Envipco Holding N.V.

Well, good morning, everyone. It gives me great pleasure to welcome you to the 4Q 2024 presentation by Invibco. I'm Simon Bolton, CEO of Invibco. And I'm joined by my colleague, Michael Clement, Chief Strategy and IR Officer. And we'll go through an update of the business and then opportunity as normal to address any questions you have with a Q&A at the end. Okay. Next slide, please. Solid end to 2024. Group revenues, as we announced earlier this morning, 36.4 million, which is 3% higher than a year ago on a very high Q4 23 comparable. Overall then, group revenues, 2024 came in at 17.8, which is 35% growth year on year and definitely underlines the strong progress we're making as a business as we develop and execute on our growth strategy. Gross margin was very pleasing. A lot of work that we've done, as you know, those who have followed the business, as we target improvement in gross margin. And in the quarter, it was 38.4%, giving gross profit of 14 million. Overall then, EBITDA was 5.4 million for the quarter, which is just under 50% margin. And cash balance was just over 30 million. So positive work on working capital, which Michael will tell you about later. Overall operational highlights, you know, as I mentioned, we continue to grow and execute in our existing markets. Solid operational execution shown by good gross margins, good work and capital management. And, you know, as we've talked about over several quarters, and we'll summarize again in this presentation, really a fantastic, unprecedented opportunity ahead of us. And we need to continue to invest to be able to capture that. Highlights really for this quarter, excellent performance in Romania, actually our single largest market in the quarter, and continued great work in Hungary as we complete the delivery of the first phase of that particular project, and also strong contribution from Greece and Ireland. As we've highlighted before, our focus is really on greenfield new markets. But there are opportunities for Invipco's technology to help in brownfield markets. We've been in Sweden a long time, for example, and we see some other opportunities. Most recently, the Netherlands, which has issues with particularly the introduction of cans into the deposit return scheme, that's now starting to use our quantum product to increase their recovery rate. And that's an exciting opportunity, an example of what we're doing in Brownfield. As mentioned, we've made careful and focused investments in the team, in markets, in product development, and we'll continue to do that as we look to be able to execute on the terrific, exciting growth ahead. And as announced just before Christmas, we uplisted from the growth market in Oslo, which we joined in 2021, to the main market in Oslo. And we believe that's the right thing to continue to develop and solidify our profile in the international financial markets. Maybe for those who are joining for the first time, a quick recap. So we are a recycling technology business. We've been around just over 40 years. And our focus is the delivery of products and services that support the recovery of beverage containers, normally in markets, countries that have implemented a deposit return scheme, so-called DRS. And this is to improve the recovery of those materials and obviously the use of that material in new containers. Driven by legislation, we see ahead of us unprecedented growth in this market as we go to 2030 and beyond. We'll talk a bit more about that later. Over the last few years, we've proven that we can capture a leading position in European markets, fantastic efforts in Romania, Hungary, Malta, and so on. And based on our broad product portfolio, we'll continue to invest in this platform, which includes for us both the product and also the services. We've invested in the team. We have a very nice mix of industry veterans and also newer people who are coming into the team. And we feel those four things will deliver revenue growth and increasing profitability. So with that, a pleasure to hand over to Michael, which will go through the financial review. Michael, over to you.

