Atlas Copco AB
Q4 2021 Earnings Call Transcript

Published: 25 Jan 2022

[Operator:]

Ladies and gentlemen, welcome to the Atlas Copco teleconference for 2021 for the first part of this call, all participants will be in listening only mode, and afterwords there will be a question and answer session. Today, I am pleased to present, CEO, Mats Rahmström and CFO Peter Kinnart . Please, go ahead.

[Peter Kinnart:]

Thank you. Good afternoon and good morning. Welcome to this quarterly earnings call for the fourth quarter 2021. My name is Peter Kinnart. And I'm here together with Mats Rahmström. But before we start the comments to the quarterly results, I would already now like to ask you that when the question-and-answer session starts, you would only ask 1 question at a time so that all participants will have the opportunity to raise their questions. And we will also keep the timing of the call to 1 hour. Then I would like to hand over the word to Mats to give his comments to the quarterly results.

[Mats Rahmström:]

Okay. Thank you, Peter. All right, we go to slide number 2, which is called Q4 in brief. And starting with, we think we have solid for regrowth amount for the quarter. Actually came in somewhat better than the expected $33.5 billion with 26% organic growth. And I think what stands out is of course, fantastic performance from Vacuum Technique again with 50%, and also very strong from Power Technique. And it came through in -- both in terms of equipment and the service and sequentially then compared to Q3, we can see that CT and the PT slightly down, which is normal for that Industrial Technique costs down 9% and then fantastic growth with the seasonal orders for Power Technique with the growth rate both from 7% sequentially. And record revenues grew to $29.5 billion. And I must say that considering the difficulties with the components and supply, we are quite pleased with that sequentially and continuously improve of the revenues quarter-by-quarter. And of course, we would like to deliver even more on the orders on hand that we have, as we continue to see difficulties with supply. So we're quite happy with the revenue for the quarter. And that also gave us a record operating profit, $6.2 billion and the margin of 21.2%. And they're very strong. I think a record cash to us level of 6.6. A change to slide number 3, which is called Q4 financials. And maybe start at -- looking at the graph first. When we started in 2021, we said that maybe we should not compare our numbers only with 2020, but also compare it with 2019, which was at the time the best year-over-year we've had, and of course, quarter-by-quarter considerably have also managed to outperform 2019. And here is a confirmation of the numbers. Maybe I'll make a comment on the adjusted profit margin, it's a negative on 214 million for the revaluation of the long-term incentive program, and the adjusted margin was 21.9%. And return on capital employed increased from 26 to 27, and the main part of that is the increased volume. Then we step out of the quarter and look, just summarizing the full year, and once again then, maybe take a look at the graph. You can see the dark blue being orders received. The complete new level for us, of course. Fantastic this whole term. Maybe it's best summarized as record orders, record revenue, sometimes record profit. We also managed to complete 17 acquisitions for the quarter. And then we have the proposal from the board and order direct dividend to go from 730 to 760, to be paid in 2 installments on an extra distribution on 8 Swedish Krona with a number total redemption. And they also suggest the 4 to 1 split. And Peter will give you more detail a little bit later in the presentation. And on the next slide on page 5, for the full-year financial financials and orders received down from $29 billion, so it's a 33% growth. And revenues went up almost 111 and 14 and then we can see 14 operating profit Increasing trends So a little bit of efficient as well some margin points too low. We also have the next slide, on slide number 6, you can see the geographic distribution of sales. And we post strong growth for all business, both in terms of equipment and in service in over region with exception of Africa, Middle East, which represent 44% of the group. And pleased to see, with continued success we have in Asia, but also strong Europe and strong America, this time to older powerhouse of the world performing. We come to slide number 7, to confirm. Now we have five consecutive quarters with strong growth. And Slide number 8 is the phase You can just confirm that