Munters Group AB (publ)

Welcome to the presentation of our fourth quarter and full year report for 2021. I'm Ann-Sofie Jansson, Head of Investor Relations, and with me today I have our CEO, Claes Forsström, and our CFO, Annette Kumlien. We will run through the presentation and thereafter we will take a Q&A session. For those of you who are viewing on the web, do feel free to post your questions throughout the whole presentation, and we take them in the Q&A session. And for those of you who are on the conference call, we will then open up for you to place your questions after the presentation. And with that, I hand over to Claes.

Thank you Ann-Sofie and welcome to this Q4 and full year report. Before I start, what a lovely picture showing Sweden at its best during a winter day. The quarter and I have to say the full year is really representative with record high order intake. especially driven in transformative segments such as lithium batteries and data center, but also service showed good progress. It has been shadowed with continued holdbacks in our supply chain, but that we are handling better and better as it goes. it generated a strong cash flow during the year and during the quarter. And we did strategic advancements in many areas, such in growth, such in investments, in building up production capacity and innovation. And at the end, we took concrete steps also in our journey towards becoming a better sustainable company for us and our customers. With that, the agenda of today is... My self-start, talk about highlights in the quarter, and then after that, about implementation of our strategy. Then I will hand over to Annette and come back for summary and open up for questions then. Significant progress in 2021. We delivered on our growth strategy. As I said, record high demand, driven by transitions in battery-powered vehicles and increased data traffic. Airtek, Great to see growth in prioritized segments. The ones that I mentioned, but also service. Food tech, a little bit one side growth, America's anemia, offset by a weak market in China on a strong year before. We have taken decisions to expand capacity in the battery segment with a new facility in the Czech Republic. And earlier during the year we also took a decision about expanding capacity in the data center segment. And as I said, supply chain challenges continued. We have carried through price increases through the year. To mitigate the increased cost, the majority of this will come in this year and come quarter by quarter. Strong focus on sustainability. We have worked towards our target to reach net zero emissions from our operations by 2030. We have joined UN Global Compact on gender equality initiative and we have added sustainability targets to the financial facilities. I think we take a major step on that journey. Coming back to the record high order intake. As you can see, air tech, driven by strong growth, as I said, in battery and data centers for the full year, 24% growth. And food tech, growth in Americas and EMEA. Annette will come back to more details in this. But moving over to net sales, we generated a 5% growth, And also here, battery data centers, but also service. Food tech, growth in Americas and stable growth in EMEA. And the best part of it all, we increased our order backlog with 86%. And as anticipated, we had a flattish year when it comes to EBITDA and a negative impacted by what we have said before, the raw material cost, the constraints, you can call it an increased cost pressure, generally speaking. And food tech also, margin negatively impacted by lower volumes in China on the back of a strong 2020. Being a little bit more granular, and let me start at the upper right. Americas, generating a growth of 89%. APAC, 29%, and EMEA, 32% in the order intake. And here, once again, battery data center. This story is repetitive, but also service. We're driving air tech in Americas. Food tech, climate and digital solution experience growth in America. Airtek continued also to grow in food and components to data centers. And food tech, I mean, I grew mainly from orders in climate solutions to the greenhouse and broilers market when it comes to food tech. And the same goes very much when it comes to air tech in regards to battery driving the growth in APAC. And as we have talked about earlier, the Chinese market has been weak and maintained weak during the full year. I think the summary of this, supply chain constraints continue to impact our business, is mainly three. It is sourcing challenges. It is cost challenges. But at the end, we, as many, many other companies, we are getting used to this. We are working a different way and we are mitigating the effects. But as you can see on the right side here, I mean, the trend in commodity prices across the board from a market perspective has increased. We predict that this pressure will continue until the middle of this year. But with that said, I mean, I think we also see really good progress in how we handle it with different ways of working, putting together task forces, driving certain initiatives to open up flexibility there. Coming back to the markets. transformative change is driving some of our segments. And if I should summarize Airtek, solid to very strong growth in most of the segments. And as you can see, also looking forward half a year, also the market outlook from a market