Atlas Copco AB (OTCPK:ATLKY) Q3 2023 Earnings Conference Call October 25, 2023 8:00 AM ET
Company Participants
Peter Kinnart – Chief Financial Officer
Mats Rahmstrom – President & Chief Executive Officer
Conference Call Participants
Andrew Wilson – JPMorgan
Sebastian Kuenne – RBC
Klas Bergelind – Citi
Ben Heelan – Bank of America
John Kim – Deutsche Bank
James Winchester – Barclays
Max Yates – Morgan Stanley
Jonathan Day – HSBC
Daniela Costa – Goldman Sachs
Andreas Koski – BNP Paribas Exane
Gustaf Schwerin – Handelsbanken
Operator
Welcome to the Atlas Copco Q3 2023 Report Presentation. For the first part of the presentation, participants will be in listen-only mode. [Operator Instructions]
Now, I will hand the conference over to CFO, Peter Kinnart. Please go ahead.
Peter Kinnart
Thank you, operator. Good morning and good afternoon, all of you on the line. Ladies and gentlemen, it’s my pleasure to welcome you to this third quarter conference call on the results of the Atlas Copco Group. Together with me is Mats Rahmstrom, and we will guide you together through the material and of course, answer your questions.
But before I hand over to Matt, I would like already now to ask you that when the Q&A session starts that you would all please ask one question at a time in order to make sure that all participants that are have questions are able to bring it to the surface and we can try to answer it to the best of our ability. Thank you very much.
And with that, I hand over to Mats to start the Presentation.
Mats Rahmstrom
Okay. Thank you so much, Peter. On the front page, I thought it would be interesting to see. We have talked about this bubble curtain application for specialty rental, specialty rental did really, really well. So maybe on or down then the use this front cover.
So then these picture, then show when they’re building a wind turbine. And if you look closely, you can see that there is a curtain around the building platform then to protect the sea species there. And if you look really, really close on the boat on the bottom part there is actually 21 oil-free compressors there from the specialty rental team. So this is what makes us excited when we look at our day and maybe page number two, also makes us quite excited.
So orders received I must say came in above our expectation at SEK42.6 billion, so 5% growth, 4% comes from acquisitions 2% also from currency. And then that, of course, leaves us with 1% — minus 1% organic growth for the quarter.
And if I look at the business areas, I can see that three out of four then still has organic growth, which I think is outstanding. So Compressor Technique, up 4%, Industrial Technique, up 3% and Power Technique, up 4%. And considering the uncertainties in the business environment, I think we got it solid, but I think it’s quite a strong performance by all the teams around the world.
And as you can see on the page — towards large and industrial compressors continue. So it’s the strategic long-term business. We still get a lot of orders there, strong position for us with the — if we call them sustainable segment that could be battery. It could be EV transformation. The large compressors from CT could be solar. It can be different gas number is still doing very well.
And if you go down a little bit as growth for Power and new equipment, these new acquisitions we have align in NPE doing really, really well for us, both in terms of sales and margins. So they delivered better than expected, so that’s very positive as well.
And then you can see that from an operational point of view that most of our customers are running a lot of manufacturing. So Service is continuing to grow in all our business areas. And that of course gives us the resilience well when things are a little bit slower.
Sequentially, we were down 3% and we recorded a record revenues for the quarter with SEK44.5 billion and the same thing there that we could see a strong growth on revenues three out of four CT up 14%; IT up 19%; and Power Technique up 18% so double-digit growth for three out of the four.
And if you look at the level on the graph you can see that, of course, in invoicing then revenues is on record levels, but also orders received is quite a good level. So we can see some quarters earlier, but the past years we have never been on this level before. So still quite strong orders received.
We go to page number 3. And then we — then have a record operating profit. It’s the first time and a milestone for us to be at SEK10.1 billion. So first time about SEK10 billion, at a very strong margin at 22.7% and that gives us a 21% growth for operating profit.
And just another milestone is that all our business areas then coming at the operating margin above 20%. So Compressor Technique at 24.9 and vacuum at 22.8 and Industrial Technique at 225 and Power Technique then they are really, really happy about this that they’re at 20.0. So we think that was quite a fantastic achievement as well and maintained a high return on capital employed at 30%.
Then we go to slide number 4. So this is the geographical the light blue box gives the last quarter. So if you start in Asia you can see it’s 38% of our business and 3% growth. Compressor Technique continue to do really, really well.
