Industrie De Nora S.p.A. (DNR) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Industrie De Nora First Half 2025 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Chiara Locati, Head of Investor Relations and ESG. Please go ahead, madam.

Thank you. Good afternoon, and welcome to our first half 2025 financial results presentation, and thank you for joining us. We appreciate your interest in De Nora. I'm Chiara Locati, Head of Investor Relations and ESG Director at De Nora. With me on the call today are Paolo Dellacha, CEO of the Group; and Luca Oglialoro, our CFO. They will guide you through the financial and business performance for the first 6 months of the year. After the presentation, we will open up a Q&A session. Finally, the slides of this presentation are available in the Investor Relations section of our website. With that, I would like to hand it over to Paolo. Paolo, the floor is yours.

Thank you, Chiara. Good afternoon, ladies and gentlemen, and a warm welcome from my side as well. It's a pleasure to share with you the latest updates on our company journey and walk you through the key highlights of the first half of 2025, which was marked by revenue growth and improved profitability. Over the past 6 months, De Nora has made solid progress in executing projects across all the business lines, delivering strong results in both revenues and EBITDA, as highlighted in the first bullet point of this slide. The group's operating margin remained robust in the second quarter, primarily driven by the performance of our core businesses, Electrode Technologies and in particular, Water Technologies with a modest positive contribution from the Energy Transition segment. The Electrodes business grew, supported by healthy margins and the stability of its product lines from chlor-alkali to Electronics, the latter showing continued signs of recovery. Order intake in this segment grew by approximately 6% year-over-year. Momentum remains particularly strong in the Water business. In addition to the old on-plan execution of water treatment systems projects, we are seeing continued double-digit growth in the Pools line. The strong performance in Pools exceeds our expectation and is based on healthy market fundamentals. Total new orders in the Water business grew by 15% year-over-year, while the backlog increased of 22% compared to the end of 2024. Project execution within the Energy Transition portfolio is progressing in line with customer agreed time lines, and we anticipate revenue acceleration in the second half of the year. Based on positive economic results, our financial structure remains solid, placing us in a strong position to evaluate inorganic growth opportunities, which we are assessing mainly in the Water space. We keep developing new market segments, PFAS treatment within the Water business unit and lithium refining within the Energy Transition business unit. Both initiatives leverage existing technologies in our portfolio, applied to industrial processes where De Nora holds an unparalleled global track record and expertise. This expansion into adjacent and new markets demonstrates our technological versatility, adaptability and innovative agility, all hallmarks of our group. Overall, we view our first half financial results very positively as they demonstrate De Nora resilience, particularly considering the ongoing macroeconomic and geopolitical environment, which remains volatile, complex and uncertain. Based on the performance of the first 2 quarters and the expected business and market dynamics in the second half, we are, therefore, updating our full year guidance for the adjusted EBITDA margin to a range of 17% to 18%, assuming revenue expectations remain unchanged. Finally, our sustainability journey continues to progress, becoming increasingly integrated into the group business model. This not only enhances the competitiveness of our sustainable technologies, but also strengthens our overall risk management. This slide shows some key KPIs from our H1 2025 financial performance, which Luca will discuss in more detail later on. Reviewing the performance of our global -- of our business units, let's begin with Electrode Technologies business, which delivered a solid revenue growth in the first half of the year. This segment continues to demonstrate resilience and clear differentiation across both markets and geographies. In the first half, the order intake reached approximately EUR 190 million, reflecting a 6% year-over-year increase. Growth was primarily driven by the chlor-alkali line. From a geographical perspective, Asia, EMEA delivered the highest growth rates during the period. Let me remind you, as previously mentioned in our calls, that in this business unit, the backlog level is not a reliable indicator of future revenue growth due to the fast in and out nature of project cycles. In chlor-alkali, we are seeing opportunities for large-scale new projects in the Middle East and China, meanwhile, technological upgrades and aftermarket services continue to be key drivers of our growth. Lastly, we expect a gradual growth in the Electronics segment, supported by momentum in artificial intelligence and the automotive industries. We are now on Slide #7. The first half of the year confirmed it. The market momentum of our Water segment is not