Interpump Group S.p.A. ($IP)

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump First Quarter 2026 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio Marasi, CEO of Interpump. Please go ahead, sir.

Thank you. I'm Fabio Marasi, Interpump Group Chief Executive Officer. Good afternoon or good morning, depending on your time zone, and welcome to this Interpump First Quarter 2026 Financial Results Conference Call. Before starting, I would like to inform you that Elisabetta Cugnasca, former Head of Investor Relations, recently left the company and that starting from June 1, the new Head of Investor Relations will be Mr. Federico Pavesi joining us after a long experience in CNH and Carli to whom I formulate my best wishes for his future within Interpump Group. As usual, I must draw your attention to the disclaimer slide inserted in the next part of the presentation, that I hope, you were able to download from our website. I will start the Q1 '26 presentation, as always, with past and future numbers. Past numbers on an organic basis in the first quarter 2026, we had a 2.2% organic growth, positive number for the fourth consecutive quarter and the minus 2 EBITDA, with a 60 basis point EBITDA margin dilution, mainly explained by the different contribution from the two divisions with a strong hydraulics and a weaker Water-Jetting performance. On future numbers, both the results of the first quarter '26 and the sales evolution for the month of April are slightly better than our expectation, but considering the very uncertain geopolitical scenario, we prefer to confirm our 2026 organic sales guidance that is between minus 2% and plus 3%, hoping for more visibility and a better outlook in the future months. In terms of profitability, as usual in May, we are also providing more precise indications, and despite the headwinds coming from a tougher product mix, we are expecting an EBITDA margin for the full year between 22% and 22.5%, confirming once again our most important goal and focus that is to protect our profitability in every market environment. I will add more color on our 2026 expectation in the second part of my speech. Now let's focus in more details on most important first quarter financial KPIs, sales, EBITDA and cash generation. On sales, the first quarter '26 confirm trends that have been ongoing for more than a year. The Hydraulic division is recording a sequential and very comforting acceleration in demand, while Water-Jetting is facing a very tough comparison base, with the first part of 2025. This evolution is absolutely consistent, with our expectations, summarized in '26 budget. And once again, it is the clearest possible evidence of the beauty of the diversification that has always characterized Interpump Group's business. Going into detail, we feel that Hydraulics division touched the bottom at the end of 2024 and that we should now expect a continuation of the sequential improvement that we have seen in the last 4 quarters, also during the remaining part of this year. Among the most important categories, agriculture, air moving machine and construction are on fire, with a double-digit growth, with others, for example, adaptors, industrial vehicles after several strong quarters were less positive. In the Water-Jetting division, Food and Beverage, by far the most important market application and chemical were the most affected by the tougher comparison basis, with the same period of last year that we have already mentioned. Cleaning, the second most important application field, performed very well with a 14% organic growth in the quarter. In terms of geographies, the most important countries where we operate, Europe and U.S., recorded a very positive performance with a 7% organic growth. While the poor performance in Asia and in China, in particular, was driven by the first part of the mega order that Hammelmann delivered in this area in the first quarter '25. Complementing the view for the quarter, it's important to underline that very good commercial environment -- the very good commercial environment, both in terms of projects under discussion in the Water-Jetting division and the strong order intake in the quarter with a book-to-bill ratio above 1.5x. Moving to EBITDA, I would like to come back to what I mentioned in my introduction. First quarter '26, we protect profitability despite the important headwind coming from the different business mix, which was characterized by the stronger contribution from the relatively less profitable division, Hydraulics, in comparison with the Water-Jetting one. The good sales evolution in the pure mobile electronics application fields, the one that suffered the most in the past, allowed to achieve good operating leverage in companies like WALVOIL and White Drive and to improve overall performance in the companies that were hit the most during the past 3 years