Ladies and gentlemen, welcome to Atlas Copco Q2 Report 2019. Today, I am pleased to present CEO, Mats Darmstrom and CFO, Hans Ole Meyer. For the first part of this call, all participants will be in a listen only mode and afterwards there will be a question and answer session. Speakers, please begin.
Thank you very much, and a very warm welcome to everybody on this conference call regarding the 2nd quarter report 2019, the Matlaas Gokko. We will follow the usual format, and that means that in a few minutes or a few seconds, Mats will make his own comments. You can follow, of course, on what is the slides that are on the web, and he will try to keep you updated on where he speaks what he speaks about on that. After that, we'll have a question and answer And I repeat, as we normally do, that we would like all the questions to be restricted to 1 at a time, who allows as many people as possible to come in the queue line for questions. I think that's all for now.
And then I hand it over to Numaats.
Thank you, Hans Ulra. I will start on Slide number 2, which is heading into Q2 in brief. Order growth for the quarter, SEK 26,000,000,000 to 2% organic. We are quite pleased with that. Then the mix is mix equipment demand.
And I think we can distinction between big and long term investments and maybe smaller more operation spend. And if I start with a bigger, more futuristic investment, you'll see those coming through. And then we can talk about technology investment in Fermi. We can see, for example, the electrification in auto and also some of the bigger compressor for more of a future quick traffic investment. So that we have not seen a change in demand there at all.
On smaller and more short term operational spend, there we can see that there are uncertainties in the market and sometimes they push out orders a little bit or this takes some time to get to a decision. That created us, and we have seen that in Q1, and we have also seen that in Q2. Very happy to see that the customer appreciates our service product portfolio. You can see that they continue to grow in all areas, although at the lower relative growth rate. And we take growth in all regions except Asia.
You can see that U. S. Was strong for us. Also Mexico and Canada was included there and equities strong growth as well. Some changes in Europe, but there has been a more flattish development from the different business areas.
And Asia, we might be tough on ourselves from it, but that leads decreased, but it's down 1%. But we can also see that in the past quarter, we have seen more of the decrease coming out of vacuum. And this gives you that it's spread throughout the business very principally. And therefore, certain it will be on the shorter demand on operational spend that it takes more time to get decisions. Profitability, SEK 5,600,000,000 adjusted, what, 32%.
And it's mainly 2 things that we know is the long term in terms of the revaluation of options and then we have the one time cost for adjustment in the output sector in the industrial sector
in the industrial sector. So despite
the trade discussions, the Brexit, different sanctions we have around the world and maybe not headwind, but some slower demand in coming out. So I think the quarter was really strong and solid for us. And over the year and other Q1st two quarters, we had 16 acquisitions that are announced, some of them related to CT, and we can talk about that a little bit later. But you can also see that we have now completed the Brooks acquisition, which gives us the dry and the chillers. And then you can see Euro chillers and also PowerHouse, a little bit new platform for us to do from as well.
If I then change to Slide number 3, which then confirms that we finalized acquisition of Brooks. And it's 2 things that I see it. We get a new platform for cryogenic technologies, but also for chillers. And cryogenic is mainly for the toolmakers and the chillers is a little bit broader used in different applications. We also get including in that is the 50% ownership of the Olayak and cryogenics.
We have decided to announce strategic stock, a new division with a very clear focus on the 2 makers. So then they will have some of our pumps, mainly further pumps and also the triogenic pumps to really make sure that we are the best partners for the toolmakers in that industry. And normally, when we focus, we are very successful. So we have just announced that internally as well. The run rate for the company right now is around USD 150,000,000 on the dry part.
And then on top of that, you have the 50% on alwak, olwak. And as you can see down, we have had a slightly diluted effect, and that's including the TPA. And of course, the base for revenue was slightly higher than the announced acquisition from the beginning. We go to Slide number 4. And maybe starting on the graph.
You can see it's quite solid order to receive. It's the best second best that we have had, although supported by current, of course. And it's actually the record for us in terms of revenue. Hunter Ulla will talk you through a little bit the cash flow later on, so I will leave a signal. We'll go to the geographic markets on Slide number 5.
Very pleased with the development in North America and South America, 6% 11% growth. And we can see it's coming from equity all the business areas in those two regions. There is 1 megatrend in Americas and 1 in South America, but it's a little bit up and down, but that's exactly very strong growth. Europe, that can be still positive to most of the BA, but we can see it on the lower levels, I would call it more of a flattish scenario right now. And if you take Africa, Middle East, CP has a really strong quarter in that region as well.
