Aquafil S.p.A. (ECNL) Earnings Call Transcript

Ladies and gentlemen, welcome to Aquafil Group 2026 Q3 Results Presentation. [Operator Instructions] Now I will hand the conference over to Giulia Rossi, Investor Relator. Please go ahead.

Thank you, operator. Good evening, everyone, and welcome to Aquafil Investor Conference Call. Today, we will update you on company's first 9 months 2026 results. Before going ahead, let me remind you that this presentation may contain certain statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on Aquafil's current expectation about future events and are subject to risks and uncertainties that could cause results to differ from those expressed by the statements. For a discussion of these risks and uncertainties, you should review the disclaimer in the presentation we issued today. I will now leave the floor to Mr. Giulio Bonazzi for his remarks.

Thank you, Giulia. Good evening to all, and thank you again for attending our video conference. The results for the first 9 months of 2026 confirm the group's solidity, highlighting a progressive expansion of profitability and a further improvement in the net financial position, which is in full alignment with the target set for the full year. The cost reduction plan continues, focusing, in particular, on energy efficiency projects that will yield benefits starting in the second half of 2027. On the financial front, the path toward reducing net debt remains firmly on track. Improved margins, selective capital allocation and effective working capital management drive solid and steady cash generation. During the quarter, the company demonstrated strong resilience. Price list adjustments effectively offset the sharp increases in raw material and transportation costs incurred in previous months. In the marketplace, ECONYL branded products delivered outstanding performance, remaining a strategic pillar of our positioning. In Europe, sales volumes of textile yarn experienced a slowdown. Despite a solid performance in the third quarter, the carpet yarn segment continues to feel the broader industry's weakness. Overall, the engineering plastics and other polymers product line maintained a performance consistent with the previous year. In the United States, volume growth in the textile yarn business gained further traction, while carpet yarn performance was in line with the first 9 months of 2025. The Asia Pacific region continues to benefit from positive momentum in the textile flooring sector. We achieved particularly solid results even against the backdrop of a global macroeconomic environment marked by geopolitical instability. The effectiveness of the pricing measures and internal actions taken allows us to face the remainder of the year with confidence, reaffirming our guidance for full year 2026. Now I thank you, and I'm ready -- we are ready to answer to all your questions.

[Operator Instructions] The next question comes from the line of Tommaso Nieddu of Kepler Cheuvreux.

I have just a couple. The first one is on the cost rationalization program, which continues to support margins. So can you quantify the savings already realized in the 9 months and those still expected in Q4? And how much incremental benefit should we expect in 2027? And the second question is on the full year guidance, which implies EUR 21 million, EUR 25 million EBITDA in Q4, which would be quite a strong acceleration year-over-year and also compared with the EUR 17.5 million in Q3. Just trying to understand what are the main drivers of this sequential acceleration? And how much is already secured by price increases and how much depends on volume mix or additional cost savings?

Well, I will start from the latter. I believe that it's not EUR 25 million, but we have given a range that was between EUR 79 million to EUR 83 million. So if we are at EUR 58 million, the target is around EUR 20 million or EUR 21 million. Well, let's say, there are a number of reasons why we are still confident to land in that region. What we are seeing for the time being is a market which is pretty resilient with the one of last year, but with improved margins and also some, let's say, benefit which are coming from cost factors that we have not allocated during the first 9 months. In fact, very likely, the first 9 months results should be a little higher than the one that we have expressed, but things that have happened during the fourth quarter and that we are confident are going to happen until the year-end should deliver us a higher result in comparison with 2025. Cost rationalization, I have said already during the first conference calls of the previous months that we are still targeting another cost rationalization increase between 2026 and 2027, which will impact the 2027 and 2028 financial results of around EUR 10 million to EUR 12 million, and we are still sticking on this number. Clearly, the energy saving could be higher if natural gas prices and electricity prices are remaining at the current level. But of course, the entire Europe hopes that this cost will be reduced to a more human level, if I may say so.

The next question comes from the line of Dave Storms of Stonegate.

I wanted to ask 2. Maybe the first one around volume growth. I know we kind of came into this year with a 5% target. Just curious as to what you're seeing in the volume growth, where that might come from, if there's any green shoots in Europe or anything of that nature? And then I also wanted to ask around ECONYL, it's holding steady around that 60%. Just curious if there's any levers to pull to drive this up or if the focus is currently more on the cost rationalization and some of the pricing initiatives that you've discussed.

Volume growth. As you are seeing, we are a little -- I don't want to say distant, but we are not reaching this target. If we had reached this target, our results would have been higher than the ones that we are let's say, showing. Unfortunately, particularly in European market, we are seeing a market that while was promising until March, April, but starting from the summer and in particular, in correspondence with, let's say, the return to fighting in the Gulf area during the summer have this kind of problems that they have resulted in a slower market demand driven by fear of the future, rising interest rates, inflation and energy prices that in Europe are quite prohibitive, particularly for, let's say, energy-intensive industries like ours. So we are, of course, not happy with the current situation of the European market, and we are managing also in contingency. So we are very careful about working capital, about operational cost in order to trying, of course, to minimize the impact of lower volumes in comparison with the ones that we had budgeted. About ECONYL resiliency. ECONYL is a very interesting work for us. We are still seeing a lot of interest from different industries. And please remember that when oil prices and oil derivatives are expensive, the price gap between ECONYL and conventional nylon products, it is lower. And this, of course, it can also ignite interest for developing future products or future programs. On top of that, we are starting to seeing what the first, let's say, reactions on European directives about circular economic, circular textile productions and also about circular plastic productions like in automotive or in this kind of business. So we are seeing even new customers approaching us, talking to us and asking to develop some products made in ECONYL that are making us confident not only to keep the 60%, but possibly to expand it in the near future.

The next question comes from the line of Vincenzo Antonio Buono of Banca Akros.

Congratulations for the results. I have 2. First one is on cash flow. You reported a significant improvement and further reduction in net debt. Could you elaborate more on the main driver behind this improvement and whether you expect this positive trend to continue in Q4 and into 2027? And second, on energy cost, could you provide an update on your energy efficiency initiatives? Are you seeing any meaningful savings already? And do you expect further benefits to support margins in 2027?

About the cash flow, I will leave the floor to Andrea Pugnali, our CFO. So you don't only hear my voice, but also his voice.

Thank you, Giulio. About the cash flow, yes, absolutely, you're right. We are showing a significant improvement in cash generation, which drove the reduction of the net debt. We are talking about more than EUR 20 million improvement when compared to September of 2025. There are several factors that contributed to such result. First of all is, of course, the improvement of our P&L and the marginality driven by either operational efficiencies or the cost reduction project that we delivered between 2025 and 2026. Second, certainly an improvement on working capital, which need to be read a little different because we had a negative effect in 2025, as you may remember, and a compensation during 2026, which is becoming smaller and smaller. Of course, the impact of working capital was more positive in June. The more we go over the year and the months pass, the smaller this positive effect become because it gets absorbed over time. Third, certainly, capital allocation and keeping the CapEx and investment under control. And lastly, also a positive outcome in the way we deploy our finances and try to earn on interest on the cash balance, which is significant that we have in our bank accounts. With that said, we are confident that this cash generation is solid, is recurrent and will be seen also in Q4, but also in 2027 and in the coming years.

Thank you, Andrea. Energy efficiency, clearly, if you are operating a chemical plant like ECONYL is, in fact, in Europe, you have to be always thinking about how to reduce the energy cost because this is the second major cost factor. The first is the raw materials. The second is energy. And then comes labor because, of course, it's a little more labor-intensive than a conventional chemical plant. So we are working on these 2 factors, but not only. We're also working on the total efficiency of the plant. And in particular, on energy, we have been studying this matter now since more than 2 years, and we have individuated a series of actions, which will take place during 2027 and 2028 and also very likely beginning of 2029, which should reduce largely the cost incidence of steam. Steam is generated by natural gas in our cogeneration plant in Ljubljana. And as you can understand, natural gas is quite expensive. As I said, if we consider the current trading of the natural gas prices, the cost reduction is even bigger. But as I said, we all hope that this cost will not remain for long or we will assist to more plant shutdowns by our suppliers, by the big chemical or petrochemical industries and stainless steel industries that are continuously announcing shutdown of operations because of prohibitive energy costs. On top of that, we have taken also some other measures in our contingency plans, like, for example, currently, since we are hedged on electric energy in Slovenia, we shut our gas turbine. So we are consuming less natural gas as well as here in Italy, we are also working on reducing this kind of cost. So overall, we are targeting on our ECONYL plant a cost reduction or better a steam consumption reduction of more than 40% during the next 3 years per ton of product, which is, of course, a massive reduction. There will be a partial electrification plus the utilization of new technologies for the recovery of so-called waste energy streams that with the past technologies were known usable. So this is a major, major cost reduction program that has been requiring a lot of engineering studies, and this started in the summer of 2025. We have launched the investment in the spring of 2026. We will receive the equipment at the end of March of 2027 and commissioning should be before the summer of 2027. That's why we said we will expect the major reduction impact in the second semester of next year. This is the first step. Then there are 2 other steps that will be implemented during 2027 and 2028, impacting 2028 and 2029 because to make everything in one step was too risky and these are new technologies, and we wanted also to digest them on a step-by-step basis.