Munters Group AB

STO:MTRS

Earnings Call Analysis

Munters Reports Record Year and Growth

Munters has reported its strongest year in company history, marking the eighth consecutive quarter with over 10% organic growth. Amid geopolitical tension, the team's resilience was highlighted, having faced a ransom attack without leaking any confidential information. The Data Center Technology (DCT) segment spearheaded a 16% net sales increase, and the company observed a solid 82% organic order intake growth. Adjusted EBITA margin reached 12.8% reflecting a 54% jump from the previous year, largely driven by DCT. The company aims for over 10% organic net sales CAGR and an adjusted EBITA margin above 14%, whilst reducing operating working capital to between 12% to 10% of net sales.

A Record-Breaking Year Amidst Global Challenges

Munters has navigated a complex geopolitical landscape to emerge stronger, boasting the strongest year in the company's history. The company prudently disclosed preliminary results to mitigate risks associated with a ransomware attack on one of their providers, underscoring a commitment to transparency and caution.

Strategic Investments and Market Position

Significant investments are being made in areas like clean rooms, the semiconductor industry, carbon capture, and SaaS to maintain a competitive edge. The company saw a remarkable year-on-year organic growth of 82% in order intake, driven largely by the Data Center Technology (DCT) segment along with contributions from FoodTech.

Financial Highlights and Geographic Performance

With a solid 16% increase in net sales and an impressive 54% increase in EBITA margin compared to the previous year, Munters is on an upward trajectory. Geographically, the Americas led this growth, representing 74% of the order intake and about 60% in net sales. Europe trailed behind at the 20% mark, while the Asia-Pacific region lagged, particularly due to a contraction in the Chinese market.

Sector and Regional Dynamics

The structural shift towards orders placed closer to delivery times resulted in weaker development in AirTech in America, whereas Components saw growth in order intake. FoodTech experienced a good market overall, and digital solutions showed stability. APAC faced challenges but maintained a strong order backlog stretching into future years.

Operational Efficiency and Innovations

Operational advancements have helped the company achieve an EBITA margin over 14%, demonstrating resilience and strength. Innovations are at the forefront, with products saving up to 45% more energy compared to others on the market. The DCT segment continues to be a powerhouse for the company, securing a SEK 2.2 billion order and witnessing an increased order backlog.

Forthcoming Developments and Future Investments

The company revealed SyCool, a new product for both air and liquid cooling solutions in data centers, which showcases an expansion in offerings that is expected to increase market share. FoodTech is showing signs of improvement in climate solutions, and continuous innovation is yielding positive experiences across all regions.

Societal Impact and Compliance

On the sustainability front, Munters is progressing towards targets set for 2030, including increases in recycling rates and renewable electricity usage. However, diversity remains an area for improvement, as the company aims towards having 30% of its leadership roles occupied by women by 2025.

Management's Financial Acumen and Control

CFO Katharina Fischer praised the agile nature of the company, emphasizing strong growth and improved results following her recent onboarding. Munters experienced a mixed performance across different segments in Q4, with FoodTech showing continued strengthening, while an impairment of deferred tax assets affected the net income for the quarter.

Commitment to Operational Excellence and Margins

The margin has seen improvement due to strong volume increases largely fueled by data centers and net price increases. Investments for the future continue, particularly in manufacturing facilities and digitalization efforts, to drive innovation and maintain a competitive edge.

Refined Focus on Cash Flow and Capital Investment

The cash flow from operating activities has seen improvements with a concerted effort to reduce working capital. The year 2024 will see continued investments in manufacturing to support further growth and product introductions, particularly in the European market.

Growth Through Mergers and Acquisitions

M&A remains a strategic priority for Munters, with rigorous processes in place to ensure successful integrations and value creation. Despite an increase in net debt due to acquisitions, the leverage ratio has decreased, and there's an overarching focus on maintaining financial health amid higher interest rates.

Earnings Call Transcript 2023-Q4

[Ann-Sofi Jönsson, executive]

Welcome to the presentation of our full year results for 2023. I'm Ann-Sofi Jonsson, and I'm Head of Investor Relations and Risk Management at Munters. With me here today I have our CEO, Klas Forsstrom; and our CFO, Katharina Fischer.For those of you who are viewing on the web, do feel free to enter your questions throughout the whole presentations and [ we ] pick them up afterwards during the Q&A session. And for those of you who are listening in on the conference call, we will open up for questions after the presentation.So with that, I would like to hand over to you, Klas.

