Atlas Copco AB

welcome to the atlas copco group q4 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 hash 5 on their telephone keypad now i will hand the conference over to cfo peter kinnett please go ahead thank you operator

Good morning, good afternoon, good evening everybody to this quarterly earnings call for the Atlas Copco Group. I'm happy to be here together with Mats Ramström to comment on the results of the and also to give you some guidance on the coming quarter. Before I hand over to Mats, I would already now like to point out as usual that after this presentation we will have the Q&A session. And I would like to ask all of the participants to only raise one question at a time in order to make sure that all participants have the opportunity to at least raise one question. Should there be more time after the first question has been raised, we will be happy to come back to you for a second follow-up question. And with that, I hand over to Mats for the start of the earnings call.

Thank you so much, Peter, and welcome, everyone. I thought I would mention a couple of words of the starting picture first. We normally write about large industrial compressors, and this is what you have in front of you. So these are the rotary screw, oil-free machines, and it's been successful in this quarter and in many quarters before. So it's the ZR range. And with VSD, so this is variable speed compressors, and up to 35% savings, cost savings in energy. And in this case also, we take the excess heat from the compression process and use that for the integrated dryer as well, which also helps them to save on energy up to 60%. And this is a typically machine that we sell for food and beverage, pharmaceutical, electronics, semiconductor, textile and paper, for example. So when we talk about large industrial, this is what it could look like. And the sales pitch for our teams around the world is not that difficult. Energy efficiency comes from , so it's a cost leadership. And of course, they also a good pitch for sustainability. It's reliability and uptime. And of course, with connected service also give them more uptime on their machines. So this is one of the successes that I have on compressor side. If I then go to slide number two, we mentioned in the heading mixed demand. And as we could see them, we talked about the activity level Q3 and Q4, and we could see sequentially a decline as expected. All the orders to seed year on year, 37 billion, so 1% up, so pretty flat. Fantastic by compressor technique, 7% up, and once again, it was these large compressors and service that really stands out as good performance in the quarter. Slight change in Vacuum technologies, that was minus five. And then we could see industrial and science vacuum. And then instead, kind of flat. So a little bit changed in order. Industrial technique up 3%. Strong development for auto in Europe. And the development for auto in Asia. And a very strong development in general industry accounts. PT minus 11, there I must say that it might look like a big number, but last year we had some unique orders to Ukraine and also that at the time, so the early ordering for some of the rental companies. And then continued and positive development for service in all our business areas. Record revenues, so really getting up to speed. There are smaller issues still in operations with components, but we are getting close to a normalized situation in terms of lead times. So 45 billion and a 10% growth for the quarter, and double-digit growth for compressor technique, industrial technique, and power technique, and then also vacuum them up 3%. And you can see on the graph, of course, that a sequential decline on orders received. But if you take that back a few years and take away the peaks, of course, it's not bad. But sequentially, of course, they're down. If you take a look at page number three, that's the confirmation of the numbers that I just mentioned. If you look at the operating profit, it was 9 billion plus 16% and the margin at 20.2. I also want to mention the adjusted margin, which was up then 24% and the margin at 22.1. And it was the two things there. You had the long-term incentive approval where we re-evaluate the shares. or the options, I should say, when the Atlas Koko share price went up quite a lot. We have a provision in this case. This is a commercial dispute between us and an old former distributor in the Middle East. We canceled this distributor five years ago, and this is a 30-year-old contract. And we have taken a provision for this. And we believe this would be the worst case. Also very, very strong cash flow in the quarter. If you go to slide number four, you have the full year result. And it can easily be summarized by a lot of records down. So record orders, 470 billion plus 8%. Record revenues, 172 billion at 22% up. And record operating profit at 37 billion up 23% at the margin at 21.5. And adjusted mainly for those two things, LTI and the provision we took at 22.1 then. And also record cash flow. We did 17. I think two of them, a lot of roll-ups in CT. A couple of them for Peter that I thought was extra interesting, that was the MP and Sykes. That really takes us into a new growth platform with the dewatering pumps, and it's good for two divisions, both the specialty rental and also the flow divisions. So very interesting for us, and it's been a good start for those new acquisitions as well. The board of directors then proposes the dividend increase to 280, that's up 22%, to be paid in two installments, one in April and one in October. Okay. We can take a look at slide number five. And that's still on the full year. And there you have the operating margin then. with an increase of 23% at 37 billion. And then they adjusted at 22.1. I think the last three years development, we always said that we would benchmark with 2019 before COVID, so we shouldn't fool ourselves, but there was a slight decrease 2020, but then a rapid development for the last three years. If you take a look at slide number six, we will have the geographical map. And the teal color, the darker color is the share. The middle light grayish is the year. And the yellow box is the quarter. Starting in Asia, you can see that that's 37% of our business. And that also include Oceania. And why I mentioned that is, of course, some of these interesting acquisitions have been done by PT in Oceania. And it's becoming quite an interesting market for us. And PT was also very, very strong. And it's specifically the new pump business is doing really well in Asia. Industrial technique, as I mentioned earlier, is softer. and they've been debated a little bit opacity or not but we normally also see some of the slower business in in china uh in q4 