Kri-Kri Milk Industry S.A. (AO2.F) Earnings Call Transcript & Summary

Hello, and welcome to this webcast. I'm Konsta Sarmadakis, Kri-Kri's CFO. In this session, we will discuss in detail our performance for the first half 2025, and I will give you an update on the business for the current year. After a short presentation, Q&A will follow. You can post your questions using the chat tool. Now let's have a look at our P&L statement. Sales saw an increase of 23.7%, reaching EUR 162 million. Almost all of this increase is attributed to higher selling quantities, higher volumes. Gross profit margin dropped to 27.5% versus 34.6% last year. I will explain about this on the next slide. EBIT was EUR 23.1 million with a margin of 14.3%. Finally, EBITDA stood at EUR 26.1 million with a margin of 16.1%. Moving on to segment review. Yogurt export sales continue to grow at a very high pace, nearly 40% year-on-year. Key drivers on this growth are our major markets of U.K. and Italy. Demand for Greek yogurt is very strong and drives production volumes at high levels that make us, in some cases, hard to respond and deliver in full. And as we expect this increasing demand to continue to the next years as well, first and foremost, we need to quickly add capacity as soon as possible. On this respect, the Greek Yogurt Dynamo investment project is critical. When completed, it is estimated that we will be able to produce double the yogurt quantities of 2024. Also, we should delay aggressive business development new customers for some months because it is not good to start a new contract and cannot respond to orders properly. Moving on in the domestic market, yogurt sales saw a moderate increase of 4.4%. The environment in the market continues to be challenging because the strong shift of consumers to private label is still on, and this applies pressure to branded yogurts market share. Overall, we have a benefit from increased private label volumes as we are the leading supplier in the domestic market, but this situation is a challenge for our branded yogurt series where we need to adjust our strategy and win in the marketplace. In the Ice Cream segment, in the domestic market, our sales show an increase of 6%. Key driver of this result was the expansion of our sales network with focus on the touristic areas and islands of Greece. Of course, the introduction of new ice creams to our portfolio and good tourist inflows in Greece contribute also. For the remaining of the season, ice cream sales followed the similar growth rate. Moving on to Ice Cream Export segment. Sales saw a significant increase. That growth was driven by Greek frozen yogurt and new private label contracts. In the U.S. market, our sales of Greek frozen yogurts were low as this first year of introduction served as a pilot. Additionally, due to the uncertainty stemming from discussions regarding potential imposition of tariffs on European imports, we pursued a cautious commercial strategy not to engage into fixed deals that might prove loss-making. Finally, the level of import tariff set is not affecting us at all. For the next season, we have a stronger plan to expand our sales network and presence in the U.S. market and also run supportive marketing campaigns. Also, we expect some good news on the front of private label very soon. Moving on, this slide concludes the development of sales. In value terms, sales increased by EUR 31 million, and almost all of this amount is coming from higher volumes. Now let's move to costs. Sorry for the busy graphs. On the left-hand side of the page, there is a graph that shows the history of Greek raw milk price, the raw material with a higher contribution to our cost. In the middle of the page, there is a similar graph that shows the EU raw milk price that relates to the price of some milk-related commodities such as butter and proteins that we buy. What I'm trying to show is that starting from July 2024, raw material prices have been climbing quickly. And for the first half 2025, they are standing at high level. Greek raw milk price is up by 4.9% and EU raw milk price is 15.2% higher. So this situation, along with some higher manufacturing costs explains the contraction of our gross margin. For the full year, comparables of raw milk prices are more favorable. So even if the prices do not fall for -- the full year difference for the Greek raw milk price will be 3.4% against 4.9% in the first half. In addition, there are clear signs of deescalation in prices that can be seen in the future price of commodities, milk commodities, butter commodities and so on. So a slight deescalation of raw milk prices is probable in the fourth quarter of this year. Finally, we had some targeted price adjustments that came into effect from the second half of 2025. All this compose a picture of better margins going forward. Moving on, these slides conclude the development of gross profit. Increased sales quantity added EUR 10.7 million to gross profit, but almost all of this disappeared from higher input prices. Let me now move on to our revised estimates for 2025. For the remaining of the year, we expect that the strong growth of our sales will continue. We expect our sales to well exceed our initial estimate of EUR 300 million. Also, we are optimistic that we can achieve an EBIT margin of 14%, although this might not be so easy. CapEx overall is expected between EUR 21 million to EUR 25 million. Finally, the shareholder structure, Tsinavos family holds something below 70%, institutions abroad about 11%, institutional domestic, about 13% and individuals retail, about 6%. I will leave you some time to post your questions using the chat tool, and I will come back to answering as many as I can. Thank you.