And then I said in the beginning that we might be tough on ourselves and we said that we have a decline in Asia year on year, so down 4%, and now it's minus 1 for the quarter. But the difference, as I see, is that we have in the past, we have had 3 positive VAs, and then we've been down in vacuum. But now I would say it's more of a flat scenario for those BAs. But I need also to confirm that this is still on a very high level for us, and it's above the level, of course, we have in Q2, Q4 last year. And summarize it, North America, positive good development, more flattish in Europe and then slightly negative in Asia.
And I think they are impacted more and more by the trade discussions that they have with the U. S, specifically China. Slide 6, I would say just the confirmation on the organic growth. We have had 1%, 1% for this quarter, then it's at 2% organic. Number 7 is SafeBridge.
And you can see that we still have support from the currency. Hansel will have a later guided for Q3 and the constant currency. Slide 8, looking at the group. I think I called Power Technique the superstar of Q1. They continue to grow 10%, strong, I think, and they become a slightly bigger part of the group, of course.
Operating profit right now is about 17%. Exports, if I trade a little bit Power Technique Group versus the decline in vacuum for the mix, of course, that's not positive, but we are very happy with the development of power techniques. Compressors have 3 records, and I will come back to that. Vacuum, as you can see, they were down 7% on revenue, 7% on orders, but still delivered close to 75% operating profit. So I think they've shown that they can act in an agile way.
That was positively to clients by industrial technique, where some 50%, 60% is auto related, and they're only down 1 percent. And considering that they have seen in the industry over the last 6 months, I think they're holding up really well. I go to Slide number 9. That's the compressor technique. And I think you can say that they have a triple record for the quarter.
They had record orders, record revenues and record profit. And then, of course, I'm quite happy with the return on capital employed at 100%. If you look at the machine on the corner blades, a new brewer, this is for the load pressure segment. So step by step, we are more and more active in the lube pressure, which is actually one of the market segments that we are not the leader. But I think they're building a quite good product portfolio.
I'm quite certain that, that will continue to grow. They found a really good concept on acquiring distributors. I would say that the value creation is very quick in those cases. I'm very happy to see that they have acquired as many of them although they are quite small. Vacuum technique on Slide 10, down 7% on both orders and the revenue still strong operating margin.
And they continue to then bring new product to the market. This one is an oilfield, focusing on the food segment, which we have identified as a good opportunity for us as well. And if you look at the level in the graph, we can talk about the swings in the industry, but even this Q2, we can see quite on a good level if you compare all the way back to 2017. So quite okay with that performance. And at that level, of course, gives us quite good operating margins.
Industrial, I mentioned it before, considering what's going on with this, it's a little bit of a balance between the sales and the daily sales and production output is coming down. At the same time, you're building capacity and competencies around electrification and the new models. And of course, we are more driven by the CapEx spend, new models, new powertrain, things like that. That's really what keeps it up. We can clearly see that daily spend here as well.
It's taking more time, although that a lot of coal is up there, but to close on the goods. And that's a little bit of an indication, of course, for us. There is normally a correlation between the MDI sales and the general industry that we haven't seen in the past. But there are Tier 1, Tier 2s in the general industry segment that will be impacted by the decisions in the auto industry as well. We continue to develop the service business quite okay.
I think it is one where we have that on the operating margin, you can see, and then we have the one time cost of SEK 30,000,000 dollars for the adjustment to the auto sector. Innovation there that we bring, it's a new battery tool for the aerospace industry, namely it's quite a unique product that I think they will be supplying into the aerospace industry.
And there you can see
on the graph as well that orders received was on a very good level for the quarter. Slide number 12, Power Technique, strong development specifically in North America. And the specialty rental business is really delivering good value to our customers. They continue to grow. And this is one of the areas that we find most difficult to develop service.
But now we have had a couple of quarters where I see that service also coming along in a good way. And we have changed a little bit organically we have changed a little bit from a structure perspective there. And they also had record revenues for the quarter and a record operating margin of SEK 17.4 billion. The innovation here, you are well aware on the compressor side that we have the valuable speed technologies. There was a utilized path in our vacuum pumps.
