Atlas Copco AB

STO:ATCO A

Earnings Call Transcript 2022-Q2

[Operator]

Good day and welcome to the Atlas Copco Audiocast with Teleconference Second Quarter 2022 Earnings Conference Call.

All participants will be in a listen-only mode. [Operator instructions] After today's presentation, there'll be an opportunity to ask question. [Operator instructions] Please note, this event is being recorded.

I'd now like to turn the conference over to CFO, Peter Kinnart. Please go ahead.

[Peter Kinnart, CFO]

Thank you, operator and good morning and good afternoon to all of you attending this second quarter earnings call for Atlas Copco. As you might have understood from the introduction by the operator, Mats Rahmström will not participate in this call for private reasons, but I'll be hosting this call together with our Vice President of Investor Relations, Daniel Althoff today. Welcome Daniel.

[Daniel Althoff, VP, IR]

Thank you, Peter.

[Peter Kinnart, CFO]

Now, we'll start in a moment with a brief run through of the second quarter results, followed by the usual Q&A session. I would already now like to ask when that Q&A session starts to only ask one question at a time in order to give the opportunity to all participants in the call to raise the question. [Operator Instructions]

Before we start now with the overview of the financial results, I would first like to come back and comment on the investigation concerning sales to Russia between 2014 and February 2022, which has now been concluded. This issue, as you might remember, was raised by media and was mentioned during the first quarter.

In cooperation with a third party, we have now completed a thorough investigation of all of our business relationships in Russia during these eight years, which means that in total, more than 17,000 customers have been scrutinized, including the company's previously highlighted by media.

The investigation that was concluded have identified SEK16 million in sales, where written documentation was insufficient to afterwards really determine the exact customer application, which is against Atlas Copcos Group's internal guidelines and policies. Based on the information we have been able to collect, no sales to military applications have been confirmed or identified.

I would also like to point out that trade compliance is essential for our business, and we are definitely determined to make sure we follow our internal guidelines and policies going forward. And therefore, we have actually also strengthened our processes. In the meantime, added resources to our trade compliance organization and have also made investments in automation tools to improve the screening process of the different customers and companies.

Also I would like to share that we have been transparent in contact with the relevant authorities. When it comes to the current business in Russia, it's worthwhile to mention also that we have post all new orders for equipment, except those for humanitarian purposes. Those are the comments we would like to share with you with regard to the business in Russia and the investigations that we carried out and that we promised to all of you to come back to.

Now I would like to move on to the actual quarterly results. I will move to Slide number two now. And here, you can see the second quarter in brief. I think, first of all, we see a strong order intake with solid growth in all business areas. And I must say, myself and the entire team are actually fairly proud of the results that has been achieved and of all our employees out there in the field that are doing everything they can under these difficult circumstances to deliver the products to our customers.

The order intake, I think, also shows that the strategy that we are following since many years with leading product knowledge and leading application knowledge is really paying off. And we're also happy to see that in this order intake, we see that we have established a strong position in the market segment of sustainable solutions.

When it comes to the order intake, again, then as you can see here, double-digit growth was achieved in all regions. Sequentially, however, and I would say, in line with our forward-looking statement of the second quarter, we saw a slight organic order decrease. In fact Compressors and Industrial Technique were up, but Vacuum and Power Technique were down, contributing to this minus 2% sequential.

When it comes to the revenues, we achieved record revenues throughout the second quarter despite the continued supply chain constraints and other aspects that are playing in the global economy and then this all resulted in solid operating profit. The margin was strongly supported by currency but negatively affected by supply chain disruptions, COVID-19 as well as continued investments in market business and research and development.

When it comes to acquisitions, we were happy to see that we continue on a good pace with the acquisitions, and we added five companies to our portfolio. The most important of which I would say is open service in Germany and other countries in the world in the Power Technique business area.

Moving on to Slide number 3, where we can see an overview of the financials. Orders received SEK41 billion. The record revenues landed at SEK33.1 billion with an organic growth of 8%, and we landed an operating profit of SEK7.3 billion, which represents a margin of 22%. Adjusted for long-term incentives, the operating profit was SEK7 billion with a margin of 21.3%. I will come back a little bit more in detail on the margin development.

The profit for the period was SEK5.7 billion, and that resulted in basic earnings per share of SEK1.17 which we have, of course, compared now to SEK0.94 earnings per share, which are adjusted numbers for the share split.

When it comes to operating cash flow, the total amount ended up at SEK3.1 billion, which was a bit of a lower level compared to the same quarter last year, as you can see, and we managed to increase the return on capital employed somewhat from 26% to 28%.

Having a look at the regional development on Slide number 4, there you can clearly see again the double-digit growth across all regions. When we look at North America, particularly CT had a very strong contribution to this double-digit growth, but also other business areas were solid.

