Elopak ASA
OSE:ELO
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Ladies and gentlemen, welcome to the Q1 2023 earnings presentation for Elopak. My name is Mirza Koristovic, and I'm Head of Investor Relations. Today's presentation will be held by the CEO, Thomas Kormendi; and the CFO, Bent Axelsen. The presentation will last for approximately 25 minutes and is available on live webcast on our web page under the IR section. We will have a Q&A session after the presentation. There will be a possibility to ask questions live from the audience here at Hotel Continental in Oslo, and as well as from the audience following us on webcast through the chat function. So, with that, I leave the word to our CEO, Thomas Kormendi.
Thank you, Mirza, and good morning to everyone here in Oslo, and everyone listening in online in the webcast. We are presenting Q1. And before I do that, let me just start off by saying that I'm really, really happy to be standing here today. We are presenting a quarter on which has started on a year on a very, very strong note for us. We are seeing very good developments for the business financially, operationally across all our businesses and actually across all of our geographies. And on the note of geographies, just 2 words on Elopak. So, as you see here from the slide, we are the world's largest fresh carton liquid packaging company. And we do that in activities around 70 countries today with somewhat over EUR 1 billion in turnover. And with a suite of products, which is a very extensive suite on the fresh side and also roughly 25% of our revenue is generated now through the aseptic side of our business. The majority of our sales is generated through what we call EMEA, including India and an ever-growing part now, as you will see in the presentation, comes out of Americas. So, who are we? Well, we are in sustainable packaging. This is what we do. We are, in fact, committed and dedicated to carbon fiber only. And we're doing that by protecting essential commodities, reducing food waste and ensuring that essential commodities such as milk, but not only milk will reach consumers around the world and provide the needed nutrition to consumers around the world. So, what about the performance then on Q1. As I said, we have started the year on a strong note. We are looking at record high revenues, EUR 283 million, which is up by 26% or 16% actually organic growth. Meanwhile, we also see a very solid EBITDA level of EUR 41 million, which is up by EUR 16 million versus same quarter a year ago and which then represents somewhere around 14.5% EBITDA margin. Our business development in our growth is very much driven by our new business our growth in the existing business, but smaller businesses such as India growing at a very solid pace and delivering fantastic results in -- frankly, in a record time. Americas where we have been present for years, but where we have a new strategy in place and where the strategy clearly is delivering the results after numerous quarters of strong growth, but also EMEA with solid delivery in the UHC, the aseptic business growing nicely and also a number of innovations within the fresh business, which are currently being installed and used around the market. We are, of course, also experiencing like any other company in the world. solid and strong inflationary pressures in our industry. We have input costs, which have been going up and which we will impact the remainder of this -- of the EBITDA in 2023. However, we remain absolutely optimistic, optimistic on the longer-term fundamentals even though we still believe that the environment around us is volatile, and we need to take that into consideration. So, a little bit on the development. So, as I said, record high revenue, EUR 58 million growth. If we just take the organic part of the growth, it's EUR 36 million or 16% growth driven primarily by volumes in Americas by our business in the new business and, of course, also pricing initiatives that we have been forced to take during this year as well as last year, in fact. We see that after a somewhat slow start in Q1, volumes are recovering and volumes are picking up across all parts of the business. While we also see, of course, as I mentioned before, that the input costs in the industry and the inflationary pressures and salaries, et cetera, also remain quite strong. During this quarter, we did have, which is very important to highlight, we did get some tailwind from inventory of Board, which we -- where we are experiencing and are implementing a -- we have a cost increase of both of this year but managed to get the inventory turn of last year, and hence, that had a certain impact on the EBITDA for this year. More about that later. Overall, we can say profitability was absolutely at a satisfactory level. Now let's look at the 2 regions we report, EMEA, which you recall consists of Europe, Middle East, Africa and India. Here, we looked -- we saw a EUR 39 million or 22% growth organically, EUR 21 million equal to 12% growth in the market. And this was on the back of aseptic growth, mainly in milk UHG and also where we also placed in currently new filling machines and also placing our new platform, the EMP system. We also have seen in the quarter, solid growth of Roll-Fed, mainly in the former Eastern European countries, where the business growth is supplied through our factories in Europe, both in [ Ahus ], and also in Ukraine positive. We -- during the quarter, we are seeing that, and you will see that from other companies reporting that overall consumption even in base consumer goods such as milk is impacted. And we've seen a slower start of the year in that and with some decrease in consumption on milk and juice. But as I said, we've also seen that has been picking up later in