Munters Group AB (publ)

Welcome to Munte's presentation of the Q4 and full year results for 2022. I'm Ann-Sofie Jansson, Head of Investor Relations. And with me today, I have our CEO, Claes Fåsten, and our CFO, Annette Kumlin. We will run through the presentation, and for those of you who are on the web, do feel free to place your questions in the chat throughout the presentation. And for those of you who are on the conference call, after the presentation, we open up for a Q&A for you as well. With that, I hand over to you, Claes.

Thank you very much, Ann-Sofie, and once again, very, very much welcome and very good morning. Let me start with a few words about the year that has passed and the quarter in a summary. When I look on this quarter, I see a solid quarter with good growth, stable EBITDA and healthy cash flow. And all in all, a 2022 that has set records in many ways. We have created a strong platform for continued profitable growth that is set as per our strategy. We have leading market position in key segments with strong growth drivers. The large majority of our business is in profitable growth mode. Air tech, data center technology and food tech digital solutions. Food tech equipment or climate solutions is in a tough market situation where stability and selective growth is in focus. When it comes to supply chain challenges, they remain, but they are gradually easing up moving forward. So with that, over to the quarter and the full-year report. A quarter with organic growth and strong underlying demand. Order intake taking away the DC cancellation, generating a 20% effective adjusted growth. When it comes to the DC cancellation, a customer that is shifting out technology and we took that out. No other projects of this character in our backlog. Also very good to see that as you have large battery orders in the pipeline and we are progressing well in that area. Solid organic net cell growth, 30% up when it comes to organic, 20% up. AirTech and DCT showed strong continued growth. Of course, then, as you know, offset by FoodTech, where we had a weak market in APAC and EMEA. The order backlog, a healthy, stable backlog with the cancellation taking out of 145% on a year. Investments in digitization and automation. We continue to invest into our future. We have lower volumes in APAC and EMEA when it comes to food tech. We have generated price increases to offset the business in most of our areas. And at the end, I summarize it at a stable margin of 40 quarters. strong growth across all regions. I will not go through this in detail, but you can see we are growing in all different regions as such. And the only exception is, as I talked about earlier, that is food tech in EMEA and APEC, of course, affected by energy, the war in Ukraine and the situation in China. market challenges remain when it comes to supply chain but it's a slight improvements in quarter three and to summarize it i expect that it will be continued slight improvements moving forward and all in all we are used to this i mean this is normal run of the business nowadays i mean we can handle it and i'm very confident that we will be able to continue to handle it moving forward I mean for, I think it is the third quarter, all arrows are green. When it comes to industrial, driven by the battery, we see a continued strong demand for the future. When it comes to components, very much supported by battery, a continued strong, but also what is important to say here, also food processing, I mean shadow by the battery, is also having a strong underlying growth. And all in all, as I said, all green. And it's also promising to see that we continue to grow our service step by step. This is for me one of the most important acquisitions we've done during the last couple of years. And why is this so important? This is about our core technology. Here, with this, we can win in three different ways. This is about media. It is about rotors, i.e. the core of monitors, air tech. We can win in system sales. We can win even if we lose system sales by providing other players with our media and our authors. And we have a better capacity for aftermarket and replacements. We can win in three different ways. Service. We had the long-term ambition to reach 30% service sales, and we are progressing step by step. This year we ended up around 15%, but even more important, that is, if I go back a couple of years, we have grown in value about 50% in service. It is air tech that drives it, of course. We are then planting opportunities into the future when it comes to technology sharing battery orders to take more service moving forward. Data centers, we have a very low service level there, but also there we are building plans for the future. And then when it comes to food tech, of course, a different type of service, the modern service, software as a service. And I'm so happy to see that Software as a Service and the ARR are really growing fast, 44% up this quarter. Coming back to battery segment, I've said many times that we are the technology leader here. We continue to be that. I expect that we will maintain at least our 50% market share that we have in this arena. And without going into the future, I know that we are working actively with most of the players out there, and I'm very, very positive for this going forward. Data center technologies and underlying strong demand. And here I think it's one thing that is most important in this picture. We have focused on co-locations. That is part of our strategy. There we see a solid, strong growth. And actually we can see that hyperscalers are moving towards co-location and starting to use them more and more. You've seen in the report that we have canceled. We have a cancellation of a couple of orders representing 460 million ballpark value. This is a specific customer using older technology. And when we have had this cancellation, we have no other type of those projects in our portfolio. And as I said in one of the interviews this morning, it's always sad to lose an order. But if I could choose, this is the type of order I would like to lose because our future are really bright when it comes to the new technology. If I move ahead. I'm so pleased to see the good reception that Sykool has reached into the market among customers, but also into the industry. Sykool have now been awarded with several rewards, positioning Manters as one of the clear technology leaders, both when it comes to energy efficiency, when it comes to technology, but also very clearly when it comes to driving sustainability in this very, very important area. And I can also mention here, it is comforting to see that when we are doing the tests with SciCool at our customers, the performance is at predicted level or even better. And even if it's early and we're building up capacity, I'm very confident that we will hit our profitability targets or even above when we start to produce this more en masse. Foodtech, a little bit of a different story. Tougher markets. And I think here we have to look upon it in two ways. It is tough in the equipment or more climate solution part of it. And that is, of course, then food. Asia and EMEA. On the other side, in Americas, it is a good market moving forward. And in digital solutions, I mean, a market that we are creating, it is really a big and large demand and a lot of attractions to our solutions. Coming back here, I talked a little bit about this already, but it's dual setup, i.e. America stable, EMEA weak, and APEC weak. And this is not about monitors. This is about the market as such. But of course, we are battling this when it comes to the weaker equipment markets. So in climate solutions, we are doing price adjustments that are offsetting a large part or all of the volume decrease because this is a volume problem. We are adjusting the European business and reducing employees in Germany and Italy. And we are continuing to do adjustments in this arena in APEC as well. And we are moving together different production units. Then coming back to the promising future, strong progression and software as a service ARR of 44%. Here we will continue to invest moving forward and this is a market that we are creating. as a proof on this, not the largest order, but we are winning those type of orders into more and more of the larger integrators across the food chain process. And here we talk about an order that has a value of about 50 million Swedish krona that will start to commence in quarter two this year and will be completed in 2024. This is just the beginning. Step by step, we will grow into this. And you have heard me say a couple of times that long term, food tech is on a transformation. Food tech sales will be in the ballpark of 20% software sales a couple of years ahead. And this is one of the proofs on that. Our purpose for customer success in a healthy planet. I mean, that is about what we deliver to our customers. It is how we conduct our business and how we operate our facilities. And I just would like to highlight a few points here. Very rewarding to see that we are moving up in rating from a C to a B. Extremely good to see that our stiff target by 2030 to have 100% of our operations being driven on renewable electricity. We are already now at 72%. The recycling rate is continued high and in volume, of course, it has increased substantially due to the larger volume we have. And when it comes to energy efficiency, I mean, we are operating our business in a better and better way. So before I leave over to Anette, let me take a look upon what we are doing long and short term. If I start with the two areas that are really driving growth at current, Airtec and DCT, Airtec continued the progression on profitable growth. We have a good game plan. It is driving service, energy efficiency solutions, and capture the market. It is both growth and profitability improvements. In DCT, it is growth. profitability ramping up the production of course capturing a larger share of the market out there and expanding our leading offers into more customers and into more markets as we go but the only way is up in those two areas when it comes to food tech then it's a dual challenge it is a little bit more of a long-term challenge it is about continue to drive and creating the market when it comes to digital solutions But then, of course, it is stability and profitability when it comes to food tech climate solutions. In a nutshell, as long as we have two regions down and only one being positive, we have to work with stability and profitability and select growth. All in all, I'm extremely positive for the future coming forward, especially in the two top performing business areas as of today. With that, Annette, over to you.

