Welcome to the Iraq Q3 Results Presentation. We will follow the same format as we always do, which means we will start with a brief introduction of the quarter presented by our CEO, Pauline Bey, and then our CFO, Anders Lindyen. And then we will move on to the Q and A session. And in this session, we will be grateful if you just restrict yourself to one question. And if you have follow ups following this presentation, you are most welcome to reach out.
To me or the team for further questions. And with that, Per, please present the results. Thank you.
So, and welcome everyone. And it's a pleasure to be here. And let me dive directly into the meat of quarter 3 and start with a focus on the areas where I think we see a continued strong and good development. First of all, strong aftermarket. We do have continued good fundamentals with high activity.
And that means high production activity. And we also have that in combination in mining with still a good, mineral prices So fundamentals are still good driving our aftermarket and not at least our service business. Also have a solid development of our underlying margins. We have a revenue mix that is positive. We do have some one off that is affecting the quarter due to restructuring, but I think we maintain margin that we saw in quarter 2 and we're quite happy with the level that we're at at the moment.
We also have good cash flow, and I think, and that's something that we hope will continue also for the rest of the year. And it's good to see that we are the actions that we have taken when it comes to working capital or has given effect. Also very good to see that management and not at least for battery electric vehicles. So several areas with continued strong and good development. Of course, we also have our challenges.
The order intake when it comes to equipment was lower than expected. We knew in quarter 2 that typically quarter 3 is slower than quarter 2. And this is also something that we highlighted last quarter, but actually the demand for equipment was lower than we did expect. We've seen a continued increase of uncertainty when it comes to economic development. We see also our customers being somewhat hesitant to deploy capital and they tend to postpone or delay decisions.
So that translates into a relatively slow order intake for equipment, as mentioned lower than we did expect. What we do is, of course, we adapt to whatever scenario that we have. And we've done that from really we do that continuously. And we've done that throughout 2019. And now we're intensifying that adjustment.
And so we're taking action to improve resilience, but also safety. That's a continuous ongoing work. And as you've seen, we've done a restructuring tools and attachments. We also have some other actions that we will undertake in order to adapt to the current scenario. So key financials, order intake and revenues up slightly, but if we adjust for or for currency and and the acquisitions down organically and orders down 6% organically, of course, on the back of the a low order intake for equipment.
Operating profit up 2% in absolute terms. Currency and acquisitions also contributed here, even though currency contribution was relatively minor as compared to last year. And again, we have restructuring cost of SEK 179,000,000 for what we're doing in tools and attachments, restructuring that business. And we're we will continue to do adjustments of this the structure in Tools and Attachments and the costs taken so far again is SEK 179,000,000. The reported margin, 19%.
If we adjust for the restructuring cost and long term incentive program, we're at 29, 21.3%. But actually, we can also adjust for some other one off, Sandrej will elaborate later. And where we end up at 21.7% and that's pretty much on par with what we had in quarter 2. So Again, margins, I think we're doing reasonably well. As mentioned, the cash flow is strong at SEK 1,900,000,000.
Now innovation is clearly a theme that we continue to emphasize. We do have strong interest, continued strong interest in the solutions around And we have several orders for these solutions when it comes to automation and information management. And in conjunction with a very large, service order that we received in Chile, we also have possibilities to implement automation. And that really demonstrates our capabilities when it comes to automation and certainly also when it comes to deploying our machines connected and when we mentioned the number 2500. And now we see an increase of well above 10% of connected machines And now in quarter 3, so that number is increasing rapid.
It's very good to see. We also had very strong interest for our battery equipment solutions. Continued interest. And on the picture to your right, you see the scoop tram and the mine truck, yeah, 42, and at Kittila in Finland. And as you know, perhaps the batteries are supplied by Northvault and that gives us an opportunity to minimize carbon footprint And also with ambitions on Northwell to increase levels of recycling of batteries, I think that's a very good development in general.
With also launched Scoop Tram Automation Total, that's a information and fleet management system that really allows the management of several machines simultaneously, and that's a good development for us to offer further solutions when it comes to automating Fleet on the ground. Also launched, mobile address on board. That's a real time awareness system or situational awareness system that really don't need a tracking infrastructure I don't know exactly how they do this, the technicians, but they do it. That is fantastic. So it's really good to see this has been launched.
