BEWI ASA (BEWI) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of BEWI's results for the second quarter and first half of 2026. My name is Charlotte Knudsen. I am responsible for Investor Relations in the BEWI Group. And today, we have a slightly extended quarterly presentation. If you have any questions related to the results or the presentation, please contact us by e-mail or telephone as you cannot submit questions for this webcast. We will start with a review of the quarter, where our CEO, Christian Bekken, will go through the highlights. And our CFO, Stein Inge Liasjo, will then review the developments for the segments. After that, Christian will talk more about the strategy and outlook, including market developments, sales and margin, before Stein Inge explains what this means for the group's financial performance and key financial metrics. We will conclude with a summary. And with that, I'll leave the word to you, Christian.

Thank you, Charlotte. It is always nice to present when we can talk about progress, progress from good performance from an organization that makes me proud. At our Q1 presentation, we were clear that we expected a strong second quarter. Today, we are delivering a strong second quarter. I would like to highlight 3 achievements. First, we are delivering strong results across the entire group. Second, Insulation & Construction delivered a significant margin uplift. And third, we generated a strong cash flow. All 3 segments contributed to the sales growth of 19% and the increase in adjusted EBITDA of 57% to more than EUR 34 million. This has significantly lifted our EBITDA margin from 10.4% to 13.8%, demonstrating that our ambition of a 15% EBITDA margin is fully achievable. Reported EBITDA, EUR 36 million, including a compensation received from a supplier. The most important driver behind both growth and improved profitability is the higher volumes. This led to better capacity utilization. In addition, we continue to see the benefits from operational improvements implemented across the business. And yes, we also benefit from inventory purchased at favorable prices. However, this accounts for only around EUR 2 million of the EUR 34 million in adjusted EBITDA. I am particularly pleased with the development for Insulation & Construction this quarter. The segment delivered a 69% increase in EBITDA and a significant improvement in margins. The building and construction market remains cautious, but the activity is gradually improving. And the higher volumes are translating efficiently into earnings growth. We also delivered a strong free cash flow of approximately EUR 37 million this quarter, driven by the strong operational performance and working capital release. And then you, Stein Inge.

If we start by looking at the group development, the key message is that we're seeing clear improvement across the businesses. All segments contributed to the improvement and Insulation & Construction was the largest contributor with sales up 18% and EBITDA up EUR 7 million. Packaging & Components continued to deliver strong and stable results, while Circular has moved from being a negative contributor to delivering positive EBITDA. Importantly, this is not only a strong stand-alone quarter. The year-to-date development shows the same direction with group sales up 13% and EBITDA up 52%. This supports the messages that we are delivering according to plan and that the actions taken to improve profitability are now visible in the numbers. Please also remember that Q2 is historically our strongest quarter in the year, followed by a little weaker Q3. The main takeaway is that BEWI is growing again, margins are improving and the improvement is broad-based across the group. Turning to Insulation & Construction. This was a strong quarter for the segment. Net sales increased by 18%, supported by volume growth of 14% with all regions contributing. Adjusted EBITDA increased by 69% and the EBITDA margin improved from 8.9% to 12.6%. The improvement is driven by a combination of higher volumes, better capacity utilization and the effect of measures implemented to improve profitability. As communicated previously, we have adjusted our cost base to the market level, improved our operations and actively managed margins across our markets. The most important point is that we're now starting to see the operational leverage in this segment. When volumes come back into the existing capacity, a significant part of the contribution flows through to EBITDA. We should also remember that the building and construction markets are still recovering. While this quarter was strong, we believe there is significant further potential in the segment. The business is now positioned to benefit when activity levels continue to normalize. But importantly, the actions we have taken have also strengthened profitability at current market levels. Moving to Packaging & Components. This segment continued to perform well across its end key markets. Net sales increased by 16% and adjusted EBITDA increased by 17%. The EBITDA margin remained strong around the 16% mark. Growth is coming from all key end markets with seafood packaging being the largest contributor to the EBITDA increase. Automotive investments are also yielding results, which is important given the upfront investments we made in this area. The message here is one of stability and quality of earnings. Packaging & Components is delivering at a structurally strong level. We have attractive market positions, good customer relationships and sustainable margins. Circular had an exceptionally strong quarter. Net sales increased by 28% and adjusted EBITDA improved to EUR 2.5 million in the quarter. The EBITDA margin was 11.5% compared with a negative 1.9% last year. The key drivers were high virgin material prices, leading both to growth in demand and also higher sales prices. Gross margins increased and operational efficiency improved with higher volumes. This is exactly the kind of effect we expect from a more mature circular business model where scale, sourcing and internal use of recycled feedstock all matter. We should be clear that Q2 was supported by favorable market conditions. At the same time, the quarter confirms that Circular is no longer only a sustainability proposition. As we said after Q1, Circular has moved from being a start-up to becoming a scale-up. It is increasingly becoming a profitable and strategically important part of BEWI's industrial model. Turning briefly into the income statement and to other operating income of EUR 7.3 million. This relates partly to onetime sales of machinery, EUR 4 million, which also is found in other operating costs. And the majority of the rest is a part of a settlement in an insurance case. The share of income from associated companies and joint ventures was EUR 4.6 million compared with negative EUR 0.1 million last year. The majority of this comes from RAW. And please remember that last year, RAW was not included as share of income from associates. Net financial items improved to negative EUR 9.3 million compared with negative EUR 11.8 million last year. This brings the net result from continued operations to EUR 11.4 million compared with negative EUR 7.3 million last year. So the improvement is visible through the P&L from sales and EBITDA through EBIT and down to the result from continuing operations.

