Atlas Copco AB

Hans Ola Meyer - SVP, Controlling and Finance Ronnie Leten - President & CEO

Klas Bergelind - Citi Peder Frolen - Handelsbanken Capital Markets Ben Maslen - Morgan Stanley Andreas Willi - JPMorgan Guillermo Peigneux - UBS Graham Phillips - Jefferies Markus Almerud - Kepler Cheuvreux Lars Brorson - Barclays

Good afternoon, good evening, and good morning depending on where you are to the Atlas Copco Fourth Quarter Result Presentation. You know the format for many times before.

We are here in the Atlas Copco mine [indiscernible] in Sweden and hopefully we have many of you on the call from various parts of the world. We will do as we always do.

We will let our CEO, Ronnie Leten take us through his comments on the quarterly report and then we will turn into the Q&A sessions. So same format, same procedures as every year.

Okay. Thank you, Hans Ola.

Welcome all of you and good afternoon. Now if you see to the picture here, this is one of our latest top products in the mining business, so our top new largest truck - underground truck which is a very successful product and you see we are committed to the mining business for those who maybe have a doubt about that.

Q4 in brief and I will try to make this presentation short. So I'm sure there will be a lot of questions around the result but also around the couple of events which we announced recently.

I'm very pleased with the results. If you can say record orders, record revenue, record operating profit and record cash flow what you wish more as a CEO, and that also in all business areas and in all regions.

So I think everything more or less all can say, all starts were very well lined up this quarter. So the very good work from all the people in the organization.

We had a couple of events of announcements and I would just do that very briefly to make sure you don't forget, you see Mats Rahmström will take over from me from the 27 April and you see it's like a bit like the sales, the CEOs becomes also taller. So we have a great future in front of us, is there a high correlation between the [indiscernible] of CEOs and the growth of course of our company.

So I'm really looking forward to the future. The proposal also what we will do and that we announced the 16 of January that we will do a split of proposal split in the AGM 2018.

Just to remind you it is volatile to take a bit of time for us to do that so before it happens, fiscal mid-2018. And then last but not least we also announced that we divest the road construction equipment division which we also announced then that will take place within a couple of months in reality but just for your sake of understanding all figures what we will talk is about road construction.

So for those who get confused about couple of figures, just look for us that you have taken out road construction. If you go to the figures, quick I will not go to all of them.

One figure I would like to highlight again growth 7% and the last one here operating cash flow $6.5 billion, so this is real, real strong figure and you see also the small asterisk is included on discontinued operation but I can say that was not a big contribution from the divested business. So it's more or less a clean strong cash flow.

If we then take a quick brief on 2016. 2016 was a mixed year it started tough, if you remember Q1 was a tough quarter for us, but later part of the year had been doing well.

Then you see also the last quarter was a strong quarter. But overall if we take the year and compare it with all previous years, it was a record profit, record orders and cash flow.

So that's we can say and what is also good to see is that our commitment to service and the whole transformation we go through with our business that this also still keep on. So we keep developing our most profitable business which is our services business.

We got strong growth in vacuum, we have seen that and also we have decided since we were able to expand that business with the couple of acquisitions, Leybold and CSK to be more specific, we also decided to make a dedicated business area, so it can really run for its own future and also it makes it much more trend balance produce for the following the company. We did 13 acquisitions during the year, so we have been busy and then also the Board of Directors also - will propose to the annual meeting dividend of the 6.80, which is around 8% increase when we compare with last year.

The rest of the page the figures here, we talked a little bit about the increase organic growth, the 6%. And then the structural 4%, organic 3% structural and little bit negative currency because in the year we still have a negative currency on the top line.

The rest being good development on service I mentioned that already and that also strong compressor technique, as well as an industrial technique. And total operating cash flow which I am really proud of to see more than MSEK18 billion in the year.

So that was very nice achievement of course from a good profitability, we missed just a 20 billion. And then of course you know that our cash conversion is high making this 18 and more than 18 billion.

If you then go quick to the geographical split, it was a long time if I was able to talk that everything is positive and then you see it here, it's starting North America, plus 8, so still good continuation of that continent. So, all countries in that continent did well.

Europe 14%. I should make remark of course now there is probably a big part of labeled in, but even if we exclude label to the acquisition it was a strong quarter in Europe.

And then we see the plus 29 in Asia, a very strong China, a very strong Korea and then okay India make it also a plus 29%. So if you take these two together - these three together which is more or less what is it almost more than 75% of the business we had very strong development.

