Munters Group AB (publ)

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.

Thank you, Annette. And let me make a short summary before we open up for Q&As then. Continued strong demand in Q3 in prioritized areas. It sets us for the future and future of the market sales. Strong demand, especially in battery and data centers. The margin decrease due to supply chain constraints, higher raw material prices, freight costs, as well as change business mix. And without being too repetitive, Beijing challenges continue and it's full speed ahead on our strategy execution moving forward. So with that, I would like to open up for Q&A. And welcome, Åsa.

Hello, thank you, Claes. Thank you, Annette. So then we're ready to open up for questions. And let's hear if our operator has any questions for us.

Thank you. Ladies and gentlemen, if you do have a question for the speakers, to ask them over the telephone, please press 01 on your telephone keypad and you will enter a queue. After you're announced, please ask your question. Once again, it is 01 on your telephone keypad to register for a question. And our first question does come from the line of Mats Lis from Kepler Shiver. Please go ahead. Your line is open.

Yeah, thank you. A couple of questions. First, regarding the orders, I guess you have quite long lead times in some of the orders you take, and I was just wondering how you try to balance the cost increases in those projects. Do you have sort of raw material clauses and so on that kick in gradually, or do you sort of make an estimation about how these costs will affect you in the final project. That's the first one.

Thank you Mats and let me take that then. In all our project business we always adjust prices to what we have right now in raw material costs and what we see for the near future. So from that side we constantly increase prices moving forward so to speak. i.e. to balance it. And in regards to the lead time stand, I mean, as you have seen, we have built backlog then. But beside that also, it is, if I would do an estimate, I normally have said always it is in between three to six months that when we started the lead time. And then I said we are from three up to nine months. And now I would say we are more and more for some of the larger projects who are hitting the nine month threshold. backlog slash delivery times the promising thing that is a lot of our customers or all our customers they are accepting those prolonged lead times and I don't see that this is a built-up due to call it any building up capacity or anything like this it is more investment driven for a market change that takes place i.e. data centers and batteries

Oh, yeah, thank you. And then just to get a feel for the sort of finish of the year here, I guess the orders are strong, but it seems that a large part of that is sort of for 2022, or how should we see this sort of development phase in the finish, well, final quarter here?

And Mats, as you know, we avoid to give strict forecasts for the coming quarters. But let me say it like this. We have built up a strong order book. The order book is, of course, then affected by longer lead times. We have increased raw material costs, etc. We invest in increasing capacity and we try to mitigate the supply chain constraints day by day. So, I mean, from my perspective, we will do our utmost to eat off the backlog. But as long as the supply chain constraints remain, I think we have to see this type of, let's say, backlog situation.

And you can also add that it's not only the supply chain constraints that we experience, our customers have the same thing also. So we can see in some instances also that the customer asking us to send it later on. So it's a whole chain of events.

Yeah, I understand. And just, I mean, you probably, well, you answered that, my final question as well, but I guess higher costs will continue to to effect you in the fourth quarter, of course, and going forward, but do you expect momentum to continue to increase, or is it sort of peaking at these levels, and could you give some flavor there?

You know, our largest raw material cost is related to metals and to some extent also into plastics and stuff like that. But really, we have seen that the raw material prices have started to level off. But with that said, we're constantly monitoring it and we're moving forward price increases as we talk. And just as perhaps an anecdotal notice then, that is in food tech we started to increase prices and we didn't really see any competition doing the same. Now they are following in our path. So in the food tech arena, I mean, we really started to move these price increases. And it's only in this quarter we have seen competition moving in the same direction. And I think that is encouraging that we are the market leader and we take the first. Then you can always say, am I happy with how fast we have implemented prices in the market? We can always be better. I think that is my summary of that.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Lucas Verne from Jefferies. Please go ahead. Your line is open.

Hey, morning everyone. So I have a few as well. Just to start with the first one. Can you detail the level of price increases you're looking to gate so we have a better idea of the tailwind for full year 2022? And also generally the attitude from customer is it easy to kind of pass on those price increases you just mentioned, competition following. So I assume that that's helping. And also maybe the difference between what you have in kind of lease prices, which can go up and then the impact is quite immediate. And on projects, kind of how do you handle that? Let's say the projects you get to there when you know that you're running a much higher cost on them, are you able to already kind of put price increases to those? And really my idea behind this is kind of the backlog margin. Are you able to follow that? Thank you.

