Operator: Atlas Copco Q3 2026 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing hash five on their telephone keypad. Now I will hand the conference over to CFO Peter Kinnart. Please go ahead.
Peter Kinnart: Thank you, operator. To all of you on the call, a very warm welcome to this Q3 2026 earnings call for Atlas Copco Group. Before I hand over to Vagner to start with the short presentation, I will already now remind you to only ask one question at a time during the question and answer session, just to make sure that all participants in the call have the opportunity to raise at least their one most important question. Should we, of course, go through the queue, we of course create the opportunity to ask a second question afterwards. Without no further ado, I will hand over to Vagner to present the quarter results.
Vagner Rego: Thank you, Peter, and welcome to this conference call where we will present the Q3 results. We are also quite happy to announce the result. I think we are quite pleased to see the development in orders received with a very strong order intake driven by several product lines, several divisions, and the four business areas delivering organic growth, and three of them with double-digit organic growth. It was really good to see. Of course, Vacuum Technique is outstanding. Very nice development there, but basically, most of our divisions are doing quite well with good organic growth. We also see continued growth in Service, which is part of our strategy. For several quarters, we have positive development in our Service divisions. Also very happy to see that. Also, the activity level was strong. The order intake strong.
Vagner Rego: We had record revenues, quite happy to see the level we managed to reach, driven mainly by Vacuum Technique, as we are going to speak later on. We are quite happy with that development as well. Profit margins, I think what I am happy about is to see the sequential improvement. I think that was good. Also the fact that we are ramping up. We are now delivering record levels in revenues, and we also managed to deliver a solid operating cash flow. We are also quite happy with that development. In the quarter, we closed 4 acquisitions. Looking more into the numbers, SEK 52.3 billion in orders received, which is in absolute value also a record level, but we have some currency help there, which ended up in 25% organic growth. Quite solid.
Vagner Rego: Like I mentioned before, record revenues, SEK 47.9 billion, organic growth of 11%. It was also good to see in Vacuum Technique, they managed to have a very good output and very good organic growth in revenues as well. Profit margins at 20.8%, but here we had some items affecting comparability in this quarter. Mainly, the main item was restructuring that we have done in Industrial Technique, specifically related to our German product companies that we had to do an adjustment in Industrial Technique due to low activity, lower volume. But the underlying margin was 21.3%. The operating profit at SEK 7.7 billion, also very solid. Increase in basic earnings for share. Very solid cash flow, like I mentioned. Year on year, you see a drop in the return on capital employed, but sequentially, we see an improvement in our return on capital employed.
Vagner Rego: If we go to the regional split, also quite happy to see growth in all the continents. If I started in Asia, very strong development, 39% growth, mainly driven by Vacuum Technique. But also the other BAs developed quite well. We have a little bit more challenge in Industrial Technique, but most of all the other 3 BAs, they had good development in Asia. When I go to Europe, 8%. It was a bit more flattish in Compressor Technique business area, but very solid in Vacuum Technique, good in Industrial Technique, and also very good in Power Technique. But considering the situation that we see in Europe, we are quite pleased with 8% growth, because the environment is a little bit more challenging. But we still manage to grow our business in Europe. North America, very solid as well, 39% growth.
Vagner Rego: Again, mainly driven by Vacuum Technique, but all the business areas have developed quite nicely in North America this quarter. Power Technique, super solid. Industrial Technique as well, driven by both automotive and general industry, very strong. Compressor Technique also very solid growth in North America. In South America, 4% growth. Good to see developing well. The major country in South America is going through election, a little bit of challenge, but still good growth. Also we see a recuperation in Africa and Middle East with +21% after a couple of quarters, a little bit more challenging. It is also good to see a good development there, where our main businesses are growing quite nicely. Quite good to see the regional spread and the development of our orders in the different continents.
Vagner Rego: And that is translated to a 20% order increase organically in our orders received. 3% is structural coming from our acquisitions. Total, and a little bit of currency help in the top line. Total growth 29%, which we are, like I said before, quite happy to see that development. If we go to the different business areas, Compressor Technique had, like we have mentioned, organic growth, but 6%. Vacuum Technique, 82%, quite outstanding development in Vacuum Technique. Power Technique, 13%, double digits. Industrial Technique, 12% solid growth. It is also good to see the contribution of Vacuum Technique growing in 12 months rolling. If we go now more in details talking about the business areas. Organic growth of 6% in Compressor Technique. We are quite happy to see solid demand of our compressors, a little bit more challenging in Europe.
