Interpump Group S.p.A. (IP) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump Preliminary Fourth Quarter and Full Year 2021 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Elisabetta Cugnasca, Head of Investor Relations of Interpump. Please go ahead, madam.

Thank you. Good afternoon, everybody. Good morning to those connecting from U.S., and thank you for your attendance. I believe that a lady's voice is surprising you. Please allow me to spend a few minutes to introduce myself. My name is Elisabetta Cugnasca, I am the new Head of Investor Relations of Interpump Group. I joined the group some weeks ago. I am extremely proud and honored, and I will do my best to follow the part of my forerunner, Mr. Luca Mirabelli, who I thank, and moreover, of the entire group, which year after year, built an incredible story of consistent growth, improvement and delivery. I thank Interpump's top manager, too, for the warm welcome. Here with me, there is somebody you know much better, Mr. Fabio Marasi, Board Member and Executive Director. I will leverage my experience in auditing and finance and finance department from the art of controlling, to give my contribute to the path of excellence of this group. Before leaving the stage to Mr. Marasi, I'm obliged to draw your attention to the disclaimer slide... [Audio Gap]

Thank you, Mrs. Cugnasca. Welcome again in our team, and welcome to all of you. This time, I will start from what usually is at the end, namely our expectation for the coming months. This is because the uncertainty that is still characterizing the current environment, the service to be addressed first. Thanks to the outstanding 2021, which I will describe in detail, our group reached a strength in terms of geographical portfolio and final application diversification and business model flexibility and resilience, which has no comparison in our history. An EBITDA margin even higher to the historical record before pandemic outbreak is the best evidence of this achievement. You probably remember that last year because both our growth strategy and our potential execution and delivery capabilities were stronger than extraordinaries circumstances we lived in and we are still living in, we simply postponed our 3-year target of 1 year. Today, I'm extremely proud to underline that on both sales and profitability targets, we gain a material advantage compared to our expectation. Material advantage obtained respecting our conservative and disciplined financial approach. In 2022, we will push the same determination of our past growth path, and our efforts will be focused on the protection and consolidation of the advantage gained. This, together with a 2022 start characterized by an order backlog never seen before in both divisions, make us confident to deliver a high single-digit organic growth for 2022. How we will do it? As usual, focusing ourselves on operation and on M&A. In details, focus on operations means ongoing check and fine-tuning of the pricing policy, both on parts and selling price to promptly transfer to the customer any meaningful inflation on raw materials and other manufacturing costs. Conservative follow-up of the extraordinary strong demand with tailored and focus increase in our production capacity, with a real long-term horizon and an industrial approach, the same industrial approach we suggested us not to push for cut in CapEx in 2020 and not to push for accelerating it dramatically in 2021 and 2022. To move forward with White Drive integration, focusing our action on the production capacity increase, the completion of the transfer of the previous Eaton production lines and starting the cross-selling activity process. In detail, focus on M&A means respecting the well-known milestones of our acquisition strategy, expansion of our product range, the reinforcement of our competitive position and the enhancement of our distribution network. Speaking about M&A, I would like to go back to what we did in 2021. We did, as you perfectly know, the most acquisition -- the most important acquisition in our history, White Drive. The importance of this acquisition is not given simply by the size, it's given by the different features of this company compared to the ones both previously. A carve-out for international and large corporation characterized by a centralized approach versus independent entities owned by entrepreneurs are ready to be plugging in our group network. Despite that, all the rest is consistent with our M&A strategy and approach from the reason why we bought White Drive, expand the product range and reinforce our competitive position, to the price paid -- in line with our usual 5 to 7x in terms of enterprise value EBITDA multiple -- paid for really good manufacturing companies to the soft integration approach. Obviously, we are adapting the latter to respect these features, and we already implemented important steps: the finalization of the carve-out, the separation of the IT system and the consolidation and the fine-tuning in the organization. A few words on the other acquisition performed in 2021, and in particular, DZ Transmission and Berma -- much smaller, but