Munters Group AB

Welcome to Munte's presentation of the Q4 and full year results for 2022. I'm Ann-Sofie Jansson, Head of Investor Relations. And with me today, I have our CEO, Claes Fåsten, and our CFO, Annette Kumlin. We will run through the presentation, and for those of you who are on the web, do feel free to place your questions in the chat throughout the presentation. And for those of you who are on the conference call, after the presentation, we open up for a Q&A for you as well. With that, I hand over to you, Claes.

Thank you very much, Ann-Sofie, and once again, very, very much welcome and very good morning. Let me start with a few words about the year that has passed and the quarter in a summary. When I look on this quarter, I see a solid quarter with good growth, stable EBITDA and healthy cash flow. And all in all, a 2022 that has set records in many ways. We have created a strong platform for continued profitable growth that is set as per our strategy. We have leading market position in key segments with strong growth drivers. The large majority of our business is in profitable growth mode. Air tech, data center technology and food tech digital solutions. Food tech equipment or climate solutions is in a tough market situation where stability and selective growth is in focus. When it comes to supply chain challenges, they remain, but they are gradually easing up moving forward. So with that, over to the quarter and the full-year report. A quarter with organic growth and strong underlying demand. Order intake taking away the DC cancellation, generating a 20% effective adjusted growth. When it comes to the DC cancellation, a customer that is shifting out technology and we took that out. No other projects of this character in our backlog. Also very good to see that as you have large battery orders in the pipeline and we are progressing well in that area. Solid organic net cell growth, 30% up when it comes to organic, 20% up. AirTech and DCT showed strong continued growth. Of course, then, as you know, offset by FoodTech, where we had a weak market in APAC and EMEA. The order backlog, a healthy, stable backlog with the cancellation taking out of 145% on a year. Investments in digitization and automation. We continue to invest into our future. We have lower volumes in APAC and EMEA when it comes to food tech. We have generated price increases to offset the business in most of our areas. And at the end, I summarize it at a stable margin of 40 quarters. strong growth across all regions. I will not go through this in detail, but you can see we are growing in all different regions as such. And the only exception is, as I talked about earlier, that is food tech in EMEA and APEC, of course, affected by energy, the war in Ukraine and the situation in China. market challenges remain when it comes to supply chain but it's a slight improvements in quarter three and to summarize it i expect that it will be continued slight improvements moving forward and all in all we are used to this i mean this is normal run of the business nowadays i mean we can handle it and i'm very confident that we will be able to continue to handle it moving forward I mean for, I think it is the third quarter, all arrows are green. When it comes to industrial, driven by the battery, we see a continued strong demand for the future. When it comes to components, very much supported by battery, a continued strong, but also what is important to say here, also food processing, I mean shadow by the battery, is also having a strong underlying growth. And all in all, as I said, all green. And it's also promising to see that we continue to grow our service step by step. This is for me one of the most important acquisitions we've done during the last couple of years. And why is this so important? This is about our core technology. Here, with this, we can win in three different ways. This is about media. It is about rotors, i.e. the core of monitors, air tech. We can win in system sales. We can win even if we lose system sales by providing other players with our media and our authors. And we have a better capacity for aftermarket and replacements. We can win in three different ways. Service. We had the long-term ambition to reach 30% service sales, and we are progressing step by step. This year we ended up around 15%, but even more important, that is, if I go back a couple of years, we have grown in value about 50% in service. It is air tech that drives it, of course. We are then planting opportunities into the future when it comes to technology sharing battery orders to take more service moving forward. Data centers, we have a very low service level there, but also there we are building plans for the future. And then when it comes to food tech, of course, a different type of service, the modern service, software as a service. And I'm so happy to see that Software as a Service and the ARR are really growing fast, 44% up this quarter. Coming back to battery segment, I've said many times that we are the technology leader here. We continue to be that. I expect that we will maintain at least our 50% market share that we have in this arena. And without going into the future, I know that we are working actively with most of the players out there, and I'm very, very positive for this going forward. Data center technologies and underlying strong