Contents
2 CEO’s statement
4 Strategic focus
6 Positioned for profitable growth
10 Personnel
12 Dehumidification division
18 Moisture Control Services (MCS) division
24 HumiCool division
30 Risks and risk management
32 The share and shareholders
34 Corporate governance report
38 Board of Directors and Auditor
39 Guidelines for compensation to senior managers
40 10-year review
42 12-quarter review
44 Comments on the performance during the year
45 Income statement
46 Balance sheet
48 Cash-flow statement
49 Statement of the Group’s recognized income and expense
50 Accounting principles and notes
70 Proposed distribution of earnings
71 Auditor’s report
72 Group Management
73 Definitions of financial key figures and glossary The Board of Directors’ report compromises pages 4–33, 39–44 and 70.
Financial information
Interim Report January–March April 22
Annual General Meeting April 22
Interim Report January–June August 12 Interim Report January–September October 23
Year-End Report February 2009
Annual Report 2008 March 2009
The Annual Report is sent to all shareholders registered with VPC, the Swedish Securities Register Center.
Munters AB (publ) Annual Report 2007
Munters AB (publ)
Isafjordsgatan 1, Kista Entrance
Global warm ing an
d risin g ene
rgy c
tsos
re a cre in g th asin eed e n r s fo ess ucc e ful rg ne m y
agan
em
ent of industrial processes and bu ildings. M
unte rs’ e rgne ff c y-e t p ien uct rod nd s a hn tec al ic xp e
ertise can vastly contribute to im prove
d ind r c oo ate lim for e b th ef en of t
hum
an comfort, perform
ance
he and
. alth
M U N T E R S A N N U A L R E P O R T
2 0 07
Contents
2 CEO’s statement
4 Strategic focus
6 Positioned for profitable growth
10 Personnel
12 Dehumidification division
18 Moisture Control Services (MCS) division
24 HumiCool division
30 Risks and risk management
32 The share and shareholders
34 Corporate governance report
38 Board of Directors and Auditor
39 Guidelines for compensation to senior managers
40 10-year review
42 12-quarter review
44 Comments on the performance during the year
45 Income statement
46 Balance sheet
48 Cash-flow statement
49 Statement of the Group’s recognized income and expense
50 Accounting principles and notes
70 Proposed distribution of earnings
71 Auditor’s report
72 Group Management
73 Definitions of financial key figures and glossary The Board of Directors’ report compromises pages 4–33, 39–44 and 70.
Financial information
Interim Report January–March April 22
Annual General Meeting April 22
Interim Report January–June August 12 Interim Report January–September October 23
Year-End Report February 2009
Annual Report 2008 March 2009
The Annual Report is sent to all shareholders registered with VPC, the Swedish Securities Register Center.
The Annual Report is a translation of the Swedish Annual Report.
In event of any discrepancies, the Swedish version shall apply.
Munters AB (publ) Annual Report 2007
Munters AB (publ)
Isafjordsgatan 1, Kista Entrance Box 1188, SE-164 26 Kista, Sweden Phone +46-8-626 63 00
Fax +46-8-754 68 96 info@munters.com www.munters.com
Global warm ing an
d risin g ene
rgy c
tsos
re a cre in g th asin eed e n r s fo ess ucc e ful rg ne m y
agan
em
ent of industrial processes and bu ildings. M
unte rs’ e rgne ff c y-e t p ien uct rod nd s a hn tec al ic xp e
ertise can vastly contribute to im prove
d ind r c oo ate lim for e b th ef en of t
hum
an comfort, perform
ance
he and
. alth
Order intake rose by 11 percent to SEK 6,407 M (5,761).
Net sales amounted to SEK 6,262 M (5,712), an increase of 10 percent.
Net profit increased to SEK 336 M (328).
Earnings per share amounted to SEK 4.49 (4.40).
A dividend of SEK 2.50 per share (2.25) is proposed.
The year in brief
Munters 2007
Dehumidification
Products and complete solutions for controlling humidity.
Customer manufacturing and storage processes are made more efficient. Product quality and hygiene are improved.
Dehumidification in combination with cooling creates an ideal indoor climate.
Global Munters
Sälj- och servicebolag
Produktionsanläggningar, sälj- och servicebolag
(300 servicedepåer är ej markerade på kartan)
Dehumidification division’s share of:
MCS division’s share of:
HumiCool division’s share of:
MCS (Moisture Control Services)
Services for water and fire damage restoration and temporary climate control. A complete service offering for the insurance industry that lowers costs through drying and renovating rather than rebuilding.
HumiCool
Products and systems for evaporative cooling and humidification. Cooling systems for the poultry and horticulture industries. Technique and products for
Munters
Division Moisture Control
Services (MCS) Division
Dehumidification
Division HumiCool
Keydata Change, Adjusted
2007 2006 % change, %1
Order intake, SEK M 6,407 5,761 11 6
Net sales, SEK M 6,262 5,712 10 6
EBIT, SEK M 566 529 7
EBIT margin, % 9.0 9.3
Earnings after financial items, SEK M 526 514 2
Net earnings, SEK M 336 328 2
Net margin, % 5.4 5.7
Earnings per share, SEK 4.49 4.40
Operating cash flow, SEK M 189 375 –50
Return on equity, % 25.7 22.5
Return on capital employed, % 24.8 28.0 Return on operating capital, % 31.8 32.7
Capital turnover rate, times 2.7 3.0
Net debt, SEK M 1,068 257
Equity ratio, % 31 48
Number of employees at year-end 4,043 3,552 14
Two global product divisions focused on industrial-process air treatment, comfort-oriented climate control and climate control for the AgHort industry, and a global service organization within damage restoration and temporary climate control.
