Elopak A S

Good morning and welcome everybody to this first quarter results presentation for ELOPAC. My name is Christian Hedde 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 we will take questions from the people here in the audience, as well as the people joining us online. So with that short introduction, over to you, Thomas.

Thank you, Christian, and a warm welcome to all of you here on a beautiful, beautiful spring day in Oslo. It's really great to see so many of you here in person. So, Q1. Let's get started. As you know, some of you will know, just two words on who we are. We are actually in the business of sustainable packaging. All we do, the only thing we do, is fiber-based packaging. We do that with protecting essential commodities, not the least dairy products, but also other products such as juices, soups. And in all of this work, we are committed to reducing the use of plastics. So, Q1. Let's look at the performance here. Well, first of all, we report a revenue pretty much stable in terms of... stable when you look at the constant currency. We're reporting a 3.9% decline, but on constant currency, given the exchange rate primarily in the U.S., we're looking at a stable development. Secondly, as you know, and some of you who have followed us, we've had a a strong, very, very strong development in Americas. And actually, our development in the US, in the Americas, continues with 6% growth on a constant currency basis. And also, another strong quarter for Little Rock. Little Rock. As you recall, that we started up last year in April and that has now onboarded more and more customers in line one. So although we have seen and we have reported earlier somewhat slower onboarding of our customers, and when I say onboarding, it's not about acquiring customers, but it's about onboarding their designs, onboarding their materials. That has been somewhat slower. We still remain absolutely confident in the mid-term targets related to Americas. Thirdly, the EBITDA, we came in at 41 million, which corresponds to around just short of 14%. And we also came in at an earnings per share slightly above the previous year and year quarter last time. What we also see, even though we have also during this last quarter invested quite heavily in the expansion in Americas, we still come in at a very solid 2.2 leverage ratio, which is actually slightly impacted as well by the currency impact of Americas. Very importantly, of course, and I'm coming back to that in a little bit broader sense, but as everyone around us know, we have a turbulent world around us, particularly in the Middle East. It does impact a lot of the raw materials, including our raw materials, and it does have a cost impact on our side as well. I will come back to some of the mitigating effects that we are addressing this with in the coming slides. Now, on the revenue, as I said, revenue overall stable, although we report a 12 million lower revenue. This is primarily related to the commissioning of filling machines. And as you may remember from Q4, where we reported a very strong filling machine commissionings, the commissioning of filling machines is not a linear curve. It will vary a little bit between the quarters. If you look at the EBITDA... There is a decline of 3.6 million versus the same period last year. However, 2.5 of this relates entirely to currency impact from the US dollar. And the remainder, as well as the impact that we've had in this period, relates to some one-off effects that we've had. We've also seen... tough margin pressure in India, including pressure on margin, pressure on volume, and we have also front-loaded some of the strategic initiatives that we've taken already to Q1. So all of that impacts the EBITDA for this period. Now, we have also initiated program and some of those initiatives have already taken place. During this quarter we have had restructuring effects in the likes of 1.3 million which is part of the program of reducing or addressing our costs and these will have been adjusted in the EBITDA from Q1. Back to the Middle East and the extraordinary cost impact. Now Everybody in the world now knows where Hormuz Strait is, exactly where it is. Everybody knows what the impact is beyond just the surrounding countries. What you see in our world is a very significant increase in LDP. On the slide, you will see that the LDP increase is around 160%. which is, by the way, a picture we, some of us will recognize from 22, where we saw raw materials explode as well. Not the least on the plastic side, but also aluminum foil and other raw materials in general. We are now seeing the increase, right? And what we have done is that we have, of course, addressed these increases by implementing and introducing extraordinary surcharges on the pricing side towards our customers, given the cost pressure that we are seeing. These have been introduced, they are being implemented as we speak, and they are, of course, related to an existing price level on LDP, on polyethylene, on nafta, but also an expected development. So this carries a certain uncertainty because none of us know exactly how this develops. So what we have introduced is a mechanism that will allow for this kind of uncertainty. And it also brings me to the strategy of LOPAC. And we remained absolutely, absolutely committed and confident in our strategy that consists of these three pillars. global growth as we know is not the least related to america which is the big growth drive what we have we have little rock up and running little rock is a creative little rock is producing in high volumes little rock is producing in multiple shifts in line one we are establishing Line 2 as we speak and we have already agreed and announced that we will do Line 3 as well. Little Rock is the foundation or rather Americas is the foundation of the realizing global growth. But beyond that it's also India, And it's also MENA, where we are now working as well as we have announced earlier on expanding our portfolio, getting more aseptic products in, getting more ESL, long extended shelf life products in. The second one is the leadership in the core. And as we have talked about earlier, we have a strong