Atlas Copco AB

Ronnie Leten - President and CEO Hans Ola - CFO

Peder Frölén - Handelsbanken Lars Brorson - Barclays Andre Kukhnin - Credit Suisse Alexander Virgo - Nomura James Moore - Redburn Andreas Koski - Deutsche Bank Sebastien Gruter - Exane

Okay, thank you Hans Ola. And good afternoon and good morning to all of you.

Before I go to elaborate on Q1 results, I would like to elaborate a bit on the Atlas Copco mission and outlook as such in general what, what we're aiming for and Atlas Copco is a long-term growth project which is supported by underlying long-term demands like we have efficiency in industry, demand for commodities and of course the organization is driving infrastructure and this is of course our opportunities -- to grab these opportunities, now how do we do that? We are constantly [indiscernible] our presence and this we do by improving our competence but also by putting feet on the street we also do further investment in innovation and for those who have been following Atlas Copco have seen that we have doubled these investments over the last five years.

And last but not least and that is something which I am sure will come up more during this call. We are optimizing confidently our operating model which is based on agility and asset like to make sure that in every weather condition we have the right clothing, in other words we're delivering results in every economic condition.

So that was for me a short introduction to position the Q1 result. And if we now go to Slide Number 2, what have we seen in the quarter.

We see growth in service, really solid organic growth in service, so our strategy works there, I think it was a good quarter there, what is lower and that was also definitely lower than most of us expected that was the equipment, we had a real lower sales in mining, we also saw larger units on compressor side, we saw that was softer although we saw a solid industrial technique when it comes to the motor vehicle and we saw a reasonable solid development for small to medium size compressors. For those who are following us also saw that the vacuum orders were lower in quarter one compared to quarter last year, this comes mainly from a tough comparison because first quarter Q1 2014 we had a very, very big quarter which is not, and we knew that, that would not be repeated for vacuum, we got that.

So it should take that away and you will hear me saying that a couple of times during the call so to speak that vacuum had a very solid order income. And of course last but not least when you look to the figures they look all figures but of course heavily impacted from the currency but I am sure that it's for most of you not a surprise.

If we then go to Slide Number 3 the orders increased 12%, a drop of 5% organic, we'll elaborate a bit more on that and I am talking to different business areas. Atlas' operating profit, it's 19.3 may be influenced by the long-term -- program, Hans Ola will elaborate a bit more on why we're talking about 19.3 and not about 18.3.

And the operating cash flow was solid, almost SEK3.5 billion which was a good development again in this first quarter so we saw reduction in inventory in our operation. If we go then to Slide Number 4 we take the geographical areas and I will start with North America, you will see a minus and I can tell you it was the same when I saw the statistics first for myself minus in North America what's going on?

Now I think we need to, to make one correction here that when we go to compare, may be not the correction but this is a comparison if you want to do a proper comparison, again this vacuum order I'm just talking about that took place in North America and which was significant and then I think also the larger part of oil and gas. We, we also got that not repeated because we all know for what reason.

If we take that away the difference is here it becomes, you know difference is 10% so if we take away this vacuum and this larger gas and process order it would be a plus 6% in North America because we still see the small to medium size compressors, we see a good development, we also see good development in industrial technique in the North America, so it's a lot of positive picture expect [indiscernible] we compare. If we then go to South America, so we go down now we see a minus 12, yet we all know we have seen Brazil which is on the -- it's a bit tougher there especially when it comes to construction and on the mining side.

So that is the main reason why we have seen a drop although when we take on the industrial technique side and compressor side so a reasonable market being in South America. We will then take Europe, minus again also here should give you a comparative reason the results of some orders also in the vacuum side.

I think what made that looking negative plus also and we all know the Russian talked which soon make comparison more difficult compared to last year. So all the rest [indiscernible] on Europe was if we take this North way was still a positive picture.

Middle East Africa we see a close 11 where we don’t need to do any collection may be surprising for all of you but the Middle East is doing great. So that is the one of the reason why we got the plus 11 so it seems that the Saudi keep investing so that’s good for us.

