Good afternoon, good day, and good morning, everybody, to this conference on the release of the third quarter results of Atlas Copco Group. Here in Nacka, in the Atlas Copco mine, we have some people, but I am also happy to welcome all of you participating on the telephone conference. We will kick off in just a few seconds, as we normally do, with a few comments on the quarterly report by Ronnie Leten, our Chief Executive Officer. We will quickly move over to Q&A after 20 minutes or something like that. I will come back with some instructions and comments before we go into the Q&A session later on. With that, very welcome once again, I hand over to you, Ron.
Thank you. Thank you, Hans Ola, welcome all of you. Good afternoon, good morning. I will go as usually, first through the slides, I will immediately go to slide number 3, when we talk about the highlights or the Q3 in brief. I think it was a solid quarter. Of course, we all know it can always be better. I think if we look to the figures and talk about what we have seen, is a good growth for industrial tool business and also the small to medium-size industrial compressors did reasonable well.
Another part that is always nice when you do an acquisition and you see it happening as it happens now, when it comes to the vacuum with Edwards acquisition, we are doing very well in that area in terms of top line and also in terms of bottom line and I will say also in terms of integration. From that point, from the industrial part, a good improved demand. Mining, remember what I said last time, I was maybe a little bit more positive when you compare myself with quarter 1 and quarter 2. When I said in quarter 2, I say, okay, flat positive. I think I will repeat that. I think it is more or less unchanged, the mining equipment. We get orders. We are on a certain level, but it is not that it is really creeping or pushing up but we always, of course, hold hope.
I will talk later when we talk about mining rock excavation. Service, it keeps going, developing well, when I was looking and preparing my presentation here, I looked a little bit in history, I think if you take over the last 15 years, it is maybe the exception in 2009 when we had a drop, for the rest, we constantly had a good development on service. We also know that is also a nice contributor to the bottom line. Strong North America. I am also sure not a surprise for any one of you. A weak Asia, mainly it is then I am talking here about China and about India, which are the biggest countries. We had record revenue and solid or strong operation cash flow. I think in brief, like I start, a solid quarter.
One thing what maybe should have been here also is that we had a new acquisition, Henrob, for self-pierce riveting. I think that's also an exciting business we are going in and Henrob is market leader in that new technology, and we'll see what it brings in the years to come. If we then go to the next slide and talk about the figures. 20% up on orders received, of course, and Hans Ola will talk later about that. The currency, this time, we are on the right side of the currency with the weakening of the EUR and the weakening of the krona, so it has really helped us. Organic growth, 2%. If we take the currency away, we are around 14% growth that we have. With acquisition and organic together. Profit. The real profit was SEK 4.1 billion.
Of course, we have done some impairment for some assets, restructuring cost, closing of a plant which we announced a little bit earlier, Quincy, U.S., and a couple other points when it comes to option plan. In total, we had a one-time, which is for us, as Atlas Copco, a rather big one. That's also the reason why we report it as we report it here. Adjusted margin 19.5%, reported 17.6%. The rest, I think you can read as it's here, straightforward figures. Geographically, let me start with Europe, even without Edwards, because that's the ones I will comment, because I think otherwise it will be very difficult to make a good conclusion for you. A solid Europe. We saw in all the markets where we are, let's say almost all countries came up with a good development.
I'm not talking here that we're growing double digits, otherwise you will not come to +5%, but a real positive figure. Even in Russia, we had a positive figure. Of course, we know what will happen in Russia. Who knows? We are there and following up the situation every day. For the time being, it's business as usual. If I then go to Asia, and you see -8%, I have already said it in the beginning, a weak China, a weak India. The big tickets, which is mainly a China story, I think it's not there. You see it's difficult also on the mining side. It is softer there. What is good if I talk now about China, is Industrial Technique.
I think on the tools business, the MDI, the train business, the transport, aerospace, I think these are areas that are going good. The small to medium size compressors are okay. That works fine. But yeah, a negative, no one likes to report a negative growth on that. In India, we'll see. Now with the new government and a lot of plans, there's a lot of hope. I have not seen it yet. Sometimes we are allowed to hope for better weather. Let's see that it comes out. If I then go to Australia, mining, of course, then you get a positive part, so that is good. Also in these figures, we should also remember that we did an acquisition, Ash Air, in New Zealand, which also made the figures a little bit better.
Otherwise, it would have more or less flat, I think, when it comes to Australia, which is mainly mining part. I go to the Americas, North America, I've already said, a very solid North America, a +15%. Of course, in all the businesses what we are doing, when we talk construction, when we talk about compressors, mining, it's all positive. That makes us report in this very strong development. In South America, you see also +18%. I should say, of course, last year around the same quarter, we had a cancellation, the comparison is a little bit easy. I think on Brazil, it's more or less flat. We know also how that business today is under supervision.
