Atlas Copco AB

Ronnie Leten - President & CEO Hans Ola - CFO

Andre Kukhnin - Credit Suisse Alex Whight - JP Morgan Lars Brorson - Barclays Eric Karlsson - AKO Capital Peder Frolen - Handelsbanken Capital Markets Marc Sherman - Bank of America James Moore - Redburn Daniel Cunliffe - Liberum Capital Andreas Koski - Deutsche Bank

Good afternoon, good morning, and good evening wherever the participants on the conference call are. I welcome you together with my CFO -- CEO here; sorry that's for audience perhaps with my CEO Ronnie Leten to this conference call on the Quarter Four release of Atlas Copco results.

We have some people here in the mine, our presentation mine and test mine here in Nacka, but we also have a lot of people attending the telephone conference of course. We will do the same format as we normally do, I will handover in a minute to Ronnie, who will take us through his comments on the quarterly results and then we'll open up for questions-and-answers.

And I say already right now that if we can restrict it to one question per person it would be very good, so because the quarter, fourth quarter release is always a little bit more lengthy than the other ones so if you can respect that that will be most grateful. Thank you very much and again let me welcome, Ronnie.

So thank you, Hans Ola. Let's go immediately to Slide number 2, where we see Q4 in brief.

As I said, I'm very proud to see record orders received and revenue, we all know partly also helped by currency but on the other hand I think it's also good to see that we have some organic growth but also good acquisition growth. And you see here the organic growth 2%, strong solid service development, that's good to see that strategy keeps working, so I'm always very pleased to see that.

The industrial part of our business does good, industrial tools, the MVI, aerospace, doing great, and then we have the small to medium size compressors what had a robust development and the lower ones was in the larger part of the business. So not a big change I can say no big change at all compared to Q3, where we also see mining and construction equipment order still at lower level and unchanged.

North America keeps going; I see also some good development in Europe. You will see later on when we look to the map, so that's always good to see that we see some development there.

One could say of course you compare with a softer previous year but anyhow it's a positive effect. But on the other hand we see for our products a negative overall development in Asia.

Record cash flow more than 5 billion Swedish, so it's great, it seems that our system works as we set when we don't have much organic growth. We should deliver you cash, if we have really growth we deliver you value, here is a proof again that our agility and resilience is working so great to see that.

And of course that leads me then to tell you about our distribution of cash, where we propose to do a dividend of 6 krona coming 5.5 krona last year and also we will go to an extra distribution of cash through a redemption of 6 krona per share. So in total we will hand out 12 krona, does that mean that we stop acquiring companies, does that mean that we are not dynamic anymore on that part?

No. We still keep on the same strategy, if we can really hit the right acquisition that fits in our business we will definitely do that and we still believe even after this 12 krona distribution that we have the gun power in the balance sheet to do a big one.

Let me go then to the figures, I will not read more than you can see on the Slide, whereas may be one thing is on the fourth bullet adjusted operating margin, so it's more less at the same level as last year but of course if you make more in-depth analysis you would see that the robustness is a bit better than last year. So but Hans Ola, will also when he goes through the flow through bridge elaborate a bit more on that.

Profit before tax, okay, of course this is higher and the earnings you can read yourself and of course cash flow I've already mentioned that. If you go quick over the summary in 2014 so and all this increase of 15% so hitting the 93 level like I said a record organic growth is that is only a 1% so a bit more than 1% not really a very strong one at least I’m happy that we kick in again with organic growth it was the beginning of the year it was definitely not the case because of course this is also supported by good service business.

But of course one should not forget that the service business is part of our business. Higher orders on industrial tools for sure 2014, was the year of industrial technique, so that organization has done great also small to medium size compressors keeps going so also there.

Our new technology are in VSD+ the same as in industrial tools with new products it really boost the order income and of course mining and construction and the large part is then the negative part. If we take the full year, Asia was not a star.

There was a time that Asia was the star; now this time its North America is the star. But one should not forget, I think as such for a company like Atlas Copco, I don't mind which continent is growing, as long as the total world is growing, because we are as strong in North America as in Asia and vice versa.

So I think for us it's important that we grab the total market. Cash flow a bit less than SEK14 billion.

So you see it here and leading to an operating margin for the year of 18.2%. One, last one, I think we are very happy, we had, it's now a year that we have Edwards vacuum in Atlas Copco and we can say that it was a very successful acquisition first from an integration point of view, cultural match, but also from a performance point of view.

So we are very pleased to see this development. Let me go quick through the regions.

Let me talk about the two positive ones; you can say the three positive but I think the main positive ones is Europe and North America. So that is an area where we see that almost all markets in Europe show a positive development and the same as it comes for North America where we also see that of course U.S.

is the biggest one that keeps growing. What is getting negative?

I've already mentioned several times is Asia, so China and India for our business, it's really not to grow market, so we have to work harder there and going after more share that's the only one as the market is less so we have to take more share. I think when it comes to South America, we see a reasonable Brazil where Chile was a bit lower and that made it a softer quarter for South America.

