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January-June 2003

January-June 2003. Market development 2003. Weak demand in Q2 in MCS, dry weather Dramatic drop in AgHort, Europe Changing competitive patterns following changing currencies Low demand for large projects in Dehumidification (ex DryCool) Decisions regarding large orders are delayed.

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January-June 2003

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  1. January-June 2003

  2. Market development 2003 • Weak demand in Q2 in MCS, dry weather • Dramatic drop in AgHort, Europe • Changing competitive patterns following changing currencies • Low demand for large projects in Dehumidification (ex DryCool) • Decisions regarding large orders are delayed

  3. Pharma Food Preservation Dehumidification 32% of Munters 2002

  4. Dehumidification • HCU (DryCool) has strong development, extended production capacity • Order intake down 17%, -5% organic, but up 6% organic in the quarter • Order intake for 6 months up 9% organic excluding Zeol • The low demand for large systems continues • Further focus on growing areas; Food and DryCool

  5. Fire damage restoration Water damage restoration Moisture Control Services 42% of Munters 2002

  6. MCS • Weak demand in the spring due to dry weather (-3% organic growth in Q2) • Negative service mix change • WDR down • More rental • Start-up PDR in US • Net sales for 6 months up 15%, +5% organic • Acquisitions develop as planned

  7. HumiCool Utilities Poultry 26% of Munters 2002 Comfort cooling

  8. HumiCool • Good order situation in Aerotech and Glacier-Cor • The AgHort Industry in Europe weakened further in Q2. The ’03 season is ”lost” • The demand in Middle East improved for retrofit • Low demand for HVAC and Precoolers to Gas turbines continues

  9. Sales and Service Net sales SEK 4.7 billion Employees 3,150 Global organization Manufacturing, Sales and Service 300 Service depots not shown on map

  10. Net sales by Region 2003, 1H 2002, 1H SEK 2200 m SEK 2198 m Asia 10% Asia 8% Americas 35% Europe 55% Americas 32% Europe 60% 10

  11. DH 34% MCS 45% Net sales by Product Area 2003, 1H 2002, 1H SEK 2198 m SEK 2200 m HumiCool 27% HumiCool 27% DH 28% MCS 39% 11

  12. Q2 Highlights • Strong development in DryCool, Restaurants and Schools • Weak demand in MCS and HumiCool • Lower acquisition effect after 1 Jan and 1 July 03 • Negative currency effect, also indirect • Corrective actions on plan • Order growth -4% • Currency adjusted, present structure -4% • Net sales growth -3% • Currency adjusted, present structure -3% • EBIT change -32% • Currency adjusted, present structure -21%

  13. Financial overview by Quarter 2002 2003 SEK m Q2 Q2 Adj usted Q1 Q3 Q4 Q1 1) growth 1 159 1 114 - 4% Order intake 1 144 1 228 1 196 1 134 1 149 1 109 - 3% Net sales 1 052 1 179 1 286 1 089 114 78 - 21% EBIT 86 118 147 67 9.9 7.0 EBIT margin 8.2 10.0 11.5 6.2 % 65 40 Net earnings 49 67 85 33 121 126 Op. cash flow 93 108 227 117 (bef.capex & tax) 1) Present structure, currency adjusted

  14. Regional analysis Q2, 2003 Growth Reported/Adjusted2) 2003/2002 Q2 Margin1) Net sales 1)Operating margin for Regions, EBIT-margins for Group 2)Present structure, currency adjusted

  15. Financial overview Jan-June 2003 Growth1) January-June 1999 2000 2001 2002 2003 03/02 SEK m 2 248 - 2%/ - 3% Order intake 1 303 1 675 1 934 2 303 2 198 0%/ - 1% Net sales 1 226 1 448 1 811 2 201 145 - 28%/ - 17% EBIT 90 116 164 200 6.6 Margin % 7.4 8.0 9.1 9.1 73 - 36% Net earnings 55 66 96 114 244 - 6% Op. cash flow 108 140 152 260 1) Reported/present structure, currency adjusted

  16. Regional analysis January–June Growth Reported/Adjusted2) Margin1) 2003/2002 Net sales 1)Operating margin for Regions, EBIT-margins for Group 2)Present structure, currency adjusted

  17. Currency and acquisitions effect

  18. Financial overview Rolling 12 months July - June SEK m Growth 99/00 00/01 01/02 02/03 8.3% 4 672 Order intake 2 980 3 581 4 314 8.8% 4 663 Net sales 2 816 3 542 4 284 -6.2% 410 EBIT 263 354 437 1) 8.8 Margin % 9.3 10.0 10.2 -12.8% 225 Net earnings 155 203 258 1) 1) Excluding Alecta (SPP) surplus refund in Q3 2000 amounting to SEK 10.5 m after tax 18

  19. Key ratios Jan–Jun 2002 2003 Return on capital employed, % 1) 31.525.3 Interest coverage ratio, times 13.810.1 Net debt, SEK m 381456 Net debt/Equity ratio 0.380.43 Earnings per share, SEK 4.663.00 1) Rolling 12 months.

