Elopak A S

Good morning everyone and welcome to the third quarter 2025 results presentation for ELOPAC. My name is Erika Honningsvog and I'm the investor relation and treasury officer. Today's presentation will be held by our CEO, Thomas Kermendi, and our CFO, Bent Axelsen, and will last for about 30 minutes, followed by a Q&A session, where the people here in the audience and the people watching online will be able to ask questions. So with that introduction, I will hand it over to our CEO, Thomas Kermendi.

Thank you, Erika, and good morning to all of you here in Oslo. It's actually lovely to see such a filled room here today. And also, of course, a very warm welcome to everyone joining us on the webcast. Today, we are particularly happy actually to present the best ever financial result for the group to date. So it's a presentation with quite a few milestones and we're very, very excited to present. Before we start on the quarter, of course, just for those of you who are not so familiar with EloPak, what we do is we are in sustainable packaging. What we do is we protect commodities, we enable nutrition around the world, and we do all of that with a mission of actually reducing the overall plastics consumption. So replacing more and more plastics with more and more carton packaging. But let's then look at the quarter. And it's been quite a unique quarter, as I said. First of all, we have seen a plus 49 million euro EBITDA result with 17% margin level. It's a very strong result in absolute terms. And it's also with an organic revenue growth of 1.2%. Most of the revenue, most of the result is driven by an incredible strong performance. Again, I have to say, in Americas with 18% growth. And also in a period where our plant in Little Rock actually for the first quarter started turning a profit, as we said that it would do actually after Q2 as well. It's also... A quarter where we, and I will address that more later in the presentation, have decided to increase the capacity ahead of time in US with yet another line, so the third line to be installed. And also now a quarter where we say that even though the A mere business is meeting some consumption headwind generally. We are seeing that the business is resilient and doing well in spite of all of this. And finally, and very importantly, I'm sure for many in this room here as well, this is a quarter where we have a solid cash generation. We've been able to pay back. are now facing a 2.1 leverage ratio, again almost in line with the mid-term target. So overall, strong financial performance in the quarter and some very important milestones for the future growth of EloPAC. Let's just think two minutes on the strategy that we presented back at the Capital Markets Day and that we've been following up since and where you see that the quarterly result we have now is a direct result of the activities we have initiated throughout this period and on the back of the strategy. Our strategy consists of three elements. Number one relates to the geographical, what we call global growth. For us, global growth for a very, very, very big part relates to America and the continued development in America. Needless to say, performance in America, and what I've just shown, is a testament that that is actually paying off. The second one relates to the development around making our core stronger. And our core in Europe, where we have a significant part of our business, also relates to development, innovation around new materials in line with and meeting the regulations upcoming in the EU, such as the packaging and packaging waste regulation. A lot of the work in that field is directly transferable into the overall ambition we have in replacing plastics, what we call plastics to carton. This is a massive area way outside our current business but in adjacent areas but also in the actual substrate shifts happening in our business i.e. if you think of it the milk currently packed in plastics moving into gardens etc. But the potential of course is way way way beyond that. Now Starting with number one and the geographical expansion, let's just turn and think about Americas again. Because it has been quite a journey for us. We, as some of you remember and seen as we decided back in 23 to establish a new plant in US. And that is on the back of a position we've had in US for actually for 20 years. We came to North America in 2000, yes, and supplied North America with plants in Canada, our big Montreal plant, and also the plants in Mexico