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

[Operator Instructions] Now, I would like to turn the conference over to Karim Tonelli, Investor relator. Please go ahead, sir.

Thank you, operator, and good evening to all, and thank you to join us for Aquafil video conference call on the full year 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 current expectation about the future events and are subject to risks and uncertainties that could cause results to differ for those expressed by the statement. For a discussion of these risks and uncertainties, you should review the disclaimer in the presentation we issued today. See that, allow me to underline you, which are the main financial highlights of 2021 before leaving the floor to Mr. Giulio Bonazzi for his strategic remarks. Volumes are higher of 5% compared to the same period of 2019. EBITDA is higher of 13% compared to 2019. And the net financial position is better of 18% compared to the end of 2020. Now I'm handing over to our Chairman and CEO, Mr. Giulio Bonazzi.

Thank you, Karim. Good evening to all, and thank you again for attending the first video conference call. The financial year of 2021 demonstrated the group's ability to grow vigorously and consolidate significant results, pursuing its circularity objectives and clearly implementing its strategy. Indeed, the economic and financial results achieved are growing, not only compared to 2020, but with respect to 2019 despite the strong impact of energy prices that characterized the fourth quarter in Europe. ECONYL, after all, represents around 37% of fiber revenues and has continued its strategy of integrating the collection of waste for regeneration. In fact, last October, we finalized the acquisition of a significant stake in the Norwegian company Nofir, which is in the collection of fishing nets. This is a further step in our efforts to control and coordinate the supply chain following the acquisition in December 2020 of Planet Recycling, which is collecting end-of-life carpets. Now under its new name, Aquafil Carpet Collection, it has already doubled its collection points. The year 2022 started positively and in line with our forecast, following the sales price increases implemented to recover the cost increases that had risen in the fourth quarter of 2021. However, the conflict between Russia and Ukraine has changed the current scenario, bringing significant instability that will certainly have negative consequences on the economic growth globally and especially on European markets. We have prepared specific management plans to respond to a likely contraction in European demand and price increases of raw materials in the coming weeks. We are ready together with our customers and supply chain to face the contingent situation through the constant monitoring of its evolution and the implementation of all necessary actions in order to mitigate the adverse effects that could arise. We do not see any particular impact in the other geographical areas where the group operates. In fact, both in the United States and in Asia, the first period of the year showed demand levels in line with our expectations for all products and inflationary trends that are not comparable to those in Europe. Despite the current negative scenario and its highly unpredictable evolution, in the medium term, we are optimistic and fully focused on implementing our strategy and creating value for all our stakeholders. Now we are more than welcome to leave the floor to you and to answer to your questions.

[Operator Instructions] The first question is from Niccolò Storer of Kepler.

The first one is on the price environment in terms of energy cost. So if you can comment a bit on that. And the difference that you are currently finding between Europe and other markets. Are you seeing completely different trends in Europe compared to America and APAC on that? And related to that, maybe if you have started seeing some decline in demand in Europe following this invasion of Ukraine and inflationary pressures mounting? Last question is on your agreement with ITOCHU, I read on the press release that -- ITOCHU has decided to make capital participation in Aquafil, if you can shed some light on what does this mean?

Thank you very much. Well, the energy price environment are very different from Europe and the rest of the world. Needless to comment what is happening in Europe and nor any comment about the absolute levels that we have touched during the previous weeks. But to give you an idea, when we speak about electric energy in China or United States, we are speaking of price increases that are far below 10%. While, of course, in Europe, we are speaking about several hundred percents. So this is just to give you the order of magnitude of the difference. Actually, we have not seen yet any declining in the demand. And it's difficult to imagine that customers knowing that prices are going to increase further and in a very high level during April and May, they will now stop buying. So for the time being, there are, of course, expectations of possible decrease in demand, but not yet any sign of slowdown of demand. With regard to well, of course, this is the natural consequence of the first memorandum of understanding that we have signed some time ago. In the meantime, we have worked hard we have discussed and spent when possible time together, not only through video conferencing, but also physically together and started to work in the procurement of waste, procurement of conventional raw material and also permitting us to have better penetrations into the markets where ITOCHU has a strong presence. With regard to comment of the decision of ITOCHU of becoming shareholders of Aquafil which, of course, is making us very happy. Clearly, I can't comment. You have to ask it to talk to ITOCHU.

