Arteche Lantegi Elkartea, S.A. (ART) Earnings Call Transcript & Summary

[Interpreted] Good morning, everyone, and welcome to the Arteche conference call for results for 2024. I'm [indiscernible], responsible for Investor Relations. And today, we have Alex Artetxe, President and COO of the group; Luis Maria Perez, Managing Director; Ixone Vicente. And we are very pleased to be able to show you during the present. [Operator Instructions] I'll hand over to Alex Artetxe.

[Interpreted] Good morning, and thank you for joining us in this conference call for results for 2024. As [indiscernible] said, I'm Alex Artetxe, Chairman and CEO for the group. And I'm with Luis Maria Perez, Managing Director; and, Ixone Vicente CFO of the group. To review the figures for 2024 at Arteche. We're very pleased to report 2024 with some excellent figures that are not only in line but ahead of the guidance that we established in our strategic plan last year for the year '24 to '26, a strategic plan, which in spite of the uncertainty generated by the environment in the United States and the tariff policies. It's a good moment for investments, the growth that we mentioned very often, electrification, clean energy, digitalization, and decentralization are solid and promote the growth of investments in networks on a global level. And we have a solid and consolidated position in the market with a high demand. And this strength together with this business diversification enables us to clearly see the growth objectives, and we are moving firmly towards the strategic goals established in that strategic plan. The growth of the sector is solid, and we are seeing this in all the businesses during the startup of 2025. And also, as we'll see later on, we have a solid financial structure to cope with future inorganic structures in our strategic plan. And we're going to review the main milestones for 2024. I'll give a brief flash and then Luis Maria and Ixone will go into more details. Starting with Page 3, highlighting the main milestones for 2024. The first thing is that we're growing at double digits in revenue and sales above our plan. Order intake has grown 12% in the year compared to last year and with strong growth in important regions like EMEA and Asia Pacific, consolidating our position on that market. An important fact is that in order intake, we have over EUR 500 million this year, a landmark for the company, and we've reached a revenue of EUR 447 million, which is also a double-digit growth, 11.5% versus 2024. And as you can see in the presentation, we continue to improve profitability. The direct margin has continued to follow a progressive trend, 5.5%, which is an improvement of 340 basis points compared to last year. And this reflects the commitment we have with operating efficiency, process optimization and launching new products, and an effective price strategy, which are the levers that we defined in our strategic plan. Looking at the EBITDA, we've also grown almost 27%, reaching EUR 51.6 million, which is translated into an EBITDA margin of sales of 11.5%, very much in line with the strategic plan. And this is also good news. And I would also like to highlight the solid cash generation that we have obtained during '24, which again is above the guidance. And this enables us to have EUR 25.6 million reported debt leverage of 0.5x EBITDA, very much below the goals established puts us in an optimal position to close future inorganic operations, which, as you know, we're working on. And finally, the net profit reached almost EUR 19 million, EUR 18.9 million, which is an increase of 56.6% when compared to 2023. This means earnings per share of EUR 0.33, reflecting that we continue to move forward successfully with our strategy, and it shows how solid our results are. So we will first comment on '24. And moving on to Slide 4, we can see what the year has looked like compared to the guidance we gave last year. And as you can see, not only have we met the forecast, we have grown both in EBITDA and in EBITDA margins. And this achievement is a result of the effort and the commitment of the whole team at Arteche. And I have to say it's an excellent team. And with this, I'll hand over to Luis Maria so that he can give you more details on the figures.

