Interpump Group SpA
MIL:IP
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
36.88
47.76
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Interpump Group SpA
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen, and thank you for standing by. Welcome to today's Interpump Group Q1 2018 Results Presentation Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, the 10th of May 2018. I would now like to hand the conference over to your speaker today, Paolo Marinsek. Please go ahead.
Thank you. Hi, good afternoon, everybody, and thank you for calling. I suppose you have already seen in the numbers, we had just another wonderful quarter. And once again, here, I wanted to confirm that Interpump is running at full speed.
This quarter, it represents a pure organic growth of 12.4%. 12.4% is the level we saw only twice in the past 5 years, so it's a very good number. Unfortunately, we had the currency effect, and the currency effect was very strong. It's minus 6.1%, possibly even a bit worse than everyone expected. But anyway, we are still left with a very solid plus 6.3% of organic growth in Europe.
When we attach to these numbers sales from the companies we acquired in the past 12 months, we ended after at EUR 312.3 million, EUR 312.3 million or 14.5% more than what we did in Q1 last year. And the beauty is that this positive trend were the trend in both division.
Water-Jetting posted a solid 8.4% organic growth and it remained positive even after the conversion to euro at plus 0.9%, so almost at 1%. Then, of course, we had the increase in our perimeter that is represented by one month of INOXPA and 3 months of Mariotti & Pecini. And these bring sales in Water-Jetting to EUR 105.6 million or plus 8.1%.
Hydraulics. In Hydraulics, sales were up organically by 14.7%. And this, let me say, keeping on with the amazing growth of the 2 last quarters of last year. And please note that we achieved this 14.7% on a very challenging comparison base as 1 year ago, we also had a double-digit growth in the first quarter.
The conversion to euro reduced this 14.7% to 9.3% and division of 3 months of [indiscernible] and especially, the division of GS-Hydro activity that you remember was consolidated since January 1 brought total Hydraulics sales to EUR 206.7 million with a growth of 18%.
GS-Hydro, speaking of GS-Hydro, I would like to note that the sales were down only 5% compared to Q1 last year. And remember that Q1 last year, the company, if you want at least technically speaking, was still a healthy company. And I consider that this number, so 12 -- the sales in GS-Hydro, are at the same level as last year at the beginning of that year, is a very encouraging situation.
Then it is worth to remind that this was a loss, of course, not an ordinary quarter for GS-Hydro, because we started the restructuring activities we had planned. So we really did a lot of things. All activities in Finland were discontinued. We loaded all machinery and tools on trucks, and we relocated the manufacturing of [indiscernible] to one of our plants in Italy, in [indiscernible]. We redistributed the pipe vending machines and the startup components to the subsidiaries, particularly to those subsidiaries that needed them the most.
So a lot of activities, of course. At the same time, we had also to either rebuild or any way to assure continuity of those centralized service, IT, for example, that were in the hands of the Finnish hydro company that we didn't buy. So a lot of job has been done. So we had an inevitable disruption in manufacturing and a number of one-off costs, but that is really to implement what we consider a long-awaited move to a sensible industrial criteria in the management of the group.
And on top of that, we had also some layoff cost. We are very happy about how GS-Hydro is shaping up. But this effort basically wiped out their entire EBITDA for the quarter. And this is the most, I would say, by far, the most important element to keep in mind when looking at our profitability.
So let's speak at our profitability. EBITDA for Hydraulics, which was 21.2% 1 year ago, was a sound 22% at unchanged perimeter. But of course, the division of GS-Hydro brought it to 20.3%. So you see that the Hydraulics division performed even better than last year even in, let me say, a situation of stronger growth at this one. In Water-Jetting, the margin is substantially unchanged at 26%, the 20 basis points difference compared to 1 year ago is due to the timing of price increases which are scattered over the first month of the year, so we can expect it to disappear or even to be reversed in the next quarter.
But the best part of the story is that our EBITDA in absolute terms, despite these 2 factors, we closed the quarter at nearly EUR 70 million, EUR 69.6 million to be precise. And this number is above our road map towards the guidance that we gave for the end of the year. So really those numbers encourage us to face the rest of 2018 with optimism.
If you look the world in our usual overview of geographical revenue, we see very reassuring growth in most part of the world. As a reminder, the numbers you are about to hear from me represent the organic growth already translated in euro, so they already incorporate the negative currency effect. I will try to give you an estimate of the growth in local currency whenever possible.
