Kri-Kri Milk Industry S.A. (KRI) Earnings Call Transcript

Hello, and welcome to this webcast. I'm Konstantinos Sarmadakis, Kri-Kri's CFO. During today's presentation, I will walk you through our financial performance for the first 6 months of the year, the key developments across our main business segments, the evolution of our courts and our expectations for the full year. The first half of 2026 was characterized by strong sales growth, significant profitability improvement and continued momentum now in the national [indiscernible] business. At the same time, the geopolitical environment has created additional uncertainty particularly in relation to energy, packaging and transformation transportation costs. Following the presentation, we will be happy to address your questions. You can submit your questions using the chat tool. Let us begin with the financial results for the first half of 2026. Sales rate EUR 204 million compared to EUR 162 million in the corresponding period of 2025, representing an increase of about 26%. Importantly, this growth was dominantly volume driven reflecting the continued expansion of our international local business. Gross profit increased by 48.5% to EUR 66 million. As a result, the gross profit margin improved substantially, reaching exactly 2.4% compared with EUR 27.5 million in the first half of 2025. This improvement reflects the combined benefit of higher production volumes, improved operating leverage and a more favorable relationship between selling prices and key input costs. EBIT increased by 70.6% to EUR 39.4 million with EBIT margin rising by 5 percentage points from 14.3% to 19.3% followed a similar pattern, increasing by 65% to EUR 43 million, corresponding to a margin of 21.2%. Finally, profit after tax reached EUR 36.5 million, up by 87.6% year-on-year. It would be noted that profit after tax included a benefit of EUR 5.7 million related to tax relief granted under state incentive scheme for completed capital expenditure projects. The corresponding benefit in the previous period was significantly lower at EUR 1.4 million. Overall, the first half results demonstrate strong growth, significant margin expansion and substantial operating leverage. I will now turn to segment revenue. Let us start with the Yogurt exports, our largest and more dynamic business segment. It now accounts of about 63% of total sales. Yogurt exports remain our main growth engine during the first half of 2026. Sales increased by 46.6% reaching approximately EUR 129 million, a bit more than doubled to EUR 28 million. This demonstrates both the strength of demand and the substantial operating leverage of the yogurt business. Growth was particularly strong now to major international markets. Sales in the U.K. increased by 67%, while sales in Italy increased by 31%. The underlying market environment remains supportive. Demand remains very strong, and we expect the greek yogurt category to continue expanding at an attractive pace. Turning to the domestic global market. We have also seen a positive development in both market demand and our financial performance. The overall market increased by 11% in value and 8.6% in volume. Against this backdrop, our domestic gas sales increased by 10% to EUR 43.3 million. Private label yogurt continues to gain market relevance as consumers seek more affordable alteratives in an inflationary environment. As a leading private label supplier, Kri-Kri benefits from this shift. At the same time, however, the increased consumer preference for private label creates pressure on the market share of branded yogurt products. Our objective is therefore twofold to maintain our leading proposition in private label while also strengthening the competitiveness and differentiation of our branded portfolio. Performance in the ice cream segment was weaker during the first half of the year, although the 2 parts of the business were affected by different factors. In the Greek market, our sales declined by 1.8% to EUR 22.8 million. It generally followed the market trend, which recorded a decline of 4.3% in volume and 1.5% in value. Some say that the overall market shows signs of saturation stemming from the higher price level that ice cream have reached. Whatever is the case, we are implementing some initiatives to improve our performance. The most important is the further expansion of our sales network, especially into risk areas. We are also placing great emphasis on product categories with stronger growth potential, including greek frozen yogurt. In ice cream export sales, sales decreased by 23.6% to EUR 7.2 million. This is mostly attributed to a loss of a contract for a private labor with a U.K. retailer. Our bet was that the performance of Greek frozen yogurt in U.S. will offset much of this. However, our sales development there is slower than initially expected. And although we continue to see attractive development opportunities in the U.S. market, with our current business model, it seems that it will take some time and it needs more patients for the distribution to expand. Therefore, we have already started examining some options to accelerate the expansion of distribution and treats wider pressures more quickly. And apart from U.S., other countries like China seem to present an opportunity. Moving on, the sales bridge explains the progression from approximately EUR 162 million in the first half of 2025 to EUR 204 million in the first half of 2026. The central message is that the increase was overwhelmingly volume driven. Yogurt volumes contributed approximately EUR 37 million of incremental sales, confirming that the expansion is primarily based on higher quantity sold. Also, it is pricing actions implemented during the second half of 2025 contributed about EUR 8.5 million to first half sales