nevertheless, very important -- because together with Reggiana Riduttori and Transtecno allowed Interpump Group to become the second Italian player in the power transmission area, a result to be very proud of, considering that we enter in this segment only at the end of 2019 with the acquisition of Reggiana Riduttori. Before sharing our approach to 2022, allow me to briefly anticipate a point which Ms. Cugnasca will later explain better, a project that started in 2021 and we hope we'll be through it as soon as possible: the consolidation and the alignment of group sustainability activities and processes. Please do not misunderstand my words. The fact that our consolidation and alignment project was launched some weeks or months ago doesn't mean that we have always been doing was not sustainable. Our colleague of us found the best quotation to explain our behavior: a falling tree makes more noise than a growing forest. Now let's come back to our 2022 approach. To help to understand it, I believe that it's very important to share the foundation of our determination. And importantly, our track record in terms of delivery, track record that has been once again confirmed by our results in 2021. I already quoted the best and most important evidence. Our full year EBITDA margin is higher to the historical record before pandemic outbreak, 23.7% of sales with an increase of 100 basis points compared to 2020. And moreover, 50 basis points compared to 2019, the previously recorded group record. Please take note that 2021, even from a different point of view, was not easier compared to 2020. Especially in the second part of the year, we faced never-seen-before evolution of client demand, explosion of inflationary trends and the impacts of the pandemic infection resurge, especially with the start of the [ call ] and the outbreak of pandemic variants. We successfully managed all these phenomena, thanks to our production flexibility, to our pricing power and to the headroom given by our inventory level. I hope that this do not completely surprise you, considering our historical track record. In the case, have a look at the slide of the group parts cost evolution; it has been, year after year, a constant improvement, while the 2019 and 2020 step-up was driven by the acquisition in the power transmission sector. In 2021, the year of inflationary [ trends of BREC ] in terms of raw material, energy and logistics cost, we were able to manage a negative impact in a very prompt and fast way, too, I would say. Both divisions supported this achievement. Hydraulics reached the record margin of 21.7%, driven by the top line trend -- top line growth. Water-Jetting went back to 2019 record of 28% despite the lack of demand for large and important projects from some customers. Focusing our attention on Q4 profitability only, please keep in mind that White Drive was consolidated starting from October 1 and then was fully consolidated in the fourth quarter, and a slightly dilutive impact was affected. Excluding this, the dilution was similar to the one recorded in the third quarter and this underlines the capability of the group in a quarter of a significant escalation of inflationary trend to react promptly to adjust the selling price -- nowadays, that is still going on -- and the protection given by our inventories. And as a matter of fact, inventories are not only a powerful commercial tool which allow us to gain client trust and [ facilitation ] are a powerful shield which soften the increase of raw material price. This is the ground of the 10-year numbers of purchase cost you see. I started my 2021 overview from the most important result, profitability. Let's go back to the usual order, giving an overview of sales which reached the EUR 1.6 billion, up by almost 24% compared to 2020, with an outstanding 20% of organic growth was by far the most important driver, with Hydraulic up by almost 23% and Water-Jetting up by almost 15%. To correctly appreciate the fourth quarter organic trend, 14% organic growth, I would suggest to recall 2020 evolution because 2021 figures deserve to be read taking into account the comparison effect. The first quarter 2020 had 1 month of lockdown. And in the first quarter 2021, sales were up organically by more than 11%. Second quarter 2020 had 2 months of lockdown, and second quarter 2021 sales increased by an incredible 39%. The second half of 2020 saw the world rebound, become stronger and stronger, and this explained the organic increase of more than 22%, and above 14% of the third quarter and fourth quarter, respectively. In addition, Water-Jetting, which in past month was recovering with a slower part, in the period signed some material contracts in China in the shipbuilding application, and U.S. in the pharmaceutical one. While usually after sales and EBITDA, we jump directly to net profit, please allow us to spend some words on some profit and loss items that usually we do not comment, and in particular, interest charges and taxes because this will permit you to have a better understanding of 2021 and on the fourth quarter net profit. And therefore, I will leave Ms. Cugnasca to share the details.