The next question is from [indiscernible] of Momentum.

I didn't realize it was a video conference. So just connected by phone. The first question is -- on the '25 targets that I'm surprised you are giving to the market over 60% over-the-fiber revenues coming from Aquafil? And also, if you can elaborate on some sustainable targets in terms of waste and water you are giving. So how you are above all on the ECONYL, how you are considering? And what action are you implementing to reach this target? The second one is a quick one on China. I'm so far, do we have any impact of the COVID outbreak and the drastic decision taken by the government to shut down some -- to put a lockdown some regions?

Well, first of all, it is not mandatory to connect via video system, you can decide whether you prefer to connect by phone or by video. If you connect by video, you will see 3 wonderful gentlemen without makeup...

Actually I see you because I also see you.

Okay. Anyhow, actually, the targets were already defined within Aquafil. We just decided to change the way of communicating them and making them more easily and transparent to the market because of, of course, ESG rating, which is gaining momentum and importance. In order to reach those targets, ECONYL is, of course, central because clearly, ECONYL has 90% lower carbon footprint with -- in comparison with the conventional nylon fiber or polymer. So clearly, the more ECONYL we produce and the more integration upstream we have through Nofir or Aquafil Carpet Collection or other systems that we are implementing, for example, also together with ITOCHU and the more, of course, we will be able to advance toward reaching those targets. With regard to water consumption and energy consumption, we are, of course, in a daily fight. And what we have promised is what we are very confident that we are able to achieve in the near future. With regard to China, for the time being, we have not been touched nor having seen any particular problem coming. Clearly, knowing how Chinese authorities are reacting to the spread of this new variant in the Chinese territory. The risk is that inside the company, or nearby, there could be some problems that could create some days or maximum a couple of weeks of blockage of our production. But for the time being, in our area, there are actually no problems. And we are always implementing the strictest safety regulations also with regard to COVID, despite the moment in China was very favorable in comparison with the rest of the world.

If I may, just a follow-up. The 60% target of ECONYL in '25. If -- can you give us some colors or which are the main action in your strategy to reach this goal?

Sure. Well, for those who have followed us in the previous years, well, they should remember that during 2018, '19 and 2020, we made considerable investments for capacity increases in ECONYL. And this preparing already the infrastructure for future capacity expansions. And this is where, of course, we have to leverage because we can increase still another good 50% of capacity of our ECONYL without having to spend dramatic numbers in terms of capital expenditures. So we are focusing on collecting more waste, finding new waste to validate for ECONYL regeneration. And then as soon as we have the waste, we will go forward with expansion of capacity of ECONYL. Then -- and clearly, now the situation is also encouraging us to run even faster than before to have additional capacity for ECONYL for the second part of 2023.

Congratulation again also for sharing with us the '25 target. Really appreciate it.

The next question is from Roberto Letizia of Equita.

I have a follow-up question on the action to be taken for reaching the 65% target from ECONYL. So I wonder if you can be more precise on the amount of CapEx that you will deploy to reach the targets. And give a sense on also geographically where these increasing production capacity may arrive. Is this going to be U.S. is going to be Europe or Asia Pacific? And -- yes, any color on fees on the capacity and the CapEx to be realized in numeric number just to have a sense of the cash flow management through this? And also beyond what we see as -- with the dealing of ITOCHU also how can you deal with the sourcing of the raw material to rival that target in next years? And the second question is related to the profitability, which as we were expecting. So that's no surprise, of course, because of the raise into the mainly energy cost and material that has to be repriced into the contract. You said last time that you were in well advanced stage of repricing. So I was wondering if you can elaborate a little bit on how this new wave of inflationary trends may act on potentially additional required, again, repricing just potentially moving ahead by one quarter or I don't know whatever indication you can provide the profitability rebuild on contract renegotiation?