the period, where we have seen the majority of the impact on the economic side related to MENA. MENA has seen, and I reported that during the last quarter as well, some impact on raw material production simply due to the economic climate around both in Morocco and of course, elsewhere. Overall, we can say that we find the result in EMEA, profitability-wise satisfactory. In Americas. And remember this -- for those of you who've been following us for a while, this is the fourth quarter with very, very strong development in Americas. And this is a development of volume growth. It's a development of implementing the strategy that we outlined back some years back now, where we are broadening our portfolio, where we're implementing filling machine sales and offering our customers new and innovative solutions. We have seen in the period that the average price has come up, thanks primarily to the product mix and also an impact from the pass-through mechanism that we use in Americas. But what is very, very uplifting and positive for us that the momentum that we have seen on filling machines, and we reported very good signing of filling machines. Last year continues out in this quarter as well. And frankly, we do not see any change in the strong demand for filling machines moving forward as well. Organic growth, meaning we have -- if you look at the EUR 15 million, 3 of these relate to the transaction -- translation effect, sorry, not transaction translation effect. So that brings us to 21% of organic growth in the quarter in Americas. And as you can also -- and you will also see what we believe is a strong profitability for the quarter. Now talking about strategy and just a few words on that. And you have -- for those of you who've seen us before, this is the way we have been describing the strategy ever since the IPO. And what we can say is that we are seeing very solid deliveries on all of these 5 elements. On the Americas side, you just saw the results fourth quarter with double-digit growth now delivered by growth in our portfolio, increased number of customers, increasing our market share and simply building the business to become stronger and better in the future. The Aseptic road map, and I highlighted that when we talked about EMEA, we have -- we see a big potential in the long life business given that we have a packaging format that is the preferred packaging format in both carton and plastic PET. So. we have seen the UHT growing. We have been placing the new filling machine platform, the E&P, the pure fill machines now with 2 customers. And we are now going to roll this out as we finalize the test and data side on these. The point we had about broadening the geographic footprint, clearly related to our acquisition in MENA and India, both of which are delivering. And as I highlighted before, India is delivering beyond what we had expected at the time, quite well beyond. While we are seeing good sales development continuously also on the MENA business with the caveat I mentioned before on some concerns around raw milk. I will bring -- talk about plastic to carton conversion because this is the point that normally most people ask us about how are we seeing that. So, I'm coming back to that in a second. But just leaving here finally was saying, clearly, the operational improvements, as I said, is a significant part of how we can deliver the results we have been delivering for the last 4 quarters in improvements, better operations, lower waste and ensuring that we mitigate the high raw material impact that we have the input cost impact in general that we've been seeing. So just back on some of the examples of the growth strategy. So, these are some examples that we highlight on the -- each of the elements of the growth strategy. We see in Germany and this example of actually a mouth wash, -- we see in Germany that customers and consumers alike are looking for paper-based solution or rather maybe to be more exact are looking to replace the plastic solutions that they have in more niche categories such as bath wash but also in bigger categories, such as you see on the slide, with 2 very, very significant product launches in Europe, with 2 large-scale FMCG companies launching this now in detergent. So why -- the reason I'm not more explicit about it is because it is being launched, but it's currently on. It's a market test that they are doing. And for that reason, we have decided to keep it at this level right now, but it is happening and it's a testament to the fact that FMCG companies private label at the very, very big levels are now actively replacing their plastic solution to reduce the greenhouse gas emissions and deliver on their own promises of reducing the CO2 footprint. Finally, 2 examples on the plastic -- well, actually, one more on plastic to carton, which is in U.K. some -- a few quarters ago, we reported on the movement in U.K. out of each HDP and into carton. This is an example of innovations which have been brought to the market as well in a smaller area, but is all part of the drive of saying finding small innovations in [ disc ] openings, closures and replacing their HDP solutions with carton in a more sustainable packaging format. The last one I will mention here is the example of how you bring innovation into the Americas. In this case, it's the brown board that is so well known in Europe. More than 20% of our fresh milk we now sell in Europe is actually brown board in Americas that has until now been nothing. So, we have launched the brown board with a customer in Canada. And evidently, this is all part of supplying our sustainability-driven strategy to customers in Americas and in all other markets where we currently operate. So, with this, I think I will leave it to you, Bent, and then let you explain.
