Very welcome to our Capital Markets Day. Sorry for the delay today. We started a little bit later. We had some technical issues. I'm Ann-Sofi Jönsson, Head of Investor Relations. We will run through the presentations. For those of you who are listening on the web, feel free to ask your questions throughout the whole session here in the chat. We take them afterwards. With that, I want to hand over to my colleague in IR, Line Dovärn.
Thank you. Here you see today's team that will be presenting or you should be seeing soon there. These are the people you will see on stage or on the screen if you're at in front of a computer. The agenda today is that we will first have presentations from our CEO and CFO followed by three presentations from our business area presidents. We will then have a wrap-up, and can we move slide? We will have open up for the Q&A. That's when you can all ask questions. If you're listening in you can use the chat to ask questions. With that I'd like to hand over to our first speaker today President and CEO of Munters Klas Forsström.
Thank you Line. Very very much welcome all of you in the audience and all of you out there then. What will we talk about today? It is about our position. It is about our competitiveness. It is about our customer focus. It's also about of course our targets and give deep dives into our business and into our operations. In a nutshell what it's all about that is what we have done until now and what we are aiming to do moving forward. You know I've talked about that we are very well positioned with a competitive offer for quite some time. Supporting us are the global megatrends climate change digitalization population growth stricter and more controlled production environment and systems. What type of customer needs are that driving? Of course it's about increased resource efficiency and high yields.
It is we as many other customers to us they have strong strict demanding sustainability targets and we will work day out and day in to help them achieve those. More granular it's about improved animal and human health. It is about machine and production environment safety. Then it is about life cycle. What do we offer? Unique application knowledge. If I have to highlight anything that is our unique application knowledge close to the customer. Then of course it's our offer. It is our strong global market presence giving an opportunity to serve our customer across the globe. Then more and more interesting moving forward it is about how we digitalize the value chain in food production. All this concludes that we are changing updating our financial targets. What it's all about?
It is about once again our position that we have started to build production capacity to take handle and increase demand. All that gives us the opportunity to raise our organic growth targets. It's also about profitability. I call it we sharpen the pen a little bit. I'm very confident that we step by step are not only able to reach 14% but also above 14%. Being a more stable company it's all about operational excellence. It's all about capital efficiency. We highlight the new financial target and that is about operating working capital and generating cash flow. We will steady step by step move from slightly above 13% and then moving down to closer to 10% as the year goes by. Munters we deliver business critical solutions to many different industrial segments.
If I start with FoodTech climate solutions for agriculture climate solutions for greenhouses. Once again also digital solutions for the full value chain. At the farms, the complete value chains for really really global players. Moving into data centers a multitude of solutions offering energy efficient and sustainable solutions for that industry. Coming into AirTech in several areas like battery production infrastructure bridges windmills we offer very competitive and customer supportive solutions. At the bottom just to highlight that continuously expanding service and component and off the market sales step by step. Those of you that have followed us the last couple of years you can see that we have made a shift a dual shift.
A shift from more evenly spread business areas and evenly spread geographical coverage to now moving over much more to North America with the demand being built up and less exposure to Asia and China in particular. It's also shift in between a tougher environment for FoodTech and a very good traction in especially data center and the battery sector within AirTech. To create a strong future I mean you have to have a stable history to stand on. I will not go through this once again. Those of you that have followed us you remember it was a three-step approach in the beginning. Creating stability generating profitability and then starting to grow. It was about aligning the strategy hidden in the strategy I mean our products in many places. I will come back to that.
Now the last few years we have moved into what I call the operational excellence cycle. It is about having those cogwheels running smoother and smoother. Do the small improvements step after step. Dare to take diligent decisions in order to what to focus on and what to not focus on. Moving forward you will hear more about that later on here. I'm a proud father of 4 kids. I've been blessed we are blessed with 5 grandkids. Sustainability is of course what we deliver. It is something that is very deep into Munters' heart. I mean how will we be able to attract the future generations and what will we be able to leave to them later on. This is not only for Munters it is also for next generations.
I can talk a lot about this but in Munters' strategy sustainability is built in all the different aspects. We are moving in the value chain from R&D moving over to production how do we source how do we handle energy efficiency all the way to how can we improve and help the customers deliver on their sustainability targets. What I'm so pleased about that is we set a couple of targets a few years ago saying that we should deliver on as an example electricity from renewable energy sources. We put a bold target that in our operations by 2030 we should be carbon dioxide neutral. Step by step we are moving in that direction. I'm very encouraged about that. Recycling rate we are improving we can improve even more. Code of conduct totally green and then perhaps also then what is important safety first.
If we cannot provide a safe environment for our people, I mean, how can we then become a very very competitive and strong delivering company? We have some areas where we need to improve. One is diversity, and here we are increasing the efforts step by step. You know, our formula of industrial success that is really to drive innovation, invest in that. Be close to the markets targeting the right markets to deliver to. Get feedback from the customers and sometimes deliver above the customer's expectation. Constantly drive this wheel, the engine of the small type of improvements every day. As the petrol, the energy, have a good organization and great people to deliver on that. I will over a couple of slides give you a few highlights of what we have done and pre-taste of what we are aiming to become.
You know we said we should target a certain set of priorities markets. We should start to build up our capabilities and what to achieve. I think we are well on track on that. We also said that we should start to create the foundation for M&A. M&A towards certain targeted areas and by doing that we first had to deleverage our company and generate embedded cash flow. Moving forward we always aim to be on the medal podium in select areas. It is very much about talking about data-driven products. Here, the front runner in our company that is FoodTech and I know that we have a friendly competition going on within our company that AirTech and Data Center are step by step trying to catch up. Service.
If I include software as a service and more mod old-fashioned or general service we have a firm target we are not saying when but gradually step by step we will move up to 30% our sales will be generated from service. I'm so happy to see that we have achieved in between 0.5%-1% units improvement year by year. We crafted out an M&A strategy that was about core services technology digital a shortcut innovation cycle and then finding opportunities for new growth areas. We have started delivering that I'm very pleased. One area that we can ignite a little bit more that is in the service arena but I'm very confident that that will start to come over the coming years as well. Customers. The most important part of a company you need to be customer-centric.
We have said we should work with customer value pricing strategies go-to-market models. If I simplify what we have accomplished, I think that we really have stretched ourselves when it comes to go-to-market models. You will hear a little bit more about that from the Business Areas, but to give you a few examples, I mean, we sell more components, we sell more spare parts, we drive service, we go that pricing. I think with a smile on my face, we have had the best training camp when it comes to this pricing capability is the last couple of years. We are catching up, and right now FoodTech, they have balanced it out, and I know for the coming years, beginning of next year, also DCT and AirTech will be ahead of that.
Instead of looking on it from a negative side, which I believe we were a little bit slow on the ball, we should look upon it and saying, I mean, we are learning each and every day. Coming back to customers, I have seen recently that we have highlighted a few good orders. At the end, we have taken those orders due to what customer appreciate from us. It is about the deep application knowledge. It is about the understanding of their business. Sometimes, you know, if you can understand the customer needs before they can articulate it themselves, then you're one step ahead. It is about our high-quality products and services. Here is just a couple of examples what we have achieved, and one example from each and every business area. I'm super excited that we are able to deliver that.
I would like once again to highlight we have in parallel with this built up our production capacity to handle this moving forward. Innovation. I mean I get more and more excited. Innovation is the core of a successful company. Of course we are taking good steps we have invested more in innovation you can see that some of our new latest sales is coming from brand new products. Just to highlight a few DSS Pro from AirTech SyCool Split from data centers and then of course Amino software setup from FoodTech and MTech Systems. We have also in parallel to that this reduced our SKUs. In my book this is just the beginning. I do believe that it's more to grab here. We are not setting out in the targets anymore we have already achieved 40% but it's more to gain here.
Follow that it's about modernization. Good examples of modernization already now some of the latest battery orders in North America very much standardized and modernized some of the data center orders very much standardized and built on modules. Super happy at the top here you can see really new innovation brought to the market never seen before. SyCool being one Amino being another. SyCool at current has generated close to SEK 3.5 billion in turnover in order intake. As I said earlier it's also upgrades and improvements and also at the bottom. When I came in people talked about the material the media the desiccant wheel that's a commodity. It's not. It is dedication that we lift that up step by step and I am convinced that we can improve this with 30% in the coming years in efficiency.
Excellence in everything we do. I mean I have been accused or been said that when I start to talk about this you know I start to move like a dance they call it the gnetdans in Swedish. I think this is so so important. Constantly always try to do a little bit better and then have the courage the guts to say no and to say yes. I will not talk into details about this it is no big news here we will just continue to do this day out and day in through MPS Munters Production System through lean programs to updates and upgrades and new builds of our factories becoming more and more regionalized so what we sell in one region we will also sell in the same region.
What we build in one region and produce in one region we will sell in the same region. I have the opportunity to show movie air a short movie clip. For me this sends two signals. First of all some evidence and proof points on what I talk about in excellence in everything we do. It also in my book sends a signal about the spirit, the DNA, and the culture that is within Munters and is starting to become even better. With that let's take a look upon the movie.
In today's fast-changing world our industry faces a lot of challenges such as a volatile supply chain, an increase in CO2 emissions, and labor shortage. Spikes in different commodities prices have gone up 40%-60%. We see a lot of cost increase in the labor cost today.
Things that you can easily source for a week or two has now been pushed into 2023.
At Munters we address these challenges with Munters Production System a customer-centric methodology that creates value by analyzing and increasing efficiency in every aspect of the supply chain by providing high-quality products and world-class operational excellence.
