Atlas Copco AB
STO:ATCO A
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Estee Lauder Companies Inc
NYSE:EL
|
Consumer products
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Church & Dwight Co Inc
NYSE:CHD
|
Consumer products
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
American Express Co
NYSE:AXP
|
Financial Services
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Target Corp
NYSE:TGT
|
Retail
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
Mueller Industries Inc
NYSE:MLI
|
Machinery
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
150.8971
205.8
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Estee Lauder Companies Inc
NYSE:EL
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Church & Dwight Co Inc
NYSE:CHD
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
American Express Co
NYSE:AXP
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Target Corp
NYSE:TGT
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
Mueller Industries Inc
NYSE:MLI
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Atlas Copco AB
You don't have any saved screeners yet
Good afternoon. Good morning and good evening to those of you participating from elsewhere than here in Stockholm. And we welcome you to today's third quarter report presentation by Atlas Copco and also in conjunction with that, of course, the customary conference call. We will do it like we normally do, we will start with our CEO, Mats Rahmström, giving his comments to the quarterly report, and the outlook, and then we will move on to the Q&A session later on. So without any further ado, I think I welcome Mats to do just that.
Thank you, Hans Ola. I'd also like to take the opportunity and to say welcome to everyone. Looking at the result, you might say that we are not so good at predicting the future. But we'll try to spread some light over the quarter and explain a little bit what we been up to during this quite good quarter. Starting with the orders received, very good performance from the service teams in all business areas, continued to grow, and it is a great importance for us that they appreciate the products that we bring to them. And, of course, more and more on those products, we also connect our products over time. Large compressors, we have spoken about at the earlier calls, that continues. So it's both gas and process and the big emissions from oil-free, especially that is very successful, mainly driven by new products, penetration into new markets as well. Then semi. And we look at the semi industry, I'll talk about the key account segment in the marketplace. And we can see that the number of big orders have been booked with us during the quarter. And that came in above our expectation. But then if we look a little bit at the underlying demand for our -- from our customers and activity levels, we can start with, call it, general industry. If you then take the Industrial Technique, general industry divisions, you take the industrialized and compressor technique, you can look at in vacuum, you can look at industrial vacuum, and also scientific. And there we can see, if we bundle those together and then we can see that activity level is flattish or slightly negative in some parts as well. So that's a little bit what we see in the marketplace in this quarter. The only thing that is clearly negative, I must say is the auto trend that we also talked about earlier, and there we can see a slowdown in investments. Someone needs to turn their phone off. I know who it was. Okay. So looking at the numbers a little bit. If you start with the bar, you can see it's supported by currency, of course, but it's one of the best quarters, if not the best quarter we have had. So I think it's really stellar performance by the teams working in Atlas Copco globally. Revenues, you can see it's SEK 26.7 million principally. So really building up, and that's also record level for us. And it's the first time now that we are on the rolling 12 months above SEK 100 billion. It's a 6% organic growth on orders and 4% on revenues. The margin, 22%. And now we -- I think have taken a step-by-step to introduce to you that we do invest more in R&D, where we see opportunities to secure organic growth for the future. We do take the opportunities with digitalization, especially connectivity quite seriously, and we make sure that we have that core competence in-house. And then we have done a number of acquisitions. And then we have fuel costs as well. But Hans Ola will, later on try to help you and break it down a little bit by BA as well. Return on capital employed 32% and a good cash flow. Help you little bit to understand the markets. And our biggest market is Asia. As you can see here, it's 36% of our business, and you can see a very strong performance for the quarter. That is, you would think maybe it's the number of vacuum orders that we received in semi, but it's also compressor technique, very strong and also power technique delivers in good in Asia, right now. The only thing where we see negative is around this industrial technique, mainly linked to auto sector in China. And then Latin America, we have growth for all the business areas in that region, so very positive. North America, then you come to somewhat more of a mixed picture. You see strong compressors, strong vacuum and then more flattish on industrial and power technique. And then last, I would say, Europe, this is where we -- in volumes, can see less activities. And sequentially, if you start looking at the different countries, you can see slower activities and a sequential decline as well. Yes, you