And we also launched new power bit underground, which is a new series of power bits or drill bits that delivers up to 37% more drill meters per bit. So several new innovations, and again, that's very good to see. Operational excellence, of course, we this is something that we always strive to improve. And we have we're really increasing the intensity of the adaptation of our costs We have already, this year, reduced the workforce with roughly 500 people organically. And this is primarily manufacturing.
Now the increasing intensity means that we have identified further improvements of our cost base and primarily targeting indirect cost in administration and marketing. And the this is starting to be carried out as we speak. And we expect to see full effect of this in the beginning of next year and as it says here in the first half of twenty twenty. Now the magnitude of these savings that we now also implement in the indirect cost as we think is going to be above SEK 300,000,000 in effect SEK 300,000,000. And we will also have a restructuring cost between SEK 50,000,001,000,000 as a consequence of these actions.
We also continue our, restructuring of RDT. As mentioned, we have divested geotechnical consumables. And we also, restructuring the handheld rock fields in China. And we also, as announced earlier this week, we have sold off a facility in Sweden for also handheld rock drilling tools. So this restructuring is ongoing.
With also, of course, work with our supply chain program. This is something that we as a long term initiative and that progress is according to plan. And also in the line of efficiency, as we also have announced, we are expanding a production facility in Odebru. And the reason behind that is to consolidate production, increase efficiency and decrease production cost. Sustainability continues to be something that is really close to our hearts and it is we believe a competitive advantage if we do it right and we think we do rate.
We work with safety and well-being. We have we continue to roll out the program safe start throughout our operations. And we also see a positive trend and reduction of work related injuries. Of course, a good sign given that this is a of high importance and a key emphasis of ours. We also we have also launched an initiative called SpeakUp which is really an internal or a system, which allows any employee to highlight any any wrongdoings internally, if that would happen, and which means that we also emphasize the ethics in the company.
And I think also we've already seen higher activity in terms of highlighting issues internally, not something is terribly wrong, but it's good to engage all of our employees and the management of ethics in the company. We have also gathered all the key leaders in the company and the quarter. In order to align ourselves when it comes to expectations going forward in terms of efficiency, in terms of results. And I think we do have a very passionate team. Going forward.
And it's also very good to see that we're fully aligned in terms of what we want to achieve into next year. And finally, when it comes to sustainability, of course, the responsible use of resources, a key feature of sustainability. Certainly for us as well. Now, we do have a high proportional recurrent business, and that's really the graph to you right as you can see, 68% of our businesses aftermarket should be compared to the 63% quarter 3 of last year and 66% in quarter 2 of this year. So, the portion of aftermarket continues, and that's not certainly bad thing because aftermarket is a profitable part of our business.
So going into our segments, equipment and service, first of all, orders received down 4% and the mix is really between service and equipment, of course, service up 11%, very strong. And it's worth highlighting that, of course, service is the key part of our business, the most profitable part of our business. So 11% growth is very, very good to see. And of course, that's on the back of high customer activity, high production, high intensity of service, And we expect, of course, our service volumes to continue at the high level going forward. Equipment orders, as mentioned, down more than expected.
And 27% down versus last year. And as I mentioned, the investment decisions tend to be postponed in the light of the current uncertainty. We've also seen a cancellation of a large order and that the magnitude of that is roughly 5% of equipment turnover. It doesn't affect the orders intake all that much, but nevertheless, it's worth highlighting that this is part of the the orders received, that's cancellation. And it's worth commenting also that we do have be between quarters when it comes to equipment demand.
First of all, it tends to be lumpy and again, the variability is between quarters. So we think that the minus 27% and where we're at right now in quarter 3 main necessarily be representative of the market as such. We when we look at the pipeline that we have of potential orders that still very strong. So again, we feel that our possibilities to continue to work with the improved the equipment orders is there, but we have to see. Still uncertain in terms of where this is going to go.
Revenues up 2% supported by currency and the margins, again, worth highlighting 26.3 percent, very strong. And not the least on the basis of a revenue mix trending towards service rather than equipment. Tools and Attachments, orders and revenues up 16%, 70% and if you back out currency and acquisitions, down 3% primarily impacted by the optimization of product offering, I. E. The voluntary step down from some from business in rock drilling tools for profitability reasons.
