Very welcome, everybody. Good afternoon, good morning, good day, depending on whether you are here in Nacka or whether you are on the telephone conference somewhere in the world. We are going to make some comments today about the fourth quarter results of Atlas Copco Group, and we will do it in the normal way that you have gotten used to by now, I think. We will start with a few comments by our CEO, Ronnie Leten, then we will go as quickly as possible into Q&As, where we will take intermediate questions between the audience here in Stockholm and Nacka and the telephone conference. We will come back to that. We go straight to it, Ronnie?
Thank you, Hans Ola , good afternoon to all of you. Like before, I will refer to the slides if we go on in the presentation. For those who are only listening to the telephone call, can follow on what slide I am. Normally I start with the financial part, but this time I also introduced a slide on the sustainability part because we are really, really proud in being again on the Global 100 list, as you can see on this slide. I am now on slide number two. That is great that we as a company there now for the 10th time in 10 years, actually, we are there. We also ranked as the top sustainable machinery company.
We keep focusing, as we also did and explained that also on the Capital Markets Day in November, we keep focusing on our priorities in the sustainability side, is on the ethical side, on the safety, driving for innovation, and we also know what is the most sustainable part in a company is about people and the people development. That is where we are standing for. Let us go now immediately to the next slide, which says the Q4 in brief, and that is slide number three. Solid profitability, in EBIT terms, in net working capital, in cash flow. We can say that in the broad sense, the profitability of this company is strong. Really, we are very pleased to see also a record cash flow.
As you remember, in tough times and where we are now in a tough market condition, this company is able to translate the value which we have created also in real cash. Robust service business continues to develop. Sequentially, it is at a good level in all business area. I think that is important for some of you is maybe a surprise. Would mining not develop here and there with all the closings? I will elaborate a bit more on that later. Yeah, okay, we are still doing a robust service business. That is also not a surprise. The order intake on equipment, tough in almost every business, except if you are in the medical business, we are in some segments, it is good. If you are in the motor vehicle business, it is good. If you are in aerospace, it is good.
A lot of others, if you are in steel, if you are in shipyards, I think it's much tougher. Oil and gas, not to forget that. Leybold. You have seen our announcement. We are very pleased to be able to grow further, acquire then in the vacuum world. That is working really well. We are still on the filing, it will take us most likely up to August, September before we have Leybold really onboard and can integrate it together with our other vacuum business. Unfortunately, I have to announce that due to the European Commission decision on the Belgium tax ruling, that we have to take a special provision. We'll see where the real ruling will come out, if it really will land or will not land. The discussions are still going for those who are following that in more detail.
We had a board meeting this morning, we can announce that we propose a dividend of SEK 6.30 per share, we will pay that in two installments. I go on the summary here on the figures, what you see here, I'm not going to flip through more. You see the adjusted operating profit, is close to SEK 5 billion, 19.2% as margin. Of course, on the cash flow, I mentioned that already. You see it here, SEK 5.3 billion as cash flow, the rest I think you can read on the slide yourself here. I go to the summary of the year, what we can see is that more or less what we had seen in Q4, continuous growth in service.
I'm very pleased to see that all our strategic decisions we took to transform the company more to service, that also yield good results and create resilience in our business. Even when we have tough market conditions for equipment, we keep delivering a good result, that means then in money terms. We have strong development over the year in the industrial tools and assembly solutions. Coming from the Motor Vehicle Industry, we also good development in aerospace and in a couple other niches. That was a very solid year for them, or I should say, a very strong year for them. The revenue, we had record revenues. First time actually that this company come out with a revenue above SEK 100 billion, that's something to celebrate on.
We have an operating margin of 19% plus, 19.3% to be correct, an operating cash flow of almost SEK 17 billion. We just missed it with a couple of millions here. A very solid, yeah, cash flow. The adjusted earnings, almost SEK 12, of course, adjusted for the tax provision we took. Okay, on the dividend, I mentioned that. If I say on the year, yes, of course, someone would have expected a little bit more organic growth. Me too. Unfortunately, we have not seen that due to, we all know the oil and gas, the mining part, I think China were the headwinds. On the other hand, I think we also had a couple good moves.
If you see how our moves on the Industrial Technique, our moves on the vacuum side, and last but not least, on the moves on our most profitable business, the service, which also makes a good bottom line and good cash flow. I then go to slide six, which is about geographical development, and I'm sure I will get more questions later on that one. Let me start with the good part in the world. This time it's Europe. There's a long time that we were a bit dull on Europe, this time we can say that Europe is really doing, compared to last year, is definitely improving. A surprise maybe for those who are following Atlas, a strong Russia. That strong Russia where we have is because we have a strong mining development in Russia and still a good service development in Russia.
Overall, I can say that Europe, in most countries, is very solid. If I go to North America, now take South America, let's take first about North America. You see a minus here. If I exclude, and then I'm talking about now first the negative ones, of course, it's the oil and gas. We are strong in Texas. Yeah, of course, oil and gas. For those who are following the utilization of the rigs, you will know that that is a tough area. That's the negative. Mining, tough. U.S. is an expensive mining country now. We will see some closures, some stops in mining in U.S. That is an area which also is negative.
Last but not least, from a comparison point of view, it's important to remember that end 2014, so the last quarter in 2014, we had strong orders from rental companies. Why was that? Okay, they really want still to have Tier 3 engines before they go into the Tier 4 models, which were a bit less expensive for them. That is what makes the comparison tougher in this time. If we all take this away, U.S. showed some growth. If we go to South America, I will only comment on two countries. Again, I will start always to start with the positive one. Chile is growing, is good. Of course, still the copper investments from Codelco and a couple services around that gives a good development. I think we have a weak Brazil, a tough Brazil.
