Line Dovärn: Morning, and a warm welcome to today's presentation of Munters' Q3 results. My name is Line Dovärn, and I am Head of Investor and Corporate relations. With me, I have our CFO, Katharina Fischer, and our new CEO, Stefan Aspman. Welcome.
Stefan Aspman: Thank you.
Line Dovärn: Good. We will begin, as always, with a presentation of the results, and then we will have a Q&A at the end. With that, I will hand over to you, Stefan.
Stefan Aspman: Thank you, Line. Happy to be here and take over the baton from Klas. I think we are here to report a quarter where we had tremendously strong commercial development and a little bit more headwinds in the profit parts. I will try to cover both in the best of ways. Let's get straight to the numbers. Again, from a commercial perspective, it is fair to say that this is one of the best quarters we have had. We had a significant order intake of +70%, a book to bill of 1.6, and a backlog which resulted in +178%, so a staggering value of SEK 28 billion now in the backlog. I am also happy to see that we can see this momentum starts translating into sales growth, showing +18% at the group level.
Stefan Aspman: AirTech coming in with strong performance, primarily in APAC and Americas, and DCT, despite the component shortages that has been limiting output, I think we can see the strong sequential growth of 30% and the highest net sales actually ever for DCT. FoodTech growth in software, however, offset by lower sales of controllers in Europe, which is more seasonality and specific pockets of the market showing less demand currently. Profit-wise, as you have seen, DCT declined, and I think that reflects the changed product mix we see, component shortages, ramp-up inefficiencies, and just the challenge of starting up a new factory in the midst of this unprecedented growth we see in data centers.
Stefan Aspman: FoodTech remains strong, and I think that it is important to comment that it remains strong despite continuous investments, while AirTech improved on higher volumes and favorable mix and cost savings, all in all, resulting in a good development for the quarter. We are still a company with pretty high concentration in Americas, primarily in the US. Yet, I think it is important to also point out that we saw development in other regions as well in the quarter. As an example, both AirTech and DCT growing their part in APAC with 4 percentage points each. Also in EMEA, DCT growth, 4 percentage points within their respective business area allocation or distribution of sales. So heavy in the US, but good developments also in other markets. Coming to more of double clicks on their respective business areas, I think AirTech order intake continued to show a positive trend.
Stefan Aspman: We see growth in all regions and an increased backlog. In APAC, we are seeing strong growth and partly due to component sales for battery production. I think that is interesting looking at Munters, showing that even if battery has declined in significance as a segment, we do have more ways to win. We can win on the system level, but we can also win on the component part where we are part of the value chain also here, primarily in China. So I think that is a good development for AirTech, and it shows that we can be the system provider and the component supplier as well. Q3 showing progress the third year in a row. I think the trend curves are clear. We are growing order intake and net sales.
Stefan Aspman: I know that Klas has been saying before that for acceptable utilization of footprint, we need an order intake of roughly SEK 2 billion per quarter, and we are now showing SEK 9 billion last 12 months in Q3. I think we are at decent levels where we should be able to start to level load the factories in a good way. Still, there is more upside to work with absorption in the factories. Profit-wise, it is even better. The AirTech profit more than doubled. I know that in the beginning of the year, we said we would move towards double digits towards the end of the year. This has happened faster, so 12.9% is strong.
Stefan Aspman: We should also remember that the 6 percentage point up is having tailwind from 2.5 percentage point coming from the cancellation fee that we had from one of the bigger orders. Even if I back that out, 10.4% is comparable with Q2. I think that we are developing at a steady level sequentially. Going into data centers, I will be very brief on this. I am sure there will be many questions, but it is more than doubled. It is broad-based across the expanded product portfolio, I think across customer groups and regions as well, and with a very impressive book-to-bill of 2.7. It is an understatement to say that we have taken a big part of this market, and that the portfolio we offer is making a dent in the market.
Stefan Aspman: Looking at the profit parts of it, we are starting to see the higher net sales, 30% sequentially. It is the top quarter in terms of sales. Also looking at service at 70%, that is a growth of 41% versus Q3 last year. Even if the relative portion compared to the hardware sales is not developing in a fantastic way, it is because the hardware sales is developing so fantastically. It is hard to keep up, but 41% year on year is a very strong number for this specific isolated service business. Of course, profit-wise, there is more to wish for. We start to see the right movements. I think we have done most of the things we can do. All the CapEx investments in the new factory is in place.
Stefan Aspman: We have hired people that we need, and we have started to set up the flow lanes exactly as we wanted to. To zoom out and take a step back, we always said that this will start in Q2, and we did start production in Q2. My experience of ramping up industrial processes and manufacturing at this scale is that it normally takes a couple of quarters to get to where you want to be. All in all, I think we are progressing pretty well in line with where we wanted to be in terms of operations. However, combining that with external factors of supply chain constraints, we are not where we wanted to be.
Stefan Aspman: I know Klas used this picture before to illustrate how we are now moving up the vertical part of this picture, where we increase the volumes, but it is going to take even more and a few steps further to reach the profitability levels that we aim for. All in all, I think we left Q3 at a significantly better place, in efficiency and output than when we entered the quarter. Very happy to see that our own process and production lines are getting better by each week. There is a lot of active work from management now to do all things we can do to improve the profitability levels. Very much of that relates to the supply situation, qualifying more vendors, et cetera, having more commercial meetings to see how we, as a whole industry, juggle this challenge.
