Good afternoon, and good morning, good evening, I say to the people on the telephone conference. Good afternoon to everybody here in Stockholm for attending this presentation of Atlas Copco Group's Third Quarter Report, it's 2011. We are a stable, often predictable company, so we'll do exactly the same format as we normally do. I will soon hand over to Ronnie Leten, our CEO, who will introduce his comments to the quarter, and then shortly after that, we will start with the Q&A session. Without further ado, please, Ronnie.
Thank you, Hans Ola, and good afternoon and good morning for those who are calling in from the other sides of the ocean. Right before, I will also go through the presentation and refer immediately to the number of the slides so you can follow me easily. Let me go immediately to slide number two where we talked about the highlights. When we look through the quarter, demand remains at a high level, and we saw a very solid development on the manufacturing side, but also on the mining business, which was very solid. The one which was maybe on the negative part coming out is the construction part, which was in the month of winter. I will comment a couple of times on that during my presentation, but it was mainly China and Brazil.
Here, we have record, record, record in all the places where we could be, coming from, of course, a high level, but also a very strong support from our aftermarket business. I'm very happy also to announce that we have done a couple of strategic acquisitions, especially when it comes to sugar, which is a nice add-on for our toothpaste and also shows our commitment to that area. Let me go immediately to slide number three now where you see the figures. I think they count for themselves. [Organic 14 up, revenue 21] is the old sugar factory is coming, and then the operating margin 23.1%. Okay, a bit inflated by, as it says, 0.2%, the positive impact of the incubation for our long-term incentive program. We have the construction flows. Balance for share was three, but maybe one area, and Hans will elaborate a bit more on that later.
I believe a very strong cash flow if you give the volume which we are producing now. We come more to the geographical spread. This time, and this is a long time, I've not been able to see all double-digit growth. Here we have a bit of, yeah, a global stress. I will more go into detail later, but what is good to see is + 14% organic growth in the quarter, and for the year, 25%, which I believe is a very solid achievement. Let's take the Americans now on slide number five. Strong North America. High demand for industrial equipment, our compressor side, but also our tool side. If we look a bit deeper, we see that mining and construction is sequentially softer, but we are comparing, and we should not forget that, with a very strong second quarter this year.
Last but not least, also our effort to further develop the market and the service market in the three countries is definitely yielding good results and giving this strong aftermarket. If we take South America, + 7%, which is very low, it's only a single digit. Also, here I have to make a remark. You remember also that this continent came back earlier, and it's really at a high level and remains at a high level. We see still a good development in Brazil. It's not growing as it was, say, a year ago, but still stays at a very solid level. Maybe that's one side remark, the construction area, especially in Brazil, was softer. You can think what all the other businesses. + 19%. The crisis has maybe not hit us yet. I don't know how we should read it.
It came from a very strong Russia and a very solid Germany. Russia particularly was strong. If you remember, some of you are following us in very detail. We announced last year the big order for the [Ziggling] pipeline, the gas pipeline, which was in this quarter and then 2010. Even we beat it a quarter of last year this time. A very solid Germany, as I already said. Again, here also sequentially a softer construction. It's not that it is really dropping here, but we have seen a softening in Europe. You can say maybe it's a bit seasonal. That could be, but we feel that we had to share that with you. Africa, Middle East, all strong, but the only remark is North Africa.
I think also again, no surprise for any one of you that also there we are struggling, and hopefully very soon we can start again growing there. The Middle East is doing well, and the southern part of Africa was very solid, especially when it comes to the mining part. Asia, the catch, only + 5%. I can say if we take it a little deeper, first, we should say we're comparing also again with a very strong quarter. Last year, we also had a very large order from [Kazakhstan] in Kazakhstan, which we did here, unfortunately, didn't have. That was a large and fair comparison. If we dig deeper, we see a very solid China, although you read about it. I think that is still going on, although the construction market and construction-specific market was softer in China, but all the rest was still doing great.
We see also a weaker India. I'm not saying that it's really going down, but we don't see it really taking off as we had hoped it would be. That is one point which I would like to clarify with you. Again, Asia, also our effort there to develop and our presence in the aftermarket also is giving a fantastic growth level. Australia, - 15%. Is there something cooking in the mining business? Is that cancellation? No. Here also, we are comparing with a very strong quarter. This quarter, we didn't implant any large orders, especially not for the service mining part. That made the comparison very certainly strawberry on the equipment side. The aftermarket is going on, and we see still a lot of activities and growth going on in this industry for Australia.
