Carel Industries SpA
MIL:CRL
Earnings Call Analysis
Q3-2023 Analysis
Carel Industries SpA
The narrative of our company's performance begins with robust gains this quarter, echoing several periods of substantial organic revenue advancements and elevated adjusted EBITDA margins. Specifically, revenues surged by 24%, or 12.7% on an organic basis, which adheres to our previously shared forecasts. Our operational success this quarter has been multifaceted, rooted in continued robustness in industrial and commercial HVAC, particularly in data centers, overshadowing the anticipated and temporary softness in the heat pump market. This is counterbalanced by persistent hardships in the refrigeration sector, worsened by the economic outlook.
The financial highlights command particular attention. Adjusted EBITDA margins ascended to 22.7%, surpassing last year's 21.8% and the preceding semester's 22.1%. Even after accounting for non-recurring items linked to acquisitions and capital increases—amounting to about EUR 2.3 million—the EBITDA margin impressively remained at 22.3%. This profitability uplift primarily stems from the operational leverage gains, pricing strategy effects, and the reception of a favorable product mix due to the improvement in supply shortages, enabling higher sales of products with superior gross profitability. The net financial position stabilized at EUR 265 million, reflective of strategic acquisitions, yet within prudent leverage limits.
Examining our capital allocation: CapEx figures stood at EUR 50 million, echoing last year's investment and aligning with our aspirations. A granular view of our sales reveals a geographic and market dissect that's telling of our strategic positioning. The EMEA and APAC regions experienced notable growth, albeit with some regional decelerations, while North America exhibited an impressive growth spurt, catalyzed by the data center's thrust and energy storage markets. Latin America displayed a turnaround with positive growth dynamics. By market division, the HVAC sector soared, albeit heat pumps decelerated, whereas the refrigeration sector's stagnation sustained.
The company projects a total revenue approximating EUR 646 million for the year, acknowledging a potential deviation of 2% above or below this estimate due to market volatility. This could potentially delay some dealings into 2024. Additionally, the adjusted EBITDA margin is forecasted to range between 20.5% and 21.5%, accounting for the customary seasonal effects in the fourth quarter. Nevertheless, due to ongoing preparations for a capital increase project, we've been limited in providing specific forward-looking indications for the year 2023 and beyond.
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Carel's first 9 months 2023 Results Conference Call. [Operator Instructions].
At this time, I would like to turn the conference over to Mr. Francesco Nalini, CEO of Carel. Please go ahead, sir.
Thank you. Good afternoon, and thanks for joining our call for the presentation of the results of the first 9 months of 2023. I will start from Page 4 with the main highlights of the period. In this quarter of 2023, we saw yet another double-digit organic revenue growth as well as a further increase in the adjusted EBITDA margin compared to both the first 9 months of last year and the first 6 months of 2023. Revenues grew by 24% and if we exclude M&A and the effect of the exchange rate, growth was 12.7%, in line with the expectation we shared with the presentation of the first half results.
We continue to see positive demand in industrial and commercial HVAC applications, especially data centers, while on the other hand, we experienced the materialization of the expected temporary slowdown in the heat pump market.
In refrigeration, we didn't see any significant signs of recovery also due to the worsening of the macro scenario. EBITDA margin adjusted for nonrecurring items which are related in this period, especially to the Kiona acquisition and the ongoing capital increase was 22.7% higher than the same period of 2022 when it was 21.8% and also higher than the first half of 2023 when adjusted profitability was 22.1%.
If we consider the nonrecurring items equal to approximately EUR 2.3 million, EBITDA margin was, in any case, 22.3% with an improvement on last year and on the sixth month. This excellent result comes from operating leverage from the continuous deployment of the effects coming from the previous price list increases as well as to a more favorable product mix after the resolution of the shortage that allows for better sales of programmable controllers, which have a slightly higher than average gross profitability.
