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
Earnings Call Analysis
Q1-2024 Analysis
Interpump Group SpA
The first quarter of 2024 has been a challenging yet somewhat promising start for Interpump. Despite organic sales dipping by around 9%, the company's EBITDA decreased by less than 14%, showcasing the group's flexibility and robust business model. This quarter was marked by significant cash flow generation, jumping almost 150% compared to the first quarter of 2023. Such results underscore the group's ability to protect profitability during turbulent times.
Sales in the first quarter fell by 8% on a total basis and 9% on an organic basis, largely due to challenges within the Hydraulic Division. It's noteworthy that 2023 had set a high comparison base with an 18.7% organic sales growth. Within the Water Jetting division, organic performance remained flat, exacerbated by tough year-on-year comparisons. However, the backlog has been growing steadily month over month. For Hydraulics, the picture is more diverse across applications and geographies, with mixed results from industrial vehicles, generic dealers, agriculture, and lifting machines. Looking ahead to the full year 2024, the company expects sales growth to range between -5% and +1%.
Geographically, Interpump's performance varied significantly. North America saw a sales increase of more than 2%, contrasting with double-digit declines in key European markets like Italy, Germany, and France. In Asia, India posted nearly a 7% rise in sales, while China experienced a sharp 30% drop. The Indian market now represents over 4% of the group’s sales, highlighting its growing importance among emerging markets.
An important highlight is the company’s ability to manage profitability even during downturns. After adjusting for an insurance reimbursement related to a 2022 factory fire, the EBITDA decrease on an organic basis stood at less than 14%. This success is attributed to the diversification and flexibility of Interpump's business model, particularly within the Hydraulic and Water Jetting divisions. The EBITDA margin for the first quarter was recorded at around 23%, and the full-year guidance is slightly higher at 23.5%.
The first quarter of 2024 saw Interpump generating a record free cash flow, twice the amount recorded in the same period of 2023. This improvement resulted from effective management of trade working capital and prudent capital expenditures. The ongoing projects, including the construction of new headquarters for Interpump Hydraulics in Bologna, reflect the company's strategic investment in long-term growth, despite a high CapEx in the quarter.
Interpump has continued to pursue growth through small but strategic acquisitions. After the first quarter, the acquisition of two small entities in China and the UK indicate an improved M&A environment. These acquisitions, though modest, signal proactive steps in expanding the group’s network and capitalizing on favorable conditions for industrial buyers. The firm remains confident about finding more opportunities and negotiating better terms in the acquisition landscape.
Looking ahead, Interpump reaffirms its commitment to excellence. The decrease in year-over-year sales was expected, and the team is already deploying countermeasures to protect profitability. The Water Jetting division is expected to continue showing positive organic growth, while the Hydraulic division faces reduced visibility. However, the company remains optimistic about its strategies and adaptability. As part of its long-term strategy, Interpump is also investing in ESG initiatives and focusing on decarbonization targets for 2030 and 2050.
You don't have any saved screeners yet
Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump First Quarter 2024 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 [Operator Instructions]. 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.
Thank you. I'm Elisabetta Cugnasca, Head of Investor Relations of Interpump Group. Good afternoon or good morning, depending on your time zone, and welcome to this Interpump First Quarter 2024 Conference Call. As usual, I must draw your attention to the disclaimer inserted in the next part of the presentation, and I hope you were able to download from our website. I would now like to introduce Mr. Marasi, the group Chief Executive Officer.
