Good morning, everyone. Really appreciate to see you all here this morning. What we will try to do is to give you an overview of the Atlas Copco strategy, as transparent as we can. I will have some help. Over the last few months, maybe, when I've been the CEO, I have a lot of questions about Vacuum, and it's a very interesting industry with the semi and Industrial. Therefore, we brought Geert Follens. He will give a presentation later on that topic. You really have the source here available to you. We will also look at Mining. Helena Hedblom is here. I'm sure she will cover digital mines, fossil-free mines, and I think it will be extremely interesting as well. Another area which we get a lot of questions is how will Industrial Technique be influenced by electrification of cars.
We have brought Henrik here, Elmin. He replaces me in Industrial Technique, he will cover that topic as well. We like to do things in a very sustainable way, Sofia is here, Svingby, she will cover that topic as well. We will also have Hans Ola, of course, Hans Ola, he will cover a little bit of the finance, but also give you an update on the split on the Epiroc part. The best part is actually this afternoon, you will have the six station, the innovation tour, you will actually really see how we bring value to our customers. I think Daniel's instructions on the buses were fantastic. We know you're a old military guy, right? This is the way we do it.
We look a little bit at the performance, I think that we highlight a little bit the tremendous development with the Vacuum, that's a little bit supported by Leybold, of course. We also highlight the turnaround in Mining to see how strong growth they have. I'm also very proud to see the other three business areas being around 13, 14% growth. You can also see that that is divided geographically for us in a very positive way. We are extremely excited to see that our products get good traction in Asia, which is an extremely important market. Profitability, I think, we are very pleased with that. The cash flow last quarter was SEK 5 billion, we continue to generate good cash. The Epiroc, the split plan, is just on target, Hans Ola will talk about that.
I can just confirm that we see a continuing high demand on our products on the market. This is a little bit geographic split. Of course, it's very unique that we can see that we have green numbers in all regions. I'm very proud, I said that we have worked extremely hard to have one third of our business in Americas, one third of our business in Europe, also one third of our business in Asia. The 33% growth in Asia is extremely important, the reason being fairly simple, you need to be number one in Asia to be the global leader. There's a lot of things that's changing. 50% of all cars, of course, made in Asia. It's the most important market for Vacuum, it's also the biggest market for Compressors.
We really need to have a strong presence and make sure that we have competitive products. When I was working in Industrial Technique back in 2003, we tried to build our business in the motor vehicle industry, we were working with a traditional brand like BMW, Volkswagen and all this. We said already at the time, we need to build a business with the Chinese players, the Great Walls and all these other names. Today, more than 50% of our sales in China, in the car industry, is actually to local players. They are really stepping up their performance. I'm sure you will see some of those brands globally very soon. Financially, we talked about the orders received, up 24%. We get the good flow-through to the operating profit driven by volume, the mix from Vacuum.
Still on a year base, we have a positive currency. When you look at the chart here, you can see the last two years was at SEK 25 billion for a quarter. That was fantastic. Now we have had three quarters with more than SEK 30 billion. That development is, I think, extremely good for us. You can also see the gap, and I will address that a little bit between revenues and orders received. I think Vacuum, considering the volume they bring out today, they do an extremely good job of keeping up with deliveries. We are also investing heavily in our operations in South Korea and in China to meet this new demand. Power Technique as well, they also keep up with demand in a very good way, and so does Industrial Technique.
Two areas where we think we would like to do a little bit better. Mining is one of them. Although in Q3, the revenues were up 20% versus last year, the demand is actually higher, and it's driven by underground. Helena made a commitment to me that in Q1, we will try to get back to normal lead times for the bigger machines. CT, Compressor Technique, there we were only up 2% for the quarter, there we have more homework to do. The same there, we have the commitment from the organization to make sure that we get back to normal lead times during Q1 next year. We have the capacity in Mining to make the final assembly.
We have the capacity in our machining, it's in principle, when we put pressure on the supply chain that you get the supplier's suppliers, that sometimes you detect new things. Our ambition is really to support our customer in a very good way. Talk a little bit about our targets and the way we go to market, it's 27 different divisions, I think I will talk a little bit what keeps us together, what are the common strategies that makes our company successful. This you recognize, we target under 8%. Over the last 10 years, we were at 7%. Return on capital employed the last 10 years, 29%, we are pleased with that. The cash, you know how we handle that.
Continue to generate good cash flow. The way we are not a bank, Hans Ola, you normally say to me. If you have extra cash, of course, we have divided that. This is a picture that is a little bit of a key internally for us. It's talking about how we generate value for our customers. Of course, we operate in a society and environment, and sometimes we actually do a lot locally to make sure that we are a good corporate citizen. If you want to know more, I think Sofia will actually talk about this, but I think we do a lot. The Water for All program we do with the employees is fantastic as well. What drives really the shareholders value creation is the enormous focus we have on customers, and it will increase.
The customer can get information from us, they can get competence from us through digital channels or physically. What we see more and more is that a few years ago, it was okay that we talked about our products and the benefits of our products. That time is in principle passed. If you stay on that level, you will only be invited when they would like to talk about price. During the sales process day, we really need to add value to the customer's processes. That means that we need to understand how the customer work, how they bring value to their customers. Internally, we actually bring a lot of trainings to our people in terms of application competence, and that is the way we stay ahead of competition as well. If you work for Atlas Copco, we are approximately 50,000 people.
When you start, or you have a mission we talk about. That is very clear what the mission is. We talk about what should you achieve, and it's a very delegated responsibility. We have more than 500 profit and loss, and we know really who to call to say, "Fantastic performance." We say, "Can we do this a little bit better?" Let me go to R&D here. We need to bring to the point of the customer interface over here. Sorry, I'll do this again. That was not the laser. This is the laser. When we have that moment of opportunity to meet with the customers, we need to make sure that the salesperson and the team come there with a product that is clearly differentiated. That's why we continue to invest in innovation.
We need to make sure that we package our products from marketing in a way so that they can clearly see the return on their investment. That is essential for us as well. Normally, our material is used at the customers to present their ideas. On the operations with the manufacturing, the source, and the logistics, we say we want to deliver a quality product on time, in full, in a transparent way. That sounds extremely easy, but it's very difficult. It's really appreciated by our customers. Then the service, in principle, what they should do is come with products that help our customers to have more uptime on their products. This is where we are heading.
When you are a salesperson representing Atlas Copco, you should feel that all these forces are with you exactly when you talk to the customer, and this is what we bring to the customer. I break it down a little bit for you. Sometimes when I started, I was thinking, "Why do the customer allow us to make a good margin on our products?" We looked a little bit, what is the Atlas Copco DNA? We say that, well, one of the things that we see is that we really need to be number 1 or number 2 in the segment. It's principally that we can have enough resources to put into R&D, sales, and service. We have tried number 4 and number 5 spots, it's not so efficient.
We need to make sure that we have the opportunity to challenge for number 1 and number 2. That's one of the criteria. When we look at the new acquisition, or we look at an organic development, we really see, can we take this position or not? The other thing that we do is look at the products. Can we bring real tangible values, or is it just a me-too product? We need to make sure it's really differentiated, we continue to invest in innovation. The other thing that is extremely important is that if you think about the product in the value chain at the customers, we want our products to be valuable to that process. Meaning that if you take that out, if there is a failure on our products, it has a consequence for the manufacturing.
By doing that, we can always talk about value instead of price. This is what we like to do. The last step is of course, that we should be a very interesting service business. When someone who, 27 divisions comes to us to bring, I like to enter this, we just take this Atlas Copco DNA say, "Can we do this? Is this possible? Can we have leading products?" What is the service opportunity here? Can we develop that over time? Then we say, "Okay, then let's take a look at that." I talked a lot about customers already, but we believe that when I started, it was a lot about relationship. You need to know someone, and that is still important, but the decisions today are much more professionals.
They really buy into their own success, and they like to see real tangible data, how we will improve their manufacturing process. We spend a lot of time understanding the customers and their processes. In many cases, I think that we need to be almost ahead of our own customers to really understand what is the real demand that they have for the future. Daniel, have you arranged cards?
I have.
Maybe on your Are you handing them out now? Good. I will give a live example, I think, and you will have something to bring home, even if it's just a card. It's easy to talk about innovative products and leading products and how do you hire those people, but it starts with a good understanding of the customer. What we do, this is from an example from Industrial Technique. It's also used in some other divisions. We take a marketing person, we take someone from R&D, and we bring them together as a team. I can use this as an example for aerospace industry. If we will set the new product strategy today, we will ask these two people to go and visit the leading brands. That would be probably Boeing, Airbus, be the key ones.
We will do an interview guide for them, and we would like to meet the people at the customers that we normally don't meet. It could be a plant manager. It could be someone talking about what future materials will they use. Normally, it's very difficult to get those appointments, and they say, "I'll give you 10 minutes." When we are there doing the interviews and see that our intention is to bring real value, we normally sit with them for one or two hours. It's a really effective way to get to the real knowledge. We record these interviews, and we go back home, and we try to find what they actually said, what drives cost, what drives productivity, what are they really after. You have a couple of cards in front of you, it could be like a full deck.
This is actually from Industrial Technique. These are different characteristics. Of course, if you ask someone, what is the most important? Someone say, "Oh, we lost due to price." It's very seldom that we lose anything to price because the uptime on our product is so much more important. We list, we put that in front of this customer and say, "Can you rank this for us? Can you put them in priority? Is ergonomics more important than price? Is fastening technologies important? Is this important? Is weight important?" We categorize this. We can say we have a database where we say, okay, Asian purchasing manager, this is the ranking they do. If you're in operation in Asia, this is what they're looking at. How does that compare with the purchasing manager in U.S. or Europe?
We're building on this database all the time. Of course, if you then develop a new product, you can look at the specification and say, have you really followed the recommendation from our customers? It's also excellent to use that in the marketing material for websites or brochures even. I think it's become a very efficient way within Industrial Technique to make sure that we have a high success rate on new products because in principally, we have determined the value three years earlier when we started the project. The project for us is normally two to four years. I talked about the leading difference in technology, then you might wonder, why does he take a picture on the breaker? It seems to be really old-fashioned technologies. I never give up.
I have said to my team, "No, there is more to do," and I'm sure there is more to do. This product was launched two years ago. The energy consumption on this rather old product is now down 50% and is 25% lighter than comparable products, and it has significantly better ergonomics. Even something that seems to be fairly simple, we can improve it, and we need to challenge our organization constantly to make sure that we have better products. We talk about product, and we talk about people. We talked about the mission that is important for us to make sure that people understand what they should achieve. They should also challenge management, what kind of resources do I need to make this happen. It's a very delegated responsibility. It's extremely lean where we sit in the head office.
We make sure that the resources are close to the customer, close to where the problems seem, and we believe that that is also where the solution is. Then we get a lot of consultants coming to us and say, "Well, if you do that, you of course lose out on a lot of the synergies." What we lose out on synergies, I would say we gain in speed, and we like to be a fast company, light, fast, that can move quickly. Okay, how do we handle the synergies then? Well, I can give you an example. In February next year, we have 27 divisions. Each one of them have an operational manager. We bring them together for two days. We just talk about one day, what is the best practice internally in Atlas Copco?
How do we manufacture product in a very good way? They share that, they bring that. We take in academia, spend one day, we then say, "What is the latest technologies? How can we do this better?" People leave full with energy, full with responsibility to go home to their own operation. We don't build governance structure in between or have a VP manufacturing or something like that. Really to gain speed in what we do. We work a lot with trust, a lot with depending, a lot of education in Atlas Copco. Every employee you get more than 40 hours of training yearly. We talked about the manufacturing. This is a little bit how we execute. If you look at the picture there, it looks pretty much like a car line today. This is from Compressor Technique.
What you see is that one thing is that we have the agility. There is actually different compressors. We can build different models. We use digitalization to make sure, okay, this component goes for this product. This is the setup we need for this. You can see that the material is really close, we have to work with lean to make sure that we can build that as well. Although that main part of components you can see in supply base, some 70%-80% is actually supplied. We do core components. We do where we think that we have an IP that we don't want to share. Those components, we make sure that we manufacture ourselves. In the blue color, say we, yes, we like to design the product. We like to make sure that we do the final assembly to check quality on the products.
We always do sales and service in principally. Customers should gain very tangible values on what we. This is how we execute a little bit in the market. This, I think you have seen a number of times. The resilience comes from the attractive service business and the lean operation that you have seen here. We can adjust pretty quickly. There's one more strategy that I don't think I spoke so much about. We do with each division yearly scenario analysis, where we say that, "Okay, you need to plan for +10, +20, -10, -20. How would you act?" It's principally to gain speed in the process of adjusting to a new environment. We don't look out and predict what's going to happen. Yes, we check CapEx data, we check macro data, but we don't base our decisions on that.
We make sure that our organization is ready. Service, you can see the light blue is equipment and the dark blue is the development of our service business. You can see it's developing quite nicely. In principally, it's three steps in this. Started out with breakdown service. A lot of customers still do breakdown service. We are trying to convince them it's not so beneficial. What happens in breakdown service is that they stop the line, they need to take it off. We repair it. We only get labor and parts. It's not so interesting for us, and it's not poor for our customers. What we do is we do the scheduling or maintenance, just like you do with your car, that you come in and we get uptime on our products.
We get more of a package deal for what we do, and we get part of that. The next, of course, what we're all working with right now is the predictive. We have data, and I said, this scenario that you see is not a futuristic scenario. This is actually what Industrial Technique can do. They have collected data for 20 years. This is what Vacuum is collecting data. This is CT, probably number one in this for us. We can also see Mining, collecting data, so that this is not future scenarios. This is what we are learning. We're learning in analytics right now, and we are bringing in competence to our companies to make sure that we know how to make the analytics ourself. We don't want to give that competence to a third party.
When we talk about digital, you can have a very futuristic view on it. Atlas Copco way of doing is a little bit more, what happens now? Can we do something with this now? We look at our operations. You saw an example of the line where we use digital data to be able to have agility to build several different products on the same line. For a customer, I don't think we are good enough because I think some of the business to consumer are so much more attractive. We are really working on how do we work with the interface. That could be then the webpage, or it could be social media, but it should be easier to do business with Atlas Copco, and that's something we're working on. The uptime is, it's a little bit the predictive maintenance.
We use digital for something that is valuable today, and we are really working on these strategies as well. You can say that we are ambassadors of free trade. We have presence in 180 countries. We have our own people, is close to 100, I think it is. We use the multi-brand strategies effectively to give our customer different options depending on the application. In many cases, in many markets, we are both number one and number two. This is a very efficient way for us to go to market. If I summarize this a little bit, can we continue to grow? What at least you will get is to make sure that we will have a very strong focus on our products, on the innovation, and you will meet some of the products this afternoon and people that bring them to market.