Manufacturing, sales and service take place with more than 4,300 employees in companies in more than 30 countries.
The Munters share has been listed since 1997 on the OMX Nordic Exchange Stockholm in the Mid Cap segment.
Net sales
Net sales
Operating earnings
Operating earnings Earnings Trend (rolling four-quarter figures)
1,000 2,000 3,000 4,000 5,000 6,000 7,000
100 200 300 400 500 600 700
1000 2000 3000 4000 5000 6000 7000 8000
100 200 300 400 500 600 700 800
Q4
96 Q4
97 Q4
98 Q4
99 Q4
00 Q4
01 Q4
02 Q4
03 Q4
04 Q4
05 Q4
06 Q4
07
SEK M SEK M
Order intake Net sales Operating earnings
30% 38%
42% 21%
28% 41%
l Report 2007
GLOSSARY
Definitions of financial key figures and glossary
DEFINITIONS OF FINANCIAL KEY FIGURES
Capital employed – Total assets minus non-interest-bearing provisions minus non- interest-bearing liabilities.
Capital turnover rate – Net sales divided by average capital employed calculated on the opening and closing balances for the past four quarters.
Cash and cash equivalents – Cash and bank balances plus current investments with maturity periods not exceeding three months.
Earnings per share – Net earnings divided by the weighted average number of shares.
EBIT margin – EBIT divided by net sales.
Equity per share – Equity (excluding minority interest) divided by the number of shares outstanding on the closing date.
Equity/assets ratio – Equity (including minority) interest divided by total assets.
Interest coverage ratio – Earnings after financial items plus financial expenses (ex- cluding exchange-rate differences) divided by financial expenses (excluding exchange- rate differences).
Net debt – Interest-bearing liabilities plus defined-benefit commitments to employees minus interest-bearing assets minus cash and cash equivalents.
Net debt/equity ratio – Net debt divided by equity (including minority interests).
Operating assets – Intangible assets excluding goodwill plus tangible assets plus inventories etc. plus accounts receivable.
Operating capital – Operating assets minus operating liabilities.
Operating cash flow – Cash flow from current operations and investing activities excluding acquisitions of operations and the sale of operating segments.
Operating earnings – Operating earnings corresponds to EBIT excluding goodwill im- pairments and surplus values depreciation.
Operating liabilities – Advances from customers plus accounts payable.
Operating margin – Operating earnings divided by net sales.
Operating working capital – Inventories etc. plus accounts receivable minus advances from customers minus accounts payable.
P/E (price/earnings) ratio – Share price on closing date divided by earnings per share.
Return on capital employed – Earnings after financial items plus financial expenses (excluding exchange-rate differences) divided by average capital employed calcu- lated on the opening and closing balances in the past four quarters.
Return on operating capital – Operating earnings divided by the average operating capital using the past 12 months’ opening and closing balances as a base.
Return on equity – Net earnings divided by average equity calculated on the open- ing and closing balances of the last four quarters. Minority interest is excluded from earnings as well as shareholders’ equity.
Absolute humidity – The volume of water that air contains as generally measured in grams per kilogram of air.
Absorption – Accumulation of moisture, for example, by a substance, which then changes chemically or physically.
Adsorption – Accumulation of moisture, for example, by a substance, which does not change, either chemically or physically.
AgHort – Agriculture and Horticulture.
CELdek® – A product of specially impregnated cellulose for evaporation and cooling of air.
Cooling tower – A facility for evaporative cooling of water.
Dehumidification – A division within Munters whose products are based on dehumidification.
Dehumidifier – Equipment for dehumidi- fication of air.
DesiCool™ – A technology for cooling air through a combination of dehumidifica- tion and evaporative cooling.
Dew point – The temperature to which air must be cooled for the water vapor in the air to condense.
Evaporative cooling – Cooling that occurs when a liquid, such as water, evaporates.
FGD – flue-gas desulfurization is a tech- nology applied in coal-fired power plants to clean flue gases from sulfur emissions that cause so-called acid rain.
GLASdek® – A product of specially impregnated spun glass for humidification and cooling of air.
HumiCool – A division within Munters whose products are based on evaporative cooling and humidification.
Leak detection – A search method which exploits changes in moisture, temperature and sound waves that leaks cause.
Lithium chloride – A moisture absorbing substance that is used in sorption rotors.
MCS, Moisture Control Services – A division within Munters focused on moisture technology services with an emphasis on the restoration of water and fire damages.
Mist eliminator – A component for re- moving drops of liquid from a flow of gas.
Mollier diagram – A diagram that shows the correlation between absolute humidity, relative humidity, temperature and energy.