Thank you, Thomas. It is indeed a nice quarter to present. It is a pleasure. As Thomas mentioned, we started the quarter a little bit slow, but we're really caught up in the end of the quarter. Before I go through the numbers, I would like to remind on how we have reported Russia. So, Russia is excluded from our P&L this year and last year. Russia is excluded from the balance sheet this year, but we have not restated last year. So consequently, the free cash flow statement in our report includes Russia, just as a good reminder there. If we look at the group figures, Thomas mentioned that we have increased the EBITDA by EUR 16 million from same quarter last year until this quarter. And this is then the breakdown between EMEA and Americas. If we start with Europe, we do have a cumulative price effect starting from 2022 throughout 2023. And this was necessary in order to mitigate the past input cost increases in raw materials, the current raw material increases that we have seen and also the expected input cost increase going forward. And what we are seeing is that some of these price increases, and particularly, the Board contract that we renewed in 2023, they have not impacted our numbers in Q1 because of the inventory effect, which is a technical impact you may say. And there will never be a perfect match between how we set prices and how we realize raw material costs in Europe and in first quarter, then the timing effect was then beneficial to our margins. So, this also means that for EMEA, the current EBITDA margin is not representing the run rate that we are expecting for the rest of the year in that segment. I think there are other important explanation for the performance in EMEA, and that is one we are delivering well on Roll-Fed -- if you remember, when we exited Russia, most of the Roll-Fed actually was sold in from Ukraine to Russia. We have a plant in Ukraine, most of that was sold to Russia, and we have successfully been able to find new markets in Eastern Europe, and that's why we have a very attractive growth in the Roll-Fed business. Finally, we are also seeing good performance, as Thomas mentioned, in our acquired business, actually representing EUR 4 million, and that is a EUR 4 million out of the well for the EMEA segment. So that is a real achievement. So, Europe has a satisfactory performance, but they're really kind of getting back to more normal levels. America's performance is great, and Thomas has explained the reasons why. So, we are going from EUR 11 to EUR 17 million. I think as a fun fact, if you take the first half EBITDA in 2021, so 2 years ago, first 6 months, we delivered EUR 16 million in America, and we are now delivering EUR 17 million for the quarter alone, which I think is a great, great achievement. And finally, just to remind that we do have these paths to clauses in the contract, which protects the margins in Americas, so we typically see less volatility in that segment compared to EMEA. Let's go to the [ bridge ]. So, we are then going from EUR 25 million in first quarter last year to EUR 41 million this quarter. Let's start with the top line. The top line effect is EUR 31 million. This is basically the contribution effect of volume and price in Europe. It's also the increased contribution in MENA, America and India, totaling up to EUR 31 million. Then we have still a raw material increase in first quarter compared to same quarter last year of EUR 8 million. We are seeing higher realized costs on PE and Al. This is very much because of inventory effects, but also result in our hedge positions. We do also have some increases on board already in Q1 due to inflation, transport and mix. And the energy costs, they are also higher generally speaking compared to last year as well. When it comes to other raw materials, we have seen a lot of volatility, and it is still a volatile market. So, we decided to hedge more of the exposure in '23 compared to 2022. So aluminum, we have hedged most of our open position for the full year. PE and energy, we have hedged the majority of the open position for the first half of the year and slightly less than half for the second part of the year. So, we at least will see less volatility in our cost base for the next few months. When it comes to operations, they are increasing by EUR 7 million. That is mainly related to inflation is also related to still increased traveling level, but also it's related to the activity level, the operating cost from the acquired business. Let's move to the cash flow statement, which I have looked forward to presenting actually. We do have a profit before tax and interest paid of EUR 23 million. We add back EUR 50 million in depreciation from existing and the acquired assets. And then the working capital has actually reduced in the quarter despite a higher top line. And what's the reason for that? Well, one reason is that we have slightly shorter credit terms for some of the customer base in Europe. We have collected more of outstanding receivables in the quarter. And we also have some prepayment for the filling machines. We do have some increase in filling machine stock preparing for the commissioning in America and in Europe. We also have a higher board inventory in value because of the inflation, but the inventory in volume is actually down. When it comes to cash from investments, that is minus EUR 10 million and it's basically normal levels related to plant maintenance and CapEx for the filling machines that we are reading out. Then we have cash from financing activities of EUR 48 million and taking us to a cash level of EUR 16 million. So, what we see here is that we have EUR 5 million in lease payments. We have EUR 3 million in interest paid and then the rest is then paying down on our debt and some other items, which brings me to the financing position and due to the performance, we have been able to significantly reduce the leverage ratio from 3.3x last quarter to 2.7% this quarter. So, this is a combination of delivering EUR 16 million higher LTM EBITDA as well as reducing the net bank debt by EUR 25 million. So, we have a solid financial position, and it's really going in the right direction. Our lease liabilities are stable for the quarter, but we expect those to gradually increase because of our protected [ CAPs ] installations. Moving to the outlook. We have a strong start of the year and somewhat better than expected actually. We do have the increased liquid board costs that will really take effect from the second quarter, and we also see significant inflationary pressure on other costs, which will also impact the EBITDA margin for 2023 compared to the current level in Q1. So, with that, I will bring it back to you, Thomas.
