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?

Thank you, Mats. Then continuing on the same page, 14, you see the net financial items, which are slightly higher than last year, and not really material, but basically due to higher interest costs during the quarter compared to the same quarter last year. And then the profit before tax of 8.8 billion. and an income tax expense of 2.1 billion, which corresponds to an effective tax rate of 23.2%. This is slightly up and has mostly to do with the fact that we are selling more in geographies with higher nominal tax rates, also territories where there are holding taxes on dividends, and as a result of that, we see a higher weighted nominal tax rate and therefore also a higher effective tax rate. Finally, also the fact that the corporate income tax in the UK has increased to 23.5% this year is also a contributing factor to the higher tax cost that we need to take into account. For next year, we expect that the effective tax rate will continue to increase based again on the same factors. First of all, the weighted nominal tax rate going up due to the growth in those countries where the nominal tax rates tend to be higher to start with and in some markets also the higher the fact that we are exposed to withholding tax on the dividends and the continued increase of the corporate income tax rate in some other territories including for example Ireland due to the European regulations to have the minimum 15% tax in the European territory. After tax, that gives us a profit for the period of 6.8 billion Swedish kronor, and that leads them to basic earnings per share for the quarter of 1.39 Swedish kronor, and a return on capital employed of 30%, very close to the return on capital equity of 32%. With that, I move to slide number 15. where we see the profit bridge for the fourth quarter. And besides what was already mentioned on the LTI programs and the provision we have taken for this commercial dispute, we also have a slight negative impact from acquisitions, slightly dilutive even though they are generating positive profitability. And at the same time also a slight negative impact from currency. While I think the very positive news is a very strong drop through of 48.6% from volume, price, mix and others. Which of course is very good. Partly, mostly because of increased organic revenues. But of course we also need to take into consideration that we are comparing to a weaker Q4 last year. where we suffered from some higher costs in particularly industrial technique and vacuum technique. When it comes to the currency, currently slightly negative. For the next quarter, we are assuming, based on the current exchange rates, that it would be probably again slightly negative in a similar dimension. If I then move on to slide number 16, I will just briefly walk you through the operating profit bridges for the respective business areas. We can say that basically the drop through I think is very solid for all four business areas. And that is for all four of them based on the increased organic revenues. I would say that only for vacuum technique and industrial technique, as I already mentioned in the general comment, We also need to take into consideration that the drop through is not only so good because of the good organic revenue development but also because of the fact that we are comparing to a softer Q4 2022 as you will remember where we took a number of higher costs than usual in that particular quarter. But otherwise, I think even without those considerations, I think from our side, I think we are very pleased to see this very solid drop through across all the business areas. If I then move on to the next slide, number 17, just a few brief comments on the balance sheet. I don't think there is a lot of drama in this balance sheet to be detected from my perspective. I think there is of course also a slight impact from the currency development from Q3 to Q4 resulting lower values. But I think otherwise we see the rental equipment and the property plant and equipment on a fairly high level resulting from the investments we have done in 2023 in our rental fleet. We have held back a little bit during the COVID periods and the difficult times. but of course now we have a bit of a catch-up effect going on on the rental fleet and also we have communicated already many times about all the investments we are doing in expanding capacity mostly in vacuum technique but also in compressor technique for example and then the last comment I would like to make on the balance sheet here is the positive development on our inventories due to the supply chain constraints of course we have commented earlier that we have been suffering a little bit from inflated inventory numbers, partly due to the fact that more components in stock in order to be able to produce the units when those missing components would finally arrive. And partly also because in more remote territories, the customer centers tend to build up more stock of sales products in order to be able to satisfy their customers with reasonable delivery times. now that supply chains have normalized much more and the problems are much more limited than they used to be a year ago we have been working quite hard with the different business areas on trying to reduce those inventory levels and at least this quarter we see some first signs of development into a positive direction and if we look at it from a relative perspective compared to sales we also see that our short-term values are crossing the long-term trends. So that I think is very positive news to highlight. If I then go to slide number 18 to comment briefly on the cash flow. First of all, a very strong operating cash surplus of 12 billion for the year, 46 billion in total. net financial items that are not so material in the bigger scheme of things, then I already comment on taxes being higher due to of course higher profitability levels on the one hand in absolute terms, but at the same time also due to the higher relative weight of nominal tax rates. Changing working capital again here, a positive topic to mention, the plus 558 million Swedish kronor. I think the first time since a very long time that we see a positive value contributing to the cash flow rather than eating into the cash flow. So I think that is, again, a very positive sign. Let's hope that we are able to continue these measures further in Q1 and that we continue to see a positive development. I already mentioned the increase of the rental equipment. which is also clearly visible here, and also the investments of property and plant, which are on a similar level as last year, but overall historically on a relatively higher level due to all the investments we have been making and we are continuing to implement. And then as a result of all of the above, we end up with an operating cash flow of 8.8 billion for the quarter, a record for the year of 23.2 billion, of which we spent about 4.3 billion on the 17 acquisitions that Mats referred to earlier in the presentation. Then on slide number 19, just to comment briefly on the dividend, as already mentioned, based on the development of our profitability, we ended up with earnings per share of 5.76 Swedish Krone for the year. And considering the fact that we tend to aim to have a 50% payout ratio to our shareholders, the board of directors has agreed to propose to the annual general meeting of shareholders a dividend for the year 2023 of 2.80 Swedish krona per share, as already indicated, payable in two equal installments, first time in April, end of April 26, and the second time on October, record date October 30th. And with that, we are almost at the end. I just need to hand back to Mats to comment on our forward-looking statement.

