Elopak ASA (ELO) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to the first quarter 2025 Results Presentation for Elopak. My name is Christian Gjerde, and I'm the Head of Treasury and Investor Relations. Today's presentation will be held by our CEO, Thomas Kormendi and our CFO, Bent Axelsen, and will last for around 30 minutes, followed by a Q&A where people here in the audience and the people watching in online will be able to ask questions. So with that brief introduction, I will hand over to our CEO, Thomas Kormendi.

Thank you, Christian and a warm welcome to everyone here in Oslo on -- I think actually, I can use this one -- on this beautiful day. We will go through yet another strong quarter for Elopak, and I'm very happy to present to you our results for the beginning of the year. Before we start, just remind everyone what it is that we are doing and the essence of what we're doing is really sustainable packaging. What we do is replacing plastics. We do that by packaging of essential commodities around the world and then providing consumers around the world with essential nutrition. Everything we do is around the sustainability and providing the world with sustainable packaging. So that we have that clear, let me just start now on the quarter. And this has been an exceptional positive quarter for us, both in terms of results, as you will see, but also in terms of key events that has happened for us in the period and will shape the future to come. Starting with revenue, we now report a result above EUR 300 million for the quarter, which is the first time ever. And that is driven by very strong developments in -- across our business, but as you will see, primarily Americas, we have a growth level of 5.3% organic growth, which, of course, is historically also a very strong level. And that, as I said, is, to the very large extent, fueling the growth we have had in Americas for some years now. We are heading up to more than 20%, 23% growth in Americas in our core business with Pure-Pak and the caps, closures, filling machines, et cetera. The EBITDA for the period is equal to Q4 of last year, and that gives us a margin level of 14.4%, also a strong period given the amount of investments we have been doing and the increased cost we have had over the period as a consequence of exactly the next point, namely the opening of our new factory in Little Rock that we inaugurated only last week exactly. More about that one, of course, later. Finally, in the period, the free cash flow has been impacted partly by the extraordinary costs related to establishing and opening the plant in Little Rock and also some temporary buildup of working cap that you will see later in the presentation from Bent. An exciting event as well during the period has been the partnership that we have started with Blue Ocean Closures. Blue Ocean Closures is a sustainability tech company from Sweden. They're delivering fiber-based caps and closures, and it's part of our road to provide more and more sustainable solutions, both on the cap -- on the pack and also on caps and closures. Now on the revenue side, clearly, 6%, 5.3% organic growth is a very strong result. And it's driven by, on one hand, the Americas business in -- on Pure-Pak mainly and also on caps. It's also driven by an extraordinary strong growth in India. We looked -- we have been looking at 60% growth in our business in India year-on-year. And that is fueled by the investments we made end of last year, extending and adding capacity, doubling the capacity, in fact, in India, which then in Q1 of this year has led us to -- enabled us to offer more products and create more sales in India. We have also seen in the period that the Roll Fed business in Europe has been challenged, and we've also seen that our business in Europe has continued on a high level. In some parts, we have been increasing our market share and in other parts, the consumption has been somewhat strained. From an EBITDA level, we can say that the EBITDA level we have of 14.4% actually as an underlying margin level of plus 15%, around 15.1%. And that difference relates to the more than EUR 2 million we have an extraordinary cost related to the new plant in Little Rock. So the underlying business is strong, and we are looking at a business that in Americas continues at a high level and also a Pure-Pak business in the remainder of our organization that continues at a very solid level. Now we have outlined 3 priorities in our strategic road map, which we call Repackaging tomorrow. And for those of you who saw this during the Capital Markets Day, you may remember that these are the paths and the road maps that will drive us and lead us to the EUR 2 billion target that we have set. Number one relates to the realizing global growth. And clearly, the Americas development that we are seeing now is a very important part of that development. Equally, the developments we see in India is also a very important part in realizing global growth. And thirdly, we have the MENA, our acquisition back -- a couple of years back that are -- we are now developing and driving business both with our -- with the old portfolio but also adding new products to the region. Secondly and number two, very importantly is all around the sustainability, where we talk about strengthening our leadership in the core. Here, we talk about technology development, material development, and the Blue Ocean Closure is an example how we are fueling that part of the strategy, adding more materials, adding more innovations around the sustainability part of the business. The last part is the plastic to carton shift. And this is, of course, the big part that we strongly believe in and that we see around the world, not only here in Norway but now also with other products, we have been seeing now that, for instance, products like Unilever have been launched in Europe on detergents, softeners, et cetera. This is a big, big part of our business, a big part of our growth and a big part of how we see the business moving forward. We have, of course, also experienced here now a quite a busy period when it comes to the geopolitical arena and not the least tariffs, which have been discussed quite at length. So I thought I'd just give you a little update on where we stand with the tariffs in the U.S. Now firstly, it's very important to note that everything we use in U.S., Americas essentially, is based on U.S. suppliers almost. And I'm coming back to the almost. But basically, we are sourcing in Americas and using in Americas. From our plant in Canada, 70% of what we produce there is being exported into the U.S. The board comes from U.S. It's converted in Canada, reexport into U.S. That business is not impacted by tariffs because there is an agreement called the USMCA, which is an agreement between the United States, Mexico and Canada that means that materials such as ours produced in Canada is exempt from tariffs. We have some imports but rather limited from the Dominican, and these imports, on the other hand, are impacted by 10% tariffs to the U.S. Our filling machines that we use in U.S. are currently impacted by another 10%. They come from Japan. And as it stands now, today, this is 10%. This may, of course, change. As you know, there are ongoing discussions on trade agreements and potentially, this may even increase to 24%. But where we stand now, it is 10%. Very importantly, though, is we have, as I said before, just opened a brand-new plant in U.S., serving the American market. And given that more than 90% -- 93% of the material we use in that plant is sourced out of U.S., it's clearly going to be a very efficient factory also from a tariff point of view should that change. Having said that, we are continuing to monitor the situation on tariffs. We think we are in a really, really good situation with or without tariffs, I would say, given our new plant in Little Rock. And we're just incredibly excited with the fact that Pure-Pak, which actually originates from U.S. now also is back and being produced in the U.S. So, with that, let's just have a brief look at what this means. [Presentation]

