Munters Group AB

And welcome to the presentation of our Q2 results. I'm Anne-Sofie Jönsson, and I'm responsible for investor relations. And with me today, I have our CEO, Claes Forsten. We will run through the presentation, and after that, we will have a Q&A session. For those of you who are viewing on the web, do feel free to place your questions throughout the whole presentation at any time, and we pick them up afterwards in the Q&A. And we will also open up for those of you who are viewing on the conference call for questions after the presentation. So with that, I hand over to you, Claes.

Thank you, Ann-Sofie, and once again, very, very welcome to this quarter two call then. Before I kick off the presentation, let me start with a brief overview and a summary of the quarter as I see it. A quarter that continued our step-by-step strategic journey and delivering significantly improved results. I am very pleased with all three business areas during this quarter. Airtech continued to show strong progression. I can just say simply great job done. Data center technology delivered strongly on set and communicated plans. Very good. Foodtech delivered a clear step forward. And I have to say very encouraging and well done by everyone in foodtech. We have positioned ourselves to long-term strong growth segments and we have built during the quarter an even stronger backlog. Our continued focus is to deliver profitable growth in the targeted segments and thereby also continue to sharpen our product portfolio moving forward. As I said, strong result and progress on the strategic journey. Solid progression in order intake, strong net sales growth, continued margin improvements. And if I drill down a little bit in order intake then, 7% up with an underlying solid demand in data center and air tech. Data Center took a larger order from a U.S.-based co-location company of about $88 million. I will come back to that a little bit later. And Foodtech, positive and good growth in U.S. The order backlog compared to a year ago increased 48%. It's driven by mainly large orders in data center and air tech, and those to be delivered all the way throughout 2025. Drilling down a little bit on the strong net sales growth, 35% up, organic growth of 27. Here, the growth was mainly driven by data center technology and the battery subsegment in air tech. Food tech showed a flat growth, but it was driven then positively by America. And it booked a bill of 1-0 this quarter. Very encouraging, the EBITDA margin increased to 13.5%, and it's a margin improvement in all the different business areas, all three. It is driven by net sales increase in Airtec and DCT, and it's efficiency improvements across all different BAs. And as announced, we have also concluded that we have initiated a strategic review of the equipment offering in food tech. And I will come back a little bit more to that later on as well. So, America's strong growth in the quarter. And here you can see that we moved up to about 61% of the order intake. If we split in between the regions, it's represented by America's. Airtech, good growth in the components and the sub-segment battery. Data center, co-location market continues to grow. And I think rightly said by our team, we have position also very well towards them. And food tech also generating both in... in the data side and in the climate solution side. Sorry, we should write this out more. But all in all, food tech is also doing good in America. EMEA, AirTech, primarily growth by service in the sub-segment pharma. DCT, yes, it is not that large. It's still just a couple of percentage of our total DCT package, but we have good activity and I have high hopes for the future in Europe. And food tech, no change in the market. Still a tough market, but showing some growth in greenhouse and dairy. APAC, air tech growth, mainly in the subsegments food and pharma, and food tech continued weak market there, i.e. no change. But all in all, a solid to good quarter. Drilling down a little bit deeper then, and I start on the right side here. As you can see, the majority of the arrows for the coming quarters are pointing upwards. Industrials as a whole, upwards. Battery continued to grow. And if I talk about battery as such, I mean, there are, to our knowledge, around 40 projects built. boiling in North America for the coming a year and a half to two years to be concluded on and in Europe around 20 projects then. What is encouraging also to see that is our drive towards service and components are continuing paying off and our acquirement of Hygromedia has also generated good growth. The backlog increased, or the backlog, with 29%. Coming over, Airtek to net sales. Not to drill too deep in, but battery generated good growth. Food here, food processing, a flat development. And then components, continuous growth. Service then, the organic growth was 5%. Image of good growth. and flat on the other regions. But here we need to remind ourselves that, first of all, in those areas, we are meeting very, very high comparables. And adjusted EBITDA margin. Significant increase driven by net sales, efficiency improvements, and net price increases. Our earlier announced net prices are now paying off. And we landed the EBITDA on 16.6%. Also important during the quarter, we have now concluded a couple of new acquisitions. Two components, a Swedish manufacturer representing around 80 million Swedish krona. The important thing here is that it supports our component sales. And Siften, a French service company, not the largest, around 3 million euros, but it's driving the service growth moving forward step by step. Moving over to data center then. Order intake increased with 14% and order backlog compared to one year ago increased with close to 80%. The majority of the orders, the backlog increased for 24 and 25 moving forward. And as you know, I mean, we have since a couple of years refocused our sales efforts mainly towards co-location companies. And the reason for that is two-pronged. First of all, we expect that co-location companies will grow faster than the market in general. And secondly, we have also come to the conclusion that they appreciate energy efficiency and new offers to the market even more than hyperscalers. Let me say that hyperscalers is to some extent more old-fashioned in what they would like to go for. When it comes to hyperscalers, also an interesting observation is that they are starting to use co-location companies even more. So hyperscalers are also fueling co-location companies' growth moving forward. And I think you will have heard about and seen about artificial intelligence and the need of processing data. And of course, that is generating a strong growth pattern moving forward. All in all, I continue to have a very, very