The quarter, I think you see seven quarters where we go up, and now it's come to 14% last quarter. I'm now on the third bridge, slide nine. Price + 2%. We see still a good development of the price. Our inflation and cost increases are definitely compensated with the good pricing power we have in the market. Currency is a bit less, as you all know, seeing what is happening. That is a good case for us. Volume, you can read where we are today. If I point one specific figure, then I see the revenue + 19%. That's why I'm very pleased to see the output of our factories is really coming on full speed. Now I will go to the different business areas and to calibrate each other here. We are now reporting in four legs, where we before were talking about three.
You see here the two major ones, compressor and mining, which are more or less on par. Then we have the construction and industrial technique. Let me start with the compressor. A very solid organic growth, 17% coming mainly from the industrial compressors because that's also where we have it now. A good solid adjacent business, the air treatment products. To repeat myself several times here now on the aftermarket. A very solid profitability. Maybe some of you, when we compare with last year, you said only 24%. I think this is a very solid one. Maybe the ones who have listened to me a year ago have said, "Look, remember it's 26.7%," as you did. This is a very, very solid development we have here. We have landed a couple of good orders there.
One is a geothermal power plant in Turkey, which is a step up in our gas and coal business. We come to the industrial technique, slide number 12. Very solid all over. Good Europe, good U.S., good China, good India in GI, in the motor vehicle business. Also yielding at 24% organic growth. A good development, and we see still a good development when we look forward. Operating margin, we just missed the 22%, but I think giving the output a very solid result. Like I already said in the beginning of my presentation, we are very happy to see this sugar acquisition. At the same time, we also did an acquisition in France, especially drilling for the, yeah, especially drilling for the tool business. Mining and rock excavation, strong solid organic growth.
Still high activity going on in the mining business, mainly in the underground where we see good demand. Of course, the lower for service drilling equipment. You can relate that to my remark when I was talking about Australia. A good aftermarket. On top of that, also a very strong demand on consumables. The profitability, I would say, fantastic, 25.6%. A record operating profit, a very solid development coming from good output of the factories in an efficient way. On top of that, also a fantastic aftermarket yield. Construction technique, so the new fourth leg. It's the first time we record like this also. Not a very strong start, but we see a weakening of equipment, mainly in the road construction area. We have an operating margin a little bit below 12%.
As you can see, the construction costs we took for the closing of our factory in Sweden here in Lundby, which then lowered the operating margin. Change for this construction cost, it would have been close to 13%. More work in process for all of us in that business area. We also have a good add-on acquisition, which makes us much stronger and much more agile in the generator business. That is our new Spanish generator manufacturing company in Zaragoza. We have a new business area President from the 1st of October. He is now running for a couple of weeks. That's Nico Delvaux , who is a new business area . He was before running the service business for compressors. Group total, I have told you all the figures where you see a revenue + 17%, operating profit + 27%, and a record SEK 4.8 billion.
What I think, what is also one figure which we should be looking to is the return on capital employed. We are back on the + 30%, so a strong 36%. Hans Ola, maybe you can go now further.
Okay, Ronnie, thank you. I'll give a few more comments on the next couple of slides, starting from the same that we have now here. Just giving a little bit of a comment. You see that the profit for the period and also the earnings per share, so a stronger increase than the other profit numbers. That indicates the quarter we had a relatively low tax rate in the quarter, 23.5% roughly. These percentage points of our tax payout ratio, as those of you that have followed us, you know that it varies a little bit. I would still say that we now believe that around 25% is probably the best estimate that we have going forward. We have a couple of changes that worked in our favor from Nixon, etc., compared to the previous guidance, which was perhaps more 26%, 27%. Slightly better going forward also, we think.
If we move on, we normally comment a few words on the profit bridge with last year's third quarter. I think for the group as a whole, you recognize the numbers now and you see that it doesn't look very, very dramatic. If we move to look at the thesis of the group, it is a bit different from normal in that sense that it's a little bit more diverse and not as homogeneous, perhaps, as before. First of all, on compressor technique, you can see in the second column that the so-called flow-through from an increased revenue from price and volume is very small in this quarter. I would just leave this by pointing to what Ronnie said was the quarter of last year when everything came together at one time. I don't think that it's very representative.
We are still constant, but at the level of growth that we are having, we believe that the underlying incremental profit is there between 25%, 30% or something like that. That's a little bit more reflecting previous years than this year. The other comment I would make is on construction technique, which Ronnie also said that it's as the first quarter for the new business area, it did not start in a profit direction that was so good. On behind this development of a negative incremental profit, because they still grew on revenue and volume, lies basically two things. There are a couple of markets where the orders and the revenues have dropped dramatically. Ronnie referred to two of them, China and, I shouldn't say dramatic, but substantially lower at least in China and Brazil in particular.