[Klas Forsström, executive]

Thank you, Ann-Sofi, and once again, welcome, and good morning -- to this quarter 4 and full year 2023 presentation. It has been a record year for Munters, the strongest year in our history. And we ended up the year with a solid finish, confirming that we are targeting the right growth and business drivers such as battery, data center cooling, service, lean working principles, and digitalization, just to highlight a few.We, as many others, have become avid navigators in a world of geopolitical stress and challenges. We have a strong team and I'm very confident that we will continue to navigate well. Through our strategy execution, we have created a strong platform. We'll now continue to invest ahead of the curve, both in current drivers [ that ] [ we'll see ] and the next ones such as volatile organic compounds for clean rooms and semiconductor industries, carbon capture and Software-as-a-Service, just to mention few of those.As most of you are aware of, this quarter we released our preliminary result ahead of today due to ransom attack at one of our hosting providers, Tietoevry. The reason for this -- that was, that we [ could then ] guarantee that our preliminary results for the quarter was fully remaining confidential. Nothing indicates that it has leaked, but better to be safe than sorry.Going in -- more in detail to the quarter and the full year. A [ strengthen ] market position and a strong year result. Stable long-term growth trends, good development on order intake, plus 82% organically in the quarter driven mainly by DCT, but also good development in FoodTech.When it comes to net sales, plus 16%. It is the eighth consecutive quarter where we grow [ above ] 10%. Also, this was mainly driven by DCT, but all other regions and business areas have supported in a good way. FoodTech already has contributed to the increase, AirTech being more flattish. Book-to-bill at 1.5 for the quarter and for the full year 1.4.EBITA margin, 12.80%, and a 54% increase compared to the same quarter last year, driven by DCT, but also good efficiency improvements in all business areas. Also, what is pleasing to see, contribution for net price adjustment still kicking in.Americas, the main driving growth. Those of you that have followed us for many years now may remember where it was roughly, 1/3, 1/3, 1/3. Now a much larger exposure, a positive exposure to North America. Order intake representing 74%, net sales around the 60%. And the others then, Europe, around the 20% level and APAC quiet below that. All in all then, AirTech in Americas, a weak development, very much driven by order pattern shift, that's order placed closer to delivery time. Components still showing order intake growth.DCT, a very active market, a market that continues to drive forward. A combination here of large orders and smaller orders received from both colocators and hyperscalers. And FoodTech, a continued good underlying market with a slight growth in climate solution driven from swine and layer, digital solution stable development, and here we have to remember that we had some very large orders on comparable quarters then.Moving to Europe. Summarize, a stable quarter, a stable market in AirTech. Repeating the message that I started to send last quarter, orders being placed closer to the delivery time. But service continues to show good growth. DCT, I'm very pleased here. Good development, several small orders from colocators and we continue the journey first double and then double again. FoodTech then, recovery in all segments, which is pleasing to see that what we have done and [ started ] a few years ago is now paying off.APAC then, as I said a couple of quarters. Normally China, sometimes it expands and sometimes it contract. At current, China is contracting in the battery segment. They have a solid order backlog, large order supported into 2025.As you know, order intake for Munters is to some extent fairly volatile. Some quarters very strong, other quarters a little bit weaker. All in all here, I think the most important thing that is -- if you take a look upon the 2 at the bottom, here we have now, when it comes to -- in this case data center, orders that brings us into 2025 and actually in some cases stretches into 2026.Going back more granular to AirTech then. Order intake decreased with some 31%. If I exclude the larger battery orders then -- that we received in quarter 4, still a small decrease of 8%. Not to repeat myself, but it's weak in the APAC, driven by China. I see a 2-sided coin in Europe and Americas. It is this shorter lead times to smaller orders at current. On the other side, if I look 1, 2 years ahead of what is boiling in the market, a lot of activities going on there.Components flat due to weak battery market in China, but also affected on some component replacement that is not kicking in at current. Service growth in EMEA somewhat offset in Americas and APAC. All in all then, I think it's a few highlights here. We see a lot of continued activity in the market. What is pleasing to see that is, service and components from an order intake point is still at the fairly impressive 40% level and here you have to remind yourself that in this quarter we do not have any larger orders.When it comes to the margins, simply put, it is a change of business mix that is affecting margin. But still, we are above 14% and keeping it up. What more to say about this. I think it is very strong growth in Americas from net sales. It's very much a similar message as on order intake. Americas, fairly strong, Europe, okay to good, and Asia [indiscernible] China, weaker. What is interesting to see here now, we have balanced it out also with India and that gives us support for the future.I think this picture is somewhat interesting. We have started to present this now since a couple of quarters. And you can see then, the very light yellow then at the top, the larger battery orders that we communicate. I -- when I look upon this, I see 2 pictures. We are lacking some large orders, but we have a very stable, slightly increasing ordinary business, the business that is the pulse of Munters.Super pleasing. New products brought to the market are getting a lot of attractions and winning a lot of orders. For me, this is really something to be extremely proud of. How many products that is brought to the market, can say, we are delivering 