Atlas Copco AB
Q1 2022 Earnings Call Transcript

Published: 26 Apr 2022

[Operator:]

Ladies and gentlemen, welcome to the Atlas Copco Audiocast Teleconference Q1 2022. For the first part of this call, all participants will be in listen-only mode listen only mode and afterwards, there'll be a question-and-answer session. Today I'm pleased to present CEO, Mats Rahmström, CFO, Peter Kinnart. Speakers, please begin.

[Peter Kinnart:]

Thank you very much. Good morning, good afternoon, good evening. Welcome to all of you attending this call. Atlas Copco Group Q1 earnings call. Before we start and I hand over toward to Mats Rahmström. I would like to already now ask you to when the question sessions starts, that you will only ask one question at a time. So that everybody has an opportunity to bring a question to our attention. And considering the fact that we also will have the Annual General Meeting for shareholders today, we are on a tight schedule. So we will give - strictly to the time for this call. With that, we can conclude the introduction and I hand over to Mats.

[Mats Rahmström:]

Thank you, Peter. I think it's appropriate that I say a few words about Ukraine and Russia before we start. And we have during the quarter focused on the safety for our 41 employees. And we stay in daily contact with them. And we had also offered employment outside Ukraine. And that is, of course, mainly then valid for females, is now between 18 to 60, they are not allowed to leave. We have also arranged with direct donations and financial support to ease their situation further. And in Russia, as previously reported, Atlas Copco in Russia has between 2014 and January 2022. So the equipment and service to four companies, where we can't guarantee purely civil application. To give a summary of what we noticed so far, the majority of the sales force related to service, the equipments so our standard product and have not been modified or specifically tailored. However, the group's guidelines and policies have not been followed, since they cannot guarantee purely stable applications. They have been in contact with ISP in Sweden, Inspectorate for strategic products and informed authorities in Belgium. We have reminded all our employees about the importance of following internal guidelines and policies. They have also changed the screening process away from Russia and strengthened the process. So we try to make sure this is not repeated. We have also initiated a thorough investigation together with external partners, looking into auto sales in Russia between 2014 and 2022. And as you can understand this is fairly complicated. And they have not finalized the investigation yet. This far, we have found very few cases, but it's not sufficient documentation to completely determine the customer's application. Trade compliance is prioritized in the group, we will continue to assess the results of the investigation and cooperate with relevant authorities. To take this very seriously, we are determined to make sure we follow the rules the regulations going forward. And then I will start with the report. And that's slide number two, just quote Q1 in brief. And we had fantastic orders received 40 billion and 23% organic growth and Compressor Technique 20% growth and that was a record. Vacuum Technique at 20% growth, and that was also record. Industrial Technique 11% growth and that was also record and Power Technique was fantastic, 55%. And, of course that's also record for us. And this is versus a quite strong quarter last year as well. Looking at the regions, we can see double-digit growth in both regions. Service, some challenges in service in outdoor, we can see that there shortages of chips. And there have been a lot of closures during the quarter and we are also suffering from the shortage of components and also COVID. Revenues, we came at 30 billion. Of course, we would like to do more. But considering the situation with 7% growth, we are quite pleased with the revenue as well. It is very unpredictable and challenging. In the beginning of the quarter, because the COVID spreading through Europe, and of course that – and now in Asia, especially in China. We're also challenged to handle the balance between components availability and the headcount. And we are buying components on the spot market and we are buying more air transport, we normally do and we are taking this course because our main focus is to focus on our customers to make sure that they can supply the best we can. And of course, I think you can see evidence in the orders received. With a healthy profitability, 6.7 billion, 22.4. And margin - and then adjusted margin when we take the long term incentive to at 21.7, that's also record for us. Go to the next slide, number three, Q1 financials, there if we can give you some attention down to the graph, and we came in orders received better than expected. And we had high expectations as you could see in the forward looking statement, but CT, Compressor Technique coming better than we expected, and of course, with