Hello and welcome to this investor relations hosted webinar where we today will be focusing on FoodTech. My name is Line Dovärn and I am Head of Investor Relations joined today by our CEO and President Klas Forsström and President of Business Area FoodTech Pia Brantgärde Linder . We will start off with a presentation from Klas and Pia where they will talk about FoodTech, the value and the offering, deep dive into controllers and talk about the strategy going forward. We will then finish off with a Q & A session. With that I will hand over to Klas.
Thank you. Let me start with talk a little bit about Munters before we drill into FoodTech. As you know, Munters consists of three different business areas: AirTech, that is the original Munters that is all about the perfect climate, ultra dry type of applications all the way into other different segments and cooling into data center technologies growing rapidly. Today it is all about FoodTech and as you heard it is software and controllers. Today it is about 11% of total group sales. Let's learn a little bit more about that Munters in. In short, we are driven by very very strong megatrends and in a nutshell we help to secure and improve global food supply chains. From the business area FoodTech, we talk about climate change and resource scarcity, growing population and urbanization, digitalization, artificial intelligence and then many other different market dynamics and challenges.
Within FoodTech actually we touch all of those in one way or another. FoodTech is a spearhead when it comes to going fully digital within Munters. If I divide this into four different areas and by that talk about what we have done the last couple of years, it is about strategic portfolio development, it is about organic expansion, it is about driving innovation substantially in many different areas and combine that with operational efficiency. Strategic portfolio development. The last couple of years FoodTech has been on and about SEK 2 billion in sales very late. Early this year I should say we shifted out close to SEK 1.9 billion in sales from equipment that we have not sold off and still we are now in between SEK 1.7 billion-SEK 2 billion in total sales when it comes to the digital side. A lot of different moves within portfolio development.
Organic, as you will hear Pia talk about later, we have broadened our market exposure both geographically and when it comes to products innovation. A very, very strong innovative development here. When it comes to our new sales ratio, that is extremely high in this area. When it comes to operational efficiency, I think this is super interesting. It is a two-folded leveraging of technologies as artificial intelligence, both in our own operation, how we drive efficiency, and what we offer to our customers. On top of that, we are also integrating our newly acquired companies and drive more classical operational efficiency.
All in all then to sum it up, the last couple of years in the new FoodTech, we have generated at net sales an ARR development of about 40% CAGR and an adjusted EBITDA that is definitely north of 40% CAGR the last couple of years. With all of that I would like to hand over to Pia and deep into what we have and what we will to come within food.
Hello everyone. I'm going to talk about FoodTech and first I will give you an introduction to the food industry and what FoodTech is all about. I will do a bit of a presentation on our value and our offering. I will deep dive into controllers for today and then I will talk about the strategy going forward. Let me now start with industry. Maybe you don't know this, but this is a never stopping machine. It's a huge amount of food that are consumed per day. For an example, 4 billion eggs are consumed per day. More than 200 million of chicken are consumed per day. Potatoes, over 700,000 tons of potatoes are produced and consumed per day. It's really a never stopping machine. Data and digitalization has never been as important as it is today. In addition to that, the supply chain is fully integrated.
Is one of the few industries in the world that actually has a fully integrated supply chain where you go from A the whole way to Z. Our customers are facing a lot of pressure. They have the global megatrends to take care of. We talked about that earlier today in the presentation. You have the climate change, the growing population, the urbanization. We have a lot of geopolitical tension. Many customers and countries around the world are investing in self sufficiency and we have the globalization. In addition to that, we as consumer, we put a lot of pressure on food as well. We want to have predictability and standardization. We want to have food safety, we want to know where and how the food has been produced. We're asking for healthy food and we want to eat what is really produced in a good way.
We are taking care of animal welfare. We actually put a lot of pressure on that as well. Making sure that the food and the animals are taken care of. We want sustainability and reduction of emissions. In addition to that, our customers, they need to drive profitability every day and they need to grow their business to handle all of this. This is an industry that runs on quite thin margin. Data is important. How are they going to find the savings every day if they do not have data? This is why this industry needs digitalization. As I said before, digitalization is important. All industries are going through some kind of digitalization and agriculture and food is the least digitalized industry.
