Ariston Stock

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Ariston Group Second Quarter and First Half 2026 Results Presentation. [Operator Instructions].

At this time, I would like to turn the conference over to Ilaria Candotti, Head of IR. Please go ahead, madam.

Good afternoon, everyone, and welcome to Ariston Group Second Quarter and First Half 2026 Results Conference Call. I'm Ilaria Candotti, Head of Investor Relations. With me today are Maurizio Brusadelli, our Chief Executive Officer; and Riccardo Gini, our Chief Financial Officer. Today's presentation will last approximately 25 minutes after which we will open the floor for questions. As a reminder for those joining us by phone, the slide deck is available on our Investor Relations website.

I will now hand the call over to Maurizio.

Thank you, Ilaria, and hi, everyone, also from my side. So let me start with Slide 3 with a brief overview of the quarter. We delivered a very strong performance in quarter 2 with mid-single-digit organic growth led by heating and in particular, by heat pumps. Water heating also grew across geographies with an improving trend in North America after a slow start registered in Q1 in line with the market. The quarter also confirmed the positive start of Lennox JV. The initial market response to the products sold through the JV has been very positive. As a reminder, through this partnership, Ariston Group manufactures and supplies water heating products, which are commercialized by Lennox under their own brand through the dealer network in North America, leveraging our technology and product capabilities.

Moving to margin. Our adjusted EBIT expanded by 0.9 pc year-on-year, thanks to primary operating leverage, pricing, cost efficiency, while we are investing to support growth and overperform the market. The cash flow in the quarter reflects the usual business seasonality. And I would like to say that we confirm our full year 2026 guidance, which does not include Riello. Riello will be consolidated from July 1, 2026 in the next quarter reporting. We expect Riello to generate around EUR 190 million to EUR 200 million incremental revenues in the second half of this year.

Moving to Slide 4. Following the closing of the Riello acquisition announced on July 1, Ariston Group now operates with a new perimeter. On a pro forma basis 2025, the combination would have generated EUR 3.5 billion of revenues, EUR 352 million of adjusted EBITDA and EUR 211 million of adjusted EBIT. The combined group counts 37 production sites and 12,000 employees worldwide. These figures highlight the increased scale of the group and further strengthen our position to sustain investment in innovation and go-to-market to continue to play a leading role in our sector. More importantly, these figures represent only the starting point of the combination as they do not yet capture the value creation opportunities and synergies.

Moving to Slide #5. We look at the group business portfolio with the addition of Riello. Overall, the combined group benefits from an even stronger technological portfolio, preserving high diversification of business and geographies. It maintains a very balanced exposure across climate comfort and water heating businesses. Combustion technology weight on total group has increased from 4% to 10%. Riello brings distinctive expertise across residential, commercial and industrial application and a distinctive access to many key international markets, including the large North American one.

Combustion technologies are typically used in a complex commercial or industrial application, which require high temperatures. Heat pumps are not suited to decarbonizing those applications. They will be decarbonized using combustion technology based on biogas, biofuels or hydrogen blending. As said, we are now a global leader in this stable and profitable market of combustion technology. Within climate comfort, Riello brings a very strong portfolio of commercial and industrial boilers, a good exposure to renewable and hybrid technologies, which is almost in line with Ariston Group. Riello and Beretta are very well positioned to support their clients in the energy transition. And lastly, Riello brings a very well-developed service and spare parts business in line with Ariston Group accounting for mid-teens revenue.

Now I move to Slide 6. With the closing completed on July 1, we have now moved into execution. Integration activities have started across all board streams according to a clear road map and governance. We target EUR 25 million of run rate synergies by 2030. As already shared, Riello is highly complementary to Ariston legacy perimeter with multiple and well-identified levers of value creation.

First, Technology. Riello and Beretta brands will benefit from Ariston Group advanced platforms in renewable and high-efficiency solution as well as our electronics and connectivity capabilities. We will reinforce their offer while preserving their brand identity and positioning.

Second, Sourcing & Logistics, where we see really sizable opportunities to optimize procurement across common categories and leverage greater scale. Sourcing opportunities are expected to be the quickest synergies to be captured.

Third, Product Portfolio. The combination broadens Ariston Group offering through Riello's, commercial and industrial boilers and strengthen our position in combustion technologies, where Riello brings distinctive know-how and market expertise.

Finally, Digital & ICT, where Riello will benefit from Ariston Group's scale, digital capabilities and go-to-market tools.

Moving to Slide 7. As usual, we provide an overview of the German heating market. As you know, Germany is a key market, representing around 20% of group revenues and continues to be central to the energy transition. We have discussed the German market dynamics many times in the past, so I won't repeat the full story. The key message remains unchanged. This is a large replacement-driven market at historical bottom and with a long-term shift towards renewable and high-efficiency technologies. Demand for incentives continue to grow strongly, up 64% in May.

There are relevant updates on the regulations. The Building Modernization Act was approved in July, confirming heat pump incentives until 2029 and the removal of the previous 65% renewable mandate for new boilers installation. The Building Modernization Act updated some parameters of the incentive schemes. The overall support framework remains very attractive. The change includes a reduction of the eligible cost cap from EUR 30,000 to EUR 28,000 with a further gradual decrease over time and a gradual reduction of the climate speed bonus, while support for lower-income households has actually been strengthened with the maximum incentive increasing from 70% to 80%.

In addition, the German government has announced a new potential Made with Europe incentive for heating heat pumps starting from 2027 with further details currently under definition. We own heat pump technology, and we manufacture our products in Europe. We appreciate the clarity and predictability of next year's incentives and the rules simplification on boilers installation.

Now I will pass to you, Riccardo, and he will, as always, go through our financial results.

Thank you, Maurizio. Let's begin with Slide #9, which shows the year-on-year evolution on net revenues. Overall, we are pleased with the acceleration in growth recorded in the second quarter, thanks to the positive contribution from all business lines and supported by improving market conditions across several key geographies. Net revenues increased by 7.4% year-on-year, reaching EUR 691 million. Growth was primarily driven by a strong organic performance of 5.2%, supported by all business lines and across all regions, as we'll see in the next slide.

Heating delivered strong organic growth across all geographies with heat pumps remaining the key growth driver. Water heating also delivered positive organic growth in all regions with a particularly strong performance in North America compared with the first quarter. We are also seeing encouraging traction from the joint venture with Lennox with the first sales receiving very positive feedback from the market. Services and Parts once again continued their mid-single-digit growth trajectory and foreign exchange had a modest positive impact in the quarter, contributing approximately 0.6 percentage points to growth, mainly reflecting favorable movements in the Mexican peso, Australian dollar and Swiss francs, partially offset by the weaker U.S. dollar. Perimeter variation contributed 1.6 percentage points to growth and was entirely related to the acquisitions completed in the Components and Combustion Technologies divisions.

Looking at the entire first half, net revenues reached EUR 1.35 billion with a reported growth of 4.3% year-on-year and an organic growth of 2.4%. Foreign exchange had a slightly negative impact in the first half, while perimeter variation contributed approximately 2.1 percentage points. Please note that the perimeter variation in the first half includes the contribution of the Russian subsidiary in the first quarter as it was reconsolidated at the end of March last year, while in the second quarter, the Russian business is part of our organic perimeter. In addition, perimeter variation reflects the contribution from minor acquisitions completed in the Components and Combustion Technologies divisions, as said earlier.

Moving on to Slide #10. Here, you can see the evolution of our net revenues by geographies. We are pleased to report positive organic growth across all regions in the second quarter. Europe remained the main contributor to group growth, supported by its scale and continued strength in renewables. Asia Pacific and Middle East, Africa also delivered positive underlying trends, excluding the impact of the Middle East headwind, while the Americas recorded strong low teens organic growth in the quarter, showing a clear acceleration.

Starting with Europe, which represents approximately 74% of group revenues, it delivered a strong quarter with revenues up by 8.3% year-on-year and continued organic growth supported primarily by the positive trend of renewables with Germany performing particularly well. At the same time, traditional heating solutions or gas boilers also contributed positively during the quarter. Once again, Ariston Group outperformed the market, thanks to its strong positioning and execution. Looking at the first half as a whole, Europe continued to perform well with revenues up to 7% year-on-year and organic growth in the mid-single-digit range.

Moving to Asia Pacific and Middle East and Africa. Revenues were broadly stable in the second quarter. The performance of the region was affected by the consequences of the Middle East conflict, excluding this headwind and the effect of ForEx, the region in the second quarter delivered strong positive organic growth. In the first half, net revenues were down 3.5%, reflecting the impact of the Middle East conflict.

Finally, the Americas, which represent around 9% of group revenues, delivered the strongest growth in the quarter with revenues up 13.6% year-on-year. The performance was supported by a strong organic growth of both water heating and heating and Mexico also benefiting from a positive foreign exchange contribution. On a first half basis, revenues were broadly stable compared to last year, reflecting the market softer start to the year.

Moving on to Slide #11. Here, you find the highlights of our adjusted EBIT performance. In the second quarter, we are pleased with the quality of the margin improvement. Adjusted EBIT increased by 28.3% year-on-year, up to EUR 39 million, with the corresponding margin improving by 90 basis points or by 100 basis points on a like-for-like basis, reaching 5.7% of net revenues compared to 4.8% in the same period of prior year. The margin expansion was underpinned by operating leverage, effective pricing management and continued delivery of cost efficiency initiatives across the group. These positive factors more than offset the resources reinvested to support key strategic priorities, including go-to-market initiatives, digital transformation and R&D.

As previously shared, the profitability was also affected by the consequences of the Middle East conflict, which continued to represent a cost headwind during the period. Looking at the first half, adjusted EBIT amounted to EUR 74 million with a significant increase year-on-year, up 11.7%. As a reminder, our profitability profile follows a well-established seasonal pattern with the first half of the year traditionally accounting for around 1/3 of full year earnings. Accordingly, the first half performance is fully in line with historical seasonality of the business. Turning to reported figures. Reported EBIT amounted to EUR 36 million in the quarter. The main adjustments relate to the net impact of rightsizing initiatives and to PPA amortization related to past acquisitions.

On Slide #12, you can notice that free cash flow was negative by EUR 8 million in the second quarter compared with a positive EUR 3 million in second quarter of 2025. Looking at the first half, free cash flow was negative by EUR 77 million, compared to a negative EUR 14 million in the first half of last year. As a reminder, cash generation in our business is typically concentrated in the second half of the year, particularly in the fourth quarter. We also recognize that the first half of 2025 benefited from particularly strong working capital performance, creating a demanding comparison base. Cash generation remains a core management priority as it has always been, and we continue to focus on disciplined working capital management and cash conversion across the group.

Turning to working capital. Balance stood at 15.9% of rolling revenues at the end of June, registering a 0.5 percentage point increase year-on-year on a like-for-like basis. We have an optimized stock level to support business growth and provide a high level of service to our customers. Overall, we remain comfortable with the cash flow trajectory, which is consistent with the underlying seasonality of the business. At the same time, we continue to focus on key operational levers that support cash generation while investing in our strategic priorities.

Moving on to Slide #13. Let's now look at the evolution of our adjusted net debt during the first half. As discussed on the previous slide, free cash flow represented a cash absorption of EUR 77 million in the first half, reflecting the normal seasonality of the business. We also recorded approximately EUR 34 million cash outflows related to acquisitions, mainly associated with the exercise of the call option to acquire the remaining 49% minority stake in Chromagen Australia, bringing our ownership to 100% as well as other minor acquisitions completed in the Components and Combustion Technologies divisions during the period.

The exercise of Chromagen Australia call option is not impacting the ESMA net debt as it was already taken into account. Other movements included around EUR 16 million financial effects and other charges, EUR 37 million of dividend payments and approximately EUR 3 million related to the share buyback program. Finally, noncash items had a positive impact of around EUR 6 million, mainly reflecting mark-to-market effects, IFRS 16 lease liability movements and exchange rate effects on adjusted net financial indebtedness. As a result, leverage at the end of June reached 2.2x, exactly where we expected it to be at this stage of the year. We are comfortable with the current leverage level and with the group's financial flexibility.

Turning to Slide #14. Let me briefly comment on the group's financial structure. We already had a very solid financial structure as commented during previous calls. We have further strengthened it in preparation to Riello acquisition closing. At the end of June, the group had approximately EUR 559 million in liquidity compared with EUR 250 million at year-end, reflecting the new financing facility arranged during the period. Adjusted net debt amounted to EUR 702 million. The average maturity of noncurrent bank debt is approximately 3.5 years with around 90% of maturity falling between 2028 and 2032, providing strong visibility and limited refinancing risk in the coming years.

In addition, more than 50% of long-term debt is either fixed rate or hedged, limiting the group's exposure to interest rate volatility and supporting greater visibility over future financing costs. As a result, we have ample time and flexibility to manage our debt profile proactively, supported by prudent hedging policies and a disciplined approach to capital structure management. Finally, we continue to benefit from approximately EUR 1 billion from committed and undrawn credit facilities, providing significant financial flexibility to support both organic growth and future M&A opportunities.

With that, I'll hand the call back to Maurizio for some final remarks and an update on our outlook for the year.

Thank you, Riccardo. So let me conclude on Slide 16 with our outlook for the remainder of the year. Overall, we are very pleased with the development of the first half. The second quarter showed a clear acceleration in organic growth and margin expansion despite ongoing investment in strategic initiatives and the continued impact of the Middle East conflict.

As a result, we confirm our 2026 guidance. Starting with the top line, we continue to expect organic revenue growth between 1% and 4% year-on-year on a like-for-like basis and at constant exchange rates. Turning to profitability. We continue to expect an adjusted EBIT margin between 7% and 8%, supported by operating leverage, continued cost efficiency and the actions already underway across the group. At the same time, we will continue investing in go-to-market initiatives, new products, digitalization and R&D as these investments remain essential to support future growth.

