Carel Industries S.p.A. ($CRL)

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Carel Industries 2026 Q1 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Francesco Nalini, Chief Executive Officer of the group. Please go ahead, sir.

Thank you. Good afternoon, and thanks for joining our call for the presentation of the first quarter 2026 results. I'll start, as usual, from Page 3 of the presentation with the most relevant highlights. I'm very happy to report that 2026 started on a very strong note for the group. In the first quarter, revenues reached EUR 170.9 million, up 15.9% compared to the first quarter of 2025, or 19.7% organic at constant exchange rates. This performance was slightly above the upper end of the guidance we provided in March and represents the fourth consecutive quarter of double-digit organic growth. Even more important, this growth was, once again very broad-based. Regions contributed positively, and both of our main end markets, HVAC and Refrigeration, delivered solid organic growth. This confirms the quality of the performance and the balance of the group's business portfolio. HVAC continued to be the main growth driver with organic growth above 23% in the quarter. The strongest contribution came from data centers, which remain extremely dynamic, but we also saw very positive trends in heat pumps in Europe, early signs of recovery in industrial applications and a positive contribution from commercial. In fact, all verticals in HVAC had a double-digit growth in the period. Refrigeration also delivered a solid performance with organic growth of approximately 11%, supported by continued positive momentum in Europe and by a particularly strong performance in North America, where refrigeration grew organically by more than 40%, driven by the adoption of solutions based on natural refrigerants and energy efficiency. Profitability was also very strong. EBITDA reached EUR 36.8 million, corresponding to a margin of 21.5%. This margin expansion was supported by the excellent revenue performance and operating leverage, but also by a favorable gross margin trend and by the accretive contribution of digital services. As usual, we maintained R&D investment at our target level of above 5% of revenues. Finally, cash generation remained strong. At the end of March, we had a net cash position of approximately EUR 24 million. Excluding IFRS 16 impact, our net cash would exceed EUR 50 million. This is particularly positive, considering the usual seasonal absorption of working capital in the first quarter and the CapEx of the period. Moving now to Page 4, we can look at the main KPIs in more detail. As already mentioned, revenue reached EUR 170.9 million compared with EUR 147.4 million in Q1 2025. At constant exchange rates, revenue would have been EUR 176.4 million, implying organic growth of close to 20%, 19.7%. The foreign exchange effect was, therefore, negative with an impact of more than EUR 5 million, mainly due to the weakness of the U.S. dollar. This excellent organic growth was driven by double-digit performance across virtually all markets. North America was again the standout region with organic growth above 50%, but the performance was positive across the board. EBITDA increased by 38.3% to EUR 36.8 million in Q1 '26 from EUR 26.6 million in Q1 '25. This means that the strong revenue growth translated very effectively into profitability with an EBITDA margin of 21.5%, up by more than 300 basis points, both compared to Q1 last year. Net profit reached EUR 18.4 million, up 81.5% compared with the EUR 10.1 million recorded in Q1 '25. And the tax rate for the period was 23%. CapEx amounted to EUR 3.7 million, below the EUR 4.4 million of Q1 last year and in line with our expectations. Let's now move to Page 5, where we show the revenue breakdown by region and by sector. Starting from the regional view, EMEA grew by 9% in the quarter. Growth was well balanced between HVAC and Refrigeration. In HVAC, data centers grew double digits like heat pumps, but we also saw improvement in industrial applications. The regional performance would have been even higher if not for some temporary delay in projects in Eastern Europe. Asia Pacific delivered another very solid quarter. Organic growth at constant exchange rates was close to 30%. The performance was mainly driven by HVAC, and in particular, by data centers, but refrigeration was positive as well. North America remained extremely strong with reported growth of 37.4% and organic growth of 52.4%. Data centers continue to be the key driver with revenues substantially doubling compared to the same period last year, but the performance was not limited to data centers. Commercial was also very strong. And likewise, Refrigeration delivered another excellent quarter with growth above 40%, supported by the transition towards natural refrigerants and high-efficiency solutions. South America also delivered positive growth above 20% at constant exchange rates. This performance was mainly driven by refrigeration, despite the still challenging economic environment in Brazil. Turning down -- turning now to the breakdown by sector. HVAC grew by 18.8% reported, or 23.3% at constant exchange rates. Growth was double digit across all main verticals. Data centers were the largest contributor, both in absolute terms and in percentage terms. A significant part of this growth came from the United States, but we also recorded double-digit data center growth in all regions. But again, growth was very balanced since all verticals in HVAC grew double digits. Refrigeration grew by 10.7% at constant exchange rates. We grew in all geographies, but the percentage result was strongest in North America at above 40%. I now leave it to Nicola to comment the items below EBITDA and the cash flow evolution.

