Interpump Group SpA
MIL:IP
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Interpump Group SpA
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Ladies and gentlemen, thank you for standing by, and welcome to the Interpump Q2 and H1 Results Call. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, 3rd of August, 2018.
And I would now like to hand the conference over to your speaker today, Deputy Chairman, Paolo Marinsek. Thank you. Please go ahead, sir.
Thank you. Good afternoon, everybody. And thank you very much for calling. Well, I think you have all seen our press release by now. And let me tell you, I have no doubt that you like our Q2 numbers. And so I think you can depend how proud I am to comment on that.
Back in May, you remember, I told you we expected the second quarter to be at least as good as the first one. Of course, back then it was just an expectation, but when we share an expectation, it means that it is based on very firm grounds. And today, numbers are a solid confirmation of the reliability of our forecast because the quarter was not only better than last year, but even stronger than Q1 from every point of view. So let's go immediately to the numbers and have a look at how the quarter actually went.
Good organic growth, a constant effect in this quarter rose to 13.3%. Despite many people's worries about the slowdown of the cycle, whatever this may mean, it is the highest figure of [indiscernible] in the recent history of the company. We have improving news from the quality exchange. The negative impact was more limited than in Q1, it was at 3.7%. And these results we've an organic growth in Europe of 9.6%. The contribution from companies acquired in the past 12 months brought our total positive growth in sales to 15.8%.
So EUR 331 million in the quarter, or more than EUR 643 million for the half year is also an absolute record in our history.
If we have a look at the 2 divisions, we have Water-Jetting that give you 7.4% organically at -- and change the effects. And these became 3.3% after the conversion in Europe. And we had a final reported growth of 4.5% when as being 2 months of Mariotti & Pecini, that was missing last year. The quarterly sales figure was EUR 109.9 million, so almost EUR 110 million. In Hydraulics, was even better. Organic growth was an amazing 16.7%, becoming 13.3% after the conversion in Europe, and finally, reaching 22.3% corresponding to sales of EUR 221.3 million, thanks to the contribution of GS-Hydro and Fluid System companies that both we acquired less than one year ago. We mentioned that an organic growth in Europe of 9.6%. Let's take a look on how this is distributed around the world. And for these analyses, I will make reference to the quarter in that count. Central Europe were up 9%. North America was up 3.4%, which may sound less impressive, of course, but corresponded to a double-digit growth in dollars, 18 -- sorry, 11.8%.
Latin America appears to be flattish because of the unfavorable exchange rate. One is the trend of sales in local currency is really improving. As an example, the biggest market in the area, Brazil, Brazil is up 12% [indiscernible] but it is down 7% in Europe. In India, we are seeing the full results of last year export to increase our production capacity. The country is expressing a 61% growth in sales, which corresponded to a plus 81%, I want to repeat you, 81% measured in rupees, and of course, entirely organic.
Please keep these figures in mind whenever you are worried about any sudden development in the world economy because, really, I think that this example of India really represents well the speed of reaction of a lean and flexible group like Interpump.
And to our added recent capacity expansion, our expansion in China, their sales are more than 50% higher than last year. So even in these markets, a very exciting growth. Luckily here, we have not significant currency effect. If we look at our phase by application, it's not surprising to see positive trend almost everywhere. The best performance are Earth-moving and Agriculture. Both Earth-moving and Agriculture are up 18% for the half year.
Then we have Contractors, they are up 15%, Truck 12%, we mean the capacity of Truck direct sales to OEM to Truck manufacturer are up 30%. And then we have Construction is plus 11%. Industrial sector, plus [ 10% ] and lifting, plus 8%. In Oil & Gas -- Oil & Gas is still in mine or market for us, even this would become more important following the acquisition of GS-Hydro. And even there, the Oil & Gas is also performing very well. And currently shows a 16% increase in sales. And this is our sales.
Let's go to our margins. You may remember that in Q1, our marketing, let me say always very satisfactory as usual, were very slightly influenced by a few factors that we told you we expected to phase out. And this is precisely what happened.
