Good afternoon. This is the CorusCall conference operator. Welcome, and thank you for joining the Ariston First Quarter 2025 results conference call. As a reminder, all participants are on listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Martino Bartolucci, Investor Relations. Please go ahead, sir.
Good afternoon, everyone, and welcome to Ariston Group First Quarter 2025 results conference call. I'm Martino Bartolucci from Investor Relations, and joining me today are Maurizio Brusadelli, our Chief Executive Officer, and Riccardo Gini, our Chief Financial Officer. Today's presentation will last approximately 20 to 25 minutes, after which we will open the floor for questions. As a reminder, for those joining us by phone, the slide deck is available on our Investor Relations website. I will now hand the call over to Maurizio.
Thank you, Martino, and hi, everyone. Let me start with slide number three, which provides a brief overview of our first quarter. Q1 2025 marked a turning point for us, with revenue returning to growth and margins gradually improving, in line with what we said with you two months ago. Following the sharp downturn in 2024, the European heating market started to show signs of recovery in the early months of this year, moving towards stabilization, with softness remaining in the fossil fuel segment that was very strong last year. Water heating continues to demonstrate resilience. During the quarter, heating markets were slightly negative in Germany, Italy, and France, with trends varying across categories.
Notably, in some of those countries, the heating and pump market grew by 30% in volume, while fossil-based products saw a decline of 40%-50% after, as I said before, a very strong growth during Q1 last year. Water heating markets, on the other hand, remained more stable, supported by growing demand, with Ariston performing better than the market in renewable products like heat pump water heaters and solar systems. Overall, as we consistently emphasize, the strength of our diversified portfolio among various technologies gives us a competitive edge in navigating shifting market dynamics. This enables us to grow our net revenues by 2.4% on an organic and like-for-like basis in the quarter. Turning to what is under direct control, we are making progress on our efficiency plan, delivering a 100 basis point year-on-year improvement in margin.
This reinforces our confidence in achieving our Fit to Win program targets announced back in March. Once again, we are proud of our free cash flow generation, and our continued efforts in working capital management have resulted in halving our cash absorption compared to the same period last year. Despite ongoing macroeconomic uncertainties and a constantly evolving global landscape, we are confirming both our full-year guidance and our medium-term outlook. Our operating model, built on an efficient centralized staff function, coupled with a local-for-local production footprint and route-to-market, has protected us from any direct impact of the tariff decision implemented so far. Furthermore, as announced in our press release on March 26, we are pleased that our Russian subsidiary has returned under our management. We have reestablished contacts with local operations and are working toward refueling the business.
As previously said, Ariston Thermo Russia generated approximately EUR 100 million in revenues in 2023, and that said, returning to those levels will take a while. For 2025, we expect a lower and more gradual contribution to group results. To ensure full transparency and clarity around our organic performance started from quarter two, we will highlight net revenue from Russia separately in our financial communication. Let's move now to slide number four, which highlights the key product launches of the Ariston brand in the first quarter of 2025. We are proud to share that innovation continues to be a central pillar of our strategy. In this quarter, we saw important steps forward in both technology and geographical expansion. Starting from Australia, we successfully launched our first-ever Ariston-branded product in the market, the Primus Heat Pump Water Heater, covering the 205-280 liter range.
It uses the Ecofendi propane refrigerant, delivers a COP of up to 4.3, and future recyclable packaging, fully in line with our sustainability commitments. In Europe, we introduced two major additions to our heat pump water heater offering. First, a new low-emission solution using R513A gas refrigerant, complying with the latest European F-gas regulation and offering high efficiency in the split category. Second, an extra-large solution for commercial and collective buildings, with power up to 15 kilowatts and tanks up to 1,500 liters, combining scalability and premium performance with a COP value reaching 4.87. Turning to Egypt, we are pleased to announce the first Ariston product manufactured in our new plant acquired last year. Rubis is a new electric storage water heater developed specifically for our Middle East and North Africa customer base.