And now we take advantage of that in the VSD. So we see the value, the speed and generator in line with the environmental expectation on us. So up to 40% reduction of fuel. So this, we think, could be a very interesting product for us. We come to Slide 13.
And that's a confirmation on the numbers. And you can also see in the graph for the group, it's a very strong and solid quarter for us in Q2. Antoine?
Thank you, Mats. Yes, just continuing a little bit on that. Off working profit, Mats commented it already. If you go down below that, of course, what you see in this table, as you know, is the reported numbers of margin. And we think it's fair to say that the operating profit adjusted was 22%.
And last year, the same much less negative this year, only 64,000,000 much less negative this year, only $64,000,000 which reflects that we borrow less, we borrow cheaper. And it's not so much that the run rate of interest rates have changed so dramatically that we have left some old loans last year that is now affecting our borrowing rate. The effective borrowing rate is coming down has come down, I should say. And last year was also affected by some onetime costs in the financial net. When we look at the tax expense, also a better relative performance of 23.1 percent compared to an effective tax rate of 25.5 percent last year.
These numbers, as always, will oscillate a little bit between the quarters. We still believe that 24% is the right expected level for the near term future on that one. And then further down, you can see the development of return on capital employed and perhaps only to mention the return on equity that seems a little bit out of order in an increase from 26 percent to 41%. But we should remember that last year, when it comes to return on equity, it's fully including the discontinued operations. And hence, specifically, the equity of last year was still quite different than from this year.
When it comes to return on capital employed, we are able to do continuing operations for both quarters. So that's the reason why it looks a little bit strange. But 33% on growth and 41% on equity should be the actual run rate situation of this year, at least. We turn to the next page, number 14, the profit bridge there. 1st, for the group as a whole, you can see that the most interesting column is, of course, the one where we have taken out currency, we have taken out one time items, and we have taken out the revaluation effects of long term incentive programs due to the share price movement, etcetera, we come to a negative impact on operating profit whilst having a slight positive impact on revenues.
This is, of course, as anyone would understand, should be compared with the numbers for each of the quarters, dollars 25 ish billion on revenue and operating profit, almost $5,500,000,000 So these numbers are very, very small. That's what I'm trying to say. So don't build too much into the flow through of this particular quarter. We will come to the components in the next page. On the FX, dollars 250,000,000 roughly in positive effect on EBIT.
We expect that to be roughly the same or in the same neighborhood at least for Q3 compared to Q3 2018, so more or less the same. When it comes to the sequential impact of currencies compared to Q2, we expect it to be fairly similar to Q2 this year. So if we then move on to the next, we see the different business areas, a bit of a messy outcome in some ways, you could say. When you look at the compressor technique, for example, again, we have a negative on the operating profit, but there is some volume and price addition to revenue. I think the comment is already made in the quarterly report.
We have a negative effect from seeing most of the growth in the parts where the profitability for various reasons is not exactly the same as for the full business area. I mean, there is on the large compressors, etcetera, there is a certain difference there. At the same time, I would say, for all business areas, when we are in a relatively low growth environment, what we continue to do is invest heavily in R and D, and we also continue to invest in our market presence to support the service growth, etcetera. So that's a little bit a comment on that. And just seeing the column of acquisitions in compressor technique might seem a bit strange, knowing what Mats commented about that we really want to see a lot of distributor acquisitions, etcetera, that they are very value accretive.
And here we see that in this bridge, it looks a little bit different. But I would stress that this is a 1st year bridge, which includes amortization of intangibles effects, etcetera, which, of course, is quite significant in the 1st year. And that, I would say, is the reason why it looks a little bit different from what Mats commented before. Backing technique, of course, when we drop like we also see in industrial technique, and we have this drop. In the short perspective, this is what I expect to see, a little bit more drop through percentage than if we would grow by the same amount.
And the reason basically is that we keep doing R and D investments, we keep investing in the market presence, etcetera. So the adjustments to the new lower revenue level is never 100%. And there, we can also see the same when it comes to industrial technique basically. Obviously, they have a restructuring cost in the right hand column, as you know, of DKK 30,000,000 roughly in this quarter. And not much to say on Power Technique, very good results, very good flow through of profits.
If we then move on to the next page, which is number 16, balance sheet. Not offering too much of extra comments there. We've said most of it. And I think the comment there on including effects of the new leasing accounting recommendation, IFRS 16, explains why the fixed assets have gone up quite significantly compared to a year ago. Otherwise, it's a pretty normal thing.
