Atlas Copco AB (publ) (ATCOA) Earnings Call Transcript & Summary

This call is being recorded. Welcome to the Atlas Copco Q2 2023 Report Presentation. [Operator Instructions] Now I will hand the conference over to CFO, Peter Kinnart. Please go ahead.

Thank you, operator, and good afternoon, everybody, for this second quarterly earnings call for the Atlas Copco Group. Together with me is our CEO, Mats Rahmström; and together, we will guide you through the presentation and the questions-and-answers. But before I hand over the word to Mats, I would like to already now indicate to you that during the Q&A sessions, I would really like to insist that you only ask 1 question at a time in order to make sure that all of the participants have an opportunity to raise their most important questions first and then of course if there is more time left everybody can get back in the queue to ask more questions subsequently. So thank you for that. And now with that, I hand over to Mats to start the presentation on the quarterly results.

Okay. Thank you so much, Peter. I thought I would stay on this before -- picture before we start talking about the numbers because it explains firstly, I should say, it's in Industrial Technique business area and they were the only one to have the picture because they have the highest growth in the quarter. But you can also see how we are combining now in the automation strategy in Industrial Technique. So everything you see in aluminum there or in steel is different compound from the different acquisition. You can see it's K-Flow, so that's the flow-drill application. And then we use wizard to guide the robot and we also use screw fitting sets, 3 different technologies that we combine. And in this case, it's on the KUKA robot, but this can be applied to any robot out there, of course. So this is how we combine it. Of course, this is in line with the macro trend as we see to onshoring and automation in Europe and also in Asia, of course, but also the U.S. So I think it's a nice picture that describes a little bit the strategy. And of course, we can do the same thing with assembly tools or if it's riveting or dispensing. So that's easy to understand how we use this application on this type of application. Then, we go to the Slide #2. We look at what is received for the quarter, SEK 43.5 billion. So I think if you look at the graph, you can see it's the second best. I think we already said in Q1 that, that was exceptional. So very pleased to see the SEK 43.5 billion. Compressor Technique organically up 4%. We see the decline on Vacuum mainly in semi at minus 28. Industrial Technique, as I said, plus 10, very strong; and Power Technique minus 12. So all in all, organically down 5%, but then we have help from acquisitions on 7% and currency on 4%. All in all, orders received up 6% then. Then on orders invoiced. Record orders not only for the group, but fantastically for all business areas. You can see Compressor Technique, they were up 21%; VT, 5%; IT 28% and PT then 26%, which leads to 18% overall. And on top of that, you had 6% on acquisition and also positive then from currencies of 31% growth as well. So if we then go to the profit on Slide #3. You can see the record profit at SEK 9.2 billion, and the margin at 21.2%. So versus year-on-year then a 26% growth on operating profit. And then if we adjust then only for the option program, it would have been at a margin at 21.9, and Peter will break that down a little bit later. You can also see return on capital employed at 30%. If you go to Slide #4, you can see there's slightly red in North America on the quarter. But if I use some sort of traffic light system here, Compressor Technique, they are green in all regions, flat in North America, but otherwise green everywhere else. Industrial Technique in all these 5 regions, positive development. The other way around for Vacuum, they are then red in all regions with the exception of South America. And Power Technique amber, say they were positive in 2 regions and negative in 3 regions. And so we can see a little bit shift there, I would say. Extraordinary, stands really out on the Power Technique business in Asia, actually linked to our new pump business. They have done really, really well, actually. Go to Slide #5, and you just confirm the organic decline then of 5%. Then we go to Slide #6. And there you can see the buildup of orders received. As you might recall, we did 30 acquisitions last year and so far this year we've down 10 in the first 2 quarters and now it's 11, so 7% help from that, currency helped us with 4% and then organically then 5% and totally 6%. And the revenues, you can see it all the way down then to the 31%. Slide #7. Given then the development, of course, the share of Vacuum is declining somewhat and Compressor Technique normally around 46%, 47% and continue to grow. So that's the split of the group. Then if you go to each business area on Slide 8, you have Compressor Technique. We think it's a very solid level. You can also look at the graph, still then the second best they have accomplished with an organic growth of 4%, which is an order received of SEK 20 billion. Two divisions that stands out, continue to be gas and process, really strong, and then Service continues to develop well as well. Record revenues 21% organic growth, SEK 18.6 billion, and that leads then to the record operating profit at 24%. And