PowerPurge™ – New, patented technol- ogy to recover energy from the dehumidi- fication process. By returning surplus heat from the dehumidification rotor to the re- generated air and simultaneously reducing the need for after cooling of the process air, energy costs can be reduced by up to 40%.
RH, Relative Humidity – Expresses the relationship between the water content of air at a given temperature and the maxi- mum amount that the air can hold at the same temperature.
Silica Gel – A moisture-absorbing substance (silicon dioxide) that is used in sorption rotors.
Sorption rotor – A rotor for dehumidifi- cation through sorption.
The Humidity Expert – A concept for positioning Munters.
VOC – Volatile Organic Compounds.
Zeol – An operation within Munters focused on adsorption of VOC from air with zeolites, a substance that adsorbs VOCs.
Order intake rose by 11 percent to SEK 6,407 M (5,761).
Net sales amounted to SEK 6,262 M (5,712), an increase of 10 percent.
Net profit increased to SEK 336 M (328).
Earnings per share amounted to SEK 4.49 (4.40).
A dividend of SEK 2.50 per share (2.25) is proposed.
The year in brief
Munters 2007
Dehumidification
Products and complete solutions for controlling humidity.
Customer manufacturing and storage processes are made more efficient. Product quality and hygiene are improved.
Dehumidification in combination with cooling creates an ideal indoor climate.
Global Munters
Sälj- och servicebolag
Produktionsanläggningar, sälj- och servicebolag
(300 servicedepåer är ej markerade på kartan)
Dehumidification division’s share of:
MCS division’s share of:
HumiCool division’s share of:
MCS (Moisture Control Services)
Services for water and fire damage restoration and temporary climate control. A complete service offering for the insurance industry that lowers costs through drying and renovating rather than rebuilding.
HumiCool
Products and systems for evaporative cooling and humidification. Cooling systems for the poultry and horticulture industries. Technique and products for mist elimination, e.g. for treatment of flue gases.
Munters
Division Moisture Control
Services (MCS) Division
Dehumidification
Division HumiCool
Keydata Change, Adjusted
2007 2006 % change, %1
Order intake, SEK M 6,407 5,761 11 6
Net sales, SEK M 6,262 5,712 10 6
EBIT, SEK M 566 529 7
EBIT margin, % 9.0 9.3
Earnings after financial items, SEK M 526 514 2
Net earnings, SEK M 336 328 2
Net margin, % 5.4 5.7
Earnings per share, SEK 4.49 4.40
Operating cash flow, SEK M 189 375 –50
Return on equity, % 25.7 22.5
Return on capital employed, % 24.8 28.0 Return on operating capital, % 31.8 32.7
Capital turnover rate, times 2.7 3.0
Net debt, SEK M 1,068 257
Equity ratio, % 31 48
Number of employees at year-end 4,043 3,552 14
1 Adjusted for currency and acquisitions and sale of operations.
Two global product divisions focused on industrial-process air treatment, comfort-oriented climate control and climate control for the AgHort industry, and a global service organization within damage restoration and temporary climate control.
Manufacturing, sales and service take place with more than 4,300 employees in companies in more than 30 countries.
The Munters share has been listed since 1997 on the OMX Nordic Exchange Stockholm in the Mid Cap segment.
Net sales
Net sales
Net sales
Operating earnings
Operating earnings
Operating earnings Earnings Trend (rolling four-quarter figures)
1,000 2,000 3,000 4,000 5,000 6,000 7,000
100 200 300 400 500 600 700
1000 2000 3000 4000 5000 6000 7000 8000
100 200 300 400 500 600 700 800
Q4
96 Q4
97 Q4
98 Q4
99 Q4
00 Q4
01 Q4
02 Q4
03 Q4
04 Q4
05 Q4
06 Q4
07
SEK M SEK M
Order intake Net sales Operating earnings
30% 38%
42% 21%
28% 41%
73
Munters Annual Report 2007
GLOSSARY
Definitions of financial key figures and glossary
PROduCTION: CITIgATESTOCKHOlM.COM PRINT: STROKIRK lANdSTRöMS. PHOTO COVER: © YANN ARTHuS-BERTRANd/AlTITudE. PHOTO: PETER KNuTSSON (PORTRAIT), JAN BENgTSSON/ETSABIld, PER MAgNuS PERSSON/JOHNéR, lARS STRANdBERg, STEfAN ISAKSSON/BRIlJANS.SE, MATTON BIldBYRå ANd JOHNéR BIldBYRå.
DEFINITIONS OF FINANCIAL KEY FIGURES
Capital employed – Total assets minus non-interest-bearing provisions minus non- interest-bearing liabilities.
Capital turnover rate – Net sales divided by average capital employed calculated on the opening and closing balances for the past four quarters.
Cash and cash equivalents – Cash and bank balances plus current investments with maturity periods not exceeding three months.
Earnings per share – Net earnings divided by the weighted average number of shares.
EBIT margin – EBIT divided by net sales.
Equity per share – Equity (excluding minority interest) divided by the number of shares outstanding on the closing date.
Equity/assets ratio – Equity (including minority) interest divided by total assets.
Interest coverage ratio – Earnings after financial items plus financial expenses (ex- cluding exchange-rate differences) divided by financial expenses (excluding exchange- rate differences).