Thank you, Francesco. Slide #6 details the group result from the EBITDA to the net profit. The increase of D&A cost is related to the relevant CapEx activities postponed last year. The amount includes EUR 2.8 million referred to purchase price allocations. The net charges improved compared to last year due to the improved average net financial position of the period. The evolution of the ForEx result compared to last year was mainly impacted by the evolution of NOK against the euro originated by the Put&Call option of Kiona. The line companies consolidated with equity method reflects the result of the investment in Free Polska. The tax rate of the period was 23%, higher than the 2025 level due to a different country mix. The group net profit at the end of the quarter 2026 was equal to EUR 18.4 million, a strong improvement compared to EUR 10.1 million of the same period of 2025. Slide #7 shows the net financial position evolution of the first quarter of 2026. The funds from operation was strong and equal to EUR 29.3 million. Due to the seasonal effect, the net working capital of the period absorbed cash for EUR 19.5 million. At the end of Q1 2026, the net financial position is positive of EUR 24.2 million. I leave Francesco to run with the presentation.

Thank you, Nicola. I'm now on Page 8. Let me briefly comment on Carel's product strategy for our controls. Our approach to AI is very pragmatic and fully connected to our business model. We're building an integrated ecosystem, where data algorithms and domain expertise are connected across digital platforms, supervisory systems and field devices. The objective is to cover the entire value chain from the cloud layer to the edge with intelligence also working in layers that mutually learn and reinforce. At the cloud level, we leverage platforms such as Kiona and RED Optimise to transform operating data into actionable intelligence. These platforms allow us to provide customers with advanced analytics, performance optimization and energy management capabilities. At the middleware level, CAREL BOSS acts as the intelligent supervisory backbone. It connects cloud services and field devices, enabling the system to manage data and decisions across different levels of the architecture. At the edge level, our programmable controller applications are increasingly developed and orchestrated through the STone platform. And this is a key enabler because it allows intelligence to move closer to the equipment directly into controllers and devices, improving response time, system reliability, scalability and computational costs. The strategic point is that by integrating AI across these layers, Carel maintains ownership of models and value creation, and this strengthened our ability to innovate over time, allowing us to progressively enhance the system performance in a way that is coherent across platforms and applications. In practical terms, this means better diagnostics, better optimization, more efficient commissioning and increasingly intelligent products that can support customers in reducing energy consumption, improving reliability, reducing maintenance costs and simplifying system management. So basically, AI for us is a natural evolution of what we have always done, combining control, sensing, supervision and application know-how to improve the performance of HVAC and refrigeration systems. Let me now move to Page 9 for the closing remarks. The first quarter confirms that the positive momentum we saw in the second half of '25 has continued into the beginning of '26. Revenues exceeded expectations, reaching EUR 170.9 million with organic growth close to 20%, and this was the fourth consecutive quarter of double-digit organic growth. And once again, the performance was broad-based across geographies and end markets. Profitability was also extremely strong with EBITDA margin reaching 21.5%, above our midterm guidance. This reflects the strength of the top line, good operating leverage, positive gross margin dynamics and the continued contribution from digital services. Cash generation remained solid as well. The group comfortably covered the seasonal increase in working capital and the CapEx of the period, while further strengthening the balance sheet. At the same time, we remain cautious. The macroeconomic and geopolitical environment is still volatile. The direct impact of the Middle East conflict on Carel has so far remained limited, but the overall context continues to reduce visibility and makes forecasting more complex, even if the order intake remains strong. Taking all this into account and based on the information currently available, we expect Q2 '26 consolidated revenues to be in the range of EUR 180 million to EUR 190 million, corresponding to a growth between 13% and 20% on Q2 '25. Thank you very much for your attention. We're now more than happy to answer any questions you might have.