Power Technique coming significantly better than we expected as well. The only thing I think, from the previous slides on this one is the cash flow. We can see a rather low cash flow. And that is mainly because we are building up inventory to handle the orders on hand and the high orders we received at the end. If you then to move slide number four, that should be the map. It's all green, double-digit growth in all regions. And I think it's quite an achievement to see that our product portfolio services is well accepted in all these regions. And we are quite pleased with having 40% of our sales in Asia is this where growth is happening, but also the balance between the regions. And during the last two years, we have started step-by-step to structure ourselves - to protect ourselves better from protectionist and COVID to shortening the lead times of our product and the value chains, we call it local for local and that's why we have invested quite heavily in our structure in the three power hubs, Asia, we focus in China, Europe, and North America, with a focus on the US and that is building in an insurance for us and building in agility enforces. On slide number five, you have the growth per quarter and we have six consecutive quarters now with the growth. And of course, you can see tougher comparisons in the coming quarters. Slide number six is the sales bridge. And you can also confirm, yes, the currency now at 9%, positive on orders received an 8 - on revenues and Peter will later guide you on the next quarter on the currency. And number seven, there you have the pie chart. And Compressor Technique, yeah, very interesting with 20%. We can see that industrial compressors big and small selling really well. What came out more as a surprise was a lot of decision in gas and process seems to be linked to compress and liquefied gases and expand on gases, more on link to sustainability, so very positive for them. And the Power Technique because the - the main part was the US rental companies buying capacity earlier than price increases and of course it's also seized on for rental companies, very positive for us that they trust us to be their supplier. Slide number eight, Compressor Technique. As I said 17 billion in orders received and strong growth industry being and small, yeah, was very positive, continue to be very solid, which is good for our mix in service. Revenue is substantially up 7% organically and 13 billion and very solid margin 23.8, supported by currency, but negatively affected by the supply chain constraints, with which I could repeat on all the business areas and very solid return on capital employed at 90%. Now Vacuum Technique, the last five quarters, looking at the graph, so quite a fantastic development. Another record down below 11.5 billion, 20% after orders received. Revenues 10% up, and they managed to build on the revenues quarter-by-quarter. And here you can see, of course that the operating margin is challenged. The supply chains as we discussed, but also some of the more long term customers, where pricing is not as easy to get through. Return on capital employed 25%. Slide number 10, Industrial Technique. They also come in with a record orders received. We can see the outlook linked to electrification. But there was also positive general industry development. It's also many applications leading to sustainability, it's inverters, its electronic, its batteries, its motors as an application there. And service is challenging in Industrial Technique due to the - they are lacking chips order manufacturing, so we see a lot of shutdowns. And then we don't have access to the plants and there is no rundown on the tool side. And they also have a challenge on the supply side, and it's mainly linked to electronics. Operating profit at 21%, EBITA at 23.5, also here supported by the currency. Power Technique, yeah, as we said, was surprisingly strong, a lot of orders, 6 billion US rental companies in main part of that buying capacity. They're buying before price increases. So you can say that they place order early. But they should have in mind also that we had quite a strong Q4 in 2021, and we were not sure how much was left there to offer the customers. Continue strong development on specialty rental and record revenues. And here you can see that it's also electronic, but also engines that is the most difficult part for the operation. And operating profit at 64 which is a record for them and strong margins at 17.9%. Innovation and maybe I should highlight. This is a typical application where in the past to use the diesel engine, and now that we introduced electrically engine here as well. So in line with what we do for sustainability for ourselves and also for our customers. Also interesting with the two, I believe spot on acquisition buying and LEWA that has been announced. Then we come to slide number 12, that summarize the group. And you can see that as a service and they give the EBITA 23.7 and operating profit margin at 22.4. And by that I hand over to Peter.

[Peter Kinnart:]

