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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen welcome to the Atlas Copco Q4 2019 Report. Today, I am pleased to present CEO, Mats Rahmstr?m; and CFO, Hans Ola Meyer. [Operator Instructions] Speakers, please begin.
Thank you very much, and very welcome to everybody to this quarter 4 and full year report from Atlas Copco. We will soon hear Mats Rahmstr?m, our CEO's comments to the quarter. But before that, I'll also repeat again what the operator said, we will have a Q&A session. And for that, I also remind, as I usually do, that we prefer, as you'd say, on 1 question each and then come back in the queue for questions, if so required. With that, I think we kick right off, Mats?
Okay. Thank you, Hans Ola. And I will start on Page #2. And if we compare a little bit Q3 with Q4, we can see that we're operating in somewhat softer business climate, and a little bit what stands out, of course, is the auto sector that we have seen a decline. 1% organic growth and -- but continued strong Compressor Technique and also strong on Vacuum. We continued to grow the service business, 3 out of 4 business areas continue to be on resilience and had organic growth and a solid profitability for the quarter. Go to Slide #3. And you can see then the numbers, but confirming this, you can see SEK 25.5 billion on orders received and SEK 27 billion of revenues, which is the record for us, so both orders received and revenues was solid performance for the quarter. I think I go on the operating profit margin to the adjusted one, it's adjusted for 2 things, and you recognize when the share has strong development, we have revaluation of the LTI programs that's SEK 221 million. And then we have been caught on the softening market in auto, and we have then restructuring cost of SEK 65 million for Industrial Technique. And looking at that, we're at SEK 5.9 billion and a 7% growth for the operating profit. Hans Ola will take you through a little bit more granularity on the cash flow and also return on capital employed later. But maybe just looking at the graph before we change, and you can see it's quite a solid month anyway, considering. Go to Slide #4, and this is the full year done and supported by currency, but we have done record orders, record revenues and record -- and profit. And of course, we can see the continued growth for Compressor Technique, mainly the large compressors throughout the year and stronger than Q3, Q4 for Vacuum and a little bit softer Power at the end of the year, but good development. And good for the resilience that we can see them both geographically that they're growing in a good way and also that service helps us to build on the continued resilience. We have a record number of acquisitions that we have done for the year, and main part of those are distributors' facility that we build on the business. It's a very solid business model for us that we have done a number of years. But we also acquired some new platforms for growth, and that's entering a little bit to the chiller business. I'm very excited about the dispense acquisition in electronics. And of course, we have the Cryo business from Brooks but also the on-site gas generation. So pleased with that. And the proposed dividend from the Board now is up 11% to SEK 7 and in 2 installments. We go to Slide #5. And here, full year in numbers done, and maybe the one that we are extra proud of is SEK 104 billion principally for revenues, and it's the first time a little bit of milestone for us as we are back above SEK 100 billion after the split with Epiroc. It's a good number for us, and a solid margin. I go to Slide #6. I think you can read this in 2 ways. You can see it's all green, which is very promising, both for year and for the quarter. You can see that we have 35% of our business in Asia. One of the group region is still Asia for us, we're happy about that. But internally, we start more talking and challenge ourselves how do we get to alignment with the GDP development globally. So this is a very positive development for us. If you take a negative approach on it, it's the auto sector. For the quarter, you have a decline in both North America, in Brazil, in Europe and in Asia. So it's quite consistent throughout the geographical region for us. To give you a little bit more detail, starting in North America, we continue to have a strong Compressor Technique driven by larger compressors, strong Vacuum supported by the Cryo technologies and significantly softer Industrial Technique with -- linked to auto and a somewhat weaker Power as well. If we go to Brazil, I think the view is in generally fairly positive and the only business that is negative is also linked to auto, which is Industrial. Europe, strong Compressor Technique, strong Vacuum, negative Industrial as well, especially linked to Germany and the auto industry there and a flat Power Technique. Then we look at the year for Asia and also the quarter for the Asia. You can see that quite a positive development. And of course, here, we see that the development in semi kicks in, in Vacuum, which is very positive, but also the Compressor Technique and Power Technique has a positive development both for the quarter and the year. So it's -- but we have a product range today that is very competitive