Earnings Call: Q4 2012

Jan 31, 2013

First talk about the fourth quarter report of Atlas Copco and the full year results, and we'll do it in the normal format. I will hand over to Ronnie, the CEO of Atlas Copco, Ronnie Leten, in just a few minutes, and then from there on, we will take some questions, but I'll come back to that after 20 minutes or something like that. With that, I hand over to you, Ronnie. Okay. Thank you, Hans Olav, and a warm welcome to my gold mine. It's always nice to be here and to see this historical place. Like normal, I go to the presentation, and I go immediately to slide number two, where we talk about the highlights. A good quarter ending a record year. I would start with that. If we talk about the quarter more specific, I will take later a bit more about the year. We see that the demand went lower somewhat. It mainly comes from softer mining equipment sales, but also from a softer Gas and Process compressor business. What's good to know is, and good to see, that our parts and service, what it says here, our aftermarket business, continue to develop very solidly, very strong. It's always good that that part of the business continues to do well, and you all know that is our resilient part of our business. We are very pleased with the profitability, and if we readjust for two one-time items, we will end up with 21.4%. I think for Q4, it is a very solid profitability. What really makes me proud about this quarter is our cash flow. We really made a great contribution to that, mainly coming from a good accounts receivable part, but also a very good inventory achievement. That, I think, was very good from our organization. The last sentence here on this slide is also what we should be proud of, all of us in Atlas Copco, is that we are again ranked among the world's top sustainable companies on the top of the Global 100 list. Congratulations to all of you in Atlas Copco. Now on slide number three, the figures in summary. We saw a slight decrease on orders received, the SEK 21 billion, organic little bit down to 2%. A good output. Revenue up 22%. A strong 22%, organic 4% up, and operating profit of almost SEK 4.7 billion. Of course, if you then reconnect with the two one-time items, you see that we are close to almost to a one and a 4.9. Earnings per share SEK 2.8, nothing more. Like I already said, the operating cash flow almost SEK 4.3 billion. We propose a dividend of SEK 5.5, that's an increase of 10% compared to last year, which gives a payout of SEK 6.7 billion. Now going to slide number four, and I would like to spend just a minute on this slide. Normally, I go through it quickly, but I think this is a bit giving the overview on the world, and you see also the differences. It's not homogeneous, what we see in the globe on this map, is we see a North and South America, solid. I think we still see a good development of the business. Where you take then Europe, if you take first that part, you say, yes, it's still not coming really where we would like to be. We are still suffering from negative development. I think if you take then Middle East, Africa, we see also this time a minus, as we also see a softer South Africa. On the other hand, we take then the Asian part. I think there, we're still also not sure are we now in the real plus. We see we're coming close, there's a minus on the year, but a plus on the quarter, it's still hanging. A rather mixed view on the world today. If we take it more specific, Americas, like I already said, positive. Strong on the industrial part. Good on the construction equipment part, that's good to see. On the other hand, we saw a softening on the mining equipment that's mainly coming from our thermal coal projects, which are not coming as they were coming 4 quarters ago, the same quarter last year. South America, very solid. I must say, even good. Of course, it's always good to see the biggest country in that continent does well, and that's Brazil. We had a good quarter in Brazil. Of course, at the same time, we landed 2 good orders for mining equipment. Europe. Now I'm on slide number six. Sequentially, a little bit improvement. We say that you can say you can be positive on that, but if you look year-over-year, it's still down. We had, as it says there, good order intake on compressors, mainly coming from 3 countries, Turkey, Russia, and a bit of Germany, which was positive. All the rest was down. Again, a rather mixed outlook on that part. When we take then the mining equipment and then specific Russia, that was really weak. It was really soft when it comes to Russia. It's a bit the same explanation as I was giving when I was talking about North America. It's the coal story, what made the demand weaker. Africa, I already mentioned it. It's softer in South Africa, and on top of that, we didn't get any large order. It made it then also not a very strong quarter. Asia. Aggregated, stable Asia. If we look to the +2 for the quarter, but again, also mixed. South Korea, India, Southeast Asia, solid, good development. I'm happy to see that. On the other hand, you see China, which is still, I don't know what we should read about it. Anyhow, not in the positive fields yet, and mainly also this time due to weak orders for Gas and Process. Australia, although you see a -19%, but those who are following us very closely would know that we had a couple of very strong quarters, last year and also at the end of the previous year. That is a little bit lower, we didn't get these very high, big orders, but we have still a very solid business going on in Australia. Not more to say about slide eight. I take then the sales bridge currency minus on the year, it is zero, but we see a minus coming mainly, of course, from the Swedish krona. Price. We continue to innovate our products, create value for our customers, which also allows us to enjoy a part of that benefit with some price increases. As you see also, the orders received and volumes were -4%. Bringing it a -4%, coming a big part from currency as we also had a positive structure run. I spend two minutes or a minute on the year. I'm very proud to see that we had SEK 90 billion in the year. The total revenue increased with 11%. You take an orders received, it was 4% where 2% coming from structural changes, so acquisitions, and the other part from organic. We take it then by business area, now I'm slide 11. Then I'm talking about Compressor Technique. A slight increase for industrial compressors. That continues to give a bit of positive outlook on that part when we look to quarter four. Again, as I already mentioned, Gas and Process was soft. Just to come back on the industrial part of our compressor business. It's mainly in North America and a little bit in Europe where we saw a