Munters Group AB

And welcome to Munters third quarter report. I am Åse Lindskog, interim head of investor relations. Today I have with me Claes Forsström, CEO and president of Munters and Annette Kumblin, Munters CFO. So, Claes, the floor is yours.

Thank you very much, Åse, and once again, very much welcome to this Q3 presentation. With me today, as always, I have Annette. Let me start to summarize the quarter in brief. Strong demand and market growth in our prioritized market segments. Both lithium batteries and data center markets are showing strong growth, and that will continue as markets for the coming years. we win in those prioritized market segments. That secures market share and technology share moving forward, building a base for future off-the-market service sales and upgrades. Our supply chain challenge continues. as well as high prices in the raw material. We mitigate the market, we mitigate the supply chain challenges every day and we consequently increase prices into the market. We predict that the supply chain challenges will remain until first half to 2022. We also invest in capacity gains, efficiency gains and innovations. With that, let me go over to today's agenda. First highlights of the quarter, some matters of implementation of the strategy, and then I will leave over to Annette for financial highlights and deep drills into the quarter. So, once again, the quarter showed strong order intake and a lower margin. Stable net sales, the order intake grow strongly with 21%, predominantly in the prioritized markets, mainly battery and data centers. The net sales, somewhat after, increase in air tech, battery subsegments, and service showed a good development. That mitigated then with negative impact from swine market in China. All in all, 3% growth. The EBITDA has said a decline, margin decreased due to supply chain constraints, higher raw material prices, freight cost, a changed business mix, as well as the time lag of the impact of our price increases. I think you all have heard and seen what the supply chains challenges continues to do into the industry. And let me summarize that we continue to work with that and that currently predicted to remain into the first half of 2022. Strategy continued implementation in the right areas in air tech. When it comes to food tech, you know, the focus on climate and digital solution continues. When it comes to supply chain challenges, we can talk a lot about that. Let me describe it like this. We try to mitigate that every day. It is a from hand to mouth job. We are also implementing improved internal efficiencies to build a stronger base for the future. We see positive impact of high utilization rates and efficiency improvements, but that cannot balance off the supply chain challenges. And when it comes to what is our prediction for the future, you can look upon this that some, when we talk with them and when we investigate, say that This will start to taper off after the Chinese New Year. Others says that it will be a balance as late as end of next year. Our view in Munters that is it will continue throughout the first half of 2022. If I go into order intake then, good development in EMEA and Americas. And as you can see, Americas growing 25%, EMEA 33%, and APEC then 2%. Then let me shortly explain. We have a strong growth in air tech, but that is then balanced off with a weak development in food tech. More details of this will come in Annette's presentations. Market trends then, and the trends here, it is current trends, but I will give you a little bit glimpses into some future trends as well when it comes to the market. Industrial, the order intake of total represents 48% of our basket in the first three quarters, where our battery is 20%, food processing, seven, and others. about 20 percent and here coming back to back to battery we see a continuous rapid growth in all different regions from a market perspective this growth will come in waves starting very strong in asia pacific building up in europe and moving over to north america Data centers at current we are only operating in US, but we see a good development here moving forward as well as a market. And we, as I said, are taking a good chunk of that business. The other areas within air tech are at current either somewhat up or stable. You may have seen that we did win a lithium battery project in Scandinavia. This is important from many different perspectives. First of all, it is important that one of the major players in this area are highly appreciating what Manters can bring. That shows that we are well established and we have technology set for the future. Secondly, it is also so important, as I said in the beginning, that we invest in equipment into the marketplace and thereby we are establishing our technology for the future. And that will open up, here is just one example, for future service growth. And I can clearly say that we are in a clear lead when it comes to complete climate solutions in the production for the world's lithium batteries. Moving over to food tech. Here you can see it is a more mixed bag of different markets moving up and down. Broiler, stable at current, and that is our largest segment. Swine, improving in Americas, but definitely weaker in China over the year. Last year was a very, very strong year. This year is a quite weaker year in China. Layer, somewhat stable. Greenhouse and dairy, the two smallest segments in our basket and showing stable growth as a market. An example here from Foodtech. And what can I say with this example then? First of all, it sends easy to use, easy to choose