on this market, which is -- it's a necessity for the development of the company for the future. Go to Slide #7, I can just confirm that we have 5 quarters now with degrowth. If you go to Slide #8, you can still see that we have support from currency, both on orders and revenue, around 4%. And then we can also link in them the structural changes with acquisition down 3% (sic) [ plus 3% ] on orders and organic down 1% (sic) [ plus 1%]. We go to Slide #9. Nothing really new. What stands out as a stellar performance for the quarter would be the Vacuum Technique. They had degrowth, I mean, in both semi, there's degrowth in Industrial and Scientific and also in Service and a very solid profitability considering then that we also have Brooks diluting the bottom line a little bit. Also positive for Compressor Technique, and you can see the double digit for Industrial among orders. We take business area by business area and maybe start on the graph. So that is solid for being a Q4 for them, both on orders, also very good revenues. You can also see that we continue down the service development in a positive way, taking advantage more and more of -- for those participating in the Capital Markets Day they could see a lot of what they do on the digitalization and connectivity. And I think, step-by-step, we can take advantage of that and help that journey in Service as well. The one thing that we see that is deviated a little bit from previous quarter is that this is then with smaller industrial compressors, that is the -- a lower demand for those, but we had continued then on the bigger compressors. That's a little bit sign on the demand in the marketplace. Operating margin at 23.1% and that, of course, includes the number of acquisitions that we will see the full impact in the coming years. I think that's quite solid as well. Another product in the corner there. This is continuing, and we are growing quite rapidly in low pressure and this is another addition to that portfolio of product. Vacuum Technique on Slide #11. You can see the last 2 quarters, Q3 and Q4, very solid development. And it's intrinsically the same comment as I had in Q3. It's the development of the Chinese market, where they're building up the semi industry. That's very positive for us. And you can see the traditional OEM players also continue to invest in technology. We have seen on the -- when semi goes down a little bit, we could see a correlation between industrial and scientific, and there is such a little bit and we can see both industrial and scientific being positive for the quarter. So strong orders received, strong invoicing and continued very strong operating margin. Of course, we have to remind ourselves that the 24.3% includes Brooks or Cryo, I should say. Industrial Technique on Slide #12, and reflects a little bit for a softer outer market in a number of quarters. And you can see that many of the customers in this segment are a little bit in transformation. One is then, of course, strong traditional combustion engine to either hybrids or full electric vehicles. We can also see that previously the output, the production rate for last year is down, we normally don't align fully with that. It's more productive. But at the same time, you can see that they run a lot of cost-out programs. And we can see the effect of that is that they push a little bit traditional technologies forward or change their mind a little bit on the platform they are building. So this is in full effect right now in the quarter, and you can see that the orders were quite big, although we kept up the revenues. And here, we are certain that we take the cost and restructure a little bit. And in the quarter, you saw SEK 65 million down to adjust a little bit the cost structure for future demand as well. I should say, though, that going to hybrid or electric vehicles, with the investments we have done, if you build a battery car, you can come [ for then the dispense technologies, which are used for mixed ] materials. You need it for self-pierce riveting if you like to use aluminum to aluminum, flow drilling, similar thing there. So we're in a very good position, actually, to be part of this transformation to electric vehicles, and you can see the battery pack at the new engine and there are a number of critical applications to produce technologies on the battery pack as well. So even though it's a little bit down now, we believe that we have the right technology to be part of this transformation going forward. You take Power, orders down 2%. We are not really seeing a full impact of any weakness in the construction market. In our case, it's a weaker U.S. market, and we are seeing some of the equipment companies not placing as many orders as they have in the past, although it's only down 2%. And of course, a very important quarter to see the trend in this business with the Q1, which should be the better seasonality in this business, and we should then see if we get a strong Q1 or not in this. So we have to look forward a little bit for that. But otherwise, you can see in the 4 quarters for the year, it's not too bad is all I can say. An operating margin of 16%; considering the segment, I would say that we are pleased with that anyway. Yes, this is it on the summary a little bit. I think I can handle over to you, Hans Ola Meyer.