Thank you, Ms. Cugnasca, and allow me to thank you all of you for joining the call. To cut a long story short, these are the numbers. The first quarter 2024 on an organical point of view, a drop in sales by around 9% corresponds to an EBITDA, excluding the one-off of less than 14% and the total free cash flow increase of almost 150% over the first quarter 2023. For the full year 2024, overall sales expectations of between minus 5% and plus 1% and an EBITDA margin of around 23.5%. To cater our long story short, so what do these numbers tell us. The first quarter 2024 numbers confirm that when we correct the forecast, the sales evolution and we have time to react, we can protect profitability. At a group level, from an organizational point of view, we are highly decentralized -- by versa, from an industrial point of view, many important companies within Interpump are highly integrated in terms of manufacturing process. Therefore, having limited the EBITDA decrease to minus 14% with a minus 9% organic sales is a satisfactory and encouraging achievement that proves once again the flexibility and the soundness of the group. They confirm a sort of natural hedging that our business model is able to generate strong growth in sales and profitability require cash, CapEx and moreover, trade working capital. But the cash expectation is effective at fast when needed. In the first quarter 2023, we recorded the best organic sales growth of our history. In 2024, we generated the best first quarter cash flow of our history after 2020 and 2021, which are [indiscernible] be a comparison. For 2024, the numbers are expected to tell us that 2 out of 3 assumptions on which we base the initial 2024 guidance were confirmed by first quarter numbers and the initial spring trends. And as for the one that is not confirmed, we believe it's only a matter of timing. In other words, it's only delayed. 2024 is expected to be precisely the opposite of 2023. In 2023, we had a very strong start in the first half and then recorded a sales performance normalization during the year. While for 2024, we expect a more challenging first part also for a tougher comparison base and substantial improvement in the second part, even if for some business lines, somewhat delayed compared with the initial expectation. But our commitment to protect profitability and further improve cash generation has been resoundingly confirmed and achievable given the strength in terms of portfolio balance and business model flexibility that has allowed us to deliver a fantastic string of excellent and stable results year after year. After cutting a loss story short for this introduction, let's analyze the most important quarter, the KPIs more fully and in details. In terms of sales, a decrease of 8% on a total basis and 9% on organic basis, driven by the hydraulic division on such a difficult basis for comparison, and let me remind you that in the first quarter 2023, we achieved an organic sales growth of 18.7%, very well balanced between the 2 divisions. It's not easy to clearly distinguish between the real business evolution and the simple comparison effect. Even for those like us are absorbed in the business every single day. This is certainly true for Water Jetting. The flat organic performance is emphasized only by the comparison with the plus 16% mentioned before. The business is sound and strong. The complete system and the pressure pump are the best performers in the most important categories and the backlog is gradually increasing month after month. In Hydraulics, the situation is more mixed and therefore, not as clear. We had an overlap between normalization and comparison base. Once again, diversification between and within divisions and between geographies, helps to bring the different trends into balance. For example, in the first quarter, on a consolidated level, adapter industrial vehicles and generic dealers, the two most important applications are self-balancing. The first is up by around 3%. The latter is down by less than 4%. We Agriculture and their movie machines are still significantly lower by 27% and 11%, respectively. Although it's worth mentioning better or a flattish compared to the fourth quarter 2023. Food and beverage is up by more than 7%. In terms of geographies, North America remains strong with a sales increase of more than 2%, while the most important European countries, Italy, Germany and France are recording negative performances with a fall in sales of double digit. India and China, the 2 most important countries in Asia displayed opposite trends. India is up by almost 7%, while China is down by around 30%. It's interesting to note that India is now the most important country in the emerging markets and represent more than 4% of the group sales. Moving to EBITDA. To understand the profitability results is fundamental to first strip out from the first quarter 2023 results, the EUR 3.6 million insurance reimbursement received in regard to the IMM factory fire in Romania in May 2022. Once this is done, profitability decreased on an organic basis by less than 14% compared to the 9% decrease in sales. From an industrial point of view, this is a very encouraging result and is due to the two main drivers: the diversification that characterize our group and the flexibility of our business model. Hydraulics [indiscernible] as growth and positive momentum, Water Jetting [indiscernible] protection and negative