Munters Group AB (publ)

And welcome to the presentation of our Q3 report. I am Ann-Sofie Jönsson. I'm Head of Investor Relations and Risk Management here at Munters. And with me today, I have Claes Forsström and Annette Kumlin. We will run through the presentation and then we will open up for Q&A for those of you who are on the conference call. And for those of you who are viewing on the web, please feel free to post your questions throughout the whole presentations and we will take them during the Q&A session. So with that, I hand over to you, Claes.

Thank you, Ann-Sofie. And once again, good morning, everyone. Before I go into the presentation that will follow the normal pattern, so to speak, let me briefly summarize and give some reflection about the quarter that has passed. First of all, I do feel that the quarter shows that what we have done the last couple of years is starting to pay off. We have targeted the right growth segments, driven by trends of electrification and digitalization. We have, before the curve, started to invest to secure production capacity and drive efficiency while developing innovative products for the market. And all this, then, are resulting now in record high order intake. Just to mention the two largest ones, the cycle of 1.8 billion and in HCT battery systems for about 700 million. We have also generated a stable margin improvement over the last quarter and a profit improvement compared to last year, the same quarter, about 36%. All segments and regions except food tech in Europe and Asia are showing strong demand in the market. And with that said, we will continue to invest in creating further innovation, further efficiency, and handling a stretched supply chain environment. And with that, let me move into the presentation. As said, record order intake confirms our strong offering position, and I will not go through this in detail, but as you can see, we have continuously moved on with orders, and I think it's fair already now to mention that some of those orders are definitely to be delivered in 2023 and 2024. Moving over to the strong growth in the backlog, and now we have a book-to-bill of 2.4%. And as I said earlier, Airtek and DCT are showing strong growth. And then this is offset by a weaker market, especially in China's wine segment, and a flattening out and weaker market in Europe as well. And moving over to the EBITDA margin, a slight improvement on margins from last quarter, but a definite improvement from the year ago. The summer of the Q3 from an order intake, that is, America stands out in all three business areas. It is air tech, it is data center technology, and it's also food tech, both when it comes to food tech and digital and climate solutions. Then EMEA also generating a strong order intake of 25%. Airtech shown growth in the battery and the service segment. DCT, a stable demand from co-locators and the hyperscalers. And foodtech then in this case, a somewhat weaker market, of course, affected by the war in Ukraine. AIPAC then, Airtek, and they're both battery and clean technologies, a strong order intake. And as it has been a couple of quarters ago, China is weak as such. You have seen me show this slide many times, and I think the best way to summarize it is to say we are used to different uncertainties. I don't have to mention the economic uncertainties in general, the lingering COVID effect, the very, very depressive war that are taking place in Ukraine. But we're used to handling this. And I don't think we should dwell much more on that. It is about, we see some improvements in some of the areas, better deliveries when it comes to components. But in other areas, we still have ups and downs, etc. And I think our way of handling is that is we will continue to work with this and we will not call for an that is over until it's over. We are cautious, cautiously pessimistic in this area. And talking about that then, excellence in everything we do, I think it's so important to mention that we are continuing to invest in many different areas in order to make us an even better company for the future. you heard me talk about r d investments and i do believe that everyone is now starting to see the signs of that it's it's paying off like the cycle as an example we are moving ahead in sustainability both how we work internally but then also how we deliver products that are generating better energy savings and better animal health as an example Operating working capital, continuous work here as well. It is both how we control the flow, how we work with projects, how we work with inventory and commercials. As you have heard me say and you will hear Annette say, we are constantly working with how we go to market with pricing, etc., But even more important, we invest also in our production facilities. It is larger investments like the two new facilities that I've talked about. We have also started to invest heavily in another facility in North America, planning for that, an expansion in Amesbury. But it's also the daily work with the many small improvements, the lean programs, et cetera. So at the end, excellence in everything we do, day out and day in. Coming back a little bit to the market then, and air tech, it is very much green signals everywhere. I don't see any slowdown as such in the coming six months ahead. It is the industrial that is very strong. It is component that continues to be strong. It is clean technologies that is starting to move up. Yes, it is commercial, but as you know, here we concentrate very much on the aftermarket. And services is also progressing in a good way. The large projects, the electrification. We have sent out press releases about the large customer order in the car manufacturing in the US, 65 million. The deliveries, and I think this is important, will start mid-2023 and carry on all the way to 2024. Moro, a smaller one, below 100 million Swedish krona, but it's a clear sign that we are also making progress in Europe when it comes to battery sector. And then, of course, the aftermarket replacements, the service. I'm really pleased what we are doing within Airtek at current and without talking too much about the future, but it is very much so that most battery makers are talking to us every day. So I expect that we will continue to do good progress in this area in the coming quarters. Data center technologies, the newly started or dedicated market business area. Nothing really has changed more than that we continue to make good strides when it comes to order intake. We are winning customers. I feel that we are taking market share with the Cycool products as such. At the same time, it is so important that we are building up production capacity, that we have secured the contracts in a good way when it comes to pricing clauses, etc., And talking about this then, and most probably we will come in a little bit more into this in the Q&A, but just to repeat it, when it comes to the order intake in data center technologies, a little bit of those large orders in the backlog will be delivered during the end of this year. A large part of this will be delivered during 2023, and another large part will be delivered during 2024 as such then. Food tech and market in transformation. I think it's fair to say that in our company, the ones that are fighting the hardest at current, that is food tech. What is really pleasing to see that is that our digital solutions, our offer that we have brought to the market is generating customer attractiveness, but it's also generating improvements when it comes to sales. So here we have a strong market with us. It is also good to see that we and the market in greenhouse are making steps forward. But then when it comes to China, when it comes to Europe, it is a tough market. And as you can see, for the coming six months, we expect it to be continued tough. Great to see that we're making progress and the market is with us in North America and that we will continue to fight for. also important in the transformation of food tech. That is, you have heard me say that digitalization and software as a service and how we connect farms and so on, that is the future. And here we have made two. interesting investments, and that is strategic investments and collaborations with a company called Barn Tools and a company called Pharmacy. And it is about wireless IoT solutions towards the chicken industry, and it's about artificial intelligence towards the swine industry. I'm super excited about this, and this shows that we are building a network where we collaborate in a very, very good way. Innovation is not only inside a company, it's also how you work and how you collaborate. Climate change. Our main purpose is, as you know, customer success and a healthy planet. And of course, that is about what we deliver to our customers. But it's also how we operate. And for me, it is very, very pleasing that we're moving the renewable electricity content forward step by step. We're up to 66% now, and I expect us moving this step by step forward as well. The recycling rate is up at plus 50%, but also very, very encouraging that you see that the energy efficiency at current, i.e. how much energy do we consume per produced product, is improving. And that is just to mention a few of those areas where we are doing a lot of progression. And perhaps I should mention a last one, and that is the ISO certification, i.e. to make us a better company for the future. We are step by step ISO certifying all our production facilities. With that very, very fast run through, I hand over to you, Annette.