Brazil is definitely tough in most all areas where we are operating from an equipment point of view, it is really on the tough side. If we go to Asia, I will comment on two countries again. I will start with the positive one, a very, very strong India. Really India is up on the ladder. We see very, very strong growth there and in all areas. In all business areas. We see that in construction, we see that even in mining, we see that in industrial tools and on the compressor side. The other hand, the biggest country, unfortunately, is weaker, is tougher. China is tough. If you are not in the automotive, if you're not in aerospace and you're not in the medical in China, just to name a couple segments, it's tough.
If you are on the shipyard, if you are in the steel. If you're in the coal, you're in the dull side. If you take that part, you see also that it's tougher for us in that area. We are really adapting the organization there where we can, and on the other hand, we still don't have 100% market share, so it's also going for more growth in that area. You see Africa, it's mainly the reason why it's strong. It's not because we suddenly got big mining orders, don't get it wrong. It's mainly also that the Middle East is in part in here, and the Middle East was solid compared to the quarter the year before. That is in short the overview by region. Here on slide seven, you see the organic growth, and that is the challenge.
We are fighting that part. If you will make the distinction between service and equipment, you will see service solid positive, and you will see a rather negative equipment development, mainly coming from a very weak mining, and also driven by the oil and gas, the larger tickets in compressors, which are also rather weak. We make a correction, if I can say and talk about the correction for the also structure changes we have done, and in other words, the acquisition, you see a little bit better picture, but also this year, and then I'm talking 2015, you see also a negative, of course. We landed several acquisitions, but that did not contribute yet on the growth of the company. If we would have had Edwards two quarters earlier, you would have seen another picture. It is what it is.
We have to work harder to make it again positive. The sales bridge. You can see the figures, currencies, of course it gets less and less compared to the beginning of the year. Price, you see zero. If I really go to calculate, because we don't have it after the digits, it's a little bit less than 0.5%. You can say 0.4%, to be accurate, where we still see some positive part. We still see some slight positive in CT and CR, so in Compressor Technique and Construction Technique. A little bit tougher in some areas on the mining side, it's not really that it really fell off the cliff, it's a little bit tougher.
You should also, when you read on, and you see that in the details, when you read our papers, you see also on Industrial Technique, and that comes mainly also from the price agreements, which are built in in the business of our Henrob business. If you remember the acquisition we did a couple, was it a year, a year and a half ago. That is on the price, and we still see some little positive development on price on the service side. The rest, I think on the volume, I've commented on that in the previous slide, so I don't need to go deeper on that one. Let me now go to the different business areas, I'm going to slide 11, saying Compressor Technique. Still solid growth in service, that develops further.
On the other hand, lower order intake for compressors. You said, okay, before you were writing low order intake for large compressors, now you're talking for compressors. Of course, the large tickets are still tough. On the other hand, if we talk about the small to medium-sized compressors, which we call it the yellow canaries. If we take that part, yes, it's slight negative, but why? And where it's coming from, and remember what I have said also in previous quarters, oil and gas in U.S. is really a big part which drags it really down. Then also you have in the multi-brand, so the non-Atlas Copco brands in China, they also have a tougher development there. If you take these two away, you have a positive level. That is something to remember.
On the vacuum, it's solid, strong on some semiconductor players, especially the ones in the U.S. are doing solid. The one in Asia is a little bit softer. In the total, it was a solid order intake. Leybold, I have already said. Then we announced, was it last week, that we also got. Actually, this week, we got also the Italian piston company called FIAC, which is coming on board, and we hope within a couple of months that we can close that. Profit at the level where it should be, say solid, nothing to say on that one, only that we are back where we feel that this is our league Industrial Technique, all positive. I've mentioned it a couple times already. Motor Vehicle, aerospace, electronics, flat screen, all that part is doing fine. Strong growth in service. Record revenue, and a very solid margin.
One could say, the margin is a little bit weaker here compared to quarter three. Okay, this has sometimes also to do a bit of mix of products, what is invoiced, and as you see, they had record revenue. Most of the time, that means that there is also bigger projects, which sometimes carry a little bit less margin, but nothing to worry on that, or not to try to look for the trends on that. At least I didn't recognize a trend on that. Mining and Rock. There was a time we liked to talk about it. Now is a time we don't like to talk about it. Anyhow, it's part of the family. I'm happy to say that we are still having growth in service. Yes, is it tougher? Do you see some closure of mines? Yes.
There is so other upside. I think if you look to mines who are really the good ones, they're really looking for efficiency, for productivity, and that is only one place, and that's in Atlas Copco where you can get that. That is where we really getting the service. Further automation, further integration, mid-life upgrades, changes here, changes there. I think that is what is happening there. There's a lot of movements going on. Unfortunately, sometimes closures, that means reduction of people in certain area, then increases in other areas. For the managing that area is, you need really to be agile today. Consumables, a bit weaker. We see that, of course, on the China side. I think some of the areas there are weaker. We see it also in Australia where we had a weaker development.
In total also a softer consumable. I think we have adapted to suit. From that point of view, I think we do fine also from execution point of view. I think management there is doing what they need to do. Unfortunately, is a very weak, and I use the word very weak, demand for equipment in mining. If we have some equipment sales, which we have, most of it is for construction. That is the area which is difficult. Also for the guys, it's not always easy to adapt. Of course we do. Do I expect anything to change in the next coming quarter? No. I don't see immediately a reason why it will change. The operating margin, 17.7%. One can also say here, is a bit weak, especially when you compare with quarter three.
Of course, I also would like to see a bit more. Can we do better? Is there areas for improvement? Yes. The big hit we got on the currency, and Hans Ola can maybe also elaborate later on that one a bit more, because it has to do with the mix of the currencies where we are selling. Of course, due to the fact that the equipment is lower, you also get more under absorption. At a certain moment, you have to adapt, and you also have to see what you do on the design and development part. That is the process where we are in. I think when we carry on further, if currency stays like that, I think we should do a little bit better, and I hope that my colleagues on Mining and Rock Excavation Technique also hear that.
