Atlas Copco AB (publ) ($ATCOA)

Welcome to the Atlas Copco Q1 2026 Report Presentation. [Operator Instructions] Now I will hand the conference over to CFO, Peter Kinnart. Please go ahead.

Thank you, operator, and good morning, good afternoon, good evening to all participants to this Q1 earnings call at Atlas Copco Group. Before I hand over to Vagner, I will, as usual, already now ask you to limit your 1 question at a time, especially today because we are on a very tight schedule as we will be heading to the Annual General Meeting of Shareholders today. So we have even a little bit less time than usual. But without further ado, I will now hand over to Vagner who will start today's call. .

Thank you, Peter, and welcome to this conference call where we reported the earnings of the first quarter of 2026. So first the summary, we have seen flat orders when it comes to compressor technique, but very good development in Baton technique Compressor Technique, I will elaborate a little bit further because of a little bit further because gas and process compressors, orders were down quite significantly. We are not concerned about that, but we will give you more details later on. Again, Vacuum Technique, very good organic growth. We saw weaker demand coming from automotive that impacts our industrial and assembly and vision solution. When it comes to Power Technique, we have seen growth in most business lines within Power Technique. Also, our service business continued to develop very well according to our strategy, and we are also quite happy and proud to see this continued development. Organic revenues was up. We are also quite happy about it. It was good to see a bend in the revenue trend. And also stable margin despite of currency headwinds. We continue to deploy our M&A strategy. And this quarter, we acquired companies. So when it comes to the financials, the level we have had SEK 45.3 billion is quite strong level. We saw an increase in activity level we were quite happy to see, mainly driven by vacuum equipment. That led us 5% organic growth that we see an increase in our overall organic growth. In Q4, we had 4% now 5%. I think it was good to see that development. Quite happy with that. Also, revenues reached SEK 40 billion. So -- and again, happy to see organic development of 3%. So operating margin at 20.4%, we have an adjustment in Power Technique, and we have communicated in the past that we were not happy with the profit level, we took some measures. And we had an adjusted margin of SEK 8.3 billion and a margin of 20.5%. So earnings per share ended up at SEK 1.28 billion. strong operational cash flow but impacted by the inventories and return on capital employed, we end up at 20.3% all we know, we are happy with the development in orders and revenue considering the level. And we should also consider that we had minus 11% currency on our orders received and revenues. So when you look to the geographical spread of our orders, so if I start with Asia, plus 7%, very good development. The main driver there was vacuum tongue and positive development as well in Industrial Technique the negative development that we saw in gas and process was mainly coming from Asia. So we will explain when we talk about compressor technique. In Europe, again, positive development despite of an environment that is not so good with all the instabilities that are going on. good development. Also happy to see good development in North America with plus 70% growth. And it's also fair to say that now also Vacuum Technique had a good development in North America and a little bit more weaker on the weak side in South America. And in the Middle East, we saw a weaker development, especially in compressor technique and power technique, those are the 2 biggest business areas in the Middle East. Then -- when we combine everything, then we see structural changes of 3%, coming mainly from our acquisitions. Currency continued to be negative at minus 11% in revenues and in orders. And like I mentioned before, organic growth of 5% and 6% with the total growth of minus 3% and minus 5%. If we then look into our orders and organic per business area, you see now compressor technique being 45% of our business, in orders received in the last 12 months and in the quarter, delivered minus 3% organic growth. Vacuum Technique now 23% and plus 32% driven mainly by semiconductor market. Power Technique also delivered positive organic growth and minus 2% in Industrial Technique. If we then go deeper into the business areas, starting with Compressor Technique. And here, the industrial business in general was more basically flat a little bit more favorable in larger compressors coming from some dedicated market segment like petrochemical, aerospace, batteries. But the overall market was basically flat. Then our orders for gas and process were notably down like we mentioned, and here, we have high comparison base in Q1 2025. We had basically 1 of the biggest orders that we ever received in Asia that was booked in Q1 last year, we managed to get -- one part was this big order that we had last year. And on the other hand, as well, we had quite a lot of wins last year and brought a very strong result into Q1 2025. And now we have a high comparison base. We see that the decision process for some market segments that are relevant for us, it will be more step-by-step