Interpump Gp Unsp/Adr

Good afternoon, this is the call of call conference operator. Welcome and thank you for joining the Interpump Group fourth quarter 2025 financial results conference call. As a reminder, all participants will listen in only 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 their telephone. At this time, I would like to turn the conference over to Elisabetta Kunjaska, Head of Investor Relations. Please go ahead, Madam.

Thank you. I am Elisabetta Kunjaska, Head of Investor Relations of Interpump Group. Good afternoon or good morning, depending on your time zone, and welcome to this Interpump Four Quarter 2025 Financial Results Conference call. As usual, I must draw your attention to the disclaimer slide inserted in the annex 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 Secretary.

Thank you, Ms. Kunjanska, and thank you to all of you for joining our call. We are here to speak about the Four Quarter 2025 Results, 2026 Expectations, and Group Paths 2028. It has now become my habit to open our regular meeting by highlighting the most important numbers, and I will do the same today. First, the four-quarter 2025 results. Last 4.8%, the growth rate of the hydro is division in the quarter. The division recovery is not simply going on, it's accelerating. 220 million of free cash flow. This is a splendor, a number to be very proud of. This is the best result in our history, surpassing the previous record of 205 million achieved in 2024. As some of you may recall, in August 2022, we committed to improve our cash flow generation. We have achieved this goal for two consecutive years, and all conditions are in place to deliver a third consecutive record this year. Moving to 2026 guidance. An organic growth rate range between minus 2 and plus 3%, to which we add the contribution from the businesses acquired in 2025, estimated in approximately 2% of revenue. As we will see shortly, both the fully identified figures and the early 2026 trends are fully aligned with our most recent performances. A steady and increasing recovery in the hydraulic division, and a weakening, only apparent, The deterioration of the current geopolitical context represents a risk that cannot be disregarded, and this explains why the guidance range starts from a number that is still negative. Third, the path to 2028. We aim to reach €2.5 billion in revenue through a combination of organic growth and small-scale size acquisition. maintaining an excellent profitability and zeroing our net financial position. The understanding of our short- and medium-term expectations begins with reviewing our 2025 monthly figures. Therefore, I would like to take a closer look at the results of the quarter just ended in terms of revenue, EBITDA and cash generation. Starting from sales, The recovery continues with the third consecutive quarter of group's revenue growth of plus 2.5%, driven by the further strengthening of the hydraulic division, which accelerated the increase of more than 3% achieved in the third quarter, reaching almost a 5% growth rate in the fourth one. The underlying trends behind this growth are not worthy. While in the previous quarter, roughly half of the division revenue was still declining, low single digit but still declining, in the most recent quarter, over 80% of the business returned to growth, with only one meaningful application market that is still decreasing, that is leasing. The best performing applications were agriculture and construction, both posting increases of around 40%, a real explosion. However, if we look not only at growth rates, but also at weight within the division, , their single-digit growth is even more reassuring. From a geopolitical standpoint, the picture is less clear. Among key countries, the only one that appears to be consolidating its recovery trend is Italy. The United States finally delivered its first quarter on growth. approximately 5% after six consecutive quarters of decline. But it is clearly far too early to speak of a genuine recovery. Let me remind you that this is our most important region accounting for 20% of the division's revenue. Moving to the water jetting division, I hope the roughly minus 2% result did not come as a surprise considering that fourth quarter 2024 was the second best quarter of last year, with organic growth of more than 7%. I would like to reiterate my recommendation regarding this division. Quarterly comparison can be extremely misleading due to the impact of a single contract, more or less significant, and results should be assessed on a full year basis. In fact, 2025 was yet another year, I would say the fifth consecutive, of outstanding performance As shown on slide 42 of our presentation, since 2021 we have been reporting organic growth rates in the double-digit or high single-digit range. And the least satisfactory year was 2024 with only 5% growth rate. At the application market level, food and beverage, the most important segment of the division, accounting for approximately 25% of its revenues, grew by more than 15%. On this point, let me highlight an important evolution, especially for those who have been following us for a long time. We entered this market less than 10 years ago with acquisitions of Inosta and Mariotti Piccini. And in this period, it has not only become the division's most important application, but, as you can see on slide 38, it now represents 10% of total group's revenues. It has therefore surpassed agriculture, construction and cleaning, our traditional applications, historically associated with us, which, however, have become far less prominent thanks to our diversification strategy. I would like to conclude this revenue overview by emphasizing again the importance of the diversification goal, perhaps the most important of our group. The beginning of 2025 was still