Ladies and gentlemen, welcome to the Atlas Copco annual conference teleconference for Q4 2021. For the first part of this call, all participants will be in listening-only mode, and afterwards, there will be a question and answer session. Today, I am pleased to present CEO Mats Rahmström and CFO Peter Kinnart. Speakers, please.
Please go ahead.
Thank you. Good afternoon and good morning. Welcome to this quarterly earnings call for the fourth quarter of 2021. My name is Peter Kinnart, and I'm here together with Mats Rahmström. Before we start the comments to the quarterly results, I would already now like to ask you that when the question and answer session starts, you would only ask one question at a time so that all participants will have the opportunity to raise their questions. We will also keep the timing of the call to one hour. I would like to hand over the word to Mats to give his comments to the quarterly results.
Okay. Thank you, Peter. I will go to slide two, which is called Q4 in brief, starting with we think we had solid order growth for the quarter, and actually came in somewhat better than we expected and SEK 33.5 Billion with 26% organic growth. I think what stands out is, of course, a fantastic performance from Vacuum Technique again, with 51% and also very strong from Power Technique. It came through in both in terms of equipment and service. Sequentially then compared to Q3, you can see that CT and IT was slightly down, which is kind of normal for that. Industrial Technique was down 9%.
A fantastic growth then with the seasonal orders already for Power Technique with a growth rate of 27% sequentially. Record revenues, SEK 29.5 billion. I must say that, considering the difficulties with the components and supply, we are quite pleased with that we sequentially can continuously improve the revenues quarter by quarter. Of course, we would like to deliver even more on the orders on hand that we have, but we continue to see difficulties with supply. We're quite happy with the revenue for the quarter. That also gave us a record operating profit, SEK 6.2 billion and a margin of 21.2%.
A very strong, I think, record cash flow as well at SEK 6.6. I change to slide three, which is called Q4 financials, and maybe start by looking at the graph first. When we started in 2021, we said that maybe we should not compare our numbers only with 2020 but also compare with 2019, which was at the time the best year we have had. Of course, quarter by quarter, you can see that we have also managed to outperform 2019. Here is a confirmation of the numbers. Maybe I make comment on the adjusted profit margin. It's a negative cost there on SEK 214 million for the revaluation of the long-term incentive program, and the adjusted margin was 21.9%.
Return on capital employed increased from 26% - 27%, and the main part of that is the increased volumes. We step out of the quarter and look at summarizing the full year. Once again, maybe take a look at the graph. You can see the dark blue being orders received. A completely new level for us, of course. Fantastic result. Maybe it's best summarized as record orders, record revenues, and record profit. We also managed to complete 17 acquisitions for the quarter. We have the proposal from the board, an ordinary dividend that goes from SEK 7.30 - SEK 7.60 to be paid in two installments and an extra distribution of SEK 8 with a mandatory redemption. We also suggest a four-to-one split.
Peter will give you more detail a little bit later in the presentation. On the next slide, on page five, you see the full year financials. Orders received SEK 129 billion at 33% growth. Revenues almost SEK 111 billion and 14%. Operating profits increased with 23%. A little bit of efficiency there as well, and margin at 21.2%, though. You also have the next slide. On slide number six, you can see the geographic distribution of sales. It was a strong growth for all business areas both in terms of equipment and in service in all regions, with the exception of Africa and Middle East, which represent 4% of the group.
Pleased to see with the continued success we have in Asia, but also strong Europe and strong Americas, this time. All the power hubs of the world are performing. We come to slide seven, and just to confirm that now we have five consecutive quarters with a strong growth. Slide eight is the sales bridge, and you can just confirm the organic growth numbers. You can also see in the quarter that we had support from the strengthening of the dollar, mainly, and Peter will also here guide you later on when it comes to the currency. On slide nine, you can see the pie chart of the different business areas. Of course, Power Technique was very proud to have the 43% growth.
This is seasonal orders that we normally get in Q1. I think some of these orders have been pushed into Q4 due to the limitations in operational capacity and also price increases. They thought that of course they would be the highest number in terms of growth. Vacuum Technique had another fantastic quarter supported by the digitalization of industry and society. You can also say that the chip shortages for Vacuum Technique is beneficial to them. At the other side, it penalizes the Industrial Technique business, where we have seen stoppages in auto manufacturing. Very solid Compressor Technique with a 14%. They continue their growth journey as well. We go into the different business areas, starting with the biggest one, Compressor Technique.
