Morning, warmly welcome to this presentation of Epiroc's first quarter results of 2019. I'm Ingrid Östhols, Vice President Investor Relations of Epiroc. Our CEO, Per Lindberg, will start talking a little bit more around the general performance in the quarter. After that, our CFO, Anders Lindén, will deep dive into the figures. After the presentation, we will have a Q&A session. Please stick to one question each, which gives everybody a chance to ask their questions. sir Per, please go ahead.
Thank you, Ingrid, it's a pleasure to be here. First I would like to say that I think that the first quarter of this year pretty much turned out the way we expected. Orders very much in line with the second half of last year, actually slightly up versus quarter four. Especially good to see the robust demand for aftermarket, activity continues to be good among our customers. Especially pleasing again to see the development when it comes to service. Equipment is actually slightly down from first quarter of last year. Not really a surprise. When you look sequentially from quarter four, we are actually pretty much on par or actually slightly up. This context is perhaps worthwhile to note that the demand for equipment this year was pretty much made up of small to medium-sized orders.
Whereas last year, we had plenty of large orders. That may not necessarily explain all of the difference, it's worthwhile noting that difference. It's also signifying the development as we see it right now. Customers seems to be slightly cautious in terms of how they would allocate their capital, cautious in terms of spending on major greenfield, spending money more on expanding brownfield, which means less risk, less capital deployed, perhaps slightly higher cost at the end when it comes to operation. We think also that's why they also look for productivity improvement and also investment into equipment that can help them lower their cost. Of course, that's where we come in. Revenue is up, also we have a good development when it comes to profit. Our margin improved, primarily driven by currency. Also we made acquisitions.
We closed the acquisition of Fordia this quarter, at the end of the quarter, we also closed the acquisition of New Concept Mining in South Africa. We've also continued to work on our efficiency actions. As you may have note already, we do work with our supply chain internally in order to improve cost efficiency and also the level of capital employed in our supply chains. That continues according to plan. We also continue to work with efficiency actions primarily within Tools & Attachments. That has also given some good results in the quarter. We're also reviewing other options for improving efficiency, especially as we now are an independent company, also we need to adapt our cost level accordingly. Looking into the key financials, already mentioned organic order decline of 5% versus the very strong quarter one of last year. Sorry. Quarter one of last year.
Development sequentially is slightly better, actually slightly up versus quarter four of last year. We also improved the revenues, continue to ramp up production versus last year. Actually, revenue is slightly down sequentially, which was not surprising. We did have a very strong quarter four when it comes to production and deliveries, which came down a little bit the beginning of this year. Profit increased with 27%. Here we have also to note is that we have a change in provision for long-term incentive program of SEK 59 million, and we have split costs of SEK 17 million. Altogether, that's an adjustment, means that the adjusted margin is 20.3% if we adjust for the long-term incentive program. Also taking the split cost into account, the adjusted margin is 20.5%.
The reason I mention the split cost is that we did have split costs also in the corresponding quarter of last year of SEK 95 million. Comparing the two quarters, excluding the split cost and the provisions for LTI, it's comparing 19.6% to 20.5%. When it comes to cash flow, we had SEK 472 million of operating cash flow as compared to SEK 666 million last year. This is actually a slight disappointment. I think we have things to do when it comes to our cash flow. This year, the development was negative when it comes to primarily payables, a decrease in payables. I'm sure Anders is going to mention that. This is an area where we continue to focus on improvements. Looking into the segments. This to the left, you see the breakdown of our key segments.
Actually, the bottom part there is equipment, then we have service, and equipment and services, of course, one of the segments, and then we have tools and attachments. The arrows and the numbers in between is the organic development. As you can see, service increased with 8% organically. We had a slight decline in tools and attachments, and a 16% decline in equipment. All in all, now equipment and service is 72% of the business, whereas last year was 74%, so relatively steady. To the right, you have the breakdown of the aftermarket, which in total is 66%, and that last year was 67%. Aftermarket portion of our business is also relatively stable over time. Moving into equipment and service. We do have good activity, I would say, when it comes to our customers.