Thank you very much. And let's look at the financial highlights for this quarter. So if we look at sales growth, it has actually come true. So you can see that the order take is trickling through. We had a 22% growth in the quarter. In year-to-date, we're looking at 21%. If you look at the margin, 11.1% now in the quarter, and we have 10.4% year-to-date. And here is to remember that... that when Klaas and I joined, we actually said we're going to take part of the performance that we're improving to actually make sure that company is scalable. So if you look at it today, we basically have now, year to date, half a margin point that we're actually putting in to making the company scalable. Leverage, yes, it has increased during the quarter, but this is owing to, for the most part, actually the new factories that we have set up in Virginia, but also in Houdini. Actually, if you look at the underlying performance, we have an improvement in leverage from that point of view. So taking then looking at the group, yes, record order intake in the quarter. And again, it's the batteries. It's actually also the DCT, obviously, which is driving it. And also we're having food tech for U.S. that is also having a good performance. But I think the most important thing is that it's not only these big orders that are actually coming through. It's also the underlying business that are growing. Order backlog, yes, very, very big, because as you know, also with the DCT orders, they are coming through over a long period of time. Net sales, again, it's DCT Americas. You've got battery. You've got also the components in air tech. You've got services. And we've also got the U.S. and EMEA in food tech that are driving it, whereas when it comes to China for food tech, it's offsetting part of the growth. Services now is 14% of net sales for the group, and also when we're talking about price increases, as we have said, it is coming true, and we can see that there's a bigger impact on the price increases in the P&L than what we have seen before. Adjusted EBITDA, well, when you look at the margins for the different BAs that we're going to soon look into, you can see that DCT, they do have a mixed change, but also a lot of work when it comes to making sure that the supply chain works correctly. We do have lower volumes in food tech, which is taking it down, particularly in China, that's continuing. And then also we have the continued material and freight costs that are increasing, that are offsetting, obviously, the price impact that we see. So going then into what the margin looks like and the changes we have seen. As I said, if you look at the quarter last year, same period, we had 11.6. We're down to 11.1 now. What we can see is that the volume is still coming through. Net pricing, if you remember last quarter, we more or less were neutral when it comes to the net pricing. We're actually positive now. Supply chain and investments and operational challenges are still weighing down the margin a bit. But what is important also is that those two units where we had operational difficulties, the progress on the activities are coming through as well, which is important for us now. And then obviously when it comes to the business of regional mix, we did have some negative impact for the weaker market in FUTEC, but also from the businesses in DCT. If we look then at air tech, I mean, very strong growth in the transformative segments. And you can say it's continuing the way you have seen before. It is the batteries, particularly in the Americas, and it's also the services that are coming through. Net sales, yes, order intake is coming through. We are delivering. And here again, we're talking about the batteries, the service and the components. And for air tech now, actually services is 23% of net sales. So you can see it has increasing year on year. Price, well, we're looking at about 5% of Airtek net sales in Q3 that we have a price positive impact. And again, we can see now also that for Airtek, we're net price positive. When it comes to the EBITDA margin, again, the volumes continue to have a good push when it comes to the results. But obviously, when you look at the price increases, although we are net positive, the EBITDA margin is still weighed down a bit by the... by the lead times and managing the supply chain activities. Again, one of the units here in Airtek did have some issues when it came to operational challenges. It's being addressed as we speak, and actually we're seeing progress coming out of it as well. So addressing the data center, our newest BA that we broke out last quarter. And as you can see, again, order intake is very good, as we have talked about. We will have had some good orders coming through, both that we communicated earlier in the quarter. We talk about 240 million dollars, basically. And also you can see now that the sales are coming through. What's important to understand, again, as we have spoken about a lot of