Good morning, and once again, welcome to today's presentation of our quarter two report. As already stated, with me here today, I also have Annette Kumlien, our CFO. Before I start the presentation, let me say I'm very satisfied with our capabilities to handle the current COVID-19 situation. It has been guided by safety first and customer focus, delivering a robust performance, including Adjusted EBITDA, cash flow, and at the same time, driven forward leaning change. Step by step, I feel we will continue to develop even in current, quite unpredictable market situations, and our people have more than stood up to the challenge. Please move slides. Today's agenda is highlights for the second quarter, implementation of the strategy. Those two will be presented by myself.
I will hand over to Annette for the second quarter results more in detail, and I will come back for a summary, and then we will open up for Q&A. So let us move to the highlights of the quarter. In summary, robust performance, active mitigation of COVID-19 effects, and strategy implementation, building for the future. From top to bottom on the robust performance, we had an order intake of +1% organically, a decline in net sales organically by 6%, resulting in the Adjusted EBITDA of a healthy 14.7%. FoodTech generated a strong performance with increasing order intake and net sales and Adjusted EBITDA margin. AirTech had a declining order intake and net sales, but delivered a stable Adjusted EBITDA margin. Leasing was a solid cash flow, delivering a leverage that was lowered in the quarter to 2.7.
Safety first has guided us to enact the mitigation of COVID-19. We saw some customer delays in investments and some delays in deliveries, but also clear pockets of increased demand, for example, in the Pharma and the Data Center segments. Very stable delivery caused our solid management, managing our supply chain, and some minor disturbances in our operation. Continuous mitigation and actions for the cost base have also been implemented. When it comes to building for the future, the strategy implementation, it is all about sharpening our customer offering and footprint optimization to ensure execution of the strategy. T wo examples, and we will drill in a little bit more later on, that is the exit part of the Commercial business in the U.S., and we expand the Data Centers in U.S. manufacturing into Texas, and then we also consolidate our operations in Netherlands. Let's move to the next slide.
Our purpose is customer success in a healthy planet, and here I think we have two brilliant examples of this. The lithium battery factory has started to increase in demand, and two examples here. We took an order from a gigafactory of battery production in northern Sweden. It was about SEK 60 million. It was built on our correct climate and energy control into 11 dry rooms, and it is our technical knowledge and the value that we create to increase efficiency and reduce energy consumption that has won the order. T hen also a smaller order, that's very important, the Tesla factory in China. We continue to have a good and strong relationship with Tesla, and I think those two show that we are well equipped to work with the main battery players, and they trust us.
The battery segment moving forward in the medium to long term is a segment that I expect to continue to be very stable as well. Another pleasing area is the strong order intake in China. The trend continued that we talked about at the end of quarter one. Over the years, Munters has built up a strong market presence and a strong trust into the market. We have strong application knowledge. N ow, when the African swine fever has decreased its impact, we see that the demand is bouncing back in China. We also took an important SaaS order in the U.S. related to Tyson Foods. Tyson Foods has for many years been a valuable customer for us in AirTech. N ow, we have also moved in there with FoodTech. Currently, we have FoodTech products and services in the 20 largest meat producers in the U.S.
This is the beginning of the journey, and this journey will continue to deliver step by step over many years to come. Next. Let me talk a little bit about the different regions, and later on, Annette will drill in a little bit deeper. America had a year-on-year change of 8%. EMEA close to flat, -1%, and APAC a strong uptick of 28%. In America, AirTech had a good development of the data center, and the Services was also making progress. FoodTech had a quite weak development, primarily driven by the overcapacity in the swine market in the U.S., and here I can say it's no change to what we said during the first quarter. The swine market looks stable. AirTech had a weak development driven primarily by the weaker Marine market, but offset by a good development in Industrials and Services.
FoodTech had a weaker development in quite a few countries, very much due to the COVID-19 outbreak. But it was offset by a good development in Germany. In Asia, then, AirTech declined, mainly due to weak development in Mist Elimination related, in this case, then to India. FoodTech, as already mentioned, showed a strong development in the swine segment. And if I summarize this, I can say also that the last month in the quarter, we saw a small uptick in the demand, primarily coming from that markets in Europe started to open up. I also have to say that I'm very pleased about the progression done by FoodTech in China. At the same time, I also have to underline that quarter two is, as a seasonal effect, always our strongest quarter. But I think that you're well aware of. Next.