downturn. Offsetting in the meantime, the weaker contribution of companies more focused on adaptors of industrial vehicles. Switching to Water-Jetting division, sales evolution, excluding the mega order delivered in the first half last year by Hammelmann in China is confirming the good long-term trend seen in recent years, concerning the higher attention paid by the industrial operators towards the environmental impact of their economic activities. The very interesting order intake in Q1 2026 and the number of projects under technical discussion in this field are just confirming these trends. Moving to cash generation now. Free cash flow in the first quarter went up by 10% from EUR 29 million to EUR 32 million, continuing the good improvement already reached in the last couple of years. Therefore, it's important to focus on the different components. Cash flow from operating activities was aligned with the one of last year, while the 45% CapEx decrease from EUR 35 million to EUR 19 million more than compensated the trade working capital increased absorption, explained by a stronger top line. Summarizing another quarter of inventories, lower absorption and CapEx reduction is a clear evidence that group is delivering its commitment to improve these KPIs after the extraordinary peak of '21 and '23. We believe, therefore, that the first quarter '26 cash generation result is satisfying and in line with our goal to repeat, and possibly exceed the excellent levels of free cash flow generation of 2025. To complete EBITDA overview, it's important to highlight that the group was able to offset the impact of U.S. tariffs having increased prices or having recharged them to customers. And the newly acquired companies did not have any dilutive effect. To conclude the discussion on profitability, I would like to draw your attention once again to the long-term stability of our EBITDA margin, which, in my view, perfectly exemplifies the strength of our group. Thanks to our diversification and operational flexibility, we have demonstrated an excellence and resilience in margins in U.S. market by extreme volatility. The few industrial companies can match. Moving now to acquisition. As usual, we would like to provide a short updating on M&A. No new acquisitions in this quarter, but several interesting ongoing discussions and negotiations with potential counterparties. We are very satisfied of the integration process of the 3 companies acquired in the fourth quarter of last year, namely Tutto Hidraulicos, Borghi Assali and F.A.R.M.A., which are perfect examples of the add-ons opportunities that we are looking for, considering the perfect match between our industrial and commercial strategy, the financial profile of these companies, and respect of our M&A and financial criteria. Now the usual overview on most recent market trends and 2026 expectations. April was characterized by a further acceleration of the top line growth, thanks to the less tough comparison basis in Water-Jetting and the continuation of the positive trends recently seen in Hydraulics. Both the features of the projects under discussion and the very good order intake for the month with a book-to-bill ratio, once again, close to 1.1, make us confident regarding the good evolution to be expected for this second quarter of the year. After this necessary digression, let's go back to 2026 expectations. First quarter results and the April sales evolution are a clear support for our February guidance that we are confirming today despite the severe geopolitical tensions that are characterizing this world and the very low visibility regarding the foreseeable future. On an organic basis, we are expecting a turnover variation between minus 2% and plus 3% and the positive perimeter change impact of around 2% with reported sales in line with 2025, considering the negative FX impact that was around 3% in the first 4 months of the year. As usual, with higher visibility given by a quarter of reported data, we are adding the profitability guidance to the sales guidance, an EBITDA margin between 22% and 22.5%, despite the headwinds coming from a different contribution from the two divisions with a strong Hydraulics and a weaker Water-Jetting that is, as you know, the most profitable division. In terms of cash generation, as explained before, first quarter results are clear evidence of the group's commitment to proceed in the normalization process of both trade working capital and CapEx. Therefore, we confirm the goal to consolidate and hopefully improve the cash flow generation achieved in '25 to a new record high number. If we are able to deliver these results in February 2027, we will be, once again, very proud as they would once again confirm the two fundamental milestones of the group strategy, diversification and business model flexibility. We are now at your disposal for any questions you may ask.

