Interpump Group SpA
MIL:IP
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Interpump Group SpA
Earnings Call Analysis
Q2-2023 Analysis
Interpump Group SpA
Interpump showcased a strong second quarter in 2023, with organic growth hitting 9.1%, a notable rise over the impressive 12.5% growth during the same period in 2022. The growth was propelled by strong volume increases and pricing power, with sales increasing by more than 9% for the quarter and almost 14% for the first half of the year. This positive performance reflects the company's anticipated market normalization and adept adaptation to the evolving business landscape.
The company’s EBITDA margin for the second quarter stood at an elevated 24.6%, which is an increase of approximately 100 basis points over a remarkably high second quarter the previous year. The expansion in profitability is attributed to the Hydraulics division's significant margin improvement and enhanced operations in the U.S., particularly for the White Drive segment, where profitability nearly doubled. However, this was slightly offset by some softness in European growth due to operational changes, including factory reorganizations. Despite a dilution effect in the Water Jetting division, the company remains focused on achieving its profitability target of a 21% EBITDA margin.
Interpump is reaching new heights with the completion of factory enlargements and advances in several key projects, including the WALVOIL and Tubiflex factories. These developments, coupled with ongoing improvements in operational efficiency, have led to a historic achievement for the company: EBIT surpassing 20% of net sales, signifying effective capital investment and automation benefits.
A focus on enhanced cash flow generation reflects management’s commitment to strengthening the corporation's finances. After addressing previous challenges related to sales and inventory, the company is making strides in improving free cash flow, thus aligning with the strategic goal set for 2023.
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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump Second Quarter 2023 Financial Results Conference Call. [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, ma'am.
Thank you. My name Elisabetta Cugnasca, Head of Investor Relations of Interpump Group. Good afternoon or good morning according to your time zone, and welcome to Interpump's Second Quarter 2023 Financial Results Conference Call.
As usual, I have to bring your attention to the disclaimer slide inserted in the annex part of the presentation, I hope you were able to download from our website. Afterwards, it's my pleasure to give the stage to Mr. Marasi, Group Chief Executive Officer.
Thanks, Ms. Cugnasca, and thanks to all of you for the attendance. After first quarter, way better than our 2023 expectations, I'm very pleased to present you a second quarter and therefore a first half that is once again better than what we expected only a few months ago. When in May, we revised upward our expected growth for 2023. And better is extremely comfortable because it confirms once again a crucial capability of this group, to understand the market dynamics evolution and changes and being able to promptly adapt our operations.
We envisage for 2023, a market normalization driven by lead time and supply chain rebalancing after COVID extraordinary consequences. We adapted our machines, and now we are fully taking benefit of an extremely nice and welcome extra growth.
Allow me to give you some evidence in terms of sales. In the second quarter, organic growth was 9.1%, more than 9% over a 12.5% growth recorded in the second quarter 2022. The EBITDA margin was 24.6% in the second quarter with an increase of approximately 100 basis points over an already spectacular second quarter 2022 and 24.9% in the first half of the year, against 23.6% of the first half of 2022.
Numbers, I could not even dreamt off when I joined Interpump Group a few years ago. In terms of cash flow generation, we took the commitment to improve it during 2023, and we are delivering it without jeopardizing the actual and the future growth opportunity. We are improving cash flow generation and in the meantime, we are continuously feeding the production to transform orders and invoices, the actual growth. And we are completing our post-COVID expansion plan that is fundamental for supporting our midterm growth ambition.
The positive results of the first half of the year, combined with a very good level of the order backlog in July make us confident on the fact that 2023 could become the new record year for Interpump, the new Mount Everest, both in terms of sales and profitability. After this first snapshot, let's focus on second quarter and first half 2023 figures.
The organic growth of sales was more than 9% in the second quarter and almost 14% in the first half. Growth drivers, around 9% of volumes and around 5% of prices, a confirmation of last quarter's trends in which volume were much more important than prices.