demand. And here I think it's one thing that is most important in this picture. We have focused on co-locations. That is part of our strategy. There we see a solid, strong growth. And actually we can see that hyperscalers are moving towards co-location and starting to use them more and more. You've seen in the report that we have canceled. We have a cancellation of a couple of orders representing 460 million ballpark value. This is a specific customer using older technology. And when we have had this cancellation, we have no other type of those projects in our portfolio. And as I said in one of the interviews this morning, it's always sad to lose an order. But if I could choose, this is the type of order I would like to lose because our future are really bright when it comes to the new technology. If I move ahead. I'm so pleased to see the good reception that Sykool has reached into the market among customers, but also into the industry. Sykool have now been awarded with several rewards, positioning Manters as one of the clear technology leaders, both when it comes to energy efficiency, when it comes to technology, but also very clearly when it comes to driving sustainability in this very, very important area. And I can also mention here, it is comforting to see that when we are doing the tests with SciCool at our customers, the performance is at predicted level or even better. And even if it's early and we're building up capacity, I'm very confident that we will hit our profitability targets or even above when we start to produce this more en masse. Foodtech, a little bit of a different story. Tougher markets. And I think here we have to look upon it in two ways. It is tough in the equipment or more climate solution part of it. And that is, of course, then food. Asia and EMEA. On the other side, in Americas, it is a good market moving forward. And in digital solutions, I mean, a market that we are creating, it is really a big and large demand and a lot of attractions to our solutions. Coming back here, I talked a little bit about this already, but it's dual setup, i.e. America stable, EMEA weak, and APEC weak. And this is not about monitors. This is about the market as such. But of course, we are battling this when it comes to the weaker equipment markets. So in climate solutions, we are doing price adjustments that are offsetting a large part or all of the volume decrease because this is a volume problem. We are adjusting the European business and reducing employees in Germany and Italy. And we are continuing to do adjustments in this arena in APEC as well. And we are moving together different production units. Then coming back to the promising future, strong progression and software as a service ARR of 44%. Here we will continue to invest moving forward and this is a market that we are creating. as a proof on this, not the largest order, but we are winning those type of orders into more and more of the larger integrators across the food chain process. And here we talk about an order that has a value of about 50 million Swedish krona that will start to commence in quarter two this year and will be completed in 2024. This is just the beginning. Step by step, we will grow into this. And you have heard me say a couple of times that long term, food tech is on a transformation. Food tech sales will be in the ballpark of 20% software sales a couple of years ahead. And this is one of the proofs on that. Our purpose for customer success in a healthy planet. I mean, that is about what we deliver to our customers. It is how we conduct our business and how we operate our facilities. And I just would like to highlight a few points here. Very rewarding to see that we are moving up in rating from a C to a B. Extremely good to see that our stiff target by 2030 to have 100% of our operations being driven on renewable electricity. We are already now at 72%. The recycling rate is continued high and in volume, of course, it has increased substantially due to the larger volume we have. And when it comes to energy efficiency, I mean, we are operating our business in a better and better way. So before I leave over to Anette, let me take a look upon what we are doing long and short term. If I start with the two areas that are really driving growth at current, Airtec and DCT, Airtec continued the progression on profitable growth. We have a good game plan. It is driving service, energy efficiency solutions, and capture the market. It is both growth and profitability improvements. In DCT, it is growth. profitability ramping up the production of course capturing a larger share of the market out there and expanding our leading offers into more customers and into more markets as we go but the only way is up in those two areas when it comes to food tech then it's a dual challenge it is a little bit more of a long-term challenge it is about continue to drive and creating the market when it comes to digital solutions But then, of course, it is stability and profitability when it comes to food tech climate solutions. In a nutshell, as long as we have two regions down and only one being positive, we have to work with stability and profitability and select growth. All in all, I'm extremely positive for the future coming forward, especially in the two top performing business areas as of today. With that, Annette, over to you.

