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 COCO strategy as transparent as we can, but I will have some help. Over the last few months, maybe when I've been the CEO then, I have a lot of questions about vacuum, and it's a very interesting industry with the semi and industrial. And therefore, we brought Gerd Follens.
He will give a presentation later on that topic. So you really have the source here available to you. We will also look at mining. Helena Hebloom 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 question is how will industrial technique be influenced by electrification of cars. So we have brought Henrik here, Ermin. He replaces me in industrial technique, and so he will cover that topic as well. We like to do things in a very sustainable way.
And Sofia is here, Svingby, and she will cover that topic as well. We will also have Hans Ole, of course Hans Ole, and he will cover a little bit of the finance, but also give you an update on the split on the Epiroc part. But the best part is actually this afternoon. Then you will have the 6 station, the innovation tool, and then you will actually really see how we bring value to our customers. And I think Daniel's instructions on the buses were fantastic.
You know you're old military guy, right? This is the way we do it. So we look a little bit at the performance, and I think that we highlight a little bit tremendous development in the vacuum That's a little bit supported by labels, of course. We also highlight the turnaround in mining to see how strong growth they have. But I'm also very proud to see the other three business areas being around 13%, 14% growth.
And you can also see that, that is divided geographically for us in a very positive way. And 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 5,000,000,000, so we continue to generate good cash. And the Epiroct split plan is just on target, and Hans Ole will talk about that.
And that can us confirm that we see a continuing high demand on our products on the market. This is a little bit geographical split, and of course, it's very unique that we can see that we have green numbers in all regions. But I'm very proud, and I say that we have worked extremely hard to have onethree of our business in Americas, onethree of our business in Europe and also then onethree of our business in Asia. And the 33% growth in Asia is extremely important and the reason being fairly simple. You need to be number 1 in Asia to be the global leader.
And there's a lot of things that's changing. 50% of all cars are, of course, made in Asia. It's the most important market for vacuum, and it's also the biggest market for compressors. So 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, and then we were working with a traditional brand like BMW, Volkswagen and all this.
But this said already at the time, we need to build the business with the Chinese players, the great walls and all these other names. And today, more than 50% of our sales in China in the car industry is actually to local players. So they are really stepping up their performance. And I'm sure you will see some of those brands globally very soon. Financially, we talked about the orders received, up 24%.
We get a good flow through to the operating profit driven by volume, the mix from vacuum. Still on a yield basis, we have a positive currency. And if you look at the chart here, you can see the last 2 years, we said SEK 25,000,000,000 for a quarter. That was fantastic. And now we have had 3 quarters with more than SEK 30,000,000,000.
So that development is, I think, extremely good for us. But 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 the demand in a very good way and so does industrial technique.
So 2 areas where we think we would like to do a little bit better. Mining is one of them. Although in Q3, they actually the revenues were up 20% versus last year, The demand is actually higher and is driven by underground. And the Linnan 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, that will be only up 2% for the quarter and that we have more homework to do.
But the same there, we have the commitments and organization to make that we get back to normal lead times during Q1 next year. And we have the capacity. We have the capacity in mining to make the final assembly. We have the capacity in our machining. But it's simply when we put pressure on the supply chain that you get the suppliers, suppliers that sometimes you detect new things.
But 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, but 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 then the 8% over the last 10 years.
You were at 7%. Return on capital employed the last 10 years, 29%. So we are pleased with that. And the cash, you know how we handle that. Continue to generate good cash flow.
And the way we are not the bank, Han Solo, you normally say to me. So 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.
And 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. But 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.
But 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. But that time is in principle past. If you stay on that level, you will only be invited when they would like to talk about price. So during the sales process, they will really need to add value to the customers' processes. So that means that we need to understand how the customer work, how they bring value to their customers.
So 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. So if you work for Atlas Copco, we are approximately 50,000 people. When you start or you have a mission we talk about, and 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 in. So we know really who to call as a fantastic performance. We say, can we do this a little bit better? So when we go to R and 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. So when we have that movement 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. So 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 the investment, and that is essential for us as well because normally our material is used at the customers to present their ideas. On the operations, we see the manufacturing, the sourcing and logistics.
We say we want to deliver quality product on time in full in a transparent way. That sounds extremely easy, but it's very difficult. But it's really appreciated by our customers. And then the service, in principle, what they should do is come with products that help our customers have more uptime on their products, and this is where we are heading. So when you're 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 we make why do the customer allow us to make a good margin on our products? So we looked a little bit what is the Atlas Cocoa DNA. And we said that, well, one of the things that we see is that we really need to be number 1 or number 2 in the segment. And it's principally that we can have enough resources to put into R and D, sales and service.
We have tried number 4 and number 5 spots. It's not so efficient. So we need to make sure that we have the opportunity to challenge for number 1 to number 2. That's one of the criteria. When we look at the new acquisition, we will 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 and 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. And by doing that, we can always talk about value instead of price.
This is what we like to do. And the last step is, of course, that we should be a very interesting service business.
So when
someone of the
27 divisions comes to us
to comes to us to bring, you know I like to enter this, we just take this Atlas Cocoa DNA and 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?
And 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 would need to know someone, and that is still important. But the decisions today are much more professionals. So they really buy into their own success, and they like to see real tangible data how we will improve their manufacturing process.
So we spend a lot of time understanding the customers and their processes. And 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. So what we do, this is from an example for industrial technique. It's also used in some other divisions.
But then we take a marketing person, we take someone from R and D and we bring them together as a team. I can use this as an example for aerospace industry then. So if we will set the new product strategy today, we will ask these 2 people to go and visit the leading brands. That will be probably Boeing, Airbus, be the key ones. And then we will do an interview guide for them, and we would like to meet with 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. And normally, it's very difficult to get those appointments. Then they say, I'll give you 10 minutes. But when we are there doing the interviews and see that our intention is to bring real value, we normally sit with them for 1 or 2 hours.
It's a really effective way to get to the real knowledge. And we record these interviews and then we go back home and we do we try to find what they actually said, what drives cost, what drives productivity, what are they really after. Now you have a capital of cards in front of you, but it could be like a full deck. This is actually from Industrial Technica. So these are different characteristics.
And of course, if you ask someone, sir, what is the most important, someone will 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. So then we at least 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? And then we categorize this. So we can say then 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 management in U. S. Or Europe? And we're building on this database all the time.
And of course, if you then develop a new product, you can look at the specification and say, have we really followed the recommendation from our customers? And it's also excellent to use that in the marketing material for websites or brochures even. And 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 principle, we have determined the value 3 years earlier when we started the project. The project for us is normally 2 to 4 years. I talked about the leading difference in technology.
And then you might wonder why does he take a picture on the breaker? It seems to be really old fashioned technologies. And I never give up. I have said to my team, no, there is more to do, and I'm assured there is more to do. This product was launched 2 years ago.
The energy consumption on this rather old product is now 25% lighter than comparable products, and it has significantly better ergonomics. So 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 talked about product and we talked 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.
And 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 and maybe believe that, that is also where the solution is. And 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. But 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. But then, okay, how do we handle the synergies then? I can give you an example of this. In February next year, we had 27 divisions, each of one of them have an operational manager. So then we bring them together for 2 days, and 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?
So they share that. They bring that. Then we take in academia, spend one day with them and say, what is the latest technologies? How can we do this better? So people leave full with energy, full with responsibility to go home to do an operation, but we don't build governance structure in between or have a VP manufacturing or something like that.
So really to gain speed in what we do. So 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.
It might if you look at the picture there, it looks pretty much like a car line today. This is from compressor technique. And 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, these components goes for this product. This is the setup we need for this. And you can see that the material is really close just to work with lean to make sure that we can build that as well. Although that main part of components you can see in the supply base, some 70% to 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. Then in the blue colors, yes, we like to design the product. We like to make sure that we do the final assembly to check quality on the products, and we always do sales and service in principle. Customers should gain very tangible values on what we so 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, so 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 plus 10%, plus 20%, minus 10%, minus 20%, how would you act. And it's principally to gain speed in the process of adjusting to a new environment. So 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 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. And in principle, it's 3 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, and it's not so interesting for us and it's not poor for our customers. So then 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. And the next, of course, what we're all working with right now is the predictive. So we have data. And as 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 1 in this for us. We can also see mining collecting data. So that this is not future scenarios.
This is what we're learning. We're learning in analytics right now, and we're bringing in competence to our companies to make sure that we know how to make the analytics ourselves. 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. That was Koko where you're doing this a little bit more what happens now.
Can we do something with this now? So if we look at our operations, you saw an example of the line where we use digital data to be able to add agility to build several different products on the same line. For customer, I don't think we are good enough because I think some of the business to consumer are so much more attractive. So we are really working on how do we work with the interface that could be then the web page or it could be social media, but it should be easier to do business with Atlas KOKO, and that's something we're working on. And the uptime is a it's a little bit the predictive maintenance.
