Cabka N.V. (7GW.F) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Cabka H1 2026 Results Conference Call. With us today are CEO, Alexander Masharov; and CFO, Mark Letterie. Alex and Mark will both make a short presentation, after which we will go to Q&A. [Operator Instructions] You can find a copy of this presentation online at investors.cabka.com. [Operator Instructions] Please be advised that today's conference call is being recorded. As is standard, this presentation is subject to the usual disclaimers regarding accuracy, completeness and forward-looking statements. You can also find more details of these disclaimers on the Investors section of our website. I would now like to hand over to Alex, who will take you through our operational highlights for the first half of the year 2026.

Good morning to everyone joining us, and welcome to our H1 results presentation. In the first 6 months of this year, we delivered revenue growth, materially stronger profitability and a return to a positive net result. Most importantly, operational EBITDA grew significantly faster than revenue. This demonstrates the operating leverage within Cabka's business model and the impact of our improved product mix, disciplined execution and the structural cost measures implemented through our Shift program. These results were only possible because of the commitment and hard work of our people across the company. As such, I would like to take this opportunity to thank all Cabka employees for their resilience, dedication and continued focus through the first half of the year. We achieved this performance against a volatile market backdrop. Geopolitical disruptions in the Gulf created significant movements in energy and raw material markets and contributed to longer customer decision cycles towards the end of the second quarter. More recently, raw material prices have eased from their peaks, and we are seeing early signs of customer and tender activity picking up. I will return to the market environment and our outlook later in the presentation. Our priorities remain clear: disciplined execution, sharper customer and product focus and innovation that creates measurable value for our customers. These priorities are the foundation for sustainable growth, stronger profitability and improved cash generation. Turning now to the numbers themselves. Revenue increased by 6% to EUR 95.5 million, with Europe being the principal driver of growth and positive development across all major product lines. Reported revenue in the U.S. declined by 7%. However, on a constant currency basis, the underlying performance was broadly stable, supported by continued progress in contract manufacturing. The most important number on this slide is operational EBITDA. It increased by 50% to EUR 13.6 million, while the operational EBITDA margin improved by 410 basis points from 10.1% to 14.2%. This improvement was not driven by a single factor. It reflects the combination of higher revenue, a stronger product mix, disciplined cost management and the benefits of the Shift measures implemented over the past 18 months. More importantly, this improvement also reached the bottom line. As such, Cabka recorded a net profit of EUR 1.2 million compared with a net loss of EUR 4.7 million in the first half of 2025. Let me also spend a moment to emphasize that 83% of our raw material intake now comes from recycled material. Not only is this in excess of our 80% target, but it also gives us a real advantage relative to our competitors given the recent volatility that we have seen in the virgin plastic prices as a result of the war in the Gulf. In Europe, we showed strong progress with 18% growth in revenues. The growth was broad-based across portfolio, customized solutions and contract manufacturing. Customized solutions was the stronger contributor, up 41%, supported by a broader customer base and the addition of new product programs. Over the past 18 months, we have dedicated significant attention to the Shift program. The main structural measures have now been implemented, and their impact is visible in the H1 results. This does not mean that our work on productivity and costs are finished. We will maintain strict operating discipline with progressively shifting more management attention towards the disciplined and profitable growth. In the U.S., as already mentioned, the underlying constant currency performance was broadly stable. With continued progress in contract manufacturing, we have also strengthened our commercial leadership and market coverage. Our new U.S. Managing Director started on July 1, and we have reinforced the sales organization. Our objective is clear: stronger commercial execution, better customer proximity and improved utilization of our U.S. capabilities. We will provide a further update on the development of the U.S. business at our Capital Markets Update on November 24. On sustainability, PPWR legislation on sustainable packaging in the EU was applicable as of yesterday. Cabka's reusable transport packaging already meets the criteria with 83%, as mentioned, of our intake coming from recycled material. This positions us well ahead of our peers and is reflected in our EcoVadis Gold score, placing us in the top 5% of companies assessed worldwide. I would now like to spend a moment on the development of raw material and energy markets during the first half. As known, geopolitical disruption in the Gulf created significant volatility in oil, energy and raw polymer markets. Towards the end of the second quarter, this uncertainty contributed to longer customer decision cycles and affected the timing of new orders and tenders. This is reflected in our outlook and will influence the phasing of business into the third quarter. More recently, virgin material prices have eased from their earlier peaks, and we have seen encouraging signs of tender activity returning. We nevertheless remain prudent regarding the timing between renewed customer activity, confirmed orders and recognized revenue. With recycled materials representing 83% of our raw material intake, Cabka has lower direct exposure to virgin plastic prices movements than our competitors who rely predominantly on virgin materials. However, recycled material costs are not completely insulated from movement in energy, transport and broader polymer markets. We, therefore, continue to manage procurement and customer pricing with discipline in accordance with contract mechanism and current market conditions. Our priority is to protect long-term customer relationships while maintaining appropriate margins. Energy costs also remain elevated and volatile. We are taking active measures through procurement, consumption management and targeted operational initiatives to mitigate their impact. With that, I'll hand over to Mark, who will take you through financial performance in more detail. I will return afterwards to discuss our outlook and priorities for the remainder of the year.