Thank you, Simon. So let's start out with the profit and loss statement. Q4 revenues, as Simon mentioned, 36.4 million euros, up 3% from 35.5 million euros in the corresponding quarter last year. Remember, Q4 23 was a record quarter for the company at that time. Gross margins continue to widen. In Q4 last year, 38.4%, up nearly 400 basis points year over year, driving gross earnings of 14 million euros. In Q4 24, operating expenses were 11.3 million euros, up from 8.9 million euros in Q4 23. I'll come back to that bridge. EBITDA this quarter, 5.4 million euros, includes 0.5 million euros in non-recurring items, such that the adjusted EBITDA in Q4-24 was 6 million euros, for a margin of 16.4%. Operating earnings in Q4-24 were €2.8 million, down from €3.8 million in Q4-23, with net earnings after tax of €0.3 million. For the year, revenues were 117.8 million euros, a growth of 35% from 2023, driven by growth in existing and new European markets. Gross margin for the year ended at 36.6%, up nearly 200 basis points from 34.5% in 2023. with EBITDA for the year at 12.8 million euros and an adjusted EBITDA of 14.4 million euros. So with that, let's take a closer look at the underlying revenues. First of all, Europe. Revenues in Europe in Q4 24 were 27.3 million euros, down 2% year over year. Our VM revenues were 24.8 million euros, with Romania being the strongest growth driver in the quarter, Romania actually being our largest European market in the fourth quarter of 2024. However, Hungary showed good sequential progress and a very important revenue mix in the quarter, also the same with Greece. Program services still make up a very small portion of our European revenues, but growing very nicely. In Q4-24, program services in Europe were 2.5 million euros, up nearly fourfold from 0.6 million euros in the corresponding quarter last year. For the year, European revenues were 82.8 million euros, up nearly 50%, driven by 43% increase in RVM sales and nearly threefold increase in program service revenues. Our North American business is a much more mature business, a business in which we've been since the early 1980s. In Q4-24, revenues in North America were €9 million, an increase of 22%, from €7.4 million in Q4-23. One driver are increased program services revenues, up 12% year-over-year, driven by the doubling of deposit in Connecticut, driving higher collection volumes. RVM sales in the fourth quarter were 1.2 million euros, an increase of 183%, partly on an increase in spare parts sales. For the year, North American revenues were 35 million euros, an increase of 9%. And WIPCO is positioning in European growth markets. and we need to position ahead of DRS Go Live. We continue to do that in selected markets in Europe, and that is partly driving our increase in operating costs. This quarter, operating costs were 11.3 million euros, up 26% year over year. The drivers are new hires, increasing OPEX and the introduction of Sensebin amortization of intangibles, and also accruals on our long-term incentive plan. Non-recurring items this quarter from the uplisting on the Oslo Stock Exchange and the Sensebin acquisition related costs were 0.5 million euros. Adjusted for this, operating costs this quarter were 10.7 million euros. For the year, our operating costs were $38.8 million, up 36% year over year. Bridging our OPEX from the previous quarters. In Q3, we reported €10 million in operating costs, including €1.1 million in non-recurring items from the Sensebin acquisition and the uplisting on Oslo Stock Exchange. Underlying OPEX in Q3 was thus €8.9 million. This quarter, we have increased amortization on the Sensibin acquisition of €600,000. We have long-term incentive plan accruals of €700,000, and then new hires and underlying OPEX increases of roughly €600,000. For an underlying OPEX level of €10.7 million, adding the €0.5 million in non-recurring items, €11.3 million. So let's move over to our balance sheets. Our balance sheets total increased by around €4 million to €229.4 million this quarter. Our non-current assets were close to €40 million, up around €3 million. largely made up of property, plant and equipment, roughly half that, 20 million euros, and intangible assets of 15 million euros, largely from activated development expenses and also some intangibles from the Sensiben acquisition. Current assets were at 89.5 million euros. Inventories, 28.6, down around 4 million euros, with accounts receivables, 30.1, up around 3.5 million euros. Our cash increased by 2 million euros to 30.7 million. Equity ratio this quarter, flat with the previous quarter at 52%. Our non-current liabilities, 16.4, fairly flat with the previous quarter, of which borrowings were close to 6 million euros. Our current liabilities were at 45.4 million euros, up from 44.1 in the previous quarter. Trade creditors were at close to 17 million euros, flat sequentially. Finally, Let's have a look at our cash flow. First, for the fourth quarter. We started out with 28.7 million in cash at the end of Q3 and ended up with 30.7 million in cash at the end of Q4. Our cash from operating activities gave a positive cash flow of 5.7 million euros, driven largely by our EBITDA generation. Our cash flow from investing activities this quarter was 1.7 million euros negative, driven by capex of 1.1, largely from piloting equipment, from leasing equipment and IT investments, and also some capitalized R&D of 0.6 million euros. Our cash flow from financing was a negative 2 million euros in Q4, driven both in a reduction of borrowings and lease liabilities. Then over to the cash flow for the year, increasing our cash balance from 12.5 million euros at the end of 2023 to 30.7 million euros at the end of 2024. Cash flow from operating activities last year were a positive 1.2 million euros. Our capex was €6.5 million, driven by underlying capex of €5 million and capitalized R&D of €1.5 million. So our total capex in 2024 was at 6% of revenues, compared to 8% of revenues in the previous year. In addition, we had a payment of €1.5 million for the Sensiben acquisition in Q3. Cash flow from financing activities in 2024 were €25 million, driven in large by the private placement in March last year of €24.8 million, ending the year at €30.7 million in cash. So with that, Simon, I think I'll leave the word over to you again for a look into the future prospects.