Thank you. Starting from interest charge, as we are fully aware of, one of our successful M&A strategy milestone is the capability to keep entrepreneurs and top manager of our acquired company involved in the business. This is actually done through minority stake on which we agree a put option. The contractual commitment of this option is always included in our net financial position. And every quarter, their mark-to-market value is recorded in the P&L, in the line interest charges. Our track record is to buy very good company, which after the entrance in our group, improve their performance. This is what happened in 2021, too, especially for Transtecno and [ INOXPA ]. Already on first-half basis, we had a negative P&L impact around EUR 4 million of the positive year-to-date performance, performance which accelerated in the second part of 2021. Moreover, the consolidation in 2022 budget of further material improvement applied us to record at year-end, a mark-to-market value of around EUR 15 million in fourth quarter, that means EUR 18 million on the full year. This is a negative, no cash; other side of the coin, of having both good companies, well managed with a growing path in terms of sales, and moreover, profitability. The second P&L item, which deserves an explanation is taxes -- to be more precise, deferred tax asset. As you probably remember, last year and on first half 2021, group benefited from the possibility given by the Italian state to reevaluate intangible assets, namely goodwill tax redemption in 2020 and trademarks revaluation on first half 2021 numbers. And this decision resulted in the recognition of tax benefit totaling around EUR 9 million in 2020 and EUR 20 million in first half 2021. Unfortunately, last December, criteria related to this mechanism were changed, and among the resolution envisaged by the Italian government, groups opted for the one which allows to further benefit from higher depreciation, and in the meantime, avoid cash impact. That means increased amortization period for goodwill and trademarks from 18 to 50 years. International Accounting Standard 12 required to prove the recoverability of recorded deferred tax asset. But recoverability in 50 year is not easy to prove, even for a group which has our track record. By the way, we are in the middle of our 40s, having been founded in 1977. Therefore, on fourth numbers, we reversed a part of what we recorded between 2020 and first half 2021, more than EUR 9 million. In one single quarter, such amount could be quite impressive. Vice versa, on 2021 full year basis, impact is neglectable, even slightly positive, less than EUR 1 million, equal to the difference of deferred tax asset inscribe on first half 2021 basis related to trademark valuation and what we reversed at year-end. Being both interest charge and deferred tax asset adjustment, no cash item and somehow driven by a very particular situation, we found that visible to provide a normalized net profit and sterilizing both effects.

After this long and even boring, but beautiful explanation of the last line of the profit and loss, let's go to cash generation. Perhaps, also in this case, it's better to speak on a full year basis because quarterly trends are influenced by the acquisition of White Drive, dated on October 1, 2021, and therefore, consolidated for the full fourth quarter. Cash flow from operation was around EUR 317 million, with an increase of close to 39% compared to the previous year. The absorption related to the trade working capital compared to the generation of 2020 and the material increase in CapEx are explaining the lower level of free cash flow, that is around EUR 134 million versus close to EUR 204 million. I would like to recall my previous words on these 2 items. Trade working capital is both a fundamental commercial tool and a powerful shield to protect profitability. Inventories increased at the year-end reflects White Drive consolidation and the fact that we started again to build stock for material and finished products. With CapEx, we are building the next decade of our group. It was EUR 106 million with an incidence on net sales of 6.7%, which become around 6%, considering the consolidation of White Drive for the entire year. For sure, this amount represents another group record. I hope you will read it as positive as we are doing. Group is investing to improve its industrial capacity, including, as already anticipated in previous quarters, important real estate developments in our European companies, Muncie and NLB. And accordingly, almost 50% of the resources were dedicated to land and buildings investments. We are building group future capacity for the next decades of these companies, not following nowadays unusual customer demand but with a conservative and prudent approach always adopted by the group. As a result of what just explained and of EUR 29 million dividend payment, EUR 22 million share buyback and approximately EUR 320 million outflow related to White Drive and Berma acquisition, the net financial position increased from EUR 270 million to EUR 495 million. That is equal to 1.3 in terms of leverage ratio, well below our historical record and our covenants. Therefore, group financial structure remains strong and sound, allowing us to go on in our scouting activities. Additional commitments for the parties of subsidiaries, which are periodically reassessed following the performance of these companies are EUR 78 million, higher than the EUR 63 million recorded at the end of 2020. As mentioned before, this is the other side of the coin of having both very good companies, well managed and with an organic path. As anticipated before, I asked Ms. Cugnasca to give us an overview of the important projects we are implementing to consolidate and to align group sustainability activities and processes.

Thank you. A falling tree makes more noise than a growing forest, by Lao Tzu. A growing forest is the sum of the small and big companies of our group. They have been able to grow both in terms of sales and profitability, leveraging on 2 drivers: a constant and consistent innovation path and the full integration of the local environment and community. Innovation make our companies both follow and even anticipate clients' needs and improve their operation. We will -- you will see on our presentation some examples I pick up among the many I found. With reference to our clients, from the recognition awarded by them -- worldwide leader in their operative sector to the adaptive load system, an EIMA [award] system which are a material reduction of energy consumption -- with reference to our operation improvement to, let's say, small but effective example of the silent forest. In North America, the new NLB Corporation factory is the state-of-art real estate, not only in terms of technologies and productive solutions adopted but in terms of circular use of natural resource, too, with the fitting of a geothermical pond loop. In Germany, Hammelmann installed a system to recover heat from factory compressor and test benches, another small example of circularity. The second improving driver is integration with the word around [ all ]. I will quote an example of Italy being our roots and our headquarters here. We are located in one of the most important Italian districts, both from agricultural, food and mechanical point of view. Less than 50 kilometers away, there is Modena, with perhaps the best high technology and performance automotive district the world. Being connected with this kind of environment, we receive ideas and inputs from many point of view. And in the meantime, we are giving back, too. [ Donation ] during pandemic, our said example, I prefer to quote collaboration with school and university, not only to attract talent but to support research and development project with our equipment. Interpump's seeds grew and became trees, I would say independently and consistently with both our soft integration and bottom-up approaches. Now they are a huge forest. We have to map, organize and subsequently crop fertilize. This is the project we launched and on which we are seriously and with enthusiasm work.