I already mentioned that customers are primarily ordering relatively small or medium-sized orders at the moment. Seems to be slightly cautious on spending much capital on major expansions in greenfield, primarily. This drives aftermarket business. In the equipment and service case, that means a good development when it comes to service, and a decline when it comes to equipment. It's really worthwhile noting that equipment is more or less flat versus second half of last year, and actually slightly up versus quarter four. I think we see currently a steady situation when it comes to equipment orders.
Revenue up 17%, and mostly we see expansion orders, and I think we'll continue to see expansion orders being dominant in our portfolio, even though expansion has declined as a portion, and we see replacement being a slightly bigger part of orders now in the beginning of 2019, also according to expectation. Operating margin increased to 24.2% versus 22.9%, primarily driven by currency. One thing that is very good to note is the development in battery. We have received a very healthy and good order of battery equipment to Canada. We also have a cooperation with Railcare, where our technology is used on railway maintenance equipment, and I think that's a very good development.
Of course, our ambition is to continue to deploy our battery technology in our own equipment, but also to work with other partners in order to also expand the volumes to increase the economy of scale in the production of batteries. Some of the innovations that are worthwhile noting in the quarter is the automation-ready SmartROC D65. Not only is it automation ready, but it also decreases fuel consumption versus the FlexiROC, the old version, and also has some other nice features for the operators in the machine. We also launched MyEpiroc, which is basically a tool for digital overview and maintenance or management of the fleet. We think both of these tools will continue to help our customers to improve the efficiency of their machines and their fleet. Tools & Attachments. Again, I already mentioned that the activity among our customers is quite strong.
So far, I've really talked about mining customers, which is now 74% of our business. Infrastructure is really the rest, 26%. Of course, in Tools & Attachments, tools is mining and infrastructure, and hydraulic attachments tools is primarily infrastructure. Both of these looks quite healthy, even though hydraulic attachments tools in infrastructure slightly start softer due to seasonality. Nevertheless, we think the underlying development is quite healthy. We saw an organic order decline of 1% versus last year, and we did have a very strong first quarter of last year for hydraulic attachment tools. Also in this quarter, we continued to back out of business that are not profitable enough when it comes to our consumables. If we were to adjust for that, we actually would see a slight increase in orders. Of course, we don't do that because we backed out of that business.
Revenue grew with 7% and margin improved to 14.2%. Of course, that makes me happy because that means that our efforts to improve profitability in Tools & Attachments is now proving to give some effect. Already mentioned, we closed Fordia. This is a company that is active in exploration. This is going to complement and strengthen our offering when it comes to exploration tools and competence. The beginning of April, we closed New Concept Mining, high competence and a very specialized and good equipment when it comes to rock reinforcement. We think this is also very good complement to the product portfolio and the competence that we already had within Epiroc. Innovation-wise, we launched a bucket screener for hydraulic attachment tools. Maybe not the most exciting, but a very productive tool for usage, for sorting, and when it comes to primarily demolition sites.
All in all, I think it's a good start, a solid start for the quarter, and now I'll leave it to Anders to move into some of the details.
Okay. Thank you, Per. I will give some meat on the bones for the numbers. Starting with the sum on orders received and revenues, as Per mentioned, we have 5% down organically, but sequentially up on orders compared to Q4 last year. As a matter of fact, it's quite frequently we have a lower revenue in Q1 than Q4 if we go back over the years and compare. Also, as you have seen, we believe that we will remain on the current level in the near term on order intake. The impact from acquisitions is positive from Fordia in Q1, and New Concept Mining will start to give some contribution in the second quarter for the full second quarter. The currency effect, positive 4% year-over-year.
Should the currencies remain where they are end of March, we will not see a material impact year-over-year in Q2. The Swedish krona weakened somewhat during April, but it's a little bit early to tell where we will be, obviously, at the end of the quarter and the rest of the quarter. If we then look at the margin, the reported margin was up 1.3 percentage points from 18.4 to 19.7, as you can see from the bridge and in the report. If we then adjust for the provisions for long-term incentive programs, it's 20.3 and another couple of tenths, as Per mentioned, from if we also adjust for the one-time split costs. We do not adjust for that going forward. They were SEK 17 million in the quarter, a little bit less than anticipated. They will continue, likely a little bit more in Q2.
