Thank you. Good afternoon, everyone, and welcome to Ariston Group third quarter and nine months 2026 results conference call. I am Ilaria Candotti, Head of Investor Relations. With me today are Maurizio Brusadelli, our Chief Executive Officer, and Riccardo Gini, our Chief Financial Officer. Today's presentation will last approximately 20 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, Ilaria, and hi everyone also from my side. Let us start with an overview of the quarter in slide three. The third quarter was characterized by solid growth in Europe, thanks to the high heat pumps demand, particularly in Germany. While we face a more challenging environment in the rest of the world, with a combination of external factors moderating our growth trajectory and putting pressure on profitability. Group net revenue reached EUR 778 million, up 16.4% on a reported basis, thanks to the consolidation of Riello starting from Q3, and +0.6% organically. Our heating business recorded a very solid growth in Europe, driven by heat pumps. This positive performance was partially offset by intensifying headwinds in the Middle East due to the ongoing conflict in the area and a weak water heating in Americas. Adjusted EBIT amounted to EUR 52 million.
The like-for-like adjusted EBIT margin was 6.9% compared with 7.2% in the third quarter of last year. Profitability was affected by accelerating input cost inflation beyond expectation, both on logistic costs and on components, some of which, like electronics and fans, are in common with data center fast-growing business. We are taking additional pricing and cost measures to safeguard profitability. On a reported basis, the adjusted EBIT margin was 6.6%, reflecting the consolidation of Riello, whose profitability is currently below the group average. Free cash flow was negative by EUR 11 million compared with positive EUR 15 million in Q3 2025. Working capital increased mainly as a result of few factors. First of all, the safety stock built to support heat pump demand. Then, we have to manage the transition of heat pumps to green refrigerant as per F-gas regulation.
We have the ramp-up of new plants, and we have, as I said, a weaker-than-expected sales in the Gulf area and the Americas. During the quarter, we also made progress on a number of important initiatives. Riello integration is progressing well and according to plan. We appreciate the strength of the brand, strong customer base, and distinct capabilities both in heating and Combustion Technologies. I reiterate our confidence in achieving EUR 25 million synergies by 2030. We completed the acquisition of Mutosi on September 4th, entering Vietnam large and fast-growing water purification market. Mutosi recorded EUR 14 million revenues in 2025, and combination of Mutosi's expertise in water purification with Ariston trusted brand and the extensive distribution network and service capabilities, we will create a strong platform for future growth in Vietnam. We also recorded further improvements in our ESG rating that I will comment shortly.
Based on the performance recorded in the first nine months on a tougher-than-expected external and cost environment, we updated our full-year guidance. We now expect organic revenue growth at the lower part of the previously communicated guidance, so it is between 1% and 2%, and an adjusted EBIT margin around 7%. Riello is expected to contribute between EUR 190 million- EUR 200 million of incremental net revenue in the second half of 2026. Now let's move to slide four, where I briefly remind you our well-balanced portfolio and how Riello changes our business mix. On a 2025 pro forma basis, the combined group generated around EUR 3.5 billion revenue. Riello broadens our offering in heating and Combustion Technologies and, importantly, increases our exposure to commercial and industrial application, complementing our strong residential positioning.
Riello also brings a very well-developed service and spare part business in line with Ariston Group, counting for mid-teens of the total revenue. This results in a broader and more diversified portfolio, both in terms of technologies and end-market exposure. Let's now move to Germany on slide five. Here we provide the usual update on our largest market, Germany, which represents around 20% of 2025 group revenues. The structural characteristic of this market remain unchanged. Germany is a large replacement-driven heating market with a long-term shift toward higher efficiency and renewable solutions. On the left-hand side, the latest BDH data, currently available for the first half, confirm a strong recovery of the German heating market, driven by heat pumps, while the gas boiler market remains weak. Heat pump volumes grew by 39% year-on-year on H1, and we see a continued strong momentum in Q3.
The market has overcome its bottom. The incentive data on the right provide another encouraging signal for the future development of the category. Heat pump approvals continue to accelerate through Q3, confirming that the incentive framework is effectively supporting demand. Now, let's move to my yearly update on our ESG ratings. Sustainability has been part of Ariston Group DNA since its foundation. We published in 2023 a well-elaborated 2030 ESG strategy named Road to 100 that is available to everyone on our corporate website. We work every day to improve toward our 2030 targets with tangible actions. It is very rewarding to see such a positive trend of our ESG rating with four years of consecutive improvements. We are among the top quartile players in our reference sector.