I just mentioned the 14%, and it's good to see that it comes out of all regions. It's both small and big industrial compressors, as well as gas and process compressors. We discussed sequentially the backlog in China. I think it was down 2% and record revenues. If you look at the graph, you can see sequentially step by step that although we have difficulties, but we still managed to improve the revenues. Operating profit at 23.9% or SEK 3.1 billion, very strong as well. The negative effect is still the supply chain constraints and to some extent also acquisitions. Return on capital employed from 79-93. Just before we leave the compressor, I would like to highlight this new generation of the fantastic VSD, the variable speed products.
Now we've started to introduce another range, which they call the VSDF. You can see the energy efficiency there compared to traditional technologies. Of course, that gives the customer a very good payback, but it also helps customers with their sustainability ambitions. Very pleased with Compressor Technique. We go to Vacuum Technique, pleasing to see here that it's not only semiconductors that is performing, but also general vacuum, so industrial vacuum and scientific vacuum, and also solid development for service. In Q3, you can see that we almost touched SEK 11 billion. This is of course the majority is still semi, and that they managed to almost repeat that, I think, was a fantastic achievement for the quarter. They also, you can see the same thing there.
Sequentially, they managed to step by step build up the operational capacities. They had record revenues. I think the team there can be really proud of the 29% growth. An operating margin on 23.1 or SEK 1.8 billion, stronger as well. Return on capital employed at 25 from 19. Another innovation, you can see it's the same theme as in the Compressor Technique, energy savings up to 30%. Very strong from backend technical. Industrial Technique, they also can end with growth for the fourth quarter. Both automotive and general industry and service also strong to see that. Sequentially, although we can see that orders were down from previous quarter.
An operating margin at 21.5%, including the fairly large acquisitions we have done previous years, so strong to be at that relative number, and the return on capital employed from 13%-16%. Here I don't have an innovation in terms of sustainability, but in terms of flexibility that they now introduce, controllers with the function to take care of up to 25 cordless tools, which is very beneficial for our customers as well. Last on the business areas, Power Technique. If you'd look, this is slide 13. If you look at Q1 in 2019 and Q1 2020, this is where they normally have their strongest performance.
I must say, it was a surprise to us as well to get some of these bigger orders already in Q4, but I already mentioned some of the reasons to that. Equipment was good, Specialty Rental was very good, and service was good as well. Revenue up 14%. For them, operating margin very good at 16.3%, and the return on capital employed at 27%. Here is another example of innovation which links to efficiency and sustainability. If I summarize a little bit at this point on slide 14 then, we have seen high demand on orders received, sequentially slightly down for some, which is quite normal. Record revenues and record profit, and all business areas performs in all geographic regions.
The operating profit then at 21.2%. I think I hand over to you there, Peter Kinnart.
Thank you very much. Going further down the income statement on the financial items, we see a small improvement, which is mostly to do with lower financial exchange rate differences. Income taxes were higher, obviously, mostly linked to the higher profitability to start with, but also driven partly by a weighted nominal tax rate that was slightly up. That gives us a profit for the period of SEK 4.9 billion versus SEK 4.2 billion same quarter last year, with basic earnings per share of 4 Swedish kronor, and a return on equity of 30%.
If we then move on to the next slide, we can have a look at the profit bridge on slide 15, where you can see that there was an improvement from 20.9% - 21.2%, which was largely supported by good currency development, offset by acquisitions and share-based programs to some extent, with the volume price mix and other components basically being on the same level as our margin last year. Given the constraints that we have been facing in the last quarter with supply chain inefficiencies in the factories as a consequence of that and so forth, we were actually quite pleased with that result.
Adding to that on the outlook for the foreign exchange, as you see here, it was a positive impact. Given the current exchange rates, we do not see a fundamental change, and therefore a slightly similar positive impact as we have seen in the fourth quarter, all things being equal, obviously.
When we then go through the different business areas on slide number 16, you see how that picture from slide 15 is built up across the different business areas with Compressor Technique, all of them actually supported by currency, some slightly more than others, but overall a positive impact across the different business areas, the acquisitions being slightly dilutive, and then of course the impact from volume, price, mix and others, where you can say in general the big volume and price and mix impact was overall quite positive, but it was then in a number of cases partially or even completely offset by the supply chain constraints that the entities were facing, partly of course cost increases, partly also the fact that they could not produce and that also resulting from COVID, people were not available and had to be additional hirings to cover for that.