positive development. Strong operating profit. I'm very pleased to see them, and I would like to congratulate our guys in Compressor Technique, 24.2% operating margin. I'm very pleased to see them in that league. It's good that the investments in efficiency are also seen in the bottom line. We talk then next slide, then I'm talking Industrial Technique, slide 12, where we saw a weakening of our equipment, mainly coming from a softer Asia and a softer Europe, a good North America. That also matches what we saw on the compressor side. Both businesses are doing well in the Americas. Strong development in aftermarket, also that is keeping going on, and it's also nice to see that our efforts are paying back. The operating margin is around, say, 22.2%, which I think is in line with our expectancies, given our investments we're doing constantly intensifying our service presence and of course not giving up our R&D and releasing of new products. Mining and Rock Excavation. I already mentioned it in the beginning, the softer equipment. If we really dig into details and really compare quarter three with quarter four, we see sequentially a flat development, which given everything what you read, everything about the mining part, is maybe not so bad. Okay, on top of that, we also got a couple of large orders in South America. Parts and service, again, same as I said in Industrial Technique, good development. Pleased to see that growth and the operating margin, 23.8%, a very high level, congratulations to the organization. Even though we have lowered the production, as also we lowered the inventory, and on top of that, they had a bit of headwind from currency. I think given all that, I think it's a good achievement for this quarter. Of course, we are very proud to see the latest acquisition, MEYCO, our Swiss company, where we also will be able to extend our product offer in the tunnel and in the mining equipment with our shotcreting equipment. We come to Construction Technique. Order intake up. Who had expected that? But at least it's definitely there, 10% up, so that's very nice to see and coming from a very solid North America, but also a positive Asia. Maybe if you recall, last year quarter, it was tough in China. I think a lot of activities were stopped in the construction part, and we see that creeping up from a low level, but at least it's positive. But unfortunately, this plus was compensated with a tough Europe. Operating margin adjusted 7.1%, so we have taken a couple of one-time items in restructuring as we are adapting our cost base to the new level. So unfortunately, that brings some one-time cost with it, and it is what it is. And on the other hand, also, as you know, this quarter is also a lower production volume, so what also affect the profitability. But what's good is, in this we keep investing in new products, as you also see here on the PowerPoint, on the slide. So we also have launched a new product, a new breaker. So that is good that we keep investing in that business, and on top of that, also, we keep investing in the presence. So we're really densifying our market presence, and we really invest in having the best offer to our customers. Group total and the profitability. I think you have seen all the figures, so I don't think there's much to say. It's more or less on par with last year, the same quarter, even if you do a correction with a one-time item. I would, by this, give this word to Hans Olov. Thank you, Ronny. I will just add on a few questions on this slide and then take you through a few of the other coming slides. We look at this one, we can see that what Ronny hasn't touched upon already is the financial net, which came in roughly at SEK 200 million negative, not too far away from the same figure for last year. The only difference, we had no capital gain this quarter like we had last year. Otherwise, they're all the same. If we look ahead, and there, of course, it's very difficult to judge any financial exchange differences. Whatever comes on that score is highly unpredictable. But from an interest net point of view, something in the order of SEK 800 million of next year for the full year is probably the cost that one could expect. Then if we move further down the income statement, just a few comments on the tax. Came in at 23.9% of profit before tax. Almost identical to last year again. This year we have some one-times. We have about 3 percentage points positive impact from the fact that Sweden next year will move from 26% corporate tax rate to 22%. Recalculating some of the liabilities that we have on the balance sheet, it gives us a one-time effect in the positive direction. On the other hand, somewhere in the one to one and a half percentage points, we estimate from various negative impacts around the world of different, very difficult to predict differences in timing, et cetera. From that, you arrive somewhere in the region of 26% as the underlying tax rate. If we look ahead and we see, of course, next year will benefit from this Swedish tax rate change. That is, of course, not impacting the full group earnings. So we believe that positive will be roughly compensated or offset by some other changes around the world. Mix is playing a little bit against us. We earn more money in some of the higher tax rate environments, and so 25%-26%, I would still keep as our assumption for 2013. If we then move on, I have to switch slide and I come to slide number 16, which is the famous profit bridge. If you look at this one, which is the full group for the full quarter four, you see the impact of the various headlines. Organic, of course, the big part. And we have there 29% so-called flow-through. What amount of profit we make from a certain change in revenue, which we believe to be relatively normal in the situation where we are right now. We have a slight negative when it comes to the effect from currency, and then when you see the other impacts, you can calculate backwards. Ronnie mentioned that if you take the one-time-out items or, let's say, the non-comparables from a normal quarter out, our profit would have been SEK 21.4. But also, to be honest, last year we had similar types of effects, so the comparison is SEK 21.7 last year to SEK 21.4. So I would say that it's not very surprising, a rather normal flow-through. If we then move to the next one, it gets a bit complicated. The situation we are in right now is that the volume growth is not dramatically negative and it's not dramatically positive. But of course, the percentage points that you see when you split it up per business area is rather strange, to say the least, whereas the group number makes a lot of sense. Compressor Technique, building on Ronnie's comments, is better, I would say. There is the