I mean, it's not getting any easier to look into the future. You can see changing market conditions due to conflicts, geopolitical scenarios. And of course, as everyone knows, there's a lot of elections that could change a number of things as well. But we will do our best, and so this is the underlying activity level among our customer segments between Q4 and Q1. It is not including seasonality. So then if you believe that Q4 is normally a little bit weaker than Q1, for example, then that is not including in the statement. And then we expect that the customer will remain on the current level as we see it. We don't see any major reasons at this point, and we have the negatives with the conflicts around the world. We, of course, expect transport costs to slightly go up. It's a smaller cost for us, but it's still there. Not so much in this quarter, but we expect a little bit more next quarter. We see the trade barriers as well. At the same time, we see Semi being flat, but we see more construction, more activity there, which we find positive, although we don't see that in orders we see just yet. And then as we try to promote to you, and you will see more on the capital markets day, that our product portfolio generates a lot of activity among our customer with sustainability, with efficiency. And they keep pushing more launches on new products, so that also generates customer activity. Maybe I'll highlight that last year in Q1, we had exceptional orders from gas and process, and also we had long lead times in power technique. So those, if you look at those bars for Q1, they were very exceptional for that, and that might be difficult to meet some of those going forward. And that's why we stayed on current levels. We don't see any exceptionally positive. We don't see anything exceptionally negative going forward at this point among our customer segments. If you take one more slide. It's May 16th. That's a good day to be in Antwerp. This is when we have the capital markets day. And you will have the opportunity to get to know our new CEO, Sven Wagner-Rego, on his home turf. And we will be focusing on CT, compressor technique and power technique. And also, Daniel sends regards that it's almost sold out already, and we have 100 seats, so you better sign up as soon as possible if you like to join.

Thank you, Mats. With that, we have come to the end of the presentation, and our comments to the quarterly result for Q4 2023. With this, I would like to hand back to the operator. But before we do that, I would like to once again repeat that as the Q&A session starts, please stick to asking only one question at a time in order to make sure that all participants have an opportunity to raise their burning question first. When there's time, there's a second round for more follow-up questions, if you like. Thank you. With that, back to the operator.

If you wish to ask a question, please dial 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good afternoon to you both. Thanks for taking my question. I'll stick to one. So as you've commented, you're very happy with the organic drop-through you've seen. It's been increasing also over recent quarters. Just wanted to check, as we look forward, do you see this as the normalized level, or do you think there are some elements we need to consider that might not mean this is a continuous level from here? Thank you.

Thank you, Daniela, for your question. I would say of course the drop through is always varying a bit from quarter to quarter. It also depends as you could see also this quarter very much from the comparison. In this case Q4 for ITBA and VTBA was a bit weaker a year ago. And of course that also impacts then ultimately the drop through in relative terms. Of course, I think there's nothing on the radar that would indicate that we would not be able to, with good revenue development, continue to see a good drop through. But whether it will be exactly on this high level is, of course, hard to assess. Depending also on the comparison, for example, Q1 2023, we'll need to see how that turns out. But of course, on average, Over a longer period of time, when we look back, then we have seen drop-throughs of 30-35% roughly, and that is, of course, what we are aiming for to achieve. We will see, of course, in Q1, if we are able, with the development of the economy, to repeat these very good drop-throughs.

