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Munters Group AB
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Ladies and gentlemen, welcome to the Munters Q4 Report 2018.Today, I'm pleased to present CEO Johan Ek and CFO Jonas Ågrup.[Operator Instructions] Speakers, please begin.
Thank you. Ladies and gentlemen, very happy to host this call.My name is Johan Ek. I'm the new Interim CEO and also a board member of Munters. Munters is new to me since 2 months back, but being in the role of a Interim CEO is not -- that is something that I've done several times over the past few years. Also, coming into a situation where a significant and rapid profit improvement is imperative is not new to me either, also something that I have done a number of times before and also processes that I have led before. Now as you can imagine, myself and the full Munters management team have worked extremely hard ever since December 19, when I joined. We have designed a comprehensive and good plan, but before we go there, I would like to just share a few views from my side.I think, compared to many other situations I've been to, we have a lot of good news in Munters. I think we have very attractive fundamentals. We have a strong technical understanding. We have deep application knowledge in our customer segment. We have strong, leading market positions in many of our segments. And I think very importantly we are in most of our businesses enjoying good underlying growth. And so I think the starting position is very good from that perspective. However, it's also painfully clear to me that you as investors have reason to be disappointed with our performance since IPO. And I think that we as Munters' management also have reason to be disappointed ever since IPO. And this is the reason why we have worked so hard since December 19 to design a plan that is so comprehensive and that has such deep and positive impact that we can be sure to see a good profit increase already in 2019 but the full impact of the program in 2020. And this is what I'm going to spend the next 15 minutes talking about.If I may ask you to go to Slide 3, which has the title Starting point. I'm not going to repeat what's written on the slide. What I just want to point out is that designed a plan. It's ready to go, and we are in execution mode right now.If you turn to Page 4. I just wanted to highlight some, I will say, guiding principles and learnings over the past 2 months. It's clear that there is many things that we do really well at Munters, not -- like in all companies, there are areas where we could do better, and I think what I'm bringing to the table here is a clear focus on some areas that matter. One of them is, if we take the customer side, clear focus on that -- markets that carry the most potential, clear focus on product applications where we can bring the most value. I think, in order to do that, we also need to be organized in a better way to fit this. And what this means to me is that decentralizing the business, taking decisions close to the customer is key for Munters. Having fewer but stronger business areas is key for Munters, and driving quickly through a simpler and leaner structure for Munters is also imperative.If you turn to Page 5, you will see the layout of our Munters Full Potential Program. This is our plan in simplest form. It consists of 3 phases that gradually shift from one to two and three as we see that we are getting enough momentum in the first phase. The first phase is about stability and profitability, stability in areas where we are not stable enough. Data Centers will be a key point here. Profitability, we have across the business, but we can do so much better, so it's about increasing profitability in the areas where we are already fairly profitable. When we are done with this first step and have good momentum here, we shift into even more improved margins and, I would say, more of a continuous improvement character to make sure that we drive through further profitability improvement across our business areas.When we have good momentum in the second step here, then there is a gradual phasing and shift into pushing for profitable growth. Like I said, we have so many areas where we can grow, but we need to make sure that we have a stable and profitable platform and then we can grow.If you turn to Page 6, I will now more in detail go through the first phase of our program. In its simplest form, it consists of 4 main pillars. The first is to strengthen the leadership team. This is a process that started on December 19. I'll talk about that shortly. The second one is the point about having fewer but stronger BAs. We are moving from 4 business areas to 2, and we are pushing through a decentralization with power in the business units to drive their P&Ls. The third point is to across the whole Munters structure drive for leaner structures and extra lean efficiency. And finally, the last point but one of the most important is to drive a performance uplift in data center through a more focused approach on the U.S. market and the U.S. operations. I will now talk about all these 4 areas more in detail.So if you turn to Page 7, try to strengthen leadership teams. As you know, on December 19, we -- Magnus Lindquist was elected new Chairman of the Board. Magnus comes with a wealth of experience in business transformations and turnarounds and being in businesses from kind of a modestly or okay-performing level