Ladies and gentlemen, welcome to the Atlas Copco Q1 2015 Report. Today, I'm pleased to present CEO, Roni Letthen and CFO, Hans Olomayer. For the first part of this call, all participants will be in listen only mode and afterwards there will be a question and answer session. Hans Ole, please begin.
Thank you very much and very welcome everybody on the line. This is the day of our Annual General Meeting. So we will try to stay within the hour of this call. We'll try to allow as much time as possible for Q and A as usual. So welcome to the Q1 report conference call again.
We will do as we normally do. And by that, I will immediately hand over to Roni
for his comments. Okay. Thank you, Amzula, and good afternoon and good morning to all of you. Before I go to elaborate on Q1 results, I would like to elaborate a bit on the atmoscoptical vision and outlook as such in general what we are aiming for. And Atlas Copel is a long term growth project, which is supported by underlying long term demands like we have efficiency in industry, demand for commodities and of course, urbanization is driving infrastructure.
And this is of course our opportunities to grab these opportunities. Now how do we do that? We are constantly intensifying our presence and this we do by improving our competence, but also by putting feet on the street. We also do further investment in innovation. And for those who have been following Atlas Copco have seen that we have doubled this investment over the last 5 years.
And last but not least and that is something which I'm sure will come up more during this call, We are optimizing constantly our operating model, which is based on agility and asset light to make sure that in every weather condition, we have the right clothing. In other words, we're delivering results in every economic condition. So that was for me a short introduction to position at the Q1 result. And if we now go to slide number 2, what have we seen in the quarter? We see growth in service, really solid organic growth in service.
So our strategy works there. I think it was a good quarter there. What is lower and that was also definitely lower than most of us expected. That was the equipment. We had a real lowered sales in mining.
We also saw larger units on compressor side. We saw that was softer, although we saw solid industrial technique mainly from motor vehicle and we saw a reasonable solid development for small to medium sized compressors. For those who are following us also saw that the vacuum orders were lower in quarter 1 compared to quarter last year. This comes mainly from a tough comparison because Q1 2014 we had a very, very big quarter, which is not and we knew that that will not be repeated. For vacuum.
We got that. So if you take that away and you will hear me saying that a couple of times during the call, you will see that vacuum had very solid order income. And of course, last but not least, when you look to the figures, they look all bigger, but of course heavily impacted from the currency. But I'm sure that this will mostly yield not the surprise. If we then go to slide number 3, the orders increased to 12%, a drop of 5% organic.
I will elaborate a bit more on that when I'm talking to different business areas. Adjusted operating profit, it's 19.3%, mainly influenced by the long term incentive program. Anzula will elaborate a bit more why we're talking about 19.3 not about SEK 18.3 billion. And the operating cash flow was solid, almost SEK 3.5 billion, which was a good development during this Q1. So we saw a reduction in inventory our operation.
If we go then to slide number 4, we take the geographical area and I'll start with North America. You see a minus and I can tell you it was the same when I saw the statistics first for myself, say a minus in North America what's going on. Now I think we need to make one correction here or when we go to compare maybe not a correction, but there's a comparison, if you want to do a proper comparison. Again, this vacuum order I was just talking about that took place in North America, which was significant. And then I think also the larger part of oil and gas, we also got that out repeated because we all know for what reason.
If we take that away, the difference is effective. Here it becomes in a difference. It's 10%. So if we take away this vacuum and this larger gas in process order, it will be a plus 6% in North America. Because we still see the small to medium sized compressors, we see a good development.
We see also good development in industrial technique in the North America. So it's a rather positive picture except these ones when we compare. If you then go to South America, so we're down now. We see a minus 12. We all know we have seen Brazil, which is on the it's a bit tougher there, especially when it comes to construction and on the mining side.
So that is the main reason why we have seen a drop. Although when we take on the industrial segment side and then compressor side, it's also a reasonable market in South America. If I then take Europe minus again also here I should give you for competitive reasons, there is also some orders also in the vacuum side. I think what made that looking negative plus also and we all know the Russian part which also made the comparison more difficult compared to last year. So all the rest has been done.
Europe was if we take this part away was still a positive picture. Middle East, Africa, you see a plus 11%, and I don't need to any correction. It's maybe surprising for all of you, but the Middle East is doing great. So that is one of the reasons why we got a +11. So it seems that the Sony is keeping investing.