and the Caribbean. In 23, we decided we need a plant inside US, and then we decided to establish a plant in Arkansas, Little Rock. In September of the same year, we announced that we're going to put in another line in that plant because we saw increasing demand around our services, our packaging offerings, and generally an opportunity in the market. In April of this year, we had the inauguration of the plant. The plant, I can happily say, was built, constructed and made in time and on budget and has been up and running ever since and we are ramping up and as you have heard earlier we're now seeing the fruits with the plant turning a profitable business already here in Q3. So the demand actually in America is very clear. And if you think of it, we have been growing since 2020 on an average 15% a year. That's 76% actually growth in the America's business in a market, in a stable, mature category such as milk and juice. So we have seen that there is a demand for what our services and for that reason we have also taken the step now to announce the decision that we are going to build, extend our capacity with the third line in Little Rock. Allowing us to drive our market share, continue on the growth pattern we've been on, allowing us to establish a much broader portfolio than we had before, simply given that as equipment gets, the manufacturing plant gets more and more full with existing orders, we need to have a broader setup to be able to offer a broader portfolio. And that is what we're going to do with the third line. So, what is very fundamental is that with this third line that we are actually putting in place somewhere a year ahead of what we had originally thought. But with this we confirm again that we will reach our targets as presented on the CMD back in 24. The mid-term target as well as the long-term target. This will enable us to drive, as I said, increase our value share, our share wallet with a number of our customers as well as increasing our market share in general in America. Because of the product mix, though, in America, which is in the third line will be primarily focusing on smaller size packs, including anywhere from school milk size and upwards. For our large customers in the US, they always have a mixed portfolio in their sales, i.e. from very small ones to the larger half gallon sizes. For us, establishing a third line enables us to get a higher share of wallet with them, supplying them the full portfolio and hence become a better and more valuable supplier to the industry and to our customers in general. So although we have a run rate because of the product mix on the third line, which is different than what we have announced on the first line, we're also going to see that with this it's accretive to the group and it's certainly very, very strongly supporting the group's industrial presence in It would also mean that we will have a higher level of flexibility in how we run operations in America. We will have a higher level of operations with line 2 and 3, which will allow us to ramp up line two at a faster pace because of line three than without line three. And that has to do with product mix and how you move products and sizes, et cetera. Very important is we are building line three because we have the commitment, full commitment on that line from customers in US. So the line three acts both as an industrial strategic investment. It has the full backing of customers and it is definitely accretive to the group and will strengthen our overall position in US. Now back to our results. And as you will see, we have a revenue that is down due to the currency effect in US. On an organic level, we are up by 1.2% and up by around 2% for the full year. We have a strong performance, which is both in the quarter and of course in the year but in the quarter very strongly driven by the development in US. And remember we have a negative currency effect that we'll address later in this period. All in all We are heading now at 17%. And for those of you who recall our capital markets day targets, we did say 15 to 17 mid-term targets. So it's a very healthy level for us to be at in this period here. There is a one-off, though, which has to be said in EMEA of 1.5 million, which is also part of why we get a positive one of 1.5 million. With this, as I said, this is actually the highest EBITDA we've had to date. And we are very excited with what that brings to the future. So with this, I think I'm going to hand over to you, Bent, on the financials.

