Elopak A S

Good morning, everybody, and welcome to the fourth quarter 2024 results presentation for ELOPAC. My name is Christian Herde, 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. After the presentation, we will have a Q&A session. Firstly, taking questions from the people here in the audience, then following up with questions from the participants participating on our webcast. So with that short introduction, I will hand over to our CEO, Tomas Kermendi.

thank you Christian and good morning to everyone here in Oslo on this beautiful day we have and of course also welcome to everyone else who is watching somewhere else I'm just looking for the clicker I will be using this one so Before we get into the quarter, and we will present Q4, for those of you who are new to EloPak, let me just give you a few highlights of who we are. So we are the world's largest fresh liquid carton supplier to the liquid food area. We sold around 16 billion cartons last year. We do that in around 70 different countries around the world, with just shy of 3,000 colleagues, and 12 factories placed in Americas and in EMEA region. As you can see, roughly speaking, 80% of what we do is what we call chilled, and some 20% is long life, so aseptic ambient distribution. And what you can also see is that we have had a solid growth over the last years with around 5% CAGR. So what we do is we do sustainable packaging. And that for us means actually we are... replacing plastics with sustainable carton packaging. We do that with essential commodities such as milk, which is probably what most people would know us for, but not the only thing we do. And with that, of course, we're also enabling world nutrition as well as fundamentally reducing plastics in a wide, in a big array of different categories. so enough of the introduction let's look at the business performance and i'm very happy to present q4 which is yet another strong quarter for us in what is totally a very good and strong 2024 and i'm saying this despite a lot of political unrest, as we all know, but also quite strained consumer spending due to inflationary concerns across many places of the world. And yet we see that our development in this quarter continues on the level we have seen throughout the year. Fundamentally, our core business, which is cartons and closures, is growing by more than 6% in the quarter, which is a really, really strong growth considering that we are working in basic foods for the bigger part of our business. You will also see that meanwhile, while growing at this level, we also maintain consistently our epidera level of plus 15%, actually increasing slightly versus a year ago. And also, you will see that in the period we have now managed to increase the capacity we have been highlighting earlier on in India with expanding the Rolfed capacity. While doing that investment and also doing the investment in Americas, we still navigate around the mid-term target for our leverage ratio, which is 2, and we end up at 2.1. And all of that leads to the dividend that we are proposing today of 4% yield, 0.13, in line with what we did last year and fully in line with the dividend policy that we have proposed. Also in the quarter, and very importantly, we are now seeing a slight improvement in a figure that has not been on the bright side during 2024, namely the safety and TRI figure, which has improved now, but overall has had a little bit tougher time during the year. Let's then look at the Revenues. And it's very clear, as I said at the beginning, it's been a strong quarter for us from a primarily pure pack, so the gable top business we have, as well as the closure business. We see very good growth both in Americas and also in Europe. We, as you recall, in America, we are constrained by the capacity situation we have. I'm coming back to that. But in Europe, we are definitely seeing good growth in our core business of extended shelf life milk, as well as chilled milk, where we're simply gaining market share behind this growth. We do also see a somewhat decline in revenues in filling machines in the quarter. And with filling machines, it's very much a timing issue whether or not you commission and install the machines on which side of a quarterly close. It's also a case here that we have a different mix of filling machines and very importantly compared to last year's Q4, which was a strong quarter from a filling machine point of view, we have more leased machines and less outright sales machines and that has an impact on revenue. So if you think of it in terms of filling machines, we see somewhat lower than 20 million in filling machines in this quarter versus a year ago, which on the other hand means we have a growth of more than 16 million in cartons and closures. Epidea-wise, we came in at almost 41, which is close to a million above last year, and also an improvement that is made primarily because of the increase in cartons and closures, and also some effect we had in the quarter on raw materials. However, we also have in this period, and we're going to see that a little bit more later on the presentation, we have increasing operating costs, primarily as a result of the buildup of the factory and the production in Little Rock, where we are now employing people and staffing up, as well as more R&D in order to deliver on the repackaging tomorrow strategy, as we've outlined. That all in all results in a full year level of above 15%, and also I think is a good proof that we have been able to maintain a solid profitability level throughout this period where challenges in terms of the supply situation in the US, the capacity situation