Good day and welcome to the Atlas Copco Audiocast with Teleconference Q2 2022 earnings conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on a touch-tone phone. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to CFO Peter Kinnart. Please go ahead.
Thank you, operator, and good morning and good afternoon to all of you attending this Q2 earnings call for Atlas Copco. As you might have understood from the introduction by the operator, Mats Rahmström will not participate in this call for private reasons. I will be hosting this call together with our Vice President, Investor Relations, Daniel Althoff today. Welcome, Daniel.
Thank you, Peter.
Now, we will start in a moment with a brief run-through of the Q2 results, followed by the usual Q&A session. I would already now like to ask you when that Q&A session starts to only ask one question at a time in order to give the opportunity to all participants in the call to raise a question. Should you have any further questions, of course, you can then line up again after that. Before we start now with the overview of the financial results, I would first like to come back and comment on the investigation concerning sales to Russia between 2014 and February 2022, which has now been concluded. This issue, as you might remember, was raised by media and was mentioned during the Q1 .
In cooperation with a third party, we have now completed a thorough investigation of all of our business relationships in Russia during these eight years, which means that in total, more than 17,000 customers have been scrutinized, including the companies previously highlighted by media. The investigation that was concluded has identified SEK 16 million in sales, where written documentation was insufficient to afterwards really determine the exact customer application, which is against Atlas Copco Group's internal guidelines and policies. Based on the information we have been able to collect, no sales to military applications have been confirmed or identified. I would also like to point out that trade compliance is essential for our business, and we are definitely determined to make sure we follow our internal guidelines and policies going forward.
Therefore, we have actually also strengthened our processes in the meantime, added resources to our trade compliance organization, and have also made investments in automation tools to improve the screening process of the different customers and companies. Also, would like to share that we have been transparent in contacts with the relevant authorities. When it comes to the current business in Russia, it's worthwhile to mention also that we have paused all new orders for equipment, except those for humanitarian purposes. Those are the comments we would like to share with you with regard to the business in Russia and the investigation that we carried out and that we promised to, all of you to come back to. Now, I would like to move on to the actual quarterly results. I will move to slide number two now.
Here you can see the Q2 in brief. I think first of all, we see a strong order intake with solid growth in all business areas. I must say, Mats, myself and the entire team are actually very proud of the results that has been achieved and of all our employees out there in the field that are doing everything they can under these difficult circumstances to deliver the products to our customers. The order intake, I think, also shows that the strategy that we are following since many years with leading product knowledge and leading application knowledge is really paying off. We're also happy to see that in this order intake, we see that we have established a strong position in the market segment of sustainable solutions.
When it comes to the order intake again, then, as you can see here, double-digit growth was achieved in all regions. Sequentially, however, and I would say in line with our forward-looking statement of the Q2 , we saw a slight organic order decrease. In fact, Compressor Technique and Industrial Technique were up, but Vacuum Technique and Power Technique were down, contributing to this -2% sequential drop. When it comes to the revenues, we achieved record revenues throughout the Q2 despite the continued supply chain constraints and other, aspects that are playing in the global economy. Then this all resulted in a solid operating profit. The margin was strongly supported by currency but negatively affected by supply chain disruptions, COVID-19, as well as continued investments in market presence and research and development.
When it comes to acquisitions, we were happy to see that we continue on a good pace with the acquisitions, and we've added five companies to our portfolio. The most important of which I would say is Pumpenfabrik Wangen in Germany and other countries in the world in the Power Technique business area. Moving on to slide number three, where you can see an overview of the financials. Orders received, SEK 41 billion. The record revenues landed at SEK 33.1 billion with an organic growth of 8%. We landed an operating profit of SEK 7.3 billion, which represents a margin of 22%. Adjusted for long-term incentives, the operating profit was SEK 7 billion with a margin of 21.3%. I will come back a little bit more in detail on the margin development.
The profit for the period was SEK 5.7 billion, and that resulted in basic earnings per share of SEK 1.17, which we have of course compared now to SEK 0.94 earnings per share, which are adjusted numbers for the share split. When it comes to operating cash flow, the total amount ended up at SEK 3.1 billion, which was a bit of a lower level compared to the same quarter last year, as you can see. We managed to increase the return on capital employed somewhat from 26%-28%. Having a look at the regional development on slide number 4, there you can clearly see again the double-digit growth across all regions.
When we look at North America, particularly CT, had a very strong contribution to this double-digit growth, but also other business areas were solid. In Europe, the +16 in the quarter year-on-year, is basically supported by contributions from all the business areas. Also in Asia, we saw solid growth for the group, even though, of course, the lockdown in China was a challenge, but nonetheless a solid growth level and also there double-digit, as you can see, +13% compared to the same quarter last year. On the next slide, number 5, you see the graph showing the organic order growth per quarter.