In 2026, we have updates from EcoVadis in terms of absolute score, which provides a focused assessment of supply chain sustainability performance, further increased to 74 out of 100. S&P Global CSA score also improved to 49 out of 100 in the building products sector, confirming solid performance across all ESG pillars, while MSCI maintained its A rating. Now, let's pass the microphone to Riccardo that will take you through the financial performance.
Thank you, Maurizio. Let us move to the financial results, starting from slide number eight. Net revenues in the third quarter reached EUR 778 million compared to EUR 668 million in Q3 2025, representing reported growth of 16.4%. Organic growth in the third quarter was 0.6%. Foreign exchange contributed 0.9 percentage points, while perimeter variation contributed 14.9 percentage points, mainly reflecting Riello, Mutosi in Vietnam, and the minor acquisitions in Combustion Technologies and components. Within heating, heat pumps continued to grow, mainly in Germany. The year-on-year comparison also reflects a strong Q3 2025 base when rapid heat pump growth had already materialized. Instead, the gas boiler market remained weak. Water heating reflected the increased impact of the continuing conflict in the Middle East and a weak performance in the U.S. and Mexico, while performance was overall stable across all the other markets. Services and parts continued to record robust growth.
Components and Combustion Technologies also grew positively during the quarter. Foreign exchange made a positive contribution, mainly from the U.S., Mexico, Australia, and Israel. Looking at the first nine months, revenues reached EUR 2,125,000,000 compared to EUR 1, 960,000,000 in the first nine months of 2025. This corresponds to a reported growth of 8.4% and an organic growth of 1.8%. Foreign exchange contributed 0.2 percentage points and perimeter variation 6.4 percentage points. Moving to slide number nine, Europe continued to drive group organic growth in the third quarter. Europe represented 74% of group revenues in the first nine months. Q3 revenues reached EUR 570 million, up 18.6% on a reported basis. On a like-for-like basis, the region recorded a mid-single-digit organic growth driven by heating, particularly in Germany, and by continued growth in heat and heat pumps. The gas boiler market, however, remained weak.
For the first nine months, revenues in Europe reached EUR 1, 565,000,000 , up 10.9% on a reported basis. Change of perimeter reflects the consolidation of Riello, Mutosi in Vietnam, and minor acquisitions in Components and Combustion Technologies. Asia Pacific and Middle East and Africa represented 17% of group revenues. Q3 revenues reached EUR 136 million, up 6.5% on a reported basis. Organic performance was negative, reflecting the intensification of external headwinds in the Middle East. Nine month revenues in the region were broadly unchanged at EUR 362 million. Change of perimeter mainly reflects the consolidation of Riello in China, where Riello mainly operates in Combustion Technologies, and the consolidation of Mutosi. The Americas represented 9% of group revenues. Q3 revenues reached EUR 71 million, up 19.2% on a reported basis, while organic performance was negative. Heating recorded strong development in North America, while water heating remained weak.
For the first nine months, reported revenues increased by 5.6% to EUR 198 million. Moving on to slide number 10. Adjusted EBIT in Q3 amounted to EUR 52 million, compared with EUR 48 million in Q3 2025. The reported adjusted EBIT margin was 6.6%, while the like-for-like margin was 6.9%, compared with 7.2% in the third quarter of last year. The difference between the reported and like-for-like margins reflects the contribution from the acquired businesses, mainly Riello, which currently operates at a lower profitability level than the group. In the third quarter, profitability was impacted by accelerated input and logistics cost inflation. We have already taken additional pricing measures to offset these higher costs, although it will take some time for the full benefit to come through.
The group continues to implement targeted cost mitigation measures to counter the ongoing external headwinds while progressing with the completion of its transformation programs across digital, go-to-market, and R&D. These initiatives are aimed at reinforcing operational efficiency, enhancing competitiveness, and supporting sustainable, profitable growth over the medium term. For the first nine months, adjusted EBIT reached EUR 125 million, compared with EUR 114 million in the same period of last year. The reported margin improved slightly to 5.9% from 5.8%, while the like-for-like margin reached 6%. Reported EBIT amounted to EUR 39 million in Q3, and the main adjustments are related to PPA amortization and M&A and Riello integration costs. Moving forward to slide number 11. Free cash flow was negative by EUR 11 million in Q3, compared with positive EUR 50 million in Q3 2025.
