Atlas Copco AB

Hans Straberg - Chairman of the Board Ronnie Leten - President, Chief Executive Officer, Director Hans Ola Meyer - Chief Financial Officer, Senior Vice President - Controlling and Finance

Guillermo Peigneux - UBS Erik Karlsson - AKO Capital Andre Kukhnin - Credit Suisse Alex Whight - JPMorgan Ben Maslen - Bank of America Markus Almerud - Morgan Stanley Sebastien Gruter - Societe Generale Daniel Schmidt - SEB

Good afternoon, good morning. Wherever you are, and very welcome to the Second Quarter Conference Call for Atlas Copco.

We are here present in the mine underneath our headquarters in Nacka, Stockholm, but we also welcome of course everyone participating on the conference call. We will do this as we normally do.

Ronnie, to my left, our CEO, will go through his comments to the quarter report and then we will open up for questions and answers. Without too much waste of time, I hand it over to you, Ronnie.

Okay. Thank you, and a warm welcome.

I will as usual go straight to the slides, so we have more time for questions. This Slide Number Three, I am now, Q2 in brief.

Let's summarize the picture of the quarter, what we have seen it is pretty the same trend as we saw in Q1, maybe with a little bit changes in the latter part of the to the quarter, where we can say that some of the mining business was a little bit better in that latter part of the quarter, but again what we said last time motor vehicle business is doing well, aerospace is doing well and semicon is doing very well and that's also what you see here when we talk about sequential order growth in an industrial compressors and tools comes from that area, stable in order intake and mining equipment I will elaborate later a little bit more on that. Of course when you have a strong semicon and then having a company like Edwards of course you also have good tailwind there.

Still a good development on the business on service, so our strategy, which we started many years ago is still rock-solid and continues to grow and we see still more to take, so that makes me happy; and a strong development in North America and I'm sure for most of you this is not the surprise. We go to the next slide and that's more on the figures.

I will not elaborate more on that. You can read it yourself on the slide.

Organic growth, after many quarters was negative, so that's good news. I think when it comes to the margin, we will elaborate later a little bit more on that, but still an 18.6%, still more work to do on MR, on the mining and rock excavation, so which is the biggest gap, what we have with last year.

If we then go to operating cash flow, I am also pleased to see that they come back to, yes, the figures where I believe we should be with this volume. Now, the next Slide, on the geographical part, and let me start with Europe and I will comment excluding Edwards, so that we compared businesses - comparable business with last year otherwise it becomes very complicated for all of this.

In Europe, we see a positive development, a slight positive development in CT, a little bit of mixed view but different countries that do positive otherwise a little bit negative but still positive and the same is on the industrial technique business area of course held by the motor vehicle, by the aerospace, Airbus, so that that's businesses where we are in, so it is what it is. Then if we take North America, yes, what can I say more?

Everything is positive, so that's great to see that, otherwise you will not make this plus 13 and then we had done a couple of the nice bolt-on acquisitions, especially in Texas, of so that will also help us to strengthen our foothold in that market. South America, a minus, a bit of a mixed one, where we saw a lower mining and rock excavation, a little bit positive CT and a flat CR instructions, which makes it a minus 2, and that is also an area where we have to watch.

What about Brazil? It's not because they lost 7-1 to the Germans, that the economy should go flat, but at least, I think, we should watch that.

That's an area I think you will hear me talking more about that if we go further in the presentation and also in the quarter. We then shift east and then we take Asia, minus 3.

It was not so strong or even weak I should say in China and India, so that is an area where we still have not found back the real growth if we take it as a total company. Of course, industrial technique does great in small to medium-sized compressors.

I think it's fine. It's doing, but up big tickets is difficult there, same is on the construction technique area.

It is a tough market there. Then we take is Australia.

See they are plus 32, so the guys on the mining side, they are back so we had a couple of good orders there, so that we saw the latter part of the quarter a good development. If we then go to the next slide, so what to say, there you have the view on the organic growth.

We see a slight positive, so let's hope this is the beginning of a long journey. If I then go on the sales bridge, the next slide maybe to take away and Hans Ola will talk a little bit more on that on the currencies, but flat more or less year-on-year, so that is finally coming to a more, hopefully, a positive thoughts for us.

If I take it here by business area very quickly as I will elaborate further on that strong industrial technique on growth. The orders are reasonable flat.

Of course, when you look to CT, when you miss a little bit large orders, it's of course still difficult to really have a good strong growth and then I am not talking about Edwards as you have seen here on the structural change is a strong plus. Let me go immediately to the different business areas and then I compressor technique.

