Elopak A S

Good morning and welcome everybody to the third quarter 2024 results presentation for ELOPAC. My name is Kristian Helde and I'm the head of treasury and investor relations. Today's presentation will be held by our CEO Thomas Kermendi and our CFO Bent Axelsen, and will last for around 30 minutes, followed by a Q&A session where the audience here in Oslo and the people participating online will be able to ask questions. So with that, I would hand over to our CEO, Thomas Kermendi.

Thank you, Christian, and a warm welcome to all of you here in Oslo and for all of you who will be following us right now on the web. Today is all about Q3. And we are actually very happy to report yet another strong result, overall strong performance in a quite challenging market. So let's get into it. As always, two words about who we are. We are, for those of you who do not know us, the world's largest fresh liquid carton packaging company. We sell around 14 billion cartons worldwide in around 70 different markets. And we split our business in both a chilled fresh business, which is the majority of what we do, and a septic long life business, and also what you see here as other. From a geographical point of view, we split the world into two areas, what we call EMEA, which in our case also includes India, and Americas, which in our case does not include South America. And what is it we do in all these markets? Well, we are in Europe. what we would like to say, sustainable packaging. And this is the core of what we do. And for those of you who followed us on the Capital Markets Day, you saw all the many activities and initiatives we have in this direction. But what we do is we protect commodities. That could be milk, and it is typically milk, but it's foods. And with this, we, of course, also enable world nutrition in the many, many markets we are active. all the while and very very importantly with the drive to reduce plastics so let's get into the quarter and our results and first of all I think we are extremely happy to report that we have had an all-time high revenue from a quarterly point of view. Growth in the range of 3.5% and really driven a revenue that is driven by organic growth rather than what we have had in many previous years, pricing. We also see that our PurePak, the core business of PurePak Garten, as well as the closure business we have, sees solid growth, particularly in Northern Central Europe, again, core markets to us, and also in Americas where we have the big initiatives that we've been describing. We come out with an EBITDA of 45 million, which gives us a run rate in line with what we present here, 15.5% margin level. This quarter, we are presenting a new metric, and that is the return on capital employed, the ROSE. We did that, for those of you who saw it during the capital markets day, but we've not been doing it during the quarters yet. And here we also report a strong report on ROSE, even with the investments that we are currently making in primarily Americas right now. In fact, on that note, we have invested in the quarter another 25. Sorry, we have approved an investment of another 25 million in the second line in our plant in Americas that we are currently building in Arkansas, Little Rock. With that capacity increase, we are actually starting up the plant again. Or rather adding additional capacity to more that to double the capacity of the plant that we are currently building and Finally as a highlight for us in the company. We did have their first capital markets day In September 4th of September and had the chance then to present our new repackaging tomorrow strategy so What does it look like? Well, we are up by roughly 3%, as I said, 3.3% to be exact, to almost 300 million in the quarter. And that is really driven by... Pure pack sales, pure pack growth, market share growth in Europe, filling machines, enclosures, as I mentioned before. We had a rather smaller impact when it comes to IFRS 15 in the quarter, but in actual terms, if you disregard the IFRS 15, we have a slightly higher growth than what we're looking at here, close to 4%. From an epidemia level, you can see that we are slightly down from Q3 of last year which wasn't by the way exact all-time high level for us. Now the background for this is very simple in as much as two of the three million we have in difference relates to a one-off we had last year. And the difference in 1 million relates partly to an IFRS 15 accounting rule, really. What we can see is that the contribution is pretty much stable between the quarters. And remember, we come from the all-time high quarter we have in Q3. with good results driven prime for it by closures pure pack and more challenging development on our role for business and definitely also more challenging in some parts of the world are coming to that in a second right so what does it mean from a geographical perspective like thinking of EMEA EMEA you know is as you saw in the previous in the one of the first charts a big big part of our business is the core business it's where we have a significant market share it's also a business where we have very very long customer tenures solid customers with whom we have grown internationally and what we see here is that In this context, we see a solid growth in the upper part, we can call like that northern and central parts of EMEA, but the southern parts and MENA have seen some challenges in market, primarily driven by softer demand, driven by consumer