Carel Industries SpA
MIL:CRL
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Carel Industries SpA
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Carel Industries 2024 First 9 Months Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Francesco Nalini, CEO of Carel Industries. Please go ahead, sir.
Good afternoon, and thank you for joining our call for the presentation of the 9 months 2024 results. I'm starting directly from Page 4 where we have the first main highlights of the period. Revenues as well as EBITDA margin in Q3 have been substantially in line with Q2, confirming the same trends already seen in the first part of the year. Actually, in Q3, we saw an increase in volatility, with a particularly strong seasonal effect in August that slightly penalized sales, while in September, results have been better, and the very recent preliminary managerial figures for October signal a further improvement.
In the 9 months, revenues had a decline of 12.9% or 16.4% organic. This is, for the most part, due to the poor performance in the EMEA region and, in particular, to the results of the heat pumps vertical that saw a further worsening in Q3. The silver lining is that heat pump sales are now mid-single digits on total group revenues on a yearly basis, meaning that basically for next year, they don't present any significant downside risk, just the opposite.
The scenario in refrigeration was also in line with the previous quarters, and we didn't see any significant improvements materializing, if not on a qualitative basis, at least in Europe. While on the other hand, the performance is very good in America and also in China. We have to consider that these results are also affected by particularly high comparables last year due to the backlog recovery after the end of the shortage. And in fact, Q3 last year was the second highest ever reported by the group, the first being Q2.
The results are also affected by the very sharp destocking taking place in the industry, especially in heat pumps that is now in the process of normalization. And in many cases, it's basically normalized now.
EBITDA margin in the 9 months was 18.2%, in line with the first half. We had a decline compared to the 22.3% reported in the first 9 months of '23, which is entirely due to the negative operating leverage, which, in any case, was partly compensated by savings in operating expenses. In the 9 months, they were lower than 2023 in spite of the perimeter change and the increase in R&D investment that remain on target at over 5% of sales. We also had an improvement in gross profitability, mainly thanks to a positive trend in raw material costs.
Net financial position at the end of the period is EUR 84 million, including EUR 44 million for the acquisition of the residual 49% stake in CFM, net of which it would have been substantially in line with the full year 2023, easily covering net working capital, CapEx, and dividends. NFP remains below 1x EBITDA and netting the EUR 31.6 million related to the IFRS 16, it would be around 0.5.
I now move to Page 5 for additional figures. At EUR 432.9 million, revenues in the 9 months were down 12.9% from the EUR 497.2 million of last year. We had EUR 81.9 million less due to the organic decline then EUR 17.4 million of positive contribution from the perimeter, mainly thanks to Kiona and a very small EUR 0.2 million of positive foreign exchange effect. As I mentioned, Q3 was close to Q2 and was slightly impacted by strong seasonality in Europe in August, probably due to reduced summer activity in the market in order to save costs.
Kiona reported a double-digit growth in line with the previous quarters. EBITDA at EUR 78.7 million was down 28.9% from the EUR 110.7 million of last year and was 18.2% of sales, down from the 22.3% of the same period last year entirely due to the negative operating leverage, partly offset by better gross profitability, in turn mainly due to a good trend in raw material costs and by savings in operating expenses in spite of the perimeter change and higher R&D. Kiona maintains an accretive profitability with an EBITDA margin above 25%.
Net profit was EUR 39.7 million, down 32.8% from the EUR 59.1 million of last year due to the operating results since financial charges and the tax rate were not far from 2023 figures. I'm particularly proud to emphasize that in spite of the challenging moment, we are investing at a record level for future growth. CapEx in the 9 months are EUR 22 million, up 47.1% from the EUR 15 million of the same period last year.
This is mainly due to R&D and to the expansion of the Klingenberg plant in Poland, where we're going to centralize some phases of the manufacturing processes of mechanical components realized in other plants in order to increase efficiency. As mentioned, the increased R&D expenses are at our target level above 5% of sales and at a record level in absolute terms as we strengthen our innovation pipeline for the future.