This evolution perfectly reflects both different cycles, nice nature of our 2 divisions and what we were expecting from the start of the year in terms of market normalization. This is the reason why Water Jetting is now growing more than Hydraulics.
Now some color on sales evolution in the second quarter from a geographic and sectorial application point of view. In terms of geography, focusing on top countries, U.S.A. is up by 4%. Italy is up by around 13%, Germany by 5% and France by more than 20%. Looking at the second-tier region, China is growing by 4% and India by 10%. All growing numbers with different strengths, according to specific economy evolution of the single geographies in the period, but with one result, the group grew in the second quarter again double digits.
This is the beauty of Interpump diversification and balance. In terms of sector application, industrial vehicle adapters were up by almost 12%. Agriculture was down by around 6%. Earth moving machine were up by 12%, lift up by 2%, construction up by more than 50% and food and beverage up more than 30%.
Moving to White Drive. The sales part was different in the 2 different parts of the world. In U.S., sales grew almost double digit, while in Europe, growth was softer. U.S. operations are fully benefiting from the production capacity enhancement of the past month. And therefore, we are recovering all delays accumulated with customers. At last, instead of buying outside some products and components, we are producing them in Germany, and this means a more efficient and profitable production.
European operations are reflecting demand normalization. And moreover, the last step of the factories reorganization process between Germany and Poland, we will complete before the end of this month. The reorganization of the European activities with the complete shutdown of the German plant and the transfer of the manufacturing and assembly lines to our Polish plant in Wroclaw.
Moving to profitability. EBITDA margin was 24.6%, almost 100 basis points more than the already spectacular second quarter 2022. In Hydraulics, we recorded 23.5%, 160 basis points more than the second quarter 2022 and second best quarter ever after the incredible first quarter '23. This improvement underlines, once again, the capabilities of the group to adapt operations with flexibility to market and sales evolution.
Focus on White Drive. After 2 quarters in a row with an EBITDA margin of 21%. In second quarter, '23, the profitability was below our annual goal, and this is only due to the reorganization of the European factories that we launched at year start, and that represents an important step of the White Drive integration plan. In U.S., profitability announcement activities are going on and the results. And as a matter of fact, the business model changes I mentioned to you before made U.S., profitability almost double from less than 5% to almost 10%. Since the reorganization activities in Europe should be finalized before summer end, we are confident about our 2023 profitability target of 21% of EBITDA margin.
Moving to Water Jetting. In the second quarter, we faced a dilution of approximately 100 basis points, half of which driven by the 2 acquisitions we did in flow handling sector. Even we consolidate them only for June, it's important to keep in mind that we are speaking of companies, we have 23% in the case of I.Mec, and 14% in the case of Waikato of EBITDA margin. And these profitabilities in the short term are extremely dilutive for the group division, which in 2022 almost touched 29% of profitability. The remaining part of the dilution is driven by the sales mix evolution among different companies in the division.
Moving to CapEx. I would like to mention that in the second quarter, our efforts to go on with our COVID CapEx plan went on. You can notice it from around EUR 40 million of CapEx spend. And moreover, and more interesting for some quarters displayed in our presentation. We completed the enlargement of the WALVOIL factories in Reggio Emilia. Our colleagues from the technical department are moving in these days to the new plant area. And in October, the R&D center will be operative.
You can also see the progresses with the new building of Tubiflex in Turin and -- Romania in less than 1 year in IMM plant. The production will be on track before summer and after the almost 1-year stop as a consequence of the fire that destroyed the plant in May 2022.
Due to what we have done in the past 2 years, we would invest less in the next years. When we complete what is undergoing today, I mean, White Drive plants announcements both in Europe and U.S., the completion of the new headquarter of Muncie and the new plant of Tubiflex in Italy. But as of today, I can envisage only a significant project coming from the future, that is the new IPH plant in Italy.
