Interpump Group SpA

MIL:IP

Earnings Call Transcript 2021-Q2

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump Second Quarter and First Half 2021 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Luca Mirabelli, Head of Investor Relations. Please go ahead, sir.

[Luca Mirabelli, executive]

Thank you. Good afternoon, everybody, and good morning to those connecting from the States, and thank you for dialing in. We have a set of amazing results to comment today, and I will do it in the company of Executive Board Member, Fabio Marasi.

The results registered in the second quarter of the year show the continuation and the acceleration, if you want, of the post-crisis recovery, which was already visible in Q1. And to say that the recovery is full and that we are back to precrisis levels, however, would be an understatement, first, because in many cases, sales are well above those of 2019; second, because this would not do justice to the importance of acquisitions, which gave a significant contribution on top of the organic growth in the past 2 years; third, because profitability was not only unharmed and preserved but even increased.

So let's review the numbers. Sales for the quarter grew nicely, reaching EUR 405.5 million, first quarter ever above EUR 400 million. The comparison with the corresponding quarter last year, which included the worst effect of lockdowns around the world, comes to an impressive plus 37.2%. This is the result of a plus 39.4% organic increase, a negative 2.9% effect from currency exchange and a very modest 0.7% from acquisitions over the past 12 months. In comparison with 2 years ago, which, again, can be useful in these very particular circumstances, sales are up 12.8% compared to Q2 2019.

Water-Jetting sales grew 21.3% to EUR 122.4 million. The organic performance would have been 24.1% with a minus 4% from FX and plus 1.2% from the perimeter extension. Hydraulics sales at EUR 283.1 million corresponds to a growth of plus 45.4%, resulting from a 47.2% organic increase, a 2.2% negative currency effect and a 0.4% increase in perimeter.

A note to those of you who were expecting a slightly higher contribution from acquisitions. Our latest acquisition, DZ Trasmissioni, acquired last December, was merged with Transtecno in May. So since May, their sales of approximately EUR 0.5 million per month are booked under Transtecno and, hence, appear as organic. I'm sure you understand that this is because of the size of this business that did not justify setting up a separate accounting system.

Moving on to the half year. Total sales registered at EUR 781.1 million, 22.1% higher than the corresponding period of last year. The organic increase was 24.4% with a minus 3.1% drag from the currency exchange and a 0.8% help from acquisitions.

Water-Jetting was up 12.5% organically year-to-date with a minus 3.9% adverse effect from currencies and plus 1.5% from the perimeter expansion. Putting all together, this means that sales in the half year were EUR 231 million or a reported growth of plus 10.1% in the 6 months.

Hydraulics performed better, also in light of the easier comparison days, with an organic plus 30.2%, a negative 2.8% currency effect and a plus 0.6% from acquisitions. This allowed our sales in Hydraulics for the first half of the year to reach EUR 550 million with a reported growth of 28%. As we anticipated, getting the flow of sales back to pre-COVID level took slightly longer in Water-Jetting, but we can say we are finally there at last.

It is very reassuring to notice that the organic increase seen in the half year, plus 24.4%, more than compensates for the minus 18.7% organic decrease registered 1 year before. This is a compelling indication that the recovery of our top line is now full, although it doesn't appear to be over yet. The same effect can be seen across nearly all geographic areas. Since changes versus last year are heavily affected by a weak comparison base, I would say, a crazy comparison base, let me quote them side-by-side and remind you of the corresponding figure of 1 year ago.

Let's start with the Euro area. Italy is up 59%, which, even combined with minus 35% of 2020, means that sales are now in better health than in Q2 2019. Remember that this comparison does not include M&A. Same goes for the rest of Europe, which compensated the minus 26% of 2020 with a plus 40% last -- this year.

Let's now look at North America. Last year's minus 26% does not appear to be fully balanced by this year's performance of plus 27.5%. However, when factoring in the losses in exchange rates, the comparison becomes slightly favorable. Asia Pacific -- because the exchange rates are included in this comparison, as a reminder.

