Atlas Copco AB

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 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 will welcome Mats to do just that.

Thank you, Hans Ola. I would also like to take the opportunity and to say welcome to everyone and looking at the result, you might say that you are not so good at predicting the future.

But we will try to spend some light over the quarter and explain a little bit what we've been up to doing this quite good quarter. Starting with orders received, very good performance from the service teams in all business areas and continued to grow and it is of great importance for us that they appreciate the product 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 and that continues, so it's both gas and process and the big emissions from the oil fields especially that is very successful and mainly driven by new products penetration into new markets as well. And then semi, and we look at the semi industry, I talked 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 expectations.

But then if we look a little bit at the underlying demand from our customers and activity levels, we can start with quality generally and see if you take the Industrial Technique general industries divisions, you take the industrialize and Compressor Technique, you can look at in Vacuum, you can look at Industrial Vacuum and also scientific and that because if we bundle those together, then we can see that activity level is flattish or slightly negative in some parts as well. So that's a little bit of 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. Okay, so looking at the numbers a little bit, if you start with the bar, you can see it is supported by currency of course, but it is one of the best quarter, if not the best quarter we have had.

And so I think it is really a stellar performance by the teams working in Atlas Copco globally. Revenues, you can see it is 26.7 principally, so rebuilding up and that's also record level for us and it is the first time now that we are in the rolling 12 months about SEK 100 billion, so 6% organic growth on orders and 4% on revenues.

The margin 22% and now we - I think I've taken it 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 the core competency in-house and we then we have done a number of acquisitions.

And then we have pure costs as well, but Hans Ola will later on try to help you and break it down a little bit by BA [ph] as well. Return on capital employed 32% and a good cash flow.

Help you a little bit to understand the markets and our biggest market is Asia. As you can see here it is 36% of our business and you can see a very strong performance for the quarter.

That is, you will think maybe it is the number of vacuum orders that we received in semi, but it is also Compressor Technique very strong and also Power Technique delivers good in Asia right now. The only thing where we see negative trend is Industrial Technique mainly linked to auto sector in China.

And then Latin America, we had growth for all the business areas in that region, so we are positive, and 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 will say Europe, this is where we in volumes you can see less activities and sequentially if you start looking at the different counters you can see slower activities and the sequential decline as well. You have the growth positive now four quarters with growth and it could be easy to be able to say, but this is the best quarter, but it is driven by the large compressors, it is driven by service and semi, still then a very positive signal to us.

But they are more based on general economy segment is a little bit more flattish. I'm not going to stay so much on this, but since we're talking about the result we would also like to give you the bridge.

We have been very clear on the currency. You can see it still very positive for us and it's mainly the strength in our out of U.S.

dollars versus the krona. If you split up the business, couple of quarters I have said that Power Technique has been a star performer for us.

I think they have done a good job this month as well. But there is a seasonality in the business, but we can see now a little bit that bigger rental companies both in the U.S.

and Americas are 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 in the business areas and good profitability, they continue to grow, that's very, very positive and the same of course goes with Vacuum, that will buildup in semi.

And industrial then clearly down, and it is mainly driven by auto, which shows [indiscernible] along a little bit the Tier 1, Tier 2 type of the industry supporting out in many regions. That could go for example for Germany where you have a very strong auto sector.

Interesting we see at the start that orders received, same here of course it is supported by currency, but still to give the 7%, I think it is, they really outperformed themselves. It is a mixture of demand which I touched on already, also very good but they -- I think it is 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's being very present in Europe and 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've started to ask for more environmentally friendly products.

So now we've also started 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 these types of products. And then you can see that we made an acquisition during the quarter.

The company is called Eurochiller and it has been 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 really outshined our own expectations in the semi which we think was fantastic, so that was really up.

But you can also see that, here we are also see continued service offers. Semi, we have good programs in place, but also the industrial service product is developing in a very positively way.

And of course now we have installed even more equipment out there or will which will drive also the service for the future, and almost 25% operating profit, we think that's quite good as well. And then you have new products for the Scientific segment which is positive.

Industrial and Scientific there we are going to 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 is declining, but I think they are 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 be 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. The rest of the world I think is down like 7% and they are more down like 16%.

Now our sales is not, you know it is not so coordinated to production levels, it is more on the CapEx and new products that they have put into the market. So lot of tools sector now is the investments in new technology and electrifications, 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 seven years now, they are in fact quite a good position to, when we see a lighter body, body in white for example, then you have the riveting technology, you have the dispensary [ph] and the fluid [ph] technology, so very good position for someone to come to us to one of our innovation centers to learn more how to build a light vehicle for example.

And as we have a good position there, that also goes for battery packs around the world. So strategically spot on, but it is a more challenging market right now.

