Ladies and gentlemen, welcome to the Atlas Copco Q4 2019 Report. Today, I am pleased to present CEO, Matt Ramschmidt and CFO, Hans Ola Meyer. Speakers, please begin.
Thank you very much, and very welcome to everybody to this quarter 4 and full year report from Atlas Copco. We will soon hear Mats Ramstrom, our CEO's comments to the quarter. But before that, I'll also repeat again what the operator said. We'll have a Q and A session. And for that, I also remind, as I usually do, that we prefer if you stay on 1 question each and then come back in the queue for questions if so required.
With that, I think we kick right off, Mats. Okay.
Thank you, Alain Oberland. And I will start on Page number 2. And if we compare a little bit Q3 with Q4, we can see that the operating and somewhat softer business climate and a little bit what stands out, of course, is the auto sector that we have seen a decline. 1% organic growth and continued strong competitive technique and also strong on vacuum. We continue to grow the service business, 3 out of 4 business areas, continue to build on our resilience and have organic growth and a solid profitability for the quarter.
Go to Slide number 3. And you can see then the numbers confirming this. So you can see 25.5 percent on orders received and $27,000,000,000 of revenues, which is the record for it. So both orders received and revenues was solid performance for the quarter. I think I'll go on the operating profit margin to the adjusted one.
It's adjusted for 2 things and you recognize when the share is strong development, we have a revaluation of the LTE programs, that's $221,000,000 And then we have been top on the softening market in auto and we have the restructuring cost of €65,000,000 for industrial technique. And looking at that then, you're at €5,900,000,000 and a 7% good forward operating profit. Hans Ulla will take you through a little bit more granularity on the cash flow and also return on capital employed later. But maybe just looking at the graph before we change, you can see it's quite a solid month anyway considering. Go to Slide 4.
And this is the full year down and supported by currency, but we had record orders, record revenues and record profit. And of course, we can see the continued growth for compressor technique, mainly the large compressor throughout the years and stronger than Q3, Q4 for vacuum and a little bit softer power at the end of the year, but good development. And good for the resilience that we can see them both geographically, they're growing in a good way and also that service helps us to build on their continued resilience. We have a record number of acquisitions that we have done for the year. And the main part of those are distributors for CT that we build on the business.
It's a very solid business model for us that we have done a number of years. But we also acquired some new platforms for growth and that's entering a little bit to the Chiller business. I'm very excited about the dispense acquisition in electronics. And of course, we have the cryo business from Brooks, but also the on-site gas generation. So pleased with that.
And the proposed dividend from the bottom is up 11% to SEK 7 and in 2 installments. We go to Slide 5. And here, as you full year in numbers then and maybe one that we are extra proud of with $104,000,000,000 principally for revenues and it's the first time a little bit of milestone for us since we are back above $100,000,000,000 after the split with Epiroxant. It's a good number for us and a solid margin. I go to Slide 6.
I think you can read this in 2 ways. You can see it's all green, which is very promising both for year and for the quarter. You can see that we have 35% of our business in Asia. One of the group region is still Asia for us. We're happy about that.
But internally, we start more talking and challenging ourselves, how do we get to alignment with the GDP development globally. So this is a very positive development for us. If you take a negative approach on it, it's the auto sector. For the quarter, you have a decline in both North America, in Brazil, in Europe and in Asia. So it's quite consistent throughout the geographical region for us.
To give you a little bit more details starting with North America, We continue to have a strong compressor technique driven by larger compressors, strong vacuum supported by the cryo technologies and significantly softer industrial technique with the auto linked to the auto and the somewhat weaker power as well. If we go to Brazil, I think the view is in generally fairly positive and the only business there that is negative is auto linked to auto, which is industrial then. Europe, strong compressor technique, strong vacuum, negative industrial as well, especially the link to Germany and the auto industry there and a flat power technique. Then we look at the year for Asia and also the quarter for Asia. You can see that quite a positive development.