very challenging for the hydraulic division, with a 14% revenue decline in the first quarter. Gradually, things improved, minus 7% in the second, then plus 3% in the third, and now nearly plus 5%, resulting in a full year decline of around 4%. This weakness was counterbalanced by more than 6% growth in the water jetting division, following an opposite trend. a strong start at an extraordinary second quarter and then a gradual normalization. The strength of water jetting once again upset the weakness of hydraulics, and our diversification enabled us to reach the upper end of the growth range announced in February 2025. Moving to ABDA, In the first quarter, the 4.8% organic increase of the hydraulics division resulted in an improvement of more than 18% of profitability. Consequently, over the full year, the division's profitability declined slightly from 19.8% to 19.6%. In other words, a decrease close to 4% in revenue resulted in a 5% decrease in EBITDA. And when adjusting both figures for the effects of perimeter changes and currency movements, a 4% decline in revenue corresponded to an EBITDA slightly lower decline of a bit more than 3%. A fantastic result that is once again the proof of the resiliency of our business. As for the water jetting division, in fourth quarter, the slight decrease in revenue had no impact on profitability, which remained stable at 25.7%. allowing us to close the full year with a margin that improved from 26.2% to 27.2%. During the year, on one hand, we did not see a repetition of the event that negatively affected the second quarter of 2024, the relocation of Fulinox Corporation in India to the new facility. On the other hand, the work on improving production processes to manage demand peaks continued successfully. As a result, at group level, our colleagues in operation across both divisions were able to continuously adjust the cost structure, even though in two radically different revenue environments. In the hydraulic division, group transition from actions aimed at mitigating declining revenue to a phase of constant adaptation, in line with an initial improvement, and then to a return to growth. In the water jetting division, the efforts were initially focused on reducing the impact of production inefficiencies linked to the demand spikes experienced in the previous year, and subsequently on adapting to stabilizing revenue levels. To complete the BDA overview, it's important to highlight that Group was able to offset the impact of U.S. tariffs having increased prices or having recharge-damped customers. The newly acquired companies did not have any dilutive effects. To conclude the discussion on profitability, I would like to draw your attention to slide 11, which, in my view, exemplified the strength of our group. Thanks to our diversification and operational flexibility, in years marked by extreme volatility, we have demonstrated an excellence and resilience in margins that few industrial companies can match. Cash generation. I have already mentioned the new record we achieved and the fact that we are working to deliver a third one. And now I would like to explain why in more details. The commitment we made in August 22 to improve cash generation has been implemented by working on two fronts. Trade working capital and CapEx. With CapExept 4.4% of revenue, we can undoubtedly say that we have fulfilled our commitment. Equally undoubtedly, from a working capital perspective, we still have a work to do. The progress made in 2025 represents only one step in a broader journey that must continue. Going into details. Trade working capital. As many of you who have known us for a long time are aware, trade working capital is a key element both in supporting growth and in protecting profitability. In 2021 and 2022, the post-COVID rebound years, characterized by extraordinary demand but also major issues in logistics and supply chains, we were able to achieve organic revenue growth above 20%, partly thanks to our own inventory level. But trade working capital is not only inventory. It also includes trade receivables, which naturally increased significantly alongside the strong revenue growth previously mentioned. In addition to this organic evolution, 2022 also saw the consolidation of wide drive, a perimeter change that has a very significant impact from this standpoint. Improvement efforts we undertook yielded immediate results. In 2023, the trade working capital to sales ratio improved from 39.5% to 38.2%. Unfortunately, in 24, the significant revenue decline, minus 14% organic, naturally led to an improvement in trade receivable and payables. But given the magnitude of this change, we were unable to perform equally well in terms of inventory, and the ratio exceeded 41%. This year, we have moved back below 41%, but this improvement is clearly not sufficient. Therefore, we confirm our objective of returning to what we consider the optimal level for our group, that is 35, 36% of sales. CapEx, again, with capital expenditure equal to 4.4% of revenue, we have finally reached our goal of returning to a CapEx level consistent with the future production needs of our group. We made this commitment in August 2022, and we can now say that we have delivered on it. I would also like to underline that our satisfaction in reaching this milestone is matched by the positive results of the 2021-23 investment plan. In slides 16, 17, and 18, we have included images of the group's most important facilities that were expanded or entirely rebuilt. as well as the machinery purchased to further increase the high level of automation that characterize us. We launched a project that involved the entire group across all major geographies and in both divisions. Between 21 and 22, a significant portion of resources was allocated to land acquisition and facility