organic proof numbers, but you can also see in the quarter that we have support from the strengthening of the dollar mainly, and Peter will also here guide you later on, when it comes to the On Slide 9, we can see the pie chart of the different business areas and of course, Power Technique was very proud to have 43% growth. This is seasonal orders stuff we normally get in Q1. And I think some of these orders have been pushed into Q4 due to the limitations in operational capacity, and also price increases. And they thought that of course they would be the highest number in terms of growth of Vacuum Technique and another fantastic quarter, supported by the digitalization of industry and society. And you can also say that the ship shortages for Vacuum Technique is beneficial to them. But as the underside, it penalizes the Industrial Technique business where we have seen the shifts in auto manufacturing. But it's all in Compressor Technique was up 14% that contained to the group journey as well. Then we go into the different businesses, starting with the biggest ones, Compressor Technique. You just mentioned 14%. It's good to see that it comes out to all regions, both small and big industrial compressors, as well as gas intrusive compressors. They discussed it sequentially the basic launch chain, I think it comes down 2%. And record revenues. And if you look at the graph, you can see sequentially step-by-step, although we have difficulty but we still managed to improve the revenues. Operating profit at 23.9 or 3.1 billion, a strongest filed. A negative effects is still the supply chain constraints and to some extensible efficiency. The tone on capital employed from 79 to 93, capacity or like the highlight, this new generation of fantastic VSP (valuable speed and products) now we've started to introduce and other range which they call VSPF. You can see the energy efficiency there compared to traditional technologies. And of course, that gives the customer really good payback but it also helps customers with a sustainability ambitions. But I'm pleased to contrast we go to Vacuum Technique. And pleasing to see here that it's not only semiconductors that is performing, but also general vacuums, industrial vacuum, and scientific vacuum. And also saw the development for service. In Q3, is up almost touched SEK 11 billion. And this is, of course, the majority is still semi, and that they've managed to almost repeat that. I think a fantastic achievement for the quarter. And they also considered same thing that sequentially they managed to step by step buildup operational capacities. So they had record revenues. And I think the team that can be really proud of the 29% growth. And then operating the margin on 23.1 or $1.8 billion to strong . And return on capital employed, 25 from 19 and then other innovation, and you can see the same thing passing the C compressor Technique, energy savings of 30%. To boost cost per customers, but also sustainable. Very, very both strong from Vacuum Technique. Industrial Technique, they also came in a bit growth for the fourth quarter. Move up to low. I'm generally industry answer with also strong placebo. Sequentially although we can see that orders were orders were down from pleased quarter and operating margin at 21.5, including the fairly launch acquisitions they are down previous year, so strong to be a relative number and then return on capital from 13 to 16. Here I don't have an innovation in terms of sustainability. But in terms of flexibility, but they are now introduce controllers with the function to take, hold up to 25. The cordless tools, which is clearly beneficial for our adjustments as well. And on the business areas, the Power Technique. If you look, this is Slide 13, if you look at Q1 in 2019, and Q1 2020, this is where they normally have the strongest performance. So I must say they're quite surprised as well to get some of these bigger orders, all of the in Q4. In fact I already mentioned some of the reasons to that. So equipment was good, very good, the service was good as well, the revenue up 14% and for them and operating margin, very good at 16.3%. The return on capital employed at 27%. And here is another example of innovation, which links to efficiency and sustainability. If I summarize a little bit at this point on Slide 14 then. So we have seen high demand on orders received, sequentially slightly down for some, which is quite normal. Record revenues and record profit in all business areas performed in all geographic regions. And the operating profit at 21.2%. I think I'll hand over to you that, Peter.