Net debt – Interest-bearing liabilities plus defined-benefit commitments to employees minus interest-bearing assets minus cash and cash equivalents.
Net debt/equity ratio – Net debt divided by equity (including minority interests).
Operating assets – Intangible assets excluding goodwill plus tangible assets plus inventories etc. plus accounts receivable.
Operating capital – Operating assets minus operating liabilities.
Operating cash flow – Cash flow from current operations and investing activities excluding acquisitions of operations and the sale of operating segments.
Operating earnings – Operating earnings corresponds to EBIT excluding goodwill im- pairments and surplus values depreciation.
Operating liabilities – Advances from customers plus accounts payable.
Operating margin – Operating earnings divided by net sales.
Operating working capital – Inventories etc. plus accounts receivable minus advances from customers minus accounts payable.
P/E (price/earnings) ratio – Share price on closing date divided by earnings per share.
Return on capital employed – Earnings after financial items plus financial expenses (excluding exchange-rate differences) divided by average capital employed calcu- lated on the opening and closing balances in the past four quarters.
Return on operating capital – Operating earnings divided by the average operating capital using the past 12 months’ opening and closing balances as a base.
Return on equity – Net earnings divided by average equity calculated on the open- ing and closing balances of the last four quarters. Minority interest is excluded from earnings as well as shareholders’ equity.
Absolute humidity – The volume of water that air contains as generally measured in grams per kilogram of air.
Absorption – Accumulation of moisture, for example, by a substance, which then changes chemically or physically.
Adsorption – Accumulation of moisture, for example, by a substance, which does not change, either chemically or physically.
AgHort – Agriculture and Horticulture.
CELdek® – A product of specially impregnated cellulose for evaporation and cooling of air.
Cooling tower – A facility for evaporative cooling of water.
Dehumidification – A division within Munters whose products are based on dehumidification.
Dehumidifier – Equipment for dehumidi- fication of air.
DesiCool™ – A technology for cooling air through a combination of dehumidifica- tion and evaporative cooling.
Dew point – The temperature to which air must be cooled for the water vapor in the air to condense.
Evaporative cooling – Cooling that occurs when a liquid, such as water, evaporates.
FGD – flue-gas desulfurization is a tech- nology applied in coal-fired power plants to clean flue gases from sulfur emissions that cause so-called acid rain.
GLASdek® – A product of specially impregnated spun glass for humidification and cooling of air.
HumiCool – A division within Munters whose products are based on evaporative cooling and humidification.
Leak detection – A search method which exploits changes in moisture, temperature and sound waves that leaks cause.
Lithium chloride – A moisture absorbing substance that is used in sorption rotors.
MCS, Moisture Control Services – A division within Munters focused on moisture technology services with an emphasis on the restoration of water and fire damages.
Mist eliminator – A component for re- moving drops of liquid from a flow of gas.
Mollier diagram – A diagram that shows the correlation between absolute humidity, relative humidity, temperature and energy.
PowerPurge™ – New, patented technol- ogy to recover energy from the dehumidi- fication process. By returning surplus heat from the dehumidification rotor to the re- generated air and simultaneously reducing the need for after cooling of the process air, energy costs can be reduced by up to 40%.
RH, Relative Humidity – Expresses the relationship between the water content of air at a given temperature and the maxi- mum amount that the air can hold at the same temperature.
Silica Gel – A moisture-absorbing substance (silicon dioxide) that is used in sorption rotors.
Sorption rotor – A rotor for dehumidifi- cation through sorption.
The Humidity Expert – A concept for positioning Munters.
VOC – Volatile Organic Compounds.
Zeol – An operation within Munters focused on adsorption of VOC from air with zeolites, a substance that adsorbs VOCs.
l Report 2007
Munters’ vision is to be a globally leading supplier of energy- efficient solutions for air treatment and damage control based on its expertise in technologies for humidity and climate control.
Strategic focus
From its original focus on humidity control, Munters has gradually expanded its business concept to adjacent areas. In this process, Munters continues to focus on customer-driven applications and advanced, energy-efficient and high-quality production solutions and services that are related to Munters’ traditional areas of expertise. By gradually expanding the product and service portfolio and through forward integration, Munters’ business captures a larger portion of the value chain within selected niches, while the market potential increases.
An important part of the strategic work is to further strengthen the company’s position to leverage the following global trends:
Increasing demand for energy-efficient and environmentally friendly solutions
Increased requirements on indoor climate
Consolidation and quality demands within food production and distribution
Consolidation within the insurance industry Economic expansion in Asia
Environmentally friendly and energy-efficient technologies
Environmentally friendly and energy-efficient technologies
Leverage on global market trends
Focus on gross margin
Strengthened presence in Asia
More efficient product development – global platforms
Expansion from selected niches Complementary acquisitions
Munters’ strategic initiatives create synergies for achieving its overall goals.
Profitable growth
CEO’s statement
Now that the 2007 fiscal year has ended, we can note that Munters reported its best-ever earnings. One positive note during the year was that recent acquisitions developed very favorably. Another was that our expanded production facility in China was opened at the end of the year, which will be of great importance for our growth ambitions in the Asian market. Profitability within MCS, however, was not satisfactory.
