Gr. Sarantis S.A. (SAR) Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. I'm Vasilios, your Chorus Call operator. Welcome, and thank you for joining the Sarantis Group conference call and live webcast to present and discuss the Sarantis Group's Half Year 2026 Financial Results. With us today, we have Mr. Ioannis Bouras, Group CEO; and Mr. Christos Varsos, Group CFO. [Operator Instructions] The conference is being recorded. [Operator Instructions] Please be reminded that this presentation contains a formal disclaimer with regards to forward-looking statements. The presentation and discussion are conducted subject to this disclaimer. At this time, I would like to turn the conference over to Mr. Ioannis Bouras, Group CEO. Mr. Bouras, you may now proceed.

Hello, everyone. Thanks for joining our call for half year results 2026 today. The agenda is including some highlights from myself. Then we continue with Christos Varsos on the financial performance, and then we talk about the outlook before the Q&A session. So a few highlights about the H1 2026. First of all, I would like to reconfirm that our group is keeping the focus on our strategy reconfirmed based on our categories, on our countries, on our region and, of course, the key strategic priorities, which we consistently execute as a group. The digital transformation is well on track. We have concluded a significant number of projects and go-live events in almost all countries. We have only Poland left for next year. That is what we're working right now. On the CapEx investment, we are on track. We have completed -- concluded the majority of the massive program, both in digital transformation, but also in our production facilities, especially in Poland. I have a few details later. And, of course, we continue investing in our people, developing our organization fit for purpose and, of course, supporting our strategic agenda. The truth is that in the H1 2026, we have some significant geopolitical challenges related to Middle East. And this has resulted in a significant cost pressure in raw materials and logistics linked with the oil prices and, of course, the overall disruption in supply chain in the Middle East. And as you remember, significant investments concluded by the end of 2025, and these investments help us to counterbalance a significant part of the cost pressure. And, of course, these -- all of these things are still ongoing. We have challenges in a couple of countries. Ukraine, things are not going very, very well in the country. There are events that are even harder -- going harder in the last few months. In Romania, there is a country that, although it's one of the biggest country of the group, there are some market issues related to consumption and, of course, overall market performance. The last one is the phasing of our U.S. exports affecting H1 results, although the performance in our -- in the markets and sellout of our Carroten brand in the U.S. is doing really, really well, and I have later some details on that. Key focus, commercial excellence. The HERO SKUs remains a strategic focus for our business, the winning brands, and we focus on the key brands of the business. Revenue growth management initiatives to compensate cost pressures, focusing on the right SKUs and the promotional optimization is key part of the market. The innovation, fewer and bigger initiatives, working with consumers in the region is still a key priority. And the international expansion remains one of the biggest growth pillars for our future. Moving on the numbers, high-level numbers. Christos will continue with details later on. Of course, from a top line point of view, 1.3% growth. Gross profit similar, underlying EBITDA, plus 0.4%, strong profitability. There is, of course, a pressure in the margins. There is a pressure in the market performance, and this is also reflected in our results in H1. If we move on our HERO brands, which is a major focus. The top 15 brands plus -- almost plus 1% is 62% of our branded business. There's a clear focus from our business to develop further our brand portfolio where the major investment innovation and activities taking place. Private Label business is stable, so 11.4% of the group sales and the overall group is EUR 308 million, as I said before. Now if we move to our categories. In our Beauty & Skin, the category is minus 2%. This is reflecting 2 things. One is the export phasing, which is included in this category mainly because of Carroten brand and the Romania pressure as a market, which is one of the biggest markets in our skin care business. Personal Care, 2.7% down. This is also reflecting 2 things, the promotional pressure from all the competition in the region. And there is a specific category that we are a significant player is a fragrance business that is affected mainly, although other categories are performing quite well, both in sales growth plus market share development. Home Care Solutions, plus 3%. Here, all the investments, all the energy, our leadership position in the region, plus the focus on our key brands and resulting in a very positive momentum