Munters Group AB (publ) (MTRS) Earnings Call Transcript & Summary

Welcome to this webcast of Munters' Q3 results 2020. I'm Ann-Sofi Jönsson, responsible for Investor Relations. With me here today, I have our CEO, Klas Forsström; and our CFO, Annette Kumlien. We will go through the presentation. And for those of you who are viewing on the web, please feel free to post your questions throughout the whole presentation. And I will take them when we open up for the Q&A. And then we will also open up for the Q&A for those of you who are listening in over the phone. With that, I hand over to you, Klas.

Thank you, Ann-Sofi, and once again, welcome to this quarter 3 presentation. Let me shortly summarize the quarter. A quarter that delivered solid order intake -- a strong order intake, solid operational performance, resulting in good margin development and cash flow improvements. Our organization has really lived up to the dual challenge of handling the current COVID-19 business situation and at the same time, delivered on our long-term journey, our strategic intent. So with that, this is the agenda today. It is the highlights for the third quarter; myself, talk also about the implementation of our strategy; our CFO, Annette, come up and talk about the third quarter result more granular; myself, summarize; and then of course, open up for questions. And moving forward into the quarter, a strong profitable growth. Order intake increased organically with 21%, net sales up 8%. The EBITA margin also increased 8% and resulted in 14.8% as the margin. This was driven by operational improvements and good performance in general. Very pleasing was that our leverage reached 2.5, and we are now in our medium long-term target of 1.5 to 2.5. Also pleasing, we are growing in our prioritized markets. The order intake growth, mainly driven by Service and Industrial segments in Americas for AirTech and China and the Swine segment for FoodTech. Yes, the market, we saw some improvements, but I think it is both wise to say that in current COVID-19 situation, it's very, very difficult to predict where the market is going. We continue to deliver on our strategy set forward. And everything that we communicated in conjunction with quarter 2, we have started to deliver on. As mentioned then, the data center in U.S., expand that in Texas, leave the commercial segment with the exception of Walmart in U.S. and then also close down some operations in Netherlands as well. Customer in prioritized segments is very, very important. And here is one of those examples, lithium batteries in the U.S. As communicated earlier, we took an order in the beginning of the quarter of USD 12 million. What is very pleasing that we have also received supplemented orders of around USD 6 million. And all this is about proven, standard ultra-dry climate offerings from Munters, something that we are world-class in delivering. Deliveries of this is expected to take place during 2021. And in short term, what do we really provide? We provide increased energy efficiency through our products. We deliver strong application knowledge at site. It is not only the product, it is what is the product delivers. And on top of that, we deliver peace of mind, our service personnel driving through what needs to be done. A little bit more granular, order intake in Americas and Asia really improved. As you can see, 44% of our business comes from Americas, a 30%-plus increase; in APAC, 11% increase; and in EMEA, some 5% and hovering around that area, AirTech really, through lithium batteries, pharma subsegment but also through service. And I think it's worth to mention here, yes, measured compared to our net sales, we didn't increase the ratio of service. But measured towards the order intake, we were close to 17% on the service order intake. EMEA, AirTech had a weak -- somewhat weak development there, mainly through Mist Elimination. FoodTech, some segments and some markets were up, but in general, a pretty flat development. In Asia, improving when it comes to AirTech in certain segments. But then when it comes to FoodTech, yet another quarter where China and the Swine segment really delivered. So that was in brief the quarter and more to come when