So we, as I said, had the pleasure really to open and inaugurate the plant only exactly actually a week ago today. At a grand opening in Little Rock, we had customers from around the country. We had suppliers from -- including international suppliers flying in, and we had a lot of dignitaries from evidently Little Rock, the state and around. It's been a fantastic journey for us, and I cannot stress how happy we are that we are opening on time and within budget. We are running now. We are producing now and really, really excited to spend Q2 of actually increasing and scaling up the production. So with this, I will hand over to Bent, please.

Thank you, Thomas. I think we can say that with the turbulence we had in the geopolitical arena, Elopak has navigated very well and demonstrated our resilience with both revenue growth, as Thomas pointed out, and solid profitability. Let's dive into the operating segments, starting with EMEA. So in EMEA, we are reporting stable revenues and continued satisfactory and good strong profitability. The revenues are EUR 229 million and EBITDA is EUR 36 million. If we look at the revenues, we are reporting stable volumes for Pure-Pak in EMEA, where we see growth in the central part of Europe and a little bit of phasing and decline in the Northern part. And however, for Roll Fed, we are continuing to see the strong competition that we have reported earlier. So we do have a decline for Roll Fed in the European markets. When you look at this year's revenues compared to last year's, this development is also impacted by the relatively strong quarter in MENA 1 year ago, where revenues were really high because of the timing of Ramadan plus other impacts like the Red Sea conflict. So that is -- made the baseline a little bit higher. But in India, we are seeing a continued strong demand and revenues grew by 60%, and this is enabled by the capacity installment. As you may remember, we doubled the capacity in the second half of 2024. If you take a look at the EBITDA, the product margins, they remain strong especially for Pure-Pak and cartons and closures. If we look at the Roll Fed business in India with 60% revenues, that has a dilutive effect to the average margin because, one, Roll Fed margins, generally speaking, have lower margin compared to those of Pure-Pak cartons. And in Q1, the margins on Roll Fed in India were a little bit lower compared to last year. The same you can say for filling machines. So we have increased the revenues related to filling machines in EMEA. And as you know, the margins on filling machines are lower compared to packaging materials. So technically speaking, that also has some dilution effects. R&D costs are increasing in line with the Repackaging tomorrow strategy, and that will, in the short term, impact the margins, but it will enable the future growth that we have committed to in our midterm targets. If we move to the Americas, we report EUR 94 million. And as a fun fact, this is more than double the revenues compared to 4 years ago when we got listed. So I think this is the fun to look at, and it's not only about year-over-year comparison, but if you take the bigger perspective, that shows the progress that we have demonstrated in America and the progress that is to come. So we are super proud of that. If we look at the comparison versus last year, the revenue growth is -- the organic revenue growth is 23%. And you see the difference here. That is basically the currency exchange rates between dollar and euro. This growth comes from growth in the core segment, the fresh dairy segment. It is increasing the share of wallet with existing customers but also acquiring new customers and the growth we see across all product segments within the fresh dairy area as well. So how did we manage this growth? This was enabled by increased import from our joint ventures, import from Europe, but we also managed to improve the production output of the Montreal plants. When we look at the EBITDA for Americas, we need to interpret the figures, as Thomas pointed out. We have these pre-production costs of around EUR 2 million. And if we calculate the EBITDA margins without those production -- in the preproduction costs, the margin is 22%, and that is quite comparable to what we normally report for the Americas segment. Part of the picture here is also the import that we are making from the JVs and Europe, they have a significantly lower margin compared to having those produced in Canada or Little Rock in the future. As Thomas pointed out, as of now, we are exempted from tariffs. So -- and these -- there are no -- tariffs have not affected any of our figures for Q1. But I just want to point out that for 3 days in March, the tariffs were actually paid when importing