Munters Group AB (publ)

And welcome to the presentation of our Q2 results. I'm Anne-Sofie Jönsson, and I'm responsible for investor relations. And with me today, I have our CEO, Claes Forsten. We will run through the presentation, and after that, we will have a Q&A session. For those of you who are viewing on the web, do feel free to place your questions throughout the whole presentation at any time, and we pick them up afterwards in the Q&A. And we will also open up for those of you who are viewing on the conference call for questions after the presentation. So with that, I hand over to you, Claes.

Thank you, Ann-Sofie, and once again, very, very welcome to this quarter two call then. Before I kick off the presentation, let me start with a brief overview and a summary of the quarter as I see it. A quarter that continued our step-by-step strategic journey and delivering significantly improved results. I am very pleased with all three business areas during this quarter. Airtech continued to show strong progression. I can just say simply great job done. Data center technology delivered strongly on set and communicated plans. Very good. Foodtech delivered a clear step forward. And I have to say very encouraging and well done by everyone in foodtech. We have positioned ourselves to long-term strong growth segments and we have built during the quarter an even stronger backlog. Our continued focus is to deliver profitable growth in the targeted segments and thereby also continue to sharpen our product portfolio moving forward. As I said, strong result and progress on the strategic journey. Solid progression in order intake, strong net sales growth, continued margin improvements. And if I drill down a little bit in order intake then, 7% up with an underlying solid demand in data center and air tech. Data Center took a larger order from a U.S.-based co-location company of about $88 million. I will come back to that a little bit later. And Foodtech, positive and good growth in U.S. The order backlog compared to a year ago increased 48%. It's driven by mainly large orders in data center and air tech, and those to be delivered all the way throughout 2025. Drilling down a little bit on the strong net sales growth, 35% up, organic growth of 27. Here, the growth was mainly driven by data center technology and the battery subsegment in air tech. Food tech showed a flat growth, but it was driven then positively by America. And it booked a bill of 1-0 this quarter. Very encouraging, the EBITDA margin increased to 13.5%, and it's a margin improvement in all the different business areas, all three. It is driven by net sales increase in Airtec and DCT, and it's efficiency improvements across all different BAs. And as announced, we have also concluded that we have initiated a strategic review of the equipment offering in food tech. And I will come back a little bit more to that later on as well. So, America's strong growth in the quarter. And here you can see that we moved up to about 61% of the order intake. If we split in between the regions, it's represented by America's. Airtech, good growth in the components and the sub-segment battery. Data center, co-location market continues to grow. And I think rightly said by our team, we have position also very well towards them. And food tech also generating both in... in the data side and in the climate solution side. Sorry, we should write this out more. But all in all, food tech is also doing good in America. EMEA, AirTech, primarily growth by service in the sub-segment pharma. DCT, yes, it is not that large. It's still just a couple of percentage of our total DCT package, but we have good activity and I have high hopes for the future in Europe. And food tech, no change in the market. Still a tough market, but showing some growth in greenhouse and dairy. APAC, air tech growth, mainly in the subsegments food and pharma, and food tech continued weak market there, i.e. no change. But all in all, a solid to good quarter. Drilling down a little bit deeper then, and I start on the right side here. As you can see, the majority of the arrows for the coming quarters are pointing upwards. Industrials as a whole, upwards. Battery continued to grow. And if I talk about battery as such, I mean, there are, to our knowledge, around 40 projects built. boiling in North America for the coming a year and a half to two years to be concluded on and in Europe around 20 projects then. What is encouraging also to see that is our drive towards service and components are continuing paying off and our acquirement of Hygromedia has also generated good growth. The backlog increased, or the backlog, with 29%. Coming over, Airtek to net sales. Not to drill too deep in, but battery generated good growth. Food here, food processing, a flat development. And then components, continuous growth. Service then, the organic growth was 5%. Image of good growth. and flat on the other regions. But here we need to remind ourselves that, first of all, in those areas, we are meeting very, very high comparables. And adjusted EBITDA margin. Significant increase driven by net sales, efficiency improvements, and net price increases. Our earlier announced net prices are now paying off. And we landed the EBITDA on 16.6%. Also important during the quarter, we have now concluded a couple of new acquisitions. Two components, a Swedish manufacturer representing around 80 million Swedish krona. The important thing here is that it supports our component sales. And Siften, a French service company, not the largest, around 3 million euros, but it's driving the service growth moving forward step by step. Moving over to data center then. Order intake increased with 14% and order backlog compared to one year ago increased with close to 80%. The majority of the orders, the backlog increased for 24 and 25 moving forward. And as you know, I mean, we have since a couple of years refocused our sales efforts mainly towards co-location companies. And the reason for that is two-pronged. First of all, we expect that co-location companies will grow faster than the market in general. And secondly, we have also come to the conclusion that they appreciate energy efficiency and new offers to the market even more than hyperscalers. Let me say that hyperscalers is to some extent more old-fashioned in what they would like to go for. When it comes to hyperscalers, also an interesting observation is that they are starting to use co-location companies even more. So hyperscalers are also fueling co-location companies' growth moving forward. And I think you will have heard about and seen about artificial intelligence and the need of processing data. And of course, that is generating a strong growth pattern moving forward. All in