Thank you, Thomas. From financials to more financials, which is fun today. Let's jump straight to it with EMEA. What we can see here is that we are delivering a revenue of 206 million euro, which is 5% down compared to last year. But if we analyze the performance, the underlying performance, we can say that we do have a resilient performance despite continued soft consumption. Now, why is that? If we look at our PurePak revenues, they are stable year over year. So what we are seeing despite the soft consumption, we continue to increase market share. Specifically for this quarter, we are regaining our business in Mena as fresh dairy is strengthening in that region. And for the aseptic business, we are growing by taking market share and basically growing with our customers. If you look at the key contributor to the revenue decline, it's actually related to filling machines. We are commissioning around the same number of machines this quarter compared to last year, but the machines are smaller, so we have a negative mix effect. That actually explains around 60% of the revenue decline. So if you move on, as we have reported before, we still observe competition in the role fed segment. And that is happening both in Europe and in India. In Europe, it plays out through lower volumes, albeit the pace has slowed down. So we see a positive development in the Rolfed area, because we see that the trend is slowing down. In India, it plays out with a margin squeeze because it's a crowded place. We are growing organically 19% in India with our role-fed business. When it comes to profitability, we are reporting 36.7%. That is up 2% compared to last year. That comes from improved pricing and improved mix in PurePak. And we also have this switch from PurePak to RollFit, which is also contributing to the positive mix. And Thomas already mentioned the one-off, which is in Europe, which also impacts these results positively by 1.5 million. So in conclusion for EMEA, resilient performance despite continued soft consumption. Over to America, the growth journey continues with revenue growth of 11% or 80% on a fixed currency basis. We are still seeing the interest and the demand in our products, so the growth in revenue is volume, carton and closures, and it's enabled by two things. Obviously, we have the ramp up in the US, but we're also seeing improved productivity in the assets in Canada and in combination that is then enabling this growth. Also in America we have a negative revenue impact in regards to filling machine. So it's the same explanation here. We have a mixed effect. In these quarters we have commissioned school milk machines and they are smaller in size and also then smaller in revenues. If we move to the EBITDA, we see a very strong growth of the EBITDA, 21% growth of the EBITDA up to 21 million euro with a margin of 24%. In addition to the top line growth itself, we have positive mix effects, but we also do see the benefit of improved asset utilization and we are leveraging our fixed cost base. It's also, of course, as Thomas mentioned, very proud that this is the first quarter with positive EBITDA in Little Rock, a milestone for us. We are very, very pleased with that. The ramp-up continues, and it's obviously better than last quarter. But we obviously would have liked to see an even faster ramp-up than what we have seen. When it comes to the joint ventures, we have an EBITDA or share on net income of 1.4 that is actually declined from 2.1 and the explanation for that is a softer demand and a change in consumption habits. But overall, the key message is that we do have improved utilization that enables growth in America. Let's take the group perspective and start with the net revenue mix. So this is 7.4 million euro and that is mainly driven by one, the growth in America and the positive mix and pricing effects in EMEA. When it comes to raw material, this is again where we have the one-off, which is positive, and then we have a negative effect of 0.6 for the underlying raw materials. That comes from board price increases, ALU price increases, even though the PE has softened year over year. Our operating costs are mainly explained by salary inflation of 3% and also the ramp up in Little Rock which also is affecting the operating cost level somewhat naturally. The rest of the fixed cost base in the company remains rather stable. The last bridge element, we have already mentioned joint ventures and the FX, which also Thomas talked about, that is the result of the 6% weakening of the dollars versus the euro on an average year-over-year basis, leading to the 70%, which is on par with the best we have done. Let's move to the cash flow, which is probably the most exciting part of the financial this time, because we also are not only reporting record profitability, but we are also reporting record cash flow generation from operations. The cash flow from operation is 55 million euro. It's not only driven by the profitability, but it's also driven by the improvement in working capital. This element is, to a large extent, driven by timing of accounts payables. That can go up and down between quarters. It was quite low last quarter, and then it's higher. So this could vary a little bit up and down, important to notice. But we also have an underlying improvement inventory in Europe from our working capital project. Also here, we are seeing the ramp up effect of Little Rocks. We are also building working capital, obviously, as a part of growing the top line in the US. Our cash flow from investing activities is 11.5 million euro. We are still having 2.4 million in investment in Little Rock in this quarter. The rest is our replacement program in Europe. while filling machine investments are lower than lesser because most of the project are sales rather than lease and then it doesn't impact the investment line. Cash flow from financing activities is also 11.5, nothing special there, which brings us to a net debt of 272, which means that the cash bank debt has reduced 31 million euro quarter over quarter, which we regard as a rather solid figure. With this cash flow generation, we are deleveraging the company. As Thomas said, we are bringing the leverage ratio very close to our mid-term target of 2. This comes from not only the payment of the debts, but we also have improved the LTM EBITDA by 3 million euro. And the good thing with that is it enables future investment in our strategic initiatives, and it allows us to continue to pay healthy dividends. And if you check your bank accounts yesterday, you received dividends in total 21.5 million euro. This comes from the second installment of 2024 and also from the first half result of 2025 as we are in this transition year from annual dividend payments to semi to try to try two payments per year. If you look at the right hand side, it's a little bit difficult to see, but the curve is going upwards on ROCE. So we finally are seeing improvement of our return on capital employed, as we have talked about in earlier quarters. And that is coming from the fact that we are finally making profit from our Little Rock investments with the capital that we already have installed there. We have so far invested 86 million dollars in Little Rock. We have 42 million to go and we expect that around 6 million of those will come this year in Q4. So in summary, the financial position is really strong. And we are continuing to leverage the company despite the investment program. So this concludes the financial section, which was actually quite great to present.

