Munters Group AB

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 Kumli in 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 with the change. Step by step, I feel we will continue to develop, even in current, quite unpredictable market situation. And our people have more than stood up to the challenge. Please move the slide. 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&As. 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 plus 1% organically, a decline in net sales organically by 6%, and 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. Airtek had a declining order intake and net sales, but delivered a stable adjusted EBITDA margin. Cleasing was a solid cash flow, delivering a leverage that was lowered in the quarter to 2.7. Safety First has guided us in the active mitigation of COVID-19 at 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 managing of our supply chain, and we saw minor disturbances in our operation. Continuous mitigation and actions or the cost base has 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. And two 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 U.S. manufacturing into Texas. And then we want to consolidate our operations in the Netherlands. Let's move to the next slide. Our purpose is customer success in a healthy planet. And here I think there are 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 giga factory of battery production in northern Sweden. It was about 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 water. And then also smaller water, that is very important. the Tesla factory in China. We continue to have a good and strong relationship with Tesla. And I think those two shows that we are well equipped to work with the main battery players and they trust us. The battery segments moving forward in the medium to long term is a segment that I expect to continue to be very stable and grow. Another pleasing area is the strong order intake in China. The trend continued that we talked about at the end of 41. Over the years, Mantris has built up a strong market presence and a strong trust into the market. They have strong application knowledge. And now 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 Food. Tyson Food has for many years been a valuable customer in AirTech, and now we have also moved in there with FoodTech. At current, 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, I'll let you drill in a little bit deeper. America had a year-on-year change of 8%. close to flat, minus one, and APEC at a strong uptick of 28%. In America, APEC had a good development of the data center, and the service was also making progress. Food ag had a quite weak development, primarily driven by the overcapacity in the swine market in the US. And here I can say it's no change to what we said during the first quarter. The swine market is still weak. Air tech had a weak development, driven primarily by the weak marine market, by a good development in industrial service. And food tech had a weak 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, air tech declined, mainly due to weak development in misdemeanournation, related in this case to India. Food tech, as already mentioned, showed a strong development in the wine 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 food tech 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 all 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 in our customers we deliver energy savings improving air quality securing customers operation improving animal health and less waste and that is what we see surrounding this globe and this spin wheel and the ingredients is in our strategic priorities is customers continuous focus on customer delivery and customer value very much built on our application strengths innovation target innovation to where it makes sense and where it delivers and you've heard me say as later on the capital market update we aim to reduce our standard assortment to 40 percent 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. Markets here. 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, be among the top three players in a certain market. And of course, our capabilities to deliver on our financial targets. 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. And every day we will drive excellence in everything we do and sometimes We will take larger steps and sometimes it will be step by step approach. Next slide. And coming and then into the next step in our implementation. As published in the in the report, we have decided to exit our non or part of the commercial business in the US. And if I simplify it, you can say the 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 metal podium in the area 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 US. And 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, but based upon pre-engineered ingredients. In the Netherlands, we consolidate the operations into one main hub, and then we continue to take different measurements and activities when it comes to deliver on our steps to the moving forward. With that, I would like to hand over to Annette for a deep dive into our quarters.

Thank you very much, Claes. Let's return to page 11. If we look at our mid-term targets and our performance versus that, in Q2, we had a net sales growth of minus 6% impacted by the COVID-19 situation. Adjusted margin reached 14.7%, and actually about almost one 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 losses last year, almost one percentage point higher. And if we look at our capital structure, the continued work with improving our working capital situation has helped us to 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 off to Q1. So if we go into slide 12, first of all, when you look at monitors, one needs to remember that we are late cyclical business. And also when you look at the within the year, usually Airtek has a better performance quarter by quarter or as the year progresses, whereas Sootex 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 level due to the winter season. So all in all, when we looked at the order intake for the group, we had an 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 US and also the battery segment where we received the order as Claes earlier talked about. Also services have grown slightly in Airtek despite the negative impact from the COVID-19 outbreak. So Airtek 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 food tech, EMEA was a bit softer and the USR is 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 organ intake is obviously that the backlog is quite healthy and has increased both compared to last year. same course, but also compared to end of last year. So, healthy up to 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. And again, as Klaas said earlier, air tech has mainly been driven by a weak development in this elimination and also in this industrial segment. Positives was obviously the data center performance. Also, pharma and services had good outcomes. When it comes to food tech, the increase is very much related to the swine pickup in China. And again, the same with the order take policy and the load development in the Mayan America. Services now represent about 14% of total net sales. If we then go to the next page and talk a bit about Airtek, 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 mis-elimination due to the global low demand when it comes to marine segments, and also when you look at the Indian performance, that has been a shutdown. Data centers, again, very positive performance. And services have actually grown slightly, even in the midst of the COVID-19 situation. Basically, then, a big impact actually coming from then 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 misdelimination, and then also the power segments in India. Data centers in the pharma segment, again, performing very well. And services also grew quite a bit. When we look at food tech, this will turn to the next slide, slide page 14. Very good growth in China, which impacted the total quarter for food tech. 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 the Americas. When it comes to net sales, plus 3% 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 US 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 one percentage 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 food tech performing well so in the quarter increased almost two percentages whereas 80 uh ethics remain stable uh in the in the period coming back then to on page 16 and talk about execution of the strategy as talked earlier talked about we have continued with our strategy information where we have four major activities ongoing, which is exit and the commercial business in the U.S., excluding for warm-up, relocation or actual expansion of DS manufacturing into Texas. We have consolidation in Netherlands into one unit, and we have also other activities supporting the continued implementation of our strategy. All in all, when you look at the IATs, we're talking about 138 million in the in the quarter that we have taken, where basically 125 is related to assets and then minor activities related to food tech and the rest of the group. If we move on to page 17, what do we expect coming out of it? Well, we expect basically, when it comes to the strategic implementation, a payback time of two and a half years, leaving then one rate savings of approximately 70 million Swedish crowns. Out of the total package of 188 million, we expect around 160 to be cash flow impacted. The rest is depreciation and amortization. If we continue on 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 businesses, 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%. And this is really what drives the performance for cash flow development. And then if we continue to the next page, our cash conversion, where we have actually from – if we compare it to – Summertime last year, where we had a cash conversion of around 50%, we're now up to the level of 70% or less, meaning then that our leverage has come down strong to 2.7 times. 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 a band from four and a half to five and a half. And that higher level will continue until June 1, 2021. We have also established a new revolving facility as a backup, as a precautionary measure should 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 Claes.

Thank you, Anette. And let me then summarize the quarter and then open up for questions and answers. We can move to the 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 water intake, our adjusted EBITDA, modern improvements, 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 water backlog. With that said, the visibility of the effects 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.