Ladies and gentlemen, welcome to the Atlas Copco Q4 2019 report. Today, I am pleased to present CEO, Mats Rahmström, and CFO, Hans Ola Meyer. For the first part of this call, all participants will be in listen only mode. Afterwards, there will be a question-and-answer session. Speakers, please begin.
Thank you very much. Very welcome to everybody to this quarter four and full year report from Atlas Copco. We will soon hear Mats Rahmström, our CEO's comments to the quarter. Before that, I'll also repeat again, what the operator said. We will have a Q&A session. For that, I also remind, as I usually do, that we prefer if you stay on one question each. Then come back in the queue for questions if so required. With that, I think we kick right off, Mats.
Okay, thank you, Hans Ola. I will start on page number two. If we compare a little bit Q3 with Q4, we can see that we operate in a somewhat softer business climate. A little bit what stands out, of course, is the auto sector, that we have seen a decline. 1% organic growth, what continued strong, Compressor Technique and also strong on Vacuum. We continue to grow the service business. Three out of four business areas continue to build on our resilience and have organic growth, a solid profitability for the quarter. Go to slide number three, you can see then the numbers confirming this, you can see SEK 25.5 on orders received, SEK 27 billion on revenues, which is the record for it. Both orders received and revenues was solid performance for the quarter.
I think I go on the operating profit margin to the adjusted one. It's adjusted for two things, you recognize when the share is strong development, we have a revaluation of the LTI programs, that SEK 221 million. Then we have been top on the softening market in auto, and we have the restructuring cost on SEK 65 for Industrial Technique. Looking at that then, you are at SEK 5.9 billion and a 7% growth for the operating profit. Hans Ola will take you through a little bit more granularity on the cash flow and also return on capital employed later. Maybe just looking at the graph, before we change, you can see it's quite a solid month anyway, considering. Go to slide number four, this is the full year down and supported by currency, we had then record orders, record revenues and record profit.
Of course, we can see the continued growth for Compressor Technique, mainly the large compressors throughout the years, stronger than Q3, Q4 for Vacuum , and a little bit softer Power at the end of the year, but good development. Good for the resilience that we can see then both geographically, that they're growing in a good way, and also that service helps us to build on the 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 is a very solid business model for us that we have done a number of years. We also acquired some new platforms for growth, that's entering a little bit to the chiller business. I'm very excited about the dispense acquisition in electronic.
Of course, we have the cryo business from Brooks, but also the on-site gas generation. Pleased with that. The proposed dividend, from the Board, is up 11% to SEK 7 and in two installments. We go to slide number five. Here we have your full year in numbers then, and maybe the one that we are extra proud of is SEK 104 billion in principle for revenues, and it is the first time, a little bit of a milestone for us, since we are back about SEK 100 billion, after the split with Epiroc then. It is a good number for us and a solid margin. I go to slide number six. I think you can read this in two ways. You can see it is 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, and one of the growth region is still Asia for us. We're happy about that. 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's the auto sector. For the quarter, you have a decline in both North America, in Brazil, in Europe, and in Asia. It's quite consistent throughout the geographical region for us. To give you a little bit more detail, 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 linked auto, and a somewhat weaker Power as well.
If we go to Brazil, I think the view is generally fairly positive. The only business area that is negative is also 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. We look at the year for Asia. Also the quarter for Asia, you can see that quite a positive development. Of course, here we see that the development in semi kicks in Vacuum, which is very positive, but also the Compressor Technique, and Power Technique has a positive development both for the quarter and the year. 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 number seven.
I can just confirm then that we have five quarters now with growth. If we go to slide number eight, we can still see that we have support from currency, both on orders and revenue, around 4%. We can also link in the structure changes, the acquisition down to that three on orders and organic down 1%. We go to slide number nine. Nothing really new. What stands out as a stellar performance for the quarter would be the Vacuum Technique. They had strong growth in both semi. The strong growth in Industrial and scientific, and also in service, and a very solid profitability, considering then that we also have Brooks diluting the bottom line a little bit. Also positive for Compressor Technique, and you can see then double digits for Industrial Technique then on orders. We take business area by business area, and maybe start on the graph.
