Good afternoon. Good day. Good morning. Good morning. Good morning.
Good morning, everybody. This is the conference on the release of the Q3 results of Atlas Copco Group. Here in Naka, in the Atlas Copco mine, we have some people that I'm also happy to welcome all of you participating on the telephone conference. We will kick off in just a few seconds as we normally do with a few comments on the quarterly report by Roni Leptin, our Chief Executive Officer. And then we move over to Q and A after 20 minutes or something like that.
So I'll come back with some instructions and comments before we go into the Q and A session later on. So with that, very welcome once again, and I hand over to you, Ron.
Thank you. Thank you, Angela, and welcome all of you. Good afternoon, good morning. I will go as usually first through the slides, and I will immediately go to the Slide number I think it's number 3 when we talked about the highlights or the Q3 in brief. And I think it was a solid quarter because we all know it can always be better.
But I think if we look to the figures and talk about what we have seen is a good growth for industrial tool business and also the small to medium size industrial compressor, we did reasonably well. And another part what is always nice when you do an acquisition and you see it happening as it happens now when it comes to the vacuum, our Edwards acquisition, we are doing very well in that area in terms of top line and also in terms of bottom line and under sales in terms of integration. So from that point, from the industrial part, a good improved demand. Mining, remember what I said last time, I was maybe a little bit more positive when you compare quarter 1 and quarter 2. When I said in quarter 2, I said, okay, flat positive.
I think I will repeat that. I think it's more or less unchanged, the mining equipment. We get orders. We are on a certain level, but it's not that it is really creeping or pushing up in but you also cause all hope. But they will talk later when we talk about mining and rock expansion.
Service, it keeps going, so developing well. And when I was looking and preparing my presentation here, I looked a little bit in history. And I think if you take over the last 15 years, it's maybe the exception in 2,009 when we had the block. For the rest of the year, constantly had good development on service. And we also know that there's also a nice contributor to the bottom line.
Strong North America. I'm also sure not a surprise for any one of you. And a weaker over weak Asia. And mainly, it's then I'm talking here about China and about India, which are the biggest countries. We had record revenue and solid or strong operation cash flow.
So I think in brief, like I start a solid quarter. And one thing what maybe should have been here also is that we had a new acquisition, Henrop, for self peels riveting. I think that's also, I think, an exciting business we are going in, and Henrop 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. So 20% up and orders received, of course, and Anzule will talk later about that.
The currency, this time, we are on the right side of the currency with the weakening of the euro and the weakening of the krona. So it has really helped us. Organic growth, 2%. If you take the acquisition if you take the currency away, we're around 14% growth that we have. So the acquisition and organic together.
Profit, the real profit was €4,100,000,000 Of course, we have done some impairment for some assets, restructuring costs, closing of a plant which we announced a little bit earlier, Quincy in U. S. And a couple other points when it comes to option plan. So in total, we had a onetime, which is for us, as laparoscope, not a big one. That's also the reason why we reported as we reported here.
So adjusted margin, 19.5%, reported 17.6 percent. And the rest, I think, you can read as it here, straightforward figures. Geographically, and let me start with Europe, even without Edwards because that's the ones I will comment because I think otherwise it would be very difficult to make a good conclusion for you. A solid Europe. So we saw in all the markets where we are 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 plus 5, but a real positive figure. And even in Russia, we had a positive figure. Of course, we know what will happen in Russia. Who knows? So we are there and following up the situation every day.
But for the time being, it's business execution. If we then go to Asia, and you see minus 8, I have already said it in the beginning, a week China, a week India. So 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's softer there.
What is good in the talk now about China is industrial technique, I think on the tools business, the MDI, the train business, so the transport, aerospace, I think these are areas that are going good. The small to medium sized compressors are okay. So that works fine. But yes, negative, no one likes to report negative growth in that. And 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. So let's sometimes we are allowed to hope for better weather. So let's see that it comes out. If I then go to Australia, mining, because then you get a positive part, so that is good. But also in these figures, you should also remember that we did an acquisition I share in New Zealand, which also make the figures a little bit better.