We have a growth. If we turn to the next page instead, number 17, cash flow. You see that there is a lower cash flow compared to last year. I want to repeat that as we follow the IFRS moves, we have to include discontinued operations cash flow until it's out. This would be basically the last quarter that I mentioned that.
But last year, if we adjust for the effect of discontinued operations, The
cash
flow would have been slightly better even, dollars 3,200,000,000 the operating cash flow versus the $3,400,000,000 And the explanation to it, when I compare apples to apples, so to speak, continuing operations, you would find in change in working capital that would explain more than that difference on operating cash flow. It's a bit confusing as you cannot see that really in these numbers. But in other words, Epiroc had quite a negative working capital change last year and actually a slightly negative contribution on operating cash flow compared to the rest of that last couple. So that's basically most of that explanation on that. Then I turn the next page and leave it back for
a short comment on the outlook by Mats. Yes. The outlook then after a very solid Q2. And what we're trying to do, give you a little bit of guidance on the activity level we see in our segments in the market. And I must say, it's based on our view right now at the moment.
Based a little bit on what we see in terms of what I call an operational spend, It takes quite some time for customer to go from quotation to orders. We can see that some customers have pushed orders a little bit into the future. And we also see a little bit of shift in North America and we could also see a little bit of shift in North America as that was strong for us. And you would be a little bit more flattish. But then you could see that although comparing with a good benchmark from last year.
But Asia, they believe they are influenced by the trade discussions principally. And most of our customers are, in one way or the other, international. So I don't think they see this increased protectionist or or uncertainty in the market as anything positive. And I would say that takes a little bit and that's what it's based on because that it seems that it takes a little bit more time for the customer to make up their mind and all the products from us. But that's also why we say it's somewhat.
It's the picture that we have just presently.
Thanks a lot, Mats. Then we are ready. And please, operator, if you could just repeat the procedures for the questions, please.
You. Our first question is from Guillermo Peigneux from UBS. Please go ahead. Your line is open.
Hi, good afternoon. It's Guillermo Peignet from UBS. I wanted to ask about your feelings around the quarter. I guess, question is, if the quarter got slower as we progress through quarter, if the entry point was a little bit better than the exit point when it comes to order intake or quarter?
Thank you.
I think that we calculated also that we were short of 2 to 3 days versus last year. I don't think you have a different trend that we can communicate in the uncertainty that it was any specific time that we could lead into the quarter right now. It is more based on what I said before that we see customer being hesitant to take decisions and that we have seen push outs in all the business areas. I would say that maybe PT will be less, but a little bit in PT and in IT as well. I think that's more what is based on the assets.
Thank you. And when it comes to a follow-up actually on operating leverage when it comes to CT and BT, so compressor technique and vacuum technique, Are we now at the balanced mix when it comes to large compressors versus stationary medium sized and smaller compressors, high. We see now a balanced, let's say, operating leverage as we go through the next few quarters. So there's still negative operating leverage to be accounted for as we go forward. And on Viti, maybe just alluded to previous comments from Hans Olav on the operating leverage.
Are we now at the low, which we could see now operating leverage normalizing from the current 47%, 50% to 1 or more levels? Thank you.
Well, if I take it, if I made the comments there, I think it's valid both for BT and CT. On calculating percentage flow through for a quarter is, at best, a mathematical exercise. It's very difficult to say that it adequately reflects, let's say, the situation, and it's not giving a lot of guidance for the next quarter either, unfortunately. On your first question on CT, now in balance or not, it depends very much on how the quarter plays out and what gets invoiced and what doesn't get invoiced and so on and so forth. So I think I will always revert to that over time, we believe that a flow through of about 30% is reasonable to expect from a business that is set up the way we are.
And there is no huge difference between the business areas in that respect. And everything will oscillate around that. Very difficult to pinpoint that it's because of this and that. Apart from the more very broad comments that I just offered that we keep doing investments in R and D, We keep doing investments in market presence because we don't have any reason not to do it, if I would say so. And but if the revenues are not there that quarter, it will give a lower effect on profit, and that's what it is.
And our next question is from Sebastian Guter from Redburn. Please go ahead. Your line is open.
Good afternoon. One question on the CT sales in Q2. I can't know if there was any production issues in the quarter or the lead time increase we see in the division is driven by the change in mix with more larger compressors and less small and medium size? Any highlights you can give on city sales?