For the first nine months, free cash flow was negative at EUR 88 million, compared with approximately break-even in the first nine months of last year. This was mainly driven by the higher working capital, particularly increased inventory levels. Net working capital reached EUR 558 million at the end of September, corresponding to 17.4% of rolling net revenues. This compares with EUR 442 million, or 15.9%, at the end of June. On a like-for-like basis, net working capital increased by 1 percentage point compared with September 2025 as a result of the acquired businesses currently dilutive to the group performance. The higher inventory level reflected a combination of strategic and operational factors.
These included safety stock to support heat pump demand, the production ramp-up at the new manufacturing plants in Albacina in Italy and Niš in Serbia, and the need to align inventory with the evolving market demand in the Middle East in the context of the Gulf War and in the Americas. In parallel, inventory management is supporting the transition from R32 to R290 refrigerants through the progressive phasing of R290-based products and phase-out of R32-based products ahead of the European F-gas requirements taking effect in January 2027. The expanded perimeter also contributed to the increase in inventory. Riello currently operates with structurally higher level of net working capital levels than the group and recorded cash absorption in Q3 consistent with its historical pattern. Moving towards the slide number 12.
Adjusted net financial indebtedness increased from EUR 542 million at the end of December 2025 to approximately EUR 1,060,000,000 at the end of September 2026. The increase mainly reflects EUR 371 million cash outflows related to acquisitions, together with the EUR 88 million free cash flow absorption discussed on the previous page. Other movements included EUR 34 million financial, foreign exchange, and other charges, EUR 37 million of dividend payments, and EUR 3 million related to the share buyback program. Non-cash items had a positive impact of approximately EUR 60 million, mainly reflecting mark-to-market movements. IFRS 16 variation and exchange rate effects on net financial indebtedness. Pro forma leverage calculated including Riello on a full-year basis was 2.9x at the end of September, compared with 1.7x at the end of 2025. Turning to slide number 13, the group continues to benefit from a long-dated debt profile and significant financial flexibility.
While the financing arranged to support the Riello acquisition increased the group's total debt, the refinancing completed during the third quarter marked an important step in optimizing the group's financing structure and reinforcing financial flexibility. As a result, the group benefits from an average maturity of non-current bank debt of approximately 3.8 years, with around 80% of maturities falling between 2029 and 2032, providing solid long-term visibility and a well-balanced maturity profile. Approximately 50% of long-term debt is either fixed rate or hedged, limiting the group's exposure to interest rate volatility. In addition, the group has approximately EUR 1 billion committed and undrawn credit lines, providing significant financial flexibility to support both organic development and disciplined inorganic growth. With that, I will hand the call back to Maurizio for the outlook.
Thank you, Riccardo. Before going through our updated 2026 guidance, let me spend a few words on the current environment. The context has clearly become more challenging and unpredictable, and based on what we see today, some of these elements are likely to remain with us for some time. We are responding with what we can control. We are implementing additional pricing. We have cost mitigation measures in place. Also, it will take some months to foresee the full impact, especially on the pricing. It is also worth remembering that in Ariston history, periods of accelerating inflation typically put pressure on the margin in the short term, but once inflationary pressures normalize, this dynamic typically creates room for margin recovery. Based on the performance of the first nine months and on the current market and cost environment, we have updated our full-year guidance.
For top line, we have narrowed our expectation to the lower part of the previous range and now expect organic revenue between 1% and 2% compared with the previous range of 1%-4%. For profitability, we expect an adjusted EBIT margin around 7% compared with the previous range of 7%-8%. This reflects the increased inflationary pressure on costs observed during the third quarter, the ongoing headwinds in the Middle East, and the time required for higher costs to be fully reflected through pricing. As a reminder, our adjusted EBIT margin guidance is intended on a like-for-like perimeter basis, therefore excluding Riello and other minor acquisition. At the same time, as always, we are balancing short-term action with our long-term priorities. We don't intend to compromise on investment and innovation programs that are important for the future of the group.
We are developing the new generation of Aristonity heat pumps and renewing key water heater product ranges to maintain our premium positioning. These new products will also provide additional opportunities to support pricing over time. For cash flow, we now expect full-year CapEx at around 5% of revenue compared with the previous range of 5%-5.5%. We have optimized the fourth quarter investment plan without impacting the long term, with a positive cash impact expected in 2027. Cash generation remains concentrated in the fourth quarter in line with historical seasonality of the business, and working capital management and cash conversion remain our key priorities. We continue to assess strategic M&A and bolt-on opportunities with discipline. Riello has been consolidated since July 1st and expected to contribute between EUR 190 million- EUR 200 million in incremental net revenue in the second half of 2026.