Regarding the Middle East, we continue to manage the situation based on the current level of intensity of the conflict. While the region remains a headwind, the overall impact on the group has so far been managed and is reflected in our current expectations. On cash generation, we continue to expect CapEx to be between 5% and 5.5% of revenues with cash flow generation heavily weighted towards the fourth quarter, in line with the historical seasonality of the business. Lastly, following the completion of Riello acquisition on July 1, Riello will be consolidated in the second half of the year and is expected to generate between EUR 190 million and EUR 200 million incremental revenue in up to 2026.

Thank you, Maurizio. We have now completed our presentation, and we are available to take your questions. To make sure that everyone gets the chance to speak, we kindly ask to limit your questions to a maximum of 2. Operator, please open the line. Thank you.

[Operator Instructions] The first question is from Christian Hinderaker of Goldman Sachs.

I wanted to start on the Americas, if I may. I believe it grew 12% organically after a 14% decline in the first quarter. I know Q1 faced a particularly tough comp. But if we look at the AHRI data, that was showing mid-single-digit declines for April, May. So I'm curious whether the growth that you reported reflects an acceleration in the market in June or whether it's about the pickup in demand on your Lennox JV or perhaps something else? I appreciate some color there.

Thank you, Christian. I mean, I think we said during Q1 that the performance we had, especially in water heating was impacted by the fact that last year, we had the tariffs. As you said, we said as well that we were expecting a recovery in quarter 2, which happened. I would say a continuation of good performance in heating and an acceleration of water heating exactly for the reason that you said. These are the 3 things. So the market is recovering. We are doing better with our products and Lennox is doing well as well with a minor contribution.

And then maybe just turning back to the German market comments. I appreciate the run-through there in what's maybe a complex picture for the change in regulations. What do you see as the impact here in terms of the long-term dynamics, particularly on the boiler side? Obviously, the incentives remain in place and are probably more front-end loaded for heat pumps. But when we think about boilers, how does this change your view for that market going forward?

Yes. I mean, as I said, I think we are positive on the regulation. It's giving clarity on both renewables and gas boiler or boilers in general. On heating heat pump, it is clear the kind of incentive that people can enjoy in '26, '27, '28 up to '29 with funding. And I think on gas boiler, the new legislation is removing this uncertainty that was related to the famous 65% that we always mentioned in terms of the fact that consumers would have to prove to use 65% of renewables when installing a gas boiler. So I think this is really liberating the opportunity for anyone to select if they prefer renewables or fossil replacement. And so we are positive, and I think that the market will benefit about it.

The next question is from Davide Rimini, Intesa Sanpaolo.

I have 2 questions. One is both on Riello. So far as I understand, you suggested that in the second half, EUR 190 million, EUR 200 million revenue will be the contribution, and we had sort of the indications of EUR 400 million last year reported. I just wonder whether sort of there might be any consideration in terms of the seasonality the business has since it doesn't look like that the second half will be that much different versus the first half? And related to that or partly related is instead whether you might share instead some indications on the profitability expected in the second half from Riello?

Thank you, Davide. I mean, as you might imagine, we are working with our colleagues since a few weeks. I would say on your first question, in terms of seasonality, I mean, there is not a big seasonality between half 1 and half 2 historically on Riello. And on the second question on profitability, I mean, you know that this business is less profitable than Ariston. Now we will give more guidance on the next call when we will see and we'll have a little bit more clarity on all the numbers for half 2.

The next question is from Davide -- Alessandro Cecchini of Equita.

The first one, it's about -- I mean, your guidance, plus 1%, plus 4% organic that you have maintained. So given the second quarter, it seems that, I mean, you are running in the mid high part of this guidance. So if you can maybe provide more color on your guidance, your feeling about this could be very helpful. This is my first question.

Thank you, Alessandro. I mean, obviously, as I said, we are pleased with the development of the first half. And I think this is in line with our expectation. So therefore, we confirm our guidance. I think it is early to narrow also given the global geopolitical uncertainty. So I think during the next quarter call, we will update you all. But as you said, I mean, positive development and so far in the middle of the range.

Okay. And which is your feeling about the current dynamics that you are seeing in the market at this moment. So if you compare with the second quarter. So are you seeing some changes in the trajectory in the feeling that you have?

No. I mean, I think -- I mean, we are seeing the market confirming what we said. So after Q1, which we expected to be a little bit lower, better development in Q2, Q3 and Q4. You saw Germany. I mean, I commented on this. I commented on the incentives, and I think Germany continues to be strong. Italy also in quarter 2 did a little bit better. France, I mean, as we expected, is still more related to what the government will do. But in general, I will continue to see a positive evolution in half 2 of what we see in half 1.

Okay. And my second question is on Fit to Win program. Basically, if you can update -- so how much do you expect incrementally in this year 2026 versus 2025. So just to give a sense of what your cash in this year with this program?

Yes. Thank you for the question. I mean, as we said, Fit to Win is something that we started already a couple of years ago, is working and is going on in line with our expectation. The result of the benefit is in the guidance in terms of profitability, but we said as well that we are reinvesting part of the benefit to support what we need to do for the long term of the company. So investments in R&D, in new products, in sales, in digitalization and in making sure that we have an IT infrastructure that is in line with 2030 and not something that was working a decade ago. So feeling good about it. We already said at the end of last year that we would have reinvested the benefit, and we continue to do this. And overall, the profitability that we are delivering and we expect to deliver full year are embedding this Fit to Win plan.

Okay. Very last is connected with the first one about the markets. So we saw some data about Italy and France. It seems that probably Italy is the first quarter that is a market is going up with the heat pumps going well. So if you can share maybe on these 2 markets. So we are always talking about, of course, Germany, but combined Italy and France are equally important or even more. So just to provide your feeling about these 2 markets with Italy likely to be the first time up after a year.

Yes. I think I commented a little bit before. So Italy, Q2 was obviously better than the historical trend. We always said that Italy was reaching the bottom and then recovering, thanks to, I would say, both heating heat pump and wall-hung boiler. So after a very tough Q1, Q2 was better. I remember that obviously, the weight of heating heat pump in Italy is different in percentage than the one in Germany. I think in France, on the contrary, while we see a little bit of improvement on the renewables part, I think on both fossil and water heating overall, the country is still a little bit under pressure.

Here is where the government clearly said that they want to drive heating heat pump growth, but the uncertainty on the economical situation overall is still, let's say, blocking a little bit consumers to really invest in long-term equipment like heating and water heating. Then I think the rest of Europe, I mean, I think we continue to see heating heat pump growing strongly across Europe. Wall-hung boiler improved, but a little bit slightly negative flattish and water heating market continue to be flattish with -- or slightly positive, but very positive on in pump water heater.

The next question is from Michele Baldelli, BNP Paribas.

I have a question on the change of the refrigerant next year to the R290 in Europe. How are you managing the transition to this? On what kind of part of sales do you see it? And if there is any kind of product changeover that can impact your sell-in for this year? The second question is if you can quantify as also carry out these the heat pump growth in the European market and comparing to boilers, if you can also give the boilers one, what you have seen also on your side?

Thank you. I mean, I think R290, as you know, also was one of the first introducing this many years ago. Now everyone one after the other are bringing the R290 technology to all the heating heat pump. This is what we are doing as well since year with Wolf, then Elco, then Ariston with the new heating heat pump. So I think it's business as usual for us and it's something that, as I said, was a competitive advantage in DACH for the fact that Wolf was one of the first introducing this gas in a very positive way.

I think on the second part of your question, this is what I mentioned before to Alessandro. We see obviously heating heat pump growing well, not only in Germany, but across Europe, while wall-hung boiler improving and more flattish in the first half. So this is what I would say, obviously, the dynamics are different. We saw positive wall-hung boiler numbers, for example, in Germany and in Italy in quarter 2. So positive signs as well.

[Operator Instructions] The next question is from Alessandro Tortora, Mediobanca.

I have, let's say, 3 questions, so please forgive me. The first one is on the pricing strategy for the coming quarters, considering that, as you said before, there is this cost headwinds from Middle East. So just to understand which kind of action you are planning also considering that if I remember well, you have, let's say, a nice hedge for this year, but clearly, it's a rolling hedge and therefore, which kind of, let's say, action you see on pricing for the coming quarters? The first question. Do you want to go one by one or I'll tell you on the other?

As you want Alessandro. As you prefer.

Yes, I will hear your first answer, thanks.

Yes. I think on pricing strategy, we said and even Riccardo commented that in Q2, we saw the first signal of our move in pricing. Obviously, while I think we are well positioned for '26, thanks to our hedging policy, this will have an impact in '27 and '28. So we have to move. And we do always a mix of pricing, cost reduction. I don't think everyone is on mute, sorry, pricing cost reduction in terms of productivities and other productivities that we do across the board. So this is the way we manage our profitability, always paying attention to be competitive and making sure that we don't overdo versus the others. But I would say we are well positioned on this, and we will see a progressive positive evolution on pricing in the next quarters.

And let's say, on this front, you see the major operators and competitors following this kind of trajectory considering that this is a shared headwind for everyone?

Alessandro, this is common to market. I think -- I mean, you mentioned it's not only the Iran conflict and the crude oil, but overall still is obviously higher because of the decision of European Union, and I'm sure that you follow better than me what even other listed companies are saying on pricing, including someone that said recently that they will have to work more on pricing and cost. So I think we are seeing this happening being common to market.

Okay. Understood. Then the second question is on -- we unfortunately saw in the last weeks this heat wave hitting basically Europe with, let's say, some panic buying sold out scenarios in countries like, for instance, France. I recall that, for instance, even part, maybe a marginal part of your offer is also on the air-to-air, maybe also on portable conditioner. Can you tell me, let's say, which kind of role this solution have inside your portfolio? Is it still some kind of tactical product you have? So just to understand if you are having some reasoning about this solution that clearly had this very strong demand over the last weeks?

Yes. I mean, as you know, we are not an air conditioning producer, and you will hear more from others. But in general, we sell air conditioning as a complement to our portfolio. And obviously, while the beginning of the area overall from the market was difficult because there was a stock not from us, but from the key competitor in the market, the acceleration of the heat wave in June and July are obviously driving higher growth in terms of sales. So we are, I think, benefiting like others with this. And let's hope we will continue to be warm until August and then cold again so we can balance between heating and air conditioning.

Okay. And the last question is just a clarification on the comment made before on the, let's say, year-end leverage. Let's say, I didn't understand you probably mentioned a level close to the first half, close to 2.2x. I didn't understand if this is something related to the pro forma numbers that including also the annualized impact of Riello. So just a confirmation of this because this would imply, I guess, that also on the working capital side on sales, you should decline from the first half level.

Alessandro, thanks for the question. So when it comes to expected leverage ratio at year-end on a pro forma basis, we expect to stay below 2.5x, 2.5x. Of course, the second half for Riello integration, the ramp-up will be crucial. And as we are learning since July 1. But so far, we do expect to stay below 2.5x.

So this is post acquisition to be clear?

Pro forma, yes. Included.

Yes. Yes, pro forma.

The next question is from Christian Hinderaker, Goldman Sachs.

I just wanted to understand a little bit more when we think about strong, good growth in terms of the commentary. Obviously, you had mid-teens growth in Americas, as we've discussed. I guess just broadly, when you're talking about those -- that phraseology, is that -- should we think of that in reference to your midterm guidance? Yes, I guess just what constitutes strong growth because I guess there could be a range in there?

No. Normally, we don't give guidance by market. So maybe I try to repeat. So Q2 was particularly strong also because, I mean, last year was strong in Q1 and a little better in Q2. We don't give guidance market by market, but we would expect market of water heating in North America to grow low to mid-single digit and the heating market as well kind of low single digits. So normally, I think we said and it's clear to everyone, we are overperforming. So we are doing better than the market across heating and water heating overall, but also in North America, and we expect to do better than the market even in the second half.

Next question from Michele Baldelli, BNP Paribas.

It's just on the growth in the Middle East. Because in Q1, if I remember well, you should have suffered from the conflict in terms of sell-in in particular in March. So I was wondering how much of the growth in Q2 was just driven by probably postponement of this building of the sell-in from March to Q2? Just to contextualize how much of the growth that you had is just a lower effect of this.

Yes. Maybe we need to correct you, this continue to suffer because the war actually was impacting more Q2 than Q1. It started impacting obviously, during March, but obviously, Q2 is much tougher for us. As you know, and as we said, the total revenue affected in the area is a little bit less than mid-single digits. So this is what you have to keep in mind. Every day, we hope it solved, but there is always something happening. So we are still suffering due to the Middle East conflict in terms of top line, as I just commented, but also, as you know, because there are incremental costs that we are factoring in already in our guidance.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

Okay. If there are no more questions, we thank you all for joining again. And for any follow-up questions, the IR team remains available as usual. Have a great day and summer break. Bye.

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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Ariston Group First Quarter 2026 Results Presentation.

[Operator Instructions]

At this time, I would like to turn the conference over to Ilaria Candotti, Head of IR. Please go ahead, madam.

Thank you. Good afternoon, everyone, and welcome to Ariston Group first quarter 2026 results conference call. I'm Ilaria Candotti, Head of Investor Relations.

With me today are Maurizio Brusadelli, our Chief Executive Officer; and Riccardo Gini, our Chief Financial Officer. Today's presentation will last approximately 20, 25 minutes, after which we will open the floor for questions.

As a reminder, for those joining us by phone, the slide deck is available on our Investor Relations website.

I will now hand the call over to Maurizio.

Thank you, Ilaria, and good morning, afternoon, evening, everyone.