Then I'm going to Asia here I'm minus one softer China that we can say and that is mainly also from the mining part, a bit on construction side and have also big ticket zone complex technique on where we had posted what was on industrial technique and a reasonable good development on the small to medium side. But one thing that was good in Asia because we used to talk only about China and we see a positive development in India where we see a good development going on and of course when it comes to say [indiscernible] that is always about mining site.

If we will then go to slide number 5 nothing more I hope to see a positive thought from that then I have already explained if I was to make a full correction for the group and where we had a minus 2 for this growth and then do a correction with the GAAP and the vacuum we will have zero which is a plus 2%. So it would have been a flat development part overall.

Sales which yes we see it here nothing to say structural of a couple acquisition we have done and of course got an see a liberate about that big and the price for you become sure on the price I'll let due to asking some questions about that. Then I'm go into to the business area and I'm going majorly to compressor technique a very good demand in service so it's good to see that strategy works and the small to medium size compresses are solid development and again I'm repeating myself here on the larger compresses it's tougher there.

I have been saying there is couple out there its still keeps going in the wrong direction but it is what it is. And then on the vacuum I will not repeat point what I said in the beginning but of course I think if we take that way it's a good robust development on the vacuum side.

So you say from continues to develop. Operating margin of course supported by currency that is for sure and we see also a negative equipment mix that is coming from vacuum where we had a bit of headwind from currency what safety profitability a bit lower for the vacuum part.

If we take away the vacuum out of compressor technique because that is what you quick compare last year very easily I would say we are up to a solid 23% profitability. So from that point of view compressor is more or less taking the lead where they should be minimum.

Then I'm going to industrial technique I would congratulations to the guys there I think I'm very pleased with the development of course we had good support from motor vehicles from aerospace a bit more headwind in the oil and gas part so with the new acquisition in this Hightalk part of course [indiscernible] tougher place the way we cannot be all the time at the right moment but sure this will be future businesses. We see good development on the service business continues to do well so I was spread deal towards there and also our new acquired self-pierce riveting business the Henrob business is doing fine and we feel it’s a good order intake from that point.

So profit wise 22.7. Of course there were a bit of headwinds from acquisition when you have new compressor ratio some cost you have to take [indiscernible].

Mining and Rock Excavation, a tough place to be today I should say. For sure lower order take [indiscernible] when we were sitting here together talking to you guys whether two or three months ago I have told that we would have a new low level, but at least we will have a robust level.

The good part in Mining and Rock Excavation that we’re seeing in the last five, six months is a solid growth development on service and that’s good. So it seems to me that our customers are using that equipment a little bit longer and of course at the end of the day you have to come and make a confession and do some service on the machine and that is what has happened now.

On the consumables you see decrease throughout, but again you need to make a bit of a distinction exploration is still very low where we see production drilling at the good level. So I think that development stage at the good level [indiscernible] when you compare one quality with other, you always have a bit of spin.

But we see a good development here. And you see it also in the consumptions of iron ore, zinc and copper that the world is still using the [indiscernible].

Operating margin, we just missed the 19, so 18.9 which we always like to have a bit more, yes and that is also the reason why we further work on our efficiency measures. We do this step-by-step, we take some cost in for predicting to our new level and fortunately, [indiscernible] we keep our focus on innovation and R&D, it's not that we go to discuss dramatically or that discuss [indiscernible] we keep on that bank to market efficiency on the overhead to reduce that, but on the other hand to keep really [indiscernible].

Construction technique lowering order intake, so the larger portable compressors what's lower and we had also a little bit softer road to construction equipment and we said, what’s going on there and that’s mainly coming from a softer Australia and a softer Brazil which was good markets for road construction. But unfortunately they got headwind and there is a big market for them, that is softer market detail where we see on the other hand good development in Europe and good development in North America.

But it compensated [indiscernible]. That operating margin 12.2 was where the cost we're takin in [indiscernible].

Then if we take it here in Slide number 12 the operating margin, I will now hand over to Hans Ola and [indiscernible] I have said maybe there is one when you look to the operating profit in absolute terms, of course you see here from that plus 20 if you take this other cost [indiscernible] plus 23% operating margin growth which I think it is I am very pleased to see that that we grow more in the operating profit then we grow on the [indiscernible].