We will have a very strong focus on our people to make sure that they know the customer's process, not only ours, to make sure that they can bring real value and get early into the sales process, because this is also changing now when they have access to data in another way. We need to enter the sales process early enough. The service offering we can see it's continuing to grow, and I think there is a lot of things we can do better for our customers. Just imagine that still a lot of customers do breakdown service, which is not good for them. Of course, we have the capacity for acquisitions.
In principle, what's happening on the acquisition part is that we have the 27 divisions, and if they are okay, profitable, stable, we can say, "Okay, bring us ideas, bring us your strategy." When we have the strategy for what we like to do, linked to what I called the Atlas Copco DNA earlier on, this is segments we like to be in, we start to look at targets and say, "This is something we would like to do." I cannot say one is more important than the other, because it's also dependent on the one that's selling the company, but we bring this to the board constantly on a quarterly basis. I would guess that all the divisions are maybe dating 5-10 companies over a number of years before something happens. We do it in a sustainable way.
We have also looked at the capital employed. You have seen how we work in operations to make sure that we work with our capital in a very efficient way. We still have a very basic saying in Atlas Copco, how would you handle this if this was your money? That puts people on the right mindset immediately how to handle the company's cash. We have the service business helping out in a very good way. I think these are a little bit what I wanted to give at this point, a little bit of the strategies, you understand our DNA, how we go to market, and how we intend to continue to grow our business. Hans Ola, are you ready?
I am ready.
Good. I hand over to Hans Ola. He will give you a little bit more on the financials.
You can leave the slide on for a second.
Yep.
Then I-
there you have the clicker.
There I have the clicker. Good. Good morning, everybody. Thanks, Mats, for the introduction. Yeah, I've been coming up quite a few times on the Capital Markets Day when, well, let's hear about the numbers. I will try to comment just very briefly on a few slides how the figures and the numbers tie into the strategy that Mats had talked about. Before I do, presently, as of yesterday, there is one important or a couple of numbers that are more important than everything. I apologize for the Italians in the room. We here in Stockholm were extremely pleased yesterday, and we look forward to meet Mr. Putin next year. On that topic no more. We go to the next topic, which is really then looking at one of the components of what Mats talked about, perhaps the most important thing, how do we grow?
Well, how Mats talked about more extensively. Here you see the numbers. We look a lot at the top right because sustainability is not about being the champion one year. It's really about trying to maintain it over a period of time. 7%. Yeah, I know, Mats said eight, so we're a little bit short. We have some work to do. We try to get going again with the performance in 2017, as you can see. The other one is high return on capital employed. You see the number it's an average that is pretty high, 29% over the last 10 years. The figures, let's say, confirm that we have something that is right in the strategy, if I say so.
One thing that I get a lot of questions, Daniel not the least is on what about the SEK and what about the currency impact and so on. Here you can see something that we call the Atlas Copco currency index. We take all the inflows and outflows in each currency, we put them all together, and then we make a basket of it. We net everything out, and we create an index. We can track it every day, and this is how it has performed over the years. You can see two things. It is very volatile. The average seems to be somewhere short of 100 in this index. Of course, it is just an index, so don't think about the absolute number. You can also see where we are right now. Yesterday, we were at 91, so you get the feeling in relation to history.
If I just look back to what we just talked about before, currency has an impact. We talk about it a lot. Every quarter can have a pretty big impact compared to the same quarter last year. You can appreciate that when you see where we were a year ago and where we are now. However, the profit margin over the same time is pretty stable. This is, of course, also something that we bring with us. We hope that it is our active work with the structure that we have. We have a local hedging, meaning that the costs are in the same currencies to a very large extent as the income. If we look at another aspect, asset light, that Mats also talked about, we have two graphs here.
One, the blue is the true fixed assets that we need to produce the revenue and the profit. You can see in % of the revenue, it stays very stable over time. This is something that we see as part of our strategy. It is not just a happening that we realized when we made the slide. Same way we looked at the net working capital, which is then inventory receivables minus payables to suppliers. We are very happy to see what has happened lately after being a little bit stuck, and I have talked about it in many Capital Markets Day, being a bit stuck on that level. Now it has developed pretty nicely over the last time.
We should be fair and transparent and say that the growth of Vacuum Technique, which has a lower than average net working capital to revenue, has, of course, helped us lately with the tremendous growth that Geert's business area have produced. Nevertheless, all business areas are trending in the right direction right now. Put it all together, profit and asset light model, we get to the cash flow. You see the light blue operating cash flow. You see the net profit for the period, but you also see something interesting. This is the gross investments in property, plant, and equipment, and notice that it is not in % of revenue, it is absolute values. The whole company shares one DNA that we have a very modest need for recurring investments.
I say that knowing what Geert is going through now with a lot of investments, but in relative terms, modest needs to keep the machine going. We don't want to, and Mats just said it, I can repeat it because it's important. We have no intention to compete with some of the banks that are present in the room. We don't sit on the cash for just the pleasure of knowing that we have it. We do have an active work together with the board, of course, on how do we actively see what is the real need for capital in Atlas Copco? At the same time as that, the annual dividend is something that can be predictable to the investors and predictable to all the owners.
With that, I stop right now here. I will introduce, as Mats also alluded to, Sofia Svingby, who is the Vice President, Corporate Responsibility. She'll take us through a little bit more strategy, but in a sustainable way. Thank you.
Thank you, Hans Ola. Thank you. Good morning. My name is Sofia Svingby. I'm the Vice President, Corporate Responsibility for the Atlas Copco Group. I will take you through the why, the what, and the how of the corporate responsibility work of Atlas Copco or sustainability. Atlas Copco has an integrated strategy backed by ambitious goals that help us create greater value for all stakeholders. The group has identified five strategic pillars that are crucial to achieve our mission. These are presence, innovation, service, operational excellence, and people. To safeguard that the strategy is truly sustainable, the pillars are complemented by sustainability priorities. I will go through them in more detail later in my presentation. This is how we ensure that we deliver value for many years to come. Atlas Copco's mission is sustainable, profitable growth. We have been delivering sustainable value to customers for decades.
Why is sustainability such an important part of our mission? The reason is it's good for business. We protect and grow our business in a way that is economically, environmentally, and socially responsible. In short, our success depends on positive results, not just on the financial bottom line, but on triple bottom lines. That is how we perform for profit, for people, and for the planet. If we look at how the world is developing, this fact becomes even clearer. Our planet faces massive challenges. Our business model helps us to make the most in a changing world. Global drivers have a key impact on future market trends, such as climate change, demographic shifts, access to resources, or the digital transformation.
They influence how society evolves, what kind of company employees will want to work for in the future, customers' conceptions, competitors' priorities, and what society expects from us. This brings about a new market landscape for every business, and together with groundbreaking technologies, this can generate enormous business opportunities. At Atlas Copco, we are triggered by these opportunities, and by integrating sustainability in the way we work, we can capture them. To stay first in mind, first in choice, Atlas Copco delivers value to a wide range of stakeholders. Our customers demand products that enhance their productivity in the best possible way. We constantly innovate to produce more energy efficient, more ergonomic, lighter, smarter, or less noisy products. Our battery engines requires less ventilation and reduces CO2 emissions. In that way, we also support our customers' sustainability ambition. Remote mining enhances safety, removing the operator from the mine site.
Of course, we also offer our own employees a safe working environment. We work hard to eliminate risk, support safe behavior, backed up by strong policies. All over the world of Atlas Copco, an annual safety day is arranged in order to put extra focus on safety. Digitalization and big data helps us track machines and share data without traveling, emitting CO2. One example is our own technology, SMARTLINK, which connects data and compressors, tens of thousands of compressors. This can increase uptime, prolong the life cycle, and thereby save material. This also improves the life cycle cost for our customer. However, the world is not perfect, and we need to understand and mitigate risk. Often, the markets with the highest growth potentials are also the riskiest one. Assessing business opportunity through a sustainability lens makes Atlas Copco able to detect and handle these risks.
Being close to our customers is another way of handling risks while seizing opportunities. For instance, I have traveled during the year to meet with and learn from our customers. For example, in the mining sector in South Africa, which is truly a challenging context. When companies make the headlines on sustainability, it is typically on corruption. At Atlas Copco, we have zero tolerance. That means we never accept or give a bribe, and if you do, it has consequences. Sometimes that means that securing a deal will take a bit longer. Sometimes it means saying no to a deal. Anti-corruption training and accountability is vital. Training is given to all employees, sometimes by the Business Area President himself. The internal hotline and audit are key to ensure accountability. In that way, our stakeholders, be it customers or investors, know that you can trust our word.
Atlas Copco prioritizes the most material aspects of sustainability. These priorities complement the strategic pillars of our integrated strategy. The priorities are highest ethical behavior, safety and wellbeing, innovation, the most competent teams, and efficient use of resources. KPIs measure progress. The main responsibility for implementing these KPIs lie with the divisions. In that way, sustainability is further integrated into the business. I will mention just a few of those today. All employees are expected to follow Atlas Copco's ethical code. We measure how many managers sign the compliance statement each year. We require business partners to follow the same high standards and measure how many of our significant suppliers also sign compliance. In 2016, 88% did so. As of last year, we also required distributors to sign compliance. No one should get hurt working for Atlas Copco. Therefore, safety and wellbeing is highest priority.
We measure incidents, accidents, sick leave, and fatalities, and we are making good progress. The number of incidents and accidents have declined markedly, around 25% during the last few years. Innovation is in the DNA of Atlas Copco. In order to stimulate innovation-connected sustainability, we track achievements in the area of energy efficiency in particular. Many of our products are more than or up to 50% more energy efficient than previous generations. Good examples are the VSD+ compressor and the dry vacuum pump. We couldn't do anything without the competent workforce, which is given the best possible working conditions and opportunities to grow. Atlas Copco seeks to increase diversity, for instance, when it comes to gender. We measure how many women enter our workforce every year.
Last year, they were 22%, which is a 5% increase, and well above the current level of women in the organization, which stands at 17%. Atlas Copco strives to make an ever more efficient use of natural resources, reducing our impact from emissions or material or water use. One aspect is the CO2 coming from transport. Last year, it declined by 15% compared to previous year. Also switching to more renewables in our own operation. Last year, renewable electricity came from 39%. In our most modern factory in India, almost completely electricity demand is covered by solar panels. Let me conclude by underlining that at Atlas Copco, sustainability is embedded in the way we work. You could say it's a way of living. It's our way to ensure our own and our customers' long-term success. Thank you.
Let's now look at more information about the business area by Mats Rahmström.
Thank you, Sofia. The focus is not CT and Power Technique this time. At least I would give you a little bit of a glimpse of where we are with that. Just a reminder, with the Compressor Technique, they are so diverse in all industrial segments around the world, in principle. If you want some tailwind from this industry, I think that you have the GDP, in principle, that will follow over time. On top of that, we need to bring down new innovation. That normally means energy efficiency in this segment. It's extremely important to get traction for new products. You can see that coming from the number of years without organic growth, I'm pleased to see that some of the traction we get in Asia right now is actually from the new products that we introduced to the market.
What we have changed is that we don't develop them in Europe anymore. I went with the board last week to China. We really deep dive into the CT performance. We do everything from the R&D to the sourcing to make sure that we are that fast company that can compete in that market. That is a little bit of a change that we see. Financially, I'm really pleased to see the orders received considering where we have been. I can also see that they have a lot in the pipeline when it comes to products. We're trying really to pick up speed to make sure that they can bring new, interesting products to the market all the time. They're extremely good at service.
I think it's the leading within the group for us, how they package service, how they work with the logistics around parts, how they present their concepts to the customers. I think that's also what makes sure that the customer continuously come back to us for new products. I would say also they use a lot of multi-branding to make sure that they have attractive price levels and applications for a lot of our different products. We try to vitalize a little bit the multi-brands as well with new technologies. I think this is very promising. I already commented on the delivery situation here. If everything goes to plan, I'm sure we will be back with normal lead times for some of the compressors back in Q1.
I asked the guys to say, "I want to show innovation for this team." They're very cautious not to show what they have not launched yet. This is what they gave me. There is a lot. When I look at the complete pipeline for the coming years, I think it looks very attractive. I'm very much a product guy. When I visit Antwerp, I really meet with the people that develop products, make sure that we have something in the pipeline for the coming years. As I say, you cannot just shift it like this. It takes a number of years to do something interesting. I can guarantee that there's a strong focus on this. This is something that they are extremely good at.
You remember they had the picture early on that there was someone sitting in front of a number of screens. All the big compressors and industrial compressors that leaves our factory today are connected. It's up to the customer to say if they don't want it to be connected. We were dependent on that they could hook up on Wi-Fi when we enter the customer a few years ago. We have changed that policy more like a mobile phone. We can always get data if it's allowed by customers. Today, in principle, you have more than 85,000 connected compressors. We're learning how to do this analytics on a daily basis, in principle. We're putting the teams together. We get the data. We make the analytics of the data. The customer center has this data.
In principle, they can look at the customers and say, "Well, this had gone on overload overnight. It start and stops. There's something wrong with these compressors." We just make the phone call and say, "Have you noticed this, Mr. Customer?" We plan then a scheduler call for them. It's a very convenient way of working with customer, and they very much appreciate it, of course. The next step in this is, of course, if we can be so good at analytics that we actually can sell what they indicate here, instead of selling uptime in our service guarantee and uptime, that would create a lot of value for our customers as well. This is real. This is happening now. It's not something in the future. We can look at this data on a daily basis.
In Power Technique, we've changed then from Construction Technique to Power Technique, to broadening a little bit the segments we like to approach with our products, and you can read that as products, the segments where we think it's more profitable, where we can bring more value. Still the base is, of course, that we have the compressors, we have the generators, we are entering a little bit more in the pumps, we have the lighting, and we have a very interesting rental business, which is specialty rental. We are not in general rental. When we do rental, we do normally the engineering part. We do the installations and sometimes even run the equipment. It's not competing with the general rental houses.
It's a very interesting business because when it's critical to have uptime at the customer for service event or something like that, it very well fits our model of what we like to do and what we don't want like doing. This specialty rental is a good fit there. This is the only way where you have a little bit of seasonality in the business, normally a little bit stronger in the beginning of the year. This is interesting, this one. They were a little bit more generous when it comes to sharing new products. This is the full range of these compressors is for Asia. They put this on the trucks instead, they don't want to haul them behind. We see an increased demand for electric compressors.