just positive, it's powerful. We saw double-digit growth in both the backlog and new orders. The total backlog hit approximately EUR 180 million, up 22% from year end of 2024, our highest level in the last 2 years. New orders rose by 15% with strong traction in our core markets, the United States, Middle East, China and Europe and promising developments in South America, particularly in Brazil, where we secured new contracts for both industrial and municipal water treatment. South America also shows significant potential for further growth in both systems and Pool lines. Focusing on the Pool line, order grew by 24% year-over-year, outperforming expectations. Growth just driven primarily by the United States, which accounted for approximately 80% of total intake, followed by Europe. We expect this trend to continue, supported by 2 key drivers: the ongoing shift from chemical to electrochemical disinfection technologies and the expansion of aftermarket services, which leverages our large installed base. The outlook for Water Technology Systems line is equally strong. Orders grew by 10%, evenly split between industrial and municipal sectors, even more encouraging aftermarket orders surged by 32% year-on-year, accounting for 44% of the total systems orders. Notably, these are expected to contribute positively to the future group margins as they are more profitable than new equipment. Water is not just a business segment. It's a strategic growth pillar for the group. Regulatory evolution, industrial expansion, water scarcity and rising environmental awareness are all converging to drive long-term demand. That's why we are focused on strengthening our technological edge and competitive positioning. We are actively exploring inorganic growth opportunities to enhance our vertical integration and move closer to end customers providing integrated solutions. These opportunities also include expanding De Nora footprint into new industrial and geographic markets. On Slide #8, you can appreciate some of the key projects awarded during the second quarter across diverse geographies, both in industrial and municipal sector. The flagship project SEC Shoaiba Phase 1 originally launched in Saudi in 1998, is an upgrade installation project for a desalination initiative integrating our advanced SEACLOR electrochlorination system. By combining SEACLOR with heat recovery steam generators, the project has improved the purification efficiency, reduced environmental impact and met growing water demand. This transformative initiative represents a perfect balance between technology and environmental stewardship. Producing up to 50 million cubic meters of water annually, Shoaiba sets a benchmark in sustainable water management. At the bottom of the slide, there are the other 3 key projects. The first 2 are municipal filtration initiatives using our De Nora TETRA filtration technologies, implemented into 2 cities on opposite sides of the globe, Yangzhou, China and Sao Paulo, Brazil. The project in Sao Paulo marks one of the Brazil's most critical water infrastructure upgrades, helping delivering 25,200 cubic meters an hour of clean water to 4.5 million people, equivalent to 25% of the city population of Sao Paulo Brazil. The project reflects the De Nora commitment to global water resilience, supports urban communities facing climate-driven drought risks and reinforces our long-term growth strategy based on innovation and trust. The last project presented takes place in the United States, where De Nora SANILEC electrochlorination technology is enhancing operational efficiency at Hess Corporation's offshore, Stampede platform. This retrofit ensures reliable disinfection for industrial applications such as cooling towers, washdowns using seawater desalination with safe disposal. As you can imagine, we are very pleased with the evolution of our Water Technology Systems line. The orders acquired reflect the strength of our business model, which is built on a strategic presence in key geographies critical to water treatment. Before moving to the Energy Transition, let me highlight our entry moves into the PFAS segment in 2025. As you know, since the second half of last year, De Nora has begun taking steps to enter the PFAS removal segment. Certain categories of PFAS pose a serious risk to human health and international regulations are starting to emerge to limit their presence, especially in drinking water. In April 2024, the U.S. Environmental Protection Agency, EPA, set a final rule capping PFOA and PFOS molecules in drinking water at a maximum contaminant level of 4 parts per trillion. Public water systems have 5 years to comply, although the current U.S. administration has extended deadline to 2031. However, regulatory momentum is not limited to the United States, awareness and concern about the so-called forever chemicals are also growing in Europe and in the Middle East. De Nora has a strong track record in treating contaminants. Our De Nora SORB solution has demonstrated over 25 years of proven effectiveness in addressing complex organic and inorganic contaminants, a solid reference for PFAS treatment as well. In addition, our piloting capabilities offer customers the confidence to select the most suitable solution, representing a key strength in this early phase of market development. In 