And when it comes to Australia, slight improvement on the mining side compared to last year for Australia, and one should not forget that we had done a significant acquisition in relative terms for New Zealand where we did that that also made the figures positive. Organic, what I mentioned already.

Here we see slight organic growth of 2%, 3%, so compared with the history of course its low, but at least it's positive. If you go to the sales bridge, you see a significant currency effect in the quarter 8%, 9%, price volume in the orders received each geography 1% so that looks fine and of course the structural part which is Henrob and Edwards mainly which made it a quarter plus 24%.

If we go then to the different business areas, I jump immediately to Compressor Technique. Stable equipment in total; we see that but a very solid growth in service.

Again, same message as I've been giving the last may be two or three quarters now we will see small to medium size compressors doing okay; of course, stronger in North America than in Asia, but also here we are helped by the innovation the VSB is very successful that helps of course the sales and the larger part is softer and that the larger part produce [indiscernible] Atlas Copco know that but that's mainly also Asia. Again, a strong quarter for Edwards, so that keeps going that's also mainly semi-con so that works great and adjusted we come to a margin of 22.2%, and the adjustments are a couple small topics here and there, but if you take it in total it was around SEK120 million.

So a reasonable quarter for Compressor Technique. Then we go to industrial technique keeps rock solid.

Of course the real part which we are looking to is to make sure that Henrob is well integrated because that's significant acquisition for this business area, so we had a good start, so that's always good to see. Solid service division outcome so that's great and the Swiss clock also I may I should not use that word anymore now these days with this volatility in currency but the operating margin keeps going on 22.6%.

So business evolution of acquisition at the other end a bit on that but it helped on the currency side. So a very solid good development for industrial technique.

Then we come to the Rockies, MR, the Mining and Rock Excavation Technique. As it says here, a bit lower order intake for equipment and again the larger equipment of the service part is tough.

The underground is a bit better where we see some replacement orders, good and we have seen that when I was explaining you about the geographical spread. Australia, we see a bit more positive side there.

So we got some good orders, but again a lower Asia. One thing is -- that's may be something to remember, but we see and that is over the last six months we see a good development on service in the mining and rock excavation business area.

And that's good, because you know also where we can make good customer intimacy, where we also can do a good job and also are paid for that job. So I'm very pleased to see that happening.

Of course one knows that we have still have some work to do on the inventory. So we're really working further on that part and I'm very happy also to see that the effort what we do in the organization is also yielding results.

So inventory in MR went really down and of course that also contributed to the cash flow. Breaking margin 18.50%.

So solid margin, given with all the activities that they're doing. Construction technique, lower income for larger portable compressors so that is also not the change.

Road construction equipment poses a bit seasonal; we get that always around this time a bit softer. But on the other hand, we had a stable income for demolishing tools.

So overall, a lit bit negative organic, but I think if you really look under it, was more or less flat development. So good Europe and North America where like Brazil and China were tougher and the margin around just below 11%.

Then take the Group and then I will hand over to Hans Ola. So here we see the figures for the quarter.

Profit 15% up, profit before taxes 13% and was the earnings per share SEK 2.74, so making a year having an earnings per share a bit more than 10 and in total revenue 12% up. Profit looks like its flat but you will see also Hans Ola explain you the bridge that is partly done due to acquisitions that we have a bit of a dilution in margin and the other part is mainly allocatable to mining and rock excavation business area.

So Hans Ola, can I hand over?

A few comments before we come to the end and to the Q&A. As usual, we look a little bit further in the profit and loss statement and in the financial net you saw the comments that it was quite high compared to last year not because of the interest costs really, which actually was slightly lower than last year, but because in the fourth quarter we had some extra negative foreign exchange differences of financial character and also well all of them or of that nature.

We have had devaluations in Venezuela, we’ve had negative currency developments in a couple of other countries around the world and that hits us, and we also have a little bit of an effect in there of the delayed payment for the Henrob acquisition, which is in a foreign currency and in U.S. Dollar and since we don't hedge we have a bit of a negative there.

But remember that what Ronnie has said many times that the business is doing that when the dollar is strong, so we don’t line that particularly. If you look further down on the taxes, we had 24.8% in the quarter better than last year quarter, but fairly much in line with before and I also expect going-forward that somewhere between 24% and 25% is a good rough estimate to where next year hopefully will be.

And the earnings per share we saw in the summary is already and we’ll just leave it by that. Ronnie alluded to the profit bridge and here we see on the quarter but let's just look on the next slide instead on the various business areas.

You can see of course that even if it’s different between the business areas, the impact on the margin is positive from the currency. Of course you have a translation effect on revenues but we have more than the relative share on the profit and hence it is improving and that's what we have commented in the report as well.

When you go further, you can also see that in the bridge we also have the acquisition effect and the one-times. If you see through the column of one-time and acquisitions for Compressor Technique, you will have the one-time costs of about SEK120 million in the fourth quarter and you have the gain from particularly from the big acquisition of Edwards, and those are the two components in that.