You can see here on this presentation, the other industries have gone through a bit of a journey where food and agriculture is just in the start of this journey. You can see on the right on this picture, the next 1,000 unicorns will not be search engines or social media companies. They will be sustainable, scalable innovators, startups that help the world decarbonize and make the food system more resilient. That is a quote by Larry Fink, the CEO of BlackRock. Data and digitalization is important in this industry. How large is this industry then and how much can be digitalized? The whole food industry is SEK 45,000 trillion, it is a massive industry. How much can be digitalized? There are several market studies showing that roughly SEK 650 billion can be digitalized in 2034, almost 10 years from now.
Of course we cannot get all of that market, but we can get a large part of that market. Our offering, our total addressable market with our offering is SEK 30 billion. Today FoodTech is SEK 1.7 billion. We have a lot to do in the next years. We have been under a journey. Klas mentioned it in the beginning. We have built over the last five years a very strong digital business. This is how FoodTech looks today. We are SEK 1.7 billion as of last year. With all the acquisitions we have done, an ARR that is above SEK 300 million. We have a profitability above 16% in the first quarter this year and we have sales in more than 80 countries around the world.
We are close to 800 people in the business and we put a lot of investment into innovation. With more than 200 people in innovation, I'm also proud of the diversity. We have more than 35 nationalities in this business today and 26% is female employees. Our largest segments is broiler and layer and plants. And we are also a bit in swine and geographies. The demand side, and this is just an estimation right now half of the business is in Americas region and half of the business is in EMEA and APAC. As you can see on the picture, we have a very global footprint where we have several units in Americas, EMEA and in APAC. Now it's time to go into our value and our offering.
Before I go into what we actually offer to our customers, I will actually take you through what is our customer and how are they connected in the food supply chain. The largest end user that we have is the food producer, which we often call the integrators. They are large, often multinational companies, global companies, and they have the whole food supply chain integrated. They are contracting the growers and the growers are the ones that actually are making sure that the breeder farms and the grower farms are owned and managed in a very efficient way. The large food producers, they have often high operational complexity. I talked about it a bit earlier about the megatrends and the pressure that they are handling every day. They need transparency, they need data and they need to find savings from the operational efficiency.
The growers, they own and they manage the farms, they are set up and size dependent on geography and segments. Some of them are large growers, some of them a bit smaller. They need to drive their farm efficient. They also need to drive animal welfare and resource efficiency. Let me start by talking a bit about our offerings. What do we provide to these customers? We provide digital solutions to the whole food supply chain. We have software, we have controllers, we have IoT and sensors. The software are the ones that we are doing the optimization of the supply chain. We go directly to the C- suite of the food producers. Here it is MTech that are providing the supply chain software. We have a partnership with AgriWebb that do software for breeding.
On the controller side, in the last years we have acquired several controller companies. Now we have four controller companies in our portfolio and they are spread around the world. We are targeting integrators and growers, but we go through dealers and distributors and then we have partnership in IoT and sensor. We work a lot with born tools for IoT and sensors, especially on the feed side. We work also with FarmSee on machine vision. How does this connect to each other? Why is controller and software important for this food supply chain and why do they fit together? As I said earlier, the food producer, they have a fully integrated supply chain and they need to drive efficiency in the supply chain.
They want data from each part of the supply chain, but the biggest area where they have a black hole is in the farms. The farms are not connected. There you have a lot of paper flow which they cannot really get the real time data. What we do with the controllers, we are able, and with the IoT and sensors, we are actually able to connect the farms to have a flow of real time data that goes into the supply chain so that we can help the customer to optimize, drive data analytics, give more insight, and then optimize the supply chain. That is why it goes together. 70% of the cost in a supply chain comes from the feed side and a large portion of that is consumed in the farms. That is why it is so important to connect the farms.