this year. So not too many decisions in quarter. The level also that we have in other process was also was not so low. I mean we had sequential growth between Q4 to Q1 2025 in other process, I think -- and we should also remember is a business that we have sometimes book orders in the quarter, sometimes we don't have, and then you create this comparison basis. But our portfolio, our quotation pipeline is quite good. that is good interaction with our customers, good pipeline. I think we will see the development over the coming quarters. So also there, we continue to have growth in our service business and revenues were up 1% organic. Our order, we have a solid order book that we continue to invoice. Last year, we had organic growth in revenues. We believe we can continue to have good development in revenues considering the order book we have. Operating margin at 23.8%. And here, we have currency headwinds and also a little bit of rate tariffs that are playing a growth on the profitability. But the level of almost 24% profitability is also quite good. Does it mean we cannot do better, but that's a good level in terms of profitability for us. And positive contribution of volume, price and mix effect. Return on capital employed also quite solid. And we continue to invest in innovation. Here, you see a new type of dryer that is used together with Turbo compressors large volume of compressed air. This application, you can basically -- this type of dryer can be basically used in manufacturing systems companies like semiconductor, pharmaceuticals, whenever you require a very low -- very high volumes of compressed air with very low pressure viewpoints. Continue to invest in innovation. So when we move then to Vacuum Technique, here, we see quite happy to report 32% in orders received growth with significant growth in the semi market, but not only also we had positive development in the industrial market and also in scientific vacuum equipment, positive development. We have also 2 service divisions in vacuum technique that are also growing organically. So good development. Also nice to see a bend in the trend when it comes to revenues. That was a challenge last year. Now we see abandon the trend and a lot of focus now to ramp up production in Vacuum Technique. Profitability also was 20.5%. So nice to see as well above 20% supported clearly by increasing volume and also improving operational efficiency. There's still some currency headwinds as well in Vacuum Technique. Also in Vacuum Technique, we see product development continues. We just released this new turbomolecular pump that is utilized within the two, that goes into the chip manufacturing and this new pump has a quite strong development -- quite strong improvement in terms of efficiency with a 45% performance gain. So -- and if you look to the right to the level of orders received in Vacuum, you see that we are close to record levels that we have had in 2023. So then moving to Industrial Technique. Here, we had a negative organic growth of 2%, but I'm quite happy with the development in the general industry. There, we saw positive development, offsetting the headwinds that we have in the automotive market, and also good growth in service. We continue the development to develop the service business in Industrial Technique. Revenues are flat and profitability at 19.1%, which we are happy to see the development as well, considering that they have currency headwinds and trade tariffs as well playing against the operating profit margin. So return on capital employed at 16%. Also there, we continue to develop our product development journey. Here, you see a product that was developed and is dedicated for the Chinese market, developed in China for China, and we see now a quite good development when it comes to orders in this product range in China. So if we move then to Power Technique, we see also here 4% organic growth, solid growth in equipment good growth as well in our rental business and continued growth in our service business as well. Good development. Revenues was also up 4% organically. Also quite happy to see that. And when it comes to profitability, I think last quarter, we mentioned that we were not happy with the level. We took some actions including looking to our rental fleet, and we took a decision to adjust our rental fleet and the underlying profitability, we see a bend in the plant, and we will keep on working to continue that trend when it comes to profitability. So -- and they also had positive contribution from volume, price and mix effect. Also there, nice innovation. We have released a new hybrid generator. What is a hybrid generator? It is a generator that combines a battery power bank together. And regulation is software, is really important because it's not only to work with the power pack is also work with the grid with different systems, with the microgrid. We believe this product has been quite well accepted. We see that it's quite well accepted in the market, and we believe we can be very successful as well, quite happy with that new development. So with that -- so just a summary. Orders received SEK 45.4 billion, very strong lap Revenues, SEK 40.5 million. So EBITDA, excluding the depreciation of intangibles coming from acquisitions, the level was 22%, but to continue to talk about the P&L. Now Peter will take it over. Please, Peter.

