Atlas Corp (ATCO) Q1 2023 Earnings Call Transcript

Atlas Corp (NYSE: ATCO) Q1 2023 Earnings  Call dated Apr. 27, 2023

Corporate Participants:

Peter Kinnart — Chief Financial Officer

Mats Rahmstrom — Chief Executive Officer

Analysts:

Andrew Wilson — JP Morgan — Analyst

Guillermo Peigneux — UBS — Analyst

Sebastian Kuenne — RBC Capital — Analyst

Max Yates — Morgan Stanley — Analyst

Klas Bergelind — Citi — Analyst

James Moore — Redburn — Analyst

Ben Heelan — from Bank of America — Analyst

Jonathan Day — HSBC — Analyst

Andres Koskie — BNP Paribas Exane — Analyst

Daniela Costa — Goldman Sachs — Analyst

Presentation:

Operator

Welcome to the Atlas Copco Q1 2023 Report presentation. [Operator Instructions] Now. I will hand the conference over to CFO, Peter Kinnart. Please go ahead.

Peter Kinnart — Chief Financial Officer

Thank you, operator. Good afternoon, everybody on the call and very warm welcome to this quarterly earnings call for the first quarter 2023 for the Atlas Copco group. Together with me is Mats Rahmstrom, our CEO. But before I hand over the words and, of course, you have heard me say this many times and I will continue to repeat it, I will ask you, when we open up for questions to only raise one question at a time in order to make sure that all the participants are able to raise their question. And of course, if we then go through all the participants and you have more questions then you can, let’s say, get back in the line for a second follow-up question. We will also be a little bit severe on the number of questions considering that we really have this one hour to go through the call and try to answer all of your questions as we also have the Annual General Meeting of shareholders taking place today. And we are a little bit on a tight schedule. But that being said, I would like to now hand over to Mats Rahmstrom, who will guide you through the first part of the presentation.

Mats Rahmstrom — Chief Executive Officer

Thank you, Peter. On the first page, this time we have a picture where [Indecipherable] and it’s part of the explanation why we have such a strong orders received. There were very strong orders received from this type of machines, both for liquid natural gas and carbon capture. So very proud to show this picture to you all. Then we can go to slide number 2. And then confirming then the orders received, that was close to SEK48 billion, 5% growth. But if you break it down per business area, it looks quite much more impressive that Compressor Technique. They were up 19% organically and that was a record for them. In Vacuum Technique, they were down 27%, still related to the semi industry. But interesting enough, both the scientific and industrial vacuum continues to grow. And Industrial Technique with tailwind from the electric vehicle market were up 20%, that’s also a record for them. And then fantastic record for Power Technique, they were up 11%. Of course, in Power Technique, you see that there is seasonality, but they also outperformed what we expected. And then you can see that the CT gas and process was very strong and the big machine in [Indecipherable] as well. At the same time, that Industrial Technique had tailwind, as I said, from the electrification and battery manufacturing.

We’re also happy to see because we also need to understand when we were at the Capital Markets Day, I took quite some time to explain the new growth platforms for the group, how we have invested both organically and also through acquisition and we can see a significant part of growth is actually coming from the new areas now. And at the same time, I can see that the sustainable segment, if I can define them like that, like wind, solar batteries is also a significant part of of orders received and invoicing. So very happy with the orders received development.

And then if you look at the revenues, we can see that it was close to SEK40 billion, 18% up. And of course, there is still a gap between what is received and invoicing. On the other side, the 18% up, we are quite pleased to that. And in terms of deliveries and the [Indecipherable] there, I think we can summarize the picture that the compressor technique and power technique, they see at least the light in the tunnel. It’s an improved situation for them. But we still see challenges with Vacuum Technique and Industrial Technique and mainly electronic supply.

If you then change slide to slide number 3 and take position number three, you can see the operating profit at close to SEK8.7 billion with the margin at 21.8%. So the profit is up 29%. It’s supported by volumes, of course, both in terms of volume and pricing. Currency also positive for us, but we still have, as I said, supply chain challenges. Also worth mentioning is that we continue to invest in new generation of products as we continue to invest in R&D. We also invest in the customer relationships in terms of where in the world we should be. And of course competence as well, we think that’s really, really important. And I think looking at the graph, at least internally here, we are very proud of the significant growth we have seen for this quarter.

And if you look at the geographical Matt on Slide 4. And we can see that we have green numbers in the what we call the power house around the world. So in Asia down at 37%. It’s [Indecipherable] 37% and sometimes you can see a slightly higher number there. But we have double-digit growth in Compressor Technique and Industrial Technique and the same share is of course in the semiconductors with the Vacuum Technique. So very pleased with that. That goes also for Americas, obviously, double-digit growth in all business area with the exception of Vacuum Technique. And in Europe down, we have two Compressor Technique and industrial [Indecipherable] with very strong Vacuum down and [Indecipherable] flattish, I can say. So happy to see that there are so many customers in different continents that see us as a very competitive alternative, helping them to generate value for their operations.

