Munters Group AB (publ) (MTRS) Earnings Call Transcript & Summary

Good morning, and a warm welcome to today's presentation of our Q2 results 2026. My name is Line Dovarn, and I'm Head of Investor Relations, joined, as always, by our CEO, Klas Forsstrom our CFO,Katharina Fischer. So we will begin with a presentation from Klas and Katharina, and then we will have a Q&A session. So Klas, please go ahead.

Thank you, Line, and once again, good morning, and welcome. [indiscernible] delivered exceptional order intake both in data center technology and AirTech, driven by solid underlying market and strong product offer. All setting up a center technology and AirTech for substantial revenue growth 2027 and beyond. The profitability is as planned, improving in AirTech DCP was impacted by anticipated growing pain as well as currently burdened by component shortages affecting ramp-up speed and efficiency. Very pleasing also to see that the quarter showed strong cash flow and cash conversion. We are creating a sharper, more focused mentors by optimizing our portfolio and positioning FoodTech for the best possible future outside the group. I'm very convinced that this will create a more focused matters. That without FoodTech is well positioned to deliver annual revenues well above SEK 20 billion over the coming years. So talking about the potential divestment of FoodTech, as I said, the portfolio optimization question. a sharper focus on enters and create a new ownership to accelerate FoodTech. The future mounters will be data center technology and ad tech centric generate focus, flexibility and enable us to allocate towards growing that part of the business. FoodTech or [ Steria ] set up for a potential divestment, enabling growth, market position and continue to scale. And I have to say this, FoodTech is a fantastic asset. And even if we're early in the process of setting this up, I'm very pleased to see that it is a high interest in the market, talking and understanding what FoodTech and Steria is all about. Looking into the quarter, once again, exceptional demand, external headwinds currently affected profitability. And here, I talk about data center technology. But going back then to order intake, more than 140% organic order intake increase and very pleasing both data center once again showing strong growth, but also Airtech showing a very, very strong underlying growth. The order backlog improved up to 151%. And the book-to-bill ended up at an impressive 2.3x. The net sales increased organically a little bit more. AirTech increased driven by components and commercials. BCP declined due to the planned ramp-up and also damped by the current supply chain challenges. FoodTech increase both when it comes to software and controllers driven in Americas and EMEA. Margin impacted by external factors, as I said, and I will come back to that later on. DCT declined production is burdened by component shortages and of course, also the ramp-up in the product mix. FoodTech remain at a healthy level. We continue to invest and very pleasing to see Artic improved. Higher volumes, cost-saving measurements, everything is biting in the way that we anticipated to be. When we talk about the favorable trends, it is really cutting across all the different regions. But to be a little bit more sharp Americas, very strong market, and we have a strong impact EMEA is moving up to a more healthy market position. Very pleasing to see that data center, both the market and we in the market that are showing clear signs of a pickup and order intake. And APAC, even if it is a smaller part of our order intake, it continues to be healthy. But of course, at a slightly lower margin than the rest of the mix. Coming back then to see intake is generated from Americas and a little bit shy of 20% EMEA and a little bit shy of 10% in APAC. Moving into the different business areas, exceptional demand in ACE, a book-to-bill of 1.7 million Americas, significantly growing, and the exceptional and demand is mainly coming from evaporative ads components but also in many other segments, including some reinstatement of a battery order that have gone in and out. EMEA generating growth. But as I said, a little bit more mix but moving to a healthy level growth supported across the different components and sectors. This slide you have seen many, many times, and I'm very open come back to and say now battery is icing on the cake. Take a look upon where we are beside the battery. We have established ourselves cutting across many different segments. And I'm very pleased to see that AirTech has been able to reach out to several segments. Worth noting in here, as you can see, the components i.e., the pads are extremely strong in the quarter, and I have on the line. This is not the new normal. This is extraordinary. Even with that said, that we have an underlying strong pad growth across the different sectors. So I don't expect this to be repeated in the coming quarters. All in all, a very pleasing development. And if we take a little bit closer look into this, then first of all, take a look upon 20% service, 24% components that generates the order intake is service and component. That sets us up for a long-term delivery of components in the coming year 1.5 years. what more to say. I'm super pleased about the good development in profitability driven by, first of all, the savings programs are delivering according to plan. And on top of that, also, we are then moving up more and more when it comes to filling up the factories. I come back to one thing that I believe is super important. We will take this step by step. We are, if I say, some not in a hurry when it comes to spiking up profitability. And what I mean with that is we will deliver diligence on the savings. And then when we have a couple of more quarters with SEK 2 billion and above in order intake, we will also then -- and at that time, after a couple of quarters with this, I mean, then I expect us to be where we should be, i.e., in the range of 13%, but it will take a couple of more quarters to reach that level. Data center technology. Once again, the continued order intake. For me, it is a clear sign on this is what we present to our customers is very much appreciated, and we see no signs of any slowdown in the demand as such. Several different types of orders, cutting across all the different product categories. We announced one significant order of SEK 2 billion in the beginning of this quarter. And the order intake continued to increase. And now we are talking about that we are deliveries mainly for '26 and '27, but we are also starting to fill up '28. I'm super confident in the order backlog that we have a book-to-bill of 3.6 million Net sales declined. Part of it is very much as expected, the planned ramp-up of U.S. sellers in the production. But then we have spiked it up sadly with also some current supply chain constraints that has brought us down a little bit more. I would say that if we would have not have the supply chain constraints, I would have expected us to be about SEK 300 million more in net sales in the quarter. So that is holding us back for sure. And I will come back a little bit more how I look upon the future in this area. The margin declined it changes in the product mix. As we have communicated earlier, it is the planned production ramp up, nothing strange with that. And then we have added on then the supply chain constraints. The tariff headwinds is estimated to be about 3 points higher than the norm. The order backlog then. And of course, this is not all the orders we have. We have added two just to give you a flavor of what we see. It is then the SEK 2 billion that we talked about, but it's also very pleasing to see that we have added an EMEA co-located order of cows and CDs. And if I take a look upon this, I mean, it is clear, as I said in the beginning, I mean, we are setting up a center technology to deliver an increased and accelerated revenue growth starting in Q3, accelerate in Q4 and then carry us through '27 and '28 in a healthy, strong order backlog. You may have seen this schematic view on how you ramp up new production the curve on the right side. Let me start with an obvious statement. What do you need to have to generate success when you're building new factories when you're ramping up when you're investing. First, you need to have the factories, facilities in place. Then you need to have the people, bring them in, train them and less them shine. And then on top of that, you need to have materials in the supply chain in a good order. I'm very pleased. We are spot on when it comes to the build for the factories, the training of the people, the hiring of the people. And as you can see, this is quite an accomplishment. We are doubling the production output, we are increasing the floor space of 60%. So this is something that I feel that our people can be extremely proud of. On the other side then, if I simplify, I say, I'm not happy in regards to how we -- where we are when it comes to the material supply. And my unhappiness is, of course, we didn't fully see this coming. And now we have to work ourselves out of this. But the unhappiness is also supported with a very, very strong conviction that we will work to sell to this. And that takes me to the curve. You start down in the bottom left. We build a factory, increase the production volumes, you start to practice. You put in lean methods, et cetera. And at a certain point, let's call it, a tipping point, the inflection point, when you have practice enough when you have had enough volume in the factories, then you start to move profitability up. My view is that the conical plan should have been a little bit below the inflection point at current. But now we are about 1 quarter behind the plan. But in the coming quarter, we will continue to move up to the inflection point. And then thereafter, we will continue to move up towards the profitability. And you can say what are we doing to mitigate this? We are increasing our stock levels. We are putting in more suppliers. We are sadly then supporting it also with some more production in Europe that is hitting us on the tariffs. But all in all, we are mitigating this in a very good way. And if I take a couple of quarters' outlook. If I take a year outlook, I mean, we are set up for success and a record delivery from those factories. FoodTech. For me, this is a fantastic asset. And as I said earlier, it is not due to that we don't believe in FoodTech. We believe very much in FoodTech, but we need to focus our efforts on the core FoodTech strong backlog, some delays in projects during the quarter, but still a book-to-bill of 1.1. I'm super comfortable with this. I see that now it is full speed ahead on separation and full speed ahead on delivering orders and NLP and the team, they are super excited to put this in place. Order intake goes both for controllers, but it's also when it comes, there are. A little bit disappointed in the quarter when it came to the ARR development, but I'm very confident that we will be back on track in the range of 20% to 30% growth in the coming quarter. So for me, FoodTech is set up for success in the future, and it is just to push the accelerator and moving forward here. With that, Katharina, let's dig into the numbers.