Then finally, another impact is of course our continued efforts in R&D, which have continued to grow also over the fourth quarter, and then also continued further investments in our marketing and digital processes. Moving on to the balance sheet. Comparing to last year, the biggest increase we can see on the asset side would be, of course, the increase in cash by about SEK 7.3 billion. Then the next topic would be the increase of the net working capital by SEK 4.4 billion on the inventories and SEK 4.6 billion on the receivables. But even though those are substantial amounts, they are remaining in line, let's say, from in relative terms compared to revenues, and are developing positively, I would say.
If we go further in the details, we see an increase of the intangible assets of SEK 4.5 billion, which is largely attributable to the acquisitions, but also partially to our R&D capitalization activities. Finally, a bit of extra investments in plant and property and equipment, as well as in rental equipment to complete the picture. On the liability side, we see, of course, the equity going up as a result of the improved profitability, and interest-bearing liabilities, basically very flat. Non-interest-bearing liabilities going up by SEK 9.4 billion, and that is related predominantly to an increase of the payables. Advanced payments from customers related to the many projects that are, of course, being ordered, and some additional accruals in line with the volume growth that we see.
That's as far as the balance sheet is concerned. Moving on to the cash flow. As Mats mentioned, a very solid cash flow in absolute numbers, record level, both for the year as well as for the quarter. That was, of course, predominantly driven by the very strong operating cash surplus that was generated by the operations, adding SEK 3.9 billion compared to last year for the year and SEK 0.8 billion in the quarter. Other topics to be worthwhile mentioning are maybe the taxes paid. Similar comment as on the income statement related to the higher profitability and on the other hand, a slight impact also from the weighted nominal tax rate that ended up being a bit higher.
Otherwise, the change in working capital is notable, where last year we saw quite a substantial increase, and the increase of our trade liabilities in the current quarter were partly offset by increases in inventories and receivables, resulting in a slightly lower improvement of the net working capital by SEK 524 million compared to SEK 1.2 billion last year. Those are the main points. I think otherwise, as I said, a little bit more investments, which is, of course, explainable by the fact that we have agreed and approved a number of additional capacity investments given the current situation, and those are, of course, being executed as we speak. That gives us a total operating cash flow of SEK 6.7 billion for the quarter, SEK 19.4 billion for the year.
If we move on from slide 18 to slide 19, I just have a few words to say about the capital distribution, which Mats already referred to earlier. The Board has decided to make a proposal to the annual general meeting to issue an ordinary dividend for 2021 in the range of SEK 7.60 compared to SEK 7.30 last year, which will then be paid in two equal installments. Next to that, given the fact that I mentioned on the balance sheet, we had quite substantial cash position, and in order to make the capital more efficient on the balance sheet, the Board would propose to the annual general meeting an extra distribution of SEK 8 per share through so-called mandatory redemption of shares.
Following that redemption of shares, the intention is also to split the ordinary shares four-to-one. For each ordinary share, shareholders would receive four other shares, regardless whether they would be A or B shares. Here in this slide, you can see a little bit the overview of the history of Atlas Copco's dividends and extra capital distributions, with earnings per share of SEK 14.89 for the current year, 2021, a dividend of SEK 7.60 as mentioned, and a total capital distribution, including the redemption, mandatory redemption of SEK 15.60 in total.
With that, we come to the end of the comments on the financial statements, income statement, balance sheet and cash flow, and we end the presentation with the near term outlook, which, Mats, you might want to comment on.
Yeah. No, we have said then that the basic activity level remain at the current high level. I must say it's quite difficult to predict normally into the future. Right now, with the things going on, I think it's quite difficult. You see a support in the trends that we have seen in Q4 that supports the high demand. On the risk side, I must say that the accelerating coronavirus globally, it's an issue for us in terms of sick leave, but it's also an issue for the shortages that we already have in terms of supply chains, and the same thing can impact them.
We also have regions where they have zero tolerance, which means that sometimes we need to stop a complete line, even if only one person has come down sick. That's a little bit difficult to predict what will happen there. We still have the shortages of components, as I mentioned. Of course, on top of that, we also have some of the geopolitical tensions. All in all, I think a quite positive near-term outlook. By that, I think we can open up for questions or-
Yes. Thank you, Mats. Just before we start, I just like to remind you once again that please just ask one question at a time in order to make sure that all participants are able to raise their question. With that, I hand over to the operator to guide us in the question session.