Let's start by division. In Water-Jetting, the price lift increases finally [indiscernible], bringing the EBITDA margin to a very round 28%. In hydraulic, in the last quarter, we commented on a couple of minor disruption following the relocation and the mergers in India and China. As announced, their effect was limited to Q1 and the margin, having changed the perimeter for hydraulic, rose to 22.2% in the second quarter. Please note that both 28% in Water-Jetting and 22.2% for hydraulic along with the resulting 24.3% for the group represents historic record. The [indiscernible] the recent acquisition of GS-Hydro brought about some dilution to the 22.2% of the Hydraulics division. The remainder is down to 20.9%. But I will tell you more about GS-Hydro in a minute. Despite of its dilution on a consolidated level, EBITDA margin for the quarter was 23.3%, and this is one of our best achievements ever. In absolute terms, it represents EUR 7.2 million, totaling EUR 146.8 million sales at the beginning of the year.
Net income for the quarter came to EUR 42.7 million, bringing the total year-to-date to EUR 94.3 million. But as a reminder, this incorporates a nonfinancial fiscally neutral one-off and it is the recognition of negative goodwill from the acquisition of GS-Hydro companies amounting to EUR 11.6 million. If we adjust for this one-off, we get to a normalized bottom line of EUR 82.6 million, which is 25% higher than last year, and a corresponding tax rate of 30.2%. Free cash flow in the quarter amounted to EUR 18.5 million compared to the EUR 12.4 million registered in the same period last year. Breaking down these percentage, we had a EUR 12 million improvement in cash flow from operations. We had EUR 49 million [indiscernible] EUR 37 million. On the other hand, we had EUR 3 million more in working capital absorption. We have to note that the growth in our inventory is less than proportional to the growth in sales. And expressed in this, it is lower than one year ago. So even there, good news. We had EUR 3 million more in CapEx and this is absolutely in line with this year's indication of a total expense around EUR 60 million.
Then, of course, the payment of dividend and the buyback of treasury shares was roughly EUR 50 million altogether along with EUR 9.4 million spent in acquisitions, the majority of which pertaining to GS-Hydro brought our financial -- our final net financial position to EUR 296 million. On top of this, as you observe, we have commitments for the transfer of subsidiaries, which went down to EUR 44.1 million. Most of the decrease was due in comparison with the first quarter, of course, was due to the acquisition of GS-Hydro. Well, these were the numbers for the past quarter. Clearly, I'm sure, at least I hope, that you all found them exciting. But I think that is more important what we can say about the upcoming numbers, the future numbers.
So let's start from portfolio because I want to anticipate you that I am really pretty optimistic. Our portfolio is -- the situation of our portfolio is even better than at the end of last quarter. And this is both in absolute terms and in terms of year-on-year growth. Our incoming models are still very strong and, really, we see no sign of deterioration. This is a positive news. By now you should know that we are able to ramp up our production capability gradually but continuously. And these avoiding any disruption in margins and keeping CapEx within the guidelines. The basket of action we are taking is really very rich and it will ensure we can serve our customers very good.
Speaking of action, I think it's time to give you an update about GS-Hydro. As you know, the acquisition -- the acquisitions, because it was not just 1 acquisition but many acquisitions, were finalized in the first days of April. We are working very hard on these group of companies, and we are beginning to see the first results. The rationalization of the production structure is being completed because today all warehouses and all machineries are now where it makes sense. The production [indiscernible] is the key strategic component for GS-Hydro piping system was relocated to one of our plants in Italy and is now 100% operational. And of course, bringing this production home resulted in more control and lower cost. Basically, not fixed cost because we are already in the running plan of our plant.