spending being somewhat strained, and that impacts the volume. We have an impact here of around 2 million on IFRS 15 versus last year, and around 9 million versus last year on a year-to-date basis, i.e. again, disregarding this, our growth in this area is around 9 million higher than what you see here. Americas, and this has been a story for us for a while, and here we continue on the path we've had. We continue selling filling machines. We continue with the strategy of becoming a bigger supplier with a bigger portfolio. We also invested in closure sales or closure capacity during last year. We're now seeing the sales of that capacity coming in, showing positive results. And here we have a slight negative impact on IFRS 15 of only 1.2 million. Year to date, it's really pretty much the same as in the quarter. We have a growth in filling machines, pure pack closures, but we are, as we've said before, at a capacity level, so there's a limit as to how much we can grow when it comes to the carton sales, hence the investment we have made and are making in the additional capacity. We have had a very challenging supply chain situation that we reported even in Q2. This relates to a supply of ours who had problems when starting up after a maintenance situation that resulted in disruption in supply chain and given our full capacity in the plant in Montreal, it's very very difficult for us to actually catch up on a backlog like that. However, We are doing well. We are pushing on all the buttons we can in Americas, and we are getting as many cartons we can out of the system, and we see that we generate growth despite this. But this has been a very challenging situation for our customers, and they have been very patient with us in the understanding of this very, very extraordinary situation from a supply point of view. As you know, we've invested in Arkansas in a plant. And now we are happy to say that we are moving along as we should in line with plan, both in line with plan when it comes to time, which is very, very important, but equally important, of course, in line with costs. With the Line 2 approved in September, we are looking very much forward to be able to supply even more customers from this plant in Arkansas, in the heartland of America. So far, we've spent $40 million on it. U.S. out of the total, $95. And we will come back on Ben's time. part on how much we intend to spend for the rest of the year. But this is how it looks. It actually looks very much like a factory. You can see this is truly Greenfield. activity we are placing the plant there and it's going to be a plant really at with the most modern gable top plant in the world so we're looking very much forward to that and looking forward to how this will support actually this strategy namely the repackaging tomorrow strategy and as you remember For those of you who saw the Captain Markets Day, we launched this in September. And this is a strategy that is made on the back of the fact that we delivered on all of the IPO targets we set in 21, which were three to five years. We delivered on all of these by the end of last year. So this strategy really is to say, then what happens now? And I'm not going to spend a lot of time on it, but given that we will be following up on this in quarterly reports as of now, just a couple of comments on this. Number one is... We are already, we believe, the number one player when it comes to sustainable carton packaging. But what we aim to do in this strategy is to increase this leadership and drive developments related specifically to the notion of sustainability and fiber cartons. We have regulations coming. And we have a lot of interest from both stakeholders, politicians, customers, partners in the development. And this is a big, big focus for us. Number two is we are saying we are going to become a 2 billion euro company. And I think we are well on our way. We have record high quota. But in that respect as well, we are also saying here that we will be targeting a 15% to 17% margin level in the business. Again, we are well on our way. We are presenting here 15.5 during this quarter. And for what we're going to follow in the period to come, we have three elements that shape this strategy. Number one is to realize the global growth. That, in our case, means we're building a plant in Arkansas, We're putting in two lines, there is room for more. We're going to leverage the investment and drive our business in that area based on the investments we made in Americas, but also in MENA and also in India that we've been presenting. So very much use, leverage the investments we made. Secondly, And this relates to the sustainability, strengthen the core leadership, the leadership we have in our core markets. I'm coming back to a point on that just in a second. And then thirdly, the overall and massive plastic replacement shift. Consumers, customers, retailers, politicians want to move away from plastic, want to have alternatives to reduce plastic littering, CO2 emissions, etc., We are committed to provide that alternative with our solutions. And I'd like just to give a little flavor of some ideas what is happening in our world. So in some of the latest quarters, we presented some of the fantastic developments on plastic to carton shift. We've also seen in a previous quarterly presentation how we're building market share in core markets. And this time, we've just taken a couple examples of some of our core markets how our large customers, and