[Peter Kinnart:]

Thank you, Mats. And then, going further down the income statement on the net financial items. We see a small improvement, which is mostly to do with lower exchange rate differences -- financial exchange rate differences. Income taxes were higher. They're obviously mostly linked to the higher profitability to start with, but also driven largely by the rated phenomenal tax rate that were slightly up. And that gives us the profits for the period of 4.9 million Swedish krona versus 4.2 billion Swedish krona same quarter last year, with basic earnings per share of the 4th Swedish , and the return on equity of 30%. We then move onto the next slide. We can have a look at the profit bridge on Slide 15, where you can see that there was an improvement from 20.9% to 21.2%, which was largely supported by good currency development offset by acquisitions and share-based programs to some extent with volume, price, mix and others. Compounds basically being on the same level as of margin last year. And given the constraints that we have been facing in the last quarter with supply chain inefficiencies in the factories as a consequence of that, and so forth, we were actually quite pleased with that result. Then, adding to that on the outlook for the foreign exchange, as you see here, it was a positive impact given the current exchange rates, we do not see fundamental change and therefore a slightly similar positive impact as we have seen in the fourth quarter. All things being equal, or when we then go through the different business areas on Slide number 16 than you see how that picture from Slide 15 is built up, growth different business areas with compressor technique. All of them actually supported by currency, some slightly more than others. But overall a positive impact across the different business areas. The acquisitions being slightly diluted. And then of course, the impact from volume price mix and others where you can say, in general, the big volume and price and mix impact was overall quite positive. But it was then in a number of cases, partially or even completely offset by the supply chain cost, things that the entity source facing. Barclay, of course, cost thing places. Barclay, also, the fact that they could not produce and that also resulting from COVID, people were not available and have to be additional hiring’s to cover for that. And then, finally, another impact is, of course, our continued efforts in R&D, which has continued to grow also over the fourth quarter, and then also continues further investments in our marketing and digital process. Moving on to the balance sheets, comparing to last year, the biggest increase we can see on the asset side would be of course, the increase in cash by about SEK 7.3 billion Swedish krona. Then the next topic would be the increase of the networking capital by 4.4 billion on the inventories and 4.6 on the receivables. But even though those are substantial amounts, they are remaining in line let's say, from -- in a relative terms compared to revenues and are developing positively, I would say. If we then go further into details then we see an increase of the intangible assets of 4.5 billion, which is largely attributable to the acquisitions, but also partially to our R&D capitalization activities. And then finally, a bit of extra investments in plant, and property, and equipment, as well as new rental equipment to complete the picture. On the liability side, then we see of course, the equity going up as a result of the improved profitability and interest-bearing liabilities. Basically, very flat, and non-interest bearing liabilities going up by 9.4 billion and that is related predominantly to an increase of the payables. The last payments from customers related to the many projects that of course, are being ordered. And some additional accruals in line with the volume growth that we see. That's as far as the balance sheet is concerned. Then moving onto the Cash-flow, as Mats mentioned, very solid cash flow in absolute numbers, record level both for the year as well as for the quarter. And that was of course predominantly driven by the very strong operating cash surplus that was generated by operations, adding SEK 3.9 billion compared to last year for the year and SEK 0.8 billion in the quarter. Other topics to be worthwhile mentioning are maybe the taxes paid. Similar comment as on the income statement related to the higher profitability, and on the other hand, slight impact also from the weighted nominal tax rate that ended up being a bit higher. Otherwise, the change in working capital is notable where last year we saw quite a substantial increase. And the increase of our trade liabilities in the current quarter were partly offset by increases in inventories and receivables, resulting in a slightly lower improvement of the networking capital by SEK 524 million compared to SEK 1.2 billion last year. Those are the main points, I think, otherwise as I said, a little bit more investments, which is of course explainable by the fact that we have agreed and approved a number of additional capacity investments given the current situation, and those are of course being executed as we speak. That gives us a total operating cash flow of SEK 6.7 billion for the quarter, 19.4 Swedish krona for the year. We then move on from slide 18 to slide 19. I just have a few words to say about the GAAP distribution, which Mats already referred to earlier. The Board has decided to make a proposal to the annual general meeting, to issue an ordinary dividend for 2021 in the range of 7.60 Kronas compared to 7.30 Kronas last year, which will then be paid in 2 equal installments. Next to debt. Given the fact that I mentioned on the balance sheet, we have quite substantial cash position. And in order to, let's say, make capital more efficient on the balance sheet, the Board would propose to the annual general meeting an extra distribution of 8 Swedish krona per share through so-called mandatory redemption of shares. And following that redemption of shares, the intention is also to split the ordinary shares 4 to 1. So for each ordinary shares, shareholders would receive 4 of the shares regardless whether they would be A or B shares. And then here in this slide you can see at a bit the overview of the history of Atlas Copco 's dividends and the extra capital distributions with earnings per share of 14.89 for the current year 2021, dividends of 7.60 as mentioned. And then a total capital distribution, including the redemption, mandatory redemption of 15.60 in total. And with that, we come to the end of the comments on the financial statements, income statement, balance sheet and cash flow, and reach end the presentation with the near-term outlook which you might want to comment.

[Mats Rahmström:]

No, we have the basic activity level remains at a current high level. I'm going to say it's quite difficult to predict normally in the future. But right now, with the things going on, I think it's quite difficult, but this is support in the trends that they have seen in Q4 that supports them high demand. On the risk side, I must say everything, the Corona virus, globally, is an issue for us in terms of decrease but it also an issue for the shortages stuff, the order to have in terms of supply change and the same thing can impact them and we also have regions where they have fewer tolerance, which means sometimes we need to stop the complete line even if only one person that has current . So that's a little bit difficult to predict what will happen there. We still have the shortages or components, as I mentioned, but of course on top of that, we also have some of the year political attention. But all in all, I think quite positive near term outlook. By that I think we can also last for questions

[Peter Kinnart:]

Thank you, Mats. Just before we start, I'd just like to remind you once again that please, just ask 1 question at a time in order to make sure that all participants are able to raise their question. But with that, I hand over to the operator to guide us in the question session.

[Operator:]

Thank you. . There will be a brief pause while questions are being registered. Our first question comes from James Moore with Redburn. Please go ahead.

