Ladies and gentlemen, welcome to the Atlas Copco Q1 2014 Report. Today, I'm pleased to present CEO, Roni Leerten and CFO, Hans Ole Maier. Mayer. CFO, Hans Ole Mayer, please begin.
Thank you very much, and very welcome all of you to this conference call regarding our Q1 results for SSCOPFO Group. As usual, I have Ronny Lessen, our CEO here with me today, and he will give us his comments in a brief moment. And then after that, we have the normal Q and A session. As we have the AGM today after this meeting, we will have to cut at 3 o'clock sharp. So I ask all of you to note down your absolutely best question right now because it will be one question and possibly a follow-up, a quick one for each participant in the Q and A session.
So I hope we can stick to that. With that, I leave it over to you, Roni.
Thank you, Hans Sohne. And I will then also be short so that we have no question time for Q1 report. So I'll go immediately to slide number 4 of the outline so that you know where I'm hinting to. In summary, what we see on the quarters today, a bit mixed. We can definitely not say it's 1 size fits all.
That's definitely not the case in this quarter. We see solid strong development in industrial tools. I'm very pleased to see that to work there, of course, helped by the MBI, but also the bush work we do. Stable demand for industrial compressors, low at the low level for the largest tickets. That's an area where we don't see it really moving.
And improved demand for construction demand is also nice to see even as you all know that China in the couple of years is softer, but we see now a good development there and good demand in the Americas and in Europe. And last but not least, a stable demand for mining equipment, but of course, if we compare historically at a low level, and I think that's also no surprise for anyone of you. I'm very pleased to see Edwards, our new acquired vacuum solution business. It had a very strong quarter. It was always nice when you do a bigger acquisition when you can say that.
Service business continued to grow. So the resilient part of our business is still there. It's still working. And then as you all have seen in the report, it's a lower profit margin compared to last year. It was heavily affected by our mining and rock excavation business area.
On the other hand, we keep investing in sales and service in R and D as I've said also before. And of course, we have also a couple of extra one time costs and a couple of net sales. But for sure, when we talk about go through which Hans Werner will elaborate a bit more on that. I'll go to slide number 5 when we come to the figures. The orders received increased 8%, of course significantly influenced by contribution of acquisitions, because organically we went down 2%.
The revenue increased, but also had a decline of 2%. And when you look to the operating profit and you see the gap of around SEK 400,000,000, Just to give you a quick one where it's coming from around a bit more than SEK 200,000,000 is coming from currency. Actually, I think it's SEK 220,000,000. SEK 500,000,000 is coming from our Mining and Rock Excavation business. These are the more or less, I could say, the SEK 700 million negative part.
And then of course we have the positive part which is a couple of other business area plus of course a significant part is Edwards, which is around 300,000,000. What makes it then on par with last year, of course no growth in that case, but at least on par. Margin, we reported 17.6%. Adjusted, it's 18 point. Of course, restructuring work and the under absorption have affected that part.
And like I mentioned, MRR when you when the mining rock excavation when you will compare it with last year, which has a +23 percent EBIT and today the 17% plus okay it makes around 2.5% on the group level. The rest are less later. You can see you really just sell the figures and the cash flow is around a little bit less than €2,000,000,000 I'll go then immediately on the slide number 5. I see that I got the wrong number here. So the geographical overview of orders received, I will as you see the slide here, the figures are included Edwards.
But for comparison reasons, I will only comment on the figures excluding Edwards because otherwise I think we confuse all of us. So it's only the figures excluding Edwards. I will talk now for a while when I'm talking on the geographical part. So if we take it here, we take the Americas, we see a good solid increase, let's say, coming from all business areas, except where we see in the mining and rock excavation, which is a bit softer there. But what we can say if we take the 3 countries in that continent, it's really coming from United States.
Mexico and Canada, as you know, is mining business, which is for comparison reasons is still soft, but United States is doing fine. We're doing well. South America, there you see a solid plus 10%. We see a good Chile, a good Brazil. One should say, I think Brazil was last year, the Q1 a bit softer and mainly coming from MR, but that gets up.
