Envipco Holding N.V.

Good morning, everyone. It gives me great pleasure to welcome you to the Q2 2024 quarterly report and update from Invipco. I'm Simon Bolton, and with my colleague, Michael Clement, we'll be running through some of the highlights from this quarter and some of the outlook. As normal, a normal disclaimer, Highlights Q2 2024. So we've had a solid quarter. The group revenues at 26.6 million were up over 61%. And what's pleasing is we see the growth that for many of you have followed the company over the last few quarters. that really started a couple of years ago, that's continuing through. So now last 12 months revenue is just under 115 million, which is over 100% up versus a year ago. Gross margins, one of our objectives is to grow gross margins. If you recall, our guidance is to have that as we exit 2025, 40%. So... Gross margins at 35.6% continue the growth and trajectory. EBITDA this quarter, 2.6 million and just under 10% EBITDA margin. The growth continues to come from Europe. So as we've explained before, this year is about executing on our existing contracts, Greece, Romania, Hungary, Ireland, and we're doing that. So revenue in the quarter was just over 17 million. What's pleasing is we're getting back to growth in the US. So North America revenues were up 40% year on year, particularly with some RVM sales. And also we're seeing some nice developments of program services as states, particularly Connecticut, start to refresh and push their bottle bills. A couple of things we want to update you on that happened after the end of the quarter. One of them was we continue to do really well in Romania. So we're very pleased to receive an order for over 200 of our Optima RVMs for a very large project. a local retail network. So that's really great. And those will start to be delivered in the second half of the year. And also we have acquired a company, Sensibin, trades under Sensi, which we'll talk about a little bit later. Really nice, innovative product in the small C-store format that continues to develop and expand our product range. I know a number of people tune in who have followed the business for a number of quarters. For those who haven't, we are a global recycling technology business. We do products and systems that support and automate deposit return schemes to aid the recovery of beverage containers. And really, this market is seeing transformational growth driven by legislation, particularly in the EU. New regulation has been approved a couple of months ago, the packaging and packaging waste regulation, and that's driving now implementation deposit return schemes. And with billions of containers circulating, even in small European markets, they need the products and services that Invipco delivers. We have a very strong and stable US business, which, as we'll talk about in a moment, we're seeing some nice growth movement. And we have the manufacturing capacity in the US, in Germany, and also in Romania to be able to deliver on this market opportunity. Overall then, our revenues are three times versus 2021 and 35.6 gross margin that I've just mentioned. We maintain our 2025 ambition. If you recall, we put these in in 2021. So a few years ago now, 4 to 6x on revenue, 30% plus market share for these greenfield markets as they open up and new countries adopt deposit return schemes. And again, building up step by step gross margin to exit 2025 at 40%. So what's this happening? Well, we're delivering on our growth plan. So as you see, we've had a strong and stable business in the US. And since 2021, that's now accelerated through with Europe, again, with three times what we were in 2021 in terms of revenue versus last 12 months. And this has been driven by these new greenfield opportunities, of which there's many more to come. And we'll tell you a little bit about that later on. In terms of the operational review, very briefly, North America had a great quarter with We're very excited about the changes in and the refresh in some of the deposit legislation in the US. First of those is Connecticut. That increased the deposit on the beverage containers from 5 US cents to 10 US cents. And that's already, we can see, has had a real impact in container volumes going through our business in Connecticut. And what's exciting is that neighboring states, Massachusetts, New York, are also looking to refresh and update their bottle bills. And so we're very excited about that Northeast area. We're also broadly exploring more business opportunities outside current markets and also other refresh in the US, such as California. Europe, as you see, growth is coming. We're moving to profitability after a very focused investment period over the last couple of years. We're very pleased with Romania. Romania had a good quarter. Great work delivering with tier one retailers and exciting new contracts coming in. Hungary, as we've mentioned before, the DRS started at the beginning of the year, but there's been a kind of a slow build-up as the overall system starts to prepare. We see that now kicking into and accelerating, so we expect there to be a busy activity in H2. Greece, we certainly see continued positive progress, good pipeline, slightly quieter first half of the year, a bit like last year, but we expect a busy H2. And overall, whereas 2024 is about existing markets, 2025, we'll see new markets come on, particularly Poland and Portugal. So with that operational review, pleased to hand over to Michael to talk us through some of the finances. Michael. Thank you, Simon.