30% to 45% energy savings compared to comparable products. How many products can state that they have a 40% smaller [ footprint ] versus industry standard. And also, in combination with this, you can use different type of energy to drive it, so to speak. And on top of that, being [ modulized ] so you can expand it and increase it.And just to give you a little bit of comparison. Take a look on the small door that you can see there. That is roughly a man height, i.e., around 180 meters then. So, all in all, this is the size of my living room that has been delivered.DCT, they're driving order intake and business store at current. Interesting here, if I move to the right, that is -- you've heard me talk about, we have 3 transactional segments, and what I mean with transactional, that is paying directly on the products we are selling. And here you can see the colocator is still the very large sector that is both supporting hyperscalers and other type of customers. But in this case, in this quarter, also some good direct orders from hyperscalers moving it up to 22%.And all in all, the 2 larger orders that we communicated, represented a SEK 2.2 billion order value. But beside that, very pleasing, and also quite smaller to sub-large orders from different customer categories.And I would like to repeat something that I said earlier. I mean, it's also great to see that we are now starting really on the journey, double in Europe and then later on double again. Order backlog increased, and that is very pleasing.I will not repeat this. I think most of you have seen it, but coming back to net sales, increased to 81%, and we have a strong backlog kicking in for the coming years then. EBITA margin continued to move ahead. Here, I would like to say that, I mean, do not expect that this will never ending upturning curve. We need to invest in this arena. We need to drive forward customer support, et cetera. But I'm very confident that we will continue to be in the range of 14%, 15% EBITA. Also here, very encouraging to see, the continued nice traction from customers on our new products being brought to the market.SyCool, you've heard me talk about SyCool for many quarters now. I talked about its future proofed. It will both be for air shield type of solutions and for liquid shield type of solutions. And now we have received the first order on liquid cooling using SyCool as the product. And this picture schematically just shows how it could be done.On the -- looking in on the right side, you can see air cooled i.e. blowing air through the data center using the same type of roof top retractors. And then on the left side, you see a similar solution, but in this case then liquid cool solution, driving a liquid coolant into the data hall. SyCool works for both type of solutions.We are expanding. We are expanding our offer into data center, and I can confidently say that we are taking market share. This is just one example of what we are bringing to the market. In this case, 4 hyperscalers and modular shield wall where we use water as a cooling. And then, this can be expanded in different versions, very much [ modulized ] and pleasing to see that our offer has widened over the last couple of years. Those units that I talk about here, they will be delivered during 2025.Super pleasing to see that FoodTech now, the market on the right side, has started to show improvements also in the climate solution arena. Those of you who have followed us, you are used to have more red arrows than green and gray arrows. I think it's a little bit too early to say that all of them will kick in to become green in the future, but they are slowly but surely starting to move upwards. Digital solutions continue to develop very, very good. And the order backlog in FoodTech increased.Pleasing to see all regions contributed to the significant margin improvements. We have been now fighting against the headwind for quite a few quarters, but now our efforts and the market is starting to turn in our way.Another very, very exciting product brought to the market. You have all heard about the different flus that is moving around in bird population. Here, we have brought a product to the market that is both cleaning the air from potential dangerous and flu bacterias, but then also, on top of that, also handle ammonia, i.e., cleaning it out from that point of view as well. Something that we have developed together with a very important customer and has started to gain a lot of traction. Once again, innovation brought to the market, and in this case, very much so supporting our purpose for customer success and a healthier planet.Another area of great importance for us, that is our journey to increase the Software-as-a-Service ARR deliveries. And as you can see now, once again, during quarter, delivering an impressive growth, in this case close to 70%. And not to over repeat what I said about Europe and DCT, it is sort of the same mantra we have here. I mean, first, we drive it to double. And after that, we drive it to double it again. And if you would go into the mid of 2022, Q1, Q2, I mean, we have made the first doubling.Coming back to the purpose of Munters for customer success and a healthier planet. Talking about sustainability. Sustainability, what we bring to the customer when it comes to energy efficiency, when it comes to animal health, when it comes to efficient cooling.But if I turn it inside instead and how do we work inside then, really pleasing to see that recycling rates are moving up step by step. Energy efficiency, i.e., how much energy are we then using per produced unit is becoming lower and lower and really encouraging. When it comes to renewable electricity, now up at 80% of our energy being consumed. All this then supporting our net 0 emission target for 2030.Health and Safety. Safety is always at top of our mind, and I can proudly say that now we are one of the leaders in our industry when it comes to the 0 accident journey forward then, at 1.2 then when it comes to TR -- or lost time injury frequency.Diversity, this is an area where we cannot say that we are super proud. Here we need to step-by-step improve. Our target is to have 30% of our women in leading position by 2025. It is a stretch to reach there, but step by step, we are moving in that direction.With that then walk through on different aspects, I would like to hand it over to Katharina.