Finally, in China, we have launched two Woland boilers with a new smart hot water management system, which includes three customizable comfort levels and enhancing the overall user experience and eliminating waiting times. These launches are a clear demonstration of how our portfolio continues to evolve, delivering energy efficiency, smart functionality, and local adoption, while supporting our broader goals of sustainability and global growth. I now move to slide six. A quick reminder, as usual, about who we are before going into numbers and guidance. We are a player active in thermal comfort, with a balanced exposure to water heating and climate comfort. Water heating on the right is a resilient business and our main business outside Europe. It benefits from the presence in markets with growing population and still low but rising penetration of water heating solutions. Climate comfort on the left includes heating services, parts, and air handling.
In the heating business, our portfolio includes different technologies from gas boilers to heat pumps, hybrids, and other heating systems. Let me remind you that in Europe, 71% of our 2024 revenues, our presence in heating and water heating is more balanced. Thermos and parts is a growing business, profitable, which accelerated, especially during 2024, given the preference of maintenance versus replacement in Europe. Let's now move to slide seven, which provides an overview of the two key macroeconomic factors of this first quarter. On tariffs, as I said before, we have no direct impact from measures currently in place in the U.S., Canada, and Mexico area, as our products are USMCA compliant. Moreover, the flow of raw materials and finished goods between U.S. and Europe-China areas remains limited, with no material impact.
On the commodity side, like steel and aluminum, so far, we are de-risked thanks to our local-for-local procurement strategy. Looking forward, we are ready to actively manage potential impact of tariffs through pricing action, and given the current volatile macroeconomic environment, we are taking a cautious and pragmatic approach, closely monitoring the situation on a daily basis. In fact, the guidance does not incorporate the potential demand-side implication of ongoing tariff discussion or any future adjustment across the key markets where we operate. Moving to Ariston Russia, just some additional information compared to what I said before. Following the recent announcement, from an operational standpoint, we have a local team in place actively working to fill gaps. The manufacturing plant is progressively ramping up production, with a strong focus on people, safety, and business continuity.
As we look ahead to the rest of the year, we are continuing to assess the business status, demand trends, and production capabilities. For 2025, we expect only a limited contribution to group results. Finally, from a financial standpoint, the reconsolidation of the Russian subsidiary will be based on its balance sheet as of March 31, 2025. Therefore, from quarter two onwards, we can anticipate that the corresponding write-up will be reflected in our P&L. More details will follow as part of our Asia results released in August. Now we move to slide eight. Here we provide our regular update on the German heating market. In Germany, our first market representing 20% of the group revenues in 2024, with a similar contribution in the first quarter of this year.
As a reminder, the German heating market grew by 4% in volume over the 10-year period from 2013 to 2022, and it is mainly a replacement market. Value growth, however, outpaced the volume thanks to product mix, increasingly skewed toward high efficiency and renewable solutions. After a strong 2022, the market experienced an exceptional 34% surge in volume in 2023. This was driven by two factors: government incentives for heat pumps introduced in 2022 and widespread concern that gas boilers might be banned from 2024. In 2024, the market sharply corrected, with volumes declining by 46%. This contraction was partly due to the channel destocking, but also to some regulatory uncertainty, particularly the delays in the implementation of the new IT system required to process incentive applications. As shown in the chart, the first approvals for incentives only started coming through in February last year.
In the first quarter of 2024, approvals accelerated, culminating in a spike in December, driven by fears that the new incoming government might discontinue or reduce support. Today, the new government is officially in charge, and ministers were appointed a couple of weeks ago. Discussions around the new heating law are currently underway. While it is still early, based on the information available and our current understanding, we feel cautiously optimistic about future developments. Importantly, the current incentive scheme remains in place, and as illustrated on the right-hand side of the slide, approvals for heat pump incentives average around 20,000 per month during the first quarter, in line with the units sold in the market, around 62,000, up 35% year-on-year. Now, I will hand over to Riccardo, who will walk you through our Q1 financial performance in detail. Thank you.
Thank you, Maurizio.
Let's begin with slide number nine, where we present the year-on-year evolution of net revenues on a like-for-like basis, with Russia deconsolidated from the end of April in 2024 and excluded from the 2025 figures, as the business will be reconsolidated from second quarter onwards. In Q1, we recorded a 2.1% year-on-year increase in revenues, reaching EUR 648 million. This marks a significant turning point following four consecutive quarters of negative growth. Organic performance, plus 2.4% year-on-year, was driven by gradual recovery in heating demand, particularly in the Asia-Pacific and Middle East, Africa, the Americas, and renewables in Europe. The water heating market once again demonstrated its resilience, with stronger growth in Asia-Pacific and Middle East, Africa, and the Americas.