Thank you, Mats. Following the operating profit, we have, say stable net financial items. Small increase that we see there is mainly due to the one-time costs related to the fact that we bought back a bond and issued the new bond at a much better rate. Then we move to the tax, which was effective tax rate at 21.9%, which results at the level that we expect going forward throughout the rest of the year, aiming at about 22% for the full year. And as a result of all of the above, we have a profit for the period of 5.2 billion compared to 4.1 last year and increased by 27%, impacting the basic earnings per share positively going up to SEK4.28. Return on capital employed of 27%, which is largely increase driven by volume and return on equity of 30%. Going on to the next slide, adding a little bit more color on the profit bridge site, slide 13, where you can see a number of impacts on how the margin has developed. First of all, quite positive impacts from the share-based LTI programs, acquisitions being slightly dilutive. But quite a positive currency impact of 4.6%. And all other things remaining the same or currency rates remaining more or less the same, we would expect a similar currency impact going forward, basically the status quo. Then talking about - to talk a little bit, as Mats already indicated, I think there's a tremendous amount of headwinds, whether it is material cost increases, labor efficiency due to absences as a consequence of COVID inefficiencies due to lack of components in the factories, freight that is becoming more and more complicated. I think we have also noted that within our organization quite a lot of efficiencies have been achieved, but unfortunately, they are basically yeah, compensated by all these negative headwinds that we see. And so as a result, we have this talk to as it is. But I think despite of all these headwinds, I think we are then actually quite proud of the achievement. And I think, as Mats explained, we want to focus particularly on the customers and see this rather as an investment in the future that we will be able to harvest from later. And of course, meanwhile, we continue to work very hard with our entire organization across the different business areas to continue to work on price, and we do see positive impacts from price activities across the different business areas. So overall, as I said, quite happy with the overall outcome. And if we then go to the next slide, we see a little bit more details for the different business areas. For Compressor Technique, we could say that the profitability level to drop through is on par with the current level. Think of Vacuum Technique is probably the business area that maybe sticks out a little bit more than the others. And of course, given the tremendous growth that we have seen across the last quarters and again in the first quarter of 2022, I think it's not really surprising that it is even more challenging from a supply chain perspective. On top of that, when we look at semi particularly, we see these long-term contracts where it is, of course, even more complicated with the key accounts to increase prices proactively as we do in the other business areas. So I think also there, overall, happy, but not satisfied, you could say. But I think proud on the achievement from our employees across Vacuum Technique and the other business areas. In Power Technique, I would probably highlight a very strong flow adopt to that we have witnessed over the quarters, not only a very solid order intake that was a complete blowout, but also a solid performance from a profitability point of view. Moving on to the next slide, which is on the balance sheet on slide number 15. Just highlighting a couple of main changes. First of all, on the balance sheet, the inventories, of course, sticking out with quite a substantial increase, and that is obviously related to the buildup of component stock that we want to have in order to make sure that we have components available when we are able to produce the products. We also see an impact on our sales stock, and that might be initially surprising at first, but customers are also sometimes pushing back deliveries because other products that they need before our products are also delayed, for example. And we also, of course, are confronted with products that are basically finished, missing one or two components and that outstanding sites to be reworked afterwards, and that adds also to the inventory situation. Receivables are also going up quite substantially. But if you look at it from a relative point of view compared to revenues, very much stable. And actually, we feel that our over dues are well under control, and the risk profile is actually going slightly down. And then, of course, on the asset side, the cash is also increasing quite substantially. Of course, we need to note that in the coming quarter, we will see the dividend for half of the dividend payments taking place, as well as the redemption, if that is finally blessed by the Annual General Meeting, obviously. And of course, also the acquisitions and LEWA, Geveke that will come to in the second quarter. On the liability side, the increase of the equity is, of course, related to the retained earnings increase. On the interesting - interest-bearing liabilities, the main reasons for the increase is related to the issue of a €500 million bond, which we bought back and then reissued at a much lower interest rate and that is the main reason for the increase there. On the non-interest-bearing liabilities, that the main reasons for the increase are the payables, which of all go very much hand-in-hand with the inventories going up. Also an increase in advanced payments, which is related to the orders received on particularly project business, where, of course, we are typically having multiple installments and where we get advanced payments from the customers. And finally, accrued expenses related to the execution of the project that we are able to invoice. So that’s explaining the development there. And then we move on to the cash flow. I think the first thing to highlight there definitely is the enormous operating cash surplus that we were able to generate over the first quarter of 8.1 billion. But then as we already indicated, the cash flow ends up being, of course, quite a bit softer, mostly due to the change in working capital, which is, of course, contributing a lot. And then this is basically by large, the inventories. And then the last point to highlight maybe on the cash flow for the first quarter is the investments in property, plant and equipment, where you see more than double impact on the cash flow than the same quarter last year. And that is due to the investments that we are doing currently, we have already indicated at earlier occasions that we have quarter after quarter even during COVID and 2021, decided on quite a number of substantial investments in capacity and that is now, of course, starting to affect the cash flow as well, in this case, particularly Vacuum Technique with large investments in the Korean factory, as well as in Qingdao in our Chinese factory. And then finally, as well some additional machinery investments that we decided for Compressor Technique over the last quarters. And that then gives us an overall result of SEK 2.4 billion, cash flow versus SEK 4.3 billion by the same - last year. And with that, we come to the end of the balance sheet and financial items. Then I would like to hand over back to Mats to talk a little bit more about the near-term outlook.