Okay. Thank you, Mats. Let's have a look a little bit beyond the operating profits that Mats commented quite extensively already. Of course, in the Slide #14 here, all of the margin numbers that you see on the different levels are the reported ones, whereas, in the Q4 report that you have all received, you can also see the adjusted ones, which gives perhaps a little bit extra explanation on how the quarter on an adjusted basis was. On that note, between operating profit and profit before tax, it is, of course, missing the financial net. And the minus SEK 55 million of this year, albeit being a little bit lower than perhaps what we had expected, I mean, slightly lower interest net negative, it contrasts very much with a positive SEK 273 million that we had in the Q4 last year. But as we commented, that was a special gain that we had after repatriation of equity. From a broad equity denominated in euros, we made quite a hefty capital gain and an FX gain on that. Adjusted for that last year of the financial net in 2018 Q4, was SEK 89 million. I would say, going forward, that somewhere between this year's SEK 55 million and last year's SEK 89 million is probably a rough estimate of what we would expect for a quarter going forward. If we go further down and come to the tax and again, it was more last year that had an extraordinary positive impact with about SEK 600 million of one-off extraordinary tax booked positive effect. So if we adjust for that, it was roughly 24% income tax last year compared to the 22.3% this year. My comment would be very similar to the financial net that if we expect somewhere in the future between 23% and 24% of effective tax, that's more to be expected, I would say. And that goes, of course, also for the earnings per share. Final comment on this slide. Many of you have noticed that, of course, the return on capital employed has decreased and it's a full 3 percentage points, which is where, in our case, perhaps, but I would say that 2 percentage points out of that is related to accounting, basically. So it's the IFRS 16 impact and it's also an impact on some other accounting changes. So on a comparable basis, you can say that the positive impact on returns that we have had from -- over the full year, I will stress from currency, has been compensated for the dilution that the new acquisitions bring to the group. So that explains a little bit that 3 percentage points loss on return on capital employed, which obviously always is a full year 12-month number. If we then move to the next slide #15, we have the profit bridge. And I think the only comment here before we look at the business areas on the next slide is that the currency impact on operating profit looking, again, the SEK 165 million, that is for this quarter, we would expect something similar judging from where we have the currencies today or the FX rates today for Q1 compared to Q1 in 2019. That's what one would expect at this moment, at least. But as I said, let's move on to Slide #16. And again, I need to repeat myself, we shouldn't focus too much on separate quarters, but at least for transparency reasons, this is the way it comes out. It shows, of course, that the operating profit of Vacuum Technique and Compressor Technique has responded very well to the volume increase that they've had over and above what would be a long-term average. Of course, you can also see that currency has helped, of course, in absolute numbers, but if we weigh it together, it has been slightly negative effect on the operating profit margin compared to Q4 in 2018. I think those are the main things to comment there. And if there is anything that you wonder about, of course, we can come back to this in the Q&A. Moving to Slide #17, again, not so much more to add. You will see, of course, that in a year's time, we have increased on a like-for-like basis from SEK 100 billion to SEK 112 billion in total assets. And from that, we can say that about SEK 3 billion of that is coming from currency translation, pure and simple, and about SEK 6 billion comes from the acquisition of Brooks in the middle of the year. So that leaves an organic increase of the balance sheet of somewhere around SEK 2 billion to SEK 3 billion. Otherwise, not so much specific to that. I go on to Slide #18. It's the sum of everything. In one way, it's the cash flow and we managed to edge just above the SEK 5 billion on the operating cash flow performance, leading to SEK 14.6 billion, which is the highest number we've had in a year following the -- after the split from Epiroc, of course. The only thing that to be noticed is what we mentioned also in the report that the investments didn't completely die in Q4. It was actually the effect of a -- positive effect from having a sale-leaseback transaction recorded in the cash flow on the investment net number there. So underlying, the number was more in line with last year, actually. We move on from there. And finally, on earnings per share and dividend, well much stronger with about SEK 7 that the Board proposes to the AGM, which means an 11% increase over the SEK 6.30 from last year. And again, as I have said a couple of times, the earnings per share last year was a bit flattered by this extra positive tax bookings that we had at the end of last year. So with that, I think I'll just leave it to Mats to finalize before -- for the Q&A.