Over the coming period, we will devote considerable effort to strengthening profitability in the Group. An extensive efficiency and margin improvement program will provide the foundation for this work.
solidation and regulation is taking place in the agricultural and food industries. Consumption of meat in developing countries is increasing in pace with regional economic growth. This in turn results in higher prices and a need for more effective produc- tion methods, thus driving the consolidation trend. Munters’
systems for controlling the indoor climate for animal breeding increase productivity and can also reduce the risk of disease.
Strategic initiatives for profitable growth
Munters’ long-term strategic plan for increasing profitability, while positioning Munters to leverage these global trends in the best possible manner, can be summarized in the following strategic initiatives:
Leverage on global market trends – As mentioned above, Munters is well-positioned with respect to a number of global trends. Most of Munters’ strategic initiatives are intended to further exploit these trends. One example is that we are currently already well-positioned to secure a major breakthrough order for energy-efficient industrial air conditioning for a plant in the Philippines being constructed by a global electronics company.
Strong presence in Asia – During 2007, significant effort was devoted to increasing the Group’s presence in Asia. At the end of the year, expansion of the plant in Beijing was completed, which in practice meant that Munters’ production capacity in China was doubled. At the same time, the sales force was strengthened by the addition of well-trained personnel. The plant, which is shared by Dehumidification and HumiCool, will be one of our most versatile production facilities when production is transferred from Europe and North America. It will be the global producer of small heaters from Sial and also constitute the hub in purchasing for several parts of the organi- zation. During the year, Munters opened its first sales office in India, which is a market with substantial potential. Much of this work will show tangible results starting in 2008.
Expansion from selected niches – Munters has a historically strong position in a number of niches based on the company’s core technologies. Based on these positions, Munters is expanding the company’s offering to enable us to satisfy a greater proportion of customer needs. One example is the AgHort business area, where we for a long period have had a high market share in evaporative cooling media. In recent years, we have also built a strong position in ventilation products for the agricultural industry and are now introduc- The Group’s development during 2007 was characterized by
stable growth and strong order intake. However, profitability within our largest division, MCS, was not satisfactory. During the first half of the year, MCS was negatively affected by very dry weather in Europe, the US and Australia. In addition, some costs of a temporary nature arose that were not foreseen at the beginning of the year. To reverse the weak margin trend, a cost- reduction program was initiated within MCS during the sum- mer. The MCS division’s sales and operating margin improved during the second half of the year, primarily as a result of weather in northern Europe that was more favorable for Munters, but also as a result of a marked improvement in German operations. Dur- ing February 2008, an extensive action program was initiated that creates potential for significant margin improvements within MCS, as well as in the other two divisions.
The Dehumidification division performed well during the year. The market for industrial dehumidifiers was strong throughout the year. The division’s investments in Asia resulted in major orders in that region toward the end of the year. The HumiCool division also noted stable order intake and a favorable earnings trend during the year, despite weak market demand during the first half of the year in the largest business area, AgHort.
Demand for Munters’ products favored by global trends
The general factors driving Munters’ growth are that customers need to increase productivity while also seeking to improve the quality of both their products and manufacturing processes. At the same time, increasingly higher demands are being placed on indoor climate in both commercial and industrial facilities.
Rising energy prices and increasingly strict emission regulations also increased demand for energy-efficient and environmentally friendly products and production processes. Munters’ energy- efficient solutions for controlling indoor climate often satisfy these requirements. Broad economic growth in large parts of Asia has had the result that a greater proportion of the popula- tion is able to adopt Western consumption patterns, which in turn increases demand for Munters’ products. Another trend driving the market is consolidation in many of our customer segments. Within the insurance industry, the players are becom- ing fewer and larger and are increasingly electing to partner with national and to a certain extent international damage-restora- tion companies. Today, Munters is one of the few companies in this area with a global organization. In addition, rapid con-
Record earnings despite unsatisfactory
profitability within the MCS division
l Report 2007
CEO’s statement
ing new products in heating and control systems. Another example is mist elimination, where we have traditionally held a dominant market position in cleaning of emissions from coal-fired power plants. This technology has now been enhanced for applications in the chemical processing indus- try, a segment in which Munters has noted rapid growth.
Complementary acquisitions – In April, Des Champs Technologies was acquired, which significantly strengthened Dehumidification’s position as a leading supplier of energy- efficient systems for climate control for commercial buildings and provides opportunities for greatly improved market coverage with respect to both climate zones and customer applications. The acquisition of Turbovent during the sum- mer strengthened HumiCool’s position as a leading supplier of climate control equipment and air and odor purification systems within the AgHort segment, while supplementing Munters’ product range with products for colder climates. We are currently analyzing several companies and intend to make additional acquisitions during 2008.
More efficient product development – Munters has always placed great emphasis on product development. Our starting point in developing new or enhancing existing technology is that the new models must be more energy-efficient than the old ones. Our investments in research and development increased by 35 percent during 2007. To ensure future growth, product development operations will be further strengthened during 2008. A number of well-received products were introduced in the market during 2007. One example is Oasis, developed within Des Champs, which is a system that combines indirect evaporative cooling in the first step with traditional air condi- tioning in the second step. The result is that the air is cooled without adding moisture, which reduces energy consumption by half, compared with using air conditioning only. Another example is ESAC, an evaporative cooling product for indus- trial applications. During 2008, we will launch a number of very interesting products. One example is DryCool ERV, a dehumidification system that combines dehumidification and reclaiming of energy. The system is based on the third generation of Munters’ patented HCU platform for cooling and dehumidification in combination with the energy-recovery technology from the newly acquired Des Champs.