2025, we have been awarded the first 2 full-scale projects in the United States aimed at removing PFAS in drinking water. One project is based in Pennsylvania, and we previously described it during May conference. The other was awarded in recent weeks in Massachusetts. We are particularly proud of these 2 achievements, which marked a significant milestone in our market development, positioning us among the key players in this field. In the meantime, we are continuing to expand our piloting activities with 11 initiatives underway across United States, Italy and Saudi Arabia. Additionally, De Nora is participating in 2 EU funded projects aimed at advancing PFAS treatment technologies. Looking ahead, we expect steady market growth, recognizing it driven by regulatory development, funding opportunities such as government support and advances in contaminant removal technologies. Let's now turn to Energy Transition segment. De Nora continues to make solid progress in executing its substantial backlog. In the second quarter, we delivered 300 megawatts of green hydrogen generation technologies, bringing total semester production to approximately 500 megawatts, 0.5 gigawatt. Our factories continue to demonstrate excellent execution capabilities, enabling us to serve clients efficiently while maintaining strong operating margins. As a result, the Energy Transition segment recorded a positive EBITDA in the first half of the year, even as we continue to invest in research and development. Assessing the progress of the 2 main contracts in our portfolio, the NEOM project, which is the world's largest green hydrogen plant currently under construction is progressing well with overall construction at 18% complete across all sites. As for De Nora Scope, we expect to complete all deliveries to our partners by the end of August this year. In total, we will have supplied approximately 33,000 electrochemical cells for hydrogen production, representing over 2 gigawatt equivalent of installed capacity. Turning to Stegra in Sweden. We have currently delivered about 25% of the total 11,000 cells required. As shown on the right side of the slide, the plant's total capacity will exceed 700 megawatts. We'll anticipate completing our deliveries by the end of this year. Let's now shift from project execution, the outlook for the remaining backlog and pipeline. As of June 30, 2025, we had approximately 650 megawatts in backlog, primarily related to the Stegra project and the final deliveries for NEOM. This corresponds to a total value of around EUR 74 million, including approximately EUR 10 million in lithium-related contracts, the total backlog for the segment amounts to EUR 84 million. By the end of 2025, we expect to have delivered a total of 3.6 gigawatts of electrolysis technology for green hydrogen production. This achievement positions De Nora among the global leaders in the green hydrogen sector. We are actively pursuing projects across multiple geographies, particularly in Europe, where several initiatives are advancing in region of Northern and Central Europe benefiting from Hydrogen Bank support. The Middle East offer real opportunities supported by the potential for competitively priced renewable energy, a key growth driver for this business. We also see promising prospects in both Asia and United States. The green hydrogen sector is currently navigating short-term challenges with fewer announced projects reaching final investment decisions due to regulatory uncertainty and ongoing macroeconomic and geopolitical pressures. These factors are delaying end-user investment in clean technology, but the medium-term outlook remains very positive. I want to take a closer look to some recent policy developments. The global green hydrogen market is entering a new phase, focusing less on rapid expansion and more on strategic consolidation and maturity. In H1 2025, fewer but stronger players are emerging, led by those with robust technology, integrated value chains and bankable offtake models. De Nora is among the few positioned to scale sustainability. Europe remains the frontrunner, thanks to strong policy support, industrial demand and a mature regulatory framework. Electrolyzer capacity is growing and integrated hubs are coming online. China is accelerating with large-scale pilot programs and infrastructure investments to bridge the gap between pilot and commercialization. India is mobilizing public and public -- and private capital to meet its 2030 target of 5 million tons of green hydrogen annually, aiming to become a global hub. Latin America, notably Brazil, Chile and Bolivia as leaving abundant renewables and export potential through new incentives. North Africa continues to offer competitive hydrogen production costs due to low renewable energy prices. In the U.S., the updated IRA 45B provision extends to $3 per kilo tax credit to projects starting before January 2028, ushering in a phase of market stability. In today's complex evolving market landscape, our approach is proactive and forward-looking. We are actively developing strategic partnership with key international technology solution providers to accelerate the penetration of Energy Transition Technologies across geographies and applications. A clear example is a strategic agreement signed with Asahi Kasei for the commercial