MTRS.ST FY2026 Q3 Earnings Call Transcript
Date: 2026-10-23
Source: Financial Modeling Prep

Line Dovarn: Good morning and a warm welcome to today's presentation of Manta Q3 results. My name is Line Dovarn, and I am Head of Investor and Corporate Relations. And with me, I have our CFO, Katharina Fischer and our new CEO, Stefan Aspman, Welcome.
Stefan Aspman: Thank you.
Line Dovarn: Good. So we will begin, as always, with the presentation of the results. And then we will have a Q&A at the end. So with that, I will hand over to you, Stefan.
Stefan Aspman: Thank you, Line. So 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. So I will try to cover both in the best of ways. So let's get straight to the numbers. Again, from a commercial perspective, it is fair to say that this is 1 of the best quarters we have had. We had a significant order intake of plus 70%. Book to bill of 1.6% and a backlog which resulted in plus 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 start translating into sales growth, showing plus 18% at the group level. So Airtech coming in with strong performance, primarily in APAC and Americas and DCT, the 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. 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 U. S. 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 parts-- their part in APAC with 4 percentage points each. And also in EMEA, DCT growth. 4 percentage points within their respective business area allocation or distribution of sales. So heavy in The U. S, but good developments also in other markets. Coming to more of double clicks on the respective business areas, I think AirTech order intake continued to show a positive trend. 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 an order 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 parts 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. And I know that Klas had been saying before that for acceptable utilization of footprint, need an order intake of roughly 2 billion a quarter, and we are now showing 9 million last 12 months in the third quarter. So 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 work with the observation in the factories. Profit wise, it is even better. The AirTech profit more than doubled. And I know that in the beginning of the year, we said we would move towards double digits towards the end of the year. Now this has happened faster. So 12.9% is strong. We should also remember that the 6 percentage point up is having tailwind from 2.5 percentage points coming from the cancellation fee that we had from 1 of the bigger orders. So even if I back that out, 10.4 is comparable with Q2. And so 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 a 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. So it is 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. 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. So also, 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. So it is hard to keep up, but 41% year on year is a very strong number for this specific isolated service business. But of course, profit wise, there is more to wish for, but we started see the right movements. I think we have done most of the things we can do. I mean, all the CapEx investments in the new factory is in place. 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 kind of 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. So 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 want it to be. So and I know Klas used this picture before to 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 few steps further to reach the profitability levels that we aim for. So all in all, I think we left Q3 at a significantly better place in efficiency and output than when we entered the quarter. So very happy to see that our own process and production lines are getting better by each week. So there is a lot of active work from management now. to do all the things we can do to improve the profitability levels. And very much of that relates to the supply situation, qualifying more vendors, etcetera, having more commercial meetings to see how can we, as a whole industry, juggle this challenge because it is important to remember, this is the industry wide. it is not specific to Munters. Everyone is in this situation 1 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. So moving into FoodTech then. 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 project pipeline is very healthy. And I am optimistic about the near term development. I think we have a lot of things interesting set up for FoodTech and they do have a very unique value proposition in the market. The ARR is reflecting this. It has developed 18% plus So I think they also show healthy margins in FoodTech. And I think it is important to point out that, that is despite continued investments in future growth. Since we established Spiria, we have accelerated the development of this part of rather than slowed it down. So 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. So happy to get back to you when we have something more to say. But in short, it is progressing according to plan. So that was a very brief summary of the highlights overall. So, I am happy to hand over to you, Katarina, for the financials before we go back to some summary and Q and A.