Okay, let me try to take the question by question, and please, Annette, step in here as well then. I mean, if we take the different price increases, and here I have to be illustrative to put it through. If we take food tech then, depending on segment, depending on market, we have moved prices up in between 9 up to 15 in a few particular areas actually hitting the 20% price increase. But that is, it varies in between markets, it varies in between different products. It is very much a cost mitigating activity but we have topped it up as well then. Then when it comes to Airtek, the large majority of the Airtek business or a large chunk of the Airtek business and especially a larger chunk of the Airtek business during this year has been more project based. Here, as I said earlier, we implement price increases each and every time we go into a project, i.e. we kick up prices depending on what we see in the raw material or cost situation at current and a few months ahead. And that will then single out in between, let's say, six to nine months later. Then we have revisited some of our contracts and we have try to negotiate it, renegotiate some of the cost situations. Sometimes we have been successful, but quite often we have not been successful. But that is sort of the balance on that. Anything to add on the prices, Annette?

No, I think you covered most of it, sir.

And then when it comes to, I think I touched also on the other part, then when it comes to projects, how we handle this, it is very much when we take a project, we do an estimation, where are we right now and what type of prices do we need to bring out? And then, of course, we also invest more and more in value selling. So, I mean, when it comes to data centers or batteries, et cetera, I mean, what beside cost increases can we implement?

Okay, thanks. That's helpful. And generally, like you said, the price increases mainly for cost mitigation. Let's say that kind of cost inflation is leveling off at this point and we're at peak inflation. Can you help us try to think about margins next year for not necessarily the first half where you still have supply chain issues, but can you come back generally to the margins you had previously if this level of price increases enough and the efficiency also you're having to come back to margins that were similar to the levels you achieved in 2020?

I look very much upon when you run a business, you know, our three main medium term financial targets. It is growth of a CAGR of 5% organic. It is to be on a leverage and it is to reach the EBITDA of 14%. I mean, we constantly work with that. On the first two that I mentioned, we are there. I'm very confident that when we drive our efficiency operations and projects, when we invest in more capacity, when we drive price increases onto it, I mean, we will step by step move forward to our midterm target. Also, when it comes to EBITDA.

Thank you. And the last one was on the Chinese business. I mean, some of it is due to the African swine fever kind of coming back. Do you have any kind of detail on the situation you're seeing? Is it kind of short term? Is it kind of under control? Just to help us think about kind of the outlook for the Chinese business there.

That is a very good question. And let me expand the question a little bit wider and not only talk about food tech, because I think this is fascinating when it comes to China. I mean, if we take a look upon air tech and the battery business, I mean, that market is really, really advancing. And why is that then? It's substantial investments made from the Chinese government. I mean, they are moving ahead when it comes to electrification of the automotive fleet, etc., etc. And there we grab and take business, market share and technology share. So that is one type of business then. Then the other part then, moving into food tech. I think first of all, as I think you all are aware of, the food tech or the swine business, that is always cyclic. And from that perspective, we had a real uptick last year. And if I remember it right, we started to say that somewhat around mid-year last year, that this is a very strong year. We didn't expect the same type of development during this year. Then we have topped that off with African swine fever then coming back. And in the beginning it was not too much talk about it, but now it's clear that it's official also talked about it in China. And then to add a little bit more spice into it then, You have heard about the energy crunch and to some extent the depth squeeze in China. Here I think it's very logical how the Chinese government or authorities do. In certain areas they put a lot of money in, to simplify it for us, batteries. In other areas they may have a little bit stronger squeeze. So my point here that is, It is a little bit more than just the normal business cycle that is affecting the Chinese swine market. But the long-term perspective of the Chinese market from a swine perspective, that is, they need to have our type of solutions. We are so set for the Chinese swine market when it returns. Anything to add?

I mean, again, when you look at the swine market in China, it has been the African swine fever, obviously. But what we have seen now lately is also increased electricity prices, increased feed prices. And then for a farmer, when they're working with swine, and obviously the P&L starts to be very unbalanced. Plus also that the credit crunchers class we're talking about is coming into play. So that has all happened. quite accelerated during the third quarter, and hence why we have the Chinese market coming down. So again, as Klaus also said then, that obviously we view this as short-term, but it is a crunch that has come into play, and not only the African swine fever for food tech. And then obviously in prioritized businesses like battery, we see the boom coming in. So that's why we also have a business mix actually going for us in China.

Thank you.

Thank you. Our next question comes from the line of Anders Roslund from Pareto Securities. Please go ahead. Your line is open.