That we can say and that is mainly also from the mining part a bit on construction side. And of course, the big tickets on compression technique are not there. Where we had a positive one was on industrial technique and a reasonable good development in the small to medium sized compressors. But one thing what is good in Asia because we used to talk only about China, we see a positive development in India where we see a good development going. And of course when it comes to Australia, as you know, it's all about mining side.
If I then go to slide number 5, not take more, I had hoped to see a positive part of that and I have already explained. If I would make the full correction for the group where we had a minus -2 in the for this growth that and do a correction with the GAAP and the vacuum we will have is 0 which is plus 2%. So it would have been a flat development partner. Sales bridge, yes, you see it here nothing to say structural, okay, a couple acquisitions we have done and of course currency I elaborate about that, that's big. And then the price volume as I'm sure on the price.
I'll let it you to asking some questions about that. Then I'm going to the business area and going mainly to compressor technique, a very good amount in service. So it's good to see that that strategy works and the small to medium size compressors are solid development. And again, I'm repeating myself first here on the larger compressors. It's tougher there.
I've been saying there's a couple of quarters up. And yes, it still keeps going in the wrong direction, but it is what it is. And then on the vacuum, I will not repeat my point what I already said in the beginning. But of course, I think if you take that way, it's a good robust development on the vacuum So you see me come continues to develop. Operating margin, of course, supported by currency.
That is for sure. And we see also here the negative equipment mix that is a bit coming from vacuum where we had a bit of headwind from currency, but basically profitability a bit lower for the vacuum part. If we take away the vacuum out of capacity because that is what you could compare last year very easily. I can say we are up to a solid 23% profitability. So from that point of view compressor is more or less back in the league where they should be minimum.
Then I'm going to Industrial Technique. I would say congratulations to the guys there. I think I'm very pleased with the development. Of course, we had good support from motor vehicles from aerospace, a bit more headwind in the oil and gas part. So our new acquisitions in this high torque part of course they have a bit tougher place.
Okay. You cannot be all the time at the right moment, but sure this will be future businesses. We see good development on the service business. It continues to do well. So our strategy also works there.
And also our new acquired self steels riveting business, the handle business is doing fine and we see also good order intake from that point. So profit wise 22.7 percent, put the habit of headwind from acquisitions. When you have new companies, you always have some costs you have to take. We took them, so that is for sure. And then I think, of course, we are helped by currency.
Mining and rock excavation, a tough place to be today, I should say. For sure lower order intake for equipment than when we were sitting here together talking to you guys. But I thought 3 months ago, I had thought that we would have a new low level, but at least we will have a robust level. The good part in mining and rocker surveys and that we have been seeing the last 5, 6 months is a solid growth development on service and that's good. So it seems to be that our customers are using their equipment a little bit longer.
And of course, at the end of the day, you have to come and make a compression and do some service on the machines and that is what is does you see it decreased somewhat. I think again you need to make a bit of a distinction. Exploration at a good level. So that I think that development stays good at a good level because you always when you have when you compare 1 quarter to another you always can have a bit of swings. But we see a good development here.
And you see it also in the consumption from iron ore, zinc and copper that the world is still using these things in a good way. Operating margin, we just missed the 2019, so 18.9, which we always like to have a bit more, yes. And that is also the reason why we further work on our efficiency measures. We do this step by step. We take some costs in for adapting to our new level unfortunately.
But on the other hand, we keep our focus on innovation and R and D. It's not that we go to cut there dramatically or that we cut in feed industries. We keep on that part. Of course, we focus on time to market efficiency on the overhead to reduce that. But on the other hand, we keep really the core investment.
Construction technique, lower order intake. So the larger portable compressors was lower. And we had also a little bit softer road construction equipment and we said, oh, what's going on there? And that's mainly coming from a softer Australia and a softer Brazil, which were good markets for road construction. But unfortunately, they got headwinds there and these are big markets for them.
And yes, that is a softer market these days where we see on the other hand good development in Europe and good development in North America, but it didn't compensate in the quarter for the drop in the other countries. Then operating margin 12.2 percent with the costs we're taking in and the further optimization, I think it's that it is what it is in this level now. Then if we take here then slide number 12, the operating margin. I will now hand over to Hansola. I think there's most of them I have said.
Maybe there is one. When you look to the operating profit in absolute terms, other part long term, then it's plus 23% operating margin growth, which I think is I'm very pleased to see that we grow more in the operating profit than we grow on the blended side.
Thank you, Roni. I'll just be trying to be very brief. The rest that below operating profit net financial items was a bit more negative than last year. There are a couple of explanations. The currency effect on interest, which we pay in euro and dollars is one explanation why it increases.