Thank you very much, Klaas. So let's look at what's happened with the company so far on our journey to become a scalable, profitable and cash generating company. So looking at our top targets, we are riding on the megatrends of digitalization and sustainability. And you can really see that also in the growth that we had both for the quarter, but obviously also for the full year where we're north of 20%. And the interesting part is also obviously that when it comes to pricing, we can see that coming through in the sales and we can see that coming through in our margins. As you know, with our margins, they're still burdened by the activities that's been going on when it comes to the supply chain activities, the pricing on raw materials, but also the impacts of the Russian war. But more also is that what we have said already when we joined back in 2019, we said that we are going to take part of the margin that we generate to build a scalable company. So actually, if you look at the full year performance, about 0.7% is what we have taken from... from the margin or from the sales to actually to build up a scalable company. So you will be looking at 11% like for like basically. We have also changed the target from a leverage to operating working capital. It actually shows more of the growth journey that we're going to do, and it's very important to keep that under control. And as you've seen also in the quarter, we have had quite nice cash flow coming out of it. And yes, we are a growing company, and that means obviously that we put some money into operating working capital to manage the portfolio of orders that we have to deliver on. But we're well in line of the target of 13% to 10% that we're working on. So what does that mean from a more detailed perspective? Well, order intake 20% plus if we exclude then the cancellation of the DC order. And again, it's the same trends that we have seen before. It's the battery side. It's the service side when it comes to air tech. And we've got DCT obviously coming through now also on not only in the order intake, but also on the sales side. And then when it comes to food tech, also same story. America's... growing, particularly in the digital arena. But when it comes to EMEA and China, then obviously we still have some work around to do to get that into the right shape, as Klaas talked about also. Sales follows the trends of the order intake, obviously, so not much to say. Services is quite nice to see is that we're up to 15%. And for those who remember, I think we have actually added about 3% in a growing company actually to the service side, which is important. And when you look at the pricing, again, we're really happy to see that it's coming true. And if you look into the profit, then actually the net pricing effect, the customer pricing versus our input cost is actually becoming more and more positive. So as we have talked about earlier in the year, I mean, we had a negative net pricing balance, but it started to shift in Q3, and we can definitely see that now for Q4 coming into the right area. So when we look at EBITDA, you have those impacts coming in. And at the same time, also, as I said, we're building a scalable company. So we're moving money into digitalization and to the innovation side as we need to make sure that we build mountains for the future. And then when you look at the full year, again, it's been a strong order intake, good growth, and we're moving the company to become a very scalable one. So you have seen this also earlier for those of you who have followed us. And again, the important parts here is actually looking then at the net pricing effect, because it's better in Q4 than what we've seen in Q3. And obviously earlier in the year, it was on the negative side, but we're definitely on the plus side now. We still have the issues when it comes to the supply chain. It's becoming better, but there's some work to be done. And then when you look at investments, yes. We are doing a lot of work now to become scalable. And then when it comes to the business mix, it's more what you have seen from earlier side, also with APEC and EMEA tying down food tech a bit. And then we also got a negative mix in DCT for the quarter and also for the full year. So what happened then, particularly in air tech then? Well, growth of 30%. Again, if the battery is really strong, especially in the Americas, we got the two large orders that Klaas was talking about. And we're also moving the services. And that obviously creates a good leverage when you go down to the US. margin side where we actually reach 16 versus the 14 that we had last year so here you can see also it's not only the volume it's actually pricing coming into play also and making sure then that the issues that we had in one of our production units in the u.s is actually over the turf and actually on the good side so that's nice to have come through that also and again if you look at the full year very strong growth particularly when it comes to the to the batteries segment the services and also cleantech has had a nice development for the year DCT then, important here is to see, I mean, the growth, except for then the cancellation order, is still there. We've got pricing coming through, although this is the business area where we are not net price positive yet. Sales is coming through now on the back end of actually taking the orders, and we're starting to deliver out on some of the big orders that we've taken. Margin then, again, tied down a bit when it comes to the mix, and we also got the price net price which is still not on the right side of it but the important part here is to see that actually q4 we reached a seven percent margin higher than q3 higher than q2 so we are moving on in the right direction Looking then at food tech, it's a bit the same