Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump first quarter 2022 results conference call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, please signal an operator by pressing star and zero on the telephone. At this time, I would like to turn the conference over to Ms. Elisabetta Cugnasca, Head of Investor Relations. Please go ahead, madam.
Thank you very much. Good afternoon or good morning according to your time zone, and welcome to Interpump Group first quarter 2022 financial results conference call. Before leaving the stage to Mr. Marasi, board member and executive director of the group, I am obliged to draw your attention to the disclaimer slide inserted in the annex part of the presentation, I hope you were able to download from our website. Mr. Marasi.
Thanks, Ms. Cugnasca, and thank you, all of you, for the attendance. When we met three months ago, we had some assumptions for 2022, assumptions based on a realistic assessment of both group characteristics and external situation. The latter one was characterized by some positive aspects. For example, a never-seen-before customer demand and some negative, COVID resurgence in a new mutation, inflationary trend, and an increase in difficulty in the supply chain management.
With sadness, I have to say that the external situation has worsened compared to our expectation due to the Russian attack on Ukraine that completely changed the geopolitical situation in the last three months. With this premise, anyway, I have to say that the evaluation of the situation was correct, and even more important, that the group execution capability was better than expected, as the results of the first quarter 2022 are evidence of.
We deliver a double-digit organic growth. We knew that the strong backlog built in the past month would have supported us, especially in the first half of the year. Organic growth is a result from one side of the backlog and from the other side of the capability to deliver the backlog.
The capability to keep together all company functions under these severe circumstances, to manage the supply chain, to produce and to deliver to the customer, the capability, at the end of the day, to transform orders into invoices. Something that was perhaps taken for granted in the past, but that now, with inflationary trend and the supply chain constraint that we are all facing, cannot absolutely take any longer for granted. We achieved an EBITDA result to be proud of.
We reinforce in the quarter countermeasures already implemented in the last part of 2021. Despite an acceleration of raw material, energy, and logistics price increase, the margin dilution remains substantially aligned with the one of the previous quarters. Therefore, please allow me to go directly to the conclusion of my entire speech, and then to go back to the first quarter details. The results of the first quarter of the year are a much better base for the entire year compared to what we thought the first quarter could have been. Some elements that I will describe to you later on are increasing our visibility on the next quarters. Consequently, we believe that our high single digit organic sales growth rate forecast for 2022 will become a double digit growth rate.
We are even more confident in our capability to protect and consolidate profitability, our commitment and focus for 2022 and not only. Now let's go back to quarterly results, adding some update on White Drive integration and group ESG evolution too. Sales are up by 30% on a total basis, up by more than 15%, excluding White Drive consolidation, and close to 13% on an organic basis. Going into the details of this latter number, both divisions recorded a double-digit growth rate. It's perhaps redundant to remind you that the two divisions are differently correlated to the cycle, have a different time horizon execution, and therefore have different evolution, especially on a quarterly basis. These business differences are exacerbated by COVID comparison.
Therefore, the double digit growth rate for both division, even at a quite close rate, 13% for Hydraulics and 11% for Water Jetting, is a very strong and comfortable result. Going back to my introduction, this is not only the result of the backlog, it's the result of the execution capability of all of us and our companies. From one side, we increased output despite all the difficulties you are aware of, production constraints, raw material availability, logistic disruption, and COVID resurge, which impacted many factories, especially in Europe in January and February.
On the other side, we were able to adjust our pricing policies without hampering relationship with clients and showing, once again, our capability to transfer to the market any material increase of the cost of goods sold. Some details on the performance of the most important sector application.
In the first quarter, agriculture and forestry was up by more than 25%. Lifting was up by 36%. Construction up by 35%. Cleaning up by more than 10%. General dealers up by more than 20% again. Moving to EBITDA, it's important to underline that EBITDA was up by almost 25% on total basis, with a margin of 23.9% excluding White Drive, and 23.4% including it. We went on in the quarter. Better we reinforce countermeasures already adopted in the past quarters, and the result, margin dilution remains stable despite a huge increase of important raw material and manufacturing cost in the quarter, with unbelievable spikes on energy prices, in particular in the month of March, as a consequence of the war in Ukraine. In terms of countermeasures, I already described to you group policies approach.
few words now on another group approach, which not always, perhaps almost never, is appreciated from a financial point of view, the strong inventory. I am perfectly aware that the free cash flow generation of this quarter will be source of complaining from a financial point of view. I'm taking the liberty to suggest you, once again, to look at inventory from an industrial point of view, and to consider the manufacturing flexibility and the possibility to realize more finished product, that the support of a strong and well-managed inventory may grant. Not to mention that in a strong inflationary context, anything that we have been able to buy so far costed us less than the current market price, and proved to be the best possible investment so far.