Did you know that a chicken can live four to five days without food or 72 hours without water, but only 15 minutes without a good climate inside the farm. Climate is mission critical for the food supply chain. What does the controller do? You just heard me saying that 15 minutes is very critical to have the controller monitoring and controlling the climate. What do they do? The controller, it controls all the equipment inside the farm that has to do with the climate. It provides living climate conditions for farm animals. It's not only doing that, it's also handling the energy efficiency inside the farm or water consumption or even access to the farm. A lot of that directly impacts a lot of important outputs as well.
Animal health is dependent on the controller resource usage, the feed consumption, the water consumption, energy, electricity, and it optimizes the climate inside the farm. As I said earlier, it is mission critical. 20 minutes controller downtime can actually lead to high mortality rate amongst the animals inside the farm. One of our customers often says, you keep my animals alive. We within Munters, we do mission critical application and this is truly one of the most mission critical pieces within the agriculture industry. How is our controller portfolio looking like now? We are clearly the largest company when it comes to controllers in the world. We are the global market leadership and we have done that because we have acquired several companies over the last years. Rotem has been with us since 2011.
We acquired InoBram in 2023, Hotraco and also AI last year. As you can see on this map, this is putting us in a fantastic position. We are present in all the different segments now and we are also able to really serve the complete world, all the different regions with this portfolio. What are the main priorities that we are focusing to drive our controller business? One of the most important is to enable the data collection. I talked about that earlier, the importance of getting data to drive optimization in the supply chain. With that our customer can know exactly what they need to do to be more profitable and drive savings. Another thing that is also important is that we are consolidating the industry when it comes to controllers. We have now a very broad global footprint.
We have very, very good deep application knowledge in the controller side. We have been within this industry up to 50 years now. We have a lot of knowledge that we have learned on how to handle climate inside farms, but not only climate, also water consumption, energy consumption and everything else. We also drive profitability. Klas mentioned it in the beginning. We are improving efficiency by having several of the companies within controllers. We are driving best practices between the companies. We are driving economy of scale when it comes to sourcing footprint, product design, etc. One of the most important parts is how we actually can serve our customer in an even better way. Service and training is very important. As differentiators.
We have a lot of focus on this and now having a global footprint, we are closer to the market and closer to our customers. We are also investing a lot in what we call the Munters Academy. I will come back to that in a bit. Now you are going to look at one of our businesses, the Hotraco controller, and really what do we do for the customer? We call it customer value at heart. Hotraco Central Egg Collection.
You want to start packing 230,000 eggs per hour at 8:00 A.M. In this example, you run a poultry farm with six barns, each with three floors, two conveyor belts, and one packing station. The operator arrives at 7:30 A.M. to manually start the process in the barns farthest from the packer. Both the egg belts and the conveyors are manually started. The speed is also manually adjusted based on the operator's experience. When the stream of eggs reaches the next barn, the operator also turns on the egg belts there. Constant monitoring is necessary and adjustments are made as needed, all through a camera system. The same process applies to the barns further down the conveyor. In Barn 3, on Floor 3, fewer eggs are laid, creating gaps on the conveyor belt.
The operator needs to intervene by monitoring its size second by second and simultaneously adjusting the speeds of all belts manually, making it a complex and stressful puzzle. With a high risk of errors and a significant reduction in capacity. The result is less than satisfactory. The operator isn't fully available during the system startup, leading to significant wait times. Constantly adjusting the egg flow manually makes the task complex, time consuming and susceptible to errors. Production differences occur without complete insight, making it difficult to identify the cause of lower egg availability. Packers are not working efficiently. The system is not operating at full capacity. Ultimately the goal of achieving 230,000 eggs per hour is not met with Fortica- CEC. You simply start by setting your goal 230,000 eggs per hour. You can do that the day before you select the all houses at once strategy.
Packers start at 8:00 A.M. Fortica- CEC features an auto start function in the morning. The egg belts begin moving at 7:30 A.M. along with the other barns connected to the conveyor to ensure timely delivery to the packers. Fortica- CEC detects production differences, adjusts egg collection from other barns, and maintains a full conveyor belt to within an accuracy of 1 second. This process is fully automated with all complexity entirely eliminated and the capacity maximized. Management and diagnostics offer production insights per barn, allowing you to take action at both the barn and individual animal levels. The result, you've achieved your preset goal of 230,000 eggs per hour, hassle free, entirely automatically, and with greater insight.