Slide 5, just the confirmation on the organic 5% growth and then have in mind that we had the negative 2007 on Vacuum. On Slide 6, you can see the sales bridge. The structural changes we did at the acquisitions last year. And that you can see on that line and they can see that we still have help from the currency, 7% on orders received and 8% on revenue. And Peter will then little bit later, try the guide you on the currency for the coming quarter. Slide 7 shows the split between the different business areas. Of course, with high profitability and high growth rate, it is very positive for me to see the Compressor Technique growth rate of 19%. One other thing that I recognized internally was also that on the orders received actually Power Technique this quarter is bigger than Industrial Technique, although that Industrial Technique is growing 20%, That’s also, of course, part of the acquisitions that you’re seeing.

Change to Slide 8, Compressor Technique. And they had the record orders received, organic, it is of SEK22 billion. And as I said on my first slide, a lot of the bigger orders has come from gas and process. But they’ve also seen strong orders on the bigger machines and that goes a lot into the newer segments that could be EVs, battery, hydrogen, LNG, even lubrication of ships is becoming an interesting application for a sustainable segment for us. And then very happy to see that the already strong service performance continues and they are growing. And then they also managed then to deliver on record revenues, although that we are pushing them even harder to see if they can bounce that number up even further. And then operating margin, outstanding 24.1% and return on capital employed, 82% and somewhat diluted from the acquisitions that we have done last year. And here you can reuse, I’ve mentioned it earlier, the growth platforms that we discussed if of course filters, the chillers, low pressure, high pressure and industrial gases. And we can see clearly that this is a strong development for us and a lot of the development is to this sustainable segments. So that’s part of the explanation that is sustainable over time, they continue to perform.

And then we go to Vacuum Technique on slide number nine. And of course it’s negative development. But if you look at the graph, you can see that we had a SEK9.5 billion quarter. Yes, it’s below what we have seen over the last two years, but if you compare with 2020 or 2019, you can see it’s still a very strong quarter from that perspective. And we see of course that semi is down and memory first. And we have also seen cancellations in this quarter, but the level is still up there and we still believe it will be probably be from a capex perspective, I think it will probably be the third best year anyway. And I think the growth drivers for semi is simply the number of devices that we are using that need semiconductors, that could be AI, 5G, cloud computing, gaming, medical, supercomputing, automotive and industrial is very strong as well and we will see some cyclicality, although that didn’t think that becomes less than less over time. And as you recall, when we acquired this from a strategic point-of-view, we also said that we would focus on the industrial vacuum, the scientific vacuum and the two service division and I think that strategy is really proving to work out for us in a good way. Operating margin at 22.7%. You can say it’s a quite quick turnaround from Q4, but they also had some help here from currency, clearly. And here, if you look at the performing new growth platform [Indecipherable], the liquid ring pump is doing well as well. Process diagnostics it is also up load small, but they also stepping into this new areas which is paying off. And, of course, I think it’s once again damn interesting to see the scientific and industrial continue to grow.

Industrial technique. Once again, the record orders, they were up 20%, SEK7.7 billion. We can see that the auto sector has done really well. The main part of that is two new projects in electric vehicles, the transformation both in Europe, but also very, very strong in Asia. We can also see that on the industrial vision part, strong orders received there as well. So we are now combining the vision with automation, or not fully automation, but the flexible automation that we offer station by station. And of course, our sales is mainly driven by capex, you can follow, it takes some more on the service level and service also continued to have a strong delivery.

On revenues, up 19%, but we still have challenges with power electronics but SEK6.5 billion there and an operating margin down on 21.1%. Group segments that we have talked about before, electronic dispensing is doing very well. We are combining that to offer the dispensing part together with screwdriver as a package, we get better and better penetration in electronic industry. Machine vision and in-line quality control of flexible automation is also growing. And I think they are in a very good position for some of the big market rounds, EV, battery automation.

Power Technique. They surprised us with fantastic orders received and also down the record at SEK8.91 billion. Of course, there are seasonality in this numbers that you all know. Strong demand from rental companies in the U.S. on equipment. And I also mentioned before that this is the business that we ever had most difficulty to get the full traction on service, but now I think they combined growth with improved margins and I think that looks promising for the future. And they also had record revenues and they see less of problems when they have dual sourcing now on engines and an operating margin at 19.1%.