So let me start with Slide 3 with a brief overview of the quarter. The first 3 months of 2026 marked a solid start to the year, in line with our expectation for the period and supporting the full year growth trajectory despite headwinds arising from the conflict in the Middle East. Performance in the quarter was driven by the continued strength of renewables with heat pumps once again confirming the structural trend towards electrification across Europe. Germany, in particular, continued to show positive signs in line with the growth trend observed over the recent months.

Key highlights for the period are net revenue at EUR 656 million, stable on an organic basis, supported by a favorable product mix driven by heat pump growth in Europe. The European gas boiler market remained weak with the exception of Germany, where it started to show early signs of recovery. Water heating market also faced a soft start, particularly in North America. Our performance was affected in March by the Middle East conflict, which impacted sales in the area and also some cost. Starting mid-March, our water heaters began to be sold through Lennox stores, showing a good start. And as we always said, significant sales are expected from 2027 onwards.

Adjusted EBIT margin showed strong resilience and remained stable year-on-year despite an increase on logistic cost in the month of March, due, as I said before, to the disruption of supply chain in the Middle East. Free cash flow reflected a more normal seasonal trend if compared to the one observed in Q1 of 2025 and some temporary effects in net working capital, which we will cover in more details later. We confirm our full year 2026 guidance. Regarding the impact of the conflict in the Middle East, we believe that at the current level of intensity, they are well under control, thanks to the measures that we already put in place to mitigate the effects on top and bottom line. We see a positive start to quarter 2 and remain focused on execution to beat the market and accelerate growth over the course of the year.

Moving to Slide 4. As always, during the quarter, we continue to make progress across our strategic priorities. In North America, as we said, the joint venture with Lennox reached an important milestone. The sales of Lennox-branded water heaters have started mid-March. A wide range of tank-type residential water heating products like electric gas and heat pump products are now available to Lennox dealers across the U.S. and Canada. This partnership combines Lennox's dealer network with Ariston 's global leadership in water heating technology. U.S. is the largest global water heater market, about USD 10 billion and represents a meaningful growth opportunity. 2026 will be focused on setting up organization, product, training and services with an increasing contribution expected from 2027 onwards.

In late January, we inaugurated the Wolf Campus in Mainburg, Germany to further strengthen our relationship with key partners and enhance installer engagement. The campus serves as a state-of-the-art training and research hub dedicated to HVAC renewable solutions, system configuration and digital application. In addition, the Wolf Campus hosts an entire floor dedicated to research and technology transfer, serving a new partnership with Deggendorf Institute of Technology focused on sustainable building solutions and next-generation heating technologies.

Finally, on sustainability, the implementation of the Road to 100 strategy continues to deliver measurable results with MSCI recently upgrading Ariston Group to an A rating in April, placing us among the top performers in our sector. With this last achievement, all 4 main ESG ratings have improved over the past year.

Moving to Slide 5. As always, let's review the German heating market, our first market representing around 20% of group revenues, and this market continues to be central to the energy transition. As we have described multiple times in the past, the German market had a strong acceleration in 2023, followed by a correction in 2024, largely driven by destocking and regulatory uncertainty. In Q1 this year, renewable market continued to grow with an increase of 35% year-on-year. A positive sign came also from the gas market, which showed a positive trend.

Looking at incentives, since the beginning of 2025 approvals have gradually resumed. And in Q1 '26, approved incentives for heat pumps averaged around 27,000 units per month, up approximately 28% year-on-year, confirming the recovery trend already visible in the second half of last year. The incentive scheme has been confirmed to remain in place through 2029, continuing to support demand for heat pumps. At the same time, the reform of the Building Energy Act, which points to a more gradual and technology-neutral transition pathway with the proposed removal of the mandatory 65% renewables energy requirement, it's currently under review as part of the new GMODG, also called the GMG or Building Modernization Act, of which a first draft has just been published.

With that, I will hand over to you, Riccardo, and Riccardo will help us and go through the financial performance of Q1 in detail. Thank you.

Thank you, Maurizio. Let's begin with Slide #7, where we present the year-on-year evolution of net revenues with the Russian entity reconsolidated since the end of March 2025 and as such, represented as a perimeter variation. In the first quarter, net revenues amounted to EUR 656 million. Looking at the walk year-over-year, organic net revenues were substantially flat, reflecting weak market conditions. In particular, Climate Comfort benefited from continued growth in heat pumps, while gas-related products remained under pressure. Water heating was broadly stable with solid performance in Europe, a slowdown in the Americas in line with market trends and Asia Pacific and Middle East impacted by the Gulf conflict in March, affecting overall organic growth.

Services and Parts once again delivered solid performance. ForEx had a negative impact of around 1%, mainly due to the U.S. dollar and selected the Asia Pacific currencies as the Indian rupee and Vietnamese dong. Compared to Q1 2025, the quarter also included a contribution from the deconsolidation of Russia and other minor acquisitions.

Turning to revenues by region. On Slide #8, you can see how our top line performance varied across various geographies. Europe delivered a strong quarter with revenues up by 5.6% year-on-year, supported primarily by renewables, with Germany performing particularly well on the back of the recovery in heat pumps discussed earlier, followed by France, while gas-related categories remained under pressure. Ariston once again delivered performance above the European heating market. As already mentioned, the year-on-year revenue change includes the contribution from the Russian business and other minor acquisitions, which were not part of the group perimeter in Q1 2025.

In Asia Pacific and Middle East in water heating delivered positive organic growth. Vietnam and India recorded strong volume growth, while Middle East performance was also very positive ahead of the March escalation. Please note that in 2025, the exposure to the most affected markets, Emirates, Saudi Arabia and Israel represented no more than a mid-single-digit percentage of our group revenues. The performance in the region was also impacted by adverse FX movements, which reduced revenue growth by 4.3%.

In the Americas, revenues declined, reflecting the slowdown of water heating in line with market dynamics. For example, as of February year-to-date, the U.S. water heater market based on AHRI data was down about 9% year-over-year, mainly driven by declines in residential gas and also in residential electric. And with AHRI, I'm referring to the North American Trade Association.

By contrast, the heating business showed a positive performance, delivering organic growth. Regional performance was also negatively impacted by unfavorable foreign exchange effects, which reduced regional revenues by more than 3%.

Moving forward to Slide #9. Adjusted EBIT amounted to EUR 34 million in the quarter, corresponding to a 5.2% margin at reported perimeter and 5.3% margin percent on a like-for-like basis. Margins were substantially stable year-on-year despite higher logistics costs related to the Middle East situation and ongoing investments in go-to-market, digital initiatives and R&D as we continue to execute and complete initiatives that began in 2025. Reported EBIT was EUR 28.1 million with adjustment primarily related to the purchase price allocation amortization and also rightsizing actions consistent with what we discussed in the prior quarters. As a reminder, profitability remains highly seasonal for our business with around 2/3 of adjusted EBIT historically generated in the second half of the year.

On Slide #10, free cash flow was negative at EUR 69 million in the first quarter. This reflects the usual seasonality of our cash generation. Q1 is historically the quarter with the highest cash absorption, mainly driven by working capital dynamics. It is also worth noting that Q1 2025 was not representative from this perspective as net working capital absorption was around EUR 36 million, well below the historically higher absorption typically recorded in the first quarter. As a point of reference, it was EUR 72 million in 2024 and about EUR 100 million in 2023.

In addition, Q1 2026 reflects the timing effect from high capital expenditures incurred in Q4 2025 and paid in early 2026 with no underlying deterioration in performance. Inventory levels remain well under control with net working capital at 15.6% of rolling net revenues, consistent with historical first quarter patterns and 0.5 points higher compared to the end of 2025 on a like-for-like basis. As a reminder, the group's cash generation is heavily weighted towards the second half of the year with the fourth quarter representing the largest contribution in line with our historical patterns.

Moving forward to Slide #11, adjusted net debt increased up to 60 -- sorry, EUR 631 million at the end of March compared to EUR 542 million at year-end '25, mainly reflecting the seasonal free cash outflow in the first quarter as we -- which we have just discussed. Leverage stood at around 2x, remaining fully under control and in line with our expectations and comfortably within our acceptable range. The group's financial structure remains solid, supported by a well-balanced debt maturity profile and a high proportion of fixed rate or hedged debt.

On Slide #12, you can see that our financial structure remains solid. Average debt duration is around 3 years with nearly 90% of maturities falling between 2027 and 2031. Approximately 60% of long-term debt is fixed rate or hedged. And in addition, we benefit from around EUR 1.4 billion of committed unused credit lines, ensuring ample financial flexibility.

I'll now hand the call back to Maurizio to conclude with the outlook for the full year.

Thank you, Riccardo. And let's move to Slide 14 to discuss our guidance for 2026, which we confirm. The market reflects ongoing recovery in renewables, and we believe that the actions that we are implementing across the group will increasingly support growth performance over the course of the year. We observed a progressively improving trend with a positive start to Q2. In addition, the European heating market is largely replacement driven and currently at historical low levels, which supports our confidence in a gradual normalization of demand over time.

We remain focused on execution and on investing in strategic initiatives to support growth and our medium-term road map. On the top line, we expect organic revenue growth between plus 1% and plus 4% year-on-year, on a like-for-like basis and at constant ForEx.

On profitability, we expect an adjusted EBIT margin between 7% and 8%, supported by ongoing cost efficiencies and operating leverage, while at the same time, increasing investments in go-to-market capabilities, new products, digitalization and R&D as part of the initiatives launched in 2025 and progressing through 2026.

As regards to the Middle East, we have quickly adopted a series of measures to mitigate the impact of the conflict on top line and profitability. And we believe that at the current level of intensities, these effects are well under control, while we continue to actively monitor the situation.

On cash flow, we confirm CapEx between 5% and 5.5% of revenue, aimed at supporting growth with cash generation concentrated in the fourth quarter, in line with the historical seasonality of our business.

Finally, on M&A, we confirm positive progress on the Riello acquisition following constructive interaction with the relevant authorities with closing by the end of the first half of 2026 confirmed. At the same time, we continue to actively assess strategic M&A and bolt-on opportunities in a disciplined manner.

To close, we remain committed to execute our guidance for 2026, balancing growth, investment and profitability.

Thank you, Maurizio. Before opening the Q&A, we remind that since April of this year, we have published the analyst consensus in the IR section of our website. As you can see, some analysts already include Riello in their estimates, while other analysts do not. On our website, you can find either the consensus from the analysts, including Riello and the one with analyst estimates without Riello. We aim to maintain transparent communication with the market, ensuring full visibility for everyone.

Please note that our guidance refers to the group perimeter at the beginning of the year without Riello. The closing of the acquisition, as already mentioned, is expected in the second quarter this year.

We have now completed our presentation, and we are available to take your questions. [Operator Instructions] Operator, please open the line. Thank you.

The first question is from Christian Hinderaker of Goldman Sachs.

I want to start on the mix dynamics, if I can, particularly within thermal comfort. I guess when we think about your German business, I wonder how much more exposed that region is for you to heat pumps than the rest of Europe? And then also in the Americas, how do we think about the split there in terms of hot water versus heating?

Christian, thank you. I mean, I think in Germany, we are similar to the market. So that's what I would say. Obviously, we mentioned before, the market in renewables are doing very well, and we are doing better than the market. And we are happy to see that also the gas boiler finally were positive as well in Q1. So I think the split is following the market. Sometimes it's 50-50, sometimes it's different based on the sellout.

I think on the Americas, what we can say that we are, again, pretty balanced. I mean, in U.S., we are a little bit more water heating than heating. In North America, U.S. and Canada, we are, I would say, balanced between heating and water heating. And in Mexico, as you know, we are only water heating.

Maybe turning to the P&L. You talked about some of the cost inflation on logistics. I wonder if you can just touch on any cost inflation you're seeing elsewhere, perhaps in raw materials. And then when we think about the logistics pressures, are those confined to distribution within the Middle East? Or is the impact being felt more broadly?

Yes. Maybe let's start with raw material. I mean, as you know, there is an inflation effect on steel, copper and aluminum, which are obviously going up for many different reasons. The steel is expected to increase also due to the CBAM that Europe decided to start. While in China, for example, still is down. But in general, overall, the raw material trend is on an increasing trend. We always say that we cover and we use to cover the material. So we see this year manageable and in line with the guidance that we are giving to you.

Then obviously, there are also other inflation related to the crude oil, for example, that is impacting not only logistics, but also shipping and also other materials. And on this one, I mean, we started the day with a crude oil level at $110, now it's more on $100, and we all hope that this will go down. There is a specific impact on logistic cost, which we already had in March due to the Gulf situation because as you might imagine, many ships were displaced and some could arrive, some didn't arrive. So that one, I think, has been managed and is the only one within the region.

All of these costs that I mentioned are well under control for 2 kind of actions that we are doing. First of all, mitigating actions that we are taking at group level in terms of cost containment and decision as well on what to prioritize and not to prioritize. And secondly, as we already said, more -- the majority of these inflations are common to market. So we are pricing in the market, and we will continue to price as needed, balancing obviously the effect on demand, making sure that we protect our profitability.

The next question is from Daniel Khajenouri of Morgan Stanley.

Firstly, is it possible just to give some more color on some of the moving parts to organic growth and the margin for Q1? If possible to understand the pricing and volume trends would be very useful. And if you could talk about some numbers around traditional products and heat pumps, that would be great.

And my second question is just a follow-up, just to the raw mats. Is it possible to help us understand some of the price/cost spread expectations for the full year? It would be useful to get some color on maybe some price increases you may have realized for Q1 and if you've announced any price increases since March. Thank you.