perspective, we predict that this will continue in a good way. sustainability sustainability is about how we work but also how we support our customers and this is just one example of what air tech has done towards customers in the food segment here we talk about the chocolate maker in in north america and they have set a clear target to reduce their emissions moving forward our solutions help them reach that target. And it's very, very rewarding to see that they have embraced it and they move it in across the globe. Sustainable innovation for a healthier planet. I think we are really towards that market. Moving over to food tech. And I think you can summarize it and say mixed market. Stable in some markets, up in some markets, and weaker in other markets. And the major weakness has been in China when it comes to the swine segment. It has been like that during the year, and it has continued to be like that. And this is, of course, driven by the African swine fever, but then also capacity constraints, etc., in China. But on the other side, then, we start to see improvements in the marketplace when it comes to broiler. We start to see improvements in the marketplace when it comes to greenhouse. So more a mixed bag here. Really interesting for the future, digital solutions. As you can see, 6% of our turnover. This is a trend that will continue to grow over the years, both in percentage value for us, but even more so when it comes to how we influence the market with our solutions. Coming to implementation of the strategy. Customers, innovation, markets, excellence in everything we do, and people. We have clear targets for each and every focus area, and let me give you a couple of examples from each and every one, what we've done and what we would like, what we will aim to do during this year. When it comes to customers, setting up center of excellence for battery, enabling closer cooperation with customers, this transformative segment, we are very close to the customers and work to make them even more successful. Here we will continue to work with the targeted segments that we identified. Innovation. We put up a target a couple of years ago to reduce our product assortment when it comes to standard products with 40%. That is done, and we will continue to work with this. But we have also launched several new products. And without mentioning them all, I think SciCool in data center and Amino software in food tech, that is two really, really interesting solutions for the future. Moving forward, bringing R&D and innovation even closer to the market, working closer with our customers. In markets, food tech strategy launched. Strategic market segments, as I said, generated strong growth. And this we will continue. But here we will also start to spice it up that acquisitions is an important part of our future growth. Excellence in everything we do. We continue to expand capacity. We continue to work with a more regionalized setup. But also important here, that is, the progress that we have done in operating working capital has paid off in a good way. This year, price-threatened execution, secure capacity to mitigate supply issues. And then when it comes to people, As I said earlier, joined UN Global Compact Gender Equality Initiative. We have also a new head of HR sustainability, Greta, that has just joined. I have a lot of really good things, or we have a lot of really good things in that area. And what it's all about, that is about continued leadership development, also to implement an HR system, but of course driving sustainability further on as well. Yesterday we made a press release about a sauce contract targeted and put in place for one of the largest integrators in the food chain. This is for us evidence that what we developed is appreciated by the customer and what is even more encouraging that is In the coming year, step by step, this will generate more and more recurring revenue. It puts us really into the end tagline here. Manters Foodtech, contributing to feeding the world in a more sustainable way. You will hear more about this as we move on during the year. We also acquired Edpack. and strengthen our European presence. And what is this all about? It is about having a strong manufacturing footprint that can manufacture our solutions. It is to have a close collaboration, cooperation with the customer base. And it's about bringing in our knowledge from North America into the market. I think that we are really set here to create a solid base for continued growth in this prioritized market segment in Europe. Sustainability. We have put a very, very stiff target Net zero emissions from 2030 from our operations, and we have taken steps in that direction. So moving from 50% green electricity to 53%, step by step, we will continue to do that. When it comes to the social side, increased proportion of women in the management positions. But also when it comes to code of conduct for suppliers, 100% of them have signed and live up to what we demand from them. And we are moving in the right directions when it comes to females in management positions. Then what is great to see, that is we have added then sustainability targets into our loan facilities moving forward. We jumped up in recordable incidents, but still we have, if you look a few years back, moved in the right direction. With that, I hand it over to you, Annette.