in the US, the need for moving products around in different factories and production plants have actually still given us the level we have. And let me just give you two words on who, what is it that we're trying to do. Because for those of you who did not watch us during the capital markets day, we outlined then the repackaging tomorrow strategy consisting of these three elements. Number one is we are currently the number one player in the market when it comes to sustainability and being in front of this area. And we are very, very determined to continue to lead this sustainability-driven carton and fiber-based packaging strategy, but now also for the wet products, so beyond the ones. Secondly, we are on the road to becoming a 2 billion euro company. And that we do while maintaining the margin level that we are outlining even now, i.e. 15% to 17%. And then thirdly, we are focusing on three areas. One is realizing global growth, which has to do with leveraging the investments we have made international and globally. I'll come back to that. Strengthening our core business, which you can see in Q4 as well with the market share growth we are experiencing in our core markets. And of course, Finally, and fundamentally, leveraging the global mega trend behind the plastic shift, shift away from plastics and into more sustainable packaging solutions such as cotton. So let's just say a couple of examples of this. And firstly, and very important, and this is a very important project for us, we keep talking about it, it is the new plant in Little Rock. And as you can see from the picture here, we are now looking at what looks like a factory, because it is a factory. We are on target when it comes to timing on this. which means we are going to open the production during the first half of this year. We are also importantly on target when it comes to the budget and costs around the factory. We are, as you know, sold out on line 1 and have ordered line 2, which will be up and running during the first half of 26. We also with this plan will ramp up production on the first line during second half of this year while we start up in the first half of the year. So this is well on track and a fundamental part in what we call realizing global growth. We are absolutely sold out in Americas as we speak. And we definitely need the capacity, not the least in a time as we have now, where we have As we all know, quite some changes on the tariff situation, potential changes on customs, etc. This factory, a local production inside a heartland of America's, it will be a very, very good addition in our footprint globally and not the least for America's. The other point we have, and I'm going to show two cases which we think are very significant for us in different ways. One is on the plastic to cotton conversion. And what we have talked about is the non-food area. And we have talked about the business in the Scandinavian countries and some other countries. and some other markets where we have seen the development. But now we are seeing it beyond this part of the world, because now we are seeing that this is also moving into Central Europe. And we are now starting the collaboration with one of the leading manufacturers in Czechia, who've launched their Deepak in both, as you can see here, detergents, washing gel, and also softeners. This is a product that has been available now since end of last year across all the large retailers in Czechia. And it's also a starting point for us to expand more into the non-food business across many of the Central European markets. As you know, for... Union cosmetics this is a opportunity to position themselves on a sustainability Platform and a sustainability drive and with this actually they're going to decrease their plastic consumptions in these products by more than 86% just by changing packaging system, so this is a big thing for them and a big thing for us we're working very closely with them on both the marketing side design development and how to expand that across more countries in the region the other one is different but also a testament to our technology because The other one is a development where we are looking at our septic portfolio and the eSense machine. Now, if you think of France and you think of supermarkets in France, many of you will have seen that it's a very significant part in the supermarket aisle that has finished liquid soup. It is estimated to be around 900 million euros worth, the category. And it's also a category where carton packaging has been increasing over the last many years on the back of cans, metal cans, and on the back of pouches. Sill, who is our customer for more than, I think, 30 years, actually went out and bought the Unilever liquid carton. soup brand Knorr which they are now launching in Essence in a gazpacho and why is that because they are choosing a system and this is an example of why flexibility in the packaging system flexibility when it comes to sizing when it comes to use of fibers use of the particles in the soup, but also flexibility when it comes to choice of packaging material with or without aluminum, and then being able to use the same production equipment to a wider range of products from milk to soups, etc. We think this is very exciting, and we also think that part of the drive we have for growth is, of course, replacing plastics in non-food, but also replace moving into more categories where cartons will have a potential to actually replace not only plastics, but other packaging systems that are currently being used, such as cans. So with this, I will hand over to Bent, and I will join you shortly again after.