[Operator Instructions] The first question comes from Nicolas Storer of Kepler Cheuvreux.

The first one, I was wondering if you are witnessing any kind of product or component shortage? And if you think that the current strength in business you're experiencing is partially the result of clients piling up stocks in anticipation of possible issues? Second question is about RE in Europe. You commented about very solid North America performance. APAC, I think also was up in the double digit. So probably Europe was performing decently below 10%. You talked about the slippage of some contracts in Eastern Europe, but don't you think that this business in Europe is a bit kind of struggling to take off, in particular, as we are approaching the F-gas legislation deadlines? I wanted you maybe to share a few thoughts on that. And the last question is a quick one. Is it fair to assume that in Q1, 50% or more of your performance was explained by data centers?

I'm not sure if you have your line on mute or you're just discussing?

Yes. Okay. Niccolò, thanks for the questions. So concerning the shortage, we are not seeing any shortage situations. The most, let's say, the most critical items are as well known the memories. We have been increasing our safety stocks in memories for several months now because we anticipated possible criticalities. We have been purchasing well ahead for some time, also tactically, to some extent, increasing our stock levels. And for the time being, we are well covered, so we don't face shortages there. Of course, this translates to cost increases in memories, but this is -- the impact overall specifically for memories is not huge. And in any case, we are managing that through prices. But let's say, no specific shortage situations that we're facing at this stage, and we don't expect them in the near future either. As far as the market piling up, let's say, that maybe it could be -- there could be some very limited effect in some cases. But in general, I would say no also because if we look at the fastest-growing verticals that, let's say, for example, we see very strong growth in North America that is due to data centers, it is due to market share increase, in commercial and in refrigeration, but I don't see definitely their customers piling up because of the possible shortage, neither in Asia because the market dynamics are definitely related to the end market and to our market share acquisition. Maybe to some extent in Europe, but I think if there is such an effect, it would be pretty limited. Also, our growth in heat pumps, for example, in Europe, is, to a large extent, reflecting the rebound of the end market, so I don't see big overstocking taking place. As far as refrigeration in Europe is concerned, the performance overall is in the high single-digit range. It's been affected by some projects timing, especially in Turkey. Turkey is an important market for us in food retail. We had some delays in some projects also because the economy in Turkey is not so brilliant. So in the rest of Europe, performance is definitely better. I see that the investment level is definitely going to be supported by the F-gas, especially in Southern Europe where they are behind in the adoption of natural refrigerants, right? In Northern Europe, CO2 is already well established. So it's mainly a renovation market. But in general, the F-gas is definitely supporting. I think the fact that the performance in Europe is lower compared to other regions is to a significant extent related to the Turkish market in this very moment, where, again, there is a general market situation and some -- which in turn, prompted some delays in some projects, but this is a temporary effect that we expect to recover in the coming quarters. As far as the data centers are concerned, definitely, they are the fastest growing, but it's definitely less than half of the growth is coming from data centers. We have -- please consider that, again, we have double-digit growth in all verticals in HVAC. So industrial, excluding data centers, had a significant improvement, and it's also growing double digits now. Likewise, commercial is growing double digits. So it's data centers globally, of course, they account for more of that in North America, but globally, they account for definitely less than the total growth. It's -- I'm doing the calculation now out of my mind, it would be probably 1/3, more 1/3 of the growth globally in absolute terms.

The next question is from Alessandro Tortora of Mediobanca.

I have 3 questions, okay. The first one, you commented on this very strong performance in North America, broad-based. Can you comment a little bit about the -- how Carel can cope with this very sustained growth? You mentioned in the past conference call that you're basically starting to build a new plant, but considering this very sustained growth, which kind, let's say, of investments you're planning to do, and if the new plant is enough to cope with this stronger demand? This is the first question.