In the cities, they don't want the noise anymore, they say, "Maybe we should have an electric one, it's a little bit more quiet." They're bringing that. Stage V, new generators coming, new lighting, battery driven, and here are some of the pumps. You have seen that we have made a few acquisitions in the pump area as well. There is a lot of interesting things going on in this, and we are building a little bit the business area step by step. You can see in the profitability that we are now in more attractive segments. I think I stop there. I think I just wanted to give you a little bit of a picture where we are with Compressor Technique and Power Technique as well.
I think it's time for Hans Ola again, and give you an update on the split and the Epiroc brand name.
Thank you, Mats. Yes. Switching gear a little bit, or switching topic at least. You know most of this, the background, I mean. Let's anyway take the opportunity to see a short movie.
All over the world, people depend on Atlas Copco's innovations to improve their quality of life. At Atlas Copco, we are committed to bringing sustainable productivity to our customers through innovation, presence, and a passion for what we do. We know that there is always a better way of doing things. To enable further growth, Atlas Copco will emerge into two separate groups of companies: Atlas Copco and Epiroc. Epiroc will focus on mining and civil engineering customers, while Atlas Copco will strengthen its focus on industrial customers. The work to establish Epiroc is ongoing and will be finished in 2018. This is mostly administrative work and is managed by special project teams. We call them work streams. It is important to know that this change is not affecting our daily business.
All our operations, like research and development, marketing, manufacturing, distribution, and service go on just as usual and without disturbance. We are building two world-class companies instead of one. We do it in order to drive growth and to serve our customers even better. Although we will follow two separate roads in the future, we share a common heritage of innovation and commitment to the success of our customers. Let's team up on the road to the future.
Good. Quick recap of why we do these things. We move on, I will talk a little bit, a few topics here you can see for yourself on that short, little descriptive. The movie said it to a large extent, just repeat a little bit. I won't read all the words on this one. It's a summary, what should stand out from the picture is focus. You should not expect that this project and this split is about quick wins. You should not expect it's about drastic strategic changes to the one part or to the other, but it's about focus. Focus going all the way up to the board of directors, to the group management, the executive team, and further down.
This is the proven concept that I think has produced a lot of the good financials that we have looked at for the last 10 years and for the last decades, I would say. Is it worth the pain? The answer for us is very clear. It is. We can compare this exercise to a certain extent with what we achieved in the late '80s, beginning of the '90s, when there was a clear divisionalization of the group of Atlas Copco. With hindsight, it's fantastic to see what type of drive, what type of motivation for growth and profitability improvement that that has given. We see this as just another step in that direction. This is the two roads, where you can see a little bit of numbers. Let me just explain. It's not projected numbers. It's indicative numbers. It's not audited.
It's putting the pieces a little bit separate together again. You can see also an indication of the profitability that you can see there. I'll come back to it, those of you that know your numbers from the latest quarterly report, you can quickly see that, okay, something has happened with Epiroc compared to Mining and Rock Excavation. It's an addition on revenue of a little bit more than SEK 2 billion, just to have that said. I'll talk a little bit more about it in a while. Can we say two world-class companies? Why can we? Is that fair? Is it just bragging?
What we did here is we looked for a pretty long time, we took Atlas Copco Industrial, we took the Mining and Rock Excavation business as a proxy then again, for Epiroc, if I use that word. We looked at the very wide, big, multi-industry type of company benchmark performance, which is the light blue. We looked at the slightly more narrow, big mining and construction company benchmark or index, if you like. This is the performance of these two companies, Atlas Copco Industry, if you like, Epiroc to be, or Mining and Rock Excavation. We look not only profit margin, we look at cash generation, which is EBITDA minus CapEx, it's also deducting the variation of net working capital. You can see a little bit more variations, the pattern is pretty similar.
Finally, if we look how is the important aspect of making it grow, you see a little bit more up-and-down picture, specifically on the yellow side, you see the achievement of organic growth over this period of time. I feel that it's important to stress that it's not just words. There are certain support in the numbers for these statements. Let us look a little bit more of an update on the actual project. This is the starting point, as you know it. You can look to the far right. First, you see that Power Technique used to be called Construction Technique when we assembled last year. You can also see that it consisted of four divisions. If we now move to the scope of this big project, this is where what happens.
You saw there quickly that Construction Tools as a division has disappeared. It has disappeared into two new divisions in Power Technique, sorry. It has been done in the way that the Construction Tools division has been splitted in itself, the part that has gone to Epiroc is the part that has the most overlapping end customer focus compared with the Epiroc business. When it comes to the other part, what we call here the handheld equipment, it's very intimately sold and handled from a customer perspective with the portable compressors, for example. That's what we are going to see as of next year in Atlas Copco. You will see that there is also a Power and Flow, which is generators and pumps, as part of the Power Technique.
This is the scope to the far right of what we are talking about to create. Someone said, Mats said it immediately, "You don't intend to show that ugly slide at the Capital Markets Day, right? Do something nicer as a slide." It's an intentional ugly slide because it shows the complexity and that we are in the midst of a very big project. Fortunately, as the movie said, I think we've done a pretty good job of keeping the commercial side of MR, Power Technique, and the others fairly intact, concentrating on the customers. There are other people, some hundreds of us, myself included, the general counsel, the accounting, the treasury, and everything with it, that has been working in work streams for quite some time with some help of external advisors and support from them.
We will see it in a different way, perhaps more interesting to see where are we. First of all, we're doing fine. There is no panic. We haven't sent out any press releases that we are considering to stop the project at all. This is what we are now coming to close to an end where, this is what I talk about as a huge project, not the commercial side, but really splitting into a fully new legal group called Epiroc AB with subsidiaries. This work will be done by the end of this year. We have created, so to speak, a group within the group. The shares of that Epiroc AB is what is going to be dividended out when we come more into the end of this project.
The workload is tremendous in the blue part, also, of course, there will be actions and quite some other type of work going into. You can see a number of dates or indications here. Some are not very specific or accurate. For example, we have no specific date as of yet of the actual listing of the Epiroc shares. We will have to come back and inform you over time about that. This is clearly somewhere where we are working against. A couple of things that is not on this list, just to be clear on that right away. At the end of March, around the 20th of March, there will be, as always, a notice to the shareholders of Atlas Copco for the AGM.
The AGM is the 24th of April, in that notice material, there will be an information brochure about the split and the dividending of the shares of Epiroc AB. There, in that format, which is not the full prospectus, it's an information brochure, you will find financial targets for the new company, you will find, obviously, descriptions of the strategy and everything, you will also find the initial capitalization ambition of the new company. Of course, as a residual also, you will see what impact it will have on Atlas Copco. Perhaps I should say, for those of you that immediately wonder, at the end of January, we have the board meeting and the release of the fourth quarter report for Atlas Copco, there, as usual, there will be an announcement of the proposal of the board of cash distribution to the shareholders.
That's just to keep the timeline in mind. Then, of course, there is a very important date as well, somewhere in the middle of May, there will be the formal committee meeting of the stock exchange to accept or not the proposal to list Epiroc AB. Shortly after that, the full prospectus will be launched. In connection with that, also there will be a capital markets day exclusively for Epiroc AB. There, to give you a little bit of what you should expect from a timing perspective. If we stay a little bit on the project itself, an update. No red flags, there are some costs involved. You will recognize some numbers. SEK 140 million is what we have disclosed in Q2 and Q3 as specific costs related to the split project.
I'm talking about the carve-out process, I'm talking about everything like that. We have also, in Q3, announced that we took a one-time amortization of capitalized development cost for a common IT system. That's water under the bridge. What you see here is an estimate of what the SEK 140 million will be for the entire process. You can say, "Well, you have done quite a lot of work. Why is the number so much bigger than what you have had?" Well, there is one major reason. There are basically two major things. One is that there is a lot of rebranding that will come, that has just started in terms of cost generation, there will be a lot in the next couple of quarters.
The reason is that we have decided and seen the possibility, or Epiroc management has seen the possibility, to do a relatively speedy rebranding without in any way affecting the commercial side of the business, and hence that is reflected in that number. The other part is IT. IT costs will also have a big bulk in the beginning of 2018. Don't mix, it's SEK 600 plus what is already done on the specific one-time depreciation. When it comes to tax, why tax? In each country where we're now demerging, where we are splitting up, we are selling an Atlas Copco business to an Epiroc company, or we're selling an Epiroc business to an Atlas Copco company, whatever. There are different tax rules, of course.
What we first need to do in most of these countries, almost all of them, we need to revalue the assets that we are selling to market value. That creates a capital gain and hence a tax. After a while, in many jurisdictions, with that stepped-up market value asset base, you're allowed to depreciate tax-wise for a few years into the future. That's why I talk about the sort of a net cost over a few years that we foresee. It's a mix of 60, 65 odd countries, don't ask me to detail it more than this, hopefully. These are a couple of things that is on the project itself. What about how this will look in terms of numbers?
First of all, in the reporting that you will find from Epiroc from next year and onwards, you will find two so-called IFRS segments. One group's Equipment and Service where the focus towards the customer is to sell a complete solution. The other part is called here, and you see the quotation marks just because these are preliminary. We have two things that we will have to be confirmed in the second quarter of 2018, but this is what we expect to see today. The tools and attachments is where we do make a product, obviously, and we take care of it, but it's sold together with some other equipment, sometimes equipment that we don't produce even. This is how we're going to report, from a revenue distribution, you see it to the right.
Again, I repeat, the final names of what you see there, equipment and service and tools and attachments, let's see where we end up at the final stage. This is what we expect to arrive at, of course. Revenue split, we've already indicated in the previous slide. Here, again, as I said, historically, it's mostly MR, Mining and Rock Excavation. You have the history to 95% or a little bit short of that. What we also see here is that from a profitability point of view, they are, and you already saw it, pretty similar, 19% versus 21% margin, but it's something that shouldn't surprise you if you followed Atlas Copco and the MR business area before. What I can say is that you have some here. It's not the projected numbers.
It's indicative numbers based on September 30 results. We have taken a bit of a projection when it comes to the new central corporate costs that we expect for the new business. Finally, if this is the income statement, what about the balance sheet? Look upon it from a capital employed point of view. This is where the indicative numbers, again, based on September, but taking into account two things. MR is the dominating user of what we call customer finance inside Atlas Copco. Unlike some truck manufacturers, we don't disclose very clearly what is the customer finance aspect, the sort of a finance business within the business. The assets of that is almost exclusively to the MR or the Epiroc business. That has been adjusted, so to speak, when you compare it with what you find in the annual reports and so on.
There is, again, some room for cash, et cetera, which normally is not reflected in our business areas today, the way you report it. You can say basically it's MR, it's the customer finance operation, it's the new division, the hydraulic attachments, of course, and then it's a bit of corporate assets, primarily cash. This is how we come to the SEK 20. Again, I say not audited, it's indicative numbers, but based on September 30. I know there is an elephant in the room, and let's deal with it then. What about the balance sheet and how will it look? First of all, I think the question about how will the balance sheet of Epiroc look exactly in June next year, I don't know, and we cannot give you a good indication.
Today we could give an indication, but there is no need to do it. What I can say about capitalization, and some of you know this already before, is that we do share not only a major shareholder, we do share the same history of the two companies, and even some very important characteristics. I talked earlier about a modest recurring investment need. We talked about a strong, profitable aftermarket. These are very important similarities between the two companies going forward. It's also very important, just like it has been for Atlas Copco, to have Epiroc having access to all financial markets. A clear investment grade rating is, of course, something that will have to happen for this to be true. There are a few things, however, that differ. One is the customer demand.
The customer demand for mining and construction equipment is somewhat more concentrated, and hence, of course, there will be more amplitudes in the swings between a good year and a bad year than in a diverse industrial space where there is a lot of things that compensate each other. This is how it looks, and you recognize it from the previous. What's absolutely clear from board of Atlas Copco and the board of Epiroc is that there will be a certain difference in the way they look at a proper, normal, average capitalization, i.e., with the higher swings in the customer demand comes a somewhat lower financial leverage than the other. It's not a pro rata perfect split that you should expect. Again, these details will come when we have, first of all, we have the CEO in place.
Should remind you that he starts in February. He wants to have a word in this game as well. So does the recently formed board of Epiroc. This will come, of course, when we have the financial brochure that will go out today. Somewhere at the end of Q1. This is exactly what that says, basically. The final slides just repeat. There is a very experienced, very strong Executive team headed by Per Lindberg, very seasoned CEO in the Swedish industry. As I said, he is not on board yet. That is, of course, also setting certain parts of the timeline going forward.
As you have also seen, there has been announcement on the board of directors, and you have also picked up, I am sure, that there might be one, possibly two additions to the board coming in due course before that is over. With that, I stop. There will be more opportunities for questions later, I think, Daniel. I would just like then to continue on the business area line and hand over the word to Helena Hedblom. Helena, welcome.
Thank you.
The floor is yours. I will get out of your way.
Good morning. I am Helena Hedblom. I am the business area president for Mining and Rock Excavation Technique. I have 18 years within Atlas Copco, all of them within mining. I have been heading our product development, I have been heading our manufacturing units. Before I took on this role, I was the divisional president for our consumables business. Since 1st of January, the business area president for MR. The agenda for today, I will start with covering the performance of the business area year to date. I will also go through the business fundamentals and to share the global trends that we see shaping the mining industry and the construction industry in the coming years, and how we create customer values. If we start with the performance year to date, our focus is innovation and automation.
I will come back to what we are doing around automation in depth later on. Focus is on customers' total cost of ownership. That is embedded in our service offering. It is embedded in all product development projects that we do. We have shown during many years that we have built in agility. We can ramp up and ramp down depending on the climate in the mining market. We have also built resilience through a large portion of aftermarket, both parts and service, and consumables. If we look on the performance year to date, we have three strong quarters behind us, with orders received level close to SEK 8 billion. What we observe, that is increased activities in existing mines. That gives us, of course, growth when it comes to the aftermarket, both parts and service, and consumables.
We have also seen expansion in capital equipment needs. This is expansion of existing mines into nearby assets. It is also part of the orders received in capital is related to replacement. Strong orders received year to date, solid profitability of close to 20%. As you can see, there is a gap. Mats mentioned it as well. There is a gap between orders received and our revenue. We are ramping up in all our factories around the globe. We have added the people, the necessary shifts. We have added the competence that is needed. We are right now working intensively with our sub-suppliers to manage the ramp-up and to support our customers. Solid profitability of 20% and a growth of 41%.