Very good, Michael. Thank you very much. So, yeah, just we'll go through an outlook. Look, I think the key thing to say, and those who follow the business for several quarters will have seen this, is I think we've got now some really good proof points that we're delivering on our European growth strategy. Just here is development of revenue of the business from 2018 to 2024. The bottom grey is North America. Then you have Europe on top. You know, as Michael said, you know, solid growth in 24 from North America as a mature business. But really, as these that growth is being driven by these new markets as they come on and that will continue over the next several years, as effectively people need to address and countries need to address the legislation that is now in EU law. And that legislation, which we have talked about before, that's now fully approved. So last year, the Council approved the law, and that's now into EU law in December. As a reminder, that sets clear targets for the recovery of beverage containers, 90% to be recovered by the 1st of January, 2029. And importantly, it sets minimum recycling targets for the beverage industry. So not only must the government set up a system to recover this material, these containers, but also the beverage industry, there's a demand there for the recycled content. So that's a fantastic link. and that drives the system. And the best way of doing that, and it's clear in the legislation, is that's to put in a deposit return scheme, as you have in a number of countries in Europe at the moment, but will be prevalent in all EU countries. Outside the EU, UK, for us, a very important market. That UK legislation also passed over the last few months, And that mandates a scheme to be in place by the third quarter 2027. And certainly there's excellent activity by the UK government to continue to maintain that timeline with probably the next milestone being the DMO, so the operator of the system, being appointed in spring of this year. So, maybe taking a slightly further look, a longer-term horizon, you see here on the left-hand side really a snapshot of our revenue growth over the last few years. So, really, the European growth strategy being executed and that actually coming into tangible results for the business. The next few years are going to be very busy. as those countries that are looking, legislating for, actually implement a deposit return scheme and obviously need the goods and services, the machines that we as Invitco can provide to them to help make the deposit return scheme a reality. We've looked at the market in a few different ways. I think you've seen industry estimates before of roughly 100,000 units tripling over the next few years. A different way of looking at it is actually the population that's served through these new deposit return scheme markets. So the last few years, Hungary, Romania and so on has probably covered about 42 million in terms of population. Over the next three years, about 278 million people will be in countries that will implement a deposit return scheme. And over the next five years, that adds about another 148 million people. And roughly the population is proportional to the number of reverse vending machines, the number of recycling points that that country needs to be able to cope with that return volume. So that's very exciting. And a rule of thumb is probably about 500 RVMs per 1 million population. So next five years, that's 200,000 to 250,000 units, which correlates well with industry estimates from before. So very exciting times ahead. Maybe a little bit more specific. We've updated this slide a little bit. Effectively, all of the key countries, all of our target markets continue to work diligently to implement a deposit return scheme. So the key markets coming up are Poland and Portugal. So certainly Poland has been several announcements, but the president signed off that the scheme will go live, but it won't be earlier than the 1st of October. But we still see a lot of activity in the country. And that's an interesting market. Portugal, again, continues to work at pace, and we expect that scheme to go live beginning of the beginning of 26. Czech Republic slightly later in 27 and then later on in 27 as I mentioned the UK. And then we have a number of other markets who have announced go live dates or are working diligently on the systems. You know some of these like Spain and France are very significant large countries. And we're excited about those growth prospects. As I mentioned earlier, our focus is on those new greenfield markets, but we keep an eye on brownfield and obviously we offer our technology support and help when we can support a system to improve their recovery rates. So a couple of quick examples here using quantum. So in the Netherlands, we installed our first machine in March last year. And in the first year, it's already done 3.5 million containers, which is a fantastic result. And the local team gives the customer a cake every 1 million containers. So they've received quite a few cakes and hopefully a few more to come. And we continue to follow up on opportunities with different customers in the Netherlands. And that's quite exciting step by step as we go through the years ahead. USA, as Michael said, there's a number of refresh going on in different deposit markets. And that offers opportunities for entrepreneurs, different customers to put in larger kind of bulk machines like the Quantum. So we've delivered our first units in the USA, and we expect that, again, to be a market that's interesting for us in the years ahead. So just before we finish, really a summary of where we got to over this, the first few years of our growth strategy. So the key thing is we've delivered significant growth. So we've gone from 38 million to now 117.8, increased margins. That is something that we've focused on. And we have an opportunity with this very significant market opportunity ahead to capture 30% plus market share, which is one of our ambitions. And we've got proof points that we can do that. And in terms of gross margin development, that's something that we're really focused on. We see continued opportunities as we scale the business to do so. And we also expect with growth, There will be continued operational leverage opportunities within the business. Overall, then, these will continue to drive the top line and also continue to drive development of us as a stable and sustainable, profitable business. And I think that's it for the presentation. So I think, Michael, if there's any questions, we could certainly take those now.