We are really looking forward to a better result. Construction Technique, soft order income, if you compare. Remember already what I said about the rental part. That is the biggest hit we got. Good development on service, that's good. I think that has changed. If we look back in 2014, I think we do much better here on service. We found the momentum how to do that. I'm very pleased on the execution and the performance of that team, and we do great in specialty rental. I think that's also an area where we also have strengthened our business development. I'm pleased to see also that we get the acquisition of Varisco, an Italian pump manufacturing. Now we have a reasonable complete offer in our Portable Energy portfolio. We have air, we have power, and we also have pumps. Liquid, in that case.
The operating margin is at the level more or less giving a low road construction business in this quarter, which drags it down, which is a normal expected margin for this period. I'm coming on the group. The operating profit, you can see here, and maybe Hans Olav, you will take over, talk a little.
I can continue. Most of the things in the top of this slide, you have heard Ronnie comment already before. Let's move down a bit in the income statement. Profit before tax is up 5%, thanks to that we had a little bit less negative financial net this quarter. If you look into it, the interest net is about the same as a year ago. Going forward, I would say that we are looking at SEK 200 million, SEK 200 million-plus negative of interest net going forward. That is in the next couple of quarters, perhaps. If we look at the tax, which is the dramatic item this quarter, and Ronnie already commented upon it, we have a hit of about SEK 2.8 billion, which is a worst-case tax provision, you can say.
We will see how that pans out in the next couple of quarters, what the Belgian government will say in response to the EU Commission, et cetera. Apart from that, if we adjust for that, as you can see, we had an earnings per share of SEK 3.15, SEK 3.15 in the quarter. With it, SEK 0.85, as you can see. The tax impact apart from that was actually very favorable in the fourth quarter due to that we had some favorable issues in other countries, not so big, but where we then were able to release some tax provisions. Going forward, partly and mainly due to this news in Belgium, we have to expect that the run rate of tax will increase compared to the 24%-25% that we have gotten used to in 2014 and 2015.
We are looking somewhere between 27%-28% only because of that impact. If we move to this one. This. Good. If we move to the profit development in a little bit more detail, this is the full group, and you can see and visualize the revenue bridge, as we call it, and the operating profit bridge. The only comment here is that you see the SEK 217 million negative bridge on the operating profit versus SEK 600 million, SEK 613 million on revenue means that the falls through of the lower revenue was a little bit more than the operating margin.
You can say that it is mostly due to that in the last quarter or two, we have had a drop of orders received, as you have seen, and Ronnie commented, which means that the utilization in some of the plans is somewhat lower than it was in the beginning, and certainly somewhat lower than last year. If we look at the different business areas in the same way, the only thing that I would point out really is that the currency, and Ronnie already touched upon it, in MR differs from the effects of the other business areas. The reason in this quarter is that the currencies that are important for MR, like South African rand, Australian dollar, Brazilian reais, and the Russian ruble, et cetera, took a very negative development at the end of the year.
In spite of the U.S. dollar keeping up reasonably well compared to last year, including even the EUR, this is the effect that differs between the different business areas. That had an impact, which of course impacted the margin as well for them. If we move to the balance sheet, again, I repeat myself, here is a SEK 2.8 billion effect due to the tax provision. The provision, because we haven't paid it yet, of course, is sitting still here as a non-interest-bearing liability. The other point that you can recognize is the very nice and strong reduction of inventory that happened at the end of the year. If you take that a little bit further, you can see it here that in the cash flow statement, we released a lot of cash from the working capital, primarily the inventory.
That's the link with the balance sheet that you saw on the previous slide. A record both for the quarter and certainly for the year, about SEK 3 billion more this year than any other year in the history. If you don't get growth in this company, at least you get cash. That's how it works.
That's reality.
Cash is reality. My boss always says accounting is some kind of an opinion, he says, I'm not willing to agree to that really. Anyway, let's move on. Earnings per share and dividends, of course, now you've seen the proposal from the board. That is SEK 6.30, as you can see, and you see also the earnings per share with and without this extraordinary tax provision, which I think is important to remember looking at the trend of where we are. Then finally, before I leave it to the questions and answers, these are some useful dates because as you know, since last year we split the dividend in two parts, one directly after the AGM and one six months later. The reason for that is not that we are holding back on cash to give to the shareholders.
It's basically that it allows us to have a much better cash management planning in the group. Which is constantly cash generating. This fits much better with the profile that we have, and that helps us to be more efficient on cash management as well. With that, we conclude on that, almost.
Yeah.
The most important thing is left.
Correct.
I leave it back to Ron.
Our very important sentence. As you see here, we go for the demand to remain at current level, and you will wonder why. Just to give you a bit of background on that, I still see a positive development on service. Is it booming? No. There is still some solid development going on. On the equipment, it's mixed, and that makes it also difficult just also to project all these things. If you see still a good development on the industrial tools business, we believe that is still at a good level. Mining is already low. If we see on equipment side, can it go even lower? Yeah. As long as it has not reached zero, yes. It becomes less and less significant on that part. That to say, okay, it is low. I don't see it immediately big drops anymore.
Okay, I've said that also before, so this time I was wrong. I think on the CT side, which is the biggest part there, we have also a mix because the big tickets, you hear me talking about oil and gas and the small to medium sizes, they're all a mixed one. If we look to all is that there's also a flat part to that one. If you take mining, a bit negative. Construction, a little bit negative. CT, flat. IT, up. We said, okay, that is more or less to remain at demand at current levels. That was our conclusion. If you look to our outlook from quarter three when we made the quarter four, where we missed it, where I missed it's on mining. It was softer on mining than I had thought.
