Vantiva (Euronext:VANTI) Q2 2026 Earnings Call

0:00 Ladies and gentlemen, welcome to Vantiva First Half twenty twenty six Results Conference Call shared by Tim Oloflin, CEO and Lars Ihlen, CFO. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Just to remind you all, this conference is being recorded. We'd like to inform you that this event is also available live on Vantiva's website and with synchronized slideshow. During this conference call, statements could be made that constitute forward looking statements based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the future results expressed, forecast or implied by such forward looking statements.

1:00 For a more complete list and description of such risks and uncertainties, refer to Vantiva's filing with the French authority, De Marche Financier. I would like to hand over the call to Tim. Tim, please go ahead. Thanks, Thierry. Good day, everyone. Welcome to our first half twenty twenty six results presentation. I'll move to Slide number four. Let me start with the key highlights of the first half. One of our major achievements of the first half was the successful extension of our debt maturities completed at the end of the period. This is a really positive step in our recovery journey and will help reduce our financing costs on a go forward basis.

1:48 On the business front, Q2 unfortunately continued some of the negative trends that we saw in Q1. Our performance was impacted by supply volatility and some pronounced unfavorable phasing within the year. Our broadband activity was almost flat at actual exchange rates, but the demand for the video products continued to decline. Despite all of that pressure on the top line, our EBITDA margin remained resilient at 5.8%, which was nice to see. Another positive achievement from this period was generating free cash flow despite the lower EBITDA and reduced support from working capital, we were able maintain some positive free cash flow.

2:40 Looking ahead to the second half, I'm anticipating stronger activity supported by a catch up in demand due to that aforementioned phasing issue. However, the second half remains dependent on component availability and it is quite a volatile environment from a component standpoint. Everyone knows and is familiar with the memory issue, for example. Regardless, we're confirming our guidance of positive free cash flow for the full year. Before I conclude this section, I would inform you that the general meeting will be held. We will hold an extraordinary general meeting in September 2026 to authorize the transfer of the company's listing from Euronext to Euronext Growth.

3:36 We also had intended to have an authorization of a convertible bond issuance at that meeting. We are here announcing that we will delay the board vote and the subsequent shareholder vote of that convertible bond until 2027. If we move next to slide number five, take a look at a couple of key financial figures. Revenue decreased by 14.7% to EUR734 million during the first half of the year. This decline was primarily driven by ongoing market weakness and unfavorable foreign exchange movements. If you look at it from a constant exchange rate standpoint, revenue declined by 8.9% year over year.

4:31 Despite the pressure on revenue, EBITDA remained solid at EUR43 million reflecting the benefits of the implemented reorganization measures and the enhanced operational flexibility achieved across the group. While affected by lower volumes and reduced working capital support, free cash flow remained positive at EUR30 million compared with EUR95 million during the first half of twenty twenty five. If we now move to Slide number six, Q2 performance remained broadly consistent with the trend observed in Q1. Broadband activity was largely stable in the first half, declining slightly on a reported basis, but growing modestly at constant exchange rates and it was supported by strong demand in North America versus Eurasia.

5:30 In video, demand continued to decline significantly, a trend that was exacerbated even more so by temporary component supply constraints. Revenue was also impacted by unfavorable phasing, which we expect to reverse in the second half, supporting a stronger level of activity in H2. If we move to Slide number seven, as mentioned in my opening remarks, we're confirming our guidance for positive free cash flow for the full year. I'll now hand over to Lars, who will present the detailed accounts. Thank you very much, Tim. And over the next few slides, I will walk you through the H1 results in a bit more details.

6:18 So as Tim just mentioned, revenue decreased by EUR 127,000,000 to EUR $734,000,000 this year, and the impact of lower volumes and mix brought EBITDA down from €66,000,000 last year to €43,000,000 this year. This represents 5.8% total sales, a decline of 177 basis points versus last year. After deducting depreciations of $26,000,000 EBITDA stands at $17,000,000 for the semester and reduction of $18,000,000 from last year. PPA amortizations is roughly in line with last year's figures, but we see a significant EUR 40,000,000 improvement in non recurring items. This is mainly driven by lower restructuring reserves as we are now reaching the end of our targeted cost optimization program.

