PRINCES GROUP PLC (PRN) Q2 2026 Earnings Call Transcript

Good morning, everyone, and welcome to Princess Group's H1-2026 interim results presentation. My name is Benedetta Masturia, Investment Relations Director at Princess Group, and I'm joined today by Giuseppe Masturia, our interim CEO, and Fabio Fazzi, our Chief Financial Officer. Before we begin, I will ask you to please take a moment to read the disclaimer currently displayed on screen. Giuseppe will start with an overview of the first self-results before handing over to Fabio for the financial review. Giuseppe will then take you through our strategy and operational update and we will conclude with a Q&A. And with that I'll hand over to Giuseppe.

Thank you Benedetta. Good morning everyone and thank you for joining us today. As this is my first set of results as interim CEO, I would like to start with a few words on the business today and our priorities going forward. I've been closely involved with Princess since the acquisition in 2024 and most recently as Chief Commercial so I know the business, the customers and the operation very well. Over the last two years, Prince has made good progress. Profitability has improved, cash generation has proven strong and returns on capital have increased. From here, our priorities are really clear. First, margin discipline. We want to protect the progress already made on profitability and continue improving efficiency across the group. Second, sustainable organic growth. We want to grow with our customers, grow our brands and make better use of our manufacturing and sourcing capabilities we already have across the group. And third, M&A. We have a strong balance sheet and an active pipeline while we remain selective on strategic fit, valuation and returns. Across all three areas, the focus will be on execution and capital discipline. With that, let me move to the first half results. Looking at the first half, revenue was £999.4m, so at just under £1bn, H1 continued to reflect on portfolio optimisation and the timing of inflationary pass-through. Importantly, the revenue trend improved during Q2, with the group returning to year-on-year growth in this period. Adjusted EBITDA margin remained at 7.9% despite the input cost pressure experienced during the first half mainly due to the conflict in the middle east net profit was broadly stable at around 30 million pounds cash generation remained strong with free cash flow conversion above 100 percent and net cash increased to over 480 million pounds excluding ifr16 return on capital employed also improved further to 12.2 percent overall we consider this a good performance in the context of the cost environment during the first half. Looking beyond individual numbers, the underlying economics of the business have continued to improve. First, margin have improved materially from 5% in H1 2024 to 7.9% today, and we continue to target 9% over the medium term. Second, the business case generates strong cash with the free cash flow conversion above 100%. Third, return on capital continues to improve, with ROC now at 12.2%, more than three times the level of 2022. And finally, we have an active M&A pipeline and a strong balance sheet, which give us the capacity to invest in further growth while remaining disciplined on valuation and returns. So the investment case is based on a combination of improving margins, strong cash generation, higher returns, and the ability to reinvest that cash into further growth. We believe this gives Princes a strong base to continue to create shareholder value over time. Now, I will hand over to Fabio to discuss the financial performance for the period.

