Atlas Copco AB

STO:ATCO A

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, welcome to the Atlas Copco Q1 2019. Today, I am pleased to present CEO, Mats Rahmström; and CFO, Hans Ola Meyer. [Operator Instructions] Speakers, please begin your meeting.

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

Thank you very much and warm welcome to everybody on the call for this first quarter report conference call for Atlas Copco Group. We will say with a very known usual format. As someone wise said, "Why fix something that ain't broken." So we'll do it like we normally do, which means that Mats will take his intro and his personal comments to the quarter and then we follow-up with the Q&A after that.And let me get this straight from the beginning, we have, today, also an Annual General Meeting. So we will have to be very short on the time this time. I need to stress again that each one of you that poses a question, restrict yourself to one question, and we will have to break after 1 hour sharp. We will try to do our bit, and let's work together and then we'll fix this, I'm sure.So with that, I'll leave it over to you, Mats.

[Mats Rahmström, President, CEO & Director]

Okay. Thank you, Hans Ola. I will start on Page #2, which is Q1 in brief. And I think the heading there was the strong order intake despite mix end markets. And as you know, the Q1 2018 was one of our best quarters. And although down, on top of that, we managed then to reach almost SEK 27 billion in this quarter. Strong support from currency, 6%, and you could see then that the organic growth rate was 1%. And auto and semi that we discussed previously, you can see that year-on-year that auto is down. So that's quite clear for us. Semi as well year-on-year is down. Sequentially, though, we can see that semi was strong and in the better position. That's mainly still linked to product business that is where the customer is investing in technology.And above expectation for us was the performance on power technique, whatever, close to 20% organic growth, but also on compressor technique, we did 5%, which I think was really, really strong, considering the comparison they have.And second point on service. You can see solid growth in the service divisions, and I think this is really building on our resilience. Good to see our strategy so strong on service, and of course, with the balance in vacuum, it's good to see that both the industrial and semi service is growing.If you look at the geographical part, it was principally all green. Asia was a little bit in red, and that's linked to the performance in [indiscernible]. You take Slide 3, let me summarize principally the same thing that I wanted to comment, you can go down to point 3, this is the margin, and you can see that we reported around 20.9%, and the adjusted margin of 21.8%. And simply, we have the restructuring cost in Industrial Technique around SEK 20 million. That was linked to the performance in auto. And then, we had a reevaluation of the option plans, which was close to 200.On the other side, on previous year, we have the divestment on compaction, which was a positive [indiscernible], and then we had the speed [indiscernible]. And thereby, they end up at 21.8% versus then the 21.8%. So in parity with last year.And we have support on currency and [indiscernible] to where we are. But we have also gone ahead with the strategic initiatives that we discussed over the last couple of years. One being the express what we do in R&D. This is that we have a really strong product portfolio that we can expand with something that is similar down. And we do have those programs now, which is, I think, very positive for us. We also invest in connectivity that is seen on service division and also in digitalization and customer engagement. So of course, these initiatives don't pay off immediately. But for us, these are the right things to go ahead with.On the graph, of course, you can see that the orders received level was on a record level by far, although it was 1% organically. And good performance in operations, SEK 24 billion something on invoicing, 4% up versus last year. So happy with that. And I must say that in every situation, it's very much normalized with normal lead times, so that is not a major issue for us.Slide #4 is development geographically. If we start in North America, what stands out a little bit there is Vacuum, but we can see strong investments in technology. And we can also see very strong Power Technique linked to construction and Rental business.In South America, positive effect. Our business is mainly down in Brazil and Chile. Strong from CT. Vacuum is very small in the region. It's [indiscernible] on industrial. That's also linked to the strong auto industry in Brazil. And the very strong Power Technique.Europe, a little bit mix picture. Strong CT, and the remaining, positive to much flat, but very strong from CT.Africa, this time, CT was strong in the region. Power Technique was also strong, with great support from the increase around productivity in the Middle East. If you look at Asia, and a big portion of that is, of course, Korea and China for us. Strong CT, positive on IT, positive on Power Technique. So I think that's all good. The negative part is on Vacuum linked to key accounts. And I was very pleased to see that we continue to increase our business in Asia, considering the trade discussions that we have had in the past.Next, Slide #5. This is the order growth per the quarter. And the organic part now, we have 2 positive quarters, it's only 1%. Looking at breaking it out a little bit by business items: CT, positive of 5%; Vacuum down 13%; and Industrial down 4%; and Power Technique, which was a very strong performance with 19%. And of course, you knew that Q1 is the strongest quarter normally for Power Technique. All through the industries and [indiscernible] that we have in the business.On Slide 6, you have the sales bridge and you can see the currency impact on our business on the quarter. And Hans Ola, he will remind you to guide a little bit on the chart and going forward as well.If you take Slide 7 now, it shows a little bit the split. I must say that with the return on capital employed on Compressor Technique compounded up 5%, so 5% organic growth, and then it is 47% of business. That makes us very pleased. The other thing I wanted to highlight was a little bit Power Technique. They've been through I can call it restructuring, a little bit looking at the strategic growth of the