efficiency that we talked about that is coming through, and they also had a very strong, good invoicing quarter. When we talk about Industrial Technique, you can see that in spite of the investment in the organization, which is of course then affecting the cost of building that organization, the invoicing in the quarter was about the same as last year, and hence there is a negative impact on the margin. Mining and Rock Excavation, it's a little bit the same, but here you see clearly that with the reduction of the order intake we've seen at the end of 2012 compared to the beginning and compared to last year, there is a lower production in the factories and hence the flow-through looks rather meager in this quarter. Construction Technique, which as Ronny pointed out, is a little bit still in work in progress in terms of stabilizing the performance, and of course, they also should see that there were some issues on the comparables, but that's the comment when you look at it by business area, basically. I move on to the next one, which is the balance sheet. A rather uneventful if you compare with last year's December, but for some cash generation, otherwise rather similar. We are very happy that the last trend on working capital accumulation, Ronny touched upon it already, is seen that we are now, in spite of the bigger volume we have in the group, we are back to the same type of inventory and receivables that we had already a year ago, or even slightly lower. It signals, of course, a strong financial situation, no doubt. Perhaps I can take the opportunity here also to again look into 2013. Some of you have seen on page nine in the report that there are accounting changes going on in certain recommendations in the International Accounting Standards, and one relates to pension liability accounting. Next year, not in these numbers, but next year, you will see that there will be an accounting increase, an increase of the liabilities of about SEK 1.3 billion in the balance sheet, which is part of this figure here, which is a one-time correction due to a change of calculation principles. A slight offset will be booked under deferred tax liability. The net effect next year will be a one-time negative of SEK 900 million in the equity. It will have no impact more than very marginally on the profit and loss performance next year, however, compared to this year. I just thought it would be good to have that question. If we bake all this together, the income and balance sheet movements, we come to the cash flow. Again, I won't dwell too much. You see that the big difference between last year and this year is in the performance of the working capital in the quarter. Actually, even if you look at the year, you see the same thing, that the difference in cash from that line is explaining more or less all the difference in the operating cash flow. I think with that, I leave it back to Ronny for some concluding remarks. Thank you, Hans Olaf. This is the summary slide for the year 2012. I would say, should I say a record year and then dot again? 2012 was again a very strong year for the company. We look a little bit back, say 12 months, and start the journey. You see six strong months. I think the latter part of the year was softer. What we have been doing and still keep doing, as you should not forget that Atlas Copco is a growth project, and our goals for sustainable profitable development tells us that we have a growth target of 8% over the business cycle. We definitely keep investing in market presence, so densifying, entering into the market, get feet on the street, dig deeper into our service value stream. Of course, lead with having the best products wherever we go. Okay, these are very good to have these three legs, but they don't bring anything if we are not top in operational excellence. Also this year, we have taken a hell of a lot of initiatives in rolling out efficiency programs in manufacturing, in logistics. Lean manufacturing becomes really our second nature, and more should come. We also have done it in administration, where we also giving high focus on efficiency. We keep doing that. We look to the results, SEK 90 billion and making SEK 19 billion operating profit. That's easy to remember. That's a great figure, being the first time in history about SEK 90 billion. An operating cash flow, given even that we have been growing, in revenue 11%, even this company has been able to create an operating cash flow of more than SEK 12 billion, which I think is a real good achievement. I think on the dividend, I really already mentioned it. I would like to take also this time also to congratulate the whole organization. We have been doing very good, very fine. Congratulations. It really comes from keeping focusing on our customer relations, on our service, on our product development, and that is the secret of this success. It's only hard work, and we only know there is always a better way. Thank you for that. I'm going to, I think if we talk about the earnings per share, I think, Hans Olaf, I think we don't need to mention more on that we only see it going up. I will go immediately to the near-term outlook. As you see, the near-term outlook is not changed when you look back to the quarter three announcement. We still believe that our products and services are expected to decrease somewhat. Thank you, Hans Olaf. Ronny, we move over to the question and answer session. Could I just ask first, could the operator to repeat the procedures for posing questions on the telephone line, please? If you have a question for the speakers, please press 01 on your telephone keypad. Thank you. We will start, though, with two questions from the audience here in Nacka, that we will have some microphones distributed. Yes, please go ahead. Thank you. Peter from Handelsbanken. Ronny, to begin with, the organic order drop in the fourth quarter sequentially when you had a slight negative demand situation was around 4%. Is that slight in your wording? Secondly, on your outlook, on slight weaker demand, maybe you could try to specify that a bit by going through the divisions. Finally, a specific question on the mining side. We have seen sequential growth for the aftermarket, despite a flattish spare business. Maybe you could comment whether you see any sort of destocking in the spares and wears in the fourth quarter, and whether that is expected to come back to. I leave it with that. Thank you. I don't know if I catch your first question. What was it? Organic drop? Yeah. Really, the outlook last time was slight negative demand. We saw that. We saw 4% organic drop, I think, sequentially. You continue to have the same wording. Okay. Basically not saying falling off a cliff, I just want to have your comment on that. Yeah. I