momentum. How many times have some of you heard me saying that despite the flat sales performance and the sales mix that I mentioned before on an organic basis, waterjet in 2023 reached a margin of 27.8%. And the decrease recorded was due to it the perimeter change, and namely Waikato. In terms of business model flexibility, let me first mention Hydraulics. Minus 12% of sales translated results into minus 18% of profitability. When we have time to adjust our cost structure to the evolution in sales, we can deliver results and protect our profitability. Measures to protect the first quarter '24 profitability were launched in autumn of last year because we knew already the wins that we would have to face. We started to bring production in-house fine-tune the working shift and implement all the other countermeasures we have at our disposal, and we delivered the results. Let me make a quick comparison between group's performance in this quarter and that of December 2023, which is a regret. Last December, the decline in sales took us by surprise, and we did not have time to react properly with a sales decrease close to 15%. The profitability drop was more than double -- last autumn, we were expecting a market sales drop at the start of 2022, 2024 after the extraordinary 19.5% sales increase in the first quarter 2023. And so, we started to plan our activities carefully. As an example of our business model flexibility, I can point to the Water Jet division again. Exactly one year ago, we started to talk about a negative sales mix due to the soft dilution produced by the complete system sales. And you may recall that we were not successful in managing that effect in all quarters last year. Sales were moving and our determination to meet customers' requests as much and as fast as possible, pushed us to outsource some production phases to look for new suppliers, which usually need to be overseen more than the well-established works. -- and to apply trial shifts. This combination led to inefficiencies and we have been gradually learning how to manage in-house. We are continuing on this learning path and deploying this lesson in the next quarter in order to extract the full value from our new sales that we are generating in this division. To conclude the overview on the start of 2024, let me touch briefly on CapEx, free cash flow and acquisitions. In terms of CapEx, last February, we shared with you goals and the details of our 2021-2023 post-Covid CapEx plan, anticipating that the CapEx would start to decrease in 2024 and returned to the usual level of around 4% on sales. The decrease is still not evident in the first quarter simply because we started the construction activities of the new headquarters of Interpump Hydraulics, close to Bologna last autumn, the last important project to be undertaken. You can see the progresses in the world as of the end of March on Slide 9 of the presentation. Moving to our M&A. Immediately after the first quarter, there were two small transactions, a double 1 in China and 1 in U.K. that are both consistent with our strategy and the evidence of the improved M&A environment. Expanding our network step by step is very important. And we did this in both divisions. Moreover, I would like to draw your attention to the table transaction in China. After many years of no acquisition in the Flow Handling segment, we acquired four companies in the last 12 months. It could be added that the transaction conducted so far this year are small deals, around EUR 15 million overall on an annual basis, slightly more than EUR 10 million consolidated in 2024 and making a total impact from the perimeter change in 24 of around EUR 25 million, equal to slightly more than 1% in sales. And it's true. They are small. But 2 or 3 years ago, even this of this size were priced differently. This proves that what I've said many times. Currently, we are in a historical phase of a balancing role among all actors in the acquisition process and an industrial buyer like in the pump will have more and more opportunities and will achieve better conditions compared to the recent past. We will continue on our path. Let me give you a brief update on our previous acquisition and in particular, Waikato. We cap is facing a marked decline in the reference market, and unfortunately, difficulties are also at the start of the integration process. Activities are progressing. Everything we reported to you 3 months ago, headquarter reorganization, logistics and manufacturing rationalization in Europe and U.S., respectively, and the start of a collaboration with the Okta commercial network are underway, and we are seeing first positive evidence in terms of G&A and cash generation. Concluding with the free cash flow, it's important to underline that in the first quarter 2024, we generated a free cash flow that is more than twice the first quarter 2023 figure, delivering on the cash improvement commitment that we made in summer 2022. It's important to underline that the improvement driver in this quarter was the concern over the past the situation becoming worse. Trade working capital. cash absorb from the working capital more than half driven by efficient inventory management and the impact of the sales decrease. As for acquisitions, we will continue on this path. Before the usual update on the most recent market trend and more details on the 2024 expectations, let me hand over to Ms. Cugnasca for the year update.