business a couple of years ago. And now, their sales up 19%, operating profit at 16.5% and return on capital 30%. I think they have done a very good job to restructure it and make it to a very solid business.Industrial Technique, you can see that the general industry business, that was slightly flat and down. We have there a negative impact from auto. And I think that it was somewhat weak in North America versus Asia and Europe.Down we go to the individual presentations for business item on Slide 8. Looking at the graph, you can see it stands out as record orders received for them. And in the report, I must say, big compressors flat or medium-sized. And maybe I should highlight that in both gas in process and industrial compressors, and it's the biggest sizes of those compressors with greater capacity, that is so many times in projects, that has developed really well. On the other side, I'm going to say that the industrial medium-sized and smaller is flat. You should have in mind that they then compare to very strong quarter last year.You can see revenues up 10%, also one of the best quarters that we have had and strong operating margin at 23%. And of course, an extremely impressive return on capital employed. One thing that -- you can see that they have listed 3 acquisitions. I think they found a really good way of handling this as a concept. I must say, when we look at these acquisitions from a synergy perspective, it's an easy case for us, and they know how to integrate them. So the success rate of this that you will see now and maybe in the future, I will say, they have a very solid plan and they know how to do it. I think they have a good concept there to handle small and medium-sized distributors for one reason other than selling their business. So good concept that they have really developed, I must say.In Vacuum, a little bit desolate. We talked and guided, they are negative, a little bit down on 13%. On the other side, on the positive note, we can see that there is a strong momentum, I would say, to invest in technology. Some of the customers here see an opportunity and looks to protect their business and take this to the next generation. So those investments are [indiscernible]. And then, you also see that China is very determined to be playing a significant part in sending order for us. They continue to invest as well. And then, and all I could say, well, capacity in terms of CapEx, well, it is still a little bit less and we don't really have a projection if that would come, we try to handle the business as is with the volumes that we have. And if we then have more CapEx investments in capacity over time, that would be the cream on the cake. So try to handle the business as is. And I think they've done a remarkable job here. Operating margin also down at 24.6%. And of course, you can also now follow a little bit on the level by the other revenue. Right now, down, was minus 8, and they still managed down the operating margin there, which [indiscernible]. And they also have support from currency, of course.Industrial Technique on Slide 10. Their order declined. I think I mentioned it's mainly linked to the auto sector. The other business was more or less flat. And what we see here is also a little bit what we guided, but also the electrification on the business, those products are going hand in hand. And that is valuable for the OEMs but also for the battery manufacturers. And we are in a very strong position for the battery manufacturers that actually use all our 3 technologies here. That's assembly and it's the distance equipments and also derivative equipment. So it's a good opportunity to grasp that right now while they are on a little bit capacity around the world. We can still see the hesitation to take decisions. It's not as quick as it was in the past. And their service, they developed the product over the years. And one of the unique concepts, I think, is the on-site tool kits that they have. I think there are more than hundreds out there today. It's a good [indiscernible]. And normally, when you get one of these on-site, this group will supply and will find more and increases. And you get to introduce the customer to understand applications and projects. So this is something that they're really focused on, and that's part of the growth rate that they have over the last 12 months. The adjusted operating margin was related to the restructuring that I mentioned earlier.And then, Power Technique. Internally, I call them the superstar this morning. So I think it was a very strong performance. They were up in the 19%. And if you look at the graph, it looks like they have acquired some companies. And -- but that's not the case. So that's a strong performance, and have though in mind that this is the best quarter for us. And this is the demand from rental companies around the world. And I would say, a little bit of market share in U.S. as well, especially the rental business is very strong in the U.S. We are developing that business in Europe. And Asia, I will say that they are taking a first step to see if we can get them, too. So we have this type of equipment as well. In that line, I would say, the priority for them is U.S., Europe and then Asia.This is one of the areas where we have not had such strong growth in service. And -- but now, we have had a couple of good initiatives. And you can see a little bit of all service group as well. And record revenue is up 8% as well. And operating margin now then is at 16.5%. And the one thing that drives this in a very good way is the product portfolio. They have this [indiscernible]. I think they said that they introduced to 16 products, different variants. And sometimes, they are feeling range at some degree [indiscernible] product I think in terms of energy efficiency in [indiscernible] assembly product, quiet products. They're also putting a lot of efforts on the battery, for example, battery life power, battery compressors. They have the variable speed generators. So all those new things tend to drive a differentiation from competition. And you can see that it's on the [indiscernible] as well, so solid and strong performance from them on Power Technique.And in Slide 12, you have the profit and loss. You can see what we reported on SEK 20.9 million versus the SEK 22.1 million. Actually, that's all there on the first page. But all in all, on the graph, of course, this stands out and the orders received, but I also think a very solid invoicing.Should I hand over to you, Hans Ola?

