Munters Group AB (publ)

Welcome to the presentation of our first quarter report that was released this morning. My name is Ann-Sofie Jansson. I'm Head of Investor Relations at Muntus. With me here today, I have our CEO, Claes Forsström, and our CFO, Annette Kumlin. We will run through the presentation, and for those of you who are viewing on the web, please put your questions throughout the presentation. And then we open up for Q&A, also for you who are listening in on the conference call. So with that, I hand over to Claes.

Thank you, Ann-Sofie, and good morning and very, very much welcome to this quarter report for the first quarter. In short, the quarter comprised record high order intake driven by transformative megatrends 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 mid-term targets in the coming years. We also invest in structure, enhancing efficiency areas as innovation and production capacity. And then during the quarter, we have learned to just linger through the continuous supply chain challenges there is. With that, Growing megatrends drives record high order intake. And as I said, a continued strong order intake, building a backlog and future net sales. Price increases partly coming through. And if we drill down into the strong order intake, what is that then? 107%, organically 87%. Acquisitions in Edpack generating growth. Emtech software as a service orders generate the new profitable markets for the future. And a cycle, split order, innovation brought to the market. The net sales, 32%, of which organic 16. And then, as I said earlier, and border 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. Montes that we have, about 1.5% are net sales and no employees in Russia. They have taken some ISEs of about 30 million that was identified in Q1 related to the war. 18 million recorded as provision and 11 million to be taken as incurred. You will hear more about that later on. But it's also important to say that there are indirect effects, mainly related to increased material prices and some logistical routes, cut-offs in Asia and Europe, i.e. no train transportations through Russia anymore. It has also an effect on our food tech efficiency programs and lower our expectations for the mid-term gains there. As I said, strong growth in Americas for both business areas. 49% of our total order take is in America, 77% growth. Air tech mainly driven within data centers, but also positive news from food tech, good growth within both climate and digital solutions. EMEA, 28% of the total order intake, 46% growth. Airtek growth within most areas, battery subsegments, as well as supported by the Edpak acquisition. Foodtech, then, More depressed, negatively impacted by the effects from the war in Ukraine. And then APEC, 23% are total order intake, 2% up growth, primarily with a battery sub-segment, but also service, which is very important. Foodtech then, as said earlier, continued weak Chinese wine 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. And what do we do then with our operations? We work constantly with working with the deliveries and our supply. We continuously increase prices. We adapt our value chain with different sourcing and different regionalization alternatives. And then, of course, we expand our production facilities and drive efficiency here to enable sales and growth moving forward. And last but not least, we also invest in digitalization to create a more digitalized and efficient way of working. And all in all, I think we continuously have to live with supply chain challenges for the coming future. Going in a little bit to the markets, air tech. 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 of other segments, but in general, all segments except commercial is showing solid market growth. cycle, a record order of 1.1 billion Swedish krona starting to a small part deliver at the end of this year and then carry through 2023 and the first quarter of 2024. What is this done? 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. And in essence, this is what our technology solutions generate, a possibility to create a greener future. Moving over to food tech, 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 US 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 a 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 customers bought into. We called it Protein. Now, one of the largest customers have upgraded to the cloud-based Amino system. And the interesting part here, that is, it was a very, very easy implementation. It was fastly done. It was a plug and play set up. And 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. And 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 that 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. So let's dive into the financial highlights. Again, strong growth on the back trail 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. But as we know, it has been tied down by the supply chain restraints that we have seen and the chase for price increases. And then the capital structure, 2.6, yes, increased. And a big part of that is actually the acquisition of ETPAC that we did earlier in this quarter. And 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. So diving in then to what's going on, order intake, as we talked about, it's record high. And if you look at the order intake, 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 food tech that we announced earlier in this quarter. If we look at net sales, both areas actually have good growth, although it's air tech that drives it mostly in the battery and in the digitalization part, as we have talked about earlier on. And if we look at EBITDA, I mean, the EBITDA 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 has impacted us negatively, both from a mid-term perspective, when we look at the realization of our strategy program, where we're taking down the result improvement spectrum from 70 to 50, and then when we look at the short-term impact, writing down inventory and so forth, then we're looking into 29 million impact that we've done IRC during the first quarter. And again, as we talked about, we are ramping up and making Mantra scalable. So we are investing in resources and investing in digitalization the way we are working. So that is also part of the margin change. If we look then at Airtek specifically, again, record high. If we would exclude the DC order, then the order intake is still 60% above last year. So 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 Airtek, but it actually has a good growth, which is nice to see. Sales. back trail of what we have seen from the demand. Yes, it's higher and services is continuing to grow. And if we look at it, it had a growth rate around 20%. And if we look at it, it's about 19% of the total net sales in air tech area. And 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 an increase in supply chain costs. Then when you look at also our plant in the US, 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 food tech, 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. And then we also can see now small orders coming in. But 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 Americans, 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 we can also see now that food tech is a bit impacted by Ukraine. At just the beta margin, yeah, it's low. It's 4% compared to the 9% we had in Q1 last year. And we can see here again that in spite of the growth that we have had in the Americas, it's actually so that China's shift and negative development has both a negative volume impact, but it also has a negative mix impact on the margin. And then again, if you look at the two business areas, food tech 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 Q1 last year. Pricing, if we 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. It's 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 Airtek, yes, it's still tying us down, both in Q4 last year, but also Q1 this year. But on a whole, that makes us having a margin of 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. And 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. And 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. And those are really the two major impacts that you can see why leverage has gone up to 2.6. So 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 restraints in delivering our operational efficiencies in certain factories where we have issues getting access to in an efficient manner. And then when we're looking at food tech, particularly here, as we spoke about, the war in Ukraine is mid-term affecting actually the deliver of the performance that we expected out of it, taking it down from 70 to 50 million. So that's all, but all in all, still on track. With that, I would like to hand over to you, Klaus.