In terms of delivery, I would say that in most areas, we are back to normally times. And on the other side, if you have record revenues, record OTC, there you always put a lot of pressure on your supply chain, no doubt about that. But the main part of the increase is, as you say, from the big and gas and process to big oil free projects. And they normally have asset delivery time built into them. So at the bigger increase in terms of.
Okay. Thank you. And just a quick follow-up. You comment on the service growth for VTT. In Q1, you said a strong growth.
And in this really, you just took that growth is continuing. So I'm wondering if you see any impact of production cutbacks in the semi industry, especially in memory.
On semi, of course, it is still a huge installed base that we are hunting down to get service or service contracts. So that's positive. If you look a little bit at the utilization on the tabs around the world, we have taken average. You can see that it's down a little bit. Of course, that will not help over time, but I think the bigger potential for us is to make sure that we service the equipment that we sold in the last 2, 3 years.
That's why I
think we've gained a potential for service. Okay. Thank you.
And our next question is from Klas Bergelink from Citi. Please go ahead. Your line is open.
Yes. Mattsson Anselmeth, Klaus from Citi. So Europe is getting a bit weaker there on the smaller and medium sized comparisons. Could you help us with which countries are done weaker in Europe? Is it more Germany, which was already weaker?
Is Germany getting weaker quarter on quarter or other countries as well?
I mean, Germany is, of course, the engine of Europe. But the only market that I can't really comment on that is more difficult than the others is, of course, in the UK, what is the impact of Brexit. And that, I think, proves for moving and looking at pump velocity.
No, it's true. We don't see huge difference. The only thing is that a couple of countries are not growing at all. And that's, for example, Russia and Turkey, that stands out a little bit more on the negative side at least. But otherwise, the overall trends are not dramatically different from one part of Europe to the other.
And there's certainly nothing that comes back to us as a strong warning from the operations EBIT. So and in Russia, it's I would say it's
very impacted by the sanctions by the European Union and also from.
Okay. A quick follow-up on the larger compressors and also gas in process in China. And we must be back at the previous peak there in gas and process, I would have thought. I'm just checking if that's correct. And also, where are we versus the previous peak on the larger compressors on the industrial side in China?
You're obviously benefiting from mix here, new products and getting processed, you're benefiting from more LNG. But just to get a sense, Matt, of the relative performance versus, let's say, 2012 levels?
But you are correct. We are back on record level. I think the difference is that it's more diversified in many more segments. And in some areas, I think also the divisions have been very tough by trying to identify the segments that decline profit well over time. So I think it gives a little bit of the impact right now.
And the product opportunity on oil free is for certain given an impact on the lead rate for us versus competition.
And our next question is from Graham Phillips from Jefferies. Please go ahead. Your line is open.
Yes, good afternoon. Thanks for taking my call. I wanted to understand a little bit more Matt and Hans, about industrial technique. You've given some helpful comment in the release about tools and fasteners in the motor vehicle or auto business. Can you give us a proportion of tools versus fasteners and rivets?
And what are the sort of the minus 1% in orders? Did we actually see an increase in the fastener and the rivet side and the tools were clearly down?
I mean, we don't take it down on that level for you guys. But intrinsically, the tooling business, I mean, the best we can get is a new plant, as you know. And if it's a new model, that's fine as well. It's normally after 5, 6 years. We're very happy about that.
If it's remodeling year on year, then it's more application based. And the one thing that follows the car sales and things that it would be the rivet for the hand rod, the self field, riveting equipment. And the main customers in the world are its Ford F1 fixed projects. So that's where we do the hand in hand, which correlates to the production level. Otherwise, it's more CapEx driven.
And the positive side for this side, it is a little bit that, okay, the traditional power can be capacitor, but you see a lot of shifts, of course, in projects that is hybrid for electrification. And there is a tons of new battery suppliers out there and new sub suppliers that we've been very early to go after now and it gives to subs right now. That's all I can say.
Okay. And just one, perhaps, follow-up for Haan Dhalla on that. I mean, if we look at the comments you make about the impact to margins with the headwinds from higher R and D, and it's you've been saying that now, I think, probably for good on 3 or 4 quarters. Do we start to get into the Q3 where that compatible bleeds through in terms of those higher R and D costs? And are we at the end of restructuring?
