Good afternoon, good morning, good day, wherever you are attending. Heartily welcome to this interim report on Q4 and full year results for Atlas Copco Group. We do this, as usual, with attendance here physically in Stockholm, but also a lot of participants on the telephone conference. We will start by me handing over the word to our CEO, Ronnie Leten, who will give his comments to the report, and then, as usual, open up for questions in about 15, 20 minutes' time. Without further ado, Ronnie.
Thank you, Hans Ola, and welcome everybody here in Stockholm and wherever you are in the world. As usual, I will go through the presentation. I will try to make it short so we have enough time for your questions during this one hour. If I go immediately to the first slide where we see the Q4 in brief, as it says. What do we see today? We see a rather stable industrial demand, and the mining equipment remains weak. This is a bit to take away from the quarter. If you look back to Q3, you will have seen more or less the same picture. On other hand, I think we see more or less in Q4 what we have seen in Q3, maybe with a bit more stable, if I can use and stress that word, industrial demand.
Service business and our hard work and our focus continues to grow, I'm very pleased to see that even in the mining side, for those who are looking for that question or that answer, it develops at a good level. Unfortunately, we have to take measures on the mining equipment. We have businesses where we see -30%, -40% on the equipment side, that means, of course, you have to adapt your capacity. You have to adapt your suit if you come. Of course, we had partly a soft landing, but more or less we come now to a base where we need to take more of these measures. We are very pleased, and I'm very proud that we finally got Edwards after six months. Also Brazil and China agreed with the closing of the buying of Edwards for us. This is in brief the Q4.
If I go now to Edwards, just to give you a bit more flavor on that, I will not read everything, but what we can say is that the last two quarters of Edwards were very solid, very strong. What means also, if the preliminary statement, what we got from the previous owners, it is right, then we have to pay also the full additional payment in case. That will be somewhere at end of February. One end, we pay the full price, but on the other hand, I'm very pleased to see that it is a very healthy business, doing great, and that we have first happy customers and also happy collaborators that we can join together. I'm very pleased to see this development. The figures, I would not spend too much time on that.
We come back on that later one by one. Let me go immediately to slide number 6. I give you the overview of the geographical scenery. North America, if I take the three countries, Mexico, Canada, of course, heavily contaminated by the mining demand. If we take the biggest economy, U.S. doing fine, doing good. We see an increased demand for industrial tools, mainly coming from MVI, aerospace. That's good. Also for Gas and Process was a good quarter this time. We have a stable development for industrial compressors, so the yellow canaries are doing fine in U.S. We see a good demand for construction equipment. Like I already said, lower intake on the mining side in all the three countries.
When we take South America, low mining. We know Chile, Peru, Brazil, they're all heavily involved in the mining. That is lower. You see also -15%. Even I would say we comparing with a good quarter last year. Still, -15% is a real drop. That is an area where, especially when it comes to Brazil, where I saw a soft development. A bit of growth in the construction side. I'm pleased to see that. That also happened in Brazil, actually. If it self-helped, do we take share? I would say I do not have that really detailed information yet. That is for the next months to investigate more when we get the statistics. Anyhow, the figures were good. We go to Europe. Overall unchanged.
We see a small increase. If we take it now from a positive side, that is also the reason why I wrote it here, we see a positive France and Spain. This has been many months since we have seen that. That is a good. Of course, we all know it's at a very low level. At least we see a positive. The same is on Russia, where we got a big drop from the mining. There also we see a slight positive trend in the industrial compressors as also the industrial tools, they are doing fine there. Of course, there are still markets which are suffering. If we take here the Nordic part, which was reasonable, say, softer compared to last year, if we make a comparison.
Okay, mining equipment you talk mainly the Nordic and Russia were not the best. Service overall in Europe doing great all over. Africa, Middle East, we had a very solid construction mining demand. Also, the southern part of Africa was very good. If I take specific South Africa, I think that a very good development. You know South Africa is a significant market for us. That was good to hear that we got that. I think when it comes to the northern part, of course it's more compressors which were positive, if I can say it this way. I go to one other big part. We talk about Asia, where we see a solid development in industrial tools.
If we take the two big countries there, India and I take China, we see a very good development for the industrial tools, mainly, again, coming from MVI. Also the small to medium-size compressors have done very well in that region. Lowering construction. It is tougher also in China, still not really the market we would like to see happening there when it comes to construction. We all know, just to repeat myself here from many times we have said, of course, we are a real niche player when it comes to construction in some of these markets. Again, a very strong development for service, and that is all over, and more specific also on the Compressor Technique side, we have done a very good development on the service. Australia, look this, -35%. Mining is extremely low.