think to use that word, falling off a cliff, that's definitely not what our demand outlook says. If I can, and that was the reason I also state, during the presentation a little bit longer, about the group when I explained that it's sort of a mixed view what I get. If I take it first geographically, I still Positive development in North and South America. Europe, I don't believe that will be, if we go in the next months, that we will see suddenly a hallelujah development. I think I'm rather careful. You have also heard me saying a bit when I was explaining a bit about Asia, which the big question is, and maybe the $20 billion question, what about China? I think my visibility, and I think for many people today, it's rather fluffy. January, February, Chinese New Year, last year in January, now in February. Okay, how do we compare? I don't see it really taking off. I think I would rather wait another three months to see what it is. It's a bigger uncertainty, what I have. That made me, not seeing really the big orders coming. That is one. Second, if we take it a bit by sector, I think I will start with the mining part. What we have seen over the year, last year now I'm talking, that we have six months very strong. After midsummer, it was significantly lower. You remember Q3. If you compare that sequentially with Q1 and Q2, you will see, that was mainly in mining equipment, we see sequentially the same level. I don't see any signals in the mining community that made me say quarter one is going up. One should know, I don't know how many CEOs have been replaced recently in the mining business. That creates certain slowness because boards need to take decisions and new CEOs will be looking again to the CapEx. A lot of companies have run over the CapEx. I think they revisit that. When you look a little bit on the long term, I still believe in the commodities where we are. Copper, gold, iron ore, I still have a good positive belief in that. Definitely there will be good orders coming. When it comes to your last question about, say, the after market, I take quarter four, I think we go so good parts and service business in the mining, it went on as normal. What we saw is a bit softer consumable demand, which, what you also mentioned, I think is a bit of a de-stocking. We'll see now it's a little bit, you are a couple of days too early. Give me the full visibility of January. When we look to the orders coming into the factory, they didn't give the same trend that we were in a de-stocking situation. I think it was, again, at a normal level. Thank you. Any other questions? Hi, it's Fredric Stahl from UBS. Could I maybe go back to China? I was just wondering if you could give more color on what you see on the industrial compressor side and then on the construction side in particular. Yeah. The second question, if you could quantify the large orders you took in mining in the quarter. Finally, just housekeeping, if you maybe also, Luca, give us an idea of currency impact in the first quarter. Thank you. What was your second one? What? Large mining. Okay. Yeah, I think when it comes to China, again, if we compare the construction business in China was definitely came really, if we take the same period last year, it was almost to a standstill. That's definitely not the case anymore. I think we see demand coming up, it's definitely not on the level where it was 12 months ago. We see orders coming in. I don't use the word positive. It's positive, of course, I don't want to sound that hoorah, we are back in business. I think it's still on a prudent development. When it comes to compressors, it's a bit of a mixed view. I mentioned also what we see is the larger one, the Gas and Process and the larger Turbo Compressors and the big orders. I think that is not really there. Okay, you have them, not at the same magnitude. If you hint to my birds, I think they are really, say, not gradually positive, let's say. Gradually positive. Now I'm really stretching me out of my comfort zone at that. It's difficult because the reason I'm a bit so careful is because you see January, would see December as always strange months and all that, you need to be very careful when to conclude on that. Not to take your dreams for reality. It's definitely not going further on that one. When it comes to the large order, there were two that now I have to look how much it was. It was SEK 300. Yeah, so SEK 300, was it around? That was mainly in South America. Yeah. You asked about the currency situation. Well, we had still a negative in Q4 as you saw, it's primarily coming, of course, from the strengthening of the krona. Lately and very lately, I would say after December, right this week, basically, we start to see that the U.S. dollar is turning into a totally new level than what we have seen for a while. It has also impacted some of the so-called mining country currencies like the Australian dollar, the Canadian dollar, particularly the South African rand, et cetera. We will not have a very easy comparison from a currency point of view in 2013 to 2012. It's a bit early, if I just take today's rate, it will at least be in the same level of comparisons that we have seen now for two quarters. I mean Q1 compared to Q1 last year and Q2 last year. If it stays like this, we will constantly have a little bit of a negative comparison. It will oscillate a little bit over time, but that's judging exactly where it is today. If the dollar moves up 30, 40 already, that changes the picture again. Anyway, that's about how we see it today. It's also, Hans Olav, I think the euro dollar. Absolutely. We were glad when the euro dollar were below 130, because we haven't been spoiled with that type of rate for many years. Now we're already at 135 again. The euro and the Swedish krona relatively weak is the best situation due to our exposure. You can't get everything. At the same time, we have stood here many years talking about currency up or down, and at the end of the day, it's the operating margin performance that is the only truth. I think that the company has been capable of compensating quite a lot when there has been headwind, and also use the tailwind to take further positions in the market. I think that will be the case also going forward. Yep. I think we move over to the first two questions on the telephone line, please. The first question comes from Mr. Aron Eberson at Goldman Sachs. Please go ahead. Yes. Hi there. Good afternoon, Ronny and Hans Olav. Just three questions from my side, and I'm pretty sure you can guess the first one. Record cash flow in the quarter, record low net debt to EBITDA. I'm just wondering how we should think about capital allocation. I know you don't have an official net debt to EBITDA target or