I think on organic growth, maybe we don't split more than what we said between regions and divisions. I mean, obviously, I can give you a little bit of flavor. In terms of performance, Europe, 70% of our business is solid and strong with growth organically above 2%. Asia Pacific and the Middle East, the organic was negative low single digit also because we had the effect of the Gulf, as we said before. And also in some geographies, the market of water heating was a little bit weak as we expected, but obviously a little bit weaker.

In the Americas, the organic is negative, I would say, close to double digit, which is in line with the market evolution that we are seeing there. In the Americas, you have to remember that Q1 last year was exceptionally high because between tariffs and incentives, there was a strong push of sell-in and sell-out in Q1. So that's why we are confident on the full year guidance. That's why I think we said last time that March was already doing better. We see April doing better as well. That's why we are calling a positive start of quarter 2.

To the second part of your question, which is related to raw material and pricing, I would say that you will see sequentially improvement across the quarters. Obviously, the benefit of pricing will have to come in the following quarters, partly because some of the costs were new news in the recent months and weeks, but also because, as I said, when we gave our guidance and we managed our price increase, we were obviously covering some of these increases through hedging. And therefore, all the prices increases are in -- will work for end of this year and more importantly, to protect 2027.

The next question is from Vivek Midha with Citi.

My first question is actually just taking a step back on Lennox. Could you maybe give us some sort of high-level views on what sort of contribution that could be? You said sort of significant contribution in '27. But is there any further color you can give us on targets on market share and so on, which you're hoping to achieve in 2027 or in the longer term? Thank you.

I know all the time you are asking us how big is big, but Lennox is a listed company as well. So I would wait for them to give you the numbers. But as we said, I mean, they started mid-March. I think it is a good start. We are only a couple of months in. But I think the collaboration, the cooperation, I think also the market acceptance is good. So let's wait for them. As we said, this year is a building phase here, especially for them since they are entering in a segment they don't know. But so far, so good. Ask Lennox and then we comment again.

Fair enough. My second question is a follow-up on your comments around the positive start to Q2 and the improvement you saw through March and April. I was wondering if you could give us as much color as you can as to what exactly you're seeing? Are you referring to order intake? Or is it the organic revenue growth? And what is driving that? Is it largely driven by the European market as in Germany and so on, seeing a step-up in heat pump demand after the Middle East? Is it other factors that are driving that? Any more color would be very helpful.

Yes. I mean I will try to give color without a lot of colors. But as I said, Q1 in Europe was good. And I think we have to expect that Q2 will be good as well because the markets -- I mean, you heard about the number in Germany and in the rest of Europe for renewables and also gas heating systems that are recovering a bit as well. Secondly, I said that in North America, the market evolution that is so negative in Q1 is a kind of exception because last year was very strong. I think in the Middle East as well, I mean, the first month of the crisis is the worst because obviously, everything was blocked. And then we saw already some positive recovery in April.

So I think it's a continuation of market recovery. We said this at the beginning of the year that we would have expected a gradual acceleration of 2026 because the market, especially heating would recover. And this is what we are seeing and we are confident that we will continue to see. And therefore, we are reinforcing our guidance. So March -- gradually, January, February, March was an improvement. April is a confirmation of this improvement and our expectation are obviously to see this sequential improvement in the next 3 quarters.

The next question is from Michele Baldelli with BNP Paribas.

I have a couple of questions. The first one relates to the organic growth for heat pumps. Can you confirm that the numbers that also the association disclosed are the numbers that may apply also to you this mid-teens growth for the heat pump volumes for you?

The second question relates to the Section 232 and the revision that happened early April. Just wanted to have your view on what shall we expect from this given that you are importing also some water heaters from Mexico and also on your partnership with Lennox, what is the agreement about this kind of possible changes in tariffs in general also?

Yes. So maybe, first of all, on heat pump, please remember that the association is always giving the number of, let's call, air-to-air, which we call air conditioning to simplify your life. While when we speak heat pump, we mainly think to heating heat pump hydronic. So that number is the sum of the 2. If I would have to say to you, I mean, what we see in the heating heat pump market in Europe is around 10%, a little bit less around that number in terms of growth. So don't, let's say, read the numbers carefully because the notion of heat pumps or I mean, are different.

Secondly, on your question on the tariffs, Obviously, there is always something new. I think we proved last year that we managed very well the situation with pricing. Just to make sure that it's clear to all of you, the famous new tariffs introduced this quarter in 2026 are not impacting water heaters. While they are impacting a little bit heating gas boiler that everyone is producing or exporting from Canada to U.S. And I think on this one, I mean, we covered already with the price increase.

The next question is from Alessandro Tortora from Mediobanca.

I have 2 questions. So the first one, if you can come back a little bit on your sequential improvement expected. So considering, let's say, the 0% organic growth you got, let's say, in Q1. So basically, what you are telling us is that you got, let's say, a positive organic growth in April. And as you mentioned before, considering the regional mix, also positive performance in Europe, negative performance in both Middle East and North America. If we are assuming, let's say, still good contribution for Europe, it means that you are assuming, let's say, in the coming quarters a less negative, let's say, contribution or even positive from the other 2 regions. So just to understand if this is, let's say, some kind of contribution by region that we should expect in the coming quarters? This is the first question.

Yes. I think, Alessandro, you are right. Obviously, Q1 Europe was strong. The other 2 regions were not. The divisions were strong as well. So I think what we are seeing is obviously a contribution from the other regions coming on a positive sign and not on a negative sign and a continued evolution of the market recovery in Europe. So North America will improve, Middle East and Africa and Asia will improve.

Okay. And then can you comment a little bit -- I know it's a small division for you, but considering then that you're going to integrate also Riello, can you comment a little bit on the performance of Burners, which was even clearly from a small base, but was, let's say, up 30%. So if there are some specific reason behind this very strong performance of Burners or combustion technology, as you mentioned also.

I think, obviously, we never speak about the combustion technology business, but it's a business that is doing fine. I think we started to talk a little bit more since we started to speak about Riello. The market is big, it's more stable. We are a solid and strong player. So what we see there is that the majority of the European market are growing that obviously, we did some minor acquisitions there are doing well. And also, there is the low NOx and ultra-low NOx solutions that are helping us to build the momentum for our commercial and industrial application. I think this technology will continue to be more and more important in the future. We are very well placed. We are one of the first player to introduce this. And I think it is a very good sign with, as we said, combustion technology has also a good profitability. So positive on that one.

Okay. And sorry, just a follow-up on my, let's say, initial question on when you mentioned and expand the contribution by area. Is it possible to have an idea of the underlying performance of the APAC, excluding, let's say, the disruption you had in Middle East because clearly, we saw this minus 8%, including FX, including also this Middle East disruption. Can you help us, let's say, to have some kind of clean number on the underlying trend there in that region?

No. I mean maybe we don't give you all the detail, but if we exclude Middle East and Africa, as we said -- sorry, Middle East that, as we said, is around mid-single digit of our revenue, the majority of the countries where we play, we are leader. I mean, they are having solid performance in a couple of countries in water heating, in Africa, there was a market slowdown that we expected to be recovered in the rest of the year.

Okay. Sorry, Maurizio, maybe I made, let's say, the wrong question. Let me revert a little bit. If you look at April, for instance, in a situation that at least consolidate a little bit, let's say, consolidate, okay, Middle East or APAC, EMEA, do you see that region turning positive?

Yes. I think we can say that excluding the impact of Middle East, the region is performing well in April.

The next question is from Alessandro Cecchini of Equita.

The first one, I may take one by one. The first one is about the European market that in the first quarter was a plus. You said about organic growth slightly above 2%. Making the math, so probably Germany contributed by more than this, considering that the market was in volumes double digit. You stated that you are, I mean, at least going as a market. So probably the rest of the market is flat or slightly negative. So it's a right consideration looking at Europe. So basically, the entire growth of Europe is driven by more than the performance was driven by Germany. Is that correct?

Yes. Maybe let me put it this way. Obviously, Germany, which is also our first market overall for the group being positive is positive for us, and we outperformed the market. So you are right on your first statement. As we said, maybe during some of the interaction we had in the past, we still see France a little bit under construction because the government is not very clear in supporting and not supporting heating and renewables or actually, they say they support, but maybe there is not the funding. We said as well that in Italy, the gas boiler were under pressure. And I think in Q1, we saw this under pressure as well.

I think in the rest of the geographies, which are obviously smaller for us, I mean, Switzerland did well. which is not small, but I mean, it's one of the top 5. On all the others, the performance was, I would say, flat to positive. So I think the one where we need to see still a positive turnaround are France, Italy heating, which are the key one. And obviously, we have U.K. in Europe, but I mean, we are doing well, but we are very small, so not meaningful for you. So I hope I gave you a lot of information, which also competitors will enjoy, but I shouldn't say.

You know your competitors, probably your competitors know your numbers. So anyway, about -- I mean, you spoke about the confirmation of the guidance, the consensus in this moment that you collected excluding Riello is in the midpoint of your guidance. Are you still considering this, I mean, reachable considering the step-up in organic growth that you expect over the next quarters?

Yes. I mean, as we said, we are giving a range, which is 1% to 4%. And then we said that we'll eventually correct the range quarter after quarter as we did last year. Now obviously, we see a positive start to Q2. But let's see also how the Middle East and the volatility in the macro environment will change. But if we wouldn't be confident on the guidance, we would have said, but I think we are, and we are also giving you the message that Q2 started well. So, so far, so good, be patient and bear with us, we will continue to do our best to accelerate quarter after quarter in a profitable way to be as good as we can.

The next question is a follow-up from Michele Baldelli, BNP Paribas.

Sorry, because you are so kind to give some general granularity. I wanted to ask on April, do you see a sort of, let's say, better performance compared to Q1 of the, let's say, heating heat pumps. So it's basically the war leading to this increasing interest because basically, the war in Q1 just impacted March and probably the decisions from consumers would have taken some days or weeks. So it could be interesting to see your -- what you see in the recent weeks in April on this product category.

Yes. I think, obviously, when we comment -- first of all, we don't give details by technology. I think it's better to wait everyone the market. When we said April, it was a positive message overall. I don't like maybe to give you more details.

[Operator Instructions] The next question is from Davide Rimini, Intesa Sanpaolo.

Actually, most of the questions that I had have already been answered. I have just one and whether you might add some color on what you might share on Riello performance during this year.

I wish I could say, but as you know, we are a competitor, and we don't have information on their performance. We tried to understand from the Carrier comments how they are doing, but we don't have visibility. So we have to wait the official closure to make sure that we understand how they are doing. And as we said, we expect to receive all the green lights within a couple of months by the end of June.

Ladies and gentlemen, there are no more questions registered at this time.

Great. There are no more questions. Thank you, everyone, for joining, and enjoy the rest of your day. Bye.

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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Ariston Group Fourth Quarter and Full Year 2025 Results Presentation. [Operator Instructions]. At this time, I would like to turn the conference over to Ms. [ Ilaria Candotti ], Head of IR. Please go ahead, madam.

Thank you. Good afternoon, everyone, and welcome to Ariston Group Fourth Quarter and Full Year 2025 Results Call. Joining me today are Maurizio Brusadelli, Chief Executive Officer; and Riccardo Gini, Chief Financial Officer. The presentation will take about 25 minutes, after which we will open the floor to your questions. For those joining by phone, the slide deck is available on our Investor Relations website. I'll now turn the call over to Maurizio.

Thank you, Ilaria, and hi, everyone, also from my side. So let's start. I am on Slide 3. So 2025 has been, I would say, a very positive year for the group. After a market slowdown in '24, the European heating market saw a recovery with German returning to value growth, thanks to an increasing demand of renewable technologies. The rising demand for heat pumps more than offset the weakness of the European gas market, where the replacement rate remained at the bottom of the past 15 years.

In this context, we benefit from our strong strategic position in Germany. And overall, we outperformed the market, thanks to our ability to serve demand with a broad and competitive range of technologies, supported by consistent and disciplined execution. This was also true for our water heating business, which continued to deliver solid results across geographies despite negative currency effect in several countries like U.S., Mexico and India to mention the most relevant. Overall, we achieved a plus 3% organic growth full year with 4 consecutive quarters of consistent growth and a healthy adjusted EBIT margin at 7.1%, fully in line with the guidance we provided a year ago.

Cash generation remained robust, supported by the typical seasonality of our business and by continued discipline in working capital. Cash generation was lower compared with those of previous year, which benefited from an exceptional net working capital reduction. The fourth quarter closed the year with sustained growth, double-digit profitability and cash flow concentrated as usual in the final month. Let's move on to Slide 4, where we summarize the pillars of our equity story with a focus on 2025 achievements.

We combined solid execution with meaningful strategic progress across all areas. First, we strengthened our role as a champion of thermal comfort throughout all stages of the energy transition from gas boiler to heat pump, hybrids and other heating system. Last year's growth in renewables helped offset the European boiler environment, which reached a 15-year low. We also achieved top quartile ESG ratings in improvement, which confirms the quality and consistency of our sustainability road map. Second, our balanced portfolio proved once again a real differentiator. Thanks to our broad technology offering from traditional solutions to advanced heat pumps, biofuel solution and combustion technologies, we can adapt quickly to shifting market conditions.

At the same time, the contribution to our growth from water heating remained important, while service and parts continued to grow significantly. Third, we continue to expand and modernize our global industrial footprint. Over the year, we invested to strengthen our competitiveness and reinforce our proximity to key markets. Last December, we inaugurated a new plant in Serbia, dedicated to the production of cylinders and heat pump components. Last September, our new industrial site in Cairo became fully operational, supplying water heaters to the African and Middle East markets from a country with a strong manufacturing base and a cost advantage.

We also opened our first factory for electronic boards in Arcevia in Italy's market region, strategically located near our existing production sites in the region. Finally, last October, we signed an agreement to acquire a new water heating plant in India, further supporting the growth potential of our local premium brand, Racold. Fourth, we continue to push ambition to act as a consolidator in the climate comfort sector.

