GVS S.p.A. (GVS) Earnings Call Transcript

Good afternoon Chorus Call conference operator. Welcome, and thank you for joining the GVS 2026 to 2028 business plan web call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Massimo Scagliarini of GVS. Please go ahead, sir.

Last good morning to everybody, and welcome to the '26 -- '28 presentation. The order entered business and presentation, as mentioned in the last call, I would like to share with you our guidance for 2026, so as you say, as many of you were expecting that we have revised a quarter the guidance specifically from low single digit upwards to mid-single-digit organic versus fact. From 25 million to 50 million to 50 to 100 margin expansion versus and the leverage ratio compared to the end of the year. Maybe mine driver of this growth that we have commented on the last -- on the last call. So remember on [indiscernible] we are listing the commercial synergy on institution finally, we would come alteration regulatory. And this slight and so that icing up and consistently market share recovery. Life Science in list is not present in the, we are start showing you the job only done in the last year now, and this is a result of the new distribution reiteration. Safety, loadings is moving in the right direction and always product, new geography and an improvement in the order as a result and deliberately intake. As a mid-single-digit -- we are a nice reassuring of a customer, but not only, we have also a new customer in this market. So the nice rebound that give us the mix of the age of 2026. Now the more interest in part of the business plan at 2028. Let's see -- some so organic order for the next 2 years now, it is may single this. And we will see the later on in division by division and all the details. But to be very static, this organic growth is nothing else than the result of the job that we have done in the last 3 years. The realization of all the bond, the organization inside Maxter of sales organization new product in launch. So a lot of activity that we've done in the last year is finally now are coming back and bringing us it's single digits organic for the next 2 years. When we have a automotive, we have a better situation, and that's being EBITDA. This is -- in our organization is a maticonsequence -- so what we expect is at least 100 bps is an EBITDA margin and this due to the organic growth for pricing, we will have a cost improvement of all our organization that, we are not seeing M&A activity, at least the next year or 2 years, allow us to really focus on our business. And we know that we are good at this. So when we build a activity. Normally, we improve our margin. And we have a nice expansion, and in this, of course, margin expansion means leverage. So we are expecting by the end of 2028 to be on -- so definitely a nice recovery on the leverage. So some common vision by division intertwine you more in detail and give you more flavor for every some section. We have recognized sales network. So we have one part that will be more dedicated to filtering components and other French sales central would be dedicated more to 50% taxes. And from a back -- so there is a lot of activity license to be operated by processing, but handle story point that we will have a sales force that will be a more focused and it is too specific very product that we have a in terms of growth for the next 2 years and not only 3 years now because the job has been done until 2030, but we see today on consolidated number '26, '28 the being built. As I mentioned before, we are now in speed because we can historically hold their and in organization. You can speak on this area. We allow us to regain market share and a new market share in the Middle East and in the Asia and in the Asian market. So again it's from now we will start to collect all the job that we have been doing in the last 2 years safety reality. We have been successful on food today, and we are keep working in the same in the same direction. So new products, again, we want to be best in the past in what we do want to today. We have been succeeding in this, and we want to continue to do the same and this will allow us to expand our market, will allow us to expand constantly all our sales network and at area and is to bring exercise in Poland VGI growth. Next slide in. Again, we've been corporate with the organization what is important is in the last and now, we have completely reorganized this subdivision. We have completely changed all sales team. We have added and on SQ, we have tilted a very nice tin portfolio. And so as a result all these activities in the next year now gaining to collect results. And we can see this already so switching payment and for validating our products. And some mobility challenge. And the year we have a reorganization in the sales area, some part of the sales network that we follow the traditional late customer. And then we will have other sales organization that will be dedicating more to the electronics, humanoid or everything is relation to the future electronics. And the other part will be dedicated to the trend that is now already done in the market. So I take part of your description, but we -- thank you much and where this afternoon on -- so let's start on -- and our cost massive based on 2 midstream growth hanging. So the first is for the core capital business that includes a component or metric and medical applications. And here, we expect to be commercial synergies and our recent acquisitions and now a growth much broader portfolio that's creation to for cross-sending and the local from the broader leverage a large customer base, buyer process in the 1 that also mentioned, bioprocessing-related application. Here, we are investing in a dedicated commercial structure that is focused on some of the fastest-growing ration application we've been at the results issues from packaging membrane technology and to concessions. Those follows products address the main market. We improve EBITDA close traditional space. And therefore, we thought required release commercial lease system and specialized resources to fully pass to with the bash, the result of this action on this strategy as a result we expect net debt to deliver a mid-single-digit have over the period and excluding the impact of our actual best of the molasses. Moving now to [indiscernible] of the most attractive opportunity with the group. As you know, over the past few years, we see of acquisition to global with high near -- and that's not a lot sidereals and emerging market is a high, the focus is now on. So we estimate that our addressable market is approximately EUR 1 billion and this market remains in a highly positioned among a limited number of locators. Today, our market share is approximately 6.5% and we believe is not to factor of our product. So we have room for and our portfolio positions and the pre-demand of the market provides significant