Thank you, Vagner. So as already indicated, operating profit at 20.4%. And financial items are basically flattish, and we also expect that, that will continue to be similar in the near term next quarter. Profit before tax, SEK 8.1 billion, and the income tax expense of SEK 1.9 billion, which represents an effective tax rate of 22.9%. For Q2, we expect that the tax rate will be quite similar to what we saw same quarter last year so somewhere around 22.5%, slightly lower than Q1 because we typically see less adjustments that are related to the previous year in the second quarter. This is typically happening in Q1 when we were preparing for the tax declarations and everything. And so in Q2, we will see a little bit less of that and therefore, a lower effective tax rate of 22.5% roughly is what we anticipate. If I then move from the group total to the profit bridge to dig a little bit deeper into the operating profit margin development, starting from 20.1% in Q1 2025, a very minimal positive impact from the share-based LTI programs, as you can see, with SEK 40 million. There was an LTI or items affecting comparability of SEK 156 million. consisting of SEK 232 million related to Vacuum Technique from last year. That was a cost then. But we also have now the SEK 76 million from Power Technique related to the adjustments to the higher fleet as well as some restructuring costs that we initiated within the Power Technique business area. The acquisitions were, I would say, almost as usual, a little bit dilutive to the group's margin. The currency, of course, has a much more significant impact, negative impact, in this case, diluting the margin quite a bit. And then on the other hand, I think the very good news was that the organic development of the margin was actually quite positive. And that's even considering the fact that we have a negative impact from tariffs across the group. We always said that the impact was not huge and well below 1%, but it's still there, of course, and it basically pull down the margin slightly. But despite that effect, we still see a positive organic development of the gross margin. So we're very pleased with that development. When it comes to the currency, quite negative on the margin also as Vagner already indicated, quite negative on the top line on the orders and the revenues. How do we see the foreign exchange development for Q2? Well, basically, we expect that if the exchange rates remain at the current level at the end of March, basically, then we would assume that the currency would be having hardly any effect on the margin, you could say, basically somewhere around the 0-point is what we anticipate for Q2, all things being equal, of course. If I then move to Page 13 where we split a little bit further into the different business areas. Then I think the picture is fairly similar. On the items affecting comparability I already mentioned, the Vacuum Technique costs from last year that now comes in as a positive. And on the other hand, the fleet impairment as well as the restructuring that we have done within Power Technique. The acquisition is dilutive across the different business area for Power Technique, very minor also for Industrial Technique, very minor impact. The currency then across all business areas having a negative impact, mostly in Industrial Technique, quite dilutive, while for the others, the impact is a little bit more mild, but still negative for all business areas. And then when it comes to the organic development, positive for all four business areas. Of course, there are impacts related to volume price mix that helped this development, while the tariffs are offsetting in most cases, that to some extent. But we should also not forget that all the activities we have done over the last several years, whether it has been in Vacuum Technique, whether it's in Industrial Technique or even now in Power Technique are starting or are generating positive results from a leverage point of view. And that is one of the reasons why we also see this positive effect despite the typical volume price mix effects that contribute across many of the different business areas. So overall, I would say, even though at first sight, maybe the margin is slightly -- is not as high, 20.4%, the fact that the organic development is positive across all business areas is really encouraging for our team to continue working on this going forward. If I then move to the balance sheet, not so much to say here, to be honest. The main development we see is that if we look at the asset side is, of course, the impact of the acquisitions adding especially the intangible assets, but also a little bit on the property and equipment and other type of investments as well as -- and that is the second most important point in the balance sheet, I would say, the development of the inventories and receivables that we will also see back in the cash flow on the next page. Besides that, I would just like to highlight the fact that we will soon be approaching the date of the dividend or at least the first installment of the dividend. The ex dividend date will be tomorrow. The record date will be April 30 and the payout date will be on May 6. Then moving to Page #15 in the slide deck, the cash flow. The cash flow, you could say, is operational cash flow quite a bit weaker compared to the same quarter last year. This is not so much coming from the operating cash surplus, which is even though slightly lower, but I would say relatively on a similar level. But the main detractor here is the change in working capital of SEK 2.2 billion in the quarter, not entirely surprising that this happens in Q1. We tend to have always a low working capital at the end of the year, following lower orders, higher level of invoicing in Q4 and of course, now also adding the improvement of some of the demand -- underlying demand. In Vacuum Technique, for example, we, of course, also need to prepare for that, and we are also building up a little bit of inventory, although we, of course, try to monitor that very closely. From a relative point of view, though, the working capital is not really fundamentally changing. The inventories are in relative terms down. The payables are in relative terms somewhat up, and the receivables are quite stable. So from that point of view, no reason for concern from my perspective. And with that, I would like to hand back to Vagner to comment on our forward-looking statements.