for our Home Care Solutions and especially in the garbage bags category, the growth is even higher. And this is also absorbing the Ukrainian market, which is mainly Home Care Solutions market for us. Great momentum here, great projects. And, of course, we expect things to continue in a positive way in the future. The strategic partnerships part is a good growth rate, plus 4.9% for the 6 months. This is because of 2 things. One, our focus on fewer and better partnerships that is part of our strategy and the relevant innovation that we have in this -- from out of this partnership. So innovation and focus is resulting in a better performance for our business. When it comes to international markets, here, there are a few highlights related to the first 6 months. So the majority of the business in -- for the suncare Carroten brand. And, of course, there's a skin care business in the Philippines, which is also doing very, very well for our business. If I leave the U.S. last, Australia is a market that is coming up in the second half of the year. We are listed in the big retailers there, and we are continuing with Carroten brand. Middle East, we have a much bigger plans for the first half of the year that has been affected by the situation in Middle East. So it's putting the whole H1 for the region under pressure. However, Middle East for us is a long-term shot. So we expect things to improve as the situation progress in the region. The good thing also you have a new country joining in the second half of the year. This is not in our numbers in the first half. This is Chile and South America, which is part of our expansion strategy of Carroten brand to Latin America as a next step for growth among other countries that we are working on. In U.S., there is a lot of positive developments in the first half of the year. However, operational reasons and, of course, stock holding in the customers in the U.S. and our distributor resulting in this phasing issue for the first half of the year. On the U.S., Carroten now is #1 tanning brand in Amazon U.S. and Target, which is the one retailer that we are working with. And, of course, as we are speaking right now, we are preparing next year significant upside in our distribution footprint, especially in brick-and-mortar stores, in physical stores because online, we are still very -- we are very strong in Amazon, and we continue to be like this. One thing is the extra distribution. The other thing is the expansion of the assortment, where we are in a very good shape right now, and we are preparing the 2027 season with a lot of positive feedback and reaction from the customers and the consumers in the U.S. So Carroten is progressing, and we're expecting a lot of good things coming out in the near future. Coming now to geographies. So this is a split between the different countries that we are monitoring. Greece, a positive year, positive first half. Greek market in specific categories is doing very well, and we are winning over other companies. Selected international markets, minus 14% is what I explained about the U.S. Poland, very positive. Romania is having the impact as of the market performance. Czech, Slovakia and Hungary, this cluster of countries continue performing very well. West Balkans is also having a tough 6 months. However, we see signs of improvement from a market conditions point of view, because 2025 and first period of 2026 was quite difficult. Bulgaria is positive and, of course, Ukraine, reflecting the impact of the market situation. The transformation agenda, as I said, digital transformation, all the new SAP implementation is in place. As we speak, we have implemented the majority number of the countries. There were 2 countries left, one for next year, which is Poland. We are very near to the final go-live date is going to be in January 2027, and Ukraine will follow later on. From a planning point of view, we have completed all the investments, improving our planning accuracy and, of course, all the digital tools enhancing our digital capabilities have been implemented in the business. Manufacturing upgrade, we have concluded almost everything in our Stella Pack regranulation business. And we are now -- we are getting the benefits in 2026. But, of course, benefits will even further improve as we're moving on in the second half of the year and 2027 as well. Our Oinofyta plant in Greece, the expansion is also in progress. By the end of 2026, we expect to complete also the investments there related to our skin care and sun care expansion, both in the region and the international markets. And, of course, all this CapEx supporting also the sustainability agenda for the group. From the ESG point of view, we are improving our ratings. We are in line with our commitments for reduction of Scope 1 and Scope 2 emissions 42% by 2030 by reducing 11.5% for this year. And, of course, we have improved the ratings on all the raters, improving the scores on our sustainability agenda. So this is the intro from my side. I will pass over to Christos right now to give you more details about the financial performance.

