Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump Third Quarter and Nine Months 2021 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, 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 the formal company representative, Mr. Luca Mirabelli. Please go ahead, sir.
Many thanks. Hello, everyone, and thanks for connecting. It might be a bit unusual to hear my voice. It's true, I've had the opportunity to represent this incredible company for a bit more than five years, which included Brexit, trade wars, a pandemic, but also countless acquisitions, the inclusion in the FTSE MIB Index, and a nonstop series of amazing results. I was lucky enough to witness a five-fold increase in the stock price, which is something that not every IR gets to see even in an entire career. First of all, I'd like to thank Interpump for making this possible, the sell side community for their great help, and of course, all Interpump current and past shareholders.
As many of you are aware of, I now work at another company, which will soon make its stock market debut, so my days are quite busy. However, I was deeply honored at the proposal to introduce the Interpump Q3 results presentation. It was yet another very good quarter, confirming the crystal-clear trajectory of the company through and out of the pandemic into the current strong trends of the world economy. In other words, still the same old story we have been telling since May 2020. Maybe it will be less boring told by a new voice. For this presentation, I'm happy to give the floor to Fabio Marasi, Executive Board Member of Interpump, CEO of Walvoil, and supervising manager, among others, of Muncie Power Products and Interpump's latest and largest acquisition, White Drive.
Fabio, thanks for your invaluable help on the job and for being my friend through all these years. The friendship, of course, remains, but it's time to pass you the microphone.
Luca, many thanks for what you have done in these fantastic five years for the group and for me personally, and I really wish to you all the best for your future, personally and professionally. It's now time to comment our Q3 results, which turn out to be quite strong as expected. Starting from the top line, total sales for the quarter came to EUR 373.5 million, up 18.7% compared to the last year. However, since the dynamics of 2020 were everything but ordinary, it may be more meaningful to notice that it is almost the same level as the Q1 of this year. This behavior does not reflect a normal seasonality, being usually Q3 slower than Q1. It was last observed in 2018 and is typical of years with a strong and accelerating top line trend.
In comparison with the corresponding quarter of two years ago, 2019, before the pandemic, Q3 is EUR 50 million higher, with the only significant perimeter extension represented by Transtecno. There is no question that the health of our business is excellent across the board. For the record, the reported 18.7% year-on-year included a 0.7% benefit from currencies and a 0.1% perimeter extension. We have seen the two divisions moving at a different speed through the entire pandemic, both in negative and in positive direction. Now that both divisions have a complete recovery and that are at or above the pre-pandemic sales level, the difference in momentum is still evident, as one division is growing twice as fast as the other.
Namely, year-on-year for the quarter amount to +11.5% for water jetting and +22% for hydraulics, including the negligible effects and perimeter impact mentioned before, which probably do not deserve any additional comment. While the business of the water jetting sector appears to be still missing the contribution from some significant one-off, often customized orders, usually related to customers' large CapEx projects, the performance in hydraulics reflects strong growth across all the product families, subsidiaries and application sectors. No big surprises in the quarterly trend by geography. Europe is up 21%, of which Italy is +31%. North America registers +26%, with a negligible currency effect in the quarter. Latin America is up 40%. Asia Pacific is flat in the quarter, with two opposite trends. China is down 20%, still +4% year to date.
Please remember that this is on top of a positive performance in 2020. Asia Pacific is up 21%. Rest of the world is up 14%, of which India is at 21%. India year to date is up a spectacular +63%. In the entire nine-month period, total consolidated sales amounted to EUR 1,154.6 million. Up 21% compared to last year, despite nearly 2% headwinds from currency and a very small 0.6% contribution from M&A. Again, the total figure is significantly higher than the corresponding period of two years ago, 2019, even when accounting for the addition of Transtecno. Going by division, Hydraulics sales year to date are EUR 812.6 million, up 26%.
Water jetting is up 10.5% to EUR 342 million. Once again, besides the flattering comparison with last year, the absolute numbers show that the pandemic is fully behind us. Looking at these sales by sector, the picture looks rosy. All the most important application sectors are showing very good health. Cleaning is up 51%, lifting is plus 39%, construction and agriculture is plus 36%, earth moving plus 33%, industrial plus 29%, trucks are up 15%, food, pharma, and cosmetic is up 9%. In terms of profitability, since beginning of the year, we are back as expected to more normal levels, which we believe now fully incorporate the effects of raw material inflation.
