Cenergy Holdings SA (CENER) Earnings Call Transcript & Summary

Welcome this afternoon to our 2026 first semester financial results conference call. Let's see first our major highlight points of the semester that has just ended. So first of all, we are in a record backlog figure following IPTO's frame agreements on the North Aegean and Dodecanese interconnections. The project execution was very good in the semester, delivering high margins in most projects. We continue to build up capacity since our backlog is expected to grow even further. The returns to our shareholders remain attractive, and our leverage profile is also solid even after expanding a significant amount for CapEx in the first semester. The numbers that are highlighted in our press release and in our financial results are as follows. First of all, we have an increase in revenue of 13% year-on-year, above the threshold of EUR 1 billion at a level of EUR 1.15 billion. This higher revenue actually doubles in terms of profitability, in terms of profitability delta. And we have an increase of the operational profitability of 26% compared to the first semester of 2025, reaching a number of EUR 216 million. Again, that once more, it shows that our focus is on value and not on volume. Margins remain high, around 19%, almost 200 basis points higher than the corresponding semester of last year, slightly lower than the 19.7% that we had in Q1. As we had already forecasted, the introduction of land cables, extra capacity in Thiva and Eleonas has driven slightly down those margins, since in Q1 we had a disproportionately high percentage of offshore cable in our revenues. Our backlog reaches EUR 3.9 billion. This is mostly due to the IPTO interconnection of the 4 interconnections in Greece, which is valued at EUR 1.15 billion. I will come back to it in a while. CapEx for the first semester was EUR 165 million, an important number, with EUR 67 million out of which were in facilities outside Greece. We reiterate in that way our commitment to a global positioning, both for our cable segment that is expected to start its U.S. operations in the second semester of 2027, which means 12 months from now or a little bit more than 12 months, 12 to 13 months from now, as well as the new pipes facility in the U.K. The bottom line is at EUR 177 million, 43% higher than last year and an EPS of EUR 0.65, 45% higher than last year. And given these very strong results of H1 and the growing backlog, the company has decided to upgrade its full year 2026 guidance for operational profitability to EUR 390 million to EUR 420 million range of adjusted EBITDA. Let's look into a little bit more detail the figures for 2026, starting from revenue. As I said, the revenue exceeded EUR 1.1 billion. The strongest change is found in the cable products business unit at EUR 352 million for the first 6 months, a 20% increase from the corresponding semester of '25. But the largest share of revenue is, of course, in cable projects, more than 40% of total revenue, and this is the most profitable segment, as you all know. There is a strong increase in steel pipes projects of 13% in money terms. The only constant part of our business line is hollow sections. But as I told you quite often in the past, this is not a focus point for our group. It's more of a continuing business from the 20th century years of Corinth Pipeworks, and it's really a very small part of the Corinth Pipeworks business right now. The sales are dispersed. Of course, the larger part is still found in Europe. We're a Europe-centric company. More than 60% of our sales are in Europe for the last 2 years. The rest of the world has shown quite a considerable increase. It now takes 14% of our sales from 7% in the corresponding semester of '25. The U.S. is constant at around 7%. And the increase of 13% of revenue, as I said before, has led to a 26% increase in operational profitability at EUR 216 million. That operational profitability is further boosted by EUR 7 million of positive metal result for a total EBITDA of EUR 223 million. Of course, that metal result, as you all know, is only an accounting profit number, and it's not considered to be a recurring amount. Now how do we go from last year's first semester to this year's one? It's really the cables providing most of that change in the profit before tax, EUR 52.3 million out of the EUR 53.5 million change. The SG&As are higher as sales have increased, but also as labor costs have gone up. And this is partly due to our good performance in '25, which led the company to really contribute and give some bonus payments and incentive payments to our staff because as we always say, the most important part behind our factories and our products is our people. And we -- the company wanted to congratulate the