Interpump Group SpA
MIL:IP
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
36.88
47.76
|
| Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Interpump Group SpA
You don't have any saved screeners yet
Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump Third Quarter and 9 Months 2021 Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to the former company representative, Mr. Luca Mirabelli. Please go ahead, sir.
Many thanks. Hello, everyone, and thanks for connecting. It might be a bit unusual to hear my voice. It's true I've had the opportunity to represent this incredible company for a bit more than 5 years, which included Brexit, trade wars, a pandemic, but also countless acquisitions, the inclusion in the FTSE MIB index and a nonstop series of amazing results. And I was lucky enough to witness a fivefold increase in the stock price, which is something that not every IR gets to see even in an entire career.
So first of all, I'd like to thank Interpump for making this possible, the sell-side community for their great help and of course all Interpump current and past shareholders. As many of you are aware of, I now work at another company which will soon make its stock market debut. So my days are quite busy. However, I was deeply honored at the proposal to introduce the Interpump Q3 results presentation. It was yet another very good quarter, confirming the crystal-clear trajectory of the company through and out of the pandemic into the current strong trends of the world economy. In other words, it's still the same old story we have been telling since May 2020. Maybe it will be less boring told by a new voice.
So for this presentation, I'm happy to give the floor to Fabio Marasi, Executive Board member of Interpump, CEO of WALVOIL and Supervising Manager among else of Muncie Power Products and Interpump's latest and largest acquisition, White Drive. Fabio, thanks for your invaluable help on the job and for being my friend through all these years. The friendship, of course, remains, but it's time to pass through the microphone.
Luca, many thanks for what you have done in this fantastic 5 years for the group and for me personally, and I really wish to you all the best for your future, personally and professionally.
It's now time to comment our Q3 results, which turned out to be quite strong as expected. Starting from the top line, total sales for the quarter came to EUR 373.5 million, up 18.7% compared to the last year. However, since the dynamic of 2020 where everything was ordinary, it may be more meaningful to notice that it is almost at the same level as the first quarter of this year. This behavior does not reflect normal seasonality being usually Q3 slower than Q1. It was last observed in 2018 and is typical of years with a strong and accelerating top line trend.
In comparison with the corresponding quarter of 2 years ago, 2019 before the pandemic, Q3 is EUR 50 million higher, with the only significant perimeter extension represented by Transtecno. There is no question that the health of our business is excellent across the board. For the record, the recorded 18.7% year-on-year included a 0.7% benefit from currencies and a 0.1% perimeter extension.
We have seen the 2 divisions moving at a different speed through the entire pandemic, both in negative and in positive direction. Now that both division have reached a complete recovery and that are at or above the pre-pandemic sales level, the difference in momentum is still evident as one division is growing twice as fast as the other. Namely, year-on-year for the quarter amounted to plus 11.5% for Water-Jetting and plus 22% for Hydraulics, including the negligible FX and perimeter impact mentioned before, which probably did not deserve any additional comments.
While the business of the Water-Jetting sector appears to be still missing the contribution from some significant one-off of the customized orders usually related to customers' large CapEx projects the performance in Hydraulics reflects strong growth across all the product families, subsidiaries and application sectors.
No big surprises in the quarterly trend by geography. Europe is up 21%, of which Italy is plus 31%. North America registered plus 26%, with a negligible currency effect in the quarter. Latin America is up 40%. Asia-Pacific is flat in the quarter with 2 opposite trends. China is down 20%, still plus 4% year-to-date, and please remember that this is on top of a positive performance in 2020. Asia-Pacific ex China is up 21%. Rest of the world is up 14%, of which India is plus 21%. India year-to-date is up a spectacular plus 63%.
In the entire 9-month period, total consolidated sales amounted to EUR 1,154.6 million, up 21% compared to last year despite nearly 2% headwind from currency and a very small 0.6% contribution from M&A. Again, the total figure is significantly higher than the corresponding period of 2 years ago, 2019, even when accounting for the addition of Transtecno.
Going by division, Hydraulics sales year-to-date are EUR 812.6 million, up 26%. Water-Jetting is up 10.5% to EUR 342 million. Once again, besides the flattering comparison with last year, the absolute numbers showed that the pandemic is fully behind us.