Otherwise, I think that there is no extreme comment on anything else. We have three business areas that had a slightly negative revenue bridge in the quarter and one positive industrial technique and you can see how the relative flow through is on the four business areas there, to give an indication.

But I've said it before, this is certainly nothing that can be copied for every quarter going forward, it's much more volatile, but it gives an indication on how the quarter ended up. And then there are two Slides on the year summary and I think that one thing that I can do on the group here because what Ronnie, started saying, we have a 2 percentage point drop in this margin in a year that we are pretty happy with and you might say well where does that come from.

If you take it in rough big chunks, you can say that 0.5 percentage point comes from the slight volume effect that we have and also the dilution from acquisitions. So that's roughly 0.5 percentage point.

You have another 0.5 percentage point negative from the one-time items particularly in the corporate side where we had very positive one-time items last year that didn't repeat itself. And then we have about 1.5 percentage point impact on the Group form the lower profit in MR in Mining and Rock, so that's where the heavy, of course that 1.5 percentage point on MR is also affected by the impairment charge that they took in the third quarter.

So that explains why that impact is rather big. If you put that all together you have 2.5 percentage points but then we have 0.5 percentage point gain from the currency impact on the margin.

So that's a little bit in the rough way to make the bridge between 20 and 18. I think that can be good to have us a rough indication, I won't go through the business area bridges for the full year but you have it there if you want to.

Then when we come to Slide 18, on the balance sheet, you see the numbers are getting bigger and bigger every quarter, now we're above SEK100 billion in total assets. But of course there is a very big impact here on fewer translation from euros and dollars and particularly, dollars and other currencies.

So from last year there is actually about 9 billion impact purely by translating the same dollars and renminbi and what not into Swedish krona. So that's also good to have as a rough idea.

I'll comment more here because this relates to the changes in the balance sheet namely on the cash flow in Slide number 19. There is some big things that swings between fourth quarter 2013 and 2014.

The one of them is taxes, where we have big variations between quarters in what is actually paid to the authorities. It's not a Swiss clock again, it varies a little bit and you see there was an over normal amount in Q4 last year and you could say under normal in Q4 this year for various reasons.

But if you see at the year-end figures is more in line with what we actually have in the profit and loss statement on the taxes. Again, income statement wise, 24% to 25% that's what we expect.

The other big thing worth mentioning is changing working capital. And Ronnie said we're very happy with the release of particularly inventory in the fourth quarter and you see the impact here on the cash flow all in all leading to more than SEK5 billion which is a record ever for the Company.

Coming then at the end to the Slide 20 on earnings and dividends. The earnings per share are SEK10 or SEK10.01, to be correct.

Is then to be seen in relation to the proposed dividend of 6 krona and the mandatory redemption of another 6 krona. In this chart it's good actually because there you can appreciate that that four times in the last 10 years basically we have proposed and we have done these types of extra distribution of capital.

And we're using the same methodology as in the previous year. Mandatory redemption of shares which means that we split the share, the existing shares in two.

We assign 6 krona as value to the so called redemption share and then of the theory of trading a couple of weeks that redemption share is redeemed back by the Company at the price of 6 krona. So and then the share capital goes back to the same amount of shares as before, so that's the methodology.

I should also say that we have proposed the dividend this year, the ordinary dividend to be paid in two installments. I should correct myself, I said we have proposed from this year to do that so it will be a change of our dividend policy in the way that we want the dividend to even better reflect the cash generation of the operations in the Group, which is stable over the year rather than very fluctuating like some companies might have.

So this is the reason and that allows us to have a more efficient cash management in the company. So its fine tuning, if you like and we think that's the background that we forward for the proposal.

So with that, I hand it back to you Ronnie.

To the sophisticated outlook, as you see here, like we said that we believe that the demand for the business we are in is expected to increase somewhat. What is the background we keep on that, I think it's mainly where we see that.

Our service business is doing solid. In some businesses we have and some of the business areas may be our equipment is a bit under pressure other things gets we believe in total.

Yes, that demand is a positive one. So that's a reason why we said increased somewhat.

So by this, Hans Ola I think we have done the presentation.

Right. So we go to the Q&A session and perhaps we can ask the operator to repeat the procedure for putting new questions.

We have a couple already lined up, but can you do that please?

Excellent. Short and correct instructions.

So I think to give a chance to some people here in Nacka. First, if there is any question then, please raise your hand otherwise it might come one later.

Okay. We have one question here.

Yes, Andreas [indiscernible]. A question regarding Russia and the situation there, has that affected the Group?

Yes. I can take.

Of course, it -- these things don't help really growth. But we have seen in the Ruble and the evaluation what is the only defense you have as a company like ours, which is not producing in Russia is increasing prices to make the match again for to be evaluated on the Ruble, that's one part.

We see also that of course some other business get a little bit more careful, so people push stone; certain purchasing that is more less what we see. But actually if you look more in detail, I think we still don't see definitely not something following off of the clip.