staff, all the labor, both workers and white collar workers in the group, congratulate by some extra payments for the good performance of '25. Now the operational profitability, of course, trickles down to PBT at EUR 177 million. And that, of course, also trickles down to a profit after tax of EUR 138 million, 45% higher than the corresponding semester last year. Most importantly, however, it is the view that we have on our backlog. The first reading of the numbers show just a EUR 500 million increase from December 2025. You all know the projects that we have announced in the first quarter, the project in the Netherlands and the project in Poland. But a much more important landmark for us is -- was the frame agreement that was signed between Hellenic Cables and IPTO -- ADMIE in Greek -- of EUR 1.15 billion, which relates to the connection of -- 4 important connections in the Northern and Eastern part of the Aegean. First, the connection between Thraki and Limnos, then between Lesvos and Limnos, Lesvos and Chios is the third one and between Kos and Rodos, the fourth one. These are really strategic projects for the country. The project includes almost 700 kilometers of submarine cables and another 230 kilometers of land cables. It's an EPCI project, as we call it a turnkey project. And we are very confident that there is more to come in project awards until the end of the year. Now how is this backlog distributed? In cables, the backlog is really European and Greek. And it's a large part -- the largest part of it is interconnections. A smaller part is offshore wind farms. And that is important because the interconnections give us much more stability and visibility for the future. We have clients in interconnections, which are semipublic entities that do invest a lot in important projects for their countries. They are much higher -- they have much higher creditworthiness than offshore wind farm developers. And that gives us a much better degree of confidence for the visibility of our backlog. For the steel pipes, the steel pipes backlog remains around EUR 500 million. EUR 500 million is almost 1.5 years of revenue. And it is this year concentrated in the Americas and the rest in Europe. And it is diversified, I would say, evenly distributed between oil, natural gas, hydrogen and a small part in CCS, around 10%. Given the backlog that we do have and the growth that we do want to achieve in the medium-term in the future, we have spent an important amount of money, I would say, EUR 165 million in the first 6 months to support that next growth phase of the group. These are all strategic investments, split between cables and steel pipes, with cables having the lion's share. EUR 50 million was spent for the new Maryland plant in the U.S. and another almost EUR 90 million spent for Corinth and Thiva, the 2 factories in Greece. These 2 last parts were concerned actually the optimization of the new capacity that we have installed since 2024, whereas in the U.S., the story I've described it quite often in the past, it is getting a local base for that important large and growing market for cables in the U.S. Then there is another amount of almost EUR 30 million, which was spent by the steel pipe segment. The largest part being the acquisition and the start of recommissioning for the Hartlepool, LSAW pipe facility in the U.K. Now that is also an important project for us. It gives us additional capacity in LSAW pipes. And as I will make a little bit clear in a while, the LSAW pipes are the most valuable projects for the group and for globally, not just for us. And it also -- it's also a door to a very interesting market, which is the U.K. for us. So the CapEx is spent, but it is spent to support the next growth phase of Cenergy. Despite that CapEx, the leverage remains very manageable at 1.1x EBITDA for the 6 months. Clearly, there is an increase of almost EUR 180 million from working capital, which translates to a EUR 230 million difference in net debt. We expect these figures to normalize by the end of the year and the leverage to hover around the level of 1x EBITDA by the end of the year. And we believe that we have really offered some good returns to our shareholders. The returns remain attractive. We have a 45% increase in earnings per share since the corresponding semester of '25 and more than 15% upside in the share price since December 2025, despite some hiccups that we've seen in the share price in June and July. The return of capital employed remains very strong at 28% as it was also in 2025. Turning at the segments. Clearly, as I said until now, the important contributor of Cenergy profitability and growth up to now is the Cable segment. We have a turnover of EUR 842 million of sales, most of it in projects, so more than 50% in projects