I can maybe ask that where are the big orders, where are the large orders. That would be nice if we can come back to this part to get them up, but we see a positive development in Europe, North America, as I have mentioned already before.

A tougher Asia, large orders, large compressors still soft if we compare with 2011-2012. A very good Edwards, of course, I have been talking about the semicon, but we also see that general vacuum and the service are growing, so the company is in good shape, so we are very pleased the first quarter of this with Edwards, so we are working hard to come close together and have a great future in front of us.

Service continued to grow, so I'm very pleased to see that and that was a very solid growth here. Operating margin that the demand the first quantum of data that would like to be, so we are working on that.

Meaning, it means on better price management, new products, but of course also adaptation on cost. Last week, we also announced a new leader in this organization, Nico Delvaux.

Some of you know him. He was heading the construction business area, but I think he has a long legacy and experience in compressor technique, so I think that he will be a good leader for this business area.

Of course, now we are looking for a new one in construction technique. Industrial technique, yes, very solid development coming from motor vehicle and aerospace, they do very well.

Also, the latest acquisitions we did, they are contributing good so we have a good development there, so the momentum in that business area is there and the momentum in the business in the market is also there, so the tailwind is there, so that's good to see and the margins I don't need to comment more on that. You can read it yourself.

I think it's very solid 22% plus, so that's good and that's also the area of the league where they need to they has to be. Mining and rock excavations, stabling order intake for equipment and service.

As I mentioned already, see the latter part of the quarter was a bit better. Solid North America.

Australia, we saw also some orders in [Andina,], Peru and Mexico, so that was also an area where we saw good development, but a bit lower in Asia, so that is an area where we are not seeing the development. Consumables increased sequentially.

I think that's a good sign. If we have that, I think, I would like to see that and then now I am here talking really of production consumables, so not the expirations consumables because that's still down, but the production consumables is up and that's a good sign for that the machines are used, the production is going on.

There is high production for iron ore. Copper is doing well and we see also the price is going in the good development and I saw also more activity on the service side.

If you ask me on the mining and rock excavation, I saw where I maybe before said it's a flat development. Maybe we have a bit of a negative outlook or say maybe negative strength.

That's maybe better set, but I would now say it's flat but maybe we have a bit positive trend. Let's hope I am right in my reading of the analysis of the figures.

Margin 18.1%, still affected by some lower volume, also dilution of some of the acquisitions we had done previously and don't get the real volume. Of course, we have taken here and there some extra costs which going in, so that make it also at the margin as you can see compared to last year was lower and is lower and this will be I think a bit for a couple of quarters that we will see lower margin.

Of course I Hope next quarter that is little better that the measures we are taking that of course they also yield results and that is what I meant those with further efficiency measures are to be taken and now will be taken. Then we come to construction technique, a bit of a mixed development.

Asia was negative and you have also in mining and rock excavation that was negative. North America is not a surprise.

I am very pleased to see that the road construction equipment guys with all the efforts we have been doing over the last two years on new products and investing in the present in the market that they get some successes, so I am very pleased and proud that we get it there in this competitive market and the same is for the construction and demolition tools where we also see some dynamics coming into the market. Why is it bit mixed order development is mainly due to the portable energy equipment decrease of orders and that's mainly in the larger portable compressor, so what we internally stated double axis under the real almost the 20-foot container, portable compressors which you use in water well, which you use in exploration.

That market is rather soft and that we didn't get many orders for that one and a good development in specialty rental that continues to develop. Here also we keep investing in the new feet in the market.

Margin13.4%, with a little bit headwind from currency here. They had that part and I think also a bit of a negative mix.

I think it's not a surprise when you sell more road construction equipment and less portable energy equipment that you have a negative mix, for those ones who are following Atlas Copco. I think an operating margin which is dependable given the mix here.

Then I am coming to the total group. I think I went through all the different figures here.

You see revenue plus 7, operating margin -4, but an 18.6%, so we are coming closer and closer to the figures of last year in absolute. What is the reason of the difference?

It's primarily on the mining and rock excavation, where we had the biggest difference and where we still need to catch up and a little bit difference when it comes to the profitability in CT, where also so we are working hard to bring it on the same level as we were last year. Then I would say, I'll handover to Hans Ola, because I am sure he will talk more about earnings.

Some interesting topics.

Yes. I hope so.

Let's take it on that note. As you can see, Ronnie has spoken about the operating performance, on the operating profit levels I won't dwell on that too much until we get to the bridges and so on.

On the financial items, you noticed that there was less negative than second-quarter last year. The main difference as you could pick out probably from the comment was that we had some financial exchange differences.

