Good morning, good day, good afternoon to everybody that is participating on the telephone conference and here in Stockholm to this presentation of the third quarter 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, Ronnie Leten, who will give us his comments on the quarter, on the results, and the trends. Then we will open up for questions and answers, where we will have a few questions from the hall here in Nacka, Stockholm. Then we will take turns with the telephone conference. Please, without any further ado, Ronnie, I leave it to you.
Thank you, Hans Ola. Let's go immediately to slide number two. Q3 in brief or the highlights. Maybe just before I go to take a bit of points here on the slide. If you look to our result, it's a bit of a mix. The 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. 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. There's also another one, 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.
On the other hand is also the yellow canaries are still there. 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. I will elaborate a bit when I'm talking on compressors, what my analysis is of that part. That is 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. 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 start 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 Hans Ola will also explain you why it seems a bit lower than maybe some of you had expected. Mainly we can say two parts: it's currency and second is the mining under absorption. These are the two takeaways and the explanation why you see a small drop in profitability, a bit bigger when you look to mining. We keep continuous taking actions to adjust the capacity for lower demand in equipment in mining. That is unfortunately we have to do, and we have to adapt our suit, and we do that accordingly. Hopefully very soon we have reached a certain level so we could say we stabilized that.
I am also very pleased what we have done on the strategic part when it comes to acquisitions. One was the step up of our acquisition in process vacuum. We really expand from a strategic point of view in vacuum, and we have been spending many years in that area. I think this is a journey which Atlas Copco started now, and I am sure it will also contribute a lot to the value. We have a couple of actually four in each business area. That is maybe the first time we have this as a quarter in every business area, one acquisition, and they all fit nicely in our product portfolio. If you go then to slide number three on the figures. You can read the figures maybe on the operating margins and the profitability.
Positive, we have a still good pricing development, so price mix is doing fine. Negative is volume under absorption. Of course, that we will have. Of course, when you are comparing last year with this year, one should know also we had a one-time positive item last year, and also last year we had a very high Load means also good absorption. You really compare to the left and the right side to that. The rest, I left it to Hans Ola 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 five, when we talk about the Americas.
Although the slide shows here a -11% when it comes to orders here, because one should also know that last year around the same quarter, we had a couple of big orders in Compressor Technique in this area. Second also, Canada and Mexico are larger mining nations, which are also lower this time. That made it a -11%. But if you take and you try to look under the skin on that, then we can say 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 are gaining share. Also we have the MVI business, which are doing very well in the U.S., actually.
I think last but not least, the construction equipment side, when it comes to rental companies, are doing a very good job. Which is lower, okay, mining and the larger compressors when we make the comparison. A healthy service business, so that is always nice to see there. We continues to develop that part. South America, Chile, Peru, low again, mining. But what was good this quarter was Brazil. We had a very solid development in Brazil. That is good to see. But again, South America is a lot of mining and rock excavation. We then go to Europe, the next slide. I must say, not so bad. Okay, you see the -2%. Okay. That is of course negative. But if we go again under the skin, we see a solid development for the tools business. The compressor business is doing fine.
Again, I think mining drags it down. Couple countries which stick out here, and one is U.K. It's since couple quarters that we see a very good development in U.K. A lot of self-helped, 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. 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 statistic.
Of course, it's a little bit easier comparison, but it's not a bad level where we are in this moment. Asia. Good tools business. Mainly it's the MVI business and then you see all the statistics of car production, then you can say and really also see that the producers over there also go for the quality tools. Really taking care of the quality of the cars, that helps us also in the transformation. We got good stable order income for the industrial compressors that keeps going, even in China. Like I'd also said, I still see still good solid development in China. What we miss, and that we miss in the top, is these 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.