Super. Thank you very much, Klas. So let's dive into the financial performance. It's very easy to drive in the noise of the battery side, but actually it's very interesting to see that all of our focused areas are growing. So we ended up actually with a 10% growth for the full year and also in the quarters. We had a good churn in the quarter. Adjusted EBITDA margin, yes, it is down, as we have spoken about several times during the year, and it's the same reason that we have spoken about earlier. And as we have said also, we foresee the time lag of the prices working through the first half of the year as well. If you look at the capital structure, yes, a little bit increased compared to last year in 2020, but half of that increase is actually related to inflation. effects changes. And the other one, yes, we're growing. And obviously, when you're growing, you need a bit more working capital to run it. And also, the supply chain restraints have put a bit of a limit to it. So if we dive into the order intake, it is a record quarter. As you see, basically, Airtek, we have 77% order intake growth compared to last quarter, last year. Battery, data centers, services, yes, that we have spoken about before. But also, as I said, the prioritized segments like food is growing. And we can also see that clean technologies actually had a growth in Q4, which is really promising to see. If you look at food tech from that point of view, a bit lower, but still we're up 11% compared to last year in the quarter. And it's nice to see that Americas are coming up and EMEA is also growing for the reason we have talked about before. Americas both when it comes to climate and digital solutions. And in EMEA, we are particularly seen in broiler and also good to see the greenhouse segment, which is obviously a smaller segment for us, but a growing one. APAC, yes, declined. It continued during Q4, and that has actually impacted food tech to stay just above a 2020 delivery and order intake. Whereas obviously the high order intake that we saw in air tech of 77%, for the full year we ended up with 42%. Same reasons that we have spoken about before. Battery and data centers, and obviously they're drawing being the component side, but also then food and services coming in. So when you look at then the whole group, the order intake was almost 60 percent. And that we haven't really seen before, actually. And for the full year, 30 percent. And when you look at the book to bill, yes, it is on a record high also, basically because also we have had some supply chain constraints that have continued. But as we saw also when we looked into the invoicing side of it, our net sales increased. our net sales increased with 10% versus than the last year, both for the quarter and for the full year. And you can particularly see in the air tech segment that we actually had some churn, so we got the products out. 17% growth for the quarter and 14% for the full year. And again, to note that when it comes to the quarter, data centers, clean technologies, battery and human control services are driving it, whereas when you look for the full year, it's really battery and pharma for air tech. Again, data center is a project business. So when you look at the full year for data centers from a net sales perspective, it's a bit down. But again, project business. And when you look then at food tech, obviously impacted negatively by the development in China, which is the same reason as we have talked about earlier on, swine segment weak in China. So all in all, when you look at the group, 10% growth, which is really good to see during these type of times that we have been in. That means, obviously, that our backlog are record high. You can just look at Airtek where we have basically a doubling of the backlog. And when we look at also then churning the products out, it's really to make sure that we drive then the supply chain activities in the right way. And there's a lot of people that are working hard to make it happen. And it's nice, again, as I said, to see the 10% coming out of sales during the quarter and during the year. And also when you look at food tech, the backlog has increased. There's some growth driven by the climate solutions, obviously with America and Maya. And that means also that they're up about 35%. So all in all, backlog up from 2.2 to 4.2 billion Swedish crowns during 2021. When we look at the results then, or the margins, I mean, it's the same story that we have talked about before. Yes, we have impacts from the supply chain activities that have hampered us and made us work a lot more. But there's a lot of people that are working to make it happen, to make sure that we have a stable margin that we pull through. So in a way, when you look at the price increases, yes, they are coming true. We can see them quarter by quarter increasing, but But again, if you remember, when you have the raw material prices increasing, that time lag to get it out is still in the play that we're working on. Then when you look at the full year, I mean, given that we had a very good start in 2021 with particularly air tech being strong, that meant that basically for the full year, we only had an 0.8 percentage drop in the margin. And when you look at the business areas, obviously then, air tech, even or despite of those difficulties that we have had during the year, the margin is actually up for the full year. Again, the Q1 will play into that book very strong. Whereas when you look at obviously in the quarter, We're a bit down. But again, prices are coming through and we will see that the time lag will pan out during the first half of 2022. And we look at food tech, same issues there. China obviously having a negative impact and also then with the supply chain restraints making the margins coming down. But more or less the same communication and the same reasons that you have had earlier on. So not a surprise from that perspective. That means that when you actually look at our quarterly margins, how they roll through during the year, as we have said, we have trends. Usually Q1 is the lower quarter, whereas Q2, Q3 should come up. And for food tech particularly, you have Q1 and Q4, which are coming down. And as you can see from the air tech trends, Q1 2021 was unusually strong because of the order book that we had during 2020, basically. But again, normal trends usually prevail in the company. So it's just to watch out for. If we look at our strategy implementation as Klaas was talking about, we are on track. We have two programs, one which we started in 2020. As we have talked about earlier, we have some operational efficiencies that we are working through, but they were delayed earlier on because of the corona pandemic. incidents throughout the world, but we expect them to be implemented by 2023, as we have talked about earlier. And then obviously when it comes to food tech, the plan was put in place in May last year in 2021, and that is on plan, but still early days. If you look at cash flow, continued strong cash flow. And I think the important thing is to understand that the culture of how to work with the cash conversion has really come into the organization. And that means also that during a situation that we have been under for the past one and a half, two years, actually has made that we have been able to counteract by actually working as diligently as possible. So still, when you look at the cash conversion during the year, we end up with around 60%. And with a company that has an order intake that high as we have, and also an invoicing increase of 10%, this is really good. And that means also that the culture sticks from that perspective. So when we look at the leverage, as I said earlier on when we started, yes, we ended up a little bit higher than during 2020. But half of it is caused by FX rates. And the other half is related to actually a growing business in a supply chain restraining ecosystem. As Claes also talked about, sustainability is very important for us. And for us, it was very easy to start to talk about also connecting our debt facilities into sustainability loan. So we did that together with the banks. So it's quite nice to see. And again, we're looking into gender diversity. Very important to have a diverse organization. Renewable electricity, obviously, and then also services, which is part of making sure that we have a sustainable ecosystem. So with that, I would like to hand over to you, Claes.