In Europe, the plus 16% in the quarter -- year-on-year is basically supported by contributions from all the business areas. And also in Asia, we saw solid growth for the group, even though, of course, the lockdown in China was a challenge. But nonetheless, a solid growth level and also there double digit, as you can see, plus 13% compared to the same quarter last year.

On the next slide, number 5, you see the graph showing the organic order growth per quarter. And I think what I take from this particular picture is that we are pleased to see that we are able to generate organic growth over six -- seven consecutive quarters and even double-digit organic growth across six consecutive quarters. The scale is maybe slightly misleading given the very big bit more than a year ago, but we are still at more than 10% at this point in time in a very long period of a constant growth over time.

On Slide number Six, we move to the sales bridge. And here, I think there are two things standing out a little bit more. And that is, first of all, of course, the strong support we have had from currency with a weaker Swedish krona strengthening dollar, particularly as the most important contributors to that development, both on the orders received and on the revenues. And in fact, this has already been the case throughout the entire year, as you can see from the January to June numbers as well.

From an organic perspective, you see, again, the plus 13% growth on the orders, the 8% on the revenues. And year to date, we can see plus 18% on the orders and plus 7% on the revenues.

If we take a closer look on Slide number 7 to the orders by business area and the organic order development. Then we can see here that all the business areas were able to achieved double-digit growth across the quarter, with record orders received for Compressor Technique and Industrial Technique and high demand for power technique products and services as well as strong growth for the Vacuum Technique.

Then I would like to dig in a little bit deeper to the individual business areas one by one. on Compressor Technique, record orders with an organic growth of 14%, clearly visible on the graph on the right. What were the main contributors to this. In fact, we saw solid growth for industrial compressors and service and also a strong demand for gas and process presses.

The revenues were also hitting a new record, up 6% organically, and the operating margin reached 22.9%. This operating margin was negatively affected by the supply chain constraints and COVID-19, but I will also comment a little bit more in detail when we look at the detailed bridge.

But of course, also positively supported by the currency effect. Return on capital employed dropped a little bit in complexity technique from the very high 91% to still very high 86%, which was mainly due effect to the impact of acquisitions, which were adding, of course, more capital employed and that had this effect.

Moving on to Vacuum Technique on Slide number 9. Here, you see, of course, that the demand was on a continued high level with an organic growth of 11% year-on-year. We saw quite strong growth for equipment both in the semi business as well as in the general vacuum business.

Also, service on both Semi and General Vacuum continued to grow nicely. The revenues that you also can see from the graph, reached a record 15% up organically and an operating profit margin of 22.7%. Also the supply chain constraints continued to have a significant impact on the margin also COVID-19 related inefficiencies in the factories.

As already indicated before, the positive currency effect is affecting all the different business areas, also vacuum technique, maybe even slightly stronger given their currency basket within business area.

Return on capital employed improved somewhat from 23% to 25%. On Slide number 10, we see the details for the Industrial Technique business area. Record orders, as I indicated, organic growth of 17%, very solid strong growth for both automotive and general industry and also for the service business. The revenues also achieved a record level, 2% up organically.

The operating profit margin landed at 19.9%, pretty close to the 20.1% from last year, post -- it's a bit the same record playing all along, but also ITBA was, of course, as well negatively affected by the continued supply chain constraints, COVID-19 and then also continued investments in research and development as well as digitalization both in customer or in platforms as well as the internal process platforms.

Then we also saw the positive currency effect there and an improvement in the return on capital employed from 3% to 7% and then finally, the fourth business area in the family, our techniques. We also saw continued high demand with an organic order growth of 10% compared to last year.

Obviously, of course, sequentially softer quarter than the first one, which was an absolute stellar quarter, I would say, for Power Technique. But nonetheless, definitely very solid equipment growth. Also strong growth for specialty rental and the tangible growth for the service business as well.

We see hit a record on revenues, 9% up organically, which means that all business areas had a record on the revenues this quarter, quite exceptional achievement. Then finally, the strong operating margin of 19% compared to 16% last year, which is very much driven by the increased organic revenue volumes that they were able to generate. And then the return on capital employed that logically, I would say, increases substantially from 23% to 29%.

If we then add all of this together and we go to the group total on Slide number 12 and we see the full financial statements. We have already mentioned the orders and the revenues and the operating margin for the total group landing at SEK7.3 billion or 22.4%. The net financial items didn't really have a very important impact.

It was slightly better than last year, but relatively small numbers in the bigger scheme of things. The profit before tax at SEK7.3 billion, and the tax rate of 22.3% is, actually, as you can see. Here, we expect that the tax rate will be along the same level in the coming quarters, somewhere between 22.1%, 22.3%, most likely.

