Welcome to the presentation of our Q1 report that was released this morning. My name is Ann-Sofi Jönsson. I'm head of Investor Relations at Munters. With me here today, I have our CEO, Klas Forsström, and our CFO, Annette Kumlien. We will run through the presentation, and for those of you who are viewing on the web, please put your questions throughout the presentation. Then we open up for Q&A for, also for you who are listening in on the conference call. With that, I hand over to Klas.
Thank you, Ann-Sofi, and good morning, and very, very much welcome to this quarter report for the Q1 . In short, the quarter comprised record high order intake, driven by transformative mega-trends and software as a service wins, creating new technologies for the future. It also is a strong order backlog that gives good volume growth moving forward, comprising of continuous price increases, giving strong support for our midterm targets in the coming years. We also invest in structure, enhancing efficiency areas as innovation and production capacity. During the quarter, we have learned to just linger through the continuous supply chain challenges there is. With that, growing mega-trends drives record high order intake. As I said, a continued strong order intake, building a backlog of future net sales, price increases partly coming through.
If you drill down into the strong order intake, what is that then? 107%, organically 87%. Acquisitions in EDPAC generating growth. MTech software as a service orders generate the new profitable markets for the future, and a SyCool Split order innovation brought to the market. The net sales, 32%, of which organic 16%. Then, as I said earlier, an order backlog that is about 130%. The EBITDA margin at 9.5%, positive effects from customer pricing coming through. It's offset by supply chain challenges from the tragic war taking place in Ukraine and continuous investments for the future. Once again, what a tragedy with the war in Ukraine. Munters, we have about 1.5% of our net sales and no employees in Russia.
We have taken some IACs of about SEK 30 million that was identified in Q1 related to the war. SEK 18 million recorded as provision and SEK 11 million to be taken as incurred. You will hear more about that later on. It's also important to say there are indirect effects, mainly related to increase the material prices and some logistic routes cutoffs in Asia and Europe, i.e., no train transportations through Russia anymore. It has also an effect on our FoodTech efficiency programs and lower our expectations for the midterm gains there. As I said, strong growth in Americas for both business areas. 49% of our total order intake is in Americas, 77% growth. AirTech mainly driven within data centers, but also positive news from FoodTech. Good growth within both climate and digital solutions.
EMEA, 28% of the total order intake, 46% growth. AirTech growth within most areas, battery subsegments, as well as supported by the EDPAC acquisition. FoodTech then, more depressed, negatively impacted by the effects from the war in Ukraine. APAC, 23% of our total order intake, 2% growth, primarily within battery subsegment, but also service, which is very important. FoodTech then, as said earlier, continued weak Chinese swine market and lingering pandemic is affecting especially the Shanghai area in China. We continuously adapt our operations to facilitate growth. The macro environment, I think you all are aware of that, the lingering effect and the tragedy in Ukraine. What do we do then with our operations? We work constantly, working with the deliveries and our supply. We continuously increase prices.
We adapt our value chain with different sourcing and different regionalization alternatives. Of course, we expand our production facilities and drive efficiency here to enable sales and growth moving forward. Last but not least, we also invest in digitalization to create a more digitalized and efficient way of working. All in all, I think we continuously have to live with the supply chain challenges for the coming future. Going in a little bit to the markets, AirTech, all segments are more or less green. Strong demand within data center, but also when it comes to battery. Those are of course then casting a shadow over other segments. In general, all segments except commercial are showing solid market growth.
SyCool, a record order of SEK 1.1 billion starting to small part deliver at the end of this year and then carry through 2023 and the Q1 of 2024. What is this then? It is the contribution to our customer. High energy efficiency, zero water consumption, a reliable solution that is scalable and is very easy to maintain and give service support to. This is innovation at its best. Moving over to another very, very fascinating area. Carbon capture. More and more important, supports our purpose for customer success and a healthy planet. As you know, certain industries are generating a lot of carbon dioxide that can then be captured and built, transferred and stored. In essence, this is what our technology solutions generate, a possibility to create a greener future.