Asia Pacific, which had lost only 5% in Q2 2020, is up 13.5%. China, our biggest market in this area, is flat over Q2 last year, but let me remind you that by then, it was the only positive figure at plus 8%.

The rest of the world sports an impressive growth of 53%, which is still not enough to compensate last year's minus 37%, although exchange rates must probably be blamed also here. India is a good example. With a minus 75% last year, please let it sink in for a second, minus 75%, a plus 248% this year and a 13% loss in exchange, everything combined, this means a positive performance despite the extreme shock. Please allow me to point out that in mathematical terms, it might just be a combination of percentages. But in real life, we are talking about the market that had shrunk to 1/4 of its previous size and regained everything in 1 year without destroying any value and even generating revenues along the way. I cannot think of a better demonstration of the resilience of Interpump's model than the case of India.

Let's take a quick look by sector. And in this case, we're commenting the results for the half year year-to-date. Earthmoving construction and agriculture are the best-performing application sectors, all very near to or above 40% increase. Lifting is up 31%; steel and aluminum, plus 27%; food processing, plus 17%; industrial applications are up 15%. All these sectors are above or significantly above the level registered in 2019 in organic terms even when factoring in the negative currency effect. On the other hand, trucks are the most visible laggards with a year-to-date plus 21%, which does not yet compensate entirely last year's minus 27%.

In terms of profitability, the very favorable combination seen in the first quarter, the combination of a very optimized cost structure and an increase in production volumes and a loss of all regularity, is still showing its positive effects. Coupled with the seasonal margin increase from Q1 to Q2, it resulted in the first quarter ever with EBITDA above EUR 100 million, EUR 101.8 million to be precise, and an EBITDA margin of 25.1%, not only to say that both are record figures.

And the both divisions contributed with a progressive improvement compared to the first quarter to this outstanding result. Water-Jetting registered a 29% margin, raising the year-to-date margin to 28.6% and the year-to-date absolute figure to EUR 66.9 million. Hydraulics broke yet another record by registering a 23.2% margin, pushing up the year-to-date one to almost exactly 23%, which means generating a total of EUR 126.4 million in the first half of the year.

Total EBITDA for the half year came up to EUR 193.3 million or 24.7% of sales. As we celebrate this result, which was unthinkable just a few years ago, let me remind you that we expect slightly less impressive numbers for the second half of the year due to the reintroduction of the sales and marketing costs related to business travel and trade shows, fingers crossed, the gradual incorporation of 2021 raw material prices in our cost mix, along with some seasonal factors. However, there is no denying that in terms of EBITDA margin, 2021 looks like a very fierce competitor to 2019, which was our best year so far with a margin of 23.2%.

And good news are not over. Net income for the quarter came to EUR 74.5 million. The reason for this unusually high figure is that some of the Italian companies in the group proceeded with a step-up of trademarks for tax purposes pursuant to the applicable laws passed in Italy last year. This resulted in a one-off benefit worth EUR 20.1 million, EUR 20.1 million in lower future taxes, which was entirely booked in the quarter. The figure for the -- for net income for the half year was EUR 128.3 million with a nominal tax rate of 14.8% that actually corresponds to a normalized 28.1% when adjusting for the tax benefit.

Cash flow from operations was EUR 84.9 million, almost exactly the same as Q1. Sales net working capital absorbed EUR 13.4 million. This may look modest in comparison to the acceleration seen in the top line because it's significantly less than in Q1, but this can be explained by a couple of very simple observations -- reservations. It is difficult to build up inventory when they are working around the clock to satisfy the demand from the market. And the second reason is that this is perhaps not the right time to build large stocks of raw materials given the price that we are seeing around.

CapEx in the quarter amounted to EUR 19.6 million, bringing the half year total to EUR 34.2 million, which represents about 4.4% on sales. As a result of the contained increase in net working capital, free cash flow amounted to EUR 56.5 million in the quarter, bringing the total year-to-date to EUR 97.3 million, almost the same level seen last year despite the completely different, I would say, opposite market environment.