7:09 This leaves us with a positive EBIT of €2,000,000 an improvement of €20,000,000 from last year. After deducting interest and tax, the net result for continuing operations was negative €66,000,000 an improvement of €12,000,000 from last year. And including the discontinued activities, the full group result improved by €227,000,000 to a negative €68,000,000 The remaining table on this slide details the components of the free cash flow, which I will cover in more details on Page 11. Page nine set out the components of non recurring items between EBITA and EBIT, which as mentioned earlier is mainly explained by the reduction of restructuring costs. Page 10 sets out the bridge from EBIT to the group's net result.

7:58 And net interest was in line with last year's figure, but other financial expenses increased by SEK11 million to SEK28 million, which is entirely linked to the accounting impacts from the refinancing. So as we were recognizing the new debt, we had roughly SEK28 million of additional costs recognized just for this operation. Taxes decreased by 5,000,000 year over year. On page 11, you can see the variance in free cash flow versus H1 last year. As noted earlier, EBITDA was down by SEK23 million year over year, due to lower activity, partly offset by SEK7 million lower CapEx and SEK6 million lower restructuring payments. Working capital contributed a positive SEK57 million variation in the period versus a positive SEK180 million in the last period, resulting in a SEK61 million negative variance year over year.

8:54 Pension payments decreased by nearly €5,000,000 while financial payments decreased by €7,000,000 Cash tax payments increased by €6,000,000 mainly due to the tax refund we received in the same period last year. Together, these movements bring us to a free cash flow of 30,000,000 for the first half. On Page 12, you can see the liquidity and debt position at the end of the period. So we ended the period with €21,000,000 in cash on hand, and our Wells Fargo credit facility had additional availability of €6,000,000 giving us a total liquidity of €27,000,000 The net debt including operating leases ended at €536,000,000 an increase of €28,000,000 since the beginning of the year.

9:42 This concludes my presentation and we will now open the floor for questions. Okay, thank you, Lars. The first question is from David Sardan from Kepler. Please go ahead, sir. Yes. Good afternoon. I have a few questions. My first one is regarding the decline in the revenues. So part is related to something that could be, I would say, resolved soon. So maybe if the environment was normal, what kind of revenues or trend you were expecting?

10:33 Secondly, do you think that the catch up effect will be very visible in H2? And the last one is regarding the free cash flow. If I'm correct, Q yes, H1 was at plus EUR 30,000,000, so it's positive. And so in other words, how do you explain this number? And do you think that at the end, in H2, you should consume some cash or not? Thanks, David, for those questions. I think Lars, I'll let you handle free cash flow and I'll try to handle the year over year revenue decline and the resulting catch up that we're envisioning here.

11:31 I think, David, there are some exceptional things happening in the market today related to components and supply. We did have a significant push out due to some memory supply issues with one of our customers in Asia that had some impact on our results there. We think we catch up on that in the second half. There's definitely a North American broadband phasing impact in the numbers where we see much stronger broadband demand in the second half of the year versus the first half of the year. So I think we will we are projecting and seeing a stronger broadband second half for the year. That's really been expected from a phasing standpoint throughout most of the year here.

12:31 Really TBD on what revenue might have looked like without supply constraints. They're impacting all the electronics industry and automotive and enterprise information technology. Everyone's been impacted by the component constraints. I think we'll continue to monitor the market and see where top line revenue lands for the second half. But through good management and prudence, we should be able to maintain positive free cash flow. Lars, do you want to tackle the $30,000,000 free cash flow question? Yes, of course, Tim. And thanks for the question, David. So as you see, yes, we managed to generate $30,000,000 of free cash flow despite the lower revenues and EBITDA. And that's mainly coming from the improvement in our working capital situation of 57,000,000, right? So this is not something we expect will happen again in the second half, but we are seeing reductions in the restructuring costs as I mentioned. So we expect them to continue to be less impactful in the second half of the year.

13:44 And also as you were mentioning a bit higher activity, so EBITDA and the contribution from that should increase in the second part of the year. So even if you don't know we will have a strong working capital variation as we had in the second in the first semester, we are quite confident that we can guide to a free cash flow by the end of the year. David, is that okay? Oh, yeah. Sorry, sorry. Yes, yes. Thank you. Okay, so let's move to next question, please. The next question is a follow-up of David Sardan from Kepler. Please go ahead, sir.