I mentioned it before, training and service is highly important for our customers. Over the last years we have really invested in AI. I mentioned it earlier as well. Training and supporting our customer is super important for us. What we have done over the last years, we started with Rotem Academy, is that we have invested in a lot of training material, a lot of information on how you actually seduce your controller in the best way possible. We have our avatar Clarity that are now answering questions. The majority of all the questions we get from the customers are answered through Clarity. It's an AI avatar. Of course, when the questions come that are more deeper or more complicated, we have a whole team of service people that could go in and answer those kind of questions, all to make the customer more successful.
This is just the first step. We are moving into the next controller companies as well with the Academy. In the long run this is also something that you will see in the other businesses within our Munters Academy. Now you have been listening to the deep dive in controllers and I hope you now know a little bit more about the excitement that we have in controllers. Let me now take the last part of my presentation which is the strategy going forward. This is our strategy and we are on a journey of accelerated growth. How do we do that? We do that by developing existing segments. We are already today in poultry, layer, plant, and swine. We want to continue to grow those segments, biographical expansion, moving into new markets, new customers.
We do that by developing new products for our existing customers, new type of offering, and we also want to replicate into new segments in the future. It could be beef, it could be aqua, or it could be something else and take what we have learned in our existing segments and replicate it into new segments. The third area that we also are doing is establishing a data ecosystem. We are capturing a lot of data, and with that data we are able to offer even more to our customers in the future. We get even more insight and can develop more offering. We are also attracting technology leaders. Many in the industry have a lot of startups, startups that would like to work with someone that has been in the industry for a long time.
We work with those startups to make it even better for our customer. In our offering, if it works for us, it will work for the customer. The fourth area that is super important for us is moving with speed. We are the first mover today and we want to continue to be the first mover. What do we do then? We penetrate the customers, making sure that we go with more and more customers, we capture more data and we invest in innovation. Of course, last but definitely not least, our foundation for us, it is important with customer centricity to really be close to our customers, serve the customer, understand the customer, understand their needs, scalability, do things in an efficient way to scale this area. That is important for accelerated growth. Innovation. We spend a lot in innovation.
Today we have more than 200 people in innovation. People and culture is also very important for us. We have an operating model that is very decentralized. We put a lot of effort in attracting the right people and keeping the right people and footprint and legacy. We have more than 50 years of experience in this industry. These are our strategy. Now you've heard a lot about our business and we are on a journey of accelerated growth. Why are we in a unique position to capture it? Because we are the market creators and we are the leaders in this market. We have a large data pool, we are partners to our customers. We put a lot of effort into innovation, customer support, customer success and we have a deep application knowledge.
Being in the industry for many, many years, serving this market and this industry. Five years ago, this business area was a pure ventilation equipment business. Today, five years later, we are the world leader in transforming the food industry with digitalization using AI software, controllers and data. That is what we have talked about today, the transformation.
Thank you,
thank you very much Pia and Klas for that presentation. We now have a couple of questions that we often receive from the market that we would like to talk to you about. Could you elaborate on the margin trajectory within controllers and software? Specifically, what are the underlying drivers influencing recent developments and what do you see? What do you consider to be a sustainable EBITDA margin for this segment, both in the near term and in the longer horizon?
First of all, I would like to say that I'm very pleased with the margin that we showed in the first quarter. In short, it is an accretive margin to the group targets. With that said, we should not be greedy and controllers are delivering a healthy margin. If we drive type of efficiency there, I think we can improve that slightly, even more moving forward. When it comes to software, we know that we can generate a fantastic margin there. Once again we will grow and we will not be greedy. We will invest. Pia, you have much more in.
This area to say
No, but what I can add to that, Klas, is really that we have very high margin, gross margin in this business and we want that we have been very successful in growing this business in the last four years and we will continue to grow the business exactly as Klas said. We are investing right now. We are investing in geographical expansion. We want to go into more markets with more customers. We are investing a lot into innovation. We are investing into adopting our products for the specific markets that we want to target, for example, it will be investments in the coming years in front of us. Of course it is a very healthy margins on this business.