Thank you, Ronnie and just trying to be very brief the rest that below operating profit net financial items were a bit more negative than last year. There are a couple of explanations, the currency effect on interest which we pay in euro and dollars is one explanation why it increases and we also have the number of subsidiaries where we unfortunately in countries where the only opportunity for them is to borrow in foreign currency and predominantly in dollars and that has also inflated the interest costs for those countries.

So I would say looking forward is there anything extra that will not continue to be there, well in comparison with last year I think it's explained by that so looking forward I don’t see a big change in the financial net for what we can say then of course there always are exchange differences that you cannot predict before also but basically we expect it to stay roughly at this levels in the near-term. When it comes to these expenses of 24.5% as you have all seen compared to 23.5 a year ago, I would say that it's stays as we have expected between 24% and 25% and that is also what we expect going forward.

And then on the earnings per share 266, there is a nice increase from last year and without the impact of this increase of provision from long term incentive that Ronnie talked about it would have added 20 or more on that 286. Now the reason we do adjust for this because that scores is not our normal isotope to talk about what results should have been we speak we normally size to be a transparental possible.

But in this case we have due to the structure of this program of long term incentive we have to book the cost as an administrative salary cost or comparable personnel cost. At the same time we already know that we were not make that loss because we have already bought Atlas Copco shares to hedge for this development.

Unfortunately we cannot take that profit when we sell those shares into the result it will only effect the so called other comprehensive income or if you like it will be adjusted against the equity. So in a way we think it's fair one do mentioned the size then specifically when there is large as they were at this time.

If we move on to the next page number 13 you can see that the impact in the so called profit ratio for share based long term incentive programs. And for the rest of the comments I think we turned one page more and we look at the distance areas I think that once before you can ask questions of course later.

But the compressor technique swing between our negative revenue and the positive impact from volume price and mix on EBIT is not so difficult to understand it's a true improvement if you like but it's also small numbers. So it's not a good representation for a flow through.

Industrial techniques have invested in the number of new businesses as you know and they keep on doing that. So there is a relentless focus on growing these businesses and also there is preparation let's say in the marketplace for being able to support the newly acquired businesses in the best way.

On mining and rock I think Ronnie has commented already of course the impact in the onetime items so plus 75 is last year's restructuring cost that you know and then the question mark is of course is this a normal flow through of revenue drop of 300 krona no, that is absolutely not what we see as a normal either. But we have come to a level of growth in revenue where of course the effect of staying with these industries, staying with the R&D portfolio that is meaningful et cetera.

In some quarters we'll give these types of numbers. Then we come to construction technique it's a little bit of a different explanation why the so called flow through or the negative flow through if you is so big and that relates mostly to the unfavorable equipment mix that is still hurting the business where large compressors or portable compressors have dropped rather significantly in volume and that gives a negative mix effect on the margin.

I turn to the next page and I don’t want to bore you -- it's not very eventful on the balance sheet side to be honest. I can just remind you that the pure translation effect of reporting in Swedish krona gives us another 5 billion from December only.

And if you go back between March last year and December last year it have been more than 10 billion in pure translation into Swedish krona. So of course you can understand that it's not the volume driven increase in the balance sheet at all.

I turn to the next before need effect to Ronnie and then on the cash flow. You can summarize it basically in two events if you want to explain the increase of operating cash flow from 1.9 to 3.5 and that is basically a higher profit with the top level of the chart which is of course supported by local translation from the strong U.S dollar as well of course.

And the other one is a better networking capital development in the first quarter. If you add those together you basically explain the difference in operating cash flow.

So with that I hand over to Ronnie again for the near term outlook.

What our most sophisticated [indiscernible] so as you see yourself on that slide near time outlook it is the same as last time. And yes we under estimated why under estimated the weak demand of equipment maybe on the mining side in Q1 that is what is the take away from the mix.

We can take it compared to last time. But from here and this also sequential I still believe that we had a solid development giving our service business we should not forget that our regarding business is almost 45% of our business and is growing is doing well and I believe there are in certain segment also positive signs on the equipment.

So that is where I would let it be.

Yes, good afternoon. Ronnie good afternoon and Hans Ola.

Could I please start with on large compressors both oil and gas and also large normal industry compressors. Is it fair assume that revenues organically are down 15%, 20% now after may be four to six quarters, of negative orders?

