Interpump S p A : IP - 2Q-1H2023 Financial Results conference call transcript (356 Kb)

Interpump Group S.p.A.

2Q-1H2023 Results Conference Call

Friday 4th August 2023

OPERATOR:Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Interpump Second Quarter 2023 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing "*" and "0" on their telephone.

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.

E. CUGNASCA: Thank you. I am Elisabetta Cugnasca, Head of Investor Relations of Interpump Group. Good afternoon or good morning according to your time zone, and welcome to Interpump's second quarter 2023 financial results conference call. As usual, I have to bring your attention to the disclaimer slide inserted in the annex part of the presentation. I hope you were able to download it from our website. Afterwards, it's my pleasure to leave the stage to Mr. Marasi, Group Chief Executive Officer.

F. MARASI: Thanks, Ms. Cugnasca, and thanks to all of you for the attendance. After the first quarter, way better than our 2023 expectations, I am very pleased to present you a second quarter and therefore a first half that is once again better than what we expected only few months ago. When in May, we revised upward our expected growth for 2023, and better, it's extremely comfortable, because it confirms once again a crucial capability of this group to understand market dynamics evolution and changes and being able to promptly adapt our operations.

We envisage for 2023 a market normalization, driven by lead time and supply chain rebalancing after COVID extraordinary consequences. We adapted our machines and now we are fully taking benefit of any extremely nice and welcome extra growth. Allow me to give you some evidence in terms of sales. In the second quarter organic growth was 9.1%, more than 9% over our 12.5% growth recorded in the second quarter 2022. The EBITDA margin was 24.6% in the second quarter,

with an increase of approximately 100 basis point over an already spectacular second quarter 2022, and 24.9% in the first half of the year, against 23.6% of the first half 2022. Numbers, I could not even have dreamt of, when I joined Interpump group 3 years ago.

In terms of cash flow generation, we took the commitment to improve it during 2023, and we are delivering it without jeopardizing the actual and the future growth opportunities. We are improving cash flow generation and in the meantime, we are continuously feeding the production to transform orders and invoices the ultra [ph] growth. And we are completing our post-COVID expansion plan that is fundamental for supporting our mid-term growth ambitions.

The positive results of the first half of the year combined with the very good level of the order backlog in July, make us confident on the fact that 2023 could become the new record year for Interpump, the new Mount Everest, both in terms of sales and profitability. After this first snapshot, let's focus on second quarter and first half 2023 figures.

The organic growth of sales was more than 9% in the second quarter, and almost 14% in the first half. Growth drivers, around 9% of volumes and around 5% of prices, a confirmation of last quarter trends, and with volume, were much more important than prices. This evolution perfectly reflects both different cycle nature of our two divisions and what we were expecting from the start of the year in terms of market normalization. This is the reason why water jetting is now growing more than hydraulics.

Now some colour on sales evolution in the second quarter from a geographic and sectorial application point of view. In terms of geography, focusing on top two countries, USA is up by 4%, Italy is up by around 13%, Germany by 5% and France by more than 20%. Looking at the second tier region, China is growing by 4% and India by 10%, all growing numbers with different trends according to specific economy evolution of the single geographies in the period, but with one result. The group grew in the second quarter again double-digits. This is the beauty of Interpump, diversification and balance.

In terms of sector application, industrial vehicle adaptors were up by almost 12%, agriculture was down by around 6%, earth moving machine were up by 12%, lift up by 2%, construction up by more than 50% and food and beverage up more than 30%.

Moving to White Drive, the sales part was different in the 2 different parts of the world. In US, sales grew almost double-digit, while in Europe growth was softer. US operations are fully benefiting from the production capacity enhancements of the past months, and therefore, we are recovering all delays accumulated with customers. At last, instead of buying outside some products and components, we are producing them internally and this means a more efficient and profitable production.

European operations are reflecting demand normalization and moreover, the last step of the factory's reorganization process between Germany and Poland. We will complete before the end of this month of August the reorganization of the European activities with the complete shutdown of the German plant and the transfer of the manufacturing of assembly lines to our Polish plant in Wroclaw.

Moving to profitability. EBITDA margin was 24.6%, almost 100 basis point more than the early…the spectacular second quarter 2022. In Hydraulics, we recorded 23.5%, 160 basis point more than the second quarter 2022 and second best quarter ever after the incredible first quarter '23. This improvement underlines once again the capabilities of the group to adapt operations with flexibility to market and sales evolution.

Focus on White Drive. After two quarters in a row, with an EBITDA margin at 21%, in second quarter '23, the profitability was below our annual goal, and this is only due to the reorganization of the European factories that we launched at year start, and that represents an important step of the White Drive integration plan. In US, profitability enhancement activities are going on and bearing fruits and as a matter of fact, the business model changes, I mentioned

to you before, made U.S. profitability almost double from less than 5% to almost 10%. Since the reorganization activities in Europe should be finalized before summer end, we are confident about our 2023 profitability target of 21% of EBITDA margin.

Moving to Water Jetting, in the second quarter, we faced a dilution of approximately 100 basis points, half of which driven by the 3 acquisitions we did in the flow handling sector. Given we consolidate them only for June, it's important to keep in mind that we are speaking of companies we've 23% in the case of I.MEC and 14% in the case of Waikato of EBITDA margin. And these profitabilities in the short-term are extremely dilutive for the group division, which in 2022 almost touched 29% of profitability. The remaining part of the dilution is driven by the sales mix evolution among different companies in the division.

Moving to CAPEX, I would like to mention that in the second quarter, our efforts to go on with our COVID CAPEX plans went on. You can notice it from around €40 million of CAPEX spent. And moreover, and I hope more interesting, for some photos displayed in our presentation. We completed the enlargement of the Walvoil factories in Reggio Emilia. Our colleagues from the technical department are moving in these days to the new plant area. And in October, the R&D center will be operative.

You can also see the progresses with the new building of Tubiflex in Turin, and what we did in Romania in less than 1-year in IMM plant. The production will be on-track before summer end after the almost 1-year stop as a consequence of the fire that destroyed the plant in May 2022. Due to what we have done in the past 2 years, we would invest less in the next years. We will complete what is undergoing today, I mean, Wide Drive plants enhancement both in Europe and U.S, the completion of the new headquarter of Muncie, and the new plant of Tubiflex in Italy. But as of today, I can envisage only a significant project coming from the future that is the new IPH plant in Italy.