Thank you, Alex, and good morning, everyone. I'm pleased with the progress that we have made in the year since I joined Cabka. The group's performance has seen 6% growth in sales converted into 50% more EBITDA and a significant jump in profit to a positive net result while we have maintained a stable cost base and stable net debt since the start of this year. Alex has already given you some headlines on our sales growth. And before I go into more detail in the coming slides, I would like to focus on the EBITDA performance. Our operational EBITDA has improved to EUR 13.6 million, representing a 14.2% margin. This is a considerable year-on-year improvement and puts us firmly on track to reach our 15% target. Our higher EBITDA is also a function of improved product mix. For example, our CabCube range, which we launched last year, has contributed to the margin improvement, and this is a product where we see potential for future growth moving forward. You will note that our working capital has been under some pressure, which is in part due to higher material costs. However, we will continue to focus on further reducing our debt from current levels in the second half of the year. Net income from operations came in at EUR 1.2 million, which is a EUR 5.3 million improvement compared to the first half of last year. Turning now to our product segments. I would like to flag that our growth has been largely volume-driven with only a limited impact from pricing. The Portfolio segment as a whole has seen modest growth in comparison to customized solutions and contract manufacturing and is not yet where we would like to see it. As such, this remains an area of focus for new products. In saying that, within both our Portfolio and Customized Solutions segments, we have a strong footprint in mobility-based products, bringing in EUR 2.8 million in revenues in each category. In Contract Manufacturing, Alex already mentioned, we have seen a strong performance in the U.S., and we also see a big improvement in Europe. This growth in both Europe and U.S. contract manufacturing sales is the result of a conscious decision to use contract manufacturing to improve our capacity utilization. Looking at our performance in Eco, revenues have been broadly flat. However, the segment is more profitable and better managed. Here, we can look in more detail at the performance in the U.S. Although the headline figure for the U.S. shows a negative performance, I would like to flag that in local currency terms, overall performance was broadly in line, actually growing slightly compared to the first half of 2025. As already mentioned, our focus in the first half has been on improving our capacity utilization and profitability via growing our contract manufacturing business. This has been a successful strategy, and we will continue to target this as a lever for future growth, coupled with an increased focus on customized solutions and portfolio as our new Head of U.S. Sales looks to boost commercial momentum in the region. Having covered the regional and segment level sales performance, let me now take you through how this translated into the overall income statement. As discussed, sales increased by 6% to EUR 95.5 million. More importantly, gross profit grew faster than revenue, increasing by 11% to EUR 49.5 million. This lifted our gross profit margin by 220 basis points to 51.9%. Operating expenses remained broadly stable at EUR 36 million despite the growth in sales. This combination of a higher gross margin and disciplined cost management drove the improvement in operational EBITDA to EUR 13.6 million. After depreciation and amortization of EUR 9.3 million, operating income improved to a positive EUR 4.2 million compared with a net loss of EUR 0.6 million in the first half of last year. The net financial result also improved from a cost of EUR 2.9 million to EUR 2.3 million. Bottom line, this resulted in a positive net result of EUR 1.2 million, representing a year-on-year improvement of EUR 5.3 million. Turning to net debt. The strong EBITDA performance generated EUR 6.8 million of operating cash flow after correcting for the impact of working capital, taxes and noncash adjustments. This cash generation was offset by our net investments as well as interest and financing outflows. As a result, net debt remained broadly stable at EUR 62.8 million compared with EUR 62.6 million at the end of 2025. As mentioned earlier, reducing or rather managing debt remains a priority to help improve our leverage position, which is net debt/EBITDA. Unfortunately, our net working capital increased somewhat in the first half. Much of the increase was related to the sharp increases in raw materials prices, which we discussed before. And as a result of this, inventory and prepayment of suppliers rose. We have also seen some increase in trade receivables, partly as a consequence of higher sales. Going forward into the second half of the year and beyond, we expect to see an improvement in the trade payables number. Turning now to our CapEx. We have maintained our disciplined approach to CapEx spend that we initiated under the Shift program. We have also changed our focus from upgrades and capitalizable projects to more routine, preventive repair and maintenance spend, which obviously is directly expensed rather than being part of actual CapEx spend. What this means is that 2/3 of our CapEx is now dedicated to investments in our growth. In addition, we realized EUR 3 million in proceeds from asset disposals during the first half. This is related to sale and leaseback transactions, which allows us to allocate capital more efficiently. I'm happy to answer any questions that you may have. But first, let me hand back to Alex, who will talk about our outlook and guidance for the second half of the year.

