Intercos S.p.A. ($ICOS)

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining Intercos First Quarter 2026 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Renato Semerari, Chief Executive Officer. Please go ahead, sir.

Thank you very much. Good evening, everyone, and thanks for connecting to our earnings call. We'll present you our Q1, which as expected and communicated was difficult due to a convergence of negative factors. First of all, the currency headwinds second, the continued reduction of packaging component in our top line Third, the softer reorder trend post summer 2025, which impacted Q1 invoicing which was ahead of the order peak at the end of the year, which will impact Q2 onwards. All this on a high comp basis, in fact, last year, in quarter 1, we grew 13%. Going to the specific results. Sales were down minus 6% at constant rates. Adjusted EBITDA margin stood at 11%, which was 6 basis points below a year ago. And this drop of marginality was entirely due to fixed cost absorption. Conversely, the quarter was extremely positive in terms of cash which was positive by EUR 7 million despite EUR 25 million of shares buyback and EUR 19 million of dividends distributed. Last but not least, it's very important to note that in the past 6 months, we had an order entry in double-digit growth. So very, very solid for the rent rate. Looking in more details at our sales development at current rates, makeup and starting with use makeup, which represented 65% of sales, was the segment that held the best, as already seen in 2025. Sales were down 5% on a very high base of last year, which grew 23%, considering the headwinds in currencies and the pack sales reduction we were effectively flat. Emerging brands performed well, but offset by multinationals whose order entry has recently accelerated in a very visible manner. Prestige brands performed well, while mass declined. Moving to skin care, which represented 13% of total sales. We continued to suffer. We posted minus 17% and mainly due to the Western emerging brands, while Asia continued to perform well in this segment. We expect a comeback in the second half of 2026. Hair & Body, which was 21% of our total sales, also posted a double-digit decline, minus 16%, mostly due to fragrances, which, as you know, did not have the benefit of significant launches in the past months. despite we remain focused on innovation as witnessed by the recent Hair Care Award for innovation, which we got during Cosmoprof this year. We also see a forecast for fragrances that is very solid for the remaining part of the year. So we expect to come back very strongly in this segment as well. Moving to the results by geographic regions. EMEA, which was 52% of total sales, was down 8.5%. I'm always referring to current rates. Make up [indiscernible] growth in the region, but this was offset by the negative trend of Hair & Body and skin care. We expect an immediate rebound of the region as the order intake from November onwards was extremely strong for the region, and we now have an order book, which is the strongest ever for this region. As for Americas, representing 28% of our sales. Quarter 1 posted a decline of 8.8%. The region was obviously very much impacted by the dollar devaluation in the region, makeup was broadly flat, but results were affected by skin care where our lack of manufacturing sites is penalizing in the current tariff environment. Also for this region, order entry has been extremely strong in the past 6 months. Asia, which was 20% of our sales, was down 12% on a very high base of last year. Last year, we were at plus 18%. And also, in this case, ForEx accounted for more than 50% of the decline and we saw skin care doing well in the first quarter, but this was offset by makeup. Moving to the customer type. Multinationals, representing 50% of our sales posted a 13% decline on last year, very high base. Last year, we grew 28% in quarter 1. All the views suffered in this cluster of clients. However, the order entry trend highlights the comeback of multinationals in the rest of the year. emerging brands, which were 45% of our total sales remained overall stable at current rates and quite positive at constant rates. Important to note that we registered a recovery of U.S. brands after the soft 2025. Retailers, which only weight at 5% on our total sales also posted a double-digit decline closing first quarter at minus 25%. The results was entirely driven by the Western retailers while the Asian ones were positive. Now looking forward, let's talk about the months ahead of us. First of all, we remain optimistic about the beauty market trend overall. The signs of a progressive comeback to the historical trends of beauty are getting confirmations in the first months of 2026. Both U.S. and China are coming back and Europe is holding quite well. So we expect the market to grow between 4% and 5% in the year. So far makeup is the less dynamic segment, but we think it will progressively accelerate in the rest of the year. Obviously, the darkest cloud in the coming months is the Middle East crisis with the connected energy impacts should the crisis continue on a longer period. For what concerns Inter costs, we remain confident to beat market trend despite our slow start in the year, and there are factors that are backing our confidence. First of all, the past 6 months order entry is a double-digit growth versus a year ago. And the order book we have in our hands is also double digit up versus year ago. Second, last year launches are getting strong consumer response in the market, and this should sustain reorders going forward. Third, the new collection of innovation presented at Cosmoprof in over 300 meetings got enthusiastic response from clients, including Hair Care, where we won, as I just said, the Cosmoprof Innovation Award. As such, we confirm our guidance for the year expecting net revenues to grow by about 5%, 6% versus fiscal year 2025. Thank you very much. I'm ready to get your questions.