[James Moore:]

Yes. Hi, everyone. Hi Mats, Peter, Danielle. Thanks for taking my question. I think my question is about the drop through in CT and VT. I wondered if you could quantify the year-on-year impacts of the marketing and digitalization costs in Compressor and the capacity constraints in VT. And, I guess, really my question is, I know you're making investments around the world, particularly in Vacuum where you are capacity constrained, but I wondered if you could help us with what you think the maximum revenue gross you could achieve in Vacuum is this year, given the investments and given the current constraints.

[Peter Kinnart:]

Thank you, James, for the question. Well, maybe first of all, talking about the drop-through for compressor technique, as mentioned. The big impact or there were two impact that are important I think to mention. That this first of all, the basically organic improvement volume mix price. That's also contributing positively but as we said, the thing that's offset that to a large extent, lower the supply chain issues, we do monthly. And that of course translates itself in either some cost increases or inefficiency in the factories, if the parts are not being able to be available then, of course, people are standing on production lines, waiting idly so to say to say, all for the COVID -impact with people being at home, having to be replaced when the components are there. And of course, it's difficult to manage this particular situation because you can't send people home, you can't reduce your workforce because when you have the components, the orders on hand or such, that you need to be able to produce when the components are there. So that's a little bit what we found. The reason as I mentioned, we are continuing to invest in R&D. Also, the marketing and digitalization that can be present. It can be marketing people in areas where we are trying to explore new fields, which we discussed in earlier calls like the industrial gases for example. But I would still say that this not really a big item compared to the volume price mix impact relative to the supply chain constraints that you faced. And I would say the picture is very similar when we talk about Vacuum Technique, in the sense that also to if we saw a very positive impact initially by the fact that we were able to output so much more over the quarters. But on the other hand, I mean the growth rates for V vacuum Technique are quite spectacular. And that, of course, puts an enormous amount of strain on the supply chain for this particular business area. Including, of course, the interesting fact that they are basically in the sense that they need to produce more products in order to feed the semiconductor industry, which in turn need to display chips so that they can make their products. So I think the supply chain issues and which is offsetting the volume mix price in the days is definitely the defining factors. Also, there are some additional investments, but compared to the other 2 elements, they are .

[James Moore:]

Thank you so much.

[Mats Rahmström:]

On the capacity, James, I don't think we have a specific number for you, but considering that they've been running flat out for quite some times, can become more efficient with the resources that they have of , but we also need a capacity being in school as we speak and in the coming quarters. But it's still difficult to get access to new machinery. And of course, we're trying to outsource some flying capacity outside our own group as well to see if we can increase the sales. As we will continue to fight the orders on hand on vacuum for quite some time. And , increase for our customers, but just to see that they continue to place big orders with us quarter after quarter. So I guess the -- we'd like to do even better. I'll probably do quite well compared to competition.

[James Moore:]

Very helpful. Thank you.

[Operator:]

Our next question comes from Lars Brorson with Barclays. Please go ahead.

[Lars Brorson:]

Hi, thanks. Good afternoon, Mats, Peter. And maybe just a quick follow-up on that. I wonder whether you are able to quantify -- I appreciate, Peter, there are some offsetting factors. We know the net number, we don't know the gross number. Whether you could be a bit specific around price cost mix and the positive tailwind in the fourth quarter. And then looking into 2022 more broadly, you're sitting at drop through in the 20's, it should be -- could be sort of double that. When might we see a return to more normalized drop through both this group, but more importantly for CT? And I wonder whether for CT, we should think of price cost and mix to be a tailwind in 2022. If we see sustained moderation in steal prices, might price cost tailwind further accelerate in CT prices tend to be sticky, but at the same time, I guess the revenue mix is shifting somewhat to match the bigger compressors, they have, bigger raw mat intensity, and arguably with some delayed raw mat headwinds there, but I wonder whether this is a follow-up, you can help us understand that dynamic a little bit better. Thank you.

[Peter Kinnart:]

Thanks for the question, Lars. But I don't think we can give much more detail on the underlying pyramid that's in the drop-through on something we tend to guide on more specifically. So I think that basically what we see is a good volume, mix, price improvement offset by the supply chain constraints in a nutshell. And as we said, we don't see the supply chain constraints going away very quickly. So I guess that's might continue for little while, even though we are improving quarter-by-quarter. At the same time, I think drop-through is, of course, I understand it's pretty much in focus, but we also know that it's something that can vary quite a lot over time. We have always referred to having a kind of average drops off 30%. But of course, that depends on so many different factors that you talked to really pinpoint what the drop-through will be going forward. But, of course, we are constantly focusing on trying to make sure that we get the most out of it. But for the moment, I think our main priority is to make sure that our customers are being served with profit that we can produce. And I think if that takes for the moment a little bit of extra cost, then I think we are willing to take it because we know that in the long term, these investments will give us a good start.

