Atlas Copco AB (OTCPK: ATLKY) Third Quarter 2022 Results Conference Call October 19, 2022 8:00 AMm. ET
Participating companies
Mats Rahmström – President and Chief Executive Officer
Peter Kinnart – Chief Financial Officer
Conference Call Participants
William Peigneux – UBS
Lars Brorson – Barclays
Daniela Costa – Goldman Sachs
Mattias Holmberg – DNB
Andrew Wilson – JPMorgan
Klas Bergelind – Citigroup
Max Yates-Morgan Stanley
James Moore – Redburn
Rizk Maidi – Jefferies
Andreas Koski – BNP Paribas Exane
Gustaf Schwerin – Handelsbanken
Operator
Hello and welcome to Atlas Copco’s third quarter 2022 earnings call.
All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, you will have to ask questions. Attention, this occasion is registered.
Now I would like to speak with Peter Kinnart, CFO. Continue.
Pierre Kinart
Thank you, operator. Good morning, afternoon, evening to all and welcome to Atlas Copco Group’s third quarter 2022 earnings call.
My call is Peter Kinnart and I am joined by Mats Rahmström to comment on the elements of the results, but before I pass the word to Matt, I would like to ask that the Q&A consultation begin after our introductory presentation to make just one query. at the same time to ensure that all participants in the call have the opportunity to make their most important query. If we answer all queries, then, of course, you can make some other query.
Thank you. So Mats, I move on to you.
Mats Rahmström
Thank you, Pierre. I’ll start with the symbol in the instructions. This is one of our recent acquisitions at LEWA and I have the idea to put it in the right environment, so everyone understands what it is because we get a lot of questions.
So the 3 pieces in the middle, those are the pumps that we sell and you can see that it’s a commercial pump environment and that in this case it has dosing functions [ph] and just like we love at Atlas Copco, it’s a vital component of that process, which I think everyone understands, and it’s still a smaller component of CapEx and it also gives us more opportunities with an attractive service business. So I think the LEWA acquisitions are very compatible with what’s happening. Atlas Copco and what we’re smart about.
With that introduction, I would move on to slide number two. It was in the orders received, we rose 6% organically and with a very intelligent functionality of 3 of our commercial segments; Compressor generation was up 21%, commercial generation was up 21% and forced generation was up 16%, and also in vacuum generation, which was down 23%, commercial and clinical generation is still doing well and is basically similar to the semiconductor industry. As far as the semiconductor industry is concerned, and in general, it was close to SEK 40 billion, which is another very strong quarter for us.
We continue to have a strong expansion in service, which is because of our resilience and also because of the won orders that came in from all regions of the world and, as I said, 8% less sequentially, in line with the guidance we did last time.
We had record revenue and an 18% increase and also sequentially here, the positive is less than 8%, although we still face supply chain issues, we may still launch a few more products and we may see strong functionality across all business areas. ; Compressor generation increased by up to 13%, vacuum generation by 27% and commercial generation by 14% and power generation by 20%. We have several acquisitions in the quarter, 11 of them, and for the year we are at 21.
We can move on to the third slide to see profit and the first two, yes, orders were won and cashed out, and the third point is downward operating profit, which increased by 40% compared to last year’s quarter and with a margin of 22% down, we recorded a record operating profit of almost SEK 8400 million. Very satisfied with this development.
Here, of course, you have the currency to get to this point. At the same time, we have the specter of the chain of origin disruptions we continue to have and the return on capital employed, 29%. You can take a look at the neighborhoods It is a totally new point at the moment. We’ve had 4 quarters after very smart quarters and sequentially, we can see that we’re also managing at least two incremental functionality improvements.
We can move on to slide number four, which provides some of the geographic inventory in Asia. It may look low in soft blue, it says 4% more and this is the global component where we have most of our sales in the semi-finals. The vacuum strategy was therefore negative, but all other activities appeared with double-digit expansion in Asia. Very clever performances there.
If you move to Europe, this pretty strong functionality of all business sectors, although maybe that’s the domain where we see the business is, can be at least a little smoother. The United States is very similar to Asian history, where we have double-digit expansion for all vacuum technology business sectors.
So pleased to see that our offer to be appreciated in all regions and that we have the product full that corresponds to the application in all those areas. We move on to slide number five, and it’s more of a confirmation that we now have 8 rooms. of expansion and the last quarter is for the six.
Slide number six and here you have the first bridge over the orders won, and you can see that you earned from the coin there 13% with 6% organic, annual profit less than 15% in currency and 18% organic.