Or do you think you had 2 quarters now of restructuring in this business?
As you can see, it's not huge restructuring. So of course, it's more related to adjustments to what they see in the automotive demand for the business. But yes, we have done it. We are coming to the end of it. Let's say, if there is something that might be significantly less than what we have seen in this quarter.
So yes, on the R and D side, yes, it's something that has been going on. It's not that we started it at a certain date last year. And of course, we are now gradually comparing the periods that also had that, so to speak, already strong. But if we continue to grow it strongly, then it will always be it will always eat into the margin unless we really see top line growth coming out. Yes.
Okay. Thanks very much.
Thank you.
And our next question is from Lars Borson from Barclays. Please go ahead. Your line is open.
Thanks. Hi, Matt Santola. Matt, could you help us a little bit with your divisional demand outlook into Q3? Or maybe to ask a little bit differently, do you see any of your business areas or end markets deviate from your overall somewhat lower for the group?
I think if you start some of the major segments in our market then, If you start with semi, you can then see that all the big players will continue to invest in technology. That's just to give them. You can also say that there has been and it's still an overcapacity in memory. And if you can see that utilization is coming down a little bit at length, I don't think you will see a turnaround there specifically. I believe that we'll continue to invest in technology.
And as I've described before, that market is very key account driven. It's not more than 20 accounts around the world that we follow. So that's a little bit of argument on that. We are out in SG. The balance between new CapEx for electrification versus the Google technology, then they need to keep up on the electrification and that is a lot of activities.
We might see more on the days coming down. That we don't know. But of course, that might be the logic of delaying decisions and pushing out some of the orders that we have. But that's nothing that we cannot see into the future. But that's for the construction.
I think power techniques continue in good oil and gas seems to be okay for us. And those are some of the segments that we're operating.
Can I just ask a follow-up to the earlier question on large gas and large industrial and gas and process? I mean, they'd be covered now for 3, 4 quarters relative to your small and medium size. Obviously, gas and process up significantly this quarter. How sustainable do you think this is? I mean, I guess, one argument is for why larger compressors and gas and process would decouple is because there is perhaps more sort of pronounced replacement cycle coming through.
Obviously, 10, 15 years ago, we had this very strong cycle in oil free, most of which should be a dual replacement. Do you see that coming through? Or do you think it's really just lacking the underlying small and medium size? I
can it's very difficult to pinpoint Lars. And I think the small and medium size is following really the pretty broad economic indicators to a large extent, whereas the other stuff both have a little bit more erratic top line development. And it's what we have commented before, I think, still is valid, but we have a few years where there was very few large investment projects. And now it's been for a year you say that we have commented that it's started to do much better. And that's true.
But it comes from a level that was really pretty depressed during 'sixteen, 'seventeen and 'eighteen. So it's not very easy to predict where it's going. We have LNG investments. We have a couple of these things where we do believe that it will continue because there is new technology in the applications that are known other or more of the same equipment and so on. Whereas on the small and medium side, as I said, it's so diverse in its end markets exposure so that it basically follows whatever you can derive from industrial production and general economic
Understood. I'll call back in the queue. Thank
you. And our next question is from Jack O'Brien from Goldman Sachs. Please go ahead. Your line is open.
Hi, good afternoon. First question just on Power Techne. You've seen record revenues and operating profit there. So I just want to understand really the drivers between this behind the strength in the U. S.
Specialty rental business. And then just following on from that, another kind of end market question relating to the Brooks business that you acquired. What sort of growth trends have you seen now? I think I noticed sort of revenues were a fair bit higher recently. So perhaps you can talk about the growth trends there as well.
Thank you.
If I understood, the power technique on S and P rental first. But we have seen a strong market in the U. S. And it's mainly down for the oil free range that we have in the specialty rental offer. And that has been very successful.
And then I think they're taking quite some good market shares on pumps and generators with a handful of accounts with that as well. And then on top of that, then we add then the PowerHouse theme specialty rental business in this quarter then. So I think that's linked PT to the quarter, which I think we're quite okay as well. So we are seeing strength in the marketplace. I would assume that competition is also doing well in this side.
On the second part, can you repeat a little bit? I didn't follow exactly the growth unrelated to Brooks acquisition, I think it was.
Yes. That was the question. So
I was just interested in the books business you've just bought, what sort of growth trends they've been seeing year
to date?
