Envipco Holding N.V.

Good morning, everyone, and welcome. It gives me great pleasure to introduce to you the Q3 23 results from Invipco. My name is Simon Bolton, CEO of the business, and I'll be joined with this presentation by Bob Lincoln, my colleague who's president of the US business. Usual disclaimer. First of all, it's fantastic to be able to present the quarterly report this time. We've had a record quarter. Group revenues are at 25.3 million. That's 49% growth versus a year ago. I think this quarter really shows that we're delivering on our European growth strategy. European revenue itself was at 16.9 million. That's up over 133%. This is mainly due to growth in existing markets, We've had a fantastic quarter in Greece. As we mentioned last quarters, we're starting there to deliver recycling centres to municipalities, and that's carried on very strongly in the quarter. And also, very exciting, we have initial deliveries and sales to both Hungary and Romania. From a gross profit point of view, we've also done very well. So our gross profit margin continues to improve step by step. So it's at 34.9% for the quarter. And overall, that gives a gross profit of 8.8 million, which is 67% higher than a year ago. Overall, with higher top line, very good gross profit, and a good control of operational OPEX costs. Overall, we've delivered all-time high EBITDA of 3.8 million, which is a 15.2% EBITDA margin. So a fantastic and very exciting quarter. We just want to take a moment just to position Q3 for the whole of our growth strategy. So for those particularly who have joined over the last few quarters, what were our key objectives when we started this a few years ago? The first one was to have a really solid market share and a strong and stable business in North America. The second was to pivot the business to be able to capture significant share in these new greenfield markets that are opening up in Europe. And so how have we done on that? The first thing is North America, which Bob will tell you about a little bit later. We've now got just over 40% market share, up from 24% in 2012. In Europe, we have great positions in a number of growth markets. That's actually now moving through into revenue. And Europe now represents two thirds of our revenue this quarter, whereas three years ago, it was only 10%. We've been able to do that by three things. First of all, we've developed and grown a European organisation to support this growth. We've also opened up more production capacity. So as we've announced previous quarters, we've now full stream with our Romanian production facility and we've relocated and expanded Germany as well. And we're continuing to invest in innovation. We're a technology business. So we continue to invest in R&D. And that's really now filled out our product portfolio such that we can service all the needs that customers have. What do we do when Bob and I wake up and the rest of the organization of nearly 400 people? We're looking at creating a cleaner world for future generations through our recycling technology. That's what drives us. That's our principal focus. And that's what we've been working on over these years. How are we actually going to deliver that? What are the strategies? One of the main ones is to focus on these growth markets, particularly in Europe. They're greenfield. They're opening up. And that's a fine opportunity for us to come in and show what we can do. As we mentioned, we're a technology business, so we continue to invest and develop and improve our innovative and superior products. We're a nimble, agile business, so we get into the markets early and we really work with customers to tailor our solutions to meet their needs. And the feedback on that is really very positive. We're not going to be able to do this without a fantastic team. So we've grown the team. We were under 300 people. Now we're nearly 400 people in the business during this year. And it's those ambitious and talented people that drive this organisation forward. And the performance today is we want more for tomorrow. So we're continually driving and relentlessly trying to improve what we do. This is great because we have a huge, huge market in front of us. Industry estimates think that there's about 200,000 reverse vending machines, so the products that we deliver to support deposit markets, which will be needed in the next few years in Europe and also in North America. That's about a 4 billion euro market opportunity. What's driving this? It's really legislation. So particularly in the EU, the single-use plastics directive is driving both recovery of beverage containers and also the reuse of that material in for new containers into the market. So great drivers that are really going to motor the business. To satisfy this legislation, countries are going to need to put in systems to capture these containers. The best way of doing that, which has been proven over the decades, is to put in a deposit return scheme. So Bob and I here are in Norway, has a fantastic deposit return scheme. So effectively, when you buy a beverage container, you pay a small deposit, and that incentivizes the end user to return that beverage container to a recycling point and to get their money back. Many markets in Europe don't have that. And so, as you see on this slide, and as we presented before, we have waves of countries from now to 26, 27, putting in those systems. And of course, those systems, when you're talking about billions of containers, which most European markets are, needs automation, which is where our innovative solutions and when our software comes in. I won't go through all these in detail, but the first few, Romania, is where we have our plant. At the end of this month, we'll have an initial go-live of the system. We're delivering products to support Romania. Hungary, with the Mole Group, we've already now started installation in Hungary for a go-live in January. Ireland, which Bob will talk about later, A little bit later, again, we've won a significant order for an independent retailer, and that's starting to roll out and will continue in Q4 and in Q1. After those three immediate countries, then we have a second wave, including countries like the UK, Scotland, Portugal and Poland, again, which we want to really be active in and get our fair share of. And then after that, we have a number of larger countries which are still working on setting up legislation, including Spain and France. Greece here is, we are very active in Greece. Greece at the moment is what we call a pre-DRS market. So we're using technology with our distribution partner to capture the material, but there is no DRS legislation at the moment. Now that may come at some point in the future. Okay, so now just to talk about why we're winning with our customers. Bob, you want to talk us through that?