Profit for the period as a result of all of the above, at SEK5.7 billion, which is a 24% increase in absolute notes of SEK4.6 billion and that the basic earnings per share, as already indicated, SEK1.17 per share, return on capital employed up to 28% and return on equity of 31%.

Then I would like to move to Slide number 13 and give a little bit more comment on the profit bridge. I think the first thing, which is very obvious to see is that the currency has been very strongly supporting the margin. That's quite clear. Then when it comes to the volume, price, mix and other, it is that the drop-through has been somewhat negative. And what is our analysis of this drop through, well, first of all, I think we have seen quite solid price realization.

We managed to continue to increase the price realization quarter-over-quarter. And what we are able to see today is that the price realization that we are managing to get out of the market is sufficient to compensate for the many structural cost increases that we see, which means material price increases, labor cost increases and so forth. And I think that we are very glad that we have reached that level so that at least we are able to compensate for structural increases with the price utilization.

What we are not able to compensate for are more temporary cost increases that we are confronted with. And then I'm referring to things like spot market buying, which we do to make sure that we are able to put the product out there and deliver to our customers given the long lead times that are already existing.

The transport costs that are, of course, up in general across the globe as well some additional air freight costs because we want to make sure that we get the product to the customer as quickly as possible whenever it's ready. And finally, also the factory inefficiencies that are resulting from all those supply chain disruptions or potentially the of lockdowns.

Those are kind of temporary costs challenges that we are facing that we are not able to compensate fully with this price realization. But over time, of course, we expect that these will gradually subside and that as the supply chain eases, things will get a bit. And then furthermore, adding to the talk through here and also our continued efforts in R&D, the investments that we continue to do in market presence and digitalization, which we do not want to give up on even if it has a little bit of a detrimental effect on the margin.

We believe it's more important to take this type of investments for the long term and the same is valid for the pricing. Also here, we try to strike the right balance in order to make sure that the customer feels that, of course, it gets value for money and that we do not try to take advantage of the current situation because we believe that will backfire in the long term as well.

On the next slide, number 14, you see a bit more detail for each of the business areas. I will not go into detail of all of it. You can see that in some business areas, the impact -- drop through is a little bit worse than in the other business areas. I think it's fair to say that both in Vacuum Technique, particularly, but also to some extent, in industrial technique, the price realization continues to be a bit more challenging given the fact that we are in this kind of key account business with these long-term contracts.

So there, it continues to be a little bit more challenging, but in the other business areas, not so much. There we see a very good compensation to positive currency effect is there on all the business areas. And then finally, I would also like to highlight the very positive contribution of Power Technique with a very good top two on this particular quarter, thanks to very solid growth across all businesses.

Then moving from the income statement to the balance sheet on Slide number 15. By the way, one we did not mention yet, and I should mention is on the currency effect that we also expect in the coming quarters to see positive currency effects going forward, might not be exactly -- or exactly at the same level as we have seen this quarter, but we do believe that there will continue to be on a similar level, foreign exchange benefits for levels.

Going back to the balance sheet then. I think there are no big dramas to be detected here. I think you see a number of positions going up relatively substantially intangible assets to start with. And I have to say also on the balance sheet, we see quite a bit of currency impact.

So we look at the intangible assets, for example, then out of the increase compared to the beginning of the year of SEK5.6 billion, we see about SEK3.2 billion FX effect and then the rest, mostly allocatable to the intangible assets from the [indiscernible] acquisition.

Then the next point to highlight maybe is the other property, plant and equipment, where we see the impact of our investments that we have decided upon in the previous quarters in predominantly Vacuum Technique, but also Compressor Technique in expanding our capacity across the globe.

And then I think two items that also stick out are the inventories and the receivables, where we see the increase, I think, on the receivables side, there's not so much concern in the same that are closely in line with the growth of the volume and the ratio to revenue is actually quite stable. So there, we are not really alone at all.

When it comes to the inventories, of course, here we see a bigger increase and that has everything to do with supply chain constraints. We are trying to make sure that we have the right material as much as possible available so that's when those items that are may be difficult to get are available in the factories that we are able to produce and that we do not run into other problems with other parts as well. So that is, of course, something that we are monitoring closely and trying to make sure that we do not end up with a slow moving or on stock provisions later on.

And then when it goes to the rest of the asset side, I think the cash and the cash equivalents are of course, an important position. And they, of course, have been affected on the one hand by the cash flow that we have generated over the past 2 quarters. But then, of course, we have done the redemption, and we also have paid out 50% of the dividend in the first instalment. So that, of course, affects the cash.