Our service and parts division continued to grow during the quarter, albeit at a slightly slower pace than last year, as the progressive recovery of equipment sales partially offset its contribution. Finally, foreign exchange effects had a limited impact, minus 0.3%, with a significant headwind from the Mexican peso, mitigated by positive contributions from other currencies. Moving on into slide number 10, we are pleased to report that all three of our geographical regions returned to growth in Q1. While we do not disclose organic growth by region, I can confirm that organically, each of the three grew higher than 2% during the quarter. Additionally, all business divisions reported growth in Q1, as detailed in the appendix, with the burners and components divisions combined together, achieving a solid plus 4.3% year-on-year increase. In Europe, net revenues reached EUR 459 million, up 2.1% year-on-year.
This performance reflects encouraging developments in several countries and a return to growth in renewables, partially offset by soft results in our three largest markets, Germany, France, and Italy, mainly within the heating segment, especially in the fossil fuel segment. In Asia-Pacific and Middle East, Africa, revenues grew by 3.4% year-on-year to EUR 118 million, continuing the positive momentum observed in Q4. We saw double-digit growth in key countries, although foreign exchange headwinds, particularly in Egypt. Ladies and gentlemen, please hold the line. The conference will resume shortly. Let me start from the Asia-Pacific. In Asia-Pacific and Middle East, Africa, revenues grew by 3.4% year-on-year to EUR 118 million, continuing the positive momentum observed in Q4. We saw double-digit growth in key countries, although foreign exchange headwinds, particularly in Egypt, had a notable impact. Finally, in the Americas, revenues rose slightly by 0.2% to EUR 71 million.
Despite a strong organic performance, especially in North America, the result was significantly affected by adverse currency effects, particularly in Mexico. Moving further down the P&L, slide number 11 highlights our adjusted EBIT performance. Let me remind you that also here we are on a like-for-like basis, so excluding Russia contribution from Q1 2024 figure. In Q1, adjusted EBIT increased by 26.3% year-on-year, reaching EUR 35 million with 100 basis points margin expansion compared to prior year, bringing the margin up to 5.4%. The improvement was primarily driven by the effective execution of our efficiency plan, supported by a moderate operating leverage effect. For context, the main adjustment to reported EBIT this quarter was related to EUR 5 million in PPA amortization on past acquisitions.
As a reminder, our adjusted EBIT historically shows a seasonal pattern, with an average distribution of approximately 30% in the first half and 70% in the second half of the year, as shown in the chart on the right. Turning to slide number 12, let's take a look at our free cash flow performance. In the first quarter, free cash flow was negative by EUR 17 million, a significant improvement compared to a negative EUR 51 million in the same period of last year. Let me remind you that, as shown in the appendix on slide 32, Q1 is typically the weakest quarter in terms of cash generation due to seasonal effects. This positive development was primarily driven by our continued focus on working capital management.
Cash absorption was nearly halved from EUR 72.2 million in Q1 2024 to EUR 36.1 million in Q1 2025, supported also by improvement in EBITDA year-on-year for nearly EUR 6 million. For further insight into the main drivers, you will find a detailed cash flow statement in the appendix. Key highlights include CAPEX increased by EUR 4 million, reaching EUR 15.3 million, in line with our 2025 guidance, a negative contribution of EUR 4 million from provisions and other operating changes. Tax payments were up slightly by around EUR 2 million year-on-year. On the right-hand side of the slide, you'll see a comparison of our networking capital variation in Q1 2025 versus Q1 of prior year. Importantly, our working capital discipline led to a 3.7 percentage point improvement in the networking capital to revenue ratio, leading to a 14.1% balance.