Vagner Rego: Like I mentioned before, not a drama, but it is good to see 6% notable growth in our gas and process compressors. There, the development keeps on going quite well. We see LNG continues to be a good contributor, especially coming from the US. Not only, also this quarter we saw good development in market segments like heat pumps for district heating in Europe as one example of markets that performed well this quarter for gas and process. Service continued to grow, and that has happened for quite some time. Quite happy to see as well 5% organic growth on Compressor Technique when it comes to revenue. Good to see. We also need to further increase output because of the organic growth. Operating margin at 23.6%, negatively impacted by currency, sales mix from different products and geographies, and higher supply chain costs.
Vagner Rego: Lower than last year, but it is fair to say as well, it is still the highest profitability that we have in the group. We know we can perform better over time. The most important for Compressor Technique is to continue to grow, and we continue to invest in technologies to achieve that. One example is this innovation on the cooling side that we can integrate this cooling or work together cooling and compressors, for instance, that could give quite a nice saving for our customer. Not only that, we also closed an acquisition this quarter, Euroklimat, that we have added in the report as well. It is a quite important acquisition because it will allow us to step into new markets that will be more cooling.
Vagner Rego: Not only, I think they also have low-temperature heat pumps, and we are going to work now at the beginning of this acquisition to unlock this value. Of course, when you do that, there are quite a lot of integration items at the beginning. But I think Compressor Technique keeps on building technologies that will allow them to have sustainable, profitable growth. That is what we have achieved over the years, and we will continue. When it comes to Vacuum Technique, 82% organic growth is really good to see that development. For sure, and this is for Vacuum Technique, was fantastic development on the semiconductor market. Not only, I think we are quite happy as well to see the development in industrial and scientific vacuum. There are market segments doing quite well. We see quite a lot of investments in segments like space, R&D.
Vagner Rego: Countries investing more in R&D, that is increasing the demand of our products. In industrial vacuum, we see metallurgy, that as a very important segment. Battery production as well are important segments. Service business continues, and revenue was really good to see 28% organic growth in the revenues. All that has translated in improved profit and profitability, so reaching 22.2% profit, mainly driven by increased volume, and we had an impact coming from the currency. Also good to see return on capital employed going up. We keep on doing innovation. This product now is for industrial vacuum, a new vacuum pump. That was one of the first products that we developed when we started to step into vacuum, and now we have come with a new design with better energy efficiency, and we continue our journey on innovation as well in Vacuum Technique.
Vagner Rego: When it comes to Industrial Technique, also pleased with 12% organic growth. Really notable growth. Very good growth on general industry. I think there we managed to focus on growing market segments like electronics, aerospace, defense, and some other segments where we can find good growth. Our products has been very well perceived. Some of these market segments, they need to do a fast ramp-up, and we have the right products to support them with that. Not only, and secondly, solid growth in automotive equipment, mainly driven by the US. There is because our customers, they need flexible production lines. There is a lot of reorganization going on in US that requires flexible production line, and we have the right product for that. We also see good focus on automation.
Vagner Rego: Like we have said in previous occasions, our focus on automation, we have done some acquisitions to further unlock this automation journey, is now bringing quite good results, especially in the US where we see good activity level. Revenues 2% organically. Profit improved, but 18.7% is not where we want to be. This time we have done an adjustment. Like I mentioned at the beginning, some of our German operations were not at the level we would like, and then we decided to adjust. The underlying profitability is 20.6%. So a stable return on capital employed. Here in the bottom, you can also see a nice innovation now for bolting application or high torque application, offering improved safety repeatability.
Vagner Rego: The good thing about this, normally you can do this hydraulically, but when you add some measurement equipment, you can really offer much better solution for our customers with process control. That part of the business is also growing quite nicely, I must say. Going to the left business area, Power Technique, also solid growth, 13%. We see improved demand overall, all the divisions performing well. Of course, the development in the US, it is super strong because organically is very good. On top of that, we have done an acquisition of MTE that is also performing well. In many geographies, Power Technique is performing well. Good growth as well in specialty rental, and continued growth as well in our Service business. Also good to see that they can catch up on revenues. So very solid revenues. Also improved profitability.