story as we've seen before. America's growing, particularly when it comes to the digital solution side, which we're very pleased with. And then also when it comes to the climate solutions, it's more or less flat in the Americas. When you look at the EMEA and China, those are the ones that are wearing down. I think it's important to understand here also that normally when we have seen food tech developing, we might have had one area which is down, and two areas performing in a good or a very good manner. Now we're in a situation where we have two of our regions that are not performing at its best, and that's actually also what you can see in the margin. But again, when you come back to then the digital solution side, we're very pleased with the growth, and you have seen the ARR that's coming through now into our sales side. The important part also is actually that the booked one, Those are the contracts which are booked, not yet delivered on. It's actually around, I think it's about $20 million. You can see that there is a growth pace coming through from the digital side that we are very pleased with. Cash flow, again, we've had a strong cash flow. We've had that basically since we got in in 2019. It's about making sure that we get our rows up, but also making sure then that we can move money into digitalization, innovation, and obviously making sure that we get the rows coming up. So that's been good, but again, we are growing, and that's part also why, if you look at the full year, there are some impacts on the cash flow, which is a bit negative then for the full year. Leverage basically were a bit better than the Q3, but again, we made an acquisition in Q4, so that took it down a bit. But the improved earnings and also the operating working capital effect actually balanced, offset basically the acquisition we did. And if you look at the full year, the 2.2 to 2.9, well, we've actually done two acquisitions, at least that has taken us up with an 0.6 on the leverage side. We're also making sure that we're trying to be capital efficient when it comes to moving into new operational centers where we go more for the lease side rather than actually investing money in it. But then also, again, we have had a positive impact on the operating earnings on the leverage side, which is nice to see. So, as I said, at the end of the day, we are trying to make sure that Montes becomes scalable. So there are a lot of things that's ongoing in the company, all from commercial excellence. And you have seen the work and what we have done with the pricing activities. It's digitalization to make sure that the ecosystem internally becomes more efficient at the same time as we're looking into digital solutions and applications for our customers. Bigger business areas like air tech. I mean, as we know, we have a very digital solutions activity in food tech, but it's about making sure that the whole company goes digital and also utilizes then what we can do in the customer offerings. Innovation, also putting more money in there. There are a lot of activities going on at the moment. Manufacturing excellence, and you have seen also, it's not only... optimization optimization footprint it's also making sure then that we move into new factory we actually address the lean activity so per square meter use today we have better output than what we had before and then obviously last but not least because somebody needs to do all the work is actually investing in our people where we have leadership programs to really make sure that we drive the strategy into to the wall um if you remember has followed us we have made two major strategic implementation blocks one which was air tech back in 2020 and then we when we presented a new strategy for food tech we did that in 2021 we're actually coming to the end of the first program the air tech program where we have had some delays because of covid and part of that was actually because we're looking into optimization of our footprint for air tech in China, which we actually now in January have been able to conclude. So we are actually consolidating our manufacturing into one of our areas. So by end of next quarter, we should be done with it. Whereas when we look at food tech, we're still ongoing and we're looking to various things to make sure that we drive the operational efficiencies in a better way and also looking at our digital solutions to drive that faster. So basically all in all, Airtek, we are almost at completion and Foodtech is ongoing. And you also know that when it comes to our M&A strategy, we're still working on our four core areas, which is then the core consolidation. We're looking into technical digital service and we're looking into new growth areas. And we have done a lot of acquisitions actually this year. both in the form of the core, where we can look at EDPAC and the latest one that we did in SEMPR, but also in the digital arena and more also into minority financial investments that we're trying to look into how we can jump the curve, where we have done two in digital arena. We have actually done one also into the more core of our humidification and dehumidification equipment, and that is actually in Quantum, which is a heat pump manufacturer. So we're working on it and there is a big pipeline, which is actually in a good health equality. So we are also then hopefully being able to close the Brazilian acquisitions that we have done here in 2022 to close that in 2023. We're waiting for antitrust approval, which we will hope come within not too far distance of the future. So all in all, moving on that also, because at the end of the day, when it comes to growth, it's both what we can do on our own, but also actually what we can do faster by actually acquiring also. So with that, Claes, I would like to hand over for a summary.