Okay. Good morning. I have a question regarding the margins. As I see it, there are three items behind the decline. Cost, pure cost increases from volunteers, freight costs, and then the supply of issues of not getting deliveries of key components. And number three, as you mentioned here, also that you deliver more project orders now where margins are weaker. So my question is simply, what will happen next year? You say you have implemented price increases now. Will you not be able to fully compensate the cost increases next year, or is it that you see delays in your sales, your deliveries, that is sort of reducing your margins, or is it that you deliver more project orders? Just to get a feeling for what size of each of those three areas of sort of Margin decline.

Anders, I can start and then Annette can also share more granularity into this. I think the three subjects you mentioned, they are sort of ballpark, three of the largest impacts. When it comes to cost and when it comes to raw material prices and mitigation of that, I think we have covered that. I mean, we do it consecutively. And we will have the majority of that then handled and taken care of during first half of next year then. Then when it comes to supply and that situation, I think here it is a little bit wait and see. And what I mean with that, that is we do mitigate it. I am in calls with suppliers. My colleagues are in call with suppliers. Sometimes we do have to reprioritize on the day due to that we have late deliveries. And this we can look upon is it is a cost burden right now. When that will disappear, the internal inefficiencies that creates by that, of course, I mean, that is an opportunity to improve our margins, so to speak. Then we have the other one, the last part, that is projects. And yes, projects do have a slightly lower margin. But at the same time, then, project comes and goes. Right now, we have quite a lot of projects in our portfolio. But later on, it will balance off with, call it, more aftermarket and not that many projects. But please, Annette.

And I think also, just when you look at it, I mean, air tech and food tech from that perspective, to a certain extent, have the same issues. But there's also differences, obviously, because if you look at food tech, they have a big impact, obviously, from the supply chain challenges, which includes then also the time lag of when pricing impacts the result. But there's also an impact for food tech from this mix of countries, which means basically, you know, when you look at the Chinese business coming down, particularly in the third quarter, and obviously that has hit food tech. And if you look then at air tech, As Klaas said, the bigger thing is really then the optimization of the supply chain constraints, getting products in and out, and actually being able to get the products out to the customers. The other part is obviously, again, the time lag in when our price increases significantly. comes into play. And the third thing is also then the business mix. But one should also remember in air tech that there is a positive side actually coming from the increased volumes, obviously because of the economies of scale that has helped and offset a bit the margin squeeze from the other factors. But again, I mean, when it comes to input prices on our components that we buy for our products, it depends on where the market is. And the metal prices, they are swinging quite a bit depending on where the demands come from. And if you look at, for instance, just an e-car that uses five times as much copper as a normal fossil driven car. So you can see that there's a basic demand side also on the steel components. So for us to speculate, that's a bit hard where it's coming into it, obviously. And then when it comes to the freight and the logistical side, I think we all know that it's going to take a while until it actually corrects itself. And for us, when we look at those constraints, we see the first half of next year also having issues. But again, also as Claes said earlier, we are trying to push out as much as possible from our factors to our customers to make sure that we support our customers in their growths.

Yeah, thank you for this complete answer. But I just want to follow up on this first half of next year. Is it mainly cost increases or is it the supply chain issue that you won't get out sales at the level you expected? Is it lower sales we should and sort of postpone that for the second part of next year or Or is it just that your cost level will continue to be high but sales catch up?

Anders, as you know, it is a combination of that. And my view is very much like this. I mean, when it comes to the order book, It is a squeeze in the full market. It is that we see on all different projects, both smaller projects and larger projects, it is a longer lead time. So that means that built into the system, From the order is taken to the sales is executed that has prolonged. So that is clear. And that will continue then during next year. What is promising and really good here, that is, we don't see that customers are sort of saying no to our prolonged lead times offer, so to speak. But I can also say that some customers we say no to because they have too high expectations on lead times or they have a too low expectation on price, if I put it like that. Then on the other side, when it comes to cost, I mean, that is a mitigation. But, Annette, do you have any comments on that then?

I think we have repeated most of it. At the end of the day, when we talk about the lead times of our orders, they're quite long in Aertec. And obviously, if you have taken an order a couple of months ago with maybe the input material being priced a bit lower, then obviously it takes some time until you get it out. So that's why you have that time lag of the impact of the price increases. So again, if you look at it, we have some lead times which are up to maybe eight, nine months. And if you take eight, nine months from now, obviously we're in the second half.

But Anders, just to add a flavor on it, of course, we are also working with mitigating costs internally. We are driving efficiency. We have... They are cleaning up the assortment, etc. And that, of course, will also work to balance certain things. But we cannot balance this two times, so to speak.

Okay. Thank you very much. That's all for me.

Thank you. Our next question comes from the line of Carl Bokvist from ABG's on local view. Your line is open.