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

Fabio, first 3 questions, but very quick, if I may. First one is Hydraulics, flat margin in Q1 despite 6.9% organic. So apparently no benefit from the operating leverage. Can you mention any specific reason in terms of mix, productivity or other reasons for this flat margin in Hydraulics? Second is, you are mentioning a pretty solid book-to-bill. I don't know if you are referring because I was not paying attention probably the 1.1 is for both division? And because the question is Q2 will have a particular comparison -- challenging comparison in Water-Jetting. So what is your expectation for in Water-Jetting organic just range. And last one is on the margin guidance. 22%, 22.5%. Q1, 21.9%, so a touch below. We know that typically, not necessarily this year, first half is better than the second half. So if Q1 is 21.9%, I would say that 22%, 22.5% is something, which require sort of explanation or maybe more details on how you are going to catch up to this range?

Matteo, regarding the flattish margin in Hydraulics, it's important to comment on 2 different aspects. The first one is the one that I like the most is the significant improvement in the performance of the company that suffered the most, the downturn of the last 2 to 3 years, and in particular, WALVOIL and White Drive. This positive evolution was offset by weaker results and weaker top line performance of companies working with adaptors of industrial vehicles. And in particular, the American company Muncie Power Products. That historically was characterized by a higher profitability, and also by the different contribution from the American companies in general due to the depreciation of the U.S. dollar, long story short. There is some different performance characteristics, also within the two divisions. As you know, for example, in Water-Jetting, Hammelmann is way more profitable than the average and that the companies are slightly less profitable than the average, is the same in the Hydraulics division. But apart this short-term trend in the American companies and in particular, Muncie that is pretty significant in terms of size and contribution. We are satisfied of the better utilization rate of the internal manufacturing capacity in the companies that suffered the most in the downturn. Regarding the book-to-bill that I wanted to mention, in particular, with reference to Water-Jetting because clearly, Water-Jetting is down in terms of sales, because of the comparison that we were expecting very tough, considering the results that we had in the first two quarters of last year. But what is important to underline is that we are not seeing any significant slowdown in the market in terms of new projects, in terms of opportunities and those in terms of order intake. And in the Water-Jetting division only, the book-to-bill in the first 3, 4 months was above 1.1, in Hydraulics was above 1, but below 1.1. In any case, very positive and very significant. It is clearly too early to comment on second quarter, but we will see how it will evolve, but April was good and the order to be delivered in May and June are good as well. Clearly, in June last year, we had that mega order from Hammelmann that will be a tough comparison. But in any case, we are very confident of the progresses that we are seeing in the market in terms of demand and order intake. Last question regarding the guidance on margin, we historically have been criticized for being too conservative. And I believe that we are conservative once again. I don't believe that we have been optimistic or aggressive in this 22% to 22.5% margin. I believe that considering how we expect that the turnover, and also the contribution from the two divisions will evolve during the year, we believe that our number in this range is something achievable despite the 21.9% of the first quarter '26.

Next question is from Domenico Ghilotti, Equita.

On follow-up on the Water-Jetting division. I'm trying to understand because you have mentioned the 1.1 book-to-bill for Water-Jetting. So this means that we can expect probably some sequential improvement in place in the second quarter, but not far away from the EUR 200 million, if I remember well, in the second quarter. So what I say is that the first quarter top line has been slightly down, also compared to the second half of 2025. So I'm trying to understand why is it accelerating the order intake during the second half was supported. And then a more general question, on the cost inflation, what kind of actions are you taking? And when should we expect to see some contribution from this action? And if you are seeing any supply chain Disruption, and for this time, you were mentioning the M&A pipeline without waiting for, let's say, a question specifically on that. So if you can maybe add some color on what is the potential size of the pipeline?

Okay. Regarding Water-Jetting, it is correct to say that we are expecting a sequential improvement, but considering the very strong second quarter '25, and then the tough comparison base. I would say that the sequential improvement can be seen or will be seen from the third and fourth quarter, considering also that the second part of last year was weaker than the first part. And then the visibility is on the second part of this year. I don't agree technically on your comment regarding the top line deceleration because in reality, it's just a lower increase in the first quarter in comparison with the growth rate that we had in the fourth quarter 2025. And for two reasons, the first one is that is another quarter of growth. And second is that it's another quarter of growth despite the first part of the mega order in China, then the 2.2% is in my mind, in my way of reading a very positive number because we...

Sorry, probably I wasn't clear, sorry. I was referring to the Water-Jetting alone or the top line of Water-Jetting alone, not at the group level. So the deceleration.

Yes. The decrease to minus 6-point-something percent in the first quarter 2026 is explained entirely by the first part of the order delivered in China last year. And then the second and the more important part was delivered in June that was made in two tranches. Regarding cost inflation, it's a very important topic. I don't believe that we saw many effects on the first quarter of the year. But this is becoming a very important topic in this second quarter, in particular, after the geopolitical attentions and the gas crisis in Iran and the consequent boom in energy cost. And then we are obliged, like everyone else in the market to transfer to our customer, these price increases through price surcharges or a price list increase. This is something that we are doing. We have already done in some company, but once again, we will do it carefully and without any hesitation. And this is the way in which the entire market is behaving once again. Regarding M&A, I've commented regarding the usual interesting ongoing activity. We have several dossiers on under analysis, mix in size, mix in terms of business and mix in terms of geographies. I confirm that the environment is still pretty positive because considering the uncertainties that are characterizing more and more the economic environment, more and more operators are at least considering or starting to discuss potential opportunities of this size and merging their activities with a larger, more balanced and more international group. And in this case, Interpump, in some ways, is a safe harbor for smaller and more risky companies.

Next question is from Alessandro Tortora, Mediobanca.