Thank you. Thank you, Simon, and welcome all. We're often asked the question, why are we winning in the market and winning in different countries? And it really falls under four primary categories. First off, the technology matters. The product matters. We have a very broad technology platform. It's all commercialized. It's in the market. Retailers are using it. Consumers are using it. We also have a collection of the world's, among the world's largest retailers, some of which we've been working with for 20 plus years. So we have the proof points that we can execute with large, what we call tier one retailers. The other important thing is production capacity. So if you're meeting with a very large retailer that needs, in some cases for us, thousands of machines, you have to prove you have the production capacity to meet that need. And lastly, and very importantly, our go-to-market strategy is very consultative. So we spend a lot of time on the front end making sure we understand retailer needs, and then we design a solution. So by the time we get to the RFP, we're already well-positioned to win. This is just a little more breadth of the technology. So we moved from a very small platform machine we call FLAT. It's plug and play, and they're immediately compliant. We move all the way up in terms of volume, storage, technology capacity to Quantum, which is a big outdoor unit that we sell into Sweden and to Greece, a very impressive platform. up to including Modula, which is our backroom system. And this system takes containers to an RVM at the front end, conveys them back to large storage capacity behind. A little more on production. We have three primary production facilities, Naugatuck, Connecticut. They build our standalone platform, Flex, Optima, we have a mere plant in Romania, which is great because it's located close to the EU markets we're tackling, that make the same suite of products. In Germany, we build the Quantum, our bulk feed platform, and the new Modula platform. So if we scale production, we can do 30,000 machines per year and 3,000 in these larger format platforms. And I would argue we're one of only two RBM suppliers that can actually scale production at this level. So where does all this lead us? It leads us to the fact that we're actually executing in the market. And here's a sample of four markets. In Greece, as Simon referred to, this is a pre-DRS market. We're selling to a partner who's developing the market. We sold 140 recycling centers. And if you're in front of these, they're very impressive. They're 5 to 8x higher ASP than a standard RBM. We have great confidence moving into next year that that momentum will continue and so Greece is a very important market and we're really the only player in Greece. As regards Hungary, the Mole Group is responsible for putting the technology platform across the entire country. We want a very large order. We've done the first tranche of 200 RBMs. We have 4,000 plus in front of us. That sets up well for next year and the following years. In Ireland, as we announced, we secured a large preferred vendor relationship where this is a headquarter account that feeds all independent owners and retailers in Ireland, and they're promoting our platform as preferred, and that could result in 800 plus RVMs as we move through that territory. And of course, we're continuing to prosecute commercial cases. The go-live here is in February, so there's a lot of activity occurring in Ireland. Lastly, in Romania, we received an order for 250 RVMs. We built, installed them. The customer was so happy with the quality and our commitment to the timeline, we got a follow-on order this quarter of 100 machines. We also have placed 30 of our new modular platforms in Romania. So we're performing across many countries with different platforms and that's starting to read through as you can see from the highlights in our financial performance.