guidance, but whatever you're sort of aiming for, it seems to be trending down. I was just hoping that you can give us some idea, for instance, if we have another sort of average year but with very strong cash flow generation, should shareholders expect to see a bit more of that than just the ordinary dividend? Secondly, I was just, and related, I guess, within which division do you see the sort of biggest opportunity for inorganic redeployment of capital, if any, at all? Finally, just one question, Ronny. I was just curious about your comment on your canaries or what you refer to them as, because within the Construction Technique division in the release, it seems to say that the increased order volumes were most pronounced for I think amongst other things, the portable compressors. Generally, I think you refer to this as a good indicator that things are looking up, but you now sound quite a bit more cautious than what we are reading in the release on at least that little bit. That was all from me. Thank you very much. Thank you, Aron. I will probably need some help here from Ronny with some clever comments or when it comes to the capital allocation, yeah, we understand your question. You are absolutely right. I just want to repeat that we have no fixed leverage target, debt to equity or debt to EBITDA, as you know. Of course, we believe that the company has not changed in any way since October to now. We believe that there is a strong cash generation capability in Atlas Copco based on the high profitability level, et cetera. That has definitely not changed. What we have always stated is that from a timing perspective of when that is allocated to shareholders, to acquisitions or to pure organic growth, building stocks when the demand is there, et cetera, that is much more difficult to have a strong and a good answer to. The board has favored quite clearly a strong financial position as in the past and continuously, and we consider also the board, of course, Atlas Copco as a growth project. I think that was also the words of Ronny in his initial comments. I think that your next question, if I understood it well, what if we then look at capital allocation opportunities and not organic, where would those opportunities be? Did I understand you right in that? That was exactly right. Okay. I think that I take Ronnie can elaborate a little bit on that. I think, Ethan, we have already met in several occasions, and you have heard me answering the same question. I think there is no specific business area where I will exclude any type of acquisition. Of course, one can say, and looking to the achievement and the profitability level of some business areas that you would rather choose to invest in that part than in the other part. If I then am really more specific, where I think it will be, we can talk a little bit about EBIT levels, because it's not always easy to come in these areas. And then I'm talking in larger tickets, it should be mainly in the area of the industrial scenery, and then you come to CT, and you come in Industrial Technique. That is where I believe the likelihood is a bit higher than it is in the mining side and on the construction side. I think the third question, you were starting to talk about the words, but then I got you mentioned portable construction. I must say, your line was rather bad, so I don't know. I think the question was related to the comment in the report on Construction Technique that portable had, in Asia, a particularly good trend, and that you sounded a little bit more cautious. Yeah. I think, of course, that's maybe more, I think, a wording and giving more value to some words than others. I think when it comes to the construction part, and if I repeat myself a bit, I think we saw in the quarter four compared to quarter four the same year, a positive development. You have seen that. If I look region by region, of continent by continent, the European situation is rather difficult, where I think North America, and I also believe also the Asian part. It's not only about China. I think we have many more regions with many more people than China in Asia, where I see a slight positive development. Again, I'm using slight because I have not really seen it really taking off yet. I'm a bit more prudent maybe than the text says. Okay, perfect. That's very clear. Okay. Thank you very much. Thank you. I think we have another question on the telephone line. We have a question from Mr. James Moore at Redburn. Please go ahead. Yeah, good afternoon, everybody. It's James at Redburn. I've got two questions, one on inventory. I see the balance sheet was down for inventory by about SEK 1 billion. I wondered if you could just say how much that was currency and how much it was real. I see the inventory to sales has come down from 20.7 to 19.5. Just trying to get a feel for how much, whether you could quantify the impact on EBIT from that destocking, and whether you could give us a forward-looking view as to whether 19.5 is a good level to think about for the end of 2013, or whether you have further ambitions. The second question, really, I'd like to come back to the special dividend question. Can I take it from your answer that the board has favored a strong financial position, that the board rejected a decision to distribute further funds, or whether you just didn't propose it to the board? Are you trying to signal that this is about M&A? Should we start from the bottom? Because that's probably a quicker answer. There was no intention of choosing of words, James. The board does favor a strong financial situation, the decision on the capital allocation outside the normal running of the company, et cetera, of course, rests with the board and ultimately with the shareholders. That's how it works. That I think is on that one. You also asked about the inventory. I'll let Ronnie complement it, but I can say immediately that from a currency impact that explained the development in the fourth quarter, you won't find very much. It was not much affected by that, since we had little movement on currencies within the quarter. It's really an impact, of course, of adjusting the purchasing of goods because we have lower order intake on certain equipment, primarily in mining. When it comes to the impact of EBIT, we will defer that question. We have no meaning or wish to express the specific impact level. We have commented when we saw that margin development and the flow-through of mining in the fourth quarter. I think that's as far as we will go when it comes to what is normal and not The impact, of course, is there, to quantify it, we'd rather not. Just to add to that, is the current inventory to sales level what we should consider as normal for the end of 2013 or 2014, or do you have