Vagner Rego: That was also nice to see that they managed since Q1 to bend the trend and to improve profitability. That was also quite good to see. They continue to invest in innovation. This case is a new generator, TwinPower. We have two generators inside of that canopy container. The benefit of that is variable load applications can really save a lot of fuel consumption. So keep on investing. You see that they are also running at record levels. Revenue also in Power Technique reached record levels. Then when we look to our, if we exclude the depreciation of intangible for the acquired entities, we reach 22.2, which is a good development, I must say. Then perhaps with that, I can pass to you, Peter. You can continue on the income statement.
Peter Kinnart: Okay. Thank you, Vagner. I think operating profit SEK 9.95 billion, close to SEK 10 billion unadjusted compared to SEK 8.5 billion. Net financial items were slightly higher than last year, mostly due to the fact that we have a bit of a lower cash position, and of course the interest rates tend to be a bit higher. That is the explanation for that. Likely this is going to be on a similar level going forward next quarter. Then the income tax expense was just above SEK 2 billion compared to SEK 1.8 billion last year. I think very strong effective tax rate of 21%. We benefited quite a lot from a few tax credits that we managed to acquire, and that helped us to lower the effective tax rate significantly, a bit better than we had actually initially anticipated before the quarter started. So very pleased with that.
Peter Kinnart: But of course, that being said, for next quarter, we would rather expect the effective tax rate to be slightly higher. We think maybe somewhere around the lines of 22.5%. That brings us then to the profit for the period of SEK 7.7 billion compared to SEK 6.7 billion a year ago, an increase of roughly SEK 1 billion. If I then move to slide 12, then we can talk briefly about the profit bridge for Q3 compared to last year. As you can see, the share-based LTI programs have basically no impact. There is an impact in the quarter, but it is exactly the same almost than last year, so therefore, no net impact on the margin. The items affecting comparability, as we already said, last year, we had some restructuring costs both in Vacuum Technique as well as in Industrial Technique.
Peter Kinnart: We talked for SEK 206 million. This year we have this one-time cost related to Industrial Technique of SEK 132 million, leading to this net 73, which then has a kind of positive impact to the margin, or small one at least. Also, the acquisitions are slightly dilutive as you can see. The currency had also a bit negative effect. I would say basically the main reason for that is the operating exchange differences. Specifically, if I want to isolate one particular currency that had a significant contribution to that total number, then it was the Korean won that strengthened quite substantially across the third quarter and affected us considering the different types of operation we have, for example, in Vacuum Technique, in Compressor Technique, et cetera. So that is the explanation for that effect.
Peter Kinnart: Last but not least, we have the organic development of the margin with a good drop-through and a good positive impact on the margin, mostly driven by the organic revenue volume, the combination of volumes, price, et cetera, leading to that improved margin. To give you a little bit more color, we can go division or business area by business area on slide 13, starting with Compressor Technique. As Vagner already mentioned, robust operating profit with a strong focus on continued growth for the future. Acquisitions also here slightly dilutive. The currency also negative, but basically for the same reason as I just explained, operating exchange differences within the most important currency in that effect being the Korean won, amidst many others, of course, as always, but Korean won being the most detractor, let's say, for that particular point.
Peter Kinnart: Organically, a little bit of a dilution, you could say, partly because of mix. A mix that consists of many different components, but highlighting, I would say the product mix as well as the geographic mix that plays into that. As we already explained also in the text of the report, we see, of course, an increased cost pressure from the supply chain. I think we are all aware, given the hot environment that we are all in with data centers being built all over the place, there is a high demand for many different types of commodities, and that, of course, has a bit of an impact in the short term, at least on the product cost. Thinking about things like the oil prices, not to be forgotten, of course, aluminum castings, desiccant, electrical and electronic components, et cetera.