Now, looking forward, okay what will it bring for the country, for the business in Russia, we would see in the next coming 6 months to 12 months what this will really be. I think as Atlas Copco, we are taking I think the right measures at that thing.

Our organization is making sure that the balance sheet is on the right side, in the right currency, getting adapting the inventory to be sharper in that part. So that is what we have been doing.

But we will see I think the next coming 6 months to 12 months if nothing strange change dramatically, I think it will have a real impact I think.

Good. Thank you.

I think we then move over to the telephone line and take the questions one-by-one.

Yes, hi. Good afternoon Ronnie.

Also [indiscernible] from UBS. I was wondering on compressor technique, you haven't been really growing much over the last few years and you made a push a while back for -- I think you just returned feet on the street and then pulled back from that.

You know [technical difficulty] --

…that would be going up the highly double-digits but okay constantly there you see some developments going on in all the different confidence in U.S. more than let's say in Asia.

Why is it coming from? I think there we had new products, we really go, yes, for the market our feet-in-the-street with new products with our innovation gives this result.

Where we get really the hit and that is when we aggregate the figures where we so to say have bleak is in the bigger compressors, and this is may be already the fifth quarter I'm saying this is getting and always may be a bit boring but it's a fact where we see that that business is going down and where is it coming from its mainly Asia. That’s the biggest business in Asia.

That is where, yes, where the market is softer. Do we lose market share because that was of course my first thing all the time because when you see these figures you really immediately say ah, do we lose market?

No. The market is softer.

And that is an area where what is the yes, the remedy to that is to get more share out of that market, but that market has strength. There are no steel plants built in China as an example.

We all hope that India takes up again but even after the elections we have not seen really a takeoff of that economy. So that is an area where we, yes, it's -- we have to sit out that time in the meantime move our cheese to areas where we can grow, where we see some potential and that is, yes, as I'm speaking what we're doing.

Okay. On that account what percentage of your CTs orders came from -- was from large orders in the quarter?

Can you give us that number?

I don't know in the quarter to know, but I think that you gave an idea I think that gas and process business, I think it was around 10, 12 something percent to that one so and then you have the larger oil-free turbos. So it's a business between may be 10%, 15% which is highly affected that one.

Very good. Thank you very much.

So we go to the next question please.

Hello, good afternoon, yes, it's Andre from Credit Suisse. I actually have question on CT as well and following up on the previous one.

So in terms of your outlook that you gave today what is -- what are you discounting for CT within that and also just on that issue of the larger equipment going down, when do we start comping those declines because it feels like we've been well over a year, is there a -- or has there been substantial sequential declines there that also will take a while to come through?

Yes, I think just to make it easy on this like I said I think the big one, I'm looking to answer, Ola, what is this -- five quarters ago that we already may be something like that even that we saw that was and mainly China for these part of machines were, yes, business was softening. You can see if you think, if you go back mid-2012, when all this happened around the mine that I think a couple of quarters later you saw also that I think then with the new installation of Chi Shing ping [ph] and the new measures and the new refocus that we said, okay, there will be less expansion in CapEx for certain businesses which has an effect on this largest partner.

We have got some compensation for that in North America, I'm sure, that is where we got some more, but is not of the same magnitude. So, it is really slowing going down.

Can it go further? Yes, as long as it does not reach zero, you can say yes, it goes down.

On the other hand, of course, it's also with us, back to us, to yes, to come up with new machines, new innovative products and get its share that is the work to do. To come back to your -- what you said in your question that of course, if you read the report you see a different wording than four quarters ago when we talked about significant drop of large machines and so and so.

Of course, you cannot add significant, significant, on then you come down to zero very quickly. So of course it has leveled out and that's also what is reflected in the report.

But it's not a strong level so to speak and that's a little bit compared to the mining equipment in that respect.

Yes. So thank you.

We will take another question please?

Yes, good afternoon everybody. My question was around the Edwards margin within compressor technique.

If I add back the SEK50 million, one-off then looks like it sells around 18% from what 19.4% or something like that in Q3 despite the sales being a lot stronger sequentially. Just wondering what drives the full and profitability there, if it's a mix issue or seasonal issue and if any details you can provide?

To be honest, I think, yes, of course it's a bit lower than may be some of the other quarters but even I didn't make a remark on that even to the management because it is a bit mixed year may be you get a bigger order with a little bit lower margin part in that but there is not a significant or reopen the mental reason where what can I say okay that is the reason why this is done. On the other hand we see this business, the one we report and we depreciate some intangibles.

If you take that is a so let if we do comparable measures is a business plus 20% EBIT. I never had really in my calculations when we did the acquisition I had even no thought we could reach that with all the measures we did.

So that is one so I'm not the last concern, I know that I'm happy because there is may be one project here and there where the invoicing what the price was a bit lower. One end, the other end what we also should know we had not talked about that, but I’ll mention it now.