[Lars Brorson:]

Can I try my luck then with my main question, which is on PT, whether the -- can you quantify the pull forward of order and take into the fourth quarter from the first. And just to be clear on matters outlook -- excuse me -- should we therefore assume that the normally seasonally higher Q1 will not be the case this time around for PT. Thanks.

[Mats Rahmström:]

I mean, it's an unusual situation for us as well. We don't fully know when we cannot really guide. But as I understand that activity level is still fairly high in the U.S. We guide or so forth. So no, we do see this couple of orders, of course, those will not be repeated for those specific customers and was mainly America and then some European rental companies at the time. As you can see on high activity level procreate that Q3 will be deducted from what we expected in Q1.

[Lars Brorson:]

Understood. Thank you, both.

[Operator:]

Our next question comes from Andrew Wilson with JPMorgan. Please go ahead.

[Andrew Wilson:]

Hi, thanks for taking my question. Actually, I wanted to ask about the additional dividends and kind of the full process in terms of capital allocation. So with having paid to appreciate the balance sheet is still very strong. Just how we should we read into the, I guess, the potential M&L opportunities in 2022, given that you've obviously chosen to return to . Does that tell us anything about the pipeline or maybe prices in that pipeline or maybe the appetite for the group given the number of deals and in 2021, or should we really just take the additional dividends as exactly that and no change to how to think about the potential for M&A in 2022?

[Mats Rahmström:]

On the activity level, of course, with the ambition to grow 8% per year, we put that extra pressure on ourselves on the organic growth and you can see that over the last few years, we have increased our R&D to secure what I think is they've tried organic growth. And you can see CT, you can see in IT, in PT in VT it is a fair pretty trying to make sure that you have that might give us I don't know. We hope to give 3, 4% or little bit more. And of course, I'm compliment on the acquisitions. Last year, we did approximately 17, I think. We chartered 2.2 billion. And, of course, we need to and we have this discussion for a number of years about how we accelerate. We have more teams dedicated to review the acquisitions out there and the possibility of having mind and we always look at the value creation for what we do. So we just don't run away and do things, but yes, we have increased activity. We're number yes on acquisition. And this is the balance that you can see that we have the firepower to do -- do things. And at the same time using just the dividend interests on the extra distribution that you can balance stuff in a good way. I don't know if Peter would like to add.

[Peter Kinnart:]

Right. I fully agree with that. I don't think there's anything to be read into the actual capital distribution in terms of how that reflects into the amount of acquisitions and the value of the acquisitions that we might or might not do. I think the Board has, of course, discussed this and has evaluated this and trying to strike the right balance. And based on the discussion they have had, they felt that this was a good balance with the 8 SEK per share capital distribution. And that was also still gives us sufficient firepower to do. The most acquisitions that are potentially on the radar. But again, when we do an acquisition, value creation is the first criteria that we look for. Not just adding more and more because of adding things.

[Andrew Wilson:]

Let's strike that. Thank you.

[Operator:]

Our next question comes from with . Please go ahead.

[Q –Unidentified Analyst:]

Hi, thanks for the time. Looking at the difference in cumulative orders and sales for VT, it looks like you've accumulated an order backfill in well excess of SEK 10 billion over the past two years or so. Can you please help us better understand how the pacing of the conversion of the backlog into sales will be perhaps in particularly in light of the challenging supply chain situation. Thank you.

[Peter Kinnart:]

Well, I think it's hard to really say exactly how the revenues will play out based on the order pipeline we have. The only thing we can say about the orders on hand is that we know it's a very healthy order portfolio. We do not have any so-called double ordering in there, just people to secure spot and then eventually decide not to order those products. All the orders up on there are for real programs that they actually need in the near or the middle term. The only thing we see is that given these extended lead times, that of course the orders -- that there's a bit more early ordering in order to secure a spot in the production planning. And then of course, as you see in the actual revenues for the respective quarters, this year so far we have been pushing extremely hard to We give a lot of credit to the teams in Vacuum Technique who are really doing a tremendous job given these very difficult circumstances with supply chain to push out as much as they actually have done. And I think we will continue of course, this efforts and we hold that we will see over time a gradual relaxation, but it's hard to see when that will actually happen in 2022.

[Unidentified Analyst:]

Thank you. Perhaps just quickly, can you quantify how big the put forward has been?

[Peter Kinnart:]

No, not exactly.

[Unidentified Analyst:]

Thank you.

[Peter Kinnart:]

Because the customer doesn't tell us that he pre -orders when he orders so it is very hard to really put the finger on that number.