On slide number 13, you'll find an overview of the movements in our adjusted net debt during the first quarter, starting from EUR 579 million adjusted net debt position at the end of 2024. Free cash flow contributed negatively by EUR 17 million in the quarter, as previously explained. We also recorded EUR 9 million cash outflow from acquisitions, primarily related to DDR, the U.S. acquisition for components announced back in March, as well as some additional minority stake investments we closed in the quarter. Other movements include EUR 12 million cash outflow for financial and effects charges and around EUR 16 million in non-cash positive adjustments. These non-cash items mainly consist of EUR 6.6 million mark-to-market derivatives impact, EUR 6.9 million in interest accruals, EUR 2.8 million from IFRS 16 lease liability adjustments, and minus EUR 0.4 million impact from effects variations on the net financial indebtedness.
In summary, despite the typical seasonality of the first quarter, which tends to weigh on cash generation, we managed to keep both our net debt and leverage stable throughout the period. Slide number 14 provides a comprehensive overview of the composition of our net financial indebtedness. Compared to the year-end 2024 position, we saw a reduction in liquidity to EUR 264 million, mainly due to the EUR 50 million early repayment of a portion of our medium long-term debt at a variable rate. This move is in line with our proactive approach to continuously optimizing our financial structure. Looking at the other key indicators, there have been no material changes versus our full-year results. Metrics such as duration, maturity profile, and the proportion of fixed-rate debt have remained stable, underscoring our discipline and prudent financial management.
Despite the challenges faced in 2024, our capital structure remains solid, giving us the flexibility to support both organic and inorganic growth opportunities. This is further strengthened by our access to EUR 900 million pool of committed and used credit lines. With that, I now hand the call over to Maurizio, who will conclude the presentation by sharing our guidance and outlook.
Thank you, Riccardo. Let's move to slide 16 to discuss our guidance for 2025, which we are pleased to confirm. As anticipated in our full-year presentation two months ago, 2025 is a year of transition and renewed momentum. As regards to tariffs, let me underline that our guidance does not incorporate the second-order effects on GDP and demand of ongoing and future tariff discussion or any further adjustment across our key markets.
We continue to focus on market share expansion, investment to support our future roadmap, and efficiency initiatives, all aimed at capturing the benefits of the ongoing recovery in demand. The gradual improvement we are seeing in the first month of the year confirms our expectation and our assumptions for 2025. Moreover, as mentioned last time, I want to reiterate that we are not seeing any significant change in pricing dynamics across our markets. We confirm our full-year guidance of organic revenue growth between 0-3% year-on-year on a like-for-like basis, with Russia excluded from both 2024 and 2025. On profitability, we reiterate our expectation for an adjusted EBIT margin above 7%, supported by both the Fit to Win efficiency plan and further direct cost savings that are already being implemented. The first quarter results reinforce our confidence in delivering this target.
As we mentioned in the last call, cash generation remains heavily weighted toward the fourth quarter, in line with our historical pattern. On CAPEX, we confirm our guidance of investing 5%-6% of net revenues, with a strong focus on development projects, aligned with our ambition to accelerate our technology roadmap and reinforce our long-term positioning. Finally, we maintain a solid and flexible capital structure. Also, leveraging on the EUR 0.9 billion of available committed credit lines, we remain active in evaluating M&A opportunities, both bolt-on and strategic. Thank you for your attention. Now, I will hand over back to Martino to open the Q&A.
Thank you, Maurizio. We have now completed our presentation, and we are available for your questions. To make sure that everyone gets the chance to speak, we kindly ask to limit your questions to a maximum of two. Operator, please open the line. Thank you.
Thank you. This is the CorusCall conference operator. We'll now begin the question-and-answer session. Anyone wishing to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone with a question may press star and one at this time. The first question is from Bryce Sia of HSBC.
Hi. Good afternoon, gents. I have two questions. The first one is on just to confirm the numbers you said at the beginning, Maurizio, that heat pump volume, or rather likewise growth, was up 30% in Q1, and boilers were down 40-50%. If you can confirm, sorry. Sorry, no, I thought you wanted to ask me one by one, but if you want, I answer your question. Yeah, yeah, I will answer the first one.
Yeah. I mean, yes, I mentioned, and the number that I gave is not total Europe, it is only in one market as an example, the German one. Remember that last year, the gas and oil boilers in Germany grew a lot. As always, for us, it is very important to look at the total development of the volumes of the market. As I said, since we play in all segments, we just need the total volume to go up. Fair enough. Okay. Just staying on that first one, the 30% growth, obviously, I assume that is all volume, there is no price involved in it.