So we see actually a good development in Brazil because that's the main business. So that's always good to see. And then that's not only in like I mentioned on the mining side, but also in the industrial field as well as in the construction team. Then going to Europe, so where we see some organic growth, it's good to see that countries which we were talking very negatively about, say, a year, 2 years ago, like Spain, Italy, even you can say France, Turkey, I think coming gradually up. I think that is good to see.
United Kingdom is really keeping solid development. So that's good to see. We see also industrial tools, construction equipment doing fine in Europe. So I'm very pleased to see that. So that is always nice to see.
Africa, Middle East, soft on the industrial compressors, reasonable on construction equipment. So that's affected a bit down. If we then go to Asia, lower development in China and India, these are the bigger industries there. What we can say about China, we could say that mining and construction is comparing with last year is soft. CP is, okay and IT I think we are really having here the MDI part which is was also okay.
I think still a good in the whole region, a good development on industrial tools and assembly systems. And it was also nice to see in Asia that our service concept works, so strong development on the service side. Australia, I don't think I need to say more than, yes, it's equal to mining and rock excavation. That was in short the overview on the geographical part. Because then immediately on the slide on organic, you see we are coming above the 0 when it comes to the organic part.
So it's a wide we have seen that's the challenge for us. Going to the bridge, currency still negative, still difficult, minus 2. Price, we think the work we do on the innovation and really the price training and value selling allows us and support us to keep a positive pricing effect. And then that for sure is an area, which we need to work on all the time every day. And then we had the volume of a minus 3, which was significantly coming from mining, which went down compared to Q1, 2013, a slight drop in CET and up in Industrial Technique and Construction Technique.
But we then go to the business areas. I'll flip over the pie chart where you see that Edwards will now mean 9% in revenue for us, so in orders revenue per business area. So it's significant. Compressed technique, a decline organic 3%. Stable development on the yellow cannery, where we can see very solid North America, maybe a bit flat Asia and Europe.
Large orders still a challenge. Service continues to be doing well and that's where we have to keep investing and in relation with the customer and having the feet on the street And like I already mentioned, strong North America. That was I will not mention more than it was a good quarter, mainly driven from the semi comp. That is where Edwards is also very strong where Edwards has a leading position. And also here we see that investments for memory
is going on and
of course that is what we have to grab now. Operating margin, 20.4. We keep investing in the sales and service, so the feet
in the
street. Compressed technique is a real organic gain. Of course, if I really talk about compressor, so we need to make sure we are at every negotiation table. We keep investing on the service and last but not least also we keep investing in innovation and design and development to the suite.
We are the leader and
we should stay the leader in that area. Of course, we've got some in the operating margin, some dilution from recent acquisitions besides the Edwards one, a little bit on the Edwards, but also others and of course what you have already heard me saying on the currency side. Investment Technique, double digit growth. So that is something we like to say and that's why we got that. Motor Vehicles strong, but also good general industry, good development and service.
And yes, it's hardly difficult, if not all major regions had a strong development that you make 13% organic growth. So that's good. And one thing also to mention is also that our acquisitions which we did in 2013 also doing well, get well integrated. So that's good to see that they also contribute definitely on the top line. Freight margin, just missing the 22% was a bit of dilution, I've already mentioned on acquisitions and currency that could support from the go through from the volume.
Mining and rock excavation, the area where they we definitely have had the headwind. Since a couple of months, we can maybe say since mid last year, we can say that we're always around the same level as we have been now since that but compared to quarter 1, it's a minus 8% decline. Service, I know that some of you are really have been asking many questions on service, but we see an unchanged business level. So that I think Tiering to certain percent, I think is a good outcome. On the consumable side, it's a decrease, but of course, mixed where we see a real, and we'll say a stop on the exploration drilling consumables where on the production drilling there is still definitely a demand.