have the growth part. So we are now 4 quarters with growth and it could be easy to be, say, well, this is the best quarter, but it is driven by the large compressors, it's driven by service and semi, still then a very positive signal to us, but they are more based on general economy segment, it is a little bit more flattish. I'm not going to stay so much on this, but since I talk about the result, we also like to give you the bridge, with very clear on the currency. You can see it's still very positive for us. And it's mainly the strengthening of the U.S. dollars versus the kroner. If you split up the business a couple of quarters, as I said that power technique had been a star performer for us. I think they've done a good job this month as well. And -- but there's a seasonality in the business, but we can see now a little bit of bigger rental companies, both in Europe and Americas, a little bit more cautious with their investments looking at the capacity that they already have. Compressor technique, of course, for me, one of the strongest divisions, the business areas and good profitability. They continue to grow. That's very, very positive. And the same, of course, goes with vacuum, and a build up in semi. And industrial then clearly down and it's mainly driven by auto, which also pulls along a little bit, the Tier 1, Tier 2 type of industries supporting out in many regions, that could go, for example, for Germany, where you have a very strong auto sector. Interesting with CT, to start, orders received. Same here, of course, it's supported by currency, but still to give the 7%. I think it's really outperformed themselves, it's a mixture of demand, which I touched on already. Also very good that they -- I think it's the most developed service business that we have and still they find different ways to grow the business, which is very encouraging. I think that they like our programs. Continued good profit margin at 23.5%. On the innovation side, on the bottom, I'd like to highlight something that I think the drive for environmentally friendly products. We can see that being very present in Europe, U.S., but it's not been in such a big demand in Asia. Now we can see that, that is also coming around and they start for ask for more environmentally-friendly products. So now we also start to introduce products that are significantly more developed in terms of energy efficiency. And I think that also these customers will be willing to pay a premium for this type of products. And then you can see that we made an acquisition during the quarter, a company called Eurochiller and it is in principally process chillers for the industrial market, and that is a segment that we find interesting. In vacuum, look at the bar, I mean, it was a fantastic quarter. And that really outshined our own expectations in the semi, which we think was fantastic, that was really up. But you can also see that here, we also see continued service offers. Semi, we have good programs in place, but also the Industrial service product is developing in a very positive way. And of course, now we have installed even more equipment out there or will, which will drive also the service for the future. Almost 25% operating profit. So I think that's quite good as well. And then you have a new product for the scientific segment, which is positive. Industrial and scientific, there we see a slowdown in activity levels among our customers. I still remember 2008, when I was responsible for Industrial Technique, and we had the -- the auto trend was weak at that time. Now we can see, of course, that it's declining, but I think they're holding up quite good anyway. And you can say there is lot of uncertainties in the marketplace, but some of the things that we have to deal with right now is that now we have the fourth quarter with decline in production globally. And you can see clearly that there is some sort of consolidation in the Chinese market. Rest of the world, I think, is down like 7%, and they're more down like 16%. Now our sales it's not so coordinated to production levels, it's more on the CapEx and new products that they put into the market. So lot what holds up is now is the investments in new technology and electrification, so that really helps us during this time as well. So the daily business is much slower, but the product business is still there for us. We are -- with the acquisitions we have done over the last 7 years they are actually in quite a good position to -- when we see lighter body, body-in-white, for example, then you have the riveting technology, you have the dispensing and flow drill technology, it is a very good position for someone to come to us to one of our innovation centers to learn more how to build the light vehicle for example. So we we have a good position in there, that also goes for battery packs around the world. So strategically spot on, but it is more challenging market right now. Our technique, they have had quite fantastic performance in relative term in growth rate, also developed profitability over the last quarters, still good profitability, but you can see that organic growth is coming down there. And as I said before, what we see, we have not seen a real slowdown in the construction market, but we have seen in the channel of rental that they are more cautious and they have not placed the orders that they did previous year, principally quite early though. And then if you look at this then on the group, just the confirmation then where we are at, right now. And maybe Hans Ola, I should hand over to you to help out a little bit here.