diluted there you still have currency and acquisition then. So a 37% increase versus last year on operating profit. Then I wanted to highlight this product. It's very small in the picture. But I think it says something about our leaning forward strategy. This is like a container then, and it's for hydrogen applications for filling stations. So even if the TAM is fairly small for this type of product right now, you can see that we are ready when we can have more accessibility to green hydrogen. So very strong performance from Compressor Technique. Let me go to Slide #9, that's the Vacuum Technique. And of course, it looks dramatic with a decline of 28%, but it's still SEK 9.2 billion. And if you look at the graph, okay, in 2021, we did better to part of 2022. But if you look at that graph compared to what we've done in the past, it's still fairly strong, I would say. And it's still mainly in semi, but the change that we have seen was that we did not have organic growth in the industrial and scientific. This solid growth for our 2 service divisions, that gives us the resilience over time as well. And revenue was up then 5% to SEK 10.9 billion. It's very good. And also here then record operating profit at a margin at 22.9, so SEK 2.5 billion and an 18% growth year-on-year. On the bottom there, you can see sensors that we used to source and we had an older range, and now we are building step-by-step our own range. So you can say it's a new platform for growth. I also wanted to highlight in Vacuum that they did, what I think, a very interesting acquisition on Trillium in the U.S. and service business. This is for the bigger nodes that gives us access to new customers as well. And also they shut down one in China, which gives us a good manufacturing base for liquid ring pumps, so good development there. Then I think it's fair to say when business is down a little bit what do we do? Well, I think every indication that we have is that CapEx will come back very strong. We don't know exactly when, but it will. So what we are working on right, what we learned from the last peak on this business, we are working on the product portfolio and we think energy efficiency will be more important than ever before, but also the footprint of our products. So we're working on new generations there. You have seen the announcement and operational structure, so we need to be present in the U.S. So we are investing in that, more local for local. We're also investing in China and also in Korea. So I think that demand for capacity will be there. And one other challenge has been the sourcing. Same thing there. We are preparing more dual sourcing and also being more local to be able to act quicker and more local. So there's a lot of ongoing work right now to prepare for the next upturn in Vacuum and specifically the semi industry. Industrial Technique on Slide 10. Very strong orders received, 10%, SEK 7.9 billion. And it was automotive that was really, really strong. No surprise. This is linked to the EV and battery manufacturing around the world. So we're happy to see that we have products and the application knowledge to really get our market share in this new market. Generally, industry a little bit mix, some segments were a little bit flat and some down. So I think it was rather flat. And Service also here continued to perform really well. Record revenues, 28% organic growth, SEK 7.3 billion. And then you might think that, well, do they have delivery issues still? Yes, we still have challenges on some components. So we are really fighting harder to get these kind of volumes out of all our business areas, but I think it's been slightly more challenging in Industrial Technique on power electronics. Record operating profit here as well at 21.8% margin and they actually had the growth from last year with 47%. Power Technique, a remarkable journey in the last 2 years. An organic decline this time, 12%. And what we've seen is that they have had a little bit less interest from the rental company in the U.S. and some smaller cancellations also. That's mainly driven by shorter lead times from our own products and normally cancel something and book something, so it's not orders lost in any way, about SEK 6.5 billion then. And it's still the second best even if it's a negative 12% and so. It's interesting to follow the recent acquisitions of pump companies. They are performing well ahead of our plan. So better volume, better profit. And of course, over time, they will give us reduced seasonality in this business and of course, also better service opportunities. So we will continue on this road. It started out really, really well for us. Record revenues, 26%, up SEK 6.8 billion and also here then record operating profit at the margin of 19%, although that acquisition are slightly dilutive, but not so much at this point. And here, you can see a new range actually of those pumps from LEWA. So I'm happy to see that we're also going to continue to push innovation in these segments as well. And an interesting acquisition we see in Australia and we're learning more and more about wastewater treatment, which we also think is one of the megatrends that someone needs to take care of and we would like to do our part. On Slide 12 you have the profit and loss. And as the information then EBITDA is 22.4 and what we report has been operating profit EBIT at 21.2. Peter, would you like to...