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

Yes. Why don't we do that. And If we stay on that Slide #12 for a while, just won't go through everything that you've already read in the quarterly report, but perhaps just guide a little bit on going forward when it comes to the interest net of the financial net, the best guide we can say, this is always difficult because there is always some impact from currencies also on the financial items. But somewhere a little bit north of SEK 100 million negative is where we expect to be for the next quarter or around about there. Further down in the income statement, on the tax, that is a loss here, but we also know that also the general corporate income tax rate in our countries is gradually edging down. We believe that 24% will be a good proxy for the remainder of the year or thereabouts.Let's turn to the next Page 13, which probably is more interesting this time. What you see here is the normal, we start to the right from last year's first quarter and we end to the left with this year. And you can immediately see that there are certain extra slightly long-term incentive program effect of valuations. Fortunately, it's a minus there because it means that the share price of Atlas Copco has done very well in the first quarter. And then we have to book that. It's accounting and it's not cash flow. But still. And then you can also see that in the bridge from last year, they're losing capital gain from last year, I think. And that's alluded to we had that in the numbers in Q1 last year and then there's some other things in there of restructuring and small acquisition impact.Then you see the hefty impact of currency, which I remind again, is a bridge number. What does that mean? If you have a negative last year and the positive effect this year, the combined effect of that is what we could see here as a bridge. So it doesn't mean that we suddenly lose SEK 660 million when we go to Q2, for example. So that's important to remember. But the numbers are big and it indicates that we had a healthy support of the margin in the first quarter.How -- and then we move to the really interesting column, the volume, price, mix and other, which is the real operational. And of course, it looks a bit worrying that the positive revenue growth and the negative operating profit growth. In short, I think Mats has alluded a little bit to it, but we have specifically in Compressor Technique a pretty strong negative mix. We have differences in the growth picture this quarter. It means that the lower than average division's average profitability have grown much more than the others. And that's what we have talked about a lot. We can also say that the strategic initiatives on R&D, innovation, the connectivity, all these kind of things, but we don't care whether we have a stronger growth quarter or not, we just continue to do them, and they have then, of course, increased cost compared to where we were on the cost side last year. I should also say that in courts of the group, we had a very strong absorption of fixed cost last year, which has turned a little bit this year. And I will comment that more on the next page. But before I leave this one, #13, on the currency for Q2 compared to Q2 in 2018, we expect about half of this impact that you see for Q1, if we compare Q2 to Q2. So half of the SEK 660 million is at least some kind of an estimate for Q2.We move to the next slide and go through the business areas. I think, with my comments already you can understand that the relatively low impact on flow-through on CT is really related so that the mix was not at all favorable. And that, of course, was then compensated by the positive currency impact on the margin. On the Vacuum Technique level, it's a solid profitability level. But in general I think it's a little, you can say, they had a very strong absorption. And you remember Q1 last year, they pushed out a lot of goods. And now, they have the opposite. We have lost revenue. So this, you could call it like an overabsorption last year has turned into an under-absorption this year. And that fortunately has been matched by the fact that we have a very negative currency impact Q1 last year and a positive one this year. So you can see that more or less sums it up for Vacuum Technique.Industrial Technique, Mats had pointed out the relatively big R&D and marketing investments along the strategic lines that he mentioned is the main reason for that. There is also there a negative product mix, you can say. And then, on Power Technique, I rest my case. It's all positive items.We can move on to the next page and say on the balance sheet. Not much to add. And we tried to help by giving the impact of the IFRS 16 leasing impact between December 31 and January 1, 2019 of SEK 3.4 billion roughly. And well, the rest you can see what has happened, accumulating some working capital and paying back some debt. That's basically the long and short of that. And of course, from last year, Epiroc is completely out of the balance sheet now.I move to Page 16. And on cash flow, not much to dwell on. Of course, you have to remember that on cash flow, we're not allowed to show continuing operations. The format dictates that it should be all-inclusive. So if we, as we wrote in the report, adjust for the Epiroc impact last year and we come to roughly SEK 2.4 billion compared to the SEK 2.5 billion today. The reason we don't increase the cash flow more than that is that we tie up relatively more in working capital in the Q1. In fact, the comparative number there is about SEK 1.1 billion last year negative and now it's almost SEK 1.5 billion. So that takes away the bigger profit improvement -- the profit improvement that we do have.If I then just end with that, we come to the near-term outlook, and it's a good point to leave it over to Mats again.

