Atlas Copco AB

welcome to the atlas copco q2 2023 report presentation for the first part of the presentation participants will be in listen only mode during the questions and answers session participants are able to ask questions by dialing star 5 on their telephone keypad now i will hand the conference over to cfo peter kinnett please go ahead

Thank you operator and good afternoon everybody for this second quarterly earnings call for the Atlas Copco Group. Together with me is our CEO Mats Ramström and together we will guide you through the presentation and the questions and answers. But before I hand over the word to Mats, I would like to already now indicate to you that during the Q&A sessions, I would really like to insist that you only ask one question at a time in order to make sure that all of the participants have an opportunity to raise their most important question first. And then, of course, if there is more time left, everybody can get back in the queue to ask more questions subsequently. So thank you for that. And now with that, I hand over to Mats to start the presentation on the quarterly results.

Okay, thank you so much, Peter. I thought I would stay on this picture before we start talking about the numbers because it explains, firstly, I should say it's in industrial technique business area. And they were the only them to have the picture because they have the highest growth in the quarter. But you can also see how we are combining now in the automation strategy in industrial technique. So everything you see in aluminum there or in steel is different from the different acquisition. You can see it's a K-FLU, so that's the FLU drill application. And then we use the ISRA to guide the robot, and we also use screw feeding. So it's three different technologies that we combine, and in this case it's on the KUKA robot, but it can be applied to any robot out there, of course. So this is how we combine it. Of course, it is lined with the macro trend as we see to on-shoring and automation in Europe and also in Asia, of course, but also the US. So I think it's a nice picture that describes a little bit the strategy. And of course, we can do the same thing with assembly tools or if it's riveting or dispensing. So that's easy to understand how we use the ISRA application on this type of application. Then we go to That's slide number two. You look at what is received for the quarter, 43.5 billion. So I think if you look at the graph, you can see it's the second best. I think we already said in Q1 that that was exceptional. So I'm very pleased to see the 43.5. Compressor technique organically up 4%. We see the decline on vacuum mainly in semi at minus 28. Industrial technique, as I said, plus 10. Very strong and power technique and minus 12. So all in all, organically down 5%. But then we have help from acquisitions on 7% and currency on 4% all in all. Or this is up 6%. Then on orders invoiced, record is not only for the group, but fantastically for all business areas. You can see compressor technique, they were up 21%, VT5 and IT28 and TT26, which leads to 18% overall. And on top of that, you had 6% on acquisition and also positive than from currencies and 31% growth as well. So if we then go to the profit on slide number three, you can see the record profit at 9.2 billion and at the margin at 21.2%. versus year-on-year than a 26 percent growth on operating profit. And then if we adjust then only for the option program it would have been at a margin of 21.9 and Peter will break that down a little bit later. You can also see the return on capital employed at 30 percent. We go to slide number four. You can see there's slightly red in North America on the quarter, but if I use some sort of traffic light system here, compressor technique, they are green in all regions, flat in North America, but otherwise green everywhere else. Industrial technique in all these five regions, positive development. The other way around for vacuum, they are then red in all regions, with the exception of South America. And power technique, they are positive in two regions and negative in three regions. And so we can see a little bit of a shift there, I would say. Extraordinary, it stands really out on the power technique business in Asia, actually linked to our new pump business. They've done really, really well, actually. Go to slide number five, and you just confirmed the organic decline of 5%. Let me go to slide number six. And there you can see the buildup on orders received. As you might recall, we did 30 acquisitions last year, and so far this year we've done 10 in the first two quarters, and now it's 11. So 7% help from that currency helped us with four. and then organically, then five, and totally six. And revenues, you can see, all the way down to the 31%. Slide number seven. Given then the development, of course, the share of vacuum is declining somewhat and compressor technique normally around 46, 47 percent and continue to grow. So that's the split of the group. Then if you go to each business area on slide eight, you have compressor technique. We think it's a very solid level. You can also look at the graph still on the second best they have accomplished. We do an organic group of four, which is already 20 billion. Two divisions that stand out, continue to be gas and process, really strong, and then service continues to develop well as well. Record revenues, 21% organic growth, 18.6 billion. And