And we also have a number of subsidiaries where we unfortunately in countries where the only opportunity for them is to borrow in foreign currency and predominantly in dollars. And that has also inflated the interest cost for those countries. And the so I would say looking forward is there anything extra that will not continue to be there? Well, in comparison with last year, I think it's explained by that. So looking forward, I don't see a big change in the financial net for what we say.
Then of course there are always exchange differences that you cannot predict beforehand and so on. But basically we expect it to stay roughly at these levels in the near term. When we come to the tax expense, it was 24.5% as you have all seen compared to 23.5% a year ago. I would say that it stays as we had expected between 24% 25% and that is the impact the impact of this increase of provision for long term incentive that Roni talked about, it would have added €20,000,000 or more on that €286,000,000 Now the reason we do adjust for this because of course it's not our normal isotope to talk about what results should have been so to speak. We normally try to be as transparent as possible.
But in this case, we have due to the structure of this program of long term incentive, we have to book the a comparable personnel cost. At the same time, we already know that we will not make that loss because we have already bought Atlas Copco shares to hedge for this development. Unfortunately, we cannot take that profit when we sell those shares into the result. It will only affect the so called other comprehensive income. Or if you like, it will be adjusted against the equity.
So in a way, we think it's fair that one do mention these items specifically when they're as large as they were this time. If we move on to the next page number 13, you can see that impact in the so called profit bridge for share based long term incentive programs.
And for
the rest of the comments, I think we turn one page more and we look at the business areas. I think the ones before you can ask questions of course later, but the compressor technique swing between a negative revenue and a positive impact from volume price and mix on EBIT is not so difficult to flow through. Industrial Technique have invested in a number of new businesses as you know and they keep on doing that. So there is a relentless focus on growing these businesses. And also there is some best way.
On Mining and Rock, I think, one time items of plus the impact in the one time items of plus EUR 75,000,000 is last year's restructuring cost that you know. And then the question mark is, of course, is this a normal flow through of revenue drop of SEK 300,000,000? No, that is absolutely not what we see as a normal either. But we have come to a level of drop in revenue where, of course, the effect of staying with feet in the street, staying with the R and D portfolio that is meaningful etcetera will give in some quarters will give these type of numbers. When we come to construction technique, it's a little bit of a different explanation why so called flow through or the negative flow through, if you like, is so big.
And that relates mostly to the unfavorable equipment mix that is still hurting the business where large compressors, portable compressors have dropped rather significantly in volume and that gives a negative mix effect on the margin. I turn to the next page and I don't want to bore you with 2. It's not very eventful on the balance sheet side to be honest. I can just remind you that the pure translation effect of reporting in Swedish krona gives us another EUR 5,000,000,000 from December only. And if you go back between March last year December last year, it added more than SEK 10,000,000,000 in pure translation into Swedish krona.
So of course, you can understand that it's not the volume driven increase in the balance sheet at all. I turn to the next before I leave it basically two events, if you want to explain the increase of operating cash flow from 1.9 to 3.5 and that is basically a higher profit, the top level of the chart, which is of course supported by a lot of translation from the strong U. S. Dollar as well of course. And the other one is a better net working capital development in the first quarter.
If you add those 2 together, you basically explain the difference in operating cash flow. So with that, I hand over to Roni again for the near term outlook.
Yes. So for our most sophisticated sentence. So as you see yourself on that slide, The year term outlook is the same as last time. And yes, we underestimated or I underestimated the weak demand of equipment mainly on the mining side in Q1. That is what is the takeaway from the miss.
We can take it compared to last time. But from here and this is also sequential, I still believe that we have solid development. Given our service business, we should not forget that our recurring business is almost 45% of our business and is growing and is doing well. And I believe there are in certain segments also positive signs on equipment. So that is where I would let it be and go shoot.
Thank you, Ronny. So operator, can you quickly repeat the questions and then we start firing away?
Yes. I'll remind you, so it's 1 on your telephone keypad to ask a question. That's 1. We have the first question here from Mr. Peter Froelen from Handelsbanken.
Please go ahead sir.
Yes. Good afternoon, Ron and good afternoon, Hansola. Could I please start with
on large compressors, both oil
and gas and also large normal industrial compressors? Is it fair to assume that revenues organically are down 15%, 20% now after maybe 4 to 6 quarters of negative orders? That's my first question. And the second question is really related to the outlook. I mean, as you alluded to you keep the outlook.
What risks do you see to the current outlook? Why should the equipment be better sequentially if we assume that service is as good as it was in the first if we assume that service is as good as it was in the Q1? That's my 2 questions to begin with. Thank you.
