Ladies and gentlemen, welcome to the Atlas Copco conference call. Today, I am pleased to present Hans Ola Meyer. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Speakers, please begin.
Thank you very much, and also from me and my boss, Ronny Leten, the CEO of Atlas Copco, who is with me here. Very welcome to the first quarter conference call for Atlas Copco Group. We have today also the annual general meeting, just after this call. As we have tended to do in previous years as well, we will try to keep it to an hour, this call, and hence, I would very much urge everyone that has questions in the Q&A sessions to take one question only per person, and then we might be able to make a second round even. Highly unlikely, I think, but still, we will try to do that. Without further ado, I will leave the word over to Ronny, and he gives his comments on the first quarter. Over to you.
Okay. Thank you. Thank you, Hans Ola Meyer, and good morning and good afternoon to all of you. As usual, I will go through the slides and try not to lose you during the presentation if I don't forget to refer to which slide I am talking about. Let's start immediately with the Q1 slide saying the Q1 in brief. We talk about the business. We have a stable order intake, I think, because that is one highlight I would like to stress. On the other hand, and that I am sure is not a surprise for most of you following us, a weak mining. I am rather pleased with the stable order intake given the headwind we have seen in mining, but it seems to be that we have found a couple other businesses which are growing, and one of them is service, which we keep going on.
Although we see a little bit tougher times on the mining and rock excavation part. We see a reasonably good order income for the compressor side and a very strong one on the vacuum side. As you remember, a couple years back, we did an acquisition, and it seems to be that we are on the right track with that one. When it comes to profit and profitability, given the lower revenue, we come out with a bit lower revenue, lower profit, and profitability, mainly headwind from currency, as it says on the slide, a hit and also partly to the lower profitability on mining, which I will elaborate a little bit later on. During the quarter and also early April, so as up to today, we have already announced five acquisitions. Most of them are smaller, except maybe the acquisition of FIAC, the compressor company in Italy.
I'm going to the next slide, the figures, where you see it says also there the top line unchanged organically when it comes to received. I'm pleased with that. The revenue, a bit softer, a bit typical, not always, but we saw that it was a bit expected for us that Q1 would be a bit softer on output side and making an adjusted operating profit of close to SEK 4.2 billion and a margin of 18% with headwind from currency and then a softer mining part. The rest of the figures you can see the operating cash flow we have here, but Hans Ola Meyer will also elaborate a bit further on where it comes from. I think it's a solid operating cash flow, especially for the first quarter.
We look to the regions, start with Europe, we saw a very solid development almost in all countries. We just maybe make a bit of a detailed analysis, you can say that U.K. was a bit softer, but that is because we had a very large order last year, the comparison was a bit tougher there. If we take that away, I think it was rather a positive development overall in Europe and especially also in Russia, to name that country, too. I go to North America, a small minus 2. Also in U.S., we had a lower part because we still have the comparison with the oil and gas part, which make it a tougher comparison.
We still have that area, which is low, also on the mining, of course, that is not moving ahead and where we have a bit softer construction part. I go to the southern part, yeah, there you see a double-digit minus that is not a surprise for any one of you. A very weak Brazil, which really dragged down the region. I move to Middle East, Africa, also there we get a tough minus 12. I think it's relatively easy to explain. It's the oil and gas and what you have in the Middle East part, and of course, mining, where that sector is down, and of course, Africa is a lot about mining. That is easy to explain. We go to Asia, there we see a strong plus 13. That is nice to see.
Who is the champion? The champion is India this time. There we had a very solid development in all the different business areas. It's good on the industrial side, on the construction side, and even on the mining side. We see on all the different areas a strong development in that country, it's always nice to see. Of course, we take the other big country, China, where we also saw in our area a reasonable positive development. Of course, that is mixed because there are a couple sectors who are lower and some of them are higher, it was a positive development. I'm sure there will be a question. I can elaborate a bit more on that one.
Go to the next slide, where we see the growth on organic growth, which is flat. That is the challenge we have in front of us. Take the next one, which is included structural changes, so acquisitions, there you see a little bit more positive development where in Q1, there is a slight positive, of course, mainly coming from the acquisitions done in previous periods. Go to the sales bridge development there, currency headwind. You have already seen that, how much it was. That is changing compared to last year, the price volume in orders received, as I already said before, was a flat development, which I was pleased with that, especially given the headwind in some sectors and in some countries like Brazil and sectors like mining.