The question is related to the -- your comment on the book-to-bill. So I got initially a level like 1.5. Maybe I was wrong, okay, collecting this data because then you mentioned 1.1 for, let's say, above 1.1. So sorry, just a clarification on this data. And then the question is -- can you comment a little bit about the trend by region? You mentioned in the past some uncertainty or volatility in the, let's say, American market, and now you commented, let's say, positive performance? So just to, let's say, picture, let's say, by region because I recall it that in the past, the regional performance was volatile quarter-over-quarter.

Yes. I don't know how this 1.5 in terms of book-to-bill come out, maybe the absolute value of the orders to be delivered that is above 1.1. But the order intake in the first 3, 4 months was around 1.1 in comparison with the turnover, more in Water-Jetting and Hydraulics. In terms of region, I agree with you. This is a very interesting topic because to be fully transparent and completely honest, the very positive performance of the U.S. market is, in some ways, surprising to me as well. Considering all that happened and considering the depreciation of the U.S. dollar against the euro on one side and the application of the tariffs on the other side that made the cost in U.S. much higher than the previous year, I was expecting a softer market demand. But probably, and I'm referring in particular to Hydraulics or to some applications of the Hydraulics market, the deceleration and the destocking activity was so severe in the previous 2 years, that the market is recovering anyhow, despite these geopolitical tensions and the short-term consequences on these cost factors.

Okay. And then sorry, Fabio, your initial comment was, let's say, on the guidance, which still, let's say, assume on this negative sign, let's say, in the lower end of your range. Considering your comment on this sequential improvement you see in April and so on, the reason why you are not upgrading or at least excluding, the most negative -- the more negative part of your range is due to, I don't know, geopolitical context and therefore, you need some more months or quarters in order to reassess, let's say, the sales outlook, that's the overall reasoning?

This is absolutely correct. This is absolutely correct. Today, we are slightly more optimistic than a few months ago in terms of top line evolution and market demand trends. But considering all that is happening every day and considering the huge uncertainty that is characterizing this world, we believe that it's too early to remove the lower side of the range. But to be honest, as commented, we are slightly above our expectation for the first several months of the year. Let's discuss on August 5.

Next question is from Natasha Brilliant, UBS.

I've got 3. The first, just coming back to your comments on pricing. You said that you put some pricing through in the first quarter. So I just wondered if you could quantify that and what you think pricing will be for the full year? Second question is just on capacity utilization. If you could give us the rates that you saw through Q1 and if that changed through the quarter as well? And then lastly, on Water-Jetting, obviously, we're cycling against a very big one-off project from last year. Do you have any visibility as to whether other such projects could be in the pipeline? I realize by nature, they're one-off that whether you've been having any discussions, if you're seeing any demand for similar types of projects that could come through let's say through FY '26?

Thank you, Natasha. Regarding pricing, considering the size and the magnitude of the price increase and surcharges that we are applying or we are considering to apply. I believe that at the end of the year, the price effect will be between 1% and 2%, let's say, 1.5%. It is too early to make definitive conclusion, but I believe that we will have more than 1% in terms of top line contribution. Regarding capacity utilization, considering the very fragmented picture and situation in our group. I believe that it is very important to say that the capacity utilization in the companies that suffered the most, I've mentioned WALVOIL and White Drive, and also some other minor companies, increased in a very significant way in the last 2 to 3 quarters. And I believe that focusing on the drug division being the Water-Jetting more flexible and more reliant also on outsourcing, I would say that in Hydraulics division, today, the capacity utilization is something like 95% with some companies that is in better shape and some others is still suffering a bit, waiting for some further quarter of recovery to join the 100% utilization that, of course, will be very beneficial in terms of profitability. Regarding Water-Jetting big projects, I mentioned the positive environment and the positive long-term trend of demand in this world in this business. What I can confirm is that we have many different projects underway and under discussion. Number one, so big and so important, such as the one-off last year in China, but many projects in the millions, many projects that are relevant. What is important to say is that the long-term trend of higher attention and higher sensitivity of the industrial world operator toward a more sustainable industrial approach is continuing, and we believe it will be -- it is today and will be beneficial to our technologies and our projects within the long-term perspective.

Next question is from Michele Baldelli, BNP Paribas.

I have three questions. The first one relates to the Section 232 of the United States Tariff Duties, the one changed on the 6th of April. If you can give us some color on what kind of impact that can have on your business? The second relates to the trend of the Water-Jetting division, specifically concerning the Far East and Oceania, you've seen in Q1 a strong drop. So I was wondering if last year also in Q1, you had specific big contracts, because as far as I remember, the Chinese contract was impacting Q2, but I may be wrong. So if you can give us some color also on this. And finally, impacts from the Middle East, did you suffer from some deliveries that could not happen because it was not possible to send certain pumps in the Middle East. What has been the impact from this crisis there, given that I imagine some projects in the petrochemical needed also probably some process plants and so on.