Net financial position stands at EUR 265 million, with EUR 184 million coming from the acquisitions of Eurotec and especially Kiona. Without these 2 transactions, net financial position would be approximately EUR 81 million with a EUR 50 million improvement over the EUR 96 million at the end of 2022. At EUR 184 million, the net financial position is in any case lower than 2x last 12-month EBITDA. Net working capital stabilized and is in line with what was reported in the first half.
I'm now moving to Page 5 with some more details on the results. EUR 497.2 million, revenues grew by 24% over the EUR 401.1 million of the first 9 months of 2022. Organic growth in the quarter there is like-for-like constant exchange rate was again double digits at approximately [ 1% ]. Compared to the same period of last year, we had $47.1 million of organic growth in the top line. EUR 52 million is coming from M&A and EUR 6.8 million of negative contribution from the exchange rate. EBITDA adjusted in the 9 months was EUR 113 million, up 28.9% from the $87.7 million of last year. EBITDA reported was EUR 110.7 million, up 28.8% from EUR 85.9 million of last year.
EBITDA Adjusted profitability again was 22.7%, up from the 21.8% of the same period last year thanks to operating leverage and improvement in the product mix, as I mentioned, and the further deployment of previous price increases. Net profit at EUR 59.1 million grew by 12.2% from the EUR 52.6 million of the same period last year thanks to the operating results, while at the same time, we experienced a higher tax rate at approximately 23.8% due to a different country mix and changes in regulation as we will see. CapEx at EUR 50 million were in line with the first 9 months of last year and are in line with our expectations.
On Page 6, we can see the breakdown of sales. To the left, direct down by geography, EMEA grew by 22.5% net of the foreign exchange with a deceleration from the first 6 months, mainly due to the expected temporary slowdown of the [ super ] market. In APAC, Sales grew by 24.7%, net of the foreign exchange with good growth coming from India and South Korea, especially in industrial applications, driven by data centers, semiconductor electrification. The Chinese market remains subdued even if we continue to grow, especially again with HVAC industrial applications since HVAC commercial is weak in the country due to the macro situation. North America accelerated with a sales growth of 48.9% as of the foreign exchange. We had a very good contribution from Samba that is performing very well, but also organic growth had a significant acceleration thanks mainly to data centers and other industrial applications like battery energy storage. Latin America improved and moved to positive growth with a 5% net of the foreign exchange, thanks to a good performance in Brazil, unfortunately offset by a very weak macro scenario in the rest of the region.
To the right, we can see the breakdown by market. HVAC reported a 36.4% growth net of the foreign exchange or approximately 17%, excluding M&A and this in spite of the expected deceleration in pumps. The refrigeration market remained very soft, like in the previous quarter, unfortunately, no significant signs of recovery materialized yet. We reported in the third quarter a growth of almost [ net ] of the foreign exchange also thanks to the Eurotec and Kiona contributions.
And I'll 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. The first 9 months of 2023 were impacted by higher D&A costs due to the relevant investment in CapEx in the last few years and the purchase price allocation from M&A activities for EUR 5.7 million. It was EUR 3.7 million in the same period of 2022. As at September 2023, the PPA of Kiona was not completed. So this accounting process did not affect the DNA in the period.
In general, the financial charges increased for the impact of the interest rate evolution. This line also includes significant impact by accounting effect like figurative interest calculated on put and call option from M&A activities for EUR 2 million as of September 2023. It was EUR 0.5 million in the same period of 2022.
IFRS 16 effect for EUR 650,000 in the first 9 months of 2023, almost double of 2022. In 2022, the line company is consolidated with the equity method was impacted by the one-off revaluation of Arion due to the increase of the investment. The tax rate of the period was around 23.8% higher than last year, mainly due to a different country mix. The minority result increased for the good performance of the Turkish legal entity [ Siferme ]. The group net profit as of September 2023 was equal to EUR 59.1 million compared to EUR 52.6 million over the same period of 2022.
Slide #8 shows the net financial position in the first 9 months of 2023. The period was impacted by M&A activity for EUR 184.1 million. The flow from operation was stronger and equaled to EUR 79.4 million. The increase in net working capital was mainly driven by a strong growth in revenues and was pretty in line with the half year level. The DSO is better compared to the same period of the last year and the overdue in account receivables is at a good level.
In the first half of 2023, the group paid dividend for EUR 20.4 million. Taking out the effect of IFRS 16, the net financial position amounted to EUR 231.2 million, a level below 2x the LTM EBITDA. I leave Francesco to go on with the presentation.
Thanks, Nicola. So I'm now on Page 9 for the closing remarks. In Q3, the group reported again a double-digit organic revenue growth. We continue to execute our strategy of a balanced mix of organic and external growth with an improvement in the top line by 24% in the 9 months. The EBITDA margin improved again, both adjusted at 22.7% as well as reported at 22.3%.
Furthermore, in the period, we closed the Kiona acquisition as expected. As far as the announced capital increase is concerned, the group is working on it and confirms the target to complete the rights issue by the end of the year, of course, subject to regulatory approval and market conditions.
Moving now to the outlook. What we see is that the macro scenario has deteriorated in the last few months and volatility has increased. In [ these months ], in spite of a very solid structural trend, a temporary deceleration in the growth rate is materializing in some European countries. In refrigeration, the weak demand reported in the first half continued in this last quarter and no significant signs of recovery of the investment cycle have materialized yet.
To conclude, taking this into account, the net of a possible further worsening the economic scenario, the group expects total revenue of approximately EUR 646 million for the full year with the variability in the range of minus 2% to plus 2% on the central value following the significant volatility present today in the market, which could lead to the postponement of some deliveries in 2024. The group adjusted EBITDA margin in the full year is expected to be in the range from 20.5% to 21.5%, considering also the seasonal effect we have every fourth quarter.
Thank you so much for your attention. We're now more than happy to answer to your questions. However, as you probably know, we are currently in the process of drafting the prospectus concerning the capital increase project. Therefore, we cannot provide quantitative indications on the group's expectations for the full year 2023 in addition to what is indicated in the press release and this presentation and in any case, concerning 2024. I'm sorry for that, and I thank you for your understanding. Thank you very much for listening.
[Operator Instructions]. The first question is from Niccolò Storer of Kepler.
Thank you for taking my 2 questions. The first one is a qualitative about what are you currently seeing on businesses which are not and refrigeration and data center. So if you can tell us a bit, which is the sentiment on all the other markets. You mentioned, for instance, a good performance in battery and [ store sigma ]. So if you can discuss a little bit also above that and about how big business has become for you?
And the second question, I'm not sure you can answer, but let me try in light of the good and probably stronger than expected M&A contribution you have had year-to-date. Is it fair to say that your guidance for the full year implies an organic growth for Q4 in the low single digit, if not close to the year. Thank you.
Thanks, Nicolas, for the question. So in terms of the applications, what we have seen so far is, so as you correctly said, so we have seen strong demand in data centers. We started to see the expected deceleration in heat pumps, while refrigeration remains soft.
Concerning the other businesses, so looking starting from industrial, let's say that there are -- there is some stagnation in the more cyclical parts of industrial, as expected. However, this is compensated by some other sub applications, which are growing quite fast as you mentioned, like battery energy storage systems. This is also very geographical because, for example, the growth in these applications, relatively new applications related to electrification is concentrated in North America and Asia. And while in Europe, let's say, it's slightly more cyclical again, living inside data centers, which have been performing well.
So all in all, let's say that the industrial applications, industrial, let's say, part of HVAC has been keeping up with demand. In terms of commercial, that's also true for commercial, let's say, so also demand in commercial has been keeping up quite well, again, especially in outside Europe, so Asia and America.
So let's say that the slowdown we have been experiencing is mainly concentrated in [ EPAC ] because refrigeration was already soft to begin with. So the slowdown in many concentrated in heat pumps and mainly in Europe, plus some Asian customers that were exporting heat pumps to Europe.