Thank you very much.

The next question comes from Claes Berglind from Citi. Please go ahead.

Thank you. Hi. My question is on vacuum technique. There is a bigger decline than I thought in equipment in semis when I just saw the early cancellation that we had last year if I compare versus the gross starting point. We know that you will likely see recovery later than some of your peers, but I'm interested to hear, Mats, if this is driven by earlier strong growth in China coming off where you have a strong position, whether there perhaps has been some sort of pull forward of demand in China that you now start to see some slowdown. I'm interested in the regional development. That would be very useful. Thank you.

Yeah. You know, I think with some of the limitations that we've seen in the past quarters, I think the Chinese have tried to order as much as they could. It was softer in this quarter, as we said in the report. If that is due to that they see other limitation outside our own to get to the smaller nodes, I'm not sure. On the other side, we knew that I'm sure that the bigger nodes that they normally work in is 80, 85% of what they do in China anyway. So I don't have a full conclusion on that, and I cannot fully follow your except that it was strong in this time in North America, a little bit softer, but it was kind of flattish, and we have seen a flat scenario over a number of months now. So no specific that stands out at this point.

What I was trying to say, Mats, is obviously you had one billing cancellation last year. at the group level, and the majority of that was in BP. So if I sort of look from an underlying point of view, it looks like, you know, year over year, you're coming down quite a bit. So that was my point, and I was wondering what was going on in China.

Yeah. No, you're right about the cancellations. We saw cancellations in the beginning of the year, in Q1 specifically, and then those declined. Well, maybe we need to look into that, but it's a flat scenario right now. Strong in North America.

Thank you. Maybe also contributing to that was the fact that scientific and industrial vacuum was weakening in the fourth quarter in general, and that was also something, especially in China, which was notable. Thank you, Peter.

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

Hi, good afternoon. Thanks for taking my question. I just wanted to ask on compressor. I think in the course, if I'm not wrong, the industrial compressors were stronger, and you mentioned kind of particularly in large compressor, but also small and medium-sized compressors were still up year and year, and then process was weaker. I'm just trying to understand how much of that is about comps and how much of it is kind of underlying market condition and how much you feel is kind of new products winning some share. Because I guess intuitively I would have expected maybe the industrial markets to be slowing and process being late cycle to still be quite strong. And it's almost the other way around. So I'm just trying to get a feel for how much you think this is a comment on the underlying markets and how much is kind of not necessarily Atlas specific, but specific in terms of some of the trends we've seen in the quarter. Yeah.

I can at least start, and Peter can follow. It is not a weak market for gas and bruises. It's just that the comparison, as you indicated, that's very challenging. On the other side, we have broadened the range of products, so it's chemical, and it's gas bruising, liquid natural gas. There's a lot of different applications, but these products are normally quite big, so one or two orders can swing one quarter to the other. But in general, we see that there is a strong demand for this type of products in general. And then we're happy to see that industrial was positive, although that the bigger was even more positive then. And we have at least is that the bigger machines that I showed on the first picture, it normally goes into, companies with a long-term strategic view, and they continue with their strategic plan. So, if they're going to build a battery factory or whatever it might be, they continue with their plans anyway. And the smaller, that are sub-suppliers, they don't have the financial strength, and then, of course, they tighten up their capex much quicker, and that's with the smaller industrial compressors. So, and this is what we have seen year after year after year. that the long-term strategic business continues and of course there's not the same same self-confidence with the smaller players so then it's easier for them to pull back on investments but of course it will will come back as well that's very helpful thank you

The next question comes from Max Yates from Morgan Stanley. Please go ahead.

Good afternoon, Max and Peter. I guess my question is just a little bit around the guidance. And I kind of understand that, look, we're at 37 billion of orders. You've said that sort of seasonally they probably get a bit better. and then they're going to be below the sort of 48 billion that we did this time or in Q1 last year. So obviously that's quite a big range where we're sort of talking about 37 to 48. So I guess is there any sense of kind of when you talk about flat demand, what do you see as kind of normal seasonality for this business? Would normal seasonality be going back to 40? Would it be more like 44? Obviously, given the kind of exceptional performance gas and process environment we've seen, obviously exceptional power technique environment we saw last year. It probably isn't last year, but is there any way you can help us how to think about it within that range and where you see the normal seasonality in your business and any kind of magnitude on how we should think about it? Thank you.