At the same time, it reflects that in those markets, we are still investing in our market organization. We are investing for the future. Hence, the flow-through looks, it is negative, but again, I don't see that that is reflecting a longer trend. If we then move on to the next slide, the balance sheet, I think you can say in a very high-level assessment that from December to September, the total balance sheet is the same size, but we have swapped excess cash for investing in working capital and acquisition, if I summarize it in two words. It's also fair to say that when you look at the development from Q2 to Q3, the growth of the working capital, specifically inventory, and to a certain extent receivables, might look as almost a worrying sign as we speak about the somewhat weakening demand outside.
However, you have to remember that there's a lot of currency translation effects in those numbers. When we look at the cash flow, you will see that the growth of the working capital is more balanced than what it looks like when you compare with the previous quarter. That's unfortunately not on this map, on this slide, but if you look at this, it's roughly half or less than half of the increase is this real volume increase on the inventory and receivables. On the balance sheet and on the capitalization of the company, you can see that we are back on the normal track, if I call it like that. We had a very big capital distribution to shareholders, which put the net debt for a BPA up. Now, steadily as it goes, we are moving down in leverage in the short term.
If we move to the next slide on cash flow, here you can see what I referred to, that on the net basis, in the quarter, we did accumulate some working capital, but considering the growth of the output and the growth of the revenue, it's perfectly in line with what we had expected. In fact, it can be interesting to note that when we measure inventory returns in Atlas Copco, we are quite a bit lower today than we were in September 2008, for example. That, of course, to us gives a good feeling about the quality of the assets. Similar could be said about customer receivables. We end up with SEK 2,125 in operating cash flow. This is, of course, not including acquisitions, as you can see here. With that, I hand it back to Ronnie.
See slides. To talk about the near-term outlook, you can see what we expect about our products is that to look further, a bit of a somewhat weakening of the present situation. I would like to highlight, we should not forget that today the business runs at a very high level. By this, I would like to draw your attention, all of you. We have an open day in Antwerp, a beautiful city, but that may not be the reason why we would like you to come to Antwerp. We also have our capital market day where we really show you around at the middle of the universe of compressed air. We show our new products and also the way we work and develop the aftermarket business. You're all invited the 29th of November to share the capital market day with us in Belgium. It's actually a beautiful campus.
Thank you. Hans Ola, I give the word to you. I believe easily hand it over to the operator of this call in order to give the participants on the telephone conference some instructions for questions. Please go ahead.
Our first question comes from the line of [ Guillermo ]. Your line is now open.
Good afternoon. It's [Guillermo Pena] from Morgan Stanley. Maybe three questions, if I may. First, regarding book to bill and the progression through the quarter, could you give us some flavor as to whether September book to bill was still above one or close to one or even below one, given the type of economy? Secondly, regarding mining consumables, with some of the, let's say, major miners talking about slightly lower demands, have you seen a slowdown in demand for consumables, or do you foresee that going forward? Last question regarding your exposure to emerging markets, especially when it comes to headcount. Are you facing particularly inflationary pressures there? Probably looking forward, we should be seeing a degree of compression in your margins or, in a way, all viable to many quotes going forward. Thank you.
Yeah, I can take the three questions, Hans Ola. When it comes to September, September was a very solid all-season month. It's not that we saw a sliding going down the further we came to the quarter. From that point of view, I think we were very confident to see that. Of course, the book to bill is also influenced by the output of the factories, and that was very strong also in September. I think it was more or less coming close. When it comes to consumables, we have not seen a slowing down on the consumable business that we are in. I still believe that we have a lot of potential to grow that further, and I have not spotted any softening in that business.
To remind you, and going back to 2008, 2009, also then, I think we didn't see so much slowing down in that business either. It is a lot of resilience, part of our business. When it comes to our exposure of the emerging markets and the headcount and the inflation on salaries, yes, it's there. It's there for everybody, and that is what comes up to us now to work on efficiency, efficiency in our factories, efficiency in our aftermarket. Last but not least, and maybe I'm repeating myself in this, is also to work on product development, innovation, selling value. To compensate, on one hand, the cost inflation you have, and that's the same for all our competitors, to make sure that we have a strong power on the price themselves.
Thank you.
We'll take one question more from the telecom conference, and then we'll switch back here to Stockholm after that.
Our next question comes from the line of [Nico Diotti]. Go ahead with your question.
Good afternoon, gentlemen. Three questions, please. First of all, I was hoping you could elaborate a little bit more on the weaknesses seen in Australia. I'm wondering whether it's mining related and whether you see this as a sort of sign that major miners are perhaps rolling over their CapEx. The second question here is on the inventory increase. Hans Ola, you highlighted on the call that roughly half of it is due to an inventory increase on the line, and the other half is currency. Could you highlight how much of the inventory increase is final versus raw materials? The third question is on the mining margins. Ronnie, on the call, you highlighted that last year we had a phenomenal margin in compressors.