The countries like Chile and Peru, when it comes to mining, they have done very well and made this figure up. I go to organic growth, you see small organic growth. Second quarter in a row. I think we should prepare ourselves also that we cannot expect, of course you always hope, but you don't hope in business, that you have a +15%, a +20% organic growth in our business. If I see the world, if I read what's going on now, I don't expect that one. I think we should really calibrate them to a solid growth, not when it comes to organic, not double digits. Sales bridge, not much to say. You see I mentioned that it was 14% when you look at growth the price volume.
Our innovation that we are constantly working on, coming with new products, support our pricing. Even in tougher periods, we are able to keep it up, volume is slightly up. Of course, currency, as I mentioned, +6%. I would like to go immediately to Compressor Technique on the business areas, where are we there? A robust demand for small to medium-sized machines, compressors, I think they have done very well. Still is difficult for the larger machines, the big turbo machines, if we can talk like that, also the big screw machines. I think that's the softer market. Again, a lot has to do with Asia. That's the softer market. Service keeps going on. Also our investment in that area of our business is yielding results. Edwards, I have already mentioned it, keep going solid.
I mentioned also New Zealand, that we have been able to close the acquisition from Ash Air. I'm very pleased that we have this distributor in the Atlas Copco family. The result adjusted with the change of the closing with it for the factory in U.S., I think it's coming to close to 23, 22.7, a very close 23. Which I believe is, given where we are in the mix, I think is a good evolution. What I'm wanting to say with that, I think you can ask questions later on that part. Industrial Technique, solid. It keeps growing. You see it also when you look to the graph. We constantly report good organic growth. The work we are doing, the strategic work on investing in presence, investing in innovation, to add-ons in technology via acquisitions, it works.
Even in Asia, that's the reason also we put it on. Henrob, I mentioned already, self-pierce riveting. That's an exciting area, and you see a picture of that, of one of the tools which are used. Then the operating margin is at that solid level where we more or less escalate. A very good Industrial Technique in the quarter. Mining and Rock Excavation Technique, something else, like I said, unchanged for the mining equipment. A bit mixed. You see lower Asia, Africa, Middle East, but then again, South America, North America, solid. Made it more or less an unchanged demand, but lot of swings. That I think is important, we see service really picking up again. That is always nice to see, and also stable orders for production consumables.
That's an area which we like to see, and also that is where we have strategically also put ourselves. There we felt that we could be the market leader, we could really gain presence, and that we have been over the last five, six years invest developing that, and it's good to see that it also works even in tougher times. Yeah. The impairment we did on some assets. The majority of the impairment is on the mobile crushing part, an acquisition we did a couple of years back. But we see that the value what we have in the books is not found back in the real business, we felt that it's time to calibrate that, it's done now. That means adjusted, we come up to an 18.5%. Is it where we really will be under the next coming quarters?
I hope that it will be a bit better. That's an area where we are working hard. I think the organization is taking good measures, and if we can really work hard and getting the service and the consumables up and running, then I think it will be better than 18.5%. Construction Technique, good growth in road construction, although we know the seasonality of this business. Also good in construction and demolition tools. That I think it's good. And a pity a bit for the construction business there, that the large portable compressors, so the dual-axle, so the one you can see there, the 20-foot container compressors, almost. That is a soft market. I think that's also a market where we are strong, where we had a good position. Unfortunately, that is an end market which is at today soft.
Good development for Specialty Rental, I think we have really put ourselves at a good place there, so that's good. The operating margin is a bit negative affected by the product mix, and I hinted already, I think it's mainly also to the large portable compressors, which is a better business than, say, road construction equipment. That means that you get a bit of negative mix. And we have a new leader there, Andrew Walker. For those who are following us since long, maybe also have seen that name popping up. I think Andrew was, until a month ago, head of the CTS, so Compressor Technique Service division. He was heading that. And he is a person who is more than 27 years with Atlas Copco. And has seen the world, has seen the products, and it's really gone through the whole school.
I'm really looking forward to the results of Andrew. On the group total, the profitability, before I hand over to Hans Ola. Of course, here we have the result as it is. If you exclude the one time, you will see that the 20.5% is comparable with 19.5% when we talk about operating profit. What is the difference? If I now take very rough, the 1%, because the Edwards acquisition brings it down with around 0.8%. We have mining, which brings it down for another 1%, and we have a positive part on the currency. You can say at the end, the difference is the mining and rock excavation, which make the 1%. If we can get there back to the group levels which we used to be, I think I'm sure also we are at a higher level on the operating profit.
By this, Hans Ola, I suggest you take over.
I'll use that one, and just continue down on the same slide, actually, with a few comments, as we normally do. Between operating profit and profit before tax, we have the financial items, and as you could see in the report nothing spectacular on the interest, but we had some extra financial exchange differences, which were related to some revaluations of a one-time character. That will hopefully not be repeated going forward. SEK 180 million negative was the interest net, and looking forward, knowing that we have made a new acquisition in the third quarter, somewhere in the region of SEK 200 plus million, perhaps, is a good estimate for the next couple of quarters. A little bit more interest cost than what we have seen in this. We look at the tax rate, which is not on the slide, but it's hidden there.