Having said that, of course, the volatility has increased and the uncertainty has become higher and higher also due to the deterioration of the macro scenario. So let's say, we are for sure, in a more challenging macro scenario looking forward. However, so far, what we saw is basically just the deceleration of heat pumps.
Talking about the Q4, so coming to your second question. So let's say, what we can say is what we presented. So basically, that's the total revenues that we expect for the full year. In terms of perimeter change, what we have in Q4 is basically just Kiona, Eurotec and very, very limited December, just a few days of Samber. So basically, it's Kiona and Eurotec for Q4, that's the only perimeter change. And -- and so we -- let's say, we -- having said that, that is the figure that we forecast. And the volatility that we -- let's say, we specify is due to the fact that in this moment, a very high uncertainty, there could be some postponements of orders to the beginning of next year, and this is something that is very difficult to foresee at the moment.
Maybe a quick follow-up on battery energy storage systems. Here, which kind of potential do you see going forward? And how much is this business area? I mean, I guess it is still early stage, but can you confirm that? And which potential you see here.
Okay. So it's -- let's say, it's very early to say what the potential could be because this is very new in terms of application. And it's also coming as initially, it came also as a synergy from concerning the stock levels. We believe that they are the highest in the heat pump application, because that's where the volumes are higher, the units are very standard. And also there is a distribution, strong distribution network. So we believe that's where stock levels for sure. Very high and this is mainly in Europe for us because that's where most of the market is.
Then we believe there are also some parts of refrigeration have high stock levels. I mean they have been destocking for a while now, but probably they still have some significantly high stock levels, and that's probably across the board, so globally. Concerning how much we make for -- to order how much we make to stock, let's say, that for us, basically, everything is manufactured to order, meaning that we don't have stocks of finished goods on our side. Of course, some of our customers could have stocks of our controllers on their side, even if what -- for heat pumps probably is not that they have stocks of our controllers on the site, probably there are really heat pumps in the supply chain. And in refrigeration, yes, especially in the distribution, in the wholesaling channel as there are controllers. But I'd say it's not -- we do not have products on our side.
Actually, if you, let's say, probably what you could say are products made for stock are those that we make for the wholesaling channel in refrigeration. In that case, you could say that, yes, there are -- there is a stock of finished goods. But it's not on our side, it's more on the wholesaler side. And I believe they have been going through the destocking phase for month probably they're a good stage, but still they have relatively high stock levels.
Maybe just pivoting, you've called out data centers as one of the stronger end markets as it has been for a number of years now. I just wonder whether you see any risk that, that end market might have benefited from prebuying given the strength of demand in the past 2 years? And then conversely, is there any potential upside risk ahead from some of the developments in terms of technology within that end market in terms of liquid cooling and the greater demand process in power.
Okay. So in terms of advanced buying in data centers, I don't -- I think that is a significant risk because most of the market is project-based. So they don't really stock up and the units. It's really -- really a lot of it is based on the project also because many -- many of the technological solutions are custom for the individual installation and they're not standard, like, for example, in the case of heat pumps. Concerning the possible different architectures and technologies, let's say, we work with all of them. The fact that there are more different technologies is a benefit for us because we have, let's say, higher diversity calls for higher complexity, which is good for us because we, of course, for us, complexity in control technology is part of our value proposition, managing the complexity. So increasing diversity in the possible architectures is a positive looking forward. Liquid cooling is growing faster. It will remain probably a low percent for the coming years. It will remain a low share of the total, even if it's definitely growing fast, but it's an application where we work definitely.
We, let's say, are seeing that also many customers working in the commercial side of HVAC are now moving to data centers with their, let's say, their technologies, for example, coming from [ ventilation ] side on the chiller side. So basically increasing the diversity of the market. And again, this is positive because it increases, let's say, the ecosystem, the fragmentation and eventually also the tendency to outsource the control solutions.
Okay. I'm just curious maybe what your views are on the refrigeration market. I understand and appreciate that it's maybe quite hard to gauge. But maybe I can close the question in this way. To what extent do you think that the end customer decision point on the part of food retail operators is driven by the cost of capital relative to the cost of building materials. And I guess just trying to understand what we should be looking for that might drive or capitalize an improvement in underlying demand in that end market.