Whereas weak [ph] see South America I think it's not a surprise for anyone of you it is Brazil which is the biggest, which still is suffering and make it not so good quarter but even with Brazil we were able to come up with plus 1% growth in that one. The rest of the continent you can see what it is.

We then go to organic growth graph. I am very pleased to see two quarters in a row.

We have good development, so there is growth in the area so that's good. We also see if you take for the total company excluding currency also that we have now four quarters in a row where we have growth.

We have made the first two were little bit on the soft side, but still positive. If you take it really literally, but now we have the last two quarters plus 10% which is I think good development giving the business where we are in.

If you take the sales bridge I don’t go much on that you see structural policy received in the quarter plus 7 billion, plus 7 seven currency, plus five. We all know strong dollar, weaker pound that helps of course and then of course a little bit weaker Swedish Krona compared to the dollar.

If you look to the year where we have a minus which I already mentioned, so you see the shifts during the year on the currency. If you then go to the different business areas but we also put in here on the pie chart before I go to the different business areas, sales of vacuum which we will start reporting from the first of January, sales that we put at in, so that you get a little bit used to our five legs what we have.

Compressor technique record orders in the total and the revenue and profit, so it was a real strong development there. Of course we got strong development from the vacuum solutions but if you take even excluding that we saw good organic growth also for say the traditional CT business, that is good to sales.

Positive development on service and industry compressors where it's still a bit tough you saw on the gasoline process although we can say that the quarter compared to last year quarter was positive but it's still on the low levels. So still a business where it's tough to be in now.

And operating margin yes solid 22.7%. Industrial technique what can we say more than it keeps developing, good motor vehicle business, it's for strong Asia, it's also makes us good that we are in the future areas for development and also a steady growth on the service side and last but not least solid operating margin, you even can use another word a very good operating margin is 24 plus 1%.

Mining on rock conservation, ladies and gentlemen an order growth of 9%, so was a long time that we could say that, so we saw good development for underground equipment, so I'm pleased to see that and a solid development in the service growth, so from that point of view we're back in the black figures so that was great, hard work from all our collaborators but what makes me most proud is that we are back on tack on the operating profit, remember that yes the profitability in the beginning of the year, hard work really taking measures where we need to take measures. Then I would say congratulations to the team that is the way I believe we should be and I'm sure there are more to come in that area.

Construction technique also there solid growth of course we should know it was a bit of a softer quarter last year, so okay the plus 16 let's say makes interesting way, it was a good order income but if you look also to graph you see that Q4 last year was a bit weaker so the comparison was a bit easier to do. A solid part of compressor business so that's good, little bit tougher rental business and why is that, we all know the oil and gas which is a part of the rent market is still tough, we know about the Middle East, in Older Houston area, so that is areas where they normally do very well and that was a bit tougher, and that is also the reason why the profit is 13.9 and remember this is excluding the road construction, so that means also that the profitability is a bit higher here or should be higher and of course the reason why this only on that part is mainly from the rental business so to be right here the sales mix which makes it softer.

Then I'm coming to the overview of the figures and Hans Ola will from now on take over. Yes, I think I have mentioned the figures to see also here the operating profit going from 4.8 to - almost 5.8 so 1 billion more profit in the quarter, I'm very pleased to see that happen.

So from this Hans Ola.

Thank you. So just a few slides onwards then look a little bit at the numbers.

As usual we have seen the operating profit. We also have some financial costs and expenses and that was 167 million little bit less than last year.

The most important thing is normally what is to be expected and I think that roughly 200, 200 plus is what we think is normal run rate going forward on the financial items and you find them not on this slide as a number but the difference between operating profit and profit before tax of course. So somewhere a little bit north of 200 going forward is what we think is the run rate right now.

Then we also have a tax expenses, it's correlated to a little bit less than 25% in the fourth quarter. We had some positives compared to the recent quarter.

Here I would say and of course you see immediately that something was very strange last year, some of you will also remember as it’s said in the footnote that we had a very large tax provision, non-cash at that time, the tax provision last year at this in Q4 and you can also see that if we would adjust for that, the tax expense was just short of 900 million so it was actually a relatively less for that. The tax expense was just short of 900 million so it was actually a relatively low number last year.