We had a little bit higher than expected, 25.8% in the quarter. That was also due to some corrections related to some deferred tax calculations that I don't foresee will be such a big impact going forward. Definitely, we expect this to be below 25% as we have talked about before going forward, also there. The impact on the earnings per share, by the way, of the items affecting comparability of the one time is about SEK 0.30 roughly. That you can see that comparative. No, it's not there, is it? No, there is good. This one is, as Ronnie already talked about, I don't think it gives you very much extra information apart from the currency impact.
If you look at the flow through, which we try to comment on the volume, price, and mix, and as it looks very strange, let's see a little bit what can be commented, why it looks like that by looking at the various business areas. If we start with Compressor Technique, those with a good memory know that for two quarters in a row, we've actually had a negative flow through. Our revenue has been growing slightly in Compressor Technique, but the profit hasn't been growing. This time it does, and I think we're heading towards what would be a more normalized situation of a flow-through if we have a revenue growth of this magnitude, perhaps somewhere in the region of 20%-25% is really what we normally would expect. It's coming.
On the Industrial Technique, the flow through, the 18%, how much the adjusted revenue is giving in profit, is also a little bit shy from normal ratios, perhaps. They are in a growth mode, and they are putting a lot of new presence, a lot of new capacity in the market all around the world, and also on the product development side. Mining and Rock Excavation are the big numbers. We've commented a couple of quarters about the revenue drop, and you see it in the bridge. That's nothing new. When it comes to the rather big negative flow through, that half 50% of the revenue drop flows down to operating profit, I would say there are a couple of comments that needs to be made, perhaps.
I don't think that we should look at it as that there is a lot more to do on pure adjustment of the capacity to these levels of revenue. There is certainly some efficiency measures continuing to be adapted, and those costs are to get those efficiencies, these are still going on, as we have said before. We are also, as you can appreciate when we talk about the working capital later, we're also reducing the inventory in this business area, and that puts a little bit of a pressure extra on the under absorption. The production levels are not working at full speed, even for the normalized revenue or the current revenue level. There are a couple of things that I think is relevant to comment on the flow through of MR in mining. Finally, Construction Technique.
Jaap and Ronnie talked about it, that they have a very negative sales mix performance. They have had a low service quarter in North America, but particularly also the low demand for large compressors, and that's a profitable product, and that is not helping. That's why it looks a little bit extra serious on that one, but I think it's really related to that negative sales mix performance. If I continue on to the balance sheet, there are some big numbers if you compare with the beginning of the year. Of course, you have to realize that we have made the Edwards acquisition, and we have made Henrob acquisition in the third quarter, and in between, a lot of small acquisitions, of course. That's the reason why the intangible assets are increasing so much, and about SEK 4 billion only in the third quarter.
That affects also some other lines in the balance sheet. On the inventory and receivables, which is significant portion of our balance sheet, the way we are working in Atlas Copco, it also looks like a very sharp increase, naturally also driven a little bit by the acquisitions. In the quarter, if we talk about third quarter, the inventories as such, in volume, excluding currency translation and acquisitions, was a release of about SEK 900 million. The inventory went down like for like. Also, receivables were slightly lower in the third quarter. We also are reducing the amount of purchases to the production, so we lose a little bit on the payables.
All in all, those effects on the working capital, sorry, we can see in the cash flow. As you can see, lots of changes underneath the big numbers, but you can see line by line that there is not a lot of difference between the two years, the third quarter. Exactly for this line where we last year were consuming capital, the working capital, and this year we are releasing capital, and that floats down to the operating cash flow difference of SEK 1.5 billion. SEK 3.9 billion is a good quarter, strong cash flow. It ranks among the top two, top three quarters in Atlas Copco History. It's very nice to see that development. I'll stop there, and I'll leave it to you, Ronnie, to take the last one.
The most sophisticated sentence. If we take it on the near-term outlook, of course you can read the sentence. Why did I put it on, again, expected to increase somewhat? I still see a good development on the industrial side. That is an area where we see momentum coming. Also on the service side, that's good. Mining, although, of course, people expect always more, but I think it's definitely not falling off the cliff. It really is. It's getting robust at a lower level when we look back 2011, 2012, but it's a good start. Of course, we are all influenced when you start to write down by the volatility in the market, especially when it comes to the financial market.
On the other hand, I think I should make my analysis on the figures I'm seeing and I'm hearing, and not really what are on the ground. That is the reason why we said that we expected to increase somewhat. I think Atlas has a lot of potential. We are present in many, if it's not in 180 countries, I think we have fantastic products. I think we have eager troops, and I think when you then see also this demand, there is still somewhat in the market, you can say. By this suggest we take this with that.