Okay. So yes, as you say, Christian, it's difficult to foresee. Let me start by a consideration. The longer the time that passes before the new investment cycle, the stronger the incentive to invest again because there's, first of all, there is the necessity in Europe, especially to comply with the F-gas regulation. Second, let's say, that the more the way to the more the industry wait to refurbish the stores, then the more the stores become expensive to run because they are less efficient, they fail more, they leak more refrigerant, the older refrigerants cost more and more. So there are a number of reasons why the -- I mean, more time passes, the stronger the incentive to invest again.
And this leads me to believe, again, it's just an assumption, leads me to it when the industry starts. I mean it will start with a good pace because they will need to recover the lost investment made during this 1 year plus of not investing. Going -- so going to your question, what macro indicator we could look at to understand when the turning point is coming. And for sure, inflation is key. Inflation is key because it's vision is related to end consumption which is another very important indicator because the reason why the food retailers stopped typically, it's because they expect a slowdown in consumption. And so when we see that consumption of food by households picks up again, which probably will happen when inflation goes down, that would be for sure, let's say, a possible indicator.
The second indicator is inflation itself, and because there is really the cost of the infrastructure has been increasing significantly. So probably when the cost of the materials will start to go down, things will improve. Maybe the cost of capital is less relevant. For sure, it's a factor, but my opinion, my feeling is that it's less relevant because what the food retailers, in any case, they have a lot of cash, typically. So what really should drive the investment decision is under consumption by households plus the cost of the infrastructure itself. So these are the 2 things I would look at mainly.
The next question is from Alessandro Cecile of Equita.
Thank you for taking my question. I take one on -- my first question is actually about the heat pump business. In the first half, you added for more than 50% or in line with the 50% growth. I would like to better understand a very rough indication in the third quarter, how much was the growth for the pump-related business? This is my first question.
Okay. Thanks, Alessandro, for the question. So let's say that we did experience a significant growth in heat pumps compared to the same period of last year, even if to a lower extent compared to the first half. So yes, in the first half, let's say, growth was probably slightly more than the market. In Q3, again, is less more than the market, let's say, a little bit less than the first half. Let's say, less than the first half but still substantial in terms of growth because we started to see the deceleration.
Okay. My second question is that about if you can provide us the contribution of M&A in terms of EBITDA level because in the first half, if I'm wrong, contribution in terms of EBITDA was EUR 4.2 million. I would like to better understand the contribution at adjusted EBITDA level in the third quarter. And I was trying to also better understand why actually that was very good despite lower organic growth that was plus 10% organic growth in the third quarter despite the 16% in the second quarter, you actually had margins that were higher than the second quarter sequentially higher with a similar turnover. Maybe the M&A contribution can explain this.
Okay. So yes, Alessandro. So the contribution of the perimeter change on the EBITDA was slightly dilutive. So without -- because mainly for the effect of premium [ goods ] because [ premium good ] is relatively large. [ Kiona is performing well. However, their EBITDA is lower than the rest of the group. So while on the other hand, the Sember has a slightly accretive EBITDA profile. However, summing everything, let's say, that the contribution of M&A on the EBITDA margin was slightly dilutive in Q3.
The reason why EBITDA in any case, sequentially improved, was basically due to 2 reasons: the first one is because there is, let's say, we did a number of price increases in the last few quarters. And the effects materialize over time so that required some time to fully materialize. But there is an even more important reason, which is the fact that the shortage affected, in particular, electronic products, so programmable controllers which are a very important product line for us, as you know, and they have a slightly higher than average profitability. Now after the resolution of the shortage, we had this we had this improvement in the product mix in terms of recovery of the weight of the programmable controllers platform. And this is definitely a positive contribution in terms of product mix.