So 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 Peoples. It's close to 100, I think it is.
We use the multi brand strategies effectively to give our customer different options depending on the application. And in many cases, in many markets, we are both number 1 and number 2. So this is a very efficient way for us to go to continue to grow, what at least you will get is to make sure that UB will have a very, 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. So we need to enter the sales force 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 they if they are okay, profitable, stable, we can say, bring us ideas, bring us your strategy. And when we have the strategy for what we like to do linked to what I call the Atlas COCO DNA earlier on, this is segments we'd like to be in.
Then we start to look at targets and say this is something we would like to do. And I cannot say one is more important than the other because it's also depending on the one that's selling the company, but we bring this to the board constantly on a quarterly base. And I would guess that all the divisions are maybe dating 5 to 10 companies over a number of years before something happens. And 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 your very basic saying in Atlas Copco, how would you handle this if this was your money? And that puts people on the right mindset immediately how to handle the company's cash. We do that in a very good we have the service business helping you out in a very good way. So I think these are a little bit what I wanted to give you at this point, a little bit of the strategy to understand our DNA, how we go to market and how we intend to continue to grow our business.
Hans Ulla, are you ready? I am ready. Good. Then I hand over to Hans Ulla. He will give you a little bit more on the financials.
You can leave the slide on for a second.
Yes. And there you have the clicker.
There I have the clicker. Good.
Good morning, everybody. Thanks, Mats, for the introduction. Yes, 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. But before I do, there's presently, as of yesterday, there's one important or a couple of numbers that are more important than everything.
I apologize for the Italians in the room, But we here in Stockholm were extremely pleased yesterday, and we look forward to meet Mr. Putin next year. So 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 1 year. It's really about trying to maintain it over a period of time. So 7%. Yes, I know.
Mats said 8%. So we're a little bit short. We have some work to do. And we try to get going again with the performance in 2017, as you can see. The other one is high return on capital employed.
And you see the number. It's an average that is pretty high, 29% over the last 10 years. So 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, and Daniel not the least, is on what about the dollar 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. So 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. So you can see 2 things.
It's very volatile. The average seems to be somewhere short of 100 in this index and of course it's 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.
So 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.
And this is, course, also something that we bring with us. We hope that it's on our active work with the structure that we have. So 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 2 graphs here. 1, the blue, is the true fixed assets that we need to produce the revenue and the profit.
Can see in percent of the revenue, it stays very stable over time. This is something that we see as part of our strategy. It's not just a happening that we realized when we made the slide. Same way we look at the net working capital, which is then inventory receivables minus payables to suppliers. And we're very happy to see what has happened lately.
After being a little bit stuck, and I've 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 Gers 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's not in percent of revenue, it's absolute values. So the whole company shares 1 DNA that we have a very modest need for recurring investments.
I say that knowing what Gerd 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, so I don't well, I can't repeat cash for just the pleasure of knowing that we have it. So 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, and I will introduce, as Mats also alluded to, Sofia Zwingvi, who is the Vice President, Corporate Responsibility, and she'll take us through a little bit more strategy but in a sustainable way.
Thank you.
Thank you, Ansu. Thank you. Good morning. My name is Sofia Simbi. I'm the Vice President, Corporate Responsibility for the Atlas Copco Group.
And 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 5 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, and 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. Addas Cocco's mission is sustainable, profitable growth. We have been delivering sustainable value to customers for decades. So why sustainability is 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, and 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's typically on corruption.
At Atlas Copco, we have 0 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, with 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 well-being, 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.
And as of last year, we also required distributors to sign compliance. No one should get hurt working for Atlas Copco. Therefore, safety and well-being 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 VST plus compressor and the dry vacuum pump.
We couldn't do anything without a competent workforce, which is giving the best possible working conditions and opportunities to grow. Atlas Copco seeks to increase diversity, for instance, when it comes to gender. Therefore, 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. We are 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 Ramstrom.
Thank you, Sylvia. The focus is not CT and power technique this time, but 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 principally. And if you want some tailwind from this industry, I think that you have the GDP in principally that will follow over time. And on top of that, we need to bring them new innovation.
That normally means energy efficiency in this segment. It's extremely important to get traction for new products. And you can see that coming from a 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. And what we have changed is that we don't develop them in Europe anymore. We really I went with the board last week to China, and we really deep dive into the CT performance.
We do everything from the R and D to the sourcing to make sure that we are that fast company that can compete in that market. So that is a little bit of a change that we see. Financially, I'm really pleased then 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, and 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 use work with the logistics around parts, how they present their concepts to the customers. And 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. And we try to utilize a little bit the multi brands as well with new technologies. So 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 then for some of the compressor stand back in Q1. I asked the guys to say, can you send me I want to show innovation for this team. And they're very cautious not to show what they have not launched yet. So this is what they gave me.
And there is a lot, but when I look at the complete pipeline for the coming years, I think it looks very attractive. I'm very much a product guy. So when I visit Antwerp, I really meet the people that develop products to make sure that we have something in the pipeline for the coming years. And as I said, you cannot just shift it like this. It takes a number of years to do something interesting.
But I can guarantee that there's a strong focus on this. This is something that they are extremely good at. You remember they had a picture earlier on that there was someone sitting in front of a number of screens. All the big compressors and industrial compressor that leaves our factory today are connected. Then it's up to the customer to say if they don't want it to be connected.
We were dependent on that we could hook up on Wi Fi. When we entered the customer a few years ago, we have changed that policy more like a mobile phone. So we can always get data if it's allowed by customers then. So today, in principle, we have more than 85,000 connected compressors, and we're learning how to do these analytics on a daily basis principally. And we're putting the teams together.
So we get the data. We make the analytics of the data. Then the customer center has this data. So in principle, they can look at the customers and say, well, this had gone on overload overnight. It starts and stops.
There's something wrong with these compressors. We just make the phone call and say, Have you noticed this, Mr. Customer? And we plan then to schedule a call for them. So it's a very convenient way of working with customer and very much appreciated, of course.
But 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 contract guarantee and uptime, that will 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 thing to broadening a little bit the segments we like to approach with our products. And you can read that as products 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're entering a little bit more in the pumps. We have the lightning, 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. So it's not competing with the general rental houses. But it's a very interesting business because it's 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 to. And 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. But this is interesting, this one. They were a little bit more generous when it comes to sharing new products. So this is the full range of these compressors is for Asia. They put this on the trucks.
Instead, they don't want to hold them behind. We see an increased demand for electric compressors In the cities, they don't want the noise anymore, so they say maybe we should have an electric one, so a little bit more quiet. So they're bringing that. Stage 5, 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. So there is a lot of interesting things going on in this. And we are building a little bit the business area step by step. And you can see in the profitability that we are now in more attractive segments. I think I stopped 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. And I think it's time for Hans Ulla again and give you an update on the split and Epiroc brand name. Thank you, Mats.
Yes, Switching gear a little bit or switching topic at least. You know most of this, but the background, I mean, but let's anyway take the opportunity to see a short period of time.
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 2 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
the
administrative work and is managed by special project teams. We call them work streams. It is important to know that this change is not financial results. We are now in the
and
to the market. We're also excited about the growth of our business. We're excited about the growth of our business. We're excited about the up on the road to the future.
Good. Quick recap of why we do these things. If we move on then, I will talk a little bit here. You can see for yourself on that short little descriptive. The movie said it to a large extent, but just repeat a little bit.
I won't read all the words on this one. It's a summary. But 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.
And focus going all the way up to the Board of Directors, to the group management, the executive team and further down. And 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. So is it worth the pain? The answer for us is very clear, it is. So we can compare this exercise to a certain extent with what we achieved in the late '80s, beginning of the '90s when there was clear divisionalization of the group of Atlas Copco.
And with hindsight, it's fantastic to see what type of drive, what type of motivation for growth and profitability improvement that, that has given. So we see this as just another step in that direction. This is the 2 roads and where you can see a little bit of numbers. So 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 and then together again. And then you can see also an indication of the profitability where that you can see there. I'll come back to it, but you can 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.
And it's an addition on revenue of a little bit more than SEK 2,000,000,000 just to have that said. But I'll talk a little bit more about it in a while. Can we say 2 world class companies? Why can we? Is that fair?
Is it just bragging? Well, what we did here is we looked for a pretty long time and we took Atlas Copco Industrial and we took the mining and rock excavation business as a proxy then again for Epiroc, if I use that word. And then we looked at the very wide big, multi industry type of company benchmark performance, which is the light blue. And then we looked at the slightly more narrow, big mining and construction company benchmark or index, if you like. And this is the performance of these 2 companies, Atlas Copco Industry, if you like, and Epiroc 2B or Mining and Rock Excavation.