Yes, Mats, absolutely. So building further on that record operating profit. We have a smaller item, but net financial items have a bit turned in the other direction, I would say. And that is related to the fact that we have had a little bit more short-term funding in view of some of the acquisitions we have recently done as well as, of course, an increased interest cost related to the funding we have. Then we end up with a profit before tax of SEK 9 billion, which is 20.8% of revenues and an income tax expense of SEK 2.1 million -- billion, sorry. That means that the effective tax rate for this quarter is higher than what we've seen in the same period last year, 23.1 versus 22.3. And I would say this is a little bit of a trend that we see happening, which is for the largest part related to the geographical spread of our growth. We seem to be growing more in those geographical areas where nominal tax rates are a bit higher. And so our weighted nominal tax rate is going up, which then materializes in an effective tax rate that is higher. Secondly, for this quarter, and this will also come back in the cash flow a little bit is that due to the fact that we are making higher profits, we're also making higher provisions for withholding taxes related to those profits for the future. And that altogether impacts a little bit the tax rate negatively. But nonetheless, in spite of this higher tax rate, we still end up with a profit for the period of just south of SEK 7 billion, which is a 22% increase compared to the same quarter last year and that results then in basic earnings per share of SEK 1.42 per share compared to SEK 1.17. Return on capital employed, as already mentioned, of 30% and return on equity of 33%. The tax rate that we currently see, as I already said, is the kind of trend that we see in the last few quarters and that's expected to continue to go up slightly in the near term. And so we will end up with a slightly higher effective tax rate also for the full year 2023 according to our calculations. If I move on to Slide #13, where I would like to give a little bit more color on the profit bridge. Of course, we are very, very happy with this phenomenal operating profit that we've generated over the quarter. Even very proud, I might say, on our employees that have managed to turn this around. We had a bit of a dip in Q4 last year, as you well remember. And we promised that we would do a lot of activities to try to bend that trend. And I think it's clear that if we look at these numbers, looking at the -- for the current quarter, we have managed to achieve that, I would say. Of course, the drop-through, which adds 1.6% to the margin, it gives us -- is driven by price, volume and mix which is able to compensate more than the material and labor increases we have seen and also the inefficiencies that are coming from the supply chain, even though we still are facing some difficulties, it is less than before and so these inefficiencies are also less pronounced than they used to be. And that also, of course, allows us to invest more in the organization in marketing and also in R&D. The currency had a slightly negative impact of minus 0.6%. On the bottom line operating profit, it had a positive absolute contribution of SEK 230 million. If we think of the next quarter, then I would say that all things being the same, it's rather likely that we would have a negative absolute amount probably along the same amount as we see this quarter, but then with a negative sign, obviously. On the acquisitions, we also have a slightly dilutive effect of minus 0.6%. And then the biggest negative impact actually on the margin was actually coming from the LTIs due to the fact that last year, the stock price went down quite significantly in the second quarter. While as you remember, after last quarter, the stock price went up quite substantially. So the combination of those 2 phenomenons resulted in fairly high impact on the margin. But most importantly for me is the takeaway that the drop-through has been really very, very solid, and that is, of course, why we are able to deliver this record operating profit. Digging in a little bit deeper on the business areas. I would say the picture overall is quite similar across all of them. The currency effect tends to be slightly negative with the exception of Vacuum Technique where it's close to 0 as well Power Technique, but for CT and Industrial Technique somewhat negative. The acquisitions across the business areas tend to be slightly dilutive considering the fact that we have, of course, in the first year, always quite a lot of integration-related costs, et cetera, nothing out of the ordinary there. And then for all the business areas, I would say, very strong or at least solid drop-through where very high percentages in drop-through have been achieved throughout the quarter, on the different business areas, which I think was very encouraging and really nice to see that all these efforts from our organization are really paying off in such a fantastic bottom line result. If I move to Slide 15, we -- I will comment just a few things on the balance sheet. Of course, to start with the intangible assets basically, by far affected by the acquisitions we have executed throughout this year, also positive currency effect on top of it, but the biggest impact is the acquisitions. We see the continued investments in expanding our own rental fleet for our specialty rental division, particularly, but also other property, plant and equipment given the different investment decisions we have taken, mostly related to Vacuum Technique and Compressor Technique, but also for some -- for the other business areas. I think another big impact on the balance sheet is the working capital. Inventories continue to go up, but receivables go up even faster. The receivables are, of course, fully in line with our development of the revenues and the invoicing that we are doing. And there is actually no real concern about that height of revenues. We have a very good overdue ratio and we rather see improvement and deterioration there. The inventories also go up slightly less than the receivables. I think that's, from our perspective, let's say, the only small point of some concern, and we are working together with the different business areas to try to turn this around. But of course, given the fact that we have still some issues with supply chain and some customers do not like to get partial shipments if they have old multiple different products as well as the fact that some customers are pausing a little bit or maybe waiting a little bit to take the equipment of our hands, it will take a little bit of time, we think, to reduce that. But also there from a provision point of view, we don't see any major concern. On the equity and liabilities. I think the equity, I think, is pretty straightforward. It's based on the profitability increase while at the same time, of course, we have paid dividends to our shareholders. The interest-bearing liabilities are somewhat up due to the fact, as I said, that we have increased a little bit the short-term financing to do a number of transactions. And this is short-term because we expect we will be able to pay those short-term financing back by the end of the year based on our view. And then the noninterest-bearing liabilities, the biggest part of that is related to trade payables, which goes hand-in-hand with the inventories, but also quite a mix of many other different types of things, including, for example, customer advance payments that we are trying to increase as well to mitigate in a way the impact of the inventories to some extent. So no shocking news, I would say, on the balance sheet in that sense. Then if I move to Slide #16 to the cash flow, well, a couple of things I would like to highlight here. First of all, a tremendous operating cash surplus generated from our operations of SEK 11.1 billion, quite a high number. I already mentioned the impact of the net financial items also here on the cash flow, but then the taxes paid being quite a bit higher than same quarter last year. Again, the nominal tax in different geographies, leading to a higher weighted nominal tax rate. The increased withholding taxes on the profits that our subsidiaries have been paying to the another company based on the higher profits last year. And also the final tax payment for 2022, which was done, in many cases, in the second quarter, which also tends to contribute to a higher tax amount paid. Then I already mentioned on the balance sheet, the change in working capital, which also now with higher receivables, especially, but also still a somewhat increase in the inventories, has also, of course, a negative impact on the cash flow. And that gives us then a cash flow from operating activities, which is slightly lower, very close to the cash flow we generated in the same period last year. Then we also continue to invest a little bit more in property, plant and equipment, as you can see. And finally, we end up with an operating cash flow of SEK 2.9 billion versus SEK 3.1 billion for this quarter, SEK 7.8 billion compared to SEK 5.5 billion for the year-to-date. And then one could say that the entire operating cash flow for this quarter has been used to finance our acquisitions of SEK 2.6 billion. And with that, we are close to, let's say, the end of the analysis of our results. Now I would like to hand back to Mats to give you some guidance on the near-term outlook.