I think what I take from this particular picture is that we are pleased to see that we are able to generate organic growth over six, seven consecutive quarters, and even double-digit organic growth across six consecutive quarters. The scale is maybe slightly misleading given the very big peak a bit more than a year ago, but we are still at more than 10% at this point in time and a very long period of constant growth of time. On slide number 6, we move to the sales bridge.
Here I think there are two things standing out a little bit more, and that is first of all, of course, the strong support we have had from currency with weaker Swedish krona strengthening the dollar, particularly as the most important contributors to that development, both on the orders received and on the revenues. In fact, this has already been the case throughout the entire year, as you can see from the January to June numbers as well. From an organic perspective, you see again the plus 13% growth on the orders, the 8% on the revenues. Year to date, we even see plus 18% on the orders and plus 7% on the revenues.
If we take a closer look on slide number 7 to the orders by business area and the organic order development, then you can see here that all the business areas were able to achieve double-digit growth across the quarter with record orders received for Compressor Technique and Industrial Technique, and high demands for Power Technique products and services, as well as strong growth for the Vacuum Technique. I would like to dig in a little bit deeper to the individual business areas one by one. On Compressor Technique, record orders with an organic growth of 14% clearly visible on the graph on the right. What were the main contributors to this? In fact, we saw solid growth for industrial compressors and service, and also a strong demand for gas and process compressors.
The revenues were also hitting a new record, up 6% organically, and the operating margin reached 22.9%. This operating margin was negatively affected by the supply chain constraints and COVID-19, but I will also comment a little bit more in detail when we look at the detail bridge. Of course, also positively supported by the currency effect. The return on capital employed dropped a little bit in Compressor Technique from the very high 91% to still very high 86%. Which was mainly due in fact to the impact of acquisitions, which were adding of course more capital employed and that had this effect. Moving on to Vacuum Technique on slide 9. Here you see, of course, that the demand was on a continued high level with an organic growth of 11% year-on-year.
We saw quite strong growth for equipment, both in the semi business as well as in the general vacuum business. Also, service on both semi and general vacuum continued to grow nicely. The revenues, as you also can see from the graph, reached a record 15% up organically and an operating profit margin of 22.7%. Here also the supply chain constraints continued to have a significant impact on the margin also, COVID-19 and then related inefficiencies in the factories. As already indicated before, the positive currency effect is affecting all the different business areas, so also Vacuum Technique, maybe even slightly stronger given their, currency basket within business area. Return on capital employed improved somewhat from 23%-25%. On slide 10, we see the details for the Industrial Technique business area.
Record orders, as I indicated, organic growth of 17%, very solid. Strong growth for both automotive and general industry and also for service business. The revenues also achieved a new record level, 2% up organically. The operating profit margin landed at 19.9%, very close to the 20.1% from last year. Of course, it's a bit the same record playing all along, but also ITBA was of course as well negatively affected by the continued supply chain constraints, COVID-19 and then also continued investments in research and development as well as digitalization, both in customer-oriented platforms as well as in internal process platforms. We also saw the positive currency effect there and an improvement in the return on capital employed from 13%-17%.
The fourth business area in the family, Power Technique, who also saw continuous high demand with an organic order growth of 10% compared to last year. Obviously, of course, sequentially softer quarter than the first one, which was an absolute stellar quarter I would say for Power Technique. But nonetheless, definitely very solid equipment growth. Also strong growth for Specialty Rental, and a tangible growth for the service business, as well. PT hit a record on revenues, 9% up organically, which means that all business areas had a record on the revenues this quarter. Quite an exceptional achievement, I think. Finally, the strong operating margin at 19% compared to 16% last year, which is very much driven by the increased organic revenue volumes that they were able to generate.
The return on capital employed that logically I would say increases substantially from 23%-29%. If we then add all of this together and we go to the group total on slide number 12, and we see the full financial statements. We have already mentioned the orders and the revenues, and the operating margin for the total group, landing at SEK 7.3 billion or 22.4%. The net financial items didn't really have a very, important impact. They were slightly better than last year, but relatively small numbers in the bigger scheme of things. The profit before tax at SEK 7.3 billion and the tax rate, of 22.3%, I think this tax rate as you can see.
Here we expect that the tax rate will be along the same level in the coming quarters, somewhere between 22.1%-22.3% most likely. Profit for the period as a result of all of the above lands at SEK 5.7 billion, which is a 24% increase in absolute numbers of SEK 4.6 billion. The basic earnings per share as already indicated, SEK 1.17 per share. Return on capital employed up to 28% and return on equity at 31%. I would like to move to slide number 13 and give a little bit more comment on the profit bridge. I think the first thing which is very obvious to see is that the currency has been very strongly supporting the margin. That's quite clear.