Plus, let's say, that in the product mix, on the other hand, we had on the total relative decline of the weight of some buy and sell products that in nature, tend to have lower than average profitability. So let's say the -- so yes, we do have lower operating leverage in the period. However, we have, let's say, an additional further effect coming from the deployment of the price increases and especially we have a positive contribution coming from the product mix.
Okay. And this -- my last question is linked to the second one is, I mean, we saw very good margins, good margins in the third quarter. But implicitly, you are guiding for the fourth quarter implied margins that are minus [ 8, 9 ] in that is a record by decline in your history. So I would like to better understand, even if you achieve your midpoint that probably is your guidance of 21%. There is a big decline higher than typical seasonality in the fourth quarter. So just to understand this steep change in margins, what are the drivers behind, of course, organic growth that could be materially assuming your midpoint lower than the third quarter?
Yes. Okay. So let's say that, as you know, every fourth quarter, we have a decline in the EBITDA margin also at we did have a significant decline in the EBITDA margin. The most important reason why we forecast this decline is because of lower operating leverage basically.
Since, let's say, in Q4, we assume that growth will be, let's say, lower than the first 9 months. So this lower operating leverage and so a lower profitability on top of the fact that, in any case, Q4, there is also a decline in profitability.
Okay. Do you see some change in product mix in the fourth quarter versus third quarter, also given probably you sold a lot more program controls in the third quarter that you expect for probably to be a different mix or just operating leverage?
No, no, no, no. Just -- we don't foresee any significant change in the mix. It's, let's say, we -- it's operating leverage. No, no, we don't factor any change of the mix there.
The next question is from Alessandro Tortora of Mediobanca.
A quick question, if you may. And the first one is a follow-up on your indication on the adjusted EBITDA margin, okay, guidance. The question is not relating this year. But I would say, going forward, if you can comment a little bit on the positive price cost strength you're currently experiencing. And if you see the possibility at a certain point to have a deflationary trend coming, let's say, for electronic products. So or it is to. So just to understand, considering the historical level and historical range you have of EBITDA margin for the company. If you see the -- you'd say, 21% commenting about the midpoint. It is something you see as a one-off or can the company has levels [ allocate ] at least, let's say, stay in the [ 2% or 1% ] area? That's my first question.
Okay, Alessandro. So thank you for the question. Let's say that in terms of the historical trend we had on the cost and prices, as you say correctly, was deflationary. So historically, we had some -- we had deflation on the cost side and also deflation on the pricing side. But with the deflation on the pricing side, which was lower on average compared to the deflation on the cost side. So in case the market in general, reverts to a deflationary scenario on the electronic components, we could assume that a significant -- sorry, a similar situation could materialize. So basically, a slightly deflationary situation on the pricing on average less deflationary than the cost that's what was, let's say, the historical situation. So this could be the long-term scenario, let's say, when the market reverts to the usual trends before the inflation.
So in terms of profitability, let's say that the impact would be of a continuous improvement on the efficiency of gross profitability because we would have cost reduction, slightly higher than the price reduction. On the other hand, as you know, our EBITDA margin depends a lot on the operating leverage. So of course, that's also something to consider to evaluate the future profitability level.
Okay. Okay. Just the second question is on the CapEx side. I mean that in the past, we you were commenting about the ongoing pipeline of adding production capacity for sure in Europe, but also then in the U.S. Can you give us an update on this is there a gain for this, let's say, production addition change it B2B [indiscernible] marginally postponed. So just as a view of what's your pipeline in terms of organic CapEx for the next quarter.
Okay. So yes, in terms of capacity expansion, yes, we are basically -- we're in the process of buying the land in Poland for the new factory for Europe. And then yes, of course, we will monitor the evolution of the -- market evolution of the scenario. But in principle, let's say, that looking forward, we could consider adding capacity in America.
Then considering the -- so these capacity expansions usually are included in our usual expectations on CapEx. So they don't imply any material changes on our historical trend of increase in CapEx. The CapEx level as of the first 9 months is in line with our expectations. And we don't see any surprises on our expectations on the CapEx level.
Okay. Okay. The third question is related to the data center performance. We had in the past quarters, many comments like AI adoption and penetration. Is it something for you that is already sustaining the performance of this division? Or do you see, let's say, in the medium term, not to be clearly, but do you see this factor as an additional support for the data center application Thanks.
Sorry, Alessandro, if I understood correct, your question is if we, let's say, expect, if I understood correctly your question or correct me if I'm wrong, if we, let's say, believe that there could be additional factors to support our growth in data centers, that was the question?
Yes, coming from AI, okay? if you see, let's say, the potential support, incremental support coming from that in the medium term, okay?
Well, in general, yes, in general, yes, it's going to, let's say, the expectation of the market is that this is going to sustain demand significantly and probably also accelerating in the coming in the coming years in general.
So yes, my expectation is that there could also be an additional positive developments in data centers. For example, just consider that China, in China, the market has been very subdued now for a year. So investments in data centers were quite soft. But eventually, the economy will recover and then we start again to invest. So in my opinion, did not see all the potential deploying related to AI and other factors driving investments into data centers.
Okay. Okay. And then the last question is on, let's say, heat pumps, okay. It is just related to your clients. Can you say give us an idea of the same, let's say, among your major clients, your major [ exempted ] user. What's the feedback they are giving to you in terms of, let's say, production planning? So do you see producer gaining for severe destocking or, let's say, there is loan financial rate there. So just to understand if on the producer side, in the following client side, the B2B as a sort of stock bangle. Clearly, we, let's say, from the first half 2024 to be tough, considering the noncomparison. But just to understand that what's the [ feel in the case ] that means you, your clients on the heat pump side.
Okay. So I would say that what we see is that for sure there is a destocking effect going on because the huge growth of the last couple of years let's say, led to some probably overstocking also on the distribution network. So in my opinion, there is -- the sentiment is that there is a destocking going on across the board, so across Europe, basically. While end demand slowdown is mainly concentrated in a few areas, especially Germany, Italy and Poland. So there, let's say, the destocking is compounded by a short-term deceleration in demand. While other European countries, the end market is suffering much less than these 3 countries, talking, for example, about France or the Nordics. So that's what we see.
In any case, the general sentiment, the general expectation is that the market will restart at some point, probably with a more sustainable growth rate, which, as I always say, is positive for the industry. So not as explosive as it was in the last couple of years, but in any case, sustain for the long term. If we restart and probably when the market will restart, let's say, most of the destocking will be processed or in any case, will be processed very fast. So basically, to answer your question, probably the biggest effect that we see in the very short term is the destocking because that's more general. We see a decline in the end demand concentrated in some countries, which are important, especially for us, Germany and Poland, more than Italy. But in the case, they are important. But the demand, let's say, the sentiment of the market is that demand will start also the [indiscernible].
The next question and the last from Christian Hinderaker of Goldman Sachs.
Just a follow-up. I just want to come back to the comment that there could be some order delays in 2024, which was in the statement. And then the comment to one of the questions that the Q4 margin expectations or guidance isn't influenced by any change in product mix this quarter, for Q4 versus last quarter of Q3. I just wonder whether that means we should assume the risk of order delays could be in any end market or if we should be thinking of that order delay factor as being specific, say, to the heat pump market that we just discussed. Okay.
Okay, Christian, thanks. I would say that the highest risk of postponement in the applications, which are suffering the most, so for sure heat pumps, also because of the destocking. And since we approach the end of the year, of course, the stock levels become a sensitive topic. So that's the highest risk, so concentrated in the heat pump application and maybe also in refrigeration for similar reasons. So I would say it's concentrated in refrigeration and in wholesaling and refrigeration and especially in heat pumps.
[Operator Instructions]. Gentlemen, there are no more questions registered at this time.
Okay. Thank you very much for attending. Thank you so much for all your questions, and we look forward to talking with you again for the presentation of the 2024 -- sorry, 2023 full year results. Thank you very much. Bye.
Gentlemen, the conference is now over. You may disconnect your telephones. Thank you.