Elopak ASA
OSE:ELO
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
26.2
46.4
|
| Price Target |
|
We'll email you a reminder when the closing price reaches NOK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
You don't have any saved screeners yet
Ladies and gentlemen, welcome to the Q4 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 CFO, Bent Axelsen. The presentation will last for approximately 30 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 from the audience here in Oslo as well from the audience following us on webcast.
So with that, I leave the word to CEO, Thomas Kormendi.
Thank you, Mirza, and good morning to all of you. Welcome here all of you present and everywhere else where you're listening to our presentation. We have called this quarter resilient in changing times and I'm very, very happy to report that we are ending the note on a strong -- ending the year on a strong note with profitable organic growth across the company. So let's dive into it. For those of you who -- just 2 words on Elopak. We are the world's largest fresh liquid carton packaging company. We supply the cartons around the world in around 70 countries. We supply around 14 billion cartons and we do that primarily in the greater part of Europe, which we call EMEA including the Middle East and then Americas, which is North America and Central America. Our business is both fresh and aseptic, roughly 20% aseptic and the remainder split between fresh and other.
And what you see on the graph now is that we have just concluded a strong year from a revenue point of view beating the EUR 1 billion mark by slightly and also comparing that to the figure indicated on the slide EUR 855 million excluding the Russian operations in the '22 figure as well. So what is it that we do? We are essentially a company totally and entirely focused on sustainable packaging. When I say that, that's because we are totally and fully focused on fiber carton packaging only, 100% renewable resource. We do this primarily by protecting essential commodities around the world such as milk, but not only milk; such as food, but not only food; and we do that very much by enabling world nutrition in the markets where we are present from India to U.S. When we talk about sustainability, that is essentially the core of everything we do and how we look at the business, how we innovate in the business, how we look at our growth moving forward as we'll come into in a second.
We look at sustainability in the 3 parameters; people, planet, profit. And I'm just going to make a little promotion here for our annual report, which will be published by the end of March together with our sustainability report. So please have a look at that when you have time and get to that point. Now Q4 and the full year, let's look at the business performance. I think everyone in the room and everywhere would think 2020 was a very, very unique year. Clearly nothing was bigger I think we will agree than the ongoing invasion and war in Ukraine and the tragic human cost as a consequence of that invasion is something that we all see and the impact of that is of course something that has impacted the world in many, many ways. We have our business in Kyiv and our operations in Fastiv, Ukraine and they are continuing to do a marvelous job strongly committed to drive the business and deliver their results even in circumstances like that.
So what has been the impact? Well, clearly we have had and we still have very, very significant inflation in all industries. We have seen some extraordinary pricing initiative that we have had to take given the very high cost impact that we have been suffering. We have been faced with very significant supply chain disruptions both from a raw material side in packaging material production, but also very much on the component side, the delivery of filling machines and [ deadline ]. We have also during this year divested our operations in Russia. We started off by immediately suspending it after the war started and then divesting it in July. We have been focused clearly on continuingly improving our operations both when it comes to reducing waste and the normal things you would do, but also on the sustainability side ensuring that our safety is improved in all of the plants where we're operating.
From a sustainability strategy point, we have launched this year our Pure-Pak eSense; which is the alu-free carton, fully aseptic, low acid aseptic; creating a lower CO2 aseptic choice for our customers and consumers. We have also during this year expanded our footprint by our investments in MENA in both Morocco and Saudi Arabia and also in our joint venture with GLS in India, which has started just outside of Delhi. On top of that, we have been witnessing I can say and been working very, very hard in our team in Americas with a very strong demand for filling equipment and filling machines. And then of course we are facing a macroeconomic situation overall during this year as well, which we see has some impact certainly when it comes to the purchasing power, the macroeconomic environment mainly, let's say, in areas like MENA at this moment in time.