to well-performing level. The same thing goes with myself. I came in on December 19. I have led these types of projects several times before, and I believe that we are off to a very good start here. Peter Lindquist has been appointed Interim President of Air Treatment, replacing Scott Haynes as effective today. Peter Lindquist also carries 20 years of experience from turnarounds and from running businesses of good size.It's also important to highlight here that we are keeping continuity and the rest of the team. The people are still there. The rest of management team has proven support and commitment through this process, and this is of course imperative as well. Finally, I would like to point out that the kind of orderly transition where Jonas Ågrup, our CFO, will step down and leave Munters at the end of the year and where we have initiated a search for a new CFO.That's the first step.If we turn to Page 8, the next step is about fewer, stronger business areas; and about driving transparency and accountability. We are simplifying the structure. We are making it leaner. We're avoiding duplication and getting out organizational synergies where possible. This lean organization is effective today, February 13.The third step, if you turn to Page 9, please, is a leaner -- creating of a leaner structure across all of Munters. This is a work that we initiated December 19. There is a plan to drive through leaner structures across all our business areas, driving FTE efficiency across all our processes, scaling down overhead functions, reducing external spend. These measures combined -- and all that I'm saying now, this is excluding data center. So with these measures, we are seeing cost savings of SEK 160 million per annum, with the full effect in 2020.If you then turn to Page 10, we'll talk specifically about data center. As you all know, we have been struggling in Data Centers on the European market. We have seen disappointing results. And the decision we are taking here now is to have primary focus on the U.S. market, on the U.S. operations; and really consolidating our position in the data center segment. As a consequence of this, Munters' intention is to close the data center factory in Dison, Belgium. And this is, of course, subject to normal union negotiations. This means that these concrete measures we are taking on data center will result in a SEK 50 million profit improvement on top of the SEK 160 million improvement that I spoke on the previous page.If you go to Page 11, you'll see a combination of the effect. So the total program impact is that, by 2020, we will have an EBITA -- positive EBITA impact of SEK 210 million. Half of this effect will already come during 2019, where we will see a EBITA uplift of SEK 105 million as a result of these measures that we are taking. There is, of course, a onetime cost associated with this. It is SEK 350 million spanning over this whole program, and the cash payback on that is roughly 2 years. With this initiative, we will see a situation where data center will be back into profits by 2020 despite the fact that there will be a revenue drop in Data Centers of roughly SEK 600 million, out of which already 80% of the effect will come during 2019. Despite this, we will see a profitable business in Data Centers 2020.Now this is the first phase that I have detailed out. In the Q&A section, we would be very happy to go through more details around this, but now on Page 12 I just want to talk a little bit about the other phases that come after the first one. And as I said, we have seen a lot of potential in Munters to further improve processes, to further improve the way we run our business. And this will, I think, have more of a continuous improvement character where we see -- as we can get further margin increase by driving our business mix in a more focused manner, pushing for more improvement in our business area organization more in detail, cleaning up manufacturing footprint and also working hard on the cost-of-goods saving portion. This is the second phase of the program and something that we will start working on already now in the spring.And then the last phase, going to Page 13. When we feel that we have good traction on these additional measures, we will be in a phase where the focus is really to push for profitable growth in segments and geographies where we deem the potential to be the highest. And they are many. Just to point out a few: A continued rollout of our service offering is key; continued push on our emerging markets, China in particular but the rest of Asia as well; continuing our efforts on digitalization; and then, I think finally but importantly, coming back to a selective M&A strategy when we see that we're getting the good traction and results from the 2 -- first 2 steps of our program.Now to conclude on Page 14. With a fully executed and a well-executed program, we are very happy to confirm that we keep our financial targets, with the exception, and this is more of a technicality actually. Net sales growth has been adjusted to 5% to reflect the fact that we are doing a scale-down on the Data Centers side. So it is 5% instead of the previously communicated 7% to 10%. All other, the financial targets remain the same, adjusted EBITA of 14%, same leverage and same dividend policy as before.And now I will hand over to Jonas Ågrup, who will walk you through Q4 and the financial numbers. And I'll come back at the end of this call.
