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Edited Transcript of IP.MI earnings conference call or presentation 8-Nov-19 2:00pm GMT

Q3 2019 Interpump Group SpA Earnings Call

SANT'ILARIO D'ENZA Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Interpump Group SpA earnings conference call or presentation Friday, November 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Luca Mirabelli

Interpump Group S.p.A. - Head of IR

* Paolo Marinsek

Interpump Group S.p.A. - Deputy Chairman

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Conference Call Participants

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* Alessandro Tortora

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

* Domenico Ghilotti

Equita SIM S.p.A., Research Division - Co-Head of Research

* Matteo Bonizzoni

Kepler Cheuvreux, Research Division - Equity Research Analyst

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Presentation

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Operator [1]

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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Interpump Third Quarter 2019 Results Conference Call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Paolo Marinsek, Deputy Chairman of the Board. Please go ahead, sir.

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [2]

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Thank you, and good afternoon, everybody, and thank you for joining us. Well, I'm really pleased to comment the numbers for the first quarter because I really think that is beautiful set of numbers. They are beautiful in absolute terms but even more so when you read them within the current economic context.

Even more so considering that the comparison base includes the strong growth of the previous 2 years, I remind you, it was 28.7% organic. And last but not least even more so compared with the numbers furnished by our most respected competitors that, yes, no doubt that you know. But it will be also a nice way to look together at some of the details underneath these numbers, which we have demonstrated that accumulating Interpump to a cyclical company is better explained. I really think that this matter demonstrates on the contrary once again, the solidity, the reliability of Interpump.

So let's review those numbers together. First the highlights, at the 9 months point, our sales amounted to EUR 1.026 billion euros. This represents a growth of 7.6% year-on-year, 3.4% of which was organic and 1.6% from the currency exchange.

We generated EUR 240.3 million of EBITDA or 23.4% of sales. Net of IFRS 16 for better comparability, it was EUR 228.8 million. This represents plus 4% year-on-year. And in terms of margin, this represents a 22.3% on sales.

In this quarter, despite that we faced the lack of enthusiasm in many markets, we registered EUR 322.9 million in sales, more than 4% higher than the corresponding quarter of the previous year. We generated EUR 78.1 million of EBITDA or 24.2% of sales and net of IFRS 16, it was EUR 74.2 million, still 2% higher than Q3 last year.

Allow me to draw your attention to the fact that despite gradual slowdown of the market, Interpump has gradually improved its profitability in the year. EBITDA on sales, excluding IFRS 16, was 21.8% in Q1, 22.1% in Q2 and 23% in Q3, let me say, not a good -- not a bad performance.

Looking at the results by sector. Hydraulics closed the quarter with EUR 206.8 million in sales, a growth of 2.3%. This is entirely resulting from the currency effect and the acquisition of Hydra Dyne Tech. Because of an unchanged perimeter in the exchange rate, organic growth in the quarter was minus 2%. And this is the result of the unexpected and particularly extended slowdown of the economy in India, where our sales were EUR 5.5 million lower than the same quarter of last year. And these EUR 5.5 million represents minus 40% for the country and minus 2.7% on Hydraulic.

Excluding India, we had a positive organic growth overall in the rest of the world, which, I think, really is quite remarkable, considering that the comparison quarter included an organic growth of 14%. Also, I consider quite remarkable was the EBITDA margin for Hydraulics at 20.9% corresponding to [19.6%], excluding IFRS 16, and basically you see unaffected by what happened in India.

In the 9 months, Hydraulics sales were EUR 681.2 million, an increase of 8.1%, of which 4.3% organic, 1.4% FX and 2.4% because of that new acquisition. The corresponding EBITDA margin was 21.2% that means 20.1% comparable.

Water-Jetting. Water-Jetting closed the quarter with EUR 116.1 million in sales, a growth of 7.5%. Organic growth was 2.5%, and this is on top of a very challenging 13% last year. Another 1.7% was gain from market access and 3.3% from companies acquired in the past 12 months in the case of Water-Jetting basically flowing off in Spain. EBITDA margin in the quarter has repeated the same record performance of last year. Thanks to the new accounting standard, (inaudible) around 30%.