and technical development of a small-scale electrolyzer based on Alkali Water Electrolysis technology. In parallel, we are actively enhancing our Alkali Water Electrolysis technology for large-scale green hydrogen production while also exploring the potential of emerging technologies such as AEM, Anion Exchange Membrane that could play a significant role in the future technology mix. At the time -- at the same time, we are in the final stages of field testing our proprietary small-scale electrolyzer, Dragonfly, designed to serve the promising decentralized hydrogen market. Finally, beyond hydrogen, within the broader Energy Transition space, we are leveraging our deep electrochemical expertise to develop innovative solutions for new markets and emerging needs, particularly those linked to the circular economy. One example is our work in lithium refining, which I will cover on the next slide. 2025 marks a strategic milestone for De Nora. We have officially entered the lithium refining market. The lithium market is expected to grow at around 15% annually, driven by the rise of artificial intelligence and electric mobility. However, this growth comes with challenges, limited lithium availability and environmental cost of extraction. That's where we come in. While we have long been part of the lithium value chain supplying electrodes of -- and anodic coatings for copper foil, the so-called copper foil used in battery packs, this year, we have taken a significant step forward. We are now developing electrochemical solution for lithium refining, building on our deep expertise. Why electrochemistry? Because it offers a cleaner, more efficient alternative to traditional chemical refining. It reduces operating cost, avoids the transport of chemical to refining sites, typically located in remote areas far from the chemical plants where reagents are produced, cuts water usage of around 30% and significantly lowers the environmental footprint. The technological solution we are developing is designed to handle all major lithium feedstocks, rocks, brine, clay and even battery scrap. The last one is particularly important. By enabling the recovery from end-of-life batteries, we are not just refining lithium, we are enabling circularity. We have already signed a contract for approximately EUR 10 million with the Japanese customer to deliver a cutting-edge plant for recovering lithium hydroxide from spent batteries. This end-to-end solution will recover nearly all raw materials, eliminate most chemical inputs and return battery-grade lithium ready for reuse, fully aligned with global best practices and sustainability goals. And we are not stopping there. In 2024, we partnered with the Canadian lithium refiner to adapt our technology for using lithium applications. In 2025, we're already contributing to some of their projects. Looking ahead, we believe electrochemistry can unlock even broader opportunities in the circular economy, recovering valuable chemicals from industrial byproducts and enabling profitable circularity across sectors. This initiative is a strong example of De Nora technological agility, our ability to adapt, evolve and apply our know-how to new frontiers. It's now -- sorry, it's how we create value, drive sustainability and lead in the Energy Transition. To conclude this review of our H1 2025 business performance, De Nora once again demonstrates remarkable resilience even in a complex scenario. With a clear strategic vision, we are able to deliver solid and consistent growth. With that, I hand it to Luca for the financial review.

Thank you, Paolo. Good afternoon, everyone, and a warm welcome from my side as well. The second quarter results were positive, thanks to the solid performance across all our lines of business. As shown in the top left chart, revenues grew year-on-year in line with our low single-digit guidance for 2025 and maintain strong sequential performance, increasing by over 7% compared to Q1 2025. Revenues were negatively impacted by approximately EUR 5 million due to the evolution of ForEx currencies, primarily driven by the U.S. dollar. Excluding this effect, year-on-year growth would have exceeded 4%. EBITDA margin was in line with the previous 2 quarters and remained above the guidance for the current fiscal year, mainly thanks to the brilliant performance of the Water business. Breaking it down by business line. As shown in the top right chart, the Electrode segment grew over 2% year-on-year or approximately 4% at constant exchange rate. EBITDA margin remained broadly in line with the last quarter of 2024, although slightly lower than in Q1, reflecting a different mix of ongoing projects. The Water Technologies business in the bottom left chart, grew by 2.2% year-on-year despite the negative effect of the U.S. dollar. In fact, at constant exchange rates, revenue growth would have exceeded 6%. The Pools line continues to outperform expectations, marking the fifth consecutive quarter of double-digit growth. WTS segment reflects the current project portfolio scheduling with a stronger concentration of activity expected in the latter part of the year. Operating margin remains significantly higher than in 2024, driven not only by the solid performance of the Pools line, but also by the growing contribution of aftermarket revenues within