Thank you, Johan.2018 was a disappointing year for us and also for the shareholders. And as we have discussed in detail, we have now launched a profit improvement program, and Johan went through all the details -- or some of the details in that program. If we look at the full year 2018 and the performance, we saw on top line order intake decreased 4%, but if we exclude the data center business, we had growth and the order intake increased by 5%.Net sales increased 8% during the year. If we look at adjusted EBITA, we came in at the same level as last year. So we posted a profit of SEK 676 million, corresponding to a margin of 9.5%.If we look at the last bullet on Slide 16. The Board of Directors proposes that no dividend will be paid out for 2018, and that, that is as a result of the implemented full potential program that we will launch now.If I now look to the next slide, Slide 17. You see some Q4 financial key points. Order intake decreased by 4% in the quarter. In Q4 last year, we had a large data center order worth SEK 450 million. If we exclude Data Centers, we saw good growth in all the BAs in the quarter. And if we look at adjusted EBITA, it was lower than last year. And it would be impacted by significant loss in the data center business in Q4, and I will come back later on to that.If you look at net income. Including a goodwill write-down for the data center business of SEK 323 million, we posted a net income of minus SEK 321 million for the quarter. And as we told you in Q3, cash flow was expected to improve in quarter 4, and it has in the quarter. And we can see that cash flow from operating activities was SEK 441 million in the quarter.If I then move over into Slide 18, if we look at Air Treatment, the business area Air Treatment, we saw a strong finish of the year, good top line growth. Order intake increased 14%. We won in the quarter some large lithium battery orders in China, total value SEK 120 million. We saw continued solid order intake in -- also in the food subsegment and also in our Services business. Net sales increased 8%, and this was a small organic growth in the quarter driven by the Industrial subsegment but also by the Services business. And if we look at the supermarket end market, it continued to be quite weak also in Q4.If we look at the adjusted EBITA for Q4, SEK 170 million in the quarter, corresponding to a margin of 16%. It was an increase roughly of 25% if you compared to the last -- the same quarter last year.Last year, we had some issues in the Mexican production facility. That has been solved. We also had some favorable product mix in the quarter for Air Treatment.If I then look to Slide 19. This is AgHort, our business area AgHort. We saw continued growth with AgHort but a slightly lower margin in the quarter. And so order intake was up 15%. We saw growth in Americas but also in Asia. In Asia, we have seen, as you know, over the last quarters quite strong growth in the Swine segment. Net sales grew by 11%, and this again the majority of the growth came from Americas and Asia.If we look at the adjusted EBITA. We posted a profit of SEK 49 million, which is 6% lower than the same quarter last year, margin at 9.9%. And we have a negative product mix which is related to the U.S. mainly, but also lower sales of controllers coming into the U.S. from Israel. And then we have continued to invest in the SonarEcho offering, which has had a negative impact on the profit.If we then move to Slide 20. This is the Data Centers business area. The negative trend deepened in the quarter, and order intake decreased compared -- and we have -- were much lower than in the same quarter last year. And you can see here that, in Q4 last year, we had an order intake of SEK 495 million in Europe. And this year, the order intake was very, very low, just SEK 3 million.We saw lower net sales due to a lower order intake. And we had quite low utilization in our factory in Belgium during the quarter; and that had a negative impact on net sales, of course, but also on the profit level. And we also made a provision for projects incoming this year, where we know that we will have cost overruns. And so if you look at the profit or the negative results for the quarter, it was minus SEK 80 million. Roughly SEK 20 million of that was provisions for projects that will be delivered in 2019. And then we have, as I mentioned, done a write-down of goodwill in the data center business; and the amount is SEK 323 million.If I then look to Page 21. This is the Mist Elimination business area. We continued to see strong top line growth in ME and also good margins. And we can see the order intake was up 40% -- 41% in the quarter. And this was mainly driven by the Marine segment, the emission gas cleaning for marine applications. Process was flat. And in the Power segment we continued to see a decline, and this is mainly related to China but also Europe and Americas.Net sales was up 17%. And if you look at the adjusted EBITA, it increased 45% to SEK 22 million; and we had a margin of 16.8% in the quarter.And I leave over to you, Johan.
All right, thank you.If you turn to Page 22. Jonas gave you most of the details, but in summary: Q4 order intake good, with the exception of data center, of course; group earnings disappointing because of Data Centers. Q1 also continued poor earnings in data center.Now the main message that I want to convey on this page is that we have now launched a comprehensive and a strong program that will lead to a rapid and significant profit increase in the company. We will in -- when the program is fully in effect in 2020, see a profit uplift from this program of SEK 210 million, but we would already in 2019 see an effect of SEK 105 million in positive EBITA impact. This means that our financial targets remain unchanged, with the exception on the sales growth which is now 5%, but as I said, more a technicality due to the fact that we're doing a scale-down on the data center business.Thank you, everybody, for listening. And now we open up for Q&A.
[Operator Instructions] Our first question comes from the line of Agnieszka Vilela from Nordea.