We look at not only profit margin, but we look at cash generation, which is EBITDA minus CapEx, but it's also deducting the variation of net working capital. So you can see a little bit more variations, but the pattern is pretty similar. And finally, if we look how is the important aspect of making it grow, well, you see a little bit more up and down picture, specifically on the yellow side, and then you see the achievement of organic growth over this period of time. So I feel that it's important to stress that it's not just words. There are certain support in the numbers for these statements.
Now let us look a little bit more of an update on the actual project. This is the starting point as you know it. And you can look to the far right. First, you see that power technique used to be called Construction Technique when we assembled last year, and you can also see that it consisted of 4 divisions. If we now move to the scope of this big project, well, this is where what happens.
You saw there quickly that Construction Tools as a division has disappeared. And it has disappeared into 2 new divisions in Power Techniques, sorry. It has been done in the way that the Construction Tools division has been splitted in itself. And the part that has gone to Epiroc is the part that has the most overlapping end customer focus compared with the Epiroc business. And 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.
So that's what we are going to see as of next year in Atlas Copco. You will see then that there is also a power and flow, which is generators and pumps as part of the power technique. So this is the scope to the far right of what we are talking about to create. Someone said actually Matt said it immediately, you don't intend to show that ugly slide at the Capital Markets Day, right? Do something nicer as a slide.
Well, actually, it's an intentional ugly slide because it shows the complexity and that we are in the midst of a very, very big project. Fortunately, as the movie said, we have done 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. So there are other people, some 100 of us actually, 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 advisers 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 and 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. And this work will be done by the end of this year. Then we have created, so to speak, a group within the group.
And that is the shares of that Eperok EBIT 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 and but 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. But 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 March 20, there will be as always a notice to the shareholders of Atlas Copco for the AGM. The AGM is the 24th April.
And 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, but it's an information brochure, you will find financial targets for the new company. You will find obviously descriptions of the strategy and everything and you will also find the initial capitalization ambition of the new company. And 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 Q4 report for Atlas Copco.
And there, as usual, there will be an announcement of the proposal of the Board of cash distribution to the shareholders. So that's just to keep the timeline in mind. And then, of course, there is a very important date as well. And somewhere in the middle of May, there will be a formal committee meeting of the stock exchange to accept or not the proposal to list Epiroc AB. And shortly after that, the full prospectus will be launched.
And 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. So if we stay a little bit on the project itself, an update, no red flags, but there are some costs involved. You will recognize some numbers, SEK140 1,000,000 is what we have disclosed in Q2 and Q3 as specific costs related to the split project. And 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 EIT system. So that's water under the bridge. And what you see here is an estimate of what the SEK140 1,000,000 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 2 major things. One is that there is a lot of rebranding that will come and that is just started in terms of cost generation, but there will be a lot in the next couple of quarters. And 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. And IT costs will also have a big bulk in the beginning of 2018. But there so don't mix. It's €600,000,000 plus what is already done on the specific one time depreciation.
When it comes to tax, why tax? Well, 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. So 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. And 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. So that's why I talk about the sort of a net cost over a few years that we foresee. And it's a mix of 60, 65 odd countries, so don't ask me to detail it more than this, hopefully. So these are a couple of things that is on the project itself. What about how this will look in terms of numbers?
Well, first of all, in the reporting that you will find from Epiroc from next year and onwards, you will find 2 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 and 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 Q2 of 2018, but this is what we expect to see today. So 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.
So this is how we're going to report. And from a revenue distribution, you see it to the right. But 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. But 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, it's mostly historically, it's mostly MR, Mining and Rock Excavation. So 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've 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, but we have taken a bit of a projection when it comes to the new central corporate costs that we expect for the new business. And finally, if this is the income statement, what about the balance sheet? Well, look upon it from a capital employed point of view. And this is where the indicative numbers again based on September, but taken into account 2 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. But the assets of that is almost exclusively to the MR or the Epiroc business. So that has been adjusted, so to speak, when you compare it with what you find in the annual reports and so on. And then there is again some room for cash, etcetera, which normally is not reflected in our business areas today the way you report it. So 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 20. Again, I say not audited, it's indicative numbers, but based on September 30. Now I know there is an elephant in the room, and let's deal with it then. What about the balance sheet and what how will it look? Well, 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 2 companies and even some very important characteristics. I talked earlier about a modest recurring investment need. I talked 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. So a clear investment grade rating is, of course, something that will have to happen for this to be true. So
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. So this is how it looks and you recognize it from the previous. So what it's absolutely clear from Board of Atlas Copco and the Board of Epirov 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. So it's not a pro rata perfect split that you should expect. But again, these details will come when we have first of all, we have the CEO in place. I should remind you that he starts in February. So he wants to have a word in this game as well.
So does the recently formed Board of Epiroc. But this will come, of course, when we have the financial brochure that will go out to the so somewhere at the end of Q1. And this is exactly what that says The final slides just repeat. There is a very experienced, very strong executive team headed by Per Linde, very seasoned CEO in the Swedish industry. Certain parts of the time line going forward.
And as you have also seen, there has been announcement on the Board of Directors. And you have also picked up, I'm sure, that there might be 1, possibly 2 additions to the Board coming in due course before that is over. So with that, I stop. There will be more opportunities for questions later, I think, Daniel. So I would just like then to continue on the business area line and hand over the word to Helena Hedlund.
Helena, welcome.
Thank you.
It's yours. I'll get out of your way.
So good morning. I am Helena Heerblom, and 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've been heading our product development. I've been heading our manufacturing units.
And before I took on this role, I was the Divisional President for our consumables business. And since 1st January then, the Business Area President for MR. So the agenda for today, I 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. But if we start with the performance year to date, our focus is innovation and automation.
I will come back to what we're doing around automation in-depth later on. Focus is on customers' total cost of ownership, and that is embedded in our service offering. It is embedded in all product development projects that we do. We have shown during many, many years that we have built in agility. We can ramp up and ramp down depending on the climate in the mining market.
And we have also built resilience through a large portion of aftermarket, both parts and service and consumables. And if we look on the performance year to date, we have 3 strong quarters behind us, with orders received level close to SEK 8,000,000,000. And what we observe, that is increased activities in existing mines. And that gives us what's, of course, growth when it comes to the aftermarket, both parts and service and consumables. But we have also seen expansion in capital equipment needs.
And this is expansion of existing mines into nearby assets. But it's also part of the orders received in capital is related to replacement. So strong orders received year to date, solid profitability of close to 20%. And as you can see, there is a gap, and 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. And we are right now working intensively with our sub suppliers to manage the ramp up and to support our customers. So solid profitability of 20% and a rose of 41%. If we then 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.
And you can see that the split, it has been the same split for many, many years, so close to 70% towards mining. If we then look into the different business types, 30% comes from equipment, 45% from service, which is then both parts and the service and 25% comes from consumables. And of course, the last years, with the downturn in the investments in capital equipment, the proportion of the aftermarket came up strongly close to 70%. And this shows the exposure to the different minerals. And this is now it's June 2017, 12 month rolling.
So you can see that we have 35% related to gold. It's 24% towards copper. 13% is related to nickel and lead. And 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%. So it is gold and copper, nickel, lead and also zinc, I would say, contributing to the increased activities. If we then 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, 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 in geotechnical, ground engineering, water well and also small portion into oil and gas. And towards all these segments, we have long product development plans, I would say.
We are looking 5, 10 years from now where the trends will be. And we are offering a full offering of consumables into all these segments and of course, a full offering of parts and service. If we then move business fundamentals, I talked earlier about agility and resilience. And in Mining, it's key to have agility because the appetite for investments in CapEx, it varies a lot, and you have seen that. So what we have been doing is that we have built in flexibility.
So we have subcontractors doing subassemblies for us. And this is the way we secure that we can ramp up and down in a fast way. And the production levels in Mining is much more stable than the CapEx investments. So for us, it's key to grow our aftermarket because this gives us resilience in a volatile environment. So we have a very strong focus in growing our customer share on parts and service and on consumables.
And the fleet is the base for these efforts. So we know where all the equipment where we have the equipment in the world, We know the age of this equipment. And we know the need, how to serve this, how to what consumables is being used, etcetera. So it's a very systematic and analytic approach to drive the aftermarket. And key success factors to be successful in growing the aftermarket, that is the supply chain.
So to have supply chain as the competitive advantage is key, and it must be very high delivery precision. And 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 rig scan. So we check everything in the equipment, and then we propose what the customer need. We also do a lot of midlife 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. So before we enter into a segment or into a specific product range, we carefully evaluate the stand alone attractiveness. And the aftermarket portion needs to be there. And 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.
And we developed it and we launched it in September last year. And we have already sold 100 machines of this type. So very successful product development and entering broadened the assortment. Sustainability is core, and it is part of our strategy and in everything we do. And we constantly seek opportunities where we can improve our processes, our way of working, but also our products.
And as an example, we are right now changing our distribution concept for parts into a regional distribution setup. And the thinking behind this is to go away from air shipment. And 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, I would say CO2 emission is the target for CO2 is embedded into all our product development projects.