versus q1 and and vp was done both in industrial and ceiling flat dish ct business and i must say that it seems like bigger operations with bigger ambition with national profile is doing significantly better than smaller businesses where they are very cautious with new investments. If you then go to Middle East, Africa, very strong performance for the year, 17%, 11%, strong finish as well, and it's mainly a compressor region, and they also have a very strong Q4. Then if you go to South America, you can see 11% for the year, 17% for finishing in the Q4. Double-digit growth in all our business areas with the exception of one. And what's been performing here is the energy transformation. We also see strong business in agriculture. Coming to Americas, one reflection is that Mexico is doing very well. Yes, it is on-shoring, but it's close on-shoring, you could say, I guess. CT stands out as a very strong business, both in battery and solar, liquid natural gas. Also, SEME did very well, and more flattish development from IT and PT. And you can see what we also mentioned here, that 27% of our business is in Europe, with the growth rate of 3% coming in in the lower range, and also a weaker finish of the year with minus 6. We go to slide number seven, and there you can see the organic growth rates over a number of years, and you can see then that was a little bit uptick at 1% for the quarter year-on-year. If you go to slide eight, you can see on orders received and revenues that they get the structure changed. The acquired businesses helps us with the capital percentage. Currency is now pretty flat. Organic loan plus one for orders received and plus 10 for revenues. And go to slide number nine. Compressor technique, as I said, fantastic performance for the year, but also very, very strong finish done with 7% growth. Power technique, although down, there was in the beginning of the year now added to the portfolio of industrial parts. So, they are almost equal in size down to industrial technique, and industrial technique was slight positive. than slightly negative, but more and so more of a decline in industrial . We go to slide 10, which is the compressor business. Orders received at 17 billion, up 7%, especially then the larger, size of compressors that they've seen. Seems that they are more firm in their decision making when it comes to strategic long-term business. And somewhat lower demand for gas and process year on year. Of course, that was a fantastic demand last year. And solid continued growth for service. They're very good at promoting service, helping customers with uptime, and gaining ground every quarter. Revenues, 15% organic and 20 billion of 15% as well. And I think a fantastic operating margin at 24.8. I also like to highlight the innovation there. If you follow us closely, you can see that quarter after quarter, we present new products for the clean techs. And in this case, then a compressor that feeds into the carbon capture system. So another piece of equipment that will be promoted and is promoted now when we see more and more carbon capture applications. We talk about air compressors normally. I think we need to change that a little bit and promote this more as a gas. When we see when we compress today, of course, it's air. But it's also oxygen. It's nitrogen. It's hydrogen. It's carbon and many other gases. And a lot of them linked into the new clean technology. So it's much broader than just compressing air these days. Vacuum technology, slide 11. So orders, you can look at the graph. And, of course, you can see that it's quite a sharp decline. On the other side, then, $8 billion is not a bad orders received historically. So it's on a good level. Obviously, make good money. Minus 5%. And here we see a little bit of change. And we are ready for the uptick in semiconductor when it will come. It's not here and now, as you understand. We do not see a lot of indication that it would change dramatically in the coming quarter. We see, though, that there is a lot of construction going on in the industry, but we see also a lot of delays or push-outs on these designs of new plants. And we have not seen much of the U.S. feedback in our order books just yet. So, we are ready. It's flattening out, and we have a bunch of new products to introduce to that segment as well. They continue to push out products, the record revenue up 3% at 11 billion, and operating margin at 21.3. So, in the sequence, what will happen, of course, When there was a peak of utilization, we could see it up to 95% in SEMI. We think that the investment point is somewhere around 85. And if we look at some of our customers, they are pushing out approximately utilization of 75%. So utilization price and then capex. If you go to slide number 12. You have industrial technique continue to grow, 3%, 6.4 billion. I mentioned it earlier, auto in Asia was weaker at the same time. The group was a little bit stronger, but what stand out a little bit was the general industry business of highway, aerospace, and vision system. And also here we have the positive development of service. Record revenues are 11% up, 7.4 billion, and record operating profits with a margin of 21.4. Here's a product that's been introduced and that I think is replacing them. This is for the car industry or the auto industry. It's from the ISA portfolio, a new product. It's paint inspection instead of doing it manually. You can actually use this. It's a robot, as you can see, and our system is the black little box there. And then it can scan and actually do a much better job than a human being and identify possible things that they need correct. I think it's quite an interesting product. And last of the business area on page 13 is power technique. They had a little bit tougher comparison, but order declined 11% and 5.2 billion. Equipment was down. Specialty rental continued to do really, really well. And we have also broadened the portfolio. Used to be oil-free air. We do steam. We do pump. We do generators. We do energy storage. So it's quite a larger portfolio. But the highlight of everything we do is special. So we help the customer to install and engineer some of these products. And continuous service increase. Revenue increase of 10%, 6.9 billion. And continuous strong operating profit for PT at 19.1. And here an other product in this tech portfolio for sustainable environment. This is the One of the bigger microgrids that you can have on the construction site, for example. And then we come to slide 14, which is the profit and loss. And then you can see the EBIT Aden, where we take away the intangibles. And then the EBIT at the report at 20.2. And then you have the adjustment that we already mentioned. Why don't I hand over to you, Peter?