Go to slide number seven and here deserves to see the shark cake with the commercial areas, although the fantastic functionality of the compression strategy 21% growth. This percentage has decreased somewhat in the group. I’m just getting started, even if with part of the compressor technology, we can see a very strong progression in LNG return application and even carbon capture application. So many corporations that we will become more resilient over time.
The energy strategy benefits of course from recent acquisitions with pumps with [indistinguishable] but also very strong business for many product lines and I think specialty leasing also performed very well in the quarter.
Industrial technology, they take advantage of CapEx committed to the transformation of EVs in the automotive industry. It’s the assembly, its flexible automation, but also the battery manufacturing, and the vacuum strategy, even if minus 23% we’ll have to don’t forget the expansion we’ve had in semi these last two years and the commercial and clinical vacuum is also doing very well.
Go to slide number eight, which is the compressor technique. I am amazed by the continued strong expansion of orders to 21% and you can see that we have separated a bit the larger compressors that we see in fuel and procedure, because, without oil, they are priced higher than smaller product lines. It’s more of a product type business.
And here we can also see that we have a number of applications, which I mentioned earlier and on top of that, we are also seeing more and more contracts for hydrogen products, which also interest us and have noticed an expansion forged in all. regions of global and flat progression in Europe.
The service is smart for us and they continue to develop and create new products, which is very, very smart. Revenue in record grades increased by 13% and an operating margin increased by 24. 2% and here, of course, supported by growth, currency, but hampered through supply chain constraints, a very smart return on contracted capital 3%.
They continue their path in acquisitions. I think Oxymat, who was in Denmark, dominated on the spot strengthening our position there, very attractive and then continue with the distribution rule to have access to the product, but also distribute sorry, service. And the one that stands out a little bit is the one in Germany where we have a virtual channel to succeed in our consumers as well.
And of course, if you look at the graph, it looks impressive in orders received, development and revenue, even if you remove the cars.
We move on to slide number nine, which is vacuum technologies, and then we can see the decline that I prefer, which is semi-equipment, and we already saw this trend in the last quarter. This reminiscence does not look as good as the test logic in the other aspect from our point of view, it can also be empty in cities that rely more on the procedure around those products.
The service also continues to grow and we expect this to continue given the number of products we are introducing to the market. For semi, it is possible that the market will relax from a very, very high point for some quarters.
On the other hand, if you look at the CapEx cycle over the next few years and the evolution of society, the way we live, function and manage industries, we have no long-term considerations for that. They came out with record revenue, 27% construction and an operating margin of 23%. They face challenges along the supply chain, but as we discussed earlier, worthwhile builds are more complicated when we have long-term contracts and long leads.
Now, if you take the next one, which is slide number 10; This is the trading technology, order intake is still very strong, 21%. We know that the automobile can be divided into two portfolios of activity, one is the classic activity of combustion engines, very few products in this market.
Upgrading tools is more of an operating expense expense, in line with the possibility of upgrades and the consistent percentage of the lion’s business also comes from the new EV and battery market, and I think we’ve been asked several times about the possibility of an electric vehicle. Unlike a classic combustion engine vehicle and it can only be verified that the perspective is equivalent to or superior to that of the vehicle when switching to electric or hybrid vehicles.
The service continues to expand well. Record turnover, still hotly contested in electronics, but we strive and buy in the spot market to meet the times of our consumers and operate at more than 21. 4% and permanent capital at 18%.
Switch to the technique of strength; There we have a very continuous expansion to 16% that the portable compressors are working very well and the turbines too, but even better, the rental and specialized service continue to grow as well and we have also made a great start with the compact two positions.
And 20% biological benefit; Strong for us and very strong margin for this end market at 18. 9% and basically driven through biological gain of course and diluted through the same demanding situations that everyone has with the chain of origin, and that I have already mentioned, the previous acquisition ended in the fourth.
Then on slide number 12, you have profit and loss, and they give you two indications that you have for reference, you also have EBITDA, which is at 23. 2%, and then what we report on operating profit at 22%.
And through that, I give you up, Peter.
Pierre Kinart
Thank you, Matt. Je will continue with the source of income on the same page. Net monetary pieces less source of incomeArray, however, the substitution compared to last year is basically due to positive monetary substitution differences.
Of course, we have a pre-tax profit of SEK 8500 million, and then a source of income tax expenses of around 22. 6%. So that’s our tax rate right now, and we also expect it to be pretty much what we’re going to see in the last 4 years in terms of the source of the income tax rate.