I'd like to say long-tenure core customers, how they are building their business and using the PurePak system to drive that. And one very good example for this is ALA. Everyone knows ALA. I think everyone knows ALA. ALA is an international dairy company owned by farmers in Denmark, Sweden and around the world, in Holland. They are active in Europe, they are active in the Middle East. It's a company, one of the leading dairy companies in fact in the world. They have great iconic brand names like Lurpak, the butter, and of course also the name itself, Alaa. So what they have done, they have taken another iconic brand name, namely Milka, which is the Mondelez-owned chocolate milk known from all of you who travel in airports will see the Milka brand everywhere. And they are now moving that into a drinkable format. And for that purpose, they chose the iconic Pure Pack to suit the iconic Milka brand. This is going to be launched. It's a very exciting launch. It's going to be launched across a number of countries in Europe and beyond. Another example of also one of these big dairy companies who have a global reach and work across many, many countries, of course, for us, is Friesland Campina. And Friesland Campina is Dutch. It's also a cooperative owned by the farmers in Holland, have a long global reach, significant presence in Asia, and also in bigger parts of Europe, including Eastern Europe. And in this case, what they have done is they have taken One of the best known brands in Romania. It is called Napolact. And this brand, they have now moved from another packaging system, let me put it like that, into the PurePak system in order to, because simply for two reasons. High consumer preference, number one. Secondly, in terms of the performance that the system, the filling machine can offer the customers. in this case they can move the shelf life of the product up to 33 days simply in a fresh milk changing the filling equipment is using the state-of-the-art shikoku technology without packaging material in pure pack and then get this kind of shelf life significant improvement on TCO, total cost of ownership, while maintaining a very, very high consumer preference. Two examples of how customers are thinking about this and part of why we are seeing the growth that I mentioned before in North, Northern and Central Europe, because we have initiatives like these, but not only these, of course. So time is flying. And with this, I will hand over to Ben, please.

Thank you, Thomas. So before I go through the financials, I would just like to notify that we have changed the definition of EBITDA. So now we include the share on net profit in our EBITDA metric. And that means that the only difference between EBITDA and adjusted EBITDA are those adjustments we make related to special items. I think that will simplify the communication and I will talk about EBTA in this presentation. For the sake of good order, I will also like to inform that there are no adjustments year-to-date 24 nor in 23. So it's the same. So a good quarter in a dark time of the year from a weather perspective. So before I go through the bridge, a few things around IFRS 15, because I think there are some confusions. So let me just repeat what is it. So when we produce finished goods, there's a customer logo. on that carton. They've already ordered it. They have to take it. They have to pay for it. We have an enforceable right to payments. So that finished goods becomes revenues. That is the IFRS 15 adjustment. So for the group, we have an adjustment of 100,000 plus. For this adjustment, it would have been 45.3. The adjustment last year was also positive, but it would have been 700,000 lower. So when we talk about the effect year over year, we have to compare this adjustment to that adjustment, and that's why there is some confusion sometimes. So when you look at the change from last year to this year, that effect is 600,000. Positive here, 100,000 here. Positive 700,000 here. Why is that? We have produced finished goods. We haven't invoiced it yet, but we have an enforceable right to payment. We're going to make a booklet about this, so we don't have to refer to this every single quarter, so it becomes too technical. But since there was some confusion in analyst reports, I would just like to clarify it. OK, good. the bridge so we go from 48 million euro to 45 million euro this year so let me just start of the one of effect that we had last year so we had a positive one of effect last year because a reversal on an accrual in europe so that happened last year so that is a big part of the explanation The next bridge element is what we call net revenue mix. It's rather stable and I will explain on the next slide what can explain that. Further to the raw materials, we have a raw material cost reduction of around 3 million euro. That is a result of a softening of PE, alu and energy. We still have an increased board cost year over year, and that is very much linked to shortcuts of wood in the Nordics. If we move to the operating costs, this has increased 3.7 million euro. And it's important to explain that a very big part of that is actually inflation that we still have in our books. So that is estimated to be 1.7. And the remainder is our FTE ramp up linked to our strategic initiatives plus increased R&D efforts. In these numbers, in Q3, we also have a project cost related to ERP implementation in Americas. That takes us to 45. And if you look at this in context, it