Otherwise, it would have more or less flat, I think, when it comes to Australia, which is mainly mining part. If we then go to the Americas and then North America, as I already said, a very solid North America, plus 15%. Of course, yes, in all the businesses what we are doing, when we talk construction, when we talk about compressors, mining, it's all, yes, positive. So that makes us reporting this very strong development. And in South America, you see also plus 18.
One I should say, of course, last year around the same quarter, we had a cancellation. So the comparison is a little bit easy. But I think on Brazil, it's more or less flat, and we know also how that business today is, yes, under supervision. But the countries like Chile and Peru, when it comes to mining, they have done very well and made this figure up on that. So if I then go to organic growth, you see small organic growth, so 2nd quarter in a row.
I think we should prepare ourselves also that we cannot expect because you always hope, but you don't hope in business, that you have a +15 percent, a +20 percent organic growth in our business. But if I see the world, if I read what's going on now, I don't expect that one. I think we should really calibrate them to a solid growth, but not when it comes to organic, but not double digit. Sales bridge, not much to say. You see I mentioned that it was 14% when you look at growth and then the price volume.
So our innovation that we have constant work on coming with new products support our pricing. So even in tougher fields, we keep we are able to keep it up and volume is slightly up. And of course, currency, as I mentioned, plus 6%. Now I would like to go immediately to compressor technique on the business areas where are we there. A robust demand for small to medium sized machines, so compressors, I think they have done very well.
Still, it's difficult for the larger machines, the big turbo machines, if we can talk about that, also the big small machines, I think that's a softer market. Again, that has to do with a lot has to do with Asia. So that's a softer market. And yes, service keeps going on. So also our investment in that area of our business is yielding results.
Yes, Edwards, I have already mentioned it, keep going solid. I mentioned also New Zealand that we have been able to close the acquisition from our shares. So I'm very pleased that we have this distributor in the Arthroscopco family. And 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 percent.
So which I believe is given where we are in the mix, I think is a good evolution. And what I want to say with that, I think you can ask questions later on that part. Industrial Technique, solid, it keeps going. You see it also when you look to the graph. We constantly report good organic growth.
So the work what we are doing is strategic work on investing in presence, investing in innovation to add ons in technology via acquisitions, it works. So even in Asia, that's the reason also we put it on. Head drop, I mentioned that is self piercing. So that's an exciting area, and you see a picture of that of 1 of the tools which are used. And then the operating margin is at that solid level where we more or less escalate.
So a good very good industrial technique in the quarter. Mining and open excavation, something else. Like I said, unchanged for mining equipment, a bit mixed. You see lower Asia, Africa, Middle East, but then again, South America and North America, solid. So made that more or less an unchanged demand, but a lot of swings.
Good and that, I think, is important. We see service really picking up again. So that is always nice to see and also stable orders for production consumables. So that's an area which we like to see and also that is where we have strategically also put ourselves. So there we felt that we could be the market leader.
We could really gain presence and that we have been over the last 5, 6 years invested a lot in that. And it's good to see that it also works even in tougher times. Yes, the impairment, we did on some assets. So the majority of the impairment is on the mobile crushing part, an acquisition we did a couple of years back. But we see that, yes, the value of what we had in the books is not coming out is not is not flying back in the real business.
So we felt that it's time to calibrate that. And okay, it's done now. So that means adjusted, we come up to an 18.5%. Is it where we really will be? And in the next coming quarters, I hope that it will be a bit better.
So that's an area where we are working hard. I think the organization is taking good measures. And if we can really work hard and getting the service and the consumables up and running, then I think it will be better than 18.5. Construction technique and good growth in road construction, although we know the seasonality of this business, mostly good in construction and demolishing tools. So that, I think, is good.
And the pity, Amit, for the construction business area that the large portable compressors, so the double access to the one you can see there, the 20 foot container compressors almost, that is a soft market. And I think that's also a market where we are strong, where we have a good position. And unfortunately, that is an end market, which is today soft. Good development for Specialty Rentals. So I think we are really put ourselves at a good place there, so that's good.
And then yes, the operating margin is a bit negatively affected by the product mix. And I hinted already, I mean, it's mainly also to the large portable compressor switches, a better business than, say, low construction equipment. So that means that you get a bit of negative mix. And we have a new leader there, Andrew Walker. Those who are following us since long, maybe I also have seen that name popping up.