Is that now the case in mining, and should we expect that to grow a little bit from here, or could we see a good development going forward from here as well? Thank you.
Let me answer first too, and then you take the inventory. When it comes to the margin on mining, it is, of course, a very solid margin. For all of you, it was rather difficult to see where we were cruising. It was, so to say, mixed with other operations. This time, what we can say is that we have a very good equipment output, so the factories are doing a very good work, and also contributing with a good absorption in our factories. Certainly, also, our focus on aftermarket, which we have been going on for several years, and with this solid demand we have, then this margin is coming out. Do I say we will come up next time, maybe even a higher figure? I'm trying not to say that.
I say you should really expect a very solid development in the margin, of continuation of the margin in mining. I think I don't expect that we will see it go back below the 20%s. I think you should expect from us something, a very solid, a bit above 20% margin in the mining. When it comes to Australia, I don't want to call it a weakness because, like I tried to say when I was talking about the geographical areas, if we make a comparison, and if I would show you the demand in Australia, you would see that we had a couple of peaks with larger orders picked up. That seems to what we can get this time. It doesn't mean that there are not just orders in the pipeline. Yes, they're in the pipeline. Unfortunately, they are not re-ended with us now.
We still see a good demand going on in Australia. I would not call it a weakness in this area. I think inventory.
Yeah, it will be a very short answer to your question, [Nico]. The ratio, if I put it that way, the composition between manufacturing stock, the intermediate, and final products is about the same as we have seen in the last quarter. I don't see any trend change there.
That's very clear. Thank you.
We take the first question here in Stockholm.
Sorry. [Peter Fillion from Handelsbanken] Capital Markets. My first question relates to the construction side. You talk about a significant drop, a dramatic drop, or a somewhat weakened situation. Could you help us with the rate here? How much is that the orders declining to 20% say in Brazil and in China on the construction side to get the sense for the slowdown? Secondly, we have discussed mining, both Australia and some aftermarket revenues. Could you help us to understand how your customers are figuring out the demand going forward when it comes to facing orders, questions, projects, stuff like that? It doesn't seem that you see any hesitation right now, but there ought to be some out there. Could you please help us out there?
Yeah, when it comes to construction, the first is to take it from a geographical point of view. We definitely see a significant drop in China and in Brazil for all construction equipment. It's geographically in China and Brazil. When you look underneath on the construction business, it is road construction. That is not, we don't see it in the portable energy part, that it is really significant going down. You see a bit of a soft from the barrel, so you have again this seasonality which is playing when you compare quarter two with quarter three.
Sorry for interrupting, but significant in your mind is - 20%, -30% like I mentioned before.
You can add a minus when it comes to China. I think you can take a - 20% or more.
On specific product ranges.
Yes. Again, on this specific one, that is certainly not on the fossil energy construction side. On the mining side, yes, of course, this is also a question which plays with me and I try to find out. You have heard about the consumables. You have heard me saying there we don't see anything. I think it's so difficult to do small because we are small, because there we are on our top, and that is the reason why we invest in it. When it comes to other equipment, I think we got very good development, good interaction, good quotation going on. Will they, I mean, the mining companies, be a bit hesitating to place the orders later on, depending on what is going on? We'll see. That is the question I also have. It's good to have quotations, but it's even better to get a firm order.
We will see that. When it comes to the exploration, I think you can say you see some activities which are a bit softer. You can say that. Is it really linked to certain projects, certain mining companies who are waiting? That I don't know. I cannot give you that answer.
Okay. My last question, very, very short. China, we talked about cutting taxes and stuff like that, eventually export duty. Have you seen any of your non-domestic competitors starting to sort of think about moving production back to the U.S., stuff like that? Have you come to that yet, or is it still in the future? In that answer, could you update us on how much you actually net import to China?
You say moving back to?
No, what I mean is from U.S. production, it's rather healthy. Yes. Companies that are not really in China for local demand, one might figure out whether to stay in production or actually moving it back. That might be a situation further down the road. Have you sensed any of this happening when you talk to your customers and in the landscape?
Yeah, of course, when you look on one end, you see the strong demand for investing inputs in the U.S., like I said. When you start looking to the currency and you take a time horizon from a couple of years, the renminbi has strengthened. You listen then to the salary increases. Costs have been increased in China. That may be for certain products that someone is moving back to home for certain products, if for the reason if they had done their transplants in another area. It could happen. I must say I don't have an opinion about that because we have a strong presence in the U.S., strong presence in China. As long as they invest, I have no opinion on where they're going to do it if I take it from a focus point of view.