Katharina Fischer: Yes, sure. Thank you, Stefan. So as Stefan highlighted, net sales was overall strong in the quarter. So this was especially noted in Airtech. 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 prior year, but it also saw some positive impacts. So starting on the volume, we had a positive volume impact both in AirTech but also in DCT. So that impacted the margin positively. Then for DCT then, 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 3 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 then in Virginia, we still see some production efficiencies related to the component constraints. So that has a negative impact. And then for AdelaTech, 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. And then we also wrote in the report about the positive 1 off for AirTech. 2.5 percentage points of AirTech's margin in the quarter. And we see this as normal running business. it is not often that we have order cancellations. But sometimes it happens. And this time, it happens. And it 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 fourth quarter. So we have really seen this that we are able to strengthen the margin sequentially due to high volumes then and also cost savings. Speaking about the ATEX 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. And then we are continuing on the program now in 2020 And it is progressing very well. And so far, it has reached around SEK 180 million. And we are targeting SEK $250 million then full year. Effects. And this program addresses then adjustments 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. 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 the DCT, but also higher accounts receivables as a result of higher sales. And this was then also offset by a stronger EBIT We have also then continued to invest of course, in the business and in the cash flow from investing activities, you can also see a positive effect from AgriWebb. We sold the minority holding that we had in AgriWebb 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. And then, of course, we are continuing to invest in the business with the strategic capacity expansions and so on. And in the first quarter, we also have this continued consideration for MTECH. Turning to investment then. So we continue to invest and we are applying our very capital allocation principles. So of course, we look for initiatives that improve excellence and also strengthen our potential growth or future growth. Potential. In the quarter, we had CapEx as percent of NetSys as 4.6% and on a rolling 12 basis, it was 6%. And then 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 strong demand in The U. S. DC market, of course. We are also making investments in AirTech, in the component production capacity in Mexico. So that is another investment. That is owned. Ongoing. And if we look at guidance for CapEx, we remain the outlook for that, which is then to be in the same range as 2025. And then for operating working capital to net sale ratio, that as I mentioned before, we are making very good progress. So it is down now to 4.2% then in the quarter. In terms of leverage, leverage increased then to 3.4 from 3.2 in the prior quarter. And this was driven then by the negative cash flow, but also higher lease liability And the lease liabilities are related to the Virginia expansion then. And then there was also a small offset with the improved EBIT And 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. And going forward, we expect leverage to gradually improve and 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 to the DCT ramp up. Into higher earnings. Yes. So then to end this part of the presentation then, I just wanted to share a little bit of a highlight from 1 of our investments in sustainability. So this is an investment in solar panels in our Speria facility in The U. S. So 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. So of course, that had a very positive impact on our CO2 emissions and also on our utility costs. So of course, 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%. So of course, it is strengthens our resilience towards higher energy costs and also our overall resilience. For the future. So with that, I would like to hand it back to you, Stefan, to summarize the quarter.
Stefan Aspman: Thank you very much, Katharina. So then I move this forward. So in terms of summary, important, we are not changing the outlook for this year. We see positive order trends continue in AirTech, high utilization and costs measures support and profitability. So I think we are moving in the right direction for AirTech. There is a 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. And with FoodTech, we do see solid earnings and increased ARR, 18% plus year over year. So not changing the market outlook and not the business outlook. Either. As an overall summary, I was thinking about how to summarize this. Klas 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 4 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. And how do you make sure that, that revenue turns into profit and that profit turns into cash? And if I put that filter in Q3, it is very clear to say that in the first conversion, the market potential into orders we have an outstanding commercial performance. So that is a very green 1 in terms of traffic light rating. I think we are proving to ourselves and to others that we can make a difference in the markets, both in airtech and in DCT and obviously also in FoodTech. Anders into revenue. This is where we have a little bit of a mix situation where Airtech is progressing according to plan and even slightly better. While DCT are struggling with the output compared to where the original ambition was despite having 30% sequential sales growth. So we are still negatively impacted by the components constraints. But I think have the worst parts behind us. Revenue into profits, obviously, overall in total as a group, I think we came in strong. But with that said, I also it is not lost to me that where this sits is something that is being challenged a little bit with Air Tech. Progressing a little bit ahead of the curve, what we indicated before and where DCT is trailing a little bit lower. So 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 ourselves for a strong 2027. And then profits into cash. Katharina covered that well. I mean, it is very much related to the DCT inventory buildup that drives negative operating cash flow. With that said, to end also that 1 on a more positive note, this is also what will be part of the recipe to turn around 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. So all in all, I think I will leave it there, and we go straight to Q and A.