That's my first question. And the second question is really related to the outlook.

I mean as you alluded to you keep the outlook, at what risks you see to the current outlook, why should the equipment be better sequentially for services as good as it was in the first quarter? That’s my two questions to be in way.

Thank you.

I think when it comes to the larger compressors and we see that of course what was there the whole takeaway we go back to a couple of quarters, it, it was, a lot had to do with China, we should not underestimate how much larger installation, the larger compressors China and Asia did and that's why it's significantly lower and that was always also the, the by every quarter more or less was my story. Now what has come on top of this is the, the oil and gas directly and indirectly, I will give you an example, we are also in geothermal business, we do hydrocarbon expanders which we introduced in US, it's used in geothermal, of course due to the lower oil and gas prices of course the breakeven, the payback of these investments -- the normal meaning done, when, when do they call these orders, I know from a couple orders myself we got hanging there, we can't negotiate it, but of course the broad looking for the new may be the new stretching, with the new, future price of oil and gas, they hang in and that is what is not coming through.

And these are what I call the indirect oil and gas part, of course we are not so much in the oil and gas when it comes to the [indiscernible] that we are not there so much but of course we had indirectly we had a breakeven there. So that is one of the -- that's the main reason of the larger compressor, so the rest of is nothing, of course there is still orders going on in that area but not at the same magnitude so that’s what you see.

When it comes to the outlook we do not see that first I think we still believe we've done a good development sequentially on service, that was also the reason why Hans said hey guys you should read to this outlook don’t forget we do around 40%, 45% of service and that is solid growth. And second is sequential, okay, if we look ourselves and we , we go to make an evaluation about our own outlook what Hans Ola and I do myself, I think we list we get it wrong, because we don’t actually do that.

We see that the main, the main list what we had when it comes to quarter one was on the mining equipment part there we, we had expected much more duration where for us you can say a bit here and there but I think if we would not had mining we would not have seen. So that is the reason why if we then look to quarter two see we are showing that on the mining side that today this will become sequentially more or less done the same level as it was in Q1, it will not go down more than between Q4 to Q1 and that is simple reasoning behind our --

Thanks very much. Hi Ronnie, hi Hans Ola.

A, a question from, from me and also just a follow up on, on the outlook. Just on mining and the 10% order decline organically there can you give us a sense Ronnie for how that breaks down between equipment aftermarket and sub-engineering?

And just on the decline in consumables I am trying to square that ways again production growth for miners and if anything perhaps a slight return now the exploration project from some of your mining customers such as in gold, are we seeing a level of mining de-stocking here, is there a sense perhaps that you might be losing share can you talk a little bit about what you see specifically in consumables? Thanks.

This is a question for an hour, I could do it very, very, come then. First I think we see a positive development on service that we see a good organic growth and that also what I said in the call and feedback, that trend has changed a lot in the last I would say last six months, we see a much more demand for the service.

We see also a reason although good activity, although not really growing but still a good activity when it comes to production of consumables and we don’t see most nothing when it comes to exploration so that is difficult. When you look to this quarter I think both mining and construction orders went down because you should not forget when we talk about mining and Rock Excavation we also are delivering equipment to tunnel and other type of construction works.

And that was also lowered this quarter so that is the explanation; it's definitely lower in both areas on the mining and on the construction. Do I see that the mines are destocking, I don’t they have any of our equipment and stock the mine I think they use it, the only thing what I see is that they use the longer.

If I start to go around and try to demystify the whole thinking or hope on that equipment goes down and services goes up then you listen to them and you see them also that the twice use the longer and 4% on this improvement because that's immediately cash flow.

That’s clear if I can just be allowed a follow on the demand outlook. Again I'm struggling a little bit with the improving demand outlook for industrial divisions.

We have been through three quarters now of you suggesting industrial divisions are improving sequentially and being held by the rest. If you axes out if a construction the business seem to be much more improvement coming through here I take the point about last compressors.

But can you talk a little bit about what you see sequential particularly in [indiscernible] which obviously is the more volatile business and again we heard quite a mix commentary from the semi cap equipment names so far this earnings being again couple of your vacuum competitors actually seeing a sequential improvement to some commentary around that will be useful thanks.