And of course, here we see that the development in semi kicks in in vacuum, which is very positive, but also compressor technique and power technique has a positive development both for the quarter and the year. So it's but we have a product range today that is very competitive on these markets, which is a necessity for the development of the company for the future. Go to Slide 7. I can just confirm then that we have 5 quarters now with the growth. If we go to Slide 8, you can still see that we have support from currency, both from orders and revenue around 4%, And then we can also link in them the structure changes, the acquisition down, that's 3% on orders and organic down 1%.
Moving to Slide 9. Nothing really new. What stands out as a stellar performance for the quarter would be the vacuum technique. They had 3 groups in both semi, the 3 groups in industrial and scientific and also in service and a very solid profitability considering then that we also have a Brooks diluting the bottom line a little bit. Also positive for competitive technique and you can see the double digit for industrial and on orders.
If you take business area by business area and maybe start on the graph. So very solid for being a Q4 for them, move on orders, also very good revenues. You can also see that we continue down the service development in a positive way, taking advantage more and more of those participating in the Capital Markets Day that could see a lot of what they do on the digitalization and connectivity. I think step by step, we can take advantage of that and help that journey in service as well. The one thing that we see that this deviates a little bit from previous quarter is that we see then the smaller industrial compressors that we see a lower demand for those, but we have continued then on the bigger compressors.
That's a little bit sign on the demand in the marketplace. Operating margin at 23.1%, and that, of course, includes a number of acquisitions that we will see the full impact in the coming years. I think that's quite solid as well. Another product in the corner there, this is continuing and we are growing quite rapidly in low pressure, and this is another addition to that portfolio of whole product. Vacuum technique on Slide 11.
So you can see the last two quarters, Q3 and Q4, very solid development. And it's intrinsically the same comment as I had in Q3. It's the development of the Chinese market where they're building up the semi industry, that's very positive for us. And you can see the traditional OEM players also continue to invest in technology. And we see have seen on the when semi was done a little bit, we could see correlation between industrial and scientific and that is touched a little bit and we can see both industrial and scientific being positive for the quarter.
So strong orders received, strong invoicing and continued and very strong operating margin. And of course, we have to remind ourselves that the 23% to 4.3% includes Rux or trial, I should say. Industrial Technique on Slide 12. And we flagged a little bit for a softer outer market in a number of quarters, and we can see that many of the customers in this segment are a little bit in transformation. One is then, of course, from traditional combustion engine to either hybrid or full electric vehicles.
We can also see that in pre influti, the output to production rate for last year is down. We normally don't align fully with that. It's more project driven. But at the same time, we can see that they run a lot of cost out programs, and we can see the effect of that is that they push a little bit traditional technologies forward or change their mind a little bit on all the platforms they're building. So this is in full effect right now in the quarter, and you can see that orders were quite weak, although we kept up the revenues.
Here we have said that we take the cost and restructure a little bit. In the quarter, you saw $65,000,000 down, but just a little bit the cost structure for future demand as well. I should say though that going to hybrid or electric vehicles, with the investments we have done, if you build a battery car, you can come for them, dispense technologies, which you use for mixed materials. You need it for self-service riveting if you like to use aluminum, aluminum. Flow drilling, similar thing there.
So we're in a very good position actually to be part of this transformation through electric vehicles. And you can see the battery pack at the new engine and there are a number of all critical applications for those technologies on the battery pack as well. So even though it's a little bit down now, we believe that we have the right technologies to be part of this transformation going forward. Taking Power, orders down 2%. We have not really seen a full impact on any weakness in the construction market.
In our case, it's a weaker U. S. Market, and we have seen some of the equipment companies not placing as many orders as they had in the past, although it's only down 2%. And of course, a very important quarter to see the trend in this business will be Q1, which should be there is seasonality in this business and we should then see if we get this strong Q1 or not in this. So we have to look forward a little bit to that.