Line Dovarn: Great. Thank you very much. Stefan and Katharina. We are ready for to take on questions. And for those of you in the telephone conference, I ask you as always to limit yourself to 2 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. So 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, dial pound key. The next question comes from Jingyi Zheng from UBS. Please go ahead.
Jingyi Zheng: Morning. This is Jingyi from UBS. Thank you for taking my question and congrats again on the very strong order intake.
Stefan Aspman: My questions are on DCT. Firstly, start with the growth and margins. Last quarter, Klas mentioned the progress in DCT was delayed by 1 quarter because of the supply chain bottlenecks. I wonder if that still holds under your current assessment. And in particular, do you still guide for 30% growth this year? And when should we expect to reach the high teens margin?
Jingyi Zheng: Good.
Stefan Aspman: Okay. Thank you. Let's take them in sequential order then. Yes, I think that the delay roughly a quarter is still a pretty good estimate. it is 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 with that incline of the curve. The 30% overall is something that is been put out in the market. And I would like to get away from the exact numbers here. There is a range, right? But we have I think, if we hold according to our plans, I think there is nothing in the outlook having a significantly stronger H2 than H1 that we will guide to in an extent, right? So it is 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 ourselves. 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 1 question in between those 2 that I lost. Which 1 was that?
Jingyi Zheng: Yeah. I think it answers the question.
Stefan Aspman: Just on the last bit, when do we expect to reach the high teens margins? Yeah. I think that is more of a more of a midterm play here. I mean, it could happen earlier, but I think we have to see this from the waterfall of being at our top you know, plus 20% something, and then we have made deliberate growth choices here going into new geographical areas, broadening the portfolio because we did not want to stay a 1- or 2-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 and in the near term and then continue to develop on that. Throughout next year.
Jingyi Zheng: Great. Thank you very much. that is very clear. And 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 $2.5 billion in Q4 versus about $1.9 billion in 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. I think just to complement a little bit, the growth will also come, it is not only from the Virginia first. it is also growth in Texas and.
Katharina Fischer: that is very good point.
Stefan Aspman: So I think that is important to keep in mind. Absolutely. And also outside of The U. S, right? So it is a broad mix. But of course, the bigger volumes comes from The U. S. And to Katarina's point, not only in Virginia, but also from Texas. Thank you.
Line Dovarn: Thank you. We can take the next caller.
Operator: The next question comes from Jakob Marken from SEB. Please go ahead.
Jakob Marken: Good morning, and thank you for taking my questions. So if we keep it at DCT firstly, you have 2 percentage points tariff impact here in the quarter, which is down from last quarter and from the top that you had at percentage points previously. I mean, should we see this as you have been able to source more local components in The U. S. Here in the quarter? And can you tell us a bit more on the component size locally in The U. S. 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 because if we go back, it was very important to us to kind of separate these are the tariff impacts coming from us localizing production of chillers from Italy to The U. S, right? And then we had, first 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 because in the biggest scheme of things, no 1 in the U.S., including us, will ever have a fully U.S.-based bill of materials. So there will always be shipping in and imports, and some of them will carry tariffs, right? But that is something in a project 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 Frank. And the supply chain constraints. So it is been squeezing us more historically, if that makes sense. it is still there, but it is-- it is washing out. Gradually. 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 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. That is very clear. And my second relating to cash flows and inventory I have been building quite a lot of inventory here in Q2, Q3. And when do you expect that to unwind then for cash flow to improve from reducing inventory?
Katharina Fischer: We expect it to stabilize year end. So we will still see some increase in the fourth quarter, as big as between Q2 and Q3, but still some build for year end. And remember, we have much higher capacity, right, in Munters, so you also need a higher level of supplies. Going forward. To support higher volumes.
Jakob Marken: Okay. And is part of the inventory buildup that you are not been able to secure some of the crucial components that you have, you know, building inventory for a lot of the products, and then you get you cannot get all of the components, and then you are stuck with some inventory.
Katharina Fischer: Off build products that actually do that.