Although it is not easy to measure them, they are certainly bearing many extra costs related to the well-known difficulties in procurement, logistics and shipping. We are talking about a consolidated margin of 23.7% on sales, corresponding to an EBITDA of EUR 88.6 million for the quarter. Unsurprisingly, given the top line trend, hydraulics registered a very strong performance with a margin of 22%, which is the highest Q3 ever, and an absolute record if we leave out the abnormal first half of this year. Water jetting, which as mentioned earlier is still missing some large customer orders, which typically represent the highest margin part of our sales, registered nonetheless a satisfactory 27.4% margin. The year to date EBITDA amounts to EUR 281.9 million or 24.4% on sales.
We are exactly 1 percentage point above the corresponding period of 2019, our record year. With only three months to go, despite the possibility of a minor dilution from White Drive, it is very likely that we will set yet another profitability record this year. Net income in the quarter amounted to EUR 50 million, bringing the year to date total to an unprecedented EUR 178.4 million. To be fair, this number included a EUR 20 million one-off benefit from a step up only for tax purposes of some trademarks and machinery. Adjusting from this one-off, the normalized tax rate so far would have been 27.4%. Cash flow from operations in the quarter was EUR 78.1 million.
The reduction in net working capital, something rarely seen at this time of the year in the presence of vigorous growth, freed up EUR 7.2 million. Net working capital was much higher than average and amounted to EUR 28.4 million, bringing the year to date total to EUR 62.6 million, which represents 5.4% of this. Please note that this does not represent a change in our plans, but simply reflects the quarter-to-quarter volatility on this item. Considering also the important real estate investments that we are realizing across the group and in particular in the United States. Anyway, around 5%, a level that we anticipated at the beginning of the year, when we said that we plan to slightly exceed our 3%-5% usual range.
Despite the contribution from the squeezing of the working capital and mostly as a consequence of high CapEx, free cash flow generation slowed down, if one may say so, and amounted to EUR 37.5 million in the quarter, bringing the total year to date to EUR 135 million. While from an operational point of view, we wish we could build a bit more stocks of raw materials and finished products, we are certainly enjoying the cash side of the story. We spent a further EUR 6.6 million in share buyback and EUR 3.6 million payment related to acquisition. All considered, the net financial position at the nine-month point is down to EUR 174.4 million.
Additional commitments for the purchase of subsidiaries were worth EUR 62.3 million, with a small decrease roughly corresponding to the payment for acquisitions mentioned above. Summing up, Interpump is running faster. We are working every day to serve our customer and minimize the effects of the well-known global issues affecting logistics, shortages, raw materials, and power outages with very satisfactory results so far.
We are helping this effort by some characteristics of our business model, such as being largely local for local, but also by a booming trend in the world economy that makes customers more tolerant to price increases or delays of some kind. On the opposite side, our well-known flexibility implies that if some of our customers have to suspend production, for example, because of a lack of semiconductors, it is not a problem for us to adjust the production schedule and give priority to another customer with no loss on productivity on our side. The closing of White Drive happened as expected on the very first day of the quarter, October 1. How is it going?
As a reminder, this very particular deal involved the acquisition of something that did not exist and was created on the fly, by packing together three legal entities and signs belonging to both Danfoss and Eaton Corporation, accordingly to rules that were imposed on Danfoss by the antitrust authorities. It is appropriate to say that the real world due diligence is happening now, although we have been completely confident all the time about the quality of the acquisition, which has been closely monitored by the authorities since the very beginning. There is no way Danfoss would have been allowed to hand over a company which was less than able to compete against them. With this in mind, I'm happy to confirm that the sales figures for the year is confirmed around EUR 200 million.
Despite the trends seen in the market, that can be seen very well, the rest of our numbers have not changed since early June estimates. This should not surprise, as we always say, not all companies are as good as Interpump at taking profit from an acceleration of the markets. We are already busy with the appropriate investment and initiatives to improve White Drive flexibility and manufacturing capability. As to EBITDA, which as you can imagine, is even trickier to calculate in a simulation, we trust it will settle somewhere between the two numbers announced at signing and closing. That is between EUR 45 million and EUR 53 million on a yearly basis. Of course, we are going to consolidate the entire Q4 . We are not resting after the closing of this large deal.
