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Ladies and gentlemen, welcome to the Atlas Copco Q3 2018 report. Today, I am pleased to present CEO, Mats Rahmström; and CFO, Hans Ola Meyer. [Operator Instructions] Speakers, please begin your meeting.
Thank you very much, and a warm welcome everybody on the call for the Third Quarter Report From Atlas Copco Conference Call. We will follow a very, very well-known format for you.Mats Rahmström will take us through his own comments about the quarter, and then we will open up for questions. So I don't think we need to do, we will try to stick, as I always say, to one question at a time and let so many -- as many people as possible queuing up for questions to have a chance. But we'll come back to that in a few minutes, and I'll hand over to Mats.
Thank you, Hans Ola. I will start on Page #2. I know everyone is eager to discuss the numbers, but we think it's essential a little bit to share a little bit about the strategy as well from time to time. So we have called this point strategy in action. And the picture is actually from our technology center in Bretten in Germany, very close towards the Germany car manufacturers. Some of the topics that during the quarter and the questions that we got, Hans Ola and myself, and Daniel has been around, how can we help the car industry to build lighter cars. We also talk about automation, and we can be really a key up and be partners with the new battery manufacturers around the world. So I thought this picture actually speaks more than a thousand words. So in this innovation center, we bring in customers, and here we share the 4 technologies that we offer. So first it's adhesives, it's the self-pierce riveting, it's the flow drill jet technologies and the tightening them.The first question was a little bit automation, are we ready for that. But you can see in every station then, it's rigged with robots. We can use any manufacturers. So this is one of the way for us to show how we can have them with automation.We can also build, in different materials, the car, to -- on the right in the picture is aluminum, and the customer can actually then bring in their own models to test this, and that is behind closed doors there. So it is a very successful way for us to come in early to the business cycle and to really bring customers to us and share competence. So this was just one example how we help them to -- with the future technologies of mixed materials.And if I go to the start on Page 3, we think it's a solid amounted SEK 5.2 billion in profitability and 22.5% margins -- the adjusted margins. So it's still one of our better quarters. And as we flagged for already in previous quarter, we expected a lower semi, and that was concerned. We can see that customers are a little bit hesitant to invest in capacity, but they continue to invest in technology. And then we also flag a little bit about MBI for the next quarter, but that we will bring up on IT day, later on.On the orders received growth, you also can see that compressors, up 4%, and I only talk organic now since we have such help from currency. Industrial, up 4%; and power equipment came in at 13%; and then 19% (sic) [ -19% ] for vacuum then.
Minus 19%.
19% (sic) [ -19% ]. We can see continued service growth, and specifically, I must say, happy for semi, since they still have a high utilization in the factories, so that continues strong for us. And the revenue growth of 6% and in 1 or 2 business, I -- we think we could have done somewhat better, and I will come to that.Page #4, orders received. We discussed they also declined 1% and -- organically. If you look at operating profit, we talk about an adjusted level of 22.5%, and 23.8% included the Henrob release last year, and of course, it's also adjusted for long-term incentives, so I think it's a fair comparison versus the 22.2% from last year.And if you look at the graph, you can see that from a revenue perspective, which is the second-best quarter we have had. And from orders received, sequential, of course, it's down, but still, if you take away the last 2 quarters, it's still on a high level.On Slide 5, you can look at our sales geographically. If I start from the left side, you can see North Americas. Actually, quite strong growth, and it came out all the business areas were up in North America. And hopefully there, if I call it, the new NAFTA agreement might help us as well. We have had seen stronger growth in U.S. compared to Canada, and hopefully that will change now over time.South America for us being the industrial part is Brazil, it's the main part and that continue to be a strong recovery of business for us.Europe, which is down 31% of our business. That was a little bit of mixed bag. Compressor Technique, up 5%; Industrial Technique, down 5%; VT down and PT up 24%, which was very strong.The biggest pieces were still Asia for us, and you can see 34% of our business. And this has minus 9%, and that this mainly down on part of the VT, BT and the Vacuum coming out of Korea and China.If you look at the other business areas, PT, down slightly or flat; IT is up 22%; CT is up 4%, so taking out BT for Asia, it'll be up 7%. So it's very liked to the semi industry in Asia.Slide 6, just to remind you about the organic growth, and it's same scenario there down, it indicates then minus 1%, and if you will take away the Vacuum, of course, Vacuum happens when we have strong, so it might not be fair, but then it could be possibly 5%.Slide 6 (sic) [ Slide 7 ], you can see currency have been helping us with 2% year -- throughout the year. It's of course strengthened with the dollar and the euro, so it's now a tailwind of 7%.Then we go to Slide 8. We can see the split of Atlas Copco Group now. Compressor Technique being the dominant part having then 4% growth for the quarter. Vacuum, approximately 50% of Vacuum today is semi and the other part is industrial in high-end service. Industrial Technique continues to be strong, and there we have approximately 60% being related to the car industry.And then as I said, the Power Technique as well strong quarter with 13% growth.Slide 9 talks about Compressor Technique. I think I'll start with the graph. We can see that it was record for us on revenues. It's still a challenge on some of the components, but I think they do a tremendous job to keep competitive lead times. But they still fight week by week to help our customers to get their product in a good way. And you can also see then that orders received was the second-best quarter that we have had and up 4% and very