Yes. Thank you and good morning. I'm a bit interested in looking back a few years at all the different targets that you as a company set up to improve through internal efficiency measures and so on and the supply chain and those decisions taken in the decentralization process and everything. I'm just a bit interested in understanding, let's say that all of these actions were put into place earlier this year compared to how it looks today. Has this had a notable impact, do you think, upon your ability as an organization to adapt to these kinds of market conditions?

If I go back to before Anette and myself arrived and after arrived, I'm very confident that bringing out the full value chain to our business areas has improved our agility. So from that perspective, even if I'm never pleased in how what we deliver and we can always do it better in some of those areas in order to mitigate Call it then supply chain constraints, price increases, etc. I think that we are much more agile in certain areas. If we wouldn't have started the assortment reduction, if we wouldn't have started the drive to create supply optimization, moving more and more to set it up on a regional level, etc., I think that we would have been in a worse situation. And I still remember a lot of questions, let's say two years ago, are we late cyclical or early cyclical and how do we handle that then? With that said, my summary is that a lot of what we have done has put us in a better place to handle this. At the same time, then, I mean, there is still a lot more to be done. And we are working with that. But any additions on it?

Yes, I think the work that we have done throughout the value chain, I mean, with the assortment reduction and also the the understanding of how you work to make sure that you do a good cash conversion. That is really what you can see in the numbers today. Because obviously, you know, when we talk about supply chain constraints and that we're pushing every day, we have everybody pushing on it. And people know how to work through the value chain actually to make sure that we don't move in inefficiencies. Because obviously, with the operating working capital, if you didn't know how to do it, it could look worse. But everything that we have done throughout the values chain, you can see that whatever increases we have, it's not because people don't know what to do. It's actually because there is a growth or because we have a hard time getting. We have to plan how to get the components in and actually increase certain levels of our component inventory in order to make sure that we can get it out. So, yes, I would definitely say that it's a much agile organization we have today than we had two years ago.

And then you can always speculate, sorry Carl, you can always speculate and say, I mean, if the current situation with the supply chain constraint, the current situation with certain others of the issues we have talked, where would we be there? And for me, that is pure speculations. I think really what I see, a lot of the issues that we are battling with right now and handling, and I have to give compliments to all our people that each and every day are battling certain issues, areas of the supply chain constraints, as an example. I mean, when we have battled this through, this is an opportunity as I look upon it. Because when we have put the price increases into the market, I mean, the clear idea from our side, that is, I mean, we will not decrease prices as much as we increased it when it's over. So for me, it is a future potential. But I mean, this is a little bit of a theoretical dialogue. For me, it is, I think that we were much better set to handle this. Yes, we can handle it even better into the future.

All right. And thanks. And the follow up on that, you know, we've discussed the topic in many aspects today. But just to understand, let's say you win an order today, right? whether that is going to be delivered in six months from now or 12 months, but what is your ability on orders that you've won this year to adjust prices and also adjust the cost base on that order upon delivery compared to, let's say, one or two years ago too? Yeah.

In some cases, we are successfully in adjusting price increases also or the price to the customer also after the order has been taken. But generally speaking, we are more working for long term and that is then how to compensate it by efficiency. I draw down the cost that is created inside the company. And then, of course, every time we take an order, I mean, have the correct price, not only that cover the prices at current, but also have a prediction of what we believe the prices be.

But do you have any ability to lock in the input cost for orders that you book so that you can match, let's say, the selling price with the input prices?

In some cases we do that, but in current situation, I mean, it's not that many suppliers that are willing to, when you have a squeeze like this, that are willing to lock prices more than on a certain order. And then, of course, I mean, then we get deliveries on that. But it's very difficult to say, OK, for the coming three months or for the coming six months, we lock this price down. delivery setup because they are in the same situation, many of them. So I think it is hand to mouth. Of course, we negotiate each and every time. Even myself sometimes are involved in tougher negotiation when it comes to deliveries, as an example.

And just two more questions from me. The first one on the component shortages. Do you notice any particular components that therefore have had a significant impact on the entire supply chain so to say or is it a bit more widespread?

It's very difficult to point out. It is not that we have semiconductors that is the main as an example. It is very much into, it could be fans, it could be certain pumps, etc. So it's a little bit more widespread. And really what it's all about that is that the lead times as such, the components are there, but the lead times as such in most of the areas has increased basically.

All right. And my final one has to do, you know, we recall the capital markets day a few years ago with the realign focus and stability, profitability and growth and less focus on projects going forward. And now, of course, you book projects in attractive growth areas. But just to understand the, you know, your view on project risk today. the way you look at projects when you book them, your ability to assess the cost and the final price of the delivery?