If we look into the split between the different categories, it's close to 70% towards mining and 30% towards construction or civil engineering. Including in other, that is products towards water well, for example, it's geothermal products. You can see that the split, it has been the same split for many years. Close to 70% towards mining. If we look into the different business types, 30% comes from equipment, 45% from service, which is both parts and the service, and 25% comes from consumables. Of course, the last years, with the downturn in the investment in capital equipment, the proportion of the aftermarket came up strongly close to 70%. This shows the exposure to the different minerals. This is now, it's June 2017, 12 months rolling. You can see that we have 35% related to gold. It's 24% towards copper.
13% is related to nickel and lead. Iron ore is only 5%. If we compare this with the peak when the mining industries peaked 2011, 2012, iron ore played a bigger part in our orders received at that time. Between the different quarters, it was somewhere between 10%-15%. It is gold, copper, nickel, lead, and also zinc, I would say, contributing to the increased activities. If we look into the different segments where we operate, we have products into all these segments. We have a full offering into underground mining and underground civil engineering. We have a full range of drill equipment, bolting equipment, loaders, trucks for underground mining and underground civil engineering. We have surface drill rigs, both for the big open pits, but also for smaller quarries. We have equipment for civil engineering, for urban development, where noise and vibration is key.
We have equipment for exploration, both underground and surface exploration, and we have an offering into geotechnical ground engineering, water well, and also a small portion into oil and gas. Towards all these segments, we have long product development plans, I would say. We are looking five, 10 years from now where the trends will be. We are offering a full offering of consumables into all these segments. Of course, a full offering of parts and service. If we move over into the business fundamentals, I talked earlier about agility and resilience. In mining, it's key to have agility because the appetite for investment in CapEx, it varies a lot, and you have seen that. What we have been doing is that we have built in flexibility. We have subcontractors doing subassemblies for us.
This is the way we secure that we can ramp up and down in a fast way. The production levels in mining is much more stable than the CapEx investments. For us, it's key to grow our aftermarket because this gives us resilience in a volatile environment. We have a very strong focus in growing our customer share of parts and service and on consumables. The fleet is the base for these efforts. We know where we have the equipment in the world, we know the age of this equipment, and we know the need, how to serve this, what consumables is being used, et cetera. It's a very systematic and analytic approach to drive the aftermarket. Key success factors to be successful in growing the aftermarket, that is the supply chain.
To have supply chain as the competitive advantage is key, and it must be very high delivery precision. We also bring new service products to the market every year. One product that we have launched, that is the RigScan concept, where we go to the customer sites and we do a RigScan. We check everything in the equipment, and then we propose what the customer needs. We also do a lot of mid-life rebuilds, which is a way to prolong the life of the equipment for our customers. Another fundamental, that is that we seek opportunities and presence in profitable niche markets. Before we enter into a segment or into a specific product range, we carefully evaluate the standalone attractiveness, and the aftermarket portion needs to be there. One good example is the product that you see here on the picture.
This is a 65-ton underground truck that we previously did not have in the offering. We developed it, we launched it in September last year, we have already sold 100 machines of this type. Very successful product development and entry in broadening the assortment. Sustainability is core. It is part of our strategy and in everything we do. We constantly seek opportunities where we can improve our processes, our way of working, but also our products. As an example, we are right now changing our distribution concept for parts into a regional distribution setup. The thinking behind this is to go away from air shipment. Of course, air shipment is a big contribution to the CO2 emission from our operation. It's one example of what we're doing.
On the product side, the target for CO2 is embedded into all our product development projects, we are now adopting battery technology as well into our equipment. You will see that later on in the innovation tour as well. Innovation is key, we have a very strong culture around innovation. For us, it is the closeness to our customer that helps us to bring innovative solutions and innovative way of working. We have close to 5,000 employees in MR that are actually located at our customers' sites. The daily interaction with our customers build this knowledge, the application knowledge, so that we can develop the future products and the future service offering. We also have a very strong application knowledge in the organization, trying to understand what the customer needs today, but also what they will need five, 10 years from now.
That is then driving our product development, the understanding of how the customer are developing. The biggest portion of the engineers are located in Sweden and in the U.S., but we also have big engineering groups located in the emerging markets like China and India. Also here we believe that the closeness to the market, to have engineers and application people close to the market, that is an advantage that gives us speed in developing new solutions for our customers. If we move over into the trends that we see will shape the mining industry and the construction industry in the coming years. There are exciting trends. We are ready to respond. One of them is that our customers are not only buying equipment any longer. They are buying results.
The results that are part of new demands for productivity, especially within mining. The first trend is battery technology. With a vision to create a fossil-free environment underground, going away from diesel engines into battery-operated equipment. With the trend of surface mines going underground and underground mines going deeper, this will play an essential role for the cost, both the CapEx investment for the mines in ventilation, but also the running cost for ventilation. The second very big trend is automation and interoperability. Here we have the vision to have an autonomous fleet, an autonomous mixed fleet of drill equipment, of loaders, and trucks, so that our customers can optimize their process, not only optimize a single machine. Interoperability is about connecting and getting understanding, getting real-time data of what is ongoing in the mines in real time.
I will come back to these trends and what we are doing later on. The fourth one is digitalization. Digitalization, it gives us new opportunities to develop predictive maintenance, as Mats mentioned. Today we have scheduled maintenance, we don't really have predictive maintenance. It also gives us an opportunity to secure that we have the right part at the right place in the world based on the engine hours of the fleet in that region, for example. The fourth trend, that is mechanical rock excavation. This is every miner's dream, to be able to take away blasting and to have a continuous flow of cutting. I will come back to this as well. We have painted this picture of the digital mine of the future.
What you see here is we believe that in the future, there will be a control tower on surface where everything will be monitored, where all systems will be connected, where our customers will have real-time information to take decisions how to improve productivity on daily, on hourly basis. We believe there will be electric automated platooning trucks. There will be a full range of electric automated drill equipment interacting with loaders, interacting with trucks. We see the opportunity to connect the fixed asset in a mine, like ventilation, to only use ventilation when it's absolutely needed, to have ventilation on demand. We see the need for being able to analyze data to be proactive in the way of working. If we then take a deeper look into battery technology. We have already launched. We have four products in serial production.
We have loaders, we have trucks, we have drill equipment. We have started with the smaller sized equipment. You will see one of them in the mine later this afternoon, a seven-ton loader. In the pipeline now, we have the bigger equipment. We will take the lead and develop a full range of battery and electrified equipment for the underground mining environment. We will build it on common infrastructure. Of course, there will be a transition when ventilation is still needed because there will be a mixed fleet of diesel engine equipment and battery equipment. We believe that this transformation will happen, and we will be part of that transformation to go into a fossil-free environment underground. For our customers, this gives, of course, a cleaner, safer environment. The biggest potential is the cost reduction in ventilation cost.
Because for the same amount of work, if you compare a battery machine compared to a diesel machine, the battery equipment uses 80% less energy. This is not CO2 reduction really, it's zero emission. It's a very strong step forward towards a sustainable environment, especially underground. If we then take a deeper look into interoperability and automation, we start to talk about underground, what is then the main reason for this trend? Because all the major mining houses are talking about automation and interoperability. The reason is really that the utilization of equipment underground is only 30%. There's a big opportunity for productivity improvements for the mining houses. To be able to work with this productivity, our customers need data, and they need to understand where the equipment is, where the people are.
They need to have the data, and today they don't have it. In underground mining today in many parts of the world, it's still a lot of writing on papers. It's Excel spreadsheets. Digitalization has not yet transformed the mining industry. What our customers need, that is to go from controlling one machine to controlling a full fleet. Because that is where the productivity opportunity sits. This is like the lean transformation that so many industries already have behind them. The lean transformation in underground mining is yet to come. We see that we can play a big role in this and not only be a supplier of autonomous equipment, but also to be a business improvement partner for our customers. Our customers with autonomous equipment, they will get increased safety. They will get productivity and reliability and predictability, support for continuous improvements.
We see now working together with our customers that just by getting data, analyzing it, monitoring, controlling it's easy to improve the utilization with up to 20% in the bottlenecks. It's huge opportunities when it comes to productivity, especially in underground mining. If we then look at automation and interoperability in surface mining, it is the same need for productivity. On surface mining, it is easier because you can send the signals via GPS, and you have the location, et cetera. Surface mining is already there. We already have autonomous fleets interacting. We have a fleet of Pit Vipers running at one of BHP's sites in Australia. The control tower is 1,300 kilometers from the mine site. On surface, we already have done this transformation, and we have today 10 projects ongoing with the larger customers around the globe.
Transforming the operations from manually operated equipment, the step you need to take in between is to run the mine tele-remote. Most mines, we're doing that transformation with our customers, and the step after that is to go fully autonomous. We see big advantage when we go autonomous. We see that we can run it faster per cycle, better utilization. The machines run over the shift breaks. In BHP, we have delivered more than 30% increased drill capacity. We also see automation playing a role in smaller steps when you can automate the field position, for example, in a quarry or whole navigation in drilling blasting. We believe that this transformation will happen. It will go faster on surface than underground due to that most of the mines in the world underground are not yet connected. They don't have network today.
I mentioned the digitalization and all equipment leaving our factories right now are equipped with our system, Certiq, which gives us full data monitoring. We know in real time now the health status of the equipment. Based on this, we will now develop predictive maintenance. We are piloting what we call a performance center for global connectivity in Australia to start to support our customers 24/7 when it comes to predictive maintenance. This means that we will have people monitoring the fleet. We see the alarms coming before there will be a breakdown. Then we can call our customers, we can send our service engineers to the site to do preventive maintenance before things happen. This is, of course, a huge opportunity for our customers when it comes to uptime of the equipment. Digitalization is also taking place at our customers.
Many underground mines, as I said, they don't yet have network, but it's happening. The speed of implementing connectivity opportunities underground is taking place now everywhere in the world, I would say. With the technology from Mobilaris, the tech company that we bought a share in beginning of the summer this year, we get the capabilities of real-time asset positioning. We have also landed an agreement with Saab Combitech. Together we will develop control tower systems and other ecosystem solutions for the mining industry. Together with partners, we will build the mine of the future, and that landscape, connecting data to enable productivity improvements for our customers. Autonomous equipment together with digital productivity products will then be our future offering. The last trend then, mechanical rock excavation. I said earlier that this is every miner's dream.
This type of solution is already available in softer formations, it has been there for quite some time. The tricky thing is to have this technology in hard rock. It is the front, you see the front there on the right side. That is the challenge, to have the consumables to last and the head to last in hard rock formations. We have developed a number of products like this together with the major mining houses, we have released the first model for serial production. What this solution gives, it gives a complete fleet in one machine. This is drilling. It's blasting. Well, it's not blasting, but that part is gone. It's bolting included in this, the transportation of the ore is also built into the system. It is a complete fleet in one machine, and it's very high-precision profiling.
This is key when you have an ore body that is very thin or very narrow, like the platinum ores in South Africa, for example. With this type of equipment, you only take out what you want to take out, so you reduce the waste. It's easier scheduling, easier planning, it will also be a safer operation because we can do this autonomous or remote. Last week, we got the first order for one of these machines. It's an order from Hecla Mining in the U.S. That was, of course, a big milestone for us. To sum it up, three strong quarters. Activity is picking up. The production levels are increasing in mines, we have good growth on consumables and on parts and service. We see some replacements taking place and also expansion into nearby assets.
We keep focus on staying agile and resilient through growing our aftermarket portion. A very strong innovation focus, trying to meet the new trends that are shaping the future landscape in mining and construction, and staying ahead. We're creating value through battery technology, automation, and digitalization. It is exciting times in the mining and construction industries. I'm excited to embark this journey together with all the passionated, experienced, and innovative people within our company, and the journey into Epiroc. Ever since I put my foot in Atlas Copco 18 years ago, my drive has been curiosity, wanting to improve things, being persistent, and to see people strive in the same direction. I'm convinced that you will see the results in the coming years. Thank you very much.
Helena, that gives us a little bit of time for some questions for Helena. Just a few, then we will save the rest for the Q&A session. If we start down here. If you can wait for the microphone, please.
Guillermo Pena from UBS. I have so many questions, but I'm going to limit it to one.
One follow-up. Do you plan to be fossil fuel-free by when, from your production standpoint? I have a follow-up, yeah.
Yeah. Especially, I would say, for the underground offering, we're planning to go fully into battery technology. That will, of course, take some years, but we will launch battery products every year now.
The follow-up is, have you estimated how much of the aftermarket today comes from the combustion engine?
That is actually not a big portion at all for our aftermarket offering. Usually, the engine suppliers do the aftermarket of the engines. It will have a minor impact on the service.
I'll wait for more. Thank you.
Okay. I think James has a question here.
Thanks. I wonder if I could ask about the digital mine.
You show on your slides some partners.
Saab-
ABB, Dassault.
In our community, there's been some thoughts about companies like ABB who are saying-
we can get in on the compressor, we can get in on the mining-.
digital revenue streams.
Others say, well, no, Atlas Copco will always have the compressor and the mining-.
digital revenue streams.
It seems that you're all going to be playing in that. What's the share that's going to be divvied up in these revenue streams?
Of course. Very difficult to answer that, but I do see that we have a very strong position with our application knowledge, with our presence in the market, and with our offering to be part of this. We also see that digitization is happening so fast. There will be partnerships, and there will be securing that the systems can interact with each other, that is the main thing here. Not to build closed system, to make sure that our customers can use data to drive productivity. That is our thinking behind our partnerships. Of course, we select and we pick the ones that we believe will have a strong position in the future as well.
Can I quickly follow up on exploration?
Obviously, it's a lead to activity.
Can you say anything about exploration trends this year? I guess they've been very strong, but can you say anything more specific about that?
The only thing that we see is that there is activities ongoing in close to existing mines. It's more locating where the ore is when you're planning an expansion in existing mines. We don't see really it's picking up on greenfield yet. It's very close to where the mines already are, and related to production and identifying the ore, planning the mine layout, et cetera.
Many questions. We have a few left. Over there, please, Graham.
Can you talk about the number of equipment volumes you're producing today compared to the peak? Are mines becoming more equipment intensive as their number of people reduce, and can you give us an idea of perhaps what that extra scope could be?
As Mats mentioned, I will say the growth we see now is mainly on underground. I will say when during the peak 2011 and 2012, then it was more segments that were peaking. Right now, it's predominantly underground.
Can you give us an idea, is there more machines now? As you're getting rid of people, particularly underground-
Is that meaning that you'll need more machines compared to, say, where we were at the peak?
I wouldn't say that is. Autonomous is still very few equipment. It's more that the people are gone from the front or from the machine at the customer sites. I wouldn't correlate it to the number of equipment.
Okay. We have Lars.
Thank you, Helena. It's Lars from Barclays.