times earlier, it is a project business. So actually, the business mix can change. And this is what has weighed down the margin a bit. But what's important also here is that we're starting to see some of the price increases coming through, but it's not yet net positive effect impacted. And also, this is the business area which is most impacted, actually, by handling of the supply chain challenges. There's a lot of work to make sure that we have the right components in place to be able to produce and deliver the products for our customers. If we look then at food tech, food tech have had a decline when it comes to the order intake. America's is still good, but when we're looking at China and also EMEA, we are seeing weaker order intake coming through. Whereas when you look at the United States, it's more or less flat. And here you can see that America grew, EMEA grew, but APAC is continuing to decline. When it comes to the price increases, this is the BA which has been most successful in implementing price increases. So the gross margins are quite good coming out of it, but FUTEC is way down by the volumes. And this is also the BA that was most affected by the impact from the Russian war, where we took out volumes. And also here, you could say that this is one of the business areas that also have one production unit that has met challenges. But again, we see progress in the actions that we have initiated. Coming then into operating working capital, yes, we did have a positive impact when it comes to the operating working capital. And as you remember, we have some really large orders, and this is part also actually of how you drive the businesses and how you sign the contracts. So there are some advances that are coming through now. Leverage, as I said, increased slightly compared to last quarter, but again, it's about the changes in the business that are coming true, where the biggest thing is really that we have two new factories on leases, and this is what's impacted. Otherwise, if you look at the underlying performance of the companies, it's actually had a positive effect on the leverage. As Claes said, we're working a lot to make sure then that we build a scalable company. It's all about commercial excellence. And you have heard us talk about the prices and how we work to go to market. And it's coming true. But it's a work that takes some time to do. There's still some work that needs to be done in order for us to become truly best in class when it comes to this. Digitalization. We're a bit asymmetric. We have a very, very high level of digitalization in our food tech area. When it comes to the other areas, we're working on it, looking into the customer offerings. And then also, obviously, we're working into, from a user experience perspective, making sure that we have a digital DNA inside of us. But that takes time to carry through, and we're in the middle of it, actually. Innovation, again, it's all about processes, but it's also about trying to look at new things on how to do it. Or actually, those two investments that were made in Barnters and Pharmacy plays a role. And there are also other initiatives that we're doing to look into kind of like jumping the curve to make sure that we drive innovation forward. Manufacturing excellence, again, it's all about lean, and that's also those type of processes that we're running through. And then last but not least is actually changes in the business and growing a business. It's us that do it, the people. So we make sure that we invest in them also. If we look then at our strategies or inorganic strategy to boost our overall growth, we have talked about this for some time now. Basically, we have four areas that we are working with to invest in to make sure that we drive the business forward. One is looking into investments in core and consolidation. And you can say that the investment we did or acquisition we did earlier this year in Edpac truly hits that mark. If you look at technology and digital, we have actually done some IP rights. It's not necessary that it becomes an acquisition activity. It could be just acquiring also an IP right or doing other type of alliances. We have also then, as Klaus pointed out, invested in some minority companies. Two of them were mentioned, Bond Tools and Pharmacy. And we also have another investment that we did earlier this year, which is really looking into... the jumping the curve activity and setting money in things that we feel can actually allow us to grow. Third one, services, string of pearls. Here it has been a little bit tougher for us, but actually what we have done here is we did some greenfield establishments earlier in Ireland and Norway. The reason for doing that, we thought that that was the smartest way to go to market rather than buying a company for these markets. And then obviously we will also look into new growth areas, but that's more to come later on. So with that, Claes, I would like to hand over to you.