We will mention them, we will continue to report the margin the way you see it. We had a positive net contribution from the Fordia acquisition, despite some integration costs, as you always have in an acquisition, of course. We also had some integration costs in the ASI Mining acquisition which we acquired last year, or 34% of last year. We should also mention that the corporate costs, while we still believe they are now going on the level even they will vary between the quarters, they were slightly higher this year than last year. Q1 last year, we were still not listed, so there were obviously some costs we did not have. For the most part, it's on the level that we see. For the SEK 59 million, maybe I should also mention that it's very related to the change in the share price.
This mostly reflects an increase of the share price from SEK 84 to SEK 94 between the end of December to the end of March. If we then take a little bit more look on the costs and the P&L, marketing and admin, for example, we have the provisions of SEK 59 million for increase in provision for LTI. They are included in the admin costs, but in this graph it's excluded. We obviously have a currency effect also on the nominal terms. We can also see some, which we've mentioned before, some inefficiencies from being an independent separate company. We also see some increases in IT costs and some volume components in the logistics costs, which we show in the admin.
On the R&D, we continue to invest slightly higher now at 2.8% of revenue which is a good level and important for us to continue to stay as a company being successful where we want to be. If we take a look at the financial net, which was likely higher than expected. The minus SEK 100 million largely consists of a valuation or revaluation related to Zimbabwe where the newly introduced RTGS dollars have been allowed to float, and as such, triggered a valuation which also gives some opportunities because now it gives a little bit of predictability and possibility to handle the situation with the parallel currency in that country. The interest net was as expected, largely on the SEK 39 million level. The tax rate, we are at 24.9%. We've talked about around 25% or slightly below. That level, we believe, will remain.
Return on capital employed, year-over-year an increase, but it's also negatively affected by the fact that we have around SEK 2 billion more in capital from IFRS 16. Sequentially, as you can see in the graph, it's slightly down, and it will, over the year, adjust to the new capital employed level. The underlying return on capital employed has not changed. If you look at the net debt, here we also have quite a significant impact on the IFRS 16, the SEK 2 billion, which is actually more than half of the SEK 3.6 of the net debt is made up of the SEK 2 billion impact from IFRS 16. Overall, otherwise, there is no major change. In this context, I can also mention that we finalized the bridge facility that we implemented at the time of the listing last year.
The final part, SEK 1 billion, was refinanced with a bilateral loan, and the next maturity for that is 2022. That is all according to plan, we're now fully financed according to how we actually planned it when we launched the company on the stock market. On the net working capital, increased sequentially and year-over-year. If we start with year-over-year, obviously we have a volume impact, mainly on receivables in inventory, but also not quite material element of currency and acquisitions. The average net working capital is also slightly higher. As we said, a lot is in inventory and receivables, and Per also mentioned that is something that we have very much in focus.
On the sequential change in net working capital, we don't see much of a change in the slight increase in inventory and receivables, but the main impact, which we can see in the operating cash flow, is made up of a reduction of payables, which is partly a timing issue, partly driven by mix and market, and also flushing through. We will expect that to improve over the next quarter or two. Of course, the operating cash flow is positively contributed from profit. We also have a small positive contribution from the IFRS 16, which doesn't change the net cash flow, but as you likely know, it will have an impact on how the cash flow statement is composed. Taxes paid, also part of the operating cash flow. Obviously over a year, largely effective tax and taxes paid will not differ in any material effect.
If you look at the P&L, we have around SEK 200 million, almost SEK 200 million more in taxes paid in Q1 than effective tax, which obviously had a negative impact on the operating cash flow. As I mentioned, inventories and receivables didn't have so much. A small increase, small negative effect. On the CapEx, not so much, nothing exceptional. It stays on the level where we have been and follow very much the volume development. With that, I stop and leave it to Per for summarizing.
Yes. Thank you, Anders. Most of this has already been mentioned, of course, but it's worthwhile again to remind ourselves that we compare a first quarter of 2019 to a first quarter of 2018, which was very strong. It's important to take the comparables into the equation. When we look at the quarter sequentially, it is flat or even slightly up when it comes to orders, and we expect that scenario to continue. There's no reason or no signals from the market that what we saw in quarter one will materially change looking into the short term.