[Mats Rahmström:]

Thank you, Peter. That's slide 17. It's a near-term outlook where we're trying to judge the activity level along our customers down from Q1 to Q2. And it reads all of the work current economic developments, the outlook uncertain. And what we refer to here is, of course, the COVID situation. And I guess it could be a question anyway. In China, we have 10 manufacturing units of size. And if I take the average, yesterday, it might not be valid for today. As you understand, we are running at 75% capacity approximately, but our distribution centers are in the Shanghai region. So we are running closed loop in those issues, and it's only a capacity of 25%. So it will have an impact on. And as long as it is shut down in Shanghai, it will be difficult for us. And then, of course, we don't fully know how the Russian and Ukraine part. We have indicated that it's the Russian part is 1.5% of our revenues. So that might not be significant, but of course, it can have an impact on the European economies moving forward. And we don't see the light in the tunnel when it comes to components. I think I asked the question to four of the business areas, and I think they're all very - saying that we don't see that happening in this coming quarters that the continued challenge and us need to be better than competition. Underlying demand though, as you could see from orders received, although some pre-ordering, obvious you can see that it was spread throughout equipment and service also geographically. And we see that activity levels in terms of product is high. And that's why we also said that we believe that the activity level would continue, but maybe not then on the same level, as we have seen in the first quarter of the year.

[Peter Kinnart:]

Thank you, Mats. Then I'd like to hand over back to the operator to guide us in the questions. Thank you.

[Operator:]

Thank you. Our first question is from Andrew Wilson of JPMorgan. Please go ahead.

[Andrew Wilson:]

Hi, good afternoon. Thanks for taking my question. And I just wanted to ask, I think you made a comment on Power Techniques, specifically with regards to some pre-buying ahead of price increases and some, I guess, early ordering. Trying to get a broader comment on the group as a whole and thinking about the other business areas with regards to if you think you've seen significant pre-buying in those businesses as well? And if that plays any - I guess, any role in the comment around not necessarily repeating the Q1 orders in the near term, and despite obviously, market demand still being very strong?

[Mats Rahmström:]

In terms of pre-ordering, it's also difficult for us to judge, of course, what is pre-ordering and what is not. But as situation is with inflation right now, there is, of course, quite frequent announcement of price increases in all our business areas. In Power Technique, specifically, then there was a very strong Q4 already. We can see that and that we don't normally see. And then, of course, the high demand that we have seen now. So we believe it will be a softer Q2 for Power Technique.

[Andrew Wilson:]

And so - yeah, sorry, just in the businesses? Thank you.

[Mats Rahmström:]

When we look at how solid the orders are in the other business side, I would say that project business is seeing Compressor Technique, seems to be very solid. And I think some of them have, as I indicated, in gas and process that actually taken decision earlier than we expected. And in the bigger oil-free machines that project business, the gas and process, we think it's - we know the projects. We know what it's for, and we haven't seen any cancellations. And we have not seen any delay in those orders. They're still pushing us forward. The delays we see sometimes as Peter mentioned that someone else has not delivered. Where we see a risk of course, if we see a softer market in Compressor Technique would be in industrial with a smaller compressor, which is also distributed through distributors around the world, and of course, they place bigger orders than normally. And that would be maybe the first step that you see that we have not seen that either. In Vacuum semi, same thing they're trying to buy into capacity because you can see we don't have enough capacity reorders as well. And in industrial, I don't see any preordering. We don't have so much distribution there, either an Industrial Technique out of tradition that it's linked to project business in auto. And I don't see a big risk either. So I think that's the best we can give at this point.

[Andrew Wilson:]

That's very helpful. Thank you.

[Operator:]

Thank you. Our next question is from Daniela Costa of Goldman Sachs. Please go ahead.