So what does it mean? What have we actually been? Well, we're happy to report that we saw a good revenue growth of 24% in the quarter. If you take the organic part of that, it's a 12% growth organically. It is of course a growth, and I'm coming back to that, which is led both by the pricing initiatives, but is also very much a growth based on the momentum we have in the industry. We are reporting an EBITDA level of EUR 36 million, which is a equivalent of a 13.5% margin. A very solid recovery from previous quarters and actually a very solid figure also compared to Q4 of last year. We have seen that our EMEA business has been growing and we have implemented pricing throughout the year offsetting the very, very significant raw material increases that we were also seeing. Americas, and I've been reporting this happily now few times and keep saying we continue to have a very, very good momentum in Americas.
We see the demand on filling machines. But we also see our strategy actually delivering when it comes to juice, when it comes to new customers, when it comes to adding more value to the gable top industry in the Americas in general. During the year we have seen and still see I have to say, continue to see strong inflationary pressures that is clear and has impacted our EBITDA last year, but certainly will impact the result for this year as well. And overall, I think it's fair to say that the volatility we have seen during last year we think is still valid although we maintain that we are a resilient industry as we have proven throughout last year and we are, therefore, also committed to our midterm targets. So little bit on the financials. As I said, we are reporting a growth of EUR 97 million on a full year basis. Remember, we have in these figures taken out all Russia comparisons both for '22 and for '21 so on that level, it's an 11% organic growth and a 12% organic growth in revenue terms in Q4.
From an EBITDA point of view, also here we see a strong development as you can see in Q4, solid performance versus Q4 of last year where we started to see the increase in cost hitting us and where the price initiatives we could take were lagging versus the cost we took. We can also see that from a full year perspective, we are actually delivering a higher EBITDA in 2022 versus 2021 despite all the circumstances I mentioned albeit at a lower margin given that we continuously -- that we have increased prices in line with the high raw material increases and that would in turn reduce the margin somewhat. Now looking at it from an EMEA point of view. It's very clear that we have been focused on delivering on executing on the price initiatives that we have been highlighting and we have increased prices in Q4 around EUR 19 million. We have also the impact in Q4 of around EUR 14 million from the acquisitions.
And as you can also see throughout this period the growth we see in EMEA is also related to Roll-Fed growth, which has continuously throughout the year been strong, as well as our aseptic growth primarily in the south part of Europe where our UHT deliveries continue to be at a solid and strong level. Overall, we have seen a decline in milk consumption mainly in our part of Europe so in North Europe here, but that's been compensated largely by the growth we've seen in South. 14% Q4 as organic and overall, as Bent will show in a second, a very satisfactory profitability level in EMEA during this period. What you could say on a full year basis is of course we were hit very, very significantly in the beginning of the year with the strong -- the high cost increases, but we have implemented our price initiatives and hence been offsetting the high cost levels that we experienced early on in the year.
Americas: and Americas is a story that we have been highlighting many, many times. Clearly the growth drivers are juice, are more plant-based. We continue to see that the school milk business is stable, in fact there could potentially be a bigger sale out of school milk, but we continue to have a stable level. We also see, as you know and we've reported that before, that the way the pricing works in U.S., it's a pass-through contract mechanism. So that clearly has been the case during this year as well and there has been a positive currency translation effect of around EUR 11 million. Organically, our business in Americas continue to grow at around 6% year-on-year level and that, as Bent will say, we're doing with a very solid profitability level this year as well. The 1 thing I would like to say is on the filling machine. The demand on the filling machine continues and remains very strong. In our figures now, we actually do not see the filling machine sales.
Most of these filling machines will be commissioned and installed during this year and hence will be reported in figures moving forward. So the strategy, what is it that we are doing and continue to do. For those of you who've been following us a while, we have been showing this and the overall take on this that we actually continue to deliver on each of these 5 pillars. As I said, Americas is all about building the business through a better portfolio, adding filling machines, adding the juice sale, building the business with high market share. That is what we have been seeing and that's what we continue to do. The aseptic growth strategy is all about adding our new aseptic platform, the Pure-Fill system as well as the sustainability driven innovations that we have in place such as the alu-free eSense system. On the geographic footprint, we have successfully implemented and integrated our Naturepak acquisition in the Middle East. Our India business I have to say is moving at a fantastic pace.