Stefan Aspman: No. that is correct. Exactly.
Katharina Fischer: So for example Okay.
Stefan Aspman: We had 1 little bit more shortage of coils. And then, of course, we had all the other components, right? But the positive side of that is of course that we are well equipped now to deliver on volumes. 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.
Line Dovarn: Good. Did you have another Yes. Thank you. it is all for me and my no.
Jakob Marken: That was my 2 ones, so I will get back in line.
Line Dovarn: Thank you. Thank you. Mhmm. Okay. We can take another caller.
Operator: The next question comes from Adela Dashian from ABG Sundal Collier. Please go ahead.
Adela Dashian: 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 sort of concretely go through what the bottlenecks are that are keeping you from higher utilization rates at the moment.
Stefan Aspman: Yes. Thank you. Now if it is a relatively broad mix, we start up a new factories, 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 the mission critical industry. We cannot make any mistakes, right? 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, are working right. So simply, need to train the people. that is 1 part. That was in the plans. The ones that were not in the plan is to be to your point then concretely, if we miss a component, as an example, it very often ruins the whole concept of lean, 1 piece flow and other concept we work according to. That means that you have to build in certain components at a stage of production that is not beneficial to make it in a fast as possible way. So that is definitely something that is happening us. And 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 midterm a little bit of an opportunity because that means that you might have half produced units that are waiting to get finalized, right? But besides that, this 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. Understood. And then for my second question, just on the cancellation fee. I mean, I get this is an unusual thing, but given that orders have been outpacing sales largely in DCT, but an extent in Air Tech as well, you see any elevated risks that there might be more of these types of cancellations in the near term than what is usual? If you go back and look at this historically and please fill in, Katharina and Line, In DCT, if I go back to my years, we have experienced 1 cancellation, and that was an industry wide, not related to Munters. It was a big project in Denmark that can got cancellation been 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 what we have it is a gift and a curse. We have a little bit higher customer concentration than the big giants. But on the other hand, we have very good visibility into the projects and very often, work with the big ones like the hyperscalers and the wholesale colocation. And they very often have good alternatives to pivot because when they cancel, it is very often because there is something related to long term permitting challenges or that they did not got the connections to the grid that they were expecting or something like that. But then they have many other places. So they won to keep a diversified vendor base. So rather than canceling, they very often bring us on the next project and they use the products for that instead. So 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 is been the last few years.
Katharina Fischer: And for Air Tech, it is very unusual. We think this is the first cancellation we had there and also connected to it being a larger project that was full. Canceled in full.
Adela Dashian: Okay. Understood. And I guess those were my 2 questions. So thank you.
Line Dovarn: Thank you. We have a question a few questions here. About the utilization in Virginia. Would you like to comment a bit on that?
Stefan Aspman: How we are thinking about utilizing the factory and Now, I do not know. We want to utilize it to the full extent. We had a 165 thousand-square-foot, and now we have added 200.
Line Dovarn: We know we are gonna need all of that.
Stefan Aspman: So I am of all the things you could worry about as a CEO, it is not 1 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, also longer term. And with the portfolio mix we have, I think there is broadening opportunity for Munters as well. That is I mean, chillers are used in a much broader space than also data centers. Right? So I am not worried about utilization of filling the factory. And we always work with being able to take on other products in these factories as well. So it is not just completely chiller production in each No.
Line Dovarn: And I guess we should not bang our chest too hard.
Stefan Aspman: 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. D details to be able to have that flexibility to move production between the sites. So we cannot do it just compare 1 factory to another because also based on competence and other aspects. But yes, I think we have a flexible footprint within the So but utilization is definitely important, coming back to the margins.
Line Dovarn: 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. But we have a clear plan to get there. But we do not give any specific utilization rates for the factories. We can take another caller from the conference.
Operator: The next question comes from Gustav Berneblad from Handelsbanken: Please go ahead.
Gustav Berneblad: Morning, Stefan and Katharina. 2 questions from my side. Please. Starting with the data from the margin. And maybe doing a little bit on a previous question here. But could you perhaps elaborate a little bit on how much of the component sourcing is currently localized? In The U. S? And here, I mean, specifically for the chiller Yes.