[Daniela Costa:]

Hi, good afternoon. Thanks for taking my question. I'll stick to one. I wanted to get some color on like when you think about your guidance basically for the Q2, which is sequentially slower than 1Q, are you basing that sort of on some data points that you're seeing it already? And can you talk us like through that? Or is it still largely based into just your macro expectations? And I guess, related to that, sorry to add this, but you talked a lot about customers delaying because they don't have components. But is there a risk of demand disruption that you might perhaps start to see with some of the projects that your customers are getting sort of their IRRs not making sense given all the cost inflation going on. Any thoughts on those would be extremely helpful? Thank you.

[Mats Rahmström:]

Yeah. I mean, if we start with the quarter as such, yes, looking at the graph, of course, you can see the deviation. And we also said a couple of times on the call that it was quite a bit our own expectation. And we don't think that will be repeated, but we might be wrong again, of course. And then I lost out on your - you wanted color on, sorry…

[Daniela Costa:]

No, on your customers, when you said earlier that basically some customers, they were delaying, I guess, the deliveries because they didn't have something in the system. But I guess the other question we're getting frequently is demand destruction because of high prices everywhere else, not just on your equipment, obviously. But if you're seeing any signs that your clients are maybe rethinking the underlying projects that they're using their equipment on because the return on those investments stops to make sense?

[Mats Rahmström:]

No, we haven't seen that. It's been the other way around in Q1, of course. And we haven't seen that early on in April either even though we don't guide on that. But so far, it's been very solid in the industries that we operate in. That said, we don't know how some of these noble things that I just mentioned.

[Daniela Costa:]

Got it. Thank you very much.

[Operator:]

Thank you. Our next question is from James Moore of Redburn. Please go ahead.

[James Moore:]

Yes, good afternoon, everyone. My question is around the Vacuum margin and the 220 bps drop and the low drop through and Peter, thank you for mentioning the supply chain and the large customer pricing dynamics. I just wondered if you could break down the organic drop through a bit qualitatively. Firstly, on price realization. Any way you could help us quantify what percentage price realization you got in the quarter, but what you would have had to get to be net price cost neutral? And secondly, within this, can you say what's impacting on the cost side? Is that a particular suite of components, semis or enable maps And finally, on mix, could you say across the divisions, which really saw the biggest drop, I must drop in margin. I'm assuming - am I correct to assume it's the semi OE unit that's really the principal driver of this?

[Peter Kinnart:]

Thank you, James for your question. No, I think I think for price, of course, as always very, very difficult to give a very exact number because what we try to measure is like-for-like products. But then you have, of course, a lot of project business, you have a lot of products that are not really have a comparable alternative to do the calculation against. So it is more of an indication that we try to get across the VA What we do see is that Vacuum Technique continues to be much more difficult in general to push up price levels given the long-term contracts, particularly with the key accounts. And that has not fundamentally changed. But we do see overall gross Vacuum Technique as well, but a better price increase throughout the quarters than in earlier quarters. But then on the contrary, that is then again met by even further price increases. We see the inflationary tendencies, whether it is labor cost in a number of markets, whether it is component cost that is going up quite substantially. Spot market buying, of course, is adding to it. And of course, when it comes to spot market buying or buying in general, particularly if it's about the microchips, for example, if at a certain point, we can get hold of a batch of microchips that might cover 2-year demand, we will, at this point, the question for the suppliers, they take it or don't you take it? And then I think we just decided to take it. Well, almost whatever the cost may be because we just needed to produce the product and delivered to our customers and live up to our commitments. And that for us is the main focus still. And of course, COVID adds even more complexity within our own operations. I mean we have the manpower to use significantly more. But as we have not all components available, that becomes rather inefficient. You see the same effect happening in our supply chain where also our suppliers are affected by COVID outbreaks. And then as a result of that, of course, they can't supply or they can supply even less than what we had hoped for. And then to top it all off, you could say maybe we have Ukraine, Russia, where, of course, the number of commodities, not necessarily commodity that we buy directly because we have very little impact from the supply chain directly. But of course, indirectly, there is an impact from raw materials, whether it's big iron used in foundries, for example, or other type of materials that are used somewhere throughout the value chain, ultimately, further affecting the supply chain complexity and, of course, driving costs also further up. So I think that's a little bit the picture we see. And I would say, in Vacuum Technique, again, it is the most complex because of the fact that the growth level that we have seen over the last 4, 5 quarters is, of course, not mentioning our technique in this particular quarter, of course, but otherwise, it has been outperforming all the other business areas quarter after quarter in terms of organic growth. So I think that makes the challenge for them even more complicated than for others, I would say.