[Katharina Fischer, executive]

Thank you, Klas. So, as Klas mentioned, 2023 was a year of strong growth and improved results. I have now been with Munters for about 5 months, and I'm very impressed by the growth we have achieved and how we have positioned ourselves for the future. If I reflect on the good earnings in the quarter, I am even more impressed by the focus we have had on continuous improvements and also how we are able to manage the daily challenges at the same time as we are really pressing onto deliver on our long-term agenda.I truly believe that Munters has a very agile operations with a strong business focus.In the year, DCT, they [ grow ] significantly then on order intake and net sales, and they managed to have a very high production utilization. And this is also, of course, due to that they delivered very well on the large orders. AirTech had a strong year with a mixed development in Q4, as Klaus mentioned. Very encouraging to see that FoodTech continued to strengthen both digital solutions and climate solutions in the quarter.Our net income was lower in the fourth quarter. This was mainly due to an impairment of deferred tax assets of SEK 80 million on losses carried forward. Our full year net income increased 37%. Cash flow was managed well in all business areas, and we managed to decrease the leverage. So, all in all, we really had a record 2023.Looking at the margin development here. We improved the margin, as you can see in the quarter. And the main factors affecting this was the strong volume increase, [ and ] which was mainly driven by data center then. We also had net price increases. And here, we saw a positive -- continued positive improvement and also FoodTech contributed well to this. All business areas delivered very well on the operational excellence. And even though we managed to increase the margin this much, we also continue to invest for the future in our manufacturing footprint, digitalization and innovation.The cash flow improved from operating activities, and we also managed to reduce the working capital. So, if you look to the right in the table, you see the different components of the operating working capital. And here you can see that we had decrease in the advances from customers and this is due to that we have not yet received the advances from the large orders that we took in Q4, and we had worked down the advances then on other orders.And as we talked about last time, our cash flow will be a little bit volatile due to the higher share of the large orders. The investing activities was negative then, of course. And as you know, we, in the quarter, closed the acquisition of ZECO, and that was partly financed by debt, and that is why the finance activities is contributing positively.In recent years, our investments in property, plant and equipment and intangibles has increased, but we have a flat development in -- as a percentage of sales. During 2024, we will continue to invest in upgrading our manufacturing footprint. And the one project that we started in 2023 was to build a new facility in Amesbury, U.S., for AirTech. And this project will continue into 2024 then, and we aim to be up and running then in the beginning of 2025. We will also upgrade our manufacturing facility in China. And for data center, we will expand in Europe to support the European market where we will introduce more products.I also want to point to the development of the operating working capital. As you can see, it has increased as a percentage of sales, and this is, of course, driven by our strong growth. And we will continue to work on reducing operating working capital and improve the cash flow.One of our areas that we have prioritized for growth is M&A. And as you know, we have done several M&As during the past 2 years. This is one of my focus areas where I really work to ensure that we have both an efficient and good process for managing acquisitions and making acquisition, but then also have a strong way of ensuring the value creation from our acquisitions.And key in this is, of course, the integration process. And here, we have a very well-structured process in the company where we plan ahead even before we close the transaction. So, we put together a strong integration plan. And once we close, we start to implement and follow up against that plan. And we also work in 3 dimensions then. So one is, of course, to really deliver on the business case, the value creation, but we also work on people and culture and operational processes.We decreased the leverage ratio in the quarter, and that was mainly due to the improved earnings. Our net debt increased then due to the acquisitions we have made during the year, which was partly financed by debt. And then we have a slight increase in lease liabilities as well. And then we can also mention that the financial net is more negative in 2023 then due to higher interest rates and increased debt.So, with that, I would like to hand it over to you, Klas.