Thank you, Ronnie. We move over to the questions, both from the telephone conference and here in Nacka, of course. Can I just ask the operator to repeat the procedures for the question, please?
As a reminder, it is zero one on your telephone keypad if you want to ask a question. Zero one.
Excellent. Then I think we start here in the audience. We have two questions here. I start with Guillermo.
Hi, good afternoon. It is Guillermo Peigneux from UBS. One question and one follow-up. Regarding the outlook statement, can you give a bit of color as to the regions? How the regions they look like on that demand outlook statement, and also in terms of end markets, as you in the past actually gave some view on mining. How does the world look like in Q4 by divisions as well?
I think if you look a little bit to the different slides, that when it comes to geographically, when you see North and South America, I still believe there is still good momentum. Also on the mining side, you see Chile, Peru, even some projects in Brazil. I think it's coming nicely. If you take North America, of course, that's more the industrial part. We talk about automotive, aerospace, and many end markets where you use compressors. You see that. semicon, if I take that one now, I should not forget to say that. That is an area in that region which do well. I've seen over the last couple of months also Europe, and of course it's not always easy, July always to interpret because you need to look a bit because it's a holiday period in Europe.
If I listen in the market, people are not so negative. Of course, another one, of course, see what will happen with the EUR now. Will it bring something? Okay, I will see. Also, another part is Russia. Remember a couple of months ago, we were all nervous. Has that been cooled down? Let's hope that we come again to a normal business part. On Europe, actually, of course, I'm not really over-enthusiastic, but I'm not talking it down. Asia, that means India. When you travel to India now and you talk to the people and about the new government, everybody is over-enthusiastic, but let's see. Let's first see the orders, the real orders, not the quotation level. There is a lot of activity going on, but let's see that we're working.
On China, In China, there are a couple of segments which are doing very well. That's also where we are in. If you see Industrial Technique and Asia, China, automotive, I think there's a lot of projects going on. A lot of projects going. From that point of view, what I see is a bit weaker in China is the mining side. Because prices going down, what do they do? Less money available for investment, and we see that also that's going down. If I take that all in the equation, Increased somewhat. I'm not going to emphasize the increase. It increased somewhat. What I said last time when it comes to the mining, flat positive. I put emphasis on flat.
I'm going to follow up just on pricing, mining, 1% and obviously at the moment your volumes in terms of new equipment or equipment CapEx orders is going down significantly. I just wonder, that 1%, can you give us details on how much is price and how much is mix? Or in a way, has equipment for pricing eroded and deteriorated now is actually zero, minus 1?
I think if you take the South American, the American market, I think it has not much eroded. When you go more to the China area, or you go to some specific markets here and there, you can have a bit of battles going on. It's not fallen off the cliff. That not. Again, I think it is, and I explained it a couple of times, when the pricing and mining and on equipment. First, to correct what you say on the equipment that we see over the last five, six months, I think it has really more or less the same level, maybe a little bit up even on equipment. This is a lot to do with underground, and these are very specific machines. I think they keep and then very sophisticated machines. Most of them also tailor-made with long-standing customers.
This goes about productivity, and we don't sell a box there. From that point of view, price setting is, you're a little bit defended by that. You have a shelter on that one. It's not that. Also we had a time, I remember a year or it was even longer, when in service, everybody was on service will fell on pricing and the prices will go down all that. Of course, it happened, these discussions. You see it's normalized again. All mines strive for efficiency. That's heaven on earth for us. Don't like more than that.
Thank you, Ronnie. Thank you.
One more question here in Nacka.
Yeah. Anders Jörsling, Swedbank. It's a very split picture when you look at the order intake. Strong in Compressor Technique and strong in Industrial Technique and weak in Mining and Construction. What is market growth and what is your own initiatives? Is it something or is it just different markets?
I think when it comes to CP and IP, you compare on Mining, that's different, totally different markets. Of course, when you analyze IP, you have a couple end markets will do very well. Is semicon, a lot of assembly tools needed, also a lot of chips and then we need vacuum. We can later on that. Motor vehicle, I think the tooling up, they read the new models and also a bit challenging for the car builders because the cars have to be lighter, better. That is, yeah, we have the right product. That for sure helped. I think there is tailwind and we are there. Then aerospace. Don't underestimate the Airbuses and the Boeings of this world. They do fantastic. These are the area.
Of course, in that area when it comes to wind, you also have investment in China about railway. I think that is also what helps for Compressor Technique like brake compressors for trains. That's also a market where we're in. This is where we get the repeating orders. That's the end markets we are doing very well. Mining, yeah, you said of course it's soft. We all compare with and the internal benchmark is always a perfect benchmark, right? 2011, 2012, when we were at SEK 9 billion, now at SEK 6 billion. It's lower. I have to take that. I don't If I see today, I think it is stabilizing on that level. I think what's important for us is, of course, adapt our suit in that area. That's what we have been doing.