And we are now adopting battery technology as well into our equipment. And you will see that later on in the innovation tour as well. Innovation is key, and it we have a very strong culture around innovation. And 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' site.
And 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 5, 10 years from now. And that is then driving our product development, the understanding of where the customers where the how the customer are developing. We have engineers the biggest portion of the engineers are located in Sweden and in the United States, but we also have big engineering groups located in the emerging markets like China and India. And also here, we believe that the closeness 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 then move over into the trends that we see will shape the mining industry and the construction industry in the coming years, There is exciting trends, and we are ready to respond. And one of them is that our customers are not only buying equipment any longer. They are buying results and results that are part of new demands for productivity, especially within mining. So the first trend, that is battery technology, with a vision then to create a fossil free environment underground, going away from diesel engines into battery operated equipment.
And 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, that is automation and interoperability. And 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. And interoperability, that is about connecting and getting understanding, getting real time data what is ongoing in the mines in real time. I will come back to these trends and what we are doing later on.
And the 4th one is digitalization. And digitalization, it gives us new opportunities to develop predictive maintenance, as Mats mentioned. Today, we have scheduled maintenance, but we don't really have predictive maintenance. But 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. And then the 4th trend, that is mechanical rock excavation.
And 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. So we have painted this picture of the digital mine of the future. And 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 take decisions how to improve productivity on daily or an 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 actually where it's absolutely needed, to have ventilation on demand. We see the need for be able to analyze data to be proactive in the way of working. So if we then take a deeper look into battery technology. And we have already launched.
We have 4 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 7 tonne loader. But in the pipeline now, we have the bigger equipment. So 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. And of course, there will be a transition when ventilation is still needed because there will be a mixed fleet, diesel engine equipment and battery equipment.
But we believe that this transformation will happen, and we will be part of that transformation to go into a fossil free environment underground. And for our customers, this gives, of course, a cleaner, safer environment. And 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 use 80% less energy. And this is not CO2 reduction really.
It's 0 emission. So it's a very strong step forward towards a sustainable environment, especially underground. If we then take a deeper look into interoperability and automation and 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. And the reason is really that the utilization of equipment underground is only 30%.
So it's a big opportunity for productivity improvements for the mining houses. And to be able to work with this productivity, our customers need data. And they need to understand where the equipment is, where the people 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 spreadsheet. So digitalization has not yet transformed the mining industry. So what our customers will what they need, that is to go from to controlling 1 machine, to controlling a full fleet because that is where the productivity opportunity sits. So this is like the lean transformation that so many industries already have behind them. The lean transformation in underground mining is yet to come.
And 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. So our customers with autonomous equipment, they will get increased safety. They will get productivity and reliability and predictability, support for continuous improvements. And we see now working together with our customers that just by getting data, analyzing it, monitoring, controlling it, it's easy to improve the utilization with up to 20% in the bottlenecks. So there's huge opportunities when it comes to productivity, especially in underground mining.
And if we then look at automation and interoperability in surface mining, It is the same need for productivity. But on surface mining, it is easier because you can send the signals via GPS, you have the location, etcetera. So surface mining is already there. We already have autonomous fleets interacting. We have a fleet of pit wipers running at BHP's one of BHP sites in Australia.
The control tower is 1300 kilometers from the mine site. So on surface, we already have done this transformation, and we have, today, 10 projects ongoing with the larger customers around the globe. And transforming the operations from manually operated equipment, the step you need to take in between is to run the mine tele remote. So most mines, we're doing that transformation with our customers, and the step after that is to go fully autonomous. And 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. But we also see automation playing a role in smaller steps when you can automate the feed position, for example, in a quarry or hole navigation in drilling and blasting. So 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, Certik, which gives us full data monitoring. So we know in real time now the health status of the equipment.
And based on this, we will now develop predictive maintenance. So we are piloting what we call a performance center for global connectivity in Australia to start to support our customers 20 fourseven when it comes to predictive maintenance. This means that we will have people monitoring the fleet that will see the alarms coming before there will be a breakdown. And then we can send we can call our service engineers to the site to do preventive maintenance before things happen. And this is, of course, a huge opportunity for our customers when it comes to uptime of the equipment.
But digitalization is also taking place at our customers. And many underground mines, as I said, they don't yet they don't have network, but it's happening. The speed of implementing connectivity opportunities underground is taking place now everywhere in the world, I would say. And with the technology from Obelaris, 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.
And together, we will develop control tower systems and other ecosystem solutions for the mining industry. So together with partners, we will build a mine the mine of the future and that landscape, connecting data to enable productivity improvements for our customers. And autonomous equipment, together with digital productivity products, will then be our future offering. And the last trend then, mechanical rock excavation. I said earlier that this is every miner's dream.
This type of solutions is already available in softer formations, and it has been there for quite some time. The tricky thing is to have this technology in hard rock. And 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. So we have developed a number of products like this together with the major mining houses, And we have released the first model for serial production.
And what this solution gives, it gives a complete fleet in one machine. So this is drilling. It's blasting, where it's not blasting, but that part is gone. It's bolting included in this. And then the transportation of the ore is also built into the system.
So it is a complete fleet in one machine. And it's very high precision profiling. And this is key when you have an ore body that is very thin or very narrow, like the platinum mines platinum ore 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, and it will also be safer operations because we can do this autonomous or remote. And last week, we got the first order for one of these machines. It's an order from Hekla Mining in the United States. And that was, of course, a big milestone for us. So to sum it up, 3 strong quarters.
Activities is picking up. The production levels are increasing in mines, and we have good growth on consumables and on parts and service. But we see some replacements taking place and also expansion into nearby assets. We keep focused 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. And we're creating value through battery technology, automation and digitalization.
So it is exciting times in the mining and construction industries. And I'm excited to embark this journey together with all the passionate 18 years ago, my drive has been curiosity, wanting to improve things, being persistent and to see people strive in the same direction. So I'm convinced that you will see the results in the coming years. Thank you very much.
So Helena, that gives us a little bit of time for some questions. For Helena, just a few, and then we will save the rest the rest for the Q and A session. But 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 one follow-up. Would you plan to be fossil fuel free by when from your production standpoint? And then I have a follow-up, yes.
Yes. So 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.
And 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. So there is usually, the engine suppliers, they do the aftermarket of the engines. So it will have a minor impact on the surface.
And I wonder if I could ask about the digital mine. You shared in your slides some partners, Saab, ABB, Dassault. And 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. And then others say, well, no, Atlas Copco will always have the compressor and the mining digital revenue streams. And it seems that you're all going to be playing in that.
So what's the share that's going to be divvied up in these revenue streams?
Of course, very yes, 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. But we also see that digitalization is happening so fast. So 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 data that our customers can use data to drive productivity.
That is our thinking behind our partnerships. And 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?
Yes. The only thing that we see is that there is activities ongoing in close to existing mines. So it's more, okay, locating where the ore is when you were planning an expansion in existing mines. It's we don't see really it's picking up on greenfield yet. So it's very close to where the mines already are.
And related to production and identifying the world, planning the mine layout, etcetera.
So 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? And are mines becoming more equipment intensive as there are a number of people reduced? And can you give us an idea of perhaps what that extra scope could be?
As Mats mentioned, the I will say, the growth we see now is mainly on underground. So I will say when during the peak, 2011 2012, then it was more segments that were peaking. Right now, it's predominantly underground.
Yes. But I mean, can you
give us an idea, are there more machines now? I mean, 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, that is autonomous is still very, very few equipment. So it's more that the people are gone from the front or from the machine at the customer sites. But I wouldn't correlate it to the number of equipment.
Okay. Then we have Lars.
Thank you, Elina. It's Lars from Barclays. That was one of the most interesting and informative presentations in mining I've had from a Capital Markets team, Madel's Coppell, for a while. Thank you for that.
Thank you. Can I
pick up on the continuous mining at Hard Rock? Because for me, that really is quite interesting. It feels to me we've been through decades of R and D development. We've had very little commercialization. You're rolling out serializing production now with mobile miner.
You've been running with Rio Tinto for a while. Can you help us understand what is the addressable market opportunity within Hardrock? You talked about a 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 and how do you see the competitive landscape shape up as we see it right now?
It is very difficult to say 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 that I think that is the biggest hurdle to come over because you need to prove that this works. And the mining companies, they seldom want to be the first one piloting new technology.
So of course, it depends on if we can then so to have the first order to and it's very much it's 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. So it's very much, I would say, depends on how fast the customers are willing to adopt to the new technology. But I would say all major mining houses see this as an opportunity. And then of course, it's different for different reasons or different part of the mining, let's say, process itself. So it will not replace everything.
It's and especially when you need to where you have advantage in drilling, where the phase will be it's smaller, where you need a smaller phase, that's where the big advantage sit.
Can I press you a bit? Is that 10% of your addressable opportunity? It 50% of
the market? I will pass on that question. It's difficult to say.