I think when it comes to the large compressors and we see that, of course, what was the whole takeaway if we go back a couple of quarters, it was a lot had to do with China. We should not underestimate how much larger installations for logical vessels by every quarter more or less was my by every quarter more or less was my story. Now what has come on top of this is the oil and gas, directly and indirectly. Because I'll give you an example. We are also in geothermal business.
We do hydrocarbon expandable, which we produce in U. S, which are used in geothermal. Of course, due to the lower oil and gas prices, of course, the breakeven or the payback of these investments
will be
a bit longer, meaning, yes, when do they call these orders? I know from a couple of orders myself which are hanging there, which are negotiated. But of course, the board looking to the new maybe to the new spreadsheet with a new future price of oil and gas, yes, they hang in. And that is what yes, it's not coming through. So and these are the what I call the indirect oil and gas part.
Of course, we have we are not so much in the oil and gas when it to equity that we are not there so much. But of course, we have indirectly we have a bit here and there. So that is one of the that's the main reason of the larger compressors. The rest of it is nothing going on. Of course, there are still orders going on in that area, but not at the same magnitude.
So that's what you see. When it comes to the outlook, it's not really easy, Peter. First, I think we still believe on a good solid development sequentially on service. That was also the forget we do around 40%, 45% on service and that is solid growth. 2nd is sequential, okay?
If you look ourselves and we go to make an evaluation about our own outlook, what Hansel and I do myself, where did we miss? Where did we get it wrong? Because we don't like to do that. You see that the main miss what we had when it comes to quarter 1 was on the mining equipment part. We had expected much more the rest were for us.
You can say a bit here and there, but I think if we would not have mining you would have not seen it. So that is the reason why if we then look to quarter 2, we assume that on the mining side that, okay, this will be sequentially more or less, yes, the same level as it was in Q1. It will not go down more than it has done between Q4 to Q1. And that is just background, the simple reasoning behind our
Okay. Thank you.
Next question is coming from Lars Brusen from Barclays. Please go ahead sir.
Thanks very much. Hi, Ronny. Hi, Hans Ola. A question from me and also just a follow-up on the outlook. 10% order decline organically there.
Can you give us a sense for how that breaks down between equipment aftermarket and step engineering? And just on the decline in consumables, I'm trying to square that with again production growth from miners and if anything perhaps a slight return now of exploration budget from some of your mining customers such as in gold. Are we seeing a level of mining destocking here? Is there a sense perhaps that you might be losing share? Can you talk a little bit about what you're seeing specifically in consumables?
Thanks. Yes. This is a question for an hour. But I will try to do it very, very content. First, I think we see a positive development on service that we see a good organic growth and that's also what I said in the call.
And we see that trend has changed the last, let's say, last 6 months. We see a much more demand for service. We see also a reasonable good activity, although not really growing, but still a good activity when it comes to production consumables. And we don't see almost nothing when it comes to exploration. Mining and construction orders went down, because you should not forget when we talk about mining and rock excavation, we also are delivering equipment to tunnels and other type of construction works and that was also lowered this quarter.
So that is the explanation. It's definitely lower in both areas on the mining and on the constraint. Do I see that the mines are destocking first, I don't think they have any of our equipment in stock, the mines. I think they use it. The only thing what I see is that they use them longer.
If I start to call around and try to demystify the whole thinking, how come that equipment goes down and service goes up? And then you listen to them and you see them also that they try to use them longer and focusing on these improvements, because that is okay that's immediately cash flow for them.
That's clear. If I can just be a follow-up on the demand outlook. Again, I'm struggling a little bit with the improving demand outlook for Industrial Divisions. We've been through 3 quarters now of you suggesting Industrial Divisions are improving sequentially and being held back by the rest. If you ex out FX and Structures, it doesn't seem to be much of an improvement coming through here.
I take the point about large compressors. But can you talk a little bit about what you see sequentially particularly in Edwards, which obviously is the more volatile business? And again, we heard quite mixed commentary there from the semi cap equipment name so far this earnings season. But again, a couple of your vacuum pump competitors are actually seeing a sequential improvement. So some commentary around that would be useful.
Thanks.
I think I have to disagree with you. I think if you look to our figures and also listen a little bit to my explanation, I think on the industrial part, industrial technique has gone up I think organically and that I think is for sure. And when you look to compressor technique and you take this one order, maybe 2 orders, which we had in Q1 for vacuum last year, if you take that away, which was a one off, the underlying business was positive. And then I think coming back to the first question from Peter on the larger compressors, if you look to that, if you take that rate then you see the small to medium sized compressor business. You see developing positively.