When you talk about us, the majority of the products we are producing in China are for China. That is even more than 90% of what we produce in China is used in China. You can say what we sell in China is around a bit more, I think a bit more than 70% of what we sell in China is produced in China. The red flags, couples of airports we are flying in, specific meat spots, which are produced wherever, could be in Sweden, could be in the U.S., second in some products. We are good because that's in process. The majority is homemade either in the U.S., in market trends in California or in Germany. These are not produced in China for another reason. The majority is what we produce in China is for China.
Very helpful. Thank you.
There's a second question here in Stockholm then.
Hi. It's further solid up in the U.S. I was wondering if your book to bill has been running above one for two years now, I think. I was wondering if you could quantify your backlog as it stands today? The first question. The second question is on the aftermarket. There's a lot of strong language, I think, in the release, but it's growing very fast. If you could quantify or give us an idea of how fast the aftermarket business is growing and whether there's a difference between the mining business and compressors. Finally, on the mining side, on the consumables, do you think that you can outgrow the amount of volume of dirt that is grown up, that is dug up from the miners? Can you, in volume terms, can you outgrow the mining activities, the earth moving activities there? If so, how can we do that?
Is it market share gains or is it any other buttons you can press?
I think on the consumable part, of course, we are knowing besides trying to get market share, but that's all of us. If you talk to our competitors, we've shown everybody from aftermarket share, and that is to work with certain new products and all that. That we will definitely try to do. I think when it comes to the consumables and specifics for us, we should still extend our offer. We are still a narrow player in that part. I think we could do more of that, and that is, I think, we should do over the years to come. That will take time.
That's helpful.
I think if you see the acquisition we did a couple of years back in India, where we had to sort of take bits which we didn't have before, that, I think, helped us. By that technology, it was more used in China. It was also more used in Russia. We leveraged our presence because that is the strength of Atlas Copco, selling in 178 countries and getting products that match what that commission we all have. That's on consumables, I think, and that's the reason why I believe it could be a good pop from abroad. On the aftermarket, it goes double-digit. There is no significant mining and CC now, but you know mining can do that. There are much more higher install bases if you compare this to it to you. Still more to come on that part of you.
If you ask me which one will grow faster, CC or mining, giving this input, I would say mining.
That's a roll. It's about nicer than Q2. That will escalate yourselves to one quarter now, but there is variation between the business. In our case, with more than 40% of our business being consumable, other stuff that basically doesn't carry on, and start talking about equipment. On equipment in the two big business areas, and I'm talking mining and when it comes to backlog, that is, mining and compressor technique, it's somewhere in the region of between two and three quarters on equipment. Massive as that. There are big variations between different products in mining and different products in compressor technique, but as an average, yeah.
Just taking into account the aftermarket business.
No, no. Only for the equipment. Only for the equipment, that is. Of course, if you take the whole business, it becomes much shorter than that, of course. With that, we pass over to two questions on the telephone line, please.
Our next question comes from the line of Ben Martin. Your line is now open.
Thank you. Good afternoon, everyone. It's Ben Martin from Merrill Lynch. Two questions, please. Firstly, construction technique, when you look back, that was pretty close to breaking even in 2009. I think Dynapac made a small loss in that year. We've seen those markets soften again. Can you talk a little bit about how different that business is now relative to back then in terms of cost base, your manufacturing model, flexibility, and so forth, and maybe what you've done to the business? If we saw a repeat of a or a similar downturn, would the margin resilience be different, do you think, to 2009? That's the first kind of all-in question, I guess. Secondly, on your outlook, you give it sequentially. I guess we're talking about Q4 relative to Q3.
Can you talk a bit more about which markets you think are going to sequentially weaken and which markets you think will hold up? I guess we've already seen construction go down. Do you think it goes down again or that's stable? Are there other markets that will soften? Thank you.
That's another question.
Yeah, when it comes to the construction technique and going back to 2008, 2009, when you recalculate the figures and you say it's pretty even, would that happen again? When we looked a couple of weeks back, actually a couple of months back, and we looked to our sensitivities and our contingency plans and where are we, where could we be? I think we are much better equipped than I think at that time. The reason for that, I think we have really reduced our, or should I say, overloose capacity. You have seen that we have closed several factories and reduced our square meters. That part is definitely not there anymore. That will be a bit easier.