Second also on the construction side, I had expected also that the rental companies would start to order, and that has slipped away. I think we were not, or at least I was not wrong, to make that clear-
Yeah
on the industrial and on the CT side. On the other one, there really we got the difference. By this-
Great. Thank you, Ronnie. We are running a little bit longer than we normally do, if it's okay for Ronnie's schedule, perhaps we can take a few questions just after 4:00, depending on the queue of the telephone line. We start here in Stockholm first with the first question, and then after one more, perhaps we go to the telephone conference.
Okay, thank you. Peder Frölén of Handelsbanken. Could you please help us to understand where you are in the inventory adjustment process? Given what you see in your order book and where that weakness obviously is, do you think you will continue to produce less in the coming months? Tied to that as a follow-up, Hans Olav, could you please help us with how much the SEK 1.4 billion in lower inventory quarter-on-quarter impacts the EBIT?
Can I start?
No, you start.
Yeah. I think on the inventory, like I also said in the beginning, solid productivity of solid profitability, I said. Then I meant and I hinted also on the development on inventory, because this is a matter of efficiency. We have been working the last two years with much more focus on that area, because it's not so easy to reduce inventory when sales goes down, then in relative terms. Construction Technique did fantastic work. Mining Technique, Mining Rock Excavation Technique did great. These two business area really made the difference. I think you have a bit here on Compressor Technique and even Industrial Technique in absolute terms went up because due to Henrob and a couple other orders. It's really in these two areas of segments or business areas you have to look, and there should be more coming.
I think they can do, but that's on efficiency side. One should know you have when it comes to if you want to run a good service business, and especially that our equipment last for some of them 20 years. You need to have some of the legacy spare parts, and you keep them in inventory. Of course, you have these, and you need to keep them active. On one end, there is not 100% flexibility on that side. The most improvement should come in the manufacturing side, and there is still something to do. You, Hans?
Yeah. I will disappoint you, Peder, because I will not give you a number. I can say a few things. If you compare, you're alluding to, of course, that the heavy inventory reduction indicates that you've had a very low utilizational plans, et cetera, in the quarter, and that should mean an impact, negative impact on operating profit. As I said it myself, it's true, but how much and exactly that type of an analysis we never been able to do in the past. I cannot do it for the fourth quarter even in details. If you look at where it comes is, of course, you see in MR, for example, a revenue quarter of almost SEK 6.6 billion, and an order intake in the same quarter of SEK 5.8 something. There is a big amount of that inventory reduction is coming from there, as Ronnie said.
Obviously you would expect that negative impact is primarily seen in that business area, and that's also true. Again, to say if you reduce by SEK 1.4, it leads to exactly this negative margin development. If it would've been SEK 800 million less, that doesn't lend itself to that type of analysis, unfortunately. Some of this invoicing that we do in fourth quarter might really make utilization in the plant in the third quarter or even in the second quarter. It varies a lot, and some would be in the same quarter. I can't give you a specific answer to it, but it has affected.
To elaborate on that, in our management meeting, we even didn't take it as, say, an explanation.
No.
We know that in Construction Technique and in mining, it goes down. Yes, it really brings a little bit less absorption.
Some quarters, and now I'm actually referring to the third quarter, sometimes gets perhaps a little bit high profit margin, really, compared to where the run rate and the trend is. If you have that after another quarter, which is a little bit negative affected by the distribution of cost and utilization of fixed cost, et cetera, then you see what happened between the third quarter and the fourth quarter. Not more dramatic than that in my and Ronnie's analysis, at least.
I think I mentioned on the profitability, yes, I think if you look to Mining and Rock Excavation Technique and the profitability, trying to understand how come they go from 20 to 17.7, and what in the hell is it? Okay, partly is currency. That's one thing. 20 was high, 17.7 was maybe a little bit low. You really have heard me hinting it should have been, but that took a couple costs here and there, which we didn't talk about that. It's a bit more under absorption here and there due to less demand, also.
Sure. Did we have another? Yes, we have one question more here before we go to the telephone conference.
Yes. Anders Roslund, Swedbank. I have a question regarding CapEx demand for Industrial Technique and Compressor Technique. If you look in the manufacturing sector, it looks like automotive is still growing, could you elaborate a little bit what we should expect for the near future?
I will try to take my crystal ball calling Anders, because I don't have more than you. You see, I think, on the motor vehicle side, the models, I think we get more inroads in certain models, also products. I think on one hand, there is still some good demand also in the aerospace, on the other hand, we also have the right product. I think we will be a little bit helped from that if we take an Industrial Technique side. At least that is where we cross our fingers for. When it comes to Compressor Technique, it's rather mixed. Then I need to go the geographical tour, if I do that first. China will be tough. Of course, it has already been low, but I think when it comes to the bigger tickets, if you take that, how come it's lower now?
We get some orders. It's not that we don't get anything like we did a bit in the mining. We get orders. What we are missing, that I don't see coming back, that's also CapEx, is these big orders, very big orders. Now I mean in numbers, where we were selling sometimes 10, 15 turbo compressors. I don't remember anymore since we lost order, we got an order like that. That makes the big difference. That you have in China. China is one of the biggest compressor markets. That's one thing. Then you have oil and gas. I should look to you on the CapEx. We've seen these guys are not really. You see if you count the amount of rigs, what they're using. That also makes it, have we reached the bottom? Let's do a bet.
Actually, it was on Monday, I was talking to the guys in Texas. I called three guys, they say, "Ronnie, I think the oil price, I think now we have reached the bottom." I say, "Yeah. Where I've heard that before?" These two are big part. Then I think you see the people investing in Europe. You have heard me very high about India. But then I talk down in Brazil. This is a lot, it's mixed one. I think if you take everything away from the oil and gas in the U.S., it's positive. Ronnie, what is it now? Yes. It is a very mixed picture that I think I'm positive on Europe, positive on India, positive on the States, minus the oil and gas, negative on Brazil, tough on China. Now we're taking the real big ones.
Good. Should we move to take two questions from the telephone conference, please?