that leads them to the record operating profit of 24%. And diluted, you still have currency and acquisition. So 37% increase versus last year on operating profits. Then I wanted to highlight this product. It's very small in the picture, but I think it says something about our leaning forward strategy. This is like a container then, and it's for hydrogen applications, for filling stations. So even if the tum is fairly small for this type of product right now, you can see that we are ready when we can have more accessibility to green hydrogen. So very strong performance from compressor techniques. We go to slide number nine, that's the vacuum technique. And of course, it looks dramatic with a decline of twenty eight percent, but it's still nine point two billion. And if you look at the graph in twenty twenty one, we did better and took part of twenty twenty two. But if you look at that graph compared to what we've done in the past, it's still fairly strong, I would say. And it's still mainly in semi, but the change that we have seen was that we did not have organic growth in the industrial and scientific. This solid growth for our two service divisions that gives us the resilience over time. And revenue was up down 5% to 10.9 billion. Very good. And also had a record operating profit at the margin at 22.9, so 2.5 billion. and an 18% growth year-on-year. On the bottom there, you can see sensors that we used to source, and we had an older range. And now we are building step by step our own range. So you can say it's a new platform for growth. I also wanted to highlight in vacuum that they did what I think a very interesting acquisition on Trillium in the US and service business. This is for the bigger nodes. It gives us access to new customers as well. And also the Shadong one in China, which gives us a good manufacturing base for liquid ring pumps. So good development there. Then I think it's fair to say when business is down a little bit, what do we do? Well, I think every indication that we have is that CapEx will come back very strong. We don't know exactly when, but it will. What we are working on right, what we learned from the last peak on this business, we are working on the product portfolio. And we think energy efficiency will be more important than ever before, but also the footprint of our products. So we're working on new generations there. And you have seen the announcement and operational structure. So we need to be present in the US. We're investing in that more local for local. We're also investing in China and also in Korea. So I think the for capacity will be there. And one other challenge has been the sourcing, same thing there. We are preparing more dual sourcing and also being more local to be able to act quicker and more local. So there's a lot of ongoing work right now to prepare for the next turn in vacuum and specifically the semi industry. Industrial technique on slide 10. uh very strong uh orders received 10 7.9 billion um and it was automotive that was really really strong uh no surprise this is linked to the ev and battery manufacturing around the world so we're happy that to see that we have products and the application knowledge to really get our market share in this new market General industry, a little bit mixed. Some segments were a little bit flat and some downs. I think it was rather flat. And service also here continued to perform really well. Record revenues, 28% organic growth, 7.3 billion. And then you might think that, well, do they have delivery issues still? Yes, we still have challenges on some components. So we are really fighting harder to get these kind of volumes out of all our business areas, but I think it's been slightly more challenging industrial technique on power electronics. Record operating profit here as well at 21%, 0.8% margin. And they actually had the growth from last year with 47%. PowerTechnik, remarkable journey the last two years. An organic decline this time, 12%. And what we've seen is that we have had a little bit less interest from the rental company in the US and some smaller cancellations also. That's mainly driven by shorter lead times from our own products. cancel something, and they rebook something. So it's not orders lost in any way. But six and a half billion done, and it's still the second best, even if it's negative 12%. So it's interesting to follow the recent acquisitions of our pump companies. They are performing well ahead of our plan. So better volume, better profit. And of course, over time, they will give us reduced seasonality in this business. And of course, also better service opportunities. So we will continue on this route. It started out really well for us. Record revenues, 26 percent up, 6.8 billion. And also here the record operating profits. at the marginal 19%, although that the acquisition are slightly dilutive, but not so much at this point. And here you can see a new range actually of dosing pumps from leva. So I'm happy to see that. We're also going to continue to push innovation in these segments as well. And an interesting acquisition team in Australia. And we're learning more and more about wastewater treatment, which we also think is one of the mega trends that someone needs to take care of. And we would like to do our part. On slide 12, you have the profit and loss. And as information on EBIT-A. It's 22.4 and what report has been done operating profit EBIT at 21.2. Peter, would you like to?