Thank you, Peter. Just to remind you, our forward-looking statement is not a sequential guidance. It's not a straight projection of our orders received. It's our best estimate of our customer activity level for the coming quarter. So -- but then if we look to the parameters, if we look to Q1, it was already an elevated level of activity based on what we have reported now. We continue to see as well some business climate uncertainties. I think if you look at what is going on in the Middle East, also we have changes in the tariff in the U.S. once again, so I think the environment also has quite a lot of uncertainties. So -- and until now this uncertainty has created hesitation among our customers, you see some industrial part of our business a bit more flattish because of that hesitance. We also see that the auto market has not peaked yet. It's quite on the weak side, not creating that opportunity to continue to grow the business. When it comes to semiconductor you could see that we are close to peak levels we have had in the past, was a quite strong order received. We do have a strong level of activity now in the semi, but nothing that can show us that this activity level will grow further. So it's already a quite strong level. And we shall also consider that the semi is a key account business. We have fewer customers and we never know when they decide to place orders. Based on the above and also when we speak with our divisions, based also on the presentations, we have our customers we don't see that our activity level will further increase. That's why we believe -- the activity level is elevated, and we believe that we will stay at the current -- our activity with our customer we will stay at the current level.

So with that, we come to the end of our presentation, and we can start with the Q&A session. Once again, I would like to repeat, especially today as we are in this very tight schedule, going to the AGM after this meeting to just ask one question at a time. And then I think we will run smoothly to this Q&A session. So with that, I hand over to the operator for the Q&A. .

The next question comes from Daniela Costa from Goldman Sachs.

I will ask a question about Vacuum Technique. And I believe you had prior quarters mentioned that you had some multiple or not set up capacity in the U.S. Just wondering if that capacity is now live, what's the utilization rate? And what will that do to contribution margin in the foreseeable future? .

Yes. What we see that what we say we had a manufacturing facility that we are ramping up in the U.S., but we are prepared to supply the U.S. from our factory in Korea, for instance, that we can continue to do. We are ramping up. It's going to take a little bit of more time to ramp up in the U.S., but we are ramping up in Korea to supply the demand that we have in the U.S. We have adjusted a little bit production capacity as well in one of our factories we have in the U.S. But that we will be able to supply from other manufacturing places that we have. And we are really all focused now on Vacuum Technique. It's all about ramping up production now.

The next question comes from Al Jones from BofA.

If I can go back to compressor. You talked about industrial compressor orders basically being flat year-on-year in Q1, which is I think small deceleration from an increase in Q4. Could you just highlight the drivers of that deceleration, whether it's directly the Middle East customer hesitation since the start of March or just comparison base? And then how we should think about those factors as we think about Q2.

Yes. I think last quarter, we had quite Q4 2025, we had good organic growth, mainly due to low comp in Q4 2024. And historically, Q1 is a quite strong quarter. I will not read too much into that. When it comes to Middle East, it was slightly negative in compressor technique indeed. But if the main driver was as well as end process, we saw lower decisions taken in Q1, maybe not really related to the current situation in the Middle East. We haven't seen that impact. But talking about the Middle East, but perhaps it's also good to remind that the Middle East represents less than 4% of our orders received. I think it's also good to put that in perspective, Alex. .

The next question comes from John Kim from Deutsche Bank.

I'm wondering if you could give us a little bit of color and context on what you're seeing in the semi cap production and supply chain. Any comments or color you can give us on the lead time component availability and decision-making out of your key accounts, reading in certain limiting factors like perhaps helium and industrial gases?

So I think on -- if I start from the helium, I think difficult to know, to be honest, difficult for me to have an opinion. What I see at least on my side, we are ramping up production. The supply chain is also working on it to make sure we can support our customers. I think we don't see some limitations. I think we need to -- the sooner we can deliver the better is going to be, I think, for us for our customers as well. And that has been the focus now in Q1 and definitely the focus in Q2.