The second quarter and first half of the year have been strong for BEWI given the market conditions. Therefore, we would like to spend a little more time looking at the bigger picture. I would like to take a step back and explain how we built the company, how we are adapting during a very challenging market environment, where we stand today and how we see the way forward. Let me start with the long-term direction for BEWI. Our vision is simple, protecting people and goods for a better every day. This gives us a direction and a purpose. Our products protect people, food and goods, and they play an important role in the everyday life. And that is also why demand for our products continue to grow over time. Our fish boxes help ensure fresh seafood and reduce food waste. Insulation makes buildings more energy efficient and more comfortable, and components for child seats make traveling safer. Our ambition is to be the leading supplier of insulation solutions and food packaging in Europe. And we will do this in a circular way. Across the value chain, we combine profitable growth with better use of resources and lower environmental impact. Our strategy remains unchanged, and this quarter shows that we continue to move in the right direction, both operationally and financially. Revenue and margin in clear recovery. We have been in this industry for 45 years. During that time, we have experienced several difficult market cycles. What you should take away is that each time we have come out stronger. Why is this important? Because we are now delivering growth and improving profitability from a structural stronger business than before the downturn started. We have adjusted capacity. We have reduced costs, and we have sharpened our portfolio. This has made the company more cost efficient and increased our exposure to areas with higher margins. At the same time, we are now starting to benefit from investments made over the last few years. We have available capacity, and we have modern and efficient production facilities. Today, EBITDA margins are back at the levels we last saw in 2021 and 2022, even though sales are still much lower. As volumes continue to improve, profitability will improve further. 5 themes supporting the investment case. There are 5 areas that support our foundation for profitable growth going forward. We are an industry leader with strong local market positions. We have invested in areas with higher gross margin and potential. We have built a unique circular business model. We have available capacity, high operating leverage and a lean cost base. And finally, we have spent more than 45 years consolidating the industry we have operated in. And that part remains a part of our strategy going forward as well. So let's start with the markets we serve. This slide shows our market exposure. Around 60% of our business is linked to energy-efficient solutions for buildings, including insulation and HVAC components. Approximately 20% is food packaging with the seafood industry being our most important end market. The remaining 20% is roughly split between automotive components and selected niche applications. The key drivers for these industries remain the same, and they are promising. These markets are expected to grow by 5% to 7% annually going forward based on long-term structural trend and drivers. We are an industry leader with strong local market positions, and we have been so over many years. We have built a strong customer relationships and market positions across Europe. Today, we have 60 owned production facilities and 16 facilities through partly-owned companies, giving us a broad coverage, but this is a very local industry. Customers expect short lead times, reliable deliveries and local support. And that makes customer proximity critical. We have worked systematically to develop solution that creates value for our customers. This goes for products, but this also goes for value chains and partnerships that provide flexibility and security. That creates long-term customer relationships, and it allows us to grow together with our customers. This gives us a strong platform for both organic growth and further industry consolidation. Over the past 5 years, we have invested between EUR 90 million and EUR 100 million in projects that strengthen our competitiveness and, of course, the long-term growth potential. We have prioritized areas where we expect stronger growth and better profitability than in more standardized product segments. As a result, we now have significant capacity available to grow. And this is, trust me, modern and highly efficient capacity. What we are seeing today is that many of these investments are starting to deliver results through higher volumes, stronger market positions and better profitability. In parallel, we have built our circular value chain through collection, recycling and products with recycled content. We are now beginning to see the benefit of those investments as well. Here is an illustration of how our circular business model works in practice. We produce our fish box in Norway, in, for example, Frøya, our home place. It is used to transport salmon to, for example, Poland or France, where the fish is processed or redistributed. We collect the fish box, we recycle it, and the material is used again, for example, to insulate homes. This creates value for our customers, and it reduces their environmental impact. And it improves resource efficiency for BEWI. It creates growth opportunities and supports profitability because we can grow together with our customers. And we always have the flexibility to use the raw material that offers the best value, whether that is virgin or recycled material. The results in Circular today show that our investment in this value chain are starting to pay off, particularly in Insulation & Construction. Today, we