That was very negative last year and since that was not repeated this year it seemed like an improvement. What we have always said is, that when we look ahead, we cannot predict those exchange differences in the financial net, but we can look at the financial net, the interest net.

The interest net we expect to be somewhere in this region that we reported in Q1 also going forward, perhaps a little bit more negative because of the big payments we amortized the loan and we have also paid the dividends in second quarter. On the other hand, we have a continuous positive cash flow, so I am not talking about big variations to the current trend, but perhaps somewhat.

If we move further down, we come to the tax. We had a relatively low tax rate this quarter.

Just above 23%, a touch lower than Q1, but it's at that type of a level where we are right now, so I would say going forward 23% to 24% is probably what one should expect. That helps us compared to last year again, because we had higher tax rate last year and you can actually see which we are very happy to see that in absolute terms we are actually making more net profit this quarter than last year even, so that was a while ago since that was the case.

If I move on, thank you.

You are much quicker than I am.

Thank you. Here perhaps on this famous profit bridge, I would start out by talking perhaps about the currency.

We have a negative currency impact if you compare where the average exchange rates last year second-quarter most compared to this year. We are not back to the same level in our mix of currencies.

However, in Atlas Copco, as we have explained many times before, we do not hedge forward. The exchange rates have an impact in the quarter when it happens.

When we have weakening of the Swedish krona i.e. strengthening of other exchange rates or currencies then we get the revaluation effect in that quarter of our receivables i.e.

the working capital. Hence, you could say that we see the positive move lately of the currency rates versus the Swedish Krona rather quickly and that is what you see in Q2.

If we look again forward, Q3, Q4, we expect this to be the case also going forward and even more so, so perhaps SEK200 million positive per quarter and in comparison with the same quarter last year is one should expect on the EBIT on the operating profit line. That was the case and that had a slight positive impact on the profit margin of course.

The rest is easier perhaps to explain if we move to the next slide and look a little bit at the business areas. Easy to explain compressor techniques, perhaps not, because we have a positive volume growth in the quarter compared the most year, but we have a negative operating profit in organic and here is the same comment really as we made in the first quarter that we have increased the cost on R&D and some of the service presence related costs primarily in the market and the volume increase is just not big enough, significant enough to compensate for that yet, but you can also see that gradually the margin is coming back compared to the first quarter in compressor technique so that distance the positive trend at least.

Some other things to point out is perhaps that you see some negative impact on the acquisitions. They are very small and they are very early and that is not unusual that we have a little bit of a negative impact even losses in the first couple of quarters on these small acquisitions.

Edwards in compressor technique is a completely different story as you can appreciate from the numbers there on acquisitions, so I don't think if there are more questions of course we are happy to come back to that and I move instead on to the balance sheet. I don't offer very much details here, but the increase of the total assets as continuous as you can appreciate is really due to the acquisition of Edwards primarily, but one should also remember that when we get and I am coming back to these currencies, that when we revalue the whole balance sheet when the Swedish Krona drops, it of course increases the numbers and that the impact from year-end is about SEK 3 billion in the increase and that hits inventory numbers, receivables and everything in the balance sheet of course.

That leads us to the cash flow SEK 2.9 billion in operating cash flow the way we define it and you can see that if you look through a couple of changes like on the financial items, which is really not result-oriented. It's only cash flow items of financial nature and if you look at changing working capital, you see a big swing from last year that compensates each other more or less, so at the end of the day we generate roughly the cash we did last year except for that we make a bit less profit on the EBIT line.

That's a very quick summary on the cash flow and then I think I leave it back to you Ronnie to end with an outlook.

Okay. Sophisticated statement, so if you have seen the outlook is more or less the same as the one we brought in Q2 at the end of Q1, so it's also more or less the same view what we have on the market.

We see still a continuous good development in North America. I don't see any signs that that will change.

I said also last time, Brazil what will happened, what will be there, so that's bit maybe a little bit negative what we see there. Asia, China, India, because now with India, the elections have finished, let's see if they pick up on the growth and China the big tickets, the mining part, construction part is that so while coming I see on the small-medium sized compressor, the industrial technique side, that I think is going well and Europe also has a bit of mixed view where you see the southern part of Europe and then I am talking about Italy, France, Spain.

Although it's on a lower level, but we see some growth, so that's positive I think because U.K. is doing fantastic.

U.K. and U.S.

you can put more or less in the same sentence. They are doing, they are performing at the same level.

Of course when you come to the central part, what is Germany going to do, of course that's as a big economy in Europe is very important, so if you see its pluses and minuses, now you could wonder why Ronnie have you said increased somewhat and that is a bit I feel that what we have seen on the mining side, where I said last time that flat to negative that I would say now I am flat positive and make me say okay to conclusion more or less for the outlook that this where we are standing. It's not that suddenly we see sunshine everywhere.