Stefan Aspman: Because it is important to remember, this is industry-wide. It is not specific to Munters. Everyone is in this situation one way or another. I think we have seen the worst and we have that behind us, but it is still a pretty fluid situation, so we should not see this as we are out of the woods, but we ended the quarter much stronger than we entered it. Moving into FoodTech then. In terms of order intake, relative stable development in FoodTech, close to last year. It is a somewhat softer market in controllers for Europe, while software is more linked to timing and product awards, I think, than the controller part. The product pipeline is very healthy, and I am optimistic about the near-term development. I think we have a lot of things interestingly set up for FoodTech, and they do have a very unique value proposition in the market.
Stefan Aspman: The ARR is reflecting this. It has developed +18%. I think they also show healthy margins in FoodTech, and I think it is important to point out that that is despite continuing investments in future growth. Since we established Speria, we have accelerated the development of this part of Munters rather than slowed it down. I think we are building a very unique part of Munters, but also a unique asset that, as you know, we are now divesting, and the process develops according to plan. Happy to get back to you when we have something more to say. In short, it is progressing according to plan. That was a very brief summary of the highlights overall. I am happy to hand over to you, Katharina, for the financials before we go back to some summary and Q&A.
Katharina Fischer: Yes, sure. Thank you, Stefan. As Stefan highlighted, net sales was overall strong in the quarter. This was especially noted in AirTech, but also in DCT, whereas FoodTech was flat. We also saw improved profitability in the quarter where we exceeded the margin in Q2 and Q1. We had a negative cash flow from operating activities, mainly related to the inventory buildup in DCT, somewhat mitigated by advances from customers. Still, our operating working capital to net sales ratio improved in the quarter to 4.2%, which is then well below our range of 10% to 13%. The margin had a mixed development in the quarter. It was lower than the prior year, but it also saw some positive impacts. Starting on the volume, we had a positive volume impact, both in AirTech but also in DCT, so that impacted the margin positively.
Katharina Fischer: Then for DCT, as Stefan talked about, there was a negative product mix effect and also tariffs weighed on the margin for DCT. Price increases are continuing to be implemented across the three BAs. The benefits of that will take a little bit longer as it works its way through the backlog. On the operational excellence side, Stefan talked about this as well, here, of course, as we are ramping up DCT in Virginia, we still see some production efficiencies related to the component constraints. So that has a negative impact. Then for AirTech, the underutilization also weighed on AirTech's margin in the quarter. We see positive impacts from the cost-saving programs for AirTech, so that could be seen in the margin. Then we also wrote in the report about the positive one-off for AirTech, 2.5 percentage points of AirTech's margin in the quarter.
Katharina Fischer: We see this as normal running business. It is not often that we have order cancellations, but sometimes it happens. This time it happens, and of course, it is then offsetting some of the costs that we have had for this order in Q3, but also in prior quarters. Sequentially, the margin improved. This was the highest margin that fourth quarters. So we have really seen this, that we are able to strengthen the margin sequentially due to higher volumes then and also cost savings. Speaking about AirTech's cost structure improvements, these continue to deliver cost savings. So the measures initiated in 2025 have been completed and delivered well above the plan, and that also showed then very structured execution across the organization. Then we are continuing on the program now in 2026, and it is progressing very well.
Katharina Fischer: So far it has reached around SEK 180 million, and we are targeting SEK 250 million then full year effect. This program addresses then adjustment in investments, workforce optimization, and decreased efficiency. But also, of course, we are safeguarding some important growth initiatives as well. So as seen in the Q3 report for AirTech then, the margin has strengthened then, supported by volumes and this program. Looking at the cash flow then, the cash flow was negative from operating activities. The profit was solid. It is a solid profit generation, but it was really this change in the operating working capital, mainly then the inventory buildup in DCT but also higher accounts receivables as a result of higher sales. This was then also offset by a stronger EBITDA. We have also then continued to invest, of course, in the business and in the cash flow from investing activities.
Katharina Fischer: You can also see a positive effect from Agrovev. We sold the minority holding that we had in Agrovev, and that generated a positive impact of 32 then. Then on the year to date, pretty much the same story, solid earnings, and then the inventory buildup. But on a year to date basis, it is largely mitigated by customer advances. Then, of course, we are continuing to invest in the business with the strategic capacity expansions and so on. In the first quarter, we also have this continuing consideration for MTech. Turning to investment then. So we continue to invest, and we are applying our very disciplined capital allocation principles. So of course, we look for initiatives that improve excellence and also strengthen our potential growth or future growth potential.
Katharina Fischer: In the quarter, we had the CapEx as percent of net sales as 4.6%, and on a rolling 12 basis, it was 6%. The majority of the investments in the quarter has been related to the Virginia expansion, of course, because we are ramping that up to support the strong demand in the US DCT market, of course. We are also making investments in AirTech in the component production capacity in Mexico. That is another investment that is ongoing. If we look at guidance for CapEx, we remain the outlook for that, which is then to be in the same range as 2025. For operating working capital to net sales ratio, as I mentioned before, we are making very good progress. So it is down now to 4.2% in the quarter.
Katharina Fischer: In terms of leverage increased then to 3.4 from 3.2 in the prior quarter, and this was driven by the negative cash flow, but also higher lease liability. The lease liabilities are related to the Virginia expansion. There was also a small offset with the improved EBITDA. As you know, our long-term ambition is to have a leverage of 1.5 to 2.5. So that is not a fixed target, but the long-term ambition. Going forward, we expect leverage to gradually improve, then supported by higher earnings and also disciplined cash generation. Still, we do know that this has taken longer time than previously expected due to that it has taken a little bit longer to translate the DCT ramp-up into higher earnings. Yes.