You see Industrial Technique, Tools business positively. And you see definitely the service business on the industrial side going up. Besides the negative one, if you compare is that I see that maybe it's not always easy for you to see it when you see aggregated figures, but that is the situation.
That's helpful. Thank you.
Next question is coming from Mr. Andre Kukking from Credit Suisse. Please go ahead sir.
Yes. Hi, it's Andre from Credit Suisse. Thanks for taking my questions. I guess a lot has come down now to the size of these 1 or 2 large orders. So maybe for us to be able to see that too, could you help us with quantifying them so that we can take it from there?
You want us to quantify them. Is that the question? Yes. If you just give
us the rough order of magnitude for this one vacuum order that is making such change.
Yes. If you look at the world picture, we had a true growth partly due to structure and partly due to the group world, it was a minus 2% in the if you look at the global map that's what we referred to, right?
In local currency.
In local currency, a minus 2 for the whole world, right? So it consists of minus 5, 4 organic and then a +2. Something on structure. And that on that level, the group was affected by those orders that run it by 2%, right? So it would still have been a negative organic decline.
There would
have been an organic decline. But still the impact of those specific ones that he talked about was 2%.
Got it. Thank you. That's If
you then look at the CT level, it's impacted by about 5%. By extracting the gas and process order in the United States and the big order in the vacuum. So those and of course, the impact of course then is much bigger when you look at North America individually. But that you can figure out by the weighting that you see on the
That's very helpful. Thank you. And just a quick follow-up on FX. We obviously saw over 1,000,000,000 tailwind in the quarter. Was this the sweet spot for you in terms of the order of magnitude of the FX tailwind?
Or does that come in kind of later in the year given the currency moves during the quarter? And I think you have some hedging although not very much.
When you phrase it like sweet spot, of course, it changes from week to a week and that's what we see. So is this the best world we have seen? Well, it's pretty close to it to be perfectly honest. You have to go back many years to find comparable levels as a mix of currencies for Atlas Copco. That's true.
Then when you look ahead, then you have to compare it because I think that you come from this bridge effect of SEK 1,700,000,000 that you referred to. The bridge effect will then be a result of what happened in the second and third and the fourth quarter last year. We expect that if everything stays as it is today that the impact will be as a bridge between Q2 and Q2 at least as big or in the same level as in Q1, we will see it continue to be very significant in Q3 and then it will taper off a little bit into 4th quarter. But if we look at what has happened, we had a constant improvement of level, if you like, from because I'm not just referring to the level, if you like, from because I'm not just referring to the dollar. Of course, I'm taking all the currencies into consideration when I say that.
[SPEAKER JEAN
FRANCOIS VAN BOXMEER:]
Got it. Thank you very much.
Thank you.
We have the next question from Mr. Alexander Berger from Nomura. Please go ahead sir.
Thanks very much. Good afternoon gentlemen. A couple of questions, please. Just on construction, the first one. Adjusting for North America orders up about 14% reported, I think, but adjusted for currency, maybe down 6% or so.
Just wondering what how you can or give us some color around that in light of the comment you made earlier on. And then just trying to understand the comment around demand for portable and specialty rental as well, I guess also in construction. If you can help us out with that that would be very helpful. And then lastly just on your comment around underground mining equipment demand decline. Just wondering if you can give us any more flavor for what's driving that specifically.
Thank you.
Yes. I don't know if I understood the first question correctly. I will try to answer what I think I understood that that was around North America when you look to construction. And you said it is negative. Yes, I think when you look to this, I think we have a bit less orders on the portable side.
So on the portable compressor side that is a bit less than before. Okay. You can question, okay, are the rental companies buying less? No. I think, of course, we had big orders coming in the last quarter Q4 and last year we got that which was it's maybe we paid a little bit in Q1.
So they were landed in December So we don't see let's say that we can say that the construction business is the outlook is negative in U. S. I think I don't see that. I cannot use that as an argument. But it's a little bit and that is one of the reasons what we found out.
Then I think when it comes to the portable, this is some this has already taken place a couple quarters. It's also a bit driven by exploration, because once you know that we had a good portable business coming from exploration and water well drilling. Water well drilling is coming back. We see that gradually coming back in India. So that's good.
But exploration where we also had the requirement of bigger wood that we don't see yet coming back and that is where we are suffering at this point on the full year. Then on underground, yes, I will repeat myself. What I learned is that there is definitely activity and that is also what we see in our consumer. So production consumables are used. So that means that the machines are used because we also see that they require services and move roles.