service. So our growth strategy start and then collection where we expect significant market recall impacting the ease market where large result customers are by interest in the existing partner supplier base. As well as another market vacation, the Pacific market where potential penetrate in the production space. Production is then reforming into customer relationship 1 collection from the , we are able to the broader product portfolio, including processing and transient costs. We are also developing on products with Medicare in the development stage and are continuing to invest this operating solution an innovation of our cost range for testing in the position to get brand in this Global acumen. Overall, we expect an initiative to increase our share of the looming market from 6% to 8% by 2028 and be able to support high single-digit sales chart. Moving now to safety. I mean so if you have already be year of one position and that now is in on that momentum. The growth story is by 2 factors: one is product innovation. So the example is the long pole market, very important milestone is expanded in our product portfolio, in particular in the US market where our mates reusable market is well below the market share we have in the past in Beyond the 2 phase. We are also continuously moving again ratio and new products are designed to strengthen our bands. Second, driving growth in geographical expansion opportunities both in our traditional store markets that our safe and back as well as actually the brands our presence in section of and South America. Our action is limited, but we see a lot of room for overall. Product development is broad variation and the update on tens to will lead growth also for years. Moving now by assignment, we see also here a significant room for bottle centered around for last first the expanding through our solution meter to new partnership with lower solution. Mr. [indiscernible] that is something that we have already started in 2016, we want to further increase in years to come. The second is to growing our situation offering to compete the more the reason and then using that to maintain a premium position. So situation is dial preserve operation proposition in this part -- the fourth mentioned also by Naris the penetration of a customer. We have multiple qualification and validation travel underway. And of course, we've managed to convert into recurring commercial volumes. Together, this initiative should contribute to how are -- and finally, next at Energy Mobility. Here combined stablizing the legacy business with several emerging growth opportunities on the petition in decide that after a year of decline in subsidies now improved demand trends and that is supported by exploring initiatives from that customer. And this is a mediator, on top at the same time, we are continuing developing application in calculation and the target benefit from increasing on the investors and the broader lesication from. So looking further ahead, the guide a brain is additional opportunity of growth. We have completed now our production line that are enrolling customer commitment -- so we expect that initial results of -- So the result, we expect the division to grow low single issue overall and in the next 2 years. So now I [indiscernible] same region with a new in every became a financial on then the representation review with an update of 2022 cars saline said just the EBITDA is up year-over-year between 50 and 100 basis points is in the area, we expect the adjusted plan and then regard you see we are projecting in 2028, it EBITDA grew 27%, which means an increase of around 100 BPS in 2 years, but we now use go through the captions behind the calculation. There is 110 assumption, which changes the organic growth rate. We are reliant which is a game in German entities made in low digit means we all memeteen4% and 6%, so 3%. That is why I am it's a story mid of volume. So just 1.5% is due to discounting that we acquired to a -- here, we are assuming 1.5 probably because we are selling flat enrollment EBITDA perhaps each the moment costs were we do pass on that increase the customer, I believe we have rated our own ability to do so. But let's go to the assumptions. And for them, we are seeing FX species. You note that 50% of our revenues are maybe in dollars. I'm assuming an effect [indiscernible]. And then I should 1 for the use for the China the main term is about the U.S. dollar today, the some arms are now over 1 million in the short to give you an if the effect is to should be 15, we increase our by around EUR 7 million per year, which means around 4 million dividend movement year over year. Okay. But now from the accounts and so the deviate we have onto related to the cost. I said before that there are 2 years, but what about the remaining costs, the dollar cost between the and the adjusted EBITDA are at EUR 115 million per year, which accounts for around EUR 10 million. There is a basket of and in of costs to return government data. Here, we are assuming indication with history about of 2.5%, which means around EUR 5 million more each year. I will not take into consideration of any fast which could offset that negative. So just to recap, the main assumption is about the organic growth, and we are receiving just the growth in cans. We are now taking in consideration on factoring efficiencies. We are taking utilization, we had 2.5% unallocation on the costs. Now we can go to the next level, which is about safety. We said at the end of expansion which is the gate of the year plus the impact of the inventory centerfire, we made at the beginning of the year. Then we are, say, they are showing that a big trend in a leveling Q1 of 2026, here, the pin is generating EBITDA. So -- but the 7% as before. And what the? The assumptions are consistent with [indiscernible]. So we think working capital is that up by around cage year. So to me that the net working capital is proportionally we the feel of Tax rate can be 6% than different maybe these between 35% and wellness than million each year, appetite 70% of sales. That's our sole trend, even though in 2026, the parentage is 8%, but in the current year, we are maybe some space especially benefit our base. Net cost, 3.5% the current cost. This is closely in gross debt of EUR 280 million, of which EUR 16 million -- so just to be clear, only EUR 20 million of Russia that are net with there are videos. So for example, goes up by $10 million, the impact for our [indiscernible] just to go. So just to say it's impossible not to -- it's impossible to make is on the part of the financial cost and we at the end is about the use the year. So the summary of my connection both for EBITDA and that's for the emergent is that currently the way seen from a it's so based on the growth. And as we end up with a 20% adjusted EBITDA generation, which are target that we see confidently. Now I give the floor to Marco Pacini.

Thank you, Masso. Okay, we want to give you a slight flavor of we have done looking at resolve of our goal to February. So the next 4 years from now. There are many -- we have here a small receivable by processing or the tide mandate, safety and the new products in a subsequent manner, but if I have to give you a take away is -- we have done the job in the last 3 years and now is trying to collect. We are answering a number of verticals that has a very large expansion area. So it's not something that is going to end in 2 years. And we know that when we do our job in the correct way, we are able to develop a product best-in-class and we are super competitive. So this allow us to see an up to 2030 and definitely complete that set revenue compared with today. say that, we have concluded our presentation, and I believe that we can move to the Q&A session.

[Operator Instructions] First question is from Christian Hinderaker at Goldman Sachs.

I wanted to ask on the hydrogen membrane side of the business, interested in that day in terms of commercial receptiveness on that product. I think there was a footnote on one of the slides in terms of the midterm opportunity -- but yes, interested in the phasing of commercialization. I'll start maybe there and then we can go one by one.

We are testing the product with our customer and the feedback and the receipt of those customers is extremely positive. So the level of the result, the level efficiency of the membrane that superior of the material that currently using it, so now it's really time to move to the industrial phase and that's -- I mean, we are confident about the development of this uricemarket, the existing market is the estimate in the to EUR 30 million. then we can target for now. On top of that, there are only development on nitrogen at all of the benefits future needs to be fine in the next couple of years. We effectively installed by 2030, but idea from the carbon pricing will be financed. We have on some markets that in 2030 same time the current size of the market so this shows what is the opportunity geographically is impacting today and the most active is Asian market so far and we are looking on the job and the actions, but also we at some point to collar, but having said that, the product in the market that show our product.

Maybe a little bit more philosophical. But as we think about whether it's hydrogen, I suppose, or the sort of humanoid opportunity or I guess tangential or new markets. I'm just interested in terms of the process of commercialization. I think you talked to the product development and confidence in product capability, but how do we think about the way you go after those new market areas in terms of, I suppose, process and timing and convincing the customers ultimately?

Well, the first point is the product development and in our business is basically in the sense that we are already delivering products to retype of business and the humanoid at least what is the impact that exactly the same needs of the other markets that we have or -- so it will be just an expansion of something that we are already doing and we are doing very well. So if the customer market a good product I believe that we are in a good position to split that. So it's just an expansion of existing from rent that we already had a product. And what I got the Iverson again, we are very prudent in the numbers that we are seeing customers that are already using hydrogen already use membrane of sensation is something consistent. Of course, either membrane is very hard that is still validation with the customers. So okay, there is all the part to be done and but certainly we will at least, we can be on top of these task.

And maybe just finally, with the growth ambitions. These are all the organic, I guess, any update or thoughts on acquisitions at all?

Not right now. Again, as I mentioned in my introduction, we want to focus the extracted margin. We want to focus on excellence. We want to focus on our customers. So we would mainly focus on market, market, market.

Next question is from Matteo Bonizzoni, Kepler Cheuvreux.

We have 3 questions. The first 1 relates to negative modalities revenue, how much is now on our targeting to achieve '28 just to assess the approximate on, which we expect in the next couple of years on this modality business. The second question is on ability, which you have said we're stabilizing and also thanks to reshoring macrostate drivers should return to some slight growth in the next year. The question is were the current approximate breakdown of your revenues across combustion engine, less non-combustion engine and maybe some targets of growth and you can disclose more to size some sort of growth on non-combustion engine. And also, can you elaborate your actions to expand into non-combustion engine, rates impact you have already said, but I would maybe if you can, more color. And the last 1 starting but I have to say, so you're going to generate EUR 55 million to EUR 60 million cash flow, equity per year in 128 in the correct calculation. Even at 1% CapEx from sales and given a onetime that we. So I understood correctly that you are not looking at M&A or the question was if you are looking on or maybe not this year or next year, but in the midterm, can you share with us in which segments and geographies.