Secondly, profit for the constant period was SEK 6500 million compared to SEK 4600 million a year ago, representing a cumulative of 43% and translating into fundamental earnings consistent with the percentage for the quarter of SEK 1340 million compared to the previous period. adjusted according to the percentage allocation, of course, SEK0. 94 last year. And the return on contracted capital was 29%, 28. 7%, I think you saw it on one of the previous slides compared to 27% last year and I upload it here is also fundamentally based on currency and return on equity of 32% compared to 30% last year.
Then I move on to slide number thirteen where we give a little more color to the bridge of benefits. And what we’re seeing here is necessarily strong support for the currency. As you can see, acquisitions have a negative impact, which is not unusual in the first year. , given the high integration prices we generally have to endure.
And then there’s a 13% drop in revenue, which is negative on the margin. And when you do the analysis, basically, what you see is that the charge increases, whether it’s material, hard work or energy prices before the 3rd. Quarter, they are offset by all the efforts that our divisions and lines of business are making to try to raise the levels of value in the market.
Then we also have inefficiencies in the supply chain and those are more problems of transience, I would say, inefficiencies in our factories or punctual purchases in the market to obtain electronic components, for example. And those that we can’t really compensate for even if there is a positive has an effect on volume as a peak.
And then, finally, we also continue, as we already indicated in the previous call, to spend more and more money on the progression of the product and this is, of course, the motto for the future.
And also in our activities in terms of digitalization, having a better presence in the market, etc. So much so that everything adds up to a dilutive effect of still 1. 1%, but above all and above all a very intelligent continuous progression in pricing.
Then if I move on to the next slide, slide 14, where we see the bridge break through the industry. Basically, the conclusion is the same. What I would like to highlight here is the very clever functionality of Power Tech with a very positive decline as well, all the coin-backed trading spaces, some to a greater extent than others, but overall, a very positive impact on the currency across the board.
And then depending on the other trades, which are to deal with other issues, increases in value or collection. And as we said earlier, especially in semi-industry, for example, or the automotive industry where we deal a lot with key account customers, it’s a bit more complicated to get the same kind of value realisation in the market now with the broader business applications.
Let’s move on to slide number 15 and then to the balance sheet. Well, maybe first of all, before we communicate about an express category, I think it’s worth mentioning that when we compare quarters, there’s also a massive impact of the currency on this balance sheet because of valuations. And we can say that approximately SEK 19 billion year after year is the effect of the currency on our balance sheet.
Then, of course, there are still increases in intangible assets, finally, especially, of course, the replacement of our intangible assets, thinking about the acquisitions of LEWA, Geveke, Oxymat and many s.
The other item that is likely to stand out here is that of other tangible capital goods with an accumulation of 3. 5% compared to December. And there, sorry, compared to September of last year. And this is, of course, due to the investments we have approved for capacity expansions, basically in the body of workers also in compressor technology.
And then, I think the two things that stand out here are inventories and accounts receivable, net operating capital or parts of operating capital that have accumulated by roughly the same amount. And we’re seeing virtually every single commercial domain piling up there.
For inventories, the ratio increased slightly. For accounts receivable, however, it’s pretty solid and we don’t see a threat of an increase in accounts receivable either, right?volume that we have seen, in addition to the effect of currencies.
Then, money and money equivalents. As you can see, this has decreased a bit, compared to September last year. And, of course, their reasons are the bailout, the first dividend payment. And then, of course, the many acquisitionsthat were made in the year.
And then let’s move on to equity and liabilities. In terms of interest-bearing liabilities, we have a little higher short-term financing through some bilateral loans, which is due to the fact that our current capital is higher, and of course, also because of the large number of acquisitions we have made.
And then we will have to think also about the dividend that will be paid in October. On October 26, we will pay the momentary component of our dividend, which is SEK 0. 95 at that time.
And last but not least, non-interest-bearing liabilities have also increased here. It is a combination of many other things, but the main maximum component is, of course, the debts of suppliers that are linked to the purchase of all. inventory. Secondly, and also very important, the advance of invoices similar to the assignment activity, which goes quite well the quarter.
And then other types of accrued liabilities, such as the source of income tax liabilities or other accrued liabilities that we have made. Before moving on to the next slide, I’d like to mention one thing about the bridge, and that’s the perspective for the currency.
And here, we think the maximum maximum is likely to be similar, positive, compared to the third quarter; However, maximum maximum probably, slightly lower than what we have noticed so far.
Then I’ll move on to the next slide and it’s slide number 16, which briefly talks about money flow. I think the picture is very similar to what we’ve been discussing in the last few quarters. We are seeing a very strong operating money surplus, dare I say. At the top, only about 10 billion Swedish kroner.