Dividends paid amounted to EUR 28.4 million, and a further EUR 5.8 million were spent in share buyback, while no significant expenses were made for acquisitions in the quarter. This brought our net financial position at the mid-year point down to EUR 206.7 million. Additional commitments for the purchase of subsidiaries, which are periodically reassessed following the performance of the companies involved, were worth an additional EUR 65.6 million with a small increase compared to 3 months before.

This picture-perfect set of results is the certification that while the world is still struggling to get rid of the COVID-related social limitations and worries, Interpump is bigger and stronger than before the pandemic already today. Other portfolios, especially in Hydraulics, are unusually large for some companies at record levels and allow for some optimism about the top line for the rest of the year and possibly beyond that.

On the M&A side, the closing of White Drive Motors & Steering is expected in early to mid-Q4 following the end of a complex carve-out process, which is being carried out by Danfoss. Their on-time closing of the acquisition of Eaton Hydraulics is very welcome news because some assets from Eaton must be conveyed to White Drive before it changes hands to Interpump.

By the end of September, on our side, we expect all antitrust filings will have completed their course. And in short, everything is running according to our best expectations. Of course, we don't need to wait for that closing before we can work hard on other acquisitions, although maybe on a smaller scale. The cash generation may slow down a bit compared to the amazing levels seen in 2020 and H1 '21 as the recovery goes on, but we are certainly and we will certainly be not short of resources.

I hope that by now you share our enthusiasm for the positive momentum that our business is enjoying. We will now open the lines to your questions and hopefully to our answers.

[Operator]

[Operator Instructions] The first question is from Matteo Bonizzoni with Kepler.

[Matteo Bonizzoni, analyst]

I have 2 questions. The first one is related to the cash generation and working capital ratio. I was calculating, depending on how you calculate it, that the net working capital on revenue ratio in the second quarter of this year dropped by between 5 and 10 percentage points compared to the second quarter of the last year mostly due to a reduction of inventory. So you commented that this was also due to the fact that you prefer to stay low with the raw material inventories. So my question is simply to understand if this very positive working capital performance is mostly temporary, and so we should imagine a return to previous level. Or are you confident to remain, in any case, lower than in the past?

And the second question is related to the recovery which you are experiencing, particularly, I would say, in Hydraulics. So it's clear that the overall economy has not yet returned to the same level of 2019. Maybe your sector has performed better than the overall economy. But my question is from what you are also assessing with regard the performance of your competitors in Hydraulics, do you believe that we are also gaining market share over this period in organic terms, let's say, excluding acquisition?

[Luca Mirabelli, executive]

Okay. Let's go in order. The ratio of net working capital sales, I agree with your calculation in -- seeing from another point of view, our total sales net working capital has gone up to just 2% in -- compared to 1 year ago. Of course, this compares to a strong double-digit organic increase, about 20% for the half year, about 30% for the quarter. So there is no doubt that we have squeezed it down in relative terms compared to our usual numbers.

Now your question whether this is temporary or for good would be attached to my question to you. Do you think that the current spike in raw materials is going to be -- is going to last a long or short time? And of course, you may have your expectations, but no one has a certain answer.

We certainly didn't change our strategy, and we are still buying raw materials, mind you. It's just not at the right time where as it happened in the past, maybe you decide to build a stock of worth more than 1 year of your needs of one particular metal just because you bump into a very cheap offer and you want to take advantage of that. Cheap offers are simply not available. So that's not happening. We still keep our strategy of being flexible, which means having in-house everything we might possibly need, but this is not the right time to build long-term stocks.

In terms of the recovery in Hydraulics, I would leave this answer, if you can hear me because we are connecting from different places, to Fabio Marasi, who is involved much more than I am in the real-life management of companies. So he is much better aware of the situation -- of the competitive situation. However, the logical basis of your observation, the fact that our recovery is certainly much stronger than the numbers that are -- can be associated to the market is already an answer. Fabio, can you hear us?