Thank you, Annette. And let me just summarize the year and the quarter. Record high order intake that strengthens our way forward. I would like to underline there is transformative underlying segments that are growing. We have invested in selected competencies to create more efficiency, driving digitalization, and working with improvements in production, and we will continue to do that. At the start of 2022, very pleasing to see that we are now starting also to add M&A into the portfolio. As pleasing that is to see that our strategy in food tech with software as a service, digitalization, now starts to really be awarded by important customers there. And in the future, step by step, this will grow. Continued focus on sustainability. Very concrete. It is about building our own facilities and working with that, delivering to our customers. And as Annette said, to raise service as a share on net sales to 30% is part of this. The same 30% when it comes to female leaders, we are step by step moving forward on. And just to add it up, as I said earlier, yes, we have started to be used to the supply constraint that is here. But our prediction is that this will continue to remain for the first half year. And then we step by step will work ourselves out of this. With that, I open up for Q&As.

Great. I think that we will start to open up for questions for those of you who are on the conference call.

Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad and you will enter a queue. After you are announced, please ask your question. Our first question comes from the line of Mats Lis of Kepler Chivro. Please go ahead.

Yeah, hi. Good morning and congrats on a very solid order quarter. Just had a couple of questions. First, I mean, in the order backlog now, could you say something about sort of the margin that you expect to achieve in that? I mean, are you happy with the price increases you have implemented and so on, given the current situation?

Good morning Mats, but I can say like this, when it comes to our projects, I mean, we have step by step as the year has gone through, we have increased the prices in several waves. So I feel confident that we have really balanced out the backlog stock. And then as Anette and myself have iterated several times, I mean, during the year 2022, we will work ourselves through then the price increases quarter by quarter. But I'm confident that the price increases have started to really bite into the customer base. We don't get any holdbacks on the price increases we bring forward more than, of course, it is always a price negotiation, so to speak.

Great. And then I guess you mentioned that the first half will continue to be complicated for you or you will need to headwind there. Is it on the same level as in the fourth quarter or is it sort of you're still in the momentum is still weak or could you say something about the trend there or the margin trend and so on?

As you know, we do not sort of give outlooks when it comes to individual quarters. But really, Mats, what I can say that is I summarize it in three points. I mean, we have now implemented a very solid way of handling those, let's call it disruptions, interruptions, et cetera, in the supply chain. It is about sometimes working in short term and shift, etc. But that sticks now into us. And then I think that we have to be used to The container situation will continue to be complicated, not only for monitors, it is for the complete world. When it comes to our shift towards how we transport, I mean, we transport more and more through train transportation to Asia, etc. So the only prediction I can say is that I believe that we will continue to have headwinds in this area, but we are becoming better and better at handling it.

To add to that one is also to look at, I mean, the trends that we have in, if you look over the years, the trends we have on a quarterly basis, that is also what one needs to pay attention to.

Great. And just a final one there. I mean, when things sort of start to normalize, should we expect the price increases to stay or do you expect to be able to sort of compensate the customers for?

Our firm target is that the price increases that we bring to the market now, we will not bring them back to the same level. We will maintain and defend the price increases that we bring into the market also in the future.

And also, Klaus, one can say that it's very important to work with value-based pricing rather than the chase that we have been doing now, which is to really come like cost-plus basis. So those are the things that we're working on.