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

Yes. Thank you very much, Mats. [Operator Instructions] Hand back to the operator.

[Operator Instructions] The next question comes from Daniela Costa from Goldman Sachs.

Actually, I will keep it to divisional, I normally don't start by asking, but Power Technique seems to have been where you've had the biggest deviation in terms of order trends versus where The Street was. I understand that was impacted by the rental companies. Can you talk about what's the underlying without that impact from rental, what would it have done, what are the trends you're still seeing there going forward?

No but for us, I think we have seen -- I'm trying to think about the product ranges a little bit less in the quarter that has been one of the things and also the significantly -- I think I mentioned it before that we have secured a second source of engine supply. So the lead times are coming down quite significantly, and we have been filling up the yard for some of the rental companies. On the other side, even if it's 12% decline, it's still the second best for them. And as I mentioned earlier in the presentation, the newly required industrial business in this area is performing really well. But as I'd say, it's portable that is an indication.

The next question comes from James Moore from Redburn.

[indiscernible] regions and end markets and where you're seeing that specifically? And tied to that, is whether you're able to monitor distributor or end OEM inventories of your products and to the degree to which you think this sequential drop in equipment is and demand versus distributor destocking?

I'm sorry, James, but we didn't get the first part of your question. I'm sorry, could you please repeat?

James, could you please repeat your question? We didn't get first half of the question?

Hello? Did I get cut off? Can you hear me?

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

Hello?

We can hear you, James.

The next question comes from Andrew Wilson from JPMorgan.

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

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

No, I think overall, we see a bit of all the economic indicators that you are also very well aware of, pointing a little bit in an adverse direction, indicating that the pickup after the COVID period was maybe short-lived and not as sustainable, but we will need to see in the next quarter whether that really persists or not.

But maybe to add to that, that we are backing off that market at all, it's other way around. We continue to invest in people, in competence, more local for local manufacturing and sourcing. So for us, it's -- we're still -- we still believe that we need to be #1 in China, to be #1 in the world in the coming years. So we make sure that we are a competitive brand in China.

The next question comes from Guillermo Peigneux from UBS.

I wonder whether you could actually comment a little bit as well of what you saw through the quarter, the run rates, exit run rates that you saw through the quarter in the order intake for industrial compressors, a little bit more industrial production sensitive products that you have?

I think both -- and when we talk about the industrials, both on the industrial smaller and slightly bigger than compressor, we do not include the gas and processing there. We have seen quite a flat development, and we have not seen a difference between the smaller and the bigger. It's been about the same development for both these 2 branches.

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

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

The next question comes from James Moore from Redburn.

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

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

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

The next question comes from Sebastian Kuenne from RBC.