Yes, of course, it's growing by more than 50% is challenging from a supply chain and operations standpoint. So in the very short term, we are having, let's say, also other factories helping the North American market, in particular, we have Italy, Croatia and China, which are supporting with this growth, while we established third -- the third factory. Fortunately, tariffs have been diminished, let's say, have been reduced. So it's more feasible to, let's say, to use the other plants outside the U.S. to support, which is something we're doing in the short term in addition to the local manufacturing. And then, as you said, we are very, very soon starting the setup of the third facility, and we will rush to have it up and running as soon as possible by the end of this year, beginning of next year. So basically, in the very short term, we are supporting the U.S. with production made in China, Croatia and Italy.

And this plant, sorry, Francesco, the new one will be, I don't know, able to cope for, let's say, with -- how can we say now, your medium-term growth expectation for U.S. or in theory, you are already thinking about expanding more of this local capacity?

Well, we believe that this additional factory in addition to the fact that we are going to add additional lines, of course, should be able to support the growth in North America for several quarters. And then, if needed, we will expand the existing facilities. We have land in the plant in Pennsylvania available and also where we will establish the new factory, we will have land available to expand as needed. I remind you that for us, expanding existing facilities is relatively easy and not so expensive in terms of investment because we would just, if necessary, expand the walls, but then we will add additional assembly lines as needed. So with the new factory, we will free up also space in the Pennsylvania plant so that we'd be in a position to add additional lines there. So let's say, with the third factory plus the possibility to expand the existing facilities, we are in a position to support the growth for the medium term in the U.S., definitely.

Okay. Then the second question, if you can come back a little bit on the performance that you made on gross margin so far. It seems that the raw material cost, the instance of sales, let's say, really low in Q1. Considering, let's say, as you mentioned before, the current tension, but also the fact that you are ready to pass through some of this cost increase, but also considering the guidance you just provided on sales, are there any specific factor, okay, on top of geopolitical that could prevent the company this year at least to stay, let's say, above your medium-term guidance for profitability?

Okay. Let's say that we do have supporting elements for our profitability and reasons to be optimistic, which are, of course, first and foremost, the operating leverage, the fact that Kiona is close to 30% profitability and is consistently growing double digits, so digital services are also expanding. In terms of the gross profitability, on the other hand, probably this year, we will have some headwinds compared to last year because, as we said, there are some tensions on the cost of some categories of materials like the memories, for example, but also transportation costs, because of the cost of energy, also the metals that we use for the heat exchangers. Of course, we are going to manage these tensions on some categories of raw materials through prices, but nonetheless, we are going to face some additional headwinds compared to last year. So yes, the -- again, the visibility remains limited. Let's say that there are reasons to be optimistic in any case, in general, considering the growth trends that we are seeing.

Okay. And then if I understood well, you mentioned this year, overall the expectation how to do and to achieve more than EUR 50 million free cash flow. In case this is correct, if you can tell us or you or Nicola, if you can tell us, let's say, the assumption behind on CapEx on sales, but also on trade working capital.

So with reference to the trade working capital, specific for this year, last year, as you remember, at the end of the year, we closed below the 20% on the sales. This year, we are expecting just specific for this year to have something above this level because we want to be prudent in terms of inventory and even to guarantee the service to the market. And so as Francesco said, we are increasing our safety stock. And so this is just a specific trend that we are forecasting for 2026. From the following year, we believe that we will come back to the same level of 2025 in terms of net trade working capital. With reference to the CapEx, we are confirming our trend of the 5% on the net sales. As Francesco was saying, we are starting the new investment in the North America, and then we are even thinking about a new plant in Europe. And so all this investment will drive us to have a higher level of CapEx from the second quarter of this year, and we will be something around the 5% of the sales.

Okay. Some tie-up is...

Sorry, Alessandro. No, I was just adding that for Q1, we are slightly below the 5% in terms of CapEx, but that's just timing because, of course, CapEx quarter-by-quarter, they follow the project timing, but as Nicola said, on average, we should expect the 5 percentage of sales.

The next question is from Christian Hinderaker of Goldman Sachs.

I guess one of the questions, which I appreciate you may not have full visibility on, but obviously, the data center demand strength is very significant. I wonder the extent to which you see this as sort of sustainable in growth rate terms. Have you seen any as well shift in terms of the mix? I know you've got -- you're agnostic in terms of the cooling architectures, but are you seeing a move to liquid cooling? Any sort of color there would be useful.