But we're also seeing a an organic decline of volumes in hydraulic attachment tools, and this is on the back of a decline of the volumes, the end and the user volumes and also adjustments of inventory in our dealer network. Margins at 5.7% and not that impressive, but we, of course, if we adjust for the the restructuring costs, we are at 12.2%. Also, again, worth highlighting is that we do have a collection claim versus a distributor that have engaged in financial irregularities. And this is now a court case, and we have made full provision for the amount of SEK 41,000,000 as well. So that's including an and the profits, of course, also.
So that's the initial summary, Anders, I leave it now to you to go through details.
Yes, some more details about the, financials. Parr has, quite well explained the, the, the overall picture, this, I would say, the underlying profit is solid. As you see here, we have the non comparable items of SEK223,000,000, which we have described If we adjust for that, we are at 21.3% and also this collection claim that was mentioned if we look at that as a one time item, the profit becomes 21.7. So The underlying profit is solid. If we look at the If we look at a little bit on the bridge, the details here, coming from last year, we reported the 19.0 Obviously, with the bridge, we had a negative effect year over year from the structure, positive from the organic altogether arriving at the 19.0.
With the non comparable items than the SEK223,000,000,000, the SEK 179,000,000 for restructuring,000,000 that we have described and the 54 change in provision for long term incentive program. And if we then add also the SEK 41,000,000 for the collection claim, we are at the SEK 21,700,000 that you see to the upper right. It means a 16% increase of profit in value. A few more words about the segments, from equipment and service. Good, good flow through, continued.
We, you know, we prefer to talk about year to date flow through rather than quarterly. It can be quite difficult to take a single quarter. And we elaborated on that during the Q2 call when when you have the nominator and denominator, sometimes going in the wrong or different directions. It's good to see for the equipment of service that we actually improved the flow through year to date. We're now at around 33% flow through.
And obviously, that was helped by the mix and good service growth that describe the 11% organic growth. So obviously, a mix effect here, but solid and, good development organically for equipment and service. Those engagements I would say all in all, the underlying profit is largely unchanged compared to last year. There is a, if we do it a little bit more sequentially, there is a seasonality mix with a little bit of less of attachments, which is normal, We still have good flow through. It's good if we then adjust for the claim that we have described we're largely on the same level as we were in Q2 year to date.
So, although here, we obviously can understand that there are a little bit more difficult to follow with the non comparable items, but the underlying activity is good and also the high level of action actions that we have announced recently, which you have seen in a couple of press releases. So That's the good development also. On the cost side, You can see from this, the bars here that, which is normal, the Q3 is typically a little bit lower than the Q2 activity level vacation periods and so on. In these bars, we have excluded the long term incentive program, provisions as usual, and we've also taken out, restructuring costs. And this is the part of the restructuring costs that we put in the administration marketing and R and D.
So it's the 62. So Having said that, we can see that we there are signs of our ongoing activities, giving some effect we don't increase anymore in the number comparison year over year. Obviously, we have an inflated number from a positions and currency and that together is about SEK 110,000,000 if we want to compare quarter over quarter. If we look at the net financial items, the increase largely quarter 3 this year compared to quarter 3 last year has to do with our acquisitions where we We have, funded them in foreign currency. And with that, we also, hedge those loans and the 2 good sized acquisitions that we've made earlier this year.
And part of that hedging goes as interest costs and that is the majority of the difference here. On the tax expense, we have a higher effective tax rate. As you have noted, the underlying tax rate is still below the 25%. We have core taken the cost for the restructuring as impacting the tax rate as a non deductible, but the underlying rate is still where we want it to be. Some words about the capital structure, net debt, SEK 2,400,000,000.
And of that, 2,000,000,000 is related to the IFRS 16. And this is largely what we've had the last two quarters, the Q1 and Q2 where we started to implement this according to the regulations, So we had a good cash flow in Q3, which I will come back to and elaborate on. We also in Q4 will, pay the dividend, which is approximately SEK 1,200,000,000, the second part of the dividend will be paid out preliminary on November 4th with the, excluding the right on the 29th October. But the cash flow item in Q4. If we then look at the capital efficiency a little bit more, then the net working capital in nominal terms is up 12%.