Our first question comes from James Moore with Redburn. Please go ahead.
Yes. Hi, everyone. Hi, Mats Rahmström, Peter Kinnart, Daniel Althoff. Thanks for taking my question. I think my question is about the drop-through in CT and VT, and I wondered if you could quantify the year-on-year impact of the marketing and digitalization costs in compressor and the capacity constraints in VT. I guess really my question is, I know you're making investments around the world, particularly in vacuum, where you are capacity constrained, but I wondered if you could help us with what you think the maximum revenue growth you could achieve in vacuum is this year, given the investments and given the current constraints.
Thank you, James, for the question. Well, maybe first of all, talking about the drop-through for Compressor Technique. As mentioned, there were two impacts that are important, I think, to mention. That is, first of all, the basically organic improvement volume mix price that was contributing positively. As we said, the thing that offset that to a large extent were the supply chain issues, predominantly. That, of course, translates itself in either some cost increases or in inefficiencies in the factories. If parts are not being able to be available, then of course people are standing on production lines waiting idly, so to say, or also the COVID impact with people being at home having to be replaced when the components are there.
Of course, it's difficult to manage this particular situation because you can't send people home, you can't reduce your workforce because when you have the components or on hand or such, that you need to be able to produce when the components are there. That's a little bit what we found. As I mentioned, we are continuing to invest in R&D, also the marketing and digitalization that can be present. It can be marketing people in areas where we are trying to explore new fields, which we discussed in the earlier calls, like industrial gases, for example.
I would still say that this is not really a big item compared to the volume price mix impact relative to the supply chain constraint that we have faced. I would say the picture is very similar when we talk about Vacuum Technique, in the sense that also there we saw very positive impact initially by the fact that we were able to output so much more over the quarter.
On the other hand, I mean, you know, the growth rates for Vacuum Technique are quite spectacular, and that of course puts an enormous amount of strain on the supply chain for this particular business area, including of course, the you know, interesting fact that they are basically cursed by their own blessing, in the sense that, they need to produce more products in order to feed the semiconductor industry, which in turn needs to supply chips so that they can make their products. I think the supply chain issues and which is offsetting the volume mix price in VT is definitely the defining factor. Also there some additional investments, but compared to the other two elements, they are margin.
I think on the max capacity, James, I don't think we have a specific number for you, but considering that they've been running flat out for quite some time, we can become more efficient with the resources that we have, of course, but we also need extra capacity, and then it's being installed as we speak and with the coming quarters. It's still difficult to get new machinery. Of course, we are trying to outsource and find capacity outside our own group as well, to see if we can increase it in that sense. We will continue to fulfill the orders on hand on vacuum for quite some time. That means increased lead times for our customers.
I'm extremely pleased to see that they continue to place big orders with us, quarter after quarter. I guess we would like to do even better, but probably do quite well compared to competition.
Very helpful. Thank you.
Our next question comes from Lars Brorson with Barclays. Please go ahead.
Oh, hi. Thanks, good afternoon, Mats, Peter. Maybe just a quick follow-up on that. Wonder whether you're able to quantify. Appreciate, Peter, there are some offsetting factors. We know the net number, we don't know the gross number. Whether you could be a bit specific around price cost mix and the positive tailwind in the fourth quarter. Looking into 2022 more broadly, you know, you're sitting at drop-through in the 20s%, it should be arguably sort of double that. When might we see a return to more normalized drop-through, both as group, but more importantly for CT? I wonder whether for CT, we should think of price cost and mix to be a tailwind in 2022. If we see sustained moderation in steel prices, might price cost tailwind further accelerate in CT?
Prices tend to be sticky, but at the same time, I guess the revenue mix is shifting somewhat towards the bigger compressors that have bigger raw mat intensity, and arguably with some delayed raw mat headwinds there. I wonder whether, just as a follow-up, you can help us understand that dynamic a little bit better. Thank you.
Well, thanks for the question, Lars Brorson. I don't think we can give much more detail on the underlying parameters in the drop-through. It's not something we tend to guide on more specifically. I think that basically what we see is a good volume mix price improvement offset by the supply chain constraints in a nutshell. As we said, we don't see the supply chain constraints going away very quickly, so I guess that might continue for a little while, even though we are improving quarter by quarter. At the same time, I think drop-through is, of course, I understand it's very much in focus, but we also know that it's something that can vary quite a lot over time.