And perhaps I should add that. I mean, am I pleased with how we acted in the beginning of last year on prices? No, we should have been on the ball earlier. The good part, that is, we have increased the competence. So we were right in the analysis saying that pricing is one of our strategic measurements moving forward. but it became more a defensive than an offensive. Now we have pricing procedures, processes, net price increases every year, et cetera, put in place. So how should I say, never waste the crisis to improve.

Okay, great. Sounds good. Thank you.

Our next question.

Yeah, I would just like to remind those who are on the web that you can place questions online. as well. Sorry, now we go again. Take a question from the conference call. I'm sorry. I just wanted to remind everyone.

Our next question comes from the line of Lucas Fahany of Jefferies. Please go ahead.

Hi, good morning, everyone. I have three. Maybe we start the first one on the acquisition you made at PACC. I think you didn't provide much on the historical growth rate. So I was interested to know kind of what kind of growth rate they had over the last three, five years. And also what you see going forward, because they're going to continue on their trajectory, but now you probably have revenue synergies with kind of you offering going into Europe and potentially on the client side as well. So if you can maybe talk a bit about growth at Patch.

Hi and good morning, Lucas. A really good question. And let me start to say the reasons why we have acquired Edpack, that is that they have a strong manufacturing base in Europe and that is essential to move it forward. They have also a good customer base that complements and links into what we call our sweet spot arena. So it's a good strategic fit there as well. The data center market, and let me talk about the data center market instead of talking about Edpac and Munters. As I said several times, this is a double-digit growth market for the coming years. And then, I mean, one quarter up and another quarter down, but it's a double-digit underlying growth. And this is just...

cementing our way on saying we have produced that in north america and now we go into europe and drive that growth journey into europe again okay perfect um and on china um obviously the the swine market is still um difficult i'd say the the news flow around the african swine fever or outbreaks is maybe not as bad as field So is the performance driven mainly by the ASF outbreaks or it's more just the market dynamics are just not favorable at the moment?

I can start here and then Annette has also a lot of insights in this. But generally speaking, we have to look upon Three different perspectives. A year ago, we had a very, very strong underlying market. We did grow substantially. Then we have the ingredients of African swine fever. That I shouldn't comment on exactly how China reports, but let's say like this, they have a tendency to not over-report negative news. So our view is that it is going on there and it do affect it. On top of that, then, you have to take a look upon swine prices in the marketplace. And the swine prices in the marketplace in China has been weak. But then I would like to bring in, you saw in one of my presentations about our solutions, our systems are actually so important for modern farming of chicken and swine. So the underlying market, long term, is still a growth market in China. But Annette... And any comments on China specifically?

No, I think that you covered it. Because obviously, I mean, with low prices and you have issues with African swine fever, then for you as a farmer to invest, it might not be the best economical decision to take, actually. And we saw also that during 2020, there was a lot of credit support from the government to the farmers, which was part of also the growth rate then. And it has been less of that during 2021.

So if I summarize it, a little bit short-term pressure and long-term opportunities.

Perfect. And also I wanted to talk about all those obviously very strong year, very strong Q4, to an extent that's related to also maybe some delays or things that have not been converted to revenues. But when you look towards 2022, Do you think you can still grow those meaningfully? Obviously, you have very tough comps. It's just something we see across the industrial space. There are very strong orders, but maybe revenues held back. And that provides some question on kind of what book to bill will look like in 2022.

Without going into specific, I mean, quarters, et cetera, if I take AirTech to analyze, there are transformative change taking place in several of those segments. And without commenting in individual quarters, I mean, the underlying market will generate order intake growth. That is our prediction also in data centers and in in battery for the half year, as you saw in the presentation. Then in the other areas, I think long term, it is extremely good to see the progress that we are doing in food tech and the journey that now has started through the order that we got from one of the largest food producers in North America, really strengthening our, call it, proof point that we are leading that.

But perhaps, Annette, some comments on... Yeah, and also I think that, I mean, with the trajectory into digitalization and obviously the e-vehicle side, it also drives for us not only the pure products of batteries and data centers, also the service side and the component side connected to it. Then when it comes to food tech, obviously China has been weak during 2021, but we have seen good trajectory in America and Europe. And then, I mean, at the end of the day, if you look at what China is doing right now, also they're stopping certain exports from other meat-producing countries. So hopefully we will see, I mean, long-term, people still will eat swine, so it probably will come back.