When it comes to outlook, we expect to be pretty much on this level going forward in the short term. I'd like to say also that I'm quite happy with what we've done internally in terms of revenue and in terms of launching innovations as well as closing the acquisitions. There are issues that we need to continue to work with. I mentioned cash flow. There are also issues when it comes to flow through and profitability, but those are on the agenda, and we will definitely continue to work with those into quarter four. That's the summary.
Thank you, Per and Anders. With that, I think we open up for questions. Operator, do we have any questions from telephone conference?
Thank you. Ladies and gentlemen, if you do wish to ask an audio question, please press zero one on your telephone keypad. Our first question comes to the line of Klas Bergelind from Citi. Please go ahead. Your line is now open.
Yes. Hi, Per and Anders. It's Klas from Citi. A couple from me, please. First on tools and attachment, I noted that hydraulic attachments had lower order intake year-over-year. It's the first time I see this, not much history, but the first time I see this is a high margin business within T&A. We know that construction and infra led growth is pretty solid out there. Have you started to be selective on orders also on the attachment side, not only rock tools? Are there any changes on the competitive side explaining this, is it just purely demand related? I will start there.
That's good of you to note that, we're not backing away from any business in tools, well, and attachments. As you mentioned, we're quite happy with the profitability, there are no material changes when it comes to the market. There are some seasonality effects. We saw those in 2018. We had a very strong beginning of 2018 for attachments. Not as strong this year. This, I would say, is no reason to worry. We don't see a material change in the underlying market. The seasonality will be impacted by winters. We had a severe winter in North America, seems to be also quite a slow start in Europe. That's kind of where we are. We have not made any active decisions in terms of how we do business, nor do we see any major change in the market.
Okay, very good. A quick one for you, Anders, on the shared cost and the investments you make in IT and logistics. The comparison for these costs will be easier in the second half of this year, I would have thought. Can you, Anders, perhaps help us a little bit what the drop-through in this quarter would have been without these costs? I guess R&D will likely stay as their investments in automation and in the electrical mine. But within the extra cost you now carry, that can drop out. Thanks.
Yeah. I don't really would like to quantify here and now, but it has certainly an impact. I don't want to exaggerate. I just want to, and that's why we mentioned it, that there is a small impact of the fact that in the beginning of 2018, we were still sharing, let's say, benefits from being part of the Atlas Copco Group. And we have gradually built an organization around the world. I would say that has some impact of the flow through or the drop through, but not significant. I would like to add to Per also, when we talk about attachments, actually, the Q1 was really strong, but it was compared to an all-time high Q1 of last year. So, I think, sorry to add that, but I think it's important to note that it certainly is. We have strong business in attachments.
Got it. Just want to make sure. Thank you.
Thank you. Our next question comes from the line of Guillermo Peigneux from UBS. Please go ahead. Your line is now open.
Yes. Thank you, Guillermo Peigneux from UBS. Just a question maybe on a qualitative question on how the quarter did progress through the months, I guess. Do you see any particular trend in demand at the beginning of the year versus the end of the quarter? In which minerals do you see any particular trend that you dislike or like more, if I may? Thank you.
I think, yeah, we saw a relatively slow January, gradually improving into February and March. Especially when it comes to our service business, February and March was quite strong. That's the development in general that we saw. In terms of equipment, I can't say that we saw any particular trend over the quarter. As mentioned already, the trend that we see in equipment demand is pretty much continuous from second half of 2018. Again, we expect that to continue into the near future as well.
Thank you. When it comes to equipment, I guess, can you give any qualitative comments as which part of the equipment demand were a bit more disappointing? Is exploration equipment still growing as we saw over the last two quarters? When it comes to drillers and haulers, is any particular part of the business that is lagging or more or less consistent?
As mentioned, we saw a decline now again versus a very strong quarter one of 2018. We saw a decline both in surface and underground. Not very much of a difference there. Again, quarter one was exceptional last year. I think right now, it probably makes more sense for us to look at the sequential development, and there we see a flat to even a slight improvement in quarter one versus quarter four. You say disappointment. For us it's more expected rather than anything else.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Graham Phillips from Jefferies. Please go ahead, your line is now open.
