Arteche Lantegi Elkartea, S.A. (ART) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the financial year 2025 results. I'm [ Inigo Diaz ], part of the Investor Relations team and together, with us is Alex Artetxe, Chairman and Chief Executive; Luis Maria Perez, General Manager; and Ixone Vicent, Chief Financial Officer. You can access this presentation through our website, www.arteche.com. [Operator Instructions] I give the floor to Alex Artetxe.

Good morning. Thank you, [indiscernible], and thank you for joining us on this call to present our results for the 2025 financial year, I'm Alex Artetxe, Chairman and Chief Executive Officer of Arteche Group, and I'm joined today by Luis Maria Perez, General Manager; and Ixone Vicente, Chief Financial Officer of the group. It's a pleasure to share with you the close of a particularly positive year for Arteche, not only from a financial point of view, but also because the important strategic milestones achieved during this year. As many of you already know, the 30th of January, the CNMV authorized the transfer of Arteche from BME Growth to the main market. And since the second of February, our shares have been listed on this market. This step represents a key milestone in the group's history and reflects the degree of maturity and consolidation, it has achieved. For Arteche, this achievement confirms its solid and sustained growth, both in financial terms and in key areas such as corporate governance, ESG criteria and alignment with the highest market standards. Today, we can say that Arteche is a robust industrial company, well positioned and with a clear value proposition within its sector. In today's presentation, we're going to give you an overall view of the year, the main figures. And we will conclude with what we expect for 2026. And we will do it among us 3. But before going into detail about the figures, I would like to remind you that as a result of this market change, we have converted our financial statements from the Spanish general accounting plan to international standards like IFRS. All information relating to this conversion is available on our investors website in the Investors corner section. And in the appendix, you will find a specific slide showing the main impacts of this conversion. So now let's move on to review the main financial figures as well as the milestones for 2025 financial year. The key messages are very clear. Growth, improved profitability and solid value creation, all while maintaining a very healthy financial structure. Firstly, in terms of order intake, we achieved EUR 590 million, representing growth of double digits, 16% compared to 2024. This order intake provides visibility of future revenues. In terms of revenue, for the first time in the group's history, we exceeded the EUR 500 million mark with solid growth of 15%. This milestone reflects not only a higher volume of activity, but also consistent operational execution throughout the year. From a profitability perspective, we have good news. The process has been particularly significant. The direct margin improved by 170 basis points compared to the previous year standing at 37.3%. And this is directly reflected in the EBITDA, which reached EUR 80.5 million with a year-on-year growth of 43.6% vis-a-vis the previous year. There is a bit margin expanded by 310 basis points to 15.8%, clearly exceeding strategic benchmarks, and it confirms our ability to convert growth into profitability. All this has been achieved while maintaining a very solid financial structure. Net financial debt to EBITDA even including inorganic operations stood at 0.3x ratio at the end of 2025 compared to 0.5x at the end of 2024 levels that we consider very comfortable. And it gives us the ability to approach growth. In addition, free cash flow for the year amounted to EUR 25.8 million, reinforcing our financial flexibility. And then finally, consolidated earnings almost doubled, reaching EUR 45.3 million, representing a year-on-year growth of 93.4%. So overall, 2025 has been a very good year where we've created tangible value where we not only have grown, but we have done it in a profitable, disciplined and sustainable manner, laying a very solid foundation for the next cycle of growth. Let's have a look at the idea from a qualitative perspective and the progress of corporate development recalling the pillars of the 2024-2026 strategic plan energizing future together. We continue growing and strengthening our leadership in high voltage and relays and improving our market share in key markets such as United States, Australia and the United Kingdom, which are very important markets for us. All this is thanks to an excellent execution of the road maps defining in each of the business pillars, which combine product development, organic growth and reinforcement through alliances and acquisitions such as the addition of Amets, RTR in the power quality business or Arin technologies in the grid automation and digitalization business this year. We continue building the future with a long-term vision that characterizes us based on the 3 pillars of our strategy, innovation, sustainability and talent. Luis will go into more detail later, but I would like to highlight that this year, we have made significant progress in our ESG objectives. We have transformed a range in new products with new automation and new protection and control rate, which is already in market. We continue to move forward, turning innovation into business opportunities and accelerating and strengthening our capabilities in line with our inorganic growth plan. Let's move on to the next slide where we will see our road map and the group's ESG performance. As I have mentioned in many occasions, sustainability is an interesting part of Arteche. It's not something new for us, but rather a strategic focus that has evolved and gained importance as the company has grown. And we are moving firmly in the strategic plan and our commitment to sustainability. And this is shown in the improvement of our ratings at EcoVadis, we have improved our score to 73 out of 100, placing the full areas assessed environment, labor practices and human rights, ethics and sustainable procurement. And we retain our silver medal, which places us in the top 15% of all companies accessed. And if we compare ourselves only with our companies in our sector, we rise to top 6%. At CDP, we raised our rating from B to A minus which places us as leaders and recognizes the implementation of best practices in decarbonization, climate risk management and transparency. All these advances reflect across organizational effort and reinforce the credibility of our ESG approach. Moving on to the environmental objectives that you can see on this slide. In the reused or recycled waste, we reached 89% compared to 69% at the previous financial year, bringing us very close to the 100% target set for 2030. In terms of reducing our carbon footprint, we have achieved a cumulative production of 22% moving towards our target of 2030. And we -- it should be noted that we have changed the base year to 2023, as we have registered with the SBTI, which is the science-based target initiative. And this is an initiative that helps companies to set clear and measurable goals to reduce that greenhouse gas emissions based on scientific criteria. In terms of renewable electricity consumption, we have reached 72%, exceeding our internal target for 2025 and getting close to the 100% goal. We have plants that are operating at 100% renewable electricity. In the S or on the S and the social sphere, where people are at the heart of our strategy. We're also moving forward in terms of equal opportunities. We have reached 33% of women in management positions, exceeding our internal target and make it solid progress towards 40% set to 2030. And this is for 2030 in health and safety. And the fact that people who work in Arteche go back home safely. We are moving forward in our commitment and our commitment is very clear, is to move decisively towards the goal of zero accidents by 2030. And finally, in governance, we have strength in transparency and internal control. We have adapted in 2025, our procedure, regulations and corporate policies to the requirements of the main market. We have continued to make progress in the implementation in the risk management and financial in SCIFF, which is mostly implemented in all geographical -- in most geographical areas and with the aim of achieving a system fully audited by a third party by 2030. And we have also made progress towards a goal of having an equal Board of Directors by 2030. So in short, this is a long-term journey, but the progress we are showing today demonstrates that we are achieving significant milestones with ambitious and measurable goals. Our aspiration is clear to continue building an Arteche Group with a positive and lasting impact integrating ESG principles in all business decisions. Just to summarize the first part of this presentation. If we move on to the guidance that we share with all of you in the result presentation in the first semester last year, we can confirm today that we have not only -- we have exceeded our plans in terms of EBITDA as EBITDA margin, both there are -- both are about the expectations communicated and demonstrating the group's operational strength and the quality of the plan's execution. I would like to mention that the data that we're seeing here is the comparison vis-a-vis the general accounting plan, which was the guidance that we gave and which refers to the strategic plan, as I said at the beginning, the comparison, you can see it on this presentation at the end of the slides. So this performance reaffirms Arteche's ability to generate sustained profitable growth while reinforcing the company's credibility in delivering on its strategic commitments and our position to continue creating long-term value for our shareholders. This is an overview for the year, and I would like to give the floor to Luis so that we can look at the businesses.

Thank you, Alex, and good morning. Next, we will give a brief overview of the 3 product pillars that make up the Arteche Group's portfolio. The first pillar, which is the largest in terms of percentage volume is measurement and monitoring, instrument transform, we tend to call it. Arteche has a very wide range, probably the widest on the market, both in terms of voltage levels and the technology used. In 2025, we have focused on 2 areas. Firstly, the development of new and more sustainable equipment, and secondly, increasing our production capacity to meet market demand. With regards to sustainability, what we've done on this product range, we have introduced new optical technology equipment for HVDC projects. And we have replaced SF6 insulation with clean air in both auxiliary service equipment and in medium-voltage equipment. And the second focus, it's related with the capacity we have made investments in Mexico with the opening of a new high-voltage lab in November 2025. In this way, we can access clients in the U.S., and we have increased our production capacities in China and Spain. And then the second pillar is grid automation. And 2 focus have been, on the one hand, the industrial efficiency. And on the other, the business development activities. With regards to industrial efficiency, we see a consolidation of industrial activities with a plant in Mexico so that we can be more efficient. And secondly, we see the creation of a joint company with Redeia through the Elewit, which is plus deep mechanism. Joining companies that generate solutions on automation for grids. And finally, the third pillar, which is the grid efficiency has undergone the greatest transformation in the past year with inorganic activities. As Alex has said, in June, we acquired a company in Madrid, RTR located in Pinto, Madrid and specializing in capacitors and power quality solutions. And then we have formalized another joint vendor called AMETS and in Mondragon, and it's about developing power electronics, and we will see products in the following months. But before we begin to review the order intake and turnover figures in detail, I would like to recall the main milestones for 2025. Alex has mentioned them, but I think it's a good idea to reinforce them. As we said, we reached nearly EUR 600 million of order intake and EUR 500 million in sales. We are growing above the market. And on top of that, our direct margin has increased significantly. So both the EBITDA, as well as the final result has reached very positive figures. Our indebtedness, debt level is very low even after the inorganic operations carried out despite that we have carried out inorganic operations. And on the next slide, I'm going to talk about order intakes and contracts. Well, we usually show this slide and we give 2 views. On the left-hand side, a geographical information. Well, on the right-hand side, we look at the 3 business pillars. I would like to recall that Arteche is organized into 4 regions, EMEA, NAM, North America, Asia Pacific and Latin America, and all of which experience in order intake, double-digit growth. Furthermore, the region with the highest percentage growth it's APAC is precisely the one we have declared as our main growth objective in our '24, '26 strategic plan. I'm going to continue talking about order intake. On this slide I was saying that on the left, we had the geographical information. On the right, we look at the product lines in terms of the geographies. All of them have double-digit growth. I'm going to go a little bit quicker to catch up and the region that grows more or is the APAC where we had a smaller market share. We are very diversified geographically. Arteche's Group 10 markets 4 belong to the EMEA and 2 to NAM, APAC and LatAm, respectively. And if we shift our focus to the 3 business. We see that the pillar that is growing the most is network reliability, which in turn is the one with the most inorganic activity, although this has not been fully reflected in the figures, the RTA acquisition was done in June. And to conclude, I would like to point out that we have increased our portfolio to more than EUR 355 million, which is equivalent to around 7 months of turnover in 2026. In the -- and the book-to-bill ratio is stable around 1.16x. On the next slide, Page 12, we can see the revenue by geography and by segment. So we have the 2 views by geography and by pillars. On the geography side, we see strong growth except for Latin America, where the sales of 2025 refer to the order intakes of 2024. And in 2024, we had fragile markets especially in the Argentina. So we will hope that it will recover in 2026. And in terms of business lines, percentages are kept for all lines, and we will increase 15%, which is above the market. And sorry for the interruption, I might give the floor to Ixone.