If we make a comparison on the equipment part, we can maybe say that we are on the level of 2009 in Australia, maybe with a small percentage difference, but not much. It has really dropped very much when it comes to the equipment side. You see here the overview. You see many quarters a drop, and of course this statistic is heavily affected by the mining development. If we do it for the other three business areas, you would see a slight positive sign. The bridge. I will not say too much on this. You see still the currencies, -4%, and that of course contaminated when you make a comparison, not only on the top line, but also on the profitability part. We all know these currencies.
This time, if we take it for the full year 2013, this time when you talk currencies, we are not talking so much about renminbi, USD, EUR. Here we talk about other currencies, the mining currencies. There we talk the Brazilian real, the Australian dollar, the South African rand, which really have dropped dramatically, and lately you also see the Turkish lira. Of course, that is where Atlas Copco is operating. If you're working in 182 countries, you get affected by this. Price volume, you see here the development. I'm pleased to see that even if the market is getting tough, that we get really also the reward for the work we do on innovation and this you see on the pricing level. We then take it by business area. If I go through that, I'm starting with Compressor Technique, and now on slide 12.
A slight organic growth. Coming from the real day-by-day business, the small to medium-size compressors, they keep going. The big tickets that we have been talking now for many months is not really taking off. Let's see what 2014 is giving on that part. We all know the majority of these big tickets, of course, coming from Asia, and that is where we need to see that. Service, I already mentioned it, continued to grow. Operating margin 23%. You could say, "Oh, this is significantly lower." Okay, we took some here and there extra costs, but on the other hand, I think given the invoicing level of equipment, it is a margin which is, I think, defendable. Acquisition of Edwards, I talked already about that.
We do that, of course, I'm extremely proud, as I also was last time when we could say that we had this VSD+. Now we also have extended range. This will definitely bring us good sales and also good market share. I'm very pleased and would like to congratulate the engineers who have been working there many years on that. Industrial Technique. See, this is what I would like to have. See 10% double-digit growth. We were used to that. We are back. Coming from motor vehicle, the most, say in all the big continents, then I'm talking North America, even in Europe, but of course then we have India and China as I elaborate before on that. Also general industry and service had a very good positive development. Yeah, a very nice place to be these days in the Industrial Technique.
Margin, very solid. They do a very good work on really innovation and on their productivity. We are also very happy to get two extra acquisitions, so that also strategically, we have really now a full range of bolting technique when it comes to low and high torque. We have it all now, and we also have an assembly solution expert under the belt. This is going as we would like to be. Mining and Rock Excavation, I would like to skip that slide very quickly. If you see -17%, that's definitely not the place you would like to be, it happens. Like I said, mining equipment, -30%, -40% in certain areas. On the other hand, the resilient part, the service part, the consumable parts is working.
It's not that, like I say, double-digit growing, it's definitely positive and that's good to see. If you take the production consumables, we see a positive trend. Then that to say, okay, that means there is definitely demand for iron ore, copper, zinc, and all these commodities. There is definitely a demand. The same is on service because they go hand in hand. The margin, 18.8% adjusted for extra cost. Of course, we get also lower volume, bit more equipment invoicing, also not a very favorable mix, meaning that with the restructuring and the lower volume, we have also a lower margin. You could say, yeah, we would like to have a bit more. Yes, I agree. We will see here definitely a phase or a moment that we have to adapt to the new norm.
We will, like a right tire, also will take further efficiency measures, which we have done. Also we will do even more. Also we here had a couple smaller service acquisitions with Archer and one here, which was in U.S. and one here in Sweden, actually. Construction Technique, also here we saw some growth, although it was tough in Asia, as I also mentioned there, negative development in Asia. I think the other markets was okay. We see also road construction. We have not been talking many quarters about that, but you see when we get some positive, we like also to talk about it. Also here with our actions, we come to a good result there. Operating margin, 8.5%. One should know here, this is a business area which is affected the most by the currency.
They had big customers in Australia, in Brazil, and we all know how that market has developed when it comes to currency. One point, it's not to make the comparison more difficult for you this year, but we moved one division which was hosted in Compressor Technique. We moved that to Construction Technique, as I felt that we had much more potential and synergies with the Portable Energy and the Specialty Rental. As we are a product-driven organization, it will allow us to accelerate certain going to market. We streamline the organization in that area. Group total, so on slide number 16, the overview, nothing more special if you compare the operating profit in money terms. The two big takeaways is, yeah, the currencies, especially then, quote, "the mining currencies," which has cost us significant amount of profit in transaction.