That was one of the most interesting and informative presentations on mining I've had from a capital markets team at Atlas Copco for a while. Thank you for that.
Thank you.
Can I pick up on the continuous mining at hard rock?
For me, that really is quite interesting. It feels to me we've been through decades-
Yeah
of R&D development. We've had very little commercialization.
You're rolling out serializing production now-
with the Mobile Miner. You've been running with it, with Rio Tinto for a while.
Can you help us understand what is the addressable market opportunity within hard rock? You talked about.
thin and narrow formation.
in the customer in the U.S. Help us understand, for the totality of your market.
What is the addressable opportunity, how do you see the competitive landscape shape up as we see it right now?
It is very difficult to identify the full potential. Of course, we have our numbers, how we see it, and that's why we're putting efforts into this as well. I think the challenge here is how fast our customers are willing to adopt this new technology. I would say I think that is the biggest hurdle to come over, because you need to prove that this works. The mining companies, they seldom want to be the first one piloting new technology. Of course, it depends on if we can then have the first order. The mining industry is people, they visit each other, the customers visit each other, and they see the technology, and then they see the value it brings as well. It very much, I would say, depends on how fast the customers are willing to adopt to the new technology.
I would say all major mining houses see this as an opportunity. Then, of course, it's different for different reasons or different part of the mining process itself. It will not replace everything. Especially where you have advantage in drilling, where the face will be, it's smaller, where you need a smaller face, that's where the big advantage sits.
Can I press you a bit? Is that 10% of your addressable opportunity? Is it 50% of the market?
I will parcel that question.
Thank you.
It's difficult to say.
Okay. There will be room for more questions later on. We'll take the last one, Lars from Citi, please.
Microphone here, please.
Thank you. A question on M&A. There is a duopoly, obviously, in underground with Sandvik, and you are very strong in surface. Margins upstream are 20%, midstream, they're half that level, around 10%. That doesn't make much sense to expand downwards. I guess the M&A is more in electrification, battery, in positioning. You talk a lot about partnerships.
Is it only partnerships or are you planning to do M&A and use the balance sheet in that way?
As Mats said, we have an acquisition strategy per division. I would say that, of course, in the areas that we have the future landscape, of course, we are looking into targets in that area, but also in some divisions to find niche products. As I said, the key here is that the aftermarket portion must be there, and the profitability.
Considering the multiples in industrial software or in Mining 4.0, they're quite hefty.
You have to use quite a lot of balance sheet power if you want to do M&A.
Yeah.
I guess partnerships is the preferred option.
Yes.
Thank you.
It's about time. Welcome, Henrik Elmin.
Thank you, Daniel. Good morning, everybody, welcome again to our Capital Markets Day, this time, the business area Industrial Technique. Before I go into the presentation, a short background to myself. I started this job 1st of May this year. Before that, I have been responsible for two of the divisions within the business area, General Industry division, then latest, the Service division. I have 11 years in total with the group. Before that, I worked around 10 years in the field of industrial robotics and automation, which is quite useful now when so many things are happening in this field. I will talk about some facts and fundamentals relatively quickly, then I will go into more the future trends that we see and how this will impact our business and what we are doing.
I think many of you have questions about electric vehicles. We read about it every day. How will that impact us? Light-weighting new materials in the different industries, about general industry and the digitalized factories where we are, of course, very active. Let's start to look at the last quarter, what we said last time. As you can see, we've had a very strong growth in the beginning of the year. We had very good growth driven by North America and automotive in the first quarter. Since then, we have had less sequential growth, but still a very stable year. Also, considering the currency has been working against us here in SEK. On the EBIT, it has been stable around 23%. We can, however, see this one-time effect, the positive one-time effect the last quarter.
This is related to our acquisition of Henrob, where we released a provision for an earn-out that did not happen. That was a one-time effect. What we have been and are focusing on is very much to further develop our offer around assembly technologies in the different industries. Of course, also in Industrial Technique, innovation and new products is really key. The service, the aftermarket service is really an important part of the value we provide for the customer, but also, of course, the resilience that we have in our business. Industrial Technique is quite a broad name, but if I summarize what do we really do in Industrial Technique, I think the easiest way is to summarize it by we provide mainly five different production processes or solutions to our customers.
If we start from the right, you can see that we have self-pierce riveting and dispensing solutions. That is very much focused on automotive, almost exclusively. We have material removal equipment focusing on more metal fabrication, metal production type of customers. A big area is also drilling, so automated and manual drilling, very much focused on aerospace, is by far the biggest segment in that product range. We have the tightening where we are in many different industries, helping our customers to apply threaded fasteners from small screws to large bolts. As you can see, the four areas to the right are fairly segment-focused, while tightening is actually a very broad business with hundreds of thousands of different customers from small to large. Of course, automotive is a big part here. It's the final assembly, it's the powertrain, it's also the component suppliers.
We have also a very big part that we call general industry, and that is from wind turbines to mobile phones, white goods, also off-road mining, construction equipment, even the huge bolts we are helping to tighten in the energy segment, power plants, oil and gas. Also on the maintenance side, we also have tools for maintenance applications. Let's see if we can describe our business concept and how we differentiate in the industry. If we take aerospace as an example, we really want to see ourself and position us as a partner in assembly technology within aerospace. There is 3 million holes in a typical plane and a lot of parts that needs to be assembled with high quality.
What we do is that we work throughout the product life cycle with the customer, starting already in the product design phase or when they build the pilot production, very early on to help our customers to secure that the assembly technology will work out well later on. We have labs and a lot of engineers that also are helping our customers early on. Of course, it's about selecting the best solution, designing it in production, installing it, and then we come to the aftermarket, where we are maintaining the equipment, but also then with our service teams, helping the customers to improve the productivity quality over time. In aerospace, as you know, the planes are produced for quite some time.
That means we have to have a lot of different components in our offer in order to deliver this full solution around the assembly solution. What we can also see here is that data is becoming more and more important, but it has been for a long time very important for our customers in many of the applications, because customers want traceability to make sure that all the steps have been done in the correct way to secure quality. This now, of course, we can do more with that, which I come back to. Talking about service. This is a very important area for us, and the most important reason is that it's really adding a lot of value to our customers, but it also, of course, adds to our business and our resilience.
If you look at the red line here, you can see that the relative share of our total revenues that comes from service parts and consumables is increasing in a nice way, and this is really what we want. The trend, I could say, also continues well in 2017. We talk about sustainability. You saw Sofia present our five pillars around sustainability. I would like to give you a couple of examples what we do in Industrial Technique. What we are working with is what we call Ecodesign, really analyzing the environmental impact our products have throughout the life cycle. Finding innovative ways in order to reduce cost for customers, but also to reduce the environmental impact that our products have during the lifetime. First example here is what we call a eco controller for the Henrob riveting system.
This means reduced energy consumption of 20%. We go over to the dispensing equipment, there is a lot of waste in the consumption of adhesives and sealants, here we have a focused service product that goes in together with the customer. We analyze the different steps, typically you can help customers to reduce material consumption with around 15%, which is both a lot of money, also we avoid a lot of expensive handling of the waste later on. The last example here is an electric battery-driven pulse tool system that also replaces less efficient pneumatic tools. Here we can reduce energy consumption with around 50%, depending on how efficient the compressed air supply is. That's a short summary of the facts and fundamentals. I will spend most of the time now about the trends and what we see for the future.
If we start with some of the, let's say, older trends that have been going on for a while, but are still very important drivers for our business. Quality, it's extremely important. That is really what we help our customers with as number 1. If we take a country like China, this is really high focus for them to get the product quality up in the different industries. This really opens up opportunities for us. For the handheld tools, still maybe more in the Western world, ergonomics is really important, there are still a lot of tools where our main value proposition is around ergonomics, also safety. Of course, we have the more general demographic and geographic focus for us. Middle-class growth and increased consumption of, let's say, white goods, mobile phones, everything that is assembled, of course, drives our business.
Emerging markets, I think we are also well-covered in the different industrial markets if we look at Americas, Europe, and Asia. Of course, China has an extremely high importance for us. About 30% of the cars today are produced in China and growing very rapidly. I think we can say here we have been successful, we are doing well in the Chinese market, which is extremely important and will continue to be very important for the future. These are more the old, let's say, trends. If we look at the trends that are more accelerating, coming quicker now, we have seen them for a while, but clearly accelerating is more about technology trends. If we look at our customers' products, one of the things I will go into is electric vehicles. How does that impact the demand for our products?
We have something I've called here lightweighting. That is more the new materials coming into the different products that we are using. How does that affect the assembly methods that we are helping with? Electronics, I think we see more sensors and computers in most products, and this also increases complexity around assembly. I will go into this later. We have the digitalized factory. That's where our products are, where our service technicians are working. Here we have so many different things coming, but I have picked the three areas that are most relevant to us as we see it today. First of all, flexibility on the production lines is becoming more important. As an example, most of the electric vehicles will be produced on the same lines as the vehicles with a combustion engine.
Of course, the flexibility when you assemble a car like that will have to be higher on many stations. Automation is growing very rapidly. We see the market for industrial robotics really growing very quickly. That is also impacting our business. You can say, if you summarize it, a larger portion of our equipment is ending up on robots than on a human. Still, we will see both situations, of course, going forward. Data-driven service. We've heard already today a lot about data. You can say all customers more or less are asking us and work now wanting to use data in a more proactive way in order to improve production. These are the trends we see, some of the bigger ones at least.
Of course, we focus on this when it comes to our organic growth initiatives. Also, I think it's important to explain that this also is how we work with acquisitions. It's a very strategic approach. If we take, for example, the new materials that we saw going into the cars due to the focus on CO2 emissions. Due to this trend, when we saw that a number of years ago, we have acquired then SCA Adhesive Solutions or dispensing solutions, and also Henrob in self-pierce riveting. This is spot on linked to that trend. If we take Seti-Tec in 2011, there is a huge backlog of planes in the aerospace industry. The aerospace manufacturers are moving more into line production. Productivity is very important. That is one of the reason why we then acquired Seti-Tec, which is an automatic drill for the aerospace.
If we take the flexibility on the lines, we see an increased need to support the human operators in the production. You need more software solutions, guidance solutions. Here we have Synatec in 2013 and Pivotware in 2015 that was very much linked to this trend. Of course now, looking at these trends that I mentioned, we are continuing to look at suitable acquisitions in this direction. Let's then start with electric vehicles. How will that impact our business? It's still early days. We have, of course, analyzed this over a number of years. Let's start with what are we talking about here, how many vehicles will be electric. If we look at 2030, you can see that around 22% of the produced cars will be pure battery electric vehicles.
About 18% will be some kind of hybrid with both a combustion engine and an electric powertrain. About 60% will be internal combustion engine still. This is a huge shift. Maybe, depending on the assumptions you make, it will be even faster. It's still early days. I think for us, the conclusions are the same. We need to do the same things independently of how fast this moves. This is an overview of how we think it will impact the demand for our applications in the different areas, and it's also split up by hybrids and pure battery electric vehicles. If we think about the simplistic view of car production, you have a lot of components here on the left manufactured.
It can be seats, it can be, of course, then the combustion engine or the e-powertrain with battery and electric motor. You have three main parts where we are active in the automotive. It's the body shop, it's the paint shop, and the final assembly. What we've done here is that we look at how do we expect the demand to go for our applications purely due to the swap of powertrain. The electric vehicles also drives the need for new materials, but that change is not really included here, that is coming later. This is only the change of powertrain. As you can see on the hybrid part, the effect will be positive on the component supply. You need both the combustion engine, battery, and electric motor. Of course, we will have increased demand, more assembly needed.
In the body shop and paint shop, it's relatively stable. On the final assembly side, we see also because of the double, let's say, powertrains, a bit more complexity, more operations, and we see a positive effect. If we take the battery electric vehicles, of course there, the engine goes out and less complexity in the powertrain for sure. Here we see less tightening applications on the component supply, of course. However, as I will come to, when it comes to assembling and making the batteries, there is an increased need for dispensing applications also on the component side. Still, we have estimated the demand here to be slightly less for a battery electric vehicle. On the body shop and paint shop, no change.
On the final assembly, there we see increased complexity due to more both dispensing applications and tightening applications, because, as I will come to, the assembly of the batteries are really critical and quite complex in the final assembly. If we summarize it all together, we see this is a good opportunity and a positive effect for us going forward. Let's take a look at the battery. If you take the battery in a car, it's basically three steps. You have the small cells that are stacked up into the modules that you see here on the picture, you assemble maybe 12 of those modules into a battery pack that goes into the bottom of the car. What we see here is that there is a lot of both tightening, dispensing, potentially also in some cases riveting linked to the assembly of the batteries.
Of course then, as you can understand, since it's electricity, the quality of the connections in a battery is very important. Also, the cooling of the battery. If you check your phone when it's charged, it gets warm, and the cooling of the battery is really important. This is where the adhesives and dispensing applications come in. Also for recycling purposes, you need to be able to dissemble the batteries after the usage. There is also a need for a lot of bolts on the battery pack. Altogether, a lot of new applications for us, and this is where we are working right now with many of our customers. Second trend is around materials and what we call light-weighting. Here you also have an extremely clear trend in the automotive industry.
If you look at the blue parts, it's what we would call lightweight material, and the gray part being more traditional materials. If you look at the main trend is going more from steel into the ultra-high-strength steel or high-strength steel. That is a big shift. Also, aluminum will come more and more. The conclusion for us here is that when we see the new models coming, it will be more mix of materials. The challenge for the automotive customers will be to assemble more different materials, and that means also new challenges around the assembly technologies. Similar things are happening in aerospace and has been going on for a long time. In aerospace, it's different materials. The main growth is around composites and it's around titanium. Those are the two materials growing the most.
It also means that it's very different, as you can imagine, to drill through carbon fiber composite and very hard titanium. When you start to combine these materials also with aluminum and steel and other things, it gets more and more complex. Here we also see an increased need in aerospace. Work both around the drilling and the fastening methods in aerospace. General industry, it's still a quite big part of our business. We say it's around 60% is related to automotive, 40% is other industries. If we take an example in general industry, it's about electronics. Here, the value proposition we have is a little bit different. It's not so much about safety-related quality, it's more about time to market and high production yields for many of these customers.
If you take a production of a mobile phone with maybe 50 small screws inside, we are focusing on helping the customer to really improve the production yield, meaning how many of the phones at the end of the line are approved in the test and can go to the customer. This means, of course, additional sales for some of these customers and also less quality and rework cost. This is one example of a very exciting industry in general industry which we are working on. If we move on to the digitalization in our customer's factory, it's also a very strong trend. The first one I want to highlight is increased automation. We have since long had many products that are mounted on robots, but the ratio is increasing. There is a very high focus on automating more stations.