With the same industrial approach, I'm asking you to look at CapEx, which are significantly higher compared to the first quarter 2021, due to project launch in the past three years to expand our production capacity, not only in terms of production line and machineries, but moreover in terms of land and building, in particular for the completion of the new headquarters of Muncie Power Products in Tulsa, Oklahoma. As already mentioned, 2022 commitments include White Drive integration and the consolidation and alignment of group sustainability activities and process. Starting with White Drive, you probably recall that our integration plan had three targets for 2022. First, the transfer of four production lines of Eaton and increase the production capacity in our plant. Second, to share interplant best practices in terms of production planning and customer service. Third, exploiting cross-selling opportunities.
Two of the four manufacturing lines, the motor line ones, were transferred on time before March, and according to our plans. The other two will be moved before summer. The choice to adopt a two-phase approach is driven by the fact that these transfers, by definition, are creating disruption and inefficiencies from an operational point of view, and we aim to minimize this negative effect and impact, and the impact on our customer base. In the meantime, we went on with the increase of manufacturing capacity, with significant investment that in the last six months amounted to EUR 7 million for White Drive. In terms of best practice sharing, always making a comparison with last October, when we closed the transaction, in the European factories, the weekly output increased by around 10% in only six months.
Obviously, this comparison cannot be done for the American factories due to the line transfer underway. At least, due to the familiarity between Walvoil and White Drive businesses, the two sales and commercial teams started to work together, learning from each other characteristics of respective products and customers. Even more, operations and sales and commercial joint activities are important to help our White Drive colleagues to understand our managerial and cultural approach, with a particular focus on the soft element on which Interpump and White Drive were really distant at closing. In Europe, this cultural difference is becoming smaller and smaller. In the US, the transfer of the production line is slowing a little bit the process due to the related organizational changes needed. To close with White Drive, some performance indicators.
Sales for the quarter are significantly above the sales of the first quarter 2021, and moreover, are even higher than a quite challenging budget by more than 10%. Profitability is still below Hydraulics division benchmark, but the progression is constant and consistent despite all the already mentioned inefficiencies and extraordinary costs that we are incurring in order to complete the transition. Both these results, it is worth to be mentioned, were obtained without any price adjustment in the quarter. Price increase that has been applied from April 1, and that should contribute to expand EBITDA margin in the second quarter of the year and on. Therefore, I would say that White Drive results and integration are on track. I will leave Ms. Cugnasca to comment on the ESG updating.
Thank you, Mr. Marasi. Only a few words due to the fact that the argument is not news. Last 29 of April, Group ordinary shareholder meeting approved 2022-2024 incentive plan. Compared to the previous one, I would like to highlight two difference, both related to performance target to be achieved for the vesting and therefore the accessibility of the option. Definition of precise financial parameters, sales and EBITDA, the introduction of ESG targets. As you know, we are preparing our first ESG plan, decided not to wait for its finalization, but to play in advance. Please, Dr. Marasi.
Before my closing remarks, a few words on Draintech, the small acquisition that we have announced in April. Small but profitable, and more important, perfectly in line with our power transmission industrial project, a project started in 2019 with the acquisition of Reggiana Riduttori and Transtecno, and developed with improving results step by step in 2020, 2021, and now. Repeating myself, the first quarter 2022 results are a much better base for the entire year compared to what we thought the first quarter 2022 could have been. On top of this, I want to underline that the backlog is gaining soundness month after month, and this was absolutely not predictable after the massive increase between 2020 and 2021. The year-to-date backlog is up by close to 20% on a never seen before level.