And it’s very interesting to look at the new product here, I think. More than 90% of our product we sell to the market is electrified already. The surface pump traditionally have been driven by diesel engines, but now we are starting to introduce also the pumps that are electrified. And the steam rental is doing well and the new [Indecipherable] industrial pumps is also doing very well. I think it’s a strong development for a business that traditionally was mainly in construction and now we are to transforming it into more industrial applications.

And then on slide number 12, we have the profit and loss. Yes, we give you the EBITA and in our case [Indecipherable] the amortization of intangibles from acquisitions, and that would be at 23.1%, I should do highlight when we drive the company, it’s on operating profit and that is 21.8%. Maybe this is a good handover to you, Peter.

Peter Kinnart — Chief Financial Officer

Yes, thank you, Mats. I will continue. Then, of course, we have the smaller amount of net financial items, which have dropped in spite of our lower or higher net indebtedness, but that is mainly linked to the fact that the interest rates on our cash has gone up. And therefore, it’s a little bit lower cost than before. Profit before taxes then at SEK8.7 billion compared to SEK6.7 billion. And then the taxes are SEK2.1 billion, which is an effective tax rate of 24.6% and that of course as you recognize is a significantly higher ratio than we have seen in the last many quarters. The reason for this high effective tax rate is, you could say a shift in the geographical mix of our business. We have grown quite substantially from a revenue perspective in countries and regions with higher nominal tax rates and as a result of that, we end up with this higher rate. There is no other main reason for this shift. When it comes to then the forward-looking view on the tax, then given this development, it is likely that the effective tax rate will remain on a higher level than we have been used to. We are trying to find ways to mitigate that by making use of measures given to us by different governments to support, for example R&D initiatives, etcetera. But it’s likely that going forward, this will be rather close to 24% as it looks now compared to the past. That gives us a net profit of the period of SEK6.5 billion, which is a 25% increase compared the same quarter last year with basic earnings per share 1.34 Swedish krona. Return on capital employed of 29% and return on equity of 32%.

If I then move to slide number 13 and look at the profit bridge for the group. Then you see that we comparably went from 22.4% the year ago for the first quarter to 21.8%. That is on the one hand the negative impact of the share-based LTI programs as well as a diluted effect from acquisitions. That has been partly compensated by positive currency impact as you can see here. When it comes to the outlook for the currency impact there, we would rather assume that it will continue to go down gradually as we have already seen from last quarter to this quarter. And is likely to end, let’s say probably still slightly positive, but rather close to 0, we expect. And then we have volume price mix and other, which are showing positive drop-through at the same level in fact, as we had in quarter one, 2022. So the margin doesn’t really improve neither deteriorate from volume price mix and other impacts.

On the next slide, number 14. We dive a little bit deeper into the respective business areas. Because you do remember of course that when we reported Q4, we had two business areas that were performing less strongly than we have been expecting and we indicated that different measures have been taken to try to bend that trend. While at the same time, we also said that some of these measures might take some time to really materialize. I think that is also in fact visible in the detailed bridge by business area. If I focus immediately to Vacuum Technique and Industrial Technique, which were the two business areas I was talking about. Then at 22.7% for Vacuum Technique remained flat on 22.7%. And in fact the drop to is positive, but is lower than 22.7% from last year. And so in fact, there is still dilutive effect from volume price mix and other effects also from the acquisitions, while currency compensates for those two effects still, but as you will notice if you compare to the figures from Q4, the negative impact, let’s say, is much, much lower than it was in the last quarter. So we are very happy to see that some of the measures already started to have some contribution, but we are not fully there yet and we need to continue to work further on the [Indecipherable] here. For Industrial Technique, it’s more or less a similar picture one might say. There is, in this case, no diluted effect from acquisitions. But in the currency for Industrial Technique is in fact slightly negative on the margin while the measures that have been taken across industrial technique have proven to be contributive to the operating margin. And there we see better drop-through than actually the comparable period last year. And then, of course, we have two business areas left, starting with Compressor Technique, moving from 23.8% to 24.1%, which is partly diluted by acquisitions, but then positive impact from volume price mix and other items, will end slightly smaller positive impact from the currency there as well.

And then last but not least, definitely a valid statement in this particular case, a very strong development from Power Technique from 17.9% to 19.1% with some dilution from the acquisitions that are nonetheless performing as planned and in a very good way. But also some positive impact from currency, but rather solid improvement also there from volume price mix and other items. And with that, I move to the next slide, slide number 15, which explains a little bit more on the balance sheet. In fact, I would say the balance sheet comparing first quarter 2022 to 2023 is not very eventful. Of course, on the intangible assets, we see mainly the impact from the acquisitions that we have done over these 12 months. Otherwise, we also recognize, I would say the impact from the strong investments that we are rolling out mostly in Vacuum Technique and also to a slightly lesser extent in Compressor Technique to increase our manufacturing footprint, part of the strategy also for the local-for-local.