capabilities. Listening to a customer talking about this is something that delivers energy savings, delivers efficiency, deliver a healthier environment for the chicken being grown there is something that we highly appreciate. And take a look upon here we have up to 85% efficiency in the heat recovery. Really we are creating a sustainable setup for this type of business. Moving over to our strategy. You have seen this. You remember the wheel or the globe. And for customer success and a healthy planet in all those different applications and products, Mante's solutions are inside. And our focus is on customers. And here you can say that what have we done? We have really been pushing prices. We have set strategies and ways of working for the future that didn't exist two years ago. And then, due to current environment, we also played a very, very defensive game, i.e. how to bring prices into the market. Innovation. This is very much about innovating into the future as well. I talked about a few examples that I think is very interesting. That is, when it comes to carbon capturing, we are investing in new materials for that. We are also moving into digitalization and what that can deliver, especially for the broiler markets. And when it comes to markets, we continue to drive service and the capabilities for future service increases moving forward. And excellence in everything we do. I think here is the best way to highlight what we do. We constantly now invest to open up more capacity, both in Europe and in North America. And across the globe, we're working with continuous improvements to also generate efficiency and more capacity. And then, of course, the fuel of everything is our people. And here we develop and implement more competencies by hiring and upgrading people. All in all, air tech, growth in larger projects and prioritized markets, food tech being set for the next step, moving into not only climate solutions and equipment, but also more and more into the digitalization. Food ticket current under pressure in the core areas, air tech very much into a market that is growing and where we aim to take further and further positions. And just to highlight it here, you remember me saying that we had a target to reduce our product assortment for standard products. That was to be delivered by end of this year. I'm very happy to say we have reached that target already now and we are finding more potential day by day as we go forward. sustainability. Sustainability is brought into our purpose, but also into our strategy in our daily work. It is about our people and how we work with them. Just to give an example here that we have joined UN Global Compact Gender Equality Initiatives. We put a new leadership program launched to develop the people in many different ways. And then moving in to call it more hard facts done. We have started to drive and I see good impact in our initiatives to reduce our carbon dioxide emissions from our factories and our operations. And we are step by step moving towards the target to reach zero by 2030. And then when it comes to governance, I think it's mostly important here to highlight the preparations for the EU taxonomy and the reporting. I see strong, good progress in that, improving day by day. And then we attract investors. Very, very good people. Greta Solvang-Stolz, coming from LKAB, brings in competence in the HR area and competence in the sustainability area. And I think she will be a brilliant person moving those areas further ahead in Manters. With that, Annette, over to you and a little bit deep dive into the quarters.

Thank you very much, Klaas. So let's dive into our performance so far. So just to highlight, we have grown 10% in net sales during the year, which you have seen, and that's because of a strong start of the year. Q3, as you've seen, is more flat. EBITDA margin Same level as last year, around 12.7%. Again, strong start of the year with a somewhat weaker Q3, as earlier indicated. And then when you look at our leverage, increased during the third quarter. Two things that are driving it. Growth. When you grow, you grow operating working capital. And also, obviously, the supply chain constraints that we see throughout the third quarter. And also, as Klasa said, will probably pertain into the second quarter of next year. So going in then to the details around order intake in net sales. Again, we have had a very strong growth, mainly driven by the battery segment, but also the data center in the quarter. Food tech, we had good growth in Americas and EMEA, but when you look at food tech, it's being offset by the development in the Chinese market, where the swine segment is becoming quite soft. So year to date, when you look at the order intake, it's actually up at 21%, again, driven mainly by the air tech business. Book-to-bill for the group, same as we have seen previously, but when we look into the different business areas, you can also see that Airtek is growing it. Net sales, basically stable during the quarter. Again, supply chain constraints hindering us a bit to get the products out into our customers. Again, when you look at it, Airtek battery is obviously growing. Service is also having a good development. Again, when you look then at food tech, they are being negatively impacted by the development on the Chinese market for swine segment. So all in all, when you look at the net sales, again, plus 10%, same factors that are driving it as we have seen earlier on. And when you look at all the backlog, it's actually increasing 34% versus earlier FX adjusted. Diving then into Airtek, I think the highlights