Interpump Gp Unsp/Adr

Good afternoon. This is the call school conference operator. Welcome and thank you for joining the Interpump second quarter 2025 financial results conference call. As a reminder, all participants are in this morning mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on the telephone. At this time, I would like to turn the conference over to Elizabeth Kunyaska, Head of Investor Relations. Please go ahead, Madam.

Thank you. Good afternoon. I am Elizabeth Kunyaska, Head of Investor Relations of Interpump Group. Good afternoon or good morning, depending on your time zone, and welcome to this Interpump Second Quarter 2025 Financial Results Conference Call. As usual, I must draw your attention to the disclaimer slide inserted in the annexed part of the presentation that I hope you were able to download from our website. Now, I would like to leave the floor to Mr. Marazzi, Group Chief Executive Officer.

Thank you, Ms. Kunjaska, and thank you to all of you for joining our call. Once again, reported and future number first. Reported numbers. plus 1% of sales growth on organic basis. Finally, after six consecutive quarters of decline, we are very pleased to comment a quarter with an organic revenue growth. One may be a small number compared to the double digit figures of 2021 and 2022, but it's a number that reflects the technological excellence of our products, particularly those in water jetting division, and the importance of diversification. which, as you know, represents probably the most significant characteristic of our growth journey and strategy of our group. On the other hand, it also reflects what we hope are the first signs of a return to normalcy for the hydraulic sector as a whole. This small but meaningful plus one is accompanied by another encouraging figure, a larger one, Our organic EBITDA grew by almost 7% in the quarter. In previous quarters, as you know, the flexibility of our business model and our relentless focus on cost optimization in line with the revenue trends allow us to minimize the gap between revenue decline and profitability decline. Now, that same approach has enabled us to fully benefit from the revenue growth. Future number. We confirm 2025 guidance with organic sales evolution between minus 5 and plus 1 and an EBITDA margin between 22 and 22.5%. It is clear that second quarter performed better than our expectations at the beginning of the year, thanks to the revenue peak recorded by the water jetting division. However, recovery signals from the hydraulic division still need to consolidate. especially considering the ongoing challenges posed by tariffs and the continuous shifts in the geopolitical scenario since April. For these reasons, we believe it is more responsible and prudent to confirm the current ranges of our guidance and to eventually provide more precise updates based on the business evolution after the summer break. After the first overview on the most important topics of this quarter, let's focus with more details and color on most important second quarter 25 financial KPIs, sales, EBITDA and cash generation. Starting with sales, I cannot help but return to the organic growth figures of plus 1%. It may seem odd to be so pleased with such a small number, But seeing a positive sign in front of every number, after six consecutive orders of negative figures, clearly offered support and confidence. I'm sure the result that stands out most from an external perspective is the 19% organic growth in the water jetting division, and I will soon provide some color on this remarkable result. However, before doing so, I would like to touch on the hydraulics division. where signs of a down in the transition process that began in summer 2023 seem to be emerging. In fact, although we are now in the seventh consecutive quarter of decline, with an average drop of minus 12%, we are finally seeing a single-digit decline, minus 7%, following two quarters at minus 14%, and even one at minus 16%. Focusing on the main application markets, we are seeing either stabilization, such as the decline in the industrial vehicle adapters, around 5%, or improvement, even if figures are still negative. Lift, for example, has gone from a decline of over 20% to minus 8%, or construction, from minus 25% to minus 14%. Remarkably, the agriculture segment is showing, finally, growth. with sales that are up high single digits in the quarter. As a result, it is possible to hypothesize that we are entering the final phase of the normalization process that has been underway for nearly two consecutive years. However, extreme cautious is necessary, as benefactor could interrupt this process. Tariff's consequences above all. Switching now to water jetting, It's important to underline that for several quarters now, this business has been delivering results well above its historical average. And we have already explained that this is due to different features in comparison with the ones of the hydrolysis business. The activities of the latter division quickly recovered from the abrupt halt caused by the pandemic. and were supported through 2021 and 2022 by issues in the supply chain processes, both in terms of sourcing and logistics. On the other hand, the post-pandemic recovery in the water jetting division clearly took more time, also because many customers suspended important investments in that period. But today is much more stable and consolidated. In the quarter just ended, The very good results of the project business were compounded by a peak in the more traditional water jetting activities, and