Atlas Copco AB

Thank you, Operator, and a very warm welcome, good morning, good afternoon, or good evening to all of you attending this third quarter 2025 earnings call. Together with me is Wagner Rego, who will guide you to the presentation together. But before we start, I will repeat the same topic I always say when we start the call, and that is when we start after the presentation, it's a question round. Please only ask one question at a time, so we make sure that all participants have the opportunity to raise their most important question. Is there more time available afterwards? You are, of course, more than welcome to line up again to ask your next question. With that, I hand over to Wagner Rego, who will start the presentation.

Thank you very much, Peter, and welcome to this conference call. We're quite happy to be here once again. So, if we go straight to the summary of this quarter, we have seen a mixed demand with stable orders, pretty much aligned with what we have said on the guidance for Q3 during the Q2 conference call. So and then you can see industrial compressors flat garden process. We see a decline in the orders. We see it when you look to year to year comparison was good on the industrial vacuum side. but negative on the semiconductor vacuum side. When it comes to industrial assembly and vision solution, there we saw a negative development, mainly driven by automotive. due to the conditions in the market. We had a solid growth for power equipment. We were quite happy to see that. And again, good growth on our service business. We see that our efforts to further develop our service business and the implementation of the installed base, I think we managed to capture that installed base that has been deployed over the years. When it comes to revenues, it was somewhat up, and we had two business areas with a good, reasonable, let's say, organic development, and two business areas with a negative development. That led us to a growth of 1%. The profit margin has been affected by restructuring costs, we will come back with more details, and acquisitions. We have done six acquisitions. There are two acquisitions I would like to highlight, because they are very important for our strategy. The first one is ABC compressors, that is increasing our ability to serve customers in hydrogen and CO2 applications. And the other one is Shareway, which is a joint venture. We acquired 70% of the company. And it's going to be a very important one for our development in China. Adding as well technologies that we didn't have. in our portfolio. So cash flow was quite solid. We were very happy to see we continue to generate very good cash flow. So going to the next, if we look into the financials, how was that translated? We reached 40.5 billion Swedish kronor in terms of orders received, as you can see, and 41.6 in revenues orders received more or less aligned with previous orders. quarter, but then change it organically, and like I have mentioned, 1% organically in the revenues. Operating margin was 20.5, but then if we readjust for the restructuring cost, we end up at 21.3. And the operating cash flow, we have mentioned already, 7.3 billion Swedish kronor, which is quite solid. And we were quite happy to see that development. If we then move. how we have performed all over the world. If I then start with North America, we saw still the environment there is, let's say, has challenges, uncertainty, but we are happy with a quarter, with plus 10 if you correct for currency. So and there we see very strong development in compressor technique and power technique that it was really good to see. And vacuum and industrial technique were slightly negative, impacted by semiconductor and the automotive. When it comes to Europe, it was also good to see 10% development, and here again, compressor technique had a good development, positive development, power technique the same, and we had negative development in vacuum technique and industrial technique. When it comes to Asia, basically, all business areas had a good development, positive development. The only headwind we had was in compressor technique, mainly due to large gas and process compressors and some large industrial compressors where we saw negative development. But combined, we still had a positive development of 1%. Latin America continues, not Latin America, but South America being more specific, had a positive development, almost basically most of business area with positive development on industrial technique, negative. And then Africa, Middle East. they had quite a big comparison to BIT and there we saw negative development that is mainly influenced by compressor technique and power technique. Overall, if we adjust for currency plus two in orders which is more or less aligned with what we have seen here to date. If we then move If we combine again all the figures, we can see that we had plus 2% in structural change. That is basically our acquisitions. In revenues, the acquisitions performed better, plus 3%. Quite a lot of currency had minus 6% in orders, minus 7% in revenues. organic world and changing orders like we have mentioned we end up at 40.5 billion Swedish krona in orders received and 41.6 in revenues so if we then see the split among the The business areas, we can see now that compressor technique in the last 12 months has contributed to 46% of our orders received, and this quarter with 0% growth or no growth. Basically, vacuum technique, 21% of our orders with 1% growth, very good contribution from industrial vacuum and service. Power technique continues a good development in orders, 17% now of our business, plus 5% in the quarter, and industrial technique with minus 3% in orders received. If we then move to compressor technique, what we have seen industrial compressors were basically unchanged. Let's say a little bit more negative towards the larger compressors, a little bit more positive towards the smaller compressors. That is not a big indicator, but that's just what happened in the quarter. We saw decreased order intake year on year on gas and process compressor, but sequentially we saw a good development and improvement compared to Q2. Service business continued to develop very