As you know, last December, we signed the agreement to acquire Riello. This move will strengthen our leadership in climate comfort in Italy and expand our global capabilities in combustion technologies. In North America, last June, we signed a joint venture with Lennox, a strong leader in innovative HVAC solutions. This partnership will allow us to supply our portfolio of residential water heaters through Lennox distribution network, which counts more than 300 locations across the U.S. and Canada.

In 2025, we also completed two bolt-on acquisitions within our components division. To conclude, 2025 marked a return to growth at the upper end of our guidance. We delivered 4 consecutive quarters of year-on-year expansion, improved margins and generated cash despite significant CapEx investment to support future growth. Fit-2-Win efficiency progressed as planned and our leverage improved, confirming the strength of our balance sheet. In the next slide, we want to recap the main strategic initiative announced in 2025, the partnership with Lennox and the agreement for the acquisition of Riello.

The Lennox partnership is progressing as planned. It supports our expansion in North America through a long-term commercial collaboration on high-efficiency water heating solutions. The products will be manufactured in our plant in Mexico, improving the facilities utilization. Consider that 2026 will mainly be devoted to learning, growth and development, the contribution will gradually increase and will be tangible from 2027 onwards. For Riello, we expect that this acquisition will strengthen our position in climate comfort in Italy, adding to our portfolio 2 new well-known brands, Riello and Beretta. And thanks to the high complementaries across products, geographies and commercial channel. It will also allow us to reinforce our global presence in combustion technology and increase our exposure to commercial and industrial application to North America.

The closing remain expected by the end of the first half of 2026, in line with what we previously communicated. These steps advance our strategic agenda and support the group's long-term value creation. Moving to Slide 6, a brief reminder of our business profile before we move to the numbers. We operate in thermal comfort with a balanced exposure to water heating and climate comfort. Water heating on the right is a resilient business where we are among the leaders in Europe and outside Europe. Outside Europe, this is our core business with very good prospects, thanks to demographic growth and low water heating penetration in emerging markets.

Climate comfort on the left includes heating, services and parts, ventilation and air handling with a diversified technology portfolio from gas boiler to the most advanced heat pumps and hybrid systems. Service and parts continued to grow in 2025, driven by customers opting for maintenance rather than replacement in Europe. Finally, the Components and Burners or Combustion Technologies divisions complete our business lines, counting in 2025, respectively, for 4% and 3% of total group turnover.

As I usually remind you, in Europe, which represents about 70% of revenue, our presence in heating and water heating is more balanced. Moving to Slide 7. As you know, Germany is our largest market, accounting for around 20% of group revenues in 2025. Between 2013 and 2022, the heating market has grown in volume around 4%, and it remains primarily a replacement market with value growth driven by a shift toward high-efficiency and renewable solution.

In 2023, the volumes boomed by 34%, boosted by heat pump incentives introduced in 2022 and by fears of a potential gas boiler ban. This was followed by a sharp correction in '24 with volume down 46% due to destocking and regulatory uncertainty. In 2025, we saw the market reaching a 15-year low in volume, declining by a further 12% year-on-year in volume. Yet within this backdrop, heat pumps recovered strongly, up 55% year-on-year, supported by a solid incentive scheme with application above 20,000 per month in 2025 compared with 12,500 in 2024.

Gas boiler, as I said, fell by more than 30% in volume, dropping below an already weak 2024 due to unclear legislation. So the total German market grew in value during 2025, thanks to heat pump. 2026 started with approval incentives in the month of January of about 21,000 which is 50% higher than January 2025. This confirms the positive underlying trend for heat pumps supported by solid incentive scheme. Last week's new news on the long-awaited revision of the GEG signs a shift in the regulatory framework. The proposals removes some constraints for boiler replacement market and embraces a more multi-technology pathway to decarbonization.

Subsidies for heat pumps are confirmed to remain in place until 2029, ensuring continuity of support across both new building and replacement markets. The legislative package is expected to be further detailed and operational by mid-2026. We will continue to monitor this evolution, including possible positive impact on market demand, mainly in gas boiler. Now I will hand over to you, Riccardo, and he will walk you through our Q4 and full year financial performance.

Thank you, Maurizio. Let's begin with Slide #9, which illustrates the year-on-year evolution of net revenues. To ensure proper comparability of the data in line with prior quarters, the 2024 revenues shown on this slide exclude the Russia business, allowing for a like-for-like comparison with 2025. The bridge to 2025 then reflects changes in perimeter, including the reconsolidation of the Russian business at the end of March and the contribution from the acquisitions of DDR and ZRE for the components business.

In Q4, net revenues reached EUR 747 million, up 2.8%, of which 2.1% organic. FX impact was negative by 1.8%, while the perimeter variation accounted for an increase in net revenues of 2.6%. This result was driven by robust heat pump momentum, particularly in Germany, supported by our solid commercial and operational performance which more than offset the continued weakness in gas boiler demand. Water heating delivered positive organic growth driven by a strong contribution from the Americas and selected key markets in Asia Pacific, partly offset by adverse effects from the USD and other Asia Pacific currencies.

Service & Parts division delivered another quarter of sustained growth in line with the performance achieved over the first 9 months of the year, confirming the continuity and resilience of the underlying growth trend. For the full year, revenues reached EUR 2.7 billion, up 3% organically, while the deconsolidation of the Russian business since the end of March and the 2 acquisitions in the component divisions contributed for a further 2.3% of inorganic growth. Foreign exchange effect was negative by 1.3% in the full year. Let's now turn to Slide #10 to see the geographic breakdown of our net revenues.

Let me first clarify that in this slide, we are looking at the reported figures, which, by definition, include the contribution from perimeter changes and acquisitions. The most notable adjustment remains in our largest region, Europe, which in 2025 accounted for 72%, 1 point higher than in 2024. In fact, here, we are comparing different perimeters across the 2 years. Q4 '24 did not include Russian business nor the acquisitions of ZRE, which in Q4 '25 contributed approximately EUR 70 million in total.

Similarly, on a full year basis, perimeter effects are driven by Russia and recent acquisitions of DDR and ZRE. In 2024, Russian business contributed only 4 months of revenues following [Audio Gap].

And R&D to fuel long-term growth across our core businesses. With regard to cash generation, it will remain concentrated in the fourth quarter, consistent with our historical seasonality with CapEx between 5% and 5.5% of revenues, reflecting our commitment to supporting growth through capacity expansion, innovation and digital initiatives. The guidance has been prepared based on available information and does not incorporate potential disruption arising from recent geopolitical developments involving the Middle East nor any related second order effects on demand across our key markets.

On the capital allocation side, the Riello acquisition is progressing as planned with closing expected by the end of first half of 2026. We will also continue to assess strategic M&A and bolt-on opportunities in line with our disciplined approach.

Thank you, Maurizio. We have now completed our presentation, and we are available for your questions. [Operator Instructions]. Operator, please open the line. Thank you.

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

I want to start on the 2026 organic growth guidance. How do we think about your price volume expectations? And maybe also any thoughts here on the product mix? And then as we think more midterm, usually, you have a midterm guidance section on the presentation that doesn't seem to be there. I just wonder if that's a change of approach given obviously the '26 guide and also recent years have been below that level.

Thank you, Christian. So let me answer first price and volume. Obviously, for 2026, we expect a continued volume evolution of our business, as I said before, in line with the market evolution, but we are also planning for a pricing and mix recovery versus 2025. On product mix, I think, I mean, we are very well placed, and we just need the market to grow. I mean, obviously, we always said many times that in terms of margins, the percentage is the same. In terms of absolute, obviously, if we sell heating heat pump, the absolute value will be higher than a gas boiler or a water heater.

So these are our expectation for 2026. On the long-term guidance, I mean, we speak with you very often. I mean this is not changing our midterm ambition. I mean, we continue to be there. I think in line with the best practices of the market, we would like to stay focused on the guidance of the year while continuing to think about what to do long term in other forums. And I think we will give a strategic update by the end of this year on how we see the future of our company.

Maybe secondly, can we talk about the boiler market in Germany and actually perhaps more broadly? Obviously, last year, we've seen heat pumps now outsell boilers. Where are we at on inventories of boilers in Germany in your view? And also any comments on broader Europe as well would be helpful.

Yes. I think the level of the inventories are clean and clear everywhere. So we don't have issues on boilers. We continue to be bullish and positive on boilers. I think we spoke about the legislation in Germany. But while, yes, there is a shift towards heating heat pump in the mid- to long term, this will not happen from night to the day after. It will be a long transition. It will be a different transition in the different countries.

There are countries which are already heating heat pump markets or there like the Nordics where, for example, we don't play. And there are some other countries like Italy where the relevance of boilers will continue to be there. So I continue to repeat for us having the opportunity to have a very complete range from gas boiler to hybrid to heating heat pump, it supplies. So I repeat no issues in terms of stock on boilers, positive on the long-lasting relevance of gas boiler in the heating market in Europe for the next decade.

Next question is from Vivek Midha, Citi.

I have 2 questions. I'll go one at a time. First one is another one around the German market. You highlighted that the subsidies for heat pumps have been confirmed to 2029. I guess taking a step back, do you have any concern that there could be some effect from the regulatory uncertainty until that's confirmed on the pace of growth of the heat pump market?

Thank you, Vivek. I mean, obviously, the fact that they are confirming the subsidies until [ 2021 ], I think it's a good signal to the stability of heating heat pump evolution, both in new building that is mandatory, but also in replacement. So we see this as a very positive signal for heating heat pump. On the other side, as I said, the fact that it seems that the law will remove some of the constraints or the issues that consumers were having in installing a gas boiler, it's another opportunity. Now this will have to pass all the steps in terms of legislation in Germany.

We are following the market, and we are checking if there is any difference. But overall, I think this will be a positive law for the total volume of Germany. And since we are leaders and providers of both gas boiler and heating heat pump, we are happy and well positioned, as I said before.

My second question is following up on your comment about varied trends by country. I'm curious in terms of the organic growth guidance you've given us, are there any countries which you'd highlight as where the trends are likely to be slower than the average?

Yes. Maybe Vivek, when I said that the countries will move in a different way, I was referring to the shift from fossil to renewables. I was not talking about the mix of the country and the development of the different countries across Europe. Obviously, as you know, because you see the public data as we are doing, the different countries are positioned also differently. I think in U.K., we saw, again, a positive development of heating heat pump.

In Germany, we just commented, so I wouldn't repeat. In Netherlands, the situation is positive as well. And I think there, we are well positioned with the new product that we announced to the market, which is a very hybrid and strong machine that people can place in smaller parts and that is working like a heat pump supported by gas boiler. In France, while there are obviously signals of a positive evolution, the political situation is not as firm in others.

Next question is from Alessandro Tortora, Mediobanca.

I have, let's say, 2 questions. So the first one is if we can, let's say, elaborate a little bit more on the assumption behind, let's say, the organic, let's say, sales guidance in the sense if you can confirm to us that you're basically excluding, let's say, any additional perimeter, if I understood well, even the, let's say, remaining contribution from the Russia reconsolidation on 2026, okay? Let's say, the question relies on the fact that Bloomberg consensus, was set on a number which is much higher than your organic sales guidance also including probably some, let's say, some contributors, including already real, okay? So just to have a clear picture of a comparison on your sales -- organic sales guidance.

Related to this, if you can also, let's say, clarify if, let's say, this positive or potential regulatory development in Germany is something that is part of this guidance or if understood well, you could reconsider let's say, over the year if there are some positive implication for your numbers? So this is the first question. I don't know if you want to go one by one or I go with the second one.

Yes. Maybe I start and then I will ask Riccardo to add. Thank you, Alessandro, to give you all the technicalities. So when we say organic growth, it is obviously excluding the impact from ForEx. And as I said before, on a like-for-like perimeter, we -- what does it mean that we include the month of Russia that we didn't have in '25 and the acquisition that we did in '25. But Riccardo can explain a bit better. I want to make sure that it's clear, we don't have Riello in this guidance, first of all, because we didn't close yet the deal.

And as I said, we are expecting all the green lights by mid of this year. I think on the law in Germany, I mean, our guidance is 1% to 4%. As always, we want to establish credibility with all of you and deliver what we said we would do. As always, we see how the markets will develop during the year. And eventually, we'll go on the upper part of this guidance if we see the -- first, the legislation that will become active. Secondly, that the gas boiler will change this year. And I think we will update you in the next quarters. I don't know, Riccardo, if you want to do one by one what is in and out in terms of perimeter, so it's clear to everyone, again, saying that Riello is out.

I think you made it right, Maurizio. So the perimeter is exactly the same. We will take into account the contribution of the Russian consolidation, the 2 acquisitions of DDR and ZRE on the components business on the same period and number of months. So we will have a comparison apple with apple. And of course, excluding any FX dynamics. So that's the way we communicate organic growth.

The second question is clear, we discussed about Germany. Could you comment a little bit about Italy now clear with -- also with the incoming acquisition of Riello consolidation will be much more important. So if you can, let's say, give us an idea of, let's say, the outlook, okay, of the Italian market? And maybe just also, let's say, a quick update on the burner performance that will be much more relevant with the Riello.

Yes. As you said, and as I mentioned before, with the acquisition of Riello, we will strengthen, I would say, dramatically in a positive way our position in Italy in HVAC, but also globally as a combustion technology player, which is a market which is more stable, profitable. And again, there, we can offer different technologies from the one that are more, I would say, historical to the greener one.

I mean, Italy, you know very well if we talk about heating that the market reached the bottom. So we expect once again that the market will go up, will go up. It could be during '26 or '27. But for sure, this market has to go up. The percentage of heating heat pump in Italy is around 10%. So I mean, it's still another opportunity as well for the market.