Thank you very much, Annette, and Let me ask once again, repeat where we are in this. It was a quarter with record order intakes that confirms our strong position and about that also the offer. Customer would like to buy from us. We showed a continuous stable margin despite increased investments for growth. Very pleasing. We are increasing the capacity to meet the growing demand by investing in factories, but at the same time also driving efficiencies and lean programs across. And at the end, I do feel that this quarter proves that we have pointed out a clear strategy for value-creating growth, and now it starts to pay off with the orders, with the strong progression in innovation, and when it comes to efficiency as such. So I'm very pleased with the quarter, but this is just the beginning of many more quarters to come. With that, I think we open up for Q&As.

Thank you, Klaas.

In the question and answer session, to ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first telephone question is from the line of Gustav Berneblad from Nordea. Please go ahead.

Yes, good morning. It's Gustav here from Nordea. You talked about the Chinese battery market having showed strong growth in recent years. And then now that you've sort of seen it stagnate, how it looks in the report, like the battery segment in APEC grew quite strongly. Would you say that the higher growth in APAC is sort of unexpected and that we can continue to see a stronger battery demand in this region going forward? Or what would you say?

Gustav, it's a very, very good question. My view, and this is more as we see it, that is the normal pattern of China is very often that you build up a lot of industries, you start to expand, it goes into some sort of consolidation. And if I go back, that happened during 2017, 18 and 19, and then it consolidated back and then it started to come up again. Our view, that is, we expect that it will be a consolidation. It will be a stagnation to some extent. But at the same time, I can say that the interest in our products, the customers are still there. But I think we have to look upon China in the normal way. It is very often up, it stagnates a little bit, and then it goes up again. That is my view on it. And I repeated that over a couple of quarters that That is how we plan and that is how we see it. If there is business, of course, we will take the business if it generates the profit that we want.

All right, perfect. And then you also mentioned the component shortage in the data center. Again, would you say that you're seeing an easing here or? What should we expect?

What I'm super happy with when it comes to it is how we handle this. I mean, we are always ahead. When we take those large orders, I'm very confident that we have booked it. We have put the questions out there. We have already started to get components in. That's the reason why we're building up inventories to a certain extent. But at the same time, I think it is fair. And I hear a lot of people saying around in other industries, yes, it is really improving all the time in this. I'm here a little bit cautiously pessimistic. I see still that we have to work with deliveries. It is, yes, an ease in the market, but still we have to work with it. Am I worried? Not at all. I mean, I'm saying that we are used to handling this. It has affected data center technologies during this quarter. But at the same time, you can see, I mean, we are starting really to push out the sales as well. So it's more it's not over until it's over.

All right, but regarding the DCT order of SEK 1.1 billion that you received earlier this year, how confident are you in delivering the 5% to 8% now in Q4 that you have communicated?

I'm super confident in that. It's a very good question that you bring up. Let me just briefly repeat that. We had the 1.1, we had the 1.8, and the 1.1, a small delivery in this quarter and then evenly spread out during next year and a little bit of slip over into 2024. And the other one, to balance the factories, so to speak, I mean, it will be a little bit, perhaps, deliveries in end of 2023, but the majority will be during 2024 and then a slip over to 2025, so to speak. But to summarize it, I'm super confident in that we will start to deliver it. Actually, I was over in the U.S. just a week ago, and I can already now see that the production, the built-up, et cetera, is working.

Just to add, Gustav, it's very important. There are a lot of activities that we're doing, but there are two that are driving it. We are ordering well in advance to make sure that the components are there. The other thing is always to work with qualifying to make sure that we have not a single sourcing activity around our production. Those two are driving it. There's a lot of work being done behind the scenes.

And exactly as Annette said, and that's the reason why I really would like to highlight our people. I mean, they have qualified many components. They have sort of designed the different setups for different components. But the majority of that is already done now. So from that perspective, I'm not worried. I'm just saying it is still component shortages out there, and we have to handle it, and we are doing it well.

Excellent. And then also the last one here. Can you give a bit more flavor on the business mix affecting data center and also how long you think this will continue for?

I can start, and then I'll let Anette in as well. When it comes to business mix, I widen the perspective and say like this. If I start with the orders that I talked about earlier, first of all, they are large orders, but they are orders that is built up at many, many small deliveries, so to speak. So it will be a constant flow. The business mix that we see now, that is, we have taken a few orders that we saw that, okay, it was a lower margin, and that has affected us. But it is not there for long, but it's just a reality during this quarter. I think that is my view.

Yeah, and as I said during the presentation, one needs to remember that DCT is a product business. There will always be a change in business mix. This quarter we're talking about a negative business mix because of some orders that we took earlier on, but also that we have a little bit more tilted towards Europe than what we had in the U.S. But that's what we would like you to remind of. There is always a business mix change in DCT.

And, you know, we are never giving forecasts. But I think you have heard me say that I'm very confident in the order backlog that we have. And without sort of saying exactly how it will pin out, but at the end of next year in DCT, I expect that we will be in the range of our mid-term targets for the group. And that will happen then step by step. So I think that is a sign, if any.

Perfect. Thank you very much. That's all for me.

Next question is from the line of Oskar Wikström from Barenburg. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question. Yeah, just to continue to build on this discussion on DCT, first of all, could you sort of explain a bit better what kind of orders this backlog is built on? Is this mainly sort of greenfield, like new installations, or their component of replacements as well and how do you view the market sort of over the next sort of one to two years you think old cooling units that are already installed in the market

Thank you for the question. First of all, I mean, we are not giving large outlooks, but I have always said this is a transformative market. We see an increased data traffic. We see an increased build of data center. It is extremely pleasing to see that our products are generating more and more interest. So if I talk about the backlog then, and the largest part of the backlog, that is, of course, the two large orders of cycle then. Those are being sold to co-locators, providers that are then installing them in multiple data centers across North America. So from that perspective, it is... The first order, if I remember it right, there was 300 different systems that is sent, and they will then pin out one by one over the quarters that comes and will be installed in different centers, so to speak. Our view on the co-locators, that is, that is a stronger market. And here it's important that some of the co-locators are actually helping the hyperscalers, but the co-locators are the ones that are our customers. So all in all, we focus on the markets where we believe there is growth. And I think we have been able to prove that that was the right focus. And then we are taking orders that we can handle. And the good part that is, it is a big interest for those type of products.