We have always referred to having a kind of average drop-through of 30%. Of course, that depends on so many different factors that it's hard to really pinpoint what the drop-through will be going forward. Of course, we are constantly focusing on trying to make sure that we get the most out of it. For the moment, I think our main priority is to make sure that our customers are being served with products that we can produce. I think if that takes for the moment, a little bit of extra cost, then I think we are willing to take it because we know that in the long term, this investment will give us a good return.
Can I try my luck then with my main question, which is on PT, whether can you quantify the pull forward of order intake into the fourth quarter from the first? Just to be clear on Mats' outlook, excuse me, should we therefore assume that the normally seasonally higher Q1 will not be the case this time around for PT? Thanks.
I mean, it's an unusual situation for us as well. We don't fully know, and we cannot fully guide. As I understand that the activity level is still fairly high in PT as we guide also for. We still see these capital orders, so of course, those will not be repeated from those specific customers, and it was mainly American and some European rental companies at the time. We still see a high activity level. Probably that will be deducted from what we expected in Q1.
Understood. Thank you both.
Our next question comes from Andrew Wilson with J.P. Morgan. Please go ahead.
Hi. Thanks for taking my question. Actually, I wanted to ask about the additional dividend and kind of the thought process in terms of capital allocation. With having paid the dividend, I appreciate the balance sheet is still very strong. Just, you know, how much should we read into the, I guess, potential M&A opportunities in 2022, given that you've obviously chosen to return some of this capital? Does that tell us anything about the pipeline or maybe prices in that pipeline or maybe the appetite for the group, given the number of deals in 2021? Or should we really just take the additional dividends as exactly that and no change to how to think about the potential for M&A in 2022?
On the activity level, of course, with the ambition to grow 8% per year, we put that extra pressure on ourselves on organic growth. You can see that over the last few years, we have increased the R&D spend to secure what I think is a fairly risk-free organic growth. You can see it in CT, you can see it in IT, and VT, and PT, that we are really trying to make sure that we have that. That might give us, I don't know, we hope to give 3%-4% or a little bit more. Of course, then we need to complement, and we did acquisitions. Last year we did approximately 17, I think, which added SEK 2.2 billion.
Of course, we need to, and we have had this discussion for a number of years now, how we accelerate. We have more teams dedicated to review the acquisitions out there and the possibilities. Have in mind then that we always look at the value creation for what we do. We just don't run away and do things. Yes, we have increased activity over a number of years on the acquisition. This is the balance that you can see that we have the firepower to do things. At the same time, we think that the dividend increase and the extra distribution, you can balance that in a good way. I don't know if Pete would like to add.
No, I fully agree with that. I don't think there's anything to be read into the actual capital distribution in terms of how that reflects into the amount of acquisitions and the value of the acquisitions that we might or might not do. I think the Board has of course discussed this and has evaluated this in trying to strike the right balance. Based on the discussion that they have had, they felt that this was a good balance with the 8 SEK per share capital distribution. That of course also still gives us sufficient firepower to do most acquisitions that are potentially on the radar. Again, when we do an acquisition, value creation is the first criteria that we look for, not just adding more and more because of adding things.
That's very clear. Thank you.
Our next question come from Mattias Holmberg with DNB. Please go ahead.
Hi. Thanks for the time. Looking at the difference in cumulative orders and sales for VT, it looks like you've accumulated an order backlog in well excess of SEK 10 billion over the past two years or so. Can you please help us better understand how the phasing of the conversion of the backlog into sales will be, perhaps in particular in light of the challenging supply chain situation? Thank you.
Well, I think it's hard to really say exactly how the revenues will play out based on the order pipeline we have. The only thing we can say about the orders on hand is that we know it's a very healthy order portfolio. We do not have any so-called double ordering in there just for people to secure a spot and then eventually decide not to order those products. All the orders that are there are for real products that they actually need in the near or the middle term. The only thing we see is that given these extended lead times, that of course the orders that there's a bit more early ordering in order to secure a spot in the production plan.
Of course, as you see in the actual revenues for the respective quarters this year so far, we have been pushing extremely hard. We give a lot of credit to the teams in Vacuum Technique for really doing a tremendous job, given these very difficult circumstances with supply chain to push out as much as they actually have done. I think we will continue, of course, these efforts, and we hope that we'll see over time a gradual relaxation. It's hard to see when that will actually happen in 2022.
