MMNNF (MMNNF) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and a warm welcome to today's presentation of Munter's Q3 results. My name is Line Dovarn, and I am Head of Investor and Corporate Relations. And with me, I have our CFO, Katharina Fischer; and our new CEO, Stefan Aspman. So we will begin, as always, with the presentation of the results, and then we will have Q&A at the end. So with that, I will hand over to you, Stefan.

Thank you, Line. So happy to be here and take over the baton from Klaus. I think we are here to report a quarter where we had tremendously strong commercial development and a little bit more headwinds in the profit part. So I'll try to cover both in the best of ways. So let's get straight to the numbers. Again, from a commercial perspective, it's fair to say that this is one of the best quarters we've had. We had a significant order intake of plus 70%, a book-to-bill of 1.6. The backlog, which resulted in plus 178%, so a staggering value of SEK 28 billion now in the backlog. I'm also happy to see that we can see this momentum starts translating into sales growth, showing plus 18% at the group level. So AirTech coming in with strong performance primarily in APAC and Americas. And DCT, despite the component shortages that has been limiting output. I think we can see the strong sequential growth of 30% and the highest net sales actually ever for DCT. FoodTech growth in software, however, offset by lower sales of controllers in Europe, which is more seasonality and specific pockets of the market showing less demand currently. Profit-wise, as you've seen, DCT declined. And I think that reflects the changed product mix we see component shortages, ramp-up inefficiencies and just the challenge of starting up a new factory in the midst of this unprecedented growth we see in data centers. FoodTech remains strong, and I think it's important to comment that it remains strong despite continuous investments, while AirTech improved on higher volumes and favorable cost savings. All in all, resulting in a good development for the quarter. We are still a company with pretty high concentration in Americas, primarily in the U.S. Yet, I think it's important to also point out that we saw development in other regions as well in the quarter. As an example, both AirTech and DCT growing their part in APAC with 4 percentage points each, and also in EMEA, DCT growth, 4 percentage points within their respective business area allocation or distribution of sales. So have in the U.S., but good developments also in other markets. Coming to more of double click on the respective business areas. I think AirTech order intake continued to show a positive trend. We see growth in all regions and an increased backlog. In APAC, we are seeing strong growth and partly due to component sales for battery production. I think that's interesting looking at Munters, showing that even if battery has declined in significance as an order as a segment, we do have more ways to win. We can win on the system level, but we can also win on the component part where we are part of the value chain also here, primarily in China. So I think that is a good development for AirTech and it shows that we can be the system provider and the component supplier as well. Q3, showing progress the third year in a row. I think the trend curves are clear. We are growing order intake and net sales. And I know that Klaus has been saying before that for acceptable utilization of footprint, we need an order intake of roughly SEK 2 billion a quarter, and we are now showing SEK 9 million last 12 months in the third quarter. So I think we are at decent levels where we should be able to start to level load the factories in a good way. Still, there is more upside to work with the observation in the factories. Profit-wise, it's even better. The AirTech profits more than doubled. And I know that in the beginning of the year, we said we would move towards double digits towards the end of the year. Now this has happened faster. So 12.9% is strong. We should also remember that the 6 percentage point up is having a tailwind from 2.5 percentage points coming from the cancellation fee that we had from orders. So even if I back that out, 10.4% is comparable with Q2, and I think that we are developing at a steady level sequentially. Going into data centers. I will be very brief on this. I'm sure there will be many questions, but it's more than doubled. It's a broad based across the expanded product portfolio, I think, across customer groups and regions as well and with a very impressive book-to-bill of 2.7x. So it's an understatement to say that we have taken a big part of this market and that the portfolio we offer is making a dent in the market. Looking at the profit parts of it. We are starting to see the higher net sales, 30% sequentially. It is the top quarter in terms of sales, also looking at service at 70%. That is a growth of 41% versus Q3 last year. So also, even if the relative portion if you compare it to the hardware sales is not developing in a fantastic way, it's because the hardware sales is developing so fantastically. So it's hard to keep up, but 41% year-on-year is a very strong number for the specific isolated service business. But of course, profit wise, there is more to wish for, but we start to see the right movements I think we have done most of the things we can do. I mean, all the CapEx investments in the new factory is in place. We have hired people that we need and we have started to set up the flow lines exactly as we wanted to. To zoom out and kind of take a step back, we always said that this will start and we did start production in Q2. My experience of ramping up industrial processes and manufacturing at the scale is that it normally takes a couple of quarters to get where you want to be. So all in all, I think we are progressing pretty well in line with where we wanted to be in terms of operations. However, combining that with external factors of supply chain constraints, we are not where we wanted to be. So -- and I know Klaus used this picture before to illustrate how we are now moving up the vertical part of this picture where we increase the volumes, but it's going to take even more and a few steps further to the profitability levels that we aim for. So all in all, I think we left Q3 at a significantly better place in efficiency and output than when we entered the quarter. So very happy to see that our own process production lines are getting better by each week. So there's a lot of active work for management now to do all things we can do to improve the profitability levels. And very much of that relates to supply situation, qualifying more vendors, et cetera, having more commercial meetings to see how can we, as a whole industry, juggle this challenge because it's important to remember, this is a industry-wide it's not specific to Munters. Everyone is in the situation one way or another. I think we have seen the worst and we have that behind us, but there's still a pretty fluid situation. So we should not see this as we are out of the woods, but the quarter much stronger than we entered it. So moving into FoodTech then. In terms of order intake, relatively stable development in FoodTech close to last year. It's a somewhat softer marketing controllers for Europe, while software is more linked to timing and product awards, I think, than the controller part. The project pipeline is very healthy, and I'm optimistic about the development. I think we have a lot of things interestingly set up for FoodTech, and they do have a very unique value proposition in the market. The ARR is reflecting this. It has developed 18% plus. So I think they also showed healthy margins in FoodTech. And I think it's important to point out that, that is despite continued investments in future growth. Since we established [ Superior ], we have accelerated the development of the meters rather than slowed it down. So I think we're building a very unique part of Munters, but also a unique asset that, as you know, we are now divesting and the process develops according to plan. So happy to get back to you when we have some more to say. But in short, it's progressing according to plan. So that was a very brief summary of the highlights overall. So I'm happy to hand over to you, Katharina for the financials before we go back to some summary and Q&A.