  20. Order intake SEK m 1 300 +25% +16% 1994 +19% 1 200 1995 -1% -4% 1996 1 100 1997 1998 1 000 1999 2000 900 2001 800 2002 2003 700 600 500 400 300 200 100 0 Q1 Q2 Q3 Q4 20

  21. Net sales SEK m +21% 1 300 1994 +16% 1995 +20% 1 200 -3% 1996 +3% 1 100 1997 1998 1 000 1999 900 2000 800 2001 2002 700 2003 600 500 400 300 200 100 0 Q1 Q2 Q3 Q4 21

  22. Backlog SEK m 1994 750 +10% 1995 700 -2% 1996 -1% 650 +5% 1997 1998 600 1999 550 2000 500 2001 450 2002 2003 400 350 300 250 200 150 100 50 0 Q1 Q2 Q3 Q4 22

  23. EBIT SEK m +8% 150 1994 140 1995 1996 130 +17% 1997 120 1998 110 1999 100 2000 90 -32% 2001 80 -22% 2002 70 2003 60 50 40 30 20 10 0 Q1 Q2 Q3 Q4 23

  24. Corrective actions

  25. Conclusion July • The trend in July followed Q1/Q2 • We are in a period without acquisition effects • The AgHort y-o-y comparison becomes easier in the fall • Signs of improvements in dehumidification • MCS US has strong demand • Additional cost reduction actions

  26. Is the situation unique? • Munters is made up of many small business units with quite high volatility; large orders in DH, HC. Weather in MCS. • HC Europe and Asia never had a decline before • DH Americas including Zeol has a steeper decline than earlier • All other Divisions are showing ”normal” volatility • But the situation is truly unique: Never before have so many areas had ”normal” volatility going down at the same time!

  27. Munters Growth Business (MCS, HC ex ME&W), DC 6 months 2003 1995 40,0 30,0 20,0 "Growth "Growth Business" Annual growth % 10,0 Business" 73% 48% 0,0 -10,0 -20,0 1996 1997 1998 1999 2000 2001 2002 6m 2003 The rest of the Group "Growth Business" 27

  28. Thailand, Korea, expansion Japan Organic Growth Floods in Europe Generally strong growth in MCS Organic growth Gasturbines, Zeol, AgHort ”Allison” 20% Gasturbines AgHort 15% Gasturbines AgHort 10% % 5% Gasturbines, Zeol, AgHort 0% -5% year 28

  29. The growth drivers, will they be back? Temporary? Lead time • MCS x 1Q • Aghort x 1Y • Zeol x 3Y • GTs x 5Y • Business cycle 4Y • Currency ?

  30. What happened in Q2? • The weak demand for DH and HumiCool in Q1 continued • Unfavorable weather for MCS, extreme situation • Currency effects are negative, not only direct impact • The trend for industrial investment orders are slowing since Q4 2002 • First year acquisition effect over; 1 Jan (Polygon) and 1 July (Svt and Aerotech)

  31. Extreme weather in Europe • France • Average temperature in June 7C° higher than normal, farmers claiming EU-help • Germany • Farmers claiming EU-help • Italy • Crops are at risk, risk of black-out, the River Po at record low (8 meters lower than normal) • Spain • Highest temperature in Europe since 1995 measured (46 C°),farmers claiming EU–help • Sweden/Norway • Unusually high temperatures, high risk for wildfires • UK • Combined average temperatures for June and July hottest on record in Scotland and the third-hottest on record in England and Wales • But, also Eastern Russia and Western Canada suffer from wildfires due to unusually high temperatures, and long-term drought has affected western US.

  32. HumiCool Europe • War and SARS at the ”order season” (peak deliveries in May-June). • Competitiveness for Europeen poultry industry is declining, $ • Red meat/White meat issue • Poultry is a US driven, global business which has suffered during years of strong $

  33. White and red meat in Europe Euopean Union: A comparison of Beef and Veal production and Consumption vs Poultry Broiler Meat. 1000 tons 7800 7600 7400 7200 7000 6800 6600 6400 6200 Source: USDA, World Markets and Trade 2003. 6000 1998 1999 2000 2001 2002 (p) 2003 (f) Beef Production in 1000 metric tons Poultry broiler production in 1000 metric tons Beef Consumption in 1000 metric tons 33 Poultry consumption

  34. The EBIT problem in Q1/Q2

  35. Cost reduction plans 2003

  36. Conclusion • The order trend continues to be weak in Dehumidification and HumiCool • The weather has been very unfavorable (MCS) • The decline is in high margin businesses • 2003 will suffer • We think the fundamentals have not changed • The long-term goals do not change

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