And then the other two main areas here are inventories and receivables. Receivables are perfectly in-line with the volume growth that we have seen and we also feel quite comfortable with that level. In relative terms, there is no increase and also from a health perspective, I would add, the situation is quite good. The inventories continued to grow a bit more as well. We will also see in the cash flow and that is maybe let’s say the one pain point a little bit on the balance sheet where we are also working with different business areas to see how we can manage that in an even better way, I would say. And, of course, as a result of all of the above and then also the fact that we have the redemption last year and the different acquisitions we see, of course, the reduction of our cash balance compared to the same quarter 2022.

On the liability sides. I would say on the interest-bearing liabilities, we have increased slightly our short-term funding to bridge the upcoming dividend payments for example. So also, no drama in those numbers and the non-interest bearing liabilities are mostly linked to an increase in payables that go hand-in-hand with the increase of the business as well. And then quite a diversified list of many small other effects that add up to this difference for the non-interest bearing liabilities. All, I would say, in line with the business growth.

And then going to slide number 16, on the cash flow, no records here, but, I would say, nonetheless, a very solid development. We have a very strong operating cash surplus, close to SEK11 billion. The taxes paid are of course standing out a little bit based on what I explained earlier and we also see here the continued negative effect from the change in working capital, which in this case is almost entirely allocatable to the inventory development still. And which I mentioned is one of our working points in the organization. Then the investments of property, plant and equipment, also here reflect our continued development of the different manufacturing sites across different parts of the world. Now, mainly focusing on the United States, I would say, as well as China for Compressor Technique, which then leads to the operating cash flow of close to SEK5 billion, which is slightly north of doubling operating the cash flow from 2022 Q1. And then we also see the impact from the couple of acquisitions we have done this year so far of between SEK500 and SEK600 million.

And with that, we come close to the end of the presentation and I would like to hand back to Mats to briefly comment on our near-term outlook.

Mats Rahmstrom — Chief Executive Officer

Okay, so here we are tying then to guide on our customers’ activity level and we go internally through each business. I have to check with them what they see and from that we have done concluded and Atlas [Indecipherable] expected underlying which we actually always talk about, customer activity level will remain at the current level. On the negative side, I guess you can take into, if you look at where we operate, the PMI in those countries has a negative trend, and I guess also some of the GDP trend for some of those countries are slightly negative. And the [Indecipherable] isn’t positive in a way that we can see and of course we have a [Indecipherable] although sequentially it was slightly better than when we operate in a world where we see quite a bit of uncertainty and I think it’s better to be little bit humble and ready for different scenarios, we cannot see in the future either.

On the other side, I think despite the gloomy outlook for some of our markets, still think that companies that will outperform many others will be the ones that have tailwinds from the mega-trends. And as we have seen in this report and to build of product portfolio, if you follow them, the growth strategy that we have in terms, organic and acquired, I think the energy transition is in our favor. And you can see the digitalization of course with the semis slightly positive, the electrification is positive for many of our businesses, specifically for the EV transformation and battery manufacturing. And also that we are quite present and close to our customer, both in West and the East. So I believe that we have a very good position. On the other side, of course, we don’t know, how the quarter will look like, but we can see that there is still lot of activities going on and we cannot guarantee that some of these bigger orders will be repeated. Of course, we hope that we get many of them as well, but we cannot guarantee that, so. I think that’s a little bit how we see the market as this time.

Should we then open up for questions, Peter?

Peter Kinnart — Chief Financial Officer

Yes. I think that’s a very good idea. So with this, I would like to hand back to the operator to lead us through the question-and-answer session.

Questions and Answers:

 

Operator

[Operator Instructions] The next question comes from Andrew Wilson from JP Morgan. Please go ahead.

Andrew Wilson — JP Morgan — Analyst

Hi, good afternoon. Thanks for taking my question. I wanted to I guess probably pick from the last comment you made and around the Q2 demand commentary. Obviously, you always do talk about underlying demand, but you specifically added that [Operator Instructions] outlook comment this time and I guess that’s to try and to offer some [Operator Instructions] SEK48 billion of orders for the Q2 in terms of unchanged activity. Can you just try and help us in that context, sort of how much of the strength in the Q1 was a result of timing of orders, large orders, you talked about the significant orders, just to try and help us get a quantum of what maybe you’re trying to allude to in terms of underlying activity appreciating lots moving parts?