Annette walks us through this. Implementation of our strategy. You heard me talk about this many, many times. And once again, let me start from the outside of the circle. Munters' solutions are in many places. We make it possible. It is about wind mills. It is about food production. It is about food processing. It is about making the electrification of the car fleets around the globe possible. It is about driving data traffic in data centers. And our solutions are inside all of this, i.e., we have a very good trajectory when it comes to global trends moving forward. And the strategy that we have put aside that is -- put ahead, that is customers, concentrate on customer value, drive go-to-market models into the market. Innovation, focus where it makes sense, continue to invest and align the portfolio and prune out product that is not applicable for our industry. Markets, deliver and concentrate on markets where we can be on the medal podium and also be firm in saying that we can leave markets that we don't believe in. Excellence in everything we do. For me, it's very much about the continuous improvements every day, but also there to take decisions and execute on those decisions when it comes to operational excellence. And of course, it's our people at the end. It's our organization, a more decentralized organization with the ownership of the operations in our business areas and then also to upgrade our teams in a good way. A few examples of this, our ambition when it comes to the markets. I talked about the medal podium. I have also mentioned several times that we aim to reach 30% of our sales related to service. And as I said earlier, we are progressing step-by-step here. We concentrate on certain markets, and I will not mention all of them here, but just to highlight a few, data centers and lithium batteries, but then also when it comes to digitalization in the food chain of protein production. And this quarter, as you've seen, it generated 8% sales, very much in line with what we had put ahead. Another area, innovation. In this case, our firm target to reduce our standard assortment with 40%. I'm very pleased here. We have reached about 25%. And I'm very convinced that we will be able to reach the 40% by end of next year. The second step here, that is to take a firmer grip on components, i.e., how are we building up our products, the number of screws, the number of articles, the number of spare parts, et cetera. And here, we will set the firm target during the quarter that comes. But my ambition is clear. I foresee that in the coming 3 years, we will be able to reduce that with some 25%. And then of course, the long-term journey. Modulize in everything we do, all the new products that we bring into the market that can be modulized, those should be modulized. I will show you a few examples of that moving forward. Innovation. And here, I'm really pleased to talk about an innovation that we recently have put into the market, it's called SyCool. It is a dry solution for the data centers. It gets a lot of credits from customers. We are in the process now to bring it into the market. That is brand-new. Another area here that is an old, still very, very good performing product, FA6, and especially the GLASdek component in the FA6. This, I have high hopes for the future in many different industries. I think this is something that we can drive to the market that will generate a lot of customer value. And what is the customer value add-on? It is about reducing energy consumption. It is about providing reliability and cost efficiency, total cost of ownership. I will not go through this slide in detail. But this is an example of where we modularize our products. In the past, the product range was 8 different fans. Now we bring it down to be 4 different fans that can be expanded and put together, so it covers the customer needs but with less components. And here, the customer value is very much once again reducing energy consumption. Reduced, due to the standard components, the installation cost and the maintenance and at the end, really deliver improved animal welfare. With those examples and glimpses into our strategy delivery, I would like to hand it over to you, Annette, please.

