1st talk about the Q4 report of Atlas Copco and the full year results, and we'll do it in the normal format. We'll hand I will hand over to Ronny, the CEO of Atlas Copco, Ronny Lettin, in just a few minutes. And then I hand over to you, Ronen. Okay. Thank you, Hans Zola,
and all a warm welcome to my gold mine. So it's nice to be here and to see this historical place. I go like normal, I go to the presentation and I go immediately to slide number 2 where we talk about the highlights. A good quarter ending a record year. I would start with that.
If we talk about the quarter more specific, I will take later a bit more about the year. We see that the demand went lowered somewhat. It mainly comes from softer mining equipment sales, but also from a softer gas and process compressor business. What's good to know is and good to see that our parts and service, what it says here, our aftermarket business continued to develop very solidly, very strong. So it's always good that that part of the business continues to do well and you all know that that is our resilient part of our business.
We are very pleased with the profitability. And if we readjust for 2 one time items, we will end up with 21.4%. So I think for quarter 4, it is a very solid profitability. What really makes me proud about this quarter is our cash flow. We really made a great contribution to that mainly coming from a good accounts receivable part, but also a very good inventory achievement.
So that I think was very good from our organization. And the last sentence here on this slide is also what we should be proud of all of us in Aposkopko is that we are again ranked among the world's top sustainable companies by say on the top of the global hander place. So congratulations to all of you in Atmos Copco. When it comes now on Slide number 3, the figures in more summary. We saw a slight decrease on orders received.
So the €21,000,000,000 organic little bit down to 2%. A good output, revenue up 22 percent a strong 22 percent organic 4 one items, you see that we are close to almost to a €4,900,000,000 worth of earnings per share €2,800,000,000 percent,000,000,000,000,000. And like already said, the operating cash flow almost 4,300,000,000. We propose a dividend of €5,500,000,000 So that's an increase of 10% compared to last year, which gives a payout of €6,700,000,000 I'm now going to slide number 4 and I would like to spend just a minute on this slide. Normally I go through it quickly, but think this is a bit giving the overview on the world and you see also the difference.
It's not homogeneous what we see in the globe on this map. We see a North and South America solid. I think we still see a good development of the business. When you take then Europe, if it takes first that part, say, Yatra, it's still not coming really where we would like to be. We are still suffering from negative development.
And I think if you take then Middle East, Africa, we see also this time a minus as we also see a softer South Africa. But on the other hand, we take then the Asian part. I think there is still also not sure how we know in the real plus, okay? We see we're coming close and there's a minus on the year, but a plus on the quarter. So it's still hanging.
So a rather mixed view on the world today. If we take it more specific, Americas, like already said, positive, Strong on the industrial part, good on the construction equipment part, so that's good to see. But on the other hand, we saw a softening on the mining equipment that's mainly coming from our thermal coal projects, which are not coming as they were coming 4 quarters ago, so the same quarter last year. South America, very solid. I must say even good.
And of course, it's always good to see the biggest country in that continent does well and that's Brazil. So we had a good quarter in Brazil. And of course, at the same time, we landed 2 good orders for mining equipment. Europe, and now on the slide number 6. Yes, sequentially, a little bit improvement.
So we say that you can say you can be positive on that. But if you look year on year, it's still down. We had, as I said there, good order intake on compressors mainly coming from 3 countries, Turkey, Russia and a bit of Germany, which was positive. All the rest was down. So again, a rather mixed outlook on that part.
When we take then the equipment and then specific Russia, that was really weak. It was really, yes, soft when it comes to Russia. It's a bit the same explanation as I'm giving to when I was talking about North America. It's the coal story what made the demand weaker. And yes Africa I already mentioned it.
It's softer in South Africa. And on topic of that, we didn't get any large order. So it made it then also not a very strong quarter. Asia aggregated stable. Asia, we look to the plus 2% for the quarter, but again also mixed.
South Korea, India, Southeast Asia, solid, good development. So I'm happy to see that. But on the other hand, you see China, which is yes, still I don't know what we should read about it, but anyhow not in the positive fields yet and mainly also this time due to weak orders for gas and process. Australia, although you see a minus 19%, but those who are following us very closely would know that we had a couple of very strong quarters last year and also at the end of the previous year. And that is a little bit lower, so we didn't get these very high big orders, but we have still a very solid business going on in Australia.
Yes, not more to say about slide number 8. If I take then the sales bridge, currency minus on the year, it is 0, but we see a minus coming mainly of course from the Swedish krone. Price, it continues to be innovate our products, create value for our customers, which also allows us to have enjoy also part of that benefit with some price increases. And as you see also the orders received and volumes were minus 4. So bringing it a minus 4 coming a big part from currency as we also had a positive structural one.
If I spend 2 minutes over a minute on the year, I'm very proud to see that we had the €90,000,000,000 in the year. The total revenue increased with 11%. If you take an orders received, it was a €4,000,000,000 where 2% coming from structural changes or acquisitions and the other part from organic. We take it then by business area and OAM slide number 11. And then I'm talking about compressor technique.