Thank you, Stefan. So as Stefan highlighted, net sales was overall strong in the quarter. So this was especially noted in AirTech, but also in whereas FoodTech was flat. We also saw improved profitability in the quarter where we exceeded the margin in Q2 and Q1. We had a negative cash flow operating activities, mainly related to the inventory buildup in DCT, somewhat mitigated by advances from customers. Still, our operating working capital to net sales ratio improved in the quarter to 4.2%, which is then well below our range of 10% to 13%. The margin had a mixed development in the quarter, it was lower than the prior year, but it also saw some positive impacts. So starting on the volume, we had a positive volume impact both in AirTech,but also in DCT. So that impacted the margin positively. Then for DCT, as Stefan talked about, there was a negative product mix effect and also tariffs weighed on the margin for DCT. Price increases are continuing to be implemented across the three BAs. The benefits of that will take a little bit longer as it works its way through the backlog. On the operational excellence side, Stefan talked about this as well. Here, of course, as we are ramping up DCT then in Virginia, we see -- still see some production efficiency related to the component constraints. So that has a negative impact. And then for AirTech, the underutilization also weighed on AirTech margins in the quarter. We see positive impacts on the cost saving programs for AirTech. So that could be seen in the margin. And then we also wrote in the report about the positive one-off for AirTech, 2.5 percentage points of AirTech margin in the quarter. And we see this as normal running business. It's not often that we have order cancellations, but sometimes happens. And this time it happens. And it, of course, it is then offsetting some of the costs that we have had for this order in Q3 but also in prior quarters. Sequentially, the margin improved. This was the highest margin, fourth quarters. So we have really seen this that we are able to strengthen the margin sequentially due to higher and also cost savings. Speaking about AirTech cost structure improvements, these continue to deliver cost savings. So the measures initiated in 2025 have been completed and delivered well above the plan. And that also showed the very structured execution across the organization. And then we are continuing on the program now in 2026. And it's progressing very well. And so far, it has reached around SEK 180 million. And we are targeting SEK 250 million then year effect. And this program addresses the adjustments in investments, workforce optimization and decrease efficiency. But also, of course, we are safeguarding some important growth initiatives as well. So as seen in the Q3 report for AirTech , then the margin has strength strengthened then supported by volumes program. Looking at the cash flow then, the cash flow was negative from operating activities. The profit was solid. It was solid profit generation, but it was really this change in the operating working capital, mainly then the inventory buildup in DCT, but also higher accounts receivables as a result of higher sales. And this was then also offset by a stronger EBITDA. We have also then continued to invest, of course, in the business and in the cash flow from investing activities, you can also see a positive effect from AgriWebb sold the minority holding that we had in AgriWebb and that generated a positive impact of [ 32 million ]. Then on the year-to-date, pretty much the same story, solid earnings and then the inventory buildup. But on a year-to-date basis, it's largely mitigated by customer advances. And then, of course, we are continuing to invest in the business with the strategic capacity expansions and so on. And in the first quarter, we also have this contingent consideration for AirTech. Turning to investment then. So we continue to invest, and we are applying our very disciplined capital allocation principles. So of course, we initiatives that improve excellence and also strengthen our potential growth future growth potential. In the quarter, we had CapEx as a percent of net sales at 4.6%. And on a rolling 12 basis, it was 6%. And then the majority of the investments in the quarter has been related to the Virginia expansion, of course, because we are ramping that up to support the strong demand in the U.S. market, of course. We are also making investments in AirTech tech in the component production capacity in Mexico. So that is another investment that ongoing. And if we look at guidance for CapEx, we remain the outlook for that, which is then to be in the same range as 2025. And then for operating working capital to net sales ratio that, as I mentioned we are making very good progress. So it's down now to 4.2% in the quarter. In terms of leverage, leverage increased them to 3.4x from 3.2x in the prior quarter, and this was driven then by the negative cash flow, but also higher lease liability. And the lease liabilities are related to the Virginia expansion then. And then there was also a small offset with the improved EBITDA. And as you know, our long-term ambition is to have a leverage of 1.5 to 2.5. So that is not a fixed target, but the long-term ambition. And going forward, we expect the leverage to gradually improve and supported by higher earnings and also disciplined cash generation. Still, we do know that this has taken longer time than previously expected due to that it has taken a little bit longer to translate the DCT ramp up to higher earnings. So then to end this part of the presentation then. I just wanted to share a little bit of a highlight from one of our investments in sustainability. So this is an investment in solar panels in our facility in the U.S. So during some -- a couple of summer months, the facility and the installation were then able to generate 100% of the electricity needed to run the factory and the whole site, so to say. So of course, that had a very positive impact on our CO2 emissions and also on our utility costs. So of course, while this will not be able to cover 100% of our needs. On a full year basis, we estimate it can at least cover around 50%. Of course, it strengthens our resilience towards higher energy costs and also our overall for the future. So with that, I would like to hand it back to you, Stefan, to summarize the quarter.