Yes, good morning. I wanted to just square per your comment at the beginning of the release, where you talk about profit having been helped by service, and then looking at the very low drop-through margin. Has that actually not shown up yet? Because I'm presuming it hasn't helped very much, because you would have expected to see a much higher drop-through margin. I'm conscious of the higher IT, R&D, and costs there. Do you think that's still yet to come, rather than actually making the comment right up front that it actually has helped this quarter?
Well, to be a little bit more specific on drop-through. Anders mentioned some of the, call it corporate costs that we have, and also the cost of being independent. That will have an overall effect on drop-through. Looking at the divisions including service, I think we see a good flow-through in tools and attachments. Not so good when it comes to equipment and service. If we isolate service, the contribution to absolute profit is definitely there from service. When it comes to the drop-through for the segment combined, well, I think we should hopefully see some improvements there going forward. That is not really related to service. It's more related to our capital equipment divisions, where we've seen some inefficiencies in production in the first quarter.
There's definitely some improvements we need to make in production efficiency, and that should also help the overall drop-through for that segment as well for the company as such.
Can you expand a little bit on what these inefficiencies in production are? Are they externally caused or internal issues? How long should they take to be fixed?
Well, it's a combination of external, internal. Primarily, I would say internal. We have had some issues in terms of actually the production rate, the number of machines actually produced in a couple of our factories. That's mostly internally related. Sometimes, of course, we also have issues with our suppliers, but primarily internally related. I think for the most part, this should be fixed going into quarter two. That's not a guarantee, but the expectation is, for the most part, that's going to be fixed into quarter two.
Which plant is this that's causing the problem?
It's one in Sweden and one outside of Sweden.
Okay. The other thing is on foreign currency. Again, just focusing on equipment and service, I'm always amazed at how large the, if you want to call it a drop-through margin, that comes through on currency from revenue to profit. Obviously there's huge sort of transaction, not just translation exposures here. Which currencies specifically should we be thinking of? Because again, at some point, if currency reverses, we will actually see quite a negative swing the other way. Which currency should we be thinking about versus the krona that are causing that very positive drop-through at the moment, and then hence ones to look at going forward when it swings the other way, if it does?
Yeah, maybe I can elaborate a little bit on that. You're absolutely right. We do see a transaction effect, which absolutely also is driven mostly by a limited number of currencies, which we quite well explain in, let's say, our annual report. Nevertheless, the U.S. Dollar is a very strong influencer. So is the Aussie dollar and the Canadian dollar. The Rand is also material. Between the four of them-- Euro, you could say, why not euro? Well, we obviously is also buying in euro, so there is a little bit of a natural hedge, but it's also a currency which has some influence. The details you can find in one of the notes in the annual reports on how we estimate that to influence.
I would also, in this context, like to mention that there are some period end effects and there are some, let's say, mathematical calculations behind this. We will obviously see things go the other way around when currencies drop. On an overall basis, those are the currencies that we have to work with. Obviously, with limited impact from a couple of dozen other currencies as well.
In the quarter itself, given the very large drop through, I think the highest it's been, there wasn't any one particular currency then that helped?
No, we can look at the currency development. I mean, the U.S. dollar went up quite significantly. I think if we compare sequentially the period end rates that we had end of December, it was quite high. That's why I say also that if we now go through 2019, look at the levels we have, we probably not year-over-year have so much impact in Q2. Something happened towards the end of the year, the period end rates in 2018 were quite low. Obviously the period end effect and the short-term effects on the transaction currency effect in Q1 is larger than one would expect just looking at the trend that we had in 2018.
Okay. Thank you, Anders. Thanks, Per.
Thank you. Our next question comes to the line of Marcus Almerud from Kepler Cheuvreux. Please go ahead. Your line is now open.
Hi. Good morning. Marcus Almerud from Kepler Cheuvreux. My first question is on exploration. Can you talk a little bit about, I think it was in Q2 last year, we saw quite a sharp uptick in exploration, which is often a leading indicator. Can you just talk a little bit about how that has developed or if it's flat? That's my first question.