Thank you, Mark. As we look to the second half of 2026, I can tell you with confidence that Cabka's performance is on track with our stated goals. Our first half has delivered on top line growth, increased profitability and cash flow generation, which reinforces our confidence in our full year ambitions. For the second half, we continue to expect an improvement in revenues and a higher EBITDA margin than in 2025. We intend to hold a virtual Capital Markets Update on November 24 at which we will share more detail on our strategic road map, progress towards targets and commercial insights. Thank you for your attention, and I would like to hand over to our moderator, who will open up the lines for questions.

[Operator Instructions] We will take our first question. And the question comes from the line of Ellis Acklin from First Berlin.

I'll kick things off with 2 topics for right now. Firstly, I'll ask them one at a time. Just your comments on Q3 and demand. I understand you're now expecting a softer Q3. But at the same time, you're talking about a slight pickup since the end of the first half of the year. Does that suggest that maybe this is more of a timing issue? Or are you seeing any sort of underlying demand destruction there?

Thank you for your question. Let me tackle that one. When we say Q3 is softer, softer than the first 2 quarters. H1 was close to EUR 48 million of revenue per quarter, and we don't expect Q3 to match that. We maintain our guidance for the full year because we operate in a seasonal business. And in every year, Q3 is a bit weaker than other quarters. That's just the way business is. So yes, to your question regarding softer Q3, it's a bit softer in comparison to what we had in the first half, but the guideline for the full year is still the same.

Okay. Very good. And then regarding the cash conversion and the working capital, I understand you had some pricing headwinds, particularly related to the inventory. Would it be fair to say that the inventory is strictly related to that? Or is there some buildup there as well? And can we maybe expect -- is there any room for a reversal of that effect in the second half of the year? And then that ties in to whether or not we might be able to expect any meaningful deleveraging by the end of the year?

I'll let Mark add to whatever comments I have. Look, for us, inventory is a strategic decision to make sure we know how to supply our customers. I think last year, we fell short a little bit in terms of the supply over the demand we had because we had insufficient inventory. We control inventory very strictly. It was a constant decision to have slightly more inventory this year actually to get more revenues and to have our top line higher because we can serve more customers. Can we always change this? Yes, we can, but we make those decisions on a weekly, monthly basis, and it very much depends on the demand. That's how we move.

Okay. So if I understand you correctly, there is some buildup in there as well. It's not strictly pricing related.

Of course, there is a price inflation as well. Sorry, I've not mentioned this yet. But yes, of course, raw material prices have increased, specifically virgin ones, which is not affecting us so much. But of course, part of it is the raw material prices. Even in the recycled materials, they went up. So yes, there is a percentage there. To be honest, I don't want to disclose that percentage to the call here.

No, that's fair enough. That's very helpful in and of itself.

And let me also add to what Alex explained. So you questioned -- you asked about the deleveraging. So that process is ongoing. And that's why I specifically mentioned that we manage our debt position. But of course, the leverage is a combination of the EBITDA and the net debt position. And while we were not able to reduce the debt position by much, our leverage position improved quite a bit, because we improved our EBITDA. So we'll continue to focus on deleveraging, and managing our net working capital is definitely an important lever there.

Okay. Great. That's helpful. If I can sneak in just one more real quick, and I'll hand it over to the floor again. Regarding the U.S. RTP development, you mentioned there were some currency headwinds there that sort of distorted the overall performance. And then there was also something about some one-off effects maybe in the sales. Is there any way you could quantify those more specifically to give us a cleaner read on the actual results adjusted?

Can you repeat the second point? Because the first one, yes, you're right. In dollars, our U.S. business was flat. The reported decline in translation, the euro strengthened around 6% between the 2 periods. So this is an underlying adjusting for a revenue item in the prior year base.

Yes. Okay. So Alex, I was curious if you would be willing to quantify what those effects were, so we can get a cleaner read on the actual results when they're adjusted for those.

Yes, Alex, let me jump in here. That was around USD 1 million, where we get a positive headwind in 2025 that was not repeated in 2026.

Okay. And that's just from the FX then. Okay.

Yes. No, just to clarify, that was an accounting correction in 2025. So next to that, we also had headwinds from FX.

We will take our next question. And the question comes from Luuk Van Beek from Degroof Petercam.