Moving to the equity and liability side, peak little bit the same. The equity is affected by the profit that is moved over, obviously, and that is then kind of consumed almost envy the complete dividend and the redemption that was paid out in the second quarter.

Then moving to the noninterest-bearing liabilities. There, we see back basically 50% of the dividend that will then be paid out later in the year, but also -- which is about SEK4.6 billion there and then also an increase in the payables that was hand-in-hand with the increase in inventories, you could say, as well as a bigger amount of some payments from customers given the fact that we are being able to land quite a number of bigger orders with the payments in instalments. And then we are able to get more advanced payments as well. So that is pretty much linked to the business that is for generating there.

Moving to Slide number 16. On the cash flow. There are three things that I would like to mention here specifically. First of all, very strong operating cash surplus that has been generated over the quarter, also over the full year, year-to-date, actually, which is then offset to a larger extent than last year, by changes in working capital. And here you can basically split it up 50-50 between inventories and receivables. The receivables, as I mentioned, on par in relative terms to the revenues, the inventories going up a little bit faster in order to be able to serve our customers faster as well.

And then the third point I would like to highlight are the investments of property, plant and equipment here, which are also obviously affecting the cash flow to some extent as we are putting these different factories step by step in operation. And you probably will remember the press release earlier this month with regard to the river cutting that was done in the extension of our capacity of the Korean factory in paint.

And then we come to the last statement with regard to our financial results, and that is the near-term outlook. And there, the trading this as you can read on the slide, Atlas Copco expects that the customers' activity level will be lower than in the second quarter.

So with that, I would like to conclude the presentation of the hand-outs and we will start opening up for the Q&A. [Operator Instructions] Thank you.

[Operator]

[Operator Instructions] The first question today comes from Daniela Costa with Goldman Sachs. Please go ahead.

[Daniela Costa, Goldman Sachs]

I had more than one, but I'll go back on the queue. So I'll stick to one as you requested. And just focusing on Vacuum Technology. I was wondering if you could comment on the length of the backlog and the stickiness, Basically, I guess the orders that you have now are mainly for projects where sort of things have already started in the broader CapEx of your customers.

Do you think or given we're starting to see some semi CapEx cuts now? Do you think there is still some risk to parts of the backlog being for projects that maybe haven't started other phases before like the pump so in. Wondering if you could comment on that. And maybe you've mentioned you were doing some CapEx expansions yourself to meet vacuum technology demand, whether this whole environment changes you're thinking there?

[Peter Kinnart, CFO]

Thank you, Daniel, for that question. When it comes to our order book, We are, of course, following very closely across all the business areas for that matter. Whether the orders that we have in our order book are actually healthy and that there are no state orders in there, and that is not the case. We continue to have the same as from all of our business areas on that particular point.

And we also have not seen any indication that customers will be very likely to cancel their orders still seems very much so that they desperately want a product that they have ordered to us, and they are actually pushing us on almost a daily basis to make sure that we deliver as quickly as we can so that they can actually fit it out in their factories.

When it comes to our own investments, I think we are say, going back a little bit, maybe probably even before Kobi, it used to be kind of customary almost to try to have a little bit of headroom within the Vacuum Technique business area from a production capacity point of view. And that has to do with the bulkiness of the orders that are typically coming in. And in the past, we used to have almost like a 30% headroom in our production capacity there.

Under the current circumstances, it's clear that, that capacity is not really there. And we see in the long term, quite a healthy development of the demand for vacuum products, particularly but not only in the semiconductor space. And so as a result of that, we believe that we need to have more capacity in order to be able to have, again, that possibility to deliver on those bulky orders that might come in from time to time. And so therefore, we are continuing to invest in this capacity.

[Operator]

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

[Klas Bergelind, Citi]

So good to hear that you don't have any cancellations out of the backlog, but I want to come back to the outlook of lower demand. It's not somewhat lower, you write lower looking at new orders. We're, obviously, coming of a high level here again, Peter. But trying to understand if this is signaling more caution from your side or if you have seen a real order weakness somewhere.

And coming back in particular, we know that leading edge is holding up at the CapEx announcement on the memory side looks pretty grim. I know it's early days, but keen to hear what you hear from your semis customers.

[Peter Kinnart, CFO]

Well, I think it's fair to say that we have been on a high level. And of course, as a result of that, I think we all read the newspapers. We all see a lot of, let's say, difficult situations around the world, whether it's inflation rising, whether it is the war in Ukraine that has impact, not purely from a humanitarian perspective, but also, of course, economically. Lockdown in China that seem to pop up from time again, so from that point of view, I think it seems to be rather hard to assume that what we have seen so far is continuing.

We also, of course, see that consumer confidence is going down across the globe, and that is probably very much driven by the fact that disposable income for families is getting a little bit lower as a result of all of these cost inflation tendencies. And so at some point, of course, it seems likely that demand for, for example, consumer capital goods will go down and that, at some point, will spill over into the industry.