But most of it is greenfield at the end of the day. Yeah.

So to come back to that. Yes. Yeah. Yeah.

Great. Thanks. Just in terms of capacity, obviously now you have the new facility in Virginia, Czech Republic, etc. I guess to put it in the frame of the current backlog and your capacity, what is the need going forward to further invest? You mentioned aims for expansion here going forward as well. What's the plan there? How much capacity are you looking to add? And maybe some indication of the capex we could expect there.

If I start with how I look upon capacity as such, then my view, and this is based upon my experience, I mean, we have invested in larger capacity. It is... Literally, it is more than doubling the capacity when it comes to floor space, both in the battery sector in Europe and when it comes to data centers in North America. Then my experience tells me that you built that up, you install it, and at the same time, when you're building this up, you're working with efficiency programs, you're working with lean, even if you're top class from day one, you're constantly working with that. And This is not a forecast, but I expect that we will be able to generate 20-30% efficiency later on over the coming years. Because that is the way I'm used to, and that is the way we operate right now. And then we can install more capacity if needed in those factories. But when it comes to CapEx, etc.,

again oscar we don't really give any any um any outlooks when it comes to those type of activities but what we have done which you have seen is that the two last factories we have done leases and we're actually looking at that also for the next ones because it's an efficient way for us to drive actually the growth for the company so that's why you probably see the leverage being impacted going forward no that's perfectly clear thanks um

And just on the efficiency, you mentioned briefly there, just so I understood it right, did I understand it correctly that around 50 basis points of the margin is then used towards these efficiency measures? Measures? You mentioned the margin?

Yeah, I mean, when you look at what we have studied, in order for the company to become scalable, there are certain things that we need to do from a process activity and also from a staffing perspective. We're getting bigger and also making sure that we drive excellence in what we do. So what we see today so far is that we have a half a percentage point that's weighing down on the margin year to date. And we have been clear also from the beginning where we started, we will take part of the margin to make sure we bring Mantis into a scalable company.

Yeah, thanks. And then just maybe finally for me on the leverage, as you mentioned, you know, you're building this kind of working capital now preparing for sort of next year and beyond that even. But would it be reasonable to assume a sort of relief in working capital as these orders are starting to be worked through?

into next year i guess in terms of the leverage and cash flow again i mean there are a couple of things that are kind of like going against leverage since we're growing it just automatically means that you move up operating working capital and then it depends on how our big projects are flowing because obviously when we start with our big projects now we do have advances that are coming true so it depends a little bit on how the cash cash flow profile looks like for the products that we have taken that's part of the commercial negotiation with our customers so it will fluctuate actually depends on if you're at the start or the end of it and then obviously depends also on how the big orders are matching each other when it comes to when you get the flow of advances coming in and when you get flow of products components coming in and when you start to get the products flowing out to the customers so it's a bit hard to say actually but this is again it's a growth company so we will have these impacts but it's fair to say of course we are building up now

stock components we have a very good way of operating the projects that we balance it off with the projects are over the time cash neutral which is really good and as you can see the cash flow was healthy this quarter yeah no definitely okay perfect yeah that's all for me thanks for thanks for your time

Next question is from the line of Gustav Osterberg from Carnegie. Please go ahead.

Thank you, operator, and good morning, Claes and Antonin. Obviously very impressive on large orders, but even excluding those large orders, the underlying demand on base orders has to still be very, very good. Can you give some more color on the demand environment for base orders? What's driving that demand?

Good question. And I think in one of the small notes there, we also said that if we exclude the large orders, it is around 25% growth in the company, so to speak. And so that is a strong and healthy growth. I would like to say like this, Dan. I mean, in the base business, I talk about Airtec and DCT first. I call it, it is very much the... It's food. It is different ways of efficiencies when it comes to energy, etc. It's the many small orders in many different segments, and that is the beauty of food tech, of munters, and especially air tech then. then it is a couple of smaller orders that shows that we are well positioned also from dct in in europe that is pinning in now and that was the plan when it come came to edpac i mean think big start to move it slowly not sort of repeat the disaster that took place five years ago i mean we build it step by step Then when it comes to food tech, I mean food tech in America, it is many small orders. It is the farmers, it is the integrators, et cetera. And on top of that, then, of course, it is digitalization. We see a lot of strong progress into digitalization and software as a service that is a keener and keener interest. But, Annette, any flavors from your side on?

No, I think it's, as you said, I mean, it's the beauty of the business is that we have a lot of segments and we are in those segments that are really being driven by population growth and digitalization and obviously the electrification that's going on and the sustainability angle of it. So I think the decisions, as I said, we took a couple of years ago show it's bearing fruit at the moment.

And... Perhaps it's also worth mentioning, as you've heard, in air tech, in the areas we've talked about, for the coming six months, we do not see any slowdown in the market. With that said... We look upon it. We are always prepared. If it would be a hiccup, if it would be a downturn in a market that we at Current do not see, especially in Airtek and DCT, I mean, then we have plans ready to bring them out of the drawers, to execute on those. But I just would like to underline, in those markets, we still see a very, very healthy market.