Thank you, Klas. Okay. So you have further class talk about the results a little bit. So the Q2 then demonstrated good growth in AirTech and FoodTech net sales. while the data center net sales was lower than due to the production ramp-up and also the supply chain constraints that impacted the throughput in the factory also demonstrated resilient profits. So net income still increased and also some cash flow generation and further improvements in operating working capital, which is now well below our target range. Looking at the margin a little bit. So we talked about this that we are ramping up. So we are supporting our growth initiatives, of course, and then we have some external factors. If we look at the volume development, it was a mixed picture. AirTech volumes grew, while DCT's volumes decreased and due to -- that the trout was impacted in the factory by the supply chain constraints. We also had profitability negatively impacted by product mix in DCT, which we have talked about many quarters and then also the tariff impact. At the same time, we are continuing to implement price increases across the group. And these will come through, but it will be a gradual benefit to profitability as we have longer lead times in part of the business. On the operational excellence side, here, we then also sell the external supply chain constraints that affected the throughput and also the efficiency, of course, in the factories in the U.S. due to the planned ramp up. And then we also had the continued underutilization in AirTech weighing on the margin. We remain committed to our strategic initiatives. So we are continuing to invest to scale the business in automation, digitalization and so on and also, of course, expanding the footprint. Positive support from FX cost savings programs that I will come back to. And then if we look at the sequential, how the margin has developed sequentially, it has improved somewhat then driven by increased volumes and cost savings in tech. And then I take you know that we are working on implementing these cost savings programs. They are progressing very well. The 2025 program has been complete and delivered more than the expected savings. Now we are continuing to implement the 2026 initiatives. And here, we have delivered over SEK 100 million so far, and we expect to deliver this SEK 250 million at the end of the year. And these initiatives, as you know, include investment adjustments, workforce optimization and also increased efficiency. And the whole aim is, of course, to improve. -- tech's profitability, which is happening and then also make sure they are more efficient and have a scalable platform for future growth. Looking at the cash flow. In the second quarter, we delivered a very robust operating cash flow, and this was primarily driven by customer advances in the CT, but also very disciplined cash management across the group, of course. Investing activities increased. And this is, of course, because we are continuing to invest in our business and also this includes the recent acquisition of [ Optify ] within FoodTech. This was partly offset by a positive proceeds then from the sale of a U.S. production facility in the quarter. And then we paid out the dividend in the quarter, which is part of the financing activities. Year-to-date, same picture, strong cash flow driven by -- we continue to invest, of course, in our business and also strategic investments like buying out the remaining part of the MTEC shares that happened in the first quarter. Talking about investments then in the quarter, we had 7.2% CapEx as a percent of net sales and a rolling -- so still not as high as prior year at this point during the year. But still, we continue to invest, of course, mainly in our Virginia facility where we are ramping up the production capacities for the Virginia campus, but also some investments for component production within AirTech, of course. And talking about full year outlook for that remains. So we expect it to be at the same level as prior year. Working capital. We talked about that a little bit before, very, very low, 5.2%, very good execution group. Leverage, slightly up from 3.1% in the first quarter to 3.2%. Now this is mainly driven then by decreased adjusted EBITDA offset partly then by strong cash flow. And while we do not have a fixed leverage target, we do have an ambition, which is 1.5 to 2.5. We are comfortable being above this level since this is due to the acquisitions we made and also the strategic investments in our factories. Looking ahead, we will see leverage gradually improve as we see higher earnings and of course, also a very disciplined continued cash management. Turning to ESG matters. In the quarter, we report our green financing report. This is a report that dives into how the proceeds from the green moms are allocated and what towards project and what environmental impact those are making. So right now, we have SEK 2 billion in outstanding green bonds across 3 maturities. And we have SEK 1.4 billion allocated right now against climate change mitigation projects. And of course, these projects are extremely important for us because they will then drive environmental benefit. So a few examples then we continue to drive lower emission manufacturing where we use more renewable electricity and positive free heating and that supports growth then while reducing operational emissions. In our product portfolio, we have AI powered the humidification solutions that optimizes the humidifier operations and remote monitoring improves efficiency and performance. And then we are also advancing digital solutions in FoodTech. And here, we have data-driven feed optimization that improves accuracy through data and predictive analytics, reducing emissions, energy use and cost. And these investments, and then they demonstrate that our green financing framework supports innovations that benefits both our customers but also, of course, our own operations and really reinforcing that sustainability is really a key enabler for profitable growth and long value creation. So with that, I would like to hand it back to you, Klas.