Stefan Aspman: So without breaking it out in exact percentages, because that would probably be more disinformation than information because probably not right. But 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. So there is import for sure, but that is a deliberate import or a deliberate not localization. Coming back to the whole question about are we are optimizing. When it comes to the things where we can and should localize, like smaller things, valves, strainers, whatnot, I think we are in a very good way to have that localized. And with that said, obviously, the bigger values are in the bigger components like the evaporators, for example. So 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. So we had to go to very niche vendors for some of these components. Now we go to the broader ones. So even if it is an import aspect, you might still have the tariff but you have a completely different price, if that makes sense. So between those different mix effects, I would say that we are pretty localized by now. 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. Thanks. that is very clear. And turning to data center demand, could you talk us a little through how customer discussions are developing at the moment? And maybe particularly, while looking into 2027, are you seeing any changes in how projects are progressing from early discussions to firm orders? And if so, maybe if you could compare that to what you perhaps saw. Earlier this year. No. it is a good question. And 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 is 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 biggest scheme of things, the need for infrastructure, not only for AI, but also digitalization on a broader scale, is very much needed. And we see those investments coming through. So the plans that we see both in how it is 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. All right.
Gustav Berneblad: Thank you very much. I will get back in line.
Line Dovarn: 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. So I thought maybe just to start off, I mean, you tend to show a graph here showing all the larger orders that had not been basically announced. So just are there any large orders pushing up DCT? And then 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. I mean we have come from a history where we have announced larger orders. Due to a number of reasons, right? I mean we have done 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. And I consider that more as the running business nowadays. So but the shorter answer would be that, we have had during the quarters, I think we have 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. 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 is not the normal pattern any longer. But I have been around now in this industry enough to know that this comes and goes. it is very cyclical. So some years are like that, and I think this supply situation has definitely been pushing in that direction that some customers or companies want to kind of hedge towards that on security. So yes, And the second 1 Prepayments.
Katharina Fischer: The prepayments.
Stefan Aspman: And then the short answer is in the vast majority of our deals, we do have prepayments as 1 condition. it is very unusual that we have none. With that said, though, as we become larger, of course, the negotiations become tougher the larger the company you are, the tougher that negotiation will be. that is some customers do simply think that you get paid when you are done. And 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: Perfect. Do you see any risks I guess it is more related to the smaller orders then, but 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. I do not and again, it comes back to our positioning and differentiation. We have very few that small customers. We have pretty good visibility into the projects we are engaging in. So very often, are more vendors in the mix. So in that sense, they are not working only with us, 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 2 questions.
Line Dovarn: Thank you. Thank you. We can take another caller.
Operator: The next question comes from Carl Deijenberg Please go ahead.
Carl Deijenberg: Thank you, good morning. So 2 questions from me. First, of all, on the order development in DCT in Q3. And maybe if you could talk a little bit on pricing component here. Is it possible to give any quantification you know, what kind of pricing, price increases you are seeing you know, on the orders you are taking now relative, let's say, the beginning of the year? And 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 2.73 thousand today. A backlog which is more adapted for a different component price situation as well.
Stefan Aspman: that is my first question. You, Carl. And this 1 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. And as you know, there is a significant time lag from when we take an order to when we deliver it. And 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. But then to answer your questions about have we increased prices, yes, surely. And there is significant price increases made also cost increases that we have had to take in. And then the blessing of a product model is, of course, that you can reset the prices product by product, right? So yes, I think a big part of the backlog now has a healthy pricing. And 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: And will it be possible to say anything on a very high level, what kind of numbers we are talking about? I think there is other people in the industry that is 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, some of them are 20%+ That is true. That is what we see.
Carl Deijenberg: Thank you. Secondly, I also just wanted to ask on the backlog now in DCT. I think it was around SEK 22 billion now by the end of Q3. Could you share anything on the phasing of the deliveries here 2.73 thousand? Just to understand sort of what kind of, you know, delivery expectations we should look at when we compare it with the backlog for the going concern right now.