Thank you, Annette. And a short summary before we move into Q&As. To summarize 2022, delivering on the strategy set with a record growth, building a future, important way forward. Strong demand resulting in very, very promising order backlog. Increased capacity to meet and handle this backlog. We are investing more than ever today for the future in monitors. And all in all, I have to say that I walk into this year with a lot of comfort, a lot of optimism moving forward. So I think that is the summary. And let's move into Q&A's.

Thank you, Claes. So with that, we open up for questions on the conference call.

If you wish to ask a question, star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Gustav Bernerblad from Nordea. Please go ahead.

Yes, good morning. It's Gustav here from Nordea. Just to start off here on the cancellation of the DCT order you had in the quarter, could you expand this a little bit though? And then also, I mean, many people are wondering now, I guess, what is the risk in the current backlog? Could this happen to larger projects as well?

Good morning and a great question. As I alluded to, this is about one customer that has decided to move in technology shift into the future, very much in line with what we have invested with, i.e. less water consumption and so on. So I look upon the future, a backlog, cycle, etc., It carries on. It is no risk or very little risk associated to that. And just to underline it, this is the only customer that we had this type of technology and there is no more in the backlog of that type of technology. is this a technology that you you will stop using now or how do you see it part of the technology actually steam from edpac that we acquired so as you know when we acquired the base for moving forward into europe we have said we should do it step by step and that is to bring over our own technology into the very very good and strong manufacturing base So at the end, I think right now we have one of the widest technology ranges towards the data center market, but this is not the type of technology that we would like to invest for going forward. It might sound strange, but actually it's completely in line with our strategy set forward.

Okay, perfect. Is this then dedicated to Europe for this issue?

It is to the largest extent dedicated to Europe. But at the end, I mean, we have the long-term growth pattern when it comes to Europe. So it's a blip in the curve and we move on with that, basically.

Okay, perfect. And then moving on to the net financials here, it was up significantly in the quarter and Is this a more normalized level, would you say, that we're seeing in Q4?

Please, on that, was it the top line? Was it net sales? Net sales, okay.