Peter Kinnart: I think that is explaining a little bit what is going on. As Vagner already said, still the highest margin across all the four business areas in the group, and I think overall still very solid within the industrial space. Again, we have always indicated that even if we had 25% margin and more at some point in time, that this was not necessarily going to stay like that all the time, and that our main focus is growth of the business with a good creation for this in absolute terms, even if we need to sacrifice due to investments we need to make in the relative margin. Moving on to Vacuum Technique. Of course, very strong development in the margin or in the results for Vacuum Technique, driven by the volumes, as you can imagine.
Peter Kinnart: We have also indicated last quarter, and that still continues to be the case, that the ramp-up cost is still affecting the margin to some extent, aside from the negative currency that we already mentioned, and a slight dilutive effect from the acquisitions. Of course, a positive impact from the fact that we can see the restructuring costs from last year coming back into the margin, so to say. Again, I think we see sequentially a continued improved operating margin in Vacuum Technique. For that, we are extremely pleased that we can continue to harvest from the volume increase that we are generating, and most importantly, that we are able to deliver to our customers according to the expectations of the customers. That continues to be the key issue.
Peter Kinnart: If that requires a little bit of higher ramp-up costs and also more agility for the future, then we are quite fine with that. We still see margin expansion going on. On Industrial Technique, I would say pleased with the fact that we see a very strong margin development. There is, of course, now the effect of the restructuring cost, but this is a one-off. I think it is, of course, to make sure that we adjust ourselves specifically around the automotive area in Europe to the current situation. The currency effect is not really relevant, even though slightly negative. On the margin, very strong improvement. To be fair, we need to say that on the one hand, volume price mix is contributing to that. On the other hand, decreased cost level of the tariffs compared to last year.
Peter Kinnart: Last year, they were exceptionally high, I would say, in the early stages. Today, they are a bit more normalized, and that is one thing that you also see coming back in Q3 here, which might not necessarily come back in the coming quarters. Last but not least, Power Technique. Also here, both in Industrial Technique and Power Technique, over the last 1.5, 2 years, we have done several restructuring activities. Of course, that is also paying off in the margin. Also the fact that we have a strong volume price mix development within Power Technique contributes to this margin improvement to 18.3%. The currency also here, slightly negative. Acquisitions, mainly due to the NTE acquisition as well as Climans having a positive impact even on the margin, given the good development there.
Peter Kinnart: If we think about the foreign exchange effect in the quarter, looking forward for Q4, we do believe that all things being equal, of course, I am not the Oracle of Delphi, so I cannot predict the exchange rates. All things being equal, we do expect that the bottom line in absolute numbers will turn slightly positive, somewhere around SEK 0.5 billion, we assume, is likely to become the currency effect in Q4. With that, I will move then to slide number 14 on the balance sheet. To be honest, not much news to be told here. I think the main thing I would like to mention is that the dividend is being paid as we speak. Actually tomorrow, the dividend will be officially paid out. We already went ex-dividend a few days ago.
Peter Kinnart: That is the main impact I would say that is going to happen. Otherwise, I think a relative normal development. Of course, in context of the cash flow on slide number 15, I would like to highlight the development of the inventories, the receivables, and the payables. Besides the fact that we have had quite a nice improvement in the operating cash surplus linked to the business development we have seen over the quarter, the strong revenues and the operating profit coming out of that, we also saw probably a less than one would expect change in the working capital. With the growth that we are going through, the ramp-up we need to do, one would expect higher inventories. Of course, more invoicing means more receivables. Yet, if you look at the cash flow, we do not really see that effect rising in a material way, -87 million.
Peter Kinnart: So as a result, I would say we are very pleased with the cash flow. It is not a record level, that we are glad to admit. But at the same time, in the current growth environment, we believe that the cash flow is super solid for Q3. With that, I would like to hand over back to Vagner for some conclusions and explanation about the outlook.
Vagner Rego: Thank you, Peter. I would like to repeat that our forward-looking statement is a sequential guidance for the next quarter and refers to our customer activity, excluding large orders, potential FX swings, and seasonality. I would like to emphasize here between Q3 and Q4, we have seen over the last years that we do have seasonality. We do have that impact. Of course, we do not know what is the level of the seasonality, especially if you consider we have record levels of orders received, especially the semiconductor. We saw quite nice order development, so it is hard to predict what is going to happen in the semi, but we continue to be very positive about the semi market. So a lot of opportunities. We are quite positive. We just do not know how it is going to play out between Q3 and Q4 and how big is the seasonality.
