Munters Group AB

Welcome to the presentation of our half-year report for this year. I'm Ann-Sofie Jönsson, Head of Investor Relations. With me here today, I have our CEO, Claes Forsström, and our CFO, Annette Kumlin. We will run through a presentation, and after that, we'll take a Q&A session. For those of you who are listening in on the web, do feel free to place your questions throughout the presentation and we'll pick them up afterwards. And we will of course open up for the conference call for questions afterwards as well. So with that, I would like to hand over to Claes to start the presentation.

Thank you, Ann-Sofie. And very, very much welcome to this quarter two report from Munters. Before I start the presentation, let me summarize the quarter in a few sentences. First of all, once again, I'm so confident that we are very well positioned towards transformative growing segments. Batteries, data centers and service drives growth moving forward. We have had mixed market wins in food tech, headwinds in China and Europe, and tailwinds in North America. Continued supply challenges, some operational challenges, but a gradual improved drop through of price across the board. All new projects taken are at a substantially higher price level. I'm very pleased that we can form a new business area, data center, a business area that is set to deliver on or above our midterm EBITDA targets for 2023 and beyond. With that, let me go in to the presentation as such. Strong growth in a quarter marked by continued challenges. Order intake increased by 51%, very much driven by data center technology in Americas, battery and service and air tech. All in all, an organic growth of some 33%. We have increased focus on managing lead times. The net sales grow 25% organically, also here driven by data center technologies and battery in Americas, as well as service. We were offset by a weaker market in China for food tech, and all in all, as I said, we landed on 25% organic growth. The backlog, a solid backlog with good order intake increased to 149%. The price increases compensates for inflation. We came in at 10.4 EBITDA margin. Our prices increased compensated, as I said, for inflation. It was offset by increased work to secure component shortages and increased cost as such. We had a change business mix in data center that Annette will talk briefly more about later on. We had lower volumes, as I said, in APAC and EMEA for food tech, and some operational challenges in the same unit in North America as earlier talked about, and also one of the units in food tech in EMEA. We have increased our strategic investments to capture market opportunities moving forward. A little bit more granular. It is Americas that is the main driver of growth. Americas grow 104% and represents 58% of the total order intake. All segments in air tech show good growth. Data center technology, very strong underlying growth, but also food tech, both digital solutions and the equipment-driven generated good growth. EMEA, 17% growth, some 24% of the total order intake. Good growth in battery and clean technologies. DCT, hyperscaler and colos did grow in the quarter. And here, food tech, then, an underlying market situation that weakened as a consequence of the war in Ukraine. And then APAC, that has been the growth driver over the last couple of years. This time, we're growing some 5%. Airtech's strong growth in battery and clean technologies, and foodtech, then, continued weak swine market in China. I think it's fair, as everyone knows, there have been intensified global challenges. And I don't have to dig deep into this to mention the war in Ukraine, the lingering COVID outbreaks in different parts of the world, especially in China, and overcapacity in the Chinese wine market. But also the inflationary pressure, rising input costs, a weakening market, in particular in food tech in EMEA, and the on and off lockdowns in China. Supply chain, yes, it has been impacted. But I have to say then, all in all, I mean, this we are used to handle. We have fantastic people then handing this day out and day in. And without them, the consequences could have been much more worsen. I think it's reasonable to be cautiously optimistic when it comes to some of the material costs moving forward. We see the lowering material costs in some of our base metals like copper and steel. On the other side, I think it's wise to be cautiously pessimistic when it comes to semiconductors and general freight situation. But all in all, I think we handle this very well. But moving over then to our underlying markets, air tech, a very, very strong demand in the battery segment then. I foresee a continued strong growth in the battery segments, and I'm so pleased to see how we now have started to push prices up to never seen levels before on taking orders. Also the good work in setting up a more easy to produce and a more easy to sell setup of battery components. But what is so impressive in Airtek then, in the underlying market, that is, it is green all over the place. The only area, and that is not the focus area for us, that is commercial, that is flat. So when it comes to Airtek, I'm very confident in how the market will develop moving forward. Especially when it comes to battery, it will be America's NMEA that will drive it moving forward. that it will most probably be a dampening battery market in Asia Pacific, the normal ways it goes up and then it starts to hoover down after a couple of years. I also want to mention, perhaps not the largest projects that we have won during the quarter, but a project that shows what we stand for. A couple of years ago, we sold equipment towards an airport in Belgium. Now we have upgraded that equipment with new fans and new methodologies. And we deliver lower energy consumption and only those upgrades reduces the CO2 emissions with 20 tons per year. This is just one setup. It gives and shows the opportunities that we have in many, many other places like this. Data-centered technologies, a new business area moving forward. Solid growth driven by innovation, driven by investing in the future. Yes, it was not the best of profitability levels this quarter, but I'm very confident, as I said, quarter by quarter, it will continue to improve thanks to the investments that we are doing and optimistic for the future when it comes to 2023. And why am I so optimistic? This is one of the reasons. We build new facilities, new ways of working, new ways of designing and driving innovation across the full value chain. The new production setup in North America that is geared up to become more optimized, that is geared up to really produce our cycle components for the future. Jumping over to a more depressed market, a market that is in transformation. As you know, climate solution, that is the equipment side that we have, and digital solution, that is the future focus for us. And it's a mixed picture here. Digital solution, making progress step by step in a very, very good way. A lot of positive customer feedbacks, a lot of interesting wins. Climate solutions very much affected by a tough end user market. All in all, as I said earlier, it is a positive market in North America, a continued weak market in China, and a contracted market in EMEA. But also here, we do drive new innovation. In this case, a new fan, the next generation, the second step in our new modularized fan platforms towards the industry. It's modular. It is sustainable, it is reliable, and it saves up to 60% of the electricity cost. A very, very important area now, moving forward, when the industry is so affected by the higher increased electricity levels. Climate change is our most important megatrend. As you saw, I show you two small examples of what we deliver to our customers and end users. And that is, of course, important to make them shine even better in this area for customer success and a healthy planet. But also when it comes to sustainability and that work, it is how we work internally. We drive trainings, we create awareness, We invest in our facilities. We update our scorecards when it comes to new products. And we open training facilities. All in all, we're working across the full setup of sustainability. With that, I would like to hand over to Anette and take us through the numbers.

