Atlas Copco AB

Ronnie Leten - President & CEO Hans Ola - CFO

Guillermo Peigneux - UBS Anders Roslund - Swedbank Eric Karlsson - AKO Capital Markus Almerud - Morgan Stanley Andre Kukhnin - Credit Suisse Alexander Whight - JP Morgan Ben Maslen - Bank of America Peder Frolen - Handelsbanken

Good afternoon, good day, and good morning to everybody to this conference on the release of the third quarter results of Atlas Copco Group. Here in Nacka, in the Atlas Copco mine, we have some people that I’m also happy to welcome all of you participating on the telephone conference.

We will kick off in just a few seconds as we normally do with a few comments on the quarterly report by Ronnie Leten, our Chief Executive Officer, and then, we will quickly move over to Q&As after 20 minutes or something like that. So, I’ll come back with some instructions and comments before we go into the Q&A session later on.

So, with that, very welcome once again, and I hand over to you, Ron.

Thank you, thank you, Hans Ola, and welcome all of you, and good afternoon, good morning. I will go as usually first through the slides and I will immediately go to the slide number - I think it’s number 3, when we talk about the highlights of the Q3 in brief.

And I think it was a solid quarter because we all know it can always be better, but I think if we look to the figures and talk about what we are seeing is a good growth for industrial tools business and also the small-to-medium size industrial compressors did reasonably well and another part what -- it’s always nice when you do an acquisition and you see it happening as it happens now when it comes to the vacuum with Edwards acquisition. We are doing very well in that area in terms of topline and also in terms of bottom line and I will say also in terms of integration.

So, from that point, from the industrial part, a good improved demand. Mining, remember what I said last time, I was maybe a little bit more positive when you compare myself with quarter one and quarter two.

When I said in quarter two, I say okay, flat, positive. I think I will repeat that.

I think it’s more or less unchanged. The mining equipment, we get orders, we are on a certain level, but it’s not that it is really creeping or pushing up, but you of course all hope, but that we will take later when we talk about mining and rock excavation.

Service, it keeps going. So developing well and when I was looking and preparing my presentation here, I looked a little bit in history and I think if you take over the last 15 years, maybe with the exception in 2009 when we had a drop, for the rest we have constantly had good development on service, and we also know that is also a nice contributor to the bottom line.

Strong North America, I’m also sure not a surprise for any one of you and a weaker - weak Asia and mainly it’s -- I’m talking here about China and about India which are the biggest countries. We had record revenue and solid or strong operation cash flow.

So, I think in brief, like I start, solid quarter. One thing what maybe should have been here also is that we had a new acquisition Henrob for self-pierce riveting.

I think that’s also I think an exciting business we are going in and Henrob is a market leader in that new technology and we’ll see what it brings in the years to come. If we then go to the next slide and talk about the figures, so 20% up in orders received of course and Hans Ola will talk later about that.

The currency, this time we are on the right side of the currency with the weakening of the euro and the weakening of the krona, so it has really helped us. Organic growth, 2%.

If we take the currency away, we are around 14% growth that we have, so acquisition and organic together. Profit, the real profit was 4.1 billion.

Of course, we have done some impairment for some assets, restructuring cost, closing of a plant which we announced a little bit earlier, Guernsey, U.S. and a couple other points when it comes to option plan.

So, in total, we had a one-time, which is for us, as Atlas Copco, a rather big one. That’s also the reason why we reported as we reported here.

So, adjusted margin 19.5%, reported 17.6% and the rest I think you can read as it’s here, straightforward figures. Geographically, and let me start with Europe.

Even without Edwards, because that’s the ones I will comment because I think otherwise it would be very difficult to make a good conclusion for you, a solid Europe. So we saw in all the markets where we are - I’d say almost all countries came up with a good development.

I’m not talking here that we’re growing double digit otherwise you will not come to plus 5%, but a real positive figure, and even in Russia, we had a positive figure. Of course, who knows what will happen in Russia, who knows, so we are there and following up the situation every day, but for the time being, it’s business as usual.

If I then go to Asia, and you see minus 8%. I have already said it in the beginning, a weak China, a weak India.

So the big tickets, which is mainly China story, I think it’s not there. You see it’s difficult also on the mining side.

It is soft today. What is good, if I talk now about China, is industrial technique, I think in the tools business, the MVI, the train business.

So the transport, aerospace, I think these are areas where good to small to medium size compressors are okay. So that works fine, but a negative.

No one likes to report negative growth on that. And in India, we’ll see now with the new government and a lot of plans, there is a lot of hope.

I’ve not seen it yet, so let’s -- sometimes we are allowed to hope for better weather, so let’s see that it comes out. If I then go to Australia, mining, of course, then you get a positive part.

