Atlas Copco AB

STO:ATCO A

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, welcome to the Atlas Copco Q1 2021 report. [Operator Instructions] Today, I'm pleased to present CEO, Mats Rahmström; and CFO, Hans Ola Meyer. Please begin your meeting.

[Hans Ola Meyer, Senior VP & CFO]

Thank you, and very welcome, everybody, to this first quarter conference call from Atlas Copco. We will spend the first 20, 25 minutes, something like that, with some comments from Mats Rahmström, our CEO, and then we will take Q&A. And we'll try to be ready within an hour approximately.Without anything more then for me to say, please, Mats take it from here.

[Mats Rahmström, President, CEO & Director]

Okay. Thank you, Hans Ola. We will start on Slide #2, which is, of course, Q1 in brief. And order intake, we are very happy with SEK 30 billion and 18% organic growth. It came in better than we expected, and this is also versus a strong quarter last year. A number of things in the strategy that we -- that's working for us right now. We can see new product selling very well, at least some of the segments that we are focusing on doing well as well. Our local strategy in Asia, China is also benefiting, but we should not forget that there has been a pent-up demand, of course, of products.Invoicing, SEK 26 billion, up 13% organically. Of course, we see challenges in logistics, COVID and some components. So we assess that as a good result for the quarter. Operating margin at 20.7%, which is what we have reported. And if we adjust for the long-term incentive plan, it's 21.7%.Move to Slide #3, which summarizes exactly what I've just said. But if you look at the graph, you can see first time then that we are on a SEK 30 billion level, which is very good. And it's a confirmation from our customers, I think, that we have good products presented by good people and good service solutions. So very, very happy about that. Return on capital employed from last year, 29%; it's down to 23% this quarter. And if you had a bridge on that, it would be minus 4% on dilution from acquisitions and approximately 2% mainly being currency and then positive percent for the volume.Take Slide #4, and which is a geographic map. We had growth throughout the world, both for equipment and service. Very positive to see that. Maybe the highlight is still that we have almost 40% of our sales in Asia. We're getting good traction though for all our business areas. We have double-digit growth in all business areas in the region. And then 34% for the group.Slide 5 confirms the 18% organic growth. And if you take Slide 6, we have the bridge on orders and revenue. The structural changes on orders, and it's impacted by the ISRA acquisition and the perception of some of the CT distributors. And then you can see that we still have quite a lot of headwind in terms of currency. And Hans Ola will elaborate a little bit on that later on, and then 18% and 13%.If you take Slide #7, this is the pie chart with the different business areas. And of course, extremely good Vacuum Technique with strong order intake from the semi industry, but also Industrial Vacuum and scientific vacuum too had quite good sales. And you can see Compressor Technique up 13% organically, considering that being 46% for the group. I'm very pleased with that. Industrial Technique also got more orders, more activity in the auto sector, especially electric vehicles and battery manufacturing.And Power Technique, after a number of quarters, now we can see some of the [ rental ] company have started to invest again, and we see positive on that as well. And comment by business area, which is part of Slide #8, which is Compressor Technique. As I mentioned then, 13% organic growth in all areas. And principally, gas and process, although we see more activity, we cannot beat last year on that one. Considering the strong position for service, we continued to develop the service offered to our customers and you can see strong growth as well and an outstanding profit margin of 23.7%, considering the headwind from currency. And if you look at the bars, it very much looks like a record on orders received as well.Vacuum Technique then on Slide #9. And here, also happy to say record orders, record revenues and record operating margin. Of course, I think everyone could expect strong semi, but really confirms our strong product portfolio for the industry and the readiness we have to accept these orders. So very well done by the organization and really picking up on the big volumes. And of course, if you look at the graph, it almost looks like we've done something wrong, but very strong there. And then to follow-up with strong operating margin, 24.9% [indiscernible] the currency working against us.Industrial Technique on Slide 10 then. You can see that it dropped off quite significant in Q2 2020 and then step-by-step, each quarter it has been better and better. Now you have ISRA in this, still strong organic growth of 13%. And also, we now can see that we can get more business out of the general industry market as well. And they also continued the increased growth for service. Operating margin, 19.5%. And as you see later on, we are helped here with the EBITA, taking away the intangibles from acquisitions, and that will lead to 22.5%, which is in par with the pre-COVID, pre-ISRA level, and that is something that we are proud of.Power Technique on Slide 11. And as I said before, more activities here. We do very well with the portable compressors and service. Specialty rental, flattish. And I would say, Europe and Middle East that is not helping us to improve that number. And revenue's up 5% and operating margin 15.3%, considering that invoicing was up 5%, and they've done a good job with the cost management there.And then on Slide 12. I think this is a good timing to hand over to you, Hans Ola.