the WTS segment. Finally, the Energy Transition business reported revenues broadly in line with the same period in 2024 as per the project schedules agreed with the client. Volume development supported a positive low double-digit group profitability. Let's now move on to the half year results. Revenues for the first 6 months grew by approximately 4%, reaching EUR 416 million. The result was negatively impacted by around EUR 3 million due to the evolution of the currencies, mainly the U.S. dollar, which contributed positively by EUR 2 million in Q1 and negatively by EUR 5 million in Q2. Excluding this effect, year-on-year growth would have been close to 5%. The geographical breakdown remained well balanced. Compared to the same period in 2024, we recorded a 13% increase in the Americas, driven by both Electrode Technologies and Water and a 6% increase in APAC, supported mainly by the Electrode Technology segment. These gains were partially offset by a decline in the EMEA region. Electrode Technology grew by around 8% year-on-year, reflecting solid execution of the project backlog. Growth was primarily driven by the chlor-alkali and Electronics line, both of which increased by about 16%, while the Electrowinning segment recorded a double-digit decline. The negative impact of currency's evolution was approximately [ EUR 14.5 million ]. Net of this effect, revenues would have grown by approximately 9%. Aftermarket accounted for about 45% of the segment's total sales. The Water business posted overall growth of more than 5%, which would rise to 6.5% at constant exchange rates. This performance was supported by the Pools line, which grew by approximately 26% year-on-year, driven by volume increase. The WTS segment recorded a decline of about 6%, mainly due to the disposal of the Marine business, which impacted the comparison by around EUR 3.5 million. After adjusting for this effect and excluding the EUR 1 million negative impact from the U.S. dollar exchange rate, the decrease would have been limited to around 1%. This reflects the phasing of projects in the current backlog with a significant revenue concentration expected in the fourth quarter, similar to last year. A particularly positive note comes from aftermarket services, which in the first half represented 44% of WTS revenues, up by 13% year-on-year with a positive impact on this segment's profitability. Finally, in the Energy Transition segment, project execution is progressing as planned. We expect to complete NEOM by August, followed by STEGRA in the following quarter. The first half performance mainly reflects the low revenue contribution in Q1, which was due to the planned project scheduling. At consolidated level, we expect a sequential volume growth in the coming quarter, with a significant concentration in the final quarter of the year, as agreed with our clients, supporting the achievement of our 2025 revenue guidance. On Page 18, you can appreciate our backlog at the end of June 2025 that Paolo has already commented on. We are now on Slide 19, which presents an overview of our operating cost structure. In the first half, the increase in G&A and corporate costs reflects inflationary dynamics and the carryover impact of corporate structure enhancement implemented in the second half of 2024. R&D expenses remained broadly stable as a percentage of revenues compared to H1 2024, averaging around 2%, including the R&D cost in the Energy Transition segment, eligible for the IPCEI grant that, as from 2025, has been accounted as nonrecurring. Let's move on to Slide 20. Adjusted EBITDA in the first half increased by approximately 8% year-on-year, reaching 19.6% of revenues, about 800 basis points higher than in the first half of 2024, mainly driven by the Water business. The strong performance reflects the positive revenue trend. It highlights both the steady growth of our core business and the regained operational efficiency following the production process optimization completed in 2024. The Electrode Technologies division reported a 21.4% profitability, reflecting, compared to the same period of 2024, different product and geographical mix and especially lower contribution of the Electrowinning line, which decreased by around 28% year-on-year. The Water Technologies business achieved a strong 45% growth in adjusted EBITDA with an incidence of revenues close to 22%, roughly 6 percentage points higher than compared to the first half of 2024. This performance reflects the positive contribution of both the WTS and Pools segments, as already explained in the previous conference call. Regarding the Pools segment, the increase in profitability was largely due to the higher volumes reported during the semester. The WTS segment also saw improved profitability, supported by several key factors, including the expansion of revenues from aftermarket services and the optimization of operational structure, also due to the divestment of the Marine business. Additionally, the segment benefited from a one-off gain of just under EUR 1 million from the disposal of certain assets related to the fracking business in the U.S. In conclusion, the Water business continues to be solid and strong, demonstrating its ability to generate value for the group over time. The anticipated increase in the weight of WTS revenues within the