Thanks, Ms. Cugnasca. Summarizing, 2021 was an excellent year. We reached improved important achievements in our growth strategy, both organically and from an M&A point of view. The resilience and the flexibility of the group business model and our commitment are the basis of our track record and our consistent delivery. In 2 of the most difficult years of our history started back in 1977, we proved to be able to face huge downturns, to react promptly to protect profitability and cash flow generation and immediately taking benefit of the recovery. 2022 entrance is characterized by an order backlog never seen before in both divisions and these give us confidence that we will deliver a high single-digit organic growth, and we will protect and consolidate all what we have achieved so far in terms of profitability. Thank you. We will now open the lines to your questions and answer. And we will -- we have scheduled already an appointment for the next presentation on Q4 2022 results on Friday, 13 of May.

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

I have some quick questions. The first one is with regards this indication which you have provided on 2022. This relates to the organic growth, high single digit. I want to know if compared to this 23.7% EBITDA margin is reasonable to expect some tens of basis points of erosion due to the clear impact of the cost inflation, even if you are a company that in the past has translated down most of that? Or if you count to protect the margin more or less at this 23.7% level. The second question is related to White Drive integration. You said that it was, if I am correct, slightly dilutive on the margin in Q4, that compares to -- for the full year, the company should have posted an EBITDA margin quite solid, I think, around 25% you previously indicated. Clearly, there is some first consolidation item. Just I want to know for 2022, what are your expectations for the margin of White Drive? Then maybe on the put option, if you can disclose the reason for this increase of the value of EUR 63 million to EUR 78 million. So I want just to know what subsidiaries is this attached; is Transtecno, for example, or the other put option we should have?

Regarding your first question, I confirm the high single-digit target that I've mentioned is referred to the organic growth. In terms of EBITDA, of course, we will fight to protect our margin and we will fight to protect the fantastic results, 23.7% that we achieved in 2021, and this is our target, this is our goal. Of course, we may see during the course of the year or in the different quarters some up and downs, but I'm pleased to mention the historical pricing power that our group always had, and we have always had a very disciplined approach in this respect. Any time that we see a relevant and meaningful increase in our bill of material in terms of raw material costs in terms of salaries, in terms of energy cost, we have always been disciplined in applying a price increase to our customer. And this is what's happening in this month or in these weeks. And this is also what our most important competitors are doing. Then I see no hesitation in this action, in this strategy. And I'm confident that we will be able to reach a very important and very consistent result in terms of EBITDA margin also for 2022. Regarding White Drive, in the fourth quarter '21, White Drive was slightly dilutive in comparison with the performance of the Hydraulics, but we also have to consider that this is the first quarter of consolidation. And we are carrying on a lot of extraordinary actions in terms of reorganization, in terms of integrating the activities and adapting the activity to the new environment in terms of IT costs, in terms of moving off some production lines and operative inefficiencies, including our freight transportation that were really significant in the quarter. But apart this first period cost, I believe that we can confirm that for the whole of 2022, White Drive will show a performance that will be at least aligned to the performance of the Hydraulics division in terms of EBITDA margin. On your third question regarding the increase of the put option value, you are correct, Matteo. The vast majority of this increase has been explained by the very, very good and solid performances of Transtecno.

The next question is from Alessandro Tortora with Mediobanca.