[Fabio Marasi, executive]

Yes. Absolutely. I have a couple of comments on the question posed by Mr. Bonizzoni. And the first one was related to the net working capital on sales. And it is true that we have really optimized the net working capital on sales. It is also true that the very good numbers and figures regarding this important KPI has to be considered together with the difficulties in finding and sourcing the right quantities of raw materials.

And to be honest, I would be very happy as a manager of an important group company to have more cast iron and more net working capital on our advisories because the efficacy of today is to keep running up our manufacturing production in our factories. And also, it's very important to follow the demand and the real request that we are receiving from the markets and from our customers.

So far, we have managed very well with a lot of flexibility and with a lot of focus on servicing the customers. But anyway, I will not be concerned or worried to have 1 percentage point in net working capital on sales if we will be able in the second part of the year to source more components and more raw materials from the suppliers.

Regarding the recovery that we are experiencing and that, of course, is super strong, we believe and we have the visibility considering also the discussion that we have had with the most important customer and the OEMs that are representing an important part of our turnover and on our customer base. That also visibility for next year is very positive, and we are negotiating the increase that the customers are demanding us in terms of manufacturing capability for next year as well. But for us, it's not a bubble. It's something that is strong. It's a strong recovery, of course, in comparison with what happened last year, but it's also a recovery that we believe that will last for several quarters at minimum.

[Luca Mirabelli, executive]

Thank you, Fabio.

[Operator]

The next question is from Domenico Ghilotti with Equita.

[Domenico Ghilotti, analyst]

Three questions. The first is related to margins, to your comment that second half will be, say, tougher to keep up with the performance in the first half. So I was looking at second half 2019. You were at 23.4%. So what I wanted to check is if you are saying that the level of margin expansion that you have seen is not sustainable or if you are saying that the absolute level of margin that we have seen in 2019 is difficult to be repeated. That's the first question.

The second is on the investments. If I'm not wrong, you said EUR 34 million in the first half, and I had something more -- much more, say, for the full year. So if you can give us or confirm the guidance for the full year.

And the third question is related to the M&A. In particular, we had announcements by SPX Flow that they are considering review or options for their activities. We had your sort of the previous experience coming from downfalls where you were able to get some opportunities out of there. So I wonder if this -- you think or you are in talks, you are -- there are opportunities that you can see from the possible discussion or transaction that could happen on these assets.

[Luca Mirabelli, executive]

Okay. I will start by addressing your questions with very general observation, and then Fabio will kick in with maybe more depth. In terms of the margin, yes, by mentioning the EBITDA margin of the second half of 2019, you're actually putting us in a corner and forcing us to sound optimistic because, clearly, there is no reason to expect a situation which is, I mean, significantly worse than the second part of 2019.

In practical terms, how this is going to translate into margins? Well, this is yet to be seen. And again, we have a missing number here, which is the impact of the price increase of raw materials that will gradually show a bit more of their effect on our accounts. Clearly, this is going to depend on how efficient we are in passing them on to customers. So far, we have been incredibly efficient to the point that I would safely exclude, rule out the fact that we have had any negative impact at all. But this doesn't mean that we can take for granted that we can do it for the rest of the year as well.

And this is basically the only reason for our apparent prudence in terms of margins because, clearly, the situation has even improved compared to Q1, and of course, the longer we go into the year and the more likely it is that we are going to beat the result of 2019. However, from an official corporate point of view, I wouldn't feel entitled to promise that to the market because there is still something that doesn't depend entirely on us.

About CapEx, Fabio will certainly have more to say. I would just remind you that the CapEx announced -- the number we are commenting today, the EUR 34 million, is CapEx paid. So there might not be exactly a one-to-one correspondence with our CapEx plan announced at the beginning of the year, but I'm sure that Fabio will add more depth to this. And so he will.