To close with CapEx, I would like to drive your attention to an important P&L [ CPI ] that is EBIT. You are perfectly aware that EBITDA is our polar star, but we don't want to forget EBIT. And I would like to underline that in the first half of the year, EBIT overcome 20% on net sales for the first time in Interpump Group history, 20.6% to be precise. This is the best and clearer evidence that all the money we are investing to increase or improve our production capacity are generating both manufacturing efficiency in terms of automation and good financial returns and buybacks.
In terms of free cash flow generation, 1 year ago, I underline you that poor cash flow generation of first half '22 was driven by both the extraordinary sales evolution, which made trade receivable material increase and the extraordinary measures we put in place in terms of inventory to protect production continuity and therefore, profitability. I added that starting from the second half of 2022, this trend would have changed. And later in February, I underlined you that one of the 2023 most important commitment would be cash generation improvement combined with a good organic growth and profitability protection.
In the first quarter 2023, you already saw the first result. Today, you see the additional ones. Compared to first half 2022, the cash absorption driven by the trade working capital went down by around 40% from EUR 130 million to EUR 76 million. And in the second quarter, only the reduction was more than 70%. These results were achieved without hampering organic growth and the execution of our post COVID CapEx plan just described. And in the meantime, having mitigated the still important impact that the strong sales growth is having on trade receivable.
Another number to share to underline our improvement, is that on a 1-year rolling base and excluding acquisitions, incidents on sales of the trade working capital went down from 41% to a little bit more than 39%. To complete the overview and to give you some details in terms of inventories, too, I would like to underline again that the increase in value recorded compared to December, less than 5% in absolute value is influenced by the inventory accounting methodology based on average cost.
And in the second quarter, obviously includes around EUR 20 million of impact of the newly consolidated companies. We improved inventory efficiency and rotation and inventory days went down compared to December. Step by step, we are, therefore, working to find the right balance between support and production continuity, excellence in customer service and cash efficiency, not an easy task in an environment that is continuously changing with the volatility, which is one of the most important consequences of COVID in our markets. Despite that, we will go on working to gradually go back to the trade working capital pre-COVID level that we consider the best from an industrial long-term point of view.
Moving to acquisition. As you know, in May, we discussed the 2 acquisition finalized until then, Mouldtech and I.Mec, both very important, even from a very different point of view. Mouldtech, the holistic approach of the group in terms of risk management, while I.Mec demonstrates the Group external growth path did not forget Water Jetting in the most recent years. Simply finalizing acquisition in this business sector and fulfilling in the meantime, our strict criteria has been more difficult than in overall division.
Waikato, the new acquisition that we commented is another evidence of our constant growth path in the Water Jetting and Flow Handling division and even more of group strategy milestone. And in this specific case, diversification by geography, New Zealand and development in continuous business sector.
As mentioned before, everything new consolidated in our Water Jetting division in almost all cases, has, in the short term, a dilutive effect, but we are confident to improve the profitability level of the new entries as we did 3 months starting from 2017. These are all important details of the past months. Some colors on most recent trends based on July for positive indications. The backlog once again was above the EUR 1 billion threshold despite the normalization of the lead times that we are seeing in our division.
Once again, the benefit of the diversification, Water Jetting is growing significantly. Precisely a few words on Water Jetting. Almost 1 year ago, Water Jetting weight on the total backlog was below 15%, and today, it's close to 20%. This is one of the best evidence of the late cyclical nature of this business. Recovery after COVID is now undergoing in particular for the project side and the Flow Handling part of the division. Obviously, we are not expecting an ongoing balance from a sales point of view at the group level due to the big difference between the 2 divisions. But speaking about profitability, as you know very well, this is a completely different story. I leave now the stage to Cugnasca for the usual comments on our ESG journey.