Came up with some great ideas we implemented those ideas become the condensing fans for the HCUc on the Walmart product line represents our layout on the sheet and the nesting we reduced our drop from 38% to 24% the significance or how far MPS can bring you because this involves everyone and the solution is how can we do things better lower costs and still deliver to the customer a product that they expect and that's what every MPS journey it should be about.
In the U.S. Rotor Factory one of the main priorities that we have is to improve the service level by improving the productivity and the output of our facility. Wider paper is very important to reduce CO2 emissions by reducing electricity consumption and increasing productivity by 25%. In the media block for our rotor production invested the new CNC cutting machines. We just come from the 73%-75% for the material utilization on each block. MPS can continue to support us in operation and help us find more opportunity to improve. We are now experiencing the wheel plant itself dramatically because now we can make commitments to our customers. As a result of Munters being able to reduce our lead times somewhere between 8-10 weeks it helps us get our product out earlier. Not only that it also helps us confirm commitments to our customers.
We're actually seeing a gain in market share from our competition. Change is only possible through collective effort. MPS will help us overcome these challenges and guarantee continuous value for our customers. It's important for the company to support MPS. Customers will see the difference that MPS can make when you're making their product.
I feel a lot of pride when I see this because this is about our people. We can talk a lot about people being the most valuable asset in a company but at Munters it's not just talk it is for real. In our setup we have a couple of values that we try to live after each and every day. It is sustainable value creation. It is passion for result. It's always a better way you can always improve a little bit. It's team spirit.
We deliver as a team, we win as a team, and we celebrate as a team. Here we have many many aspects moving forward. We have a great foundation to stand on and I think an even better way forward to handle this. If I try to summarize where we are moving forward, it is very much. We have a stable base to stand on, record orders until September, and we have announced a few more during this quarter that gives a very good platform. It gives me the comfort in saying we are rightly positioned. Customer would like to buy from us, and they see the benefit of working close to Munters. We are well positioned. We have a clear strategy step by step moving ahead, growing with increased value creation and deliver improved cash flow.
At the end, we are also committed to deliver energy efficient solutions to our customers so they can reach their sustainability targets even faster and more accurate. Thank you very much.
Thank you very much, Klas. I would like to welcome you up here. I have a question for you. If you look back at this year, we just heard a lot about things that have happened at Munters. Could you, if you would, just highlight some of the most important things that we have delivered and also maybe what you are less happy with if you look at the last year?
Would be my pleasure. I mean, if I summarize it, what am I really proud of that our people and our organization has delivered on, of course, at the top, we have to highlight the record order intake and the built up of manufacturing capacity.
What I think is really important, that is this in the midst of something that people will write books about, a pandemic, a supply chain crisis, a crazy war started in Europe, we have been able to drive strategic development and continuous operational excellence in parallel, and that is thanks to our people. I have to highlight as the third thing to be proud of, that is, we have many, many heroes within Munters, and some of them we don't talk so often about. That is all the people in tougher market environments such as in FoodTech that is hunting orders, trying to do the extra each and every day. It is our people in sourcing and production that do the extra, and that is something fantastic because without those people the sales guys can never shine.
On the other side I mean we can always do it better. I would have loved that we were a little bit quicker onto the pricing earlier than we are but now we have started to deliver. I would have loved to see that we would have been a little bit quicker into starting to acquire smaller service companies but I mean you know it's always possibilities to improve.
Thank you very much. With that I would like to welcome our next speaker up on stage our CFO Annette Kumlien. Welcome.
Thank you very much Ann-Sofi, it's great to be here again. It's been three and a half years since Klas and I joined. Well what did we see and how did we frame our concept?
Looking at Munters driving on the megatrends of digitalization, sustainability, it was quite clear that when we looked at it, we need to make sure that we created a scalable company. We needed to make sure that we worked with innovation. That underpinned by a very strong performance management culture. That might sound very theoretical and high flash fluffy. It's very simple. It's basically what you say you do. Whatever plans you're drawing up you need to make sure that they're actionable. You can break them down into activities. The other thing which Klas talked about as well is that well somebody's going to do those activities. That is not a company, that's people. We need to build on our people.
That's really what this one is talking about making sure then that we can find the right ways to drive the growth and we will talk about one part of that and you will hear also then Pia and Henrik and Stefan talking about it. We'll talk a bit about operational excellence. It's really the foundation to make a company scalable. The other one is capital efficiency because at the end of the day growth and profit doesn't make a company valuable to invest in. It's the cash side also so we can use them for investments. Building solid organic growth. Digitalization is both an enabler but it's also a customer offering.
When you looked at Munters it is quite asymmetric when it came to digitalization when we got into the company extremely advanced activities in the arena of FoodTech internally rather low level low culture of how to a maturity and how to handle digitalization and also in the other business areas low customer offers that were digitalized. What have we done during these three years? Well basically we laid out a foundation because obviously you need to make sure that you have the right platform to build upon. The advantages that we actually didn't have that high maturity when it came to digitalization is that all that digitalization has been going on for a long time we haven't really had so we can actually capture new ideas and build on it.
We do not need to take out old legacy that a lot of industrial companies need to do. That doesn't mean that it's fixed forever, it's actually something that you work on all the time, making sure that the organization is right, making sure that the security obviously follows with the advanced offerings that we will have and also making sure that we have the right technology.
On that, it's very we box it into a couple of ideas which is working into making sure that we have smart products, building up the digital twin, making sure that we have smart customer offerings, looking into for instance the servitization of the company and also looking at the user experience which is actually how we work internally and making sure that we have the right data legs so that we can capture ideas on how to build a foundation further on also and enhance the customer offering. That's really what it's about and that's what we're working in. Again asymmetric level but that is also the positives actually for Munters. Coupled with that is to make sure then the digital technology is not working here. Well-crafted M&A strategy.
What we did very early on when we got in was to look at, okay, if we're going to grow, it's not only organic growth. It's actually also making sure that we fill it in with new ideas coming from the outside and not only maybe the traditional M&As, also looking into jumping the curve, creating an innovation fund, and you will hear more about that a little bit later on. What we did, we boxed it into four activities: it's core, it's technology, it's service, and it's the new growth areas. Underpinning it with a strong M&A and integration process. There's quite a lot of work when you build up a pipeline. It takes about two years to get quality into it, and that's why you're seeing also that we're starting to realize on those.
Obviously also making sure that we have a strong integration process so that we really realize the values that we see in the acquisitions that we make. What have we done so far? Well we have done the traditional acquisitions like EDPAC which is in the DCT area capturing or building on the European growth. We have done also Hygromedia as you saw last week I think it was we announced it which means then that we're looking into the core actually of humidification. Then we have also done one in the control area which is InoBram which is more or less weighted pending antitrust authority approval. What we also did was as we said we wanted to create an innovation fund because actually we saw that we need to really jump the curve in order to actually take a leap from Munters.
What we have done is that we have done some smaller acquisitions which are quite far out in the technical arena paired with actually a couple of acquisitions in FoodTech which is related then to sensors, it's related to AI. This is again trying to find a way to move the bill forward when it comes to our offering towards the customer and being a little less traditional in how we do things. With that we are going to look at a film.
To stay ahead of competition and provide true value to our customers we seek to leverage all the talent and great ideas of the startup community by investing in startups with high growth and disruptive potential. I am pleased to announce that we have completed three investments to date of which I would like to touch upon two investments that we recently completed.
Starting off with Barn Tools which is a US-based wireless IoT and sensors providers to the pork and poultry industry. The company has embarked on an impressive growth journey and can play a critical role in FoodTech's digital journey. The second investment is FarmSee which is an Israeli-based precision farming provider with a AI-based computer vision solution. That company is very well positioned to digitalize the unpenetrated swine market. As leaders in precision farming and agriculture technology, MTech Systems and Munters are always looking for cutting-edge technology to partner with. Five years ago we made the commitment to lead the IoT journey in the food industry. I'm excited to talk about our two new partnerships. With Barn Tools we now have a wireless solution for our customers, we can collect data like feed consumption and water consumption.
This information feeds into our systems and by leveraging machine learning we can optimize the life cycle. The FarmSee partnership complements our technology portfolio. It forecasts the weight of the animal using optical technologies. This solution provides accurate and actionable data per animal to the grower. Our goal is to take this to other animals. With this partnership we opened the doors for new co-development of new sensors. I am thrilled with these new partnerships and I'm already looking forward to implementing and integrating it with our products. These investments mark the beginning of a new journey. We seek to build a portfolio of investments in promising startups that will enable us to deliver on our long-term strategic agenda in particular within digitalization, sustainability, and technology.
Quite exciting times.
Building a scalable company doesn't come for free actually. We have said that from the beginning when we got in we are going to take part of the margin to make sure that we build a scalable company that can handle capture the growth that we saw in the future. We're looking into commercial excellence. We're looking into digitalization as you have heard. We're also putting money into innovation looking into manufacturing excellence how we drive our factories which Klas showed a movie on and also investing in our people. So far when you look at this year we're taking about half a percent of the margin and pull that into making the company scalable.
That is something that we will continue to do because it's about capturing the growth and making sure that we can continue in a good manner going forward. Part of that is going to put it into our value chain and optimize that. What does that really mean? Well we're going to make sure that we connect the whole value chain in the company through our and look through the processes to make sure that they're totally integrated making sure that we drive the systems around it so they match it making sure that we create information flows and information lakes that can be used for further advancement of our servitization activities and also the portfolio for our customers and our own way of working.