Moving to Page 6. We can see the revenue breakdowns by region and market. In EMEA, sales declined by 18.4%, net of the foreign exchange. We have the continuation of the same trends of the previous quarters with destocking and very high comparables last year for the backlog recovery. The sharp decline in heat pumps sales is concentrated in this region, and we now believe that stock levels in general are pretty close to normalization. In APAC, sales are down by 8.6%, net of the foreign exchange. Q3 was better than Q2. However, the comparable Q3 last year was very challenging. Good performance across the region in data centers, including China. In China, also very good results in refrigeration, while HVAC commercial is impacted by the weak real estate sector. In general, very positive prospects in India and Korea.
North America reported a growth of 6.1%, net of the foreign exchange. Q3 was another strong quarter with over EUR 25 million in sales in spite of a very challenging comparison since Q3 last year was the strongest for North America as the backlog recovery happened with a few months delay compared to Europe. By far, the fastest-growing vertical is data centers, and we also see very promising trends in refrigeration. Latin America grew by 17.7%, net of the foreign exchange, with good performance in Brazil but also in the rest of the region, even if not everywhere due to macroeconomic conditions.
To the right, we see the results by sector with HVAC declining by 15.2%, net of the foreign exchange, with most of the decline related to heat pumps that further worsened in Q3 but now we're convinced they have bottomed out. Q3 was quite volatile with a seasonal slowdown in August as several players in the industry, especially in Europe, took the opportunity to reduce activities to save costs. We believe that heat pumps have bottomed out also because we are starting to see again some small signs of tangible recovery in the market of heat pumps from customers, small signs again but tangible ones.
Refrigeration sales were down by 5.3% in the 9 months with a still stagnating market in EMEA, but on the other hand, an acceleration in America, which is expected to continue in the coming quarters. I now leave it to Nicola to comment the items below the EBITDA on Page 7.
Thank you, Francesco. Slide #7 details the group result from the EBITDA to the net profit. Increase in G&A cost is related to the purchase price allocation of Kiona for EUR 3.5 million and the residual part to the relevant CapEx activities of the last few years. The increase of financial charges is mainly related to figurative interest in accounting effect such as put and call options, earn-out liabilities and IFRS 16 liabilities.
The net financial charges paid to banks and other financial institutions decreased from EUR 2.8 million of September 2023 to EUR 2.3 million of the present year. The ForEx gain is mainly linked to the effect of the Kiona put and call option expressed in NOK. The capital gain refers to the difference between the estimated fair value of the actual amount of the put and call option of CFM. The tax rate of the period was 23.2%, lower than the same period of last year. The group net profit at the end of September 2024 was equal to EUR 39.7 million compared to EUR 59.1 million of the same period of 2023.
Slide #8 shows the net financial position evolution of the first 9 months of 2024. The period was impacted by M&A activities for EUR 44.2 million. The group paid dividends for EUR 21.3 million. The CapEx of the period were equal to EUR 22 million. The first 9 months of 2024 net working capital increased mainly to the typical seasonal effect. Taking out the effect of IFRS 16, the net financial position is equal to EUR 52.4 million. I leave Francesco to go on with the presentation.
Thank you, Nicola. I'm now on Page 9 with an update on the Kiona integration. On the technology side, as expected, we realized the compatibility of the Kiona system for refrigeration with the current local supervisory system, the BOS. This new solution has been presented at a very important Chillventa exhibition in Germany a few weeks ago and is the first step for the cross-selling of the Kiona system.
One example of cross-selling will be the 24/7 alarm management center of Kiona. And on this front, we are developing very innovative applications using AI to automatize the alarm management itself. On the commercial front, we're speeding up the Kiona internalization process, targeting, in particular, southern Europe and the U.K. In particular, in Italy, we started the process of qualification of system integrators.