Thanks, Mr. Marasi. Since we are keeping you constantly updated through the usual ER instrument, quarterly financial press releases and presentation or adhoc presentation on each advancement of our ESG journey, I will be concise. As you probably remind the general goal of 2023/2024 action is to build group ESG foundation and therefore, in the first part of 2023, we implemented [ 2.5 ] action of our journey. G.1, we create inside the new board, the Sustainability Committee and Executive Director in [indiscernible]. I believe that this is the best evidence of how group is taking seriously the topics.
G.2, we approve the new Code of Ethics, which now incorporates the Group ESG commitments. G.3, I quoted 2.5 because even if we are still working on organizational procedural and formal elements, the first, and I will say the most important and concrete half of the formalization of group succession plan action was implemented last April with the separation of Chairman and CEO role.
In the second half of 2023, in the next few months, we'll be focused on other important action to be delivering this year. On the [indiscernible] action and on the vow that has to deliver every year. E.1 the definition of group carbon neutrality strategy before the first phase of the circular economy projects. S.5 the fine-tuning of group supply evaluation model and procedure to incorporate environmental and social criteria.
Finally, please let me go through an action, which has nothing to do with our ESG plan and vice versa, has everything to do with our concrete responsible and trustworthy approach to everybody who every day, everywhere in the world contribute to our success. You probably remember that last May, some region of Emilia-Romagna were dramatically flooded, regions where we have Contarini and Interpump hydraulic factories.
Water did not damage our factories, but importantly, around 50 of our colleagues were severely impacted with cars and home basement or even first floor ruined or severely damaged. Therefore, with the June salary this [indiscernible] amount between EUR 1,000 and EUR 2,000 each equals to a global company amount for EUR 215,000. It's a drop compared to the cubic meter of water that devastated our land, but closing market rate of [indiscernible] in ocean with even a single drop less [indiscernible] with even a single drop less is a smaller ocean.
Thanks, Ms. Cugnasca, summarizing the second quarter 2023 confirmed once again our capability to correctly understand market evolution and to react fast and adapt our operations to a changing environment. And this made us benefit of a stronger performance compared to our initial 2023 assumptions. The second important point is that July data are consistent with our expectations. And therefore, we confirm our upgraded 2023 organic sales guidance to a single digit, and we are confident that the combination of the good organic growth and the flexible business model will make 2023 the best year ever in terms of profit margins for the company.
Thank you. So we are here please at your disposal for any kind of clarifications or doubts that you have.
[Operator Instructions] The first question is from Matteo Bonizzoni with Kepler Cheuvreux.
My first question was actually on the organic growth -- I know that you have the right answer because in the press release, you refer to the initial guidance. So I was not -- was not particularly clear if this organic growth, which was the latest guidance was confirmed or was different. So I have a further [indiscernible].
The second question is on the seasonality which we are seeing this year. Now I was looking at my model back in many years, typically, second quarter has been likely above the first quarter in terms of revenues and also in terms of percentage of EBITDA. This year is not a good year, you see that the first quarter was extraordinary because it was above 25% margin. Second quarter has been 24.6%, can you may be exactly [indiscernible] if for example, in terms of pricing condition, mix or cost condition, there is something different. Clearly, what -- I maybe this is [indiscernible] because it is the latest acquisition or materiality in the margin.
Can you comment a little bit more margin delta? The last question is regarding the book-to-bill. You have said that your buffer remains above and is particularly strong in the Water Jetting business. Can you little bit elaborate more as regards your deal as a consolidated level in the last month and also in terms of end market for geographies?
Thank you, Matteo. In terms of organic growth guidance, I confirm that we reiterate the high single-digit growth target for the year that we have announced in May after the spectacular performances of the first quarter. The very good performance in terms of organic growth of the second quarter '23 and the good results of July are making us confident that we will have no problem in reaching these numbers.