Power Technique, they have quite fantastic performance in relative terms in growth rate, also developed profitability over the last quarters, still good profitability, but you can see that the organic growth is coming down though. 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 or rental that they are more cautious and they have not placed the orders that they did in the previous year, in previous year quite earlier though.

And then if you look at based on the group, just a confirmation then where we are at right now, and may be Hans Ola I should handover to you to help out a little bit there.

Thank you. If I can borrow the microphone, yes thanks a lot, it helps me.

So let's look a little bit below the operating profit that Mats already has 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 also to remind a little here 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 from what the market is giving by constantly lower or maintaining very low interest costs, 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 through the taxes, we are again little bit lower in effective tax rate than yet last year. I think this is coming closer now to what we see coming in the forward-looking statement or 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 and they have done that in two steps.

So that's why I think 23.5%, 24% is achievable going forward in that. Yes and on 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 number of comments to be made. You will 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 topline and profit and we get the rest, so to speak.

Now this is of course not what we are used to see, negative development from the organic on profit, but a contribution on the topline. Basically as I can say we see three buckets of explanations in the big picture.

One is sales mix, the other one is the some extra costs, we are referring to projects that we do internally on supply chain management, I'm 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 us 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 IP [ph] spend or IT investments due to the needs of the digitalization projects, that is something that affects all four of them.

But if I isolate the biggest impacts, I think that the Compressor Technique here that R&D and IT investments are the ones that make it a little bit lower drop through of profit from the revenue increase. If we go to Vacuum Technique, as you can see the effects of the same, R&D and IT costs spend is here bigger, but it's also complemented by the fact that we have some supply channel 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 then 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 four from sales mix.

We have a big-big contribution from projects. You saw the slide that Mats showed on the topline, we're doing relatively fine considering the situation, but it means that forward-looking projects, electric 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 and 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 than we've had a few quarters ago and also 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 krona. 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. So if we move on from there to the cash flow, I think we are pleased to see that the operating 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 even that lies a few of non-cash items as well which has to a certain extent a little bit of 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 have 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 two slides.

Yes, so what we guide then between Q3 and Q4 talking about a little bit what we see among our customers activity levels, number quotations is a little bit what we bring into and we discuss it internally and this time we send up and that's somewhat lower and it is a little bit, we confirm a very, very strong quarter and that we are quite pleased with and being very successful down with semi and logic business and so we think and specialty rental. But it still showed that underlying demand among a lot of our customers that you can see that this is a little bit softer.

There is no way of hiding that protectionist now sanctions that we have and Brexit is not so positive to the picture for people making investments in their operations. May be on top of that the activities in the Middle East now, what's going on in Saudi and also of course in Turkey, it is not positive for our business.

On the other side we will try to continue to push really, really focused approach to our customers where we will talk about the value and rationale for them, this is really in our sales force today. The resilient model of being resilient and how we work with things, but then we must take home the agility model that -- we do a lot of scenario planning, it is difficult to exactly to predict what will happen, but to have the readiness is extremely important for us in the management team at Atlas Copco.

But still we can see that it is a little bit of a softer market that we operate in. We will run a Capital Markets Day in the UK on November 26, with a clear focus on Vacuum Technique and since it is 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'd like to learn more then you are more than welcome to join us here.

Great, thank you, Mats. Then we are ready for the Q&A session and I think we'll 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 a microphone for Anders [ph].

Okay, I'll start with vehicle business and about the cyclicality and the very strong differences in ordering take from quarter-to-quarter, could you describe a little bit more what -- why this very strong upturn and what we could expect going forward?

And what this is, it is still, if you separate the business that we gave right now, technology versus capacity, and we have seen still, just not on the negative, it is not too much capacity investments. You can still see that the utilization in the fabs is around 80%.

It is not bad by any means, but it has been hovering around that for quite some time. And you can also see that pricing, that had a little bit of a positive jump, you have the Korea, Japan discussion on gases.

But then the pricing has not turned up really yet. 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 are upping their investments in technology, we can also see a very determined semi industry in China that is matching orders and they are really building up a competent team on the investment in good factories. So, the business is coming from the traditional players, technology and new investments in China to build a new industry, and going forward, we have not seen that the capacity will shift to that there is -- they need more capacity in the coming quarters is more that we are going to go after and continue to off to go this the same type of businesses.

Thank you. If 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.

Good morning, [indiscernible]. Guillermo Peigneux from UBS.

I guess a question on Vacuum Technique. I was wondering, you refereed 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 new -- on the same topic Vacuum 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 is one of the regions that was coming up from previous activity levels?

Thank you.

If you pick up on the first one Hans Ola, so let me.

Could you repeat, please, the first part of your question?