That means obviously that master data management needs to be quite a lot improved to handle it and then also the governance around it because as you can understand if you don't know how to move it around you can also create it could also cost a lot of money. At the end of the day when you look at these type of activities it is to drive the digitalization even further because then you look at if you have looked into the Gartner AI curve if you really want to get up to the highest level which is prescriptive AI you've got to have your own data that you can manage around use the customer data look at your own data to see can you do further enhancements and this is really the goal to do it.
At the end of the day we will be able then to work smarter less time in the processes improve our quality which is also important and make sure that we have economies of scale. It's all about creating that scalable company that we want to address around. As you saw also when we started was that we started to talk about making sure that we could generate cash because we had quite high leverage when we got in back in 2019. What we did do we really focused on our basic operating working capital to see how do we drive the customers how do we drive the suppliers and how do we drive ourselves to make sure that we optimize the chain. We were quite successful and we drove it down leverage to around 2 or just below 2.
Obviously when you look at the company going forward that we're in today we have a very good growth as you are seeing you see the order intake coming in and that obviously takes a bit of money actually to build that whole system going forward and then also taking part of the cash to do M&A. That's also when you look at actually the financial targets that we are having we actually decided to say that okay we'll take leverage out it's more important for us to make sure that operating working capital is visible and moved because this is where we can make sure that we have the efficiency in the company.
When you look at our financial targets as you have heard already, I mean obviously we have a very strong growth, so the earlier target was a bit soft, we raised it to 10%. If you look at adjusted EBITDA margin, we do believe that we will be able to reach above 14%, it is a journey, and you have also seen where we are today, but you also know what we're working on when it comes to efficiency side and how we're working with the customers.
At the end of the day when you look at operating working capital our aim is to get somewhere between 13%-10%. We are today on average 13%, although a bit on the high level if you look individually in the quarter, but this is where we're steering towards and there are more things that we can do to drive it down to 10% that we're working on. When you look at the future ambitions anything new really? No we're still talking about the same thing because we need to make sure that we need to drive organic growth we need to make sure that we then pair that with good focused investment that enhance our portfolio.
We need to make sure that we drive our profit in the right way so that we can secure the scalability around it and that's a lot of the scalability targets that we're working on. Need to make sure that we drive home the cash because at the end of the day a sale is no sale until you got the cash home. Making sure that the performance management culture stays strong and intact because at the end of the day it's us that are delivering it and if we don't know how to do it well how are we going to be able to drive it into the wall. That's basically what we have and then underpinned by the digital journey to sort of create that scale that we can work from. With that.
Thank you Annette.
We end.
Thank you very much. You're welcome.
Please come on up here. Munters has performed several acquisitions and financial investments during the year as you mentioned. Why do you see that these companies are a strategic fit and how will they contribute and add value to Munters going forward?
As I said I mean we quite early targeted what four areas we thought we should do acquisitions in. If you look at EDPAC as I said and also Hygromedia they're all about the core in a way. Well one is more from creating a geographical platform if you look at EDPAC moving into Europe and making sure then that we can scale that up. If you look at Hygromedia it's working from the core from a humidification perspective. Yes they will add sales they will add profit around it. One of them is doing it bolt-on that's Hygromedia. EDPAC will take a little bit longer as we're aiming to actually move in part of our product portfolio that we have today in the U.S. to actually be able to produce those and sell those in Europe as well.
If you look at for instance FarmSee and BarnTools, yes, they're financial minority investments, but they will drive the concept on how we run a business, and not all M&As that we're going to do is going to be fully owned. It's also about partnership at the end of the day, and it's also about the learning curve on how we do things and enhance our own packages.
Very interesting. Thank you.
Welcome.
With that, we will welcome up on stage President of Business Area AirTech Henrik Teiwik.
Hello everyone. Good afternoon. Let me tell you a bit more about AirTech then. I hope it's working. There you go. As a business area we are roughly 2,500 great employees. We have a strong management team 14 production facilities around the globe 22 sales and service offices and we today represent as Klas was mentioning roughly two-thirds of Munters Group's net sales as of today. I believe that we have a very exciting profile. We are a resilient business. I think that we proved that during the pandemic where we both have protected our top line and our margins. We are also well diversified into a number of different industrial verticals. We have a sizable service business today representing somewhat 20% of our net sales which is both a resilient business and also an important profit contributor to the business area.
Geographically we're also present in the three continents in a relatively well balanced way as well. Oops. This is a slide that I'm personally very proud of and also get a lot of energy from every morning when I go to work because I truly believe that we are supporting our customers to become more sustainable. Both directly with our equipment for example in the pharmaceuticals industry or in the food processing plants but also indirectly in how we're supporting battery manufacturers in the world's transition to electrification. Of course also our service business is both prolonging the lifetime of our equipment and with retrofits and other upgrades we're also able to improve the efficiency of our products over time.
We are also expanding into new sustainable niches such for example as the windmill industry and also more relevant nowadays into CO2 capturing initiatives that I will talk about a little bit later. Munters AirTech has a long legacy and we have systematically over time developed our product offering. We are proud to say that we are present in the full value chain everything from components to services. In components we're both developing and manufacturing media for our dehumidifiers and humidifiers. We're using them in our own equipment but also sell them to other OEMs. We're manufacturing and developing everything from small portable products to large configured-to-order solutions or systems used more in large applications like in the food processing industry and also in the battery segment.
We have a well-defined service business supporting the lifetime of our equipment everything from installation to servicing and maintaining the equipment throughout the lifetime and also offering different type of upgrades or retrofits in the during and in the end of the lifetime of the equipment. I also believe that we have a strong value proposition to our customers. We are in many ways the pioneer in this industry and if you look at our equipment it is in many cases the reference in terms of product performance product quality and also energy efficiency. If you take this and also link it with our strong service offering that is global but we have a strongly local presence and also add the application and system knowledge that we have within many of our verticals I think we are uniquely positioned in the market compared to our competition.
AirTech is on a journey building on the strategy that was defined somewhat two years ago when we decided to prioritize a set of segments like battery food processing and pharmaceuticals and when we also decided to actively exit some segments like the commercial segment that we have been investing in for a number of years in the past. We also at that time decided to invest more into innovation and into R&D more into capacity and more into the organization. I think now in 2022 we see many evidence that this has been a fruitful direction for us and this is also something that we want to build on going forward.
One important milestone in 2022 has also been the acquisition of Hygromedia and Rotor Source, a component supplier in the U.S., and this enables us Munters and AirTech to immediately get more capacity on the component side while simultaneously also we're able to fulfill Rotor Source and Hygromedia's growth ambitions going forward. Officially again, I would also like to welcome Hygromedia and Rotor Source to the Munters family. We have defined our strategic direction into three pillars: strengthening our core, expanding our core, and developing new core. Strengthening our core is really about continuing to do what we do today but better. It is to continue to focus on our prioritized industrial verticals and segments: battery, food processing, and also services.
It's also to accelerate our sustainability journey. Klas talked a little bit about it in the beginning and I'll come back to that. Sustainability will really be at the heart of what we do going forward together with our operational excellence agenda. This coupled also with continuing to optimize our geographic footprint both commercially where we still have a few white spots also market segments that we believe we can grow further into but also continue to optimize our operational footprint. Expanding the core is very much about continuing to develop our customer offering both in digital services but also continue the investments into innovation to drive more energy efficiency, higher performance and also more user friendliness or increase you can say the user experience in our products.
One important element here as well is to continue to harmonize our product portfolio and to take the next step in modularizing our product platforms so we both can lower the lead time and also benefit from the global operations that we have today. We also need to take next steps and ensure that we also are investing in other or new legs to also fuel growth. We have identified a set of segments which we believe in some are more established like humidification for industrial applications where we already today have some offerings but we need to build up the commercial and the product side of this business both organically and in the future via M&A.
The other part is as I mentioned earlier carbon capture where we already today know that we have a number of technologies that can support this type of application and I will show you a little bit later how we're intend to doing this. Let us go into some of the details and explain a little bit more on how this journey looks like. It's of course hard or difficult to talk about AirTech and not mentioning the battery segment. You have seen also the recent orders we have captured in 2022 and earlier and if you look at the forecast of global capacity expected to be built in battery manufacturing it's safe to say that we're still in the early phase of this transition.
We of course understand also that this growth will attract more competition. This is why we can't sit back and be relaxed but also need to continue to develop ourselves to also stay relevant tomorrow and protect and strengthen our leading position that we have obtained today. We do this both by investing more in our organization. We're having what we call a center of excellence in our organization that we will further develop in order to share experiences across our different markets but also over time become more proactive and advising our customers on optimal solutions because many customers that are entering in this space are relatively inexperienced.
It is also about redefining and continuously developing our product offering. Our DSS Pro that was also exhibited here in the hallway and that was launched last year is a good example of this where we have taken a previous model made it more modular and also been able to increase the energy efficiency by up to 30%. It is also about of course to match capacity with this growing demand. When we look at the battery segment there is of course a lot of dynamics going on here and we don't know exactly today how it will all play out but we are also more and more investigating how we can further expand in the battery value chain. Of course the more equipment that we supply into this segment the more opportunities we have also in the future to capture a substantial after-sales or service business.
When the battery segment is also maturing, we also have expectations that this will also generate businesses like battery recycling or other type of adjacencies where our equipment can be relevant for. Third, when we also look at new technologies into battery production and the use of raw material, we see that many of the more promising technologies actually need same or even higher degree of drying room capacity as we see in the lithium battery production today. With this growth, and don't forget that we also have growth ambitions in our other segments, we of course need to match this with also capacity. We will do this in primarily two ways: invest in more capacity in our own current production sites like we have done in Tobo in the north of Sweden this year and also in Fort Myers in the U.S. last year.