I remember that Riello operates at a lower profitability level than the group, as previously said. At year-end, we expect the group pro forma leverage to be in the range of 2.8x-2.9x. Our priorities remain clear: support growth in our key markets, manage the current cost and geopolitical headwinds, progress Riello integration, and develop a successful company for the future.
Thank you, Maurizio. We have now completed our presentation, and we are available to take your questions. To make sure that everyone gets the chance to speak, we kindly ask to limit your question to a maximum of two. Operator, please open the line. Thank you.
Thank you. This is the Chorus Call conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. First question is from Daniel Khajenouri, Morgan Stanley.
Hi, good afternoon. Thank you for taking my question. The first one is just on the growth and the margin mix across the portfolio. Clearly, heat pumps are offsetting weakness elsewhere, and my understanding is that these are higher-margin products. Therefore, my question is, are we also seeing negative price-cost dynamics in heat pump products within Q3? It is also taking some time to pass on the price increase here, given it is a growing market. Thank you.
Thank you for your question. We experienced a very high growth in heating heat pump. As I said before, we saw some of components for heating heat pumps, which are the one common to data centers that increased. This created a cost pressure. I wouldn't say that we saw negative pricing dynamics in the heating heat pump market. It's more on the cost.
Okay. That's clear. Thank you.
Next question is from Alessandro Tortora, Mediobanca.
Yes. Good afternoon to everybody. The first question is if you can come back a little bit to the pricing action, but also the incremental cost mitigation you put in place, or you're going to put in place in order to offset these incremental cost inflation. If you can tell us which kind of action, if relate mainly to specific market, some specific products, and also the cost mitigation side, if you can give us, let's say, more color on the action you are taking. This is the first question. Thanks.
Thank you, Alessandro. Yes, Q3 surprised us because obviously, I think everyone saw the level of the oil. We saw the level of other materials that we couldn't hedge that impacted us. Based on this, we decided to do even more pricing action, which are maybe general. I mean, we plan to increase, and we increased pricing across different market and products. Between the raw material that we use, like plastic, which is obviously generated by petrol, or components, I mean, they are common both in heating and water heating. So we have to take pricing on all the lines of our portfolio. At the same time, as I said before, I mean, you know that we had the Fit to Win project that started a couple of years ago.
We are intensifying our action on this, also leveraging the investment that we did in our technology to be more digitally savvy and using AI in different functions across our organization. We think that thanks to this, we can further simplify our organization, meaning making sure that with increased people productiveness and effectiveness, we can improve the efficiency and reduce the cost of the structure that we have. This is something that we are taking very seriously. I mean, obviously, we planned for this because we started the program before, as I said, and we knew that, I mean, it's difficult to control the external environment.
I mean, what was happening in Iran, I mean, the data centers probably surprised us because some supplier decided maybe to follow a business which is for them probably more profitable and putting pressure on us on cost, and we have to react with the programs that I said to counterbalance these effects.
No, okay. Hi. Follow up on this, when you mentioned the plastics, I guess also steel, but also electronics, in order, let's say, to cope with that cost inflation, we are talking about which kind of, let's say, range of price increase. It's like 2, 3 percentage points that you basically did it, or you're going to do? Just to have an idea of which kind of size of price increase. Sorry.
Yeah, maybe we do not plan to say how much we did where, but I mean, first of all, on steel, I want to reassure you that on this one, as you know, we have hedges in place, so this is probably more to anticipate an impact for next year. On electronics, obviously, it is Data Center-driven, and we saw the increase as well as, obviously, the plastic and other raw materials like copper and other components that are part of our portfolio. So, I think you have to think between a low to a mid-single-digit price increases that we are taking across the different products and geographies.
Okay. Thanks. Then the second question, if you can come back also a little bit to the comment you made on the increasing, let's say, year-end and net debt and increasing working capital. First, on the higher debt level, if you can give us an idea of the cost of debt we should think about, Ariston, considering all the action you took, because I saw in Q2, sorry, in Q3, higher amount of net financial charges. Just understand the quarterly rate of financial charges for you considering the action you took.