Moving over to FoodTech, a tougher market, continued weak in China, but also impacted in Europe when it comes to the Ukraine war. The positive thing that is that we see growth taking place in North America and in the U.S. in particular, but also very, very encouraging, that is that we can see that digital solutions and software as a service is growing. Here, we really can create the market that is profitable for the future. One example here, in the past, we had a more mainframe type of solution that a lot of customer bought into, we called it Protein. Now, one of the largest customers have upgraded to the cloud-based Amino system. The interesting part there that is, it was a very, very easy implementation. It was fast done. It was a plug-and-play setup.
This is really something that shows that we can really change the market moving forward, both at existing customers, but even more also with new customers, controlling the full value chain of chicken production. Sustainability is integrated in every aspect of our business strategy. Here are some examples that support for customer success on a healthy planet. We have started to report measurable Scope 1, 2, 3 emissions in accordance with the Greenhouse Gas Protocol. Very encouraging, that is the EU Taxonomy directive, 35% of our net sales is eligible. We are training both our employees, management, and board, and we have started to develop a new energy and water saving strategy, setting ambitions for the future. All in all, we are becoming more and more sustainable. With that, over to you, Annette.
Thank you very much. Let's dive into the financial highlights. Again, strong growth on the backdrop of the demand curve that we have seen earlier, and also the demand curve continuing during Q1. Margin, 9.5%. From a seasonality point of view, it's actually a good level. As we know, it has been tied down by the supply chain restraints that we have seen and the chase for price increases. The capital structure, 2.6, yes, increased. That's a big part of that is actually the acquisition of EDPAC that we did earlier in this quarter. The second part of it is coming back to that we have a high demand curve, which means that we need to ramp up for future deliveries.
Diving in to what's going on. Order intake, as we talked about, it's record high. If you look at the order intake, SEK 1.3 billion of what we received is basically just two orders, the biggest one being the DC order and the other one being the order in FoodTech that we announced earlier in this quarter. If we look at net sales, both areas actually have good growth, although it's AirTech that drives it mostly in the battery and in the digitalization part as we have talked about earlier on. If we look at the EBITA, I mean, the EBITA margin, as I said, is seasonally strong. However, if you look at Q1 2021, that was an exceptionally strong quarter, actually, so comparably lower.
The war in Ukraine, it has impacted us negatively, both from a midterm perspective when we look at the realization of our strategy program, where we're taking down the result improvement we expect them from 70 to 50. When we look at the short-term impact, writing down the inventory and so forth, we're looking into a SEK 29 million impact that we done IAC during the first quarter. As we talked about, we are ramping up and making Munters scalable, so we are investing in resource and investing in digitalization the way we are working. That is also part of the margin change. If we look at AirTech specifically, again, record high. If we would exclude the DC order, the order intake is still 60% above last year.
You can see that it is growth in all areas, particularly when you look at the batteries, we have the DC, we have also talking about services, and we're talking about even CleanTech, one of the smaller segments within AirTech, but it actually has a good growth, which is nice to see. Sales backlog of what we have seen from the demand. Yes, it's higher, and services is continuing to grow. If we look at it had a growth rate around 20%. If we look at it's about 19% of the total net sales in AirTech area.
Again, when we look at adjusted EBITDA margin, yes, positive impact from volumes, obviously, and positive impact from the consequently price increases we have made throughout this period of COVID, obviously, and now also with the war in Ukraine, we will continue with the price increases. But obviously also, when you look at short term, the war in Ukraine will have a further dampening effect on the margin when you look at it from increase in supply chain costs. When you look at our plant in U.S., we have one of them which has had some operational difficulties, which we are working out, and it's still impacting the margin a bit in the Q1. If we look at FoodTech, then we're talking about good order intake.
We announced very early in this quarter the digital order that we got, which was about $20 million. Then we have smaller orders coming in. Again, the digital solutions and the digital strategy we are talking about is actually the way forward. If we look at net sales, yes, increased 10%, mainly driven by the Americas, where we see good growth both in the digital and the climate solutions. However, as we have talked about earlier, there is a dampening effect, obviously, from the continued sluggish development in the swine segment, particularly in China, which is lingering from the pandemics, but also we can also see now that FoodTech is a bit impacted by Ukraine. The adjusted EBITDA margin, yeah, it's low.
It's 4% compared to the 9% we had in Q1 last year. We can see here again that even despite the growth that we have had in the Americas, it's actually so that China's shift and negative development has both a volume and negative volume impact, but it also has a negative mix impact on the margin. Then again, if we look at the two business areas, FoodTech was the business area mostly impacted by the war in Ukraine, although as a whole for the group, the impact from the war in Ukraine is quite small.