So that works fine. But it's less new equipment. But they drag on a little bit lower. And one should know if we just go back in the history, money cancellation as we all get in 2,008, 2009. That meant that that order income what we had in 2012 was delivered out in 2013.
So when these machines 2013 are put in production, they're only 1 or 2 years old. And we don't see new greenfields or expansion going on. So mines are using their machines and also management is pushing to utilize the machines in that way longer. And that is what we suffer today on the equipment side. When will it come?
Will it come back within a half year, a year, 2 years? We will see. But eventually, something need to come back because we cannot keep over holding all the time. Although I don't mind because from a profitability point of view, it's not a bad business. But unfortunately, I in factories in our feet, in the street, in our customer center.
So that is where we then what do I do with it? Finally, we'll keep going on with that. We keep the commitment in R and D. We work hard on automation and we keep our feet in the street. That is the way it works.
But there's nothing dramatically changed. And when it comes to market share and all that because I think this is an oligopolistic market. We know what our friends are doing and our friend knows what we do. It's not the nature of market share shifts here and there. That part is rather stable.
Okay. Thank you. Thank you.
We have the next question coming from Mr. James Moore from Redburn. Please go ahead sir.
Yes. Good afternoon everyone. I've got some questions. On vacuum, thanks to your comments on the big orders last year. But looking forward, are the Edwards management team reporting back to you at all on inquiries that they're seeing any signs of semiconductor cycle rolling over, right?
I've seen big cuts at Intel and others and that feels like that might be the next phase. Secondly, 13 years or something. Do you have any visibility looking forward on this in a deflationary world? Or do you think this might turn negative? Do you think we're finding the trough?
And then maybe I'll come back on mining.
Yes. Well, Chase, I hope everything is fine with you. So on the back end side, I think it's a good question and this is also what I'm every second week I'm talking to the guys in Crowley where the guys are sitting, okay, what do you see? What is Intel doing? What is Samsung doing?
What is all the ASMLs of this world that they're doing? And for the time being, we and of course, our visibility and that's also I should say, our visibility is not 12 months. Our visibility is say 3 to 4 months and that still looks okay. Of course, we're also reading statements what the different companies make and what effect could it have on us. What we see today on the ground, so in the fabs, in the people we're talking to that they still keep going on and investing.
So on semi comp for the time being still a good development in that area. That is what I got James from the guys. When it comes to pricing, yes, you're spot on. And price management is leadership. It's driven from innovation because innovation creates pricing power.
That is where we need to work on. And that's also what we try to do. But on the other hand, in a low inflation market, it's much more difficult to get also price up for your service office. That is where it's more difficult. But I think we still get good price momentum when we come up with new innovative products.
And that is what I'm driving like crazy on that. It's tougher on the mining side. There we see sometimes crazy behavior, opportunistic behavior, okay. That's I'm sure this is happening. It happened also in 2,008, 2009 that, yeah, there is a crazy order here, there's a crazy order there, sometimes a big order and that has a negative impact on pricing.
And that is what we also see in our statistics.
Yes. By the way, I'm doing a bit better, so thanks. But just back on mining, just the drop through, you explained
you had some charges, I don't know,
I guess EUR 30,000,000 €30,000,000 €40,000,000 And even without that it's still quite a big flow through and you explained the absorption effect of the sales force and innovation costs. But I'm quite surprised given that the OE business is falling which is lower margin and the consumables business within aftermarket I think is lower margin than service and spare parts. So I would have thought there should be some mix help. Is it that we're really talking about going to an equipment model where an old style equipment model give it away for free and make the money on the aftermarket and the industry is just facing that pressure?
No. If that will happen, I will tell. I will if I find out one of these orders like if Apresco doing that, I will immediately stop that. And I think also in the way we are organized, it will be rather difficult do that. I think what if we look to the profitability of the Mining and Rockwells Committee, I would also have liked to see a bit more just to make it straight.
Of course, there is some shelter and some explanation on okay, we keep investing in R and D because okay, Roni has not given instruction to cut R and D with 30%, 40%. Now of course, we have to optimize it further, but we keep investing. We keep heavily investing in automation, because we believe that will be the next when the mines start to order that is what they need. That we do. We keep also our feed industry.
We have not really got there. Of course, we try to reduce overhead. On the factory side, I think, yes, we have not taken and that is deliberately what we have taken. We have not come out with a big restructuring cost program and say, okay, and then we take it as it comes. And our guys, our divisional heads on the mining side, they take the cost as they come.