Secondly, if you can give us an idea of the level of, how can we say, one-off working capital sales you took considering safety stock transition to new products, because clearly we are talking about 17%, 18% working capital sales. Historically, you run with a much lower, much closer to the low teens level of working capital on sales. Thanks.
Yeah, maybe I start with the second, and I leave Riccardo to answer the first one. We said that obviously on the trade. Oh, sorry, no, on the inventory stock, because I do not want to talk about trade. Inventory stock, there are few things that you have to keep in mind. First of all, heating heat pump is growing very much, especially in Germany, as you know. So what we have and we had to do is to increase the intake of both components and also increase the production on finished goods. On components, we want to safeguard our ability to have these components to produce heating heat pump, because as I said, some of the components are common to the DC industries.
Secondly, we have a transition and a change in terms of regulation between R32 and R290 that are coming in. To make sure that we can continue to sell the R32 heating heat pump in 2027, we have to place those products in the markets. Therefore, there is an anticipation of production and increased stock level to put these goods in the market. Then, as you know, we have the ramp-up of a few plants. The most important are the one in Italy, in Albacina, while obviously Genga continues to work because we will not close at the same day, and we had to transfer some lines and required, once again, increase of raw material and increase of finished goods. The other plant is the one that we have in Serbia, while we are adding as well the ramp-up and acceleration of Egypt and India.
I think the last point is that in the Gulf and in Americas, we didn't expect such. In the Gulf, we were hoping on a more, let's say, slightly positive evolution after May, June, but unfortunately, the situation worsened. Therefore, we didn't sell what we expected. In the Americas, the market was much weaker than expected, both in U.S. and Mexico. If I would have to give a number, it is, I don't know, between maybe closer to 1 percentage point or 1.5 percentage points of net working capital, and this is like for like, once again, excluding Riello, because we will talk about the Riello stock of raw material and finished goods when we have a little bit more of visibility. Now, if you don't have question on the inventory, maybe I pass to Riccardo that will answer on your question of cost of debt and financial charges.
Yes, thanks.
Yeah, thank you. Yeah, Alessandro, so coming to net debt and cost of debt. First of all, the amount of net debt is consistent and as a result of what we pulled already towards the end of Q2 with some revolving credit facilities to finance the Riello acquisition. During the third quarter, you might recall what we communicated with the first half financial and balance sheet. We actually managed to improve our net debt position when it comes to the duration, for instance, because at the end of June, we communicated an average debt maturity of three years and a half. Now we are at 3.8 years, and also the 80% of maturities are shifted to the right as they are more concentrated between 2029 and 2032. All in all, I think we managed quite well our debt position during the third quarter.
When it comes to the interest charges, I mean, Q3 embedded some FX distortion as well, because last year we had some positivity on FX. This year we had some negativity. You shouldn't look at Q3 as a run rate of interest cost, and that's what we are planning to manage as a result of the cost of debt, which is still in the range of 4%.
Okay, thanks.
Next question is from Alessandro Cecchini, Equita.
Hello, everybody, and thank you for taking my questions. Just to understand, if I understood correctly on the cash generation, free cash flow for the year, how much of working capital we can assume like one-off for a year end? Because actually, the leverage, the target leverage is quite high, materially high versus previous indications. Just to understand how much working capital you consider for the year end as a one-off. My second question is instead, we saw your competitor, part of U.S. group to deliver much better European sales in the third quarter. Of course, you have a different portfolio with hot water, et cetera, but it seems material, the difference. If you can elaborate a little bit more, and if you are seeing some catch-up maybe in October due this difference in the third quarter.
Lastly, if I understood correctly, the financial charges third quarter, could you provide the real run rate, so excluding forex, so to have a better idea of the real run rate in financial charges? Because third quarter was EUR 18 million, EUR 18.5 million, so what is the real excluding forex run rate? Thank you.
Thank you, Alessandro. Let me maybe repeat what I said to the other Alessandro in the previous question. If you take our net working capital, I said the one-off could be between 1 and 2 percentage points, excluding Riello on a like-for-like, while obviously when we speak about the leverage, obviously, it's a different number. That's where we stand. If we look to the performance of the competitor that you mentioned, I feel very good about our performance in Europe on heating. Obviously, you might consider their geographic footprint versus our geographic footprint, but for both of us, Germany is very important, and I think the growth that they had, assuming, and what we had is very strong in a kind of double digit with the two in front of the number.