In terms of seasonality, this is a tough question or a tough point to be commented. And this is the reason why I have always invited you in recent years to look not really to the monthly or quarterly results, but to the yearly results because in a fast-changing environment, trying to track precisely the evolution of every single market or every single quarter is more difficult than before COVID, and it is more difficult than in a normal environment. And this is also what we are looking internally, and this is the reason why we are also very confident that will be another very good year in terms of growth and in terms of profitability without commenting too much on every single month or quarter.
Regarding the evolution of the margin, if I understood directly from your question in Water Jetting linked to the seasonality, for sure, the acquisition of I.Mec and in particular Waikato with a significantly lower profit margin is significantly dilutive. The remaining is explained by the different performance in terms of growth and in terms of contribution by the different companies in the division.
Moving to the book-to-bill topic is not very simple, once again to comment because we have different trends and different uses in terms of a way of managing orders between the customers and the companies. But I may say on a consolidated point of view that we are slightly below 1 in this period. But the positive news is that we are maintaining an order backlog above the EUR 1 billion threshold also in the month of July, and this is giving us a lot of visibility for the months to come.
The next question is from Domenico Ghilotti with Equita.
A few questions. First on the Water Jetting back again. Can you help us in understanding how much of the dilution is coming from the M&A and how much is coming from the product mix? And, so what is really -- is something that is really temporary or really something that is more structured, the change in the product mix?
Second is on the comment that you are giving on the Hydraulic division. When you talk about market normalization driven by lead time and supply chain rebalancing, so what should we understand? Do you see really something which in the second half, your organic performance is mostly driven by Water Jetting? Do you still see positive organic performance in hydraulic in the second half or something different?
Okay? In terms of margin dilution in the water jetting, I would say that approximately 60 basis points is coming from the 2 acquisitions that we made in the quarter or in the first half of the year and the remaining is due to the mix. Mix is in such a short period of time, 3 months is not really significant because it depends on the performance of every single company within the division and in particular, on the evolution of the different parts of the business. As you are aware, every company in the Water Jetting division is very profitable, but we have differences.
Of course, Hammelmann is the superstar. Other companies are very profitable, but not as Hammelmann and also within the single -- the different single companies, we have orders or projects with different kind of profitabilities. And there for this reason, I have no particular trends to comment on or to make forecast in the future. I see nothing worrying about a few basis point dilution in a quarter.
In terms of -- if we move to the comments on the Hydraulics division normalization, it's very important to comment that when I was referring to supply chain and lead times normalization, this is important if we consider the absolute terms of the backlog. And if we consider also the difficulties that everybody in the value chain, including Interpump, experienced in the past 2.5 years. In a more normal environment in which supply chains are more reliable and transport times are more under control, the level of orders is not affected by the so-called panic buying approach. And what we are seeing today is a more normal environment in which orders reflect the true needs from everyone.
Regarding your last question about the second half of the year expected growth for the Hydraulics, I confirm that we expect positive organic growth also in the Hydraulics division in the second half of the year. But the phenomenon that we are seeing is that Water Jetting is accelerating and now is contributing more to the growth of the group.
If I may follow up with a few other questions. On North America, I saw a particular soft trend in particular, in Water Jetting actually. So have you seen any -- I was expecting to see some protection, let's say, due to the backlog on the second quarter trend in North America, considering that even a slowdown in orders would have been mitigated by the order backlog there, is any specific topic there ?
I have no particular comment on this. The exchange rate is also impacting. I don't know if you are looking at the like-for-like exchange rate. It is clear that the only phenomenon that I can comment is that NLB, our North American company, we are seeing more orders on the rental part of the business instead of on the equipment side of the business. And then this is driving down in the short term, the sales, but the business or the number of machines that are going to the market is almost similar. .
The next question is from Alessandro Tortora with Mediobanca.
I have 3 questions, the first one is on the level of CapEx. You mentioned the around EUR 40 million in the quarter or in the second half. First of all, if you can help us understand the level, let's say, level of CapEx for the full year considering that we are going to complete the expansion plan, as you mentioned before. And then considering that you don't see significant projects over the next year, if you can also -- do you have a sort of indication of a normalized CapEx on say in the coming years? That's the first question.