Thank you, if you borrow me that one. Thanks a lot. It helps me. So let's look a little bit below the operating profit that Mats already have commented on, on the income statement. What is not there, but let's say, between operating profit and profit before tax, we have the financial items and now running at SEK 65 million in this quarter is, of course, significantly lower than last quarter, but perhaps it's important to also to remind a little bit that, that type of yearly rate of SEK 300 million negative in interest cost was not long time ago, SEK 600 million to SEK 800 million per year. So there is a contribution, both from what the market is giving by constantly lower or maintaining very low interest cost, but also some restructuring of our own loan portfolio. But that's where I see it going forward, somewhere close to this number. But perhaps not exactly SEK 65 million but somewhere, SEK 250 million to SEK 300 million in yearly negative. That's the financial net. If we move down a little bit more to the taxes, we are again, little bit lower in effective tax rate than last year. I think this is coming closer now to what we see coming in the forward-looking statement or in the forward-looking quarters. One of the reasons is that Belgium, for example, being an important country for Atlas Copco, is in the process of gradually taking their corporate income tax level down to more level with the rest of Europe, so to speak, and they have done that in 2 steps. So that's why I think 23.5%, 24% is achievable going forward in that. Yes. And then the earnings per share and return on capital employed and return on equity, you can see there. Here is the profit bridge. And of course, as Mats said, there are a number of comments to be made. You remember the format, we take out things that are nonrecurring or special. We take out acquisitions and other items affecting comparability, and we try to isolate the currency impact on top line and profit, and we get the rest, so to speak. Now this is, of course, not what we are used to seeing, a negative development from the organic on profit, but the contribution on the top line. Basically, you can say, we see 3 buckets of explanations in the big picture. One is sales mix, the other one is the -- some extra costs referring to projects that we do internally on supply chain management, I'll come a little bit more into that, some on the manufacturing structure. And then thirdly, the third bucket is on the continuous investments in R&D, Mats touched upon it, but also digitalization initiatives that is going on in all business areas pretty actively and definitely at a higher level than a year ago, which this is comparing to. But let's look a little bit at the different parts. Compressor Technique has continued just like the others. You could say that R&D investments and much higher IT spend or IT investments due to the needs of the digitalization project. That is something that affects all 4 of them. But if I isolate the biggest impacts, I think that compressor technique is seeing that R&D and IT investments are the ones that make it a little bit lower drop-through of profit from their revenue increase. If we go to Vacuum Technique, as you can see, the effect of the same R&D and IT cost spend is here bigger, but it's also complemented by the fact that we have some supply chain and manufacturing structuring changes going on. We are in the U.S. and in China, moving some of the logistics and the manufacturing structure closer to the end customers. And that is causing, in this quarter, some more extra costs than we saw a year ago. If we move on to Industrial Technique that show a similar, but perhaps even slightly worse pattern that the costs have increased, and the profit has fallen somewhat, ex currency, whereas the revenue has come here. We see the largest impact of the 4 from sales mix. We have a big, big contribution from projects. You saw the slide that Mats showed on the top line, we are doing relatively fine, considering the situation, but it means that forward-looking projects. Electrical vehicles, you hear about it all the time, and these kind of things compared to the more profitable every day recurring business type of income. I think there is where we see the big impact on the margin. But obviously, they also continue to do investments in R&D and digitalization initiatives, quite a lot. And then finally, Power Technique, which contrary to the orders received, they grow the revenues compared to last year, quite nicely, and they also get some profit through there. So I think the only negative there would be that's a slightly negative mix in that drop through. But otherwise, that gives you a little bit more background to the profit development. On the balance sheet. Well, one thing that everybody noticed is that we have a balance sheet that is much, much larger then we've had a few a quarter ago and also a year ago, or almost a year ago now in December. We have to remember, though, that this is reported in Swedish krona. So only the fact that the dollar and the euro and every currency in the world, basically, has increased versus the kroner. That gives us SEK 6 billion more in assets just by the translation effect from the start of the year. And obviously, also some of the bigger acquisitions like the Brooks one, is affecting intangible assets and all the other assets as well, of course. If we move on from there to the cash flow. I think we are pleased to see that the operating cash flow, which is taking basically everything into account, except for company acquisitions and divestments, is increasing. It was a few quarters ago that we started to have negative comparisons. And now we have turned it back. One major contribution is, of course, the higher profit. And in that lies a few of noncash items as well, which has, to a certain extent, a little bit of a compensation here. Liabilities in other liabilities, which is not interest-bearing loans have increased quite a lot in Q3. But if I put them together with Q2, the effect on the working capital is rather normal, I would say. So we had a little bit of a distribution of working capital effect between Q2 and Q3. And that, I think, means, I'm pretty confident that we are seeing a relatively normal development over here. With that, I think I'll just leave it to you to decipher or to explain the final 2 slides.