and the rest in products. That turnover is converted actually to EUR 164 million of operational profitability with margins reaching 19.5%. This average margin includes both the margins from projects, which, as I stated quite often in the past, are above the 20% mark and the margins from products, which are lower. So we have an average of 19.5%. The increase of 36% in EBITDA is, as is clear, due to the disciplined and successful execution of important projects for the segment as well as trying to give the best and the most profitable solution, the most efficient solution for cables to our clients. Working capital has increased, of course, by almost EUR 170 million since December. That also boosted net debt by EUR 155 million, but still the profitability of the segment is strong enough to keep the leverage profile very sound -- at very sound levels. For steel pipes, the story is a little bit different. There is an increase in turnover at EUR 312 million. That increase in turnover by 11% is actually volume-driven. So it is not a result of higher prices. I would say that prices are slightly lower from the last semester of 2025. The profitability stays around EUR 51 million to EUR 52 million as was last year, but the margins are lower. Don't forget that 2025 was really the annus mirabilis of Corinth Pipeworks with extraordinary operational profits of EUR 108 million. This year, we are keeping close, I think, to those levels, but we are not supposed to actually reach those EUR 108 million, but it's still a very strong year for CPW despite the fact that the market does not really enjoy the positive tailwinds that you have in the cables segment. Let's turn now to, I think, the most important part of this presentation, which is the outlook for the rest of the year and for 2027. I would say that starting from cables that the most interesting growth themes for cables are as follows: First of all, the transmission projects. HVDC, subsea transmissions. These are the most attractive profit pool for cables, not only for Hellenic Cables, but also for the other cable operators. The growth is driven mainly by the European interconnectors, the export cables of offshore wind farms, some island interconnections like in our case, and grid security. And margins remain structurally superior to other cable businesses. We are talking about margins which are close or higher than 20% for all of the competitors and ourselves. And the importance of that growth point is that it will remain. It is driven not by fading choice in energy sourcing, but from a much more stable choice of energy stability and energy resilience. The second growth theme, which evolves, the second major growth engine for cables is AI and data centers. And they emerge as that growth engine, not only as an electricity story, but also as demand for fiber optic cables for connections of the data centers to the grid of upgrades to the transmission mechanisms. And that is an important step because it gives, at least for us, a very good argument for our North American foothold because the data center story is much hotter in the North American continent, and that's where a large part of the demand is expected to come. Third point is the modernization of the grid. The International Energy Agency actually has identified that grid congestion and delays in connections are one of the biggest bottlenecks to the energy transition. And that's why utilities in Europe and in North America, they accelerate investments in transmission networks, underground cables, especially for areas which are struck by tornadoes or by large physical phenomena. Distribution upgrades, we all know the stories about lack of charging stations in urban areas in Europe, but also in the U.S. and the resilience of the grid. So all of these growth themes are important for the cables. The geographic winners, I would say, are in Europe, the offshore wind in the North Sea, the interconnections in the Mediterranean and the grid reinforcement programs. Whereas in the North America, it would be data center upgrades in the grid and medium and high-voltage land cables since submarine is much rarer in the U.S., as you all know. So what is the key takeaway of our outlook for the next 1.5 years? We have a very strong demand from the grid and high-quality earnings from transmission projects. So the growth thesis is now broadening. It's not anymore renewables and electrification. It's becoming AI, data and electrification. And this is important because it gives us a much more stable and a wider range of possible projects for Hellenic Cables in the future. Steel Pipes is a slightly different story, as I said. Steel pipes, first of all, it's clear that Corinth Pipeworks is playing a role as a top Tier 1 player. It's not there to target every new