Moving over to implementation of our strategy, and we can shift slides once again. For customer success and a healthier planet, you have heard me say quite a few times that we make the difference. We are present in many different critical processes and applications for end markets and our customers. We deliver energy savings, improving air quality, securing customers' operations, improving animal health, and less waste. T hat is what we see surrounding this globe and this spin wheel. And the ingredients in our strategic priorities are customers, continuous focus on customer delivery and customer value, very much built on our application strength. Innovation. T arget innovation to where it makes sense and where it delivers. And you've heard me say, as late as on the capital market update, we aim to reduce our standard assortment to 40%.
Later on during the year, I will give you more granular updates on where we are there. But I'm pleased in what I see. And modernization will continue step by step. Market sha re. I mean, we will grow in prioritized markets, and we will leave markets where we don't see that we can generate what we are searching for. It's a strategic fit that will guide us, our capability to reach the medal podium. We are among the top three players in a certain market. And of course, our capabilities to deliver on our financial target. And when it comes to people and organization, of course, that is the essence, the core on what to do. It is about accountability, ownership, and development and agility. E very day, we will drive excellence in everything we do.
Sometimes we will take larger steps, and sometimes it will be a step-by-step approach. Next slide. And coming then into the next step in our strategy implementation. As published in the report, we have decided to exit our non-core part of the Commercial business in the U.S. I f I simplify it, you can say we exit everything except the Walmart business. There we have a strong presence, and we can deliver a strong aftermarket service support. It is not a strategic fit. We are not able to reach the medal podium in the areas we need. And it is a lower profitability, and it's not contributing to where we would like to be. We are expanding our Texas operation due to data center orders. I'm very pleased with seeing what the data center, how it has been developed in the U.S.
I'm also pleased to see that we are now turning the Texas facility into a more predefined, standard-driven type of operation when it comes to still delivering custom-made products based upon pre-engineered ingredients. In Netherlands, we consolidate the operations into one main hub. T hen we continue to take different measurements and activities when it comes to deliver on our strategy moving forward. With that, I would like to hand over to Annette for a deep dive into our quarter.
Thank you very much, Klas. We turn to page 11. If we look at our midterm targets and our performance versus that, in Q2, we had a net sales growth of -6% impacted by the COVID-19 situation. Adjusted margin reached 14.7%, and actually about almost 1 percentage higher than the same period last year.
And if we look at year to date, our margin is 11.7%, also the same relationship with accumulated versus last year, almost 1 percentage point higher. And if we look at our capital structure, the continued work with improving our working capital situation has helped us reach a new leverage of 2.7. And we also have a slight currency improvement for us now in Q2, which made us come down again after having a bit higher after Q1. So if we go into slide 12. F irst of all, when you look at Munters, one needs to remember that we are a late cycle of business. A lso, when you look at the cyclicality within the year, usually AirTech has a better performance quarter by quarter or as the year progresses.
Whereas FoodTech normally has a good quarter two and then followed by quarter three and usually also Q1, Q4 following the construction trends by having a lower cyclical, by having a lower level due to the winter season. S o all in all, when we look at the order intake for the group, we had a growth versus last year in Q2 of 1%, and you've seen that was basically driven then by good performance in Data Centers in the U.S. and also the battery segment where we received the order as Klas earlier talked about. Also, services have grown slightly in AirTech, despite the negative impact from the COVID-19 outbreak.
FoodTech also had a very good growth, mainly driven by China and the swine segment there in the wake of the African swine flu and also then the pickup after their outbreak of COVID-19 in the first quarter. In FoodTech, EMEA was a bit softer, and the U.S. are still sluggish when it comes to the swine segment, which has been going on for some time. The positive thing also, when we look at the order intake, is obviously that the backlog is quite healthy and has increased both compared to last year, same quarter, but also compared to end of last year. So, healthy at SEK 2.6 billion, basically. So, turnover as I already said, declined by 6%, both when it comes to the quarter per se, but also year to date, currency adjusted.