[Interpreted] Thank you very much, Alex, and good morning. Well, today is the first day of spring. And we can say that spring has come with these figures. But now seriously, this is the traditional format we used to present results. And perhaps I'll be a bit repetitive as to what Alex has just said, but we'll review it very quickly. Going quickly from left to right, the order entry is over EUR 500 million, 12% growth compared to 2024. And in the following pages, we're going to zoom in on where this growth comes from, how much is due to the market, and other things. Revenue is in line with a similar growth, EUR 447 million. And if we take it to constant currency, it will be a little bit more. The direct margin, I think it's important to explain how we calculate the direct margin at our company. It's a little bit different to what others do. The direct margin for us is the earnings and sales price from which we subtract the material costs, we subtract direct labor, and direct operating expenses, let's say. That's the direct margin. And Ixone will give us some brushstrokes later on, on how this has increased and why the EBITDA also for the first time has exceeded EUR 50 million, a respectable figure and profit is close to 20%, and Alex mentioned it earlier. The leverage ratio is 0.5. So we're getting ready for inorganic operations that we hope to announce shortly. In the next slide, you can see a little bit more information on the geographies. And I would like to highlight that it's a company that's highly diversified geographically, something we're proud of because this means that we can offset one region against another if there are any upsets. On the left, we have order entry, 12.3% increase. And where does this increase come from? Well, we can start by saying that 1/3 is the growth of the market in itself, another 1/3 comes from improvements in our market share and the other 1/3 has to do with the price of commercial strategy, of the 4 reasons, well, I didn't mention it, we are organized under 4 geographic regions. Europe, Middle East, Africa with headquarters here in Mungia, in Spain, North America with headquarters in Mexico City, Latin America with headquarters in Buenos Aires, and Asia Pacific with headquarters in China. Well, if you hear a lot of noise, that's because there's a heavy wind and it seems to be causing a bit of a bother. But anyway, we've grown at double digit. There's regions done a little worse, Latin America, and this has to do with the situation in the main markets. Argentina with the effect of the new presidency and the slowdown in investments in 2024. Customers in Argentina are basically public utility companies. And until the beginning of 2025, investments have been stopped. The next market is Brazil, which has also been a little bit worse than we expected, especially due to the negotiations on the remuneration of the electricity quota to companies. So a number of orders were stopped during the last quarter of the year that have been released again. And at the beginning of 2025, the backlog is fairly well covered. What I would like to mention is that our book-to-bill ratio is at 1.2. We have a portfolio of EUR 280 million at the end of '24, which is between 6 to 7 months of operations. So this puts our minds at rest when it comes to getting organized and planning everything that has to do with this year 2025. And I'll mention it later, but this is in line with what happened in '24. On the right, we can see a similar chart. But in this case, we're talking about sales revenue. And it's similar. We can see the 4 regions, 3 have a strong growth. The percentage in growth is very similar to order entry, with around EUR 80 million in a portfolio in 2024. And to this slide, I'd like to highlight again the importance of geographic diversification, being present in many regions and many countries makes us strong when it comes to organizing our portfolio. And I'm now going to talk about business lines. We usually explain this in all the presentations, but I'll repeat it because it's important. At Arteche, we're organized around 3 pillars. The first pillar is what we call metering and monetization, which is around 70% of the history of the company. The second pillar in size is the network automation pillar. This is around 20% of sales. And the most modern and smallest pillar is the network reliability pillar, around 10%. We can see that all 3 pillars have grown in 2024. And I'm going to make a few comments on each of these areas. In the metering and monitoring pillar, Arteche in the high-voltage side of the business, utility transmission companies, we've reached the position of #1, #2 in the world. And in medium voltage, which is a much more diversified market with more players. We're still in the world's top 10. And the growth of the Arteche Group, therefore, is highly diversified geographically. We've increased our capacity during 2024, especially in the regions of North America and Asia to be able to meet the requirements of our customers. As a curiosity, the most important markets in this pillar are the United States, Spain, Mexico, Australia, and then Canada. So we're highly diversified. I would also like to mention the strong activity in the DC market, everything that has to do with DC equipment connections between countries or connections between offshore wind farms, customers, and other kinds of projects such as nuclear has grown a great deal. We have the necessary technology and it's one of the areas that's growing the most. And then we can talk about the network automation pillar. We are the #1 producer of auxiliary relays for the energy sector. And last year, we made around 500,000 units, a new record. And for those of you who follow us on a regular basis, you'll remember that in the last 3 years, we've made a number of investments to develop a new electronic platform for monitoring and control with the closes P51, a bit of a strange name that went out on the market last year, and it's up and running. We've also been working on our geographic diversification by increasing the number of countries we are present in, in projects in new countries. And while we were talking about the control and monitoring platform, we're also working on a platform for auxiliary relays in the future that we'll more about in future presentations. And finally, the network reliability pillar is more related to everything that has to do with renewables. It's the smallest pillar, and we're working hard on it from the inorganic point of view. And here, I'd like to mention the acquisition we made of a Finnish company that we feel gives us a strong thrust in this technology to improve the performance of everything that has to do with energy storage processes. We've also come to an agreement with Siemens for a license to produce reclose for the North American market, and we've invested in automation in various plants, and we continue to work on our service portfolio. And with this, I'll hand over to our colleague, our CFO.