Well, actually, exploration in the beginning of this year in Q1 has not been as strong as we expected. I expected, I think I mentioned that after Q4, I expected an increase of 5%-10% in exploration budget spending. It has not really materialized in Q1. It's been kind of on the soft side. I guess it's perhaps too early to say whether this is active decisions to hold back on exploration spend or whether it's just weather related. Nevertheless, the exploration in Q1 was slightly softer than expected.
Okay. Thank you. My second question is on greenfields. I have been talking to some who's been saying that there has been an increased number of discussions in terms of greenfields in the beginning of the year. Is that something that you also have experienced or is that also kind of unchanged from before?
No, I think there's more discussions going on. I think we saw that also second half of last year that the optimism that we saw in the beginning of last year translated into several discussions and discussions around greenfield also second half of last year. This year, pretty much the same.
It's not like there's totally no greenfields. There's a few, but less than a handful. Again, our interpretation is that fair amount of discussion on greenfield, not so much action nor capital deployed on greenfield. Most capital seem to be spent on relatively smaller expansions of brownfield, translating into smaller orders for us related to brownfield expansion, of course. That's kind of where we are right now. I don't think we've seen so much of a difference in terms of greenfield discussions.
Is there any difference there between surface and underground, or is it also kind of the same? Do you see a clear difference in those two?
It seems to me that the not so much of a difference that I can recall at the moment. The discussions are around some greenfield and an occasional greenfield surface as well as some occasional greenfield underground as well. Not that big of a difference.
Okay. Excellent. Thank you very much.
Thank you. Our next question comes to the line of Matthew Slowe from Exane BNP Paribas. Please go ahead. Your line is now open.
Yes. Morning. Thanks for taking the question. Just on your outlook then, I realize you've kept your sequential outlook unchanged at flat. I suppose the difference between now and February is commodity prices are more supportive, copper's at $6,500 versus closer to $6,000 in February. I wonder if you can just comment there why you don't think you've seen a pickup in underlying activity. Given that service, I imagine you still expect that to show a nice sequential progression. Does that mean you're expecting equipment to decline sequentially, or is that not the way to look at it? That's my first question. Thanks.
Well, again, to reiterate the outlook, we expect it to be more or less unchanged, the order situation. It's right that the prices for commodities have increased over the last two, three months, but it's also been quite volatile and over the last month or so without any clear direction. I think lacking this direction, I think will just keep miners on the cautious side.
We expect the activity to continue to be strong, which will translate into continued strong demand for our aftermarket. Equipment, a little bit more difficult to say, but there's no real trigger that we would see equipment orders coming down from the level that we are right now. The small to medium-sized orders that we have, I would expect to continue.
All right. Can I have one more on Tools & Attachments? My line cut out, you may have answered it already, but have you given the impact of these rationalization actions? The stepping away from business, have you said what the impact was on orders in the quarter, and also where we expect to get to in terms of the headwind? What was the benefit to the EBIT line from stepping away from this less profitable stuff?
Well, you saw the development of the EBIT up to 14.2%. Part of that definitely due to our tail cutting. The size of the tail cutting is actually roughly 3% on the segment overall. That's the sort of the magnitude of the business that we've stepped away from.
Okay, thank you.
Thank you. Our next question comes to the line of Andrew Wilson from J.P. Morgan. Please go ahead. Your line is now open.
Hi, good morning, everyone. Maybe just a quick follow-up to Matt's question just there. Is there anything in the Tools & Attachments margin which we should think as being a kind of one-off benefit? Or is it reasonable to think that this sort of level of profitability can be the run rate for 2019 as a whole?
There's no significant one-off in the first quarter for Tools & Attachments. I expect the improvements that we've seen to continue. As mentioned already, we do the tail cutting, that should continue to have an effect. We also have our supply chain program primarily for our spare parts as well as for consumables. That had some effect during quarter one. The level of impact will progress or increase over the course of the year, I expect that to have an increasing positive effect over the year. I expect this level to be, as a minimum, to continue this level.
Thanks. That's very clear. Maybe if I can just have one quick follow-up just on the cash side. On working capital, it's clearly been quite a lot of moving parts, not least obviously the FX impact that you've seen. Can you just kind of talk about how you see that developing through the balance of the year? I appreciate some of what you're trying to do on working capital is a bit longer-term in terms of the benefits and the payback, maybe just to give us a sort of bit of help to, I guess, on expectations for the balance of the year, please.