But if we try to look at the numbers behind 11% of that 12% is related to currency and acquisitions. So only 1% is, you could say, is organic and in the light of the revenue development that gives quite a different picture than just looking at the nominal 12% If we look at the return on capital employed at 29.5 percent, we still have around 1% impact from the IFRS 16, if we compare year over year last year when the IFRS 16 was not implemented. And that is, pretty stable since Q1 and Q2. So I think you recognize that comment. Cash flow, we had Good, good cash flow in Q3, both year over year and sequentially.
The SEK 1,900,000,000 It's not the best quarter we've had, as you can see from the graph, but it's, it's one of the 2nd best to be more precise. Inventories are going in the right direction. We had also strong very good collection in Q3 that was, largely then out balance by production in payables, which is normal that time of year, we see that every year, and also to some extent, impacted the reduction impacted by a lower activity on the capital equipment side. But overall, strong development of the cash flow and, which is good to see that the trend is as expected. So with that, I would like to hand over to Per again to do a little bit of all the summary.
Yes. Thank you, Anders. Okay. So, quarter 3, a quarter with several areas of strength for the company. We do have, strong aftermarket it, driving, driving, not least service, service is highly profitable, a growth of 11%.
We are very happy with this. And also this, the aftermarket is certainly driven by strong fundamentals in terms of high levels of production, good mineral prices, and that's a very certainly very good sign. Good margins, good cash flow, high interest for automation, but given that we also have challenges when it comes to orders for machines. And that's on the back of uncertainty, cautious behavior, our customers delaying orders And the consequence of that in turn is that we adapt. And we have continued to adapt.
We will continue to adapt to whatever context we have. But we also have to realize, I think, that fundamentals will prevail. The fundamentals are still strong. So I certainly hope that there is an upside going forward when it comes to machines rather than anything else, but we cannot guarantee that. So looking at the demand expectation, we think that demand will remain largely at the level seen in the third quarter.
And that being said, the economic development continues to be uncertain, which is pretty much what I just said. It is difficult to say exactly where will end up in a specific quarter and that it's definitely the case also for quarter 4. But again, fundamentals are continued to be strong. So with that, we also turn to our Capital Markets Day. I just want to highlight and remind everyone listening that There is a Capital Markets Day, 14th November, here in Stockholm.
And registration is open for those of you that have not decided As of yet, please decide and join us. That would be very nice. I think it's going to be a good event. And now Q and A.
I think it's all clear, but I'm pretty sure there are some questions on the line. So please operator, would you mind starting the Q And A session?
We have a first question from Klas Bergelind from Citi. Please go ahead.
Yes. Hi, Parendesh, Klasen Fifty. My first one is on the cost adaption. The 500 people in manufacturing last couple of months, this is outside of tools and attachments. What kind of savings we talking about here?
And are you planning to push through any cost actions also on the OpEx side or is this manufacturing all in? And maybe squeezing in also how the margin will be impacted by the divestments and closures in tools and attachments?
Okay. Well, 1st of all, the 500 is a reduction from year from the beginning of the year. So those, the effect of that is all in the numbers more or less. Certainly, we've seen also a reduction in quarter 3 But the key and then the main bulk of that reduction was actually done prior to quarter 3. Now again, as we mentioned, we have additional initiatives, starting pretty much right now or in the end of quarter 3 going forward, we expect that to deliver above SEK 300,000,000.
And again, the effect starting next year, beginning of next year. I think that's what we're trying to say. And again, just remind you that I also mentioned a restructuring cost for the latter SEK 300,000,000 between SEK 50,000,000 SEK 100,000,000. So that's really what we're trying to say here. And the margin effect of the restructuring tools and attachments, yes, there's going to be a margin effect.
We have decided to divest the ground engineering. We've also we're also divesting the handheld business in Okylbo. We're also divesting part of the business in China and we're also closing down part of the business in China when it comes to handheld tools. And all of that will have an improvement will mean an improvement of margins and of course, but also a drop of top line. As a consequence.