Then the taxes paid are a bit higher, but it is purely similar to the volume, accumulation of activity and profitability that has accumulated. And then the replenishment of current capital, which is still negative, but particularly less negative than it has been in the last 2 quarters, as can also be speculated from the figures since the beginning of the year here.
And it is, of course, in all other categories where we see increases, adding debt, but not to the same extent as inventories. And then we see the investments similar to the capacity expansion that we’re doing around the world, South Korea, in China. or the US, and Belgium as the fourth dominant place where we are making quite significant investments.
This, of course, increases coin outflows, as you can see. And this provides us, in general, after all those other elements, operating currencies of SEK 5. 7 billion compared to SEK 4. 7 billion a year ago in the same quarter. But then, of course, the big difference at the end of the slide is the amount of purchases, the coins that were spent in the quarters.
You have the list in detail, but, of course, the biggest contributors are [indistinguishable] And with that, I conclude on the flow of money, and I give you back, Mats, the perspective.
Mats Rahmström
I have time to check the point of activity of visitors, as we call it, between Q2, Q3 and Q4. There is no wonderful science in this industry to see what signals they get from visitors.
And this time, we said we can compare a little bit to the high point we saw in the third quarter. And of course, we’ve had 3 very strong quarters and in something you might need to read about, we haven’t noticed. any symptoms of a recession-like scenario.
And we still think that in the number of expansion that we have, of course, for strategic programs, long-term strategy as in fuel and oil fields, it is quite positive. We are also gaining market share in what we call resilient sustainability technologies, which are the sustainability of our business.
Semi, we see that the short term is softer, which was already shown in the past in this quarterly report. But in the long run, we don’t see that as a problem. On the contrary, there is a lot of investment in this sector.
On the downside, we’ve noticed the slowdown in the industry as a whole. They may just be commercial tools, it may be just a commercial vacuum cleaner, for example, commercial compressors that we see expanding more slowly or not expanding at all.
And there are still doubts about the crown basically similar to China. Today there is uncertainty and recently this Exchange Law that you are comparing has also been presented to see what the semiconductor industry will be like globally.
And of course, the war between Russia and Ukraine makes things more complicated in Europe in many ways, as you know, it’s probably not so business-savvy. And that’s why we closed a little less business for ourselves from a very strong quarter. yes.
Then we have: before we start with the questions and answers, we would like to remind everyone about Capital Markets Day. So, if you want to know the inner workings of our organization and be informed more about the strategy and what we can do in the future. November 17 here in Estocolmo. Si you need to register for this, you need to do it until October 31st. Should we then open the questions?
Pierre Kinart
Yes Mats. Thank you very much for those comments. Operator, I would like to return it. [Operator Instructions]
Q&A session
Operator
[Operator Instructions] Our first comes from Guillermo Peigneux from UBS. Continue.
William Peigneux
Merci. Et smart afternoon, everybody. I wanted to ask you about Batten, of course, and I guess you commented on some points that affect your orders and also the prospects, I suppose, for the fourth quarter. But I wanted to elaborate on one of the statements in your report. when communicating about slowing customers. What do you see there?
And in the most sensitive of that, in cancellations, do you see a threat in cancellations?And last but not least, on the US-China ban. Do you see something there or will any comment there be useful from our point of view?
Mats Rahmström
Gracias. Al increase, we can see that of course the response times of many suppliers are long, so it can also be a matter of time, as they don’t get all the hardware they want to speed up production. . .
And I guess it may also be where they have greater capacity, but they are slower to speed up some plants. And that’s what we’re seeing. And I that the first comment I made about this is probably the most relevant, of course, it is very complicated at this time to start a new line with anything and you have to coordinate all the efforts of all suppliers.
The timing was, yes, it was the cancellations. No, we didn’t. During this quarter, we didn’t see a big update in cancellation, it’s on a general level. And a follow-up query about this is usually if we think we have incorrect commands in our systems and I think I’ve experienced that in Industrial Technique.
It is closely related to projects. We can also see the product that is the same for vacuum technologies. And for the same reason, we know where the products go. And the only way to see that there can be a change, of course, would be for products. to be distributed where they have been stored. But we do not see anywhere where we can see that double the order is being bet or anything like that.
That said, I’m not saying we can’t see cancellations, but it hasn’t been a major update this quarter.
Operator
Next is from Lars Brorson of Barclays. Continue.
Larsbroson
Maybe just in that, can you remember us? I think when I was asking what kind of effect we’re seeing in the semiconductor industry right now. Can you please remind us how much China values your VT company?We also sought to ask about the margins of biological drop in VT.