Good morning. Let's start out with the P&L. Group revenues in the second quarter, as Simon mentioned, €26.6 million, a growth of 61% from the corresponding quarter last year. gross earnings 9.5 million euros for a margin of 35.6 up a little bit more than half percentage point from q1 and up a little bit more than a percent from q2 of last year opex flat sequentially over the last couple of uh two three quarters 8.8 million resulting in EBITDA of 2.6 million euros. This compares to a loss of 0.1 million euros in Q2 of last year. Operating earnings, 0.6 million euros in the quarter with net profit at negative 0.5 million euros. This compares to a loss of 1.8 million euros in Q2 of 23. Year-to-date for the first half, revenues were up more than double at €54 million. Gross margins were at 35.3%, up year-over-year as well. Strong driver in the first half, as Simon mentioned, key European markets driving growth, European revenues up close to 250% to €37.2 million in the first half. And Invepco generated an EBITDA of 5.6 million euros in the first half of the year. As mentioned, Europe is our strongest growth driver at current, with revenues of 17.3 million euros in the second quarter, up 106%. Key markets driving that growth are Hungary, Romania, and Greece, our largest markets in the European region. We see that it's RVM sales that are driving revenues still in the initial phases of DRS introduction and warranty periods, and WIPCO generates limited program services and service revenues. Over the last 12 months, European revenues are at €82 million, up 263% year-over-year. We're very happy to also see some good progress in North American operations. Revenues in Q2 were 9.3 million euros, a positive growth of 14% year-over-year. We're seeing the North American operations turning the negative growth trend seen over the last couple of years, and we're posting positive revenue growth in both RVM sales, 85%, driven by some RVM deliveries in both Oregon and also in Connecticut, but also the underlying positive volume trend driving positive growth in program services. And Wipco is positioning in Europe, and we need to invest in our operation to do that. We will also continue to invest in our operations. Over the last year, we've seen underlying operating costs come up, 8.8 million euros in Q2 of 24, a growth of 23% from 7.2 million euros in the corresponding quarter last year. Over the last three quarters, our OPEX has been fairly stable at 8.8 million euros. As a percentage of revenue, OPEX was at 33% this quarter, up slightly from 32% in Q2, but down significantly from 44% at Q2 last year. We exited Q2 with 416 employees in the group. Over to the balance sheets. Total assets at the end of Q2 was 120 million euros, down from 128 million euros at the end of Q1. Non-current assets down slightly at 32.5 million euros. Non-current assets are primarily made up of PPE and intangible assets. Intangible assets are largely activated development costs. Current assets are down from 94.4 to 87.9 million euros, with the reduction being in cash balance, ending at 24.4 million euros at the end of Q2. We have invested further in inventories and our receivables are also up. We need to have some strong responsiveness to new key customer demands and requests. And we also are seeing an increase in activity into the second half, leading to the higher inventories at the end of the quarter. Further driving down cash this quarter is a reduction in accounts payable from 20.5 at the end of Q1 to 15.2 at the end of Q2. Total equity exiting Q2 was 67 million euros for an equity ratio of 56%. Total borrowings down 0.4 million euros at 19.2 million euros at the end of Q2. Finally, the cash flow. Cash flow in the quarter, cash flow operations, minus 6.8 million euros. A positive EBITDA of 2.6 million euros was offset by the said working capital buildup of 8.1 million euros. lower payables, higher inventories and receivables exiting Q2. Cash flow from investment activities was negative 1.3 million euros, with 0.2 million euros being capitalized R&D and 1.1 million euros being CapEx, largely driven by investments in RVMs to handle lease contracts. Cash flow from financing, negative 1 million euros on a slight reduction in borrowings, as well as lease liabilities, leading to an exchange in cash of minus 9.1 million euros. Exiting the quarter with 24.4 million euros in cash. Thank you.