Of course the Mining and Rock Excavation volume and extra cost, which makes this gap of around SEK 500 million where we have this business mainly, because if you look to all the other business areas, you could say more or less, if you exclude currency, you can say that they are more positive. I would like to hand over to Hans Ola.
Thank you, Ronnie. We will try to speed up so that we leave some time, or I'll be rather quick. Just a few things that I normally comment on. On the financial net that you see here, as the difference between operating profit and profit before tax, came in just above SEK 200 million negative. More or less the same as last year. Going forward, with the acquisition of Edwards now clear, we expect that the run rate per quarter will stay actually somewhere in that region, SEK 200 million to SEK 250 million negative. That's the best estimate we can do today. When you go further down and come to profit for the period, you see that we lost a little bit more compared to last year, 15%. It indicates a slightly higher tax rate, 26%. However, I see it within the normal variations, nothing very dramatic in that.
I still expect that 25% is a good estimate going forward. The reason it was much lower, 23.9% last year, fourth quarter, was that we were adapting to lower income tax rate in Sweden, for example, as you might recall, which made it a one-time correction at that time. If we then move on to the next, the famous profit bridge, this is for the quarter, for the group. It looks as if it's trying to prove that these type of bridges are very difficult to read on a quarter-by-quarter basis, and this is not an exception. It seems that we are losing quite a lot for every krona of lower sales, I think the explanations Ronnie have already touched upon, it's really very much related to the drop of profitability in MRE.
Looking at the year, next slide, which is slide 18, I think, you can see that it looks a little bit more evened out, and the loss of top line of SEK 3.3 billion is giving roughly a third lower effect on the profit, so about 36% there. That is for the group. If we look at the different business areas, you get even more confused, perhaps, on a quarterly basis. In Compressor Technique, I do not think one should overread that because you are comparing one quarter, and the deviations are not very big in relation to the absolute value of the business, neither on revenue and profit.
Again, as we move quickly to the next slide, which again shows the full year, you can see that for most of the businesses, we are in the range of 30%-40%, whether it is up or down on revenue. Again here, I just repeat myself, the opposite suddenly is true for Compressor Technique. We are improving a lot in profitability if you take out the currency here. The message, we cannot rely on these bridges to give us the full understanding and the full explanation of everything, but at least it is there, and it is numbers that you also can see from the report itself. I move on to the balance sheet. I am on page 21.
As you can see, the year has really been one of having a little bit more cash on the balance sheet, and come 9th of January, you saw the reason for that. We had the big acquisition of Edwards, and then you can also see on the top, intangible assets, that we do buy other companies as well. We are increasing intangible assets and goodwill. The rest of the balance sheet is very similar to the year before. All that together gives us a cash flow, and I will again just point at a few lines. One is that in spite of releasing cash for working capital in this quarter, we did not manage to reduce inventory as much as we did in the fourth quarter last year.
That is why we got a little bit less positive cash flow on that line, and the rest of the negative difference with last year, SEK 2.6 billion versus SEK 4.3 billion, is really to be found in the operating performance. There are a number of issues. EBIT is operating profit, dropped SEK 500 million, roughly, as you saw from the graphs. There are also some effects of non-cash items, which is very much related to rules for revenue recognition, for example, and that is a little bit more complicated to go into more details. The run rate of the quarter is very much in line with the year. We managed SEK 10 billion in operating cash flow for the full year, and that is, as you say, a run rate of SEK two and a half billion, roughly. I leave it there to Ronnie to finalize.
A summary of the year, if I can say as a first sentence, a reasonably stable industrial and construction equipment with a slight growth if you take it on aggregated level, a very, very weak mining equipment part, which resulted also in the figures you have just seen by Hans Ola. On the other hand, we continue to invest. We continue to invest in market presence. I mentioned we are now in 182 countries. We're really digging deeper into the market. We grab the service, which we believe we deserve, and also great productivity for our customers. Last but not least, we make sure we have the best product. We are not holding back on that part.
Of course, we always look into better portfolio management when it comes to the project, there is no immediately reason to hold back on that. Of course, this is the result. It is what it is. Where if you make the bridge Hans Ola has already done, in summary, you can say when you look to the operating profit, a big hit on the mining side, a big hit on the currency, the three other business areas have not been able to compensate on that, and gives this difference in profitability. The board is proposing a dividend of SEK 5.5 as it was last year. When it comes then to the outlook, as you see, we are always very sophisticated here, where we expect it to remain at current level. I'm sure you have the possibility to ask more questions after this now.