[Operator Instructions] The first question is from Andrei Condrea of UBS.

Two for me, please. On your 2026 outlook, you talked about sales increasing 5% to 6%. But looking at your EBITDA expectations for the year, what are you seeing in terms of input costs currently? And what tools do you have at disposal to mitigate these effects? And tied to this, what does this mean for pricing looking for the -- looking at the remainder of the year? And secondly, you mentioned in Q1 was held back by increased lead times in your orders. Could you perhaps quantify this impact? And how -- what benefits will this have on your Q2 numbers?

Thank you, Andrei, for your questions. Yes, our outlook is 5% to 6%. Now as you know, we do not give guidance on EBITDA terms, although we give a general guidance that if normal conditions are around, we expect leverage from volume leading to about 50 basis points of improvement year-on-year. But this is an average of what can happen. Now in terms of cost and pricing, for the time being, we are seeing increases in terms of logistic costs, and we have communicated to clients that we are passing energy surcharges to them at the end of each month based on the actual cost increase of this logistic costs. So we are doing everything to neutralize cost related to logistics, which I remind you are pretty limited in our P&L because it's about 2.5% of our sales because we work mostly in a next work environment. So this means that we do not have effectively outbound logistic costs while we have an inbound costs, sorry, I said 2.5% of sales, I'm wrong, it's 2.5% of COGS which is a bit different. So logistics is the #1 factor for the time being. In terms of utilities that are even lower than logistic cost in terms of impact in our P&L. In reality, we work with fixed rates for 2026. So we will have an impact of higher energy costs only if the current crisis goes on to 2027, we will not get an effect in 2026. I hope I've answered to your first question. Second one was about lead times increasing. For the time being, we are not seeing anything significant in terms of lead times of productions and deliveries. This may come if the crisis goes on for a long period. But for the time being, we're not seeing that very much. Now the rebound, the peak of order increase started in November, December. So it's quite normal based on the current lead times, especially in the western part of the world that this impacts Q2 onwards. So if we are confirming the guidance as we are, it means that we expect in the quarters to come a pretty solid growth, high single digit to double digit going forward. And this is, as I said, backed by a very, very rich order portfolio that we have in our hands.

The next question is from Anna Frontani of Berenberg.

I have 2 questions. One relates to the order intake. If you can please give us a little bit more color maybe on the composition of the strong order intake that you are seeing? And maybe the split between reorders and new project launches. And then the second one, I've seen the announcement of the CFO changes changing. If you can please give us some more context around that.

So Anna, thanks a lot for your questions. compositions of order intake. Well, first of all, keep seeing makeup being the main lead of order intake. So we see a lot of traction in makeup. We see it in Europe, we see it in U.S. We're seeing also movements in the positive direction from Asia, but Western prestige brands in makeup are the, let's say, the leading factor so far and what we are getting in terms of orders. I also want to -- as I said, I think I said it, but I will repeat it in case. Also, the forecast for air and body and especially fragrances, which is not part, as you well know, of our order entry because it goes in a rolling forecast model. But the forecast we are seeing is very strong also for that part of the business. So I really see makeup and remote picking up the fastest skincare, I think, is going to be more of a second semester game. In terms of the orders versus new initiatives, we see more new initiatives than reorders at the moment. You know that in general, we are about reorder 70% and new initiatives, 30%. We are now at EUR 655 million which I always take it as a good sign for the time being for the simple reason that with beauty market and so and consumption increasing progressively in the course of the year, we will see -- we should see progressively reorders being up as well. And also second point is, obviously, whenever we see a lot of new initiatives that is a good sign for the year but also for the years to come. So I'm always very happy when I see orders being led by new projects. I think I've answered to your first question. Second question is does CFO change. Yes, that is, unfortunately, we are gaining back to square one, not something we are happy about. I can not disclose the reasons because they are mainly personal. So I don't think it's appropriate for me to speak about that. The only thing I can say is that we have a very strong team under the CFO. Our team is very well structured. So I don't see -- I'm not I'm sleeping well at night despite this -- again, this change in the role. That's all I can say about it.