Margin, excluding the restructuring an 18% plus and we're keeping adjusting the organization as we speak, we have to reduce our operation, meaning in terms of factories, in terms of manpower and that we work constantly on that. Construction Technique, about business area, yes, solid organic growth. So that's good to see a bit of a mixed picture decline in Asia, as I already mentioned in the beginning, but solid North America and Europe. And that's I'm very happy to see that because I think we are stronger in North America and Europe. So hopefully, the tailwind keeps there.
And also on Specialty rental, we had a good positive development. Margin, even with the negative currency effect, we had a stable 12% to 0.1% in operating margin. With this, I would hand over to Hans Ole, who can deal.
Thank you, Roni. We're on Slide number 13, if I have calculated correctly. So you've heard Roni already comment a little bit on the operating profit results, and I will come back a little bit to that on the next couple of slides. But if we look a bit further down, as you have seen, we had a little bit higher interest costs or financial costs, but also interest costs in the quarter. Not surprisingly since we borrow more money this year than we did last year.
We believe that this level might be a little bit higher. It should be a little bit higher negative costs in the Q2 due to the fact that we will both pay dividend and we will also pay amortize one of the loans that we have in the Q2. But I still believe that somewhere in the region between, let's say, €150,000,000 200,000,000 or at least below €200,000,000 negative is a good guess for the next couple of quarters for the interest net. When it comes to even further down on the tax, as you can see from the slide, we had a positive development on the tax rate from 26% to 23.5%, if I compare with last year. And there are a number of contributing factors, but one important one is that headwinds actually comes in with a lower effective tax rate than the group had.
So that is helping us. And hence, I believe that this level or let's say somewhere in the range of 23% to 24% is what we should be looking at for the next quarter or 2 or 3. If we then turn to the next slide number 14, we have the same as profit bridge that Roni alluded to. And let me start from the right hand part of that slide and just say that the currency effect, the one time items and acquisition effects and the rest, the so called other effects together explains about 1.2 percentage points of the drop in margin from 20.5% to 17.6% this quarter. So the rest, what is that?
Well, you can see a very strange number there with 100% pull through of the negative revenue. But we need to turn to Page 15 actually to see a little bit more understanding of that. If I start by saying that on the group effect again, which then as you can calculate is the rest of the difference, 1.2% as explained by the other columns and here is the big part and explaining something like close to 2, between 1.5 percentage points on the loss of profit margin. Mining and Rock Excavation alone affects the group in that respect by about close to 1.5 percentage points. And the other negative contributor is the CT, which is not surprising when you see this table here.
While construction and industrial technique actually contribute a little bit positively when you look at the organic effect on the bridge for the whole group. We look then by business area. Yes, it's we have a strange situation in CT. I have said it before many times that a single quarter can give very strange effects when you call it the flow through because you have so many specific variations and mix effects that comes and goes between 1 quarter and another. So here we actually have revenue growth, but we have a lower EBIT in absolute value.
Domi has given main explanations to that. We are still continuing to invest in more service organization, and we are clearly increasing R and D. The group, by the way, has 12% higher R and D in this quarter compared to last, if I exclude Edwards in that. So that is a significant investment in itself. And there is also a certain impact on the result of slightly higher slightly lower load in the factories than last year.
The other point the other business area to mention, I would say, the other things speak for themselves is mining and rock, where the high flow through here on the EBIT is related to the fact that we have €75,000,000 in restructuring, which we have separated. But that doesn't mean that, that is enough of the adjustment efforts that we are doing to come to a lower cost level over time and to also adjust to the lower load of the factories that we have had. So there's still a high amount of under absorption in those numbers as well. And I should also finally say that between the 4, Mining and Rock and Construction Techniques suffer a little bit more than the others from the negative currency impact. We move on to the balance sheet on Slide 16.
Again, very big variation from December to March, but you all know that it is mostly due to the big acquisition of Edwards. In very summarized ways, you can say that on assets, that acquisition has added about SEK 13,000,000,000 in Swedish Krona minus SEK 10,000,000,000 that we used our existing cash for. So you can see that SEK 3,000,000,000 of the increase from December is purely related to that acquisition and another EUR 3,000,000,000 is then on the liability side. And the rest of the difference is basically coming from the cash flow as you can see on the Slide number 17 then. These are numbers that you have had some hours now to look at.