Very good. Bob, thanks very much. So maybe a little bit more detail now on some of the numbers. So summary P&L. The headline really is group revenue. So as you see, we've made a significant step in group revenue, up 49% year on year, with Europe, as you see now, comprising 2 thirds of that group revenue from much lower percentages even just a year or two ago. Gross margin, we're pleased with the trajectory of group margin. So a year ago, it was just over 31%. Step by step, as you've seen from the previous quarters, we've increased it to just under 35% up up 35% now. Why is this? Well, a couple of things. First of all, generally, as a manufacturer, we're seeing some normalization of supply chains, but really we're focused on manufacturing efficiencies. So Romania now is on full stream. We've done work over the last 12 or 18 months in expanding and localizing our supply chain, and we're very happy with the progress, and we expect that to continue. Operating expenses, we've got a bit more detail on this later, but we've made significant investments in the last few years to be able to cope and deliver with this level of volume. And those expenses now, we're getting good leverage from those expenses as the rate of increase is slowing, but our revenue is accelerating. So overall as a share of sales, that's reduced from 36% to 26%. The result of all of that is really a record EBITDA for the quarter of 3.8 million. That's 15.2% EBITDA margin. And that's obviously significantly higher than the adjusted 3.5% a year ago. So really fantastic quarter. And we see this as the start of a great development of business and really very strong momentum. A little bit more to Europe. So again, Q3 revenues up itself 133% to a record of just under 17 million for the quarter. We talked about three key projects. So Greece, continued progress there in delivering recycling centers, which is very large machines, as Bob had just said. Great start in Hungary. That's a big contract that will continue for the medium term. So we started those deliveries and that will continue to support Hungary go live at the early part of next year and Romania. We are significantly invested in the country with our manufacturing plant. We have now some specific deliveries we're making for international retailers, and we have more of the market to go. Local retailers, municipalities, and that's ahead of us, which we're very actively engaged in. In terms of business development, we've announced follow-on orders in Romania. As Bob said, we've got exciting development in Ireland. That opens a new market for us in Ireland and continued good work both in Greece and Hungary going forward. Maybe North America, Bob, do you want to take that?

Sure, yep. North America is very stable, strong business. We have zero attrition in our account portfolio, and we're incrementally building the portfolio. The revenues are down a bit versus a quarter a year ago. That's primarily due to unusually high commodity prices in Q3 22, which have normalized in this quarter. So there's an effect on program services there. Machine sales also comparatively slightly down from strong. We had a very strong machine sales order flow, which we announced throughout 22 and early 23. Regards to business development, starting in January, the state of Connecticut is doubling their deposit value to 10 cents from 5 U.S. cents. This is a big watershed event because this is going to drive tremendous volume through our platform of equipment in Connecticut. It also is incenting Massachusetts and New York, who border that state, to do the same and modernize their law. We have a big machine portfolio in all three states. If all modernized to a 10 cent deposit, that volume goes through our entire platform and very little additional capital needed to be deployed. So it'll have a big impact on our program services. Regards California, we remain very focused on California. It's still a tough market to understand the business model, but what we are doing is we're developing proof of concept pilots with good partners who know the space and have infrastructure in California. We hope to have those out of the ground next year. We've announced this Oregon Technology Agreement, and essentially, we supply technology to the entire state of Oregon with the system operator, and it's a slow progression of replacing our competitor and replacing aged equipment, but that's been progressing exactly to plan. And just on the right, you can see the mix between program services and machine sales quarter over quarter and year to date.