I have, let's say, 4 question. The first one is a follow-up on the put option side. Fabio, you mentioned the good performance of Transtecno. Can you give us, let's say, a quick update on this company performance, but also on the overall division of the reduction year considering also general regulatory? Just to understand better, let's say, profile or growth and profitability of this division. This is the first question. The second question is on the CapEx. If you can give us the idea of a CapEx level also for 2022 because you mentioned that the company is increasing the production capacity. So I would like to understand also where -- in which, let's say, specific segments, if I understood well, you mentioned initially increasing capacity in Europe for Hammelmann -- to just have a better view on this point. The third question is on the tax rate. I understood all, let's say, the explanation related to the one-off of this, let's say, full year or last quarter. Can you remind us the, let's say, normalized level of tax rate for the company? And the last question is on the organic side. You mentioned before a record backlog for both divisions. Considering, let's say, the completely different comparison base, is it fair to assume, let's say, a similar performance of both divisions? Or you see growth in taking, let's say, outperforming this year with the Hydraulic?

Okay. Regarding the put option and more in detail the performance of the reduction year, I'm really pleased to underline and thank you for your question. In 2021, this division grew by approximately 20%, but more important, recorded an EBITDA margin of 22.7%. That is, I would say, between 200 and 250 basis points higher than the performance of these 2 companies, I mean, Reggiana Riduttori and Transtecno when we acquired these 2 companies. And this is a particularly remarkable results, also considering that other players in the industry usually record performance between 10% to 15% EBITDA margin. Then 22.6% is a very, very solid performance, and we are particularly pleased about this, also because this company entered our group -- 2 years ago, Reggiana Riduttori, and less than 2 years ago, Transtecno -- and we had all the headwinds of the pandemic to be managed. And the put option adjustment is a consequence of these very good results, considering that in Transtecno, we only have 60% of the share capital. Regarding the CapEx for 2022, I would say that it will be slightly higher of our usual trend -- our usual range of 3% to 5%, driven by the increase in manufacturing capacity mainly needed in Hydraulics division. Because Hydraulics division is the one that grew the most in 2021 and is the one that is also having slightly more demand if we go by division for 2022. And then if we put aside the real estate investment that I've mentioned several times in recent quarters and we focus only on manufacturing capacity and machining activities, our investment will be more focused on the Hydraulics division. Regarding your fourth question, regarding the organic record and the backlog, by division, once again, I confirm that in Hydraulics we have a longer visibility in comparison with Water-Jetting, but it also -- this is also -- is a consequence of 2 main effects -- aspects. The first one is the very good end market situation in terms of agriculture, earthmoving machines, cranes, all these sectors are performing very, very well and demand is very solid. And second aspect is the predictability of these businesses and the mid- to long-term confirmation order process that is happening in this time. The third question regarding the tax rate will be answered by Elisabetta Cugnasca.

We can absolutely confirm in a medium long period, our, let's say, usual tax rate, it is something between 25% and 27%. If I may, I would like to go back to the explanation on CapEx. I underline you that as Mr. Marasi told you before, the building part this year in 2021 and 2022 had and will have a huge chunk of the business. Speaking about 2021, almost half of the CapEx is being dedicated. But this, again, this is the reason why Mr. Marasi spoke about building the growth of the company of the next decade because we are doing building and construction, and this also, I would say, in a very innovative way. This is the reason why I quote you the example of the new factory of one of our American subsidiary in Water-Jetting. We do this new factory, and for example, we put in this new factory a recycled water system. So we are really putting the grounds of these companies for the next decade.

Okay. And just, if I may, the last is on -- it's a question on the 3-year targets that you released last year. The question is, do you expect to release to the market, to us, at a certain point this year, an update on these 3-year targets?

The 3-year targets that we gave 2 years ago and updated last year are covering also this year. And this is the reason why we gave some indication regarding this year regarding what we expect in terms of organic growth and in terms of EBITDA. And we believe that we will release the next 3 years' plan next year.

The next question is from Domenico Ghilotti with Equita SIM.

The first question is on the guidance. I'm trying to understand the high single-digit organic growth, how much can be price-driven? How much, in your view, is volume-driven? So basically, if you are planning as implicit in your margin guidance to fully offset -- almost fully offset the cost with price increases. Second, just a follow-up on this. When you say high single digit, do you include on a pro forma basis also White Drive or should we expect a high single-digit growth in top line also for White Drive? Or do you see a different pattern for White Drive? And what are the main complexities and the issues in the integration going into 2022 for White Drive? And last question is on the, let's say, longer projects you have in Water-Jetting some kind also in GS-Hydro companies that are running the longer project. Do you -- how are you managing the risk of cost of rent due to cost inflation? Are you protected also on these contracts on the margin side?