Thank you. Perhaps just quickly, can you quantify how big the pull forward has been?
No, not exactly.
Okay. Thank you.
Because the customer doesn't tell us that he preorders when he orders, so it's very hard to really put the finger on that number.
Understood.
Our next question comes from Klas Bergelind with Citi. Please go ahead.
Thank you. Hi. Hi, Mats Rahmström and Peter Kinnart. Klas Bergelind at Citi. My question is on the price increases across the different divisions, and I'm thinking about the drop-through here. I think, maybe I'm wrong here, but I think it's a bit easier for you to push through price increase in CT versus VT. You have more customer concentration in VT than in CT, big single customers with strong pricing power. Was the weaker drop-through in VT because of slower price growth than what you had expected, or is it completely a cost and efficiency problem? Thank you.
You are right with your conclusions. As in VT, you can say that the long lead time that we now quote is not as round because of course we quote and you have a committed price level to some of these bigger customers. During the lead time, of course, you can and might see price increases. That makes it of course more difficult for us to handle pricing there compared to CT as you compared with them. It's still so, Klas, that when we see the improved gross margin, it is new products. It is where we see the innovation.
In this case, if I would balance the adjustments versus pricing, I would say that the pricing is less of an issue versus the adjustment. It's more the adjustment that you look into. Let's say that you're gonna manufacture 100 pumps, and you hire 20 people to do that. Suddenly you only have components for 50, but you still have the workforce there. So that's one issue that we have overcapacity one day and the next week we have undercapacity then we are trying to catch up. And then we go to spot market. I mean, the priority number one for us is make sure that we meet the commitment for my customer. So we're buying electronics on the spot market, and that is also a quite significant price increase.
I think we handle the pricing better, and we are looking more at the adjustments, how we can handle that. Your statements are correct.
Thank you.
Thank you. Our next question comes from Daniela Costa with Goldman Sachs. Please go ahead.
Thank you. Good afternoon. Thanks for taking my question. My question relates to Compressor Technique, and if you could, I guess when we look at 2021 organically, we're substantially sort of close to 15%-20% above where we were in 2019. I was wondering if you could help us understand how much of that is like an elevated point of the cycle for your clients in terms of their activity versus the sustainability angle that you were talking about, that I guess there's another reason for the compressors maybe than beyond the cycle of activity of these customers. Also, how much of that has been a contributor to growth in this period since 2019?
Looking forward, I guess that sustainability angle is probably becoming even stronger with higher energy prices and higher electricity prices in Europe diminishing the payback. How much growth do you think this can add over and above your, like, historical correlations with just industrial production and fixed investments? Thank you.
I will start with 2019, of course, but we thought that was a tough benchmark for it given we started 2021 number. If it is the support from government to make things happen quicker, the recovery have been first in China then we have seen in other regions. We have seen it for all different products. Maybe the gas and process came a little bit later in the cycle, but we also see good development there. As I said, in the fourth quarter we see it's both the small and the big industrial compressors and the gas and process. It's actually just demand that has changed versus 2019. It's correct that we believe that the...
Although we don't comment on our exact market shares, but we are quite happy with the development, but that doesn't make the difference between 2019 and 2022. It's the demand. I'm sure competition would also do fine. In terms of efficiency, I think it's a very, very good position to be in right now when the sustainability comes into play. We have always discussed, of course, the payback on compressors and vacuum equipment and the portable compressors in terms of energy use, and that has been one sales pitch. As society is moving towards a more net zero environment, I'm sure that us and competitors that can offer the most energy efficient products will be in a much stronger position.
How many orders that gives, we don't know, but we are quite active to train ourselves and train our customers. Especially the customers that have less interest in this, some of the major operations in the world, they actually come to us with requests in terms of sustainability and how we handle that and how we can help. I see us as being in a better and better position, not only to talk about the financial payback, but also the CO2, how we can help them with that. I cannot quantify it better than that.
Thank you.
Our next question comes from Guillermo Peigneux Lojo with UBS. Please go ahead.
Hi, Mats, Peter. Hi, Daniel. Thank you for taking my question. I guess, you know, it's referring to a previous question as well. I think precisely on VT, you commented on the pull forward of seasonally higher Q1 demand into this quarter because of the supply chain constraints and so on. Then you give the outlook the same for all the units with demand to remain at high levels due to VT, as we see it. Are you seeing the same level of activity in the division into Q1 as well, i.e., basically, there is not a pull forward really, but sustained demand into the next quarter? Thank you.