We make an improvement on the operating cash flow compared to last year in spite of having a quarter where inventory and receivables development tied up more capital. This is not related to the acquisition or to the new company, Edwards, but it's some of the inventory buildup in compressor technique and construction and construction technique. Some reinvestment in the hire fleet, in the rental fleet. These are the main points apart from the result, of course. Then when it comes to investments, there is an impact of having Edwards in the group.
About SEK 100,000,000 or so is reflected in that. So without that addition, we would have seen what we expected, a clearly lower rate of investment in this quarter than compared to a year ago. So with that, I think we stop there and I will just then hand over the word to the operator who will give repeat the instructions for the questions. Before I we go into that, I remind again, please bring your best question and then a follow-up and not 2 or 3 right away. It will help the others.
Thank you for that on beforehand. So operator, please.
The first question comes from Mr. Aron Erbisson at Goldman Sachs. Please go ahead, sir.
Yes. Hi, there. Thank you for taking my question. Good afternoon. I'll keep it very short.
I'm just curious, partly if I look at the bridge, I guess, but partly if I look in general in compressor technique. It strikes me as extraordinary almost that you can acquire such a large company as Edwards without incurring any additional costs. And I know you don't like to highlight small a couple of millions here and there for lawyers and bankers. But in general, is this a fair reflection? Or would you say that there is at least tens of 1,000,000, if not maybe €100,000,000 also of additional costs if you take the whole process of getting Edwards on board?
That was my question. And then I had a very, very quick follow-up.
Yes. Well, no, it is what you say. We don't have any extras in there. We have, of course, some costs related to the whole process inside Atlas Copco in the 3rd Q4 of last year, but that was nothing extraordinarily big. And so we don't have a restructuring.
As you well know, we don't we haven't bought a company that is making similar products. So we will not have a lot of upfront things to restructure and similar items like that. The one thing that we get questions on is the fact that sometimes companies when they have made a major acquisition, they have to make step up valuation of new inventory values. And we have not had to do that in this case depending on the analysis of where the cost level of the inventory that Edward said and where we will have the value the fair value consolidated in Atlas Copco. So the only impact you have is what we have mentioned in the report is the DKK 52,000,000 roughly of intangible depreciation.
Obviously, Edwards also had depreciation of intangibles on their own last year, but that's the impact. And we're not guiding you to expect big things coming forward either.
Okay. Thank you. And my very, very brief follow-up was just on the sort of margins that anyone who wishes can see that's coming through on Edwards here, the $340,000,000 and the $18,85,000,000 I realize it's not only Edwards, but almost only. Is that a fair reflection of you think the sort of the profitability you believe Edwards will have going forward? Or do you would you refrain from drawing too much conclusion from it?
Yes. Of course, Darren, given the volume what is in net there and the mix and the currency if you take all this part, I think we should and also the depreciation of the tons sold that I think we should really be around that level. That is and I'm going to say like I already mentioned in the beginning, I'm very pleased to see that because as we also in the beginning we at the lower level it would have been a little bit lower, but in keeping this level of output of revenue it should be like that. That's it. And it also if you look back at the time it was listed and you can find back this information
We have a question from Mr. Alexander White at JPMorgan. Please go ahead, sir.
Yes, good afternoon, everybody. It's Alex at JPMorgan. Just a question again on compressors. If I look at the orders and adjust for the specialty rental and Edwards and the base orders were relatively stable sequentially from Q4, which is a lot more subdued than the normal plus 10% or 11% sequential uptick that we've seen historically in Q1. I just wonder if you can elaborate a little bit on what it is that you're seeing that gives you the confidence that compresses are accelerating going forward?
Is it suspended on any particular end markets or regions? Thanks.