14:48 Yes. Very quickly, regarding your liquidity. So do you think that this is enough for, I would say, Q3? And if not, what is the alternative regarding the liquidity, which was, if I'm correct, €21,000,000? Yep. So no doubt liquidity is a bit tight these days. We are expecting to see improvements in the second semester of this year. We should have more availability on our Wells Fargo facility after refinancing. So that's something we will see. And we will also see better liquidity from higher activity. So it is a bit tight in at the end of Q2, but we expect this to improve to into the second half of the year.

15:45 Okay. And, just regarding the pricing of your products, if I'm right, I say, there's an inflation in many cost. So do you think that you will be capable to pass through this cost inflation to your client? Are you protected because of the nature of a contract or anything like that? And at the end, if there is an inflation in term of production costs, this should also support maybe a return to a positive organic growth, thanks to a pricing effect. Do you think that it could be a credible scenario? I'll take those questions.

16:32 And thank you, David. Appreciate that. They're very, very timely questions. Obviously, unable to release anything specific about any of our customer contracts and relationships. We do think, though, that the situation today in the market with many of our clients is a situation where pass through of some of these extreme cost increases will become the norm in the market and will be quite necessary. There is extreme appreciation that can potentially exceed the margin profile of our industry in some of these component categories.

17:19 And we've seen within our space and within the related spaces even in the mobile phone space from very well known players that people are passing through these inflated costs through the ecosystem. So I think there's good collaboration and cooperation from our valued customers, and we're working through with them trying to find the exact balance that is necessary for the rest of this year and into 2027 as we see the costs shifting.

18:06 The second part of your question is about these rising costs and if it will have a positive impact on our results. You know our guidance, positive free cash flow for the second half of this year and the retraction of any guidance on top line. I do think next year in 2027, we'll have to get a little bit closer to see what the balance is of overall service provider CapEx budget and spending relative to the ultimate cost increases that we see from the suppliers and from all of our partners in the supply chain.

18:57 I think you could tell a bull or a bear story on 2027, depending on those two dials that will get turned CapEx spending from operators related to their tolerance for the increasing costs in the marketplace and all of that will start to reveal itself, I believe over the second half of 2026 as we look out into 2027. Thanks. Great question. Okay. And just a rapid question regarding the your relationship with your supplier. Are you do you think that some some players do not have this kind of program, or is it roughly the same program from everyone?

19:49 We believe that everyone in the space, from the largest mobile phone suppliers to the smallest consumer premise equipment OEMs and everyone in between, everyone is seeing appreciation of these components. You can track the memory prices on the DRAM exchange, for example, and we're often in the spot market checking prices relative to the strategic deals that we have with our really valued memory partners, for example. And there's just appreciation across the board, and it's hard to imagine that any player is immune to the current market appreciation of pricing and also the allocation and scarcity that is occurring right now.

20:45 Okay, it's very clear. Thank you. Yep. Thank you, David. Next question in line if any, please. The next question is a follow-up of David Sirden from Kepler. Please go ahead, sir. Yes. Sorry, I didn't have a lot of time to read the press release because you know that this is a very busy period for equity analyst. But just a rapid question regarding the restructuring charge.

21:34 If I'm correct, lower in the P and L than in the cash flow. Is it normal? And what can we expect in terms of P and L and free cash flow for the restructuring charge this year? Yes. So it is normal, David, because some of the restructuring plans we have set up is lasting for more than one year. So they had a P and L impact last year, and we are still having some of the cash impact of that this year. So this explains why there is a mismatch there. But the good news is that the less we set up, of course, the less the future payments will be as well. So we are expecting the restructuring cash out to continue to go down this year, and we expect that to reach a low level in 2027.

22:25 So we will wrap up all of the plans in 2027 before we are back to a completely normal level by 2028. Okay. Thank you. There are no more questions registered at this time. So at this time, to close the call. I just want to thank you. Yes, a quick statement. I appreciate that. As always, I want to thank all of our employees, all of our customers, all of our stakeholders in the business.

23:16 It was a good half. Look forward to speaking with everyone again at the end of the second half to report our full year results. Thank you again for joining today's call.