I mean, it's obvious semi and VT, you know, I'm happy to see that industrial vacuum and scientific is growing in service, but it's still a semi that is outperforming in relative growth. To be able to match the $11 billion that they've had in two quarters, that I cannot confirm, and I don't know. It's still 20 key customers. But high activity level, yes, among our customers to get supply, to make sure that they get supply in the future as well. We cannot look at the semi just for a quarter or two. The end market use for the product is beneficial for this industry.
We see high activity level, but we are in it for the long run, and we continue now to invest in both innovation but also manufacturing capacity to meet this demand. I cannot confirm exactly how Q1 will look like. The reason for that is also that we don't know either, as we have seen, we see the activity level being high.
Thank you.
You're welcome, Guillermo.
Our next question comes from Max Yates with Credit Suisse. Please go ahead.
Thank you very much. I was wondering if you could give us a feel for within Vacuum Technique, how the industrial vacuum business has grown kind of relative to the semiconductors. I mean, would it be fair to say that the industrial vacuum has shown a sort of similar growth rate to compressor orders this year or are we still seeing this dynamic of you benefiting from some kind of new product introductions further penetrating that market, meaning it's kind of continuing to outperform compressors? Yeah. Just any color on the industrial vacuum within Vacuum Technique would be great.
I'm looking at my colleague, but I think at the same time, so I look at my colleague when they check, but I believe it's like semi relatively growing the fastest. There is also a number of segments, what we call general vacuum, like flat panels that are influenced by the success in semi. I believe that industrial vacuum is growing faster than Industrial Technique in CT in relative terms. That's kind of in between, and they get the support from the development in semi as well. They are slightly correlated, and there is kind of a gray area between semi and the industrial vacuum, where they touch on each other's application.
For example, screens, TVs, that is part of this, we define as industrial vacuum.
Okay, that's helpful. I mean, is there anything you're doing on the industrial vacuum side in terms of kind of new products introduction? 'Cause I know it was something you talked about a lot, kind of filling out product portfolios on that side a few years ago, but I just wanted to understand whether there's anything kind of over and above kind of the normal course of business that you run in compressors that you're doing there, or we should just consider kind of the bedding in of the acquisitions that you made a few years ago is largely done now, and we think about that business as just a kind of normal, kind of well run innovative Atlas business.
No, we have, when we stepped into the industrial business, we thought that, the innovation level, was core, and we saw that as an opportunity. We have pumped in some resources into that and introduced a number of new products. Every one of them introduced being successful on the market, it's really driving the success of industrial and scientific vacuum. As you say, complemented them with products or geographical areas in terms of acquisition. We are playing on both these, and the organic part with innovation is significant if we look at the product portfolio of sales today.
Great. Thank you.
Our next question comes from Katie Self with Morgan Stanley. Please go ahead.
Hi, good afternoon. Thank you for taking my question. You gave some useful comments during the opening part of the presentation around sequential demand trends in some of your different end markets from your product lines. I wonder if you could just walk us through by region, and particularly in Asia, what did you see through Q4 when you compare that to Q3, and how do you see that developing as we head into this year? Thanks.
No, but Asia, I mean it's performing well because it was 40% of our business, but sequentially it was down. We have seen that trend. On the other side, actually there are some seasonality in that as well. I would, before I make my judgment call on the development, I would include at least Q1 to see, because if you look at our numbers, for a few years, you can see that, specifically China have been slightly decaying in Q4. Sequentially, you're right, it was slightly down. Of course this is one of the regions where we have greater concerns about the COVID, and the policies they run there.
We have an example in Q4 where one region next to Beijing, where they will have the Olympics, they decided that everyone in the population should be tested. Even though that we did not have any Corona cases in our operations, they still closed our factory for two days to make sure that everyone was tested. Of course, we are trying to protect ourselves as much as possible. I think it will be interesting to follow, but I think we should give ourselves Q1 as well to see what happens then if it picks up on the question.
Great. Thank you.
Thank you, Katie.
Our next question comes from Rizk Maidi with Jefferies. Please go ahead.
Yes. Hi. Thank you for taking my question. Just to follow up on your latest comments there. Perhaps on the sick leave and the labor absenteeism, maybe if you could help us assess whether you've seen any impact from Omicron in the month of December and early January. You mentioned the example of China, but was there anything else that we should be aware of? Thanks.