Mats Rahmstrom — Chief Executive Officer

Thanks. Sure, you read me correctly. And if you look sequentially from Q4 to Q1, of course, you all know that we don’t talk about the seasonality, but that of course adds. The gap between let’s say it’s SEK11 billion something like that between the quarters. And then you have the seasonality might be around SEK2 billion then, the gap. And the remaining part, I would say, approximately half of that is coming from Compressor Technique and then you have very, very strong oil and gas and process, but also the big machines seen mainly in oil free. But you should also remember down that the industrial smaller compressors are rather flat. And then the remaining part is the fantastic performance from PT that we can see and part of the remaining part is also then the Industrial Technique tailwind from more electric vehicle products than we expected. So that’s a little bit of a bridge of how this has been built up from Q4 to Q1.

Andrew Wilson — JP Morgan — Analyst

Thank you.

Mats Rahmstrom — Chief Executive Officer

Thank you, Andrew.

Operator

The next question comes from Guillermo Peigneux from UBS. Please go ahead.

Guillermo Peigneux — UBS — Analyst

Thank you for taking my question. Thank you and hi to everyone. My question is regarding Compressor Technique. Notwithstanding the current and existing backlog at hand, how are you expecting to close the gap between orders and revenues. Maybe actually, the question is also, do you need extra capacity, need to build capacity. And then adjacent to that question is, could we assume that the operating leverage that you were commenting on is a normalized one or are we going to see any fluctuations as we go through 2023 on operating leverage for Compressor Technique and in which direction? Thank you.

Mats Rahmstrom — Chief Executive Officer

But if I look at the capacity that we have in Compressor Technique. I mean I cannot blame the team for such a fantastic development year on year, but of course, it’s not enough. And in the gas and process, we are developing our capacity close to customers, and it’s mainly how we do with the packaging of elements to make it to a customer product. And then we are pushing and we have done for quite some time and need to see if he can bounce up our capacity, but I still believe even though that they say that they see the light in a tunnel and it can be slightly better, but I think it will be difficult to catch up quickly on that, and the leverage, I hand over to Peter.

Peter Kinnart — Chief Financial Officer

Yeah. I think on the leverage, of course, we are getting close to what we generally referred to in the past us drop-through that we would on average see so. I guess this is close to the best level that we have achieved. Sometimes, of course, it can be higher. But in general, I think we talk about 30%, 35% on average, and we are not very far away from that, so. From that point of view and I think considering the fact that there is still lot of uncertainties, the supply chain is indeed somewhat better, but it is not always, it is not something one can fully rely on yet today, there’s always things that might pop-up a bit unexpectedly. And then given the capacity we have, we will hopefully be able to continue to invoice and produce and invoice more. Where then the operating leverage will increase further, that of course remains to be seen, but it’s currently already at quite a healthy level from our perspective.

Guillermo Peigneux — UBS — Analyst

Thank you.

Operator

The next question comes from Sebastian Kuenne from RBC Capital. Please go ahead.

Sebastian Kuenne — RBC Capital — Analyst

Yeah, hi, gentlemen. Yeah, my question relates to the price mix and volume growth in you orders. I can imagine if you are touching your capacities is now, then you can maybe turn the wheel of pricing a little bit more these days. Could you maybe give us an indication, especially for the strong divisions, BT, IT, PT, how the pricing was and the volume growth in Q1? Thank you very much.

Mats Rahmstrom — Chief Executive Officer

I think we don’t talk so much about it, but I try to and give some color to it at least. As we have said before, Compressor Technique have been quite good, compensate themselves for if that has been inflation in salaries or inflation in cost in terms of components, and I think they’ve done a fantastic job and when I look at the gross margin, I think they have come a long way. And then, of course, we can see that there is more inflation to come. So, I think we need to be on our toes and manage that as well. And then Power Technique, been extremely successful with that.

And, of course, there has been shortage of capacity and we have quoted higher prices for that as well. So, I think they’ve done a good job. And it’s more complicated in the semi industry where we have more long-term contract, but I think some of those have also been challenged and I think this is the time to do that. And I’m also happy even though it’s on a lower level the result of those, but we can see a little bit more traction there. And the same goes a little bit for the auto sector, where it’s more long-term agreements, but with the new products coming in, we can put new pricing on that and I think that’s the main opportunity for us still, it’s to generate more innovation, new products and to come with that is new pricing, but so far, I’m very happy with the outcome of what we have managed on pricing.

Sebastian Kuenne — RBC Capital — Analyst

Thank you very much.

Operator

The next question comes from Max Yates from Morgan Stanley. Please go ahead.

Max Yates — Morgan Stanley — Analyst

Thank you. My question was just around compressors. If I look at your compressor orders, they were soft of SEK13 billion kind of before we went into COVID. You’ve just on sort of SEK22 billion now. So, I guess what I wanted to understand is, when you talk about these end markets, these orders from things like clean energy, battery, kind of some of the carbon capture, some of these markets that are maybe newer, how much of your order intake today are these sort of new markets accounting for, where maybe you didn’t do so much business if we compare it to sort of pre-COVID levels? It would be great to understand kind of how big those sort of newer clean-tech carbon capture are within that SEK22 billion number.