So what we guide then is between Q3 and Q4, talking about a little bit what we see among our customers' activity levels, number of quotations. This is a little bit what we bring into and we discuss it internally. And this time, we said that is somewhat lower and it's a little bit -- we come from a very, very strong quarter that we are quite pleased with, being very successful down with semi, the larger compressors and service and specialty rental, but it's still so that the underlying demand among a lot of the customers that we can see that this is a little bit softer. There is no way of hiding that protectionism has, sanctions that we have, and Brexit is not so positive to the picture, for people making investments in their operations. Maybe on top of that, the activities in Middle East now, what's going on in Saudi and also, of course, in Turkey, it's not positive for our business. On the other side, we will try to continue to push really, really focused approach to our customers, but we talk about the value generation for them. This is really in our sales force today. The resilient model of being resilient and how we work with things. But then there is take home, the agility model that have, we do a lot of scenario planning, it's difficult exactly to predict what will happen, but to have a readiness, is extremely important for us in the management in Atlas Copco. But still, we can see that it's a little bit of a softer market that we operate in. We will run a Capital Markets Day in the U.K. November 26, with a clear focus on Vacuum Technique then since it's the base, but we will also bring in Compressor Technique to that discussion. And you can register, I think we have 100 seats available, and I think there are some 72 that are booked right now. But if you like to learn more, then you're more than welcome to join us here.
Great. Thank you, Mats. Then we are ready for the Q&A session. And I think we do as we normally do, we alternate between here and Stockholm live and then the telephone conference. So let's start here in the room, if we have one question, and the microphone for Anders. I can see that, yes.
Okay. I start with the vacuum business and about the cyclicality and very strong differences in order intake from quarter-to-quarter. Could you describe a little bit what's -- why this very strong upturn and what we could expect going forward?
What we see is that it's still -- if you separate the business that we get right now, technology versus capacity. We have seen still, if I start on the negative, it's not so much capacity investments. We can still see that the utilization in the fabs is around 80%. It's not bad by any means, but it's been hovering around that for quite some time. You can also see the pricing. It had a little bit of a positive jump and you have the Korea, Japan discussion on gases, but then the pricing has not turned up really up. So I would say this is technology investments from the main players. And I think many of them like to protect their position in the future. At the same time as the traditional main players who are upping their investments in technology, we can also see a very determined semi industry in China that is marching orders, and they're really building up a competent team and investment in good factories. So the business is coming from the traditional players. Technology and new investments in China to build a new industry. Going forward, we have not seen that the capacity will shift to that, there is -- they need more capacity in the coming quarters. So it's more that we're going to go after and continue to go after this same type of businesses.
We have one more question in the room, otherwise, we turn. Okay, we take the telephone conference. Then the first question, and I hope that everyone can be as disciplined as Anders Roslund was here to stay with one question, and then we'll try to circle back when we have exhausted the first questions. Thank you.
Our first question comes from the line of Klas Bergelind of Citi. I stand corrected, we're going to first the line of Guillermo Peigneux of UBS.
I guess, a question on Vacuum Technique, I was wondering -- you referred to the key accounts. And I was wondering how much of the business first go to your key accounts. And if you are also selling to vendors, if at all at the moment? And then second, on the same topic, but in technique. You mentioned new product technologies. And I guess, EUV is something that you've been talking about for some time on the new lithography systems. I wonder why Europe is not there in your statement, that's one of the regions that was coming up from previous activity levels.
Did you pick up on the first one, on solar, I missed that.
Could you repeat, please, the first part of your question.
Yes. I guess, this question is, is on the key accounts, right? How much of that is just going to the OEMs, to the equipment, sorry, to the semiconductor companies versus vendors into the semiconductor market.
Yes, I mean, in our case, it's -- of course, you have the machine builders, and they are part of the list on major customers for us. And then you have the recognized brands in logic and memory. We don't differentiate that, but we follow the top 10 accounts and maybe top 20, but that makes the majority, and there is no change in pattern there. EUV, you might refer to some other reports. And it's not a huge impact on the result for the quarter. I would say, it is in principally on a normal level for us, but we see that successes with EUV is positive for our future.