[Interpreted] Thank you, Luis, and thank you all for joining us at this conference call. Moving on to the next page after looking at our growth in volume. We are now going to discuss profitability. And the fact is that we are very happy to be able to show on this slide how the direct margin has improved semester after semester and at the end of 2024 reached 36%. On an accumulated basis, we closed the year at 35.5% over sales, which is an improvement compared to 2023 of 340 points. And also, this margin has improved in the 3 business segments Luis mentioned. This improvement, I think, reflects the great work done by all the partners at Arteche working to optimize internal efficiencies. From the commercial side, working on the product mix, on trade margin control, currency hedging, price policies, the operations and quality department, improving the productivity of labor and operations, the purchasing department with good logistics management, and optimizing material costs and supplier mix and of course, the R&D area, putting the focus on reducing product costs and also developing new products that help us to expand and improve our margin. With all this in absolute terms, the direct margin has reached EUR 163.4 million, which represents an increase compared to 2023 of 22.3%. We've grown in sales by 11.5% and the direct margin, by 22.3%. On the next slide, we have the EBITDA trend by semesters, where again, we see where half after half, our EBITDA over sales ratio has continued to improve, up to a ratio of 12.1% in the second half of the year. On an accumulated level in 2024, we closed with 11.5% of EBITDA over sales, which again is an improvement of 140 points compared to the previous year. And in absolute terms, as mentioned earlier by Alex and Luis, we've reached a figure of EUR 51.6 million, which is an increase of 26.8% compared to the previous year. The key is -- well, the sales volume established by a good position in the sector and the ongoing improvement in operating productivity that we've just has an effect on the direct margin. At the beginning of the year, we presented our strategic plan where we undertook to reach a ratio of 12.5% to 13% in 2026. And the chart we see on the screen shows how we are on the right path to achieve that goal that we want to reconfirm today. And moving on to the next slide, we can see the evolution in net profit and earnings per share since 2021. And we closed this year with an excellent increase in net profit. It's grown 56.7%, reaching EUR 18.9 million, which means EUR 0.33 earnings per share. In June, we made a payout of 50% of the net profit, which meant a dividend of EUR 6 million. And at the next shareholders' meeting, we will again present our proposed dividend payout, 50% payout again, reaffirming our commitment towards the shareholders' remuneration. Moving on to the next slide. And after talking about our good performance in growth and profitability, we're going to talk about cash generation. And as you know, this was one of the main points in the strategic plan. In 2024 we have achieved excellent results in this area. We have continued to deleverage the company and strengthened our balance sheet. In this strategic plan, we gave a guidance for an EBITDA cash flow conversion rate of 30%. I'd like to clarify that this ratio refers to cash generation before inorganic payouts and shareholder remuneration. So in 2024, we have exceeded this goal, and we have reached a conversion rate of 48%. And if we also talk about the operating free cash flow, that is without the payment of inorganic expenses or dividends and without bearing in mind our expansion CapEx or capacity increase, the figure would be EUR 40 million in free operating cash flow, which represents a conversion rate of 78%. And I wanted to mention these ratios because although we gave guidance for free cash flow, I think that the market also used the operating free cash flow concept. On the left of the presentation, we can see the main cash inflows and outflows during the year. Starting with the positive EBITDA effects, the main cash outflow has been CapEx, around 4.5% of our revenue, where we have to highlight investments in R&D, a fundamental pillar at Arteche as well as our capacity enlargements in the plants in China and Mexico to be able to meet the deadlines and demands of the market. And subsequently, we have financial expansion over sales, 1.3% less than last year and taxes. And this is what we call the free cash flow, 48% conversion versus EBITDA. And then we have inorganic payments, EUR 2.8 million for the acquisition of Teraloop that Luis has just mentioned and that we discussed at the conference call after the first half and the EUR 6 million for the dividend. With all this, the leverage ratio has ended the year at 0.5. We continue deleveraging the company, we came from a ratio of 1. And I'd like to especially focus on the working capital, which I haven't mentioned. And I think that the results are very good this year. We've grown our activity and our turnover to double-digit figures, and yet we reduced the working capital. And here, we are working both in the customer and supply areas as well as on inventories. And I think that we can clearly see the improvement we've had in inventories, in particular, in spite of having increased our activity. And moving on to the chart on the right. Here, we can see our various funding sources. We continue to work on the diversification of our sources on using the financial cost and also debt maturity. We have very well diversified sources. The average cost of debt has been reduced compared to the previous year, and we maintained a 4-year maturity. And if we consider the long-term debt that we haven't drawn, this takes just 5 years. Other things, continuing with our risk management policy, we have 72% of our long-term debt at fixed interest rates, either because we've hedged them or we've signed them at a fixed rate. And in summary, the financial position of Arteche has been strengthened even further in 2024, and this puts us in an excellent position to continue to grow and to use future opportunities. And I'll hand over to Alex again to comment on the results in ESG.