Sure. I'll have a look to see what's come in here. And yes, there are a few. questions coming in already. I'll just start from the top. You mentioned that your targets will be refreshed in 2025. Do you still expect to reach the target in 2025? Then I guess the question refers to the ambitions released in 2021, Simon.

Yeah, exactly. So when we listed on Oslo Growth, we had three ambitions. One of them was to, I guess, prove we could pivot to Europe and capture 30% plus market share. Yeah, and I think with the efforts we've done in Hungary, in Romania, in Greece, then I think we've done that. I think it's a very good basis. The other target was to really work on gross margin, making sure we're getting the right price for our technology and also doing the right work as we scale the business on the costs and the efficiency of delivering our products and services. And you can see we've had a nice development, a quarter on quarter. Q4, 38.4% as quarter. And that ambition was, as we exited 2025, should be 40%. And the other ambition really was on top line growth. So and the combination of the markets we, you know, we thought we we we understood were coming or we predicted coming and also that market share that would that would give the top line growth. Look, we're still that's still our that's still our ambition. Obviously, we are subject to the timeline of some legislative processes. And at the moment, this year, particularly Poland and Portugal. So we are ready. We have the people, we have the production capacity, we have the technology, we have great discussions with customers. But really, it depends on certainly the timing of when those particular orders will be received and delivered. Depends exactly, you know, the revenue within the quarter. And there will be some fluctuations up and down with that. Obviously, what we're looking at now, and hence the comment in the report that we will be announcing longer term targets to 2030. is we're getting much more visibility now, and we have a stronger legislative backdrop to the other countries that are coming up. So we expect a continued, very exciting growth over the next few years. Yeah, in 25, but also going to 2030.

Good. Can you comment on the expected business model mix in Poland? Throughput versus sale and service. Maybe also leasing, I guess. And how will this affect your capital mining and competitive strengths?

Yeah, that's a good question. Look, I think a few things. First of all, we've always had the position that we want to do what's best for the customer to kind of solve their problem. And most of our customers, as you know, are retailers, and suddenly they're involved in this scheme, they're involved in this legislation, and they find working within Vipco very helpful as a partner to understand what is the best solution. And part of that is, what is the best business model? Is it to buy the equipment with a service contract? Is it rental? Is it throughput models? And we do all of those. We do, for instance, throughput models. We have examples in Europe, and we do a lot of that in the US. And we're pretty agnostic. what type of model the customer wants and whatever fits best with them. We find that most large European customers buy the product, but again, we'll support any type of model. And of course, where that's a scale, then we have a number of partners that can help us with those throughput or lease type portfolios that we could use if necessary. So we don't see certainly our capital structure or size of our balance sheet being certainly a hindrance to offer any of those models at scale. And certainly we've got active RFIs and RFPs with customers like in Poland on several different formats of what they want to buy.

Good. Can you elaborate on the revenue phasing through 2025? How do you expect your revenues to grow through the year? I can address that, Simon. We expect 2025 to be another year of back-end loaded sales, as we saw last year. Likely maybe even with a stronger effect than we saw last year, largely due to... the phasing in of new markets such as Poland and Portugal anticipated in the second half of the year. So a slower start in Q1 coming off a back of a very strong Q4 and a growing trend through the year. Let's see here. Assuming revenues in Poland and Portugal in the first half, when would you typically see firm orders? Simon, would you like to address that?

Yeah, certainly. So it depends a bit on the retailer. So the customer, how far ahead they plan. Obviously, we like it as far as possible. We think that's the best way for good implementation of a system. But we see several customers where there's a longer implementation of technology. And we think probably a country like Poland, even though the start is after October, so end of this year, beginning of next, we think there's going to be a longer implementation period. So sometimes this is captured in some sort of frame agreement, which may be deliveries six, 12 months after that initial order or frame agreement. So we think there's going to be some of that in certainly Poland. And Portugal may be a slightly harder start at the beginning of 26. So that order cycle may be more like six months versus 12.