there again, and we're going to repeat it quite often, is the battery in the data center business, which is really driving. It's, again, the megatrends that we're driving on. But it's not only the project sales. It's also actually OEM sales that we have seen coming in during the third quarter. Services, again, is something that we have been focusing on for quite a while, and you can see that it's still growing. And you can see also that it's now reaching about 21% of net sales in the quarter, whereas year-to-date we're talking about 20% for the Airtek group. When you look at the order backlog, here you can see really that the high order intake of 36% and with the supply chain constraints that we have been seeing, leaves that the book to bill still continues to grow. So actually we're up at 1.3% here. And you can see also how all the backlog has grown with the 43%. But Airtek growing quite heavily with the battery and data centers. But then obviously from a pure getting the business out, we have the supply chain constraints that comes into play. Food tech. When you look at food tech, we have a negative development, both when it comes to order intake and net sales, both when it comes to net sales in the quarter and year to date. But also when you look at the order intake, it is flat actually coming in there. So what you can say is that the China business, we can see in the third quarter, it has been accelerated when it comes to the negative development in the swine market. The good thing is when we look at food tech as we have been speaking about earlier is that the US business is continuing to grow and that is across the border when it comes to both area greenhouses and also the swine segments. EMEA is also having a positive order intake which is good to see and that's also related to the controller business for the US market. So again, strong demand when it comes to air tech and then sales rather flat, which means that when we look into the third quarter, the margins in the third quarter have come down with about 3% versus last year. And a big part of that are the supply chain constraints. We have higher raw material prices. We're working a lot with making sure that we can get the materials in and get the materials out to our customers. We also have increased freight costs. And also we have a change in the business mix, both from the point of view getting battery orders in, but also with the higher project sales. But also coming in when you look at the mix change in particularly food tech going with less Chinese business. We have continued with price increases throughout Q3 as well. And you have heard us talk about that earlier also. But most of that will come into play in 2022, as we have talked about earlier as well. So when you summarise then where we're standing today, you can say that we have a stable margin year to date, but it's also impacted from this by that we have a strong start in the year. So when you look at it, we have been particularly impacted in Q3 by the supply chain challenges and the mixed impact. Then supply chain challenges started in Q2. The consecutive price increases that we have done from Q2 and then throughout now Q3, they will come into play in 2022. Obviously then hitting the margin in Q3 as you have seen. We have high utilization rates in Airtek. You can see that from the order intake. You can also see that from the sales that are coming through. So that has a positive effect on the results. And then when you look particularly at food tech, then obviously the margins have been impacted negatively by the soft swine segment in China. So the increase in the U.S. have not been able to offset the negative impact from China. So when you look at air tech, then actually the margins year to date is stronger than what we had last year. And if you look at food tech, then it has come down year to date with some four percentages. Going then into delivering of strategic journey, as we talked about earlier, we have made some changes when it comes to how we're doing the business. We did first Airtek and secondly, we did Foodtech. The programs are running well. So, so far, we have realized about 70% of the Airtek business. We have, from a timing perspective, we still expect that we will be able to deliver the rest by end 2022, beginning of 2023. If you look at food tech, the journey has just started. So basically the implementation is going according to plan, but still early days on it. If you look then at cash flow, yes, cash flow has come down a bit. But again, there are two things that are impacting it, the growth of our business and then the supply chain challenges. And those things obviously have impacted working capital to increase with about 300 millions in the quarter and year ahead. And during the year, around 400 million. And that obviously then leads to that cash conversion has come down a bit. But you should remember that a good business normally have a cash conversion around 70 percent. And obviously, when the business is growing, it's coming down a bit. And if you look at us today, we are around 66 percent. And the work that we have done previously, as you have seen over the past two years, has paid off in that the culture within Manchester has changed to become more both focused on growth, profit, but also on the cash side, which means that that should impact at the end of the day growth. Leverage, yes, it has increased for the main reasons as we have talked about before, and it's coming down to the growth of the business and also the supply chain challenges. So with that, I would like to hand over back to you, Claes.