Further on to you, Simon? Yeah, great, Michael. Thanks very much. Thank you. Just a couple of slides then to end and give some views on Outlook. And then the platform is open for questions. So please do add those into the chat and we'll get to those straight away. Good. So I think, you know, solid Q2 and really it continues our step through our current growth journey. it's being you know it's being driven by eu legislation uh legislation in general so we're very pleased to see that continued momentum as we've announced before and has been you know widely shared in the media the packaging and packaging waste regulation is really an important part of legislation as is individual country announcements and communications like the uk um with deposit return schemes coming in in 2027 and being supported by the new Labour government that came in a month ago. We've got promising outlook. As you said, 2024 is about delivering on existing markets that are transitioning and accelerating their deposit schemes, Hungary, Romania, um ireland uh and of course pre-drs in greece and we really like the new the the momentum in general that's building around drs particularly in portugal and poland uh We're back on track to continue to develop gross margins up this quarter. And that will be one of our main focus, has been a focus and will remain a focus throughout the next quarters. Overall, then, you know, reconfirm our guidance. We really want to have a good position in these new markets, 30% plus market share, 4 to 6x growth, 21 versus 25, and as mentioned, gross margin of 40%. You know, most of this work is, most of this growth is organic, new markets, our own teams development. But as we've said previously, and part of our strategy is where there's a really good opportunity to have inorganic growth. then we'll look at that. And obviously the recent capital raise gives us some opportunity to do so. So we've followed and we've interacted with Sensei Bin, trading under Sensei. It's a great small technology business in Ireland. Nathan Dexmar and Seamus have done a fantastic job really having a low cost RVM to the very small convenience segment. So that's where it's kind of a few hundred containers per month. This is very big in Europe. A lot of even the big chains are moving into these kind of city-based small convenience stores. And so for us to be able to, you know, acquire this business and then over time work with the Sensi team together on developing that, offering and also obviously allowing that to be distributed and marketed through the whole of the InVIPCO network we're really excited about. So we've got some details of the financial considerations of the business but certainly more information to come. We just closed it yesterday but certainly we're very excited and we certainly welcome the Sensi team to the InVIPCO family and we'll look forward to giving you updates in the future. I won't go through these slides in detail, but just to reconfirm those who may be slightly less familiar, the current regulation mandates 90% recovery of beverage containers by 2029. Really, the only way to do that is to put in a deposit return scheme. So those 13 countries in the eu that don't have a deposit return scheme they're really our focus going forward uh great news from the uk um you know as we've said before we were disappointed that scotland didn't introduce the scheme last year but now all of the devolved governments and westminster have got together They've made a very strong announcement to drive to DRS by 2027. And of course, we had great commercial success in Scotland, and we'll look to pick that up and have similar success for the wider UK. This legislation is driving this huge growth in our market. So from 100 to 300,000 RVMs over the next few years. And our focus is in those new greenfield markets. As Michael was saying, Our focus is not just to grow, but to do it in a profitable way, in a sustainable way. And you can see, whilst we still make investments in the business, both the development of gross margin and also the operating leverage, that sustained profitability is starting to come through. And we continue to, as we expand, we continue to develop our business foundations. That's very important, including development of technology. And as you see in this quarter, we do take the opportunity to do that inorganically, where we see some very high quality opportunities as we did with Sensei. So that's the few slides we have for Q2 24. Again, very solid quarter and another step on our development and our growth journey. Q3 is in November 21. And I will now hand over, Michael, I think we have some questions, I hope. Yes. Great.

They're coming here.

They come fast.

They come fast. a number of them and i think we'll just uh try starting to to address some of them um how do you view revenues in the us from here throughout 24. um

Yeah. Yeah, certainly. Look, as we said, I think it's been a really good quarter for the US. As Michael was saying, 40% growth, both in program services and in RVM sales. Yeah, we've got a very high component of program services. So you will see, as you've seen previously, there's some seasonality. So you'll see that seasonal curve on the US revenue. However, we certainly see, you know, step by step, you know, the overall level in the US increasing. And we hope in the medium term, some of these refresh states or even in the long term, new states coming in to drive the US business. So as we think US and more broadly kind of North America, not the same tearaway growth as Europe, but certainly a positive trend.

Yeah, Q3 is a quarter of high consumption of beverages naturally. So we tend to see some higher volumes in Q3. New markets. Could you provide the latest color around Poland and also other markets such as the UK and Portugal?

Yeah, sure, certainly. So, as we briefly mentioned in the presentation, we still remain very positive about Poland and Portugal. Poland, the official go-live date is the beginning of 2025. There's a lot of work to do. So we think it's going to follow a little bit of a model like some of the other markets where it goes live. And then there's a period during the year whilst the system is set up, approved beverages that have a deposit marking, et cetera, are put onto the market. So... so we see that happening however certainly the indications that we have from poland are positive and the scheme will be in place and in portugal um we see that coming in kind of towards the beginning of 2026 so in both both cases um as we as we exit this year there'll be commercial cases and then delivery uh you know we believe in 2025.

European RVM revenues were down from Q1 to Q2. Which markets drive this development? I think it's primarily driven by Greece and Hungary. Greece is a little bit lumpy, and we remain very optimistic and confident to the opportunities that we see in Greece for the remainder of the year, also into next year. As to Hungary, as you know, there was kind of a soft startup of the DRS in Hungary. So few volumes of container volumes being redeemed during the second half. That has changed dramatically from July. So that somewhat explains kind of the slower pace in our deliveries in the second quarter. Could you give some color on the activities beyond current markets you're exploring?

Yeah, good question. As we tend to organize the business, European region and then The U.S. headquarters is based obviously in Connecticut, looks at North America generally and the rest of the world. So obviously our focus is the biggest business in the U.S., but North America is obviously more than the U.S. and the rest of the world. keeping an eye on things like south america opportunities there so i what we did is we're just saying look whilst us and europe is our key focus we're keeping an eye on other markets and look whilst nothing is to an extent to report or any kind of serious business development work if it does come up then obviously we have a great team in in the us and they'll be leading that effort yeah

Then there are a couple of questions in regards to Hungary, both in regards to kind of our outlook in terms of both the current existing contract, but also the extension contract. If I'm trying to collect a few questions here.

Yeah, look, I think, as we've mentioned, the system in Hungary went live in, was switched on in January, but really had very few containers actually active within the system. So that's developed over time, step by step. And Mo has done a great job at also now engaging retailers, engaging the beverage industry. And so we saw a lot of volume start to come through in July and August. And we expect that to certainly drive RVM take up. Remember, The Hungarian contract for us and other suppliers is slightly different. Normally we sell and we work directly with retailers. In Hungary, we work with the operator very much like we did in Malta. So there's a kind of extra step in the process where Mohu then needs to organise, develop and obviously discuss with the retailers positioning of the equipment. So we see that increasing. Obviously, we're there to support Mohu, you know, whatever they need.

Yeah. And if we look further on in terms of extension orders, etc., to address that as well?

Yeah, no, definitely. So, certainly indications we have from Moho is that they will need more products in the medium term to capture and achieve their targets on recovery. At the moment, the focus is on Should we take traditional retail? But certainly as kind of time goes on and probably as we get into next year, we look at maybe non-traditional locations, schools, universities, gas stations, things like that. So we still see very positive about both parts of that contract.

And then there are a couple of questions in regards to working capital and cash. I can address that. I mean, inventories were a little bit up, receivables were a little bit up, and we had some down payments on payables exiting the quarter with 24.4 million euros. And that is also for preparation of anticipated volumes into the second half. It is to have some type of readiness to be able to execute on new opportunities. We have many discussions with new potential customers asking us for our delivery capacity. So that's the type of readiness. As we move through the second half, we expect to work our way through that working capital converting phase. the inventories to receivables and eventually cash. I mean, given our current outlook for the remainder of the year, we see the potential for a higher cash balance at the end of the year than we exited Q2 with. Netherlands. Could you give some color on what type of opportunities we see there?