What are your growth ambitions going forward? What types of additional investments are needed, whether it is in innovation, operational capacity or talent? What do you see as necessary to capture key market opportunities and deliver on your long term growth strategy?
I have to say that I'm super pleased with the growth that has been generated the last couple of quarters here. An impressive number in the range of 40% CAGR. My first, as always, is we will continue to dig where we are, but on top of that, of course we can also grow even more.
Hmm. When it comes to growth, I think I said it earlier in the presentation. We have a lot of opportunities to grow this market. We have a huge market ahead of us. We are the ones that are creating this market. We will invest in innovation, but we will not only invest in new things, we are also investing in innovation to actually drive efficiency internally as well. When it comes to the organization, we are investing in training, geographical expansion, as I said many times previously, going into Europe, Middle East, Africa, but also APAC regions.
Do you see M&A as a part of your growth strategy?
Of course. I mean, we have done M&As and as we will continue to drive organic growth there is a lot of potential for that. We will also look into M&A moving forward.
What type of areas could that be within?
I mean, it could be within the areas we have today. It could be within software, controllers, sensors, could also be within service or if we want to go into a new region or something like that, or new.
Segments
And yes that. What I think I'm very pleased about is if you talk specifically about controllers, you have now within the business here proven that. I mean, one plus one plus one is much more than three. You're driving efficiency, you're expanding your geographical footprint and your assortment.
Who do you consider to be your main competitors and how does it differ between their offering, technology, market position and do you have an estimated market share?
Good question, Lina. We define ourselves as the market creators. I talked about that earlier today. That also means that we are the market leader and we are clearly the one that are leading this transition in the industry when it comes to optimizing a full supply chain. On the controller side, we have very few that are global and have a good offering. We are among a few of us, let's say, where we believe that we are the market leader. On the software side, I think we are the only one that actually are able to do what we are doing in the industry for those segments that we are in. The ones we meet often are homemade legacy systems or even Excel sometimes that our customers are using.
Of course, there are some smaller players in some markets offering limited scope, but no one on that size that we are interesting.
You talked a lot about how you're working with AI, both internally, but also helping our customers through AI. Can you elaborate a bit more around this?
I mean, Claes talked about it in the beginning of his presentation and we work a lot with AI and we want to continue to work even more with AI going forward. We work a lot internally to drive efficiency. I think we have mentioned that a few times during the presentation today. A lot about how can we drive development, software development in a more efficient way using AI? We also are working with AI in our academy, which I also showed earlier today, and how we can use AI to actually scale through different regions and do it faster than if you only are working with people. It is actually a possibility for us to use AI to scale the business. What I'm mostly proud of is actually how we are using AI towards the customer. Many of our offering today includes AI.
We have a lot of AI included into our products and our offering. We are running a lot of our different offering live on AI today.
Finally, you are the market creator, meaning that you are leading the market in terms of innovation and R&D. How is your R&D spend evolving and to what extent is this supporting product innovation, digital capabilities, and long-term differentiation?
I think I mentioned it earlier, but we have more than 200 people in innovation today, both with software and controllers. I think we spend more than 10%-11% in R&D of our net sales, which is a lot. It is also needed to really make sure that we are growing this business over time. As you said, Klas is putting high expectation on us, so we need to live up with that. Yeah, that is what we believe in, that we want to serve our customers not only today, but also in the future.
If I come back a little bit, I know I'm biased on this, but I mean we have to brag a little bit. I think that is many different industries today and industrial companies, they're talking about moving from one type of a business to another. I have to congratulate Pia and I think this is a hidden gem to all of you out there that we have shifted now quite substantially, substantially from a traditional type of equipment driven business area to be very much controller and software driven. That is not that many that have been able to do that.
Perfect conclusion to this webinar. Thank you so much Pia and Klas for presenting. Thank you everyone for listening in and please feel free to reach out if you have any further questions or would like to have a session with Pia to discuss deeper. Thank you very much.
Thank you.
Thank you.