I think I have to disagree with you I think if you look to our stages and also listen a little bit to my explanation from the industrial part industrial technique has gone up I think organically and that’s I think is for sure. And when you look to compressor technique and you take this one order just maybe two orders which we had in Q1 for vacuum last year -- that way which was one of the underlying business once positive.

And then I think coming back to the first question completed on the larger compressors if you look that take that away then you see the small the medium size compressor business as we developing positively you see industrial technique do this positively and you definitely the service business on the industrial side going up. Besides the negative one if you compare it that big order of vacuum and the bigger orders from oil and gas that is the picture which I see may be not always easy for you to see it when you see aggregate stages but that is the situation.

I guess a lot has come down now to size of these one or two larger orders so maybe for us to be able to see. So could you help us to quantifying them so that we can take it from there?

You want to quantify them is that?

Yes if you just give us a rough order of magnitude for these one large vacuum order that is making such change.

If you look at the world picture we have two growth partly due to structure and partly due to -- sorry we had a negative of 2% which is of course helped by on the one hand by structure and then we have an organic decline. On that we said for the group world it was a minus 2 if you look at the global map as we referred to right the local currency of minus 2 for the whole world so it consists of minus 5 for organic and then a plus 2 point something on structure.

On that level the group was effected by those orders that were on the by 2% right. So it would still have been a negative organic decline it would have been an organic decline but still the impact of those specific ones that we talked about was 2%.

If you then look at three piece level it's impacted by about 5% by extracting the gas and process order in the United States and the big order in the vacuum. So the impact of course done is much bigger when if you look at North America in the [indiscernible] but that you can figure by the waiting that you see on the --

That’s very helpful. Thank you.

And just a quick follow-up on FX this is over 1 billion tailwind in the quarter was this the sweet spot for you in terms of the order magnitude of the FX tailwind or does that come in kind of later in the year given the currency move during the quarter and I think you have some hedging although not very much?

When you take it like sweet spot of course it changes from week-to-week and that’s what we see. So is this the best world we have seen, well it's pretty close to it to be perfectly honest, so you have to go back many years to find compatible level asset mix of currencies for Atlas Copco that’s true.

Then when you look ahead then you have to compare it because I think that you come from this bridge effect of one point something SEK1 billion that you referred to. The bridge effect will then be a result of what’s happened in the second and third and the fourth quarter last year.

We expect that if everything stays as it is today that the impact will be as a bridge between Q2 and Q2 at least as big or in the same level as in Q1. We will see it continue to be very significant in Q3 and then it will taper off a little bit into fourth quarter.

But as we look at what has happened we had constant improvement of the currency situation during the Q1 and since then it has basically stayed on that level if you like, because I am not just referring to the dollar, of course I am taking all the currencies in to consideration when I say that.

A couple of questions please just on construction the first one, adjusting for North America orders up about 14% of course but I think just as the currency maybe down six also, just wondering how you can or give us some color around that in light of the comment you made earlier on. And then just trying to understand the comment around the amount of portable compressor especially [indiscernible] as well I guess also in construction if you could help us out with that that would be very helpful.

And then lastly just on your comment around underground mining equipment demand decline just wondering if you can give us any more flavor for what was driving that specifically. Thank you.

Yes, I don’t know if I understood the first question correctly, I will try to answer what I think I understood that that was around North America when you look through construction and you said that it is negative, yes, I think when you look to this I think we have a bit less orders on the portable side. So on the portable compressor side that is I think less than before.

You can question okay are the rest of company buying less, no, I think of course we have big orders quarters coming in the last quarter Q4 last year we got that which it [indiscernible] a little bit in Q1, so they were landed in December and maybe that would have landed in January this year if [indiscernible]. So we don’t see let`s say that we -- that the construction business is -- the outlook is negative in U.S., I think I don’t see that, I cannot use that as an argument, so I think is negative and that is one of the reason what we found out.