We go to the near-term outlook then on Slide 20. And here we try a little bit to guide what we see in individual segments in the market. And when we now go from Q4 to Q1 down sequentially, you can see that the one change that we see in the market is mainly in the general industry market that, of course, impact Industrial Technique, but also you can see with the industrial compressors, we can see that it's softer demand there. We have no reason really to -- we see it's still a key account. We have not seen too many capacity investments with the exception of China. Utilization is still hovering a little bit and that's why we have also guided on a little bit for somewhat softer demand than what we see in Q1...
Q4.
Oh, sorry. And in this, we have not included any impact from possible China following the development of the Coronavirus. We'll see how that will develop. We can see that ourselves, we will have -- our factories will be closed one more week [ and just extended ] that before we start our production. And that is our plan right now, and we can see that as many of our customers as well. So we'll see how that develop, and that's mainly the -- to see what happens from this development.
Thank you, Mats. I'll just ask the operator to repeat the procedure for the question and answer, then we go right at it.
[Operator Instructions] The first question is from Guillermo Peigneux of UBS.
I wanted to ask a question regarding CT, which relates also to a question in Industrial Vacuum, which is during 2019, you did have a very strong performance from a growth perspective and part of the growth tailwinds came from the self-inflicted, let's say, new product development cycle. And I was wondering into 2020, whether that created an artificial, let's say, high growth rate for you in essence? And whether that product development cycle continues to be as strong as it was in 2019? And that relates to the question on Industrial Vacuum as well. I guess what I wanted to understand is how does it compare when it's growing now, as reported today, versus the declines in most of types of industrial compressors that we see on the other side of CT? And I leave it at that.
But on the CT side, for the large compressors, we have a strong belief that is supported by a new generation of oil-free machine. And also in Gas and Process that we see -- that they have developed a number of segments. This is more product business, but we also see that in those 2 areas, I would say that we believe that we are gaining market share driven by energy efficiency of all new products. We are also launching a lot of new products in the Industrial segment. But in the Industrial segment, I would say, we can see a somewhat softer demand for products. And I would say it's more of a short-term CapEx decision for the management team there; more on the long term, you can see that it will continue. We have no reason really to believe that it will be softer on the large compressors. On Industrial, I agree with you, when I talked about the general industry market, that it could be a strong correlation with the industrial power tools and smaller compressors and -- but here there is a link between the Industrial Vacuum overlapping a little bit driving semi. You can, for example, say that our vacuum application on a mobile phone that both goes into the semi side, but also the industrial side, that's a little bit of correlation. But also there, you can see that we are launching a number of products. And I would, of course, be disappointed if those didn't take market share, especially on the energy efficiency. Now we start to link more and more also the energy efficiency with the financial payback for us many years ago and still is. But now we see the environmental really taking off, people have an interest to make sure that the carbon footprint is reduced as well. So you get a little bit of financial impact on your decision but also a benefit on that. So to have the most energy-efficient products in large and industrial compressors will be of great importance as I see.
The next question is from Klas Bergelind of Citi.
It's Klas from Citi. So the first one, Mats, is coming back to the guidance, obviously, we hear you on automotive. But I'm interested in your comment on the industrial side, again? It seems like you have said, there's more weakness on the smaller and medium side that the larger compressors and GAP are still holding up. If you just confirm that? And then if you could tell us a little bit more by region on the smaller and medium side, we're hearing from others that China is looking a bit better now towards the end of the quarter. But I guess you don't see that. So I will start there.