an ambition away from that over time? I think, let me answer on that part. James, also in a couple other occasions, we have been talking about that, about when it comes to working capital. You have heard also me saying that, of course, we are striving to get a lower working capital, a more efficient working capital. That means working on the payables, working on the receivables, and of course, on the inventory part. When it comes more specific on the inventory part, the main efficiency improvement, if I can express myself like that, should be found in Construction Technique and in the Mining and Rock Excavation Technique business area. There we have still potential to improve our inventory. By implementing lean manufacturing principle, also changing product design with modular design, which we are doing, by the way, in several divisions, which a couple years ago we acquired. That takes a bit of time before it's really been seen. You should ask me maybe every six months, "Where are you on this and that?" I will definitely owe you an answer. The organization owes you an answer and efficiency on that one. Maybe I would like to also elaborate a bit on the second question, because that gives me the possibility to also bring it to the audience, I think. We have increased the dividend with 10%, and one should not forget that. We have really, as the board, have decided that, okay, this is what we do this year. We are a growth project. We are work on that. Given the present circumstances, we have said that is how we go into the next coming year. That gives us, on one hand, a good shelter, and on the other hand, gives us also muscles if we need to do something. I'm not spreading any rumor. I'm not hinting to anything. Don't try to find any sophisticated explanation in my wording. This strategy of this company is not changed today. It's still a growth project where we have the ambition to grow organically as well as acquisitions. Some acquisitions where we have been looking for several years, maybe we have to look another for a couple several years. When they come, we will do our move. When they don't come, we will not do our move. There will be a next year to, if we need to distribute and to adapt the balance sheet, we will do. I will promise to all the shareholders, we will not destroy value with the money. Thanks, Ronnie. Thanks, Hans Ola. We'll take a question here in Nacka. Hi. I have a question about Compressor Technique. A couple of years ago or a year ago, you were talking about the hard work or gaining market shares, and you said that I'd rather gain 1% of market shares that contained EBIT margin. We're not focusing on margins rather than growth. If you look at the margin curve, it's been quite flat. I wonder, what about the market shares? Have you gained the market shares you wanted the organization to do? The second question on the same topic is within Compressor Technique, can you talk a bit about the aftermarket and how that grow compared to the rest? Thank you. You know our situation when it comes to Compressor Technique. I think our market share over the world and also more local specific will not allow us to do big acquisitions. That also means if we want to grow in that area, we need to gain market share and also do the transformation. More than from fixed speed to variable speed, more integrated compressors, more value selling that we need to. That is also the reason why we moved from a more indirect channel to a direct channel and intensify the presence, which you have me heard saying many times and feet on the street and all that. We keep doing that. You see sometimes also when you look to flow through, it does not look always as we would like, but okay, cooking costs money and that is something. When it comes the results, show me the money, show the market share. I can tell you that we have, if we take it in an aggregated level, that we have gained market share. That does not mean that in certain specific micro markets that we have, for whatever circumstances, have lost. Okay, on the other hand, we have taken our part on that one. That for sure, I can look deep in your eyes on that and say it is fact. When it comes to aftermarket, this journey with the dedicated service organization in CT, we started end of 2007. We are now coming more and more in a maturity phase. I'm pleased to see that also now the second generation of management is bringing it really on a higher level. We definitely increase our penetration, and we are still not there at 100%. You can question why we're not servicing 100% of our compressors, our dryers, our installation. That is a question you can ask me every quarter. Have you improved on that? I think we should get better than that because that is low-hanging fruit. On the other hand, we are developing more and more service products. We're also getting better on onboard logistics. You remember what I said about operational excellence. We're doing a couple projects when it comes to distribution centers so that we get more efficiency and really getting more out of the market. Third, we keep constantly moving from indirect to direct. That strategy, although that may be not so, say, the last six to nine months, not so obvious because we have not announced many acquisitions on that one, but that strategy is still valid, and maybe it could be this year that there are a couple more following in that one. We keep doing that. That is the winning strategy. Densification, feet on the street, service, and the best products. That triangle and that market share and aftermarket. The strategy works. Can it be better? There is always a better way. Thank you. We have another question here in Nacka before we move back to telephone. Yes. Anders Swedbank. I have a question about acquisitions. You mentioned specifically compressors and Industrial Technique, but you have very high market shares, and by definition, those acquisitions can't be very big in size. Why don't you talk more about the mining and construction sectors? Or should we look for adjacent businesses in the industrial area? When you were asking the question, I was writing down exactly that world. What I said is, I think you should-- and that was a priority, what you ask, what's the likelihood? I think it's more in the industrial field, and of course, then you come close to the Industrial Technique, CT, BIOTOP. Of course, we cannot buy a compressor company. I think that it's really be in the adjacent field. You remember a couple of months ago, we bought a very small company in Denmark. In these areas, that is where we are also exploring the opportunities. That's the area. Does that say not in the mining? I'm not excluding. If you look now at the track record of the last three, four quarters, I