Having saying more, starting from October, we are also going to deliver GS-Hydro branded hoses produced by I.M.M. Really, margins are not very easy to read at a normalized level because they are still influenced by one-off items. But after the slightly negative situation seen in Q1, they already changed sign and are currently around 3%. Really, I trust the progress in the months to come with an [indiscernible] to reach an EBITDA margin around 10%, as I told you before. This, by the end of the year, but let me say, for the sake of clarity, I'm referring to the exit speed, not to the average figure for the year that would represent a miracle. But really, I trust that our exit speed at the end of the year would be around 10% EBITDA. So I say everything is running, really, according to our plan. More good news, if the exchange rate stays where they are now, that effect will be negligible in the second half of the year.
And then there is an important point that I want to tell you. In recent times, many industrial stores including Interpump has been influenced by gloomy expectations about the world economy, thanks to the trade war started by Donald Trump. Of course, we certainly prefer the idea of a world that we do not have necessary barriers. But at the same time, let me say that loud and clear, loud and clear, we are at the best possible organizational structure for the trade war scenario because the vast majority of what we serve in sensitive markets like the U.S. or China is produced locally.
On top of that, we have proven we can be incredibly fast in identifying changes in demand and the traffic today. And these, really, believe me, could also be applied, if necessary, to our production footprint. So let me say, I'm really optimistic for the future. Let me say, unfortunately, during this quarter, we had no acquisition during this quarter. But as you know, timing, of course, is never entirely under our control. I can assure you that we are still working on very interesting [indiscernible]. Saying that, probably you have seen our press release related to a very, very small acquisition. But this, I consider important because I consider this acquisition as a shortcut to enter into a new expansion of our business in the food market. And so for this reason, nice and interesting to increase our chances in that market.
I think this is all I have to say, but I would be very happy to answer to your questions, if any. Thank you very much. Okay, so you can go to Q&A.
[Operator Instructions] And we have our first question that came through, sir. Your first question comes from the line of Matteo Bonizzoni.
Just a question on the outlook. So we have seen the acceleration of the organic growth as far as to in excess of 13% in Q2. And you are right, the market is quite worried about the potential slowdown that in some ways and the fact because the PMI indicator are slowing down. And you are right, there is this threat regarding potential impact of the tariff and this kind of war that we are seeing between U.S. and China.
So for you, you say that -- can you clarify the thing that you say that regard the exit speed from the year? So what does it mean? That in Q4 you still -- your ambition is still to have an organic growth as far as quite high, so double-digit? Or high-single-digit?
I hope to have been clear. When I spoke about 10% exit speed, I spoke about GS-Hydro.
Okay. And for the company, sorry, I was not listening to that...
For the company, I told you that -- let me say, we only have positive indicator in the sense that our backlog is higher than last quarter. So our portfolio is bigger. Incoming order, we do not see any sign of deterioration, so really, we are going very well.
I told you that the concern that many company have for this, let me say, custom duty war and so on, and so on, is not a concern for Interpump because the organization of Interpump is made in a way that basically we are manufacturing in the countries we are selling. So in America, we are an American company. In China, we are a Chinese company. And in this sense, we have no concern for this issue. So we have a positive view, we now are not suffering any sign of deterioration.
And your next question comes from the line of Alessandro Tortora.
I have two questions, if I may. The first one is on the flow handling components. Let's say, now this universe that you acquired, let's say, you now built in the past years. If you can share with us, let's say, the performance, okay, of this business okay, for you? The question is on the production capacity, okay? It's understood well, you're going to increase capacity when you need and where you need. Do you have, let's say, any specific component or let's say, product in which you have, let's say, stretched the production capacity before you are planning to raise capacity?
Regarding the flow ending, I can tell you something that I consider very significant. You remember when we bought INOXPA. And I told you that in my mind, INOXPA, the food industry could have reach in a short time the same profitability of the Water-Jetting company.
Well, INOXPA is running more than 26% EBITDA margin. It's really a success -- sorry, we are very happy of the way we are moving in this market. Because you remember, we bought this company less than 2 years ago and we had profitability lower than 20%. Today, it is higher than 26%. So really, we are very happy of that.
During the first half of the year, the tomato harvest was not so exciting. So there is no big increase in the sales of the company. There is increase in the profitability, this is some [indiscernible]. By the way, the forecast for the second part of the year is even more optimistic because we should maintain, let me say, the level of growth we expected around 10%.