To SPX FLOW, we've seen that yesterday, they are not ruling out accepting the offer from Ingersoll. But the main point I want to be very clear with you, it would take an incredible set of unfortunate circumstances who -- which would not deploy any way in the very short term because the logical step would be they would have to accept the offer. And this last investigation would have to be opened, I would say probably many, many months, before they identify any danger of an illegally dominant position resulting from the merger. The first circumstance that should turn real would be that this dominant position would need to be in a sector that we are interested in and which is not something I could say for the entire activity of SPX FLOW or Ingersoll.

And the second point is that -- as a reminder, the second lastly point with Danfoss and Eaton was that Interpump did not have any activity with those product lines which ensured to Danfoss the speedy as possible execution of the deal. And of course, we have no idea whether this might be the case with this possible force to sale of the 2.

So we still have too many things. We don't know. It's way too early to think of any capability like this. Of course, we keep our ears open.

Now Fabio, if you want to add anything on the 2 points, the CapEx and the SPX FLOW opportunity.

[Fabio Marasi, executive]

Yes. Yes, Luca. Regarding CapEx, of course, you have to consider that we have always said that our range of CapEx on sales incidence is between 3% to 5%. And of course, the CapEx number that we are seeing for the first half of 2021 is also a consequence of the prudent approach that we have taken in 2020 due to the pandemic situation. And then today, we are adjusting our manufacturing capability and our production output considering the strength of the market, and then we are pursuing that and following the market growth with the growth on our manufacturing capabilities in several our companies.

And then I believe that we will stay within the usual range of 3% to 5%. Of course, if some important real estate investment will happen, we have already commented several times about the real estate developments that we have, in particular in the United States with new plants in Muncie and in NLB. But in any case, the technical CapEx will stay in the usual range, and we will see a normalization in the next few quarters.

Regarding M&A, of course, the market remains very hot and very, very positive. And also, Interpump is very hot in respect of M&A. Apart from the closing of the White Drive transaction that, of course, is our main focus in these weeks and in these months, we are very active in following and pushing other dossier, and we are very focused in continuing our growth strategy and consolidation strategy in many of the sectors in which we are already present.

And we see an important rebound of opportunities, an important rebound of discussion and negotiation that has been talked in 2020 for the pandemic situation and the worsening of the economic results. But of course, with the improvement of the economic situation that is characterized in this month of 2021 is in some way of a plus. And we believe that we will have the opportunity in the next few quarters to closing and to finalizing other dossier, another transaction that are interesting for us or has been under discussion for years so far.

Regarding the specific question of SPX-Ingersoll opportunity, of course, as Luca mentioned, we are keeping our eyes open, but we will see. It's too early to say. It's too early to comment. And we keep our opportunistic approach like we did with the Danfoss-Eaton transaction.

[Operator]

The next question is from Alessandro Tortora with Mediobanca.

[Alessandro Tortora, analyst]

Two questions from my side, if I may. The first one is if you can come back to the comment on, let's say, order backlog. If I understood well, you mentioned that on the Hydraulics side, the company is building visibility already for another positive year in 2022. So first of all, a confirmation of this trend and if there are any specific, let's say, end reference markets -- I don't know, agriculture or some other sector where this is, let's say, the situation that you see. On the Water-Jetting side, if you can also, let's say, elaborate a comment on the order backlog for this division.

The other question is on free cash flow. If, let's say, we consider all the aspects we discussed, starting from, let's say, the free cash flow you got in this first half, is it reasonable to assume, let's say, maybe a touch lower free cash flow for the second part of the year?

[Luca Mirabelli, executive]

Okay. Thanks for the question. In terms of backlog, Fabio, do you feel like answering the question on backlog since you do have a backlog and I don't or...