Katharina Fischer: To end this part of the presentation, I just wanted to share a little bit of a highlight from one of our investments in sustainability. This is an investment in solar panels in our Amesbury facility in the US. During a couple of summer months, the facility and the installation were then able to generate 100% of the electricity needed to run the factory and the whole site, so to say. Of course, that had a very positive impact on our CO2 emissions and also on our utility cost. While this will not be able to cover 100% of our needs on a full year basis, we estimate it can at least cover around 50%. Of course, it strengthens our resilience towards higher energy cost and also our overall resilience for the future.
Katharina Fischer: With that, I would like to hand it back to you, Stefan, to summarize the quarter.
Stefan Aspman: Thank you very much, Katharina. We are not changing the outlook for this year. We see positive order trends continue in AirTech, high utilization and cost measure support and profitability. I think we are moving the right direction of AirTech. There is a strong demand translating to sales growth now in DCT, and I think the ramp-up is starting to prove that we are on the right way. With FoodTech, we do see solid earnings and increased ARR, 18% plus year over year. Not changing the market outlook and not the business outlook either. As an overall summary, I was thinking about how to summarize this.
Stefan Aspman: Klas has had his way, and I thought, okay, I bring with me my lens from running a project business now for 5 years within Munters, because at the end of the day, a big part of Munters is a project business. Normally we look at this through four very important conversions. How do you go from market potential and turning that into orders? How do you go from having these orders and turn it into revenue according to the production milestones you need to hit to be able to recognize revenue? How do you make sure that that revenue turns into profit and that profit turns into cash? If I put that filter in Q3, I think it is very clear to say that in the first conversion, the market potential into orders, we have an outstanding commercial performance.
Stefan Aspman: That is a very green one in terms of traffic light rating. I think we are proving to ourself and to others that we can make a difference in the markets, both in AirTech and in DCT, and obviously also in FoodTech. Orders into revenue, this is where we have a little bit of a mixed situation where AirTech is progressing according to plan and even slightly better, while DCT are struggling with the outputs compared to where the original ambition was, despite having 30% sequential sales growth. We are still negatively impacted by the component constraints, but I think we have the worst parts behind us. Revenue into profits, obviously, overall in total as a group, I think we came in strong.
Stefan Aspman: But with that said, it is not lost to me that where this sits is something that is being challenged a little bit with AirTech progressing a little bit ahead of the curve where we indicated before and where DCT is trailing a little bit lower. That is obviously something we need to continue to work with. I think we had a strong finish to the quarter, and I am looking forward to see how we can take this further, not only in Q4, but definitely to position ourself for a strong 2027. Profit into cash, Katharina covered that well. It is very much related to the DCT inventory buildup that drives negative operating cash flow.
Stefan Aspman: With that said, to end also that one on a more positive note, this is also what will be part of the recipe to turn DCT, because if we are building inventory, it means that we have inventory. Part of this buildup, it is also related to some delays in projects that are outside our control, and that combined with us now getting access to the components we need to build, builds up higher levels. But again, that is also part of the recipe for a stronger Q4. All in all, I think I leave it there, and we go straight to Q&A.
Line Dovärn: Great. Thank you very much, Stefan Aspman and Katharina Fischer. We are ready to take on questions. For those of you in the telephone conference, I ask you, as always, to limit yourself to two questions so that we can hear from as many of you as possible, and then you are welcome to join the queue again, of course. We can start with the first caller on the telephone conference.
Operator: Thank you. If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 again on your telephone keypad. The next question comes from Jingyi Zheng from UBS. Please go ahead.
Jingyi Zheng: Morning, this is Jingyi Zheng from UBS. Thank you for taking my question and congrats again on the very strong order intake. My questions are on DCT. I will firstly start with the growth and margins. Last quarter, Klas mentioned the progress in DCT was delayed by one quarter because of the supply chain bottlenecks. I wonder if that still holds under your current assessments, and in particular, do you still guide for 30% growth this year? When should we expect to reach the high teens margin?
Stefan Aspman: Good. Okay, thank you. Let's take them in sequential order then. Yes, I think that the delay of roughly a quarter is still a pretty good estimate. It's no exact science, as you understand. But yes, we started in Q2. We always saw this as being a bit of a hockey stick towards the end of the year in terms of volumes. We are now starting to see that happen. But yes, we were planning to be earlier in that ramp up than where we are right now, going back to the picture I was showing you with that incline of the curve. The 30% overall is something that's been put out there in the market, and I would like to get away from the exact numbers here. There is a range, right?
Stefan Aspman: But I think if we hold according to our plans, I think there's nothing in the outlook having a significantly stronger H2 than H1 that we will guide to in an extent, right? So, it's definitely not impossible. I say this with some caveats, though. As I said before, we are still subject to some external matters that we cannot fully influence ourself. But if you ask me if I am confident based on our own operations and where we are, yes, I think that is highly reasonable that we should be able to hit that still. And sorry, there was one question in between those two that I lost. Which one was that?
Jingyi Zheng: Yeah, I think there's a question just on the last bit. When do we expect to reach the high teens margins?
Stefan Aspman: Yeah. I think that is more of a midterm play here. It could happen earlier, but I think we have to see this from the waterfall of being at our top +20% something, and then we have made deliberate growth choices here going into new geographical areas, broadening the portfolio because we didn't want to stay a one or two trick pony, right? That has a dilutive effect, but the absolute value generation is of course much larger. So I still believe that the full potential of DCT can be in that range. I would like to avoid to set an exact timing. I hope that we will start to see a clear step towards that already now in near term, and then continue to develop on that throughout next year.