Okay. Makes sense. Maybe to add, I think it's worthwhile to remind that our operating model means that we do have a fair amount of temporary and what we call additional workforce and temporary employees, which means that we constantly or continuously review the work force. And that's why the 500 may look like a big number, which it is, but it's also part of the way we operate. Try to adjust.
Yes. And we don't see that as a sort of a major restructuring program.
Oh, I get that. The second one is to understand the common pattern hesitations on larger orders with underlying activities still being healthy. You, of course, don't announce all large orders, but just so we understand what is underlying demand. The equipment orders that you have reported this quarter, are these what you would say is underlying adjusted seasonality and if seasonality is perhaps 5% quarter on quarter adding that back, just to understand what is underlying X large
Well, that's a good question, but also very difficult to answer, I would say. I mean, how to define underlying orders If we look at the $2,700,000,000 that we are in terms of orders for equipment in the quarter, That's pretty much in line with the average over the last, I think, 10 years, if I'm correct, right? Yes, they say. So maybe that's an underlying level then. And the number of large orders in Q3 was we're not we didn't have, I think we had 1, basically.
And that's we always have 1 or may on last year, we had several But, you know, and that's this tends to vary between the quarters. And so I don't know exactly what this answer means to you, but I'm trying to established, I think that maybe we're at some sort of an underlying level in the quarter, maybe. So difficult to define.
All right. My final one is on equipment and service. Would you say it's more mixed this quarter helping the drop through last quarter, the doctor was pretty good because of both mix and productivity. Would you say it's more mixed this quarter? It looks like it maybe sounds like a 2 detailed questions, but want to understand how productivity moved in the bridge versus the second quarter then?
Yes, I would say a more of a mix issue than a productivity issue. But
No, it's, you're right. It's a detailed question, but the mix has certainly helped and, we you can see also from the revenue going quite significantly between Q2 and Q3 to the aftermarket side and even though we don't disclose exactly the margins in the in the segments, you know, fairly Well, that it's, it's quite a big difference between the 2 parts of the segment, equipment and service.
Thank you. Next
question from Guillermo Pinier from UBS. Please go ahead. Good
morning. It's Guillermo Pinier from UBS. I want to, get some grant rights in the hesitation that you commented on. Is there any way you can share with us if any particular region or any particular mineral was more it then, so to say?
Well, I, I really don't think so. I think what perhaps stands out is gold where the optimism has increased over the quarter and that's obvious, I guess, given what has happened to gold prices? We've seen quite a significant uptick in the exploration activities in gold, but that's exploration. When it comes to, the uncertainty and hesitation, as you say, I think that's visible throughout to certainly not, any particular region that stands out. One thing that perhaps should been mentioned, we mentioned that also in quarter 2 is that China is doing really well also in quarter 3.
So, the Chinese do not seem to hesitate at the moment.
Thank you. And with regards to a particular region, Chile, there's been certain volatility from a political environment from a social environment. Have you seen your customers there preoccupied about the stability of the country or all seems to be working from a mining company companies there?
Well, we haven't, you know, I have no report. I mean, we get dealer reports, from from the our customer center there, but to have no reports of anything happening specifically among our customers. The only thing that has been affected is we did have 2 seminars planned this week in Chile, one around rock drilling tools the other one around the underground automation. And one we did follow through and the other one, we postponed to a later date, and that's the only impact so far that I've actually heard.
I think it's fair
to expect. Sorry.
No, I think it's fair to expect if this goes on for a long time that obviously will have an impact also on customer activity. But Yes. But we don't know that.
Yes. And then last question on cash flows actually. If you look at the progress of cash flow developments, if you also imply some progress in sales, evolution and so on as we see the year could well be that by Q4, you're practically a levered with almost a net cash position unless obviously there's moves that are missing here. But obviously, you're not really participating in large or mid scale consolidation projects at the moment? Is this an indication that I'll very solid and reached cash flow statement could actually end up with, shareholder returns in some sort of way.
Well, I, I think that speculation, and I, it's something that we, we, we, We can't comment on.
Yeah. But also, I mean, we just a reminder, we're paying the second half of the yearly dividend now in November. Which is 105 Swedish Crowns and it's 1,200,000,000 shares. So that's some cash flow there as well. And but you're right.