The next question is from [ Molly Wylenzek ] of Jefferies.

I'm hearing the Intercos results this evening. I just want to take a step back and bigger picture on the acceleration, particularly that we're seeing in makeup. A lot of the brands that are ordering from you started to talk about massive pushes on innovation nearly 2 years ago. Is this just a sort of a delayed proof of that happening? And why has it taken so long? Or do you think it's another reason?

I'm only nice to see you back. Well, in general, as you know, because I've said it several times, brands tend to accelerate on innovation when the market conditions get tougher. So everybody got very much into it, I would say, in the past 18 months, everybody got more active into new projects. The lead times, though, from the moment you start working on a new project to the moment it gets to market remains, especially for multinationals rather long. So it's -- you're talking months on average, then there are initiatives that are a bit faster than that, but there are also that are longer than that. So it's -- I would say, it's quite a normal lag that is leading to the situation we are seeing today. I don't see anything unusual in that front. Asia is faster usually. We've seen a lot of growth coming from the local Chinese brands, very much led by almost a frenetic frantic attention and activity in terms of innovation. We are now in a phase where Western brands and prestige is regaining a bit of weight. You're certainly seeing that in L'Oreal and [indiscernible] as well, and that is what we are seeing in the market. So I expect that there will be new waves of innovation coming also from the Chinese brands. Obviously, we need to see what happens mid-June with the 6.18 event to see how bold are they going to be or not. So we'll see. But nothing unusual in terms of initiatives, lead times, I would say.

The next question is from Tilly Eno of Morgan Stanley.

My first question, I think you may have sort of already answered given that you said the orders are skewing towards new orders. But just on your comment in terms of multinationals and makeup with a recent sharp increase in order intake, is that a very recent comment perhaps to ensure supply security or is that as you said, over the last 6 months, you've just been seeing that improvement in pickup. And then just my second question on Hair & Body. You mentioned some new innovative products doing very well at Cosmoprof. At the time of full year results, you were saying that division was probably flat or maybe slightly up on the full year. Have your expectations for that division actually improved since then, would you say?

Okay. Thank you, Tilly, for your questions. First of all, no. Honestly, I don't think we are seeing any orders intake increase, which is related to supply security, not seen that happening. I'm obviously talking on a broader scale. You may have one that is building up a bit of inventory to be safer for the months to come. But generally speaking, this is not a trend we've seen. Otherwise, I would have given you different percentages in terms of order intake, you would have seen higher reorders and lower new initiatives in percentages than what we're seeing. I think that what you're seeing is the, let's say, the funnel of innovation started by multinationals taking longer to get to fruition, gives a peak in new initiatives for multinationals coming now. So in reality, I think that going forward, we could expect a pickup in reorders that in general, because of consumption going up. For the time being, I don't think that we are yet in a position where you need to build inventories to build safety in your supply chain. I mean, the situation is too volatile for the time being. There is still a good chunk of expectation that this will not last for too long. The messages from the suppliers in terms of supply, it's quite reassuring. So the reason a race to build up, there is no forecast of scarcity for the time being. So I don't think that the majority of clients are reacting to any of that for the time being. Hair & Body, well Hair & Body results are going to be influenced mostly from control manufacturing. So we are super happy about the award we won in Hair Care at Cosmoprof, more than for the numbers it generates in the short term because it's a sign that we are learning. Our R&D is learning, and we are doing well in terms of innovation process. So that is a good sign for the future and for the direction we have taken with our innovation teams. It will still be quite marginal, the innovation part in Hair and Body is going to be maximum 10% so far, I would say. So the control manufacturing still has the lion's share of that division. Fragrance is an important chunk of it and the forecast that we're seeing from different clients in fragrances being very robust for the rest of the year. And as you've certainly seen, and you've seen L'Oreal talking about that and the other players and [indiscernible] about that. Fragrance market continues to do well. So forecast in terms of products, demand remains solid. So I'm pretty confident that we will do better than that had anticipated at the beginning of the year in Hair & Body, I think that we could be in the region of mid-single digit going forward.