If we look at then, our prices, as we have been speaking about, and the margins and how actually our margin is moving with the various components, I mean, volume is quite good compared to what we looked at in the Q1 last year. Pricing, or if you look at from a net perspective, the price increases we have made, counteracted by the cost increases that we have seen from the input material, more or less giving us a neutral position. If you look at the business and regional mix, where China's swine market has a high impact, that has taken it down a bit. Supply chain, as we have spoken about, the difficulties to maneuver and actually make sure that we counteract the difficulties in getting materials in.
It costs a bit for us to run it, but we have managed so far quite good. If we look at operational challenges that we see in one of the factories in AirTech, yes, it's still tying us down, both in Q4 last year, but also Q1 this year. On the whole, that makes us having a margin for around 9.5% compared to the 12.3% that we were talking about last year. If we then look at the cash flow development, we have always been talking about making sure that we have a good cash conversion, and there's been a lot of good work done in the company over the past two and a half years, and we can see the impact of it.
That has helped us now when we go into M&As, because obviously, when we do buy something, we need to use our funds to secure the payments for that. Then also the demand growth that we have seen, and you have seen also over the past periods. Well, that also means that we need to ramp up our production, make sure that we have material coming in so we can deliver to our customers. Those are really the two major impacts that you can see why leverage has gone up to 2.6. With that, when we look at the measures for our strategy implementation that we have worked on since 2020, you can say that the program is more or less on track.
Yes, we have a little bit of higher cost related to supply chain constraints in delivering our operational efficiencies in certain factories where we have issues getting access to in a efficient manner. When we're looking at FoodTech, particularly here, as we spoke about, the war in Ukraine is mid-term affecting actually the delivery of the performance that we expected out of it, taking it down from SEK 70 million- SEK 50 million. That's all. All in all, still on track. With that, I would like to hand over to you, Klas.
Thank you, Annette. Let's summarize it. Record high order intake strengthen our way forward. Continuous strong order intake driven by growing megatrends. We're taking technology share, and we generate, through software as a service, new markets with good profitability for the future. Price increases 2021 partly coming through. We continue to adjust prices. With that said, the tragedy that is taking place in Ukraine puts an extra challenge and pressure on the supply chain challenges, and they are expected to remain. We continue to invest. We grow for the future. It's about a stable platform generating long-term profitable growth. With that, I would like to hand over for Q&As and open up as such.
Thank you. We would like to open up on the conference call if there are any questions there.
Thank you. If you do wish to ask a question, please press zero one on your telephone keypad now. Our first question comes from the line of Lucas Ferhani from Jefferies. Please go ahead.
Hi. Morning, everyone. So I have a few questions, but maybe we take them one at a time. The first one is on price increases. Roughly, if you have to say at group level, you know, and if you look at the 16% organic growth, how much of that is prices? Is it low, mid, or even high single- digits? And also just on the bridge where you say kind of pricing is roughly offsetting cost inflation, what'd you put in there exactly in cost inflation? Because in the report you're saying that it's still not enough to offset kind of everything. I guess the thing that are not offset is more kind of the exceptional impact on freight supply chain and operational challenges.
Okay. If I start, Lucas, thank you for the question then. Annette will most probably back up here as well. If I take AirTech as an example, on the invoicing, approximately we have 5%, 4%-5% price increases coming through this quarter. In FoodTech, up to around 8%, and that is on the invoicing. Moving forward then, I would say if you double that is what we have in our order backlog moving forward for the remainder of the year, coming through quarter by quarter, and by the end of the year, that will be basically where we are. With that, I mean, we continue to invest in price increases continuously. I can say like this, I'm really happy to see that some of our larger projects, there I expect good margins coming through, but those are not to be delivered until 2023.
Yeah. You can say from a FoodTech's perspective, though, that, I mean, if the war in Ukraine wouldn't have happened, we would more or less have been in a situation where we would have caught up. If you look at the cost increases that you were asking about also, I mean, obviously what we see is the increased cost for metal. We have seen cost for freight. We also have increased cost for energy. So there's a lot of those things that we put in place. As we have talked about earlier is that we're in this catch-up game, so we're consequently working on when we see the cost increases coming to make sure that we go through and pull them through into the customer pricing.