So that is good, but also in these figures, you should also remember that we did an acquisition, Ash Air in New Zealand, which also made the figures a little bit better, otherwise it would have more or less flat I think when it comes to Australia, which is mainly mining part. If I then go to the Americas and then North America, I’ve already said, very solid North America, plus 15%.

Of course, in all the businesses what we are doing, when we talk construction, when you talk about compressors, mining, it’s all positives, so that makes us reporting this very strong development. And in South America, you see also plus 18%, one I should say, of course, last year around the same quarter, we had a cancellation so the comparison is a little bit easy, but I think on Brazil, it’s more or less flat and then we know also how that business today is under supervision, but the countries like Chile and Peru when it comes to mining, they have done very well and made this figure.

So, if I then go to organic growth, you see small organic growth, so second quarter in a row. I think we should prepare ourselves also that we cannot expect because you always hope, but you don’t hope in business that you have a plus 15%, a plus 20% organic growth in our business, but if I see the world, if I read what’s going on now, I don’t expect that one.

I think we should really calibrate them to a solid growth, but not -- when it comes to organic but not double digit. Sales bridge, not much to say.

You see, I mentioned already the 14%, when you get to 12% and then the price, volume. So our innovation, what we are constantly working on, coming with new products, support our pricing, so even in tougher periods, we are able to keep it up and volume is slightly up, and of course, currency, as I mentioned, plus 6%.

Now I would like to go immediately to compressor technique on the business areas, where are we there? A robust demand for small-to-medium size machines, so compressors I think they had done very well.

Still it’s difficult for the larger machines, the big turbo machines, if we can talk like that, also the big school machines. I think that’s a softer market.

Again that has to do with -- a lot has to do with Asia. So that’s a softer market.

Service keeps going on. So, also our investment in that area of our business is yielding results.

Edwards, I’ve already mentioned it, keep going solid. I mentioned also New Zealand that we’ve been able to close the acquisition from Ash Air, so I’m very pleased that we have this distributor in the Atlas Copco family and the result, adjusted with the change of the closing we did for the factory in U.S., I think it’s coming to a -- close to 23%, 22.7%, very close, 23%, which I believe is, given where we are in the mix, I think is a good evolution and what I want to say with that, I think you can ask questions later on that part.

Industrial technique, solid. It keeps going.

You see it also when you look to the graph, we constantly report good organic growth. So the work what we are doing, the strategic work on investing in presence, investing in innovation, do add-ons in technology via acquisitions, it works.

So even in Asia, that’s the reason also we put it on. Henrob, I mentioned already, self-pierce riveting, so that’s an exciting area and you see a picture of that of one of the tools which are used, and then the operating margin is at a solid level where we more or less escalate.

So, a very good industrial technique in the quarter. Mining and rock excavation, something else, like I said, unchanged for mining equipment, bit mixed.

You see lower Asia, Africa/Middle East, but then again South America, North America, solid, so made it more or less unchanged demand, but a lot of swings. Good and that I think is important, we see service really picking up again, so that is always nice to see and also stable orders for production consumables.

So that’s an area which we like to see and also that is where we have strategically also put ourselves so there we felt that we could be the market leader, we could really gain presence and that we have been over the last five, six years invest a lot in that. It’s good to see that it also works even in tougher times.

The impairment, we did on some assets. So the majority of the impairment is on the mobile crushing part, and an acquisition we did couple of years back, but we see that the value what we have in the books is not coming out.

It’s not flowing back in the real business, so we felt that it’s time to calibrate that and okay, it’s done now. So that means adjusted, we come up to an 18.5%, is it where we really will be with the next coming quarters.

I hope that it will be a bit better. So that’s an area where we are working hard.

I think the organization is taking good measures and if we can really work hard and getting the service and the consumables up and running, then I think it will be better than 18.5%. Construction technique, good growth in road construction although we know the seasonality of this business and also good in construction and demolition tools, so that I think it’s good.

And it’s a [indiscernible] construction business area that the large portable compressors, so the double-axis, so the one you can see there, the 20-foot container compressors on those. That is a soft market and I think that’s also a market where we are strong, where we have a good position, and unfortunately, that is an end market which is today soft.

Good development for specialty rental. So I think we really put ourselves at a good place there, so that’s good, and then the operating margin is a bit negative affected by product mix and I hinted already.

I think it’s mainly also to the large portable compressor switches. A better business than say road construction equipment, so and that means that you get a bit of negative mix.

And we have a new leader there, Andrew Walker. For those who are following us since long, maybe able to -- have seen that name popping up.

I think Andrew was until a month ago Head of the CTS, so Compressor Technique Service division. He was heading that and he is a person who has more than 27 years with Atlas Copco and has seen the world, has seen the products and has really gone through the whole school, so I’m really looking forward to the results of Andrew.