products to the U.S., so it also proves the unpredictability of the trading regime these days. Now if you look at the bridge for the group, we are going from the EUR 46 million last year to the EUR 44.6 million this year. And mentally, remember that we have the EUR 2 million in costs related to Little Rock that we didn't have last year. I have pointed out the main drivers already. So let's see how we can complement the picture somewhat. If you look at the net revenue mix, which obviously is driven largely by the growth in America, we also have successfully implemented the price increases in Europe for the year 2025. Raw materials are -- do have a positive impact in our P&L, and that is related to a positive inventory turn effect in our books. On the operating cost side, we pointed out the U.S. plant, the increased R&D spend. In addition, we have the inflation of our cost base. Now let's take a look at our cash flow. So in this quarter, we are reporting a cash flow from operation of EUR 5 million. And as you can see from the chart, there is a significant increase in working capital in this quarter. In the report, we have explained this in quite detail to show you the drivers of this development. I will point out the 2 most important drivers of this. One is that we have a temporary increase related to filling machine payments. So we have account payables with different timings. We have commissioning with different timings and prepayments. And in this quarter, that had an increase, and that is almost half of this EUR 34 million. We believe that to be a temporary impact on the filling machine, and we are committed to the targets, the commissioning targets, as we say. The second main point is that we are building inventory for the ramp-up in the U.S. plant. And as a part of the picture here, we also need to remember that, end of this -- end of last year, the inventories were particularly low because of the supply chain incident we had in mid last year, and we are also normalizing the inventory level. So those are the 2 key explanation factors, and there are other phasing effects that we are describing in the report. On a general note, with our working capital initiatives, we are confident to bring our working capital levels to better levels in the months to come. The cash flow from -- in investments, those are driven by 2 things. We have invested EUR 11 million in -- related to the U.S. plant, a little bit Line 1, mainly Line 2. And we also started the replacement of converters in the Netherlands, which is a part of the investment program to enable Repackaging tomorrow. Filling machine investment is at normal levels. Finally, we have cash flow from financing activities of EUR 6.5 million, and that consists of the lease payments, interest payments but also positive supply chain financing effects. That brings us to the capital structure and our return on capital. So we have a stable EBITDA year-over-year when we say LTM, so last 12 months. But with the investment program we have in Little Rock and also the production plants in Europe and with a temporary increase in working capital, the leverage ratio is 2.3. We will -- we work very systematically to bring that down because we also have, say, future cash flow effects related to the remainder of the investment program in Little Rock. That is around $22 million, bringing to the $95 million frame as communicated. And we also have dividend payments both in this quarter, Q2, and also in the second half of the year. Moving over to return on capital employed. We are reporting 15%, and that is mainly driven by building the capital employed, the balance sheet. We have all the balance sheet impacts from Little Rock, and we are really, really waiting to get the contribution from this exciting investment. So that wraps up the financial part. So Thomas, please.

Thank you, Bent. And that actually also wraps up our presentation today. As you can see, we are highlighting Little Rock. This is the biggest event we have, of course, for the quarter. It's a fantastic plant, I can say, and we are really excited to continue ramping up production during Q2. We're also closing a quarter with exceptionally strong revenue growth, more than 5%, more than EUR 300 million in revenues, first time ever for us as a company, and with a solid EBITDA level of an underlying performance above 15%. Our balance sheet, as you saw from Bent, remains solid, even though we are investing and have invested quite substantially, both in Americas but also in Europe now. And we then have a temporary buildup of working capital. All in all, looking ahead, we see that our strong performance from Q1 will continue. So we are looking at a full year continued in solid performance. Thank you very much. Christian?