We also have entered or launched a number of greenfield projects we opened proudly our new factory in Hodonín in Czech Republic early this year and we recently announced that we will build a new greenfield establishment in Amesbury, U.S., to replace our current factory and we have a similar project going on in China. Of course we both do this to add more capacity but also this will be a facilitator to help us in our sustainability journey to make our operations more climate neutral. I also talked a little bit about innovation and that we over time now will continue and increase our spend in R&D and innovation. Klas also mentioned that earlier that innovation is part of the heart of Munters and we strongly believe that with the pilots we have ongoing we can deliver superior customer value in the next years to come.
We will do this in four prioritized areas: material science, modeling and simulation, digitalization, and what we call Design for X. It all, if you drill down to the point, it's actually about driving more customer value and improving our offering over time, both to improve the energy efficiency in our products, the performance and accuracy in our products, and also improving the user experience. Design for X is our new platform to also take the next step in modularization, because when we are harmonizing and when we are creating more common platforms, we are also much faster in terms of configuring our products and also shortened lead time, which is a key requirement for our customers. As I mentioned, we also want to expand into new segments.
CO2 is a very interesting segment in this space especially coming out from COP27 where we all understand there is need for much more action now in the world to get to a net zero environment and CO2 capturing and that type of technology will be a key lever in achieving this. I will now share a video on how in one of the projects we have started to work with this we have much more to do but hopefully a bit of inspiration in how we're working in this application.
Hi everyone, my name is Jing and I'm head of Clean Technologies. In Clean Technologies, we're passionate about helping our customers in their green transition. Our purpose is to deliver clean air to the world and we do so in deep collaboration with our customers and within the company. I'm now happy to share a case in which we worked together with MAN in installing our equipment for the world's first carbon capture site in a cement plant. This project showcased both great collaboration and also the future that we believe in.
This carbon capture plant is the first of its kind in this application and at this industrial size we not only had to look at the normal operating conditions but also figure out together with our client what are the offset conditions possible offset scenarios in order to validate our design make sure that we can provide the process warranties needed under all circumstances and also that the equipment downstream is protected.
Our customer MAN was responsible for the vital part of compressing and liquefying CO2 after the capturing process. This process is needed to transport it by ships and then to store it permanently in offshore reservoirs. We delivered all internals and 7 pressure vessels as a part of the infrastructure for the compressor stations. In a first of its kind project many technical risks are involved. To address these MAN asked for several design points much more than in other cases where the function has to be given. With our huge expertise and excellent products we can assure that droplets bigger than 8 microns can be separated higher than 99% for all design points. MAN trusts Munters Clean Technologies to solve this task based on our proven knowledge in thousands of references around the world.
Due to the particular requirements of this project, we had to have extensive discussions not only with the client but also between our internal departments: quality managers, research and development, process application engineering, and also purchasing. We had to come up with ideas to bring a solid proposal for the client.
With this carbon capture business case I believe it's a perfect case example of how Munters and also AirTech can support the world in transition to sustainability. For us it's also a big stepping stone in how we can support our customers on this journey.
I hope I shared a little bit on our journey ahead. If you can summarize our AirTech future ambitions I think it can be best summarized in our updated mission statement to be the undisputed leader in humidity climate and air quality control for mission critical applications and to provide the best in class sustainable solutions across our customers value chain. We will do this by improving our engagement with our customers introducing more digital solutions move towards net zero to match our customers ambitions and with this growth also set a continuous improvement culture with people's collaboration at our heart. Thank you.
Thank you very much Jing. Very interesting. I have a question here and I wonder if you could describe what the most important actions are from your point of view in the coming year that you need to do to secure the growth journey that you're on?
Yeah, it's a good question. We need both to ensure that when we are experiencing this growth in battery that we still don't neglect the other segments where we also have both growth ambitions and a strong market position in today. Number 2 is of course that we need to secure our capacity projects that we are now doing both in the U.S. and in China and in other parts of the world and also that we continue to invest in innovation but also convert those into actual offerings to our customers. I think we have a bright future ahead of us.
Will be exciting.
Thank you.
With that I would like to introduce our next speaker, our President for the business area FoodTech, Pia Brantgärde Linder . Welcome.
Thank you very very much Ann-Sofi. Now it's time for FoodTech. I think we all know that the food industry is under a huge transformation. If we in the industry continue to produce food in the same way that we have done for the last 30 years we know that the scarce resources as water and land will not last for long. Still we have a growing population that needs to be fed. We need to do this in a sustainable way and we are here to serve our customers and to help them with that transition. What do we then do in the climate side of the business with a better climate we can actually help our customers to reduce the feed that they need to produce food.
With a better climate inside a farm there is also possibility with energy efficient equipment to reduce the energy consumption in the farms. On the digital side of the business we all know that there is a lot of important data to be captured we are today serving the whole value chain with MTech Systems. With all that data you can give better insights to our customers so that they can take better decisions and improve traceability all through and by that give food safety to consumers. We also have another important area and that is animal welfare we know that animals with better climate are able both to reduce antibiotics but we also know that with the better welfare inside which we can track with sensors and IoT solutions we can also provide better lower mortality and get them to live for longer.
We reduce waste during the transportation by predicting outcome from farms in real time. I am proud to stand here when I see all of this that we do for our customers and we help them to be better and us to have a better society. Right now we are under a tough situation on the market. The climate solution I think you've all seen this before I mean we are under a lot of crisis at the moment. We have historical high feed prices we have Ukraine war a very tragic war in Europe which is impacting this situation and China was a very strong market two years ago and now we see slowdown in that. We have two regions down both EMEA and China and we have a strong America that continues.
On the digital side of the business there is still a very good strong trend that we are capturing on. If we look at FoodTech where are we now we have roughly 800 people we are having 7 production and software development locations all around the world we have 15 sales offices. We are present in all regions at the moment America is our strongest region. We are serving the different segments within climate solution where broiler is clearly the largest but also you could see how the digital solution has been growing during this year up to. If we look at our profitability development this is clearly so that we are significantly impacted by lower volume from China and from Europe at the moment. At the same time we invest a lot into the digital side of the business.
We have a leading offering to our customers. We have both climate solution as well as the digital solution. What do we then offer to our customers? We do climate optimization inside the farms. We do even farm optimization. What do we mean with that? It's also so that we are able to give them water consumption. We don't supply the equipment, but we supply the farm optimization. On the software side we are able to help them with a complete food value chain and to optimize that. Here are a few examples of what we offer. We have fans. We have our Trio controllers, maybe you had the opportunity to look. We have the Amino software and I will come back to that a little bit later.
On the software side of the business the digital side of the business we go directly to our food producers all around the world. We call them integrators. This is a word you may be known from before. On the climate side of the business which is both controllers as well as the equipment we are having growers and farmers as our end customers and we serve our dealers and OEM. A year ago we launched the vertical strategy our new strategy and clear strategic direction towards that view. We want to connect the climate solution and the digital solution. How do we do that? We want to put sensors on our equipment connect it together with the controller all the way up to the software.
What is really what we can do for our customers by doing that we have the ability with to give create new customer values with fact-based data we can give climate solution in a much better way. We are also able to improve the seed conversion rate for our customers. There is a lot of feed that are used to produce food and if you're able to track that with data and then optimize it we can reduce the feed. We will connect then the farmers with the integrators and then we have the ability to connect the whole food chain. In the whole food chain there is a lot of transportation also going around between the feed meals the hatcheries and the farms.
If we can with that software solution be able to track the data and then optimize the transportation, we have also the ability to reduce carbon footprint. How is this improving our business? We can by this differentiate ourselves from competition, we have now a platform for future growth, and this is giving us the potential also to expand into a more profitable area which is the digital space. It's also stabilizing our business performance because in that area we have the ability to go more with a new business model which we call ARR, and I will come back a bit to that. We have four clear strategic directions: the first one is to lead the software market, the second one is to connect the world's farms, grow through climate solution, and also strengthening our equipment position.
I will start with the first strategic direction and give you a movie on our new exciting platform Amino.
What I like about Amino is that it's a product that was built on 30 years of experience with a very easy and cool front end and now it's accessible to everybody.
I think this is really really exciting. This is our new cloud-based Amino software we are on a journey where we go from on-premise to cloud. We launched this product nine months ago we have more than 25 companies running at the moment. Every user is in 4 hours and 22 minutes, and I think that is quite a lot for a new software that means that it's really user-friendly. We have more than 1,000 users in the platform at the moment. As I said before, this platform is getting great traction, but we're also changing the business model. We are moving more into software as a service Klas already mentioned that, and we see good traction on that also in the last quarters.
This is also the way for us to go more and more into the annual recurring revenue in this digital side of the business. You will have the ability to actually meet Marcel Cohen, he is the President of MTech, and he's here with us today. Maybe you already met him after lunch, but he's also going to be here after this session. Connect the world's farms, that is the second strategic direction. How are we going to do that? This is just a few examples on our journey on acquisition. You already saw Annette talking about this. There was a movie talking about both BarnTools and FarmSee.
BarnTools is a very interesting startup in IoT and sensors. They are really in, they are US-based, very interesting for us to have a wireless solution where you can easily install and get more data from the farm and then connect that with MTech software. We have FarmSee. This is highly new technology, machine vision, how you actually can track animal behavior, something that we are looking into for the future to see how that can help us. InoBram is a controller company placed in Brazil. Brazil is one of the largest markets for food production, a very important market for us. They are a Brazilian manufacturer. They have a large installed base and also service capabilities. It's complement our offering in the controller side of the business. The third strategic direction is to grow through climate solution.
I think we all here in this room and also on the web we see how the energy prices are rising at the moment, and we all are working on reducing that. This is also so for our customers, the farmers. This is a new solution that has been launched about heat recovery. This is a very interesting product on how you can actually use reuse the air or the heat from the air inside the farm and then send it back into the farm. It's not all only heat recovery. It's also a way to reduce ammonia inside the farms, so it's also filtering the air from ammonia. This gives a lot of savings on energy for our customers. It gives us a lower total cost of ownership, but also healthier environmental impact and also a healthier environment for animals.
Very interesting way for due to the high energy prices but also that there is a lot of regulation ongoing in the market. The last strategic direction we have launched this year our Saturn platform Saturn FIVE before that it was Saturn ONE this is our first step into the modularization. There is a lot of benefit in modularizing the fan platform and this is also something we will continue to do. We see significant assortment reduction potential in this area we also see a way to reduce the complexity by taking out the assortment part of the assortment but also to drive operational efficiency due to this. We still want to continue to deliver the value to the customer. Not only the food industry is on a transformation we are also on a transformation a journey transformation journey.
We launched our strategy a year ago, the vertical strategy to improve value creation for both us and our customers. What have we done this year? We have accelerated the digital growth. We got a large order in the beginning of the year in the SOS contract, and also yesterday you saw the press release of another important order in that field. We have executed M&As and we have strengthened the climate solution. We launched Saturn FIVE in the beginning of the year, and we have also, due to the lower volume, optimized our footprint. We have consolidated in China into one factory, and we have also opened up a hub in Vietnam to be closer to the Southeast Asia market. We continue. We have worked a lot on pricing during the year, and we are actually back on track compensating for the raw material situation.
We have also launched operational efficiency programs China for China but also to offset the impact from Russia. Going forward, what will we see from us? We will continue to accelerate the digital growth. We will also grow in white spot markets and through solution selling, and we will continue our modularization journey on the fan portfolio towards more operational efficiency. For customer success and a healthier planet, our mission is to help to feed the world by changing the way we farm and produce food. Thank you.
Thank you Pia. A question for you. In Q3 the EMEA and the APAC market have been quite weak or up until Q3 where do you see this market going and what actions are you taking to drive long-term growth?
I think it's very difficult to project a market but we believe that the market will continue to be weak in China for the next year. However, there are areas that are signing positive, and that is that the for-profit has actually been positive for the last months. I mean, when will it turn? The investment will come. That is a sign that investment will come. When will it come? It's very difficult to predict.
In Europe as I said earlier it's we are impacted Europe is impacted by high energy prices but also by the war in Ukraine. What can we do then? We can innovate and we are doing a lot of that. We are investing a lot in innovation both on the climate side. I think the heat recovery is a very good example on that. We continue to do that to be ready when the market comes back. Also we are investing a lot in the digital side and the digital side is a trend that is strong and it continues. The market is still not fully developed. We are building the market with our customers but it's also a very interesting area to be in and all of this action will give us of course a long-term growth in the end.
Very good, thank you.
Thank you.
With that I would like to welcome President of Business Area Data Center Technologies Stefan Aspman. Welcome.
Hey thank you. Great to be here and good to meet you guys. As most of you know we carved out data center as a segment for five months ago from AirTech. We set up a separate business area for that. We're happy to be here and talk about that with you today. I do have some colleagues with me as well that can also support you after the presentations if you haven't met with them prior to this. Take the chance to learn a little bit more about what we do and the products as well. I wanted actually to jump straight to the challenges and opportunities where Munters can really make a difference in this industry.
I do believe that digitalization as such doesn't really need a sales pitch in this room, right. I think I can skip that part. This is happening, but it was a really good segue into that area listening to Pia and Amino and all these other kinds of services that do require service servers and as an underlying infrastructure of the whole IT society and everything we do with digitalization, it's really something that do facilitate many of the things that we do associate with everyday life today. The amount of data generated is sometimes almost beyond imagination. I read somewhere that we now everyone in this room generate around 2 MB/s nowadays in average worldwide.
I think that the need for data centers is really here to stay and if we look at some certain areas like AI and high performing computing it's really true the saying that change has never been this fast but it's never going to be this slow again is really one of those areas where it really makes sense.
All this change doesn't come without challenges, right? The data centers need a lot of energy. Looking at the world, it's around 1%-2% in average, but if you go into separate markets, it can be up to 7%. Our neighbors in Denmark have a huge problem with that, and if we go even further to Ireland, I read some projection that it could be up to 30% in 10 years from now. Of course, that's why we see some power struggles in Amsterdam, Singapore, London, and so on. Many of the data centers also consume a lot of water, and when I mean a lot, I mean a mid-sized data center can consume between 15-20 million liters per day if they use evaporative cooling as an example.
Based on those challenges this is really an opportunity for Munters where we can help out. Cooling represent up to 50% of the total power usage of a data center depending on what kind of technology is used. On top of that a lot of them as I said use water and we have now developed a solution that can actually bring superb power effectiveness useness without using water. Based on what Henrik and Pia has presented already today I think everyone can understand that this context is such a great opportunity for us to deliver on a purpose for customer success and a healthier planet. This is really where we can make a difference. Going into the industry as such and here I think it's very important especially for you guys being investors to understand how does the actual structure of the market look like.
The total DC build investment is humongous. It's around, depending on what source you look at, $250 billions to maybe $300 billions. Only a fraction of that is actually cooling, and what we believe is the addressable market for us, given the portfolio we have, it's between $6 billion and $7 billion. Given where we are and in terms of size right now, you can imagine there's quite a big portion for us to eat into in this industry.
As a BA, I don't have as much of an exciting story just 5 months into the buildup of the BA. We are around 350 employees. We are pretty lean and mean, very much production people, not so much overhead yet. That is good. We're going to keep it that way in a strategic, smart way. We represent 14% of the group net sales. We have 3 production locations. One of them is shared with Henrik. I'm going to come back to that later. We are represented in more than 15 countries where we can sell.
Very much US-based, of course. That's where we have our history, that's where we come from. As those of you who follow us know that we have acquired EDPAC that Annette spoke about before. That's really a good segue for us back into Europe and a hub for us in Europe as well. This one is a bit slow. Every time someone talks about DCT nowadays it's about the orders, right. Many of the questions coming from you guys are also about the order intake. It has really skyrocketed. We will come back to why and why we believe we will continue to be successful. Important to notice is that they're all not going to be delivered at the same time, so you have a split here when you see how they will be distributed over time.
There's a pretty big or a long planning period when you build a data center. The orders that you take are normally a couple of years advance or 1 and 1.5. What we did see this year though due to the supply chain constraints it that customers are changing the behavior a little bit that they want to be earlier on. They don't trust just in time or on demand orders any longer to safeguard their equipment. They order earlier basically.
We have just moved in to a state-of-the-art facility in Virginia. It's not so much to show yet. We're moving in line by line. I wanted to give you a teaser at least to see how it looks like. When we started moving in September, we will have full ramped up production mid-December, so basically in one and a half weeks. We have also moved from the old factory to the new one, which is going to be really beneficial to have the team gathered in one place. I will show you one short movie from Virginia. Right.
We don't only grow capacity through Virginia though, when we look at how to meet this increased demand and all the orders we have taken on, we have separated that into basically three main buckets. One is of course how we maximize the current footprint. It's actually so that we can do many kind of visualizations and preparations before moving into a new factory, but it's actually first when we get there physically we can start to really realize the opportunities to find efficiency improvements. We have a theoretical understanding prior to being there, but now being there in real life, we really do already see opportunities to trim that. Coming back to MPS that Klas spoke about the Munters Production System, of course this is a great opportunity for us as well. Once we have moved in, we can start to work with that.
We do increase the vertical integration doing more insourcing. You could question, is that really maximizing the current footprint? Well, in a way, not, but it's also a way to mitigate the risk of having to wait for suppliers not delivering. That is something that has kind of caused problems for us and many competitors in the industry. One way to mitigate that is of course to have a better control of the full supply chain or part of the supply chain at least. We're doing that. We also do have other Munters facilities with open capacity. I think this is something where we develop as a group as well. I believe I have a really great collaboration with both Henrik and Pia.
The degree of collaboration is now to the extent that we can talk about, can we really utilize the full production capacity in a smarter way? Of course we're going to utilize that opportunity as well. We're going to expand the current footprint. I mentioned we have one shared facility which is Selma in Texas. It's officially an AirTech facility, but we also do a fair share of SyCool and other DCT products there. While Henrik is improving his footprint in other parts, I'm going to sneak in and take more of Texas.
We do have an expanded capacity plan for Ireland as well already when we acquired EDPAC that was clear that if we want to follow the game plan here we cannot just settle with this factory, we need to expand the capacity one way or another because one part of the strategy is to bring the part of the Munters portfolio that they didn't have access to and vice versa and to produce as an example SyCool also in Europe. We need to expand in Ireland and we are doing plans how to do that now and we will within the next coming years have a significantly larger footprint in Ireland as well.