[Hans Ola Meyer, Senior VP & CFO]

Yes. Okay. Thank you, Mats. We have, as you have seen in the report, and as Mats has already said, we have included also an extra line in the income statement this time, and we will continue to do that just to give a little bit of comparison of the EBITA, I mean, the operating profit before amortization of intangibles from acquisitions. So it's not a perfectly clean EBITA, so that's why you can see the definition on the slide.We've talked about most of the things. The net financials is starting to become, I would almost use insignificant amounts in relation to the total turnover and profitability of the group. And that, of course, reflects the continuous development of the interest rate that had helped us. But it's also fair to say that last year had much more of financial exchange differences. So that's -- since that could not repeat itself [indiscernible]On income tax, we normally comment, 22.9% is slightly better than last year, slightly lower than last year. And I would say that the estimate going forward would probably be in the range of 22% to 23%, something of that nature. And on the return on capital employed, yes, Mats have already commented on that. So I don't need to repeat that.If we turn to the next slide, the profit bridge. Here, of course, you can summarize it by looking from the right, of course, which is last year, to the left, which is this year, quite big numbers in the various columns. And primarily, in currency, first of all, you can see that there is a very negative number, but also the impact on the margin is quite significant. From this SEK 1.065 billion negative compared to the same quarter last year. Already there, we should say that, of course, it's very negative partly -- first of all because we have currency ratios between the dollar and the euro and the dollar and other currencies that have worked against us.But we also have the strengthening of the Swedish krona compared to last year, which, of course, affects the translation of all profits that we make in other currencies than in Swedish krona. So that's why the number in itself was even above SEK 1 billion, as you can see here. So that was a very negative, and I could highlight for you that the U.S. dollar, for example, was 13% lower ratio than last year, euro 5%, but we also have some other important currencies in Atlas Copco, like the Russian ruble, the Brazilian real and the Turkish lira, just to pick on a few, and they were between 20% and 30% depreciated against the Swedish krona. So that's why the currency impact is very negative in this quarter.If I try to look ahead, like we normally do, it would -- it will continue to be negative if we do the same comparison quarter 2 to quarter 2 2020. But it's also important to remind everybody that, that is only because of the comparison with last year. The effective currency rates that we have in the result in Q1 is expected to be the same. I mean, it's not that we add the negative going into Q2. These numbers are at actual Q1 rates. So just to point that out.The other column is, of course, the most interesting one where volume, price, mix and other effects, i.e., the organic effect is very positive on the other side. So volume contribute. We have more underlying volume. But it's also fair to say that in all business areas, we still enjoy the cost containment measures during the COVID quarters, if I call them like that, is, of course, to a certain extent, still there. And now as the orders and revenues are starting to grow back as they did in Q1, we expect also to add more cost, of course.I think that I'll leave it with that. And then if we take the next one, well, it's very similar comments, actually, even if you look business area by business area. Negative currency impact and the positive volume price mix and other impact. If you compare the revenue addition to the operating profit addition, you can see a very significant positive so-called flow through in this quarter. Not surprisingly, when you go from a subdued market environment to a much better growth environment, and that's what we have seen in Q1, of course.I move on to the balance sheet. Yes, I don't have so much to comment. Perhaps if you look at December 31 as the previous quarter, there is quite a significant addition of SEK 10 billion, but about half of that is coming from pure translation effect of the Swedish krona so -- while the rest is primarily made up of new cash generated in the quarter. I think I'll stop there and go to the next page, which is #16 that deals with cash flow.We increased the cash -- the operating cash flow from SEK 3.8 billion to SEK 4.3 billion. And in very rough summary, you can say that the effect is better profit somewhat and slightly lower investments. If you put that all together, we are having also, to a certain extent, also more working capital buildup this year compared to last year. And that sums up to this SEK 0.5 billion better operating cash flow roughly.So with that, I think I hand it back to you, Mats, for the final slide before the Q&A.