Good morning, everyone. Let me start the financial presentations by highlighting the inflationary environment we faced during the first half of the year, driven by the geopolitical uncertainty. What initially affected oil, sea freight and energy has now translated into volatility across a broader range of raw materials and packaging costs. With the first inflationary pass-through measures taking effect from July, the profitability reported for the first half, which remained broadly unchanged compared with the end of 2025, once again demonstrates the strong flexibility of our group as well as the continued delivery of synergies and efficiency initiatives. Based on our experience in managing previous inflationary period, we are confident that the pass-through will be completed over the coming months. Despite the broader uncertainty and cost volatility created by the inflationary environment, we continue to deliver strong profitability. Since 2024, following the acquisition of Princes by New Princes, the delivery of synergies and the implementation of our strategy across key areas such as procurement, operations and commercial, have enabled the company to achieve the highest level of profitability in its history. Today, we are in the positions to confirm our mid-term target of 9% EBDA margin. The trajectory toward the target may not be linear given the current environment, but our confidence in achieving it remains very strong. On the revenue side, the second quarter shows evidence of a broader improvement in performance across the group, Even excluding Plasmon, which was a good contributor to grow during the first half, the group delivered positive revenue growth with improvement across all divisions except drinks, which was impacted by reorganization and maintenance constraints. We would particularly like the good performance of the food and oil business. Phish reported lower revenue as a result of lower raw material price while underlying volume performance remained very strong. Princess Group continued to maintain a very strong balance sheet supported by robust cash generation. At the end of the first half the net cash position excluding IFRS 16 lease liability exceeded 480 million pounds contributing to a further strengthening of the group balance sheet profile. It is also important to highlight that 94% of our total asset value is represented by tangible assets including real estate, cash, inventories and receivable. The company remains very well capitalized with 1.1 billion of shareholder equity which unusually remain above the company current market capitalization. Discipline investments, continued operating profit delivery and strong cash flow generations continue to improve the return profile of our company. At the end of the first half, last 12 months' return on capital employed reached 12.2%, representing a further improvement compared with the level reported at the end of the fiscal year 2025. Underlying free cash flow generations remained very strong during the first half with a BDA to free cash flow conversion rate of more than 100%. This strong performance was supported by disciplined growth capex investment, attractive return on the cash available on our balance sheet and a further material improvement in the networking capital despite the increase in inventories. Our capital allocation priorities remain unchanged. M&A remains our primary area of focus for creating value for the shareholders, while in the short term we may also remain active through our share buyback program. On this basis, we are in the positions to confirm our mid-term guidance. We continue to target revenues in excess of 3 billion, including the potential contributions from M&A, and improvement in EBDA margin of 300 bps compared with the profitability reported at the end of 2024 and free cash flow conversion above 60%. I shall now hand over to Giuseppe for the strategy and operational update.

Thank you, Fabio. Let me now move to the operating and strategic priorities for the group. I will start with M&A and then come back to the existing business where we continue to see further opportunity. M&A is a key part of how we intend to reach our medium-term ambition of more than £3 billion of revenues. We have a very active pipeline, with more than 25 identified targets and 5 opportunities current at the more advanced stage. So we are actively working on opportunities that cannot scale, strengthen the group and support our growth across our core markets. At the same time, we will remain disciplined. We have already worked away from opportunities where the strategic fit, valuation of returns, were not right. And we will continue to do so. We are looking for businesses where we can create additional value through integration, operational improvement and synergies, with the target post-synergy return on invested capital above 15%. Our strong balance sheet gives us the capacity to act when the right opportunities arise. so M&A is an important part of this route to 3 billion plus revenue but the focus remain on doing the right deals at the right valuation. Coming back to the existing business, this is an area where we continue to see further opportunity. Q2 returned to year-on-year revenue growth which was an encouraging improvement in the trend. Our direction is clear, we want to win in the UK, grow in Europe and expand in the rest of the world. To support the growth, we are focusing on the organization on three areas, integration, simplification and cost optimization. On integration, we want to use our manufacturing footprint, brands, sourcing capabilities and customer relationship more effectively across the group. On simplification, the focus is on clearer responsibilities and faster decision-making And on cost, we will continue to challenge how and where we spend while protecting quality and service. In Princess, we have already a significant manufacturing platform, and we believe there is still a lot of value to unlock. We see clear opportunities to grow, both in our core market and internationally, using brands, manufacturing capabilities, and customer relationships that we already have across the group. Customers have always been in the center of our business and strong customer relationships remain one of Prince's key strengths. We are continuing to build on that foundation by making our customer plans more consistent across the group with regular reviews and clearer priorities. We are also refining our customer segmentation so that we can focus on resources on the areas where we see the greatest opportunities. The aim is to improve the way we already work with customers – faster decision, better coordination across the group and a clearer focus on the right opportunity. Ultimately, we want to continue growing with our customers while maintaining discipline on margins and returns. For us, sustainable growth means building strong existing relationship and improving the quality of the business we do over time. The same discipline is important in managing inflation. Depending on category and contract, we use a range of mechanisms including pricing windows, open book models, agreed indices and seasonal negotiation. This allows us to recover inflation in a structured way while maintaining constructive long-term customer relationship. The first significant pass-through became effective in July, so the financial benefit will mainly come through H2. We will continue to manage both pricing and customer relationship We are also seeing this approach translate into new business. In the UK, we have secured new customer home-brand contracts and a number of multi-year agreements with the major retailers. One of the strengths of Princess is the range of capabilities that we can bring to the final customer. We combine product development, a large UK manufacturing footprint, global sourcing and supply chain expertise. This allows us to offer customers a broader proposition than simply supplying an individual category of product. We believe there is a further opportunity to use these capabilities to deepen customer relationship and secure additional business over time. We are seeing good commercial momentum across the whole portfolio. In the UK, for example, we have gained additional distribution across a number of our key brands. Across Europe, we are seeing good progress in markets such as France, the Netherlands and Poland, with new business and wider distribution across a number of categories. What is encouraging is that the progress is broad-based across different markets and across both brands and customer-owned brands. We see further opportunities to build on this momentum and support more consistent growth across the group. Italy is a good example of how we can use the wider group to create new growth opportunities. We launched 11 Princess Tuna SQs across 1,000 Carrefour Italy and GS stores, supported by strong shopper marketing activities and e-store activation. The initial results have been very encouraging. In less than two months, sales reached around 1.2 million euro and Princess Tuna already represents around 25% of the total tuna sales across our stores. The product has also been particularly well received for its quality. We combine the princess brand and product capability with route to market infrastructure already available within the wider group. This is a good example of integration in practice and we believe there are further opportunities to apply the same approach across other brands and markets. Brands remain an important part of our organic growth strategy. Going forward, we want to be more focused in where we invest, with particular attention on our key power brands, Princess, Napolina and Branston in the UK, Plasmon in Italy and Delverde in both Italy and Germany. These are brands where we see clear opportunities to grow through innovation, stronger distribution and targeted investment. We are already seeing positive results from innovation across the portfolio and we have a good pipeline going into h2 our approach is to focus investment where we see the clearest commercial opportunity and where we believe we can generate sustainable growth and attractive returns so to conclude we will continue delivering our strategy supported by integration simplification and cost optimization h1 gives us a solid base margins have remained resilient. Cash generation is strong, giving us significant flexibility. We see further opportunity in the existing business across customer, brands, our manufacturing footprint and international market. And M&A remains an important part of our growth. As we work towards our medium-term ambition of more than £3 billion of revenues, the priority now is execution. The management team and I are fully committed to delivering the plan continuing to improve the business and creating sustainable value for our shareholders our medium-term guidance remains unchanged so thank you and we're happy to take your questions thank you very much we'll take our questions from the conference call first if you'd like to ask a question over the phone please press star one and we'll come to you we'll just hold for a moment as there are no questions over the conference call i'll go to questions from the webcast