In the 9 months, Water-Jetting sales were EUR 344.9 million, an increase of 6.6%, of which 1.7% is organic, 2.1% FX and 2.8% from acquisition. The corresponding EBITDA margin was 27.6%, 26.6% comparable.

Also, you'll see that there is a continuous improvement in the last 3 quarter. 24.8%, 25.9% and finally, this quarter, 28.9%. Well, those are the numbers. And at this point, as usual, we have prepared a split of sales by area and by application.

As I have said many times to many of you, this is an analysis that we prepare every quarter mainly in order to answer your question. But it doesn't contain any information that could be useful for us to guide the company. And this is for 2 reasons. First, the trend in an end market does not necessarily represent a proxy for our business in that market. Second point, even knowing it in advance would not necessitate any correction measures. I really believe that the financial markets are giving an excessive way to this information, assimilating Interpump to a cyclical company that follows particularly the trends in this market.

And really, I believe that this explains the volatility of our stock in the past 2 weeks. But as I said at the beginning of my remarks, I think, this is a mistake. Maybe I have never been able to explain the difference between IPG and a cyclical company, so let me try it once again.

The cyclical company depends greatly on the fact on one specific business or one specific market. Its sales are almost directly proportionate to the size of the market. In this case, the difference between success and failure for the company is based on its capability of adjusting its production capacity in advance to prepare for expected development in the market. And in this process it keeps creating and deploying value.

Interpump. Interpump is in a different situation. Thanks to our diversification in both geography and industries. And especially thanks to our compact flexibility for production, which can certainly for different business, Interpump is able to react much faster and much more easily to changes in the market without either compromising chances for future developments.

So at this point, let's see the sales by area for the third quarter. And you will see it is very hard to find a correlation between our results and the macro trends that could be useful to forecast the results.

Let's start from Europe. Europe, Italy is up 5%. As usual, the growth which is 5.5% GDP for industrial production. The rest of continent is down 4% and you are smiling just because this is probably closer to your expectation. In absolute terms, we are reaching EUR 6 million in sales, but today we are giving the details these EUR 6 million are concentrated in 2 countries you would never think of. Belgium and Spain, Belgium and Spain. And these has to do with last quarters that being Q3 last year were delivered respectively by (inaudible). We have touched on a very important factor.

At Interpump, company-specific events are most -- much more significant macro trends. The Far East is another good example. It's largest market China is almost 21%, which is a bit more than EUR 3 million, EUR 2 million in Water-Jetting, EUR 1 million in Hydraulics.

Yet one single Hammelmann quarters from the oil and gas sector delivered to Singapore brought the result for Far East and the Pacific to a positive 7%. So you see the importance of our diversification.

Looking in other countries. North America is up 7.5%. Here, this includes some 3% of those effects. Latin America is up 14%. We have already commented on India, where sales are down 40% for the quarter. But let me remind you, the EBITDA margin is almost unchanged. And of course I wanted to tell you that sooner or later, the situation would be resumed in India because I really cannot predict of this kind.

So one thing in our consideration can be done with split of sales by industry and let's start with (inaudible). We see that the effect of -- most affected by the situation in India. Sales in the quarter are down 8%. This 8% anyway after a combined growth of 38% in the previous 2 years as represented basis for the year any way. Sales in the quarter are down 8%.

In absolute terms, it's the biggest decrease of the quarter, and it's less than EUR 4 million. On the other side, the positive side, we had an increase of EUR 4.5 million in oil and gas and nearly EUR 5 million in the industrial sector. It is interesting also to look into trucks in more detail.

Sales to truck manufacturers which, of course, took the biggest hit from India represents only 2.3% of our sales in the quarter, 2.3%. Yet so many of you is associating the future of Interpump to the announcement made by manufacturers like Volvo and Volkswagen. As you see, this means ignoring more than 97% of our business.