And again, as Klas said earlier, AirTech has mainly been driven by a weak development in Mist Elimination and also in the Industrial segment. Positives was obviously the data center performance. Also, Pharma and Services had good outcomes. When it comes to FoodTech, the increase is very much related to the swine pickup in China. And again, as the same with the order intake follows them, the lower development in EMEA and America. Services now represent about 14% of total net sales. If we then go to the next page and talk a bit about AirTech, as I said, strong growth when it comes to Data Centers in the U.S., which has basically led them to a nice quarter coming in, although quite a few declined due to the Mist Elimination due to the global low demand when it comes to Marine segment.
And also, when you look at the Indian performance, that country has been in shutdown. Data Centers, again, very positive performance. And services have actually grown slightly, even in the midst of the COVID-19 situation. Basically, a big impact actually coming from our virtual service package that we introduced earlier. When it comes to net sales, down about 10%, if we look at the FX-adjusted, again, driven by Mist Elimination and then also the Power segment in India. Data Centers and Pharma segments, again, performing very well. And Services also grew quite a bit. When we look at FoodTech, if we turn to the next slide, page 14, very good growth in China, which impacted the total quarter for FoodTech. So we had a growth of 13%.
And it's actually compensated more than well, as you can see from the sluggish development that we have seen in the U.S. or in America. When it comes to net sales, +2%, obviously, will lag a little bit as order intake will have to funnel its way through the company. Again, impacted by China. And again, also the U.S. is on the weaker side of the development for us. If we move on to page 15 and talk about Adjusted EBITDA, good margin in the quarter, reaching almost 15%. As I said earlier, almost 1% higher than we had last year. And we also see that when it comes to the year-to-date figures, again, improvement coming in from our strategy implementation. FoodTech performing well. So in the quarter, increased almost 2%, whereas AirTech remained stable in the period.
Coming back, then, onto page 16 to talk about execution of the strategy. As Klas earlier talked about, we have continued with our strategy implementation, where we have four major activities ongoing, which is exiting the Commercial business in the U.S., excluding for Walmart, which is relocation or actual expansion of DC manufacturing into Texas. We have consolidation in the Netherlands into one unit, and we have also other activities supporting, then, the continued implementation of our strategy. All in all, when you look at the items, we're talking about SEK 138 million in the quarter that we have taken, whereas basically SEK 125 million is related to AirTech and then minor activities related to FoodTech and the rest of the group. If we move on to page 17, what do we expect coming out of it?
We expect basically, when it comes to the strategic implementation, a payback time of 2.5 years, leaving then run rate savings of approximately SEK 70 million. Out of the total package of SEK 188 million, we expect around SEK 160 million to be cash flow impacted. The rest is depreciation and amortization. If we continue then to page 18, so what has happened then with our cash flow? We have continued to focus on driving our internal performance and operational excellence within the company, working through how we drive business with our customers, with our suppliers, and also our internal sales and operations planning processes, so we have continued very well, and the operating working capital is down to just below 15%. This is really what drives then the performance for cash flow development.
And then if we continue to next page, our cash conversion, where we have actually from, if we compare to summertime last year, where we had a cash conversion of around 50%, we're now up to the level of 70% almost, meaning then that our leverage has come down strong to 2.7x . What we have done now also in the quarter is that we have had discussions with our banks. So we have actually created more headroom for us to continue with our strategic journey. So for a period of time, we have actually increased our leverage ratio with the banks from 4.5 to 5.5. And that higher level will continue until Q1 2021. We have also established a new revolving facility as a backup or as a precautionary measure should things continue to work sideways when it comes to COVID-19.
So we are well armed for the future. With that, I would like to hand over to Klas.
Thank you, Annette. L et me then summarize the quarter and then open up for questions and answers. We can move to next slide then. So the quarter can be summarized as a robust performance in a challenging business environment. I'm very pleased with our growth in order intake, our Adjusted EBITDA margin improvement, as well as our lower leverage, driven by a healthy good cash flow. And then in parallel with that, having capabilities to drive forward-looking change. I feel that we have a healthy current order backlog. With that said, the visibility or the effect of COVID-19 outbreak is still limited. I feel that we are more than well positioned in a long-term growing market driven by climate change, energy efficiency, and digitalization.
And I have touched upon a few, pharma, data centers, and so on. Moving forward, safety first for our people, customer focus will continue to drive us into the future. So with that, I would like to open up for Q&A, please.