Looking at this sales by sector, the pictures look profit. All the most important application sectors are showing very good health. Cleaning is up 51%. Listing is plus 39%. Construction and agriculture is plus 36%. Earthmoving plus 33%. Industrial plus 29%. Trucks are up 15%. Food pharma and cosmetic is up 9%.
In terms of profitability, after the unusual level seen in the first half of the year, we are back as expected to more normal levels, which we believe now fully incorporate the effects of raw material inflation. And although it is not easy to measure them, they are certainly bearing many extra costs related to the well-known difficulties in procurement, logistics and shipping. We are talking about a consolidated margin of 23.7% on sales, corresponding to an EBITDA of EUR 88.6 million for the quarter.
Unsurprisingly, given the top line trend, Hydraulics registered a very strong performance with a margin of 22%, which is the highest Q3 ever and an absolute record that if we leave out the normal first half of this year. Water-Jetting, which as mentioned earlier, is still missing some large customer orders, which typically represent the highest margin part of our sales, registered nonetheless satisfactory 27.4% margin. The year-to-date EBITDA amounts to EUR 281.9 million or 24.4% of sales. We are exactly 1 percentage point above the corresponding period of 2019, our record year. With all the 3 months to grow, despite the possibility of a minor dilution from White Drive, it is very likely that we will set yet another profitability record EBITDA.
Net income in the quarter amounted to EUR 50 million, bringing the year-to-date total to an unprecedented EUR 178.4 million. To be fair, this number included a EUR 20 million one-off benefit from a step-up only for tax file process of some trademarks and machinery. Adjusting from this one-off, the normalized tax rate so far would have been 27.4%.
Cash flow from operations in the quarter was EUR 78.1 million. The reduction of sales, net working capital, something rarely seen at this time of the year in the presence of vigorous growth, freed up EUR 7.2 million. CapEx in the quarter was much higher than average and amounted to EUR 28.4 million, bringing the year-to-date total to EUR 62.6 million, which represents about 5.4% on sales.
Please note that this does not represent a change in our plans, but simply reflects the quarter-to-quarter volatility on this item, considering also the important real estate investments that we are realizing across the group and in particular, in the United States. Anyway, around 5% is the level that we anticipated at the beginning of the year when we said that we plan to slightly exceed our 3% to 5% usual range.
Despite the contribution from the squeezing of the net working capital and mostly as a consequence of high CapEx, free cash flow generation slowed down, if one may say so, and amounted to EUR 37.5 million in the quarter, bringing the total year-to-date to EUR 135 million. While from an operational point of view, we wish we could build a bit more stocks of raw materials and finished products, we are certainly enjoying the cash side of the story.
We spent a further EUR 6.6 million in share buyback and EUR 3.6 million payment related to acquisition. All considered, the net financial position at the 9-month point is down to EUR 174.4 million. Additional commitments for the parts of subsidiaries were worth EUR 62.3 million, with a small decrease roughly corresponding to the payment for acquisitions mentioned above.
Summing up, Interpump is running and is running faster. We are working every day to serve our customers and minimize the effect of the well-known global issues affecting logistics, shortages, raw materials and power outages with very satisfactory results so far. We are helping this effort by some characteristics of our business model, such as being largely local-for-local, but also by a booming trend in the world economy that makes customers more tolerant to price increases or delays of some kind.
On the opposite side, our well-known flexibility implies that if some of our customers had to suspend production, for example, because of a lack of semiconductors, it is not a problem for us to adjust the production schedule accordingly and give priority to another customer with no loss on productivity on our side.
The closing of White Drive happened as expected on the first day of the quarter, October 1. How is it going? As a reminder, this very particular deal involved the acquisition of something that did not exist and was created on the fly by packing together 3 legal entities and a few business alliances belonging to both Danfoss and Eaton Corporation accordingly to rules that were imposed on Danfoss by the antitrust authorities.
It is appropriate to say that the real world due diligence is happening now. Although we have been completely confident all the time about the quality of the acquisition, which has been closely monitored by the authorities since the very beginning. That is the way Danfoss would have been allowed to handover a company which was less than able to compete against them.