Yes, a slight increase for industrial compressors. So that continues to give a bit of positive outlook on that part when we look to quarter 4. But again, as already mentioned, CASM process was soft. Maybe just to come back on the part of our compressor business. It's mainly in North America and a little bit in Europe where we saw a positive development.
Strong operating profit. I'm very pleased to see them and I would like to congratulate our guys in Compressed Technique 24.2 percent operating margin. I'm very pleased to see them in that week. And it's good that the investments in efficiency are also seen in the bottom line. When we talk the next slide and then I'm talking Industrial Technique Slide 12 where we saw a weakening of our equipment mainly coming from a softer Asia and a softer Europe, but a good North America.
And that also matched what we saw on the compressor side. So both businesses are doing well in the Americas. Strong development in aftermarket. So also that is keeping going on and it's also nice to see that our efforts are paying back. And the operating margin is around say the 22%, 22.2%, which I think is in line of our expectancies.
Giving our investments, we're doing constantly intensifying our service presence and of course not giving up our R and D and releasing of new products. Mining and rock excavation, I already mentioned it in the beginning, the softer equipment. But if we really dig into details and really compare quarter 3 with quarter 4, we see sequentially a flat development, which giving everything what you read, talking about the mining part is maybe not so bad. And okay on top of that we also got a couple of large orders in South America. Parts and Service, again, same as I said in Industrial Link, good development, pleased to see that growth and the operating margin 23.8%, a very high level and congratulation to the organization.
Even that we have lowered the production as also we lowered the inventory. And on top of that, they had a bit of headwind from currency. So I think given all that, I think it's a good achievement for this quarter. And of course, we are very proud to see the latest acquisition Mako our Swiss company where we also were able to extend our product offer in the tunnel and in the mining equipment with our shop treating equipment. Then we come to Construction Technique.
Order intake up. We had expected that, but at least it's definitely there 10% up. So that's very nice to see and coming from a very solid North America, but also a positive Asia. And maybe if you recall last year quarter, it was tough in China. I think a lot of activities were stopped in the construction part.
And we see that, yes, creeping up from a low level, but at least it's positive. But unfortunately, this plus was compensated with a tough Europe. Operating margin adjusted 7.1 percent. So we have taken a couple of one time items in restructuring as we are adapting our costume to the new level. So that unfortunately that brings some one time cost with it.
And yes, it is what it is. On the other hand also as you know this quarter is also a lower production volume. So what also affect the profitability. But what's good is in this, we keep investing in new products as you also see here on the PowerPoint on the slide. So we also have launched a new product, a new breaker.
So that is good that we keep investing in that business. And on top of that also we keep investing in the presence. So we're really densifying our market presence and we really invest in having the best offer to our customers. Group total and the profitability, I think you have seen all the figures. So I don't think there's much to say it's more or less in par with last year the same quarter even if you do correction with one time items.
So I would by this give this word to Hans Zulla.
Thank you, Roni. I will just add on a few questions on this slide and then take you through a few of the other coming slides. When we look at this one, we can see that what Roni hasn't touched upon already is the financial net, which came in roughly at EUR 200,000,000 negative, not too far away from the same figure for last year. The only difference we had no capital gain this quarter like we had last year otherwise rather the same. If we look ahead and there of course it's very difficult to judge any financial exchange differences.
Whatever comes on that score is highly unpredictable. But from an interest point of view, interest net point of view, something of in the order of €800,000,000 of next year for the full year is probably the cost that one could expect. Then if we move further down the income statement, just a few comments on the tax came in at 23.9% of profit before tax, almost identical to last year again. But this year, we have some one times. We have about 3 percentage points positive impact from the fact that Sweden next year will move from 26 percent corporate tax rate to 22%.
And recalculating some of the liabilities that we have in the balance sheet, it gives us a one time effect in the positive direction. On the other hand, somewhere in the 1 to 1.5 percentage point, we estimate from various negative impacts around the world of different very difficult to predict differences in timing, etcetera. So from that you arrive somewhere in the region of 26% as the underlying tax rate. If we look ahead and we see of course next year will benefit from this Swedish tax rate change, but that is of course not impacting the full group earnings. So we believe that positive will be roughly compensated or offset by some other changes around the world.
Mix is playing a little bit against us. We earn more money in some of the higher tax rate environments. And so 25% to 26%, I would still keep as a fuel power assumption for 2013. If we then move on, I have switch slide and I come to slide number 16, which is the famous profit bridge. If you look at this one, which is the full group for the full quarter 4, you see the impact of the various headlines organic of course the big part.
And we have there 29% so called flow through. What amount of profit do we make from a certain change in revenue, which we believe to be relatively normal in the situation where we are right now. We have a slight sorry a slight negative on when it comes to the effect from currency. And then when you see the other impacts, you can calculate backwards. Roni mentioned that if you take the one time out items or say the non comparables from a normal quarter out where our profit would have been 21.4%.
But also to be honest, last year we had similar types of effects. So the comparison is 21.7% last year to 21.4%. So I would say that it's not very surprising, a rather normal flow through. If we then move to the next one, it gets a bit complicated. The situation we are in right now is that the volume growth is not dramatically negative and it's not dramatically positive.