Thank you very much, Katharina. So let me summarize before we move into Q&A. We continue to progress towards our financial targets. Currency adjusted growth in the quarter, a little bit shy of the target that we have. On the other side, operating working capital, definitely well below and adjusted EBITDA pretty much as where we expected it at current. And then when it comes to the dividends, we continue step-by-step to improve the dividends moving forward. The outlook for 2026 is unchanged in some status updates here, AirTech, continued strong growth trends across several segments. As you could see earlier, I mean, we are really ramping up the reach out to different segments. Very pleasing to see the ongoing efficiency program progressing on plan. Data center and technology continue to scale to capture larger share of market growth in a broader portfolio. It is very clear that our broad and highly operating portfolio is generating a lot of positive traction in the market. Also very pleasing, as I said, to see that we are both the European market as such, and we in Europe are making progress. Ramp are progressing as planned when it comes to what we have in our control, but as I said, we are currently burdened by some external factors. One of those is the supply chain challenges, but that we will gradually work ourselves to FoodTech exploring the divestment to sharpen the strategic focus. It is a very attractive underlying market where we will continue to invest, and we are starting a very good home for FoodTech in the future. The market outlook flat to positive in AirTech. Positive in data center and continued positive in FoodTech. And the business outlook for the full year, no change. Net sales growth expected to develop positively. The longer the year goes, the more positive it will be. And as I said earlier, we are also now setting ourselves up for a very, very strong 2027. Adjusted EBITDA margin is expected to improve during H2, driven by order backlog in DCT and continued step-by-step margin improvements in AirTech as such. So with that, welcome, Line. Over to all of you out there for some Q&A.

