Munters Group AB

Welcome to the presentation of our third quarter results. And with me here today, I have Claes Forsström, our CEO, and Katarina Fischer, our CFO. And I'm Ann-Sofie Jönsson, and I'm head of investor relations and group risk management here at Montes. We will run through the presentation, and after the presentation, we will have a Q&A session. And for those of you who are listening on the web, do feel free to place your questions throughout the whole presentations, and we will pick them up afterwards in the Q&A session. And then we will also open up for those of you who are listening in on the telephone conference. With that, I hand over to you, Claes.

Thank you Ann-Sofie and once again very much welcome to this Q3 report. Before I and Katarina go into the results and the details of the quarter, let me start a little bit broader. I'm very pleased that our investments in innovation have generated results. DCT a couple of years ago were a niche upcoming business area. Now I would label it a world leading offering within data center cooling with sustainable and long-term strong demands supporting the growth. I look upon ourselves as innovation leaders and in this quarter more than 120% order intake growth. Foodtech, the journey that started a couple of years ago, creating a new market with our software offering and digital solutions. We are creating a market here and the ARR was growing once again about 50% in the quarter. Airtek, our dehumidification systems, are leading with a strong service offer. But, I mean, two super good business areas in Airtek, a sluggish demand when it comes to the battery segment. I don't think that surprises anyone from the news. But with a long-term outlook remaining strong. A strong report, strong growth. Order intake plus 21%, net sales plus 6%, adjusted EBITDA above 16%, and a growth of 21%. And very pleasing to see operating working capital in the targeted area. We will continue to invest in our footprint, in our digitalization, and also in select M&As that generates an even better future. If I go back then more in detail, as I said, strong growth and profits with a continued weak battery outlook. The mega trends are definitely driving our order intake. Order intake, as I said, grew about 21%, 18% organic. In air tech, an organic decline coming from the battery. In DCT, a strong growth. Good level of small and mid-size orders in America. And I'm very positive when it comes to the coming quarters if it follows the normal order intake pattern. But here, you know, order comes and goes in data center. Food tech decreased mainly due to seasonal effects. All in all, the backlog increased with 7%. We also saw an increase in net sales, about 6%. Airtek organically declined with the batteries in APAC and Americas. DCT showed stable and sustainable growth, successful deliveries on the large orders. Foodtech, as I said earlier, grew strongly in both climate and digital solutions. And they booked the bill in this quarter at 0.8%. Continued strong profitability, now reaching an adjusted EBITDA of 16.2%. The drivers in this quarter are clearly DCT and food tech. Strong volumes, but also efficiency gains. Airtek, positive product mix and final deliveries on large orders. Also pleasing to see that all business areas showed effect in lean practices and operational efficiencies. And as I said earlier, lower production utilization due to lower net sales in some of our factories within Airtek. DCT in Americas is the main driver of growth. As you can see here, about 60% of both order intake and net sales is represented by Americas around in between one quarter to one third in EMEA and around 15% or slightly shy of 15% in APAC. I will not go through all those details, but it's the same story as I said earlier, also in the regions. Airtech negatively impacted from the battery and battery components. Positive in Americas when it comes to industrial segments and also the commercial segments. DCT, a strong star driving growth and profitability in Americas. And food tech, somewhat weaker demand in climate solutions i.e. predominantly in the equipment side, very much related to seasonal effects and timing. EMEA, Airtech's slight growth, primarily in the industrial segments. DCT, somewhat slower development in the region, very much driven by how customers are placing orders. And Foodtech, from a seasonal effect, somewhat weaker demand in climate solutions. AIPAC continued weak in the battery segments in China and Foodtech somewhat seasonal weaker effect in climate solutions. Drilling into Airtek, if I look upon the graphs on the right side here, you can see it is one segment that is down. It's the third quarter in a row that is pointing down and all other segments are positive or stable. Investments in lower volumes are affecting the margins. Of course, it is the fill rates of our factories. It is the investments for driving efficiency. All in all, I said that I'm happy when we have a adjusted EBITDA of 13%. This was this quarter on the borderline. But I think that Airtek is doing good compared to where it used to be a couple of years ago. I think this graph shows two clear patterns. The first pattern is the blue and down. That is all segments except batteries. All segments except batteries. I look upon this graph and I say that it's stable to slightly increasing. And when it comes to batteries, I mean all of the large orders that took place a couple of years ago are now out of the system. And depending on how the development is in different markets, it is substantially