If you think to the north central European part of the market, which is similar to where Viessmann is growing, I think we are performing probably even better than their total organic growth that they gave. Obviously, we are exposed in a higher way in our heating business in Italy, France, Eastern Europe, where you know the heating market is still negative. So that if you would do an apple-for-apple kind of similar geographic footprint, I would consider our performance in line, comparable, or better even in some geographies than Viessmann. Now, I will pass to Riccardo for the third question.
On the interest run rate, you can consider a bit more than EUR 10 million, EUR 10 million-EUR 13 million, something like that, on a quarterly basis.
Okay, 10, EUR 13 million on a quarterly basis. Okay. Just about, if I may, sorry, about the free cash flow, because making calculations, of course, basically, we achieve zero free cash flow for the year 2026. So if we cut back, I mean, the EUR 40, EUR 45 million working capital one-off, so assuming your numbers, you are still EUR 40 million, EUR 45 free cash flow that is well below, I would say, your target. Just to understand if you are maybe after this year strengthening your strategies to improve materially cash generation. So regardless, I would say, this kind of working capital one-off. Thank you.
Yeah, I think, Alessandro, you know that historically the company performed very, very well in net working capital and in generation of cash. Obviously, this year there are many one-off, which I would say most of them are external and it is difficult to manage. Everyone, I mean, I am sure you do your calculation. I am not sure the cash will be zero, but probably will be positive, obviously much lower than last year. I think as of next year, we will go back to the level of cash that we are used to have and net working capital at the year end, which is in the 12%, 13% range, which is our historical running rate. Not the best, because some year we did much better, but this is what I indicated to all of you, our net working capital percentage.
This year, there are a lot of one-off, which I explained you before. We prefer to risk less and have more raw materials in our warehouses, especially since when we saw the pressure of data center that are buying components which are very common to us. This is obviously impacting the inventory. Unfortunately, I mean, there is obviously costing inflation there, and the more we intake, because we know that those material are for heating heat pump, and we expect heating heat pump to continue to grow even in 2027. We spoke about the bottom of the market, and in Germany, for sure, the bottom is over and will continue to grow. Also heating heat pump, as you saw from the public data, is growing across Europe. So that is why we need to safeguard our position.
Okay. If I may finally, so on the margin size, probably that you are expecting to have, looking at the guidance, a tangible mismatch between costs, higher costs, and limited or nil impact from pricing. So just to have a feeling, a qualitative feeling, is very relevant, this mismatch. Just to think about next year in a, I would say, in a more normal balance between pricing and cost inflation. Just to better understand, to imagine which kind of margins in a normalized basis we can imagine. Thank you.
I mean, next year, we will talk next year. I am not sure I would use some of the words that you use. I mean, our guidance before was between 7% and 8%, and now we say around 7%, also because we did not expect the oil, for example, to go to a level which is super high. Then we did not expect copper to be at the level of where they are with aluminum, silver. All of these are creating super inflations, much higher than we expected, and I think everyone expected. We did pricing. We see some price benefits. As you remember, I told you that the pricing that we planned to do in 2026 was more to protect 2027. Now we see a more immediate effect because of the reason I explained before of data center booming, same raw material and components that they use, like electronics.
We acted quickly on additional pricing, but this need a little bit of time to come in, and obviously, we will see the impact mainly in 2027. Our strategy is to continue to progressively improve our margin. As I always said, obviously, this year we have stronger than expected impact of external factors. Some of those were really difficult to forecast before.
Okay. Many thanks.
Next question is from Davide Rimini, Intesa Sanpaolo.
Good afternoon. Thank you for the presentation and for taking my questions. I have a few follow-up. The first one is on the growth that you said you are satisfied that you have achieved in Europe, and I was wondering whether you can comment in the previous cases, was a reference of over-performing the market, and I didn't understand quite well whether the reference that you were making in terms of apple for apple in the regions that you are in versus your competitors, that was referred earlier, jeopardize the message of over-performance versus the market.
Yeah. Thank you, Davide. So probably, maybe I was not clear. I was comparing myself, ourself to another listed company that posted some results, and I was trying to say that obviously they posted a much higher number in terms of organic, but their configuration in the countries where they are and where we are not is, I think, making the comparison tougher because we are exposed to markets which have negative heating markets. That was what I said before. I think coming back to your question, I would say that in general, we feel that we are all in line or in some markets doing better than the market. And obviously, the market that is growing the fastest is Germany, and it's growing thanks to heating heat pump, and there I think we are very solid and very bullish on our performance.
