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 2023-2025 ESG Journey 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, or good morning according to your time zone, and welcome to Interpump 2023-2025 ESG Journey Conference Call. I am Elisabetta Cugnasca, Head of Investor Relations of Interpump Group. Here with me, Mr. Giacomo Leo, ESG Executive Director and Group Legal Counsel; Mr. Fabio Marasi, you are familiar with, Board Member and Executive Director of the group. On behalf of all of us, I thank all who is now attending this call despite the short notice. Before leaving the stage to Mr. Leo, 2 additional remarks. As usual, I'm obliged to draw your attention to the disclaimer slide in certain in the annex part of the presentation you have received by e-mail. Finally, I would like to underline that the goal of this meeting is to present you our 2023-2025 ESG Journey. Last February, we underlined to you that the group had 3 focuses for 2022: Operation; M&A activity; and consolidation and alignment of group sustainability activities and process. Now we are here because we worked hard with a very concrete approach to deliver the latter one. Please, Mr. Leo.

Thank you, Ms. Cugnasca, and thanks to all of you for the attendance. I'm very pleased to meet you virtually for the first time at the joint Interpump Group end of last year. Before going into details of our ESG target, I would like to develop further the concept that Ms. Cugnasca have submitted to you. What does it mean for us this journey and the concreteness behind other journey. Last February, we underlined that the launch of a consultation and alignment project does not mean that what we have always been doing was not sustainable. Actually, we used the quotation of Lao Tzu that we believe represents best the true [indiscernible] A falling tree makes more noise than a growing forest. To reflect the idea that the loudest events are not necessarily the most important ones. And that we have to change to the growing forest, the sum of all the variety changes companies of our which we have been able to grow both in terms of sales and profitability, leveraging on 2 drivers: accountant and consistent innovation path; and the full integration with a local environmental community. At the end of 2021, we decided to launch this process, the first project at the group level to lead back to unity all the group's subsidiaries activities. To clarify, we were talking about 2023-2025 journey, identified 2023 as the starting of it. But from my previous word, you can easily understand that the journey was already ongoing, and that 2023 is always a turning point from a unity point of view. Unity, which was achieved by incorporating and balancing the group performance key success factors. The diversification by product, geographical area, and several applications; the heterogeneity of the business model; both organic and M&A growth strategy with very well-known soft integration policy for the acquired company; and powerful and consistent focus on operations and execution. The second concept I would like to develop and share with you is the value of concreteness which underlies this slide. I would like to say in the project basis of this plan, but that the basis of the entire group strategy and its implementation. And this concreteness has led to the fact that we start from the foundation of the group that can be seen as slightly higher the government action trading the other with an [indiscernible] that comes directly from our business. Governance in the hydraulic system, the system that allowed to add [indiscernible]. 20 concrete activities to be implemented to reach 20 career growth. On Slide 6, you will see for each mainstream, environmental, social, government what we believe are the 3 most important actions to this. A concrete time [indiscernible], 2023-2025, with only 1 of 20 actions will require a little more time to be carried out. Obviously, from the environmental stream, the crucial deadlines are 2030 and 2050. That takes me to our concrete approach. We aim for those deadlines with precise intermediate [indiscernible] and checkpoints, as shown in Slide 12. These checkpoints will allow us to adapt our strategies and define [indiscernible]. So 2023, 2024, the time frame to lay the group's ESG Foundation; 2025 and 2027, we can frame to be the journey towards achieving the 2020 -- the 2030; and the last 2050, decarbonization target. Concrete results refined to implement a majority for the entire project period. From a cash flow point of view, around EUR 10 million CapEx, of which 40% already in 2022 budget. Once again, this 40% in 2022 budget is the clear evidence of my previous slide. Many activities were coexistent and ongoing. We have been already supporting the growth of our [indiscernible]. From a P&L point of view, around EUR 20 million of incremental cost at FX level. While internal G&A, no material impacts are expected until now since many activities will continue to be performing internal with the possible support of certain areas from specialized external consultant. Concrete correlation with the top management remuneration policy. At the shareholder call, last April 2022, the Annual Shareholder Meeting approved this 2022-2024 stock option plan, which foreseen already ESG target to be achieved for the testing, the consequent sustainability of the options. And moreover, for [indiscernible], a close, which has allowed the Board to align the stock option plan to the first section of the group remuneration policy in its evolution. As you surely are aware of, first action of group remuneration policy is to be updated in 2022 -- in 2023. And [indiscernible] formally I'm sure to be a journey [indiscernible]. Timing is perfect grounded in management remuneration mechanism to such ESG parameters. Before entering into ESG action detail, please allows me to finish this introduction with some methodologies explanation, which you will find in more detail on Slide 9 to 11 of the presentation. 