Go to the different sectors or different business areas, I jumped immediately to Compressor Technique. Let's skip 1 slide. Strong organic growth, 7% up. It is a long time we had that freedom to say, coming from a very solid vacuum solution where we see good development in the semi, in the flat screen, and in the service. A good development in that area. On the compressors side, we see a stable order development in industrial compressors, maybe one can say, why is Ronny now so delighted about that? You should see that a couple of regions have a tough situation, I think we succeed to get it back on most on the positive side. That is good. I think I am sure we are working hard here in gaining share, which is great. Of course, unfortunately, the Gas and Process.
The big tickets is still a tough area to be in. Service, compressor service is rock solid and developing further. The acquisition of FIAC, I elaborated on that one also. We have deepened further our go to market. Our feet on the street is further developing and with the acquisition also of a couple of distributors. We are still on the filing of Leybold when it comes to the antitrust. We would see when that will end. Will it be, like it says here, third quarter? Will it be a month earlier? We are doing the work which we need to do with the authorities, and we will see when this comes in the books. In the operating margin, a solid operating margin of 21.5%. That was on Compressor Technique.
Go to Industrial Technique, there I think it has a healthy demand level. It is at a good level. We got some headwind from currency, second, also, when you make a comparison, one should know when we acquired Henrob, this self-piercing rivet, that is a business which has Sometimes when you start up a big equipment order, then for many years it has consumables. Of course, when you make a comparison with last year Q1, we had a big order from equipment. When you make a comparison, it is tougher. Unfortunately, you do not get these big equipment orders every month. From that point of view, it was a tougher comparison. On the other hand, business was robust. We had a stable order intake from general industry.
Service is rock solid and is growing at a good level, the operating margin looks maybe a little bit weak, but if you also know that this business has a higher exposure to some currencies which were negatively affected, I think if you make that correction, I think you see that you come up more or less at the same level of profitability. For me, as the CEO, nothing to worry about that, just to make sure we get more of this. Mining and Rock Excavation, another business area where we have different talks about. Unfortunately, I should say, continue to be soft, a weak demand. That also on the orders from equipment, it still stay at tough level. It's rather, I can only say weak.
Service was also slightly negative, we know, I think reading and following the whole situation in the mining area, we see some mines closed. We see some mines to slow down, what has an effect on service work but also has an effect on the consumables. Of course, that is happening as we speak. Although we still believe that all the other initiatives which we take on the service side, that over a period, we can come up with good to grow possibilities and good services to the mines, which we are doing as I'm speaking. I'm on that side when it comes to service and consumables, not over-worried that that is a new trend, that it will slide down for the next coming, whatever quarters. The operating margin, a bit weak, 15.1%. Of course, one, the currency. Let's blame that part this time.
It is significant for them. On the other hand, also the volume which played against them. On the other hand, if I make here the comparison, we should have had a little bit more on that part. I'm not going to say that this is the new level. On the contrary, I think this can be at a better level. We are taking also further efficiency measures, which we have also taken and which are also partly embedded in the 15.1%. We take these measures as we talk, and we do it continuously to make sure our organization is fit to create sustainable, profitable growth for the future. On Construction Technique, if I'm going then to that business area, the last one. We had on equipment was softer, if we can take it really two big areas, I think Brazil, very tough.
If we take it on the road construction, is extremely tough. If we take it on the compressors and assembly systems, it's a really tough place to be now when you are in Brazil and in construction. On the other hand, if you're then on the other side, in the other continent, if you are in India, then you are dancing on the table because it's really a fantastic development in India and becomes one of our largest markets now in Construction Technique, India. We do very well there. We have good products and good local presence. We're also gaining share in that market. Rental business developing fine. As you also know, that business also has exposure to oil and gas, but we succeed to come up with good development in other areas. I think in that division, we're doing great work.
