H+H International A/S ($HH)

Welcome to H+H International Q1 2026 Financial Results Presentation. This call is being recorded. I will now hand it over to your speakers, CEO, Jorg Brinkmann; and CFO, Bjarne Pedersen. Please begin.

Thank you, and good morning, and welcome to our conference call for the presentation of the Q1 2026 results. My name is Niclas. I'm the Head of Investor Relations and Treasury. As mentioned this morning, joining me is our CEO, Jorg Brinkmann; and our CFO, Bjarne Pedersen. Yesterday, the Q1 report and supporting documents were published and made available on our Investor Relations website. During today's call, management will present the Q1 financial results, followed by a Q&A session. Please note that this conference call is being recorded and will be made available on our Investor Relations website after the call. Before handing the call over to Jorg Brinkmann, I would like to direct your attention to the disclaimer on Page #2. During this call, the Executive Board will share future plans and expectations for our business that go beyond historical facts. These forward-looking statements rely on current assumptions and therefore, come with certain risks and uncertainties as many factors could change their outcome. For more information about these risks, please see the 2025 annual report. And with that, over to you, Jorg.

Yes. Thank you, Niclas, and good morning, everyone. Let's move to Page 3 to give you an overview of the Q1 2026 results. So as discussed earlier this year, the year started with really severe weather conditions. And normally, weather is -- I mean, we're always a winter and it's something normally we don't talk about. But these first 8 weeks of the year, they were really, really quite tough from a weather point. And why is that impacting us? Two points here. Number one, you simply cannot build houses and glue blocks together when it's freezing cold. This is simply technically not possible and not allowed. So there were a lot of construction sites that couldn't operate, i.e., our customers didn't call off volumes from our plants. So that is the first thing. And then the second thing, also the cold weather conditions had an impact on the plant network as such. You can imagine when it's double-digit minus degrees, we are operating with water and tough this year and simply some plants we couldn't run and get started. So we have 2 effects here. One is the demand side, but then also the supply side that impacted us in the first 8 weeks of the quarter. As a result, you see there's an organic growth of minus 15% and then this also leads to an EBITDA of 0. And yes, so that is nothing that got us out of the blue was expected, but certainly impacted it and lead to a fairly weak start into the year. What you then also can see is the gearing went up to a level of 4. It's a high number, but what's important is it's in line with our banking agreement. So from that point, also under control and managed. Next to weather, in February, the war in Iran started also this has an impact on our business in what way? Luckily, not so much on the raw material side as we are sourcing locally. But certainly, the energy prices started rising. We are hedged. That's a good thing, but not fully. And so we need to really make sure that we're protecting our margins here and the cost increases that we are seeing that we're passing on that to the markets. We are doing that in all markets where we are operating. So also from that angle, it is a conflict no one needs, but it is an impact that is also well managed and under control. Then with better weather, March started really to turn around. We saw stronger volumes coming through and then also margins going back on track. So it was really an issue from the first 8 weeks of the year. And in summary, all the situation here leads to a situation where we maintain the outlook for the full year. If we zoom in into the different markets, and let's move to Page 5, where we provide an overview of our business in Poland -- Page 4, sorry. When you look into the market development in Poland, actually, it's quite a positive trend, the market on. We see building permits going up by 7% for the first 3 months of this year compared to last year's first quarter, which is an encouraging sign. There's a little bit of a mix in there. So we see a stronger development in the family houses and a little bit less weaker development in the multifamily houses, which has some implication for our products, whereas the ASC is more for the family and CSU is more for the multifamily. But overall, good momentum in the Polish market. Reference rate is stable at 0.375%. For sure, we need to see what inflation will do with the conflict in Iran. But for now, still good conditions. And as I said, with better weather, we could see strong momentum in Poland and a really good develop. When you look at the overview of the quarters, you see the first quarter was 15% lower, but still came in at with 15% EBITDA margin. And you can see also from last year's quarter, our Polish business operates at 25% EBITDA margin. So really strong and very healthy business. What also happened in early January, we were celebrating 20 years of our business in Poland, so quite exciting. And we could announce the best year, 2025 was the best year in the history of the company in the last 20 years when it comes to earnings. This is really showing of what we have created there over the last