Moreover, the group just demonstrated its capability to transfer backlog in organic growth once again. Countermeasures adopted to protect profitability are kicking in, both the ones implemented in late 2021 or start 2022, and the most recent one, for example, the wide price increase implemented in April. After the resurgence between January and February, COVID pandemic seems stabilized in Europe. Obviously, situation in China, and especially in the Shanghai airport and area, is giving concern, but in terms of logistics, not in terms of labor. From a broader and more strategic point of view, we are stronger, more balanced group compared to the past. As you are aware, we faced the difficult years in our history. The two most difficult one I recall are the 2008-2009 financial crisis and the most recent one driven by COVID. As you know, we react properly in both situation.
For sure our reaction was better in more, the most recent one as EBITDA margins and organic growth evolution can demonstrate. This is because through our never-ending growth path, we became bigger, more diversified, more flexible, and therefore less risky and less dependent on the business cycle. Having said that, we are gaining confidence for the next months of the year. Our organic growth rate, we are confident that, from the high single-digit organic growth forecasted for 2022 will become a double-digit growth rate. We are also confident about our capability to protect and consolidate profitability. We hope that this set of results and our track record will make you share our view. We are now at your disposal for any question you may have.
Excuse me. This is the conference call operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Matteo Bonizzoni with Kepler. Please go ahead.
Yes, thank you. I have two questions. The first one is on your last indication with regards to the organic growth, just to check. The first quarter organic growth excluding Forex was 12.6%. When you are referring about organic growth double digit, you continue to refer on organic growth excluding Forex, or you also include the Forex effect? Because if it remains double digit for the full year, starting from 12.6% in Q1, it would be strong for the second half, so very resilient. Just to check if your organic growth definition is ex or including Forex. The last question is with regard to White Drive.
I was calculating, anybody can calculate that from your disclosure in the presentation, White Drive should have had a margin between 19%-20%, so basically 200 basis points, more or less below the average of the Hydraulics division. You also say that you are still in a sort of transition phase, that you increase the prices as of April. Just to model, the ambition for White Drive would be in some quarter to reach the same profitability of the Hydraulics division or a different one? Thanks.
Thank you, Matteo. Regarding organic growth, the expectations are for double-digit organic growth excluding Forex, because we always have commented organic growth without Forex than with the same exchange rate. Regarding White Drive, more interesting, you are correct regarding your calculation about EBITDA, the current EBITDA margin, approximately 200 basis points below the Hydraulics division ones. We have already mentioned in the presentation that we are facing a lot of inefficiencies and extraordinary costs due to this integration process. We are very confident that the margin of White Drive may be at least aligned to the one of the Hydraulics division. I would say between the one of the Hydraulics division and between the average of the group in Q4.
The next question is from Alessandro Tortora with Mediobanca. Please go ahead.
Yes. Hi, good afternoon, everybody. Ciao, Fabio. Let's say three questions from my side. The first one is related to the indication you made before on the double digit. Is it fair to assume that the step up from the high single digit to the, let's say, double digit is chiefly related basically to the price component? And then, if I have to think about the two divisions, is it much more price driven, the Hydraulics division instead of the Water Jetting? This is the first question. I don't know if you want to go one by one.
Yes. Regarding the first part, the shift up in our expectation is partially driven by the increase in prices that we are applying even now. There is a price effect, but it is also the consequence of our capability to deliver more and more week after week. Because with our industrial approach, we have defined last year, as a consequence of the acceleration of the demand that we have been seeing from the start of 2021, an important investment plan, and then we are stepping up our manufacturing capacity month after month. Considering the very impressive backlog that we have today, in particular in the Hydraulics division, being able to deliver organic growth is much more the consequence of the possibility to make more products and to complete more products instead of having the orders.
We are full of order. The only focus now is on increasing the manufacturing capability and output. We have been particularly satisfied about the results of the first quarter, considering that for one month and half, the COVID situation impacted a lot, particularly in Europe, the number of people and the level of absenteeism in our factories. Having been able to increase also in quantities and to continuously increase week after week our manufacturing capacity, thanks to the activation of new machines, thanks to the arrival of new machines, and to the flexibility of our model, is giving us the possibility to deliver more and more and to achieve stronger and more sound results.