But otherwise, you can see the 4 quarters 48 is not too bad, so it's okay. And in operating margin, 16%, considering the segment, I would say that we are pleased with that anyway. Yes, this is the summary a little bit. I think I
can handle what you want to hear. Okay. Thank you, Mats. Let's have a look a little bit beyond the operating profit that Mats has commented quite extensively already. Of course, in the Slide number 14 here, all of the margin numbers that you see on the different levels are the reported ones, whereas in the Q4 report that we have all received, you can also see the adjusted ones, which gives perhaps a little bit better explanation on how the quarter on an adjusted basis was.
On that note, between operating profit and profit before tax, it is, of course, missing the financial net. And the minus SEK 55,000,000 of this year, SEK 1,000,000, albeit being a little bit lower than perhaps what we had expected, I mean, slightly lower interest net negative. It contrasts very much with the positive SEK 273,000,000 that we had in the Q4 last year. But as we commented, that was a special gain that we had after repatriation of equity from abroad. Equity denominated in euros, we made quite a hefty capital gain and an FX gain on that.
Adjusted for that last year, the financial net in 2018, Q4 was $89,000,000 I would say going forward that somewhere between this year's €55,000,000 and last year's €89,000,000 is probably a rough estimate what we would expect for a quarter going forward. If we go further down, we come to the tax. And again, it was more last year that had an extraordinary positive impact with about $600,000,000 of one off extraordinary tax booked positive effect. So if we adjust for that, it was roughly 24% income tax last year compared to the 22.3% this year. My comment would be very similar to the financial net that if we expect somewhere in the future between 23% 24% of effective tax.
That's more to be expected, I would say. And that goes, of course, also to the earnings per share. Final comment on this slide. Many of you have noted that, of course, the return on capital employed has decreased, and it's a full 3 percentage points, which is rare in our case perhaps. But I would say that 2 percentage points out of that is related to accounting basically.
So it's the IFRS 16 impact, and it's also an impact on some other accounting changes. So on a comparable basis, you can't say that the positive impact on returns that we have had from over the full year, I would stress, from currency has been compensated for the dilution that the new acquisitions bring to the group. So that explains a little bit that 3 percentage points loss on the return on capital employed, which obviously always is a full year 12 month number. If we then move to the next Slide number 15, we have the profit bridge. And I think the only comment here before we look at the business areas on the next slide is that the currency impact on operating profit, looking again, the $165,000,000 that is for this quarter, we would expect something similar judging from where we have the currencies today or the FX rates today for Q1 compared to Q1 in 2019.
That's what one could expect at this moment at least. But as I said, let's move on to Slide number 16. And again, I need to repeat myself. We shouldn't focus too much on separate quarters. But at least for transparency reasons, the way it comes out, it shows, of course, that the operating profit of vacuum technique and compressor technique has responded very well to the volume increase that they've had over and above what would be a long term average.
Of course, you can also see that currency has helped, of course, in absolute numbers. But if we weigh it together, it has been slightly negative effect on the operating profit margin compared to Q4 in 2018. I think those are the main things to comment there. And if there is anything that you wonder about, of course, we can come back to this in the Q and A. Moving to Slide number 17.
Again, not so much more to add. You will see, of course, that in a year's time, we have increased on a like for like basis from $100,000,000,000 to $112,000,000,000 in total assets. And from that, we can say that about $3,000,000,000 of that is coming from currency translation, pure and simple. And about SEK6 billion comes from the acquisition of Brooks in the middle of the year. That leaves an organic increase of the balance sheet of somewhere around SEK 2,000,000,000 to SEK 3,000,000,000.
Otherwise, not so much specific to add to that. I go on to Slide number 18. It's the sum of everything. In one way, it's the cash flow. And we managed to edge just above the SEK 5,000,000,000 on the operating cash flow performance, leading to a $14,600,000,000 which is the highest number we've had in a year following the after the split from Epirox, of course.
The only thing that could be noticed is what we mentioned also in the report that the investments didn't completely die in Q4. It was actually the effect of a positive effect from having a sale leaseback transaction recorded in the cash flow on the investment net number there. So underlying the number was more in line with last year actually. We go on from there. And finally, on earnings per share and dividend, well, Mats told us it was SEK 7 that the Board proposes to the AGM, which means an 11% increase over the SEK 6.30 from last year.