The same with the truck category on top of this, we have double-digit increases in (inaudible) firefighting, snow plowers, tow trucks, crane trucks, because all these applications, as many times we said are not so cyclical. And incidentally, they made up 3% of our sales, more than truck manufacturers.

So stop with truck, let's see other sectors, food, cosmetic and pharma are flattish but they are up 4% year-to-date. And altogether, basically along with the other, they are basically flat.

I'd like to tell you another interesting factor. The combination of marine, offshore and oil and gas, the 3 sectors that are showing a very positive momentum is up 42% as well on our consolidated total, which was 2% just 2 years ago with nearly (inaudible) 3% to 5.8%. So I tell you this because you can see how fast our mix can change.

So let's move to the bottom line. Bottom line, net income for the quarter was, of course, EUR 43.3 million, bringing the total year-to-date to EUR 135.5 million, which does not include any one off. This represents an increase of 8.1% when it is normalized figure for last year, which included the recognition of tailwinds from the GS-Hydro acquisition and nonmonetary one-off. The tax rate for the 9 months was 27.7%.

Let's move to the cash flow, cash flow segment. Cash flow from operations reached EUR 195.3 million. The main point I would like to highlight is the quarterly decrease of sale net working capital, which freed up EUR 3 million compared to an absorption of EUR 12.6 million in Q3 last year. And this is consistent with the trend in sale, but this is especially consistent with the strong closing of inventories we put in place for this year in order to minimize disruption from plant reorganization.

By the way, we are not to forget plant reorganization because plan reorganization is still going on. It's still going on according to our plans. And this is something that you can check looking at in the quarter, we have EUR 20 million in CapEx. So we are continuously doing this activity, while we are reorganizing our industrial activities.

And despite these expense, free cash flow since the beginning of the year reached a very satisfactory, EUR 76 million. And if you want, as a reminder, it was generated basically almost entirely in only 2 quarters for the frontloading that I mentioned you before.

The factors of treasury shares for EUR 33.9 million in the quarter and the fact that they were used in October to acquire Reggiana Riduttori, it is something you already know from our press release. At the end of the quarter, our net financial position was EUR 382.9 million on top of which we had EUR 40.4 million in commitments for partners of that subsidiaries.

So in our financial position, I think it's worth to remind you that at the end of the quarter, the market value of our treasury shares was more than EUR 142 million, not a small amount of money.

So those are the numbers. I think I told you all the important numbers what I can tell you. I would like to confirm to our shareholders that the weakness, the volatility of the stock price seen in the past weeks have nothing to do with anything going on at Interpump. Interpump is stronger, Interpump is solid. Let me say that Interpump is better and more solid than ever, and our expectation for the future is even brighter after the acquisition of the Reggiana Riduttori. Reggiana represents an excellence in its field was acquired as usual at a very reasonable multiple, integrate our product range very nicely and represent a very promising platform for cross-selling at future growth. Something that I'm sorry that the market seems to have missed them.

So as usual, I am very optimistic. I think I tell you or I have to tell you and at this point, I'm happy to give the line to your questions, if any.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Matteo Bonizzoni with Kepler Cheuvreux.

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Matteo Bonizzoni, Kepler Cheuvreux, Research Division - Equity Research Analyst [2]

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I have 2 questions. The first one is related to what you are seeing on your order intake and as a result of this, what kind of organic growth expectations do you have for the next quarter that I think is the most important thing for the market at the end of the day. So we have seen a very resilient margin in the third quarter, particularly, I would say in Water-Jetting. The organic growth was turning slightly negative, minus 0.4%. That is still resilient compared to many other industrial stock but nevertheless, a negative sign. So what kind of expectations do you have for the next quarter in terms of intake and organic growth? And another second question is regarding this Indian weakness that, by the way, if you look at Asia overall, Asia-Pacific was up in the third quarter, 7%, as you say, probably due to other countries that performed well, but in any case, there was an improvement of Asia-Pacific that means that other countries more than offset this pronounced weakness in India. In any way, what kind of outlook do you have for this country? Do you see a bottoming out, maybe end of this year or beginning 2020? Or you don't have a particular visibility?

