Atlas Copco AB

Welcome to the Atlas Copco Q1 2024 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 for all of you on the call today. I'm happy to welcome you to our first quarter earnings call for 2024. Together with me is Mats Ramström. But before I hand over the word to Mats, I would like already now to ask you that once we start with the Q&A session, that you please refrain yourself to only asking one question at a time in order to make sure that all people that have a question are able to bring their question forward and we can provide them with an answer. Once we get through the queue then of course you're more than welcome to ask additional questions. So thank you for that already now and with that I hand over to Max. Thank you Peter.

We have a tradition that we honor one of the business areas with the picture and I just want to shortly describe what it is. This is a self-piercing rivet machine. you can see the aluminum panel and it's important that it's aluminum it's very difficult to weld and then many of the car customers then use the self-pressed riveting and between the rivet it could be dispense equipment and you can also use vision for this type of application so that was the training for today so we go to slide number two and i start by looking at the graph and if you can look at the Q4 orders received in dark blue and then the orange in Q1. You can see the sequential growth for orders received. It came in better than we expected when we guided you earlier. We came in at 45 billion, which was minus 4%. But it's still the second best quarter we have had. And of course, we are building a little bit on orders on hand as well. this invoicing was slightly slower than so compressor technique 21 billion minus one percent so pretty flattish vacuum technique at 9.1 and slight positive development in semi on the other side then a little bit negative development for industrial and scientific industrial technique as they were honored with the first page you can see they were plus three percent and 7.8 billion And then on power technique, there was $8 billion, down 17%, which was expected versus the very tough comps from last year. Very promising as well that we can see continued growth for service in all business areas. Looking at the revenues, $43 billion, plus 7%. Positive for compressor technique, up 8%. vacuum technique minus three industrial technique plus 19 and power technique plus nine and you can see at this stage that we are back at a normal delivery for all business areas we always have problems but i would say it's a fairly normal state and orders on hand then still strong orders on hand for compressor technique industrial technique and power technique and a very normalized situation for vacuum technique. So that we need to bring in some new orders. We go to slide number three. And the first points are just a confirmation of what I just said. And then we have the operating profit at 9.3 billion, which is a 7.5% growth versus last year. At the very healthy margin, 21.8. Still diluted a little bit by the acquisitions. Adjusted operating margin is the adjustment for the long-term incentive program option. And then it was at 9.5 billion and the margin at 22.1. Continued strong return on capital employed at 30%. You can go to slide number four. The geographic map. And if we start with North America, we can see minus 12. CT did okay. Industrial compressors were flattish. We had lower on the gas and process. Still, though, on a very high level. So the comparisons was very strong. So we still see gas and process are strong. Positive for... vacuum technique especially from some of the key accounts in semi industrial technique also positive and the big negative actually came from power technique and we could not repeat the huge orders we had last year for the rental company and maybe equipment if you go to south america class eight compressor technique very positive and power technique very positive same for african middle east Very positive for compressor technique and power technique. And the main part of those orders come from the Middle East. A positive surprise, I must say, in Europe with plus four. Slight positive for compressor technique. Vacuum a little bit flat. But then positive for industrial technique. And we can see that that's come from aerospace, energy transition. And also some that we get more scoop of the supply with the automation strategy, screw feeding, et cetera, et cetera. And then very positive on power technique where the industrial pumps continue to deliver good growth for us. Maybe the areas of concern is Asia. Of course, you know that around 20% of our business is in China. We had less demand in compressor technique on the bigger compressors. Vacuum was a little bit negative. IT, industrial technique, was flattish. And I can see China being a little bit softer on battery, EVs, and solar, compensated by business in Southeast Asia. And also India for the whole group did really, really well as well. And power technique helped up the number with the strong development on the acquisitions, but taking that away was actually a slightly more negative view that would take away the acquisitions down. So in this quarter then we have seen a softer China specific. And if we take that to slide number five, and you can see then the organic growth was negative. It might sound strange, but we saw that little negative as something fairly positive for this quarter. If you go to slide number six, you have the bridge. You can see that we have some help from the acquisition, 2%, currency negative on two. So the organic came down to minus four then, but still then 45 and a half, which was good. And Peter will continue, as he always does, on the guidance for the currency later on in the presentation. We change to slide number seven. Of course, it's important for the group that compressor technique continues to deliver, which they have had on the growth path for many years now. And now it's a little flat vacuum. You can see that it's... It's been on semi-specifically that there's a lot of interest around that. There's a number of months on a bottom-up, a little bit, and a little bit more positive signals right now. Industrial technique with a slight growth, which is also constant from the broadening the scope of supply that we have. And