And again, as I have said a couple of times, the earnings per share last year was a bit flattered by this extra positive tax bookings that we had at the end of last year. So with that, I think I just leave it to Mads to finalize before to
the Q and A. So the near term outlook then on Slide 20. And here we try a little bit to guide what we feel in the different segments in the market. And when we now go from Q4 to Q1 then sequentially, you can see that the one change that we see in the market is mainly in the general industry market that, of course, impacts on industrial technique, but also in CT with industrial compressors. We can see that it's softer demand there.
We have no reason really to leaky. It's still a key account. We have not seen too many capacity investments with the exception of China. Utilization is still hovering a little bit, And that's why we have also guided them a little bit for somewhat softer demand than what we see in Q1. And in this, we have not included any impact from possible China.
We follow the development of the coronavirus. We'll see how that will develop. We can see that ourselves, we will have our factories will be closed 1 more week. We'll just extend that before we start up production and that is our plan right now. And we can see that at many of our customers as well.
So we'll see how that develops, and that's mainly then see what happens from this development.
Thank you, Mats. I'll just ask the operator to repeat the procedure for the question and answer, then we will write
The first question is from Guillermo Painter of UBS. Your line is now open.
Hi, good afternoon. I wanted to ask a question regarding CT, which relates also to a question in industrial vacuum, which is during 2019, you did have a very strong performance from a growth perspective. From part of the growth tailwinds came from the self inflicted, let's say, new product development cycle. And I was wondering into 2020 whether that created an artificial, let's say, high growth rates for you in essence and whether that further development cycle continues to be as strong as it was in 2019. And that relates to the question on industrial vacuum as well.
I guess, what I wanted to understand is how does it compare when it's growing now as reported today versus the declines in most of types of industrial compressors that we see on the other side of CT? And I'll leave it at that. Sorry.
But on the CT side, for the large compressors, we have a strong belief that it's supported by a new generation of oil free machine. And also in gas and process that we see that they have developed a number of segments. This is more product business where we also see that in those two areas, I would say that we believe that we are gaining market share driven by energy efficiency of all new products. We are also launching a lot on new products in the industrial segment. But in the industrial segment, I would say, we can see a somewhat softer demand for products and I would say it's more of a short term CapEx decision for the management team there.
More on the long term, we can see that it has continued. We have no reason really to believe that it would be softer on the large compressors. On industrial, I agree with you when I talked about the general industry market that there could be a strong correlation with industrial power tools and smaller compressors. And but here there is a link between the industrial vacuum overlapping a little bit the drive in semi. You can, for example, say that our vacuum application on the mobile phone that goes both into the semi side, but also the industrial side.
That's a little bit the correlation. But also there, I can see that we are launching a number of products and I would, of course, be disappointed if those didn't take market share, especially on the energy efficiency. Now we start to link more and more also the energy efficiency was the financial payback for us many years ago and still it. But now it's the environmental really taking off. People have an interest to make sure that carbon footprint is reduced as well.
So you get a little bit of financial impact on your decision, but also a benefit on that. So to have the most energy efficient products in large and industrial compressor will be of great importance as I
see.
The next question is from Klas Bergelind of Citi.
Yes. Hi, Mats van Hans Ola. It's Klas from Citi. So the first one, Mats, is coming back to the guidance. Obviously, we hear you on automotive.
But am I interested in your comment on the industrial side again? It seems like you said, it's more weakness on the smaller and medium side that the larger compressors and gap are still holding up. If you just confirm that. And then if you could tell us a little bit more by region on the smaller and medium side, We're hearing from others that China is looking a bit better now towards the end of the quarter, but I guess you don't see that. So I will start there.