Then on the group total profitability, before I hand over to Hans Ola, if we -- of course here we have the result as it is. If you exclude the one-time, you will see that a 20.5% is comparable with 19.5% when you talk about operating profit.

What is the difference? If I now take very rough the 1%, of course the Edwards acquisition brings it down a little around 0.8%.

Then, we have mining, which brings it down for another 1% and then we have a positive part on the currency. You can say at the end, the difference is the mining and rock excavation which makes the 1%.

So if we can get there back to the good levels which we used to be, then I think I’m sure also we are at the higher level on the operating profit. So by this, Hans Ola I suggest you take over.

Yes. So I’ll use that one and just continue down on the same slide actually with a few comments as we normally do.

Between operating profit and profit before tax, we have the financial items and as you could see in the report, nothing spectacular on the interest, but we had some extra financial exchange differences, which were related to some revaluations of a one-time character so that will hopefully not be repeated going forward. But 180 million negative was the interest net and looking forward, knowing that we have made a new acquisition in the third quarter somewhere in the region of 200 million, 200-plus million perhaps is a good estimate for the next couple of quarters.

So a little bit more interest cost than what we had seen in this. If we look at the tax rate, which is not on this slide, but it’s sitting there, we had a little bit higher than expected, 25.8% in the quarter and that was also due to some corrections related to some deferred tax calculations that I don’t foresee will be such a big impact going forward.

So definitely we expect this to be below 25% as we have talked about before going forward also there. The impact on the earnings per share, by the way, of the non - the items affecting comparability or the one-time, is about 30 or roughly so that you can see that compared to that.

So this one is, as Ronnie already talked about, I don’t think it gives you very much extra information apart from the currency impact, but if you look at the flow-through which we try to comment on the volume, price and mix and as it looks very strange, let’s see a little bit what can be commented, why it looks like that by looking at the various business areas. If we start with compressor technique, those with a good memory know that for two quarters in a row we have actually had a negative flow through.

Our revenue has been growing slightly in the compressor technique but it hasn’t been -- the profit hasn’t been growing. This time it does, and I think we are heading towards what would be a more normalized situation of a flow through if we have revenue growth of this magnitude perhaps somewhere in the region of 20% to 25% is really what we normally would expect, but it’s coming.

On the industrial technique, the flow-through, the 18%, how much the adjusted revenue is giving in profit, is also a little bit shy from normal ratios perhaps, but they are in a growth mode and they are putting a lot of new presence, a lot of new capacity in the market all around the world and also on the product development side. Mining and rock excavation are the big numbers.

We’ve commented a couple of quarters about the revenue drop and you see it in the bridge. That’s nothing new.

When it comes to the rather big negative flow-through that half, 50% of the revenue drop flows down to operating profit, I would say there a couple of comments that needs to be made, perhaps I don’t think that we should look at it as that there is a lot more to do on pure adjustment of the capacity to these levels of revenue, but there is certainly some efficiency measures continuing to be adapted and those costs are to get those efficiencies. These are still going on as we have said before.

We are also, as you can appreciate when we talk about the working capital later, we are also reducing the inventory in this business area and that puts a little bit of a pressure extra on the under-absorption, so the production levels are not working at full speed even for the normalized revenue or the current revenue level. So there a couple of things that I think is relevant to comment on the flow-through of the MR and mining.

And then, finally, construction technique, Ronnie talked about it that they have a very negative sales mix the performance, they have had a low service quarter in North America, but particularly also the low demand for large compressors and that’s a profitable product and that is not helping, so that’s why it looks a little bit extra serious on that one, but I think it’s really related to that negative sales mix performance. If I continue on to the balance sheet, there are some big numbers if you compare with the beginning of the year.

Of course, you have to realize that we have made the Edwards acquisition and we have made Henrob acquisition in the third quarter and in between a lot of small acquisitions of course. That’s the reason why the intangible assets are increasing so much and about 4 billion only in the third quarter.

So that affects also some other lines in the balance sheet. On the inventory and receivables, which is a significant portion of our balance sheet the way we are working in Atlas Copco, it also looks like a very sharp increase naturally also driven a little bit by the acquisitions, but in the quarter, if we talk about third quarter, the inventories are such in volume, excluding currency translation and acquisitions, was a release of about 900 million Swedish krona, so the inventory went down like-for-like.

Also, receivables were slightly lower in the third quarter, but then we also are reducing the amount of purchases to the production so we lose a little bit on the payables. All in all, those effects on the working capital -- we can see in the cash flow and as you can see lot of changes underneath the big numbers, but you can see line by line that there is not a lot of difference between the two years, the third quarter, but exactly for this line where we last year were consuming capital in working capital and this year we’re releasing capital and that floats downs to the operating cash flow difference of 1.5 billion Swedish krona, 3.9 billion is a good quarter, strong cash flow, it ranks among the top three, top two, top three quarters in Atlas Copco - is three, so it’s very nice to see that development.