And remember that we have water heating as well, where we are a strong leader, where we see a positive evolution, especially on heat pump water heater. We never speak about that, but our position there is strong, and we could use brands of Riello and Beretta that didn't have the opportunity to offer this kind of products. We know as well that for what we understand from what they presented us in the management presentation that the Riello percentage of heating heat pump is lower than ours.

So there is an opportunity for us to give them a state-of-the-art and the most developed in terms of heating heat pump technology. And I think this will be another opportunity. For sure, to gain market share, -- but as I said, expecting a market of beating that sooner or later will rebound from a very low level, which is obviously the level of the late -- I mean, not even in 2020 was so low.

Next question is from Alessandro Cecchini, Equita.

The first one is actually on input costs, I mean, the cost base 2026 at constant volumes. So if you can elaborate a little bit more, what are the main drivers? What are you seeing? What are you assuming, I mean, for 2026 in terms of cost base, in particular, input costs, of course, at constant volumes? This is my first question.

Yes. Thanks for the question, Alessandro. So first of all, I think it's worth to remind everyone that we run our purchasing policy with a hedging coverage that give us good level of certainty when we forecast the following 12, 18 months ahead of us. So as we look into it, we feel confident that the cost assumptions on input basis have been taken into consideration.

In the meantime, we are conscious that inflationary items are on the market such as on steel, copper, for instance, are quite heavy. So we have to continue monitoring what's going on, on an input basis, continue to manage our procurement strategy and continue to be able also to price into the market if conditions allow to charge whatever it comes as additional inflation from raw materials. So all in all, cost assumptions as we speak and as we read from the most recent dynamics on steel, copper, aluminum are taken into consideration of our guidance for 2026.

My second question is instead on Fit-2-Win project. If I understood correctly, in 2025, you cashed in EUR 20 million, EUR 25 million of additional savings and your target is [ EUR 50 million ], if I am not wrong, in 2027. So I would like to better understand, so I would say, the ramp-up that you expect the additional savings that you expect in 2026, if it is gradual between 2025 and 2027.

Yes. I think we gained more traction than expected in 2025. So I would say we are more on the upper part of the EUR 25 million you were talking about. We also made a conscious decision to reinvest a good part of these savings into our growth initiatives. So we spoke earlier about R&D. We spoke about go-to-market strategies and programs as well as on digitalization.

So these are the 3 key initiatives where we -- I mean, as a result of the good results achieved, we decided to reallocate part of the savings -- I mean, into the actual results. So going forward, the EUR 50 million Fit-2-Win program is confirmed. So we maintain our commitment with the savings that we will achieve are going to be reinvested into these programs to continue to fuel our growth. So that's the plan we agreed upon, and we are currently executing.

Okay. And finally, if I may, just your sense on the start to the year of the company. So just to have some brief overview of what you are seeing in the market.

Yes. Maybe I answer this one. I think on the market, I mean, I would say continuity versus what we saw in Q4 until obviously, what happened last weekend. And so we were expecting a gradual recovery, as I said, during '26. Now we have to see, unfortunately, how the situation that you all know is happening will impact us during March.

So that's what I would say. Before last week, I mean, we were cautiously optimistic in the markets recovering and doing fine. And now it is what it is. But I think we proved in the past to manage with resilience all the external factors, geopolitical challenges, tariffs. And I think we are well positioned and diversified as a company, both in terms of portfolio and sourcing to overcome those challenges, and I'm sure the team will continue to do this in the future.

Next question is from Davide Rimini, Intesa Sanpaolo.

I have 2 questions. The first is a clarification again, sort of on organic growth guidance that you've given for this year. If I'm not mistaken, you signaled that, that growth should be progressively improving over the course of the year. And I was just wondering since we noticed in sort of the deceleration quarter-by-quarter of the growth of 2025, whether sort of there should be any element to assume in sort of this year should be an acceleration? And again, attached to that, just a clarification, whether sort of within this organic guidance, there is anything that you might add in terms of the contribution from the Lennox JV that will start this year?

Thank you, Davide. So first of all, I think Q4, you might see optically a deceleration, but I want to remind you that in '24, the situation was different. So '24 Q4 was already better than the previous quarter. So every time we compare year-on-year on different quarters. And I think we said and we commented that this year until the recent development, we were seeing a continuation of the trend and positive development of the market.

In terms of Lennox, I think that we always said that they would launch their brands in quarter 2. Everything is progressing very well. Everything is on track. But we said as well that 2026 will be a year of building, knowing the business, training the people, expanding distribution. So the majority of -- or the meaningful part will gradually increase. And I think we will speak more on 2027 about numbers and if this is a success as we think or maybe we can do better.

So let's use 2026 as a buildup and then 2027 as the first real year where Lennox is competing in the new water heating market. But so far, so good, very positive. I don't know if someone went to the exhibitions in the U.S., but this has been presented publicly as well with very good and positive returns from installers, builders in both U.S. and Canada.

And my second question is, again, sort of a clarification. It is sort of a point that has been touched already before is on sort of the long-term guidance. If I'm not mistaken, you pointed out that you will come out at the end of this year sort of with a more sort of strategic update -- and I just wonder whether sort of this will be a gain on long-term organic and margin, the 10% that we had in the past.

And along with that, if there will be anything said regarding the CapEx on sales that you guide that introduced for this year, but whether or not, I mean, will be sort of subject to the next strategic update.

Yes. First of all, we confirm that our aim is to grow organically at mid-single digit and to continue to progress in terms of profitability to reach the double digit. I mean this is there and will not change. On the strategic update that I mentioned, obviously, we will give you I would say, clear view on the long term also because we plan to do this by year-end, and we will have the closing of the Riello acquisition. And we will talk about how we plan to grow to aim to the mid-single-digit rate top line and to continue to improve profitability, including the fact that, as we said, I mean, we are having a strong investment this year and last year to position the company stronger for the future, but also on CapEx, there will be obviously a reduction in the midterm because I think we will finish what we planned we would have done, and then we will be in a much better position also to fuel our cash generation.

Next question is from Daniel Khajenouri, Morgan Stanley.

As a follow-up to your comments on the thermal comfort segment, would it be possible to comment on pricing trends in heat pump specifically, the market utilization and pricing risk is something you called out in your last annual report?

Yes. On heating heat pump and pricing, we always say that, I mean, we don't play in the lower and entry part of the market. We are playing in the upper part of the market with our brands of Wolf and Elco and the upper mainstream of Ariston. So as always, I think, and I wouldn't comment maybe the last quarter or the next 2, an evolution of the future will be that competitors like us and others will continue to work on the cost competitiveness of this product.

But more importantly, as you know, in heating, you win if you can strengthen the relationship that you have to have with installers. And this relationship is very linked to the service and aftersales service and the quality that we are giving to all these installers. So I would say nothing strange, nothing different than what we saw during 2025, and you saw the results on '25 that we posted.

So there is always competition. There are things happening, but nothing extraordinary. So this is what I would say. And as Riccardo said, since all the raw materials are increasing, you might see a better pricing mix in the future because everyone will have to absorb this kind of cost increase.

Next question is from Michele Baldelli, BNP Paribas.

I have a couple of questions. The first one relates to the cost line because my point is not only on raw materials. Do you see also inflation for what concerns the semiconductors hardware, so basically the control devices for your equipment? And the second question relates to the fourth quarter of 2025. I saw that the Asia Pacific EMEA region declined by 6% in Q4. If you could provide us some color on the reasons behind it?

Yes. Maybe I'll start with the first one and the second, I don't know if Riccardo, you want to elaborate more on what you said before. So on semiconductor, I mean, as you know, there are tension. I don't think we are seeing different problematic than in the past. What we use is different than what other companies are using.

I think we are well positioned. And as you saw, we started as well to produce our electronics in Italy, which is giving us an opportunity to manage the most strategic electronics platform that we have and as well as the cost inflation. On Asia Pacific, I'm sure Riccardo will explain, but we had a huge ForEx impact in the year. So Riccardo, if you want to reiterate a bit the performance of the region.

Yes. I mean you may be right. I mean there is a huge FX impact across the majority of the currencies of the countries we operate in and also the Q4 of prior year was -- represented a solid base as a comparison. So we do not foresee any significant issues, so to speak. So I think we should look at the region more on a full year basis other than on Q4 stand-alone.

And full year was a positive number of more than 3%, correct? -- excluding ForEx, which is good.

So if there are no further questions, we will close today's session here. Thank you all for your time and participation. Bye.

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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Ariston Third Quarter and 9 Months 2025 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to the Ariston management. The floor is yours.

Good afternoon, everyone. Thank you for joining Ariston Group Third Quarter and 9 Months 2025 Results Call. I'm Albert Pozzi, Chief Marketing, Sustainability and Investor Relations Officer. Joining me today are Maurizio Brusadelli, our Chief Executive Officer; and Riccardo Gini, our Chief Financial Officer.

Today's presentation will last about 25 minutes, after which we will open the floor for questions. As a reminder for who's joining by phone, the slide deck is available on our Investor Relations website.

I hand over the call to Maurizio.

Thank you, Albert, and hi, everyone. So let me start with Page 3, where we see an overview of our quarter 3 results. This year, as said many times, our focus is on growth, and I'm glad to comment a very strong performance in quarter 3 with a plus 4.2% organic growth. This is the third sequential quarter of positive organic growth.

In Heating, the growth has been supported by a strong development of heat pumps, especially in Germany, and our ability to gain market share in our core countries despite weak external markets, which are in some geographies at the bottom of the last 10, 15 years. Water Heating business continued to deliver a solid performance, leveraging on our leadership position in many countries around the globe and on a stable external market trend.

Adjusted EBIT margin improved by 110 basis points like-for-like in quarter 3, again, the third sequential quarter of year-on-year improvement, thanks to the execution of the Fit-2-Win program and to the operating leverage, which more than offset our increased investments in go-to-market, digital and R&D initiatives.

Free cash flow was positive in quarter 3, thanks to organic growth and continued focus on net working capital despite higher investments. Regarding the activities of recent months, I share with you 3 highlights. The first one is that in September, we announced an investment plan for Italy, including a new factory in Albacina, Italy, dedicated to the production of next-generation electric water heaters.

The ambition is to build the best European plant for technological and industrial excellence. The plant will embed artificial intelligence and digital twin capabilities and fully embrace the world-class manufacturing methodology. This is not an additional plan, but the relocation of the Genga historical plan that will be closed.

On sustainability, we are proud to share great improvements of our ESG ratings, a testament of our continuous commitment and quality of actions to achieve our 2030 ESG strategy. I will talk more about it shortly.

Lastly, in October, we announced the acquisition of a brand-new production plant in India dedicated to water heating. The plant will increase proximity to the Indian market and in line with our group strategy to add local manufacturing capability in strategic markets, enhance cost competitiveness and supply chain flexibility.

To conclude this introduction, we are very satisfied with the quarter 3 and year-to-date performance, which in the upper -- which is in the upper range of what we previously communicated to the market. Based on our 9 months results and the progress observed in October, we are improving our revenues organic growth guidance to around plus 3% versus prior year.

If we now go to Slide 4, I'll talk a bit more about sustainability. As you know, this is part of Ariston Group DNA since its foundation. We have published in 2023 a well-elaborated 2030 ESG strategy named Road to 100 that is available to everyone on our corporate website. We work every day to improve toward our 2030 targets with tangible actions.

At the beginning of the year, we published Ariston Group sustainability statement prepared for the first time in accordance to the European Sustainability Reporting Standards, which has been a further step in increasing our external communication on ESG activities. And it is very rewarding to see such a positive trend of our ESG ratings. As you can see, all ESG rating agencies that published an update in '25, EcoVadis, S&P and Bloomberg, position Ariston Group now in the top quartile of our peer industry.

Now we move to Page 5. And as every quarter call, I would like to give you a quick reminder on who we are. I know most of you know, but there are always some people joining for the first time in the call, so I always would like to explain who we are. We offer thermal comfort solution with a balanced exposure to water heating and climate comfort. Water heating, on the right, is a resilient business, and we are among the leaders in Europe and outside Europe. We are present in emerging markets with growing population and still low but rising penetration of water heating solutions.

Climate Comfort, on the left, includes heating, services, parts, ventilation and air handling. In the Heating business, we offer one of the most complete range of technologies in the sector from gas boilers to the most advanced pumps and hybrid system. We offer a comprehensive range of high-efficiency and renewable solutions to enable the energy transition. Finally, the Components and Burners division complete our business lines, each accounting for 3% of total group turnover.

Moving to Slide 6. We provide our regular update on the German heating market, our largest country accounting for circa 20% of group revenues in 2024. Historically, the German heating market grew by 4% in volume over the 10-year period from 2013 to 2022, with an enriching product mix toward high efficiencies and renewable solutions. '23 was an exceptional year, driven by incentives and concerns over a potential gas boiler ban in 2024, which ultimately did not materialize.

In 2025, the market, it is at the lowest point of the last 15 years in volume, well below historical replacement rate. Heat pumps have returned to strongly growing after 2024 destocking, supported by a good incentive scheme with average monthly incentive application above 20,000. Boiler market is very weak.

Now I will pass to you, Riccardo, and comment more deeper our quarter 3 financial performance.

Thank you, Maurizio. Let's now move to Slide #8, which illustrates the year-on-year evolution of net revenues. As a reminder, Russia was excluded from the 2024 consolidation perimeter and was reconsolidated at the end of March of 2025. For reporting purposes, this impact is treated as an M&A contribution.

In the third quarter, our revenues increased by 5.8% year-on-year, reaching EUR 668 million. This performance was primarily driven by strong organic growth of 4.2% supported by the recovery of heat pumps, especially in Germany. In the Americas, performance is normalizing after the strong second quarter, which had benefited from preloading activities following the tariff announcement. The water heating segment continued to perform well across all regions, though results were partially offset by unfavorable foreign exchange movements.