Thank you, Thomas. Thank you, Bent. Another strong quarter and exciting times ahead with the opening of the new U.S. plant. So with that, we will move to Q&A, taking questions from the audience first. So if you raise your hand, I will come with the microphone to you. Please state your full name and the company that you represent.

Marcus Gavelli from Pareto. So you mentioned that the good results in Americas today is somewhat contributed to Montreal, higher output there and also the JV in Mexico. Could you provide some color more like specifically on what you did in Montreal that led to this good result? And how sustainable is that moving forward?

Right. I think because we have been presenting and being faced with a situation where we were running out of capacity in Montreal, I think that's what you are alluding to. And clearly, that's why we are building the plant in Little Rock. So what happened during last year is that we had -- we're running the plant. We then had a disruption in our supply chain during the year that Bent also mentioned. For us, that meant that we had to prioritize to supply customers the best we could. In some cases, it was very, very, very difficult. And it also meant that we needed to produce smaller batches in order to satisfy pretty much everyone's needs. Now when we have the possibility of organizing ourselves better, we can produce longer series. We can make it more efficient. We can simply get more output of the factory. The shorter runs you do, the more changeover time you have, and the lower the OEE level in the plant you get. So we get better OEE. We get better output, and we have a higher efficiency. Is that sustainable? I absolutely believe it is because it's the right way of doing it.

And just one more question regarding Americas. So as you said, Bent, leverage level might be a bit inflated, if you can call it that right now with the CapEx and working capital. How should we think about or how do you think about another FID in Americas regarding your leverage level? Is that something you will need to get down to, let's call it, comfortable levels, before you think about FID? Or is that something you could see yourself doing while building down the leverage?

So when you say FID, you mean further expansion, right?

Yes.

Yes. So first of all, we are comfortable with the current leverage ratio. And we have demonstrated before how fast we can deleverage this company. Since the working capital movement, much of that is temporary, you can -- if you play with a number, right, if you are -- fundamentally, the working capital should probably move EUR 5 million, EUR 6 million for this quarter. So the rest, I regard as temporary. That's the price of Line 3.

Jeppe, Arctic. You mentioned that some of the revenue effect came from price adjustment in Europe. Looking towards your competitor, Tetra Pak, rumors has it that they increased prices by 3%. What can we expect from your price adjustments in 2025?

So we did increase price across the board in '25. We have implemented our price increases. I'm not going to comment exactly on the amount nor the range, but we have done it, and we've successfully completed the plan we had for the price increase. The price increases relate simply to -- as we've seen here, inflation continues, of course. We have board increases. So that's essentially the background for the price increases. But we are through it. We've done it and are happy with the execution of it.

Regarding Marcus' question on FID on -- or FID beyond Line 1 and 2, given the geopolitical uncertainty, given the economics on the line or each incremental line and also the market balance in the U.S., why or why not it does make sense to invest in a third and a fourth line?

We're not saying it doesn't make sense, right? We are just saying that we built the facility that you saw in the video, which is a fantastic facility actually, and it's built for a lot more capacity than what we will have right now. So I don't think it's unreasonable to think that, at some point, we would want to increase capacity, but we also want to do it in a controlled way. The thing is we're adding new customers. We're adding more volume from existing customers. We are onboarding plants, dairies, et cetera. All of that is actually a lot of work and a lot of people getting involved, a lot of testing, et cetera. And we just want to make sure that we can do what we say and deliver to our customers and ensure that they get the quality that they expect from Elopak. So it's a big plant, and at some point, it will be nice to see that being fully utilized, but we take it step by step.

Any further questions here from the audience before I move to the questions that we received online? No. Okay. So we have a couple of questions coming in. Hakon Fuglu, SEB, I will do them one by one. Do you see any logistical impact from potential tariffs in the quarter?

We have discussed that internally. And I think from a, say, operational perspective, I cannot recall that we have any issues, has there been any front-loading of orders in Q1 awaiting tariffs in April. That could have been, but at least from what we have understood from the organization is that those effects are rather limited. But it's also difficult to really get the truth when it comes to these things. And then you need to know what's in the customers' mind and that is not always clear to us.

