I'd also like to take the opportunity to say welcome to everyone. We do appreciate you taking the time to come here and visit us, And we will try to make it worth your trip here, talk a little bit extra today about compressor technique. So the growth year and they are on, can we continue that and what this Wagner and his team is building and we will see that in a very tangible way this afternoon as well. And I think the afternoon is the highlight. It's going to be extraordinary and I looked at it yesterday.
I was really impressed. I hope you will be too. Hans Uhl and I will take you through the first presentation. Let me start. This is the agenda, but maybe first then to set the scene a little bit, go back a little bit to the Q3 report and what we actually see in the market.
And we can see on orders, order growth, we can see principally 2 streams. One is a positive one. That's the long term CapEx development. What we see that could be, for example, semi investments in China, the bigger player investing in technology. It could be electrification in the auto sector, which is challenged in many other ways, but electrification continues.
You can see it in big larger compressors that they continue to make this long term CapEx investment. Everyone look back to everyone what happened. Something fell. But then we have the other stream and that's more short term CapEx or even OpEx. And there we see big resistance in the daily business and that you can see then in industrial compressors, industrial somewhat slower environment that we work in.
Happy for the quarter that we continue to see growth in all our service businesses and all the business areas that really builds on the resilience of the company. And what I appreciate is, of course, that the customers see that when we add different service packages to their products, they see the value in uptime on their products. So it's something that is really sustainable over time if you do it that way. So we appreciate that. Quite an okay margin.
Looking at the geographical territories, you can see the even split actually than Asia is our biggest territory, considering where the world is heading with almost like 45%, 50% of the global GDP in that region, I'm pleased to see that we have such a strong presence and also operations in the region. You might think then that the 21% year on year and the sequential was limited then to semi, but that was not the case. It was actually a compressor technique and it was also power technique. And power technique in Asia is a challenge, but I think they've done a fantastic job with the new product portfolio developed in China. The only one that was on the decline was the outer sector for industrial technique.
U. S, so and so, year on year, 6% sequentially down. South America is mainly for us Brazil, you see positive, both sequential and that the biggest challenge for us right now is for sure Europe. If you look at the industrial technique, we only want to be 1 slide on industrial technique and 1 on power technique. I will take them here early in the beginning.
And outer sector, you can clearly see then that sales is down, production rates are down, but also the number of projects for us is down. But you can see the numbers are kind of okay anyway. And what's keeping us in the game right now is the strategic moves that we made 5, 6, 7 years ago. It's the new technologies, self pierce riveting, adhesives and flow drills. And that is in principally, if you want to build a new car, electric car or another car, you want fuel efficiency, you go for a mixed material car and then you need these type of technologies.
So electrification is something that continues. And the other thing is that then you might be concerned about and should be, it's the number of tightenings on a car. And of course, an electric car versus a traditional car, you see that the number of bolts and screws actually goes down. And there, over quite some time now, we have broadened a little bit the scope of supply. So yes, we do the tools, but we also do a lot in the workstation today with HMIs for their controller error proofing in the stations.
We're building a little bit on the scope of supply. So I think it's probably in the car industry probably going to get worse before it gets better. But I think Atlas Copco today with ambition in the car industry, I think we're in a good position to get the business. The one thing that you might have seen recently was the acquisition of Schengenflug. It's then a dispense company for the electronics industry.
So I can say it's something we have in the SCA, this balance that we have for the auto industry where we have a leading position. And this, I think, is a very interesting opportunity for us as well. So we will continue that. And for me, that's something I wanted to do for a number of years. So I'm happy that Henrik and his team managed to get this company, German company, very good products.
Power Technique. Also here, we see a little bit softer rental markets. You can see that in the numbers. I think we have found quite a solid margin in the business. Return on capital deployment, I think, is okay, considering that this is still mainly in the construction business.
We are trying then to say that it's going to be a mix of industrial and the construction applications in the business area moving and heading that way. But I think still it's okay. So if you look down by our other potential, 50% of sales for PowTik is still in Europe, and they have a very strong market share and presence everywhere. U. S, there is an upside, if you can get it right.
And the most challenging market is Asia because there's a lot of local competition. But with the new ranges that they developed in China, you can see that they had growth in the quarter and that has been a trend that they have. So I think it's quite interesting as well. Then they have done a marvelous job with an interesting pipeline of products that is coming to the market. Last year, we showed the electric portable machines.
And considering the environmental trends in cities, we think this could be a niche product. And for us, it's been very now they're broadening a little bit the range as well. They introduced a variable speed concept to generators, also then to take down fuel. And so it's more efficient for the customers and for the rental companies. They're introducing light towers with battery powered.
So if you think events, you want a quiet environment and you can see that on the footfall pitch there as well. And then also they've done a lot on the submersible pump side. So I think we have a decent range. And not the market leader there, but they have done an interesting work to see to position themselves to move forward a little bit. Okay.
I'm going to leave those 2 business areas behind and look a little bit at Atlas Cocoa as a group then. This is our targets. Sustainable profitable growth, it's what I promised my Board and it's a little bit my mission. But then if you think about, well, what is the purpose and how do we drive that, and I think the statement on the right side here, how with the industrial ideas that we push, it's principally the innovation in the teams that we have, that we can empower our customers to be more successful. And that's really an important message internally in Atlas Copco that we are really driven by the success of our customers.
So a lot of the innovations and the sales process is linked to that our customer can be more successful. And if they see that they are successful with our products and the service we give them, then it's also sustainable over time. So we have a lot of focus on that. And as soon as we can do that, they can be play an important part in society, both them and us. Then the targets, you recognize them.
We call it sustainable targets. And we link them the people target, the financial targets and the environmental and plan to break them down in these 6 parameters. And the way we do it is that we report the financial data and all the other data in the same way, in the line. So every division has these targets, it's broken down. And there is no plan and there is no target without a plan in Atlas Copco.
So there's always a plan that we follow-up. So either monthly or quarterly, we follow this up per division. So for us, it's been a journey to take what was financially driven and also make sure that the people and environmental concerns are part of a very clear responsibility for each divisional President. I wanted to show you a little bit where we have our presence in the world today. This is showing a little bit the different segments.
I can see that we are a little bit everywhere, but also that we're not dependent on a specific segment for certain division, absolutely. But as a group, you can see it's a spread. It's also diversified in terms of geography. You can see that we have one third in Europe, 1 third in Americas, 1 third in Asia and principally like that split. And maybe one more level is sort of service and equipment.
So there's a number of things that we think about when we add on new businesses or that we develop something organically. I wanted to show you a little bit to put our products in, so you can see what we are doing. So you know that we have a value creation process from our products that we have had for a number of years. We are really trying to make sure that we can bring something to the customer that brings value. What's changing over the few years now, we're really pushing to change the sales process.
And we want to have a sales force that is more proactive, that can identify real costs at the customers. And that puts a lot of pressure on us to really work closely with the customer to identify what are the opportunities. This is a cabinet maker. And if you would walk by this application, you would probably see they have a number of tools that do their processes. And probably as a sales rep, an old sales rep could not identify what could be an opportunity here.
But since we have now learned that the warranty costs for this type of products, if they are in the field, are quite significant, then we can propose them something that we call a full error proofing. It's a full error proofing that you guide the operator in making sure that it's feasibility on all the application. And it's probably a change from 5 times what they would pay for an error proof solution. So for us, it's a positive and a challenge than the sales force to learn so much more about the customers' applications and what are the pain points they have, what are the costs in the operation. And that puts an interesting challenge because when they do that, they start to put pressure on R and D as well to say, well, this product is not giving real values.
So then we have a positive spiral when they work together. So this, you can see, elimination of cost, dollars 40,000 and we make a little bit our customer the hero internally as well. And a lot of the ways that we transform businesses is in this way. And I think this is also some of the secrets when it comes to our margins. And it's not only there, you can take this one.
It's in the semi plant. It's one of the pumps. Approximately 20% of the energy used in the semi plant is used by the pumps. Of course, they want a very solid process. So we need to be close to customer, understand what they have in their process, but also then if you can make it more efficient.
And you will see some of the examples this afternoon of where there's a huge benefit for the customers. So as long as we can present that, sometimes you talk about the pricing power and I would say it's a value power we have if we manage to execute on this type of sales strategies. This is Ford U. S. You can look at the little movie there.
What we do now is that we take away the cabinets of controllers. We actually put it on the robots and then we reduce the floor space. So this is what we managed to do there. What customers want today is that they want automation, but they don't want automation without flexibility. So they want flexible automation and this is what they would like to build several different models on the same line.
And if we can get down the floor space, we can work in this way and that helps them a lot that they can do capacity changes, line balancing in principally or they can change models pretty quickly or run several models. So this is another example where we can be very proactive. A crispbread factory, this combines the compressors. I think we'd normally say it's 75% of the cost of acquiring a process and running a compressor is the electricity principally. And here we come down with the VSD concepts, the variable speed concepts.
You can see huge savings here as well. And this is then what we tried in the wind generators. We do it in vacuum pumps as well. So it's a unique concept. Here's the same thing.
This is fuel efficiency. So we're working on that. This is a new drill rig in the construction site. Services, this is a wastewater plant in Michigan. It's low pressure.
One of the stations today is low pressure. This is we are not market leader here, but I think we soon or we have a market leading product portfolio. So I expect looking at Wagner that we will be a leader here as well. So we have invested quite a lot in this as well and this will bring the VSD concepts as well. So a lot has been done in the sales process and the product portfolio.
And we need step by step upgrading people so that they can walk the line, identify being proactive salespeople. And one of the changes why we do this also that the data that when I was a salesman, when I was out there talking to customer, that information people get online today. So it needs to change to something that if we visit the customer, it needs to be real values to the customer. And it's very difficult to follow us here because it's not easy to be that close to customers to really understand and that they share the scenarios how costs are distributed in their operation. This is a little bit I was asked this last night as well, what is it that makes Atlas Copco successful?
And I would say it's the selection of the niche segments we would like to operate in. And then we take some time to figure out what this really is. The first one leading position in a defined market, We have tried to be number 5, number 6 in markets and then we have exited those. We need to make sure that we have enough resources to put into R and D and also to the presence in the market. Differentiated technology, do we have opportunity to do a little bit with the sales tools that I just talked about?
Can we do that? Or is it a me too product? Me too product can be interesting if the intention is to upgrade to something else. Otherwise, I would say the Me too product is not for us. And then one of the key factors is that the customer perceives that the product is valuable to his line and it's portable to his manufacturing.
So everything that is line manufacturing could be in vacuum, could be in industrial, could compressor could stop the line. It's very interesting to be there because suddenly then the service concept comes to play as well as say, but we want more uptime because it cost us tons of money. So we're really trying to figure out if we can find products and operations where our products are key. And on top of that, if it's a smaller part of CapEx, even better. The service potential, I think it's good for profitability, but otherwise to keep uptime on our products.
And the value we bring with our service comps that is so significant versus the cost. So if we present this in the correct way, it's we're going to continue to grow in service. The other thing is the balance sheet agility. You know that we outsource a lot of the component manufacturing. The other thing that we are trying to do is making sure that we can manufacture things like the car industry in modules.
Can we offer something unique to the customer and then really making sure that they manufacture it in a way in the line in principle? This is the dream scenario for us. It doesn't all work out that way, but we are really in organic development or acquisitions. We really list these and say, well, how does this look like? This is a little bit the outcome so far.
I think this development is quite okay, in line and slightly above our commitment to the 8%. Return on capital employed, good. Then you can see the margin stable, and it could probably have been higher, but we have made a few decisions that we would like to invest in for the future. Connectivity is 1. So the digitalization of our products, they are connected, but we like to make sure that we are the company that understands the data better than any other players in the market.
So we do have invested in all business areas to make sure that service has the competence to make this analysis. We believe it would be dangerous to have a company that has outsourced this to a partner. So we think that we should learn and be this as a core competence. But it doesn't give immediate payback, but we have done that. We can see that we have a number of ideas for R and D for adjacent products.
I think we have between 5 to 7 products that we have approved right now, and we are spending a little bit. And probably the deliver on those is within 2 to 5 years, depending on the success. Another thing that's interesting and challenge that you don't see is the IS IT environment, cybersecurity. We don't only need to protect Atlas Copco, but we also need to protect our products. So that's something that we also spend money on.
And then we can see that we do a little bit in operations as well. But those are decisions that we have made, so it's not inefficiencies. And for me, it's a nice challenge, the BAsO division. This is really important that these are things we do that we think are the right thing to position us in an even better place in the future. And going back a little bit, the biggest compressor technique, there was 4, 5 years when the equipment was struggling to find organic growth.
We're trying to make sure that Wagner and his team have enough resources to bring some new technologies to the market. So this is another way of looking at our organization. We tend to start with customers and I know that there is a saying that the customer is always right and maybe you should ask the customer what they want. And we have tried that a number of times. And if you ask that question, they normally want something a little bit cheaper and they want something with better performance.
So that doesn't bring so much to us. So we spend quite a lot of time on the application and really what they need for the next generation of cars, next generation of planes, next generation of semi and being early on to that is an important part of our success. I would also say that 97% of Atlas Copco employees works in the line. They work in this organization. So we break that need down to product portfolio management, and that's the restructure division in that sense.