Because I know you mentioned a revenue number of about USD150 1,000,000. I believe it's sort of close to USD200 1,000,000 fairly recently. So just interested to know where that business is versus recent peak and the trends that it is seeing.
No, no, we are exactly. I was just curious when you said growth and what you read into it is actually negative growth. But then I'm with you. Yes, we saw the last annualized number in August last year when we announced the acquisition at just short of $200,000,000 $195,000,000 And now we have seen that very similar to many other suppliers to the same semiconductor industry, including ourselves, as you know, during Q3, Q4, Q1, there has been adjustment to a completely different level. And that, I think, is basically what we confirm here now that we have closed the acquisition, we see more an annualized number in the region of 150,000,000 Of course, we also bought a 50% share of a joint venture of Oil by Triagenyx and then and that is still at an annualized revenue level of about $100,000,000 So is it a negative trend?
I would say, compared to where we were a year ago, it's clearly negative, and it's very much the same type of picture if you look at other companies and also including our vacuum business that is exposed to semiconductor customers.
And our next question is from Matthew Spur from Exane BNP Paribas. Please go ahead. Your line is open.
Good afternoon. I had a question back on semiconductor markets again. So if I look at your order numbers and compare that to your commentary, it looks as though you've gone down sequentially once you adjust the currency, you've gone down sequentially from Q1. You obviously said the technology products stay at a high level. Industrial, I think you've said, is flat sequentially.
So the more run rate semi has declined. Is that pace of decline slowing down from earlier quarters? And I wonder if you could give some color on whether you think we're sort of approaching the bottom in sort of general semi markets, excluding your market share gains in technology wins?
If I start and that's jumping. It's true that if you take Q1 to Q2, you can see clearly that there is a lower order intake. But we should also see that these oscillations between the individual quarters for vacuum technique has been a feature already before a number of times. We've had the Q1 that was very strong in 2017. We never believed it would repeat itself in 2018, but it basically did.
And now we have a good Q1 again. I don't pretend to know that there is something of a season in it, but it just happens to be like that. And in contrast, we see basically that from the first half of twenty eighteen level, the semiconductor part adaptive technique really shifted to a new level. And that basically is the level that we have seen since. But in the key accounts business, you will see Q3 being a little bit weaker last year and Q4 looks like a sequential improvement, but in fact, it's just where specific orders end up.
And I would say the same, so that for Q1, Q2, that it's not signaling any underlying basic demand trend that is very clear in our growth settings.
Okay. I had From
a sequential point of view, but I
don't know. Okay. Understood. Okay. Can I have a quick follow-up on the acquisition there?
So the you said about the JV, I think you said you're not consolidating it, but are you going to report it as part of the EBIT like some of some peers do? Or is that just reported separately lower down the income statement?
That's what we know for the time being that it will be included in the operating profit, yes.
So you bring the after tax into the operating profit, yes?
That's basically the truth of the day, at least. Perhaps IFRS will guide it differently before 30th September, but no doubt. That's what we will do. Yes.
Okay. Thanks.
Thank you.
And our next question is from Alexander Virgo from Bank of America Merrill Lynch. Please go ahead. Your line is open.
Thanks so much. Good afternoon, gentlemen. I guess just a quick one really on your guidance. Max, you've talked in the past about how surprised you have been that the weakness in auto hasn't fed through into a broader industrial malaise. And I'm just wondering, when you think about that sequential guidance and demand, how much of it reflects a change in trends of what you're seeing in Q2?
How much of the weakness in the small, medium sized compressors you've seen might reflect some of that transfer of demand, if you like, from auto into industrial? And whether or not you can just talk a little bit about the complexion of China within that minus sorry, somewhat lower demand sequentially.
I think if you look at our business and a little bit throughout, if you take the industrial compressors that we will lock into general industry accounts. If you take the general industry business and under a capital of brands for industrial techniques, and this is where we have seen a little bit of slowdown, especially in terms of what happens is we still get a lot of growth and you still operate in one of these, but then you see it takes time and change it from closing to decision. And that is really in some or in many of the divisions today that this day in the business that with your uncertainty, it's easy to see to stop or at least spend a little bit less on. And this is what we lead into this different divisions, and it correlates fairly well between the industrial compressors and the general industry and demand and industrial backing as well. So this is what we have been doing, and this is a little bit based on the comment in the forward looking sentiment.