Second question was.

Yes. So already said in the past the modalities or are on the angels. On that, there is a part of this business where we are negotiated higher price, so this is the margin, and we want to see it in that going on because we have scooperational some plan and that this margin is there are half of this business that is approximately from 2026 to approximately EUR 7 million that result because this is not entering out. We want to prepay industrial action to other product in higher margin and higher roots is has.

The second question was about the energy and mobility. If I had to give you regards to where we say today, this , we see a number of applications that is not really time related to the engine. And so my related in small longer period than next 3 years. So -- this is describe say that the more critical in, it would be and from 50% to 60% left mostly come in the next of the year. But again, what is the safe and based on where our customers geographically set that. I would say that I'm not expecting big to try unleash the next you remember, everything is again is still netted to all the filters that were before, still moving into Brazil and also this is part of the elaboration. On top of that, it is also the big we have our elates one, of course, a bacteria the electrification trend last was cash flow.

Marco, you said that you are so projecting figure flow of -- let's repeat that below the portion a EUR 60 million a year free cash flow is a achievable. And of course, our cash using molecule we see about that and then the impact on any possible of [indiscernible].

To complete the answer. As I mentioned before, the move right now is cited to the market gaining excellence with our customers, with our allies activities and expand margin files, we talk and do.

Next question is from Emanuele Gallazzi, Equita.

I have 3 questions. And the first one is on the safety you are guiding for, say, a confirmation of the high single-digit growth that you mentioned also the contribution of new products and new order geographical expansion -- could you give us a sense of the contribution you're expecting from the new product and the geographical expansion in 2026, 2028 and maybe a comment on the strategy to enter in the new market, should we expect, say, investment in distribution and the sales force for the safety. The second one is on the margin bridge I think, Marco, you mentioned the fact that you are not taking into account operating efficiency in the target of the 100 basis point margin expansion. I was just wondering if is a sort of prudent approach or after the work done in the previous years, basically, you see less room for opening efficiencies. And the last one is on the capital allocation, very clear on the M&A. You also made the dividends I think these presentation, there is nothing about the dividends. Can you just elaborate a little more on this interview your view on the return to shareholder mention?

If I have to look at the transition of revenue new products, it's not these main driver of that in growth what is the driver is the fact that we are pleasing basic, we are keep enlarging our product portfolio and the market is saying the market went up because we are introducing a Bluetooth device to communicate that between global regarding total new lives to a -- so a certain number of small amount that larger portfolio and improved the quality of the power portfolio and this has improved visibility of the brand. And may at the ask, and this allow us to gain the market share. That is, I guess I give you that number. It does not be important 2.5% in relation to the growth of this division. Second was the margin?

Yes. You said there is no impact of operating efficiencies on the margin -- you are prudent. Is that the prudent approach Okay. Let me be that I said the 2% in 20 percentage EBITDA margin is target can achieve then especially when it's in lead to extra manufacturer. Let's say that and we will try to use that to offset the indication, we see in the cost -- so that the pen to be very cable, I'm not taking to obtain for eating efficiencies. When describing the market as for the fact, but let me do that. I said that we are replicating in '27 and in '28 year average, '26, which is around or to start the agro is 3.3%. The second or the current year is between 6% and 7%, then we decided to use the rate each form are better now. So we believe no so yes. can we be in the present on the specific is the largest.

Well, again, it's something that we will evaluate for sure our interest is to find the best solution for the shareholder.

Next question is from Anna Frontani Joh. Berenberg.

For the presentation and calculation on the obligation of the business plan. I have a question on guidance. What are the assumptions behind the H2 acceleration that it implies. And maybe connected to that, what are you seeing in terms of current trading that they continues to raise the target. And then on actions on the business fund regarding the 100 bps margin expansion to 2028 is that expansion equally balanced across the next few years? Or is there any phasing there?

This is question was about 2026 gap. And we start basically, the point is that Q3 is normally our worst quarter. And Q4 is the best for like that now we have visibility on Q3, and we know quite well the Q4. So that's why -- we are solid in giving the upward guidance. The margin expansion yes, given that we are a 5% both in and in '28 it is to the low amount in the split on a mean strategy success in other and date.