In the short term, Peter, seems to have bottomed out, had some quarters of negative decline in the early part of the year. Now we move to positive speed here in margin improvement?Can we go back to the increases in the 40, 50 in the next 3-4 quarters in VT?
And if I can, sorry, only in the medium term, I am looking to better perceive the biological drop in semi-VT. My guess is that it’s probably in the ’60s. Is there any explanation for believing it will be noticeably different during a recession that we might encounter in the next year or both?And what can you do well to reduce that break-even point: reduce loss margins and reduce the threat of the earnings profile as we approach perhaps 2024 or the What other aspect of the order book will be charged this year?
Mats Rahmström
Maybe I can start with the strategy of emptiness and semifinals. We have not revealed precisely how sales are made worldwide. But China, between the Americas and Korea, are the 3 most sensible countries. component of that business.
And overall, I think we have 20 consumers and they’re spread across those 3 countries, so it’s a significant portion, of course, China.
Pierre Kinart
It is ok. Thank you Mats. Then I will move on to the other query about the drop path for the positive vacuum technique. So yes, I think, first of all, from our point of view, we’re at least very, very pleased to see that we need to make this change and get those positive numbers on the back relative to our income.
Even if from a marginal perspective, we are not exactly where we would like to be. Therefore, we are satisfied but we are not yet satisfied. But then, of course, I think it’s a lot, thanks to increased efforts on the value side, to counteract all those negative effects while at the same time, of course, inefficiency in factories is difficult to manage with the source of disorders in the chain, especially on the chip side, causing disorders similar to those we’ve noticed in recent quarters that haven’t really noticed any improvement. notable.
I can’t really say if that drop will suddenly hit breakneck levels of 60%, but what we’ve sometimes said and talked about is that over a longer period of time, we usually count about 30%, 35% across all activity spaces. And I see no explanation as to why we shouldn’t continue in this situation instead of having this massive decline.
I think we also need to make sure that we continue to invest in the future, that we are leading the right R initiatives.
Operator
The next one comes from Daniela Costa of Goldman Sachs.
Daniela Costa
I tried to focus on their largest business, Compressor Technology. It fell organically in 2020, I think, minus 3%. Obviously, everyone is wondering when there is a slowdown. No, I don’t need to ask you when you think that’s the case. But when we have the next macro and trade slowdown in general, do you think you can?Do we see 2020 as the reverse of what your orders can do?
Or do you think there are express things that were unique to 2020 where that decline was perhaps much smaller than, say, if we take a look at history, up to 2018 or even 2015, sorry, 2008 or even 2015, just to think about how to contextualize an imaginable long-term slowdown compared to the 2020 example?
Mats Rahmström
Thank you for the question. Yes, 2020, I think the negative component of 2020 that we may not see in a strong recession would be in the accounts. COVID limited us to having an on-site service that limited this option.
On the other hand, if I don’t forget correctly, we had a lot of government systems that allowed us to remain a lot of workers, workers that we could immediately augment to when we were exploring businesses again. Two other things that I think can be positive for us are, of course, that we continue to expand the services business and as long as operations continue, even though CapEx is in OpEx continues and then that will be the Enterprise department.
And myself or even though I don’t have evidence of that, I that sustainable programs like wind, electricity, battery, hydrogen, a lot of those investments, I think a lot of our companies, consumers will continue to invest in that and I think you’ll definitely talk about that as well.
So, there are changes, but I don’t see if we would be particularly worse. I think it may also depend a little bit on how we get support, of course. But there are no structural things unless the things I said are positive.
Pierre Kinart
I can only add, for example, that the customer’s strategy at the point of service and the organization of the service has been successful. And of course, we also have a higher relative proportion of service plans in the portfolio, which is regularly one of the elements that, of course, make the business more resilient.
Operator
The next one comes from Mattias Holmberg of DNB. Please continue.
Mattias Holmberg
I’m a little curious about the strength you see in compressor technique. Could you know how much of that, in the current environment, you think comes from emerging energy prices?I don’t need to put words in your mouth, however, I have the impression that you are downplaying a bit the urgency of clients to make those investments here and now. So I’m curious to know something about it.
Mats Rahmström
Yes. Then I perceive the question. And the link between the Russian-Ukrainian shock and emerging energy prices, and then what effect does that have on the business, then, I guess?
Mattias Holmberg
Oui. Je essentially think if you see much of the expansion demand in compressor technology as a direct result of high energy prices.
Mats Rahmström
I think it’s too early to say that consumers make their decisions based on that. On the other hand, energy costs are vital when opting for your compressor or any of our other equipment, and account for 75% of costs. Therefore, every building pushes consumers towards the energy-efficient high-end logo as well as towards goals based on sustainable design and more and more of our consumers are committing to it.