Yes. I can take and I'll go back a bit of what I said when I was elaborating the business area, Brex technique. What we see is the big ticket is still not on the level where it used to be. I don't see much changing, not significant changing. It mainly also and if you look back and read back some of the transcripts when I was doing the same here, you see it comes these big tickets come from Asia and we don't see that part happening today in, let's say, one country, China.
So that's one area. On the other part, when it comes to the small to medium sized compressors, what I said couple minutes ago is, I see a good development in North America that is doing fine. ACI Europe stays flat. So that also made us saying, okay, we have a stable order intake for small and medium sized compressor. That's what I see.
But I still see a good development on the service side. But it's mainly now when you talk on compressor side, you could say the key champion today is North America. And it's more or less all type of business. If we take the big one, the big competitors and that's what I'm a little bit hoping for, it's normally not hoping business. You work hard and try to get results.
It's the energy business where you read about that, that is coming and you see good quotation levels there. So we'd see when that part is either landing in Japan or in Korea. If that is coming, okay, that would I'm sure will change the remarks, which we will make on the larger orders. That is what if you ask a couple of end markets that's what I see really come. I think when it comes to the gas separation business that is low, but that was also mainly an Asian business.
It's a bit spread. Oil and Gas, a bit questioning of course beside the LNG, but that's almost marine business.
So is that historic sequential uptick that we would have that we usually see in Q1, is that usually driven by the big ticket items then? Or do you also normally see a sequential uptick in the smaller stuff?
I think it's mainly, yes, because there is because you don't see these big swings in the small to medium side because that is a short cycle business. People decide to book it and the 5,000 to 10,000 to 15,000 euros order. So that goes very quickly. I think the big ones, you see that's mainly in the beginning of the year that you get that part of the first part. But of course, it's a bit of what type of business cycle you are.
I think that's the dilemma what we all have today. I don't see today a demand for launch and tickets coming. Of course, besides the LNG, which I know now I happen to know as we are traveling there and
I saw this going up.
The other part is it's not moving. So I'm not reading much in that one today.
But it's true that in a reasonable growth environment, we do see really difference between Q4 and Q1. If I look historically, that's exactly right in your observation.
That's mainly going from
Asia. Okay. Thanks. And then my second question and my follow-up question, if I may, just slip one more in was just can you give any more detail around the motivation for the management change within Compressa Technik? Is there anything you can say on the call?
I think the leader has done to accomplish this mission. It's a certain period we have been leading that area and we felt that at a certain moment this was you pursue other horizons and certain opportunities coming up, what make me say, okay, are later looking for a change.
Okay. Thanks for your answers.
The next question comes from Mr. Andre Kukhnin of Credit Suisse. Please go ahead, sir.
Hi, good afternoon. Thanks for taking my question. On Freight, 3rd one in a row on compressor technique. Just looking at the margin performance ex Edwards, which I think was down about 200 basis points, management change and the tone of what you're saying about we're a leader, have to stay the leader, hence need to invest more, R and D intends to be going up. Can you just reassure us that there's no sort of stronger or wider forces working in this market, I.
E, competition stepping up, maybe new entrants, etcetera, that is driving it? Or am I trying to sort of dwell into 1 quarter too much?
I think you are getting already answered by asking a rhetorical question. I think we reached a little bit too much in all these areas in one quarter. I think Anzula already when he was elaborated something on the bridge, we have kept investing in feed industry, meaning in sales forces, in opening up offices in Africa, in Kivkushkivatekiv in Russia, I think going West in China, buying some U. S, we keep doing it. And of course, then the volume is really not coming immediately.
With this high profit level, you see it immediately in the flow too. And that is what is happening here. Of course, what I will for sure do is say, guys, we have been investing here and there. When will it come? Will it come within 3, 4 years?
Are we really good to do the investment now? Should we not move our cheese and spend the time where the real business is instead of investing everywhere. So that is where we need to really debate also in compresses. But it's not that you should go to read today now and suddenly it goes down. We have lost we lost significant market share.