The next question is from Francesco Brilli of Intermonte.

A couple of questions from my side. The first one is on the U.S. market. If you can provide us some additional color on the current behavior of brands and retailers in terms of innovation launches, replenishment activities and the situation of inventory there. And if you think the current environment can accelerate in the next fourth quarter? And I was wondering the -- following up on the -- what you mentioned that you can serve local for local, if this can be a factor that is could accelerate in the coming quarters, the M&A scouting there? The second one is on margin progression this year. I mean we appreciate that you have under absorption in first quarter, but should we expect margins to progressively normalize already from second quarter? Or is it more skewed to the second half of the year? And the last one, if I may, if you can provide some color on the cash generation, you have in mind for the full year for this year.

Sorry, I'm noting down. Otherwise, I forget that I'm an old guy. I'm sorry. I don't want to forget any of the questions you're making. So U.S. market, in general, we are seeing U.S. market progressively improving. As you know, we have gone through 18 months more or less of a quite soft market. It's not booming yet or actually is doing very well in terms of retail sales but because there is a quite important pricing component, which I think is the direct consequence of the tariffs. So from a volume standpoint, we are seeing growth that is in the region of 3% growth for the market, which is good, it's way better than what it was a year ago. So I don't see a situation where brands are having a high level of inventory. I think that what retailers will do is what they always do, which is they keep a coverage in weeks terms. So the higher the consumption they see, the higher the stock they will build because they will want to keep their 4 weeks, 5 weeks, 6 weeks of stock depending on the retailer and depending the category and the brand. So I do not see -- actually, I see progressive benefit from the end demand we are seeing at the moment. Brands are active in terms of innovation. They've been active all along 2025, not visible to you, not visible to the market because they were working on that with us and not only with us, unfortunately. They are coming to market now. So when you hear L'Oreal or Lauder talking about very strong innovations coming in now is because they started, as I said, 18 months ago on average. So the activity is going to be to the benefit of the whole category, usually a high innovation pace it's instrumental to boost the consumption in the market because, again, it's an impulse-driven category, so new things means more people attention, paying attention to these new products, more movement in terms of end consumption. So all this is going in the right direction going forward. M&A, yes, the local for local in skin care is very important. We spoke about that last year. This year, we are confirming that. It's very important. We keep on being very close to the market and to the different opportunities that are there. Unfortunately, the results globally speaking, for the potential targets in 2025, especially those that are private equity owned were not in line with the expectations they had. So they are taking longer to get to an exit. We keep monitoring. We keep staying very close we keep chasing certain targets that are not on the market. We'll see. Again, I will repeat myself, I'm sorry for that. I think that the -- my anxiety is related to the multiples that, as you know, in U.S. are way higher than the ones we are seeing for listed companies in Europe. So I hope that when we will get to work on something tangible, there won't be too much of a gap our multiple and the one of the target we're looking at. So we'll see. We -- the one thing I can grant to you is that we are very on this very much on this then it happens or not, I don't know. It's not only on us, as you well know. Margin progression, okay, margin progression for the rest of the year. Well, as I said, in Q1, there's nothing worrying in terms of marginality. There is only a mathematical consequence of a lower volume, lower net sales and therefore, absorption of fixed cost that has had the 66 basis points impact on marginality. Since we are expecting, as you can easily do the math on a much better top line in the quarters to come, you will see a much better absorption of fixed cost going forward. So yes, I do expect margins to go up in the remainder of the year. Aside from the fact that Q1 is always the lowest in every single year from a seasonality standpoint, it's the lower sales and the lower EBITDA of the year. But also in terms of year-on-year improvement, we will see a benefit going forward from a much richer top line. Cash generation, I'll leave it to my expert on the left side of [indiscernible]

[indiscernible] on guide on the net debt. But all in all, if you look at the consensus, there is a net debt, which is pretty much stable compared to the 31st December 2025 which is a number that makes sense in our view, and that includes, of course, dividend distribution for EUR 19 million and approximately EUR 30 million of buyback that we want to close by the end of this year.

The next question is from Paola Carboni of Equita.