And he has to come back to the long order intake. This we will eat ourselves through step by step. It is not something that will happen in a quarter or two, but it's a very solid order intake. I would like to say that it's not... based upon pre-orders in the transformative segments it is actually change that is happening so it's a solid order intake but a prolongation from three to nine months is now from nine months to 12 months and up to 15 months on some of the orders just to give you that perspective it will not happen in a quarter and then everything will be phased out so to speak

And also looking at the lead times from when a battery producer starts to look at setting up a new factory. There are some lead times there, which is not two months. It's quite long. So hence why we have a bit of a visibility on that side.

Perfect.

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

Yes. Good morning. I'm curious to know a little bit about the cyclicality in data centers and lithium batteries. Given the extraordinarily strong growth this year in order intake, are you afraid that clients may have pre-ordered and once you start to deliver, order intake will come down? Or how do you see the underlying trend given this extraordinarily strong outcome this year?

Always when it comes to segments that has a larger part of, call it, project orders. I mean, one quarter can be up and another quarter going down. But let me come back, Anders, and I think it's a very good question, to what changes are happening in certain parts of our society. It is a shift towards electrification. And I'm very confident that the shift of electrification will drive even more gigafactories across the world. I mean, today it was announced the Volvo factory, etc. Those will come. So without saying that we will grow quarter by quarter there, but the long-term trend in that, that is evident. This is a transformative change. It is the same transformative change in data centers, but there it is a little bit more. That is an established area, so it could be a quarter up and a quarter down, but the long term is also there to drive. We have a healthy order backlog, and I mean we – As we said, we continue to eat through that, and that gives us a lot of confidence moving forward. Without giving predictions, Anders, let's say like this. I'm confident in the battery sector over the years to come, and I look upon data center as a growing segment. That's the reason why we now also will start to grow in Europe.

Yeah, I mean, Anders, we have discussed a lot about data center. It is a project business, so sometimes it's better or worse than compared to last year, depending on how those orders are coming in. But I think what's quite important also when you look at the growth rate that we have in order to take data centers is still the same share of order intake in 2021 as in 2020. So you can see that there's sort of a stability long term on how it's growing. Then obviously it depends on when the data center operator wants to have the factory up and running when we actually get to deliver. But that's the nature of the business.

Yeah, and if I could have a second question regarding Edpack. You do have a corporation today with them. Will this acquisition be the the step forward in Europe for delivering your equipment as well? Or is it only Edpak which will deliver their equipment to European market? Or will it be sort of combined offering here with your own equipment? How do you see upon that?

Anders, a very good question. And I have been extremely persistent in what I feel is the right way to enter the market. You need to have a strong production footprint that knows what they are going to produce. You need to have a knowledge in the market and good relationship with customers and you also need to have products that you can advance into the market. Edpack provides us with the first. They complement us in the area of customers. And we share some customers and we have other customers that they have and we don't. I have synergy there. And when it comes to products, we will advance some of their products and grow even more. But of course, we will also bring in the products that we have been so successful with in North America and take that in step by step into Europe.

Excellent. So that's all for me. Thank you.

May I remind everyone that if you wish to ask a question, please press 01 on your telephone keypad. And our next question comes from the line of Carl Bolquist of ABG Sandal Collier. Please go ahead.

Thank you, and good morning. We've touched upon this in an earlier question, but I was just curious about if you could shed some light on, I realize you can't give a number, but of the backlog, how one should think about the deliveries for the current year. I just noticed that on average, for example, you've had a kind of a coming quarterly sales constituting 70% of the prior quarter's backlog, and now it's 60%. Do you think that that kind of level is representative or should we think about it in an even lower conversion ratio, for example?

Obviously, given that we have been building this backlog throughout almost the whole of 2021, when you look at the end backlog of 2021, it's heavy into the early start of 2022, obviously. And as we said, I mean, all along, already when we were in Q2, we have an order backlog, which might be a stretch in nine months or so forth, which means that you will see that tendency coming in. I hope that answers your question without giving a number for you.

Sorry, forgive me if I misunderstood, but would it be fair to assume that perhaps, you know, The start of a really significant order build-up you took in Q2 and Q3 would that likely result in sales during 2022? And, you know, the Q4... orders will mainly come into 2023. Is that perhaps the correct way of thinking about it?