I thought you said net financials. Net sales. Net financials. No, no, it's net financials. You mean financial result then? Net income? No, I mean the financial expenses.

the financial network sorry for the confusion because i don't know which line you're talking about if you're talking about the financial cost it's that is that what you're talking yes exactly obviously i mean it depends on how we utilize the loans it depends on how the interest rates are moving so and as you know we don't give guidance on it on honestly so again you need to you need to trade it from where we are basically all right all right and then just one last question here uh

I know you don't give any outlook, but can you say anything about food tech going forward there?

What I can say about food tech, that is, I mean, you know, food tech, if I divide it into two different businesses, I mean, the digital side, I mean, that will just blow on. That will continue to grow. And I'm super optimistic. When it comes to the equipment side of the business, the digital, first of all, we have the overlying, call it seasonal effect, always quarter four and quarter one being the weakest. And on top of that right now, then, a tough market in media and in Asia. My view, as I said, on the focus moving forward, that is, I mean, the coming quarters will be tougher quarters for the equipment sides. But as you know, we're also working with stability and select growth there.

Yeah, and you can also, I mean, you have seen our strategy that was presented in 2021. It builds a lot on the digital actually movement. And this is very positive to see our ARR coming up and also what we have booked for ARR. So we can see it's trailing in the right direction.

Yeah, perfect. Thank you very much.

The next question comes from Gustav Osterberg from Carnegie. Please go ahead.

Good morning and hello, everyone. A couple of questions from my side. This is Gustav from Carnegie. So firstly, I just wanted to clarify on the order cancellation. Or the order that got cancelled, is that the order book stemming from DCT or is there some connection on Edpack? You were mentioning Edpack briefly here.

But it's DCT, and a large part of the DCT is located towards Europe, and it's older technology, and that is not affecting whatsoever our modern, forward-looking type of solutions like SciCool. That is a completely different setup, so to speak. And here, I just would like to underline that. I mean, the first deliveries to the customers are very promising. We are on or even above the performance that we have scoped out. The customers are very pleased. And when I take a look upon the scaling up of cycling production, it follows the pattern. And I think I have alluded to that I foresee that quarter by quarter, we will step up the profitability as that comes on. And that is what I foresee moving forward.

And you can also add, I mean, when we decided to acquire Edpack, part of it was to get the bridge front into Europe and actually move part of our production portfolio into the European side.

And that's what we're speeding up now.

And that's what we're speeding up. So sometimes events like this triggers actually going faster in the strategy that we have decided upon.

Sure, sure. I understand the technology shift that is going on and that the cycle system is not affected here. But when was this order taken and included in the order book? How long ago was that?

It was during last year. And we decided to take out all orders in advance, as we should. And that means that the underlying order in that is for monitors 20 percent and for DCT plus 6 percent in the quarter.

But most of it was in Q4, if that was your specific question. So it doesn't relate to those really big orders that we got earlier.

Perfect. Thank you very much. And then, so moving on to the development of the food tech margin here, can you just elaborate? I mean, do we need to see a higher sales level for margins to recover, or is it more internal efforts that are required, but you could still be profitable at these levels?

I can start, and I know that Annette has a lot of input here. But what is really promising to see, that is, I mean, the gross margin, gross margin one, that we are keeping that up, the price increases, et cetera, et cetera, are biting in a good way. So at the end, we talk about, generally speaking, a volume challenge. And there we're working with, I mean, as you heard Annette also saying, we are merging...

facilities when it comes to asia we are taking out people in europe to adjust it but please on that you know i think that the main the main impact that we have had during this year that is positive is really the price increases that futek has been working on for a long time so as class says the margin contribution is quite healthy but if you remember the russian war actually triggered then the loss of volumes in one of our european factories so we're working on in first of all, right-size it, but also looking into where could we find more volumes and how do we shape the European business from that perspective. So it's more volume-driven now than it's sort of a marginal contribution-driven. And then obviously when it comes to China, we have gone through the motions of various different activities with swine fever. We have had economical downturn. We have had the COVID situation, which then put stress on our volumes. So it's... We believe that that is a matter of time more than anything else. But as you have seen also, we are working on the situation. But it's not that you solve it in one month or two months. It will take a bit of time.

Perfect. And just to understand, moving to the cash flow, which was very strong in the quarter at over 400 million SEC. I mean, you can see a good contribution from advanced payments, which is easy to understand. I assume that's related to large orders. But then also a big contribution from payables and other networking capital items. I mean, can you elaborate sort of what's driving the increases here and perhaps first on payables? Is there something, some systemality that we should be aware of here or is it related to the large projects in any other way, for instance?