I think you, Max, you have followed us for so long you know that we don't guide on numbers. We try to guide on the activity, the level as we see it right now, and that's kind of difficult enough. But, yes, we do see that normally Q1 is stronger. And the main driver over many years have, of course, been that that's the season for the power technique business. On the other side now, then, when the industrial pumps is in power technique, we will over time see less and less seasonality from power technique as well. The other thing that we have seen, if you follow our reports, is that normally we see a softer Asia, China, in Q4. And we don't know how big of a recovery, but many years we have at least seen a stronger China in Q1, if that's a new budget or what is the reason for that. We have not speculated in. But normally we see somewhat of a stronger Q1 than we see Q4. push out a lot of products, closing a lot of projects in Q4, and then you get a little bit more orders received in Q1. But we don't have a number for it.

I mean, without asking another question, I mean, on power technique, we've heard quite a lot from companies reporting in the last couple of days about quite a lot of excess inventory and construction equipment, sort of rental companies not reinvesting Sandvik talked about some smaller ones struggling. How do you see the sort of typical buying season and typical kind of purchasing season in construction equipment this year versus others? Do you see similar dynamics in that market?

Considering that most suppliers of quite some time have very, very long lead time, so a lot of ordering happened quite early, and I think we normalized lead times right now. And you're absolutely right. We see that there is more stock and inventory at some of the rental companies, some of the dealers. So it is more challenging, as we have discussed before. We do not see that it's a complete stop in any way. So that's what we see at this point. And I think the determining factor will be in Q1, what will happen here. and see how many of these quotes will actually turn into orders. So, yeah, we have to wait and see. Okay. Thank you, Mats, and good luck in the future. Thanks.

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

Good afternoon. It's John from Deutsche. Thanks for the opportunity. If we could head back to VT for a second, could you give us a sense of the kind of end market or customer mix in either your backlog or your index, whatever you're comfortable with, between logic memory and foundry? I'm just trying to get a sense of how VT compares this year versus maybe the industry overall in terms of growth and dynamics. Thank you.

I don't have those details on top of my head. It might be with the semi-division, but I don't have it for a Q report. I'm looking at Peter, if you can help in any way.

I think I can only say that from an application point of view, we are pretty agnostic. If we talk about semi, in whichever segment within semi, there ultimately goes the different types of equipment that we have are offered to all the different customers. For us, that doesn't have a very big influence overall, I would say. So from that point of view, I don't think we can invite you specifically because, as I said, for us, it doesn't really make a huge difference whether one or the other segment is performing strongly. We will get the orders from the segment that are there for all the problems that we have.

Thank you.

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

Yeah. Hi, everyone. My question relates to the IT Division. I was wondering if you could give us a bit more color on the exposure that you have in automotive and what activity you see, especially from the electric car and battery assembly. If there's a slowdown or if we should be aware that tender activity is slowing because there was a big wave of electric car assembly lines being built and now we have to fill those capacities before we go into the next stage. Maybe you can give us a bit more. Thank you very much.

More than industrial techniques business, more than 50% of the business is related to the auto sector. That's car manufacturing, truck manufacturers, and tier ones, seat manufacturers, for example. Over the last few years, the big capex has been in electric vehicles. We have seen that the Chinese has been most active, also Tesla, of course, from America. And now we see that a lot of the battery makers are, of course, the full value chain you see in China. But we also see that more and more of the European open up the room battery factors to do at least the assembly and the packaging. So we have seen more activity than in Europe in this quarter. I would say catching up maybe technology-wise. And I think also that we will see that in America. And of course, that there's so many Chinese EV manufacturers, so at least myself would expect the consolidation. But I think it was in this quarter that BYD became a bigger player than Tesla. And I think the main problem right now is that only 13, 15% of the cars sold are EV. And it's up to us consumer then to ride the market a little bit. And I think it's a little bit on hold, as you said. And I think everyone is reevaluating the investment, how it should look like and how the portfolio should. But I don't think it will stop. And I don't hope personally that it will stop. I think it's a transformation that is needed for the environment. We are ready, and we have equipment for traditional technologies, the combustion engine, or EVs. And we think that for us, it's beneficial that the market transformings to EVs. We have a number of applications on the batteries, which is the new drivetrain, so to say, and also on the body. So for us, stronger Europe. a higher expectation on America, so a little bit softer than China, as we have seen it in this corner.

Thank you very much.