That's for sure not the case, but I have continuous good positive view on the third quarter as I did on the second quarter and the first quarter, so that is I would like to say the outlook.

Yes.

Thank you, Ronnie. We will go over to the question session and of course we have the conference call participants and we have the people in Nacka here present.

Can I ask the operator, please to repeat the procedure for the questions, please?

Excellent. Then we will switch between the two parties here and I think we will start.

To get organized, we start in Stockholm. I have a couple of hands here, so do we have a microphone.

That's always good for the telephone conference listeners to hear your questions as well.

Thank you. It's Guillermo Peigneux from UBS.

Thanks, Ronnie. Thanks, Ola.

Two questions or maybe one and one follow-up, first regarding the outlook for mining, could you elaborate a little bit in between regions. What do you see in the three main mining region areas Latin America, South Africa and Australia.

Then second regarding your relatively poor incrementals in compressor technique, incrementally so going forward those expenses you were referring to R&D and I guess feet on the street on the service side will be going up or do you think they are stable right now. Are you where you want to be in terms of those expenses?

Thank you.

Yes. I will start on CT as I am being still acting and I am the one to blame, so I think I will answer that immediately.

Like I said and Hans Ola has also mentioned that we have of course invested in R&D, we invested in a lot of feet in the street which we keep doing and it's not intention to withdraw that, but we have done too much and don't say that we have done too much in R&D. I think that we should keep going on and of course always we can do better to reduce time-to-market, but in certain areas where we have invested where the volume is not coming and I don't see and that this where, as we speak, we are adapting the [suit] that is happening and that has been happening the last weeks to adapt that.

If you see sequentially, you will see I am sure an improvement as I am standing here. That is in a couple divisions.

It has happened here and there, it happens also on a bit of the what we used to say the overhead, which we are reducing and adapting to a fast organization, but that - I'm not backing off and that is without Edwards, because let's take Edwards again, that's a business which would perform better and it's all internal. I cannot blame the weather in this case.

It isn't done. On the component and the mining, more or less I did a little bit in my presentation, but I will try to summarize it again.

Australia, I see the last, say, the latter part of the quarter, I should use the same terminology otherwise I would confuse you, I see a positive development. I see a positive development on equipment and I saw also good positive development on service demand that is in the Australia area.

South America, Peru and Chile, I think that's continent getting driven by mainly the copper. That's of course still good.

Of course you can, in the quarter you always have to see when is the big quarter coming and how you compare, but there is continuous good development. There is also, I think in Brazil, Vale has kept investing in iron ore.

We saw that, so that has been state at very high level since it has never dropped more or less, so that continues but not the real high-growth you have, but you have a continuous good development, where we have seen some good development. This is in North America lately, where I saw some positive development on consumables, because that as I mentioned at the beginning also, we saw a good demand on the consumable side and that comes from North America.

Africa and Middle East, I think South Africa we just tried to know that's so difficult to get to with VEV. On the consumables side that is low, because someone platinum they don't work, now they agreed, but then - people on strike, so we don't get it yet and that will take another two, three months.

I think the other part when you talk about Ghana and gold, still so-and-so. Then what was weak this quarter was actually Asia.

Like Indonesia and you know why and it's very obvious source in China was not really, really strong, so that was rather on the softer side.

We had another question here in Stockholm?

Thank you and I spoke from the day out. We are in a world of very low inflation globally.

A lot of companies are having problem raising prices. could you help us understand your pricing power in unlike CT and MR.

Just right now compared to where it was one or two years ago?

Yes. I think in our business, of course, you always try to get small increase, so when it comes to prices every year.

If you take it on first the service part, which is then inflation-driven and if you get an inflation of 2% to 3%, you can get in the contract. When you get only an inflation of 1% to 1.5%, yes, you only get 1% to 1.5% and even then negotiate it.

Maybe it can even be lower, so that this more difficult to get just the easy price increases, but it would be too easy if it was so organic to do it. Of course you come up with new value propositions, you make new proposals, you bundle the services in a different way where, - okay.

You really do value-based pricing. That's totally different way of pricing and that's the way we working on the service side in CT and industrial technique it works maybe a little bit less on construction and on the mining side, so that is working and that's still yield some positive compensation.

I am not saying that we are here getting to 3%, 5%. That's we sometimes used to get.

That's on the - When it comes to the equipment, it's very easy. This comes when you have a new product and that's the reason why we always do this run when you hear us talking about the innovation incremental movements.