power technique at 15, minus 17, but 15% of the group. In short term, if this is 12-month rolling, if you just look at the... The quarter of the power technique was slightly bigger than industrial in this quarter. Then we take the specific business areas. So orders down. One of the areas that we saw softer demand was China. And it's linked to the battery and solar. We read it as an overcapacity. But we still have no concern about the long-term trend in these segments. It's really moving forward and taking the lead in EV cars, for example, which we've also seen in industrial techniques. But we also could see the gas and process compressors down, but that is on an exceptionally high level last year. So no concerns there either. Solid performance by service again. They are really developing their digital presence, how they run analytics and also take advantage of AI today, which I'm sure you're going to see on the capital markets they have to do that. Revenues continue to grow at 8% and once again a fantastic operating margin at 24.8% with 9% growth. And this is when we still go fully ahead with R&D and building up capacity. And a slight delusion from acquisitions. You can see five acquisitions in the quarter. I think the one from high comp, high pressure, is interesting for us. A little bit new competence into the group. I also see the Valves Energy helps us with energy efficiency that we stepped into two smaller companies, but interesting technology that we can really build on. And then another three distributors that we signed up and now own. I get some kind of questions that if we are taking this business more direct and maybe also as a reminder that we, yes, we buy a few distributors. On the other side, we are signing up more distributors than that. So that is not that we are changing the go to market strategy. We take slide number nine, which is vacuum technique. And if you look at the graph, then you can see sequentially that come back a little bit on the growth path again. And for SEMI specifically, we can see at our customers that there's a positive development on price. Inventories are coming down and utilization is up. and also see the confirmed by our own numbers that we get more pump returns for repair, which means that they are really utilizing the factors a little bit more. And we can also see that the chamber solution, which is a little bit early into this, had a positive development. So a few positive signs for SEMI. That does not mean that the next quarter is going to be fantastic or anything like that. But the AI starts to drive, and there's a lot of things happening in this segment. On the other side, as I said, the industrial and scientific were done for the quarter. Also confirming then that the growth for service continues for us. It also confirms the trends that we have seen. Revenues down. And as I said, the orders on HEM had normalized now, so there is no backlog to invoice from. And operating profit at 21.8. And we have not held back on next generation of products for SEMI, for abatements, we go full speed ahead. And we're also building on the local strategy in terms of capacity and agility for them. de-globalization this industry that we see. You can also see the Polycooled, a new cooler with very good data on energy efficiency. We go to slide number 10 which is an industrial technique and as we honored them with the first page they can see that they're up three percent. What we do see is that The strategy surrounding the tools with automation is paying off. We see more product orders for when we get screw feeding, we get vision, we get software. So the supply from us is greater than before. So sometimes I think we are gaining market shares in these areas. In the quarter aerospace did really well. It actually did really well in electronics as well. I don't think that market is specifically strong, but I think we gained a little bit of market share there. And also here then continued solid growth for service and in this case also then record revenues with 90% growth and an operating profit model at 21.9%. to the last business area, which is the power technique. I would not read too much into the decline that was expected, especially if you take a look at the graph. You have one quarter that really stands out, and that was the rental companies when we had longer lead times that they placed more orders. So this is the second best, even though it's down somewhat. and still this year then it's the change if you would compare those two graphs it would be the us rental companies mainly that placed less orders and acquisitions continue to do really well i mentioned the industrial counts before and they have had a solid quarter they also continue to grow in service and i always said that it's it's fairly tricky with the portable equipment to be good in service but we do a good job there We are also industrializing the pump service as we know how to do it. So I think that will continue to be a positive development for us. And the operating margin is 19.3. Maybe I should highlight the product here. You can see it's a portable compressor. It's under the Chicago Pneumatic brand and it's a strategy that we've been working for a couple of years. It's starting to get good traction now. It's a clearly differentiated product for the mainly for to start with to the US market but we can implement this strategy and it's a really good strategy for us. Premium product, Atlas Coco CP, more basic functionality and it's a good price and good quality and if you want the highest efficiency you will go with the yellow product. In the month also we closed on the Kracht external gear pump company added 750 million. They are really strong into wind power. So we are learning more about the external gear pumps as well. So adding to our portfolio industrial pumps. Then go to the profit and loss. We guide you on the EBIT A. And the A is the amortization on the intangibles on the acquisitions we have done. And then you can see that we were at the margin at 23.1. And on EBIT level, we report on 21.8. So to summarize, it was, order-to-seed-wise, the second best order for us, second best for CT, IT, and PT. And we can see that there is a strong acceptance for our new products and the concept and the services continue to grow. And by that, I hand over to you, Peter.