Thank you. Ladies and gentlemen, if you have a question for the speakers, please press zero one on your telephone keypad, and you will enter a queue. After your announce, you may proceed with your question. I repeat, if you have a question, please press zero one on your telephone keypad, and you will enter a queue. Only after your announce, you may proceed with your question. Good day, presenters. We have a few questions lined up. So, the first question is from Mr. Carl Ragnerstam from Nordea. Please go ahead.
Good morning. It's Carl Ragnerstam here from Nordea. I have a few questions, if I may.
First of all, if you could perhaps try to quantify if you adjust for data centers in AirTech, I mean, how is the underlying business performing, excluding Data Centers?
Good morning, Carl. Thank you for the question. As you know, we are not pointing out the individual segment by yet, but you can say like this. I mean, the certain areas did show growth, Data Center being one, the pharma industry being one, certain pockets when it comes to very promising service, even in this type of climate. It was not any major large project that were standing out as such, so I think if I summarize it, I can say it was a fairly normal quarter when it comes to how the spread in between the different centers, but Data Centers and Pharma, as well as Service, to some extent, did stand out.
Okay, perfect. Thank you.
And could you perhaps try to give more granularity around the cost savings timeline between the different measures that you mentioned, the relocation of the manufacturing footprint, the consolidation in the Netherlands, and so on? And when we should expect the full run rate from the savings, I might miss that if you mention it.
The total program per se will have an 18-month implementation period. So during that timeline, then you will see savings coming true. But the full realization of it doesn't come true until after 18 months.
And should we see it as front-end or back-end loaded, or how should we look at that?
I would say that it comes quite evenly spread.
And what will you start off with if you try to?
But if I jump in here, you can see that one clearly highlighted area that we will exit the non-core Commercial segment in North America, U.S.. And the other one is also when it comes to consolidate into one main office in Netherlands. Those are the two main ones to start with.
Okay, perfect. And I mean, have you tried to divest the business, or is that not an option? Or can I mean the Commercial business in the U.S.?
I mean, if I give a very broad description of the Commercial business, our Commercial business in the U.S., we have had a widespread of different target groups and different types of customers. And I mean, the business that we're exiting, that is the type of business that is low price levels, high price pressure. You need to have large volumes, and you need to be a dedicated player towards that.
So our conclusion is that the best way to handle this, that is actually to exit that business and thereby improving our profitability and our focus moving forward and maintaining a business where we feel that we can be on the medal podium, where we see continued growth and supportive profitability levels for our strategy outlook, so to speak. And when it comes to Walmart, it is also so we have a strong installed base, and I foresee that we will continue to drive service and off-the-market sales into that. So pretty much it is we leave a business where we don't see a future, and we have decided to close it down.
Okay, perfect. Thank you. And the final one for me, if I may. It might be a little bit of a stupid question, but I've seen news surrounding new swine flu in China.
Have you read anything about this? Has it impacted your customers or the confidence of your customers yet, or?
I mean, it was a note about a different type of swine flu/ fever in China. So far, we have not picked up anything else more than that similar news. We have not heard anything from customers as such, and perhaps I also should highlight here that, I mean, the trend that you can see in China, if I oversimplify, it goes from the mega farms, I mean, mega farms compared to the Western countries, into smaller farms, but still large farms compared to Western countries, where our technology, i.e., modern swine farming technology, is used, and from that perspective, we are very much well equipped for handling this.
And at least I see, and I'm partly sort of perhaps biased, I see that it's a strong appreciation from the Chinese farmers of that future. And then, of course, I mean, we have to take it step by step. And we have been there for more than five years, but I think it's starting to pay off. And I can say like this, I'm convinced that we take market share in China at current.
Okay, perfect. Thank you very much. All for me.
Thank you. So we have the next question from Mr. Max Frydén from Danske Bank. Please go ahead.
Perfect. Hi, everybody. Can you hear me? Absolutely. Perfect. Just on the divestment of the phase-out of certain products in the commercial end market in the U.S., if I'm not mistaken, you say that was related to Walmart.
And a few years ago, you had sales of roughly $25 million to Walmart. So should we see this as this is going to impact revenues? This would have forecasting. That's my first question.
You may have misunderstood where I was not clear enough. I mean, we will maintain our business with Walmart. That is what we will continue to focus on. That's the core. And we have a strong installed base in Walmart, and we see both continued strong development and alignment with them, aside then, of course, working with aftermarket and service and upgrades. So just to underline, we exit everything else except.