Thank you, Klas. Then let's dive into the performance for the third quarter. Just to give a bit of a summary, growth. Yes, we had good growth in the third quarter, which actually has left us now almost just below with our year-to-date. When you look at the margin, improved quite a bit. And as you will see, both areas, business areas, have done it. And that has left us now year-to-date reaching almost 13% margin. And then when it comes to leverage, as Klas said, we have reached now 2.5%. So it took us about 5 quarters to lift margins and also improve the leverage. Because at the end of the day, it's about growth, it's about turning growth into profits and also turning the profits into cash. Looking at order intake, it was very strong. So FX adjusted, it was about 21%, driven by AirTech, where we had good growth when it comes to the battery segment. We had good growth when it comes to the data centers and also good growth when it comes to the pharma and also services. However, when you look at Mist Elimination and data centers in the U.S., that was slower in the third quarter. FoodTech continued good growth in China, and particularly in the Swine segment. And that's really a pickup after the African swine fever that occurred in the 2018. And there was just a bit of a hiccup in the beginning of this year due to COVID-19. Then when you look at U.S. and Europe in FoodTech, it's a bit slower there or continue slower there. When you look at year-to-date figures for order intake, yes, we are above the market. Obviously, we have been -- or above last year. Obviously, we've been impacted a bit by the COVID-19. But at the end of the day, we're about 3% above. And if you look at the handling of COVID-19, also it has been a bit mixed when it comes from a demand point of view. Net sales. Yes, the quarter was very good, particularly when it comes to the areas of AirTech, looking into data centers, whereas services was a bit flat. We had -- looking into our regions, obvious a bit flatter in Europe and -- Europe mainly but also in Asia. When you're looking at FoodTech, growth is really driven by China again, offset to a certain extent, by then Europe and Americas. Year-to-date, yes, we're a bit still a bit below. But coming back to with COVID-19 and the handling of it, it has been managed quite well by the company. And today, we are more or less only 2% below from an FX point of view. If we turn to the next page then, we can look at AirTech in particular. So if we look at AirTech, we have then a growth of about 15% and currency adjusted, about 22%. Demand really driven by the lithium batteries, and Klas had previously talked about the orders that we have received, but also the pharma segment is working very well. Services had a very good order intake in Q3. And that's in spite of actually COVID-19, but we do also, as we have earlier talked about, have introduced a virtual service offering also. If you look at year-to-date, then the weak development in Mist Elimination comes true. And it has gone through during all the quarters. But we have also seen that the market has come down, as most of you have seen. But when you look at the rest of the segments like data centers, lithium batteries, pharma, very strong. So at the end of the day, we are plus 2% versus last year. When it comes to net sales, again, very strong quarter. But if you -- a strong quarter for the whole group. But when you look at the sales for AirTech, we were just behind last year, basically. But if we took away the currency effect, we're talking about plus 6%. Data center has grown during the whole period and has had continued good, strong growth also in Q3. But obviously, it has been offset by Europe and also by Asia. Services, flat in the quarter. If we look at Mist Elimination, again, it has throughout the year been weaker. And we can also see that we have had a weaker development in India, obviously, again impacted by COVID-19. If we look at year-to-date, slightly behind last year, currency adjusted, about 4%. And again, it's the Mist Elimination impact that comes through. But it's partly offset by the growth that we have in the data center in the U.S. FoodTech then. We have talked about China actually picking up already during end of last year. And that has continued throughout this year, except for, obviously, the -- in the beginning of the first quarter, when COVID-19 broke out. So looking at the Q3 results, we actually had a growth of around 12%. And if we take away the currency effect, it's actually already up to 20%. And year-to-date, when you look at order intake, it's still a continuing -- contingent growth for FoodTech, again impacted by China. If we look at net sales, again the order intake has come through in the sales side. And again, it's the China that's driving it, whereas we can see that U.S. are continuing throughout the negative development, although it might be so that we can see a bottoming-out from an order intake point of view during the -- in the end of this year. The COVID-19 outbreak obviously have impacted us. But again, if you look at China, the swine -- the African swine fever had a bigger impact. And there is a pickup now because of the need of food at the end of the day. And if we look at year-to-date then, we do have a positive development versus last year, small but plus 4% at least. So coming in then to the adjusted EBITA. The pickup during Q3, obviously part of the growth that we have seen in certain areas but also by the continued improvement from a margin point of view. And the program that was launched during last year obviously have impact for us. So at the end of the day, we reached almost 15% in total. And looking at year-to-date figures, we're talking about almost 13%. If we look at our strategy and our implementation of the strategy, you remember that we announced in Q2 that we would look at our footprint optimization and customer offering. And part of it was obviously to take down the non-Walmart commercial business in the U.S. and also make sure that the expansion that we saw in data center actually was introduced from a manufacturing point of view in one of our units in the U.S. in the Texas plant. And also about making sure that we consolidated our operations in the Netherlands. Those activities have continued throughout Q3. And as you see, we've been taking some costs related to it. And those were already incurred during the second quarter. Again, when it comes to the outlook of this full program, we're talking about a cost of SEK 188 million. And once implemented, we see an impact of about SEK 70 million from a profit point of view. If we look at cash flow, again the growth that we have turned into profits has also been turned into cash. So we are continuing our good cash conversion ratio. And that is really what we needed to do. And that has also led that we have actually come down to a leverage of about 2.5. And with that, I would like to hand over to you, Klas, to talk about the summary.