Thank you much. If we then continue after the line operating profit, then we have the net financial items, which are, I would say, overall, in the bigger scheme of things, insignificant and mostly supported by higher interest on our also growing cash as you will see on the balance sheet as well the profit before tax is the 9.4 billion compared to 8.7 the income tax expense is almost on the same level as last year with an effective tax rate now of 23.4 percent compared to 24.6 percent last year and say that 24.6 percent last year was a bit of an exception due to the fact that We had some higher taxes in the UK, the withholding tax for China. We needed to provide for due to the fact that we did more business there. And also we had somewhat lower Belgian and UK innovation incentives. So 23.4% is more of the normalized level. And it's also the level we should think about when we look forward towards the whole year. In fact, that we will probably land around 23.5%. And that gives us then a profit for the period of 7.2 compared to 6.5 billion. Basic earnings per share of 1.47 Swedish krona. Return capital employed of 30%. If I then move on to the next slide, the profit bridge. Say, of course, the margin at face value is on exactly the same level, 21.8%. The LTI programs have a dilutive effect and reduce the margin a bit. So do the acquisition in roughly similar terms. The currency was, in fact, you could say neutral. It was a very minor impact and only slightly contributed to the net margin. When it comes to currency, what is the outlook for the second quarter? We think it will probably develop in a slightly more favorable way and we would end up let's say on a similar absolute number, but of course a different sign, so maybe somewhere around plus 100, plus 140 million Swedish kronor, we expect all things being equal. Then of course, the heart of the matter is then the drop through here, which was very favorable, I think well above the existing margin from last year. And therefore that contributed then to an improvement of the margin if we look at the organic development. we then move on to the next slide to dig a little bit more into the different business areas when it comes to the profitability development i would say the picture tends to be quite similar across all the business areas the acquisitions tend to be slightly dilutive as usual considering that we have the integration costs in the beginning of the project etc so quite a normal development the currency It differs a little bit, but overall for the group, of course, as I already said, basically not a really dramatic impact. And then the drop-through tends to be quite solid across most of the business areas with the exception of vacuum technique. And in vacuum technique, we've been suffering a bit from the lower revenues, the volumes that have dropped a bit there as we are eating through the orders on hand and the order book has normalized. while we also had a small impact from, say, unfavorable mix across the different product categories that we invoice to our customers. And of course, our customers decide what they want to order. So that's something that is not really so easy to control. So that contributed then to the slightly negative drop through we have seen in vacuum technique. If I then move on to the balance sheet on page 15, I would say if you compare year over year, March 31st, 23 to March 31st, 24, the total assets have grown by about 23 billion Swedish kronor. That's a significant amount. And it's a bit scattered across different categories. First of all, the intangible assets growing by about 5 billion, which is basically attributable to the acquisitions. Then when we look at rental equipment, also there we see an increase. You could say kind of equally split between acquisitions. As you remember, the NPE acquisition in Australia was quite substantial. And at the same time, we also invest quite strongly into rental fleet, considering that we have lowered a little bit our investment pace during the COVID period, and that needs to be adjusted. And we are also trying to attack new segments, so therefore we also need a bit more equipment there. Also on the other property, plant and equipment, we see an increase of about 2.6 billion, which is purely related to all the investments that we have announced and that we've spoken about in earlier calls. Not only in vacuum technique, also in compressor technique, also in industrial technique, we've seen a number of investments. So it's a bit across the different business areas, you could say. The next category that is worthwhile to give some special comment to is, of course, the inventories. We have indicated that our inventory levels have been on a fairly high level, and we have been working hard to try to reduce them, which looked quite good when we remembered the fourth quarter of last year. Then we managed to have a good improvement there. Now we see an increase of the inventories. If we look at this balance sheet, and that is mostly related to the fact that customers across different business areas tend to be pushing out a bit those deliveries. It's an empowered technique, for example, on the rental companies that are still having the orders in our order book, but not necessarily demanding the equipment to be delivered right now. The same is valid for compressor technique in China, for example, where customers are pushing back a little bit, given the current situation there. Also in vacuum technique, where the utilization of the fabs is not maybe at the exact level the big OEMs want to have it. We also see a bit of those push outs for the equipment in their new fabs that they are building in different locations. That being said, we are not concerned about the quality of the order book in any way. We haven't seen any relevant number of cancellations, neither in quantity nor in volume. Nothing that we are specifically concerned about. The next category that increased substantially is the receivables, but also they're purely linked to the volume of invoicing that we have generated across the past quarters. And when it comes to the risk that we see that is associated with these receivables, also there we don't see any deterioration basically. So that's on a healthy level still. And then last but not least on the asset side, the cash, which of course is increasing thanks to the positive cash flow that we've been generating. If I then turn to the equity and liabilities, I think the only thing to really mention is then of course the equity and the equity increase of by 18.6 billion is simply put split into two based on net profit improvement and at the same time also translation differences when we consolidate all of our subsidiaries. That, I think, when it comes to the balance sheet. Moving on to the cash flow, just like in previous quarters, I would say that we've been able to see a quite healthy development of the cash flow with a continued high operating cash surplus from our operations. Net financial items are basically on a similar level from a cash flow perspective as last year. The taxes paid are going up. And that is partly linked to the fact that we are invoicing more in territories, geographies, where there is a higher nominal tax rate. But also, of course, the mere fact that we are generating more absolute profitability means that we are paying somewhat more tax. Then the change in working capital on the cash flow side is actually not attributable to receivables nor to the inventories, but almost entirely linked to the slight deterioration we have seen in the supplier. payables and also in some additional accrued accounts and supplier payables have deteriorated because of two reasons on the one hand we have been using quite extensively supply chain finance and with the current interest rates the bigger multinational companies that have stepped into the supply chain finance are no longer participating because the cost is too high compared considering that they have a good funding base of their own and secondly what we have also seen is that considering that we are trying to reduce our inventory levels also on the product company side, buying components from our suppliers, we are of course buying less volume and that also results in lower payables on our balance sheet and therefore also on our cash flow statement. The next thing you see on the cash flow is then the increase in rental equipment. I already indicated there we are boosting a little bit the investments that are needed, both in replacing older equipment run the existing business but also in some new equipment like following for example the acquisition of climo rent in spain where we are addressing now also industrial cooling with rental solutions i think investments of property plant and equipment have been a highlight in the past couple of quarters but not so much this time now you could say that the level is stable on a high level of 900 million Swedish kronor, roughly, almost the same as a year ago. And actually, if I look at the main investments, if I look at the top 10 investments over the last 12 months, then we have spent about 2 billion Swedish kronor on the top 10 investments with the Atlas Copco Group. And like I said, mainly vacuum technique, but also compressor technique, and then also specific investments in the other business areas that contribute to this number. So all of this together leads us to an improved cash flow of 6.7 billion Swedish kronor compared to 5 billion just a year ago. And that is, of course, then what triggers also the improvement on the cash account on the balance sheet. You can also note from the overview here that we have acquired companies for an amount of about 2.2 billion Swedish kronor, where we last year spent in the same quarter about half a billion. With that, we've come to the end of the analysis of our different financial statements, and I would like them to hand over back to Mats to comment a little bit on the near-term outlook.