[Mats Rahmström, President, CEO & Director]

Yes. So the near-term outlook. And here we are trying to give you a comparison between Q1 versus Q2 for sequential. And normally, Q1 is a strong orders received month for us, and we're trying to judge the customer activity and give you a little bit of guidance there. And so we say it remains uncertain and I think that's -- and this is mainly the situation with COVID. We can see that we have operations in India, for example. Now we are up and running, but of course, we have had incidents as well. But on the other side, we are quite positive to the rollout of the vaccine program.Logistically, we can see some of the especially outer customers lacking supply of chips. So we can see that they have announced some shutdowns. And on the positive side, which we say comes in high current level then, which is then coming from a record quarter, we can see positive trends in most of our business areas and divisions. We can see that, that is spread geographically throughout the world and a very strong position for us in Asia and China then.We'd also say that, as I said before in the introduction that if orders will come, we have a strong position in many of what we call the key segments for us. So we believe it continues to be, as we said, in high current level, but there is still uncertainty, of course, in what will happen in the coming few months.

[Hans Ola Meyer, Senior VP & CFO]

Thank you, Mats. So with that, I'd like to hand the word back to the operator of the call to give the instructions for the Q&A session. Already before that, I might add that we continue also with the proven concept of sticking to 1 question at a time, allowing more people to get their question asked on the call. So with that, please, I hand it over to you, operator.

[Operator]

[Operator Instructions] Our first question comes from the line of Klas Bergelind from Citi.

[Klas Henrik Bergelind, Director]

It's Klas at Citi. So the first one, just want to continue there, Mats, on the guidance. You're guiding flat quarter-on-quarter, obviously, from a very solid level. But I'm interested in some of the businesses where you have a pipeline building of larger orders. So I can see that gas and process is now improving quarter-on-quarter, and you have pretty good visibility with the key accounts on the semi side. So I totally get that you want to be cautious in light of what's going on in India and so forth. But if you look at quotation activity, would you say that sort of the indication out of pipeline, maybe signals a little bit better orders than the SEK 30 billion?

[Mats Rahmström, President, CEO & Director]

I wouldn't say it indicates maybe about SEK 30 million (sic) [ billion. ] I mean, we don't guide like that. But at high activity level, considering what we have presented for Q1, it's at least the confirmation that we are positive to the development of our segments.

[Klas Henrik Bergelind, Director]

Yes. No, I understand this. Okay. Fair enough. And just 1 quick follow-up for you, Hans Ola. On the margin of 23.7% in CT, this is the division that had most of the temporary savings to COVID, if I understand it correctly. How much of that margin there was linked to those savings that might start to reverse? Is it a percentage point or anything you can say there, Hans Ola?

[Hans Ola Meyer, Senior VP & CFO]

No, I wouldn't dare because it's not an easy calculation even if we had all the numbers and we're sitting together, Klas. So -- but it's noticeable in the spend on admin and marketing primarily that we got down to a good level. And now we have seen the costs are starting to come back. But it's obvious that we still have some benefits, traveling, a couple of participations in shows, trade shows and so on are done in a more economic way, let's put it that way right now. The interesting thing is that it's not at all certain that all costs will return to exactly what they were before at the same volume level. So -- but it's extremely -- I have no fear that this is a quarter that will prove to be a sort of a one-off sweet spot. It's not that effect at all. It's really something that we just want to have in there to complete the picture, and it goes not only to Compressor Technique, but also for the others.

[Operator]

Our next question comes from the line of Andrew Wilson from JPMorgan.