[Klas Forsström, executive]

Thank you, Katharina. And let me then summarize the quarter and the year before we move into Q&As then. Our financial targets. Net sales, [ above ] 10% organically as a CAGR to reach on and above 14% of adjusted EBITA margin and step by step establish ourself then in between 13% to -- 12% to 10% operating working capital divided with net sales. And how are we doing here? I mean, the eighth quarter in a row where we are on or [ above ] the 10% growth organically. And on top of that, as Katharina mentioned here, a couple of percent also boosting it with M&A then.Adjusted EBITA margin. Last quarter, we showed that we can reach, and we have that in reach. But here my view is very much -- I mean, we take this step by step and then it is about reaching it for a long-term, make it sustainable. Operating working capital, we are in a growth mode now, but we are putting a lot of focus to move that gradually down to where we aim to have it then.If I look ahead, from my perspective, our achievements in last year has positioned us for a continued successful journey. And if I try to summarize the recipe that we have worked with for several years now, we have identified the right growth areas, the right actions and driving forces to achieve growth -- profitable growth moving forward. We have invested ahead of the curve and as I said, thereby then being able to capture the growth and drive profitability upwards.We are aiming to repeat this formula of success, continue to invest both in current growth drivers, but then also in future growth drivers in order to drive innovation to the market, customer success to the market and continuous improvements when we operate moving forward.So, with that, I would like to welcome Ann-Sofi back on stage, and we will open up for Q&As.

[Ann-Sofi Jönsson, executive]

Thank you, Klas. So we will open up for Q&As on the conference call, but I would like to ask for those who are on the call and want to place questions to limit yourself to 2 questions. And if you still have questions after that, please do queue up again. So, with that, please.

[Operator]

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

[Adela Dashian, analyst]

2 questions from me. The first one relates to the price increases and the positive contribution that you saw from that during the quarter. Should we expect additional price increases to be made in 2024? And how acceptant are your customers in the current environment of those, if so?

[Klas Forsström, executive]

As we said, we saw a continued good development on the price development, on average around 5% plus in the quarter. That is very much in balance on how we saw the full year. So, with that then in mind, without giving any sort of future projections, I don't at current see much large resistance when it comes to price as such, with exceptions such, I think I've said earlier, in the area of equipment in FoodTech, we increased the prices very substantial 1 year, 1.5 years ago. So there, you can say we are seeing more resistance.On the positive notes in FoodTech then, when it comes to software, we see very much that there the market is willing to accept continued significant price increases.

[Adela Dashian, analyst]

And then just a second question. I notice that the order intake from hyperscalers increased during the quarter. Is there any margin variation between hyperscalers and colocators? I think you've previously mentioned that colocators are typically more -- they tend to agree more with the sustainability angle. So yes, any price or margin variation there would be great to know of.

[Klas Forsström, executive]

I mean, our ambition independent of the area, that is always to do a [ pre calc ] that will position ourself in the range or [ above ] the 14% that we have as a target. Then, I mean, you can drive that in 2 ways. I mean, you can drive it with high, well-accepted prices in the marketplace or efficiency within your factories. And let's say like this, if I take a look upon the product that we now have released to some hyperscalers with a lot of praise from them, we have worked significantly in how we produce and how we manufacture those.

[Adela Dashian, analyst]

So, does that mean no -- we shouldn't expect margin variation?

[Klas Forsström, executive]

I mean, it's very small.

[Operator]

The next question comes from Julia Utbult from SEB.

[Julia Utbult, analyst]

So, 2 questions from my side as well. Firstly, it was disclosed that the mix effect was driving the AirTech margin lower. So, are you seeing any changes here in the service and component demand, or should we consider this effect as temporary?

[Klas Forsström, executive]

I mean, what is driving then -- what is very, very pleasing to see that is, I mean, as you saw, we had an order intake of around 40% on the -- if I combine then the service and the component sales in the quarter. Last quarter, if I take it out of memory, it was 55% or something in that range then. So, from that perspective, a slightly lower mix in regards to order intake. But a larger mix is actually in between the different regions.And here, I shouldn't say it's unpredictable, but it's more -- I mean, sometimes one region is up and another region is down. But I don't foresee a large shift in the mix moving forward. The only area that I continue to highlight that is, I mean, in China we are in a more consolidating type of market when it comes to back reproduction. So, there I think, we, for at least 1 year, without giving a forecast, we will continue to see a fairly weak demand then in China from that perspective.