When you look through to the rest of the year for the German market, given I see in your slide that the total heating market you forecast to be flat for the full year, can you just give me what's your expectation for the full year German market in terms of heating heat pumps as well as boilers separately? That's my first question. I'll come on the second one. Yeah. I mean, obviously, the German market, as you well know, is composed by different segments. We saw a positive start of heating heat pump, and we saw as well this reflected in the applications that were there. While, as expected, the gas boilers are a bit lower. Now, we see a renewed momentum in Germany, and we expect this to continue unless something will happen to the famous incentives by the end of the year.
These are two things that could happen. The government will keep the same incentives, and there will not be maybe a big deviation. If the government will change something, if they change positive, probably the market will suffer a little bit in the renewables part. If they change in a negative way, the market could accelerate in the renewable part. Overall, we see that, I mean, obviously, the government just started. They spoke a lot about the cost of energy, the investment that they want to do in the country overall. These are giving very good signals for the long-term discussion that we are having always with you, that these markets are resilient, that we are back to go after a rebound of last year, which was, as I explained before, driven by the strong growth of the two previous years.
We continue to be cautiously optimistic. Every day there is something happening on the macroeconomic between tariffs and wars, and this is what we cannot control. Okay. Fair enough. My second question is on the guidance of 0-3% like-for-like growth. If I recollect at Q1, we were talking about that this growth would be mostly H2 weighted and H1 would be flat. Given Q1 came out exactly in line with the guidance, do you think, as you see today, the guidance, or at least the revenue guidance, has some upside potential unless something else or the tariff kind of drives down demand? Yeah. I mean, obviously, it is better to start in a positive way than to start in a negative way. Q1, it was good for what we see in the early weeks on quarter two. The trend seems to be similar.
F1 will be more positive than neutral, as we said before. Now, let's see what will happen in F2, because in F2, this is where we have the majority of our volumes in heating. This is, I think, another signal or something very important for the long term. The market is very resilient. It is a replacement market. Overall, I'm sure that what we see in 2025, we will continue to see an acceleration also in the following years. If you ask me, is F1 now flattish? No, it's probably positive. Let's see what will happen in F2. I mean, the macroeconomic environment is still very volatile and tough, but we are confident on the guidance. I don't think it is time now to say if we are in the upper part, lower part, or if we change.
Let's go through another quarter, and then at mid-year, we will give you more update. As I said, better to start in a positive way.
Thank you. Just a quick one on the volume growth. You talked about heat pump for Germany. Can you make the same comment about Europe, how the heat pump volume evolved in Q1 and that compared with boilers?
Yeah. Overall, I mean, given the fact that Germany is an important market in heating heat pump, the overall renewable part in Europe is doing fine. As you know, we do not play in some geographies like in the Nordics. I think you would have to follow someone else to have the results on the Nordic. As we speak, we saw the impact of German growth appearing as well in Europe in Q1.
Again, for me, it's more important that this market will go back to grow. In effect, we can say that we expect a flat to positive now heating market in Europe in 2025. This is what I would say.
Okay. Thank you very much. To you.
The next question is from Christian Hinderaker of Goldman Sachs.
Yes. Good afternoon, Maurizio. Riccardo, Martino, thank you for the time. My first one is still on the German commentary, if I may. I guess specifically on slide eight, you've called out the improvement in incentives. The Heat Pump Association there was attributing the February and March increase in those incentives, not just to the improvement in the market generally, but also to some pre-buy on the elections and also some changes in the contractual requirements around the subsidies.
I guess there's a lot of policy flux, but I'm just interested in what you're hearing from the customers on those points around election and subsidy volatility. That's the first one.
Yeah. Obviously, I mean, the numbers are positive. Now, if you would average this 20,000 and multiply by 12, probably these numbers could give a view which is slightly lower than some association expectation. I mean, the government is following the heating market. They said it's an important part of their internal discussion. As I said before, we hear only positive signs from this government in terms of heating market overall. Again, for me, it's important that this government, as well as our government in Europe, will take care of the total heating market.