Thank you, Ronnie. We will turn to the telephone conference, we will also have opportunities to pose questions here in Stockholm. Before we start, though, I would ask everyone, or almost instruct, that we stay with one main question and then a follow-up per person. That means that we allow more people to put questions as well. Hope that can be respected. With that, I turn to the operator. If you can repeat the instructions for posing questions on the telephone conference though, please.
I remind you that it's zero one on your telephone keypad to ask the question. Our first question comes from Mr. Markus Almerud from Morgan Stanley. Please go ahead.
Hi, Markus Almerud here from Morgan Stanley. My first question is on the margin in MRE. Do you see the margin after market falling at all, or is it only in the equipment that you see the majority of the fall? That's my first question. If you can talk a little bit about the dividend and the consideration that you had when the board had been keeping dividends steady despite a very strong balance sheet and continuous cash flow generation. Thank you.
Of course, when it comes to the after market, when we really look to the day-by-day business on the after market, it more or less stays at the same level. If I go back a couple quarters that people were really concerned about, say, pricing and whatnot. Of course, when it is this type of market where you're in, you always get more negotiation, but I don't feel that that is the main issue. I think for us, the big challenge in after market is always if we want to grow, you must make sure you keep the same efficiency. That is the challenge we have, but that we also had a year ago, and we had said. To answer your question, I think when you get the margin, it is in volume, in under absorption from factories and also the sales organization.
Last but not least, I should stress that maybe I've not stressed enough, we have not hold back on design and development. You also get that because you divide by less volume. When it comes to the dividend, what are the considerations? First, of course, when you look to the earnings per share, they are not as they were the year before. That we have a payout ratio where we said 50. You can say, okay, you only made 9.95. Okay, that's half. We keep that. On the other hand, we have done the acquisition, which we have paid. This was almost SEK 1 billion, which we have been doing. From that point, we do. You see, let's keep a very healthy, strong balance sheet for what is going to come, like we also explained that last time.
That was the three considerations which we said let's invest in the business. I think the dividend is healthy, and let's stick to that level.
Thank you.
We take one question more from the conference, and then we go into Stockholm here.
Our next question comes from Mr. Aaron Ibbotson from Goldman Sachs. Please go ahead.
Yes, hi there. Good afternoon. I've only got one sort of question, but it's divided into smaller bits, but it's all about Edwards. First of all, can you talk about this, or am I just going to get that you can't comment on it?
Hans Ola.
You're welcome to ask.
Okay, fine.
Yes.
Very good then. If I look at the EBITDA number that you've given in pounds and the top line number you've given, I get an EBITDA number of about GBP 50 million in the fourth quarter and revenues up 50% year-over-year. My first question is basically, is this correct? Was anything in particular that drove That massive growth? Do you now expect a meaningful slowdown going into 2014? Is this, call it second half then of Edwards that was very strong, is that something you see can continue at a reasonably similar level, or is there any obvious reason why this should drop off dramatically? My second question was just related, but just on your guidance for amortization of SEK 250 million. Edwards obviously have their own amortization, so to speak. Has that been effectively nullified now when you have realized the intangibles?
The total amortization from the Edwards acquisition will run at roughly SEK 250 million or are there sort of GBP 20 million or so that Edwards are currently doing themselves being added to that? That was my question. Thank you.
I suggest the last one you take later after my part of that one.
Yeah.
Aaron, you spotted very well when it comes to the sales and the EBITDA and the figures, I'm impressed that you really got that. The last four months in Edwards were very strong. They really get a lot of semi business. That was good. I think there's a lot of fabs in place, and that really accelerated their order book and also their output, which lead them to a very good EBITDA. Having said that, okay, what about 2014? Because this was history, and it's always nice when you look to the multiples and all this part and from the buying side, but it's history. I don't think that you should extrapolate quarter four and multiply that by four. I would love that it would be.
If we look to it, I think you should be somewhere, say, quarter two, quarter three, is say a more normal figure, I think, for that type of business. It was really accelerated the last two, three, I say four months, you could say, that it was really good. We were, of course, very happy because we had agreed on
The price
on the price, the money stayed in the company. That's also the reason why almost the price is SEK 50 million-SEK 60 million lower.
Perhaps if I can add just what Ronnie sort of hinted at, that this business with a few large customers and a sector like that, has a tendency to be a bit more lumpy in aggregate than what we perhaps can see in a big business area in Atlas Copco or something. That is behind.
We know, and this we all will learn together. Saying we know that it has certain cyclicality, and that is also where we need to make it more resilient, and that's also the task in the years to come, for, and the challenge, perhaps, Copco to invest more in general vacuum and others.