solid margin of 23.7%.And we continue to bring new product to the market. It's very, very important for innovation for us to bring new features to our customers. This is the new GA product. It's a VSD+. I think you know the VSD technology. So we have improved that even further, and this one might be up to 10% even more efficient than the old generation. And we think this might be a good product for our customers to invest in.On Slide 10, you have Vacuum Technique, and as we indicated the order in Q2 then, you could see that activity level on semi was less than we have seen in the previous quarters.As I said earlier then the capacity installation, this is what they see when they are hesitating, but this is technology-driven, they have continued to invest.And the underlying demands for the industry, we don't see a change in that. We still believe very much in this market.And short term, you can also see that utilization of the plants are high, and we continue to build on our service business in this segment. And you can see that this revenues that they have had, we still deliver close to 25% operating profit.The innovation part here is the iXH Mark II generation and mainly for semi, but also it's a dry pump designed for very harsh environments and built-in modules for different configurations. It's a really good product for that segment.We announced the acquisition of Brooks Automation. Its cryo pumps and cryo coolers very linked to our semi business. It's for the tool makers intrinsically. We think it's a very good match, we already knew the customer, we had all the new technologies in the same organization. And we are going through the process now, and it's still on plan to be closed in Q2 next year -- Q1 next year, sorry.Industrial Technique. Organic growth of 4%, I think that was okay. This is one of the areas that we had expected ourselves a little bit more invoicing, and it was related to component shortages, specifically actually from one supplier that moved the factory.They made a commitment to us to catch up during Q4 and get back to normal lead times. Solid margin there as well, 23.3%. There we investing a little bit then more in coverage in Asia. And we also investing a little bit in the more digital solutions for service, but we have it through the -- a little bit higher cost in this business area for this year.The little bit of concerns we see for the coming quarters could also be an opportunity. But of course, we can see that car manufacturing and sales is declining somewhat. Those of you that follow you know that, that's not the direct correlation to our business, but we can also see that there is an opportunity or a challenge for our customers to decide a little bit for the future on how they're going to spend their CapEx.It be could the drivetrain discussion, should we go combustion engine, should they go hybrid, should they go electric vehicles. And I think most of them, the major suppliers have been -- we're going to need an offer in the electric.Light weighting of the products is, of course essential, doesn't really matter which way it goes. So mixed material, it's also an interest for them.What has added us, I think, a little bit on the discussion, it's a little bit the trade wars, the manufacturing footprint, where do they need to manufacture for the future. So I think that's something they're discussing internally.And the last topic I think might be more European based. But the recent discussion I think you will follow that. That of course will change a quite a bit in German premium car manufacturers if they need to go another way in terms of powertrain as well. You can see this as being discussed. On the other side, we are in a good position when they take decision, and it drives actually tooling and equipments, say, if they move on any one of these strategies. So -- but that's a little bit the activity.And we can see that these discussions with the trade wars in China, has spent a week in China to try to understand. They say that they see a little bit less activity, and that's a little bit also why we guide a little bit for this. They've also taken away in China some of the subsidies on smaller cars. So that's a little bit there.Innovation part. This is the suited products. On the left corner, there's a new control and new tools. One of these controller can handle up to 20 tools, which implicitly means that we can do mass customization. You can have a bunch of these tools in the same station. You can reprogram them for every car that comes across. You can also do rebalancing of line if you want around 15 hours or 16 hours, you can move one process to another process with these battery tools. It's a really smooth progress to deliver on the Industry 4.0.We also made a small acquisition in Germany to strengthen our technology for adhesives, that's Quiss, it is principally a 3D dimensional camera that can give us traceability on adhesives. So we will integrate that to our product, and we also stand up as a standalone.Power Technique, strong growth, 13%, rental business was doing quite okay. Also the power and flow division that we traded since 0.5 year ago, approximately -- actually with the focus now, we can see strong sales numbers.We are not leading supplier in this segment, but step by step, we're getting a little bit better. But the main driver has been the rental business. And the quarter, we have been pretty flat, I must say.And you can see the margin being 16.5%. It's a little bit structural, of course, since last year. But we're also seeing step by step that takes decisions to improve our margins here as well.On the international side, very interesting product. This is a new generator that we'll be launching 5 different versions. They use the VSD technology both for the engine for those or for the sounds, which takes down a little bit energy consumption. And the other big benefit for rental companies is the footprint is 20% less than their present technologies. I think this might be a very good fit for rental companies around the world.If I summarize a little bit before I hand over to Hans Ola, a strong quarter; revenues, second best; orders received up there, but not as strong as Q1, Q2 this year.We've continue to believe in new innovative products to the market, which we think is the long-term driving force to really give them tangible value for what will we do. And we continue to invest in Asia with best coverage as well. And in some areas I mentioned that on the revenue, especially for Industrial Technique, we hopefully then catch up a little bit in Q4.