[Mats Rahmström, President, CEO & Director]

Yes. What we have seen down, and maybe why we summarize it a little bit that the [indiscernible] and high activity level among our customers is still. Maybe the structure has changed somewhat, but the bigger decisions, the bigger compressors, the bigger auto investments, electrifications, those goes ahead. They take this decision in one. And of course, that helps us and, of course, it was very positive for us with the CT and the Power Technique and performance of the quarter. But then, on the bread and butter, you can see a little bit more flattish turn. We don't really see looking forward that this will change very much in the coming quarter. On the other side, we don't see that it could be significantly better or significantly worse, and that's what we have stated with -- that we'd expect to stay on the current level, and that's been more of the sequential thinking. And year-on-year, when we discussed it previously, we lapped against one of our best quarters in 2018. And of course, we have some seasonality between Q4 and Q1 that you are aware of. But of course, there's also a little bit of seasonality between Q1 and Q2, and specifically within Power Technique, of course.

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

So thank you, Mats. We end there. And we'll leave it open for the Q&A. Could you just kick it off, operator, please?

[Operator]

[Operator Instructions] The first question is from Graham Phillips from Jefferies.

[Graham Phillips]

My question is on Vacuum Technique. Yes, a large drop-through perhaps not entirely unexpected, but the comment around service being strong, and I guess it must be around 1/4 of the business now and being higher margin, should we not expect to see some sort of contribution from that? And also, the comment around new product development for customers and just reflecting back to last year in the EUV products for ASML, I guess, they would have been higher margins and starting to help. Any comments around that please?

[Mats Rahmström, President, CEO & Director]

First, let's start with the service, I think [indiscernible] on the beginning, you have strong service concepts with the [indiscernible] and you know that there was a [indiscernible] all pumps up at 2017 and 2018. So we still think that has the great potential, but cream has continued to build on that. And the industrial service, I believe that we are building a little bit more from the ground that was a little bit there. But now, I think they really structured the business in a good way. They get better coverage. But we are not on the same level in terms of profitability, as we are in some of the other BAs at this point. So I'm actually -- I'm saying [indiscernible] make sure we have happy customers, then we work a little bit on the profitability and then we work on the volume. Now this comes a little bit hand-in-hand with the happy customers and volume. But over time, there's opportunities, of course, to continue to build on the profitability, but it's not overnight, we're still building, especially with the industrial part. Do you want to answer?

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

No. Just summarizing to your question, Graham, that the mix is not as favorable when it turns like this as in the others. You remember we talked last year that there was a very, very healthy profitability on the semi equipment side as well, which, of course, is one of the reasons that we dropped in this in spite the revenue from service growing.