Jingyi Zheng: Great. Thank you very much. That is very clear. As a follow-up, can I dig a bit into DCT Q4 deliveries? From what I understand, your delivery obligation from the large orders is stepping up again in Q4 versus Q3, and I tried to map out from the delivery schedule you published previously in the presentation decks. From that, I estimate about SEK 2.5 billion Q4 versus about SEK 1.9 billion Q3. Firstly, I want to check if that sounds in line with your expectations, and secondly, are you confident in delivering this volume if that holds?
Stefan Aspman: I was going to try to be funny and say I have to, because if I say that we keep the outlook, we need to be there and above, to be where we need to be. So the short answer would be yes.
Katharina Fischer: I think just to complement a little bit, the growth will also come. It is not only from the Virginia facility.
Stefan Aspman: No
Katharina Fischer: It is also growth in Texas and Europe.
Stefan Aspman: That is a very good point.
Katharina Fischer: I think that is important to keep in mind.
Stefan Aspman: Absolutely. Also outside of US, right? It is a broad mix, but of course, the bigger volumes come from the US, and to Katharina Fischer's point, not only Virginia, but also from Texas.
Jingyi Zheng: Right. That is clear. Thank you so much.
Stefan Aspman: Thank you.
Line Dovärn: Thank you. We can take the next caller.
Operator: The next question comes from Jakob Marken from SEB. Please go ahead.
Jakob Marken: Hello, good morning, and thank you for taking my questions. If we keep it at DCT, firstly, you have two trends points, tariff impact here in the quarter, which is down from last quarter and from the top that you had at 4 percentage points previously. Should we see this as you have been able to source more local components in the US here in the quarter? Can you tell us a bit more on the component size locally in the US, during the quarter, and how you view that into Q4 and next year?
Stefan Aspman: Yes. Thank you. Good question. I think this is where we also need to start to gradually change the narrative a little bit. If we go back, it was very important to us to kind of separate these are the tariff impacts coming from us localizing productions of chillers from Italy to the US, right? Then we had first a tariff impact on shipping over full units, and then later on for the bill of material, there were still vendors, and still is, from Italy, that we import separate components, no longer full units. With that said, though, and coming to your question, I think we are starting to get to a point where the impact is reducing. It is still there, but it is more about optimizing the bill of material rather than localizing it.
Stefan Aspman: Because in the bigger scheme of things, no one in the US, including us, will ever have a fully US-based bill of material. So there will always be shipping in and imports, and some of them will carry tariffs. But that is something in a product business that we always take into consideration when we set the price. The challenge here was that we went into the market to make a dent commercially before we even had local production, and then all of that was not necessarily priced in when we also, in parallel, had the situation in Iran and the supply chain constraints. So it has been squeezing us more historically, if that makes sense. It is still there, but it is washing out gradually.
Stefan Aspman: We will still have some tariff impact related to this specific localization or moving from Italy also in the coming quarter, but it is getting less and less, and I think next year I will stop talking about it. Then it is more optimizing the bill of material rather than localizing it.
Jakob Marken: Okay, perfect. Thank you. That is very clear. My second question relating to cash flows and inventory. You have been building quite a lot of inventory here in Q2, Q3. When do you expect that to unwind and for cash flow to improve from reducing inventory?
Katharina Fischer: We expect it to stabilize at year-end. We will still see some increase in the Q4, not as big as between Q2 and Q3, but still some build for year-end. Remember, we have much higher capacity in Virginia, so you also need a higher level of supplies going forward to support higher volumes.
Jakob Marken: Okay, is part of the inventory buildup that you are not being able to secure some of the crucial components that you have? You are building inventory for a lot of products, and then you cannot get all of the components, and then you are stuck with some unfilled components. How should we view that?
Katharina Fischer: No, that is correct. Exactly.
Jakob Marken: Okay.
Katharina Fischer: For example, we had one a little bit more shortage of coils, and then, of course, we had all the other components. But the positive side of that is, of course, that we are well equipped now for Q4 to deliver on volumes.
Line Dovärn: I think we have been clear that this is part of the mitigating actions that we are taking to secure more components and to be in a better place for Q4.
Jakob Marken: Perfect. Thank you.
Line Dovärn: Did you have another question?
Jakob Marken: No, that was my two ones. I will get back in line. Thank you.
Line Dovärn: Thank you. Okay, we can take another caller.
Operator: The next question comes from Adrian Giloni from ABG Sundal Collier. Please go ahead.
Adrian Gilani: Yes. Hello, and good morning. My first question also on DCT is just trying to understand what the complexities are in the Virginia ramp-up. Can you concretely go through what the bottlenecks are that are keeping you from higher utilization rates at the moment?
Stefan Aspman: Yes. Thank you. No, I think it's a relatively broad mix when you start up a new factory. Some that you always have that is not specific to our situation, including hiring new people, making sure that you build with the right quality. In this mission critical industry, we can't make any mistakes. So, I think Klas expressed it like in the beginning, you have 2 persons working and 8 people watching, and then you start to move towards having 8 people working and 2 watching, and then finally all are working. So simply, we need to train the people. That's one part. That was in the plans. The ones that were not in the plan is to your point then concretely, if we miss a component, as an example, it very often ruins the whole concept of lean, like one-piece flow and other concepts we work according to.
Stefan Aspman: That means that you have to build in certain components at a stage of production that is not beneficial to make it in a fastest possible way. That is definitely something that is hampering us. Even worse, if we completely lack component, it could be so that you have actually built a big part of the unit, but you cannot recognize revenue. Which is also, mid-term, a little bit of an opportunity because that means that you might have half-produced units that are waiting to get finalized. Besides that, it very much relates to how we build stuff and the timing of it, because to hit our margins, it is very important that we are exactly in line with the plan according to how we set up the flow rates.