When we announced this acquisition we say of course Edwards is strong -- was strong and is strong and is getting stronger on the semi-con and the flat screen and the solar part. But on the other hand Atlas Copco wants to make them stronger on the general backing and utility backing.

That is as I’m speaking is happening. And that is where we really invest.

We invest in fleet industry. We heavily invest in R&D because we have the competence from Edwards they are the specialist in vacuum and then this together with the specialist in Belgium and it comes to the ethic guys on certain core elements creation these two together had to come up with new proverbs.

And that is what we are doing and this morning we expense and we don’t put on the balance sheet and that is what you see and this was this year this will also next year and of course that is where we are working off to get the real harvesting after two or three years. And that is I think is a duty for us to do that to make that part strong.

Yes, perhaps we are victim of being too transparent on the decimals of the margin in newly acquired businesses. When we debated internally we say they didn't end 19% that's very strong and that's it.

That's good question. It was good spotted from Alex.

Good spotting. Yes, absolutely.

Thanks very much guys.

Good. So next question please.

Hi thanks very much good afternoon Ronnie, Hans Ola. I was think with Edwards for now sorry to play with the topic but I hope that may be you could give us a little bit of this ability here on an order bridge I’m trying to get a sense for the underlying organic growth in Edwards in Q4 ex-FX, and also what you see Ronnie as you move into 2015 for the Edwards business.

I appreciate and most of the focus now is perhaps outside of the semi segment within it was in terms of your initiatives but we see most semi-cab equipment named deliver quite robust outlooks into 2015 as many foundries obviously have engaged in quite an aggressive ramp. I wonder whether you can give us a status update here on the semi-segment but taking across a couple of Edward's key customers including Samsung.

Thanks

Yes it seem that Apple has some money to invest that's. Let’s say it is double-digit growth what we have in Edwards if we compare 2013 with 2014.

So higher than 2010 you can say that part. Of course the biggest contributor is semi-con, that's for sure that is also their biggest business.

So you see the Intel's and the Samsung from this road still investing and when and I'm not the specialist in these business and tried to get more insight I still see that there is good demand in that area. So capacity increase is still going on so that's a good sight and if you see the report comes from these guys and they see they make good profit yes, then most likely that will go on with these projects.

On the other hand what is moving on and what we also promised when we announced it a year-and-a-half ago said that is the utility and the general vacuum as well as the service. That is as I speak and come back to my previous answer that there is some growth but it was that is the first year and it was not expected as it will be very strong because we need to ramp up.

We need to get the organization first, lift the organization because you can some in and acquire a company and be a Mr. Wisenose.

I think who will like to meet someone like that. So you need also to match the culture in the organization but that we have done and I think now we are really on the move to really get expansion in fleet in the street and as I said also expansion in R&D and that is happening now.

There is some growth. So if semi was high double-digit this part was a little bit less growth in may be close to double-digit a bit, may be yes, its high-single-digit that was the other part.

So may be just sorry, to the question earlier about demand outlook and what's embedded for CT, would it be fair to say that as Edwards now moves into organic in your bridge for CT in the first quarter you would expect Edwards to contribute positively to the organic growth rather in Q1 for CT?

Yes, yes, yes, that you can answer that, of course once we say, if you look to Edwards from mid-2013 it really went up, it was actually more or less you can say the day we had a handshake and we agreed and signed a contract and suddenly the customer start to order. So we will get for 2014 it went up also and of course if you compare the first part of the year 2013 with first part of 2014 you see a high increase.

When you go further into the area you see a lower growth. So we will -- I will not expect from Edwards an organic growth high-double-digit, I don’t -- don't believe in that, I think it will be a solid development but not high-double-digit.

Thank you.

Can we have another question on the line?

Hello, thanks for taking my question. I have a question on industrial technique, I know since you wrote in the presentation Henrob is doing well so far and if I remember correctly you previous said that SCA Schucker is doing very well, as well.

So given that the strategy of adding more softening technology, seems to be working really, really well. What is your opportunity to accelerate that expansion strategy?

Nothing to do, more of this, Eric, but we have already done, because we still have some good IDs in further expansion our feat on this fleet, let me give an example, we acquired the copper companies like Titan, Tentec all that the bolting the Hightalk, I think it's just a beginning. So that is an area where we further develop.

Of course we are also still on the hunting side, if we can expand in the same area, Hans you just mentioned Henrob, SCA and all the fastening technologies, we keep doing that and we have mapped, yes so we have mapped the appetite, it's there and okay it lends when we feel of course when yes, -- there is two to make a tango so that is what is happening now. So --

I was looking there at the moment?

Say it again?

How is the other side of the dance looking at the moment, do you see anything in the pipeline for this year?

It's pretty good looking. So but I don't want to spread rumors on that because you see sometimes we do small ones, big once, big once takes a bit longer and you never know.

So sometimes it can take two three years, take like Henrob basically it was a couple of years where we have been looking to them and its waiting for the right moment so but we are definitely, and that I want to stress for everybody. We are definitely committed to industrial technique; we still believe that is a business area with big growth potential, big profitable growth potential and that is what we keep doing it.