A couple of questions, starting on the Slide #9. You show the expected savings for different business areas. And my question really is can you elaborate on what's driving these savings given the fact that they are -- they seem to be quite substantial; for example, representing for both Air Treatment and AgHort, 2% of sales. So can you tell us if it's the net savings that you expect, or gross savings? And also, what's behind them?
Yes. I mean, as I said, we've had a comprehensive work carried out over the past 2 months to really go through the structures we have to make sure that we avoid duplication anywhere, to make sure that we have as high an FTE efficiency as possible across the business. In this work we have seen a number of areas where we can find this efficiency, cutting down on overhead functions, cutting down on external spend; and increasing, as I said, FTE efficiency across the company. So this is a meaningful saving. It's a very concrete saving, and it's coming from the fact that we see that we have the opportunity to simplify the business.
Perfect. And then a question on Data Centers. You expect quite substantial revenue drop by 2020 of SEK 600 million. Can you tell us what's behind that? Are you basically kind of withdrawing from the bidding for new orders? Or is the order pipeline completely dry? Or what's really driving that?
No. I think you read us proactively steering towards a sweet spot which is maybe somewhat different and have more of the projects that we have been fairly good at running before with a somewhat smaller scale but higher in number. I think we have been struggling, particularly in Europe, on certain type of orders. And we are a little bit steering away from that and downscaling the business, consolidating to make sure that we have a smaller business but a profitable business. And this is best done by focusing on the U.S. operations and the U.S. market.
Do you expect this to be -- sorry.
But I think -- maybe I can comment. I think it's important to just clarify that we will continue to support the customers in Europe and also in APAC. We will have personnel still working in those markets or regions. And we will also be able to supply products into these regions from the U.S., our factory in the U.S.
Yes, but basically you are planning to run this business at, say, SEK 300 million, SEK 400 million revenue, something like that.
No. If you do the math, it would be higher. So it's more like SEK 500 million, SEK 600 million in next year [ perhaps ].
All right. And then my last question is on the partnership or divestment of Data Centers and Mist Elimination option that you have. Are you already reflecting on these kind of options? Or what would trigger the actual decisions for that?
Yes. I mean I think it's a natural point that we're looking through efficiency measures in general. We're also looking at options in terms of potential partnerships, even not disregarding areas such as possible divestment. So I will say more kind of an orderly process that we're carrying out in parallel with this full potential program.
Our next question comes from the line of Peter Testa from One Investments.
To just maybe to finish on the previous question about the -- on the data center part of the business. I mean, can you give some sense as to how you feel the lumpiness of that business will be changed by the types of contracts and projects you would be working on, i.e. the extent to which to how many -- out of the SEK 500 million, SEK 600 million of sales, how many projects you're talking about? Because previously you've had some very big ones which accounted for very large proportions of the business. How does that change? And related to that, you're going to take out SEK 600 million of revenue and a Belgium production site. Are you essentially saying that the negative P&L of that, of site on SEK 600 million of revenue is roughly SEK 50 million? Or how can we get a better understanding of what underlies this SEK 50 million? Then I have another question, please.
If you look at the profile -- with your first question, at the profile of the project, I mean, it -- the profile has been quite different. In the U.S. we have seen more small- or mid-sized projects. In the -- in Europe we have had quite a few very large projects. And that has caused huge problems without new utilization in certain quarters and so on, and that's the main reason why we are taking these measures. And we -- also we have seen historically better profit levels in the U.S. and...
Okay, so -- but to get some understanding of the lumpiness: So basically it will become a relatively regular business now on, say, a rolling 12-month basis, in your view; or still varied lumpiness by quarters. Or how do...
It will be still a little bit lumpy business because we will have larger projects in some cases, but it will be less lumpy than it has been compared to the last couple of years then.
Okay. And the part on the SEK 50 million reduction related to SEK 600 million of sales, is it basically the negative P&L of running the lumpy European footprint?
Well, it's 2 things. I mean we will -- and we have the intention to close down the operations in Dison. And that will take out costs, of course. And then we haven't been profitable in -- on these, the large European projects. And that is also one of the facts, that we won't take these large projects in Europe. We will have a more stable and profitable business in the U.S.
Okay. And then 2 sort of operational questions. One is on Mexico, which is obviously going better, if you could give some sort of sense of the full year benefit of Mexico running better going forward that you expect and whether any of that is within the SEK 90 million better Air Treatment. And then on AgHort, you talk about swine flu in China being an issue, but it didn't seem to really slow the business down too much. Is that how we should see it going forward as well? Then I have a question on balance sheet.