On the second question, Aaron, you're right. The assessment of the assets that we buy is starting from scratch, so to speak.
Okay.
It's correct that this is the full amortization of intangibles that we will carry when we consolidate it in Atlas Copco. I stress again, though, that we are talking preliminary numbers and unaudited financial statements and all of that, we will of course come back with more information as the year progresses, and that becomes more and more finalized. As you probably know, a purchase balance sheet has one year of a lifetime to be final final. This is absolutely the best indication we can give right now.
Okay, perfect. Thank you very much. Just, Ronnie, to your comment, I'm going to stop soon, but as I'm sure you can appreciate from the outside, when you structured the deal the way you've done, there's maybe some fear that the Edwards organization would've been extremely keen to, over these last four months, deliver everything they could. Your feeling is not that there was a sudden ramp or unexpected in the.
No, Aaron, I fully agree, because you could say, okay, use the whip and they do more. That would be fantastic, and I would like to use that methods everywhere. It's actually not, because the order book is still there. It's definitely real orders what I think the customers came up, the couple projects which came on course, and even, I think, the people inside Edwards had even not hoped to get that part, that one. It's not that they have preempted the order book. We will go in a normal quarter, at least as good as I know the business today. When I talk to the people running the business today, people from Edwards, people now from Atlas Copco, it seems to going into a normal quarter as planned.
Okay, very good. Thank you. I'll get back in the line.
We start here in Stockholm. We have room for two questions before we go back to the telephone conference.
Thank you. Good afternoon, everyone. It's Gabriel at UBS. A question regarding pricing. Are you actively pushing up prices in emerging markets to cope with the currency depreciation? Are you getting a pre-buy on the back of it? A follow-up on Compressor Technique when it comes to large CapEx, Gas and Process, and oil and gas, and markets. Have they recovered from, or do you see them recovering as we speak in 2014, or they continue to be lackluster? Thank you.
Yeah, of course. What we try on the pricing, especially in markets where we talk South Africa, Australia, India, when you get this. Immediately, I tell you, I'm immediately on the phone when you see that, where we try to compensate that, but you're always too late. That's first thing. You get a lag, then when we can, we do. Why do we use the word can? You also have local competition and see what is the balance there. You can push up the price but maybe don't sell anymore. You have to see what is the local competition. Do they also have the same pain? Okay, then they're happy that the market leader is doing that, and for sure, after a couple of months, everybody will follow. That's what we do. We try to do as much as possible to push it.
There are countries who are very used to that, like South Africa. They do immediately. Countries like Australia, they fight back. That is another, also they have local production, so that is tougher to do that. On the compressor side and the bigger tickets, it has been soft in 2013. The oil and gas parts of the Gas and Process business as we call it. Of course, it has to do a lot with fuel gas boosters, with geothermal, with LNG. That's where we are because we are not really on the big oil and gas side, single shaft, that's what we're not at. We need to look to this segment and you see LNGs, LNG ships. And you read also, you see on many, that's an area where we see more activity.
Okay, now it's show me the money. That is the next part of it. It looks at least that there is activity, there is more activity part of that. A lot is also the time that we were doing fantastic in Gas and Process was also the time that air separation was good because that is where Atlas Copco is very strong. You know also air separation was a lot to do with steel plants, a lot to do with steel plants in China, and you know. That business is very low. You hear me, I'm more positive, but okay, now I have to see if it comes.
Yes. One more question. Andreas Koski from Nordea. The measures you are taking in Mining and Rock Excavation, how will they support profitability going forward? What kind of savings do you expect? What should we think about the operating leverage? Should it stay around 40%, 45%?
First, what the measures we're taking is to adapt for the new body. We have to reduce the weight. That is the first thing. We need to adapt. That's the first one. If you look back a couple of years and you look to the volume, then also we came up with a margin of 20 plus. If we exclude the currencies, because that's an area where, if you look to AUD, the value, if you take the ZAR, that I can never compensate whatever I do in restructuring. If you exclude that part, we should come back to the level where we were, if you take the same volume. That one. Consumables, service are doing good. That is not, again, excluding currency, is not really affected, it's doing fine.
If we go through this cycle, which will take us maybe one, two to get back that. That's at least my plan.
The second question is regarding your sophisticated outlook. Can you please break it up by the business areas?
We demystify it.
Yes.
