Atlas Copco AB

STO:ATCO A

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, welcome to the Atlas Copco audiocast for teleconference for Q4 2021. [Operator Instructions] Today, I am pleased to present CEO, Mats Rahmström; and CFO, Peter Kinnart. Speakers, please go ahead.

[Peter Kinnart, Senior VP & CFO]

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

[Mats Rahmström, President, CEO & Director]

Okay. Thank you, Peter. I will go to Slide #2, which is called Q4 in brief. And starting with, we think we had solid order growth for the month -- for the quarter and actually came in somewhat better than we expected, and SEK 33.5 billion with 26% organic growth. And I think what stands out is, of course, a fantastic performance of Vacuum Technique, again, with 51% and also very strong from Power Technique.And it came through in -- both in terms of equipment and service. And sequentially, then compared to Q3, you can see the CT and VT was slightly down, which is kind of normal for order. Industrial Technique was down 9% and then fantastic growth with seasonal orders already for Power Technique with a growth rate of 27% sequentially.Record revenues, SEK 29.5 billion. And I must say that considering the difficulties with components and supply, we are quite pleased with that, that we sequentially and continuously improved the revenues quarter-by-quarter. And of course, we would like to deliver even more on the orders on hand that we have, but we continued to see difficulties with supply. So we're quite happy with revenue for the quarter. And that also gave us a record operating profit, SEK 6.2 billion, and a margin of 21.2%. And a very strong, I think, a record cash flow as well at SEK 6.6 billion.I change to Slide #3, which is called Q4 financials and maybe start at looking at the graph first. When we started in 2021, we said that maybe we should not compare our numbers only with 2020, but also compare with 2019, which was, at the time, the best year we have had. And of course, quarter-by-quarter, you can see that we have also managed to outperform 2019.And here is a confirmation of the numbers. Maybe I make a comment on the adjusted profit margin. It's a negative of SEK 214 million for the revaluation of the long-term incentive program, and the adjusted margin was 21.9%. Return on capital employed increased from 23% to 27%. And the main part of that is the increased volume.Then we step out of the quarter and look at summarizing the full year. And once again, then maybe take a look at the graph. You can see the dark blue being orders received, a complete new level for us, of course, a fantastic result. Maybe it's best summarized as record orders, record revenues and record profit.We also managed to complete 17 acquisitions for the quarter. And then we have the proposal from the Board, an ordinary dividend that goes from SEK 7.30 to SEK 7.60 to be paid in 2 installments and an extra distribution of SEK 8 with a mandatory redemption. And they also suggested 4:1 split, and Peter will give you more detail a little bit later in the presentation.And on the next slide, on Page 5, you see the full year financials. And orders received SEK 129 billion, a 33% growth, and revenues then at almost SEK 111 billion and 14% -- and then we can see 14%. Operating profit increased to 23%. So a little bit of efficiency as well and margin at 21.2%.We also have the next slide, on Slide #6, you can see the geographic distribution of sales, and it was a strong growth for all business areas, both in terms of equipment and service in all regions with the exception of Africa and Middle East, which represents 4% of the group. And pleased to see the continued success we have in Asia, but also strong Europe and strong Americas this time. So all the power hubs of the world are performing.We move to Slide #7. And just to confirm that now we have 5 consecutive quarters with strong growth. And Slide #8 is the sales bridge and that you can just confirm the organic growth numbers, but you can also see in the quarter that we had support from the strengthening of the dollar mainly, and Peter will also here guide you later on when it comes to the currency.Then on Slide 9, you can see the pie chart of the different business areas. And of course, Power Technique was very proud to have 43% growth. This is seasonal orders that we normally get in Q1. And I think some of these orders have been pushed into Q4 due to the limitations in operational capacity and also price increases.They thought that, of course, they would be the highest number in terms of growth, but Vacuum Technique had another fantastic quarter, supported by the digitalization of industry and society. And you can also say that the chip shortages for Vacuum Technique is beneficial to them. But as the underside, it penalizes the Industrial Technique business where we have seen stoppages in auto manufacturing. Very solid Compressor Technique with 14%, they continue their growth journey as well.Then we go into the different business areas, starting with the biggest one, Compressor Technique. We just mentioned 14%, and it's good to see that it comes out of all regions. It's both small and big industrial compressors as well as the gas and process compressors. We discussed sequentially, basically unchanged, I think it was down 2% and record revenues. And if you look at the graph, you can see sequentially step by step, although we have difficulties, but we still manage to improve the revenues.Operating profit at 23.9%, SEK 3.1 billion, very strong as well. Negative effects is still the supply chain constraints and to some extent of the acquisitions. Return on capital employed from 79% to 93%. And just before we leave Compressor Technique, I'd like to highlight this new generation of the fantastic VSD, variable speed, products. And now we start to introduce another range which they call the VSD-S. You can see the energy efficiency there compared to traditional technologies. And of course, that gives the customer a very good payback, but it also helps customers with their sustainability ambitions. Very pleased with Compressor Technique.If we go to Vacuum Technique, and pleasing to see here that it's not only semiconductors that is performing, but also general vacuums, industrial vacuum and scientific vacuum, and also solid development for service. In Q3, you can see that they almost touched SEK 11 billion, and this is, of course, the majority is still semi and that they managed to almost repeat that I think was a fantastic achievement for the quarter.And they also, you can see the same thing there. Sequentially, they managed to step-by-step build up the operational capacities. So they had record revenues. And I think the team can be really proud of the 29% growth. And then operating margin on 23.1% or SEK 1.8 billion was strong as well. Return on capital employed at 25% from 19%. And then other innovation. And you can see the same theme as in the Compressor Technique, energy savings up to 30%, both cost to customers, but also sustainable. Very, very strong from Vacuum Technique.Industrial Technique. They also came in with growth for the fourth quarter, both automotive and general industry and service, also strong to see that. Sequentially, although we can see that orders were down from the previous quarter. And operating margin at 21.5%, including the fairly large acquisitions we have done previous year, so strong to be at that relative number. And the return on capital employed from 13% to 16%. Here, don't have an innovation in terms of sustainability. But in terms of flexibility that they now introduced controllers with a function to take care of up to 25 cordless tools, which is very beneficial for our customers as well.And last on the business areas, Power Technique. And if you look -- this is Slide 13. If you look at Q1 in 2019 and Q1 2020, this is where they normally have the strongest performance. So I must say, quite -- it was a surprise to us as well to get some of these bigger orders already in Q4, but I already mentioned some of the reasons to that. So equipment was good, specialty rental was very good and service was good as well. Revenue up 14% and -- for them, and operating margin very good at 16.3%. And the return on capital employed at 27%. And here is another example of innovation, which links to efficiency and sustainability.If I summarize a little bit at this point on Slide 14 then. So we have seen a high demand on orders received, sequentially slightly down for some, which is quite normal; record revenues and record profit and all business areas performed in all geographic regions; and the operating profit then at SEK 21.2 billion.I think I hand over to you, Peter.

[Peter Kinnart, Senior VP & CFO]

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

[Mats Rahmström, President, CEO & Director]

Yes. No, we have said then that the business activity level remain at the current high level. I must say, quite difficult to predict normally into the future. But right now, with the things going on, I think it's quite difficult. But you see support in the trends that we have seen in Q4 that supports high demand.On the risk side, I must say that accelerating coronavirus globally, it's an issue for us in terms of sick leaves, but it's also an issue for the shortages that we already have in terms of supply chains and the same thing can impact them. And we also have regions where they have 0 tolerance, which means that sometimes we need to stop a complete line even if only 1 person has turned sick.So that's a little bit difficult to predict what will happen there. We still have shortages of components, as I mentioned, but of course, on top of that, we also have some of the geopolitical tensions. But all in all, I think a quite positive near-term outlook.And by that, I think we can open up for questions.

[Peter Kinnart, Senior VP & CFO]

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

[Operator]

[Operator Instructions] Our first question comes from James Moore with Redburn.

[James Moore, Partner of Capital Goods Research]

I think my question is about the drop-through in CT and VT. And I wondered if you could quantify the year-on-year impact of the marketing and digitalization costs in compressor and the capacity constraints in VT.And I guess really my question is, I know you're making investments around the world, particularly in vacuum where you are capacity constrained. But I wondered if you could help us with what you think the maximum revenue growth you could achieve in vacuum this year given the investments and given the current constraints.

[Peter Kinnart, Senior VP & CFO]

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

[Mats Rahmström, President, CEO & Director]

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

[Operator]

Our next question comes from Lars Brorson with Barclays.

[Lars Wauvert Brorson, Director]

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

[Peter Kinnart, Senior VP & CFO]

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

[Lars Wauvert Brorson, Director]

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

[Mats Rahmström, President, CEO & Director]

With the -- I mean it's an unusual situation for us as well. We don't fully know and we cannot fully guide. But yes, I understand that the activity level is still fairly high in PT as we guide also for. So no, we still see this couple of orders. And of course, those will not be repeated for those specific customers and it was mainly American and some European rental companies at the time. But we still see a high activity level, probably that will be deducted from what we expected in Q1.

[Operator]

Our next question comes from Andy Wilson with JPMorgan.

[Andrew J. Wilson, Analyst]

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

[Mats Rahmström, President, CEO & Director]

No. On the activity level, of course, with the ambition to grow 8% per year, we put extra pressure on ourselves on the organic growth. And you can see that over the last few years, we have increased the R&D spend to secure what I think is fairly risk-free organic growth and you can see it in CT, you can see it in IT and VT and PT that we are really trying to make sure that we have that.And what that might give us, I don't know. We hope to give 3%, 4% or a little bit more. And of course, then we need to complement and -- with acquisitions. And last year, we did approximately 17, I think, which added SEK 2.2 billion. And of course, we need to, and we have had this discussion for a number of years now how we accelerate and we have more teams dedicated to review the acquisitions out and the possibilities. But have in mind that we always look at the value creation for what we do. So we don't run away and do things.But yes, we have increased activity over a number of years on the acquisition. And this is the balance that you can see that we have the firepower to do things. And at the same time, we think that the dividend increase and the extra distribution, you can balance in a good way. I don't know if Peter would like to add.

[Peter Kinnart, Senior VP & CFO]

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

[Operator]

Our next question comes from Mattias Holmberg with DNB.

[Mattias Holmberg, Analyst]

Looking at the difference in cumulative orders and sales for VT, it looks like you've accumulated an order backlog in well excess of SEK 10 billion over the past 2 years or so. Can you please help us better understand how the phasing of the conversion of the backlog into sales will be, perhaps, in particular, in light of the challenging supply chain situation?

[Peter Kinnart, Senior VP & CFO]

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

[Mattias Holmberg, Analyst]

Perhaps, just quickly, can you quantify how big the pull forward has been?

[Peter Kinnart, Senior VP & CFO]

No, not exactly. Because the customer doesn't tell us that he preorders when he orders. So it's very hard to really put a finger on that number.

[Operator]

Our next question comes from Klas Bergelind with Citi.

[Martin Wilkie, Managing Director]

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

[Mats Rahmström, President, CEO & Director]

You are right with your conclusions. In VT, you can say that the long lead times that we [indiscernible] because, of course, we've closed when you have a committed price level to some of these bigger customers. And then on the -- during the lead time, of course, you can and might see price increases. And that makes it, of course, more difficult for us to handle pricing there compared to CT as you compare with them.It's still so, Klas (sic) [ Martin ], that when we see the improved gross margin, it is new products. It is where we see the innovation. But in this case, if I would balance the adjustments versus pricing, I would say that the pricing is less of an issue versus the adjustment. It's more the adjustment that you look into. Let's say, that we want to manufacture 100 pumps, you hire 20 people to do that. Suddenly, you only have components for 50, but you still have the workforce there. So that's one issue that we have overcapacity 1 day and the next week, we have undercapacity that we are trying to catch up.And then we go to spot market. I mean the priority [indiscernible] for us is to make sure that we meet the commitment from our customers who were buying electronics on the spot market, and that is also a quite significant price [indiscernible]. So I think they handled pricing better, and we are looking [indiscernible]. But your statements are correct.

[Operator]

Our next question comes from Daniela Costa with Goldman Sachs.

[Daniela C. R. de Carvalho e Costa]

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

[Mats Rahmström, President, CEO & Director]

Let's start with 2019, of course, that -- we thought that was a tough benchmark for it when we started the 2021 number. If it is the support from government to make things happen quicker, recovery, and the recovery has been first in China than we have seen in other regions. We have seen it for all different products, maybe the Gas and Process came a little bit later in the cycle, but we also see good development there.And as I said, in the fourth quarter, we see it's both the small and the big industrial compressors and Gas and Process. So it's actually after demand has changed versus 2019. It's correct that -- we believe that the -- although we don't comment to our exact market shares, but we are quite happy with the development, but that doesn't make the difference between 2019 and 2022. So with the demand, I'm sure competition will also do fine.In terms of efficiency, I think it's a very good position to be in right now when the sustainability comes into play. We have always discussed, of course, the payback on compressors and vacuum equipment and the generators [indiscernible] portable compressors in terms of energy juice, and that has been 1 sales pitch. But as society is moving to a much more net-zero environment, I'm sure that us and competitors that can offer the most energy-efficient product, we'll be in a much stronger position.How many orders that gives you, we don't know, but we are quite active to train ourselves and train our customers and especially the customers that have less interest in this. Some of the major operations in the world, they actually come to us with the request in terms of sustainability and how we handle that and how we can help.So I see us as being in a better and better position not only to talk about the financial payback, but also the CO2, how we can help them in that. So I cannot quantify it better than that.

[Operator]

Our next question comes from Guillermo Peigneux with UBS.

[Guillermo Peigneux-Lojo]

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

[Mats Rahmström, President, CEO & Director]

I mean it's of the semi and VT, it's -- I'm happy to see that industrial vacuum and scientific is growing in service, but it's still semi that is outperforming in relative growth. So to be able to match the SEK 11 billion that we have had in 2 quarters, that I cannot confirm and I don't know. And it's still 20 key customers. Past high activity level, yes, among our customers, to get supply -- to make sure that they get supply in the future as well.And we cannot look at the semi just for a quarter or 2, that end market views for the product is beneficial for this industry. We see high activity level, but we are in it for the long run, and we continue now to invest in both innovation, but also manufacturing capacity to meet this demand level. But I cannot confirm exactly how Q1 will look like and the reason for that is also that we don't know either as we have seen -- we see the activity level being high.

[Operator]

Our next question comes from Max Yates with Crédit Suisse.

[Max Yates, Research Analyst]

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

[Peter Kinnart, Senior VP & CFO]

I'm looking at my colleague, but I think, at the same time -- I look at my colleague [indiscernible], but I believe it's like semi relative term growing the fastest. But then there is also a number of segments, what we call general vacuum like flat panels that are influenced by the success in semi. So we believe that the industrial vacuum is growing faster than Industrial Technique and CT in relative terms.So that's kind of in between and they get the support from development in semi as well. So they are slightly correlated, and that is kind of a gray area between semi and the industrial vacuum. They touch on each other's application. So for example, screens on TV, that is part of this, we define as industrial vacuum.

[Max Yates, Research Analyst]

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

[Mats Rahmström, President, CEO & Director]

No, we have -- when we stepped into the industrial business, we thought that the innovation level was core and we saw that that's an opportunity. So we have tucked-in some resources into that and introduced a number of new products and every one of them introduced being successful on the market.So it's really driving the successful industrial and scientific vacuum. And as you say, complemented them with products or geographical areas in terms of acquisition. So we are playing on both this and the organic part with innovation is significant if we look at the product portfolio of sales today.

[Operator]

Our next question comes from Katie Self with Morgan Stanley.

[Katherine L. Self, Equity Analyst]

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

[Mats Rahmström, President, CEO & Director]

No. But Asia, I mean it's performing well because it was 40% of our business, but sequentially, it was down. We have seen that trend. On the other side, actually, there are some seasonality in that as well. So I would -- before I make my judgment call on the development, I would include at least Q1 to see, because if you look at our numbers for a few years, you can see that specifically China have been slightly weaker in Q4.But sequentially, you're right, it was slightly down. And of course, this is one of the regions where we have greater concerns about the COVID and the policies stay around there. We have an example in Q4, where 1 region next to Beijing, whether it will have the Olympics. They decided that everyone in the population should be tested. And even though that we did not have any corona cases in our operations, they still closed our factory for 2 days to make sure that everyone was tested.And of course, we are trying to protect ourselves as much as possible. But I think it will be interesting to follow, but I think we should give ourselves Q1 as well to see what happens then as an example sequentially.

[Operator]

Our next question comes from Rizk Maidi with Jefferies.

[Rizk Maidi, Equity Analyst]

Just a follow-up on your latest comments, perhaps, on the sick leave and the labor absentees. Maybe if you could help us assess whether you've seen any impact from Omicron in the month of December and probably January. You mentioned the example of China, but was there anything else that we should be aware of?

[Mats Rahmström, President, CEO & Director]

I don't know if I have a number, but of course, I've heard that sick leave has increased. I'm looking at my colleagues if they have a number to share with you. We don't. But yes, and I don't know how much of an impact it has had. It also depends on availability of components, of course, at the same time. So there's a number of parameters for the output.But I guess we mirror society in large. So I think you can apply the same for the people working for us in a specific region [indiscernible] protect our people privately. We have a very protected environment in our factories, but of course, everyone had a bad time as well.

[Rizk Maidi, Equity Analyst]

Understood. And then perhaps if I could just squeeze in 1 follow-up is how much more do you think you could have invoiced in Q4 if you didn't have any supply chain constraints? My understanding is that is getting smaller, I think, versus Q3. Any help there will be helpful.

[Mats Rahmström, President, CEO & Director]

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

[Operator]

[Operator Instructions]

[Peter Kinnart, Senior VP & CFO]

I just want to point out that we have just a few minutes left for the call. So please take the 1 question at a time, and we'll try to deal with as many as we still can.

[Operator]

Our next question comes from Sebastian Kuenne with RBC Capital.

[Sebastian Kuenne, Analyst]

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

[Mats Rahmström, President, CEO & Director]

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

[Sebastian Kuenne, Analyst]

[indiscernible] orders you have in VT are basically open -- leave them open to the market fluctuations?

[Mats Rahmström, President, CEO & Director]

To some extent, at least. Yes.

[Operator]

Our next question comes from Denise Molina with Morningstar.

[Denise Molina, Equity Analyst]

The question, just wanted to follow up on the -- Mats, you mentioned that there might be some additional capacity coming on in vacuum technique soon. I was just wondering what percentage increase that would represent of your current capacity. And also, is this a new plant that's being built out? Or what form is that additional capacity coming in at?

[Mats Rahmström, President, CEO & Director]

We don't exactly share what we install. But we are trying our best then to install the machines that we then ordered 12, 18 months ago and get them up to speed and running. And of course, it will take some adjustments to get them installed and up and running. So it's not just turning the key on, so to say. And we need to install further capacity to meet orders on hand. So it's not like that we have a number of machines waiting to be installed and then we are back on meeting the demand levels as we have seen right now.I mean the -- if you look back 1 year then, of course, we were celebrating and having a SEK 6 billion quarter. And suddenly, then we are trying to match them to almost 2 quarters at SEK 11 billion and we do have more free capacity in semi than anywhere else in the group, but not to this extent, of course. And even then if we start ordering to a new level, we still wouldn't have those machines in place yet, but some of them are coming into place and we will report accordingly quarter-by-quarter to see how much we can get out on the revenue.I think -- was that the last question, I think. And of course, Daniel will be available for anyone that has further questions that will need clarification.

[Peter Kinnart, Senior VP & CFO]

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

[Mats Rahmström, President, CEO & Director]

Thank you.