all, I continue to have a very, very high and positive outlook for the market when it comes to data center technology for the coming quarters. And what has been the drop through then to the bottom line? We were a little bit above 15%. I'm very pleased to see that development. You have heard me say that several times I expect or I would be disappointed if we didn't reach 14% run rate at the end of this year. Of course, this quarter has not made me change that outlook, so to speak. Net sales, impressive 190% increase. A lot of high activities in all the different areas and a nice drop through on the EBITDA margin. Moving forward then, I mean, we will continue to increase capex spendings. As we grow, we will continue also to grow our capabilities into the marketplace. And I said it last time, and I just wanted to remind you, during the second half of this year, we expect to move in with Cycool and other products in Europe. And then, hopefully then, during the second half or beginning of next year, we can also start to gear up some orders from Europe. But here, I think it needs to take some time before we have sold it into the marketplace. A few words about the large order that we received. And I think it's not more than fair to say, compared to a couple of years ago, when a large order was equal to a large project, now a large order consists of many different deliveries. In this case, then, it will be deployed to more than 10 customers, data center customer facilities across U.S. It will be delivered during... end of 2024 to the end of 2025. And it has been chosen due to the fact that this is energy efficient, it is scalable, and it's a future-approved cooling technology. You have also heard me sometimes say that the base business should be around 250 to 600 million Swedish krona on a quarterly basis. And I will use this order as an example. I mean, in this case. this customer decided that they wanted to put this order in all those different projects into one order. But, I mean, another customer could choose to say, we put out 10 plus different orders during a quarter. So my judgment on this order, that is, it is something that could either have supported our base business or it could have supported our larger order intake, so to speak. All in all, the purpose with us to win orders for the future, that is to fill up and gradually ramp up our production capacity for the years to come. And here the people in and our team in data center technology have done a very, very good job. Moving over to food tech then. Increased demand, mainly in Americas. And here I have to say, I'm super pleased with what food tech have been able to deliver. You know, they have been very much climbing upwards, especially in Europe and in Asia. They have worked with cost, they have worked with pricing, etc. And now it has started to pay off. but also very, very good, that is that we see a continued strong underlying demand in Americas, both from the digital side and the climate or equipment side, so to speak. Or the backlog actually increased during the quarter with 5% here. And as you can see, no changes in the outlook. Perhaps a little bit more green compared to earlier, but when it comes to swine, and that is predominantly towards Asia, no change. It will still be a tough market there. And in my book... Europe and Asia will remain very weak for the coming quarters i.e. no change. It's a healthy, positive margin contribution. Even though the net sales declined with 3%, it has really been a good drop through, and it was close to 10% EBITDA during the quarter. Also very encouraging, that is to see that the software as a service and the ARR continue to grow substantially, now up to 48% growth during the quarter. Many different reasons for the healthy margin improvement. It's pricing, commercial excellence. It is, generally speaking, improved profitability in the digital side. And then, of course, actions to mitigate the negative effects from the lower net sales in EMEA and APEC, i.e. operational efficiency. Super happy also to give two examples of what we are doing in food tech. First of all, we closed the acquisition of Innobram, a controller company based in Brazil. Representing our share represents, I mean, we acquired 60%. Our share represents a little bit more than 100 million Swedish krona. I think 113 to be more precise. It really supports the food tax strategy to grow in the digital side. And we will become the true market leader also in South America. And we can use it as a platform also into other markets. On the climate solution side, the equipment side, Mantis Lavamatic, a very energy efficient product that will clean out ammonia and other hazardous type of exposures in a form. It is optimized to control the indoor climate significantly and reduce the emissions up to 90%. Those small, very important orders comes and goes all the time in food tech. Very nice to see. A couple of quarters ago, I started to use this picture to give a little bit of my view and our view on how do we see the progression in the different business areas. And now we have updated it and you can see the more shaded parts there. That's the old picture a quarter ago and then how it has moved moving forward. And if I start with data center. an impressive climb up. The focus was really about delivering profitability and maintaining growth. Step up, and now I think it's fair to say the focus is to maintain or be on about this profitability, about a 14%, and then gear up for continued growth, but continue the good job that is done, basically. Going to Airtek, I mean our cornerstone, the business area that has delivered quarter over quarter. In my book now, it has established itself to be a business area that is delivering an EBITDA quarter by quarter in between the high 13% up to the 17%. a nice development compared to a couple of years ago and how is the future here gear up a little bit and the order intake and continue to work with operational efficiency and the way we bring products to the market then interesting to see that is food tech digital solutions moved up definitely both when it comes to growth and profitability and the only way forward here that is growth will fuel profitability and we will continue to invest and as you can see not a short-term forecast but as you can see long term i mean food tech digital solutions will be a profitability well above air tech and data center technology And food tech and climate solutions, or if I scale it into equipment, a step upwards when it comes to profitability. And we need to continue to work with that. And that's the reason why we have announced that we will have a strategic review of the equipment solutions product portfolio in food tech. And what do we mean with that? I mean... It