If I understood you correctly, you were specifically referring to working capital, right? It cut off a little bit.
Yes, that's right.
Yeah. Okay.
Yeah.
No, it will go a little bit up and down. We had a very strong finish in Q4. That doesn't mean that we are specifically pleased with the Q1 development, which we had expected to be higher or better, let's say, in working capital. I can see that there's a little bit of, let's say, seasonal effect in ending the year going into Q1 on the working capital, where we mentioned that on the payable side is where we have seen a reduction. Obviously, when we look at inventory and receivables, there is more in the details, while some parts of the business have, with the growth, have an increased receivables, and with a little bit of slower there is a reduction. Overall, we expect the working capital to improve over the next quarters, in plural. We do have activities and focus on those.
That's my very strong expectation.
Thanks. That is very clear.
Thank you. Our next question comes to the line of Anders Idborg from ABG. Please go ahead. Your line is now open.
Morning. Just a question on Tools & Attachments again. You have now closed the New Concept Mining acquisition. Just if you could update us what you plan to do with that and what kind of dilution we should expect initially, if any.
First of all, what is the New Concept Mining? It is, again, is rock reinforcement. They have some unique products for primarily seismic environments. We expect to sell those through our global network. They have been primarily active in South Africa so far. We expect to generate some nice synergies when it comes to top line development. That is the plan with the company. Of course we intend to integrate it into Epiroc as a whole, but make sure that the strengths that the company has as being independent, we will certainly not destroy that. This is a company with pretty decent margins, so they should not be dilutive to the margins of Tools & Attachments.
Okay, thanks. Perhaps a follow-up also on Tools & Attachments margins. You mentioned before the sort of price pressure on consumables, et cetera. Is that also part of the equation? Have you been able to get some price increases, or has that changed in any way lately?
We have now the combination of stepping away from business and being slightly firmer on pricing has actually made it possible for us to raise prices for when it comes to consumables. The pricing for consumables has been quite positive beginning of this year.
That's up? It's not less erosion, it's actually up, yeah.
It's up and not down, yes.
All right. Okay. Thank you very much.
Thank you. Our next question comes from the line of Graham Phillips from Jefferies. Please go ahead. Your line is now open.
Yes. Thank you for taking the follow-up. Just how should we think about the orders in equipment excluding the large orders? I apologize if you've given this already. The line's actually been quite bad. Sometimes it has quite big echoes, and your line drops out. What was the orders excluding the large order, and how should we think about the market share here? Clearly you are underperforming your closest peer that we can look at here. Is there anything in terms of either the geographic or the commodity exposure which partly explains this? Or are there some other reasons?
Well, first of all, let's look at the sort of the starting point for comparison. I think we had a very strong quarter one of 2018. I've said that several times already, but it's very important to keep that in mind. Our biggest competitor did not have a very strong first quarter of 2018, quite the opposite. If you compare quarter one with the starting point or the reference point, you will see a big difference in terms of the development from quarter one of 2018, and not surprising whatsoever. When we look sequentially our biggest competitor had, I think, an order growth of 3% nominally. We had an order growth of 6.3% nominally. I'm not so sure that your conclusion is correct, to be honest with you.
Just again, maybe thinking about your product innovations that you talk about, the digital platforms and the new machines being launched on the drilling side, is there anything looking forward that could actually result in you gaining share in a particular segment? Where do you think you are leading compared to competitors, and not just the main one, but other competitors as well?
There's always a race. I guess we have to look at the specific areas of application. Our position when it comes to, as an example, new technologies underground. I'm thinking battery, I'm thinking automation. Battery, we are under the absolute understanding and assumption that we are in the lead. I know that our competition is definitely aiming to catch up with both acquisitions as well as organic development. Our position is still that we have a leading position. That should enable us to continue to grow, hopefully also market share-wise. When it comes to automation, we have now a complete offering when it comes to automation products or autonomous products underground. We have caught up with competition, which means that we still have some ways to go in order to perhaps fill that gap from a volume standpoint.