I think most of it, I mean, as I said, we have, and as you know, we have very large orders that have come in both in the DCT area, but also in the air tech area. So when you run through sort of the motion of starting with production and delivery, then obviously it's the timing of when you get the advances, it's the timing of when you get the goods in and how we have negotiated with the suppliers. So it's, as I said, it's not only one, it's actually a flow that comes in. And then obviously you also have a little bit of the end of the year, obviously working on with your cash flow. So those are the things that are moving in. But again, I know that you're very much interested also what's going to happen now during 2023. But again, we don't give any forecast on those things. But it's just that it's the flow of how the order works through its system that will impact either up and down. And then at the end of the day, we had a very nice sales also in Q4 that helped get into cash flow moving. So that's good.

But Gustav, I think you point out to something that I feel a lot of pride about when it comes to our people and how we're working. You know that... When we started to work with operating working capital, I mean, we were at a completely different level. For me, that is, we have established a way of working. We have a very, very good way of handling it. And that's also the reason why we updated our financial targets. We clearly said that cash flow and operating working capital is actually in focus. And already now, we are within the target. And No promises made, but step by step moving forward the coming years, I mean, we will work ourselves down to the 10% as well.

Thank you very much. And just a final question. I noticed that the air tech margin was very strong at over 16%. I mean, could you sharpen the financial targets at the CMD before Christmas? Is this a level that is required for Muntes to meet the margin targets, or should we think about this at a new level? Can you elaborate a little bit also on what's driving that very strong margin in Airtek?

But let's say like this, if I simplify it, I mean, I we are very pleased with what is happening and how the business is established in air tech. And as I summarized it on the bubble chart, so to speak, when it comes to air tech, it is about continued to grow and drive efficiency to gradually improve profitability. We don't give any guidelines on what and how, but I'm very pleased in how it's developed in Airtek. When it comes to data center, I'm very bold here, and I feel very comfortable. Step by step, quarter by quarter, we will move ourselves up there as well. And I see a lot of encouragement there. And then we have a different play, the dual play in food tech, the equipment that we need to handle, stability and selected growth. And then when it comes to then... Strong, strong growth driving and creating a market reaching the 20% of sales a couple of years ahead from digital.

All right. Thank you very much. Those were all questions from my end.

The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

Thank you and good morning. Just going back to something you said now to Gustav. Did you say order or orders within the evaporation technology?

It was actually a couple of smaller orders and accumulated it became this result. So it was not one big order. It has nothing to do with any of the orders that we have communicated as large orders. So it was a basket of smaller orders that accumulated into the 465 million Swedish kronor.

Okay, and you said that in the existing backlog there is essentially no... No other orders of this type, no.

And this is, I mean, this was... All orders are important. This was an important order. It's always an unhappiness when you lose an order. But you see, if I could choose this order or anything else, I would choose this order. And I'm very confident when it comes to cycle, the reception it has taken, the flow that we have in the production.

Understood. And within DCT here, you're prior comments on several occasions regarding the kind of ambitions in terms of profitability for this division for the year I realize you do not guide but you know in terms of how one should view it will it be a kind of continued gradual ramp up in sales and margins and hopefully then you will reach the aspirational target or that it will be still volatile between quarters and very backlog-heavy perhaps in Q4 and lower margins in Q2 or something like that?

It's a good question, and I say it with a smile. We don't give specific guidance, but I can be as clear as I think is needed. I expect I would be very disappointed if we're not step-by-step during the year, wouldn't work ourselves up, eat ourselves in a positive way through the backlog, driven to a cycle and similar products, and then gradually increase the profitability. And then, I mean, I see moving in to the end of the year. I have the ambition that we should be on or very, very close to the group targets running rate at that time.

And then also to remember, Joss, I mean, the big orders we have taken, we started to deliver on them already now in Q4. So that is a stream coming out. But those two orders, there are a lot of different deliveries that's coming in. So obviously, depending on if you manage a specific quarter to get everything out or not, that could shift a bit. But at the end of the day, the trend is there to get it out.

And you may remember then, just to go back to that, I mean, the first order of 1.1, if I remember it right, that is spread out a little bit end of last year and then increasingly over the year that comes this year, quarter by quarter. And then the second largest, the large order, the 1.8, is starting to be delivered at the end of this year and then more evenly put through this. during 2024 and a little bit into 2025 to give you a little bit of how we look upon the backlog.

Okay and sorry if I'm you know remarking words here but correct me if I'm wrong but Previously, I thought you kind of had this ambition that DCT should be at that kind of margin target for the full year. Or are you now talking about that it should reach that margin?

That I have never said. Or I said that running rate at the end of the year should reach that. No change on that.

Yeah. Okay. Good. Thank you. Then just on food tech. Okay. Just kind of thinking about it in a different context, we now have a sales level of just about 500 million, and 500 million or even below that level is what we saw not too long ago, and yet Zotec back then delivered high single-digit margins. So I understand the volume question, but what other parts do we need to see in order for that business to get back to a more stable level of profitability since the volume level itself is not too far off from what we've seen in prior years when margins have been double digits even.