represents, first of all, around 16% of Manters net sales 2022. It consists of several different products. In my view, this is not a drama. This is a logical approach that we have done several times before in Manters. We take a look upon what we deliver, what we offer, how we can make that more profitable. If we should keep it, evolve it, and improve it, or maybe at the end we should also come to the conclusion that perhaps another owner will use it in a better way. So all in all, this is what we will continue to work with moving forward now. And I expect us to work with that the coming quarters. And as soon as we have come to a conclusion, I mean, then we will, of course, communicate how the future will look like there. Another side of Monters, fully integrated into our DNA and our strategy, that is our purpose for customer success in a healthy planet. It is sustainability in how we operate. It is sustainability in what we offer towards our customers. I'm super pleased to see that here we have made progress in several areas. And if I take scope one and two, Now we are up to more than 80% of our electricity used is renewable electricity. Another good measurement in my book that is energy efficiency in our factories. And as you can see, we are continuously improving less energy per produced item, quarter by quarter. And we keep the recycling rate at the high level. Even if we grow, we keep it above 50%. Health and safety, very important. We are moving down now to 1.5. I would say a sector-leading score when it comes to LTIs, TRI here. Our ambition is, of course, zero accidents moving forward. And diversity. I mean, here, it's good to see that we are moving on when it comes to the number of females that we have in our workforce. But with that said, I mean, we still need to improve our way of driving female leaders into our company. I mean, that's the only way forward to make a successful company, to work with diversity, to work with well-balanced management teams. I mean, this time I stand here without a CFO, so you have to bear with me when I present a few slides on this. But don't shy away from asking questions later on on all the different subjects. Next quarter, then Katarina will stand beside me here, and we will enjoy to have all the Q&As coming. So... From a group perspective, strong net sales growth, margin improvements. And at the end, we landed a margin of 13.5%. And what has been driving this then? You have heard me say it a couple of times, but it's a strong development in net sales in DCT and the battery sector in air tech. The service represented around 11.5% of the total net sales, but in real money, it increased during the quarter. And as I said a couple of times, we are now investing in future service. I buy winning battery projects, buy winning data center projects, and then we will start to harvest it later on. Good modern improvement in all business area. Cash flow, an area to continuously work with. It was a little bit weak during the quarter. It is very much driven by operating working capital that we anticipate to move out during the second half of the year, and it will improve. The net depth increased due driven to acquisition and dividend payouts. But with that said also, I mean, the leverage slightly decreased. So we are keeping in a good balance. Drilling down a little bit more on the margin improvements. If I take compared to quarter to 2022, volume and net pricing had delivered a significant effect here. And operational excellence in many different ways has also paved the way. Then when it comes to strategic investments, they are on the same type of level. I mean, they maintain high compared to the quarters. And all in all, then, I mean an improvement from the same period last year from 10.5 to 13.5. And then if I compare it to the last quarter, then... A little bit positive effect on volume, a little bit positive effect on net pricing, continued good work with operational excellence. I mean, you know, the famous Gnet, the continuous improvements that we do every day. And then we have had a regional mix also that has been a little bit more balanced this time than last quarter. And the strategic investments at the same level as before. Cash flow. If I simplify it, you can say like this. We have taken very large orders that consist of many deliveries that will be shipped out over several years. We produce them. We deliver them, and a little bit later we get paid for them. Sometimes we get paid after delivery 30 days after, and sometimes we get paid up to 60 days after, depending on the contract. And then, of course, when we take larger orders, if we can convince our customers to agree on that, We will also have prepayments on larger orders in the range of in between then 10 up to 20 percent on average of the order value. Then, of course, I mean, we have we have acquired companies and we have paid out dividends and all in all, it was not satisfying. But I think. sort of planned cash flow situation during quarter and i just repeat it we expect this especially the operating working capital to step by step change during the second half of this year so wrapping it up First of all, I see healthy progression towards our financial targets. Net sales growth continuously being above the 10% mark. This is what I expect us to be able to deliver moving forward. EBITDA margin, it was a very good quarter. Quite a few of the stars were aligned. We were moving up closer and closer to the EBITDA margin. I have always said we are not setting a specific date here, but moving forward, of course, we will work ourselves up towards that. What I think is important to just reflect on towards next quarter, that is this is now vacation period in Europe. We have been running our factories extremely hard. We will take a little bit of break in some of the factories, do maintenance, et cetera, et cetera. You know, the normal drill during a third quarter. So I'm not saying that you should not expect this margin next quarter, but it's the normal summer routine, you can say. And then I do believe that we, on a percentage level, keep operating working capital in good balance, but... Once again, reiterated, I mean, here we will work a lot with that moving forward, and especially in DCT. DCT did win gold in three of the four events, order intake, net sales, and margin. And now they are moving up during the coming quarters on medal podium, also on operating working capital. So summarize in some words, operational excellence initiatives really pays off. Strong improvements of profitability and the journey continues with acquisition and strategic reviews in order to create a very, very sharp product offer towards the market. With that, we open up for questions and welcome back, Ann-Sofie.