Yes, absolutely. So building further on that record operating profit, we have smaller item but net financial items have a bit turned in the other direction i would say and that is related to the fact that we have had a little bit more short-term funding in view of some of the acquisitions we have recently done as well as of course an increased interest cost related to the funding we have then we end up with the profit before tax of 9 billion which is 20.8% of revenues and an income tax expense of 2.1 billion. That means that the effective tax rate for this quarter is higher than what we see in the same period last year, 23.1 versus 22.3. And I would say this is a little bit of a trend that we see happening, which is for the largest part related to the uh geographical spread of our growth we seem to be growing more in those uh geographical areas where nominal tax rates are a bit higher and so our weighted nominal tax rate is going up which then also materializes in an effective tax rate that is higher secondly for this quarter and this will also come back in the in the cash flow a little bit is that due to the fact that we are making higher profits we're also making higher provisions for withholding taxes related to those profits for the future. And that altogether impacts a little bit the tax rate negatively. But nonetheless, in spite of this higher tax rate, we still end up with a profit for the period of just south of 7 billion Swedish kronor. which is a 22% increase compared to the same quarter last year. And that results in basic earnings per share of 1.42 Swedish kronor per share compared to 1.17. Return on capital employed, as already mentioned, of 30% and return on equity of 33%. The tax rate that we currently see, as I already said, is a kind of trend that we see in the last few quarters, and that's expected to continue to go up slightly in the near term. And so we will end up with a slightly higher effective tax rate also for the full year 2023, according to our calculations. If I move on to slide number 13, where I would like to give a little bit more color on the profit bridge, Of course, we are very, very happy with this phenomenal operating profit that we've generated over the quarter. Even very proud, I might say, on our employees that have managed to turn this around. We had a bit of a dip in Q4 last year, as you well remember, and we promised that we would do a lot of activities to try to bend that trend. And I think it's clear that if we look at these numbers, looking for the current quarter, we have managed to achieve that, I would say. Of course, the drop-through, which adds 1.6% to the margin, is driven by price, volume, and mix, which is able to compensate more than the material and labor increases we have seen, and also the inefficiencies that are coming from the supply chain, even though we still are facing some difficulties. It is less than before, so these inefficiencies are also less pronounced than they used to be. And that also, of course, allows us to invest more in the organization, in marketing and also in R&D. The currency had a slightly negative impact of minus 0.6% on the bottom line operating profit. It had a positive absolute contribution of 230 million Swedish kronor. If we think of the next quarter, then I would say that all things being the same, it's rather likely that we would have a negative absolute amount, probably along the same amount as we see this quarter, but then with a negative sign, obviously. on the acquisitions we also have a slightly dilutive effect of minus 0.6 percent and then the biggest negative impact actually on the margin was actually coming from the ltis due to the fact that last year the stock price went down quite significantly in the second quarter while as you remember after last quarter the stock price went up quite substantially so the combination of those two those two um phenomenons resulted in a fairly high impact on the on the margin but most importantly for me is the takeaway that the drop through has been really very very solid and that is of course why we are able to deliver this record operating profit digging in a little bit deeper on the business areas I would say the picture overall is quite similar across all of them. The currency effect tends to be slightly negative, with the exception of vacuum technique, where it's close to zero, as well as power technique, but for city and industrial technique, somewhat negative. The acquisitions across the business areas tend to be slightly dilutive, considering the fact that we have, of course, in the first year, always quite a lot of integration related costs, et cetera, nothing out of the ordinary there. And then for all the business areas, I would say very strong or at least solid drop-through where very high percentages in drop-through have been achieved throughout the quarter on the different business areas, which I think was very encouraging and really nice to see that all these efforts from our organization are really paying off in such a fantastic bottom line result. If I move to slide 15, I will comment just a few things on the balance sheet. Of course, to start with the intangible assets, basically by far affected by the acquisitions we have executed throughout this year. Also positive currency effect on top of it, but the biggest impact is the acquisitions. We see the continued investments in expanding our own rental fleet for our specialty rental division particularly, but also other property plant and equipment, given the different investment decisions we have taken, mostly related to vacuum technique and compressor technique, but also for the other business areas. I think another big impact on the balance sheet is the working capital. Inventories continue to go up. but receivables grow up even faster. The receivables are, of course, fully in line with our development of the revenues and the invoicing that we are doing, and there is actually no real concern about that height of revenues. We have a very good overdue ratio, and we rather see improvement than deterioration there. The inventories also go up slightly less than the receivables. I think that's, from our perspective, let's say the only small point of Some concern and we are working together with the different business areas to try to to turn this around but of course given the fact that We have still some issues with supply chain And some customers do not like to get partial shipments if they have ordered multiple different products as well as the fact that some customers are pausing a little bit or maybe waiting a little bit to take the equipment off our hands, it will take a little bit of time, we think, to reduce that. But also there, from a provision point of view, we don't see any major concern. On the equity and liabilities, I think the equity is pretty straightforward. It's based on the profitability increase, while at the same time, of course, we have paid dividends to our shareholders. The interest-bearing liabilities are somewhat up due to the fact, as I said, that we have increased a little bit the short-term financing to do a number of transactions. Um, and this is short term, because we expect we will be able to pay those short term financing back before by the end of the year based on, uh, on our. Um, and then the non interest bearing liabilities, the biggest part of that is related to trade payables, which goes hand in hand with the inventories, but also quite a mix of many other different types of things, including, for example. customer advance payments that we are trying to increase as well to mitigate in a way the impact of the inventories to some extent. So no shocking news, I would say, on the balance sheet in that sense. Then if I move to slide number 16 to the cash flow. Well, a couple of things I would like to highlight here. First of all, a tremendous operating cash surplus generated from our operations of eleven point one billion, quite a high number. I already mentioned the impact of the net financial items also here on the cash flow, but then the taxes paid being quite a bit higher than same quarter last year. Again, the nominal tax in different geographies leading to a higher weighted nominal tax rate. The increased withholding taxes on the profits that our subsidiaries have been paying to the mother company based on the higher profits last year. And also the final tax payment for 2022, which was done in many cases in the second quarter, which also tends to contribute to a higher tax amount paid. Then I already mentioned on the balance sheet, the change in working capital, which also now with higher receivables, especially, but also still somewhat increase in the inventories has also, of course, a negative impact on the cash flow. And that gives us then a cash flow from operating activities, which is slightly lower, very close to the cash flow we generated in the same period last year. Then we also continue to invest a little bit more in property, plant and equipment, as you can see. And finally, we end up with an operating cash flow of 2.9 versus 3.1 billion Swedish kronor for this quarter, 7.8 compared to 5.5 for the year to date. And then one could say that the entire operating cash flow for this quarter has been used to finance our acquisitions of 2.6 billion. And with that, we are close to, let's say, the end of the analysis of our results. Now I would like to hand back to Mats to give you some guidance on the near-term outlook.