Great, Bob. Thank you. Just a little bit more detail on OPEX. So if we look at from a year ago, Q3 23, OPEX is up 9%. But what's really important, I think, is how we're starting to get operational leverage from these investments now. So a year ago, about 36% of revenue was OPEX, and that's now heading to 26%, and we expect that trend to continue. And really, those investments, those key investments we made in the last couple of years are now acting as a great platform for us to really accelerate the growth of the business. In terms of employees, as mentioned, we can't do it without really ambitious and talented people. We've managed to attract and retain a lot of those in the business, which is fantastic. So overall employees just under 280 at the end of last year, and now we're at 380. And we'll continue to grow the team proportionally with the business. In terms of financial position, total assets, 89.6 million up from 66.7. Non-current assets, slightly higher, mainly as a result of investments in development projects. Key area here is working capital. You've seen a large increase from 41.9 to 58.4 million. And this is mainly tied in with inventory and also receivables. And just really maybe a comment on this. As we've previously mentioned, we were quite disappointed that Scotland has delayed to align with the rest of the UK in 2025. I think we continue to be well positioned in the UK because of our excellent work in Scotland. But the implication of that is effectively the inventories we build up to deliver to Scotland, we're now in the purpose of repurposing and delivering to other growth markets. Good news is we have standard basically product families. So that's relatively kind of easy to do and quick to do. And also we have several large contracts which can allow us to reuse that equipment. And as that goes through the working capital cycle, then obviously that will lead to cash. Overall, borrowings were 20 million, just over 20 million. Net debt when you take off cash is just over 16. And total equity is just under 40 million at 39.8, which is equity ratio of 44%. In terms of cash flow, really, several key points that I mentioned before. So we had cash about just over 60 million at the end of last year. As you see, we have positive EBITDA, but that's netted off with the working capital buildup, again, inventory, and also now receivables from the higher growth this quarter, which will work through the working capital cycle as we go through this quarter and into next year. We have some investments, 3.6 million, which is really similar kind of year on year, mainly equipment and R&D. Some cash flow from financing activities that we announced at the beginning of the year, giving cash at the end of the quarter of 4 million. So final slide now. Really, again, brilliant to be able to report such a fantastic, strong, and positive quarter. I think we've got now clear proof points which are going through into the numbers in terms of our market position in these new growth markets. Particularly, we're very happy with development of Europe, now 133% year on year. We've talked many quarters and those who have joined us for the last few quarters know the sort of investments we've made in the team, in the technology, in the production platform. So they're really starting now to work hard to generate and support this growth and deliver a record EBITDA. We see really positive trends in gross margins and we maintain committed to long-term target of 40% gross margin. Overall, we're getting more and more leverage of these operational investments and revenue growth will continue to outstrip the increase in OPEX in the quarters and in the future. From a liquidity point of view, we've shown the cash flow. We've got now positive operating profits and the combination of that and cash collection through inventory and AR certainly will go through the next few quarters. And in terms of 4Q, which obviously we're in at the moment and beyond, real, real positive near-term momentum in Greece, Hungary and Romania. Islanders, as Bob said, they're gearing up for February go-live. And overall, we see lots of markets continue to have really positive signs, which bodes well for next year and the years after, right? Bob and I and the rest of the team, we still have our ambition right to 2025. As we've said now for the last couple of years, for these new greenfield sites, we want 30% plus market share. We're on track to deliver that growth of 4x to 6x of the business by 2025-26. And as I said, we feel good about our technology, our commercial processes, so long-term target of 40% gross margin we maintain. So that is an update for Q3. Thank you very much for your attention. And Nils, I believe we may have some questions.

Yes, we have a few questions here on the web. The first one goes on OPEX for OPEX growth for 2024. It seems to suggest that there are opportunities to scale the business as... at limited incremental APEX. So how can we expect to see APEX develop in 2024?

Yeah, I think that's a great question. And one of the reasons we wanted to show a little bit more detail APEX this quarter in this presentation is to show that scaling effect. So clearly the last few years we've made significant investments in organisation, in production capacity and support and so on and so forth. So that acts as a very good foundation and we can see that leverage coming through in terms of OPEX as a percentage of revenue. Look, clearly, we feel we've got a great foundation. There will be incremental additions that we'll need to make. But in terms of those increments, we expect to continue to see good leverage and certainly generally slowing OPEX growth versus revenue, which we continue to expect to grow significantly.

Thank you. There's another question on the market side. Can you elaborate a bit on what's going on in the UK market and what you expect to see there going forward? Yeah, great. Bob, you want to take that?