We are very, very pleased with the development we are seeing in the joint venture in India. The plastic to carton business really is a business that has the underlying macro trend of moving away from plastics into renewable and more sustainable solutions in both existing categories as well as new categories. I'm just going to give a few examples on that. And finally, the last one, the commercial excellence; as I said, the operational improvement that we have been carrying out throughout the year in terms of reducing waste, in terms of improving our efficiency in the plants as well as the pricing initiatives that are so fundamental in a year like this have also delivered in line with expectations. So just to give you a couple of examples on what does it actually mean when you look in shops around the world. We have here a couple of examples on that. And on the left here, you will see examples on how we are seeing more and more business in the plant-based area. Remember plant-based really is in this category a strong growth business.
A lot of the consumption decline you find in fresh white milk moves into plant-based as we can see here Alpro, which is Danone's business brand, and also our Don Simon, which is the eSense launched in Spain with Garcia Carrion in the brand new eSense brown board pack. On the right side you will see just some examples of how the macro trend of moving away from plastics can show itself. On one hand we have the very classical Avonmore fresh milk, which has moved in this case from an HDPE bottle into a Pure-Pak carton. And at the same time you have in this case as an example of a yoga center with a number of outlets around U.S. who have also declared that they will move out of plastic bottles completely such as you see now with airlines and other businesses like that. So overall we see and we believe that the plastic to carton conversion that we have been talking about and are measuring in all the ways we can, we are seeing more and more examples of that happening as the world in general turns more focused on sustainability.
With this, I will hand over to Bent to give you some more insights. Thank you. Bent?
Thank you, Thomas. So good morning to you all. My name is Bent Axelsen. So welcome to this financial section. As Thomas said, we are showing good progress compared to 1 quarter ago and we are in a much better position this year compared to last year. Before I continue, let me repeat how we have managed the figures related to Russia. P&L excludes Russia this year and last year. The balance sheet excludes Russia this year, but we have not restated last year. The cash flow includes Russia. Let's have a look at our adjusted EBITDA starting with EMEA. We had strong growth of EBITDA mainly resulting from our price increases that Thomas talked about. These price increases are not opportunistic, but really necessary to manage a unusual and challenging situation. If you look at the full year, we have a lower margin compared to last year as we only start to match these raw material price increases from the second half of the year.
Raw materials are still at a very high level and energy costs are particularly volatile. Apart from prices and raw materials, we saw good volume growth in our Roll-Fed business and outside Europe, our business in EMEA and India delivered around EUR 2 million. In America, we had another strong quarter. Our underlying performance is improving with solid volume and improved margins driven by both customer and product portfolio improvements. We have improved our operations through lower waste performance throughout the whole year and also lower manning costs in our plant. Q4 has been positively impacted by currency translation effect. On EBITDA level, this is around EUR 2 million and our commercial pass-through contracts protect the margins in America. Let's move to the EBITDA bridge. The adjusted EBITDA taking us from EUR 21 million same quarter last year and EUR 36 million this quarter.
So let's start with the net revenue mix of EUR 26 million. This consists of the price and volume impact in Europe and the gross margin impact in MENA, Americas and India. The main driver for the EUR 26 million would be the EUR 19 million in price increases plus the improved profitability in America that I just explained. The raw materials part in Europe is up EUR 9 million and if you go back 1 quarter ago, we said that our price increases and our raw material increases were approximately the same. In this quarter our price increases are higher than the raw material increases. And here it's important to remember that Q4 last year was a weaker quarter compared to what is normal for Elopak and the responding price increases did not take place until beginning of 2022. It's like this that in EMEA in particular, the prices and raw materials inside the quarter will not match 1:1 and we saw some softening of raw materials in Q4 and a temporary dip in energy prices in the quarter and then they came back up in December again.