Stefan Aspman: I mean, obviously, 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? And 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? So 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 27.
Line Dovarn: I do not know, Line, anything you would like to add to that? No. We have not done an exact split, but I think that is covers most of it.
Carl Deijenberg: Yes. And could I just follow-up on that? I think, Klas, previously, I talked about sales expectations for 2027, around SEK 11 billion for the CT.
Line Dovarn: I know that you do not provide a 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 I think at the time, he said that sort of the distribution.
Stefan Aspman: Of 2027 and 2028.
Line Dovarn: I think at the time, he said that we had a backlog of about 22 billion, and he was splitting it up on 2 years. So it was more a very quick assumption. But I think I think it is quite. it is probably a bit low at this point.
Stefan Aspman: Yes. Yes. 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, should be able to expect a pretty significant lift.
Carl Deijenberg: Okay. Thank you.
Line Dovarn: 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 result. A lot of questions have already been asked and answered. But I am still gonna 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 mean, I understand if you can provide me with specific numbers on the. On all the components here. But maybe, you know, where the weight are leaning towards in terms of volume and the mix effect and the factory efficiency and so on, like what weighs the most?
Stefan Aspman: Yeah. No. it is a good question. And I think we are 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 is been more of a mixed bag of delivery, you know, that parts of this is going back to where I started. Line some of these are very much related to a general situation or generic. Line 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. 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 of different productions in 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. So 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. So that also has a hit on the margin. But 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. 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. And 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. And then, I mean, following up on this and your last comment here. I know we have been discussing this back and forth several times before. But Mhmm. 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, like, outlook on exactly what you are doing to combat this. Line, what proactive measures are you undertaking? What are you seeing is working? What is not working? And, and, yeah, that would be my question.
Stefan Aspman: Yes. I can touch upon a few quickly then. Some of them are obviously obvious, but we are qualified more vendors. that is a very big part of that. So 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, right? So 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, as an example, than the 1 that was specked in? 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 else than just operational efficiency improvements, and they are doing their thing in all of the but of course, now very much focused on Virginia and the chiller ramp up. Which is another aspect then. And then the last 1, I would say, utilizing this opportunity that we now have a much bigger footprint in Virginia. Remember that additional 200 thousand 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. 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, right? So that is also benefiting production that we have more space to move. As simple as it sounds, that has an effect, definitely. And then there are tons of other things like recruiting specialist competencies and adding extra short term consultants that can come in and boost productivity and things like that.
Katharina Fischer: And we have also built safety stocks where we can. Yes, definitely. that is a very good point, Katerina.
Stefan Aspman: The stock levels of inventories, of course, now once we get components yes, we take the opportunity to I would rather tie some capital and make sure that we have what we need to produce, in the bigger scheme of things, that is going to be better for the company. And 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 in a day.
Adela Dashian: Makes sense. Thank you. If I just may quickly squeeze 1 in with the comment around working very diligently with your customers. I mean, your order book here suggests that there is absolutely no stop in the momentum, obviously. And would you say that this is then helping the view that you are You actually are in a really, 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. I mean, are you seeing that you are having even better conversations with customers today maybe than you did a couple of months or year ago.
Stefan Aspman: that is a good question, Adela. And I think it is a. it is fair to say, and obviously, this is a subjective view, but I think we have more conversations in the positive tone that we now have had time to bring people Italy, being our kind of R&D hub for chillers, show them what we have, but also on a broader scale that we are a most significant player in the industry now. So yes, I do think we have a good traction in the market be more humble, I mean, 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. So 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. So if I look at that and I compare on the commercial situation, I do not 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 would not say. Everyone is on allocation list on certain components. I see no 1 having a flawless like, all ducks in a row when it comes to output and so on. So humble for the challenge we are in, but I do not think we are making the operations worse anyone else. We are just in a different situation when we have started to move. In a new production facility.
Adela Dashian: Okay. that is a great clarification. Thank you. I will stop there.
Line Dovarn: Thank you. Next caller, please.