Mats Rahmstrom — Chief Executive Officer

Yeah. I mean if you look at the quarter done, I think it’s a very good question and we are trying to track that segment-by-segment ourselves. I wouldn’t say that we have very accurate numbers, but we estimate that in the quarter from this newer sustainable, all clean thing segments, it’s probably around 10% of orders received for the quarter. And for us, that’s huge. And it also shows that the product are really valid for these segments. So we’re really happy with that. But around 10% for the quarter is into these new segments.

Max Yates — Morgan Stanley — Analyst

And what would be the biggest part of that, is it carbon capture or is it just splits across a number of different things, is it easy to identify within that exactly kind of what a big portion of that is?

Mats Rahmstrom — Chief Executive Officer

I will say that without having the numbers, yet gut feeling, battery manufacturing and its first compressor technique, oil fee with big machines. Then you have both the vacuum team for many of the assembly processes and for tightening and dispensing you have Industrial Technique, so battery is one of the key application. And of course, we see it’s growing very quickly around the world and China is of course the leader, but now we also see more and more [Indecipherable] packaging product and [Indecipherable] manufacturing in Europe and in Americas, of course and this will also be supported by the IRA Act in the U.S., of course, to bring this home and then on gas and process, if you just look at Compressor Technique, I think the liquid natural gas right now is really strong. Great, thank you very much.

Operator

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

Klas Bergelind — Citi — Analyst

Thank you. [Indecipherable] So I had a question on carbon capture and what is interesting is that you’re adding this comment, first it was more LNG and then you add this comment that this was seen at the end of the quarter and this is sort of happening before IRA in the U.S. really has started to kick in. So even if you say growth was exceptional in the quarter, it feels like in carbon capture for you, it has started to sort of drive growth. The reason for asking is that we’re hearing that the demand in the U.S. is still held back until the domestic content requirements are clarified, which we will be clear in May and that can sort of unleash a lot of growth around IRA. I’m curious around the carbon capture outlook, Mats.

Mats Rahmstrom — Chief Executive Officer

Yeah. That’s a very relevant question and, of course, I think the first step is not to use [Indecipherable] you don’t need to catch that carbon and of course, we don’t do the catching ourself, but we then compressed it and move it somewhere where it should be, and I will say that it’s very early stage in this technology. I didn’t mention it more because we think it’s such an interesting technology for us. In relevance to financial numbers now, I don’t think it’s huge. But it could be, just like you say, if this is an technology that is accepted as an energy efficient way of doing things and I think that is a lot, as you know, tests, how to capture it and where to store it. And of course, there is a huge upside for everyone selling compressor, if this is a technology for the future. So we view this as an opportunity and this is more that, yes, we do have the equipment for this type of technology, but financially, it’s rather small even if we are happy for the orders we get as of now.

Klas Bergelind — Citi — Analyst

Just a very quick follow-up, so when we have done [Indecipherable] on carbon capture, LNG and hydrogen further out, we can see that I can add about two percentage points of growth to CT, the division can grow 8% long term. Can you help us a little bit about sort of the medium-term [Indecipherable] how you in your assessment as a management team think things can sort of improve the long-term growth of compressor technique?

Mats Rahmstrom — Chief Executive Officer

And then as I said on the Capital Markets Day, if we see many of the clean technologies kicking off independently what we need to compress and know somewhere and expand, there is a huge market for compressors and its [Indecipherable]. I think [Indecipherable] made a statement that the compressor market as such could double. We don’t know when and if it’s going to happen, but if this comes alive with the commitments we have made to the FM with 1.5 degree and below 2 degrees and for the carbon, [Indecipherable] quite a big market out there for many different applications, but it’s early stage, Klas, so it’s not going to be seen in Q2 or Q3.

Peter Kinnart — Chief Financial Officer

Of course, we won’t extrapolate the SEK48 billion. Don’t worry. Thank you.

Mats Rahmstrom — Chief Executive Officer

Thank you, Klas.

Operator

The next question comes from James Moore from Redburn. Please go ahead.

James Moore — Redburn — Analyst

Yes, good opening, everyone, Mats, Peter. I think I’d like to come back to the struggle holders in CT, if I could and just ask about the gas and process business, which I think has been about 10% of sales for the last four years or so, but in terms of percentage of orders in the quarter, is it materially bigger than that, is it sort of 20%, 25% or a very exceptional number. You mentioned the extraordinary growth. Wondered if you could scale GP as a percentage of orders in the quarter and on the industrial, small and medium-size compressors, I think you’ve said that it was flat year-on-year, which is pretty impressive given it’s up against the pre-buy of last year, but could you say what that looked like sequentially?