And our first question comes from Callum Elliott from Bernstein. Please can you give us an update on your M&A initiatives?

So, Fabio, do you want to take this one? Sorry.

Yes, I can give a brief update on the M&A. We continue to be involved in several opportunities. In particular, we are well in advance in two important deals, one in France and another in Portugal, covering important sectors for us like fish and like bakery. we we are involved in the latest step of the of the negotiations of the several different documents that these acquisitions include and we are confident that in in the coming weeks we can so try to find a conclusion of this potential bill yeah thank you very much and our next question

is also from Callum. Fabio, a big step up in the DNA, up to 4.2% of sales in H1 versus 3.4% in H1 last year, and 3.7% in H2 last year. Can you explain what's driven the step up, please? Should we think about 4.2% as being the right run rate for DNA going forward?

But not a particular difference in terms of the general impact on the P&L. It's clear that, as you remember last year, we made some new investments, especially in the Foggia plant, in which we complete the structure to be able to produce also ready sources, for example. So we made the important investments there also in other plans and on top of the investments that we made last year that now need to be depreciated year by year we have since the beginning of the year the impact of the operating asset lease of plasmon and it's clear that also on the ifrs 16 inside there is a renegociation of a contract that could change month by month.

Thank you, Fabio. And a few other questions from Callum Elliott on trading momentum and organic growth. First one, do you have a number for organic or underlying sales growth in Q2, excluding FX and acquisitions?