Then I think when it comes to the portable business, this has already taken [indiscernible] driven by exploration because one should know that we had a good portable business coming from exploration and water well drilling, water well drilling is coming back, you see that gradually come back in India so that’s good. But exploration where we also had the requirement of big portable that we don’t see yet coming back and that is where we are suffering a bit -- Then on underground, yes, I will repeat myself what I learn is that there is definitely activity and that is also what we see in our consumables, so consumables are used so that mean the machine that used because we all see that their required services and move it all.

So that works fine, but it's less new equipment, but [indiscernible] little bit lower and one should know if you just go back in the history it's actually mid-2012 that we saw the shift. And if you didn’t term get so much cancellation as we all get it in that meant that order income what we had in 2000 and what’s delivered out in 2013.

So when these machines 2013 are put be in production, they are only one or two years old and we don’t see new Greenfield so expansion going on so mind using them machine and also management is same to utilize the machines in the best way longer and that what we suffered today on the equipment side. When will it come?

Will it come back within a half year a year two years? We see, but eventually something need to come back because we cannot keep over and over all the time although I don't mind because from a profitability point of view it's not a bad business.

But unfortunately I had a bit too much under absorption and that’s also a [indiscernible] to say when we were talking about flow through which of course we get under absorption in fact reach in our feet keep in the street customers said. So that is where we then what do I do with it kindly we keep going on with that we keep the commitment in R&D we work hard in automation and we keep our fleet in the street.

But that is the way it works. But that has nothing dramatically changed but it comes to market share because this is an political market we know what our friends are doing and our friends knows what we do, it’s a matter of market share shakes here and there that markets throughout stay stable.

On vacuums thanks for your comments on the big orders last year. But looking forward are the [indiscernible] management teams reporting back to you at all on inquiries that they're seeing any kinds of semiconductor cycle rolling over.

I have seen the [indiscernible] and others and that seems like that might be the next phase. Secondly price I think you just reported your lowest number zero for both orders and sales for 13 years or something.

And do you have any visibility looking forward on this in a deflationary world or you think this might turn negative or do you think by finding the trough and then maybe I'll come back on mining.

So on the vacuum side I think it's a good question and this is also what on every second week I am talking to the guys and probably where the guys are sitting what do you see what is Intel doing what is Samsung doing, what is all the ears and eyes of this world are doing. And for the time being and of course ability and that’s also I should say our visibility is say three to four months and that’s still looks okay.

Of course we also reading statements what the different companies make and what effect could it haven in us what we see today on the ground so in the facts in the people we're talking that they still keep going on an investing. So I'm semi confident that I am being still a good development in that area that is what I got James from the guidance.

When it comes to pricing yes you are spot on and price management is leadership it's driven from innovation because innovation creates pricing power that is where we need to work on and that’s also what we tries to do. But on the other hand in a low inflation market it's much more difficult to get also price up for your service office that is where it's more difficult.

But I think we still get good price momentum when we come up with new innovative products and that is what I am driving like crazy on that part. It's tougher on the mining side there were see sometimes trade behaviors opportunistic behavior okay I'm sure this is happening it has happened also in 2008, 2009 that there is a crazy order here, a crazy order there sometimes every quarter and that has a negative on pricing and that is what we also see in our statistics.

But just back on mining just the drop through you explained you have some charges out and out I guess 30 million to 40 million. And even without that it's still quite a big place here and you explained the absorption effect of the sales force and innovation cost.

But I am quite surprised given that the OE business is falling which is lower margin and the consumables business within aftermarket I think is lower margin and service spare parts. So I would have thought there should be some mix is it that we are really talking about going to an equipment model where an old star equipment model give it away for free and make the money on the aftermarket and the industry just facing that pressure.

No if that I'll find out where are these orders like if Atlas Copco is doing that I will immediately stop that. And I think also in the way we are organized it will be rather difficult to do that.

I think if we look to the profit ability of the mining the workers are doing, I would also like to see a bit more just to make it straight. Of course there is some shelter and some explanation on, okay, we keep investing in R&D because earning has not given instruction to cut R&D 30%, 40% now of course we have to optimize it further, but we keep investing, we keep heavily investing in automation because we believe that will be the next when the mine start to order that is what they need, that we do.