I think Andrew was until a month ago, Head of the CPS, so Compressor Technique Service Division. He was having that, and he is a person who is more than 27 years with that with Kotco. And I've seen the world, I've seen the products, It's really going through the whole school. So I'm really looking forward to yes, the results of EMREU. Yes, then on the group total the profitability before I hand over to Hanzula, If we of course, here, we have the result as it is.
If you exclude the onetime, you will see that the 20.5% is comparable with 19.5 percent when you 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%. Then we have mining, which brings it down for another 1%. And then we have a positive part on the currency.
You can say at the end, the difference is the mining and rock excavation, which makes the 1%. So if we can get there back to the good levels which we used to be, then net income should also be at the higher level on the operating profit. So by this, Angela, I suggest you take over.
Yes. So I'll use that one and just continue down on the same slide actually with a few comments as we normally do. Between operating profit and profit before tax, we have the financial items. And as you could see in the report, nothing spectacular on the interest, but we had some extra financial exchange differences, which were related to some revaluations of the onetime character. So that will hopefully not be repeated going forward.
But EUR 180,000,000 negative was the interest net. And looking forward, knowing that we have made a new acquisition in the 3rd quarter, somewhere in the region of €200,000,000 plus €1,000,000 perhaps is a good estimate for the next couple of quarters. So a little bit more interest cost than what we have seen in this. If we look at the tax rate, which is not on the slide, but it's sitting there, we had a little bit higher than expected, 25.8 percent in the quarter, and that was also due to some corrections of deferred tax calculations that I don't foresee will be such a big impact going forward. So definitely, we expect this to be below 25% as we have talked about before going forward also there.
The impact on the earnings per share, by the way, of the non the items affecting comparability of the onetime is about 30 or roughly, so that you can see that compared to that. No, it's not there. No, there is good. So this one is, as Ronny already talked about, I don't think it gives you very much extra information apart from the currency impact. But if you look at the flow through, which we tried to comment on the volume price mix and now 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 Techniques, those with a good memory know that for 2 quarters in a row, we've actually had a negative flow through. Our revenue has been growing slightly in compressor technique, but it hasn't been 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 the flow through if we have a revenue growth of this magnitude, perhaps somewhere in the region of 20% to 25% is really what we normally would expect, but it's coming.
On the Industrial Technique, the flow through, the 18%, how much the adjusted revenue is giving in profit, is also a little bit shy from normal ratios perhaps. But they are in a growth mode, and they are putting a lot of new presence, a lot of new capacity in the market all around the world and also on the product development side. Mining and rock excavation are the big numbers. We've commented a couple of quarters about the revenue drop, and you see it in the bridge. That's nothing new.
When it comes to the rather big negative flow through that half 50% of the revenue drop flows down to operating profit. I would say there 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. But there is certainly some efficiency measures continuing to be adapted. And those costs are to get those efficiencies, these are still going on, as we have said before.
We are also, as you can appreciate when we talk about the working capital later, we're also reducing the inventory in this business area. And that puts a little bit of a pressure extra on the under absorption. So the production levels are not working at full speed even for the normalized revenue or the current revenue level. So there are a couple of things that I think is relevant to comment on the flow through of MR, mining. And then finally, construction technique.
Yes, Romy 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. So that's why it looks a little bit extra serious on that one. But I think it's really related to that negative sales mix performance. If I continue on to the balance sheet, there are some big numbers if you compare with the beginning of the year.
Of course, you have to realize that we have made the Edwards acquisition and we have made Hendrog acquisition in the 3rd 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 4,000,000,000 only in the Q3. So 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. But in the quarter, if we talk about Q3, the inventories as such in volume, excluding currency translation and acquisitions, was a release of about SEK 900,000,000.