Okay. There will be room for more questions later on. We'll take the last one. Claes from Citi, please. Microphone here, please.
Thank you. So a question on M and 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%. So that doesn't make much sense to expand sort of downwards.
So I
guess the M and 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 and A and use the balance sheet in that way?
We have, as Marc said, we have an acquisition strategy per division. So I would say that, of course, in the areas that we have the future landscape, of course, we're looking into targets in that area, but also in some divisions to find niche products. But as I said, the key here is that it must be the aftermarket portion must be there
and the profitability. But considering the multiples in Industrial Software or in Mining 4.0, they're quite hefty. So you have to use quite a lot of balance sheet power if you want to do M and A. So I guess partnerships is the preferred option?
Yes, yes. Yes.
Okay. It's about time. So welcome, Henrik Elwin.
Thank you, Daniel. So good morning, everybody, and welcome again to our Capital Markets Day and this time, the business area, Industrial Technique. So before I go into the presentation, a short background to myself. I started this job 1st May this year. Before that, I have been responsible for 2 of the divisions within the business area, so general industry division and then latest, the service division.
I have 11 years in total with the group. And 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, and then I will go into more the future trends that we see and how this will impact our business and what we are doing. So I think many of you have questions about electric vehicles. We read about it every day.
How will that impact us? Lightweighting new materials in the different industries and then about general industry and the digitalized factories where we are, of course, very active. So 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 Q1.
And 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 Zek. On the EBIT, it has been stable around 23%. We can, however, see this onetime effect, a positive onetime effect the last quarter. This is related to our acquisition of Henrobb, where we released a provision for an earn out that did not happen. So that was a onetime 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, really key. And 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, it's 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 5 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. Then 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. And then we have the tightening where we are in many different industries helping our customers to apply threaded fasteners from small screws to large bolts.
So as you can see, the 4 areas to the right are fairly segment focused, while tightening is actually a very, very broad business with 100 of 1000 of different customers from small to large. Of course, automotive is a big part here. It's, of course, the final assembly. It's the powertrain. It's also the component suppliers.
But then we have also a very big party 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, let's say, bolts we are helping to tighten in the energy segment, power plants, oil and gas. Also on the vehicle or on the maintenance side, we also have tools for maintenance applications. Then let's see if you can describe our business concept and how we differentiate in the industry. If we take then Aerospace as an example, I think we really want to see ourselves and position us as a partner in assembly technology within Aerospace. There is 3,000,000 holes in a typical plane and a lot of parts that needs to be assembled with high quality.
And what we do is that we work throughout the product life cycle with the customer starting already in the product design phase. So when they build the pilot production, very early on to out well later on. So we have labs and a lot of engineers that also are helping our customers early on. Then, 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, of course, maintaining the equipment, but also then with our service teams helping the customers to improve the productivity quality over time.
And in aerospace, as you know, the planes are produced for quite some time. And then 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 coming 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, can we can do more with that, which I come back to. Then 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. So 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. And the trend, I can say, also continues well in 2017. Then we talk about sustainability. You saw Sofia present our 5 pillars around sustainability.
We'd like to give you a couple of examples what we do in industrial technique. What we are working with is what we call eco design, really analyzing the environmental impact our products have throughout the life cycle and then 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 an eco controller for the Henrobb riveting system. This means reduced energy consumption of 20%. If we go over to the dispensing equipment, you there is a lot of waste in the consumption of adhesives and sealants.
And here, we have a focused service product that goes in together with the customer. We analyze the different steps. And typically, you can help customers to reduce material consumption with around 15%, which is both a lot of money and also we avoid a lot of extensive 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. And 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. So 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.
And if we take a country like China, this is really high focus for them to get the product quality up in the different industries, and this really opens up opportunities for us. Then for the handheld tools, still maybe more in the Western world, ergonomics is really important, and there are still a lot of tools where our main value proposition is around ergonomics, also safety. Then 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. But 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, and we are doing well in the Chinese market, which is these are more the old, let's say, trends. If we look at the trends that are more accelerating, coming quick now, we have seen them for a while, but clearly accelerating, it's more about technology trends. And 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?
Then we have something I've called here lightweighting. So that is more the new materials coming into the different products that we are using and 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. Then we have the digitalized factory.
That's where we are where our products are, where our service technicians are working. And here, we have so many different things coming, but I have picked the 3 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. And then, 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, and that is also impacting our business. And you can say, if you summarize it, a larger portion of our equipment is ending up on robots than on the human. But still, we will see both situations, of course, going forward. Then data driven service.
We've heard already today a lot about data. And you can say all customers more or less are asking us and now wanting to use data in a more proactive way in order to improve production. So these are the trends. We see some of the bigger ones at least. And then, of course, we focus on this when it comes to our organic growth initiatives.
But also, I think it's important to explain that this also is how we work with acquisitions. It's a very strategic approach. And 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. So this is spot on linked to that trend. If we take Setitec in 2011, there is a huge backlog of planes in the aerospace industry, and the aerospace manufacturers are moving more into line production.
Productivity is very important, and that is one of the reasons why we then acquired Setitec, which is 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. And then you need more software solutions, guidance solutions. And here we have Synatec in 2013 and Pivotware in 2015 that was very much linked to this trend. And of course, now looking at these trends that I mentioned, we are continuing to look at suitable acquisitions in this direction.
So let's then start with electric vehicles. How will that impact our business? It's still early days, but we have, of course, analyzed this over a number of years. But let's start with what are we talking about here, how many vehicles will be electric. So if we look at 2,030, 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 and then about 60% will be internal combustion engine still. Of course, this is a huge shift. Maybe depending on the assumptions you make, it will be even faster. But of course, 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. So 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. So if we think about 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.
Then you have 3 main parts where we are active in the automotive. It's the body shop, it's the paint shop and the final assembly. Then 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.
So this is only the change of powertrain. And 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. So 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. Then if we take the battery electric vehicles, of course, there the engine goes out and less complexity in the powertrain for sure. So 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. But still, we have estimated the demand here to be slightly less for a battery vehicle or battery electric vehicle.
Then on the body shop and paint shop, no change. And then 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, really critical and quite complex in the final assembly. So if we summarize it, altogether, we see this is a good opportunity and the positive effects for us going forward. Let's take a look at the battery. I mean, if you take the battery in a car, it's basically 3 steps.
You have the small cells that are stacked up into the modules that you see here on the picture and then you assemble maybe 12 of those modules into a battery pack that goes into the bottom of the car. And 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. And of course then, as you can understand, since it's electricity, the quality of the connections in a battery is very, 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. And this is where the adhesives and dispensing applications come in.
And then also for recycling purposes, you need to be able to dissemble the batteries after the usage. So there is also a need for a lot of bolts on the battery pack. So altogether, a lot of new applications for us, and this is where we are working right now with many of our customers. Then second trend is around materials and what we call lightweighting. Here, you also have an extremely clear trend in the automotive industry.
If you look at the blue parts, it's what we will call lightweight material and the gray part being more traditional materials. And 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. And the conclusion for us here is that when we see the new models coming, it will be more mix of materials. So 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. But in aerospace, it's not it's different materials. The main growth is around composites, and it's around titanium. So those are the 2 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.
And when you start to combine these materials also with aluminum and steel and other things, it gets more and more complex. So here, we also see an increased need in aerospace for and 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 around 60% is related to 40% is other industries. And 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 and we are focusing on And 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. So this is one example of a very exciting industry in general industry, which we are working on.
Then if we move on to the digitalization in our customers' factory, this has a very is also a very strong trend. And 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. So 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 is can be done in a very lean way.
So we really optimize that. And here you see one of our new products that are really adapted for robotics. So it's a typical Nutrunner application for could be engine or some type of application like that. Then we still see also that there will be several and many human operators left in the production. There's still 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. But these stations is where you need the most flexibility and the work for that operator gets more and more complex. So 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, etcetera, to make sure that the result is good. Then data is very big topic for us.
It has been for a long time. But if you take a typical production line 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 this what can be the root cause?
Well, typically, you can say it's 3 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. And 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. And 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. And 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, very quickly. And of course, 1 minute stop in one of these factories costs 1,000 of euros Now this example is reactive, so it's a breakdown happening.
But of course, the focus is to be proactive, preventive, predictive in order to get to avoid this stop from the beginning. And this is also then where we are working on analyzing data together with the customer in order to find the problems before they occur. And I think most, let's say, industries are talking about this, but I think there are 2 factors that makes us puts us in a good situation in automotive to actually create value out of this and make business out of it. And 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.
And 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. So customers have asked for traceability where we have provided, you can say, database solutions to gather that data over a long time. So data is already available. And here, we have around more than 60,000 power tools, as an example, connected to this database.