Yes. We have a question from Klas Bergelind from Citi. Please go ahead, sir.
Yes. Hi, Ronnie. Hi, Hans Ola. It's Klas from Citi. Starting with the aftermarket in mining, just on the development by regions, the negative delta seems to be North America. Now adding to the weakness that we already see in Australia. How can service and spares be up in other regions to offset this? I mean, North America and Australia have the miners, which are typically toughest on lowering cost. Volume should have dropped here quite a lot. Did you take any new service contracts, climb the service ladder, or is this just easy comp in other regions?
I would say yes, you have given the answer. I think, and actually, that's a question, Hans Ola, you saw us looking to each other and say that's actually a question we had expected then. Yes, I think we see mines closing, and you see that in the most areas in the high-cost regions, you see that, and I'm thinking then about Australia, I think, and mainly U.S. That we see. On the other hand, you see other mines still, and that's what I call the good mines, investing in efficiency because they really make money. They can make money, and of course, they are very keen on CapEx spend, but I think they really spend a hell of a lot on efficiency, on productivity.
Then you come up, you have to make, at a certain moment, the confession and climb in the service ladder or do a mid-life upgrade or do an automation, and that is where we get the activities. We still don't, and that we should not forget, we still don't have 100% the one-to-one ratio, if I use that one, to all our mining customers. We still have a lot more to take, which we let before on the table, we didn't work. Now we are maybe much eager to get this part. So it is a mix of negative and a mix of positive. Hans Ola and myself, I think we had a one-to-one with our head of service in mining and to debate that part, and that is also what we came out. So you heard me also saying a positive part with confidence.
Okay, I can be wrong, who knows? At least that is what we talk from the people who are day by day standing in the business.
Okay.
Then on price, maybe that's another one. I see Peder already looking to me, then I see Peder, and I'm sure, Klas, you are the same. Of course, price. The mines are really pushing hard and really want to have efficiency and really say, "Yeah, you make money on this and money on that." Yeah, that is. That is again, where you have to work hard to create value. There is some of them we get hits and some of them we take. It's not an easy place today. I must say I have high appreciation for the guys today who have to face the purchase people on the mining side.
Okay, very good. My follow-up is, well, follow-up. It's switching to the balance sheet. Now, buying Edwards, Schucker, and Henrob was a clear way of expanding into higher growth segments, more consumer-led end markets. Clearly good, given the disappointing growth outlook elsewhere. The more recent deals, however, while I appreciate the strategic logic, is a little bit lower growth. Here's the question, really. What is the next strong growth area for Atlas? Is there any, or should we expect more M&A to consolidate and get synergies in services such as in vacuum and compressors?
Yeah. I think, of course, like we did with the vacuum, as we did with SCA, as we did with Henrob, of course, we are looking to spots where we can leverage our capabilities and technology, or I forgot to say aerospace, just to say as a success area, which that journey we started maybe four or five years ago. I think we are constant on that part. I think unfortunately, you don't see these successes because there is also a lot of minuses. Today, the headwind is extremely strong. Just take Brazil. If you get a drop of 60%-70% of the top line, you need to find a hell of a lot of alternatives to come on a positive one, and now I'm talking construction.
It's not that we're losing market share, because that's my first question when you see this, I'm on them. We do moves, and we do portfolio management. We are working on these areas, but of course, the headwind is tough. What are the next one? To be honest, I will not going to say that. I will not say this in public.
Really? Come on, Ronnie.
Of course, I'm not going to let it be like it is, that's for sure. I think there is still some potential, that's for sure.
Very good. Thanks, Klas.
Thank you.
Next question. Telephone.
The next question comes from the line of Jonathan Hanks from Goldman Sachs. Please go ahead, sir.
Hi there, Ronnie. Hi there, Hans Ola. Thanks for taking my question. Just one on price mix. It was flat in compressor, which is the first time in a long time. I am just wondering what drove this slight deceleration, how we should think about this? Is this just a bit of a blip, and we should expect it to go back to kind of positive +1% next year?
One should also know that, I think, the way we report, we have price on service and price on equipment. Of course, we do not give them in detail on both areas. One, and those who are following us since long, they know also that price on service is a lot to do also with good inflation. We need a little bit inflation. I am praying every day for a bit of inflation because that will help us, makes the price, I could say, discussions of price conversations with the customer much easier. That is one where CT is affected, that one. I think when it comes to price, I think, of course, pricing on the efficiency products, what we have, the GA, VSD, the Zs, the larger one, I think that is productivity. You sell productivity. You do not talk about price, you talk about efficiency productivity.
Of course, where you get the tough part, you have heard me talking about oil and gas, the Quincy job on that one. Of course, they get, and some of the low end in China, they get price pressure. That is where we need it. How can we beat that? Is, of course, to come up with other offers, and that is where innovation, bundling, all this type is working on that one. That is what is happening on that. Price is equal in creating value. That plus, of course, partly is in inflation. It is still positive, and you heard me saying that. Of course not the double, the 2% or whatever like we had before, it is not there. On the other hand, that is maybe we did not talk so much about that because that is typical Atlas Copco. It is about the cost.
Steel, copper, and a lot of other commodities have come down, which is bad for one, calling Mining and Rock Excavation, but it is also great for our products. That also supports our margin.
We should perhaps just add and not dwell too long, but a zero price in our table from one could actually be from +0.6 to +0.4. I'm not saying that was the case in exactly this quarter, Jonathan, but for us, it's really a low or almost a stable type of development.
Yeah.
That's how we report it at least.
Okay. Thank you, very clear.
Yeah. Thank you. Do we have any more questions here in Nacka? I think. Doesn't look like that. We go to the telephone conference. There are many questions still waiting there.
The next question comes from the line of Markus Almerud from Kepler Cheuvreux. Please go ahead, sir.