Since one of our strengths is to be strong in all the systems, I continue to repeat that it will be good for us to see a total volume growth. Obviously, the value will be changed by the fact that if heating heat pump will grow faster, then we will benefit. Now, for me, it's very difficult to forecast what they would do on incentives. I think we have to wait a bit. We do not have any negative signal. Let's wait and see what they will put in place, maybe by August, for the incentives of next year, or if they change the heating law. The start is good. Obviously, the stock, as we said last time, was in a good position, especially for us.
When there is an acceleration of demand in terms of incentive approvals, we see immediately this in orders and sell out, which was the positive for us in Q1.
Thank you. The second one is just on the other regions. You've called out Germany at 19% of revenue. Italy, I think, was 10.6% last year. How large are France and the U.S. respectively as a proportion of group sales? Maybe if you could just touch on what's happening in the Netherlands as well. That's, I think, a large market for you. Thanks.
Yeah. I mean, we said that now the ranking of our countries is Germany, Italy, Switzerland. France was a bit more important in 2023. It's not in the top three in 2024. I think in France, we still need to see what will happen from a political perspective.
I think the country is still under pressure. The consumers are a bit confused on what could happen in terms of incentives. I think there, in terms of heating, it's more wait and see. Our performance in water heating is obviously good in France. Netherlands for us is small, but also there we saw positive development, I mean, of the market. Let's see what will. I wouldn't comment. For us, Netherlands, it's a really small market.
Very clear. Thank you.
The next question is from Axel Stass of MS.
Hi. Good morning, everyone. Thanks for taking my questions. I have two, if I may. The first question is, you mentioned that Germany, France, and Italy are still down. Which European country was actually up in Q1? Can you elaborate on these specific countries? Yeah.
Maybe we do not give a lot of guidance in counter because, as you know, there are only a few listed companies, and I do not want to give any information which is not public to someone that could benefit. Obviously, we were talking about Germany, Italy, France heating. I remember we are selling a strong part in water heating, so probably you would have to think this together. For us, Europe, it is 70%, and this is the biggest part of our business. The rest of the world is mainly water heating, with the exception of Canada. This is where we saw, as Riccardo said, positive development in those regions despite the effect of Forex, which was very, very strong, specifically Mexico.
Okay. Fair enough. My second question was about the cost efficiency program. How much of that should we see in the second quarter, if any?
How should we think about profitability then, including that cost efficiency program sequentially then in Q2 versus Q1? Thank you.
Yeah. You ask Riccardo to answer this one otherwise this year, and he wants to say something as well. That's fine.
Thank you, Maurizio. And thanks for the question, Axel. We are on track with the two-year, three-year plan we announced. So 2025 up to 2027, the EUR 50 million. We got a good contribution in Q1, as we said. We are committed to continue to deliver on the same path also in Q2. We are not in a position to make such a granular level of disclosure quarter by quarter, but I mean, that's the level of consistency we are committed to deliver as regard the full-year guidance.
The project and the program is well on track. Okay. Okay.
If I just may ask about Russia, how should we think about the integration then of Russia for the rest of the year? Any granularity you can provide for us to put in our models for Q2 onwards, or is it just too early to assume any kind of estimates for now?
Yeah. Maybe I start. I mean, as you saw, we heard this at the end of March. Now, we are working with the team, and I think we will disclose the numbers as of next call. Obviously, this was a business that was not under our management for a period of time. Now we have to reinstall all the things, respecting, obviously, all the sanctions and guardrails that we have. I think we can give you good visibility and granularity in the next call.
I don't know if Riccardo, you want to add something on.
No, I think you said everything. I mean, we just started a few weeks ago to reconnect the dots with the local team. We had to go deeper, understand both financials as well as the business. More to come when we will make the second quart er call.
Okay. Thank you very much.
The next question is from Vivek Midha of Citi.
Thank you very much, everyone, and good afternoon. I have a couple of follow-ups, please. The first follow-up is around order intake. You mentioned that when you see the incentives come through, that tends to go into your order intake that you can see. Could you give us any color into what you saw on the order side for Q1? Thank you. Yeah.