Thank you, Mr. Marasi. We spoke last time about ESG at length. Today, I will be concise and give a brief overview on 2024 action summarize on both the first quarter financial results press release and the presentation. As already mentioned, the 2023 and 2024 action aimed to integrating the group strategy, the fundamental ESG principle and so create the value and organizational framework. Action in 2025, we seek to support the group in achieving the 2030 and 2050 decarbonization targets. The entire process was also focusing on the global sharing of the best practices developed by the various group entities on specific topics. We would like to draw your attention to the most important 2034 action, among which the S6 extension to all Italian manufacturing companies of the supplier evaluation model according to environmental and social criteria is based precisely on the sharing an example of traces. The starting point was development by [indiscernible] in 2022, the so-called 5 action. Equally important are the actions t1confirmation of 2022-2024 average employees incidents index below the average of 2019, '21 and E7, definition of group Gas for the eco design of products. The importance we give to this action compared to the other must be understood in the light of the [indiscernible] of our structure and what does involve in terms of planning. In addition, we will work to successfully execute one of the most important of the 2023 action, the decarbonization strategy and deliver on -- of the most important action in 2025, the increase of no compulsory training, signing a corporate power punches agreement and a global training program, an important step towards achieving these two targets, respectively. We will continue with the mapping of Scope 1, 2 and 3, which I remind you as an important task. Thanks again, Ms. Cugnasca.
Now let's focus again on the business on the most recent trends and what are the implications for the year. start displaying a mixed picture where, on one hand, the confirmation of our 2024 initial expectations and on the other, a deviation from them. a deviation, which could be better described as a delay. Which of the assumptions made 3 months ago predicted flattish organic sales and which forecast the actual trend we are seeing. Waterjeting, the steady and consistent growth of the most important business lines of the division with the increasing contribution of the complete solution. Excluding the comparison effect, which has created some confusion, the first quarter 2024 results and the most recent trends fully confirm these assumptions. Food and beverage and generic dealers are two examples in terms of market application strength. Hydraulics. The normalization of some of the divisions, business lines, the dividend the final part of 2023 displayed strong growth compared to 2022. Assumption is confirmed, for example, for adopters of industrial vehicles and generic dealers. First sign of recovery of the business lines that started to slow down already in the first part of 2023. Unfortunately, rather than signs of recovery, so far, we have seen evidence of stabilization at the bottom for some market applications. For example, and above all, Agriculture, Armory machines and Lyft, precisely the factor I mentioned you before. In summary, the first quarter 2024 and following that confirm 2 out of 3 of the 3 assumptions that we made in February. For some of the business lines that enter some 2023 in the normalization phase, we are seeing a stabilization and not recovery. We are, therefore, updating our forecast, including the impact of the small acquisitions closed so far for a change in sales compared to full year 2023 between minus 5% and plus 1% for the full year '24. After sales, EBITDA, as already mentioned, the first quarter 24 profitability performance, a decrease of less than 14% compared to a minus 9% sales and the profitability margin well above 23%, underlines the flexibility of our business model and the soundness of the countermeasures we are applying. Obviously, new sales expectations required to reconsider EBITDA expectations. And so, we are updating you from this point of view as well. And we are doing this with our usual transparency to avoid any kind of misunderstanding. For us, there is only one EBITDA, the reported one. The answer to the question, what was the group 2023 EBITDA margin -- there is only 1 ounce were 24%, including IMM insurance reimbursement. Back to 0. But internally, when each group company is tracking its performance month after month, the comparison is made with the operational results, which at the consolidated level and excluding IMM insurance reimbursement, represent 23.6% EBITDA margin. When we spoke of margin protection last February, the landmark to be protected was 24% because once again, is the reported number that matter. The new sales expectation is taking us to an EBITDA margin of around 23.5%. -- from an industrial perspective and considering the expected associated sales evolution, we believe that this number gives substance to our goal to protect 2023 profitability regardless of the 2023 landmark. After sales and EBITDA, cash generation. As mentioned at the beginning, the first quarter 24% free cash flow improvement is the result of the job began many months ago that is now building [indiscernible] and which will continue to be flowed in the coming months, considering the ongoing normalization of trade working capital and CapEx after three very demanding years. To conclude and to cut a long story short, the first quarter numbers Sales that diversification between and within divisions and the business model flexibility are helping us balance the different evolution of end markets. Each year is the result of this 4 quarter and we are doing our best to maintain the utmost commitment regarding each of them, building the year, quarter after quarter. I have invited you so many times, in particular in uncertain and volatile markets to focus on full year results instead of taking conclusions based on a shorter period of time. Most recent number, the spring one. We are on track on 2 out of 3 2024 sale assumptions, and we expect only a delay in obtaining the remaining one, and in particular, the recovery of the demand in the weakest end market in adolics. In terms of M&A, the environment is more favorable to all industrial buyers like in the town Group. And to conclude, the expected 2024 numbers, we confirm once again the group ambition to excel. Thank you.