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [3]

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Yes. You see I spent a lot of my speech trying to explain you the flexibility of Interpump and how cyclicality is something that we manage in a very good way. So there is no doubt that the situation in the market is not the beautiful situation we had last year, is not even the situation we had at the beginning of the year.

Nevertheless, looking at the numbers that I presented you, I think that you really have the idea of how better we are, let me say, managing the situation also in comparison with our most best reputated competitors. So what I can tell you, I can tell you that our forecast for this year is that, let me say, I think that we could get to the guidance. Our guidance is a pretty narrow target for very good shooters, but I think that anyway, if we not get the guidance perfectly, we'll be very, very close there. And so that my expectation for the end of the year is a very positive situation in the sense that altogether, altogether, we will grow sorry, in the year, so it will be positive, and let me say, in line -- basically in line with our expectation.

When you are speaking about India, first of all, just for -- to be precise India is not in Asia-Pacific in our situation. India, as you know there is a way to be honest with you, but it is in rest of the world. But anyway, you see the beauty of this compensation, of this compensation. You see that China go down, but if you consider China, China is in Asia. If you put together China, we've seen before we are plus 7%. I really think that this is important point to be understood of Interpump. This is the beauty of Interpump. This is the trend for Interpump that Interpump is always, let me say, solid, even if there is a slow down in the market, the consequence in Interpump is very limited consequence. And let me say, I think, this is the positive part.

To speak about 2020, I'm sorry, with you, Mr. Bonizzoni, that I think it's little bit too early, we are working hard. But we are not working hard, we are working hard because we are preparing the budget to give you the period of our projects you know, but we are not working hard in trying to understand what will be the market. This is not the cost. We are working hard in checking what we will do to do something more and to help also the market even if the market could have -- not a fantastic trend.

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Operator [4]

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Next question is from Domenico Ghilotti with Equita.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [5]

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First of all, a follow-up on the previous question. So I'm trying to understand while you were mentioning that clearly second half is not as great as we entered the first half. But do you see a sequential deterioration of Q4 on Q3 in the trends? And could you give us a sense on from a divisional perspective, so if you see a divergence of Water-Jetting compared to Hydraulics and/or if Water-Jetting was also supportive on some specific projects that are not as supportive as before?

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [6]

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Well, Mr. Ghilotti, I do not check specific configuration between Q4 and Q3. Q4, we are at the very beginning. We had on the October, you only know that we have not a very big visibility, but I do not see a very different situation from 1 quarter and the other 1. I see the difference between the beginning in the year and the first of the year -- and the second part of the year. But basically, I told you before, I consider that if we would not get precisely the guidance, we will be very close there. So basically, they went as we expected. So I consider that is a good result and for sure, in this context, much better than competition.

Speaking about Water-Jetting and Hydraulic, I think that we understood historically, we understood that there is never something specific, but there are different situation in the 2 markets. So in this moment, Water-Jetting is performing better than Hydraulic. For a long time, Hydraulic performance is better than Water-Jetting. But the beauty is to have the 2 sectors and to manage the 2 sectors in a way to compensate one with the other.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [7]

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Do you expect this outperformance to persist at least for the next few quarters, Water-Jetting compared to hydraulic?

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [8]

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Mr. Ghilotti, It's difficult for me to say what they will do specifically. For sure, I'm not expecting anything extraordinary. I think that the trend that we are seeing is the trend that we will see also in the near future. For 2020, please wait until we finish our budget process.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [9]

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The second question is on the CapEx. So what are you -- first of all, I wanted to check if you are slowing down your executing the investment that you have done at the beginning at the same pace? Or if you are slowing down your investments due to the deterioration in the market? And second, what can be a reasonable investment CapEx for 2019? Last question is on net working capital. You were mentioning that you have been recovering and improving free cash flow, but you are still something 200 bps higher this year compared to -- in terms of working capital and sales, if I'm wrong -- if I'm correct, compared to last year. So should we expect to see an improvement in this ratio moving forward?