Also to add on to what Klas is saying, we can see that some of the—I mean, the bigger project orders were closer when it comes to the cost and price model, so to say. With the biggest order we are receiving now, we are more or less working also from a pure strategic point of view to make sure that we could have clauses when it comes to if there are further cost increases that can flow through into increased prices, customer pricing also.
Thank you. That was quite detailed. My other question was on M&A. If we look at the impact, it's 7% in AirTech. Is there anything else except EDPAC in there? Even when we look at EDPAC revenues, and we assume some growth, I think it's more kind of a 3% impact on revenues, and you only have two months there. I'm just wondering, is it only EDPAC that's impacting there? And if so, is it kind of outperforming a lot more than what we expected?
Yes. The short answer, it is only EDPAC that is from an M&A perspective, adding to the invoicing and adding to the result and order intake. I'm really pleased to see that our strategic move to re-enter Europe and continue the growth journey has outperformed the business case that we have put in place. Whatever we laid out, I feel that we are continuously moving according to that plan and actually over-performing in some of the areas.
Great. Just a last one open-ended kind of question. When we look at the market growth in data center, obviously there's been some acceleration post-COVID, and it's a market that's growing kind of well. You're significantly outperforming, especially since you arrived and kind of post-COVID. I'm just trying to understand what are the ingredients for this strong outperformance. Is it kind of big changes in R&D, in the products, in the route to market? Because there's been a big change even though it was growing well. It's materially outperforming over the past kind of few quarters and basically since COVID.
Also very good question. Let me sort of establish a base here. We believe that the underlying growth for data center market is double digit for the coming years. That is clear as a market. Then if I go back to what we have established in North America, that is a solid platform generating growth that put us in a position to take this very, very large order that will come over consecutive numbers of quarters. That said, there we are taking technology share. We are taking market share. In Europe, we are reestablishing ourselves, moving into growing with the market and outgrow the market, having a very, very stable manufacturing platform and then take it step by step. In summary, there is a market there for the coming years that will continue to grow, and we are going to take our technology and market share in that market.
Just to add on, it's still a project business, which means it depends on what it looks like the quarter the previous year, if it's going to be up or down.
Absolutely.
You can imagine now where we have gotten the big order now in Q1 for this year comparison next year, unless we are able to take another big order, Klas. But that's just the nature of the game.
Absolutely. Well said.
Great. Thank you.
The next question comes from the line of Gustav Berneblad from Nordea. Please go ahead.
Yes. Good morning, Gustav from Nordea. Just a couple of questions from my side here. To start off, I guess we all was surprised by the strong result in AirTech for the quarter. Is there any large projects driving the result or how should we think here?
I can start. I think you should look upon it very much as there is a volume part, i.e., the net sales. It is consecutive price increases and it's of course also that we work continuously with efficiency. It is lean programs, it is better ways of working, et cetera, et cetera. It's a, it's a bag of different areas. With that said, I mean, AirTech, it is still something that we can improve quarter- by- quarter. In general it is the volume, our own efficiency programs and then of course, good pricing into the market.
Yeah, just to add on, obviously when we did a strategy change back in 2019, 2020, you can see part of that coming true now in the performance we have. There's still work to be done.
Okay. Then, if we go back to Q4, you talked about focusing on large customers and projects, and that was the wrong approach within data center Europe, and that you now will copy the successful U.S. strategy, focusing on smaller projects in Europe. Now you take on a record order within data center U.S. Can you just help us understand what has changed here since then or help us understand what is your strategy going forward?
It's a very good question, let me reiterate how we feel. I feel that you build industrial success. That is, you have innovation, you have a good customer base and you have strong manufacturing capabilities, i.e., you create a platform to grow from. When you have that platform established, then you can add on smaller, larger projects and at a certain time you're ready to take on very, very large projects. In this case the very large project is of course, it is not just one. It comprises of many deliveries over the quarters to come. That in comparison to what we did in Europe, and I think this is really important to understand. In Europe last time it was we started to produce in a factory that never had produced anything like that.
We brought in products that was new to the European market and we took very, very large orders from the beginning. The strategy is build a base, accelerate step by step and when we're ready to handle the industrial challenges and our way into the market, then we take larger orders. Now when we come back to Europe, we will do the same as we have done in North America and I hope that that explains. It is a strategy, but it's how you play the strategy that is the most important.
