Munters Group AB

And welcome to the presentation of our Q3 report. I am Ann-Sofie Jönsson. I'm Head of Investor Relations and Risk Management here at Munters. And with me today, I have Claes Forsström and Annette Kumlin. We will run through the presentation and then we will open up for Q&A for those of you who are on the conference call. And for those of you who are viewing on the web, please feel free to post your questions throughout the whole presentations and we will take them during the Q&A session. So with that, I hand over to you, Claes.

Thank you, Ann-Sofie. And once again, good morning, everyone. Before I go into the presentation that will follow the normal pattern, so to speak, let me briefly summarize and give some reflection about the quarter that has passed. First of all, I do feel that the quarter shows that what we have done the last couple of years is starting to pay off. We have targeted the right growth segments, driven by trends of electrification and digitalization. We have, before the curve, started to invest to secure production capacity and drive efficiency while developing innovative products for the market. And all this, then, are resulting now in record high order intake. Just to mention the two largest ones, the cycle of 1.8 billion and in HCT battery systems for about 700 million. We have also generated a stable margin improvement over the last quarter and a profit improvement compared to last year, the same quarter, about 36%. All segments and regions except food tech in Europe and Asia are showing strong demand in the market. And with that said, we will continue to invest in creating further innovation, further efficiency, and handling a stretched supply chain environment. And with that, let me move into the presentation. As said, record order intake confirms our strong offering position, and I will not go through this in detail, but as you can see, we have continuously moved on with orders, and I think it's fair already now to mention that some of those orders are definitely to be delivered in 2023 and 2024. Moving over to the strong growth in the backlog, and now we have a book-to-bill of 2.4%. And as I said earlier, Airtek and DCT are showing strong growth. And then this is offset by a weaker market, especially in China's wine segment, and a flattening out and weaker market in Europe as well. And moving over to the EBITDA margin, a slight improvement on margins from last quarter, but a definite improvement from the year ago. The summer of the Q3 from an order intake, that is, America stands out in all three business areas. It is air tech, it is data center technology, and it's also food tech, both when it comes to food tech and digital and climate solutions. Then EMEA also generating a strong order intake of 25%. Airtech shown growth in the battery and the service segment. DCT, a stable demand from co-locators and the hyperscalers. And foodtech then in this case, a somewhat weaker market, of course, affected by the war in Ukraine. AIPAC then, Airtek, and they're both battery and clean technologies, a strong order intake. And as it has been a couple of quarters ago, China is weak as such. You have seen me show this slide many times, and I think the best way to summarize it is to say we are used to different uncertainties. I don't have to mention the economic uncertainties in general, the lingering COVID effect, the very, very depressive war that are taking place in Ukraine. But we're used to handling this. And I don't think we should dwell much more on that. It is about, we see some improvements in some of the areas, better deliveries when it comes to components. But in other areas, we still have ups and downs, etc. And I think our way of handling is that is we will continue to work with this and we will not call for an that is over until it's over. We are cautious, cautiously pessimistic in this area. And talking about that then, excellence in everything we do, I think it's so important to mention that we are continuing to invest in many different areas in order to make us an even better company for the future. you heard me talk about r d investments and i do believe that everyone is now starting to see the signs of that it's it's paying off like the cycle as an example we are moving ahead in sustainability both how we work internally but then also how we deliver products that are generating better energy savings and better animal health as an example Operating working capital, continuous work here as well. It is both how we control the flow, how we work with projects, how we work with inventory and commercials. As you have heard me say and you will hear Annette say, we are constantly working with how we go to market with pricing, etc., But even more important, we invest also in our production facilities. It is larger investments like the two new facilities that I've talked about. We have also started to invest heavily in another facility in North America, planning for that, an expansion in Amesbury. But it's also the daily work with the many small improvements, the lean programs, et cetera. So at the end, excellence in everything we do, day out and day in. Coming back a little bit to the market then, and air tech, it is very much green signals everywhere. I don't see any slowdown as such in the coming six months ahead. It is the industrial that is very strong. It is component that continues to be strong. It is clean technologies that is starting to move up. Yes, it is commercial, but as you know, here we concentrate very much on the aftermarket. And services is also progressing in a good way. The large projects, the electrification. We have sent out press releases about the large customer order in the car manufacturing in the US, 65 million. The deliveries, and I think this is important, will start mid-2023 and carry on all the way to 2024. Moro, a smaller one, below 100 million Swedish krona, but it's a clear sign that we are also making progress in Europe when it comes to battery sector. And then, of course, the aftermarket replacements, the service. I'm really pleased what we are doing within Airtek at current and without talking too much about the future, but it is very much so that most battery makers are talking to us every day. So I expect that we will continue to do good progress in this area in the coming quarters. Data center technologies, the newly started or dedicated market business area. Nothing really has changed more than that we continue to make good strides when it comes