Thank you very much, Claes. Then let's dive into the financial performance so far. So when we look at it, again, very good sales growth. It's 25% in the second quarter. And if you look at full year, around 20%. If you look at adjusted EBITDA margin, yeah. It is lower than last year, but again, what we are looking into very positively is actually that we're seeing a net price mitigation, whereas then obviously the issues that we have in some of the operational activities and business mix causes a downward trend. And if we look at the capital structure, the leverage, yes, it has increased. Part of it is obviously due to that we have done acquisitions, and part of it is actually due to the growth that we are facing at the moment. So, if we look then at our order intake, extremely strong. Again, we're talking about a 30% increase, more or less, where we're looking into batteries and also looking into the data centre side in America, particularly. We also have continuous strong service in air tech, which is very good to see. Order backlog, as you have seen now, has increased quite a bit, so we're up at 7.5 billion Swedish crowns. And if we look at the net sales, It trades obviously behind the order intake, so continued good sales increases, driven then again predominantly by the data center business and by the air tech business. Actually, when you look at services today, it's 14% of the group's turnover. And if you look at the past three years, it's actually increased one percentage point almost per year. If we look at the price increases, we have actually been able to then move our price increases, as Claes was talking about earlier on. So if you look at it today, about 9% of the... We have a price increase which is 9%, which you can see in the organic growth side. In adjusted EBITDA, yes, price increases have been made, and they are compensating now for the inflationary pressures that we have seen. However, when we look at certain activities like cost due to component shortages, which has continued, and also looking at the lower volumes that we see food tech in EMEA and APEC, and also the business mix that we have seen in data center, that have had a negative impact on our margin. If we look at what we're doing to make Mantra scalable, well, obviously, as we have spoken about over the past three years, is also that we want to invest to make sure that we can become a much bigger company. So we're investing in innovation, we're investing in the digital side, we're investing in the process side to make sure that we can scale up. And that's ongoing at the moment. If we look then at our margin, what has really impacted the margin and made it then be around 10.5% versus 14% last year? Obviously, volume has had a good impact on our margins. And that is driven basically, as we said, by the data center side and the air tech side. If we look at the net pricing, it's actually so that we can see now that our net pricing is balanced, which is good, because that means that the prices we have done is coming true. If we look at the issues that have impacted our sites negatively, then we have seen that the business mix has been negative. We can see that particularly in data center. It's caused both by the flow of the project business, where there were much more high margin business last year, And if you look at the mix this year, it's a bit lower. And also driven by actually that with the component shortages in D.C., we have had some delays in the high margin products, which then have had a downward weighing effect on the margin. Then also we have continued negative impact from food techs in EMEA and APAC. For APAC, it's China that's driving it, which has been continuously sluggish development. And for EMEA, it's actually part of it is impacted by the Russian war, actually. If we look at the supply chain, then again, the war in Ukraine has caused this, but it's also so that we can see that the energy and the freight costs are continuing to increase, and the component shortages also have a negative impact. So at the end of the day, when you look at it, we still have a negative impact from the macroeconomic or the geopolitical situation around us, but price increases are coming through, which is important. Investments is also something I talked about, the scalability. That's what we're working on. And then we also, as we have spoken about earlier on, we have some operational challenges still in one of our centres in the US, in Airtek. And then also with the changes that has happened in Europe, we also have one in Foodtech, which is causing a bit of a downturn pressure on the margin. So all in all, we're at 10.5 versus 14, but the positive news is that the price increases are coming true. Looking then at air tech, air tech obviously sees good growth in battery, but it's not only the battery side. It's also the food, the components, clean technology and services, as we talked about earlier on. And if we look at today from a net sales perspective, with the growth that we have seen there and what's coming true, we're talking about 40% organic growth. It's also so that services today... about 20% of the air tech business, which again, it's an increase year on year with the focus that we have had. For air tech then, when we talk about price increases, it's about 6% that we can see has come true during the second quarter this year. And again, when we look at the marginal impact then volume growth has a very positive effect we also get then the customer pricing now compensating for inflation or price pressure however when we look at securing components and manage lead times that do has a downturn effect on the margin as well as the operational activities in one of our us centers our new business area data center then As you have seen, we got a very big order in the first quarter, but the order intake has continued in the second quarter as well. So we're still talking about plus 300% organic growth. So it's quite high. And as you have seen also, some of them are very long orders that are coming in. And again, when we look at the margin side, we are positive when it comes to 2023 and beyond. Again, when you look at sales, obviously it's EMEA and Americas that are driving it. And we can see then that the price increase here is about 2% that are coming into the into the quarter. But again, this is more project business where we are managing prices in a different way than with the flow business. If we look at the margin, again, volume is positive. Here, we can really see the intensified activities to make sure that we have the components that are coming in. And that has cost a longer lease time. It's also cost a a higher cost to manage the situation. However, again, when we look at all the effort that's been done by the people in our organization, it is really making a difference to make sure that we come out on top at the end of the day. And then obviously, as I talked about, the change business mix, which is both a component of the component shortage per se, but also then just the flow business of being a project site. Coming into food tech, very much the same situation as you have seen earlier on, although a bit more amplified when it comes to the Russian war, where our EMEA business has been affected by it. When we look at the order intake, we are looking at the sluggish market, both for APAC and EMEA, whereas America has continued to grow, which is nice to see. and when we talk about net sales it's trailing the same way more or less as the order intake we have very good situation when it comes to americas with the broiler and layer segments whereas apac is declining and we can see also now in may and having a flat development price increases you can see that it's really making a difference we're approximate around 10 percent that are coming through through into the second quarter result If we look then at adjusted EBITDA, again, what we're talking about is that food tech is in the transformation towards a more digital environment. So when we look at that, it's very positive to see that the sales in the digital solutions in America is continuing to grow because that is kind of like the foundation for the future. If we look at investments, that is obviously something that's weighing down on the margins. And this is, again, in a transformatory stage that needs to happen. It's particularly directed towards the digital solution side. And then obviously, again, what we talked about, the war in Ukraine, it actually has impacted us negatively here in the EMEA and also caused some issues in one of our production facilities in EMEA. So with that, Moving then into what does it look like then from a pure cash situation? Well, when it comes to the cash flow, obviously, we've had a negative development, mainly because of actually that we are growing the business. So we need to prepare, obviously, for the orders to come. But obviously, that has always been amplified by that we're in a situation where it takes longer time to get the components coming in. So we need to make sure that we have the right safety stocks. That's basically the reason behind it. If we look at leverage, yes, it has increased since year end and also in the quarter, but it's mainly impacted actually by the acquisition we did earlier this year. And then also, obviously, the working capital causes an impact. And we also have FX, which has impacted us quite a bit in the quarter. So if we look at what are we doing then when it comes to our strategic development and actually our traction on our strategic journey? Well, part of us, as we said when we actually joined the Class of May, is that we're going to invest in digitalization. We're going to invest in innovation. We're also looking at lean, looking into manufacturing excellence and also making sure that we have the right people on board and develop our people. So you will see that and are seeing that actually impact in our margins. Short term, a bit negative, but this is going to build the company for the future. And one of the things that are coming in this year is obviously a new human resource system so that we can work a bit more efficiently on that side. On top of that, we're doing more efforts into innovation and also into the digitalization side. Our two strategic work streams that we implemented, the first one, which was more or less related to air tech back in 2020, is working according to plan. Yes, it was delayed initially in certain areas because of COVID, but we're moving on. And when it comes to the food tech, which was implemented then, or which was announced then in the spring of last year, that is also moving on as planned. And delivery when it comes to profit improvements is expected according to plan, but a bit later. So those are the two work streams where we're looking into resources and when we're looking into really changing the basics of the foundation of how we're working. The third stream that we're working on also is the inorganic strategies. And as we've spoken about earlier on is that when we look at the M&A agenda for the group, we basically have four buckets that we're working on. One looking into the core. And here's where particularly the Edpack acquisition really fitted in. And if you look at then technology and digital, which was the second one, actually what we are doing is that we are looking into making targeted and minor financial investments in areas where we can see that we can jump the curve. So, so far this year, we have done two of them. Also, what we're doing in this area is looking into acquisitions of intellectual property, also with the course of actually driving our innovation and jumping the curve a bit. The third one is services, string of pearls, and then also obviously looking into new growth areas. So I'm sure there will be more to come later on. And with that, Claes, I would like to hand over to you.