think we have done significant on the mining side, and we do that. Of course, to have a larger one on the Mining one, a big one, there were rumors at a certain moment that one, I think that will be a bit more difficult. Who knows? Thank you. Should we take on the two questions from the telephone line? We have a question from Mr. Andreas Willi, J.P. Morgan. Please go ahead. Good afternoon. Thanks for taking the time. The first question is on pricing in Mining. Maybe you could split that into kind of the price increases you get for passing on salary inflation in some of your service businesses and how equipment pricing compares like for like maybe in the second half versus the first half of the year when the business was stronger. In terms of the FX impact you talked about, you said it's going to be similar to what we have seen recently. I mean, in Q4, we had SEK 200 million. Looking at the translation impact alone, one can get to SEK 500 million-SEK 600 million for 2013. Does this mean we shouldn't expect, therefore, a more meaningful transaction impact or impact on the margin sector as we go through 2013? The last one on acquisitions. I know it's difficult to comment for you looking forward, but if we look at the last four years, you've added just below 2% a year from M&A. Given your balance sheet, your management track record, your cash generation, this looks quite a low number. Is this mainly because of limits on antitrust, or is it just because there are no targets out there at the right price? Or do you think larger M&A doesn't add any value to Atlas Copco? That's a rhetorical question, huh? I think if I take the last one, I think what we always have said, of course, we will keep doing on this close to home, nice extending the offer, presence, acquisitions. We will keep doing that. These are the EUR 10 million, EUR 20 million, EUR 30 million, EUR 50 million acquisition. These things, we will constantly doing that. The largest one, I think we have not excluded that. It's just a matter when they fall, when they come, and when they are there for the right value. One should know, I think I'm not here, the CEO, to boost the top line. I'm here, the CEO, to create value for the company. And that I think one should also take into account when we go after acquisitions. That is also our guidance, what we use on that. I will just, and then Hans Ola can take the other, on the pricing mining, I think I don't see much different behavior in 2012 in the beginning of the year as I saw at the end of the year. There is not much different in the way our customers are interacting with us. That mainly stays at the same way. I must say I've not picked up any other trends than what I confirm now. Yeah. If I understood your question, you say that looking at today's currencies, you could only by translation effects come to roughly SEK 500 million, if I heard you right. I think you're right, but it doesn't mean that there is no transaction effect that we calculate. When I explained it in the beginning, I talked about the most recent quarters having SEK 200 million per quarter, something of a negative from currencies between translation and transaction, of course. I think that we look at how it is today, that's about the trend that would continue into 2013. From that, yes, there will also be some transaction effects. Thank you. Thank you. We have another question from the telephone line, please. We have a question from Mr. Klas Bergelind at Nomura. Please go ahead. Yes. Good afternoon, gentlemen. It's Klas from Nomura. James Moore asked most of my questions, but I will try to rephrase one a bit. Looking at the inventory levels again, it sort of doesn't feel like you need to reduce your production levels much more from here. My reasoning is really as follows. If you look at inventories to sales, they're now at the similar level as the start of 2011. Looking at your orders in MR and in CT, they are also at the same level and certainly in MR. If demand is sort of flattish from here, it feels like this was the last destocking quarter, right, impacting margin. That is my first question. The second question is on your construction orders. They were up quite a lot sequentially in North America, and I'm just curious to see where was the step change. Was that in road construction or more towards commercial buildings, i.e., non-res? Thanks. I think I will take the last one first. When we talk construction and in our business, we also have a significant market via the rental companies. We saw good development with our partners in rental. That was a positive trend. On the other hand, we saw also good development on the road part. I think where we got a couple of good orders. It was not so mainly because we are not exposed so much directly when it comes to the housing part. Of course, that goes via indirectly, of course, the rental companies are coming into that. It's mainly, say, on the rental part where we saw a positive and then partly on the road one. When it comes to your inventory question and what James asked, I must say I don't like so much your analysis because I must say you undermined me a bit with my people that, because I think, of course, when you analyze it, I agree. What I said to James, I think we want to go for efficiency. I see still some opportunities in the mining and on the construction side, that's the reason why I said, you undermine me because I'm sure also my collaborators are listening in, and they will use your analysis against me. That was not the meaning, Ronnie. No. I know. I think one thing you should know, the business model of Atlas Copco when it comes to inventory is definitely an assemble to order flow. Why do we have more on the mining side? Okay, we have much more in transit. We produce here in Sweden, and we sell a lot to Australia. It takes time. They need to adapt this. We need also to do a step change in improving the process, and that is also what Bob, our business area president in mining, is doing. They are definitely changing the way we assemble, the way we handle orders, which will then improve the process and of course, reduce the inventory. That I call then as efficiency and. Exactly. The same is on the construction side, where we also can do that. My question, Ronnie, was more sort of on the production levels that would impact the margin. I know that you are mostly an assembler. I was just wondering, are we going to see that sort of headwind also going forward in the first half? That was more the question. No. That is also the reason why Hans Ola didn't answer specific in money terms, the question from James. I think we should not see that we get suddenly an enormous under absorption because we stop our factories for a month or whatever. I think we are not