They take it as it is. And of course, they have to explain their result. But of course, when we show the flow through bridge that's where it all comes together. If we had a restructuring program, you would have partly seen in that part. Maybe Hans
Ul Haendes? [SPEAKER JACQUES VAN
DEN BROEK:] Yes.
We can just add a few numbers or reflections on that. We've said it before that even though we try just as you do to calculate very accurately the true impact of different currencies from 1 quarter a year ago to this. It is not doable in a perfect way like debit and surety, but we wouldn't
put
surety, but we wouldn't put it on the slide if we didn't think that it was our best attempt to do it anyway, of course. But what I'm saying is that if you move if we
miss that a little bit, of course, it will have
a significant impact on the other column, which is the residual. So with that, having said that, Ronny talked about are really what also what we Roni talked about are really what also what we see. It's not that we are trying to hide a huge restructuring that we don't want to tell you or something like that. There are a lot of things though that is going on in an adjustment period where you use people to consolidate R and D resources. You consolidate even a few factories that you decide to close down, but you don't want to get rid of the knowledge and everything.
And during those periods, of course, when you don't have any revenue, the cost stays. And it's not very productive always a few other you do a trade in deal here and there, which is difficult to assess whether what are you giving away. Is it extra cost that you put to the deal? Or is it the price that you adjust? Or of course, in this type of quarters where the revenue is very the true volume is very low, you get all these things floating up to the surface, I think.
I think.
But giving James, like I said also, I would like to see it a little bit better. That is also what if you would talk to the guys directly, they'll immediately make that confession. It can be a bit there. So it's a bit of a leak here. It's there.
Absolutely. Of course, I get the argumentation or explanation what Hans Ole said. Yes, okay. We are working on a better bottom line there and then I'm talking profitability.
Thank you very much for the color.
Yes. Thank you.
Your next question coming from Mr. Andreas Koski from Deutsche Bank. Please go ahead, sir.
Yes. Thank you very much. Can you hear me?
Yes.
Perfect. So on the EBIT margin in Edwards, if I remember correctly, when you acquired Edwards, you guided for an EBIT margin of around 15%. And then in 2014, it turned out to be significantly higher volumes than you expected and Edwards performed better than you had expected. Now we are seeing weaker volumes, so margins are going down. If I have done my math correctly, the EBIT margin for Airbus in the quarter was somewhere between 16%
extra color perhaps that we the numbers you referred to are correct by the way. We did guide to 15% in the acquisition. We did better in total. They did better in 2014, the division. And the profitability compared to a year ago, because they have some negative effect actually from being a pound based business.
And also to a certain extent, they have not had the benefit that some other parts of compressor technique have had due to the fact that they had a longer hedging or they first of all, they had a hedging policy when we bought them. And for a certain period of time, they continued to do that. So the extra help from a stronger dollar has not really given them any boost. So it's true that it's a little bit softer than it was in the good quarters last year, but still at significantly better profitability than we guided in the acquisition.
And if we and that's of course very well and that's also when I see more the divisional figures because we see that immediately. And when we do the reconciliation as Anzula explained, take away the currency and the hedging and all that, they're running more or less at the same level as last year, so at the same level. So there is no significant under absorption here So that is what we do that we take. And second also, if you remember, when we did a poll, when we announced that, this is a growth project, we will invest heavily in R and D for our general vacuum and utility vacuum. We take them straight in the P and L.
We also put in more feed in the street and that's what we're doing. So we know these products are some of them are touching the market as I'm speaking. We also launched a new bus vacuum on the Hanover Mes was it a week ago or 2 weeks ago. So that I think will be possibly taken easily in. But they are not enormous.
They're even not of course, on divisional level may be worthwhile to look into. But on group level, they are not significant. But that's what we take in. But taking these two remarks separately, I think it's still at a good solid level and significant higher than when we guided for 15%.
Yes, yes. I agree with that. But
to ask question more straightforward, if you acquired Edwards today, would you still guide for a 15% EBIT margin?
No, no, no. Then I think then they will the guys will sit they will not like if you take away I think if we because that question I got, if we take away all this intangible and all that, I think it comes close to a 20%. But if we will compare that same accounting routes, it is coming to that type of level today. It is like that.
Okay. Thank you very much.
And then lastly on cash flow, because you had some payments related to acquisitions you made in 2014, I suppose it relates to Handrobb. Should we expect that all payments are have been made now? Or should we expect more payments to come during coming quarters?