That's very clear. It's opposite to the background of my question.
And that business has not generated profits for years.
Yeah.
And just in relation, if my estimate for Walmart sales there is correct, how large part is this in terms of revenues, roughly?
It has a very little impact on sales.
Okay. Thanks. And then just on the consolidation in the Netherlands, could you just tell me again what that is relating to?
The broader thing is, several years ago, we acquired a business in Netherlands, and we had our own setup in Netherlands as well. And I look upon this very much as we now consolidate and we bring it into one main hub. And in my book, still being a newcomer, this should have been done several years ago, actually. And then, of course, we will continue to support our customers. We will continue to work with spray dryers and what we're good at.
So it has nothing in that case to do with what we do and what we deliver to our customers. It's just efficiency measurements.
Okay. All right. I'm just trying to get back to the sort of the lumpiness of orders in data center and lithium. And I think you already answered the question on Data Centers, saying it was more of a normal quarter. Then on lithium, the same question. You mentioned orders to gigafactories in northern Sweden and to Tesla, etc. Was this an exceptional quarter for lithium for you?
I mean, we highlighted the order of SEK 60 million. And of course, that is a large order. At the same time, I cannot say that it was an exception. I think it is, if I summarize it, I think it's an evidence of that this industry is continuously growing, and we have a strong relationship with that industry.
If I go back a few years then, you may have heard me refer to a few years ago, a year and a half, we had a tremendous order intake in China related to battery manufacturers. And then over the end of last year and continuous this year, it has been a consolidation intake as it always is in China. You can say they open up a lot of players, and then they consolidate. So in summary, you can say, no, it is just a sign on that that industry will continue to grow for the years to come.
Yeah. Okay. Very clear. Thank you so much.
Thank you.
Thank you. Thank you very much. So we have another question from Mr. Kenneth Toll , and he's from Carnegie. Please take the floor, Mr. Kenneth. You can ask the question now.
Yeah. Thank you.
So I was a little bit surprised to see this cost-out program that you started today, considering that there was a very large restructuring program done only two years ago. I mean, when you describe the actions you are taking, they seem very, very logical, as you point out. I mean, it should probably have been done several years ago. But that keeps me wondering also, I mean, when these actions have been taken, are there still a lot of housekeeping to do to clean up in the company where you see sort of logical improvement that should already have been done, so to say?
I'm a firm believer in not believing in programs. And what I mean with that is when the business is stabilized, then I mean, measures like this should actually be taken step by step. I'm not a program driver, just to underline that.
I believe that now we have lined out what we see right now. I don't feel that we have any skeleton in the wardrobe, so to speak. With that said, I mean, the market is constantly changing, and we need to change with the markets. So I'm not the person that will give call it promises that we will not drive restructuring or anything like this moving forward. But in summary, if I go back to the IPO, it was a tremendous growth opportunity in data centers. And we've talked about the strategic rightness of that and perhaps the mishandling of how it was driven into Europe. We took care of that. Another strong growth driver was also connected to commercials in the U.S. And sadly, that didn't emerge either. And now we take the consequence of that.
And as you see, it has not affected our net sales, as you talked about, but it will improve our profitability and our focus in delivering service to a strong, strong customer like Walmart.
Okay. That makes sense. I mean, there's a difference in sort of proving your business and taking those bigger steps as you're doing right now. Then another question. I mean, your net debt- to- EBITDA and net debt are moving in a very good direction, but you're still expanding the finance agreements you have and highering the covenants in those agreements and so on. So are you looking to make acquisitions now in the very near term? Is that the reason why you want more headroom?
As I said earlier, I mean, what we have done is more precautionary measures in order to make sure that we can continue to realize the strategy.
So that's the reason why we have done it.
Okay. Great. That's all for me. Thank you.
Thank you. We have a next question from Mr. Karl Bokvist from ABG Sundal Collier. Please go ahead, sir.
Yes. Thank you. Good morning. So just to follow up on Max's question here when it comes to the commercial segment, I think as a part of the group, commercial is 6% of sales. And Klas, I think you mentioned that it was a very little impact on sales. So just if one could get a little bit more clarity here, the 6% related to commercial, is that mostly Walmart, or how should one think about this?