I mean, we don't participate at the moment in large scale consolidation. So, and we have strong cash flow. So at the end of the day, this is going to be beneficial to our customers one way or the other. No, not the customers, to shareholders, I mean, shareholders.
Don't give money to customers. No,
no, shareholders.
All right. Thank you.
Thank you. Next question from Eric Carlson from KPI. Please go ahead.
Hi, thanks for taking my questions. A little bit surprised about your commentary about weakness in infrastructure. Could you just elaborate a little bit what you're seeing then?
Well, our infrastructure market primarily is North America and Europe. And typically, Q3 is slower than other quarters, but this Q3 was slower than last year's Q3. And I think what we're looking at is a slowdown of activities related to the use of our machines. I mean, that's pretty much what we And of course, also hydraulic attachment tools, 100% more or less 100% infrastructure. And we also see a slowdown of end user demand.
And as a consequence, that has kind of a whiplash effect on our division through the reduction of dealer inventories. So these are the things that are happening. Or happened during Q3. And, I think that's pretty much how specific I can be at the moment.
That's very helpful. And the second question, if I may, how would you characterize your current inventory levels?
I think we, should admit that they are higher than what we want them to be. And that's also one of our focus areas to address. And I think we've talked about that and we do see that they are trending in the right direct to know. And, we expect it to continue that way.
Correct. And, but I just want to add to that that we don't have any inventories of, of machines, just standing around. I mean, we produce 2 orders. So we don't have a huge inventory of of machines standing around, as I said. We have inventory in transit and that's pretty much it.
Yes. And maybe to elaborate on that obviously with the business model we have with all the direct sales, we and with the let's say where our customers are and where our production facilities are, then obviously the transit part becomes a big number.
Thank you. Next question from Alexander Virgo from Bank of America Merrill Lynch.
Hi, thanks very much. Good morning, everyone. I wonder, could you just expand a little bit on 2 things? The first one, I wonder, can you explain how much of your own actions is weighing on the organic decline in rock tools. Obviously, I understand that you're actively moving away from lower margin.
We're trying to move away from lower margin business. So just wondering quite how much of a handy cap that is on the top line. And then on the second point, I just wondered if you can explain a little bit around this customer cancellation of the order. What exactly is that? Because your order equipment development has been markedly different than I think what we've seen elsewhere in the market.
I'm just trying to understand what you believe to be driving that
Yes. Oh, okay, good. The first the answer to the first question is about 3%. And the answer to the second question, the order cancellation is, we think we've certainly been looking at this We don't think it's an indication that all of a sudden we'll see massive cancellations across the board. This is related to a contractor, and this contractor has had the financial difficulties It doesn't have anything to do with the development of the mineral that they are engaged in nor the mines that they are engaged in.
We think it has to do with the management of this specific company rather than anything else. So it's not related to anything beyond that. And this contractor is a European contractor active in another part of the world, basically.
Right. And I guess on the first point, how much longer do you think how much longer do you think that headwind is something that we need to think about in forecasting the growth of T And A?
Well, I think we probably will continue to do this for the foreseeable future. I mean, this is this is something this is pretty much like the adaptation of our cost base and workforce. We also have to adapt to to the profitability of our business and not engage in unprofitable business. But when it comes to comparables, that will decrease over time. I think we started doing this end of last year, perhaps
mid, mid or Q3?
Yes, something like that. So the comparables effect should decrease come next quarter.
Okay, that's helpful.
Question from David Davis from Morgan Stanley. Please go ahead.
My question was just really around, some of the trends you're seeing on the aftermarket side. I just wonder how your expectations for aftermarket growth are evolving for 2020 given the extent of the OE kind of order declines that you're seeing through this year, and the recent sort of evolution in metal prices, are you tempering your enthusiasm for growth for next year for the aftermarket business at all?
Well, I think, we've made significant progress and we've grown service significantly over the last six quarters or so. And I don't think we should expect that pace to continue at that level. And the reason is pretty straightforward. We've gained market share on our own fleet and the bigger the market share, the more difficult it will be to continue to grow that market share. And I think that's pretty much what we'll be looking at in into 2020 without specifying any specific level.