pipeline that will come up in the Middle East or elsewhere. So to be very clear, Corinth Pipeworks is not really targeting the pipelines that you might have read about in the news and which are planned in Saudi Arabia or the Gulf. For many reasons, one of which being that these countries have their own local producers. There are already 7 or 8 different steel pipe factories in the Middle East, in the Gulf. And we're also talking about onshore pipelines, which are clearly lower margin bringing than the offshore pipelines. Secondly, with our acquisition of the U.K. facility, we are putting a lot of interest in the LSAW market. Now the LSAW market, the market for pipelines, which are welded across the pipeline. So it's not a spiral welding, it's a longitudinal welding, is the most profitable and growth promising segment of the oil and gas pipelines. Geographically, we would say that they are -- the projects are concentrated in the U.S. Gulf Coast and in the U.S. in general and also, of course, in Asia. Now in the former, we have a very good positioning, whereas in the latter, in Asia and in Saudi Arabia, as I told you, we are not that much interested for projects there. But the market volume is so large. Actually, Global Energy Monitor talk something about more than 200,000 kilometers of gas pipelines in development globally. So half of them are in areas where we are present and in areas where we are leaders. So just that part of the story is enough to keep us growing for the next medium-term. Secondly, LSAW drives a lot of projects that are related to LNG and energy security. Clearly, it also -- it is related to the local changes that happen in the transportation of oil in the Middle East. But we are -- as I said, we will not be present there. The margins are very attractive for LSAW, and they are attractive for booked and for high-spec players. We are not trying to underwrite the margins in order to get some business. The level of quality and the level of delivery that Corinth Pipeworks is offering to its clients, which are all the major oil and gas companies around the world, means that we can keep margins to the good/sound 2-digit, double-digit levels, even though we will not be, of course, able to reach the 19% and the 18.7% that we had in the past. In a nutshell, the LSAW market is not a broad commodity market. It is selectively a selective market, a market that is working on Tier 1 oil and gas approvals on strong backlog, on high utilization, on the ability to actually pass through a part of the steel cost to the final client. And CPW is very well positioned to take advantage of that market. Third point in steel pipes is the U.K. market. Actually, the U.K. market is a very interesting situation because our acquisition in Hartlepool has actually allowed us to enter a market which is closed "to everyone else". What do I mean by that? I mean that all the competitors of Corinth Pipeworks, whether they are German or Indian or South American, they have shut out of that market because of local content clauses, which means that the acquisition of Hartlepool offers an almost captive market, which, of course, is not booming in terms of oil and gas development given the U.K. government's decision on renewables, but it is a very promising market to other projects such as hydrogen and CCS, carbon capture. And also, it is a very good opening for the transatlantic market due to the proximity to the U.S. So Corinth Pipeworks will continue to select projects in a disciplined way, some important awards are on the way, and hopefully, I will be able to say more during our next meeting in November. But it's always -- the focus of Corinth Pipeworks is disciplined execution, niche projects and really exploiting our top quality producer of steel pipes. The combination of very good H1 results and a growing backlog has led the company to upgrade our guidance for the end of 2026 by EUR 20 million in both ends of the interval. So we are now forecasting that our operational profitability will be between EUR 390 million to EUR 420 million for the year with the usual assumptions, of course, a smooth execution, no material deterioration in the availability or the cost of key inputs, that the demand remains healthy for products and that we are -- we have a limited impact from major geopolitical risks. I will finish the presentation with our financial calendar. Our next appointment is for mid-November. In 16 of September, of course, we will publish our interim report for the 6-month period of '26. But mid-November, we will have our appointment for the Q3 trading update. And then early March '27 come the full year financial results with the general meeting following at the end of May. I now turn back to our operator to start the Q&A section. Thank you very much.