Okay. And a quick follow-up on BT. Just wondering, have you the key accounts impact in the quarter out, any indication of size on that? So we think what would the underlying decline have been?
Excuse me, I understand that.
Sorry, Hanzala. I was just wondering if you called out key accounts strong in the quarter and weak in Q3 or weaker in Q3. I'm just wondering what the underlying decline would be.
No. I was saying that due to the fact that it is dominated by key accounts, it's very difficult to identify by looking at each quarter number whether the underlying has improved or not. On the contrary, we think that after the first half of last year twenty eighteen, we had from semiconductor demand have had pretty similar. It's different between key accounts, it's different between geographies, but it basically has hovered around the same level since. And that's what we expect.
I think the only thing that we can see stand out in both Q1 and Q2 is the China investment that has they seem to be very determined to execute on their program. And that business has been good to us over the last two quarters.
And our next question is from Gael Dupree from Deutsche Bank. Please go ahead. Your line is open.
Thanks very much and good afternoon everybody.
Can I have actually one question for Hans Soler and one for Mats, please? So firstly, could you comment on why there's been such a working capital buildup in Q1 and now Q2 as well despite much slower revenue growth than a year ago? So that's question number 1. Question number 2 is on the growth opportunity in blowers. Could you perhaps give us an idea of the market size, your market share and the various applications for low pressure hair in which you think you have some edge?
Is it ways toward a treatment, conveying and on or just other markets?
I'll start on the inventory. I think we communicated a couple of times in the quarters that Brexit has an impact on imports for us. We build stocking in vacuum technique to make sure that we can meet the expected delivery time for our customers. And as you know, we don't know about the outcome of this, but we make sure that we have enough of that. We have a similar situation with a product line out of China where we have been stuck in the U.
S. Principally for the same reason of the trade. Then in Power Technique, we are then following regulations when it comes to environmentally friendly. So we are beefing up our inventory on generation 5 engines as well, and produce some of the things that are onetime effect. It was to have a little bit of some rotation type of impact in Q2.
But the bigger one, I would say, you can see in CT where you have the long term orders that we build up and deliver on time, but it takes a little bit on inventory and the lead time is longer and the supply chain is longer. Have I missed something I mean, for you then.
That's right. And so it's just to your comment on the outlook. Hesitant by some customers to that nature that will take delivery, which then until that has leveled out on the inventory side, it has an impact.
A follow-up. No. I think that on the blue, it's something we are expanding into. As I said, we're not the market leader. And normally, when we look at an opportunity like that, we get the competence right first and then we get the product portfolio correct, and then we really go off to the market.
I have not made specific numbers on the sites or capital right now. But Lisa can share with you that we are not the market leader down, and we look forward to launching new innovative products in the market, which in the past has proven to be very successful for us. And it's normally, in this case, an energy efficiency that we are driving for an easy way for us to service the customers.
Okay. Thank you very much.
And our next question is from Andrew Wilson from JPMorgan. Please go ahead. Your line is open.
Hi, good afternoon everyone.
I just have a quick question as a follow-up, I guess, on the back end margin. I think the previous commentary you've made has been around a similar kind of 3 cycle margin to compressor, but perhaps a little bit more volatility. And I guess just purely observationally over the last few quarters, despite what's been a big change in volume, you've actually clearly been a little bit better than that in terms of protecting the margin. Now appreciating that FX has helped, kind of do you have sort of any updated, I guess, guides or thoughts or kind of even your own impressions of whether you've been surprised by just how resilient that margin would actually prove to be?
I think the characteristics of these 2 market digits, and I have to leave it that they are in different. It's more stable demand or supply to see the competitive market. And it's much more balanced because of the higher share of service in that sense. And what I'm trying to communicate around 10,000,000 more or less, it's key account driven. As long as the key account replacing order with us we are in a very good position to gain market share, which we're struggling right now.
And this is the result of, of course, the greatest swing in terms of the greatest swing in operating margins. But over time, we believe it should match in intensity where we all did see 2. So I think it's the greatest wins, but we are targeting to be
up in higher operating margins. Thank you. Thank you. And we have completed the hour. So even if there might be some questions still to be asked, I hope that with the help of our IR department and directly to me or anyone that we can help you with those questions that we didn't have time for.
So with that, I thank everybody for participating and wish everybody a nice summer. Thank you, and speak to you in October again. Thank you. Bye bye.