[Unidentified Analyst:]

Understood.

[Operator:]

Our next question comes from Klas Bergelind with Citi. Please go ahead.

[Klas Bergelind:]

Thank you. Hi, I'm Martin from Citi. My question is on the price increases across the different divisions and I'm thinking about the drop-through here. I think -- maybe I'm wrong here, but I think it's a bit easier for you to push through clients increasing CT versus VT. You have more customer concentration in the VT than in CT, big single customers with strong pricing power. So what the weak drop-through in VT because of slower price growth than what you had expected, or is it completely a cost and efficiency problem? Thank you.

[Mats Rahmström:]

You're right with your conclusions. I mean, you can say that the long lead time have been outflow just not this round because of corporate closed and you have a committed price level to some of these bigger customers. And then on during the lead time, of course, you count and like the price increases. And that makes it, of course, more difficult for us to handle pricing that compared to Citi as you compare with them. It's still so tough than we see the improved gross margin. It is new products. It is when we see the innovation. But in this case, if I would balance the adjustments versus pricing, I would say that the pricing is less of an issue versus the adjustment. It's more the adjustments that you look into. Let's say that you're going to manufacture 100 pounds. You hire 20 people to do that and suddenly you don't have the components for but you still have the workforce . That's one issue that we have a work capacity one day and the next day we have only capacity, that mean we're trying to catch up. And then we go to spot markets. I mean the priority for us is shorter than the commitment from our customers, so we're buying electronics on the spot market, and that is also quite significant pricing . So I think they handled the pricing better. And we're looking at just how we can handle that, correct -- but your statements are correct.

[Klas Bergelind:]

Thank you.

[Operator:]

Our next question comes from Daniela Costa with Goldman Sachs. Please go ahead.

[Daniela Costa:]

Thank you. Good afternoon, thanks for taking my question. So my question relates to compressor technique and if you could, I guess when we look at 2021 organically were substantially sort of close to 15-20% above where we were in 2019 and I was wondering if you could help us understand how much of that is like an elevated point of the cycle for your clients in terms of their activity versus the sustainability angle that you were talking about that I guess there's another reason for the compressors maybe then beyond the cycle of activity of these costumers. And also, so how much of that has been contributed to growth in this period since '19. And then looking forward, I guess that's sustainability angle is probably becoming even stronger with higher energy prices and higher logistically prices in Europe, diminishing the payback. So, how much growth do you think this can add over and above your historical correlations with just industrial production and these investments? Thank you.

[Mats Rahmström:]

I thought with 2019, of course, but this was a tough benchmark for it, given they started the 2021 number. It is the support from Goldman to make things happen quicker recovery, and the recovery have been first in China than we've seen in other regions. We have seen it for all different products. Maybe the gas and process change a little bit later in the cycle, but we also see the development then. And as I said in the fourth course, we see it's both the small and the big industrial compressors, gas intrusive. So it's actually after demand has changed versus 2019. It's correct that we believe that although we don't comment to our exact market shares, but we are quite happy with the development. But that doesn't make the difference between 2019 and 2022. So it's the demand competition that also do fine. In terms of efficiency, I think it's a very good position to be in right now when the sustainability comes into play. We have always discussed, of course, the payback on competitors, on vacuum equipment and on the generate portable compressors in terms of energy use and that has been 1 sales pitch. But as society is moving towards more environment, I'm sure that us and competitors that can offer the most energy efficient products, we'd be in a much stronger position. How many orders that give, we don't know but we are quite active to train ourselves and train our customers, especially the customers that have less interest in this. Some of the major operations in the world they actually come to us with the request in terms of sustainability of how we handle and how we can help. So I see Atlas being in better and better position not only to talk about the financial payback, but also the how we can help, so I cannot quantify better than that.

[Daniela Costa:]

Thank you.

[Operator:]

Our next question comes from Guillermo Peigneux with UBS. Please go ahead.

[Guillermo Peigneux:]

Hi, Mats and Peter. Hi, Daniel. Thank you for taking my question. I guess is referring to previous question as well. I think precisely on VT, you commented on the pull-forward of seasonally high Q1 demand into this quarter because of the supply chain constraints and so on. But then you give the outlook, the same for all the units with demand to remain high levels to the VT as we see it. So are you seeing the same level of activity in the division into Q1 as well? Are you basically, there is not a pull-forward really, but sustained demand into the next quarter. Thank you.