[Graham Phillips]

But just a follow-up then, so the new product innovation that you mentioned that customers -- I mean, this -- because you may allude to things like the EUV equipment for ASML, which -- I mean, is that delivery -- those deliveries happening as expected this year compared to last year, which we're looking for quite sizable increases?

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

More or less. I mean, it alludes to what Mats said about the technology investments going on. But we don't have any numbers on that exactly compared to last year and so [indiscernible] plans.

[Mats Rahmström, President, CEO & Director]

If this account is successful, of course, we are also successful. So.

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

Yes.

[Operator]

The next question is from Klas Bergelind from Citi.

[Klas Henrik Bergelind, Director]

It's Klas from Citi. Also on semis and flat panel, if I could. The memory side seems to be weak when we listen to the OEMs and other suppliers. You obviously gained from a couple of important orders in the quarter on the technology side. I'm just thinking about the order development here into the second quarter. What is an underlying order level now going forward? Do you think you strip out those larger orders? Or is this the new normal? It feels like we could weaken a bit further before the market turns.

[Mats Rahmström, President, CEO & Director]

I mean, nothing at the utilization in the factories, auto, it's still on the high level. They continue to build the demand for those logic memory over time. So of course, at the end of the day, they will run into a capacity issue. We don't really predict when that's going to happen. We know we're going to be wrong about that anyway. But what we do know is that with the volumes that we have now, with the structure we have on the business right now, I think we really push the organization to have the agility and the profitability to where we are right now. So around that investment comes in capacity or memory or any other product, and we take that on top, I think, will be a time when to make the case as it is right now. And that's what we see in semi. And we see a very -- as I mentioned before, we see a very -- Chinese OEMs really stepping into this. And I must say that they are all very successful bidding those orders in China. And then you can see, as I mentioned as well, along with technology, it is more technology. And even a big capacity one, they can really ramp up after those decision come perfectly. So that's what we're seeing right now.

[Klas Henrik Bergelind, Director]

Okay. Can I just ask a quick follow-up to you, Hans Ola, on the drop-through following on from Graham's question. It came in at 58%, which is similar to the drop-through in the up cycle. But in the up cycle, the drop-through benefited from the synergies between semicon and Industrial Vacuum. And you were -- as you were integrating M&A and you were utilizing your capacity. I think you said that we shouldn't expect that kind of drop-through on the way down. Or was this just one quarter where you maybe didn't utilize the flexible side of the cost base as you saw demand relatively stable?

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

I think I also said a couple of times that the quarter is a relatively short period and it's difficult to read too much into 50% or 40% or 30%. But I think the important comment is really that they did push through a lot of equipment at the cost rate that they had a year ago. And now, they don't have the same output, as you can see in the volume. And of course, on semi, it's more negative than the whole business area. So the bridge effect gives that, to be honest. And that's the main explanation. 50 -- I know for experience that when you go down on the short perspective, you lose more per lost revenue growing out than what you gain when you grow up quickly. So that at least is in line with what we expect.

[Operator]

Next question is from Guillermo Peigneux from UBS.

[Guillermo Peigneux-Lojo]

Guillermo Peigneux from UBS. Just follow-ups really. You commented enough on the drop-throughs, both for VT and Compressor Technique. I just wonder, given the current visibility you have in the backlog for CT and VT, when would you expect these drop-throughs to minimize both for VT and Compressor Technique. When would you expect that the business will start to return the same amount or the normal amount to the growth you report?

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

Mats is pointing to me over here, you can't see that, but it's a flow-through question. And then -- yes, joking apart, it's impossible to give you a guidance on when because I don't think any quarter can be seen as a perfectly normal quarter to be perfectly honest. So I'd rather not give more meat on the bone on that one, if you'll excuse me, Guillermo.

[Guillermo Peigneux-Lojo]

No problem. But then, let me rephrase the question. If I see basically that large Gas and Process orders and large industrial compressor orders have been basically dominating your order intake the last 2 quarters in terms of growth, I would say that if we're to assume that the relatively low drop-through is here to stay for at least a couple of quarters, similarly, if I look at VT, obviously, at the moment, you're just matching against the best performing quarters, as we already discussed. But then, towards the end of the year, it will be much more normal. Am I just talking the right picture, or would you agree with my statements or disagree rather than guide me?