[James Moore:]

Thank you, Peter. Thank you very much.

[Peter Kinnart:]

You're welcome, James.

[Operator:]

Thank you. Our next question is from Lars Brorson of Barclays. Please go ahead.

[Lars Brorson:]

Thanks. Hi, Mats, Peter. Can I follow up, please, on VT and then ask a question on PC, sorry for the two. But just on the longer term picture for BT, Pete, notwithstanding the recent investments in Korea and in Qingdao, how you think about longer term need for capacity investments? I mean the semi-VT business, I guess, has historically targeted sort of 70%, 75% utilization levels to maintain some flexibility on key accounts. And I guess had it not been for the supply chain constraints and the extended lead times, you'll probably be running close to 100%. So how to think about the possibility of further capacity investments coming during the course of this year within VT. I'll start there. Thank you.

[Mats Rahmström:]

Yeah. Well, I think definitely correct analysis. If today, we had all the components available, the capacity would simply not be there to fully deliver on all of these orders. But I think we were satisfied to see that during 2020 when COVID started, in 2021, we continue to invest in capacity with competitive approvals by our Board of additional capacity investments in Vacuum Technique. And that's what you see coming through now in the cash flow as well and in the balance sheet, of course, with very significant investments kicking in, in Korea, particularly and in China and Qingdao but also in the U.S. as well as in Europe. And all of these investments are gradually coming online across Q2, Q3 2022 and further into 2023, even 2024. So from that perspective, as over time, hopefully, the supply chain will get somehow more under control or more availability will be there for the components, we should be able to deliver gradually on the - on the demand that we have seen from our customers. So will we do even further investments? Well, that remains to be seen in the coming quarters. But currently, we are very happy that we have taken those decisions in the past and that we see the capacity coming online step by step.

[Peter Kinnart:]

Lars, that - what you see right now is the investment in Asia and also that we have decided that we want to be the number one supplier in Americas as well. I don't have any numbers or exactly how it will look like, but that we have ahead of us. And I think it's 4 or 5 semi plants being built in the U.S. and they're quite determined to be the number one supplier.

[Lars Brorson:]

Understood. Nice. Thank you. Can I squeeze one in quickly on PT. There I say the problem child historically, albeit with some very bright kids in the Atlas family. The organic drop-through in the 50s is really quite impressive. Is that sustainable? It's still a bit unclear to me how much mix impact margins in any one quarter in PT? And then, of course, quite a step-up in M&A activity this quarter. You flagged that, I think, 4, 5 years ago, but it's been fairly quiet until now. Are we on the cusp or are we now starting to see a bigger M&A push in PT? Thank you.

[Peter Kinnart:]

I start with the M&A question. So we've been looking for this type of product at Wangen the industrialized pump application, I believe it's very close to home for us, but the pump itself is an important part of the process. And as you know that depending on you actually - what kind of fluid you have, the dirtier the more nasty it is, the more service it is. So we prefer these types. We're not getting into water or anything in the industrial applications. Now we have delivered on some of the synergies. But I foresee that over time in the coming years, we will continue to scan the market for the companies that has leading technology that we can take advantage of and sell throughout the world. So it's the start of a new growth platform for PT.

[Mats Rahmström:]

And then maybe I can add on to the question with regard to the top through it. I think it's fair to say that rental service - rental service, specialty rental has seen a very solid development across the quarter. And of course, that contributes from a mix point of view, positively to this drop through. Whether that will be sustainable, will need to be seen a bit. We have, of course, taken very substantial orders from an equipment point of view over the last two quarters in the rental business. And even though we feel that we have been able to do a very good job from a pricing perspective there. The equipment business is, of course, typically a bit softer when it comes to the margins, and that would then probably impact the mix again. So whether this is sustainable that I think we will need to be seen in the coming quarters as the orders for the equipment will be delivered to our customers and will turn into revenues.

[Peter Kinnart:]

We proved in the report as well that the success also came out of flow and portable. And in terms of mix, it's - the rental is more interesting when it comes to mix. So I think we need to have that in the picture.

[Lars Brorson:]

Thank you.

[Operator:]

Thank you. Our next question is from Katie Self of Morgan Stanley. Please go ahead.