[Andrew J. Wilson, Analyst]

I just wanted to ask on the vacuum side. And clearly, the strength in semi has been very pronounced in the Q1, and it's no great surprise given what we've seen in the backdrop. I just -- I was wondering if you could kind of spell out a little bit what you're actually hearing from customers on the ground in terms of indications of how long this kind of level of spend can be sustained, whether you think you've seen any kind of preordering or customers trying to order ahead just to ensure that they get that product? Just trying to get a sense, I guess, of the sustainability of what's obviously been a very good number.

[Mats Rahmström, President, CEO & Director]

But it is, of course, as you say, everyone is trying to catch up with demand in the marketplace. To our benefit, I would say, the positioning that we do have in the North America, China, Korea, Japan, and when these orders come available, not that easy that we just quote for them and get them. You need to have the right product and people there, but also, in this case, the capacity to deliver. And as we speak, I mean, we are installing more capacity to handle this to be ready. And coming back to -- it's not just straight line that -- I mean, you have 20, 25 accounts and probably that's a handful of big, big orders.So difficult to predict that you can understand if they place the order now or in another quarter. And they don't really tell us if it's for inventory or whatever it might be, that we don't measure that. But I'm sure, if you see the situation globally, and you're in the management room, that some of them will, let's say, they'd place these orders with the best supplier and make sure that they get those products in first line. So I do believe that there are orders that have been placed prematurely through this quarter. How much, I don't know exactly.

[Andrew J. Wilson, Analyst]

Okay. But it doesn't feel that there's an obvious exceptional spike there. It means clearly there's a lot of underlying help from the market, and I guess, some share gains as well by the sound of it.

[Mats Rahmström, President, CEO & Director]

No, but I think my job and my team's job is to make sure that we're in a position to quote the best and accept the orders. And then if this comes in Q2 or Q3 or Q4, doesn't matter too much to us. There will be swings in this business, which is linked to the key account structure. So there's no reason for me to [indiscernible] this quarter, next quarter. I'm just going to make sure that we offer the best product, and already, well, the orders are coming.

[Operator]

Our next question comes from the line of Daniela Costa from Goldman Sachs.

[Daniela C. R. de Carvalho e Costa]

I wanted to ask 2 things. One on -- regarding EUV. And I believe you were sole supplier, and we've heard a lot about sort of prospects for EUV being particularly strong compared to other lithography technologies. Are you still sole supplier there? That's my first question.

[Mats Rahmström, President, CEO & Director]

I don't think we have confirmed that ever, but we have a strong -- very strong position with that.

[Daniela C. R. de Carvalho e Costa]

Okay. And then just more general, in terms of the demand trends, obviously, extremely strong that you talked through and you believe they are sustainable. But have you seen -- how are inventories across the various segments lined on your customers? I know some others within short cycle have talked about potentially some restocking having happened over the last few months. What's your view on that?

[Hans Ola Meyer, Senior VP & CFO]

Well, we don't have a huge amount of pipeline from us to a third party distribution network in different parts of the world. So it's not that type of a business model so much. So in our case, it's more -- if it's an order, it is going straight to the end user in absolute majority of the cases today, then they'll stock on investment growth. Well, they might be anxious to put in the orders to secure their -- the sequence in our ability to deliver, like Mats touched upon. But really building a pipeline. Restocking is not really so much of a phenomena in our case. But again, as we -- as Mats already said, we cannot quantify it, but we are pretty sure that there is a part of the -- overall very strong order intake and certainly be an approach to secure, let's say, deliveries in the coming couple of months since they see also what we see, certain strains on supply chain and so forth.

[Operator]

Our next question comes from the line of Guillermo Peigneux from UBS.

[Guillermo Peigneux-Lojo]

Guillermo Peigneux from UBS. I wanted to ask maybe a similar question too on this regarding maybe from a different side, the shortages in semiconductors. When do you think the bottlenecks will be solved with the amount of demand that you're seeing now in place in the market and the amount of -- I guess, catch-up from the supply side? And that will be the first question.