Adrian Gilani: Understood. For my second question, just on the cancellation fee. I get this is an unusual thing, but given that orders have been outpacing sales largely in DCT, but to an extent in AirTech as well, do you see any elevated risks that there might be more of these types of cancellations in the near term than what is usual?
Stefan Aspman: I think if you go back and look at this historically, and please fill in Katharina and Line. In DCT, if I go back during my years, we have experienced one cancellation basically, and that was an industry-wide, not related to Munters. It was a big project in Denmark that got canceled in 2022. It happens though, so it is always a risk in a product business. I think that the way we approach the market with very clear customer collaborations and it is a gift and a curse. We have a little bit higher customer concentration than the big giants. On the other hand, we have very good visibility into the projects and very often we work with the big ones like the hyperscalers and the wholesale colocation, and they very often have good alternatives to pivot.
Stefan Aspman: Because when they cancel, it is very often because there is something related to long-term permitting challenges or that they did not get the connections to the grid that they were expecting or something like that. Then they have many other places. So they want to keep a diversified vendor base. Rather than canceling, they very often bring us on to the next project and they use the products for that instead. With that said, it is always a risk, but I do not think it is elevated or anything that has changed in the business model for us or in the profile of Munters. It is as it has been the last few years.
Line Dovärn: For AirTech, it is very unusual.
Stefan Aspman: Yeah.
Line Dovärn: This is the first cancellation we had there, also connected to it being a larger project that was canceled in full.
Stefan Aspman: Okay, understood. I guess those were my two questions, so thank you.
Line Dovärn: Thank you. We have a few questions here about the utilization in Virginia. Would you like to comment a bit on that, how we are thinking about utilizing the factory?
Stefan Aspman: I do not know. We want to utilize it to the full extent. We had 365,000 square feet, and now we have added 200. We know we are going to need all of that, so of all the things you could worry about as a CEO, it is not one of them. I think that we have built a footprint that is very much in line with the demand and what we see, not only short term, but also longer term. With the portfolio mix we have, I think there is a broadening opportunity for Munters as well. That is, chillers are used in a much broader space than also data centers, right? I am not worried about utilization of filling the factory.
Line Dovärn: We always work with being able to take on other products in these factories as well. It is not just completely chiller production in each.
Stefan Aspman: No, I guess we should not bang our chest too hard. It is no rocket science, but obviously, when we build new factories, which we have had the privilege to do the last few years, obviously, we equip them with the right cranes, the right ceiling height, the right size of how you enter with a truck. These things actually matter, details to be able to have that flexibility to move production between the sites. We cannot do it, just compare one factory to another, because it is also based on competence and other aspects. Yes, I think we have a flexible footprint with Munters. Utilization is definitely important, coming back to the margins, and we are working on it, and obviously, it is not where it should be right now in Virginia specifically. That is why we do not see the drop through.
Stefan Aspman: We have a clear plan to get there.
Line Dovärn: We don't give any specific utilization rates for the factory. We can take another caller from the conference.
Operator: The next question comes from August Feining from Handelsbanken. Please go ahead.
August Flyning: Good morning, Stefan and Katharina. Two questions from my side, please. Starting with the data center margin, maybe drawing a little bit on a previous question here, but could you perhaps elaborate a little bit of how much of the component sourcing is currently localized in the US? Here, I mean specifically for the chiller.
Stefan Aspman: Well, without breaking it out in exact percentages, because that would probably be more disinformation than information, because I'm probably not right. I think that you look at the big-ticket items here, coils, fans, pumps to some extent, compressors. A big part of that in this industry is imported, not necessarily related to the chillers that we are producing, but some of the biggest fan producers, as an example, are from Europe. Compressors as well with Danfoss. There is import for sure, but that is a deliberate import or a deliberate, sorry, not localization. Coming back to the whole question about, are we localizing or optimizing? When it comes to the things where we can and should localize, like smaller things, valves, strainers, whatnot, I think we're in a very good way to have that localized.
Stefan Aspman: With that said, obviously, the bigger values are in the bigger components, like the evaporators, as an example. We are tying in more and more vendors and more and more collaborations. I think we have been hit by this as an industry, but also Munters a little bit specifically because we were late to the party when we decided to move the chillers because there was this window of opportunity. We had to go to very niche vendors for some of these components. Now we go to the broader ones. Even if it's an import aspect, you might still have the tariff, but you have a completely different price, if that makes sense. Between those different mix effects, I would say that we are pretty localized by now.
Stefan Aspman: There are still bigger components that we do import, but I assume we will continue to do so, but we are going to price it into the projects, of course.
August Flyning: Thanks. That's very clear. Turning to data center demand, could you talk us a little through how customer discussions are developing at the moment? Maybe particularly while looking into 2027, are you seeing any changes in how projects are progressing from early discussions to firm orders? If so, maybe if you could compare that to what you perhaps saw earlier this year.
Stefan Aspman: No, it's a good question. I think the simple answer is that we do not actually see any significant change in sentiment of the market. The infrastructure is still needed. There's a lot of debate, as you know, and as we all can read about AI and specific companies and specific business models. But in the bigger scheme of things, the need for this infrastructure, not only for AI, but also digitalization on a broader scale, is very much needed, and we see those investments coming through. The plans that we see, both in how it's planned according to where you need energy, as an example, and where projects are being run, we do not see a downturn or anything that is limiting the outlook.
August Flyning: All right. Thank you very much. I will get back in line.
Line Dovärn: Thank you. We can take the next caller, please.
Operator: The next question comes from Gustav Berneblad from Nordea. Please go ahead.
Gustav Berneblad: Yes, good morning. It is Gustav here from Nordea. I thought maybe just to start off, you tend to show a graph here showing all the larger orders that have not been basically announced. Just are there any larger orders pushing up DCT? Also, I want to follow up on that. Do you take prepayments in the range of 10% to 30% for all the DCT orders, or is it just the larger ones?
Stefan Aspman: Thank you, Gustav. Good questions. I think let's start with the first ones. We have come from a history where we have announced larger orders due to a number of reasons, right? We have been doing more related press releases and marketing related ones. In the beginning, everything we did was potentially sensitive because we were growing a business area, and I think now we have grown into a different size, and we have also got used to larger orders as well. I consider that more as the running business nowadays. The shorter answer would be that, yes, we've had, during the quarters, I think we've had both smaller orders to medium sized orders to some of the bigger ones that I consider are all part of the mix now that we have.
Stefan Aspman: I expect that to continue and every once in a while you would see bigger cluster orders. I think that is not ruled out in the future either. It's not the normal pattern any longer, but I've been around now in this industry enough to know that this comes and goes. It's very cyclical. Some years are like that, and I think the supply situation has definitely been pushing in that direction that some customers or companies want to kind of hedge towards that unsecurity. Yeah. The second one was-
Gustav Berneblad: The prepayments.
Stefan Aspman: The prepayments, and the short answer is, in the vast majority of our deals, we do have prepayments as one condition. It's very unusual that we have none. With that said, though, as we become larger, of course, the negotiations become tougher because the larger the company you are, the tougher that negotiation will be. Some customers do simply think that you get paid when you're done. I think we have strong relationships, and prepayments is something we should expect to continue to have in the vast majority of our deals.
Gustav Berneblad: Okay, perfect. Do you see any risks? I guess it is more related to the smaller orders then, or the ones that do not have prepayments. But risk that customers are placing double orders, that market is infiltrated by double orders, basically.
Stefan Aspman: No, would be the short answer. Again, it comes back to our positioning and differentiation. We have very few of that small customers. We have pretty good visibility into the projects we are engaging in. So very often there are more vendors in the mix. So in that sense, they are not working only with us, very much others as well, but double orders to kind of hedge and secure. No, I have not seen any of that.
Gustav Berneblad: Okay, perfect. Thank you. That was my two questions.
Stefan Aspman: Thank you.
Line Dovärn: Thank you. We can take another caller.
Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Please go ahead.
Carl Deijenberg: Thank you, and good morning. Two questions from me. First of all, on the order development in DCT in Q3, and maybe if you could talk a little on the pricing component here. Is it possible to give any quantification, what kind of price increases you are seeing, on the orders you are taking now relative, let us say, the beginning of the year? Secondly to that question as well, is the order values now reflecting sort of the higher component prices that you have been seeing impacting the margins, i.e., you are entering 2027, 2028 with a backlog which is more adapted for a different component price situation as well? That is my first question.
Stefan Aspman: Thank you, Carl. This one is a little bit dicey because I think we have both. We have parts of the backlog where we actually took orders at worse pricing because there is so much that has happened, to your point, quite lately. As you know, there is a significant time lag from when we take an order to when we deliver it. Yes, we have pricing clauses covering parts of that, and sometimes those can be activated, but not always. There is always a range until that is triggered. So there is some risk built in always if you have a product business like that. Then to answer your questions about have we increased prices, yes, surely. There are significant price increases made, also cost increases that we have had to take in.
Stefan Aspman: The blessing of a product model is, of course, that you can reset the prices product by product. Yes, I think a big part of the backlog now has a healthy pricing. For some of our products, there is a significant price increase, not because we have been more aggressive rather than we have on the cost side of the pricing model, we have just adjusting to where the market is.
Carl Deijenberg: Mm. Will it be possible to say anything on a very high level what kind of numbers we are talking about? I think there are other people in the industry that have been talking about 30% to 40% plus today relative when we started this year. Is that a fair assumption ballpark?
Stefan Aspman: I would say for us it is probably lower than that. I think it is also about positioning. I would say 40% sounds very aggressive, but it is fair to say that yes, some of them are 20% plus. That is true. That is what we see.
Carl Deijenberg: Mm. Thank you. Secondly, I also just wanted to ask on the backlog now in DCT. I think it was around SEK 2.2 billion now by the end of Q3. Could you share anything on the phasing of the deliveries here, 2027 and 2028? Just to understand what kind of delivery expectations we should look at when we compare it with the backlog for the going concern right now.
Stefan Aspman: Obviously, a lot of what we take in right now, coming back to the time lag between order to delivery, you are getting closer to 2028, right? A big part of 2027 is basically filled up, because if you have not placed your order by now, you are basically late in this industry, right? The more we move towards the end of the year, the more you should see that part of the orders allocated to 2028. Some could be late 2027. I do not know, Line. Anything you would like to add to that?
Line Dovärn: No, we have not done an exact split, but I think that covers most of it.
Carl Deijenberg: Yeah. Could I just follow up on that? I think Klas previously had talked about sales expectations for 2027, around SEK 11 billion for DCT. I know that you do not provide an explicit guidance on that, but it sounds like that is fairly conservative when we look at the value of the backlog. Would you agree with that or? Just trying to understand.
Line Dovärn: I think at the time he said that.
Carl Deijenberg: the distribution of 2027 and 2028.
Line Dovärn: Yeah. No, I think at the time he said that we had a backlog of about SEK 22 billion, and he was splitting it up on 2 years. So it was more a very quick assumption. But I think it is probably a bit low at this point. Yes.
Stefan Aspman: Yes.
Carl Deijenberg: Okay.
Stefan Aspman: Because obviously where we are right now, a big share of what we have in that backlog is related to 2027, for sure. So yes, you should be able to expect a pretty significant lift.
Carl Deijenberg: Okay. Very well. Thank you very much.
Line Dovärn: Thank you.
Stefan Aspman: Thank you.
Line Dovärn: We can take another caller.
Operator: The next question comes from Adela Dashian from Jefferies. Please go ahead.
Adela Dashian: Yes, good morning, and also congratulations from me on the very strong DCT order results. A lot of questions have already been asked and answered, but I am still going to keep it to the DCT margins. Appreciate the color on the tariff impact, but it would still be great if we can try to bridge today's margin versus where you ended up last year. I understand if you cannot provide me with specific numbers on all the components here, but maybe where the weights are leaning towards in terms of volume and the mix effect and the factory efficiency and so on. What weighs the most?
Stefan Aspman: Yeah. No, it is a good question, and I think if we are humble and we zoom out a little bit, I think we come from a history the last quarter or the last 2 quarters since we started, where it has been more of a mixed bag, Adela. That parts of this is going back to where I started. Some of these are very much related to a general situation or generic. This is what happens when you start a factory. Those kind of child diseases are gradually washing off or washing out. I do not think we have so much of that now. Still some, of course, because not at least related to hiring quite a bit of new people. So there is a skill effect here that takes a little bit longer of time. But that is ramping up. I would say that is a smaller part of it.
Stefan Aspman: The rework has been, I think, the main change here. It is not to be underestimated when you have to make these adjustments between different batches, different productions in a producing environment. So that has been hurting us quite bad. That is also getting gradually better, and that has a straight link to the supply chain situation. They really go hand in hand, because if we do not have it, we will have to still move around products and move certain things on the line aside to take something else, just to not stand still, because that is where we have been. We cannot just send people home, right? We are going to need them. That also has a hit on the margin. To go back to answer your question, I think right now, without sounding defensive, I would say the absolute vast majority of the limiting factor is external.
Stefan Aspman: We have our ducks in a row now when it comes to the operations, and we have all the equipment, and we have people working and ready to take on the bigger volumes. I hope you can see the 30% plus sequential as some kind of nugget of indication that we actually have the capability to start ramping up. Obviously, to hit the outlook, we need more than those 30%, but I think it is a good first step. So I dare to be somewhat forward-leaning in this.
Adela Dashian: Thank you, Stefan. That is very clear. Following up on this, your last comment here, I know we have been discussing this back and forth several times before, but with those factors being mainly external and obviously very limiting on your progress here, would it be possible for you to provide some sort of outlook on exactly what you are doing to combat this? What proactive measures are you undertaking? What are you seeing is working? What is not working? That would be my question.
Stefan Aspman: Yes, I can touch upon a few quickly. Some of them are obviously obvious, but we are qualifying more vendors. That is a very big part of that. Being extremely active and not only traditional sourcing, I am talking about full management team. My head of R&D is working more actively on this than maybe other things. Really making sure that we can qualify alternatives to keep building, but maybe with something that was not there in the bill of material from the beginning. That also calls for the second bullet, and that is very tight collaborations with the customers because we are all in the same boat here. Customers would like to avoid delays, and there is an openness to qualify other. As an example, can we work with another fan than the one that was specced in?
Stefan Aspman: That is a very clear, tangible activity that we can initiate. Besides that, a lot of lean work. We have a dedicated team in DCT that works with nothing else than just operational efficiency improvements, and they are doing their thing in all of the factories, but of course now very much focused on Virginia and the chiller ramp-up, which is another aspect. The last one, I would say, utilizing this opportunity that we now have a much bigger footprint in Virginia. Remember that additional 200,000 square feet gives us actually the opportunity to make changes in the production schedule without being so disruptive. Because if you only have your original factory and you are limited to the box you normally have, that is more disruptive.
Stefan Aspman: Now we can actually move certain things out to the new part of the factory and utilize that we do not have full utilization yet. That is also benefiting production, that we have more space to move. As simple as it sounds, that has an effect, definitely. There are tons of other things, like recruiting specialist competencies and adding extra short-term consultants that can come in and boost the productivity and things like that.
Katharina Fischer: We have also built safety stocks where we can.
Stefan Aspman: Yeah, definitely. That is a very good point, Katharina. The stock levels of inventories, of course. Now, once we get the components, yes, we take the opportunity to reallocate some capital and make sure that we have what we need to produce, because in the bigger scheme of things, that is going to be better for the company. Then long term, of course, we need to be at the right level on both of these sides. But short term, yes, I take that bet any day.
Adela Dashian: Makes sense. Thank you. If I just may quickly squeeze one in with the comment around working very diligently with your customers. Your order book here suggests that there is absolutely no stops in the momentum, obviously. Would you say that this is then helping the view that you actually are in a really strong market position where your products are valued enough that customers are willing to see past these issues that you are currently experiencing and still place orders with you, and not go with other vendors? Are you seeing that you are having even better conversations with customers today maybe than you did a couple of months or a year ago?
Stefan Aspman: That is a good question, Adela, and I think it is fair to say, and obviously, this is subjective view, but I think we have more conversations in the positive tone that we now have had time to bring people to Italy, being our R&D hub for chillers, show them what we have, but also on a broader scale, that we are a more significant player in the industry now. So yes, I do think we have a good traction in the market. To be more humble, everyone is in a good position right now because there is a strong industry. But in that strong industry, I definitely believe we are taking market share, if you look at the development.
Stefan Aspman: With that said, I also think it is important to point out that the so-called problems that we are discussing now is very much related on the expectation that you have as a capital market, which is very often quarter by quarter. If I look at that and I compare on the commercial situation, I don't think there is a view external that we would be in a tougher situation than anyone else, because our progress here is not worse than competition, I wouldn't say. Everyone is on allocation list on certain components. I see no one having a flawless, like everything, all ducks in a row when it comes to output and so on. Humble for the challenge we are in, but I don't think we are making the operations worse than anyone else.
Stefan Aspman: We are just in a different situation when we have started to move in a new production facility.
Adela Dashian: Okay, that's a great clarification. Thank you. I'll stop there.
Line Dovärn: Thank you. Next caller, please.
Operator: The next question comes from Anders Roslund from Pareto Securities. Please go ahead.
Anders Roslund: Good morning. I have two questions regarding margins in DCT and AirTech. Just to phrase it a little bit differently, you mentioned product mix as one reason for the margin deterioration. How come? That is my first question. The second one is in AirTech, the fact that you had this capital gain of 2.5 percentage points. You also mentioned that you had some costs related to this cancellation of order. Could you elaborate a little bit of what the underlying margin X the capital gain and X the extraordinary costs?
Stefan Aspman: Yes. Thank you, Anders. I will take the first one and pass the second one to Katharina.
Katharina Fischer: Sure.
Stefan Aspman: Product mix for DCT is quite clear. Anders, I know you know us very well. If you zoom out, we have gone from very much concentrated around SyCool and evaporator solutions. We benefited highly from that, and then we went into the chilled water infrastructure and with chillers, but not only chillers, also CDUs and new types of CRAHs. If I look at this year, we are basically producing three, to us, completely new concepts in the factory, and those have high potential and different potential. Chillers should have the potential to make somewhat of a SyCool journey over time, but not in the beginning.
Stefan Aspman: So that product mix all relates to going from things we are very used to producing and have set up routines, and we know what good looks like in terms of output and efficiency to producing. To a large extent, what we produce in Virginia now is very much new.
Katharina Fischer: Okay. The other one, AddTech margin, then the order cancellation fee. Yes, we had a positive one off for AddTech in the quarter then. As I mentioned before, it is not very common to have this, but whenever it happens, we see it as part of the normal running business. Hence, we have not put this as an item affecting comparability because it does not meet our requirements to qualify for that. We have some costs related to the order cancellation in Q3, but also in Q2. The order cancellation fee was around SEK 50 million. Thank you.
Anders Roslund: Okay. You do not dare to say because given the sales increase, which was quite impressive, you may have effect a little bit better margins than the one just taking off the 2.5 percentage point of cancellation income.
Katharina Fischer: Well, then you get from 12.9% down to 10.4%, right?
Anders Roslund: Yeah, exactly. The 10.4, is that a running rate or that is obviously impacted by also your high costs. That's why I am saying, is it something
Katharina Fischer: Yes, it was not a high cost in Q3. It was a small cost.
Anders Roslund: Okay. Thank you very much.
Stefan Aspman: Thank you.
Line Dovärn: Thank you. I think we have one more caller. We will let you in, Mats, for a last question.
Operator: The next question comes from Mats Liss from Kepler. Please go ahead.
Mats Liss: Yeah. Hi, thank you. A lot of questions, but DCT here and the orders are solid. Are there new customers in the backlog now or is it existing customers that you have met before? Also maybe how to scale your colocator mix there, if you share some color.
Stefan Aspman: Yes. Short answer would be yes. I think we are working well with the deconcentrating the customer base. So this is a broad mix between new customers, but also more from the established relationships. So I think I am happy to see new, to speak in FoodTech terms, new logos added.
Mats Liss: Okay, great. Then there are some sort of consolidation trends going on, and I guess some of your competitors have a broader offering. Is that something that customers like to see? I mean, more of a one-stop shop, or do you have sufficient offering? It seems so, I guess.
Stefan Aspman: You mean consolidation in terms of competitors becoming broader or?
Mats Liss: Yeah. Offering more.
Stefan Aspman: Yeah.
Mats Liss: DCT.
Stefan Aspman: Well, in short, Mats, I think we have one of the broader offerings in the market. In terms of that, definitely whenever competitors are developing and joining forces or buying smaller ones, it is potentially strengthening them. That is not lost to me. But I think we are also very active both in how we are looking at the potential M&A agenda, but also where we are right now. We have done a lot of good moves the last few years that has put us in a good position. So we are equipped to compete in the vast majority of this market.
Line Dovärn: Thank you, Mats.
Mats Liss: Yeah, and also.
Line Dovärn: I think we need to cut.
Mats Liss: All right. Yeah, I had a final one there on FoodTech. Do you have some comments there on the progress of the divestiture?
Stefan Aspman: No, nothing to share right now besides that we are on plan. We had a plan where we should be end of the year, and I think we are bang on that. I am happy to get back to you as soon as we have something relevant to say.
Mats Liss: Okay, great.
Line Dovärn: Perfect.
Mats Liss: Thank you.
Line Dovärn: Thank you very much. A lot of good questions today, and we have a few here that we did not have time to answer, but we will get back to you through IR. With that, big thank you to Stefan and Katharina Fischer for presenting. I knew I would do that at some point. Also reminding you that we will be having a capital market day on 11 November. Please reach out and come listen to us then. Thank you very much. Thank you.
Stefan Aspman: Thank you.