That's why it was important also with the EDPAC acquisition as we had worked with them before and they are considered as a good player in the market.
Okay. I see. Just the final one here from me. When it comes to your strong order intake, are you seeing longer lead times now or can you specify what is the lead times in AirTech respectively FoodTech?
It's a very good question and the simple answer is yes. If I go back 2 years, the typical lead time in AirTech we had it in between three up to six months, in a few cases nine months. It has moved up and now it is very much in between six up to 15, 16 months. It is due to customers understand that they need to put orders in advance to secure capacity. It's also of course we are not promising orders that we cannot deliver, so we are also stretching out the sort of backlog or delivery times. All in all, yes, it is a longer lead time and that's the reason I go back to the QTS order once again. SEK 1.1 billion, a small section coming at the end of this year, the majority coming next year and then in the Q1 2024.
Is it fair to assume that AirTech and FoodTech have similar lead times?
Also no.
No. If you look at FoodTech, I mean they have always had shorter lead times although during this, I mean these past years it has also been extended a bit, but we're just talking about three to six months in FoodTech. AirTech is much longer as you see.
Exactly.
Yeah. Okay. Perfect. Thank you.
The next question comes from the line of Anders Roslund from Pareto Securities. Please go ahead.
Yes, good morning. Yeah, I would like to start off with one question regarding the EBITDA bridge on page 17. What you're saying there is that pricing is neutral versus cost, but that the operation and challenges in AirTech are sort of double minus. It means that, okay, pricing will that be very positive regarding cost but your problems will remain as long as you have those operational challenges. I would rather ask what is your lead time for solving the operational challenges as they seems to be the large part of the margin deviation here?
Yeah, I would say like this. I mean, if you look at it, again, as I said earlier in the presentation, is that if the war in Ukraine hadn't happened, we would have been coming into a situation where we soon would be positive rather than neutral. However, with the war in Ukraine, we have a continued pressure on input prices, which means that we need to continue to work with customer prices. Anders, as I think you can understand, it's a bit hard to actually give a sort of an outlook when things will change. What we have said is then, and as you can see in the report, it's going to be still a dampening effect on us.
When it comes to operational questions then, the way we do, already we mentioned it or highlighted it last quarter, that it's about how you load the factories, how you work with the workforce. It's also what I have described very often as the hand from hand to mouth, i.e., what about different supply chain issues?
Mm.
I'm super confident that we during quarter by quarter, we will improve that. I can already now see quite substantial improvements in a specific factory. At the end, I mean, that is opportunities for the future, Anders.
Okay, I repeat one of the earlier questions regarding the order intake. Looking going forward, could we just exclude this SEK 1.1 billion order and then say the rest is sort of something underlying? Or are there other major orders, or is it just what you mentioned here, longer lead times that you get some pre-ordering overall? Or, we just have to understand how we should model-
Mm. Mm
Future order intake here.
If you take the 1.1, I do believe that we are fairly transparent saying that a small part of it will come in at the end of this year, the majority quarter- by -quarter, sort of spread it out over the quarters.
Yeah, I'm talking about the order intake level now, not sales.
Okay. I mean, that type of order, Anders, will not repeat itself on a regular basis. Of course, we have other orders as well. We have several orders in the range of SEK 150 million-SEK 250 million, and I foresee that the underlying order intake in the main business, if I put it like that, excluding that, as you saw in the outlook for the coming quarters, it is a solid market. As Annette said, I mean, in one quarter, you may have a SEK 200 million order, and another quarter you may not. To summarize it, I'm positive in AirTech when it comes to the underlying market moving forward. We will not accept orders that we cannot deliver. Let's say like this, we only accept orders that we are solid in when we can deliver them.
As Anders said, we said earlier also in the presentation, is that the megatrends that we are riding on and driving, we see them still continuing. As you know also, we don't really give an outlook for what each quarter is going to look like. You just have to be mindful. Then again, as Klas was saying, we do have some project business, and obviously project business, they come when they come.
Okay. Just coming back on the EBITDA bridge and pricing, as you have the expectation of even being positive, except for what now happened in Ukraine, will it be like the price increases that you talked about, doubling price levels, will that be a positive impact going forward, or is it just to catch up with the recent price increases?