Also the service business in Construction Technique is also developing at a good level. Operating margins, solid even with a negative volume effect, which we had in some equipment factories and currencies. We still are able to come up with a margin of 12%. I think it is good work in that business area. They have adapted to the new level and increased where the possibilities are. If you look to the picture, I would like also to see those who have been visiting Bauma, one of the biggest exhibition on earth when it comes to construction equipment. Also there, we had a lot of new equipment shown. It was a very successful exhibition. I think our visitors were delighted to see all the new innovative products.
I am sure also that we will see in the quarters to come, we will see that in our growth levels and in our profitability levels. I hope with this last statement, I am not taken back by some of you. Let's go then to the slide of the profitability, and then I am handing over also to Hans Ola. You see operating profit. You see the 18. I think is more or less the things I have already said. Maybe I can hand over this to Hans.
Let's make the usual few comments on the financials and on the tax situation before we move on. As you noticed in the report, both the interest net and financial net was lower than Q1 last year, on the back of continuous interest rate reductions on the one hand, and a little bit of better or less negative translation effects here and there out in the world where we unfortunately need to borrow in foreign currency loans in some places. That was it. If we look ahead, I would estimate that we are still expecting to be close to SEK 200 million negative for interest net, up to that amount, partly due to the payments that we have in front of us of the dividends, et cetera.
On that note, on looking forward, we also have already actually in April, we have made some repurchases of one of our outstanding bond loans, one that has a maturity in Q2 2017. As a way of managing the refinancing risk, and seeing the low interest rate levels currently, we have repurchased about $300 million of that $800 million loan, which, of course, will bring a certain one-time negative effect in Q2 to the tune of about SEK 60 million, we estimate. The benefit from doing that is because of the refinancing risk by then borrowing longer money already today, is of course one main benefit, but at the same time, we will also have a little bit lower run rate of interest cost in the next couple of quarters already.
If we move a little bit further down, on the tax, of course, the report spends a few words on the Belgian situation. As many of you are already very well familiar with, we made a provision of EUR 300 million already in Q4 based on the fact that the European Union has challenged Belgium for its way of handling excess profit rulings, and they claim it to be an illegal state aid. Since we talked in January, the Belgian state has appealed, and we also say here in the report that Atlas Copco is preparing its own appeal, and that will happen in a few weeks' time, we hope.
We don't know where this will end, of course, but in the meantime, we have taken the provision. We also believe that in the course of this year, we will pay the amount in the way of an escrow account so that we are not risking that more interest cost will be put on top of what we have already provided for. That would be the only reason for doing it, but it's also what we foresee will happen during 2016. If we move on, sorry, on that tax, I would also say that going forward, you saw that due to this new situation in Belgium, our tax rate is lifted by about 3 to 3.5 percentage points. You saw that it was just about 27%. That's also the level that we expect for the short-term future going forward.
If we move on, I think it's slide 14, you have the so-called profit bridge there. I don't want to dwell too much on that first page. You can see one element in the profit bridge is helping us. That's on the share-based long-term incentive programs, which was very negative last year and more or less neutral in this quarter. That's helping. Of course, if we look at the next page, slide 15, you can see the different business areas. I would then, apart from this options effect, which is in corporate, you can see that we have a negative effect on currencies. You can see it pretty severe on three out of four business areas if you see the effect on the sales and the profit line.
You can also see that we have, on Compressor Technique, handled the revenue drop pretty well in this quarter. The opposite perhaps could be said about Mining and Rock Excavation. When it comes to Industrial Technique, the numbers are so close to zero, I don't think that you should read too much into it. When we come to the Construction Technique, they've actually improved, if we strip out currency and one-time items, whilst revenue has dropped. That is a little bit the summary of. You can almost say it like this, that in the bridge versus last year, the profit is down about SEK 350 million for the group. SEK 250 is helped by this not having the negative on the options.
The rest, SEK 600 million to explain, is SEK 400 million from currency and about SEK 200 million is related to Mining and Rock Excavation, you can say. We move to the balance sheet, I'm trying to speed up a little bit. I don't want to say. Well, there's not much to say. We have a seasonal buildup of inventory in Q1, which we expect, and we have seen it every year. I'm comparing December 31 with March 31, 2016. Otherwise, pretty undramatic. We generate cash, of course, so that is increasing the balance sheet a little bit. Finally, put it to cash flow. We have a slightly lower operating cash flow, but still more than SEK 3 billion in the quarter.