to order intake. We are winning customers. I feel that we are taking market share with the Cycool products as such. At the same time, it is so important that we are building up production capacity, that we have secured the contracts in a good way when it comes to pricing clauses, etc., And talking about this then, and most probably we will come in a little bit more into this in the Q&A, but just to repeat it, when it comes to the order intake in data center technologies, a little bit of those large orders in the backlog will be delivered during the end of this year. A large part of this will be delivered during 2023, and another large part will be delivered during 2024 as such then. Food tech and market in transformation. I think it's fair to say that in our company, the ones that are fighting the hardest at current, that is food tech. What is really pleasing to see that is that our digital solutions, our offer that we have brought to the market is generating customer attractiveness, but it's also generating improvements when it comes to sales. So here we have a strong market with us. It is also good to see that we and the market in greenhouse are making steps forward. But then when it comes to China, when it comes to Europe, it is a tough market. And as you can see, for the coming six months, we expect it to be continued tough. Great to see that we're making progress and the market is with us in North America and that we will continue to fight for. also important in the transformation of food tech. That is, you have heard me say that digitalization and software as a service and how we connect farms and so on, that is the future. And here we have made two. interesting investments, and that is strategic investments and collaborations with a company called Barn Tools and a company called Pharmacy. And it is about wireless IoT solutions towards the chicken industry, and it's about artificial intelligence towards the swine industry. I'm super excited about this, and this shows that we are building a network where we collaborate in a very, very good way. Innovation is not only inside a company, it's also how you work and how you collaborate. Climate change. Our main purpose is, as you know, customer success and a healthy planet. And of course, that is about what we deliver to our customers. But it's also how we operate. And for me, it is very, very pleasing that we're moving the renewable electricity content forward step by step. We're up to 66% now, and I expect us moving this step by step forward as well. The recycling rate is up at plus 50%, but also very, very encouraging that you see that the energy efficiency at current, i.e. how much energy do we consume per produced product, is improving. And that is just to mention a few of those areas where we are doing a lot of progression. And perhaps I should mention a last one, and that is the ISO certification, i.e. to make us a better company for the future. We are step by step ISO certifying all our production facilities. With that very, very fast run through, I hand over to you, Annette.

Thank you very much. And let's look at the financial highlights for this quarter. So if we look at sales growth, it has actually come true. So you can see that the order take is trickling through. We had a 22% growth in the quarter. In year-to-date, we're looking at 21%. If you look at the margin, 11.1% now in the quarter, and we have 10.4% year-to-date. And here is to remember that... that when Klaas and I joined, we actually said we're going to take part of the performance that we're improving to actually make sure that company is scalable. So if you look at it today, we basically have now, year to date, half a margin point that we're actually putting in to making the company scalable. Leverage, yes, it has increased during the quarter, but this is owing to, for the most part, actually the new factories that we have set up in Virginia, but also in Houdini. Actually, if you look at the underlying performance, we have an improvement in leverage from that point of view. So taking then looking at the group, yes, record order intake in the quarter. And again, it's the batteries. It's actually also the DCT, obviously, which is driving it. And also we're having food tech for U.S. that is also having a good performance. But I think the most important thing is that it's not only these big orders that are actually coming through. It's also the underlying business that are growing. Order backlog, yes, very, very big, because as you know, also with the DCT orders, they are coming through over a long period of time. Net sales, again, it's DCT Americas. You've got battery. You've got also the components in air tech. You've got services. And we've also got the U.S. and EMEA in food tech that are driving it, whereas when it comes to China for food tech, it's offsetting part of the growth. Services now is 14% of net sales for the group, and also when we're talking about price increases, as we have said, it is coming true, and we can see that there's a bigger impact on the price increases in the P&L than what we have seen before. Adjusted EBITDA, well, when you look at the margins for the different BAs that we're going to soon look into, you can see that DCT, they do have a mixed change, but also a lot of work when it comes to making sure that the supply chain works correctly. We do have lower volumes in food tech, which is taking it down, particularly in China, that's continuing. And then also we have the continued material and freight costs that are increasing, that are offsetting, obviously, the price impact that we see. So going then into what the margin looks like and the changes we have seen. As I said, if you look at the quarter last year, same period, we had 11.6. We're down to 11.1 now. What we can see is that the volume is still coming through. Net pricing, if you remember last quarter, we more or less were neutral when it comes to the net pricing. We're actually positive now. Supply chain and investments and operational challenges are still weighing down the margin a bit. But what is important also is that those two units where we had operational difficulties, the progress on the activities are coming through as well, which is important for us now. And then obviously when it comes to the business of regional mix, we did have some negative impact for the weaker market in FUTEC, but also from the businesses in DCT. If we look then at air tech, I mean, very strong growth in the transformative segments. And you can say it's continuing the way you have seen before. It is the batteries, particularly in the Americas, and it's also the services that are coming through. Net sales, yes, order intake is coming through. We are delivering. And here again, we're talking about the batteries, the service and the components. And for air tech now, actually services is 23% of net sales. So you can see it has increasing year on year. Price, well, we're looking at about 5% of Airtek net sales in Q3 that we have a price positive impact. And again, we can see now also that for Airtek, we're net price positive. When it comes to the EBITDA margin, again, the volumes continue to have a good push when it comes to the results. But obviously, when you look at the price increases, although we are net positive, the EBITDA margin is still weighed down a bit by the... by the lead times and managing the supply chain activities. Again, one of the units here in Airtek did have some issues when it came to operational challenges. It's being addressed as we speak, and actually we're seeing progress coming out of it as well. So addressing the data center, our newest BA that we broke out last quarter. And as you can see, again, order intake is very good, as we have talked about. We will have had some good orders coming through, both that we communicated earlier in the quarter. We talk about 240 million dollars, basically. And also you can see now that the sales are coming through. What's important to understand, again, as we have spoken about a lot of times earlier, it is a project business. So actually, the business mix can change. And this is what has weighed down the margin a bit. But what's important also here is that we're starting to see some of the price increases coming through, but it's not yet net positive effect impacted. And also, this is the business area which is most impacted, actually, by handling of the supply chain challenges. There's a lot of work to make sure that we have the right components in place to be able to produce and deliver the products for our customers. If we look then at food tech, food tech have had a decline when it comes to the order intake. America's is still good, but when we're looking at China and also EMEA, we are seeing weaker order intake coming through. Whereas when you look at the United States, it's more or less flat. And here you can see that America grew, EMEA grew, but APAC is continuing to decline. When it comes to the price increases, this is the BA which has been most successful in implementing price increases. So the gross margins are quite good coming out of it, but FUTEC is way down by the volumes. And this is also the BA that was most affected by the impact from the Russian war, where we took out volumes. And also here, you could say that this is one of the business areas that also have one production unit that has met challenges. But again, we see progress in the actions that we have initiated. Coming then into operating working capital, yes, we did have a positive impact when it comes to the operating working capital. And as you remember, we have some really large orders, and this is part also actually of how you drive the businesses and how you sign the contracts. So there are some advances that are coming through now. Leverage, as I said, increased slightly compared to last quarter, but again, it's about the changes in the business that are coming true, where the biggest thing is really that we have two new factories on leases, and this is what's impacted. Otherwise, if you look at the underlying performance of the companies, it's actually had a positive effect on the leverage. As Claes said, we're working a lot to make sure then that we build a scalable company. It's all about commercial excellence. And you have heard us talk about the prices and how we work to go to market. And it's coming true. But it's a work that takes some time to do. There's still some work that needs to be done in order for us to become truly best in class when it comes to this. Digitalization. We're a bit asymmetric. We have a very, very high level of digitalization in our food tech area. When it comes to the other areas, we're working on it, looking into the customer offerings. And then also, obviously, we're working into, from a user experience perspective, making sure that we have a digital DNA inside of us. But that takes time to carry through, and we're in the middle of it, actually. Innovation, again, it's all about processes, but it's also about trying to look at new things on how to do it. Or actually, those two investments that were made in Barnters and Pharmacy plays a role. And there are also other initiatives that we're doing to look into kind of like jumping the curve to make sure that we drive innovation forward. Manufacturing excellence, again, it's all about lean, and that's also those type of processes that we're running through. And then last but not least is actually changes in the business and growing a business. It's us that do it, the people. So we make sure that we invest in them also. If we look then at our strategies or inorganic strategy to boost our overall growth, we have talked about this for some time now. Basically, we have four areas that we are working with to invest in to make sure that we drive the business forward. One is looking into investments in core and consolidation. And you can say that the investment we did or acquisition we did earlier this year in Edpac truly hits that mark. If you look at technology and digital, we have actually done some IP rights. It's not necessary that it becomes an acquisition activity. It could be just acquiring also an IP right or doing other type of alliances. We have also then, as Klaus pointed out, invested in some minority companies. Two of them were mentioned, Bond Tools and Pharmacy. And we also have another investment that we did earlier this year, which is really looking into... the jumping the curve activity and setting money in things that we feel can actually allow us to grow. Third one, services, string of pearls. Here it has been a little bit tougher for us, but actually what we have done here is we did some greenfield establishments earlier in Ireland and Norway. The reason for doing that, we thought that that was the smartest way to go to market rather than buying a company for these markets. And then obviously we will also look into new growth areas, but that's more to come later on. So with that, Claes, I would like to hand over to you.