growth. These actions also supported the improvement in gross profit, as illustrated on the following slide. Moving call, this slide shows the gross profit increased approximately from approximately EUR 45 million in the first half of 2025 to EUR 66 million in the first half of 2026. Higher sales quantities were an important contributor, adding approximately EUR 8 million to gross profit. Selling price and mix effects provided an additional confusion of about EUR 8 million and positive input price contribution of about EUR 5 million. These last 2 factors explain the large part of the gross margin expansion. In the second half, we expect a different picture. Firstly, we anticipate a much lower price contribution in the second half of the year. Since most of rising actions took place in the second half of 2025, the compare period now includes these increases, effectively reducing the year-on-year pricing tail. At the same time, as the conflict in the Middle East continues, we see an increased risk of cost pressure on several cost components. In response, we are actively paring targeted bank actions. If the current pressures persist, this action will be implemented selectively with the objective of mitigating the impact aging while preserving our competitive position. Compared with previous inflationary cities, we are better prepared to respond effectively and with a shorter time lag between input cost increases and the corresponding pricing action. Let me conclude the operational review with our revised estimates for the full year 2026. Based on our strong first half performance and the information currently available, we now expect full year sales to reach approximately EUR 400 million compared with our previous guidance of more than EUR 390 million. At the same time, the disruption in international markets, resulting from geopolitical developments in the Middle East appears to be more prolonged and more intense than initially anticipated. This is creating increased pressure across many cost components. Under the current circumstances and provided that these pressures do not materially ease during the final quarter of the year, we expect full year EBIT to be slightly below our initial target of approximately EUR 60 million in the range of EUR 57 million to EUR 58 million. Despite these near-term pressures, we continue to expect strong growth and high profitability in 2026 maintaining the positive performance of recent years. Let me now turn to our medium-term investment plan, which is a key component of Kri-Kri's future growth strategy. Demand for Greek yogurt remains very strong, particularly in core European markets, and we expect the category to continue expanding. At the same time, we see further growth opportunities in other countries with large and well-developed yogurt markets. Our main constraint today is not demand, but available production capacity. The strong increase in volumes means that our existing yogurt facilities are operating at high utilization rates, leaving us with limited spare capacity to accommodate further growth. To address this constraint, we have developed a significant medium-term investment product. Total planned CapEx for the period from 2026 to 2030 amounts approximately EUR 127 million with annual investments raising between EUR 23 million to EUR 28 million. The objective is to expand our yogurt production capacity progressively and in line with anticipated demand compared with 2025 capacity days, we expect capacity to double by 2030. And by 2030, yogurt production capacity is expected to be almost 3x the 2025 level. This investment program will enable us to ease the current capacity constraint improved production flexibility and capture the opportunity rising from the continued growth of the Greek Yogurt category. Most of these investments are stayed subsidized and expected to generate material tax relief benefits. The table shows the estimated tax relief amounts for the future years. Before concluding, let me summarize the 4 key messages from today's presentation. First, demand for Greek yogurt remains strong across developed European markets. The rapid expansion of the category, combined with our established presence in key markets such as U.K. and Italy, provides a solid foundation for continued export growth. Second, we are implementing a substantial medium-term investment product to remove the current city constraint. The planned expansion will enable us to share growing demand improved production flexibility and pursue additional opportunities in both existing and new markets. Third, while yogurt remains our primary growth engine, we also see opportunities to generate complementary income streams from our other business segment, in particular, our domestic goat operations private label activities and the international development of Greek frozen yogurt can provide additional sources of growth and diversification. Finally, we are closely monitoring the inflationary pressures are rising from the current geopolitical environment. compared with previous inflation are cycles, we are now better prepared to respond more rapidly and effectively. If the current cost pressures persist, we are ready to implement targeted pricing actions in order to mitigate their impact and protect profitability while maintaining our competitive position. In summary, Kri-Kri combines strong underlying demand, a clear capacity expansion plan and improvement in ability to deliver profitable growth. Although the external cost environment creates some near-term center, the fundamentals of the business remain strong and our medium-term outlook remains positive. Thank you all for attending this webcast. I will leave you 5 minutes to submit your questions with webchat tool, and then I will come back answering them. Thank you.