Okay. Regarding the breakdown between price and volume effect in the high single-digit target for the guidance, it is difficult to go in precise details, but I will say that between 40% to 50% is price and between 50% to 60% is volume-driven. Regarding the math, and in particular your second question, the high single-digit growth target that we have is, of course, considering the like-for-like effect of White Drive. And we are expecting also for White Drive, an increase that is aligned to these numbers. In terms of complexities in the integration of White Drive, I would say that the most important task and the most important focus will be and is today to adjust and to increase the manufacturing capacity of the company in order to adapt that capacity to the very, very strong market demand. And we are moving fast and we immediately approached after closing -- after the closing of the transaction, this issue because we have [ enacted ] a situation in which -- the market demand is far higher than the production output. And this demand from the market is still accelerating in this first half -- in the first weeks of the year. Then we have a very, very solid demand, and we have to adapt the manufacturing capacity in order to follow the market demand and the market mixture. Regarding the third question, and in particular, the protection of the margin in the companies that are working on projects. You know that we have a very limited exposure to projects in some of our companies, in GS-Hydro, in Hammelmann or in INOXPA. It's important to underline that we usually are doing projects that are realized in 1 year or less. Maybe these projects are taking a long period of time to be defined in terms of technical specification, in terms of engineering, in terms of preemptive actions. But once the project is granted and the order is confirmed, the execution time and the lead time is not so long. This is the first protection factor. The second protection factor is that usually, when we get the order confirmation, we place the order for the bill of material, and in particular, for the raw materials. And this is covering an important part of the total cost of the project. The third aspect is that, generally speaking, the projects of the companies that I've mentioned are richer than the normal business of these companies. And then there is a safety gap, a safety buffer in terms of expected gross margin that will cover us and will grant us to achieve very good results even in case of important increase in some costs.

Okay. If I may follow up on the order. So you sound really happy and satisfied about the trend in the order intake -- is this referring mainly to North America? Or do you see the same trend also in Europe? And in general, I remember the interview given by Mr. Montipò where he mentioned that maybe there could be more volatility on the order in 2022, if there is, let's say, a change in demand? So far, basically, it sounds that you are not seeing any kind of volatility in the order. Is it correct?

Yes. You mentioned that I seemed happy and satisfied. But as a manager, I'm more worried to be fast enough and prepared enough to deliver all these order backlog. Not a part of joking. We are very comforted, and we are very happy about this. I've never seen before order backlog -- all these orders are coming, I would say, from everywhere. There are no particular strong area. The only exception that I can mention is China that in the second part of last year -- in which in the second part of last year, the government intervened in order to pull down some inflationary pressure, in particular, in the real estate market. And then earthmoving machines or construction equipment are slowing down or have been slowing down a little bit in the second part of last year in China. Everywhere else, in terms of market and everywhere else, in terms of end application is very, very strong.

And so just to complete. So you don't see the risk, I would say, putting orders because of disruption and maybe at some point, I'm not saying withdrawing orders but reaching in high altitude situation in which you have been ordering more than the final demand. So, so far, we see very healthy.

Not so far. Not so far. It seems a very, very healthy and consistent situation.

[Operator Instructions] The next question is from Bruno Permutti with Intesa Sanpaolo.

A few questions. The first one regards to the end application. So if you can give us an idea of which are the areas in terms of end application in which you see the faster growth for 2022? And second one was on the visibility. If I remember well, last November, you told us that you are delivering for the next -- you were delivering for the last part of 2022. So I would like to know if this is still the case and what happened in the last quarter in terms of schedule for deliveries and what is the visibility so that you have for 2022? And the general...

Sorry. I apologize, we felt the voice -- your voice suddenly went down. Can you please repeat? The first, we got -- we perfectly got the first question, the line of the end application. Can you please kindly repeat the second one? And please, can you perhaps speak a bit closer to the microphone, please?

Yes, sorry. So the second one was related to the schedule for deliveries. So if I well remember, last November, you were planning the deliveries for the end of 2022 -- for the last part of 2022. So I would like to understand is this still the case or if something has changed in the timing of production and deliveries? And the last one was related to the process of stocking by your customers. So do you believe that -- is there also an accumulation of stocks at your clients or having more -- to have -- to assure their production? Or you see a normal flow of orders by each customer?

So please allow me to repeat because unfortunately, we are not lucky in this room with the line. So first of all, you asked an overview on our final application sector are going correctly?

Exactly. And...

Second, you asked for an updating of our delivery schedule, taking into account that last time we updated you, saying you that we were sending material already for the end of the year. Correct?

Yes.