And I think there is a willingness in many parts of the world to communicate about the effectiveness of the product itself and also this year of the platform and this, of course, is also similar to finance in terms of energy costs.
So I think it’s in our favor to stay away from copycats, but also to help our consumers with what they have in Scope 3.
Operator
The following comes from Andrew Wilson of JPMorgan.
Andre Wilson
I still wanted to ask about our trading technique. It turns out that in the last few quarters it moved to a pretty different position than it had traditionally been in terms of order fulfillment rates and clearly, there’s a smart tailwind in terms of EVs, and I guess recent acquisitions or recent acquisitions are also making a difference.
But is there anything to highlight in terms of a unique nature or do you think it’s the kind of sustainable point we deserve to look forward to in the long term given the obvious commitment of many OEMs on the automotive side?I’m just looking to find out if it’s just an execution rate we can take on in the long run or if, is there anything we want to be a little more careful about?
Mats Rahmström
Oui. Je I don’t think there’s a one-size-fits-all effect at all. That’s transformation then. I think Tesla has broken through the electric car market, and now we’re seeing the return on those investments as well. And everyone has stood firm.
So we see very few fossil fuel projects. I mean it’s more common in EV. So you can see that the number of cars manufactured hasn’t reached the record grades we’ve noticed in the past. But as we can see now, China, unlike Europe and America, almost doubles.
Its length is greater, so we want to have a very strong presence. We have a very strong presence in China and neighboring countries as well. And that transformation is what’s building our business right now. And we’re gaining market share because we have those other technologies to build lighter cars and we also have them in battery assembly, which is dedicated to 3 of our businesses.
And so surely you’re right with the recent acquisitions that we have now, we’re taking a higher percentage consistent with the scope investments today, if it worked before, we also did more in flexible automation today, however, we’re just pointing out that we’re not a device line builder at all, but we’re in achieving flexible automation consistent with the station.
So a larger organization well placed for processing, that’s what you see in the commercial sector and also a boom in battery production worldwide through OEM and Tier 1.
Operator
Next up is from Klas Bergelind of Citigroup. Continue.
Klas Bergelind
Klas in Citi. Je, therefore, only needs to revise the outlook to verify that the group’s outlook for slightly lower demand in the fourth quarter reflects weakness in server semi-equipment and relatively strong commercial demand from one quarter to the next. His exposure to China is significant in BT. Et I wonder if he saw a similar weakness to the new export regulations or if it is yet to come.
And then, temporarily, a follow-up of the eeebook order in CT, the eeebook order that will be billed now of 1 15 extra strengthens the eeebook order in VT, however, it is shorter, 0. 9 delays to invoice. I just need to ask in CT if there are pre-orders there or if it is very likely to generate a sales expansion forged next year. Sorry, there were a lot of questions on the main page, sorry.
Mats Rahmström
I’ll take a look to take them one by one. From the perspective, yes, he is surely right. We see the trend of the semi-finals, so it’s similar to that as well. And then I also discussed that the general induscheck out may be just a manufacturer of household appliances or something. And you can see that major brands are suffering at this point.
So we can see a weaker market there. These are negative. But at the same time, I said that we still see a lot of big machines, big projects, more strategic projects. And then we’ll see how it goes after that.
In the Shipping Act, there is a restriction on the accounts you can sell to. And in terms of technology, if you can have the U. S. U. S. S. Securities and U. S. ContentU. S. in your product.
And in the beginning, when we do. . . If I ask that we don’t have Americans running for us, that’s not a problem. So we anticipate that cryogenics is the only product line we make in the United States and maybe other small products that restrict us.
Therefore, the direct effect on where we have the dry pump would be quite limited. On the other hand, if tool manufacturers in the U. S. UU. no they have licenses to sell to those companies, of course, we can’t sell to tool makers. the product that will end up in China anyway.
And that, I think we’re going to see in the next few months who gets licenses, who doesn’t get licenses to sell in our markets, but the direct effect is pretty limited, but it can be significant if we can see Our consumers in other parts of the world can’t import or sell to the Chinese. I think that’s the most productive thing I can do for you, Peter.
Pierre Kinart
Yes, I think I had a query about the backlog and whether there is a pre-order there, and I think I have, however, been discussing the order in Vacuum Technique and it has been for some time without any double ordering.
But for CT, it’s not a problem, maybe a little bit on the distributor side to, say, keep abreast of value increases, but I’d say it’s minor compared to most of the business we manage.
Operator
The next one comes from Max Yates from Morgan Stanley.