When it comes to the volume price mix and other, it is clear that the drop-through has been somewhat negative. What is our analysis of this drop-through? Well, first of all, I think we have seen quite solid price realization. We managed to continue to increase the price realization quarter-over-quarter. What we are able to see today is that the price realization that we are managing to get out of the market is sufficient to compensate for the many structural cost increases that we see, which means material price increases, labor cost increases, and so forth. I think that we are very glad that we have reached that level, so that at least we are able to compensate for structural increases with the price realization.
What we are not able to compensate for are more the temporary cost increases that we are confronted with. I'm referring to things like spot market buying, which we do to make sure that we are able to put the products out there and deliver to our customers, given the long lead times that are already existing. The transport costs that are of course up in general across the globe, as well as some additional air freight costs because we want to make sure that we get the product to the customer as quickly as possible whenever it's ready. Finally, also the factory inefficiencies that are resulting from all those supply chain disruptions or potentially the COVID lockdowns. Those are kind of temporary costs, challenges that we are facing that we are not able to compensate fully with this price realization.
Over time, of course, we expect that these will gradually subside and that, as the supply chain eases, things will get a bit better. Furthermore, adding to the drop through here are also our continued efforts in R&D, the investment that we continue to do in market presence and digitalization, which we do not want to give up on even if it has a little bit of a detrimental effect on the margin. We believe it's more important to take this type of investment for the long term. The same is valid for the pricing.
Here, we try to strike the right balance in order to make sure that the customer feels that of course he gets value for money, and that we do not try to take advantage of the current situation because we believe that will backfire in the long term as well. On the next slide, number 14, you see a bit more detail for each of the business areas. I will not go into detail of all of it. You can see that in some business areas, the impact, the drop through is a little bit worse than in other business areas.
I think it's fair to say that both in Vacuum Technique particularly, but also to some extent in Industrial Technique, the price realization continues to be a bit more challenging given the fact that we are in this kind of key account business with these long-term contracts. So there it continues to be a little bit more challenging, but in the other business areas, not so much. There we see a very good compensation. The positive currency effect is there on all the business areas. And then finally, I would also like to highlight the very positive contribution of Power Technique with a very good drop through on this particular quarter, thanks to very solid growth across all the businesses. Moving from the income statement to the balance sheet on slide number 15.
By the way, one thing I did not mention yet, and I should mention, is on the currency effect that we also expect in the coming quarters to see positive currency effects going forward. Might not be exactly on the same level as we have seen this quarter, but we do believe that they will continue to be on a similar level, foreign exchange benefits for Atlas Copco. Going back to the balance sheet, I think there are no big dramas to be detected here. I think you see a number of positions going up relatively substantially in intangible assets to start with. I have to say also on the balance sheet, we see quite a bit of currency impact.
When we look at the tangible assets, for example, then out of the increase compared to the beginning of the year of SEK 5.6 billion, we see about SEK 3.2 billion FX effect, and then the rest mostly attributable to the intangible assets from the Wangen acquisition. The next point to highlight maybe is the other property, plant, and equipment where we see the impact of our investments that we have decided upon in the previous quarters in predominantly Vacuum Technique, but also Compressor Technique in expanding our capacity across the globe. I think two items that also stick out are the inventories and the receivables where we see the increase.
I think on the receivables side, there's not so much concern in the sense that that goes in line with the growth of the volume, and that the ratio to revenues is actually quite stable. There we are not really alarmed at all. When it comes to the inventories, of course here we see a bigger increase and that has everything to do with supply chain constraints. We are trying to make sure that we have the right material as much as possible available so that when those items that are maybe difficult to get are available in the factories that we are able to produce and that we do not run into other problems with other parts as well.
That is of course something that we are monitoring closely and trying to make sure that we do not end up with slow-moving or overstock provisions later on. When it goes to the rest of the asset side, I think the cash and the cash equivalents are of course an important position, and they of course have been affected on the one hand by the cash flow that we have generated over the past two quarters. Of course we have done the redemption and we also have paid out 50% of the dividend in the first installment, so that of course affects the cash. Moving to the equity and liability side, I think a little bit the same.
The equity is affected by the profit that is moved over obviously, and that is then kind of consumed almost entirely by the complete dividend and the redemption that was paid out in the Q2 . Moving to the non-interest-bearing liabilities. There we see back basically 50% of the dividend that will then be paid out later in the year, but also, which is about SEK 4.6 billion there. Also an increase in the payables that goes hand in hand with the increase in inventories, you could say, as well as a bigger amount of advanced payments from customers, given the fact that we are being able to land quite a number of bigger orders with the payments in installments, and then we are able to get more advanced payments as well.