Good. So on the rest of the financial numbers below the operating profit, which, by the way, I happen to look back 2 years, and I saw that it was at the same level as we had in Q3 2 years ago, slightly better this time. And then I realized that Epiroc was part of the group as well at that time.But -- so the -- a pretty good, solid operating profit level. If we look down the income statement, where you saw already in the report that the financial net was almost, well, more than half compared to the same quarter last year. And it's related to the things that we commented in Q1 and Q2 that we have had some repayment of old dollar-denominated loans, primarily, and that has reduced the interest rate quite considerably. And that -- and also, of course, it's affecting the amount of money that we borrow a year ago compared to now.I think going forward that around this level, about SEK 100 million or so per quarter is what we should expect before anything major changes in the balance sheet. So that's the guidance.If we look at the tax, you have seen a 24.6% tax rate this quarter, lower than last year. I have been guiding you on this one to the level of 25% or even 25% to 26% following the development that happened a few years ago, well, you remember in Belgium. Now we have another trend, and that's nice because corporate income tax levels are coming down.We are enjoying already a lower income tax rate in the States. We are seeing gradually a lower income tax rate in Belgium, and there is -- the second step is still to come. I think though for the near-term outlook, I think this is pretty representative, this level that we have right now.And when we move further on, perhaps we can update that later when we get into the first quarter of 2019, but this is roughly the level that we think is representative.Finally, it's nice to see the return on capital employed above 30%. Again, very strong. The reason you don't see a comparison is of course that it was a very difficult mix of separating out Epiroc, specific now the capital employed side with all the internal transactions. But 32% at least is very, very strong number of course. Moving in to slide number 14 then. This is the whole group. You can see that we have, of course, both on revenue and operating profit enjoyed a better translation, but also a certain better transactional currency situation, so that has helped. You also see the other big part, which is the big onetime profit that also Mats alluded to in internal -- in Industrial Technique last year in Q3, which took away the -- about SEK 380 million only on that point from last year's profit.So -- but if we move to the next Slide 15, you can also see by business area, perhaps a little bit of more messy slide than normal, a good, okay, so-called flow-through on Compressor Technique.We grow revenues organically above -- a little bit more than SEK 1 billion and a little bit more than a SEK 0.25 billion in the profit. So I have said many times before, you cannot take one specific quarter as a trend.You cannot say that this is exactly what will be when we report next time just as we have had quarters when we have been closer to 50% in this percentage point. So it is something.We continue to say that for the business areas, something in the region of 30% is probably when you have those downturn years and upturn years taken into account. That is what we should expect from flow-through in this column.Then you see 2 divisions with negative revenue growth in the quarter, and Mats had talked about Industrial Technique and the Vacuum Technique.Here, the impact on the operating profit in the Vacuum Technique is, of course, a little bit accentuated by the fact that semi is the one that is dropping more or is explaining the drop.And as you have all come to conclusion already in previous quarters, there the margin has been higher than in the rest of the business area.So that gives a little bit of an extra negative effect. But in relation to the operating profit in total, of course, these numbers are still relatively small, if I say it like that. So the percentage exercised here, we don't even do.Industrial Technique, Mats commented on a conscious investment in certain cost items, like coverage and R&D on top of a somewhat low revenue quarter. And then Power Technique, which I think is representative of a reasonable quarter without fine tuning the analysis too much.If you go to the Slide 16, balance sheet. A solid financial position is what it represents, with a net debt to EBITDA of about 0.5. So we have ample room to continue to do acquisitions primarily is what we spend our strong financial position on and then of course also distribution to shareholders. But in that order, as we have said many times before, I skip other comments on that and then go to cash flow on Slide 17. And there you can see a number, which is not really comparable with last year because as the note says, it included the whole Epiroc business last year.If -- we can do a rough calculation of continuing operations, of course, and then it comes out to roughly in line with this year's SEK 3.4 billion in operating cash flow. The big difference between this quarter and last year is that we were still releasing cash from working capital at that time. And since the revenues have grown tremendously from a year ago to now, we are instead investing a little bit in this quarter in the working capital. That's primarily so -- the difference, even if I do the analysis on continuing operations, and of course, profit is higher this year in continuing operations than last year.We then turn and I also turn. I give the word back to Mats to comment a little bit on the outlook.
So the near-term outlook for Q4. Let me try to guide you a little bit what we see in the market in terms of activities. It's one of the more difficult one. Q4 is one of the months where customer might say they want goods earlier or they want them pushed into the next year, so that's a little bit difficult for us to evaluate that from time to time.But what we see -- let me start on semi then. It's mainly done, as I said, we can -- the Industrial -- Vacuum, I would say, even if it was kind of flat, we don't see a negative trend there at all.We continue with service offering in industrial and semi being positive for us. And the one that's difficult to predict is actually the key account structure of the semi business, how many have placed orders in Q4, and how many will place orders during next year? We are not concerned about the market, we know that the investments will come, and the difficult part is to determine when they actually place the order and when they want deliveries.The motor vehicle industry has had a number of fantastic years. We don't think it's falling off a cliff by any means, but we can see that a lot of the turmoil that I discussed a little bit earlier influenced a little bit of the decisions. They have to take a little bit in terms of where to manufacture and how much. So you can see that some of the decision takes a little bit more time than in the past, and that's why we said we see a little bit less activity in Q4 than in Q3.On the other side then we're very positive to the construction market, which rise a little bit, ramping business. And the PT business, we don't see that changing. Oil and gas, we're also seeing more activity there, which is influencing some of our bigger compressors.And of course, generally, industry was very positive or the Power Technique. As for the Industrial Technique, that was for the Industrial Compressors. We don't see that changing either. So there's a couple of segments in the market that we will said it's a mix demand picture, and we concluded it in this way that customer demand is expect to be somewhat lower, mainly due down to semi-conductor and automotive industries. I don't know if you want to add there, Hans Ola.
No, I think we terminate there. I think that was a good summary of the automotive. So let's turn back the word to the operator for the Q&A session.
[Operator Instructions] The first question is from Graham Phillips from Jefferies.
My question on -- is -- will be on Vacuum Technique. Can you talk a little bit about the other market? So you're saying half is semiconductors, but what sort of growth, growth in orders do we see? And if semiconductor -- if the overall business is down 19%, does that mean semiconductors is down 40%? And what is the sort of split between sort of memory and logic? Is there anything you can sort of talk about there? And will deliveries be in the fourth quarter down that sort of order of magnitude? And what will that have in terms of the mix to the drop through margin? And as you say, it can vary quite substantially between plus and minus when you're talking about a decremental margin rather than incremental margin.
If I start at least, I mean, we don't actually really discuss the details down to the divisional levels. But as we have indicated then industrial was a little bit flat in the quarter. But we don't see that as the real trend for the market. We see that as more as in general industry market, so we think that, that is an opportunity for us to continue to grow. I also think that is the area where we have the most product innovation, and step by step, we'll increase the depth of our product portfolio, both with Atlas Copco branch and the label brands. And on the margins...
Yes. On the margins, yes, you have seen a number of years or a number of quarters at least where we've had a good market situation and a good, strong order growth and revenue growth and the Vacuum Technique business area has -- had delivered very strong margins.And of course, as Mats has alluded to a couple of times already, it is however a key account exposed business area. And then I'm talking about the semis, which now represents as an area about half of the business, as Mats said. It's bound to react, more volatile than, for example, the CT business that you have followed for many decades now.The -- we see, in good times, that the margin has surpassed the CT business area. And when the markets go down or the revenue falls, we also expect that it will react in the other direction more than what the CT business area does when the markets or the revenues fall.But we are also pretty confident that just as the Compressor Technique has been very stable now for a while, around 23% or even more than 23% margin, and the VT has done even more, 25%, sometimes even 26% profit margin. It's those types of differences that we expect to see. Also if the markets turn negative or the revenue trend starts to turn negative, our expectation is definitely not that we see a completely different Vacuum Technique performance when revenue falls. But it's certainly so that being a distance above CT in good times means that it will also be, of course, lower with this type of key account tapped on more volatility, it can also turn more negative in -- when that situation comes as it's now -- as we have in this quarter.The reason I compare with CT is that, we have said many times, is that structurally, as we see, and also of course, built on the strategic initiatives growing the industrial part of Vacuum Technique business area and also growing consistently the service share of the business for reliance purposes, we don't really see a good reason why Vacuum Technique over a business cycle should not perform roughly in line with Compressor Technique. But in the swings, both up and down, there is more sensitivity and there is more volatility due to this more concentration to a few key accounts, more concentration to a few geographies, more concentration to one industry.
I think to add to that, just think on the agility side and the semi side is where we are maintaining temp workforce, 3 times more temps than in any other divisions. So given a little bit of time, I think we should be able to adjust our structure, in a way, as well. So I think they're ready for up-and-down swings, and this we have to accept in this industry, where it's driven by a number of key accounts globally.
That -- okay. Just one follow-up. And so have you reduced the workforce of fixed cost in anticipation that there will be a -- say, a 40% fall in semiconductor at those particular facilities?
I mean, we have adjusted in some of the facilities in the semi division, yes. But it's not that we do it in anticipation of a 40% downturn or something like that, no. If that was your question, no. But we rely, of course, on the structure that they have built with a lot of temporary workforce to be able to quickly adjust. That's for sure. But we are still at the heavy -- that rather high level of revenue, as you have said, and that also means deliveries and the activities are still on the -- on a high level.
Next question is from Klas Bergelind from Citi.
It's Klas from Citi. First also on the Vacuum Technique. When I back this out to get this down 35%, 40% roughly on the equipment side in semis, and when we look into next year, we at least have NAND CapEx down 30%, which is Vacuum intense and feels like a good proxy for equipment orders. How about cancellations with -- which could come on top? How does the backlog look right now? Should we get concerned that you can have cancellations, which could see total volumes looking worse?
We made the same reflection and talked to the team and said, now we have a lot of orders on hand, should we not get more out though on revenue side for the quarter? And then we have bridged that and each ME might be smaller cancellation but that would be normal. It's more that the customer have postponed a little bit the orders for us, and that's what we have seen so far.
Okay. Just a quick follow-up on your guidance. Third quarter order's weaker, I guess a surprise for you as well outside semis. And you're guiding for somewhat lower demand against these lower level into the fourth quarter. You're mentioning semis and automotive as the key drivers, but just so we get this right, are you then saying that you're expecting Industrial side to stabilize in the fourth quarter? Or is that just seasonality? There was a weakness there that we spotted in CT in Europe and Asia. And then on automotive, Asia is holding up, but you're guiding for further softness in MBI. So is that Asia that you now expect to weaken? The China data there has been pretty grim. And obviously, CapEx could slow with a lag versus the weaker production.
That was so many questions, that's an -- I don't know if I can keep up with you about but I will try. On the MBI side, I've seen that they're looking throughout the year intrinsically down. U.S. has been the one that's been performing on the lower level, and we have seen continued growth in Asia, and that has really driven the business. And what we see now is that it's still on a high level but what they communicate with the customer is that they see a little bit of concerns for the economy intrinsically, leans a little bit of -- if that reason enough to dissuade more some -- and all these things. And they say -- so I think they see that the customers that normally have invested quite heavily are a little bit hesitant to give them the order, and that's a little bit what we say, we don't see a major shift. But comparing with sequentially, we see less activity.
And now on Industrial?
If you mean Industrial, generally industry accounts, we do not see that. We would say that we had a strong growth in Q3 basically.
Year-on-year, year-on-year growth.
Year-on-year, yes.
And I meant last CT. Sorry, mark of -- I meant CT in Europe and Asia, we spotted some sequential weakness there but maybe that was your seasonality?
We have -- we don't -- a global business talking too much about seasonality, I think it's relevant in Power Technique where we have commented that. And then on the others, we see perhaps not because of true seasonality, but we see that Q3 is still affected. If you look through the graphs over the years, between Q3 and -- Q2 and Q3, yes, if you call it seasonality or something else, I don't know, but it's not the strongest quarter normally. So hence, it's why we still want to talk about what we see in relation to the import, we still hear a good demand level with the extra comments of some hesitant -- hesitance on capacity buildup at that -- in timing, so to speak, that Mats talked about.
Next question is from Lars Brorson from Barclays Bank.
Sorry, to bend and go back to semi OE, but it is an important part still of your business. I'm just trying to square your outlook at the time of the Q2 report, somewhat lower for what seems to be an agreement of the numbers mentioned earlier, something that looks like on your semi OE side down 40%, probably 50% sequentially in terms of order intakes now. And then in my book, that's substantially lower, not somewhat lower. I appreciate your guide on demand outlook not on your orders. But would it be it fair to say that Q3 has come in, Mats, somewhat worse maybe than you expected at the time of Q2? And just on the Q4 outlook, is it the same issues, the same customers that's leading you to maintain these lower guidance into Q4? Is it more broad-based weakness?
The definition of "somewhat" could, of course, be discussed. But yes, we have seen that a number of orders have been postponed into the future, although as I said, there are no significant cancellations. When we look into Q4, I would say it's a key account structure, and there are a number of accounts that are still investing, and they're still the same one that are not investing as much. So we don't see this spreading or anything like that. It's more structural. Probably, when we talk about it in the coming quarters, you might say it's the other way around, that someone stepped up the investment and someone is not investing.
And beyond your temp workers, what action are you taking on cost, if I can just ask, to derisk the earnings for semi OE going into '19?
Yes. This is what we tried to comment before that we have on the agility side, we have a -- the number of temporary workforce is the highest we have in any of the business areas, et cetera. So there, it's already partly in the structure and partly being executed as we speak.
Maybe I made smaller changes in the temp workforce but still have in mind that there's still a lot of orders to be delivered, but we say we have the readiness for another scenario as well, if needed.
Next question is from line of Markus Almerud with Kepler Cheuvreux.
Markus from Kepler here. So just coming back to Klas' question about the Industrial side. So if we can just ask, so you have sequential falling of compressor orders and looking at Industrial Vacuum, you also see a sequential fall in orders, you're right, but then at the same time you see a strength in general engineering. So is the way to -- I mean, how do I put those 2 together? And can you talk a little bit about trends in there. If I understand you right, the underlying demand is pretty unchanged for both those businesses, is that correct? And can you maybe talk about the different regions than you -- North America, China and Europe?
Well, I can start, Markus. The -- even though it's not the semi business with huge key accounts, of course, there are certain differences between the actual orders that we receive in one quarter and another, and the attempt to give a guidance on our customer space, so to speak, which we intend, which we try to do in this near-term outlooks. It is not -- the reason we struggle is, of course, that we don't give the projection on the order intakes since many, many years. And then to translate between a customer trend or general economic trend that is, of course, not so easy to reconcile every quarter. And I think that's what we are trying to say on the general industry side of it. We don't read everything into a quarter compared sequential development for orders. We have other ways also of judging whether the activity is still there and what the customers are talking about for the near future. All of that is, of course, a little bit more difficult when there are geopolitical and trade war-related uncertainties, it becomes even more tricky to understand what -- how will they actually decide on the timing. But we're trying to make more than just month-by-month expectance figures for orders into this near-term outlook. If we do it now in the beginning of July and looked out on the demand patterns and now do it again in October, I think everybody would agree that if there is any direction, it's a little bit more uncertainties around, that's also what we feel. Look, it comes back to how we react to it, and Mats already talked about that.
I think it's a good comment on the quantify, define industrial trade wars. Over the last quarter, I think that has been more in discussion than previously, even if -- I mean, there are some companies that have a direct impact. We have fairly little. Some of our customers do, but that is more the unease they feel right now in terms of what will actually happen, how will this impact different markets. But the underlying demand, if you look at traditional segments rolls like all through them in there, they're doing really well. We get good orders from that. We have aerospace, it's also strong. So some of these general industry market is performing really well. And this is, of course, linked to what's done in the industrial compressors. But the uncertainty has increased with all the discussions. We had the Turkey situation. You have the Iran, maybe a previous stock floating there. You have the Russia situation with some of the major companies there where we have to be very cautious and follow the sanctions. So there's a little bit of things that makes it a little bit more uncertain than normal.
Okay, perfect. And then maybe you could just very quickly just a housekeeping question, and maybe I missed it, but if you could just help us with the FX impact for the next quarter, if currency stay unchanged as it usually do would be helpful.
Thank you for reminding me, Marcus. No, you saw we restored to SEK 470 million on -- in absolute value, that is, that doesn't mean that it's relative to the margin impact. But the SEK 470 million, we believe that it will be couple of hundred million Swedish kronor positive in Q4, just judging where the numbers are today or where the exchange rates are today compared to Q4 last year.
Next question is from the line of Ben Uglow from Morgan Stanley.
Two quick questions please. And I know it's been done to death a little bit on the Vacuum side. But what I'm trying to understand is, you've got a lot of key accounts, a lot of big semis customers. And last quarter, the impression was that this was a kind of problem, or localized issue with 2 or 3 of these key accounts. Is it fair for us to assume that now we are looking at something larger and more broad-based? I.e., is it a general trend that you're seeing? Or is it -- or as per your opening remarks, China and Korea, we have a pushout of a couple of large orders, and it looks like a very big change. So what I'm trying to understand is, is the sort of general market trend? Or is this really down to what XYZ in Korea or ABC in China is doing? So can you just flesh out how that's changed quarter-on-quarter? And the second question is in China, if we strip out Vacuum, you're plus 7%, I think was the number given. Can you just tell us how that plus 7% -- how your orders evolved during the quarter sequentially in China? Are you -- did we see a material difference from July, August into September? That was it.
I think I'd start with Vacuum question. We still -- yes, in Q1, Q2 we have significant orders from China. Those have not repeated itself in Q3 and Q4, probably. So that we say then we see a little bit lower demand. They still selected to a number of key accounts, but those key accounts are very big. So we don't see this spreading throughout or anything like that. So when we look at all key accounts, it's principally the same accounts. But have in mind then that the capital of these big orders -- I mean, I visited a semicon in China 2 weeks ago and I mean, the investment is $6 billion for that plant. And they were planning on building 2 more. And we had a very high market share. But if you get one of those projects and you don't repeat, of course, it changes the whole quarter and everything. So that's the way we see it, and I think I have to repeat myself a little bit.
And on the other part, yes, of course, as we have never done before, we will not start now than to comment on each month in the quarter. But I understand what you're after is there sort of a shock in September. But I -- as July, now, I -- it's not something of that sort really that we see or that we build upon. We are just talking about the quarter actually and that's what we are continuing to do.
Understood. That's helpful. And one quick follow-up. If -- I don't know if you've sort of made a public disclosure or whether you can tell us what the -- roughly, what is the service? Or what -- how should we think about that business as a proportion of the semiconductor side?
In -- Mats alluded to about half of the business, that is the semi exposure currently roughly for VT. So that's how...
Sort of how big is it kind of aftermarket?
Yes, and that is including the service part of it. And so the bulk of that exposure is, of course, the equipment. But that is what has changed dramatically. So it's -- that turns to sort of a 40-10 or something -- or 40% equipment and 10% in service for the semi part, but it's somewhere in that region.
Next question is from SĂ©bastien Gruter from Redburn.
So yes, it would be again on the Vacuum. But we know the 8 deal orders are a big planting in that business or are very strong in '17, part of '16 and now they are weak. But shipments, is there any reason why we should think that the semi part of Vacuum will underperform the equipments? I mean, which equipment -- semiconductor equipment market next year. Have you lost any market share in the last 2 quarters? Or is it a Vacuum density issue you are facing in '19? So just your performance versus the market, and if we can just talk about the shipment and exclude the order intake issue? That's the first question.
Yes. To start with maybe, yes, orders received has not been levered with the last 3 quarters, but we still think it's in quite okay level. I mean, we deliver close to 25% on the revenue. So we did -- don't think it's too bad. And then we, of course, follow all the indexes around the world regarding CapEx investments for the coming years. But we have learned at least that it gives us not-so-good guidance, some speculative and negative growths for CapEx. But the majority still speculates that we will see an increase in CapEx spend for next year. We look at it, we don't draw many conclusions, but we make ourselves ready for an upturn or a downturn if needed. And the one other thing that we look at is pricing or for memory and logic, and you can see that's a little bit on its way down. On the other side, if you look at our customers, first, sales continue to be fairly strong. And also, the margins they make, it's very healthy to say the least.
To say the least during this process. You -- I think you talked about -- I don't know if you -- it and -- yes, on -- is it a market share movement? Are we losing? Or are we -- or gaining? And looking into 2019. I think that's what your question was, SĂ©bastien.
Yes, yes, versus your whole semiconductor equipment market and versus the Vacuum market within semi. So is there any reason why your business could underperform the semi equipment and the Vacuum equipment market in '19?
Well, as a share, those equipment that we deliver, the pumps, in other words, and the -- compared to the general spend in the industry, that's what you're asking.
And your performance, do you see a market share that will justify the lower order intake? Or you think it's just the lumpiness of orders?
No, I think we will -- if you look at semi, I mean, there's a handful of competitors in that segment. We believe that we are the leading brand globally, and we are in a strong position with new product that's going to continue to gain market shares. And we were very successful over the last couple of years, when we see the start of the investments in China. And we continue now to be along the service business there. And on Industrial Vacuum, going to market with 3 brands with a lot of new products, considering the growth numbers we have had, we cannot see it in any other way than we have gained our market shares. and that market, I think, becomes -- continue for many years to fuel with new technologies and actually change the way they handle working in the Industrial Vacuum mix. We run into, from time to time at least, rather old technology. And we can give them a better product with better energy efficiency, and we like that. We think we are gaining position in both those segments.
Okay. And a very quick question on the FX impact in Vacuum on the sequential basis. Just to assess the first 2 which was 40%, but that include FX? And I think FX was quite positive compared to Q2. Can you give us a rough idea? Year-on-year it was 160 but quarter-on-quarter?
It was a negative impact on the sequential. Actually, we don't have the same type of open disclosure as you can see from a year-to-year comparison, but it was a negative. And that year-to-year, they, of course, have a positive impact from currencies.
And quarter-to-quarter was positive or negative?
It was negative, yes.I think we have time to take one more question. And for those that are still waiting on the line, which we regret, of course, a lot, we hope we can serve you from after the call as well as good as we can. But we take one more question from the call.
And the final question for today is from Max Yates from Crédit Suisse.
Just a quick question on Compression margins. And I guess firstly within that in the quarter, could you talk a little bit about whether you are having any negative impact from raw materials versus pricing and whether that had any impact from the margin? And then secondly, more broadly, when you think about sort of compressors into next year, when you look at the pricing environments and the cost base, obviously, we are back at peak margins now. Do you see any scope for margins to go higher next year? Or do you think this is the sort of level where they tend to top out and actually keeping them at this level will be a good achievement?
Yes. I think I will just echo your last comment there. Over quite a long period of time, Compressor Technique being the biggest business area that we have, have delivered significant cash and profit generation at sometimes a 22%-ish, sometimes 23% and this time even 23.7% operating profit margin. But they've been extremely stable at that level. The reason it is stable and not ever-increasing is, of course, that we prioritize to grow this fantastic return on capital employed machine. I don't know if you noticed, but it was reported 103% return on capital employed these last 12 months. And so for us, it's very easy. We continue to pour money and efforts into the business, and we're happy, very happy with this profit margin level. And then it's all about making sure that it's bigger and that it's as strong 5 years from now that, that's basically what we aim for.
Okay. And maybe one very quick follow-up. Obviously across sort of the semis equipment supply chain, we've seen weakness across a number of companies. You obviously made the Brooks Automation acquisition. Do you broadly look at this kind of weakness across the supply chain as maybe the opportunity to utilize your balance sheet and pick up more assets? Do you see that as sort of part of the strategy? I'm just trying to wonder how you think about your balance sheet given the weakness and maybe more attractive valuations in these assets than we've seen for a while.
When we look at each of the 21 divisions, I would say that intrinsically every one of them is allowed to look at the acquisition. They are really good margin businesses, and we're looking for growth. And so we have presented likely a strategy targets for what kind of segments we like to be in, and we look very much at the stand-alone attractiveness for different segments. And when we have that defined intrinsically, we ask the precedents to start to release candidates that could be a good fit for us from a synergy standpoint, from a coach's standpoint. And of course, if valuations come down then maybe some make up their mind that they want to do something differently, and we will be eager then to execute on that. I cannot promise you that we will do more or less right now. But yes, we would -- we will have the ability to execute, and we know exactly what we like to do.
Thanks everybody for participating in the call. We have done our hour now. Before I leave you though, we did not comment on Slide 19, but I take the chance now before I let you go. There's 1 week to go to register for the Capital Markets Day on the -- November 15 in Stockholm, Sweden. If you follow the link, you will get more details. But please, if you haven't done so already, sign up for the November 15 event in Stockholm. So with that...
Thank you so much for calling in and have a good weekend.
Thank you, bye.
This now concludes the conference call. Thank you all for attending. You may now disconnect your lines.