It would have been more or less the same as last year, hadn't it been for the fact that in the first quarter we pay a little bit more of preliminary taxes than we did last year, as you can see. Otherwise, it's pretty comparable with last year. With that, I hand it over to Ronny again for the outlook.
That is no change. It's the same as last time. We believe that looking to the market, that the demand of the mix of our businesses will remain more or less at the same level. By this, Hans Ola-
Yeah
I think we can better go to the questions.
Yeah, ready for the question. I repeat, due to this with the AGM, we'd really like you to restrict yourself to one question. If absolutely needed, of course, that could be a short, quick follow-up, but that's it. I will try to keep that in order. With that, I hand over just to the operator if you repeat the questions.
Thank you.
Awesome.
Ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone keypad. If you wish to withdraw that question, you may do so by pressing zero two to cancel. There'll be a brief pause while questions are being registered. Our first question comes from the line of Klas Bergelind from Citi. Please go ahead, your line is now open.
Yes. Hi, Ronny. Hi, Hans Ola. It's Klas from Citi. If on the margin in Mining and Rock, out of the incremental margin, the drop through of 44%, how much was mix of weaker aftermarket in for out versus just factory load?
We don't have it exactly split like that, Klas, and it's not the way we distribute. Of course, you will have a combination of both. Ronny pointed out that in the first quarter we had a little bit of softer top line development also for the service, which is the first time we've seen that for a while. Of course, seeing the difference in profitability, of course, that gives an extra effect, so to speak, this time. Otherwise, as Ronny alluded to, we take a couple of measures that is preparing ourselves also for being sustainable, better profitability going forward, and that is weighing a little bit, and on top of the norm of the expected under absorption, as you point out yourself.
Okay. Just a very quick follow-up on gold. Still mining, so I'm not cheating. A big jump here in the price year to date. You talk about better underground quarter-on-quarter, but Africa and Middle East is showing orders down 12%. I'm trying to understand that comment on underground a bit better. Is it outside of gold you see the improvement?
Yeah. Of course, we see some improvement on this part, but I think these are not big orders. It's here and there that we see. We see some activity coming in. You have also seen the price development, and there is definitely a little bit more positive talk about when it comes to quotation level. That doesn't mean that it lands. I think we got a couple underground orders that we get. Of course, I have not looked to the detail of all the different comparison country by country, because I think if we take the sectors of the geographical area, I think you have a better Chile, if we go on that one, South America. You see more in India. You get a strong Russia when it comes to mining. It's a bit spread everywhere.
Thank you.
Thank you. Our next question comes from the line of James Moore from Redburn. Please go ahead, your line is now open.
Yes. Good afternoon, everyone. Ronny, Hans Ola. I think I'd also like to ask about mining margins. If 15% is not the new normal, can you perhaps help us with what you are thinking might be the new normal? In particular, I'm trying to get my head around mix as to whether that service point was particularly bad or not. Could you maybe help us when you look at the 3.8% drop in margin year-on-year, was it similar across equipment, consumable service, or did one of those three see a materially bigger decline? I know you don't disclose the numbers, but just in terms of the change, was there a particular story there?
I don't have all the number details with me, James, either. I think, of course, first, you know me, I think 15, no one will be happy with that. That was for sure, and that's definitely not the new normal. As Hans Ola already said when he was answering the question of Klas, I think we are taking measures. We are taking people out. We are moving operations around. You have seen also our announcements. These things are happening. Mines are closing or slowing down. That means that you have to reduce your workforce in one area, of course you got opportunities in other area where you need to start up. You get inefficiency in starting up, and you got releases of people in the other part, which you don't see because at the end of the day, you only see the balance.
This is happening as I speak. As Hans Ola has already alluded, I think, of course, we had expected a little bit better service part. Due to that, of course you get, because in-service is first, it's one of the biggest entity in our operation. Second, it's also the most profitable one. If that drops, you are better in maths than me, you can easily make the calculation where, that is also where we need to take the measures to come back to the new normal or the normal where we should be, and that is more or less what you also hinted, which is also my expectations, where we should be.