construction. And let me remind those less familiar with our industry that toning our production site is a major strategic advantage. In more recent years, instead, our focus has shifted to a production asset. As a result, we believe we now have best-in-class factories, increased capacity, and above all, higher production efficiency. All these elements contribute to securing a competitive advantage for the years ahead. Those of you who have visited us in recent years have been able to appreciate this progress firsthand, and we wish to reiterate our full availability to welcome you again. Consequently, to summarize, the process of normalizing our investments has been completed, where we still have considerable work to do on trade working capital. This means that there is indeed room for further improvement, allowing us to achieve new records. Moving to acquisitions, I have to underline that this year all acquisitions were concentrated mainly in the last part of the year. We have already discussed Now I would like to briefly talk about Borghia Sali and Pharma, which enable us to pursue the same strategic objective, product diversification. Borghia Sali exhausts are complementary products to gearboxes, in particular to regional reductory products, while Pharma tanks components fit with Padoan products. The acquisition finalized last June, and therefore with Interpampa Hydraulics complete kit. I hope my explanations regarding 2025 closing have been satisfactory. Let us now move on to 2026, which began with the month of January to confirm trends already visible in previous months. Continued growth in the hydraulic division and an apparent weakness in the water jetting division. But as we do every year to better explain our expectations, let us focus on the evolution of the backlog, which you can see on slide 21. The process of consolidating the backlog at levels significantly above those seen pre-COVID has not simply continued. The backlog is growing, stabilizing between 600 and 700 million euros. The backlog of the aeroil division is increasing, while that of the water jetting division naturally reflects the extraordinary contracts recorded in the first part of the previous year. Therefore, as we did last November, we should think in terms of order intake. As you can see, at the end of December, the order intake of the water jetting division was not only growing compared to December 24, but was growing more than it was in 2024 compared to 2023. We felt it was important to provide visibility on this KPI to reassure you. Our water jetting division is solid, and even in the first part of 26, you do not see revenue growth, It's only because the comparison base is exceptionally strong. The 14% growth shown on slide 22. It's equally clear that the evolution of Adderall's division will be the exact opposite, as it faces a relatively easy comparison base. In the first part of 2025, its revenue declined by almost 11%. As a result, I don't think there is much need to explain the likely evolution of the two divisions within the organic growth range of 2026, which, as I mentioned earlier, is between minus 2 and plus 3%. What is important is to explain why the starting point of this range is still a negative number. As I highlighted earlier, when discussing geographic trends of the oil division in the fourth quarter of 2025, these trends are not yet stable. Italy confirmed the recovery seen in third quarter. But Germany did not, and the United States showed growth, but only after six quarters of decline, some of them were double-digit decline. This pattern is reflected at group level. These key countries ended 2025 in difficulty, with the U.S. down almost 7%, Germany down nearly 5%, and France down 3%. This makes the situation particularly complex to read. and understandably worrisome, especially for the United States, our most important market, and unfortunately, the one currently facing perhaps the highest level of political and macroeconomic uncertainty. The minus two reflects the risk of further deterioration in these important countries, risks that our geographic diversification can certainly mitigate but not eliminate. As for EBITDA, as you know, It's our practice to provide precise guidance in May, based on early year data. With regard to cash generation, I believe I have already indicated the objective we will be working toward this year. Let us now move to the final part of our meeting, our medium to long-term expectations, namely our target of reaching 2.5 billion in revenues by 2028. Before doing so, or better to do so, we believe it's important to reflect on why it was not possible to reach the 2.5 billion target this year, and to share with you the highlights and lowlights of the three-year period just ended, which we have summarized on slide 25. The most significant downside was certainly a post-COVID normalization that proved to be much longer and much more intense than we had anticipated. we had to face seven consecutive quarters of declining revenues. And these declines were substantial, with an average reduction of around 12%. Our expectations were for a phenomenon roughly out of that size. Another negative factor was that in the years immediately preceding this downturn, the results of the companies within the hydraulic division had been so strong that sellers' price expectations reached levels that were quite extraordinary, even for companies that were not true perfect fit for us. This situation changed dramatically in the second half of 2024, due to the ongoing normalization and indeed, in just over a year, we acquired companies that are unquestionably perfect fits. Idrover, Borgesali, Tutto Hydraulicos and Pharma. As a result, While the normalization in the hydraulic division deprived us of the important support of organic growth in our overall expectations, it