BEWI ASA (BEWI) Earnings Call Transcript

Welcome to the presentation of BEWI's results for the third quarter of 2025. My name is Christian Bekken, and with me today are Marie Danielsson, our CFO; and Stein Inge Liasjo, who leads the strategic functions at BEWI. The main topics today are the markets we operate in, how they are developing, the results for the quarter, obviously, and what our most important priorities are going forward. Overall, we are relatively pleased with the results for the Insulation business this quarter, given the markets, and we are very pleased with the results for the packaging business. We have a top line growth at 6% and improved EBITDA by 12%, both as a result of a strong quarter for our packaging business. The EBITDA of EUR 23.2 million this quarter is actually the highest EBITDA we have had in a quarter since 2022. In addition, it is encouraging to see significant sales growth for components for heat pumps after a long period of downward trend. The construction industry continues to be cautious. There are, however, many signs of improvement as it has been for more than a year now. We are experiencing volume growth in most countries, but the progress, it is slow. And let me make myself absolutely clear. We have never just been passive waiting for a market recovery in BEWI. We have continuously worked on cost reductions and adapting our capacity. Although EBITDA is up this quarter, we are not satisfied with the group's profitability. And we will not be until we reach an average of about 15% EBITDA. The measures we have implemented earlier this year are already yielding positive results this quarter. And we are working to expand this, and this will improve our profitability going forward even at the current market and volumes we see now. And the effect will increase with a further volume increase in the market. Furthermore, we completed the merger of RAW and Unipol at the start of this quarter. This was the right decision for several reasons. It was the right decision for all as it strengthened and makes the part of the business more competitive. And it was the right decision for BEWI as we are now sharpening our focus on our core businesses around areas with higher margins. We have also been working to secure a long-term financing for the group, and Marie will talk more about this later on. And with that, I'll hand the word over to you, Stein, to talk us through the segments.

Thank you, Christian. I will go through the results for our segments and take a look at some of the drivers for our markets. First, an overview of the segments. We have a very close collaboration with RAW and continue to consider ourselves integrated with a circular business model even after we've reduced our ownership in RAW to 49%. Our share of RAW's net profit is now on a separate line below the EBITDA we report together with the contribution from other partly owned companies. And on a side note, all figures, including the comparable figures for last year have been adjusted for this effect. So after the merger in RAW, we are left with 3 segments. As you can see, Insulation is our largest segment in terms of revenue, while packaging contributes the most to EBITDA. In recent quarters, recycled content from circular has contributed to market success for both of these segments. Circular material contributes to volume growth and to results, especially in the insulation business in the Nordic countries. So let's take a look at each segment, starting with the Insulation business. Here, as Christian mentioned, we have volume growth in most countries despite the fact that most markets are still cautious and come from low levels. The Nordic region has a somewhat more positive development than Germany and the Netherlands, which is partly due to the fact that we have good traction for the recycled content, which is made possible by circular. The top line is virtually flat with a 1% decline as a result of lower prices in the market. EBITDA is down 6% from EUR 10.6 million in Q3 last year to EUR 9.9 million this year, primarily as a result of a higher cost level for the segment. We're not satisfied with this. And as Christian mentioned, we have implemented a number of measures, and we will continue to do so to improve profitability. Nevertheless, the fundamental picture is positive. If you look at the market drivers for insulation and construction, there are 2 strong drivers that provide strong long-term potential here. Firstly, increased construction activity as a result of housing shortage in Europe; and secondly, a structural increase in demand for more energy-efficient buildings where insulation is seen as the most efficient way to achieve this. Here, we show an overview based on the latest available figures from EUROCONSTRUCT of estimated building permits in the Nordic countries, Benelux and Germany, which together make up more than 70% of our turnover. Expected annual growth from the next couple of years is about 5% in starting new construction. So over to the packaging business. Here, we simply deliver a very strong quarter in most product groups. Revenue is up 13% to EUR 87 million as a result of increased volumes of fish boxes, components to heat pumps and automotive components. We are increasing sales of components to the automotive industry by over 25% despite the fact that car manufacturers in Europe are facing challenges at the moment. Our increase is partly a result of the investments we have made over the past years. I want to highlight 3 automotive investments. We have increased our own raw material production in Poland, and we have invested in 2 sites in Germany, both with large OEMs on the customer side. This has already led to cost reductions of more than EUR 2 million on an annualized basis. We have done this to exploit opportunities in the market, and we do expect the investments to stop in line with the completion of these initiatives. The current forecast for next year is that there is EUR 4 million in remaining investments. This strengthens our automotive business, which now constitutes almost 30% of packaging components and with solid margins. We have the same EBITDA target of 15% for this part of the business. For the total segment, EBITDA increased by 18% from EUR 12.6 million in Q3 last year to EUR 14.8 million this year, and the segment delivered a margin of 17% in this quarter. The Packaging Components segment is the most diversified we have with different end markets. Food packaging is the biggest one, almost half of the segment. And these are, first and foremost, our fish boxes. The Norwegian business is the largest here, where the main market is boxes for fresh salmon. This accounts for more than half of the food packaging business. In addition, we have factories in Denmark, Portugal, U.K., Finland and the Netherlands that supply EPS boxes for the transport of fresh fish. Automotive components constitutes 27%. And here are the indicators to look for in this market. Firstly, production of cars in Europe. And then secondly, the structural growth in the use of EPP components in cars. Lightweighting all the parts in the car is the clear trend and it's worth noting that electric cars and cars in the premium segment use more EPP than other cars. We expect this trend to continue. The third area, the heat from an HVAC currently amounts to only 8%, but it's on an area where we believe we will grow well in the future linked to the structural demand for more energy efficient buildings. And finally, the long tail called Other, which is 20% of packaging components that includes protective packaging and other technical components. We see growth specifically in the medical and defense sectors, both our markets they are well positioned in. It's a bit difficult to point to generic drivers, but the general GDP growth is perhaps the most important figure. And of course, each product has its own market dynamics. The circular business continues to move in the right direction quarter-by-quarter. We are continuing to increase the collection of used EPS and have now collected approximately 40,000 tonnes in the past year, which we're very pleased with. Sales increased by 22% compared to the third quarter last year from EUR 12.3 million to EUR 15.1 million. And the production and sales of recycled polystyrene is also increasing. This now accounts for about 40% of Circular's turnover. EBITDA has improved by EUR 900,000 since Q3 last year from minus EUR 1.6 million to minus EUR 0.7 million this quarter. However, today's low prices for EPS raw material make it more difficult for Circular to achieve profitability. Circular has long struggled with negative EBITDA, and it has been challenging to find the right model here. But with the measures we have implemented over the last year, we believe that we are on track to amend this. As mentioned both in insulation and packaging, access to recycled raw material is becoming increasingly important. In practice, all our EPS products can be supplied with recycled material. We have the value chain to do this ourselves and we are actually doing it at the moment. The drivers for Circular are partly the activity in the construction industry where the majority of volumes go, but also regulatory requirement drives this market. And with that Marie, if you want to take us through the financials.