Very solid for being a Q4 for them, both on orders, also very good revenues. You can also see that we continue the service development in a positive way, taking advantage more and more of those participating in the capital markets there that could see a lot 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 the smaller industrial compressors, that is the lower demand for those, but we have continued 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 the 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 then we are growing quite rapidly in low pressure, and this is another addition to that portfolio of products. Vacuum Technique on slide number 11. You can see the last two quarters, Q3 and Q4, very solid development. It's in principle 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 we can see the traditional OEM players also continue to invest in technology. We have seen when semi was down a little bit, we could see correlation between industrial and scientific, and there is such a little bit, and we can see both industrial and scientific being positive for the quarter.
Strong orders received, strong invoicing, and continued very strong operating margin. Of course, we have to remind ourselves that the SEK 234.3 includes Roux or cryo, I should say. Industrial Technique on slide number 12. 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, of course, from traditional combustion engine to either hybrids or full electric vehicles. We can also see that increasingly the output, the production rate for last year is down. We normally don't align fully with that.
It's more project-driven. 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 the platforms they're building. 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've said then that we take the cost and restructure a little bit, in the quarter you saw SEK 65 million down and try to adjust 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 the dispense technologies, which you use for mixed materials.
You need it for self-pierce riveting if you like to use aluminum. Flow drilling, similar thing there. We're in a very good position, actually, to be part of this transformation to electric vehicles, and you can see the battery pack as the new engine, and there are a number of critical applications for those technologies on the battery pack as well. 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. Power Technique, 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 have in the past, although it's only down 2%.
Of course, a very important quarter to see the trend in this business will be Q1, which should be the seasonality in this business, and we should then see if we get a strong Q1 or not in this. Have to look forward a little bit to that. Otherwise, you can see the four quarters for here is not too bad, so it's okay. An operating margin of 16, considering the segment, I would say that we are pleased with that anyway. Yeah, this is the summary a little bit. I think I can hand over to you, Hans Ola, here.
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 extra 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. The -SEK 55 million of this year , are by being a little bit lower than perhaps what we had expected. I mean, a slightly lower interest net negative. It contrasts very much with the +SEK 273 million that we had in the Q4 last year.
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 SEK 89 million. I would say going forward that somewhere between this year's -SEK 55 million and last year's SEK 89 million is probably a rough estimate what we would expect per 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 SEK 600 million of one-off extraordinary tax booked a positive effect. If we adjust for that, it was roughly a 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% and 24% of effective tax, that's more to be expected, I would say. That goes, of course, also to the earnings per share. Final comment on this slide. Many of you have noticed 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. I would say that 2 percentage points out of that is related to accounting, basically. It's the IFRS 16 impact, and it's also an impact on some other accounting changes.
On a comparable basis, you can 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. That explains a little bit that 3 percentage points loss on return on capital employed, which obviously always is a full year, 12-month number. If we 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, 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. As I said, let's move on to slide number 16. Again, I need to repeat myself. We shouldn't focus too much on separate quarters, at least for transparency reasons, this is where 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, 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. If there is anything that you wonder about, of course, we can come back to this in Q&A.
Moving to slide number 17, again, not so much more to add. You see, of course, that in a year's time, we have increased on a like- for like basis from SEK 100 billion- SEK 112 billion in total assets. From that, we can say that about SEK 3 billion of that is coming from currency translation, pure and simple, and about SEK 6 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 billion- SEK 3 billion. 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. We managed to edge just above SEK 5 billion on the operating cash flow performance, leading to a SEK 14.6 billion, which is the highest number we've had in a year following after the split from Epiroc, of course. The only thing that could be noticed is what we mentioned also in the report, that the investment 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. Underlying the number was more in line with last year, actually. We go on from there. 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.
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. With that, I think I just leave it to Mats to finalize before to the Q&A.
To the near term outlook then on slide 20, here we try a little bit to guide what we see in the different segments in the market. When we now go from Q4 to Q1 then sequentially, we can see that the one change that we see in the market is mainly in the general industry market that, of course, impacts Industrial Technique, but also in CT with the industrial compressors. We can see that it's softer demand there. We have no reason really to CT. 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.
Q4.
Oh, sorry. Yeah. 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 one more week. We have just extended that before we start our production, and that is our plan right now, and we can see that at many of our customers as well. We'll see how that develops, and that's mainly down, yeah, to see what happens in follow this development.
Thank you, Mats. I'll just ask the operator to repeat the procedure for the question- and- answer, then we go right at it.
Ladies and gentlemen, if you wish to ask a question, please press zero and one on your telephone keypad. The first question is from Guillermo Peigneux of UBS. Your lines are open.
Hi, good afternoon. I wanted to ask a question regarding CT, which relates also to a question in Vacuum Technique, 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. I was wondering into 2020 whether that created an artificial, let's say, high growth rate for you, in essence, and whether that product development cycle continues to be as strong as it was in 2019. That relates to the question of Vacuum Technique 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 on CT. I leave it at that, sorry. Thank you.
On the CT side, for the large compressors, we have a strong belief that it's supported by a new generation of oil-free machines, and also in Gas and Process that we see that they have developed a number of segments. This is more project business, 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 new products. We are also launching a lot of new products in the industrial segment, in the industrial segment, I would say we can see a somewhat softer demand for products, 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 it could be a strong correlation with industrial power tools and smaller compressors. Here, there is a link between Industrial and Vacuum, overlapping a little bit the drive in semi. You can, for example, say that our vacuum application on a mobile phone, that both goes into the semi side, but also the industrial side. That's a little bit the correlation. 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 many years ago, and still is, but now we see the environmental really taking off.
People have an interest to make sure that the carbon footprint is reduced as well. You have a little bit of financial impact on your decision, but also a benefit on that. To have the most energy efficient products in large and industrial compressor will be of great importance as I see.
Thank you.
The next question is from Klas Bergelind of Citi. Your line is now open.
Yes. Hi, Mats and Hans Ola. It's Klas from Citi. The first one, Mats, is coming back to the guidance. Obviously, we hear you on automotive, but I'm 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 Gas and Process 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 seen, if you link that to auto, we have not seen an improvement. I think it's probably the area where it's most challenging in terms of developing the auto industry right now for us. That's linked to new programs available for us in principle then, and if you look at statistics, I think I reported something that last year they closed 22 factories, and they opened five. In previous years, of course, then we have seen more greenfield projects to work on. I wouldn't predict right now that we will see a turnaround quickly on that side.
More on the industrial side in China, Mats, sorry.
Okay. It pretty much followed the pattern we see. Sorry to link it back when we see a softer outdoor, of course, we report outdoor as trucks and cars and Tier 1. That's the Tier 3, the Tier 4, the Tier 5 which is normally defined as General Industry. Many are very dependent on this industry, and this is the pattern I've seen throughout my career. Right now I see then a softer demand in General Industry, both in industrial smaller size compressor is also softer than in the past. Yes, confirming what you just said is our view right now.
My second and final one is on services. There was no growth in IT and PT. 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?
You talked in the IT, they start to become quite developed when it comes to contract linked to the digitalization. I think that is something that we do uniquely versus our competitors. I think they have an upside to trying to link more uptime to service contracts, and that should be extremely valuable to someone making 60 cars an hour. That I see positively. On the other side, there is a strong correlation between equipment sales maybe and or service and the line speed in principle. If you reduce line speed with 20%, 30%, you normally reset the service schedule on the tools as well. That is a little bit of that, what I experienced 2008 as well, that if production is running with normal speed and they don't, then you see that service continue.
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.
Hello. Thank you for taking the question. Hi, Mats. Hi, Hans Ola. 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, Mats? 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? It doesn't sound like you see that changing anytime soon, but I just wanted to confirm that point. 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? The 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 1Q20? Thank you.
Okay. On the first question on IT, did you mean IT in general or general industry in Industrial Technique? Just for clarity.
No, sorry. I meant more the autos exposure in Industrial Technique. Within the press release, you kind of referred to push out of investment and projects. I may be putting two and two together and getting five. In response to Klas' question, you were talking about fewer greenfield projects, et cetera, in Asia.
Yeah.
Are you basically talking about the same thing?
Yes.
Okay.
If you remember on slide six when we talked about the geographical development as well, you could see auto actually being down in all geographical regions with the exception of Africa, which is a very small region for Industrial Technique. It's kind of common among all the auto OEM. Of course, they are going through, some of them, financial difficulties. They have cost out program. At the same time, they're fighting lower volume. At the same time, they need to find CapEx spend for a new generation of cars, if that is a platform built for hybrid or a fully electric vehicle. What I'm saying is in principle, we're in the middle of this right now.
That we see in our numbers. It goes down geographically widespread. We're in a good position when they start launching electric vehicle programs or hybrid programs, and we have the technologies. It's not that we are losing out market share to anyone. I think rather that we're actually gaining in some key accounts.
Understood. Just on your general sense of what's going on in North America, is that sort of stable toward the end of the quarter? 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?
Oh, I don't think we have identified any specific trends. Of course, with a business like ours, there's quite a lot of investment in the numbers. In the graphs, if you look geographically, we don't distinguish between service and equipment. Of course, apart from the auto side and what we commented on the PT, 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.
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.
That's great. Thank you very much, both.
Thanks.
The next question is from Lars Brorson of Barclays Capital. Your line is now open.
Hi. Thanks for taking my question. Mats, sorry to come back to the demand outlook. Clearly, 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 are baking in terms of the key variables. This would be obviously for a Q1, which typically is seasonally bigger in PT. It sounded like you were a little more tentative on the outlook in PT. 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 normally the second-biggest segment for general industry in Industrial Technique, and the one ahead is normally off-road. I don't think we have defined it by size, but it's at least number two. Correct, that the Boeing business has been softer for quite some time. I think that's what I can share with you on those accounts. The second one.
Yeah, I think you started, Lars. I just wanted to make sure I understood. You said something that out of the outlook, it indicates sort of a double-digit down. Was that something you picked up from us or?
Well, I think.
Yeah.
We can debate the numbers, and I can come back to you offline. 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. I appreciate the comps are tough, but I just wanted to understand.
Well.
Yeah, go on.
Let me make one comment there on the sequential. Our outlook is looking at economic activity at customer segments. That's what we try to do. We would have been much more explicit if we projected our order intake for Q1. If you look back historically, and you can see it in the graphs that we publish as well, Q1 tends to always be a very good orders intake quarter. 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? It's definitely not the drive from our side. 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.
When we say an outlook like this, it is really trying to look at the underlying activity level at customers. We don't make any specific projection that Q1 order intake is going to be so much weaker or better or whatever than Q4. Our statement, in our mind, could very well be combined with a higher order intake in Q1 than in Q4. 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. 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? There's a bit of seasonality in PT, I didn't mean to suggest that you're down double digit. I just want to understand why would you not see the ordinary seasonal ramp, particularly in PT? As I was pointing to, it sounded a Mats introductory comment as though there was a little more tentativeness around what you're seeing in that part of the business. I just wanted to clarify that.
I think you saw Mats' slide when he commented on PT, that Q1 2018 was like a rocket. That comparison will obviously be a very tough one to beat. When we go back a year or let's say to April of last year, the comments were very specific that we have made some very successful inroads on certain customer accounts in that geographic area. That is not part of a normal seasonality. 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. I should stop now because otherwise the message becomes confusing, even more confusing. Was that somewhat helpful for you, Lars?
No, it was. Thanks, Hans Ola. Can I just clarify when you say 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 correct. Normally we are closed for the New Year's celebration, and now that has been extended one more week. That is correct.
That's clear. Thanks, guys.
Thank you.
The next question is from Gael de Bray of Deutsche Bank. Your line is now open.
Yes. Good afternoon, everyone. Look, the book-to-bill ratio has been below one times in the past two to three quarters now at both PT and IT, with growth actually turning negative now. In your experience, in terms of the lead times between PT, 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 we have any empirical 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 investment, if that is a compressor or a tool or something else that you need. I'm not sure I can correlate exactly to the scenario you described, that I don't have that data.
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? There was a big difference between the Q3 effect and the Q4 effect, with Q3 basically being a benefit of 80 basis points for margins, and now in Q4, that's dilutive by up to 30 basis points. That was clearly not what I was forecasting myself. Just if you could explain, how come we have such a big difference on the transaction side related 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. We are comparing Q3 to Q3 first, then we compare Q4 to Q4 last year. 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 a 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 first three quarters of the year. That's what I'm saying.
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.
What kind of guidance, sorry, did you give for Q1 already?
Well, 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 bridge, which was 165, as you see in the report. 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.
Okay. Thanks very much.
Okay. Thank you.
The next question is from Andreas Koski of Nordea. The line is now open.
Yes. Thank you for taking my question. I have also two questions. 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 first quarter as well?
No, I did not specifically comment on that. What I said about the semi is that we see the last few quarters have new technologies from the more established players in the market, and that we can see both capacity and technology investment in China, where we're also being successful. If you look at any of the statistics for the semi industry, you will see that utilization is not increasing. It's rather flat. We have not seen so many capacity investments linked to memory. 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 then in China.
I'll say, you don't want to say what you expect in terms of end market demand for this specific segment?
No, we don't see an upswing in terms of capacity. That we have not seen.
Okay. Secondly, you talked about the turbo compressor in your report, and then you mentioned it also on the presentation. I understand this turbo compressor was for low pressure applications. As you know, there are a couple of companies out there saying that they will move into high pressure applications as well. 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 turbo compressors that you refer 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.
Yeah.
Otherwise, I guess we dig a little bit deeper when we meet up with the compressor people. 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 at least we go after.
Yeah, it is a lower aftermarket opportunity in turbo compressors compared to screw compressors?
For the technology you referred to, yes.
Yeah. Thank you very much.
The next question is from Anders Roslund of Pareto Securities. Please go ahead.
My question has already been answered. Thank you.
Okay. Thank you.
Yes. Thanks.
The next question is from Jack O'Brien from Goldman Sachs. Your line is now open.
Hi, good afternoon. My question's 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 Hans Ola 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%-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. Hans Ola, 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. 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. That takes quite a lot of effort in terms of R&D, in terms of presence in the market, in terms of application knowledge, et cetera. You know that, of course, when you have a short period of tremendous load in factories, and you can just sell out all every capacity that you have, it will have a good impact short term on the margin.
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.
Also, I think we are trying to, from the other perspective, trying to protect our margin, building the resilience. We are 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. 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 Ritika of Bank of America. Your line is now open.
Yes. Hi. Thanks for the call. My question is relating to your M&A strategy. You have been quite active on M&A front in 2019 and even in 2020 so far.
Can you please discuss your appetite for M&A for rest of this year, whether do you see hope for sizable acquisitions this year? Also, are there any specific end markets you would prefer, and especially any areas where you do not currently operate in? Thank you.
I think we have the capability and the balance sheet, of course, then to do things that we would like to do. 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. In some areas, we'd like to do more of the same, where that's possible. In other areas, of course, we look at adjacent applications or adjacent technologies like the cryo, 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 three, number four, or number five in the world. We really like to make sure that we can invest enough.
We would like to see product 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. Maybe the fourth parameter is that we're trying to find products where we can work a little bit on an outsourced model, do the final assembly ourselves. We're looking, of course, in different areas depending on division. I don't want to guide exactly what we're looking at, we can see some last year then that, of course, we are trying out a little bit on the chiller side. Fairly new to us is dispense for electronics, which is a huge market and expanding. The on-site oxygen and nitrogen, we have that under Atlas Copco brand. We have strengthened it a little bit.
That's something that we find interesting as well. 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 adjacent applications to that. Now we have the turbo compressors in there and also the cryo. 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.
Okay. Thank you.
There are no further questions at this time. Please go ahead, speakers.
Thank you so much. Thank to everybody participating on the call. I close the meeting and hope to speak to you again, when it's time for the similar conference call in April on the First Quarter results. Thank you very much. Bye-bye.