February 2008, an extensive efficiency and margin-improvement program was launched under the name Munters Efficiency Pro- gram Phase 2 or MEP2. The new program is an enhancement of the original MEP program introduced in 2004, which was based on the principles of resource-efficient manufacturing, short lead times and high employee involvement. Within the framework of the MEP2 program, the mobile IT platform Field.Link will be rolled out to most service technicians. Field.Link is intended to industrialize the management of business processes, which will improve productivity both in the field and within support functions. In conjunction with this project, a capital-efficiency project is also being conducted that is intended to reduce tied- up capital in accounts receivable. In addition to the measures within MCS, MEP2 involves increased efforts to improve pro- duction efficiency within HumiCool and Dehumidification.
Prospects for 2008
Looking ahead to 2008, there are several factors that are impor- tant to bear in mind. We estimate that 25-30 percent of our sales volumes normally follow economic cycles. This means that most of Munters’ sales are more affected by the long-term trends mentioned above than short-term economic fluctuations. During 2008, Munters will take additional decisive steps to strengthen profitability, and we are confident that investments in new markets and new products will result in increased sales volumes.
The unsatisfactory profitability in MCS is being addressed during the year with the introduction of a more efficient business model based on the implementation of Field.Link. In this context, I would like to welcome Morten Andreasen to Munters. Morten assumed his position as manager of our largest division MCS at the beginning of March and is now a member of Group manage- ment. Morten has broad international experience and in-depth knowledge of service operations, and I am convinced that he is the right person to further strengthen MCS’ position as a leading service company in a market undergoing consolidation. In clos- ing, I would also like to thank Munters’ employees for outstand- ing individual performance that contributed to a successful 2007.
A focus on goals and unrelenting work by the entire organization have laid the foundation for continued success in 2008.
“During 2008, we will take further decisive steps to improve profitability and are highly confident that our investments in new markets and products will increase sales volumes.”
02 03 04 05 06 07
02 03 04 05 06 07
02 03 04 05 06 07
02 03 04 05 06 07
SEK M
Order intake Net sales Operating earnings (right-hand scale) Target Sales growth
Organic growth in current structure
Target EBIT margin
Target Capital turnover rate
-5 0 5 10 15 20 25
5,0 6,5 8,0 9,5 11,0 12,5 14,0
2,00 2,25 2,50 2,75 3,00 3,25 3,50 –5
0 5 10 15 20 25
5.0 6.5 8.0 9.5 11.0 12.5 14.0
2.00 2.25 2.50 2.75 3.00 3.25 3.50
%
%
Times
1,000 1,400 1,800 2,200
High employee satisfaction, low personnel turnover and attractive career opportunities
High efficiency and short lead times via integrated IT systems
Global divisions
Within the product divisions, three focused markets can be distinguished:
Industrial-process air treatment
Comfort-oriented climate control
Climate control for the AgHort industry
Within these focus markets, Munters applies a number of core technologies:
Dehumidification
Air cooling and heating
Humidification
Heat-exchange technology
Mist elimination
Contaminant elimination Within the MCS service division, Munters continues to build on its position as a world leader in damage restoration and tem- porary climate control by leveraging the ongoing global consoli- dation within the insurance and damage restoration sectors.
Vision
Munters vision is to be a global leader in energy-efficient air treatment solutions and restoration services based on exper- tise in humidity and climate-control technologies.
Financial targets
Shareholder value shall be created through high growth com- bined with good margins and a high rate of capital turnover.
The Board of Directors has established the following financial targets:
Sales growth of 10 percent per year over a period of several years
EBIT margin of 10 percent
Capital turnover rate of 3 times
Each division and business unit has individual targets for these key figures that have been adapted to suit their particular conditions.
Operative targets
Global leadership in selected segments
Leading in energy efficiency
High quality and productivity and efficient resource utilization through continuous improvement work
Munters has built a world-leading position within energy-efficient and environmentally friendly air treatment based on extensive experience and specialized expertise within thermodynamics. Munters focuses on market segments with favorable growth potential in which the Group can create strong global positions and favorable profitability. By successively expanding the product and service portfolio and through forward integration, Munters captures a greater share of the value chain within selected niches, while increasing its market potential. Munters estimates that the annual value of the potential market is about SEK 70 billion, of which Munters has a market share of about 10 percent.