On the other hand, you see also that especially in underground, all the mines need to buy new machines or need to do a midlife upgrade. Because this is, you can keep going on and postponing it for one, two, three years, but on the other hand, you've come to replacement markets. That is, I think, when I'm talking to different mine managers and CEOs of mine, you see that they also realize that, and that's also what we see in our service that we get that. Is it so in Mining self-help that you suddenly take more market share than some of our colleagues? No. I think it doesn't go like that. I think we take on the service, and that is what I hope the guys do internally, we take market share from our customer.
We make a good proposal that we do the service. Really, that there are big shifts on that. On Construction Technique. The only negative part of Construction Technique, and of course, unfortunately, it's a big part, is the dual-axle portable compressors. It's a big ticket. It's a good business. It is a profitable business. You have heard Hans Ola when he was explaining the flow through this, and that's a bit of it. All the rest, I must say, on road construction, okay, are we already there where we would like to be? No, I think I see good development, seasonal corrected, on the construction tools, a good development. I think there is demand and on the Specialty Rental, I think that's doing fine. Unfortunately, I think on the construction area, that I think a very negative mix.
Soft Greek countries, I'll say.
That goes together, of course.
Yeah.
Also this dual-axle portable compressor gives me an opportunity to say, where are they also used? In exploration. We all know where exploration is today on the mining. That doesn't help.
Yep. Okay, thank you. We turn to the telephone conference. If we take two questions from there, please.
We have a question from Mr. Erik Karlsson at AKO Capital. Please go ahead.
Thanks for taking my question. Capital allocation has really improved under you, Ronnie. I'm thinking especially of the slightly larger deals. We had SCA Schucker, who looks like a fantastic deal, as do Edwards, and Henrob looks very promising as well. Given the strong track record here and the healthy balance sheet, where in the business do you see scope for, let's say, slightly larger acquisitions going forward?
Yeah. Eric, you know we are of course supporting organic growth, on the other hand, we're also hunters. We have four business areas. All four business areas are open for more. I think when you see we stepped up on more sophisticated fastening technologies. When it comes, you mentioned SCA, you mentioned Henrob. We also have gone into in high torque, low torque areas, we have gone in vacuum. There are a couple areas for sure which I believe fit in the biotope of Atlas Copco. That's what we definitely in the years to come, we'll keep doing it. We don't put it at rest. Of course, like Henrob, we'll see, of course, the technology is very promising.
If we are four or five years older, together with SCA and the self-pierce riveting technology, is that the one which will break through for all light cars? Yeah, let's hope, because then it's really hallelujah here. That is also what we try to do. We try to pick long-term trends, and yeah, we are trying to be disciplined. I promise you that, Eric, we are not going to buy everything at any price. That is for sure not.
Sounds very good. Thanks very much.
In case later on, because that will be definitely a follow-up question with some of you, if there is money available, yeah, I think it will eventually come to the shareholders.
We have always repeated that, haven't we?
Yeah. I need to make sure.
Organic growth, that doesn't cost so much capital, larger acquisitions, as you say. Finally, of course, we're not afraid to hand back core capital if there is a need for that, as we have done a couple of times in the past year.
I think we should, when it comes to the acquisitions, we should be disciplined. I think we have our plans. It's not because you have the money that you should spend it. That, I think, is important that we keep the discipline.
Very good. Another question.
We have a question from Mr. Markus Almerud at Morgan Stanley. Please go ahead.
Hi, Markus at Morgan Stanley. On Compressor Technique, you see almost a 200 basis point margin expansion compared with first half in Q3, less in Q2 to Q3, but still a significant improvement excluding Edwards. Can you talk a little bit about what's behind this, how much cost savings are flowing through, how much is FX, et cetera?
You talk about CT?
CT, right?
Yeah. You talk CT, Markus?
Yes.
Yeah. I would say internally, we said back to basics. Focus on the core, more from core. That was the message from day 1 when I took over there. I think we were doing too many different projects, which maybe can bring something eventually, whatever, but I think we had so much other projects, very nice recurring activity, good profitable recurring business, and we should spend more time on that part. What I have been doing is refocusing the Compressor Technique on businesses where we are strong, where we make profit, where we could be the leader. Of course, without killing, say, future seeds. Not so many as we used to have. That is an area which we have adapted or introduced immediately, and it listened very quickly.
A second one is some of the investments, I think it could be in fleet industry and a couple in design and development, we have simply stopped because if they don't bring anything and we have been doing this already 3, 6 months, and professional Compressor Technique guys don't see that it brings, then we should be brave and say, okay, it was maybe good to take that initiative 6 months ago, but it's also brave to stop it. That is, I think, what we have been doing. I think internally, a third one, we have reorganized a couple divisions. We moved a couple divisions and combined some of them. That has taken place also. The reason for that is because I want to get speed in the organization. It's not about building different levels, it's about speed in the organization.