Hello. We are now ready to begin the Q&A session. And thank you for submitting your questions. We have received several interesting questions covering a range of topics. And we will do our best to address most of them. So let's start with the first question. The first question is about pricing. And could you provide some guidance on your pricing initiatives for half -- the second half of 2026 and 2027 to offset the rising inflation?

Yes, we are now in the preparation phase of this price actions. So the -- it hasn't settled yet. But we are trying -- the idea is to try to pass additional cost in product prices.

Moving on to the next question about energy cost and how much has energy cost and internal production costs increased since February 2026.

With energy, we don't have any hedging tools. We are lucky because overall energy cost does not account a very high percentage in our cost structure. We use electricity and also natural gas. And the energy cost overall followed the market increase of the prices.

Next question is about our investment program. And if the new capacity is on track for 2027, how much volume come out by 2028?

Yes. The CapEx project -- the CapEx plan is on track, both for 2027. It is early yet to speak about 2028. So it is still as a plan. We haven't proceeded in purchase orders for machinery and equipment. In this table, you can see the capacity expansion that we expect. So by 2028, we expect to have doubled the capacity compared to 2025 points.

Next question relates to frozen yogurt and the sales in China. And if we think that Chinese is a bigger market than the U.S. and in 3 to 5 years, given the slow development of the U.S.

With China, the initial -- our initial view is that it is a promising market. However, it's very early to say more. And compared to the size, although the population is much more in China U.S. consumption per capita is, I think, much higher. So the U.S. is still a priority for us. But in markets like China, we see an alternative and possible other countries that can support income flows in the future.

I believe we have already answered the next question, so we're moving on. The next one relates to other markets. Are you still turning away business in other markets outside U.K., France, given capacity constraints?

It's not that we are turning away. It's that because of where sort of spare capacity we try to delay new business development.

Right. So moving on to the next one, which relates to the lost contract in the ice cream segment. If we expect to replace that volume with a new retailer and when we could see ice cream exports to recover?

Just to know the private label contracts for ice cream differ from yogurt because usually, every year, retailers reshuffle their private label portfolio and change flavors and dice creams. So this was the case that we lost the contract. Of course, in the future, it is still a chance to recover lost sales it will win in some tender that they will raise.

All right. So the next one relates to our expansion and how possible is to make a new factory out of Greece.

I think currently, this is something that we don't have in our plans. Currently, we invest in Greece, and we are supporting the idea of Greek yogurt. That seems to have great demand all across Europe.

The next question relates to our customer structure and customer concentration. How could you assess the level of customer concentration in your international business, given that 2 foreign customers accounted for approximately EUR 53 million in sales in the first half? And if -- are these mainly private label partnerships and which markets are these customers in?

Yes, according to also the note -- relevant note in our financial statements, you will see that these 2 customers, 1 is accounts of 14% and the other about 10% of our sales. One is our importer and distributor for the Italian market. So it is not so much an actual concentration, but it is a technical one and the other is a large retailer in the U.K. So in our view, we don't have any particular risk of consumers concentration.

The next question is about frozen yogurt and the U.S. market. Got exactly does accelerate in the strategy involved, more marketing spend, new distributors or retail listing?

Yes. The most important is to expand the distribution. So we need to find a way to tap into more sales points, points of sales and more retail stores. After building at least material distribution, then marketing, expanding can also support expansion. But first, we need to find a way to accelerate the distribution building more quickly.