Thank you. Then we open up on the telephone the conference call for the first question.

If you wish to ask a question, please dial 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 Carl Bockwist from ABG Sundal Collier. Please go ahead.

Yes, thank you. Good morning. My first one is just on the base order development in case you've seen a kind of, well, let's call it that the normalization in lead times and so on affecting year-over-year numbers, if that seems to be improving now as we head into the fall.

Thank you, Colin. Great to listen in to your question. If I take the base business and let's take the two larger business areas, because I think it makes the best impact there, so to speak. Data center, as I said, the large order that we received, you can say that is sort of a base order as well then, because it delivers over several installations. All in all, if I take data center, I have to say... Roughly a year ago, there were question marks in the marketplace. Is the data center segment perhaps slowing down to some extent? Our view then and our view now, that is data center will continue to have a good demand in the areas where we are exposed to. So there it remains. And then sometimes it's combined as large orders and sometimes it's, I call it more base business, so to speak. If I go into air tech and I start with the batteries, I mean, as I stated earlier, it is very much about in North America, around 40 projects in the pipeline. Some of them will, of course, start to evolve quarter by quarter, but all in all, a healthy underlying growth. In Europe, a little bit less, around 15 to 20 projects. Here, I may see a little bit longer answering time, a little bit more, let's say, calculation time, when to place the order. But all in all, we are not seeing a weakening battery business. And then the general base business in air tech. Service underlying good, maybe a small decline in food tech in some markets, but all in all components still moving on. So I would say a solid underlying market. And when it comes to food tech, then in a nutshell, it is one strong market. We anticipate it will continue to be strong and then two weaker markets as such.

Okay, understood. And this most recent one with shield water air handlers being a different technology than the cycle one you have won a lot of orders with. Anything worth keeping in mind here regarding potential changes in scope and execution risk and differences in profitability and so on?

It's also a good question. I think it's worth to remember then that In the past, our large orders was also larger projects. And then, of course, we need to calculate, I mean, what is the risk to complete the full projects and really be careful on this. And you all remember before I arrived how, let's say, not that successful we were in Europe at that time. Now we have changed the way we go to market. Very often a large order consists of many different deliveries, very much standardized products. And there what it is, of course, we balance the risk, but it's a much lower risk as a large order when you have many installments. And it's repeat orders in several installations.

Understood. And my final one is a bit of a two-part. I believe you referenced kind of, price hikes of I think it was 8% at the most during the end of the year and is that kind of price hike level still what you are getting through or is it lower now and then as you kept coming back to working capital but could we see a bit of a release from this working capital build up already now in Q3 or will it be more towards the end of the year I

My view is very much, I mean, we will see, I would be disappointed if we couldn't see an improvement during the second half of this year. Some may come during Q3 and some may come during Q4. But all in all, I think from my perspective, it will happen during the second half. And I think to some extent, I reiterate what I said in the beginning of this year. In the beginning of the year, it will be a built up and then it will be a release during the second half of the year. That is, I think, a good summary of it.