We are keeping part of Buena Vista our old factory for strategic initiatives. I have to say and brag a little bit about my team that we are truly trusted business advisors within this area. There's a reason why some of the biggest companies in the world come to a small fish like us asking for advice within the data center cooling technology. To be able to serve them when they have specific projects strategic projects they might want to test a certain version of SyCool, we have kept part of that to be able to collaborate with them without interrupting the regular flow lanes that we're having in Daleville in Virginia.
Last point, we are definitely also seeking collaboration with other companies in this field. We do believe that smart companies do collaborate and learn how we can build on each other to take a bigger responsibility for the full end-to-end value chain for the customers. It is a pretty consolidated industry already. Many of the good ones have already teamed up. We are quite unique in the industry, being still relatively small and completely niched towards data center cooling, which is also one of our unique selling points. We don't cool hospitals. We don't cool commercial stores. We have people working 25-30 years with this specific technology and how you cool data centers. That is attractive, which is many of the bigger companies do want to team up with us. We have nothing concrete yet, but we are dating and seeing where can we add value in the future.
Sorry.
One of the worst answers to get if you ask someone something is it depends. I think, if you look at data centers, I always get that question. I will have SyCool. Is that the best solution? I'm sorry to say that the answer is really, it depends. It's a great innovation. We have super traction. We also have other products in our portfolio for the same reason that you need to consider so many things: building a data center, type of data center, the size of it, what kind of power densities will there be in the racks, how hot it will be, the design of the whole data center, location, are there any regulations, and so forth. They have something in common. Don't be scared.
I'm not going to bore you with too much technical stuff, but in essence, you could say that any cooling system in this industry has at least three key parts. You need to capture heat, absorb it some way indoor. You need to transfer it some way. You need to reject it outdoors, right? We have, in the blue ones, you see the solutions we have for these different technologies. I will come back to that. We have a history that is very much in the evaporative cooling part. We are now moving in with the assortment that can take a bigger part of the cake. I have a page exemplifying that.
To make this a little bit more concrete, I will show you a video of the innovation we have right now, the one that has received the big orders, that is SyCool Split. Hopefully, that can also exemplify and make the technology aspect a little bit more clear.
SyCool is a highly efficient waterless data center cooling solution its flexible scalable split system design can be configured to meet the cooling needs of most data centers and provide a low annual PUE with zero water use.
In this example the SyCool 500 KW condensers are installed on the building roof connected to matching 500 KW computer room air handling units in the data center below. The thermosiphon moves the heat from the servers out of the data center passively without the need of a pump inside the data center. The refrigerant in the thermosiphon evaporates as it absorbs heat from the IT equipment. The vapor naturally rises up to the condenser where the heat is removed from the thermosiphon loop changing the vapor back to a liquid. The liquid refrigerant then flows back down by gravity and the process starts all over again.
When it is cool outside all of the heat can be rejected from the thermosiphon loop by the passive condenser coils. As the ambient temperature increases compressors stage on to gradually transfer the load to the active condensers. The thermosiphon is separated from the active refrigeration system by a heat exchanger and always operates passively at a low pressure and does not require any lubricants. The SyCool system can be configured in multiple ways depending on the design of the data center. For example, two separate 250 KW computer room air handling units can be connected to a single 500 KW condenser to improve redundancy. The 250 KW units can be configured for flooded room or under floor air distribution. A 500 KW cooling distribution unit can be provided to remove heat from liquid cooled equipment.
The SyCool Split system is an award-winning, efficient, and scalable waterless data center cooling solution. Contact us directly or visit us at munters.com to find out how you can apply SyCool to meet your data center cooling needs.
Good, are you with me? No use of water, highly energy efficient, scalable, no ductwork. This is a product that has many, many perks. This is also why we get the traction in the market that we do get. Again, we have some really great technical experts here with us today. I would really recommend you to spend some time with them after the session. This is important for you to understand. We used to come from the evaporative cooling part, the blue one. We see, you see the timeline there from 2017. The Oasis for indirect evaporative cooling and FA6 and different solutions for direct evaporative cooling.
However, both of those truly require water quite a lot. With SyCool, we now go into new areas. We can team up with liquid cooling. We can have an alternative for pump refrigerants. Maybe this one is the biggest game changer. We actually do have an attractive alternative to chillers with our own split system. This is really a game changer for DCT and for Munters because we are growing the addressable market quite a lot by broadening this portfolio. I do believe it's relevant because I often get the question, how much will the data center market grow? Which is, of course, highly relevant. To us, what's going to move the needle even
more is, of course, that we have expanded the market that we can dip into. That's going to be a bigger part of the movement and the change in the growth for DCT than the average, you know, general growth of data center market.
Looking into the future there are a few main shifts that will happen in the data center industry. Some of them are small and some of them are bigger. If we would summarize given the short time we have here, I would say one is about location and structure. If you look historically, data centers have been built out of town, being clunky ones, and they have been very much focused where you have the fiber network hubs. Now due to regulations and due to the development of technology requiring edge data centers closer to urban areas where you need low,
highly reduced latencies, take autonomous cars as an example. You don't want them in latency there, right? Now all of a sudden there is this immediate need of having a different infrastructure when it comes to data centers. What does that mean? Data will become larger. The hyperscales will continue to grow their way, but they will also be smaller, containerized, modularized, and different kinds of ways. That means that they will move in more urban areas, secondary markets, not only the traditional. I mean, if you look at the market today, it's very consolidated to a few areas, meaning for us, we need to have better sales coverage in Europe for sure, because many of the secondary markets are there. We need to continue to develop world-class split systems, and we need to put R&D money into solutions for edge data centers that has been a buzz.
Sorry. Can't get this to work the cooling technology there's going to be higher density racks more high performing computing more AI requiring better capacity for cooling. At some point there will be a limitation to what air cooling can create or can solve. We are far away from that today. Liquid cooling has gone from being something kind of a solution looking for a problem to actually being something that is needed already now but to a small scale. It's going to take time for that to be kind of significantly impacting part of the industry but we have to plan for it because it's really materializing now.
Sustainability, I think the biggest shift will be evaporative cooling. It will still be around, and there are areas where you can still do water, but needless to say, given the droughts all across the world, it's not going to be popular and probably more regulated in the future. That is why it's great that we develop dry solutions as well as an alternative.
To wrap up the future for data centers, we have a very straightforward approach right now. I mean, as you know, we are five months into the BA structure. Definitely, we need to continually balance our recipe for success. Proprietary solutions has gotten us here. Flexibility and being highly customer focused and flexible. With that said, to really scale this BA, we also need to continue to work with modularity and ensure that we can ramp up and make fewer adjustments to the product.
We need to multiply our reach. We have a great offer. We need to make sure that people can get it. We have a small market share. We do believe that if we are just only present, there will be a high traction also where we are. We will grow the addressable market as I showed before with more and more solutions covering more parts of the applications. We go from a niche player to actually offering the full enchilada in a different way. Needless to say, for customer success in a healthier planet, we do have a great offer to help the customers on their sustainability journey.
That is something we need to have in mind whenever we develop something. Whatever money we put into R&D, it's going to be from a green perspective, not only because it's the right thing to do but also because it's a strong differentiator in our commercial total value proposition.
I think that was the last slide, Ann-Sofi.
Thank you very much Stefan.
Thank you. I'm happy to talk to you again after this.
Great, I have a question for you. You've had very strong growth this year. Are you confident that you can deliver on the backlog and can you take more orders?
Good question. You know, short answer would be to reconnect to the presentation lie. Yes, we are confident that we can both take more orders and we do have the structure in place to deliver on them. We do that through the diverse solution that we had expand existing footprint and also maximize what we have. I do believe there's quite significant capacity to squeeze out from only Daleville. Last comment on that, I mean, it's great timing, right? We didn't build this new factory for no reason. We saw the timing that this would happen. We knew SyCool would take off, and I have to give credit to the people in the segment prior to me because they planned this very well. Now we have a shiny new factory to produce all these new orders.
Great, thank you.
Thank you.
With that I would like to welcome Klas Forsström on stage again to do the wrap up of these sessions.
Thank you Ann-Sofi and thank you Stefan. From my perspective, what are the key takeaways? You know, three things to bring with you back home. It is we do have updated financial targets. We are very well positioned. We have a strong growth journey moving ahead. We continue to deliver on the strategy that we have set. We are just changing it, upgrading it, you know, to begin at dumps on the strategy as well. We will continue to invest for future growth where applicable. All in all, that is a delivery on the strategy moving ahead. We do this to generate value for our employees, for our customers, at the end to generate value for our shareholders. That is why we support energy efficient solutions to our customers and thereby helping them meet their sustainability targets. Thank you.
Great. Thank you very much. With that, I would like to encourage those of you who are viewing on the web to place your potential questions in the chat, and I want to welcome the rest of the team up on stage. We will start to see if we have any questions here in the audience.
Thank you very much. Thanks for all the presentations today. My first question is for Klas. On the update to the organic growth target, I mean, you've seen this megatrends increase in intensity over the last years. The new growth target is a lot higher than what Munters has achieved historically. Could you give us some flavor and color on how much of that increase in the growth rate is coming from these accelerating segments with service, battery, DCT, and digital solutions, or is there an implicit step up in the base business as well to reach the 10%?
Very good question. It is very difficult to give you sort of this is the individual path, but if I just elaborate on it, you can say at current we have a very good drive when it comes to battery, food processing, and service in AirTech, and that it carries us forward. You recently heard Stefan talk about data center. Of course, that is something that will continue to grow. When it comes to FoodTech, it is in the equipment area a fairly depressed market in 2 regions, but they will come back. Even more so, we have a fantastic offer, and we are creating a market in software as a service.