And then I would say also when it comes to food tech, I mean, obviously the order intake was not so good this quarter, but the important thing is actually the digital side, where we have said we're going more into the digital inspiration or usage when you're looking into farming, and we can really see that paying off as well. And obviously it's a big change when you start to work more digitally and use AI actually on biomass growth. So the movements there are very interesting as well, although not seen as much, obviously, as with what's going on in DCT and Airtek.

Excellent. And then the next question I have is on cash flow in the quarter. And it was extremely strong considering, you know, I guess there's still a very high demand level. You're mentioning customer advances as one factor that is helping sort of the working capital development. But are there any other factors to consider here? It seems to be a pretty substantial improvement at least year on year.

No, as we said, when you got those big orders and we're in the beginning of those orders, the advances are very good. So you get this type of kickdown of the level of operating capital. But I think you can see also when it comes to inventory, we have increased that quite a bit. And this is because both the growth of the orders, obviously, because we need to make sure then that we have the input material to make our products, but also because we are ordering in advance to make sure that we can meet the customer needs that we have. So that is to be considered when you look at operating working capital. But just to say also that, I mean, the culture on how we drive things, it's growth, it's profit, and it's cash. That's really instilled in us all now, because we know that if we want to grow, we need to make sure that we are smart on cash management as well.

Perfect. Those were all the questions from my side.

Next question is from Lucas Firani from Jefferies. Please go ahead.

Good morning. I wanted to add again on data center. Should we expect pricing kind of in time as you go through the backlog to be more in line with what you've seen in other divisions, so high single digits, even double digits?

As you saw in a couple of slides in the report, if I take it out of memory, I mean on the sales we had around 3% plus in pricing, and in the order intake we had around, I think it was 9% or 9-ish. on the orders in data centers. So we are doing exactly the same in data centers as in many other, in the two other areas. And what I would like to highlight, Lucas, here, that is if we take the larger orders that consist of many, many different installments, then here we also do have price clauses. So if this would move up, we have the right to increase the price. And the beauty of it is it is not working in the other way, seriously.

And it's coming back, actually, to the way we're working and making sure that we're driving processes right, because some of those orders which are kind of like low in margin that you see coming out now, they were taken quite a while ago before we were really understanding how to drive pricing through orders.

Perfect. That actually goes into my next question. I wanted to talk a little bit about the the costing on the large data center order. So you're essentially saying you're indexing clients if that increases, but if materials were to come down significantly, you wouldn't have to give that back. And also when it comes to freight transport costs, how is that handled in data center on the project? Because obviously it's something where you probably have low visibility a year, two years from now, and you can't really hedge that part.

It's a good question. So on the first one, yes. And on the second one, when it comes to freight, we have to divide it into two types of freight. If it is a freight with a complete product towards the customer, in many projects it is actually the customer that is paying for the freight. When it comes to internal flow, then, in between, I mean, factories, et cetera, I mean, then we have to consume that ourselves then. But I think we have a good way of handling that as well then. Freight in general, we see an ease to some extent when it comes to shipping. We see a ease when it comes to some extent when it comes to air freight. But then, of course, I mean, when it comes to trucks, et cetera, I think it's fair to say that it's increasing around the globe, basically.

Perfect. Thank you. And my last question was just on the minority investments you made. Can you talk a little bit about how that would look like? Why didn't you try to maybe buy out those businesses entirely? And also kind of the commercial strategy after that, is it selling their sensors through your brand or how is it going to work exactly? Thank you.

I will just give a very, very short view. And then Anette, this is one of her really key areas where she puts a lot of efforts into it. But really, I mean, when we look for smaller investments, or call it collaboration to a larger extent, I mean, you can collaborate in different ways. You can collaborate by just collaborating. You can collaborate by helping someone become more successful, et cetera, et cetera. For me, it is very much in those cases about innovation. It is about innovation cannot only take place inside. We also need to call it leapfrog somewhat innovation curves. So that is sort of the strategic view on why do we do those investments. And they fit into our ecosystem. But, Annette, you are much deeper into this.

Traditionally, Mandos have worked with innovation as a sort of evolutionary activity within the company. But what we decided some time ago now is that if we really want to drive innovation and being able to jump the curve and actually get ahead of the game, we need to look at investments a bit differently. So those minority investments you see, they are investments in startups. They could even be investments in seeds. One of the investments we did earlier this year is very, very early in its phase. And for those type of investments, it's not really easy to actually, as I said, buy up the majority. It's actually startup investments we're doing and collaborating with these companies to do something new and do something better than what we would have done if we just thought it out ourselves. so it's about making sure that we use our own power as well as reaching out to people that have ideas on what we could do better together perfect thank you that's all for me next question is from the life of anders roseland from pareto securities please go ahead yeah thank you good morning

I have a question regarding the order intake in data center. Excluding the large order of 2.4 billion, you had an underlying order intake in data center of about 1 billion. And that's one of the highest if we exclude large orders. And this is based on the same question as Gustav had previously here. What sort of underlying market, or is it even possible to talk about an underlying market in data center excluding large orders? Could you describe the $1 billion?