That is pretty much linked to the business volume that we are generating there. Moving to slide number 16, on the cash flow. There are three things that I would like to mention here specifically. First of all, a very strong operating cash surplus that has been generated over the quarter, also over the full year to date, actually. Which is then offset to a larger extent than last year by changes in working capital. Here you can basically split it up 50/50 between inventories and receivables. The receivables, as I mentioned, on par, in relative terms to the revenues, the inventory is going up a little bit faster in order to be able to serve our customers faster as well.
The third point I would like to highlight are the investments of property, plant, and equipment here, which are also obviously affecting the cash flow to some extent as we are putting these different factories step by step in operation. You probably will remember the press release earlier this month with regard to the ribbon cutting that was done in the extension of our capacity of the Korean factory in vacuum units. We come to the last statement with regard to our financial results, and that is the near-term outlook. There, the phrasing is as you can read on the slide. Atlas Copco expects that the customer's activity level will be lower than in the Q2 .
With that, I would like to conclude the presentation of the handouts, and we will start opening up for the Q&A. At this point, I would like to remind you kindly again, to please only raise one question at a time in order to give all participants an opportunity to raise a question to us. Thank you.
We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. In the interest of time, please limit yourself to one question and reenter the queue. At this time, we will pause momentarily to assemble our roster. The first question today comes from Daniela Costa with Goldman Sachs. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. I had more than one, but I'll go back on the queue, so I'll stick to one as you requested. Just focusing on Vacuum technology, I was wondering if you could comment on kind of the length of the backlog and the stickiness. Basically, I guess the orders that you have now are mainly for projects where sort of things have already started in the broader CapEx of your customers, do you think? Given we're starting to see some semi CapEx cuts now, do you think there is still some risk to parts of the backlog being for projects that maybe haven't started other phases before, like the pumps go in?
Wondering if you could comment on that and maybe you've mentioned you were doing some CapEx expansions yourself to meet Vacuum technology demand, whether this whole environment changes your thinking there? Thank you.
Yeah. Thank you, Daniela, for that question. When it comes to our order book, we are of course following very closely across all the business areas for that matter, whether the orders that we have in our order book are actually healthy and that there are no fake orders in there. That is not the case. We continue to have the same answer from all of our business areas on that particular point. We also have not seen any indication that the customers would be very likely to cancel their orders.
It still seems very much so that they desperately want the product that they have ordered with us, and they are actually pushing us on almost a daily basis to make sure that we deliver as quickly as we can so that they can actually fit it out in their factories. When it comes to our own investments, I think. Say, going back a little bit, maybe probably even before COVID, it used to be kind of customary almost to try to have a little bit of headroom within the Vacuum Technique business area from a production capacity point of view. That has to do with the bulkiness of the orders that are typically coming in. In the past, we used to have almost like a 30% headroom in our production capacity there.
Under the current circumstances, it's clear that capacity is not really there. We see in the long term quite a healthy development of the demand for vacuum products, particularly, but not only in the semiconductor space. As a result of that, we believe that we need to have more capacity in order to be able to have again that possibility to deliver on those bulky orders that might come in from time to time. Therefore, we are continuing to invest in this capacity.
Thank you.
You're welcome, Daniela.
The next question comes from Klas Bergelind with Citi. Please go ahead.
Thank you. Hi, Peter and Daniel. Klas at Citi. Good to hear that you don't have any cancellations out of the backlog, but I want to come back to the outlook of lower demand. It's not somewhat lower, you write lower, looking at new orders. We're obviously coming off a high level here again, Peter, but trying to understand if this is signaling more caution from your side or if you have seen any real order weakness somewhere. Coming back to semis here in particular, we know that leading edge is holding up, but the CapEx announcement on the memory side looks pretty grim. I know it's early days, but keen to hear what you hear from your semis customers. Thanks.
Well, I think it's fair to say that we have been on a high level. Of course, as a result of that, I think we all read the newspapers. We all see a lot of, let's say, difficult situations around the world, whether it's inflation rising, whether it is the war in Ukraine that has impacts, not purely from a humanitarian perspective, but also, of course, economically. The lockdowns in China that seem to pop up from time to time again. From that point of view, I think it seems to be rather hard to assume that what we have seen so far is continuing.
We also, of course, see that consumer confidence is going down across the globe, and that is probably very much driven by the fact that disposable income for families is getting a little bit lower as a result of all of these cost inflation tendencies. At some point, of course, it seems likely that demand for example, consumer capital goods will go down, and that at some point will spill over into the industry. However, to time that exactly is extremely difficult. We believe that, given the current high level that we are at, it seems very unlikely that we are able to, let's say, repeat that same type of order level. Of course.