I think competition is coming and then I think no, I don't see that part. I think the machine is still investing in top compressors. We have a very solid presence in service. And maybe the suit of the body is maybe a bit too heavy and we need to adapt a little bit here and there. But it's done by design.
Got it. Thank you.
The next question comes from Peter van der Jan of Hamburg and Capital Markets. Please go ahead, sir.
Thank you. Good afternoon, gentlemen. Thank you for taking my questions. On service, you mentioned, Ronnie, that you grew quarter on quarter and I or you mentioned that you grew year on year. Could you please inform me if that's the case on quarter on quarter?
And I guess it's not the case in mining. So that question is very much related to the other divisions, I guess.
If I take the laptop from my head, but quarter on quarter, because on mining side, you don't see much growth. On the contrary, I think it's more or less flat if you take away of course currency. And we see still a bit more of a bit development on the pet technique side and industrial technique side. So that is still on the growing level. And we also mentioned, I think, in some of the areas when others gave comments, healthy growth in service in Industrial Technique, sales continues to grow in Compressed Technique, if I just go back to my slides.
Yes. Okay. But it's quite important. And my follow-up then on compressors. So on solar, you mentioned the inventory build was mainly compressors and construction.
Is that a normal thing in the Q1? Or does that have helped the profitability somewhat during the quarter?
It's very much a typical pattern for some of the divisions clearly in the construction technique area or sorry, construction technique area definitely where there is a buildup for the high delivery season starting at the end of Q1 and going definitely into Q2. So that we have seen before. But then again, there are of course a couple of effects that will be different in Q1 last year compared to Q1 this year as I alluded to. So you have to go down to details to understand. I don't think from an inventory buildup, it seems as more or less what happens in most years actually.
I think I can elaborate a bit Peter. And we have already been elaborate on that one. Of course, our inventory as a total is on the high side. That's an area where we can improve as a group. And what you see here is it's mainly a bit seasonal.
It's been not using that work, Angela. We see that. And it's always that at the end of the year, we get closing of work orders, closing of special orders to close and you build up the year.
But we haven't seen the relative improvement yet in industry management as Roni alludes to. But for the Q1, it's not unusual. Yes.
Okay. Thank you so much.
Thank you.
The next question comes from Mr. Erik Karlsson, Degro Capital. Please go ahead, sir. Thank you very much
for taking my question. Could you just quantify exactly how fast the aftermarket is growing in the compressor technique division year on year currently? And if you think we should expect that acceleration given the investments you're making in that area? Thank you.
It is say I think the exact figure is a bit that it's a, let's say, mid to mid single digit growing that we have. I think you come up to between around 7%, 8% that is where you most likely will end up. I don't have it here exactly in front of me, but that's the area where you are coming if you take that part. Of course, that is because we do also some small acquisitions from distribution and they're also in this phase. We don't take them out.
But that's the area of growth where we are cruising. It's still Eric, it's still at a healthy growth level where we see our one to one ratio is improving. We get more sophisticated. We work hard on getting it also higher efficiency. I think also in North America, you saw our acquisition of the last 2 distributors.
That's all in that same strategy to get hold of the total very rewarding services.
Very good. Thank you very much.
We have a question from Mr. Andreas Koski of Nordea. Please go ahead sir.
Yes. Good afternoon and thank you for
taking my questions. I looked back and noticed that this is the first time you expect an improved demand for the coming quarter since the Q1 of 2011. And this is, of course, encouraging to see, but demand in the Q1 this year has been largely unchanged. So can you please explain on what ground you expect an improvement in the Q2? Have you seen improved demand throughout the Q1?
Or have you seen an increased tender activity? Or why are you raising the outlook for the Q2?
Yes. When you repeat our outlook, where we said increase somewhat, so that I think is important to remember that sophisticated work. We Hansula and I, we debated many times about that work. But if you take it and then you take the second stance, which we deliberately wrote that and I think your question is a gift for me. I think what we see today on the mining side and of course you should look to at the Scopcos mining exposure where we have seen now for 8 to 9 months more or less same growth of demand for equipment, which is less 1 third, a little bit more than 1 third of the total revenue.