Okay thank you Peter. In the outlook then we are trying then to compare activity levels between the Q2 and Q3. Of course we cannot look into the future either but we try to be as transparent as we can and in this case then we have said that we can somewhat compare to the current high level. On the external factors of course we can see the manufacturing and PMI in Europe, US, and China. It's below 50 today. And I guess the increased interest rates eroding consumers' responsible income, and of course that comes to us one day or the other. We can see that we were down 5 percent and organically in the quarter presently. And we have all the 23 divisions that we have. We had 11 that was growing and the remaining not. And that ratio had been a little bit different before. So we can see that it's more. You can see in the semi cycle where everyone then waiting for that to bottom out and then see when the next cycle is coming. And I think that many organizations have talked about Q3, Q4, but we think that it's a little bit pushed up maybe into the next year. And then it will be very interesting to follow the EV trend in China. In general, China interesting, but also the EV trend to see those in massive investments over a number of years now. Will we see some sort of consolidation or not? We don't know. Over time, it's, of course, a very strong trend to develop more EVs and more battery, but there has been quite a lot of... And maybe we have seen when we talk to people, not by evidence, that the quotation for us is still very strong and good, but we see that there are postponement in the decision-making, and that's normally a little bit of a sign. But I should highlight that this is somewhat weakened in our statement. I think that's the end. I think we can take questions.

Yes, thank you very much, Matt. Again, before we start with the Q&A, I just would like to remind you again that we would really like to ask you to only ask one question at a time to leave time for your colleagues to ask their most important question. And then we are happy to come back to you if you have more questions, of course. And back to the operator.

If you wish to ask a question, please dial star 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Daniela Costa from Goldman Sachs. Please go ahead.

Good afternoon. Thank you so much for taking my question. Actually, I will keep it to the vision. I normally don't start by asking, but on power technique seems to have been where you've had the biggest deviation in terms of order trends versus where the street was. I understand that was impacted by the rental companies. Can you talk about what's the underlying without that impact from rental? What would it have done? What are the trends you're seeing there going forward?