I would say, Anders, what I said that was that we were starting to get positive. That doesn't mean that we in total was positive. We were moving in the right direction before.
Yeah. Yeah
The war in Ukraine happened. Obviously, with the war in Ukraine happening, it has put a much bigger pressure on certain pricing elements.
Mm.
You also know from a feed perspective, when you look at the food tech side, is obviously that feed prices are going up quite high. You have a demand activity also that we need to look into. Again, Anders, it's really hard to estimate, but it's going to take a bit longer than maybe what we expected earlier, because as you remember, we said earlier in our Q4 report that we were talking about the first half being dampened. We didn't know about the Ukraine war, and now the Ukraine war has happened. We need to be a bit patient to see how it evolves.
Anders, if you summarize it, you can say like this. I mean, we and many others have learned to live in this, call it supply chain rumble, so to speak, and that we continue to work with.
Mm.
I'm really pleased to see what we do, and that is creating efficiencies, et cetera. We have also learned that it is a matter of continuously increasing prices, and that we will continue to do. Wherever it's possible, we will continue to increase prices. As we said last quarter, it will take some time before it's flowing out to the bottom line. I'm positive in how we act on the market.
Yeah. I think also, as you said, really to emphasize that the Munters people, they are really doing a great work and have become a lot more agile when it comes to acting on prices, when we see the input prices coming up. It's really good to see.
Excellent. Thank you very much.
Thank you.
We have one more question from the line of Karl Bokvist from ABG. Please go ahead.
Thank you, and good morning. My first one, you touched upon it, Klas, but the industrial production unit in the U.S. that is seeing challenges, just if you could first remind us about the challenges that you highlighted in Q4 and then now in this quarter if it relates to the same kind of challenges or if new kinds of headwinds have come up that you are forced to handle?
Thank you for the question. It is in general the same challenges. It was very much workforce efficiency related, but then also of course related to what I describe as from hand to mouth, i.e., continuous disruption in the supply chain. What we put together end of last year and have been working very, very efficiently during the quarter, that is a task force that has operated and moved that forward. I'm really pleased to see the progression. I'm super confident that we during the coming quarter will turn this around in a very, very good manner. You can say like this, despite that, we delivered a fairly solid result.
All right. Thank you. Just from that factory, when you say industrial, is it any particular end market that accounts for the majority of products delivered from that factory?
It is industrial in general, in North America.
All right. Thank you. Just on the order development, I understand the lead times are still a bit uncertain here, but a backlog of SEK 6.4 billion now, and of course we have the larger data center order that you have guided kind of delivery plans for. How, just to get a bit more granularity perhaps.
Mm.
Could you possibly say how much of a backlog roughly that could be delivered this year?
If we exclude the 1.1 then to make the mathematics a little bit easier, you can say in the ballpark measures at current it is 50%-60% that is carrying through on the backlog during this year. Then of course we will fill up with orders. Annette, maybe something that you have better granularity on.
I mean, and again, as we were talking about, AirTech and FoodTech is a bit different. FoodTech have- [crosstalk].
I talked about AirTech.
Yeah. Yeah. FoodTech has most deliveries this year. When you look at AirTech then, it's more spread out. In general, we have lead times which is, like, one year around it. That's going to flush out quite evenly, or not quite evenly, but it's going to flush out during this year. We had some things also delivered during 2023.
Okay. Thank you. Then we talked a bit about how you try to implement new kinds of pricing strategies and, perhaps a bit of, raw material indices, attached to the contracts and things like that. You know, just how to think about the increased headwinds as a result of the Ukraine situation, related to orders that you have booked in Q3 and Q4.
Very good question as well. I mean, as Annette said earlier, if you talk about the large order, there we have secured with a backdoor, if I put it like that if there are certain price increases, we can handle that through the contract setup then. When it comes to some of our backlog orders, we are actually revisiting them, and we are going back to customers saying that, "Here we need to renegotiate." I can't say that we are 100% successful, but we are trying wherever it's possible. Moving forward, we are continuously adjusting prices. Here I talk about the project orders.
On the other side, I mean, what we have put in place right now, that is not only a yearly price revision setup, it is a bi-yearly price revision setup, and that didn't exist in the past. Of course, in certain markets, in certain segments, if we see that we need to either cover cost or actually our delivery times, our setup is so good so that we can increase prices above what the raw material cost is generating. We take the chance on that. This is a never-ending battle, so to speak.
