EuroGroup Laminations S.p.A. (EGLA) Earnings Call Transcript

I will now hand over to Luca Gentile, Investor Relations Adviser at CDR Communications. Please, the floor to you.

Thank you, and welcome, everyone, to EuroGroup Lamination H1 2026 Financial Results Presentation. Joining us today are Marco Arduini, Group CEO; Isidoro Gardella, Deputy Group CEO; and Matt Perna, Group CFO. The press release and the presentation supporting today's conference call are available on the company's website in the Investor Relations section. Before we begin, please note that during this call, the company will discuss its business outlook and make forward-looking statements based on its current expectation. These statements are subject to risks and uncertainties that could cause the actual results to be materially different. I will now hand over to the group CEO, Marco Arduini. Please, Marco, go ahead.

Thank you, Luca. Thank you very much, and as well, welcome to everyone to the first half 2006 presentation. I want to start this presentation with a few statements before entering in the results. So 2025 has brought a lot of changes in the market in view of all tool blends that we experimented and we sought. And for this, we consider 2026 a year of transition. And I have to say that the first half 2026 results are in line with our expectation. But on the other side, we see as well that the general macro trends of electrification go behind the electrical car. And EGLA diversified business model is ensuring the possibility to catch all the opportunities that are linked to the energy transition. And so to recognize as well the next wave that can secure the growth for Agra. Having said that, we entered in the results for this first half. And we confirm the improvement on the quarterly basis driven by the industrial and infrastructure business solution. And we see, at the same time, the first sign of recovery in mobility. If we enter in the detail, we see, of course, that 2026 is impacted, especially in the North American market. And we -- for the e-mobility, we achieved EUR 224 million revenues that is down 13.3% compared to last year. And -- these lower sales are mainly driven by the North American markets. But at the same time, we see early signs of recovery in the order book and as well in the pipeline. And the region where we see is, of course, for the order book, is China and Europe for the pipeline is as well in the European market. So overall, we see early sign of recovery. If we move to the industrial and the infrastructure solution, we see as well a sequential growth in this business, mainly driven by the increasing demand for our application that serve the data center market. here specifically is about generation of energy is the cooling down the refrigeration for this data center. So the sales revenue are in line with EUR 173 million, up 9% compared to last year, and the higher volume are consistently in Europe, in North America. While in Asia, we see a stable volume compared to last year. Overall, the margins are improving, thanks to the execution of our performance improvement program. If we move to another important part in May this year, we as well finalize a medium long-term financing agreement with a duration of 5 years, up to EUR 375 million. This was an agreement that was made with a pool of leading banks and is helping, is allowing us to optimize the financial structure. So the average debt maturity moved from 2 years to 4 years. With regards to the performance improvement program, just some as well highlight on this side with regards to the organization. In the first half, we have reorganized our Mexican manufacturing footprint in line with the volume that are now foreseen. And we have consolidated the tooling facility in Italy. And last but not least, we have as well appointed a new CEO, Renzo Argent in order to strengthen our operational leadership and as well execution. With regards to the operational efficiency programs, we have advanced our program in Europe. In EMEA and as well in North America. And thanks to this, we have as well achieved improvements in margins and cash flow. So based on all, let's say, this consideration and as well results, we confirm our 2026 guidance. So in terms of revenue, a range between EUR 700 million and EUR 750 million. In terms of adjusted EBITDA margin, a level around 11%. And in terms of free cash flow, will be positive in 2026 including as well CapEx of approximately EUR 45 million. So with this, let's say statement, I now ask Matteo Perna, our Group CFO, to enter in the details of the financial results.

Okay. Thank you very much, Marco, and good evening. So the total amount of revenues that we generated in the first half of 2026, it's equal to EUR 396.5 million. This is implying a 7.6% decrease as per last year. This sees as well the evolution of the different behavior of the two segments. So you can see that the industrial segment reported a 5% increase compared to last year whilst the e-mobility solutions business decreased in the rate of 15.5%, driven by the evolution of the North American market. Hard to say revenues are above the budget across the different geographies and as well to say, but the order intake for the second part of the year, it's as well slightly above our budget. Moving to the EBITDA adjusted, you see the total amount is EUR 36.1 million. This is implying a 9.1% margin over revenues, a 19.4% decrease compared to last year. So a few considerations. The total amount of adjustment, which is part of our results, it's approximately EUR 7 million, and I have to say that out of the EUR 7 million, EUR 3 million are restructuring costs. And as we said, we completed the reshaping of the tooling activities in Italy in 2026. And as well, we had approximately slightly more than EUR 500,000 restructuring cost in Mexico. So the total amount of restructuring cost for the reorganizational efficiency was in the range of EUR 3 million. Having said that, you see that in terms of segment report, good performance coming from the Industrial & Infrastructure Solutions segment, so EUR 19.1 million, increased 18.5% compared to 2025, whilst the e-mobility business is reporting EUR 17 million in terms of EBITDA adjusted, and I have to say that on a quarterly basis, it is implying approximately EUR 8.5 million in terms of the EBITDA generated in the second quarter for the e-mobility segment. So the increase on a quarterly basis, it's mainly driven by the evolution of the industrial segment. due to the strong operation that we have both in North America and as well in Europe. Total amount of D&A that we accounted in the period EUR 27.8 million basically in line compared to what we reported in '25, which was equal to EUR 27.6 million. And it's important as well to mention that out of the total financial expenses that we accounted in the second quarter, we have EUR 1.8 million of one-off costs related to the evolution of our financial structure and the refinancing agreement that we signed with the banks. So you had the effect of the previous contract, which were closed and as well the related derivatives plus the effect of the new agreement with the banks. Moving on CapEx side. We accounted approximately EUR 20.8 million of CapEx, of which 53% is the part related to auto, whilst the remaining 47% is to support the growth of the industrial segment. And if we can move to the next slide, please. So in case of few breakdown of the revenues. You see that now e-mobility segment, it's representing approximately 56% over the total amount of revenues towards industrial 44%, and Europe is still representing the vast majority of the business accounting for more than 56% over the total amount. So we -- in period, we saw approximately more than 2 million motor sets to support the automotive business, and we had new 4 new SOP in the quarter and the total amount of SOP that we had. So the new project we started to support the traction business for the automotive, it's equal to 7, of which 3, what we are counting in the first quarter and 4 in the second quarter. I have to say that we were originally expecting 5 new projects to get started, but 1 has been shifted to the Q3. So we do confirm the total amount of new SOP for this year, which is going to be equal to 14 new SOP. If we move to the next slide. So we said the total EBITDA adjusted margin is 9.1% and you see the 2026 EBITDA adjusted margin, it 91, and this has to be compared with 10.2% that we are reporting in Q2 2025. So it's important to emphasize that in light of the execution of our performance employment program, we achieved approximately EUR 2.5 million of improvement in EBITDA, which are the result of the execution on such a program. We already commented the DNA and if we can move to the next slide. So in terms of net working capital evolution, we had a EUR 10 million decrease compared to the figure that we reported at the end of March, and we are EUR 10 million above compared to what we reported at the end of June 2025. So it's important to consider that in terms of trade receivables, the total amount is equal to EUR 163 million, and this is implying DSO in the range of 75 days, compared to 69 days in terms of DSO that we had at the end of June 2025. On inventory side, our UI stands in the range of 159 days compared to 152 days that we reported at the end of June. Whilst on the payable side, we're running with EPO in the range of EUR 149 compared to EUR 147 million. I have to say that one of the major impact that we have now embedded in our net working capital, it's evolution of our business on a geographical basis, given the decrease of our activities in North America, it's having a negative impact in terms of our net working capital, both in terms of given that the cash collection in North America is very effective. And as well in terms of DPO-wise, due to the fact that we have to import 100% of the raw material that we need that consume in North America, the DPO decreased accordingly. Moving to the next slide. This is the result of the evolution of the performance on an economical basis and as well on the CapEx and the net working capital absorption you see that in case of net leverage, considering the last month EBITDA adjusted, we're in the range of 3.5x implying net debt in the rate of EUR 280 million, so approximately EUR 8 million decrease compared to the figure that we reported at the end of March. And you see that out of the EUR 280 million, EUR 40 million of making reference to the financial lease liabilities as per IFRS 16. In the period, we bought BTP expiring, which will expire above 12 months, and now it's part of the financial assets and is where we distributed certain dividends with our -- certain of our control companies, which are not entirely controlled by EuroGroup Laminations and the total amount of the BTP purchase and dividends, it's in the range of EUR 8 million. Moving to the next slide. So given that we are now in line as per our expectation, we do confirm as well the performance that we discussed as well last time it's backloaded in the second part of the year. And in light of all of the ability that we have with the order intake for the next month, and again, in light of the expected execution of the precious in page and the related effects to be released in the second part of the year, we do confirm our guidance for the 2026 year, which is including total revenues to be between EUR 700 million and EUR 750 million and EBITDA adjusted margin in the range of in the range of EUR 45 million and a positive operating free cash flow.

Thank you, Matteo. And so we can now touch the floor for the Q&A session.

[Operator Instructions] The first question today comes from Alberto Gegra.

Hope you can sell me well. My first question is a clarification on the guidance, just to better frame the second half because as you also said, in the first half, we look ahead on sales, but also the even the high end of your guidance would imply a lower sales in 2026. So just to understand which kind of quarterly development you should assume in the third and in the quarter. And at the same time, margins with firming 11%, roughly 11% will require a significant step-up in the second half. So Also, if you can provide us more color on the moving parts that you expect would bring benefits on margin would be helpful. And I have a second one, if you can comment, how is your main customers in the automotive segment doing in this year -- in the first half? What are your expectations for the full year?

So let's get started from the first question, that -- so we do expect total revenues to be slightly above compared to what we reported in the first half of 2026. And you have as well to consider the seasonality that where we will have as well in August and December. So that's why we do confirm our range between EUR 700 million and EUR 750 million as of today, to the best of my knowledge, we are more, let's say, closer to the upper part of our guidance in terms of revenues. But we don't expect to be above the guidance as of today. In terms of margin, you are right. So we have to consider that we do expect an improvement in terms of margin due to the, let's say, full execution of our performance improvement program. I had to say that as of today, in the first half, we have accounting approximately 40% of the total amount expected to be achieved this year in terms of improvement of the performance. And I have to say that as part of our guidance in the second part of the year is as well the potential income deriving from the discussion that we are having in the supply chain. Of course, we don't want to disclose this amount, but it's embedded in our estimate. The second question, so you know that we cannot comment -- we don't want to comment on our customers. I have to say we are progressing a very, very important discussion with them. We have been involved in 100% of the project that they are launching. And this is not only make reference to the automotive segment. And I have to say that we are able to serve them across all the different geographies. But as of today, we are progressing very well as per our expectation.

Currently, we don't have any question queue, so we will wait just a few moments to give everyone the opportunity to ask a question. We now have a follow-up question from Alberto, please berth floor to you.

So a few follow-up from my side. The first on data center business, if you can better quantify the percentage of sales on the first half and maybe also the growth rate and also the kind of complexity that this application requires to understand the competitive advantage in this segment. Then you can -- if you can provide an idea at least directionally of what is the expected trend for the CapEx in 2027. And very last on Indian market, if you can comment on how is Kumar growing, how is the transformer business is growing and maybe or closing up to finalize the additional partnership in India for the automotive segment.