couple of years. And even though the volumes are still 20% lower than they were in 2022, it was the strongest result, which really shows that our restructuring that we have done, all the home initiatives that we've implemented here are leading to strong earnings and strong returns. The latest project we've executed in Poland is our upgrade of the Pulawy plant as part of our home initiatives, and I want to give you a little bit of an insight here on Page 5. As you have -- can you turn to Page 5? Thank you. So you have heard me talking about the HOME Initiative. And part of HOME is continuous improvement and running our plants to lean standard, but it's also finding opportunities for debottlenecking of plants. And this we've done here in our plant in Pulawy, which is an hour away from Warsaw. So really important plant to serve that important Warsaw market for us. And we've closed the plant around winter for 8 weeks, extended autoclaves, heating chambers. So really did a lot of upgrades here, a lot of automation and all with the effect of 20% more capacity. The plant was down for 8 weeks. We've reopened it in week 7. And here, you can also see the ramp-up curve. So we are very happy with that investment. It's performing really well, and we've built a plant that now is able to do more -- 20% more volume, which is really needed from the demand side to serve the greater Warsaw area. So from that angle, good investment, interesting payback on time. And this is the spirit of HOME Initiative, and you're going to see us doing these kind of things further. It's fairly manageable, low CapEx with very interesting payback leading to growth and better earnings. So this is the nature of our investments, and we have a lot of more potential in other plants when we see demand developing accordingly. From Poland to U.K. on Page 6. Let me start with the building registrations first. So what you can see is if you compare the quarters, there's the registrations fall by 8%, but on a very high level last year Q1. So this is something we need to keep in mind. Overall, we see a flat development in the U.K., so not a cooling off and this is also supported by the sales rate the big housebuilders are reporting. This gives us good indication of where the market is trending. And from that angle, we see a rather flat development in the U.K. For sure, also the Q1 was impacted by weather. Revenue for 23% compared to last year Q1, and thus also the earnings were weak in the first quarter. However, when you look at the EBITDA development over 2025, you see quarter-on-quarter, we were improving, which is basically coming from our HOME Initiative where you can see that margins developing towards the 15% EBITDA level. What we're doing is really fostering the partnerships with our customers. We are by far a leading supplier in the U.K., and that is where we are working very closely with our partners, not only to fulfill current sales, but also to find new applications for our products and then gaining more share of wallet. This is how we define partnership in the U.K. And from there, the ambition is to grow above the market trend, and there's some good proof actually that this is also doable. From U.K., over to our Central Western Europe region on Page 7. When we started looking into the year, actually, the development of building permits were quite exciting. So we saw a 10% improvement on building permits in the beginning of the year. It's early signs, but it goes in the right direction. However, when you rank all building markets in Europe, Germany is still the weakest of all of them. And that certainly tells us something about the situation in Germany as such. What is underlying is really the general economy in Germany and consumer confidence is really low. And that is why I'd say from all our markets, this is still the most challenging despite we very much appreciate the first signs of more permits coming through. In Germany, we are -- as you know, we are rebuilding the organization. We've moved into the regional setups and really focusing on improving our business on a regional level. We see some regions improving. Some still have a way to go. But overall, there is progress in Germany, and this is our focus to really establish the stronger regional setups here. For us, the focus is on cash. We are making good progress with the asset sale program. But then also -- and this, you can see that from the Q1 results here. Despite the revenue was on a similar level like the Q4 2025 results, we were destocking in the first quarter. There were a couple of plants. We weren't running on purpose. We had full stockyards and the focus is then on cash generation, and that then leads also to a negative EBITDA. But as I said, focus is clearly on cash generation from the area and then step-by-step improving the business into this regional stronger setup. Central Western Europe is more than Germany. When you look a little bit outside, Switzerland is part of it developed nicely with very strong results. And then also there's good market momentum in our Benelux market. So that is also -- when we look into the region, there's more than Germany. But however, the overall task for Germany is to turn this around into something that is first, cash positive; and then second, continues contributing to group earnings in the future. And with that, handing over the call to Bjarne Pedersen, who will give you more insight into our financial performance.