It's very good. And here, Anders, let me elaborate on this. The way we look upon data center and the way that has generated this success in North America... That is, it is a matter of balancing smaller orders with larger orders and sort of have a basket of different... Can you call it an underlying market? Yes, you can to some extent, but perhaps you can call it a portfolio balancing in another way. And that's also what I think is why I constantly try to repeat this. The larger orders that we have, they consist of many, many small orders or sub-orders in one or sub-deliveries. So that is also balancing it. But it is the 20 million Swedish krona order here. It's the 100 million Swedish krona order there. It is the 50 million Swedish krona order there. It is, to some extent, replacements and smaller upgrades, etc. Is it a base market, yes or no? I think that's how the market looks like, Anders. That's the best. But, Annette?

I think it's a combination of two things. Really, if you look at the megatrends around the world, it is digitalization. So, obviously, you will have, outside of those big orders, good growth rates as well. And then, obviously, as we talked about, it is a project business. So, sometimes, you know, all stars are aligned, and then we get all the orders. Not all the orders, but you get a lot of orders at the same time. so that is something that we all have to learn how to live with so that has not fundamentally changed it is a project business

And perhaps being too repetitive then, I don't think that we should expect it will be a one billion and then another one billion, et cetera. We need to balance it out. But we have capacity to take those base orders moving forward, and that's the reason why we invest in production and why we drive efficiency, et cetera.

Okay. How do you describe this market when it comes to market shares? Obviously, you must have been very successful. Is it only SciCool or are there other products in this data center field?

Yeah, it's, I mean, if you take the good question, Anders, if you take the larger data center type arena, we are not playing in the full arena. We are into the cooling. We are into the niches where we would like to do work and where we are successful. Some of our competitors, they are actually working much larger. They are building data centers. They are equipping it with electricity and you name it all, so to speak. We are dedicated on the cooling side then. How to describe market share? I think it is clear, and I cannot give you a market share number per se, but it's clear that we do take market share with Cycle. It is a super interest. In some cases, I mean, we know that we are taking away already ordered products from other competitors because they see a nice need of this. But all in all, I think it is we are – more and more becoming the market leader in the segment that we are operating in. And Cycool is one of the clear evidence of that. And perhaps, Anders, you had another question. Is it other things than Cycool? Yes. One of the orders done, I believe it is the 600 million orders, that was not Cycool. It is another product that is to the same type of industry, but it's a completely different type of product. Mm-hmm.

Finally here, is it any sort of sizable part of the business that comes from Europe in the ordering take now or is it just minor?

If you mean DCT Europe, DCT Europe also had a very nice order. But obviously, it's a bit smaller magnitude if you compare to the orders that we received in the US. But it's also going very well, actually, when it comes to order intakes. We hope good for deliveries for the future.

And that has been the plan from the beginning, as Anette and myself have said. I mean, we acquired this due to the capacity and capability they've had. We have to help them to sort of reshape themselves to some extent, and then they have a very good reputation, and we have received a healthy water intake there as well that will start to pin out next year.

Are you marketing the U.S. product assortment here, or is it Edpack assortment?

It is, let's say, call it Edpack, but as you may remember, Anders, that it was also that Edpack did produce our type of products also, roughly 7-8% in the past. Our plan is clearly that we already now see an emerging interest when it comes to Cycool and when it comes to other products. But here, I think it's wise to say, I mean, we are planning for that. We are bringing it over when it makes sense and we will take it step by step. But to summarize it, there is a clear interest in the marketplace and that we will handle in a very diligent and step-by-step approach.

Okay, very interesting. I have my last question regarding the margin development here. You've been clear about that. reaching the group level target at end 2023 in the data center technologies. But how should we look upon the development over the quarter? Is this sort of back-loaded development or should we see improvements already in the third or fourth quarter? No, sorry, fourth or in the beginning of next year? How is the progression there in the data center?

And as you know, I mean, we do not give specific detailed outlooks. I think like this in my book then. It will be a progression stepwise over the coming quarters. It will not be, I'm not planning for a hockey stick at the end of the year or a hockey stick at a certain time. It is a stepwise progression. But I just would like to underline, Anders, that a large part of this, that is, of course, the well-described and well-automated and more standardized cycle, and they will start to pin out in the beginning, the majority in the beginning of next year, and then more and more. So I think you can do your own interpretation on that and stepwise improvement.

Good. Okay. Thank you very much. I go back in the line.

Thank you.

Thank you. Thank you.

Yeah. Hi. Good morning. Thank you. A lot of good questions there and congrats on the very solid orders. A bit on orders here. I mean, you spoiled us here for quite some time now with surprisingly strong water intake on the large side. And I guess you have a tender portfolio also, but I guess it's not a quarterly business in that sense that you receive those orders every quarter. Could you say something about the tenders you have out there going forward?

What I can say is, as I alluded to in the presentation in regards to batteries, if I just talk around the market, we have a very, very keen interest in both North America and Europe when it comes to what we offer. I mean, we have a strong position in China and Asia. I'm optimistic that we will render continued success in those areas. And then exactly how that will pin out quarter by quarter, it is very much up to the future to tell then. When it comes to data center technologies, it is clear. I mean, it will not be quarter by quarter, those type of orders. I mean, now we have lined them out for a couple of years ahead here. But, I mean, the underlying business, I expect that it will come a couple of quarters that will be a little bit weaker in the underlying business and a couple of quarters that will be a little bit stronger. But the interesting part there is the sectors are growing. We don't see a slowdown. The interest for our products and our offers is high. And we are building production capacity as we talk.