Just to further on that, when we say key accounts, we include both OEMs, as you say, Guillermo and what Mats refers to as the builders of the tool itself. So they are both important and big customers, but we don't disclose or differentiate specifically in the numbers on that.
Just kind of, can I confirm that you said that EUV stayed at a normal level through the quarter?
That is correct.
Yes, correct. Do we have another one on the conference call, please?
Our next question comes from the line of Klas Bergelind of Citi.
So just want to come back to the previous one. So obviously, I mean, EUV is no big change over the quarter, but you have strong demand in China, you have tech upgrades, so you're outgrowing the market on these upgrades. Does this also mean that the backlog mix is now improving for invoicing further out, can we see an improved drop-through in EUV ahead on these upgrades? Are they better margins, I'll start there.
No, but I think if you follow the pattern for our development going up and going down, it's most likely that you will see that semi development for us is positive. And I think I'll leave it with that. I don't know if you want to add something Hans Ola?
No.
All right. Can I squeeze in just one follow up, Hans Ola. You talked about one of the reasons for big slower drop-through is R&D and IT owing to digital. Do you think the drop over time in Atlas should be lower than the 25%, 30% that we typically used to. Do you see the need to ramp R&D to a new higher level? Or if this is a couple of quarters?
It's, of course, extremely difficult to pinpoint how long this will be as -- take digitalization, for example, it's not something that is a quarter's job or even a year's job. It's continuous investments, both in the infrastructure part to enable all the tools of sales and marketing, automation, better web presence, online sales, all these kind of things. It's a combination of pure IT and a lot of people, of course, needed to do these kind of things.We have no formula to calculate how that will affect, let's say, drop-through going forward. But I don't think that you should take this quarter as proof that this is what you will see also going forward as little as you should have taken it as approved 3 quarters ago, when vacuum and compressor technique had 40%, 50% drop-through or whatever it was. So, no, I don't think that you should make very big changes to the previous statements, no.
There is an importance strategic decision that we've made in the digitalization and that is that, it's in principally not technically difficult to connect your product and you can gather the data. And then you can have the option then to give that data to an external party to say, can you help us with analytics, can you draw conclusions, when will things fail, et cetera, then we have taken the approach here and we'll continue to invest in that to say, okay, so is that the new core competence or should it be outsourced to someone else and we believe, it's such an important part of our future growing service for example that we're going to have the analytics team and this new competence in-house and that goes for all the business areas. So it's not a payback over a couple of quarters, but for us to take that strategic decision I think is extremely important and feel very comfortable with that decision as well that we own that understanding of the data and we can actually build that into R&D but also in terms of service products for the future. So for me, it's little bit just more than numbers for quarter-to-quarter.
Can I just check whether we have found a question here in Stockholm. It seems to be exhausted. We go further to the conference call then.
Our next question comes from the line of Max Yates of Crédit Suisse.
Just my first question is around services and Compressor Technique. Have you seen kind of anything from customers suggesting there's a real take-off of up-time contract, whether there's been a sort of step change in the way that customers are servicing their compressors or would you say, it's more a continuation of the sort of gradual trend of these contracts that are pushing more into the installed base? Is there any step change in the way you're seeing customer service their compressors?
I think we have more than 120,000 connected compressors today and what we do with the data is in principle, if they have a service contract with us, we have 4 analytical samples around the world where we day-by-day monitor the data and see what happens. Up-time contracts being discussed, but I would say, it's not a significant part of our business today but it's an option for us. If you knew the data, understand the data, you can predict or prescribe even what will happen, of course, then you can take with comfort take on that challenge in the future, but it's not significant for us today. But what we do do with the data is that, we drive and principally service contract, if you drive the service contracts, you of course, secure original part in the maintenance and you secure more contracts and you help the customer by being very proactive and we see something that goes wrong with the compressor room and normally we actually see that before the customer do and that is something that they see as very positive to get that phone call because they want more uptime and if we can then schedule a service call, so far us securing service contract, making sure that we have more uptime with customers. This is mainly the content today but not so many up-time contract, as such, where they pay for that.
