ECNLF (ECNLF) Q2 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to Aquafil Group 2026 H1 Results Presentation. [Operator Instructions] I will hand the conference over to Giulia Rossi, Investor Relations. Please go ahead.

Thank you, operator. Good evening, everyone, and welcome to Aquafil Investor conference call. Today, we will update you on company's first half 2026 results. Before going ahead, let me remind you that this presentation may contain certain statements that are neither reported financial results nor other historical information. Any forward-looking statements are based on Aquafil's current expectation about future events and are subject to risks and uncertainties that could cause results to differ from those expressed by the statements. For a discussion of these risks and uncertainties, you should review the disclaimer in the presentation we issued today. I will now give the floor to Mr. Giulio Bonazzi for his remarks.

Thank you, Giulia. Good evening to all, and thank you again for attending our video conference. The first [ year ] of 2026 closed with positive results, in line with the goals set for the current year. The first 6 months of the year confirm the group's solid foundation, showing an increase in profitability and a significant improvement in the net financial position. On a geographical level, Europe recorded growing volumes in textile yarn product line against a still weak market for carpet yarn. Engineering plastics and other polymers remained substantially stable compared to previous year. The United States reported growing volumes in both the textile and carpet yarn product lines. The Asia Pacific region showed a positive volume trend for carpet yarns. The company demonstrated its ability to protect and expand margins during the period, thanks to ongoing cost rationalization measures and the excellent performance of ECONYL branded products. These results were achieved in a global macroeconomic context still marked by strong instability and impacted by ongoing geopolitical conflict. This situation continues to drive cost increases for raw materials and transportation, which have largely been recovered in the third quarter and will be further absorbed in the fourth quarter. Our commitment to reducing net debt continues. Strict financial discipline and targeted investments in efficiency will continue to support solid cash generation. Persistent market uncertainty leaves global demand difficult to predict. However, rigorous cost control and working capital allows us to face the second half of the year with confidence confirming our goals for 2026. I am now available for answering to all your questions. Thank you.

[Operator Instructions] We have our first question from Robert Blum from Lytham Partners.

Could you provide more detail on the raw material pass-through mechanisms? What is the typical lag between sort of the increase in input costs and the corresponding selling price adjustment? And how much of the business is covered by those mechanisms? And then as a follow-up to that, can you quantify the unrecovered input cost headwind in Q2? How much has already been recaptured in Q3 pricing? And maybe what additional recovery or cost benefit you expect to see in Q4?

Thank you, Robert. Aquafil normally has a lag of 3 months. So our price adjustment mechanism is based on the average of the increase or decrease of the average of the previous quarter versus the second previous one. It means that if we have got an increase in raw material prices during the second quarter of 2026, starting from the third quarter, we will apply price increases that are set to recover those cost increases of the raw materials. Depending on, let's say, when these price increases have taken place during the quarter, it can be that price increase, for example, in this case of 1st of July covers entirely the second quarter cost increase in raw materials or there will still be a tail to be recovered in the fourth quarter. This is for the bulk of our business. There is also a small business, particularly connected with the nylon textile filament business, yarns, where there are contracts, long-term contracts that are set to be recovered in a 6-month period. Why this difference between carpet and textile? This is because normally, textile yarn going into the fashion business, it is following what a 2-season rules. So there is spring, summer and autumn/winter collections. So normally, our customers are asking us not to change the price for, let's say, contractual volumes within the semester. So that's why we have said that we will have still a tail of raw material prices to be recovered or where we will see the recovery during the last quarter of 2026. In, let's say, during the first quarter and second quarter of 2026, I'm trying to answer even if I will not tell you full detail of your question, we have suffered very high price increases in raw materials as all the chemical and petrochemical businesses have seen, particularly in Europe, but not only because of the crisis in the Middle East and the Gulf. When I speak big price increases, I'm speaking in, let's say, measurements of millions of euros or U.S. dollars. So not 1 or 2, but even a little bit more. That's why we say that even if apparently, our result may seem a little lower than the expectations in reality, the financial performance has been even higher than the original performance. So now starting from the third quarter, we should see a further increase in the marginality with a recovery between the third and the fourth quarter of the margin loss that we have lost during the first semester of 2026. If, of course, prices should decline, for example, in the third quarter, we should have on the other side, a positive effect in the following one.