[Mats Rahmström, President, CEO & Director]

I don't have specific statistics on end users there. But I can follow what's going on. And of course, in Q2 last year, I think many of the other suppliers put down their projections. And at the same time, we had COVID situation that accelerated digitalization. And the shortage we have seen now in the auto sector have been very transparent with that in many quarterly reports. But of course, now you can also see that they're all electronic businesses that is also coming into short of supply. But just believe, Guillermo, that we have a good position. But I cannot really predict when and where and how much they will need going forward as the end user. But I can guarantee that we'll be on top of every possible project that is available among the -- and we have the benefit of having the local presence in -- for the main manufacturers also. I think you can count on us. We will be there and take a good share of [indiscernible]

[Guillermo Peigneux-Lojo]

And then my follow-up is on electric vehicle demand that you highlighted as one of the key elements of basically strength in IT. I wanted to ask about Europe. How do you see demand from the electric vehicle platforms and models in Europe? And do you see quoting activity increasing there even more than what you saw already in Q1?

[Mats Rahmström, President, CEO & Director]

Well, electric vehicles as -- if we would rank them, it seems like China has the highest activity, Europe #2 and U.S. #3, and it do not come as a surprise. But over lately, we can see that the number of projects in EV and battery manufacturing is increasing, and it's also becoming more and more significant part of our sales. And I think we could view that impact going forward as the new engine for many of these vehicles. And at least if I look at the [indiscernible] I can see that there is significantly more cars being bought that will be fully electric.And I think we have to go back almost [indiscernible] in this position where we say okay, it's not only going to be [indiscernible] we're going to do the discount, we're going to do [indiscernible] And now with vision coming into those applications as well through [indiscernible] strong technology that support us for the electric vehicle development. And personally, I believe, if we continue this way, I can see the commitment from many of the OEMs in this industry. How fast we as consumer will accept these new vehicles, I guess, it's linked to logistics around charging, which shall be an important part for -- to continue this successfully.

[Operator]

Our next question comes from the line of Maddy Singh from Bank of America.

[Madhvendra Singh, Research Analyst]

So my question is on Vacuum Technique business and again, given the announcements from TSMC and also Intel's plan to set up a new plant, continued CapEx updates on these guys. I'm just wondering how much of that is reflecting in the Q1 orders or those announcements are likely to be with your book only later this year or early next year?

[Hans Ola Meyer, Senior VP & CFO]

I'm not sure what announcements you refer to, but I see an announcement that they -- some of them will establish businesses in the U.S. for a number of years ahead of now. So that's not in our books at this point. But if there was another announcement that you read and I might have missed that. [indiscernible] in the U.S., right?

[Madhvendra Singh, Research Analyst]

No. I mean I was talking about increasing CapEx to 100 billion for next 3 years, so how much of that is reflecting in your numbers?

[Hans Ola Meyer, Senior VP & CFO]

In this quarter you mean?

[Madhvendra Singh, Research Analyst]

Yes.

[Hans Ola Meyer, Senior VP & CFO]

I cannot really qualify how much of that spend has come into that. And even if they have made announcement recently, I think it's unlikely that they have placed orders already on that. I think they have taken the decision that they decided last few years. And now they say, well, let's execute on these decisions and order the equipment so we can start with production. So I don't see that link yet. So probably that is ahead of us.

[Madhvendra Singh, Research Analyst]

And just a very quick follow-up on the ForEx hit on the earnings. I think for this quarter, the margin, if you were to say, is about 35% ForEx revenue, you're getting around 35% hit on EBIT. So is that a usual level we should be expecting going forward as well?

[Hans Ola Meyer, Senior VP & CFO]

I'm not sure exactly what formula you're referring to there, but...

[Madhvendra Singh, Research Analyst]

When you divide it by -- revenue divided by FX basically.

[Hans Ola Meyer, Senior VP & CFO]

Yes. But if you talk about the sales bridge, of course, we don't know. I mean it depends on what the currencies do or the FX does. But were you referring to the revenue to operating profit relationship?

[Madhvendra Singh, Research Analyst]

Yes. Yes.

[Hans Ola Meyer, Senior VP & CFO]

Yes. Well, I mean, that is absolutely depending on what happens on the individual FX ratios. Is it primarily other currencies than the dollar euro ratio that moves, then it has a certain impact. If it's only a pure Swedish krona strengthening or weakening, then it has another impact. So it's a very difficult question to say this is normal or not. It depends entirely on how the FX players are moving in the same period last year and in this period. So that one, we don't have a sort of a rule of thumb or anything. If you, on the other hand, look at the profit that is, so to speak, excluding currency impacts on revenue and operating profit and excluding items affecting comparability and excluding the acquisition effect, the volume price, call it, so to speak, we have always stated that if you look over a period of time, that relationship, if we grow by 100, we expect to see some 30% to 35% falling through to the operating profit line.So that 30%, 35% is something that we still feel is reasonable to be expected, but only over a period of time. It can be several years. But if you go for a long period of time, it normally is in that level. In 1 quarter over a specific single quarter, it can vary a lot from that, as you have seen in previous quarters as well, including this quarter, which was almost like 50%. So I mean, there is a sort of a rule on that. But on the currency relation, it's impossible to predict so to speak.

[Operator]

Our next question comes from the line of Max Yates from Crédit Suisse.

[Max Yates, Research Analyst]

Just my first question is around what you're seeing in China. And I mean, you mentioned this as kind of an area of strength potentially that there was some pent-up demand here. But I just wonder, kind of if you look at some of your sort of daily order rates, how that business has evolved so far in April? And have you seen kind of any softening there? Or do you see this as sort of strength from Q1 carrying on?

[Mats Rahmström, President, CEO & Director]

When we look at China, internally, [indiscernible] that was end of Q1, Q2. But then we have only seen strength, continued activities among many of our segments. And as I confirmed in the report, 34% spread across all our business areas with double-digit growth for all of them. And I think March was 1 day more, but the quarter was 1 day less. So of course, that is a little bit of impact in the service and so on. But it was very strong, and we have not seen weaknesses in China. The other way round, for a number of quarters, there has been strong business in many of our key segments.

[Max Yates, Research Analyst]

Okay. And just my follow-up question was on acquisitions in sort of machine vision, software and some of these sort of more technology-based areas. So I mean are you happy with the sort of pace of acquisitions that you're doing in these areas? Or if there was a larger acquisition, I think you've seen a sort of U.K. listed company, which is now up for sale. Do you see interest in sort of accelerating your push into some of these areas by M&A? Or are you pretty comfortable with the rate of kind of more bolt-on acquisitions as you push into these areas?

[Mats Rahmström, President, CEO & Director]

I think the key for us, we have quite a defined process. We have 22 of our divisions that I think is on a level where we say top line growth is a priority. And then [indiscernible] targets and strategy and approve when we go along. But the #1 question for us is if it's value-creating for our shareholders. And then we can move on a bigger target or a smaller target. When it comes to vision [indiscernible] the industrial technique team has taken on [indiscernible] in less than 1.5 year time. So right now, it's a consolidation, get the max out of the synergy, but we continue to scout, of course, for possible other segments that would be interesting as well. But it's not the top of the agenda. So that seems right now more to execute on what we have already committed to do.Do we have any more questions from the audience, operator? Hello?

[Hans Ola Meyer, Senior VP & CFO]

Hello? Can you hear me?

[Operator]

Apologies for that, a slight technical problem. The next question comes from the line of Sebastian Kuenne from RBC.

[Sebastian Kuenne, Analyst]

We hear a lot about preordering, double ordering client securing delivery slots and so on. My question is a bit, the turnaround. Does Atlas Copco at the moment try to secure supplies of certain components. And if so, which type of raw materials would be most affected or would make you most nervous at the moment?

[Mats Rahmström, President, CEO & Director]

You're right. It's also a challenge for us for a certain area. We of course, since many years, have a lot of supplies. I think 70% to 80% of components is sourced. And we work with a number of these suppliers and [indiscernible] try to have minimum too if possible. And then we run the scenario planning always for each division for scenarios up and scenario down to [ help transport readiness. ] And since Q3, when we could see that there were some positive signals, we have been working in a transparent way with our suppliers.But I think they handled Q1 okay. But it means that the team in purchasing and operations are really working to secure the area. And electronics is 1 area, where we are really trying to find components for us. I think that has been the key area. Yes, it's very consistent with what you read in the paper space. So sometimes we have to prequalify a new supplier for electronics and then we work with R&D to do things like that. But we have been in sort of this upswing and downswing quite a number of times. Doesn't make it easy. But I think compared to some of competition, I think we should handle this in a qualified and good way.

[Sebastian Kuenne, Analyst]

So basically, what you're saying is you don't see the need at the moment to preorder or to order earlier than you would normally do or to even double order? That's not the case at the moment. Is that correct?

[Mats Rahmström, President, CEO & Director]

We don't double order. But if you have critical components, for sure, I'm sure they order as many as they believe that they need. We'll be first in line with the suppliers and make sure that we support them as well to give them a transparent view on the future.

[Operator]

Our next question comes from the line of Gael de-Bray from Deutsche Bank.

[Gael de-Bray]

Look, I was looking at the details you provided around the EBITA performance. So I do appreciate the greater transparency on the underlying performance now. But I was also wondering if there was another message behind signaling maybe an intention to make more acquisitions going forward.

[Hans Ola Meyer, Senior VP & CFO]

I think it was mainly to [indiscernible] the questions over and over again. And when we have a lot of intangibles like we were having in vacuum for a number of years and also now in Industrial Technique, so it was of help to guide you -- yourself. On the other side, we are, I think, last year at SEK 100 billion in revenues. And our commitment is to see if we can find 8% organic growth over a business cycle, which means that we need to accelerate both the organic growth, which we do. You can see that we have increased the spend on R&D, and we maintain that spend in the COVID year. And at the same time, we have hired more resources available to do few more candidates on that position side as well. And I don't remember exactly how many. I think it is 18 in 2019 and probably 13 last year. And so we are scouting all the time, and we have more resources in place and that is to complement, of course, the ambition to reach the 8%. But the underlying is that it's going to make [indiscernible] that are profitable and value generating for our shareholders.

[Operator]

Our next question comes from the line of Lars Brorson from Barclays.

[Lars Wauvert Brorson, Director]

Mats, just a quick one, really. I was just curious for a little more color around your divisional outlook for the second quarter. And maybe if you can, a little further into 2021. I think I heard you say the cautions around the automotive end market, what do you see there in terms of the impact on your business from lower production levels among the automotive OEMs? And do you think that stretches beyond the second quarter? And across other parts of the business, I wonder what you can say around your process end markets? Do you think for CT and I guess, PT on the pump side, are we sort of past the low here? And do you think we see a sustained recovery across your key sort of, as I said, process end markets?

[Mats Rahmström, President, CEO & Director]

I guess we take them step-by-step. I picked up on the auto. We don't do a forecast specifically, but I can listen to the management team, and they can follow, of course, the media where there are shutdowns. And I think many of them have been announced, but I don't think they have consolidated that view, but at least we know that there are more shutdowns in Q2 than in Q1. I have no view when this will pass. And of course, how the suppliers of chips will distribute the orders between electronics and auto, myself. I just need to make sure that my team is ready to help our customers in the best possible way. And then they -- also we'll pick up the PT. What was the PT, you said...

[Lars Wauvert Brorson, Director]

I'm just -- yes, I mean I appreciate Q1 is a seasonally bigger quarter for you in order intake in PT. I just -- I guess my question was more generally where you see your key process end markets, whether it's gas and process in CT or indeed, some of the process end markets in PT, how you see them evolve from here? And I guess I was also trying to tie you down into sort of a divisional outlook into the second quarter, if I could, across your divisions or business areas.

[Hans Ola Meyer, Senior VP & CFO]

As Mats said, we'd rather not try to speculate on each business area, Q2 outlook. It's a group outlook, and that is what, I have offered some extra comments around on the process. I think -- I know you're coming from the fact that we saw clearly better order intake in Q1 for gas and process compressors than Q4. But we still see -- we are still below the levels we were before COVID. So it's not that we see a tremendous quarter in terms of absolute values, but it's true that it -- is that, so to speak, then a signal that this will continue to go in that direction? It's very difficult to say.We see some more activity on customer inquiries and so on, as Mats alluded to earlier in some of these areas. But it's still the, let's say, broader industrial compressor and medical equipment that is really providing the strong growth in CT. So as you know, the process and the customers of gas and process, for example, is longer project type of demand. So it takes a while until you see what is the trend and what is a good or a bad quarter, so to speak. So it's very difficult to make that call.