Well, if we start with Mexico. We had some production issues in Q3 and Q4 mainly. It started already in Q2 in 2017, but the cost impact for it, we had a negative impact both for Air Treatment and AgHort. I think, the total negative impact during 2017, we have communicated earlier. I think we said around SEK 25 million to SEK 30 million. And so that's -- that problem is solved now; and we have a good, lean operation in Mexico today.
And then swine flu?
The swine flu is -- I mean it is a fact. We can, in certain areas or certain regions in China, we cannot visit our customers. We cannot even start to install components and start to build on certain projects. And that has to have a negative effect, I would say, mainly on net sales but also partly on the order intake.
And going into '19, given the business overall has performed reasonably fairly well in Q4 on order intake, et cetera, is this -- is that not something we should worry about too much for 2019? Or is it something which we might see later?
No. I mean we are worried about trade war and also the African swine flu and the effects that, that might have. And now we have seen this, the swine flu, going on in China for quite a while. And we have not seen an improvement actually, so we are still worried about the effects that this will have and...
Okay, okay. And then last question, just on the balance sheet. I mean, in talking about the reorganization of the company and so on, you didn't really touch on the balance sheet leverage, which at sort of roughly 3.7x EBITDA is quite a bit above your range. I was wondering if you could give some sort of thoughts on balance sheet and how you expect -- what you expect you need to do to bring that safely within the range you talked about.
Well, we have 6 banks lending money to us in this program. And we have negotiated with the banks and they have given us a consent, so we will be able to take out most of the onetime items that we expect to have in this program. We have a solid plan, a very detailed and solid plan. And we will -- according to this plan, and we believe very much in this plan, we will not have a problem when it comes to the leverage covenant during this year.
Okay, but then also can you talk about the progress to bring the leverage down, please, and what you -- what thoughts you have on how you should manage to do that and time frame?
Well, we estimate or we plan to come down on decent levels already in Q4 this year. And then for next year, we actually expect to be in the range of the financial targets.
Okay, through organic cash flow.
Yes, and higher profit levels, yes.
Our next question comes from the line of Jack O'Brien from Goldman Sachs.
Just reverting back to Data Centers. I just want to understand a little more on the competitive backdrop that you've seen in Europe because obviously that market hasn't turned out quite as you expected. And I suppose really just trying to understand some of the dynamics you've been facing there, whether there's been technological changes. And I guess the reason for the question is then to think about how the U.S. market may potentially evolve as well and whether there are differences between the regions.
Well, what we have seen in Europe is increased competition. We have seen price pressure. And as I described earlier, it has been fewer but larger projects. And the price lift has been on a quite low level in some of these projects, which is not the case in the U.S. I think that's a more healthy market for us where we have been -- it's where we sort of started with the data center business a long time ago. We have good customer relations. We have a good product portfolio, so I don't -- I would say that the U.S. market is a different market than the European market.
And how does the product portfolio differ between Europe and the U.S.? Because I guess, just from hearing those comments, my initial thought is that you'll see increased price pressure and competition in the U.S. I appreciate you've been there for longer. You're more established, better customer relationships and so on, but one would have thought some of those pressures would become global rather than just regional.
One of the differences is that we have been very dependent on the Oasis product in Europe, which has not been the case in Europe -- I mean in the U.S. We are selling Oasis products in the U.S., but we also have the -- it has been a larger business for us with the Direct Evaporative cooling but also with [ the fan blow ] concepts that we have been discussing in the past. So it's that we have a broader product portfolio. And we are selling broader in the U.S. than in Europe in general, I would say.
[Operator Instructions] Our next question comes from the line of Graham Phillips from Jefferies.
Can you hear me? Sorry.
Yes, we can hear you.
Okay, sorry. Yes, just on the new 5% organic growth target, could you give us an indication of what you think the underlying growth in the data center market is? Because previously, obviously at the time of the IPO and that, we used to talk about it being 25%, 30% growth market. Then I've got another question after that.
Well, we believe that the data center market will grow roughly around 5%. We have a range 4% to 6% that we have been looking at. That's where, what we expect, especially from the U.S. market. And the studies that we have is that the Chinese market might grow a little bit higher. And there we see maybe around 10% growth. And Europe is probably around 5% as well, but we will then sort of focus now near term. We see market growth around 4% to 6%. And...