Then you need to have a very transparent, simple structure. That, I think, is a third one, what has taken place. That's also what Nico, who is now heading it, is really continuing to do. It should, and I think Hans Ola hinted also to the flow through when we saw that, okay, it goes from negative to positive.
You heard that it's not yet there where some of us think it should be.
The fewer investments in fleet industry, for instance, which you also referred to in the Q2 call, is that already having an impact, or is that yet to come?
No, I think the majority is taking place. Some of them take place in August, some are in September. I think there will also some in October happening. There's a lot of activities has already taken place.
It's a gradual thing. The break has happened, perhaps, on the cost increase on that. As you can see from what Ronnie said on revenue and order development on service, we are very pleased now what it gives. We could do it without that rather massive buildup of the organizational service. That's yielding results gradually, I would say.
Yeah. It's trying to do more with less. That is the simple part.
Okay.
Thanks.
A follow-up on Guillermo's question and looking at Germany, in particular, industrial demand, because it's 5% FX-adjusted growth in Europe was a little bit surprising to me, at least. Maybe you can talk a little bit about what you're seeing in industrial demand from in Germany in particular, any specific end market that sticks out, et cetera.
Yeah, if you take Germany in specific for us, let me then take the industrial part. On the compressor side and the tool side, it was a solid, good quarter. What sticked out was the tools business, the motor vehicle business, that sticked out. You see that a lot of new models come on the market. They have built up new assembly lines. They get more and more sophisticated in that area. That is the upselling or the creating more value for the customer. We have these products, that is where we take a big part of it, that is where you get the growth. The same is in Germany when it comes to the compressors. I think it's also about energy, so you have a replacement of the variable speed is the compressors.
It's a lot also self-help areas that I think also the area on construction was not so bad in Germany. That is also an area where, of course, it's not the biggest part of our business, but I think it was not bad. That made us having a positive development in Germany.
Okay. Thank you very much.
Thank you, Markus. I'm looking around here in Stockholm. Yeah, we have one question here, then we'll continue with the telephone conference.
Thank you. Andreas Brock, Coeli Asset Management. Two questions, if I may. First of all, on the balance sheet and the dividend, year-over-year, EPS diluted is down slightly. There's not going to be any cap to the dividend, right? When you think about EPS, do you think adjusted with the items, the comparative items this year? Should we-
Well, if you start with that, this is one quarter, and of course, in a quarter, this has an impact quite clearly, as I said, it affects 30 or something like that. In a full year, when we look at it will not have that dramatic impact. Of course, if we look back historically, of course, the dividend deliberation by the board is trying to see the future as much as the past. I'm not even going to fall in the trap of trying to give you a hint of what the dividend decision in January will be, obviously. Historically, as is exactly what I'm trying to say, that we favor a very stable development of dividend growth over the business cycles. I'm sure the view will not change compared to how we have done it in the past.
For sure, if you add on looking to the strong Balance Sheet we have.
Sure.
It would be highly likely if we would do that, I think.
One aspect that is always also considered, of course, is what formula says.
Excellent. Finally, Mr. Ronnie, my biggest takeaway is basically that you said we shouldn't think about the double-digit organic growth at least for the next 12 or 18 months, but probably for a single-digit organic growth. We haven't seen that for almost 10 years for Atlas. Except for the financial crisis, we've always been in a double-digit environment. What does that mean for Atlas? What does that mean for your priorities for this company?
I think, of course, we are a growth project. We keep growing on that. Our target, if you look at our goal, I should say, if you look that, we have said we grow 8% over the business cycles. That is what we do. Of course, we do acquisitions, we do organic growth, for sure. What is the reason why I'm a bit more, say, when I was commenting on that for, say, the year to come or the two years to come or whatever, because looking forward so long, it will be difficult. If you see with the portfolio we have in our, now I'm talking organic, see, we need tailwind in the mining business. That is also what has helped us before.
If you see how big we were 10 years ago in mining and how big we are now, I think it's a constant tailwind, what we have. We need to get that part again coming at a reasonable, just stable to get that sorted. I don't think that we should be afraid for growth in Compressor Technique, neither in vacuum, neither in the industrial goods business. These are areas which we can do. If we get the area on Construction Technique, we are fighting on that. I think you see a lot of openings, so that will give it, and that can be these three in Compressor Technique and in vacuum, and I take one, Industrial Technique and Construction, is a lot of self-help. We can do a lot because the market is there. When it comes to mining, you need to get the guys spending again.
That is a bit the way I see the period to come forward. There is still a nice portfolio on acquisitions. We've seen, I think if you take Henrob, there's still a lot of potential, SCA, Edwards. I think there is a couple more in the pipeline. Let's see how it lands.
All right. Thank you very much.
Thank you.
We go back to the telephone conference, please.
We have a question from Mr. Andre Kukhnin at Credit Suisse. Please go ahead.