[Interpreted] Thank you, Ixone. We've seen the evolution of the year from the point of view of the figures and growth. We're now going to put the focus on how we do things. In this slide, you'll be able to see the road map and performance in matters of sustainability. And as I've highlighted on many occasions, sustainability is part of our DNA, our value and has always been present in our company. Before analyzing the table, I'd like to highlight 2 things. The first thing is that we are doing well with respect to our 2030 road map. And secondly, that this commitment has been recognized in the improvement of the global scores of the 2 most prestigious rankings, CDP, which measures the effort to reduce the carbon footprint and EcoVadis, which measures sustainability. In the case of CDP, we've gone up to the D category. And in the case of EcoVadis, we're in the silver category, which means that we're in the top 15% of global companies that are certified. And as I said, we're in line with the compliance of the ambitious goals we established. And we see it in this table, we're going to summarize. Starting with the environment where we have the recycling or reutilization goal of 100% in 2030. And at the close of 2024, we're already at 68%. In other words, we are on a good path to achieve this goal, and we've worked very hard on resin, oils, et cetera and we have projects for 2025 to continue [indiscernible]. The carbon footprint indicator under Scopes 1, 2 and 3, we have the goal of reducing our footprint to 50% by 2030. This year, we've included factors that haven't been included before. For example, the impact of a gas leak that we weren't including. But in any case, we're at 26%, and we're on the right path to reach those goals. And we're doing a lot of work in this area, and one of them has to do with our own products and the replacement of insulation with sustainable insulation. And in the area of the environmental indicators, we have the goal of consuming 100% renewable electricity. And at the end of the year, we're at 63%. And we installed facilities at all our plants, including solar panels, et cetera, that have been installed at our plants. Under the people side, as you know that Arteche is a people company, and we have 2 clear goals. The first is to reach equality at our company. And in 2024, 30% of the management position are covered by women. So this takes us close to the average of the industry. And we're also talking about all our plants globally. And I'd also like to highlight that one goal, we have in this area is for all jobs at the company to be accessible for anyone in the production area. And in 2024, 75% of the jobs have been adapted by either men or women. And another important point is safety. This is one of our firmest commitments and our goal is to reach 0 accidents in 2030 because our goal is for people that work with us, get home safe and sound every day. This is something that is a priority in all our management committees and proof that this is working is that the accident rate is much lower than the average for the year, as you can see. And finally, under governance, the goal is to continue forward with the best governance processes, especially in ethics and transparency. In 2024, we've implemented financial control measures. They've already been implemented at all EMEA, North America and China plants, and we continue to work on this in 2025. And we've also taken steps to diversify the Board, 2 new directors, 1 woman, and we continue to work to meet our future goals. And everything I've mentioned is explained in our sustainability report 2024, which is already available on the website and is adapted to the CRD regulations, although it's still not a regulation in Spain, but we've included it. And it reflects the management systems, so we have the progress we've made and also the challenges we face. And I invite you to read it because it's a way of understanding how we do things. And as I've often said, this is a long journey for all of us. We have the ambition of being a company that has a very positive impact on society, making sure that the ESG principles are included in everything we do. Well, we're going to close the presentation with a summary of the main conclusions in 2024. And after that, we'll move on to the Q&A. The main message, well, it is the first year of our strategic plan with excellent results, and we have goals ahead of us. And 6 messages to summarize the year to leave time for your questions. First of all, the market is strong, and we're making the most of the opportunities. We continue to grow in order entry, 12.5% and also in revenue, 11.5% in context with a strong demand in all regions. And as we said, in all the countries that we're in, and we have a consolidated leadership position. During the first year of our strategic plan, we've grown more than envisaged in the plan, and we expect this growth to continue in coming years based on the solid foundations of the plan, the commercial and the product measures and the solutions, the product margin is strong, and we are ready to make the most of the diversified markets and the customers. As said earlier, we started 2025 with a very good portfolio and a positive market outlook. So we see the year as positive. And we continue to improve profitability on a sustained basis on line with or even higher than the EBITDA in our plan. It's at 11.5% already with an improvement of 140 basis points over last year. And the product margin, one of the pillars of our profitability has increased by 340 points. This confirms, as we said earlier, the success of the measures carried out with the strategy, R&D and price policies. Excellent cash situation, 48% EBITDA conversion into free cash flow, again, exceeding the goals established in the plan, which shows, as Ixone explained, an excellent management of our resources. As you know, innovation is a fundamental pillar for us. And this year, we have increased our effort and dedication to R&D to more than 3.5% of our revenue. The new electronic options, the new transformers with sustainable and lower carbon footprint, the Teraloop solutions that we mentioned with the inclusion of digital solutions are just examples of new products that are available and that will enable us to continue to grow and pick up more margins in the future. Another outstanding achievement is what I've just mentioned, the ESG performance, which continues to improve year-on-year, generating value for all our stakeholders and improving our indications and certifications in CDP, Ecovadis are a sign of this. In summary, 3 basic ideas. We're meeting all the goals established in the strategic plan. We're creating value, and the market has recognized this with a reevaluation of the share at the closing of the year, over 88%. So I have to say that 2024 has been an excellent year for Arteche, a resilient Arteche, capable of adapting to changing situations, highly diversified with a leadership position that is being reinforced even more, thanks to the quality of our products and the trust of our customers and with ambitious perspectives in line with the guidance up to 2026. So in summary, a good year. And with this, we conclude the presentation and open the Q&A where we'll be delighted to answer your questions.