[Julia Utbult, analyst]

And you continue to take large data center orders here in the quarter to be delivered during the next 2 years. Could you give us an update on where you are and expect to be in your capacity utilization?

[Klas Forsström, executive]

Very good question then, Julia. And I can start, and then I will also give the word to Katharina because, I mean, now Katharina's been with us, and she has been in some factories and also with her experience then from the North American market within Electrolux. But if I start like that, we have really been building our capacity ahead of the curve. If I take a look upon our largest facility in North America in Virginia, the concept is that we have balanced that up on a one-plus -- I call it a one plus shift, a little bit more than one shift then. And then, we have the opportunity if we would like to increase or if we have a higher demand to move that up in an even better, call it output through shift.On top of that, what is really pleasing to see, that is we have worked with [ lean ] during the year. So, the [ pre calc ] of that factory and the result of what they are delivering is much better. So, from that perspective, I have no doubt that we can handle more orders, if so, coming. But Katharina, any reflections from your side?

[Katharina Fischer, executive]

Yes. No, I can just complement by saying that we are also ramping up in the factory in Texas as well. And then as I mentioned, we are then also expanding in Europe to further increase capacity for the European market.

[Operator]

The next question comes from Karl Bokvist from ABG Sundal Collier.

[Karl Bokvist, analyst]

You partly answered my first question there, Klas, but the kind of indications about normalized order patterns, not just China, do you have a sense of when you think this will be kind of -- well, when you kind of compare yourself against apples-to-apples, so to say?

[Klas Forsström, executive]

Here, I have to give a little bit of a complex answer, perhaps. And in data center, we are moving step by step upwards. I see that the market is still very attractive for the coming years. With that said, don't be worried that if we want a quarter would have, I call it 0, in order intake. That will not happen. But anyhow, in another quarter we will have SEK 3 billion, SEK 4 billion then. That is just the pattern. But there, I'm very confident that we will fill and load our factories in a good way.When it comes to AirTech, I mean, we are at current in this, what I call a shift then. To some we had larger orders. We are now moving into shorter lead times, and it could be 1 quarter or something like that where we need to balance the different regions then. Simply put, in China, we have a weaker market. In Europe, we have a quite okay market. And in North America, I mean, we just pump on, so to speak.Then, when it comes to FoodTech, pleasing to see that we are now getting more orders, both in China and in Europe in equipment or in climate solutions, and it continues to be a good market in North America. But all in all, I think we need to balance some [ other ] factories for a few quarters, nothing more than that.

[Karl Bokvist, analyst]

And then just more technical one, but items affecting comparability in AirTech, quite a step-up. Maybe you wrote that down in report, but what do these relate to? And do you expect this to be part of a larger program with higher IACs also in coming quarters?

[Klas Forsström, executive]

I can say like this in the first. It is not part of a larger program when it comes to that in AirTech then. And then, with a warm hand, I hand it over to Katharina.

[Katharina Fischer, executive]

No. The charge we took relate to [ Clean Tech ] in Germany basically.

[Klas Forsström, executive]

Something that we announced -- I think it was [ 0.5 years ] ago. It is around SEK 20 million, SEK 21 million. So, an adjustment, basically, if I call it like that.

[Operator]

The next question comes from Gustav Berneblad from Nordea.

[Gustav Berneblad, analyst]

Just a quick one here on AirTech. I mean, you comment on a decent demand in Europe for the segment. But I mean, is it fair to assume that the utilization rate within your new facility in AirTech in [indiscernible] is currently lower and therefore, this way on the margin and -- or is it just the service, would you say? And then, I mean, to sort of reach the margins, we have seen during the year, do you need a more broad-based strong delivery or…?

[Klas Forsström, executive]

You point out 2 different, call it buckets then. I mean, one, to some extent, it's the mix, quality and service versus different products. I say like this, we don't have a weak -- have had a weak demand in the factory or a low utilization grade level, but we have not have a high utilization grade level either. And that is -- I'm very confident that we gradually will start to fill it up more step by step, but it has been one of the weaker quarters in that facility, yes.

[Gustav Berneblad, analyst]

And then just regarding battery. I mean, Northvolt now having received sort of Europe's largest green loan ever. I mean, [ are ] you noticed any change in the dialogue at all with a customer or is it fairly unchanged?