I don't know if I have a number, but of course I've heard that sick leave has increased. I'm looking at my colleagues if they have a number to share with you. We don't. Yes, I don't know how much of an impact it has had. It also depends on availability of components of course at the same time. There's a number of parameters for the output. I guess we mirror society at large. I think you can apply the same for the people working for us in a specific region and protect our people privately, you know. We have a very protective environment in our factories, but of course, everyone have their spare time as well.
Understood. Perhaps if I could just squeeze in one follow-up, how much more do you think you could have invoiced in Q4 if you didn't have any supply chain constraints? My understanding is that it is getting smaller, I think, versus Q3. Any help there would be helpful.
Yeah. We don't know. I think the situation is a little bit like you have a glass of water and you've been running it at 80%, and for the last few quarters, you have filled that up to, you know, 100%. Then you go looking for other areas, and you're needing new glass. In our case, the new glass is a new machine. Normally 6-18 months delivery time to increase capacity. Then you try to find more capacity, of course, at your sub-suppliers and being first in line. We don't have a key performance indicator to say what could have been the max. Of course, if you go all the way down to each factory and operation, they would know, but it's nothing we...
There's so many parameters that impacts our output. You can be rest assured that we are trying absolutely everything and have done so for quite some time to deliver the Q4, as you can see. It's not super easy to find that extra capacity right now.
Thank you.
Yeah.
As a reminder, if you do wish to ask a question, please press zero one on your telephone keypad.
Yes. Just want to point out that we have just a few minutes left for the call. Please stick to one question at a time, and we'll try to deal with as many as we still can.
Our next question comes from Sebastian Kuenne with RBC Capital Markets. Please go ahead.
Yeah, good afternoon, gentlemen. Another question relating to VT. So we have now three quarters of slightly softening margins, and that goes a little bit against the trend that we see for some of your peer companies. I was wondering if maybe the currency has a bigger impact there than what we currently see. Could you explain to us how you hedge the orders that you get that are now six months out from the big OEMs and that you have to deliver? Do you hedge these dollar orders straight away, or how do you protect yourself, and what's the impact then for the currency effect in VT going forward? Thank you.
Looking at VT, the currency impact over the quarter was slightly positive. From that perspective, there is no big difference, I would assume, with anybody else in the market in this context. We do some hedging, but in general in Atlas Copco, we do not have a very aggressive hedging policy at all, quite on the contrary. In the end, it's a matter of timing, ultimately, of having the impact of the currency exchange rates. We believe that usually the effort and the expense related to a lot of hedging activity is usually higher than the actual benefit that one might get.
Okay. The orders you have in VT are basically open. You leave them open to the market fluctuations.
To some extent, at least, yes.
Thank you. Well understood. Thank you very much.
Our next question comes from Denise Molina with Morningstar. Please go ahead.
Hi. Thanks so much for taking the call. The question just wanted to follow up on the matter you mentioned that there might be some additional capacity coming on in Vacuum Technique soon. I was just wondering what percentage increase that would represent of your current capacity. And also, is this a new plant that's being built out, or what form is that additional capacity coming in at?
We don't exactly share what we install. We are trying our best to install the machines that we then ordered 12, 18 months ago and get them up to speed and running. Of course, it takes some adjustments to get them installed and up and running, so it's not just turning the key on, so to say. We need to install further capacity to meet orders on hand. It's not like that we have a number of machines waiting to be installed, and then we are back on meeting the demand levels that we are seeing right now.
I mean, if you look back a year, then of course we were celebrating and having a SEK 6 billion quarter, and suddenly then we are trying to match them to almost two quarters at SEK 11 billion. We do have more free capacity in Semi than anywhere else in the group, but not to this extent, of course. Even then, if we start ordering to a new level, we still wouldn't have those machines in place yet. But some of them are coming into place, and we will report accordingly quarter by quarter to see how much we can get out on the revenue. I think that was the last question, I think.
Of course, Daniel will be available for anyone that has further questions or needs clarification.
Yes. Thank you very much. Well, thank you very much all of you for participating in the call and for all your questions. I hope we have been able to add a little bit more color to the results and the report that was published. Thank you very much. If there's anything more, of course, you can reach out to our investor relations team, and they will be more than happy to help you further. Thank you very much, and have a nice day.
Thank you.