Just to follow up on that, you talk of more efficiency. Can you help us maybe on timing and magnitude? Is this more of the same suit sizing or an even faster suit sizing or?
You've seen where we have announced, I think was it a month ago that we would close to or move two operations in U.S. We do that. I think we are doing a couple more, which even we didn't announce, which is going on. I think you need to give us a couple months more to do that, and we need to work harder on that to get it back to where it should be. This is definitely. Then another one, which just to give them a bit of respect of the Mining, I think we should not forget we have a bit of the currency part.
Oh, yes.
Which is also giving a bit of a hit. I don't want to hide behind that. I think we could have done better on the profitability side.
Thank you very much.
Thank you. Our next question comes from the line of Markus Almerud from Kepler Cheuvreux. Please go ahead. Your line is now open.
Hi, this is Markus from Kepler here. I want to move on to the regions and ask a little bit about China and the U.S., could you elaborate a little bit on China? Which areas stuck out? You saw positive growth year-on-year. The underlying demand sequentially, was it also a positive feel to it? The same thing with the U.S. You were talking about positive growth in the U.S. What sticks out there, what did you see sequentially? Thanks.
I think on China, it's rather mixed. Of course, one should also see the first quarter in China with Chinese New Year and partly moving here and there. It's not always easy to read the full quarter because the first two months are, especially in our business, rather difficult to read. You have a full March, which gives then a better view. You have the three months together. I think what I see, still a solid motor vehicle business in China. Still a very solid flat-panel display development in China. Still a very solid medical business in China. Even also we see on brake compressors, where we see still a good development in China. Now I'm talking all about the positive side on China because you were hinting a bit on that.
These areas are there, and they are not small. The ones who were weak stayed weak, so in the comparison it gets easier, let's be honest. There is definitely activity in China. I'm less negative towards China today than I was 3 months ago. We'll see if I was right or was wrong on this part. That is, of course, when it comes to the mining, still difficult. On the other hand, you also have read about all the big investments on the construction, which gives us opportunities in tunneling. It gives us opportunity in bigger compressors, especially on the portable compressors side. These are the fractions we see. China, for us, is all about market share and to be much more dynamic and much more working harder there. When it comes to U.S. Of course, oil and gas still difficult.
Although within a couple of months, the comparison becomes easier. From that point of view, maybe not the second quarter, but the third quarter will be a bit easier, of course, if nothing happens. That is still tough. Houston is still tough. Rental, I have also said that last time when we were talking construction. We haven't seen really strong ordering from them, although they don't say that it will come. That's okay. First see the orders and then we talk. What is still solid is on the motor vehicle, I think that keeps doing great. I think we see good development in our business. That's more internal hard work. We see also good on the high-torque tools, where we do a good development.
We did a proper acquisition a couple of years ago, and I think our work on that part is against the stream, but it's working fine, and that is, of course, for local. Last but not least, our service business is growing in U.S.
Industrial compressors sequentially?
Yeah. You should take away the oil and gas. If I answer it really straightforward, then I should say it's negative. Of course, if you start to make an excluding the oil and gas, you remember the Quincy because we had a big exposure to oil and gas indirectly when it comes to the Quincy, I have said, I think it was one or two or three quarters ago. If you take that away, I think the business is not bad. There is activity.
Okay. Thank you.
Thank you. Our next question comes from the line of Guillermo Peigneux from UBS. Please go ahead. Your line is now open.
Hi. Good afternoon, Ronny and Hans Ola. Thank you for your answers in advance. I wanted to ask about pricing trends, actually. I think it's four out of the last five quarters you have close to zero or zero pricing. I was wondering whether this is kind of a message to the organization saying that never decline prices, you walk away from price decreases, prefer to lose the volumes, or will you be pushed at some point to enter the debate on declining prices?
You can come and work with Atlas. Actually, yeah. Of course, this happened, because in some areas, of course, the world is again on the purchasers. It becomes a supply market, and the consultants are back in place, and the purchasers take the power. This happened in certain areas, but you don't see it globally. Of course, on the mining side, you have a couple areas, but there is not much equipment to negotiate about, so it's not a big thing. It's getting tough. It's getting tough or it is tough in there, because otherwise we will report different. You also know that there's low inflation, which does not help us on the service side. That's one thing.