I could say right away that I know that you have struggled to understand the reports this time because we have had that tax provision in last year. We have the discontinued operations this year so there are lots of numbers that is not easily seeing comparable with last year but we've tried to help you in this slide to show continuing operations and then we've the separation of the discontinued.

On earnings per share you see 349 is what is the quarter earnings per share but that's if we include the impairment for the sale of Dynapac, it will go down to 201 but that you can find back in the quarterly report and that makes it somewhat easier. I'll leave you with the stat on the tax expense.

I mentioned little bit short of 25% in Q4 what we expect going forward is somewhere in the region of 27%, again seeing as a sort of a normalized run rate right now. The other thing that has affected these numbers in this quarter is a favorable currency development in the market.

Ronnie alluded to it already stronger dollar relatively weak Swedish krona and that has helped the profit in this quarter by about MSEK500 million compared to the same situation a year ago. So currency in itself has helped with about MSEK500 million.

If we look in the same way for next quarter for Q1 in comparison with Q1 last year, we believe that that will again be somewhat of a similar positive bridge purely from currencies when you compare Q1 last year with Q1 this year. So these are the things on that I think we’ll go over and we look at what we called profit bridge is just a way to try to separate the one-time items in acquisitions effects and currency effect to the rest and there of course you see that the group for every revenue krona excluding currency and other things was generating almost half of that in operating profit, so a very strong flow through.

If we go to the next page, you can see it by business area and the same thing is shown here it's basically the similar in three business areas and the fourth one has very low numbers in it. So you can't make out a very good percentage of it but that's construction technique that has suffered quite a lot from a negative sales mix between last year and this year but the others all represent a strong flow through so that the revenue growth have really turned into profit in this quarter.

One of the main reasons is that we have seen orders start to come in better at the end of the year and then you get the better absorption in the factories, so without adding much cost you get higher revenue and that turns into a good profit development in the fourth quarter. On the balance sheet yes, it starts to become big numbers, 115 billion in total assets.

The only thing to mention really is that you see that we have made some acquisitions and that has turned into higher intangible assets at the top in other words goodwill but you also can see that the businesses have done very well when it comes to inventory management so in spite of the growth there is almost a flat development on the inventory. I’ll talk a little bit about that when we come to the next stage which is the cash flow and here again Ronnie mentioned $18 billion for the full-year and $6.5 billion in what we call operating cash flow.

It includes everything but acquisitions and dividend and this kind of things. So it's really a strong cash generation quarter.

I think that sums up some of the operational or financial comments that I had. So I'll hand it over – so we can do this together earnings and dividends.

I think you see what Hans Ola already said, if you take it fully included with the impairment we cannot do 1132 for the year - if we adjust that including what I say and then I think what I said before the proposal is 6.80 per share for the dividend.

I think that's the proposal so of course it's not decided yet but we have it as from today as the board. It is what it is.

So then we come to the most important sentence of this presentation where you see that we changed somewhat. So we said as expected to improve somewhat and what was the thinking behind that.

What I see or what we see is that there is good development in China if I take it back to year ago what was maybe a little bit more careful but we see good development in China for the semi flat screen, you see also demand for energy products that area is common, of course there is still headwind when we go to shipyards or steel plants all that but it really is an area which is turning and that’s turning in favor for all our products, for all our demand. Europe I'm slightly positive on Europe and the same is on U.S.

I'm not going to say that we’re jumping on the tables but if we take these three together, China, Europe and U.S. which is more or less 70% of all the sale that is slightly positive approach.

Of course we get a bit of headwind like I mentioned already there is large investments to oil and gas it's still tough and we have not seen really the quarters coming on that part so it’s still difficult shipyards and as I mentioned that is a bit difficult. If you take it from a segment semi flat screen demand for more energy efficient products is positive mining, okay.

You see our figures is it getting a little bit more positive okay, that's at least what we think. Of course I'm not talking about booming so don’t drift away and then what I said okay, on the oil and gas you don't see big orders but on the other hand you see the oil price a bit better if you see the statistics in Huston of the rigs used, yes, it gets a little bit more positive and that’s also what we see in our business and by this Hans Ola, I suggest we go for the questions.

So please, can you, the operator please repeat the procedure for the questions on the conference call please?

As usual, I look around the room that seems to be very few hands in the air for the moment, in that case we go straight to the first question on the conference call then.

Yes, hi Ronnie. Hi Hans Ola it's Klas from Citi.