We keep also keep our fleet industry, we have not really got there, of course we try to be reduce overhead on the factory side I think yes, we have now taking and that is the level what we have taken, we have not come out with a big restructuring cost program and say okay and that we then we take it as it comes and our guys, our divisional heads on the mining side they take the cost as they come, they take it as it is and of course they have to explain their result. But of course when we show the flow through which so that’s where it all comes together.

If we had a restructuring program, you would have partly seen in that part, maybe…

I just add to a few number or reflections on that, we said it before that even though we tried just to see to calculate very accurately the true impact of different currencies from one quarter durable to this it is not doable in a perfect way like debit and credit have always to be the same. So you can’t have the -- that type of surety, but we wouldn’t put it on the slide if we didn’t think that it was our best attempt to do it anyway of course.

But what I am saying is that if you move, if we miss that the little bit of course it will have a significant impact on the other column which is the residual. So with that having said that, I think that the effects that Ronnie talk about are really what also what we see, it's not that we are trying to hide a huge restructuring that we don’t want to tell you or something like that, there are a lot of things though that is going on in an adjustment period where you use people to consolidate R&D resources, you consolidate even a few factories that you decide close down, but you don’t want to get rid of the knowledge and everything.

And during those periods of course when you don’t have any revenue, the cost stays and it's not very productive costs during those quarters perhaps but it's part of the investment and the commitment. Then of course there are always a few other you do a trade and deal here and there which is difficult to assess whether what are you giving away is it extra cost that you put to the deal or is it the prize that you adjust or -- of course in this type of quarters where the revenue is very -- the true volume is very low you get all these things floating up to the surface.

But giving James, I would like to see it a little bit better as this was what -- if you would talk to the guy directly as well immediately made that compression as it can be a better as always [indiscernible] and of course I get this augmentation that explains what Hans Ola said, we are working on a better bottom-line there and then I am talking profitability.

So on the EBIT margin in Edward if I remember correctly when you acquire Edward, you guided for an EBIT margin of around 15% and then in 2014 it turned out to be significantly higher volumes than you expected and Edwards performed better than you had expected. Now we’re seeing weaker volumes, so margins are going down, if I have done my math correctly the EBIT margin for Edwards in the quarter was somewhere between 16% and 17%.

So I wonder have you changed anything to the structure of Edwards that would change your guidance of a 15% EBIT margin or is it still what you expect on a longer term basis?

Just one extra color perhaps that we -- the numbers you refer to are correct by the way, we did guide to 15% in the acquisition, we did better in 2014 the division. And the impact now is that they are a little bit hurt actually in the profitability compared to a year ago because they have some negative effect actually from being a comp based business and also to a certain extent they have not had the benefit of some other parts of compressor technique they had due to the fact that they have longer hedging policy.

First of all they had hedging policy when we’ve bought them and for a certain period of time they continued to do that. So the extra help from a stronger dollar has not really given them any tools.

So it's true that this is a little bit softer than, than it was in the good quarters last year but still at significantly better profitability than we guided in the acquisition.

Oh and that's of course going very well and, and that also when, when I see more divisional figures of course we see that immediately and when we do the reconciliation as Hans Ola explained, takeaway the currency and the hedging and all that, they are running more or less at the same level as last year, so at the same level. So there is no significant under absorption but one should know that firstly we write down some tangibles, so that is what we do that we take and, and second also if you remember when we announced that this is a growth project, we will invest heavily in R&D for our general vacuum and utility vacuum, we take them straight in the P&L, we also put in more feet in the street and that’s what we're doing.

So they know these products are, some of them are touching the market as I am speaking we also launched a new personal vacuum on the Hannover Messe, was it a week or about two weeks ago? So that I think is supposed to be taking easily in but they are not enormous, they're even not, because on divisional level may be worthwhile looking to but on group level they are not significant but that's what we take in.

But taking these two remarks separately I think it's still at a good solid level and significant higher than when we guided for 50 so.

Yes, I, I agree with that but to ask the question more straight forward, if you acquire Edwards would you still guide for a 15% EBIT margin?

No, no, no, then I think, then there will, the guys will sit, they will laugh like other guy didn’t grow, no, no, no, no they need to, they need to be at, if you take away all this intangible and all that I think it comes close to a 20% EBIT, if we were to compare that the same accounting rules it is coming to that type of level today, it is like that.