We will get some price pressure, on the other hand, we fight back also with innovation, because that's the only way which justify you to get a price compensation, because you cannot just tell a customer I increase the price for the same product. That doesn't work. It's only by new products. If you take as an example in the construction business, we come up with new equipment, which gives more value for the customer. These products we will sell the value. We will get definitely the right margin on that.
Thank you. Maybe a follow-up. If I use an example on the same line, basically, I'm talking about pricing. Am I reading maybe some of the market signals correctly when I see that maybe in consumables and maybe in Europe, some of your closest competitors have been misbehaving in relative terms, when you compare to history and on recent pricing trends?
Yeah. What you want me to comment on that, because if I listen to our salespeople, when they lose an order, it's always price. I'm sure when I would be with the competitors and listen to their salespeople, they would say the same about us. I think it happens. I think we should not be silly on this part. These things happen. I think in Europe, I think it happens maybe once here and there. I don't see that. I think when it comes to price, where it's always getting tougher is China. I think there is where you have a less sophisticated supply chain, where price is really number one, and value selling is still less developed there. There you have that.
I don't see that, and I will not hide behind that is the big thing in Europe and the big thing in the U.S., that it's much more value selling.
Thank you very much. I'll go back into line and ask questions later. Thank you.
Thank you.
Thank you. Our next question comes from the line of Jonathan Hanks from Goldman Sachs. Please go ahead, your line is now open.
Hi there, Ronny. Hi there, Hans. Just a question of clarification, really. I'm just wondering, did you see demand improve during the quarter, from the U.S. and China? I know China's harder to play given the New Year effect, but in the U.S. in particular, did demand accelerate from January to March?
If I start, Jonathan. First of all, we're not particularly happy to say, "Yeah, this week was good, this month was bad," and so on, because we are not even capable of seeing whether it's a trend or not. We'd rather refrain from spreading that as a truth, so to speak. The year started poorly, let's at least say that, and that sometimes happens, but it wasn't a very good start after the New Year's festivities. It looked like that.
Yeah, if you divide the quarter in two, the first six weeks and the second six weeks, I think the second six weeks were better than the first six weeks. That is for sure.
Yeah.
For sure, that is what we have seen.
As we said, that has happened other years as well, that is the fact. We're careful not to draw too many, as we say in Swedish, draw first [Non-English content]. I don't know what they say in English on that. Anyway, let's leave it with that.
Okay. Thank you very much.
That's also when I hinted, I think not hinted, but say when it comes to the revenue, if you see the invoicing was a bit softer. I think in some years we see that. That is what Hans already said. I think January was sometimes how come it is sometimes when does the year start?
Sorry, not to give you a better answer. That's what we can manage today. Sorry about that.
No problem at all. Thank you very much.
Okay. Thank you.
Thank you. Our next question comes from the line of Sebastian Growe from Exane. Please go ahead. Your line is now open.
Hi, good afternoon to you. One question on the Compressor Technique order intake. How do you explain the very strong order intake for vacuum given the news has been not great on semicon CapEx? Is it just a phasing of order intake or market share gain? What's your take on this order intake in vacuum?
I think when it comes to the semicon and flat-panel display, I think that business, there are some players, and you know the name of the four or five players, especially on the semicon. They are investing. They're definitely putting their steps up. That is one part. Although, of course, I've also read that they reduced their CapEx here and there, but it doesn't affect that part of the business. That's one. I think second, I think we do well when it comes to our share of the market. I'm not saying that we have 100% market share. I would love to have it. I think we do well. I think we have invested a lot in new products. We have invested a lot in service and invested a lot in the right capabilities. Where the fabs are is also where we are.
From that point of view, we do right. Also, I think when it comes to high vacuum, I think we are there. As we promised to do that, and we have, like they say in Texas, we are whipping the right horses.
Okay, just a follow-up. Can you help us on the, I think on sales, it's not far from 30%, the vacuum share. In the order intake, are we talking about the same or is it much higher than 30%?