BENT LEUNG KUO- Thank you, Thomas. If you go one year back, many of the questions and discussion we had, will ALPAC be able to continue its profitability run rates? And we can probably say now, one year later, the answer to that question is yes. We have an EBITDA margin of 15.2 versus last year of 15.1. So run rates demonstrated. Let's start with the EMEA operating segment and this time I'm going to explain both the revenues and the EBITDA. I think the highlight for the EMEA this year would be the revenue growth for PurePak and closures. The revenue growth is 9% for the quarter. There are two drivers here. One is that we are continuing to increase market share in Eastern Europe. We see also a trend in the use of fiber, so plastic to carton or more fiber in hybrid cartons. While in MENA, we are back to a normalized quarter. In Q2 and Q3, the quarter was slightly weaker because of customer destocking. We also had timing of customer contracts, so Q4 is more back to a normal situation. For Rolfed in EMEA, we are seeing a decline in volumes because of very strong competition. While in India, we are continuing to see a very strong growth, but the growth in India is not enough to fully compensate for the decline in Europe. So overall, the revenue growth for cartons and closures all in is 3% for the quarter. Now, as you see here on the chart, the revenues are significantly affected by what Thomas explained, the timing of the filling machine. So the thing about filling machines, they are impacted by a couple of few things. One, the phasing between quarters will vary. The second part is, as Thomas mentioned, the mix between when you decide to rent a filling machine versus selling a machine, and that can also vary between quarters. And the third element is that the size of each filling machine will vary also between the quarters. That effect is 20 million euro for the quarter in EMEA as a negative effect, so that is important to take note of. When it comes to the equipment revenues, they are very much in line with last year for the full year. If you take a look at the EBITDA, it's 31 million euro, 10% up from last year. So this is driven by a very positive margin impact coming from the pure fact and closure sales. We also need to remember that the reduced sales of filling machine is also impacting the average margin positively because the filling machines, they do not generate the same margins as packaging materials do. That is also supporting the mix effect. We have also seen support from lower raw material cost and I'll come back to that later in the presentation. The operating costs are increasing in the quarter. It comes from FTE increases, obviously salary inflation, and also the R&D activities. So we are ramping up the organization. We are ramping up R&D in order to deliver our strategy repackaging tomorrow. And the R&D costs are booked in the EMEA segment. Over to America, we see sustained revenue growth coming from strong customer demand. And the strong pure pack and closure volumes, they are enabled, at least the carton sales that is enabled by outsourcing to one of our JVs and also our plants in Europe. So that has really enabled the continued growth in this quarter. As Thomas pointed out, we have fully navigated to the challenges from the supply chain disruption that we had this summer. The plant is running at full capacity and now we are focusing very hard on getting Little Rock up and running according to plan. If you move to the EBTA, the EBTA is around 19 million euro. That is slightly down compared to last year. There are two explanation factors. One is that we are currently building up the organization to get ready for the production in the US. So that gives us additional fixed costs related to the plant. And the outsourcing of the volumes, they don't generate the same margins as they would have done if we had produced everything in Montreal. So if you adjust for these two, the EBITDA margin for the quarter is actually quite comparable to last year. We continue to have strong performance in the joint ventures, and the share of net profit is 2.7 million euro. So America rounded off the year with 310 million euro, 7% growth, and with an EBITDA of 71 million euro. So a really good year for America as well. To the EBITDA bridge, we go from €40 million for the quarter into €41 million. The net revenue mix is the impact that I talked about, the growth and the positive margin effect of PurePak and closures amounting to €4.4 million. The raw materials in Europe gave us a positive impact of 3.5 million euro. We see softening of PE and we see it on aloe while the board prices continue to increase year over year. The operational costs are up by 7 million euro. We have our FDA increases, and we have the R&D cost, which I talked about, supporting the repackaging tomorrow strategy. And in addition, the salary inflation of around 2 million euro. Now to the cash flow. So this time we have decided to explain the change in net debt. So actually this time a negative number is good. So we are going from 230 million in net debt into 263. That comes from the EBITDA of 106 million euro. we've been able to keep the working capital at a flat level. Now, we feel that the level is higher than where it should be, and we are working very systematically to improve the working capital turns going forward. We have taxes paid of 27 million euro and the non-cash income from JVs of 9, moving to then the cash flow from investments of 98. This is obviously driven by the investment program in US plant that is 56 million euro out of those 109. We also have slightly higher capex related to filling machine projects, the machines that we are renting out. And we have also installed a second roll feed line in India. Our manufacturing capex is at normal levels. We have also received around 10 million in dividends from the joint venture, and also we have received a couple of millions from the sale of the Russian operation that we received in the middle of the year. If we move to the cash flow from financing activities that is 77 million euro that consists of our payments, it's the interests we pay for the year and then the dividends of 34 million euro. Which brings us to the financing position, return on capital. I'm very pleased to report and confirm that we are at the mid-term target for leverage ratio, and that is after a very heavy investment program, investing 109 million So we are almost at the same leverage rate compared to last year, which means that EBITDA has almost fully compensated for the increased net debt. If we look at the return on capital employed, that is around 16%. This reflects that the capital employed is increasing in line with the investment in the US plant, while we will start to generate profit from this investment later this year. When it comes to the US plant, we have dollars because that's what we have announced for the project. We have invested 60 million in 2024 and we have 35 million dollars to go for the remainder of line one and then the line two. If you look at the EBIT that is flat, even though the EBITDA is increasing, that is due to increased depreciation from our CAP closure lines in America and the TED-CAP commitments in Europe. Dividends, as Thomas said, the board is proposing to pay 13 euro cents per share for the year 2024. This is at the same level as last year. This is around 52% of our normalized net profit. Or if you take our APM, adjusted net profit, that is 54%. The nominal amount is €35 million and the yield is 4%. We will pay that out in two installments, once in May and once in October, in line with our revised dividend policy. So that was 2024 as numbers go, and I give the word back to you, Thomas.