well. Once again, I'm quite happy to see that. Revenues as well, that shows that with the quality of our order book is good, and we continue to develop 4% organic growth. profitability, we are quite happy with this level of 25.3%. We should have in mind we have done slightly larger acquisitions that has a bigger impact And we are focused to do more integration items at the beginning, meaning deploying our IT, especially when it comes to cybersecurity. So a little bit more cost at the beginning to safeguard our acquisition. So a bit more cost, but we are happy with that level of 23.5%. So, ROSE remains at a good level. And we continue our innovation pipeline with compressor technique. And here, today, we brought an example of our development in China that sometimes you have to develop to come with more features that you can come with a different value proposition to the customer. Sometimes you have to innovate to cost reduce, and this is a good example of how we innovate also to cost reduce, to be competitive in China, but also to create options as well in other regions. A very good achievement now with this new innovation. then if we go to vacuum technique we saw one percent it's good to see positive development although it's not in the semi market but it's very good to see that the industrial and scientific vacuum in terms of equipment continues to develop very well uh we still don't see we have yet to see a positive development in the semi market but we still have headwinds specially for north america when it comes to the semi in the other hand it's very good to see the service business developing very well especially in the semi part of the business new fabs being built coming into operation, and we managed now to get the aftermarket from these funds. But also not only on the semi-service, but also the industrial service is developing quite well. And then we have headwinds in the revenue. Revenues were down 6% organically. That put pressures in the in the bottom line, but we see good traction on the restructuring activities that we have announced and performed during the year. But this quarter we felt that we could, because of the headwinds we have in the North American organization, when it comes to some market and semi as well, we decided to further optimize our footprint there. without damaging our ability to grow, to sell, to further develop the business. I think that we didn't touch, but we have reorganized our North America that includes to reorganize one factory, to adapt one of our service centers to integrate and also to work in our customer centers, try to optimize, decrease management structure, and safeguard our ability to support our industrial and semi-customers and not touch it. I think that was the main target, and that's why we decided to do a new round of restructuring in vacuum technique to make sure we safeguard our bottom line. So then the adjusted operating margin was 20.1%. So return on capital employed 18%. And we continue to innovate in the semi-market. You know that real estate is very important in the semi-market. I mean, the footprint that your product utilizes is very important, and we managed to come now with this integrated abatement system that will occupy 30% less space in the fab. That's also important to support our customers in that market segment. If we then go to industrial technique, we saw an order decline of 3% and is mainly driven by the headwinds in the automotive. And I would say not everything is negative in the automotive. We still... get quite a good level of orders when it comes to flexible production lines or meaning if the production line needs to be more flexible we can support our customers on that we have more products more software driven products as well that can support our customers and we also see more demand for automation that is good but in the other hand we see less production lines being built And that means less project, and the project business is having more headwinds. And that's what we have seen. And service was basically unchanged. That's also influenced by the number of cars produced. And that's why we see a stable level in service in industrial technique. Revenues were down 1% organically, operating margin were at 18.8, excluding the restructuring costs, a minor restructuring cost of 53 million compared to vacuum technique. So we keep on fine tuning our organization in industrial techniques because we have the headwinds and it's the same concept. We have optimized management structure and we try to adapt to the circumstances that we see today in the market. And again, the innovation efforts continue. Here we develop a product that is reducing the dispensing time in about 50% that definitely can support some of our customers. And we are also quite happy with that development. So if we then move to power technique, And that is more a positive picture when it comes to the orders development, solid growth in equipment. Basically, most of the equipment division had a positive development, good growth in rental. I think that we continue to develop. Revenues were up 3% organic and operating margin at 17%. And here we have a higher functional cost. And then a little bit of dilution from the acquisition, but I think the main topic here is higher functional costs. We have created a new division to sell industrial flow products. We are building up competence in our customer centers. I think that will bring, it's bringing a good organic growth, but I think we haven't seen, we are yet to see translation in an improved margin that will come over time. We believe we can operate with a higher margin in power technique. And now it's important as well, the acquired companies, we also invest in innovation on the functional cost that is also a component of a higher R&D, because also the acquired companies, we buy technology, but we believe we should continue innovate. And this is one example of an innovation of one of our acquired companies, Wangen, that they managed to come with a new twin screw pump for applications, pumping high viscous media in demand, high flow rates. Also there, very good to see our innovation. So, with that, I will transfer to you, Peter, to talk about our profit margin.