Thank you all for posting your questions. I'll try to answer as much as possible. First question about growing percentage of total sales abroad and the effect of the EBIT margins in the long term. We think that this is something positive also because we face less competition. So we have more pricing power abroad. And also as a way of risk mitigation, so we have less exposure to an economy, the domestic economy that has proven fragile in the past. Question about not -- the input cost not being reflected in selling prices. In general, we have the risk of fluctuation in input cost that it is hard to pass selling prices in a timely manner. Almost in all cases, we have managed -- we have achieved to pass increased cost in prices, but this had a time lag. This happened also in 2022 with very low margins in the yogurt segment, but margins were returned to normal levels in the next year. About the terms of private label contracts, most private label contracts are with fixed prices with the exception of some contracts in -- with large U.K. supermarkets that we have embedded a formula that automatically adjusts prices, yogurt prices, related with raw milk price. A question about continued pressure on input cost. This is what happens in the market. As I said, we expect some deescalation to start from Q4 2025. We expected this to happen sooner, but this is our estimate for the next months. Pricing actions for the second half. Yes, I mentioned that, we had some targeted adjustments. This we expect to have a positive effect in our gross margin for the second half of the year. A question about private label price competition domestically. The commercial strategy that we follow is to defend our business in private label. In every case, we try to respond and not risk losing business, of course, without keeping any loss-making contracts. The question about frozen yogurt sales in U.S. Overall, this season, we expect low sales in U.S., as I mentioned. This will be of about EUR 1 million. Question about the U.K. Yes, the demand coming from U.K. customers of Greek yogurt is impressive. Last year, if I remember correctly, the growth of this segment of the market was more than 40%, and this year continues with up by 60% more. And forecast from our customers expect this to continue at high pace also at least in the coming year. We expect that we can defend our market share there because we serve almost all the major retailers with private label. And we have the capacities to continue working with them in the future. A question about raw milk price. It is difficult to explain the dynamics of raw milk price in Greece. It is the local competition that spurs demand and drives prices higher. And also, there is the prices of imported milk that affect the domestic milk price overall. A question if we'll be unable to deal with high demand from U.S. or U.K. This is something that we try to avoid, and this is why we proceed on so high investing on building the necessary capacity. A question about working capital, receivables, inventory. The receivables increase is similar to the increase of sales. So there is no change in receivables days, the trade receivables, I mean. There is another element of other receivables that is mostly VAT from the Greek state, but this is irrelevant to our business. And also inventory levels follow the increase of the cost of materials. So also on that item, there is no change, no substantial change in inventory days. Question about how large a U.S. private label contract will be. I can't tell more at this time. Just keep that we expect some good news soon. Question about if sales and marketing efforts in U.K. might have a material negative impact on EBIT margins. No, we don't expect that to happen. All these campaigns are included in our business plan. And the U.S. project has higher margin than our current ice cream margins. What accounts for the growth in intangible assets in the second quarter? This is mostly related to -- we have a project to upgrade our ERP system. Currently, we use the older version of SAP, and we are now running a project to upgrade to SAP S/4HANA. Question about increased operational costs and labor cost. Yes, personnel costs rose by 27%. Most of this is coming from increased headcount, but also from increased salaries. Question about strategic mix. In our case, it has proven that private label, at least in exports is not low margin and very cash intensive. So we think that it doesn't present these features that are typical to other private label business. A question about French market strategy. Yes, we entered France. We have 2 contracts in place that continue. But as I mentioned also in our -- in my presentation, we try to delay new business development and new contracts