weaker than battery outlook. CT, stable development. Other industrials, a solid, good development. Commercials, the supermarket side in North America, but also the acquisition of Zico is making strong progress here. Components, a little bit two-folded. We are slowing down in the battery and we are, during the year, improved when it comes to the evaporative pads to the data center market. and service a solid development. Battery I also here see a two-sided coin. The long-term outlook remains valid. Electrification will take place. At the same time, I think we all have heard what is happening now in the transition of EVs around the globe. And we are anticipating for 2025 challenging conditions to remain. All in all, it is an overcapacity in the Chinese market. It is under pressure. There are overall fewer projects globally, particularly in China and US. In Europe, I see still, it is work ongoing with several larger projects, but they are pushed forward, but smaller projects are coming in. There are new entrances, new players coming in in the market and some of them have offered their help to battery factories and very, very seldom they have been able to live up to their promises. For me, that represents a positive future, i.e. some of the newcomers in here will most probably be weeded out in the future. Moving away from battery then, all the other segments here represented in Airtek by a super efficient cooling solutions for food storage in supermarkets. By using both a cooling pad solution and the normal cooling solution, a lot of energy savings can be generated. And also the vegetables actually are becoming fresher with humidity on top of that. Here it's a sign of proof where our solution can also help support existing solutions moving forward. Data center continued to deliver. Here I see several years of continued strong underlying growth. We have talked about CAGR in the marketplace in between 10 to 11, 12%. We have a very, very up-to-date innovation offer in the marketplace. We generated good level of small and mid-size order in the market. If I should go back to what normally the seasonal pattern is, then the end of this year and beginning of next year, we normally are also getting larger orders. But here you know, sometimes the larger orders are coming one quarter and sometimes another quarter. But I'm quite positive moving forward for the coming quarters. The order backlog increased. Data center are truly delivering on profitability. It's good fill rates. It's good efficiency. It is good cost control and overall a stellar performance. As I said, the volume, but also the lean practices, the positive product mix, continued good price effects. But then, of course, we continue to invest for future growth. So hampered to some extent by the investments in our new production site in Europe. But all in all, a solid performance. When it comes to larger orders and now we have also started to introduce orders that we have not published on press releases. The order pattern and the order deliveries is like this. So you can see we have a healthy backlog leaning into 2025 and on top of that also the recently closed Eoclima acquisition. Sometimes I get a question about service in the data center. We have moved up our service content currently from around 2% to now being at about 5%. We see more and more retrofit projects coming from co-location customers. It is mainly related to evaporative pre-cooling for air-cooled chillers, i.e. our wet pads. And if I include our wet pad sales, then also into data center. From a transactional point of view, we handle it through AirTech. I could add 45% on top of what we present as service within data center. So gradually, we are increasing the service level here. Moving over to our other top performer in the quarter, Foodtech. I talked about the weaker seasonal effect and timing effects. That is normal. Very often the last quarter and the first quarter are weaker. This year we saw a little bit earlier a decline from seasonal effects. The order backlog decreased to some extent, but as you can see, the majority of the segments are green. A couple of years ago, the majority of those segments were red. We continue to see strong margin increases from all regions, lean practices, volumes, software, synergies within the controller community by bringing in new companies and then generating synergies together with the already existing controller companies. A very, very good progress all in all. And talk about new companies. Hotraco, that we recently signed with. An annual turnover of about 41 million euros. Headquartered in the Netherlands, one of the food tech hubs in Europe. Employees about 140. This generates a much stronger footprint in Europe. 45,000 controllers installed globally. That will generate data that we then can bring into our ecosystem. It's an acquisition that is 100% in line with our M&A agenda to grow the digital and the software part of food tech. And it's expected to be completed during the last quarter of this year. Our conclusion remains, we will divest the non-intelligent equipment business. At current, it represents 13% of Manters group sales. It is making strong progress in profitability, but strategically, it is still a clear view that it do not belong within Manters. Also, I said it a couple of times, the continued growth of food tech software. 52%. I said that first we will double this and then we will double it again. Now we are on about 300 million in ARR with healthy profitability supporting that. With that, I hand over to you, Katarina.