Good afternoon. Thanks for taking my questions. One on the market and one just on inventories reduction. Can you just come back to the automotive CapEx, and could you talk us through how you're thinking about it going forward over the next sort of six, 12 months? I think there's some concerns in the market that this is quite a peaky levels now. Appreciate China doing very well, but if we could go through the sort of more developed world dynamics. Then the other question is more for Hans Ola, I guess, on inventory reduction. Could you tell us how much was it in fixed currency terms from Q3, sorry, from Q2 to Q3, and whether that resulted in any meaningful under absorption? I appreciate that historically it's never really been an issue.
Yep. You got the easy question. On the automotive, of course, what we see now, of course, you see the different models coming, you see the different lines coming, the moves that factories do. If I listen to our people in the field, because if it's high, you're always a bit worried what happened because it can go down, and it could be I've never been in that area so high, and then will it go down? If you then go systematically through the different projects, you still see a lot of potential of markets, of brands where we are not in yet, especially when it comes to Asia. There is a lot of area to take that. I think when it comes to the Western automotive suppliers, yeah, we have a good presence. I think we have good content there.
That is not, I think we will get more customer share. That is the whole thing. Market share, we will not, but more customer share, so expanding our offer. If you look to our acquisitions over the last four or five, let's say last two years, let's say that, you would see that these customers are in need for this type of material, and that is our strategy. They will definitely need to replace part of that. Of course, it goes easier when you have new models. It goes quicker. Still without the new model, we have possibility to do some upselling. The automotive will have its cycles. On the other hand, I still believe in the next coming, let's say six months, I think a good development there.
I think I mentioned briefly that perhaps I was too quick on the inventory reduction. You're right. There was a reduction of about SEK 900 million in currency adjusted apart from acquisitions or Excluding acquisitions in the third quarter. Majority clearly from MR. That has, in MR's case, of course, had some effect on the profitability in the quarter. Production has been adjusted in order to be in line with the inventory reduction targets. It explains part of the rather negative flow through number, but I can't detail it for you. That's definitely there as a component.
Got it. Thank you. I was just wondering on inventory reduction, if you have a sequential number from Q2 to Q3, like like-for-like.
Sequential Q3 to Q3, what do you mean? Or year-on-year?
Just from the Q2 level of inventory to Q3 level inventory.
SEK 900 million down.
That was not year-on-year. Okay, great.
Yeah. No, that's sequential.
Sorry. Great. Thank you very much.
No problem. Okay, next question. Telephone line, please. Or did we lose them? Operator, do we have another question from the telephone conference, please? No? Then we'll see.
Hello?
Yes, hello.
Here we are.
Yeah.
Yeah.
Alexander Sheratt from JP Morgan is on line with the question. Please go ahead.
Yep.
Yep.
Yeah. Good afternoon, everybody. Just a couple of small follow-ups left. Firstly, Ronnie, you mentioned strength in North and South American mining orders. I'm just wondering if you can help us understand which commodities are showing the relative strengths there, if there is advice.
Yeah. The majority in the South America is copper. You see also investments taking place for zinc and some for iron ore. That's a bit less. The majority is copper.
Okay. Just following up on the de-stocking, Hans Ola, you mentioned SEK 900 million, you said the majority was in MR. Is that SEK 900 million all finished goods?
It's a combination of everything. It goes work in progress, it goes for semi-finished, it goes for components and finished goods. Yes.
Can you help us out with the finished goods, like the magnitude of the finished goods in mining?
No, I can't off the top of my head. As I said, there's of course been an effect on the production levels. That's why I mentioned that. It's not only selling out of the finished good stock, so to speak, adjustment, no.
It's also what we have done, Alexander, is really to lower the production output.
Yeah.
Because-
Yeah.
No. That we have been doing, that is the majority of the drop. It's not that we have been dumping products on the market because on the other hand, how can you dump products on the market and have a price increase of 1% and still having 18.5% profit? They don't have pots to put this money in. I don't know if they exist, Hans Ola.
No. It's a bit of everything, yes.
Oh, sure. Okay. No, I was just trying to get a feel for how much that drag might have been on that EBIT margin, that as that de-stocking finishes, we get a bit of an idea of where we'd normalize to.
One of the reasons we don't is that honestly, it's not that easily calculable, to be perfectly honest. At the same time, there are many other factors in each quarter that also affect, that we don't talk about. It will be a bit confusing to do that detailed profit analysis quarter by quarter, to be perfectly honest. This is one effect that is in there, Alexander.
It has a negative effect.
Yeah, it has a negative effect. Yes, absolutely.
Sure. Okay. Thanks very much.
Thank you. Yep, do we have another question from the conference, please?
This is Mr. Ben Maslen at Bank of America. Please go ahead.
Thank you. Hi, Ronnie. Hi, Hans Ola. A couple of questions, please. Firstly, just a quick one, I may have missed it. Just give us a sense of how fast your service business is growing at the moment. Excuse my loud colleagues in the background. Secondly, just on Edwards. We've seen some mixed news flow over the last month or so on the semicon side, some profit warnings, but at the same time, some very strong numbers of people selling equipment into electronic markets. Just what do you see in Edwards going forward into 2015? Maybe talk a little bit about the integration, what you've done to integrate it and reduce cyclicality of the business. Thank you.