And you know also of that 1 third, 1 third is construction. And we see some good development in that area. So we don't see it really giving the quotation level going further down on that equipment side. Service, I have already elaborated on the mining side where we also see real flat solid development. And on the consumable side, it's a bit mixed where we see the production consumables, especially for underground, doing fine and that's driven by the demand of copper, the demand of iron ore, the markets we sell.
I think service is more difficult. So if you think that altogether, we see that mining for us the exposure we have, we believe we could remain at the same level where we see some signs of positive development is definitely on the industrial side and on the construction segment that mainly come from Europe and North America. There we saw some positive sign and then given that Asia and mainly Asia stays more or less at the same level. Maybe after many situations it can be somewhat increasing. So Amit, of that one, it's still volatile, a bit because there's always a bit of uncertainty and you read also the newspapers and see the reports like I do.
But I have to talk about the business I see for Atlas Copco and that was the conclusion. I'm not always right, so think about that.
Perfect. Thank you. And then a quick comment on Edwards who did sell in the quarter. And I just wonder if there are any seasonal effects to expect in adverse sales during the year or if they don't have any seasonal effects?
I have not on the silicon, I don't think there is any, say, seasonal as the word seasonal says. I think we need to see what is the end market and I think that falls to an area where as we talk we will learn all together here what is the demand of an installed base of memory of all this type of ships when the big guys are investing and that is happening as we speak that it's a lot of memory investments in silicon and there is where equity at the top of this time is very strong also where we with these guys who are investing we also have a good customer share. So that helped us to pick up all these orders. That's nothing to do with seasonality. It's pure segment driven.
Sounds good. Thank you very much.
Next question comes from Mr. Ben Matson of Bank of America. Please go ahead, sir.
Yes. Thank you. Afternoon, Ronny, Hanzola. Just on the Mining business, your orders are now slightly ahead of your revenues for the quarter and you're guiding demand sequentially fairly flat. Does that mean we should assume that your production is now relatively in line with demand on the equipment side?
Should we see margins start to stabilize at these levels or maybe improve as your cost cutting actions kick in? Thank you.
Yes. Eventually, yes. But give me a couple more months. I think I also believe that and we diluted already, I think it was I don't know, it was Zetarouas, capacity in Bentley. You also saw that I took over from Hansol to remark that I see also our inventory in total is a bit too high also on the mining side.
So that means more or less that some of the products will be either be reworked which is also an inefficiency. And but we're coming close. I think if we go on another maybe I put in no one tonight, but
a couple of months further,
I think maybe I will then say yes. Given that the volume stays on the same level, so given this part of the orders received. But we need a bit more time. You will get a bit more under absorption also what Hans Ulla mentioned when he was elaborating on the flow through rates. It's a bit what I said a couple of months when we met altogether.
It will take a bit of time. And we as you know, we have not mentioned or not released any restructuring program. So we take as a comp.
Okay. Got it. Thanks. And then maybe a follow-up on the compressors where you had I think you had a negative flow through or drop through in the Q4 as well again on the cost side. I mean should we assume that you've got 2 more quarters of kind of higher cost headwinds to work through before you start to hit easier comps?
So I guess I'm asking how long before we get back to a positive incremental margin you get growth and that drives positive EBIT effect? Thank you.
Yes. I think I will repeat a bit. I don't know who it was he was asking it, but we have been investing in CT in certain geographical areas, in certain segments. If you take as an example, I will under low pressure, you know also that's an area where we have been working a lot where we also see we have still some potential because we put in feed industry and takes time because we have the product, but it takes time before we really get the customers to dance with us. So we have the people, but we do not have the orders.
And then of course, you have to see, okay, can we win here? Because also and you know very well also that CT is an organic game. If we really want to grow there, we need to invest in design and development, in innovation and we need to invest in feed industry because I cannot go out and acquire because the antitrust authorities will immediately stop us. So the only way to get deeper into the market and get more share is by doing this. Sometimes we are successful, sometimes we are a little bit less successful or not fast enough in our success.