Yeah
The wording that's used doesn't really indicate specifically which percentage it is. It is more a general indication of how we expect that the customers will continue to work throughout the quarter. Then maybe on the topic of memory that you highlighted as well in your question. I think to our knowledge, the semi CapEx in general, not for us particularly, but in general, is one-third roughly allocated to memory and two-thirds to logic. We believe that, based on the indications that we have also read that maybe memory might be a bit softer, but that on logic, we still see an increase in demand. From our perspective, it is not so important whether it is one or the other. We are quite technology agnostic, I would say.
From that point of view, we are still positive about the demand for semi. With semi, of course, it will be likely that, considering that demand is bulky, that there will be a little bit of bumps in the road at some point, but we can't really time that very, very clearly. Again, from a long-term perspective, we are quite confident in the development of the semi business.
Yeah. No, thank you, Peter. I think the question about leading edge versus memory is that the magnitudes that we see right now is quite big. You know, TSMC cutting 5%, but you have others on the memory side cutting over 20% potentially. So that's why I'm asking, but I get the secular impact obviously there. Thank you.
Yeah. Thank you. Thank you, Klas.
The next question comes from Andreas Koski with BNP. Please go ahead.
Thank you. Good afternoon, Peter and Daniel. Can I just ask on your outlook where we're now guiding for lower demand?
Sorry, Andreas. Sorry, we can't.
Can you hear me?
Now it's better. Thank you very much.
Okay. I'm sorry about that. Yeah. Hi, Daniel. Hi, Peter. Thanks for taking my questions. I also had a question on your outlook because you have changed the way you're stating the outlook compared to previous quarter, where you said that you expect demand to remain at a high level, but slightly below the level that you saw in Q1. I just wonder, have you started to see weakness already at the end of June going into July, and that's why you are taking this outlook? Or are you expecting to see weakness further on, but you have not yet started to see it?
No, I don't think over the Q2 , we have seen really a weakness. I think that the numbers are speaking for themselves, I would say. I think the only thing is that I mean, if you again read all the different newspaper articles around economic development, then there seems to be quite a lot of headwinds heading our way, or heading the broader economy in general. It seems unlikely that as we are so broad-based, so many industries, whether it is in Compressor Technique, Vacuum Technique, or whether it is in Industrial Technique, it seems very unlikely that we would be able to escape that. I think that is what we wanted to reflect in our outlook statement.
Okay. Thank you.
The next question comes from Andre Kukhnin with Credit Suisse. Please go ahead.
Good afternoon. Thank you very much for taking my question. Could you talk about China? If you could walk us through how your business has performed there during the quarter. If you had a substantial impact from lockdowns there in Shanghai, could you help us quantifying that, as hopefully that's non-repeat. Would you expect to catch up any of that performance given that your business is mainly order book driven? Maybe just a broader one around it. We're hearing quite a lot of talks about China push for localization of content across the industrial spectrum, and I just wondered if that's something that you have come across or experienced in terms of how your market shares have developed there. Thank you.
Thank you. Well, when it comes to China, I think, let's say we will not go into a lot of detail when it comes to the different businesses, how they have developed there right now. I think what we have seen, of course, initially when we started the quarter, I think in that sense, I think we are also very happy with how the ultimate result developed from an order revenue and even profit perspective. It was quite unclear when the quarter started where things would take us. Definitely April and May were quite challenging months with the severe lockdowns. In a sense you could say that we might have expected lower revenues as a result of that.
The organization in China particularly worked very hard to find new ways of getting our products to the customers. As one example, we were able to ship more products directly from the product companies, rather than through our distribution center in Shanghai. From that point of view, I think we managed to find good creative solutions to avoid this problem. I think it is fair to say that June was a bit of a catch-up. Once things started to smoothen and people were allowed to leave their apartments again and the factories were able to open up again, I think things started to pick up.
Of course, I think in China is known to be quite agile and resilient in that sense and bounced back quite strongly in June, resulting I think in an overall quite solid quarter for the market.
Thank you. On localization, if I may squeeze that second part of the question.
Well, localization is not something that for China has kept us extremely busy, I would say, in the sense that we have quite a lot of local footprint when it comes to production for our different business areas. It's only Industrial Technique that doesn't have really a very strong production presence in China, given the fact that the products are relatively small in size and therefore it's fairly easy to and not that expensive to bring those products from one central production site or a few to other parts of the world. Of course, for ITB particularly, we do have then the application centers where we combine these products into more complex systems at the specification of the customer.
Given the fact that we have that strong local presence for the business areas in China, we believe that we are well-placed to be able to capture the orders if there is a strong drive for localization in that market.
Amazing. Thank you, Peter.
Welcome.
The next question comes from Guillermo Peigneux with UBS. Please go ahead.
Thank you for taking my question. Hello, everyone. I wanted to ask about large gas and process compressors. I want to understand a little bit which regions are driving the sequential growth and obviously YOY growth. Which industries are driving the growth and how sustainable this is in your view? Thank you.
Thank you, Guillermo. Well, as you say, we have had a strong order growth for gas and process compressors indeed. There's not really a single explanation why the order growth was so strong. It's actually a multitude of things that happened at the same time. When it comes to the different regions, we have solid growth in all the regions for gas and process, and also there we are well-placed with local factories to produce or assemble at least locally. We also saw good development in several segments that gas and process is typically working in. Thinking about air separation, for example, which is a more traditional segment, but also segments related to the energy transition, such as hydrogen and LNG, for example.
That is one of the reasons among others, for the other business areas as well, why we feel that we are getting good traction when it comes to the segment of sustainable solutions for our customers.
Thank you.
You're welcome, Guillermo.
The next question comes from Mattias Holmberg with DNB. Please go ahead.
Hi. Thank you for the time. On Vacuum Technique and Power Technique where you saw order volumes falling sequentially, can you say anything about the phasing of the development here? Did you see them weaken through the quarter, or was it more or less a flat trend throughout? Also, it would be very helpful if you would comment on the Q3 entry run rate or Q2 exit run rate, please.
Maybe you can repeat the last part of the question, please, Mattias.
Yeah, sorry. Basically just if you can make any comments on the run rate in Power Technique or Vacuum Technique where you saw falling volume sequentially, if it was sort of stable at the exit of the quarter or if it was still in decline?
Yeah. Thank you, Mattias, for the question. I think I don't think we can really talk about the run rate here because I think the reason why the numbers were the way they were are quite specific. If you look at PT to start with, of course, we came from this, like I mentioned earlier, this stellar quarter one with an enormous order intake. In only two months, they managed to do the order intake that they would otherwise do in a full quarter. Then they added on top a fantastic March as well. Of course, the comparison is really a bit skewed, and not, let's say unfair to make almost.
It was really exceptional, and it was actually very clear to be expected almost that the Q2 would be softer, comparing to this very strong number that we had seen in the Q1 . With Vacuum Technique, well, did we see it kind of differ across the different months in the quarter? Like, was it -2% in the beginning, -10% at the end? Also there, I'm not sure if any comment on that would be very relevant in the sense that, as you know, the Vacuum Technique business area, particularly on the semi side, has a rather bulky type of order profile. Of course, it might be stronger dip in June, or it might be a stronger dip in April, but it doesn't really reflect necessarily whether that's a real trend.
I think there you need to see it a bit in a longer or a middle term perspective at least. I think, as you say, sequentially, it was a bit softer. Also here we need to remember what kind of growth rates we have seen over the last quarters before that in last year, which were really, very, very high double-digit numbers. Not so surprising that there is a quarter that is sequentially a little bit softer than the previous one.
That's clear. Thank you.
The next question comes from Sebastian Kuenne with RBC Capital Markets. Please go ahead.
Yeah. Hi, gentlemen. On Compressor Technique, we saw a large order boost in Q1, Q2. Now, again, 14% organic growth. Assuming that the split is really driven by price, maybe 10% price, 4% volume, what are the arguments for and against an increase in volume, an increase in demand for Compressor Technique, especially given that the energy prices are so high? Thank you very much.
Well, of course, as you know, we do not comment on details of the composition of the price and volume effects, as such. I think, of course, there is an element of price increase there. As I mentioned, we are better capable of managing price realization in the market. Of course, there's definitely an aspect of that. I think also from a volume point of view, things have been going well within the business area. I think as I mentioned, we've seen strong development from industrial compressors, particularly the larger ones I would add, and then the gas and process compressors, but also a good development of service business. I think from that point of view.
Business volume. When you say good demand, is that, you know, based on the order intake or based on volume? Is the volume going up then in all three areas?
The volume is organically. Yes, there is a volume, a good positive volume component in that organically. I think you mentioned the energy prices, obviously. It doesn't mean necessarily that all of a sudden there is a huge demand and customers are lining up to buy new compressors because they see the energy prices going up. When you are in front of a customer and trying to argue to buy a new unit, and we are able to talk about the latest VSD technology to that customer, then of course, today the argument is slightly easier because the payback is even shorter than it was a couple of months ago or a year ago, definitely. From that point of view, of course, our energy efficiency rationale in front of the customer is definitely helping us to sell more compressors.
Yeah. Very helpful. Thank you very much.
You're welcome.
The next question comes from Lars Brorson with Barclays. Please go ahead.
Thanks. Hi, Peter. I hope Mats is okay. I wanted just to ask on price realization in your key accounts businesses, particularly VT. We talked about that in the last quarter in April. Maybe you could help us understand where you are in addressing these, what you've done. I presume things like abolition of price guarantees, volume discounts, etcetera. Help us understand where you are and when to expect that to come through in the P&L for VT. Maybe associated with that, should we think of kind of VT margins bottoming out here at these levels, if indeed you start to see a bit more price realization in the second half this year? Is that too soon to see a more meaningful impact from the measures you're undertaking?
Thank you, Lars, for your question. I think when it comes to the price realization, I think what we see is that across all the business areas, we are seeing a positive price component, generally speaking. As I mentioned, in some business areas, it is more outspoken, especially there where we have maybe more indirect business, where we are able to have more of growth-based customer portfolio. In the key account type of business, it continues to be much more challenging, I would say, to even table the topic, but we definitely do table that topic with our customers.
I think I also mentioned in some of the earlier analyst conferences that it is not only a matter of trying to work on price with these key accounts, because of course, in these contracts, there are many, many different clauses. It's quite a detailed contract. We also try to work on other aspects that might impact our cost negatively. That could be, for example, delivery delay penalties, for example, to try to get them out of the way if we do not manage sufficiently to work on the pure price component.
I can assure, I can definitely say that the price component and the realization of price increase is improving, not only in, also in Vacuum Technique, and all the business areas have a positive price component in their bridges.
Thank you. The next question comes from Andrew Wilson with JP Morgan. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. I wanted to ask about Industrial Technique, where clearly you've now sort of had back-to-back very good quarters relative to history in terms of absolute level and obviously the growth as well. I guess I'm interested in terms of how much of this is around just the market, and I know you've kind of called out the positions that you have in EV, and how much of it is around, I guess, the fruition of some of the businesses you've bought over the last couple of years, which maybe were bought when the markets were a little bit more challenging, but now really coming through.
I guess interested if you can kind of help us a little bit in terms of understanding the sustainability of this higher level, given it's now obviously a bigger business than it was before.
Yeah. Well, of course, the acquisitions that we have done, they are all part of divisions now, and we do not really communicate in detail on the divisional results. What we can say for ITBA is that there has been solid growth across all the segments, significant growth in the general industry, as well as significant order growth in auto. All divisions actually contributed to the growth in the business area.
Maybe to add to what Peter correctly said, Andrew, is that if you ask about the adhesives and rivets and of course visions as well, all that is part of the growth within auto as well this quarter.
That's helpful. Thank you.
The next question comes from Rizk Maidi with Jefferies. Please go ahead.
Peter Kinnart, Daniel Althoff, hi. Thanks for taking the question. I was wondering if you could help us assess the cost items that you were not able to compensate for. I think, Peter Kinnart, you talked about spot market buying, air freight, factory inefficiencies, perhaps how we should think about these items in the Q2 . Should we still expect a negative drop-through in Q2? When do you think we should go back to normalized drop-through as we've seen commodity prices coming up? Thanks.
Yeah. Well, I think when it comes to supply chain, and looking at all the different business areas, I think overall, I would say that we do not really see a fundamental big shift in the supply chain. There are maybe a few softer signals from one or two of the business areas that indicate that things are getting slightly better, but not really a very bright shining light at the end of the tunnel there yet. When it comes to these different temporary cost increases that you mentioned, I think the spot market buying is one big contributor there, and that might be more particularly valid for Vacuum Technique and for Industrial Technique, for example, affecting the cost base a bit.
Of course, we have factory inefficiencies that are driven by the supply chain issues partly, on the one hand, but also of course affected by the lockdowns in China. That has of course also had an effect on the efficiency there. When it comes to the lockdowns, of course, even though we have seen some issues popping up now recently again in Wuxi, but they seem to subside already now again. There we expect all things being equal, that will not dramatically impact the quarter. There, of course, we will see some improvement in the Q3 as the factories are up and running gradually more and at a higher efficiency again, although they're not fully back up to speed where they normally should be, I would say.
Transport is another cost element there, where we of course need to pay higher fees for any transport nowadays, whether it's trucks or whether it is air freight. We do use more air freight than we did some time ago in order to make sure that we can deliver the products to the customers. I would not say on time, but at least as timely as possible, to satisfy the customer to some extent.
Okay. Thank you.
No problem.
The next question is a follow-up from Guillermo Peigneux with UBS. Please go ahead.
Yeah. Thank you for taking my question again. I guess, you know, we heard you a lot talking about operating leverage being not so good during the quarter, supply chain issues, COVID and investments anchoring the operating leverage at this point in time. Do you have any visibility as to when we should see some improvement in operating leverage? I guess some of the aspects are a bit more controllable. I guess investments are COVID related and China related issues. Probably as they opened, you know, that will actually help your operating leverage. But what about supply chains? What do you see there over the subsequent couple of quarters that could actually make improvements on your operating leverage as we close the year for the second half?
Well, I think short term, we don't really see a very fundamental improvement. As I indicated, we see a little bit of improvement on some particular areas, where maybe some components that we have really been struggling with for a long period of time now become more readily available, or we get, let's say, stronger commitments from some of these suppliers. Those are quite rare, I would say, and they are not really sufficient to bring a very significant change of direction when it comes to supply chain in the short term. When exactly the supply chain will ease up and things will get better, I don't really have a visibility on that, honestly speaking.
I would say if we look at the consumer confidence going down and maybe the consumer capital spending being affected by that would probably ultimately drive demand a bit down. That could, of course, result in the fact that there is also a lower demand for some of the components, and as a result, they might be more easily allocatable to industries like our own. That could help us to increase the output again further. If that would happen, if that were to happen, then I think we could see an improvement, but I can't time that at all, honestly speaking.
On investments, when are your investments starting to be a little bit more, you know, equivalent to your operations, are you basically normalized as we go forward?
Well, I think on the R&D, we have, of course, a very strong commitment to make sure that we continue to be ahead of our competitors as much as we can. There we will continue, of course, to do the investments that are necessary. I think normally it would not really be a problem if the revenues would be able to follow without any supply chain issues, because then, of course, the ratios would continue to be on the same level as we have seen before. It is now only because of the fact that our revenues are growing a bit slower than the orders that the investments are taking out a bigger portion compared to revenues.
Once we get those revenues back on track, that should also be solved, I would say.
Thank you so much for taking my additional question. Thank you.
Welcome, Guillermo.
The next question comes from Andrew Wilson with JP Morgan. Please go ahead.
Hi. Thank you also for taking my follow-up. It's a quick one, I think. Just around Power Technique, the margin was, I think, the best we've seen certainly in a long time, possibly ever. It seemed to be the explanation was simply the higher volumes, which given obviously orders have been higher and that will translate into higher volumes. You know, is there any reason why that's not a sustainable level for us to think about going forward? Or is there anything you'd point to in terms of being particularly kind of one-off in nature and what was obviously a very good result?
Yeah. Thank you, Andrew, for the question. I think when it comes to Power Technique, indeed, as you say, I think a very solid margin realization in the quarter. I think why did we get to this margin? I think, of course, there was a very high volume for Power Technique, a very good growth. That contributed. We also did see, of course, a good price realization. And there, of course, we are a little bit less affected by the key account type of business than in some of the other business areas. And then last but not least, I would also say that the Specialty Rental division has been doing quite well, and that has usually a positive mix effect on the margin as well.
That I think explains the positive development of the margin. Looking forward, we need to consider, of course, the impact of acquisitions. The Wangen acquisition is already integrated in that result, but we are also still expecting the closure of our LEWA project, and that would also, of course, have some impact going forward on the margin, given the amortization of the intangibles.
Thank you very much.
Thank you, Andrew. I think we just have time for one more question.
The last question today comes from Lars Brorson with Barclays. Please go ahead.
Sorry. I was gonna ask a-
Lars Brorson, your line is-
Yeah, excuse me. I was gonna ask a bigger question in a scenario where we see a more material European energy infrastructure plan, how might that impact the business? Maybe to make that question a bit shorter, how should we think about the impact from a regasification story outside of gas and process? Is there much of a material impact potentially, Peter, in industrial vacuum? So cryo pumps, not sure how much there is there after the exit of J.C. Carter, but also on PT, submersible pumps for LNG applications, et cetera. Can you help us just briefly scope the potential impact across the Atlas businesses from a broader regasification story coming through?
Well, I think so far I've been able to answer most of the questions, but this one is a little bit out of my league, I have to say. I can't really give you a good answer to that. I will have to take a pass on this one, unfortunately. We can come back on it at a later point in time.
Looking forward to it. Thank you.
Thank you, Lars.
This concludes our question and answer session. I would like to turn the conference back over to Peter Kinnart for any closing remarks.
Yeah. Thank you very much, operator. Thank you very much all for attending the call, and for your very good questions. It was very interesting to listen to those. With that, we conclude the call for today. For those that are looking forward to some holidays, I wish you a very nice break and hope to see you soon again in one of our meetings. Thank you. Bye-bye.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.