I would say, I mean, if you look at the backlog, which we started in 20, I mean, if you look at 2021 half year, then obviously if you have six to nine months, most likely then it starts, those orders starts to roll in early this year, 2022. And then obviously the buildup that you have during the second half will come a little bit later in the year. In 2022.

Exactly. So don't anticipate that the quarter four orders will hit fully into 2022. It will be a clear spillover into 2023. And part of that will also be from the quarter three as well, so to speak. Yeah.

Understood. And the pricing on the orders that you have booked in recent quarters, do you feel content with the value-add based strategies that you have been trying to implement?

When it comes to orders, I mean, we have really, on each and every individual order, taken a look upon what is the price level on components and spare parts, et cetera, call it the COGS then, and what do we anticipate for the coming month. And we have put prices in accordance to that then. And this we will eat through the year, and the majority of what we implemented this year will pin through the year that comes now. And then I think the really important thing, that is, at a certain time, call it – The raw material prices, the cost inflation will start to level out at the high level and then eventually start to go down. Then, I mean, we need to maintain the prices. But we are prepared for a, call it, a cost pressure during the year.

Understood. And then on the service side, 18% of sales. I realized last year you also had a bit of a, higher share of service sales in the fourth quarter, but it seems like growth has accelerated. Are there any particular dynamics here and do you think that we should continue to expect a higher pace of service growth or were there any kind of particular elements related to Q4 specifically?

First of all, I'm super happy that we see a growth in service from two perspectives. First of all, I mean, that generates recurring, more business stable revenue coming in. Second, it's also, as we talked about, linked to how we look upon sustainability. That is also to upgrade and prolong and help customers to increase their efficiencies of already installed products. what is good to see that some of the service growth actually comes from if you remember a couple of a year and a half ago we took the decision to walk out the commercials in North America but we said that we should stay with certain very very important customers I'm extremely happy to see that the customers we stayed with, which we said we should service them and sell spare parts, that is pinning through. And then what is interesting to see as well, that is now I look into the future. I'm coming back to the order that we took, got, were awarded from a very, very large company. integrator in regards to software as a service. Of course, that will not give an impact in food tech in the short run, but that creates also a platform for service. Not the old classical service, but a modern forward-looking type of service. Recurring revenue from software.

All right. Fully understood. My final question is just on the Edpack acquisition. If we take a step a few years back to, I realize this is partly before your time, Claes and Annette, but the rationale we received about the European data center market was in part the design factory, but also the customer dynamics, larger customers, larger orders that made it unattractive. So I'm just a bit curious to hear your thoughts about Do you think that the market dynamics have changed and that is why you are now going back into Europe? And also that Edpac seems to have lower margins than you. So do you have any plans on how to improve the profitability in that business?

It's a really good question. And without going too much back to the past, myself and Annette has always said that the strategic intent to drive and grow in data center was the correct one. It was more about how we executed it in Europe at the time. Edpack provides us with a very, very strong production footprint. They know our Aces products, they have produced it, they have complementing products, and they have a service, call it Salesforce as well. So with that, bringing in our products to them step by step, continue their growth journey and adding then our mutual capacity and competence, this will really drive growth. And of course, step by step, we will also drive up profitability in the same way as we have succeeded in North America, very successful. I mean, quarter by quarter or year by year, slowly but steadily also improve not only the top line, but also the bottom line. I'm confident that this is a great bridgehold, a base to start to grow in Europe. but it will not be i mean one quarter up and tremendous we do it in the correct way we take it serious and bring and bring on the growth quarter by quarter all right i'm sorry the quick follow-up then so so we we kind of market dynamics with us being more fragmented and europe having

fewer but larger customers, that hasn't really changed in terms of pricing discussions and everything like that.

You can say like this, The past strategy was actually that Manters focused on really, really large customers. And in my book, and that is my analysis, that was wrong. It was too large customers. What we have done in the current strategy, that is, we spread the customer base out and we work with that. And that customer base has always been in Europe. And it's growing. But Now we move towards that customer base that we have proven that we can grow substantially with in North America. So it's a shift of focus towards the customers that we would like to attract. And we believe that is our sweet spot.

All right. That's all for me. Thank you.

Our next question comes from the line of Max Lise of Kepler Chivro. Please go ahead.