So if we start in Italy, Italy sales were up 10.7%. In the rest of the Europe, 8.2%. North America was flat, but with an underlying organic growth in local currency close to 14%. Latin America was up 1%, but this is again influenced by the currency exchange. Brazil, for example, Brazil was up 19% in local currency, but only 5.3% in euro. Far East and Oceania were up 10.8%. Within this area, China posted a growth of nearly 23%, 23%, that is 27.5% in renminbi.
In the rest of the world, the most significant number come from India, where growth is better to more than 31%. And this number doesn't tell you the entire story because in local currency, the growth would be 47%. It is nice to say that, let me say, that some slowdown that we had in growth caused by the company measures and plant relocation in both India and China is now totally behind us. So we did that last year an extraordinary job to increase our production capacity in China and in India basically in 4 new plants, but this is something totally finished, so absolutely behind us for this year.
Also in fact, we look at growth by application sector, we have nice number. But remember that Hydraulics had stronger growth than Water-Jetting, especially after the currency conversion. So it is not surprising to see that earth-moving is the best performer. Moving went up 21%; construction, up 13%; agriculture, 11%; lifting, 6%; and the trucks, at last, 7% in which -- of which the OEM plus 19%, the OEM of truck, of course.
And I would like also to mention a strong 37% growth in sales to contractors, who are, let me say, one of the main application sectors for Water-Jetting. Another point, allow me to confirm something I already anticipated in my previous presentation, oil and gas, despite its strong exposure to the U.S. dollar is up 3%. So this is basically an overview around the geographical area and the [ application ] business. Let's go to net income.
Net income for the quarter came to EUR 51.6 million. This incorporates a nonfinancial, fiscally neutral one-off. You see the recognition of a negative goodwill from the acquisition of GS-Hydro, the GS-Hydro company, amounting to EUR 12.7 million. When we adjust this number for this one-off, we add to a normalized bottom line of EUR 38.8 million, and this is 19% higher than last year. And because of tax rate of 29.6%. So I think that in this quarter, the impact of the U.S. tax reform appear to be in line with our expectation for the full year.
If we look to free cash flow, free cash flow in the quarter amounted to EUR 17.3 million, and this is something less than the EUR 23.7 million registered last year in the same period. In fact, we make the breakdown in the major components, we have EUR 6 million plus, so EUR 6 million more in cash flow from operation. We had EUR 65 million versus EUR 59 million last year. But on the other hand, we had EUR 11 million more in working capital absorption. And I think that, probably, this number is higher than what the analysts had in their models. But in the same time also, the growth, the organic growth is for sure higher than expected.
And then we have nearly EUR 3 million more in CapEx, and this is in line with this indication of a total expense of around EUR 50 million. There was no other significant effects on our net financial position.
Since the payment of GS-Hydro companies was done after March 31, in the quarterly record, those EUR 6 million were still classified under commitment for acquisition of subsidiaries.
For the record, the payment is already done, and so that this is something that will disappear. So the improvement of our net financial position globally was EUR 17.2 million in the quarter, bringing the figure to EUR 256.3 million at the end of March.
Additionally, we have our commitments for the subsidiaries was EUR 55.8 million. I think that this is the last number for today. But really, I would like to add some remarks about how the year is shaping up.
Sales and order intake for April were at the least in line with what you are seeing for the first quarter. They are going very well. Other portfolios are much larger than 1 year ago and in many cases, they are still growing. We did a lot of investment in plants. I told you many times that we have many plants already [ been done ], some other in construction. But of course, these investments are beginning to give their results. We are in line with our production capacity, so we are able to answer to the growth of the market, and this is very important.
And we have already achieved the -- some expansion in production capacity and more is expected before the end of the year. Let me say, in terms of relative growth in comparison with last year, the second half of the year we had the most challenging comparison base because of what we did in 2017. But on the other hand, the currency effect should be much lighter. And we expect also GS-Hydro to be a positive contribution.
So basically, we are very optimistic on the situation. The situation is very good. So we expect that they are going very well. Of course, acquisition, more acquisition are very likely to happen. And this, even the numbers of this year we have on the table. And as usual, they have to do both with Hydraulics and Water-Jetting. And as usual, they come in all shapes and size. And so as usual, we have no indication of when and what we are going to acquire, but just rest assured that nothing has changed in our targeting and integration policy.
So I think this is what I wanted to tell you for today. So we are here, very happy to listen to your question, if any. Thank you very much.
[Operator Instructions] Your first question comes from the line of Matteo Bonizzoni from Kepler.
I have 3 questions. One is on the organic growth that is implied in your guidance. So you provided the guidance of EUR 1.2 billion midpoint in terms of revenues for the full year. That implies a 6% organic growth ex ForEx. In the Q1, it was 12.4. So according to my calculation, to do 6% in the full year, you should do 4% as an average in the remaining 3. It's true that it is a little bit challenging comparison, but it is also true that you said that it was quite strong in terms of intake. What can you tell us about that? So it's possible that you could do a little bit more than this 6% ex ForEx. The second question is on margin. We are seeing that organically, Hydraulics was up 80 basis points year-on-year. That is fine. Water-Jetting, despite a very strong organic growth, that ex ForEx was 8% plus, was down 20 basis points. We have understood that you have had price increases implemented during the quarter. Can you elaborate on the balance between price increase and cost inflation going forward, particularly for the Water-Jetting division? And then third and last question is on the GS-Hydro. So you say that in Q1 basically, that was a quarter of integration. The EBITDA margin was close to 0. How should we think about the GS-Hydro contribution in the full year in terms of revenues and EBITDA margin?
Yes. Mr. Bonizzoni. I'm not telling you that we are considering, let me say, to reduce our organic growth in the rest of the year. I told you that we are very optimistic. Of course, you see that in the first quarter, we did much better than we forecasted. As you know, many time I told you that for us, the guidance is something that we do at the beginning of the year to give an information to the market, that is not something that then we recalculate also because it's, let me say, a detailed process to do that. And so this is not something that we recalculate. In this moment, if I have to tell you my feeling, yes, I am optimistic. I do not exclude that we can do better, that was we announced that during the guidance, giving you the guidance. Also because when we give the guidance, we gave the level of sales. So then implicitly, you calculate how much is the organic growth, and this is a nice exercise. What I can confirm you that I do not see any sign of, let me say, deterioration of this trend. So we are very optimistic, no doubt, that it is possible that we can do even better than expected. Second question in the margin in Water-Jetting. In the margin of Water-Jetting designed particularly in some material, we find an increase in prices. And as usual, we react immediately. So in the beginning of the year, we immediately review our price list. And so that we had increase in our prices basically in all our companies. But this is something that is not entering in one shot. It's something that is entering gradually in some weeks. And so that, let me say, the increase of prices that we announced in January probably enter completely between March, April, something like that. For this reason, we have this very, very small difference in our EBITDA margin that, as you recognize, is anyway very, very strong, is basically 26%. But let me say, the difference in timing between the inflation raw material and the entering of the newer prices. Regarding GS-Hydro, everything that happened is fully expected, of course. I am very happy to tell you that we are doing an extraordinary job. We see in our people in GS-Hydro a lot of dynamism, a lot of optimism. They are confirming us that we are coming out from this difficult situation and so that we will grow without any doubt. Now I am expecting that we will see the best result towards the second part of the year. And I already told and I confirm that my expectation is to arrive to, let me say, even if it's small, but anyway, a double digit within the end of the year. So in this way, having a pretty nice contribution also from GS-Hydro.
Your next question comes from the line of Domenico Ghilotti from Equita.
So a question is on industrial margins. Clearly, the margin is down. I'm trying to understand how much is due to GS-Hydro? How much is it due to ForEx raw materials? So if you can help us in elaborating the trend that we are seeing. Second question, just a verification on GS-Hydro. When you are saying basically low teens, so you low double-digit margin is something that you should expect to achieve in Q4 alone, not -- or as an average for the full year? And should I -- is reasonable, the EUR 60 million probably you gave or I put in my model in terms of sales for the full year? Last question is on the cross-selling opportunity. We haven't been -- touched this topic during the call. I'm trying to understand if you, at least a qualitative level, if you are really getting some contribution from cross-selling in your numbers?
Yes, Mr. Ghilotti. Margin, let's think about margin. The difference between the 2 points. Hydraulics. Hydraulics is, I do not consider, I do not consider GS-Hydro our margin went up from 21.2% to 22%. So it's really good news. I would say that basically, in Hydraulics, let me say, by far the biggest effect is GS-Hydro, of course. In Water-Jetting, about that you know 2 basis -- 20 basis points is still a small number that, as I told you many times, even the mix could create a small change of this level. But I recognize that this year, we have seen something like 1%, 12 points of increase of cost of material. We have no doubt that, as usual, we fully recuperate, we will fully recuperate this increase of cost in our prices. It's something that we are -- always did and we are continuing to do. And by the way, the increase of prices is always a little bit higher than the increase of cost we suffered. The point is that in the timing, you have some difference. So we did our increase of prices at the beginning of the year while we already had some increase of cost. But increase of cost we have to pay and increase of prices [indiscernible] we fully entered in some week more.