In the near-term outlook, we are trying then to guide you a little bit on the activity level at our customers between Q1 and Q2. It's not so scientific. We are looking into the number of quotes and the activity level among our customers. And what we have seen on the positive side, of course, that sequentially it came in significantly better than we expected them. So there were more activity in most areas, slightly than positive on semi. At the same time, we see that our new product offers, we spend quite a significant amount on R&D and we are launching new product that creates a lot of activity as well. On the negative side, I think we can see that we have discussed it before that in China, we can see battery, solar and EV are more hesitant to invest at this time. And that has an impact on both vacuum industrial and compressor technique. There is uncertainty, but we don't have a clear view that things are going to be significantly better in Q2. On the other side, we have no reason to be negative either, so that it will go down dramatically. And that's why we ended up in remain at the current level. I think that's the best outlook we can give at

this point thank you much with that we have come to the end of our presentation and I would like to hand over back to the operator to start the Q&A session if you wish to ask a question please dial hash 5

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

Hi, good afternoon. I hope you can hear me. My question is regarding whether you can give a bit more granular color on the underlying industries contributing to the strength on compressors, specific to the points you mentioned, positive signs in Europe, if you could give us some clue of which countries, which end industries are causing this. And also, given Europe has some high dependency on China on the general industrial side, outside of solar and EVs, can you comment about the sustainability going forward that you see on these European better signs? Thank you.