Yeah, hi. A couple of questions again. First, I mean, coming back to Carl's question about service, maybe, but looking at the order mix now with a lot of growth in battery and data center, will it sort of increase the service mix going forward? Or is it sort of similar to the existing business? You could add some flavor there.

Mats, I think you are on a very, very important question here. And if you talk about the battery segment, I mean, the transformative shift that is happening now, started in Asia, continues in Europe, is moving on in Americas. Our clear target is to take technology share to be the partner to those battery makers that would like to succeed in the future. In the beginning, it's very much about setting up the production facilities, etc. But of course, that will generate aftermarket. Of course, that will generate service. So here I think we have an opportunity to really grow service, not this year and not next year, but in the years to come. And the same goes for data centers. I mean, that is one of the reasons when Edpack has a service force and can work with that. But don't expect that the service will come immediately, but we're planting the seeds for future service revenues.

Yeah, our products last more than one year.

Okay, great. And then a couple of small ones. First, the financial map there, could you give some guidance for this year and also on CapEx?

Mats, could you repeat? Could you repeat? Because I couldn't really hear what you were saying.

Oh, sorry. Yeah, looking at the financial map, if you can give some guidance here for 2022.

I mean, obviously, we don't give any guidance. But what we have done is obviously that we have set up our financing instruments during 2021. So with that as a basis, that's what we work on. And then obviously, it depends also how we utilize the debts going forward. So not more really to add on that one. It's based on how we drive the business. And then when it comes to CapEx, as you've probably seen, Mats, we have then increased our income. investments in tangible assets during 2021. It's all part of, if you remember, when we got into the company back in 2019, one of the things that we saw was that it was an under-invested company from a product and innovation perspective. And that's the trajectory that we're on to build.

Yeah, and just to finish on that, the fourth quarter is sort of a good proxy for the coming quarters as well.

It depends a little bit on where the interest rates are going, obviously, and the utilization of the debt that we have. So it can't give you really any trajectory from that point of view.

What we can say, not about trajectories, et cetera, what has been sticking now into our way of working, that is how we work with operational working capital and how we work with that part. And I mean, that is for me the base for a successful capital, let's say, creating or strong company, that that base is there. And then, of course, I mean, We will allocate money to where we have the best return long term in both internal investments. It may also be acquisitions moving forward. But that's the game we are playing.

But a lot on the financial net mass also depends on where the interest rates are going, obviously. There's two parts of it. So I will leave that to our Ministry of Finance in the different countries to run that.

Okay. Thank you very much.

And there are no further telephone questions at this time. Please go ahead, speaker.

Yes, we have a question from the web, from Philbert Wessler. He has a question regarding capacity and capacity ramp in air tech, given the very large backlog. If you could give us an idea of capacity increase you're aiming to achieve over the next few years.

A really good question. The capacity, we're working with capacity in two ways. One obvious way that is that are the investments that we now are doing in Europe when it comes to primarily more capacity for battery production. And then a similar investment for the data center in North America. So that is... built to purpose, modern factories, really at the top of where it should be. And then in parallel to this, we are driving many, many different, call it, lean programs, upgrade programs, etc., that will also increase capacity. And Just perhaps as a glimpse of what we can achieve, that is, I've seen some really positive notes coming out from some of our lean programs where we In individual transfer lines, in individual factories, by putting it in place, we can increase the capacity with 10% up to 25% somewhere. So I think we have an opportunity in both ways. New built, modern way, and automation investments, but then also by improvements in the current footprint.

Thank you. And then we have another final question from the web, from Francesco Cavaglio. And that is if you could elaborate on the margin drop that we have seen in food tech in 2021.

If you look at the margin drop in future, part of it is obviously the mix where we have less Chinese volumes than earlier. And again, it's coming up from a strong 2020 as well. And then also we have the impact from the supply chain restraints that has increased. That has caused, I mean, obviously raw material prices versus then the price increase that we have elaborated on, which is a bit, which is not yet in phase. And we said we are working on that and that would probably work out during the first half of this year, as we also have spoken about. And then obviously also with, I mean, we have a strong controller mix also in 2020, which obviously from a margin point of view in 2021 did not happen to that extent. But the majority part is really related to the decline in China and then the supply chain restraints that we have seen throughout the year.

Okay. Thank you very much. With that, we end this webcast. And thank you for all of you who have viewed us and listened in. And we look forward to welcome you back when we present our first quarter for this year in April. Thank you. Goodbye. Thank you.