Thank you, Bent. Second question from Hakon. What is the negative Ramadan impact in Q1? And do you expect carton sales to improve for H2 in EMEA?

Okay. So I can maybe comment and you can complement. I think it's not a negative effect this year, but I think I'd rather say that the impact was very positive last year. So you got the full effect of Ramadan in Q1, and the timing is different between years. So I would definitely not say that MENA revenues are weak this quarter. If you compare to Q4, they are quite comparable. So that makes it, say, not that obvious that we see a significant increase into Q2 since this impact was more a last year impact. Thomas, I'm not sure if you have any...

I actually agree. I think if you look at MENA -- sorry, EMEA and the volume in EMEA, I think we will see because we have projects and contracts that will come onboard. We will continue to see the market share growth that we have had over the last at least year, year, maybe 2 years. But this is also being offset as it is now with some consumption decline in major markets, and with our market share, of course, it impacts our volume. So I don't think necessarily we're going to see a big jump, but overall, I think the EMEA business is doing well and will continue to do well for the remainder of the year with ups and downs a little bit where you look.

Following up with another question from Hakon. How much of Americas revenue growth stems from EU imports? And has there been any -- I think you answered the last part of it. So how much of the revenue growth we've seen in Americas comes from imports from the EU and JVs?

Yes. So we don't disclose the split between Europe and joint ventures. But I think roughly speaking, you can say import and increased output is roughly 50-50, roughly 50-50. But I think the import from JVs are somewhat higher than the import from Europe.

The last question from Hakon so far. What can we expect of filling machine deliveries in '25 for Americas?

We expect the development we have had the last few years to be in line this year as well. We see good traction, good demand in filling machine. For us, it's a question of ensuring that we install them, commission them, get them out in the market. Sometimes that there can be some delays in this. But overall, I don't see any reason why this year should be different than previous year when it comes to filling machines to the market.

Then we have some questions from Charlie Muir-Sands, BNP. I'll start again doing one by one. Was there a demand pull forward in Americas in Q1? Or is this the run rate that you expect through '25? Yes.

I think Bent answered before.

Yes. So I think in all honesty, I think the demand has been there for some time. So I think the explanation for the revenue growth is that we find ways to enable it, so by continuing to import and to find productivity improvements. So the way -- what we expect is that we will do now -- we will now do the ramp-up. We were gearing up Little Rock day by day. And gradually, we will replace those imports with domestic production in the U.S. and the growth to be expected in America is in line with what we have talked about before that. By the end of this year, we will reach the practical capacity utilization, full capacity utilization in Little Rock, so by the end of the year.

On Line 1.

On Line 1.

Line 1. And as you know, we're installing Line 2 to be up and running next year. So overall, this moves along with -- in line with plan.

Another question from Charlie. What start-up costs do you expect for the rest of the financial year '25 for Little Rock?

Yes. So in this quarter, we have the costs. I think in moving forward, I think the second quarter will be more neutral, I would say, and then we will start to generate positive EBITDA from second half and onwards. And then we will aim by the end of the year to have a margin -- an EBITDA margin on Little Rock in line with the rest of America for the end of year in isolation.

A couple of more questions from Charlie here. What share of Line 2 in Little Rock is now presold?

So we are not very -- actually, we are not disclosing that. But where we are on the volume right now is we have enough demand for us to fill the line. We are currently not actively filling it. And it's back to the point I made before. We want to make sure Little Rock is up and running. We want to make -- we think of it like this. It's a greenfield, as you saw in the movie. We have a lot of new people. We have to ensure that we get the quality, the efficiency, everything like we want it to be before we sell and commit too much. So we are running the expansion of Line 2 a little bit more carefully than what maybe demand would say we should do.

And then we have one final question from Charlie here, which I think is the last one that we've received. And that relates to the competitive landscape in the U.S. So are there any changes in the competitive situation with the sale of Pactiv to Novolex?

Look, it's difficult to say, right? The sale has been confirmed and has been approved. And of course, clearly, when you talk, when we talk to our customers and future customers, they are very clearly looking for what that sale will mean for the market. I think, for us, it's too early to be specific of what it means. Thankfully, and we are very happy about that, the demand on our side, the interest in the filling machines in filling up Little Rock, in working with us has certainly not diminished in any way.

Perfect. Thank you, Thomas. Thank you, Bent. I think that concludes the questions that we've received from the audience online. So unless there are any final questions here from the crowd, we will round off today's results presentation. Thank you, everybody, for joining.

Thank you.

Thank you, everyone.