Are you ready for the Q&A session?
Absolutely.
Okay. Thank you. [Operator Instructions]. The first question is from Matteo Bonizzoni Kepler.
Fabio. Thank you, Elizabeth. Two questions. I go maybe too much straight to the point. The first question is regarding on the revenues, minus 5 to plus 1. You have clearly say that it's a little bit large if you want, because in some markets, you are starting to see sort of stabilization recovery in other ones, they are stabilizing, but at the bottom, so not yet sequential recovery. Let's say, I was just curious to know a little bit more while you have chosen this range. And if you can elaborate what's the scenario at the bottom? What's the scenario of the top, you have already elaborated a little bit during the call, but maybe you can provide a little bit more color on what's at the bottom and what's at the top in terms of sensitivity. The second question relates to the margin. 23.3% is the margin in Q1, 23.5% around is the guidance for the full year. If we look back at your typical seasonality, which only plays a partial role. But typically, Q1 and Q2 are the strongest 3 and maybe even more Q4 are lower. So, in this case, you are projecting a guidance for the margin for the full year, which is little bit higher than Q1. So, what is at play here? -- sequential recovery action on cost. I was just curious to understand why 220.5%and not '23.
Thank you, Matteo. As always, very good questions. The first one, organic. It is clear that we are facing a very uncertain environment and a very uncertain and volatile end markets, and in particular, in the main markets in Hydraulics. Then we have chosen to point to, let's say, reduce the target in terms of organic growth evolution, but maintaining a large range considering how volatile and down certain the markets are. In particular, the main application fields in hydraulics, let's say, agriculture, construction and lifting are very volatile and very different in the different geographies. And this is the main reason why we have not chosen and we are not able now to point to a smaller range. It is clear that the current environment is making us more prudent than what we were forecasting and commenting in February, but there are still several months and the reaction or the variation in the different customers in the different application fields in the different markets, can still represent a support that will drive to a better number at the year-end or can remain stable at the bottom and will drive to minus mid-single digits in terms of organic growth. It will depend on the evolution, and it is clear that now the visibility on the main application fields in [indiscernible] in particular, is significantly reduced with some amount of some quarters ago. In terms of margin, in terms of margin, we have been, once again, transparent and honest. We could have easily said above 23%, but we are seeing around 23.5% that is a little bit more aggressive because we believe that the countermeasures that we have taken and we are taking are protecting our profitability. And we believe that we will have time to adapt and to activate all the flexibility measures that we usually have to activate. And like I pointed out in my speech, if we have time to face the reduction on the slowdown in demand, we have time to react and adapting cost adapting the in-house and outsourcing manufacturing capability in adapting the internal protection ships organization and so on. And for this reason, we are optimistic that we will be able to deliver a very, very strong at a very nice EBITDA margin even in a tougher top line scenario. These are the main reasons.
The next question is from Dominic Ghilotti Equita.
A few questions. Just, first of all, a clarification. When you say stabilization on, say, some of weak areas, you mean sequential stabilization. So year-on-year, still down, but at least stabilized on a sequential basis quarter-on-quarter. And then on the guidance, if I understand properly, so on the Water Jetting, could you give us a sense of if you still are expecting some organic growth in the year? I got this feeling from your comments around the order intake. And if you can comment also a little bit on the different regions. I saw that in Q1 in North America was much better than EMEA. Do you see the same trend also going forward?