Mats Rahmstrom — Chief Executive Officer

I think I will give this one a try to answer it, James, but I will give it to Peter to see if he can answer.

Peter Kinnart — Chief Financial Officer

I think in process of course, we have managed to get a lot of orders for the quarter, a lot of big ticket items and a bit more. I guess, than we anticipated, as it is so difficult to predict when some of these big ticket items drop in a particular month or even a quarter. Of course, we have always indicated that as you correctly say that gas and process has been around 10% of Compressor Technique. But of course given the current order volume, I would say clear that it is a more substantial part than it traditionally has been in other quarters in the best. But the exact number, we will not share exactly on that, but, of course, you’re right to assume that it’s more significant share of the total picture.

Then on the comment with regards to the smaller industrial equipment. In this, the development year-on year was it was indeed sequentially, in fact, the development was a little bit down. And as Mats already indicated, in CT we have seen overall good activities when it comes to price development. So, I think if you put two and two together, we can also assume that on the volume side with pricing continuing to be a contributor to that, the volumes may be a little bit softer on the small equipment compared to especially of course large end in gas and process compressors.

James Moore — Redburn — Analyst

That’s very helpful, thanks.

Peter Kinnart — Chief Financial Officer

Welcome, James.

Operator

The next question comes from Ben Heelan from Bank of America. Please go ahead.

Ben Heelan — from Bank of America — Analyst

Hi, thank you for taking my question. I just wanted to touch upon the Power Technique margin you highlighted. The strength that you saw in the quarter. How should we think about that progressing through the year. Is that level of margin sustainable? Thank you.

Mats Rahmstrom — Chief Executive Officer

I think it very much depends on the mix we will see going forward. We have some businesses that is lower in profit, I mentioned it before. The generator business, for example, is significantly lower, but they have had a good run in the last year I think both in terms of volumes and profit, but of course if that continues to grow, that will have a diluting effect on the margin. And we are very pleased with the rental business as long as that performs. It’s better that the specialty rental performs. Now we have portables, lower margin.

On the other side and we are introducing also the electric portables where we think over time that we will have higher margin because we have the biggest part of the content there. And so very much depending on how this develops. But I still look positively at this. And I guess it’s not stable at this level. I think that there is downside to it. On the other side, there is also an upside if we continue to deliver on the mix, as I describe it. And the more industrial it is, the better it is for us over time versus construction. We like line production instead of just [Indecipherable] machine that can be easily replaced. That’s good for us. I don’t know if I helped you, but that’s a little bit how it looks like.

Ben Heelan — from Bank of America — Analyst

Okay, great, thank you.

Operator

The next question comes from Jonathan Day from HSBC. Please go ahead.

Jonathan Day — HSBC — Analyst

All right, thanks for taking the question. I was wondering if you could talk a little bit about what you’ve seen in China across the divisions over the quarter and then also just a little bit on the automotive side, maybe you could talk a little bit about the runway that you see less for the automotive segment by from the battery and the EV side, that’s still very much a long-term trend versus say the developments that you might see in semi?

Mats Rahmstrom — Chief Executive Officer

Yeah. Both in terms of semi, of course, China is normally one of top three markets for us. And it seems like this new act coming up in the U.S. limits of course the progress somewhat on the smaller nodes. On the other side, what China is focusing on is normally the higher nodes, the bigger nodes, 14 and upwards and I would guess that’s probably 70% to 80% of what they do today. So think it stops them from developing quick the lower nodes, but that has not been the focus. And I think that has more of an impact of an uncertainty what they can and cannot buy since this has been changing over time. But it seems to be full speed ahead when it comes to the development of the industry as such and with the 14 nodes and upwards. And then there are no limitations for us to be a partner to that development. When it comes to EVs and battery manufacturing, I mean it’s shocking to see the top 10 list all EV manufacturers in the world, from the western world, I think it’s only Tesla that qualifies on that list. And of course they develop in tremendous speed with us, but it’s also positive for us, both in terms of the batteries itself, but also then to the EV manufacturing. So that’s the positive. And Compressor Technique then the benefit, of course, on all these big programs. If they set up a new factory for batteries or whatever it might be, there is a need for compressor technique. And I think that the only area where we are not as successful in China is Power Technique. There are a couple of product ranges that we promote there, but there is also a handful that we don’t promote due to profit reasons. But three out of four business areas is very successful and the quarter was very strong for us in China.

Jonathan Day — HSBC — Analyst

Great, thank you.

Operator

The next question comes from Andres Koskie from BNP Paribas Exane. Please go ahead.

Andres Koskie — BNP Paribas Exane — Analyst

Thank you very much and good afternoon. Could I ask about Vacuum Technique. Could you please quantify the cancellations that you had in the quarter and what did you see in terms of underlying orders in the semi segment in Q1 versus Q4? And lastly, do you think your benefit from the trade restriction between China and the U.S. as you don’t seem to be particularly impacted by that as some of your competitors can be? Thank you.