Vagner Rego: But for most of the other segments, we believe the activity will remain at the current level. Again, how all that will be translated into orders, it is hard to say. We just need to make sure you consider there is seasonality between Q3 and Q4.
Peter Kinnart: Thank you, Vagner. With that, we have come to the end of the presentation and the comments that we wanted to share with you. We would like to open up for questions now. So please, operator, if you can guide us through the list. Thank you.
Operator: If you wish to ask a question, please dial #5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial #6 on your telephone keypad. The next question comes from Daniela Costa from Goldman Sachs. Please go ahead.
Daniela Costa: Hi. Good afternoon. I just wanted to focus my question on the Compressor Technique division. If you could provide a little bit more color on what in industrial compressors have driven that slight sequential deceleration, whether that is temporary and what is the impact of the supply chain headwinds that you have seen, both on the top line and on the margin, if you can give any color about how this should evolve going forward as well.
Vagner Rego: Yeah. Hey, Daniela. Thank you for the question. Perhaps you should not read too much on this sequential development because we said somewhat lower, and it is mainly about Europe. I think we remain quite positive that we can continue to grow the industrial compressor market. There are even positive signs in certain areas. We gain market share, which, if I can be very specific, China this quarter, we were quite happy with the development because we did gain market share there. I would not read too much on the margins. Perhaps, Peter, you can complement.
Peter Kinnart: Yeah, I think the margin development, the cost pressure that we see, of course, like I said, I think it is a bit linked to a hot market in terms of delivering a lot of industrial equipment. I indicate the data centers as being very much in the news, but there is a lot of other things ongoing at the same time, and as a result, electronic components, for example, are definitely under pressure in terms of pricing. I think we all know that if you want to buy a laptop nowadays, you are going to pay a lot more than just nine months ago. That is, of course, also valid for us at this moment in time, even if we have taken some precautions to try to stock up a little bit in a smart way to avoid as much as possible.
Peter Kinnart: Also, the oil crisis and the effect of the Middle East, of course, is also playing a part into the supply chain generally. I think it is just part of the inflationary pressure that we see popping up all around us in different areas. We, of course, need to work with that and see how we can handle that from a pricing point of view and from a costing point of view as well, looking for alternative solutions, alternative sources, et cetera. In the short term right now, we believe that it was fair to indicate that we see that pressure and that it is affecting the product cost in the quarter.
Daniela Costa: Thank you.
Operator: The next question comes from Klas Bergelind from Citi. Please go ahead.
Klas Bergelind: Thank you. Hi, Vagner and Peter. Klas at Citi. I had a question on the growth in VT and the capacity that you have there. Revenue is up 16% quarter-on-quarter, so could we do another double-digit quarter-on-quarter sales increase into Q4, which would perhaps see 45% growth year-over-year at the exit of this year? Then on the drop-through over 30%, your message here has been that we should not expect the drop-through to reach those historical levels given the higher cost for the capacity ramp. Now we got there. Is that better pricing now running through the P&L on orders that you have taken before? Therefore, as the capacity cost drops out, could a drop-through perhaps then reach 40% to 50% going forward? Thank you.
Peter Kinnart: Well, I think the capacity ramp-up is continuing as we speak and will continue in the next quarter as well. There is no doubt about it. In Genesee, in the US, for example, in Q3, we have been able to start up gradually the production of spare parts. We intend to continue in the course of Q4 with the assembly of actual pumps. That means that we are still not at full capacity there, for example, and we need to continue to ramp up as well. We also have indicated earlier that in order to become more agile in case at a certain moment in time the trend would start bending in the other direction, that we are able to react a little bit better than we were able to do the last time the business went down.
Peter Kinnart: We are also trying to make sure that we build in some mechanisms that might be short-term costly, but in the long term, hopefully help us to be more agile. For example, how we subcontract machining that we do not make the same long commitments as we used to in the past, where today we might need to pay a little bit more, but at least we hope to be more flexible when a downturn, for example, would occur at a certain moment in time.
Klas Bergelind: What I meant, Peter, I did not mean 40% to 50% drop-through in Q4 already. What I mean is as these sort of capacity ramp costs are gradually sort of dropping out together with, I assume that you have quite good pricing moving through the backlog right now. At least we hear that from others. Looking at the drop-through 33% right now, if you are looking to 2027, I am not sure how forward-looking you want to be, but it seems like maybe can improve over time as you continue to deliver.
Peter Kinnart: No, I hear you. But I think maybe two thoughts. On the one hand, pricing, yes, of course, we are working really hard with the different customers in the segment to work on the pricing aspect, but it continues to be extremely concentrated market segment with very strong purchasing power from the big players. Even though we have best-in-class products, we are still not alone in the market. That means, of course, that there is still a competitive play to be made. In the end, we are working hard on the pricing part, but it is not as evident as one maybe would assume, in this strong, vibrant market. I think that is an important component to take with you when it comes to the pricing.
Peter Kinnart: When it comes to the margin development going forward, let's say that we do believe that it should be possible to continue level of margin expansion, but we wouldn't suggest that it would be similar as we have seen in the last two quarters, maybe, depending on how things develop. So I think a little bit of caution around that margin expansion. We think there is more room, but maybe not as much as we have seen in the past few quarters.
Klas Bergelind: Thank you.
Peter Kinnart: You're welcome, Klas.
Operator: The next question comes from Sebastian Kuenne from RBC Capital. Please go ahead.
Sebastian Kuenne: Yeah. Thank you for taking my question. My question relates to CT and specifically in Europe. With competition ramping up a little bit or getting more intense, do you see a price war evolving, especially for standardized compressors? Maybe you can give us a bit of an idea what pricing is and the mix that result in the negative margin effect, especially relating to Europe. Thank you.
Vagner Rego: Well, I think in Europe, what we see is the macro environment is not helping. There are pockets of growth, definitely, but we have a good size in Europe. I do not see we lose market share in Europe, and we have the tools to compete against the competition as well. We also have Chinese brands. Some of our Chinese brands are becoming global, and they are now going everywhere. I think we have the right tools to compete against that. I am not concerned at all when it comes to Europe. I am more concerned about Europe about the macro environment. I think that is my concern. Our position is solid. And of course, we see the inflation, like Peter had already explained, is also valid for Europe as well. That is not different.
Sebastian Kuenne: And relating to the mix, what products are then creating the negative mix? Is it standardized?
Vagner Rego: It is more geo-
Sebastian Kuenne: Or it is Compressor Technique?
Vagner Rego: It is geography that plays a role. That is really important.
Peter Kinnart: It is also not about the deteriorating margin, it is about the fact that some products have better margins than others by default.
Peter Kinnart: That is a fact. Then, of course, it depends on the growth of the respective product categories. The same is valid for the markets. Some markets are more profitable than others, and depending on how you grow in those markets, it supports or does not support the margin as much. It is more an external factor, you could say, in a way, than something that you can directly influence in that sense.
Sebastian Kuenne: Okay, thank you.
Peter Kinnart: Thank you, Sebastian.
Operator: The next question comes from Max Yates from Morgan Stanley. Please go ahead.
Max Yates: Hi. Good afternoon. I guess, look, what I am trying to get to the bottom of is just how to think about this Compressor Technique margin over the next couple of quarters, because you did 25.5% margins in H2 of last year. You have just done 23.6%. When I think about some of those things that you talked about with cost inflation, I would think that you have relatively good pricing power, and those should be things that you should be quite quickly moving on pricing to pass through to your customers. You already mentioned the FX dropped out.
Max Yates: I guess what I am trying to understand is, over the next couple of quarters as revenues grow, should we continue to treat this Compressor Technique business as a division that will grow revenues in the top line, but margins will be down year over year because of mix? Or with pricing actions, should we start to think about this as a business where it will grow revenues and margins can at least be flat or even up? I guess there is a massive difference between you doing H2 margins that are 25% to 26% or 23% to 24%. I am just trying to understand could we be in a scenario where revenues are growing and margins are down? Because that is not a particularly good outcome for business, even though I appreciate your margins are at very high levels and it is a very successful business.
Vagner Rego: Yeah. Thank you for the question. I think just to emphasize again, biggest priority number one is to continue to grow the business area. One thing that I want to highlight as well, we have the short, and you are right, we have the short cycle, and it is where we can actuate a little bit fast, but we also have the long cycle in that industrial compressor bucket. There we could have lead times of a year. So we should also consider that. There are products that we are invoicing now, having this effect that we have sold last year. It is not a one size fits all here. We do have quite a lot of price activity, that is definitely on the table. But of course, the environment is quite inflationary.
Vagner Rego: We will continue to work on our price, and we will see how fast we can get to that in the P&L. We cannot guarantee that next quarter is going to be changed. That we do not know if that is going to be reverted. Also have the acquisition of Euroklimat that will come. It has a dilutive effect, but very important for the strategy that we want to implement there. I do not know if you have any additional comment, Peter.
Peter Kinnart: No, I think especially the fact that we have quite a significant amount of projects in the orders on hand, not more than usual, I would say, but we do have that with longer lead times. Of course, if we then are confronted with inflationary effects, then it becomes a little bit difficult for those specific orders to handle that from an operating margin point of view, of course. For new orders, we can of course then implement new prices. Then depending on the lead times, we will be able to realize those. But I think that is important to consider so that you cannot really assume turning the corner within a week’s time, or in a quarter’s time for that matter. Then on top of that, the dilutive effect of the Euroklimat acquisition.
Max Yates: But just to understand, you do not have freight escalation clauses on some of those contracts with 6 to 12-month lead times?
Peter Kinnart: Oh, but freight could be another particular topic. Freight could be more based on the cost of the freight at the moment that the shipment is happening. That will depend on this, but it is more about the actual product pricing in the contract that has been signed with the customer, potentially a long time ago, as Vagner indicated.
Max Yates: Okay. Thank you very much.
Peter Kinnart: Thank you, Max.
Operator: The next question comes from Alex Jones from BofA. Please go ahead.
Alex Jones: Thank you. Another question on Compressor Technique, but a slightly different part of the business, gas and process. Can you just talk about the project pipeline you are seeing and how you feel about the next few quarters? I guess Q2 was exceptional, but this quarter also sounds quite strong. Should we think about this quarter being the right run rate or something between those two being the outlook for the next few quarters? Thank you.
Vagner Rego: Yeah, I think we do have a strong pipeline that can be transformed in orders. We remain positive about the environment. We are exposed to several market segments, like LNG. This quarter, we did not have LNG orders coming from Korean shipyards, for instance. I mean Chinese EPCs did very well for us. This quarter is always a mix. But we remain positive because we are exposed. A big surprise this quarter was a heat pump for district heating, which is quite a large compressor, quite a nice order. I think they are very well positioned to continue to grow. There will be variations quarter on quarter, but the environment continues to be positive for gas and process.
Peter Kinnart: Referring to last quarter, I would really like to underline again the exceptional order intake for gas and process in Q2. With a lot of orders coming in at the same time, like we have seen in other quarters in the past years. I think it is a bit tricky to use that as a reference quarter or to kind of put that into the mix to calculate an average. I think that is probably kind of the absolute record quarter that you then kind of put in there, and that would be probably a little bit too much.
Alex Jones: Thank you.
Peter Kinnart: You are welcome.
Operator: The next question comes from Timothy Lee from Barclays. Please go ahead.
Timothy Lee: Hi, thanks for taking my question. I would like to ask on VT order. What is the lead time for VT at this point in time? In terms of customer activities, how do you see the behavior changing? I think in the last quarter, you were mentioning that was some elements of pre-ordering. How does the situation look like this quarter? What should be the right level of orders that we should think about in the next couple of quarters, as long as the year-on-year growth is kind of already high, so the comps could be difficult, but what should be the right order level that we should be expecting in the next couple of quarters? Thank you.
Vagner Rego: Talking about the order levels, we saw a little bit more pre-ordering this quarter. That is fair to consider some key accounts, especially the OEM equipment where we sell to some process tools OEMs. We saw that a little bit more pre-ordering that they want to really secure some production is lost. I think it is fair to say that we saw that in this quarter. What we see now with the semi customers, the biggest priority now is that we focus on output. I think the biggest discussions between ourself and our customers is output. Not so sure if they will focus so much on placing order because they have done quite a lot now in Q3.
Vagner Rego: I am not saying that it is going to be good or bad Q4, but I think the focus is from our side, and we feel the same from our customers, is to get the output.
Peter Kinnart: When it comes to lead times, if I may add, Vargas, I think typically we would talk about 3 to 6 months. But now, given the amount of orders in the pipeline, this might be a little bit longer. But I think in the end, what matters, of course, is that we continue to be better than our competitors at delivering the products to our customers. I think that will help us to build out market share in the market. So I think
Vagner Rego: On that, Pieter, I must say, I feel quite confident that we are in a very strong position to have a very competitive lead time.
Timothy Lee: Thank you.
Operator: The next question comes from Edward Hussey from UBS. Please go ahead.
Edward Hussey: Hello, thanks for taking my questions. Two, if I may. Just sticking to VT for a second. You mentioned that the demand growth is pretty broad-based from a regional perspective. I am just wondering, going forward, are you anticipating faster growth in the US relative to Asia? Could you also maybe just talk through your competitive positioning in the US relative to Asia within semis vacuums? Maybe just start off with that one, actually.
Vagner Rego: Yeah, we are in a strong position in Asia. When I talk Asia, I am also including China. They are very competitive in both, as well in Asia as in North America. We remain quite positive. I would say there are new players in the market. I will not mention geographically, but any new player, we are in touch with them. New players in process tools in some new countries. So I think we are really present in everything that is going on around semiconductor vacuum. I feel quite confident. It does not mean we will get all the market share in these new players, but we are in a solid position because if you look, I can say with a good level of confidence, we have the highest capacity of dry vacuum pump production.
Vagner Rego: We are scaling up. We are prepared to do more if we feel that the market demand will continue or if it will go up. I think we have the highest capacity, we are increasing, and we are analyzing the market. If we feel the need, if new players will come and they need more, we will be prepared for that. I think that is, for me, the most important, and I feel quite confident about that.
Peter Kinnart: I think also supported by a super strong geographical local for local setup across the different continents, I think is an absolute strong argument for our customers to work together with us.
Edward Hussey: Okay, thank you. You mentioned pricing being relatively tricky in VT given the concentration of customers and them having higher pricing power. I guess, compared to previous cycles, are the pricing discussions getting easier given vacuum as a total percentage of wafer fab equipment spend is actually shrinking. So, relatively, the entire semi-CapEx is becoming a smaller and smaller fraction, so arguably could become easier over time.
Vagner Rego: Yeah, I would say that when it comes to price, I think Peter already gave quite a lot of information. The only compliment I want to give is there are a lot of activities ongoing. Even if they are big players, we also have agreements. The agreements, they expire in different dates. So we have a lot of activity ongoing to reach better price levels. That will come step by step because of the agreements in place.
Edward Hussey: Okay. Very clear. Thank you.
Peter Kinnart: Yep. We have time for one last question, I believe.
Operator: The next question comes from John Kim from Deutsche Bank. Please go ahead.
John Kim: Hi. Good afternoon. I am wondering if we could focus down into VT for a moment. Do you have any sense, given the strong demand and order intake the last few quarters, how much is going to creation of new facilities or fabs versus better activity levels, more production at existing customers or sites?
Vagner Rego: Yeah, it is a bit difficult for us to say, but you know how they operate in this market. First they build what I call the vessel, the premises and everything, the utilities, but not the process tools and not the vacuum pumps. They first order the process tools, the vacuum pumps will come later. What we see, it is a bit of a mix. There is a lot of population of existing fabs that were built, for instance, last year. Now they are populating with process tools, then they require our vacuum systems. We also see new announcements, new players that might come into the market as well, that we are also involved. But I do not have an exact figure to tell you of how much is going to green fields or just extending new facility.
Vagner Rego: That number I do not have because I see both in our figures, extensions and new fabs. There are quite a lot of announcements already going on about new players that we will also be participating.
John Kim: Okay. Thank you.
Peter Kinnart: Okay. Thank you, John. We think with that we have come to the end of our earnings call for Q3 2026. Again, I would like to thank all of you for your attention, for your active participation and your questions, and we look forward to meeting you in the coming months on the road. Thank you. Bye-bye.
Operator: The host has ended this call. Goodbye.