Yes, I guess this is a question is on the key accounts. Right.

How much of that it is going to the OEMs through the equipment, sorry to the semiconductor companies versus their vendors into the semiconductor market?

Yes, I mean in our case, it's of course you have the machine builders and they are part on 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 on it.

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's in principally on the normal level for us, but we see that success with EUV is positive for our future.

Just -- to just further on that, when we say key accounts, we include both OEMs, as you said 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.

Thank you. Thank you so much.

And just can I confirm that you said that EUV stayed at a normal level through the quarter? Thank you.

That is correct.

Thank you so much. I'll step back in line.

Thank you. Do we have another one on the conference call, please?

Yes, thank you. Hi, Mats, and Hans Ola, let's start from 50 [ph].

So, I just want to come back to VT [ph]. So obviously, yes, I mean EUV is no big change over the quarter, but you have strong demand in China, you have to big upgrades, you are outgrowing market in these -- on these upgrades, does this is also mean that the backlog mix is now improving for invoicing further out, can we see an improved drop-through in the -- had 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 the 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 a bit slow drop-through is R&D and IT into digital. Do you think the drop-through over timing Atlas should be lower than the 25%, 30% that would just be used to, i.e., do you see the need to ramp R&D to a new higher level or is this just a couple of the quarters?

Thank you.

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, but it's a 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 fewer 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.

I 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 the proof, three quarters ago when Vacuum and Compressor Technique at 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.

But that is an important strategic decision that we made in the digitalization and that is that it's in principally not technically difficult to connected your product. And you can gather the data and then you can have the option then to give that data to an external partners, say, can you help us with analytics?

Can you draw conclusions when will things fail? That sort and we have taken that route shared up and we will 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 is, are we going to have analytics team and this new competence in-house and that goes through all the business areas.

So it's not an payback or were a couple of quarters, but for us to take that strategic decision, I think is extremely important and feel very, very comfortable with that decision also that we own that understanding of 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 a little bit just more than numbers for the quarter-over-quarter.

Oh, of course, makes sense. Thank you.

Great. 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.

Thank you. Just my first question is around services in Compressor Technique.

Have you seen kind of anything from customers suggesting there is a real take-off of up-time contracts or there has been a sort of step change in the way that customers are servicing that compressors, or would you say it's more a continuation of the sort of gradual trend of, these contracts sort of pushing more into the installed base? Is there really a step change in the way you're seeing customer service there that compresses?

I think that we have more than 120,000 connected compressors today. And what we do with the data, if they have a service contract with us we have four analytical centers around the world, where we day by day monitor the data and see what happens.

And 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 know the data, understand the data, you can predict or describe even what will happen of course, then you can 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 in principally service contracts and if we drive to service contracts, you of course secure original parts in the maintenance and you secure more contracts, and you help the customer by being very proactive and we see something that was wrong with that compressor room and normally we actually see that before the customer do, and that is something that they see us very positive to get that phone call, because they want more up-time. And if we can schedule a service call so, for us, secure a service contract, making sure that we have more up-time customers.

This is mainly the content today, but not so many up-time contract as such, where they pay for that.

Okay, thank you. And just my followup question would just be on acquisitions and M&A.

Obviously, kind of 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 a sort of continuation of building out flat in 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, become a bit more inflated and expensive?

If you look at Vacuum and then I will say, in the semi with our market in position that, if we would buy more of the same there will be limitations to that and if we do something more similar like we did the 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 would say there is more opportunities geographically product on the industrial and scientific.

Okay, thank you very much.

We continue to work off the list of questions from the conference call.

Yes, good -- Good afternoon, everybody. The question I have is on the gross margin.

I mean, I noted the gross margin was down 100 bps this quarter, despite the 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 and perhaps the extremely positive market well volume development you've benefited from and the market penetration you've shown this quarter? Thank you.

I will start, but then I will hand over time to Hans Ola to break it down for 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 in easily 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 investments 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 outdoor industry or the semi industry, of course everyone is asking us really, how should we do this in a better way, but nothing has really changed. So, I would say that our role is to make sure that the customers see the real value of our products and for pricing, I would say, something that we really are keen on keeping and making sure that the customers pay for value.

I mean, the key point of the question was perhaps price and that was exactly what Mats explained. If you looked 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 there were three main buckets, if I call it, of that the 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 their 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 will see more of that, of course, but it might have been a bigger effect in Q3 versus last year than would be in a normal quarter.

Okay, that's great, thanks. Thanks very much.

Thank you.

Thank you.

We have a couple of questions. Yes, yes, go ahead please.

Hi, good afternoon, everyone. I just have a, I guess, a broad question around the digitization and the investment that you are making there, which we obviously talked about, and 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 same things that you feel like you need to close the gap or is this basically you investing in an area ahead of you peers which you think you're 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?