A couple of questions please, first looking ahead and thinking about where the margin can go in mining and rock. Some suppliers in mining seem to be able to view that the margin can go back to previous peak levels even if volumes don’t recur as the cost cutting has been structural.

But then we have higher raw materials, pricing has been weak as in caterpillar. Yesterday you talked about the need to increase incentive compensation.

The doctor view is good right now, but shouldn’t it be incremental sale when growth returns as cost goes back. I struggle to see for you why the margin should return to the 24%, 25%.

So what -- only one question, okay. Yes okay how much -- of course by this may be we can first say what was the reason why the margin was so low and to start with that.

I think first I think we got in the agreement series under absorption we know that in some businesses the equipment sales drop by 60%, 70%. And then you have to make, take decisions what you do with your engineers, what you do with your facilities.

So we kept on that. So of course once you get little bit better absorption on your equipment of course that flow through, yes will be positive again that where it's, but on the other hand, when you sell more equipment, their profitability is not so high as you have that in your service business, so you get to know their mix effect.

But I think if volume develops like this and currencies because you should not forget currencies in countries like Australia, South Africa, Brazil which can also hit the little bit and when currencies are developing and we get a little bit more volume, I think we should get reasonable improvement on the other margin. Will it be 24, 25, I will take that question and I will put it forward next week to business of mining.

So I said they expect from you 24, 25 so next time Klas you should ask me that question again.

If I just add on a little bit Klas to your observation about the flow through, that’s also our view that if you have an improvement in the beginning as we have said many times now, you get the good absorption of the cost and then when its starts to become quarter-after-quarter of a somewhat sequential and continuous growth, our business model will show i.e. we don’t have a lot of fixed cost.

So we cannot have, we cannot expect to have a tremendous high flow through percentage in a normalized or over a period. So, that I agree with you then their volume in the next couple of years will decide how high the margin can come but that is of course impossible to say but I recognize what you say about the flow through that cannot be seen as a normal one going forward, no.

Of course the R&D and all that part, but okay you heard me saying, I’m pleased with the 20% so the two should be always be there in that business.

So now we're thinking of higher raw materials, pricing is still weak we served in mines, and always there need to pay your sales people. You haven’t paid them for a while I purpose to the certain extent you did at the peak so…

That's just because now I’m shooting may be myself in the foot, but I think when you go higher raw material prices, I think also normally that's also a good argument to increase prices for products. So one is supposed to the time compensating from that part because also when that means also our customers make more profit, a lot of things go a little bit easier.

Yes. All my second question is on pricing, so Cat has announced price increases as cost inflation is higher and we can see it in their numbers.

We can't see pricing moving higher up for you yet, are you moving prices in the markets or do you think that your asset like business model can cope with the cost pressures?

Yes of course, prices is always a better one and with the low inflation, environment is even more difficult, but we work on that. There is a slight positive price increase.

It's not as we used to have because okay you see also the inflation is much less than four but we all see the statistics on inflation, the way it is, so there is definitely more and more argumentation and justification for getting better prices. So I'm not so negative on that part.

My final one very brief on VT and the impact from currency, Hans Ola out of truth on moving in VT, how much was VT and how much was the impact from the weaker pound if you could?

Well there is a good positive effect on VT, but let's come back to specific numbers, when we have them reported as a separate business area, we will do that in Q1 Klas but of course you know that pound has developed in a certain way, they are strong in sales in Asia and also North America. So of course they have benefited.

Korean Won.

Yes and the Korean Won is also an important factor for them not so much for CT in that. So of course they have benefited more on that but without going into details.

Thank you, guys.

Yes thank you. Next question on conference call please.

Thank you. Could I please continue with the CT and vacuum bridge to open up the box a bit?

The compressor margin was slightly weaker than I expected on the other hand, the vacuum one was very strong. So could you help us maybe Hans Ola with the profit of vacuum to begin and also explain a bit on the pure compressor side what valued at profitability mix or simply the leverage was weaker.

Yes I understood but I repeat again, I cannot go into details of the profit bridge since we don’t have reported numbers per VT and CT. Let's come back to that, but as I said to Klas before, they have a stronger positive help from currency in the numbers and it's also important to make that perhaps I should have made it immediately that the compressor technique business area in this quarter reported a MSEK50 million positive from a release of pension provisions and some negatives from restructuring, both these two items were in vacuum technique.

So of course the numbers you see on the website for vacuum technique are somewhat inflated by that and you can make out how much. So it's not that CT had the positive and the vacuum the negative effect and so on.