It's a very good question. And let me put it like this. I mean, if we go back to the projects that were in the data center market in Europe before we arrived, I mean, then we talk about some projects that had the value of 500 million, even larger in some cases, extremely large projects. Here, the largest projects we talk about now, they may be at the value around 200 million. So in the comparison, we are definitely less risk taking now and it's more balanced project portfolio. And it is not done in the way that it was done before. And oversimplify that sometimes we took a project at that time without really having the full delivery capacity or the understanding of how should the final product look like. Now, when we talk about this, I mean, we have the deliveries, we tell our customer what is the delivery date, and it is with a set assortment, a set type of technology. So I'm much more confident that the project basket of today is completely different than the project basket that we had to clean up when we arrived.

Understood. Thank you.

Thank you. Once again, for any more questions, there's a 01 on your telephone keypad to register. And we have a follow-up question from the line of Mats Li from Kepler-Sjöberg. Please go ahead. Your line is open.

Yeah, thank you. Just a final one, I guess, on my side. I mean, the energy prices are sort of very high in many areas, and you have a very cost-efficient, energy-efficient offering. I mean, this is a long-term opportunity, I guess, but Svartan, do you see that customers are squeezed by these energy prices, especially maybe smaller customers in farming and so on? and they are not able to invest? Or do you see it as an opportunity short of mid-term also that customers try to adapt to higher energy prices?

Very, very good question, Mats. And let me go back then to the example I showed in regards to the chicken farming of chickens. Here you have the heat exchanger and heat recovery setup that took back 85% of the heat generated and brought that back into the farmhouse so to speak. That is an example of where future efficient sustainable farmers are going so that is an opportunity for us i.e to sell on energy consumption to sell on animal welfare so to speak then the only market where we see at current where it is a risk in the energy pricing slash That is China, as we talked about earlier. But that is less, I would like to say, due to energy prices. It's more due to energy, call it availability in China. So from that perspective, that is the only market. And then we see it more as opportunities. Annette, anything?

No, and I think also when it comes to the swine market in China, it's also obviously because of the pork prices has gone down. So when import prices go up, you get this imbalance coming in.

And maybe, Mats, then if we go into other areas such as data centers, such as lithium batteries, but especially data center that consumes a lot of energy in the operations. From that perspective, of course, if you have energy efficient solutions, that save energy consumed. Brilliant. And that is what we have. So from that perspective, no one really likes energy price increases and energy shortages. But from that perspective, I mean, we deliver less energy consumed with our products.

Okay, great. Thank you.

Thank you. We have another follow up question. From Carl Bockfest from ABG Sundell, call you. Please go ahead. Your line is open.

Thank you. I'm just a bit interested in understanding the dynamics that you see in the pharmaceuticals and general food production space. Thank you. Mainly particularly in pharmaceuticals given the year we had in 2020.

Thank you, Carla. Also a very good question in regards to, you know, in the beginning of the pandemic, then it was a boost of natural reasons then into the pharmaceutical industry. It was about the COVID test. It was about the vaccine, etc., We saw a somewhat damped demand in pharma, but now we can see tendencies that it's not, I mean, declining. It is leveling out at a quite high level. What is that due to then? Some of it is, of course, due to that the pandemic is not yet over. But the other side is, from our perspective, I think it is a higher awareness of what you need to have to produce pharmaceuticals in a good way. So let's call it a stable demand. And the second area was food processing. And food processing was hit during the early phases of the pandemic. Now we are growing. I don't have the exact number, but I think it was close to 8-9% growth in food processing air tech. And we predict that that is an area that will grow For the future, not short term, but for the future, it's more and more opportunities in how you handle then food processing. It's everything from powder milk to more call it fresh food that needs to be handled in a good environment.

Understood. Thank you.

Thank you. And as we have no more follow-up questions, I'll hand back to our speakers.

Thank you very much, operator. And then the questions through the webcast. So by this, we conclude the Q&A session. And I would like to hand over to you, Klaus, for the concluding remarks.

Thank you very much. And I go back to where I started. We have... In targeted markets, a very strong underlying growth that we predict will remain, especially for the data center and the battery business as markets. We have a strong backlog and we have put market share and technology share into future service deliveries. We will continue to fight the supply chain constraints. We are continuously implementing price increases. And I'm so, so happy of all the efforts our people in our organization are doing to mitigate and to drive deliveries out to the customers in the best possible way. Thank you very much.