So the inventory went down like for like. Also receivables were slightly lower in the Q3, but then we also are reducing the amount of purchases to the production. So we lose a little bit on the payables. All in all, those effects on the working capital sorry, we can see in the cash flow. And 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 2 years, the Q3. But exactly for this line, where we last year were consuming capital, working capital, and this year, we are releasing capital. And that floats down to the operating cash flow difference of SEK 1,500,000,000. SEK 3,900,000,000 is a good quarter, strong cash flow. It ranks among the top 3 to top 2, top 3 quarters in Atlas Copaies III.
So it's very, very nice to see that development. I'll stop there, and I'll leave it to you, Ronny, to take the last one.
The most sophisticated sentence. Yes, if we take it on the near term outlook and of course, you can read the sentence. Why did I put it on? A keyer 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 selling 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 financial market. But on the other hand, I think I should make my analysis on the figures I am seeing and I'm hearing and not to be clear what are on the ground. And that is the reason why we said that they expect it to increase somewhat. I think Atlas has a lot of potential. We have we are present in many, if it's not in 180 countries.
I think we have fantastic products. I think we have eager groups. And I think when you then see also this demand, there is I think there is, I think, still somewhat in the market, I can say. And I just suggest we
take this with that. Thank you, Ronny. And we move over to the questions, both from the telephone conference and here in NAC, of course. Can I just ask the operator to repeat the procedures for the questions, please? Excellent.
And then I think we start here in the audience. We have two questions here. We'll start with Guillermo.
Hi, good afternoon. It's Guillermo Pena from UBS. One question and one follow-up. Regarding the outlook statement, can you give a bit of color as to the regions? So how do regions look like on that demand outlook experiment and also in terms of end markets as you in the past actually did some view on mining.
So how does the world look like in Q4 by division as well? Yes.
I think if you look to a little bit to the different slides, that's when it comes to geographically, when you see North and South America, I still believe there is still good momentum. Also on the mining side, you see Chile, Peru, even some projects in Brazil. I think it's coming nicely. And if you take then North America, of course, there's more the industrial part. You talk about automotive, aerospace and many end markets where you use compresses, you see that.
Semicon, if I take that one now, I should not forget to say that. So that is an area in that region which do well. I've seen over the last couple of months also Europe, although it's and it was not always easy, July, August to interpret because you need to look a bit because the holiday period in Europe. But if I listen in the market, people are not so negative. And of course, in other one, we'll see what will happen with the Euromao as we can will it bring something, okay, I will see.
But also another part is Russia. Remember a couple of months ago, we were all nervous. Has that been cooled down? Let's hope that we come to again to a normal business part. So on Europe, actually, of course, I'm not really overenthusiastic, but I'm not talking it down.
Then Asia, and then it means India. When you travel to India now and you talk to the people about the new government, everybody is overemphasizing. But let's see. Let's see the orders, the real orders, not the quotation level. There is a lot of activity going on, but let's see that they're working.
And on China, depending on in China, there are a couple of segments which are doing very well. And that's also where we are in. If you see in Industrial Technique in Asia, China Automotive, I think there's a lot of projects going on, a lot of projects going on. So from that point, what I see is a bit weaker in China is the mining side because price is going down, what do they do, less money available for investment, and we see that also that's going down. And if I take that all in the equation, yes, increased somewhat.
So I'm not going to emphasize the increase, the increase somewhat. What I said last time when it comes to the mining, flat positive, but I put emphasis on flat.
Then a follow-up just on pricing mining, 1% and obviously at the moment your volumes in terms of new equipment or equipment capital orders is going down significantly. I just wonder that 1% can you give us details on how much is pricing, how much is mix or in a way has equipment for pricing eroded and deteriorated now is actually 0 minus 1?
I think if you take the South American, the American market, I think it has not much eroded. Of course, when you go more to the say, the China area or you go to some specific markets here and there, you can have a bit of battles going on. But it's not falling off the cliff, not not. And again, I think it is and I equipment that we see over the last 5, 6 months, I think it has really more or less the same level, maybe a little bit up even on equipment. And this is a lot to do with underground and these are very specific machines.
So I think they keep and then very sophisticated machines. Most of them are also tailor made with long standing customers. This goes about productivity, and we don't sell a box there. So from that point of view, price setting is you're a little bit dependent by that. You have a shelter in that one.