We are catching up, and as mentioned already, we have now a complete offering. Hopefully that's going to help us also on the volume side and maybe also when it comes to market shares, we'll see. Surface, we do have very competitive offerings on our surface drills. As you know, we are very specific when it comes to what we do, and the applications we have on surface is really drilling equipment, and that's it. Our market positions are very strong. No reason to believe that we should lose out from a market share standpoint. Our products are well positioned. Our automation offering is definitely market best, I would say. That's kind of where we are.
Thanks. Where else would you like to grow into?
I think we have a very competitive offering.
Thank you. Where else do you want to grow in terms of M&A? Obviously you've done a couple since separate listing. Is that going to continue? Where else would you like to grow?
Well, as you know, the two acquisitions that we closed so far this year of any magnitude is Fordia and New Concept Mining. Both of those are in consumables. I think what we said historically, and what I say now is that we need to digest these two acquisitions in consumables before perhaps considering additional acquisitions. We also need to be cautious when it comes to adding cyclicality to our portfolio. With those restrictions, I think we'll continue to look for acquisitions broadly and not the least in the technology space. Of course also when it comes to complementing our offering in both underground and surface. We've taken somewhat of a fresh look when it comes to the opportunities there, and we'll see if that can materialize into potential acquisitions.
Back. Thanks, Per.
Yeah.
Thank you. Our next question comes to the line of Olof Larshammar from DNB Markets. Please go ahead. Your line is now open.
Yeah. Good morning, everyone, and thank you for taking my questions. Firstly, could you please elaborate a bit on lead times for equipment?
Lead times for equipment?
Yeah. If you order equipment now, when will you get that delivered? Are lead times longer than normal or?
Well.
Yes. Obviously, a little bit indicated what Per said. When it comes to equipment, we have had some issues with deliveries, but they are not exceptional, and they are gradually improving. For the most part, what we deliver in equipment is made to order, so you don't have it on the shelf. There will always be anything from, in best case, there could be something, otherwise from three to nine months and even longer. We don't see that as a major problem right now. We're pretty much in good shape.
Sounds good. Finally, sorry if this question has been asked, there have been some problems hearing on the conference call. I note that common group cost was around SEK 160 million negative in Q1. Could you please elaborate the reason for the increase versus Q4?
The SEK 160 million includes obviously the SEK 59 million for LTI provisions. That's part of it. It also includes some split costs. If we compare that to Q4, it was the other way around. We had a positive impact from the LTI provisions, change in the provisions for the LTI. That you can see in the report in one of the tables, the specific impact from the one-time split costs and the LTIs. For the most part, that's why it looks high in Q1.
Just to be clear, going forward, what should we expect in terms, no split cost and no cost for LTIs, what should this be going forward?
I guess the LTIs, it's very much on your side what you think about the share, because it's triggered by the share price. As I said, the main reason why we had SEK 59 million in Q1 is because the share price went from SEK 84 to SEK 94, from end of December to end of March. That we cannot really predict, but there is obviously some kind of correlation with the share price, or very much so. On the split costs, we will have some split costs. We will not, let's say, adjust for the margin. They will likely be higher in Q2. They were lower than expected in Q1, but they will then later on fade out. We still have some work to do, more specifically on the IT side. The rest is nothing really.
Maybe I should complement there also. It's important to keep in mind that the change in provisions for the long-term incentive program is really an accounting effect, that we do have shares in custody, so we're hedged. It's just an accounting effect, really.
Yes.
Yeah.
That's absolutely true.
Yeah. Adjusting for the split cost and also from the long-term incentive program, what should the base be going forward? If we assume that the share price will be stable, I guess that that will not be the case. Adjusting for all these items, what should the underlying common group functioning cost be?
I think we have talked about around SEK 250 million in a year. I think that's more or less what we will continue to talk about. That's for the corporate costs.
Yep. That's great. Thank you very much.
Thank you.
Thank you. That will be the last question for today, so I will hand the word back to the speakers for any closing comments.
Okay. Yes, time is up. Thank you, Per. Thank you, Anders.
Thank you.
Thank you all you for participating. Hope to speak to you soon again. Our Q2 result is published on the 18th of July. If not sooner, it's then. Thank you and goodbye.