The M&A machine at Interpump is always on, as usual, with a fast and diverse pool of candidates. White Drive has proven that there is no upper limit to the size of what we can buy, given the right circumstances. However, please remember that we are not going to abandon the kind of smaller acquisitions that have added so much value to the group in the last decades. With this, I believe that we have touched all the main topics for today. We are happy to take your questions, so I would ask the operator to open the Q&A session.
Thank you. Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone press star one on their touch-tone telephone. To remove yourself from queue, please press star two. Please pick up the receiver when pressing star one at this time. The first question is from Matteo Bonizzoni with Kepler Cheuvreux. Please go ahead, sir.
Thanks. Good afternoon. Two quick question. The first one is as regards White Drive. When you announced the acquisition last June, you were projecting revenues slightly above EUR 200 million with an EBITDA of around EUR 45 million, which is let's say a margin in the region of 22%. Now, what you say is that the revenues should be actually slightly lower, EUR 200 million, you say EUR 195 million, but the EBITDA significantly higher, EUR 53 million, with a margin which could be around 27%, which is well above, several percentage points above the average of your hydraulics division. I just want a little bit more color to understand why with the revenues actually slightly lower than what you communicated initially, the EBITDA is so strong.
Okay, you are now able to do more precisely than you were able to do before the closing, but can you elaborate a little bit on demand for this company for the next year or in general going forward? The second quick question is on the margin. You were anticipating already with the Q2 conference call that this 25.1% of Q2 was extraordinarily high. We have seen some erosion now to around 23.7% in Q3. Fabio, you commented that this 23.7% fully incorporates the impact of cost inflation. My question is simply to understand, going forward for the next year, you plan to have a margin in the range of 23% to 24%. Do you believe it is reasonable? Thanks.
Okay. Thank you, Matteo. Regarding White Drive, it's important to note that it is not so easy, as commented before, to be very precise and reliable on 2021 results. Considering that, the results that we are commenting for this year are the sum of many different parts of year business manufacturing line, and it is mainly a pro forma adjustment. For this reason, we have this range or different numbers announced to the market. Also, the EUR 53 million that we announced at closing are taking into account some extraordinary results, some adjustment that had to be contractually considered. When we said that, the sales are easier and we are not changing our mind, everything considered, sales for 2021 are expected to be EUR 200 million, maybe something more.
Regarding profitability, we should define what can be an EBITDA recurring. Considering all the investment that we are doing in machines, people, infrastructure, in order to support the significant growth that we need for 2022, and in order to support the market demand, I believe that is more fair and more prudent to consider 22.5% or 23% EBITDA margin and not the 26%-something that were mathematically included in the closing numbers. Regarding the second question, the 23.7% that fully incorporate raw material cost inflation and what we are doing in order to preserve and possibly increase our profitability for next year, what we are seeing in the market is continuing with different trends on different markets or different raw materials.
We are reacting very fast as always, and we are able once again to transfer to our customer the increase on price of raw material, increase of the electricity prices, and so on. Of course, some inefficiency in the manufacturing facilities or due to the logistics or the air freight costs and so on has to be considered and has been included already or had already an impact on the Q3 results. We have been able to maintain very good margins despite all these headwinds.
Okay. Thank you.
The next question is from Alessandro Tortora with Mediobanca. Please go ahead, sir.
Yes. Hi. Good afternoon, everybody. Good afternoon, Fabio. I have, let's say, three questions, okay? The first one, in the end, Fabio, I didn't catch, let's say, your. I understood all the cost inflation translation. I didn't understand if you believe that next year, okay, and EBITDA margin, let's say, between the two records, I would say, no, the one of last year and probably the one of this year, between 23% and 24%. This is a level also, I would say, the consolidation of White Drive, if this is a level that you, let's say, consider feasible, okay, for next year. Sorry, the second question is on the price. As you mentioned before, clients are, let's say, willing or they can accept your price announcement, your price increase.