Okay. And just my follow-up question would just be on acquisitions and M&A. Obviously semiconductor-related companies have all I think become kind of more expensive, valuations have gone up on a lot of the assets. So should we expect the sort of acquisitions that you make over the next 12 months to be sort of continuation of building out vacuum and semiconductors? Or do you think it's realistic to think that we might see another leg or another division of Atlas Copco start to be created, if assets in that space have become a bit more inflated and expensive?
If you look at vacuum then, I will say in the semi with our market position there, if we would buy more of the same there would be limitations to that. If we do something more similar like we did with Brooks that's a new technology that we can bring to the market and take that technology and use our presence globally. That we can do. I will say that there is more opportunities geographically product on the industrial and scientific.
We continue to work off the list of questions from the conference call.
Your next question comes from the line of Gael de-Bray of Deutsche Bank.
The question I have is on the gross margin. I mean, I noted the growth margin was down 100 bps this quarter despite a positive organic revenue growth, so could you comment around that please? And specifically could you discuss the pricing strategy you have, whether there has been any tactical pricing concessions on your side to gain share in perhaps the extremely positive market, well volume development you've benefited from, and the market penetration you've shown this quarter?
I will start, but then I will hand over to Hans Ola to break it down for you a little bit. When it comes to pricing, we see ourselves as market leaders in many of the segments where we operate and we are really keen on selling the value to customers. So we are not giving anything on pricing, instead constantly we continue to develop the products and making sure that we have a sales force that can explain the return on investment for customers and that is becoming a more vital part in all our segments. And of course, working with some of the bigger customers in the world in the auto industry or the semi industry, of course, everyone is asking us, okay, how should we do this in a better way, but nothing has really changed. So I will say that our rule is to make sure that the customer see the real value of our products. And surprising, I would say something that we really are keen on keeping and making sure that the customer pay for value, but then...
I mean, the key point of the question was perhaps price and that was exactly what Mats explained. If you look at the margin erosion, as you call it, from last year to this in spite of the revenue growth, I think I can go back and refer again to the slide that we covered on the so-called profit bridge and again, I can then say that they were 3 main buckets, if I call it, of that of explanation. Whereas, the largest impact compared to last year was the sales mix. Secondly, there is also an impact from restructuring. Well, it's not huge restructuring really, but there are structural changes going on in a couple of the business areas and I mentioned, Vacuum Technique specifically, trying to move both supply chain and manufacturing even closer to the end customers and that involved in their case in the U.S. and in China. And then on top of that, these continuous investments that Mats explained very well, is part of our strategy and what we really need and want to do. Those are quite much larger this quarter compared to the third quarter last year, but it is an ongoing investment that has also affected to a certain extent, Q1 and Q2. So we'll see more of that, of course, but it might have been a bigger effect in Q3 versus last year then would be in a normal quarter. We have a conference question.
Our next question comes from the line of Andrew Wilson of JPMorgan.
I just have a, I guess a broader question around the digitalization and the investment that you're making there which we obviously talked about. Can you sort of give us an idea of how you feel from a competitive position you're positioned, is this investment to catch up some of your peers, and seeing things that you feel like you need to close the gap, or is this basically you investing in an area ahead of your peers which you think is going to make a difference in terms of market share. I'm just trying to get a sense of the kind of push and pull on that investment?
Digitalization, right?
Right yes.
If you look at what we do for our customers in terms of connectivity, I see an opportunity to leave the competition a little bit behind, and that's why we like to have this as a core competence and to really invest in it. So that I think when compared to peers we're quite there and leading in most areas. When it comes to customer engagement, you go to web page, market automation, social selling things like that, then I will say that we don't benchmark so much with industrial peers. We try more to look at what goods look at outside in consumer world, can we be that kind of company. When it comes to our own operation we are really pushing this internally as well to see how can we use digitalization to the benefit for our operation and logistics. And I will say that it's quite a lot of learnings, but also impact already in a number of areas. But I think the #1 for us is in service and connectivity and that I think that we are ahead of many of our competitors.
Next question, please.
Our next question comes from the line of Ben Uglow of Morgan Stanley.
My first question was to get some sense of what you're seeing in China at the moment. Have you seen less customer hesitancy then you were seeing last quarter. I think you kind of called that last time. During the quarter have things become more stable and as we move into 2020, what are the kind of conversations you're having with customers. I'm particularly interested obviously on the auto side but also Compressor Technique. What is -- I guess, I'm thinking about what is the run rate you're seeing in China at the moment, could it potentially be getting better?