I think, simply said, it is the combination of increasing volume and what is important here, that is a substantial part of the total sales number is, of course, then price increases. But the load in the factories is much lower. So it's a combination of moving up volumes. And then, of course, the other part is driving efficiency through the system. I mean, as I said, we have merged two facilities in Asia, as an example. We are working with one of the facilities due to the Russian-Ukraine war in Europe. So I call it the more sharp gnetans, you know, I mean, really to drive efficiency through the system.

And then also if you look at the digital solution side it's about we're in the process of scaling up obviously given the demand curve that we see there and that also ties down the margin a bit before we get the scalability up.

Understood. Just the final one here on food tech as well but seasonally wise Q1 is the low point in terms of margins so even though we are seeing a combination of challenges here still but You know, would we could we still expect that kind of support from just regular seasonality during the rest of the year?

I mean, generally speaking, I think you should always look upon the seasonality when it comes to food tech, because that is a season driven type of business. And then, of course, overlying to that, I mean, there is also the two different regions. And also, I mean, the push and the drive and the expansion in digital business. And digital has nothing to do with seasons, just to underline that. That is step by step moving forward. That is how well we are penetrating, how well customers are expecting. So no seasonal effect whatsoever when it comes to digital.

Okay, that is all for me. Thank you.

The next question comes from Anders Roslund from Perito Securities. Please go ahead.

Yes, good morning.

Good morning, Anders.

Sorry for coming back on the cancellation. Just to clarify, is this entirely due to the acquisition of the Irish company and it's not part of the large order previously announced? of the cycle business. So partly you could say you acquired this order book or how should we put, how should we see on this canceled order

Look upon it like this. I try to take it step by step, Anders. That is, it has nothing to do with the communicated larger orders. They are moving on as per plan, step by step, being delivered. And I'm super happy to see both how we drive efficiency into the system, our system, and how it's perceived and received by customers then. This is then old technology or older technology that has nothing to do with that. Part of it is definitely European-based. And when we acquired Edpack, I mean, the idea was very much to acquire manufacturing capacity and capabilities. So what we then need to do now, that is basically speed up the transfer of certain products, fill up the capacity with our forward-looking type of products into Europe. So... In a nutshell, I've been very clear when it comes to Europe, we will take it step by step. It is not, I mean, a hockey stick. This was a little bit of a throwback when it comes to the orders. But at the end, I mean, I'm as positive when it comes to the capabilities of transfer technology into Europe as before.

So you say that the major part was related to the EDPAC. That's what I'm saying. It's not related to... U.S. deliveries?

The major part is not related to U.S., yes.

Okay. And then the food tech. We have heard from other companies that you had quite severe COVID-related close-downs in December, et cetera, in China, and that then you have the Chinese New Year. But are you... expecting better deliveries or is it just market-driven lower volumes you see in China? There is no sort of one-time effects here. of COVID-related closeout?

To be very honest here, Anders, it is, yes, we have seen COVID-related effects due to the opening of the society, so to speak, but I think it's too much of a speculation to say that that has affected our order intake or our sales delivery. It is more related to investment climate, cost in China. The good part with China, if I look forward a little bit, They're always in the past. I mean, when you have had a damped investment climate, a little bit later, then you open the floodgates and it starts to come back. So long term, I'm as positive as before. Now we have the energy crisis and the food, feed prices, et cetera, that dampens us in China. And it's not only us. I mean, it's the market.

Okay. Okay. Finally, my last question is regarding the ramping up of production in data center. Is everything going according to plans? And you said, could you indicate how much you have delivered already of the large 1.1 billion order? And do you foresee any changes in the ramp up regarding previous estimates?

Generally speaking, no. It can differ a little bit, I mean, in between the quarters. But if I go back to what I said earlier, the last quarter, it was a few percentage that we estimated and sort of ballpark. We also reached that. That was very much, I mean, a ramping up to understand how to produce, etc. I was very happy to see that. The cost estimates, everything was in line, and now we're driving efficiency moving forward. And as I said, I'm very confident that we will continue to ramp it up as per communicated, call it, order backlog.

Excellent. That's all questions for me.

Thank you, Anders.

The next question comes from Karl-Oskar Wikström from Burenberg. Please go ahead.

Hi, everyone. To be quite honest, most of my questions have been answered at this point. I guess just one question on the cancellation here and just in terms of the market. I know you mentioned that you don't expect any further cancellations, etc., but it would just be interesting to see what you think Sort of here in the market, I mean, we've seen some of the big tech players sort of guiding lower from cloud, et cetera, going forward. You know, I guess in terms of new order and order intake going forward, you know, has those discussions changed at all? And how do you see the market and potential for new order shares as we go into 2023?