Okay. And by keeping your 14% margin target, do you expect on your new numbers, and you spoke a lot about the benefits coming in 2020, that you'll be able to get 14% in that year? And you have -- and do you expect to be able to see this through? Or will this be handed over to another CEO if you were just an Interim CEO?
Again just to be clear: What we're talking about here is a midterm target which is a 4- to 5-year time frame, so you will see a gradual improvement across these years. You will see, first, the improvement in '19. This will continue in '20 and then onwards as well. And as you know, I came in as Interim CEO because we saw that we wanted to get good, strong and imminent action on improving the profitability of Munters; and getting that necessary push and focus in place. That's the reason I'm here. And as you also have stated, there is a CEO search ongoing. And we will ensure that there is a good transition between myself and new CEO, but as you know, these recruitments may take some time, so for the good part of this year, you should expect me to be the CEO.
Okay, that's clear. And just on the factory reorganization in Europe. I understood that Air Treatment and Data Centers did share some facilities and, I think, in Mexico as well. Does your -- if the business is sold, Data Centers, would there be some further adjustments needed to the factory configurations between where it is shared between Data Centers and Air Treatment? Or would additional costs be needed?
No, no additional costs. I mean we have some Air Treatment production in the Dison facility. That production will be -- if we will close the factory down, which is the intention, that production will be moved to our Czech factory. And that's a quite small part. I mean it's not high sales numbers on a yearly basis. And then we have -- in China we have a joint factory, but we don't see any problems because we're growing quite fast in China and we can move some more production into that factory. And then when it comes to the U.S., in Virginia we have a dedicated data center factory which is producing a little bit for Air Treatment, but it's very low volumes there as well.
Okay. And just finally then, on the profitability of Air Treatment in the fourth quarter, can you talk a little bit about the dynamics in a profit bridge, if you will? Because obviously there was a foreign currency benefit but -- so there was very little organic growth. There was a substantial increase in sort of the drop-through profit. Now I know it was mix that you mentioned in, but what does this sort of say about 2019, about what sort of drop-through we could expect on the organic growth in Air Treatment?
Well, we had a favorable product mix, and that was -- we had quite a few large projects that were invoiced in the quarter with good margins. We also had good performance in our Services business. And we had the positive currency effect that you talked a little bit about. That was roughly 4% in the quarter and 2% for Air Treatment year-to-date roughly. So that's the main reasons for the good performance in our business, the larger projects that were sort of delivered, the service business and then some currency effects. And then you -- of course, if you compare to Q4 last year and 2017, we had the production issues in Mexico which we didn't have this year. So that was also a quite large amount. And...
Right, okay. And the restructuring of Air Treatment to now include Data Centers and Mist Elimination, effectively obviously they're going to come in as sales lines for that division. And the margin obviously impacted will be because these businesses are lower profitability. I mean, how do you sort of expect to indicate to us what the underlying performance of Air Treatment is? Because I mean that is the main key business. It's been your stalwart over the years, but we're sort of going to be a [ lost in ] now with the sort of the weaker performance of Data Centers and Mist Elimination.
I mean I wouldn't say that the performance in Mist Elimination margin-wise is that much lower. I mean it's a little bit lower but not much. And then of course, the data center business, at the beginning, will have a lower margin, but the intention is to pro forma adjust so that we can sort of show exactly what it looks like previous year and previous quarters and for the new business area Air Treatment including Data Centers and Mist Elimination. And...
And the target for growth in Air Treatment this year? Again, it was obviously a weak number for sales growth in the fourth quarter, but what sort of underlying growth market should that -- should the growth -- should that market be growing at? Excluding data centers?
The overall growth target for the group is 5%. And so it's in that neighborhood.
Okay. Then obviously it's been a bit weaker than that recently. Is there anything that -- in the mix or the customers that lead you to still think that, that's achievable for this year, for instance, for Air Treatment?
I mean we see good underlying growth in the markets where we are operating within Air Treatment, but I cannot comment on the outlook for this year when it comes to growth, top line growth. But the financial targets for top line growth net sales is 5% for the group. And it will be in the neighborhood for also for -- in that range or that number for Air Treatment.
Our next question comes from the line of Anders Roslund from Pareto Securities.