All right. Sorry about the pricing. Can you give any comment on kind of the price hikes that you're getting through?

The price. I'm very, very pleased to see that we continue to sell on value to keep high prices. But at the end, I think it is as the year goes by, you will see a slightly lower effect of the implemented prices. But I mean... Once again, we are selling, we continuously increase prices, but the comparables, if I put it like that, will be slightly weaker or tougher to meet on price increases. But we are not aiming to decline any prices. We are improving prices and increasing prices wherever we have the possibility.

Understood. Thank you.

The next question comes from Adela Dashian from Jefferies. Please go ahead.

Good morning, Jonathan and Cecilia, and congratulations on the strong quarter. My first question actually relates to this new initiative that you brought up earlier this morning regarding the food tech divisions. And I'm wondering, has this been something that you've been eyeing out even before the weakness in some areas of that division or has it come as a result of that?

First of all, thank you for your congrats. I put it as simple as this. I mean, when you drive a successful business, industrial success, you continuously, I call it year by year, you need to review your portfolio. You need to understand where do you gain the best bang for the buck and where do you meet the most largest resistance. The food tech equipment market has been very, very good for monitors and they are still part of a family. They have built in the past a great springboard into how could we sell more controllers, how could we sell more software. What we see now, and this is an assumption, and that's the reason why we are doing this investigation, we see a decoupling in between those two segments, i.e. it is not always necessary to sell fans to a customer that buys software and controllers and vice versa. And then I think it's just wise to say, okay, is this decoupling going to increase? And then, of course, we will invest a lot in the future of digitalization. Should we then continue to invest as much in equipment, or should we then reflect on saying we should put our money where we get the most bang for the buck, so to speak? Normal business, review the portfolio, always reflect on it. So I can answer it, we have always been looking on it, or you can say, I mean, with the recent development, we have realized that we need to look on it a little bit more closely.

All right, understood. So we shouldn't look at it from the point of view that you're trying to decrease your exposure to end markets such as swine. It's more the I guess the composition of the business that you have within that division.

Yeah, look upon it as our largest question is, call it a portfolio review from products, services, software, and so on. Not towards the end markets as such, i.e. the segments of animal, protein, or greenhouse, etc.

Makes total sense. And then on the topic of your product portfolio, and you continuously mentioned throughout this presentation that you wish to sharpen the product portfolio even more. And specifically, when I look at the ACT business, and it talks about AI and how that is affecting some of the end markets within that division, do you feel like the product portfolio that you have on hand today is well reflected in order to benefit from I guess the changes that is being made in end markets or do you feel like there's more you need to do in order to revamp and become more technically aligned?

A very good question. And here I can say that I have a lot of strong confidence in our technology capabilities within data center technologies. The cycle is well positioned both for what it delivers right now and what it could deliver as liquid cooling provider into the future. So it's future-proofed. The order that I talked about just a couple of minutes ago is also one of those type of products where you can say it serves both the current type of setups among many, many data center owners and the future needs for energy efficient type of setups. Then, of course, I mean, we are also looking into how can we add even more capabilities that could be our own development, or it could be a niche type of acquisitions to sharpen the portfolio. But all in all, I mean, I think now it is fair to say that we have one of the widest and most well-performing portfolios when it comes to cooling in the data center market. That's the reason why we have been winning awards, and that's the reason why we have been winning orders.

All right. And then just finally on the competitive landscape, obviously you are one of the leaders in the majority of the markets that you're active in. But with this continued high growth in those areas, there's also been talks by some of the larger HVAC majors, for example, that they're also trying to enter into those pockets of niches where you are active. Are you seeing any pressure from that end or any other types of competitors, new entrants and such?

First of all, I mean, we love competition. Competition keeps us on the toes, so to speak. And if I summarize the question, no, we have not seen major impacts from larger, call it more conglomerate type of players. With that said, in some cases we actually work together with them. We deliver our sharpened products to them in larger projects. Sometimes actually we are a subcontractor to them. And here I think moving forward, not talk about the larger conglomerates and HVAC players, but if I talk about the industry in general, Collaboration and building systems moving forward, I think this is a winning procedure. And here, our very, very top leading products could play an important game in that puzzle, so to speak.

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

Thank you.