I will take the Edwards and then Hans Ola you take-
Yeah.
I think of course we see that now, Ben, I also have to read the report from the ASML and from the Samsung in more detail, you see that also. When I talk to our guys who are meeting the fab guys and the ones who are really buying the vacuum and also making the chips, or the memory chips or whatever, I think you see still that there is a good project demand is there. There is a lot still in the pipeline. Of course, you have sometimes a bit of shifts of one quarter to another quarter. If you take the result of, I think ASML, where you saw that was a postponement, okay, that with these flow throughs that these guys have, okay, that It's then a bit more negative impact on the result.
I think on the real demand, what I have heard from our guys, that it is still going strong. Let's see, because we all know if we look back five years ago or six years ago, you see that this semicon was sometimes a stop-and-go business. If you see today, the end markets, everybody, everywhere in your private life, in your business life, in your car, in your plane, or whatever, you have electronics. That is, of course, where to make them, that's also where you have the vacuum, and that is where Edwards is sitting on now today. I think also a bit of market share, what these guys take.
If I said normally, I'm not going to say that, but as the new one, I think they have done a very good work on, say relations with the customers, understanding the dynamics, and also on the product side they have done. That is on the end mark. When it comes to the integration, I think every second month, we have our board meetings, then Hans Ola and myself, we go there, and we have a couple other people who are leading that project. I must say, it's like we have been always together. You see that the people also in Edwards are innovation-driven. They are the machine builders. They work with industrial customers. From that point of view, the challenges are more or less the same.
We have a lot of in the background projects going on for expanding our general vacuum and utility vacuum. As you remember, if you go back to the announcement where we said this is a growth project, we will go on with the semicon, the flat screen, that is where Edwards is definitely the market leader. Let's also leverage the capabilities and the presence of Atlas Copco, and that goes in the utility vacuum and the general vacuum, and that is where we are doing projects together. It's the compressor guys and the vacuum guys, they really are developing new products which land on the market. Of course, you all want to have them yesterday, but a lot of them will come in 2015. We will see then some general vacuum, utility vacuum products, and hopefully we can also sell them.
I think you asked about service also, Ben, and yes, it's growing. If we take total growth, but just taking out currency, we're about high single-digit growth. Service is doing fine in the third quarter, and it's particularly strong compared to that average in CT. Industrial Technique is growing somewhere in that, and slightly lower, but still a good growth in MR, and CR a bit weaker.
Got it.
That's how it composes those 7%-8% growth.
Thank you, Hans. Thanks, Ronnie.
Thanks.
Thank you.
I think we are very late. We have a couple of questions more. I'm sorry, we can't, but we can take one final question perhaps in order not to be too sharp on the time. Let's do it. One final question. One question.
We have a question from Mr. Peder Frölen at Handelsbanken. Please go ahead.
Tough one. Okay, R&D then, expanded quite a lot to sales in the quarter year at least, which I guess is seen in also some of the organic sales growth efforts. How should we think of this ahead? We're now running at above 3% of sales. You mentioned that some projects may be a bit too scattered in CT, back to basics. R&D ahead, that's the question.
I think you have noticed that there was quite a sharp increase sequentially from Q1 to Q3. Of course, there's a little bit of a translation effect from a stronger dollar and euro to the krona. The major part of that is a one-off in the Q3, actually, and it's related to this impairment that we took on some of the development projects, some of the intangible capitalized costs that we had related to the mobile crusher business and some other divisions in MR. It was not the run rate that you saw in Q3. You should perhaps be better guided by looking at Q2 and so on.
Okay. Do you think you will expand R&D to sales for 2015?
Yeah.
Yeah. I was just going to say, Peter, I think when it comes to the projects, we do, of course, constantly portfolio management and looking around, and it's not the idea, really, to increase the investments more than we have here. I think in certain areas, we will do some project pruning, that's for sure. On the other hand, we also know that it's the R&D that support the organic growth, I think that support the pricing power. On the other hand, it's a balancing act. Of course, internally, what we always push is the time to market. To answer your question very short, we don't have the intention to invest much more than relative terms now.
Okay.
It will be more or less at that level.
Okay, thanks for that. I get back with more questions to you after the call then. Thanks a lot.
Yeah, bye.
Thank you very much, and I thank everybody for participating. Let me just remind you before we leave you that we have a Capital Markets Day on the 19th of November in Charlotte in Carolinas in the U.S., and many of you have seen that on the home website. We are coming very close to the end of signing up for participation, so I just wanted to remind you that if you are intending to participate and have not yet signed up, time is running up. With that, I thank Ronnie, I thank everybody for participating, and hope to see you when we are back with the fourth quarter results. Thank you.