First, to motivate your own people, because your own sales people, they love to go to the customer and say we have something new, because that gives them confidence. Also, you can increase a little bit the prices and you create more value for the customer, so he is also happy although you share a bit of the value with him or with her, so that is the way it works and that's the way it works and that is the way it works in CT.

In CT, as also in industrial technique, it works all about, say, productivity and efficiency, energy efficiency or productivity than it talks more or less on industrial technique. As you meet professional purchase people and you of course you can fool them and you should not fool your customer.

That's the basic, but of course these people of course they do negotiation, but you say, come on you see the value base, you have also lifecycle cost reduction and that's the way it work. Now, if you come back last year on the mining part, you remember all of it on the mining part, you remember all of you, you were bombarding with me of I got they like all these questions.

I think you saw that. I think that is something that's coming to a normal level that they see, "Okay,.

We need to work together. We can get more on automation, we can get more and we get a good value proposition on service.

Will they always say that we are too high? Yes.

I do the same when I buy something. It's a human reaction, but we should see it and the only way we have is new products, new products, and a little bit better every time then the competition.

Good. We take two questions from the conference call, please?

Thanks for taking my question. CT is already a great business of course, but given the change in management there and perhaps, you also being even closer to the business over the last couple of months.

Could you tell us a bit about your thoughts of what can be further improved in that business aside from taking back the investment in the sales and service a little bit. What are the other things that you think can be improved in that business.

We should start growing more. I think, Erik, that is the part I think we should get more market share.

In all the different product portfolios, in every continent that is the main part. We are two or three times larger than any of the competitors, we invest maybe four times more than any other competitor in design and development.

We have the best value preposition. We are the lifecycle cost.

I don't understand why we don't sell more or why our customers don't buy from us, so we need to work harder to get that into the market. That's the main and that is what I have been working on the last, say, 10 weeks, to make them, I mean, the people in CT more aware.

Guys and girls, we can get much more of the market, so that's part how you do that of course is feet in the street. It's the move to brand, it's more focusing in this market going direct indirect.

This part is what we need to work on that. Of course at the same time I saw some investments which we have been doing, which say "Hey, when will that ever give return."

and that is what I am withdrawing and adapting and to create a little bit faster organization in certain areas so better core operation in certain markets. Yes, be faster in the market, so that's an area where I think in CT we can improve.

Is it the bad business, you said it already, Erik. No and you said bloody hell why is this Ronnie now talking it's 20.5% EBIT business and he start to pushing and kicking to get it better, but I feel that that is a business where we should be a solid 22% to 23% EBIT.

That is where I get a little bit irritated if it doesn't come. We cannot blame the currency and we cannot blame the weather.

I think, we still don't have 100% market share, so there is still more to take.

Thank you very much.

Thanks, Erik. The next question?

Good afternoon. Thanks very much for taking my question and a quick follow-up as well.

Just on MR, you seem to be taking out a lot of headcount there with not very much of sort of extraordinary one-off charges going in. Could you maybe help us quantify how much of it is just happening kind of on an underlying basis and therefore impacting profitability not - netted out, but just to get a sense of where it can go when you actually stop foreign people.

On that kind of what is the outlook for second half of the year? Do you still need to do much of the adjustments down within your headcount in that division?

Okay. Are you taking it?

Yes. We can take turns.

I think that's what you referred to is correct that when we adjust, we normally do it as we speak, so to speak. We do it on a continuous basis.

In many cases, there is quite a number of people that leave here and there. We are present over the world, and if there is 5 people in one country and 10 in that and 8 in that, it doesn't make very much sense of combining that to a big package, because it is not the package, so hence that's our philosophy and it would be wrong to try to isolate those costs.

Why do we do with now and then like in the first quarter, because sometimes it also affects the pure adjustment of one location where it is a significant event and it is also a public event in that respect and it is important to understand that that has a one-time effect in that specific area so to speak, but otherwise our philosophy is really to take it as we go, so I will disappoint you. I will not give you a hint that on the margin it has affected so much this quarter and you should adjust last year with so much.

We just have to accept that that is how we operate and that's in the numbers and it's not out of the numbers.

To elaborate a bit further, if you look forward, of course, what these adaptations, what we do Hans Ola said for here five there where we have taken the cost, of course these should yield bottom line improvement and that's also why we are working on. If volume and mix more or less stays where we are, we should see an improvement on the bottom line.

I would be extremely disappointed if that is not the case and that should come. You should see some already next quarter and the quarter after that.

We should see improvement, because we are really taking out a significant amount of people every month we take it or every quarter we take people, so that - today, but in the other hand we don't lose top-line, so it must end up somewhere and that's in the profit.