Thank you, Anette. So let's summarize it. Record high order intakes strengthen our way forward. Continuous strong order intake drives driven by growing megatrends. We 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. But 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. And with that, I would like to hand over for Q&As and open up as such.

Thank you. So then we would like to open up on the conference call if there are any questions there.

Thank you. And if you do wish to ask a question, please press 01 on your telephone keypad now. Our first question comes from the line of Lucas Farhani 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 stay at group level, you know, 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 do 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 I'm not upset is more kind of the exceptional impact on fried supply chain and operational challenges.

Okay, if I start, Lucas, and thank you for the question, and Annette will most probably back up here as well, but if I take Airtek as an example then, on the invoicing, approximately we have five percent, four to five percent price increases coming through this quarter. In food tech, up to around 8%, and that is on the invoicing. Moving forward then, I would say if you double that, 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. But with that, I mean, we continue to invest in price increases continuously. And 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, and you can say from a food tax 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. But 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 costs for freight. We also have... increased cost for energy. So there's a lot of those things that we put in place. And as we have talked about earlier is that we're in this catch-up game. So we're consequently working with on when we see the cost increases coming to make sure that we go through and pull them through into the customer pricing. And also to add on to what Klaas 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. And 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 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 head pack in there? Even when we look at head pack 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. So I'm just wondering, is it only head pack that's impacting there? And if so, is it kind of outperforming a lot more than what we expected?

Yes, the short answer is it is only Edpack that is, from an M&A perspective, adding to the invoicing and adding to the result and order intake. And 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. So whatever you laid out, I feel that we are continuously moving according to that plan and actually overperforming in some of the areas.

Great. Just a last one, open-ended kind of question. When we look at, you know, 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, but you're significantly outperforming, especially, I mean, 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 road to market? Because, I mean, there's been a big change, even though it was growing well, it's materially yet performing over the past kind of few quarters and basically since COVID.

Also a 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. And 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. Then 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. But 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.

But just to add on, it's still a project business, which means it depends on what it looks like the quarter to quarter the previous year, if it's going to be up or down. And you can imagine now where we have gotten the big order now in Q1 for this year compared to next year, unless we are able to take another big order clause. But that's just the nature of the game.

Absolutely. Well said. Great. Thank you.

And the next question comes from the line of Gustav Bernebler from Nordea. Please go ahead.

Yes. Good morning, Gustav here from Nordea. Just a couple of questions from my side here. And to start off, I guess we all were surprised by the strong result in Airtek for the quarter. Is there any large projects driving the result, or how should we think here?

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, etc., etc. So it's a bag of different areas. With that said, I mean... Airtek, it is still something that we can improve quarter by quarter. But in general, it is the volume, our own efficiency programs, and then, of course, good pricing into the market.

Yeah, and 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, but they still work to be done.

OK, and 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 would copy the successful US strategy, focusing on smaller projects in Europe. And now you take on the record order within Data Center US. 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. And let me reiterate how we feel. I feel that you build industrial success. That is that you have innovation, you have a good customer base, and you have strong manufacturing capabilities. 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. But 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. So 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. And now when we come back to Europe, We will do the same as we've 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.

And that's why it was important also with the ad pack acquisition, as we had worked with them before, and they are considered as a good player in the market.

Okay, I see. And then 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 Airtek respectively?

It's a very good question, and the simple answer is yes. If I go back two years, the typical lead time in Airtek, we had it in between three up to six months, in a few cases, nine months. Then 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. But it's also, of course, we are not promising orders that we cannot deliver. So we are also shooting out the sort of backlog or delivery times. But all in all, yes, it is a longer lead time. And that's the reason I go back to the Q-test order once again. 1.1 billion, a small section coming at the end of this year, the majority coming next year, and then in the first quarter 2024.

But is it fair to assume that Airtek and Foodtech have similar lead times? Also, 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. Airtek is much longer, as you see.

Exactly. Okay, perfect. Thank you.

Next question comes from the line of Anas Hoslon 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, that the operation and challenges in air tech 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. So I would rather ask, what is your lead time for solving the operational challenges, as they seem to be the large part of the margin deviation here?

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 assume would be positive rather than neutral. However, with the war in Ukraine, we have continued pressure on input prices, which means that we need to continue to work with customer prices. So and I think you can understand it's a bit hard to actually give a sort of an outlook when things will change. But what we have said is then, as you can see in a report, it's going to be still a damper effect on us.

And when it comes to operational questions done 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 and and it's also what i have described very often as the the hand from hand to mouth i what what about different supply chain issues i'm super confident that with during Quarter by quarter, we will improve that. And I can already now see quite substantial improvements in a specific factory. But at the end, I mean, that is opportunities for the future, Anders.

Okay. Then I repeat one of the earlier questions regarding the order intake. Looking going forward, could we just exclude this 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 future order intake here.

But if you take the 1.1, I do believe that we are fairly transparent, saying that a small, 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 quarter.

But I'm talking about ordering tech level now, not sales.

Okay. And then, I mean, that type of order, Anders, will not repeat itself with a regular basis. But of course, we have other orders as well. We have several orders in the range of 150 to 250 million. And I foresee that the underlying order intake in the main business, if you put it like that, excluding that, As you saw on the outlook for the coming quarters, it is a solid market. But as Annette said, I mean, in one quarter, you may have a 200 million Swedish krona order, and in another quarter, you may not. But to summarize it, I'm positive in Airtek when it comes to the underlying underlying market moving forward. But we will not accept orders that we cannot deliver, or let's say like this, we only accept orders that we are solid in when we can deliver them.

But, Anders, what we said earlier also in the presentation is that the megatrends that we are riding on and driving they we see them still continue but as you know also we don't really give an outlook for what each quarter is going to look like but you just have to be mindful and then then again as class was saying we do have some project business and obviously project business they come when they come okay uh just coming back on the the ebitda bridge and pricing

As you had 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?

But I would say, Anders, what I said was that we were starting to get positive. That doesn't mean that we in total were positive. So we were moving in the right direction before the war in Ukraine happened. And obviously, with the war in Ukraine happening, it has put a much bigger pressure on certain pricing elements. And you also know from a... feed perspective when you look at the food tech side. It's obviously that feed prices are going up quite high, so you have a demand activity also that we need to look into. So 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. Then we didn't know about the Ukraine war, and now the Ukraine war has happened, so 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. And I'm really pleased to see what we do, and that is creating inefficiencies, etc. We have also learned that it is a matter of continuously increased prices, and that we will continue to do. Wherever it's possible, we will continue to increase prices. As we said last quarter, that is, it will take some time before it's flashing out to the bottom line. But I'm positive in how we act on the market.

And I think also, as you said, really to emphasize that the Montes people, they're 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. So it's really good to see.

Excellent. So thank you very much.

Thank you.

And we have one more question from the line of Carl Bochrist from AVG. Please go ahead.

Thank you. Sorry. Thank you and good morning. So my first one, you touched upon it, Claes, 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. And you can say like this, in despite that, we delivered a fairly solid result.

Right. Thank you. And 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.

Right. Thank you. And then just on the order development, I understand the lead times are still a bit uncertain here, but a backlog of 6.4 billion now. And of course, we have the larger data center order that you've guided kind of delivery plans for but how just to get a bit more granularity, perhaps, 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 to 60% that is carrying through all the backlog during this year. But then, of course, then we will fill up with orders. But Annette, maybe something that you have better granularity on.

And again, as we were talking about, Airtek and Futek is a bit different. I talked about Airtek. But Futek has most deliveries this year. But when you look at Airtek, then it's more spread out. And in general, we have D-Times, which is like one year around it. So that's going to flush out quite evenly, or not quite evenly, but it's going to flush out during this year. But with some things also delivered during 2023.

Okay. Thank you. And 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. But, 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.

A very good question as well. I mean, as Annette said earlier, if we talk about the large order, there we have secured with a backdoor, if I put it like that, that if there are certain price increases, we can handle that through the contract setup then. 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. And then moving forward, we are continuously adjusting prices. And 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. And then, of course, in certain markets and 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. But this is a never ending battle, so to speak.

Okay, thank you. And then just the final one, perhaps it's just on 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 service businesses in general, industrial operations and things like that. But how should we look at the profitability potential 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 should generate profitability levels in between 25 to 30%. And we do see pockets of that. And this is where we have that profitability level. And we definitely see progressions in Asia Pacific on that, as well as in North America. and 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 mid-term target, you know, that is to have a profitability in the service in the range of 25 to 30%, and the very long-term target that that is then represented 30% of 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 million order that represents 10 million divided by three in recurring revenue. Of course, in the software arena, we have a software profitability level that is definitely about 30%. But 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.

then i know that there is one more question uh at least on the conference call but i would like to cut in with a question from the web and this is from philbert vesiers and it is regarding execution risk of the large data center order that we give that we got in the first quarter And 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, 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, etc. So from that perspective, I'm very solid that we are going to be able to deliver on the promise that we have made. Else, we wouldn't have accepted the order of such magnitude then. We have a dedicated team driving this. And 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 completely new monitors. And that is a large investment, 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 fully operational around mid of this year. But I already now see strong progressions taking place there. So that was in short.

Great. And could you also give any colour 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 Manters, i.e. really contributing to our mid-term financial targets. But of course, the majority of those are not coming this year. It is for 2023 and onwards.

Thank you. So then we open up for the conference call again.

Yes, we have one more follow-up question from Lucas 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 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

Lukas, 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. So, yes, you are absolutely right. It stems from misdelimination. It is generally the same base technology. And 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 so we have taken orders at current 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 and how do we take away it from coming more into the atmosphere? So step by step, we will definitely emerge into this. But 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. And with that, I would like to thank you, Claes and Anette, thank you who are viewing and welcome you back in July to watch the presentation of our second quarter report. So thank you for today.

Thank you.