position in ESL. chilled, fresh business in Europe. We continue to build that with a number of initiatives related around sustainability, related around the PPWR, etc. But the third one is the one that I'd like just to spend a little bit of time on, because the third one relates to the plastic to carton conversion. And of course, in times that we see now, right, LDP increasing off the roof. we see that competitive solutions such as PET will have increased by 60% for a PET bottle with the impact of LDP. So while, actually while, clearly it impacts everyone in packaging with rising raw materials, The situation we see now is that primarily the impact will relate to the plastics products, which will at some point potentially improve the understanding among customers, among retailers, that the carton packaging, in a much, much wider sense than what we have now, creates stability in cost, creates a much better transparency in cost, and is a alternative not only for sustainability reason but also for cost reasons when it comes to packaging other products than just milk and juice and that is what we do in the third box leveraging the plastic replacement because this is the area where we work with the non food products this is the area where we look work with alternatives to Plastics which can be very closely related to our business or a little bit further related, where we can utilize our strong know-how in liquid products, in filling of liquid and semi-liquid products. So, in short, the current development poses a certain amount of challenges for anyone in any industry. primarily because it's uncertain what comes out of the ongoing conflict, but particularly for the carton industry and for packaging in our case, it does also provide the understanding, the certainty among customers that carton actually provides a whole range of advantages in their cost portfolio and their product portfolio beyond the fact that it is the most sustainable solution. And with that, I think I will hand over to you, Bent.

Thank you, Tomas. Before we dive into the numbers, I would like to address two changes that we have done to how we report our figures. The first thing that we are doing is that we are moving the R&D activities and the associated corporate activities from the EMEA segment to what we call other and illumination, simply because this unit is serving both segments, not only EMEA. So this will improve the comparability and clarity when we are reviewing the relative performance between EMEA and America. The second change that we are doing is reflecting an adjustment to our operating model, where the aftermarket services and spare parts are now run by the local regions, together with the blanks, together with the closures. Today, or in the previous reporting regime, all these financials were reported in EMEA. Now the America part of these financials will now be reported in the America segment because these are services and spare parts sold to the American market. So we think this is a logical change. the 2025 figures are reclassified in this report and there is more information in this presentation file and in the report. So let's start with the EMEA segment. In EMEA We are reporting stable volumes with results impacted by one-off effects and timing effects related to filling machines. The revenues are 208 million, down 7% from last year. If you look into this reduction of €16.5 million, €6 million is related to timing of a filling machine sold by EMEA to external customers, while 9 million euro is related to reduced sales from AMEA to America, so internal sales. So altogether, 15 million is basically timing related to filling machines. If we go then to the carton and closure revenues, they are moderately down compared to last year, and that is a result of a negative mixed impact, which I will dive into. The pure pack volumes, they are stable in the MEA segments. What you see here is that there is a decline in the aseptic juice segment. This is what we have reported before. It's a result of the consumer preferences. Combined with the very high citrus prices that we have observed for the last year, these products have attractive margins. We have growth in other segments in UHT milk, but they are sold at a lower price point compared to aseptic juice. We see year-over-year growth in MENA driven by growth in North African markets and we also see growth of closures as we are growing with customers that both buy our blanks and our closures together. If you look at Rolfed, we are happy to report that we are growing the Rolfed volumes again after several quarters with decline. This comes from onboarding of customers in Poland, but as you know, the pricing points on the margin for Rolfed is lower compared to PurePak, so it's not enough to compensate fully. In contrast, in India, we are reporting a volume decline in Rolfed year-over-year, and we are also having, as we reported before, a pressure on margin. A revenue decline is around 13% on a constant currency basis, 26% reported. So that is related to the weakening of the rupee. So as we have reported before, the supply-demand balance is pressured in India. And in this quarter, we saw, particularly in January, February, this also impacting our volume development. If you move to EBITDA, we are reporting 36 million euro down from 40.7. The margin is 17.4. This contains a 1.8 million one-off related to an operational matter. It also is a result of the mixed effect that I talked about for PurePact versus Rolfed, but also the fact that India remains margin dilutive and we also see the absolute impact as the results are down in India year over year. If we move to America, we are reporting around 95 million euro. As Thomas explained, it's a 6% growth on a constant currency basis, but a decline of 4% because of the weakening of the US dollar. The revenue growth is below our earlier expectations due to the weaker demand for plant-based. which is important for our growth in America. We are seeing consumption patterns changing into lactose-free milk, other dairy products, and there is also concern related to cost in inflation. We are working very actively to fill that shortfall with other types of business in