So it's not that and also in we had a time, I remember a year or maybe even longer, When in service, everybody was on service, they fell on pricing and the prices will go down and all that. Of Of course, it happened in discussions, but you see it's normalized again because all mines strive for efficiency, and that's happened on Earth for us. Don't like more than that.
Thank you, Daniel. Thank you, Marcin.
One more question here in Macca, and then we go.
Yes. Anders Joosl from Swedbank. It's a very split picture when you look at the order intake,
strong in compresses 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 CT and IT and you compare mining, that's different totally different markets. Of course, when you analyze IT, you have a couple end markets will do very well. This semicon, a lot of assembly tools needed, also a lot of chips needing for an airway vacuum. We can move later on on that. Motor vehicle, I think the tooling up, I think they're really new models.
And also it is challenging for the car builders because the cars have to be lighter, better. So and that is yes, we have the right product. So that for sure helped. I think there is tailwind, and we are there. And then airspace, don't underestimate the airbuses and the buoyings of this world.
They do fantastic. So 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's those and that is also what helps for compressor technique like brake compressors for trains, because 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, yes, you said, of course, soft. We all compare with and the internal benchmark is always a better benchmark. In 2011, 2012, Roni, you were at €9,000,000,000 now at €6,000,000,000 so it's lower. I have to take that. But I don't if I see it today, I think it is stabilizing on that level.
And I think what's important for us is, of course, adapt our suit in that area. That's what we have been doing. But on the other hand, you see also that especially in underground, we need to or 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 1, 2, 3 years, but in the other hand, you've come to replacement markets. And 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 you guys do internally, We take market share from our customer that we make a good proposal that we do the service. But really, there are big shifts on that.
On construction, there is the only negative part on construction, and of course, unfortunately, it's a big part, is these double axis portable compressors. It's a big ticket. It's a good business. It's a profitable business. We have heard Hans Ole when he was explaining the flow through bridge.
And that's a big ticket. All the rest, I mean, say, on road construction, okay, are we already there where we would like to be? No. But I think I see good development, seasonally corrected. On the construction tools, a good development.
I think there is demand. And on the specialty rental, I think that's doing fine. So but unfortunately, I think on the construction area that I think a very negative mix,
not And soft Greek countries. Yes.
And then so yes, that goes together. Because also this is double axis spot because that gives me an opportunity. Where are they also used in exploration? And we all know where exploration is today on the mining. So that doesn't
help. Okay. Thank you. So we turn to the telephone conference and we take 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, Ronny. I'm thinking especially of the slightly larger deals. So we had S. A.
Schucker, who looks like a fantastic deal as do Edwards and Henroob 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?
Yes. And Eric, you know we are of course supporting organic growth, but on the other hand, we're also hunters. We have 4 business areas. All 4 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 Henrop.
We also have gone into in high torque, low torque. That is what we are doing. We have gone in vacuum. So there are a couple of areas for sure which I believe fit in the beer talk of Atlas Copco. And that's what we definitely in the years to come, we'll keep doing it.
We don't put it at risk. Of course, like hand rope, let's see, of course, the technology is very promising. If we are 4, 5 years older, together with SEA and the self piercing riveting technology, is that the one which will break through for all light cars? Yes, let's hope because then it's really hallelujah here. So and that is also what we try to do.
We try to pick long term trends. And yes, we are trying to be disciplined. And I promise you that, Eric, So we are not going to buy everything at any price. That is for sure enough.
Sounds very good.
Thanks very much. And in case later on because that will be definitely a follow-up question to some of you, If there is money available, yes, I think it will eventually come to the shareholders.
We have always repeated that, haven't we?
Yes. I need to Organic growth,
but that doesn't cost so much capital, then larger acquisitions, as you say. And then finally, of course, we are not afraid to hand back cost capital if there is a need for that as we have done a couple of times in the past. Yes.
And I think we should when it comes to the acquisitions, we should be disciplined. I think we have our plans. We do it's not because you have the money that you should spend it. And that's, I think, is important that we keep the discipline. Very good.
Another question?
We have a question from Mr. Markus Halmerud at Morgan Stanley. Please go ahead.