The next question comes from Rory Smith from Oxcap.

Rory Smith from Oxcap. I just wanted to stay on Vacuum Technique, if I could. I'm just trying to square your commentary there, Vagner the near-term activity level not increasing any further. And the kind of higher-level industry-wide outlook for wafer fab equipment CapEx on some readings, it's up 35% in the last 6 months for the industry as a whole. And then looking at where consensus is for Vacuum Technique orders this year, it looks like it's going to get back to the sort of 2022 peak if you just had any commentary there on, first of all, do you think you can get back to the 2022 peak in orders in Vacuum Technique and how we should think about the kind of medium-term growth rate in that business beyond the near-term outlook that you've already given, that would be really helpful.

Right. The we actually guided between quarters, between Q1 and Q2. Like I said as well, that's also a key account business. Based on the information we have now, we don't see -- it's already an elevated level. And we believe that the levels are, but we don't know if customers will decide to pull in from their planning into two. We don't know that. So I think it's hard to say. This is based in the information we have now. I think it's a good activity level. We are quite happy after 2 years, we see that the orders were not really according to what we would like to, what we have been prepared for. Now we are quite happy as well with this level. .

The next question comes from Klas Bergelind from Citi. .

Vagner and Peter, it's Klas at Citi. So I have a question on tariffs, maybe for you, Peter, on the new section 232 ruling from April 6, now 25% of the total imported value versus 50% before on the content, steel, aluminum and copper. How is that changing your effective tariff rate? I'm trying to understand to what extent it will be in incremental headwind for you now from the second quarter? And how do you feel about the price compensation?

Thank you, Klas. Yes. It's quite a jungle out there with the tariffs moving back and forth all the time. But based on what we see, of course, that the 25% flat tariff on compressors and tools, for example, with definitely substitute an increase compared to where we were before. But we still continue to believe that it will not create a major effect, just like it has not in the past, but it will probably increase a bit. However, there's a lot of other things going on at the same time to evaluate how these different items are exactly classified, et cetera. So there's a lot of work ongoing in the background, and things are -- continue to be quite uncertain, to be honest. But if we would simply put out a 25% tariff out there, then that would constitute an increase compared to where we were before, but it was not only the 15%. We also had other tariffs that were playing part already. So as a result, it will not be positive, but it also will not be dramatic, let's say. And therefore, we will continue to believe that overall, the impact on the profit margin will continue to remain moderate -- slightly higher than what we see today, but still, let's say, on a relatively low level compared to the overall margin for the cost.

Am I right just to think that we go from roughly 20% effective rate to 25% then. Is that sort of the magnitude roughly, Peter?

No, I think it's really difficult to put the exact number on there, and I don't just say that -- I mean, I don't say that just to try to be avoiding the answer here to be honest because it is really, really difficult. This is like reading dealings, honestly or sometimes these tariffs. It's extremely complex. It's not only compressors, there also other products involved. So in the end, the overall impact on the overall profitability or the relative cost compared to the import value, which is not the same as the revenues, obviously. Is not exactly the 25%, there is much more to it. So again, I think it will be an increase compared to where we were before, but it will not be dramatic and it will not change fundamentally, I would say, the impact on the profitability going forward. .

The next question comes from Max Yates from Morgan Stanley.

I just wanted to ask a question on compressor order seasonality. If -- when we used to look at this business, kind of pre-COVID, there was never a huge amount of seasonality in the compressors business. And then we came out of COVID, and we had this dynamic of a very strong Q1, a much weaker Q4. And I guess if you could just update us on, how do you currently think about the seasonality of this business? And I guess, just us trying to get a better sense of how to model this. Is it right to think that the kind of SEK 19.5 billion that you've just done is the high point of the year and then we see sort of typically Q4 being the weakest? Or has that just been market dynamics? I guess just any color on how you currently think about the seasonality for the business post COVID and particularly through this year? .

To be honest, I don't see a big change, to be honest, Q1 is usually quite strong quarter. Q4 in terms of orders is normally the lowest quarter, and Q2 and Q3 is a bit more average. That's what we have seen over the year. I don't see a big change in that trend, to be honest.