Thank you, Roberto. Well, actions for reaching the target on ECONYL and CapEx. With regard to CapEx, the comment that I can make is that we will not deviate much from the current level. So the intention is to keep investing roughly what we are investing now, plus or minus. And with this capital expenditure level, we can reach all our targets with regard to ECONYL capacity expansion, but also to other new products, new areas of businesses like, for example, engineering polymer that we just started; or small capacity expansions that we can make in order to meet the growing demand, especially for ECONYL products that is coming from all over the world. A little bit of more color on sourcing of raw materials. Well, ITOCHU is helping us in finding waste in different parts of the world. But I must say that we are very confident that -- the newly acquired Aquafil Carpet Collection, I remember you that when we purchased them, they were operating 2 collection points. Now we are already at 4 and already looking for the 5th collection point. So very likely during the coming years, you will see 1 or 2 more collection points per year being associated with our effort of collecting carpet, of course, from California. Nofir still is having a lot of rooms for increasing collection of nets in the area. The pace is very often slowed down by the European bureaucratical necessity of requiring permits when you deal with so-called hazardous waste, okay? But we are working to expand, thanks to the experience of Nofir, the areas where we can collect fishing nets and especially impregnated net from the rest of the world. So these are the main areas. There are other research and development works that are ongoing to create new possibilities through new technological development to validate other important waste sources for our ECONYL regeneration system. Repricing, in the comments we have made during the presentation, we said that the first quarter was fully in line with our expectations because the price increase we were able to achieve from -- between December and January of 2022 was fully covering the cost increases that we suffered during the second part of last year. Now, we have energy that is still representing a problem, but very honestly, it's a minor problem. The biggest problem will come from the European increase in raw material that is driven by energy impact on our suppliers. Clearly, being ECONYL 19% lower carbon footprint than in conventional nylon, the impact of energy prices on ECONYL are far lower than the ones that are hitting our suppliers. And this will be the new game that we will have to play between April and May. And for which we are already in contact with our customers and discussing with them what they want us to make -- and consequently, what we are going to buy and to produce during April and May. Of course, the hope of everybody, starting from the humanitarian standpoint is that this war ends as soon as possible.

[Operator Instructions] The next question is from Carlo Maritano of Intermonte.

I just have a couple of questions. The first one is related to recent rumors about INVISTA leaving the North American market. Are you already seeing an increase in demand from customers that were previously served by -- in this stories to early to see the first effects from this? And the second one is on the agreement in Chilean to recover fishing nets? In the press release, there were mentioned around EUR 10 million of investment. I was wondering if this investment we should expect to come in 2022 or will be more diluted during time?

Thank you. Well, with regard to comment about INVISTA, INVISTA decision is clear. It is official and is already giving a lot of strong and good opportunities to Aquafil, not only in the North American market, but also elsewhere, namely Japan, where we are growing steadily, and we plan let's say, good growth also during 2022 and 2023. I remember that we are operating with a partner, some capacity of yarn finishing already since a couple of years, and we are continuously increasing our machinery by this partner in order to meet the demand that is very, very robust. Agreement in Chilean. Thank you, Carlo. I was trying to avoid to answer to Roberto short ago. But indeed, Chilean, together with Norway is the second largest aquaculture market in the world. And clearly, there are a lot of fishing nets. And together with Nofir experience in agreement, of course, with Nofir the management and shareholders, we will leverage Nofir system in order to create a collection of fishing nets also in that part of the world. The EUR 10 million are a very indicative number that will not be made during 2022. In 2022, we just incorporated Aquafil Chile. We are now starting to look piece of property to purchase. I mean, in terms of land eventually buildings where to operate our carpet collection and first preparation of carpets just like Nofir, that -- and then, of course, we will start our actions. And clearly, we will try to optimize every cost between a Carpet Collection -- sorry, fishing net collection, fishing net preparation and ECONYL regeneration system.

The next question is a follow-up from Roberto Letizia of Equita. Excuse me, Mr. Letizia withdrew his question. [Operator Instructions] Gentleman, there are no more questions registered at this time.

Okay. Thank you to all. Thank you to Giulio and thank you to Attilio -- for being with us, and see you the next time.

Thank you.

Thank you. Bye.

Thank you very much to every body.

Ladies and gentlemen, thank you for joining the conference is now over. You may disconnect your devices. Thank you.