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [10]

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Firstly on CapEx. I'd like to tell you, as many times, we say thank you for the question because it gives me the opportunity to explain our CapEx. No, we are not reducing our investment. No, we are not reducing our investment because remember, Mr. Ghilotti, that we are on top. We are growing on top of, let me say, the basis that we had with the crazy growth of the previous 2 years, roughly 30% organic. So no, the investment that we did and the investment that we needed and we need and we will use and still maintaining a lot of flexibility. So there is no reason why to reduce our investment. We are doing the investments that we forecasted at the beginning of the year.

Considering the future, of course, the additional growth is lower. We need less investment. I wanted to tell you that anyway, maybe that we will take some opportunity with super amortization in Italy so that may be that in a very convenient moment, we would get some opportunity to buy some innovative equipment that could give us beneficial performance for the future.

The second question was how many points in the working capital? You have to remember that the front loading that we did at the beginning of the year is something that is not over. So we need it at the beginning of the year, and we still have a quarter to use that working capital that we put hope.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [11]

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So you should see a smooth improvement in the working capital ratio?

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [12]

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Yes.

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Operator [13]

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The next question is from Alessandro Tortora with Mediobanca.

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Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [14]

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I have, let's say, 3 points to discuss with you, if I may. The first one, sorry, a follow-up of this previous question on the CapEx side, including the Reggiana into your perimeter. I know that maybe you may take some opportunistic, let's say, decision on the amortization, but can you give us an idea of, let's say, CapEx level for next year, I don't know, EUR 70 million, including, for instance, (inaudible) adjusted or maybe of a normalized level of your CapEx after the plant reorganization you did -- now you are doing this year?

The second question was on the plant reorganization. I know that this is still, let's say, an ongoing process for you. But compared to the beginning of the year, do you have an idea of, let's say, which sort of disruption, I mean, for instance, an efficiencies on the cost side that you had because clearly, I guess, next year, we shouldn't see, okay, all these items that, for sure, affect, let's say, your profitability? And let me check -- yes, the last point was a statement you made before on Interpump will do something -- will have something in order, let's say, to, for sure, support the order of -- I mean, do you refer -- are you referring to, I don't know, product gestation or product innovation that you may make, probably much more in the Water-Jetting? Do you have something, let's say, already planned to do next year in order to support your (inaudible)?

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [15]

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Yes. The first is related to CapEx. And CapEx for the future, please understand that it is one of the most important element that you analyze during the budgeting process. During the budget process that where we meet all our company, all our company. So all our legal entities, not only the major one. So it's a very important process is ongoing in this moment. So to tell you a number for 2020 would be absolutely premature, and I do not want to do that.

I wanted to tell you that there are 2 important elements. First of all, the investments we did this year were all mandatory. And so that's why we are very happy that we succeeded investment. And I said that maybe speaking about investment that we will get some opportunity also because of the very convenient opportunity in Italy for investments, but I will give you the number for the CapEx at the beginning of next year together with the new numbers for 2020.

To quantify disruption is really extremely -- something extremely difficult, extremely difficult. Because it's almost impossible, let me say, to understand how much time you need for this or that and so and so. And you know that in Interpump, we do not like to do useless activity. So either in the moment you wish we quantify perfectly how much is disruption, give me the opportunity to answer to your question that I'm also gaining any additional market so that I'm not able to give you a precise number.

Regarding my sentence, I suppose, I'm not sure I understood you perfectly, but I suppose that when I said that we give more importance to the action we are able to do more than through a very precise (inaudible) in the market. There are always, in Interpump, a lot of activities. There are always some new products. There is always some innovation. There is always an improvement. I don't know. Just to give you an idea, for a long time, we spoke about the limit of our pump 4,000 bar, now Hammelmann has arrived to 6,000 bar just to give you an example. And so for sure, there are a lot of activities that -- our activities that allow Interpump to be better than the competition, to be better in sales and to be better in profit. So a lot of work to do as usual.