Thank you, Stein. Then I will take you through the financials. Overall, the sales for Q3 were up by 6% and this increase is mainly from the Packaging business, but the Circular business also contributed to this growth. And percentage-wise, it is Circular that has the largest growth. The Insulation business is relatively flat. And again, mentioned before, volumes were up, but sales prices were down following the lower raw material prices. EBITDA is up 12%, and the margin is up from 10.8% to 11.4%. And again, it is the Packaging and the Circular businesses that contributes to this increase, while we do have a lower EBITDA for the Insulation business. And again, it's due to the higher cost levels. If we then turn into the income statement, I would like you to bring attention to the cost of goods sold, approximately 42% of net sales to compare with 45% last year. This is explained by the lower raw material prices, but it's also so that we have a higher share of sales from packaging and components. Personnel expenses increases, and this is explained by salary increases. And please remember now that salary increases in some of the European countries are essentially higher compared to what we see in the Nordics. Then, of course, higher volumes, higher head counts. And then we do have a new facility in automotive in Germany. Depreciation increases. This is primarily related to properties and the IFRS 16 accounting. Then we have the share of income from associated companies, and this is BEWI's share of the net income in our joint ventures. And from this quarter, our ownership in RAW is reported on this line. And in the quarter, RAW has a negative contribution of EUR 1 million. Net financial then came in at EUR 15.8 million. Then you need to remember that we have done a refinancing in the quarter. That means that we have had one-offs in relation to this of EUR 5.6 million. So underlying net financial is actually decreasing approximately 14%. You will find all the details around this in the note in the report, and that's note 10. And that means that the loss from contributing continued operation is EUR 10.1 million negative. Adjusted for the one-offs that we have in the financials, it's a negative EUR 4.5 million, and that should be compared to EUR 9.2 million last year. Moving then into cash flow and CapEx. we have in the quarter an operating cash flow of EUR 11.4 million. Q3 last year, we had a positive impact from the financing of our accounts receivable of EUR 41 million. This year, we have a negative impact of EUR 3.5 million, and that's also related then to the refinancing. So adjusted for this, you should compare EUR 15 million in operative cash flow this year to EUR 8 million last year. Then have we spent EUR 6.7 million in CapEx. A smaller part of this is related to the customer projects within automotive, which Stein Inge just commented upon. And that brings us to our free cash flow. With reference to what Christian mentioned earlier here today, we can see that we gradually improve our EBITDA. And in the quarter, we do have an EBITDA of the EUR 23 million. Then we have lease payments of approximately EUR 10 million. We have maintenance CapEx, approximately EUR 4 million. These levels we consider to be relatively stable. Working capital fluctuate between the quarters. That's driven by seasonality, but it is relatively stable over time. And with RAW no longer now consolidated into our books, and we do have the financing agreement for the accounts receivable, the volatility in working capital will decrease. And this resulted in a free cash flow in this quarter of EUR 9.5 million. And with the new financing in place, we have net financing cost of approximately EUR 5 million that is free cash flow should cover for. And then we end with the capital structure. Well known is that we have refinanced the group in this quarter, which means that we have secured long-time financing. This includes then a EUR 250 million bond with maturity in 2029 and it's also an RCF of EUR 75 million with maturity in 2028. And as a part of this refinancing, we also raised EUR 75 million in equity. And that, together with the cash from the RAW transaction and the divestment of the full trading leveraging is now decreasing. Other financial assets, it's a new item within net debt, and this relates mainly then to the estimated value of the earn-out agreement related to the RAW transaction. Please note here then that this is a discounted value. Cash and credits available by the end of the quarter now amounts to approximately EUR 150 million, and that includes then the EUR 72 million that we have in cash and EUR 75 million that we have in an unutilized RCF. So with that, I leave the word back to Christian.