But of course, the percentage points that you see when you split it up per business area is rather strange to say the least whereas the group number makes a lot of sense. Compressor technique building on Rodney's comments is better I would say. There is the efficiency that we talked about that is coming through and they also had a very strong good invoicing quarter. When we talk about Industrial Technique, you can see that in spite of the investment in the organization, which is of course then affecting the cost of building that organization. The invoicing in the quarter was about the same as last year and hence there is a negative impact on the margin.
And then Mining and Rock Excavation, it's a little bit the same. But here you see clearly that with the reduction of the order intake we've seen at the end of 2012 compared to the beginning and compared to the last year, there is a lower production in the factories and hence the flow through looks rather meager in this quarter. But that and then Construction Technique, which as Roni pointed out is a little bit still in work in progress in terms of stabilizing the performance. And of course, they also should see that there were some issues on the comparables. But that's the comment when you look at the pie business area basically.
I move on to the next one which is the balance sheet. Rather uneventful if you compare with last year's December, but for some cash generation otherwise rather similar. We are very happy that the last trend on working capital accumulation, Ronny touched upon it already, is seen that we are now in spite of the bigger volume we have in the group, we are back to the same type of inventory and receivables that we had the Perhaps I can take the opportunity here also to again look into 2013. Some of you have seen on Page 9 in the report that there are accounting changes going on in certain recommendations in the international accounting standards and one relates to pension liability accounting. And next year not in these numbers, but next year you will see that there will be an accounting increase, an increase of the liabilities of about EUR 1,300,000,000 in the balance sheet, which is part of this figure here, which is a one time correction due to a change of calculation principles.
A slight offset will be booked set under deferred tax liabilities. So the net effect next year will be a one time negative of €900,000,000 in the equity. It will have no impact more than very, very marginally on the question. If we bake all this together, income and balance sheet movements, we come to the cash flow. And again, I won't dwell too much.
You see that the big difference between last year and this year is in the performance of the working capital in the quarter. And actually even if you look at the year, you see the same thing that the difference in cash from that line is explaining more or less all the difference in the operating cash flow. So I think with that, I leave it back to Ronny
for some concluding remarks. Thank you, Hansula. And this is the summary slide for the year 2012. And I would say should I say a record year and then doubled up again. So 2012 was again a very strong year for the company.
And we look a little bit back, say, 12 months and start the journey, we see 6 strong months. And I think the latter part of the year was softer. What we have been doing and still keep doing as you should not forget that Apopascopco is a growth project and our goals for sustainable profitable development tells us that we have a goal target a growth target of 8% over the business cycle. So we definitely keep investing in market presence, so densifying, entering into the market, get feet on the street, dig deeper into our service, value stream and of course lead with having the best products wherever we go. But okay these are very good to have these 3 legs, but they don't bring anything if we are not top in operational excellence.
So also this year we have taken a hell of a lot of initiatives in rolling out efficiency programs in manufacturing, in logistics. So lead manufacturing becomes really our second nature and more should come. But we also have done it in administration where we also giving high focus on efficiency and we keep doing that. We then look to the results operating profit. So that's easy to remember.
So that's a great figure being first time in history about €90,000,000,000 And an operating cash flow given even that we have been growing in revenue 11%, even this company has been able to create an operating cash flow of more than €12,000,000,000 which I think is a real good achievement. And I think on the dividend, I really already mentioned it. Then I would like to take also this time also to congratulate the full organization. We have been doing very good, very fine. Congratulations.
And it really comes from keeping focusing on our customer relations, on our service, on our product development and that is the secret of this success. It's only work and we already know there is always a better way. So thank you for that. So then I'm going to yes, I think if we talk about the earnings per share, I think Hansula, I think we don't need to mention more on that that we only see it going up. I will go immediately to the near term outlook.
So as you see the near term outlook is not changed. When you look back to the quarter 3 announcements. So we still believe that our products and services are expected to decrease somewhat.
So thank you, Hanzula. Roni, we move over to the question and answer session. Could I just ask first, could the operator to repeat the procedures for posting questions on the telephone line please? Thank you. We will start though with 2 questions from the audience here in Natkka that we will have some microphones distributed.
Yes, please go ahead.
Thank you. Peter Frieder, Handelsbanken. Ronen, to begin with, the organic order drop in the Q4 sequentially when you had sort of a slight negative demand situation was around 4%. Is that slight in your sort of wording? Secondly, on your outlook on slight of weaker demand, maybe you could try to specify that a bit by going through the divisions?
And finally, a specific question on the mining side. We have seen sequential growth for the aftermarket despite sort of a flattish spare business. Maybe you could comment where do you see any sort of destocking in the spares and wears in the Q4 and whether that is expected to come back to? I leave it with that.
I don't know if I catch your first question. What was it organic drop?
No. Really, I mean the outlook last time was slight negative demand. And we saw that. We saw 4% organic drop I think sequentially. And I mean you continue to have the same wording, basically not saying falling off a cliff.
But I just want to have you comment on that.