Thank you, Giannis. Let me now provide some details behind the key numbers Giannis described. As you will see, we share underlying and reported numbers. The difference between the 2 relates to a one-off event, the sale of the old nonoperating factory of Polipak. The difference from the value, the brokerage fees and other expenses relevant to this was EUR 0.8 million. Thus, the underlying P&L is the ongoing one. The difference between underlying and reported is only this one, so this influences all lines from EBITDA down to EBITDA all the way to net profit. We should note here that maintaining the nonoperating factory had annual expenses of almost EUR 0.5 million. But after the sale, we will save this going forward, starting from the relevant portion in half year 2. Our net sales grew by 1.3% compared to 2025, with focus on our core categories, especially on our branded business, which influence favorably the mix of sales. Majority of our geographies did well with decline though in Romania and Ukraine, which influenced the performance. Also, we had the phasing element on our sales of U.S., which influenced the first half, but will be normalized in the second half. In terms of price increase, these were minor half year 1 and the actual pricing is expected to be effective in Q4. Our gross profit margin remained flat at 38.6%. We started seeing improvement in cost of goods sold as a result of our investments in our production capabilities and the regranulation in Poland. However, this has balanced the pressure in the supply chain from the ongoing Middle East conflict, leading eventually to the same gross profit margin. Underlying EBITDA grew marginally to EUR 48.5 million, with pressure also in the cost of transportation despite, as mentioned, the mixed performance and the cost benefits from our investments. Underlying EBITDA margin was flattish at 15.7%. Underlying EBIT at EUR 36.7 million posted a 2% decline compared to prior year with a margin of 11.9%. Financial expenses in 2026, although improved in terms of interest expense following the prepayment of loans, especially in the second half of prior year, were impacted by more than EUR 1 million negative, mainly due to the devaluation of the RON. Following this, our underlying earnings before tax declined to EUR 34.8 million from EUR 36.5 million in 2025 with EBT earnings before tax margin of 11.3%. Underlying net income of EUR 27.7 million, down by 5% versus EUR 29.2 million in 2025, leading to underlying earnings per share at EUR 0.44. Moving now to our product category so you can understand more about the dynamics in the first 6 months of the year. Only Private Label is impacted by the sale of the factory and has difference between underlying and reported. Starting with Beauty, Skin and Sun Care. This category, as you know, is a key pillar important for our organic growth plans. In half year 1 2026, net sales declined by 2% to EUR 54 million, impacted by the phasing of our U.S. exports in half year 1, which will be normalized in half year 2 and by performance in Romania. However, despite the net sales pressure, category EBIT grew by 7.4% and EBIT margin grew by 280 bps above last year, almost 32%, affected by the mix within the category. Personal Care. In terms of Personal Care, this was a category with the strongest promotional pressure from the competition and with decline in the subsegment of fragrances. We had a decline of 2% -- 2.7% of net sales compared to prior year, with EBIT being impacted further by 17% to reach EUR 7 million EBIT with EBIT margin of 14.2%. Home Care Solutions. Home Care Solutions grew by 3% to EUR 95 million with EBIT growing ahead of net sales by EUR 3.6 million (sic) [ 3.6% ] to EUR 10.8 million, with EBIT margin being stable. Private sale -- Label sales were flat at EUR 35.2 million compared to prior year with breakeven EBIT. We remind you that we use Private Label on a tactical basis to absorb cost from branded business and will, over time, increase branded business and decrease the Private Label portfolio. Finally, strategic partnerships. We had an increase of our sales by 4.9%, mainly driven by mass distribution, which rose by 12%, while selected business declined by 9% in the period. The EBIT declined by more than 30% to EUR 1.9 million, driven mainly by selective distribution, especially in Romania. As mentioned, the total group will have a solid net sales performance reaching EUR 308.3 million, and we have underlying EBIT at EUR 36.7 million with EBIT margin of 11.9%. Turning now to our geographies. The underlying reported classification only affects Poland. For Poland, we are also splitting between branded products and Private Label to allow for better understanding of the dynamics. Greece domestic market grew by 1.9% to EUR 81.6 million, with EBIT being flat at EBIT margin marginally below -- moving by 30 bps. Selected international markets net sales came below prior year to EUR 15 million