We will do our utmost to continue to grow, but it will be increasingly difficult. I think that's fair enough to say that. But and also the potential impact of new equipment being delivered Well, new equipment typically doesn't need all that much service. So I think what we're looking at from a market perspective, IEA customers, I think what they're doing, they're using their existing equipment more intensively, and they are, as a consequence, they need more service on existing equipment. So instead of replacing, it translates into more service.
So I think if that trend continues, we will and lower equipment deliveries and still high production levels, we will have a push towards increase service intensity. So I think that's the dynamic we will be looking at potentially.
And then maybe just one follow-up. I just I guess in terms of the discussions you're having with customers at the moment, how frequent is it that you're coming across those taking slightly longer, to take delivery of these things. Is it more frequent that they come back to you and hold back on the orders or is it the actual orders that you got coming through to sales where people are actually reluctant to sort of take the delivery in a quarter and wait an extra week or an extra month before they take it. So where the biggest pressures on the order side or the actual deliveries of the orders you have in the backlog?
Oh, it's definitely the order side. Once we have produced and shipped and there's no hesitation when comes to accepting or taking the delivery as such is really on the orders. So we said that we see, you know, the things being pushed out in time.
Okay, great. Thank you very much.
Thank you. Next question from Besak Mehta from Deutsche Bank. Please go ahead.
Hi, thanks very much for taking my question. My first question is really around the equipment side of things. Given the equipment in order equipment sales this quarter was orders. Could you perhaps talk about how large your backlogs are right now in equipments as a percentage of annual sales?
Well, we, we don't disclose that number, I'm afraid. So I'm not going to give it to you. I think the what we've seen over the last quarter, quarter 3 now is a decline in the backlog, but still a significant backlog So, you know, if things, if orders were to decrease down to 0, we would still be busy for quite some time. So the backlog is still significant. But it's also should be noted that this backlog doesn't mean that everything is to be delivered immediately.
Some of the orders are to be delivered later. And that's why we also, on the back of a decline in orders, also reduce production somewhat in order to not produce too early.
Okay. I understand. Just trying to get a sense of your expected equipment sales next year. I mean, are you, do you think that it's likely that that should year, given your backlog, are you still is it too early to say?
It's too early to say, I would say. Yeah.
Yeah. I would agree.
Okay. Understand. And just following up earlier from one of the questions, around the infrastructure and the mining customers and equipments. Could you perhaps give us a sense quantitatively broadly speaking about the extent of order organic order growth for your mining customers and for infrastructure within equipment?
Well, the mix, the overall mix between infrastructure and mining in Q3 was 21% the infrastructure and than 79, of course, mining. It's typically 20five-seventy 5. So the, I guess, if we just apply that math, we lost, if you like, 4% top because of the weakness of softness in infrastructure.
Okay. Is that for the group or for equipment?
That's for the group. We don't specify the number in equipment.
Okay. I understand. Thanks very much for taking my questions.
Thank you. Next question from Andrew Wilson from JPMorgan. Please go ahead.
Hi, good morning everyone. I just have hopefully a couple of straightforward ones.
Can you
just give us a little bit of help around the usual seasonality in the Q4 versus Q3. Just trying to get a sense, obviously, we've made some comments around the Q3 versus the Q2. It'd just be helpful to get a a sense, appreciating that large orders and things will move around, but just to get a sense of what you'd expect, on, I guess, a normal year.
Well, Anders, maybe you can help out here.
Well, we see very little seasonality, but if we go long time back, it's typically that Q3 is slightly lower, but it's not a very strong, effect.
Which means that
that
which means that Q4 should be stronger, primarily stronger when it comes to revenue. So I think that's the typical pattern that we see. And, well, I mean, whether that's going to happen quarter 4 this year, well, we'll have to see, I guess, but that's a typical pattern. I think the average decline that we've seen if we just apply the statistics to historical quarters is that the Q3 is 5% lower than quarter 2. I think that's the number that we've mentioned historically, something like that.
Do you have a similar number for Q4 versus Q3?
No.
Can I check and just shifting over to the savings, which you'd outlined? I just wanted to check, does that apply to both of the business areas, so equipment and service and attachments?
Yes, yes, it does.
That's perfect. Wanted to clarify, it was actually Alex Virgo's earlier question on tools and attachments, but the comment you were making around sort of gradual exit of various product lines or effectively walking away from sales. That was an organic comment and therefore, is in addition to some of the specific comments you've made around divestments. I just wanted to clarify.