[Katie Self:]

Hi, thank you for taking my question. I just got one again in VT and looking at the semis order development in particular. It looks like it's being driven mainly from a pickup in sort of Europe and North America and sort of completing with a bit of a slowdown in China. So just interested, is that just base effects that's driving that? Are you seeing more of an underlying pickup in demand in Europe and North America? Thanks.

[Peter Kinnart:]

I think Asia defined the main contributor in Asia is China and South Korea. As I recall it, I think China has been quite solid for many quarters. And then, of course, we have seen some big investments in Europe. We have also heard the European Commissioner talking about the semi importance for Europe as we have seen in North America as well. But we're also going up against very, very strong quarters in the past, but China, strong in Asia, and that has continued.

[Katie Self:]

Thanks.

[Operator:]

Thank you. Our next question is from Rizk Maidi of Jefferies. Please go ahead.

[Rizk Maidi:]

Yes. Hi, thanks for taking my question. The question is on VT. So obviously, SEK 8 billion in revs, 11.5 million roughly in orders. The question is really how do you see the revenue or invoicing over the coming quarters? Do you see this number crossing 9.5 billion to 10 billion level in spite of the capacity constraints that you're seeing? And what is the biggest issue here? Is it the capacity constraints or more what's happening on the supply chain? Thanks.

[Mats Rahmström:]

We don't guide on revenue, as you know. But in the vacuum case to give a little bit of color, we have built up capacity as you can see, as Peter described a little bit in Asia, and that is coming online step-by-step. The major challenge for us is to get the supply base up to speed and deliver components as well. So I think the number one challenge is with the suppliers and it's a variety of components. It's not just one. It could be as simple as a connector. But if you have the number one thing, it's still electronics.

[Rizk Maidi:]

Okay. Thank you.

[Mats Rahmström:]

You're welcome.

[Operator:]

Thank you. Our next question is from Guillermo Peigneux of UBS. Please go ahead.

[Guillermo Peigneux:]

Good afternoon. And thank you for taking my question. Simple one, and maybe I would appreciate color on the different divisions. But for the new orders that you are putting in the backlog, what is the average lead time that you expect to be having in order to - for you to deliver to your customers, if I may? Thank you.

[Peter Kinnart:]

It's - there is no average from a small piston compressor two big projects, of course. And not everything orders on hand is delayed. It's a lot of projects as well, but there is significant longer lead times than we have had in the past. And I will that goes throughout the business areas. I mean, we have it in Industrial Technique, for sure. In PT, I'm sure with the engine supply limit that. And in VT, as I said, is electronics, and there, of course, with the huge orders. And if you compare it on VT, if you compare with 2019, and that we said that we have extra capacity at that time, and now we are well above that level. So of course, everything is a struggle above that and then Compressor Technique. I'm looking at my specialist here on CT, but now I also think that there the lead times are increasing for the smaller, medium-sized type of products. The projects, again, is as Mats mentioned, but there is say, a limited availability of many different components. Electronics is one, but it can be a fan that is not available for different reasons. So I think - so their lead times have been increasing substantially compared to normal delivery times under normal circumstances.

[Guillermo Peigneux:]

Thank you. If I may risk, is it kind of double the time that you normally delivered on average? I think I calculated roughly speaking, two quarters. Is it more like the moment it seems like you will be delivering four. Obviously, it's all built on assumptions. But is that number something fair?

[Peter Kinnart:]

I mean I don't follow the lead times on the corporate level for the group. So do you have more information than we do than, if you have managed to calculate average lead line for the group. Was that the question, Guillermo?

[Guillermo Peigneux:]

Thank you. Yeah, was the question. Thank you.

[Peter Kinnart:]

Okay.

[Mats Rahmström:]

Sorry.

[Peter Kinnart:]

Okay. Thank you, Guillermo.

[Operator:]

Thank you. There are no further questions at this time. So I'll hand back over to our speaker.

[Mats Rahmström:]

So yeah, I think there are no further questions at this moment in the queue. Given the fact that we are preparing ourselves for the Annual General Meeting taking place as well. You would then hereby want to close the call. And thank you all for dialing in and for your questions and attention to this earnings call for Atlas Copco for the first quarter. Thank you very much.

[Peter Kinnart:]

Thank you.

[Mats Rahmström:]

Bye-bye.