In spite of the very challenging scenario in Europe, Kiona maintained a good growth rate in the first 9 months, around 15% if we consider recurring revenues, which are by far the most strategic, something less but in any case, double digit if we consider total revenues, including one-offs. Profitability is very good and accretive to the group at more than 25%. And these results still don't include some very big projects we have in the pipeline with public administrations in the Nordics.
Now on Page 10, I'd like to share some organizational developments. Giandomenico Lombello, currently Managing Director of the group, is going to retire at the end of the year after more than 30 years of very successful tenure with Carel. At the same time, in the last few months, we've been working to design a new organizational and operating model, which will take effect starting from January 1, 2025. The new model will be a greatly simplified matrix compared to the current 1 with a strengthening of the regional dimension in order to be closer to customers and to regional, commercial and technical opportunities.
There will be a streamlined C-suite line directly reporting to me to reduce complexity and speed up the decision-making process, and a few new dedicated roles have been added to the organization to accelerate the development of new capabilities, in particular, with a greater emphasis on long-term innovation. We already had 2 great additions to our executive team in the last few weeks, which are the new Chief Technology Officer and the new regional CEO for Western Europe, both roles not present before.
Finally, I take this opportunity to express my personal gratitude and the gratitude of the entire Board of Directors to Giandomenico for the outstanding and fundamental contribution he gave to the growth and development of the group during his more than 30-year tenure at Carel.
I now move to Page 11 for the closing remarks. The third quarter saw the continuation of the same trends as the previous ones. There was a significant volatility in the period due to a particularly strong seasonal effect in August, while September improved and the still preliminary managerial figures for October show a further very positive improvement. The visibility is very low, though, with just a couple of weeks of regular lead time for orders.
Q3 also remained quite difficult in terms of comparison since Q3 last year was still very high, actually the second highest after Q2 due to the backlog recovery. The destocking trend continue, and fortunately, it should be close to normalization. EBITDA margin at 18.2% was also in line with the previous quarters and the decline from the 22.3% of the first 9 months of '23 is entirely due to the negative operating leverage, partly offset by better gross profitability and reduced overhead costs. In fact, we've been successful in keeping overhead expenses lower compared to '23 in spite of the change in consolidation perimeter and in spite of higher R&D expenses.
The macroeconomic scenario continues to present significant elements of uncertainty even if the path to lower interest rates has finally started in Europe. We have very positive expectations for North America, thanks to data centers and to new opportunities related to inverterization and refrigeration. In Europe, stock levels are close to normalization even if the recovery in refrigeration is lower than expected. And we have positive expectations for the most part of the APAC region.
To conclude, taking this into account and considering that the very recent preliminary managerial results for October, even if very positive, do not signal a substantial deviation from the trends already present in the last quarters, the group expects Q4 consolidated revenues substantially in line with those of the previous quarters and therefore expect to close the year with consolidated revenues close to EUR 580 million. Thank you very much for your attention. We're now more than happy to answer to all of your questions.
[Operator Instructions] The first question is from Niccolò Storer, Kepler.
I have 2-plus clarification. The first one is, Francesco, if you can give us an overview of the trend, the most recent trend in the HVAC business excluding heat pumps and data centers, so industrial and commercial ex the other 2 activities that I mentioned.
The second one is on expectation for profitability 2024. Do you think you will be able to defend the 18% EBITDA margin level even in a context of lower-than-expected revenues? And the clarification regards the Q3 performance of North America. If I understood well from your speech, basically, the reason of the Q3 drop is just a matter of tough comparison compared to last year. Is this right or am I missing something?
Okay. Thank you, Niccolò, for the questions. So talking about HVAC, okay, as far as commercial and industrial ex data centers are concerned, let's say that we don't see any particular changes in the trend compared to the previous quarters. For sure, especially ex heat pumps, we believe we are pretty close to a normalization in the stock levels. And also, of course, the comparable is becoming easier in the near future. So we do expect -- we have reasons to expect, let's say, improvements down the road.