In Asia, Vacuum there’s a little bit of a split there. China in semi was strong and outside China was weaker then. Power Technique did fantastically well with more than double-digit growth. And Industrial Technique felt somewhat of a softer demand from the auto sector.
If it go to Europe you can see it’s 26% of our business and 5% growth. And maybe you flagged earlier that Europe would be weaker. What we have seen in this quarter is that Compressor Technique has been really strong, done really well in service.
Continue to do well in gas and process, but also little pressure. And also Industrial Technique and there we can see that a lot of automakers are catching up on the EV transformation and also the general industry did quite okay as well and also Power Technique also fair.
In Americas down 27% of business and you can see it’s a flat development and that’s mainly due to the development in vacuum in semi. Compressor Technique was really strong. We can see a lot of product business carbon capture application, hydrogen, EV, transformation EV development and that EV also links into industrial technique that was also strong in the auto sector.
If you go to Africa, Middle East, believe that there are some under investments in oil and gas and we can see strong development for Compressor Technique in the region and it’s 5% of our business. And then in South America, CT did real well and also Power Technique did really well and a fine growth in that region.
If you go to Slide number 5, there you can see then the organic growth development per quarter and slightly, slightly down then for this quarter with minus 1%. On Slide 6 you can see the – the bridge, the sales bridge and the structure changes is of course, the acquisitions that we had done in the last 12 months. You can see both on orders and revenue, it’s 4%. And I think still we have quite a strong pipeline for acquisitions, currency still support us and you can see then the organic which confirms minus one and plus 10.
Move to Slide number 7, gives the pie chart of the group. And you can see in the boxes the development. So Compressor Technique with 46% and 4% growth. And then you can see Power Technique with the same 4% and 16% of the business. And if you are interested to learn more about Compressor Technique and Power Technique then you should note down then that on May 16, 2024, we will have a Capital Markets Day in Antwerp and to focus on these two areas.
And you can also see that we have 16% of Power Technique and we have 17% of industrial technique. I think industrial technique feels that they are coming uncomfortably close to Power Technique.
We go to Slide number 8 that focuses Compressor Technique. 20 billion orders received really, really strong, continue to see strategic business large-sized compressors and good execution into sustainable segments as well and seeing like these investments continue. And small in industrial that we flagged for what a little bit but flat this month. So I think quite a strong performance there and then continued strong growth for service. And I can see that we are getting quite good at predicting and prescriptive the legal connectivity with our products, that is gaining market shares as well.
A record revenues here as well, 14% SEK 9.5 billion. So that’s promising and record profit then. And I think 24.9 is quite a remarkable margin considering also that they have negative effects from currency sales mix and acquisitions. And if you look at the innovation box down there last month – last quarter I think I introduced some new products for the hydrogen market and this is continued expansion then and this is expanders for the hydrogen liquefaction process. And you will learn more of course, if you come see the Capital Markets Day. And you can look at the level as well being very, very strong for us.
And then go to slide number nine, it’s under the Vacuum Technique. We have seen continued decline then in — it’s clearly down, but we also saw softer demand in the quarter for Industrial and Scientific, but continued growth for service. And I think you could look at the graph here that even if we say that we are down significantly or markedly, you can still see that compared to earlier years, this is quite a good level, but there is of course is quite a big gap now between revenues and orders received that we are ready to adjust if needed so. Still strong orders on hand in vacuum and all other business areas as well.
And revenue then 10.8 million, you can see pushouts from customers that we have the equipment ready but they asked us to wait a little bit with delivery, either they are waiting for something else or they have delayed their projects. Operating profit SEK 228 million. We’re happy with that. And the strategy for us in vacuum has not changed at all. We continue to focus on innovation. We continue to focus on the digital journey in service and the operational platform for us. And we can see although some of them delayed that a number of constructions in semi for example then has never been higher than it is today. So we expect this business to be back later.
Industrial Technique, continued strong organic growth. This time it was GI that did really, really well. And that surprised me a little bit. And I dig a little bit deeper on GI. And we can see that smaller orders, smaller businesses that is lower but also GI is getting more of the project business and product business for us could be that we sell a complete workstation. It could be software involved, it could be sockets, it could be screw feeding and more automation. So if that trend continues over a couple of quarters then we have really succeeded with that strategic move to get more of the scope in the assembly stations. And we also see more and more electric tools in GI as well. And two segments that stand out was aerospace and off-highway that did really, really well.
Revenues up 19% at 7.3 and record operating profit and margin at 22.5. And that little tool that is very difficult for you to see is actually on our sustainability journey. This hydraulic tools is used in the wind turbine when you’d actually assemble the towers. Power Technique, those are the team that’s so happy about the 20% margin, but also the strong order growth at 4%, 6.3 billion and one of the things that we are debating a little bit internally then we always have been seasonality in this business. It’s still seasonality in the business due to the rental company. But over time, we will see less and less of that because we are building on our service offer. We’re building on a specialty rental offer, but also the pump business will make a huge difference as well with less seasonality in the years to come.
Equipment was quite okay, especially Toronto did extremely well and service did well and that ended up in the 4% growth. Record revenues for them as well, 8% organic increase and then the record operating profit at 20% margin. It’s a little bit fun then you can say that the lowest operating margin in the group is 20%. So I think that’s a strong signal. Summarizing Power Technique strong orders record revenues, record operating margin, 20% margin and the acquisitions doing real way. So you understand that they are happy.
Then we come to slide number 12 the profit and loss. And for guidance then you can see that we indicated EBITA, which is the amortization of intangibles that we take away and then we would have been at 24% and the EBIT and operating margin at 22.7%. Peter?
Peter Kinnart
Thank you Mats. Then when we go down further on the income statement, we come across the net financial items, which you can see are somewhat negative. And that, of course, has everything to do with the current cash position, net cash position we have as well as of course mainly the increased interest rates that we are all exposed to.
Then we have a profit before tax of just a few millions south of SEK10 billion and an income tax expense of [indiscernible] that is an effective tax rate of 21.4%. And that is actually a surprisingly low effective tax rate even also for this quarter. And it had to do with the fact that we had compared to normal quarters less or fewer negative one-offs related to tax audits that are going on across different entities, et cetera, and that gave a kind of one-time effect you could say on the tax cost for — going forward we would assume that the tax rise — effective tax rate would actually go back to previous normalized levels somewhere around 23% to 23.5% somewhere in that range we expect it to be.
That gives us an after-tax profit for the period of 7.8 billion, a 19% increase compared to previous or same quarter previous year and gives us the basic earnings per share of SEK1.60 per share return on capital employed of 30% and return on equity of 32%.
Moving then to the profit bridge on slide number 13. What I would like to say here is that we are very happy with the way the profit has developed in the sense that there is a very strong drop-through in the income statement. We have a slight positive impact from the share based LTI programs. We have a little bit of dilution from acquisitions but that is actually well in the ballpark as expected in that first year of the acquisitions. And we also have a small negative currency impact to be digested. But, nonetheless, thanks to increased organic revenues we managed to increase the margin with a good percentage point.
And then when it comes to the currency outlook or the — we would assume that it would be rather similar to what we have seen now maybe it would turn slightly negative, but at least hovering around zero based on what we know today.
Then if we move on to the next slide, I can give a little bit more color to the bridge of the respective business areas. For Compressor Technique, the margin has gone up even further from the already high 24.2% to now even 24.9%, in spite of both negative impact from acquisitions dilutive effects from acquisitions and from currency. And of course, the fact that we have had a lot of focus over the last few years on pricing, but also good volume, et cetera have contributed to this positive development.
On Vacuum Technique picture is slightly different. Even though one might say that underlying activities are very similar across the four business areas when we think about how we work with pricing and how we try to improve the margin to counter the cost impact that we have seen from the past. But of course, unfortunately here we see a bit of the drop in the growth pushing through into the income statement.
And so as a result of that, we are able to get more or less margin as we have otherwise, meaning that there is a relatively lower drop through than we have seen in Compressor Technique, for example or in the other business areas for that matter. And that is mostly driven by the fact that the positive effect that we see in the other business areas or in Vacuum Technique a bit compensated by lower efficiency, mostly in our manufacturing entities as well as in our service technology centers as, of course, the drop demand from the semiconductor industry reflects also in our utilization.
On Industrial Technique, strong revenue development pushes the margin up with a very good drop through there as well going now from 21.4% to 22.5% and with also there quite significant relative negative currency impact and a very minimal impact from acquisitions.
And in Power Technique but not least, a very strong drop through there as well with a slight positive impact even from acquisitions as Mats already said, with very good performance in the acquired entities. Also there is a negative impact from currency but then a good boost of the underlying organic margin, you would say, so that we end up at 20% and all business areas have now reached the milestone of crossing the 20% operating profit margin.
Then I move to slide number 15 to the balance sheet. There I compare year-on-year, except last year in September this year. We see well mostly increases along many different lines from SEK170 billion to SEK194 billion. There is an increase on the intangible assets, which is purely related to our acquisitions and actually mostly linked to the goodwill.
We have also continued investments in the rental equipment given the very strong demand we have there. The other property plant and equipment, I think also doesn’t come as a surprise due to the fact that we have been talking quite a lot about investments in different sites across the globe in order to support our local-for-local strategy. And the right-of-use assets goes into the same bucket you could say because this is of course linked to also buildings that we are leasing and using in the business.
The next important point to mention is of course the inventories that have gone up year-on-year by about SEK 5 billion. If you compare to the previous quarter we are actually quite flat even slightly down. And that I think shows in a modest way, I have to admit. But it does show of course the efforts that the business areas are putting into recalibrating their stock levels in order to have a lower ratio of inventories going forward. So I think even though here we still see quite a significant increase. I think we are gradually getting to the point where we are able to bend that trend and get back to more normalized inventory levels.
On the receivables also an increase of SEK 5 billion purely linked to the growth of the business the revenue increase we have seen. There’s no alarm in our receivables as we see it the ratios are quite stable and I think that this is a healthy receivables portfolio. And then of course, the cash and cash equivalents they go up by about 2.3 billion, which actually today has dropped significantly due to the payout of the second part of the dividend.
Moving to the equity. The increase by SEK 15 billion is purely related to the earnings from the income statement. The interest-bearing liabilities have gone up slightly, but nothing major to comment on. And also non-interest-bearing liabilities have gone up by about SEK 5 billion which is a different, let’s say, a cumulative effect of different things. increased advanced payments, which has been a big focus in order to kind of count a little bit the increase of the inventories.
The payables that have gone up year-on-year by about SEK 0.5 billion and then other liabilities and accrued expenses that also have gone up in line with the growth of the business I would say. So, nothing alarming here either to mention.
If I then move to the cash flow on Page 16. Then the first thing that catches my eye at least is the very strong operating cash surplus of SEK 12 billion. For the year, we are now at SEK 33.7 billion. The financial items are also here of course giving a bit the same picture as we see on the income statement due to the exact same reasons. The taxes paid are up and this is due to two main reasons similar to the previous quarters. On the one hand of course the increased profitability also means that we will pay more taxes in absolute terms.
Secondly, we also see that we are growing faster in countries where the corporate income tax rate is nominally higher, so we have actually a higher tax rate for the group as a result of that.
Then we see the change in working capital of about SEK 1 billion and that’s in a very shortened version I would say is purely due to the fact that the payables have been going down and this is also very much linked to the interest rate development.
As you might remember, we are making quite a lot of use of supply chain finance systems and that has been a fantastic tool to manage our working capital over the last decade I would say at least. But now that the interest rates are going up those companies that are actually cash rich and are participating in the program or gradually stepping out now, because they do not want to pay the high interest rates in order to get the money faster and considering that they do have the cash and that they can actually don’t pay that kind of interest rates for themselves, because they have probably a similar or maybe even slightly better credit rating than the Atlas Copco Group.
Then moving on to — that gives us cash flow from operating activities after also a bit more investment in rental equipment of 7.9 billion almost 8 billion and then the investments in property and plant and other investments are very similar to the same quarter last year.
So ultimately the operating cash flow ends up at SEK 6.6 billion, compared to SEK5.7 billion a year ago and now we are reaching SEK14.4 billion for the full year. The acquisitions were SEK315 million where last year of course the number was much, much higher which had to do with a number of different acquisitions, but then I think the largest acquisition in that bracket was in LEWA [ph] and a few other companies across the different business areas.
So with that the financial statements and I would like to hand over back to Mats, to comment a little bit around the near-term outlook.
Mats Rahmstrom
Okay. So we are trying then to estimate and see what we have learned in Q3 with the customer activity. So it’s sequentially between Q3 and Q4. And we said that the customer activity level will weaken compared to the third quarter. Probably that doesn’t come as a surprise to anyone.
I must say though that it’s been — it’s always difficult. This time I think it’s a little bit more difficult to predict the future a little bit what will happen. But we see some negative signs then.
Of course we continue to see that the smaller day-to-day business is slower and softer for us. And there is a hesitation on some of the products and programs. It takes more time to get the decision.
We saw somewhat of a slowdown on EVs in China. On the other side we saw strong EV development battery in Europe and North America. The increased protection is in semi makes it difficult to predict and the geopolitical situation of course. And probably the interest rates that put a lot of pressure on consumers with come to us as well.
On the other side, I think I repeated myself more or less from the last quarter. Orders received, was only down 1% organically. You can see that the resilient service business that we have growth in all four business areas.
The strategic business is continuing bigger deals even if it takes a slightly longer than a position in what we call maybe sustainable assignments, markets and segments like automation, EV Battery, Solar Wind is developing really well for us.
And we don’t see that people are backing off from that. It might take a little bit more time, but I still think that’s strong. But all in all then we said that it will be a weaker customer activity in Q4, compared to Q3.
Peter Kinnart
Thank you Mats. With that we have gone through the full presentation. And we would now like to hand over back to the operator in order to start the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] The next question comes from Andrew Wilson from JPMorgan. Please go ahead.
Andrew Wilson
Hi. Good afternoon. Thanks for taking my question. I wanted to ask around the compressor business. And I guess thinking about the sustainability of what feels like it’s been a very good group I guess what we describe as sort of the newer areas and newer applications.
I guess just thinking about from a kind of macro perspective I know you’ve sort of alluded to maybe decision-making taking longer.
If we think about the macro impact on that on those segments and appreciating that it’s a number of different product lines and applications. Is this just a business which is going to continue to grow as you see it? Because you’re coming from a relatively low base in markets which are just somewhat detached from sort of GDP and IP expectations?
Or do we have to be mindful of the market within that? I’m just trying to sort of separate the dynamics there than maybe other parts of the compressor portfolio that we’ve kind of I guess core compressor we’ve talked about over the years. Hopefully you can just help us with a bit of color on that.
Mats Rahmstrom
Yes. If I start I mean we see right now and going in the coming years that the sustainability segments if you define them as that is probably our biggest opportunity. And of course they are in different stages. Linked to the CT if you say battery manufacturing I mean it’s up and running. That type of transformation is really happening here now so that we can really, really confirm.
Then you see that there is a lot of project business around hydrogen. Commercially, we don’t think it’s there just yet, but we are building the portfolio. We think we will be there if it’s for transport or driving engines or whatever it might be. But for us, it’s something that we think will happen, but it’s not so much now. It’s more with project business. We also get more and more carbon capture business, which is also then you compress some sort of gas.
And in general, if it liquid natural gas or any other gas that needs to be compressed transported somewhere, it is really, really good for compressor technique and XPANDER.
So, for us we believe that this is a segment that is really interesting and we haven’t measured this quarter but in the previous quarter we said that around 10% of the group’s business has been in this new identified segments. We don’t have a true measurement but we are trying to estimate it a little bit. So yes it’s a significant part and it continues to grow. And I think it’s more sustainable throughout the slower period than anything else.
Andrew Wilson
Sorry, Mats can I just clarify the 10% of the group’s revenues or business of CT’s business?
Mats Rahmstrom
It’s actually for the group.
Andrew Wilson
Thank you very much.
Mats Rahmstrom
Thanks Andrew.
Operator
The next question comes from Sebastian Kuenne from RBC. Please go ahead.
Sebastian Kuenne
Hi. My question relates to VT. I would like to know what the development of the capacity utilization is over the last couple of weeks and what portion of business goes into China either directly or indirectly through the WFE clients? Thank you.
Mats Rahmstrom
I’m not sure what WFE–
Sebastian Kuenne
I’m sorry through the clients that makes semiconductor equipment, fabrication equipment like Applied Materials Tokyo Electron and so on?
Mats Rahmstrom
I don’t know if I have the — I tried to just elaborate a little bit of color on the VT business then. Of course, it’s a drop down, the semi orders, but it seems to stabilizing on a lower level at this point. We can also see that the number of cancellations have decreased quite significantly from what we saw in Q1, right? What’s it, Q4 already, yeah. So that we’ve seen. We see the utilization of our customers is at a lower level right now, maybe between 75% to 80%. And it probably needs to come up around 90% before you see big CapEx investments again.
And as you say, then, that I think inventory needs to come down, price needs to come up a little bit. And then utilization is of course, and then we will see the CapEx and the first mover are most likely the ones that you mentioned, the LAM applied materials, Tokyo electronics, and that are the two makers. But at the same time, the society is really changing in this direction. We have just the start of AI, et cetera, et cetera. So the number of projects in semi is more than we’ve seen before. But there are push outs right now that we are adjusting to. But over time we are very, very positive to this market.
Sebastian Kuenne
What does it mean for AdWords in the UK in terms of utilization then?
Mats Rahmstrom
We don’t share our utilization externally.
Sebastian Kuenne
Okay. And China exposure was the other part.
Mats Rahmstrom
Sorry, what was that?
Sebastian Kuenne
The China exposure of VT directly that goes to China.
Mats Rahmstrom
That we don’t share either, but what I did share was that we can see that there is quite a strong business in China to deliver equipment there. And we see less than in other parts of Asia and America. So I think for this quarter, I think China has been the most positive on the semi side.
Sebastian Kuenne
Thank you very much.
Mats Rahmstrom
Thank you.
Operator
The next question comes from Klas Bergelind from Citi. Please go ahead.
Klas Bergelind
Thank you. Hi, Mats and Peter. So Mats, you sort of answered my first question a bit in the outlook comment. It seems like you are factoring in some caution rather than having seen an immediate change from your customer. But it’s just that you have changed the wording to weaken from weaken somewhat when you reported last time. I’m just trying to understand the magnitude between the last message and now. To me it feels more like end markets from a high level going down, such as battery lead demand in Asia, rather than anything materially changing on the general industrial side. But if you could sort of talk through a little bit the change in message? Thank you.
Mats Rahmstrom
I think that we said somewhat at the time and of course, it should not be linked directly to our orders received, it’s more to the customer activity. And we saw the same thing. But the quarter came out then better than expected, with only minus 1%. But then we have seen some of these trends that we talked about earlier, the hesitation, a little bit less quotes in some areas. So that we can see that there is a weakening. How much study, and that you don’t have the sum water, it’s just open, it’s a little bit, and then maybe show that there is more uncertainty this quarter in the statement than we had before.
Klas Bergelind
Okay. Very good. Just a quick follow-up on the distribution part in CT. Here you sell more through distributors, you sell mainly direct across the total CT. But if you look at smaller medium size compressors, you can talk about channel inventories. What did you see through the quarter and perhaps a bit into October across geographies that would be very helpful.
Mats Rahmstrom
I mean, I don’t even have those numbers. But what we have seen of course is that during the COVID situation that the batches to distribution was significantly higher. And now we have delivered on many of those industrial smaller compressors.
So I would assume that part of the decline is, of course, that they have stocked up. I don’t have a view on and we don’t know the inventory level at our distributors that probably they knew in the customer center, but we don’t consolidate that. But I’m sure that’s part of the weakening that they are waiting to sell a little bit of the stock that they have.
Klas Bergelind
Yeah. No I thought it was interesting to give you that small and medium size was flat year-over-year, which I think was better than…?
Mats Rahmstrom
That was better than expected.
Klas Bergelind
Thank you.
Peter Kinnart
Thanks, Klas.
Operator
The next question comes from Ben Heelan from Bank of America. Please go ahead.
Ben Heelan
Thanks. I wanted to ask on pricing particularly in compressor and power, and how you’ve seen pricing evolve in the third quarter versus how it was performing in the second quarter? Thank you.
Mats Rahmstrom
We don’t really divide the pricing. But over a period of time, we could see that when the inflation increased prices hit us during the COVID years that we dropped slightly down on gross margin. But if you calculate this quarter, you will see that we are back on levels that are slightly better than 2019.
And so we are extremely happy with the work done and that the customer accepts the value proposals that we have and that’s really the main thing for us that we continue to increase the value for customers and that we do by all these new products that we introduced every quarter. So it’s a mix then.
If you look at a same basket as last year will be the same product then, of course, it’s positive. But if you add on the new products as well then we don’t introduce products with low gross margin. So we always challenge ourselves. So every new product increased value for customer increased value for us.
Ben Heelan
Okay, great. Thank you.
Operator
The next question comes from John Kim from Deutsche Bank. Please go ahead.
John Kim
Hi. I want to speak a little bit about Vacuum Technique. Can you comment on possibly the different headwinds or tailwinds that you may face next two to three years? I understand you may have opportunities with near shoring and more localized production. But we are hearing things about order push-outs, and I’m trying to think about the overlay of the two. I know you haven’t seen cancellations, but are you experiencing more delays in invoicing and delivery within VT? And is it specific to any of the end markets, i.e. memory? Thank you.
Mats Rahmstrom
Yeah. But we do see push outs in the deliveries. I mean, we are talking five to six customers that make this market and as we said before then we’ve seen an acceleration in China in this quarter, and we’ve seen pushouts in Americas and other parts of Asia.
When we internally then looked at the CapEx going forward and we set the stake at 2030, I think, I’m looking at Peter, but we try to really understand is how big is the US and how big is Europe? And if you look at some of the products that have been announced and some of the things that we are aware of it’s still such a unbalanced view on this that 70% of the investment still happen in Asia. We believe that around 10% will be in Europe and maybe 20% will be in Americas. So still we need to be the best in Asia and then we need to take the new opportunities in Americas and Europe, but most part of the business is in Asia still.
And I think in the beginning of the year we were hoping and believing that we could see maybe a pickup of the semi business at the end of this year. That seems unrealistic now and we look at the quotations that we have and the speed of some of these products. And of course we follow every project around the world about the detail and we know that many of these projects are delayed. At the same time, we see that there are more products than ever before. So when the business is back it might be back with quite significant investment and we don’t think it’s Q1. Is it probably Q3, Q4 right now that we believe, but we don’t have any magic. We don’t know. And I think probably the best trend is to look at the toolmakers. They’ll be probably ahead of us and if they are ahead of us we will start selling the turbo pumps first which is part of the tool makers offered to end customers.
John Kim
Okay. Very helpful. Thank you.
Operator
The next question comes from James Winchester from Barclays. Please go ahead.
James Winchester
Good afternoon. I was wondering if you could provide a bit more detail on the moving parts within gas and process. For example was it kind of back to north of 15% of orders this quarter? And of course it’s been a super strong year for gas and process. But kind of looking forward how are you viewing kind of more normalized run rate? Thank you.
Mats Rahmstrom
The gas and process part of CT Europe?
James Winchester
Yes, of CT.
Mats Rahmstrom
Yes. I mean it’s been around 10% before and I think now it’s between 10 to 20 so maybe around 15% of the CT business and of course we are growing out of capacity there more than anything else. The lead times are becoming really low. But the demand is for certainly there and there’s more to come and we are building on our capacity in Asia. We’re building on our capacity in the US and in Germany then to match up with these new demands.
And it is quite a significant change from what we’ve seen in the past. It’s our separation, but it’s also carbon capture it’s liquid natural gas and other applications. So we are trying to make that this is more sustainable more modularized over time to make it more profitable instead of just having product business there. So we are very, very happy with the top-line development, but also very happy with the margin development in that division.
James Winchester
Okay. That’s very clear. Thank you.
Operator
The next question comes from Max Yates from Morgan Stanley. Please go ahead.
Max Yates
Could you just talk a little bit more around, what you’ve seen in China during the quarter? And I mean, I appreciate you mentioned kind of some slowdown in EV investments. But if you talk about, kind of small and medium-sized compressors perhaps some of the sort of shorter cycle business. How did you see those evolve in China? And are you seeing any kind of improvements or stabilization in China through the quarter or in Q3 as a whole? Thank you.
Mats Rahmstrom
For Industrial Compressors then we experienced a softer market overall where customers are a little bit more hesitant to order compared to what we saw in the first half of the year. In Vacuum which is somewhat of a softer market for industrial vacuum compared to previous quarters as well. And for Industrial Technique then still see the larger projects but somewhat slow as mentioned earlier on the call. And Power Technique, also somewhat a slowdown on the construction market and maybe sequentially affected by several large property developer having some difficulties as we see them. And the positive side, of course that they speed up a little bit the development on their semi industry.
In general, I think we can say that the different regulation’s, the geopolitical situation makes it’s not the best environment for fast and quick decisions when it comes to projects. So there is an uncertainty in the market. And as you can see, when I listed a little bit all the business study. That is a little bit softer demand in this quarter.
Then we normally know that, there’s no reason to it. But if you look three, four years back Q4 has always been a little bit softer in China and Q1 was a little bit stronger. So there’s no reason for the seasonality, but the reality we have seen seasonality in the China business.
Max Yates
That’s very helpful. Thank you.
Operator
The next question comes from Jonathan Day from HSBC. Please go ahead.
Jonathan Day
Hi. Good afternoon. Thanks for taking my question. I was wondering, if you could talk a little bit more about the general industry trends that you’re seeing in Industrial Technique and as you said, you were sort of quite surprised. I think they may be sort of contrast a bit with what we’re hearing from other companies in the sector. So I was just wondering, if you could talk a little bit to those and give us some color as to how they’re perhaps are progressing again in the few weeks of Q4?
Mats Rahmstrom
Yeah. We don’t comment on Q4, but I can give some color. I mean, when we were running this general industry business a significant part of that business goes through distribution. That is changing over time when we have more projects. And it used to be a business of air tools and normally station assembly, but with the widening of our product portfolio with the intention to get more of the scope, and also the transformation to electric tools. So the lion’s share today in a quarter like this is more electric tools, and then we see from than air tools. That’s a very good transformation for value creation for us and for the customer.
But to go with those we also see that more and more of the general industry there are also lacking labor, so they also tend then to look more at automated stations and that’s why we have added for example screw feeding to our offer, and software to go with that, and workstation and workstation could be economic solution around the station. So we’re trying to go away just from selling the tool to sell a solution to the customer in terms of more equipment and it stood out this quarter as strong for us and that’s why I spent a little bit more time on that and maybe I should not confirm that that is the case. We can give it a few more quarters. But this development this quarter was very positive for the — for us.
And of course that it also takes that you change the competence level at your sales force and your distributors to be able to sell a bigger solution with more automation. If you traditionally only know how to sell a tool you need to upskill a little bit and to learn about the digital functionality the electric tools and then some other portions. So, all in all and if you look at the station in GI none of this – the tool — now we sell significantly more equipment in the same station and that is our ambition as well.
Jonathan Day
Great. Thank you very much.
Operator
The next question comes from Daniela Costa from Goldman Sachs. Please go ahead.
Daniela Costa
Hi. Good afternoon. Thanks for taking my question. I have just one and I wanted to ask if you could remind us in Vacuum technology how do you distribute? Does it all go direct to you go through distributors? Just trying to sense I guess we see some other varying comments across the value chain where some peers are calling up the bottom of the cycle or not. So, how early do you see it, or do you see — will you see the shift indirectly? Basically that’s my question in terms of the visibility on VT.
Mats Rahmstrom
On VT and the semi business, which is the lion’s share of our business in vacuum, that’s 100% direct sales, well educated salespeople quite complicated to understand the customer process. It will continue to be direct and we’ll take scope in each supply. Semis, short — for sure direct. In Industrial and Scientific, there we have distributors involved but it’s also a lot of direct sales but that’s a smaller part than the semi business.
Daniela Costa
Thank you very much.
Operator
The next question comes from Andreas Koski from BNP Paribas Exane. Please go ahead.
Andreas Koski
Thank you and good afternoon. Just one quick question on Compressor Technique and the order intake pattern there. Looking back historically, Q4 orders are normally close to Q3 orders. But in Q4 last year we saw a significant sequential drop of 14%. I just want to confirm that normally there is no seasonality in Compressor Technique from Q3 to Q4.
Mats Rahmstrom
I mean, normally, I would say no, but there is some sort of seasonality if you look at the complete business. Of course there is more push for that they want their orders, so more push for revenues and some are holding off to the new budgets in the new year, but it’s not significant. We normally don’t talk about it but that is a little bit of that in the Q4 versus Q3.
Andreas Koski
Okay. So in Q4 last year, it was sort of an exceptional that on 14%.
Mats Rahmstrom
I don’t see that it will drop 14%. But…
Andreas Koski
13.2 versus 18.8 billion.
Mats Rahmstrom
Can we get back to you on that one?
Andreas Koski
Yes, absolutely.
Mats Rahmstrom
I’m looking at the graph in front of me but I don’t see that.
Peter Kinnart
I think it’s fair to say that there is typically a bit of a softening order behavior towards the end of the quarter in Q4. It’s not huge but there is a little bit of that. But again, nothing that it would be along the lines of the numbers that you are mentioning, but we will come back with a bit more details.
Andreas Koski
Yes. So this was specifically for Compressor Technique.
Peter Kinnart
Yes.
Mats Rahmstrom
Yes. We get back to you.
Andreas Koski
Perfect. Thank you.
Operator
The next question comes from Gustaf Schwerin from Handelsbanken. Please go ahead.
Gustaf Schwerin
Thank you. Just a follow-up on the general industry in Industrial Technique. Can you actually say what the share is between direct sales and distributors today? I assume a majority is still through distribution. Thank you.
Mats Rahmstrom
We have not shared that but it’s a mix of both. I’m sorry I don’t want to share it fully.
Gustaf Schwerin
I guess outside. Thank you.
Mats Rahmstrom
Thanks.
Operator
There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Peter Kinnart
Thank you, Operator. There’s no additional statement that we want to make at this point in time. We would all like to thank you for participating in this earnings call for the third quarter of 2023. And thank you a lot for all your questions that you raised during the call. Thank you very much and have a nice day.
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