With this in mind, I'm happy to confirm that the sales figure for the year is confirmed at around EUR 200 million and despite the trend seen in the market, that can be seen very well in the rest of our Hydraulic business. This number has not changed since the early June estimates. This should not be a surprise as we always say, no 2 companies are as good as Interpump as taking profit from acceleration of the market. We are already busy with the appropriate investment and initiatives to improve White Drive flexibility and manufacturing capability.
As to EBITDA, which as you can imagine, is even trickier to calculating a simulation, we trust it will set us somewhere between the 2 numbers announced at signing and closing, that is between EUR 45 million and EUR 53 million on a yearly basis. And of course, we are going to consolidate the entire fourth quarter.
We are not resting after the closing of this large deal. The M&A machine at Interpump is always on as usual with a vast and diverse pool of candidates. White Drive has proven that there is no upper limit to the size of what we can buy, given the right circumstances. However, please remember that we are not going to abandon the kind of smaller acquisitions that have added so much value to the group in the last decade.
With this, I believe that we have touched all the main topics for today. We are happy to take your questions. So I would ask the operator to open the Q&A session.
[Operator Instructions] The first question is from Matteo Bonizzoni with Kepler Cheuvreux.
2 quick questions. The first one is as regards White Drive. When you announced the acquisition last June, you were projecting revenues slightly above EUR 200 million with an EBITDA of around EUR 45 million, which is, let's say, a margin in the region of 22%. Now what you say is that the revenues should be actually slightly lower EUR 200 million. You say EUR 195 million, but the EBITDA significantly higher, EUR 53 million with a margin which could be around 27%, which is well above several -- percentage points above the average of your Hydraulic division. I just want a little bit more color to understand why with the revenues actually slightly below what you communicated initially, the EBITDA is so strong. And okay, you are now through more precisely then you were able to do before the closing, but can you elaborate a little bit on the margin for this company for the next year or in general going forward?
The second question is on the margin. You were anticipating already with the Q2 conference call that this 50 -- sorry, 25.1% of Q2 was extraordinarily high. So we have seen some erosion now to around 23.7% in Q3. Fabio, you commented that this 23.7% fully incorporates the impact of cost inflation. So my question is simply to understand going forward for the next year, you plan to have a margin in the range of 23% to 24%. Do you believe it's reasonable?
Okay. Thank you, Matteo. Regarding White Drive, it's important to note that it is not so easy as commented before to be very precise and reliable on 2021 results. Considering that the results that we are commenting for this year are the sum of many different part of year business manufacturing line, and it is mainly a pro forma adjustment and for this reason, we have this range or different numbers announced to the market. Also, the EUR 53 million that we announced at closing are taking into account some extraordinary results, some adjustment that had to be contractually considered. When we said that the sales are easier, and we are not changing our mind, everything considered, sales for 2021 are expected to be EUR 200 million, maybe something more.
Regarding profitability, we should define what can be an EBITDA recurring and considering all the investments that we are doing in machines, people, infrastructure in order to support the significant growth that we need for 2022 and in order to support market demand, I believe that is more fair and more prudent to consider, 22%, 22.5% or 23% EBITDA margin and not the 26 point something percent that were mathematically included in the closing numbers.
Regarding the second question, the 23.7% that fully incorporate raw material cost inflation and what we are doing in order to preserve and possibly increase our profitability for next year, what we are seeing into the market is this inflation on raw material cost is continuing with different trends in different markets to different raw materials, but we are reacting very fast, as always, and we are able, once again, to transfer to our customer the increase on price, increase on price of raw material increase of the electricity prices and so on. Of course, some inefficiency in the manufacturing facilities or due to the logistics or the airfreight costs and so on has to be considered and has been included already or had already an impact on the Q3 results, but we have been able to maintain very good margins despite all these headwinds.
The next question is from Alessandro Tortora with Mediobanca.
I have, let's say, 3 questions, okay? First one, sorry, in the end Fabio, I didn't catch, let's say, your -- I understood all your [ telling ] cost inflation trend, okay, you mentioned. I didn't understand if you believe that next year, okay, an EBITDA margin, let's say, between the 2 records, I would say, no? The one of last year and probably the one of this year, so between 23% and 24%, be level considering also, I will say, the consolidation of White Drive, if this is a level that you, let's say, consider I would say feasible, okay, for next year.