And the third question was about the process of stocking by our customer, if you are seeing, let's say, a normal and usual stocking process or we are facing some unexceptional? So these are -- I apologize to repeat, but unfortunately, in this room, the line is a bit weaker. I summarized well your questions?

Yes, yes. Perfect.

Starting from your first question and going in detail by application, in 2021, we had earthmoving machines, plus 24%; construction, plus 28%; agriculture, plus 30%; lifting, plus 44%; industrial vehicle, plus 12% and so on. These are the most important applications -- I'm sorry, food and beverage, plus 16.5%; chemical, plus 19%; cleaning, plus 24%. These are the main applications in which we are involved. Regarding the visibility in terms of delivery, I'm not sure to have taken correctly the question. But of course, scheduling and following market demand is the most important focus on an operational point of view. And we are doing everything we can in order not to deliver late our components because you can imagine where our components are going and are used, in particular, in the assembly lines of our OEMs. Our OEMs are usually operating just in time. And this is one of the difficulties for them in this period to manage this stretched supply chain and a very hot market demand. But we are really focused in delivering on time our components to our customers in order not to stop their assembly lines. And in order to do this, we are doing everything we can, also incurring extraordinary transportation costs, in particular for the air freight cost, in order to follow their demand and to be on time for servicing and for supporting their assembly line. On your third question, the vendor stocking by our customers, I will say that I will exclude that our customer are actually in this period to build up inventory. No one is able to build up a meaningful inventory in this period because, of course, with a lot of differentiation, a lot of different situations and approach. But our customers are working hand-to-mouth and are working in order to secure enough products, enough components for having their assembly lines working.

Okay. And if I may, a very fast follow-up. So your visibility in terms of order backlog right now, it is longer than usual or it is as usual?

Is far longer than usual. Because I said before, we are seeing and we have received an unprecedented amount of orders, and we have an order backlog entering in 2022 that is, by far, larger than the order backlog that we had in previous years. And we have a higher visibility in Hydraulics in comparison with Water-Jetting.

The next question is a follow-up from Dominic Ghilotti, Equita SIM.

A follow-up on the larger projects. I'm referring to Hammelmann. You mentioned a couple of projects, big orders in pharma and the other in ship building in the fourth quarter if I'm not wrong. So -- and you mentioned that it takes longer to take a decision on this project. Are you seeing a restart of discussion, negotiation and even order intake on these larger projects?

The answer is yes. I've mentioned already several times in recent quarters that we had, as first rebound, a very strong increase in orders coming from Hydraulics, first. Second arrived the day-to-day order increase in Water-Jetting, and third, arrive the large projects. Large projects for GS-Hydro, for Hammelmann or for INOXPA are coming late or are arriving now after 4 or 5 quarters of very important growth for components -- order and component delivery. Because these kind of orders require a long period of time for finding the right and appropriate technical solution. And for discussing between the technical offices of the customer and our own technical offices, the proper solution and all the negotiations and all the details. This process can take up to one year, and in some cases, even longer. And for this reason, we are seeing an improvement of this kind of activity and of this kind of commercial negotiation regarding these important projects only in these months or only in these weeks, after more than 1 year of recovery in the activity -- in the general activities.

Okay. And no one asked about M&A. So I -- it's my duty to ask you.

No, M&A is almost at the best environment in terms of projects on our table and in terms of pipeline. Of course, the environment is not easy, but it has never been easy because we have a lot of competition from financial players that have a lot of money. But you know very well that we are looking usually to a different kind of company, to a different kind of environment. I would say that, as I said in previous quarters, after the pandemic stop, we have seen a very important increase in the numbers of opportunities and in the number of interested parties. We are as focused as ever. We have a very strong financial situation, and we have a very strong commitment to go ahead with our usual strategy, and then you will see news in the course of the year.

The next question is from Quentin Duquesne with Candriam.

The first question is about the M&A strategy -- following up on the previous one -- is are the guidelines you historically had, in terms of valuations, still the same? How much firepower do you believe you still have to complete larger than usual M&A such as White Drive, if opportunity arises? And then the second set of questions is more about margins, especially in terms of raw material price increases. First one is how much lag can we expect when raw material price increase and the timing you have to -- you can spend -- to increase your prices towards your customers? And then it's about CapEx. You recently mentioned you have to increase your land and building investments. And the question is then how -- when can we expect this new capacity coming up online, and how fast can they be, let's say, up to speed in terms of productions and margins?