However, tying that exactly is extremely difficult, but we believe that given the current high level that we are at, it seems very unlikely that we are able to come to, let's say, repeat that same type of order now. Of course, the wording that doesn't really indicate specifically which percentage it is. It is more a general indication of how we expect that the customers will continue to work throughout the quarter.

And then maybe on the topic of memory that you highlighted as well in your question, I think, to our knowledge, the semi CapEx, in general, not for us, particularly, but in general, is 1/3 roughly allocated to memory and two third to logic. We believe that based on the indications that we have also let that maybe memory might be a bit softer. But that on logic, we still see an increase in demand.

From our perspective, it is not so important, whether it is one or the other, we are quite technology agnostic, I would say. So from that point of view, we are able to -- we are still positive about the demand for semi. In semi, of course, it will be likely that considering that demand is bulky that there will be a little bit of bumps in the road at some point, but we come to the time that very, very clearly. But again, from a long-term perspective, we are quite in the development of the semi business.

[Klas Bergelind, Citi]

Yes. Thank you, Peter. I think the question about leading edge versus memory is that the magnitude that we see right now is quite big. TSMC cutting five, but you have others on the memory side cutting over 20 potentially. So that's why I'm asking. But I get the secular impact, obviously, there.

[Operator]

The next question comes from Andreas Koski with BNP. Please go ahead.

[Peter Kinnart, CFO]

Andreas, sorry, we can't hear you. Now it's better. Thank you very much.

[Andreas Koski, BNP]

Okay. I am sorry about that. So hi Daniel, hi Peter. Thanks for taking my question. So I also had a question on your outlook because you have changed how you're stated about compared to previous quarter where you said that you expect demand to remain at the high level, but slightly below the level that you saw in Q1. So I just wonder, have you started to see already at the end of June -- June into July and that's why you are taking this outlook? Or are you expecting to see weakness but you have not yet started to see it?

[Peter Kinnart, CFO]

No, I don't think over the second quarter, we have seen really a weakness. I think that the numbers are speaking for themselves, I would say. I think the only thing is that if you look -- I mean, if you again, read all the different newspaper development, and there seems to be quite a lot of headwinds heading our way or heading the broader economy in general.

And it seems unlikely that as we are so broad-based, so many industries, whether it's in Compressor Technique, Vacuum Technique, Industry Technique, it seems very unlikely that we would be able to exit that. So I think that is what we want to reflect in our outlook statement.

[Operator]

The next question comes from Andre Kutman with Credit Suisse. Please go ahead.

[Unidentified Analyst]

Could you talk about China? And if you could walk us through the -- how your business has performed there during the quarter if you had a substantial impact from lockdowns here in Shanghai, could you help us quantifying that as hopefully that's nonrepeat? And would you expect to catch up and you got performance given that your business is mainly order book driven.

And then just a broader 1 around it. We're hearing quite a lot of talks about China push for localization of content across the industrial spectrum. And I just wondered if that's something that you have come across of experience in terms of how your market shares have developed there.

[Peter Kinnart, CFO]

Thank you. Well, when it comes to China, I think let's say, we're not going to a lot of detail when it comes to the different businesses, how they have developed the right now. But I think what we have seen, of course, initially when we started the quarter. And I think in that sense, I think we are also very happy with how the ultimate result developed from an order revenue and even profit perspective.

It was quite unclear when the quarter started, where things would take us. And definitely, April and May were quite challenging months with the severe lockdowns. Means in the sense, you could say that we might have expected lower revenues as a result of that, but the organization in China particularly works very hard to find new ways of getting our products to the customers.

And as one example, we were able to ship more products directly from the product companies rather than to our distribution in Shanghai. So from that point of view, I think we managed to find good creative solutions to avoid this problem. And then I think it is fair to say that June was a bit of a catch-up. Once things start to smoothen and people were allowed to go to leave their apartments again and the fact is able to open up again, I think things start to pick up.

And then, of course, I think in China, I think, is not to be quite agile and resilient in that and bounce back quite strongly in June, resulting, I think, in an overall quite solid quarter for the market.

[Unidentified Analyst]

And on localization, if I may, squeeze at the second part of the question.

[Peter Kinnart, CFO]

Well, localization is not something that for China has kept us extremely busy, I would say, in the sense that we have quite a lot of local footprint when it comes to production for our different business areas. It's only industrial technique that doesn't have really a very strong production presence in China, given the fact that the products are relatively small in size.

And therefore, it's fairly easy to -- and not that expensive to bring those products from one central production side or a few to other parts of the world. And then, of course, for ITBA, particularly, we do have then the application centers where we combine these products into more complex systems at the specification of the customer.