total Water business is expecting in the coming quarters. This, combined with the typical progression of operating costs throughout the year and the projected higher share of revenues from the new equipment in the second half, should progressively bring the business unit profitability more in line with the 2025 guidance. When it comes to the Energy Transition business, the volume recovery in Q2 2025 enabled the segment to reach breakeven in the semester with a slightly positive margin. This result is particularly encouraging, especially considering that it includes approximately EUR 2 million in provisions recorded in the first quarter. This relates to a European customer that announced it would cease operations and has started a settlement procedure. Excluding these provisions, the adjusted EBITDA margin would have been around 7% despite R&D expenses accounting for 9% of revenues, 12.6% including nonrecurring R&D costs eligible for the IPCEI grant. Considering the expected progressive increase in volumes over the coming quarters, we are confident that the Energy Transition business segment will achieve a positive mid-single-digit adjusted EBITDA margin for the full year 2025. Finally, on Slide 21, let's take a look at the evolution of our net financial position. The net operating cash flow typically reflects the seasonal dynamics of the net working capital in the early part of the year, as well as the dividend payment, which usually takes place in April. As for the net working capital, let me underline that at the end of June 2025, the incidence on revenues was in line with the first half of 2024, with inventory ratio below 30%, specifically 28%. The EUR 15.1 million increase in cash tax outflows is purely a timing effect and does not affect the group's effective tax rate. It is mainly due to the settlement of corporate tax balances, specifically those of Germany 2023 and Japan 2024. Moreover, in 2024, the group benefited from the use of tax credits from prior years. No similar increase in cash tax payments is expected in the second half of 2025. Investments amounted to approximately EUR 29 million, as planned for the first semester 2025. In the second half of the year, we expect an improvement in operating cash flow alongside an acceleration in the execution of the 2025 CapEx plan. The solid group financial structure and strong credit standing place us in an optimal position to pursue opportunities for inorganic growth. We are now on Slide 22, where we will give an update on our 2025 outlook. We confirm our revenue guidance, which points to low-single-digit growth for the full year. While first half performance exceeded this target, there is a potential risk that a continued strengthening of the euro against the U.S. dollar could partially erode the volume gains achieved in the first 6 months. Regarding the EBITDA margin, in light on the solid results achieved so far this year, we are raising our guidance and expect the adjusted EBITDA margin to be in the 17% to 18% range. With that, I leave the floor to Chiara for the update on our ESG journey. Chiara?

Thank you, Luca. I'm pleased to share a quick update on our sustainability plan and what we have been doing so far. As you'll see, these initiatives aren't separate from the rest of the business. They are built into our development strategies and play an active role in driving them forward. In the first part of the year, we continued rolling out our program to install photovoltaic systems at our facilities worldwide. Our goal is to cover part of our energy needs by producing renewable energy directly on site. Following the approximately 380 megawatt-hour installed at our Colmar, U.S., and Tamworth, U.K. sites, we are developing a new solar park at our Mentor facility in Ohio, U.S., which will have an installed capacity of around 1.1 gigawatt-hour per year. Installation is expected to be completed by the end of August, bringing our total installed capacity across all plants globally to approximately 5 gigawatt-hours, an important increase from the 3.5 gigawatt-hour recorded at the end of 2024. On the green innovation front, we are continuing our work on the sustainability product scorecard. By the end of 2025, we plan to have developed the scorecard for about 15 products, including some new ones. Our marketing department has developed both the value proposition and the visual format for each product. And in the second half of the year, the scorecard will be presented to the group's sales force. We've already received requests from some clients regarding key data that would be included in the scorecard such as, for instance, the carbon footprint or the LCA, the life cycle assessment, of our technological solutions. This shows that being able to track, measure and improve specific environmental impact factor is becoming and will continue to be a real competitive advantage that benefits the business. Finally, on the people pillar side, De Nora has launched its new employee value proposition, Open Surprising Paths, that enhance our people potential. It includes a new corporate blog called OPEN, designed to attract and retain talent. So we are particularly proud about our -- we are particularly proud with the [ advancement ] of our sustainability plan. And with that, I hand it over to Paolo for the final remarks.