[Fabio Marasi, executive]

Yes. Regarding the backlog, it is always difficult to comment with a general part, looking at the whole group in Interpump. We have different situation and different end markets. But if we look at -- particularly at the backlog in Hydraulics division, we see how booming and how hot is the market. We are having meetings -- regular meetings in these weeks with the major and the most important OEMs that are increasing their requests, that are increasing also the allocated manufacturing capability also with the 2022 visibility.

And then I don't want to share precise numbers because they are partial and that are not referring to the whole group. But I can confirm that the backlog is at a record level. It's very, very strong, in particular, for companies for which backlog means something, and I'm referring to the ones, in particular, in the Hydraulics division. But considering the discussion that we are having with the major OEMs, this very hot situation in the market is due to last also for at least the first half of next year.

[Luca Mirabelli, executive]

Yes. And regarding the difference with Water-Jetting, clearly, this -- the results in the backlog data for Hydraulics companies is much more impressive. In Water-Jetting, of course, every company is above the level of 1 year ago in terms of backlog, but we know that 1 year ago is too easy comparison base. Let's say that while many companies in Hydraulics have backlogs on a sufficient size to cover the entire rest of the year, in the water-jetting sector, this is not the case at many companies.

I would still look at this in the right perspective. This is a situation that is gradually improving. And as we said, we've been saying this for a year nearly, this improvement is going to be gradual and slower compared to Hydraulics. So what we are seeing now is actually the backlog representation of the same dynamics of a slower pickup in Water-Jetting compared to Hydraulics. But given the overall positive move of the economies, given the push to public infrastructure spending that we are hearing about all over the world, I would regard this as opportunities more than problems. I mean I do not expect the situation to become critical or deteriorate or become a problem in any way.

As to your third question, the free cash flow, I totally agree with your general remark that the second half of the year should be less impressive than H1, although we've seen that in H1, we did have some kind of a contradictory acceleration in free cash flow. However, I would point out that we have -- in the past, we have always seen with a good level of reliability inverse correlation between organic growth and free cash flow, which manifested itself with a 6-month delay. At least this is the best approximation that we can apply to this, which means that now that we are more than 6 months into the recovery phase, I would say even statistics -- even the statistics rule that has been quite accurate for the past is supporting your view.

Now I do not have anything precise to offer where -- about where we expect the free cash flow to actually land at the end of the year, but I trust that you will share my idea that this is not going to have a material impact on the company, on the strategy and on our decision. So it's something that we can, let's say, almost stay at the window and wait for.

Thank you. Do we have -- I don't know if Fabio has anything to add about these topics. I'm probably stealing the scene.

[Fabio Marasi, executive]

No, you can go ahead.

[Luca Mirabelli, executive]

Okay. So do we have any further questions?

[Operator]

[Operator Instructions] The next question is from Fraser Donlon with Berenberg.

[Fraser Donlon, analyst]

Fraser here from Berenberg. Just 2 questions from my side. The first is just, is there anything interesting to learn, particularly in Hydraulics, as regards the kind of mix of the order book as regards products, valves versus hoses, for example?

And then the second question would be just on the kind of -- it sounds like you're managing pricing very well so far. What makes you a bit more cautious on that front into H2, if anything, relative to the costs? Do you think you're reaching more of a limit with your customers as regard to increasing the prices?

[Luca Mirabelli, executive]

Okay. Thank you. Let me start from your second question, the way we manage prices and especially the way we typically pass on any price increase to our customers. There is -- I mean this is something which has been going on all over the place. We are also a victim of this someday -- sometimes. This is a hard time for buyers as price increases are happening almost every day.

Historically speaking, Interpump has always demonstrated a very good capability due to a mix of pricing power and let's say -- and smart management of purchases to pass them on to our customers. There is no doubt that this is going to happen again. The point is that we don't know how fast it will happen. We don't know how efficiently it will happen, although we are quite optimistic on that. But most of all, we cannot rule out that we are having some benefit from these dynamics in the past couple of quarters, which means that due to the very large size of our stocks of some raw materials, I'm thinking brass or aluminum, for example, we may have benefited from price increases even before we started suffering from the price increases in the raw materials.