So given the fact that we have that strong local presence for the business areas in China, we believe that we are well placed to be able to capture the orders if there is a strong localization in that market.

[Operator]

Next question comes from Guillermo Peigneux with UBS. Please go ahead.

[Guillermo Peigneux, UBS]

Hello, everyone. I wanted to ask about large gas and process compressors. I want to understand a little bit which regions are driving the sequential growth, sequential Y-o-Y growth, which industries are driving the growth and how sustainable this is in your view?

[Peter Kinnart, CFO]

Thank you, Guillermo. Well, as you say, we have had a strong order growth for gas and process compressors, indeed. There's not really a single explanation why the order growth was so strong. It's actually a multitude of things that happened at the same time. When it comes to the different regions, we have solid growth in all the regions for gas and process.

And also there, we are well placed with local factories to produce or assemblers locally. We also saw good development in several segments. -- casinos is typically working in, thinking about air separation, for example, which is a more traditional segment, but also segments related to the energy transition, such as hydrogen and LNG, for example. And that is one of the reasons amongst other -- for the other businesses as well. why we feel that we are getting good traction when it comes to the segment of sustainable solutions for our customers.

[Operator]

Next question comes from Matthias Holmberg with DNB. Please go ahead.

[Matthias Holmberg, DNB]

On vacuum technique in particle where you saw order volumes falling sequentially, can you say anything about the phasing of the development here? Did you see them on to weaken through the quarter? Or was it more or less flat trend throughout? And also if you would want to, it would be very helpful if you could comment on the activity exit run rate or what is of the -- sorry, Q3 entry run rate for Q2 exit run rate?

[Peter Kinnart, CFO]

Maybe you can repeat the last part of your question, please, Matthias.

[Matthias Holmberg, DNB]

Yes, sorry. Basically, just if you can make any comments on the run rate in Power Technique, Vacuum Technique where you saw falling volume sequentially, if it was sort of stable at the exit of the quarter or it was still in the [indiscernible]

[Peter Kinnart, CFO]

Yes. Thank you, Matthias, for the question. But I think I don't think we can really talk about the run rate here because I think the reason why the numbers for the way they were are quite specific, if you look at PT to start with, of course, we came from this, like I mentioned earlier, this stellar quarter on with an enormous order intake in only two months, they managed to do the order intake that they would do in a full quarter.

And they added on top a fantastic margin as well. So of course, the comparison is usually a bit skewed and not, let's say, unfair to make almost it was really exceptional, and it was actually very clear to we expect almost that the second quarter would be softer comparing to this very strong number that we had seen in the first quarter.

And with Vacuum Technique, well, did we see it kind of differ across the different months in the quarter? Like was it minus two in the beginning, minus then at the end -- also there, I'm not so sure if any comment on that would be very relevant in the sense that, as you know, the technique business area, particularly on the semi side, has a rather bulky type of order profile.

Of course, it might be stronger in June or it might be a strong dip in April, but it doesn't really reflect necessarily whether that's a real trend. I think there you need to see it in a longer or midterm perspective, at least. But I think -- as you said, sequentially, it was a bit softer.

But also here, we need to remember what kind of growth we have seen over the last quarters before that and last year, which were really -- fairly, very high double-digit numbers. So not so surprising that there is a quarter that is sequentially a little bit softer than [indiscernible]

[Operator]

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

[Sebastian Kuenne, RBC Capital Markets]

On Compressor Technology, we saw a large order boost in Q1, Q2. Now again, 14% organic growth assuming that the split is really driven by price, maybe 10% price, 4% volume, what are the arguments for and against an increase in volume, an increase in demand for Compressor Technique, especially given that the energy price is so high?

[Peter Kinnart, CFO]

Well, of course, we -- as you know, we do not comment on details of the composition of price and volume effects as such. But I think, of course, there is an element of price increase there. As I mentioned, we are a capable of managing price realization in the market. So of course, there is definitely an aspect of that.

But I think also from a volume point of view, things have been going well within the business area. I think as I mentioned, we've seen a strong development from industrial compressors, particularly the larger ones I would add and then the gating process compresses, but also a good development of service business. So I think from that point of view [indiscernible]

[Sebastian Kuenne, RBC Capital Markets]

When you say good demand is that based on the order intake or based on volume. Is the volume going up then in all 3 areas?

[Peter Kinnart, CFO]

The volume mix, yes, organically. Yes, there is a volume a good positive volume component organically. And I think you mentioned the energy prices, obviously. It doesn't mean necessarily that all of a sudden, there is a huge demand and customers are lining up to buy new compressors because they see the energy price is going up.