No, but for us, I think we have seen, trying to think about the product ranges, a little bit less in the portables. That has been one of the things. And also the significantly, I think I mentioned it before, that we have secured a second source of engine supply. So lead times are coming down quite significantly. and they have been filling up the yards for some of the rental companies. On the other side, even if it's 12% decline, it's still the second best for them. And as I mentioned earlier in the presentation, the newly required industrial business in this area is performing really well. But I can't say it's portable. That is an indication.

Thank you. We'll go back into queue. Thanks.

Thank you, Daniela.

The next question comes from James Moore from Redburn. Please go ahead. James Moore, Redburn, your line is now unmuted. Please go ahead.

Regions and end markets and where you're seeing that specifically. tied to that is whether you're able to monitor distributor or end OEM inventories of your products and the degree to which you think this sequential drop in equipment is end demand versus distributor destocking.

I'm sorry, James, but we didn't get the first part of your question. So I'm sorry. Could you please repeat? James, could you please repeat your question? We didn't get the first half. Hello? Did I get cut off? Can you hear me?

Yes, we can hear you, but we could not hear the first part. Can you repeat, James? Hello?

Hello?

We can hear you, James.

Hello? Hello?

The next question comes from Andrew Wilson from JP Morgan. Please go ahead.

Hi, good afternoon. Hopefully I'll be having a bit more luck than James. I'd like to ask around China, please. You sort of made, I guess, a few comments on the regional trends within the orders, but I guess the more specifically in terms of what you're seeing on the ground in China and how that compares to maybe what you're expecting, I guess, either in the Q1 or kind of heading into the Q2, just trying to get a sense of what sort of changes you may or may not be seeing in terms of customer activity in China. Thank you.

What we have seen over time is very strong investments in semi, continued efforts to take a leading position there. And they are leading in electric vehicles as well, and they are continuing to invest in that as well. But there are, of course, concerns about the protectionism and technology wars. So I think we've seen a little bit over many ranges that it's been lacking some decision and speed of decisions in China. And I think it will play out now in Q3, so we have a better understanding. If it is a temporary thing or if we will see business coming back. I don't know if you had something on that one as well.

I think overall we see a bit of all the economic indicators that you are also very well aware of or pointing a little bit in an adverse direction, indicating that the pickup after the COVID period was maybe short-lived and not as sustainable. But we will need to see in the next quarter whether that really persists or not.

But maybe to add to that, that we backing off that market at all, it's the other way around. We continue to invest in people, in competence, more local for local manufacturing and sourcing. So for us, we're still We still believe that we need to be number one in China to be number one in the world in the coming years. So we make sure that we are competitive brands in China.

Thank you.

The next question comes from Guillermo Pena from UBS. Please go ahead.

Good afternoon, and thank you for taking my question. I wonder whether you could actually comment a little bit as well on what you saw through the quarter, the run rates, exit run rates that you saw through the quarter in the order intake for industrial compressors, a little bit more industrial production-sensitive products that you have. Thank you.

I think when we talk about the industrials, both on the industrial smaller and slightly bigger than compressor, we do not include the gas and process in there. We have seen quite a flat development and we have not seen a difference between the smaller and the bigger. It's been about the same development for both these two branches.

And on the large gas and process compressors going into the LNG, could you also comment a little bit on the tendering activity if that helps to gauge a little bit the activity on that market?

No, it seems to be full speed ahead in the traditional oil and gas business, but also on the newer businesses that it's more renewable type of energies. And I think our product portfolio has changed over the number of years now. So It seems to be very, very solid, and it turns to be a capacity. You can see the development over a number of quarters for us now. We are trying to bounce up the capacity to meet lead times for customers. So it's still very positive in this quarter as well.

Thank you.

Thank you, Guillermo.

The next question comes from James Moore from Redburn. Please go ahead.

Hi, everyone. I hope you can hear me again this time. I have a question on sequential demand. I was cut off, so maybe somebody else asked it, but you mentioned equipment orders are down, queue on queue, services flat. I wondered if you could just talk about really which regions and end markets in the core business that you're seeing that and whether you're able to monitor distributor or end manufacturer OEM inventories and And whether you think this is a function of destocking or just more underlying demand?

