That will definitely help, but even also from a couple innovation areas. I've seen some markets which are starting.
Eventually, they will succeed one way or the other.
Yes, yes. Let's hope. Yes.
Okay. So that was it. Good. So I think actually we have a number of questions on the telephone conference. We go back to that.
Yes. The next question comes from the line of Markus Almerud from Kepler Cheuvreux. Please go ahead. Your line is now open.
Hi, hi, Mark. It's Almirut here. I'd like to start with the U. S, where you mentioned here that the Yellow Canaries are a bit positive in the U. S.
Now I know it's a difficult quarter to say anything about, but could you maybe say something about progressing throughout the quarter? And how was September in particular if there was any particular large orders which are positive? Or if if there was any particular large orders which are positive? Or is there just a positive sense in general that the base orders are basically progressing positively and if you are in a positive trend there? Thank you.
Yes. On MR, of course, when you are living in MR, in the mining, you are born as an optimist. So otherwise, you don't survive in that area. I am not in the camp of seeing okay overall a positive area on the mining. Of course, if you are in copper, if you are in zinc or even in nickel, yes, you will get traction.
It's good prices. There is demand. You need most likely to do replacement. And that's also what we see. So the orders, what we get, some are a little bit bigger than others.
You get that. And that you see if you look geographically, you see where is the copper and the nickel coming from and the zinc. You see South America, Chile, Peru. You see Russia. You see a couple of countries in Africa that you see.
But when you are in the camp of iron ore, yes, then I think you will maybe get some orders, but that will be more automation orders will be midlife upgrades, that part. And that you see. You have seen the announcement we made from the BHP order. That was this type of upgrade automation because that has to go with efficiency because you know all what the price is doing. For us, I think it's the majority are replacement orders, what we get, so on the equipment.
But I call it still, sorry that I'm on the other side, sporadic demand, so they can use a statistical term, but not to say not really tailwind that we don't have.
It's also true, perhaps just to clarify that, that no, there was no huge order that made it in Q3. There was a couple of good orders, but otherwise, we don't sell if we don't have any good orders. So that's at least not the reason, no.
I think when it comes to U. S. And was it the latter part of the quarter or the, I think I didn't see much difference. Of course, we of course, you always have to clean it from certain events we do ourselves because we had a a fantastic launch of new products for the Quincy brand, which was a great success. Of course, that always prunes a little bit, and that happened in August.
So it comes into September. But when you really look the underlying market development, I cannot see a big difference. There is, for me, and that I mentioned already in the explanation, when you talk to the people in Texas, they're a little bit more positive. We see also the oil price. We see some rigs coming up and that has a bit of an effect.
It's like the mine expo has a positive effect on mining and rock excavation, guys, with the same you can feel. Okay.
And can I just also follow-up on MR? You mentioned the base metals and then iron ore. What about gold?
What are you seeing there? Yes. I see also there some replacement, but on the lower level, I think. We see some activity. There is some work, but not that I will mention it as one of the key indicators.
Okay. Thank you very much.
Thank you. I look around, and I think we continue on the telephone conference.
The next question comes from the line of Graham Phillips from Jefferies. Please go ahead. Your line is now open.
Yes. Good afternoon. Graham Phillips from Jefferies. Yes, my questions were going to be around compressor technique and also industrial technique. Just first of all, on the compressor technique, Ronny, you referred a couple of times to gas and processing need to do some work there.
You give us an indication of perhaps how many people are employed in that particular subgroup of the roughly, what it is, 19,000 in the division? And also related to the acquisitions, Hans, you talk about the PPA amortization having an effect, obviously starting
to have an effect in
the quarter. But I'm just trying to work out how much at the group level PPA is. And I think from the annual report last year, I get a number around $920,000,000 I'm not sure if that's right. But potentially, that could sort of almost double, I guess, if you take into account the acquisitions that you've made this year. Could you perhaps give us a bit of a spear on that?
Thank you.
Yes. I can now just because I won't forget the Yes, I'm not sure. I don't have the numbers, Graham, on the on what you referred to the annual report in my head. But if you refer to that, that was the depreciation and that the effect of this would be that it doubles, I doubt it very much. But was that correctly understood?
Well, yes, I mean, again, it's just if you there would have already been some PPA because of Edwards. And now we're going to have more PPA from the couple of acquisitions. Of course, I'm kind of hoping
Significantly smaller on the other hand than Edwards acquisition. So that's what I but I we can come back and see if we can look at what is written in the annual report and make further comments after that perhaps.
Okay. Right. Because I mean, I guess, there will need to perhaps be particularly when you hone in on compressor technique and vacuum technique separated. Just some sort of understanding between what the sort of EBIT is and then perhaps what
the EBITA level is. Yes, absolutely. Yes. That's why
we urge you to
come to Antwerp in November.
Right.