Thank you, Marie. I'll then summarize and talk about our key priorities today and going forward. Within BEWI, we are delivering on our strategic priorities. We sharpen our focus on our core business, and we increase profitability across the group. Through the reduced ownership in RAW as well as the sale of the food trading operations, we have now streamlined our structure. The strategic review of the automotive business is still ongoing. And in the meantime, we have used the time on significantly strengthen this part of the business. This means that our key offering going forward is on energy-efficient solutions, including insulation, HVAC as well as packaging. Furthermore, we will improve our profitability through continuous focus on improvements as we always have done, and we will be the most competitive player in our industry going forward. Yes, we believe that the construction industry will recover because there is a housing shortage, but we don't know how long this will take. I also want to be clear that we do not currently have any ongoing acquisition processes. That said, we will continue to consolidate the industry in which we operate in. Acquisitions and strategic growth are in our DNA, and it is an important part of our strategy going forward as well. However, right now, the main focus is to improve profitability and to be in line with our financial targets. And that includes our net debt-to-EBITDA ratio of reaching -- trying to reach 2.5 so that we will be in a position to continue our growth journey. Finally, we have now secured refinancing and raised equity through a private placement. And moving forward, we will continue to work hard to increase our EBITDA and thereby bring down our leverage further. In summary, we will continue to increase profitability at current volumes. Our packaging business continuously delivers strong results. We have secured long-term financing and the long-term potential for our solution remains strong in a growing market. And by that, I leave the word to you, Charlotte.

Thank you, Christian. Then we will have a Q&A session. Please post your questions in the webcast console. I will read the questions we have received. The first one is from Herman Dahl in Nordea. Do the Q3 CapEx give a good picture of the run rate CapEx level into 2026?

As we have stated in the presentation, also, we are -- or we have invested in automotive in this year. We are now at the end of the investments in automotive. If you look at the other divisions, we are looking at a run rate between EUR 15 million and EUR 20 million, which also should be the run rate you would expect going forward in the next 12 months. So the answer to the question is between -- the run rate should be between EUR 15 million and EUR 20 million.

Thank you, Christian. Then we have a couple of questions from [ Eva Larsen ]. The first one is related to the Circular segment. He says that the Circular segment has been hampering the shareholders' return for 5 years. When do you say enough is enough?

That is a good and difficult reflection or question. I think that as we have stated clearly, it is not acceptable that we are losing money in Circular. And we have set forward a process where we're going to start or we have started and we will -- and we have also improved the Circular division, and we will continue to improve to get Circular into a positive result. That is also a difficult and hard journey. And I think when you put upon yourself to be responsible in the industry, it is not easy to change the industry. But as -- for example, when changing from cars to electrical cars, that takes time. But also if you want to change from producing polymers to recycled polymers, it takes time. But we are 100% confident that this is the solution for the future. We see that customers now is demanding more and more recycled products, and we are also convinced that we are going to, in the short run, get up to profitability in Circular.

Thank you, Christian. Then another question from Eva. Other external costs and personnel costs are up by 11% year-over-year. Why this sharp increase, Marie?