Ladies and gentlemen, before we begin the Q&A session, we would like to briefly explain how questions will be managed. [Operator Instructions]

We do have -- I see we have some raised hands here. I start with Mr. Marios Bourazanis -- in an alphabetical order. I'm sorry. So I start with Mr. Marios Bourazanis. Marios, you have the floor.

I hope you can hear me. Just a couple of questions from my side. So the first one is on the order intake. Following the strong H1 intake, I'm wondering how we should think about the backlog development through the year-end of 2026 and how tendering activity has gone so far in H2 and if there is scope for meaningful awards for the rest of the year? That's my first question. And my second question is, as the group moves past the peak of the current CapEx cycle, I was wondering how you're thinking about the next phase of growth. Are you assessing any opportunities to expand the cables footprint more ambitiously, either in Europe or in the U.S.? And if any attractive opportunities arise, how do you think we should think about funding capacity across your cash flows, your debt headroom and potentially any other sources of capital?

Sure, Marios. Thank you. So first, yes, the order intake was really good for the first H1. And I really -- don't believe, I'm very, very confident that it will be even better in the second semester, not only for cables, but also for steel pipes. So we expect our backlog to grow significantly in the second semester. We also -- I forgot to say, and this is maybe related to the new awards that Hellenic Cables, I think it has already disclosed that it has officially -- it was certified for the 525 kV cable solutions. So that's a very important result. And it will, of course, affect the awards that we will get in the second semester. As for the CapEx cycle, it is true that we do still have some strategic CapEx to do in the U.S. So until the end of the year, we expect construction works to finish. A couple of equipment is already on their way or they have already arrived in the U.S. and will be installed by the end of the year, by December, so that our -- the objective is that by February '27, we will start producing samples, first, medium-voltage samples and later on high-voltage samples because as you know, we need some certification for that. So the CapEx cycle is expected to go back to a much lower level of CapEx in '27, but since there will be some good cash flow generation in '27 and '28, of course, the opportunities are open. We may examine some investment in -- further investment in the U.S. to actually grow the business there or some expansion of our facilities in Greece with further optimization. But that will be done following important awards in our backlog, so that -- as we always follow that same path. So we first have the awards and then we plan our expansion of capacity accordingly. I then ask Mr. Thijs Berkelder to take the floor, please.

You hear me?

Yes, yes, we can hear you, Thijs.

Can you maybe give CapEx guidance for the second half of the year, and maybe also explicitly for the Maryland factory for the second half of the year? And in the press release you just stated you expect sort of end of construction before year-end. Does it mean so much lower CapEx than in principle for the U.S. next year? Second question, just a data fact. Assets under construction in terms of value end of the first half, how large was the amount? And for now, the third question is on the margins within cables. Is it real that product margins have improved to 10% or so?