But when you are in front of a customer and trying to argue just to buy a new unit, and we are able to talk about the latest BSDS technology to that customer, then, of course, today, the argument is slightly easier because the payback is even shorter than it was a couple of months ago or a year ago definitely. So from that point of view, of course, our energy efficiency rationale in front of the customer is definitely helping us to sell more compressors.

[Operator]

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

[Lars Brorson, Barclays]

I hope Mats is okay. I wanted just to ask on price realization in your key accounts businesses, particularly PT, we talked about that in the last quarter in April, maybe you could help us understand where you are addressing these, what you've done, I presume things like price guarantees, volume discounts, etcetera.

But help us understand where you are and when do we expect that to come through in the P&L for PT and maybe associated with that, should we think of kind of PT margins bottoming out here at these levels if indeed you start to see a bit more price realization in the second half this year? Or is that too soon to see a more meaningful impact from the measures you're undertaking.

[Peter Kinnart, CFO]

Thank you, Lars, for your question. I think when it comes to the price realization, I think what we see is that across all the business areas, we are seeing a positive price component generally speaking. As I mentioned, in some business areas, it is more outspoken, especially there where we have maybe more indirect business where we are able to have more broad-based customer portfolio. In the key account type of business, it continues to be much more challenging, I would say, to even table the topic, but we definitely do take all that topic with our customers.

I think I also mentioned in some of the earlier analyst conferences that it is not only a matter of trying to work on tries with these key accounts because, of course, in these contracts, there are many, many different clauses. It's quite detailed contract. And we also try to work on other aspects that might impact our costs negatively.

And that could be, for example, delivery delay, for example, to try to get them out of the way if we do not manage sufficiently to work on the pure price component. But I can assure -- I can definitely say that the price component and the realization of price increase is improving not only in -- also in fact all the business areas have a positive price component in their ranges.

[Operator]

Next question comes from Andrew Wilson with JPMorgan. Please go ahead.

[Andrew Wilson, JPMorgan]

I wanted to ask about Industrial Technique, where, clearly, you've now sort of had back-to-back very, very good quarters relative to in terms of absolute level and, obviously, the growth as well. I guess I'm interested in terms of how much of this around just the market, and I know you've kind of called out the positions that you have in EV and how much of it is around.

I guess, the fruition of some of the businesses you've bought over the last couple of years, which maybe were bought when the markets were a little bit more challenging, but now really coming through. I guess, interested if you can kind of help us a little bit in terms of understanding the sustainability of this higher level given it's now, obviously, a bigger business than it was before.

[Peter Kinnart, CFO]

Yes, of course, the acquisition that we have done, they are all part of divisions now. We do not really communicate in detail on the divisional results, but what we can say for ITBA is that there has been solid growth across all the segments, a significant growth in the general industry as well as in significant so all divisions actually contributed to the growth in the business area.

[Daniel Althoff, VP, IR]

Maybe to add to what Peter correctly said, is that if you ask about the adhesives and got and, of course, vision as well. All that is part of the growth within auto as well this quarter.

[Operator]

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

[Rizk Maidi, Jefferies]

I was wondering if you could help us assess the cost items that you were not able to compensate for. I think Peter, you talked about spot market buying air freight, factory inefficiencies, perhaps how we should think about these items in the second quarter? Should we still expect a negative drop-through in Q2? And when do you think we should go back to normalized drop-through as we've seen commodity prices coming up.

[Peter Kinnart, CFO]

Yes. Well, I think when it comes to supply chain and looking at all the different business areas, I think Overall, I would say that we do not really see a fundamental big shift in the ply chain. There are maybe a few softer signals from 1 or 2 of the business areas it indicated that things are getting slightly better. but not really a very bright shining light at the end of the tunnel there yet. When it comes to the different temporary cost increases that you mentioned.

I think the spot market buying is one big contributor there and that might be more particularly valid for Vacuum Technique, for Industrial Technique, for example, affecting the cost base a bit. Then of course, we have factored inefficiencies that are driven by the supply chain issues partly, on the one hand, but also of course, affected by the lockdown in China that has, of course, also had an effect on the efficiency there.

And when it comes to the lockdowns, of course, even though we have seen some issues popping up now recently again in Wuxi, but they seem to subside already now again. So there, we expect all things being equal, but that will not dramatically impact the quarter. There, of course, we will see some improvement in the third quarter as the factories are up and running gradually more at a higher efficiency, again, although they're not fully back up to speed where they normally should be, I would say.

Transport is another cost element there where we, of course, need to pay higher fees for any transport nowadays, whether it's trucks or whether it is air freight. And we do use more air freight than some time ago in order to make sure that we can deliver the products to the customers. I would not say it on time, but at least as timely as possible to satisfy the customer to some extent.