[Interpreted] Thank you very much, Alex. We start with the Q&A. Starting with Alberto Espelosin from JB.

[Interpreted] I have 4 questions. I don't know whether you prefer me to ask them one by one.

[Interpreted] Well, whatever you prefer. Yes.

[Interpreted] Well, let's go one by one. The first about sales. Could you please tell us how much of the 14% growth is because of volume and how much because of price? And can you also specify how much the market has grown, to get an idea of your performance this year?

[Interpreted] Alberto, our revenue has grown 11.5%, but at constant currency, it's around 14%. And basically, 1/3 is price and mix, 1/3 is market growth and 1/3 share. I think that answers the question.

[Interpreted] Yes, yes, perfect. And the second is also for you Ixone, is on working capital and specifically on inventories. I see that you've achieved the inventory by around 10 days this year, I think, leaving at 65 days, which is something that you've been working on since COVID, you've achieved it. And I'd like to know whether we can consider this to be a normalized level? Or still -- is there still room to further reduce inventories.

[Interpreted] Well, no, we continue to see a room to grow further, and I'll explain several things. One, we are implementing several tools that help us to manage supplies and production to optimize them according to our customer and production needs. On the other hand, as we grow the second and third pillar, which are less inventory intensive, that ratio will continue to improve. And we are also working together with our suppliers and various factors such as demand publications via our website, deliveries at the workstation. Well, many initiatives that I think still have to provide good results in the coming years.

[Interpreted] Great. And cash generation with a strong balance sheet you have and your strong products, I would like to know what your capital allocation strategy is going to be, Luis Maria said you've focused on growth. I don't know what kind of transformations we can expect or I don't know whether you will increase CapEx to cope with demand.

[Interpreted] Alberto, as we said earlier, as you know, the inorganic plan is one of the pillars for our growth plan. We continue to work on opportunities. As we also said on previous occasions, we're looking at profiles and opportunities that are focused on automation and network reliability, but not just on those. And we're putting the focus on regions where we're looking at the footprint, especially in Asia and the United States. We're working on all this. We have opportunities that vary. Some are more of the style and size of the ones we've carried out until now and others could be more transformational. But as I've often said, it's difficult to set a date for the closing of this sort of thing because the final comment is what counts. But we are optimistic that we'll be able to announce some operations in some future. And regarding cash allocation, well, the 3 axis we mentioned in the past are still the same. Growth, both organically and inorganically we're enlarging capacity at our plants, mainly in China and Mexico, but also here and to cover this demand we are seeing and which we want to make use of as we've done before, and we've even anticipated demand in the past, and that has enabled us to make use of that. And then we have the shareholder remuneration commitment and then the debt policies. But the main focus is on growth. And your question may be when? Well, it's hard to answer that question, but we're optimistic.

[Interpreted] Yes. Understood. And the final question is about Trump. I wanted to know whether you could go more in depth on how the possible tariffs could affect you and whether you're already seeing a relevant impact on demand? Is there an actual impact or is it just a matter of politics?