I think also when it comes to the whole setup, and that counts for all our businesses, I think we are a much more agile organization than we were in 2008, 2009. What does that make me saying that? First, I think we had done it before. Second, I think we also had, when we were growing during this period, and that starts, say, in 2009, when we started recruiting again, in 2010, when we started to recruit more, and also now, I think we have been much more prudent where to grow and how to grow. When it comes to manufacturing, when it comes to certain overhead. We really have stayed close to our core when it comes to our processes and making sure the organization seeks their agility. In practicality, we have much more temps as we had today, as we had in 2009 in that business.
On the other hand, we also have developed further the resilience part of the business. The aftermarket part is stronger, more solid. That makes me say that it would be the same scenario as, and I hope it will not, we would have in October 2008. I think that as my date, I believe we are much more, yeah, we are solid on that part. I don't believe that we will hit the break even. When it comes to the outlook, yeah, yeah, you can read it, Martin, the outlook. I think when it comes to the construction part, we'll see what happens in China. That is the question because it's a big part for road construction, what will happen in the months to come. I see a more positive outlook on Brazil.
I think where we had before a down part on the road construction thing, I think that is coming back slightly. If you ask me, I would say I would be prudent on the construction side because the period also in Europe is coming. We have the last quarter, which has never been the strongest part. The same is on the U.S. side. There, I still see potentially, I would say, a further softening. When it comes to mining and industrial technique, I would say I think it will hang in. There I am believing that we should not expect any big movements. On CT side, we have a bit of a mixed view. There where my yellow canaries, I still believe they will go on, where the trigger stickers, that is for me also a question mark. There's a lot of quotation going on, but these need to land.
That is where also I have a question. Okay, is it due to the fact that we have now this uncertainty in that people don't decide to do the investment and wait and see what Mercer and Saporito do in the coming weeks? Is that the reason? That is where we see a bit of, yeah, hesitation, I would say.
Thank you.
Thanks a lot, Martin.
Thank you, everyone. We take another question from the telephone line, please.
The next question comes from the line of James Moore. Your line is now open.
Yes, thank you. Good afternoon, everybody. I've got three questions. One on your sequential daily order growth outlook. You did a pretty good job tuning the outlook in the last quarter, so I'm interested in what you're saying now. Do you really expect to see a negative group volume number in any of the next four quarters? Is that what ultimately happens if we go in year end and we've still got that sequential negative picture? I'm trying to understand, given the mining support and the backlog, whether you think that really is going to head that direction. Secondly, China and Brazil, is it that they make much higher margins and that there's a mix of effects? Or is it that China and Brazil margins have fallen? And then thirdly, on road construction, Dynapac, is the margin still at the single-digit level?
Yeah. Okay. That was the question?
Yeah.
Okay. Yeah. On Dynapac, yeah. I think overall construction engineering, as we call it, I would call it like that. Otherwise, we talked about the brand. I think we can do that there. I think we are also working on that to get new products moving around with some manufacturing, which we have already done. Of course, we're working on efficiency and internal efficiency and working harder on the availability of the part and service part. It's still on the, yeah, on the single-digit margin part. Some more work to do. When it comes to the margin where you were asking, and I've said already several times, for us, Atlas Copco, we don't mind where to grow geographically. I mean, is it Brazil? Is it China? Is it U.S.? Is it Europe? We don't mind.
I think the margins that Atlas Copco makes, if you take globally, is rather stable. Is there one specific country where it's better than another? Yes, but that's maybe not to do with more of the margin and pricing of the product. It's more really efficiency of the country, the way it's done on that one. On that part, I don't mind. If it is, if we sell it in China or we sell it in the U.S. or we sell it in Kazakhstan, I think I don't mind. When it comes to the outlook, and I would like to link it again, what we said, I think we expect that it will weaken somewhat. I don't believe in that that will drop, if I use that word.
I think that given everything what is in the pipeline and you see the growth measures in China, you see also our European situation. We see U.S. and then the whole banking situation. I think this we should not neglect will have an effect on the total business. How much will it be? Who knows? On the other hand, to repeat one of the questions I got here, of course, we go for aftermarket share. That's for sure. We believe also that we have a very strong aftermarket potential. We can take more market share. We have high presence and we can do better in all areas. Also, even in the mining area when we even have good profitability. On one hand, maybe we will get a tough wind or tougher wind, no tailwind maybe. Maybe we get heavy wind.
On the other hand, I also believe that this company should be able to perform at any weather. I think there is a saying that says, "Hey, here in Sweden, there is no bad weather. There's only bad clothing." Let's take it that one, as an advice.
If I may, James, to remind myself, the two questions in one, in your first question, I think that you started asking about our sequential order outlook, but then I understood that your question was, does that really fall into a negative revenue development? Was that your question?
No, I was thinking a negative income volume number in any of the next four quarters.
If we don't believe in any demand developments, that is, of course, a risk for that. Absolutely. That's how you should read our outlook.