And we are very happy that the first quarter with Henrob, through the integration, knowing each other, leading the company that that works I think we're also starting up the projects at Fort so that is hard work for all these people, starting up new lines is always challenging and that's good to see that. So, it also gives confident to the organization and we keep working hard on that.

Great stuff, thanks a lot.

Thank you. And we still have some questions left on the telephone line.

Yes, thank you. Hi Ronnie, hi Hans Ola, a question Hans Ola, on the FX, could you please shed some lights, I missed the first part of the call may be you've already discussed it, but could you please shed some light over the -- translation and transaction FX going into the quarter?

And as that might be a short answer here is another question, could you also please try to explain the consumables business being down sequentially when we see quite strong production numbers coming out, is that a combination of both volume and price and could you share some light [indiscernible]?

Yes, let me start with the short one as you said. That we don’t elaborate too much on the future but you saw the operating profit impact we estimated that's just short of SEK500 million for Q4 compared to Q4, 2013.

And it's evidence I think to you and to everybody that it will be more than that going into Q1 comparing Q1, 2014 then of course. So we are in that trend right now but to give you a very good estimate of how much -- I don’t think it will benefit very much, but I know you like it for your modeling.

I understand that, but still that’s what I definitely see and then it becomes a lot of speculation exactly how the mix will be and what will happen to the currencies as we move along. The impact in Q2 judging from what we see today will also be big of course, but then we will start moving to compare specifically Q4 of course but also to certain extent Q3 more in line with the current year.

So for the full year it will be a lot of impact for the first half and much less for the second half. But we do see an even more impact in Q1, that’s correct.

Yes, but could you may be shed some light to the -- we know the flows from 2013 you've done your report right, given acquisitions some actions with weak sort of economies, commodity economies or so forth, I guess that the dollar flows -- if anything expanded in 2014 versus 2013, is that a correct assumption?

Yes, that’s the correct assumption when you look at that currency isolated, yes.

Okay, okay I think that's yes.

Yes, so to make then the long answer now on the consumables so, Peder, yes I would say --

Yes, it means you're the CEO.

Yes, you're right, you called me the CFO. I think because we wrote that and then of course I was expecting the question like that because we see still good demand for iron, ore, copper, zinc these levels are still good and then suddenly rise up Atlas Copco writing about a negative on consumable.

Of course it's always compare -- you compare with previous quarters or the year-on-year quarter. So if I look really more in detail I think -- I would -- it's still a solid development, of course it has gone down the figures are the figures but that is comparison with the copper load is where last quarter where we -- which we compared was a little bit higher because one-off order, so these type of comparison you get into the, yes into the comparisons of this space you get into the comparison.

But if I look through the factory and the load and the orders there is still good development on the consumer books. So I would not, I'd not worry on that part, what we are doing in that part, of course the exploration consumables is still at a very low level I don’t see any big light there so maybe we have to wait until the gold price is going up a little bit more, may be then it comes back.

If you see the production in consumer books it's a good demand, that is what we see, we keep doing good work on that and at the same time as I speak we also adapting our stock levels there. So these are the areas what we do, but there is still a good development going on, on the consumer books.

So nothing to, at least on the CEO's mind there is nothing worrying on the consumer book side.

Okay, thank you gentlemen.

Thank you. So we go to the next.

Yes, thank you. Good afternoon Ronnie and Hans Ola, just couple of questions.

Firstly on the oil and gas, Ronnie how do you think about this? Firstly in terms of direct impact, I know you can see may be I guess weaker demand for some of the turbo compressors maybe its weak already but some areas are likely to struggle.

How do you think about indirect areas, I guess the construction I'm thinking about, because Caterpillar was sighting weaker construction activity related to oil and gas versus perhaps the benefit you might see on the consumer side which could help, Edward? So what are you thinking about the gas price as it affects your business; that was question number one.

And then secondly an exciting one on FX I just, I'm sorry if I missed this before but may be one for Hans Ola, what -- any guidance for FX for first quarter or full year 2015 if it stay -- if the rate stay at the current levels? Thank you.

I think, Hans Ola, you should know that what it will be in quarter one.

Yes, yes it was actually previous question, Marc and if I repeat it very quickly this time -- we don't give a projection as you know quarter-by-quarter but we expect it clearly to be more than in Q4 comparison with Q4 and that was SEK500 million as we wrote in the report. So we take that for the full year I think we'll have to come back.

Okay.

But I think the development on the currency is not bad for us.

No, no, no, no, no, by no means, it's both affecting positively in numbers and in the margin that we have seen.

If the ruble will stabilize, that will be nice.

Yes that's been missing here.

But coming Marc, coming back on your question oil and gas, you should know Atlas Copco direct exposure to oil and gas is not big, sometimes we regret it sometimes we are happy. When it comes to this big turbo and then you know this company -- this four or five companies in that Atlas Copco is not in that business, fortunately or unfortunately yeah, depending on what cycle we are, we are not in that part.