demonstrates the continued goods run rate. So the run rate that we had in Q1 and Q2 continues into Q3. Now to the segment EMEA and America. If we start with the EMEA, as Thomas explained, we have a positive development in the chilled segment in the northern part of Europe, both on blanks and on closures. On the other hand, we see a negative development on Rolfed because there's more competition on that format, but that is mitigated by good growth in the same format Rolfed in India. Thomas referred to the down trading in the South. That is very much linked to the macroeconomic environment in Europe and that seems to affect the southern part of EMEA more than the northern part. In MENA, we see some consumption decline, but there are also timing effects in the way customers doing their purchases. So we expect a normalization into Q4 in MENA. I already mentioned, if you look at EMEA figures here, the one-time effect, that was actually in EMEA. And this one million is then the year-over-year delta, which means positive effect, 500,000 last year, negative effect, 500,000 this year, year-over-year, one million impact. That's the way to think about it. And Christian is happy to take all the questions about IFRS 15 any day. If we move to Americas, we have a strong quarter from a filling machine perspective. It's interesting from two perspective. It's also is an indication of future blanks growth in America, but also for the quarter, it explains part of the profits. Despite the supply chain challenges in America with the board shortage that we talked about in the second quarter, we are still growing the volumes, which I think is a huge achievement and a big, big thank you to the team in America. So that is a job very well done in America. The issue now is not lack of boards. is basically that when the board shortage hit us, we were already close to full capacity utilization. So it's quite difficult to catch up when you already run full steam in the plant. The last point on Americas is that we still have a strong performance in our joint ventures, very much linked to the school meat deliveries into US. So let's take a look at the cash flow. We have a strong, still strong cash flow from operation of 94 million euro. The working capital is increasing by 11 million euro from year end, and it follows the top line growth, but it also includes, you can call it like timing effects, because we are settling account payable store supplier difference time of the year, and sometimes that is positive, sometimes that's negative, so that's natural one-off, or we call it timing effects. And also it's also linked to timing of transactions related to filling machines. Then what is underlying here is that one, we are building up stock in Europe for a scheduled maintenance stop in Europe. And we also have higher board than normal actually in Montreal, giving this supply chain disruption. So coming back to the point that is the production bottleneck, that is the issue, not the raw material part. Taxes paid 22 million, one from more profit, two it's also a slightly higher tax payment than normal due to the catch-up effect of earnings in Canada. That happened in Q1, so nothing special about this quarter. 8 million is basically a reversal of non-cash earnings from Mardu Ventures, so that's easy. Moving to cash flow from investments, that is 63 million euro. So what is that? The biggest chunk here is the 36 million euro related to the US plant. We have the normal investments in maintenance, in filling machines of around 26 million. So that's pretty normal. And we have some other bibs and bobs of projects. Other, we got the cash, 2 million from Russia. That was an earning recognition in the second quarter, but now we got it, 2 million there. And we also have dividends from one of our joint ventures. Dividends paid, sorry, cash flow from financing, minus 23. We paid record high dividends, 24 million euros. Lease payments is the lease liabilities, slightly up because of our tethered cap contracts. Other is interest payments, mainly that is 11 million euros. So that's up a couple of millions compared to last year because our net interest bearing debt is increasing due to the investment program in America. So we increased the loans by 41 to finance that investment, but we also raised the cash from 13 to 21. So that's important to remember when you look at the 41 number. Let's move to our balance sheet. So actually happy to report. So there's, I see something here and I see something else here. So I will talk about what I see on my screen, which is the balance sheets. There we go. Here we have the leverage ratio and the net debt. So what I'm happy to report is that we are at the mid-term target for leverage ratio. That is after paying 34 million in dividends and after investing all that money into the US plant. So that is great. If you look at the return on capital employed, 16.8 is a robust return and you can see that it's quite above the same period last year and it's slightly down compared to Q2 that is mainly due to an investment program increasing the capital employed. This is LTM, that means last 12 months. So that is the way we will present our ROCE. So we will not do the quarterly ROCEs, we will do the last 12 months. That is probably good to remember. So conclusion, balance sheet remains solid and we have improved the profitability that really offsets the investment levels. So that's all I wanted to share today, Thomas. So I give the word back to you.