In the other markets where the market is more negative, I think we are holding well our position in terms of market share, and in some geographies, as I said, we are doing better than the market. In water heating, obviously, the key impact is the Gulf, where the market is really challenging, especially in the U.A.E. and also in some of the countries like Saudi. As well, in water heating in America, so both in U.S. and Mexico, we didn't expect the market to be so negative in Q3, and I think that there we are confident on our performance in line with the market, both in U.S. and Mexico.
Thank you. Sorry. The second follow-up question is on net working capital. I collected that all what has been said has been excluding Riello, which has been described as structurally having a different behavior. And I was wondering whether you might share whether is it just a temporary, so to better understand the situation in Riello, and by which time we will get more inputs on that side, or whether you would see Riello going forward run at a different inventory capital management level.
Yeah, I can take this one, Davide. I mean, you are right. The current performance when it comes to the ratio is higher. Our goal is to bring them on board with the Ariston legacy practices, so definitely it is an opportunity from 2027 onwards. Like we do in every acquisition and any bolt-on acquisition we run, that is going to be one of our key priorities when it comes to integration and synergies.
I have been saying that this off and off over the current quarter reported that there has been the delta versus what has been last year.
Yeah, the quarter indicated that they have been negative on cash flow during the third quarter, and the ratio is higher on net working capital compared to legacy Ariston.
Let me try to help you differently. Obviously, let us say that an optimal level, which Ariston proved to reach, which is around 12, 13 points of net working capital, is what we are used to have in Ariston. In Riello, it is a much higher number. These are creating opportunities for us, obviously, to work on the net working capital of the acquired company, but this will happen during the following months and years, because obviously you cannot ask the net working capital or reduce by 5 points from a month to another. This is a clear opportunity. We took the business, as you know, at the beginning of July, and every month we are working to guide net working capital of Riello to the level optimal that we want to have, which is, as I said, around 12, 13% as a total group.
Right. One final point, if I may, is on the CapEx, which I noticed the guidance has been now put on 5%, and also on the reported number on the nine months, we are below on an incidence in sales versus last year. I was wondering whether you might spend a few words what is behind that change of guidance.
No, I think as always, obviously, we have plans on investment, which, as you know, are spanning from route to market to R&D to footprint, and every quarter we have a CapEx committee where we review the plans for the year 2026 and also for next year. We think that for this year, we are well-positioned with all the investment that we have to do, reaching this number, which is around 5%, which is lower than what we said before. As I said in other calls, our intention is year after year to reduce the percentage of CapEx on total revenue, which we said we are peaking in 2024 and 2025 and 2026. So next year, I think you will continue to see in the following years the reduction of CapEx investments on percentage on revenue.
Thank you.
Next question is from Christian Hinderaker, Goldman Sachs.
Good afternoon, Maurizio, Riccardo, Ilaria. Thanks for the presentation. I just want to start maybe on these inflationary pressures you mentioned, in terms of components being sold to data centers. Can you help us just understand what components these are or what categories? That's the first one.
Thank you, Christian. Good afternoon to you. I mean, as I said to you before, we have some components and raw materials that are in common with the famous data center. If I think to all the electronic components, obviously this is a big part of this. Fans as well. I mean, it's another one that obviously they use for cooling, we use for heating. Fans is used in heating heat pump, in air handling for us. I would say that these two are the biggest. There are many others which I wouldn't mention, but these are the biggest one. Electronics and fans.
That's clear. Thank you, Maurizio. Turning to the American business, if I strip out Riello, I get a Q3 sales number in the Americas just shy of EUR 59 million. That implies a 10% sequential decline. You mentioned you were a bit surprised by the moderation in demand there. I guess just curious about what's actually happening. Is this related to rates and the new build market? Is it a pre-election pause? Maybe the rates are causing your customers to sort of destock in the channel. I guess, yeah, interested in the dynamics, and then how did that shape, how did the shape of revenue in the Americas progress through the quarter?
Yeah, I mean, probably on the numbers for Americas in the quarter and for the ninth month, you can refer to page nine of the presentation, which Riccardo explained before. I mean, there are public data on August year- to- date where the gas storage volume is down by more than 2%, actually close to 2.5%, and the electric storage is down 5% year- on- year in U.S. In the rest, obviously, you know that we are playing in Mexico, and also on this one, the market data are weaker than we expected. On the contrary, which is maybe something for you to take in consideration, our heating market in North America did very well.