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Alessandro Tortora, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [16]

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Okay. Okay. Last question. And if I may, just a curiosity because we heard a lot about Germany, let's say, machinery use slowing down and so on. Can you give us an idea of what's happening, for instance, for Hammelmann? How is, let's say, going Hammelmann in terms of -- I know that Hammelmann doesn't serve only the domestic market, but it's also say a nice exporter. Can you, let's say, provide us with an idea of how it's going on in Hammelmann?

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [17]

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Hammelmann is growing as usual in a fantastic way. Today, at this point, Hammelmann is EUR 150 million. When we bought Hammelmann, it was EUR 45 million company. So more than 3x what it was. If you look at Hammelmann, Hammelmann is working in the world in all the applications. In this moment, marine applications, shipyard application, oil and gas application, platform application are going very well, are very interesting. The Chinese market is interesting for Hammelmann. So vis-à-vis, there is a slowdown in some business. Hammelmann has so many projects in its drawers that is never a problem to substitute with other application in different businesses.

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Operator [18]

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(Operator Instructions) The next question is a follow-up from Matteo Bonizzoni with Kepler Cheuvreux.

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Matteo Bonizzoni, Kepler Cheuvreux, Research Division - Equity Research Analyst [19]

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Yes. Just one clarification with regard to the EBITDA guidance. So at the beginning of the year, in February, you provided before the acquisition of Hydra Dyne, Reggiana, you provided this guidance of EUR 305 million plus or minus EUR 5 million runoff, excluding IFRS 16. So I don't think it's, at the end of the day, particularly important for the market at this point, but just to clarify, because you are not accustomed to change or adapt this guidance on a quarterly basis in relation to your M&A. So your guidance is a little bit, I mean, it's something that you provide typically at the beginning of the year and then you change the perimeter. But just to clarify, I calculated that, including Reggiana that is EUR 4 million roughly speaking of EBITDA in Q4 and including Hydra Dyne that should be at least EUR 3 million, you are going to land at an EBITDA ex-IFRS16 of EUR 301 million. I don't know what is your budget, but this is my estimate. So if you exclude the best perimeter that has come after you provided the guidance, you should not be able to hit the lowest part. Again, I don't think it's important because your guidance is something that is different from what other companies do. But just to clarify, can you confirm?

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [20]

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You did a very precise calculation, probably I didn't do the same. But anyway, if we did not -- they are exactly in the guidance, we will be not far from there.

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Operator [21]

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Your next question is from (inaudible) with One Investments.

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Unidentified Analyst, [22]

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Just to clarify on the guidance point. Without going into the M&A impact coming into the end, just since we are now in November and given the great results of the quarter and your comment that you made on the diversification of the business. Can you just share with us, if you, at this stage, already had some order -- as the one occurred in Q3, which may offset the weakness, let's say, in India or domestic German clients that you have, so that you can or you have to wait for some other order towards similar evolution in Q4, both in terms of organic growth and in profitability? Just to understand why your comments now, also you can -- because if I extrapolate your guidance now, the delta that you guided and the fact that you may be a little bit far from the lower end of the guidance, looking at consensus, it's a change a delta of up to 10%. So I'm not (inaudible) just because of visibility, do you expect some more [organizing] at this stage?

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [23]

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Our backlog is different from company to company. So in some companies, we have already visibility up till the end of the year. In some companies, we are absolutely far from that, so (inaudible) I do not have still full visibility for all the company. But let me say, the underline could be that we do not get to the guidance. And as I told you before, it's a very narrow target, but I think that anyway we should be close there.