high and positive outlook for the market when it comes to data center technology for the coming quarters. And what has been the drop through then to the bottom line? We were a little bit above 15%. I'm very pleased to see that development. You have heard me say that several times I expect or I would be disappointed if we didn't reach 14% run rate at the end of this year. Of course, this quarter has not made me change that outlook, so to speak. Net sales, impressive 190% increase. A lot of high activities in all the different areas and a nice drop through on the EBITDA margin. Moving forward then, I mean, we will continue to increase capex spendings. As we grow, we will continue also to grow our capabilities into the marketplace. And I said it last time, and I just wanted to remind you, during the second half of this year, we expect to move in with Cycool and other products in Europe. And then, hopefully then, during the second half or beginning of next year, we can also start to gear up some orders from Europe. But here, I think it needs to take some time before we have sold it into the marketplace. A few words about the large order that we received. And I think it's not more than fair to say, compared to a couple of years ago, when a large order was equal to a large project, now a large order consists of many different deliveries. In this case, then, it will be deployed to more than 10 customers, data center customer facilities across U.S. It will be delivered during... end of 2024 to the end of 2025. And it has been chosen due to the fact that this is energy efficient, it is scalable, and it's a future-approved cooling technology. You have also heard me sometimes say that the base business should be around 250 to 600 million Swedish krona on a quarterly basis. And I will use this order as an example. I mean, in this case. this customer decided that they wanted to put this order in all those different projects into one order. But, I mean, another customer could choose to say, we put out 10 plus different orders during a quarter. So my judgment on this order, that is, it is something that could either have supported our base business or it could have supported our larger order intake, so to speak. All in all, the purpose with us to win orders for the future, that is to fill up and gradually ramp up our production capacity for the years to come. And here the people in and our team in data center technology have done a very, very good job. Moving over to food tech then. Increased demand, mainly in Americas. And here I have to say, I'm super pleased with what food tech have been able to deliver. You know, they have been very much climbing upwards, especially in Europe and in Asia. They have worked with cost, they have worked with pricing, etc. And now it has started to pay off. but also very, very good, that is that we see a continued strong underlying demand in Americas, both from the digital side and the climate or equipment side, so to speak. Or the backlog actually increased during the quarter with 5% here. And as you can see, no changes in the outlook. Perhaps a little bit more green compared to earlier, but when it comes to swine, and that is predominantly towards Asia, no change. It will still be a tough market there. And in my book... Europe and Asia will remain very weak for the coming quarters i.e. no change. It's a healthy, positive margin contribution. Even though the net sales declined with 3%, it has really been a good drop through, and it was close to 10% EBITDA during the quarter. Also very encouraging, that is to see that the software as a service and the ARR continue to grow substantially, now up to 48% growth during the quarter. Many different reasons for the healthy margin improvement. It's pricing, commercial excellence. It is, generally speaking, improved profitability in the digital side. And then, of course, actions to mitigate the negative effects from the lower net sales in EMEA and APEC, i.e. operational efficiency. Super happy also to give two examples of what we are doing in food tech. First of all, we closed the acquisition of Innobram, a controller company based in Brazil. Representing our share represents, I mean, we acquired 60%. Our share represents a little bit more than 100 million Swedish krona. I think 113 to be more precise. It really supports the food tax strategy to grow in the digital side. And we will become the true market leader also in South America. And we can use it as a platform also into other markets. On the climate solution side, the equipment side, Mantis Lavamatic, a very energy efficient product that will clean out ammonia and other hazardous type of exposures in a form. It is optimized to control the indoor climate significantly and reduce the emissions up to 90%. Those small, very important orders comes and goes all the time in food tech. Very nice to see. A couple of quarters ago, I started to use this picture to give a little bit of my view and our view on how do we see the progression in the different business areas. And now we have updated it and you can see the more shaded parts there. That's the old picture a quarter ago and then how it has moved moving forward. And if I start with data center. an impressive climb up. The focus was really about delivering profitability and maintaining growth. Step up, and now I think it's fair to say the focus is to maintain or be on about this profitability, about a 14%, and then gear up for continued growth, but continue the good job that is done, basically. Going to Airtek, I mean our cornerstone, the business area that has delivered quarter over quarter. In my book now, it has established itself to be a business area that is delivering an EBITDA quarter by quarter in between the high 13% up to the 17%. a nice development compared to a couple of years ago and how is the future here gear up a little bit and the order intake and continue to work with operational efficiency and the way we bring products to the market then interesting to see that is food tech digital solutions moved up definitely both when it comes to growth and profitability and the only way forward here that is growth will fuel profitability and we will continue to invest and as you can see not a short-term forecast but as you can see long term i mean food tech digital solutions will be a profitability well above air tech and data center technology And food tech and climate solutions, or if I scale it into equipment, a step upwards when it comes to profitability. And we need to continue to work with that. And that's the reason why we have announced that we will have a strategic review of the equipment solutions product portfolio in food tech. And what do we mean with that? I mean... It represents, first of all, around 16% of Manters net sales 