My one question relates to the margin bridge, specifically to the share incentive program that cost you about 120 bps in Q2 and it's also a level like 3x higher than what we saw in Q1. So I was wondering what the upcoming quarters should show in terms of share-based incentive programs?

No, I think forward-looking, that's hard to say, of course, because it depends very much on the share development in the next quarter as of today or as of the first of July, I would say. We know, of course, what we already adjusted for last year. Those numbers are public, obviously. Then it will depend on the share development in the next quarter or in this particular quarter how that impacts the results. The reason why the number is so high is because like I said, you might remember, I think that the share was on a very high level at the end of 2021. And in that next few quarters, particularly in the second quarter, there was quite a significant drop in the share price result due to the interest rates going up, et cetera. So basically, the general market dynamics. While this year, after Q1, we saw quite a substantial increase of the share price by roughly 15% in the very first few days after the report. And that, of course, creates 2 opposite effects that combined if we compare year-on-year on the profitability has this SEK 536 million impact. But yes, to predict exactly what is Q2, Q3 impact will be for the share price, I have to admit if I knew that, I probably would not be here.

Yes. But all being equal, share remaining at that current level for the rest of the year, can you give an indication of the size of the share-based incentive program then?

I don't have that number on the top of my head, but it is the adjustment we have seen on the LTI program during the last 2 quarters of last year, but in reverse mode.

The next question comes from Gustaf Schwerin from Handelsbanken.

I have a question on the very strong leverage in Vacuum Technique in the quarter. Is there anything specific sticking out here? Reason for asking is the previous comments you have had on challenges to book prices here given the nature of the business is also the investment needs. Do you think we will see sort of more normalized leverage here going forward?

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

The next question comes from Ben Heelan from Bank of America.

I wanted to ask about the decline that you saw in Industrial and Scientific Vacuum. Was there anything specific that drove this? As for memory, it was relatively strong in Q1. So was there any particular driver of the change in trend there?

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

The next question comes from John Kim from Deutsche Bank.

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

Was there a link between the AI and the cancellation or was it 2 different questions?

Fair point. Separate questions, please.

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

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

No. It was fairly high in Q4 for the group, it was SEK 600 million now divided mainly between Semi and Power Technique. So we see less cancellation in semi, but there are still some pushouts in terms of when they want delivery.

The next question comes from Guillermo Peigneux from UBS.

I wanted to ask about a statement you said, Mats, about 11 of the divisions still growing. And I wanted to clarify whether these business units you were referring to when you talk about growth is, I guess, order intake from a Y-o-Y perspective?

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

The next question comes from Marta Bruska from Berenberg.

Actually, I would like to ask about the new range of special grade you highlighted for Vacuum Technique. Could you please give us some more detail regarding the technology it is based on? Is that the chronic diaphragm or CDC type of it or what is the measurement principally.

It's a little bit difficult to hear you, but we understand it was something on Vacuum Technique.

Yes, that's right. So what is the technology behind it? If you can -- I appreciate it's a bit technical question. So maybe I can clear it with Daniel afterwards. But if you know, I would be curious to know what is the technology that it is based on the CDC gauge or what type of gauge is that?

But we can help you with the technology brief. I think that's an offline call, easier for us. But what we have done here over the last 4 years is that the start to change because we think this is a core product for us, and we had an older generation, and we also were sourcing some products and step by step, then we have introduced them with our own manufacturing and that has paid off really well for us. And we don't hide away from the technical question, but I think Daniel can help you to get the correct specification on the technology.

The next question comes from Sebastian Kuenne from RBC.

I have a follow-up question on volume price/mix. That was a good contribution, let's say, from volume price/mix in Q2 and given that you have maybe roughly 5 to 6 months lead time overall in the company, would it be fair to assume that we see further contributions to the margin from volume price/mix going forward?

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

The next question comes from Andrew Wilson from JPMorgan.

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

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

The next question comes from Klas Bergelind from Citi.

We don't hear you, Klas.

Can you hear me now?

Now we can hear you.

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

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

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

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

Yes. Very quick final one on rental and the comment you made in Power Technique. And obviously, we have a seasonality on the rental side before. But sort of is this beyond seasonality? Are you seeing sort of lower investment levels also year-over-year?

No, but that I don't know, but we see seasonality, of course. We always expect a very strong Q1. But what I mentioned earlier when you were not on the call then was that the complete pump business that we are now developing, which is performing really well, there you will take out the seasonality and you will build a new opportunity for service as well. So when we industrialize Power Technique, you will see more or less seasonality in those numbers with exception of those traditional core, so to say. But the comp and flow business is growing rapidly, and it's one of the bigger divisions already.

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