So 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. So by doing that, we can keep the line running and avoid both quality problems and unplanned downtime. So if we then summarize, then I think we've had a strong year so far, good development. We have 2 of the biggest trends. 2 biggest trends is electric vehicles and lightweighting or multi material design.
Here, we are really working closely together with the, let's say, pioneering customers. So 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 work station solutions.
And it's about this data driven service that I mentioned at the end. So 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. So thank you very much.
Okay. This gives some room for a few, few questions to Henrik. And
Peter,
here.
You've highlighted Aerospace as a key customer, but how have you been impacted by Boeing's Partner For Success program and also a similar cost out program at Airbus where they're putting a lot of pressure on their suppliers? And 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 lines. That's, of course, the biggest impact. Then 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 in 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. So we have not been impacted so much, no. Okay. And the aftermarket, sorry, yes, no, but 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.
Then 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?
It was actually on the aftermarket for the entire business. I mean, we saw the increase in ratio, and 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? And 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 I mean, just something that is nice to show from the past here?
Yes. But I think it is definitely important for all of the divisions, also self gears, 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. But 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. Then, 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 and A? Or is the growth more important than this ratio, if those were the 2 elements?
I would say growth is more important. But as we've said before, I mean, we believe our DNA works well when there is some potential for aftermarket for sure, but it's not holding us back in growth, no?
And if you look at the opportunities in the coming 6 years versus the last 6, given these global trends we are talking about, hypothetically, would you see more or less sort of new technology opportunities, the coming 6 years than the past 6?
For assembly technology, you mean For the division. For the whole business area. But I think technology changes are accelerating, and I don't know if it's more or less, but I think it will continue to be a lot of exciting opportunities around that.
Thank you.
Okay. And the last question is here to you.
Thank you. This may sound like a simple question, but I wanted to make sure I actually understood what you're saying around electric vehicles. You are I hope my interpretation is correct. You're saying that you see higher demand technique from electric vehicles and 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. So that was question number 1.
Is that am I 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. But on the final assembly, there will be more complexity and bigger increase in demand. Again, then on the hybrid side, it will be all positives, altogether a positive effect over time.
Understood. Thank you. And one very final one. You opened your presentation by saying that sequentially, you'd seen a bit of deterioration in the Q3 on the top line. Was that just seasonality?
Because it has been 3 quarters that 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. Then, of course, a lot of the other businesses are continuing to grow and then we get this net effect. Again, we can say the currency also works against us here quite a lot compared to the beginning of the year. So I would say it's not sequentially down.
Okay. We need to cut there to introduce Gerd Follans from Wackentechnik. Perfect.
Good morning. So I'm Kirt Follans. 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. So let's talk a bit about vacuum. Agenda very similar to what my colleagues have presented.
We start with some facts, Then I'll try to explain you what is sustainable profitable growth and how do we do it. Then I focus a bit on certain products and the advantage it gives to our customers and then a short summary. So if you look at our scorecards, you see from a revenue point of view, we've been growing quite nicely. In quarter 3, it was 32% organically and in total, 69% on orders and 59% on revenue. And you can say that the growth is split fifty-fifty 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 pounds to decrease quite a bit. It looks like in 2017, the increase has tailed off, but we said in the previous Capital Market Days already that there was going to be some dilution from the acquisitions, and the currency now is playing against us.
But despite those two factors, because of the volume and a very good flow through, we still increase our profitability, our margin. So in quarter 3, we ended up at 25.5 percent. The drivers for that is certainly the 2 acquisitions are doing better than planned. So we are very happy with the way CSK and both and labeled. So both of them are growing faster and generating higher profitability.
Another driver is that we had started already with Edwards, but now we're doing it for Leibold as well. We're going into a decentralized structure, which moves us from 2 very centrally controlled units into more than 20 entrepreneurs globally, which drives the business, increases accountability and transparency. So that's certainly contributing to the growth we see. We've worked on agility and resilience, resilience mainly through growing the aftermarkets, yes? Agility, I have to be honest, for the moment is more a problem of agility upwards than agility dealing with a downturn.
But 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. So the synergies, mainly with Compressed Technique, are coming on quite well. And then 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 markets. And digitalization is certainly helping our aftermarket business to be more efficient, but also to create growth. So that's our performance. Just going back a little bit because we are an acquired business area, so 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. Then there were 3 smaller acquisitions, Absys Technology on abatement in Korea, innovative vacuum solutions and capital vacuum to smaller service outlets in the U. S. But then the next big step came with the acquisition of Labels, which gave us leadership in the industrial vacuum markets and strengthened our position in high vacuum.
And then 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. So through all the acquisitions, we gained over the years market leadership in all the divisions or all the segments where we are playing. And then since January this year, we became a business area because the 1st 3 years, we were under compresses.
So 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. And indeed, semiconductor is a good part of our business, the Atlas Copco Vacuum business. But 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. So 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 in also in semi, but also in the non semi divisions to have a good balanced revenue. And 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. And that's how we do the portfolio or the brand portfolio management within the different divisions.
So when you look at semiconductor, which is the biggest part of our business, we use 2 brands. Edwards is the global brand and CSK is the acquired brand in abatements, actually only playing in Korea with Samsung. So 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 labels, we have Edwards and we have Gamma, which is our ultra high vacuum, high end getter pump. There we the business can be split in 2. 1 is the analytical market, which is very much OEM based and then the diffuse market, where you talk R and D universities, which is sorry, analytical is very key account and the diffuse market, which is R and D and universities. So 2 separate fields where in the analytical market we play the best of breed strategy. So it's up to the customer which product fits best and which brands they prefer.
In the R and D market, it's about presence. It's about being on the shelf, being in the catalog and there we play all the brands. And then you move to industrial vacuum. There, it's 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.
And you see we have Atlas Copco. We have Quincy dropped off. We have Atlas Copco. We have Quincy. We have Labels and we have Edwards.
So there, there is room for more because there we can because of our low market share and because of the importance in the diffuse markets, we can do more. And 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 2. We have semi service and PTS, 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. So that on some facts and brand management. So how do we do it now? How do we manage to grow the way we do? And how do we make it sustainable?
So let me start with the purple parts, which is the technology part. If you look at the 3 brands we have with Atlas Copco founded in 18/73, labeled in 18/55, 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. So 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 and 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 evaded. So that knowledge, we call it best known methods and application knowledge, is part of our technology portfolio. And also speed to market, and 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.
So that altogether gives us the technology leadership that we need as a first part of our sustainable growth. The second part is the market leadership. We have really if you look at the different parts of our business, Edwards was really very, very good in key account management. Labels came in there with a more diffuse approach. Yes.
So the combination of the 2 gives us really that connectivity with the customer and the presence in the market. And 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, yes. So 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. So that gives us the market leadership. So we have technology leadership. We have market leadership. Those 2 allow us to take market share.
So 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 SEK 100,000,000,000 into semiconductor. If you look at particularly in semiconductor, Internet of Things, artificial intelligence, virtual reality, all new things coming up using and producing a lot of data, yes? And 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.
So going a bit deeper on 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 over investment in excess capacity. We have seen a consumer driven industry, which is much more stable, yes? What we see today or some time already is chips are getting smaller, faster, less power consuming.
Yes, so that's happening. On top of that, more stringent legislation on what you exhaust from the vacuum processes. I mentioned already the China SEK 100,000,000,000. 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.
And with our market leadership and with the technology, we take the lion's share of that. Then jumping to industrial vacuums, slightly different drivers. There, as I said, it's about efficiency. And 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.
And 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. So we have as a spin off of all the other trends very high growth in industrial vacuum. Another one is coating.
So coating is driving industrial vacuum as well. If I compare the 2, of course, semiconductor is the biggest part of our business, but the growth of this year has been bigger in industrial vacuum than in semiconductor. Organically, they're pretty similar, but because labeled 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 and D, investments 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 2 others. And then the 2 service divisions, growing nicely. 2 drivers here. First of all, you have
the installed base,
which of course grows, yes. 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 compresses, but we see the trend is coming as well. So basically what we do within the core, we take share.
So we extend our part of what we have to the core and then we attack other opportunities outside the core. And here, we for the moment, we factor products and 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. And then, of course, acquisitions. And 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.
So clearly, what we see is we have very favorable megatrends, yes. You can read what it all means, but that drives vacuum as a whole forwards. We have increased legislation, which is playing globally, but mainly in Asia, where it's more and more becoming more and more stringent, which benefits us on the abatement side. And we see a huge investment in the core markets, both in industrial, in semiconductor high and as a result in the aftermarket. So that allows us basically to deliver an even stronger market leadership.
So now I'll give a few examples on how we translate all of that now in value for the customers. And I put it in 3 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 it's also our physical connection or relationship connection with all the big customers. And 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, yes?
So at one end, you or let me just say the drivers first. Like 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 products and a price to the products, but we offer a lifetime cost. So 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. So that's a driver also for the innovation. Noise and footprints, very, very important. And then technology changes. What we see is that and certainly in semiconductor that more and more elements of the table of Mendel Eiff are being used.