Thanks, Jorg Brinkmann, and good morning to everyone on the call. On the next slide, we have zoom in on the top line on the group level. And the sales volume, they are shown on the left-hand side and the aggregate number of what Jorg Brinkmann talked us through is that we are 15% down on volume when we compare to the Q1 last year. All of that related to the weather situation and of course, also the more regional initiatives we are taking in Germany, but it is the weather that is the headline. When we do the comparison, as you saw on the previous pages, in particular, U.K. had a tough comparison last year. When we take the volume into currencies, we have the stack chart on the right-hand side. Organic growth was negative 15%. The revenue was in total down 17%. Prices were flattish compared to the first quarter last year. So the 2 extra percent you get that as an effect from the FX and then also the mix of the countries where Poland had this stronger rebound than the other regions. So the share of the total revenue was more driven by Poland, which has a lower sales price compared to the other regions. If we take the top line and turn that into the profit levers, we can on the next slide, see that the gross profit was down into the region. We also indicated in our previous communication. So gross profit of DKK 73 million. and the margins, of course, being at a level which is far beyond our aspirations, but it all comes from the weather effect. And this quarter is probably also a little bit of, let's say, an educational piece of how our business is running. For example, when a stockyard is full, the plant cannot run. So there we get a double whammy if we don't have the sales and cannot produce either, we don't get absorption of the fixed cost, and that is very visible here in the first quarter. And then also the general weather conditions, as Jorg Brinkmann explained, also makes it sometimes technical impossible to produce. And with the limit flexibility in the current situation, we still have to absorb the fixed cost. So with the low plant utilization, both earnings and margins being down. On the right-hand side, you see the EBITDA buildup per region. And as we see, Poland delivering satisfactory. U.K. being hit in particular compared to the previous quarter. But we need to bear in mind that we saw the slowdown in the U.K. in the fourth quarter. We did continue to produce because then we build up some stock and then we could take out some shifts in the first quarter of 2026. And again, you see the magnitude between the 2 quarters in the earnings as an impact from our production decisions. For CWE, referring again to Jorg Brinkmann's comment, we are fully aware that it is a critical point, and we are continuing to work diligently on that. And this current quarter just shows that there is a way to go. If we turn the earnings into the cash flow, Niclas, you have a slide coming on the next page.

Thank you, Bjarne Pedersen. Zooming in on cash flow a little bit. Cash flow from operations was negative in the period, which primarily reflected lower EBITDA, seasonal net working capital movements, including customer bonus payouts and payments of restructuring costs in Germany related to last year. This was partly offset by destocking activities in the quarter in contrast to a stock build, which is normal seasonal pattern for our business. On the financing side, tax expense was impacted by a one-off payment. CapEx totaled DKK 17 million, resulting in a free cash flow of negative DKK 132 million for the period. We expect cash flow at year-end to be positive, including proceeds from sale of assets. That leads to a net interest-bearing debt at DKK 935 million as of end of March, equal to an increase of DKK 133 million. And that gives a net debt-to-EBITDA ratio of 4.1 against 2.7 at the end of Q4 last year. And as Jorg Brinkmann mentioned and also referenced in our annual report, we have a banking agreement in place that supports this situation. If we move to the next slide, we have an update on our outlook. There are no changes to our outlook for 2026. It's an organic growth of minus 5% to 0%. EBIT before special items will be in the range of DKK 50 million to DKK 100 million. And on the housekeeping side, we assume CapEx between DKK 100 million and DKK 120 million. So with that, I will now hand it over to Jorg Brinkmann, who will finish the presentation with a few final remarks. Please turn to Page 12.

Before I open up for questions, let me summarize really 4 takeaways. First, Q1 is certainly, and Bjarne Pedersen said that is beyond our expectations, but the weather really impacted us from 2 angles, demand and the supply side. So it was expected. Second, since March, we see activities improving with the weather opening, especially in Poland and strong momentum again, and that gets us back on track and that is also supporting our full year outlook. What we are doing is really building and continuing our businesses in Poland and the U.K. We are working on with the customers. We are driving our HOME Initiative, as you can see from the Pulawy example here. And this is how we are continuously improving our businesses and our margin levels, ensuring always that we have supply ahead of demand, and that is the ratio we are balancing. And then finally, in Germany, different ticket here. Germany is still on transformation. We have the right structure in place now, but now it's really about to build these stronger regional positions, which will take some time. And the first target is to make sure it contributes with positive cash flow. And from there, step-by-step, making sure that also the German operations help to improve our group earnings. And with that, let me open to the call for questions.