All right. Very good. One additional follow-up, if I may. How much additional sort of fixed cost reduction remains? And can those additional savings be achieved without limiting operating leverage or production capacity when demand sort of continues to improve?

Let's say that during 2023 until 2025, our main focus was on readjusting production capacity according to the market demand, which, of course, let's say, brought what a reduction of variable labor cost, which is -- I don't want to say automatic. But of course, if you are cutting down production capacity, the first labor cost that you are going to decrease is what direct labor because, of course, you have less machinery, which is working. And this was particularly strong during 2024. Last year in 2025, our focus was on reducing what indirect and fixed labor cost. So for us, labor and fixed labor costs are 2 different concepts, particularly in Europe because of the local labor market, which is allowing in case of lower market demand to recover, let's say, with automatic systems, the less working hours that you have performed during the period. So last year, as you know, we have got a very strong action in containing and reducing fixed labor, so indirect personnel. We gave a number of reduction of more than 100 person, which, as you can understand, is a lot of money. And this is what we are seeing during 2026 that this recovery is giving us what even in presence of volumes that are not growing as expected or let's say, not growing, we have, of course, a margin that has returned this action. How much we can still work. What we are currently doing is now pursuing more investments on automation and energy saving. So these are 2 very important cost factors that we are targeting as it was also in the original business plan, plus, of course, some new technologies that we are going to implement, particularly within the ECONYL perimeter. And as I said, during '26 and '27, the target, of course, without considering inflation is to reduce another EUR 8 million to EUR 10 million on a yearly basis.

Now we have a question from David Storms from Stonegate.

I wanted to ask my first one around North American market. Can you give us any more commentary on maybe what the pricing outlook is for there? And if there's any nuances into the price rationalization initiatives that you have in North America versus maybe some of your other markets?

Sorry, Dave, but your voice was not clear to me if you can repeat your question.

Of course, mostly around the North American markets. And what the outlook is there, maybe layering in price rationalization initiatives in North America for some of your other markets, if there's any nuances?

No. Well, in North America, I would say that the price adjustments are even faster than what normally happens in Europe or markets like Japan. Japan, as you can imagine, knowing Japanese people, they are very resilient and they are trying, of course, to resist to price increases. But in the case of Japan, you have 2 factors, which is not only raw materials, but also exchange rates that are impacting our marginality over there. So there is a continuous ongoing work with our Japanese customers to explain to them that, unfortunately, we have to increase prices. In North America, price adjustments are normally I mean, accepted by the customers and by the market. Of course, the dynamics may be faster or slower in terms of raw material price increases in that market depending upon the local demand. I must say that U.S.A. market is a little bit less affected by import dynamics in comparison, for example, of the European one, mainly because Chinese tariffs are impeding to Chinese players to operate, for example, selling nylon polymers to United States. In Europe, the story is completely different. So no, let's say, major issues. We have a major customer in U.S., which goes and is managed by long-term contractual pricing. And in this case, the price adjustment has taken place within July. So in the month of July, we have recovered, let's say, half of the price increase because if during the month, you are recovering it, you're not fully recovering in during the month of July. But let's say, from August for this very important American customer, all the raw material price increases will be incorporated in the new pricing.

Understood. I wanted to maybe touch into ECONYL. With volumes remaining fairly stable year-over-year, but margins increasing, how should we think about the of those margin increases between the cost takeouts that you've implemented over the last year compared to maybe the increase in ECONYL as a percent of revenue year-over-year?

Well, last year, we have got a very strong performance with regard to ECONYL, even a little bit stronger than we expected. That's why maybe during the first semester of this year, we have not seen, let's say, a significant increase in our sales. But we have a lot of new projects that are coming and that are ongoing. For example, today, there has been an announcement by Arc'teryx brand, okay, for Textile nylon, but also other projects within the carpet and polymer business that are making us very confident to continue our trajectory of growing our ECONYL in percentage of our total revenues. And a lot of actions of cost reduction that we are implementing between this year and the next one are directed to continuously reducing ECONYL cost within our framework. For the lucky ones of you who are following my LinkedIn social, I have just made, let's say, an announcement about, let's say, the new research and development project that we are going to implement with our team during the next 24 months. So I'm encouraging you. I know that you have a lot of things to do. But if you follow us on LinkedIn and on social media, you can have also many more daily or, let's say, more frequent information than a quarterly declaration. For example, Dave, big energy savings that we are targeting in Slovenia next year okay? They are going for reducing largely natural gas consumption for the production and consumption of steam within ECONYL. When I say large, I'm talking of a lot of opportunities.

That's very helpful. And my understanding is that as gas prices and oil prices in the world go up, that just makes ECONYL more competitive. You mentioned that you are working to make ECONYL more cost competitive with some of the cost takeouts through R&D. With the cost takeouts overall, how should we think about the application of those between ECONYL and the net debt position and maybe any other initiatives that you would earmark those savings for?

Well, of course, the ultimate target is to make ECONYL as cost competitive or less expensive or less costly than petrochemical nylon. This is -- I mean, you don't need me to tell you this. I must say that recently, this, let's say, dream or this target has become even a little more challenging because the benchmark is changing from European caprolactam production supply. So European prices that European suppliers are disappearing, in fact, okay? So the new benchmark is to make ECONYL competitive vis-a-vis with Chinese caprolactam production cost, which, as you can understand, is setting the bar even higher. But I mean, we have good feelings. We have good possibilities. With some -- with automation, with better yields on waste with lower emissions with lower energy consumption. So we have a lot of things that are boiling in the pot that are making us quite confident to continue this trend of cost reduction, which has been quite important during the last 18 to 24 months.

Now we have a question from Vincenzo Antonio Di Buono from Banca Akros.

Can you hear me?

Yes, we can.

Okay. First question is about volume. Could you provide some color on the volume trends you are currently seeing across different geography, in particular, regarding North America? And second question is about ECONYL. I mean you spoke before. But I mean, given the recent increase in caprolactam prices, have you -- so have you noticed an increase in customer demand for ECONYL products or an improvement in the competitive positioning compared with conventional nylon.

Volumes by geography, let's say that what we are seeing currently also during the third quarter is, let's say, a stability of the first semester with regard to North America and to Asia Pacific. So the volumes over there and the market demand seems to be quite resilient. So we are not seeing any, let's say, particular problem over there. In Europe, it is more a roller coaster, which it has also happened during the second quarter of 2026. On top of that, they are all on holidays. So it is still -- we need a couple of weeks to have, what can I say, a more serious feeling about the market demand. Of course, there is a big uncertainty. This is no doubt, and you don't need me to tell you, I believe that in every business, we are experiencing this kind of problem. So -- but nevertheless, I mean, the third quarter is still pretty in line with our forecast. So we are not seeing anything particularly strange or different. What is going to happen from September -- and I would say, when I say September, I speak about order intake. So September, we know more or less what is going to be. Of course, what is going to be in October and November and December will depend by the order entry of September and October. And this is something that is very important with still particularly for the European market. Demand of ECONYL. The demand of ECONYL has been resilient and still there is a lot of interest by the market for developing ECONYL products. Today, we have available capacity. So we are very, can I say, active in promoting new product development for ECONYL in the different business applications where Aquafil is acting. So carpet, textile and polymer and engineering polymer business. And of course, we are still seeing a lot of interest by the market. So we have still a lot of confidence that with ECONYL and particularly, of course, if you are making it more cost competitive, the possibility of growing this business area is still quite big for us.

The next question comes from Pietro Nargi from Intermonte SIM.