[Klas Forsström, executive]

This, I think, is one of the most fascinating subjects there is. I mean, I can greatly say, I'm super confident if I look upon what will the future bring. I take Northvolt as an example. More and more investments are put into that market. And we continue to hold our 50% or [ above ] share when it comes to -- but as we talked about a few quarters, it has been a more hesitancy to place orders. Some orders, I talk about battery factories in conjunction with some automotive makers, they have split their orders in 2 [ chunks ], et cetera, et cetera. But -- so short-term, a little bit more reluctancy. Long-term, 2 years ahead, I see an even larger demand. So, this is the sort of 2 buckets then. So, I am very optimistic for the coming years.

[Operator]

The next question comes from Mats Liss from Kepler Cheuvreux.

[Mats Liss, analyst]

2 questions from me. First, you mentioned that in the SyCool, you have -- well, you're able to offer liquid and air cooled facilities. And I just wondered if you see any change in competition there? And also regarding the European footprint there, if you are -- sort of, have received any more particular -- well, larger interest in Europe as well?

[Klas Forsström, executive]

If I start with the first one, Mats, in regards to -- I do feel -- as I said earlier, I can perhaps not sort of prove it on each and every decimal, but that we are taking market share in the data center cooling arena. That is not only SyCool, it is the broad portfolio that we have. With that said, coming back to SyCool, it is a large interest. And now we have not only theoretically proven that, we have also physically proven that while taking orders when it comes to both liquid and air cooled then solutions. So, it's a continued strong interest there from both -- especially from colocators, but also from hyperscalers.Then, if I move to Europe then, the interest for SyCool as such is high. Then it takes some time to work through all the, call it questions that a customer has. But I think I said like this 1 year ago, I would have been very surprised if we took an order during 2023 and I would be very disappointed if we don't take an order during 2024 when it comes to SyCool in Europe then.And then, beside that, in Europe, I'm super pleased to see that step by step are improving then the presence in the market and we are looking into how can we continue to support that even more.

[Mats Liss, analyst]

And then just about FoodTech. I mean, you see an improvement there. And I guess, previously, you have talked about the strategic review going on and that if there are any changes there, will it be sort of finalized during the first half of 2024?

[Klas Forsström, executive]

Yes. And I mean, Katharina and myself are very closely working with the FoodTech team. We have not changed our view on that, and we will carry it through during the first half of this year, yes.

[Ann-Sofi Jönsson, executive]

So, before we take another question on the call, I would like to…

[Operator]

The next question comes from Carl Deijenberg from Carnegie.

[Carl Deijenberg, analyst]

So, 2 questions from my side. First on the DCT orders here. Obviously, quite a superior order development here in Q4. And I guess stripping out these 2 large orders, you are at, if you want to call it base orders, I don't know, but just about SEK 1 billion. And I think we talked previously about a quarterly assumptions SEK 300 million to SEK 600 million, obviously, with quarterly variations.But I just wanted to [ rather ] check with you now given what we hear in the end markets, et cetera, et cetera. Is that the reason for assuming what you're delivering here being a sort of new structurally higher base going into '24, or is it something specific that we should keep in mind here when we look at the Q4 figures? That's the first question.

[Klas Forsström, executive]

I think the wording -- and I smile when I say this, I mean, call it based underlying, the more, call it normal, always sort of boiling type of market. We can call it in many different names. But if I come back to your question then, I think 2 observations. One is the data center market as such is a strong market, and we are very competitive in the data center market. Then for me, it is extremely difficult to say, is sort of the order pattern, has that changed. So, I put it like this. The larger orders, they will come and go. And now we had a very strong quarter.The more, let's say, smaller to mid-sized order that comes in bundles, sort of comes one by one, I mean, they could also vary. But at least I took it as a very, very good evidence of our attractiveness in the market and the offer that we have. I mean, Katharina, you're following this. And I mean, have you any comments on order patterns in data center in particular?

[Katharina Fischer, executive]

Yes, I would just add that I think it's important to look at the development of net sales for data center. I think that helps as well.

[Carl Deijenberg, analyst]

Secondly, also, I just wanted to follow up here on the CapEx development. Very helpful picture or a graph there on Slide 22. And I just wanted to, yes, follow up again, if I understood you correctly, the run rate that you're here at in Q4 on a rolling 12-month CapEx basis, is that also a fair level to assume you're going into the full year of '24 given the end consumer demand and market demand and also capacity ramp up? Is that a fair level in your view?