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

Hello, everyone. Matt, Peter, can you hear me? We can hear you. Hi. Just a question on compressor and the order environment, if I could. I mean, you've just done 17 billion, and we've had three-quarters of over 20 billion, averaging 21 billion. I guess, do you see this as a more normal quarter after three-quarters of exceptional, or the other way around? And I'm trying to think about the energy transition the move towards hydrogen, carbon capture, where there is a secular story out there which would drive orders upwardly over time versus the cyclical aspect, the macro, and really how you see those two things playing out and where you think we are in that and whether the mix of the business is changing.

I can start. I knew that a few quarters ago. Daniel tried to investigate a little bit for the group, at least, and, of course, a big part of the group for the sustainable application is, as you say, linked to CT. And then it was around 10, 12% that was this new type of technologies. that we will link to. We don't have an updated measure. It's not a normal measure for us. But for sure, when I listen to what happens in gas and process, what happens in oil-free and some of the segments, I mean, the battery manufacturer, for example, have been a huge impact, a positive impact for us in China when it comes to the oil-free machines. So it is shifting a little bit. That's why I made a point in the beginning as well that independently of what gas will win, if it's hydrogen or liquid natural gas, any gas that needs to be compressed moves somewhere and used. And, of course, we will have products for these segments. I'm not so sure I give you a good answer, but that's a little bit where we see it. I don't know if you could add something on the normal. I don't know if there's a normal.

I wouldn't call this being more normal than other quarters. What is true is that GAZER process has been a bit softer year on year. But that again has more to do with the nature of the business, the big ticket items that are part of the portfolio and the different types of applications that we are offering to much more than we used to a couple of years ago. And as just like Q1 2023 was a big surprise, you could say, in terms of the amount of orders that dropped at more or less at the same day. You could also say that we just happen to have fewer orders out of the quotation portfolio that we have out there in Q4. I wouldn't say that this is automatically a normalized quarter compared to others. I think we have also indicated previously that we have seen a bit of a trend on the industrial compressor side that the large demands for the large units or the orders for the large units continue on a steadier pace, while for the small medium enterprises, the appetite to decide, the insecurity with small medium enterprise owners is a bit higher. And given then also the shorter lead times, And, of course, also when we talk about distribution, having some higher stock levels, for example, we see a bit of a softer development on the small-medium size currently, while the large units continue based on the fact that decisions have already been taken in the boardrooms. Do we make these investments? There's longer discussions about technical specs and about the installations. And ultimately, of course, the delivery times also are, by definition, larger for the larger equipment. And I think that is what leads them to the current development, both on the industrial compressor side as well as on the gas and process side.

Thanks for the call.

You're welcome, James.

The next question comes from Jonathan Day from HSBC. Please go ahead. Jonathan Day, HSBC. Your line is now unmuted. Please go ahead.

Hi. Good afternoon. Sorry. Thanks for taking my question. I was wondering if you could talk a little bit more about what you're seeing in China. I know you've touched a little bit about it in VT and IT, but just in these other divisions as well in terms of the trajectory that you're seeing there, when you find any signs of a turnaround activity levels, that would be really useful. Thank you.

Yeah. You already had an update on CT, but that was the industrial compressors. They grew a little bit.

help me out here we could of course a vacuum that was stood out vacuum technique was i would say overall a bit negative mostly from semi but also due to the fact that we saw this development now gradually which we i think also commented on earlier that also in the scientific phase as well as in the industrial vacuum we have also seen a stronger decline in the order development than we have seen in previous quarters. And that has been particularly also the case in China. For CT, we indicate that industrial compressors are still up, but we see a bit of a softer market overall. But again, here the same comment with regard to small medium enterprises versus the larger types of equipment. Gap was also a little bit weaker in Asia overall, but we still believe that the gap orders are strong, but just slightly lower for the moment.

Industrial technique, as I mentioned a couple of times, I mean, this has been the booming market for EVs. And at the time, we see that it's being more flat and more difficult to take decisions. And, of course, you can always suspect that there might be some more capacity in the industry. And in power technique, it's not the strength in China, but they do well with the portable bigger machines as well. What's outstanding and what they do really well is on the industrial pumps. I cannot judge the market. I can just say that we do. really well and I know that PT have more than double digit growth in Asia at this point.

Thank you. Okay, thank you Mats for answering that final question. We are at the end of the hour for this earnings call. I would like to thank all the participants for taking part in this call and to provide us with your questions. Should there be any more questions, our IR department will be more than happy to help you and try to guide you on whatever question you might have. With that, I would like to close the call for today, and thank you all for participating. Thank you. Thank you so much.