So do we use all the synergies between the division? No. But we say that accountability and speed is more important to us. Do we share between them? Absolutely, it's an absolutely open environment where they can take and steal with what the best processes are.
But a strong focus on customer and product is part of our success at least. Decentralization, I think if you follow Swedish business press, it's a word that is being used quite frequently right now. And yes, we are decentralized, but for us, it's maybe not what's in the paper. We talk about a mission based culture, so everyone that gets an assignment as a manager somewhere has a financial mission, an environmental mission and a people mission. So this is how we structure it.
And then they can challenge management and say, Okay, if I'm going to deliver on these, then I would like to have these resources. And then we follow-up with, you can see, more than 500 profit and losses on a monthly and a quarterly base to make sure that we it's very transparent who's performing and who's not performing. And I would say this is the way we see transparency and giving them the divisions and authority to make things happen with speed and by that also being able to compete with, let's say, faster moving agents, and we think this is a part of our success. But there are a lot of things that we do as a group, and we value that. If you take Hans Oola's team, all this financial reporting looks exactly the same wherever you are in the world.
If you look at the brand management, we do the same thing there. Atlas Copco should look and feel the same way wherever we are. The legal team is one team that we do, so we make sure that we act accordingly. All the security around ISIT, for example, is central. We do that central as well.
And one very important thing is that we do people management and the internal job market is also certain that you can move in between, you can bring up different competencies. And I would say that keeps us together. So it's actually the culture of the company and a lot of this is in the mission and the responsibility to deliver. If you go for an interview in Atlas Copco, you have to answer how you completed your mission. And one of the interview questions would be, have you completed your mission?
So it's very driven by that. So yes, decentralized, but there is a lot of functions that they keep together to the value of the group and our customers. We also put some thinking into this with diversified, agile and resilient. It's part of when we develop businesses. Diverse customer base, we talked about that earlier.
We think that's important. We always talked about this onethree, onethree, onethree strategy to be strong in Asia, Americas and Europe. And right now, with the protectionists, I would say that we are in a very strong position, but we have operations in all these regions. It's not something we like, free trade, but we have the opportunity to move if we need to. Agile, we in average, 75% of the components are outsourced.
We take pride in doing the assembly ourselves and the quality checks before we send something to the customer, but we share that responsibility on the balance sheet. Flexible workforce depends a little bit where you are in the world, but we always work with temps today after 2,008, so between 5% to 15% temps to maybe able to adjust that as well. The other thing that I find important is that the speed of decision. So if you have done your scenario planning in the correct way, which we force everyone to do, and it's not just the PowerPoint, it should really be something we can act upon in from one day to the other if the plans are really ready. The leadership model, where people take they don't wait for hopefully for our call to say, well, you need to adjust.
Hopefully, they take those themselves and they are responsible. And the transparent follow-up, it's very clear to everyone who is performing and who is not. So hopefully, we can call and congratulate, but also call to say, well, what do we do, what do we do? Service, building on the resilience. In Gerd's team, for example, where maybe service was not from Edvard and Label at the time, strong focus to build that business as well, and it's the best way also to secure the next equipment order.
So this is also something we do quite a lot. Okay, so a little bit how we work. Some of the things that we put the priority on, you have seen this before and it's almost like a sequence of events. People is extremely important to us And we are not only left looking for the core competence of a function. We do that.
That's kind of check on that. There are 2 other things that we're looking for in an interview. It's always the passion and drive. You don't get anywhere in Atlas Copco because you need to apply for every job yourself. No one's going to pull you and say, now it's time for you to move there or there.
There is no career planning. So you need to have the drive to move up in the organization and that has been important to us. But there is one more thing that we look at and that is the do you have the capabilities and the interest to work in international teams? There are small agile teams and everything is in English in principle today. And do you have the interest to meet other cultures, to have the interest to work with other peoples because the market is not in Stockholm.
And that's something we look at. So many of the things that society today, if you look at Europe, that they see as a threat or so we see culture differences, religious belief, how they look and market. We see that as strength, and we're trying to work that into our model where we see that people can bring a lot to Atlas Copco. So we have 3 parameters when we look at someone that comes to Atlas Copco. Innovation, clearly, is that it should benefit our customer, what we do.
The presence, yes, we like to be in all the markets. We don't give up on any market. Operational excellence, I'll talk you through that as well, and then the service content. So this is a little bit what we call our strategy. People management, I think this is one thing that we talk about quite a lot about the ability to create lasting results in the leadership model.
Coming back to the hiring contract, you say that you get your mission and you're supposed to deliver a number and an organization that is significantly better than when you took it on. So it's very transparent in the way that, okay, it should be sustainable, so you cannot leave and say, well, I left an organization that not ready, they don't have the right products or the right presence or the right competence. It's something that we look at quite a lot. Innovation, we like to be part of our customers' future, and it's difficult to know sometimes what the future look like, but we spend a lot of time interviewing customers and not normally the people we meet in our daily operation. We try to meet with people that are building the next generation of whatever product it is.
I would say that the work we have done there in industrial technique for electrification that we position ourselves where we are, the work that Gert is doing with the semi in China to be to see that happening, The work we have done with the new oil free ranges is part of that as well, electrification in portables. There's a number of things where we try to see what will happen at our customer sites and how will they will value that. So we don't mind, and I encourage people to see if we have good projects, then we don't mind spending a little bit more on R and D. And I would say for our position, it's money is one thing and the more tricky side is the people, to find talented people that can execute on fantastic ideas. So but we do spend a little bit more for the future.
I wanted to give you an example on this battery tool. It looks like a tool for maybe $100 to $1500 doesn't it, that you can buy in your hardware store, but it's not, of course. A tool like that is between $10,000 to $15,000 depending on functionality. And to get to that transformation that the customer is using something like this is a tool that they can use for the electric cabinet, for example, that I showed earlier. And so how do we get to that, that the customer are willing to transform into something so much more valuable?
Well, we set up these interviews. Voice of the customer is the concept and how we execute. We take someone from R and D, someone from marketing and then we try to engage our customers in a dialogue on what not what they want, but what they really need. We actually walk the line. We can stand and watch operations to see how do they work with the tools.
And this handed into use, normally the customers are a little bit hesitant to invite us, but then they realize what we like to discuss and it's a real problem today in the future. It could be material, it could be technology, then they spend quite a lot of time with us. So we do the interviews, we try to make sure that we do it in all geographical regions around the world. And then now that this isn't maybe an extreme case, but this case, they even built up the scenario at home to make sure that we have the accessibility, traceability and see how it operated. So they did this mock up scenario for the customer and this is what came out, what they really needed.
They didn't want the reaction force in the tool. They wanted us to improve the ergonomics there. They reduced the weight, extremely important in Asian car manufacturing, for example. Weight and sound and vibration, you don't want this carpal tunnel issues. And they want to increase the productivity and traceability.
So traceable tool, and this is then what we had to do. And this is a project over maybe 3 years. They have developed a new technology for the pulse mechanism, so there's no reaction force in this tool. The algorithm in the tightening process, they have changed. It's higher actually, lower weight, low sound and a high productivity.
So when we introduced this in 2018, it's now one of our best selling tools in the range and it's completely unique to Atlas Copco. Could be exactly identical way that Gerd and his team is working on the vacuum pump that they are RF customers, the big customers talking about the next generation of pumps. So it's kind of the success rate of introduction of new products working in this way is, of course, significantly higher than that we believe what they want instead of really confirming what they want. I should also say that the interviews are done with operational people on the floor all the way up to purchasing. So we actually see the different what they're looking for.
So I think it's an interesting way of working for us. So how do you and this is something that we are challenged with quite how do you build an organization that can continuously bring innovation. One of the things that I see is prioritizing innovation. It comes to me, it's come down to a lot of people. You're going to see Gerd and Wagner on stage soon.
And if you ask them product question, application questions, where are the customer question, they know, because the Atlas Copco strategy is that almost 85% of managed are recruited internally. So they really know and have done all the jobs in between. So they have a lot of respect in the organization, and they know they can sit in R and D meetings and really be part of determining we should do this, we should ask the right questions and it's part of our success at least. And then that they prioritize, it's really a strategy, which I showed before, customer and product and what can we do in a better way. And I can see more and more that we are partnering with customers.
That was not so present 10 years ago, but this voice of the customer type of interview techniques make this very interesting for our customers to be part of this. And many customers also offer us money to be part of development projects, And I would say in principle, we always say no. We always like to own the IP on our products that we develop. We like to sell it to anyone, but we don't mind working together with someone to develop it. The thing that we do on these adjacent projects, when I say we're going to spend a little bit more and it's not going to be on the what we already do, we should already be best at that.
But if you take then adjacent projects, let me say, okay, how do we evaluate if this is going to be something? And maybe we are looking a little bit at the start up community, how do they work. So it's a little bit of funding something for 3 to 6 months. Can we build a prototype and then being more say, okay, we shut that down or we fund it for another half year or so. So these projects are on a quarterly base, evaluated in principle and say, are we going to continue to fund it or not?
And it's a way for us to make sure that we don't we have a tendency to try and try and try and try and not stop things, but this is a little bit of when we allocate these extra money to this, this is something we like to see evaluated in this way. Presence was under the pillars as well. I believe there's tremendous potential in multi brands. Atlas Copco is normally the strong brand. One of the stations this afternoon is a multi brand product, and you can see how we upgrade technology to make sure it's a very competitive product for the segment they are targeting.
And if you do this smart, if you do this in platforms and how you build it, it's not that expensive either. So you can actually handle it without so much extra costs. And I think we start to do this in quite a good way, and we are upgrading some of the ranges. I said that the success for Power Technique in China, for example, is not under Atlas Copco brand, it's under a local name. So you'll see more of this.
Our own operation, you can see this is almost like a car line. I think this is Antwerp, is it? Correct. So it's a line production. We also like to build different models online for the customer specs.
You can see it's a controlled process to make sure that we do this in the correct way and this is also how we develop this. We also start to get more and more data. We get data from our products, but we also get data from our operations. I would not say that we create tons of value yet, but we're starting to learn a little bit how we can work, especially in terms of transparency with our suppliers, so 75% of the components. And at the Dovorce, it's the net working capital we're looking at to see how can we make sure that we have the right product on the right time.
So there's a lot of work going in here in using digital opportunities in the marketplace. Service, it's an excellent way to sell equipment is to be good at service. I think everyone recognized that from your private life as well. If you are helped by someone, you tend to go back to that restaurant or that store, whatever it might be. And we are really there for the customers.
Imagine then, if you had a compressor technique without the service, you might go back to the customer every 5, 6, 7 or 8 year, and of course, the relationship isn't there then. So now they come back on the service packages and you can see how the customers appreciate what we do, and they don't mind us making money as long as we bring even more value. And since we have selected products and application that is critical for them, and the value of our service to get to uptime is significantly more the value than we charge for our service and components. So that's something we find and it's growing slightly quicker than equipment. Now equipment has been a strong development as well.
I can see it up there, the CAGR is 11% versus 10%. But I find it is a quality check by the CAGRU. And Power Technique, you see also flattish in service for quite some time. Over the last quarter, you can see a little bit better development there as well. So good concepts.
The most advanced is probably compressor technique today. And you will see today in one of the stations again how they use digital now to make sure that they can become take the next step and this to really turn digital into value, both for us and for our customers. Another job, being a divisional president, is that we talk about the 3 horizons. It's a little bit here, you develop and defend the core. That's a lot of the product management, how do we replace, when do we replace, how much of the products are sold that are developed within the last 3 years, how will it look like if we continue to spend like this for another 3 years.
A lot of work is going into this, making sure that we defend what we're doing. Then you can say building new businesses. Example could be the Schengenflug in Industrial Technique. It could be the cryogenic that is added to what we do in vacuum and create new options then. And then we normally start a little bit small, that we did with vacuum as well.
And now you can see that we have bought a small chiller company. And now we see how we can develop this company in a better way. At the same time, we have put resources to using the synergies between City and Chile to see how can we use these technologies. And of course, we are trying to see if that is an opportunity for us. We have made some investments in filters as well.
Otherwise, I cannot really but there is a lot of thinking going on because I think the number one thing for us is to continue to grow with the kept margins. So this is important. This is my last slide, and it's about acquisitions. Sometimes I get how do you allocate funding to acquisitions. And so far, being in a good position concerning cash, we have not really said, well, you can and you cannot.
The cannot is when you're not stable or profitable. If you're stable and profitable and growing, then you have the opportunity then to present as a divisional manager the things that you find logical according to the this is what we like to do and then to see if we can find companies, then we list companies. But we are very strict that we actually come back to the strategy before we look at candidates And sometimes, we are so eager to go to the candidates first and then we have to go back to the strategy again to verify that this is really a niche that this has a good profit pool and we can add value to it. So we spend a lot of time on that. And then we have candidates.
It's in principle the divisional management teams that have M and A resources. We don't have it centrally. We have it in the line. And then they start listing in principally candidates that would be of interest. And in many of the cases, I would say that we have spent time with the companies that we, at the end, acquire, could be 5, 6 years in many times.