Markus at Morgan Stanley. Firstly, on Compressed Symphony, you see almost a 200 basis point margin expansion compared to the first half in Q3, less in Q2 to Q3, but still 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, etcetera?
So you talk about CT, right? Yes. You talk CT, Markus?
Yes.
Yes. I think it's a couple of I would say, internally 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 2, 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. So 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.
And of course, without killing, say, future seeds, but not so many as we use that. So that is an area which we have adapted or introduced immediately. And listen very quickly. The second one is some of the investments, I think, in it could be in feet in the street and a couple in design and development, we have simply stopped because, yes, if they don't bring anything and we are being 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 that's also it's also brave to stop it. And that is, I think, what we have been doing.
I think internally, a third one, we have reorganized a couple divisions. So we moved a couple divisions and combined some of them. So that has taken place also. And the reason for that is because I want to get speed in the organization. It's not about building different levels.
It's about speed in the organization. And then you need to have a very transparent, simple structure. And that's, I think, is a third one what has taken place. And that's also what Nico, who is now heading is really continuing to do. So it should and I think Hansula hinted also to the flow through when we saw that, okay, it goes from negative to positive.
But you heard that it's not yet there where some of us think it should be.
And the I mean the fewer investments in Feeding the Street, 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. This is but 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. But as you can see from what Ronny said on revenue and order development on service, we are very pleased now what it gives, but we could do it without that rather massive buildup of the organizational service. So that's yielding result gradually, I would say, yes.
It's trying to do more with less. That is a simple partner.
Okay. Then a follow-up on Guillermo's question and looking at Germany, in particular, industrial demand, because it's I mean, 5 percent FX adjusted growth in Europe was a little bit surprising to me at least. And maybe you can talk a little bit about what you're seeing in industrial demand front Germany in particular, any specific end market that sticks out, etcetera?
Yes. If you take Germany and specific for us and let me then take the industrial part. On the compressor side and the tools side, it was a solid good quarter. What's ticked out was the tools business, the motor vehicle business that's ticked 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. And that is the upselling or the creating more value for the customer. We have these products and that is where we take a big part of it and that is where you get the growth. The same is on in Germany when it comes to the compressors.
I think it's also about energy. So you have a replacement of the bed of the speakers, these compressors. So this is areas which we yes, it's a lot also self help areas that I think also the area on construction was not so bad in Germany. So that's also an area where, of course, it's not the biggest part of our business, but I think it was not bad. So that made us having a positive development in Germany.
Okay. Thank you very much.
And I'm looking around here in Stockholm. Yes, we have one question here, and then we'll continue with the telephone conference.
Andreas Bokhirley, Asset Management. Two questions, if I may. First of all, on the balance sheet and the dividend, year to year EPS diluted is down slightly. There's not going to be any capital dividend, right? And when you think about the EPS, do you think adjusted with the items the comparative items this year?
Should we
Well, if you start with that, this is 1 quarter. And of course, in a quarter, this has an impact quite clearly, as I said. I mean, it affects 30 or something like that. In a full year, when we look at it, it will not have that dramatic impact. And of course, if we look back historically, of course, the dividend deliberation by the Board is trying to see the future as much as the past.
The I'm not even going to fall in the trap of trying to give you a hint of what the dividend decision in January will be, obviously. But historically, as is exactly what I'm trying to say, that we favor a very stable development of dividend growth over the business cycles. And I'm sure the view will not change compared to how we have done it in the past.
And for sure, if you add on looking to the strong balance sheet we have, it will be highly likely we would do that,
I think. One aspect that is always also considered, of course, is what Formria says.
Excellent. And finally, Mr. Meisel, my biggest takeaway is basically that you said we shouldn't think about the double digit organic growth for at least for next 12 or 18 months, we're probably into 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 these companies?
Yes. I think, of course, we are a growth project. We keep part growing on that. But I our target, if you look at our goal, I should say, if you look at 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 to ensure that. What is the reason why I'm a bit more, say, when I was commenting on that for, say, the year to come or the 2 years to come or whatever because looking forward so long, it will be difficult. But you see with the portfolio we have in our now I'm talking organic. See, we need tailwind in the mining business because that is also what has helped us before.