What we are doing is to adapt our product for the robot more actively in order to make sure that the final automated solution, including robot and the whole automation cell, can be done in a very lean way. We really optimize that. Here you see one of our new products that are really adapted for robotics. It's a typical nut runner application for could be engine or some type of application like that. We still see also that there will be several and many human operators left in the production. It's still too expensive to automate everything. We also work with the customers that are most aggressive on automation, but still, there is quite a lot of need for handheld equipment. These stations is where you need the most flexibility, and the work for that operator gets more and more complex.
What we are doing is that we are going for more supplying, let's say, only the hardware into a full solution, including the software, guiding the operator, what to do, which order, etcetra, to make sure that the result is good. Data is very big topic for us. It has been for a long time. If you take a typical production line, a car here, what happens all too often? Well, there is a problem on one station. The whole line, of course, stops, which is very expensive. What can be the root cause? Well, typically, you can say it's three different reasons for a stop on a car production line. One is that there is some kind of process problem. Could be a part that is the wrong part or not according to specification, then there is a red light and the line stops.
Secondly, it can be the operator, the human factor, making some kind of mistake, maybe doing something incorrect. It can be an equipment problem. It can be the tool breaking down or our equipment breaking down, but also something else on the line. The point here is that this is quite complex. If you get the red light, to understand where does this come from? What is the main reason? Today, we have already many service technicians on-site with our customers that are specialists on, in this case, tightening technology and tightening process in order to find out where is the problem and to fix it very quickly. Of course, one-minute stop in one of these factories costs thousands of EUR. Now, this example is reactive, so it's a breakdown happening.
Of course, the focus is to be proactive, preventive, predictive in order to avoid this stop from the beginning. This is also then where we are working on analyzing data together with the customer in order to find the problems before they occur. I think most, let's say, industries are talking about this, but I think there are two factors that puts us in a good situation in automotive to actually create value out of this and make business out of it. The first factor is that we have, with many of the big automotive customers, on-site technicians constantly in every shift. On-site, as you can see here, the tool management center, very near the line. There are not so many, actually, other suppliers that have an on-site presence, even an on-site workshop at the line.
Secondly, tightening data has been in focus for a long time, customers have asked for traceability, where we have provided, you can say, database solutions to gather that data over a long time. Data is already available, and here we have more than 60,000 power tools, as an example, connected to this database. I think combining our competent service technicians with the data, it's a huge, very interesting opportunity that we are already doing today, but we can do more going forward, more smarter solutions. By doing that, we can keep the line running and avoid both quality problems and unplanned downtime. If we then summarize, then I think we've had a strong year so far, good development. We have two of the biggest trends. Two biggest trends is electric vehicles and light weighting or multi-material design.
Here we are really working closely together with the, let's say, pioneering customers, it's really in full focus. We are also very well-positioned in the smart factory. That is both automation, it's about these operator guidance and workstation solutions, and it's about this data-driven service that I mentioned at the end. If we summarize, I think it's a continuation of a sustainable business model, for sure in automotive, but I also would like to highlight general industries, which has a big potential. Thank you very much.
This gives some room for a few questions to Henrik. Peter, here.
Hi. You've highlighted aerospace as a key customer, how have you been impacted by Boeing's Partnering for Success program, and also a similar cost-out program at Airbus, where they're putting a lot of pressure on their suppliers? Secondly, just what potential is there, or what scope is there within aftermarket in aerospace? Presumably, it's fairly limited for you. Thank you.
If we start with the biggest impact in aerospace are the new models of planes when they launch new models or new lines. That's, of course, the biggest impact. In general, I think of course sometimes cost focus works against us, but also it works for us when we can help to increase productivity and also maybe to reduce the number of tools that they are using. I think you will see one example this afternoon in the innovation station, how we work with drilling. That's a potential cost saving for the customer. We have not been impacted so much, no.
Okay.
The aftermarket. Sorry. Yeah. That's true. A lot of the aerospace customers, the traditional ones, the bigger ones, are doing a lot of maintenance in-house, but also there we are step by step succeeding. Of course, if we take China, where the aerospace is coming, it's very different and we have a bigger portion of aftermarket, typically.
Okay, next question. I think, Peter, you had a question back there?
Yeah. It was actually only aftermarket for the entire business. We saw the increase in ratio, I guess now running at slightly above 30%. What's sort of hindering this business from having a more sort of Compressor Technique type of ratio in the future? How should we see this specific factor in a decentralized organization? Is this something that is a key on all the subdivisions in Industrial Technique, or is it just something that is nice to show from the past year?
Yeah. I think it is definitely important for all of the divisions, also Self-pierce riveting, dispensing equipment, as well. I think on the handheld power tools, let's say, that we're doing, it's also a bigger potential to help the customers with the process, as I showed with this data-driven service. I think we are moving in the right direction, and I think data can help us to quantify and show the value even more going forward. Of course, you might have some exceptions, a very, let's say, more basic tool for a tire shop. There it's more about just repairing the tool when it breaks, as it is today.
Is this ratio something that sort of maybe holds down your ambition by broadening through M&A? Is the growth more important than this ratio, if those were the two elements?
I would say growth is more important, as we've said before, we believe our DNA works well when there is some potential for aftermarket for sure. It's not holding us back in growth, no.
If you look at the opportunities the coming six years versus the last six, given these global trends we are talking about, hypothetically, would you see more or less sort of new technology opportunities the coming six years than the past six?
For assembly technology, you mean?
For the division.
For the whole business area. I think technology changes are accelerating, I don't know if it's more or less, I think it will continue to be a lot of exciting opportunities around that.
Thank you.
Okay, the last question, here to you.
Thank you. This may sound like a simple question, I wanted to make sure I actually understood what you were saying around electric vehicles. I hope my interpretation is correct. You're saying that you see higher demand for Industrial Technique from electric vehicles, the key sort of difference is because of the battery requires so much component and assembly on that particular aspect, that that more than compensates for the loss of revenue that you might face from powertrain. That was question number one. Is my assumption correct?
Yes. We can say about 10, 20% of our business today is related to the powertrain. Of course, there we will have a negative impact, as I showed. On the final assembly, there will be more complexity and a bigger increase in demand. On the hybrid side, it will be all positive. Altogether, a positive effect over time.
Understood. Thank you. One very final one. You opened your presentation by saying that sequentially you'd seen a bit of deterioration in the third quarter on the top line. Was that just seasonality? It has been three quarters that it has actually been coming down. Is there anything going on in the business that we need to know about?
I would say, as I said before, the very strong growth in the beginning of the year was driven by automotive in North America with many big projects, and that has now gone down to a more normal growth level. Of course, a lot of the other businesses are continuing to grow, and then we get this net effect. Again, we can say that the currency also works against us here quite a lot compared to the beginning of the year. I would say it's not sequentially down.
Okay, we need to cut there.
Yep
to introduce Geert Follens from Vacuum Technique.
Perfect.
Good morning. I'm Geert Follens. I'm 22 years with Atlas Copco. The last 4 years with Vacuum Technique, the 18 years before that with Compressor Technique within, at that time, Portable Energy, which was part of Compressors, and as President of Industrial Air, where Vacuum actually was born. Let's talk a bit about Vacuum. Agenda very similar to what my colleagues have presented. We start with some facts. I'll try to explain you what is sustainable, profitable growth and how do we do it. Yeah. I focus a bit on certain products and the advantage it gives to our customers, and then a short summary. If you look at our scorecards, you see from a revenue point of view, we've been growing quite nicely. In quarter three, it was 32% organically, and in total, 69% on orders and 59% on revenue.
You can say that the growth is split 50/50 between acquisitions and organically. I need to give a bit of background on the profitability curve. You saw a very steep increase in 2016. That was driven by efficiency, by volume, but also partly by tailwind from currency. The Brexit caused the pound to decrease quite a bit. It looks like in 2017 the increase has tailed off, but we said in the previous Capital Markets Days already that there was going to be some dilution from the acquisitions, and the currency now is playing against us. Despite those two factors, because of the volume and a very good flow-through, we still increase our profitability, our margin. In quarter three, we ended up at 25.5%.
The drivers for that is certainly the two acquisitions are doing better than planned. We're very happy with the way CSK and Leybold, both of them are growing faster and generating a higher profitability. Another driver is that we had started already with Edwards, but now we're doing it for Leybold as well. We're going into a decentralized structure, which moves us from two very centrally controlled units into more than 20 entrepreneurs globally, which drives the business, increases accountability and transparency. That's certainly contributing to the growth we see. We've worked on agility and resilience mainly through growing the aftermarket. Agility, I have to be honest, for the moment is more a problem of agility upwards than agility dealing with the downturn.
As Mats said in the introduction, we are coping relatively well with the high volumes we see in industrial vacuum and in semiconductor. We've also managed to leverage the fact that we are now part of a bigger group. The synergies, mainly with Compressor Technique, are coming on quite well. As a last point, we continue to innovate. I'll talk a lot about that later. We, on a regular basis, introduce new products in the market. Digitalization is certainly helping our aftermarket business to be more efficient, but also to create growth. That's our performance. Just going back a little bit, because we are an acquired business area, it's important to see what really happened.
It started in 2010, as I said, in Industrial Air, where we started with factoring some products, and we had some vacuum products through Quincy, but that was really small. In 2014, you can say it really started with the acquisition of Edwards, where we became immediately market leader in the semiconductor business. We had some industrial and some high vacuum, but Edwards was mainly semiconductor. There were three smaller acquisitions, AP&S on abatement in Korea, Innovative Vacuum Solutions and Capitol Vacuum, two smaller service outlets in the U.S. The next big step came with the acquisition of Leybold, which gave us leadership in the industrial vacuum markets and strengthened our position in high vacuum. CSK brought us the strong position we have today on abatements in Asia.
We had with Edwards a very strong position in Europe and U.S., but CSK added Asia to it. Through all the acquisitions, we gained over the years market leadership in all the divisions or all the segments where we are playing. Then since January this year, we became a business area because the first three years we were under Compressors. Now we are fully transparent and reporting our figures directly. I put this slide in just to say vacuum is everywhere, because we tend to talk a lot about vacuum in relation with semiconductor. Indeed, semiconductor is a good part of our business, the Atlas Copco vacuum business. Semiconductor is, if you look at the total market and you see all the segments where we are present, is only a bit more than 30% of the total available market.
You can really say that vacuum is everywhere, and you will see later when I talk about the different divisions that we really focus on growth also in semi, but also in the non-semi divisions to have a good balanced revenue. Because we are an acquired business area, we deal with different brands. The Atlas Copco brands, of course, Atlas Copco is the owner and we have the Atlas Copco culture and the way we do things in Atlas Copco, but the Atlas Copco brands within Vacuum Technique is small. The other brands are dominant. That's how we do the portfolio or the brand portfolio management within the different divisions. When you look at semiconductor, which is the biggest part of our business, we use two brands.
Edwards is the global brand, and CSK is the acquired brand in abatements, actually only playing in Korea with Samsung. You can say semiconductor, from a brand portfolio point of view, is pretty easy. It's Edwards globally, and we intend to continue that. When you look at high vacuum, we have a bit more a balanced view. We have Leybold, we have Edwards, and we have Gamma, which is our ultra-high vacuum ion getter pump. There, the business can be split in two. One is the analytical market, which is very much OEM-based, and then the diffuse market where you talk R&D universities. Sorry, analytical is very key account, and the diffuse market, which is R&D and universities. Two separate fields where in the analytical market we play the best of breed strategy. It's up to the customer which product fits best and which brand they prefer.
In the R&D market, it's about presence. It's about being on the shelf, being in the catalog, and there we play all the brands. Then you move to industrial vacuum. There, our market share is lowest, I will say that immediately, but there you need a lot of brands to generate the presence you need within industrial vacuum. You see we have Atlas Copco, we have Quincy, we have Leybold, and we have Edwards. There, there is room for more, because there, because of our low market share and because of the importance in the diffuse market, we can do more. Then the service divisions, of course, service the brands related to that. Just again to say, I said it last time already, we split service in two.
We have semi service and VTS, vacuum technique service, because of the different approach to the market. The semi service is a static model following the big key accounts. Mobile service is operating in the diffuse market. That on some facts and brand management. How do we do it now? How do we manage to grow the way we do? How do we make it sustainable? Let me start with the purple parts, which is the technology part. If you look at the three brands we have with Atlas Copco, founded in 1873, Leybold in 1855, Edwards in 1919. We have over 400 years of experience, a heritage which none of our competitors can show. During all these years, there has been a high focus on innovation. The product portfolio we now, the culture we have now is very much based on innovation.
If I look today, we have about 700 engineers working in R&D and in technology, which is about 10% of our workforce, which is, I would say, substantial. Again, on top of that, vacuum is, you can't say it's a standard product. Vacuum needs application knowledge to understand the customer's process, because anything the customer does in the process has to go through the pump and has to be abated. That knowledge, we call it best known methods and application knowledge, is part of our technology portfolio. Also speed to market. That's something we really have taken from the Atlas Copco values, is that we introduce products faster. We increase the speed to develop new products. That all together gives us the technology leadership that we need as a first part of our sustainable growth. The second part is the market leadership.
If you look at the different parts of our business, Edwards was really very good in key account management. Leybold came in there with a more diffuse approach. The combination of the two gives us really that connectivity with the customer and the presence in the market. I repeat the application. You have to not just be present, but you have to understand what the customer wants. Related to that presence, then we have the presence in the aftermarket. We have the key accounts, we have the diffuse, we have the aftermarket, and I'm proud to say that our factories are really state-of-the-art within vacuum. That gives us the market leadership. We have technology leadership, we have market leadership. Those two allow us to take market share. That gives us the strength to go head-to-head with competition and take our share there.
If you then look at the green parts, where you say, "What's going on today?" I won't read the macro factors, but if you just look at micro, China is investing hugely, has been doing for a long time in industry, but now pumps $100 billion into semiconductor. Then for the industrial part, looking at the demand for process efficiency, and I'll show a slide later what it means for the different divisions. If you add those factors into it, together with technology and market leadership, that's how we make it sustainable and how we produce the growth that you have seen in our scorecard. Going a bit deeper in the drivers, what does it mean for the different divisions?
Starting with semiconductor, as I said, the biggest part of Vacuum Technique. We have seen in the past a consolidation of the markets, which made sure that there was no overinvestment and excess capacity. We have seen a consumer-driven industry, which is much more stable. What we see today, or some time already, is chips are getting smaller, faster, less power-consuming. That's happening. On top of that, more stringent legislation on what you exhaust from the vacuum processes. I mentioned already the China $100 billion. On top of that, we see now where we came from PC into mobile, now we go into the era of data. All of that together makes that the driver for semi is extremely positive for the moment. With our market leadership and with the technology, we take the lion's share of that. Jumping to industrial vacuum, slightly different drivers.