You take-
Q1.
For the total compressors, you mean then?
Yeah. Total Compressor Technique out of the order intake.
Yeah. I don't know. I don't have that figure because we're not looking from that way to the business. I can say that if you take Compressor Technique as we name it, and you take out the vacuum part, the compressor part, the original one was not bad. Of course, it was not really booming because we got a couple headwinds, but I was not disappointed in the development. What I've seen there, I think like I hinted a little bit when I was elaborating on the business areas, on the compressors and then compressor, I think we gaining our foot back of our piece back where we should be or should have been a couple years back. I think we coming back.
Okay. Thank you.
Thank you. Our next question comes from the line of Peter Frölén from Handelsbanken. Please go ahead. Your line is now open.
Yes, good afternoon. I have a couple of questions on the aftermarket. When you talk about the rock-solid growth for the service side in compressor, are we talking about high single-digit growth year-on-year? Tied to that question on the aftermarket for both consumables and service and spares in mining, what's the magnitude of the drop into, you use wording of down and slightly down? What does that mean, basically?
Yeah, I think when it comes to the last one, it is slightly down. You should not look in the big numbers. It's slightly down, that couple of %. When it comes to CT, there you can see that we are a couple of % up. I can say that, Peter.
Rock solid is the same thing as slightly down. I can't understand this, Ronny.
No.
It's a plus on the one side and a negative on the other.
The CT is a plus one and the MR is a minus one.
Yeah, okay.
Yeah.
Okay. Slight growth in CT service, that what you're saying?
Yeah. I think with a couple of percentages that you get on that one, yeah.
That's great. Okay, I guess that's it for my one. Maybe you could offer FX guidance as a bonus answer, Hans Ola, since I was so extremely quick. Thank you.
Actually, I should have said it, I actually forgot it, thanks for reminding. We had SEK 400 million-plus negative, as you saw in the first quarter, that was actually a little bit more than what we expected three months ago. Now looking in the same way, Q2 versus Q2 last year, we don't expect it to be that much negative as in Q1, still perhaps something to SEK 250 negative if we would have to do the math today, so to speak. Again, it is very sensitive to what happens at the end of the period if it's suddenly a drop of the U.S. dollar like in March, for example, or these kind of things. That's the best estimate.
Thank you so much.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Ben Maslen from Morgan Stanley. Please go ahead. Your line is now open.
Yeah, thank you. Hi, Ronny. Hi, Hans Ola. Maybe if we can just come on to Industrial Technique and the slower demand you talk about on the auto side, large projects. How does the pipeline in that business look going forward? Given the very elevated levels you see globally in terms of auto CapEx, do you think you can continue to grow from here, from this base? Thank you.
Ben, one thing is I'll repeat a bit what I said about Henrob, which is then the acquisition about the rivets, where we had a bit of a tougher comparison, because we were selling a lot of equipment in first quarter last year. Which that order doesn't come because, okay, it takes you maybe every four years you do that, when you do a line build, you do that. From that point of view, and it was a big order, from that it is a comparison. If you then take that away. You take the motor vehicle, you have heard me saying when I was elaborate about China's still strong. When I was talking about U.S., still strong.
I didn't say much about Europe, as you were asking, I will tell you, I think Europe is a bit tougher. There are a couple of European players who have a bit of a different challenge and also reviewing their models, which makes them also a little bit tougher for us. There we see some less activity. There is, you can say there it's a little bit negative, where the other two are positive. I think on the other hand, if you look to Industrial Technique, you also have the aerospace, which is still solid, and there we're also coming up with a new product. You have heard me saying when I was elaborating on U.S. about oil and gas and high torque, I think that is solid, and then you have the service part. Industrial Technique also has a bit of currency headwind.
That was also what was negative on the profitability. The big part, the motor vehicle Europe, is something to watch.
Okay, thanks, Ronny. If I have a follow-up, maybe just a very quick one on Compressor Technique. Is there a big difference in margins now between vacuum and the traditional compressor business?
Vacuum is slightly lower in the reported margin, not in cash flow, because you know we do amortization. If you take that away, and I'm looking now also to Hans Ola because I've not looked recently on that, but I think we are more or less, I think maybe Compressor is maybe one digit higher, but that's maybe everything as it is today.