together are explaining the nearly 19% organic growth recorded. In fact, in spring 2024, please see slide eight of the presentation, Amelman, thanks to its unique technology, secured an order in China for pumps to be used in the production process of low density polyethylene. a material used in everyday life. This once again demonstrated the group's ability to successfully transfer its water-related know-how to other fluids, laying the groundwork for further future technological and business developments. This was a brief but meaningful example of the project within the flow processing vertical. Now, I would like to add an example related to the more traditional vertical of our division, high pressure pumps. And in particular, an important contract secured last April and completed in record time in less than two months, and contributing to the revenue of June and July just ended. And I'm referring to the slide nine of the presentation. This is a very well known example to many of you. it refers to ultra high pressure water jet system and ship cleaning equipments. In fact, at second quarter start, the group sign an agreement with one of China's leading private shipyards for nearly 100 water jet ship cleaning equipments. We already discussed the advantages of water jetting technologies compared to the traditional sandblasting ones. Efficiency enhancement, energy consumption reduction, and support to green transition. After this detailed overview of revenue by division, let's take a closer look from a geographical perspective at group level, focusing on most relevant areas to us, and of course, at constant exchange rate. Thanks to the development previously described, it's easy to see that China is the country that delivered the strongest results. more than doubling its revenue and thus delivering and driving the entire region. The weakness observed in previous months in the North American region was confirmed, with the United States recording a decline of over 12% in the quarter. Europe could be described as stabilizing, and to anticipate a possible question, we are still not seeing any benefits from Germany's infrastructure funds. Switching now to CDA, the second quarter figures are even more meaningful than revenue figures. In the second quarter, a 1% organic growth in revenues was accompanied by a profitability increase of over 6%, with a margin improvement of 100 basis points. This led to an half-year basis to a decline in profitability that was smaller than the drop in sales, minus 1%, versus minus 1.7% in sales. There are several aspects I will never tire to emphasize and to help fully appreciate this number. We are an industrial group and we manufacture. We are organizationally decentralized, but many of our key companies are highly integrated at the production level. And finally, we have been experiencing revenue declines for over a year. specifically for six consecutive quarters. The combination of these conditions would typically lead to far greater drops in profitability than in revenue. This situation did not occur thanks to the flexibility of our business model and the continuous, consistent effort we put into adjusting our cost structure in line with the demand trends. These allow us, in the second quarter, not only to minimize for the hydraulic division the negative flow-through effect, but also to benefit from sequential revenue improvement. A revenue decline of over 7% resulted in a limited profitability reduction of 9%. In the waterjetting division, on the opposite, to fully capitalize on the significant revenue increase, with an EVDA growth nearly double the revenue growth, plus 34% versus plus 19%. And third, finally, to manage the tariff issue in such a way that its impact was ultimately negligible. The plus 1% revenue growth in second quarter is a very positive figure, but I would argue it is not as impressive or satisfying as the over 6% organic growth in EBITDA. The former is partly due to a context that appears to becoming more favorable, while the latter is the result of our work and capabilities. Let's move now on the last important KPI through which we evaluate our work, cash generation and its components. In the first quarter of this year, due to the mechanisms of advance payment, specifically those related to the Chinese customers, which we explain in May, a slight delay emerged compared to the same period of the previous year, amounting to approximately 5 million euros. One quarter later, this delay remained unchanged, despite an opposite trend in sales. In the first quarter, organic revenue declined by around 8%, and in the second quarter, we had sales growth by 1%, thanks to the doubling of growth in water jetting, 19% compared to 8%, and halving in the decline in the hydrolysis division, from minus 14 to minus 7%. As you can easily imagine, this phenomenon had an impact on trade working capital, and in particular in terms of customer receivables. Nevertheless, if we focus on the cash generation result for the second quarter, we can see that it amounted to 46 million euro, the same as in the second quarter 2024. Therefore, despite the evolution in revenue during the quarter, the Group was able to manage the impact on cash generation and as of June 30, This slight delay in cash generation compared to the first half of 2024 is entirely attributable to the first quarter of 2025, and this confirms our commitment to delivering on the goal we set at the beginning of the year, and in particular to consolidate the record cash flow generation achieved in 2024. Moving to CAPEX, in slide 