I think fundamentally, I think nothing is changing. It's just a matter of course how we come to the success.
Okay, got it. Thank you very much.
We have a question from Mr. James Moore at Redburn. Please go ahead sir.
Yes. Hi, everyone. Thanks. On Edwards, it looks like revenues grew 28%.
Is that correct?
And do you have an organic number in that? Is that largely organic? And then I have a follow-up on CT.
That's largely organic, as you say, James. And in
compressor, can you say where R and D and selling costs are as a percentage of sales? And what the percentage change was year on year? I'm just trying to understand this flow through
a bit better.
I think I
mentioned the R and D is growing 12% from last year. And that is in Swedish krona terms. So if anything, it could be a little bit higher than that, but something in that order.
And is it that you think that your selling cost and your R and D in compressor is now at the level it needs to be? Or could you still go a bit further?
You mean in growth, you mean
No, no, as a percentage of revenues, I was thinking.
You mean the costs are in or what?
Yes, the R and D expense and the sales force expense as a proportion of sales, yes?
Yes. I think the proportion of sales, I would like given the profitability, I would like it to go down, of course. That's what I just said to the previous question. We need to get that return of that investment. So I think if you only the organic growth was negative.
So if you keep investing in people in the street and in design and development and you don't grow organic, it doesn't grow because the MAX is not going in the right direction. So either we got or we grow. And we
know we have had a couple of quarters where we have alluded to the large compressors that hasn't really gotten the orders, but it has not been super strong on revenue either. And if we compare with the revenue level with compressor decay cat in Q4, it is, of course, significantly lower in Q1 if you deflate for Edwards. So at that level, the Kepler's part of this cost will hurt your margin immediately, of course.
Sure. Thanks guys.
The next question comes from Mr. Anders Witt at SEB. Please go ahead sir.
Hello. I think my question has been answered actually. So I'll pass. Thank you.
Thank you.
And we have a question from Mr. Erik Karlsson of Deg Capital. Please go ahead, sir.
Thanks for taking another question. Just on Construction Technique where the margin was stable despite the currency headwinds. Just how do you feel about that business in terms of the improvement you've done to the product range and service network and so on?
Yes. Thank you for that question, Eric. What we have done over the last years and that business area exists about a couple of the businesses where we had the Portfolio Energy business, which is a good
leading
business worldwide is well spread. I think we have the best product there and that I think continues to perform. Then we had the construction of the demolishing tools where we have really extended our offer also in the value part of the business not only the billion part. And that was coming up because that is an area where we still can take more where I also felt that we can grow more geographically. But there I see it our strategy of the premium and the value works.
So also the multi brand is implemented multi brand strategy is implemented in the motion cost. And then last but not least, the other part of the business, one of the acquisitions we did a few years ago called Dynapack, Today we call it Roll Construction. There we have done a tremendous work over the last 3 years by bringing down the first the breakeven with most of the several factories. We really reduced the overhead to increase the agility. And last but not least, we also made a full new range of products of rollers of pavers and also recently of our trainers.
And that's what I mean, of course, in my opinion is about touching the market. And we see that's one of the reasons also why we are on the positive side. So I'm very pleased to see this work. Are we there where we want to be when it comes to profitability side? No, of course, we got a big headwind to see Australia was a very good market.
And you know what's happened in Australia and you look to the currency, 2nd, Brazil, with the big hit on currency. So that's made a little bit again. But on the other hand, we see good demand coming in North America and Europe. So it's promising.
Very good. Thank you very much.
Thank you, Roni. As I noted, Erik came back with a repeat question here, which is perfectly fine, Erik, but that signals to me that we have exhausted at least the big part of the question queue. And unfortunately, we have to break here anyway because Ronny has to run and prepare for the Annual General Meeting. So thanks very much for participating. We are, of course, as usual, be it on Investor Relations or myself, ready to answer any follow-up questions on the phone in the next couple of days.
So thank you very much and goodbye.