Of course, a good quarter is good for absorption and whatnot.
Yeah.
That is helping on that part of Compressor Technique.
Got it.
It's a little bit lower. A little bit, but not much.
Thanks very much.
Thank you. Our next question comes from the line of Alasdair Leslie from Societe Generale. Please go ahead, your line is now open.
Yeah. Hi, good afternoon. Can you talk a little bit about the rate of service growth in China and Compressor Technique, whether that was negative in the quarter, and generally whether you're seeing any directional change to utilization rate service intensity in China that could maybe support a return to stronger growth from here? Thanks.
Yeah. That is not, let's say, to draw a real conclusion is not so easy on China now. If you would ask me that same question next quarter, I think I will be much more confident to talk. The reason is what Hans Ola also mentioned in the beginning, you have Chinese New Year, factories are sometimes closed, not started up. That is one reason why I'm a bit careful. On the other hand, services in China, it's not so easy for a couple of sectors, and that is if you take shipyards, steel plants, coal, which are big compressors, and these sectors I just said, they're all very low. If you go to visit some shipyards, you would see maybe 10 compressors and only three are running. You know what this can mean, there's less service.
On the other hand, there are other areas for growth where we have inroads, where we do a better job. That is happening in China as I'm speaking today.
Great. Could I just have a quick follow-up question on MR. I'm interested in the comments around the downsizing of mines. Did you see that trend accelerate through the quarter? When you're seeing that, is some of that equipment fungible? I guess some of it's stranded. Other pieces of equipment, can you redeploy those? Are you seeing an increase in used equipment inventory, cannibalization, et cetera?
No. I think when it comes to the closing acceleration, I don't think so, because I have not start to count when it happens and how much. I think that I cannot say. Of course, when a mine is slowing down or closing and it's part of a concern, of course, material and equipment is moving around. That happens, but most of the time, what this step means that you need to do a mid-life update, they do further automation here and there. That is what I was hinting when we talked about service. On one hand, you see closing, where you need to adapt, where you need to lay off the people, and on the other hand, they give you the machine and they want to upgrade that. You need other machine and other people. That is what is happening today in our business.
That gives, on one hand, opportunities, but on the other hand, it gives also challenges. Of course, especially as an investor and as a CEO, you want to have this in smooth, nice balance. That's the challenge what we are facing today.
I am looking at the watch. I think we have time for one more question.
Okay, our next question comes from the line of Lars Brorson from Barclays. Please go ahead. Your line is now open.
Thanks. One minute, I'll keep it short. Just on the divisional outlook for mining services, Ronny, did I hear you? I was a little late on the call, sorry about that. Did I hear you say you're not worried about that this is a new trend? What are you seeing sequentially for mining services? Obviously, we haven't seen a down quarter in services for a very, very long time here, even 2013. I wonder whether the difference here is that it's your copper business that's starting to hurt. That's obviously about a quarter of your business, and I presume your customer concentration here is quite a bit higher than it is elsewhere in your mining business.
Yeah. This is also a question I would like to answer within three months. It's also, for me, difficult, of course, where we are heading. If I do an analysis and talking to the head of service, he talks like I explained in the previous question. He said, "Yes, here is the list of all the mines where we are active, which are slowing down or closing." Of course, I start to elaborate a bit further, and then he comes up with this initiative and that opportunity and that order. Yeah, at the end of the day, you have to make the summation to see that you have a positive level. Personally, I don't see this as a new trend. Of course, I'm also asking that question, but I asked it a couple of weeks earlier because I've seen the figures a little bit earlier than you.
Of course, that is what we have to prove in the next coming three to six months.
Thank you.
I cannot give you a full straightforward. You see, I sound cautious, but I see opportunities.
All right. Thanks.
Thanks, Lars. Thank you, everybody, for participating and for posing your first questions, at least. I'm sure you have more. We'll try to deal with that in the next couple of hours, days, and weeks. With that, again, thank you from us, and hope to see you, if not before, at least in July, when Ronny will comment more on these service trends that he just spoke about. Thank you very much, everybody. Bye-bye.
Thank you. This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.