But you spotted good that you think it was a new acquisition and you want to know
what it will come. Absolutely. The quarter is not fully reflecting the losses. Not yet, yes. No, no,
no, no.
Yes, on the gas portfolio, I
will not elaborate too much in detail on that part because, okay, I also have to respect certain areas here. But I think it is an area everywhere in the world. It's areas where we say, okay, that is for the next coming years, there is no project, okay? We have to do it different. So we have then to move activities and operations.
And even there, we need to do and what we do. But I promise you, when it's significant, so significant it will certain adaptation to the new suit, if I can call it like that. Not to use the restructuring. Of course, on the micro, it is a type of adaptation, but it's not so significant. But it's significant when you want to understand the result of CT.
And then just finally then on Industrial Technique and the low incremental margin there 4%. If we look at I think the business is still dominated by automotive, either OEMs or sub suppliers. Is there a mix issue? Because you talked about the growth in general industry. When we think about the mix in the business maybe moving more from OTIF towards to more general industry, aerospace and defense, the incremental margin or the margin on that sort of work is lower?
Or is there not perhaps that much detail that you can go into on that?
I think, of course, there is always some I'm not going to say that everything is carrying the same margin. So there is always some mix in that. But when you look to that, the majority is that we are heavily investing. That is what we do because what I and we agree with the whole business area, what we want to do is really investing in getting organic growth and be strong in this joining technology and these new areas. So we put a lot of feet in the street.
We're building new operations. We have new innovation centers. We invest in that and yes, it costs a little money, so we do that.
And it was not this is not the main And those tend not to be the highest profit at the same time. So there are a couple of these explanations. But then again, we don't want to make a big story out of that specific quarter flow through.
Yes. I don't think it is and that's the reason I'm answering also like that because we looked ourselves, of course, on this. I think it's not a real strategic move or something which you would see within 1 or 2 years as the margin dropping significantly. That I cannot say on the contrary.
You talked about good service increase in this. And I remember when you gave given a service proportion in the past, this was one of the lowest contributions to service, but you were aiming to grow it. And again, you would imagine that service is a higher margin business.
Yes. And service is growing in Industrial Technique,
but the other businesses in Industrial Technic is also growing. Yes. And it's to your point, it's also a significantly smaller portion than if CT service growth is impacting and how that is impacting. Yes, another question, please, from the conference.
The next question is coming from the line of Ben Matson from Morgan Stanley.
Yes. Thank you. Afternoon, Ronny. Hi, Hans. Over.
2, please, for me. First, just on M and A. You're adding 3% to 4% to the top line from acquisitions. Can you keep that pace up? How does the M and A prospect pipeline look?
And then, Ronny, just more broadly on China, we can see lead indicators picking up. How did China perform within Asia? And within your businesses, what's growing? What is still under pressure? More color around that would be helpful.
Okay. Yes, the M and A, you know, Ben, how we work. And there is small acquisitions day to day, come almost every month. You've seen what our track record was already this year. And there is definitely more appetite.
And it will not be different from the past. So it's in that area where the same region. If I look at geographically, maybe, yes, the same. But also the different sectors, which we have done, will be more or less the same. Would you come up if you will say, Aron, it doesn't mean you will buy another big vacuum company?
Maybe not let us first absorb that part. Let's first create a good strong integrated stable business. But the others are industrial technique when it comes to compressor. That is the main one. Of course, when we find the right assets the mining side, for sure.
And you know a couple of areas which we have been talking before, so they are still on the agenda. And one day, yes, like on the back end, one day the fall and yes, then we go on, on that. When it comes to China, I can make it myself a bit easy. We can say, but take it from our business areas, our industrial part is doing better than our construction mining part. So industrial technique, vacuum, compressors has a positive development where we see construction mining having a tougher development, a tougher right.
So that is happening. But businesses are doing well, motor vehicle, because that's industrial technique, flat screens, food and beverage, medical. These are businesses which are doing great, which is getting tough and still tough. The steel production here and there are more difficult. Although, I must say, when you are involved in very special steel, you see some investments.
And also what we see lately is that more and more attention is given on energy. I mentioned already in my start when I was talking, we see more and more attention, especially if we take the area and then a big area around Shanghai. It is the talks when you roll out is as qualified on energy as you have in Europe or you have in the States. But there are spots in China where it's not yet there. So that is a good news for us because they see what it means to carbon dioxide, what it means to cost of energy.
So that is a good part to hear. And when someone was asking me about market share, that I had in mind when I was answering that question.
We continue and we make a break on the Telstra contract. We'll take your questions in stock on it.
Thank you. Looking at mine and dock excavation, I was wondering, I mean, in the past, you in the way of investing a dividend R and D and then you scale back, and now you're capturing growth to some extent. And I'm wondering about whether you're gaining to a certain degree, you're gaining market share in the mining equipment area or consumables during bypassed investments? Just got the late effect on that.