Thank you, Bent. Good you liked it. So finally, as you can sense, we are really happy to report to you the highest. And I would change that into the best financials yet for the company. It's EBITDA, as you saw, but it's also the cash generation that we have succeeded with in the period. And it's also a period where we are reaffirming our strategy. We are confirming the strategy we are now putting in and deciding on the third line really is putting a strong footprint in the U.S. and in the Americas in general, North America's. We're also seeing EMEA, despite these headwinds that we have talked about, that we're actually seeing very solid developments in big parts of EMEA, not the least in South, not the least in MENA, that gives us the confidence that we're also here on the right track and will continue to develop the business in line with the plans we've outlined in the Capital Markets Day. So all in all, what we are now saying is we expect to deliver within our mid-term targets, as you know, which is 4 to 6 percent organic growth and 15 to 17 on the margin side for the year. And with this, I think we're going to hand over to questions.

Thank you, Thomas. Thank you, Ben, for the presentation. So we'll now open up the floor for questions, starting with the audience here first. So please raise your hand and also state your name and the company.

Thank you. So you have previously said that line 2 will be fully ramped up in H1-26. At the presentation today, you said that line 3 will coincide with line 2. Could you try to put some color on what you really meant by that? Because I assume that line 2 is still on track, and line 3 will come later.

I just want to clarify that we will open line 2 in H1 26, not ramp up.

What we said then was we are going to ramp up during 26. It's not that we are fully done. As we have said, we are going to install line 2 and start ramping up during next year. Thank you. So why are we saying that the two actually help each other. Well it is like this right. If you look at the industry and the I don't think in a way, the dairy industry is way different than many other industries. Our big customers will have a variety of sizes, formats, and evidently will look at their suppliers, one of which is us, to say, can you supply us with a broad set of formats in order for us to essentially become, in order for us to close a partnership with you. And the close partnership in our industry is really, really important because, you know, we have very long tenures generally in the industry. The closer we work with someone, the better we can develop it and the longer performance we can actually secure for our customers. So with this move, we ensure that we can use our line two on some formats that would not have been possible had we not had Line 3 to complement that. And from a customer point of view, they would then have said, it's difficult for us to move volume into you unless you can also do some other formats. That is the simple story. It's a little bit opaque when I put it like this, but it is actually what it is.

That's perfect. Thank you. And also with what you said in Mena, with volume growth commencing again, could you again try to put some color on, is that more of a one-off? Are you seeing some sea change over there? And then also how you think about, I guess, growth into Europe with price increases and so on?

I think sea change is probably overdoing it. Yes. But I'm very optimistic around MENA, honestly. And it is what it is. It's a sensitive economy, right? So consumption is impacted by ups and downs, clearly. But the underlying business for us is the strategic direction we have is add more value to our customers in Mena by adding ESL, longer shelf lives, which drives down their costs, improves the performance of the products in shelf, have a better product with a better looking product on shelf, etc. And that is actually why we are seeing that we can gain business and are gaining business. Now, the business we are gaining is not necessarily the business you see right now in this quarter because, as I say, there are ups and downs. But why I'm saying I'm positive is because underlyingly we are moving in the right direction. And then what we have seen in previous quarters, a little bit how... Ramadan falls and inventory builds up, et cetera. So in a way, I wouldn't put too much focus just on a quarter when it comes to MENA. Much more is the underlying business moving in the right direction, and it is.

And also technically speaking, the quarter last year was relatively soft. So part of that is also a rebound. But it's really, as Thomas said, we need to look into longer perspectives to really get insights from the development.

That's all for me. Thank you.

Okay, so then we will move forward with the questions that we have received online, starting with a couple of ones from Jeppe in Arctic. We'll take them one by one. It's regarding the line three. What are the expected revenue levels and EBITDA margin for the third line?

So what we're saying is run rate is going to be lower than when we talked about line one. It's a different product mix than what we talked about at one, which was really a very, very, I wouldn't say simple because that would offend the people at Little Rock, but a different mix than saying actually one product versus different products, smaller formats. So it's going to be lower. We are not explicit about it because We're looking at the plant in combination of the three lines, right? It's not this line, that line, this line. The combination of the lines will generate the result. And in fact, what we're even doing more is we are more occupied with looking at the America's result than single lines and single factories. And on the Americas result, we can just reaffirm we are going to deliver the mid-term targets and the long-term targets. And then we will fix the mixing between the various production lines.