Max Yachts
I just wanted to ask about the expansion of compressors and fuel and process compressors, in particular. I think he talked about some kinds of next-generation areas, like carbon capture, hydrogen. And obviously, he talked about some kind of significant increases here. .
So, I would actually like to perceive what is behind this significant increase. Is it really some kind of bad fuel and corporate processing in, say, industries like oil and fuel and LNG?Or would you say some of those newer technologies you discussed?Are they already vital enough today to have a significant impact on growth rates?
Mats Rahmström
I think those who have surely taken it correctly. And the segments it discussed make up more than 50% of fuel sales and procedures in the quarter. It’s a very large replacement for what has been in the afterlife that has been strategically running for several years to get there, there are still ad refineries and oil and fuel there, but it’s no longer the lion’s percentage.
Max Yachts
IT IS OK. But, in something like carbon capture, is it integral to growth, you would say?Or is it so much or not?
Mats Rahmström
Carbon capture for top corporations is still an allocation activity, and I said that to a lesser extent, but if you then classify herbal fuels as one of the resources, it’s part of the transformation that is for us.
And hydrogen is also more of an allocation activity, however, lately there are a number of product companies. It caters to everything from transportation to [indistinguishable] onwards, I think those who are experimenting with products in many other segments.
Operator
Next is by James Moore of Redburn. Continue.
James Moore
Can I explain a past and then ask one? Previously, we talked about cancellations, and I would also like to ask about postponement policies. If a visitor to a giant semiconductor original equipment says, “Can we cancel?”? But alternatively, can they defer an order up to 6, 12 months?
And my query is, hypothetically, if global semi-CapEx were to fall 20% next year, say, would you expect to see a magnitude in the biological sales of VT’s semi-OE division?Or would you expect a greater result from accumulation protection?
Mats Rahmström
The contract with other OEMs can also be very different. So that may not be an answer. But I guess, as an organization, it would be more lenient to have a long-term appointment with clients, and possibly it would be better to rearrange it a bit to help them with anything else or, if they want to push it, we check it as well.
It’s just a handful of consumers who make a difference in this segment and I think it has a smart relationship. That said, there can still be consequences in the contract through the contract, and I don’t have any main points about that. This time. And then there was another consultation, of course, the consultation of the moment?
James Moore
Only if global semiconductor CapEx fell 20% next year, say. I’m just trying to figure it out because historically you’ve noticed a much more direct one-to-one relationship between organic sales, not orders, semi-OE department sales to that number. If we were to review this, would you expect this same appointment one by one?
And I’m aware of your delay or you think that because of Arizona’s express American-style plans to gain national sovereignty in the United States, Europe, China, we see something different, if you have any questions.
Mats Rahmström
But of course, if there is a massive drop for many of our customers, it will of course have an effect on us. But I’m not sure we’re seeing a slowdown, as we’ve said, in 2023, and we don’t know much more than you yourself can read in terms of CapEx’s outlook for the industry.
And what we’ve learned over the years is that they’re generally wrong. And we try to stay close to the visitor and the treasury. I mean, our presence with those key accounts is a lot, and relationships are also closed, so we, if they continue to grow the business, are confident that our percentage of [indistinguishable] is that we’re going to go down drastically, and we’re going to have an equal effect. I don’t know if I helped you James, but that’s how we see it.
Operator
The next one comes from Rizk Maidi of Jefferies. Continue.
Rizk Maidi
I just wanted to ask him about the things he couldn’t compensate, and was it spot market purchases, air freight, and factory inefficiencies?Have you noticed any changes or relaxations? And any installation on the restrictions of the chain of origin, please, I will . . .
Pierre Kinart
Maybe it’s not so much that we can’nosotros. no make up for that because, of course, you may continue to increase costs to the limit you can compensate, so it’s more than. It’s almost intentional, I would say we literally don’t need to compensate for our own inefficiencies in our factories that result from supply chain problems. Because they will only be transitory and at some point, as could happen with the call: the general call for visitors, the global call could decrease a bit, perhaps there will be some relaxation in the chain of origin.
And that would result, of course, in the fact that the parts are arriving at our factories. We’ve been there to produce and we’re going back to the general use we’d like to see, and we’d be to get rid of those inefficiencies. .
The same for the spot market, purchases in the flea market fade a bit and it becomes easier to have them again, and then, of course, the uncommon purchases in the spot market have completely disappeared, we would usually use our regulatory channels. to purchase those items.
So, we’d rather absorb that for now, rather than looking to put that burden on visitors. Again, from a long-term perspective, how we should deal with the visitor and how we should ensure long-term business with the visitors.