Thank you, Claes. And as Claes has already mentioned a couple of times, we had two business areas delivering really strong results in the quarter. So that was data center technologies and also food tech. In air tech, we saw a weaker development due to the market situation in battery. I have now been with Mantus for about a year and I'm really impressed by the whole organization and how we always not only live our values but also strive to deliver and ensure the highest quality of service and also the levels in the customer service. But at the same time, the organization is also very quick to adapt to change and also to drive change. So I think that is very positive to see. And also during the year, we have seen fantastic progress being made in the implementation of our lean initiatives and also the manufacturing footprint and also how we work with innovation and we have delivered really strong growth and increased profitability. So looking at the quarter here we saw the net sales increase and this was mainly driven then by data center where we continued with the successful deliveries on the large orders and then we also saw this really strong growth in food tech both in climate solutions and digital solutions, and we saw the annual recurring revenue increase over 50% in the quarter. So that success story continues, as Claes alluded to. The adjusted EBITDA margin improved and this was also driven then by Data Center and Foodtech and they both had record margins in the quarter and they have both done a fantastic job in driving profitability improvements. Airtek saw a weaker development where we had a lower production utilization in all regions. Looking at cash flow, we saw that a little bit lower in the quarter, and here we had a negative impact from operating working capital. So this was then driven by a consumption of advances, mainly in project completions in Airtek. Our operating working capital to net sales ratio was at 11.3%. So this is well within our range of the 13 to 10%. And here it's positive to see that all business areas continue to focus and really drive the operating working capital management improvements. Our net debt increased due to the acquisition and closing of that acquisition in the quarter for AEI. And we also included lease liability for the new factory in Ireland. But our net debt decreased, the leverage rate decreased to 1.9%. We reached a very impressive profitability margin then of 16.2% in the quarter. When I started a year ago, we had the 14.1%. I thought that was a really great margin, but apparently we can do even better. So it's a really impressive margin. And one factor driving this is of course the strong net sales growth in data center and food tech, also in combination with a high factory utilization. in several of the factories then in data center and food tech we also saw product mix contribute in airtech and data center and also net price increases across the business areas we continue to see strong contribution from operational excellence so that is also really positive to see and then i want to highlight that we continue to make strategic investments for scalability in the business and here some examples are investments in digital competences and system support. Looking at cash flow then and this was then a little bit lower in the quarter and affected by the change in customer advances where the project completions in Airtek reduced the customer advances. We have received no new large advances in the quarter. And then we also closed the acquisition of IE and also we had the second installment of the dividend payment in the quarter. Moving over to investments then, as we have stated in prior quarters, we saw now in this quarter the capital expenditure increase to 7.9%. And we will also see this continue in the coming quarters as we continue to work with our new site in Amesbury, the new large factory. there. We also make other investments of course in innovation and in IT and digital linked to our prioritized areas. And then I should also mention that the operating working capital has a slight uptick in the quarter then and that is due to the consumption of the advances mainly in tech. We have maintained a stable leverage ratio, so it's 1.9, and we closed the acquisition then and also paid the dividend. Do note also that during the third quarter, we announced the acquisition of Geoclima, the Italian company that the data center has bought, and that one will close in the fourth quarter. And also yesterday we announced the acquisition of Dutch Hot Rocco that we also expect to close in the quarter. Now I would like to turn to our sustainability KPIs. So we have set targets for scope one and two to be net zero by 2020. And this is the journey that we have been on for several years, of course, and we have made good progress, but we also have some way to go. And as you can see here, the renewable electricity in our factories is then 79% in the quarters, slightly down. This is due to the recent acquisition. So if we exclude that, the number is about 81%. We also work hard with our scope 3 emissions that we want to reduce and the use of our product is of course the largest emitting factor for us. So here it's very important for us to make sure we have as energy efficient products as possible and it's a top priority in our innovation and product development work. On the social side, we want to increase diversity and we know that that is a factor for stronger innovation and a factor for a more inclusive culture and also for employee engagement. And the target we have set here for ourselves is to then have by 2030, 30% of women in the workforce and also as leaders. And here we have numbers of 23 and 22% now in the quarter. And if you exclude recent acquisitions, those would improve to 25 and 23, respectively. Looking at the governance side then, we want to highlight the code of conduct. We work with the code of conduct for employees, suppliers, and then we are also developing a customer code of conduct. And in the quarter, we had 98% of our suppliers signing the supplier code of conduct. And here it's good to note that in every quarter we always have some suppliers in and some out. So there could be a timing effect to why we are not at 100%. So we could have a slight deviation in the quarters. Also on the sustainability note, I wanted to talk a little bit about the service ambition. And service is, of course, a very important factor in making sure that we improve the energy efficiency in our installed base, hence to reduce to use the scope three emissions and how we define service is the aftermarket service in all business areas and then we add the food tech software as a service revenue to that we also measure components of course and we have set an ambition for the group to have service and components together to be more than one third of the group's net sales And the number in the quarter was 23%. And then if you look at the last 12 months, it was 25%. I should mention that we have seen a slight impact on the component side due to the weakness in the Asia battery market. All in all, we are doing very good progress on service. So we're very happy to see that. And with that, I would like to hand it back to you, Claes.