Okay, thank you very much. And then lastly on, on cash flow because you had some payments related to acquisitions you made in 2014 I suppose it relates to Henrob, should we expect that all payments are, have been made now or should we expect more payments to come during coming quarters?

Not perhaps immediately but if you recall the acquisition announcement we paid the big portion in September last year, we paid the deferred portion of the payment in the first quarter quite rightly that we did and then as the deal structure will happen over and out portion of the transaction which has certain gateways, decided of course but we cannot pinpoint when that will happen in the future. So, there will be some, but I can't say when they will come of, of related to the same acquisition you are right.

Okay.

And when you bring up the cash flow I actually forgot to mention that on the same topic Henrob is a very strong growth growing business it was when we acquired it and it continues to grow significantly and already at the time of the acquisition the big investment plan for 2015 and '16 was underway, so at this we have seen to a certain extent already so far but it would be clearly visible from here on to the end of the year and I would probably put it somewhere for that three quarters that we could be talking about SEK 400 million, SEK 500 million on top of what you would consider an Atlas Copco run rate, ex-Henrob. And then this is for, it's, it's buildings, machinery and riveting, is riveting?

Yeah.

Rivet, rivet that we need field up and, and deploy that I mentioned.

Just to clarify was it 400 million to 500 million per quarter or in …

No, no, no, no, no for the remainder of the year.

Hi, good afternoon. May be a follow up on the FX [indiscernible] I mean could you at first quantify that impact in Q1 out of the SEK 425 million which is impact from FX on the compressor but for the negative portion of [indiscernible] and can you advise with the hedging you know you mention that would develop Q2, Q3, Q4?

That's my first question please.

Sorry I, lost you already in the beginning I, am sorry yes.

Okay now just coming back on the compressor technique you know FX was going below my expectations and you mentioned FX Edwards the negative transaction impact at Edwards from FX, could you quantify that and, and you mentioned I think could you advise with Q2, Q3, Q4?

Yeah well on the -- you are right that the, if I understand you are right in the profit bridge we are surprised on the fairly small currency impact is that correct.

Yes.

And the reason thought of the reason is what I commented on the vacuum that they haven’t enjoyed any of that part as of yet. So because it was already hedges at lower levels before that I can't quantify it more than that unfortunately.

Going forward you were questioning the --

Hedging at Edwards, I mean should we be ---.

The policy has been changed in the meantime. So even though there are hedges throughout 2015 that will still have an impact let's say we don’t know where the dollar will be next quarter of course.

But if it stays like it is it will have a similar effect but in volume it will be slightly lower and lower as we stopped this hedging gradually.

And a question on the outlook if I may it looks like if we compare with he [indiscernible] the volume was just 1% to volume what it is 3% in Q1 minus 1% in Q2. So it looks like slightly comps are slightly difficult in Q2 do you take that into account in your outlook of a sequential improvement.

Our outlook is short as it is but one thing for sure that we always look at demand for Atlas Copco product and services together and we look from where we are today and we look three to four months ahead. That’s what we are trying to do the outlook should not be between hours last year in any way it's trying to gauge how we're seeing an increasing trend a flat trend or a slightly decreasing trend that’s it.

But I'm just questioning will you come in July in Q2 and say okay, we had a couple of larger orders as well so comps were difficult as in Q1.

That’s up to us of course if we didn’t mention them in the second quarter last year, then you are right that we should help you to understand that if that is the case. But when we have a quarter then we are not talking about the outlook then we are talking about what you expect for Q2 in numbers right.

Yes, yes.

So these are two different things for us. The guidance is not really there to show what the bridge will be when we report Q2 it's of course very often that the indication is more or less coinciding with whether we show a growth or we show a decline.

But it's big orders can of course [indiscernible] distort, you're absolutely right. In this referring to what we just said and talked a lot about in Q1 we will try to guide you and help you understand whether there indeed was some significant orders in Q2 as well.

Okay I got it. Thank you.

Thank you. With that unfortunately we have to stop because I warned we have the Annual General Meeting soon we thank everybody for participating and as always the IR department under Matias and myself will of course be available for any follow up questions that you might have.

So thank you for today bye, bye.

Bye, bye.