I think on an overall general level, that is what will drive the growth. I just would like to add one thing. The recent acquirement of Hygromedia is also putting a spot in. We can reach the market in a multitude of ways. We can reach it through the systems, we can reach it through spare parts and service on our systems, but we can also serve and deliver to other OEMs.
Thank you very much. A follow up question on the profitability in the FoodTech business area. You were mentioning lower volumes, especially in China, as a key headwind for the margin development. If we look forward, will the self-help measures that you mentioned be enough to take the margin back to historical levels, or is that going to be a mix of sort of the self-help programs together with an increasing digital content?
I can start on that and then I hand it over to Pia. I look upon the FoodTech setup. We have two very distinct parts of FoodTech. We have an equipment business that has built the success of FoodTech. That is, we are there, have two markets down. Pia's team are doing a great job in driving efficiency there. Those markets will of course eventually come back. That will drive profitability in there. Then we have the other leg, I mean, the software side, the digital side. As you can see, they're step by step in a very encouraging way improving that. Pia, any more details on it?
The only thing I can say is that we have a growing population. We have also a trend towards a lot of more modernized farming where you need a lot of emission critical indoor climate. Of course, the market will come back. It's just a matter of time when it will do so. I think for us to be prepared both in the climate side and innovate like the heat recovery I talked about to have the right products ready for when the market is there. Also, the digital space is very, very interesting. It is a clear trend in the food industry where you actually are able to optimize the whole food chain both from a sustainability perspective. That will of course drive a very nice future for us.
Yeah hey can you hear me [Mats Rosquist] coming back to FoodTech there. I guess you have talked a lot about the digitalization there. I guess you also indicated you will get the larger part of the value chain. Is it more of a technology shift or is it sort of taking a larger part of the addressable market also or is it more sort of a competitive change in structure you have the same competitors doing the same thing as you I mean?
I mean in this room you have Marcel and you have Pia. I can just say like this: then I see in front of us a market that will create that I foresee that in a couple of years that will represent around 20% of the invoicing within FoodTech. That being then software that itself will propel the profitability upwards and it will generate a more quality sustainable long term predictable base business. Of course I mean you're building a new market Pia, please.
I mean what I can say is that MTech has been here for many years. They are building they have software for a long time. They are present with many food producers around the world. Of course, we are building a new market. I mean this trend towards digitalization and how you actually can optimize the things is something that our customers are going into more and more. We are following them and we are working together with them to build this very interesting market.
Thank you and very clear and then about the CO2 recovery market and I missed the part that you said something about the addressable market there how large could this be for you?
This is a market, and you will hear Henrik talk more about it. It's a market that is now being built. It is a sizable market being formed moving forward. What I think is so intriguing, that is a couple of years ago we said we should stay in data center. There was a lot of talk, should we divest that data center completely? We said we should stay and bring that back into where we would like it to be. That is happening right now. We said also in regards to mist elimination, and that's the part we should stay there. Here I think it's fair to say that that market has not come back. The interesting part, and that is my point, the technology that's hidden in that type of equipment can also be used for the coming market. Please Henrik.
As Klas was saying, this market is really in the verge of state, and we are engaged with different advisors, with different people in the industry, and there are very different forecasts on how this market will develop. In the same time, there's also a lot of different technology in place. We have some technology already, as we showed in the video here, where we already today can apply into these type of applications. Then it's all about building also partnerships, a little bit like what Stefan was saying in DCT, with others to also explore other technologies and maybe marry those over time. This is really in verge of state at the moment. If it takes off, it can be a huge market for us going forward.
Finally about energy prices I guess they all have risen a bit this year and do you see an increasing demand here for retrofit also is it only new build or is it more retrofit than those kind of sort of measures that customers need to do?
Yeah I don't know if you had the opportunity also to meet our team out in the hallway here we have also services represented here but retrofits and upgrades when it comes to energy efficiency and shifting from gas to other types of both steam or electricity powered equipment is something that we see a big demand especially now here in Europe and then over time we also believe and we will continue to drive you can say different type of initiatives towards those type of upgrades both shifting the power into our equipment but also over time upgrading the equipment so they can become also more energy efficient.
Pia I also saw that you have a great example perhaps not an upgrade but could you just repeat what you're driving towards energy improvements and recycling of energy in farms?
I mean I had it on the presentation, the heat recovery. I think this is a fantastic solution. It has been built a lot on the application knowledge. I think you mentioned that before, Klas, how important the application knowledge is within the whole Munters to just recover the heat inside the farm and then reuse with cold fresh air, heated it up with the same air that already were recovered before and then push it into the farm again. That is not only now when they have the energy prices on the high. Of course, now it's a very interest of all of us to try to find products to help us to reduce energy consumption, but also over time for a sustainability point of view, this is important for all of us going forward. I am excited about that solution.
On top to top it off as well take away the volatile organic compounds generated by the pigs in this stable so to speak.
Yes sort of on the battery segment here, you received 1 large order in July and then also 1 large order this week. Can we expect any synergies between these orders?
I'm super excited. I had the opportunity to, I call it, be a trainee heading up AirTech a couple of quarters on the development that Henrik's team have done especially in North America when it comes to how to standardize certain equipment. As Henrik mentioned, I mean, we talk about central excellence, and of course that knowledge is spread. I think we have developed, I call it, a self-confidence to go to customers and say this is what we really recommend, and more and more customers are listening to our recommendations. What is happening in between North America and Europe, Henrik?
It's also a relevant question. If we look a few years ahead of time I mean the automotive industry that is driving many of these demands it is a truly global industry. What you see on the manufacturing of batteries it is that it's still to a large extent regional. The direct answer to your question is that between Europe and the U.S. we don't see any immediate synergies. We as Klas was explaining have started also to explore more ways to bridge both our expertise but also more proactively talk about the different experiences we have in the different regions to also combine more of a you can say uniform offering to the battery market.
Okay also one last question here you're now building two green fields one in the U.S. and one in China and you plan to invest in R&D you plan to acquire companies and you take on these larger projects will likely weigh on working capital do you expect to manage all this with the current balance sheet?
The simple answer is yes we have planned it in a very good way step by step. I'm a true believer, Annette, and the full team is a true believer. I mean, think big, start small, take it step by step. Annette, I mean, give us some confidence here.
That's also why I mean when we put together no, but that's why it was so important when we got in Klas and me back in 2019, there were two buttons we pushed on really the first day. That was cash generation to make sure that we drive things very efficient throughout the whole group, and the other one was the pipeline building. As you noticed also when you look from an M&A perspective, it's not those really big ones that we have been doing, but they are both done small that really fit into what in the environment we're doing.
Obviously the work that we're going to continue with it, we need to drive the cash conversion still, just move on. That's also why you can see the target that we are targeting 10%. That's what we really would like to get down to, and that money is going to be used to make sure that we can expand the business. Obviously if there is a really large acquisition, I think all of you can see that that is something that has to be managed differently.
I called both [audio distortion ]. My first one is a bit of a follow up since we're discussing cash flow here. Apart from the working capital target, are there other aspects that you see could help you improve the cash flow generation?
I'm super impressed with what we have done already. It's about balancing the different projects, not only in the projects but also overlaying the projects in between, talking about both data center and the big battery projects. Beside that, I mean, we have had a project called Piñata internally, how to really get the award from the Piñata, get the cash out. I go to you again Annette.
I mean one part is continuing on the journey that we're on from an operating working capital perspective, and the culture is really there to drive it. The other one is obviously when we look at investments in facilities, it's not so that we actually invest in real estate. We're actually going for the lease side which you see also from the IFRS 16, and that's a way also to make sure that we run this in that we put the money where we actually feel that we can get them to work better. Rather than investing in real estate, I actually use it to build the business actually.
On SyCool your origin as a company stands from the rotor technologies and the unification technology and then help me understand it if I got it wrong but within SyCool what parts of let's call it core Munters innovation is used there or what have you created from a kind of new starting point which the customers really seem to like.
Please go ahead, Stefan. Please, really, it's a great question what is core and what is non-core. Munters started around the evaporative desiccant wheel. Data center has been core of Munters for many many years. It's not coming from the desiccant wheel. Please, Stefan.
That's right Klas. Answering the second part of your question, what's unique? The unique part is the thermosiphon that is really using physics, I mean gravity and heat, to create this solution. Here we have Craig and Frank and Anya that can really help out to answer even more about that. In short, it's a completely unique solution in the market. For good and bad, mainly good, but of course that can also be to some extent limiting, and that is why we need to scale this up to ensure that everyone can take part of this.
For me, what is the definition of a brilliant innovation? I mean, it's commercially successful, but also very often it's a little bit like this sensation: why couldn't someone have invented that before? I mean, when you see the simplicity in the setup, then you realize, why couldn't anyone have invented that? I think this is a brilliant innovation.
You can also say it from a strategic point of view I mean we work with mission critical environments or climate in particular addressing the climate and this is the same thing it's just not around our rotors.
Isn't that also one as a final note that's also about the difference between inventions and innovation? This is really an innovation because it drives a difference in how it's deployed. Thermosyphon has been around for a long time. It's just to use it in this context for this purpose that is new, and that is why it's maybe not too much of an invention but a really great innovation in how it's used.
Thank you. To start off, this is more on the updated margin target. I have a few questions. First of all, the decision to raise it, sort of while there's still quite some ways there, can that be interpreted as you see that materializing more near term than you initially thought the 14%? As a follow up, to reach a sort of substantial margin above 14%, what kind of service revenue are you incorporating into that estimate, let's say?