estimate capacity utilization in the segment to be between 65% and 75%. The infrastructure is already in place. That means higher volumes will drive even higher earnings. We have already seen this over the last 12 months. Volumes have increased by 7%, while EBITDA is up by 14%. Going forward, we expect additionally 10% volume increase. If this happens, we will see a result where the EBITDA increases by approximately 20%. This illustrates the benefit of higher utilization at invested capacity. We have talked about our ambition of reaching a 15% EBITDA margin. Over the last 12 months, the group's EBITDA margin has improved from around 10% to close to 12%. For the first half of this year, it came in at 12.5%. And then for Q2, the margin was nearly 14%. And most of the improvement so far has come from Packaging & Components and, of course, Circular. In Packaging & Components, we are seeing the benefits of investments made over the last several years, especially within automotive. At the same time, Circular has gone from being a drag on earnings to making a positive contribution. Looking ahead, we expect the largest part of the next margin improvement to come from the Insulation & Construction segment. As I showed on the previous slide, the segment still has a lot available capacity and high operating leverage. Higher utilization will, therefore, have a positive impact on the profitability. By breaking the target down by segment, it is also -- it also becomes easier to understand what we need to achieve our group target. Let me put this into a few concrete milestones. For the medium term, our ambition is to reach EUR 1 billion in net sales with our 15% EBITDA margin target. This leads, of course, to EUR 150 million in adjusted EBITDA. We expect our end markets to grow by around 5% to 7% annually over time. Through the investments we have made and the market position we have built, our ambition is to grow faster than the markets we operate in. How long it takes depends on the market activity, the demand and prices that fluctuates. BEWI has grown significantly over many years, if we look back over the last decade. Revenues have increased from around EUR 170 million to close to EUR 850 million on the last 12 months. This growth has come from a combination of organic growth, investments and acquisitions. Obviously, the last few years, we have been focused on adapting to challenging markets and strengthening the balance sheet. That has been the right priority. At the same time, identifying, acquiring and developing businesses remains a part of our DNA. As market now normalize, profitability improves and the balance sheet continues to strengthen, we are well positioned to continue to consolidate the market. The objective is to allocate capital where we can strengthen our market positions, improve profitability and, of course, create value for our shareholders over time.

Thank you, Christian. I will now take you through the financial section. Christian has covered the strategic and operational drivers behind the expected development. I will focus on what this means financially. There are 4 financial considerations I would like to highlight. First, we are seeing signs of improvement in many of our markets. If that development continues, we are well positioned to benefit through our market positions, our existing capacity and the operational leverage. Second, the earnings capacity of the group has structurally increased. This is the result of portfolio sharpening, operational improvements and investments done in attractive growth areas. Third, we have a sharp focus on cash flow through capital discipline. This includes lower CapEx, active working capital management and a clear ambition to convert EBITDA into cash. And fourth, we have a clear capital allocation priority. As leverage come down, we will balance shareholder distribution, high-margin growth projects and value-accretive M&A. This slide shows the improvement in our earnings capacity over the last 12 months. Adjusted EBITDA increased from EUR 77 million for LTM Q2 '25 to EUR 101 million for LTM ending now in June. That is an increase of approximately 30% with margin expansion from around 10% to 12%. Most of the improvement comes from volume growth. The slide notes that LTM volume growth was 7% and that around 72% of the improvement comes from volume. This reflects 3 things. We are seeing improving trends in several of our markets. We are taking market share, and we are growing from investments we have already made, especially within automotive, HVAC and packaging. In addition, we see the effect of gross margin improvements, supply chain efficiencies and operational improvements. These are important because they reinforce the volume effect and make the improvement more sustainable. So the financial message is that BEWI has rebuilt and strengthened its earnings capacity. Turning to the balance sheet and liquidity position. We have a EUR 250 million bond loan maturing in September '29. And at the end of the quarter, available liquidity was EUR 167 million, consisting of EUR 92 million in cash and EUR 75 million in unutilized credit facilities. As you know, our IFRS 16 liabilities relate to long-term property leases, and this is really our 60 factories all over Europe. Net interest-bearing debt at the end of Q2 amounted to EUR 168 million. The important message is that the financial position has strengthened materially. Liquidity is solid, debt maturity is manageable and the improved earnings base is supporting a clear deleveraging trend. And this slide illustrates the delevering progress. Leverage, excluding IFRS 16, was 7.5 in Q2 '25. We are now at 2.7. This is, of course, impacted by the capital issue last year, and our target remains below 2.5. We are now close to that level. The improvement is now driven by operations. And