Atlas Copco AB

Good afternoon, everybody on the call and a very warm welcome to this quarterly earnings call for the first quarter of 2023 for the Atlas Copco Group. Together with me is Mats Ramström, our CEO. But before I hand over the words, and of course, you have heard me say this many times and I will continue to repeat it. I will ask you when we open up for questions to only raise one question at a time in order to make sure that all the participants are able to raise their question. And of course, if we then go through all the participants and you have more questions, then you can, let's say, get back in the line for a second follow-up question. We will also be a little bit severe on the number of questions, considering that we really have this one hour to go through the call and try to answer all of your questions, as we also have the annual general meeting of shareholders taking place today, and we are a little bit on a tight schedule. But that being said, I would like to now hand over to Mats Ramström, who will guide you through the first part of the presentation.

Thank you, Peter. On the first page, this time we have a picture of a gas and process machine from that division. And it's part of the explanation why we have such a strong orders received. There were very strong orders received from this type of machines, both for liquid natural gas and carbon capture. So very proud to show this picture to you all. Then we can go to slide number two. And then confirming then the orders received. That was close to 48 billion, 5% growth. But if you break it down per business area, it looks quite much more impressive that the compressor technique, they were up 19% organically. And that was a record for them. In vacuum technique, they were down 27, still related to the semi-industry. But interesting enough, both the scientific and the industrial vacuum continues to grow. And industrial technique, with tailwind from the electric vehicle market, were up 20%. That's also a record for them. And then a fantastic record for power technique, they were up 11%. Of course, in power technique, we see that there is seasonality, but they also outperformed what we expected. And then we can see that the CT gas and process was very strong and the big machine in oil free as well. And at the same time that industrial technique have tailwind them, as I said, from the electrification and battery manufacturing. Also happy to see because we also need to understand When we were at the capital markets day, I took quite some time to explain the new growth platforms for the group, how we have invested both organically and also through acquisition. And we can see a significant part of growth is actually coming from the new areas now. And at the same time, I can see that Sustainable segment, if I can define them like that, like wind, solar, batteries is also a significant part of orders received and invoicing. So very happy with the orders received development. And then if you look at the revenues, we can see that it was close to 40 billion then, 18% up. And of course, there is still a gap between orders received and invoicing. On the other side, the 18% up, we are quite pleased with that. And in terms of deliveries and the challenges you see there, I think we can summarize the picture that the compressor technique and power technique, they see at least the light in the tunnel. It's an improved situation for them. But we still see challenges with vacuum technique and industrial technique, and that's a mainly electronic supply. If you then change slide to slide number three and take position number three you can see the operating profit at close to 8.7 billion with the margin at 21.8. So the profit is up 29 percent. It's supported by volumes of course both in terms of volume and pricing. Currency also positive for us. But we still have, as I said, supply chain challenges. And also worth mentioning is that we continue to invest in new generation of products. We continue to invest in R&D. We also invest in the customer relationships in terms of where in the world we should be. And of course, competence as well. We think that's really, really important. And I think looking at the graph, At least internally here, we are very proud of the significant growth we have seen for this quarter. And if you look at the geographical map on slide four, we can see that we have green numbers in what we call the power hubs around the world. In Asia, then, we have 37%. It's also Oceania, 37%. And sometimes you can see a slightly higher number there. But we have double-digit growth in compressor technique and industrial technique. And the change here is, of course, in the semiconductors with the vacuum technique. So very pleased with that. That goes also for Americas, where we see double digit group for all business area, with the exception of vacuum technique. And in Europe, then, we have two compressor technique in industrial tech stand out with very strong vacuum down and PT flattish, I can say. So happy to see that there are so many customers in different continents that see us as a very competitive alternative helping them to generate value for their operations. Slide five, yes, the confirmation of the organic 5% growth, and then have in mind that we had negative 27 on vacuum. On slide six, you can see the sales bridge, the structural changes we did 30 acquisitions last year. And that you can see on that line, and they can see that we still have help from the currency, 7% on orders received and 8% on revenue. And Peter will then, a little bit later, try to guide you on the currency for the coming quarter. Slide seven shows the split between the different business areas. Of course, with high profitability and high growth rate, it's very positive for me to see the compressor technique growth rate of 19%. One other thing that I recognized