Yes. I think to use that word falling off the cliff that's definitely not what our demand outlook says. But if I look and that was the reason I also state during the presentation a little bit longer about say the globe when I explained that. It's rather a mixed view what I get. If I take it first geographically, I still expect a positive development in North and South America.
Europe, I don't believe that that will be and if we go in the next months that we will see suddenly a hallelujah development. I think I'm rather careful. And you have also heard me saying a bit when I was explaining a bit about Asia, which the big question is and maybe the $20,000,000,000 question, what about China? I think my visibility and I think for many people today it's rather fluffy. January, February, Chinese New Year, last year in January.
Now in February, okay, how do we compare? I don't see it really taking off. And so I think I would rather to wait another 3 months to see what it is. So it's a bigger uncertainty what I have and that made me and not seeing really the big orders coming that is 1. 2nd, if we then take it a bit by sector, I think I will start with the mining part.
What we have seen over the year, last year now I'm talking that we have 6 months very strong. But after midsummer, it was significant lower. And you remember Q3, if you compare that sequentially with Q1 and Q2, you would see and that was mainly in mining equipment. And we see sequentially the same level. I don't see any signals in the mining community, but maybe saying quarter 1 is going up.
One should know, I don't know how many CEOs have been replaced recently in the mining business that creates certain slowness because boards need to take decisions and new CEOs looking again to the CapEx. A lot of companies have run over the CapEx. So I think they revisit that. You look a little bit on the long term, I still believe in the commodities where we are, copper, gold, iron ore, I still have a good positive belief in that and definitely there will be good orders coming. When it comes to your last question about say the aftermarket and I think quarter 4, I think we saw good parts and service business in the mining.
It went on as normal. What we saw is a bit softer consumable demand, which what you also mentioned I think is a bit of a destocking. Would see now it's a little bit you are a couple of days too early. Give me the full visibility of January. But when we look to the orders coming into the factory, they didn't give the same trend that we were in a destocking situation.
So it I think it was I think it was normal level.
Hi. It's Frederik Stahl from UBS. Could I maybe go back to China? I was just wondering if you could give more color on what you see on the industrial compressor side and then on the construction side in particular? Yes.
And the second question, if you could quantify the large orders you took in mining in the quarter? And then finally just and housekeeping if you maybe Hans Ursula could give us an idea of like the currency impact in the Q1? Thank you.
What was your second one, Ott?
That's large mining.
Okay. Okay.
Yes, I think when it comes to China and again if we compare the construction business in China was definitely came really if we take the same period last year it was almost to a standstill. That's definitely not the case anymore. I think we see demand coming up, but it's definitely not on the level where it was 12 months ago. But we see, yes, orders coming in. I don't use the word positive.
It's positive, of course, but I don't want to sound that hurrah, hurrah, we are back in business. I think it's still on a prudent development. When it comes to compresses, it's a bit of a mixed view. I mentioned also what we see is the larger one, the gas in process and the larger turbo compressors and the big orders, I think that is not really there, okay? You have them, but not at the same magnitude.
If you hint to my words, I think they are really say not gradually positive, let's say, gradually positive. But now I'm really stretching me out of my comfort zone at that. I think it's and it's difficult because the reason I'm a bit so careful is because you see January would see December as always strange months and all that and you need to be very careful when to conclude on that not to take your good reads for reality. But it's definitely not going further on that one. When it comes to the large ore, there were 2, so I don't know why I have to look how much it was.
It was 300, dollars was it around that was mainly in South America.
Yes. Then you asked about the currency situation. Well, we had still a negative in Q4 as you saw and it's primarily coming of course from the strengthening of the krona. Lately and very lately, I would say after December but right this week basically, we start to see that the dollar is turning into a totally new level than what we have seen for a while. And it has also impacted some of the so called mining country currencies like the Australian dollar, the Canadian dollar, particularly the South African rand, etcetera, etcetera.
So we will not have a very easy comparison from a currency point view in 2013 to 2012. It's a bit early, but if I just take today's rate, it will at least be in the same level of comparisons that we have seen now for 2 quarters, I mean Q1 compared to Q1 last year and Q2 last year. So if it stays like this, we will constantly have a little bit of a negative comparison. It will oscillate a little bit over time, but that's judging exactly where it is today. If the dollar moves up €30, €40 already that changes the picture again.
So anyway that's about how we see it today.
But it's also, Anzula, I think the euro dollar? Absolutely.
We were glad when the euro dollar were below $130 because we haven't been spoiled with that type of rate for many years. And now we're already at 135% again. So the euro and the krona relatively weak is the best situation due to our exposure, but you can't get everything. At the same time, we have stood here many, many years talking about currency up or down. And at the end of the day, it's the operating margin performance that is the only truth.
And I think that the company has been capable of compensating quite a lot when there has been headwind and also used the tailwind to take further positions in the market. So I think that will be case also going forward. Yes. I think we move over to the first two questions on the telephone line please.
The first question comes from Mr. Aaron Ebbetson at Goldman Sachs. Please go ahead.