Strategic focus
Strategic focus
Sales growth Strategic initiatives
Munters’ strategic initiatives create synergies for achieving these general targets and can be summarized in the following illustration:
Leveraging on global market trends
Focus on gross margin
Strong presence in Asia
More efficient product development – global platforms
Expansion from selected niches Complementary
acquisitions
Profitable growth
Munters Annual Report 2007
5
02 03 04 05 06 07
02 03 04 05 06 07
02 03 04 05 06 07
02 03 04 05 06 07
SEK M
Order intake Net sales Operating earnings (right-hand scale) Target Sales growth
Organic growth in current structure
Target EBIT margin
Target Capital turnover rate
-5 0 5 10 15 20 25
5,0 6,5 8,0 9,5 11,0 12,5 14,0
2,00 2,25 2,50 2,75 3,00 3,25 3,50 –5
0 5 10 15 20 25
5.0 6.5 8.0 9.5 11.0 12.5 14.0
2.00 2.25 2.50 2.75 3.00 3.25 3.50
%
%
Times
1,000 1,400 1,800 2,200
02 03 04 05 06 07
02 03 04 05 06 07
02 03 04 05 06 07
02 03 04 05 06 07
SEK M
Order intake Net sales Operating earnings (right-hand scale) Target Sales growth
Organic growth in current structure
Target EBIT margin
Target Capital turnover rate
-5 0 5 10 15 20 25
5,0 6,5 8,0 9,5 11,0 12,5 14,0 –5
0 5 10 15 20 25
5.0 6.5 8.0 9.5 11.0 12.5 14.0
2.00 2.25 2.50 2.75 3.00 3.25 3.50
%
%
Times
1,000 1,400 1,800 2,200 Focus by division
Munters develops a strategic plan for each division that is reviewed each year. A number of strategic initiatives are established at the division level and set the direction and focus for the business. For the coming period, the three divi- sions will focus on the following areas:
The Dehumidification division will focus on continued profitable growth through a strengthened presence in Asia, increased efficiency in production and the launch of global product families based on modular thinking and energy- efficient solutions in industrial operations. Within com- mercial operations, the focus will be on expanding successful and energy-efficient solutions from North America to the European and Asian markets and on ensuring rapid launch and commercialization of new technical solutions.
The MCS division will focus on increasing profitability in each country by establishing an integrated IT platform that enables efficiency to be increased not only in service delivery, but also in support functions. At the same time, cost flexibil- ity in operations will be increased through more effective use of sub-contractors and flexible component solutions. Within major damage-restoration projects, profitability will be
Strategic focus
EBIT margin Capital turnover rate
increased by strengthening expertise in project management.
At the same time, initiatives are being taken to leverage the growth opportunities created by consolidation in the insur- ance and damage-restoration sectors through national and regional contracts and professional key-account management.
The HumiCool division will focus on profitable growth through expansion of the existing product offering to achieve a higher proportion of total solutions for customers. Joint product-development projects and standardization of the product program, as well as global employment of the divi- sion’s product applications increase the rate of expansion of the product portfolio. Continuous forward integration in the value chain is also in progress in carefully selected market segments. Further improvements in profitability will be achieved by improving production efficiency and increasing production in low-cost countries.
tivity and reduce the risk of disease. Within food production and distribution, eliminating moisture restricts the growth of bacteria and mold, while improving quality and shelf life.
Consolidation in the insurance industry. Extensive consolidation in the insurance industry has been taking place for some time. Many insurance companies want to take advantage of opportunities for reducing costs for handling damage and restoration by working with fewer national or international suppliers. Munters is uniquely positioned to take advantage of this trend via its MCS (Moisture Control Services) division.
With its wide geographic representation, Munters is an ideal business partner for these increasingly larger and more international insurance companies via long-term national or regional contracts with fixed prices. Water and fire damage represents a large portion of insurance companies’ costs.
Munters’ technology reduces waste of building materials and fittings. The Group is the technology leader, and its services, which are characterized by high quality, broad geographic coverage and rapid response, are based largely on Munters’
own dehumidifiers. By taking even greater responsibility for damage control and IT-based documentation, Munters’ MCS also reduces the insurance company’s administrative costs.
Economic growth in Asia. The broad and protracted economic expansion taking place in Asia, primarily in China and India, means that an increasingly large proportion of the population is now able to adopt western consumption patterns. This in turn results in rapidly increasing demand for products that need technology from Munters in the production process.
This also results in increased demands on indoor climate, etc.
These demands must be met in an energy-efficient manner, which Munters can do. During 2007, Munters took forceful initiatives for growth in Asia by expanding local production capacity and improving sales channels.
Munters responds to these trends in part by continuously reviewing its product and services offering and production structure and by developing new energy-efficient and envi- ronmentally friendly solutions, thus creating prerequisites for continued, sustainable and profitable growth.
Global product divisions
Over several decades, Munters has largely created its own growth by continuously expanding its offering, developing new application areas and increasing forward integration. This The global industrial restructuring process that has been
in progress for some time has meant that companies to an increasing extent want fewer but larger suppliers with a global presence. To ensure high product quality, production environments must be identical, regardless of climate zone.
These trends continue and favor Munters, which has a strong brand and an organization that supports the strategy of being a global, customer-oriented and highly specialized supplier.
Furthermore, Munters is favored by the following five global and increasingly general trends:
Increased demand for energy-efficient and environmentally friendly solutions. Munters strives to make it possible for cus- tomers to reduce resource consumption and environmental impact. Compared with alternative solutions, technology from Munters often results in lower energy consumption and less resource waste. Several of the Group’s products are used to reduce emissions of harmful substances, such as sulfur dioxide that contributes to the greenhouse effect. Higher energy prices – in combination with greater environmental awareness – increase demand for environmentally friendly and energy-efficient products and production processes. Also in this respect, Munters contributes to improving the envi- ronment, primarily through very energy-efficient solutions for climate control. Munters’ damaged restoration services contribute to renovating and reusing damage material instead of demolition and rebuilding.