Yes. Christian, thanks for the question. Okay. So for data centers, how sustainable demand is, of course, depends on the end market. For what we see in this moment, it's really very, very strong. So we don't see any sign of slowdown. And then, of course, it depends on how the market is going to evolve. We have to consider though that, of course, we are having the highest growth in North America, but as expected, also Europe is picking up. So in Q1, also Europe grew double digits in data center. So it is accelerating, and I expect the performance of Europe to accelerate moving forward. And Europe is -- in absolute terms, is very close to the U.S. for data center. So as it accelerates, it's definitely an upside that we have to consider, plus we also have a very strong view on Asia for data centers. It's growing very well in China, India, Korea and also other countries. As far as the mix and the shift towards liquid cooling, that is being supportive to us because, in fact, liquid cooling is also growing very fast, especially controllers for CDUs. They're growing very, very fast, and that's normally on top of ventilation. So it's, let's say, basically more value that we provide per data center. So liquid cooling in general is a supporting trend because in the data center, in addition to ventilation, there are also the CDUs and the sensors because, by the way, also Senva with their sensors is growing extremely well in liquid cooling. So liquid cooling in general is a supporting trend for us.

Maybe just following up on that comment around the European data center growth. Is there any sort of regional concentration there? And is there any distinction in terms of customer -- typical customer footprint or scale, i.e., I presume that the data centers being built in North America are larger. I just wonder what impact they may -- that dynamic may have for you.

Yes. Let's say that the -- we are seeing -- it's -- our customers in data centers in Europe are pretty widespread among Italy, Germany, but also U.K. And in this moment, the fastest-growing market for us in data center is in the U.K. because there are many players, which are based in the country. So that's where we are seeing the fastest growth. Probably some of this business is being exported by the U.K., but that's where we see the fastest growth in Europe in this moment.

And then maybe finally, just on refrigeration. You may have seen the recent Atmos reports. Seems to be that penetration of CO2 refrigerants in the supermarket chain has gone up about 10% year-on-year, now 1/3 of the installed base. How do you think that outlook then looks going forward? Because obviously the phase down, we've got 2/3 of the installed base still to undergo those upgrades. Should we then expect an accelerated growth? And when do you think -- what do you think we need to see for that to happen?

Well, I believe, Christian, that the F-gas transition is more than an acceleration probably will show -- will reduce the volatility on the investment level. So for example, like the sharp slowdown we saw in '23, '24 in retail, we don't expect that to happen again in Europe in the next years because the F-gas transition is going to support investments. So looking at the figures of the rollout of the natural refrigerants, we believe that the F-gas will be a supporter of a sustained investment level, reducing volatility, probably not really an accelerator. And again, we also have to consider that there are some countries in Europe where we're having, as I said before, a temporary, absolutely temporary delay in some projects, but they are significant as a weight in Europe, like, for example, Turkey. This is, again, temporary because we expect an improvement in the coming quarters. So if we take out the, let's say, temporary elements in specific situations, definitely, the growth in Europe in Refrigeration is pretty well sustained.

The next question is from Alessandro Cecchini of Equita.

I have just one question about, I mean, profitability in the first quarter, as you said, you have a very good profitability of 21.5%. Just to consider sequentially, of course, maybe higher visibility on this. Traditionally, you have some seasonality, positive seasonality in the second quarter, while you -- I don't know, you flagged some headwinds in some costs, et cetera. So it's a reasoning that's correct that we can expect broadly similar margins in second quarter versus first quarter?

Okay. Alessandro, well, again, it's not so easy to provide profitability on a quarterly -- profitability guidance on a quarterly basis because, of course, it depends on multiple factors that can affect the individual quarter. Let's say that at this stage, we don't see big elements that could affect our profitability compared to what we saw in the recent past. We can put it this way.

[Operator Instructions] Mr. Nalini, there are no more questions registered at this time.

Okay. Thank you. Thank you for your attention, and thank you for the questions. Looking forward to speaking with you again for the presentation of the first half '26 results.