because we wish first to build up spare capacity in order to be able to respond properly to new orders. A question about the EBIT margin for this year. Yes. As I mentioned, we expect on the margin front, a better picture on the second half of the year against the first half. Question about what will be. I think this was incorporated in our guidance for 2025. So we expect more than EUR 300 million. A question about the project Greek Yogurt Dynamo. We had an announcement with more details on this project. Its total budget is about EUR 52 million. It's state subsidized and 3 year -- it is expected to complete in 3 years' time. And after that, we will be eligible for about EUR 23 million in tax relief as a state subsidy. Question about an animal disease. This disease does not affect our case because it is a disease of sheep and not cows. And we buy only cow milk. A question about why we haven't passed increased raw milk prices. In general, it is hard to do this. But on the first half, we had some -- many contracts, fixed price contracts, especially in private label. And also, there was a law -- a legislation effective domestically that was making even harder to increase prices. This was a law with the scope to control high inflationary pressure from the past years. Yes, the CapEx, EUR 13 million is the CapEx that was invoiced. The cash flow statement shows the investment flows. This means that the money that we paid for investment reasons. So this means that we have EUR 4 million that we will pay in the coming months. Question about renewable energy. Yes, we have a biogas plant that produces electricity. In our financial statement, this can be seen on the segment note under other line, other revenue line. It was about EUR 800,000 for the first half, and it is a profitable business. Question about margin difference of private label and branded products. Yes, there is, at the gross profit level, there is a difference. So private label products have generally much lower gross margin than branded. But because there is no charge of selling, marketing expenses and other overheads, at an EBIT level, the margins are very similar. Current dairy shortage. Yes, in general, Greece is -- has a deficit of cow's raw milk. And so much of the raw milk that we use is imported, and this affects also the prices and the local market. Question about pass-through clauses in the contracts with supermarkets. I think I answered that. This is the case only with some supermarkets in U.K. An incentive program to increase milk supply. Yes, this is currently running. And we also try to strengthen it by giving more incentives to our farmers to increase production. And in that respect, to have good quality milk supply and also not to disturb the market and drive the prices higher by trying to offer higher prices and get new suppliers. The time lag that to increase raw material prices -- to pass increased raw material prices, yes, on average, we have about 4 to 6 months before we can pass increased cost to prices. Question about what percentage of our sales has increased this? I don't have the data right now. How much private label represent. Yes, domestically, because of the high market share of private label, it is now about 50-50. And most of our exports in yogurt represents private label. So this is more than 80%. Can we expect a slower growth in sales due to lack of capacity? We feel that we can cope with the increase in demand, and this is why we are try to be quick on adding new capacity. When do you expect to have more capacity to grow your volumes? This is a project that is already implemented. So we add capacity when we have a new production lines delivered. Question about working capital. We don't expect any material differences in working capital movements for the second half. Question from [indiscernible], no, all this, I don't have the data right now. When we expect new production lines? This is a plan that we have recently installed one new production line last July, and we expect the next to come within the first half of 2026. Question about the margins. We feel that sustainable EBIT margins are at about 15%. But personally, I believe that we can do a little better by introducing cost controls and by putting more effort on higher profitability initiatives. But 18% EBIT level is -- will not be easy to achieve at least in the near term. How much volumes in percentage will add the new production line? This is very complicated to answer. In general, the Greek Dynamo project, Greek Yogurt Dynamo project will double the capacity and our capacity, we will be able to produce double the capacity of yogurt of what we produced in 2024. I think we finished now. Thanks again all for joining this webcast. Have a nice day. Goodbye.