It used to be maybe 10 in the past, now they're above 40. And all these have to come through the pump mainly often at a higher temperature and have to be abated. So there is really technology changes going on. So that drives our innovation. But the main thing is that you innovate, you combine it with application knowledge, yes, and then you have the partnerships with the big customers.
So it's like a positive spiral. You innovate, you know what you do, and you have the context to start the spiral again and you go further and further. And it's the intersection of those three which gives us the technology leadership that we then use to create advantage for our customers. And 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. So 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 allows us to save 50% of this gives us 50% of energy savings, a quiet operation, reduced space, increases the speed for the customer, yes, and increases the service intervals and reduces the overall environmental impact. So that's clearly where we innovate.
This did not exist before. This is our creation, an oil injected screw vacuum pump, and we are really going big time into selling them. 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. So the Atlas Copco brand goes for centralized vacuum systems in the utility room together with the compressors, where we find the synergy with compressed 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 insight. And we go really into a specific tailored solution for those niche markets. And then Labold as the last brand is then going into a more diffused industrial markets with very strong application knowledge. So 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 4 different ways with 4 different brands. And that's how technology, synergy and brand portfolio management works within, in this case, within industrial vacuum.
Then on service and connectivity, we had Fab Works before. Etcentra 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 cloud, 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 it and they can play actually and online see the variations in the different parameters. Then together with our application engineers, which are on-site, they then optimize the processes.
So we increase actually the speed of introducing new processes in the semiconductor world. That's one part. The other part is, of course, and that is very similar to what compressed technique does, is about efficiency. We monitor our data as well and we see when something is needed or when you have to do something to the vacuum pump. So there it's about efficiency.
Every big customer we have the parts, we have the pumps and the people on-site. So that's how it works and we sit in a dispatch room and monitor the performance of the vacuum pumps. And then a third point on this, it allows us to reduce the environmental footprint because we know exactly the that create the vacuum in the 2. We also know what poisonous components come in there, so we can regulate perfectly what the abatement will have to do later on. So it's about speed of development.
It's about efficiency in the aftermarket, and it's about being green within the fab, which is becoming more and more important. Then abatements, we've talked a lot about pumps, but a big part of our business is abatement. So 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, yes? And as I said, this gets more complicated because the semiconductor customers use more and more nasty materials, yes.
So abatement sits in the sub fab, often connected to the pumps in one system or separate. So what we do here is we destruct the carbon based PFCs. So we burn them off. Burning in this case can be with fuel or can be electrical, plasma. So we have the 2 opportunities.
So but we burn off the PFCs. We burn off all the flu or which is in there. We burn off all the ammonia. We reduce the NOx. And we by doing that, of course, we and then we have a scrubber to remove all the solids.
And by doing that, we reduce the total environmental footprint of the fab. This is so strong now that we are asked by big customers to come in to audit and to analyze and sell abatements even on non Edwards vacuum pumps. So that's abatement. From here, I jump to China. Because China is moving so fast for the moment.
There have been dominance in flat panel. So most of the LCD and OLED flat panel screens are made in China. It's between China and Korea. But China has now committed first of all, they're investing hugely. They're investing $100,000,000,000 in trying to get their foot into the semiconductor industry.
At the same time, they have committed to following the global legislation on the environment, Yes. So they have committed to reduce their CO2 footprint. So 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 Signing. And then going a bit deeper in vacuum in China and the SEK 100,000,000,000 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 $100,000,000,000 investment. So the Chinese are really committed to take their share.
There's the biggest user of ICs, so they want to be the biggest producer of ICs as well. The one in red is the one we took already. We are 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 2 years ago, we started to extend our sales channels and we started to extend our application knowledge within the country.
So now we have one of the strongest themes in China on selling and advising on semiconductor. The other thing we are doing for the moment is we had 2 industrial Changjin, one in Qingdao. We are now moving industry towards Changjin, 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. So 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, yes?
And then because we have the engineers and the production in China, it allows us to make China focused products. So we're really we've taken the first part and we're really ready to do more in China. Okay. So that was it. Just as a summary, the market trends are very positive.
But 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. And the fact that we now have the 5 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.
And we really believe that the strategy we have is sustainable. So that's my part of Okay. A lot of
questions on back. Before Mats will summarize the full presentation and we can move over to the big Q and As, we have some questions for Gerd, and maybe we can start with 4 questions. I'm there. You haven't been asking, so
Can you just tell us how big is your abatement business versus the pumps business?
We don't report figures on divisional level, and this is even a part of the Semiconductor division. So it is smaller than, of course, the semi because it's part of semi. And you could say the total market is about 1 third of the pump market. And we have a nice share on abatement. That's about as far as I can say there, yes.
And you talked about the miniaturization being a key driver for the semiconductor business. 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, yes? In EUV, now there is a very high vacuum content. So that's a positive, yes? Of course, because of EUV, you will have less masking and less process steps probably in making the chip. So that's the negative.
But for us, the positive of EUV outweighs because it has a very, very heavy pump and abatement content. And as we said before, we have partnered with ASML, who is the only producer of EUV to take the share in EUV. So EUV is actually today a growth factor rather than something that diminishes our business.
Over there, please.
Just a question on China as it feels like it's moving at quite 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? And tied to that, what exactly you're 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. If I talk because 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, yes? And now because of the SEK 100,000,000,000, the semiconductor is coming on top of that. If I look at industry, our main competitors are present just as we are. So 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, yes?
This is on the low end of the markets. So if you take the high end of the markets, it's still the traditional European competitors that play a normal competitive game. So 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. And Japanese competitors have always been a bit more price aggressive.
But we manage to do that and take reasonably good share in flat panel business, yes? So but there, you compete with other parties. If you look at the new semi now, I repeat what I said. We took the 1st big order at normal prices. So 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 €10,000,000,000 to build, about 2% maximum of that is vacuum equipment. Will you risk and take an aggressive path on those 2% to risk your €10,000,000,000 investment not to function? So we are in an area where we sell the reliability, we sell uptime, we sell application support, we sell technical support, We are close with service. So I wouldn't say it's as competitive as in the commodity business. So 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, But can you talk about the opportunities that you also see relating to the actual pump also in semis? We heard from Pfeiffer this quarter that they said that in addition to vacuum pumps, they're also selling more sort of components. They've done this NorCal acquisition that helped them to expand the portfolio. So are we talking valves, electrification?
And what kind of opportunity is this? Is this a €1,000,000,000 opportunity or real small add ons?
It's a big opportunity. And it plays, I would say, mainly in the high vacuum area, and that's where Pfeiffer went into NorCal. I'm looking forward to see the effect on their results. This is an opportunity because in high vacuum, today we are mainly a pump supplier, yes? We want to add components to that and go from there into systems.
So that's very high level the strategy. Today, we factor the ancillary project products. We buy them in from there's different suppliers on the market and we brand them. If you look at valves, valves is a different story because of the very high dominance of one specific Swiss player in that market. So you go with them and you can try to do something else, but they're so dominant.
So 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.
And 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. We mean temperature management and temperature control. We mean basically anything which sits around the pump or around the chamber. But there, we are factoring for the moment.
Okay. Lars?
Thanks, Gerd. Just a quick follow-up and then a question around added urgency on the downward trend rather than the trend. But just I just want to make sure I understand you said it twice, but I want to make sure I understand maybe for the 3rd time. Your organic growth in Industrial this year is on a par with vacuum sorry, with semis. So that's cruising in the mid-20s.
Has that accelerated through the year? And 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 labels has contributed that. But 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.
So I'm positive about the industrial vacuum continuity, yes.
That's exciting. Can I ask you separately on the agility on the Dowango trend? What can you help us understand what are the key levers here to lower your breakeven point? And where are we on this journey? You've obviously been very busy working away on the upturn.
What have you done to lower breakeven points? What are the key levers from a supply chain standpoint? I think historically, we've talked about 2 thirds of components in a pump. Is broadly similar with a compressor. What have you done around manufacturing footprint?
Or what could you do?
Yes. There and 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. So if I talk Agility downwards, if you look at our balance sheet, and Hansola mentioned it briefly, we have the thinnest balance sheet in the group. So from a working capital, we can always improve, but 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.
So 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. So
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. Then 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. But we are pretty 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 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 here.
But 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 put in there? And 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, yes? So that's why we decided to double the factory in size in China, to double the factory in Japan, in Hina for the turbos. And in Korea, we have created more assembly space by building a mezzanine. So the investment is there to 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. So we're putting 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, I mean, when you reach a certain level, say, you can gain a lot of efficiency if you go from £300 a month to £600 a month. But if you go, say, from £1500,000 to £2,000,000 it's a little bit asymptotic. So 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.