I think, you know, it's a very active process. DEFRA in the UK is... spearheading this. There's been a lot of positive press that they're not giving up and that they need to do this. 2025 is the frame where we believe this will happen and that way Scotland can come in and be in alignment with the UK. The Scots are very committed and continue to work on the system operator case and so forth. As a general comment, we're bullish on the UK coming on stream. And as we've said before, our success in Scotland has resulted in important contracts that allow us to be leveraged into the UK because the same retailers have a much bigger footprint in England. So we're very well positioned to capture that opportunity when it comes on stream.

Yeah, great.

Thank you. Here's another one on the market. How should we think about facing of the initial 2,300 RVM order in Hungary? You delivered only 200 in Q3, which maybe should suggest a significant uptick in the coming quarters.

Yeah, maybe I'll take that. So overall, we're very positive about that whole contract. So clearly, Hungary, large market, we expect significant installations. To answer the question, yes. We've made a start. Our first installations were in Q3, so we've made a good start. We expect that to continue to accelerate in Q4 and in Q1 and throughout next year. So we feel very good about the initial 2,300 units, which we've announced, and also even the additional 2,000 optional units, which were part of that contract.

Thank you. You do not mention Austria in your new market summary. Is this due to overlap with German retailers?

I think we haven't spelled out Austria specifically. We do have it in the general market slide, and we are engaged in Austria in terms of business development. So we do have discussions going on in Austria. Look, I think Austria... At the moment, it's still figuring out a little bit how to put in the system. So how refillables come in, how single use comes in. So we're engaged in Austria. And clearly, if we feel that's a good opportunity for us, then we'll, like other markets, then we'll engage with customers and we'll go forward. So it's still on the map. Maybe not one of our immediate priorities, but certainly one that we're still engaged in.

Okay, and here's a question on Poland. Where is Poland in the development of DRS and when could we expect opportunities to develop for and WIPCO?

Yeah, great. Certainly, we're really excited about Poland. A couple of things. First of all, it's a big market. So it's probably one of the most significant markets that's going to come on stream near term. In terms of where they are in the process, They have released the law. So the law has been released, which is fantastic, which, as we know, is a very important milestone to then obviously set up an operator and to put in a deposit return scheme and then ultimately to pull in equipment. We've got a business development resource in Poland. And in terms of incremental OPEX, that will be one of the countries that we'll be investing in in 2024. In terms of when the system will go live, certainly the indications are from the Polish authorities that they're looking at 2025. So this may well, so depending on that schedule, we may see order flow next year or that may be pushed to the beginning of 2025. But certainly very excited about Poland and we see that as a real target market for us.

Okay, and there appears to be many exciting opportunities for Amwebco, but what do you perceive as the biggest risk elements or uncertainties and how do you mitigate these uncertainties?

Okay, maybe I'll take that and then you can fill in and add something, Bob. So look, I think one of the uncertainties, of course, is legislation, you know, drives this market, but timing of legislation can be uncertain. How are we mitigating that? And you can see we're now working across different geographies and where everyone is driven by the EU legislation, which has specific targets and timelines, the slight timing of those markets when that goes live is slightly different. So by working across geographies that That mitigates that issue. I think the other one is, obviously, there's a huge demand for our product. So being able to make sure that we have the capacity to deliver that product, that's important. So we've already been working on that for a few years now. Those who have joined these calls know we've spent a lot of time developing our footprint in Europe, in Germany, and more importantly in Romania, and also localizing our supply chain. So really to be able to deliver those products in the volume that's needed when they're needed.

The only thing I would add is our technology platform is refined and it's fully commercialized, and that's a big element. You have to have equipment that's reliable, that's proven in the market, and across our whole breadth of equipment, we have that. So that's a big mitigating effort in terms of risk. You cannot deploy equipment that you're testing pre-production. You have to have commercial equipment that you know is going to perform.

Yeah, and has done for years. And has done for years and is performing now in Europe. Yeah, absolutely.

I don't think we have any more questions. So that was it.

Okay. Okay. If there's no more questions, again, thank you very much for your attention. We obviously have our email and contact details. So please follow up if you wish. Again, fantastic to be able to report a really great quarter for the business. We expect that momentum to continue into Q4. So we'll see you next time, next year. Once again, thanks very much. Thank you. Thank you all.