I'll start with CT at least. The industrial compressors held up better than expected in North America. And it was... achieved growth in South America and in the Middle East. The Middle East is of course related to oil and gas. We see continued strong gas and process although we didn't reach the level we had last year but the demand is still there. And that are still application within fuel gas booster, liquid natural gas for example. That's what we have seen for compressors in general. And then you said specifically on Europe, was that correct?

I think you mentioned earlier that you had been positively surprised in Europe, but maybe I misheard you.

No, you're absolutely right. Year on year, of course, then Europe is up 4%, if I remember correctly. And it was the same here, overall weaker demand for industrial compressors. But on the other side, a bit softer in Middle Europe, Germany, Italy, France, Turkey. But then VT was flat, which I think was good. And ITB was even up then, where we can see automotive being approximately the same level. but very good development on general industry aerospace being one of them and then power technique came in better we thought that the rental business would be slow but what the comeback here was mainly in the industrial pump side where they did really well i must say i think that summarizes a little bit europe for us i don't know if peter wants to add something on europe

Maybe on Germany, one of the things that we have seen is that there have been incentives in the past for energy efficient solutions and they have been kind of postponed or suspended for a while. And it has been unclear for the customers whether this would be back in place and at what level they would be back in place. And that has held back most likely some investments that otherwise could have happened. It seems now that the German authorities will reintroduce this so-called BAFA incentives. And that might be maybe something that creates a little bit of extra tailwind in the near future when that happens. Gas and process overall was, I think, flattish in Europe with carbon capture type of application, also fuel gas boosting. And then, of course, overall also contributing to the strength in Europe for CT was also the service that continued to grow. That's true. That was good again.

Very helpful, thank you.

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

Hi, Mats and Peter, Klaas at Citi. So my question is on gas and process. We all know by now that this business can be lumpy, but I'm just trying to figure out more around the order mix in the quarter and the order pipeline. I understand that the strength here quarter on quarter wasn't only linked to LNG. So what else drove it was the carbon capture, I guess, but other color would be great. And if you look at the pipeline in gas and process, is there any vertical in that pipeline that is growing stronger more than others? I'll start there.

No, but as you know, the gas and process, we normally say it's around 10% of city's business. It's a little bit more right now with activity we have seen there. I don't think there's any specific area or segment that is standing out. But it is, as you say, we get this quarter we had a number of orders for lithium natural gas. But some of the other applications as well that I mentioned to Daniela just before your question. So I cannot read, but the pipeline is strong. The orders on hand is strong. If you want a new product, you have to wait a significant amount of months for that. And I'm sure that we even walk away from some orders because either low margins or that the lead time is too long. So we're also building capacity for that type of business. But I think many of these, we have, I think the most positive is that Wagner and the team, Robert, they have really taken us out away from this low margin business. And we are spreading our competencies among many more applications today. So I don't expect it to fall off a cliff again when one of the applications disappears. We have presence in many more. I don't think we can define that there is one that is significantly stronger. Of course, liquid natural gas gets the boost of trying to get away from some other gases from a specific region. But maybe we can give you more guidance when we meet, but that's where I am right now.

Perfect. Thank you. And a very quick follow-up just on the battery side in China and zooming in a bit on automotive and IT. You obviously have exposure both in CTE and IT, but focusing a bit on IT. Some concerns here into the quarter that orders in IT would be much weaker led by China. You're saying that equipment orders in automotive were flat. Can we talk about what you saw in China in the quarter? You're talking about your own offering increasing, of course. more project orders working as an offset? Or did you see any regions that offset the decline in China? Thank you.