Yeah, that's on Asia. Maybe I can give you a bit more info on India. For us, India in the quarter was not so bad because we got a couple good orders there. You also see the outlook on India there. I think I need to Yeah, we are careful, but still today it develops fine. Nothing to say more on that. In Australia, the more you get mining exposure, the bigger the figures are that they are down. Also here, it's mainly on the mining side that it goes down. We go to the bridge, sales bridge. You see, still maybe some of you would have expected a negative price development, we still see that the work, what we do in new products, the innovation part, 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 minus 5%, you see it's around, if you take it over the first nine months, is around 3.5 billion SEK, it's a significant amount of money. If you look to the quarter, the volume, price volume minus five, minus six. If you take the two together, like I said, it's going down. Let me go into the different business areas. I go immediately to slide number 11, we start with Compressor Technique. A decline, the decline mainly comes from the order take from larger machines. One would ask immediately, 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 the couple of orders in India when it comes to power plants were delayed. That is what was, say, mainly the analysis we got. Is it structural? I don't see it because I see still a good quotation level. Of course, that's quotation level. At the end of the day, we have to get the orders, and then to get it invoiced. At least, I don't see really a structural part in that. The yellow canary is still going on. Also our new GA VSD+, which we launched, what is it now, six months ago, is very successful. That also helps to take more share in the market.
We actually go to launch it also in one of the coming weeks in China. We are ready now to also explore the market over there. Service continues to grow in that. Operating margin 23.6%. A very solid margin where this business area should be. That's nice to stand here and to say it's 23.6%. Okay, on Edwards, I've already elaborated on that. We keep going on that. We had a small service company in Turkey which we acquired. Industrial Technique. I have already said a couple times, a very strong motor vehicle part. We see everywhere really the car business developing very well for us. The highlights are the U.S. and China. That's good. It's a bit softer demand for General Industry, but I think you see it's getting more positive, let's say, the trend.
That's good to see. Okay, of course, Asia, it comes from the motor vehicle part, which of course gives that. Operating margin 23%. I'm pleased to see that. We acquired a nice acquisition here really as an assembly solution expert, which I expect a lot from is Synatec, which goes very well together with our motor vehicle business. Hopefully it will be as successful as our SCA Schucker acquisition. It's really spot on. 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. If I start with the last bullet point, we had a new leader.
I think his plate is full in adapting the organization, and that is one of his first tasks, really to adapt our suit to the new level. When it comes to the orders, we get the cancellations, as you can see on the slide. What I think in this area with this segment, which is good, I see still a good development on consumables. We don't see it in volume not dropping. 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 mine owners are really focusing on the brownfields, not so much as on the greenfields. That means that they're really using their equipment. Utilization, productivity is the theme of the day or the week, or the year. There is a lot of focusing on that part. 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 equipment sale, but eventually all this automation doing further efficiency could lead to good development for us. Operating margin 20.8%. We can say, of course, with restructuring taken into uncertain under absorptions, like I said, negative effect of the lower volume, we had that. You know also our way of working. We take it.
Of course, that means that the margin is dropping. We had a nice add-on acquisition, that's also good that we landed that part. Before I go to CR, I would like also to elaborate a bit, what are we doing in Mining and Rock Excavation Technique. We really here adapt the suit, like I said. On the other hand, I want the organization, and that's also what we really do, focusing on the customers. 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. 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.
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 want to have productivity, and you can only do that with new equipment and better equipment. That is where our focus is on in this organization, beside adapting the capacity and that we need to do, unfortunately, that means also reducing the manpower, especially then in manufacturing. Construction, I said already, a positive side. 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%. One should say, yeah, it's a bit lower than expected could be.
One should also know that the currency mix is a little bit different here than it is for the total group. If we do this correction, more or less you come up to 11%, even bit more. What means 11 plus then a couple restructuring works, what we did, you come more or less at the same level as last year. From that point of view, I cannot be dissatisfied on that part. The reason why the currency is more, one should know also they have big markets in Australia and in Brazil. We know also the currency, what has happened there. Last but not least, we have done a nice acquisition. Then, I'm coming on my last slide before I give the word back to Hans Ola. 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 SEK 700 million. A little bit less than SEK 300 is currency, the other part is mainly MR under absorption, we could say. I suggest that Hans Ola takes over.