Rizk Maidi
Intéressant. Et very quickly, if you can just in CT, if you can give us a concept of the length of giant commercial compressors and fuel compressors and procedure as a percentage also our overall CT?
Mats Rahmström
If you refer to the activity of fuels and procedures, it is about 10% of the TC.
Rizk Maidi
And commercial compressors too, Mats, in commercial application?
Mats Rahmström
We made this reference [indistinguishable]
Operator
Next up is by Andreas Koski of BNP Paribas Exane. Continue.
Andreas Koski
I would like to ask about higher financing prices. Could you give an indication of the percentage of biological expansion in your orders?
Mats Rahmström
Andreas, it’s very difficult to listen to you. It looks like you’re in a box.
Andreas Koski
It is ok. Give me 1 second. Can you listen to me now? Array
Mats Rahmström
Yes. Yes.
Andreas Koski
I’m sorry. So, in relation to your promotion costs, could you give an indication of how much of the expansion of your biological order is similar to higher promotion costs and whether there are major differences between your industry?
Pierre Kinart
Well, about the actual value figures, we don’t disclose this information. But as I have already indicated, there are differences between the fields of activity. Industries or even divisions within lines of business are more exposed to a very broad visitor base. Most likely, moving values to the market, where if we communicate about divisions or lines of business that are more exposed to the type of key account channels there, it is much more complicated given the type of long-term contracts that exist and that are very complicated to do. Step aside.
So when I communicate about those key account type markets or channels, then of course we’re basically communicating about semi. First, as Mats mentioned, we deal with a handful of clients.
And then the second, which stands out more than the automotive industry with a number of very important players as well [indistinguishable]
But you’re talking about general vacuum, for example, small commercial compressors with a giant base, so we’d usually have a very large visitor base and that provides a little more room to dose value increases in the market. .
Andreas Koski
Yes, I perceive that. I only sought to understand the magnitude of their higher selling prices. But okay, if you don’t want to reveal that, I understand. Can I continue with James’ question? It has accumulated orders of approximately SEK 15 billion since the first quarter of 2021 for vacuum technology. And I guess the maximum of that is similar to semi-teams. So how much of this backlog do you expect to deliver in the fourth quarter and in 2023?
Mats Rahmström
I’m looking at, I don’t have a number of that on all of our plants that are operating at full capacity right now, and it’s also a little bit dependent on our subcontractors. If they can dedicate themselves to giving us products on time. And it’s like wait and see, and it’s also hard to have interaction with customers, of course, and make sure we get it. Therefore, we do not have a company figure that we would like to dedicate ourselves to at this stage.
Andreas Koski
IT IS OK. And finally, I noticed that the pre-order stocks for this quarter. . .
Pierre Kinart
Andreas, sorry, could interrupt to give one or more of his colleagues the opportunity to ask what else because we only have a few minutes left. Thank you, Andreas.
Operator
Next is by Gustaf Schwerin of Handelsbanken. Continue.
Gustave Schwerin
Just a follow-up of the Eurobonds in the team. As for the Chinese exposure you have in Vacuum, do you have a rough breakdown or what does it look like between domestic and foreign players, as there seem to be exemptions like a layer of TSMC, Samsung already?
Mats Rahmstrom
We look at each other. What do you like? We haven’t quite understood what you’re for.
Gustave Schwerin
It seems that in the groups, there are exemptions for foreign players in China, seeing classified ads like TSMC and Samsung that they already got, I think it is a one-year exemption from this brand. So I’m interested in hearing about the exposure you have in China, do you know more or less how many are the domestic players and how many are foreigners?
Mats Rahmström
In our case, it comes from the new Navigation Law. It’s a very limited effect for us. That’s the product we get from the U. S. “In the U. S. , which goes to stores, that’s a very, very small component of our overall business. So, if our consumers who get crude from the U. S. In the U. S. , that would have a limited effect on us.
But if they don’t get licenses, and I don’t know who will get licenses at that time. And, of course, it can have a greater effect on us. But the direct effect on us as Swedes, English, Belgian-type company, is not the great influence that is part of it. That concludes the question.
Pierre Kinart
We are running out of time. Sorry, Andreas, for interrupting, I just need to give the player a chance to make a query. And I see that there are some other people on the line who still have a query and couldn’t do it.
But of course, our Investor Relations team is available to answer any questions you may have. You know how to touch them. Tap on them and we’ll be happy to help you with those questions. Everything is on our side. So thank you very much for participating in the call and for your very attractive questions. I would now like to pass the word to the operator. Thank you so much.
Operator
The Merci. La convention is over. Thank you for attending today’s presentation. You can now log out.