Okay. So I'll start with the CapEx. You're right. In the second half, of course, we will have -- we still have an important part of CapEx to be spent. Let me clarify that this slight delay in spending the CapEx is due to invoice delays. It is not due to work delays. So whereas in theory, one could say that if you want to spend EUR 170 million, almost EUR 170 million for the U.S. plant in 2026, that would be split in equal parts between every -- each semester. But it wasn't. It's a little lower in H1. It's EUR 50 million in H1. So the rest, the other EUR 120 million will be spent in the second semester. And the works will be finished by December, which means that what is left for '27 is much lower. '27, we are only expecting certain expenditure for peripheral units or commissioning of the equipment, but not something important in the U.S. As for the margins, it is true, Thijs, that products have shown quite a strong level of around 10% in the first quarter. However, the margin expansion is due, as I said before, it's due to the mix shift to what is the mix between projects and products and what is -- and how that mix shifts. The importance for us is that our backlog is composed right now of interconnection projects mostly. And this is important because it gives us the security of a higher margin. Offshore wind, as you know, might lead to some repricing of the projects and so on, and that might be a little bit kind of changing the forecast of the margin, whereas grid projects, transmission projects give us a higher stability. Now the fact that we have expanded the facilities in Greece, in the land facilities in Greece as well does not mean that we will focus on products, but at the same time, it doesn't mean that we will not focus on products. The approach of Hellenic Cables is a balanced approach. We do not want to become a project-only company. We don't want to go back to a commodity -- cable commodity company. It is important for us to keep growing more in the areas where the margins are better, CF, offshore, so submarine interconnections and so on, but without leaving behind the foundation of our company, which are cable products, land cables and so on. So it's all -- I believe right now, the marketing project is supply constrained. The marketing product is related to a business cycle. It has some good results in H1. We expect it to have good results in H2 as well. And we do have the capacity to serve a higher demand for products for land, medium voltage and low voltage in the second semester. So we expect these margins to stay where they are for the rest of the year and the beginning of '27. There is then a question -- there was a question, a written question by Mr. Katsios of Optima Bank. He would like an update on Maryland and Hartlepool. I believe Mr. Katsios, I've answered the question on Maryland. About the Hartlepool plant in the U.K. The Hartlepool plant is -- was a plant that was nonoperational for 9 months. We've acquired it. We've cleaned it up. We brought back all the labor back to the factory. There are some important commissioning works that have to be done, maintenance of the machines, putting back some raw material so that it can start working. We expect to commence operations there even by September this year. Of course, we are not expecting to have high utilization rates for Hartlepool. Hartlepool was an investment decision made in terms -- on the basis of a very low cost and on the basis of the opportunity that such acquisition was opening up for the segment. We did not have an order book already built for the U.K. facility. But as I told you, it is an opening to an almost reserved market locally and a very good facility in terms of proximity for the U.S. market. Since we are very active in the U.S., and we expect more awards to come from there, including the famous Alaska pipeline, we are more than confident that some of that demand will be serviced by the U.K. facility. Mr. Peter Testa is adding -- is asking some questions on the capacity added in Corinth and Eleonas. In the Corinth facility in -- when we started in 2024 and finished in 2025 in 2 years, we can actually say that we doubled the capacity for submarine cables. And we are now working at a capacity which could be measured in terms of kilometers, but that might not be a very, very good expectation of forecast because it supposes actually that you will be producing only one kind of cables in the Corinth facility. But if you assume that we produce one type of cables, we could say that the offshore capacity of Corinth is now close to 2,000 kilometers of inter-array cables and another 800 kilometers of DC export high-voltage AC and DC cables. For Eleonas and Thiva, things are different. In Thiva, we have actually doubled again. We passed from 3 to 5 insulation machines and now to 6 insulation machines, which means again that we have doubled capacity. We're talking about Thiva having a capacity of more than 60,000 tonnes in land cables and Eleonas a similar amount. Now will there be some progress in the high-voltage market? Well, the high-voltage market, we are already there for the European market. In the U.S., this is our next Phase 2. So the U.S., we will first wait to see how the medium-voltage land cables market evolves. And we will go to a later phase, we'll go to some development of the high voltage there in '28, '29, some investments there. There is another question -- there is a question by Mr. Kaparis. So Efstathios, you can have the floor, and then I will go on with the other written questions.

I've got 2, if I may. The first one is on the margin -- the cable margin. I don't know what you could say. I'm trying to isolate the one-off timing impact. Can you hear me?

Yes, we lost you a little bit, Efstathios.

I was actually asking about the cable in H1, it's significantly stronger. You have explained the reasons. But I wanted to isolate the one-off effects of the mix and potential timing -- project timing, just to understand what the underlying cable margin is expected. What was it in Q2 potentially versus Q1? What was the difference? That's number one. And number two, on the cash flow, I'm trying to reconcile the pretty much stable net debt between H1 and H2. I suspect the 1.1:1 leverage is justified by the increased the LTM EBITDA. So that leaves us with net cash flow of 0. If my calculation is correct, you should generate EUR 150 million operating cash flow. Working capital is a reversal of probably more than EUR 100 million. And then you have EUR 20 million of dividend and then the CapEx, you mentioned is probably EUR 120 million in Maryland because, if I remember well, the Hartlepool you guided for EUR 15 million to EUR 20 million, you've already paid that. So that leaves -- potentially that leaves EUR 100 million, EUR 150 million.

Well, let's start with -- you understand, Efstathios, that I cannot really give numbers here.