Our Service and Parts division also maintained a solid growth trajectory, consistent with the pace recorded in the first part of the year. As in the previous quarter, currency volatility continued to have a significant impact on our reported figures, minus 1.7% in Q3 compared to minus 1.6% in Q2, with major headwinds from the Mexican peso, the U.S. dollar and several Asia Pacific currencies.

Finally, regarding the scope change, perimeter changes contributed 3.3 percentage points to our growth in the quarter, mainly reflecting the reconsolidation of the Russian business, along with the 2 bolt-on acquisitions in our Components division, DDR Heating in the U.S. and Z.R.E. in Italy.

To summarize, we delivered organic growth of 3.4% in the first 9 months of the year, consistent with our full year guidance. Foreign exchange had a negative impact of 1.2%, while the Russia business reconsolidation and the 2 bolt-on acquisitions added 2.2 percentage points, resulting in total growth of 4.4%.

Moving on to Slide #9. Here, you can see the evolution of our net revenues by geography, which continues to the trend observed in the first half of the year. Let me remind you that for comparison purposes, Russia business was excluded from the 2024 consolidation perimeter starting from the end of April and reincluded as of the end of March 2025. We are pleased to report mid-single-digit organic growth across our main core regions, Europe, in the Asia Pacific and Middle East, Africa.

In addition, our business divisions continued to perform well in the third quarter. As shown in the appendix, the Burners and Components divisions combined together achieved a plus 5% organic year-on-year increase, confirming their solid momentum. In Europe, net revenues reached EUR 481 million, up 4.8% year-on-year when excluding Russia. And this reflects the recovery of heating market, particularly heat pumps in Germany, and our capability to perform overall better than market trends.

In Asia Pacific and Middle East, Africa, we reported a 5% organic increase, although performance was significantly impacted by foreign exchange movements. And finally, in the Americas, the market is normalizing after the peak recorded in Q2, while foreign exchange also had a notable negative effect on reported results.

Moving further down into the P&L, let's turn to Slide #10, which highlights our adjusted EBIT performance. In the third quarter, adjusted EBIT increased by 21.3% year-on-year, reaching EUR 48 million. This was accompanied by a 90 basis point improvement in margin, bringing it to 7.2%. At constant perimeter, the improvement was even stronger, up 110 basis points with a 7.4% margin. This solid performance reflects the continued execution of our efficiency initiatives and the benefit of operating leverage, which together more than offset the acceleration of our growth investment initiatives, particularly in go-to-market, digital transformation and R&D.

For reference, reported EBIT in Q3 stood at EUR 36 million. The main adjustments included EUR 7 million related to rightsizing actions and EUR 5 million from purchase price allocation amortization related to past acquisitions.

As a reminder, our adjusted EBIT historically shows a seasonal pattern with an average distribution of approximately 30% in the first half and 70% in the second half of the year, as shown in the chart on the bottom right.

Turning to Slide #11, let's take a look at our free cash flow performance. In the third quarter, free cash flow was positive at EUR 15 million. While this is lower than the EUR 37 million recorded in the same quarter of last year, it is worth noting that Q3 2024 benefited from exceptional working capital reduction and a favorable tax cash out timing. As a reminder, and as shown in the appendix on Slide #31, the fourth quarter is typically our strongest in terms of cash generation, mainly due to seasonal effects. The positive performance achieved this quarter reflects our organic growth and improved level of profitability despite the higher investments made.

We have maintained discipline in working capital management, and compared to last year, our working capital to sales ratio improved by 3.1 percentage points on a like-for-like basis. The impact from the Russian subsidiary and the 2 bolt-on acquisitions can be seen in the gray area on the right-hand side of the slide. And for further details on the main drivers, please refer to the 9 months cash flow statement provided in the appendix.

Further items affecting the third quarter include CapEx, which increased by EUR 4.7 million, reaching EUR 35.5 million, in line with our 2025 guidance, and paid taxes, which were flat year-over-year.

On Slide #12, you'll find an overview of the movements in our adjusted net debt since year-end 2024. As shown in the previous slide, the free cash flow contributed by EUR 1 million in the first 9 months. We also recorded a EUR 17 million cash outflow from acquisitions, primarily related to the 2 bolt-on acquisitions for Components divisions, DDR in the U.S. announced in March and the 80% of Z.R.E. in Italy announced in June as well as some additional minority stake investments.

Other movements included a EUR 29 million cash outflow for financial and FX charges, EUR 29 million for the distribution payment to shareholders and around EUR 4 million in noncash positive adjustments. These noncash items mainly consist of plus EUR 2.4 million mark-to-market derivatives impact, plus EUR 8 million in interest accruals, plus EUR 1 million from IFRS 16 lease liability adjustments and minus EUR 7.3 million impact from exchange rate variations on net financial indebtedness.

The increase in net debt over the first 9 months of the year was lower than in the same period last year, and the leverage ratio improved slightly to 2.2x compared to 2.3x at the end of September last year. Vis-a-vis last year, net debt increased by EUR 71 million compared to EUR 170 million increase at the end of September 2024 due to lower cash outflow for acquisitions, dividend payments and the execution of buyback in 2024.

In conclusion, excluding EUR 46 million of cash outflows related to capital allocation, namely distribution to shareholders and acquisitions, the cash absorption from business operations and financial management was limited.

Turning on to Slide #13. This slide provides a detailed view of our capital structure. In the third quarter, we extended the duration of our noncurrent bank debt up to 3.7 years, up from 3.2 years at the end of June as a result of a successful negotiation with our partner banks. Approximately 90% of maturities are now concentrated between 2027 and 2032, and our exposure to variable interest rates remain limited to less than 40% of our long-term debt.

At the same time, we continue to maintain around EUR 900 million of available credit lines, giving us ample financial flexibility to support both organic and inorganic growth going forward.

With that, I'll now hand the call over to Maurizio, who will conclude the presentation by sharing our guidance and outlook. Thank you.

Thank you, Riccardo. So I'm now on Page 15. As said before and to summarize, we are very happy with the progress achieved year-to-date, which marked a solid return to positive organic growth over the last 3 quarters despite weak external heating markets.

We improved our expectation for 2025 top line. Given the solid performance over the first 9 months and the trend we see in the beginning of Q4, we have decided to improve our full year net revenue guidance to around plus 3% organic growth from the previous plus 1% to plus 3% range.

Turning to profitability. We confirm our adjusted EBIT margin target in the 7-plus percent range at like-for-like perimeter, meaning excluding Russia and M&A contributions as normal cash flow generation is expected to be concentrated in the fourth quarter, consistent with our historical seasonality. On CapEx, we confirm our guidance at 5% to 6% of net revenue for 2025, a level exceptionally above historical average.

We continue to assess strategic and bolt-on M&A opportunities with strong strategic rationale. Given the current value of our share, far from the fair value, today, the Board authorized a buyback program up to 2 million shares to cover the future LTI plans.

Thank you for your attention. Now to you, Albert, to handle the Q&A.

Thank you, Maurizio. We are available for your questions. [Operator Instructions] Operator, please open the line.

Hello, operator? We cannot hear you. Can you hear us from Chorus Call team?

The first question is from Alessandro Tortora, Mediobanca.

I have 2 questions. The first one is on the -- let's say, I listened to your comments on the German market, and I understood clearly the progress on the heat pump side in Germany. Can you comment a little bit more on the performance on the gas boiler side? Clearly, we saw the very negative number, okay, on the gas-based side. So can you tell us a little bit what is happening there in the country, considering the basically no replacement happening there? And what's your view, let's say, in the coming years, meaning the next year or next 2 years, considering that district heating now may in theory affect or not also the pace of the replacement? So this is the first question. And then I will go with the second one.

I mean, as you said, gas boilers are at the bottom. So I think we always comment that maybe people are waiting and see what the government will say about the future, which kind of incentives they will give to heating heat pump, and especially for gas boiler, they want to understand if this will be released and relaxed and that they can invest on a gas boiler. So I think while we are very happy to see that the transition to heating heat pump is working, I think for the next year, I would expect the gas boiler market to go back to growth again.

So let's see what the government will decide. There are a lot of speculation, which I'm sure, like us, you can read on many newspapers. But since we are not in the government, we cannot really comment on what they would do or not do on relaxation in terms of gas boiler. But we expect, as I said, the replacement rate to go up because this is a level which is dramatically low.

And sorry, on this, do you have, let's say, any deadline -- I know it's a political stuff, but do you have any deadline, I don't know, beginning of next year or end of this year in order to understand which decision the government will take on this?

I mean they normally would have to say something by end of November, beginning of December. I mean we know that they announced that the incentives are covered for next year. It could be that this will move to Q1 '26 in terms of communication. So honestly, it's really difficult to understand. So they said they have the fund for '26, but we don't know when they will say something. I mean there are also elections that are coming up locally in the next March. So I don't know if they will do before or after election. So honestly, I wish I would know more, but I don't.

Okay. Okay. And then the second question is on also your comment on the willingness to do, let's say, bolt-on or to take bolt-on option or a strategic M&A. Can you comment a little bit about, let's say, the M&A environment basically we see in Europe? Reading the press, there are some assets in Italy, France potentially, let's say, under disposal. So how do you see, let's say, your competition in Europe also considering that we may have as potential buyers also some Asian players. And therefore, how this could play for Ariston. As an example, let's assume that there will be a strong interest from Asian players to take, let's say -- to take an asset in Europe. How this will play also for you? So if you can elaborate a little bit more because clearly, we read press articles mentioning, let's say, a lot of assets now coming into the market?

Yes. Obviously, I wouldn't comment on what is written in the press. I think Ariston has a proven track record in being a consolidator with many acquisitions done in the last decade and also some bolt-on that we are doing this year. I think we always said that this market will consolidate. We want to be the consolidator and one of the consolidator. And I think we will continue to work on both bolt-on and strategic acquisition, which obviously has to have a strategic rationale or a strong financial case. So this is what we will continue to do.

And I see that. And sorry, a follow-up on this. Do you see, let's say, a strategic rationale, for instance, to, I don't know, monitor a potential M&A opportunity even in the gas-based space? Or it's just, let's say, renewable interest you may have?

Yes. I'm not sure I got the question because it was a bit strange. Tell me, Albert, if you got...

No, no, the question -- no, no, no, maybe -- I will formulate this. The question is, are you looking, for instance, for assets, let's say, not only in the -- let's say, across technologies, no heating technologies, you may also look at, for instance –- yes, that's the question, okay?

I mean we look at -- and the line is bad, but I think Albert got the question better than me. So go, Albert...

The question is whether we are restricting our screening to players in heat pump or we're looking to multiple technology.

No, we are looking to multiple technologies. We want to consolidate our position as we did recently with some components acquisitions. So if we see the opportunity to be stronger, I mean, obviously, both in components, burners, thermal comfort and water heating, we will act.

The next question is from Alessandro Cecchini of Equita.

The first one actually is on your overperformance in third quarter that was important, looking at some of your peers. And I presume that this kind of overperformance is continuing also on this key fourth quarter. So can you elaborate a little bit more the reason behind this? It's more mix, more your focus on heat pumps in Germany? So just to add more color, that is largely, of course, given your footprint to Europe. So just if you can elaborate this a little bit more on your overperformance and the drivers. This is my first question.

I mean, as Riccardo commented, I mean, our performance was good across the different regions. We performed much better than the market, meaning that our in-market execution, both from a sales, marketing and technology has been done well. It's something that we put focus on and we continue to put focus on an investment. And I think this is giving us now results. I mean we see our business doing well in market share in our core countries and across all heating, water heating, and also we are performing well in the divisions.

Also, our service is doing fine. So I think it's important to underline how strong continued to be the service. And I think overall, we are satisfied and happy. Obviously, it is an everyday measurement with our competitors, but I'm very happy to see that in tough market conditions, we are doing well. So we continue to invest for the future because the market will go back and will go back to the historical growth, both in heating and water heating, and our ability to gain share now will have a tailwind when the markets will go back. And I think it is across. It's not only heating heat pump in Germany. It's across gas boiler. It's very strong in water heating and across all the regions. So yes, there are maybe minor position, but overall, very good performance, better than the market.

Okay. In terms of the guidance, we understood that in terms of organic top line growth, the implied fourth quarter is plus 1%, plus 2%, of course, given your guidance. But in terms of margins, so just to understand, according to my calculation, probably Russian business could be dilutive of 10, 20 bps for the year. Is something reasonable or not? So just to make, I would say, a reported number, so it could be very, very helpful.

Yes. I mean I think you are right. Russia business is dilutive for us. And as we said, we are working to make sure that things are going back at its possible best considering obviously the guidelines and the restriction that we have to follow. But Russia is dilutive. The rest of the business is doing fine, and that's why we reaffirm our 7-plus percent guidance.

Okay. So just if we can elaborate on Russia. So you expect, I mean, this kind of -- because maybe I am wrong, but at the beginning of the year, probably your expectations for Russia were better, I would say. So the margins, I remember that your comments were -- I mean, margins are not so bad, I would say. Probably now are, of course, a little bit worse than expected. So just to elaborate when you expect to gain more traction. So just a little bit of color on this.

Yes. So I'm not sure I commented on Russian numbers because we said we would give Russian numbers now. So I -- we always commented how profitable was Russia before the fact that happened, obviously, last year. Now the level where we are today is much lower, and we have to restore and work to improve our position there. But it's highly dilutive today; it's minus 10. We will have to improve year after year and respecting, as I said, all the restrictions that we have in terms of the way we do business in Russia. So this is where we stand.

The next question is from Davide Rimini of Intesa Sanpaolo.