I think the key here is the mid-term target. And I also want to note that the... Typically the way we follow up the American business is in dollars. We did convert that to Euro top-down target in the capital markets there. Back then the currency was 1.08. So obviously things have happened to the currency as well. So that could also be good to remember when you are calculating.

Okay, when do you expect production to start and what's the planned ramp-up for Line 3?

We expect production to start on Line 3 in 2027, which means that, you know, with these lines there's a certain lead time when you order them and then installing them, etc. That's why we're doing it now to be able to actually produce in 2027.

So does the addition of this line affect the ramp-up of Line 2?

It does affect the ramp up because it gives us flexibility to move products around. To the point of saying with the line 3 we can get more customers in who have a mix of products. More customers in will allow us to move products between the lines in a faster pace and hence we think it's going to be very beneficial for line 2 as well.

And last one from Jeppe. Will this dilute the school milk production from the joint venture?

That is not the intent, no.

Okay, a couple of questions from Luis in BNP. Can you give some extra color on what the Euro 1.5 million one-off is related to?

I can do that. So basically, over the last couple of years, we paid too much in utility costs in one of our factories. And we got that money back, so we paid their out amount. So it's nothing more dramatic than that. So it's basically a retroactive correction.

Thanks. Is roll fed production integrated with PurePak sleeve production, or can otherwise repurpose activity?

Can you just take it again, please?

So is role-fed production integrated with pure-packed sleeve production or can otherwise repurpose activity?

I assume this refers to... Okay, let me put it like this. If you look at our plants now, it's integrated as much as in the same plant, we will do both. But it doesn't mean necessarily it's all the same machines, of course, because you have in PurePak, you have sealing machines you don't use for Rolfed, and you typically have different converters as well where possible. We are doing PurePak and Rolfed in Aarhus. We will be doing PurePak and Rolfed in India as well. So you will have mixed factories, and you will have factories that are not mixed.

Last one from Luis. What is your competitive advantage in Aseptic since you mentioned many customers are moving that way?

Right. So I think that's a very interesting actually question and something I could probably give a longer answer to, but I will make it reasonably short. I think from a... If you are in the aseptic business, you are going to look for something that... I mean, let's go one step back. In the aseptic business, clearly you need performance, technical performance. You need the performance on the packaging systems, etc. So that is the fundament for anyone who goes into this business. In the case of PurePak, We have a technology that allows us to keep a low waste with our filling machines. That is because it is blanks fed versus roll fed and that actually means that the amount of waste during the production is much, much, much lower in those systems. That's number one. That's a more technical operational issue. Our machines, our system is running at a high technical efficiency. which is important of course but the market point is it is a system that is unique. It is the iconic system for carton packaging milk packaging and it is actually the consumer preferred system as well from a handling and consumer point of view. This is I think evidenced by the development we have for instance in south where we're seeing solid growth in the UHT long life milk areas and also in other markets where it is it is a system with a solid technical performance and a very and a high consumer approval in short we can do it much much longer if you like you want to buy a machine let me know

We can also lease it.

Then we have a question from Ole Petter in Sparbanken. This quarter saw smaller machines bought in EMEA and US. Should we expect an increased share of smaller filling machines also for Q4 and into 26? Or was this a special for the third quarter?

I think... This timing has proven to be very difficult to predict. So generally speaking, I would say that Q3 was unusual from a size perspective. I think we haven't done an explicit forecast on that, but our hope is of course to get back to the big machines so we can generate more blank sales and also improve our working capital position. But this will always go a little bit up and down between the quarters.

Thanks. Then we have a question from Amir Jabari. How does the cost pressure in raw materials impact your pricing directions in 26?

Right. So this is, of course, early days to be specific around pricing. But what we do see is that there are raw materials, including board, which will go up. in the coming period. And for us, of course, it will mean that we will also increase our prices for 26. I cannot evidently explain the amount, but we will be increasing prices, yes.

Okay, we have a last one, but I think you covered it during the last question was regarding board price changes for 26th. All right. If there's no further questions from the audience here, I think we will round off today's Q&A session and also the results presentation.

Thank you very much. Thank you.