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

Okay, good morning. I had a question regarding the ramp-up of production in data center. You were talking about the second half that is production-wise higher than in the second quarter, and you have quite easily now ramped up production in an impressive way in the second quarter. How much further will you go now in the second half of the year? And how will that impact the margin development given that you already reached 15%? And also, finally, how will that have an impact for your possibility of taking new orders? The big order you took here in the second quarter will be filling up 25 sales for 2025. But could you add on more sales in 2025 or 2024?

Great to hear your voice, Anders, and thank you for the congrats here as well in regards to our progression. If I go into data center, you can say, let me divide it in a couple of sub-questions. First of all, Moving forward in the second half of the year, I mean, we foresee that we will be able to get a healthier cash flow moving forward. It will not be, I mean, a giant leap from day one, but it will be a continued progression during the quarter, the second half of the year. When it comes then to Production. I'm super impressed by what the team has done. Now we talk about North America. They moved up the production. I anticipate, and as you know, we don't give a detailed forecast, but I anticipate that we will be able to keep on the production moving high. But I give just a small sort of, not a warning, just a small reminder. I mean, now... We talk about Europe, but we will also take the opportunity in North America to do a little bit of maintenance and reshuffle a little bit in a positive way, so we will become even better moving forward. Do we have space to take even more orders for 2024 and 2025? Yes. I don't give forecasts and orders to come, but I'm very confident that we will be able to one quarter deliver a large order or several smaller orders, and those will pay itself out in 2024 and 2025. We have capacity there. That is America's. And then now we are now moving in to establish ourselves step by step in Europe, The idea is to ramp that up as well and start to take orders, let's say, end of this year, beginning of next year when it comes to SiteCool and others. So I see a good development in data centers. Then one quarter can be up in orders and another quarter can be down. But all in all, we will continue to grow there.

Okay, excellent. Also, the margin development is extremely impressive given that you have no service content in this 15%. Should we look at this 15% as the new normal or should it stabilize on that level for some time now?

No, but I think that this is also a very good question. And I reiterate what I said in the past. I would be very disappointed if we didn't reach on run rate 14%. I think I said something like this. Don't expect it to be a straight line, i.e. that we each and every quarter follow it. It could be one quarter that is below the line and another quarter that is up. But I referred to Airtek where I said, I mean, they are now delivering per quarter somewhere in between 13% to 17% given seasons, et cetera. They have reached that level. I mean, the next level for data center technology that is now to start to stabilize this is above the 14% and then move it up going forward. But here also, what is important, Anders, to remember, I mean, data center, we need to invest also in future growth. We need to invest in application technicians, et cetera. We have a momentum going on now, and we will not lose that momentum. I call it overly cautious when it comes to spending the right money where we can generate growth.

Excellent. Okay, that's all questions for me. Thank you.

Thank you.

The next question comes from Carl Dagenberg from Carnegie. Please go ahead.

Thank you very much and good morning, guys. So a couple of questions from my side. First, following up on a question here on the beginning of the call. and a bit on the price adjustments you've made here. I just wanted to ask, given that we've seen quite dramatic declines in input costs, like freight, et cetera, you name it, are there any discussions with your clients of, I shouldn't say price pressure, but price lowerings within any of the divisions? Is that anything your discussions tell us?

A very good question, and let me put it like this. It is always price discussions with all our customers. I mean, it's a continuous negotiation. But if I reformulate the answer, then I would say, like, I don't at current see an increased dialogue around price. Do we need to lower our prices? We feel that we still have a good value-based solution to sell. And then sometimes, of course, we take a project, if we talk about that a little bit, strategically, and in other cases, I mean, we price them high. Our general call it mantra when it comes to projects, that is that we always should go into the projects. Here I talk about data center and air tech, that the project calculation should show that they are above our midterm EBITDA target as such. And sometimes they are well above, and sometimes they are just on it. On food tech, we have been very, very good in driving the price up. Let's see, moving forward, if we have to adjust prices, let's say level them off or sometimes take a little bit lower prices. Then I talk about equipment in Europe and in Asia also. On the other side, I can tell you that on the data, the software, we have been able to increase the prices 20%, 50%, and sometimes close to 100% on some of the software solutions that we are selling.

Okay, very well. That's very clear. I think that takes me into my second question. I wanted to ask a little bit more on this strategic initiative that you're announcing here this morning. I know that this is very early days and that you haven't announced the outcome of this, but it's quite evident that you're focusing even more now on the software business in food tech. And I just wanted to ask, Do you see any risk in a scenario if you would divest certain parts of the equipment business that you would lose on other parts of the food tech business? If you could describe maybe a bit the dependency in between those two categories would be very helpful.