There, as I said, it's about efficiency. You see that if I take steel degassing, for example, just using vacuum increased the efficiency of those processes drastically. Industrial vacuum is also driven by GDP development, and GDP development for 2018 looks good. On top of that, you have now processes where Henrik talked about batteries. You have batteries in mining, you have batteries in tools, you have batteries in cars. Batteries is actually a process that uses a lot of vacuum. We have as a spinoff of all the other trends, very high growth in industrial vacuum. Another one is coating. Coating is driving industrial vacuum as well. If I compare the two, of course, semiconductor is the biggest part of our business, but the growth of this year actually has been bigger in industrial vacuum than in semiconductor.
Organically, they're pretty similar, but because Leybold was bigger than CSK, through the acquisition growth, industrial is growing faster than semiconductor, which helps then again to give us the resilience. On the high vacuum side, we grow a little bit less because this is mainly GDP driven. This is about investment in R&D, investment in big projects, which if there's money, the investment flows, and there's good growth today, but not to the same extent as the two others. The two service divisions, growing nicely. Two drivers here. First of all, you have the installed base, which of course grows. The more equipment you sell, the more service opportunities you have. The other part is that there is a shift towards our customers focusing more on their core processes and giving that out as a service also to vacuum.
Vacuum is slower to adapt than compressors, we see the trend is coming as well. Basically what we do within the core, we take share. We extend our part of what we have to the core, then we attack other opportunities outside the core. Here, for the moment, we factor products, but through the frequent contacts with all our customers, we get more and more demand to supply a bigger portfolio than what we do today. Of course, acquisitions. Acquisitions is, for us, a bit limited because in the semiconductor pumps and abatement and in the high vacuum pumps, we have a market share which doesn't allow anymore to acquire pump or abatement companies. Of course, within all the rest, industrial vacuum or ancillary products, we still have room for acquisitions, and we are pursuing that together with the organic growth.
Clearly what we see is we have very favorable megatrends. You can read what it all means, that drives vacuum as a whole forwards. We have increased legislation, which is playing globally, but mainly in Asia, where it's becoming more and more stringent, which benefits us on the abatement side. We see a huge investment in the core markets, both in industrial, in semiconductor high, and as a result in the aftermarket. That allows us basically to deliver an even stronger market leadership. Now I'll give a few examples on how we translate all of that now in value for the customers. I put it in three categories where you can say onwards is where we, through application knowledge, through development of new products, we get deeper into the processes of the customer and tie ourselves in from the early days.
Connected is not just the products, but is also our connection, physical connection or a relationship connection with all the big customers. Upwards is, of course, the drivers that we see from the industry and from the markets in general. I have to come back to technology leadership, because this is really the key, how we can differentiate ourselves from our competitors. At one end let me just say the drivers first. I would say everything else, it's about total cost of ownership. More and more when we get into these big deals, we're not just offering a product and a price for the product, but we offer a lifetime cost. That is driving very much the technology development. Environmental challenges. I explained on the abatement, we have to comply to the rules. Asia is coming in line there.
That's a driver also for the innovation. Noise and footprint, very important. Technology changes. What we see is that, certainly in semiconductor, that more and more elements of the Table of Mendeleev are being used. It used to be maybe 10 in the past, now they're above 40. All these have to come through the pump, often at a higher temperature, and have to be abated. There is really technology changes going on. That drives our innovation. The main thing is that you innovate, you combine it with application knowledge, you have the partnerships with the big customer. It's like a positive spiral. You innovate, you know what you do, you have the contacts to start the spiral again, you go further and further.
It's the intersection of those three which gives us the technology leadership that we then use to create advantage for our customers. This is a good example. This is when I talked about synergies with the group. We showed you that briefly last time. I will add the brand portfolio management to it this time. This is an oil-injected screw vacuum pump. Basically, we use the synergy with Compressor Technique, the volumes of Compressor Technique, to make a vacuum pump based on the same core. Using all the knowledge and the experience of compressors, this gives us 50% of energy savings, a quiet operation, reduced space, increases the speed for the customer, and increases the service intervals, and reduces the overall environmental impact. That's clearly where we innovate. This did not exist before.
This is our creation, an oil-injected screw vacuum pump, we are really going big time into selling that. If you then look at the different brands, we say for the Atlas Copco brands, each brand now has its own fingerprint and its own differentiated products and its different value proposal to the different customers. The Atlas Copco brand goes for centralized vacuum systems in the utility room together with the compressors, where we find the synergy with Compressor Technique. If you look at Quincy, very much the same, but the indirect channel doing that. If you then look at Edwards, the red one, there you focus on highly specific niche market-driven applications where we use the same product, of course, slightly different controls and slightly different inside. We go really into a specific tailored solution for those niche markets.
Leybold, as the last brand, is then going into a more diffuse industrial markets with very strong application knowledge. By doing that, we not only take the synergy with the Atlas Copco Compressor Technique. We create volumes by having the same platform, but by creating a fingerprint for every brand, we actually approach the vacuum market in four different ways with four different brands. That's how technology synergy and brand portfolio management works, in this case, within industrial vacuum. On service and connectivity. We had FabWorks before. EdCentra is the new designed product, where we constantly measure and monitor the key parameters of the vacuum pump. This, in our case, it's run on the server of the customer. A semiconductor customer is traditionally more conservative about sharing data and having data on clouds, which allows the customer to develop faster, newer, and harsher processes.
Because they see the parameters on the tool, they measure and monitor what the vacuum pump is doing, they can play actually, and online, see the variations in the different parameters. Together with our application engineers, which are on-site, they then optimize the processes. We increase actually the speed of introducing new processes in the semiconductor world. That's one part. The other part is, of course, that is very similar to what Compressor Technique does, is about efficiency. We monitor our data as well, we see when something is needed or when you have to do something to the vacuum pump. There it's about efficiency. Every big customer, we have the parts, we have the pumps, and the people on-site. That's how it works, we sit in a dispatch room and monitor the performance of the vacuum pumps.
A third point on this, it allows us to reduce the environmental footprint because we know exactly what the tool is doing because we have a connection with the tool, depending on the volume, on the speed, we can regulate the vacuum pumps that create the vacuum in the tool. We also know what poisonous components come in there, we can regulate perfectly what the abatement will have to do later on. It's about speed of development, it's about efficiency in the aftermarket, it's about being green within the fab, which is becoming more and more important. Abatements. We've talked a lot about pumps, a big part of our business is abatement. Basically, you burn off all the nastiness. You get through the pump, you burn it off so that you can exhaust it within the legislation.
As I said, this gets more complicated because the semiconductor customers use more and more nasty materials. Abatement sits in the sub-fab, often connected to the pumps in one system or separate. What we do here is we destruct the carbon-based PFCs. We burn them off. Burning, in this case, can be with fuel or can be electrical plasma. We have the two opportunities. We burn off the PFCs, we burn off all the fluor which is in there. We burn off all the ammonia, we reduce the NOx, and then we have a scrubber to remove all the solids. By doing that, we reduce the total environmental footprint of a fab. This is so strong now that we are asked by big customers to come in to audit and to analyze and sell abatement even on non-Edwards vacuum pumps. That's abatement.
From here, I jump to China, because China is moving so fast for the moment. They've been dominant in flat panel. Most of the LCD and OLED flat panel screens are made in China. It's between China and Korea. China has now committed. First of all, they're investing hugely. They're investing $100 billion in trying to get the foot into the semiconductor industry. At the same time, they have committed to following the global legislation on the environment. They have committed to reduce their CO2 footprint. If you take what I just said on abatements and you put that into China, you can imagine what the opportunity is in this market for Atlas Copco Vacuum Technique.
Going a bit deeper in China and the $100 billion they put in, this is the map where they have defined the specific projects which will altogether, this is renminbi, but it altogether adds up to a $100 billion investment. The Chinese are really committed to take their share. They're the biggest user of IC, they want to be the biggest producer of ICs as well. The one in red is the one we took already. We're proud to say that we took more than 90% share of the first fab that they have launched. Of course, this doesn't come by itself. The way we have done that is already two years ago, we started to extend our sales channels, and we started to extend our application knowledge within the country.
Now we have one of the strongest teams in China on selling and advising on semiconductor. The other thing we are doing for the moment is we had two industrial factories in China, one in Changchun, one in Qingdao. We are now moving industry towards Changchun, and we are extending Qingdao to be the Chinese semiconductor factory, because there is pressure there to have more local content, some IP, and maybe even ownership from the China government. We're clearly on track to also have the manufacturing base within China. We're building an innovation center now, because in semi, it's very important that you can innovate together with your customers on the processes they are developing. Because we have the engineers and the production in China, it allows us to make China-focused products.
We've taken the first part, we're really ready to do more in China. Okay. That was it. Just as a summary, the market trends are very positive, for us, it's very important that we continue to take market share gain, because that's, of course, what you need if the markets would turn. That's one thing. I keep repeating that industrial vacuum is getting much bigger and is actually growing faster than semi, although we spend a lot of time and we give a lot of attention to semi. The brand portfolio management is really coming on stream now, playing with the different brands, using the platform, using the same factories, and making different fingerprinted machines.
The fact that we now have the five divisions in the business area, they each have their strategic and efficiency plans that converge into this sustainable, profitable growth that I tried to explain. We really believe that the strategy we have is sustainable. That's my part of-
Okay. A lot of questions at the back. Before Mats will summarize the full presentation and we can move over to the big Q&As, we have some questions for Geert, maybe we can start with four questions. Down there. You haven't been asking.
Can you just tell us how big is your abatement business versus the pumps business?
We don't report figures on divisional level. This is even a part of the semiconductor division. It is smaller than, of course, the semi, because it's part of semi. You could say the total market is about one-third of the pump market. We have a nice share on abatement.
Okay.
That's about as far as I can say there. Yeah.
You talked about the miniaturization being a key driver for the semiconductor business.
Yeah.
Can you just talk about the EUV lithography-
which will actually decrease the intensity of the equipment. Is that a threat to you, or how should we think about it?
I wouldn't say EUV is a threat, because if you take the classic lithography, which was not using vacuum. In EUV, now there is a very high vacuum content. That's a positive. Of course, because of EUV, you will have less masking and less process steps, probably, in making the chip. That's the negative, but for us, the positive of EUV outweighs, because it has a very heavy pump and abatement content. As we said before, we have partnered with ASML, who's the only producer of EUV, to take the share in EUV. EUV is actually today a growth factor rather than something that diminishes our business.
Over there, please.
Hi, just a question on China, as it feels like it's moving at quite a pace. Can you just talk a little bit about what your competitors are doing in China with regards to positioning for, obviously, what the growth is going to be there? Tied to that, what exactly are you seeing in terms of pricing on these new China opportunities?
I think if you talk about China, you should split China in, let's say, the industrial and high parts and into the semiconductor parts. China is actually one of our most balanced markets, because we have a high content of industry. On the semi side, it's mainly flat panel today. Now because of the $100 billion, the semiconductor is coming on top of that. If I look at industry, our main competitors are present just as we are. There, it's a competition like in a normal, call it European or American market. In the industry, you have popping up some local Chinese competitors, who copy, I would say, but get very aggressive from a pricing point of view. This is on the low end of the market.
If you take the high end of the market, it's still the traditional European competitors that play a normal competitive game. That's one part. If you look at the flat panel, in flat panel, we have had competition since the start from the Japanese competitors. Not so much the Europeans, but the Japanese competitors. Japanese competitors have always been a bit more price-aggressive. We managed to do that and take a reasonably good share in flat panel business, yeah. There you compete with other parties. If you look at the new semi now, I repeat what I said, we took the first big order at normal prices. How it will develop, we don't know, but we will manage it as it comes.
I just want to say, if you have a fab, and a fab costs $10 billion to build, about 2% maximum of that is vacuum equipment. Will you risk and take an aggressive path on those 2% to risk your $10 billion investment not to function? We are in an area where we sell reliability, we sell uptime, we sell application support, we sell technical support. We are close with service. I wouldn't say it's as competitive as in the commodity business. We are a bit shielded from that.
Okay. Claus?
Thank you. Just thinking about the adjacent areas, we know you want to expand further into industrial. Can you talk about the opportunities that you also see relating to the actual pump, also in semis? We heard from Pfeiffer Vacuum this quarter that they said that in addition to vacuum pumps, they're also selling more sort of components. They've done this Nor-Cal Products acquisition that helped them to expand their portfolio. Are we talking valves, electrification, and what kind of opportunity is this? Is this a SEK 1 billion opportunity or real small add-ons?
It's a big opportunity. It plays, I would say, mainly in the high vacuum area, and that's where Pfeiffer Vacuum went into Nor-Cal Products. I'm looking forward to see the effect on their results. This is an opportunity because in high vacuum, today, we're mainly a pump supplier. Yeah. We want to add components to that and go from there into systems. That's very high level, the strategy. Today, we factor the ancillary products. We buy them in. There's different suppliers on the market, and we brand them. If you look at valves is a different story because of the very high dominance of one specific Swiss player in that market. You go with them, and you can try to do something else, but they're so dominant. Valves, I would say, is a specific one.
We're certainly interested in going into the broader components, mainly in high, a little bit in industrial vacuum.
Is that electrification, temperature? What do we actually mean when we say if it's not valves? What are we talking about?
We mean gauges.
Okay.
We mean temperature management and temperature control. We mean basically anything which sits around the pump or around the chamber. Yeah.
Thank you.
There we are factoring for the moment. Yeah.
Okay. Lars?
Thanks, Geert. Just a quick follow-up, then a question around agility on the downward trend rather than the upward trend. I just want to make sure I understand. You said it twice, but I want to make sure I understand, maybe for the third time. Your organic growth in industrial this year is on a par with vacuum, sorry, with semis. That's cruising in the mid-20s. Has that accelerated through the year? What's the underlying market growth, you would say, in that part of your business on the industrial side?
I won't deny nor confirm your figure. The underlying growth, as I said, organic, it's similar. In total, it's bigger because Leybold has contributed to that. I see us continuing in industrial vacuum at the same levels as we have now, because there we have a low market share still. It's increasing, but still. I'm positive about the industrial vacuum continuity. Yeah.
That's exciting. Can I ask just separately on the agility on the downward trend, can you help us understand what are the key levers here to lower your break-even point? Where are we on this journey? You've obviously been very busy working away on the upturn. What have you done to lower break-even points? What are the key levers from a supply chain standpoint? I think historically, we've talked about two-thirds of components in a pump is broadly similar with a compressor. What have you done around manufacturing footprint, or what could you do?