It was both in vacuum technique, but I think on the qualification of what you said a little bit lower margin than expected on CT, I'll let Ronnie explain a little bit and comment that.

Yes of course Peder when you look to figures are the figures, but when I look them by business line or divisions as we call them, I think they are the service businesses are the good solid profit but the industrial compressors good profitability, our medical business at the same level where we get a little bit, headwind it's mainly on the gas and process business and there we have low volume and we're also taking some cost, which we have not reported separately as restructuring, but we're cleaning at the same time as we do restructuring also cleaning certain areas because okay that makes it again stronger for the future. And that is what if you and is best thing that you guys spotted that that is one of the reason and then we had a bit of transaction cost from here and there that from certain small acquisitions, which may be brought it, but if I really look to it I’m not at all disappointed with profitability level of CT, there is nothing to worry about.

Nothing.

That’s great certification. That’s where I expected.

You mentioned service growth across the board, could you help us a bit about the growth level of service for the entire company on organic level and also to Hans Ola if I may, inventory sales continue to come down, inventory is flat. We have seen that, that over development for some time now of the inflation in the markets expansion up to the 2008, what would you say would be a correct inventory to sales ratio for the new Atlas Copco.

Yes, and that last one I would also take Peter because actually we take that because that's a management question that you ask, but on service it is safe to say a mid single digit development may be on that part you should put yourself and being get part of the figures by the comma in my head but it was that level you should really take into account and…

Not 5%.

No, no a little bit lower bit on the spend in mid 5%. Then on the inventory what we have really have been doing over the last two, three years as you see our networking capital of course is not always easy when you get the acquisitions, but we have really -- and you see in the case growth there you can see it.

You see that we have been able to reduce our networking capital I think and that is mainly on the inventory side where we have done good development. So in most of the business areas also in MR.

So, I’m very pleased. I believe there is still more to take and that’s the reason I want to say that and then I think we have did the payables where we also have worked hard till the last two, three years and we had good success.

On the receivables its more less at the same level and the quality of the receivables is also a little bit improved. So from that total, the networking capital is a better quality and it’s a bit lower than if we take it over the two, three years but I believe now summarize '17 that we still can do, more.

So that they still can cash out of the networking capital, that’s my belief.

I'll get back in line with more questions. Thank you.

Thank you.

Thank you. Next question please.

Yes, thank you. Hi, Ronnie.

Hi Hans Ola. Just coming back to Vacuum margin, which I think a lot of people are focused on, can you just say how much labeled contributes in the quarter in terms of the EBIT or the EBIT margin that is currently running at, I guess pre-imposed PPI of that makes a difference.

Thank you.

You'll remember since the acquisition, we have indicated that including the PPA, which is actually what is affecting the number you see, we are running at the mid-single digit type of profitability and that because it can be slightly different between one quarter and another I’m not referring exactly to the fourth quarter then, but something of that nature. And then we have ambitions of course gradually as the business grows that also the profitability comes up to the levels that we have indicated before, but whatever way you count, whatever numbers you make without having them from me you come to a very strong advert, let’s call it or vacuum technique without Leybold and CSK acquisitions was a very strong and that comes back to what we said before.

This very strong topline development has given quite a lot of flow through or profitability in this space, where the growth is there. We're sometimes surprised how you can ramp up capacities in that short period of time as they have been able to do.

So, you have the numbers on the website for VT margins and you see that they are at this point in time higher than CT, even though we report them here as one business area for the time being. But again, it’s A, it’s a little bit helped by this net items effecting and then in spite of the dilution from Leybold, they are at that high level.

So that’s an impressive number in the fourth quarter.

And on Leybold, Ben, I think you should, you heard what Hans Ola said on the margin. And of course we have the plan which is in place to -- at the strategic plan to bring it to a good profitability level.

Which are the restructuring level….

Which is what Hans Ola hint into and that will take us two to three years because its moving of operations, you see here is investing there. That is taking place now as I am speaking up.

Thank you. And then maybe just following up on Vacuum, there is very strong momentum in those markets at the movement, industry peers have said it looks good going forward, but what do you say in terms, you got a very high base coming into 2017 in terms of orders, what scope do you see to still grow of that base this year?

Thank you.

Yes, good question. If we take the horizon we have which is three to six months, more or less and that is talking to the TCMCs, Intel’s and the Samsung of this world, the guys who are really have the day-by-day compact are still positive.