Increased demands on indoor climate. Requirements for energy savings are increasing. These savings are often achieved through tighter insulation and reduced ventilation. This often results in problems with mold, moisture and allergies. Munt- ers can reduce these problems in two ways, through fixed installation of units that prevent the problems from arising and permit energy-efficient ventilation or through MCS services that can be quickly deployed in environments that are already affected.
Consolidation and regulation within food production and distribution. Rapid global consolidation and regulation of the agricultural and food industries is taking place. Both of these trends result in increased investment in equipment to increase productivity and improve hygiene. Munters has solutions for all aspects of the food industry, from production and manu- facturing via transport and storage to sales in stores. Munters’
climate-control systems for livestock breeding increase produc-
A few years ago, Munters could be regarded primarily as a humidity expert and component supplier with a base in dehumidification and humidification. Today, the Group has become an expert in climate control and a globally leading supplier of solutions for air treatment and damage restoration. All of Munters’
products are based on the company’s environmentally friendly and energy-efficient technology.
Positioned for profitable growth
Positioned for profitable growth
l Report 2007
has made the company a global market leader in a number of selected niches. To meet customer demands for global solutions and to secure and strengthen Munters’ long-term competitive- ness, the organization was restructured in three global product divisions during 2005. This structure created a holistic view of both the customer and product portfolio, with increased cross- selling across borders as one result and facilitated the introduc- tion of successful applications in new geographic markets. At the same time, a number of benefits were realized, since purchasing, production and product development can be coordinated in a global perspective. The next step is that business areas and busi- ness units can work along these lines to a greater extent.
Strategic acquisitions
Since the autumn of 2006, Munters has expanded its product portfolio and thus redefined the potential market in a decisive manner. This expansion was accomplished both organically and through three strategic acquisitions.
Sial is Europe’s leading manufacturer of mobile heaters for applications in industry, agriculture and commercial premises, which strengthens Munters’ position as the market- leading supplier of energy- and cost-efficient solutions for climate control within the HumiCool division.
Des Champs Technologies are experts in air treatment and energy recovery, which strengthens Munters’ position as a lead- ing supplier of energy-efficient solutions for climate control for commercial buildings in the Dehumidification division.
Turbovent is Northern Europe’s leading supplier of ventila- tion systems and air purification systems for the agricultural industry, which complements Munters’ AgHort product portfolio within the HumiCool division.
These acquisitions support Munters’ strategy to strive for total solutions that expand the Group’s expertise and application competence in a number of areas. During 2008, the first prod- ucts will be launched that are based on technical integration.
Core values
Munters’ core values are expressed in a number of guidelines and policies that were developed with the intention of defin- ing the Group’s fundamental approach to environmental, social and ethical issues. Work with these guidelines and policies is a process that enables Munters’ operations to reflect local, national and international changes in legisla- tion, market conditions and social and cultural values. These documents include specific policies for information, the envi- ronment, a code of conduct, working conditions and equal
Positioned for profitable growth
MEP2 – the next step in further rationalizing operations In February 2008, Munters introduced an extensive pro- gram for increasing efficiency and improving the EBIT margin under the name Munters Efficiency Program Phase 2 or MEP2. The program is based on the Munters Efficiency Program launched in 2004, which was based on the principles of resource-efficient manufacturing, short lead times and high employee involvement. The new program includes an increased focus on produc- tion efficiency within the HumiCool and Dehumidification divisions and implementation of a mobile IT platform (Field.Link) for service technicians within the MCS division, which creates a platform for sharply improved productivity. Within MCS, a capital efficiency project is also being introduced that is linked to Field.Link.
Within the Dehumidification and HumiCool divisions, extensive changes in plant layout and production flow will be implemented in seven of the largest product units in parallel with investments in productivity-enhancing machines. In addition, production of a number of prod- ucts will be relocated to the company’s plants in Mexico and China in order to reduce manufacturing costs.
Within the MCS division, a mobile IT platform for service technicians called Field.Link was developed during 2007 and is now ready for roll-out. The platform is based on the successful concept used in the UK in recent years. During 2008, Field.Link is expected to be rolled out to about 1,000 service technicians, or about 75 percent of the total potential. Increased productivity both in the field and within support functions is expect- ed during the latter part of 2008 as a result of more efficient and industrialized management of business processes. In conjunction with this project, a capital ef- ficiency project will also be conducted that is intended to improve business processes and reduce capital tied-up in accounts receivable. Improvement work within MCS will be supported by a new organizational structure with three global market areas with dedicated management focused on operational quality within the business units. The market areas will be supported by central functions for finance, human resources, sales and marketing and business support.
The goal of MEP2 is to achieve an annual reduc- tion in cost levels of SEK 75 M while reducing tied-up capital by SEK 170 M. During 2008, the program is expected to result in extra investments of SEK 45 M and a negative impact on earnings of SEK 50 M. The positive effect on operating earnings is estimated at
Case