Yeah, specifically offset is that we see more activity than in Southeast Asia. In some parts of India, but I would say Southeast Asia is close by. But I also like to clarify that the EV trend is very, very strong in general. We believe in that trend. We can see a lot of investments. We also see that the Chinese manufacturers are way ahead of many of their Western competitors. And although that we have seen in the Western part of the world postponed projects, we don't think that the trend will go away. But that is clearly, of course, that the cars are good. They are developing new programs. But it's a hesitation from the consumer at this point to step it in, mainly to financial reasons, I would believe. But the softer part is China and compensated by some extent to the rest of South East Asia.

Thank you. And it's your last quarter, so thank you much for all the great discussions over the years. Okay. Thank you so much, Klaus.

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

My question is regarding pricing. We saw in the profit bridge that you have a drop through of about 32% for volume and pricing and mix, which is still very strong. But I recall that in Q4 it was nearly 50% and I assumed it's because you have, so the price increases were quite effective. And now we see this drop off. Can you give us some indication of where pricing is currently, where you go this year and whether or not you will offset the cost inflation? Thank you.

Thank you, Sebastian, for your question. Well, I would say compared to where we were a year ago, where inflationary pressures were really, really high, the possibility to transmit price increases to the market were quite generally accepted, I would say, even though not easy to obtain. That, of course, is to be expected to gradually weaken a bit, but I would not say that we have lost a lot of pricing power. I would say, overall, you can say that the pricing is still positive across all the BAs in the first quarter. I think the drop through, of course, evolves over time and is not exactly the same each and every quarter. I think it's still well above the current margin. And of course, we have said in the past as well that a drop through of 30-35% is quite solid. But it's not that the pricing factor has completely disappeared, not at all. The first quarter has actually shown quite a nice contribution from price into the total drop through. Thank you.

And the cost base?

I was just thinking that internally when we look at pricing and the effect of pricing, of course, we follow that. It was more of the gross margin, the acceptance of price increases in the market. And I believe that if you look at 2019, before COVID, we have been able to compensate fully for the inflation and price increases to us. And we are on a slightly higher level even. So I think we have done our part in this.

And the cost inflation this year, where do you see that? And what are the main points we should look out for?

I think it's the usual suspects. There's commodity prices that might go up. The transport cost is, of course, on the radar, given the geopolitical situation that might contribute to that. But overall, for the time being, we believe that, as Matt's already indicated, the gross margin is on a healthy level and has actually improved somewhat compared to the pre-COVID era. And so in that sense, we feel that we have been able so far to compensate all cost increases, structural cost increases, I should say, with price increases to the market.

And I think the real value driver for us is always new products. And we generate more value for customers as well, which we don't see in price switch.

Thank you very much.

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

I was hoping if you could expand a little bit on the comments in vacuum around semiconductors and whether you've seen any green shoots going into the second quarter. And I remember in the last couple of quarters, you talked about cancellations in vacuum. If you could give us some color about where you are on cancellations in that business. Thank you.

If I start with cancellations, we haven't seen any specific cancellations in vacuum technique or in any other business areas. Either it's very normalized. What we do see, if you look at our own numbers, we can see that chamber solutions, which is turbo pumps and cryo pumps that goes into the machine builders. We can see an upswing in business there. They're normally quite early. So that is a positive sign. You can also see that utilization from our customers is up. That is also confirmed that we get more pump repairs back to our service shop for rebuild. And of course we can see the memory inventories that customers is coming down. So those are the early KPIs that we can see at this point. I wouldn't read too much into that. But at least it is positive. It's been kind of flat for a year and a half. So I think it's bottom out. And when the big ups, we believe still that there will be a big upswing. And there's this big demand for AI for a lot of applications. But when that's going to happen, I don't want to commit to that at this point. But at least a few positive signs in that market.

Okay, great. Very clear. Thank you.

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 try and, I guess, understand the comments on China a little bit. We've kind of heard this reporting season a few times that almost positive signs on China and potential for sequential improvement in terms of the Q2 versus the Q1. And this is a kind of a question on, the broader industrial landscape rather than something specific like semis. And just putting that in the context, obviously you've called out some quite specific exposures in the Q1 being weaker. I'm just trying to get a sense of when you think about if we take sort of industrial compressors as a good proxy, how you see that China demand and environment developing as we kind of go into the Q2. And then I guess as far as you want to look into the, just trying to get some sense of that.