You had 100 bps, 1 percentage point?
Yes, yes. Yes. Cross-selling, no. Cross-selling is growing and growing in this resulted -- fantastic result because we had a few organic growth that is very, very high, more than expected. One of the main reason is the cross-selling. I don't want it to be boring to say so many times: "Oh, we are doing cross-selling." But this is really the beauty of those acquisitions. And in these sales, GS-Hydro will be very, very important for cross-selling, very important for cross-selling. So cross-selling is going more. Cross-selling is a very important part of our organic growth. And cross-selling is something that we continued because also looking in the acquisition that we have in mind to have during the year, we look also for additional chance in cross-selling.
And on the sales of GS-Hydro, EUR 60 million is a good profitability [indiscernible] a clarification of profitability?
You said that EUR [ 50 ] million sales, yes?
Yes, 6-0.
Let me say, a very, very reasonable number, could be even better, could be even better. And the profitability, we will do our best to bring it at a double digit level.
But you mean sorry just in Q4, so it's a ramp up?
Within the year, within the year. Of course, if you are considering to have, let me say, 10% average in the year, you should get, let me say, a much higher number. But I consider a very difficult, consider that it's a good target, it's, let me say, after all the changes that we introduced, the new organization is a good target to arrive to this number.
Very last question. On the -- you have mentioned some restructuring costs, some also one-off costs related to the relocation, I mean, in China. Are they included in the EBITDA? I did not see any one-off in your P&L. Are you including all this contribution in numbers that you have reported, correct?
Yes.
[Operator Instructions] Your next question comes from the line of Michele Baldelli from Exane BNP Paribas.
I was just curious about the GS-Hydro contribution to the first quarter. Is it wrong to say that the EBITDA anyway was, let's say, slightly negative?
Yes, was around here.
Okay. And the sales contribution we can approximately say that is around EUR 10 million or EUR 15 million, less than EUR 10 million?
No, GS-Hydro is higher. Sorry [indiscernible] .
No worries.
GS-Hydro is being EUR [ 14.3 ] million.
And another question relates to M&A. Do you see something that is in any way, will anyway, let's say, it's likely that we can see something by the summer or is something any way that we can see it by the end of the year?
Let me say, difficult question because never say never. Let me say, negotiation is something that you never know. In my expectation, I think that something could already arrive in summer. That is not something that I can guarantee to you, of course, but this is my feeling.
Your next question comes from the line of Domenico Ghilotti from Equita.
I want to check on the price increases that your business offset the raw materials cost inflation. If I remember well, you are mentioning also that you also had some good, say, inventory level of raw materials, so you were basically seeing the increase, the actual increase in the spot price is more dilutive over the year. So this means that probably, so with the price increases, you can offset the trend, but I should not expect a big jump in the positive contribution from price increases in Q2? I don't know if I was clear on the answer, so just I'm trying to [indiscernible].
The answer is very clear, sorry, the question is very clear and the answer is very simple. You are speaking about cost of material -- material increase of cost of materials since many months. This is the topic that we debate for at least for the second half of 2017. When we arrived to the end basically of -- basically we arrived to the last quarter of 2017 with basically a 0 effect altogether in the average, a 0 effect on cost on materials. So it means that our policy, the policy that I mentioned so many times that we have inventory, we buy, let me say, pretty well is absolutely true. It's absolutely true. Let me say, we are facing what I'm not considering a problem, be careful, what I'm not considering a problem at the beginning of this year. So at the beginning of this year, we considered it proper to enter with significant price increase. But of course, there is a small timing difference between the moment in which you announce and you get the full price increase and the cost of material that gradually is entering. So this is absolutely in line with our strategy. And I think that this is, in effect, that already in the second quarter you will not see.
So just to check if I understand properly. The difference, the gap between the price increase that you're applying and the actual, let's say, customization that is slowing your P&L, should start to be more positive, actual from Q2?
Yes, yes.
There are no further questions at this time. Please continue.
Okay. Thank you, everybody, to participate to this conference call. I really hope to have the opportunity for another conference call before August 3 that anyway we have the second quarter results, so the results of half of the year. Thank you very much and a good afternoon. Bye.
That does conclude our conference for today. Thank you for participating. You may all disconnect. Speaker, please stand by.