Thank you, Annette. So a brief summary of the quarter that has passed and then we open up for questions then. And as said in the beginning, a quarter summarized by strong order intake and good operational performance, driven predominantly by the Industrial segments in North America and FoodTech in China, the Swine segment. We have generated profitable growth, we have strengthened the financial position and the market has improved. But once again, it is a lingering situation due to the COVID-19 development here. So it's very difficult to predict the impact of COVID-19 moving forward. We are well aligned with future growth trends, and I'm very, very optimistic that we, step-by-step, will be able to implement our strategy and over the years, improve our performance as well. So with that, we open up for questions.

Thank you very much. So then I would first like to open up for questions for those of you who are listening in on the telephone conference.

[Operator Instructions] So far, we have two questions on the line. The first is from Max Fryden of Danske Bank.

The first one is on EBITA margins. Just -- if you look at the gross margin improvement, i.e., get it to some 40 basis points year-over-year and then you have lower selling and lower admin-related costs, I assume part of the sales cost reduction is related to the current situation we are in. But then -- so basically, my question is how large part of the cost reduction do you deem sustainable going forward in a sort of normalized world?

Annette, I think it's an excellent question for you to...

I just think it's actually hard to say how much is -- how much will stick and how much will increase. Obviously, as I think those companies have ended up in is that there's no traveling basically at all, we are doing our virtual meetings. So the way that we're going to work going forward after COVID-19 or living with COVID-19 most certainly would mean that part of it will stay, whereas part of it will increase again. But I think it's also when you look at actually the margin improvement, it comes also from actual resetting the base that we did last year. So there are other marginal improvements that have caused us to deliver better results.

And Max, just to end it up, I mean, we are still, this quarter, we outbeat our mid-term targets when it comes to adjusted EBITA. And with that said, we are still very, very confident that we will continue in the long run then to reach those levels more sustainable.

Yes. That's clear. And just -- if you look on a comparison basis, I assume that the savings program, some of that should be structurally taking out costs if you compare to Q3 this year compared to last year. Is that correct?

We have definitely moved in, if we go back to the old -- if I may say, the old full potential programs, some of those costs are gone and will be gone forever. But then of course, I mean, when it comes to current situation with less travel, et cetera, a large part of that will come back, not all, when we are back in normal business operation.

Yes. Let's see how many Teams meeting we'll have in the future. Just another follow-up question there on the EBITA margin, if there's a mix effect here that we should be aware of. If you look at AirTech, you see the data center is growing. And what I -- and to my understanding, data center used to have a lower margin in the group at least. But anything that you can help us with, either service having a larger share but higher profitability, et cetera, that is boosting the margin a little bit?

So you see a mix of impact also in AirTech's margins, yes.

And then perhaps we can add also, I mean, China in FoodTech, yes, that is driving a positive mix. And on the other hand, we see a very good development in how we operate data centers. So I would like to say it like this, data center now, compared to 3 years ago, is a more solid operated business, yes.

Yes. All right. Final one, the SyCool product, data center cooling without the need of water, has that changed the potential addressable customer reach for you?

I look upon it like this. I mean now we have a portfolio of different solutions. We are very, very strong since the past in what we call the Oasis solutions then. And now we're complementing our offer with this type of product. So that, for me, gives a comfortable feeling that we can address different needs depending on customer and market situation. Beside that, as I mentioned, the FA6 type of products that is exposed to many different categories, data center being one of them, I think this is a good example on a untapped potential of previously driven innovation that we now need to take to the market in a better way.

And we have one further question on the phone.

Perfect. Sorry, there's some disturbances on the line. It's Karl here from ABG. So first question, it has to do some part with what Max was asking. I seem to recall that in the past, you mentioned that when you sell a bit more controllers, for example, it's been positive for margins. So my question is simply have you seen a continued good development for these kinds of products?

When you look at the FoodTech offering, obviously, the digitalization actually triggers these type of things. So yes, we do see positive improvements on that side. But again, as Klas said earlier also, when you look at the mix effect we have, there is impacts from the geographical mix also that comes into play but also from a product side. And also when you look at our SaaS orders, they are increasing a bit, although from a very, very small level, but we can see that our mix is coming in.

And to be a little bit more concrete on the SaaS order, it is roughly then 1% of FoodTech's turnover then, to be a little bit more granular. And just to emphasize on what Annette said on the controllers, we are more and more convinced that the controllers as such is one of our main benefits in the FoodTech market. And we get more and more interest around that.