And then a follow-up. You mentioned synergies 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. The synergies, and I explained that last time, are from a technology point of view. So the future product I showed the example of the GHS VSD Plus, so the screw pump. There, we are already in the 2nd 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. So that's from a technology point of view. We have one pool of technology and use the factories and the R and D to do platform designs, model a platform design. So that's one thing.
The other big part of the synergy is the cross branding of products because when you look at Edwards, you look at Atlas Copco, you look at labels, 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. So that's actually next to technology today the biggest part of the synergies. So synergies, I said that the acquisitions do better than expected and that's part because the synergies are really going well. Okay.
James? Not quantifying them, sorry.
Question on semi CapEx and one on margins. So semi CapEx, if we take the top 30 players, has grown at something like 8% CAGR in the last six or 7 years, and it goes up about 25% this year. It's been a big spike. To what degree do you think that is Samsung and iPhone related? And what do you think the growth in semi CapEx looks like next year at a global level?
And 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 because every quarter, every quarter we get new figures and they're totally different to the previous quarter for the same quarter. If I look between quarter 2 and quarter 3, for example, there was a SEK 5,000,000,000 extra CapEx being promised mainly by Samsung and by Hynix. And that's just moving from quarter 2 to quarter 3. I guess we will end this year and this is public figures, you can find them. We will end this year around €80,000,000,000 to €80,000,000,000 investment in semiconductor, yes?
So I think that will be it. If you look at the semi organization, so the global semi association, they say it will grow about 5% next year. If you look at VLSI, another body that predicts, they say it will grow 12%. So I think both will be wrong. And 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.
But there is a consensus that the SEK 80,000,000,000 probably next year will be bigger. And then you have 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 LIBOR because we can see it from the bridge. So it looks to me like the Edwards margin has been running 30% now for 4 quarters, and we've gone up from 7% or 8% to 17% or 18% for CSK and LIBORT. To what degree are both of those two numbers sustainable as we roll into next year? Because 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 2 quarters of the better margin in CSK and LIBOLT.
And I thought as that laps 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. I would just say we are at 25.5% now, and it's a mix of the 3 brands and the acquisitions are doing better than expected. So 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. And but I wouldn't like to comment more on that.
And that will end this session and Mats come up and summarize, and we'll have a Q and A afterwards.
So David will soon be back on stage again for some Q and A. I was thinking sitting there, what do you actually get when you invest in Atlas Cocco. And I think one of the things that you've seen and that you get very good leadership, And they don't only lead the company. You can see that they are very knowledgeable about the customers, processes, products, and you can almost ask them anything. And below them, you have the 27 divisions with very dedicated and passionate leaders that has also been in the business for many, many years, and they've been trained in the Atlas Copco systems.
And 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. And the other thing is that the 27 divisions, the Saman says, well, when the Board would like to talk strategy to me and Hansoula and the team to say, well, there's 27 different strategies actually. But there are a number of things that keep us together, and we have tried to be transparent today and really focus on those things that keep us together. And one is the people, the people management that we discussed a lot.
And the other is the extreme focus on customers and the extreme focus on bringing true value. It's not a marketing thing. We really go to customers and prove what our products can do. And that mission is very, very clear for our R and D people. So that's one of the things that I think we are very, very strong at.
You have also looked at the agile operational model. It took some time to go through how we and 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. And 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. And we will and you can see today that there's a lot of initiatives around digital, and it's not far ahead of us. It's actually happening now. We do the analytics.
We help our customers to get more uptime. And you can see from Sofia's way, we try to do this in a very sustainable way in the company, and that actually attracts a lot of people to join the Atlas Copco Group. I hope you enjoyed the presentation, and I'm going to give the last 15 minutes then for Q and As. So Gerd, be ready.
I think we start right away. Claus, you have a question here?
So 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 and D and to be early in the sales process with your customers. You have invested in the sort of fleet in the street and in R and D above peers for many years. But do we see a need to ramp R and D further, maybe above 3% of sales and to put in more salespeople? And 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. And 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. And we need to enter into that process much earlier, and that is why I'm so focused on learning the processes.
So 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 sort of talk about R and D, yes, I think it's likely. Then you see more and more software products. And if you benchmark with us, an industrial company, with software companies, you see that R and D budgets are in relative terms normally higher. You see that in industrial technique, which I mean, I think it was 2%, 3%, I think it's 5%, 6% now.
And that is the software side. When you go to Naka now, there's 300 engineers working in industrial technique. And before it was mechanical engineering, electronics, and it's 300,000,000,000. 150,000,000 out of those 300,000,000 are pure software today. So 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.
But is the mix shifting rather than the absolute level in relation to rent? Mix between software and maybe just putting in into sort of equipment
I'm not sure if I'll leave that, but
Less mechanical, more software, it's not 33% of sales.
If 50% of the R and D are working with software development and that we didn't, yes, we will invest
more. One more promise, one question for Henrik. Also M and A, talking about the Gs and Dara, it feels like EV is already a very good fit with Handroeb and Schucker. But what else can you do? And I'm thinking about the battery, the rack, the importance of increasing the stiffness.
So outside of your current portfolio, when you look at your 10 to 15 targets or maybe it's more, around the battery and the technology, what can you do in terms of M and A in expanding that business?
Yes. No, you're right. There are more opportunities out there. I think you can look at the assembly methods. You have more chemical joining, you have more mechanical joining and then you have the threaded fasteners.
Of course, there are areas out there and we are looking for the areas that are difficult to handle, that are really critical in the processes of the customers. And then I think you can look yourself which those could be. So
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 and say what could be good for us, what could be profitable, where does the customer have real problems for the future. And 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, etcetera. So there is a lot of bunch of technologies needed for the future to put the car together and other products.
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 Henrik sorry, I meant Helena and Gert about what potential there is
to own more distribution. Is that part of the philosophy?
And I know, obviously, other brands in compressor sorry, in vacuum, I don't think you do.
No. Vacuum is this on? Yes. Vacuum is mainly a direct market. I think the only area or there's 2 areas where distribution can come in, and that's on the high vacuum, where you have the catalog products, which will move more and more to online business.
So 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. So you need very good competence in the distributor to enter that market. So instead of distributors in the industrial market, what you see more is little engineering companies.
So they do the vacuum, they make the system commissioning and installation. So that's it's not the normal distributor as you would have within compressed technique, But there is opportunity to improve both in the high vacuum diffuse markets and in the industrial market, yes.
So what proportion of the industrial vacuum market today would
be indirect? It's not material. It's small.
But these small distribution these small engineering companies?
It's engineering companies, yes.
They're independent, aren't they?
Yes.
Yes. I mean, could you
be acquiring those types of companies?
There is of course, we look at all the channels, so there is a possibility that this is part of an acquisition strategy because they are like little systemization companies.
And 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, but then it's for the smaller segments, the smaller customers. But we also see the opportunity then to develop digital e commerce solutions to reach out to the smaller customers.
So I will say the majority is direct.
Okay. The direct approach have helped us to develop the service business in a very good way, which has not been able by distribution to take that transformation into something more value creating.
Lars?
Lars from Barclays. Hansel, I have to come to you. You had 3 slides on capitalization without saying a huge amount if I can be so blunt. Can you help me understand? I think 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. Okay. Last year, you had a ready for more slide that stuck out for me, euros 20,000,000,000 you could lever up, you said, without impairing your credit rating. You really expanded on your M and A appetite last year. We've seen vertical.
Can I would it be fair to say that the scale and magnitude of M and A has disappointed a bit since last year? Or where are you in terms of thinking through M and A versus distribution? And maybe finally to that, what are your thoughts around credit rating for ABiROC? I know you said it will be investment grade, but can you try to fine tune your thinking
about that?
Can I start and then probably there is on the more broader M and A appetite, it might be also some comments from Mats? But 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 and A capability. I mean, 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. So 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 and A in Atlas Copco and I hope it never will. So the key thing is to show that don't hesitate, don't doubt that we can do, but 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 what where we want to go. But we want to be ready to do it whenever. If it's a shining bright day or if it's a rainy day, it doesn't matter.
That's a little bit what I meant with that. On the rating, yes, again, if we don't show a balance sheet, I shouldn't even pretend to talk about specific rating. But yes, we share the same history I said. We want to be seen as a financially strong business. That is about ratios.
Then 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. So that also plays in. But from a comparison point of view, is this from a ratio point of view, a strong company? And 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 GARTS business then, we have had 2, 3 years very dedicated to integrate these two companies. And principally, we work a lot with from a centralized organization to really get the speed in product development and work with customers. So that has been his mission. We have not had acquisition on top of his agenda.
But now I'm stuck pushing, right? Yes. Because 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. And in Helena's case, being rather new in her position, I
think you had a great
opportunity to include the fossil free, the digital. And 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 it be fair to say that? Because it's not so profitable.
It doesn't add so much value. So it's very dedicated what we would like to do, but I think the strategy is there. And when it turns into Epiroc, I think it's set in principally. And for Henrik or you can 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. So that's why we stand right