But it never used to be like that, 2019, 2018, it used to be just flat. So I guess I'm trying to understand, is this the new seasonality and therefore, Q1 this year should be the high point. .

I think we've always -- in a compressor technique, I think we've always worked with and live with this kind of -- there has always been a level of seasonality across compressor technique. Maybe it has been more outspoken in recent years. But that's, I think, more due to gas and process impact than it has been due to a change in the seasonality pre and post COVID. So I think it's more the gas and process impact that has created huge Q1s for a couple of years, '24, '23, and that created this huge comparison numbers of 25% was actually quite strong. As Vagner already indicated, but the seasonality has always been there as far as I can remember, but maybe a bit less outspoken due to the gas and process development that we have seen in recent years.

Okay. So no reason to assume this year is any different .

No. Q4, as I already said, Q4 tends to be a bit softer, Q1 tends to be strong, and Q2 and Q3 is somewhere in the middle. And of course, then there are unique orders, et cetera, that sometimes make the quarter still stand out in a different way than what we could assume as normal seasonality. So there is no very good mathematical formula, in my opinion, to say, seasonality is plus 4% and minus 3% here. But there has always been a level of seasonality in the basic industrial business. .

The next question comes from Sebastian Kuenne from RBC Capital Markets.

It relates to your exposure to the semiconductor CapEx cycle. We get some idea of your exposure through the ET business, which has an exposure to electronics, 60%, maybe 65% but there's also a component in the compressor business. Given that semi cycle is kind of a detached cycle from everything else at the moment, can you tell us a little bit of your stance on what your real exposure is at this moment in terms of exposure to data centers, semi CapEx, the whole branch of industrial investments. And can you give us an expect maybe for the group.

No, we don't have a value to share. But I would say that it's quite small compared with the size of CT. Do we have activities Yes, we do have activities in the electronic business. We supply compress there. They don't need clean and dry complex there. And we do supply. I think there are 2 factors to consider that they get the orders in a different phase because normally, when they are building up premises, the fab and the fab maybe has no equipment. That is when we discuss about compressors. And then later on, when the fab is populated then we get orders for vacuum. So it's a bit -- the timing is a bit different, but the magnitude is quite small. So compared to the total CT compressor technique business. The same for data centers. Do we sell to companies doing assembly of the components that goes into the data centers? Yes, we do, but that is small compared to our total business in Industrial Technique, for instance.

So can we assume maybe 5% for CT, 65% for BT as a rough -- very rough guide?

No, we don't have a figure to share their I think it's quite -- the exposure is I would like to have a bigger exposure, but it's not -- we don't -- it's not that relevant, that's better for us not to share the figure. .

The next question comes from Andreas Koski from BNP Paribas.

Just coming back to Compressor Technique and the Gas and Process business. Could you maybe give an idea of how big gas and process was in Q1, either in absolute terms or as a percentage of CT? And based on the strong orders that we have seen for new LNG carriers in the past 6 months, should your gas and process orders not improve in the coming quarters? Or is your LNG exposure not big enough to move the needle for Gas and Process?

I think when it comes to the contribution of can process in the overall CT business, we always talk about 10% because this is quite a lumpy business. Sometimes you have book orders that are quite large. We can get larger orders in LNG, like you mentioned, definitely, and there are quite a lot of activity in this area. I think what we see last year, we got some orders in LNG, but not only. And some decisions work can -- or many decisions were taken in Q1. We see this will be a bit more spread out to our through 2026 because different players maybe smaller players taking orders, then taking decisions, then the order is going to be a bit more split towards 2026. That's what we see at the moment. We continue to have a very strong position in this market segment that I would like to highlight. And when these decisions are taken because you also have the different phases of the decision. One thing is a ship operator, shipowner, taking the decision to build the ship. And then in a later stage, the -- our part in that ship will be negotiated with the shipbuilder, so with the shipyard. So -- and then these are different phases of the process. But I can reassure remains a strong player in that. If there are decisions to be taken, we will play our role in that market.

But if we are seeing LNG carrier orders being up 150% or more in the last 6 months, should that not come through in your order intake with, I don't know, a quarter lag or so. .