Thank you, Luis, and thank you to all for being connected. And moving on to the next page, we begin analysis of profitability. As usual, we begin with the direct margin, which for us remains the main indicator to measure profitability and to measure the quality of business growth. Remember that direct margin includes all costs directly related to the product material cost, direct personal cost and other direct costs, such as logistics and commissions. This slide clearly shows a sustained improvement trend over recent years, culminating 2025 in a direct margin of 37.3%, which represents an increase of 170 basis points compared to 2024. Beyond the percentage growth in absolute terms is 18.6% above sales growth, which translates into a direct margin of EUR 191.3 million. This is thanks to the ongoing efforts of the Arteche team and initiatives that we have been implementing for several years, which continue yield results. In summary, I would highlight 4 main levers. First, a pricing and product mix strategy focused on protecting and improving the commercial margin. Secondly, improvements in operational efficiency, both in labor productivity and in the optimization of industrial processes. Thirdly, efficient supply chain management with control of material and logistic cost and optimization of the mix of external and internal suppliers. And finally, last but not least, the launch of our new products and the redesign of existing products. The work of the [indiscernible] department, which translates into more competitive and profitable solutions that this has contributed to improving the margin. And I would like to highlight that the margin has improved in our 3 business segments with particular strength in the measurement business. The following slide shows the evolution of EBITDA where we, again, see a sustained growth in profitability over recent years in 2025. EBITDA reached EUR 80.5 million representing a 15.8% in margin on sales, an improvement of 310 basis points compared to 2024 for exceeding the target set in our strategic plan for 2026. So EBITDA growth is mainly driven by higher sales volumes supported by our very good position in the sector and by initiatives to continuously improve operational productivity that we referred to talking about the direct margin. But apart from that, the structural expenses stood at 22.2% of sales, down 60 basis points compared to 2024, reflecting a better absorption of fixed costs. So higher volume, higher operational efficiency and greater fixed costs leading to EBITDA growth of 43.6%, well above the 15% growth in sales. Like in direct margin, I would like to highlight that the ratio to EBITDA is improving in all 3 businesses. All 3 businesses are contributing positively to this increase of EBITDA, and this is thanks to our good position in the market that allows us to grow in a more profitable and sustained manner. And if you look at the indicator, in 2023, we are around 11.3% of margin over to EBITDA. And in 2025, we have 15.8%. We have improved 450 basis points during these 2 years of the strategic plan. And moving to the next slide, let's talk about the consolidated year results for this year, which clearly reflects our commitment to long-term value creation. Here, you see the evolution over recent years. 2025 marks, however, a very significant turning point with a profit growth of 93.4% reaching EUR 45.3 million. We've seen that this is not a one-off progress. This is the result of a very consistent trajectory in recent years. In 2023, we had EUR 15.2 million, EUR 23.4 million in 2024 and finally, EUR 45.3 million in 2025, practically doubling profits in a single financial year. This is driven by the good performance of the business. But apart from that, over these past 2 years, we have reduced both the financial burden as well as the tax rate and reinforcing thereby the impact of the operational improvement on the financial results. So the profit grows at a higher pace than the activity. And we see this in the earnings per share, which will rise from EUR 0.41 in 2024 to EUR 0.79 in 2025. So in conclusion, we've grown strongly, and we have consolidated and we have created value. And in line with our commitment to distribute dividends we distributed EUR 9.4 million in 2025, which is a dividend of 50% and the Board of Directors will propose to the general shareholders meeting the distribution of the 50% dividend in 2026, which will be amount to EUR 22.6 million. So this will be more than double. And to conclude the more quantitative part, and we will need to talk about debt and cash generation. We will show this slide how we go from one debt in 2024, 2025. We start with cash generation from EBITDA, and first of all, with CapEx, with amounts to EUR 25 million, 5% of sales. This CapEx is organic, and we distributed in 4 blocks. And we have maintenance CapEx. CapEx for process digitalization to improve operational efficiency, and accelerate the group's technological modernization. CapEx for capacity expansion to meet growing demand and finally, [indiscernible] CapEx aimed at expanding product portfolio and developing more sustainable and more digital and more profitable equipment. Among the most significant investments of the year, the expansion of facilities in Mexico, the opening of -- November of the new ultra-high voltage lab and progress in the expansion of plants in China and in the past country. And these investments, we are accelerating in response to growing demand in EMEA and the Asia Pacific. After CapEx, the cash flow includes financial expenses and taxes, which account for approximately 2% and 3% of sales, respectively, as well as working capital requirements. With regards the working capital in 2024, we saw significant improvements. We reduced working capital despite the growth in activity. In 2025, we have made progress, and we have reduced inventory days, and we have improved collection periods. So free cash flow amounted to EUR 25.8 million, representing a cash conversion rate of 32% of EBITDA. And if we exclude expansion CapEx, this conversion rate raises to 58%, well above the strategic plan guidance. And then we have cash outflows associated with the dividend and inorganic operations. And all in all, net debt stands at EUR 22.7 million, implying a ratio of 0.3x EBITDA compared to the 0.5x in the previous year 2024. And then moving on to the graph on the right, which is a usual graph on this results presentation. There, you can see the structure of the gross debt. We maintain a diversified structure with 41% bank debt, 50% institutional debt and 10% from our promissory note program. In line with our financial risk management policy, 79% of loans, fixed rate or hedged, bringing the average cost of debt to around 3.4%, slightly below 2024 with an average maturity of 3.5 years, considering that we have EUR 58 million in the loans and that we still undrawn the maturity extends to 5.1 years. So in summary, we continue to strengthen our financial position with a clear focus on cash generation and a diversified, efficient and well-sized financing structure. And I would like to hand over to Alex for conclusions and to get the outlook for 2026.

Thank you, Ixone. We've seen 2025. Let's have a look at 2026 a year that has already started. Before looking at 2026, I'm going to summarize what we've seen and the main conclusions of this year. And this is the basis of what we're going to have ahead of us. 2025 has been a year of very good performance and a clear value creation for shareholders. I would like to highlight the main topics. We have grown at double digit at 16% in a sustained manner, which is backed by a strong demand and by our market position. This provides us a very solid basis for future growth, and as Luis has set a high visibility for this year. Secondly, we have group profitability, one of our key pillars in our strategic plan. EBITDA has increased by 310 points and consolidated earnings grew by 93.4%. So it's reflecting disciplined operational execution, effective cost management and the positive impact of our actions on efficiency, innovation and pricing strategy, as Ixone explained. These improvements are not one-off. They come from structural levers that strengthen our competitive position and turn sustainable progress into profitability. And continuing with key points. We are advancing our network reliability strategy, strengthening our technological capabilities and incorporating more innovative solutions. At the same time, we continue to expand our digital portfolio. And in line with the objectives set out in our strategic plan, this will allow us to leverage opportunities in the sector and grow in the future. All of this has been achieved while maintaining a clear and consistent focus on our ESG 2030 objectives, integrating sustainability and long-term value creation, which is a key to have a profitable growth and sustainable industrial projects. Finally, the market is recognizing this performance. The share price has risen by 201% during 2025, reinforcing our confidence in the path that we are taking. Apart on which on the second February this year, we took a major step forward by joining the main market of the stock exchange. This milestone marks the beginning of a new stage that we are approaching with responsibility, ambition and the same spirit that has brought us this far. In short, we closed 2025 that we consider as an excellent financial year with Arteche being stronger, more profitable and better positioned to continue growing and creating value in the coming years. So let's look at 2026. Let's see how we -- what's the outlook. The year has already started. And first, we see that the market is strong with growth opportunities in all geographical areas. Secondly, we are investing in capacity. Ixone and Luis have referred to this to respond to market demands and to anticipate the market demands. And we will see the results already this year. We see growth opportunities in the Network Reliability pillar in businesses such as power, quality and storage, thanks to the investments made in 2025 in RTR and AMETS and Teraloop in storage. We continue to improve efficiency as Ixone mentioned by incorporating technology in automation, digitalization and AI to improve our processes to be more efficient, more agile and more flexible. And finally, 2026, this is the year which we will present our new strategic plan for the period 2027, 2029. So in short 2026 will be full of opportunities that we want to continue and grow. So with this vision for the year and moving on to the next slide, #21, you can see that we wanted to share with you an outlook for the end of 2026. We are starting the year with sufficient visibility in our order book and are forecasting an ambitious range, that places our sales at the end of the financial year between EUR 555 million and EUR 585 million. EBITDA double-digit growth. An EBITDA that will be between EUR 80 million and EUR 95 million and the EBITDA margin between 15.8% and 16.3%. Although the figures in the strategic plan expressed in the accounting plan, our outlook for 2026 is very positive, comfortably exceeding the guidance in the strategic plan. So with that, we conclude the presentation and open the floor for questions. Thank you very much. And we are ready to take questions.

[Operator Instructions] A question from Nicolas Scotiabank Investment.

The first question. Can you talk about the mix of sales. Can you break down how much is been volume and how much is being priced? The second question, the performance. What is projected for 2026 capacity. Can you give us an update given the capacity extensions in Mexico and China, how they're performing? How was the percentage that you have extended and if you can talk about the CapEx increment that you see for 2026? Do you have any other extensions planned? And the fourth question, guidance, considering the figures in the second semester and considering the pricing sector that is favorable. Why do you expect the reduction of the margin for next year?

With regards to -- if I can come back to the question, please. Ixone, correct me if I'm wrong with the sales mix, third is price and 2/3 is volume. And within the volume, we need to distinguish between all market organic growth. And the market share growth. Although differences depending on product line and geographies are very complex, and we need to know this or analyze this case by case. But just as a overview, I would say 1/3 price, 1/3 the market, another 1/3, the fact that we are able to increase our market share being more competitive.

Capacity. As you know, and we explained this in previous results presentation, we started to expand capacity in 2025, and we focused on extending capacity in Mexico and China. When we're talking about capacity, we are referring to the measurement pillar. High and medium voltage. And these extensions meant 35% or 40%. And in increments. And the ones that we have ongoing China and the plant in [ Mongolia ], which wasn't expected at the beginning in the strategic plan, but given the great growth in EMEA, we decided to invest here in capacity. And combined the capacity increment by 2026, China will be in 2 phases. One will finish in 2027, it will be capacity increment of around 25%. And this is all high-voltage and [indiscernible] refer to medium voltage for 2025 and the acquisition of the plant in Turkey and in Indonesia, the capacity increments will be around 40%. This year in Indonesia, we are changing plant in order to extend capacity too.

Another one, another question related to the margin. If you allow me. We have reassured with regards to the performance of the company. We have a good visibility, but the macroeconomic environment is quite volatile in a way. There are still some threats with tariffs and every week we have a different story. So we prefer to be conservative. And the main one of the main markets is the U.S. So we've been conservative but we believe is that the market trends very good. The markets, we believe, is going to be growing. The electrification process is unstable and all these metrics help us, Nicola, just to remember what we said. Well, you get to know us, we like to honor our word. And we have internal efficiency levers and costs. But we are also looking at the evolution of different variables, external variables. And we are suggesting a guidance in the margin, which is good and which is above the expectations and we think that we can achieve.

There's a question from Lucas.

So considering this growth and the evolution of the share, so do we have more capital, do you have more investments? Would you be thinking of buying new companies?

Thank you, Lucas, for the question. Our plan, as you know, has a growth plan both in organic and inorganically, organically -- inorganically, we are gaining capacity so that we can respond to the demands and that's what we're doing. But with regards to inorganic we want to reinforce our capacities at geographical level in some countries, mainly looking at Asia and the U.S. And we are reinforcing our technological capacities and in those businesses that are growing faster at a geographical level. And this is part of the strategic plan. We are active in those opportunity access, and we will see depending if interesting opportunities emerge that we believe that create value in the future and considering that having a financial discipline that doesn't have -- doesn't exceed the specific ratio, we will go to the market if needed.

We will move on to the questions via phone. [Operator Instructions] Thank you. You have the floor.

I don't know whether you can write it because we can't hear.

[Operator Instructions] We have another question from the U.S. [indiscernible] we will answer the question in Spanish, and the translator will translate the question from Spanish into English.

Yes, hello, any question from [indiscernible].

So we move on to the questions on the chat. There's another question by Nicola from [ Scotiabank ] Investment.

And he asked about the optical traffos. About the HVDC, what the sales figures and what do you expect for 2026? And again, congratulations for your results.

With regards to optical transformers is one of the lines where we've grown more in recent years, and it allows us to have a visibility in the long term because these kind of projects have a multi-annual execution deadlines. We have contracts with the main players up until 2032. And I don't know, Ixone, if you have growth figures.

In this business, we've been growing at double-digit rate above 20s. We have done a little bit more. The outlook for 2026 with this regard is to be similar. We are closing projects with the main players with General Electric with Siemens at long-term projects and the extension that Ixone referred to was a new plant that we are installing refers to the need to be able to manufacture more optical equipment. That part will be dedicated to -- on this plant a lot will be dedicated to optical transformers and complementing what Ixone and Luis said in the optical technology, we consider it will provide a lot of value to network digitalization. So we are not only working on improving and extending the business line in D.C. but also extending growth in other opportunities that open up in grids and extending the technology that we already have. So we do see a growth opportunity for the future.

There are no further questions on the chat. We close the Q&A session. I'll give the floor to Alex to close this session.

Thank you very much for joining us and giving us your time this morning to hear our results. A year that we consider very good. And over the next few days, we will be on a roadshow tour, and our Investor Relations team will be available, as always, to answer any additional questions or queries you may have. We hope to see you soon, and thank you for supporting our exciting projects. Thank you very much, and see you soon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]