Operations includes all the fixed cost and the other production costs. These costs have increased by EUR 4 million due to a normalization of activity level following the pandemic, but also wider inflation for all other cost factors in addition to raw materials. This time we have also chosen to show the bridge for the full year taking us from EUR 114 million to EUR 119 million and here we can see that the combination of price increases, volume growth and acquisition more than compensates for the increased raw material costs which is staggering EUR 50 million. The price increases alone are approximately the same as the raw material and that means that what we committed to last year we delivered on. We managed to compensate the raw material not only for the second half, but actually for the whole year together. It also means that we are able to cover the raw material cost euro for euro so from a margin perspective from a percentage perspective, the margins will be then diluted.
Operations costs for the year are up EUR 22 million. That is basically driven by the same factors as I explained for the fourth quarter. In addition, we had some operational challenges in our plants as a consequence of the exit out of Russia. Let's move to the cash flow. So we have a cash flow from operations of EUR 25 million. This consists of our profit before tax and interest paid of EUR 34 million then we add back depreciation of our existing asset base, the acquired assets, but also the impairment in Russia and Ukraine. Our working capital has increased EUR 70 million. This is mainly a result of the inflation and our own revenue growth. With EUR 170 million in revenue growth for the year, the operating capital has to follow. We also have some increases in filling machine stock as we have had some delays in commissioning in Europe and we are also preparing for a quite intensive commissioning in Americas this year.
In addition, we have some higher board inventory and we also have onboarded the operating capital for the new businesses in MENA and India. Our operating capital turnover is in line with last year. We have a cash flow from investing activities of minus EUR 126 million. This consists of acquisitions of EUR 88 million. Then we have the normal CapEx in our plants and in filling machines of EUR 42 million, which is slightly lower than normal levels. Moving on to the cash flow from financing. This is minus EUR 103 million that is basically a combination of dividends, lease payments and also proceeds from financing institution in order to get to a cash level of EUR 26 million. That leads us to the financial position. First, before I talk about the numbers, I would like just to share with you that the last 4 quarters here have been restated so they exclude Russia. We have a net debt of EUR 391 million, of which EUR 301 million is bank debt and EUR 91 million are lease liabilities.
The leverage ratio stayed stable at 3.3x compared to third quarter and the main reason for that is the announced increased lease liability from our High Bay Warehouse, which was ready in Q4. If we take out that increased lease liability, the leverage ratio would have been 3.1x. In addition, the bank debt has increased because of the increased net working capital. All in all we are comfortable with the financing position and we have good headroom to our bank covenants. As you've probably seen from the stock notice this morning, we are today proposing a dividend of NOK 0.86 per share. It's important for us to stay consistent with our dividend policy and NOK 0.86 equals 50% of our adjusted net profit and it's also around 3.4% dividend yield if you compare that to the share price as of 31st of December, which was around NOK 25 per share. The dates related to dividends you will find in the stock notice, but the AGM is scheduled for May 11. That's where we take the decision.
Now to the outlook. The geopolitical and macroeconomic uncertainty in '22 continues into 2023. I think from a raw material perspective, we will see for Elopak a slightly lower volatility on LDPE and alu because we have hedged a majority of our position in the first half and some of this position in the second half. However, we will see increased board cost for Elopak as we have new board prices in Europe in 2023 and they will take effect into Q1 due to our inventory turnover. We will continue to see inflationary pressure together with the board price increases, which will impact the margins in 2023. We will deliver a higher EBITDA this year compared to last year, but it will be challenging to increase the EBITDA margin in percentage because of the rising input factors. So to wrap up the financials. We are catching up and we are delivering a strong quarter and we are continuing to adapt to the changing climates.
Back to you, Thomas
Thank you, Bent. And now let's try to sum up this quarter and actually this last year. As I said initially, we are very, very happy that we are ending the year on a strong note and delivering, as you have seen, profitable growth. And I have to take a personal note here and simply frankly thank the commitment that we have seen or I have seen throughout Elopak in every single market where we operate of our teams and our people in adapting to the very, very, very challenging circumstances that we've been meeting. I think all of our teams have shown an enormous ability to adapt and really get together even and weathering quite some heavy storms during the year because we have been proactively responding to what has been happening in the markets around us and of course also from a political point of view in the environments we live in. And I think it's absolutely clear and I 100% believe that we are in a much, much better position now than what we were at the same time last year.