Thank you, Domenico. When we refer to the stabilization of the bottom, we are referring to a sequential stabilization than stabilization in terms of demand in comparison with what we have seen in the second part of last year. And we were referring in particular to the very weak markets, agriculture in particular. In terms of guidance by division, I confirm that Water Jetting will be stronger than Hydraulics, and I confirm that we are expecting a positive organic growth for the full year 2024. The reduced visibility and the reduced expectation are mainly characterizing the Hydraulics division. In terms of geography, I confirm that USA are stronger than Europe and are stronger in general, and we are seeing the same trend also going forward in the remaining part of 2024.
Okay. If I may follow up, just a curiosity. So you have been managing wide dry for a while, is facing, let's say, tough environment. So, I'm trying to understand what is the pressure on profitability that you are facing now and compared to the level you reached, let's say, when you completed the integration.
Yes. We drive is clearly the company is suffering the most, considering that it is the company or the group of company that is the most exposed to the agriculture end markets. And then in terms of organic, we are down strong double digit in terms of profitability. We are holding pretty well, but we are well below the 21% that we reached in some quarter last year.
Are you satisfied by the reaction in terms of countermeasures on the protecting profitability?
Yes, absolutely, yes, because in these 2.5 years, we have adjusted while drive business model in order to create industrial flexibility. I believe that we have commented many times about the difficulties that we faced in the first -- at the start of the integration process of White drive because we found the company with very little flexibility in this 2.5 years we have created industrial flexibility, creating outsourcing opportunities, realizing the right investments. And I believe that now White Drive is organized in a way that is well aligned with Interpump Group companies.
Okay. And last question on M&A pipeline. If we can -- do you have something sizable in your pipeline?
We have everything on our pipeline. The question or the point is what we will be able to finalize and when. What I can confirm is that the outlook or the scenario is positive, is very positive for the reason that I've already commented several times in terms of interest rates, in terms of strength in our balance sheet. And in terms of more realistic expectations from the entrepreneur or the seller that we are discussing with.
The next question is from Alessandro Tortora of Mediobanca.
Yes, I have two brief questions. The first one is on the free cash flow trend you mentioned in Q1. Basically, can you confirm considering also that in theory, CapEx should gradually and sequentially decline over the coming quarters. Can you confirm to us that basically the cash flow generation should steadily improve quarter-on-quarter? That's the first question, Fabio. And then the second one relates to Europe, but also Germany can you mention, let's say, Europe under performance versus the U.S? And can you comment a little bit about amendment performance in this context, call know that [indiscernible] not, let's say, Germany, but just to some comments on the performance of [indiscernible] in this macro compact.
Yes. Thank you, Alessandro. In terms of free cash flow, I confirm that we expect a sequential improvement of growth quarter after quarter because of the normalization of the CapEx. Like I've said in my speech, we are facing now important expenses for the ramp hydraulics quarter in Bologna, but it's something that will conclude our extraordinary investment phase in the post-Covid recovery. And for this reason, on a group level, we are very confident that we will reach very important numbers in terms of the cash flow generation this year. If we move to the second question, in particular comment performance -- our performance is almost spectacular. It has always been spectacular in terms of profitability. -- but we are really, really comforted by the very strong order intake and the new projects in which [indiscernible] is involved. And for this reason, we believe that on a full year basis [indiscernible] will be one -- maybe the day 1 with the strongest results in terms of organic growth on a full year basis. And our [indiscernible] is important and now mean is contributing in terms of profitability.
And just a, if I may on this last point, when you mentioned also before the fact related to the mix of the was subjecting this is an aspect which relates to Melman NLB. So just to understand we're basically selling more and more system today. Something that is go across all the companies because you know that the system are produced taking into account material as far part from many company of water getting. So it's something that is not concentrated in one single company, but it's more across the Water Jeting division.
[Operator Instructions]. Gentlemen, and Ms. Cugnasca there are no more questions registered at this time. I turn the conference back to you for any closing remarks.
Okay. Thank you very much for your attention, and we speak so in August. Bye.
Conference is now over, and you may disconnect your telephones.