Thank you, Michele. Regarding the Section 232 of the tariffs, I would like to say that we have had around EUR 6 million impact in the first quarter of the year that has been completely transferred to our customers. There is a huge debate in this day regarding the reimbursement of the tariffs and how this will be managed by the U.S. administration where the companies that paid as importer of goods, and the customers that have been paying passing through this amount. And it will be a very important topic, I believe, on the second part of this year, the way in which this reimbursement will be managed there. And the consequence on everybody P&L. I believe that it will be very clear that we can reimburse on like everybody else can reimburse only the amount of money that will be received back by the U.S. administration. But today, what we have paid is what we have transferred to the customers. Regarding the Chinese mega order that we have been debating a lot these orders, these mega projects were delivered in two moments. The first one, the smallest one was delivered in March last year and the second in June last year. And then the impact or the tougher comparison base, we characterize the first and the second quarter of this year. Middle East crisis and the impact. Clearly, we had several impacts, direct and indirect. Some projects, some business, some CapEx is being postponed in the region, and this is a direct impact. On an indirect point of view, clearly, the effect are tougher and more important because the delivery time from Asia to Europe has increased. The cost of transportation has increased a lot. And then this is something that we are managing, also thanks to our higher-than-normal level of inventories, but it's something that is affecting or has affected the day-by-day management of the business and the protection of the profitability. And one of the reason why we are obliged to increase price or to apply energy cost surcharges is also because of this Middle East crisis that is affecting the transportation of growth from Asia to Europe and vice versa.

Next question is a follow-up from Domenico Ghilotti, Equita.

I have a clarification and then a question. So the clarification is just to be sure that on -- I understood properly on the Water-Jetting trend. So you said around 1.1 book-to-bill for Q1, and you were mentioning that in April, sales were positive, and Water-Jetting, clearly, we will have the very tough comp in June. So we have to consider that for the quarter, clearly you have this comparison. And then the question is on your view on the opportunity of the share buyback, you have started. We have seen already some share buyback programs, with the stock down also today and your mood and your speech are quite more constructive. I wonder if you are more willing to use this lever as an opportunity.

Regarding Water-Jetting, the book-to-bill to 11 was in April, and the positive organic growth in April is very comforting because it's, in some way, a like-for-like comparison, then it's very comforting to us as well. But clearly, we have this June a very positive amount -- we had this June '25, very positive amount. But in any case, without concentrating too much on short-term or monthly results and performance, what really matters is the continuation of the long-term trends of better penetration of our technologies and long-term higher retention to a more sustainable industrial activity world in terms of efficiency, in terms of water consumption, energy consumption, and we are very, very well positioned, with our products, our components and our systems to have positive demand and positive evolution of top line coming from these trends. Regarding buyback, you note and you mentioned what we have already done. We have bought in the last couple of months, 1.3 million shares, investing EUR 45 million, EUR 47 million. And clearly, something that considering also the very depressed level of the share price, we are considering to do again in the short term. Clearly, our primary as commented many times, way of investing our cash flow is acquisition and M&A in order to grow our top line and to grow the size and the meaningful of our group, but we can do clearly, both considering how strong is our balance sheet and how strong is and will be our cash flow in 2026.

Next question is from Michele Baldelli, BNP Paribas.

Yes. Sorry, we could not end the call without asking a question about M&A. Can you give us some more color? Or is it something steady state compared to the last messages you gave just to have an update?

I would say that steady state is a good way of describing. We are very focused. We understand the opportunity because in uncertain time, strong companies and strong groups such as Interpump may find a very good and interesting opportunity at the right prices, and then we are positive on the outlook for the remaining part of the year, but also with a midterm perspective.

[Operator Instructions] The next question is from Fraser Donlon, Berenberg.

Fraser Donlon from Berenberg. I'm sorry to ask a question which has been asked in different ways already. But I wrote down that you said the book-to-bill in Water-Jetting was in Q1 was 1.5x. So if it was EUR 160 million of revenue, that would imply orders around EUR 240 million. Did I just mishear that?

Probably I said 1.15.

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

Thank you. Thank you, everybody, for participating today. We will update, and we will meet again on August 5 for the second quarter and first half results. Thank you so much.

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