has more recently brought seller expectations and valuations back to levels consistent with industrial fundamentals. A second positive aspect chronologically proceeding the one I have just described was the identical phenomenon observed starting in the second half of 2022 in the water jetting division. driven by a significant reduction in private equity and financial sponsor activity due to rising interest rates. This allows us to resume building the flow processing vertical within the Waterjetting Division. The first step was taken in 2017 with the double acquisition of Inoxpa and Mariotti Piacini. but these were not followed by further move precisely because the interest from these players extended even to smaller companies that normally would not fall within their typical scope. Finally, starting in April, 2023, our development path in this highly attractive vertical resumed and we completed five acquisitions in less than two years. IMEC, Waikato, PPChina, YRP Flow Technology and Alfa Valvole. Again, companies that can undoubtedly be defined as a perfect fit. In years marked by unprecedented operational volatility, I can assure you that we evaluated every opportunity we considered interestingly. What we did not do, and as a group CEO, I'm proud of not having done, was starting acquiring companies that were not perfect fit. or accepted valuation that does not correspond to the true value of the businesses simply to offset the revenue decline. Taking also on behalf of my colleagues who work with me every day on potential deals, we regret not having reached the target we had set for ourselves, but we do not regret having refused compromises or easy shortcuts that may have been yielded short-term benefits but could have turned out to be detrimental to the group in the long term. Acquisitions must be priced correctly, but above all, they must be the right ones, because companies cannot be bought and sold like shares. The fact that our integration model can be described as soft does not mean neither that integration does not take place, nor that we do not begin working alongside with companies joining our group to help ensure the improvement of their performance. And on these topics, allow me to breed digressions that may appear to deviate from the subject we are addressing, namely our expectations for the future. These two digressions are called why cut and why drive. Two acquisitions that, for reasons that are not entirely clear to us, are unfortunately not perceived as perfect fits or as successful acquisitions. They were and still are absolutely perfect fits. because they enable us to continue our diversification journey both in terms of product and geography. However, the timing was extremely unfortunate. We acquired Waikato just a few months before they collapsed in global milk price, which forced us to carry out rationalization activities that had not been planned. Instead of working solely on the international network, we had to intervene significantly in the activities of the New Zealand parent company as well. As for the wide drive, I assume you will remember that our integration process aimed to bring the group to a 21% EBITDA margin. And I hope you also remember how, in February 24, we announced the completion of the integration process and the achievement of the 21% margin in the fourth quarter of 22. A result achieved again in the first quarter of 23. Unfortunately, the normalization of the agriculture sector started in the third quarter affected this company more than any other in our group. And indeed, revenues in 24 fell by almost 40%. In slides 29 and 30, we have shown what happened and what is happening now, namely the gradual exit from this difficult situation. Waikato and Wildrive Poland are certainly on the right track. While WhiteDrive US is, to be fully honest, still behind, although improving. The year 26 will still require significant work in this company. The new CEO appointed roughly one year ago, after an initial assessment phase, has set in motion the organizational changes still needed. And together with our Polish colleagues, is working to achieve the most efficient allocation of certain production processes between the US and Poland. The fact that these two companies are recovering so quickly after two severe crises in their respective reference markets demonstrates two things. First, that they were and remain perfect fits. And second, that while we may not be fond of restructuring story, we know how to execute them when necessary. After so many wars, here are the numbers. We aim to achieve revenues of 2.5 billion in 2028, assuming positive organic growth with the only concern being 2026, as previously mentioned, and execution of small to mid-sized acquisitions consistent with our historical track record. In that same year, we expect to bring our net financial position to zero, thanks to the cash generation we aim to deliver. These objectives will be pursued while adhering to our profitability guideline. The 22.5% margin represents a level of excellence that cannot be compromised. I hope I have managed to have illustrated the three topics discussed today, and of course we are here to answer your questions. Before handing over to you, I would like to conclude with a clear message. We are an industrial group with an industrial approach. In recent years, we have demonstrated an excellent ability both to protect margins and to generate cash. Our growth path over the past three years did not materialize as we hoped, but growth remains the direction we intend to pursue with determination and discipline. In recent years, our group has successfully faced truly challenging situations and has emerged stronger. may be used, just as our chairman said a few months ago, to push a growth option that are broader and more ambitious than ever.