Thank you very much, Klaas. So let's look at what's happened with the company so far on our journey to become a scalable, profitable and cash generating company. So looking at our top targets, we are riding on the megatrends of digitalization and sustainability. And you can really see that also in the growth that we had both for the quarter, but obviously also for the full year where we're north of 20%. And the interesting part is also obviously that when it comes to pricing, we can see that coming through in the sales and we can see that coming through in our margins. As you know, with our margins, they're still burdened by the activities that's been going on when it comes to the supply chain activities, the pricing on raw materials, but also the impacts of the Russian war. But more also is that what we have said already when we joined back in 2019, we said that we are going to take part of the margin that we generate to build a scalable company. So actually, if you look at the full year performance, about 0.7% is what we have taken from... from the margin or from the sales to actually to build up a scalable company. So you will be looking at 11% like for like basically. We have also changed the target from a leverage to operating working capital. It actually shows more of the growth journey that we're going to do, and it's very important to keep that under control. And as you've seen also in the quarter, we have had quite nice cash flow coming out of it. And yes, we are a growing company, and that means obviously that we put some money into operating working capital to manage the portfolio of orders that we have to deliver on. But we're well in line of the target of 13% to 10% that we're working on. So what does that mean from a more detailed perspective? Well, order intake 20% plus if we exclude then the cancellation of the DC order. And again, it's the same trends that we have seen before. It's the battery side. It's the service side when it comes to air tech. And we've got DCT obviously coming through now also on not only in the order intake, but also on the sales side. And then when it comes to food tech, also same story. America's... growing, particularly in the digital arena. But when it comes to EMEA and China, then obviously we still have some work around to do to get that into the right shape, as Klaas talked about also. Sales follows the trends of the order intake, obviously, so not much to say. Services is quite nice to see is that we're up to 15%. And for those who remember, I think we have actually added about 3% in a growing company actually to the service side, which is important. And when you look at the pricing, again, we're really happy to see that it's coming true. And if you look into the profit, then actually the net pricing effect, the customer pricing versus our input cost is actually becoming more and more positive. So as we have talked about earlier in the year, I mean, we had a negative net pricing balance, but it started to shift in Q3, and we can definitely see that now for Q4 coming into the right area. So when we look at EBITDA, you have those impacts coming in. And at the same time, also, as I said, we're building a scalable company. So we're moving money into digitalization and to the innovation side as we need to make sure that we build mountains for the future. And then when you look at the full year, again, it's been a strong order intake, good growth, and we're moving the company to become a very scalable one. So you have seen this also earlier for those of you who have followed us. And again, the important parts here is actually looking then at the net pricing effect, because it's better in Q4 than what we've seen in Q3. And obviously earlier in the year, it was on the negative side, but we're definitely on the plus side now. We still have the issues when it comes to the supply chain. It's becoming better, but there's some work to be done. And then when you look at investments, yes. We are doing a lot of work now to become scalable. And then when it comes to the business mix, it's more what you have seen from earlier side, also with APEC and EMEA tying down food tech a bit. And then we also got a negative mix in DCT for the quarter and also for the full year. So what happened then, particularly in air tech then? Well, growth of 30%. Again, if the battery is really strong, especially in the Americas, we got the two large orders that Klaas was talking about. And we're also moving the services. And that obviously creates a good leverage when you go down to the US. margin side where we actually reach 16 versus the 14 that we had last year so here you can see also it's not only the volume it's actually pricing coming into play also and making sure then that the issues that we had in one of our production units in the u.s is actually over the turf and actually on the good side so that's nice to have come through that also and again if you look at the full year very strong growth particularly when it comes to the to the batteries segment the services and also cleantech has had a nice development for the year DCT then, important here is to see, I mean, the growth, except for then the cancellation order, is still there. We've got pricing coming through, although this is the business area where we are not net price positive yet. Sales is coming through now on the back end of actually taking the orders, and we're starting to deliver out on some of the big orders that we've taken. Margin then, again, tied down a bit when it comes to the mix, and we also got the price net price which is still not on the right side of it but the important part here is to see that actually q4 we reached a seven percent margin higher than q3 higher than q2 so we are moving on in the right direction Looking then at food tech, it's a bit the same