Thank you very much, Katharina. So then, I move this forward. So in terms of summary, important, we are not changing the outlook for this year. We see positive order trends continue in AirTech, high utilization and cost measures support and profitability. So I think we are moving the right direction of AirTech. There is a strong demand translating to sales growth now in DCT. And I think the ramp-up is starting to prove that we are on the right way. And with FoodTech, we do see solid earnings and increased ARR, 18% plus year-over-year. So not changing the market outlook and not the business outlook either. As an overall summary, I was thinking about how to summarize this, Klaus, have had his way, and I thought, okay, I bring with me my lens from running a project business now for 5 years within Munters, because at the end of the day, a big part of Munters is the project business. And normally, we look at this through four very important conversions. How do you go from market potential and turning that into orders? How do you go from having these orders and turn it into revenue according to the production milestones you need to hit to be able to recognize revenue. And how do you make sure that, that revenue turns into profit and that profit turns into cash? And if I put that filter in Q3, I think it's very clear to say that in the first conversion, the market potential into orders, we have an outstanding commercial performance. So that is a very green one in terms of traffic light weighting. I think, we are proving to ourselves and to others that we can make a difference in the markets, both in Airtech and in DCT and obviously also in FoodTech. Orders into revenue. This is where we have a little bit of a mixed situation where AirTech is progressing according to plan and even slightly better, while DCT are struggling with the output compared to where the original ambition was despite having 30% sequential sales growth. So we are still negatively impacted by the component constraints, but I think we have the worst part behind us. Revenue to profits, obviously, overall in total as a group, I think we came in strong. But with that said, I also -- it's not lost to me that where the sits is something that's being challenged a little bit with AirTech progressing a little bit ahead of the curve, what we indicated before and where DCT is trailing a little bit lower. So that is obviously something we need to work with. I think we had a strong finish to the quarter, and I'm looking forward to see how we can take this further, not only in Q4, but definitely to position ourselves for a strong 2027. And then profit into cash, Katharina covered that well. I mean, it's very much related to the DCT inventory buildup that drives negative operating cash flow. With that said, trend also that one on a more positive note, this is also what will be part of the recipe to turn DCT because if we're building inventory, it means that we have inventory. Part of this buildup is also related to some delays in projects that are outside our control. And that combined with us now getting access to the components we need to build, build up higher levels. But again, that is also part of the recipe for in Q4. So all in all, I think I'll leave it there, and we go straight to Q&A.

Great. Thank you very much, Stefan and Katharina. We are ready for to take on questions. And for those of you in the telephone conference, I ask you, as always, to limit yourself to two questions so that we can hear from as many of you as possible, and then you're welcome to join the queue again, of course. So we can start with the first caller on the telephone conference.

[Operator Instructions]. The next question comes from Jingyi Zheng from UBS.

This is Jingyi from UBS. Congrats again on the very strong order intake. My questions are on DCT. Firstly, start with the growth and margins. Last quarter, Klaus mentioned the progress in DCT was delayed by 1 quarter because of the supply chain bottlenecks. I wonder if that still holds under your current assessment. And in particular, do you still guide for 30% growth this year? And when should we expect to reach the high teens margin.

Good. Okay. Let's take them in sequential order then. Yes, I think that the delay of roughly a quarter is still a pretty good estimate. It's no exact science understand. But, yes, we started in Q2. We always saw this as being a bit of a hockey stick towards the end of the year in terms of volumes. We are now starting to see that happen. But yes, we were planning to be earlier in that ramp than where we are right now. Going back to the picture I was showing with that incline of the curve. The 30% overall is something that's been put out in the market. And I would like to get away from the exact numbers here. There is a range, right? But we had -- I think if we hold according to our plans, I think there's nothing in the outlook having a significantly stronger H2 than H1 that we will guide to in an extent, right? So it's definitely not impossible. I say this with some caveats, though, as I said before, we are still subject to some external matters that we cannot fully influence ourselves. But if you ask me, if I'm confident based on our own operations and where we are, yes, I think that is highly reasonable that we should be able to hit that still. And sorry, there was one question in between those two that I lost, which one was that?