[Operator]

The next question is a follow-up from Guillermo Peigneux-Lojo with UBS. Please go ahead.

[Guillermo Peigneux, UBS]

I guess we heard you a lot talking about operating leverage being not so good during the quarter. Supply chain initiatives COVID anchoring the operating leverage at this point in time. Do you have any visibility as to when should we see some improvement in operating leverage.

I guess some of the aspects are a bit more controllable. I guess, investments are COVID-related and China-related vision as probably as they open, that will actually help your operated leverage, but what about [indiscernible]? What do you see there over the subsequent couple of quarters that could actually make improvement on your operating leverage as we close the year for the second half?

[Peter Kinnart, CFO]

Well, I think short term, we don't really see a very fundamental improvement. As I indicated, we see a little bit of improvement on some particular areas where maybe some components that we have really been struggling with for a long period of time, now become more readily available or we get, let's say, stronger commitments from some of the suppliers.

But those are quite rare, I would say, and they were not really sufficient to bring the very significant change of direction when it comes to supply chain in the short term. When exactly the supply chain will ease up and things will get better? I don't really have a visibility on that speaking.

I would say, if we look at the consumer confidence going down and maybe the consumer capital spending being affected by that would probably ultimately drive demand a bit down and that would, of course, result in the fact that there is also a lower demand for some of the components. And as a result, they might be more easily allocatable to industries like our own and that could help us to increase the output again further. And if that would happen, if that's worth to happen, then I think we could see an improvement, but I can't time that honestly speaking.

[Guillermo Peigneux, UBS]

And on investments, when are your investments starting to be a little bit more equivalent to your operations, i.e., basically normalized as we go forward?

[Peter Kinnart, CFO]

Well, I think on the R&D, we have, of course, a very strong commitment to make sure that we continue to be ahead of our competitors as much as we can. And then we will continue, of course, to do the investments that are necessary. I think normally, it would not really be a problem if the revenues would be able to follow without any supply chain issues because then, of course, the ratios would continue to be on a fairly -- on the same level as we have seen before.

It is not only because of the fact that our revenues are growing a bit slower than the orders that the investments are taking out a bigger portion compared to revenues. But once we get those revenues back on track, that should also be solved, I would say.

[Operator]

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

[Andrew Wilson, JPMorgan]

It's a quick one, I think. Just around Power Technique, the margin was, I think, the best we've seen certainly in a long time, possibly ever. It seems to be the explanation was simply the higher volumes, which given, obviously, orders have been higher and that will translate into higher volumes. Is there any reason why that's not a sustainable level for us to think about going forward? Or is there anything you'd point to in terms of being particularly kind of one-off in nature in what was, obviously, a very good result.

[Peter Kinnart, CFO]

Yes. Thank you, Andrew, for the question. I think when it comes to Power Technique, as you say, I think a very solid margin realization in the quarter. I think why did we get to this margin? I think, of course, there was a very high volume for Power Technique good growth. That contributed. We also see, of course, a good price realization.

And there, of course, we are a little bit less affected by the key compact of business than in some of the other business areas. And then last but not least, I would also say that the specialty rental division has been doing quite well. And that has usually a positive mix effect on the margin as well. So that, I think, explains the positive development of the margin.

Looking forward, we need to consider, of course, the impact of acquisitions. The acquisition is already integrated in that result, but we are also still expecting the closure of our [indiscernible] project, and that would also, of course, have some impact going forward on the margin given the amortization of the intangibles. And then I think we just have time for one more question.

[Operator]

Last question today comes from Lars Brorson with Barclays.

[Lars Brorson, Barclays]

Yes, excuse me. I was going to ask a bigger question on -- in a scenario where we see a more material European energy infrastructure plan, how might that impact the business maybe to make that a bit shorter. How should we think about the impact from a regasification story outside of gas and process? Is there much of a material impact potentially, Peter, in industrial vacuum.

So, not sure how much there is there. after the exit of JC cars, but also on PT, submersible pumps for LNG applications, et cetera. Can you help us briefly scope the potential impact across the Atlas businesses from a broader story coming through?

[Peter Kinnart, CFO]

Well, I think so far, I've been able to answer most of the questions, but this one is a little bit out of my league, I had to say. So I can't really give you a good answer to that. So I will I will have to take a pass on this one, unfortunately. But we can come back on it at a later point in time.

[Operator]

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Kinnart for any closing remarks.

[Peter Kinnart, CFO]

Thank you very much, operator. So thank you very much all for attending the call and for your very good questions. It was very interesting to listen to those. And with that, we conclude the call. for today and for those that are looking forward to some holidays, I wish you a very nice break and hope to see you soon again in one of our meetings. Thank you. Bye-bye.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.