So, the high space like you said I think they don’t talk down. They don’t talk it up in the same magnitude as we're headed, but they continue to be positive.

Also, the flat screen investments is also up. There is momentum.

So that’s mainly also in China as you know. So that’s good investments.

You've not heard me and I’ve said it even in my outlook when I said to expect to be somewhat higher, is taken into account that we expect that semi-flat screen and everything around that keeps, keeps that level.

And that’s as always of course in the near-term outlook, when it comes to your question on full 2017, we don’t have that visibility yet. And we will have to come back then on that one.

And you maybe -- you should wonder how can they accelerate on this spectrum business so quickly. Because they didn’t hint to that and that was for me also a lesson I learnt this quarter how many -- of how the agility is working our organization and if you take like in Korea I learnt that you have Monday, Tuesday, Wednesday, Thursday, Friday, Friday, Friday.

So ….

Then Monday.

And then Monday. So they go on and that means that you suddenly you can increase your capacity with 40%.

And that’s the way it works in that country. And that’s also the way Samsung and TCMC expect you today.

So that is top of agility which I must say I learnt last quarter.

Got it. Thanks very much and have a nice weekend.

Thank you. It’s not London, Friday, Friday, Friday.

Can we have another question from the telephone line?

Yes, good afternoon, Ronnie and Hans Ola. Some of my question has been answered, may just a follow-up on your capacity question, and answer on Vacuum business particularly on the semi side, is there further room to go?

Are you thinking about proper capacity expansion in that business and if you look back Edwards seems to be above 30% EBIT margins now, how does that compare to where it was historically at times when we had kind of this boom in sales growth and how much of the improvement may be structural also in terms of the downsize cyclicality because historically Edwards could go from a very high margin to a very low margin very quickly. What have you changed in the way that its run in terms of making those very high margins more sustainable.

I think when you look to Edwards and I think also that process was already started before Atlas Copco acquired. They have done really revamping or start to revamping of the whole supply chain and made it much more agile, much more fit for this agility which is required in this world.

And that what we have done is even we took on that and we even, yes started to improve that like we said there is always a better way and that was my saying and there is the Friday, Friday, Friday, Monday what you see and also to set up to organize like that to also make sure your supply chain is ready for that, that you can boost your capacity up and down also, so that you have cost agility and capacity agility and that I think we have improved in other part what we have gradually improved is also to work further on the resilience. We're there yet where I feel confident or feel satisfied, no.

I think there is definitely more what we can do on the resilient bond. So, when you look then to the profitability what you said 30% of course there is some extras in which may be should take out to make it, it is a -- I think it can compete from a profitability point if you were the traditional CT.

So that is also where we position it, now to date semi is a bit higher, higher capacity but we also get the hit from labeled but as we go we will always get some good summers and bad winters in the business. So I think that we can and that’s up I think I positioned myself, I think is a lookalike of the CT business.

And in that resilience strategies of course growing the service business, which is happening as we speak. So hopefully that is also something that will help us in the next cycle.

Yes, but you cannot compare Andreas, I think say the Edwards of six, seven years ago is not the same Edwards as we have today. So you should take the Edwards of the last three, four years.

And the follow up question quickly on U.S. import, exports is the any mismatch from your side that you see in terms of a local production versus imports and exports and how you could benefit from a potential tax reform you pay a perhaps the high tax rate in the U.S.

and could get a benefit there.

Yes, I think that for my selves also because we are today the board meeting and I felt that I’m for sure that question I’ve got also in the board I think for me when something happens they were two entrance I took is a changing our competitive landscape so my other words are the competitors in compress in vacuum, into tools, in the mining do they have the more favorable American content no for most not that yet it more less we play more less same so if something happen every competitor has the same pain or the same favorites. Then I think the second one of course when you get in produce or whatever to barriers or roads or whatever and you have to pay for it, yes you get a higher cost and its always a bit of, yes liking time before you can increase surprises so, that could hit the profitability in that case so that’s the way I came to the conclusion when I made an analysis they have a couple of my collaborative around that.

So competitiveness I don’t see big different because we also produce in U.S. We have several factories price, yes if you get a higher cost that’s again that’s also the same for everybody.

So no big drama.

No big drama. And let's hope it doesn’t happen.

Thanks Andreas. Thank you.

Next question please.

Thank you. Good afternoon, Ronnie.