Thank you, Ronnie. 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 Ronnie has already talked about that. If we go a little bit further down, we have a financial net of close to SEK 200 million net negative in the quarter. Normally, the most interesting thing about that is what do you expect for the future? I'll go at that right away. That's about the same. I don't expect any major difference. As you know, the interest net, we can roughly calculate, there are sometimes some revaluations of financial assets and so on, and that we cannot predict where it's going. 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. We are still a little bit above 25%, which I would estimate to be the normalized situation right now. Coming into next year, we will have to come back on that and see where we are and whatever the acquisition of Edwards, et cetera, will give. Let's come back to that when we know a little bit more that will actually happen and when it will happen. 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 SEK 260 that Ronnie has already talked about, the other big impact, as you can see, affecting the margin, is in the flow-through of the volume price mix, 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 zero line. On the other business areas, there is a nice improvement on profitability in the Industrial Technique, clearly so. You see that Mining and Rock Excavation is, of course, suffering from under absorption and of the reasons that Ronnie alluded to.
If we look ahead on the currency impact here, I could go back to the slide that shows the group, the SEK 260. If we do the same comparison for the coming fourth quarter with the fourth quarter last year, at today's rate, we expect it to be somewhat more negative than what we saw in this quarter, actually. That is due to the fact of what happened last year, also where we 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 third quarter. We believe that to be somewhere perhaps up to SEK 400 negative even as a bridge to the fourth quarter last year. 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. Let me come back and quantify it later when we report the fourth quarter. I move on for that to the balance sheet, I think that the takeout from that slide is really only that, yes, we are accumulating some cash, we have also borrowed a little bit of money, as you can see at the bottom there or in the middle on that side, from SEK 23 billion at the end of last year to SEK 27 billion. 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.
We expect, of course, that as we move further down, we will have a little bit more of positive impact of reduction of receivables. When it comes to the inventory, it stays relatively the same. It's what Ronnie alluded to, that we have, in the mining sector, experienced a number of cancellations. 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.
It's a little bit higher than in a normal quarter, it's also true that we are doing some investments in certain markets, in certain applications. This is a profitable business, we like the return on those investments. With that, I think I'll leave it back to Ronnie to talk about what lies ahead in the near terms.
Our most sophisticated outlook, and I think everybody can read it. I suggest, Hans Ola.
Let everybody read.
Will everybody read. I think it's one sentence, and I think we go straight to the questions.
As you can see, it remains exactly the same.
Said before, yeah.
Good. 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 Nacka. Over here we have our first question. Please state your name and then the question. Before I let you start, though, Peder, can I have the operator please repeat the procedure for the questions on the telephone conference, please?
I remind you that it's zero one on your telephone keypad to ask your question. Zero one.
Thank you very much. Go ahead, Peder.
Thank you. Peder Frölén, 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 the large orders in Q3 last year, and also how it looks in the fourth quarter last year to understand what we are facing in terms of comparisons. That's my first question. My second question, you mentioned, Ronnie, the obvious under absorption in the mining production. Could you please clarify when you believe the Örebro headcount reduction will be finalized? Also maybe helping us, but you're trying to sort of define or tell us the magnitude of the under absorption affecting the EBIT. I guess I have to get back in line after those two questions. Thank you.
On the large orders, I don't have immediately the comparison. I just give you a bit, try to give you the dynamics in this business. One should know large orders, where do we get them? You get them China, so that's Asia. That's where we get, say, the majority. Oil and gas related. Can be CNG, can be LNG, can be oil. That's where we get. China is since eight, nine months softer. We know that. We don't get the speeds. When I was elaborate on Asia, I mentioned that. If we would get them, you would see definitely China come up, because the normal business in China is there. It's good. That is one, it's geographically. 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. I see postponement in really, the order does not land. You know that the quotation is there, it is bespoke, and everything is there. It does not land. This happened at the latter part of this quarter where we saw this happening. I think also on this large 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. That were the main. Do I see this structural? No. I must say I could not find any good structural. I see still good quotation level. I see that when I call around. This was also for me something to find out.
I don't hear anything really that is structural being now significant lower. I will not say that. To be continued, you will ask me again in January. Hopefully not, that we'll see. The other one on under absorption. In Sweden, we have a certain way to reduce, unfortunately, the workforce. In Örebro, they have done in previous phase already insourcing. The temps are gone. Now it's unfortunately contracted people which we have to reduce. This week, we more or less came to an agreement. I expect that in the next months, the next coming two, three 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.