Indeed. Just on a bit of the whether you need to do a lot more in second half or we?

Yes. There will be a bit more to do in the second half, not so much as we had been doing, but we will do as we speak.

We are still reducing and that's spread all over the road. There is no country who is under special protection or something everything.

Everywhere we can do some improvement here and there. That is the next coming two quarters, there is still some extra cost to At the same time, one also should know that we are pushing hard on this mining and rock excavation, also that they reduced their inventory.

Of course that also brings out the volume under absorption in some factories, so that's also you see, maybe you don't see in the figures, but it's embedded in the figures and that will also go along in the next coming quarters, because I'm not so sure that they will be on the level of inventory where I will be happy over the next month or you think so Hans Ola.

Few months.

Yes, few months. Yes.

Do we have another question here in Stockholm? Otherwise we continue on the conference call, because we have a number of questions lined up there, so we can come back to the audience here, but we continue on the conference then please.

Good afternoon, everybody. It's Alex with JPMorgan.

The first question I had was we heard from SKF yesterday about the deterioration in what I was saying in Europe on the demand side as we went through the quarter during the last two weeks of June. Can you talk a little about what you are seeing in Europe as the quarter progressed, and particularly in the last month or so?

Of course, I also read that from Tom, but I must disappoint. I didn't see that actually in our phase.

We are CapEx and I think SKF is more production volume-driven, so I think has totally different cycle. As I mentioned previously already, I would say, I saw a good development in Spain, Italy, France and U.K, where we saw some good development.

It was a bit, when we do compare quarter-to-quarter, it was a bit softer in Germany, but of course we were comparing with a strong quarter last year, so I think it was more or less continuation of much growth that it was. It was a normal quarter, so I don't see the same as what he wrote.

As strongly started, I mean, it's mostly investment decisions in our case.

Yes.

Consumption, yes.

I mean, that's good. It's different part Ronnie have it's good to hear.

The second thing that I wanted to us that was just you have provided a bit of detail on the FX and what you are expecting going forward, but I was wondering if you can help us understand the magnitude of the balance sheet item moves. How much of a positive that was in EBIT year-on-year?

That's specific revaluation you mean or what?

Yes. I have to explain it of course, because other companies don't show the same sudden impact, but to split that out is extremely - you come into models and you come into mathematics that I don't think is valuable to go very much into.

What I can clearly, and I think I already said that I can repeat that if you take that the pure comparison of an exchange rates in second-quarter compared to last year. We would have had a negative impact from that, but then it returned to positive.

To quantify exactly how much is what and so on that it's not that we are minus 300 than average and then it turns into plus 60. It's not that.

It's more subtle than that but it has a positive otherwise it would have been negative. Let's leave it at that.

Then going forward, of course, you will have more and more of a true better currency situation. I mean, that the average rates will be slightly for us than comparison last year, but you will not have the positive impact of constant revaluations all the time given the currencies as they are today of course.

Great. That's helpful.

Thanks very much.

Thanks. Yes.

I look around the room and we continue on the conference call please?

Okay. Thank you.

Hi, Ronnie. Hi, Hans Straberg.

First question please just on the construction equipment outlook. You say you expect it to increase somewhat, but I am guessing that we have seen a slightly weaker outlook or weaker developments or which developments in China.

Maybe slightly weaker in Latin America, where do you see the improvement in construction equipment. Thank you.

I don't recall that I said that we increased somewhat on construction, but I think what I see on the construction side today is that - of course you have that seasonality, because that's another part - some part, but we have been that you should take into account when you listen to me. I see still a good development and good momentum in North America.

Actually we saw also last quarter it was not so bad in Brazil even you can wonder, but that that was really a positive part. I think also in Europe, then of course seasonal corrected, because one thing what we should know when Europe what has happened this year is that the rental companies in Europe or the little earlier this year than last year, so that means also that will stop a little bit earlier this year to order more, so that's one thing when you read the figures or analyze the figures, we should take into account.

Europe, North America, I think positive South America, depending a bit of course on the mining part, but that will happened because that comes also in (Inaudible), I was not so negative CR on South America. When it comes to Asia, that is another area, I see a weaker India.

One part of that is if you take one example is the water well drilling which is more or less coming to stop standstill and so that's a very good nice business for us, because you need a lot of compressors. We also saw that the construction business and especially the area we are where are in China is also weak I can say blood to say that.

Roughly - and weak Asia, and I make it easy for myself. Weak Asia, positive North America, okay Europe seasonal I think I corrected and maybe a flat South America if I really summarize it quickly.