That's correct.
Thank you. Next question from Max Sykes from Credit Suisse. Please go ahead.
Thank you. Just my first question is on the current tools and attachment margins. And I just wanted to understand if we look back to sort of 2011, 2012 when we were at the sort of previous mining peak, just where were levels of profitability back then versus where they are today. I just wanted to try and understand a bit more what the kind of runway for improvement is in the medium term in this division.
Well, the historical margin is, was way higher than where, where we are at right now. I think, Again, I don't think we've specified any details, but, they were definitely closer to group average as they are right now than the current level. So what does that mean? Does that mean that we can, if make efficiencies back to the historical level, well, I think that's going to be a struggle. Things have changed.
The competitive landscape has changed And, but of course, all the actions that we're doing in undertaking, the intention of all that is to bring us back to at least close to the historical level, but it's going to be challenging.
But to be clear, obviously and has been in the past also a margin, which has been well below the average because I mean, it's a different business. It's different competitive landscape. And I think we have mentioned that a few times that even though it's even more competitive than maybe 5 years ago, it was already at that point in time, very competitive. And that goes for most of what we sell in into some attachment and in particular for the consumables business.
Fair enough.
Okay. And just my follow-up was on M and A. And I just wanted to understand when you look at your kind of acquisition pipeline and what's discussed internally, Is there a sort of reasonably large proportion of it that includes, software, battery powered equipment. So I'm just trying to understand, should we expect over the sort of coming 12 to 18 months that you look at software deals as well as kind of the tools and attachment deals that you've been doing, or should we think that the the automation and software business will be developed much more internally and organically?
I think, we've the acquisitions that we made over the last couple of years divided into 3 categories, essentially, it's in service. We'll continue to do that. Is in technology, I. E. Software, as you say, will continue to do that.
And it has been historically and in tools and attachments. Now whether that's going to continue or not really depends on, on, 1st of all, how well we digest the current acquisitions and also how well we also perform the current restructuring. So but to specifically, yes, we'll continue to look at and hopefully make acquisitions into the software space.
Okay. Thank you very much.
Thank you. Next question from Marcus Sandvard from Kepler Cheuvreux. Please go ahead.
Yes. Hi. Good morning. Mark Sandro from Kepler Cheuvreux. So just a couple of quick questions.
Can you talk a little bit about the differences in your equipment portfolio. So how is surface versus underground performing? Is it do you see any differences there? That's my first question.
In in terms of, the,
Yes. In terms of hesitations and the some
No, I think it's pretty much the same. It's actually very, very similar, both surface and underground.
Okay. Thank you. And then my second question is just it's a semantic question, but just to just to understand a little bit more about what you're saying. So you say that there are lots of projects or orders being postponed. Are we talking about when you talk to your customers, are they postponing them indefinitely or is it just more that it takes a little bit more time than it has before to sign the orders just to understand exactly how the flow is going here.
I think it's really the the conversations
you have?
Yes, it's a latter scenario. I think it takes time internally. I think essentially what's happening is that the intention to continue to invest is still there, but the approval processes take time because of course, our customers It's like anybody else. I mean, they recognize that there is uncertainty in terms of where the economy is going to go. And therefore, things take longer time to improve.
I think that's really what's what we're looking at here. And so which means that typically orders are not postponed indefinitely nor canceled. That is not happening.
Yes. I mean, to be maybe, as you say, semantic, I would rather use the word delayed than postpone. Even though there. It's a fine line, but Yes,
but that has my question because it's it's a bit different in that's why I was asking the question about more the flow, what's really going on. So that's very helpful. Thank you very much.
Delayed. All right. Thanks.
Thank you. We don't have any more questions for the moment.
All right.
I would say we could actually end the call here. And if you have any follow-up questions, you're most welcome to reach out to us. I think despite everyone asking more than one question, we managed time. You had all good questions and follow ups for each other's questions. So Capital Markets Day on November 14th.
And until then, I wish you a lot of successful investments. And please reach out to Pan Handesh, myself, Karim Larsson or Matilda Solsson. Thank you very much and have a great day.
Thank you.