Okay. Thank you, Wagner. Excuse me. So, from the operating profit of 8.5 billion, we go through the net financial items, which are slightly lower due to somewhat lower exchange rate, financial exchange rate differences. to profit before tax of 8.5 billion compared to 9.2 last year, and an income tax expense of 1.8 billion. That means that we have an effective tax rate of 21.1% for the quarter, which is on the low side. The main reason for that is that besides the normal things that we see recurring, that we also have a lowering of deferred tax liabilities linked to the lower announced tax rates for the German market. Therefore, this is a fairly low tax rate. It also still includes some of the release of provisions from the past from China, high tech we used to have. And so for the next quarter, we think the effective tax rate will be somewhat higher. probably around 21.5 to 22% in the near term. And that gives us a total profit of the period of 6.7 billion, and basic earnings per share of 1.37 Swedish krona for the quarter. Then I will move on to slide number 12, talking a bit more about the profitability in detail. I would say, first of all, overall, I think we were quite pleased with the overall profit level that we managed to achieve in these quite turbulent and difficult circumstances. As already explained by Wagner, we had some restructuring costs. Actually, also last year, we had some restructuring costs. So therefore, you see here in the bridge, the net for this year, the total cost was about 205 million SEK. For last year, we had a cost of 123, leading them to the net 82 million in the bridge, slightly diluting the margin, as well as the impact of the LTI programs also having a small negative impact. But the main headlines of the profitability development, I would say, were on the one hand, a slightly positive currency development. As you remember, last quarter we had quite significant impacts of currency, but this quarter it's much more Mild and actually slightly positive, though I will not go into more detail like I did last time. The acquisitions, however, are then a detractor of about 0.6%. And also the tariffs had a bit of a negative impact on the profitability for the quarter. Nothing dramatic, but I have to admit that we did not manage to completely compensate for the tariff impact. and the turmoil in that particular area throughout the quarter. So I think that are the main contributors to the profit development for the quarter. Talking about currency, also for next quarter we do expect actually in absolute terms a continued negative development of the currency contribution due to the fact that the average rate continues to lower, all things being equal. And therefore we would expect anywhere around 800 million SEK potentially of cost impact. Also depending of course, and that remains to be seen, on the revaluation of assets on the balance sheet. If we then take the profitability and dive a little bit deeper into each of the business areas, highlighting the main contributors to the respective profit developments on slide number 13, then starting with compressor technique, first of all, 25.3% continuing at the very good and solid margin. There was a slight detraction from the acquisitions, which is, in our belief, a very important investment in future growth. We also front load a bit more with costs in order to safeguard a good, speedy integration process from the beginning onwards. And that is the reason why we see a bit more of detraction from the acquisitions. Otherwise, I don't think anything else was very strong. Secondary, maybe also, of course, the tariffs had a minor impact as well. On vacuum technique, here a bit of a mixed picture, a bigger impact from currency as we can see. The main reason is that last year we had quite a big negative impact, and that in the bridge then turns into quite a significant positive. Otherwise it would be relatively comparable to the other business areas, but that's the reason for the high positive. On the other hand, volumes were the main detractor. We see of course the top line going down. with 591 million Swedish kronor, and that has an impact on the profitability on the bottom line, that's the main contributor. But also here, tariffs are part of the equation. Again, a minor impact, but still an impact in our profitability development. And of course, we already mentioned restructuring net impact in the profit bridge as well. Industrial technique, also here the impact of the restructuring cost as I already mentioned. Further then also revenue volumes being negatively affecting the profitability. The currency also slightly negative impact from a margin point of view. Also the acquisitions were a bit dilutive. So overall, going to 18%. But I think with the restructuring activities, we are also there working hard to try to turn the corner and improve the profitability. As already indicated, we evaluated quarter by quarter how things develop and whenever needed, we take the necessary measures. And we need to do it cautiously because, for example, in vacuum technique, you've seen the very solid development of service. So obviously, we cannot... you know, just cuts away everywhere in the organization. We need to do it in a careful way so we don't jeopardize the growth of the respective businesses. And then last in the table here, power technique with delivering a solid margin of 17% again. Here, as we already mentioned, the main topic of the lower profitability from an organic point of view was more the functional cost. We are investing in a new division as one aspect of it. We are also working on a number of transformation projects, rejuvenating some of the old ERP systems we have for specialty rental for some of our production entities, for example. And that also triggers a number of additional costs for the time being. But over time, of course, we expect them to become more efficient and as a result also improve the margin. coming from those different investments. Also investments in dedicated salespeople in power and flow, also within IFD in the industrial flow division, we are working hard to build that organization so we can leverage the sales of all the different technologies we have acquired in the last few years. So I think that explains the overall profitability business area by business area. If I then move to the balance sheet, I would say relatively uneventful. Of course on the one hand intangible assets go up due to the acquisitions, on the other hand we amortize, so basically quite stable. We see some impact on the inventories, for example, which is beneficial. We are actually indeed improving the inventory levels across the organization with all the different actions that we have ongoing. The receivables overall fairly quite stable, especially from a relative point of view. So we are quite happy with maintaining that good performance on the receivable side. On the equity side also there, not so much to mention. Mainly the equity is changing because of the fact that we are generating more profit, On that point, I would like to just highlight the fact that tomorrow we will actually pay the second installment of the dividend related to 2024, 1.50 Swedish kronor per share, roughly in total volume an amount of 7.3 billion Swedish kronor. And with that I turn to the cash flow. In the cash flow also there, I think a solid performance. You could say, well, yes, it's a little bit lower than last year. But on the other hand, quarter over quarter or over the different quarters, I think this is quite a significant value of operating cash flow we are generating. On the one hand, we have a little bit lower operating cash surplus, but we have a little bit less taxes paid. On the other hand, we have a slightly less positive impact from the changing working capital compared to the same quarter last year. But we also see a gradually slight slowdown in the increasing rental equipment, but also in the investments of property and plant. We continue to do a number of investments that are necessary for the future to replace some of the old assets, but also to build some new capacity, but at a slower pace than we used to a while ago. Also, of course, given the current climate, I think that makes a lot of sense. And with that, we end up with the 7.3 billion operating cash flows. And with that, I think we have come to the end of the comments to the financial statements, and I would like to hand over back again to Wagner, who will comment a bit more on our near-term outlook.