I think I can start and maybe Peter can help me with the geographical aspect. But sequentially, of course, with the strong water intake we had in Q1, we did not expect it to be anything else than down in this quarter. I think we were quite clear on that in the call. On the distributors, we don't physically or we don't have a digital connection to our distributors either levels. Considering that the orders they have placed, I would say that most of them in most of our business are stocked up now. And of course, our sales people can can physically go there and look at it, but there's no numbers on it. And maybe, Peter, can you help out with the geographical part of that?

Well, I think for the different business areas, I think sequentially down for the majority of them. Geographically, I would say a bit mixed picture across the different business areas and the different geographies as well. Hard to give in just a few words a complete picture. I think North America has been a bit weaker, but of course, we are also comparing to fairly high previous quarterly numbers, for example. But otherwise, I think it's a bit of a mixed picture and difficult to give very specific guidance in this short call.

Thank you very much.

The next question comes from Sebastian Kuen from RBC. Please go ahead.

My one question relates to the margin bridge, specifically to the share incentive program that costs you about 120 pips in Q2 and is also a level like three times higher than what we saw in Q1. So I was wondering what the upcoming quarters should show in terms of share-based incentive programs. Thank you very much.

I think forward-looking that's hard to say of course because it depends very much on the share development in the next quarter as of today or as of the first of July I would say. We know, of course, what we already adjusted for last year. Those numbers are public, obviously. Then it will depend on the share development in the next quarter or in this particular quarter, how that impacts the result. The reason why the number is so high is because, like I said, you might remember, I think that the share was on a very high level at the end of 2021. And in that next few quarters, particularly the second quarter, there was quite a significant drop in the share price result due to the interest rates going up, etc. So basically the general market dynamics. Well, this year after Q1, we saw quite a substantial increase of the share price by roughly 15% in the very first few days after the report. And that, of course, creates two opposite effects that combined, if we compare year on year on the profitability, has this 536 million Swedish Krone impact. But to predict exactly what the Q3 impact will be for the share price, I have to admit, if I knew that, I probably would not be here.

Yeah, but all being equal, share remaining at that current level for the rest of the year, Can you give an indication of the size of the share-based incentive program then?

I don't have that number on the top of my head, but it is the adjustment we have seen on the LTI program during the last two quarters of last year, but in reverse.

Okay.

Thank you very much. You're welcome.

The next question comes from Gustav Schwen from Handelsbanken. Please go ahead.

Yes, thank you. I have a question on the very strong leverage in the backing technique in the quarter. Is there anything specific sticking out here? The reason for asking is the previous comments you had on challenges to push prices here, given the nature of the business as well as the investment needs. Do you think we will see sort of more normalized leverage here going forward? Thank you.

Well, no, I think what I can say is that we were very pleased with the leverage that we have seen throughout this quarter. Q4 last year was quite difficult when it comes to drop through for vacuum technique. Q1 was already significantly better. And I think all the measures that have been put in place, I think I said in the last quarter as well, that, okay, we were happy to see already a good improvement, but we didn't have the impression that the full impact of the measures that are being taken are already in those numbers. And I think that's exactly what we see now pulling through in the second quarter. Combined with, of course, a very solid invoicing, but then on top of that, the measures to adjust a little bit the capacity to the lower utilization in the FAPs, for example, and a more paced approach to fitting out some of the investments we have made and so forth. I think that's the reason why we have seen that. Whether this will be exactly the same in the next quarter is, of course, hard to say. We do not have a target to maximize that to the extreme. We like to aim for 22 plus, let's say, margin for vacuum technique. And we, at the same time, would like to continue to invest in the future with R&D within our organization, etc. So if we can, we would like, of course, to continue to have a very solid drop-through like we have seen currently, but that will depend also a little bit on how the demand will develop in the quarter. Okay, thank you.

The next question comes from Ben Helan from Bank of America. Please go ahead.

Yes, thank you for taking the question. I wanted to ask about the decline that you saw in industrial and scientific vacuum. Was there anything specific that drove this? As from memory, it was relatively strong in Q1. So was there any particular driver of the change in trend there? Thank you.

It's a rather small decline that we have seen. I would say it's more a general economic decline. It's nothing specific in the range or any specific region that we can see at this point at least. Just a general decline of the business versus last year.

Okay. Thank you.

The next question comes from John Kim from Deutsche Bank. Please go ahead.

Hi, everyone. More of a conceptual question here. There's a lot of news flow and talk about generative AI and how that affects data architectures and semi-cap spend. I'm wondering if you see any effects or possible effects over the next couple of years while on the topic of VT. How can I put this? Are you seeing cancellations or orders getting delayed at levels abnormally high?