um okay let's see here with 38 percent gross margin this quarter at still muted volumes relative to forecasts do you see upside to your 40 percent targets i guess i can take that uh simon i mean I think the 40% gross margin target is very reasonable. Some of the underlying drivers, to address a few of the other questions here as well, this quarter and as we also saw in Q3, scale, clearly, volumes helping us. So we will see quarterly variations. So with lower activity levels into the beginning parts of this year, you should also expect slightly lower gross margins, but on an overall positive trend towards the 40% targets. Longer term, I think we will have to revisit this. But I mean, in the medium term, our 40% target seems very reasonable to continue to expect.

um which markets in the u.s have you received the quantum orders yeah yeah so that is so far so far the interest for quantum has been in the um you know strong northeast markets uh particularly connecticut so i think uh As Michael said, the U.S. deposit legislation or so-called bottle bills have been around since the 80s. And five U.S. cents in 1980 was worth something. In 2025, it is not really. So doubling the deposit from five to ten U.S. cents is a significant impact in volume of 30 or 40 percent recovery, which is fantastic, which is why countries do it. And you'll note that Sweden has also increased their deposit recently also to drive recovery. And so where there's a higher volume, then a quick way to and a very efficient way to handle that additional volume is with our quantum bulk feed technology. So initially Northeast, but clearly where other states are looking to develop or improve their infrastructure, like maybe California, then I think Quantum is a really, really good solution for those customers. So, so far in Northeast, but, you know, once established, hopefully that will be a technology platform that will go to other states.

Let's see here. For clarity, is it fair to say that you are more confident around your current margin and market share targets versus revenue targets? Would you like to address that, Simon?

Yeah, sure. You know, I think we all... I think we're confident about all our ambitions, to be honest. I think we're confident about our ability to take 30% market share. We're confident about our ability to drive to 40% gross margin. And ultimately, that will, with the markets coming up, that will generate top-line growth. revenue growth. And certainly we, you know, we, our ambition remains four to six X versus 2021. And just as when the timing will be, and that's something that we can't control. We're at the, you know, we are at the behest of legislative processes. You know, as we've said all along, it's now a matter of not If it will be implemented, it's a matter of when it will be implemented. And the timing of that may move some of the revenue from one quarter to the other or move it from one year to another. But certainly our revenue growth, we maintain great confidence in because of all of the deposit schemes that are coming up, which we kind of went through in some detail in the presentation.

Yep. Good. And then we have, we're closing in here, Greece. Greece has announced plans to introduce DRS late this year. How do you view this event in light of your current installed base and operation in Greece and your market position?

Yeah. We've had a, we worked through a partner in Greece, and we've, you know, developed a very interesting pre DRS infrastructure, using quantum, and also ultra, our ultra glass machine. And that's been very successful. And if you like has accelerated the recovery of beverage containers within the country. And certainly, you know, we're know it's very interesting to hear that uh certainly there's plans to uh introduce a deposit return scheme uh and certainly you know obviously through our partner um you know we'll be following that closely uh whether that's in 25 whether that's in 26 uh obviously that the detailed timeline is to be kind of published. But certainly, we're in the market. As I think everyone knows, we do final assembly of the products in Greece. We think that's very helpful. And certainly, we would expect to continue to develop and grow our business in Greece in the years ahead.

And then we have a final question, last one. Can you elaborate on the decline in inventory? I can take that. I mean, working capital management has been a clear focus, both through 2023, you know, coming off of the delay in Scotland. where we already were very active and built up inventory in anticipation of that, working our way through that inventory, continuing through 2024, where we also positioned towards increased activity levels in markets such as Hungary, Romania, and also the upcoming markets, Portugal and Poland. At the same time, you know, we're working with our supply chains. We're working with our own operations to make our operations more efficient. I think that's partly what we see a result of in Q3 working into Q4. Specifically, the reduction from Q3 to Q4 was driven by somewhat lower demand. raw materials, spare parts, inventory, with fairly stable finished and work in process levels. So, okay, here are a couple more, but I think I'll come back to that later. I think Simon will have maybe some concluding remarks from you.

Definitely, Michael. So first of all, everyone, thank you very much again for tuning in and your time and interest in the business. Again, it's been another really good year for InVibco 2024, a very strong end. Pleasure to present those results with Michael this morning. And certainly, as you see, there's a really fantastic growth opportunity for us as a business going forward. Over the last few years, we've developed the right products, we've developed the right team, we have the right experience, and certainly when these markets do go live and when those processes complete, then certainly we are ready to deliver the products and really make these deposit schemes work well for the countries that implement them. So exciting times. We'll look forward to keeping you updated. Our next presentation is in May for Q1. So with that, from Michael and I, thank you very much indeed. Have a great day, and we'll keep in contact with you. Thank you again.