Mats Rahmstrom — Chief Executive Officer

Repeat the first one again, because you had two [Speech Overlap]

Andres Koskie — BNP Paribas Exane — Analyst

Cancellations, then the underlying order trend in the semi segment in Q1 compared to Q4 last year.

Mats Rahmstrom — Chief Executive Officer

But we haven’t disclosed specifically the cancellations. In Q4, we said it was SEK1 billion for the group. And the main part of that is within semi memory, but also some other orders are postponed and canceled. We don’t think we have lost any one of those orders and in this quarter that number is around SEK700 million so it’s less. And we will see them when we come to the next quarter, if it continues, but at least the trend is a little bit less than we saw in Q4.

And then the underlying demand. I mean, sequentially, it was up, but when I listen to [Indecipherable] today, he said well, I don’t read too much into the numbers just yet, and I think we believe that 2023 will be somewhat of a slower year throughout the year. But then that it looks fairly positive actually on 2024, 2025. And we have in mind in that the we haven’t filled on the U.S. and the plan on the U.S. is developing in a positive way. There are more making bigger commitments to come from the U.S. and that we have in front of us at the same time, the China, as I said in the earlier comment, is continuing in the full speed on the 14 nanometers and above. So for us, yeah, we like light free trade globally, but I don’t want to put anything positive in protection, but short term, of course, it could be positive for a group like ours. But we prefer still free trade where we can make our business in a more traditional way.

Andres Koskie — BNP Paribas Exane — Analyst

Thank you.

Operator

The next question comes from Guillermo Peigneux from UBS. Please go ahead.

Guillermo Peigneux — UBS — Analyst

Thanks for taking my question again. I wanted to follow-up on Power Technique. I guess the margin now above 19%, it’s been almost there before, but I was wondering whether this belongs to like the rest of the divisions of Atlas Copco to margins above actually 20% at the regional level or this is come to maybe seen as probably a little bit more of a seasonal or cyclical positive cycle operating leverage help that will at some point normalize to a lower level.

Mats Rahmstrom — Chief Executive Officer

Yeah. I think we had a similar question just before. If I look at the other business areas, the performance between the different divisions is more equal and in Power Technique there is bigger gaps between the really good ones and the ones and normally not so much dependent on how we deliver and perform more that how competitive is the end market. And as you have listened to me a number, yes. Now we are trying to drive this more to an industrial where it’s more line production, where the value creation is much clearer. So we are doing that and that’s what you see in the numbers, but it’s still very dependent on the mix from quarter-to-quarter. Dependent on the margin then because we have bigger gaps between the divisions. And it’s difficult for Peter or my sales to predict exactly how it will it look like. But as I indicated before, if we see generation being very strong, that’s dilutive. And also if we see too much of the smaller portables, it’s also and dilutive, but more positive if it is the bigger machines for water wells for example. I cannot give you more guidance on that, Guillermo.

Guillermo Peigneux — UBS — Analyst

Thank you very much.

Operator

The next question comes from Daniela Costa from Goldman Sachs. Please go ahead.

Daniela Costa — Goldman Sachs — Analyst

Hi, good afternoon. Hopefully you can hear me. Just wanted to ask. We’re seeing like a huge investments in terms of tech companies increasing capacity for artificial intelligence and also for quantum computing. Is it too farfetched to think that this would increase materially the density of some of the product you sell in Vacuum Technique and also potentially having an impact on areas like machine vision and quality control in Industrial Technique? Is it too far out do you start to see sort of the day being coming under tendering interest for your products on the back of that?

Mats Rahmstrom — Chief Executive Officer

I think I need to read up a little bit on the quantum computing myself, but one of the acquisitions that we did in the US for vacuum technologies, they are touching on this from a chiller perspective. And of course all data that will be in any form, will be collected, transported and run analytics on them, it’s very positive for our vacuum business. So there is no downside to more AI for us, it’s just upside in terms of memory and logic needed. I don’t know if Peter has a comment on that.

Peter Kinnart — Chief Financial Officer

Well, my own inflection was that I think it’s early days and that this is just by pioneering currently and that of course, with some of the products we have, we will be well placed, most likely, but it’s hard to assess right now what kind of size of market this might be over time, but in principle, it should be also here positive from the demand side for us we think. And yeah. With that. I think we have concluded all the questions. We’d like to thank everybody for listening to us and providing us with some very good questions to be able to clarify some of the positions in the result of the first quarter 2023. And with that, we already to close the call. Thank you very much and talk to you soon.

Mats Rahmstrom — Chief Executive Officer

Thank you.