Great. Thank you very much. So we are ready for questions. [Operator Instructions]. So handing over to the telephone conference.

[Operator Instructions]. The next question comes from Adela Dashian from Jefferies. Please go ahead.

Good morning, Klas [indiscernible] I'm going to start off on the data center segment. I appreciate the commentary here about being roughly 1 quarter behind your planned track. Can we actually talk about what this means you previously guided for a 30% total sales growth in the data center segment for the full year. Does this guidance still hold or do the supply chain disruptions now result in component charges that creates longer delays than the weekly as you've been talking about previously?

But a very obviously clear question. And the answer is no. Or I should say, yes, the guidance on 30% is still valid, and that is what we hold. So it is tilted more towards the end of the year. But if I put it like this, I mean, I used the frame, 30% to 40%, but for sure, 30% that is the guidance.

That's really good to hear. And then a similar question on the level of profitability. You have been talking about an ambition to return to 5 teens, which, I guess, then if you're still delivering 30% to 40% sales growth for the full year, our team should as well be achievable in H2. So I guess my question -- number one, is that true? And then secondly, then what does this mean that you're 1 quarter behind. Do you mean that Q2 is the 1 quarter that you're behind? Or does it mean that Q3 is the 1 quarter?

Also a very good question. And if I use the curve that I showed earlier as a backdrop, I would have expected we at current to be just a little bit below the inflection point where we started to improve profitability. Now we are one quarter behind. So we are not there it will take ourselves a quarter to move up to the point where we will start to see profit improvement or significant characters. So the short answer is -- also when it comes to the profitability improvements due to, I mean, the throughput, et cetera, we are 1 quarter behind, and that means that we sort of will be slower 1 quarter moving forward. But overall direction is, yes, we will continue to move towards what we have talked about. And then even more so, when I look into next year, when we talk about the deliveries that we're setting ourselves up with.

Should we expect margin expansion in Q3?

Adela, here, we have I don't give that detailed guidance. But what I say that is, I mean, we will gradually move up now in the output, i.e., the revenues, but the real revenue booster will come in due to the 1 quarter today.

The next question comes from Jingyi Zheng from UBS.

or this is Jingyi Zheng [indiscernible], I have two questions on [indiscernible] as well. Firstly, could you appreciate the color on supply chain situation. I wonder if you could share a bit more color on that and specifically, the impact on operations? And how meaningful are the results in production or delivery delays, i.e., are we talking about 1 to 2 weeks chips in delivery or something more substantial? Because I understand your delivery schedule significantly increase in H2 based on the slide of large holders that you shared. So I wanted do you think the supply chain situation could be a bottom-up in fulfillment your delivery obligation from the large orders in H2.

But I appreciate the question. And let me give a little bit of flavor on this. And first of all, what is really good for us, that is our wide product assortment and the wide categories of different customers. So the short answer, we are not expecting any delays in deliveries, but we also see that we need to shift delivery schedules, and that is very much in line with what the customer would see and what they would be able to handle. And what do I mean with that? And as an example, I mean, predominantly in U.S., we are ramping up the chiller production, but we have also taken substantial orders across we can produce in already existing factories. We have less wallet supply chain challenges. But cross do have a lower profitability. So there by doing those mix changes, we will be able to keep up the out deliveries in revenues, but it could be shifting in type of categories. So that is one way of handling it, thanks to our strong wide portfolio. The second one, if I share some -- what are the details on the supply chain challenges. First of all, I think when it comes to fans, the full market are seeing some branches on deliveries of fans. Then we have also walls and certain components. For us, then more specifically, it is also due to the fact that we need to set up a bill of material in U.S. And thanks to this crunch in supply that has been delayed. So that is also something that has burdened our profitability that we need to ship continued more components Europe into U.S. So all in all, I look upon this then is this something that I'm happy about? No. Is this something that I'm worried about -- worried about? No. Is this something that will, as I said, delay us about the quarter in the expectations of profitability and ramp-up yes. Am I worried about the overall outlook for the second half year? No. And I'm even more excited about next year than I was in the beginning of this year. We are building up a fantastic strong and healthy backlog in carrying us into next year as well.