Thank you, Bent. And finalizing, as I said before, we are now closing what has been a very good year for us in 2024. We are closing it with some very important milestones for us when it comes to securing our implementation of the repackaging tomorrow strategy with the plant in Americas, and also the now finalized doubling of our capacity in India. It's also clearly that we continue also in this year to gain market share in our core business in both Europe and Americas. And also here we can see that the activities and the initiatives we have around DPAC, non-food plastic to cotton, is also expanding geographically and with more and more customers. All in all, as Ben presented, very robust financial performance, both in terms of our EBITDA level and also our margin level. And doing that while we keep our mid-term target level on the leverage ratio around the Jewish and leaving us in a position where we feel confident that we are delivering on our targets also in 2025. So thank you very much for your attention, and I will now hand over to Christian.

Thank you, Thomas, and thank you, Bent. So we will then be moving to Q&A, starting first with questions here from the audience. So if you raise your hand, I will pass the mic to you. Please make sure to speak into the mic so that everyone can hear what you're saying. State your full name and the company that you represent.

Thank you very much. Alexander Helge from Arctic Securities. Just in regards to India, very interesting to see the expansion, but can you tell me a little bit more about what's driving the market in India compared to Europe and the plastic to carton segment, especially what kind of products?

Yeah. So in India, we are currently in our roll-fed business. So we're expanding the capacity, which gives us more roll-fed capacity, but which will also enable us to move into pure pack that we've stated from the very beginning is actually a big part of why we are in India because of the enormity of the milk market in India, the world's largest. What is currently driving India is it's a portion pack very very small products small packages market it's driven by primarily juice and also alcohol which has moved out of plastic into a garden based system where you avoid that there's tampering with the product because of the nature of the carton pack and also in many of the Indian states they want to reduce the plastic amount and the littering as a follow this. There is an overall market growth in India and our growth which is above market growth is still of course fueled by this huge market growth that we see in India.

Yep, Arctic securities. In terms of the potential US trade war, especially tariffs against Canada and Mexico, who is that affecting you? And could you potentially fast track FID on a third and maybe a fourth production line in the US?