Okay. Thank you. Then just the final one, perhaps is just on what's the efforts you made within services. It's growing very, very strongly on sales now. But the profitability potential, how that is progressing, you've talked a bit about, you know.
Mm.
Service businesses in general, industrial operations and things like that.
Mm-hmm.
How should we look at the profitability potentially in your service business as it is now?
You heard me say several times that I'm a firm believer that a successful industrial service business could, should generate profitability levels 25%-30%, and we do see pockets of that. This is where we have that profitability level. We are definitely seeing progressions in Asia Pacific on that, as well as in North America. We've started to see the same type of development in EMEA as well. This is a continuous journey, but I expect, if I call it the midterm target, you know, that is to have a profitability in the service in the range of 25%-30%, and the very long-term target that is then represented 30% our turnover.
I should also add, if we go back to software as a service. I mean, in software as a service, that is the new type of service predominantly towards food tech. I mean, the order that Annette talked about, i.e., the 20,000,000 order that represents 10,000,000 divided by three in recurring revenue. Of course, in the software arena, we have a software profitability level that is definitely above the 30%. This is a journey that we take step by step, and that's why it's so important to say we are seeing progression from our customers. They are embracing what we deliver, and actually we are creating a new market.
Okay. Thank you. That's all for me.
I know that there is one more question, at least on the conference call, but I would like to cut in with a question from the web. This is from Philbert Vesiers, and it is regarding execution risk of the large data center order that we got in the Q1 . If you can give an update on the addition of capacity, especially on the two new factories for DC and batteries, in the light of that.
Thank you, Philbert. A very, very good question. Before accepting such a large order, I mean, you need to do a due diligence. Coming back to you need to have a stable platform, you have to work through your delivery schedules, you need to set up with your subcontractor, or suppliers, et cetera. From that perspective, I'm very solid that we are going to be able to deliver on the promise we have made. Elsewhere, we wouldn't have accepted the order of such magnitude then. We have a dedicated team driving this. With that said, the investments that we're doing then in Virginia towards data center, I mean, we are setting up a new type of manufacturing style. It is transfer lines, it is modern, it is a completely new Munters.
That is a large investments, and we will continue to do such investments to build a better future. If I go back then to Battery in Europe, it is in the Czech Republic. That is progressing as well. It's the same type of content or idea there, modern ways of working. I hope that we will be able to invite you there during the end of the year. Both are set to be inaugurated and full operational around mid of this year. I already now see strong progressions taking place there. That was in short.
Great. Could you also give any color on the margin of the large contract received?
As I alluded to, I am confident that those larger projects will be on a higher margin than ever before in Munters, i.e., really contributing to our midterm financial targets. Of course, the majority of those are not coming this year. It is for 2023 and onwards.
Thank you. We open up for the conference call again.
Yes, we have one more follow-up question from Lucas Ferhani from Jefferies. Please go ahead.
Hi. Thank you for taking the follow-up. I just wanted to have your view on kind of the carbon capture market. I think previously this technology was used in mist elimination. Am I right to think this is kind of a new application, or have you had already orders in that segment? Obviously, there's a very strong long-term potential there. If you can speak around kind of the growth and what kind of are you targeting in terms of growth there?
Lucas, thank you very much. I mean, I start to smile when I think about innovation, when I think about us helping our customers with system critical parts. Yes, you are absolutely right. It stems from mist elimination. It is generally the same base technology. What I do believe is so fascinating here, that is, if I may say so, an old base technology can be upgraded and really boost us into the future. We have taken orders. Currently, it is not substantial orders, but what are making me very, very pleased, that is customer coming to us, and they see that jointly we can solve a problem that is for every one of us. How do we reduce the carbon dioxide in the atmosphere? How do we take away it from coming more into the atmosphere? Step by step, we will definitely emerge into this. The most important thing here, that is innovation acknowledged by customers, and jointly we solve a problem for the planet.
Great. Thank you.
Thank you. Then I don't think we have more questions on the conference call. With that, I would like to thank you, Klas and Annette. Thank you to those who are viewing. Welcome you back in July to watch the presentation of our second quarter report then. Thank you for today.
Thank you.
Thank you.