Thank you. If I can, maybe I have a follow-up on Edwards.

Is there anywhere you can just help us with the outlook for the second half. Is there any seasonality that we in orders or earnings we need to bear in mind.

Of your guidance, would you expect further sequential pick-up in demand for Edwards, which you think is more flattish than what is a very good level.

Yes. On the earnings guidance, we clearly normally don't do and Hans Ola will maybe say Ronnie stop.

Whatever, I think, we should, because I think all of us are learning together as we are here and how is the dynamics in this part of the market and this part of the business, but earnings for sure earnings for sure if you look to the orders on hand, what we have given the other income over the last two quarters, so I am sure also on the earnings side we will have a good Q3. I think it should continue at the good high level.

I didn't see any in the predictions any profitable warning or hiccups, so that there were bet orders in, so I would say on that part continue. On the order received side, yes.

I think the tailwind on the semicon is still solid. If you read about the outlooks of different analysts and also listen to our own people they are still have strong tailwind, so on the semicon, so that from that point of view I would say a continuous good development.

Having said, sometimes we get also very big orders there, may be that don't fall in the third quarter, but that is just - the order has not gone, it's just not only just falling in the quarter where we report, but again I think for the next outlook and I have mentioned also a strong semicon stops then you should read a good or received expected for Edwards. That's at least where I am standing

Perhaps, Edwards was not in our numbers last year obviously, but it was a public company and you saw their reports that they came in and they did have a very strong second half of the year compared to the first half. That is of course something that is not making any sense in our bridge when we report how they are growing like-for-like, the growth will be some somewhat the affected by higher comparisons.

Maybe for all of us to help you and bend specific on that part, you can see that per month now to have an order received now around $100 million a little bit higher, so between $100 and $105.

That's where they are cruising out. Elaborated and - upcoming back what Hans Ola said that came in that level, there were moving on to say September-October, then they were moving on before we take The first and the second quarter last year, they were running 1885 in that month so that this the main reason of the increase is semicon.

Of course they have been growing in service. They have been growing in general vacuum then we talk about single-digit code.

Got it. Very clear.

Thank you.

Well, we continue. We have more questions from the telephone conference.

Hi. Markus Almerud here.

First on, coming back to the mining margin, if you just for currencies and restructuring the margin decline was actually quite strong sequential and I assume it's just sharp fall in sales which would level up going forward. When should we expect the savings that you took in Q1, the 75 million program to have full effect.

That's my first question. Then my second question is on the large orders, you said the latter part in minding was better managing a couple of large orders.

Is it mainly those large orders or is it a general feeling and also are there any signs of life at all in exploration?

Yes. I will take the question.

I think the general feeling is that it's more positive. There is much more optimism on the mining side than I think if you talk three, four months ago.

How solid is it, come back within three months. We will see what it is, of course, you have seen also the pricing of certain commodities?

If you take the copper price, if it goes a little higher so that gives of course a bit of release for certain projects so that makes people bit more positive, so that's a good sign. When it comes to the explorations, that I have not seen any movement there, I have not heard anyone talking any signs of life, not even on the bips, because that's what we follow very closely, so it's really that.

Then your first question, when is the SEK 75 million going to paying off? I think you should see that for next year.

I think that you should not expect something really spectacular coming and even maybe not next year either. I think where we are working on and I elaborated here on another question before on that we are adapting to suit, we are adapting our inventory and with a final result to have a better profitability and we are not there and have no problem to say that in public.

We are not there where I think why we should be and this is all, all internally. Of course, if the market goes and drop another 20%, yes, halleluiah, then we talk, but get it despite of the level we should be higher in profitability and that is what we are working on capacity adapting the inventory doing to cost adaptations here and there.

Okay. Thank you.

Thank you. We have time for at least one more question.

Let's see how long it and then we will see how many more questions we can take, so please go ahead another question from phone.

Hi. Good afternoon.

I have two quick questions. I mean, the FX just coming back on the FX issue.

Are you talking about year-on-year impact, but given the [of asset] maybe could you tell us what you expect on quarter-on-quarter basis in Q3 versus Q2 in terms of impact or just put a good number. On the guidance, should there be some seasonality in Q3 versus Q2?

Does your guidance now imply that we should not see this (Inaudible) this time around and of course the order intake in absolute terms can be a [Q2]. Thank you.

Well, if I start, sequentially on currencies, you should I think I mentioned it briefly, but I might have missed that the current situation is what you see in Q2 basically. Of course, we had a movement during the second quarter to more favorable currencies.