[Katharina Fischer, executive]

Yes. As I said, we will continue to invest during 2024 in these markets, so in the U.S. and also in China and also to expand for data center in Europe.

[Klas Forsström, executive]

And just to add on that, I mean -- and -- after that, we do feel that when it comes to capacity upgrades, we are pretty much done. Then, of course, if we expand into other venture, that future will tell. But when it comes to the markets we are -- then we are pretty much done.

[Ann-Sofi Jönsson, executive]

So, now I will take a question from the web from [indiscernible]. And it's about the market and the market demand. And the EV market seems to slow down with many OEMs delaying their expansion plans. And do you share this view? And have we already -- have we seen any impact from our -- on our side?

[Klas Forsström, executive]

I think it is a mix here. So, the answer is yes and no then, and let me start with the yes. Yes, it is a delay in certain order patterns, what I referred to earlier as contemplation time or splitting it up in 2 investments, not building the full factory, et cetera. That has happened then, let's say since [ 0.5 years ], 3 months, and it's at current. On the other hand, the no then, that is that in Europe and in North America, more investment plans are released. And then I talk about the investment programs coming from the inflation act. Someone referred to the support or the loan type of capital facilities that Northvolt was given here from Europe, et cetera.So, I -- the best prediction or view I can give you, that is, we are now -- we have gone from very strong to somewhat weaker, and I predict it will, not next quarter but in the future start to move up again. And this is very much related to politics, very much related to consumer behavior. A lot of inflation has been sort of hitting out many of us. And I think when consumer confidence comes back on this, then also investments will increase. But I'm, for a few years ahead, super confident that electrification will just carry on.

[Ann-Sofi Jönsson, executive]

So, now we take another question from the conference call.

[Operator]

The next question comes from Karl Oskar from Berenberg.

[Karl Vikstrom, analyst]

Most of my questions have actually been asked. It's just one thing I'd like to clarify a bit and it's the margin development in AirTech, so this discussion on mix versus capacity utilization. I mean, if I just look at the service revenues, for example, in like Q2, Q3, you were [indiscernible] 18%, 19% service revenues but still managed to squeeze out quite a significantly higher margin. So, I'm just kind of thinking actually how much was the mix effect? Maybe you could comment a bit on that with more components and so forth, what was the share of that? Or is it actually more a scenario where if the actual capacity utilization, that's sort of the culprit? That'd be helpful.

[Klas Forsström, executive]

If I start, then I also let Katharina in. And if I average out the answer, then I would say it is sort of both. There is a mix coming from service components and projects then, so to speak. And that has burdened us to some extent. And then, it is the other side and that I alluded to earlier, in some of our factories we have not been up to the same capacity during the quarter as the quarter before. And I think that is the best blend from my view I can give. I don't [indiscernible] Katharina.

[Katharina Fischer, executive]

Yes. No, I fully agree with that. Yes.

[Karl Vikstrom, analyst]

And then I guess, just quick on the lead time changes in AirTech. Could you quantify a bit sort of where you're coming from, what you're seeing? How short are these lead times now? What's your visibility? And how should we think about that going into the sort of, let's say, slightly tougher outlook in early 2024 here?

[Klas Forsström, executive]

Let me go back then to -- and I go back a lot in time then. I go back to before COVID. Before COVID, the general lead time pattern with AirTech were around, let's say, 6 to 9 months. And then it moved itself all the way up during COVID, supply chain crisis, you name it, up to sometimes 15 to 18 months. I would say now it is perhaps in the range of 12 months.But in some cases -- and this I just give us an example, a couple of quarters ago, another one was winning a smaller battery -- another competitor was winning a smaller battery project in U.S. Due to whatever reasons, that competitor could not deliver. The customer came back to us and said, I mean, you're in again, but then they had a very quick delivery time on that or demand, and we were able to handle that. So, for me, this represents both a challenge and an opportunity. We have now the flexibility, if needed, to squeeze in smaller orders if there is so. But at the same time, we also have the challenge then that we cannot predict the load 12, 15 months ahead.

[Ann-Sofi Jönsson, executive]

Thank you very much. So, with that, time is up, and we would like to conclude this presentation of our Q4 and full year results. So, thank you, Klas. Thank you, Katharina. And we look forward to see you again, and do note that we have an investor webinar coming up on the 26th of March about data center technologies, so very exciting. So don't miss that. And -- so, with that, I say thank you, and have a nice day.

[Klas Forsström, executive]

Thank you.

[Katharina Fischer, executive]

Thank you.