So we like to be the first call for them. If they say well. And then we take them to sometimes we take them to acquisitions that we have done in the past. They can see how we will handle their people, their brand and many times for entrepreneurial companies, they are really eager to make sure that, okay, I should get a fair price, but also my technologies and my people are very important. So then we are normally a third choice for them.
That was it. Hans Ulla, do you want to help me?
Help and help, I don't know, but I can continue. Good morning, everybody. You see the headline here, financial goals and performance. I would just like to make a few comments around it and then see it more as a platform for further questions and answer perhaps, which will come later after the break and everything that when we have listened to Wagner and GET. So you recognize them, but I still show it for some of you that might need a little bit of repetition.
It's not very granular, as you know, by now. We have this 8% average growth over a cycle. Mats talked about it, it's really a long term sustainable. I think, if I'm not mistaken, it's been there for more than 20 years, and we will see how we are faring against that in a while. Then we say that just the growth target is nothing for Atlas Copco stand alone because you can, with a good cash position or whatever or a possibility to borrow money, you can grow much more than 8% if that is the only target.
So of course, we say that it has to be done sustaining the high return on capital employed that we have right now. Thirdly, we want also to make sure that our owners, some of you are here today, the investors, also get a cash return on top of possibly an even bigger value creation return on the investment. And these are the things that we look at as a corporation, and this is what we strive for. Now why is this slide again, Mats just showed it. Well, I wanted to highlight a few things.
First of all, what it shows is, of course, the revenue size to the left and then here you have the growth per year. And obviously, you see some dots here. It oscillates quite a lot around the goal of 8% that we just talked about. In this period, it's actually been somewhat of an overachievement, obviously not organic only, clearly. So it's a combination of those 2.
And then you wonder also, of course, looking at this that why is he repeating Matt's slide on this and why isn't he showing the next 10 years because that's why we came here to listen to and understand. Well, hopefully, you can understand the possibility to continue to grow in this way by what Mats started and what Wagner and Gerd will continue to say. But there is another reason also why we show this slide, and I will show a couple of others similar slides in a few minutes. It's that we believe that one of the best things to predict the future is really to look at the past. It proves to be a very good indicator, in our case at least, of what can be done also looking forward.
And that's why we use this type of relatively long in years scorecards. It's actually one illustration that we use with every one of these 500 P and Ls that Mats talked about because we believe very strongly that the transparency is helped by always being reminded and visually reminded what is where do we come from and what is achievable going forward? What did we have to do to achieve that? And that's a good indicator for the future. If we then look at the other component, sustained high return on capital employed, no new numbers.
I just wanted to again show that this is the way we'd like to keep it. And if you wonder about sustained high, why are they not giving a number? Well, that's the reason why I give you this sequence here. Then you can, for yourself, see at least a span of what will make up, let's say, also going forward in our mind, a sustained high return on capital employed. Within the return, obviously, operating profit performance is the main contributor to the high return on capital employed.
Not the only one, but it's very important. Here in this graph, I just wanted to illustrate that by looking at the components of the earnings per share. And you can see that over time, it's even increased in importance. It's not only that it has grown the operating profit, but also in percent of the numbers. And here, of course, you know that up until here, as it says, it includes the previous full Atlas Copco, I.
E, including Epiroc as well. And this is Atlas Copco on its own, so to speak. So this is quite an important way, and it also tells us that the deduction, if I call it like that, from the financial cost and the income tax on the group is having a lower and lower effect on the earnings per share in total as a consequence, of course, of operating profit becoming more and more the denominator. Over time, when it comes to the operating profit component of the return on capital employed, we always talk a lot about is the krona strong, is the dollar strong or weak and how can we look at it. I wanted just to illustrate by this 10 year perspective that when we adjust for the impact on the operating profit that we announce on each quarter and so on over time, this is the result.
So sometimes we're helped, sometimes we're a little bit against the wind in that terms. But I think it shows that in spite of the fact that the main currency pair for us, the most important currency exposure we have nowadays more than ever is the U. S. Dollar to the euro, not surprisingly. There are other important currencies in there like the Korean one, like the British pound and so on and so forth and the Chinese renminbi, of course.
But by no comparison, U. S. Dollar to euros. And during this period, we've seen that U. S.
Dollar to euro rate oscillate with about 25%. So a quarter of the value of that ratio has disappeared sometimes and then it's come back. And this has happened during this period. If we take the krona to the dollar over this period, we have seen an oscillation of
double
the size, so 50% oscillation of that. So in the long term, it doesn't seem to be the most important aspect of whether we can sustain the high profitability. In the quarter by quarter, of course, we will continue to talk about it, I'm sure about that. And by the way, if I just repeat, the last time we announced results, we talked about NOK 500,000,000 roughly of positive impact in Q3 this year compared to Q3 last year. Looking into the 4th quarter and positive in coming into the Q4 compared to Q4 last year.
Then again, we talked about the profit side of capital of return on capital employed. And on the capital employed turnover ratio, it's also a pretty consistent picture. What happens sometimes when we grow by reasonably large acquisition is, of course, that this ratio comes down. But you can see that somewhere in this ratio of 135% to 165% is what we have been maintaining over the last couple of 10 years. And I remind you again, when we look forward into the future, this is the scenario that we expect to be able to continue to show.
All of that also leads to a sizable cash generation, and I just wanted to have this slide to illustrate that the operating cash flow is continuing to be strong. And of course, over time, not every year, we see it well correlated to the growth of the company and the growth of the operating profit. But you can also see that depicted up here is the growth in that particular year or in that 12 month period. And the and that's the organic revenue, by the way, that we see. And there, you see clearly the correlation to one of the components of the cash flow, which is the change in working capital.
And you see that we when we have not such a strong environment from customer demand, yes, then we actually release working capital. So it adds to our operating cash flow. But you also see that there are periods here and here when we start to grow or we grow very much and then, of course, we eat into the operating cash flow through that. Finally, we talked about the 3rd element of our financial goals, and that's the sustainable cash distribution. There's not a lot of figures on this slide.
This is, of course, the normal annual dividend. And again, I repeat that this is the whole company. So up until here, we had the Epiroc business part of Atlas Copco. So you would have to add krona, a little bit more than krona to this number here of 6.30 last year to get to where we are. So there is, of course, a very strong wish from the owners, from the main owners and from the board to keep this on a very steady growing trend.
But if we combine it with the strong cash generation of the group, inevitably, we will have also years when we cannot just apply all the cash into the business. And that's when we do, in our case, the extra dividends or we normally have used the mandatory redemption technology to release those cash. If I take the combined cash distribution over this period, we come to about 4% direct yield in relation to market capitalization. And it's about 3% if you just look at the annual dividend. I will stop there.
It was a reminder of what are we aiming for in terms of financial goals and then just seeing how that can be interpreted. So with that, I think I hand it back for a quick end comment from Mats.
Okay. Thank you. To summarize a little bit the way we operate and the way we go to market, as Hans Ole said, it might not be so difficult to grow faster, but to grow profitable, it's a challenge. And that's why we are so determined to really identify the niches where we can see that, that is an interesting profit pool, matches what we are good at. So this is where we always start when we develop something slightly new then.
To use our core competencies, it's a lot about people, that we actually take competencies from 1 BA Business Area to another to develop, for example, Gert's team. You can see that there's a lot of competence from compressor technique that you see if we can speed that up. We also use technologies in between the different BAs as well. The decentralized leadership is a competitive edge for us. And I just don't believe that you say, well, now we're going to be decentralized.
It's not the same decentralized that we talk about. We talk about the mission based. We talk about keeping it together with the values we have in the group and to make sure that people can act and be responsible for their own mission. We spent quite a lot of time on the diversified Agile and the business models that we practice. It doesn't make us by any means bulletproof, but we do take that in consideration when we enter into something new that we can operate in the way we want to.
Lasting values, we wanted to be sustainable for our customers. That's how we create best values for our shareholders, making sure that the customers see tangible values in our products and in our sales process that I took some times to explain to you. Hansula showed the result out of what we are trying to do and there is always this challenge in the group that there is always a better way of doing things and it's something that we repeat in many different processes to make sure that we're grinding away on a lot of different applications to trying to do things a little bit better. Thank you very much.
So thank you, Mats, and thank you, Hans Zola. I will take these away so we can focus a bit more on the pressure in the room. So welcome on stage. Wagner, Rego.
Thank you, Daniel. So like you said, let's put a little bit of pressure in the room. So, for those that does not know me, my name is Wagner Rigo. I'm President of Compressor Technique Business Area. Started in the company in our sales company in Brazil 23 years ago.
So and today, I will go through a couple of points to discuss a bit about compressor technique, some facts in brief, our strategy and what do we do to continue to grow and finally, a small summary. So starting with the facts in brief, our results so far. So we are quite glad with our results this year. We managed to post 3 quarters in a row around SEK 12,500,000,000. We are more familiar with euros.
So it's €1,200,000,000 per quarter. This year in orders received, we are quite happy with that. Also, profitability is quite stable despite of investments that we have done in R and D and also in IT that I will describe a bit more later on. Return on capital employed, quite solid 93%. What has been the growth drivers for our business area?
There is a very strong connection in our business area with the industrial production. Our compressors, they are basically in all manufacturing facilities supplying compressed air. So there is a big influence on the from the industrial production. There is also the need to improve the performance of the equipment or the energy consumption of equipment in general, and that has also supported our growth. But perhaps the most important one is the number 3, the 3rd bullet point that we have here, innovation.
Innovation has been one of our biggest drivers when it comes to growth and also to resilience of our organization, of our business. We managed to come this year, also next last year, but mainly this year with a lot of new products. So you are going to see also this afternoon which areas we have invested in. You have seen last year that we have introduced the new oil free compressor, the ZR 90 to 110 variable speed drive, what we call a plus version. A plus version is a version that is much more efficient than the previous generation.
And normally, we only call VSD plus variable speed drive plus when you have a significant improvement in the energy consumption of that equipment. So very important, investments in presence and presence is not only people, it's also digital presence that is becoming more and more important. Our service offer, I think, Mats as well have highlighted. I will come back to that during our during this presentation. We have done as well, we have complemented our growth with acquisitions.
This year so far, we have done more than 10 acquisitions, some distributors. But like also Mats said, we have acquired a chiller company that is a niche product that we want to experiment. And we believe there are some niches there that we are already present in the compressor room. Normally, you also see a chiller that is supporting customers when it comes to temperature control. And I we can also have some good opportunities there.
So digital value creation, I think, it's not only about investing in digital because it's the new trend in the market, but because we also believe that we can become more efficient and we can support our customers to be more efficient. And people development, we also have done quite a lot of investments in people, how do how we develop our people, our leadership model, training programs to allow people to understand the direction that we want to have in the company. So those are the main contributors for the growth of our business. The regional spread, a little bit different from the group, very strong in Europe, I would say. But I'm also happy to see growth in Europe, which we have a lot of mature industries.
But they are all trying to innovate and improve their efficiency. And that is also an opportunity for us and we managed to translate that in growth to our business. Asia, quarter 3 was very strong for us. North America also is strong with plus 7% South America, plus 15%. Here, a quite good contribution coming from Brazil.
And the only region that we compared to previous quarter we didn't have growth was Africa and Middle East. So quite a good spread present in most parts of the world in a leading position as well. So what is the environment, the market that we operated? So this growth is coming. Like I said, industrial production is very important, and this growth is coming from several market segment.
There is no single market segment that we should highlight here and there. There are some ones that we started to invest, to penetrate. We will also highlight that later on. But compressed air is like an utility, so you need to supply compressed air to a factory. And there are several processes in a factory, in an industry that requires compressed air.
And of course, we benefit from that because we have a quite wide spread of industries that we can supply our equipment. Also, applications are becoming more important. We are looking more into the application and how the use of the compressor will improve the customer efficiency. That means you need to understand more and more about application. We don't want to sell only a product.
We have our beautiful gray boxes, but we want to transform our gray boxes into a total solution for our customers. And of course, without service, it's very difficult to deliver the full package and a complete service and a complete solution for our customers. From the market that we operate, we have several industries. Some industries are traditional, and here I call traditional the industries that are well known by you, like automotive, like medical, like waste treatment, like the style, railway, food and beverage. Those are traditional industries that we know, that you know.
And this industry, they are looking for improvement in their efficiency and there we can support them. So opportunities, there are plenty of opportunities in the traditional industries. But I also should highlight that new businesses, new industries, if you consider, for instance, electric car production, then you need a battery. So to produce a battery, you need raw materials. During the process to extract some raw materials like lithium, for instance, you need compressed air.
You need to transform this raw material in another product. We are there with Compressed Air as well. Then you need to do the components that you are going to use for the battery, the anode, the cathode, we are there with compressed air. Later on, you produce the battery. What do you do?
You do battery stacking. You also need compressed air in that process. So also the new industries that are coming up with new technologies also require compressed air. Automation is also important for us. We see in Europe quite a lot of industries being upgraded and you have to install a robot to do sometimes packing, sometimes assembly and you replace an operator by a robot and depending on the operation, you need compressed air to execute that automation.