the quarters to come. In addition, the quarter was impacted by destocking among our customers. In Q4, some of our customers were building inventory in Q4, and they're now taking the stock down to normal level, and that also impacted the top line in the first quarter. Finally, on the revenue side, we also have a timing effect of filling machines in America with a decline of €5 million for the quarter. If we look at profitability, the EBITDA was €21 million up from 19.7, and the margin is approving to 22%, as you can see. And this comes from the improved production output of Little Rock, and with the operational leverage that we get from that ramp-up. And we also would like to remind that one year ago we had negative results of a little rock because we have pre startup costs in that quarter. The share on net income is 2 million euro compared to two and a half last year. And that is solely driven by the weakening of the Dominican peso against the dollar while the underlying performance remain stable. And as Thomas explained, the US dollar has significantly weakened year over year, and in America results that is measured in Euro, that is 2.4 million down. That wraps up America, so let's look at the bridge from 44.6 to 41 million Euro. Here, the American development and the margin of creative development in America continues to be the most important growth driver for the company. We see in Europe, we see the negative effect because of the negative mix effect with less juice, cartons and more raw fat, but also the impact from the result decline in India. Raw materials are largely stable. Behind that number, we have higher board costs as per our contracts. We see higher other prices, but lower PE prices, given this number. In this quarter, Our raw materials are not significantly affected by the conflict in Iran, but as Thomas explained, we expect these costs to affect the Q2 cost base and also onwards. On the operational cost, we have the 1.8 million one-off effects and the rest is related to the wanted increase in R&D, is related to inflation, is related to the onboarding, sorry, the front-loading of strategic initiatives in the quarter. The JV results we have addressed and it comes to the FX combined for the group that's 2.5 and I just want to reiterate the fact that in Americas we are running this as a US dollar business with dollar revenues and dollar raw material base. If we look at the underlying result, if it adjusts for the one-off, the margin would then have been around 14.4% for the quarter, so in line with the same quarter last year. Let's move to the cash flow. So if you look just starting at the net debt, that is increasing by 21.6 million euro. The main contributor to that is actually the strengthening of the knock against the euro. So that gives a loss on our green bonds. What is important to remember is that this is mitigated by our cross-currency swaps. But we don't report the positive gains, the gains from the cash currencies, what's in our net debt. So that is 16 million euro. If you start to continue with the cash flow from operations, we are reporting around 20 million euro based on the EBITDA of 41 million. We have the taxes paid of 4 million and we are also reversing the accounting and the accounting results from the joint ventures to get to the 20. When it comes to cash flow from investing activities, that is around 12 million. This is based on the continued expansion in Little Rock, and also the normal maintenance programs, also the replacement of equipment in Europe. Maybe one more thing before I move on to the next element is to come back to working capitals because I jumped that. That is 14 million negative effect and that can be split into two factors. It's the timing. 17 million worsening is related to settlement of account payables for our filling machines. So that is really a one-off because we are settling machines that we have commissioned some time ago. Structurally we see a reduction of inventory around 5 million euro. This is a result of the structural work that we're doing to improve the inventory turnover. Now, what we would like to say is that this reduction is a little bit more than what we think is sustainable, so we expect some moderate increase of the inventory to get back to normal levels. Filling machine inventories also went down following the sales in the quarter. Now we are ready to go to the cash flow from financing and loan payments, which is minus 14 million euro. That is the increase in the risk payments, the interest payments, and also purchase of treasury shares. This brings us then, including the FX effect, to 286 net debt. The leverage ratio is 2.2 compared to 2 at the end of the previous quarter. This is following this, I would say, the technical increase of the net debt bring by the FX effects, but also the continued investment in the US plant. The ROCE declined by 0.6, and that is a result of a last 12 months adjusted EBIT. And the capital employed actually is now stabilized since year end. The accumulated investment in the US plant is $106 million, and we have around $22 million to go to get, that will take us to the full three lines in Little Rock. Let's, before I give the word back to Thomas, let's address how we think about where the quarter is ending compared to what you would have expected. As you know, we are not guiding individual quarters in Elepak, but if you go to our Q4 earnings release, we said that we would deliver on our mid-term targets. So if you... convert that into implied Q1 guiding that could be an expectation of 50 million euro versus a reported adjusted EBITDA of 41. This gap is 50-50 between structural market implications, market effects, and one-offs. Within the 50% market effects, 30% is America's, 10% is Europe and MENA, and 10% is India, approximately. And the remaining 50% is related to the phasing of filling machines and phasing of fixed costs and also one-offs. In addition to the price increases that Thomas was talking about, we are obviously working with our cost base to delay and reduce spend where it makes sense without jeopardizing our long-term value creation. With that, this concludes the financial section. So back to you, Thomas.