Really appreciate the color. That's good to hear. And my second question is on the same topic, but on your mitigation efforts, could you talk about what level of visibility do you have today? And what are the key indicators you're monitoring that underpin your expectation for how the situation will develop over the next few months.

But first of all, I mean, it is clear that [indiscernible] -- and this is very [indiscernible] the future is an expert in data center technologies. I mean he is very much on to this already from day 1, so to speak. But more detail then. I mean we have our very, very strong and well-educated supply chain organization. They are now working with the obvious one, finding new suppliers from different type of vendors when it comes to fans. It is, of course, also preordering from those suppliers to building up stock. So we have a better stock situation, and that is also one of the reasons Katharina mentioned that we are building some operating working capital then for healthy reasons in data center. And thirdly then, as I said, we are also then working with organizing supply even if it hits us on tariffs, but organizing supplies outside North America. So you can say, we are working with all the different ingredient is in how to mitigate the situation like this. And if I could choose then what would I like to have? Would I like to have an order book that is not full at all. Or would I like to have an order book that we have to work with. Every day in the week, I would like to have an order book that we would like to work -- we have to work with. That is a much more comfortable situation than not having orders.

Maybe add something on tariffs, which also...

Yes, exactly. So the tariff impact in the quarter was 3%, and that is a result of the continued import of finished goods and on our Italian production. And also, as Klas mentioned, some chiller components or from Europe. But going forward, this will continue to also have an impact as we move over to we will be moving over to a localized bill material, but this is also affected by the super-chain constraints and thereby will take longer than what we anticipated.

The next question comes from Jakob Marken from SEB.

So if we start -- or we keep it at the DT part. First, do you see any risk that competition takes any of the potential orders that might arise on the market when you have these production issues? Or how do you view that?

We don't see any risk at all when it comes to this. And why am I so confident in this? I mean you are assigned to a project, you deliver accordingly to the schedule you have when we signed ourselves to this, of course, we put in some, call it, bumpers. And as I alluded to earlier, thanks to our strong and wide product assortment, it can also shift different products to different customers. And at current, we don't see any indications that the customer is worried or annoyed at what -- on any level. We are pretty much on par with what they would have expected, then what we would have expected, that is that we would have been some SEK 300 million more in deliveries already now than compared to what we delivered.

Okay. Perfect. That's good to hear. And then if we move from the GT part and you asked a question on the FoodTech order intake down a bit year-on-year, and margins also weakening, do you see any risk that, that might hamper the potential divestment? And while on that topic, do you have any highlights or something that you want to share with us regarding that regarding the potential investment.

First of all, if I start with, yes, we are a little bit shy on order intake. I look upon this as, call it, we have had some -- sometimes, I mean, you take an order and sometimes you are not taking the order in the quarter. So for me, I look upon this as more temporarily mishappening if I use that expression then. So I'm super confident he and the team, they are super diligent in going for orders I expect us to be not each and every quarter, but get back on the 20% to 30% order growth that we have had in the past. And so if that is the base super excited about, I mean, what the customers are saying about this. Then of course, even if this may sound as a small excuse, of course, PE and the team, they have also now been concentrating on getting the DUCs in a row for a potential divestment. And so especially in the beginning when you announced that, that takes a little bit of the focus away. But now everyone is lined up to both handling the separation and the buildup by that and then also handling, I mean, generating orders, et cetera. And on the process as such, then, I mean, we are early in the process. We will communicate whenever we have something to update, as I said in the beginning, I'm really happy to see that it is not only us that see the great potential in FoodTech. We have also has a good call some potential interested parties. But I need to underline, we're early in the process, and this we will take step by step.

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

Yes, good morning. I have two questions and one regarding DCT. I just want to follow up the supply issues in the chiller production. And what you're saying here is that you have to rely on imports from Europe and elsewhere while you're still searching for local suppliers to the shallow production. So my question is simply -- is it the risk that the tariff remains a negative impact until the end of this quarter, maybe also into -- no, sorry, until the end of '26 and also in '27 due to that you are not fully equipped with local suppliers for chiller production. So given that the shale production or the chiller area is the high-margin business, I assume that you may have an impact of tariffs also for the coming year.