Yeah, definitely. So, Netherlands is interesting. As we've explained before, our focus is on greenfield markets. And clearly, Netherlands is not a greenfield market. It's had a deposit return scheme in since the 90s. However, a bit like Sweden, there are opportunities to use technology to support the system and to cope with actually the increasing volume that's passing through the Netherlands system, particularly in the form of cans and smaller bottles, which have been more recently introduced to the scheme. So we're working with the Opera Stasic Herald Netherlands, and we have now several quantum machines working very well, having great feedback from both the operator and also the users and customers of the system to take back this higher volume in an outside location. So whilst normal RVMs are not necessarily our focus in the Netherlands, although we are delivering a few of those, our focus is using our technology footprint to maybe solve some of the issues of the existing scheme. And I think quantum is a great opportunity to do that, like we did in Sweden.

How much of the contract in Romania is expected for the second half? All of the announced contract is expected to be delivered in the second half of the year. Could you please provide further details around Sensai, revenues, EBITDA, installed base of RVMs?

Yeah, yeah, certainly. So Sensei is a small business, has been going about five years. Again, you know, great team, Nathan Dexman and Seamus, relatively small install base at the moment in Ireland, but certainly has proved themselves. We've got, you know, commercial conversations going on in different countries. It's something that will fit within our existing footprint in Ireland. We don't expect it to have a kind of material impact in terms of our outlook, four to six times revenue to 2025. But we definitely see the way they've gone about thinking about The low-cost convenience segment, very interesting. Some of the innovative technology they have on the product we see potentially has further application more widely. So we're excited about the product. It broadens our offering specifically for that segment. And of course, larger customers operate now kind of everything from hypermarkets to very small convenience stores in cities. So the broader footprint we have of technology to offer those customers, then we think better position we are for the future. But exciting and certainly very welcome to the team.

Turkey, is that of commercial interest for MBIPCO?

Yeah, good question. Obviously, Turkey is not subject to the same strict regulation, but Turkey has expressed an interest and a vision to tackle plastic waste using a deposit return scheme. So we're having conversations, we're looking at the market very closely. It's a complicated market, as you expect, big country, high population, very dispersed. So we're figuring out what's our best approach, but certainly we're engaged with the market, we're engaged with the key stakeholders. If you recall, we've used quite often now this kind of Gantt chart with different countries, and you'll see kind of Turkey is moved towards the back of, you know, 27, 28, 29, as that starts to organize themselves for a deposit return scheme. So we're engaged there. We think it's interesting. Potentially, these very low-cost solutions, simple solutions like Sensei, could be quite interesting in such a market.

How would you quantify opportunities in New York and Massachusetts relative to Connecticut?

Yeah, that's an interesting one. I think overall our program services includes all of the LEAF and service type products for the US. Connecticut is important for us. Massachusetts and New York are also really quite important. We see, again, with Connecticut refreshing the bottle bill, we see really an improvement in redemption rates. So that's kind of 20%, 30% plus in some weeks, which is great. Connecticut is, relatively speaking, a smaller part of our installed base versus the others. So clearly, if Massachusetts and New York which have active legislative programs, if they, in the short, medium term, come through, then we expect the whole of the volume in the northeast to increase, which will be very exciting because that volume goes through existing infrastructure. Yep.

Final question here, also in regards to Sensei. Sensei, why are they currently the lowest cost RVM in the markets?

You want to take that one?

Sure. I mean, Sensei team have taken a very fresh approach to addressing the technology using some very new advanced technologies and approaching this in a slightly different way. with the focus of creating a product that clearly addresses a very price-sensitive part of the market. I think some of these technologies are very interesting for us to, in time, see how we can utilize further. But I think that's largely how they've been able to come up with a very price-competitive product in the marketplace.

Yeah.

Good. With that, we're at the end of the Q&A.

Perfect. Great. So once again, thank you, Michael, for that. So thank you very much, everyone. Thanks for your continued interest in Vipco. Again, Q2, good solid quarter. We next have an update for Q3 in November 21. So thanks for your continued interest. Obviously, if you have any other further questions, then we're available. The investor relations details in this presentation are on our website. We look forward to staying in contact. And thanks very much. Goodbye.