So we are not in this semi-actual what is it 20, 30, 100 megawatt compressors we are not in that part. So from that point there is no effect.

Although and that's mainly on CT we see and if you go to the region of Houston, yes, we see some yes some customers coming under pressure and that is done for us mainly on the small on the grilling side on the smaller compressors you say as it yes, now for us it's on the smaller compressor and mainly for our Brand Quincy. It's not to do with the Atlas Copco, because Atlas Copco brand is hardly is in that, there we see some orders some customers really yes suffering or postponing it or yes getting a little bit more trouble on that.

And that’s the direct effect. On the other hand of course the big business like oil and gas does not do CapEx gold yes we will for sure there will be some indirect effect, negative indirect effect because maybe maintenance companies will not invest, some other thing will not yes do a big investment or expansion that is the indirect part.

Negative indirect part we'll get. On the other hand like you mentioned we’ll see where this money which comes available for all the consumers will go to and that's the big question for all of us I think will it be helping growth in Europe, will it even help the growth in the world, Alleluia who knows that I think with when we are six months further we would see where this money will be allocated to.

On the other hand, I think that's nice to be enough skeptical everybody use compressed air so if they use more consumer more clothing that is more waving all around so more compressors will be sold there. I think in the process industry if there are more plastics or other polymers are used because they are cheaper yes I think you use more compressors more maintenance so that is where I put my bet on and in internal we said don't make a big fuss on oil and gas don't use it heavily so debt is bad to bear there I think it's not there is a lot of talk about negative but there is also I think positive opportunities for us in that area.

So I don’t make on that part not a big thing. Having said Caterpillar on construction I read also that report and I tried myself to find out where could have play the bus, so I made also copper calls around Atlas Copco to try to demystify that and I could not find immediately a good project what you say okay that I can talk it down.

I don’t have it. I don't have it.

Transparent as always.

Yes I think.

That's good.

Thanks, Ronnie. Just one quick follow-up on China basically how you mentioned obviously the weakness in mining how is the industrial demand it sounds a fair bit more robust is that the case what commodities areas weak industrial areas more robust, is that fair?

Yes if we take China in industrial of course the large machines or large compressors are also industrial process whatever you name it that is soft. But if you then look to the small to medium side compressors I think that business keeps up is it really great, no, but it keeps up where we see on industrial and then I’m talking about industrial technique take aerospace, take railway transport, take motor vehicle that part that business is really I think I use the word booming that of course very strong and that’s also something what is yes supporting the growth in industrial technique and that's also China.

Unfortunately that business is not as big may be yet as compressors have but that goes so that if you were in China in the right segment its Alleluia if you're in -- if you're in air separation you're in trouble, if you're in and look to read the report of SCA you can see that -- then you see these areas they go very stronger and that’s the same what we see.

Okay. Thank you.

So thank you and then we take another question.

Yes, good afternoon Ronnie, hi Hans Ola. I think my question is on oil ruble currency compress the mining sort of being touched on so maybe I’ll get back to mining.

With the further weakness that we’ve seen in the iron ore, coal, copper prices, but the gold price up within the world of sort of production and consumables I saw your comment that consumables are down both sequentially and year-on-year and you made a point about that but within that are you in any way seeing gold growth shift in the better direction than copper, coal, and iron ore, and if not is that's something you think might start happening as we progress through the year and you worry about the commodity mix and they’ve gold the big slice but it's not everything.

Normally James you're better than I in that. So in if you look to if you take copper of courses prices has dropped a little bit although I see the demand for copper still doing great.

If you look to the utilizations of the mines you see that it is high. So for me, I think there will be still I think maybe not this year but more copper investments taking place as we speak, that's my bet.

Gold is a big question. Okay.

What will the gold price do? You see what -- if you see the gold price today, it comes closer and closer to the breakeven to start again.

To do type of exploration here and there, so if we get another maybe another 6%, 7% up I think there are for sure people looking into that. And that I think is not bad because we all know if gold will come -- and this of course now we do speculations.

If gold will come you would see exploration also coming up again and that's also a business than gold when it -- the underground gold that is also good for us because underground machines and our exposure to these mines is higher, so that will be a good development. But okay, we need maybe a bit more volatility in the market to get that up.

But I think when it comes to the mine and the mines and equipment, I think for this year and see how long I think it will be a replacement market. It's already since mid 2012 that everybody is a little bit careful in their CapEx.

But you also know these boomers and these underground drill machines they don't last 10 years. You heard me also that I'm more positive on service because we see that already now in the market, this underground service.

At the end of the day, yes, you have to come and make a confession because the machine needs to have an upgrade or you have to buy a new one. This is different with larger service drills which last longer.

But the underground that I think is an area where I believe there will be still some activities going on.

Thank you.

Can I just jump back to the geographic orders of the business? And you talked earlier about all major markets in Europe developing positively which is quite a big statement.

And do you see much of a change there? Is there any particular country driving it?