Could you hear me?

Yes, we can.

Just a quick question on the net debt. So net debt has been trending in the right direction and the leverage appears to be moving back towards a more sustainable level. Assuming the deleveraging plan continues as expected during H2, how should we think about capital allocation in 2027? Could this create room for CapEx to return to a more normalized level?

Thank you for this question, which is quite interesting, and it deserves a little bit of more color, if I may. Last year, the debt reduction has been a little lower than what we were expecting, mainly because we have gone through 2 major changes. One change was change of European supplier for caprolactam from, let's say, more traditionally historical one to a newer one, which was more competitive, but on the other side, with shorter payment terms. And this has created a cash absorption, particularly during the first semester of 2025. Then because of the, how can you say, infrastructural crisis of the chemical business in Europe, we have, during the second semester of last year and during the first semester of this year, increased largely the purchasing of raw material from import means from overseas, which means, of course, longer transit times. So again, cash absorption that is impacting our net financial position. Last but not least, ECONYL growth. Also, when we are growing our ECONYL product lines, the, let's say, cash necessity for developing ECONYL products since we start from purchasing of waste, again, which comes from overseas, it is higher than the one that was historically for Aquafil depending upon local caprolactam suppliers with longer payment terms. That being said, I will stop with this historical explanation. This trend has been almost finished. in the sense that now we have full flexibility for even living and living well without any European supplier. The European purchasing of raw material is now quite limited. So the eventual higher cash absorption for transformation of purchasing from local to overseas, it is not significant. It means that from now on, you can finally or you should finally see a better correlation between EBITDA, cash flow and reduction of the net debt. Good news. Second good news, of course, if the trend continues, it will open possibilities either for increasing capital expenditures. But of course, if we have no significant growth eventually, we can dedicate more capital expenditures to improving and having a faster cost reduction, like, for example, anticipating automation projects, okay, which is still part of our business plan or eventually in the near future to look for external growth like acquisitions or consolidation of our industry. So these are, of course, possibilities that are opening up, maybe not during 2026, but from 2027 that are, of course, interesting for returning to see the company growing, which is the last piece of the puzzle that we are targeting, of course, better margins, lower debt growth.

[Operator Instructions] We have a question from Tommaso Nieddu from Kepler Cheuvreux.

I have just one. And the question is on the demand visibility, as you described, difficult to predict given geopolitical instability, yet you are confirming full year targets. So my question is, is guidance confidence really a cost pricing execution call rather than a demand call at this point or better? Could volumes surprise negatively and guidance still be met on cost and price alone?

Well, of course, cost reduction activity, which has taken place and still taking place is giving us confidence to keep, let's say, our margins healthy. And this, of course, gives us confidence to continue the trend trajectory which we have started from 2024, 2025 and the first semester of 2026. I would be surprised if there were big negative, let's say, news from the market demand. We are a little cautious in, let's say, forecasting growth. We are more, let's say, considering a scenario of stability, okay? Of course, we don't see why the overseas markets should enter into, let's say, problems. I repeat, the uncertainty is more for the European market, which is now having a lot of negative influences from the war between Russia and Ukraine, the crisis of the Middle East, which is also creating lack of certain raw materials other than traditional ones for our industry. And of course, let's say, inflation, which is still a factor, which we can't forget. For example, if you have to buy something which has electronics inside, as you very well know, because of the incredible growth of the investments in the data centers and artificial intelligence, all the costs are on the rise. So I would be surprised, honestly speaking, I'm not expecting, let's say, big or tragical problems from the market demand. Of course, we are a little bit cautious because here, I must say we are seeing month super strong and the second month, super weak. So yes, it's still there. But of course, it is something which is unprecedented that we have never seen so far.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

As always, I thank you for attending our first semester of 2026. I thank you also for all the questions that you have asked. And I wish you a good rest of the day. And if you have any questions, please contact Giulia Rossi, and she will come back to you with all the explanations that you are looking for.

Thank you.