Understood. And then really, on data centers in the U.S., and you mentioned that it's been slightly weaker this quarter, I understand the visibility problem here. But do you think that it's perhaps just a temporary weakness so that we might see demand returning in Q4? I think you mentioned earlier in the year, you have good order intake here. Or do you think that there's something that has happened in the market that has made more customers more hesitant to place orders in this segment?

We are very confident in that the market will continue to grow in the way we expected it, i.e., a double-digit growth year-by-year in the coming quarters, so to speak. And as you know, data center is one of our more predominant project-driven type of businesses. Some quarters, it's up and some quarters, down. But on the average, I mean, we have a healthy backlog and we don't foresee any worries when it comes to this.

At the end of last year, we had some good orders coming in, also earlier this year. So it's about -- it's a flow. It's comparables and it's flow in the market basically. And when you see also the throughput that we have from a sales perspective, it's coming out now also, which means that we see the increase in the net sales. So it's movements.

Understood. Two more questions from me. First of all, Asia, if you would please just remind us here how much China accounts for -- of the Asian region today and perhaps in comparison to how it was early in the year. Because I can imagine that, as you say, China is the standout region here in terms of growth.

China is the largest part of Asia, you could say that. It's -- I don't have the number exactly on top of my mind, but it's the definite larger part of the region. When it comes to FoodTech, and here I have to remind each and every one who ask, that normally the second quarter is always the strongest quarter for FoodTech. We had a good third quarter as well. But normally, the second quarter, and normally the fourth quarter is always the weakest, and this is due to seasonal effects. I mean it's winter time, et cetera, when you can install it and so on. But China is the larger part of Asia. Anything to add, Annette?

Yes. And also please remember again that if you have followed us for some time, then you know also that in 2018 and up to the third quarter in 2019, China was on a decline because of the African swine fever. So again, when you look at what has happened this year, it's a pickup and it's a longer pickup because it's not COVID-19-related really, it's back to the 2018. So again, comparable narrative comes into play.

But in general, our view on the Chinese market is that the market is strong in the segments that we operate in.

Yes. And if you look at, I mean, food production and swine production, in particular, over the years, it dropped quite a bit, but it's picking up again. Because at the end of the day, people need the animal proteins to eat.

Understood. So final question has to do just with this, how do you believe one should think about it going forward? Because FoodTech margins have been very, very impressive, to say the least. But do you think there's more room to grow profitability-wise in FoodTech? Or should we perhaps have higher expectations on continued margin improvement stemming from AirTech?

I look upon this -- and I mean, Annette can supplement here also with her view. But I look upon Munters as such, we can divide it into 2 buckets. And one bucket is that is what I call [ ginny up ]. The many, many small improvements year-by-year, quarter-by-quarter, month-by-month, that will continue. And a very good example here is the way we have been working with operating working capital. It was a project that was installed and now it has started to sit in our DNA, so to speak. And that type of activities will continue. Then of course, I mean, there are -- AirTech is a larger part of our business. Of course, the opportunities for further improvement, both on top line in absolute numbers and in bottom line, is larger within AirTech.

But I would say also, if you look at the story that we have been working on since last year, it's really that we reset the base, which made some improvements, obviously, on our margins. But then a lot of the activities that we're doing now which we have embedded in the strategy, they are longer ones like, for instance, pruning out of products, making sure that we have an innovation cycle that turns our products faster but also obviously making sure that we platform-base them and, as Klas said also with the working capital, which means that we streamline operations to make sure that is as lean as possible. All of those things will come into place as well. But they are longer -- they take longer time to implement. It's not a 1-month activity, then we're on the go. So that has to come into play also when you look at us.

And as communicated earlier, I think we have elaborated on that quite a few times then, we need to continue also to invest in innovation, in our market position, et cetera. But so far, I see no worries about that those investments will not bear fruit, I mean, gradually over the coming years.

All right. Sorry for this. My final question had to do with SKU reductions you were talking about. Run rate, 20%, 25%, 25% perhaps and then you target 40%. So I can imagine there are some pieces here that are a bit more, let's say, low-hanging fruits. So do you think that we will continue to see 25%, 30%, 35%, 40%? Or should we perhaps see 70% SKU reduction in the near term and then the final 30% will happen throughout the remainder of 2021? Just so we get an understanding.