I’ll stop there and I’ll leave it to you Ronnie to take the last one.

Yes. The most sophisticated sentence.

If we take it on the near-term outlook and of course you can read the sentence why - of course why did I put it like here, expect it to increase somewhat. I still see a good development on the industrial side.

That is an area where we see momentum coming, also on the service side, that’s good. Mining, although of course people expect always more, but I think it’s definitely not falling off the cliff, really it’s getting robust at a lower level than we look back to 2011, 2012, but it’s a good part.

Of course, we are all influenced when you start to ride down by the volatility in the market, especially when it comes to the financial market, but, on the other hand, I think I should make my analysis on the figures I am seeing and I am hearing and that really what are on the ground and that is the reason why we said okay expect it to increase somewhat. I think Atlas has a lot of potential.

We are present in many, it it’s not in 180 countries. I think we have fantastic products, I think we have eager troops and I think when you then see also this demand there is I think still somewhat in the market, I can say and by this if you just take questions.

Thank you, Ronnie. And we move over to the questions both from the telephone conference and here in Nacka of course.

Can I just ask the operator to repeat the procedures for the questions please.

Excellent. And then I think we start here.

In the audience, we have two questions here. I start with Guillermo.

One question and one follow-up. Regarding the outlook statement, can you give a bit of color as to the regions, so how the regions, they look like on that demand outlook statement, and also in terms of end markets, as you in the past actually gave some view on mining.

So how does the world look like in Q4 by divisions as well?

I think if you look to a little bit to the different slides, that’s -- when it comes to geographically when you see North and South America, I still believe there is still good momentum. Also, on the mining side, you see Chile, Peru, even some projects in Brazil, I think it’s coming nicely, and if you take then North America, of course that’s more the industrial part, we talk about automotive, aerospace and many end markets where you use compressors, you see that semi-con, if I take that one now, I should not forget to say that.

So that is an area in that region which do well. I’ve seen over the last couple of months also Europe, although it’s -- and of course it’s not always easy, July/August to interpret because you need to look a bit because there is a holiday period in Europe, but if l listen in the market, people are not so negative and of course the other one, one could see what will happen with the euro now as weakened, will it bring something?

I will see. But also another part is Russia, remember a couple of months ago we were all nervous, has that been cooled down?

Let’s hope that we come to again to a normal business part. So on Europe, actually of course I’m not really overenthusiastic that I’m not talking it down.

Then Asia and then it means India. When you travel to India now and you talk to the people and about the new government, everybody is overenthusiastic that, let’s see - let’s first see the orders, the real orders not the quotation level, there is a lot of activity going on, but let’s see that was working.

And on China, depending on - in China, there are a couple of segments which are doing very well and that’s also where we are in. If you see in industrial technique in Asia, China automotive, I think there is a lot of projects going on, a lot of projects going on.

So from that point, it’s good. What I see is a bit weaker in China is the mining side because prices going down, what do they do, less money available for investment and we see that also going down.

And if I take that all in, in the equation, increased somewhat. So I’m not going to emphasize the increase, increased somewhat, what I said last time when it comes to the mining, flat positive, but I put emphasis on flat.

And then a follow-up, just on pricing, mining -- 1%, and obviously at the moment, your volumes in terms of new equipment or equipment capital orders is going down significantly. I just wonder that 1%, can you give us details on how much is pricing and how much is mix?

Or in a way, has equipment for pricing eroded and deteriorated now, it's actually zero minus 1?

I think if you take the South America and the American markets, I think it has not much eroded because when you go more to the China area or you go to some specific markets even there you can have a bit of battles going on, but it’s not falling off the cliff, no. And again these - and I explained it a couple times when it’s the pricing and mining and equipment, first, to correct what you say on the equipment, if we see over the last five, six months, I think it has really more or less the same level, maybe a little bit up even on equipment and this has a lot to do with underground and these are very specific machines.

So I think they keep and then very sophisticated machines. Most of them also tailor-made with long-standing customers.

This goes about productivity, you don’t sell a box there. So from that point of view, price setting is - you are a little bit defended by that, you have the shelter on that one.

So it’s not that and also in - we had a time remember a year or even longer, when in service, everybody was on service will fell on pricing and the prices will go down all that, of course it happened these discussions, but you see it’s normalized again. Of course, all mines strive for efficiency and that’s heaven on Earth for us, we don’t like more than that.

One more question here in Nacha and then we will --.

Anders Roslund, Swedbank. It’s a very split picture when you look at the order intake, strong in compressors and strong in industrial technique and weak in mining and construction.

What is market’s growth and what is your own initiatives? Is it something or is it just different markets?