Hi, Markus Almerud from Kepler Cheuvreux. My first question is on the geographical. If you can talk a little bit about the U.S. and what you saw on the industrial side, but also on the oil and gas. Yes, year-on-year it was down, but can you talk a little bit about what it looked like throughout the quarter, Q4 compared to Q3, and also what it looked like during the months? In many ways, this is a big swing factor. That's my first question.
Yeah. Now I have to get my memory up on that. I think on the U.S., if I see it, and that's the way I approach this part is the First one, if you look to Compressor Technique, of course you have to take away the vacuum part, because that can swing also with some of the big players in that area, so they can destroy the comparison.
Save.
Yeah. The comparison.
Save. Yeah.
I say the comparison. I didn't say that.
Yeah, you're right. Absolutely, yeah.
What's definitely difficult on the industrial side is, and then I'm talking on the compressor side is, and that's negative, is the oil and gas. That is really negative. I think the other part, and then I'm talking about Industrial Technique, I think is solid, is good development. That I think is working fine with automotive, aerospace, even because you should also know, and that's maybe a contradiction now, even we get more and more oil and gas because, okay, we started from almost nothing. You remember that we acquired a couple companies, so they also gaining share. That is a positive part. I think on the compressor side, yeah, I think it's, of course, the big tickets are not there, the real gas and process compressor there. The other part is okay in all the different. We have a good medical business.
That is an area which we have refocused a year, a year and a half ago, that does very well. It's also very strong. You must know that we have almost 50% market share in that area. In that, we're focusing on, that gives all the small part give, yeah, a good, still a positive development, let's say, in this way. We get the hit, and it's a big hit, oil and gas. It's not a -2 or -3, and it's a big hit. To absorb that big hit and make it positive, you need to have a lot positive.
When you say that it's really negative, are you doing both sequentially and also year-on-year? Did it get even a lot worse? It got a lot worse in Q3.
Yeah.
It fell off a cliff in Q3.
Yeah.
Did it fall off a cliff again, or are we kind of?
Yeah
Do you see what I mean?
Yeah. Of course, you cannot go from cliff to cliff, but I think it still was going down in Q4. Yeah.
Okay.
Sequentially, it was still going down. That was also my conversation I get with the guys on Monday. Okay, have we now reached the bottom of the cliff, or are you still see some negative development then? Yeah. Okay. We'll see where the oil will land at a certain moment, but it was still a softening in Q4 on the oil and gas part when it comes to compressors.
Okay. Thank you. My follow-up, if I can just ask the very dramatic drop through in Mining and Rock in Q4. I would assume that services grow faster than equipment, so you have some positive mix there. I come back to Klas's question, is because there should be an intra mix, if you want to, that services is growing with a higher margin than you have on the equipment side. Are we seeing prices dropping quite significantly on the equipment side, or is there something else here which make that come out the way it does?
You're particularly on MR, I understand.
Yes. Particularly on MR.
That's where you saw it, as you say. The currency does a little bit, of course, that explains something specifically on a sequential basis. You see that, of course. The other part, yes, we are growing year-on-year on service. Of course, from one quarter-to-another, it's not a very dramatic change. I think we've touched upon the reasons for the drop through. Partly is, of course, that you cannot put any quarter on a perfect Excel sheet formula and say, "This would give this revenue, and this mix will give exactly 19.5 in margin, and this one will give 18.0." There are costs involved that are not exactly distributed equally over the quarters, et cetera.
I think between currency, between the fact that two relatively low order intake quarters in a row means that you are producing, you are using the fixed cost much less, let's say you get much lower utilization than what you had in the two previous quarters, for example. It's not a new price level on equipment. Certainly not. Either we get the order or we don't, more or less there. On service, we've already commented on it, that we don't see any negative pricing on an aggregate basis for MR either.
It's Ronnie here. I think when it comes to mining and equipment, it's not a matter anymore on price. I think this is a matter of having an order.
Yeah. Good.
Perfect.
Thanks.
Thank you very much.
Thank you. We'll take another question from the telephone conference.
Our next question comes from the line of Andre Kukhnin from Credit Suisse. Please go ahead, sir.
Yes, good afternoon. It's Andre from Credit Suisse. Thanks for taking my questions. Just three quick ones. Firstly, on China mix for CT, could you give us the idea on the latest, where it is versus industrial gas and process and vacuum now, given the further declines in gas and process?
You mean whether that has had any change on the gas and process on the large compressors in China, or?
Just more in terms of 2015 sales or orders, composition for China CT, specifically, how much of that is still gas and process versus industrial and vacuum?
In China.
The development, is it in all areas of CT, or is it? Okay. Yeah.
No,
Just the actual mix rather than development.
Yeah. I think when you take gas and process, China is very weak. Then I'm coming back a bit what I said a bit earlier when it comes to, say the mid-size of large compressors. If we don't talk about the big ones, if I go to say it like the big ones is very low. The large ones, I think there are still some orders coming on. The only thing there is that you never get the big quantity orders. That is over. Then I think when you come to the small to mid-size, I think we see good development for the Atlas Copco brand when it comes to quantities. It's a little bit more tougher when it comes to the low end. So you remember that we always said you have the tier 1, tier 2, or tier 3. I think the tier 3 is tough.
Yeah.
That is quantities. That is where you have it tough. Tier 1, tier 2, I think, which we sell under the Atlas Copco brand, there is still good development. Is it really growing? I will not say. If I now talk from my memory, I think it will be maybe flat to a little bit negative.
If we continue on CT in China, we have to remember now in the numbers we present and so on we talk about is also including vacuum, if you look at CT as a business area. Contrary to half a year or a year ago, we have not seen the same positive development on vacuum in that part. Ronnie said that it helped us in the quarter in North America, particularly, but not there.
That is when you make the comparison last year.
Correct
We got an order for China from an Asian player.
Very good.
That, yeah.
That hurts the comparison.
Especially specific on China.