Yes. Hi there. Good afternoon, Roni, Hansoula. Just three questions from my side, and I'm pretty sure you can guess the first one. Record cash flow in the quarter, record low net debt to EBITDA.
I'm just wondering how we should think about capital allocation. I know you don't have an official net debt to EBITDA target or guidance, but whatever you're sort of aiming for, it seems to be trending down. So I was just hoping that you can give us some idea, for instance, if we have another sort of average year but with very strong cash flow generation, should shareholders expect to see a bit more of that than just the ordinary dividend? Secondly, I was just related, I guess, within which division do you see this sort of biggest opportunity for inorganic redeployment of capital, if any at all? And then finally, just one question, Ronny.
I was just curious about your comment on your Canaries or what you refer to them as. Within the Construction division in the release, it seems to say that the increased order volumes were most pronounced for, I think, amongst other things, the portable compressors. So generally, I think you refer to this as a good indicator that things are looking up, but you now sound quite a bit more cautious than what we are reading in the release on at least that little bit. That was all from me. Thank you very much.
I will probably need some help here from Roni with some clever comments or but when it comes to the capital allocation, yes, we understand your question. You are absolutely right. I just want to repeat that we have no fixed leverage target, debt to equity or debt to EBITDA, as you know. Of course, we believe that the company has not changed in any way since October to now. We believe that there is a a etcetera.
So that has definitely not changed. What we have always stated is that from a timing perspective of when that is allocated to shareholders, to acquisitions or to pure organic growth building stocks when the demand is there etcetera. That is much more difficult to have a strong and a good answer to. So we the Board has favored quite clearly a strong financial position as in the past and continuously. And we consider also the Board of course Atlas Copco as a growth project.
I think that was also the words of Bronnie in his initial comments. I think that your next question, if I understood it well, what if we then look at capital allocation opportunities and not organic, where would those opportunities be? Did I understand you right in that? No.
That was exactly right. Okay.
So I think that I take Roni can elaborate a little bit on that. Yes. I think
we have already met in several occasions and you have heard me answering your the same question that I think there is no specific business area where I will exclude any type of acquisition. Of course, one can say and looking to say the achievement and the profitability level of some business area that you rather choose to invest in that part than in the other part. So if I then am really more specific where I believe where I think it will be we can talk a little bit about easy levels because it's not always easy to come in these areas. And then I'm talking in larger tickets, it should be mainly in the area of the industrial scenery and then you come to CT and you come in industrial technique. So that is where I believe the likelihood is a bit higher than it is in the mining side and on the construction side.
I think the 3rd question, I you were starting to talk about the words, but then I got you mentioned the portable construction. And I say your line was a little bad. So I don't know
The question was related to the comment in the report on construction technique that Portable had in Asia a particularly good trend and that you sounded a little bit more cautious. Yes.
I think, of course, that's maybe more, I think, wording and giving more value to some words than others. But I think when it comes to the construction part and if I repeat myself a year a positive development you have seen that. Although if I look region by region of continent by continent, the European situation is rather difficult where I think the North America and I also believe also the Asian part and then it's not only about China. I think we have many more regions with many more people than China in Asia where I see a slight positive development. But again, I'm using slide because I have not really seen it really really taking off yet.
So I'm a bit more prudent maybe than the tax there.
Okay. Tax. Okay. Thank you very much.
We have another question on the telephone line.
We have a question from Mr. James Moore at Redburn. Please go ahead.
Yeah. Good afternoon, everybody. It's James at Redburn. I've got two questions. 1 on inventory.
I see the balance sheet was down for inventory by about DKK 1,000,000,000. I wondered if you could just say how much that was currency and how much it was real. I see the inventory to sales has come down from 20.7 percent to 19.5 percent. Just trying to get a feel for how much whether you could quantify the impact on EBIT from that destocking? And whether you could give us a forward looking view as to whether 19.5% is a good level to think about for the end of 2013 or whether you have further ambitions?
And the second question really I'd like to come back to the special dividend question. And I take it from your answer that the board has favored a strong financial position that the board rejected a decision to distribute further funds or whether you just didn't propose it to the board? And are you trying to signal that this is about M and A?
Should we start from the bottom? Because that's probably a quicker answer. There was no intention of choosing of words, James. The Board does favor a strong financial situation. And the decision on the capital allocation outside the normal running of the company, etcetera, of course, rests with the Board and ultimately with the shareholders.
So that's how it works. So that I think is on that one. Then Jens, you also asked about the inventory. I'll let Ronny compliment it. But I can say immediately that from a currency impact that explained the development in the Q4, you won't find very much.
Was not much affected by that since we had little movement on currencies within the quarter. So it's really an impact of course of adjusting the purchasing of goods because we have lower order intake on certain equipment primarily in mining. And when it comes to the impact of EBIT, we will defer that question. We have no meaning or wish to express a specific impact level. We have commented when we saw that margin development and the flow through of mining in the Q4.
And I think that's as far as we will go when it comes to what is normal and not. But the impact, of course is there. But to quantify it, we'd rather not.
And just to add to that, is the current inventory to sales level what we should consider as normal for the end of 2013 or 2014? Or do you have an ambition away from that over time?