12, there is the usual update on the last important project of Group 2021 2024 CAPEX plan, the new Interpampa Hydraulics quarter in Sala Bolognese, close to Bologna. The transfer process is almost completed and following the registered office relocation a few days ago, Interpampa Hydraulics will be fully operational in the new sites of September. The timeline was respected and we managed to minimize the inefficiencies that an event of this kind typically causes in the life of an industrial company. As you know, we are very proud of the significant improvements we made to many production facilities over the past few years and we are pleased to welcome interested investors. Despite the ongoing work, we have already hosted several investors in Sala Bolognese in July and we will be truly delighted to welcome more. Acquisitions. In last May, we briefly outlined the characteristics that make a company a potential acquisition target for us the traits of a perfect fit, technological excellence, consistency with group strategy, respect of our M&A criteria. After the theoretical explanation, here is the empirical example. Padoan, a company specialized in the production and sales of tanks for industrial vehicles and machinery that in 2024 generated approximately 15 million euros in sales with more than 17% media margin. a company that allow us to extend our product range, to exploit synergies with other group and portfolio companies with the completion of the wet kit that is composed by pump, tank, tipping valve, front end cylinder and hose fittings. And finally, the construction of a presence in Europe as strong as the one that we have in the North America region. While discussing acquisitions, and expanding the perspective, we would like to take the opportunity offered by the financial quarterly results of regular communication to revisit and delve deeper into theoretical aspects of our acquisition strategy. In fact, what happened at the end of last April with some speculation regarding the acquisition of a major player in the transmission world made us realize that we had taken for granted that our acquisition strategy was clear and well understood by the market, and especially by those who have known us and followed us for a very long time. Had that been the case, no one would have questioned whether we might be interested in something that is clearly not a perfect fit for us. And therefore, we feel it is our duty to dedicate a few minutes during this communication to reiterate the purpose of our acquisition strategy and the characteristics of a perfect fit. how our acquisition and post-acquisition integration process are structured and implemented, and finally to recall some examples. The construction, the flow processing, and the reduction gears verticals in the last few several years. However, since it is August 6th, we prefer to condense and summarize this extensive recap into a few slides from the result presentation. And in particular, you might find this slides from page 16 to page 31st in the presentation, in the group approach to M&A section, from which we will highlight just one point here, one single but fundamental point. The ultimate target of group growth and development strategy is diversification. It is diversification by division, by geographies, by market application, and not dimension that allow to proper manage business risks. It is diversification that allow us to reduce volatility through different cycle exposures. And this diversification that allow us to effectively react to unexpected swings in market conditions. Until now, we have talked about the past. Now let's move on to the future. The month of July was consistent with the trend observed in the previous months, confirming the strong performance of water jetting and the speedy recovery of hydraulic divisions. These allow us to reaffirm the current range of our guidance, both in terms of organic sales evolution and total Aegean margin. It is true that the Chinese contract in the high pressure pump vertical has placed us in a slightly more favorable position, than originally anticipated back in February. But the volatility of the global environment remains very high and therefore at this stage we prefer to confirm the current ranges of our guidance. The recent tariff agreement between US and Europe regardless of the specific figures reached should theoretically help reduce uncertainty. But since last April there have been so many shifts on this key issue that we prefer to maintain a cautious approach. This is also because, as you know, our guidance is not something developed for our financial stakeholders. It's an internally generated estimate based on our backlog and forecast, used to align our cost structure. We are fully focused not only on achieving our revenue target, but above all, our profitability one. An immediate margin between 22 and 22.5%. At this stage, we believe it is essential to maintain the prudent and rational operational approach that has enabled us to achieve outstanding industrial results, with 1% decrease in EBITDA corresponding to 1.7% drop in revenue in the first half, nearly twice as much. Now, it is appropriate to give space to your request for further insights, but before doing so, I would like to briefly highlight once again the two key figures from this second quarter's results that summarize the remarkable work we have been doing over the past two years to face one of the most challenging periods in the hydraulic sector. An organic revenue growth of 1% and the media margin increase of 7% in the second quarter. Thank you.