[Interpreted] Well, I'm glad you asked the question because I think that there are quite a lot of questions around this on the chat, so we can put them all together. Well, the first thing, and it's obvious, I think that we all agree that this is a situation of uncertainty. 3 months have gone by in 2025 and the situation has been changing, and we don't have clarity. What I can say is that in these 3 months, we've sold more than ever in the United States. So we've already won in these first 3 months. And obviously, we haven't been idle. We've looked for advice. We've been in touch with various business organizations, both here and in Mexico, the United States. We've spoken to consultants, auditors. And with all this, we've been drawing up a plan for several months. We've looked at various scenarios depending on what might happen. As I said, uncertainty is the general rule. There are no details in the small print. But what I can tell you, I think, is interesting, and I'm going to try to simplify this would take a long time. In the U.S., we basically sell 2 product lines, high-voltage transformers and medium voltage transformers. Our position is different in each of these 2 segments. We have a market share of 30% with leaders together with another manufacturer that has around 30%. And in distribution, we have around 60% but this second manufacturer is Canadian. So the first 2 manufacturers in the U.S., one manufacturers in Mexico and one in Canada and the other 40% comes from a number of North American companies, basically 3. So in our analysis based on the available capacity, for the products we are more focused in high voltage based on the impact tariffs could have on Mexico and Canada. And a very important thing, these markets are interconnected. Obviously, from Mexico, we sell to the U.S. and we sell to Canada. The American manufacturers sell to the U.S. to Canada and even Mexico. So it's all interconnected. If we put all this into the equation, our conclusion is that the impact we could see in a higher voltage line would be relatively small. We could talk about 7%, 8% in volume loss, which we don't think is significant. And we would offset part of the volume that we lose in the U.S. with the volume that we recover in Canada and Mexico. So in high voltage, which is the most important part of our sales in the U.S., I think that the impact is very manageable. And let's say, it's not significant. In the medium voltage area, which is the second main business line we sell to U.S., the situation isn't as advantageous. We have around 20% of the market share and the rest of the market is made up basically of U.S. manufacturers. And we have the same effect that the U.S. manufacturers sell in Mexico and the United States, and we also sell to Canada, United States. So if we put everything into the equation, let's say, the possible risk and I'm going to give worst-case scenario figures we'd be talking about 25% to 30% in the worst case. So the summary is that, obviously, everything that has to do with tariffs isn't good for anyone. It prevents free competition, but we think it's a difficulty that's manageable. And to shed a little bit more light on it, our strategic intention with any tariff that affects us is to pass it on to the end customer. And let's say that our first talks to those customers tell us that a very large percentage of those customers understand it and are willing to accept it. And it's not easy to find alternatives to the capacity that we and Canadian manufacturers provide in the U.S. Anything else would need very long delivery dates and time lines for installation for documentation. And after visiting that region recently, the general opinion is that things aren't going to get that bad. But since this is pretty chaotic, anything could happen. Yes, before, Alberto, you were also asking about the market, whether the market is staying strong. The market is staying strong. And we've often said that electrification globally, but in particular, in the United States is unstoppable. The fact that renewable energies or other energies being promoted by the administration doesn't have an impact on grids and electrification. So as we said, we continue to see a very strong market, and there's an additional advantage. In the eventual case, we don't think it will happen. But if there are tariffs, the local capacity can't cover the demand. So that's why we're saying that even if there's an extreme tariff policy, we don't see any risk for our goals. I don't know whether that gives you the snapshot.

[Interpreted] Yes. Alex, congratulations on your results.

[Interpreted] Thank you, Alberto.

[Interpreted] We'll continue with Robert Jackson from Santander.

[Interpreted] I had several questions. Starting with order entry. Order intake has grown at 12.3%. In the first quarter, it grew 15%. So I would like to know whether there are any bottlenecks or problems in the chain of supply and why that order intake trend has gone down in the quarter.

[Interpreted] I'll answer that. Hello, Robert. Order intake in our case, we have the pillars, especially when we talk about high voltage, this often has to do with large projects, tenders, et cetera. So they're not absolutely linear. The fact that figures are higher in one part of a year than another doesn't mean anything. It depends on when the tenders come out, when the contracts are awarded. So the fact that the first half is stronger than the second isn't an indication of anything. It's just an indication that the market is strong. We're seeing a growth in the markets in all the pillars. As Luis said, we're diversified and sometimes the market buys in January or December. But I think I remember that last year, in the first half, we had the famous big framework contracts in Mexico. But the following year, they could be in June. So that doesn't mean anything. And again, we have a market that is still strong every month and we're neither saying that we're losing opportunities for capacity reasons or anything else. It's just a matter of when the cycles come in.

[Interpreted] And to reinforce this and looking at the historical results and the results in 2023, we have the same snapshot. In the first half, we had more order intake than in the second. But again, it depends on the tenders as has just been said.