internally was also that on the orders received, actually power technique, this quarter is bigger than industrial technique, although that industrial technique is growing 20%. That's also, of course, part of the acquisitions that we have seen. We change to slide eight, it's a compressor technique. And they had record orders received, organic 18 to 22 billion. And as I said on my first slide, a lot of the bigger orders have come from gas and process, but they've also seen strong orders on the bigger machines. And that goes a lot into the newer segments that could be EVs, battery, hydrogen, LNG. Even lubrication of ships is becoming an interesting application for a sustainable segment for us. And then very happy to see that the already strong service performing continues when they are growing. And then they also manage them to deliver on record revenues, although that they are pushing them even harder to see if it can funds that number up even further. And an operating margin outstanding 24.1% and return on capital employed 82% and somewhat diluted from the acquisitions that we have done last year. And here you can read, I mentioned it earlier, the growth platforms that we discuss is of course filters, the chillers, low pressure, high pressure and industrial gases. And we can see that this is a strong development for us. And a lot of the development is into this sustainable segment. So that's part of the explanation. Hope that's sustainable over time. They continue to perform. And then we go to vacuum technique on slide number nine. And of course, it's a negative development. But if you look at the graph, you can see that we had a 9.5 billion quarter. And yes, it's below what we have seen over the last two years. But if you compare with 2020 or 2019, you can see it's still a very strong quarter from that perspective. And we see, of course, that semi is down, memory first. And we have also seen cancellations in this quarter. But the level is still up there and we still believe it will be probably from a CapEx perspective. I think it will probably be the third best year anyway. And I think the growth drivers for SEMI is simply the number of devices that we are using that need semiconductors. That could be AI, 5G, cloud computing, gaming. medical super computing automotive and industrial is very strong as well and we will see some of cyclicality although we think that that becomes less and less over time and as you recall when we acquired this from a strategic point of view we also said that we will focus on the industrial vacuum the scientific vacuum and the two service division and i think that strategy is really proving to work out for us in a good way Operating margin at 22.7. You can see it's a quite quick turnaround from Q4, but we have also had some help here from currency clearly. And here, if you look at the performing new growth platform to cryo, the liquid ring pump is doing well as well. Process diagnostic is also up a lot small. But they're also stepping into these new areas, which is paying off. And of course, I think it's once again interesting to see that scientific and industrial continue to grow. Industrial technique, once again, the record orders, they were up 20 percent, seven point seven billion. We can see that the outdoor sector have done really well. The main part of that is two new projects in electric vehicles, the transformation, both in Europe, but also very, very strong in Asia. We can also see that on the industrial vision part, strong orders received there as well. So we are now combining the vision with automation or not fully automation, but the flexible automation that we offer station by station. And of course, our sales is mainly driven by CapEx. And you can follow it up more on the service level. And service also continue to have a strong delivery. Revenues up 19 percent, but we still have challenges with the power electronics, but six and a half billion there and an operating margin on 21.1. Growth segments. that we have talked about before. Electronic dispensing is doing very well. We are combining that to offer the dispensing part together with the screwdriver as a package. We get better and better penetration in the electronic industry. Machine vision and inline quality control and flexible automation is also growing. And I think they are in a very good position for some of the bigger macro trends, EV, battery and automation. And power technique, they surprised us with a fantastic orders received and also then the record at 8.9 billion. Of course, there are seasonality in these numbers that you all know. It's a strong demand from rental companies in the U.S. on equipment. And I also mentioned before that this is the business that we have most difficulty to get the full traction on service. Now I think they combine growth with improved margins, and I think that looks promising for the future. And they also have record revenues, and they see that less of... problems when they have dual sourcing now on engines and an operating margin at 19.1. It's very interesting to look at the new product here, I think. More than 90% of our products we sell to the market is electrified already. The surface pump traditionally have been driven by diesel engines, but now we are starting to introduce also then the pumps that are electrified. And the steam rental is doing well and the newly required so far industrial pumps is also doing very well. I think it's a strong development for a business that traditionally was mainly in construction and now we are transforming into more industrial applications. And then on slide number 12, we have the profit and loss. Yes, we give you the EBITDA and in our case then it's the amortization of the intangibles of the acquisitions and that would be at 23.1. I should do highlight when we drive the company it's on operating profit and that is 21.8.