Moving on to the next question, which is about raw mat prices and the increase in Greece in recent months. Are you seeing this? And what explains the difference from wider EU mix prices?

Yes, this is a case of some initial indications that starting from July that is a pressure on our important significant cost components. So this we expect if the situation continues to be more intense in terms of pressure the diverters from wider region milk prices, I think, has to do with demand and supply. So overall, it seems that raw milk apply across EU has a reason. And this pushes prices at lower levels, whereas in Greece, the demand is much higher, and this drives prices up.

The next question relates to domestic competition, and we got here the example of [indiscernible] that the increase in capacity as well. And the question is, what is the risk of excess capacity in Greece? And is there enough milk to meet the increased capacity in the country?

The first of the risk of excess capacity, I think in our case, we don't have such risk because as we can see, on our CapEx plan, capacity has increased gradually and according to demand. And we will have time to adjust according to actual market conditions. The thing that other competitors and peers are trying to build up capacity in our view is positive because this means that demand is hot. And as we develop the market of Greek yogurt at a larger scale. This makes it much more stable and mitigate the risk of being out of fashion, I mean, the Greek yogurt category. The second thing about milk production in the country. In general, risk has a deficit of from milk. So much of the local needs are covered with imported milk.

All right. So the next 3 questions stands in the corporate finance area. The first one is about our strategy to expand and if we consider any acquisition in order to plant both domestically and internationally?

Currently, no, our focus is on organic growth, as you can see that the growth is at a very high basis here.

The second one is, if we have received any potential invested from investors about equity stake?

Now and then because we are a listed company, there are investors that are interested in buying some sales. And -- but I think that this demand is covered by free float.

And the last one is about our growth trajectory and what is our biggest risk to our business.

This is a very good question, I think. In my view, I don't think any risk coming from outside environment. I think the most important risk, but it is the risk that we have early addressed is internal and has to do with the organization and how to be able to cope with the future growth, I mean, all the organizational structure, people and need to adjust to this growth trajectory. And this is not very easy if it takes for a look. But it is a risk that we early -- we have early spotted, and we are running some initiatives so as to mitigate this.

We have a question about yogurt sales and if we got any new countries added in the past few months.

No. We didn't have them in new countries. Because, as I said, we try to delay any further business development.

We've got another question about the ice cream contract in the U.K., and they ask us, of course, the main reason behind losing it.

I think I answered this. It was a reshuffling of their private label portfolio. So they stopped with the [indiscernible].

The next question is about our U.K. sales. The set out now is our largest market, about 1/3 of total sales. Do you expect this pace to continue? And are you launching in new markets to reduce the dependence on the U.K.?

We don't see that the situation in U.K. is unhealthy. So we need to reduce dependence there. It is a fast-growing market. And all the signs that are available is that it seems that such high growth pace will continue in the coming years as well.

The next question, can you tell us with the actual prices, how much maximum sales can you generate with 2026 production capacity program, just a rough idea?

Yes, this is not very easy to calculate. But as a rough idea, I would say, EUR 430 million or EUR 440 million.

Next question is about the U.S. market. How U.S. market is progressing and your view on 2027 sales outlook for both products?

Yes. As I said, U.S. sales there is slow. Currently with no material sales. And it is really here to speak about 2027. So we have to wait a little before we set up clearly our budgeted figures for next year and then we'll have a better picture.

Moving on to the next question is about our CapEx investment program after 2030, if you already identified specific CapEx projects. Would you be open to build a new greenfield site? Or do you plan an expansion of sales plant? Do you already have an amount in mind?

Yes, there are some initial thoughts if we need further capacity expansion after 2030. But I think it is very early to discuss and give you figures and numbers at that point.

The next question is about ROI. What is the return on investment that you estimate with this planned CapEx? And then how much debt will you use to finance this CapEx?

Yes. In general, we set up a target of minimum return on investment before continue with the CapEx plan and this is about 25%. So all this on this project are also had the green light to proceed with this estimate. About the financing of this CapEx plans, most of this because we have a very high operating cash flows. Most of these are expected to be financed by operating cash flows. And we expect to have a low perhaps debt of about 20% to 30% of the total volume.