[Operator]

[Operator Instructions] We have a follow-up question from Maddy Singh from Bank of America.

[Madhvendra Singh, Research Analyst]

Just a very quick follow-up. For Vacuum Technique orders, can you please just help understanding what is the typical conversion to sales cycle? Is it 3 to 6 months? Or is it longer duration order as well?

[Hans Ola Meyer, Senior VP & CFO]

So you mean from order to invoicing or from order to revenue?

[Madhvendra Singh, Research Analyst]

Yes, order to revenue. Yes.

[Hans Ola Meyer, Senior VP & CFO]

Sometimes they are very anxious, and then they come with their orders and they expect us to be ready to deliver fairly rapidly when they have come to that stage that they really want to extend the capacity, for example. I mean -- but in this case, I'm sure you also see the effects of any industry that is going through a strong investment cycle, that they cannot expect to have deliveries in 2, 3 weeks' time or something like that. It will take a quarter or 2 or even 3, perhaps on some of the bigger projects in this case. Traditionally, 5 years ago, I think we commented that it is a fairly short period between order and when we book the orders, specifically in the semiconductor industry, and when it was turning into invoicing. But with this type of ramp-ups that we see, I think everybody should expect that it takes a little bit longer time.

[Operator]

Our next question comes from the line of Sebastian Kuenne from RBC.

[Sebastian Kuenne, Analyst]

Again, here, a question. You had an order growth in North America of 17% year-on-year. So there is some fairly strong numbers already. And we heard of companies this morning actually that they face very severe staff shortages in North America in the assembly of machinery, which prevents this -- or that specific company from growing revenues. Is that an observation that you also make? Are you getting concerned about increasing capacity in the North American operations?

[Hans Ola Meyer, Senior VP & CFO]

That is nothing that I heard from our operation at least, that has not been flagged internally yet.

[Operator]

Our next question comes from the line of Rizk Maidi from Jefferies.

[Rizk Maidi, Equity Analyst]

Yes. So just on the hydrogen opportunity, I mean, there's new CapEx investments going into this field, but also natural gas infrastructure that could be converted to transport hydrogen. Just wanted to pick up your brain on how Atlas Copco is positioned here, particularly on Compressor Technique and how you can benefit from this new -- the new opportunity?

[Mats Rahmström, President, CEO & Director]

I mean there are a few segments in the market right now that use hydrogen. And of course, many are exploring the opportunities with fuel cells and we follow that development. And in the order book for CT this quarter, yes, there are orders for this type of applications, but it's just -- it's rather small, but activity level is high. And for commercial purchases, I think everyone expected to be between 5 to 10 years before you see significant business. But that means that we need to review the product offer that we have. And we are in that space right now where we see what can we do and what will happen in the market place, but it's a little bit too early to talk about sales processes in this field. But it's an area which we see -- could be of great interest and great potential for Compressor Technique organization over time.

[Rizk Maidi, Equity Analyst]

Okay. And then the other one that I had is -- which is more on price increases at times of raw material inflation. I understand that price increases are essentially driven by new product launches, but at times -- or inflationary times, do you raise list prices on existing equipment outside of new product launches?

[Mats Rahmström, President, CEO & Director]

Yes, we do.

[Operator]

We have no more questions from the line. I will hand it back to our speakers for their closing comments.

[Mats Rahmström, President, CEO & Director]

Thank you very much. I think the closing comments have been delivered already, if you sum it what has been said. I just want to thank everybody for participating. And perhaps as a [indiscernible] remind everybody that there has been an invitation sent out for the Capital Markets Day that we run in a virtual way on the 27th of May this year and with a focus on Compressor Technique this time. So with that, again, thanks to everybody, and take care, and see you soon again. Bye-bye.