I mean, I, I could turn it around, of course, and be extremely positive about China, just looking at the sequential growth. But that is more seasonality that we have seen year after year. So we didn't read too much into that, and we don't have that in our outlook either. But we have experienced in China less quotations for the bigger machines, and they normally go into big processes like battery manufacturing. it could be solar as well as we see that there is less activity in china on those areas there is a hesitation to place orders and clues on programs for us we can also see some hesitation in in semis that they are they're building more on the bigger nodes today instead of the more advanced nodes On the other side, they are very committed to the strategy of building an independence on semiconductors. We can see that they are in the lean, but have over capacity in the EV manufacturing. So overall, long term, we are very positive. They are key driver in many of the segments. We are also very fortunate strategically that we have invested in China in the full value chain, both for vacuum pumps, for compressors, because the Chinese customers are demanding more and more that it should be local. And as long as we have innovation, we build and design our products locally, then we have an opportunity to quote as well. So our position is very strong. Long term, it is a very important market for us in many of the key segments. Short term, though, in this quarter, we have seen a slowdown in the segment that I mentioned. And we don't know. We don't see the quotation picking up at the end of the quarter or anything like that. So that's why we are at this point.

Thank you, Vas. That's very helpful. And best of luck with everything going forward.

Thank you so much.

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

Hi, good afternoon. I was wondering if we could spend a little bit of time on VT. If you could talk us through what you're seeing at utilization levels for the various aspects of semiconductor manufacturing. Any color you could give us on logic versus memory here and possible expectation of utilization

Yeah, I think when it comes to the difference between memory and logic, for us that doesn't make a huge difference. Of course, demand will be different from different segments, but ultimately for us, our products are used in both the different applications, and we could say we are agnostic to then the application for which it's going to be used. When it comes to utilization in the fabs, it has been low, and I think apparently too low to... part the investments and to launch a lot of orders, and that has been going on for a while. We believe that currently the utilization rates are probably going up gradually. As Maas already indicated, we see that in the number of pump returns on the service side, for example, that are somewhat improving. And so, in that sense, there is maybe a little bit of positive news that gradually there is an improvement in the utilization of the fabs with our customers. And of course, there will be a point where they reach a certain level where they feel comfortable enough to expand further their current installations. And that, of course, would then trigger orders for us. The timing of that is very difficult to establish. It's more guessing than knowing, I think. Some are very optimistic and are talking about the beginning of the second half, Q3. Some are talking about Q4. And then the slightly more pessimistic tone is probably spilling into 2025. To be honest, we can only say that we don't really know. But the best we can do is to try to make sure that we are as prepared as we can. And we have done quite a lot of investments over the last several years to make sure the capacity is there, is available, is ready to deliver. Delivery times have gone down now, of course, with supply chain improving quite substantially. So as a result, we are looking forward to that moment to come, but we don't know exactly when that will happen.

Maybe we don't know the insight of our customer, but from experience, when we have seen the uptick again, it's when they reach utilization between 85% to 90%, then they seem to be interested to make the next investment. And the good thing is that we have never ever seen more constructions in SEMI, but not activated them, but there's still an opportunity going forward for this.

Okay, thank you.

The next question comes from Rizik Mehdi from Jefferies. Please go ahead.

Yes. Hi, Matt and Peter. Just quickly, can we talk about the equipment delivery pushouts? I think Peter mentioned this when he talked about inventories being up. This has been a theme this quarter for other companies that have reported. Outside of China, what areas have you seen this? And are you concerned at all about sort of slower invoicing?

Overcoming quarters now that you know backlogs are normalizing and equipment delivery times are coming back to normal In the push outs that they have seen so far has not turned into cancellation, which I think it's good They just need more time and we have seen it in in semi Of course, I also think some of the EV program in the Western world and that some have been canceled, some have push-outs as well. And we are talking about these bigger programs. Of course, we could force the customer to take the equipment, but that's not our intention. We like to keep a very solid relationship with them. And sometimes we get a little bit exposed in the inventory, but we don't see a big concern. It's more of a timing thing for us.

Okay, thank you very much. Best of luck, Matt.

Thank you, Rik, for that question. With that, I think we have reached the end of the queue and I think we've hopefully been able to answer all the questions you have. Of course, should you have more questions, you know where to find us. Our investor relations team is very happy to help you further with any further topics or questions. As we will need to prepare ourselves for the annual general meeting of shareholders, we will end the call here and look forward to be in touch with you again in the course of this quarter or later thank you very much for attending wishing you fine rest of the day bye