2022. It consists of several different products. In my view, this is not a drama. This is a logical approach that we have done several times before in Manters. We take a look upon what we deliver, what we offer, how we can make that more profitable. If we should keep it, evolve it, and improve it, or maybe at the end we should also come to the conclusion that perhaps another owner will use it in a better way. So all in all, this is what we will continue to work with moving forward now. And I expect us to work with that the coming quarters. And as soon as we have come to a conclusion, I mean, then we will, of course, communicate how the future will look like there. Another side of Monters, fully integrated into our DNA and our strategy, that is our purpose for customer success in a healthy planet. It is sustainability in how we operate. It is sustainability in what we offer towards our customers. I'm super pleased to see that here we have made progress in several areas. And if I take scope one and two, Now we are up to more than 80% of our electricity used is renewable electricity. Another good measurement in my book that is energy efficiency in our factories. And as you can see, we are continuously improving less energy per produced item, quarter by quarter. And we keep the recycling rate at the high level. Even if we grow, we keep it above 50%. Health and safety, very important. We are moving down now to 1.5. I would say a sector-leading score when it comes to LTIs, TRI here. Our ambition is, of course, zero accidents moving forward. And diversity. I mean, here, it's good to see that we are moving on when it comes to the number of females that we have in our workforce. But with that said, I mean, we still need to improve our way of driving female leaders into our company. I mean, that's the only way forward to make a successful company, to work with diversity, to work with well-balanced management teams. I mean, this time I stand here without a CFO, so you have to bear with me when I present a few slides on this. But don't shy away from asking questions later on on all the different subjects. Next quarter, then Katarina will stand beside me here, and we will enjoy to have all the Q&As coming. So... From a group perspective, strong net sales growth, margin improvements. And at the end, we landed a margin of 13.5%. And what has been driving this then? You have heard me say it a couple of times, but it's a strong development in net sales in DCT and the battery sector in air tech. The service represented around 11.5% of the total net sales, but in real money, it increased during the quarter. And as I said a couple of times, we are now investing in future service. I buy winning battery projects, buy winning data center projects, and then we will start to harvest it later on. Good modern improvement in all business area. Cash flow, an area to continuously work with. It was a little bit weak during the quarter. It is very much driven by operating working capital that we anticipate to move out during the second half of the year, and it will improve. The net depth increased due driven to acquisition and dividend payouts. But with that said also, I mean, the leverage slightly decreased. So we are keeping in a good balance. Drilling down a little bit more on the margin improvements. If I take compared to quarter to 2022, volume and net pricing had delivered a significant effect here. And operational excellence in many different ways has also paved the way. Then when it comes to strategic investments, they are on the same type of level. I mean, they maintain high compared to the quarters. And all in all, then, I mean an improvement from the same period last year from 10.5 to 13.5. And then if I compare it to the last quarter, then... A little bit positive effect on volume, a little bit positive effect on net pricing, continued good work with operational excellence. I mean, you know, the famous Gnet, the continuous improvements that we do every day. And then we have had a regional mix also that has been a little bit more balanced this time than last quarter. And the strategic investments at the same level as before. Cash flow. If I simplify it, you can say like this. We have taken very large orders that consist of many deliveries that will be shipped out over several years. We produce them. We deliver them, and a little bit later we get paid for them. Sometimes we get paid after delivery 30 days after, and sometimes we get paid up to 60 days after, depending on the contract. And then, of course, when we take larger orders, if we can convince our customers to agree on that, We will also have prepayments on larger orders in the range of in between then 10 up to 20 percent on average of the order value. Then, of course, I mean, we have we have acquired companies and we have paid out dividends and all in all, it was not satisfying. But I think. sort of planned cash flow situation during quarter and i just repeat it we expect this especially the operating working capital to step by step change during the second half of this year so wrapping it up First of all, I see healthy progression towards our financial targets. Net sales growth continuously being above the 10% mark. This is what I expect us to be able to deliver moving forward. EBITDA margin, it was a very good quarter. Quite a few of the stars were aligned. We were moving up closer and closer to the EBITDA margin. I have always said we are not setting a specific date here, but moving forward, of course, we will work ourselves up towards that. What I think is important to just reflect on towards next quarter, that is this is now vacation period in Europe. We have been running our factories extremely hard. We will take a little bit of break in some of the factories, do maintenance, et cetera, et cetera. You know, the normal drill during a third quarter. So I'm not saying that you should not expect this margin next quarter, but it's the normal summer routine, you can say. And then I do believe that we, on a percentage level, keep operating working capital in good balance, but... Once again, reiterated, I mean, here we will work a lot with that moving forward, and especially in DCT. DCT did win gold in three of the four events, order intake, net sales, and margin. And now they are moving up during the coming quarters on medal podium, also on operating working capital. So summarize in some words, operational excellence initiatives really pays off. Strong improvements of profitability and the journey continues with acquisition and strategic reviews in order to create a very, very sharp product offer towards the market. With that, we open up for questions and welcome back, Ann-Sofie.

Thank you. Then we open up on the telephone the conference call for the first question.