Can you give us an idea of what is the level on average, or just an indication of what is the entry price level that you should, let's say, have starting from next year? Because I guess it should be up year on year. The third question is on, I know that the backlog that matters, let's say only for some division. Can you share with us some, let's say, sectors that are considering for sure the bottleneck in terms of order delivery, but where do you see an extra order, a record, let's say, of very strong visibility entering next year? Thanks.
Okay. I will answer together to the first two questions regarding the cost inflation, price trend, and how we are transferring to the customers. I said that we are seeing this price increase on raw material is continuing with some significant acceleration on some of the raw materials. Speaking on average and considering the most important count, we will increase our prices to the customer base at the end of next year. That's to be considered. With this 5% to 8%, we believe that we will be able to at least cover or exceed a little bit inflation on manufacturing cost from raw and logistics. In terms of 23%-24%, probably the figures that I mentioned and you are referring to were referred only to White Drive.
It is a little bit too early to comment on 2022 margin, considering that we are starting next week the budget season, and then the budget season will be completed in the first week of December. We see no particular reason why we will not be able to maintain this margin, but we will be more precise as always in February. Regarding the order backlog and the bottleneck, I will say that the most I would say incredible or spectacular numbers are characterizing Hydraulics division. I'm managing as a CEO of Walvoil and following White Drive, and we have an enormous backlog volume that is very, very strong. We have new order delivery days that are amounting up to 45 or 48 weeks, and a very, very important delivery time.
These are the companies in which we are investing the most in order to adequate the manufacturing capability and in order to manage this very hot market and very strong demand for the entire customer base.
Okay, Fabio, sorry. Just to better understand. You said delivery time is 45 weeks?
Yes. Something less than a year, to be more precise.
No, no, it's okay. Understood. Okay, okay. Basically, let's say it is fair to say that these are companies with a very strong, let's say, visibility in terms of order backlog, but for sure the delivery time is clearly, let's say, spread over time for all we are discussing.
You are correct. We have a very strong visibility for entering the first part of next year at least, but 45 weeks delivery time in some company. We have approximately three quarters already covered. You can imagine how the maximum effort and the maximum concentration of the entire company is aimed at managing together with the customer service the request, the emergencies, and the urgencies of the customer on one side, and to increase as much as possible, squeezing the last possible efficiency from our manufacturing in order to increase the manufacturing output.
Just a follow-up, if I may, on the cost inflation. Is it fair to say that, let's say, price increases are much more aggressive on the hydraulic side or for the water jetting, let's say, we should expect a similar trend?
No, I would say that is balanced between the two. Considering that in many cases we are using the same component than steel, brass, cast iron is more used in hydraulics, but in general, I would say that the raw material price increase and inflation for both division, and then we are increasing the prices for both division.
Okay. Thanks, Fabio. Yeah.
The next question is from Domenico Ghilotti with Equita. Please go ahead, sir.
Hi, I have two questions. On the two divisions, on Water and Hydraulics both, I would like to understand if say the order intake you were mentioning, the backlog. Is that continuing at the same pace? You see really a situation of strong order intake or some kind of normalization? And if you have any issue on the execution, if your ability to say to deploy this order intake in terms of sales is continuing as smooth as we saw in Q3. The supply chain or any issue on the supply chain. This for the Water and for the Hydraulics. Because Water, I was a bit surprised. Water, if I'm not wrong, is a bit below 2019 level yet.
I wonder if I should expect any acceleration or if you see any willingness from big orders restarting also for the water jetting.
Okay. Domenico, regarding the order intake trend, I confirm that is continuing. We have seen in these weeks or in the last couple of months, all the most important customer and everybody is pushing for having more material, for having more allocated manufacturing capability for next year. We do not see, in particular in hydraulics, any slowdown in this trend regarding the market demand. Regarding the issues on execution, the answer is yes. We have many issues, because managing the supply chain with this acceleration, with all the problems in logistics, all the problems in sourcing material, not to mention the prices, is very tough and is stressing our manufacturing and operation machine. Luckily, we have a very flexible group.
We have a very flexible manufacturing setup in the different companies that we have. As mentioned previously, we are able to switch rapidly and without a particular problem of cost our manufacturing to one product to another. This is very important in order to answer and to try to give a support to the customer that are maybe desperate for having a component or 50 pieces of a component next Monday morning. Even if we are full of order, we still have some flexibility in order to manage this kind of request. Of course, flexibility and extra cost has to be taken into account.
