Epiroc AB

STO:EPI A

Earnings Call Transcript 2019-Q1

[Ingrid Östhols, Vice President Investor Relations]

Good morning and warmly welcome to this presentation of Epiroc's first quarter results 2019. I'm Ingrid Östhols, Investor Relation of Epiroc. Our CEO, Per Lindberg, will start talking a little bit more of -- around the general performance in the quarter and after that our CFO, Anders Lindén, will deep-dive into the figures. And after the presentation, we will have a Q&A session. [Operator Instructions] So Per, please go ahead.

[Per Lindberg, CEO, President & Director]

Thank you, Ingrid. And it's a pleasure to be here. And 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 second half of last year and actually slightly up versus quarter 4. And especially good to see the robust demand for aftermarket and activity continues to be good among our customers. So 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 4, we are actually pretty much on par or actually slightly up and 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.Now that may not necessarily explain all of the difference, but it's worthwhile noting that difference. But 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 and which means less risk, less capital deployed, perhaps slightly higher cost at the end when it comes to operation and we think also that's why they also look for productivity improvement and also investment into equipment that can help them lower their cost and of course that's where we come in.Revenue is up and also we have a good development when it comes to profit. Our margin improved, primarily driven by currency and also we made acquisitions. We made -- we closed the acquisition of Fordia this quarter and after 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 noted 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 continued to work with efficiency actions in -- primarily within Tools & Attachments. That has also given some good results in the quarter. And we're also reviewing other options for improving efficiency, especially as we now are an independent company and we also need to adapt our cost level accordingly.Looking into the key financials, already mentioned organic order decline of 5% versus the very strong quarter 1 of last year -- quarter 1 of last year. Development sequentially slightly better, actually slightly up versus quarter 4 of last year. We also improved the revenues, continued to ramp up production versus last year. Actually revenues slightly down sequentially, which was not surprising. We did have a very strong quarter 4 when it comes to production and deliveries which came down a little bit the beginning of this year.Profit increased with 27% and here we have -- also to note is that we have a change of provision for long-term incentive program of SEK 59 million and we have split cost of SEK 17 million and 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 adjustment margin is 20.5%. And the reason I mentioned the split cost is that we did have split cost also in the corresponding quarter of last year of SEK 95 million, so comparing the 2 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 and 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, decrease in payables, I'm sure Anders is going to mention that, but 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 and we have service and equipment and services of course one of the segments and then we have Tools & Attachments. The arrows and the numbers in between is the organic development and as you can see service increased with 8% organically. We had a slight decline in Tools & Attachments and a 16% decline in equipment. All in all, now equipment and service is 72% of the business whereas last year it was 74%, so relatively steady. To the right, you have the breakdown of the aftermarket or which in total is 66% and that last year was 67%, so 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 and greenfield primarily. This drives aftermarket business and equipment and service case. That means a good development when it comes to service and a decline when it comes to equipment. But it's really worthwhile noting that equipment is more or less flat versus second half of last year and actually slightly up versus quarter 4, so 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 24.2% versus 22.9%, primarily driven by currency. One thing that is very good to know or good to note is the development in battery. We have received a very healthy and good order of battery equipment to Canada and we also have a cooperation with Railcare where our technology is used for -- 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 My Epiroc which is basically a tool for digital overview and maintenance or management of the fleet, so 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. And when I -- so far I've really talked about mining customers, which is now 74% of our business. Infrastructure is really the rest, 26%, and of course in Tools & Attachments, tools is mining and infrastructure and hydraulic attachment tools is primarily infrastructure. Both of these looks quite healthy, even though hydraulic attachment tools in infrastructure slightly softer due to seasonality, but 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 last year for hydraulic attachment tools. And also in this quarter, we continue 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. But of course we don't do that because we backed out of that business.Revenue grew with 7% and margin improved to 14.2%, and 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 strengthen -- complement and strengthen our offering when it comes to exploration tools and competence. And beginning of April, we closed New Concept Mining, high competence and a very specialized and good equipment when it comes to rock reinforcement. And we think this is also a very good complement to the product portfolio and the competence that we already had in -- 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 in -- when it comes to primarily demolition sites.So all in all, I think it's a good start -- solid start for the quarter. And now I'll leave it to Anders to move into some of the details.