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

No. I think that the answer always becomes that on a 12-month rolling basis, I think we will be -- if we grow, you will -- should expect something around a 30% flow-through, 30%, 35%, depending on what pricing is doing in that period. And that's as close as an answer I can get to that. But the main thing with this one is to be able to comment what has actually happened in the quarter, so to speak. So I cannot give you more on that for the future, sorry.

[Operator]

Next question is from Max Yates from Crédit Suisse.

[Max Yates, Research Analyst]

Just the first question is on the Gas and Process compressors. Could you sort of give us an idea as a percentage of total orders in Q1 in compressors, how much they accounted for? And my understanding was they were sort of 10% to 15%. That seemed to have obviously a fairly significant effect on the overall growth rates. So I just wanted to understand a little bit proportionately, where they sit now as a percentage?

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

As without being caught in the trap of every quarter having to disclose every number, so to speak, let me say it like this that yes, you're right, that both on primarily on orders, of course, but also to a certain extent, on revenue, they have been doing very well. And then, yes, and process can go up in those periods to about 15%. And in other periods, it will fall down in this span that you said yourself, between 10% and 15%. So you can expect it to be in the upper end of that range.

[Max Yates, Research Analyst]

And maybe just a follow-up on compressors, on the industrial compressors. I think you're a little bit more unusual, I guess, relative to many of the other competitors, short cycle competitors that we've heard where you've talked a little bit more constructively about Europe and talked about Asia and North America slightly down. I guess North America is maybe slightly surprising within that. I mean, did that sort of regional development surprise you at all? Or was there anything specific you would call out regionally timing-wise, comp-wise in North America that may have driven that?

[Mats Rahmström, President, CEO & Director]

I don't think we have any statistics really to confirm any trends. But it is correct that we've seen a little bit weaker business in North America. And that is also rather down for Industrial Technique. If those are linked or not, I can't bend up to say. On the other side then, to the 5% organic growth for the quarter was about our own expectation for CT. And to see the continuing growth in Asia, it's of course extremely important for our continued performance. And then they stand out in Europe, I have not checked the benchmark versus last year, but that was also very promising. So those are the 3 main markets, of course. But after one quarter, I cannot really say that it's up or down even who we, of course, follow.

[Max Yates, Research Analyst]

Okay. So there's no clear trend that's making you concerned in North America as it stands?

[Mats Rahmström, President, CEO & Director]

No. Except for that, but you can see that some of the big OEMs in auto have flagged a little bit for a quite big reduction of employees. And I think they'll take that opportunity to restructure a little bit. That was a little bit of hesitation, of course, on investment at this point. And we see the main drive for electrification that's been coming out of Asia. But also, we can see more and more activity in Europe on that side.

[Operator]

Next question is from Matthew Spurr from Exane BNP Paribas.

[Matthew Spurr, Research Analyst]

Power, the -- you said about the growth coming from equipment rental companies. Is there anything exceptional about the order intake? If I look at the chart on Slide 11, I can see that you're pointing about seasonality you made, but the growth in orders this quarter looks way above that. I just wondered whether or not that we have a reset after this? Or do you expect -- now we had the question with Vacuum, is this sort of a new normal? Could you comment there please?

[Mats Rahmström, President, CEO & Director]

I mean, there is a normal trend that the investment there is normally in Q1 because this is normally the strongest, and Q2 to follow them a little bit weak, of course. And this is exceptional, of course. And as we said, rental was one area that was very strong. But then also the pump and the generator business was clearly above our expectation. And that is a little bit linked to a handful of accounts. So there, of course, you can see a setback depending on the investment cycles. So that's a little bit what will touch the grass, of course, at this time. And the portables is stable on the good level. But what stands out in this quarter, I must say, ground sale continued to perform very strong. And if it's something that is different from the other quarter was still the linkages of pumps and generators.

[Matthew Spurr, Research Analyst]

Okay. Could I have a one quick follow-up on Industrial Technique. I think you said you were going to give a comment on the under-absorption of the overheads, but I don't think you ever gave it. You had 3% organic sales growth. So could you just explain the under-absorption of overheads that you mentioned in the report?