I think let me answer on that part. And James also in a couple of other occasions we have been talking about that when it comes to working capital. And you have heard also me saying that, of course, we are striving to get a lower working capital and more efficient working capital. And that means working on the payables, working on the receivables and of course on the inventory part. When it comes more specific on the inventory part, the main efficiency improvement, if I can express myself like that, should be found in Construction Technique and in the Mining and rock excavation business area.
There we have still potential to improve our inventory. And by implementing that lean manufacturing principle also of changing product design with modular design, which we are doing, by the way, in several divisions, which we a couple of years ago, we acquired. And but that takes a bit of time before it's really been seen. But you should ask me every maybe every 6 months where are you on this and I will definitely own you an answer of the organization owns you an answer and efficiency on that one. Maybe I would like to maybe to also elaborate a bit on the second question because that gives me the possibility to also bring it to the audience today.
We have increased the dividend with 10%, And one should not forget that. We have really, as the Board, have decided that, okay, this is what we do this year. We are a growth project. We are working on that. Given the present circumstances, we have said that is how we go into the next coming year.
That gives on hand land a good shelter and on the other hand gives us also muscles if we need to do so. I'm not spreading any rumor. I'm not hinting to anything. Don't try to find any sophisticated explanation in my wording. This strategy of this company has not changed today.
It's still a growth project where we have the ambition to grow organically as well as acquisitions. Some acquisitions where we have been looking for several years, Maybe we have to look another for a couple of several years. When they come, we will do our move. When they don't come, yes, we will not do our move. And there will be a next year to yes, if we need to distribute and to adapt the balance sheet we will do.
But our promise to all the shareholders we will not destroy value with the money.
Thanks, Ronny. Thanks, Hans Ole.
We'll take a question here in Naka.
Hi, Naka. I have a question about compressor technique. A couple of years ago or a year ago you were talking about the hard work or gaining market shares and you said that I rather gained 1% of market shares that contained EBIT margin. I mean, we're not focusing on margins rather than growth. If you look at the margin curve, it's been quite flat.
So I wonder what about the market shares? Have you gained the market shares you wanted the organization to do? And the second question on the same topic is within compressor technique, can you talk a bit about the aftermarket and how that's growing in
compared to the rest?
Thank you.
You know our situation when it comes to Compressed Technique. I think our market share over the world and also more local specific will not allow us to do big acquisitions. And that also means if we want to grow in that area, we need to gain market share and also do the transformation. So more went from fixed speed to variable speed, more integrated compressors, more value selling that we need to. And that is also the reason why we moved from a more indirect channel to a direct channel and densify the presence which you have me heard saying many times in feet on the street and all that.
We keep doing that. And you see sometimes also when you look to flow through, it does not look always as we would like. But okay, cooking costs money and that is something. When it comes then the results has shown me the money, show the market share. I can tell you that we have if we take it in an aggregated level that we have gained market share.
That does not mean that in certain specific micro markets that we for whatever circumstances have lost. But on the other hand, we have taken our part on that one. So that for sure I can look deep in your eyes on that and say it is fact. When it comes to aftermarket, this journey with the dedicated service organization in CT, we started end of 2,007. So we are now coming more and more in the maturity phase.
I'm pleased to see that also now the 2nd generation of management is bringing it really on a higher level. So we definitely increase our penetration and we're still not there at 100%. You can question why we're not servicing 100% of our compressors, our dryers, our installation. That is a question you can ask me every quarter. Have you improved on that?
I think we should get better than that because that is low hanging fruit. And on the other hand, we are developing more and more service products. We're also getting better on on bond logistics. You remember what I said about the operational excellence. We're doing a couple of projects when it comes to distribution centers so that we get more efficiency and really getting more out of the market.
And third, we keep constantly moving from indirect to direct. That strategy, although that may be not so, say the last 6 to 9 months not so obvious because we have not announced many acquisition on that one, but that strategy is still valid. And maybe it could be this year that there are a couple more following in that one. We keep doing that. So that is because that is the winning strategy, densification, feet on the street, service and the best product.
So that triangle is and that yield market share and aftermarket. So if the strategy works, can it be better? There is always a better way.
There's another question here, Aka, before
we move back to the Anders Schulz, Schulz Bank. I have a question about acquisitions. You mentioned specifically compressors and industrial technique, but you have very high market shares. And by definition, those acquisitions can't be very big in size. Why don't you talk more about the mining and construction sectors?
Or should we look for adjacent businesses in the industrial area? When you were asking the question, I was writing down exactly that word. And what I said is, I think you should and that was the priority when you asked what's the likelihood. I think it's more on the I think in the industrial field. And of course then you come close to the industrial technique CT, the Beotop.
But of course we cannot buy a compressor company. I think that's for sure. It's really the in the adjacent field. Remember a couple of months ago, we bought a very small company in Denmark. So in these areas that is where we are also exploring the opportunities.
Let's say not in the mining, I'm not excluding you. If you look now at the track record of the last 3, 4 quarters, I think we have done significant on the mining side and we do that. But of course to have a larger one on the mining one, a big one and some there were rumors at a certain moment that one. I think that will be a bit more difficult. But who knows?