As I mentioned before, these numbers that are very good and very strong are fully expensing some important logistics extra cost that we had to sustain in order to answer to the market demand, and in particular air freight. Air freight are costing us EUR millions this year.
Mm-hmm. On the big order, big clients on water jetting, do you see any appetite towards starting?
You know that in particular these big orders are characterizing Hammelmann that is the largest and most profitable company in the water jetting. The situation is good. The market is improving around the world and we are seeing an increased number of discussions regarding these new projects. The execution or the finalization of this order maybe will take some more months.
Okay. Thank you.
Thank you, Domenico.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star followed by one. The next question is a follow-up from Matteo Bonizzoni with Kepler Cheuvreux. Please go ahead.
Yes, very quick question, Fabio. You say that you are starting the budget process for the next year. In terms of organic growth, is it fair to assume more mid-single digit organic growth or, mid to high single digit level? Thanks.
It's a very good question, Matteo. It depends on our ability to adjust our manufacturing capability, because based on the order volume that we have, it would be a very high single digit at least. Considering the time for executing the investment plans that we have in many different companies or many different plants, I would say mid-single digit or slightly more than mid-single digit, but we will be, of course, more precise in February.
Okay, thank you.
For any further questions please press and one in your telephone. The next question is a follow-up from Alessandro Tortora with Mediobanca. Please go ahead.
Yes, thanks, Fabio. Let's say two follow-ups from my side. The first one is regarding your last statement on the mid- to high-single-digit organic growth. If let's say you were discussing about an average, let's say, price increase in the upper digit, let's say, you know, area, 5-8%. Basically, we should expect next year an organic growth mainly represented by a price component for you? That's the, let's say, question. The second question is on the CapEx, let's say, on sales ratio. You said this year you probably hit 35% on sales. Considering, let's say, all the, let's say, all the backlog you mentioned before, do you believe 2022 will be another year, let's say, with another 5% on sales?
Thanks.
Okay. Regarding the growth, I mentioned before that the average increase in prices between 5% to 7%, but it depends on the company, and more important, it will start from January, but the application will take some month as always. Then, because we have to fix the condition with the customer, we have to negotiate with someone, and then the average increase will be through the year. Then these mid-single digits, we will see which will be the final number, will be composed by some percentage point price impact and some percentage point based on volume increase.
Regarding CapEx, once again, the budget is starting now, but considering that we have to increase our manufacturing capability and we are completing and will be completing in 2022 some important real estate investment, I would say that in 2022 we will be in that range of the usual 3% range on sales.
Okay. Thanks, Fabio.
Thank you.
The next question is a follow-up from Domenico Ghilotti with Equita. Please go ahead.
Hi, Fabio. I have a follow-up on the price increases in the sense that, I don't know, probably we are in some kind of unprecedented situation with this level of price increases. I wonder if you are discussing with clients some kind of, say, pull back clause. What happen if there is a, say, normalization decline in raw material prices that is not, say, impossible? Are they accepting the price increase with some kind of, possibility to revise the prices, during the year or not? This is something that has never happened and will not happen.
The answer is yes. I'm referring in particular to Walvoil or to the largest companies in the Hydraulics division. For Walvoil in particular or for some other company in the group, we have a sort of automatic indexation to the inflation or deflation of raw material costs. In particular regarding cast iron, because cast iron is a very important raw material, and this price can be easily followed from the market. We have automatic adjustment on some evolution of some raw material. If a decline will happen, of course, we will have to give back part of the price increase.
Mm-hmm. Okay.
It is fair.
Okay. At the end, you are confident that you are being able to cover maybe 100%, or you said probably also with some opportunity of upside your cost increase, or to pass-
Yes.
The cost increase to clients. Okay.
Yes. This is also what we have done this year.
Sure. Okay, thanks.
For any further questions, please press star and one at this time. Gentlemen, there are no more questions registered at this time.
Okay. If no more questions are queued, we can close this conference call. I really thank everybody that attended this meeting, and we will speak in February. Thank you so much to everybody.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.