Operator: The next question comes from Anders Roslund from Pareto Securites. Please go ahead.
Anders Roslund: Hello. Good morning. I have 2 questions regarding margins in DCT and Air Tech. And just to phrase it a little bit differently, you mentioned product mix as 1 reason for the margin deterioration. How come that is my first question.
Stefan Aspman: And the second 1 is in AirTech. The fact that you took this took that you had this capital gain of 2 point 2.5 percentage points.
Anders Roslund: You also mentioned that you had some cost related to this cancellation of order. Could you elaborate a little bit on what the underlying margin ex the capital gain and x the extraordinary cost.
Stefan Aspman: Yes. Thank you, Anders. I will take the first 1 and pass the second 1 to Katharina. Product mix for DCT is quite clear. We have gone from and Anders, I know you know us very well. We have gone from if you zoom out, we have gone from very much low concentrated around Cycool and evaporative solutions. We benefited highly from that. And then we went into the chilled water infrastructure and with chillers, but not all the chillers, also city use and new types of cross. And if I look at this year, we are basically producing 3 to us, completely new concepts in the factory. And those have high potential and different potential, like chillers should have the potential to make somewhat of a cycle journey over time, but not in the beginning. So all relates that product mix all relates to going from things we are very used to producing and have set up routines and we have 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. Okay.
Katharina Fischer: And the other 1, AirTech margin then, the order cancellation yes, we had a positive 1 off for AirTech in the quarter then. And as I mentioned before, it is not very common to have that have this. But whenever it happens, we see it as part of the normal running business. So hence, we have not put this as an item affecting comparability because it does not meet our requirements to qualify for that. And we have some costs related to the order cancellation in Q3 but also in Q2. And the order cancellation fee was around SEK 50 million.
Anders Roslund: Okay. So you do not have to say because given the sales increase, which was quite impressive, you maybe have a effect a little bit better margins than the 1 just taking off the 2.5 percentage point of cancellation income Well, then you get from 12.9 down to 10.4 right?
Katharina Fischer: Yeah, exactly. The 10.4 is that the running rate or that is obviously impacted by also your high cost So that is why I am saying it.
Anders Roslund: it is something what? It was not a high cost in Q3. It was a small part.
Katharina Fischer: Okay. Okay.
Anders Roslund: Thank you very much.
Line Dovarn: Thank you. Thank you. I think we have 1 more caller. We will let you in, Mats, for the last question.
Operator: The next question comes from Mats Liss from Kepler. Please go ahead.
Mats Liss: Yeah. Hi. Thank you. A lot of But, I mean, BCT here and the orders are solid. And are there sort of new customers in the backlog now, or is it sort of existing customers that you have met before?
Stefan Aspman: And, also, maybe hyperscaler, yes, colocator, mix there, if you could some. Share some color.
Mats Liss: Yes.
Stefan Aspman: 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 happy to see new to speak in FoodTech terms, new logos added.
Mats Liss: Okay. Grete. And 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 1 stop shop, or do you have sufficient offering Seems so, I guess, but You mean consolidation in terms of competitors becoming broader or Yeah. More. Yeah. The DCT Yeah.
Stefan Aspman: No. I in short, Mats Effect, we have 1 of the broader offerings in the market. So in terms of that, I mean, definitely, whenever competitors are developing and joining forces or buying smaller ones, it is potentially strengthening them. So 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 is put us in a good position. So we are equipped to compete in the vast majority of this market and also, yeah.
Line Dovarn: And just to also alright.
Mats Liss: Yeah. I had the. Well, final 1 there on FoodTech. Well, we do 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. So I am happy to get back to you as soon as we have something relevant to say.
Mats Liss: Perfect. Okay, great.
Line Dovarn: Thank you, Perfect. Okay, 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 Klas and Katharina for presenting. I knew I would do that at some point. We are also reminding you that we will be having a Capital Markets Day on the November 11th. Please reach out and come listen to us then. Thank you very much.
Stefan Aspman: Thank you.
Katharina Fischer: Thank you.