[Operator Instructions] The first question is from the line of Anders Petman from Danske Bank.

If I may start on a question regarding the rising input costs. I was wondering if you could give us a ballpark figure on how much you've seen so far, how much you expect input costs to go up and also then the size of any price increase you have already announced so far or would need to announce to mitigate this increase?

And thanks for your question. We talked about the energy previously where we are big consumers of gas and electricity. And there, we have a hedging in place and the hedging profile aimed at striking a certain amount of certainty, so we are able to protect our margins. but at the same time, not hedged so much that a potential volume decline leads us into a take-or-pay scenario, which will be adverse for the company. So when you look into that cost category, you can always discuss what you expect for the rest of the year. But let's say that for the last 9, 10 months of the year, we see a 50% increase on that. And in rough numbers, the same on the -- in particular, outbound transport. Those are the 2 main categories. And that is -- if you measure it against the total cost, you would see maybe around 3% or something. So it is not something that completely puts us off the chart. And with a fairly good amount hedged when are able to pass on the remaining part of the increases to the customers. So from a P&L point of view, we don't see it as an impact. We more rather see it as, let's say, an operational topic that we are managing. And if you're looking at the other categories, most of that is locked in on annual contracts. So we have to go to more force majeure situations in order for those to be reopened or -- and then that would typically be if there is a very big change on the energy market or there could be some supply chain disruptions, but that is only limited to a very small part of our categories, mainly being foil, which is oil driven, that will be the main category. And in the overall spend, that is a fairly small part of our cost.

So what I'm hearing you saying is that if the current input costs continue at this level throughout the year, to a period where you are less hedged as well, you would need to raise your prices low single digits. Is that correctly understood?

That's correct, Anders. And the point is so we are monitoring that monthly and it's also the agreement we have with our customers because that's only fair that we are also adjusting these energy surcharges on a regular level. So it's current view, but this situation might get worse, but it might also improve. And depending on where this is going, we keep the flexibility and in a partnership way, passing that on to the market. And also when this situation is changing, taking that off.

All right. And then going back to the guidance, one of the assumptions for the guidance, I see is that there are no changes to the macroeconomic or geopolitical conditions yet. I would find it a bit reasonable, I would say, to assume that we have seen some changes and most of your peers are flagging this as well. You also flagged it referring to the interest rate being maintained in the U.K., whereas the rate cut would have most likely been expected in your guidance previously. So just to get an understanding if you can put some more words on why you've decided to explain the full year guidance.

Overall, the changes we have seen have not had a big impact from what we're seeing right now. As we indicated with the input cost, yes, there will be some extra pass on to the customers. But again, if we were talking less than 2% so even within the organic growth, we are not out of the band. We are moving a little bit upwards, but that's it. on the more macro level, there's -- it's quite blurry, you can say, but we have not in the marketplace seen anything change significantly that give reason to change our guidance for the time being.

Okay. So final question for me before I jump back. Are there any news on the asset sales that you want to have made here in '26 and potentially also some comments on the ongoing consolidation strategy in Germany, divestment of plans, et cetera.

As mentioned in the annual report, we have these assets held for sale. We have some processes running, and we are confident that we are going to harvest what we set out in our expectations from the beginning of the year, also in relation to the cash flow and the comments from Niclas a little bit.

The next question is from the line of Sebastian Grave from Nordea.

First, I would like to ask on the sort of throughout the quarter development. So I appreciate your comments around that you had a tough start to the year with the first 8 weeks being particularly hit by the poor weather. But could you maybe provide us sort of better picture of how growth developed year-on-year throughout the quarter? And what I'm particularly looking for here is the exit rate that gives you the conviction on meeting the full year guidance after a very soft start to the year.