My view is like this, as I think you can hear, I'm very confident and very pleased about how the organization has acted. We have strong performance in product management in many other places when it comes to this continuous work. And I would be disappointed if we would not, by end of this next year, be on 40% or in the closeness of 40%, plus or minus a few percent. So I'm very confident there. Then when it comes to the other steps, I mean, the one that we're talking about components, et cetera, that is a more gradual work that has to be done also step-by-step. But as you can see, I put an ambition here of 25%. We will work granularly with that and see if that needs to be reduced or maybe it can even be improved. But I'm very pleased with the way we're acting and delivering on this.

We've had a few more questions come through on the phones. The first is from the line of Mats Liss of Kepler Cheuvreux.

Yes. Well, just a follow-up, I guess, on orders there, I mean, a very strong figure here. And I just wondered, could you see some sort of catch-up here from the second quarter? Or is it all, well, underlying market improvement that -- which we should expect to continue into the fourth quarter and going forward?

If we talk about the order intake, I think we can divide it into different pockets, so to speak. And one pocket is, of course, as you've seen, we have taken larger projects, lithium batteries and data centers, et cetera. What is the lead time of such an order? It could be in between 0.5 year up to 1 year, depending on where in the construction phase the customer is. And then we have others in the, let's say, more normal industrial or the normal FoodTech arena. There, we talk about normally it's a quarter, a quarter-plus lead time on it. So with that, I mean, it was a very pleasing order intake. But some of it was project-related. And as I said in the beginning, I mean, we were strong in lithium batteries and somewhat weaker then in data centers during this quarter. But Annette, anything to add?

No. But again, I mean, as Klas was saying, the project orders, they come true. And that's -- and that obviously makes things go up or go down, depending on when they're coming. But the baseline when it comes to FoodTech, that's coming from non -- basically non-project business. But this will happen. And then again, if you look at building data centers or building lithium batteries, it's a capacity increase that goes step-wise. So depending on when the capacity is being built, then obviously we will receive orders as well.

And maybe I could add one thing. I'm also pleased, very pleased in how we have been able to conduct the transfer from the commercial side in North America and bring in data center products, more standard-related products into the factory and the facility that earlier produced commercial products only. I think also that is something that has shown that our organization is really up to the speed in handling change in a good way.

Great. And about there, you were sort of trading now above the EBITA margin target. And I guess could you -- well, is it -- it seems more like it's lower now than the target. Is that right? Or was it sort of a...

I can give a brief comment and please, Annette, here as well, complement. It is -- I mean we have set long-term -- medium-term targets. We are now in 2 of the targeted areas. We are delivering on those targets. But this is 1 or, in some cases, 2 quarters. At the same time, we will continue to invest in certain areas. So whenever we feel ready to adjust or upgrade or change, I mean, then we will communicate on that. But at current, I mean, we continue to reach a more sustainable performance towards those targets.

Yes. And to add also, obviously, what we have talked about before is the seasonality that we have during the year, where normally for FoodTech, quarter 2 is the best one, followed by quarter 3. And then if you look at AirTech, it increases over the year. But we need to make those mid-term targets sustainable throughout the whole year. And there, we have a bit to go.

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

I have a question regarding FoodTech and the structural change here with the strong China and weaker U.S. and Europe. How do you -- do you think that demand in Europe and U.S. is below sort of normal demand and there will be a catch-up effect? Or is it just depressed markets? Do you have any sort of idea of where we are in Europe and the U.S.?

If you take U.S. then to start with, I mean, the market in North America has been depressed, or let's say, compressed is perhaps a better word, for a few years actually. We see some signs of improvements in the marketplace. But at the same time, we cannot say that it is really picking up. And this is connected to an overcapacity in some of the areas, especially the swine production area and then, of course, also related to the, call it, the trade wars or the conflict, to some extent, between China and U.S. then. In Europe, I think it is more fair to say that, that is a little bit also driven by current market situation. China, it has really picked up. But with that said, I mean, don't expect to -- that it will be 20%-plus every year in China. That is perhaps a good view on that market. And Annette?