Okay. In terms of CapEx for the year, I would expect that we will close 2023 with approximately EUR 140 million in CapEx. In terms of projects, we are completing several very relevant important projects also we have real estate investments that we have already commented several times in the past.
Looking forward, the only significant or meaningful real estate expansion that I want to mention is Interpump Hydraulics new plant that we are projecting now for 2024 in Bologna. The company grew in the past, and we are experiencing space constraints. For this reason, we are projecting a new plant of approximately 15,000, 16,000 square meters for next year in Bologna. But apart this project, everything else will be on a much lower level. And I assume that we will be back at our usual range that is below 5%, I would say, between 4% and 5% in the next few years. And considering the very significant investments that we have made, I would assume that '24 and '25 will be much closer to 5 than -- sorry, to 4% than to 5% of sales.
Okay. Okay. And then the second question is on -- if you can elaborate a little more you mentioned probably half the amount actually in the second quarter in terms of sales. So if you can also help us understand the underlying trend because also some of your clients are talking about normalization in terms of, let's say, demand in the other business? Or if you can elaborate also on the -- the expectation for the coming quarters for this application?
Okay. I would say that the only application fees, I mean, between the relevant ones that is down in the quarter is agriculture. And this is specifically driven by a reduction in deliveries during the year in the second quarter. But it's very important to underline how bigger the growth and the expansion of the agriculture business in the last 2.5 years. Then when we speak about normalization of the inventories and normalization of the supply chain, I'm referring to this kind of phenomenon.
We have been very, very pleased to see that construction is growing so much. That is a very important application for us. Also industrial albeit for trucks are moving very well, and this is comforting also moving forward. We have seen the recently announced results for [ PACCAR ] or Daimler that are really comforting.
Okay, okay. And the last -- the last question is related to the level of financial charges there. If you can -- sorry to understand which level of net financial charges you're going to add in the future quarters considering the current interest rates environment.
Yes. It is clear that with the important rise in interest rate, we are facing far higher cost, considering that the vast majority of our financial debt is at a variable rate, and then we expect more or less EUR 40 million for the year in terms of financial charges, 20 for the year -- sorry, EUR 23 million is the expectation for the year. I was considering for the half year. And EUR 23 million is expected and the remaining is exchange rate effect.
Sorry -- so it's like total EUR 40 million of which 23 million is excluding FX?
Yes, EUR 23 million is the financial charges for the year, excluding FX.
The next question is from Bruno Permutti with Intesa Sanpaolo.
I had a question on the price cost set. So how do you expect the effect of those in the remaining part of the year? Are you experiencing normalization on the supply chain. Are you also experiencing some benefits in terms of cost inflation. And on the other side, how it is built in the pricing. So essentially the price cost if you expect a benefit or not in the next few quarters.
And a second question is possibly related to this, on seasonality. You suggested that the business has changed and we should not look at seasonality as an important factor. So this means in some way that we could look at the different quarters in -- so in a more similar way or you intend that you have seasonality, but it can change every year, depending on the phasing of deliveries and I don't know, something else that is different from the past. So I'd like to understand how to interpret this different seasonality a bit.
Yes. In terms of price and cost inflation, it's important to note that we believe that the more or less 5% price effect that we have gained in the first half of the year is sufficient or more than sufficient to cover the inflation that we are experiencing on our cost, on our bill of material. Because if we consider the most important factors in our production costs, you will have that energy costs will be significantly down this year in comparison with 2022.
Raw materials will be down a bit, not as much as you read on the newspaper, but raw materials impact will be down this year. But these benefits will be offset by the increase of salaries that we are seeing more or less everywhere in the world and European in particular. But all in all, I would say that the 5% growth in prices is more than enough to cover the growth in the business materially and the production costs for the year and this is not a particular concern for us.