Thank you, Bent. And just on a final note. As we have been trying to explain today, we are very happy about the result and the start of this year, but also recognizing that it is partly due to a tailwind that we have on the financial side with inventory. But very importantly, I think what we're trying to say is that the strategy we have in place with the elements we have in place, from Americas to plastic conversion to the geographic growth is clearly delivering. We are seeing the delivery in organic growth. We are seeing the delivery in the overall growth, including the acquisitions, and we are certainly seeing also the growth -- the delivery when it comes to our financial performance. So overall, we remain optimistic. We are continue -- we continue with our strategy and delivering on this in the period to come. So, with this, I will just change to the next slide and let you highlight the financial calendar. I'm not going to go into this. But with one comment. And that is that we will be inviting you all for a Capital Markets Day very soon, which means September would be exact end of September and more about that later, Mirza, please.
Thank you, Thomas. And also thank you, Bent, for your presentation. We will now go into the Q&A session, and we will begin with the audience here in Oslo before we take on the ones from the audience on stream. For the journalists that are present here today, we will set aside time immediately after the Q&A session. So, let's begin. I would like to ask you to please state your name and the company you are representing and please use the microphone. While we wait for Oslo, we will take on -- I will check for questions online. Alright, so we have a question from Hakon Fogle from the SEB analyst that follows Elopak. Can you please elaborate on the impact from price increases for EMEA in Q1?
Okay. Let me just start on pricing and a little bit of general answer before we maybe go into more details. But -- so what we did in pricing is we implemented price increases last year when we saw that the raw material input costs were skyrocketing as in fact, were. We show these very, very steep increases. We then implemented a price increase as of January this year to reflect the significant bought increases that is impacting this entire industry. Liquid board, as you will know, is a product that is increasing steeply this year, not the least. So, the increases we have implemented in EMEA have been implemented with last year to mitigate only and purely the realized cost increases this year to mitigate the board increase and also impact some of the significant inflationary pressures that we all experience from salaries to anything else we touch right now. So that is how we have been looking at pricing and how we looked at the price increases that we are implementing in EMEA.
Thanks, Thomas. And we will continue with the SEB analyst [Indiscernible]. For EMEA, how much of OpEx growth quarter-over-quarter stems from other input factors such as aluminum, plastic and energy.
So, the question is the other. So, we -- we are referring to the EUR 8 million -- is it quarter-over-quarter?
Quarter-over-quarter, yes.
Yes. So, quarter -- yes, so what we presented in the bridge, we presented this quarter versus same quarter last year. We do not have the exact figures for this quarter versus previous quarter, but it is actually rather stable because of our hedge positions. We have seen some softening in the spot markets, and that has benefited us slightly, but not as much as the spot prices which suggest, but we really don't have a concrete number quarter-over-quarter, but it is rather stable.
Thanks, Bent. And then how much of the margin improvement in Americas is due to product mix versus pass-through contracts? And do you see any risks for margin contraction in Americas going forward?
Yes. So, the mechanics of the pass-through contracts is really to protect the margins. So, the biggest impact of paste clauses will be on the revenues and the aim is that there is a neutral margin impact for the past clauses. Sometimes, they can go a little bit up and down in each single quarter because you will never have a perfect simulation. I think that the mix and the pass-through clauses are the mix is clearly bigger than the past clauses because of that reason. So, we don't have a concrete number for that.
All right. Thanks, Bent. And moving on to Martin Melbye from ABG. How large is the carton board price increase in percentage and in euros for Q2? And how large are your price increases versus Tetra Pak and SIG?
Look... It's an interesting question, but not really a question that we can answer. As for the -- our board increases for the quarter, this is also a topic that we are not disclosing. And equally so our competitive situation on pricing. I think what is important for us is we -- as clearly in the markets we operate, we need to remain competitive. We are competitive. We are growing because we are competitive. So that is for us the main point at this moment.
And Niclas Gehin from DNB. Could you please be more specific about what you mean by remaining optimistic on the longer-term market fundamentals?