And let's say, as I mentioned, the very preliminary managerial figures for October point to -- in general, point to some improvement. Going to the profitability of '24, so in Q4 basically. This is not easy to say because, as you know, normally, Q4 has a lower profitability compared to the rest of the year also because we have higher costs that incur the end of the year. Let's say that, of course, this year, we are taking some specific actions to contain costs.
Also probably the seasonality of Q4 this year could be slightly different in sales compared to the normal usual seasonality. On the other hand, the profitability, of course, depends on the top line result, which is difficult to forecast precisely due to the very low visibility. So this is basically to say that it's not easy to provide an indication for Q4 profitability because there could be, let's say, positive development. But on the other hand, as usual, Q4 sees a lower profitability compared to the rest of the year.
Going to North America, Q3, you are right. Basically, the decline in growth is related to the comp last year because, again, the backlog recovery in America was a little bit delayed compared to Europe. So Q3 last year was very, very strong. If you look sequentially at Q3 versus Q2, Q3 is not as high as Q2 but that is due to some logistic reasons, very, very temporary that led to some postponement from Q3 to Q4, so basically nothing related to the commercial development. So Q3 was very, very positive in North America. It's the comp of Q3 last year which saw a very important backlog recovery there, and the fact that we maintain a good growth even in spite of the backlog recovery is definitely a sign that North America is developing very, very well.
The next question is from Christian Hinderaker, Goldman Sachs.
Just want to start with the heat pump business. You talked about small but tangible signs of recovery there. I'm just curious if you can specify what data points you're pointing to and whether that's more a function of lower customer destocking perhaps distinct from an improvement in end demand at the customers.
Yes. Yes, Christian. Thanks for the question. So in heat pumps, first of all, let's clarify that, of course, the end demand remains very, very, very soft so this has to be specified. We are seeing tangible signs, meaning that we started to see customers, even significant customers, starting again to order even in the short term, something that wasn't there in the last few quarters.
And that's basically for 2 reasons. One is that, yes, stock are now basically normalized in some cases or very close to normalization. And the second reason is also related to technology because there is the transition to propane, which is very well underway. And some customers are, let's say, starting to move their product ranges to propane and they need different components because the components for propane are different from the traditional ones. So they're starting to order the new -- the components for propane for starting the production of new models of heat pumps for propane.
Because, of course, the demand for older heat pumps, not with natural refrigerants is probably going to be not as sustained as for the natural refrigerant ones. So again, we're starting to see some tangible signs, meaning some orders, real orders even in the short term, something not present before. We're not talking about huge volumes, but I mean, again, this is a good -- definitely a good signal.
Maybe just secondly, I want to talk through the refrigeration dynamics in Europe. Obviously seeing that improvement come through in America, but we're yet to see a pickup. What do you think is needed to see that? Is it more a function of the rate improvement? Do you think customers have just drawn a line on the CapEx for this year? Just curious as to what you think we need to see for that market to improve in Europe.
Yes. I think, Christian, a lot of it is related to inflation and interest rates. So I believe that the trend -- the clear trend in interest rates and inflation in Europe, which is at the moment, positive, should definitely help to go to a recovery. We continue to see, let's say, increasing optimism in the outlook but that's still qualitative. So we're not seeing, let's say, so far clear tangible signs. I believe that the main driver will be interest rates, as you say, plus inflation. And both are going in the right direction at this moment.
And if I could just squeeze a short 1. The seasonality in the cost mix in terms of Q4 usually being higher, can you just talk through what drives that?
Look, it's more a seasonal effect on some purchasing that we are doing in many projects. And then many projects even physiologically arrived to the end of the year so arrives in the profit and loss in the last quarter.
So we're talking about R&D projects.
R&D project, other consulting projects for the commercial side or even financial and staff activities that are performing in the last part of the year.
The next question is from Alessandro Tortora, Mediobanca.