I mean, what we see in terms of order is what we deliver because, I mean, with the exception of a rendering where we are a bit longer, meaning that the order intake will take a bit of time. Similar to the burners division, it is where you take orders, then you provide the machine a bit later. I mean, for a ready-to-sell heating and water heating system in residential, what we see in terms of orders is what is coming. Maybe as a reminder, what you see in the number of incentives, remember that this total amount could eventually need one year before eventually the consumer will decide to really go in terms of execution. What we saw in Q1 is, as I said, a good recovery of orders of heating heat pump. The stock in our distributors and partners were in good shape.
We saw orders coming, we delivered, and the machine was displayed.
U nderstood. Thank you. My second question is on free cash flow and working capital. I appreciate it's very early in the year, but typically, you see a much larger cash outflow in the year. How does this make you think about free cash flow potential for this year where maybe you can end up on net working capital to sale? Thank you.
I can take this one. I mean, absolutely, I think we have done a robust job in Q1, delivering such a huge increase compared to Q1 last year. Now, as we are looking forward on a full-year basis, I think it's worth reminding you that point number one, our guidance includes a higher CAPEX spending that will actually absorb more cash compared to prior year.
You might recall we indicated the spending that goes between 5-6% on full-year revenues versus 4.4% of last year. Secondly, we will likely have a lighter effect from working capital absorption as last year has been kind of exceptional, the result we achieved by improving, especially our inventory balance. All in all, we do not see higher cash flow on a full-year basis compared to last year, at least with the visibility we have as of today. More to come as we are making progress throughout the year.
Thank you very much.
Thank you.
The next question is from Alessandro Cecchini of Equita.
Hello, everybody, and thank you for taking my questions. The first one, actually, it's on market share.
If you can elaborate a little bit more on your feeling, of course, in the market, in particular in the heat pump business in Europe and the hot water business as well in Europe, I presume that likely you gain a market share in the hot water. I would like to better understand on this. My second question instead is on the input cost landscape. Probably some raw materials are down, still is slightly up. If you can elaborate a little bit more, what is your view overall for this year if you are assuming some savings or is premature? Just to have a feeling on this. Thank you.
Thank you, Alessandro. I think market share, I mean, we feel good. I mean, as I said before, it is one of our focus, and we want to continue to do better than the market.
Yes, I can confirm you that we perform better than the market, both in heating and water heating overall and in our key geographies. I think in terms of input cost, I will start and pass to Riccardo. Obviously, as you said, there are some inflationary trends and some deflation. I do not see a lot yet, but I mean, what we did is obviously working on our coverage and trying to offset the inflation that we had in direct labor, for example, with the efficiency plan. I do not know, Riccardo, if you want to go a little bit deeper.
Yeah. Thank you. I mean, forward-looking, please consider that most of the materials we purchase, such as steel, is well blocked in advance in terms of price, so roughly 80% for the full year. That is what we have done last year on the volume expected this year.
Moreover, also in view of tariffs impact, consider that our procurement policy is mainly local for local. All in all, we are targeting variable cost productivity year over year. That being said, I mean, the most recent updates indicate some headwinds on raw materials, as we expect a bit of increase in copper and aluminum, while steel is more volatile. That is in a nutshell how we foresee 2025. Energy is more complex given our global footprint. It is hard to give you a unique answer, but I would say that overall, that is the dynamic we are expecting to see for the full year.
Okay. Finally, just a reminder, a quick overview. If I am not wrong, the second quarter last year was in Germany worse than the first quarter last year. Probably second quarter this year, you can benefit from easier comparison, in particular in the gas business.
It's correct, my interpretation?
Yeah. I mean, as we said, the market dynamics by segment were different last year. So you are correct. Gas and oil, actually, it was a little bit longer the momentum than Q1, while heating heat pump were not positive this year. And there is a bit of a rebalance. Let's think that maybe even in Germany, hopefully, we will see market evolution overall similar to what we are seeing also in Q1.
Okay. Thank you.
The next question is from Alessandro Tortora of Mediobanca.
Yes. Let's say to follow up, okay, some of the points we have already discussed. The first one is, okay, a follow-up on Germany. We already, let's say, discussed a lot, but I understood your view, let's say, on the German heating market.