Regarding Hydraulics, the different price effect of the two divisions, I would say that is not so significant because I have in mind, for example, that for Interpump brand, the price increase effect is higher than some of the companies in the Hydraulics division, considering the kind of raw material, brass above all, that Interpump is using, and that has increased significantly. I really believe that the difference in terms of price effect or price increase is made by, or is explained by the different components and the trend, the inflationary trend of the different raw materials used for making the different products. There are no particular distinctions by division, I would say.
Okay, the second question was on, let's say, the indication to protect and consolidate profitability. When you refer to profitability, do we need to think about, let's say, the EBITDA margin or you're referring, let's say, to the absolute, let's say, EBITDA that you're gonna achieve this year?
Okay, we are always referring to the EBITDA margin, because this is our most important focus. When we commented three months ago our idea to protect, and to activate all the measure to be aligned with our historical profitability or with 2021 profitability, we were referring to EBITDA, in particular to EBITDA margin. EBITDA margin that last year was 23.7%.
We were aware, of course, about the dilution that White Drive would have determined, so far approximately 50 basis points. Considering the very good and very strong results also in terms of EBITDA margin for the first quarter, we are very confident that together with the normalization of the results of White Drive, we will be able to protect our EBITDA margin for the whole year.
Okay. The last is on the backlog. When you said backlog is up 20%, you refer year-on-year or you take as, let's say, reference the full year 2021 level?
You know, from December 31st to April 20, then is really, really strong and increasing also during the course of this year.
Okay, thanks.
The next question is from Domenico Ghilotti with Equita. Please go ahead.
Good afternoon. My first question is just on the Q2 outlook that you have provided. When you say excellent or in line with Q1, are you? Well, on the top line, I presume that you are seeing still double digit, given the guidance that you already provided. On profitability, we should assume that you are seeing, so dilution not far away from Q1. First of all, on that. The second, on the double digit that you are seeing for full year. Double digit means actually accelerating because the comparison would be more challenging if I look compared to 2019. Actually, what is driving your confidence?
You've been mentioning a higher backlog, but I'm trying to understand the resiliency of the order intake and the resiliency of the order backlog. Don't you see a deceleration, given the general, say, slowdown that we are seeing in the economy?
Okay. Regarding the first question about the Q2, of course, it's too early to comment Q2. We will do it in three months, but we are expecting the continuation of the trends that we have seen in the first quarter. I mean, when we were referring to the excellent expectation for the second quarter, we are expecting a double-digit organic growth. I confirm a dilution not far away from the one that we have seen in the first quarter, then you are right in your consideration.
Regarding the acceleration for the remaining quarter, I don't want to exaggerate, of course. We are very confident after what we have seen in the first three months, in the first quarter, considering the backlog that has increased, and considering our capability to develop our manufacturing capability, that as I said before, today is the most important concern and most important constraint to realize more turnover, more business and more organic growth. Considering what we see, considering what we have seen so far, we are very confident for the coming months. Of course, we cannot grant that this very positive situation will last forever and then that the geopolitical situation or the inflationary trends will not determine a change in this situation.
So far what we are seeing is exactly like this. Also because, sorry to interrupt, Domenico.
Please.
Several of the sectors in which we are present are really taking benefits from the situation. I have one clear example that is the agriculture business, and the agriculture market and application is a very, very important one for our group. Considering that the inflation that is general is also characterizing the agriculture component, it is true that farmers or people exposed to this business are making very good profits, and then are willing to invest in new machines that are more efficient, more performing and better.
Just to be sure. What is the level of commitment of clients on the orders they have placed, in current quarters? If there is a sharp slowdown in their sales, can they just call and say, "Okay, let's postpone some orders, some deliveries?
No, every one of our customer is pushing us to deliver more and more components and more and more products. Someone is even starting discussing about 2023 forecast, but I don't want to take into consideration this kind of discussion. It's way too early. The general pressure and the general feeling is that everyone is moving full steam ahead in this environment, despite this environment.
Okay. My last question on the M&A side, you were, say, quite keen to execute some M&A in 2022. Is still the case? Pipeline still good?
Absolutely, yes. We are seeing a lot of opportunities. Considering that, the White Drive integration is moving well and on track, we are really prepared to do something more in the course of this year. You will see news. We are expecting news.
Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Michele Baldelli with BNP Paribas. Please go ahead, sir.
Hi. Good afternoon to everybody. I have some few questions. The first one is to understand a little bit, because you were pretty clear, but just a reiteration. EBITDA margin year-on-year should not go down, despite in the first quarter was down. This means that in the coming quarters there should be a good recovery. Just if you can confirm this. On the backlog, I've seen this strong growth. I was wondering if you can give us some color or details between the two divisions. Do you see stronger growth in one division compared to the other, and in case, which one? If you can elaborate also by how much.
The last one was on your optimism by segment. If you can just give us two or three segments that really stands out as the most promising in your view in the next 12 months.
Okay. Regarding the first question, that is the most important one. I have not said that we will do exactly the same EBITDA margin that we did in 2021. Not now and not three months ago, because we have already commented that we will work, and we have, as a target, we have the visibility to protect our profitability. Protect is not exactly the same. We are working hard, also considering that the White Drive is slightly diluting our margins. We are confident, but it is too early to promise what will happen in the second part of the year in terms of profitability.
We are very satisfied about the results of the first quarter and about our capability to immediately transfer the price increases and through price increases, the increase of cost and the increase of energy prices, the increase of logistics factor that are happening into the market. It is too early to say that we will be able to deliver exactly the same number. Regarding the backlog, I would say that backlog is stronger in Hydraulics also because of the different business model between Hydraulics and Water Jetting. Considering the end customers and considering the end markets, Hydraulics is having a stronger backlog increase and a stronger visibility coming from our customer and coming from the end markets.
The most important and the stronger end markets in this world are for sure agriculture, but also construction equipment, earthmoving machines, lifting equipment are very, very strong. I mean, double-digit growth in terms of, demand coming from our customers.
Very clear. Thank you very much for the clarification on the margins.
The next question is from Fraser Donlon with Berenberg. Please go ahead.
Hi there, Fabio and Elisabetta. Thanks for the presentation. Just one question from my side. I saw you included this slide in the presentation about the power transmission segment. When it comes to that in terms of like scale, margins, synergies, is there still a lot more work to do, or is that segment, let's say, complete? I'd just be interested to have your conceptual ideas on that. Thank you.
No, it's not completed. Thank you, Fraser, for your question. That is a very interesting one. No, this is, this project is not completed at all. We are very proud about what we have done in two and a half year because we acquired Reggiana Riduttori in October 2019. Despite what happened in the middle, COVID and everything else, we have been able to grow substantially from zero to approximately EUR 200 million turnover. We have been able to develop, the EBITDA margin and the profitability of the companies that we have acquired and consolidated from around 20% to around 24%. That is a spectacular number. We really believe that, we have a lot to do, and we have a lot of opportunities to further consolidate this business. In Italy, for sure, but not only.
Considering that, the power transmission and the reduction gear world is big, approximately EUR 8 billion-EUR 10 billion a year in terms of turnover, in terms of business, is very fragmented and is prepared to be consolidated. There are a lot of companies with EUR 30-50, up to EUR 100 million turnover that can be very interesting for us to be aggregated also in order to complete our product catalog and to complete the coverage of the entire market.
Very clear. Thank you.
Once again, if you wish to ask a question, please press star and one on your telephone. The next question is from Bruno Permutti with Intesa Sanpaolo. Please go ahead, sir.
Hi, good afternoon, everyone. I have some questions regarding pricing, so if you can elaborate a little bit on the price increases you expect in the next months. If I have well understood, White Drive will increase prices since April, but if you can give us an idea of the average price increase you expect for the whole group in the next few months and possibly if you have some timing for this and some feedback from your customers. A second one was related to the stock level. If I have well understood, the net working capital increase we saw in the first quarter was related to some stocking some inventories for the future production. Do you believe that your customers are doing the same?
You have visibility on the level of stock at your customers. The last one was related to the sourcing. If there any logistics or any troubles in managing the sourcing of the components you use, or that problem is definitely solved.