It's a very good question, and bear with me. I will take a full circle here, and I will go back a couple of years to describe what has the evolution been within food tech. If we go back, let's say, five, six, eight years, I mean, food tech was a premium equipment provider that had and have a very, very strong brand recognition in the marketplace. Then we acquired controllers and we continued to develop controllers in order to steer that and thereby being able to gather data. Then we acquired and continued to develop softwares in order to work with the data, draw conclusions and help larger integrators, I mean the Tyson Food, the Pilgrims Farms of the world, etc., to monitor and drive efficiency across the full value chain. And here comes the strategic review. A reflection that we have, an assumption, is that the dependence in between equipment sales, at least a large part of the equipment sales and controllers and software, is less significant. connected now than five, six, seven years ago. The other part is, of course, we are progressing extremely well, and we are actually the market makers when it comes to software. That needs to continue to invest and grow. And the question is, one, Could we decouple this? Our belief is yes. And now we need to understand if that is right. And then if so, what then to do with that decoupling? That could be that we work with it continuously or we can come up with a conclusion that we may divest, as we said in the statement. But that's the reason why I do a strategic review. At the end, we will come to a conclusion and then we will handle according to that, review them.

Okay, great. Thank you very much. And I think that was all from my side. So thank you for taking my question.

Thank you.

Thank you. I think we have one more question on the conference call.

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

Yes, good morning, everyone. I just had two follow-up questions. Maybe the first one is more on data center and the market as a whole and sort of your customer concentration into the co-location space. I appreciate you mentioning sort of the co-locators, you know, have a preference for your product offering, et cetera. But, I mean, I noticed the arrow here on slide seven is pointing upwards for hyperscalers, which it did in Q1. Yeah. I'm just saying, do you see any risk of not having a more kind of diversified customer base? I mean, in essence, high-risk killers are customers of the co-locators, but what if that would change, let's say, if they start to wrap up and build their own data centers? So could you just explain a bit more how you view that? Is that a risk you see at all? Why are you so focused on the co-locator space?

It's a very good question, and... If I put it like this, we are selling to all the three different segments when the value that we sell and the offer that we create is appreciated or let's say that we come to a conclusion. So we have been selling and we will continue to sell where it makes sense. I mean, it's a win-win also to hyperscalers moving forward. With that said, where we see the momentum in the marketplace at current, it is within co-locators. The co-locators that develop on their own, so to speak, and the hyperscalers that are working together with co-locators in order to drive this forward. So you can say, yes, to some extent it is always a risk if you focus on one area. On the other side, I think it's a wise business decision to focus where your offer is most appreciated and where you see the largest growth taking place. We will balance it. And I wouldn't be surprised if we in the coming, let's say, I give a long perspective, the coming year, then we may take an order from one of the hyperscalers as well. But it's a difference in between being focused and take good business. We will continue to work with expanding the customer base. And just to put it in perspective, we believe that on average, we have around 100 customers in our customer base. And give or take on a quarter, we work actively with, let's say, in between 20 to 30 customers, give or take. If you compare that to Airtek or if you compare that to Foodtech, I mean, there we talk about several hundreds, thousands of customers. It's a different, call it, industrial setup due to the fact that it's not several thousand co-locators around the globe. But in that reach, we will step by step widen the customer base and have a larger portfolio to all of them.

That's right here. Thanks. And then maybe just something I was thinking when you mentioned pricing for the software solution. I mean, if we look now, I think growth for ARR and also sales was 48% year-over-year. You mentioned some pretty significant price increases. Could you comment at all on that? the underlying growth in terms of new contracts, etc., if we look at growth in that?

I don't have the number of new contracts on top of my head, but I can say like this. I mean, we are working with, first of all, I divide it in a couple of buckets. Then first of all, we are working with the established customer base and sort of both. new installments new software the aminos of the world but then also to upgrade older installments we had an earlier more mainframe driven type of software that was called a protein they were working with upgrades so that is going progressing well and then we have the other part that is attracting new customers and build that base. And on that side, I have to say at current, that is the area that we are overperforming compared to the plan. And I'm really happy to see that the great wins towards some of the larger integrators have increased. let's say, given us the reputation that we have some very, very interesting products that is boiling on the pot here. And that has attracted other customers to start to acquire and buy this. And as you know, we are selling this as software as a service. We sell the installation, the project, but then it's a subscription then that generates the ARR moving forward.