Okay. Regarding our M&A strategy and guidelines, I would say that is never easy to give guidelines, in particular, in M&A. But I confirm what has been our historical discipline in approaching M&A in terms of evaluation and in terms of target companies. We will always look at very good companies, well managed, profitable and more important that are fitting on an industrial point of view with our existing perimeter. We are not looking for a meaningful diversification of our third leg. In terms of multiple, in terms of prices, I've already commented several times that we are prepared to recognize slightly more or slightly higher multiple than our usual 5 to 7x EBITDA -- enterprise value on EBITDA multiple, considering the environment in which we are living. But we have been able to close the largest transaction ever, the one of White Drive, at approximately 6x EBITDA and then we are very satisfied. Being prepared -- it doesn't mean that we will be obliged to pay more than our usual range. We will see, and it depends -- it will depend on the target. Also regarding the size, I've confirmed that we are prepared to approach also larger transaction. We did a EUR 200 million turnover acquisition with White Drive. We will not be scared to approach and consider acquisition up to EUR 300 million, EUR 400 million or even more. We have the managerial capabilities, we have the commitment, and we have the financial resources to do this. What is really important is the industrial fit and the consistency with our business model and growth strategy. The third question regarding raw material price increase and the time lag between the increase in the cost of raw material and the transfer to the customer applying a price increase, I would say that there is no particular or defined time lag. It depends on the different companies or in the different markets. Sometimes we are also anticipating the impact of the price increase of raw materials. But usually, you have to consider that we are working. We are moving very fast. And whenever we see a sizable increase in raw material, we decide to communicate immediately the price increase to the customer. Maybe between the announcement to the customer and the effective application of the price increase, we can have a delay of 30 to 45 days, but this is just for commercial good relationship with the customers. Your last question regarding the real estate project completion. I will say that the 2 large projects that we have been working on in NLB and Muncie Power Products, we'll be completed that by the end of 2022. The building of the new factory for NLB has already been completed and the activity has been transferred. We are completing the building and the real estate investment for Muncie Power Products.

The next question is from Fraser Donlon with Berenberg.

Fraser here from Berenberg. Just 2 questions from my side relating mainly to White Drive. I wondered if you could maybe spend just 2 minutes on the cross-selling opportunity and strategy that you have and when you think that might yield, let's say, more meaningful results. And then the second more general question on White Drive would just be if there's anything, which is kind of positively or negatively surprised you now that you really have your hands on that business, so to say?

Regarding the cross-selling opportunity, I believe that we'll have, on a midterm perspective, important benefit from this. Considering that with the acquisition of White Drive, we will be able to offer more and more complete packages and more and more complete solutions and not only components to our customers, from the valves and distributors of Walvoil to the orbital motors of White Drive, to the reduction gears of Reggiana Riduttori and Transtecno, we are more and more able to offer packages together with the components as well, and of course, this is the first part and the first opportunity. The second one is that White Drive is a very important supplier of important OEMs that are already customers of the group but maybe are not important customer in our group. And then driven by White Drive, we will have the possibility to bring other products of our group into these companies, and vice versa, we can bring White Drive motors in our existing customer list whenever they are not already present. I believe that on a 3-year time horizon, we will have a significant opportunity in developing cross-selling. For 2022, the real focus and the real target is not working on commercial development projects but working on operation, in delivering, in increasing and adapting the manufacturing capacity to the market need. In award, we have enough orders without looking or fighting for new business and new projects -- regarding the cross-selling. Regarding the surprises, positive and negatives, I would say that I have been really surprised -- we have been really surprised that by the very, very strong reputation that White Drive products -- White Drive catalog has within the customer. Customers love White Drive products, in particular, orbital motors, but also the steering units. And then this is a very, very important comfort. In terms of -- I wouldn't say negative surprise, but in terms of things to be improved, but we were already aware about this, is the approach and the flexibility to the market. We've commented a very good set of results for 2021 of Interpump. And I really believe that these results have been achieved, thanks to the flexibility of our group. Flexibility means to have some percentage point of extra capacity or means to react quickly to the market demand. This was not a characteristic that was part of -- or was in the DNA of White Drive, that was part of a larger and more structured group, Danfoss. And we are working harder in order to implement this kind of approach to the market and the customer support that we believe is fundamental for achieving a long-term growth that is higher than the growth of the market. That is what Interpump Group has always achieved.

[Operator Instructions]

Okay. Thank you very much. I hope that we have been able to answer to all your questions. You will have, as well in the past, soon you will have on the website the slide presentation. Please remember that we are at your disposal for any further details you may desire. Thank you very much, and good evening.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.