[Interpreted] So we're very comfortable with that. It's still early in 2025 to see the trend.

[Interpreted] And in Mexico, '22, there was a skew. But the second with regard to metering and monitoring, you talk about a 15% increase capacity increase. That 15%, is that going to have a repercussion on sales? Has it had an impact in 2024? Or will the impact start to be felt in 2025?

[Interpreted] Well, we've seen part of the impact in 2024. Last year, we invested in capacity in high voltage in Mexico and China plants. These are multi-annual projects. We've seen part of it. We made investments or more furnaces and manufacturing facilities in China. We've also invested in Mexico, but part of it, we haven't completed yet. And we believe we're going to open a facility in Mexico in November that we're working on for a couple of years. But in 2025, we're going to continue to grow in China because the capacity we increased here in Europe, too. that we haven't considered in our strategic plan, but it seems it's going to be necessary.

[Interpreted] Yes, we're doing what we've always done. We're seeing that the market is strong, and we want to have the capacity ready to be able to respond in time. We never like to operate plants at 100% because the mix changes. So we'd like to have some extra capacity to be able to adapt. And when we reach that, that capacity has reached the limit, when a plant is operating at 95%, 100%, we invest to have an extra 10%, 15% capacity to feel more comfortable.

[Interpreted] And regarding China, it's basically high voltage. Where you're mainly exposed, right? Ultra-high voltage. Are you also involved in that segment?

[Interpreted] Ultra-high voltage. Yes, the China plant is a high-voltage plant where we reached the highest levels. Ultra-high voltage, there are a few countries that have that voltage level, usually very large, very long countries. So for ultra-high voltage, we manufacture basically in China. In Mexico, we only get as far as 500 kilovolt because it's not necessary, although we are reconsidering some projects in the United States to go up to 800 kilovolt. In China, it's ultra-high voltage.

[Interpreted] Next question about network reliability. I was surprised by the lower growth, bearing in mind the effect of renewable energy. Do you have a pipeline that could be relevant in the future?

[Interpreted] Yes, network reliability is the sector where we have to invest the most. And we've been impacted by the fact that Australia, which is one of the regions we're investing most in 2023. We had very large renewable projects that haven't come about in 2024. They're going to come about in 2025. And Australia has the scale positions and is now in the top 10. So these basically are very large one-offs in 2023, renewable projects that haven't happened in 2024. That basically is what has affected the small growth in the figure.

[Interpreted] And also in the plan, remember that inorganic growth is focused mainly on accelerating these businesses and network reliability is one of them. And this is where we've put a lot of focus in the inorganic area, but not just that. Product launching figures when we talk about grid reliability, we talk about spares too, which are included in that project in this year. We've launched more efficient reclosures with less carbon footprint, and we'll see what the results are for the strategic plan in '25 and '26. So we'll see growth in the coming 2 years.

[Interpreted] Yes. As Alex said, the reclosures, especially in Brazil, that was a bit low the last quarter because of the discussions between the Brazilian government and the utility companies on the remuneration for transmission. Agreement reached in December, and we've started to see a return to investments. It's a bit similar to what happened in Spain with Iberdrola, reclosure plant that has a pipeline for 10 months basically. And this is another plant where we have to consider changing the supply chain to be able to increase the number of units. [Interpreted] In 2024, there have been political issues that are more or less on the right path.

[Interpreted] Can you give us any update on the agreement with GVM Vittoria.

[indiscernible]

[Interpreted] And the final question about improving the margin. Level was 23% in the first half and at the end of the year, 23.9%. In spite of this increase, the margins have improved. So the matter of volume prices. I don't know whether there's something specific in this higher margin in spite of the structural expenses.

[Interpreted] Well, let's see, we continue to put our stakes on a model where the fixed costs grow less than the increase in sales to make this a lever for profitability. And of course, we feel that there's a margin to improve by lowering it, but we've been improving that ratio for years. It's true that in '24 and the reason is that we backed projects for the future that mean an additional load in the P&L for 2024, but they're going to generate a yield in the future.

[Interpreted] So as I said, we've been improving that ratio for years. And during this strategic plan, we believe that we're going to continue to improve. And it's been something that we've done on purpose.

[Interpreted] Yes, we want to speed up projects, which today are an expense, but we're going to obtain a return from them in the future.

[Interpreted] And our Chairman has encouraged us to redouble our efforts in R&D.

[Interpreted] Yes, we mentioned it earlier. We've increased our efforts in R&D to accelerate development, new activities and businesses, and this is going to provide a return.