Thanks. Was there a link between the AI and the cancellation or was it two different questions?

Fair point. Separate questions, please.

Okay. We'll start with AI. tried and explored a little bit when we review contracts and so on I think it's been used also for spare parts lists trying to consolidate a little bit information we have and see if it's possible to automate many of these processes I know there are experimentation doing the in the lead generation with customers up to see if we can ask the right questions with the right information to get leads in a certain part. So we think that is quite significant business value in this, but it's an early stage at this point. I also know that they are testing software programming. I think there are evidence that you can do it significantly faster if you get the help from AI. On the other side, we are a little bit cautious about cybersecurity to see what code we get into our products so we can secure that versus our company. But there is a lot of experimenting at this point. And then I think it will have a business value for us. We don't know exactly where at this time. And, of course, if we see a strong development of AI, that will drive our vacuum business quite significantly over time as well. So if we have the 5G development, we have AI, we have connected products in the industrial application, there's quite a number of opportunities for SEMI going forward. What was the second question on cancellation, even if we shouldn't have a second question?

Within VT, are you seeing project delays or cancellations abnormally high?

No, it was fairly high in Q4 for the group. It was 600 million now, divided mainly between SEMI and power techniques. So we see less cancellation in SEMI. But there are still some push-outs in terms of when they want delivery. Okay. Thank you. Thanks.

You're welcome. The next question comes from Guillermo Pena from UBS. Please go ahead.

Thank you for taking the follow-up. I wanted to ask about a statement you said, Mats, about 11 of the divisions still growing. And I wanted to clarify whether these business units you were referring to when you talk about growth is, I guess, all intake from a YOY perspective.

It was just a reference so that we can help in a transparent way to the outlook. And in the past quarters, we have seen organic growth in more divisions than we have right now. And I wanted to give an indication that out of the 23, there are then 11 that have organic growth in the quarter year on year.

Yeah.

Okay. Thank you. Thank you.

The next question comes from Marta Broska from Burenburg. Please go ahead.

Hi, good afternoon. Thank you for taking one question. Actually, I would like to ask about the new range of pressure gauges you highlighted for vacuum technique. Could you please give us some more detail regarding the technology it is based on? Is that the ceramic diaphragm or CDC type of gauge, or what is the measurement principle, please? Thank you.

It's a little bit difficult to hear you, but we understand it was something on vacuum technique. Yes, that's correct.

Okay, so... So what is the technology behind it? If you can, I appreciate it's a bit technical question, so maybe I can clear it with Daniel afterwards, but if you know, I would be curious to know what is the technology that is based on the CDC gate or what type of gate is that? Thank you.

But we can help you with the technology brief. I think that's an offline call easier for us. But what we have done here over the last four years is that we start to exchange because we think this is a core product for us. And we had an older generation and we also were sourcing some products. And step by step, then we have introduced with our own manufacturing. And that has paid off really well for us. And we don't hide away from the technical question, but I think Daniel can help you to get the correct specification on the technology.

Thank you.

The next question comes from Sebastian Kuen from RBC. Please go ahead.

I have a follow-up question on volume price mix. That was a good contribution, let's say, from volume price mix in Q2. And given that you have maybe roughly five to six months lead time overall in the company, would it be fair to assume that we see further contributions to the margin from volume price mix going forward? Thank you very much.

Well, Sebastian, of course, I think what we have been seeing is that the price component has been very good. We have worked a long time and very hard with all the different business areas to really make sure that we use pricing capabilities across the markets to defend, of course, ourselves against the cost increases that everybody has been exposed to. Then secondly, Now that the supply chains are easing up a little bit, like you said, there are still some issues that we regularly are confronted with, but they are much less prevalent than they used to be. So that, of course, helps us to drive up the volume quite significantly and that you see in the record revenues that we are posting again for this quarter. Mix depends a little bit. In some cases, this can have a negative impact. If we think of power technique, for example, where the fact that there is such a high demand for equipment then the relative weight of equipment sales versus rental activities, for example, is a little bit shifting and that has a bit of a negative mix effect for power technique as one example to mention. Whether we can simply, let's say, extrapolate this into the future, I think is a little bit tricky because I think as everybody sees with inflationary pressures high still in the markets, even though there are a few markets where it is improving a little bit now but it of course continues to and also the raw material prices actually being lower it is very likely that we will see some pushback from customers after having accepted price increases they might be less accepting future price increases again so that same kind of pricing impact and volume impact might not be there in exactly the same way. Again, we don't have a very firm target on the drop through. We have historically over a longer period of time seen a drop through of about 35%. And I think that's a very nice value to achieve. We have outperformed that in a couple of cases this quarter. But we'll have to see next quarter how all the different elements in the mix will play their part. Thank you very much.