We have seen and we have proven that we are resilient in a demanding year. We have weathered quite a few storms. We have seen quite some impact on our business throughout this year and I think we have landed well, but we do recognize that we remain in volatile times. I think that's very important for all of us to see that it is not really from that perspective a normal business. What we are doing and will continue to do is to deliver on the strategic initiatives that we have presented. We have the execution plans in place. We are seeing that these are delivering as we have seen now and seen throughout the year and we will continue to grow our top line as well as our results over the coming year as well. So overall, as I said initially, all of this means that in times like this we remain committed to our midterm target also now moving forward.
And with this, I thank you very, very much and I will hand over to Mirza.
We will now go into the Q&A session and we will begin with the audience here in Oslo before we take on the questions from the audience on webcast. So I would kindly ask you to please state your name and the company you're representing.
[indiscernible] 1 question related to the Americas. You see pretty strong performance in the Americas. Is that a market trend that Elopak is gaining market share or is it just that everybody sees a better market in the Americas switching from for instance plastic and other type of materials?
Good. Thank you for that question. I can say that our performance in Americas is really frankly an evidence that we're getting market share. That is the case. I think it's well recognized that we have a strong portfolio. When it comes to the filling machines, we are supplying the Shikoku filling machines, which are the world's frankly best gable top filling machines. We are supplying a broader portfolio on the packaging materials side. We have an excellent plant in Canada. And most of all and most important of all, we have a very, very committed and skilled team in America who is delivering on all of these many, many initiatives at high speed.
We have received questions from Hakon Fuglu, analyst from SEB. For EMEA, what growth should we expect from price increases in 2023? How much is the price increase from the new liquid board contracts compared to the old contracts?
Okay. So that's actually kind of information that we would be very reluctant to give. But what we are seeing in EMEA and for Elopak Group moving in this year 2023 is of course like we have been last year, we are committed to offset the raw material increases that we are seeing and that will continue during this year. This is something that we said we would do last year and what we did last year and we're saying the same this year, we will continue to offset and mitigate raw material increases.
And for Americas, organic growth has continued to decline during 2022. Will this trend continue in 2023? And for the EBITDA margin in Americas for Q4, is the margin sustainable for 2023?
So organic growth in Americas during 2022 is very strong. 6% organic growth in a U.S. market is a very, very good development and to the point I made before, that actually means that you're gaining market share. Do we think that the profitability is sustainable? I think we have a business model in place that's actually securing that our profitability in Americas is sustainable also in the longer perspective. Bent, do you want to add something?
Yes. I think that they are onboarding attractive customers with attractive products so that's going to support the margins positively going forward. But I think also in Q4 there are a few things that went our way in Q4 in particular. So I would say the margin is sustainable. But it's, call it, sometimes you're lucky and sometimes you're less lucky and I would say the margins in Q4 is slightly better in America than what we expected. So yes, it's a mixed bag. It is sustainable, but it was also going our way.
Right. I'll continue with the questions from the analysts. Niclas Gehin from DNB. You say that you are committed to meeting your midterm targets. You have previously guided midterm targets to be 2% to 3% organic revenue growth and 14% to 15% EBITDA margin. Is this adjusted in light of the high inflation environment we are in and what are these 3- to 5-year targets now?
So we are committed to midterm targets and we are committed to midterm because it is also midterm. It's not what we are going to deliver in 2023. And the midterm target is based on a slightly more normal inflation level than what we're seeing today. So 2022 there was an inflation raise, there was a raw material raise. 2023 we will see continued raise in input costs. We don't believe that this inflation level going to stay at current levels forever and with a normalization of inflation, with a more normalization of the commodity market; we are confident that we will get back in balance and deliver on the midterm targets.
And Martin Melbye from ABG. Higher hedging levels on aluminum and PE, when were these done and at which prices?