I have one question on cost synergies. I just wonder whether you might update us on the level of synergies that you have reached so far versus the EUR 50 million target on a 3 years plan. And then I have a second question.

Yes. So it's cost reduction, it's clear. And obviously, I think we can say that we are well on track on what we said we would have done with Fit-2-Win. So we said that this program will be implemented within 2027 with a permanent effect of around EUR 50 million. And I have to say that with what we did a little bit last year and what we see this year, which is around EUR 20 million, it's going well.

Instead, if you want to have an update on cost synergies, which is what we had at the time of Wolf-Brink acquisition, also on that front, we are doing very well. I think we accelerated and we are very satisfied with the level that we are having, and we will have a lot of interesting new news for the future that we will highlight during 2026.

Right. Sorry, just to get it clear. So the EUR 20 million is that you're referring to this year. So it's EUR 20 million out of the EUR 50 million, right?

Yes.

Correct. Okay. Got it.

On the Fit-2-Win, which are not the synergies of Wolf-Brink.

On cost synergies, I just wonder -- sort of a follow-up since you're mentioning probably you're going to sort of step it up next doing more on synergies on Brink acquisition. Is there any way sort of linked also sort of to the operating leverage that we have learned on the way down, but we might learn on the way up reconsidering sort of the different German pricing and the cost structure that you have versus other countries?

I mean, obviously, with this top line, we see the benefit of scale. And obviously, in terms of mix, we always said that the countries that are part of Central Europe are more positive. So Germany, it was and it is our first country, and we see very positive leverage, thanks to the fact that we are picking up in heating heat pump. When the market will go back overall growth in the next years, this will be even better.

Right. The second question would be just a follow-up in terms of topic [Technical Difficulty] and it's been M&A. Now you mentioned already sort of it is across technologies and it is both, bolt-on and strategic ones. I just wonder whether from a regional or from a geographical, if you want, standpoint -- you mentioned earlier sort of the significant investment that the group has been doing in the domestic market, and that has been highlighted in the recent event in September. I just wonder whether strategically would you make any exception to the rule of being already well represented to the domestic market in terms of current presence and the level of investments that you're still sort of planning over the coming years?

Yes, I think we are pretty flexible. I mean, as you said, we announced those investments in Italy. And again, we are closing a plant and opening a new one, which is -- which will be much more effective and efficient. But in the meantime, we announced the joint venture with Lennox, which is in the U.S. We announced the acquisition of a plant in India. We are opening a new plant in Serbia and in Egypt. So we are really working to optimize our footprint and improve our cost effectiveness to make sure that we are close to the markets in a very efficient way.

Right. So can I assume sort of the domestic market shouldn't be sort of requiring additional sort of focus in terms of M&A?

I think it depends. If there is an opportunity -- first of all, Italy is only 10% of our revenue. It's true that we are an Italian multinational, but it's not -- our domestic market or biggest market is Germany. But I think we will see what it fit with our strategy and with our position in the market, and we are really open to everything. So it could be an acquisition in Italy or something else in Europe or in U.S. or in EMEA. So I wouldn't -- we are not saying yes or no upfront to opportunities.

Right. Okay. I was just referring to if 10% of your revenues is also sort of almost 50% of your manufacturing capacity. Is that correct?

No, we are not -- we didn't give this number, but I mean, it's 10% of our revenue on manufacturing capacity. It's a lower number, but it's fine.

The next question is from Isacco Brambilla, Mediobanca.

Just one question on my side, it's on cash flow. Last year, you got a lot of cash generation from net working capital in the final part of the year. How should we think about scope for improvements this year compared to the roughly 15% net working capital on sales recorded as of the end of the third quarter? And also on that whether on net financial position, you are not giving guidance, but it's EUR 600 million? That is where consensus stands is roughly speaking something achievable for this year.

I can take this one. I mean the -- as we look at the trajectory and the performance achieved year-to-date as well as the latest commitments we are making on managing working capital, I think we can improve it by the end of the year compared to the balance you see at the end of September. Let's take in mind that from a full year perspective, the cash flow will be affected by the higher CapEx, consistent with the guidance. So we communicated CapEx spending between 5% and 6%, which we can confirm. Prior year were around 4%. So that will add a little bit of a headwind to the free cash flow generation of the full year.

That being said, as we are moving forward, deleverage expected at year-end, I think we can still be below 2x the adjusted EBITDA. So that's going to be our goal.

Okay. Very clear. Maybe a follow-up on margin. You mentioned a lot of improvement, say, also thanks to the consolidation of Wolf-Brink. Is it fair to assume the margin of your business in Germany to be accretive to the average of the rest of the group?

Yes. I mean we always said that, obviously, Germany, Switzerland, I mean, both in terms of absolute value and in terms of percentage, they are accretive to the group.

The next question is from Christian Hinderaker of Goldman Sachs.

I want to start, if I can, on that last comment on, I guess, mix and the margin. If I think back historically, the message was that there wasn't a margin mix benefit from selling a heat pump versus a boiler or a hot water system. Obviously, a higher price point might mean higher EBIT, but there was no margin improvement. And at the time, that was ascribed to lower volumes in heat pumps, meaning that they were not automated to the same degree in terms of production. I guess the question is, has that changed? Or does that rule of thumb still hold?

I mean I think it's still holding. We said that in percentage across our technologies and between heating and water heating, we don't have big variation of margin. Obviously, if I sell German heating pump versus India 10 liters water heaters, there is an absolute value, which is completely different. And the fact that the heating heat pump is doing so well and we are gaining share in Germany, it's helping us in an absolute value financially.

And I guess, as we think about those share gains, how do we think about price dynamics in the quarter? And I don't know if you want to add any color in terms of any difference across different regions and how that's progressed through the year?

Yes. I mean, as always, it's a competitive market. I mean, it's something that I always commented and we say that we have to stay alerted. As a reminder, in Germany, we are more in the mid-to high segment of the market. So we don't really compete at the entry level. So we are a bit more protected. But in general, you might understand when the market are not flourishing as they are today, there is a bit of competition there. I think it's something that we are managing well. It's something that we expected a bit. But nothing completely dramatic versus what we expected or we saw in the past.

Obviously, the greater activities are on product lines that will be discontinued to the regulation from '26 onwards, and this is where maybe there is higher competition on price. But in general, it's something that we monitor. I mean, the margins, as you see, are good, and we continue to manage well, also thanks to our efficiency initiatives that we are doing both in terms of productivity when we think about production and also the fact that, I mean, since we are a premium brand, we are more protected, as I said.

If I can just squeeze a final one in maybe. Your midterm guidance, mid-single-digit organic growth and obviously then a double-digit margin, were sort of delivering in terms of the growth numbers today I appreciate off a low base. But I just want to understand a little bit, is the gap from 7% to 10% now more about returning to a sufficient scale? Or is this more Fit-2-Win? Just curious at what stage we'll be seeing mid-single-digit organics and can be putting in a 10% margin rather than today's 7% or so?

I mean, as you said, we lost the scale versus when we were doing 10% margin, but I think we are in a good trajectory to go back to the historical level as we continue to improve scale. I mean we have to continue to work on making sure that we are fit, especially in the functions that are not really contributing to winning in the market. But in the meantime, we continue to invest for the future. So this is not something that we will stop. The markets are depressed. We are sure that they will go back, and we have to be ready to win and protect our price premiumness, thanks to investments in R&D, sales, high-tech technology and digitalization. So it is a path. I think we always said that we would need some years. And this, I think, is the first good year that is putting us back in the right trajectory.

[Operator Instructions] The next question is from Michele Baldelli of BNP Paribas.

I have a question on the other revenues line, because in the last quarter, that line was pretty consistent. The 9 months figure is EUR 73.2 million. I was wondering what has caused this sudden increase of that line, please?

Michele, this is Riccardo. Maybe you are referring to the service line item. We can follow up on this one, if you want.

The next question is a follow-up from Alessandro Tortora, Mediobanca.

Yes, I -- the follow-up to –- a brief follow-up. The first one is if you can come back a little bit to your comment on the CapEx. This year is an extraordinary level, 5% to 6% of sales. Should we think, let's say, about next year the return, let's say, to 4% of sales? Or you still see, let's say, a sort of tail end of some other investments? So this is the first question.

And the second one is on India. You invested, let's say, into this brand-new plant from probably a JV involving also Groupe Atlantic. Can you tell us a little bit about your exposure today, for instance, how much -- let's say, how many revenues you do in India and which kind of markets you see there? Probably is it a much more a hot water market, I guess. But just to understand a little bit what's your view on India? Clearly, let's say, it is a very low base, but it is a very promising market for you.

Yes. I think in terms of CapEx for '26, probably it's better to speak when we will talk about full year results and what we expect for next year. As I said before, I mean, this year is exceptionally high. But we have the intention to continue to invest in the market, to be ready when all the markets will go back to historical growth.

For India, I mean, as you know, it is the country which is having and will have the highest level of population. We are there with the brand Racold. We are among the leaders in India with this historical brand. The penetration of water heating is very low, and there is obviously a lot of opportunity to grow in the future. And I think being closer to where we sell in a moment where also countries are considering to be more protective versus really accepting goods coming from outside the market is something that we had to consider.

On top, we had a very good opportunity to take over this plant, which is pretty new. And I think that price has been announced by the sellers. So you can also check how much we paid for that price. And I think it is a win-win for us, again, thinking to the long term of India, which will be one of the winning countries in the next decade, and we want to continue to be there and improve our position of leadership.

And sorry -- I know it's low, but how big is India today, 1%, 2% of your sales, even 1%? Just a curiosity.

As you know, we don't like to give this number because there are not many listed companies. So we always say which are the top countries. But I mean, we are leader, as we said, there, among the leaders. So we are well positioned.

The next question is from Vivek Midha of Citi.

I have 2, but they're related, so I'll ask them together. The first is just really a clarification around the guidance, has been touched on the call. The implied fourth quarter is slower on organic growth than what you've delivered in the third quarter, and you've seen a gradually improving trend as the quarters have gone on. I appreciate that the comparable is a bit different in the fourth quarter. But should we take that as the view based on the comparables? Or is there anything in particular that you would highlight on the fourth quarter growth? And second, a related question, curious to see how did demand progress as the quarter progressed. There have been various developments in your markets over the third quarter through the summer, for example. How did the demand and your growth change as that went on?

Yes. So on the first one, I mean, you're right. Obviously, the comparability is different. Q4 last year, we saw a better performance versus Q1, Q2 and Q3 of 2024. And remember, as we said, the markets are weak. I mean we are doing much better than market, and this is something that you have to keep in consideration, particularly on heating.

I think on the second question -- I mean, I'm not sure I was clear on your question. So maybe if you want to repeat because there was a mix of bad lines and no clarity. So can you repeat, please?

Understood, and apologies for that. My question was just to understand how did the demand progress as the quarter progressed through from July all the way, say, August and September. Did you see any notable differences between the months in the quarter? Did you see any improvement in September? I just have an eye on, for example, there have been developments in France and so on. Did you see any changes in your markets as the quarter went on?

Now I'm clear. Sorry, I didn't get. So obviously, first of all, there is seasonality in heating, as you know. So the heating markets are stronger after summer. So there is a little bit in September and then going up in Q4, which is always our biggest quarter. I think in terms of water heating, obviously, the seasonality is less pronounced. Every country will have its own peculiarity, and it is a little bit difficult to give you 1 month -- in 1 month yes or not. For example, in U.S., when they announced the tariff, the market was doing very well because there was an anticipation of sales because people knew that the tariffs were coming, and then there was a slowdown.

So we look at the market overall in a year-ending trend and obviously checking the month and the quarter. I have to say, if you ask France, for example, it's still a bit problematic. I mean it's not very clear. They just announced new incentives for heating, but we have to see yet the benefit. So I think that the markets which are historically suffering are still suffering, and there were not big changes in the last couple of months.

The next question is a follow-up from Davide Rimini of Intesa Sanpaolo.

Yes. A very short follow-up is that you mentioned the performance of the Services and Parts. I was wondering whether in terms of strategic objective, if there's any focus in raising the share of Service and Parts within the group?

Yes. I mean Service and Parts are very important for us. We said in the past that they are margin accretive to the group, and we are really focusing on improving our position there. And I think it's something that maybe we don't disclose a lot of data, but in general, the penetration of service contract is not at 100% of new installation. So there is opportunity to grow there. And obviously, in terms of our focus, particularly in countries like Switzerland or Denmark when we have a direct service level, is Germany with Elco, is where we will continue to invest in the future, so.

And also regional differences, right, or opportunities sort of in the way you can improve the share of the Service and Parts within the group?

Yes, I think it's different, obviously, between heating and water heating if we have direct or indirect services. Something very important that maybe we didn't emphasize recently is that we have a lot of connected machine that are helping us to improve the service that we are giving to our technicians, but to the end consumers as well because we can anticipate possible issues leveraging artificial intelligence. And I think by the end of this year, we could have 700,000 or 800,000 machine directly connected. And we can do, I don't know, software updates and maintenance. As you probably are used to have through Apple with the iPhone, we're doing the same way in the background for our machines, both in heating and water heating. And I think this is a very important value for both technicians, but also for consumers.

Gentlemen, there are no more questions registered at this time. I'll turn the call back to you for any closing remarks.

Thank you all for joining our third quarter call. The IR team remains available. Yes, we have additional comments. Yes.

Yes, I would like to provide a feedback to Michele Baldelli as – apologies -- I misunderstood your question. The other revenue as you might have seen into the reclassified income statement include the reconsolidation of the Russian subsidiary participation. Yes.

Thank you, Riccardo, for answering all these questions. Thank you all for joining again, and for any follow-up questions, the IR team remains available. Have a great day. Bye.

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