Let's see. With the China question, to start with that then, we have not really see if you link that to auto, we have not seen an improvement. And I think it's probably the area where it's most challenging in terms of developing the auto industry right now for us. So that's linked to new programs available for us in Principi then. And if you look at statistics, I think I reported something that last year they closed 22 factories and they opened 5.
And in previous years, of course, then we have seen more greenfield projects to work on. So I wouldn't predict right now that we will see it turn around quickly on that side.
On the industrial side in China, Matt, sorry. Okay.
It should pretty much follow the patents we see that if you and sorry to link it back. When we see a software out, of course, we report out to trucks and cars in Tier 1. But that's the Tier 3, the Tier 4, the Tier 5, which is normally defined as general industries, many are very dependent on this industry and this is the pattern I have seen throughout my career. And right now, I see then a softer demand in general industry, both in the industrial, smaller size compressor is also softer than in the past. So
yes, confirming what you just said, it's our view right now. My second and final one is on services. So there was no growth in IT and PET. That is quite rare. I can see the equipment being pushed to the right, but it was a little bit surprising to see that services leveled off as well.
Can you tell us a bit more about what happened? How do you think about the ability to grow services in IT and PT against this market weakness?
I'll start with IT. They start to become quite developed when it comes to contract linked to the digitalization. And I think that it's something that we do uniquely versus our competitors. So I think they have an upside to trying to link more uptime to service contracts and that should be extremely valuable for someone making 60 cars an hour. So that's actually positively.
On the other side then, there is a stronger correlation between equipment sales maybe and or service and the line speed intrinsically. So if you reduce line speed with 20%, 30%, you normally reset the service schedule on the tools as well. So that is a little bit of that what I experienced 2,008 as well. But if production is running with normal speed and they don't, then you see that service can continue, but there is a correlation with number of produced cars, so to say then, versus service.
Thank you.
The next question is from Ben Uglow of Morgan Stanley. Your line is now open.
Thank you for taking the question. Hi, Matt. Hi, Hanzola. I guess coming back to the previous question, the sort of softness or the change in industrial technique, is that really what we're talking about, Matt? Is that primarily due to project push outs, I.
E, a kind of deferral within Asia? Is that the bulk of what's going on? And do you see I mean, it doesn't sound like you see that changing anytime soon, but I just wanted to confirm that point. And then the second point is, if we look at the orders geographically across the group, North America is now at 2%. Can you give us a sense of how that trended sequentially within the quarter, either weakness in general industry?
Is that something that was ongoing in the quarter? Is it more stable? How do we think about that coming into 1Q 'twenty? Thank you.
Okay. On the first question on IT, did you mean IT in general or general industry and industry techniques, yes, to clarify that clearly?
No, sorry. I meant more the autos exposure in industrial technique. Within the press release, you kind of referred push out of investment and projects. I may be putting 2 and 2 together and getting 5. But in response to Claus' question, you were talking about fewer greenfield projects, etcetera, in Asia.
Are you basically talking about the same thing?
Yes. And if you remember on Slide 6, when we talked about the geographical development industrial techniques. So it's kind of common among all the auto OEMs. And of course, they are going through some of them financial difficulties. They have cost out programs.
At the same time, they're fighting lower volumes. At the same time, they need to find CapEx then for new generation of cars if that is a platform build for a hybrid or a fully electric vehicle. And what I'm saying is, in principle, we're in the middle of this right now and that we see in our numbers. It goes down geographically widespread. But we're in a good position when they start launching electric vehicle programs or hybrid programs.
Electric vehicle programs or hybrid programs and we have the technologies. So it's not that we're losing out market share to anyone. I think rather that we're actually gaining in some key accounts. Understood. And then just on just your general sense of what's going on in North America, is that sort of stable towards
the end of the quarter? Or are we because that was a bit of a soft spot with Sandvik as well. Is that something that you see as a weak point globally or not really?
I don't think we have identified any specific trends. Of course, with the business like ours, there's quite a lot of investments in the numbers. I mean, in the graphs, if you look geographically, we don't distinguish between service and equipment. And of course, apart from the auto side and what we commented on the PT, I mean, the rental companies in the U. S, it's not that we see any dramatic acceleration or deceleration of trends from the previous part of the year, to be honest.
So it's a little bit but IT is important in the U. S. And Western Europe as well as in China, of course, and they weigh on the numbers, of course.
Great. Thank you very much, both.
The next question is from Lars Worten of Barclays Capital. Your line is now open.
Hi, thanks for taking my question. Matt, sorry to come back to the demand outlook. But clearly, I mean, if your orders are down sequentially in line with your demand outlook, that would imply a double digit organic order drop year over year, albeit, of course, on tough comps from last year. But I don't think we've seen that since 2013. I wonder what you're baking in, in terms of the key variables.
I mean, this would be obviously for Q1, which typically is seasonally bigger in PT. It sounded like you were a little more tentative on the outlook in PT. And also just specifically on IT, we talked a fair bit around automotive. Can you remind us please how much is aerospace for you? And are you baking in any disruption to the Boeing supply chain from the production disruption we're seeing on the 737 MAX?
Let's see if I can keep up with you. Aerospace, it's the 2nd biggest normally 2nd biggest segment for general industry and industrial technique and the one ahead is normally off road. So I don't think we have defined it by size, but it's at least number 2. And correct that the Boeing business have been softer for quite some time. I think that's what I can share with you on those accounts.
The second one?
Yes. I think you started Lars, and I just wanted to make sure I understood. You said something that the outlook indicates sort of a double digit down. Was that something you picked up from us or
Well, I think that's the one I mean, we can debate the numbers, and I can come back to you offline. But I think if you're seeing orders down sequentially, I think that would suggest year over year we are talking about a double digit organic order drop. And I appreciate the comps are tough. But I just wanted to understand yes,
go on. Me make one comment there on the sequential. Our outlook is looking at economic activity at customer segments. That's what we tried to do. So we would have been much more explicit if we projected our order intake for Q1.
Now if you look back historically, and you can see it in the graphs that we published as well, Q1 tends to always be a very good orders intake quarter. And that I mean compared to Q4, for example, which actually has a little bit of completely the opposite pattern. Is that something we drive? Or is it just how our customer segments work? Well, it's definitely not the drive from our side.
So it's more reflecting that, that is a pattern that we have in our businesses. If it's large annual budgets that are managed at customers or not, I don't know. But when we say an outlook like this, it is really trying to look at the underlying activity level at customers. And then we don't make any specific projection that Q1 order intake our mind could very well be combined with a higher order intake in Q1 than in Q4. And if you go back over 10, 15 years, like I have the luxury to be able to do, you will find that that is actually absolutely true.
In other words, Q1 is as a quarter over a year, strong. Q4 order intake over a full year is a weak quarter normally. And that is a pattern that we have seen for many, many years. That's why perhaps we don't make so many specific comments in that respect.
I understand, Hans Ola. It was only because you don't seasonally adjust your outlook, right? And then there's a bit of seasonality in PET. And I didn't mean to suggest that you're down double digit. I just want to understand why would you not see the preliminary seasonal ramp, particularly in PT?
And as I was pointing to, it sounded a Matt's introductory comment as though there was a little more tentativeness around what you're seeing in that part of the business. I just want to clarify that.
Yes. I think you saw Matt's slide when he commented on PT that Q1 2018 was like a rocket and that comparison will obviously be a very tough one to be. When we go back a year or let's say to April last year, the comments were very specific that we had made some very successful inroads on certain customer accounts in that geographic area. And that is not part of the normal seasonality. But again, I repeat, we don't normally see and we expect that this year as well that Q1 is a fairly good order intake quarter compared to the average over the year.
And I should stop now because otherwise the message becomes confusing, even more confusing. But was that somewhat helpful for you, Lars?
No, it was. Thanks, Angela. Can I just clarify when you said your factories will be closed for one more week, does that include your entire China footprint? I just want to verify that, please.
That is great. Normally, we are close for the New Year celebration and now that has been extended 1 more week. That is correct.