That's what I thought. Could I follow up on your China as well? I was referring to the -4% incremental organic margin on the revenue growth in construction technique. Hans Ola, you gave an answer about China and Brazil. I didn't really understand what you were saying there.
On construction technique, we have a negative incremental margin. What I meant was that the two examples of very important markets for this business have fallen quite severely, very quickly. We mentioned Brazil for construction, for let's say road development equipment primarily in China and Brazil. At the same time, these are the same markets where we are really wanting to grow for the future. We haven't completely stopped all activities when it comes to investing in the market organization, in the service organization, etc. I think the combination of those two things gives in the quarter a poor incremental situation.
You couldn't decide the absolute margin shots in these areas as to how much you've been prepared to sacrifice for investment.
No, I don't think we are prepared to give you any clear answer on that. It signals the course that we have a long-term view on these both markets and products, and that's why we invest.
I think one thing I can elaborate maybe on China. I think one area where we really will be very reluctant to, when it comes to feed and the street, and then I mean on service and service, we spoke really to reduce, is in China. I think we really need to go further in developing the presence and getting also experienced Chinese Dynapac people on the street. Of course, then it is a bit tougher for six months or a year or a year and a half. I think I need to hang in because if I don't hang in, then I will be too late within one and a half years when the market comes back. I think this company can fit that out.
Very helpful. Thank you very much.
To remove that, if there are any more questions, I think we had a question here first. Okay, and then [Mark].
Okay. I'm [Safi in the bank]. Sorry for getting back to the outlook again. If you look at the aftermarket business as such, you talk about a good development in growth terms. Do you expect growth in aftermarket in the fourth quarter compared to the third quarter?
[crosstalk]
That is for sure. We have seen even in the crisis situation where we were, and very recently, we all know 2008, 2009, we also had seen that our aftermarket was really not dropping. I think we got a couple of percentages to take over the period of a year where we had a couple of drops, but it was very, very small, I think. That is also what I expect is something called a softening, that we still are able to grow in the aftermarket.
I want to follow up on a related question. I don't know if it's relevant or not, but in the present environment during the third quarter, has it any difference in the pricing environment if you compare new equipment, say, with aftermarket? Or is it equally strong or no?
No, it is, of course, it's different aftermarket pricing and equipment because if you take aftermarket, I think that goes on. I think aftermarket pricing goes partly together with inflation because everybody sees it is stable. On the other hand, I think it is specific services value you create towards the packaging. I think that price holds on. I think that holds on. When it comes to equipment, that can be different. That means you can have a competitive situation. You get to have larger new products. That's a totally different situation. I have not heard that you have seen us reporting also. I have not heard anyone that there is more price pressure now than there was a quarter before. There is always price pressure.
It's always in order. Aftermarket business is somewhat regaining from the fact that you hold back investments in new equipment, serving old equipment more or less.
That's, I think, in this quarter period you don't see that. I think we should see over a longer period. You cannot see for sure. I hope that if that happens, if people, yeah, it's like with your car. At the end of the day, you need to replace it for tires if you run down. That's also the same in our case.
I'm sorry to interrupt you. Have you had any weaknesses you've seen in the automotive-related business?
No. No. You know we are in the tooling business. I think I see a very strong development going on in Europe with the big Europeans. I see a very solid quotation level and really landing orders in China. I think the bottleneck in China is us. I can relate to people and getting enough people and all that. I think there's also a very, very, very solid development also in the U.S. These three, there's a lot of models in the pipeline. Very soon, I need myself to train a bit further when you come to the true core business, which will be a business which is two years ahead of our existing business. I will get more and more insight on that part.
Thank you very much.
Thank you. We have a question here. One more in Stockholm.
Yeah. Hi, [Matt]. Thank you. Just a couple of weeks ago, I was asking regarding production that was at the end of the year. Is there any difference there for the fourth quarter compared to the third quarter? Is it the same production rate? Secondly, once again, about mining, you mentioned you expect to operate above 20%. I guess it's quite a substantial way down. Do you see that as a forecast for the third or fourth quarter? Is it more like a long-term that you are able to do with more than 20%? My question is more like, are there seasonality impacts or are there mixed effects in the fourth quarter that seem to make a big difference?
Are you taking the last one?
I can complement what Ronnie said before. What we believe is that at this level of activity, at this level of revenue height, etc., we don't have anything specifically positive in the Q3 report for mining, if I put it that way. Like everything else equal, we don't see that there is any need in the short perspective to see any dramatic movement. Mixed can be different and so on and so forth.
In the mining, and we all know, it can be a shot and go. I don't know. That's the reason we need to be very agile on that. I think we also have seen even during the stocks, looking up in 2008, 2009, I think the aftermarket kept up.