The comment on seasonality is a little bit more complicated. My point is that the after COVID world changed the rules in some way. And it is very, very difficult to make a very significant and proper comparison on a quarterly basis year after year because we may have very, very different or discrepant dynamics between 1 year and the other. And this is the reason why I believe that we should look at the full year results, 2020, '21, '22 and '23. And you will see and we are seeing and we see -- our relevance has been our processes. Our relevance has been our organic growth and the profit margin expansion. And this is what is comforting us and this is our guide, instead of becoming crazy in trying to track some trend from 1 year to the other, that is in such a short term, I would say, erratic considering the macroeconomic factors that we are seeing.
The next question is from Domenico Ghilotti from Equita.
I have 2 additional questions. The first, if you feel confident to provide any comment on preliminary 2024 organic outlook and second, I understand I feel that on the Water Jetting, you still see a quite supportive outlook and also for 2024. But I leave a comment to you. And the second I would expect that if you have any kind of a normalization in top line growth, free cash flow will accelerate, and so would you consider a buyback?
Okay. Regarding 2024, organic outlook is a very, very good question. I believe that it is too early to say because our budget season, our budget process will start immediately after summer and will be completed as always, within the month of November. It is true that we have some visibility or some good visibility, at least for the first half of the year, thanks to the backlog that we have, in particular in some company that is going beyond December '23. And as you noted, we are very confident that Water Jetting will be very supportive for next year.
In terms of normalization of the free cash flow and normalization -- sorry, the impact on the free cash flow of the normalization of the top line growth is absolutely correct. To expect that if we will have a more normal organic growth in comparison with the spectacular one of the last 3 years, we should expect a far stronger cash flow generation going forward.
Regarding the buyback option, I would say that this is not on the agenda now because we believe that we will have a lot of M&A opportunities in the next 12 months or in a midterm perspective. And then our first aim and our first goal is to use the cash flow that we generate to make the group bigger and stronger through acquisition.
Okay good. Let's hope for M&A then.
Yes.
Next question is from Michele Baldelli with BNP Paribas.
A couple of questions. The first one is about ForEx impact in H1 just to strip it out from the total financial charges, if you can provide that. The second question relates to the M&A in the sense that from your last point that you mentioned, the share buyback is not an option because of M&A or historically share buybacks were used to also be a part of the price to own shares to the family that were sellers. So my point is, are you looking to certain targets so large that basically there will not be subjects that are interested in shares, but more on a cash price basis. Is this, let's say, way to look at it?
Sorry, Mr. Baldelli. Could you kindly repeat the first one because the line is very disturbed. Can you please repeat and speak slowly?
Yes. The first point is about the ForEx negative impact in the financial charges, if you can quantify how much it is?
EUR 6 million in the first half of the year. And the second question was about the M&A target, correct?
Yes and the strategy around it why you don't want to do the share buybacks before historically it was used the share price to pay the seller, let's say, in the [indiscernible] you are looking to larger targets, where probably the seller is not a family and therefore, they will not be interested in your own share. So is this reasoning can you apply or is not because of this.
Yes. This is clear. The question is clear. We already have treasury shares of approximately 1.7% of our capital close to 2 million shares. And I do not exclude completely buyback, but our preferred way of employing the cash flow that we expect to generate in the next 12 months or in a midterm perspective, in an even more significantly is to deploy and realizing new acquisitions. This is the reason why I do not exclude the buyback, but our preferred deployment in terms of utilization is for acquisition.
In terms of target, as you know, we have a very opportunistic approach. And then as I have commented already several times in recent quarters, in particular after successful White Drive acquisition, we are prepared that to look at the slightly larger transactions, but it's too early to comment, and we don't have the possibility to comment on any specific target. You know how uncertain is any M&A opportunity.
Next question is from Fraser Donlon from Berenberg.