So we will not disclose our hedging prices. But when we try to -- our hedging program is responding to our commercial program. So we are setting price levels, we are negotiating with customers and then we are hedging to reduce risk not to speculate. So those hedges were done in the end of Q3, beginning of Q4 to mirror the positions that we have on the sales side. The hedging levels, as I mentioned, on LDPE we have hedged a majority in the first half and we have hedged less than half for the second half of the year. So it's really a risk mitigating action and not a speculation.
And 2 questions from Moomal Irfan from Goldman Sachs. Is it possible to please elaborate on board contracts? What is the magnitude of price increases and are these new contracts annual or for a longer period? Secondly, can you also please guide on how many new machines are contracted in Americas already, which will impact 2023 revenue?
Right. So let me answer the first one first. We are not going to disclose the level of the board contracts, clearly this is competitive sensitive information. If you look at the board market in general any carton board, you will have seen very, very significant increases in board costs during this period and during last year. And clearly if craft paper, if any board type increases, that has an impact even on the board types we use even if it's not a direct correlation. So just to say that the board levels that we are seeing, the board contracts and the board pricing has seen quite significant increases during this period. So I will leave it at that.
And on the filling machine side so the way this works is when you -- because of the delivery time in filling machines, which is still high because of supply chain restrictions when it comes to certain components, so when we sign filling machines now this will have impact typically in '24. The financial impact of the filling machines we will see in the financial statements are the ones that we signed during last year as I said and that was an exceptionally good year for us. So we will see a lot of installations, a lot of commissionings with a broad set of customers in Americas as we will, by the way, also do in Europe where we will have a very busy year when it comes to commissioning of filling machines.
Right. And a question from [ Matthias Schleiden ]. It's about raw material prices and increases again. How does the raw material price increase for liquid board compare in 2023 versus 2022? That is how much do you need to raise prices again to compensate and will you do this already in Q1?
So yes, I'll give the first comment on it. When it comes to pricing, yes, we have implemented a price increase based on another set -- based on the input costs going up. So that is in place and that has been communicated to our customers. When it comes to the levels, we're not disclosing that.
And I think if we go back to the prospectus, we communicated that we do typically 3-year contracts for liquid board with a link to CPI. Back in the days, that link to CPI was not a big thing when you have so low inflation. That has become more important. So for 2023 is a reset of these board contracts. So there is a step-up in board prices in 2023 because the whole industry needs to align to a new inflationary environment. So that is a step up, but that step-up was also a part of our business planning and we are prepared for that in 2023.
One last question from Martin Melbye in ABG. Is high inflation good or bad for Elopak long term?
Okay. Do you want to give it a go?
Yes. I think if you take a broader perspective and if you look at the whole value chain from raw materials; Elopak, our customers and the end users; I don't think that current inflation levels are healthy. I believe that we are in a much better place when inflation is around 2% where we can stabilize the business. We are in the middle of the value chain and when things are raising very, very fast, it is challenging to be in the middle of the value chain. I think a broader inflation was necessary in 2022. If it was only Elopak that was hit with raw material increases and there was no inflation elsewhere, that would have been rather difficult in 2022. So for 2022 that broader inflation was necessary in order to enable our price increases, but long term we benefit from lower level and a more normalized level and 2% inflation is what we had in mind obviously when we also set the midterm targets both for revenue growth and EBITDA margin.
And if I can add, I think really on a completely general, I don't think inflation is good for anyone. I think that is actually something for Elopak and for anyone else, that is a sign of some level of disease in a system. Now in our world specifically if we then consider the environment we're living in, we are supplying the world with enabling nutrition support to the world. In many, many parts of the world, high levels of inflation has a significant impact on the purchasing power of consumers, human beings and makes it much more difficult for them to consume milk, to consume other essential commodities that are important for their sustainability and their life. So I don't think inflation is good. I hope we get into a level reasonably soon where it stabilizes and we can continue to support the world with the nutritional side and our business in a normalized way.
I do not see any more questions here in Oslo and there are no more on webcast. So that concludes our session for today. Thank you for your attendance and wish you a very nice day.
Thank you very much.
Thank you.