[SPEAKER JACQUES VAN DEN BROEK:] Not perhaps immediately. But if you recall the acquisition announcement, we paid the big portion in September last year. We paid the deferred portion of the payment in the Q1 quite rightly that we did. And then as the deal structure, we also have an earn out portion of the transaction, which has certain gateways decided, of course, but we cannot pinpoint when that will happen in the future. So there will be some, but I can't say when they will come of related to the same acquisition.
You're right. Okay. Another when you bring up the cash flow, I actually forgot to mention that that on the same topic, HENRIB is a very strong growing business. It was when we acquired it and continues to grow significantly. And already at the time of the acquisition, a big investment plan for 2015 and 2016 was underway.
So this we have seen to a certain extent already so far, but it will be clearly visible from here on to the end of the year. And I would probably put this somewhere for that three quarters that we could be talking about SEK 400,000,000 or SEK 500,000,000 on top of what you would consider an Atlas Copco run rate ex Enron?
And this is for it's Buildings, machinery. Yes. And the riveting. It's riveting. Yes.
The rivets for the Rivian Atlantis. So we need to build up in Detroit and in Mexico.
Just to clarify, was
it €400,000,000 to €5 per quarter or in total?
No, no, no, for
the remainder of
the year. Okay. Perfect.
Thank you
very much. Thank you. Yes.
And we
have the next question here coming from Mr. Sebastian Grittier from Exane. Please go ahead sir.
Hi, good afternoon. Maybe a follow-up on the FX at Edworps. I mean, could you help us quantify that impact in Q1 out of the SEK 425 1,000,000 positive impact from FX on the compressor? What was the negative portion of Edwards? And can you help us with the hedging you mentioned that will develop in Q2, Q3, Q4?
That's my first question please.
Sorry, I lost you already in the beginning. I'm sorry.
Okay. No, just coming back on the compressor technique, was coming below my expectations. And you mentioned FX, Edouard's the negative transaction impact at Edwards from FX. Could you help us quantify that? And you mentioned as was hedging.
Could you help us with Q2, Q3, Q4?
[SPEAKER A JAIME SAENZ
DE TEJADA:] Yes.
Well, on the city, you're right that if I understand, you're right. In the profit bridge you were surprised on the fairly small currency impact. Is that correct?
Yes.
And the reason part of the reason is what I commented on the vacuum that we they haven't enjoyed any of that part as of yet. So because it was already hedges at lower levels before. I can't quantify it more than that unfortunately. Going forward, you were questioning the
Hedging the dwarfs? I mean should we be
The policy has been changed in the meantime. So even though there are hedges throughout 2015 that will still have an impact, let's say. We don't know where the dollar will be next quarter, of course. But if it stays like it is, it will have a similar effect. But in volume, it will be slightly lower and lower as we stop these hedging gradually.
Okay. And a question on the outlook if I may. I mean it looks like I mean if we compare with Q2 last year, I mean, the volume was just negative 1%. It was volume volume was negative 3% in Q1 minus 1% in Q2. So it looks like comps are fairly difficult in Q2.
Do you take that into account in your outlook for sequential improvement?
No. Our outlook is short as it is. But one thing for sure that we always look at demand for Atlas Copco products and services together. And we look from where we are today and we look 3 to 4 months ahead. That's what we are trying to do.
We're not the outlook should not be seen how it was last year in any way. It's trying to gauge are we feeling an increasing trend, a flat trend or a slightly decreasing trend. That's it.
But I'm just questioning, will you come in July, in Q2 and say, okay, but last year, we had a couple of large orders as well, so comps were difficult as in Q1.
Well, that's up to us. Of course, if we didn't mention them in the Q2 last year, then you are right that we should help you to understand that if that is the case. But when we have a quarter, look, then we are not talking about the outlook. Then we are talking about what you expect for Q2 in numbers, right?
Yes,
yes. So these are 2 different things for us. The guidance will is not really there to show what the bridge will be when we report Q2. It's of course very often that the
indication is more or less coinciding with whether we
show a growth or
absolutely
But in this referring to what we just said and talked a lot about in Q1, yes, we will try to guide you and help you understand whether there indeed was some significant orders in Q2 as well. [SPEAKER JEAN
FRANCOIS LABADIE:] Okay. I got it. Thank you.
Thank you. With that, unfortunately, we have to stop. As I warned, we have the Annual General Meeting soon. We thank everybody for participating. And as always, the IR department under Matthias and myself will of course be available for any follow-up questions that you might have.
So thank you for today. Bye bye.