I think for today, we have too many people, and we are reducing workforce, not only in Örebro, but it will be also in other areas gradually. It's a bit too slow, otherwise we will not have the under absorption. 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. I think that is not a stop and go. You cannot do that. You cannot outsource that part, because this is 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.
Yeah, I know that there is no demand. I can lay them off, but who is going to sell when it comes back? Because they have maybe 10, 20 years experience. We need to sit out this under absorption bit.
Okay. 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.
Yes.
Functional costs and everything that is needed to keep the quality of the business intact. 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. It's more or less that effect what we have.
On the other hand, of course, we also must go for efficiency.
Sure.
This is not a free ticket I give the organization, because that would be too easy.
Very clear. Thank you. We take one more question here in Nacka and then we move to.
Anders Roslund, Swedbank. I have two questions regarding demand. The sequential demand for underground versus surface mining. Where do you see the trends there? Also the canary compressors, what about them, the sequential development?
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. That is also one of the reason why it's lower. You need to find it in the surface part, not so much in the mining. The mining is also lower when you compare quarter-to-quarter or sequentially, it's more or less the same there. That's a mixed part. The yellow canaries, they're yellow. I would say slightly positive. Of course, depending a bit which region. There is unfortunately not the region who is really going double digit. That we don't see. I see Europe, I think they hang in.
China, we could say 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, they wait a bit. If I listen really to the people and the quotation, I would say it's more or less around the same level. 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. This is a bit when we looked to the analysis of the quarter, say, the explanation is a bit more or less the same. That's, I think here I can only repeat what I said almost in Q2. It's the same.
Just to follow up on the underground and surface, what's your outlook for the next quarter?
You are asking
You saw that one. You saw that sentence.
You see also, we adapting our suit. Let me first see what comes. If I listen what the BHPs and the others are in their mind, they focus a lot on utilization, pushing back greenfield operations, where also these service drills are used. I would say prudent. I will be still prudent on that. I am not betting on, and I will not be over-enthusiastic on that part. I am still prudent on that part.
Okay.
Thank you.
Yep. Thank you. We go to the telephone conference. Please restrain yourselves to maximum one follow-up question, please. Otherwise, we will not have many people having a chance to ask questions. Please, we take the first one from the telephone conference.
We have a question from Mr. Johan Eliason at Kepler Cheuvreux. Please go ahead.
Yeah, hi. Two questions, if I may. First of all, the price component. By the way, both of these sort of refer to the Mining and Rock Excavation. It's holding up quite well with the +3% on orders in sales here. Is that a pure sort of mixed effect from the aftermarket growing as a share, or what are you seeing on the price development there, Mining and Rock Excavation? Then again, Mining and Rock, and then the drop through here, you mentioned under absorption and the drop through 45%. 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. Hans Ola, you are the specialist of the drop through. Price component, of course, what we see is. Remember six months ago there was a lot of worry about the price, and out of the 10 questions, I got 11 on price, 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. That's first. Second, price is not just. It's value selling. That's also what we always have said, okay, hey, you get innovative, the best products. It's total cost of ownership. That's the way these products are sold. 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 it 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. I see still, if I listen to our organization and what we do, we still get the right value out of the market. I think we keep up on that part. 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, what we see is, of course, inside that effect that I pointed to, which was close to SEK 500 million, or between SEK 400 million-SEK 500 million negative, as we call the drop-through, consists of many parts. There is a component, not in absolute value, but from a profit margin point of view, of a better mix with aftermarket, that's for sure. If you're looking for more the explanation of the margin drop, yes, the pure volume drop plus, let's say, having a too big costume on top of that is more than what you see in the effect net. I don't know if it explain or if it answers any of your question, but it is what it is, as we normally say.
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. That will, of course, gradually over the next couple of quarters adjust to the better. That's how it looks. The margin drop is, of course, a combination, yes, of a slight positive mix, then the effect of pure volume drop and under absorption explains the rest.
Of course, we realize we don't make it easy for you. On the other hand, I don't want to establish a shelter with announcing a big restructuring program and say we put it on it and say Like Hans Ola said, it is what it is. We take it. That means that we're sometimes standing in front of you, and we also have to explain. It has happened this quarter.