as a result of the phasing that we mentioned earlier in our U.S. export. This is expected to normalize in the second half. EBIT was also impacted by this declining to EUR 6 million. The EBIT margin remains at the 40% level, the highest in the group, declining just marginally by 89 bps. Selected international markets remain a key focus for our growth strategy, having the strongest margin. And as Giannis described earlier, we expect this to grow in distribution, especially next year. In Poland, the total business had net sales of EUR 94.3 million, a 4.9% increase versus prior year, with EBIT growing by 20% driven by branded business. The branded portfolio grew by 2.3% to EUR 65.7 million, with the branded business EBIT grew by almost 12% and the Private Label EBIT improved as well in low margin growth. In other territories, we had a mixed picture driven by specifics in each country. Romania continues the declining trend started on the second half of last year with EUR 44 million of net sales, a decline of almost 5% versus prior year. In terms of EBIT, Romania achieved EUR 5.7 million, representing a decline of 16.8% with EBIT margin at 13%, declining almost 200 bps. We expect this trend to continue in the second half of the year as well. Czech, Slovakia and Hungary accelerated growth by adding 11.5% more net sales, reaching almost EUR 35 million with EBIT of EUR 4.5 million, which is a 22% increase to prior year. In terms of EBIT margin, this improved by 109 bps, reaching 12.9%. West Balkan showed a decline in the net sales of 4.9% to EUR 18 million, mainly impacted by the Serbian market. In terms of EBIT delivery, West Balkan declined EBIT to EUR 1.2 million from EUR 1.6 million in 2025 and then the EBIT margin dropped to 6.8%. West Balkans are expected to improve in half year 2. For Ukraine, this is another year of pressure in the results as identified already from our full year results discussion. The net sales dropped by almost 10% to EUR 9.5 million and EBIT continued in the negative territory, declining further to EUR 0.7 million loss. As the geopolitical conflict in the area continues and as we witnessed lately, it accelerates, we expect additional pressure from Ukraine in the second half of the year as well. Moving now to our healthy and strong balance sheet. As we have also discussed in the past, we maintain a strong balance sheet, which can support our organic growth, the next steps of our transformation agenda and M&A activities. As of 30th of June, we had net debt of EUR 29.6 million compared to EUR 32.8 million net debt on 30th of June 2025. In 2025, we also received EUR 20.8 million from Estee Lauder which while in 2026, we did not have a similar amount received. I remind you that due to seasonality, our worst net debt positions on 30th of June, whereas the best 31st December. Already today, as we speak, net debt is largely improved versus June, standing at EUR 19 million. But by year-end, we should again be at net cash position. We have for year 1, 2026, we have improved our working capital by 2 days, releasing extra cash to the business. As we have discussed also in the full year results, in the last quarter of 2025, we have made early debt repayments of EUR 17 million, reducing our financing expenses this year. We have now informed one of our lenders for a EUR 7.5 million prepayment to be executed by end of this month, enhancing further our earnings per share. We also expect another loan prepayment in Q4. Finally, as of today, we have committed loan facilities of EUR 120 million as a war chest for future acquisitions. Enhancing our shareholder value is key for us. Underlying earnings per share reached EUR 0.44 from EUR 0.46 last year, declined by 4.4%. During the first half, we paid dividend of EUR 25 million or EUR 0.39 per share, representing a 25% increase compared to EUR 20 million paid last year. This represented a 47.1% payout ratio versus 43.5% payout ratio last year. I would like now to provide an update on our CapEx for this year. Our new CapEx expectation for 2026 is for EUR 22 million from EUR 20 million we communicated earlier this year, which will complete most of our big projects. EUR 18 million was deployed already. Now coming to our outlook. The group continues to monitor the ongoing geopolitical volatility to mitigate as far as possible the resultant pressure on raw materials, energy and logistic costs. Pressure continues in terms of cost in Q3, while the price increases are expected to be largely in place from September late and mostly in Q4. Complexity is further amplified by local pressures, mainly within the Romanian and Ukrainian markets. Our strong brands, disciplined execution, sharp focus on cost control and commitment to our strategic priorities provide confidence to continue safeguarding healthy profitability. As the current environment is pretty liquid, we will be able to provide updates on the outlook later in the year if needed.

