Aquafil S.p.A. ($ECNL)

Hello, and welcome to the Aquafil Group FY 2025 Results Conference Call. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Giulia Rossi, Head of Investor Relations, to begin today's conference. Please go ahead.

Thank you, operator. Good evening, everyone, and welcome to Aquafil investor conference call. Today, we will update you on company's full year 2025 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's current expectation about future events and are subject to risks and uncertainties that could cause results to differ from those expressed by the statements. For a discussion of these risks and uncertainties, you should review the disclaimer in the presentation we issued today. I will now leave the floor to Mr. Giulio Bonazzi for his remarks.

Thank you, Giulia. Good evening to all, and thank you again for attending our video conference. 2025 was a year of great satisfaction. Profitability recorded an excellent result despite the trend in raw material prices, partially decreasing revenues. In terms of volumes, fiber for carpets recorded an increase compared to the previous year. Geographically, the United States reaffirmed a strong growth trend already emerged in the first quarter, while markets in Europe and Asia Pacific were marginally slower than forecasted. As for fibers for textiles, after a slight decline in volumes in the first 9 months, the fourth quarter saw a recovery in the European market, which is also being confirmed in the first month of 2026. The engineering plastic product line continues its growth as planned with a double-digit increase in volumes. With great pleasure, I can confirm the achievement of the ECONYL product target, which has exceeded 60% of fiber revenues. The next step will be maintaining this result with increasing volumes. The ambitious EUR 17 million cost rationalization project launched in the second quarter has been reached. The first savings from this work are already visible in 2025, while the remaining portion will materialize mainly in 2026 with a small tail in 2027. Debt management remains our absolute priority. The net financial position is decreasing compared to the previous year, thanks to careful operational management and accurate selection of investments and a decrease in interest expenses. The improvement was achieved despite nonrecurring cost factors such as those deriving from the reorganization and the cash absorption of working capital. The latter is mainly attributable to a strategic change of suppliers, which led to temporary modification of payment terms. Without these extraordinary situations, we would have been very close to reaching our original target. We expect 2026 to be a year of further growth. We aim for a volume increase of approximately 5% in addition to strong cost and debt containment. In fact, we estimate reaching an EBITDA between EUR 79 million and EUR 83 million and the net financial position between EUR 185 million and EUR 195 million. Looking to the following years, operational efficiency efforts, energy savings from new technologies and those related to the cost rationalization project will allow us to lay the foundations for continuous expansion. Consequently, we expect an increase in profitability of approximately EUR 8 million to EUR 10 million. The current macroeconomic framework requires constant monitoring, but our global presence and the distinctive positioning of ECONYL products make us look to the future with confidence. Thank you for listening to this presentation. And now we are here for your questions.

[Operator Instructions] The first question comes from the line of Dave Storms of Stonegate.

I have 2. The first one is just around input costs in light of the recent increase in energy prices. I would love to hear how you plan to balance the recent increase in energy prices with your cost takeout strategy? And then my second one is around the volume rebound in Europe. It looks like pricing is lagging a little bit there. Maybe any thoughts around an ability to push pricing into 2026?

I will start from the second question. Our ability of passing through raw material and other cost increases has been proven during the last 20 years. So we are not afraid in case this trend continues, and we will certainly be able, starting also from the second quarter and the third quarter onward to pass through eventual price increases. About cost energy prices, we have certainly learned from the experience of 2022 and 2023. So this time, we are not caught unprepared. Also, I remind you that natural gas prices have increased, but not at the level of those years. So the effect will be minimal, if any, during the first semester of 2026.

[Operator Instructions] The next question comes from the line of Tommaso Nieddu of Kepler Cheuvreux.

My first question is still on energy and oil prices. My first question would be on if you have in the last period hedged your energy costs somehow? And if yes, what percentage/proportion, I would say, you did? And still remaining on the same topic, I guess, in the short term, as you were saying, can be positive because you can pass through with higher pricing. But my question would be more on the impact in the medium term, if that could be negative? And if you can help us understand if you have taken some actions in the meantime. And on top of that, it could be helpful on ECONYL, the fact that the oil prices and caprolactam prices went up so much. And still -- sorry, for staying on the topic, if the higher caprolactam prices and energy prices are already embedded on your 2026 guidance. And on the third question on the guidance for 2026, if you can remind us what are the cost savings on the cost of service side?