I can give it a shot and you can -- Bent, you can add. Look, I think we are operating in a business where there's a constant and very, very real demand. We are seeing that throughout the world in the many countries where we operate, we are in basic foods. We are in basic nutrition. We are in an area with a mega trend of moving away from plastics and into a more sustainable, lower CO2 footprint packaging format. That is for me the optimistic part of this. And we are seeing that even in times of difficult economic circumstances, this demand will stay even if there can be movements and we're seeing some shifts in demand. But overall, the demand is very resilient compared to many other businesses. And in that context, we think we have the right strategy to deliver. And we think that the strategy we have consisting of a strong base in Europe and a very, very, very high level of credibility in the industry together with a leading position on sustainability brings us into a good position in delivering in the years to come and delivering on the strategy, and that actually gives us the comfort of saying we remain optimistic.
I agree. And I think going forward, there will be segments that we haven't seen before that we find more interest in the carton business. So, in the future, it's not going to be all about dairy and juice, we will see new categories. I think one thing I would like to add is that if you look at our portfolio today, the market portfolio, we have a new position in MENA. We have a new position in India. We have a much stronger base in America, which means that we are in market position where we either see a higher organic growth or in America where we see a good traction where we're able to continue to strengthen our relative market share.
All right. And from Robin Santa Vista from Carnegie. You had strong organic sales growth in Q1. Can you comment on what the organic volume growth was? And he also is asking about the higher paperboard prices. Did you see any impact at all from this in Q1?
Okay. Let me start and then you please follow up. When it comes to the volume growth, of course, we saw we absolutely saw strong organic volume growth in Americas. We definitely saw, as I reported, organic growth on the aseptic side of our business, not the least on the UHC side, but strongly also on the Roll-Fed business. This is all organic. We did see some impacting some decline on the fresh business in EMEA. So overall, I can't give you the exact figure on what it means, but it's, of course, a little bit mixed, but definitely organic growth in all of our businesses as well, except on the fresh business in the fresh milk in Europe is now growing.
And how about our view on aluminum and polymer prices during the rest of the year? Do we expect any support.
Yes. I can probably first maybe got the second question first about the boards. So, I think it's fair to say that most of the board costs were at the 2022 prices in Q1, as I say, simplified answer. That is the -- I think that's how it works. And when it comes to PE and [Indiscernible], I would say, we don't have any speculations on forecasts in [Indiscernible] that we share beyond what you can find in the open market. So, we typically don't share our own expectations. I think it still remains volatile. I think for the second quarter, a majority is hedged, so you will not see big movements on raw materials on PE and [Indiscernible] for Elopak in the second quarter, and then we will have slightly more open position in the second half, but it's very difficult to predict and the same goes for energy.
And a follow-up from Martin Melbye in ABG. How much of EBITDA comes from aseptic in Q1?
Yes, that is information that we do not disclose.
And then one last question from -- one last question from the online is it's a long one, but we'll try to get through it. Given the company's strong start to the year and significant profitable organic growth, particularly in India, can you provide a detailed overview of Elopak's global expansion strategy? How do you plan to leverage and expand your market shares in existing and new markets?
Thank you for that question. And it's quite an extensive and elaborate. I think I will take the liberty to push that question to the Capital Markets Day, where we will be explaining this in more detail. Clearly, as I've been highlighting, we are delivering on the strategy. And clearly, for that reason as well, we are seeing on the parts where we have delivered what happens then, and that's what we're doing now. But if you will allow me, I will wait with the answer when I can give a more comprehensive and longer answer on that in -- at the Capital Markets Day. So, this is the tease up at the Capital Markets Day -- more info that later.
Thanks. We just got in a last one from Fredrik Windrup in Boldhaven. How many machines of the stock of orders did you commission in Q1? And what's your view of the current supply chain constraints? And how confident are you that you will reach the target for commissioning Americas this year?
Okay. Let me start and then I'll give you some on the supply chain. We still experience supply chain issues on filling machines. This is a concern for us, absolutely concerned. It relates to components. It relates to full machines. We have our issues in getting the machines in time. When it comes to the number of machines to be commissioned in the U.S., we will deliver and commission these machines. Absolutely, and that is -- we do not expect any delays on the American commissioning. When it comes to the overall, and we have a very, very high number of machines to commission this year. We know that there may be some machines which will flow into next year. To be honest, that has happened before in our industry and with our companies, that's not completely unique situation. But we think it's going to be a very, very significant amount of machines that we will commission also in Europe, in MENA and of course, not the least in Americas this year. I'm not sure I answered the entire question. There was something left in the question, Bent.
Nothing in level of filling machines increased in Q1, and that's indicating that we haven't had the commission we wanted to see in the first quarter. But as Thomas said, we think that we will be able to solve that throughout the year.
Thank you very much. And I do not see any more questions online. Do we have anymore here from Oslo? All right. Thank you very much for your attention, and have a nice day.
Thank you.