I don't have -- they depend always when the shipyard decides to place their orders with us. And they have their own tactics on that. So -- and that's why it's difficult for us to make a strong correlation on that.

The next question comes from James Moore from Rothschild and Co Redburn.

Did I come back to the stable industrial compressor orders. You mentioned back now that the market is flat. But when I look at world CapEx currently, it's mid- to high single digit and accelerating. Short-cycle demand trends are improving in cutting tools, in automation markets where you've often moved in a similar direction. I see favorable data points in China and the U.S. I would have thought that we might have seen a better picture and an outlook that starts to talk about improving dynamics. . So could you, a, talk about the different regional trends? Is there any market share loss in here? And b, comment on whether you see customers starting to order more on energy efficiency given the oil price given the rand, and so whether you think that there is an issue with the strong buying that happened in 2023 on the supply chain with people at having overbought 3 years ago and still having to digest that. Just to help understand why we're not seeing a slightly better picture.

Yes. I think it's a bit similar to what we said in Q1 is an elevated level. We don't see an acceleration in that level. If you take -- if I can make a couple of comments recently, I think our business in U.S. continued quite strong. with positive development. But you have some other markets like Europe and for us, that has not been as strong as it used to be. So quite a lot of clouds in there in Europe. Let's see how that develops further, but I don't see so positive environment. You see the main market in Europe that are not so strong. So -- and you have all the uncertainties and tensions that are ongoing now, the uncertainty is coming mainly from the war. I think the impact in the Middle East in terms of orders received we said it's below 4%, it may not be so big. But if you have some confidence, the indirect impact of that with the inflation could create quite some higher level of uncertainty. And that's why we guide for a bit more flattish environment and we have no signals, our data doesn't show signals that we lose market share.

Any sign of the high oil price driving -- after Ukraine, the gas price spike, you did fantastically, I might argue that energy efficiency is back on the map again. Did you see any sign of that in customer conversations? .

No, not yet, but it has the potential to -- for that, definitely, but not -- this has not been translated in more activity. .

The next question comes from Vlad Sergievskii from Barclays.

Gentlemen, thanks very much for taking the time. A strong step-up in Vacuum Technique profitability this quarter and the shift with a relatively moderate increase in volume, at least in revenues. If we get the demand cycle in Waco, similar to what we saw in '20223, is there anything that could prevail you from improving margins to historical up-cycle levels of, say, 23%, 25% .

Thank you, Vlad for your question. I mean we would love, of course, to go for a margin of 22%, 23% in Vacuum Technique or in any other business area, except for CT, where we would like to do more. But I think it's hard to speculate at this point in time where demand cycle will take us. For the moment, as already indicated, we expect rather stable development also within Vacuum Technique given the high level we are at. Hopefully, there is more in the market, but that is what we think we can see for the moment. And then of course, we have done a lot of restructuring, as we already indicated that should generate leverage. And I think it's something we definitely see this quarter happening already quite nicely in the operating margin of Vacuum Technique, specifically. Should the revenue volume continue to grow, which I think should normally follow given that that we've had good orders in Q1 then we do expect that there will be some operational leverage. Now we should also be a little bit careful because we will also need to ramp up a little bit the production and invest in a few things. But definitely, all the restructuring activities we have done should generate some leverage. Whether that will immediately lead to profit levels of the absolute summit days of '21, '22 that I think is too early to say at this point in time.

The next question comes from Rizk Maidi from Jefferies.

Just perhaps if I go back on pricing actions within Compressor and Industrial Technique. It looks like you're struggling to offset the trade tariff impact for quite some time. Now you've alluded that Section 232 is going to become even more of headwind. We're in a very favorable environment when you look at energy prices, and we know compressor is all about energy efficiency. Just struggling to understand why you're not able to offset the tariff impact through pricing, why is it taking you so much time? And perhaps when should we expect it to sort of neutralize?

