Aquafil Spa

Ladies and gentlemen, welcome to Aquafil Group 2026 H1 results presentation. For the first part of the conference call, the participants will be in listen-only mode. During the question-and-answer session, participants are able to ask questions by dialing the pound key, then five on their telephone keypad, or by clicking on the green hand button on the web player. Now, I will hand the conference over to Julia Rossi, investor relator. Please go ahead.

Thank you, operators.

Good evening, everyone, and welcome to Aquafil Investor Conference Call. Today, we will update you on companies' 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 risk 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 Bonatti 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 six 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 years. 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 Econil branded products. These results were achieved in a global macroeconomic context still marked by strong instability and impacted by ongoing geopolitical conflicts. This situation continues to drive cost increases for raw materials and transportation, which are largely being 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.

If you wish to ask a question, you may do so by clicking on the green hand button on the player to ask your question orally. Or, if you are connected by conference call, Please dial pound key 5 to speak. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. We have a first question from Robert Bloom from Nissan Partners. Please go ahead. Yes, we can, sir.

Okay, wonderful. Yeah, thanks so much for the opportunity to ask the question here. 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. Thank you, Robert.

Apophyll normally has a lag of three 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 the 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 businesses. 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 six-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 two-season rule. So there is spring season, 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 tale 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, now 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 US dollars. So not one or two, but even a little bit more. That's why we say that even if apparently our results may seem a little lower than the expectations, in reality, the financial performance has been even higher than the original expectations. performance. So now, starting from the third quarter, we should see a further increase in the marginality with recovery between the third and the fourth quarter of the margins losses 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. Thank you for that. 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, they 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 the batching 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. This was particularly strong during 2024. Last year, in 2025, our focus was on reducing what? Indirect and fixed labor costs. So for us, labor and fixed labor costs are two 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 labor 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 persons, 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, say, not growing, we have, of course, a margin that has, you know, returned this action. How much we can still work? What we are currently doing is now pursuing more investments on automation and energy savings. So these are two 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 Econil perimeter. And as I said, during 26 and 27, the target, of course, without considering inflation is to reduce another 8 to 10 million euros on a yearly basis.

All right, very good. Thank you very much for the opportunity to ask a question. You're welcome.

Now we have a question from Dave from . Please go ahead.

Hello, and thank you for your questions. I wanted to ask my first one about 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 they 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 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 it normally what normally happens in in Europe or markets like Japan you know Japan as you can imagine knowing Japanese people, they are very resilient. And they are trying, of course, to resist the price increase. But in the case of Japan, you have two factors, which is not only raw materials, but also exchange rates that are impacting our marginality over there. So, you know, there is a continuous ongoing work with our Japanese customers to explain to them that, unfortunately, we have increased 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 USA 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 iron polymers to the United States. In Europe, the story is completely different. So, no, let's say, major issues. We have a major customer in the 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 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. Thank you. Wanted to make a question to Econo. With volumes remaining fairly stable year over year of margins increasing, how should we think about the, of those margin increases between the cost of the accounts that you've implemented over the last year compared to maybe the increase in ECO as a percent of revenue year over year?

Well, last year we have got a very strong performance with regard to ECO, 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 Arcteryx brand, okay, for textile nylon. But also other projects within the carpet and ornament business that are making us very confident to continue our trajectory of growing our economy in percentage of our total revenues. a lot of actions of cost reduction that we are implementing between this year and the next one are directed to continuously reducing e-conil cost within our framework. For the lucky ones of you who are following my LinkedIn social, I've just made, let's say, an announcement about, let's say, the new research and development platform 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, the bigger energy savings that we are targeting in Slovenia next year, they are going for reducing largely natural gas consumption for the production and consumption of steam within economy. When I say large, I'm talking a lot of opportunities.

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

Well, of course, the ultimate target is to make Econil as cost competitive or less expensive or less costly than petrochemical nylon.

You don't need me to tell you this.

I must say that recently these let's say dream or this target has become even a little more challenging because the benchmark is changing from European capitalism production supply so European prices that you know European suppliers are disappearing in fact okay so the new benchmark is to make economies competitively with Chinese capital action production costs, which, as you can understand, is setting the bar even higher. But, I mean, we have good feelings. We have good possibilities with automation, with better deals on waste, with lower emissions, with lower energy consumption. So we have a lot of things that are boiling in the pot, you know, that are making us quite confident to continue this trend of cost reduction, you know, which has been quite important during the last 18 to 24 months.

This is very helpful. Thank you for taking my questions, and good luck in the next quarter. My pleasure.

Now we have a question from Vincenzo Antonio de Bono from Banca Acros. Please go ahead.

Hi, good evening. 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, and in particular regarding North America? The second question is about Eikonil. Given the recent increase in caprolactam prices, have you noticed an increase in customer demand for Eikonil products or an improvement in their competitive positioning compared with conventional nylon? Thank you.

Volumes by geography, let's say that what we are seeing currently also during the third quarter is the 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, you know, it has also happened during the second quarter of 2026. On top of that, they are all on holidays. So it is still, you know, we need a couple of weeks to have a, how 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 you know 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 you know 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 you know this is something that is very important we feel particularly for the European market demand of Econil the demand of Econil has been resilient and still there is a lot of interest by the market for developing Econil products today we have available capacity. So we are very, can I say, active in promoting, you know, new product development for Econil in the different business applications where Aquafil is active. 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 Econis 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.

Okay, thank you.

You are welcome, Ingenious.

The next question comes from Pietro Nassi from Intermentissim. Please go ahead.

Hello. Could you hear me?

Yes, we can.

Okay. Thank you. Good afternoon. Just a quick question on the NetDepth. So NetDepth has been trending in the right direction, and the leverage appears to be moving back towards a more sustainable level. Assuming the leveraging 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.

Thank you for this question, which is quite interesting, and it deserves a little bit of more thought, if I may. Last year, the debt reduction has been a little lower than what we were expecting, mainly because we have gone through two major changes. One change was change of European supplier for Caprolactam, from the more traditional historical one to a newer one, which was more competitive, but on the other side with shorter payment terms. And this has increased 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 imports. 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, economy growth. Also, when we are growing our economy product lines, the, let's say, cash necessity for developing economy products, since we start from purchasing of waste products 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, you know, historical explanation. This trend has been almost finished, in the sense that now we have full flexibility for even leading and living wealth 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, 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 grow, which is the last piece of the puzzle that we are targeting. Of course, better margins, lower debt, growth. Okay, thank you.

As a reminder, if you wish to ask a question, you may do so by clicking on the green hand button on the player to ask your question online. Or, if you are connected by conference call, please dial the pound key 5 to speak. We have a question from Tomas and Nielsen from Kepler Showroom. Please go ahead.

Hi, thank you a lot for taking my questions. 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 volume should price negatively and guidance still be met on cost and price alone? Thank you.

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 and trajectory which we have started from 2024-2025. and the first semester of 2026. I would be surprised if there were big negative use from the market demand. We are a little cautious in the 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 problems lack of certain raw materials other than traditional ones for our industry and of course 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 big or tragical problems from the market demand. Of course, you know, we are a little bit cautious because here, I must say, we are seeing one month super strong and the second one super weak. So, yeah, it's still there, you know, but of course, you know, it is... Something which is unprecedented that we have never seen so far.

Okay, thank you a lot.

Most welcome.

There are no more questions at this time, so I'll 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.