[Anders Lindén, Senior Vice President of Controlling & Finance]

Okay. Thank you, Per. I will give some meat on the bones for the numbers. And starting with the -- some 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, the -- it's quite frequently we have lower revenue in Q1 and Q4 if we go back over the years and compare. And 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. However, the Swedish krona weakened somewhat during April, but it's a little bit early to tell whether -- yes, 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 0.2% as Per mentioned from -- if we also adjust for the onetime split costs we have. 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, but 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% last year.We should also mention that we -- the corporate costs, while we still believe they are now going on the level, 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. But for the most part, it's on the level that we see. So for the SEK 59 million, maybe I should also mention that it's very related to the change in the share price. So 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 increasing 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 little bit -- it's 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 evaluation or revaluation related to Zimbabwe, where the newly introduced RTGS dollars have been allowed to float, and as such triggered evaluation, which also gives some opportunities because now they -- 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%, we're slightly below. So 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. So 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. But 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 billion of the net debt is made up of the SEK 2 billion impact from IFRS 16. But overall otherwise there is no major change.From -- 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 bilateral loan and the next maturity for that is 2022. And that is all according to plan and so 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, we -- obviously we have a volume impact mainly on receivables in inventory, but also not quite material element of currency and acquisitions. And the average net working capital is also slightly higher. As we said it's -- a lot is in inventory and receivables. And Per also mentioned that it's something that we have on -- very much in focus.On the sequential change in net working capital, we don't see much of a change in the -- a 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 the market and also flushing through. We will expect that to improve over the next the quarter or 2.The -- 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 in -- 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. However, 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. And 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.And with that I stop and leave it to Per for summarizing.

[Per Lindberg, CEO, President & Director]

Yes. Thank you Anders. And 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 first quarter of 2018, which was very strong. And so it's important take the comparables into the equation.When we look at the quarter sequentially it is flatter, even slightly up when it comes to orders and we expect that scenario to continue. So there's no reason or no signals from the market that this, what we saw in quarter 1 will materially change looking into the short term. So 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 the -- 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 4.So that's the summary.

[Ingrid Östhols, Vice President Investor Relations]

Thank you, Per and Anders. And with that, I think we open up for questions. So operator, do we have any questions from telephone conference?

[Operator]

[Operator Instructions] Our first question comes with the line of Klas Bergelind from Citi.

[Klas Henrik Bergelind, Director]

Per and Anders, it's Klas from Citi. A couple from me, please. First on Tools & Attachments, I note 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 and is the high-margin business within T&A. We know that construction and infra led growth is pretty solid out there. So have you started to be selective on the orders also on the attachment side, not only in rock tools? Are there any changes on the competitive side explaining this? Or is it just purely demand-related? I will start there.

[Per Lindberg, CEO, President & Director]

Well, that's good of you to note that, but we're not backing away from any business in tools and well, and attachments. It's -- as you mentioned, we're quite happy with the profitability and 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, but 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 winter, so we had a severe winter in North America and seems to be also quite a slow start in Europe. So that's kind of where we are. It's -- we have not made any active decisions in terms of how we do business, nor do we see any major change in the market.

[Klas Henrik Bergelind, Director]

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 would likely stay as there are investments in automation and in the electrical mine, but I mean the extra cost you now carry, that can drop out?

[Anders Lindén, Senior Vice President of Controlling & Finance]

Yes, 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.

[Operator]

Our next question comes from the line of Guillermo Peigneux from UBS.

[Guillermo Peigneux-Lojo]

Guillermo Peigneux from UBS. Just a question maybe on -- qualitative question on how the quarter did progress through the months I guess? Did you see any particular trend in the month at the beginning of the year versus the end of -- sorry, the end of the quarter versus the end of the quarter and in which [indiscernible] do you see any particular trend that you dislike or like more if I may?

[Per Lindberg, CEO, President & Director]

Well, I think we saw a relatively slow January, gradually improving into February and March. And especially when it comes to our service business, February and March was quite strong. So 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 pretty much continues from second half of 2018. And again, we expect that to continue into the near future as well.

[Guillermo Peigneux-Lojo]

And 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 is still growing as we saw over the last 2 quarters when it comes to drillers and haulers. If any particular part of a business that is lagging or more or less consistent?

[Per Lindberg, CEO, President & Director]

Well, we saw -- as mentioned, we saw a decline now again versus a very strong quarter 1 of 2018. We saw a decline both in surface and on the ground, not very much of a difference there. But again, quarter 1 was exceptional last year. I think right now is probably makes for us more sense to look at the sequential development and there we see a flat to even slight improvement in quarter 1 versus quarter 4. So you say disappointment, well, for us it's more expected rather than anything else.

[Operator]

Our next question comes from the line of Graham Phillips from Jefferies.

[Graham Phillips]

I wanted to just square up your comments at the beginning of the release where you talk about profit having been helped by service and then looking at the very drop-through -- 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 much higher drops in margin, I mean I'm conscious that the higher IT, R&D and costs there, but do you think that still yet to come rather than actually making the comment right up front that it actually has helped this quarter?

[Per Lindberg, CEO, President & Director]

Well, I -- to be a little bit more specific on drop-through, I mean Anders mentioned some of the -- of course the -- call it corporate costs that we have and also the costs 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 & 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 can do -- we should hopefully see some improvements there going forward. And that is most 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. So there's definitely some improvements we need to make and production efficiency. And that should also help the overall drop-through for that segment as well for the company as such.

[Graham Phillips]

I mean, can you expand a little bit on what these inefficiencies in production, are they externally caused or internal issues? How long should they take to be fixed?

[Per Lindberg, CEO, President & Director]

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. So -- and 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 2. That's not a guarantee. But the expectation is for the most part that's going to be fixed into quarter 2.

[Graham Phillips]

Which plants is this that's causing the problem?

[Per Lindberg, CEO, President & Director]

It's one in Sweden and one outside of Sweden.

[Graham Phillips]

Okay. And the other thing is on foreign currency the -- and 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. So obviously there's a 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. So 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?

[Anders Lindén, Senior Vice President of Controlling & Finance]

Yes, maybe I can elaborate a little bit on that. You're absolutely right, we do see a transaction effect, which absolutely also is driven by -- mostly by a limited number of currencies, which we quite well explain in the -- in let's say our annual report, but nevertheless, the U.S. dollar has -- is a very strong influencer. So is the Aussie dollar and the Canadian dollar. The rand is also material. But between the four of them -- euro, you 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. So -- but the details you can find in one of the notes in the annual reports and 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. So it's -- we will obviously see things go the other way around when currencies drop, but on an overall basis that the -- yes, those are the currencies that we have to work with. And obviously in -- well, limited impact from a couple of dozen other currencies as well.

[Graham Phillips]

But in the quarter itself, given the very large drop-through, I think highest in Spain, there wasn't any one particular currency then that helped?

[Anders Lindén, Senior Vice President of Controlling & Finance]

No, I mean, we can look at the currency development, I mean that the dollar went up quite significantly. So I think if we compare sequentially, the period-end rates that we had end of December, it was quite high and that's why I say also that if we now go through to 2019 and look at the levels we have, we probably not year-over-year have so much impact in Q2, but then something happened towards the end of the year. So the period-end rates in 2018 were quite low. So 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.

[Operator]

Our next question comes from the line of Markus Almerud from Kepler Cheuvreux.

[Markus A. Almerud, Senior Research Analyst]

Markus Almerud from Kepler Cheuvreux. My first question is on exploration, can you talk a little bit about -- I think it was in Q3 last year we saw quite a sharp uptick in exploration. Can -- 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.

[Per Lindberg, CEO, President & Director]

Well, actually exploration has -- in the beginning of this year in quarter 1 has not been as strong as we expected. So I expected -- I think I mentioned that after quarter 4 I expected an increase of 5% to 10% in exploration budget spending. Has not really materialized in quarter 1. So it's been kind of on the soft side. And it's -- 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. But nevertheless the exploration in quarter 1 was slightly softer than expected.

[Markus A. Almerud, Senior Research Analyst]

Okay. And then my second question is on greenfields. We're 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?

[Per Lindberg, CEO, President & Director]

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. Of course, it's not like there are no -- totally no greenfields, there is a few, but less than a handful. So again, our interpretation is that a fair amount of discussion on greenfield, not so much action or capital employed on greenfield. Most capital seemed to be spent on relatively smaller expansions of brownfield translating into smaller orders for us related to brownfield expansion of course. So that's kind of where we are right now. So I think -- I don't think we've seen so much of a difference in terms of greenfield discussions.

[Markus A. Almerud, Senior Research Analyst]

And 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 2?

[Per Lindberg, CEO, President & Director]

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. It's greenfield surface as well as some occasional greenfield underground as well, so not that big of a difference.

[Operator]

Our next question comes from the line of Matthew Spurr from Exane BNP Paribas.

[Matthew Spurr, Research Analyst]

Just on your outlook, and I realize you kept your sequential outlook unchanged at flat. I suppose the difference between now and [ Feb ] is commodity prices are more supportive, copper is at 6,500 versus close to 6,000 in Feb. I wonder if you can just comment there why you don't think you've seen a pickup in -- on the line activity? And then 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.

[Per Lindberg, CEO, President & Director]

Well, again, yes, to reiterate the outlook, it's we expect it to be more or less unchanged, the order situation. The -- it's right that the prices for commodities have increased over the last 2-3 months, but it's been also been quite volatile, and over the last month or so, without any clear direction. So I think lack in this direction I think will just keep miners on the cautious side. We expect activity to continue to be strong, so which will translate into strong demand for -- continued strong demand for our aftermarket equipment. 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. So the small to medium-sized orders that we have, I would expect to continue.

[Matthew Spurr, Research Analyst]

All right. And then can I have one more on Tools & Attachments? My line cut out, so you may have answered it already, but have you given the impact of these rationalization actions or the stepping away from business, have you said what the impact was in -- on orders in the quarter and also where we expect to get to in terms of the headwind? And then also was there any -- what was the benefit to the EBIT line from stepping away from this less profitable stuff?

[Per Lindberg, CEO, President & Director]

Well, you saw the development of the EBIT up to 14.2%. So part of that definitely due to our tail cutting. The size of the tail cutting is actually roughly 3% from -- on the segment overall. So that's the sort of the magnitude of the business that we've stepped away from.

[Operator]

Our next question comes from the line of Andrew Wilson from JPMorgan.

[Andrew J. Wilson, Analyst]

Maybe just a quick follow-up to Matt's question just that, is there anything in the Tools & Attachments margin which we should think has been a kind of one-off benefit? Or it's reasonable to think that this sort of level of profitability can be the run rate for 2019 as a whole?

[Per Lindberg, CEO, President & Director]

Well, the -- there's no significant one-off in the first quarter for Tools & Attachments. So I expect the improvements that we've seen to continue. As mentioned already, we do the tail cutting, so 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 1 that will -- the level of impact will progress or increase over the course of the year. So I expect that to have an increasing positive effect over the year. So I expect this level to be as a minimum to continue this level.

[Andrew J. Wilson, Analyst]

That's very clear. Maybe if I can just have one quick follow up just on the cash side. On working capital has clearly been quite a lot of moving parts and not least obviously the FX impact that you see. Can you just kind of talk about how you see that developed into the balance of the year? I appreciate some of what you're trying to do within capital is a bit longer term in terms of the benefits and the payback, but maybe just to give us a bit of help, I guess some expectations for the balance of the year, please?

[Anders Lindén, Senior Vice President of Controlling & Finance]

If I understood you correctly, you were specifically referring to working capital, right? It cut off a little bit.

[Andrew J. Wilson, Analyst]

Yes, that's right. Yes.

[Anders Lindén, Senior Vice President of Controlling & Finance]

Okay. No, I mean, it will go a little bit up and down. It was -- we had a very strong finish in Q4. So yes, 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. But 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 the inventory and receivables, there is more in the details while some parts of the business have with the growth of an increased receivables and with a little bit of slower, there is a reduction. But overall the -- we expect the working capital to improve over the next quarters in plural. And we do have activities and focus on those. So you -- that's my very strong expectation.

[Andrew J. Wilson, Analyst]

That's very clear.

[Operator]

Our next question comes from the line of Anders Idborg from ABG.

[Anders Idborg, Analyst]

Just a question on Tools & Attachments again. So you have in -- you've now closed the Innovative Mining Products 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?

[Anders Lindén, Senior Vice President of Controlling & Finance]

Well, first of all, what is New Concept Mining, and it's, again, is rock reinforcement. They have some unique products for primarily seismic environments and we expect to sell those through our global network. They have been primarily active in South Africa so far, so we expect to generate some nice synergies. And when it comes to top line development, that's the plan with the company. So 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 not -- certainly not destroy that. When it comes to -- this is a company with pretty decent margins. So they should not be dilutive to the margins of Tools & Attachments.

[Anders Idborg, Analyst]

Okay. Just perhaps a follow up also on Tools & Attachments margins. You mentioned before the sort of price pressure on consumables et cetera. I mean, is that also part of the equation? Have you been able to get some price increases or has that changed in any way lately?

[Per Lindberg, CEO, President & Director]

Actually we have now -- the combination of stepping away from business and being slightly firmer on pricing has actually made us -- made it possible for us to raise prices for -- when it comes to consumables. So pricing -- the pricing for consumables has been quite positive beginning of this year.

[Anders Idborg, Analyst]

So that's up, it's not less erosion?

[Per Lindberg, CEO, President & Director]

That's right.

[Anders Idborg, Analyst]

It's actually up, yes.

[Per Lindberg, CEO, President & Director]

It's up and not down, yes.

[Anders Idborg, Analyst]

All right. Okay.

[Operator]

Our next question comes from the line of Graham Phillips from Jefferies.

[Graham Phillips]

Just how should we think about the orders in equipment excluding the large orders and I apologize if you've given this already, the lines 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 because 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 other reasons?

[Per Lindberg, CEO, President & Director]

Well, first of all, let's look at the sort of the starting point for comparison. I think we had a very strong quarter 1 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. So if you compare quarter 1 with the starting point or the reference point, you will see a big difference in terms of the development from quarter 1 of 2018, and not surprising whatsoever. When we looked sequentially, our biggest competitor had I think a -- an order growth of 3%. Normally, we had an order growth of 6.3% normally, so I'm not so sure that your conclusion is correct, to be honest with you.

[Graham Phillips]

Okay, but 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 your gaining share in particular segments? Where do you think you are leading compared to competitors? And not just the main one, but other competitors as well?

[Per Lindberg, CEO, President & Director]

Well, we have -- there's always a race. I mean, and 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, where 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 we -- 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, so which means that we still have some ways to go in order to perhaps fill that gap from a volume standpoint. But we are catching up and we, as mentioned already, we have now a complete offering. So 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 and our market positions are very strong, no reason to believe that we should lose out from a market share standpoint. We have -- our products are well-positioned; our automation offering is definitely market-best I would say. So that's kind of where we are. It's --

[Graham Phillips]

And where else would you like to grow into?

[Per Lindberg, CEO, President & Director]

[indiscernible] too, but I think we have a very competitive offering.

[Graham Phillips]

Yes. And where else do you want to grow in terms of M&A? Because obviously, you've done a couple since separate listing. Is that going to continue? Where else would you like to grow?

[Per Lindberg, CEO, President & Director]

Well, I -- as you know, I mean the 2 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 2 acquisitions in consumables before perhaps considering additional acquisitions. We also need to be cautious when it comes to adding cyclicality to our portfolio. So with those restrictions, I think we'll continue to look for acquisitions broadly and not the least in the technology space. And of course, also when it comes to complementing our offering in both -- well, 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.

[Operator]

Our next question comes from the line of Olof Larshammar from DNB Markets.

[Olof Krook Larshammar, Analyst]

Firstly, could you please elaborate a bit on lead times for equipment?

[Per Lindberg, CEO, President & Director]

Lead times for equipment.

[Olof Krook Larshammar, Analyst]

Yes, if you order equipment now, when do you -- when do you -- will get that delivered?

[Per Lindberg, CEO, President & Director]

Well, I mean...

[Olof Krook Larshammar, Analyst]

[indiscernible] times long in the normal or...

[Per Lindberg, CEO, President & Director]

Well...

[Anders Lindén, Senior Vice President of Controlling & Finance]

Yes, I mean obviously, a little bit indicated what Per said we -- 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 make to orders, so you don't have it on the shelf, so there will always be anything from -- in best case there could be something. Otherwise, from 3 to 9 and even -- months and even longer, but we don't see that as a major problem right now. We're pretty much in good shape.

[Olof Krook Larshammar, Analyst]

Yes, sounds good. And finally, I'm sorry if this question have been asked, but it has been some problems hearing on the conference call, but I note that a common group -- common group cost was around SEK 160 million negative in Q1. Could you please elaborate the reason for the increase versus Q4?

[Anders Lindén, Senior Vice President of Controlling & Finance]

Yes, the SEK 160 million includes obviously the SEK 59 million for LTI provisions. So that's part of it, that 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, so -- and that you can see in the report in one of the tables, the specific impact from the onetime split costs and the LTIs. So that's why -- for the most part, that's why it looks high in Q1.

[Olof Krook Larshammar, Analyst]

And just to be clear, going forward, what should we expect in terms -- mostly cost -- no cost for LTIs, what should this be going forward?

[Anders Lindén, Senior Vice President of Controlling & Finance]

Well, I guess the LTIs, it's very much on your side, what do you think about the share because it's triggered by the share price. As I said for the -- 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. On the -- so that we cannot really predict, but there is obviously some kind of correlation with the share price or very much so. Then 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. But we still have some work to do more specifically on the IT side. The rest is nothing really.

[Per Lindberg, CEO, President & Director]

And maybe I should complement there also, it's important to keep in mind that the change in provisions for the -- for the long-term incentive program is really an accounting effect that it's -- we do have shares in custody. So we're hedged. So it's just an accounting effect really.

[Anders Lindén, Senior Vice President of Controlling & Finance]

Yes. We have -- yes, that's absolutely true.

[Olof Krook Larshammar, Analyst]

Yes. But -- yes, but adjusting for the split cost and also from the long-term incentive program, what's the [indiscernible] of going forward? If we assume that the share price will be stable, I guess that that will not be the [indiscernible] stock adjusting for all these items, what should underlying common group function cost be?

[Anders Lindén, Senior Vice President of Controlling & Finance]

I think we have talked about around SEK 250 million in a year. And I think that's more or less what we will continue to talk about. And that's for the corporate costs.

[Operator]

And that will be the last question for today. So I will hand over back to the speakers for any closing comments.

[Ingrid Östhols, Vice President Investor Relations]

Okay. Yes, time is up. And thank you, Per, and thank you, Anders.

[Anders Lindén, Senior Vice President of Controlling & Finance]

Thank you.

[Ingrid Östhols, Vice President Investor Relations]

And thank you all for participating and hope to speak to you soon again. Our Q2 result is published on the 18th of July, so if not sooner, at least then.