Yes. I think, the other is question just on the last, when do we expect to reach the high teens margins?

Yes. I think that is more of a more of a midterm play here. I mean, it could happen earlier, but I think we have to see this from the waterfall of being at our top plus 20% something. And then we have made deliberate growth choices here going into new geographical areas, broadening the portfolio because we didn't want to stay one or two trick pony, right? That has decretive effect, but the absolute value generation is, of course, much larger. So I still believe that the full potential of DCT can be in that range. I would like to avoid to set an exact timing. I hope that we will start to see a clear step towards that already now and near term and then continue to develop on that throughout next year.

That's very clear. And as a follow-up, can I dig a bit into DCT Q4 deliveries from what I understand your delivery obligation from the large orders is stepping up again in Q4 versus Q3. And I try to map out the delivery schedule you published previously in the presentation deck. From that estimate about 2.5 billion in Q4 versus about 1.9 billion in Q3. Firstly, I want to talk if that sounds in line with your expectations? And secondly, are you confident in delivering this volume, if that holds?

I was going try to be funny and say I have to because if I say that we keep the outlook, we need to be there and above to be where we need to be. So the short answer would be, yes.

And I think just to complement a little bit, the growth will also come not only from the Virginia but also growth in Texas and [ Europe ].

That's a very good point.

So I think that's important to keep in mind.

Absolutely. And also outside of the U.S., right? So it's a broad mix. But of course, the bigger volumes comes from the U.S. to Katharina's point, not only in Virginia but also from Texas.

Thank you. We can take the next caller.

The next question comes from Jakob Marken from SEB.

Thank you for taking my questions. So if we keep it at DCT firstly, you have 2 percentage points tariff impact in the quarter, which is down from last quarter and from the top that you had 4 percentage points previously. I mean, should we see this as you have been able to source more local components in the U.S. here in the quarter? And can you tell us a bit more on the component side locally in the U.S. during the quarter and how you view that into Q4 and next year?

Yes. Thank you. Good question. I think this is where we also need to start to gradually change the narrative a little bit because if we go back, it was very important to us to kind of separate these are the tariff impacts coming from us localizing production of chillers from Italy to the U.S., right? And then we had first a tariff impact on shipping over full units. And then later on for the bill of material, there were still vendors, and still is, from Italy that we separate components, no longer full units. With that said though, and coming to your question, I think we are starting to get to a point where the impact is reducing. It's still there, but it's more about optimizing the bill of materials rather than localizing it because in the bigger scheme of things, no one in the U.S., including us, will ever have a fully U.S.-based bill of material. So there will always be shipping in and imports and some of them will carry tariffs, right? But that is something in a project business that will always take into consideration when we set the price. The challenge here was that we went into the market to make it dent commercially before we even had local production. And then all of that was not necessarily price in when we also in parallel, had the situation in Iran and the supply chain constraints. So it's been squeezing us more historically, if that makes sense. It's still there, but it's limited, it's washing out gradually. We will still have some tariff impact related to the specific localization or moving from Italy also in the coming quarter, that is getting less and less. And I think next year, I will stop talking about it, then it's more optimizing the bill of material rather than localizing it.

That's very clear. And my second question relating to cash flows and inventory, you've been building quite a lot of inventory, Q2, Q3. And when do you expect that to unwind and for cash flow to improve from reducing inventory?

We expect it to stabilize at year-end. So we will still see some increase in the fourth quarter, not as they get between Q2 and Q3, but still some build for year-end. And remember, we have much higher capacity right in Virginia. So you also need a higher level of supplies going forward to support higher volumes.

Okay. And is part of the inventory build that you are not being able to secure some of the crucial components that you have building inventory for all of the products and then you get -- you can't get all of the components and then you're stuck with some products? Or how should we read that?

That's correct, exactly. So for example, we had one little bit more shortage of coils. And then, of course, we had all the other components, right? But the positive side of that is, of course, that we are well equipped now for Q4 to deliver all the volumes.

I think we have been clear that this is part of the mitigating actions that we are taking to secure more components and to be in a better place for Q4. We can take another caller.

The next question comes from Adrian Gilani from ABG Sundal Collier. Adrian Gilani Göransson: Yes. My first question also on DCT is just trying to understand what the complexities are in the Virginia ramp up. Can you sort of concretely go through what the bottlenecks are that are keeping you from higher utilization rates at the moment?