Yes. But first, I think it's not only about price. It's a combination of actions. We also have a competitive landscape that we we need to consider as well. We are investing in local production in the U.S. I think we are -- we have several investments ongoing there. Some were even taken before all the tariffs because we want to be more local for local in the U.S. And those investments are ongoing. We just to give a bit more concrete example, we are expanding our production facility in Albany to produce turbo compressors. We expand our facility in Babinet to produce all injected compressors we are investing as well in a production facility in Rock Hill. So we are also expanding our logistics system in the U.S. with a major investment expecting production capacity of turbo free compressors for the oil and gas market in Houston. There are a lot of things ongoing that are part of the mitigation price is one of the components to mitigate these actions and the development. We are also developing a supply chain that is more not American-focused. So there are quite a lot of activities and not only price.

And then I just want to add that, of course, the tariff impact is included in our organic development, volume, price, mix and other. And there we see across CT, but also the other business areas, an overall quite positive picture. So I think in that sense, maybe from a direct pricing point of view, we don't compensate, but overall, as we have a positive effect on the overall profit margin, we are able to basically absorb the tariff impact in the organization. .

The next question comes from William Mackie from Kepler Cheuvreux.

A lot of my questions covered. So just coming to high level on the cash flow. Can you provide perhaps a bit more color on how you expect cash flow to be phased through the year and the unwind on inventories and receivables and perhaps building on the strength of that cash flow your balance sheet is strong. So could you provide an update on how you the pipeline for M&A and maybe your view on current M&A pricing given that it seems to have been a relatively quiet period for bolt-on deals relative to history?

Thanks, William, for your question. When it comes to the cash flow, I think we expect, of course, to continue to have a solid cash flow going forward. Just -- I mean this quarter was a bit less due to the investment in the working capital. I think we also need to be conscious of the fact that if business continues to develop more positively that we will also see, of course, higher levels of receivables, higher levels of inventories to be able to cope with the demand. And that, of course, has a certain cost impact on the cash flow as well. . But I think we will continue to have a healthy cash flow as we have always had within Atlas Copco Group. It doesn't necessarily impact our appetite for acquisitions, not at all. I think we have across the business areas, a very solid pipeline across all of them. If we haven't landed, let's say, a lot of projects in the very near past, then I think it's more related to the fact that the timing of the decision is not falling exactly in this quarter rather than the fact that we would slow down the activities because, in fact, like I said, all the business areas continue to have a pipeline of many projects. In terms of pricing, of course, each project is different, each segment has its own dynamic, and I think we will always try to aim for finding the right ads at the right price, but most importantly, having the most promise to deliver good value for the shareholder.

Next question comes from Bruno Gjani from UBS.

It's just on Compressor Technique, APAC. I think orders were down 18% year-over-year in Q1, all in so including currency and scope and maybe down to organic. The service business would have been up. So the implied organic equipment development is quite soft. Could you maybe just go into the detail into the drivers here specifically is industrial compressor also down meaningfully? Is this all gas and process? Is this all China or other countries in APAC also down?

No, it's mainly not mentioning country. It was mainly the gas and process orders that was extremely strong in Q1 2025. The remaining part of the business continues. If we remove that one, we have growth in several countries. I think there is a quite big impact coming from that one.

Industrial was growing for APAC?

No, it's a bit flattish than or countries. If you take China, it's still a challenging environment. I would say, and we will have growth in countries like Korea, like India. So just as an example. .

Got it. And just coming back to the NAG efficiency point with compressor, I guess, how much of the energy inefficient compressor installed base do you think was replaced in 2022 and 2023? And is the TCO argument as powerful today if some of this inefficient installed base was already replaced. Could you just perhaps just discuss this very, very briefly? .

I think it's very difficult to have a figure on that one. There are quite a lot of possibilities to continue to replace machines in the market because we can replace our own machines, we can replace competitor machines. If we look from that angle, I think there are still quite a lot of potential available. So on that front, I think we are quite confident that we can, over time, continue to grow the business with the product portfolio that we have. . Combined with the portfolio, we also have in the pipeline because we keep on investing in R&D, and we keep on improving the performance of our current product. That will unlock potential for replacement as we stress -- we stretch the boundaries of technology. I think that there will be always a potential there.

Thank you, Bruno. And with that question, we have come to the -- that was the last question of our call for today, and we have come to the end of this earnings call. Thank you all for attending, and looking forward to meeting you at other occasions in the near term. Thank you. Have a nice rest of the day. Goodbye. .