Yeah. I admit, and I said it as well, the last 18 months, we've been working on creating headroom and agility upwards to deal with the enormous growth we have seen. If I talk agility downwards, if you look at our balance sheet, and Hans Ola mentioned it briefly, we have the thinnest balance sheet in the group. From a working capital, we can always improve. From a working capital point of view today, we have a reasonable position. That means that the flow through our factories, so the inbound supply chain, the work in progress, and the outbound is very well controlled. From a balance sheet point of view, I think we have some built-in agility through the processes in the supply chain. The other part of agility is the workforce, and there traditionally, we have had high, sometimes too high temporary workers.
We have a high proportion of our workforce is on a temporary contract, which with the volumes today puts us a bit under pressure, but we keep that where it is. Back to balance sheet, we've invested heavily in machining equipment, but the biggest part of my balance sheet, of course, is the goodwill and the intangibles of the acquisitions. Of course, it's about the same with growth and the same with output. It's about execution. You can make the plans, and we make the plans, but then it's about when it happens, which I don't see for the near future, then it's about executing the plans you have. The plans are in place. Guillermo.
Thank you. It's related to the additions that you need in China and South Korea. Can you quantify the investments you're putting in there? Also from an OpEx perspective, should we see a normalization or an undershoot of your operating leverage as those investments ramp up?
I will not quantify the number of machines or the millions, but it's big. That's why we decided to double the factory in size in China, to double the factory in Japan, in Hino for the turbos. In Korea, we have created more assembly space by building a mezzanine. The investment is there. We tend to go to 30%-35% headroom to deal with fluctuations and to have the capacity to respond to lumpy orders from our customers. We've been eating headroom, and we're putting the investment in place. Machines are coming in to create that headroom again. From an OpEx point of view, when you reach a certain level, say, you can gain a lot of efficiency if you go from 300 pumps a month to 600 pumps a month. If you go, say, from 1,500 to 2,000, it's a little bit asymptotic.
I would say from an OpEx point of view, you gain a bit, but not as much as you would do when you were smaller.
A follow-up. You mentioned synergies-
Yeah
from acquisitions, and I can clearly see them, but I have a hard time quantifying them. Can you-
We have a hard time quantifying them.
Yeah.
The synergies, and I explained that last time, are from a technology point of view. The future product, I showed the example of the GHS VSD+, the screw pump. There we are already in the second generation. There you make one platform and build the different brand varieties on top of that. We will implement that for more products. Of course, that happens when the products are ready for a redesign. That's from a technology point of view. We have one pool of technology and use the factories and the R&D to do platform designs, modular platform designs. That's one thing. The other big part of the synergy is the cross-branding of products. When you look at Edwards, you look at Atlas Copco, you look at Leybold, we all had product gaps in the different brands.
We are now filling those gaps through using each other's products, make it brand specific and doing that. That's actually next to technology today, the biggest parts of the synergies. Synergies, I said it, the acquisitions do better than expected, and that's part because the synergies are really going well. Okay. James. Not quantifying them, sorry. Yeah.
A question on semi-CapEx and one on margins. Semi CapEx, if we take the top 30 players, has grown at something like 8% CAGR in the last six or seven years, and it goes up about 25% this year. It's been a big spike.
Yeah.
To what degree do you think that is Samsung and iPhone related, what do you think the growth in semi CapEx looks like next year at a global level? The second question is on margin. Maybe come back to that.
If I look at CapEx, there's one certainty in all the predictions, and that's they're wrong. Every quarter, we get new figures, and they're totally different to the previous quarter, for the same quarter. If I look between quarter two and quarter three, for example, there was a $5 billion extra CapEx being promised, mainly by Samsung and by SK hynix. That's just moving from quarter to quarter three. I guess we will end this year, and this is public figures, you can find them. We will end this year around $80 billion, $78 billion-$80 billion investment in semiconductor. I think that will be it. If you look at the semi organization, the Global Semiconductor Alliance, they say it will grow about 5% next year. If you look at VLSIresearch, another body that predicts, they say it will grow 12%. I think both will be wrong.
What we do is we look at all the plans of the fabs for all the big customers, and that's how we forecast, and that's how we drive our business. There is a consensus that the $80 billion probably next year will be bigger. I don't know how they calculate the China part in that.
Just on the margins, I just wanted to ask about Edwards versus CSK and Leybold, because we can see it from the bridge. It looks to me like the Edwards margin has been running at 30% now for four quarters, and we've gone up from 7% or 8% to 17% or 18% for CSK and Leybold. To what degree are both of those two numbers sustainable as we roll into next year? There was the comment about maybe the vacuum margin might come down a bit, but when I think about it, I think you've only done two quarters of the better margin in CSK and Leybold. I'd have thought as that lapsed through, actually, the risk on the downside is much less than was presented, say, at the last of the results.
I would not want to comment on the margins you are mentioning. Just to say, we are at 25.5% now, and it's a mix of the three brands, and the acquisitions are doing better than expected. I'll let the rest be your spreadsheet, how you calculate that. I think as long as the volume is high, I think margins are pretty healthy. I wouldn't like to comment more on that.
That will end this session. Mats, come up and summarize. We'll have a Q&A afterwards.
Good. They will soon be back on stage again for some Q&A. I was thinking, sitting there, what do you actually get when you invest in Atlas Copco? I think one of the things that you've seen, that you get very good leadership, they don't only lead the company, you can see that they are very knowledgeable about the customers, processes, products, you can almost ask them anything. Below them, you have the 27 divisions with very dedicated and passionate leaders that has also been in the business for many years. They've been trained in the Atlas Copco systems. I think that gives us sustainability over time as well. You can see that we have made changes, but we put another strong management team in place.
The other thing is that the 27 divisions, someone says, well, when the board would like to talk strategy to me and Hans Ola and the team, you say, well, there's 27 different strategies, actually. There are a number of things that keep us together, we have tried to be transparent today and really focus on those things that keep us together. One is the people, the people management that we discussed a lot, the other is the extreme focus on customers and the extreme focus on bringing true valuable. It's not a marketing thing. You really go to customers and prove what our products can do. That mission is very clear for our R&D people. That's one of the things that I think we are very strong at. You have also looked at the agile operational model.
We took some time to go through. This is exactly the same for all the divisions. We really take advantage of the competence we have. We share that in the group as well. As I said before, I think most of the businesses perform on a very high level today. They have strategic acquisitions. They have a portfolio of companies that we find interesting and applications. We will, you can see today that there's a lot of initiatives around digital, it's not far ahead of us. It's actually happening now. We do the analytics. We help our customers to get more uptime. You can see from Sofia's way, we try to do this in a very sustainable way in the company, that actually attracts a lot of people to join the Atlas Copco Group.
I hope you enjoyed the presentation. I'm going to give this last 15 minutes then for Q&As. Geert, be ready.
I think we start right away. Claes, you have a question here?
Thanks. A question for you, Mats. The message is familiar when you talk about the Atlas DNA, but you also talk about the need to work closer in collaboration when it comes to R&D and to be early in the sales process with your customers. You have invested in the fleet, in the street, and in R&D above peers for many years. Do we see a need to ramp R&D further, maybe above 3% of sales, and to put in more salespeople? Could that have a negative impact on the margin? Like we saw a couple of years ago in compressors, it took some time until you got that investment through and the drop-through dropped, etcetera. I just want to understand the investment phase.
You have to divide it a little bit. I think there's one big thing that is absolutely changing, that customers, when they had an issue 10 years ago, they gave us a phone call. "Can you come in and look at this?" The new generation and the new tools we offer, of course, like you do in your private life, they search for the competence before they call us. We need to enter into that process much earlier. That is why I'm so focused on learning the processes. If we then can be experts in that before we actually start to talk about products, that is a big difference.
The other thing, when you talk about R&D, yes, I think it's likely that when you see more and more software products, and if you benchmark with us, an industrial company, with software companies, you see that R&D budgets are, in relative terms, normally higher. We see that in Industrial Technique, which I think it was 2%-3%. I think it's 5%-6% now. That is the software side. When you go to Nacka now, there's 300 engineers working in Industrial Technique, and before it was mechanical engineering, electronics, and it's 300. 150 out of the 300 are pure software today. I think it might shift, and hopefully then the gross margin on software, when you actually don't have a product, will be slightly higher.
Is the mix shifting rather than the absolute level in relation to revenue?
Mix between the.
Between software and maybe it's putting into sort of equipment spend.
I'm not sure I follow you there.
Less mechanical, more software.
Less mechanical, more software.
Of course.
It's not at the 3% of sales.
If 50% of R&D are working with software development, and that we didn't. Yes, we will invest more.
All right. One more promise. One question for Henrik. Also M&A, talking about adjacent areas. It feels like EV is already a very good fit with Henrob and Schucker. What else can you do? I'm thinking about the battery, the rack, the importance of increasing the stiffness. Outside of your current portfolio, when you look at your 10-15 targets, or maybe it's more, around the battery and the technology, what can you do in terms of M&A and expanding that business?
Yeah, no, you're right. There are more opportunities out there. I think you can look at the assembly method. You have more chemical joining, you have more mechanical joining. You have the threaded fasteners. Of course, there are areas out there. We are looking for the areas that are difficult to handle, that are really critical in the processes of the customers. I think you can look yourself, which those could be.
I think we've been quite open with earlier when we did the study a few years back, that we looked at 27 different technologies, everything from welding to Say, what could be good for us, what could be profitable? Where does the customer have real problems for the future? I think the driving here is what Henrik showed in one of his picture, is the mixed materials. You're going to see that they're going to try to have composites to aluminum, to high-strength steel, etcetera. There is a lot bunch of technologies needed for the future to put the car together, and other products.
Okay, Graham.
Thanks. I think one of the other DNA strengths of the company is this access to distribution and getting closer to customers, and we know in Compressor Technique, you've traditionally owned most of your distributors. Perhaps we can hear from Helena and Geert about what potential there is to own more distribution. Is that part of the philosophy? I know obviously Edwards, I think you've had more direct distribution, but in some of the other brands in Vacuum, I don't think you do.
No, Vacuum Is this on? Yeah. Vacuum is mainly a direct market. I think the only area-- or there's two areas where distribution can come in, that's on the high vacuum, where you have the catalog products, which will move more and more to online business. There, it will become an e-business rather than a physical distribution business. On industry, we can grow the distribution chain. The challenge there is that you're not just selling a product, you're selling a product with its application. You need a very good competence in the distributor to enter that market. Instead of distributors in the industrial market, what you see more is little engineering companies. They do the vacuum, they make the system commissioning and installation. It's not the normal distributor as you would have within Compressor Technique.
There is opportunity to improve both in the high vacuum diffuse market and in the industrial market, yes.
What proportion of the industrial vacuum market today would be indirect?
Oh, it's not material. It's small.
These small engineering companies.
It's engineering companies, yeah.
They're independent, aren't they?
Yeah.
I mean, could you be acquiring those types of companies?
Of course, we look at all the channels, there is a possibility that this is part of an acquisition strategy, because they are like little systemization companies.
Okay.
The same is valid for Mining as well. Mining is very much a direct business. Also the construction customers, the larger ones, is always direct. There could be an opportunity to go indirect, it's for the smaller segments, the smaller customers. We also see the opportunity to develop digital e-commerce solutions to reach out to the smaller customers. I would say the majority is direct.
Okay.
The direct approach have helped us to develop the service business in a very good way, which had not been able by distribution to take that transformation into something more value creating.
Lars.
Thank you. Lars from Barclays. Hans Ola, I have to come to you. You had three slides on capitalization without saying a huge amount, if I can be so blunt. Can you help me understand what you said around sequencing of distribution to shareholders, that decision will be communicated with the Q4 results. If we get a special distribution next year, will that be communicated at that time?
Correct.
That's helpful. Thanks.
That was easy.
Secondly-
Okay, mm-hmm
last year you had a ready for more slide that stuck out for me, SEK 20 billion you could lever up, you said, without impairing your credit rating. You really expanded on your M&A appetite last year. We've seen part of it. Would it be fair to say that the scale and magnitude of M&A has disappointed a bit since last year? Where are you in terms of thinking through M&A versus distribution? Maybe finally to that, what are your thoughts around credit rating for Epiroc? I know you said it'll be investment grade, can you fine-tune your thinking on that?
Can I start.
Thank you
On the more broader M&A appetite, it might be also some comments from Mats. Linking it back to last year and the comments and the slides, as you said, it's there to show what Mats wrote also. There is a strong M&A capability. I think we have done a lot, so we know how to do, and we also have the balance sheet and not the least, the continuous cash generation quarter by quarter to support that. That was the meaning with it. It was never, and I hope you really, really get that message clear, that the financial strength of the company has never decided the timing of M&A in Atlas Copco, and I hope it never will. The key thing is to show that don't hesitate, don't doubt that we can do.
The drivers for what we want to do is exactly what Mats talked about, the DNA. What is a good business for Atlas Copco? Where can we add value? That's where we want to go. We want to be ready to do it whenever. If it's a shining bright day or if it's a rainy day, doesn't matter. That's a little bit what I meant with that. On the rating, again, if we don't show a balance sheet, I shouldn't even pretend to talk about specific rating. Yes, we share the same history I said. We want to be seen as a financially strong business. That is about ratios. From a rating perspective, a big portion of the weight of the rating comes from size. I didn't know this 20 years ago, but I know it now. That also plays in.
From a comparison point of view, is this from a ratio point of view, a strong company? This, again, you will not see dramatic differences.
On the appetite for acquisition, I can just go through where we are here then. If you look at Geert's business then, we have had two, three years very dedicated to integrate these two companies. In principle, we work a lot with from a centralized organization to really get the speed in product development and work with customers. That has been his mission. We have not had the acquisition on top of his agenda, but now I'm start pushing, right? Yeah. I think if we are ahead of schedule a little bit with this and are performing well, if we believe in the macro picture of course, then it's obvious that we go back to the value chain to see what we can do else in those businesses.
In Helena's case, being rather new in her position, I think we had a great opportunity to include the fossil-free, the digital, there we have really looked at the complete value chain and matched that versus the DNA of Atlas Copco, and you get more no than yes. Can I be fair to say that? It's not so profitable, it doesn't add so much value, so it's very dedicated what we would like to do. I think the strategy is there, and when it turns into Epiroc, I think it's set in principle. For Henrik or look at myself then I think we did a couple of good ones a few years ago, and I think we are ready to do more there. That's where we stand right now.