2021 materiality matrix was one of the major starting points, and we apply the dynamic approach to anticipate as much as possible the important change that the duration macro geopolitical events will not look like drive. Being an industrial business model, we started from group manufacturing subsidiaries and focusing on factory above [ 1,000 meters ] recovered almost 65% of our 2021 fleet, 50% of the top Group productive sites and around 70% of our Group employees. We consider it a representative material sample to develop our [ first ] group projects, [indiscernible] subsidiary in the [indiscernible] division and 9 in the growth objective one. With the roster identified the group subsidiaries expression [indiscernible] practice and we decided to develop on their experience and their success through the mechanism of the pilot projects. For example, from Hydraulic and Water-Jetting division Interpump for the circular economy, [indiscernible] for gender and diversity. Due to the heterogeneity of business model inside the group, we believe this is the most effective, in the meantime, efficient way, in other words, concrete, to fertilize our forests. Focusing now on each trend line, we would like to elaborate in detail on actions which, according to [indiscernible], represent the journey cornerstones, starting from [indiscernible], the tragic system of the entire [indiscernible]. Establishment of a Board ESG committee, the formalization of a succession plan and tax compliance consolidation in line with the best tax practice. Especially for the first 2 actions, execution timing is perfectly aligned, considering that 2022-2023 is the natural maturity of Interpump's groups Board of Directors. [indiscernible] the control and risk [indiscernible] responsibilities, we believe that the creation of a dedicated sustainability committee will speed up our journey. Considering the presence of at least 1 executive director and a major focus in the ESG [indiscernible]. This will ensure the ESG granular operation, and we will give it to ESG strategy definition process the concreteness necessary for its implementation. In terms of succession plan, the Nomination Committee which will be appointed by the Annual General Assembly meeting in 2023, we propose certain processes and mechanism which will be approved by the Board. These actions will be a formalization of group's already operative practice with the managerial steering committee already working and supporting the group [indiscernible] and possibly -- and possible notary to eventually [indiscernible]. On the E stream line, we concentrated our efforts for and in particular to the reduction of the carbon intensity and on the increase of carbon to renewable electric energy consumption. Considering, first, the investment projects were already ongoing and to be approved related to the installation of photovoltaic systems, which are perhaps the best evidence of the group journey already started before the formalization of reduction. Thanks to the group's historical concrete focus on efficiency. We would never be able to -- refer to Slide 17, 15 and 22, features of our factories from India to Italy, Sant'Ilario of Interpump where we are exactly now speaking, or San Polo for Reggiana Riduttori. If we move and not plan and budget, this [indiscernible] some years ago. And the definition of a power purchase agreement, PPA, considering that with an overall reduction of around 31% in emissions produced under Scope 1 and Scope 2 and an increase of renewable energy consumed of around 25%, obviously, because of the pipe systems were not enough by [indiscernible] to pursue this target. We will then leverage on a power purchase agreement which will be at least covering the most relevant proportion of the Italian production capacity. Keeping in mind the push of the lines of 2030 to [indiscernible] [ 65% ] and 2050 carbon neutrality, we then consider an expansion to proceed to define decarbonization strategy encompassing the entire group perimeter in dual category of carbon [ deoxidation ], Scope 1, Scope 2 and Scope 3. As a fundamental dealer to assess all the economic implications and explore all the appropriate concrete action to achieve these challenges of [indiscernible]. Last, but not least, we refer to the [indiscernible] lines, group actions will be focused on 2 of the most important group stakeholder: employees and suppliers. The one on which group historical success is based, delivering year after year, the result of [indiscernible] you are used to. To our sales group employees, we have 2 of the 3 most important actions that are dedicated: Injury rate improvement and ISO 45001 certification expansion. Our top commitment is to keep the 2022, 2024 accident incident impact below the average of 1 of 2019, 2021. That is 2.2. I'm pleased to not neglect the COVID influence. It's true that in 2020, injury rate was down due to lower production, lower production and not stop of the production. But then the massive effort to transform the backlog in 2021 turnover made the injury rate moving slightly above the average. In terms of ISO 45001, we believe that all of you are aware of the importance of this certification that support improvement on having safety conditions from the entire production point of view. This is the only target which will be implemented later than 2025, in 2027 to be precise. Indeed because we've been entering factories lives. In other words, where the concrete group live is within the factory, actually, the group strategy is exceeded between production line, raw material and third part inventory, commit to move not only together, but in coordination with machines. The key driver to both this target is another one, the increase of cutting cost of noncompulsory trying errors, up by almost 35%. We already defined the training content with some courses dedicated to the entire group population, either security with the growing anticorruption and near miss [indiscernible] to certain specific parts of skill, language and knowledge. Suppliers are the other crucial stakeholders on which we focus our attention. Their importance is reflected in [indiscernible] and scope of our evaluation model, which is qualified as the group supplier [indiscernible] as the key parameters: technical performance; time of deliveries; and moreover, flexibility. It has the capability to support and follow group flexibility. Our evaluation process will incorporate the 4 ESG parameters. Please have a look at them on Slide 23 and be sure that our stickiness will not be released and we'll start to work with our most important guide. To conclude my remarks and before leaving the floor to your questions, please allow me to share and repeat to you the ESG lines of our 2023-2025 journey. Concreteness. We will be pleased if, at the end of this conference call, about saving the opportunity to review the material we prepare for you. You will agree in the timing our plan, like we define it. Concrete. Increasing access is the base of our strategy. It's the base of the implementation at the operational level, and we are convinced it has been entirely calculated in our ESG journey. Thank you, again, for your attention.