story as we've seen before. America's growing, particularly when it comes to the digital solution side, which we're very pleased with. And then also when it comes to the climate solutions, it's more or less flat in the Americas. When you look at the EMEA and China, those are the ones that are wearing down. I think it's important to understand here also that normally when we have seen food tech developing, we might have had one area which is down, and two areas performing in a good or a very good manner. Now we're in a situation where we have two of our regions that are not performing at its best, and that's actually also what you can see in the margin. But again, when you come back to then the digital solution side, we're very pleased with the growth, and you have seen the ARR that's coming through now into our sales side. The important part also is actually that the booked one, Those are the contracts which are booked, not yet delivered on. It's actually around, I think it's about $20 million. You can see that there is a growth pace coming through from the digital side that we are very pleased with. Cash flow, again, we've had a strong cash flow. We've had that basically since we got in in 2019. It's about making sure that we get our rows up, but also making sure then that we can move money into digitalization, innovation, and obviously making sure that we get the rows coming up. So that's been good, but again, we are growing, and that's part also why, if you look at the full year, there are some impacts on the cash flow, which is a bit negative then for the full year. Leverage basically were a bit better than the Q3, but again, we made an acquisition in Q4, so that took it down a bit. But the improved earnings and also the operating working capital effect actually balanced, offset basically the acquisition we did. And if you look at the full year, the 2.2 to 2.9, well, we've actually done two acquisitions, at least that has taken us up with an 0.6 on the leverage side. We're also making sure that we're trying to be capital efficient when it comes to moving into new operational centers where we go more for the lease side rather than actually investing money in it. But then also, again, we have had a positive impact on the operating earnings on the leverage side, which is nice to see. So, as I said, at the end of the day, we are trying to make sure that Montes becomes scalable. So there are a lot of things that's ongoing in the company, all from commercial excellence. And you have seen the work and what we have done with the pricing activities. It's digitalization to make sure that the ecosystem internally becomes more efficient at the same time as we're looking into digital solutions and applications for our customers. Bigger business areas like air tech. I mean, as we know, we have a very digital solutions activity in food tech, but it's about making sure that the whole company goes digital and also utilizes then what we can do in the customer offerings. Innovation, also putting more money in there. There are a lot of activities going on at the moment. Manufacturing excellence, and you have seen also, it's not only... optimization optimization footprint it's also making sure then that we move into new factory we actually address the lean activity so per square meter use today we have better output than what we had before and then obviously last but not least because somebody needs to do all the work is actually investing in our people where we have leadership programs to really make sure that we drive the strategy into to the wall um if you remember has followed us we have made two major strategic implementation blocks one which was air tech back in 2020 and then we when we presented a new strategy for food tech we did that in 2021 we're actually coming to the end of the first program the air tech program where we have had some delays because of covid and part of that was actually because we're looking into optimization of our footprint for air tech in China, which we actually now in January have been able to conclude. So we are actually consolidating our manufacturing into one of our areas. So by end of next quarter, we should be done with it. Whereas when we look at food tech, we're still ongoing and we're looking to various things to make sure that we drive the operational efficiencies in a better way and also looking at our digital solutions to drive that faster. So basically all in all, Airtek, we are almost at completion and Foodtech is ongoing. And you also know that when it comes to our M&A strategy, we're still working on our four core areas, which is then the core consolidation. We're looking into technical digital service and we're looking into new growth areas. And we have done a lot of acquisitions actually this year. both in the form of the core, where we can look at EDPAC and the latest one that we did in SEMPR, but also in the digital arena and more also into minority financial investments that we're trying to look into how we can jump the curve, where we have done two in digital arena. We have actually done one also into the more core of our humidification and dehumidification equipment, and that is actually in Quantum, which is a heat pump manufacturer. So we're working on it and there is a big pipeline, which is actually in a good health equality. So we are also then hopefully being able to close the Brazilian acquisitions that we have done here in 2022 to close that in 2023. We're waiting for antitrust approval, which we will hope come within not too far distance of the future. So all in all, moving on that also, because at the end of the day, when it comes to growth, it's both what we can do on our own, but also actually what we can do faster by actually acquiring also. So with that, Claes, I would like to hand over for a summary.