I think when it comes to the mining rock excavation and the R and D, What we have been building more is R and D on automation. We had a journey, I think, 4, 5 years ago. We acquired a couple of companies which we integrated, which also boost a bit the R and D investment, okay? That we have slowed down a bit in these areas. But on the other hand, we have more investment in automation.
Yes, when you have been in Minexpo, you see a couple of new products, you don't make them in a month. And so that R and D we have been doing over time. So that is what has happened in this. And if you take the big fibers, yes, there's not many orders. And I think it's not a surprise.
I think it's a tough business today, but the cycles are a little bit different. Now we are really down, but we have kept a very strong core and kept R and D. But the factory is not full, But that is to have eyes in the stomach.
So maybe I wanted to add that whether you what you saw is broad for everyone or actually you see that yourself you're going more as an organization within mining equipment?
I think we if I look back 6, 7 years and look now, I think we are, to use a nice word, more sustainable in our offer. I think so. So I think that R and D effort has yielded some strength. But market share, especially if you take an underground, because then in another Swedish company, I think it doesn't move so quick. And mine is not changing from one day to another.
I think what is important that I think the players in that business that they really come up with new. So now the team is automation, how to integrate that, how to make less people in the mine and getting more ore out. That is the team, but we go and learn to use that also in the OpEx to get a lower OpEx because the mines start to look to OpEx, which is again a good thing.
Yes, we have another question here
in Stockholm. Yes, regarding the mining, Anders Rosten, Swedbank again. The improvement in the sequential mining development has been rather good. Is it the first step of recovering to about 20%? Or what's your next is it the new normal where you are now?
Understood. I tried to explain it already before in other I understand, like I said, careful wait and not wait, but see and then say, yes. So on that one, I would like to be, segue myself to underpromise and overdeliver. I hope I'm wrong on that. I really hope.
Of course, if I take the facts, yes, we are most exposed to underground. It is since 2012, we see constantly a drop. Machines cannot go on forever, need some either a midlife upgrade or a replacement. We are also coming up with new automation features, which gives possibilities. Yes.
So I think there is definitely qualified is. That I see. I see consumables up is a sign. You also see the prices have stabilized. The price of copper is not bad.
Of course, historically much higher, but it's not bad. Price of zinc, nickel, it's not and the demand is good. So people will do. When you talk the same, and which is also a big exposure for us, if you talk about coal, oil and it's not a big exposure, but we have some, oil, oil, oil, oil, We talk another part. So we have some area where we see some traction, and that's also where we got orders for the copper, zinc and the other part.
So I'm a bit yes, I'm very happy for the whole organization and for myself, I see that. But I am not to say, oh, now we've got strong double digit and we are really done. And that's again, when you look to our outlook, that's again results are baked in that.
We're running slightly out of time, but we have one final question from the telephone conference, please.
Yes. The next question is from James Moore from Redburn. Please go ahead. Your line is now open.
Still on the line?
I believe you have disappeared from the queue. The next question is from Max Yates from Credit Suisse. Your line is now open.
Hi, thank you. Just two questions I had. Firstly, just obviously you are benefiting from currency and we should see that come through on the margin next year. How do you think about that? Do you think of retaining all of that at profit level?
Or will you use that occasionally where you can to gain a competitive advantage versus your peers and try and stimulate growth?
I would say I would never do that because I am not a believer that price is that you use that we get the market share in our business. You get innovation, productivity, the driver for market share, which then comes to a normal margin. To really pay with the price all the time and then say, I'm coming out as the CEO, come on, let's be aggressive, do that. That will disaster because the salesman, he loves to sell. He will definitely use all the margin I've given him to do.
He will use it free. That is not the way you steal a sales organization. That will never work, never, never.
Okay. And just as a follow-up on Industrial Technique. You talked about automotive being at quite a high level. When you look at the model schedules of your customers as we go into next year, how do you think about the growth of the automotive part of industrial technique?
Yes. There is still some good, say, input on that side. And if you take on China, as maybe 10 years ago, we would not say that, but now there are many new models where we also have a compact or even are part of the cycle. So that is where we definitely see good development. That's also the reason why we have in Asia, mainly China, because that's also a bit of India, what was the reason why we have good success and also in Japan and in Korea, because we should not forget these players.
That is a very, very strong help in our growth. It's a little bit less in Europe, there we see, but okay, there is still some activity. And you can say it's in the U. S, between Europe and China when it comes to the level. But also there, there are still some good quotations, good projects going on and not only for our tools business, but also for our riveting business and also for our adhesive business.
So I still see some potential growth potential in our motor vehicle business in next year.
Great. Thank you.
I'm not talking it down as this was the conclusion, sir. Great. Thank you very much,
all of you on the telephone line and here in Natgas, Stockholm. We repeat again, we hope to see many of you in Antwerp on the 15th November. So with that, thanks for today. Goodbye.