I mean the reason why we sharpened the target that is that we jointly came to the conclusion that we see a great opportunity and probability that we will be able over time not tomorrow and not the day after tomorrow step by step improving ourselves and move over 14%. I mean we still have a journey to move ourselves up to 14% if I asked and we always talk about what Munters should deliver and I mean now I put ourselves up here and say like this my view that is AirTech has proven that they are delivering on a sort of stable here it's a method of step by step notch it up a little bit more when it comes to data center.
I do believe and I talked about that in quarter reports we have a big opportunity and I would be disappointed if we're not by the end of next year we'd be up and reaching the 14% target and then in FoodTech it is at current a tough market situation but that will gradually go away and then in parallel with that it will also be the development of the software side creating a more sort of stable platform to build from so don't interpret it as it will be a quicker. Interpret it as we are even more confident that we will overachieve from 14%.
Yeah, that's very clear. Maybe to follow up on the current order backlog, I mean that has been gradually rolled out now. When it comes to services on those contracts, are those signed in conjunction with delivery now? How does it go from the actual delivery of the system to ultimately securing the service contract over time? What's the kind of time frame there?
Perhaps Henrik, if you elaborate a little bit on the larger batteries and Stefan, you elaborate a little bit. I can say immediately that it's more service short term in AirTech and less service short term in data center due to the industry.
For AirTech with these large battery orders for example we are of course this is an equipment order and then with this we also are positioned well to also do the installation the commissioning of the machines and then we are also proactive in securing service contracts but it's not part of that initial order value but we can also say that we have a high heat rate on our service contracts especially when it comes to the battery segment.
Yeah I think I have nothing to add. I can copy the answer from Henrik but with the side note that there is a smaller part of service in DCT and that's also one thing that we have in focus right now how to build that strategically moving forward because there is a potential for service in data centers as well. It's different. It looks different than the one we have in AirTech both from the perspective that there are fewer parts to change. I mean, we really truly build things to last. There are not so many different things that you should like for both AirTech and FoodTech.
There are elements that where you should actually exchange them and you need to service them. Also, security issues. I mean, several of these data centers have people outside with machine guns, right? It's not like you just open the door and get access there. It's a lot of cybersecurity, also physical security issues to service the data centers, but the potential is there, so we're working on it.
Not to forget FoodTech. I mean, the larger orders taken in FoodTech. I mean, software as a service, please be. I mean, that is a large, it's all a service long term.
Yes, it is the large order we took in the beginning of the year on the MTech side and also yesterday, which we announced yesterday. One of those are software as a service businesses, which means that part of it has a product implementation part and a large part of it has also that annual recurring revenue, which continues year by year, and that is very, very interesting for us.
Yeah, thank you.
We do have some questions from the web as well. The first question here is from [Juhn Hülsner], and I would like to address that to you, Stefan. The question is if there is any difference in the type of cooling technique used in data center market in the U.S. versus Europe versus the rest of the world.
The short answer would be no. I mean it's normally you use water or refrigeration to cool in different setups. The difference lies more in the size and the design. There are different preferences according to how different regions build. The actual cooling is pretty much the same.
Thank you very much. We have another question. That is from [Arim atti Alanko]. Given that raw material prices have declined over the past month together with freight costs, the question is if we're planning to keep prices at the level where they're at at the moment after our price increases or if they should decline if inflation or pressures eases. Klas.
I mean, I know what we have committed to. Perhaps we go through the ranks here and talk about how do you see it, how do you see it, and how do you see it. Should we lower prices when the raw material prices go down? For AirTech, we still globally see a lot of volatility in the raw material prices. As also Klas was saying, we were a bit late on the cycle. We are still compensating for that. At the moment, we don't foresee any price reductions, but rather continuing to also raise with the, you can say, moderate price increases also into 2023.
I mean for our FoodTech side, I must say I think it's a little bit early. I think the volatility is still there on the market when it comes to raw material and freight. We are not foreseeing price reduction on the market. We still see our competitors doing the same that we are doing raising prices over the bottom so.
For us, it's a project business, right? There are huge contracts being negotiated, and there are many things that comes into play beyond the material part. Short answer would be that we are not planning to reduce prices, but it's always also a matter of competition, of course, and what's happening in the market. Long term, definitely, we have an ambition to really charge for the value we deliver rather than the components in it, sort of. That's a long-term ambition, I think, for any premium company to ensure that that's what you actually charge for.
If I summarize it in the short term, absolutely no. Of course, when we negotiate some projects on and off, I mean, it's always a matter of commercial success.
Do we have any more questions in the room? We do have another question here from [Philibert Bessier] and he's wondering if we could elaborate on the EDPAC acquisition and the offering that they're bringing and in terms of technology what they're bringing to data centers.
Good question. Going back to when we decided to acquire EDPAC, part of that was of course to merge these two offerings together to create something stronger. They have a slightly different profile than what Munters came with more in the so-called CRACs, the computer room air conditioners. I would like to switch the question around a little bit what can we do with the Munters part of this movement now having EDPAC because I would say that is the bigger opportunity for us to take what we have in U.S. and successfully transfer that to Europe. They do bring something to the table they have a really good skilled team producing products there as well, the so-called CRACs and cross in the industries. The big benefit for Munters will be when we merge the total portfolio as SyCool as an example.
Great thank you. We do no more questions in the room right now. We do have another question here. It's related to FoodTech from Ari Matti Alanko again. The question is what the steps are to deliver in line with our new growth target the organic revenue growth in FoodTech considering the growth in the market right now.
Okay, I think we have proven that just a few years ago when the volume were very good, we had very good margins in FoodTech, and that market was stepping step by step return of course on the climate side. On the digital side, as we have already mentioned, we are growing that side together with our customers. It is more on the profitable side, and that is looking promising, but it will take time to develop the market going forward.
Great thank you very much another question yes.
This is Gustav Österberg from Carnegie Investment Bank with a follow-up question just on the operating networking capital target. Could you elaborate a bit on how you are working today compared to the old group structure a couple of years ago, what will make you sort of succeed in reaching that new target?
Here we have a booklet that could be spread but please summarize the booklet Annette.
Have you noticed if you look at the first years we took the low hanging fruit. It's really about how do we sign our customer contracts, how do we work with our project orders, how do we work with our suppliers obviously, and how do we work with our internal process to get the products delivered on. Obviously, it was easier to work from a customer perspective and from a supply perspective and then also take the low hanging fruit and look at how we were operating ourselves.
The next step will take a little bit longer, but it's really making sure then that we drive our operational efficiencies throughout the company much more efficient actually from buying the raw material to get the products out. That's one part of it. The other one which we're also working on is looking into supply chain financing, for instance, to see if that can support us. It's stepping it up, but it's basically the same thing. It's about how you buy, how you sell, and how you produce and make sure that you use as less space as possible.
Thank you.
Okay, great, thank you. We have another question from the web from Juhn Hülsner. It's about actually what the how we are pricing or on what we're selling our products in term of, well, CapEx or OpEx, you could say, for savings for the customer. If we are selling on life cycle costs or if there are life cycle savings for the customer when they install our products, can we quantify that with an example and what type of payback periods could we say? I don't know if I made sense there, but.
Let me start on this then I have the longest experience now I mean we are still rookies within Munters but I'm the veteran here you know what I have seen in Munters that is very much that first of all customers in the battery area in the DCT area but also in larger facilities within the food process chain is more and more interested on OpEx moving forward. It has been very much CapEx driven. It has been very much about the lowest possible price to get the door open. I don't want to say that it is good that we have an energy crisis but please understand me right.
It is good from the perspective that it will be a higher focus on OpEx than CapEx that will benefit our way of selling. Can we give concrete examples of that? I think in your area Henrik when we sell into a battery factory I mean we have the standard equipment and then we have the application and the value add etc. and perhaps you can give a little bit flavor on that.
It is as Klas is saying, we see more and more of those discussions especially in the battery segment where we typically have discussions about different options and what it implies in terms of the energy usage and also you can say the OpEx side. I'm also very confident that the more we can also introduce digitalization and also in that sense prove over time that we can deliver certain energy improvements when we upgrade and so on we will be in an even better position to have those conversations, but they are happening already.
Great, thank you. We do have another question from the web. It's from [Lucas Ferrani]. Given the focus on operating working capital instead of leverage in the new targets and also the move to 10% organic growth instead of 5% and supplement the M&A, does that mean that you will be less aggressive in M&A or potentially that the M&A opportunities are not necessarily there or at prices seen as too high?
I think this is a great question. I mean, when you highlight certain targets, I mean, those indicate that this is the key focus for us. That is not at all saying that we will not keep a tight control over leverage, etc., etc. To drive a successful company, what do you need to do? As Annette has reiterated several times, you need to capture the growth, you need to generate profitability from the growth, and you need to collect cash from the profitability internally and towards the customer.
If you can have that spin wheel start, you are not restricting yourself from potential M&As, and you are generating opportunities to fuel our own expansions. M&A, we will always continue to work on that, and sometimes it takes a time to generate the funnel. Simply said, no change, but it is neither change in higher focus or change in lower focus.
Great, thank you very much. For the moment, we don't have any more questions from the web. Also not here in the room. It's time for us to thank all of you here in the room. Also to thank those of you who are viewing on the web for being here with us today. Thank you very much. For those of you who are here in the room, we will stay on. We still have the team outside. You can view our products and talk to us. I would very much like to thank the w hole team from Munters that is here and has helped us arrange the day. Thank you all and thank you.
Thank you.