Yes. Thank you. Now if it's a relatively broad mix when we start up in new factories, some that you always have that is not specific to our situation, including hiring new people, making sure that you build the right quality in this mission-critical industry, we can't make any mistakes, right? So I think Klaus expresses, like, in the beginning, you have two persons working and people watching and then you start to move towards having eight people working and two watching and then finally all are working, right? So simply, we need to train the people. That's one part. That was in the plants. The ones that were not in the plan is, to your point then, concretely, if we miss a component as an example. It very often ruins the whole concept of lean, like one piece flow and other concept we work according to that means that you have to build in certain components at a stage of production that is not beneficial to make it in the fastest possible way. So that is definitely something that is happening us. And even worse, if we complete the lack of component, it could be so that you had actually built a big part of the unit, but you can't recognize revenue, which is also midterm, a little bit of an opportunity because that means that you might have half produced units that are waiting to get finalized, right? But besides that, it very much relates to how we build stuff and the timing of it. Because to hit our margins, it's very important that we are exactly in line with the plan according to how we set up the flow. Adrian Gilani Göransson: Understood. And then for my second question, just on the cancellation fee, I mean, I guess this is an unusual thing, but given that orders have been outpacing sales largely in DCT, but to an extent, in AirTech as well, do you see any elevated risks that there might be more of these types of cancellations in the near term than what is usual.

I think if you go back and look at this historically, and please fill in, Katharina, Line, in DCT, if I go back to you in my years, we have experienced one cancellation basically, and that was industry-wide, not related to Munters. It was a big project in Denmark that got cancellation -- canceled in 2022. It happens though. So it's always a risk in the project business. I think that the way we approach the market with very clear customer collaborations and with it's the gift and curse. We have a little bit higher customer concentration than the big ones. But on the other hand, we have very good visibility into the projects. And very often, we work with the big ones like the hyperscale wholesale colocation, and they very often have good alternatives to pivot because when they cancel, it's very often because there's something related to long-term permitting challenges or that they didn't get the connections to the grid that they were expecting or something like that, but then they have many other places. So they want to keep a diversified vendor base. So rather than canceling, they very often bring us on to the next project, and they use the products for that instead. So, with that said, it's always a risk, but I don't think it's elevated or anything that has changed in the business model for us or in the profile of Munters. It's as it's been in the last few years.

And for AirTech, it's very unusual. This is the first cancellation we have there and also connected to it being a larger project that was canceled in full. We have a question -- a few questions here about the utilization in Virginia. Would you like to comment a bit on that, how we're thinking about utilizing the factory?

I don't know, we want to utilize it to the full extent. We have 365,000 square feet and now we've added 200. We know we're going to need all of that. So of all the things you worry as a CEO, it's not one of them. I think that we have built a footprint that is very much in line with the demand and what we see in not only short term, but also longer term. And with the portfolio mix we have, I think there is a broadening opportunity for Munters as well. But I mean, chillers are used in a much broader space than also data centers. So I'm not worried about utilization of filling the factory.

And we always work with being able to take on other products in these factories as well. So it's not just completely chiller production.

No. And I guess, we shouldn't bang our chests too hard. It's no rocket science, but obviously, when we build new factories, which we have had the privilege to do the last few years. Obviously, we equip them with the right cranes, the right ceiling high, the right size of how you enter with a truck. These things actually matters, details to be able to have that flexibility to move production between the sites. So we can't do it just compare one factor to another because it's also based on competence and other aspects. But yes, I think we have a flexible footprint. But utilization is definitely important, coming back to the margins, and we are working on it. And obviously, it's not where it should be right now in Virginia, specifically, that's why we don't see the drop through, but we have a clear plan to get there.

But we don't give any specific utilization rates for the factory. We can take another caller from the conference.

The next question comes from August Flyning from Handelsbanken.

Two questions from my side, please. Starting with the dates on the margin. And maybe drilling a little bit about a bit on the previous question here. But could you perhaps elaborate a little bit of how much of your component sourcing is currently localized in the U.S.? And here I mean specifically for the chiller.

Yes. So without breaking it out an exact percentages, because that would probably be more disinformation than information because I'm probably not right. But I think look at the big ticket items here, coils, fans, pumps, to some extent, compressors. A big part of that in this industry is imported necessarily related to the chillers that we are producing, but some of the biggest fan producers, as an example, are from Europe, compresses as well with Danfoss. So there is import for sure, but that is a deliberate import or a deliberate -- sorry, not localization. Coming back to the whole question about are we localizing or optimizing? When it comes to the things where we can and should localize, like smaller things, valves, strainers, whatnot. I think we're on a very good way to have that localized. And with that said, obviously, the bigger values are in the bigger components like the evaporators. So we are tying in more and more vendors and more and more collaborations. I think we have been hit by this as an industry, but also Munters a little bit specifically because we were late to the party when we decided to move the chillers because there was this window of opportunity. So we had to go to very niche vendors for some of these components. Now we go to the broader one. So even if it's an import aspect, you might still have the tariff, but you have a completely different price if that makes sense. So between those different mix effects, I would say that we are pretty localized by now. There are still bigger components that we do in port, but I assume we will continue to do so, but we're going to price it into the projects, of course.

That's very clear. And turning to data center demand, could you talk us a little bit through how customer discussions are developing at the moment? And maybe particular, while looking into 2027, are you seeing any changes in how projects are progressing from early discussions to firm orders? And if so, maybe you could compare that to what you had saw earlier in this year?

No, it's a good question. And I think the simple answer is that we don't actually see any significant change in sentiment of the market. The infrastructure is still needed. There's a lot of debate, as you as we all can read about AI and specific companies and specific business models. But in the bigger scheme of things, the need for this infrastructure not only for AI, but also digitalization on a broader scale is very much needed. And we see those investment coming through. So the plans that we see both in how it's planned according to where you need energy as an example and where projects are being run, we don't see a downturn or anything that is limiting the outlook.

The next question comes from Gustav Berneblad from Nordea.

It's Gustav here, from Nordea. So I thought maybe just to start off. I mean, you tend to show a graph here showing all the larger orders that have not been basically announced. So just -- are there any larger orders pushing up DCT and then also, I want to follow up on that, do you take prepayments in the range of 10% to 30% for all the DCT orders? Or is it just the larger ones?

Thank you, Gustav. Good questions. I think let's start with the first one. I mean, we have come from a history where we have announced larger orders due to a number of reasons, right? I mean we have done -- been doing more related press releases and marketing related ones. In the beginning, everything we did was potentially sensitive because we were growing a business area. And I think now we have grown into a different size and we have also got used to larger orders as well, and I consider that more as the running business nowadays. But the shorter answer would be that, yes, we've had during the quarter, I think we've had both smaller orders to medium-sized order, to some of the bigger ones that I consider are all part of the mix now that we have. I expect that to continue. And every once in a while, you would see bigger cluster orders. I think that is not ruled out in the future either. It's not a normal pattern any longer. But I've been around in this industry enough to know that this comes and goes. It is very cyclical. So some years are like that. And I think the supply situation has definitely been pushing in that direction that some customers companies want to kind of hedge towards that on security. So yes. And the second one, the prepayments and then the short answer is, the vast majority of our deals, we do have prepayments as one condition. It's very unusual that we have none. With that said, though, as we become larger, of course, the negotiations become tougher because the larger the company you are, the tougher that negotiation will be, customers do simply think that you get paid when you're done. And I think we have strong relationships and prepayment is something we should expect to continue to have in the vast majority of our deals.

Okay. Perfect. Do you see any risk I guess it's more related to the smaller orders than that -- or the ones that don't have prepayments, but risk that customers are placing double orders that market is infiltrated by double orders basically.

No, would be the short answer. I don't -- and again, it comes back to our positioning and differentiation. We have very few that small customers. We have pretty good visibility into the projects we are engaging in. So very often, there are more vendors in the mix. So in that sense, they are not working only with us, very much with others as well, but double orders to kind of hedge and secure. No, I haven't seen any of that.

The next question comes from Carl Deijenberg from DNB Carnegie.

So two questions from me. First of all, on the order development in DCT in Q3. And maybe if you could talk a little bit on the pricing component here. Is it possible to give any quantification what kind of pricing price increases you're seeing on the orders you're taking now relative, let's say, the beginning of the year? And secondly to that question as well, is the order values now reflecting sort of the higher component prices that you've been seeing impacting the margins, i.e., you're entering '27, '28, were they a backlog, which is more adapted for a different component price situation as well? That's my first question.

Thank you, Carl. And this one is a little bit dicey because I think we have both. We have parts of the backlog where we actually took orders at worse pricing because there's so much that has happened to your point, quite lately. And as you know, there's a significant time lag from when we take an order to when we deliver it. And yes, where pricing clauses covering parts of that, and sometimes those can be activated, but not always. There's always a range until that is triggered. So there is some risk built in always, if you have a project business like that. But then to answer your questions about how we increase prices, yes, surely. And there's significant price increases made also cost increases that we have had to take in and then blessing of a project model is, of course, that you can reset the prices project-by-project, right? So yes, I think a big part of the backlog now has a healthy pricing. And for some of our products, there's a significant price increase, not because we have been more aggressive rather than we have on the cost side of the pricing model, we have just adjusting to where the market is.

And would it would be possible to say anything on a very high level, what kind of numbers we're talking about? I think there's other people in the industry that's been talking about 30% to 40% plus today relative when we started this year. Is that a fair assumption ballpark?

I would say for us, it's probably lower than that. I think it's also about positioning, I would say, 40% sounds very aggressive. But it's fair to say that, yes, some of them are 20% plus. That is true. That is what we see.

Secondly, I also just wanted to ask on the backlog now in DCT, I think it was around 22 billion now by the end of Q3. Could you share anything on the phasing of the deliveries here '27 and '28? Just to understand sort of what kind of delivery expectations, we should look at when we compare it with the backlog for the going concern right now.

I mean, obviously, a lot of what we take in right now coming back to the time lag between order to delivery, you're getting closer to 2028, right? And a big part of 2027 is basically filled up because if you haven't placed your order by now, you're basically late in this industry, right? So the more we move towards the end of the year, the more you should see that part of the orders allocated to 2028, some could be late 2027. I don't know, Line, anything you would like to add?

No. We haven't done an exact split, but I think that covers most of it.

Yes. And can I just follow up on that? I think Klaus previously, had talked about our sales expectations for '27 around 11 billion for DCT. I know that you don't provide a excess guidance on that, but it sounds like that is fairly conservative when we look at the value of the backlog. Would you agree with that? Just so I can understand some of the distribution of '27 and '28.

Yes, I think at the time, he said that we had a backlog of about 22 billion. He was splitting it up on 2 years. So it was more a very quick assumption, but I think it's probably a bit lower at this point, yes.

Yes, because obviously where we are right now, a big share of what we have in that backlog is related to 2027. So yes, we were able to expect a pretty significant lift.

The next question comes from Adela Dashian from Jefferies.

Good morning and also congratulations from me on the very strong DCT order results. A lot of questions have already been asked and answered, but I'm still going to keep it to the DCT margins. I appreciate the color on the tariff impact but it would still be great that we can try to bridge today's margin versus where you ended up last year. I mean I understand if you can provide me with specific numbers on all the components here. But maybe where the weights are leaning towards in terms of volume and the mix effect and the factory efficiency and so on. Like what weighs the most?

Yes. No, it's a good question. And I think we are -- if we are humble and we zoom out a little bit, I think we come from a history the last quarter or the last 2 quarters since we started where it's been more of a mixed bag, Adela, that part of this is going back to where I started, like some of these are very much related to a general situation or generic. Like this is what happens when you start a factory. Those kind of child diseases are gradually washing off or washing out. I don't think we have so much of that now still some, of course, because not at least related to hiring quite a bit of new people. So there's a scale effect that takes a little bit longer of time. But that is ramping up. I would say that's a smaller part of it. The rework has been, I think, the main change here. It's not to be underestimated when you have to make these adjustments between different batches, different productions in a producing environment. So that has been quite bad. That is also getting gradually better, and that has a straight link to the supply chain situation. So they really go hand-in-hand because if we don't have it, we will have to still move around products and move certain things on the line side to take something else just to not stand still because that's where we've been. We can't just send people home, right? We're going to need them. So that also has a hit on the margin. But to go back to answer your question, I think right now, without sounding defensive, I would say the absolute vast majority of the limiting factor is external. We have our ducks in a row now when it comes to the operations, and we have all the equipment and we have people working ready to take on the bigger volumes. And I hope you can see that 30% plus sequential has some kind of nugget of indication that we actually have the capability to start ramping and obviously create the outlook, we need more than those 30%, but I think it's a good first step. So I dare to be somewhat forward-leaning in this.

That's very clear. And then, I mean, following up on this and your last commentary. I know we've been discussing this back and forth several times before, but with those factors being mainly external and obviously, very limiting on your progress here. Would it be possible for you to provide some sort of, like, outlook on exactly what you are doing to combat this? Like what proactive measures are you undertaking? What are you seeing is working? What isn't working? And yes, that would be the question.

I can touch upon a few quickly then. Some of them are obviously obvious, but we are qualifying more vendors. That's a very big part of that. So being extremely active and not only traditional sourcing, I'm talking about full management team or Head of R&D is working more actively on this than maybe other things, right? So really making sure that we can qualify alternatives to keep building, but maybe with something that wasn't there in the bill of material from the beginning. That also calls for the second bullet, and that is very tight collaboration with the customers because we're all in the same boat here. Customers would like to avoid delays and there is an openness to qualify other as an example, can we work with another fan as an example, than the one that was spec-ed in. That's a very clear tangible activity that we can initiate. Besides that, a lot of lean work. We have a dedicated team in DCT that works with nothing else than just operational efficiency improvements, and they are doing their thing in all of the factories, but of course now very much focused on Virginia and the chiller ramp-up, which is another aspect. And then the last one, I would say, utilizing this opportunity that we now have a much bigger footprint in remember that additional 200,000 square feet gives us actually the opportunity to make changes in the production schedule without being so disruptive if you only have your original factory and you're limited to the box you normally have that is more disruptive. Now we can actually move certain things out to the new part of the factory and utilize that we don't have full utilization, right? So that is also benefiting production that have more space to move as simple as it sounds, that has an effect, definitely. And then there are tons of other things like recruiting, specialist competence adding extra short-term consultants that can come in and boost the productivity and things like that.

And we have also built safety stocks where we can.

Yes, definitely. That's a very good point, Katharina. The stock levels of inventories, of course. Now once we get the components, yes, we take the opportunity to -- I'd rather tie some capital and make sure that we have what we need to produce. Because in the bigger scheme of things, that's going to be better for the company. And then long term, of course, we need to be at the right level on both of these sides. But short term, yes, I take that bet any day.

Makes sense. Thank you. If I just -- let me quickly squeeze one in with the comment around working very diligently with your customers. I mean your order book here suggests that there's absolutely no stop in the momentum, obviously. And would you say that this is then helping the view that you actually are in a really, really strong market position where your products are valued enough that customers are willing to see past these issues that you're currently experiencing and still place orders with you and not go with other vendors? I mean, are you seeing that you're having -- even said or conversations with customers today, maybe than you did a couple of months or a year ago.

That's a good question, Adela. And I think it's fair to say, and obviously, this is a subjective view, but I think we have more conversations in the positive tone that we now had time to bring people to Italy being our kind of R&D hub for chillers, show them what we have, but also on a broader scale that we are a more significant player in the industry now. So yes, I do think we have a good traction in the market to be more humble. I mean everyone is in a good position right now because there is a strong industry. But in that strong industry, I definitely believe we are taking market share if you look at the development. So with that said, I also think it's important to point out that the so-called problems that we are discussing now is very much related on expectation that you have as a capital market, which is very often quarter-by-quarter. So if I look at that and I compare on the commercial situation, I don't think there's a view external that we would be in a tougher situation than anyone else. Because our progress here is not worse than competition, I wouldn't say. Everyone is on allocation list on certain components. I see no one having a flawless like everything, all ducks in a row when it comes to output and so on. So humble for the challenge we're in, but I don't think we're making the operations worse than anyone else. We are just in a different situation when we have started to move in a new production facility.

The next question comes from Anders Roslund from Pareto Securites.

I have two questions regarding margins in DCT and AirTech. And just to phrase it a little bit differently, you mentioned product mix as one reason for the margin deterioration, how come? That's my first question. And the second one is in AirTech. The fact that you took this -- or took that you had this capital gain of 2.5 percentage points. You also mentioned that you had some costs related to this cancellation of order, could you elaborate a little bit on what the underlying margin, ex the capital gain and the ex the extraordinary costs?

Yes. Thank you, Anders. I will take the first one and pass the second one to Katharina. Product mix for DCT is quite clear. We've gone from -- and Anders, I know you know us very well. We've gone from usual, we've gone from very much concentrated around cycle and evaporative solutions. We benefited highly from that, and then we went into the chilled-water infrastructure and with chillers, but not all the chillers, also CDUs and new types of costs. And if I look at this year, we're basically producing three, to us, completly new concepts in the factory. And those have high potential and different potential like chillers should have the potential to make somewhat of a cycle journey over time, but not in the beginning. So it all relates -- that product mix all relates to going from things we are very used to producing and have set up routines, and we have -- we know what good looks like in terms of output and efficiency to producing to a large extent, what we produce in Virginia is very much new.

Okay. And the other one, AirTech margin then the order cancellation fee. Yes, we had a positive one-off for AirTech in the quarter then. And as I mentioned before, it's not very common to have that -- have this. But whenever it happens, we see it as part of the normal running business. So hence, we have not put this as an item affecting comparability because it does not meet our requirement to qualify for that. And we have some costs related to the order cancellation in Q3, but also in Q2. And the order cancellation fee was around SEK 50 million.

Okay. So you don't have to say because, given the sales increase, which was quite impressive, you maybe have an effect a little bit better margins than the one just taking off the 2.5 percentage point of cancellation income.

Well, then you get from 12.9% down to 10.4%, right?

Yes, exactly. The 10.4%, is that a running rate or that is obviously impacted by also your high cost. So that's why I'm saying.

It was not a high cost in Q3. It was a small part.

I think we have one more caller. We'll let you in, Mats for the last question.

The next question comes from Mats Liss from Kepler.

Yes. A lot of questions. But I mean, DCT here and the orders are solid. And are there sort of new customers in the backlog now? Or is it sort of existing customers that you have met before? And also maybe hyperscalers colocate mix there, if you can share some color?

Yes. short answer would be, yes. I think we are working well with deconcentrating the customer base. So this is a broad mix between new customers, but also more from the established relationships. So I think I'm happy to see new -- to speak in, to FoodTech terms, new logos added.

Okay. Great. And then there are some sort of consolidation trends going on. And I guess some of your competitors have a broader offering. Is that something that customers like to see? I mean more of a one-stop shop or do you have sufficient offering seems so.

You mean consolidation in terms of competitors becoming broader?

Yes, more DCT...

In short, Mats, I think we have one of the broader offerings in the market. In terms of that, I mean, definitely, whenever competitors are developing and joining forces or buying smaller ones, it's potentially strengthening them. So that's not lost to me. But I think we are also very active how we are looking at the potential M&A agenda, but also where we are right now. We have done a lot of good moves in the last few years. That's put us in a good position. So we are equipped to compete in the vast majority of this market.

All right, yes, I had a final one there on FoodTech. Do you have some comments there on the progress of the divestiture?

No, nothing to share right now besides that we are on plan. We had a plan where we should be end of the year, and I think we are bang on that. So I'm happy to get back to you as soon as we have something relevant to say.

Thank you very much. A lot of good questions today, and we have a few here that we didn't have time to answer, but we'll get back to you through IR. With that, thank you to Stefan and Katharina for presenting. I knew I would do that at some point. We're also reminding you that we will be having a Capital Markets Day on the 11th of November. So please reach out and come listen to us then. Thank you very much.

Thank you.

Thank you.