I think, the industrial construction part, there I have a slight more positive look. That was also the question when you were asking about Gas and Process. It's more where I hope it comes. Of course, and why? If you take it geographically, you hear and you read Europe is doing a bit better here and there. Is it coming? There's U.S., okay, now lately was a bit different, but okay, I think when it comes to our CapEx, it might come. On the other hand, South America. What is Brazil going to do? Big question. Is China after Chinese New Year, what we see, I'm waiting for to see in March in China. Is it coming?
That you could see when I listen to our Chinese people on the street think, yeah, of course there is thing, of course it's a lot of self-help activity. I think it could be slightly positive. On construction, I think there's a lot of self-help. We have done a lot of work, there, I think we should be able to do that. The big question is around the mining. What will it be? Can it go much lower? I think there is not much equipment anymore. Not many people buy drills today. From that point of view, I don't think it can go much lower. Like I said in the beginning of this presentation, production consumables shows a slight positive part.
If you read my outlook, you can take it maybe a bit on the more positive side than depending on where I sit from the zero base.
Perhaps also looking at the length of the outlook. We're not talking, as you know, about next year. We're talking about next quarter mostly, that's the horizon. That underlines what Ronnie is trying to say, that specifically with investment goods, it should have been very strong signals already for that to materialize.
Going back to Aaron's question.
Yeah.
This is excluding Edwards.
Yeah.
If we were to compare Edwards quarter one last year with now, maybe we have an increase, but it's excluding. Yeah.
Should we go to now. No. We have two questions in at a time. We go to the telephone conference and then we come back here.
Our next question comes from Mr. Lars Brorson from DnB. Please go ahead.
Thank you very much. A couple of follow-up questions, if I could. Just on the outlook, Ronnie, thanks for that. Can I just ask whether you have seen anything in January so far in your industrial businesses in emerging markets to make you more cautious here? Can I just confirm that the guidance is adjusted for normal seasonality, which of course, it already has seen orders up 10%-15% quarter-over-quarter from Q4 into Q1. Of course, 2013 being quite weak, though.
For January, again, the Chinese never have the Chinese New Year at the same day, they disturb again the statistics because January was a rather short month in China. One market where I'm a bit careful with, if I talk on the negative part, is Brazil, where we need to see what is really going to happen. Of course, you have also there the seasonality because it's the holiday period, we come into Carnival. Always January, February are difficult to read. I saw the last quarter, that is something where I need to watch out. Of course, you have markets like Turkey, which is also significant now with the lira dropping, and then having interest rates up. What will that give to the business? Who knows? That is something.
If I take South Africa, if I take that as an emerging market, I think it was, at the end of the year, good. India was okay. That's a bit of a mixed view I have on that. Russia, again, January in Russia is so short because they have another two weeks holiday. January is always difficult for us to interpret. I never make any conclusion out of January. I always take the two months together.
On your follow-up there, yes, we try to look through the normal seasonality, as you say, when we talk about the outlook of steady or up or down. That's what we try to do, yes.
Thanks. Ola, can I just ask just on your headcount reductions in mining, you take 400 headcount out in Q4, you took 1,200 out through 2013. That's about 10% of your total headcount in that division. On the basis now that we see stable demand in that business, do you expect to be done with those capacity adjustments in mining, or should we expect there to be more to come on the basis, again, that mining has stabilized from a demand perspective?
Ronnie alluded to it already in the initial, I think he can continue to answer the question.
Yeah, I think there is more to come. I think we did, and management did their some of the activities, especially on the manufacturing side, where they did, there is more to come on that side. We have some areas where we need to adapt, because we had planned a bit of a soft landing, because now we are entering in a bit of lower equipment production, also because we have the inventory part. There will be some more layoffs on that part of reductions, unfortunately, at it is.
Thanks.
Next question from the telephone, please.
Our next question comes from Mr. Alex White from JPMorgan. Please go ahead.
Good afternoon, everybody. It's Alex at JPMorgan. My first question is just on trying to understand the Compressor Technique margins a little bit better. The volumes pre-FX were up SEK 240 million at the sales level, but then EBIT declined SEK 20 million at the EBIT level. I'm just trying to understand if there's a big mix impact there, or is it the acquisition dilution that you talk about? I guess if it is the acquisition dilution, is this just one-off acquisition related costs as the transaction is closed, or is it just that they are lower margin and therefore will continue to sort of drag that business down over the coming few quarters as well? That's the first question.
No, because it's 23% and if you compare with last year where it was 24% plus, of course, it's a drop. It's partly it's mix, where you get that drag down the margin a bit. Then we took some extra cost where we had done some movement of some activities, operations which we adapted, but we didn't announce it as extra cost because, this is we take it as it is, and we felt it was not worthwhile of really making a special note for that. It's not, or Hans Ola must correct me on the acquisition dilution. I think that is not large. It's not much.