The second question is production capacity. Production capacity, we are working in so many plants. We are working in so many countries, we are working in so many products that it is not easy, let me say, to quantify exactly how much is the bottleneck. Anyway, we've -- the level of CapEx that we announced at the beginning of the year, we are able to adopt all our capacity in all the countries we are working and deliver as requested by the market. I think that to be able to increase your sales in the market 80%, more than 80%, show you our ability in adapting our production capacity very quick and without any disruption. So no concern to follow our customers' [indiscernible].
Okay. And just, if I may, a quick follow-up. Because you mentioned before the performance in North America, let's say, now excluding the FX impact. Can you, let's say, share with us the performance or you see differences between, for instance, [ Mansillon ] or NLB, in let's say, compared to your regional performance?
Well, let me say, [ Mansi ] is one of our best company in Hydraulics. [ Mansi ] is a company that is stable, over 20%. The last probably was 22% or something like that. But in the last quarter, [ Mansi ] had 24 -- more than 24% EBITDA margin. So [ Mansi ] is working extremely well and by the way, is growing 10%, basically. So it's really high. NLB. NLB is -- also, NLB is over 20%. Also, Mr. [indiscernible] show me 21.8%. And also NLB has a growth of 9%. So extremely good situation in the American market.
And your next question comes from the line of Domenico Ghilotti.
First, a clarification, the 9% and 10% on [ Mansi ] and NLB, are they in local currency? In dollar terms? Or in euro terms?
In dollars.
Okay. So high-single digits or double-digits. Then follow-up on the order intake. So you are saying -- you have -- we see no sign of deterioration in orders, we see higher backlog. But what do you mean? So do you mean that orders -- what is the magnitude? Could be low-single digit to mid- high-single-digit. Because clearly -- so you are saying, we don't see a decline in Q3, but we're actually more trying to understand that there is, say, mid- to high-single-digit growth? Or a deceleration to low to mid?
As you know, any time that you make a comparison, a comparison is between a situation where they're not in another situation. So you remember that in the second half of the year, last year, we had a very good growth. So if you are speaking in absolute terms, I consider that we -- let me say, we have at least the same level of activity that we have in the past. So no deterioration there. If you consider the percentage of increase in comparison with the corresponding quarter, this depends on the level of the last quarter. And we have a comparison that is the second half would be a little bit more difficult because the second half of last year was extremely good and is a bit better because the exchange rate, probably the effects of the exchange rates will be negligible. So basically, what I have to tell you is that we are running right [indiscernible].
Okay. So putting together, more favorable, or less unfavorable ForEx, but maybe a tougher comparison on the organic terms, you say, my run rate, my pace of growth is not changing too much?
Absolutely, yes. Okay.
And last -- sorry, last question was on the margins. So what was the impact of raw materials in the first half or second quarter, as you like? And are the price increases that you passed in the last 6 months fully affecting now already in Q2? So should we see some additional tailwinds from price increases? Or is already up and running? And in terms of expectation for the second half, FX, for sure, will be less penalizing. What is the trend that you see in raw materials and, in general, energy prices?
Well, let me say, the increase of raw materials is something that we have seen. Because of the big number of different material we are using, it's difficult to me to tell you a single number. But anyway, we have the majority of the company that are a couple of points more. Some company that is a little bit less. But anyway, all the price increases that we entered are more than enough to face the situation that we have.
And they are already fully visible, fully implemented in Q2?
Fully, I wouldn't say, fully. Sometimes with some old customers you must be a little bit more patient. And so that could be that even something more as need to enter.
[Operator Instructions]
So if there is no other questions, I thank you, everybody, to participate to this call. We will have the next call for the third quarter results November 7. And I really hope I will go home giving you very strong, very good number. Thank you very much, everybody. Good holidays, if someone is leaving for holidays. Bye-bye.
Thank you, sir. And that concludes our conference for today. I thank you all for participating. You may now disconnect. Speaker, please standby.