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

Sorry. Which -- in the general -- on the Industrial Technique?

[Matthew Spurr, Research Analyst]

Yes. In the report, it says there's factory, I guess, Industrial Technique. Yes, under-absorption in factories. But you still had 3% organic growth. So would you like to explain where the difference...

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

No. I mean. Yes, the...

[Mats Rahmström, President, CEO & Director]

Organic growth is down, right?

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

Exactly. Exactly. So the -- well, on revenues, it's up compared to last year, but it's also a fact that it's 12 months later, so to speak. So the absorption effect, again, I think, is also relevant -- relative to how much we utilized our fixed cost and factory utilization last year. So it looks a little bit strange, I grant you that. But it's clearly so that if you look in the quarter as such, then the comment here is valid. That's what we wanted to point out, and that was not the case last year. So the effect is there. If there was a bridge here, you would have seen it on the Industrial Technique, if I say so. Because I can't give you why we are at 84% or 78% or something. We struggle like everybody else to find the perfect KPI to measure that, to be honest. But in relative terms, it's much, much less positive than it was last year.

[Operator]

Next question is from Ben Uglow of Morgan Stanley.

[Benedict Ernest Uglow]

I guess maybe I'll get away with the follow-up, but my first question is around China. What are you guys seeing on the ground in China at the moment between Compressor Technique, Industrial Technique? Was there anything new or different on the Vacuum side, because you seem to be alluding to some type of activity. And could you tell a little bit just about how things progressed during the quarter? Obviously, there's quite a lot of expectation there about stimulus measures. Are you seeing any benefit at all from China's stimulus at this point?

[Mats Rahmström, President, CEO & Director]

Let's start with the industrial in China. Industrial Technique. It's clearly so that our positioning in the Chinese manufacturers that we established many years ago is really paying dividends right now. They are gaining market shares in, for example, smaller SUVs. My family also has a lot. It might sound stupid, well it's not the competent. The new finance, the electrical products, when they relatively, of course, is in contrast now to look at different assembly technologies that they want to do something in steel. And then they have assembly technology with [indiscernible]. If they want to do something in composite or high-strength steel or aluminum, then we can help them to guide them a little bit on the strong equipment instructions of the [indiscernible]. We were thinking this is, for example, aluminum. Aluminum just becomes -- of course, in reality, when you want to know capacity out of your batteries and then you need work on the weight on your car, you still want all that additional functionalities in your car. So you need to pay for this. And it's normally the material in the body, right? So the position is they are strong to come to us and talk to us about this. And I don't know if you have seen it, but if you're in China, [indiscernible] one of our technology centers, you can actually come in as a supplier. And for example, you have a complete battery pack where they can take it step-by-step using different technology, and I'm talking about the benefits of different technologies and designs.I think that's a unique position that we have and this is split around the world. I would say that China is probably the area where there's relative chance that we get our business on electrification compared to other areas, even though other areas start to pick up a little bit. On the compressor side, I think it is the bigger compressor scale, big capacity, a new factory or if it's -- that's why they have a need for a huge capacity. That's what we see there. They are not super strong, and this is one of the areas for Power Technique which is probably 20% of sales. It's a bit of Power Technique, so that is a market share gain race. And mainly, they are strong on portables and the couple of ground. We tend to be significant in the other product ranges. And as I said before, it's not the tradition on rental in China.

[Benedict Ernest Uglow]

Okay. One -- if I can, one quick follow-up. And I apologize for laboring the point around Vacuum and orders, et cetera. When we look at the order book, if I look at the intake, it's ballpark $600 million for the quarter. Can you give us any frame of reference, Hans Ola maybe, for how to think about large orders in that mix versus smaller, let's call it more underlying activity. Is this an unusual quarter? Is it a much higher percentage of the intake this quarter? Can you quantify that? Is it 20%? Is it 30%? 50%? Any help here would be much appreciated.

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

Yes. Yes, I understand that, but I can't give you very much help, I'm afraid, because it's not so much that it's specifically very large orders. As you have big key accounts, every order tend to be big in one respect. But -- so it's more about the fact that, sometimes, they fall in this quarter, and sometimes they don't fall in the quarter. And so that is the difficult part with this. And we could have had the same view on the underlying performance with the $570 million quarter, if you like. So it's not so much that. I think Mats has already commented more on that new technology projects that look into, let's say, the not capacity but the other part, and then China having their strategic agenda, so to speak. That's what I can say. So it's tough also for us.