I think I heard you, Andre, looking for a mix in terms of percentages, but I will disappoint you there. We should have 46 divisions in Atlas Copco, and we only have 23. You'll have to satisfy you with those answers. I'm sorry for that.
I understand. The next question was just on FX, on transaction side specifically, because there's quite a bit going on. From memory, Edwards was over-hedged, and this year may get some benefit coming through and from my understanding, Leybold that you've just bought had hedging that should be running off and benefit in 2016. Against that, you've got, I guess, SEK partial reversal. Can you just help us with what roughly we should be looking for the transaction impact for 2016, given there's quite a few things there moving that we can't really exactly estimate?
It's not like by and large, if you talk about the group, forget about hedging.
Yeah.
It will not have any impact. The comment you made, quite rightly, is that when we make acquisitions, those companies might have a different hedging policy than we have. That might take a little while after the acquisition to adjust into the Atlas Copco policy of not hedging, basically. In all fairness, if you by and large, again, if you're not down to the decimals of decimals, which I cannot even see, then no, you can see the exchange rates of end of 2015 will by and large be the effect we'll see in Q1 and so on, going forward. That's how it plays out.
Very clear. Thank you. Just a final one on, a follow-up on M&A. We've obviously had a recent pick-up with a flurry of deals. How should we read that? Is this the beginning of a trend? Are you seeing vendor expectations and willingness getting to the point where your funnel is really filling up, and we should expect more? Or is that just timing that you announced several deals at the same, sort of just a few weeks' time?
It was by coincidence because some of them I would have liked to come out a bit earlier, if you take like FIAC, which came out, I had expected that early December already, but okay, there were legal confirmations we need. You need to wait because there were operation in other countries and yeah, then you come to the period of holiday and here and there. Yeah. They lend all a bit close together.
Even if you expand and looked at the full fourth quarter or even third, fourth, and the last couple of weeks, in that period, yeah, it's been a little bit more perhaps than the year, but it's purely coincidental, I would say.
That's coincidental. No.
We're working on the full agenda all the time, and sometimes.
There is always, on the acquisition side.
Yeah
there is always things
Full agenda
small and yeah, big things are not, they take a little bit longer before they're cooked. Small ones are always in the air, we are always on the hunt.
Yeah. Thanks, Andre. We take another question, I think we can take 10 minutes more because we were a little bit late getting into the Q&A, we really need to move on. Again, some of the final questions then on the telephone conference.
There's a question from Andreas Willi from JP Morgan. Please go ahead, sir.
Yeah. Good afternoon. Just two quick questions, please. First one on Industrial Technique. It had a bit of a dip in organic revenue growth while orders were strong in prior quarters and remain strong. Is that just a question of timing of bookings there, or do you see some signs of weakness in the market, maybe smartphone, other areas that have maybe recently been questioned a bit more about growth trends? Second question, just on CapEx, what we should expect for 2016. Is there any big change there? Thank you.
For our own CapEx, is that what you mean?
Yeah.
Yeah.
Yeah. No, I think for our own CapEx, I don't expect big things. I think if we compare 2016 with 2015, I think 2016 will be maybe a little bit lower.
All right.
It will be not significant difference.
No. No major differences.
No
We expect. No.
That will be a more or less that. You can take more or less the 2015, 2014 figures.
As approximate
That's it. On the Industrial. I don't think there was any significant what I picked up. You mentioned on the smartphone, but that's not material. I think you know Industrial Technique, and you know that very well if you were at the Capital Markets Day, you know our exposure on Motor Vehicle, with the Henrob, with the SCA. Okay. Sometimes if we land a new model on Henrob, okay, it could come a bit more orders. That is also what we are, of course, happy to say at that time. I think the rest is really moving on. Will we get this boom, if I can call it, which we had in 2014, 2015? Yeah, most likely. I think you have to see a bit the models, the model changes.
We still are positive in this area. I think we have a good technology. We have a good inroads. We have a couple other segments where we are working hard to pick up. I'm not negative for that industrial area.
Your question was particularly on the revenue, which at lower and lower organic growth. This is not a surprise. We've had the period where MVI, without the new acquisitions, was really growing way above double-digit for a while, and we haven't expected that to be able to continue, to be honest. It's not a surprise that revenues came in as they did. The good part was, of course, a couple of significant orders on the assembly system side or on the assembly solution side. We don't read more than that into it, to be honest.
Of course, the comparison becomes also more challenging.
We're not surprised that it comes down in growth.
Yeah.
Good.
Thank you.
Thank you. We take quickly some more questions.
We have a question from Michael Baum from Highbridge Capital. Please go ahead, sir. Michael Baum from Highbridge Capital, please go ahead with your question.
Or the-
If he's off.
He's off.
The question might have been answered, so is there another one in the line?
There is. We have a question from Sebastian Kuenne from BNP Paribas. Please go ahead, sir.
Hi, good afternoon. Two quick questions. First one is, we have seen some demand weakness for equipment in Compressor Technique now for two, three years, relative demand weakness. I'm just wondering, do you know if on an organic basis, your install base is still growing? That mean that the current delivery rates of compressor are above the replacement rates of your older compressor, so is the install base growing for Compressor Technique?
I think if on answering on the, say, two, three years, of course, what you see. First make that analysis, then I will answer your question on the install base. Of course, one thing is the big gas and process compressors, I think that make a big difference. Take that away first, because that is the big orders you also see, if you look to a couple other players we have in that market. If you take that away, it gets, of course, also a little bit tougher still on the organic growth. If we look to the install base, because we are tracking that, of course, for the service, that's important. We still see some slight growth from the install base.