Maybe this is good to handle with you, Peter. Yes, thank you much. I will continue. Then of course we have the small amount of net financial items. which have dropped in spite of our lower or higher net indebtedness. But that is mainly linked to the fact that the interest rates on our cash have gone up. And therefore, it's a little bit lower cost than before. Profit before taxes, they have 8.7 billion compared to 6.7 last year. And then the taxes are 2.1 billion, which is an effective tax rate of 24.6%. And that, of course, as you recognize, is a significantly higher ratio than we have seen in the last many quarters. The reason for this high effective tax rate is, you could say, a shift in the geographical mix of our business. We have grown quite substantially from a revenue perspective in countries and regions with higher nominal tax rates and as a result of that we end up with this higher rate there is no other main reason for this shift when it comes to then of course the forward-looking a view on the on the tax then given this development it is likely that the effective tax rate will remain on a higher level than we have been used to We are, of course, trying to find ways to mitigate that by making use of measures given to us by different governments to support, for example, R&D initiatives, etc. But it's likely that going forward, this will be rather close to 94% as it looks now compared to the past. That gives us a profit of the period of 6.5 billion. which is a 25% increase compared to last quarter, or the same quarter last year, sorry, with basic earnings per share 1.34 Swedish Krone, a return on capital employed of 29% and return on equity of 32%. If I then move to slide number 13 and look at the profit bridge for the group, Then you see that we comparably went from 22.4% a year ago for the first quarter to 21.8%. There is on the one hand the negative impact of the share-based LTI programs, as well as a dilutive effect from acquisitions. That is then partly compensated by positive currency impact, as you can see here. When it comes to the outlook for the currency impact, there we would rather assume that it will continue to go down gradually, as we have already seen from last quarter to this quarter, and is likely to end, let's say, probably still slightly positive, but rather close to zero, we expect. And then we have volume, price, mix, and other, which are showing positive drop through, let's say, the same level, in fact, as we had in quarter one 2022. So the margin doesn't really improve, neither deteriorate from volume price mix and other impacts. On the next slide, number 14, we dive a little bit deeper into the respective business areas because you do remember, of course, that when we reported Q4, we had two business areas that were performing less strongly than we have been expecting. And we indicated that different measures have been taken to try to bend that trend. While at the same time, we also said that some of these measures might take some time to really materialize. I think that is also in fact visible in the detailed bridge by business area. If I focus immediately to vacuum technique and industrial technique, which were the two business areas I was talking about, then the 22.7 for vacuum technique remained flat on 22.7 and in fact the the drop through is positive but is lower than the 22.7 percent from last year and so in fact there is still a dilutive effect from volume price mix and other effects also from the acquisitions while in fact the currency compensates for those two effects still but as you will notice if you compare to the figures from q4 the the negative impact let's say is much much lower than it was in the in the last quarter so we are very happy to see that some of the measures already started to have some contribution but we are not fully there yet and we need to continue to work further on the on the drop-through here. For industrial technique, it's more or less a similar picture, one might say. There is in this case no dilutive effect from acquisitions, and the currency for industrial technique is in fact slightly negative on the margin, while then the measures that have been taken across industrial technique have proven to be contributive to the operating margin. And there we see a better drop through than actually the comparable period last year. Then, of course, we have two business areas left, starting with compressor technique, moving from 23.8 to 24.1, which is partly diluted by acquisitions, but then a positive impact from volume, price mix and other items will end a slightly smaller positive impact from the currency there as well. And then last but not least, definitely a valid statement in this particular case, a very strong development from our technique from 17.9 to 19.1 with some dilution from the acquisitions that are nonetheless performing as planned and in a very good way, but also some positive impact from currency, but a rather solid improvement also there from volume price mix and other items. And with that, I move to the next slide, slide number 15, which explains a little bit more on the balance sheet. In fact, I would say the balance sheet comparing first quarter 2022 to 2023 is not very eventful. Of course, on the intangible assets, we see mainly the impact from the acquisitions that we have done over these 12 months. Otherwise, we also recognize, I would say, the impact from the strong investments that we are rolling out mostly in vacuum technique and also to a slightly lesser extent in compressor technique to increase our manufacturing footprint partly as a part of the strategy also for the local for local and then the other two main areas here are inventories and receivables receivables are perfectly in line with the volume growth that we have seen and we also feel quite comfortable with that level in relative terms there is no increase And also from a health perspective, I would add the situation is quite good. The inventories continue to grow a bit more as well. We will also see in the cash flow. And that is maybe, let's say, the one pain point a little bit on the balance sheet where we also working with different business areas to see how we can manage that in an even better way, I would say. And of course, as a result of all of the above and then also the fact that we had the redemption last year and the different acquisitions, we see, of course, a reduction of our cash balance compared to the same quarter 2022. On the liability side, I would say on the interest bearing liabilities, we have increased slightly our short term funding to reach some of the upcoming dividend payments, for example. So also no drama in those numbers. And the non-interest bearing liabilities are mostly linked to an increase in payables that go hand in hand with the increase of the business as well. And then quite a diversified list of many small other effects that add up to this difference for the non-interest bearing liabilities. All I would say in line with the business growth. And then going to slide number 16 on the cash flow. No records here, but I would say nonetheless very solid development. We have a very strong operating cash surplus close to 11B. The taxes paid are, of course, standing out a little bit based on what I explained earlier. And we also see here the continued negative effect from the changing working capital, which in this case. is almost entirely allocatable to the inventory development still, which I mentioned is one of our working points in the organization. Then the investments of property, plant and equipment also here reflect our continued development of the different manufacturing sites across different parts of the world, now mainly focusing on the United States, I would say, as well as China for compressor technique. which then leads to the operating cash flow of close to 5 billion, which is slightly north of doubling the operating cash flow from 2020 to Q1. And then we also see the impact from the couple of acquisitions we have done this year so far of between 500 and 600 million Swedish krona. And with that, we come close to the end of the presentation, and I would like to hand back to Mats to briefly comment on our near-term outlook.