Right. We kind of expected this question, of course. So if you just look at it, if there would be, and we don't know, right, but if there will be the tariff situation that's being described, it would, of course, impact us from the sense that we are producing roughly 70% of what we do in Canada is export into U.S., In a more practical world, what happens is that in the contracts we have, duties such as these are paid by our customers. So realistically, That would mean that their customers, consumers, retailers, etc., will end up paying this. Of course, there is a situation to say, would they then move to local and other producers? And that has to do with capacity. Is the capacity available on the market? Currently, there is a strain of capacity. Hence, that's why we're building. But it's clear as well that we're going to open... Little Rock for Business during first half of this year, and ramping up second half of this year, then what may happen, and we still don't know, but what may happen is we may need to look at accelerating the ramping up of more lines. But we have not made the decision simply because, as you all know, we don't really, really know what will happen, what is going to happen, and how this is going to pan out. But short term, in the very, very short term, if there is a tariff, this is a cost that will be taken by our customers.

Any more questions from the audience? No. Then we will move to questions coming from people listening in via webcast. So I will start with two questions from Håkon Fugløy in SEB. or a couple of questions from . The first one, is it correct to assume that the start up of Arkansas is delayed as you don't guide for timing effects on sale and operating cost during ramp up?

No, it is not correct. As I said, we are on time with the Little Rock plant, both when it comes to starting up, ramping up, as well as the costs surrounding it.

So, no, that's not correct. Thank you, Thomas. Second question from Håkon. Is the current carton sales in America sustainable, given imports from Netherlands and the JV?

It's sustainable, but the situation we have, to be very honest, is that it's a very, very strained situation we have because simply we are literally packed to the roof when it comes to our demand and supply situation. So it's not sustainable had we not had a little rock opening in a... close future. With that, it is sustainable. Until then, we open that, yes.

Just to be perfectly clear, this is only for the transition, and it's definitely not the permanent solution.

A couple of more questions from Ocon. How much of sales is role-fed in Europe?

I think roughly speaking, I need to double check that, but I think roughly speaking, I think we say that it's around 20% of our revenues, of the packaging revenues in Europe. And then you have to correct me if I'm wrong, Kristian.

I think that's about correct. And then the last one from Håkon as of now. What was 2024 sales of Deepak and what do you expect in 2025 given the positive customer demand?

So, you know, we don't disclose the exact sales of DPAC. You know, DPAC for us is a strategic initiative and a strategic priority. We get this up. As you have seen from the CMD material, we believe that the non-food business will grow. provide a significant part and a significant contribution to the group. Right now we are at a starting level and the figures are in that sense not material. What we are expecting during this year with the number of machines that we're installing is a significant growth but from a low base.

Thank you, Thomas. Then we will move to some questions from Charlie Murray Sands from BMP. Starting with the first one, for 2025, your outlook is confidence in our ability to continue to successfully execute on our targets for 2025. Are these consistent with your targets to 2030 of 4% to 6% organic? Revenue growth and 15 to 17% EBITDA margin.

Do you want me to answer? Will you answer? Yeah. So when it comes to the top line, the answer is yes. When it comes to the EBITDA margin, the way we have talked about that in the capital markets, we don't think that there's a linear relationship because we do ramp up the organization in the P2C area, building up a new organization there. I may also step up the game on R&D. Our starting point in 2024 is 15.2% EBTA margin. 2025 is very much an investment year, so we don't expect a significant ramp up of the EBTA margin for 2025.

Thank you, Bent. Second question from Charlie. What is your CapEx expectation for 25? And does this include a second line in Little Rock?

Yeah, so I think the way I like to talk about that is to refer to the CMD material, which is 5% to 7% of the revenues. And we have $35 million left to invest in Little Rock, of which 25 of them is related to Line 2, and 10 is the remainder of Line 1.

Thank you, Bent. 424, what share of your filling machine placements were outright sales versus lease?

That is a number that we do not disclose, but the share of rentals were higher this year compared to last year. In the IPO, we said that the relationship was around 60% sales, 40% rental, but we haven't updated that number on a regular basis. Generally speaking, we can say that the aseptic machines typically are more rented out because that's the nature of the industry, while the fresh more often sold, and in America, all the machines are sold. We don't have any rental agreements in America.

Thank you, Bent. Then a couple of more questions from Charlie. And the next one goes to, when do you expect to deploy PurePAC in India?