I have a few questions. The first one is a bit of a high-level question about your top line growth. So just to understand how do you look at the current phase of reacceleration, especially in makeup to understand whether -- I mean what kind of let's say, sustainable growth base is behind that? And to what extent is let's say, revival of innovation, which is the consequence of the last few years, very difficult for the factor? I don't know if it's something we can discuss at the moment. Second point is still about profitability. Just if you can recap with us the several moving parts, especially in terms of mix. So you mentioned good prestige component your order backlog. I wanted to be sure whether I got it right. But also if you comment -- if you can comment still about the order backlog in terms of how we should look at the packaging component incidents going forward? And to what extent, let's say, what you are seeing with a better top line overall, but also possibly greater contribution of Hair & Body and in terms of efficiencies, if you are possibly delivering more than you expect. So without the guidance but still compared to your initial ambitions for the year. What are you seeing at this point?

[indiscernible], thanks for your questions. First of all, innovation, I think there is a mix of elements in terms of innovation. The number one is certainly the need of brands in a difficult market conditions to grab consumers' attention with new products, new ideas and all that. That is a process that started, as I said, months back coming to market now, but it's something that we are still seeing so a lot of activity going on as we speak. So I think that, that will be sustainable. And then maybe not always visible in percentages term because then they will generate reorders and all that. So one is structural. The second is an extra add-on to that, which is related to reformulations that are linked to either regulatory needs or public opinion requirements. Let me try to explain that. Let me do it in a simple way. talk. As you know, [indiscernible] has become like poison for everybody. So there are a number of important brands, important companies, especially for U.S. that are running away from powders with talc, and this generates a lot of innovation to relaunch brands and products without talk. So this comes on top of what a brand would normally do to gain market share -- it's more of a defensive move that they're trying to play their advantage by selling it as a total relaunch of product lines so there are these 2 factors that are coming into play. The second one will likely come to a hand, but this will take a while because it's not only talc, there are a number of moving parts silicons micro plastics. There is a lot going on. I always said that this is devil but also an angel for us because it brings a lot of complexity, but that it puts under the spotlight, our superiority in innovation because we -- it's difficult to formulate well without these ingredients and it's difficult for the smaller competitors to be good at that. So it gives us a competitive advantage that I think is sustainable. So I think there is a big chunk of this innovation Sprint that is sustainable. There is another part, which is, let's say, more short term. But when I say short term, it's not your short term is at least a couple of years. I know that whenever I say short term to you, you take the quarter. I take 2 years. So that is probably going to come down in 3, 4 years' time. I hope I've answered your questions. Can you confirm?

Yes. The first one, yes, absolutely. And then the second one [indiscernible]

I know [indiscernible] I wrote it down. I just wanted to make sure that I understood well your first question. Second question was about the profitability, the mix and all that. So what we see in our order book is, as I said, a very rich order book that is especially rich in makeup. So we expect makeup to be strong. This usually is a good mix. we also see prestige being better than mass market. And this is also usually a good sign in terms of mix for marginality. Then on the other side, I think that quarter 1 of this year saw the lowest level of PAC as part of our top line. we said that we were expecting 2026 on average to be in line with 2025 in terms of a percentage of total sales. This means that in the following quarters, we will see a little bit of rebalancing of what we've seen in quarter 1. Nothing dramatic, but a little bit of rebalancing we will see. Also because, as I said, we're seeing armband especially fragrances forecast being strong for the remainder of the year, and that will bring a little bit more of packaging components into it. So sorry, in terms of mix on the other side, what I just said of Hair & Body being a bit stronger will be a bit of an offsetting element versus what I just said about makeup. All in all, I don't expect mix to be a factor. We expect after the very strong gains of last year to have more of a stability of marginality in the course of 2026 which is basically what we told you when we closed 2025.

And what about your efficiencies? If you can comment on that. I mean...

Yes. No, the projects on efficiencies are going well. Everything is tracking exactly in line with what we were expecting. Obviously, we are at the very beginning of the year. So we need to make sure that when the ramp-up of volumes will happen, we will be cashing in exactly what we are targeting. We have no negative signs so far, but we are not seeing either further benefits on top of what we had budgeted for. So all in all, we are tracking well, and we will see in the coming quarters if this gets confirmed. No flags at the moment.

Mr. Semerari, there are no more questions registered at this time.

Thank you very much. Thank you, everybody. Thank you. Thank you. Bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.