Thank you very much, Mr. Leo. We are waiting for your questions. I am obliged to bother you again repeating one of my foreword. This conference call aims to share with you our ESG journey, its approach, its action, its details. Thank you.

This is the operator. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Michele Baldelli of BNP Paribas.

Can you hear me?

Yes.

Perfect. So congratulation for this ESG plan and the clear presentation. I have a question. When you speak about succession plan, you mean an overall succession plan for the various division department? Or is it also at the CEO level that this means? So just wanted clarification around it. And the second question relates to the perimeter. I see that you define a clear perimeter. I wanted just to understand if this perimeter will be kept aligned in the coming few years? Or do you already plan to cover more plans by 2025?

Thank you, Mr. Baldelli. Succession plan, first question. Of course, we will concentrate ourselves the first on the top level, so at CEO level, and there is possible succession plan. But the rest, we plan as well to deploy the same procedure and who will focus to the other companies within the group. We do reference the [indiscernible]. Of course, the base line with [indiscernible] in 2021, be it on the nonfinancial declaration. And of course, we concentrate our targets on such a big line, whether, of course, it will be expanded considering the growth strategy that we already mentioned in the presentation.

The next question is from Domenico Ghilotti of Equita.

Two questions. First is a follow-up on the succession plan. So are you planning to separate in this ESG journey the CEO and Chairman role position? Or it's nothing in detailed at the moment? And the second question, just a clarification. When you are saying [indiscernible] incremental costs, so these are the recurring costs that you will incur to adopt your ESG journey, correct?

Okay. Mr. Ghilotti, thank you very much. On the succession plan, I know that it's very attractive as an argument. Honestly, it's too early to anticipate the structure of the next Board of Directors, which will be appointed by the General Assembly meeting only in 2023. Of course, it will hopefully address all the distance that comes from the market and the best factor that we see in similar listed companies. With reference to the incremental value that we present to you, yes, it's correct. The value that will -- we are running in the entire journey of our plan.