Is it a particular business? Are there any themes behind that?

Is it just an easy comp? Maybe you could expand a bit on Europe.

Yes. I mentioned if you read the transcript of last quarter I mentioned also that I was a bit more positive on Europe because what I saw -- and I always go -- and you know, James, what triggers me in my analysis as you also have here indicate -- have obviously indicated the same as a see enough as leverage the small-to-medium size compressors.

I see this in almost all markets in Europe, of all countries in Europe coming up, and I see more activity. And that we should not forget.

I think we compare with lower levels. But we see some quick development, quick demand in Europe.

So is it -- of course it's not high-double-digit, that's not what I'm talking about, I see growth, I see that. I see some growth in UK, I see some Germany going, I see some Italy, Spain.

I see a positive development. So that I see and that is mainly if I take my trigger my -- our, I should say, small-to-medium size compressors of a yellow canary.

And then, if I dig it aggregated it is like that.

Thank you, James. And let's see we might not be able to take all questions from the telephone line but we take a few more.

So please go ahead.

Hello. Thanks for taking my question.

Just small question on the pricing for MR and ET. I've seen this is the first time I've seen I think zero price for several years.

Is there anything behind this such as dilution from acquisitions, lower Asian orders, FX, i.e., things that can certainly improve as these factors on the wind or is this simple as weaker price due to the cycle lower OE price? So sense of clarity and understanding where would these play?

And then the second question is as was the follow-up. Would you expect to keep prices flat from here or the zero price actually dip slightly negative or actually recover ranges in your thoughts if you can answer that?

Thank you.

Yes. You see Atlas Copco pricing what makes us to stay on the positive side is the innovation.

I think if you really by innovation create productivity for your customers then you also get value, then you can do an up selling because you can share the gain with your customer, and that is also what we are working on. That's one for on the machine side.

Then of course on the service side, there I think of course it's a bit the same but on the other hand you also have a part of inflation or deflation. So in areas where you have a lower inflation it gets less price increases on the service side, and that you should take into account as we go now in the next coming year or whatever when we will get proper inflation in the world.

So that’s one, but mainly the pricing in MR, CT, IT and all that is always driven by innovation, that is where we get the pricing power. Of course you can get some quarters whereas here and there, of course today in the mining part of course it's not really, yes, the purchasers have the power now.

Sometimes you have to be a bit more aggressive and that’s mainly what happened with a couple of orders. So I think as such fundamentally there has nothing changed.

And that originally linked to the innovation is of course what, Ronnie, is about the total profitability of the business in here. With the pricing its more the latter comment that Ronnie refers to that we compare exactly the same product one year to another and that is impacted specifically by the services aspect in this as you see gradually.

We don’t make projections but there is no feeling that we are moving into negative territory because that’s not really.

I've not seen any fundamental, if I do business with you with different additions and all that, I've not seen really signals that it said okay, now we become like in the mobile telephone business every time it goes, every month goes down. That business we are not in, no, I think it's still -- still unable, we have innovation to create expansion and productivity.

Thank you.

Thank you.

Thanks a lot. We take the -- we need to take the final question unfortunately.

I know there might be unanswered questions but please come back to us individually after the call then to cover those. But we take the final question, considering the time.

Yes, hi thanks for taking my question. And most of my questions have already been answered but maybe you can share with us what we should expect in terms of CapEx for 2015, because I noted that in -- in Q4 now; we have investments in PPU SEK521 million which is significantly higher than Q1 to Q3?

No, it’s a good observation. Actually it, we have add that businesses not only adverse, we have added Henrob, we have added a couple of other acquisitions where the run rate first of all of investments to revenue is higher than the average in Atlas Copco and that has affected us a little bit and you can see it in that.

I would say that that is the main explanation, when I look at the overall like-for-like MR, CT the CR compared to two, three years ago I don’t see any trend in increase on the other hand, but here we have a couple of things. So I would expect that it is slightly higher level in next year than for the full year 2014.

But there will be oscillations over the quarter of course.

Yes mainly Edwards…

And there is mainly Edwards and Henrob that both have affected the current but also is at the slightly higher level than we are used to.

Yes, because I would say historically you've been around 1.5% of sales and in this quarter you were about 2%, so should we expect about 2% of sales now or?

I think 1.5% or 2% on the revenue of Atlas Copco is becoming quite big difference at the end of the day because we will always be a very small step gradual investment type of company. We very seldom had large one time big investments, as you know.

So if you, it might be 2% in one quarter but it might be back to 1.5% the next quarter, that’s what I'm trying to say. So it's not the very useful tool for us to predict internally there to be perfectly honest, Andreas, but slightly higher CapEx for the full year that’s I think is the fair estimate.

Thank you very much.

Thank you. With that as I said -- it took longer.

I thought we covered a lot of ground in the first couple of questions but there are always more questions. Unfortunately, we have past the hour with 10 minutes.

So I would like to thank or we would like to thank everybody participating here and on the telephone conference and we will be back with the first quarter results in April. Thank you.