this is important because it gives us increased flexibility and opens up for capital allocation alternatives. This is also consistent with what we have communicated previously. Improved earnings and cash release from working capital should drive leverage down over time. And cash flow really remains a key priority. For the 12-month period ending now in June, adjusted EBITDA was EUR 101 million. And after lease payments, maintenance CapEx, working capital movements and taxes, free cash flow was EUR 47 million, representing a cash conversion of almost 50%. The important point is that more of EBITDA increases are flowing through to cash. CapEx has been reduced with total CapEx at a run rate of EUR 23 million, of which EUR 13 million is pure maintenance CapEx. Working capital also contributed extraordinarily positively, supported by improved supplier terms and planned inventory reductions. This is also what we communicated last quarter. This is a central part of the financial story. We're not only improving EBITDA, we are also improving cash generation, which supports deleveraging, reinvestment and the ability to return capital to shareholders over time. On CapEx, our message is capital discipline. We are targeting total CapEx of around EUR 20 million annually in the midterm perspective, with maintenance CapEx limited to EUR 10 million to EUR 15 million. This is an important shift. Over the last years, BEWI has made significant investments in growth projects. The financial priority now is to capitalize on those investments while keeping new CapEx selective and disciplined. That means we can support growth using available capacity while keeping the cash flow profile attractive. This is also in line with the previous financial message. We have reduced CapEx significantly and are focusing on capitalizing on investments already made. Looking ahead, the cash flow outlook is strong. As Christian mentioned, our midterm targets are EUR 1 billion in net sales and EUR 150 million in adjusted EBITDA. EUR 75 million before significant new builds and financing. Key here is that EBITDA increases should flow through to cash. Lease payments are expected to be stable. CapEx is expected to remain at this level and working capital should be limited even if we see growth, although there might be some seasonality to expect in the working capital. This creates significant financial flexibility. It supports further deleveraging, selective growth investments and shareholder distributions when the balance sheet is within our target range. It's important to underline that this is an outlook. It's based on our midterm financial targets and the current assumptions around lease payments, CapEx, working capital and taxes. To conclude on the financial section, let me summarize our capital allocation priorities. As leverage continues to come down, we will balance 3 priorities: shareholder distribution, major growth projects and M&A. On shareholder distribution, we have a clear dividend policy and also a possibility to buy back shares. For organic investments, the criterias are clear. Projects should strengthen our value chain or market position, should be focused on high-margin growth segments and have short payback time. For M&A, we will remain disciplined. Transactions should be value accretive, strategically attractive and supported by solid metrics. The overall message is that BEWI is moving from a period focused on stabilization, deleveraging and capital discipline into a position where we can again allocate capital more actively. We will still be selective and with a clear focus on returns. Christian?

Thanks, Stein Inge. I'll finish off with some concluding comments. First, an overview of our key priorities. In the near term, we continue to optimize cost, of course, operations and working capital, while we also will continue to capitalize on investments we have already made. We will further develop the Circular business over the medium term, and we expect to grow as the building and construction markets gradually recover. At the same time, we will continue to grow from the investments, capacity and market positions already in place. Our ambition is to reach EUR 1 billion in revenue and 15% EBITDA margin while maintaining a disciplined approach to capital allocation. We believe BEWI is well positioned for continued growth and improving profitability. We are making good progress towards our 15% EBITDA margin target. At the same time, we are closing in on our leverage target of below 2.5, supported by stronger cash flow generation. With lower debt and greater financial flexibility, we are returning to a position where we can combine strategic growth with attractive shareholder distributions. Let me summarize why we believe in BEWI and why we believe it is an attractive and robust industrial company. First, we operate in markets with strong long-term growth drivers. Second, we have invested in areas where we expect higher growth and stronger profitability than in the underlying markets. Third, we see substantial further margin potential. We have reduced costs, improved the portfolio and built capacity that can support higher volumes. Fourth, we expect strong cash generation going forward, lower CapEx requirements, improving profitability and continued focus on working capital provides greater financial flexibility and more opportunities to create value. And finally, we continue to build on a long history as a growth company. We have demonstrated our ability to develop business, integrate acquisition and create value over time. Together, this gives us a solid platform for continued growth, improved profitability in the long-term value creation for shareholders. And then that concludes our presentation. Thank you for listening. If you have any questions, please contact us, and we will see you next time.