Okay. Thank you. Thank you, Bruno. Regarding price increase, when I commented three months ago, the high single-digit organic growth that we were expecting for the year, we commented that approximately 40% was price effect and the remaining 60% was volumes effect. The price effect was estimated in around 3%. Now, after what happened in the last few months, I would say that the price increase effect will have an impact between 5%-6% on our consolidated sales. Part of the revised target is explained by the price increase. The question regarding the stocking that we are doing, and if this restocking is being done also by our customer. Our impression is not this one, in particular for the big OEMs.
Big OEMs are under severe stress to deliver as soon as they can the orders that they have received. The big OEMs are not building up inventory. It seems that in particular in the end markets and application that I've mentioned before, there is a real, very strong demand driven by different aspects and different reason, but we are not expecting an extra stock at our customer level. Regarding the supply chain issues and management, unfortunately, the situation and the troubles are not over, not at all. Not to mention the electronic components, and of course, thankfully, we are not really exposed to these components, but we have some problems, some noise to find it.
We still have a concern about cast iron and many important raw materials that we are using. We are of course very focused, and the entire structure is focused every day to manage properly the supply chain, to negotiate the price increase, to negotiate the right contract in order to secure the availability of raw materials and components to be worked on in our factories.
Thank you.
For any further questions, please press star and one on your telephone. The next question is a follow-up from Alessandro Tortora with Mediobanca. Please go ahead.
Yes, thanks. Just, let's say one question on the competitive landscape. Do you think that, let's say the company in such a, let's say, difficult context, is gaining market share, also because it has a sort of much higher flexibility or higher capability to deliver? Just to understand, let's say all, everything we discussed about higher order intake and also the increase, let's say, in volume you mentioned before. Just to understand if you are also gaining some market share thanks to the, let's say, operational flexibility. Thanks.
Thank you, Alessandro, for this question. I believe that the answer is yes. Absolutely, yes. I believe that we are gaining market share in this environment, considering our flexibility, considering our manufacturing flexibility, and considering also our inventory or the flexibility that our inventory is giving to our companies. I've already commented a couple of times, manufacturing capability constraint that we have found in White Drive because of the lack of flexibility that the previous owner, that is a far bigger group in comparison with, Interpump, used to operate with. In this environment, if you are flexible, if you are able to support the customer, if you are able to deliver with a decent time horizon, you gain market share and you gain business.
Because everyone is really desperate to source components for their own assembly lines, for their own manufacturing activities.
Okay. Thanks a lot, Fabio.
Thank you.
The next question is a follow-up from Michele Baldelli with BNP Paribas. Please go ahead.
Thank you. Sorry for being on this call with another question. On the backlog, when you say that the hydraulics division is growing faster, is it even excluding the White Drive backlog? If you exclude the White Drive backlog, still it's growing more than 20%. Because I just wanted to be sure that we're still about organic growth on the backlog.
Absolutely, yes. Considering that, when I commented 20% growth in the backlog was compared with December thirty-first, that already included White Drive. Also the backlog of White Drive, of course, is super strong and super big.
No, sorry, because I thought that it was not.
No.
It was year-over-year. Sorry.
No, no, Michele, it was like for like.
Okay, great. On the margin side, another point of clarification, if we may, can we have some sort of figure? Because I remember that in last call you referred to EBITDA around EUR 445 ±5 million. Is it something that you can share with us a little bit of update on this, or you're still thinking that could be reasonable that kind of level?
Sorry, Mr. Baldelli, we lost the half of your question. Can you please perhaps go a bit closer to the microphone?
Yes, sure. No, I was referring to the EBITDA in absolute terms. If you can give us a little bit of flavor on the absolute level, because if I'm not wrong, you already referred to a certain level, 445 ±5 million for the fifth quarter. Is it something that you already feel that could be updated or is still too premature?
Okay, clear. We have not commented on the EBITDA in absolute terms in reality. I should review the numbers considering the higher than expected organic growth, but I believe that we will not be that far from this number.
Okay, clear. Thank you very much.
A final reminder at this time, if you would like to join the question queue, please press star and one. Ms. Cugnasca, gentlemen, there are no more questions registered at this time.
Okay. Thank you very much for everybody. We hope that our results have give you the same confidence on the full year that they're giving us, and we hope to speak with you at the beginning of August. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.