A very good question. And as indicated on the green hours, when it comes to hyperscale and when it comes to what we are focusing on, especially the type of technology that we have laid ahead, we don't pick up any signs that there is lower demand. It is actually more and more customers that are talking and wanting to know about this. And now I'm speculative. I mean, when it comes to technology, maybe this is also related to some of what you've heard about radio hyperscalers, etc., that they would like to shift technology from older technology into more modern technology. I'm so pleased when it comes to how not only by customers, but also by the industry, our new type of solutions are received and perceived.

Yeah, now that's clear. And then just maybe one final one in terms of this, well, these cancellations and those type of products, will that have any kind of, when were they supposed to be sort of delivered and will that have any sort of mix effect in terms of margins at all or what's the profitability like for those type of products?

I mean, here, Annette, you can support me, but generally speaking, when it comes to covering costs, etc., we have contracts with the ones that cancelled and that we will handle. I believe we have a good stand there. And then, of course, we need to fill up some of the production schedules with other type of products. And as we speak, we are doing that, basically.

And as we said, also, it's about making that strategic shift in product portfolio for the European Center earlier than what we planned. But it was planned all along, so it's just the timing.

Understood. Thanks. That's all from me. Thank you.

Okay. Please state your name and company. Please go ahead.

Yeah. Hi, Max. A couple of questions. first about this cancer project and I just had a question. Could it be that the customer sort of re-planned the project and come back and they will use your newer technology so to speak?

Let's say like this. The only thing I can say that is I'm very confident there is a good, good demand on our new technology. I cannot really say what the customer, how they look upon it. But what I understand that is. In that arena, this is what also this customer are looking for, i.e. our modern energy efficient, not water consuming type of technology. At the end, it is about the customers to decide. But I'm very confident that we have positioned our technology platforms completely right for the future.

Okay. And then coming back to working capital, I guess, also, you have some, well, talking about supply chain issues and you keep a safety stock to some extent. Do you see opportunities to release it more going forward now when supply chain issues are less of a concern?

I think, I mean, at the end of the day, it has eased up a bit, although we are working a lot with it. I mean, it's really big work being done by the people in Manchester, and they're doing really good, actually. Then, obviously, when the supply chain issues really eases up, yeah, there will be. But one should also remember now we are in a delivery mode for these bigger projects. And, obviously, it's coming back again then to the – profile of our projects you know how they work with the cash flow during the lifetime of the project and since there are many projects you know it's going to some might net out each other and to a certain extent it might be that in some areas we will have a bit more have a peak in the middle of it but it depends a little bit how it's set up but yes at the end of the day when the supply chain eases up there is a chance to do it and that's also why you see our goal for 13 to 10 percent we obviously strive to get to 10 percent and that's part of it also

Okay, great. And then, yeah, I guess a touch on food tech as well. I mean, you mentioned the change of business structure towards more digitalization. Is it sort of, should we see it as an investment phase now where we shouldn't see the market recover even if the market maybe recover in China? So is it something that will continue to be an opportunity for the future and you like to invest a lot in that area?

But it's clear, and you've heard both me, Annette, and at the Captain Markets Day, Pia, point that out. We are super confident that we are creating a market and we will continue to invest in the digitalization and the future of software as a service. We are growing. The 43% ARR, I'm very pleased to see that. Simply said, I mean, of course, we could stop to invest there and the margin would jump up significantly, but that would be really not investing into the future. And I'm confident on what I said several times, that is, In the future, a couple of years ahead, it is a high certainty that food tech, 20% of food tech sales will be linked to software as a service, at the software as a service profitability.

Okay, great. And finally, just about the tax line there, I thought it was a bit on the high side. Was there any sort of reasons behind that?

Depends on the mix we have in the countries and how we're delivering on it. So there's nothing special, really, I would say.

So the guidance for 23 years, just say something about that.

We don't really give guidance. I mean, at the end of the day, we are into sustainability and we actually work with taxes to make sure that we handle the business in the right way. But it depends on the mix we have.

Okay. Okay. Thanks a lot.

Thanks.

Thank you.

Okay. Thank you very much. With that, we will conclude this session. So I thank you very much for all the questions. And thank you, Claes. Thank you, Anette.

Thank you.

And we look forward to see you back in April when we present the first quarter results for this year. And before that, we will also have a webinar in March focusing on the exciting battery industry and what we are delivering and helping customers with in that industry. So thank you very much. Have a nice day.