The next question comes from Andrew Wilson from JP Morgan. Please go ahead.

Hi again, thank you for taking the follow-up. I just wanted to pick up just on your comment around the outlook in vacuum, Matt, and I guess the sort of slightly longer timeline maybe than as you said has been sort of outlined elsewhere. I just wondered if there was anything specific that you were either hearing or seeing that you could point to for expecting that to be a little bit elongated or... If there was anything either company specific as well that you'd like to highlight just in terms of thinking around that timeline. Thank you.

Yeah, no, but when I refer to them, there is, of course, a number of associations that predict and are in communication with the biggest family companies to ask about the predictions of the CapEx quarter by quarter. And the only thing we actually know is that they're always wrong and they change from quarter to quarter. But what we have seen then, of course, in the quotation is that if the market would return or we would see big orders in the cycle coming back with the booming business, then I think we would have seen that now in the quotations. And so what we see is that, well, this is probably just pushed out a little bit. And we can also see some of the announcements from Samsung and some other that they make in media. So I think we can draw the conclusion that it's probably a little bit delayed at least, but the demand is still there. So for us, it doesn't really make a big difference. But I think many have speculated that we will see it coming back earlier than at least what we expect. Thank you very much.

The next question comes from Klaas Bergland from Citi. Please go ahead.

We don't hear you, Klaas.

Hi, can you hear me now? Now we can hear you. Fantastic. Hi, Martin, Peter, Class of 2020. So I was late on the call, very busy day, but maybe you have touched on this. But I just want to follow up on the decarbonization-led growth that we see in compressor technique. Obviously, we knew about the very large orders, LNG and carbon capture in the first quarter, and we don't have as many right now. But can I just confirm that these are still very much sort of growth drivers relative to obviously the weakness you're touching on in the general engineering segment, sort of more old economy verticals. I'll start here.

No, but I mean, we don't have it as an official measurement in the group, but what we are trying to just consolidate and get the feeling for some of the growth platforms that is linked to sustainable segments and renewable energy. That could be the wind, for example, could be solar, it could be battery manufacturing and that continue. I don't think class studies anyway that that's going to go back as long as society continues to demand renewable energy and less CO2. It will go up and down from quarter to quarter, but we have a good product portfolio for that, not only in CT, but in other areas as well. And for us, it continues in this quarter as well in a very good way for us.

The reason why I asked is that last time you highlighted carbon capture end of the quarter, you don't highlight it now in the report. But I guess that was just a lumpiness of large orders by a few.

I mean, carbon capture for us, we do the compression part. We don't do the catching at all, but it's a little bit on different programs. And I mean, it's not the widely used technology like everywhere in the world. So over time, I think if this will be the solution then to catch carbon, then we will have a more stable demand for this type of equipment as well. But now it's a little bit more project-based. It will go up and down, but it can be significant for us.

Very quick final one on rental and the comment you made in power technique. And obviously we had the seasonality on the rental side before, but is this beyond seasonality or are you seeing lower investment levels also year over year?

I don't know. But we see seasonality, of course. We always expect a very strong Q1. But what I mentioned earlier when you were not on the call then was that the complete pump business that we are now developing, which is performing really well, there you will take out the seasonality and you will build a new opportunity for service as well. So when we industrialize our technique, you will see more or less seasonality in those numbers. with the exception also of the traditional cores, so to say. But the pump and flow business is growing rapidly, and it's one of the bigger divisions already.

That's great. Thank you.

Okay, thank you class. And with that, we are coming to the end of the call. I see that there are still a few people in the queue now for some additional questions. I would like to offer you to, of course, reach out to our investigations team and to definitely bring those questions forward. But for now, we will close the call. Thank you very much for attending and looking forward to meeting you in person in the coming months. Thank you very much. Have a nice afternoon. Bye bye.