I think when it comes to CT and IT and you compare them, mining that’s different, totally different markets. Of course, when you analyze IT, you have -- at corporate end markets, we do very well.

This semi-con, lot of assembly tools needed, also a lot of chips needing for - and then we need vacuum -- we can later on in that. Motor vehicle, I think the tooling up, I think they read new models, and also this is challenging for the car builders because the cars have to be lighter, better and that is we have the right product so that for sure helped.

I think there is tailwind and we are there and then aerospace, don’t underestimate the Air Buses and the Boeings this world, they do fantastic. So these are areas -- of course in that area, when it comes to wind, you also have investment in China about railway, I think that is also what helps for compressor technique like brake compressors for trains.

That’s also a market where we are in. This is where we get repeating orders.

That’s the end the markets we are doing very well. Mining, you said, of course, soft.

We all compare with where we - and the internal benchmark is always the toughest benchmark, 2011, 2012, Ronnie, you were at 9 billion, now at 6 billion, so it’s lower. I have to take that, but I don’t - if I see today, I think it is stabilizing on that level and I think what’s important for us is, of course, adapt our suit, that area, that’s what we have been doing, but on the other hand you see also that especially in underground, we need to -- the mines need to buy new machines or need to do a mid-life upgrade because this is -- you can keep going on and postponing it for one, two, three years, but on the other hand, you’ve come to replacement markets and that is I think when I am talking to different mine managers and CEOs of mine you see that they also realize and that’s also what we see in our service that we get them.

Is it so in mining self-help that we suddenly take more market share than some of our colleagues now, I think it doesn’t go like that. I think we take on the service and that is what I hope the guys do internally.

We take market share from our customer that we make a good proposal that we do the service, but really there are big shifts on that. On construction, there is -- the only negative part on construction and of course unfortunately is a big part is this double-axis portable compressors, it’s a big ticket, it’s a good business, it’s also a profitable business.

You have heard Hans Ola when he was explaining the flow-through bridge and that’s a bit big. All the rest and I would say on road construction, okay, are we ready there where we would like to be?

No, but I think I see good development, seasonal corrected. On the construction tools, a good development.

I think there is demand and on the specialty rental, I think that’s doing fine. So, but unfortunately I think on the construction area that I think a very negative mix.

And soft BRIC countries.

Yes, that goes together, because also this double-axis portable compressor gives me an opportunity on where are they also used in exploration and we all know where exploration is today on the mining. So that doesn’t help.

Okay, thank you. So we turn to the telephone conference and we take few questions from there please.

Capital allocation has really improved under you, Ronnie. I am thinking especially of the slightly larger deals.

So we had SCA Schucker looks like a fantastic deal, as do Edwards and Henrob looks very promising as well. Given the strong track record here and the healthy balance sheet, where in the business do you see us go for, let's say, slightly larger acquisitions going forward?

Eric you know we are, of course, supporting organic growth, but on the other hand, we are also hunters. We have four business, all four business areas are open for more.

I think when you see we stepped up on more sophisticated fastening technologies, when it comes -- you mentioned SCA, you mentioned Henrob. We also have gone into high torque, low torque areas, but we have gone in, in vacuum.

So there are a couple of areas, for sure, which I believe fit in the - at the top of Atlas Copco and that’s what in the years to come will keep doing it. We don’t put it at rest, of course, like Henrob, we’ll see, of course, the technology is very promising.

If we are four or five years older together with SCA and this self-piercing riveting technology is that one what will break through for all light cars. Let’s hope because then it’s really hallelujah here.

And that is also what we try to do. We try to pick long-term trends and yes we are trying to be disciplined and I promise you that Eric say we are not going to buy everything at any price.

That is for sure now. And in case, later on because that will be definitely a follow-up question for some of you, if there is money available, I think it will eventually come to the shareholders.

We have always repeated that.

And to make sure --.

Organic growth, but that doesn’t cost so much capital than larger acquisitions as you say, and then finally, of course, we are not afraid to hand back capital if there is a need for that as we have done couple of times.

And I think we should -- when it comes to the acquisitions, we should be disciplined. I think we have our plans, we do -- it’s not because you have the money that you should spend it.

That’s I think is important that we keep this discipline.

Very good. Another question.

Firstly, on compressor technique, you see almost 200 basis point margin expansion compared to first half in Q3, lesser in Q2 to Q3, but still a significant improvement excluding Edwards. Can you talk a little bit about what’s behind this, how much cost savings are flowing through, how much is FX et cetera?

So you talk about CT.

CT, right?

You talk CT, Markus?

Yes.

I think it’s a couple of -- I will say internally we say back to basics, focus on the core, more from core. That was the message from day one when I took over there.

I think we were doing too many different projects which may be can bring something eventually whatever, but I think we had so much other projects, very nice recurring activity -- good profitable recurring business and we should spend more time on that part. So what I had been doing is, is re-focusing the compressor technique on businesses where we are strong, where we make profit, where we could be the leader, and of course, without killing say future seats that not so many as we used to have.