Currency situation, you know we have a basket where we are longing in any currencies and we are short in Swedish krona and euro, so that's basically the broad picture. Now, there's not a huge difference from Q2 into Q3, except for that it was a gradual weakening of the krona in Q2, so of course we have that with us.

I cannot quantify for you Sebastien on that how much the impact is on a sequential basis, but we will of course not have this famous revaluation again. If the currencies stays where they are, then we would enjoy that in Q2 and then that will not help us.

Comparing with Q3 last year is a different story, but that I also commented already before, so I think that's as much as we can say on the FX, but again leaving your with - normally when we report in the quarter you see the actualization of the result to current FX. That's basically what you should expect and that's what so sequentially normally there is not much more to expect so to speak.

Yes. On the guidance, I think, of course you should see when you listen to us on the guidance, we talk about demand and we don't talk about earnings, we don't talk about the received orders.

We talk about demand, so what do we see or what do we expect in the market. Of course, when you talk construction and you see also the order cycle, even the demand order cycle, of course in construction.

This certain seasonality in the world and that I think you need to take into account. That's what I mentioned, because you don't have seasonality on the mining site or on compressors or industrial technique.

Forget it's mainly on mainly on the construction site.

Thank you. Then the final question then if we can take, then we have to close.

Yes. Hello.

Good afternoon. Can I just try to turn the question around when it comes to the margin potential in the mining and rock, and just ask you guys given this sort of change and mix that you have seen over the past two years and the cost reductions that you have done and then just leave the under absorption behind us and look a couple of quarters out if there is still sort of stability in order intake and sales.

What top-line do you need in order to get back to the very high margins that used to have or let's say 23%, 22% to be somewhere in between when you were and where you are now. How much has the operating leverage changed given what you are doing?

I think this will be an answer with a lot of conditions, because you also have country mix, you have product mix have certain under absorption in certain products because we have invested compared to this high level of margin we have. If I take it rather broad and Daniel, I am really open to meet and explain a little bit further if you in one of - say into August, when we meet, we can talk a bit more about that, but think what you can see is, in MR over the last two-three years, we had done a couple of acquisitions, which don't bring the same margin level yet, otherwise we should have not done it as we were before, so that drags it down.

That's one. Second, we have done some feet in the street investments also there, which were not yielding results of not return what we like to see, so that's another area where we have a bit of leaks where some of them we can adapt, some of them we need to wait for a little bit higher demand.

Then third one, we also have done a couple of investment, CapEx investments, where we need more volume. There I am coming more to your area we may need maybe, say, between 10% and 20% more volume to come to a good flow through level in that area.

If you maybe take it given all the measures we are doing with a bit of luck, we have with certain mix and country mix and product mix that come back as it used to be. Forget the leakage of the acquisition and a bit say a 20% more volume, I think we should come back to say good solid margin.

I think a lot of has been done. Again, it's like I said today in CT.

I think I cannot blame the weather and which is fantastic. I was talking yesterday when I was preparing the board, I was talking to one of my directory boards this is great.

It's only us who should do it, so it's easy. If it is a market situation, where we get severe competition with price pressure here and there and we get squeezed in it or with the products we are late, then I would be nervous.

This is something what we need to do all ourselves. Unfortunately it takes a little bit too long time, but that's the only thing.

Thank you. Very good.

Could you just say anything about the timeframe that you are working at given a sort of a scenario where you don't see any further drop like you are talking about now or you are actually saying that it's improving slightly? Are we looking at the coming four, five, six quarters in order to sort of get back to where we used to be on an average level and forgetting about the peak levels?

Yes. I think you can see that is the horizon.

You should see also given that we are adapting the inventory and other part of that, which should be - you will coming next year situation that is what you should put yourself in that.

Very good. Thank you.

With that, I know that we have some more questions from the participants, but we have to break now. We are of course ready to take those questions through the Investor Relations department or to myself after the call.

I would just like to end by reminding everybody, first of all thanking everybody for coming here and participating in the call. We have the next opportunity to meet on the 20th of October for the Q3 report, but I also want to repeat that on the 19th of November, we have the Capital Markets Day of 2014 and its likely have announced before.

It will take place in the United States, but more firmed invitations and details will come on that as soon as we can.

You cannot say that. This is Swedish Week.

Absolutely. I was coming to that.

It's not only Atlas Copco. It's actually three other big Swedish companies that have agreed to do the Capital Markets Day in the same area in the United States, in the same week, so it's an excellent opportunity to get perhaps a little bit the benchmarking or whatever comparisons at least.

And a bit of sun being in Carolinas.

With that, on that sunny note, we thank everybody and wish you a nice continuation of the summer. Bye, bye.