As you know better than me, Kerry, Ariston has a huge mix of solutions in Germany, ranging from heat pump to ventilation, rendering unit, gas, and so on. Basically, if I understood well, it is fair to say that if we, let's say, your view or let's say your feeling could be that Germany at a certain point, we may have also a kind of normalization on the gas side, and therefore Germany, for Ariston, should get, let's say, a positive sales growth by year-end. I just want to understand that we reconcile all the solutions, okay, you sell in Germany. That is the first, let's say, question. Thanks.
Yeah. As I said before, the Q1 between renewables and fossil are linked to the development that we saw last year in the same period of time.
Obviously, I think that while longer-term heating heat pumps will continue to grow higher than gas and oil, I think that in the short and medium term, the relevance of gas and oil continues to be there. Again, this will be the majority of the market, not only in Germany, but in all other European markets where we play, with the exception of the market that shifted to renewables already like Switzerland. I think you are correct on your analysis. Fossil systems, as I said in the calls in the past, are here to stay in the midterm for sure.
Okay. Thanks. I got some audits on this. Sorry, can you elaborate a little bit more on the services and parts? I understood well in the presentation you mentioned this field as an outperformer. Can you comment into this also?
I don't remember exactly which kind of revenues you generate from services and parts, but also your expectation on this division, also considering the investments you made in the recent past. Thanks.
Yeah. I mean, so first of all, service and revenue are doing fine. I mean, last year, they grew a lot, and this year as well, they are growing low single digit. We said that in 2024, they represent circa 15% of the total group revenue. It is an important part of our business. It's a more, how can I say, stable and reliable business. Last year, it grew a lot because people decided to maintain their systems rather than change. This year, there is a growth which is not as strong as what we saw last year, but still growing well, 15% of total revenue.
Okay. Okay. Thanks. I will stick to your two question requests.
Yeah. Thank you.
The next question is a follow-up from Vivek Midha of Citi.
It's a bit more of a special case, but just asking more broadly around the heating heat pump industry. I was wondering about your opinion around the channel now, particularly in the context of some of the really strong increases we've seen in the first quarter in volume. I mean, how are you seeing that? And is there any possibility, at least in certain markets or geographies, that you could even see some channel restocking affecting these numbers? Thank you.
No, I think, I mean, as we said before, the stock level for sure for our products is very clean everywhere. We always commented that there were other competitors that stocked a lot of the market in a moment where there was very high demand and lack of supply from the key players.
Now the market is normalized. The historical players like us and our key competitors in Germany or in Italy, we are ready to fulfill what is needed. This is where the installers, normally, they have two, three brands they play with, and they stay with these historical players. That is why I always say that it is an asset for us. It is something that we will have to continue to grow. This is where I think it is helping us to perform well in a moment where the market is revamping.
Thank you.
The next question is from Michele Baldelli of BNP Paribas.
Hi. Hello everybody. I have a couple of questions. One is on the inventory level in heat pumps. If you can give us an update on the dealer's network level and also for yourself if you have found a normalization also for these trends.
Another question relates to the price pressure in any of your segment or markets geographically, if you see it in any segment. Thank you.
Thank you, Michele. Maybe you just spoke about the stock, but I am happy to repeat that. I mean, the stock level on heating heat pump is normalized, especially for us across the different markets. For others, it might be a little bit more difficult if they stock a lot of the market in a moment of high demand, low supply, and especially if they are not the historical players in the different markets. That is in terms of stock. These apply also to Germany? These apply to Germany, but also all the other main European markets where we play. Okay. Thanks. Germany was the last one to join a normalization.
I think we already said in past calls that in the other markets, we did not have any stock issue or the market was not stocked. In terms of pricing, as I mentioned briefly before when I was commenting the results, I mean, we do not see different dynamics. Obviously, there is a competition, and everyone is fighting and working and trying to achieve their share of market. I always remind you all that we are in the upper mainstream or in Germany and Switzerland, we are in the premium part of the market. We do not play in the low-end entry value, which is giving us a bit of advantage and protection. Every time we introduce new products, I mean, this is where we can help our mix and our margin and our pricing. I spoke before about the different introductions that we are having in all the markets.
Thank you.
Mr. Bartolucci, there are no more questions registered at this time. I'll turn the call back to you for any closing remarks.
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