Yep.
It's real money.
Yeah.
Okay, great. Thanks.
Thank you. Next question from the telephone conference, please.
We have a question from Mr. Ben Maslen at Merrill Lynch. Please go ahead.
Yeah, thank you. Hi, Ronnie. Hi, Hans Ola. 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. What was the big disappointment for you? Maybe 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. I had liked a little bit more. The two areas where, let's say, quote unquote, "where I went wrong," I will not blame my CFO here, is in the mining. It dropped more on that, of course, we had cancellations and a bit that was one part. I explained here also to Peder, I think is on the larger oil-free and gas and process orders, which I had expected a little bit more on that. That's where we really, when I look to our calculation of three months ago, that's where we see a deviation. There we went wrong or whatever.
As you know, it's an outlook that tries to gauge what we think about the customer's desire to purchase and invest, and it's not an order intake outlook, so to speak.
Yeah.
There can be oscillations, of course.
Ben, you also ask about the timing a bit 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, yeah, you see it in that was the latter part of the quarter. The rest was more or less at equal divided over the three months.
As a follow-up then looking forward, 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 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 may be slightly positive. MVI, we're standing strong here. I think that works great. We see also SCA Schucker doing fine, and that's part of the MVI part. 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. There we have to see a bit seasonality.
If we take the portable energy part, which is a big part also there, the portable compressor and generators. 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? That these talks are going on. On the compressor side, I think it's sideways that we will move. Like you also said here to Peder when he was asking 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. The Yellow Canaries, I think if we get a bit self-helped with new products launch, working harder, get a little bit share here and there, we should get fight back on that part.
Got it. Thanks, Ronnie. Thanks, Hans Ola.
Maybe I forgot to say, the biggest part, the biggest contributor is all about the 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. There is still a lot to take, and you know very well that that is the one with the nicest contribution. 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, Ronnie. I think we take one more question before we go back to Stockholm. Yes, from the telephone conference.
We have a question from Mr. Lars Brorson at DNB. Please go ahead.
Thank you very much. Good afternoon, Ronnie and Hans Ola. A couple of questions, if I could follow up on earlier questions. Can I just make sure, sorry to keep going on about your outlook statement into Q4 on mining in particular. On the components you mentioned, Ronnie, 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. I also want to try and get a sense for what you see cancellation-wise here. We saw cancellations accelerate from Q2 about SEK 200 million to SEK 340 million in Q3. Is there a risk here that cancellations accelerate further? What kind of visibility do you have on that?
Again, if you can 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 BHPs and the Vales and the Anglos come to you to cancel, you should only say thank you for notify us, but that's all. I don't have much visibility on that part. Just before we enter into this call, I had a talk with head of mining and asked him also, have you latest heard something about cancellations? We didn't pick up any today, yesterday, the day before. Who knows what comes. I will not overdo it when I say what you say there is an acceleration and cancellation. Yes. Technically yes, because we had towards it SEK 240 million and now SEK 340 million.
200.
SEK 200 million and now SEK 340 million. Yes, it is an acceleration. It's more, but I think it was one or two orders will come, and then these were bigger orders would come. Actually these were orders for surface, coming back on that part. When you say on the outlook on the surface and the big drills, I think it's rather low today already. I don't think it will go much, much down because I think there is not much. On the other hand, I think if I sense now the quarter four, and of course now I take my crystal ball and would 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. I think it has not stabilized yet. That's my reading of it. Wrong or right, I don't know.
If people are not straight sure, okay. Still a lot of things can happen. That's on the mining side. On the civil works, you see some nice projects going on. We have Mining and Rock Excavation Technique, we should not forget that. From that part, we get a little bit more positive side. Is it really balancing each other? I will let you know in three months, on the mining side, I'm still, say, cautious, I'd say. That's my reading of the situation today.
Ronnie, 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. There is a lot of projects in the air. Of course, as a CEO, you obviously need to be concerned and watching out. I'm not, say, pessimistic on that side, let me say it like that. I don't believe it is a structural thing. 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, there is definitely activity. One should also know we still don't have 100% market share. We can still, with all the new products we have, we should also be able to sell more.
I'm looking around here in Nacka. Perhaps we continue instead with a question from the telephone conference.
We have a question from Mr. Andre Kukhnin at 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 on R&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 may be an early sign of market becoming more competitive down the line?
I think the world always get more competitive if you ask me, because if I will ask maybe my previous colleagues, he would say, "No, it was more competitive in my time." I think really the world is more transparent, that means that buyers are getting more informed, you need to really, yeah, make sure you sell value. That is also what drives us and what we keep working on. It's really making sure we come up with new technology, because that is the only way I see for us to create sustainable, profitable growth. If we keep not doing that part, I think it will be very difficult. The second one is, of course, on presence. We keep developing our presence, keep with our customers. I think also that we have done that also.
If you look in 2008, 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. I will not repeat that problem myself in any market. I think we need to be there and stick to that. That's the mission. 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-
There's one to-
I think Nacka.
Just to follow up, Peder Frölén, Handelsbanken. On the Q3 order intake, could you please help us with the share of aftermarket?
You can do the expert.
I don't have any %. We don't disclose those in details, as you know. Otherwise it would have been in the report. It's clear that 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. If you take that out. Clearly the % is increasing. We will come back when we do the full year analysis and give you the numbers again. It developed, of course, in the right direction if we look at the strategy that we have.
You also have certain seasonality in this thing, which is so, and especially when the growth levels get in, 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 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? 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 an 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 hasn't been flat, up or down. Thank you.
If you're speaking about MR? Is that a question regarding MR?
Yes.
Okay. The aftermarket is flat. If you take into consideration that there is continuous price increases that we also do consistently, it's organically flat.
Currency should be in line with the business area?
Sorry?
Currency should be in line with the business area as a whole?
Roughly, yes.
Yeah.
Yeah, you ask about the underground and surface, and maybe I should have not gone on this road. Sorry, Mattias, 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, 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 is also a lot of green fields and other bigger new projects, which they may be canceled or may be postponed. That is I think the main two, three reasons what I see the background to that.
Is it a new phenomena or did you already see this early in the year?
When it comes to surface, I think it's the last two, three quarters. I think you say where the last two quarters are maybe the most outspoken.
Okay. Thank you.
Another question on the telephone conference, perhaps?
We have a question from Mr. Aaron Ibbotson of Goldman Sachs. Please go ahead.
Yes. Hi there. Good afternoon. I got two very quick questions, I think. 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? 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 SEK? Is that pricing set in, say, ZAR, or is it your price realization? We effectively looking at something down 10% in USD or 15% in SEK, but up 3% in ZAR. How should we think about this pricing sort of in context of that? My second question is just very quick.
I'm not sure nobody's asked about it, so I assume it's sort of off, and you're not allowed to talk about it. What's happening with Edwards? Are they progressing towards their targets? Do you have anything to tell us? Thank you.
I suggest that pricing effects and other thing, Hans Ola.
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. 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, it's in hard currency. It's making an average of the price increase that we see in the markets around the world. Then to your point, of course, if you would translate that into one currency, you would have a negative impact. This is a local priced, both cost and price. In our words, this is a true price increase. That's what I'm trying to say.
Sorry, just to exemplify then, if you look at your insert tools, for instance, I assume you don't have local manufacturing in all in Peru and parts of Africa. Is that the case? Basically, the vast majority is locally produced?
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 cannot do that weekly, you cannot do it by day, and you have to know, of course, where is it possible to do in the short term. That is what I mean by saying that it is a true local picture.
That is only on transit.
Exactly.
Yeah.
The way we see it, this is a true price that sticks, so to speak, in adding to our profitability.
Okay. Yeah. Okay, Aaron, on that part? Yeah.
Yeah, that's fine. That's clear.
We can come back later if you want.
Yeah.
I will then elaborate a bit on Edwards. Our commitment to process vacuum, it is moving in the right direction. We get, a couple of weeks ago, the shareholders' meeting took place and they vote positive. We go ahead. We are filing for antitrust, so in several countries. That is a procedure which take place. If everything works fine, which I think we should expect, because there's not much anti-competition, one antitrust, what we can expect in the vacuum scenery, as we don't have much, we expect to close early January. That is our idea. In the meantime, Hans Ola is saving dollars to make sure we can pay it. That is also in process, so that works. If the dollar is weakening, sometimes we are happy and sometimes we are unhappy.
For this project, we are a bit more happy. When it comes to the business, it's developing according plan, that's also good, actually, for me to see. That is the main reason that we bought it, that is good, and also the integration teams, they're meeting. 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, you know, we don't own the company. It's still company which is in process.
Edwards is guiding the market on their performance a few weeks ago on their third quarter performance, so that you can find.
On the next.
Aaron, you might already have seen that.
Yes. Yeah, I have indeed. Okay. Thank you very much.
Thank you, Aaron.
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.
The next question comes from Mr. James Moore at Redburn. Please go ahead.
Good afternoon, everyone. Thanks for taking a 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 SEK 16 billion of OE and SEK 18 billion of aftermarket and consumables. Should we think of that SEK 18 billion as a broadly flattish number, and that therefore we've gone from SEK 16 to SEK 10-ish this year, and all of the drop is in OE? 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%, but demand is down, your headcount is down. How flexible is the cost base today, and how many temps do you have?
Okay.
We start with the last one.
Yeah, you can take this. I think if it was-
There was so many questions, James.
We had known that it was.
I didn't have time to take them.
No, I think you can go from the mining.
If I start from the top. You're right. What we have said, there is basically a flat development, a slight increase over the year. As you said, you mentioned the 16 and 18 , so the drop is only in the original equipment. That's true. Of course currency, you have to take that factor into consideration, the 6% that is in the MR business area year-on-year. On the book to bill ratio, yes, I think we can all calculate that we're talking somewhere in the region of 0.87 or something for the whole MR. 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.
I can give on the cost structure.
Yeah.
James, on the cost structure, of course, we have used the flexibility which, like say the outsourcing, the temps, that 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 Peder here when it comes to Örebro where the process takes a little bit longer than it would happen, let's say, in Garland, in Texas, where you have a higher flexibility when it comes to manufacturing people. That is one area where we flex.
One other thing, and now I'm going back maybe two 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 all the platform ready for Asia. We could play the dual offer where it's needed. 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&D, you will not see any very few changes.
Of course, now you will see that more when it comes to the flow-through, because, yeah, I keep the cost, but the revenue is not there, and that is the difference between short-term, long-term. I keep my eyes in the stomach on that part. The third one, you also should know that we also have done a couple acquisitions. Hopefully spot on ones. One is the one Shandong, actually in China, on consumable side, which also is an area where we invest in 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 at. Of course, we still have some work to do on the cost structure to adapt to suit. That is also when we talked about under absorption. We have to do that.
There is more that I also said in the first slide, we continues to adapt. 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. Again, I will not make it easy for you, James. I know that you want to 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 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 two years ago, if you don't get value, you get cash.
That is what I would like you to deliver.
Sorry. Can I just follow up and ask you to say a different way, say if the orders in the quarter were SEK 6.04 billion, and we add back the cancellations, and then we times that number by four, we get to a sort of SEK 25 billion, SEK 26 billion, SEK 27 billion type run rate, which is clearly a lot lower. Is it that you're trying to right size to that quarter, or are you taking the whole nine months and being a bit more broad brush about it?
I think you are not far away of also my thinking. I'm not going further. Otherwise, we start to discuss after the call. I suggest that you take that further with Matthias. I'm sure he's delighted to do this debate with you, James.
We are adjusting to what we see today, James, and not what we saw in the beginning of the year. That's correct.
Yeah. We live today, and we should react.
Yep
acts on this. Unfortunately, sometimes we have to react because it's very difficult to predict the future.
Excellent.
Thank you very much.
Thank you, James. Bye.
I apologize for everybody that thought we took too long time, we had a lot of questions on the telephone conference. We didn't make all of them, I'm sure. Please turn to our IR department or us two here for further questions. 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 of January when we talk about the fourth quarter.
No, hopefully, we see you all on the Capital Markets Day .
I stand corrected, my dear boss. We have a capital market stage that comes in a few weeks time. We'd love to see many of you participating on that one as well. Thank you for that, Ronnie. For you, that, thanks for coming. Bye-bye.