[Interpreted] Can I ask a follow-up about R&D? Where are you having to invest more in line with the developments that are taking place in the sector? Is there any specific area?

[Interpreted] I think the question is where we're investing more in R&D with a view to future projects. On the one hand, going back to the 3 pillars, the metering and monitoring area, the focus on R&D is in sustainability projects, in particular, in bringing out products to reduce the carbon footprint. We're working on it. We have a range of high-voltage transformers ready. The automation world, the digital options, the platforms, everything that takes us to what we've mentioned very often, increasing our supply of our own products and reduced purchases from third parties to improve the margin. And in grid reliability, we're putting the focus on the world of interconnections, energy quality, support for storage, all these solutions synthetic energy, if anybody knows what that is, development projects that we've reinforced to speed them up. So to summarize it from a point of view, automation and grid reliability are a last part of the effort and also sustainability. And we also say from the point of view of the R&D effort is more intensive in electronics than in metering, basically because the type of product, a transformer has a 30-year lifespan and electronic equipment 10 to 20 years. So it needs a constant renovation.

[Interpreted] There are no more questions by phone. So we'll move on to written questions on the chat. There are several questions from the U.S., but I think that Luis has answered them in detail. So if you have any more doubts, please e-mail us.

[Interpreted] The first question in the chat is from Iñigo Recio that congratulates us on the results. Thank you very much, Iñigo and ask us about 2 things. First of all, the EBITDA margin in the second half, 2.1%. Is it reasonable to believe that in 2025, we could reach a range of 12.5% to 13% in the EBITDA expected for 2026? And secondly, about factoring, what has the factoring level been in 2023 and '24?

[Interpreted] Shall I answer it? I'll start with factoring Iñigo. The fact is that I think that we've done a great job here, highlighting the commercial and risk control areas where we monitor the risk of our customers and work on the collection methods with safe payment means. So this year, in spite of growing in activity, the factoring, and I'll give you the figures. Last year, we closed at EUR 32 million. And this year, it's been reduced to EUR 16 million. So I think that we can clearly see the good results obtained from all that work I mentioned. And regarding the EBITDA margin, the second half of the year, 12.1%. And yes, I would love next year to come to the end of the year or mid-2026 and to say that we've met the plan. But it's a 3 year plan. This is the first year. As Alex said, we're doing very well. We're doing really well. We are ahead of what we said. but we still have work to do.

[Interpreted] Thank you, Ixone. The next question is about the direct margin. We've said that it's calculated differently to how the competition does it. What's the difference? Is it material?

[Interpreted] Well, let's see. I think that what Luis meant when he made this comment was that usually the gross margin is huge and the gross margin also includes indirect costs. In our case, that's how we run our business. It's our main business management indicator is the direct margin. It only has completely direct costs. related to the order. It's not that it's different. It's just a different KPI.

[Interpreted] The next question from the chat is from Alberto Espelosin from [indiscernible]. And he asked us to explain why the product margin grows more than the EBITDA margin. What has been invested in this year? Or is it because the expansion of the direct margin isn't reflected in the EBITDA margin?

[Interpreted] Well, I think this is in line with what Robert was asking. And I think that we've answered that more or less. But to refresh the idea, we think that we're going to continue to improve that ratio. And this year, we haven't seen it as we've seen in the past years because we put our focus on accelerating projects, accelerating R&D, accelerating digitization, things that are going to help us with our profitability in the future.

[Interpreted] And we will close the questions from chat with a question from [indiscernible], who asks us whether we have intention to be listed on the continuous Spanish stock market. And do we have a time frame?

[Interpreted] Well, as we've said before, our goal is to continue to grow on the market, to continue to grow the projects. This was the goal from the beginning. We're creating value. The strategic goal of 2024, '26 is to continue to create value and to grow organically and inorganically. So the continuous market is something that will come along when it comes along and will depend on the shareholders and the investors. But it's a path we're on. And being prudent with the time frame is always the best. Our goal is to continue to create value to reach our goals and we'll see the steps to be taken with regard to the stockman.

[Interpreted] Well, thank you, Alex. And with this, we close the Q&A. So I'll hand back to you to close the conference call.

[Interpreted] Well, thank you very much for joining us and for spending this time with us this morning. And we'll be having a roadshow over the next few days, and we'll reach out to you to explain things and our Investor Relations team will be available as usual for any questions. So I look forward to seeing you soon. And again, thank you for joining us on this conference call. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]