This is why we always refer to the rest of the year as a normalization, not a deterioration of our margins. We believe that our margins are a bit doped by the lack of marketing costs, trade shows, travel costs and possibly also by the advanced effects of price increases while we wait for the negative effect because of our very large stocks.

Yes. Basically, this is what we can say about your question. And hopefully, I'm not sounding pessimistic or scary about what we expect for the rest of the year. We are simply expecting a back to normal in -- to this extent.

In terms of the development of order book, in terms of product lines, again, Fabio might have a closer-to-reality answer than I might come up with. Fabio?

[Fabio Marasi, executive]

Yes. Of course, we are very strong, and we have important visibility on many companies in the hydraulics world that are really exposed to the OEMs. We have had, as mentioned before, important discussion with the major OEMs, these are Bosch, CAT, John Deere, Terex or CNH, in the last few weeks. And every single customer is mentioning that are experiencing a boom of demand from final customers and are commenting very positively with their visibility on the next few quarters. And that they are meeting us and demanding us an increase in support and an increase in the output and the manufacturing capabilities dedicated to that.

Considering how widespread this is -- approaching this situation, we believe that this situation will be consolidated sooner or later, but the final market demand will remain very strong in the next few quarters and also in the first half of 2022 update.

[Luca Mirabelli, executive]

And if I may close this answer, I believe that Fraser was also inquiring about any shift in the product mix and the component mix. And I'm personally not aware of any change in shape of the market demand. So there would be nothing I would have to comment about.

[Fabio Marasi, executive]

Correct. I confirm, Luca.

[Operator]

The next question is a follow-up from Domenico Ghilotti with Equita.

[Domenico Ghilotti, analyst]

I have a follow-up on the previous question. So I wonder if you had any change in the commercial relation with the OEM. So I mean maybe they are ready today to put some, let's say, firm orders, orders that cannot be withdrawn or back to normal. So just a relation where they are saying, okay, you can go for the additional capacity because we have a lot of demand, but it's just normal relation.

And second is the comment on the outlook that you're providing. If I understand well, you are, let's say, very confident about the top line. So I understand that you should expect some kind of acceleration in the organic performance compared to 2019 while you are a bit more, say, prudent on the profitability side.

[Fabio Marasi, executive]

Yes, I can take the answer, Luca. Regarding the commercial relationship development with OEMs, you have to consider that we have a sort of long-term partnership with the major OEMs. And this is true for the most important companies in the Hydraulics division in our group but not only.

Considering the very dramatic increase of the market demand that they are experiencing and the stress that has been put on the whole supply chain, we are working for an answer very closely with them in order to follow them and to give to them the possibility to increase their output.

In order to do that, of course, we are committing to increase our manufacturing capability to make investment dedicated to them. But also, we are asking to them to make a longer-term commitment, placing orders with a longer-term visibility in comparison with what we have done in the past.

And I would say that I'm really comforted about the discussion that we have had in recent months regarding the availabilities of the OEMs and the needs of the OEMs to strengthen this relationship. We are ready to do our part, but also the OEMs and the major customers are really prepared to commit themselves in order to have -- secure the sourcing and increase in sourcing for the next 12 months or 6 months. And then I'm very positive about the development of the commercial relationship with these customers.

Regarding the profitability, of course, we have noted that we are as confident regarding the top line evolution. Regarding the profitability, of course, the first half and the second quarter results are very strong and very positive. And we will see in the future, but we are very confident that we will be able to transfer any further increase in the prices of raw materials to the end customers also because this approach is the one that is taken by our major -- the major players in the market. It's a major competitor that we have in the market. And then no doubt or no problems are to be expected from the transfer of the raw material price increase that may happen in the future to their customer because market -- or this market is prepared to pay the right prices in order to get the right materials and the right quantities.

[Operator]

Next question is a follow-up from Matteo Bonizzoni with Kepler.

[Matteo Bonizzoni, analyst]

Just a quick follow-up on the management and Board composition. So what we have seen from your last announcement is that Mr. Gottardi, who was the CEO of WALVOIL, one of your -- the most important part of the Hydraulics business, left the company. And Fabio Marasi has been appointed, we have read, the COO of the large business, I think, of WALVOIL. And so I think that Fabio Marasi is also CEO of some other parts of the business.

So -- and also, we have seen that in place -- as regards to the Board in place of Mr. Gottardi, who was also recently appointed, let's say, Board Member, Mr. Marasi has been appointed coming from Tamburi, which is one of your reference shareholder. Just -- can you add more color on what has happened so far and also what could happen potentially in the future as regard to Management Board composition and so on?

[Fabio Marasi, executive]

Okay. Thank you, Matteo, for this question. Of course, I'm in a little conflict of interest to comment on this. But regarding the first part, the Board composition, the Board decided to hire and to appoint Mr. Marasi, who is an experienced finance guy, is the Managing Director of Tamburi Investment Partner, as a part of the Board of Interpump as a further signal of the commitment that we have on the M&A and further development.

On a managerial point of view, it is true that Mr. Gottardi, who was the CEO of WALVOIL, and this is also true, of course, that I have taken over his position as the CEO of WALVOIL, we have had an internal reorganization. And I pass over my responsibility as a previous CEO of GS-Hydro to a colleague of mine because GS-Hydro turnaround can be considered completed in these 3 years. The company is performing very well and from now on will be managed under the Hose and Fittings division that is supervised by a colleague of mine.

And at the end of May, early in July, I've been appointed CEO of WALVOIL. And these 2 months, I've taken over the responsibilities of Mr. Gottardi. WALVOIL is the largest company that we have and one of the most performing ones. And those are one of the companies that is characterized by this booming demand from their markets and the OEMs. And I can also say that the company is very strong, is very structured, considering that this is a EUR 300 million-plus company in terms of management. And then I do not expect any problem or any turmoil in this system.

Can you comment, Luca?

[Luca Mirabelli, executive]

No. Of course, I don't have anything better to say. You already underlined how solid WALVOIL was. This also should be credited, of course, to Mr. Gottardi, who managed the integration with the other companies that we put together, most important Hydrocontrol, but also Galtech, and created what WALVOIL is today, realizing at the same time a 10 percentage point EBITDA improvement compared to the original company.

Now the job of Mr. Gottardi in this integration is completed. He -- I think he passed on to you. And of course, you can tell us, if you agree, very autonomous and very well-working company, not -- certainly not a work in progress, and he will move on to a new kind of employment. He will be -- he will have a significant entrepreneurial component in his new job. So he's certainly not leading WALVOIL because it was a failed company, probably exactly the opposite.

Fabio has demonstrated to be a very versatile manager. He was able to turn around the -- soon-to-be dying GS-Hydro into a double-digit margin company in a little more than 1 year. He also has a key role in a lot of our bigger -- biggest M&A operation. He was heavily involved in the negotiation and the procedures relating to White Drive. So Fabio is certainly up to the task that he has been given. And again, as he mentioned, he's been driving WALVOIL and -- which is the same as saying the Valve division for a couple of months, and the business is still booming. So this is -- we are beginning to have also practical demonstrations of the value of this choice.

[Fabio Marasi, executive]

Thank you, Luca. You are very kind of me. Thank you a lot.

[Operator]

[Operator Instructions] Mr. Mirabelli, Mr. Marasi, there are no more questions registered at this time.

[Luca Mirabelli, executive]

Okay. Very well. I hope that the reason for this is that we answered to everyone. On behalf of Interpump, thanks again for being with us today. The next scheduled appointment is for November 10 for the presentation of Q3 results. Wherever you are, stay safe and enjoy the rest of the summer. Goodbye, everybody.

[Fabio Marasi, executive]

Thank you, everybody. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.