[Operator Instructions] The first question comes from the line of Iakovos Kourtesis with Piraeus Securities.

My first question, as far as I understand, you said you are going to provide an update on the outlook later in the year. However, taking into account that we're almost close to the 9-month period and your initial guidance for the year calls for EUR 620 million in sales plus 3.4% and EBITDA of EUR 97 million. It seems that taking into account your performance until now and the relevant headlines in Ukraine and Romania, would you say how confident are you that you're going to achieve this guidance? My second question has to do with the fact that you ensured the firepower of financing of EUR 120 million for future acquisitions. How close are you to close any acquisitions? And if you could identify for us potential geographies, what will be your strategy for acquisitions going forward? Which parts of the business are you targeting for acquisitions going forward?

Thank you, Iakovos. Thank you for the questions. Related to the guidance, I think that's why -- because we said the environment is very volatile and there's a lot of uncertainties around. Of course, we see things and we say that we can commit for a more accurate number later on the year. And I think what we said is there are a lot of pressure in the market. But at this moment in time, we cannot commit to a specific number. Related now to the EUR 120 million facility, what we know Sarantis Group has been proven over the years that is always there in the market. The strategy has not changed. We still focus on our Eastern Europe territory because, as we said, we focus on categories and geographies that we are already present, which also give us the benefits of synergies, same channels and, of course, same categories that we have the knowledge. And we continue to do that. So there is no new geography in the horizon for us at this moment in time. And also what we see since the beginning of the year, although in the previous years, there was a theoretical interest for potentially new targets that were more theoretical interest. Now we have seen more specific processes coming through, meaning that it's more -- we have more robust and more, how to say, specific processes around potential targets. However, as we speak right now, we cannot say any specific things related to any potential M&A.

Okay. Okay. And if I may, one last question relating to your 5-year plan. I suppose that going forward for 2027, 2028, your target remains intact -- your plan remains intact going forward. Is this correct?

Yes.

Yes, it is.

EUR 120 million by 2028, 31st December 2028. EBITDA of EUR 120 million.

The next question comes from the line of Natalia Svyriadi with Eurobank Equities.

I hope you can hear me. I was wondering if we could get an indication -- well, we can't get a number for the full year, but an indication of the current running rate. We saw in H1 sales up 1.3%. Was this mainly volume driven? And how has this been evolving Q3 to date or on what you're looking into current figures on the top line, so we could probably understand if the remaining sales -- we should be expecting the 3% rise or something like closer to 1.5%? And on top of that, I would like to understand a bit to get some color on the operating expenses rise. The gross margin was stable in H1. So probably the pressure, okay, apart from the EUR 800,000 coming from -- obviously, from the disposal of the plant. The remaining operating expenses will have had this pressure. Where did this come from? And have you seen this continuing? Should we expect this to continue? I'm trying to understand a bit the dynamics of the margins and how much we will be able to catch up, up to the year-end, based on current numbers you have.

Based on the numbers for the second half of the year, we expect a higher growth rate from a top line point of view, because the 1.3% needs to accelerate. So this is minimum you can have in the second half of the year, but we are aiming for higher than that. And related to the operating expenses, first of all, on the margins point of view, as you saw from the mix of the category sales, we see that the partnerships, the strategic partnerships part of the business is growing faster than the rest, right? This is affecting significantly the mix of our portfolio and, of course, the overall margin of the business. Related to operating expenses, apart from the one that Christos mentioned, there is also some impacting...

That will have the impact on the transportation and transport expenses because of the fuel and everything else not related to the Middle East crisis. And that was really the part which was not coming from our, let's say, what we have under control. It was more of the external determined operating expenses.