Yeah, sounds good. And coming back to the sort of structure of the orders you have, you mentioned that you sort of deliver them in smaller lots, so to speak. And I guess that makes the cost and margin risk more limited. Did I understand you right that you don't have a sort of raw material clauses in the contract? You're more sort of taking that kind of risk yourself?

No, on the contrary. In the larger orders, definitely for the three larger data center orders, and also when it comes to the battery orders in North America, we have call it raw material clauses, or perhaps a better way to say it, that is, it is a basket of different components. that we have agreed on and that we weigh towards and and there we have opportunities if this increases then at a certain trigger point then we can increase the price i mean across the full so here i'm very comfortable and also regarding the the margin after it seems that you

The business, I mean, it's not project oriented, but it's sort of not any dilution there. You are able to sort of target the margins.

I think the best way to describe it, some projects in general, if I generalize it very much, I mean a project business and then let me define a project business. That could be a large installment at one place. That has a lower margin than a service, of course. It comes with the territory, so to speak. And then we have other larger orders that is built up by many consecutive deliveries. And there, the profitability expectation, what we calculate, is higher than on the one installment, so to speak. But at the end, we are very comfortable that we have taken those orders to a healthy margin. And that will pin out in a good way. But once again, I mean, we are not saying that what we will deliver exactly next quarter or the quarter after. I'm super confident in the future. We are step by step moving forward to our goals. mid-term target and I have been a little bit more granular because I like to put pressure on myself and on our organization when it comes to DCT that we step by step and then at the end of next year will definitely be on that type of level.

Okay, great. Thanks a lot. Thank you.

The next question is from the line of Carl Bokvist from ABG. Please go ahead.

Thank you, and good morning. Most questions have already been asked and answered, so I'll just do a quick technical one, and I apologize if this was asked in the beginning. But the level of corporate cost, is there anything you can guide us on towards here when it comes to you know you i think you flagged before that the corporate cost investment level might be a bit higher but now it's down a bit compared to the prior quarter for example

I mean, obviously, we don't really give any guidance, as we said. I mean, we are building the company to make sure it's scalable. And part of what we're doing is actually project business. So you will see costs coming in and out. It depends a little bit on how the projects are moving. So it was a little bit lower activity this quarter when it comes to the cost side of it. But again, it's long projects that we're working on.

All right. And then, if possible, also just on the... CapEx side, I think the current run rate or level of investments is something we should assume is kind of a similar level of CapEx intensity for the next coming years. Or is it something that should gradually come down as you expand sales, but CapEx in absolute levels comes up, yet the relation between the two might go down a bit?

I mean, it depends a little bit on also obviously when we do make capacity investments. As we said, we've done two factories this year and we're looking to do Amesbury during the coming year. So it depends on how we scale up the capacity. But again, we don't really give any guidance, but we are making sure that we build then Mantras as a scale of business. So you will also see CapEx not only in physical buildings for manufacturing, you also see that in type of process orientation. So that's still some work to be done there.

No, and instead of saying the exact numbers or the prediction, what I'm very comfortable with, that is, I mean, we invest where we see a good return on the investments. And I think you all can appreciate that those areas where we have built up factories now, that is actually also the areas where we take a lot of business.

Understood. And then when you highlighted demand within Airtek, it seems to be performing well, but have you seen any form of demand weakening from, let's call it some more like short cyclical parts of your business?

The very short answer is we see a little bit of flattening out in China. And I think this is not only us. It is sort of the Chinese and call it manufacturing situation, et cetera. But a small leveling off in Europe. So far, we don't see any slowdown in the marketplace, at least not in our areas. And in U.S. at current, I mean, we don't see any at all. But coming back to this, I mean, we are having plans and we are preparing ourselves. And then food tech. Good, good. And food tech, of course, it is a good market in Americas. It is a depressed market in China. We don't see that being an uptick in the coming quarters. And when it comes to Europe, I think the easiest way to say that is listening to many others. It's energy. It is the Ukrainian war, et cetera. It is a more depressed market.

And then also we have seen a bit slowdown in the pharma, but that's probably because there was a hype when we had COVID, when there was a big demand for when they did the test sticks, actually. So you can see it has come down a bit. But otherwise, it's smaller segments.

And the best way to take a look, that is on the arrow slides where you see, that is our sort of forward-looking two quarters.

Understood. Thank you. This concludes our question and answer session. I would like to turn the conference back over to the speakers for any closing remarks. Please go ahead.

Thank you very much, and thank you for all the questions on the conference call. We don't have any webcast questions, so I would like to thank you, Claes and Annette, and thank you for those who have been viewing us today. We look forward to welcoming you back in February. And also before that, at our Capital Markets Day that we will host here in Stockholm on the 8th of December. So we hope to see you then. And thank you for today.

Thank you very much.