And then second question, can you quantify the improvement that you saw in q2 relative to q1 and the third one is there anything you can share about how this trading momentum has involved in july and august now that you priced your price increases are in place okay so i'll take this one so for question number one we have not disclosed a specific organic growth number what i would like to highlight is that excluding plasma on the underlying trend is improved significantly in q2 despite we had the deflation in olive oil and semolina volumes grew in the quarter supporting a stronger a real strong underlying performance on the question number two in terms of quantification of new improvement we are not providing a specific quarterly organic bridge, what we have disclosed is that Q2 return to growth with reported sales up to 2.4 percent year on year. So the improvement versus Q1 was significant with a materially strong underlying trading trend through the quarter. And concerning the trading momentum, how it's evolved in July and August, what I can say is that we implemented a broad range of initiatives across pricing customer innovation and operation with pricing action effective from july of course there is a phasing uh they they started in july and they will phase through the the the whole h2 it also has been an unusual trading period with the heat wave and continue inflationary cost pressure affecting trading patterns so despite that were encouraged by the underlying momentum into h2 although reported growth continue to reflect the impact of portfolio rationalization thank you very much giuseppe and our next question comes from robert van de heiden when will the buyback start so we have a plan to start the buyback soon and we will inform the market accordingly to our plan of buyback.

Thank you. Follow up from Callum. Fabio, you've consistently delivered over your 60% FCF conversion target and at 115% in H1, you are nearly double at the target.

Is the target too conservative or should we really be expecting a meaningful deterioration in conversion over the coming years no simply the target is something that could be considered on a recurring basis sustainable for the long run because if you consider what we achieve in the past years and also in the first half we still get in this first half of the year 38 million of contributions coming from networking capital. So the 60% conversion, it's something that excludes the additional potential contributions from the networking capital and is a pure focus on the operations of the company. So this means that we are not going to see a deterioration in the future, but our view and our expectations are to continue to deliver and to maintain this strong momentum in cash flow generation.

Thank you. The next question is from Matthew from BNP Paribas. How big do you think the opportunity to supply customer-owned brand to Car4Italia is over the coming years?

We already declared to the market that we see a potential opportunity. That is, if we consider the overall amount of product we can supply, we declare that it will be around 400 million in the long term. For the moment, we are increasing our sales year and year significantly. As I explained in my presentation, the first success has been, for example, Princess Tuna, where we launched 11 SKUs into the Italian market, a brand new product on the Italian market, but thanks to the support that we gave to the product, we reached 25% of the market share of the 1000 store of Carrefour. so it's really significant so we see a great opportunity I don't want to disclose any number at this moment but the opportunity can be really important Thank you

and another one for you Giuseppe the comments around potential cash return are very interesting two follow-ups questions on this please can you discuss how do you think about the trade-off between the unpredictability of M&A versus the suboptimal nature of having 50% of your market cap sitting in cash? And two, how do you think of the trade-off between dividends versus buybacks? At three times EV, EBTA, I would have expected a clear preference for buybacks. Is that the case or not?

Yeah, so I think it's a fair question. We don't want to keep a very large amount of cash on the balance sheet for too long. But at the same time, we are very active M&A pipeline and we want to retain sufficient flexibility. As you've seen, we have 25 identified targets, but five of them are really, so we are at really final stages. So we are also very disciplined. We are not going to do an acquisition simply because we have the cash. If we find the right opportunity, the right valuation and with the right returns, we will invest. If we cannot deploy the capital and attractive return, then we will look at returning excess cash to shareholders. On the dividend versus buyback, at this stage, we are not looking to establish a dividend policy. At the current valuation, we see share buybacks as a particularly attractive option. We would compare the return from buyback on our own shares with returns available through M&A.

Thank you. The next question comes from Marco Baccaglio from Kepler. When is Princess RTD going to be moved from new princess to princess?

This is in plan for before the end of the year, 2026.

Thank you. Next question comes from Jesus Argeis, Pastor. Is the plus 2.4% year-on-year growth in revenues in Q2 a LFL basis pro forma?

Sorry, I didn't understand.

Please, Fabi, if you can reply, if you get it, you can reply. Yeah, this is excluding Plasmon, that is the main contributor from the new perimeter.

Thank you. And a follow-up question from Matthew at BNP. Can you please outline your expectations for food price inflation in 2027?

So we are actively looking to 2020 to 2027 and of course that we see that inflation in food costs is continuing to to raise in some areas so we had we see energy and other cost coming through. So we are monitoring the whole scenario of cost where in some areas we see that inflation is still coming.

Thank you. And next question comes from Andrew Ford at Peel Hunt. Some good new business wins. Are you able to give us an idea of the size of these and are there any any of particular strategic note?

We are very happy with the opportunity that we found from our sales push that we are giving to the market. So there are, let's say, some contract win with big for what we call the the multiples in in the UK so some big contracting categories such as drinks and fish some phasing in 2026 some phasing in 2027 even in Italian so it's quite diversified but we are continuing to grow on the market in the different categories.

Thank you. Strong EBITDA in H1 given the inflationary environment and good to see prices coming through in July.

Can you take us through the building blocks of the expected margin improvement in H2, price recovery, cost energy, volumes? so of course going back to as the business is so large and diversified having this kind of blocks let's assume like this so that the inflation went through the phase in different areas by different customer and in different business areas so fish oil and so on and so on so we are we are not able to disclose a real precise business business per business block of inflation but what I can say is that we are really disciplined we continue to look daily on our cost of goods and our input of prices to the market to be sure that we don't lose any margin or that we really monitor with discipline the cost inflation that is coming through to be sure that we can deploy it to protect the princess margin

thank you a follow-up question should we expect that the controlling shareholder will tender shares in any buyback process or should we be expecting that the buyback will come straight from free float no the the buyback will be in particular focus on on the free float on the market at this price so the the main shareholder is keen to keep the shares because so the value it's it's very very cheap so the buyback will be focused on on the shares floating into the market thank you fabio next question comes from marco can we consider the 63 million improvement in receivables payables achieved in h1 as a one-off and how much of this was achieved through a change in the receivable factoring no i there is nothing particular important in terms of management of receivable the utilization substantially in the first half was very very small utilization of of factoring also compared to the past years what gave the material contribution was the payable management because especially in in germany and in italy we achieve a level of days of payable outstanding that are sometimes also above 100 days and this obviously versus the average level of the company create a good improvement of the networking capital this is the main driver thank you and two questions from benjamin billiard what drove the 18 million pounds q2 increase in lease liabilities and also did you increase receivable financing in h2 and q2 sorry h1 and q1 q2 no we didn't increase receivable finance in the in the first alpha and the increase in lease is related to mainly to the plasmon operating asset lease contract because it's a three years contract and we substantially included in our IFRS 16 lease liabilities the MPV of this contract.

Thank you. And final question from Filippo Piva at Kepler. From a management perspective, are you currently considering bringing in an external top manager to strengthen the market perception? On top of that, can you provide a trading update and are you seeing the inflation deteriorating the volumes and a normalized tax rate for the year? Should it be aligned with FY25? When should we expect some signing in the current year or the beginning of FY27?

So maybe starting from the bottom, some signing relating to the M&A. Yes, we expect to have this by the end of the year. This is our expectation. It's clear that differently than other actions that we can take is not everything in our hand, in the sense that we need, obviously, to wait also the timing of the counterpart, but this is substantially the plan. in terms of tax rate i think that on a conservative basis you can consider the reported level in fiscal year 25 as a as a good base on that and maybe i leave giuseppe for the other yeah so i think this the the the question

is related even to another question that is around from Callum that is in the interim CEO I think that the question around the management so what I want to highlight is that the process is ongoing and it's been managed by the board I'm part of that process but that ultimately ultimately the decision is for the board to make in the meantime we are I am and we are focused on running the business and delivering the plan from an operational perspective we are running the business with no interim mindset we are taking decision executing the strategy moving the business forward as much as we can thank you very much joseph and fabio there are no further questions from the webcast so i'll hand back to you for any closing remarks no what i want to highlight is that of course it's been it's been um i am appointed as interim ceo from first of july 2026. we see uh the uh it was it's been uh um not not easy due to inflation situation quite rapidly hit the business in some areas, but we were able to have a disciplined way of deploying the increase to the customer. Of course, what we need to expect is that you will face through H2 2026 in a way that will take some time. and as i said it's important to highlight that inflation didn't stop in that moment but we are really continuing to model to monitor how things are developing to be sure that we have the the right margin for the company what is our goal is then of course we are we are really focusing ourselves on the business but even on the M&A that is of course one of our one of the core of our business the opportunities are real and we see really occasion to to acquire business that are strategically fitting our our strategy and so we are really confident that that we will be able to identify the right targets and we are really working hard to close it as soon as possible.