I have some questions, okay, let's say, also curiosities in case, okay? The first one relates, Francesco, you mentioned, let's say, some positive trend but also some signs of order intake in the heat pump. Considering that you mentioned that the transition to propane is a driver behind this small improvement, is it -- this relates to, let's say, new clients basically entering Europe with so many announcements okay, of Asian producer targeting the European market, heat pump market? Or in this case, we are talking about, let's say, the current European manufacturers? Just to understand, okay, if you are able now to intercept also these newcomers, okay? So that's the first question, Francesco.
Okay, Alessandro, so thanks for the question. No, the -- let's say the small improvements we are seeing are mainly related to existing customers. Having said that, we have, in the pipeline, very, very interesting developments in terms of projects for heat pumps, so let's say, for both existing and new customers because we discussed already, we are launching basically a new architecture of controls, both on the hardware and the software side for -- as well as the inverter side for heat pumps, which is proving very successful in the market.
So we have several new projects in the pipeline, which, of course, are not being translated into volumes now because of the market but they're in the pipeline for the future for sure. The increase -- the small increases we are seeing now is related to existing customers.
Okay. Okay, Francesco. And also related to this, do you see an overall, let's say, price pressure, okay, on your components from basically the heat pump manufacturers?
Okay. No, at the moment, no, Alessandro. We are not seeing big price pressures. On the other hand, we are seeing, as I mentioned, improvements in raw material costs definitely higher than price reductions. However, we do expect the pressure on prices for the future in heat pumps for sure. So it's not something happening now because the volumes aren't there. But for the future, we do expect them. And that is one of the drivers behind the new generation of controls that we have been developing for heat pumps, which is definitely more cost effective in order to prepare for these pricing pressures, which of course, we expect for the future.
Okay, okay. Then I know it's very difficult and visibility is very low, but the question is related to, let's say, the refrigeration but also to data center. You always mentioned data center as an outperformer. Everything basically we see into the sector is talking about an acceleration, okay, in terms of investments. Can you help us, let's say, to understand a little bit on data center? What's going on?
And also, let's say, on a qualitative basis, if you can also give us some color on which kind of growth this application is having for you. And sorry, on refrigeration, I know it's difficult today but do you still have, let's say, a sort of feeling or at least expectation that next year, considering the normalizing interest rate environment, this is basically a segment where we may see, I don't want to say a crazy number, but at least, let's say, a mid-single-digit improvement organically speaking for refrigeration?
Okay, okay. Thanks. So concerning data centers, this is performing very, very well, especially in America, also in Asia, also in China. But let's say that in America, it's really performing very, very well, including liquid cooling. We're seeing very, very big projects coming in liquid cooling in the U.S. But not only liquid cooling, it's basically everything. And that's for the foreseeable future. I mean, the pipeline is full. So this is happening mainly in the U.S.
Second, we have China and Asia, a little bit less in Europe because, yes, they are investing in data center but not as much, plus in general, in Europe, there is a generalized destocking which is not helping even the data center business. But the business is positive also in Europe. So data centers are growing overall double digits for us, which is to say a lot if we consider the, let's say, the comparison with last year. So double digits is double digits over not demand on demand but demand plus backlog recovery.
So there's a very big growth, which is expected to continue and to accelerate, especially as stock levels normalize and comparison improves, becomes easier. So that's, let's say, definitely the best performer now.
Considering refrigeration, yes, unfortunately, it's not very easy to forecast. And everybody was expecting a faster recovery, honestly, in refrigeration. It didn't happen so far. I'm very convinced, I remain very convinced that, I mean, there are very strong reasons why the market should restart in Europe, not least for the gas, not least for technical reasons. And of course, the normalization of interest rates and inflation should help in that. So I'm quite optimistic for next year across the board, but in particular, let's say, also for refrigeration in Europe.