[Mats Rahmström:]

I mean, it’s obvious semi and . I'm happy to say the industrial real is doing in service, but it's still semi that this outperforming in relative growth. So to be able to match to 11 billion that they have had 2 quarters that I cannot confirm, and I don't know, and it's still 20 key customers, fast high activity levels, yes. Among our customers to get supplies, to make sure that they get supply in the future well. And we cannot look at the semi just for a quarter or 2 and the market views for the products, it's beneficial for this industry, which is high activity level but we are in it for the long run and we continue now to invest in those innovations, but also manufacturing capacity to meet this demand. But I cannot confirm exactly how -- when we look back, and the reason for that is also that they don't know either as we have seen recent activity level being high.

[Guillermo Peigneux:]

Thank you.

[Mats Rahmström:]

You're welcome, Guillermo.

[Operator:]

Our next question comes from Max Yates with Credit Suisse. Please go ahead.

[Max Yates:]

Thank you very much. Could you -- I was wondering if you could give us a feel for within V vacuum Technique, how the industrial vacuum business has grown, and a relative to the semiconductors. I mean, would it be fair to say that the industrial vacuum has shown us sort of similar growth rate to compressor orders this year, or are we still seeing this dynamic of have you benefiting from some kind of new product introductions further penetrating that market, meaning it's kind of continuing to outperform compressors. Yes, so just any color on the kind of the industrial vacuum within V vacuum Technique will be great.

[Mats Rahmström:]

I'm looking at my colleagues. But I think at the same time, so I look at my call but I believe it's like semi relative growing fastest. But then there is also a number of segment, what we call general vacuum like flat panels that are influenced by the success in . So I believe that the Industrial is growing faster than the Industrial Technique in CT in relative terms. So that in between and they get the support from the development in semi . So they are slightly correlated. That's kind of a gray area between semi and the industrial vacuum where they touch on each other’s applications. So for example, screens, TVs that is part of it be defined as Industrial Vacuum.

[Max Yates:]

Okay. That's helpful. I mean, is there anything you would doing on the Industrial vacuum side in terms of new products introduction? Because I know it was something you talked about a lot filling out product portfolios on that side a few years ago, but I was just wanted to understand whether there was anything kind of over and above the normal course of business that you're running compressors that you're doing that or where we should just consider kind of the betting end of the acquisitions that you made a few years ago, those largely done now? And when we think about that business as just a kind of normal, kind of well-run innovative Atlas business.

[Peter Kinnart:]

No we have these steps into the industrial business towards innovation level. Fourth quarter we saw that that's an opportunity. So we have pumped in some resources into that and introduced a number of new products. Every 1 of them introduced the successful on the market. So it's -- it's really driving the success on industrial and scientific vacuum. And as you say, complemented them with the products or geographical areas in terms of acquisitions. So we are playing on both this and the organic part with innovation is significant if we look at the product portfolio updates today.

[Max Yates:]

Great. Thank you.

[Operator:]

Our next question comes from Casey Cells with Morgan Stanley. Please go ahead.

[Casey Cells:]

Hi. Good afternoon. Thank you for taking my question. You gave some useful comments during the opening part of the presentation around sequential demand trends in some of your different end markets from your product line. I wonder if you could just walk us through by region, and particularly in Asia. What did you see through Q4 when you compare that to Q3? And how do you see that developing as we head into this year. Thanks.

[Mats Rahmström:]

Asia, I mean, it's performing well because it was 40% of our business, but sequentially, it was down, we have seen that trend. On the other side, actually, there are some seasonality in that as well. So I would -- before I make my judgment call on the development, I would include at least Q1 to see. Because if you look at our numbers for a few years, you can see that, specifically China, have been the slightly weaker in Q4. And sequentially, you're right, it was slightly down. And of course, this is one of the regions where we have the greater concerns about the COVID, and the policies stay around there. We have an excellent in Q4 where one region next to Beijing, whether they'll have the Olympics, they decided that everyone in the population should be tested, even though that we did not have any Corona cases in our operations, they still closed our factory for two days to make sure that everyone was tested, and of course, we are trying to protect ourselves as much as possible. But I think it will be tough, interesting to follow, but I think we should give ourselves Q1 as well to see what happens as it peaks up from sequentially.

[Casey Cells:]

Okay. Thank you.

[Mats Rahmström:]

Thank you. Casey.

[Operator:]

Our next question comes from Rizk Maidi with Jefferies. Please go ahead.

[Rizk Maidi:]

Yes. Hi, thank you for taking my question. Just a follow-up on your latest comments. And perhaps on the sick leave and the labor absenteeism. Maybe if you could help us assess whether you've seen any impact from Omicron in the month of December and early January. You mentioned the example of China, but was there anything else that we should be aware of. Thanks.