So that is an area which we have adapted, introduced immediately. And listen very quickly, second one is some of the investments, I think, it could be in feed industry, then a couple in design and development, we have simply stopped because if they don’t bring anything, we are being doing this already three, six months and professional compressor technique guys don’t see that it brings, then we should be brave and say okay it was maybe good to take that initiative six months ago but it’s also brave to stop it.

And that is I think what we have been doing. I think internally the third one, we have reorganized a couple of divisions, so we moved a couple divisions and combined some of them so that has taken place also and the reason for that is because I want to get speed in the organization, it’s not about building different levels, it’s about speed in the organization and then you need to have a very transparent simple structure and that’s I think is the third one what has taken place, and that’s also what Nico, who is now heading is really continuing to do.

So it should and I think Hans Ola hinted also to the flow through and we saw that okay it goes from negative to positive, but you heard that it’s not yet there where some of us think it should be.

And the fewer investments in feet-in-the-streets, for instance, which you also referred to in the Q2 call, is that already having an impact or is that yet to come?

I think the majority has taken place and some of them take place in August, some of them in September. I think there will also some in October happening, but there is a lot of activities has already taken place.

It’s a gradual thing. The break has happened perhaps on the cost increase on that but as you can see from what Ronnie has said on revenue and order developmental service, we are very pleased now what it gives, but we could do it without that all the massive buildup of the organizational service so that’s yielding result gradually I would say.

It’s trying to do more with less. That is the simple part in that.

Then follow-up on Guillermo’s question and looking at Germany, particularly industrial demand, because it’s - I mean 5% FX adjusted growth in Europe was a little bit surprising to me at least. Maybe you can talk a little bit about what you’re seeing in industrial demand front in Germany in particular any specific end market that sticks out et cetera?

If you take Germany and specific for us and let me then take the industrial part, on the compressor side and the tools side, it was solid, a good quarter. What sticks out was the tools business, the motor vehicle business, that sticks out.

You see that there are a lot of new models come on the markets. They have build up new assembly lines to get more and more sophisticated in that area and that is the up-selling over the -- creating more value for the customer, we had these products and that is where we take a big part of it and that is where you get the growth.

The same is on in Germany when it comes to the compressors I think it’s also about energy. So you have a replacement of the variable speed, these VSD compressors.

So these are areas which we -- it’s a lot also self-helped areas that I think also the area on construction was not so bad in Germany. So that is also an area - of course it’s not the biggest part of our business, but I think it was not bad so that made us having a positive development in Germany.

Thank you, Markus. And I’m looking around here in Stockholm, we have one question here and then we’ll continue with the telephone conference.

[Andreas for Keeley Asset Management] [ph]. Two questions, if I may.

First of all, on the balance sheet there and the dividend, year-to-year EPS diluted is down slightly. There is not going to be any cut to the dividend rise.

And when you think about EPS, do you think adjusted with the items - the comparative items this year, should we --.

If you start with that, this is one quarter and of course in a quarter this has an impact quite clearly as I said, I mean it affects 30 or something like that. In a full year, when we look at it, this will not have that dramatic impact and of course if we look back historically of course the dividend deliberation by the Board is trying to see the future as much as the past.

I’m not even going to fall in the trap of trying to give you a hint of what the dividend decision in January will be obviously, but historically it’s exactly what I was trying to say that we favor a very stable development of dividend growth over the business cycles and I’m sure the view will not change compared to how we have done it in the past.

And for sure, if you add on looking to the strong balance sheet we have. It will be highly likely we would do that I think.

One aspect that is always also considered of course is what’s Ronnie has said.

And finally, Mr. Leten, my biggest takeaway is basically that you said - we shouldn’t think about double-digit organic growth for at least for next 12 or 18 months.

We are probably in for a single-digit organic growth. We haven’t seen that for almost 10 years for Atlas, except for the financial crisis, we’ve always been in a double-digit environment.

What does that mean for Atlas? What does that mean for your priorities for this company?

I think, of course, we are a growth project. We keep part growing on that but our target, if you look of our goal I should say, if you look that we have said to grow 8% over the business cycles.

That is what we do because we do acquisitions, we do organic growth, we were sure that - what is the reason why I’m a bit more, say, when I was commenting on that for, say, the year to come or the two years to come or whatever because looking forward, so long it will be difficult, we have to see. With a portfolio we have in our and now I’m talking organic, we need tailwind in the mining business because that is also what has helped us before if you see how big we were 10 years ago in mining and how big we are now, I think is a constant tailwind what we had.

So we need to get that part again coming and the reason -- just stable to get that part of it. I don’t think that we should be afraid to for growth in compressor technique neither in vacuum neither in the industrial tools business.