Well, in our plans, we actually expect this year to be the first year where we will see some developments. Be that early and probably not at a very material level from a... group point of view, but we have a lot of interest in India currently. We've seen a lot of different customers, different categories, and this is the year where we will see the first machines in place.

Thank you, Thomas. Then the last one from Charlie, and it goes back to the question on tariffs earlier. So 70% of Canada production is exported to the U.S., but what share of your America's sales are Canada to U.S. or Mexico to U.S.?

Let's take the last part again.

What share of our sales in America are sales from Canada to the U.S.? ? and also from Mexico to the U.S.?

I think the numbers that we have from the top of our mind is that of the Montreal capacity, 70% is sold to the U.S., and of the Mexican capacity, 70% is sold to the U.S. That's the number I have. I then basically have to back solve to get to the exact answer you're looking for.

Thank you, Bent. Then we have some questions from Marcus Gavelli in Pareto. Again, it goes to the question on tariffs. I think we've answered that, actually. So I'll move to Niklas Gehlin in DNB. Can you share your view on the year-over-year change in EBITDA and EBITDA margin from 24 to 25? And touch upon what effect cost inflation and offsetting price increase has?

Yeah, I think I'd like to start with what I mentioned in the beginning of the financial is that there were a lot of questions about is ELPAK able to continue its run rate and there was a lot of questions around that and I think we can safely say that we have demonstrated I think what we see in our numbers is, yes, we do see softening of PE, and we see softening of ALU. You saw that the impact for the quarter of 3.5 million for the quarter, and I think the yearly impact is very... Similar to that, I don't have the numbers from the top of my head, but that has been the trend in 2024, is softening PE, softening of ALU, while the board prices have increased. But net, that has been a positive for ELPAK. What we do see is the inflation of the fixed cost base, which you also saw from the bridge. Compared to earlier years, especially 2022 and 2023, the characteristics are different, because then we talked about raw material increases. Now it's more an inflation of the overall fixed cost base, and that is something that we are following very closely. But we will leverage the fixed cost as we are growing in America, India, and also in the non-food area. Do you want to add anything, Thomas?

Yeah, I just want to add one point. There was a question on pricing as well. 2024, we did not increase prices. When we talk revenue growth, when we talk about the improvements we have, this is not driven by price initiatives.

Thank you, Thomas Bent. Then I have two last questions from Hugo Maas in Syncomore Asset Management. What kind of contribution should we expect from Little Rock in 25 in terms of revenue? Is it right to expect low contribution in H1 and then ramp up for H2?

Yeah, I think that we gave those exact figures in the capital markets day for the run rate perspective. So I'll refer to that documentation. And I think what we have said is that We think that the EBTA margin when we are running full speed is around 20% EBTA margin, roughly speaking, from a run rate perspective. And we will hit that run rate by the end of 2025. And that is basically the nuances that we have at this point in time, unless Ayahar has a different opinion.

That's a good bet. Thank you. And the last one from Hugo. Do you expect phasing impacts as well from filling machines in Q1 2025?

I think we will have, there are some what we call sleepovers from December into January that will support us. To which extent you will see that as a positive facing effect in Q1, I think it's early to say. It's quite unpredictable. And when it comes to installation of filling machine, it's not all predictable. up to ELPAC when that happens because customers they need to have their infrastructure in place they need to have a space for the machine and downstream equipment so there are a lot of variables that are outside our control hence it's a little bit difficult for us to forecast that is by the month

Thanks, and then we have one final question. What is the cost development expected for aluminum and boards for 2025? Do you see it as a tailwind for the coming year?

So maybe there's one thing I would like to add on the previous question, which I think is an important point. If you look at the equipment revenues for the year, that has increased 16% for the group, which is a leading indicator of blanks. And I just want to add that point. to the picture. So for the year, we have a 16% revenue growth on the equipment side. So that is really, really good. When it comes to aluminum and PE, we don't really share our opinions about future outlook on raw materials. We hedge around 70% of our position, either through financial instruments or through our contract losses. And that's probably, I'd like to leave it like that.

Good. So I think that was the last question for today. So with that, we will round off this fourth quarter results presentation. Thank you, everyone, for participating, both here in the audience in Oslo and also to you that have participated online.

Thank you. Thank you very much.