Munters Group AB

STO:MTRS

Earnings Call Transcript 2022-Q1

[Ann-Sofi Jönsson, executive]

Welcome to the presentation of our first quarter 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. [Operator Instructions]

So with that, I hand over to Klas.

[Klas Forsström, executive]

Thank you, Ann-Sofi, and good morning, and very, very much welcome to this quarter report for the first quarter. In short, the quarter comprised a 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 given 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, 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 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%. And then, as I said earlier, an order backlog that is about 130%.

The EBITA 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 the tragedy with the war in Ukraine. Munters only have about 1.5% of net sales and no employees in Russia. They 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. But it's also important to say that there are indirect effects mainly related to increase of material prices and some logistical 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 mid-term 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.

And then APAC, 23% of our total order intake, 2% up growth, primarily with the Battery subsegment but also service, which is very important. FoodTech then. As I said earlier, continued weak Chinese swine market, and lingering pandemic is affecting especially the Shanghai area in China.

We continuously adapt our operational 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 not -- 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 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 on other segments. But in general, all segments expect -- except Commercial is 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 first quarter of '24. What is this then? It is the contribution to our customer, high energy efficiency, zero water consumption, a reliable solution that is scalable, and it's 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 plant. 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 FoodTech, a more -- 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 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 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 call 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 faster than -- it was a plug-and-play setup. 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 and 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 savings strategy, setting ambitions for the future. All in all, we are becoming more and more sustainable.

With that, over to you, Annette.

[Annette Kumlien, executive]

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 (sic) [constraints] that we have seen and the chase for price increases. And then the capital structure, 2.6, yes, increased, and that's a big part of that is actually the acquisition of EDPAC 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 a record high. And if you look at the order intake, SEK 1.3 billion of what we received is basically just 2 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 -- and the digitalization part as we have talked about earlier on.

And if we look at 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 mid-term perspective, when we look at the realization of our strategy program where we're taking down the result improvement respective from SEK 70 million to SEK 50 million. And then we will look at the short-term impact, writing down the inventory and so forth. Then we're looking into SEK 29 million impact that we've done IAC during the first quarter. And again, 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. So that is also part of the margin change.

If we look then at AirTech 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 are 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, 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 AirTech area. And again, when we look at the adjusted EBITA 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. Then when you look at also 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. And then we have also can see 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 Americas, where we 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 pandemic, but also we can also see now that FoodTech is a bit impacted by Ukraine.

Adjusted EBITA margin, yes, 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 volume -- negative volume impact, but it also has a negative mix impact on the margin. And then again, if we look at the 2 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 Q1 last year. Pricing, if you look at it 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 AirTech, 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 has been a lot of good work done in the company over the past 2.5 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 the -- 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 2 major impacts that you can see while 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 the -- in delivering our operational efficiencies in certain factories where we have issues getting access to -- in an efficient manner.

And then when it look -- 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 to SEK 50 million. So that's all, but all in all, still on track.

With that, I would like to hand over to you, Klas.

[Klas Forsström, executive]

Thank you, Annette. 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 continued 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.

[Ann-Sofi Jönsson, executive]

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

[Operator]

[Operator Instructions] Our first question comes from the line of Lucas Ferhani from Jefferies.

[Lucas Ferhani, analyst]

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, 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 said 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 are not offset is more kind of the exceptional impact on freight supply chain and operational challenges?

[Klas Forsström, executive]

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 AirTech as an example then, on the invoicing, approximately, we have 5% -- 4% to 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, 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.

[Annette Kumlien, executive]

Yes. And you can say from a FoodTech 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 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. And as we have talked about earlier is that we're in this catch-up game, so we're currently 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 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. And with the biggest order we are receiving now, we are more or less working also from 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.

[Lucas Ferhani, analyst]

That was quite detailed. And my other question was on M&A. If you look at the impacted 7% in AirTech. Is there anything else except EDPAC in there? 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 2 months there. So I was wondering, is it only EDPAC that's impacting there? And if so, is it kind of outperforming a lot more than what we expected?

[Klas Forsström, executive]

Yes. The short answer is, it is only EDPAC 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 reenter Europe and continue the growth journey has outperformed the business case that we have put in place. So whatever we laid out, I feel that we are continuously moving according to that plan and actually overperforming in some of the areas.

[Lucas Ferhani, analyst]

Great. And just a last one, open-ended kind of question. When we look at the market growth in Data Center, obviously, there have 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 route to market because, I mean, there has 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.

[Klas Forsström, executive]

Also a very good question. Let me sort of establish a base here, we believe that the underlying growth 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.

[Annette Kumlien, executive]

But 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. 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, Klas. But that's just the nature of the game.

[Klas Forsström, executive]

Absolutely. Well said.

[Operator]

And the next question comes from the line of Gustav Berneblad from Nordea.

[Gustav Berneblad, analyst]

Gustav here from Nordea. Just a couple of questions from my side here, and to start off, I guess we all were surprised by strong results in AirTech for the quarter. Is there any large projects driving the result? Or how should we think here?

[Klas Forsström, executive]

I think -- 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. So it's, it's a bag of different areas.

With that said, I mean, AirTech, 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.

[Annette Kumlien, executive]

Yes. And just to add on, obviously, when we did the strategy change back in 2019, 2020, you can see part of that coming through now in the performance we have. But there's still work to be done.

[Gustav Berneblad, analyst]

Okay. 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, [ with confidence ], successful U.S. strategy focusing on smaller projects in Europe. And now you take on the 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?

[Klas Forsström, executive]

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, 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 are 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 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.

[Annette Kumlien, executive]

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

[Gustav Berneblad, analyst]

Okay. I see. And then just a 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, and FoodTech?

[Klas Forsström, executive]

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 3 up to 6 months, in a few cases, 9 months. Then it has moved up, and now it is very much in between 6 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 [ queue test ] order ones, again, SEK 1.1 billion, a small section coming at the end of this year, the majority coming next year and then in the first quarter 2021.

[Gustav Berneblad, analyst]

But is it fair to assume that AirTech and FoodTech has similar lead time or...

[Klas Forsström, executive]

No. Also no. Please, please.

[Annette Kumlien, executive]

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 3 to 6 months in FoodTech. AirTech is much longer as you see.

[Operator]

The next question comes from the line of Anders Roslund from Pareto Securities.

[Anders Roslund, analyst]

Yes. Yes, I would like to start off with one question regarding the EBITA bridge on Page 17, what you're saying there is that pricing is neutral versus cost that the operational challenges in AirTech are sort of double minus. It means that, okay, pricing, will that be very positive regarding cost that 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?

[Klas Forsström, executive]

Please, Annette.

[Annette Kumlien, executive]

Yes. 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 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. So -- and Anders, 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 -- and as you can see in the report, it's going to be still a dampening effect on us.

[Klas Forsström, executive]

And 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, and it's also what I have described very often as the hand -- from hand to mouth, i.e., what about different supply chain issues? I'm super confident that 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.

[Anders Roslund, analyst]

Okay. Then I repeat one of the earlier questions regarding the order intake, looking -- going forward, could we just exclude this SEK 1 billion -- 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 preordering overall? Or we just have to understand how we should model future order intake here?

[Klas Forsström, executive]

But if you take the SEK 1.1 billion, I do believe that we are fairly transparent saying that the small, small part of it will come in at end of this year, the majority quarter by quarter sort of spread it out over the quarter.

[Anders Roslund, analyst]

Yes, but I was talking about the order intake level now, not sales.

[Klas Forsström, executive]

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 SEK 150 million to SEK 250 million. And I foresee that the underlying order intake in the main business, if we 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 SEK 200 million order, then in another quarter, you may not. So, but to summarize it, I'm positive in AirTech when it comes to the underlying market moving forward that 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.

[Annette Kumlien, executive]

But Anders, as we said earlier also in the presentation is that the megatrends that we are riding on and driving, they -- we see them still continuing. But as you know, also, we don't really give an outlook for what each quarter's going to look like. But you just have to be mindful. And then again, as Klas was saying, we do have some project business. And obviously, project business, they come when they come.

[Anders Roslund, analyst]

Okay. Just coming back on the EBITA bridge and pricing, as you have the expectation of even being positive except for what now happen 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?

[Annette Kumlien, executive]

But I was -- 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 FoodTech 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 -- than what we expected earlier because as you remember, we said earlier in our Q4 report that we were talking about the first half being in 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.

[Klas Forsström, executive]

And 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, et cetera. We have also learned that it is a matter of continuously increase prices and that we will continue to do. Wherever it's possible, we will continue to increase prices. But 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.

[Annette Kumlien, executive]

Yes. And I think also as you said, we are 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. So it's really good to see.

[Operator]

And we have one more question from the line of Karl Bokvist from ABG.

[Karl Bokvist, analyst]

So my first one, you touched upon it, Klas, but the industrial production unit in the U.S. that has seen 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.

[Klas Forsström, executive]

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 described 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 coming quarters, 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.

[Karl Bokvist, analyst]

All right. 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?

[Klas Forsström, executive]

It is industrial in general in North America.

[Karl Bokvist, analyst]

All right. And then the -- 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 or 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?

[Klas Forsström, executive]

If we exclude the SEK 1.1 billion 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 on 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.

[Annette Kumlien, executive]

And again, as we were talking about AirTech and FoodTech is a bit different. So FoodTech...

[Klas Forsström, executive]

I talked about AirTech.

[Annette Kumlien, executive]

Yes, yes. But FoodTech has most deliveries this year. But when you look at AirTech, though, it's more spread out. And in general, we have details, which is like 1 year around it. So that's going to flush out quite evenly -- or not quite even, but it is going to flush out during this year but with some things also delivered during 2023.

[Karl Bokvist, analyst]

Okay. 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 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.

[Klas Forsström, executive]

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 set up 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 adjust prices. And here, I talked 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 biyearly 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.

[Karl Bokvist, analyst]

Okay. And then just the final one, perhaps is just on what the efforts you made within Services. It's growing very, very strongly on sales now. But the profitability potential, how that is progressing. You 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?

[Klas Forsström, executive]

You heard me say several times that I'm a firm believer that a successful industrial service business could -- 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 are -- definitely see progressions in Asia Pacific on that as well as in North America. And we have 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, that is to have a profitability in the service in the range of 25% to 30%, and the very long-term target, that is then represented 30% our turnover.

I should also add, if you go back to Software-as-a-Service, I mean, Software-as-a-Service, that is the new type of service, predominantly towards FoodTech, I mean the orders, the order that Annette talked about, i.e., the SEK 20 million order that represents SEK 10 million divided with 3 in recurring revenue. Of course, in the software arena, we have a software profitability level that is definitely above the 30%. But this is a journey that takes -- 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.

[Ann-Sofi Jönsson, executive]

Then 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. And this is from [ Philbert Veissieres ], and it is regarding execution risk of the large Data Center order that we got in the first quarter and if you can give an update on the addition of capacity, especially on the 2 new factories for DC and batteries in the light of that.

[Klas Forsström, executive]

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, 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. So from that perspective, I'm very solid that we are going to be able to deliver on the promises we have made. Elsewhere, 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 are 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. 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 I will be able to -- 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.

[Ann-Sofi Jönsson, executive]

Great. And could you also give any color on the margin of the large contract received?

[Klas Forsström, executive]

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 mid-term financial targets. But of course, the majority of those are not coming this year. It is for 2023 and onwards.

[Ann-Sofi Jönsson, executive]

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

[Operator]

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

[Lucas Ferhani, analyst]

I just wanted to have your view on kind of the carbon capture market. I think previously, the -- 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 deal are you targeting in terms of growth there.

[Klas Forsström, executive]

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. So yes, you're absolutely right. It stems from Mist Elimination. 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's not substantial orders, but what are making me very, very pleased there is customers 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 the problem for the planet.

[Ann-Sofi Jönsson, executive]

Thank you. Then I don't think we have more questions from the conference call. And with that, I would like to, thank you, Klas and Annette. Thank you who are viewing and welcome you back in July to watch the presentation of our second quarter report then. So thank you for today.

[Klas Forsström, executive]

Thank you.

[Ann-Sofi Jönsson, executive]

Thank you.