Good afternoon, Hans Ola. Just a couple of follow-ups really.

One is regarding under absorption and under the utilization debate, I guess now you are -- this year before and especially mining and I was wondering whether you could share with us the utilization levels, utilization rate levels of your plans if you could and then I have a follow-up later on.

I would love to do that, but I don’t have that like that because we don’t measure. I don’t follow with up indeed because the factory managers followed it up, but I don’t have any aggregate level on that one.

I can tell you that we still have capacity to increase, the orders can come. So especially on the mining side, although we look we said, okay it's positive.

We have good increase now relative on the mining side, but still the magnitude of the equipment is not from that capacity -- that level that the capacity suddenly becomes under. But that is still under observation you can take it and that goes back to the question I think it was last asked about the margin.

There is still, yes, room for, yes.

Yes, I understood. I wanted to ask how much room?

I don’t know. I don’t calculate it like that whenever.

Of course what we do Hans Ola and I we look to the profitability on the equipment side and the profitability on the service side and that is what we get.

And then follow-up is maybe follow-up on class, but is price if sequentially rather than year-over-year, and you say with us whether you are trying to or you have seen an improvement on the pricing sense sequentially rather than year-over year, have you seen any willing next to from your customers maybe higher tickets from some of your new products?

Yes there is -- first when you come to price you should make this difference between service pricing and equipment pricing. Service pricing it goes a bit the inflation which helps you and then of course the new contracts where you have to position you and see okay where is the competitiveness.

So there okay, you have to say every year bit of negotiation to see what is the labor content, how much labor increase, you have labor cost increase, you have -- that is never be and big ones especially when there is no big inflation. When it comes to products, I think you know our products and our customers are not buying every day.

So these products which we brought in 2012 and you buy a new one in 2017 they are not comparable. So it's again a new offer and what we try is when we have a new design is always to create more value for the customers what we call boost benefits for your customer.

And on the other hand, you try to get part of their more value for the customer that we call boost benefits for your customer and on the other hand you try to get a part of that benefit you try benefit you try to get that. So that is the way it works and then you come in competitiveness.

Is it really going all to see it because we really brought even zero, but it's not negative and that is roughly we watch. We had several discussions internally, it's maybe now that time to work a bit on that part.

But this is also again different in every and it maybe 20 minutes, maybe 20 minutes to explain you what business is doing great, which is bit less than -- maybe next time when the ask the question again then I will explain you a bit.

Thank you very much.

Thank you. More questions, we have I know.

Yes, good afternoon. Thanks for taking my questions.

Firstly, Hans Ola if you could just come back to us, maybe if you haven't got the figure now, but the PPA charge I think, it was $924 million in 2015, if you could give us an idea of what it was in 2016 and what perhaps the run rate going forward will be. The second question is around the plus 4% organic orders in compressor technique on its own excluding vacuum and the comments you made around gas and process in the text is quite positive actually in terms of improvements in the first half - over year or so it's been positive and you're starting the Middle East as well which is surprising but given that's a swing in the profitability of the underlying compressor technique margins perhaps you could give us an idea of what that may mean in terms of improvement into next year.

And just finally around the vacuum technique margin, so was it right if I understood what you're saying, is the restructuring and the net of the provision of the pension change or positive number there was plus 50 and that's all in the vacuum technique EBIT number, which was 1131 on the website so that was only 1081.

That's correct, it was all in VT.

Okay. But there was some more charges separately and it is better technique, I think you indicated as well.

Yes well there is always in every quarter - as Ronnie has commented many, many times that we do things on a continuous basis to try to prepare for whatever downturn in the future or better efficiency or anything. So these type of things are always more or less in the numbers.

And it's through also this quarter let's put it that way.

Yes, sometimes a little bit more than ours.

Sometimes a little bit more than ours.

And that is a bit what I was alluding in the previous question when it was CT, when I said yes, I think most divisions are gauged except gas and process which is tough on volume levels, so lower absorption but on top of that we're doing a bit more of cleaning up to do that. And to answer your orders, you spotted right, I think the quarter-on-quarter it has improved but still at a low level and that is what I was hinting and of course you see that then because sometimes these orders are in China, some of these orders are in U.S.

because they are so low, if you get one, yes. It makes a difference in that quarter and that region and this time it was in the Middle East.

Is there anything specifically around immediate end markets for that because things have improved from the label?