No, it's there. It's always there. Whenever Compressor Technique acquires, it will dilute.
Yeah.
Not more than in the most recent quarters there, you're right about that. Let me just highlight again what Ronnie said also in his initial comments, that above 24% is a very strong quarter last year. Of course, some quarters do have a little bit of an accumulation of costs that doesn't happen in a corresponding quarter. I think that's how we see, if you could call it normal variations or whatever. Nothing specific on the acquisition dilution.
I think if you compare with last year, you also have a bit of currency.
Absolutely. Yep.
No, it's not something what keeps me awake, whatever. I think it's still a clean result.
Yep.
Sure. Okay.
Sorry.
No, go ahead.
My second question was, just really around the sequential decline in mining aftermarket volumes that you saw. If I look at the sequential trends for one of your close competitors that provides a bit more quantitative detail in its reporting, then Q4 historically would've been up 10% or more relative to Q3. Would you normally expect aftermarket to increase sequentially in Q4? I'm just wondering what's driving the weakness there.
I must agree with you also, when you look to correct it with the one-time cost that you come up to 18.8, and you would have seen maybe a 20%. That is also what I would have liked to see. I think there are two explanation. One is partly a bit of mix, where we see mix in the mix, I think on equipment side, where we got some equipment invoice with lower margin. That is one which dragged it down. Another one, and again, it's a bit the same as we had with CT, and I have to apologize to you if we confuse you a bit. Cost, we have announced is one-off cost, but there is definitely everywhere in the world when it comes to mining and equipment, it's cost here and there.
I don't want to really bundle it for everybody and make a shelter. They take it. It's very visible. Yeah, this is the one-time costs here and there, but it's now taking place adapting to the new suit. It's not only happening in Sweden, it's also happening in the U.S., it's happening in China, it's happening in India, Brazil, in Africa. It's happening all over here and there to adapt to. That is what you see. That we will most likely, and I'm not going to make any projection now on the profit, but this is what I also expect we will most likely see in the next quarter and maybe also in quarter two in that business area.
We move back to Stockholm here. Anders.
Yeah, two questions. Anders Roslund, Swedbank. First, are there any cancellations in the mining sector? Two, the strong organic growth in industrial tools. What is market growth and what is your own initiatives?
On the first one, yeah, there are some cancellations in the quarter, but much less than in the Q3, which I think that we commented to the tune of SEK 350 million or something like that. It's less than that in Q4.
Much less than. Is it half or?
Well, it's much less than in Q3. There is some. On a direct question, I can't lie. Yeah, there's some cancellations in there.
Yeah. Okay.
It's low. It's whatever. Because now you get, because you really look to it better now.
Yeah. In a normal quarter two years ago, we wouldn't have.
We would not talked about
We wouldn't have talked about it.
On IT, if I would ask Mats Rahmström, he would say it's all self-help. I think this is true. I think it's like when you play soccer, it's always the same guy who makes the goal because he is there. We have the right products. We have also had the right people with the feet on the street. The business is there. Let's be honest, there is a lot of investments taking place in aerospace. There's a lot of investment taking in new models in China, in India, in U.S., in Europe.
In API, yeah.
Yeah, in API. The people are there. We also have worked a lot over the last three, four years to get a full new product range. I think we should be very proud that we have that part. Also, I think just to You remember we acquired another company, was it two years ago? SCA. That also helps us because we see that was really what the car business needs, is in need of that. I think we have now really expanded that with, and under the hands of Atlas Copco, that business has grown very well, and that helps us. Self-help, we still win.
Okay. Yeah.
A follow-up question. On your page seven, Mining and Rock Excavation Technique, you talk about service and consumables. I can only see unchanged, very low, slightly lower. It doesn't seem to be much in your comments here. I'm wondering whether you saw anything recently that basically beefs that up.
I think when it comes to consumables, you should look to Atlas Copco in the consumable two legs. What I've been talking about is one leg, is the production consumables. They go. These are really influenced by the iron ore, the copper, the zinc, and all that, and the drilling thing. That is the one I have been alluding on. Then the other one, exploration consumable, is gone. That you can read in other companies, whatever. That's another leg. That, of course, when you look to page seven, it's a total. We have not elaborated on that one. That's the freedom I've been giving you on that.
Services and spare parts?
Yeah, I think the service part, I said that the service part is slightly positive if you take it in total. Then there's, since I take it down, I really look at always as price volume. It's not really a rocket sky, but it's really slightly positive on that. That is where we see that. There was a lot of talk, was it nine months ago in the society about where you're also living, about pricing and all that part, and everybody was nervous. That with all due respect, I don't see that. Is there, of course, push in efficiency, productivity? Yes, of course. I'm happy for that because that is also what we need to get. Then you see the difference in service.
Good. We go back to the conference on the telephone and take two more questions, please.
Our next question comes from Mr. Ben Maslen from Bank of America. Please go ahead.
Yeah, thank you. Hi, Ronnie. Hi, Hans Ola. Just on mining and rock, just to clarify, I guess you've taken perhaps more restructuring or cost above the line than some of your other mining peers. Just to clarify what you said, you're saying there is a bit of a short-term drag on the margin at the moment from these actions that will drop out in a few quarters. Related to that, how far would you say you are from kind of right-sizing the business to current demand levels on the equipment side? Where are your production rates now in relation to orders? Thank you.
I think, as I mentioned, I think with another question when it comes to production levels. Specifically now I'm talking mining. We still have too much inventory, if you want to reduce that, it means that you will produce less than you really invoice. That is for sure. This will not take place in one month because we cannot do that. Unfortunately, I would love to have done that because you have a full product range. That work will be spread maybe over a year or even longer, and we really have to adapt to a new norm. That is what takes place, and that's also the reason why I said we need to adapt to the new norm. Will it have an effect on the margin? I'm talking really about equipment margin.
Yes, I think I would be here really lying if I would not believe that. I think we need to adapt. There are a couple factories where we are working hard to do that. There are other places where we have done the work. How far are you? Are you halfway? I think we are further than halfway, because Hans Ola mentioned also, I think here on the amount of people. I don't think we will lose as many people as we have already done, but there will be more to be done on that part.
Okay. Thank you. Just a follow-up.
We have one more. Thank you, Ben. More question on the telephone conference, please.
Our next question comes from [Mr. Peder Zaliens, Nordea] . Please go ahead.
Yes, good afternoon. Thank you. Just a clarification to begin with. Mining orders sequentially off the market. You talk about consumables, exploration flat, exploration down, and service flat. Is that correct?
Talking compared to Q3?
Yeah.
Yeah. That's basically correct, yes.
Yeah.
It's not very big percentages here. We're not talking double digits on any of the components of these three, spare parts, service, or consumables. Your description is fine. Yep.
Okay.
Yep.
Just a very simple follow-up for Hans Ola. FX is moving all over the place. What can you tell us about the Q1 on EBIT, what we knew today?
Well, you picked the right words. It moves all over the place. We unfortunately cannot say that the currency headwind is behind us. It will drag on for a while into next year. Of course, much less if everything stays as today in the second half. Both in Q1 and Q2, just making the numbers, there will be headwind. Of course, there are some specials now and then that is difficult to predict, but somewhat less than what we have seen in the last quarter, perhaps, but still negative. That's what we expect for the first two periods.
Okay, that's actually.
The peso and the.
In the last week only, the Indonesian rupiah now is there. All the emerging countries are again having a hit on the currencies.
Very quickly. Invoicing CT, I sensed very strong fourth quarter. Was that more than normally strong in your book as well, or?
No, it's not the first time that the year ends with a rather strong invoicing. Sometimes depending on the customer, sometimes depending on the sales force of ours. That's not unusual. It was good, but you also recall that we have talked about waiting for some more invoicing in quarters before and with some delays, you get it after a while.
It's rather, I think when it comes to CT, it is rather a repetitive seasonal behavior.
Yeah.
That December is-
Is rather strong. Yeah. That was no exception from this.
You see, last year, we got a very much better December also on the mining side, which we this year didn't get. It's normal. The guys were not pushing out. The customers were definitely not pushing for getting the equipment.
That's clear. Thank you.
Thank you. Any one final question? No, not in Stockholm. Yes, one final question then in Stockholm. Then we have to stop after that, and I apologize. Just a moment. I apologize to the people on the telephone conference, we are, of course, available to answer your question as quickly as possible after the call. Sorry about that. The final question here in Stockholm.
This is a general question. Have you benefited from the strong krona compared with the weaker euro and the weaker dollar, and the currencies in the world around?
We don't really have that mix in our portfolio. A strong krona, in our case, is actually hurting us in terms of real profits and also in translation. As we alluded to a couple of times, a weak emerging market currency or even a weak dollar, of course, means that it's a stronger Swedish krona. The other side of the coin. That is not helping us, no. I'm sorry the time has run very quickly when you have fun, as always. As I said, don't despair. There are people, and personally as well, that we can answer your questions after the call as well. Thank you very much for attending, and see you in a while