That's clear. Thanks, guys.
Thank you.
The next question is from Guido Brey of Deutsche Bank. Your line is now open.
Good afternoon
everyone. Look, the book to bill ratio has been below 1x in the past 2 to 3 quarters now at both PET and IT, with growth actually turning negative now. So in your experience, in terms of the lead times between PET, IT and CT, and given the order intake for smaller compressors has just started to decrease as well, would you say that CT will follow the negative trend of PT and IT into 2020?
I'm not sure if you have any empiric data on that scenario that you described. But I assume if you have a softer market in general, it would not be too positive for smaller CapEx investments if that is a compressor or a tool or something else that you need on. So but I'm not sure I can correlate exactly to the scenario you described, but
I don't have the data So you don't really see any specific lead times between, let's say, IT and CT in reality?
No, not that we follow here, no.
Okay. Thanks very much. Can I ask also a second one on the currency impact? Because there was a big difference between the Q3 effect and the Q4 effect with Q3 basically being a benefit of 80 bps for margins. And now in Q4, that's dilutive by up to 30 bps.
And that was clearly not what I was forecasting myself. So just if you could explain how come we have such a big difference on the transaction side relative to currencies.
Well, basically, all of that from Q3 to Q4, you can see that the development of last year plays in just as much as the development of this year, obviously, because we are comparing Q3 to Q3 first and then we compare Q4 to Q4 last year. And last year, we had a weakening of the Swedish krona. We had a strengthening of the dollar continuously, so to speak, at the end of the year, whereas in this quarter, we had the opposite. We had the moderation of the dollar strength. We had a comeback of the British pound.
We had a strengthening of the Swedish krona. We had a couple of breaking trends compared to the 1st 3 quarters of the year. That's what I'm saying. So internally, we were not that surprised that the analysis comes to that we actually lost on the margin compared to Q4 last year. That for me is not so strange, even if I understand it surprised you.
And what kind of guidance, sorry, did you give for Q1 already?
Well, I mean, the only thing that we normally say is what absolute number do we expect to be in Q1 compared to Q1 last year. And there, we believe we will see something similar to what we saw in Q4, Q4 bridge, which was 165,000,000 as you see in the report. That's what that at the end of the day will mean for the margin effect, let's come back to that. It becomes too many unknowns to be a good guidance at this point, I would say.
The next question is Andreas Koski of Nordea.
I have also two questions. And the first one is on the outlook as well. Could you just please clarify if you said that you expect end market demand in the semiconductor to be somewhat lower in the Q1 as well?
No, I did not specifically comment on that. What I said about the semi is that we see the last few quarters where we have a great success is in new technologies from the more established players in the market and that we can see both capacity and technology investments in China where we've also been successful. If you look at any of the statistics for semi industry utilization, it's not increasing. It's rather flat. We have not seen so many capacity investments linked to memory lines.
So otherwise, we did not specifically comment going forward. If we're going to be successful, we need to continue to go out and win the bigger orders either for technology or capacity than in China.
So you don't want to say what you expect in terms of end market demand for this specific segment?
And we don't see an upswing on terms of capacity that we have not seen.
Okay. And then secondly, you talked about the turbocompressor in your report, and then you mentioned it also on the presentation. I understand this turbocompressor was for low pressure applications. But yes, as you know, there are a couple of companies out there saying that they will move into high pressure applications as well. And I just wonder what is your aftermarket opportunity in turbo compressors compared to screw compressors?
Is it a significantly lower aftermarket opportunity there?
We have seen the different technologies and there are service opportunities also with the compressor that you referred to that at least is our experience. Now this product does not compete with the reference you make to other companies. This is for another segment at this point at least. Otherwise, I guess we dig a little bit deeper when we meet up with the compressor people. But as you know from the technology, it's less, but it's a small portion of the market.
And we still believe that there are more energy efficient solutions for most of the applications that we go after.
Yes. But it is lower aftermarket opportunity in turbo compressors compared to screw compressors.
For the technology, do you regard to the Yes. Yes. Thank you very much.
The next question is from Anders Lund of Pareto Securities. Please go ahead.
My question has already been answered. Thank you. Okay.
Thank you. Yes. Thanks.
The next question is from Jake O'Brien from Goldman Sachs. Your line is now open.
Hi, good afternoon. My question is on vacuum technique and slightly longer term in nature. If we see another good year of growth in 2020, and I think consensus got around 10% growth. How should we think about margins evolving? Obviously, you've shown good margin resilience despite a challenging market earlier in the year.
Do you see upside to the 25% margin you've delivered if the market comes back strongly?
Maybe, also, I can give you more granularity. But at least when I have discussions with the different divisions and the business area, it's more a drive. We believe that the 23% to 25% bracket of operating margin is a good one. And we are more trying to find more volume, new applications, new customers. That's really where we have the focus.
And Arzogli, if you want to
No, I think that's really a full answer in a way because we've had the question many times over the years, mostly in the beginning regarding compressor technique. But I think the answer when it comes to vacuum technique is very similar. We really hunt for new applications or possibility to grow rather than drive the operating margin. And that takes quite a lot of effort in terms of R and D, in terms of presence in the market, in terms of application, knowledge, etcetera. So you know that, of course, when you have a short period of tremendous load in factories and you can just sell out every capacity that you have, it will have a good impact short term on the margin.
And we've seen a couple of those periods. But seeing, as you said yourself, a little bit longer term, the efforts are constantly put in, which of course means that we see value creation, but we might not see a dramatic margin growth even if we are successful, so to speak.
And also I think we are trying to from the other perspective, we're trying to protect our margin, building the resilience. We're keeping investing in industrial services. We're building on the industrial product portfolio to get a better balance between semi and industrial application and scientific. So that's also an effort we are trying to make over the coming years as well.
Great. Thank you. Thank you.
The next question is from Adi Sinca of Bank of America. Your line is now open.
Yes. Hi. Thanks for the call. My question is relating to your M and A strategy. You have been quite active on M and A front in 2019 and even in 2020 so far.
Can you please discuss your appetite for M and A for rest of this year? And whether do you see hope for sizable acquisitions this year? And also, are there any specific end markets you would prefer? And especially any areas where you do not currently operate in?
But I think we have the capability and the balance sheet, of course, then to do things that we would like to do. And out of the 21, now 22 divisions that we have, we would say that 20 of them have a green light then to go ahead and present a strategy what they'd like to do. And in some areas, we like to do more of the same where that's possible. And in other areas, of course, we look at adjacent applications or adjacent technologies like the Trio, for example, in semi. But what holds everything together, I would say, that we're trying to enter into things where we see that we can become one of the leaders in the segment.
We do not want to be number 3, number 4 or number 5 in the world. We really like to make sure that we can invest enough. We would like to see products that is critical for our customers for that time on their line. We like to see if possible that there is an opportunity to work with the customer on service and service contracts as well. And maybe the 4th parameter is that we're trying to find products where we can work a little bit on our outsourced model, do the final assembly ourselves.
And we're looking, of course, in different areas depending on the division. I don't want to guide exactly what we're looking at. But you can see some last year then that, of course, we are trying out a little bit on the chiller side. Fairly new thought is defense for electronics, which is a huge market and expanding. The on-site oxygen and nitrogen, we have the Thunder Atlas Cocobram.
We have strengthened it a little bit. That's something that we find interesting as well. And of course, with the cryo acquisition, we enter into the chambers a little bit in semi and of course there we can also look at turbo compressors in there and also the cryo. So maybe that guides you a little bit on what we're looking at in terms of strategy and that we have the potential then to be active and to see if we can find something that generates value to our shareholders.
There are no further questions at this time. Please go ahead, speakers.
Thank you so much, and thanks to everybody participating on the call. I then close the meeting and hope to speak to you again when it's time for the similar conference call in April on the Q1 results. Thank you very much. Bye bye.