So you replace sometimes person automation with compressed air. And we are also benefiting from that process. Another example, another angle we were talking about industry types, another angle are market segments that are more application driven. If you take wastewater treatment, that for us is a growing segment. It's a growing market.
We still need to treat a lot of sewage worldwide. So this market will continue to grow and we are not number 1. So we started to invest in this market some years ago. And we are step by step penetrating this market with innovation, with new products. This afternoon, we have one stand only to discuss about the low pressure to show what we have been doing in our product portfolio to become a market leader in this segment as well.
Another example of application is the on-site generation of nitrogen. So there are several industries that require nitrogen. So and the nitrogen you can transport in bottles or you can generate locally. You have several technologies to do, but one way to do that is to have a compressor feeding a PSA type of generator, which means a pressure swing absorption type of generation that you feed the generator with compressed air. And then at the other side, you are going to have nitrogen.
And depending on the application, on the requirements of the application, and there is the application knowledge becomes more and more important, then you can have a very interesting payback for our customers. So that is also a growing segment. Depending on where you have the factory, sometimes you have the distance that is very high and you need to transport the product. Sometimes you are in a city and then you are not allowed to drive with trucks. Then on-site becomes a very good solution.
But the application knowledge becomes very important and we see it as a good opportunity for us as well. But then, we need products. And I will start before we talk about products. We have our technologies that we use to produce compressed air. So there are 2 main types of, let's say, technologies or process to produce compressed air.
The production of compressed air, you have to reduce the space. So you take 1 cubic meter of air and then you compress in a very small space. What happens? Temperature goes up. So if the temperature goes up, you need to control the temperature.
What do we do? We have this technology that is oil lubricated. What does that mean? We inject oil to control the temperature and to control and also to make the lubrication of the element. What is the drawback of that?
You need to take oil out of the compressed air. So that's one technology. 2nd technology that we have is 100% oil free air. What does that mean? When I reduce the volume, there is no oil to control temperature.
What happens with the temperature? It goes up. You need to do that in different stages to control the temperature. It's a different technology. So at the end of the day, it becomes a more expensive technology, but you have 100 percent oil free compressed air.
That is required depending on the application. One example is food and beverage and pharmaceutical that you cannot have the risk at all to have oil in the process. So two main types of technology. Then we use different types of compression. So we use a piston compressor to reduce the volume.
We use screw compressors. We use dynamic compressors like turbo compressors. We use screw compressors. We use lope compressors, and we use tooth compressors. So different ways to reduce the volume.
We also have a very wide range of power. So we go from 1 kilowatt to 20 megawatts of power for the gas and process compressors. So and we also grow from 0.1 bar to 400 bar. And this will depend on the application that you require. If I take, for instance, sometimes a nitrogen compressor, you need to boost up to 200 bar.
Maybe a CNG compressor, you also go to a very high pressure. So it depends on the application. After compressed air is generated, so you have generated the compressed air, so you reduce the volume. Sometimes you need to treat that compressed air. If you reduce the volume, you have very high humidity.
You generate water. You have to take the water out. That's why we have quality air equipment to treat the air. Sometimes you have to filter the air. Sometimes you need to treat the condensate.
Don't forget, if you inject oil, you need to take the oil out. The oil might be in the condensate system. So then you need to take oil out. You also can generate nitrogen and oxygen. So we are going downstream.
So we have produced compressed air, different technologies, we treat compressed air, then we need to monitor and control the system because you don't have a single compressor in a room working standalone. Most of the time, you have a multiple compressor room. Then you need control system, single management point that will control all the compressors. We can control up to 32 compressors in a factory. So and the management system will say, now it's time for you to work.
You have worked too much. Now it's time for the other one to work. And we reduce, we control all the compressors, we reduce the pressure utilized and we can save energy for our customers, very important. Very important as well connectivity. Most of our equipment leave our factory already connected.
So when they we switch on the compressor, the machine is recognized in our connectivity, in our platform and we address the customer and we started to monitor that machine. And to support all these different technologies, different types of compressors, different types of air treatment, air filtration, air drying. So we need to have our global service organization, which includes as well a world class logistics. For us, logistics is extremely important. Sometimes we don't highlight that too much, but to match our to deliver the parts at the right time together with the technician in an efficient way, I think that requires quite a lot of effort.
And for us, logistics is really core in our service business. We also have a wide range of service agreements, service plan. And sometimes, we still refer to service as a business that we sell time and material. I think this is a bit of the past. A great part of our business is done through service agreements.
So it's a different model. And what we have done in the last 12 months. So since the last Capital Markets Day, we have released 14 new products. So not only under the Atlas Copco brand, but also under the several we have 20 brands before Atlas Copco. It's a complete brand portfolio that we use for different market positioning, so different customers.
We trust customers, not only customers, but also channels, that means distributors, dealers, sales reps in different ways. And we have dedicated brands for certain clusters of customers and distributors. And for those clusters, we also offer best in class products for that market segment. I think that's also very important. And this afternoon, you are going to see what we are doing with 1 of our brands, how we reposition the brand when we believe it's necessary, when we see the opportunity.
A lot of innovation happening in the brand portfolio, but also a lot of innovation happening in Atlas Copco brand as well. And I will give you one example of what we have been doing with Atlas Copco. So how do we stay how do we generate this sustainable growth? Where do we find opportunities? Because I talked perhaps too much internally, but where do we see?
So we have a very close follow-up on GDP per capita development. Why this parameter is important for us? If the GDP per capita goes up, industrial product consumption goes up. To support consumption, industrial production goes up as well, and that we have seen. As we are present in many market segments, we definitely see a correlation there.
Another thing that is happening in the market, you see more and more regulation coming when it comes to energy consumption. So several countries now, they have specific regulation when it comes to energy consumption of equipment, including compressors. And for us, that's a great opportunity because our culture is to develop products to deliver their lowest TCO for our customers, To deliver the lowest TCO to our customers, we need to focus on energy consumption. So for many years, it has been our culture to reduce this blue part here, make it smaller and smaller because that's how you reduce the total court cost of ownership. If you combine as this culture that we always had with new regulation, I think that is a good opportunity for us because more and more customer companies, they need to have at least a plan to reduce energy consumption and we are well positioned to support customers worldwide in this direction.
But then another focus and priority is in the touch points that we have with our customers. This I could call customer journey, for instance. And here, although simple, but we have done quite a lot of investments here. If I started with attract customer, if I take the cycle here, Mats has also mentioned about some investments that we have done in IT. I think we have worked quite extensively now to have a very good online presence of our products and brands because that's the new way, as you well know, to attract new customers.
So we have discussed about applications, how to understand our customer needs. There, we also have invested in dedicated teams to develop tools to make sure we understand applications and we can also show to our customers the benefit of our products in an electronic way. When it comes to product selection, we have done quite a step further. Some of our divisions didn't have an electronic way to be in front of the customer to select a product, to make that selection part of the CRM and then to follow-up and later on to flow that selection to the ERP in an automatic way. We have put quite some effort here.
Of course, there are customer benefits on that because you can be faster, but also we gained quite some efficiency in our sales process, in our order processing as well. And combining with this cycle here, we managed this year to finalize the implementation of a global CRM tool. Basically, great part is still not 100%, but all the Atlas Copco Companies that we have today, they are under the same CRM system. So and that is really supporting us to understand more and more this process. So when it comes to installation, you buy the machine.
We try to sell the machine in a very efficient way. When it comes to installation, all of a sudden, you have a gray box that you need to connect to a compressor room. We have launched this year a new tool. It's an app that you can put in your iPad. You make dimension of the compressor room in an electronic way.
You go there, you click, click, you click, you have a compressor room, you drop your compressor, you make your piping electronic. You can make the entire factory if you want. It's a bit more cumbersome. But you can drop your compressor in that virtual road. You can do your piping.
You push the button. You have a bill of material. What do you do later? You can push the button, goes to our systems, we recognize your price and you transform the sales process much more easier and you can do much more in front of the customer. So it's about the customer experience because also you are saving costs to the customer.
The customer also had to hire an installer, hire an engineer, do the drawings, do the installation. We can do it in a very easy way. And we keep our effort in the service side that I will come back later on. So and we are keen on customers' requirements. So productivity is very important for our customers.
We develop we design our compressors to maximize the uptime, the time that they are producing compressed air. We also design our products trying to eliminate risks for our customers and also to improve their operational cost, we want to have an impact in our customer profitability. So we want to make sure we support them on that. And also, like I already mentioned before, we want to support our customers in their environmental targets. Well, when it comes to the summary of what do we do, what I try to convey, we are focused to reduce the total cost of ownership.
That, together with new regulation, that can represent a very good opportunity for us. We are expanding the number of applications that we have. We are increasing our presence with salespeople, but also online is becoming a very important way. Our service offering is becoming wider and wider. And digitalization, I think I have described a bit what do we do in digitalization, which points we are working on and what would be the benefit.
In our production process, we have invested quite a lot in modular design. So a lot of products to come with that concept. This afternoon, we will also see one example on how do we use modular design, how do we use, reuse existing components to do even better products. So our management, we have today over 19,000 employees and we keep quite lean management. And we are also working digitalization in our factories.
We have basically 2 machine shops and more and more we are collecting data from our production process and we started to see the first results. I think it's a long journey. I would not oversell or overpromise here because the journey of understanding the data you have is quite a long one. But we are learning and I'm happy with the progress so far. So but then we have transformed all these things in products.
And I selected here one example of a product for you. Last year, I showed the oil free ZR90 to 160 VSD plus. This new product that I want to share with you that we started production this year is the GA-nine thousand to-one hundred and sixty. What does that mean? Going back to the presentation before, this is an oil injected machine, variable speed dive with a significant improvement in the performance of this machine.
So we have introduced this year and the production started to ramp up now. What we what we have done in this product, we have worked on reliability. We have increased the efficiency and we have improved significantly the efficiency the serviceability of this product. And I will explain later on what is the benefit. The availability, we brought up tonight above 98%.
Energy efficiency and the serviceability. So I will share later on. When it comes to reliability, we have a new oil cooling system in the bearings that will support us to extend the lifetime of the bearings. We have a new motor that was designed for tough conditions that will also support our customer and our service operations as well. Why do we work in those topics?
Why it needs to be so robust? Don't forget our compressors, They go worldwide. Sometimes, they have a very nice compressor room with a clean environment. And sometimes, the compressor goes to the back of the factory and nobody goes there. So just once a year, one technician goes and visits the customer.
Then reliability becomes very important. Another point, we have done a very good improvement in the efficiency. We have a new oil injection system that is controlling the injection of the oil according to the speed and the need of the machine. I also have worked to improve the temperature of the motor. And here, by the way, we co designed we designed this motor.
We have more and more knowledge. Doesn't mean that we produce this case, doesn't mean that we produce the motor, but we have more and more knowledge on how to design the motor. So that supports us in the process as well to maximize the efficiency of the compressor. Another point and here I need to explain a bit more, we have reduced the service time in 50%. What does that mean?
That means if I was spending 4 hours to do a job, now I spend 2 hours to do a job. So does that mean that I reduce service potential? No. That means I increase the uptime of the machine for the customer. And that is the main goal, to increase to leave the machine more available for for the customer.
And what is a possible consequence for us? Don't forget as well what I mentioned before. I said that we sell more and more service agreements. And service agreements, the sales process is not time and labor. It's an agreement.
If I reduce the labor, you improve your efficiency as well. That is another target, another objective of this service reduction. And we have worked in several points to manage to decrease to to decrease the service time. By doing this exercise as well, having this focus of increasing the uptime for our customers, we also managed to reduce the production time of the machine. Meaning, today I need much less hours to this new design.
So we are very happy with this new design. So what does that mean? In comparable machines, we have 5% additional savings or €3,360 per year in energy saving per machine. But if I compare to a traditional machine, a machine that does not have a VSD, a variable speed drive technology, we reach 40% energy savings and can be up to €26,000 per year. In terms of environmental target, what does that mean?
That means 190 tonnes of CO2 per year in terms of savings. When we say that we are committed to support our customers to deliver their environmental targets, I really want to show you that we are engaged to that. And that means, as one example, the energy required in 23 houses or 40 cars out of the street. This is for this is the new product. We are very happy with this new development.
But it's also important to give you a bit more details on our service business. We do service in a way that we also want to increase customer productivity. We don't want to put customers in a corner and say the only choice is to do service with us. We are committed to increase customer productivity through our service organization. We also want to reduce the operational cost of our customers, and we do that by increasing their uptime by having the machine available as much as possible 20 fourseven.
What is the outcome of that focus? Over the last since 2010, the last 9 years, we managed to grow our service business with a compound annual growth of 8%, while equipment has been 5%. So we have a quite mature service organization, but we continue to find ways to further develop. And these ways, we haven't changed the strategy in our service division, compressor technique service division. All these investments that we have done and communicate and also in connectivity, by the way, is to support us to deliver the strategy.
We are very consistent when it comes to the strategy. We have our 1 to 1 ratio follow-up. We have our service ladder that I just showed here, where one of the major for our distribution network, we want to sell parts. We want to support them with spare parts. But our main focus is to sell service plans.