Thank you, Chiara. So, to wrap up, our final remarks are the following: solid results drive the upgrade in 2025 profitability guidance despite a challenging macroeconomic scenario. Core businesses, Electrode and Water Technologies, are growing and profitable, confirming the positive short and midterm view. While execution on green hydrogen projects is on time, we advance future growth, developing strategic partnership and enhancing our technological solutions. We entered the new markets of PFAS and lithium refining, leveraging our unparalleled technological leadership. We are assessing external growth opportunities in the Water Technology business to strengthen our position in the value chain and reach new markets. Now, we can open up to Q&A.

[Operator Instructions] The first question is from Matteo Bonizzoni, Kepler Cheuvreux.

Pardon, if you have already clarified maybe partially some point during the call, but just a [ follow-up ] clarifications in some cases. First question, Water Tech margin remained particularly high, about 20% in the second quarter for reasons which you have clearly well explained. I have understood correctly that the CFO say that in the second half of the year, there should be a normalization to a range maybe potentially, let's say, around 15% already in the second half or difficult to say, just to have maybe more precise indication on this margin in Water Tech, which was outstanding for the first half. Second question relates to cash flow. The net cash position was in line with a year ago, more or less, EUR 12 million, which is more or less in line with EUR 14 million in June 2024. And looking at the cash flow bridge, there was a pretty large EUR 37 million outflow related to other receivable and payable in the cash flow statement. Can you a little bit clarify this item, which has dragged the substantial cash in the first half of the year? And then, maybe if I may, let's say, some commentary on the [ central case ] scenario for the backlog in Energy Transition at the year-end. Maybe you have -- now we are at the end of July, more precise sensitivity on what kind of intake should we have -- we should have by the end of the year. Also, there were press reports about a potential project of 4 gigawatts in the Middle East, Yanbu, 2x the size of NEOM, with the FEED being awarded to Técnicas Reunidas and Sinopec. Could it be it's a large project potentially? Could it be of interest for nucera and for you or early to say?

Thank you, Matteo. I will take the first 2. So with regards to the Water Technologies, the first half has been great in terms of profitability. close to 22%. When I said normalization, I mean that in the second part, it will be definitely lower than the first half because of the reason I already explained. But we expect it, in any case, at the end of the year, to be higher than the guidance that we gave beginning of the year. That was, if I'm not mistaken, around 16%. I would say probably more, let's say, 1 percentage point higher than this could be reasonable. Then we will see what will come in the next months. With regard to the cash flow, yes, the reduction in change in other receivable and payable, that was, as you said, around EUR 30 million is mainly due to 4 effects. The first one is the reduction that was planned -- expected in customer prepayment that we recorded in 2023 and 2024 and is no longer there in 2025. As I just said, it was expected in our cash planning for 2025. Then there was an effect also on the VAT payments, not large. There were some also advanced payments to supplier that is typical for the business. It might happen. And finally, payables towards employees for MBOs and long-term incentive plan. These are the main reason of the EUR 30 million absorption of cash. Paolo?

Yes. About backlog in Energy Transition, most of the current backlog will be consumed within this year. So we are now counting on the projects that mainly our JV is negotiating right now. It's known that there is Moeve, formerly CEPSA in Spain, very close to be finalized, 300 megawatt. Our joint venture announced a FEED of other 600 megawatts. So in total, they have more than 1 gigawatt of projects under very deep discussions right now, and we are confident that part of them will be awarded in a way that we can somehow respect what we have already announced about 2026 and 2027. That is related to the backlog. Related to the Yanbu project in Saudi Arabia, yes, it is quite a significant project. It was in pipeline since a long time. Now, it's becoming more and more real. For sure, such a size, I would exclude that only one player will win completely the total project. So there is a chance that more than one player will be involved. We know that our joint venture, thyssenkrupp nucera, is in the game. And so, we hope that we'll get a piece of it for sure, based on already the very strong reference with NEOM in Saudi.

Next question is from Daniele De Florentis, Equita SIM.

I have 3 of them. The first one is about the guidance for the 2026 and for 2027. You confirm the guidance for 2025? And if you can give some updates on guidance for the medium, long-term period? The second one is about the euro-dollar exchange rate. It could affect in some way the medium, long-term guidance you gave in last March. And the third one is about the M&A you mentioned in the press release. What type of technologies are you looking at for the Water segment? And if you are planning to move closer to the end customer, maybe creating new sales channel?