These are areas which we can do. If we get the area on construction technique, we are fighting on that.

I think you see a lot of openings so that will give it and that can be these three in compressor technique and then vacuum, if I take one, industrial technique and construction is a lot of self-helped. We can do a lot because the market is there.

When it comes to mining, yes, you need to get the guys spending again. That’s the bit the way I see the period to come forward of course there is still nice portfolio and acquisitions.

You’ve seen -- if you take Henrob, there is still a lot of potential, SCA, Edwards, I think there is a couple more in the pipeline, we’ll see how it lands.

We go back to the telephone conference please.

Thanks for taking my questions. One on end markets and then one just on inventories reduction.

Can you just come back to the automotive CapEx and could you talk us through how you are thinking about it going forward over the next sort of six, 12 months? I think there is some concerns in the market that this is at quite a peaky levels right now.

And I appreciate China doing very well, but if we could go through the sort of more developed world dynamics. And then the other question is more for Hans Ola, I guess, on inventory reduction, could you tell us how much was it in fixed currency terms from Q2 to Q3 and whether that's resulted in any meaningful under-absorption?

I appreciate that historically, it's not really been an issue.

You’ve got the easy question. So on the automotive, what we see now, of course, you see the different mobiles coming, you see the different lines coming, the moves that factories do, but if I listen to our people in the field of course if it’s high, you’re always a bit worried what happened because it can go down and it’s never been that area so high and then we look around, but if we then go systematically through the different projects, you still see a lot of potential of markets of brands where we are not in yet, especially when it comes to Asia.

So that is another area to take that. I think when it comes to the Western automotive suppliers, we are -- we have a good presence.

I think we have good content there. So that is not I think we will get customer share that is the whole thing.

Market share, we will not, but more customer share. So expanding our offer and if you look to our acquisitions over the last four, five - let’s say last two years, let’s say that, you will see that these customers are in need for this type of material and that is our strategy.

They will definitely need to replace part of that, of course, it goes easier when you have new models, it goes quicker, but then still without the new model, we have possibility to do some up-selling. So the automotive will have the cycles, but on the other hand I still believe in the next coming let’s say six months I think good development there.

I think I mentioned briefly but perhaps I was too quick on the inventory reduction. You’re right, there was a reduction of about 900 million Swedish krona in currency adjusted apart from acquisitions or excluding acquisitions in the third quarter.

Majority clearly from MR and that has in MR’s case, of course, had some affect on the profitability in the quarter. Production has been adjusted in order to be in line with the inventory reduction targets.

So it explains part of the rather negative flow-through number, but I can’t detail it for you but that’s definitely there as a component.

Got it. Thank you.

I was just wondering on inventory reduction, if have a sequential number from Q2 to Q3 like-for-like.

Sequential, Q3 to Q3, what do you mean? Year-on-year or?

No, just from the Q2 level of inventory to Q3.

900 million down.

So that was on a year-on-year --.

No. that’s sequential.

Okay. Next question, telephone line please.

Operator, do we have another question from the telephone conference please?

Just a couple of small follow-ups left. Firstly, Ronnie you mentioned strength in North and South America mining orders.

Just wondering if you can help us understand which commodities are showing the relative strengths there? If there was any bust?

That’s easy. It’s the majority in - on the South America is copper, but you see also investments taking place for zinc and some for iron ore, but that’s a bit less, but the majority is copper.

And then, just following up on the destocking, Hans Ola, you mentioned 900 million, so the majority was in EBIT margin, is that 900 million, is it all finished goods?

It’s a combination of everything. So it goes work in progress, it goes for semi-finished, it goes for components and finished goods, yes.

Can you help us out with the finished goods, about the magnitude of the finished goods in mining?

No, I can’t off the top of my head, but as I said, there has, of course, been an effect on the production levels. That’s why I mentioned that it’s not only selling out of the finished good stocks so to speak adjustment, no.

It’s also. What we have done, Alexander, is really to lower the production output because --.

That we have been doing so and that is the majority of the drop. It’s not that have been dumping projects on the market because in one hand, how can you dump products in the market and have a price increase of 1% and still having 18.5% profit.

And they don’t have pots to put this money in. So I don’t know there exists Hans Ola.

No. It’s a bit of everything, yes.

No, I was just trying to get a feel for how much that drag might have been on that EBIT margin so that as that destocking finishes, we got a bit of an idea of where we normalized to.

One of the reasons we don’t is that honestly it’s not that easily calculable to be perfectly honest and at the same time there are many other factors in each quarter that also affects that we don’t talk about. So it will be a bit confusing to do that detailed profit analysis quarter by quarter to be perfectly honest, but this is one affect that is in the, Alexander, --.

And it has a negative effect.