If you see how big we were 10 years ago in mining and how big we are now, I think it's a constant tailwind what we had. So we need to get that part again coming at the regional just stable to get that part. But I don't think that we should be afraid for growth in compressor technique, neither in vacuum, neither in the industrial tools business. These are areas which we can do. If we get the area on construction technique, we are fighting on that.
I think you see a lot of openings, so that will give it. And that can be these 3, in compressed technique and then vacuum and I take 1, in dust technique and construction is a lot of self help. We can do a lot because the market is there. When it comes to mining, yes, we need to get the guys spending again. That is that's a bit the way I see the period to come forward.
Of course, there is still a nice portfolio on acquisitions. We've seen, I think, give or take handover, There's still a lot of potential FCA, Edwards. I think there is a couple more in the pipeline we'd see overland.
All right. Thank you very much.
We go back to the telephone conference, please.
We have a question from Mr. Andre Kustin at Credit Suisse. Please go ahead.
Good afternoon. Thanks for taking my questions. 1
on the
end markets 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 12 months? I think there are some concerns in the market that this is at quite peak levels now. And appreciate China doing very well, but if we could go through the sort of more development dynamics.
And then the other question is more for Hanzola, 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 not really been an issue.
Yes. Easy question. So 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. But 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 then it could be I've never been in that area so high and then we would go on. But if you then go systematically to 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 another area to take in that. I think when it comes to the Western Automotive suppliers, yes, we are we have a good presence. I think we have good content there. So that is not I think we will get more customer share. That is the whole thing.
Market share is enough, but more customer share. So it's expanding our offer. And if you look to our acquisition acquisitions over the last 4, 5 let's say, last 2 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. But then still without the new model, we have possibility to do some upselling. So the automotive will have its cycles. But on the other hand, I still believe in the next coming, let's say, 6 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 900,000,000 in currency adjusted apart from acquisitions or excluding acquisitions in the Q3, majority clearly from MR. And 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.
So it explains part of the rather negative flow through number, but I can't detail it for you. But that's definitely there as a component. Got it. Thank you. I was just wondering on inventory reduction if you have a sequential number from Q2 to Q3 like for like?
Sequential Q3 to Q3, what do you mean or year on year? No, just from the Q2 level of inventory to Q3 level of inventory. EUR 900,000,000 down. So that was not year on year.
Okay, great.
No, no, no. That's sequential. Sorry, great. Thanks 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? Hello?
And we'll see where they took off.
Yes. Alexander White from JPMorgan is on line with your question. Please go ahead.
Yes. Yes. Good afternoon, everybody. Just a couple of small follow ups left. Firstly, Ronny, 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 strength there, if there is any bias?
Yes. That's easy. It's the majority in the South America is copper. But you see also investments taking place for zinc and some for iron ore, but that's a bit less. But the majority is copper.
Okay. And then just following up on the destocking, Hanzola. You mentioned EUR 900,000,000,000. You said the majority was in Amador. Is that EUR 900,000,000 is that all finished goods?
Oh, it's a combination of everything. So it goes work in progress, it goes for semi finished, it goes for components and finished goods, yes.
Can you help us out with the finished goods, like the magnitude of the finished goods in mining?
No, I can't off the top of my head. But as I said, there's, of course, been an effect on the production levels. That's why I mentioned that. So it's not only selling out of the finished wood stock, so to speak, adjustment, no.
It's also what we have done, Anagana, is really to lower the production output. No, that we have been doing so. And 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 in the market and have price increase of 1% and still having 18.5% profit? And they don't have pots to put this money in.
So I don't know if they exist, Hamzah. No.
So it's a bit of everything, yes.
Sure. Okay. No, I'm just trying to get a feel for how much that drag might have been on that EBIT margin so that as that destocking finishes, we got a bit of an idea of where we'd normalize to.
One of the
reasons we don't is that honestly, it's not that easily calculable to be perfectly honest. And at the same time, there are many other factors in each quarter that also affects that we don't talk about. So it will be a bit confusing to do that detailed profit analysis quarter by quarter to be perfectly honest. But this is one effect that is in there, Alexander.
And it has a negative effect. Yes, it has
a negative effect, yes, absolutely.