[Operator]

Next question is from Alexander Virgo from Bank of America Merrill Lynch.

[Alexander Stuart Virgo, Director]

Maybe I'll just keep it to the one and ask you, Mats. So I think, in the past, you said that you would be surprised not to see weakness in automotive market spill over into industrial. And I wonder if you could make a comment on to what extent you're seeing that or not, because it certainly doesn't feel like we're seeing it. And I'll maybe leave it there as an open-ended question.

[Mats Rahmström, President, CEO & Director]

I think you're right. And through my experience in the past is that when we have seen weaker outlook, that over time, the general industry, which is linking after the Tier 1s and Tier 2s and Tier 3s, which is defined in many companies as general industry, and that will probably follow. I do agree with you though that the general industry is still performing on a high level, although that is the year-on-year that it's flat. But there is, over time, a correlation between outdoor and GI, that's at least my experience from Industrial Technique in over the years I've been there.

[Alexander Stuart Virgo, Director]

And yet, you're still comfortable with the fact that the outlook is relatively unchanged? Your commentary on demand is relatively unchanged?

[Mats Rahmström, President, CEO & Director]

Yes. I think they're still seeing that, that is still a high activity level. And breaking it down a little bit, we see more favorable positions in electronics this quarter. And then, in off-road, was a little bit more flattish, which is one of the biggest segments. Will that come back or not? We will see. But overall, it's a little bit flattish. And it depends a little bit on the segment that they look at. Aerospace is also this bigger CapEx investment and then it can be quiet for almost a year and then they do something big again. Aerospace has been a little bit less active right now, but that can change quite drastically as well. So we don't see a trend where we can point to say that GI is all the way down, but it's more flattish, as indicated in the report as well.

[Operator]

Next question is from Gael de-Bray from Deutsche Bank.

[Gael de-Bray]

I just had a question on the R&D initiatives you're talking about so much. Maybe could you talk a bit more about the innovation pipeline in the Compressor Technique division. Fundamentally, what will drive growth going forward? Are there specific applications or new technologies you're working on at the moment and that could possibly begin changes for the business?

[Mats Rahmström, President, CEO & Director]

I mean, first of all, if we have a strong position, of course, in manual compressor segment, but we don't have 100% market shares. So we're still working on the market penetrations. When it comes to R&D, I think, those 2 things, both what we do on technology, and normally, the technology drives energy efficient for customers. And of course, if we have something that is a good payback for customer, we can activate those accounts somewhat earlier and build a little bit on the market. But then we also have areas where we think that we can do better. Low pressure is one of those areas that we have now invested quite heavily in the product portfolio and we believe now that we have a very strong product portfolio. The outstanding product that we introduced last year was the newly operational oil-free machines and it's so much more efficient than what you see out there and also within our present machines, of course. So it's most technology I think to energy efficiency. I mean, with the customer, that's one of the bigger customer to drive the compressor. And we also expanded in areas close to what we're doing today. And one example could be, for example, low pressure.

[Gael de-Bray]

Okay. And sorry if I missed that, but did you say anything about the pricing trends in Vacuum Technique? Have you seen any changes lately in the pricing patent, maybe over the past couple of quarters?

[Mats Rahmström, President, CEO & Director]

No. I wouldn't say that. It's really driven by value in that segment. They cannot afford to have any downtime. And pricing is, of course, extremely important to them as well. But we continue to introduce new generation of products. And that is beneficial to them and that is also the way we work with the pricing that always brings something new and more efficient. So there's nothing that has changed in that climate in Vacuum.

[Hans Ola Meyer, CFO and Senior VP of Controlling & Finance]

Thank you. We are then approaching the full hour, and I'll thank everybody for participating and just remind people that next time when we have the similar call will be on the 15th of July. It's the summer months, so we try to be quicker in those months, so we can go on vacation afterwards. But the 15th of July is when we will report on the second quarter. Thanks, everybody, for participating.

[Operator]

This now concludes your conference call. Thank you all for attending. You may now disconnect your lines.