Understood. Thank you.
Next question is from Rajesh Patki, Barclays.
Yes, thank you. Thank you, everyone. I will respect your instructions, Ilaria, and limit my questions to two. The first one is if I can ask you to provide some color on the heat pumps distribution channel. We are hearing about stock buildup ahead of the upcoming refrigerant change. Is that something that you are hearing as well? How confident are you that in 2027, we will not see a material destocking like we saw a couple of years ago?
Thank you for your question. I mean, this is stock that we have to place in the market, but I wouldn't say that we are worried or that something will let on the inventory build-up in the distribution channel. We can comment only for us, obviously. The situation in the stock of our partner is completely clean. The building up of our R32 stock in our market warehouses is visible in our net working capital, is not a stock in the inventory. But we are very confident with the market development that we are seeing across Europe that this stock will be finished, sorry for my English, will be finished by H1 of next year. Nothing to be worried.
Thank you. My second question is on the margins. Your guidance is on a like-for-like basis, and the dilution from Riello in the third quarter was around 30 basis points. Should we think about the reported margin guidance, including Riello, to be 15-20 basis points below the like-for-like guidance for the full year? Connected to that, do you expect Riello's profitability to improve next year, or is that going to be dilutive to the group's margins as well? Just finally, to tie it all up, including Riello, do you think consensus expectations of around 7.5% margins for 2027 are achievable? Thank you.
Thank you for your question. Yes, I mean, Riello, we always said is a dilutive margin. I think the calculation that you did, I think is fair. For 2026, I said, and I repeat that I am very confident about the synergies for Riello. As you know, 2/3 of the synergies are on cost. We said these synergies will be fully materialized after almost five years of around EUR 25 million, including the investment that we need. We said as well not to expect a big magnitude of those synergies in the first year. Will be a gradual improvement starting from, I would say, second half of 2027, 2028, 2029, to make sure that Riello will go to the profitability level of the group.
It is very clear. Thank you very much.
Next question is from Michele Baldelli, BNP Paribas.
Hi, good afternoon to everybody. I hope you can hear me well. I have a question on the growth of the specific hydronics heat pump market. Basically, some others were referring to the results of the competitors in Europe, and those competitors pointed to very strong growth of certain categories of heat pumps. If you can elaborate, probably between air-to-air and air-to-water, if there is a strong difference, and therefore what you have seen probably on the air-to-water where you are more present. The second point relates to Riello. Just to make up my mind, I was thinking that this quarter probably Riello had a sort of adjusted EBIT of EUR -1.5 million-EUR 2 million. Shall we expect, therefore, a return to profitability in Q4 due to the seasonality?
What is the kind of expectation for this year or next year in terms of profitability? If you can give a little bit more color, please. Thank you.
Thank you, Michele. As always, we talk about air-to-water heating heat pump. We do not comment about air-to-air, which is obviously air conditioning. On the air-to-water full year, we expect a double-digit growth with a two in front. You saw the public data, which are already H1, which are more or less in line with the number. I think mainly driven by Germany, but also in other geographies like in Italy, in France recently, and in the Netherlands, we saw a positive development of heating heat pump even in the recent months. We always said that there will be a transition from fossil to heating heat pump. Fossil will continue to stay relevant, meaning that the vast majority of the system that are in Europe are fossil.
Some geographies will go faster, like Germany, and some other will take more time, like probably Italy and Spain, to transition to a full heating heat pump market. This is something about decades, it is not something about years. We continue to see this positive development, which means that obviously what Germany did in terms of legislation and incentives, which are obviously confirmed from 2027 and 2028, is working. Also, the rest of the markets are giving positive development of heating heat pump. We are launching a completely new range of heating heat pump. Some of these heating heat pump are hitting the market in Q4, then in Q1, and then in Q2. We are very confident to leverage these opportunities in the following years.
On your second question on Riello, maybe I pass to you, Riccardo, but obviously Riello is not a negative number in terms of profitability, but now Riccardo will help.
Riello margin in Q3 was not actually negative. I mean, it is single digit lower than Ariston legacy. Nevertheless, it is positive. Yeah, I mean, some information are embedded into our press release. Maybe we can guide you offline in case you need any help.
Okay, I see there are no further questions. We have concluded our time, and we can conclude our today's call. Thank you for joining, and as always, as IR team, we remain available for any follow-up. Thank you. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.