[ Let's see, with the China question to start with that down, ] we have not really see -- if you link that to auto, we have not seen an improvement. And I think it's probably the area where it's most challenging in terms of developing the auto industry right now for us. So that's linked to new programs available for us [ in case if we're done. ] And if you look at the 55, I think I reported something that last year, they closed 22 factories, and they opened 5. And in previous years, of course, then we have seen more greenfield projects to work on. But I wouldn't predict right now that we will see a turnaround quickly on that side.
I meant more on the industrial side in China, Mats, sorry.
Okay. It pretty much follow the patterns we see that -- if you -- and sorry to link it back. When we see a softer outlook, of course, we report out less trucks and cars in Tier 1. But that's the Tier 3, the Tier 4 to Tier 5, which is normally defined as general industries, many are very dependent on this industry, and this is the pattern I've seen throughout my career. And right now, I see then a softer demand in general industry, both in industrial, smaller size compressor is also softer than in the past. So just confirming what you just have said, it's our view right now.
My second and final one is on services. So there was no growth in IT and PT that is quite rare. I can see the equipment being pushed to the right, but it was a little bit surprising to see that services leveled off as well. Can you tell us a bit more about what happened? How do you think about the ability to grow services in IT and PT against this market weakness?
I'm going to start with IT. They start to become quite developed when it comes to contract linked to the digitalization. And I think that it's something that we do uniquely versus our competitors. And so I think they have an upside to trying to link more uptime to service contracts, and that should be extremely valuable for someone making 50, 60 cars an hour. So that's actually positively. On the other side then, there is a stronger correlation between equipment side maybe and -- or service and the line speed intrinsically. So if you reduce line speed with 20%, 30%, you normally reset the service schedule on the tools as well. So that's the -- this is little bit, so that's what our experience in 2008 as well [ that the production is running the normal speed and they don't -- then you see the service contract continue, but there is a correlation with number of produced cars, so to say, versus service. ]
The next question is from Ben Uglow of Morgan Stanley.
I guess coming back to the previous question. The -- so softness or the change in Industrial Technique, is that really what we're talking about, Mats? Is that primarily due to project pushouts, i.e. kind of deferral within Asia? Is that the bulk of what's going on? And do you see -- I mean it doesn't sound like you see that changing anytime soon, but I just wanted to confirm that point. And then the second point is, if we look at the orders geographically across the group, North America is now at 2%. Can you give us a sense of how that trended sequentially within the quarter, i.e. the weakness in general industry, is that something that was ongoing in the quarter? Is it more stable? How do we think about that coming into 1Q '20?
Okay. On the first question on IT, did you mean IT in general or general industry in Industrial Techniques, just to clarify?
No, sorry. I meant more the auto's exposure in Industrial Technique. Within the press release, you kind of referred to pushout of the investments and projects, I may be putting 2 and 2 together and getting 5, but in response to the Klas' question, you were talking about fewer greenfield projects, et cetera, in Asia, you're basically talking about the same thing?
Yes. And if you remember on Slide 6, when we talked about the geographical development as well, you can see auto actually being down in all geographical regions with the exception of Africa, which is a very small region for Industrial Technique. So it's kind of common among all the auto OEM and of course, they are going through, some of them, financial difficulties. They have cost-out program. At the same time, they're fighting lower volumes. At the same time, they need to find CapEx then for a new generation of cars, if that is a platform build for a hybrid or a fully electric vehicle. And what I'm saying is, in principle, we're in the middle of this right now, and that we see in our numbers. It goes down geographically widespread, but we're in a good position when they start launching electrically built programs or hybrid programs and we have the technologies. So not that we are losing out market share [ at the moment ], I think probably that we're actually gaining in some key accounts.
Understood. And then just on -- just your general sense of what's going on in North America, is that sort of stable towards the end of the quarter? Or we think -- that was a bit of a soft spot with Sandvik as well, is that something that you see as a weak point globally or not really?
I don't see -- I think we have identified any specific trends. Of course, with the business like ours, there's quite a lot of investment. In the numbers, I mean in the graph, if you look geographically, we don't distinguish between service and equipment. And of course, the -- apart from the auto side and what we commented on the PT, I mean the rental companies in the U.S., it's not that we see any dramatic acceleration or deceleration of trends from the previous part of the year, to be honest. So it's a little bit -- but IT is important in the U.S. and Western Europe as well as in China, of course, and they weigh on the numbers, of course.
The next question is from Lars Brorson of Barclays Capital.
Mats, sorry to come back to the demand outlook. But clearly, I mean, if your orders are down sequentially in line with your demand outlook, that would imply a double-digit organic order drop year-over-year, albeit, of course, on tough comps from last year, but I don't think we've seen that since 2013. I wonder what you're baking in, in terms of the key variables. I mean this would be, obviously, for a Q1, which typically is seasonally bigger in PT, it sounded like you were a little more tentative on the outlook in PT? And also just specifically on IT, we talked a fair bit around automotive. Can you remind us, please, how much is aerospace for you? And are you baking in any disruption to the Boeing supply chain from the production disruption we're seeing on the 737 MAX?
Let's -- if I can keep up with you. Aerospace, it's the second biggest -- normally, second biggest segment for general industry in Industrial Technique. And the [ one I have is normally off-road. ] So I don't think they have defined it by size, but it's at least #2. And correct that the Boeing business have been softer for quite some time. I think that's what I can share with you on those accounts. The second one?
Yes, I think [ you started with our side ], just wanted to make sure I understood. You said something that the outlook, the outlook it indicates sort of a double-digit down. Was that something you picked up from us or...
Well, I see what really -- yes. I mean we can debate the numbers, and I can come back to you offline. But I think if you're seeing orders down sequentially, I think that would suggest year-over-year we are talking about a double-digit organic order drop. And I appreciate the comps are tough. But I just wanted to understand...
Well, let me make one comment there on the sequential. Our outlook is looking at economic activity at customer segments. That's what we tried to do. So we would have been much more explicit if we projected our order intake for Q1. Now if you look back historically, and you can see it in the graphs that we publish as well, Q1 tends to always be a very good orders intake quarter. And that I mean compared to Q4, for example, which actually has a little bit of completely the opposite factor. Is that something we drive? Or is it just how our customer segments work? Well, it's definitely not the drive from our side, but -- so it's more reflecting that that is a pattern that we have in our businesses. If it's large annual budgets that are managed as customers or not, I don't know. But when we say an outlook like this, it is really trying to look at the underlying activity level at customers. And then we don't make any specific projection that Q1 order intake is going to be so much weaker or better or whatever than Q4. Our statement, in our mind, could very well be combined with a higher order intake in Q1 than in Q4. And if you go back over 10, 15 years, like I have the luxury to be able to do, you will find that that is actually absolutely true. In other words, Q1 is as a quarter over a year strong, Q4 order intake over a full year is a weak quarter normally, and that is a pattern that we have seen for many, many years. That's why perhaps we don't make so many specific comments in that respect.
I understand, Hans Ola. It's only because you don't seasonally adjust your outlook, right? And then there's a bit of seasonality in PT, and I didn't mean to suggest that you're down double digit. I just want to understand why would you not see the ordinary seasonal ramp, particularly in PT? And as I was pointing, it sounded from Mats' introductory comments as though there was a little more tentativeness around what you're seeing in that part of the business. I just wanted to clarify that.
Yes. I think you saw Mats' slide when he commented on PT that Q1 2018 was like a rocket and that comparison will obviously be a very tough one to beat. When we go back a year or, let's say, to April last year, the comments were very specific that we had made some very successful inroads on certain customer accounts in that geographic area, and that is not part of the normal seasonality. But again, I repeat, we don't normally see, and we expect that this year as well, that Q1 is a fairly good order intake quarter compared to the average over the year. And I should stop now because otherwise, the message becomes confusing -- even more confusing. But -- was that somewhat helpful for you, Lars?
It was. And I want to clarify when you say your factories will be closed for one more week, does that include your entire China footprint? I just want to verify that, please?
That is, normally, we are closed for the New Year's celebration. And now that has been expanded one more week that is correct.
The next question is from Gael de-Bray of Deutsche Bank.
Look, the book-to-bill ratio has been below 1x in the past 2 to 3 quarters now at both PT and IT, with growth actually turning negative now. So in your experience, in terms of the lead times between PT, IT and CT, and given the order intake for smaller compressors has just started to decrease as well, would you say that CT will follow the negative trend of PT and IT into 2020?
I'm not sure we have any empiric data on that scenario that you described, but I assume if you have a software market in general, it would not be too positive for smaller CapEx investment regarding the compressor or a tool or something else that you need down. But I'm not sure I can correlate exactly to the scenario you described, but I don't have the data for it.
So you don't really see any specific lead times between, let's say, IT and CT in reality?
No, not that we follow here, no.
Okay. Can I ask also a second one on the currency impact because there was a big difference between the Q3 effect and the Q4 effect with Q3 basically being a benefit of 80 bps for margins and now in Q4, that's diluted by up to 30 bps and that was clearly not what I was forecasting myself. So just if you could explain how can we have such a big difference on the transaction side relative to currencies?
Well, basically, all of that from Q3 to Q4, you can see that the development of last year plays in just as much as the development of this year, obviously. Because we are comparing Q3 to Q3 first and then we compare Q4 to Q4 last year. And last year, we had a weakening of the Swedish krona. We had a strengthening of the dollar continuously, so to speak, at the end of the year, whereas in this quarter, we had the opposite. We had a moderation of the dollar strength. We had a comeback of the British pound. We had a strengthening of the Swedish krona. We had a couple of breaking trends compared to the first 3 quarters of the year, that's what I'm saying. So internally, we were not that surprised that the analysis comes to that, we actually lost on the margin compared to Q4 last year. That, for me, is not so strange, even if I understand it surprised you.
And what kind of guidance, sorry, did you give for Q1 already?
Well, I mean, the only thing that we normally say is what absolute number do we expect to be in Q1 compared to Q1 last year. And there, we believe, we will see something similar to what we saw in Q4 -- Q4 bridge which was SEK 165 million, as you see in the report. That's just -- what that at the end of the day will mean for the margin effect, let's come back to that. It becomes too many unknowns to be a good guidance at this point, I would say.
The next question is from Andreas Koski of Nordea.
I have also 2 questions. And the first one is on the outlook as well. Could you just please clarify if you said that you expect end market demand in the semiconductor to be somewhat lower in the first quarter as well?
No, I did not specifically comment on that. What I said about the semi is that we see in the last few quarters we had great success in new technologies from the more established players in the market and that we can see both capacity and technology investments in China where we've also been successful. If you look at any of the statistics for the semi industry, we see that utilization is not increasing. It's rather flat, as we have not seen so many capacity investments linked to memory then. So otherwise, we do not specifically comment going forward. If we're going to be successful, we need to continue to go out and bring the bigger orders either for technology or capacity than in China.
So you don't want to say what you expect in terms of end market demand for this specific segment?
No, we don't see an upswing in terms of the capacity. That we have not seen.
Okay. And secondly, you talked about the turbo compressor in your report and then you mentioned it also on the presentation. I understand this turbo compressor was for low-pressure applications. But yes, as you know, there are a couple of companies out there saying that they will move into high-pressure applications as well. And I just wonder what is your aftermarket opportunity in turbo compressors compared to screw compressors? Is it the significantly lower aftermarket opportunity there?
We have seen the different technologies, and there are service opportunities also with the turbo compressors that you referred to, that at least is our experience. Now this product does not compete with the reference you make to other companies, this is for another segment at this point, at least. Otherwise, I guess, we dig a little bit deeper when we meet up with one of the compressor people. But as you know, from the technology, it's less, but it's a small portion of the market. And we still believe that there are more energy-efficient solutions for most of the applications that is bigger also.
Yes, but it is a lower aftermarket opportunity in turbo compressors compared to screw compressors?
For the technology, you referred to...
Yes.
The next question is from Anders Roslund of Pareto Securities.
My question has already been answered.
The next question is from Jack O'Brien from Goldman Sachs.
My question is on Vacuum Technique and slightly longer term in nature. If we see another good year of growth in 2020, and I think consensus got around 10% growth. How should we think about margins evolving? Obviously, you've shown good margin resilience despite a challenging market earlier in the year. Do you see upside to the 25% margin you've delivered, if the market comes back strongly?
Maybe, Hans Ola can give you more granularity, but at least when I have discussions with the different divisions and the business area, it's more drive. We believe that the 23% to 25% bracket of operating margin is a good one. And we are more trying to find more volume, new applications, new customers, that's really where we have the focus. And Hans Ola, if you want to...
No, I think that's really a full answer in a way because we've had the question many times over the years, mostly in the beginning regarding Compressor Technique. But I think the answer when it comes to Vacuum Technique is very similar. We really hunt for new applications or possibility to grow rather than drive the operating margin. And that takes quite a lot of effort in terms of R&D, in terms of presence in the market, in terms of application knowledge, et cetera. So you know that, of course, when you have a short period of tremendous load in factories and you can just sell out of every capacity that you have, it will have a good impact short term on the margin. And we've seen a couple of those periods. But seeing, as you said yourself, a little bit longer term, the efforts are constantly put in, which, of course, means that we see value creation but we might not see a dramatic margin growth even if we are successful, so to speak.
And also, I think we are trying to -- from the other perspective, we're trying to protect our margin, building the resilience by keeping investing in industrial services, building on the industrial product portfolio to get a better balance between semi and industrial application and scientific. So that's also an effort we are trying to make over -- in the coming years as well.
The next question is from Alex Virgo of Bank of America.
My question is relating to your M&A strategy. You have been quite active on M&A front in 2019 and even in 2020 so far. Can you please discuss your appetite for M&A for rest of this year? And whether do you see hope for sizable acquisitions this year? And also, are there any specific end markets you would prefer? And especially any areas where you do not currently operate in?
I think we have the capability and the balance sheet, of course, then to do things that we would like to do. And out of the 21, now 22 divisions that we have, I would say that 20 of them have a green light on to go ahead and present the strategy what they'd like to do. And in some areas, we like to do more of the same where that's possible. And in other areas, of course, we look at adjacent applications or adjacent technologies like the Cryo, for example, in semi. But what holds everything together, I would say that we're trying to enter into things where we see that we can become one of the leaders in the segment. We do not want to be number #3, #4 or #5 in the world. We really like to make sure that we can invest enough. We would like to see product that is critical for our customers for that time on their line. And we like to see if possible that there's an opportunity to work with the customer on service and service contracts as well. And maybe the fourth permit is that we're trying to find products where we can work a little bit on our outsourced model, do the final assembly our self. And we're looking, of course, in different areas, depending on the division. I don't want to guide exactly what we're looking at. But you can see some last year then, of course, we are trying out a little bit on the chiller side. Fairly new talk with dispense for electronics, which is a huge market and expanding the on-site oxygen and nitrogen. We have it under Atlas Copco brand. We have strengthened it a little bit, but something that we find interesting as well. And of course, with the Cryo acquisition, we enter into the chambers a little bit in semi. And of course, there we can also look at adjacent applications to that now we have the turbo compressors in and also the Cryo. So maybe that guides you a little bit on what we're looking at in terms of strategy and that we have the potential then to be active and to see if we can find something that generates value to our shareholders.
There are no further questions at this time. Please go ahead, speakers.
Thank you so much, and thanks to everybody participating on the call. I then close the meeting and hope to speak to you again when it's time for the similar conference call in April on the first quarter results. Thank you very much. Bye-bye.