vertically integrated. Of course, the higher the production, the more absorption you have and the more flow through we have. I think we will not go from 100 to zero when it comes to our production level. I think we will gradually adapt on the level. We did a bit more in last quarter, and I'm sure Bob will do a bit more also in the coming two quarters. I think we should not use that as a significant drop for our profitability. Thank you very much. We are running later than we are, it seems to be quite a number of questions. I think that we can give it a few more minutes. We have one question still here in Nacka, then I'll take two questions from the telephone as well. I think we have one here. No? We have two questions to finish it off from the telephone conference then. We have a question from Mr. Lars Worsten at DMB. Please go ahead. Yeah. Hi, thank you very much. Hi, Ronnie. Hi, Hans Olav. Ronnie, three quick questions on end markets to follow up. First of all, on the question of market share gains in CT. Can you give us your assessment of the materiality of your market share gains during 2012? Particularly, if you could elaborate on the gain within industrial compressors in North America and Europe. Would it be fair to suggest that your market share gain there have been accelerated as you went through 2012, particularly given the restructuring and corporate activity that's currently ongoing at your two major competitors? Secondly, on mining, your comment that you see iron ore more positive in terms of order intake. Now, obviously at Q3, you were quite cautious as most were. Have the developments during Q4 changed your view on the outlook for 2013, specifically on iron ore? Do you think iron ore equipment segment could grow for you in 2013, even if we see a pullback in iron ore prices to, say, 120? Finally, just on construction, the good pricing development during the course of 2012, is that primarily a result of a rollout of new product or a mix shift away from more challenged pricing environments? What should we expect there going into 2013? Thanks. Maybe I'll start with the last question to answer first. I think, of course, we are comparing also with a tougher, weaker quarter last year. I remember that Q4 on the construction side was not strong. That makes it a bit better. On the other hand, we see also in the markets where we were traditionally strong, and then I'm talking about, say, Brazil. I'm also talking North America. They are positive when it comes to construction. That helps us. We get a bit of a continental mix or geographical positive mix, where on the other hand, Europe, especially when it comes to road construction, is rather weak. That is a bit the way you should read it. Of course, we have been launching new models, and we will do that also this year. It's not only just luck what the guys have there. They're also coming up with new products and we have to fight those upwards here, and we need to fight this up here double, I think, when it comes to share and it comes to profitability. We still have some work to do. When I'm taking on the iron ore part. Maybe on that part, I'm a bit more positive than we were in Q3. You remember all this announcement, what was made and what will happen. I see now that demand for iron ore is positive when it comes to even China, when you look also to the States. That is good. I'm a little bit more positive when it comes to iron ore. When it comes to real orders, I don't believe that it will come very soon for another reason, like I already mentioned, when it comes to decision makers who need to make the decision, and of course, they're still looking into their CapEx. I'm a little bit prudent on that part. I'm thinking more on the latter part of the year to see some positive movements than, say, next month. When it comes to market share, one should know in that type of business, market shares are not sweeping 5% one year to another year. Here you see market shares creeping up. Of course, what is going on into the market, I think is definitely also an opportunity for us to be dynamic in that part of the market, which we definitely do. We are really making sure that we go after each order as we used to do. Of course, if there is a little bit doubt on the other, say, on the competitive side, it always helped that one. I would not put too much value on that part. I think the market share that comes really from the presence, the good work. I think that having the best products, I think that is where most of the positive contribution comes from the market share. That's clear. Thank you very much. Thank you. The final question from the telephone line, please. We have a question from Mr. Ben Maslen from Merrill Lynch. Please go ahead. Hi, Ronnie. Hi, Hans Ola. Two very quick ones. Firstly, just on the mining business, can you just say how long the backlog is at the moment? At what point would you expect the delivery volumes to turn negative, if orders stay at the current level, and just maybe how that would impact the margin? Secondly, just on the Gas and Process compressor business, it sounds very weak. Is that just timing certain projects being delayed, or have you seen a bigger change in that market? Thank you. The Gas and Process part, I think these are larger tickets. Some orders fall in the quarter, and then I think you have either a very strong quarter, and when they don't fall, you have a bit of a weaker quarter. There are definitely some segments which are weaker. I think if you take about the air separation market, specifically in China where we were strong, is a bit softer or is soft when it comes to new equipment. On the other hand, the energy markets say for fuel gas boosters, for geothermal installations is very strong. It is just a matter of when do we land which order and make it then a good quarter. Ben, I would not take too much value on that part when you go in 2013, that one. Okay. Of course, I needed to say for quarter four because it was definitely diluting the figures of CT, and that's the reason why we also had to speak about this. When it comes to the orders on hand on mining, and then I'm talking equipment, we can say that we have more or less two quarters on orders on hand of equipment in the mining part. Okay. I'm talking now roughly, because don't shoot me if it is in all of that, but it's more or less in that magnitude. Okay. Any volume drop would be more second half? Yeah. Okay. Thanks so much. Thank you very much. I know that we have some people wanting to put some more questions on the telephone line, but time doesn't allow us, unfortunately. You are very welcome to contact us for your questions, of course, as always. With that, we conclude here, and I thank everybody for coming here to our Ronny goal