How has volatility in mining-related currencies affected you or will it affect you going forward, like the South African rand?
Yeah. I think, of course, I don't like that the rand is going down, the Australian dollar is going down, and the Brazilian real is also softening. Okay, then you get some gains and some losses in that part. I think when it comes to the currency, we take the whole basket. We're not looking specific for one specific product range because we decided to produce underground rigs in Sweden. We decided that we make service rigs in China and we make them in the U.S. I cannot make them in East Germany. That would be fantastic. You gain and you lose in that part.
What we have seen lately, as we think actually, is that the emerging markets, mining-related currencies, the black hole, the black hole.
Yeah.
The Aussie dollar and the Canadian dollar have stayed reasonably good or even in par with what the dollar has been doing. The dollar, you know, has been strong and the Chinese currency is strong. It's basically rand and ruble and Brazilian currency that has weakened. All in all, as Ronnie says, we don't see that as a major impact.
I think that we are coming actually time-savvy.
Sorry.
[crosstalk]
Yeah, I need to map that.
Very much.
Right. I think what we see is we have a very solid output in quarter three. I think to answer the question a bit different than when Hans Ola Meyer was talking about the book to bill and the order for hand situation, we still have a lot to deliver. If the orders in Swiss size stays around this level, I think we will definitely be for a while at this output level. Normally, quarter four, historically, I would say this is normally when it comes to factory outputs, a very solid invoicing quarter. You've seen when you've seen the completed inventory and all that. On the other hand, I don't think we have a big net factor inventory because we don't make the stock. We make for orders. Everything we make is sold.
Okay. Thanks.
We have used quite a lot of time. I know there are many questions left on the telephone conference. If I just take one last, I'm sorry for that. As we always say, after the call, you are very welcome to call me, Mattias Olsson on IR, or anyone that you can reach. We will try to answer your questions. We take one final question in the conference then.
Our last question comes from the line of Sebastian Kuenne. Please go ahead with your question.
Hi. Good afternoon, gentlemen. Just a couple of questions, if I may. Just one question on the inventory to sales ratio at the end of this. What would you like to be on in terms of inventory to sales ratio? My second question will be on the aftermarket of the percentage of sales. I mean, that's very useful. You give us a number for Q3 this year, but could you give us a number for Q2 last year and for Q2 this year, please? Thank you.
Hans Ola.
When it comes to the first question, your first question is about inventory for sales. We don't have that type of projection or type of planning tool that relates to inventory for sales. What we do track internally is the turnover in days. If we give too many details on that, we're also giving away quite a lot of information about the different margins in the different segments, so it might not be so useful either for you. The inventory for sales, we have no reason to believe that it will change dramatically. We don't feel worried about having too much inventory entering into a slightly more uncertain demand situation. That's what we answered before, and I think I'll have to stop with that comment.
We don't see any trend that our turnover in days, either for receivables or inventory, is showing a very negative or any direction for the time being. For the last three years, we've actually improved this, and that is good.
That's the business, yeah.
That's the business, yeah, exactly.
Okay.
There was also a question on aftermarket. I didn't think—
I didn't—and the difficulty is what you—you were asking a comparison between quarter three last year and this quarter on aftermarket. What's the question?
For my quarter, the percentage of quarters, and then you give the number of 41% for this quarter. I was wondering what was the percentage in the last quarter and in Q3 last year.
Yeah, you're referring to the pie chart that we showed. That is really a 12-month number.
Oh, okay.
Not the statistics, or am I wrong there?
Huh?
It is Q3. You were right, and I was wrong. Sorry about that. Q3 number was 48, 41, but that consists of services, the spare parts, and the consumables, some specialty rental, etc. It is a relatively big aggregate number. When we look at the specific spare parts and service proportion, you can definitely see that we have fallen in that respect from last year. We have more equipment sales this year. I don't have the numbers right off the top of my head on that. We'll have to come back to you on that one.
Any competitive issues? Is there any sense?
Not a very dramatic one. It's rather similar, but perhaps we can enlighten you a little bit more on that later.
Okay. I can help you a bit in your thinking, and we can call later on for the exact figure. We have a flawless double-digit growth in the aftermarket that goes on for several months, several since the crisis, since after the crisis. I think you can also see what we have been doing on the equipment side. You can see that the ratio is gradually moving more to equipment, but it is not spectacularly moving.
Okay.
I think the aftermarket is growing still.
Thank you.
Thank you. With that, I thank everybody that participated. I hope we can help you people that didn't have a chance to ask your questions. Thank you, and have a nice weekend.
Bye-bye.
Thanks.