I'm not at all on that camp - this has improved because there of course - there always some business that it’s specific that business where we are I don’t see yet really light you see that as the oil and gas and if you talk to the shareholder guys and the stepped all people, you would see okay there is still in there shrinking moves and really very careful that means also of course there is not much money for the contractors. Of course on the other hand oil price is more positive, the utilization of the rigs is a little bit higher, yes there will something coming of course we never know because there are good indicators but I have seen that yet.

And if you see the comparison because you say, yes, but it’s positive yes I think last year it was even worse.

I mean industrial compresses was down in the U.S. and gain what everything was going on there do you feel that mood is changed in that particular area at all.

Yes, I'm on the industrial compresses, say because this positive I don't want to prove it up here. I think it's good development in China, as good development in Europe and as good development in U.S.

and even with the things for this happening think it's a good development there.

And then just planning for PPA.

Yes, I you are absolutely right and your assumption that I don’t have it my - so I take note and I will give you whatever I can say otherwise it will be in the annual report of course but we can come back to you on that.

Okay. Thank you.

Yes we can still have few more questions. Let's take two more questions and then we will have to wrap it up.

Yes hi, Markus Almerud here, just a couple of quick ones. First of all you are right that Africa Middle East did not see increase in buying equipment, is that a sign that both copper and gold which is Middle East Africa is weak and are there any commodities where you see stronger growth in others or it's just a question here of orders being very low and just the couple of more - just swings lot, first question please.

Yes I think you're already giving the answer. Yes I think that is for Middle East Africa, I think we had a very year-on-year a soft development, it may primarily in South Africa because that is the biggest part of course you can see a bit on Tanzania side but that it was soft there, I think what makes the difference and why is it around copper, zinc that is where you see investments coming on now.

That is and when we talk about the plus on the mining side these are the two commodities which drives this.

And then I just wanted to ask you about follow onto the previous question about industrial compressors, you just talk about industrial products in general, do you see the same kind of trends and if you could tell little bit what you saw sequential in North America in particular throughout the quarter was any increasing strength for industrial products in general or is it flattish but there is at a mood if it more talk do you actually see the numbers and this accelerate throughout the quarters?

Definitely the mood is positive to say about our guys from a business point of view, the mood is there is slight positive on that area. I think there is good, yes I think it's of course you cannot expect in that business that it goes more than double-digit but it's positive.

I'm, like I said also when I was elaborating on the outlook but I mentioned really U.S. and I mentioned U.S.

didn’t talk about North America say U.S. that is but I hear from our people let's say the feet in the street, they are positive.

Thank you.

Thanks a lot. And then we have a final question or we have to stop.

Hi Ronnie, Hans Ola thanks. I will keep it to one and then may be as a quick follow up, just on mining I mean you’ve given us a year-over-year order trends to mining segments for the last five years and now for consumables you’ve taken out and replaced with the revenue trend I wasn’t too pleased about that.

Can you help me with the year-over-year order trend in consumables in Q4 and more generally on consumables how is gold price volatility impact and that part of your business and taken from your somewhat more cautious outlook as how that like Ronnie on mining and how should we think about the shorter cycle business here going into 2017. Thanks.

On your - it's more that when it comes to recurring revenues like consumables and service normally there is not the difference between orders and revenue. It’s not where we have large orders on hand that it starts between one quarter and another so don’t read too much into it, it perhaps just a slip of the pen almost so, it’s been as we have said for the last two quarters I think that consumables have come back and we’ve done better than in the previous year’s then in the single quarter like Q4, yes it doesn't necessarily have to match that trend every quarter but we have seen the slightly positive trend in the last half year or something.

Yes, you can count in that large consumable set it’s a positive trend on the consumables and…

If I exclude FX sorry one but if exclude - order intake was down sequentially and I’m trying to understand what it is sequentially is that is not improving for that -

You need to take them seasonality in here and there so. If I see how effective is the utilization of our factories the utilization of our factories if I just take that one, its significant growth of hires got to say, it is a positive trend Lars but for me that is also what make me saying because it’s a little bit of quality check for me when I see all in coming in mining and see the service doing well whether my next question is always whether as our consumables doing and that is - that has a positive trend.

Okay, thanks guys.

So with that I thank everybody for participating and wish you a very nice weekend. I hope to hear and see you back after the first quarter release which will be on the 26 of April if I’m not completely wrong.

So thanks for attending today. Bye, bye.