Thank you. So we take on the two questions from the telephone line.
We have a question from Mitra Andreas Willey at JPMorgan.
Businesses and how equipment pricing stronger. And in terms of, the stronger. And in terms of the FX impact you talked about, you said it's going to be similar to what we have seen recently. I mean in Q4, we had €200,000,000 Looking at the translation impact alone, one can get to €500,000,000 €600,000,000 for 13. Does this mean we shouldn't expect, therefore, a more meaningful transaction impact or impact on the margins as we go through 2013?
And the last one on acquisitions. I know it's difficult to comment for you looking forward. But if we look at the last 4 years, you've added just below 2% a year from M and A. Given your balance sheet, your management track record, your cash generation, this looks quite a low number. Is this mainly because of limits on antitrust?
Or is it just because there are no targets out there at the right price? Or do you think M and A larger M and A doesn't add any value to Atlas Copco?
That's a rhetorical question. I think if I take the last one, I think what we always have said, of course, we will keep doing on this close to home nice extending the offer presence acquisitions. We will keep doing that. And these are the $20,000,000 $30,000,000 $50,000,000 acquisition. These things we will constantly doing that.
The largest one, I think we have not excluded that. It's just a matter of it's just the matter when they fall, when they come and when they are, yes, therefore the right value because one should know, I think I'm not here the CEO to boost the top line. I'm here the CEO to create value for the company. And that I think one should also take into account when we go after acquisitions. And that is also our guidance what we use on that.
I will just and then Jarex. On the pricing mining, I think I don't see much different behavior in 2012 in the beginning of the year as I saw at the end of the year. There is not much different in the way our customers are interacting with us. So that mainly stays at the same way. So I must say I've not picked up any other trend than what I confirm now.
Yes.
If I understood your question, you say that looking at today's currencies, you could only by translation effects come to roughly EUR 500,000,000 if I heard you right. I think you're right, but it doesn't mean that it's there is no transaction effect that we calculate. When I explained it in the beginning, I talked about the most recent quarters having €200,000,000 per quarter something of a negative from currencies between translation and transaction of course. And I think that we look at how it is today that's about the trend that would continue into 2013. And so from that, yes, there will also be some transaction effects.
Thank you.
Thank you. So we have another question from the telephone line please.
We have a question for Mr. Klas Beilin at Nomura. Please go ahead.
Yes. Good afternoon, gentlemen. It's Klas from Nomura. James Moore asked most of my questions, but I will try to rephrase one a bit. Looking at the inventory levels again, it sort of doesn't feel like you need to reduce your production levels much more from here.
And my reasoning is really follows. If you look at inventories to sales, they're now at the similar level as the start of 2011. Looking at your orders in MR and in CR, they are also at the same level and suddenly in MR. So if demand is sort of flattish from here, it feels like this was the last destocking quarter, right, impacting margins. So that is my first question.
The second question is on your construction orders. They were up quite a lot sequentially in North America. And I'm just curious to see where was the step change? Was that in road construction or more towards commercial buildings, I. E.
Non res? Thanks.
I think I will take the last one first. I think it's when we talk construction and in our business, we also have a significant market via the rental companies. So we saw good development with our partners in the rental. So that was a positive trend. But on the other hand, we saw also good development on the road part, I think, where we got a couple of good orders.
It was not so mainly because we are not exposed somewhat directly when it comes to the housing part. Of course, that goes via indirectly, of course, the rental companies are coming into that. But it's mainly, say, on the rental part where we saw a positive and then partly on the road one. When it comes to your inventory question and what James asked. I must say, I don't like so much your analysis because I must say you undermined me a bit with my people that because I think I of course when you analyze it, I agree on the other hand what I said to James, I think we want to go for efficiency.
I see still some opportunities in the mining and on the construction side. And that's the reason why I said you undermine me because I'm sure also my collaborators are listening in. And they will use it your analysis against me. So
That was not the meaning Roni.
No, I know, I know. But I think one thing you should know the business model of that for Skopka it comes to inventory is definitely an assemble to order flow. Why do we have more on the mining side? Okay. We have much more in transit.
We produce here in Sweden and we sell a lot to Australia. It takes time. They need to adapt this. So we need also to do a step change in improving the process. And that is also what Bob, our Business Area President in Mining is doing.
They are definitely changing the way we assemble, the way we handle orders, which will then improve the process and of course reduce the inventory. But that I call then as efficiency.
Exactly.
And the same is on the construction side where we also can do that.
My question, Ron, was more sort of on the production levels that would impact the margin. I know that you are mostly assembler. So I was just wondering, are we going to see that sort of headwind also going forward in the first half development of that?
No. And that is also the reason why Anzula didn't answer specific in money terms the question from James. I think we should not see that we get suddenly an enormous under absorption because we stop our factories for a month or whatever. I think we are not vertically integrated. So of course, the higher the production, the more absorption you have and the more flow through ahead.