Sure. Okay. Thanks very much.
Thank you. And yes, do we have another question from the conference, please?
Mr. Ben Merson at Bank of America. Please go ahead.
Yes. Thank you. Hi, Ronny. Hi, Hanzola. 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. And then secondly, just on Edwards, we've seen some mixed news flow over the last month or so on the semi side, some profit warnings, but at the same time, some very strong numbers of people selling equipment into electronic markets.
Just what do you see in Edwards going forward into 2015? And maybe talk a little bit about the integration, what you've done to integrate and reduce cyclicality of the business? Thank you.
Yes. I will take the Edwards and then the answer will take it. I think, of course, we see that. And now, Ben, I also have to read the report from the ASMLs and from the Samsungs in more detail and you see that also. But when I talk to our guys who are meeting the 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. So there is a lot still in the pipeline. Of course, you have sometimes a bit of shifts of 1 quarter to another quarter. So 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 is then a bit more negative impact on their result. But I think on the real demand, what I have heard from our guys that it is still going strong.
So let's see. Because we all know, if we look back 5 years ago or 6 years ago, you see that this semicon was sometimes a stop and go business. But 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. And that is, of course, where to make them, that's also where you have the vacuum. And that is where Edwards is, yes, is sitting on now today.
And I think also a bit of market share, what these guys take. If I say it normally, I'm not going to say that 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. So that is on the end, Mark. When it comes to the integration, I think it we have every second month, we have our board meetings. And then Hanzula and myself, we go there, and we have a couple other people who are leading that project.
And I must say, it's like we have been always together. You see that the people also in adverts are innovation driven. They are the machine builders, work with industrial customers. So from that point, the challenges are more or less the same. And we have a lot of in the background projects going on for expanding our general vacuum and utility vacuum.
As you remember, if you go back to the announcement where we said this is a growth project, we will go on with the same e comm, the flat screen, that is where Edwards is definitely the market leader. But let's also leverage the capabilities in 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. So 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 most a lot of them will come in 2015.
So 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 mid single digit growth. So service is doing fine in the Q3, and it's particularly strong compared to that average in CT. Industrial Technique is growing somewhere in that and slightly lower, but still a good growth in MR and CR a bit weaker.
So that's how it composes those 7%, 8% growth. Thank you, Hansel. Thanks, Rune. Thanks. Thank you.
I think we are very late. I but we have a couple of questions more. I'm sorry we can't. We can take one final question perhaps in order not to be too sharp on the time. Let's say one final question, one question.
We have a question from Mr. Pietro Celina, Sandders Banken. Please go ahead.
Tough one. Okay. R and D then expanded quite a lot to sales in the quarter, you at least, which I guess is seen also the some of the sales organic sales growth efforts. But how should we think of this ahead? I mean, we're now running at above 3% of sales.
You mentioned that some projects may be a bit scattered in situ back to basics. So R and 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 the stronger dollar and euro to the kroner. But 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, probably some of the intangible capitalized costs that we had related to the mobile crusher business and some other divisions in MR. So it was a bit it was not the run rate that you saw in Q3. You should perhaps be better guided by looking at Q2 and so on.
But then to Do
you think you will expand R and D to sales in 2015?
Yes. Yes. Then I was just going to say, Peter, I think when it comes to the projects, we do, of course, constantly portfolio management and looking around. And it's not the idea really to increase the investments more than we have here. I think in certain areas, we will do some project pruning.
That's for sure. But on the other hand, we also know that it's the R and D that support the organic growth. I think that support the pricing power. So on the other hand, it's a balancing act. And of course, internally, what we always push is the time to market.
But to answer your question very short, we don't have the intention to invest much more than relative terms now, but it will be more or less at that level.
Okay. Thanks for that. I'll get back with more questions to you after the call then. Thanks a lot.
Yes. 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 November in Charlotte, in Carolinas in the U. S.
And many of you have seen that on the website. We are coming very close to the end of signing up for participation. So I just wanted to remind you that if you are intending to participate and have not yet signed up, time is running up. So with that, I thank Roni. I thank everybody for participating and hope to see you when we are back with the 4th quarter results.
Thank you.