No, nothing to add. It's -- Anders, it's long-term trends that we have seen kicking in. And then when it comes to Europe, yes, Europe has been impacted, I think, more by COVID-19 than what we have seen in the other regions.

Okay. Excellent. Just a question regarding your strategic overview. You're set and done with all the different parts of your business. But I'm thinking of Mist Elimination. Are there any reasons to believe that you could sort of change your strategic overview? Or is it set for the time being?

I mean we have been very clear, and we are still clear that every year, we will review our business portfolio. And it's, yearly speaking, 3 different, call it, grids that we are using. First of all, it's the strategic fit linked to our business. Second is can we be on the medal podium, i.e., be the market leaders in that? And thirdly, do we also foresee a long-term profitable growth that generates cash? And if that grid is coming through, and we still believe that when it comes to Mist Elimination, it is set in a market, driven by the oil prices and driven by the existing business climates, so to speak. But if we eventually -- and that goes not only for Mist Elimination, it could be in another area as well, we will come to the conclusion that, I mean, it is not ticking the criteria, of course, then we will reevaluate our decisions in that segment. Annette?

No, just like we did when it comes to the non-Walmart commercial business, which we thought were subscale. So again, this is a yearly cycle that we work with.

Okay. And then my last question, also regarding your strategic overview. What do you think about data center in Europe? Are there any possibilities of coming back to that market again?

I think I said already at my first quarterly presentation roughly a year ago then that the strategic intent with data centers, both in North America and Europe, that was absolutely right. And then you heard me talk about, I mean, what went wrong. And we shouldn't dwell about that in Europe. We said we concentrate now in North America and we deliver according to plan. And actually, we are, to some extent, ahead of that plan. If we would be ready to move outside North America, I mean, then we will do it in a more diligent and, let's say, waterproofed way and take it step-by-step. So to summarize it, when we are ready, then we will also start to move into other markets. But at current, we concentrate on North America.

And we have one further question on the phones. That's a follow-up from the line of Max Fryden of Danske Bank.

Yes. So first, just if you could confirm that the service share of order growth was some 17%. And secondly, if you can give any guidance on the profitability on the service you have.

As I said, and take this as a ballpark number then, it was in the closeness of 17% in the quarter and actually, to some extent, driven by the decision of exiting the commercial business in North America but maintain the business related to Walmart. Then when it comes to profitability levels, the only granularity we will give that it's definitely above the average. And I look upon service business, that it should deliver in the line of, when it's really up and running, in the line of 30% to 40%. Not saying that, that is what we are delivering. But when we are fully up and running in the way we should, that is where we should be. Annette?

No, nothing to add. It's more profitable. But again, we don't really give guidance.

Yes. But is there anything structural in terms -- I mean if you look at the best-in-class industrial companies with high service share of sales, it's the leverage...

That's a good question, Max. And it is a step-wise approach. One is the attachment rate to the existing business that is all the way from, as I said earlier, I mean, bringing in a service agreement when you take an [ OEM ] business, come back and work with it, if you haven't got it. So it's attaching services from the beginning. And here, it is a structural change that we are moving forward. We have a new service manager, I see good performance taking place there. The other part that is more long term, that is how can we servitize this? How can we digitalize it? And a good example is, especially in FoodTech when it comes to the SaaS orders, et cetera, a similar progress will take place also in AirTech, i.e., we will sell more and more, call it then, sensors connected to our hardware, so to speak. And the third part, that is this feet in the street, to simplify it. I mean, organically, but also in a string of pulse step-by-step then when it comes to service companies and acquire that. And by doing that, I mean, as I said, the ambition is 30%. That is high for our type of companies. But I don't see that, that should be out of line. But I'm not talking about next year or the year after. This is a long journey. But if we can climb by 1% per year, in some year, perhaps 2% units, it is not too far away.

[Operator Instructions] Okay. There seems to be no further questions from the phones at this time.

Perfect. Thank you very much. And for the moment, we have no further questions from the web. So with that, I would like to thank you for viewing us online, and thank you for those who have listened in to the telephone conference. We are looking forward to seeing you again when we present the Q4 results in February in a webcast and telephone conference. So thank you very much.

Thank you.

Thank you.