[Mats Rahmström:]

I don't know if I have a number, but of course I heard that weekly has increased. I'm looking at my colleague if they have a number to share with you, we don't -- but yes, and I don't know how much of an impact it has had, it also depends on the availability or components, of course, at the same time, that's the number of kind of interest for the output. But I guess we mirror society, in large. So I think you can apply the same for the people working for us in a specific region protector people privately. We have a very protective environment in our factories. But of course, everyone has spare time as well.

[Rizk Maidi:]

Understood. And then perhaps, I'll be just squeeze in one follow-up is, how much more do you think you could have invoiced in Q4 if you didn't have any supply chain constraints? My understanding is that it's getting smaller, I think versus Q3. Any help there would be helpful.

[Mats Rahmström:]

We don't know. But I think the situation is a little bit like you have a glass of order and you've been running in that 80%, and for the last few quarters, you have filled that up to 100%, and then you go looking for other areas and you needing new glass. And in our case, the new glass is new machine, and normally 6 to 18 months delivery time to increase capacity, and then you try to find more capacity, of course, at your sub-suppliers and being first in line. We don't have a key performance indicator to say what could have been the max. Of course, if you go all the way down to each factor in operation, they would know, but it's nothing. The assuming of the economy to start the impacts our -- our output. But you can be rest assured that we are trying absolutely everything and have done through for quite some time to deliver the Q4. As you can see, it's not super easy to find that extra care right.

[Rizk Maidi:]

Thank you.

[Mats Rahmström:]

Thank you.

[Operator:]

As a reminder, if you do wish to answer a question

[Peter Kinnart:]

I just want to point out that we have you just a few minutes left for the call so please stick to one question at a time and we will try to deal with as many as we still can.

[Operator:]

Our next question comes from Sebastian Kuenne with RBC Capital. Please go ahead.

[Sebastian Kuenne:]

Good afternoon, gentlemen. Another question relating to VT. We have now 3 quarters of slightly softening margins. And that goes a little bit against the trend that we see from other peer companies. And I was wondering if maybe the currency has a bigger impact there than what we currently see. Could you explain to us how you hedge the orders that you get that they're now 6 months out from the big OEMs and that you have to deliver. Do you hedge these dollar orders straight away or how do you protect yourself. And what's the impact then for -- the currency effect in VT going forward. Thank you.

[Peter Kinnart:]

Looking at VT, the currency in effect over the quarter was slightly positive. So from that perspective, there is no big difference, I would assume with anybody else in the market in this context. We do some hedging, but generally not of Copco. We do not have a very aggressive hedging policy at all, quite on the contrary. So it's a matter of timing, ultimately of having the impact of the currency exchange rates. So we believe that usually the efforts to end the extensively to a lot of hedging activity is usually higher than the actual benefit that one might get.

[Sebastian Kuenne:]

Okay. So the sole orders you have in VT are basically open, leave them open to the market fluctuations.

[Peter Kinnart:]

To some extent at least, yes.

[Sebastian Kuenne:]

Thank you. Well-understood. Thank you very much.

[Operator:]

Our next question comes from Denise Molina with Morningstar. Please go ahead.

[Denise Molina:]

Thanks so much for taking the question. Just wanted to follow up on the -- Mats, you mentioned that there might be some additional capacity coming on in Vacuum Technique soon. I was just wondering what percentage increase that would represent of your current capacity. And also is this a new plant that's being both side or what form is that additional capacity coming in at.

[Mats Rahmström:]

We don't expect to share what we installed but we're trying our best to install the machines that we then ordered 12-18 months ago and get them up to speed and running. And of course to take some adjustments to get some installed and up and running so it's not just turning the key on so to say. And we need to install further capacity to make the orders around. So it's not like that they have a number machines waiting to be installed on than we are back on meeting the demand level in right now and I mean, if you look back a year then, of course, we were celebrating and having 6 billion quarter and certainly then we are trying to match down through almost two quarters that's 11 billion. We do have more free capacity in . And what I see in the group, but not to this extent, of course. And even then if we stop ordering to a new level. We still wouldn't have those machines in place yet. But some of them are coming into place, and little bit report accordingly and quarter-by-quarter to see how much we can get out on the revenue. Thank you. The last question, I think, and of course, strongly available for anyone that has a further questions on this clarification.

[Peter Kinnart:]

Yes, thank you very much. Thank you very much all of you for participating in the call and for all your questions, I hope we have been able to add little bit more colors to the results and the report that was published. Thank you very much. And if there's anything more, of course, you can reach out to our Investor Relations team. They will be more than happy to help you further. Thank you very much and have a nice day.

[Mats Rahmström:]

Thank you.