Just 3 or 4 questions from my side. So the first is just on the Romania side. I think in the past, you've kind of commented that there are some costs relating to that alongside the kind of insurance inflows. So how would you kind of quantify that in Q2 in terms of like a net positive or negative for the group? And then how would you look at that as the factory, I think, reopens in the coming months?
The second question is just on the kind of expansionary projects you have going on with the likes of WALVOIL. How well covered are those through market share gains or commitments from customers looking into 2024. The third question is on Waikato, the acquisition you made, I guess I was just interested to hear your view on why that's a kind of interesting end market to add to the group, the milk exposure.
And then the final question, just talking about seasonality and that being a little bit more unusual given the group is kind of working through a backlog, can we kind of consider that maybe Q3 might be an absolute value a bit better than usual or different maybe Q4 but be as large as it normally would be because I think season in Q4 is not going to be very good, but maybe it wouldn't be the case this year. I would just be interested on your view you on that.
Okay. Regarding the Romanian fire, we have the note and the details in the financial press release. The positive impact from the insurance has been EUR 5.4 million in the second quarter this year. But this is not a gain. This is offsetting, the losses that we have experienced both direct losses in terms of cost and indirect losses in terms of lost business and lost profitability from this company. You have to note that this situation is going on from May 2022. And in this year, we had to face a huge amount of inefficiencies from a manufacturing point of view, and a huge amount of commercial problems as a consequence of the unavailability of the production from Romania.
For example, we had to move approximately 100 people from Romania to Italy in order to run the extra shifts in our Italian plants in order to maximize the output of hoses in our Italian plants. And this is, of course, crazy expansion in terms of logistic costs and extra cost for these people. This is one factor.
Another factor is the business that we have lost because we usually combine in packages, hose and fittings. And we have a manufacturing capacity that is targeted at a good balancing between hose and fittings. With the fire that destroyed the Romania factory that was 100% dedicated to hose manufacturing we lost this balancing, and then we lost a lot of opportunities, I think at the I.M.M. Group level.
In terms of missed opportunities for fittings that were not offered coupled with hoses to the market again with a significant damage. On top of this, of course, all the direct and indirect expenses that we had to face and that we have been reporting in the different quarters or in the different presentation in the last year or so.
And then the reality is that we would have strongly prefer not to have the fire and not to have any reimbursement. The second point the expansion project in general is, of course, the consequence of the impressive organic growth that many of our companies experienced in the last 3 years, particularly in Hydraulics and the market share gain that we have achieved, thanks to our flexibility, thanks to the higher-than-normal level of working capital and inventory, in particular, that we were carrying on already at the immediate start after COVID that allowed us to grow more than the market.
And for this reason, several of our companies after this very significant growth were constrained by space availability that we were obliged to invest in real estate in order to adapt the structures of this company.
The last question was about Waikato. Waikato is a very interesting combination. It's a very interesting acquisition, because it allows us to expand our presence in the Flow Handling business, in particular in the milk -- treatment in the milk solution. That is an application that is crucial for INOXPA. And then you have to imagine that Waikato is a very, very good fit of integration or combination with INOXPA that already have a very well widespread network of subsidiaries around the world and now can support the international development of Waikato, but today is very strong in New Zealand and Australia, but has a significant growth opportunity, not yet exploited in foreign markets.
The last question was about seasonality that should be expected in Q3 and Q4. This is difficult to comment because of the factor that I explained to everybody before. And this is important to note that quite surprisingly last year, the fourth quarter has been the strongest of the year. Usually, the fourth quarter is the weakest or the second weakest, last year has been the strongest considering the exceptional environment in which we were leading in. And this is one of the reasons why I do not invite you to compare quarter-on-quarter. But in this very fast-changing environment, it's better to look at the yearly performance in order to have some idea of the real performances.
[Operator Instructions]
So it's fourth of August, it's Friday 5:00 p.m. I believe that, many of you have better plan to listen to us, though we are very happy to wish you very please summer holiday break. Speak to you soon in November. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephone.