Tesmec S.p.A. ($TES)

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

Good morning, everyone, and thank you for joining us at the presentation of the Q1 results. Throughout the first quarter, we can say that we remain focused on executing our strategic path, delivering results that are, we can say, in line with our expectations. Overall, if we look at the performance of the group, we can say that the performance reflects different stage of progress towards our objective and does not yet fully capture the performance expected over the rest of the year. I will start our presentation with a focus on the main positive aspect of the first quarter, starting from revenues. Revenues increased by 7.4% compared to Q1 last year, driven especially by the strong performance of the energy business in both segments which showed basically the solid momentum of this part of the company. A second aspect that for sure is very important of our results is that at the bottom line, the group returned to a positive result compared to last year with a profit -- a net profit of EUR 1.1 million compared to EUR 1.4 million loss last year in the same quarter. And for sure, a very important aspect is the further increase the further growth of the order backlog that now reached EUR 474 million, mainly supported by the new contract acquired by especially the Railway business. Of course, this result is very important for us because it give us positive medium-term visibility for our business in each of the business lines of the group. Turning to the areas where the progress is still ongoing. I would like to focus on EBITDA. EBITDA increased compared to last year, but the 15.3% of EBITDA in our opinion, is still not reflecting fully our group potential, but we expect an acceleration in the next coming quarters. Another point where we are still making progress, probably we can say is the performance of the Railway business. I will go later on more into the details of this part. But let's say, we see that the Railway -- the performance of the Railway business unit was affected by the delay of the start-up of the new tenders acquired. However, as commented a few minutes ago, the backlog give us a lot of positive perspective for -- especially from the second half of the year. Finally, looking at areas that are still in transition, the Trencher business unit showed a performance that is lower than Q1 last year, but at the same time, show a gradual recovery compared to the performance of the second half of last year. Of course, we expect even in this case, some better development in the next coming quarters. In summary, let's say, this is the general picture. Now with our CFO, we will go more into the details. I would like to say that we are -- let's say, the results were in line with our expectation, and we will go on in the next coming quarters with the same discipline and consistency in order to give further progress to the figures of the group. As said, I leave the floor to our CFO for a deep dive into the financials.

Thank you, Carlo. Welcome, everyone. As usual, we are making reference to a brief presentation that was made available on our website at the Investor Relations section. So starting from Page 5, the P&L and KPI of our January to March period. As Carlo anticipated, revenues grew at 7.4% at the end of March this year against the first quarter of last year as a result of the dynamics of the various business units that Carlo briefly mentioned and on which we will come back in a few minutes. In terms of EBITDA, the EUR 10.1 million, representing 15.3% against revenues that we achieved at the end of the first quarter of this year are the direct result of and reflect the contribution to mix of the various business units, starting from energy business. The EBITDA per se grew at a lower pace than the top line, as the 10.1% are marking a 6.4% increase against 9.5% of 2025. Worth to note that as a whole, the profitability of sales remained substantially stable in the first quarter, which is not the strongest of the year historically. While in terms of EBIT, this was partially recovered. We closed with an EBIT marking 7.1% against the sales and reaching EUR 4.7 million, thus growing slightly below 9%. If you look at financial charges, we are finally seeing reflected at the P&L level, the reduction of net financial position that we initiated starting from July 2024. If you remember at the end of June 2024, we reached a top in our net financial position. I will go back on this in 1 minute. The progressive continuing and continuous reduction of our net financial debt since then and in particular, against the level of the first quarter of last year contributed to a reduction of EUR 0.6 million, so around 14% reduction quarter-on-quarter in net financial charges, meaning net interest paid to banks and financial institutions. This allowed us to reach a rounded up number of EUR 1-plus million in terms of result before ForEx variations and taxes. If we comment the ForEx impact at the P&L, there was a huge improvement against last year. We already commented that the ForEx variations in the reality of Tesmec are largely unrealized. We commented this discussing about the negative figures of last year. We reiterate this also in presence of a positive figure of this year. As you can see, we had a progression against the around EUR 1 million loss of 2025 the first quarter to the progress, the improvement of EUR 0.7 million at the end of March. This is mostly linked to the euro-USD exchange rate, the devaluation of the euro intervened or if you prefer the strengthening of the dollar intervened between January and March against December 31 last year led to a revaluation of this also with the contribution from the Australian dollar. These are the two single most important foreign currencies influencing this item of our P&L. Then after the taxes, there was a positive contribution last year in terms of deferred taxes. Clearly, we turned the result to profit this year. So after provisioning the relevant taxes, as Carlo anticipated, we best from a loss of around EUR 1.5 million in the first quarter of last year, also reflecting the IFRS 5 contribution from the assets under dismissal linked to Groupe Marais to a profit slightly above EUR 1 million, thus marking an increase in the first quarter of EUR 2.5 million. As far as the net financial position is concerned, and I would invite you to skip to Page 7 of our presentation, if you look at, first of all, the stock numbers and then the flows. Net financial position decreased in December from EUR 130 million to EUR 126 million in a quarter that historically for the ones who have been following us in the last years that historically is characterized by an increase -- a seasonal increase in our net working capital. This didn't materialize this year in financial terms, as you can see, and in terms of contribution to this reduction in net financial position, first point, as already said last year, -- as anticipated last year also with regards to 2026, the curves of depreciation and investment finally met. So as you can see, the total value of CapEx plus fleet slightly below EUR 5 million are below the total level of depreciation. This is very important. That means that the EBIT and to a more larger extent, net result are really closest to an indication of cash generation before the variations of net working capital. Net working capital marked recorded a positive variation of EUR 2 million, while the operating cash flow before the variations of net working capital and CapEx reached the value of EUR 5 million. But again, considering this is the first quarter of the year is a good way of starting the 2026. Just a couple of comments on -- as you can see before the IFRS, our, let me say, net financial position against the banking system and financial institutions is around EUR 100 million. If you consider that EUR 70 million are represented by self-liquidating net working capital, that means that industrial debt is around EUR 30 million as a simple difference against in terms of duration and coverage, mid long-term debt already net of a portion expiring in the next 12 months close to EUR 80 million. That means that in terms of financial structure and financial flexibility, the group as this can be measured in the tenor of EUR 50 million, which is quite an important number. I would stop here as far as the brief comment of the financials are concerned and leave the floor to our CEO.

Thank you, Ruggero. So now let's go and have a look at the figures and the key facts of the business side, starting from the Trencher business unit. we have to say Trencher business unit entered in the first quarter in a recovery, we have to say, especially compared to the second half of last year that was pretty tough. Even if it's still reflecting some -- a weak start of the year in some countries, specifically Australia, where we have to say more than the type of -- more than the business is more reflecting a much more selective approach from the company on the project activity that is the one that historically has been more complex to manage for Tesmec. But at the same time, there are these dynamics that were partially offset by a positive performance in markets such as North Africa and U.S.A. we will see that the U.S.A. strong performance will be a common path also in the energy business. This aspect is very important for Tesmec considering the fact that North America is our main market besides Italy. The backlog is evolving in the business unit with slightly increasing and also thanks to the opportunities that we're looking at the market and the higher production volumes let us think with a positive mindset to the rest of the year. One key aspect I would like to underline for the Trencher business is the approach, the approach on the market and for Tesmec that has been evolving and changing with a strong focus on positioning in high productivity and high-value applications such as pipelines and mining that are, as of today, the technologies and the applications that are foreseen with a stronger performance worldwide. Let's move on to the Railway business. We know that the Railway business in terms of financial doesn't look too promising, but I would like to -- because basically, both in terms of revenues and EBITDA, the performance of the group were stable and in line with the first quarter of last year, and we have to say not very positive. But I would like to focus my attention and to focus my presentation in some of the key facts that in my opinion are a very strong signal of how Tesmec is changing from a market positioning in this business. You must have read in the last couple of months, we -- there was a very important award in the Railway business unit in Slovenia of EUR 71 million contract. And there were some important certifications for key markets that for this type of technology and for this type of industry are a very important step for broadening our markets in -- outside of Italy. In Italy itself, there is a positive outlook in this business also supported by order intake with our main customer. So for this reason, from a financial perspective, the performance were a bit flattish, driven by a transition period between the old contract and the new -- the old projects and the new projects that were a bit delayed. But the perspective are very strong, especially from the second half of the year. And from a managerial perspective, there are also some very important actions taken by the company in order both to optimize the approach to enable the scalability of this business if you look at the backlog of this business unit, it's clearly understandable why. And also some organizational strengthening that is very important in order to be more disciplined in executing the contracts and the opportunities that we have in place. Last but not least, let's have a look at the Energy business -- the Energy figures. The Energy figures are positive in each financial included in our presentation and are driven by the growth of both segments, both the streaming business with the transmission world and the energy automation with the substation world. The performance are good in terms of revenues are positive and there is a strong increase of the EBITDA that is driven for sure by volumes, by -- and so operating leverage. But at the same time, also the result of some operational and supply chain optimization led by the company in the last, I would say, couple of years. And as I said, the same as for the Trenchers also by the contribution of the U.S. market that is historically a very crucial market for the Energy business unit. Looking at the key facts, one last point that is very strategic in perspective is that we -- in the first quarter, there was a strong increase of the execution of the digitalization of the substations project of Tesmec that are representing a big part of our backlog and are representing the result of heavy investments led by the company in the last few years. Before going to the general outlook of the company, I would like to reiterate the message that both me and Ruggero underlined in our presentation that is backlog. The increase of the backlog for Tesmec is extremely important and extremely strategic because it gives the visibility and I would say also positivity to the business itself. I would like to say the increase in the backlog, of course, in the big numbers is driven by -- especially by Railway and Energy Automation. But what's more important also because of the different duration of the backlog of those business units. But I would say it is very important also in terms -- is very important the fact that each of the business line of the group are increasing their backlog quarter-by-quarter. And this is very important also for Stringing and Trenchers. So before moving to the Q&A session, let me briefly comment our year-end outlook. Of course, as you may read every day, the overall environment and the macroeconomic context and there is still some limited visibility across the market. For this reason, we prefer to keep a very prudent approach with a very close and continuous monitoring of the different dynamics of the market. That said, despite all the challenging environment just described, we believe that we are at the moment with the right technologies, with very competitive technologies in very strong and growing markets. So for this reason, we keep a positive expectation for the rest of the year. And let's say, we expect an improvement of each of our financials compared to last year and compared to the first quarter of this year. For this reason, I would say, so complex dynamics, complex scenario, but at the same time, positive outlook for the rest of the year. I think the presentation is done. So we are more than available to reply to any further questions. Thanks.

[Operator Instructions] The first question is from Emanuele Negri, Mediobanca.

I have three, if I may. The first one is on the net financial position, which had a really positive performance in the first quarter. Is it fair to assume that maybe seasonality will be negative in the second quarter and that a gradual normalization and then improvement should come in the second half, maybe to close with a net financial position on EBITDA below 3x at the end of 2026. The second one is on the Middle East. Did you record some delays in deliveries in the Middle East, which may have shifted some revenues from the first quarter to the coming that this may support an acceleration over the coming quarter? And then the last one is on the inflationary pressure we are seeing worldwide and you mentioned in the presentation, which kind of mechanism do you have in place to face this cost inflation?

Emanuele. If you don't mind, I will start with the questions related to the business, and then I leave the floor to Ruggero for the net financial position. So starting from Middle East, for sure, we have seen some complexities, especially from a logistics perspective in the Middle East area. Let's consider that the Middle East as of today accounts around 10% of our overall revenues of the group. So for sure, there were some -- there was a complexity and there were some little delays in the logistics space. But as far as today, the market is still very strong and the customer needs are still very -- are still in line with last year. So from what we -- as far as we know with the situation as of today, we see still a strong performance of Tesmec in that area for 2026. Of course, with the situation as of today, then of course, whatever happens, we are not able to predict the future. But we are still confident in that area also because our key marketing area is the Saudi market that we see with a very strong potential of development for Tesmec. In terms of inflation, yes, we see there are some changes in the supply chain as of today, keep into consideration that the main complexity for Tesmec is related to the framework agreements that we have in the -- especially for Energy Automation and for Railway. And generally speaking, I would say those contracts all have a general formula of price revision that gets updated quarter-by-quarter. So on that side, we think we are pretty much covered by our customers themselves. On the other side, of course, we see there can be some impact on with the business with regulation with private customers. So the effort that Tesmec sales force is doing as of today is to try as much as possible to reflect those inflation on our customers. It's a day-by-day negotiation also refer to the evolution that the prices will have in the next coming weeks. But let me say, the type of relationship is different compared to the public utilities with the framework agreement. So also the power of negotiation for Tesmec is different. Now I leave the floor to Ruggero for the comments on the net financial position.

Thank you, Carlo. Emanuele, you marked two aspects. First of all, the theme of seasonality. Yes, historically, you are based on the historical figures, you are definitely correct. And on top of this, I have to say that our backlog is continuing -- has been growing, and we expect it to further grow. At the same time, our managerial target is to work aiming at keeping as much as possible the net working capital under tight control. And so this is the question to the first part -- the answer to the first part of your question. Clearly, this function of the evolution of the geopolitical situation and specifically in terms of logistics. But on this, Carlo provided you with a specific answer as far as your second question was concerned. Aspect number two, you were mentioning that the debt equity to the debt-to-EBITDA ratio. I will -- we did not share any specific data in terms of forward-looking earnings. And as Carlo anticipated, we shared a qualitative guidance. Based on this, I would prefer to reply looking at the historical numbers. The ratio between net financial debt and EBITDA at the end of 2024 reached the value of 4, so 4x net financial debt against the reported EBITDA. At the end of 2025, this ratio lowered down to 3.2, so marking a significant decrease. At the end of March, considering the rolling 12 months EBITDA against the debt at the end of March, this ratio decreased further to 3. And if you exclude the portion from the net financial position linked to the IFRS 16, this ratio would planet to 2.4. So this is my answer. Clearly, based on the evolution of net financial debt and the EBITDA we are working for a further improvement of the overall financial situation of the company. We prefer to reply to this question quarter-by-quarter.

The next question is from Enrico Coco, Intermonte.

So I have questions for each of the business. I will start with Trenchers. In Trenchers, I see the EBITDA margin in the first quarter was below 12%. It was 17% last year -- in the first quarter of last year. But if I see the volumes, you had some decrease in volumes, but not so much. At the end, the revenues were down 7%. So in terms of volumes, the Trencher business is holding up pretty well, EUR 32 million revenues last year, around EUR 30 million this year. But again, on the EBITDA margin, I see the margins are pretty lower compared to last year. So my question is if in the first quarter of this year, you had the impact of one-off items, for example, in Australia or these kind of margins are the right margins with the new environment for the for the Trenchers, then on the Rail business, my question is when we will see an acceleration in the backlog conversion if this is going to be in the second quarter or we have to wait for the second half of this year to have an acceleration on the revenue side? And then my last question is on the Energy business and is simply this question. Do you think -- are you thinking about increasing the capacity you have in the energy business? Or do you think the structure you have is enough to face a demand which is rising really strongly?

Thank you, Enrico. Okay. Let me start with Trenchers, as you said, Trenchers volumes are pretty much stable compared to last year. EBITDA was affected. Yes, correct. I would say, no, there was no one-off in the first quarter. But I would like to -- of course, the check and the equation compared to the first quarter of 2025 is really important for financial institutions. honestly, from a business perspective, we think that it's better to make a comparison between the performance of Q1 compared to the last -- the second half of last year. We have to say as said, Trencher entered a gradual recovery phase of the business. So the performance of the second half of last year was negative and was not in line with our expectation. From our perspective, the performance of the first quarter showed an improvement. If we look at the question you gave us about the EBITDA, no, we don't think that the EBITDA of the first quarter is the one expected and the one typical for this kind of business. But we see keep into consideration that we are coming after a period where because of the increase of discipline on the respect of our financials, we have strongly decreased in the last 18 months, the production level on Trenchers. First quarter of this year, we are strongly increasing this part because we see a higher demand on the market. Of course, we will see a progression from quarter-by-quarter. So we expect to be back to a normal level during the rest of the year. On Rail, on the other side, I think it's written also in our presentation, the backlog conversion we see for Railway, of course, this is -- as I said, this is a bit of a transition period between the old contracts that were finalized that were basically finalized from between last year and the beginning of this year and the new contracts recently awarded. But we see the backlog conversion to start significantly from the second half of this year. As said, I would say the backlog increase and also the different type of certification that we got for different type of markets give us positive insight and positive expectation for the rest of the year. In Energy, last but not least, Energy -- as of today, the investments on the increase of capacity of this business unit were already done by Tesmec in terms of layout, in terms of production capacity, in terms of CapEx. Keep into consideration that, for example, 2 years ago, we invested in a production facility for the Stringing business that is 3x bigger than the previous one. So the investments in terms of the CapEx for increase our capacity and the same was done for Energy Automation, where we made an acquisition of a new plant for the Energy Automation business last year. So in terms of CapEx, no, we don't expect a need of CapEx to increase our capacity. Of course, the big challenge will be about man hours. Of course, the production is strongly increasing in volumes. So we have a big demand of man hours. So we are looking for new personnel in production. And at the same time, we are using the network of suppliers and partners in the supply chain of in order to face the strong volumes of requests coming from our customers.

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

Okay. Thank you very much. So I hope we were clear enough in giving you an overall picture of our first quarter of the year. Of course, we are available for any further questions in the next coming weeks. Thank you for your attention, and see you all for the results of the next quarter.