Our guidance is, of course, built on the full year. And what, let's say, the blurryiness I was referring to is that in the phase of, let's say, March, April, there is a kind of a vacuum based on the low sales in January, February because developers need to complete projects and so on. So we start -- when we are through the second quarter, we have a more clean picture of how much has been a catch-up effect and what is the underlying market run rate. But with the guidance assumptions, we see that we will remain in negative territory on the organic growth also when we come out of the second quarter. And on earnings level, we should probably be best case at a 0 year-to-date when we are in half year. So that is, let's say, kind of a process we're working through right now and then we get more clarity from the both the market side and the macro setup on how we then see the second half. But with the assumptions and the customer feedback we have right now, we are confident about our guidance.

And just for context, Bjarne Pedersen, so is there any sort of comparison effects that we should be -- should look at here considering that you implicitly imply a step-up in H2. So is that benign comparison from last year? Or is it pricing effects? Or how does that work?

No, we expect to progress the volumes. We don't see that the market situation allows for big movements on the pricing side. We know that with the pass-through of the energy cost, we want to do that, and we are firm on that. And we see some competitors in some regions being less firm on that. So that's a part of, let's say, the daily management of that. But it is that the markets are building back. We have the positive outlook for U.K. where we expect to be able to grow above the market growth. And in Poland, we have seen the falling permits in the second half of last year. It seems to be returning a little bit in the permit side now, and that should hopefully also give reason for a reasonable volume development in the second half. It's not that we -- things go through the roof. But if we don't get any major setback from the macro environment, we are confident that we're going to progress on a reasonable basis.

And moving on to the topic of pricing. You talked a bit around it here. So what you write in the report is you see a stable pricing environment. And also, it looks like the ASP for the quarter is roughly flat year-on-year. I guess this is not good enough considering that you have to pass on, as you say, low single-digit price increases. However, you previously in prior quarters alluded to a sort of deteriorating pricing environment. So I'm just trying -- you touched a bit upon it now, but just trying to get my head around what you're seeing in terms of the pricing environment. Has the uptick in energy prices, has it sort of provided some more discipline in the market? Or what are you seeing?

So it's really market by market. So there's pricing discipline in Poland, pricing discipline in the U.K. the energy situation, just consider it started end of February, right? So this is -- you can't see that in the Q1 numbers, but it is something we started implementing in March. So we started announcing that in March. So you want to see that in the Q2. And then Germany, we do the same thing here. So this is really the energy pass-through is something that is a principle in our company here, and that is we're executing that everywhere. However, when you look at pricing discipline and also the challenging environment, then Germany is most likely -- the most challenging market we have, right? So there is still a high underutilization of plants. There is competitors going after volume, and that is impacting the price level as such in Germany, and that situation hasn't changed despite our clear commitment to pass on energy cost.

That's very clear. And then my last question, I'll just ask about the sort of rationale for providing more transparency on the underlying profitability across your geographic segments. So don't get me wrong, I'm not complaining here, but I'm just positively surprised. So maybe a few words on the rationale behind this disclosure. And also why not -- why only provide numbers back to Q1 '25? Why not go further than that?

Well, Bjarne Pedersen can take the technical side of it. But yes, I'm glad you say that you're not negatively surprised. I would wonder if there's more information. But I think it's important we were showing numbers, the group without Germany. We were showing that earlier because I really think it's important to understand the different business dynamics here. The markets are on different tracks. The environment is different. And I think this is important when we talk about that, that we also provide that transparency. And in a nutshell, I'd say we have really good businesses that are performing in the U.K. and Poland. And we have a business in Germany that needs transformation and is in change from a big nationwide organization into a regional setup. And I think it's important to, number one, first of all, see the structural differences also for valuation. And second, to also track the process a little bit and the progress a little bit better. And that is why we've decided to give that more insight because, again, the companies have different different market environment, but then also different maturity of the organization as such.

As there are no further questions from the conference call, I will hand it back to the speakers for any closing remarks.

Yes. Thank you for everyone dialing in into our Q1 earnings call, and have a great rest of week. Thank you. Bye-bye.