I think that is, the number one priority of our service organization. And we want to do that to a direct sales force because we want to show the benefits of doing direct service to our customers. So then connectivity. Like I said, we also we often get the question how to monetize connectivity. And connectivity is really supporting us in all aspects to deliver the strategy that we have.
And the information that we we get is helping us to sell more service plans. The connectivity data we get is supporting our dealer network to sell more service plans or to sell more spare parts. And the connectivity is supporting our direct and indirect organizations to avoid breakdowns. If you avoid breakdowns by being the customer before it happens, you build up a very strong relationship with our customers. We really support them.
And by doing that, they come back to us again and again and again. And that's how we get sustainable growth. So and I think that is key of our key point of our strategy. But then to do all this, we need great people and we have a really strong focus on our people development. Starting here, we want to engage our people.
We have done the last survey, middle of this year. So we are happy with the outcome, but we see we can do better and we are really working on these points. We want to have a learning organization, and there, the new tools available in the market is definitely supporting us. We see that our leadership we also need to adapt our leadership style, and we have some programs. We have a lot of young generations coming to the company, and we need to mix with the mature experienced generation, and our leadership needs to be adapted to that.
Our leadership also needs to be adapted to diversity. So that's another point. That's why we have this focus on leadership training. And also, we work on our acquisition, talent acquisition. That is very important.
I have talked about quite a bit today about new systems, new technologies, data scientists, things that we didn't have before we need to incorporate into our organization today. So and then if I make a summary of what we have been discussing today. So we have a very diverse marketplace. So we are present in several market segments. We have a growing number of applications, and we really focus to identify new opportunities.
So we have a broad product portfolio, really, several products and several technologies. Which technology is gonna win in the future? I don't believe there will be only one technology winning because those technologies, they serve different market segments, different applications. So we believe that a good spread of technologies will support better our customers. Innovation, I need less to repeat, complete solution provider.
And at the end, we cannot do anything without the people that we have, and we will continue to have a great focus on people development. So thank you.
Thank you.
Good morning. So also a warm welcome from Vacuum Technique. So as Wagner said, we will increase the pressure a bit. I will bring it down.
Agenda,
pretty similar to what CT has shown. Facts, the market and our business, strategy for sustainable profitable growth and then a summary. So if we look at the facts, you have all noticed the quarter 3, the very good quarter 3 figures. But if we go down a bit go back a bit in time, you've seen quite a steep drop in our business since quarter 1, 2018. These are the figures in Swedish kroner.
If you look at the drop in dollars, it's even more severe. But since then, we have had a nice recovery in the business. Specifically about quarter 3, we saw a good recovery in semiconductor. And within semiconductor, mainly the companies that invest in new technologies. So if you look at it from product group's point of view, we saw the logic and the foundry coming back, but we still saw very, very strong hesitation in memory and in the big flat panel investments.
But it's not just semiconductor in quarter 3, it was also our service business, which continues to grow. So that altogether gave the figures. Just a little bit more detail. We had about 9% in there from currency on the revenues, on the orders and about 6% from the Brooks acquisition, but still 21% organic growth in quarter 3 2018, which was our lowest quarter to quarter 3 '19. The other part on the graph, of course, is the profitability.
When I go back when we acquired Edwards, the biggest task from the board was you have to build an agility model so that you can really deal with the swings in the business. We were lucky that since then for 5 years, we've been growing nicely. So we had time to build up that agility. But now I think we have proven to the market that we can keep our margins despite 20% drop in the revenue. So we are still around 24.7%, 25% EBIT.
I have to admit that we have tailwind from the currency in the margin. On the other hand, we have a dilution from the acquisition from Brooks, and we have invested heavily in extra capacity. In 2018, everybody was panicking that there wasn't enough. So we have put a lot of money in, which we are now depreciating. We built a new factory in U.
S. Next to Intel to serve our customer, and we doubled the size of our factory in Qingdao to focus on semi within China. So, you could say almost that the tailwind from the currency is compensated by under absorption through the investments we have done to be ready for the future. But still it's around 25% and we are ready to grow. So that's the main message.
I won't go through these points. I just want to say global to local investments. We are all talking about tariffs and geopolitical stress in the market. What we actually have seen in the U. S.
Is big investments in steel, which probably would not have happened if there wasn't a tariff strategy. And on the other side, we've seen big investments in China because of the Made in China 2025. So although we rearrange our supply chain to deal with tariffs, there's also in some areas quite a positive effect of the tariffs. But that's where we are. Return on capital employed 23%.
You will have noticed that that came down and that's mainly the of course, we have slightly lower profitability, but that's mainly the effect of the acquisition of Brooks. We took the whole €675,000,000 on the balance sheet and of course it reduces the return and that's what we did. If you look at it geographically, with the, I would say, revival of the semi business, you can see Asia. Asia is the driving force on that, but also industry came back in Asia. So where industry and scientific markets are more difficult in Europe and U.
S, Asia came back for semi service, for the other service business and for industry. So that's for us a very positive development. And you can see now we're we're third as most of the other business areas are in the group. U. S.
Have been strong all the time. We did not see any weakness in U. S. Driven in the beginning, as I said already, by steel investments, but also by the big U. S.
Semiconductor customer that we have in Oregon. So that has kept us very, very good in U. S. But the big revival comes from Asia. Europe for us is still weak.
We see some investments in automotive electronics within Europe, but the big volume effect is not within Europe. So where are we? How does our market look like and what is our business fundamental? So if you look at, we are about 15% in what we call general manufacturing. And I make special mention here of the steel industry because we are really market leader in steel degassing, which because of what I described earlier has been very good lately.
But there's more and more industrial processes that use vacuum in the food industry, in central vacuum installations. There's a lot of areas that move in the general industry, which gives us the opportunity, and we do take market share more in the industrial vacuum. Of course, the biggest part is the electronics. Here you have the 60% again. We discussed a lot about how is vacuum distributed and how big is semi in there.
So 62% is related to the electronics industry. That's the sum of equipment and aftermarkets. And we are proud to say that we are present in every fab. That's what we want to do. This is the core of our business.
And we're also helping our customers to develop new technologies. And that's where the strength of certainly the Edwards brand lays. It's in the application support to the new customers, supporting them to go to the 7 nanometer, for others go to the 10 nanometer processes. Process Industry. Good growth, certainly in the chemical, Again, with the Edwards brand where we focus on certain niches, we have developed good business opportunities, mainly using liquid ring pumps, but we are proud to report progress on that.
Metallurgy, again referring to the steel industry. Then on scientific, We will do some press releases because we made fantastic, huge systems to do space simulation, which is not so big in money but puts a stamp on our brands in the market on the capabilities that we have to support those businesses. And then a small part of us is supporting service industry. This is not my service business, but this is selling product into the service industry. So that's how we build up the vacuum business.
I'll spend some time on this slide, which I think is very important. At the top row, you see global trends. Global trends, technology trends. The bottom row, you see what do these trends mean for applications where you need vacuum. So that means top is the trend, second is the application, and it results in what I say at the top, a growing market for vacuum.
Because if you remember last time, I showed these 3 balls where you say if you're a market leader and you're a technology leader, and you're in the right place, which is for us the vacuum market, you can create sustainable profitable growth. So this is about the marketplace. A lot is about miniaturization. Moore's Law, just to repeat, Moore's Law says that every 18 months, the density of transistors on a chip doubles, and the cost of the transistor halves. That law drives miniaturization.
And that is what we see within certainly within the semiconductor industry. Together with that, you need lower power usage of the chips. And I read that today 5% of the global electricity consumption is used in server farms. That's today. So you can imagine with the explosion in data and getting more and more server farms, what this is going to mean for the future and the power consumption of semiconductor in the future.
So low power is extremely important. And then to get smaller, you need to go into stacking, which is 3 d, and a typical example here is 3 d NAND. So memory where you really go into in the top performance, you go to 128 layers already in memory. What does that mean for us? It drives vacuum intensity.
And that's the beauty of what we do. The more stringent demands on the chips ask for more vacuum. And I mentioned a few examples here. So it's about EUV. A lot of you ask me questions all the time about EUV.
It's about minimum footprint and it all goes into that. You have to create more vacuum to support the process and also for vacuum, you have to do it more energy efficient than in the smaller footprint. So that's the first column. The second one is obvious, climate change. I mean, we see it in everyday life.
And for us, it's 2 things. It's about CO2 footprint. And like Wagner said, every product we develop, we aim for about 50% energy reduction. And you will see examples this afternoon on how we manage to do that. So we contribute to a reduced CO2 footprint for our customers.
The other one is exhaust regulations. As you know, we take all the processed gases from the customer through our tool, but we have to exhaust that in an environmental friendly way. So we burn it off. The regulations of the exhaust that we can deliver to the environment get more and more stringent. And as leader in this business, also technology leader in this business, we are well positioned to do that.
What does it how does it drive vacuum? LED solar gets more and more popular. It's about efficiency of the pumps. Matt said 20% of a fab energy consumption comes from the vacuum pumps. And it's all about abatement performance.
We are challenged on a daily basis by our customers to reduce knocks, to reduce all the exhaust that comes from their processes. 3rd column is about data. Data is everything for the moment. We need connectivity. There's artificial intelligence.
There's machine learning. Everything is about data. And I have a slide coming on where you can see how data production basically and use is exploding. That drives towards new technologies to compute. And I mentioned 2 here.
1 is edge computing because there was a time we put all the data into the Cloud. Now we already do computing on the equipment itself so that we put selective data in the Cloud. So that's one thing. That's on the micro scale. On the macro scale now, quantum computing is coming up quickly.
So it's the new computing technology for the future in the big server phones.
This is
not just a change in technology. It's also a change in who is making quantum computers. We used to sell to IBM and these kind of people. Now you sell to Alibaba, you sell to Google, you sell to these people. Yes, so that brings quite a change in there.
Going away a bit from semi data healthcare, we see more and more investments in healthcare because you have personalized medicine. It's not just in the production of the medicine. It's also in the life sciences which surrounds our whole health strategy in the world. So really driving and that's driving our business through MRI. So the scanners use huge amounts of magnets.
These magnets have to be cooled. The systems have to be leak detected. So an MRI scanner in a hospital has like a sub fab, has leak detection and has coolers below that. Product development here goes to smaller scanners, again driving that miniaturization and more vacuum in that. The other point I mentioned here is mass spectrometers.
More and more point of use mass spectrometers for quality checks of foods, for security checks in airports often use mass spectrometers. Mass spectrometers use vacuum pumps. An obvious one is transportation. It's about autonomous driving, which demands an enormous amount of cameras, sensors and chips. It's about electrical vehicles, just like Wagner.
I'll come back on battery production and the vacuum needed for battery production. And it's about the Hyperloop. I'll show the Hyperloop as well. It sounds still a little bit like a Tesla dream, but it's getting more and more actual. Four processes in lithium ion batteries use vacuum.
And of course in electrical vehicles, it's all about electronics. And then last part is the user interface. We don't although I see a lot of people typing, sorry, it's probably because you can't talk to your computer in this room, but we don't type anymore. We talk and we touch. That's basically how the user interface has gone.
That drives OLED production with foldable phones. That drives a lot of applications where you just want to touch instead of doing the typing, which takes a long time. And that relates again to connectivity. So I think when you see these trends and you see the applications related to it, you have to admit that there is a future for vacuum, It's a growing market for vacuum. I just stole some picture from Capital Markets Day of 1 of our customers.
But this shows what data is doing to us. Data is not just memory, but we look at the computing, so the processing of the data, we look at the storage of the data, and then we look at the communication of the data. So we can see and the graphs go from 13 to 23, but you see how exponentially it goes coming into 'nineteen, 'twenty to 'twenty three. So the prediction is that there is a 50% CAGR on processing power you need to deal with the data. There is 30% on storage and there is 25% on communication.
And that's a little bit what I said earlier. This is about edge computing because you compute locally, which means you have to store less and you have to communicate less. But nevertheless, looking at these figures, I think these are impressive for the years to come. And of course, the way Atlas Copco is doing business, it means we have the market, we have the applications, so we have to innovate. And I think that's the best way to take our share of that wonderful opportunity.
And just a few examples here, there's many more, but we have created central vacuum systems. Sounds very simple, but reality is that in a lot of factories, you have point of use vacuum, which is noisy, which is creating heat, which is inefficient. We replace that like we do with compressors with a central system, saving power, saving all the working or making better working conditions for the people in the factory. So that's one thing. The other thing is our integrated systems.
I'll come back to our strategy of integration for footprint, but this is a one stop shop for the semiconductor customers. We put the vacuum pumps and the abatement system and all the controls around it in one box. So that means that certainly the sophisticated customers, I can't say don't need it, but they need it for different reasons. They need it for footprint. Customers in China, for example, who are less sophisticated in the semiconductor industry love this product because it gives them the solution that they need to support their vacuum or their chip production.
We talked about steel degassing. Steel degassing improves the efficiency in making steel and improves the quality of the steel. For us, huge installation, We constantly innovate. It's a booster and a dry pump. It used to be an oil injected application.
We go dry and we improve the quality of the steels. This afternoon, you will see our small scientific pump designed for the OEMs, mainly in mass spectrometers. EUV, a lot of innovation goes in EUV, and as you know, we are the sole provider there. And also the new Brooks acquisition gives us a whole range of new products, innovative products that help us to take part of this growing vacuum market. So what's driving that?
A little bit more detail in that. I said already, battery production is exploding. With auto going down a bit now, we see a little bit of a saturation, but this will come back. Electrical vehicles will after, say, the dip we see now will be the future for the car industry. A lot of vacuum is needed to make batteries.
The Hyperloop is another one. Hyperloop is basically a pipe, and in that pipe you create a vacuum and then you have a magnetically levitate train which goes basically without resistance at enormous speeds to that pipe. A lot of tests are running. If this happens, this for us means a number of vacuum factories. You can imagine all these pipes have to be put under vacuum.
Automotive electronics. I mean, you don't see analog instruments anymore in the new cars. Just an iPad or whatever you want to call it. That's it. I talked about healthcare.
Equipment is getting smaller, is getting more stringent from a cooling and a vacuum point of view. Quantum computing, you can do it at more than 1000 times the speed with hardly any energy consumption in quantum computing. That's the nice part of it. If you look at our sides, we have to cool this thing down to absolute 0, to -273. Something degrees.
So that's where we come in as a supplier and then freeze drying. The always increasing demands on the quality of the food and the medicine drives the freeze drying. So that's a picture of our markets. So we are, as you can hear, extremely positive about the future. So how will we deliver growth now?
Because it's all about sustainable, profitable growth. So the market is there. So what are we going to do? We of course, we play into the miniaturization. I will have more explanation.
This is just a summary. We want to develop I got a lot of questions yesterday on the general vacuum. What's happening in the general vacuum? Because this was the big synergy when we acquired the semiconductor company. Opportunities in China.
For us, not controversial, but a big growth opportunity. Cryo, what are we doing and what is our first impression on the acquisition of Cryo? Innovation, I'll start with innovation because this is for us the price management tool and the tool to take market share. So that's the 2 things together. Service, trying to catch up with CT.
Of course, people and then I could not leave out agility and resilience looking at the margin that we have shown. Develop we spend a lot of money. We develop a lot of new products and part of that is to improve the products we have. The other part is to conquer more of the potential market you have on products. I can say today we are about 70% of the vacuum products in the market we can offer.
So we still have a gap of 30% that we have not a product yet. So we are working on that. But on the 70%, we have this brand portfolio or multi brand strategy, as we call it. So what does that mean is we develop and now after already almost 4 years in the label acquisition as well, we have now a fully modular product development. That means we develop platforms so all the brands Atlas Copco, Edwards Labeled are based on the same platform, and then we differentiate according to the customer segment we target or according to the application we target, we differentiate the product and create different products that we market with different brands.
This gives us the opportunity not just to develop faster, but of course also to be cost leader in making those products because of the big modularity. So that's the top part. So on pumps, we are about 70% on our way and we are modular. The middle part is then when where customer applications come in Because what we say is we make standard products, and then we tune those standard products to customer applications. And that's where the strength of our brands come in.
Everybody can make products, but we have the application knowledge to support our customers. And we do that through innovation centers. These are local small R and D departments where we have test equipment and where customers can come in with live problems. And we will test it there and then with the engineers that develop the processes for vacuum. We have that now in U.
S. We have it in China. We have it in Japan, and we have it in Korea. So that's where we do the application, and then we deliver those systems locally. So it's standard products, make standards, sell special to or through our system development.
And then of course, we add the accessories. And accessories, I won't put a percentage on there because you know that is low, but we have opportunity in accessories to even extend our offering as well. So how does it work? How do we manage to constantly innovate? It's about people, it's about processes and it's about products.
That's how we structure it. So on the people side, we have now more after the acquisition of Brooks. We added so we have now more than 800 full time engineers doing R and D. And we group these people in competence center. Each technology has one competence center globally.
So we have 16 competence center in the 16 products that or types of products we develop. And I talked already about the application knowledge. Application knowledge is very strongly related to the way we do R and D. Then in the middle circle, this is about our processes. We have very stringent processes with very stringent governance, and we measure all these things because the thing that can go wrong is if you focus so much on technology that you lose efficiency.
So we want to be extremely efficient in innovation. As I said, it is our price management and our market share, too. And then look at the external and I'll read it for you. This year, patents, we will have the highest year in the 6 years that we are in vacuum in filing patents. So we constantly increase our IP within this business.
We do modular design. It's all about energy saving, enhanced productivity, which then brings us into lower cost of ownership. Every product now that comes out of R and D has to be digital and connected. So that's how you drive connectivity from innovation. It's about application and of course it's about continuous improvement.
And that's how the circle goes around within innovation. Last year, we introduced more than 20 new products into the market. And a lot of questions I get is, all this innovation, all these new products, why don't you grow faster? Nobody complains about that growth in semiconductor, but everybody looks at scientific and industry. In vacuum, you have quite some incubation time because a product goes into a process.
So once it's ready to sell, you have to deliver it to your customer and the customer has to approve the products in his process. So that's how it's coming. But if you look at these are just a few examples. In industry and scientific, it's mainly going from wet to dry. So we really promote dry vacuum pumps.
In semiconductor, it's I'll talk about that later, but it's dealing with the harsher and harsher conditions in the process. So we have developed our own in house coating system. And then it's about footprint. It's about systems where you put pumps and abatement together. And we already introduced a new product from the Brooks acquisition in Maxcool, a new super efficient cooling system.
Of course, it was in development when we acquired the company. Yeah, so this is on innovation, and you can feel from the time I spend on this, this is extremely important for us. A bit of a feedback on cryo. So as you know, we don't use the Brooks brand. The Brooks brand stays with Brooks.
We keep the 2 product families, which each have a strong brand. In cryo, we call it CTI, which is a long standing brand. And in the Chillers, we call it Polycold, which again is a strong brand. We integrate the brands into the Edwards channel. So that's how we do it.
We call it Edwards CTI, Edwards Polycolds because the biggest synergies are where Edwards has a strong position. You see the cryo business. This is the business where the synergies come from our presence in the semiconductor industry. So we sell turbos today to the same customers as the cryo. So there we use basically our presence and our share with the toolmakers and sell more cryo.
And it's for PVD, it's for iron plant. You can see the applications we have there. On polycolts, this is a mix of semiconductor and industrial sales. So there both channels or both divisions, I must say, have access to the chillers. And I must we are impressed with the synergy potential that we have here, where on the cryo it's really benefiting from our market share.
On the other side, it's really developing new applications. And what you see there is the wafer chuck cooling, the MRI scanners, I talked about that already, and the quantum computer are really interested in the cooling capabilities that we have with the chillers that we acquired from Brooks.
So, so far so good
from what we see and what the opportunities are. Of course, and we put that in the press release for quarter 3, Brooks being a semi company has gone down with the semi business. And the figures you see there are what they are. And they are slightly different than when we acquired. But if semi comes back and it looks like it, then we will also improve this business.
A big factor for growth for us is this miniaturization. What does it actually mean for vacuum? It means that our customers use more and more poisonous gases to realize the smaller and smaller size of the chips. So to be able to deal with these poisonous gases, we have to be extremely flexible in working at high temperature and at low temperature. So high temperature, of course, creates corrosion, but low temperature creates a risk for gas turning into powder and crashing a pump.
And that's what we manage in dealing with those harsh processes. And they need these harsh processes because I mentioned 3 d structures in chips. They need more and more deep edge. So they need more and more poisonous stuff to make the chips. So the fact that the chip gets smaller and more performance drives a whole technology within vacuum to deal with the gases that are necessary and the processes that are necessary to make these smaller chips.
So that's a big driver for our business supported by applications. We talked about enhanced lithography. This is EUV. I won't go in here, but you need EUV to make better masking and smaller chips. Footprint reduction, the fab costs what, dollars 10,000,000,000 You don't want to make it bigger, So therefore, you have to be in the shadow of the 2.
Temperature management to make sure you don't have solids in the pump. And of course, from an abatement point of view, deal with all the laws and regulations that are coming on. I must say Intel is leading here. The demands we get from Intel on exhaust are so much more stringent than the law for the moment. So this is for us a challenge, which of course we like.
That was miniaturization, general vacuum. New products, I talked about that a lot. New processes, you can read the processes there. That's how we penetrate more in these markets. New territories because acquiring companies, certainly Edwards, they were very much focused on the semi markets.
And if there wasn't a critical mass outside of the semi markets, there was no presence. What we are doing, and this is a process that will take some time, is we create our own presence in the markets where there's no semiconductor, like Australia, like Russia, like Turkey, like India, like the Middle East. So we drive it also through presence in new territories. So that's so innovation, new processes and presence from a general market point of view. And then China, we work on sales capabilities.
We work on service capabilities. We've done a lot of investments and we make sure we can support the customers with the products. And as I said already, the systems and the integration plays a big role in that. We use our skills on the sales side to make sure that our Chinese sales engineers are at the same level as the Koreans, as the Taiwanese, as the Singaporeans, as the Americans. So, we really train over globally, basically, the sales.
And on top of that, we are close to the customer. So, we have sales engineers in every province in China being close to our customers. China from a semi service point of view is now already my 2nd biggest country. So, the service capability is moving so fast, not the service capability, but the service demand in China is moving so fast that we are now looking at where to build our next service hub in China to deal with the increased business. And then the investments, we decided about 3 years ago that we would build a semiconductor factory in China.
And there was some resistance to it. Would you do that and is there enough business? Now this turns out to be one of our big successes in China. We take the majority of all the business in China because we built in China and we comply with Made in China 2025 now already. So that's our and you see the picture there of our factory in Qingdao.
So it's not a small thing. And then we developed this innovation center strategy, developing integration, one stop shop, one solution for the Chinese semiconductor customers. And you see where they are, and it's a very fast growing market. Talent. For vacuum technique, talent is our biggest challenge because we have so many initiatives.
And we have created a new division from the start of next year. We have acquired companies, and all the companies we acquired were centrally managed. And as you know, Atlas Copco has a decentral system. So we have to develop people as entrepreneurs for each brand to be present in all the countries where we want to be. And that's a big challenge.
And that is asking for a lot of focus and we have developed all kind of KPIs like a talent metrics a talent index to measure that. So what we do is we of course we benefit from the global Atlas Copco structure in how to develop talent. We focus very much on bringing young people in. If it's graduates or if it's here in industry or if it's apprentices, we go way beyond the legal requirements in every country because we believe that this is the future for us, and we make sure we have fifty-fifty and diversity on there. Yes.
And then in the middle part within vacuum, we make our own training programs for operations, for application knowledge and to create that entrepreneurship within the business area. So very high focus on talent development within the BA. The other part, service. Just to recap, we have 2 service divisions, which sounds a bit hot. One service division is a static one, semiconductor service where we build a hub next to a fab and the pumps come in and out.
So in semi service, the pump comes to us. And then we have another division, vacuum technique service, where the service goes to the pump actually. And because of the different dynamics we created 2 divisions. If we look at our performance, you can see that if you look at the top right hand corner, equipment 21% CAGR and service 24% CAGR. So we do deliver what is part of our mission is to grow faster in service than we do in equipment.
And if you look at the figures on the graph, the light blue bar is the equipment. You see the hesitation we had between 2018 2019, but despite the business cycle and equipment, you see our service continues to grow. So we are now about $600,000,000 above $600,000,000 in service with continuous growth in both divisions. So despite the drop we saw in 2018 on equipment service continued to grow. I just put an example here how we develop our vacuum technique service because that's where the biggest opportunity are.
I mean, in semi service, we are very closely linked to the fabs. In vacuum technique service, we have to recover, I would say. And then we steal with pride from my colleague Wagner because they have done an excellent job in developing the CT service. So they have an easy quota, we call the VZ Quota, the V for vacuum, which means we have an automated tool to make quotes. I said already connectivity plays a bigger and bigger role.
We don't have SmartLink yet in the way CT has it, but we are piloting And we are close to introduction our SmartLink for vacuum. We have all kind of service products that we sell. We have an organization where we do competitor service with the purpose to of course to replace it with 1 of the Atlas Copco brands. We now follow the OEMs because we have a big part of OEM business. So we make contracts with OEMs to follow the product wherever it goes.
We invested a lot in service sales engineers just to go out on VTS and self-service. And from an efficiency point of view, we merged the brands. So it's vacuum technique service. So we go to the customer as a genuine service provider for all the brands. A bit the Volkswagen model where you have Volkswagen, Audi, Porsche, Seat, Skoda, they all do the same.
And that's to increase the presence and the efficiency in the hubs. So that's just an example of what we do. I said in the beginning I have to talk a bit about agility. So from a growth point of view, we focus very much on service because that gives us the resilience within the model. And as I said, service continue to grow.
We continue to take share through innovative products. So that's on there, yes. And we have invested in growth markets. China is one of it. We were quite established than the other semi markets, but I mentioned the markets on general vacuum where we are getting stronger.
Then we managed our cost of sales, because I'm proud to say that our gross margin actually improved a bit despite the crisis. So we did not take business based on price reduction. I don't think as a market leader we can afford that. So we focused very much on product costs. We insourced to give absorption in the factories that we have.
We insourced product that we were buying before. And within vacuum technique, we have the highest flexible workforce. So we in some factories, we had up to 35% TEMs. So we reduced the number of TEMs, so that we kept our cost of sales very well under control. On the other end, on the functional costs, yes, we as I said, we merged the brands to be more efficient in that.
And then we had all kind of the typical measures on higher freeze, on travel ban, on non relevant spend, we cut back. And we discontinued some it feels a bit strange that when your business is down, you also cut the tail of your products, but we did it to preserve the margin because it didn't make sense. So all that together gave us the agility and the resilience to keep our margin where it is. So to summarize, we will continue to accelerate product development and to innovate and bring new products in the market. We will try to do the same good job as we did with Edwards and Labelled and CSK on the Brooks acquisition.
So we are really busy doing that. We expand our coverage in the general industry, attacking our main competitors in areas where we were not before. Semi, I think, is an obvious one. We are in every fab, and we will continue to do that. Talent, management, yes, agile and a resilient structure.
I think that's the success. Now we will probably hopefully talk about agility going upwards, but we have to build in agility in the structure. So that's how vacuum will continue to deliver sustainable, profitable growth. Thank you very
much. Thank you. Thank you, Gerd. So now it's time for the Q and A session. So I welcome up all the presenters on stage, and we will start within short.
I think we can start with the first question here. Klas?
Yes. Thank you. Klas from Citi here. First on the product gaps and where you have recently expanded. So when you bought Quincy in 2010, you added vacuum, which was obviously a new technology.
And one of the big questions for everyone here is, obviously, you launch a lot of products, but everyone is asking what is the big next growth driver if there is one for Atlas like we saw with Vacuum. Obviously, you have new products in chillers, both in CT, you have that also in through Brooks and Senlis, you're talking about wastewater in both CT and PT. So if I ask you, Mats, in terms of these new technologies, is there also a considerable M and A opportunity or is the focus more organic?
No, I think the trick is first to identify a little bit where you can find good profit pools. Then we match that versus what we believe that we are good at that we are trying to go through today. Then we start a little bit more like the chillers. And it's not only that we acquired this company, also we put the team together behind it now to evaluate, okay, what can we do from a technology standpoint in terms of product, ourself and then at the same time also we increased the ramp up of scanning the market, what would be logical for us. When we talk Schiller's for example, we are not going to be air conditioned, train or carrier at all.
But we think that there is an interesting business in process shielders. You can also see it in vacuum technique, so temperature control is interesting. And then we explore that. And then of course that we don't want to be a small player, but we want to be a main player in our niche. And then we look at acquisitions, so yes, there is opportunities for that.
And then you can see the number of acquisition in general this year, I think it's 18 that we have done or announced at least. We have never done more in the past. Size is a little bit, but you can see a couple of new platforms from the Schengenflug, for example, you have the Schindler's discussion. We added on filters last year. So I think there is room for both organic and acquisition.
And since we have this scenario where we generate good cash, I think there is support from our Board to look at what we can do. But we evaluate the value that we really can make it happen. Maybe you think it's cautious view, but we think it's a very relevant way because when we see that when we have done things that is not so strategically right, We spend tons of our best management resources to fix it and we like to spend that on the free generation and whatever it might be. So there is opportunities for us and we are learning some of these new technologies and I would guess that there is another handful that we are looking at, of course, that we are not discussing this forum yet.
My second one is on service and connectivity for you, Wagner. So you said that you haven't changed the service strategy in CT and the strategy has obviously been very successful, but I'm thinking of the number of connected compressors, they are 130,000 now. I think 4 years ago, we were looking at around 80,000. The more you connect doesn't mean that you can sell more performance guarantees, so more long term service contracts. So what I'm interested in is within the 8% CAGR, how is the split on long term service contracts?
What I'm trying to understand is whether the service division is growing, but if it's also become more stable versus the previous cycle?
I would say that what we call the top of the ladder is growing faster than the bottom of the ladder, meaning we grow faster in service agreements than in other areas. But for sure part of our growth also comes from indirect channels and there we support our distributors with parts. It doesn't mean parts are really far behind, but definitely service plans are growing faster.
So we have another question there, Anders?
Yes. Hi, Anders Zigler from ABG. So question for Wagner on VSD Plus.
I think
it's been in the market for what, 5 years. I know you had very high ambition. So what's the proportion of VSD Plus now and where do you intend to get it? And secondly, do you find a big gross margin difference for those products as also I think was the ambition?
So the VSD plus technology, they cover these customers that want really want to have the minimal operational cost. But of course, under Atlas Copco brand and under brand portfolio, we have several layers product because we have different market segments that we cover with the brand that they require different value propositions. So, today, the contribution of VSD is growing. I would say the fact that you sell based in value, of course, if you do manage to introduce the value sale, the gross margin tends to go up.
Lars? Sorry, just a reminder, try to keep one question at a time. I'll
try. Thanks. Again to Wagner, if I can Wagner, we've had what 4, 5, 6 quarters of very strong growth in your Large Industrial Compressors and Gas and Process. I could see China come back strongly. I can obviously see VSD Plus scaling up into the larger compressors.
But I'm trying to get my sense for the replacement cycle in Large Industrial. We had this very strong oil free cycle 15 years ago. You obviously have Akerbi the largest installed base within that. Are you benefiting from that? Can you talk a little bit about whether you are seeing signs of a more pronounced replacement cycle beyond these additional growth areas and adjacencies that you talked about?
Thanks.
Of course, whenever we manage to come with a new product with a lower total cost of energy, that will activate a bit more replacement machines because then you make the payback for the customer shorter. So how much is going to be that, I think it's difficult to give you a figure. But that's definitely the new products enables us to be more active in the replacement market.
Also
to a question to Wagner. You mentioned always that the efficiency of the compressors of the rubber, speed compressors 40% energy saving. But are you really comparing like for like because your big German competitor that you have, they also have VSD compressors with a very broad range of output. So can you maybe elaborate if you compare really like for like? And if not, what is your advantage over Kaeser for example?
I will not mention a competitor, but if you take the ZR VSD plus they are 10% better than the competition, than our previous generation, And even better than some competitors that we have had. And that we have been, we were comparing with published data. Then we made a head to head test, and we were very glad with the result. I think we are quite comfortable when it comes to the head to head comparison, especially on the ZR VSD plus technology. I think we, like I said, we are quite comfortable with this new technology.
When it comes to oil injected, in every product range that we have, we come with the best in class compressors. This new, the latest technology that we just, I just communicated now, we were very close to competition with this new product. I think that will allow us to be ahead and deliver what we are committed to every market segment that we are in. We must have a best in class version of the product when it comes to energy efficiency. It doesn't mean that we only sell that best in class, but we must have best in class version to support the customers that want to have the lowest total cost of ownership.
So we have another question, I think, here in the front.
Guillaume Oppenheimer from UBS. A question to Gerd. Actually, you mentioned Products and Systems. And I was wondering if you could qualify a little bit the statement by giving us some information whether it's all industries that you're seeing that want to grow systems as opposed to products, as a way of growing their own operations? And second, if there's any difference when it comes to profitability or whether you do just products and systems?
Thank you.
You actually see systems in all industries and that's where then the skills of the sales engineer has to come in. Because if you just say yes to everything, everything becomes a system. So we challenge and we try to improve the customer's process also with standard products. But systems clearly become more and more relevant in selling vacuum, certainly in semi. Yes.
And then I would say next in industry and least in scientific vacuum. So that's how it goes. We from a profitability point of view, we have a very simple principle and it is that complexity should add margin. So the more complex your systems become, the higher the margin should be. I admit that's an extremely challenging principle.
And in some divisions, we are better than others. But I would say, if you add the good and the bad together, we are probably delivering pretty similar profitability on systems compared to standard products. But one thing we should not forget, a system always starts from a standard product. It's we make standard, we sell special. So in every system, we have our standard products incorporated.
And it's often the parts that you acquire to complete the system that are at risk to drive the margin down.
Okay. I think we have questions back there.
Thank you. It's Max Yates from Credit Suisse. Just my question was around, Gert, your comments on the new capacity that you've put in and the underutilization effect. If we think about volumes coming back over the next 2, 3 years, could read that comment as you should see good operational leverage as you that underutilization goes away and margins then sort of push higher into kind of mid to high 20s. So maybe if you could put a bit of context around capacity utilization, where that can go and how we should think about the longer term margins in that context?
I'll be careful when I talk about margins. But certainly on capacity, we had the boom in quarter 4 2017quarter1 2018 where we had reached 100% utilization, which means then the lead times go up and you don't have the flexibility to deal with big orders mainly from the semiconductor industry. And as you know, then we decided to invest. Hindsight says it was the wrong moment, but that capacity is still there. So I can say in our figures that we show, the under absorption from depreciating that extra capacity is in the figures.
But the situation now is that we have sufficient headroom to deal with peaks. So one was the capacity, the other one was the split of the factory between Korea and China. So that was the second thing. And the third one is to build a factory next to Intel in Portland. So all that created extra capacity and gives us now the headroom that hopefully we will need in when the business shows a continuous upturn.
From a margin point of view, I mean, as I said, my under absorption today is in the figures I show. We should not go to the spreadsheet now and say, when business comes back, you will go wild on margin. You have to that's why I showed the agility measures. We tightened the belt quite severely. So when business comes back, the first thing we should do is to come to a normal level of operation before you then you have the full effect of the better absorption in the factories.
Just a clarification, how big is that Intel facility relative or the one next to Intel relative to the
It will supply all the Intel fabs in the U. S, which means Portland and also in Arizona. So it will supply Intel in the U. S.
We have Ben.
Thanks for the presentation. My question is big picture 1 about the EV opportunity. All three kind of divisions addressed the opportunity around electrification in electric vehicles. If we think about the size of Atlas today, a $10,000,000,000 company effectively, of which roughly $1,000,000,000 is connected to motor vehicles, How does what how should we think about what you could be doing in EV in a couple of years' time? And in terms of that potential, is it as big as what we have today given that we're going to lose something on the internal combustion side?
I think it's one of the concerns that we have had over time that the number of bolts and tightening would actually come down. And if you look at the power chain, of course, in a Tesla and then other vehicle, you will have less tightening. At the same time, if you're going to build an efficient car or an electric car, you need to work with the weight of the body structure in principally. So just to go from a steel frame that they have today, continue with that, that's very unlikely. You'd like to use the max capacity out of the batteries as well.
So the mixed material is for us very interesting. The dispense technology is just supporting that development. We are not in spot welding and also the self pierce riveting. We don't see more bodies going into full aluminum. I think principally all the major suppliers who we have around the world go to a more of a mixed material type of scenario.
If we 6, 7, 8 years ago had stayed with just tightening equipment instead of, say, being an assembly company, then I think we would be nervous. But then you see on the battery packs and for the industrial technique, there is a number of application for dispense to lead the way heat in principally. And you also have all the tightenings are safety critical, so you need to do that well. And then I think Gerd explained what they do and also on the compressors, of course, the battery pack as such is the new engine and it will compensate. So I think that from a potential view, then you add on, we take away the assembly technologies and maybe tightening around powertrain, you add that to and then we say, well, the potential should be equally or slightly better for an electric vehicles.
But there is one difference though is that we need to go out and win this new business. So we are really scanning the market for the power cells and how will they will we manufacture them, will they buy cells or whatnot. And there are different strategies. But I must say that they are in well in a good position. And as Gerd explained, industrial technical innovation centers around the world as well and one of the application they show is actually how to build the battery cell.
So customer can come in and look exactly how this looks like. So no, the potential is there. They need to go out and win the business and we are in a good position with the new technologies.
Just on your kind of customer conversations in China and how you see the semis business, How are your customers or even how are you thinking about the IP stage of the trade negotiation? How does the U. S. Trade situation impact the kind of fast forwarding, if you like, of the semi's development?
Yes. When I look very specifically at the semisiness in China, there was a bit of a hiccup earlier in 2019 when the big IP discussion came through and then some of the American toolmakers could not export anymore to certain fabs in China. That has now stabilized. So which means basically China has agreed not to infringe IP. And it was even in the press this morning that China is now giving in on IP and will be more flexible for the trade deal from an IP point of view.
What we see in China is the money is not a problem because it's supported by the government. From a people point of view, I don't think people is the problem because the Chinese are eager to buy competence from Korea or Taiwan or Japan. The problem is as you say, they need the time to develop their own technology not to infringe the IP which comes from the surrounding countries. So looking at the business dynamic around that, it was a bit more quiet around the big discussions earlier in 2019. But it looks like China has now found their own IP and is now pulling up quite rapidly again.
And that's partly what you saw in quarter 4.
I think we have questions here.
Thanks very much. Gael Dubreuil from Deutsche Bank. So thanks for describing and talking quite a lot about your innovation strategy. But I think in the past, thinking of the typical Atlas Copco playbook, I mean, you highlighted several times the importance of being focused, right? And then today, you've talked a little bit more about the potential to move into market niches and continue to do that quite a lot.
I think we all have in mind the move into, well, chillers obviously, but pumps, generators, light towers, new assembly techniques and so on and so forth. So how do you reconcile the potential conflict here? And well, basically, where do you stop the broadening of your offers? So that's question number 1 on innovation and another question related to that perhaps more on the compressor side of things. Would that be possible to take a step back of, let's say, 10, 15 years?
And could you give us some examples of important applications that have disappeared? And on the other side, the new applications that you've developed for City?
I can start with the innovation part then. I think the beauty of our organization and model is that we managed to keep the focus, and I believe the focus is extremely important for us. You can take vacuum as example, started then at CT as one part and we learn, then we get it bigger, it's a division and then it becomes a business area. Now you step into cry, we don't know so much about cryogenic technologies. But as soon as we get this on board, we break that out again into a new division with a very clear focus.
So each of these divisions are very focused on what they should do. At the same time, we always have explored new technologies and we will continue to do so. But the organizational model is the way we keep our focus and a clear responsibility for technologies.
Perhaps if I can answer on applications. One clear example is electric tools that was in automotive business, but we absorbed that change in application. And today, we are still present in automotive business with quite a number of applications. So I think that we managed to go through that process. We have applications, for instance, in a production process.
Sometimes you use compressed air to do a venturi and to do vacuum. And now with vacuum, you can also use vacuum pumps to do the same, to give the same solution for the customer. And all this is ongoing applications, comes and goes all the time. Example of new applications that we were not in, you can mention I mentioned waste water treatment. We were not in before.
You have fish farming. You have the new processes, the new industries that are coming up. They all need compressed air. So there is always a balance between applications going and new solutions coming.
We have another question here to the left.
Hi, it's Andy Wilson from JPMorgan. I've actually got a question which is linked to Gail's in terms of focus in the group. When you think about the portfolio that you have and you look at the divestments you've made historically, can you talk a little bit about the kind of decision tree you go through as you decide whether a business which is maybe not performing should either be kind of further invested in whether it should be actually divested as part of the group? And I guess, obviously, not being capital constrained, there's less requirement for doing that. But maybe if you look at the current portfolio clearly without naming names, do you think that there are businesses within the portfolio which in 5 years' time, 2 years' time might not be?
What's the question? What we focus on and what we should not focus on was that?
Yes, exactly. How do you kind of establish with the business that you have which is perhaps not meeting your requirements kind of what happens next almost?
No, but we I think I went through it this morning a little bit and we stick to those. We benchmark a new segment versus those. We take the stand alone attractiveness with business first, then we look at growth rates, we look at the profit pool in there, We look at the technologies that's going to be in those things and say, well, this is an attractive segment to be in. And we like to enter into something that has a little bit more of tailwind. Cost synergies are difficult to deliver on from time to time, so we try to enter like we do with the dispense equipment, like we do with vacuum.
And then we say, okay, so what are we good at then? What should and should not do? And do we have an opportunity to be one of the leading players in the world? Extremely important for us, critical product in the process. There is a good interesting service opportunity in there.
Can we then operationally stay with our agility model where we can have a light balance sheet? Is there suppliers for the components? Can we do the final assembly? Can we build this in modules and a lot of the things that we have fight with for many years like Dynapack, for example, didn't fit the model at the end of the day, even though we had the best resources on it for many years to size all well. And then then it's not for us and then we say that's not for us.
And this is a little bit when I talk about making a big acquisition as well, it should be something that we are really, really good at. It doesn't mean that someone else could be good at that, someone will lower cost with another model to market, could be excellent at something like that. So we really try to learn a little bit from the past, what we are good at and matching that versus the technologies that we believe in. And that is kind of how we evaluate different things.
I have a question here in the front.
It's another question for Gerd regarding the 800 plus FTEs that you mentioned. You also said 25% reduction in cost of sales. I don't want to use it as well, 25% reduction in costs. I was basically looking after the peak FTEs that you had at the peak of a cycle in semis. And then with all the capacity additions that you put in place, what is your peak FTE now?
Can you clarify what you mean with the 25% cost? Well,
I took a note on 25% reduction on costs or on flexibility and agility, I guess, but don't link it to that comment. I just want to understand a little bit peak FTEs versus current FTEs and with your new capacity, the potential peak FTEs?
We have today in vacuum technique we have about 9,500 people. Of those, there's still around 18% of temps, which of course came down and now we will ramp up. So you can say if you add 10% more to come back closer to about 30%, we will add probably around 900 to 1000 people in mainly in manufacturing. So that's where we flex the workforce. We have from a functional cost point of view, we have done it differently.
There we had stopped hiring, but we did not go into firing because there we could use the flexibility we have there, but we stopped all discretionary spend. And I'm now while I'm talking, I'm thinking about the 25%. It wasn't exactly because 25% of functional cost would be quite dramatic. So we didn't it wasn't that much, but enough to keep the margin. The thing is with the bouncing back, we in many cases, we have access to the same workforce, which I think is a good thing, because otherwise you would have to train and go through the whole process again.
So if the dip is not too long, you can access the same workforce and almost smoothly go back up from an FTE point of view. The 800 plus on engineering of course we did not touch. We did not touch engineering and we did not touch people development because we believe that's there for the future.
Okay. Andreas here.
Thank you. Andreas Koski from Nordea. On product innovation, I think you, Wagner, said that you have launched 40 new products in the last 12 months or if it was in 2018 and you, Gerd, you said 20. So how many products do you have in total just to understand how fast you turn around your product portfolio?
That's a difficult one.
You have a lot of variance and you have product families. So if we say we introduce 20, that means the first product in a family. You will see that this afternoon. You introduce the first product, that's one of the 20. But on the same platform, then we make a bigger one and a smaller one, which is then much faster.
But in total, it's probably families now, not products. It must be around 80, 85 families. Okay.
And do you For Vacuum, yes.
Yes. Proportionally, we would be much higher than that because we also have brand portfolio. So we have around 20 brands. So we have the Atlas Copco, but when we come live with a product, we come with a in a platform as well. Let's say I have a professional brand that, and I cluster some brands in that professional category.
When we do a product, a new release in that platform, all the 5 brands in that category will get the same product.
Maybe I can ask it in a different way. How large part of your sales come from products younger than 3 years or 5 years?
I got that question yesterday evening and I said I would not answer that. But that's exactly the parameter we use. We measure the sales of new products introduced in the last 3 years. And that's one of the initiatives that we follow to measure our product development output.
We all measure the, we call vitality index. We have standardized the way across business area as well, the definition and we measure and we follow-up. And all those innovations is to make sure we have a quite young product generation.
And when you develop new products, is it still that you target a 7% production cost reduction? And are you because I think that's been the case in the past that you've always targeted 7% cost reduction? Yes.
We continue to do CC7.
Yes. And then lastly on the price mix because you are saying that this is the way to drive price management. So how much on I know this is difficult to answer, but how much on average are you able how much higher price are you able to sell the new products compared to the predecessors? Is it 5%, 3% or just?
This is a difficult question as you say. What's unlike compressors, when vacuum develops new products, we cannot kill the old products because the old product sits in, if I take semi in certain fabs and they have a copy exact principle, so we have to continue. So in vacuum, sometimes we have 3 generations of product at the same time in production. That's the nature of the business. What we see is when you introduce a new product, it's a different sales of course because then the customer has a need and you have the solution for the need for that customer.
So the margins are quite good. And I do admit that once you're in production and because the customer is kind of tied in with you because it's very difficult to change, then you have the traditional commercial negotiation every year where the customer is asking us for productivity improvements. So, it's a very dynamic environment where new production give better new products give better margin and then it starts to go down until the product dies. And it's that mix that we manage. And that's not just products.
That's also new applications. That's different customers, different areas, competitive situation. It's a very dynamic matrix, which doesn't give a one figure answer that you're asking for.
Okay. We have time for a few more questions. We'll start with the first one here.
Hi, thank you for the presentations. It's Jack O'Brien from Goldman Sachs. Just want to touch a bit more on your service growth, which has been fantastic clearly across the group. And to understand for new products or equipment sold, what proportion of those now come with a service agreement? And how does that differ by division?
And then what that agreement particularly covers and the extent to which your service will be additive to the original OE in terms of revenue, what proportion on top of that through the life cycle of that product?
So to give the exact figure, because we have such a wide product range going from 1 kilowatt to 20 mega, So in different applications, it's a bit difficult to give you exact figure. But what we try to do is every time we sell an equipment, we trigger the service sales force to sell the service. In some occasions, we do sell together and that we try. It's part of the process. In Europe, mainly, it's very difficult to come with an offer that is not a total solution.
That includes because the customer is evaluating the TCO, that includes service. I think that is very common in Europe that you come with a proposal together. So, and we have several extended warranty programs that together with the service plan, the warranty of the machine goes up to 5 or 7 or even 10 years. And in some other case, we have a total responsibility plan. So that is how we approach.
In other areas where the market, the service business is not so mature or we are going through, let's say, an education process where you have to show to the customer that the total cost of ownership and educate on that, it takes a bit more time and then the service is done. It takes a bit more time, but it's also the focus of the service sales force then to convince the customer over time to migrate to a service agreement. And again, it can be a preventive maintenance service agreement, it can be extended warranty and it can also be what we call total responsibility. You pay a fee, everything included. If you have a breakdown in the machine, we just go and fix or even better if we have connectivity, we really try to avoid any type of breakdown in the machine.
I believe that connectivity for compressor technique is the next big opportunity to increase the market share in the 1:one ratio, where we clearly can help the customer to avoid breakdowns and improve uptime. And of course, every time we secure a contract, we also secure parts. There is enough growth opportunity as is. I am saying that with that understanding and connected, then I think there will be more customers that are willing to say, well, okay, take full responsibility for my compressor. So that's what we're hoping for and that's what we're striving for to sign up even more contracts.
If I can add for vacuum, as I said, we have these 2 different service divisions. If you look at the semiconductor service, we can have 2,000 pumps and 600 abatement systems in 1 factory, which means we put what 50, 60 service engineers on-site who are constantly monitoring the state of the product. And then the product goes in and out to a fab we have built to the service hub we have built next to the fab. So you could say there is clearly a one to 1 and a very strong relationship with that customer. So that's the semi model.
I fully agree with Mats and Wagner on the diffuse markets of the VTS, connectivity drives service because that gives the customer uptime and that gives us the efficiency. And that's the 2 different models within vacuum. It's both connectivity, but one is internal, the other one is external.
I think for industrial technique in the auto sector, you have they are very unwilling to let data leave the premises intrinsically. So their Industrial Technik have more than 100 tool cribs on-site and of course that's a huge brick walling versus competition to get in there. So they are very successful in having technicians on-site.
We have one final question here.
Yes. Hi, it's Tim Schulz from Redburn. A follow on question, please, for Mats on this big data digitalization and connectivity question across the Atlas Copco Group. Could you talk about what maybe the investment intensity looks like going forward? And then also just to clarify what is core here, for example, applications development?
Where might there be any gaps? And what will you or what are you willing to outsource to a partner, for example, storage, etcetera?
For us, the digitalization journey really picked up speed when we managed to define the value creation for our customers. And one thing was the connectivity part and you can hear that principally all products from compressor technique are connected, all electric tools and industrial technique are connected. You are on your journey to connect. I guess it starts with semi. And then in power, it's most difficult, so that we don't have as high ambitions.
Then we do that and we hand that team into the service organization. And then we had the debate in the beginning, say, well, we get the data, we hand it over to some analytical firm, an external firm. And then we said, well, this data, if we knew and have designed the assets, we should be the one that are best educated to understand the data and being able to predict. So our mission and our focus that I put pressure internally is that, okay, we should be able to do predictive maintenance, but also prescriptive maintenance. And the prescriptive maintenance is apart, he go back, he quotes the orders part and then he goes back.
Apart, he go back, he quotes the orders part and then he goes back. But if we manage to get to that level where we say the us that these components, so we can bring the right component and we will fantastically improve the logistics. So that is kind of our target. We don't think we will reach there within soon, but that's every division's target. So can we get to the level where we can actually say even what components will break and when?
So that's the mission. Then we do tons of things actually on the customer engagement side. We do a lot of experimenting with marketing automation. You do it for a lot of your industrial products, making sure that the customer gets in principally what the sales rep did in the past, we should be able to do online to take a leadership on competence online is extremely important for us as well. Talked about the CRM system to see if we can now feed the CRM system with leads depending on where customers look at their homepage or social selling to say, can we link that back to the reps and say, okay, this customer even looked at drawings.
This is probably more try to execute on is our own operations, where we say, okay, how can we utilize data and what the biggest thing for us is to, if we can make the transparent view on to our suppliers, then we could ramp up and ramp down much quicker. And this is always an issue for us when we're going to make sure that they have the right information at the right time and the right volumes. So there we are trying to make it transparent for our partners to see, okay, what do they need and when do they need it. We are not there on that journey, but it is a huge upside for us if we could work with that. We could deliver products better on time.
We could reduce the working capital. So that's another journey we have. We have 3 legs and that's what we are executing in with different speed depending on the customer value in the different divisions.
Thank you very much.