Yep. That's clear. That's all from me. Thank you.

Thank you.

Good. I think we have two more questions on the conference call.

The next question comes from Mats Liss from Kepler-Tievro. Please go ahead.

Yeah, hi. Thank you. Well, coming back to air tech, I guess, you have this 7% organic decline, and that's in part a pretty solid outlook there for the battery segment and I was just wondering if why is that I mean is it sort of that you're sort of sold out for the next couple of years in batteries or should we expect those battery tenders to materialize during the second half and on top of that I also wonder I mean you mentioned the lead times are sort of less of an issue for customers this year compared to during the pandemic. Is that also affecting your organic negative growth?

Two great questions, Mats. And if I take the first one, no, we are not worried that we cannot take orders due to capacity constraints, etc. And let me divide it into the three regions then. In Asia, I have predicted for now, it is calling for the wolf several times, but the wolf has not arrived yet, i.e. that it will be a consolidation taking place in Asia. At a certain time, that will happen then, and then we are prepared for that. That's the normal way that happens in China. You expand, you consolidate, and then you start to expand again. So that is one question that I'm quite confident that we can handle in different ways. Then if we take Europe then, and this is more a reflection from my side, there are plenty of projects boiling in Europe. We are pretty much involved in each and every one of them. What we see, that is, there is a little bit longer, let's call it reflection time, calculation time from the customer to say, when do we place the order now or a week or a month or a quarter ahead? But the activity in the marketplace has not changed. There is in between 15 to 20 projects going on. And our clear view that is we will continue to win at least 50% of those orders moving forward, as we've done over the years. In North America, it is... about 40 projects that we can see in the crystal ball we are working with majority of those then we talk about up to two years projections also here we see that we have a great offer we have a very good quality production and product setup we continuously invest in capacity and and To some extent in North America, I think we are a little bit like we used to be in data center. I mean, some quarters we have substantial larger orders and other quarters we do not have. The purpose here is to fill up the production lines moving forward. So in a nutshell, then, if I take the first question, we are not worried. I am not worried about the projection. And I know that we are winning the share that we would like to have. But then one quarter is up and another quarter is flat. On the delivery times, I think both for data center and for companies, the base business in Airtek, yes, customers now are placing orders slightly later than norm, than it used to be during COVID, the hiccups of COVID and supply chain. And I think this is, from our perspective, actually great, because we have good load in the factories, even if, as I said to Anders, we can continue to load it up even more. And then we can wait them out if they put orders a little bit later. I should also comment on that. I mean, we see that the freight cost, of course, in between Europe and Asia is lowering. And in general terms, freight cost is lowering. So not giving any forecast on, I mean, how will the future be, but the burden from Europe cost inflation will gradually step down quarter by quarter moving forward.

Thank you, great answer there. And then on data center again, I guess Anders asked there about the margin and I guess previous you have been talking about 14% towards the end of the year now you're outperforming that level well should we expect the trend to ease now or It's 20% within reach. It's a pretty good performance here in the second quarter.

No, but I think like this. I reiterate, and maybe it's a boring answer to reiterate, I would be disappointed if we didn't run rate reached 14% by the end of this year. Of course, this quarter has sort of made me even more confident about I think it would be unwise for me to go into saying, I mean, yes, you could expect 17 or 18%. Think about this. We will continue to grow data center for the coming years. And our first step, that is to establish ourselves on 14% plus. Then we will continue to invest. And then if we see that we can grow that even higher in operational excellence and margin, I mean, then... then we will take that on. But at current, I have not revisited my view on... I would be disappointed if we don't reach 14% run rate by the year end. And it was a promising quarter.

Great. And just finally on the... strategic review of food tech. If you sort of become less of an equipment supplier, would that sort of open up for you being an independent supplier of these digital solutions to all competitors as well? I mean, could it be a reason for you to, well... Maybe change the structure of the company?

That's a great question. Depending on the outcome, we have different options moving forward. But independent of the outcome, our software solutions and our controllers are already now agnostic. So they can be used by... many different equipment providers. And our software can be attached to many different controllers. So it is agnostic from different perspectives.

Okay, great. Thank you very much.

Thank you very much, Mats, and thank you for all of you who have asked us questions today. We have a few questions left here, and we will reach out to the persons that have posted questions separately, because we have to end the session today. So I thank you, Claes, and I thank all the viewers. And do reach out to me and Lina if you have any questions or want to talk with us throughout the day today. We look forward to see you again in the fall.

Thank you very much. Thank you, Anne-Sophie.