A lot of questions. Energy and oil and hedging. As I said previously, this time, we are not unprepared to this cost increase of energy. First of all, the magnitude of the cost increase is drastically lower than the one of 2022. And at the same time, also I am sorry for not disclosing the exact percentage of our hedging, but let's say, a large portion of our energy is hedged for the first, second, third and fourth quarter of '26. This is with regard to natural gas, while about electric energy, the edge is even longer than that. So as I said, we are not, let's say, so open to eventual problems coming from this side. Regarding the midterm positive, negative action and ECONYL. Clearly, at this point in time, we are not seeing yet any negative influx on the demand coming from the market. It is very early to say whether this situation will create a lower demand because of lower growth or because of lower income available for spending by the final consumers. Presently, particularly on commodities like polymers, we are seeing a strong request, and this is driven by 2 main factors, of course, the fear of price increasing during the coming months. Second, also a slowdown of the flow of import of polymer coming from China. Clearly, we are not giving away anything. We are managing carefully our stock and inventories. And certainly, we will eventually benefit in the short term by this situation. When we speak about ECONYL, as you know, this is always less expensive when petrochemical caprolactam and nylon are, let's say, more costly. So in this case, also, our price adjustment is also half of the normal caprolactam price increase or polymer price increase because of the lower cost of ECONYL. But of course, when customers are seeing that the price differential of ECONYL is getting smaller, they are even more motivated of launching products or, let's say, selling ECONYL in the market. So we are expecting eventually to see bouncing back the demand for ECONYL products and not, let's say, depressing it by the market. So this is not, let's say, negative for us. Of course, what we don't like is uncertainty. Uncertainty is the main, let's say, question mark that is difficult to handle. In the budget, clearly, when the budget was made, nobody was possibly thinking to -- a war and to a blockade of the Hormuz Strait. Clearly, we have not included in the budget main or big differences. This very likely will drive in an apparent increase of revenues higher than the one that we have in our budget. But we are not, let's say, for the time being, afraid of lower income or EBITDA, at least with the present market situation that we are experiencing. We are still seeing normal order coming from, let's say, all the markets. We are still seeing the textile filament, which has been the part where we have suffered most during the last couple of years, let's say, getting a little better than even our expectations. Of course, with delays in transportation, we should also see shops selling more European goods rather than imported ones. So we are not seeing, let's say, for the first 6 months, but likely also for later than that, let's say, major problems if, of course, this situation will be managed properly. If oil will sore to $200 or $300 per barrel, if oil is not enough for filling tanks of, let's say, people, so people cannot move or getting out from home, sorry, but I really don't know if this is going to happen and what kind of effect this may bring to our business. About cost savings, the figure of EUR 17.1 million is gross of inflation. Of course, if we had scored a similar saving net of inflation, our EBITDA margin would have risen even more and would rise even more during '26 and '27. On top of these actions, which have been, let's say, reached already, we are working on an additional cost saving program partially that was already included in the previous business plan, the part related to automation investments, which is the part that we have not yet made and that will be, let's say, realized during the coming period. New energy saving actions, which are particularly important in this situation. This is mostly regarding our ECONYL system where we are going to apply new technologies for energy savings that should give a major, major decrease in gas consumption per unit of product, okay? So we are speaking really of something higher than 30% during the next 3 to 4 years, okay, which is also very important for, let's say, covering or hedging for future eventual gas increases. On top of that, there are still other, let's say, actions that were ongoing, like you remember for sure, last year, we started our rationalization of our carpet collection and carpet recycling activity that should be finished between, let's say, March and April of this year. So the new operations should start up, let's say, our engineering team are saying in April. So let's say, from the second quarter, we should start seeing also this, let's say, newer systems moving forward. So we have, of course, a lot of programs for containing -- for cost containment, plus a lot of launching of new products that have been made during '25 and during 2026, which should help us to keep this growth trajectory during the coming years.

The next question comes from the line of Dave Storms of Stonegate.

Second round.

Just 2 quick follow-ups I wanted to ask. One, specifically around the North American geography. It looks like this was the only geography that showed growth specifically in the carpet fiber market. Would just love to hear maybe a little more of your outlook in North America specifically. And then also, you mentioned on -- in your prepared remarks that you are changing a supplier. Just curious as to maybe what more you can tell us about the drivers behind this? Is this geopolitically driven, capacity driven? Is it part of the cost savings initiative? Just anything more would be very helpful there.

I will start from the second question as in your first round because it's easier. Our suppliers in Europe are disappearing. So if you want to find the raw material -- abundant the raw material at convenient prices, you have to import. Because you have to know that in Europe, the caprolactam production capacity in the last 4 years has diminished of around 60%, okay? And it is not over. There is still a supplier, DOMO. It is not a secret what I'm saying, and they are in insolvency situation. So it is still unclear whether they will be able to keep running production in the short term or they will be forced to stopping it. But BASF was managing 2 plants and they shut down one. Polish, same. They had 2 plants, they shut down one. Czech also, they shut down and Fibrant in the Netherlands, they shut down at the end of January, their production capacity. So a few caprolactam suppliers have left in Europe. And so you have to import. We are -- fortunately, we were already organized for welcoming this import because the physical form of caprolactam imported is different than the one that you are buying local. And we are now making some investment for further rationalizing the cost of operation of this system, which is placed in Slovenia with a full automation of the line. Then, of course, reducing labor cost other than energy costs. About USA, the market in USA is just, how can I say, seeing the disappearance of the previous players that took place some years ago like Invista and Ascend. Ascend in fact, stopped production last year. Sometimes it takes a while for seeing the demand being, let's say, redistributed by the players left in the market. Plus the commercial carpet market has performed pretty well, particularly for our major customer interface. I'm sure that you are following this company, which is listed in U.S., and they are reporting very strong numbers. we, of course, being a supplier of interface, we are enjoying the good market momentum.

So we don't have any further questions. Maybe we can give it a few seconds. [Operator Instructions] It looks like we don't have any further questions. Then I will turn it back to Giulia Rossi for any closing remarks. Please go ahead.

Thank you very much for attending this conference, and see you on May.

Well, see you soon, and thank you for attending, and thank you for your preference.