No, I think to start with, among the people in our organization and the customers there is a big concern about the protectionism and tariffs, that is a big uncertainty for our customers, should they or should they not invest, and why should they invest, should the footprint be in China, or do they need to be somewhere else. And, of course, we have not seen a solution to that. In general, though, we can also look at the Asian companies exporting to other Asian countries. So we asked what's the pure size of Asia? I think it's predicted to be some close to 50% of the global GDP in a few years time, and you can see that export in between Asian countries over the last 15 years have gone from 5% to 20%. So I think they are building their own industry. So for us it's extremely important to be present with technology, manufacturing, logistics and sourcing there, otherwise I don't think you'd be competitive over time. And that is also what we see in the CapEx on the bigger compressors that if someone are determined to enter something they're going to do something, that has continued even throughout these uncertainties. The 1 negative I will say is more of a general industry and also the auto sector where they have quite a significant drop in production volumes. And I think the government had tightened up a little bit the opportunities. So this is a little bit what we see and then the full speed ahead when it comes to the semi side of things and then you could see an equipment boost for us at least in a couple of years. And it was a little bit slower, and now we have the few good quarters as well. So I think it depends, the next investment is probably more linked to the success they have with the development of the memories that they're mainly in today, it's not so much logic.
In the semi side.
Maybe -- well, I guess, I had a question on semis. I think we're all trying to figure out the same thing, which is, how kind of organic or underlying is the order intake. I guess, maybe I can sort of address it in a different way. If I look at the pickup in orders and think about in dollar terms sequentially, for the sake of argument, $100 million, $120 million, is that coming from 2 or 3 large customers or is it a much more broad-based effect. So if we look at that big improvement, a fantastic number on the orders, is this something that's down to 2 or 3 big accounts? Or is it actually more broad-based and underlying than that?
Back to you.
Yes, yes, on the semi.
No, then I would say it's -- as I tried to say a little bit earlier and there are American investments. We do see the China investments. We see a little bit movement in Korea. But in general, they don't need much more capacity at this point, pricing is not up, so I don't think it is a general trend shifting upwards. So I will say it's more a number of key accounts that have investment, but it's the same key accounts that we talk about in every quarter we report, there's no big change or any big shift.
And I think I heard you talk ongoing sequential growth, but we have to remember when you see 21% growth that if you looked at the chart that Mats showed in the handout on Vacuum Technique. We are comparing with the absolute lowest quarter on orders, last year third quarter. So of course, you have to look at that in order to understand the growth number per se but then again, the height is also pretty good compared to -- Swedish kroner has inflated the numbers, of course, just as we've said many times. But it's a little bit of comparing with -- as you some of you will remember, when we stood here a year ago and talked about Q3 orders, which were surprisingly low at that time. So we have to keep that in mind at least I think.Next question, please.
Our next question comes from the line of Alexander Virgo of Bank of America Merrill Lynch.
Just a quick one, I wondered if you could expand a little bit on the order volumes on small and medium-sized compressors, which I think, as you highlighted remained pretty flat year-on-year despite weaker underlying activity. I wonder if you can sort of attribute that or give us a little bit more color on that as to why you think that's held up? Perhaps, in the same answer, you can talk a little bit about IT and auto. I know you said that or you called out that auto is a little bit weaker, but I guess, you also talked in the past about the resilience of that business because of the development of EV capacity and the new technologies that you're bringing to market for that. So perhaps you could talk a little bit about those 2 businesses in more detail for us, that would be helpful.
I mean if you think about the industrial compressors in terms of size, most are oil-injected at that time, spread throughout, in principally all industries that you can think of and also that in our presence is that is also the case globally, Americas, Asia and Europe and it's just that the investment climate and activity level among those customers if that's then driven by the uncertainties or not, but this is what we see, and I cannot make it more colorful than that. I don't know.
I think we normally refer to that business as a type of GDP/industrial production look-alike type of thing and if activity slows down like we see revisions on those 2 parameters globally that's normally what we also see in the demand for those small and medium-sized industrial compressors.
Could you repeat the question on electrification. I'm not sure, I followed what you wanted to...