The third -- sorry, the second question is on the price trend. As you mentioned before, clients are let's say willing or they can accept, let's say, your price announcement, your price increase. Can you give us an idea of what is the level on average or just an indication of what is the enterprise level that you should, let's say, have starting from next year, because that, I guess, should be up, okay, year-on-year.
The third question is on -- I know that all the backlog matters, let's say, only for some division. Can you share with us some, let's say, [indiscernible] considering for sure the bottleneck in terms of order delivery? But where do you see an extra or a record, let's say, a very strong visibility entering next year?
Okay. I will answer together to the first 2 questions. Regarding the cost inflation, price trend, and how we are transferred to the customers. I said that we are seeing this price increase on raw material that is continuing with some significant acceleration on some of the raw materials. But speaking on average, and considering the most important companies in our group, we will increase our prices to the customer base at the end of next year by another 5% to 8% depending on the different market because also the logistic costs have increased significantly and that to be considered. But with this 5% to 8%, we believe that we will be able to at least cover or maybe exceed a little bit the inflation on manufacturing costs, raw material, electricity and logistics.
In terms of 23%, 24%, probably the figures that I mentioned and you are referring to, were referred to the -- to only White Drive. It is a little bit too early to comment on 2022 margin, considering that we are starting next week, the budget season, and then the budget season will be completed in the first week of December, but we see no particular reason why we will not be able to maintain this margin, but we will be more precise, as always, in February.
Regarding the order backlog and the bottleneck, I would say that the most, I would say, incredible or spectacular numbers are characterizing Hydraulics division. I'm managing as a CEO of WALVOIL, I'm following White Drive and we have an order backlog of volume that is very, very strong with new orders, delivery days that are mounting up to 45 or 48 weeks, and a very, very important delivery time. And these are the companies in which we are investing the most in order to adequate the manufacturing capability and in order to manage this very odd market and very strong demand from the customer for the entire customer base.
Okay. Fabio, just to better understand, you said delivery time is 45 weeks?
Yes. Something less than a year to be saying more precise.
Okay, that's understanding. Okay. Okay. So basically, let's say, it is fair to say that these are company with a very strong, let's say, visibility in terms of what the macro, but for sure, the delivery time is clearly, let's say, spread over time for all we are discussing?
You are correct. We have a very strong visibility for entering the first half of next year, at least, but we have 45 delivery weeks -- delivery time, 45 weeks delivery time in some company, we have approximately 3/4 already covered. And you can imagine how the maximum effort and the maximum concentration of the entire company is aimed at managing together with the customer service, the requests, the emergencies and the urgencies of the customer on one side and to increase as much as possible, squeezing the last possible efficiency from our manufacturing plant in order to increase the manufacturing output.
Okay. And let's say, just a follow-up, if I may, on the cost inflation. Is it fair to say that, let's say, price increases are much more aggressive on the Hydraulic side or for the Water-Jetting is, let's say, should we expect a similar trend?
No. I would say that is balanced between the 2 divisions considering that in many cases, we are using the same component. Then still, plus -- cast iron is more used in Hydraulics. But in general, I would say that the raw material price increase and inflation is for both divisions. And then we are increasing the prices for both divisions.
Next question is from Domenico Ghilotti with Equita.
I have 2 questions. So on the 2 divisions on Water and Hydraulics, on both. I would like to understand if, say, the order intake you are mentioning, so the backlog, is continuing at the same pace, so you see really a situation of strong order intake or some kind of normalization? And if you have any issue on the execution? So if your ability to, say, to deploy this order intake in terms of sales is continuing as smooth as we saw in Q3. So the supply chain or any issue on the supply chain? This for the Water and for the Hydraulics, because Water was a bit surprise. So Water, if I'm not wrong, is a bit below 2019 level yet and I wonder if I should expect an acceleration or if you see any willingness from big orders are starting also for the Water-Jetting?
Okay. Domenico, regarding the order intake trend, I confirm that is continuing. We have seen in this week or in the last couple of months, all the most important customer and everybody is pushing for having more material, for having more allocated manufacturing capability for next year. Then we do not see, in particular, in Hydraulics any slowdown in this trend regarding the market demand.
Regarding the issues on execution, the answer is yes, we have many issues, many, many issues because managing the supply chain with this acceleration with all the problems in logistics, all the problems in sourcing material, not to mention the prices, is very tough and is stressing our manufacturing and operation machine. Luckily, we have a very flexible group. We have a very flexible manufacturing setup in the different companies that we have. And as mentioned in -- previously, we are able to switch rapidly and without a particular problem of cost, our manufacturing to one product to another.
And this is very important in order to answer and to try to give a support to the customer that our, maybe the stress for having a component or 50 pieces of a component next Monday morning. And even if we are full of order, we still have some flexibility in order to manage this kind of request. Of course, flexibility and extra costs has to be taken into account. As I mentioned before, these numbers that are very good and very strong, are fully expensing some important logistics extra cost that we had to sustain in order to answer to the market demand. And in particular, air freight. Air freight are costing us millions this year.
And on the big order -- big clients on Water-Jetting, do you see any attitude towards starting?
You know that in particular, these big orders are characterizing [indiscernible] the largest and most profitable company in the Water-Jetting and the situation is good. The market is improving around the world, and we are seeing an increased number of discussions regarding these new projects. But the execution or the finalization of this order, maybe will take some more months.
[Operator Instructions] The next question is a follow-up from Matteo Bonizzoni with Kepler Cheuvreux.
Yes. Very quick question. Fabio, you said that you are starting the budget process for the next year. In terms of organic growth, is it fair to assume more mid-single-digit organic growth or mid- to high single-digit level?
This is a very good question, Matteo. It depends on our ability to adjust our manufacturing capability because based on the order volume that we have, it would be a very high single digit, at least. Considering the time for executing the investment plans that we have in many different companies or many different plants, I would say mid-single-digit or a slightly more than mid-single-digit, but we will be, of course, more precise in February.
[Operator Instructions] The next question is a follow-up from Alessandro Tortora with Mediobanca.
Let's say, 2 follow-ups from my side. The first one is regarding your last statement on the mid- to high single-digit organic growth. But if let's say, we are discussing about an average, let's say, price increase in the high single digit, let's say, in area, 5%, 8%. So basically, we should expect next year an organic growth mainly represented by a price component for you? That's the first, let's say, question. And the second question is on the CapEx, let's say, your sales ratio. You said this year, you probably yield 35% on sales. Considering, let's say, all the, let's say, the backlog you mentioned before, do you believe 2022 would be another year, let's say, with another 5% on sales?
Okay. Regarding the growth, I mentioned before that the average increase in price is between 5% and 7%, but it depends on the company and more important, it will start from January, but the application will take some months, as always. And then because we have to fix the condition with the customer, we have to negotiate with someone and then the average increase will be through the year. And then these mid-single digits, what we see, which will be the final number will be composed by some percentage point price impact and some percentage points based on volume increase.
Regarding CapEx, once again, the budget is starting now, but considering that we have to increase our manufacturing capability, and we are completing and will be complete in 2022, some important real estate investment. I would say that in 2022, we will be in the upper range of the usual 3% to 5% range on sales.
Next question is a follow-up from Domenico Ghilotti with Equita.
I have a follow-up on the price increases in the sense that, I don't know, probably we are in some kind of unprecedented situation with this level of price increase. And I wonder if you are discussing with clients on kind of, say, pullback clauses. So what happens if there is a normalization decline in raw material prices that is not impossible. So are they accepting the price increases with some kind of possibility to revise the prices during the year or not, or this is something that never happened and will not happen?
The answer is yes. And I'm referring in particular to WALVOIL, to the largest companies in the hydraulics division. For WALVOIL, in particular or for some other company in the group we have a sort of automatic indexation to the inflation or deflation of raw material costs, in particular, regarding cast iron because cast iron's price is a very important raw material, and this price can be easily followed from the market. And then we have automatic adjustment on some evolution of some raw material and if a decline will happen, of course, we will have to give back part of the price increase. It is fair.
But at the end, so you are confident that you are being able to cover 100% of, you said, probably also some opportunity of upside your cost increase to pass the cost increase to clients, okay.
Yes. And this is also what we have done this year.
[Operator Instructions] Gentlemen, there are no more questions registered at this time.
Okay. If no more questions are queued, we can close this conference call. I really thank everybody that attended this meeting, and we'll speak in February. Thank you so much to everybody.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.