Okay, okay. Then, let's say, the third question relates to the incoming Trump administration. Considering, let's say, the possibility, okay, of an incremental tariff risk, is there any plan, let's say, also to start to produce locally in the U.S. new components or maybe you can accelerate this plan, considering clearly this incremental tariff risk?
Yes. So in terms of the possible duties, let's say, we are -- first of all, we already manufacture a lot of our lineup in the U.S. So it's -- we're already well positioned. For the other products that we're not currently manufacturing there, we are mapping them all but we have been doing this for months now. So we are mapping all the components that we don't manufacture in the U.S. We're mapping all the intercompany flows, and we are prepared to act quickly to deploy any new production if needed in the U.S.
One notable example is inverter that we don't currently manufacture in the U.S. But as volumes as we expect, will increase, we are prepared to deploy the manufacturing of inverters in the U.S. That should not be a big deal for us. So from this respect, we are not concerned about the possible duties.
On the other hand, they could even represent an opportunity because of the reshoring in the U.S. that could, let's say, help us to increase our market share in the U.S. because our customers would move to the U.S. especially, for example, European customers that maybe are not currently manufacturing in the U.S. or manufacturing not so much in the U.S. They would be forced to move there and we would follow them, of course, with our products in the U.S. So this could help us to increase our presence there. So we're not concerned about the duties. We are, on the other hand, convinced that could even represent an opportunity.
Now if you look at the possible impact of this administration on the energy transition, for example. Let's say that, again, we are not too concerned because something could slow down. Yes, for example, there is a risk that heat pumps -- the heat pump market that was expected to grow fast in the U.S. could be delayed. Yes, this could happen. But this is a market which is not present now so it's not too worrying.
On the other hand, data centers, of course, are not impacted by this, and they are the fastest-growing vertical. Other trends like inverterization are related to technology in general and not to the energy transition. So for example, inverterization is a superior technology under any respect. And there is a generational change in technology happening among our customers in the U.S., which goes well beyond, let's say, the energy transition or regulation, just a superior technology, full stop. And so we believe that will definitely continue.
The same in refrigeration. There is, let's say, a new generation of technology which is now starting to be deployed in the U.S., something that has been happening in the rest of the world for several years. Now it started there and there is no reason to believe it should stop regardless of regulation. So probably the only meaningful impact of regulation could be maybe on heat pumps, which again, is not a market present now. Having said that though, as you know, many regulations are implemented at state level and not federal level so they could, let's say, continue without any big impact.
Okay, okay. And the last 1 is for Nicola. If you can just remind us, Nicola, your expectation for trade working capital, okay, so excluding, let's say, the other not core items but also on the tax rate by year-end.
Yes, Alessandro. So the working capital that we are expecting, the trade working capital that we are expecting at the end of the year will be 2% more than what was last year, so something like 23%, 24%. And this is due mainly to a temporary effect of inventory that is for something higher than expected but it's just a temporary effect. With reference to the tax rate, we expect something around 22%, 22.5% for the year-end of this year.
The next question is from Alessandro Cecchini with Equita.
The first 1, actually, it's -- I mean, your previous assumption was close to EUR 600 million and now you are working to close to EUR 580 million, with probably October that, I don't know, but seems from your speech, more in line with the previous guidance. So I was just wondering the reasons why you see now a level that is below the previous one. So just to understand, it was third quarter that was below your expectations, internal expectations. So just to clarify a little bit on this.
My second question is instead you talk about North America some shift in orders due to the decline, minus 5% in the third quarter. So if you could -- I mean, if you can, of course, quantify how much was the impact of this shift in orders that probably we can see in the last quarter. And finally, my question is about, of course, M&A. You did a capital increase to do that. Probably we were expecting something already this year. So if you could add something on the pipeline that you have at the moment.
Okay, okay. Alessandro, thanks for the question. So concerning the EUR 580 million versus the EUR 600 million, so it's not really related to Q3 because Q3 was close to Q2. So okay, yes, there was a very strong seasonality in August, which was not expected, but that September went better so it's not really Q3. And October, as I mentioned, the preliminary figures, managerial figures point that October being the highest month so far. So it's very positive.
The order intake for November looks promising also. The point is that there is a very, very low visibility because the visibility is extremely short. It's 1, 2 weeks. We still are not sure what our customers will do in December, meaning when they will close and so on. Of course, we're trying to figure that out with them but it's not so easy to forecast. Plus as I mentioned, unfortunately, refrigeration still doesn't show signs of recovery as expected. So yes, October seems very good. November looks also good but that's not enough to, let's say, be sure that we can, let's say, we can achieve a target which is much higher than EUR 580 million.
Considering America, Q3, let's say that Q3 was, I don't know, something like EUR 1 million less than Q2 sequentially. We had a couple of millions moved due to a logistic issue related to some -- to a provision that we were not being able -- we have not been able to deliver in Q3 so it has been moved, so it's not something that concerns us. And the comparison has worsened because of the very strong Q3 of last year. We're talking in a case about very strong quarters in the U.S. All of them this year are very strong quarters. And we have very good expectations for the future, by the way, with very good prospects.
Considering about M&A, yes, not easy to forecast when they happen. We are active, we're active with our pipeline. We have several things going on. It's, of course, difficult to forecast the timing.
Okay. And lastly if I may, so Kiona is, as you said correctly, is running at double-digit top line growth, probably 12%, 13% the trend because double digit but not 15%. I was just wondering just if you can quantify, I mean, the magnitude of the projects that you are, I mean, looking at government projects in Nordics. So just to have in mind which could be the potential acceleration next year or in the coming quarters due to these projects?
Okay, Alessandro. So let's say, about Kiona, what we can say is that these big projects we have in the pipeline. And I mentioned these ones on the public administration but there are several others, let's say, will lead, we expect, Kiona to accelerate its growth. And our expectation is that it will grow possibly in the future, in the near future, above 20% top line. It will go above 20% top line growth.
Now let me underline once again that the growth they're having this year is double digits, less than 20% but we have to consider that Kiona is not a start-up. It's a company with a significant size. And the environment in Europe is extremely challenging this year, as you know. So this growth rate for Kiona, we believe, is quite satisfactory in any case. But having said that, we expect it to, for a number of reasons, including the pipeline of projects, to go back to beyond the 20% where it should be.
Okay. My final question is about the net working capital that, as you said, 22%, 23% this year commercial working capital already starting from a very high -- I mean, very high level that was, I mean, last year. So just to understand, you are working for something so what is your normal level that you could expect starting from, I mean, next year?
I think that we can arrive below the 20% in general when everything will be cleared. And there were 2 very challenging years due first to the shortage, then there was -- and so there was a lot of demand from the customer, and we placed a lot of orders to our suppliers in order to fulfill all this request. And that there was predictability of the demand from the market. And so these were very 2 special years but we are working in order to reach the normal target below the 20%.
I think it's worth mentioning that the quality of receivables is improving, consistently improving.
Yes. We applied this year a new credit policy all over the world. We are having excellent results in terms of collection. We are working even with suppliers in order to have better condition and the main lever of improvement will be on the inventory.
Okay. Lastly, on -- I mean, the last time we spoke about the North America refrigeration market, we read some articles about Walmart, et cetera, this kind of clients. And you stated that in August, that was some projects, I mean, with, of course, no orders or et cetera. But just to understand how it's evolving these opportunities with this kind of clients. So what is the step-up that we had from August to now in November?
It's evolving well, Alessandro. So these are projects in the pipeline, especially for next year, I would say, but they are developing well. I mean, so we are very optimistic about refrigeration, among other things, in North America for the coming quarters.
Mr. Nalini, gentlemen, there are no more questions registered at this time.
Thank you. Thank you for your attention. Thank you for your questions and looking forward to speaking with you again for the presentation of the 2024 full year results.