But I think we will not go from 100 to 0 when it comes to our production level. I think we will gradually adapt on the level. But we did a bit more in last quarter. And I'm sure Bob will do a bit more also in the coming two quarters. But I think we should not use that as a significant drop for our profitability.
Thank you very much.
We are running later than we do, but it seems to be quite a number of questions. I think that we can give it a few more minutes. We have one question still here in Naka. And then I'll take 2 questions from the telephone as well. I think we have one here.
No? No, then we have 2 questions to finish it off from the telephone
We have a question from Mr. Lars Horson of DNB. Please go ahead.
Yes. Hi. Thank you very much. Hi, Ronny. Hi, Hans Ole.
Ronny, three quick questions on end markets to follow-up. First of all, on your on the question of market share gains in CT. Can you give us your assessment of the materiality of your market share gains during 2012? And particularly, if you could elaborate on the gain within industrial compressors in North America and Europe, would it be fair to suggest that your market share gain there have been accelerated as you went through 2012 particularly given the restructuring and corporate activity that's currently ongoing at your 2 major competitors? And secondly on Mining, your comment that you see iron ore more positive in terms of order intake.
Now obviously at Q3, you were quite cautious as most were. But have the developments during Q4 changed your view on the outlook for 2013 specifically on iron ore? And do you think iron ore ore equipment segment could grow for you in 2013 even if we see a pullback in iron ore prices to say $120,000,000 And then finally just on construction, the good pricing development during the course of 2012, is that primarily a result of a rollout of new product or a mix shift away from more challenged pricing environments? And what should we expect there going into 2013? Thanks.
Maybe I'll start with the last question to answer first. I think, of course, we are comparing also with a tougher weaker quarter last year. I remember that Q4 on the construction side was not strong. So that makes it a bit better. But on the other hand, we see also in the markets where we were traditionally strong.
And then I'm talking about Brazil, I'm also talking North America. They are positive when it comes to construction. So that helps us. Continental mix or geographical positive mix, where on the other hand, Europe, especially when it comes to road construction is rather weak. So that is a bit the way you should read it.
Of course, we have been launching new models and then we will do that also this year. So it's not only just luck, but the guys have there. So they're also coming up with new products. And yes, we have to fight us upwards here and we need to fight us up here double, I think, when it comes to share and it comes to profitability. So we still have some work to do.
When I'm taking on the iron part, iron ore part, yes, maybe on that part, I'm a bit more positive when we were in Q3. And you remember all this
announcement, what was made and what will happen. I see now that
demand for iron ore is positive when it comes to even China when you look to also to the States. So that is good. So I'm a little bit more positive when it comes to iron ore. When it comes to real orders, I don't believe that it will come very soon for another reason, like I already mentioned, when it comes to decision makers who need to make the decision. And of course, they're still looking into their CapEx.
So I'm a little bit prudent on that part. I'm thinking more on the latter part of the year to see some positive movements than say next month. Then when it comes to market share, one should know in that type of business, market shares are not sweeping 5% 1 year to another year. Here you see market shares creeping up. Of course, what is going on into the market, I think, is definitely also an opportunity for us to be dynamic in that part of the market, which we definitely do.
We are really making sure that we go after each order as we used to do. But of course, if there is a little bit doubtness on the other, say, on the competitive side, yes, it always helped that one. But I would not put too much value in on that part, I think the market share that comes really from the presence, the good work, I think the having the best products, I think that is where most of the positive contribution comes from the market share.
That's clear. Thank you very much.
Thank you. And the final question from the telephone buying please.
We have a question from Mr. Ben Masfidl at Merrill Lynch. Please go ahead.
Yes. Hi, Ronny. Hi, Hanzola. Two very quick ones. Firstly, just on the mining business.
Can you just say how long the backlog is at the moment? And at what point would you expect the delivery volumes to turn negative if orders stay at the current level? And just maybe how that would impact the margin? And then secondly, just on the gas and process compressor business, just it sounds very weak. Is that just kind of timing certain projects being delayed?
Or have you seen a bigger change in that market? Thank you.
Yes. To get the process part, I think it's yes, these are larger tickets. Some orders fall in the quarter and then I think you have either a very strong quarter and when the downfalls you have a bit of a weaker quarter. There are definitely some segments which are weaker. I think if you think about the air separation market, specifically in China where we were strong, is a bit softer or is soft when it comes to new equipment.
When on the other hand the energy markets, say, for fuel gas boosters for geothermal installations is very strong. So it's just a matter of yes, when do we land, which order that yes and make it then a good quarter. So then I would not take too much value on that part when you go in 2013 at 1. Of course, I needed to say for quarter 4 because it was definitely diluting the figures of CT and that's the reason why we also had to speak about this. When it comes to the orders on hand on mining and then on timing equipment, we can say that we have more or less 2 quarters on equipment orders on hand of equipment in the mining part.
Okay.
And I'm talking now roughly because don't shoot me if it is in other bad, but it's more or less in that magnitude.
Okay. So any volume drop will be more second half?
Yes.
Yes. Okay.
Thanks very much.
Thank you very much. I know that we have some people wanting to put some more questions But With that, we conclude here and I thank everybody for coming here to our Roni goal