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Luca Mirabelli, Interpump Group S.p.A. - Head of IR [24]

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This is Luca speaking, if I may add something, I just don't want it to stage in to any wrong number to say the fastest. You mentioned a 10% and this is the number that -- it's -- on the 24th, it was EUR 10 million miss, which would be 3% miss on our guidance just to put things in the right order of magnitude, which compares to the strong double-digit mixes that we have seen around in the same sector to our competitors. So please keep...

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Unidentified Analyst, [25]

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You're right -- you're absolutely right. I was referring to Q4 implied. No, I wasn't referring to the annual guidance. I was -- my question was actually on Q4. So you're absolutely right with the number. Correct. Correct.

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Luca Mirabelli, Interpump Group S.p.A. - Head of IR [26]

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In terms of -- Okay, sorry, for my misunderstanding then. In terms of Q4, we already disclosed. And we already mentioned that we have a larger order for Hammelmann in China. And although, of course, this is not a magic wand that will solve any problem in the rest of the world. Clearly, this has to do with the highest margin part of our sales and equally, clearly, with the Water-Jetting sector and with China. This is already published information, so I'm not introducing any new elements here.

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Operator [27]

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Your next question is a follow-up from Domenico Ghilotti with Equita.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [28]

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Well, I had a question on -- if you can elaborate on the -- what time you'll view the most promising projects looking at 2020 and even beyond? So if you have a product for cross-selling opportunity. So moving a little bit away from Q4 or early next year, so more on a structural perspective.

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [29]

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In fact speaking today, and I would finish pretty faster because in any company, we have new projects, we have new products, we have innovation and so on and so on. And I think that from time to time you consider that our company has fatigue and they are producing always the same thing is absolutely not true. There is innovation and new products and new business and cross-selling every day. This is our job. This is the basis of our job.

And at this point, we have also Reggiana Riduttori on top of this that is adding more our chance for cross-selling and for diversification. So there is really a lot of activity. As I mentioned before, the 6,000 bar, the 6,000 bar, that is the new limit of the Hammelmann pump. This is very interesting product that in -- for example, in factorization could create a very strong innovation. But we have a situation like this in -- basically in all the company, this is the beauty of Interpump. So let me say, I don't know, if you want to know, you are very welcome to pay a visit to some plants of ours and to check directly how much we have of innovation.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [30]

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Okay. Okay. So no specific thing rather than to...

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [31]

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It would be a drama. It would be a drama if it was specific. It would be a drama if our development, our future could be (inaudible) of just a product, just one business. I'm pushing explaining you that the beauty is to have this creative diversification in so many businesses, in so many products, in so many customers, that is the point. To focus just on a single project, on a single project and to trust that this process will represent the development for Interpump, in my view, would be a very negative situation. We have all our companies that innovate their product every year.

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Domenico Ghilotti, Equita SIM S.p.A., Research Division - Co-Head of Research [32]

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Okay. And I was referring also to more global situation. For example, you've have been pushing the cross-selling of (inaudible) around the world. So I was trying to understand if this process has already been executed mostly, or if you are still in the early stage. So -- but...

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [33]

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In any other group, the acquisition of Reggiana, the acquisition of a fantastic company, Hydra Dyne, in either of these business, the most profitable company in this business and would be considered as a very important development for the group for the years to come. And I'm not even commenting too much on this because it's normality for Interpump. By the way, in this conference call it is a surprise that we are not asked for M&A, but also M&A, we grow; also in M&A, we've grown. And by the way, I really hope to announce something to you not in a long time. Again, to announce -- again something not in a long time. I think that this is really the difference between -- the DNA of Interpump.

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Operator [34]

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(Operator Instructions) Mr. Marinsek, there are no more questions registered at this time.

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Paolo Marinsek, Interpump Group S.p.A. - Deputy Chairman [35]

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Okay. I thank you and thank you all the -- I thanks all the participants. And next time, we will see the end of the story, so the result of 2019 and the numbers for the future. Thank you very much to be with us in this conference, and bye-bye.

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Operator [36]

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Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephone.