Good morning, good day, good afternoon to everybody that is participating on the telephone conference and here in Stockholm to this presentation of the Q3 results for Atlas Copco Group. Today, we will follow a very common format that you know since before. I will soon hand over to our CEO, Ronny Lettin, who will give us his comments on the quarter and the results and the trends. And then we will open up for questions and answers where we will have a few questions from the hall here in Naka Stockholm. And then we will take turns with the telephone conference.
So please without any further ado, Ronny, I'll leave
it to you. Thank you, Anzula. So let's go immediately to slide number 2. Q3 in brief for the highlights. Maybe just before I go to take a little points here on the slide, I think if you look to our result, it's a bit of a mix.
Maybe to talk to you a bit about the negative parts and is the mining, mining equipment, which is I assume for many of you it's not a surprise, which is mainly the takeaway from this on the negative side. I believe there are many also positive sides in this quarter. One is the MVI, the motor vehicle business mainly in China and U. S. And I will come back later on that.
But there's also another one is, which I'm happy to see is the growth in the construction equipment side, where we see good work of the organization, so that helps. And on the other hand is also the yellow canaries are still there. So there's a good stable development on the small and medium size compressors. Maybe a one time lower part and that's the reason why I didn't put it under the umbrella of the negative is the lower order intake of larger compressors. And I'll elaborate a bit when I'm talking on compressors what my analysis is of that part.
So that is it's a bit of a mix. It's not one size fits all. Some businesses doing fine. It's not booming, but I don't think any one of you had expected that. But it's either sideways or slightly positive.
On the mining side still tough. A good one to mention is the service business. The journey we started many years ago, It keeps delivering. It's a good business. It helps us to be close to the customers and it really pays off this transformation of the organization.
Healthy profit, healthy profitability 20.5%. We'll also talk a little bit more and Anzula will also explain you why it seems or sees a bit lower than maybe some of you had expected. But mainly we can say two parts is currency and second is the mining under absorption. So these are the 2 takeaways and the explanation why you see a small drop in profitability a bit bigger when you look to money. We keep continuous taking actions to adjust the capacity for lower demand in equipment in mining.
So that is unfortunately we have to do and we have to adapt our suite and we do that accordingly. And hopefully very soon we have reached a certain level so we could say we stated that. And then I'm also very pleased what we have done on the strategical part when it comes to acquisitions. 1 was the step up of our acquisition in process vacuum. So we really expand from a strategic point of view in vacuum and we have been spending many years in that area.
And I think this is a journey which Atmos Copco started now and I'm sure it will also contribute a lot to the value. And then we have a couple of actually 4 in each business area actually. That's maybe the first time we have this as a quarter in every business area of 1 acquisition and they all fit nicely in our product portfolio. If we go then to slide number 3 on the figures, You see okay, you can read the figures. Maybe on the operating margins and profitability positive.
We have still good pricing development, so price mix is doing fine. Negative is volume under absorption because that we will have. Of course, when you were comparing last year with this year, one should know also we had one time positive item last year. And also last year, we had a very high load, means also good absorption. So you really compare to the left and the right side to that.
The rest I'll add it to Hans Zula later on in the presentation to elaborate a bit more on that. Let me now go to the geographical part. I will go to slide number 5 when we talk about the Americas. Although the slide will show here minus 11 when it comes to orders here. Of course, one should also know that last year around the same quarter, we had a couple of big orders in compressed technique in this area.
And second also Canada and Mexico are minus 11%. But if you take and you a minus a level. But if you take and you try to look under the skin on that, I mean, we can say it's still a good order intake for industrial compressors, the MVI business, the industrial tools business, also even the GI business is doing good. I think we do very well. I think we penetrate very well.
I think we're gaining share. And also we have the MVI business, which are doing very well in the States actually. And I think last but not least the construction equipment side when it comes to rental companies are doing a very, very good job, which is lower, okay, mining and the larger compressors when we make the comparison. And a healthy service business, so that's always nice to see there. And we continue to develop that part.
South America, Chile, Peru, low again mining. But what was good this quarter was Brazil. So we had a very solid development in Brazil. So that is good to see. But again, South America is a lot of mining and rock excavation.
We then go to Europe, next slide. I must say not so bad. Okay. You see the minus 2, okay? That's of course negative.
But if we go again under the skin, we see solid development for the tools business. The compressor business is doing fine. But again, I think mining breaks it down. Couple of countries which stick out here and one is U. K.
It's since a couple quarters that we see a very good development in U. K. A lot of self help, but I think also some tailwind for the business which we are in. Africa, maybe this is the only plus which we have here. A good performance in the Middle East.
That's mainly Saudi and Dubai in the area when it comes to compressors. But one also when you make a comparison with last year, which we do here, it's also good on the mining side. I see South Africa was not bad when we make a comparison. One could say maybe and that's true South Africa was early last year also had a drop if you look to that status. So we do a of course, it's a little bit easier comparison, but it's not the best level where we are in this moment.
Asia, good tools business. So mainly it's the MBI and business and then you see all the statistics of car production that you can say and really also see that the producers over there also go for the quality tools, so really taking care of the quality of the car. So that helps us also in the transformation. We got good stable order income for the industrial compressors that keeps going even in China. So like I'd also said, I still see still good solid development in China.
What we miss and that we miss in the total is these bigger, bigger tickets, the very big tickets in our terms and we don't have that one and that would have made it a very good development there. So and yes, that's on Asia. Maybe I can give you a bit more info on the India. For us India was in the quarter was not so bad, because we got a couple good orders there. But you also see the outlook on India there.
I think I need to yes, we are careful. But still today, it develops fine. So nothing to say more on that. In Australia, yes, the more you get mining exposure, the bigger the figures are that they are down. So also here, it's mainly on the mining side that it goes down.
We then go to the bridge sale bridge. You see still maybe some of you would have expected a negative price development, but we still see that the work what we do in new products, the innovation part that that pays off. We are able to sell productivity to our customers where we also get compensation for. Even on the service side, we also get there the right value for our services and our products. Just to give you on the currency, the mine is 5%.
You see it's around if you take it over the 1st 9 months is around SEK 3,500,000,000. So it's a significant amount of money. If you look then to the quarter, the volume, yes, minus price volume minus 5, minus 6. If you take the 2 together, yes, it is yes, it's going yes, like I said, it's going down. Let me then go into the different business areas.
So I'll go immediately to slide number 11. We start with compressor technique, a decline. And the decline mainly comes from the order take from larger machines. So one would ask immediately, yes, but what does that mean? Is that a surprise for you?
What I see and hearing in the market is that some orders for oil and gas were postponed. That's what we see. We see also a couple of orders in India when it comes to power plants were delayed. So that is what was say mainly the analysis. What we got.
Is it structural? I don't see it because I see still a good quotation level. But of course that's quotation level at the end of the day we have to get the orders and then to get it invoiced. But at least I don't see really a structural part in that. The yellow canner is still going on.
So also our new GA VSD Plus, which we launched was it now 6 months ago is very successful. So that also helps to take more share in the market. And we actually go to launch it also in one of the coming weeks in China. So we are ready now to also explore the market over there and service continues to grow in that. Operating margin 23.6 percent, so a very solid margin where this business area should be.
So that's nice to stand here and to say it's 23.6 percent. And okay on Edwards, I have already elaborated on that. So we keep going on that. And then we had a small service company in Turkey, which we acquired. Industrial Technique, I have already said a couple of times, a very strong motor vehicle part.
So we see everywhere really the car business developing very well for us. And the highlights are there U. S. And China. So that's good.
It's a bit softer demand for general industry, but I think you see it it's getting more positive, let's say, the trend. So that's good to see. And okay, of course, Asia, it comes from the motor vehicle part, which of course gives that. Operating margin 23%. So I'm pleased to see that.
And we acquired a NICE acquisition here. It really is an assembly solution expert, which I expect a lot from is Synatec, which goes very well together with our motor vehicle business. And hopefully, it will be as successful as our SCA Shukr acquisition, because that it's really spot on. So we were very enthusiastic to see this landing. Mining and rock excavation, I don't know what I should say here more.
It's a tough place to be. We if I start with the last bullet point, we had a new leader. So I think his plate is full in adapting the organization and that is one of his first tasks really to adapt our suite to the new level. When it comes to the orders, okay, we get the cancellations as you can see on the slide. But what I think in this area with this segment, which is good, I see still a good development on consumables.
So we don't see it in volume not dropping. So that means that the world is using iron ore. The world is using copper. We see that also in the service. I think it really stays at a good level.
Okay. Gold is tougher that is going down, but all the rest is really at a solid level. Equipment is low. Exploration is almost coming to a standstill that we see. Have we reached the bottom?
Who knows? On the mining side, I don't know. I still see that the mines the mine owners are really focusing on the brownfields not so much as on the greenfields. So that means that they're really using their equipment. So utilization productivity is the theme of the day or the week of the year.
So there is a lot of focusing on that part. So it's not on new equipment where the focus is today, but it's more on automation, what can we do better efficiency, which at the end of the day maybe is not a good thing today for us as they postpone equipments there. But eventually all this automation doing further efficiency could lead to good development for us. Operating margin 20.8 percent. We can say, of course, with restructuring taken into uncertain under absorptions like I said negative effect of lower volume we have that.
Also our way of working we take it. Of course that means that the margin is dropping. We had a nice add on acquisition. So that's also good that we landed that part. But before I go to Sierra, I would like also to elaborate a bit what are we doing in mining and rock excavation is.
We really here adapt the suit like I said. But on the other hand, I want the organization and that's also what we really do focusing on the customers. So we are not going to lay off salespeople. No, we really have an increasing our intimacy with our customer understanding where can we create more productivity in the mines. And second, we're spending a hell of a lot of money and keep spending that in design and development.
Does not mean that we can do better that we want to reduce the time to market? Yes for sure. But in money terms, we keep eyes in the stomach and we said, let's go. Eventually the world will need iron ore. The world will need more copper.
The customers productivity and you can only do that with new equipment and better equipment. And that is where our focus is on in this organization, besides adapting the capacity and that we need to do. And unfortunately that means also reducing the manpower especially then in manufacturing. Construction, I said already a positive side. So it's nice to see that the hard work of the people is coming gradually paying back.
It's not the most attractive area to be in today, but we see that our focus is paying off. The operating margin 10.2 percent, one should say, yes, it's a bit lower than expected, could be. But one should also know that the mix the currency mix is a little bit different here than it is for the total group. So if we do this correction more or less you come up to 11%, so even a bit more. So what means 11% plus then a couple of restructuring works what we did you come more or less at the same level with as last year.
So from that point of view, I cannot be dissatisfied on that part. The reason why the currency is more once you know also they have big markets in Australia and in Brazil. We know also the currency what has happened there. And last but not least we have done a nice acquisition. So then I'm coming on my last slide before I give the word back to Hamzula.
So I think you have seen most of the figures. If you see the operating profit just to highlight on that where you see the difference around SEK700 1,000,000 a little bit less than SEK300 1,000,000 this currency. And the other part is mainly MR under absorption we could say. So I suggest that Hans Ole takes over.
Thank you, Roni. Just a very few brief comments on the next couple of slides before we go to the questions and answer session. We have already commented on the operating profit and Ronny has already talked about that. If we go a little bit further down, we have a financial net of close to SEK 200,000,000 net negative in the quarter. Normally the most interesting thing about that is what do you expect for the future.
So I'll go at that right away. And that's about the same. I don't expect any major difference. As you know, the interest net we can roughly calculate, but then there are sometimes some revaluations of financial assets and so on and that we cannot predict where it's going. But somewhere in the same neighborhood is what we expect for the near term at least.
If we go further down, there is also a tax charge of course coming to 24% in the quarter, somewhat lower than the run rate I would say. So we are still a little bit above 25%, which I would estimate to be the normalized situation right now. Coming into next year, yes, we will have to come back on that and see where we are and whatever the acquisition of Edwards, etcetera, will give. But let's come back to that when we know a little bit more that that will actually happen and when it will happen. So these are the comments I would say on that part.
If we go to the next one, which is the profit bridge, I just want to say that on the currency, it is these EUR260,000,000 that Ronny has already talked about. And the other big impact, as you can see, affecting the margin is in the flow through of the volumepricemix. And that comes from one business area, which is rather easy to see on the next slide, where you see that it's rather uneventful because the numbers are oscillating relatively close to the 0 line on the other business areas. There is a nice improvement on profitability in industrial technique, clearly so. And then you see that mining and rock excavation is of course suffering from under absorption and of the reasons that Roni alluded to.
If we look ahead on the currency impact here, I could go back to the slide that shows the group the 260. If we do the same comparison for the coming Q4 with the Q4 last year, at today's rate, we expect it to be somewhat more negative than what we saw in this quarter actually. And that is due to the fact of what happened last year, but also where are in the last couple of weeks with a slightly lower dollar on top of the emerging markets currencies that was already low in the Q3. So we believe that to be somewhere perhaps up to 400 negative even as a bridge to the Q4 last year. And looking even further ahead on 2014, obviously, it will continue to weigh negatively.
It's just to look at what has happened to the currency rates during this year to understand that. But let me come back and quantify it later when we report the Q4. So I move on for that to the balance sheet. And I think that the takeout from that slide is really only that, yes, we are accumulating some cash, but we have also borrowed a little bit of money. As you can see at the bottom there or in the middle at the on that side from SEK 23,000,000,000 at the end of last year to SEK 27,000,000,000.
So all in all, we're pretty stable. And we, of course, look primarily at what is happening to the working capital. There hasn't been a lot of release of receivables yet. The revenue is still at the reasonable level compared to the order intake. So we expect of course that as we move further down, we will have a little bit more of positive impact of reduction of receivables.
And when it comes to the inventory, it stays relatively the same. It's what Ronny alluded to that we have in the mining sector experienced a number of cancellations. And of course in the short perspective, it's a little bit hard to adjust quickly to find an offset of those impacts on the inventory as well. All that is summarized you can say in the cash flow. I think that you can see that what I talked about of releasing money or cash from working capital is not happening yet.
That will be an effect that we expect when the business has come to the level of the order intake represented today. On the other points there, the increase in rental equipment, yes, it's a little bit higher than in a normal quarter, but it's also true that we are doing some investments in certain markets in certain applications. This is a profitable business, so we like the return on those investments. With that, I think I'll leave it back to Ronny to talk about what lies ahead in the near terms.
So our most sophisticated outlook and I think everybody can read it. I suggest Anzula that we go yes, we'll everybody read. And I think it's at one sentence and I think we go straight to the questions.
And as you can see it remains exactly the same as we had before. Good. So with that, we are ready for the question and answer session. And we have some help here with some microphones. I think we'll start here in Naka.
Over here we have our first question. Please state your name and then the question. Before I let you start though Peter, can I have the operator please repeat the procedure for the questions on the telephone conference please?
Thank you very much. Go ahead, Peter Fruhlyan, Handelsbanken, Capital Markets. If we start with the larger orders in compressors, could you help us to understand the magnitude here currently maybe looking at large orders in Q3 last year and also how it looks in the Q4 last year to understand what we are facing in terms of comparisons? That's my first question. My second question, you mentioned Ronny the obvious under absorption in the mining production.
And could you please clarify when you believe the Erbru headcount reduction will be finalized? And also maybe helping us what you're trying to sort of define or tell us the magnitude of the under absorption affecting the EBIT. And I guess I have to get back in line after those two questions. Thank you.
Yes. On the large orders, I don't have immediately the comparison in my but I just gave you a bit tried to give you the dynamics in this business. One should know also that large orders where do we get them? You get them China, so that's Asia. That's where we get say the majority.
And oil and gas related can be CNG, can be LNG, can be oil. So that's where we get. China is since on that since 8, 9 months softer. We know that. We don't get these peaks.
And when I was a collaborator on Asia, I mentioned that. So if we will get them, you would see definitely China comment because the normal business in China is there, is good. So that is one. So it's geographically. And then on the oil and gas, what I see is certain hesitation.
Why? I think it's also difficult to find out all the time to why people are postponing. I don't see any real cancellation, but I see postponement in really you get you don't the order does not land. You know that the quotation is there. It is bespoken everything is there, but it does not land.
And this happened at the latter part of this quarter where we saw this happening. So that and then I think also on this larger one, we had expected a couple of good orders also in India. What I alluded a bit on certain power plants, which were not landing. So that were the main do I see the structural? No.
I'm going to say, I could not find any good structural, because I see still good quotation level. I see that when I call around because this was also for me something to find out. I don't hear anything really that is structural be now significantly lower. I will not say that. So to be continued, you will ask me again in January.
Hopefully not, but the other one on absorption, yes. In Sweden, we have a certain way to reduce unfortunately the workforce. In Ouroboru they have done in previous phase already insourcing the tanks are gone and now it's unfortunately contracted people, which we have to reduce. This week, we more or less came to an agreement. So I expect that in the next months the next coming 2, 3 months that we will have this reduction.
How much under absorption is it? It is what it is. We take it. I'm looking here to my right hand is it I think we have too many today we have too many people and we are reducing workforce not only in Ouroboroboo, but it will be also in other areas gradually. So it's a bit too slow.
Otherwise, we will not have the under absorption. But one thing I should also say and that was the reason I stayed a little bit longer with MR. If you look to the flow through later on when we are stabilized again, you will get a little bit of a penalty because I want them to focus on design and development. And I think that is not a stop and go. You cannot do that.
You cannot outsource that part because this is core, core. And I want us really to be faster with new products into the market and that you don't do by reducing certainly the workforce. The same is with the salespeople. Yes, I know that there is no demand. Yes, I can lay them off, but who is going to sell when it comes back?
Because they have maybe 10, 20 years experience. So we need to sit out this under absorption method.
Okay. And when we say under absorption, it's of course not only the technical part of the load on certain machines. It's the whole structure. Free structure, yes. Functional costs and everything that is needed to keep quality of the business intact.
So coming back to how big was the effect of the fall, well, I think the profit fall through that we looked at is showing that very clearly. It comes from volume and that is of course under absorption. So it's more or less that effect what we
have. On the other hand, of course, we also must go for efficiency. Sure. And we should not this is not the free ticket I give the organization that would be too easy.
Very clear. Thank you.
So we take one more question here in NAKA and then we move to
Anders Roosler from Swedbank. I have two questions regarding demand. The sequential demand for underground versus surface mining? Where do you see the trends there? And also the Canary compressors what about them the sequential development?
Yeah. Sequentially what we see on the underground that has kept sequentially at I would say more or less the same level. Surface is tough especially the big machines. There also where we got most cancellations, we see also that there is softer. And that is also one of the reasons why it's lower.
You need to find it in the service part, not so much in the the mining is also lower when you compare quarter to quarter last year sequentially it's more or less the same. So that's a mixed part. The yellow canaries, so the yellow, I would say slightly positive that but of course depending a bit which region there is unfortunately not the region who is really going double digit. So that we don't see. But I see Europe, I think they hang in.
China, yes, we could say maybe slight maybe a bit slight negative, but I think it's also a bit that we are now going to launch a new product and they know that, so they wait a bit. But if I listen really to the people and the quotation, I would say it's more or less around the same level. And it's a bit strange and maybe it's a bit boring, because if you look to the transcript of last quarter, I must may have said more or less the same. And this is a bit when we looked to the analysis of the quarter and say, the explanation is a bit more or less the same. And that's I think here I can only repeat what I said almost in Q2.
So the same. So just to follow-up on the underground surface. What's your outlook for the next quarter? You are asking me.
You saw that one.
I am you see also we're adapting our suit. Let me first see what comes. If I listen what the BHP's and the others are in their mind, They focus a lot on utilization, pushing back greenfield operations, but also the service service drills are used. So I would say prudent. I will be still prudent on that.
I'm not betting on and I will not be overenthusastic on that part. I'm still prudent on that part.
Okay. We go to the telephone conference. And please restrain yourselves to maximum one follow-up question please. Otherwise we will not have many people having a chance to ask questions. So please we take the first one from the telephone conference.
We have a question from Mr. Johan Eliason at Kepler Cheuvreux. Please go ahead.
Yes. Hi. Two questions, if I may. First of all, the price component, and by the way, both of these sort of refer to the mining and rock excavation, it's holding up quite well with the plus 3% in orders in sales here. Is that the pure sort of mix effect from the off the market growing as a share?
Or how are what are you seeing on the price development there, mining and rock excavation? And then again, mining and rock and then the drop through here, you mentioned under absorption and the drop through 4% to 5%. Isn't that sort of a cushion coming from the aftermarket growing as a share as we speak? Or is this still to come ahead of us? That's my two questions for now.
I suggest I take the first one. And Hansula, you are the specialist of the drop too. Price component, of course, what we see is and remember 6 months ago, there was a lot of worry about the price. And I got more out of the 10 questions I got 11 on price and then especially on the mining side. What we see is it's definitely that the world of the purchases is there.
But if you don't buy much on equipment, you don't have much to negotiate on. So that's first. 2nd, prices is not just it's value selling. And that's also what we always have said, okay, hey, you get innovated the best products. It's total cost of ownership.
That's the way these products are sold. And that's the same as on the service and on the parts side and on the consumable side. Having said that, is there price pressure? Yes. We see if you take on the consumable side, there is definitely price pressure because there are people who have a little bit too much inventory and maybe they get pushed and okay they adapt to what the customer maybe wants to pay on that.
But I see still if I listen to our organization and what we do, we still get the right value out of the market. So I think we keep up on that part. And that's also the reason why we should make sure that we keep striving for innovation get really the value to sell.
Just a quick comment. I don't think that we can dissect every detail of the famous drop through. But what we see is of course inside that effect that I pointed to which was close to €500,000,000 or between €400,000,000 €500,000,000 negative as we call the drop through is consists of many parts. And there is a component not in absolute value, but from a profit margin point of view of a better mix with aftermarket that's sure. So if you're looking for more the explanation of the margin drop, yes, the pure volume drop plus let's say having a 2 big costume on top of that is more than what you see in the effect net net.
So that's I don't know if it explains or if it answers any of your question, but it is what it is as we normally say. And I don't expect it to be a dramatically different situation from a volume drop through. What will gradually change is of course the extra negative that comes from having a too big costume. So that will of course gradually over the next couple of quarters adjust to the better. So that's how it looks.
So the margin drop is of course a combination yes of a slight positive mix, but then the effect of pure volume drop and under absorption explains the rest.
And of course we and we realize we don't make it easy for you. But on the other hand, I don't want to establish a shelter with announcing a big restructuring program and say we put it on and say, like Hans Ole said, it is what it is. We take it. But that means that we sometimes standing in front of you and we also have to explain. But it has happened this quarter.
It's real money.
Okay. Great. Thanks.
Thank you. Next question from the telephone conference please.
We have a question from Mr. Ben Maslach of Merrill Lynch. Please go ahead.
Yes. Thank you. Hi, Ronny. Hi, Hanzo. The first question is just when you look back to last quarter, you guided demand to be flat Q3 versus Q2 and it came in about 8% lower.
Just what was a big disappointment for you? And maybe how as you went through the quarter, how did it look on a monthly basis? Was there a big difference month by month?
Yeah, Ben. Yeah, it was for sure that I had liked a little bit more. And the 2 areas where let's say quote quote where I went wrong, I will not blame my COO here, is in the mining. It's it dropped more on that. Of course, we had cancellations and EBITDA.
So that was one part. And I explained here also to Peter, I think is on the larger oil free and gas and process orders, which I had expected a little bit more on that. But that's where we really when I look to our calculation of 3 months ago that's where we see a deviation. So there we went, yes, long or whatever.
And as you know, I mean, it's an outlook that tries to gauge what we think about the customers' desire to purchase and invest. And it's not an order intake outlook so to speak. So there can be oscillations of course.
Then Ben you also asked about the timing of it in the quarter. I think I didn't see any differences if we take it on the quarter. Of course, on these large ones, of course, when they don't come, yes, you see it in that that was the latter part of the quarter. But the rest was more or less at yes, equal divided over the 3 months.
Great. And as a follow-up then looking forward, I mean last quarter you did a very good explanation of the moving parts. What you thought might be up, what might be down maybe you could do that again by division and region? That would be very helpful. Thanks.
Okay. I go back to when I did a summary at the beginning of the presentation. I can take it like that. And I have here also to Anders when he was asking about the mining surface, the bigger drills should still to be questioned what will be coming back. I'm a bit reluctant.
Underground I see a reasonable development. Civil works maybe slightly positive. MBI, we're standing strong here. I think that works great. We see also SCA, SC and Schucker doing fine and that's part of the MVA MVI part.
So the Industrial Technique side is doing on the volume part solid. Construction, we enter in a season now, which is a bit lower than if we take the previous especially the first and the second quarter. So there we have to see a bit seasonality. But if we take the portable energy part, which is a big part also there, so the portable compressor and generators. So we see a good development there.
I think we'll see what the question will be what will the rental companies do in the latter part of this quarter, so that these talks are going on. And then on the compressor side, I think it's sideways that we will move. Like you also said here to Peter when you ask large orders, I don't see a structural reason to say this will repeat this. But I don't see it. So I should stick to that.
And the yellow canaries, I think if we get a bit self helped with new products launch working hard to get a little bit share here and there we should get yes fight back on that part.
Got it. Thanks, Ronny. Thanks, Hans.
And maybe I forgot to say the biggest part the biggest contributor is all out of service. Sorry, Ben, that I forgot that to say, because that is definitely the area, which now in the organization we are focusing on a lot. We should there is the one with the nicest contribution. So that's the one with the nicest contribution. So that's an area where we have a lot of focus.
Also in the mining side. Even if the business is now difficult, we can take more there.
Okay. Thank you, Romy. I think we take one more question from the before we go back to Stockholm. Yes from the telephone conference.
We have a question from Mr. Lars Brorson at GMB. Please go ahead.
Yes. Thank you very much. Good afternoon, Ronny and Hans Ole. A couple of questions, if I could, follow-up on earlier questions. Can I just make sure and sorry to keep going on about your outlook statement into Q4 on mining in particular, but on the components you mentioned Ronny surface arguably worsening into Q4, underground okay, civil engineering slightly positive and service quite good?
That sounds to me as though you're guiding mining quite flat. I'm trying to reconcile that with your order intake down 10% sequentially. And I also want to try and get a sense for what you see cancellation wise here. We saw cancellations accelerate from Q2 about €200,000,000 to 3 €40,000,000 in Q3. Is there a risk here that cancellations accelerate further?
What kind of visibility do you have on that? And again, if you can you perhaps conclude about mining overall what you see outlook wise there for Q4? Thanks.
I will elaborate first on the cancellation and the visibility. That is the big question. You don't get much visibility on that part because if they stop a project they come to you and if the BHP's and the Vale's and the Anglos come to you to cancel, you should only say thank you for not to fire us, but that's also I don't have much visibility on that part. Now just before we enter into this call, I had a talk with Head of Mining and asked him now. So have you latest heard something about cancellations?
We didn't pick up any today, yesterday, the day before. But who knows what come out. I will not overdoing it when say what you say there is an acceleration in canceling. Yes, technically yes, because we are towards a 240 and now 300. 200 and now 340.
Yes, it is an acceleration. It's more. But I think it was 1 or 2 orders will come and then these were bigger orders would come. And actually these were orders for surface coming back on that part. Now when you say on the outlook on the surface and the big drills, I think it's rather low today already.
So I don't think it will going much, much down because then I think there is not much. On the other hand, I think if I sense now the quarter 4 and of course now I take my crystal ball and let's see, I still see that and listening to the mine owners, listening to consultants, there is still a lot going on talks reshuffling with projects. So I think it has not stabilized yet. That's my reading of it. Wrong or right?
I don't know. But that's if people are not straight sure then okay then it's still a lot of things can happen. That's on the mining side. On the other hand on the civil works, you see some nice projects going on. So because we have mining and rock excavations, so we should not forget that.
So from that part, we get a little bit more positive side. So is it really balancing each other? I will let you know by in 3 months. But on the mining side, I'm still cautious, I'd say. That's my reading of the situation today.
And Ronny just on CT is your outlook here predicated on these large orders that didn't come in Q3 returning perhaps in Q4 or in the near term?
I think like I said on the CT on the quotation level is good. Also in China the quotation level is good. So there is a lot of projects in the air. So I should not be of course you always have as a CEO you obviously need to be concerned and watching out. But I'm not, say, pessimistic on that side.
Let me say like that. I don't believe it is a structural thing. And I think there is again, I'm repeating myself here. There is a good quotation level going on and taking place. Also in U.
S, you see even in Europe there are a couple of good projects going on. In China, is definitely activity. And one should also know, we still don't have 100% market share. So we can still with all the new products we have, we should also be able to sell more.
I'm looking around here in Naka. Perhaps we continue instead with a question from the telephone conference.
We have a question from Mr. Sander Krikmann of Credit Suisse. Please go ahead.
Good afternoon. Thanks for taking my questions. Firstly, on Mining. This conscious focus and effort on new product introductions and spend in R and D and presence, What's driving it at the moment when markets are relatively soft? Is it a response to something that you're seeing others doing in the market and therefore maybe notice sign of market becoming more competitive down the line?
I think the more competitive I think the world always get more competitive if you ask me, because if I will ask maybe my previous colleagues, he would say now it was more competitive in my time. But I think really the world is more transparent. So that means that buyers are getting more informed. So you need to really, yes, make sure you sell value. And that is also what we what drives us and what we keep working And it's really making sure we come up with new technology because that is the only way I see for us to be create sustainable profitable growth.
If we keep not doing that part then I think it will be very, very difficult. The second one is of course on presence. We keep developing our presence to keep with our customers. I think also that we need we have done that also. If you look in 2,008 and I said maybe it was early 2010 we made one mistake and that was taking away of reducing certain presence in China where we should kept investing.
And I will not repeat that problem myself in any market. I think we need to be there and stick to that. That is that's the mission. And we have agreed with all four business areas. We need to be there where potential customers are.
Okay. We have one question here in the I think to Naka. Yes.
A follow-up Peter Flynn, Hannes Banken. On the Q3 order intake, could you please help us with the share of aftermarket?
You can
It's I don't have any percentages. We don't disclose those in details as you know. So otherwise it would have been in the report. But it's clear that the sequentially the aftermarket was relatively flat. It had of course the impact like anyone else like any other income of the currency and so on, but if you take that out.
So clearly, the percentage is increasing. And we will come back when we do the full year analysis and give you the numbers again. But It developed of course in the right direction if we look at
the strategy that we have. You also have certain seasonality in these things which is so and especially when the growth levels get damaged you need to interpret it by different business area to see what.
A clear one then. On CT, is the service growing sequentially or flat sequentially take out
the FX? No. It's growing sequentially, but it's very, very modest of course because it's a short period.
Very clear. Thank you.
We go back to the telephone conference where we have some questions left I think in queue.
We have
a question from Mr. Markus Almerud at Morgan Stanley. Please go ahead.
Hi, Markus Almerud here. First, I want to come back to the underground and surface mining, where you say the underground mining equipment is stable. First of all, what is the reason for this? I would have expected that fall as well. Are there any one offs in there?
And also, is this something that you've seen in this quarter that is it flat in this quarter? Was it also flat in Q2? My second quarter is in aftermarket. You said you saw negative volumes in aftermarket sequentially also in Mining and Rock. Can you just help us out what aftermarket revenues has done year to date?
I know that it has been flat up or down. Thank you.
If you're speaking about MR, Is that a question regarding MR?
Yes.
Okay. So then the aftermarket is flat. If you take into consideration that there is continuous price increases that we also do consistently then it's organically flat.
And currency should be in line with the business area?
Sorry?
And currency should be in line with the business area as a whole?
Roughly, yes.
Yes. And then you asked about the underground and surface and maybe I should have not gone on this road. Sorry, Matthias, you will get a lot of follow-up questions on that. I think if you try to analyze why is it actually? And one should also know when it comes to underground it where we are operating, because you also should see then also Atlas Copco's position in mines, it's a lot of copper.
And copper is still on that side. I think surface, I think there's also a lot of greenfields and other bigger new projects, which they may be canceled or may be postponed. So that is I think the main two, three reasons what I see the background to that.
And is it a new phenomena? Or is it did you already see this early in the year?
This is the last when it comes to service, I think it's the last 2, 3 quarters. I think you say where the last 2 quarters are maybe the most outspoken.
Okay. Thank you.
Another question on the telephone conference perhaps.
We have a question for Mr. Aron Ebitson of Goldman Sachs. Please go ahead.
Yes. Hi, there. Good afternoon. I got 2 very quick questions, I think. So the first one is just on pricing in light of the big FX moves, maybe more relevant for mining, but across the board.
How should we think about this? So when you say you have positive pricing, how do you factor in the fact that a lot of particularly the sort of resource heavy currencies have depreciated quite massively against the krona. So is that pricing set in, say, South African rand? Or is it your price realization? So we're effectively looking at something down 10% in dollars or 15% in krona, but up 3% in South African rand?
Or how should we think about this pricing sort of in context of that? And my second question is just very quick. I'm not sure nobody's asked about it. So I'm sure it's I assume it's sort of off and you're not allowed to talk about it. But what's happening with Edwards?
Are they progressing towards targets? Do you have anything to tell us? Thank you.
I suggest that pricing FX and other things, Hanzula. The way you see us refer to price is what happens in local currency if I put it that way. Of course, the aftermarket business in particular is a local business. So when there is a price, it's not just an effect of using it in looking at, as you say, a weak currency and then say we have growth in that, so it's in hard currency. It is trying it's making an average of the price increase that we see in the markets around the world.
And then to your point, of course, if you would translate that into one currency, you would have a negative impact. But this is a local priced both cost and price. So in our words, this is a true price increase. That's what I'm trying to say.
But sorry, but just to exemplify then, if you look at your insert tools for instance, I mean, I assume you don't have local manufacturing in all in Peru and parts of Africa. But or is that the case? Basically the vast majority is locally produced?
Yeah. But in those cases where we buy the spare parts for example or indeed that they come from one of our factories, yes, we match the price increases as quickly as possible to the currency depreciation. Of course, you can't do that weekly. You can't do it by day. And you have to know, of course, where is it possible to do in the short term.
But that is that's what I mean by saying that it's a true local picture.
That's only on the transit.
Yes, exactly. So we the way we see it this is a true price that sticks so to speak in adding to our profitability. Okay. Yes.
Okay, Aron, on that part? Yes.
Yes. That's fine. That's We can come back later.
So I will then elaborate a bit on Edwards. So our commitment to process vacuum, it is moving in the right direction. So we get a couple of weeks ago the shareholders meeting took place and they were positive. So we go ahead. We are filing for antitrust so in several countries.
So that is a procedure which take place. And if everything works fine, which I think we should expect because there's not much anti competition than to trust what we can expect in the vacuum scenery as we don't have much. We expect to close early January. That is our idea. But in the meantime, Hansula is saving dollars to get make sure we can pay it.
So that is also in process. So that works. So if the dollar is weakening sometimes it we are happy and sometimes we are unhappy. So for this project, we are a bit more happy. When it comes to the business, it's developing according plans.
So that's also good actually for me to see. That is the main reason that we bought it. So that is good. And also the integration teams they're meeting. So we try to make sure that the people in Edwards really trust what we want to do and we talk to them as good as we can talk because once you know we don't own the company.
So it's still a company which is in process.
And Edwards is guiding the market on their performance a few weeks ago on the Q3 performance. So that you can find there on Amgen. You might already have seen that.
Yes, I have indeed. Okay. Thank you very much.
Thank you. We need we could take one final question perhaps because we have a lot of questions still, but that is the absolute final. And then we have to stop. I'm sorry for that.
Next question comes from Mr. James Moore at Redburn. Please go ahead.
Yes. Good afternoon, everyone. Thanks for taking our last question. I've got a couple both on the Mining division, if I could. I know you're saying that you don't want to break out OE and aftermarket, but maybe you can help us a bit now that Metso, Sandvik, Joy and Cat are all trying to help on that split.
I think last year you did about EUR 16,000,000,000 of OE and EUR 18,000,000,000 of aftermarket and consumables. Should we think of that EUR 18,000,000,000 as a broadly flattish number and that therefore we've gone from EUR 16,000,000,000 to EUR 10,000,000,000 this year and all of the drop is in OE. And within that question, my real one is, can you tell us what the OE book to bill is in the quarter? The second question relates really to what cost structure do you now have in mining? You talked once about temps going from 7% to 20%.
The demand is down. Your headcount is down. How flexible is the cost base today? And how many temps do you have?
Okay. Let's start with the last one.
Yes. You can take this. I think if it was We had no net worth of time. No, no. No.
But I
think it's still in the mining. Yes, you're right. I mean the what we have said there is basically a flat development a slight increase over the year. As you said you mentioned the 2018 2015. So the drop is only in the original equipment.
That's true. And then of course currency, you have to take that factor into consideration the 6 percent that is in the MR business area year on year. Then on the book to bill ratio, yes, I think we can all calculate that we are talking somewhere in the region of 0.87 or something for the whole MR. So I didn't actually make up the number this time. But obviously, it's much worse than that from the book to bill ratio for equipment in the quarter, yes.
Then I On the cost
structure yes, but I can give on the cost structure. James on the cost structure, of course, we have used the flexibility, which like say the outsourcing, the dams that in air in certain countries it's fully used when it comes to manufacturing people. That we do and that is the reason why we have now also to go deeper in the organization and that was your question from Peter here when it comes to Urbru where the process takes a little bit longer than it would happen let's say in Garland in Texas where you can where you have a higher flexibility when it comes to manufacturing people. So that is one area where we flex. But one other thing and now I'm going back maybe 2 years and even longer where we have said and maybe you can read your notes on when we were in the Capital Markets Day actually where we said we invest in Asia.
We have built a whole new plant in Nanjing actually where we also are really doing design and development and also making other platform ready for Asia. So we could play the dual offer where it's needed. So that is an area where I have committed ourselves to invest and we keep that because I think on the long run that will pay back. The flexibility and I repeat myself on R and D, yes, you will not see any very few changes. Of course, now you will see that more when it comes to the flow through because, yes, I keep the cost, but the revenue is not there and that is the difference between short term, long term.
So I keep eyes in the stomach on that part. And the third one, you also should know that we also have done a couple of acquisitions, spot hopefully spot on ones. And one is the one Shandong actually in China on the consumables side, which also is an area where we're investing a lot. And that is also an area which will take us a while before it's really up to the level which we would like to be that. But of course, we still have some work to do on the cost structure to adapt to suit.
So that is also when we talked about under absorption. So we have to do that. And the first slide, we continue to adapt. So in the months to come, we will do a couple more of changes because we need to adapt to the new norm, which I see today. But again, I will not make it easy for you, James.
I know that you won't get this exact figure as restructuring, but I don't want to give in on that because it's too easy shelter for myself and a too easy shelter also for you to say. If we do this adaptation, we do it in the most efficient way as we can do, so that we come later on can show you that we have generated cash. Maybe we didn't generate this year value, but we promised you 2 years ago if you don't get value you get cash. So that is what I would like you to deliver.
Sorry, can I just follow-up and ask you to say a different way? And say if the orders in the quarter were 6.04 and we add back the cancellations and then we times that number by 4, we get to a sort of CHF 25,000,000,000 CHF 26,000,000,000 CHF 27,000,000,000 type run rate, which is clearly a lot lower. Is it you're trying to right size to that quarter? Or are you taking the whole 9 months and being a bit more broad brush about it?
I think you are not far away also of my thinking. So I'm not going further. Otherwise, we start the discuss after the comment. I suggest that you take that further with Matthias. I'm sure he is delighted to do this debate with you James.
So we are adjusting to what we see today James and not what we saw in the beginning of the year. That's correct.
We live today and we should react on the act on the unfortunately sometimes we have to react because it's very difficult to predict future. Excellent. Thank you very much.
Thank you, James. I apologize for everybody that thought we took too long time, but we had a lot of questions on the telephone conference. Still we didn't make all of them I'm sure. So please turn to our IR department or us too here for further questions. But for now, thank you very much for coming and for participating in the telephone conference.
If not before, we see you again, I hope, on the 30th January when we talk about the Q4.
No, no. We hopefully, we see you all on the Capital Markets Day.
I stand corrected my dear boss. We have a Capital Markets Day that comes in a few weeks' time and we'd love to see many of you participating on that one as well. Thank you for that, Giovanni. But with that, thanks for coming. Bye bye.