Yes, it has a negative, yes, absolutely. And yes, we have another question from the conference please.

A couple of questions, please. Firstly, just a quick one, I might have missed it, just give us a sense of how fast your service business is growing at the moment?

And then secondly, just on Edwards, we've seen some mix news flow over the last month or so on the semi side, some profit warnings. But at the same time, some very strong numbers of people selling equipment into electronic markets.

Just what do you see in Edwards going forward into 2015? Maybe talk a little bit about the integration of what you've done to integrate it and reduce cyclicality of the business?

Thank you.

I will take the Edwards and then Hans Ola you can take --. I think of course we see that and now Ben I’m also have to read the reports from the ASMLs and from the Samsungs in more detail and you see that also, but when I talk to our guys who are meeting the top guys, the ones who are really buying the vacuum and also making the chips, the memory chips, whatever, I think you see still that there is a good project demand is there.

So there is a lot still in the pipeline. Of course, you have sometimes a bit of shifts of one quarter to another quarter.

If you take the results of take ASML where you saw that was a postponement, okay, that with these flow-throughs that these guys, okay that is then a bit more negative impact on their results, but I think on the real demand, what I’ve heard from our guys that there is still going strong. Let’s see because we all know if we look back five years ago or six years ago, you see that this semi-con was sometimes a stop and go business, but if you see today the end markets, everybody, everywhere in your private life, in your business live, in your car, in your plane or whatever, you have electronics, and that is of course where to make them that’s also where you have the vacuum and that is where Edwards is sitting on now today and I think also a bit of market share what these guys take.

If I said normally, I’m not going to say that as the new one. I think they had done a very good work on say relations with the customers, understanding the dynamics and also on the product side they have done good.

So that is on the end market. When it comes to the integration, I think we have every second month, we have our Board meetings and then Hans Ola and myself we go there and we have a couple other people who are leading that project and it’s like we have been always together.

You see that the people also in Edwards are innovation driven. They are machine builders.

They have work with industrial customers. So from that point the challenges are more or less the same.

And we have a lot of in the background projects going on for expanding our general vacuum and utility vacuum. I should remember if you go back to the announcement where we said this is a growth project, we will go on with the semi-con, the flat screen, that is where Edwards is definitely the market leader, but let’s also leverage the capabilities and the presence of Atlas Copco and that goes in utility vacuum and general vacuum and that is where we are doing projects together.

So it’s the compressor guys and the vacuum guys, they really are developing new products, which land on the market because you all want to have them yesterday, but most -- a lot of them will come in, in 2015. So we will see them some general vacuum, utility vacuum products and hopefully we can also sell them.

I think you asked about service also Ben, and yes it’s growing. If we take total growth but just taking out currency, we’re about high single-digit growth, so service is doing fine in the third quarter and it’s particularly strong compared to that average in CT.

Industrial technique is growing somewhere in that and slightly lower, but still a good growth in MR and CR a bit weaker. So that’s how it composes those 7%, 8% growth.

I think we are very late. But we have a couple of questions more, I’m sorry we can’t.

But we can take one final question perhaps in order not to be too sharp on the time. One final question, one question.

Just one. Okay, R&D, then, expanded quite a lot to sales in the quarter year-on-year, at least, which I guess is a [indiscernible] some of the sales, organic sales growth efforts.

But how should we think of this ahead? We are now running at above 3% of sales.

You mentioned that some projects may be a bit scattered in to back to basics -- so R&D ahead -- that's the question?

I think you have noticed that there was a quite a sharp increase sequentially from Q1 to Q3. Of course, there is a little bit of a translation effect from a stronger dollar and euro to the krona, but the major part of that is the one-off in Q3 actually and it’s related to this impairment that we took on some of the development projects, some of intangible capitalized costs that we had related to the mobile crusher business and some other divisions in MR.

So it was a bit -- it was not that run rate that you saw in Q3. You should perhaps be better guided by looking at Q2 and so on.

But then to --.

You’ll expand R&D by 2015?

Yes, then I was just going to say, Peter. I think when it comes to the projects, we do of course constantly portfolio management and looking around and it’s not the idea really to increase the investments more than we have here.

I think in certain areas we will do some project pruning, that’s for sure, but on the other hand we also know that it’s the R&D that supports the organic growth. I think that supports the pricing power.

So, on the other hand, it’s a balancing act, and of course, internally what we always push is the time to market, but to answer your question very short, we don’t have the intention to invest much more, relative terms now that it will be more or less at that level.

Thank you very much, and I thank everybody for participating. Let me just remind you before we leave you that we have a Capital Markets Day on 19 November in Charlotte, in the Carolinas, in the U.S.

and many of you have seen that on the website. We are coming very close to the end of signing up for participation.

So I just wanted to remind you that if you are intending to participate and have not yet signed up, time is running up.