Well, I was just trying to understand, because the Industrial Technique exposure to auto is typically more on the CapEx side of things. We've obviously seen a number of other companies talking about CapEx slowdown in the auto industry as well, but I think you talked about it historically with a little bit more in the context of more, greater resilience because it's CapEx driven, not production driven. I think it's because we have seen, started to see CapEx driven investments falling away in auto as well. I wondered if that's something we should now be starting to think about in a little bit more in the context for IT rather than I guess, the resilience you talked about in the past. I guess, I'm just trying to understand a little bit about the customer behavior, customer decision-making in that business, given how reliant it is upon auto CapEx?
Yes. About 60% or somewhere 60% of Industrial Technique is correctly linked to auto in 1 way or the other. And what we do see this quarter is that the operational budgets, the daily spend is down. And what I tried to communicate was that, I mean, in the past, we could have a China building up a new industry in Auto. But this time, we see the shift into more electrification. And I think the most recognized brand is, of course, Tesla. And when that takes off. And now we see in principally all OEM having quite an ambitious plan to really deliver more models, if that's fully electric or a combination of electric and and so on. But this is a little bit what holds things up right now. And I think that's something very, very positive. And on top of that, in 2008, 2009, when we were an assembly company in terms of nut runners and screwdrivers, and this time, the change is to mix materially in the body-in-white, helps dispensing because these they use mix materiality in their bodies and also the hand roll benders, self-pierce riveting and the flow drill business. So it's a little bit better balanced, and we also strategically then positioned ourselves that if we would have been only dependent on the old traditional business then why would we be standing here being quite concerned. But now with battery packs, for example, using all our technologies that we offer and that's quite positive for us. And that balanced a little bit the number of tightening's that will disappear in the form of the engine bay, and so on. I think when Henrik does the presentation, he says that, well it's an equal opportunity for us in terms of size. But on the other side, the old business we already had and now we need to go out and begin dispensing, the new dispensing business around the battery packs and other application for mixed material, for example. But it's clearly so that all these changes, if it's footprint, if it's a new line that drives our business, just the number of cars produced over a short period of time, doesn't impact us that much.
Next question, please.
Our next question comes from the line of Andreas Koski of Nordea.
Can I ask on FX and currency movements. It looks like I need to recalibrate my model a bit because currency movements had a much larger impact on both growth and earnings than I expected. So I wonder if you could give some guidance for the fourth quarter, if FX rates stay unchanged from here.
Starting from the final part of your question, I forgot to say that, we don't see a very big difference compared to Q3 over Q3 when we look ahead. That is a statement perhaps that we might have to revise if the Brexit negotiations and whatnot continues like they do with a little bit of weakness on the dollar in the last couple of days, perhaps, but by and large, if I take where we ended Q3, I would say it would be somewhere in the same range, perhaps not as big a bridge as we had in Q3. I don't think that you have to recalibrate totally, but a quarter where certain businesses are doing very well. For example, Vacuum Technique is very much dependent on the U.S. dollar. So you might have a little bit of differences between the quarters, but it should not be a big thing, Andreas I think.
Yes. Okay. And then secondly, just on your balance sheet, which is very strong and you could easily distribute extra cash to shareholders going into next year. Just wondering how you are thinking about that. Would you like to keep the cash on the balance sheet to be prepared for larger acquisitions? Or could they be distributed to shareholders?
Mats can repeat what are our main priorities.
Go ahead Hans Ola.
Oh, he said that many times, of course, you remember it Andreas as well that, first priority is growth, and then when that is satisfied, whatever we can do, there is a constant review of the balance sheet from the board. It's done every quarter, but definitely at the end of each year. So the answer is the same as always, yes, we are very proud that we are financially strong. And then exactly what that will lead to, depends on the opportunities that we see in the next quarter and the coming quarter after that, et cetera, et cetera. So it's an ongoing evaluation of what to do. But it's a board decision, of course, and we can only present the numbers and our view on it, and then we'll see. I might have one question left? Or perhaps they got all their answers already and helped us keep the time. So with that, I think we're approaching the hour here in Stockholm and elsewhere. Thanks a lot for participating, wherever you were participating from. And as Mats said, and we keep it on the slide here, the final slide, if you're interested, don't forget to register for the Capital Markets Day that will happen in Brighton on November 26, 2019. Thank you.
Thank you.