I mean, first of all, I don't have exactly those numbers on top of my head, but if I just take it out of how I look upon it, I mean, we have commercial in North America, and the majority of the existing commercial segments in sales is very much related to Walmart, and that we will continue. Then we have certain commercial activities also outside North America, and that is not affected at all.
All right, and another question here when it comes to government grants and support programs. I think you mentioned you have COVID-19-related items of positive SEK 4 million in Q2. Does this mean that you have in total received SEK 4 million in sort of government support funds? Or if not, how much have you actually received?
First, just to make one thing clear, is that when you look at the Adjusted EBITDA, this is obviously not included there because we have actually taken them as.
Yeah, of course.
Because we wanted to clean out the result. And then, as you can see, it's very little support that we have gotten. But it's a bit higher than that because that is net of actually all the cleanup costs that we have had because we're very thorough when it comes to making sure that we don't get COVID-19 into our factories. So the figure is like it's single digits, but just below SEK 10 million that we have received.
Understood. Thank you. Yeah. And good that you included it in the items of comparability. So thank you for that. Then just a sort of risk assessment here.
You have highlighted that the Data Center business in the U.S. is different than how it looked in Europe. But with your aim now to expand the business, what sort of are there any risks that we will see any form of sort of similar events as to what happened in Europe? Or do you believe that you have learned from what happened there and that you are able to mitigate these potential risks when it comes to expanding your operations?
A very good question. And when we took the strategic decision to keep Data Center in North America and focus there, I mean, one thing that we made very clear that is, I mean, we investigated the risks. We investigated what type of claims we had had in the past, what the quality levels were, etc.
And we came to the conclusion that for many, many years, I mean, North America has performed well. And the challenge that was that it was not copied-paste into Europe. So coming back to that, I think I really feel that we are having a strict good control. I don't foresee any more risks than all the risks that is always in a business and that you have to work with. And I should also say that, I mean, it's the customers that makes us expand. T heir desire is to team up with us. That's the reason why they expand now. So it's not a hockey stick plan that we are building and driving for future. We are just driving what the customer asks us to do, sell more to them.
My final question here, it's a bit broader, but early cyclic or late cyclic or not, I think the general perception among most companies has been that Q2 should mark the trough, so to say, and I'm just curious as to how your view would be on that, and extending that question a bit, if we look at margins, let's say that growth actually comes back or the sales decline is far less severe than what perhaps was initially expected. How much of these lower indirect costs would come back once demand starts to pick up?
I can start on a general level, and then I'll also Annette to pitch in here because she has a more thorough understanding and knowledge about this.
But if I just sort of summarize it, you can say, first of all, I mean, and sorry to be this one, we are not giving any outlooks for the quarters to come. Many different reasons for that. But I can say, what did we see then during the quarter that passed? We did see, as presented, that it was a mixed type of demand. Strong demand were in China in FoodTech, thanks to retaking market share. At the same time, please remember that the normally highest quarter is quarter two. When it comes to underlying demand, the original, the old Munters industrial has always been late cyclical, and not to speculate too much, I think that is also what we would see in the industrials.
On the other side, we also have another exposure at current and towards more fast-moving, growing areas like Data Centers, like Food, like Pharma, etc., and when it comes to cost, I mean, certain costs will obviously return. At present, we are not traveling because we are not now. But please, Annette.
but I think at the end of the day, I mean, it's not that we don't give any outlook on that. We have to respect, but when you look at it, we have been impacted by COVID-19, and you see that in the growth, and this is something that has happened to most companies as well. At the same time, as I said, I mean, we're late cyclical, but we're also driving in other businesses, driving in other business segments, which means that there is another drive for Munters as well.
And then when it comes to the performance we have, well, again, we're into driving strategic change, which actually impacts then also our performance going forward. So that's what we're working with, but we don't give any outlooks.
Okay. Quick follow-up. Just, y ou mentioned something about the gross margin, but is there any noticeable impact here from mix, for example, much more sales in the form of controllers and those sorts of things?
No. No. I think I would say that normal could be the word, but quite normal.
Okay. Normal ups and downs.
Normal ups and downs. Yeah.
All right. Perfect. Thank you very much.
Okay. So, there is no other further question at this time, so please go ahead, speaker.
Thank you very much. I would like to say thank you, and until next time, see you then and talk to you then. Thank you very much.