I had a question regarding the cash flow situation here. The one-time cost of SEK 350 million, will that be -- what will be cash and noncash? And also the savings program for data center of SEK 50 million, how will that progress? Is it that you -- the only thing you -- we know is that you will be profitable in data center in 2020. Yes, that's all.
If you look at the SEK 350 million in the one-times, most of that will have a negative effect on the cash for this year. And that's taken into account in the plans that we have. And then when it comes to the profit improvement in Data Centers, it's very much up to the negotiations with the unions and how fast we can close the operations in Belgium. But according to our plans, we will have -- the profit improvements will come in the fourth quarter of this year.
Our next question is a follow-up from Jack O'Brien from Goldman Sachs.
I just wanted to just get a better understanding on your shareholder structure. Obviously when we look at that, Nordic Capital still own about half of Munters. And I guess the top 5 shareholders account for roughly 80% of the shares, so from your conversations, what are the sort of indications of Nordic Capital, if you could share those?
I cannot comment on that. I don't know.
And another follow-up from Peter Testa from One Investments.
I just wanted to come back on the last point on -- made on the cash effect of the restructuring, looking at the cash flow. Can you talk a bit about what else you think you can do to improve the underlying cash flow in this year? I mean obviously there'll be some benefit of the -- on the profit side from the reorganization, but it's going to cost on a net basis. And if you looked at the free cash flow you had this year, would eat quite a lot of the free cash flow for the reorganization. So what else can you do on cash flow to try to help us bridge the situation with the debt piece, please?
Yes. In the program we have SEK 200 million of cash release coming from improved working capital. This is coming from receivables side, also from supplier negotiations on the payment side. It's coming from even more focused inventory tracking. So that is in the program, under subsection cash efficiency. And Jonas, I don't know if you want to comment on that.
No. That's true. So we have a target of reducing net working capital by SEK 200 million for this year.
Okay. And is that related to the withdrawal in data center? Or is that from the other businesses, the ongoing businesses?
No, it's from the whole group. Part of it is related to data center business, but the main part of these activities is actually more generic activities for -- so that goes for the whole group, yes.
Okay. And the discussion you said you had with the banks to obviously ignore the restructuring charges largely, when you look at the, say, flexibility or buffer you have for quarterly volatility or the risk factors that you've identified, can you give some sort of sense as to how you've built in headroom there, please?
And I cannot comment quite exactly on the headrooms in percentage and so on. I can just repeat what I said earlier, that we have a solid plan. And with this plan that we have, we have a good leverage covenant headroom.
All right, okay. And would you expect to have some disposals during the period of your tenure announced -- your interim tenure announced?
Sorry. Could you repeat that question?
Would you expect during the tenure of your interim role as CEO to have some business disposals announced which would also address, help address this point?
Well, we're looking at, like we said, strategic alternatives, but I don't want to speculate in the time frame of it, yes.
Okay, to comment also on the -- coming back on the cash flow issue. I mean we have been investing quite a lot in CapEx over the last 10 years and upgrading production facilities and so on. We will, during this year, hold back quite a lot also on the CapEx side and...
Our next question is a follow-up from Agnieszka Vilela from Nordea.
Just one follow-up. On the simplified structure that you have today, announcing that you will have 2 business areas only and that you will include Mist Elimination and Data Centers in Air Treatment. My question really is don't you think that it will make kind of following your performance a bit more opaque? And in the end, it can affect the potential to exit the business or to sell the business.
I don't think that will be the case actually. We have -- of course, we have talked about those topics and those issues, but we have decided to form these 2 businesses areas. And we don't think it will be difficult. If the decision will be taken, we don't think it will be difficult to sort of separate out these businesses out of Air Treatment.
Our next question comes from the line of Mats Liss from Kepler Cheuvreux.
Just a follow-up here on the goodwill you -- charge you make in Data Centers. Do you feel that the other goodwill you have on the balance sheet are sort of fully covered? Or do you see any need to make further adjustments there?
No. For the other business areas, we have good headrooms when it comes to impairments, yes.
Thank you. As there are no further questions at this time, I will hand back to the speakers.
All right, thank you very much for the interest that you've shown.The message I would like to finally send with you is that myself, all of the Munters management, the Munters board is convinced that we're taking comprehensive action, strong action; and that we will see meaningful profit improvement starting now 2019 but full impact of the program in 2020. And we look forward in the next, upcoming quarters to talk more about the impact here.Thank you very much for listening, and have a good day.
Thank you. Bye-bye.