Even you see now also when you look to recently also like in Europe, you see in certain areas also that picking up again. That is not an area where I have heard that. Of course, yes, in certain countries it can be a bit shifting, but if I look to the total, I have not that impression. I have not seen a figure where we can say that the install base has gone down. Bear in mind, now I will give you a bit more part on that. If you take China, we heard already saying, if you are in flat screen, if you're in medical, if you are in automotive, yes, it will be much more install base, much more utilization. If you go then, go and visit a shipyard. You would see maybe 10 compressors and three or four running.
Right.
That is where you're confronted with. That is the reason also when you have heard me, I know I'm answering a little bit another question, previously asked on the service side. Of course, that has an effect on our operation in that area, on the service side. Of course, you try to gain it somewhere else. Really on units level, I don't see that the install base has gone down.
Okay, that's very clear. Another question, you talk a lot about mixed trends by end market, and that will be quite helpful if you can give us as a % of sales, the exposure to automotive, oil and gas, chemicals, aerospace, medical, that kind of end market, if we can get a breakdown of 2015 sales.
Are you talking about the group or?
Yeah, at the group level. Yeah, please.
Yeah.
I don't have it by heart.
We don't have it by heart, to be perfectly honest, neither one of us. I think that if you look at the way that it's described in the annual report of 2014, and then, of course, you haven't seen the 2015 annual report yet. You get a lot more indications of where that has moved. Without having the numbers, again, off the top of my head, the moves are not dramatic between segments and the end markets, as you say, if you look at the group in total. What you will see as will come out is, of course, mining, and you will see that oil and gas, be it not so big in 2014, has also come down a little bit. Again, by and large, I think it's mining that you will see the difference.
What you would see is mining down, oil and gas down, semi up.
That's very likely. Honestly.
Mining, yeah
It's a mix of the 4 business areas, and their relative weight is perhaps a good indication without going into the details even of each business area, if you see what I mean. MR has come down.
What we try to do, and we never talk about that, we try to do 2 type of hedges. It's a natural hedge on the geographic part.
It's on natural hedges, not financial.
Natural hedge, yes. We don't do financial hedge. We try to get everywhere in the world. That's also what we're selling in 182, can even be 183 countries. We are more or less everywhere and exposed to all different currencies. On the other hand, we also try to be as much as possible in all the type of segments. Sometimes we are happy that we are in the segment, and sometimes we are disappointed that we are in that segment. That is what we try, and that is where we see that possibility in Compressor Technique, because everybody is using compressed air. We see the same on the vacuum side, of course, not so many like CT, but it's maybe 70%-80% the same. The same is on Industrial Technique. Of course, you have segments which are a little bit more overweight.
That's what we try to do. You have, of course, the mining part, and you have the MR construction. That's the way what we try to do.
Okay. Thank you.
Thank you. I'm stretching it very much now, last, final question. Final. No follow-ups, please.
We have a question from Lars Brorson from Barclays. Please go ahead, sir.
Hi. Thanks, Ronnie, Hans Ola. I'll keep it short. Just a couple of very quick follow-ups actually, Hans Ola. Just on the inventory in MR, sorry to belabor that point. Can you talk about where we are now in the inventory destocking, as far as MR is concerned? On current order run rates, are we in for another sort of big inventory destocking event in the first half of this year? Maybe just finally, to Ronnie, maybe can you talk a little about what you see on the copper side within mining? I heard a couple of, I thought, conflicting messages. Copper price obviously bad for MR, yet you highlighted Codelco, and other sort of copper areas that seem to have been good also on the servicing side. It's obviously a big metal exposure for you.
Just a brief comment on that, Ronnie, would be helpful because that to me feels like could be an incremental negative as we move further into 2016. Thanks.
Okay. Yeah, I think to start with the follow-up to Peder's first question earlier, I think on the inventory reduction and destocking in MR. Well, I can't give you, as I said to Peter here, the breakdown that gives you an idea how much it has exactly affected the operating margin. Don't see it, however, in this way that this is a destocking, which you would find in a distribution channel, for example, where there is a very clear, let's say, pipeline that looks more or less the same, and you just decide whether I have two weeks of stock or I have two months of stock or It doesn't really work like that with a lot of equipment that has different delivery schedules, et cetera.
I'm not expecting that you would see on a sequential basis anywhere near this type of heavy destocking, if you call it like that, or reduction of inventory. Over time, and I'll come back to Ronnie's main question all the time, that we can be more efficient in the chain, but that is something that happens over years, not over one quarter to another. On the other hand, we should also remember that the big part of inventory in MR is consumables and spare parts related to the big service organization. There you need to work on the structural changes to bring that down dramatically from where they are now, further down, so to speak. We should keep that in mind. No, we're not expecting to see a dramatic change in the short perspective, at least.
Yeah, on the capital side, Lars, I will take it a bit geographically. I think you have heard me saying when I went through it, I think we see still in the area of Chile, you see some positive development, I think, and you know which commodity it is, and that is most likely copper. I think in India is also doing, and what is that is coal. Surprise, surprise. That's the main part. Then maybe the biggest surprise where we also have seen good development is in Russia. That is where we see good development going on in Russia, and that's different commodities. These are the areas which we are seeing positive. It's tougher. There are some orders here and there in Africa. There are orders here and there in Australia. Yeah, it's on the very, very soft.
It's almost sporadic if I use a statistical norm here. It's rather weak on that. Where, that is with all our colleagues in the market who are delivering equipment, and that is where mines are focusing on, because as the commodity prices are going down, we need to get the break even down in the mine. How do you get that is productivity, and that a lot has to do with automation. There we see some orders coming, and that can be sometimes booked in service because it is an upgrade. Sometimes it is a new machine which has all the bells and whistles. That is what is happening today in that market. It's still at the low level.
Good. Thank you, Lars.
Thanks
those questions. Thanks everybody here in Nacka and on the telephone line. We stretched your patience and took one hour and 15 minutes, longer than usual. Many questions, of course. Hope to see you again on the 26th, or hear you again on the 26th of April for reporting the first quarter. Thank you very much, and goodbye.