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 we compared to peers. We are quite better and leading in most areas.

When it comes to customer engagement and you can say webpage, marketing automation solution, selling and things like that, then I will say that we don't benchmark too much with industrial peers. We try more to look at what goods you've got outside in the consumer world, how can we be that kind of company and 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 would say that it's quite a lot of learnings, but also impact already in a number of areas, but I think the number one for us is in service and connectivity and I think that we are ahead of many of our competitors.

That's great. Thank you.

Next question please?

Oh, good afternoon everyone and thank you for taking the question. My first question was to get some sense of what you're seeing in China at the moment and have you seen less customer hesitancy than you were seeing last quarter?

I think you kind of called out that last time and 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 your sort of side, but also Compressor Technique, what is -- I guess I'm thinking about what is the run rate you are 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, that is a big concern about the protectionist and tariffs and 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 that, but we are not seeing a solution for that.

In general though, we can also look at the Asian companies exporting to other Asian countries. So, yes with 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 the export in between Asian countries over the last 15 years are gone from 5% to 20%.

And so I think they're building their own industry. So for us it's extremely important to be present with technology, manufacturing, logistic and sourcing there, otherwise I don't think you'll 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. And the one that negative, I would say is more of a general industry and also the outer sector where they have quite a significant drop in production volumes and I think the government had tighten 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 can see an equipment boost for us at least in a couple of years and it was a little bit slower, 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 over the memory stuff and mainly into the -- it's not too much logic.

That's very helpful. Thank you.

Sorry. Well, I guess I had a question on service.

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 in a different way.

If I look at the pickup in orders and think about in dollar terms sequentially, for the sake of arguments, the 100, 120 million bucks, is that -- is it coming from two or three large customers or is it a much more broad based effect? So if we look at that big improvement, it's a fantastic number, only orders, is this something that's down to two or three big accounts or is it actually more broad based and underlying demand?

Back to you Mats.

Yes, yes, yes, on Semi. No, then I would say, sorry I tried to say a little bit early, and auto American investments, we do see design investments.

We see a little bit movement in Korea. But in general, they don't need much more CapEx at this point and pricing is not up.

So I don't think it's a general trend shifting upwards. So I would say it's just more a number of key accounts that have invested.

But it's the same key accounts that we talk about in every quarterly for those new big change around the 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 krona has inflated the numbers of course, just as we have 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.

That's great, thank you very much for your time.

Next question?

Thanks very much. Good afternoon, gentlemen.

Just a quick one, I wondered if you could expand a little bit on the order volumes on the small and medium size 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?

And perhaps in the same answer you could talk a little bit about IT and auto. I know you've 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 EUV capacity and the new technologies that you're bringing to market for that.

So perhaps you could talk a little bit about those two businesses in more detail for us, that'd be helpful? Thank you.

I mean if you think about the industrial compressors in terms of size, most are oil injected at the time spread throughout in case of the oil industries that you can think of and also that in our presence that is also the case globally and Americas, Asia and Europe. And it's just that the investment climate and activity level among those customers is basically 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 well.

So, I think we normally referred 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 two 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 want, but…

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 more is greater resilience because it is 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 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, you know, about 60% or somewhere 60% of Industrial Technique is correctly linked to auto in one 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 obviously in principally all OEM having quite an ambitious plan to really deliver more models if that's fully electric or combination of electric and well that -- this is a little bit help hold things up right now and I think that's something that is very positive. And on top of that in 2008-2009, then we were in and assembly company terms of the nut round and some screwdrivers and this time the change is to mix material in the body [ph] white helps dispensing because this mixed material in the bodies and also the hand rub [ph] and the self-riveting and the Flowdrill business.

So it's a little bit better balanced and we also strategically and then positioned ourselves that if we would have been only dependent on the old traditional business, then I would be standing and being quite concerned. But now with battery packs for example, using all our technology at the office [ph] and that's quite positive for us and that's balanced a little bit the number of tightening that will disappear in the form of the [indiscernible].

So, also I think when the [indiscernible] the presentation is, I thought that well then equal opportunity for us in terms of size, but on the other side, the whole business we already had and now we need to go out and begin the -- this balancing, 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 its 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.

Okay, thank you.

Thank you very much. Can I ask on FX and currency movement?

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 [ph] 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 looked ahead. That is a statement perhaps that we might have to revise if the Brexit negotiations or 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 area and perhaps not as big a bridge as we had in Q3. I don't think that you have to re-calibrate 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 should they be distributed to shareholders?

Mats can repeat what are the main priorities.

Oh, I 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 is 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 is a Board decision of course and we can only present the numbers and our view on it and 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 are 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.