Envipco Holding N.V. (E1P0.F) Q2 FY2025 Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Q2 2025 presentation by Envipco. I'm Simon Bolton, CEO of Envipco, and we'll run through this presentation with my colleague, Mikael Clement, Chief Strategy and IR Officer. Normal disclaimer, what are the financial highlights for Q2 2025? As we talked about in the first quarter, this is a transitional year for us as we deliver on the existing markets and then we look forward to new growth markets coming up. We're seeing sequential growth Q1 to Q2 this year and group revenues of EUR 23.1 million, that is 13% down year-on-year. But as mentioned, we expect that to continue to build as we go through the year, more on that later. In terms of gross margin, we continue to work hard, make investments on our production capability, our supply chain to drive down the cost of operations and cost of our products, so gross margin of 36.6% shows 1% up versus the year before, giving a gross profit of EUR 8.4 million, EBITDA of EUR 0.4 million and cash, which Mikael will talk about a little bit later in more detail, ended the quarter at EUR 18.9 million. In terms of operational highlights, as we've discussed previously and we'll show later in the presentation, there's a lot going on. Lots of markets are active. Some of those activities haven't gone through to final commercial decisions and agreements and orders quite yet, but still, we're continuing to prepare for the significant opportunity ahead of us. That's both on production and supply chain. Whilst not all those activities have gone through the final decision, some have, and we're very excited to have announced the first 2 orders in those 2 new critical markets. So 250 RVMs were announced to a major retailer in Portugal. Portugal is an exciting market for us. And we've had certainly a really great business development team on the ground there for some years as that starts to prepare for go live at the beginning of 2026. Poland, very large market, potential, maybe up to 15,000 reverse vending machines. And we're certainly -- we're excited to announce the first agreement for 1,000 units to a major retailer in Poland. And based on the current scheduling with the customers, that's expected to roll out during the course of the second half. Romania, it continues to be a real success story for us. And we're certainly -- we're proud of the contribution that we have made to the deposit return system in Romania and also the fantastic team and business that we've built in the country. As you know, we've been in Romania now well over a decade, initially as a supplier, and we built up that business to become one of our major manufacturing hubs and also a very active participant delivering machines, delivering services and support to the deposit scheme in Romania, which is working very well. As we've continued to work with the retailers and overall, the country at large, certainly, our market share has built up to now over our initial target of 30%, and we expect continued development in this exciting country going ahead. We continue to invest in the team. This is something we've committed to do as we look to prepare the business for the future. So a number of people were added in the quarter, particularly around business development, the service function aftermarket. That's important, of course. We only sell and deliver a product with a service offering. That's super important for our customers. So we really focus on that. And then we also continue to invest in core functions as we grow the business, as we grow the organization, core functions, particularly around finance and IT also are developed. For those who may be joining us for the first time, we are a global recycling technology business. We're focused on the recovery of beverage containers. And with the legislative framework to increase recovery, there's an unprecedented market opportunity, really a tripling of the market in the next few years. We have positioned ourselves to capture our fair share of this developing market. And step by step, we execute with a seasoned team, and we're driving both revenue growth and we're developing profitability. What does this look like? If we go back a few years, here on this chart, you see as new markets come in, and that's our focus really being there when these markets open up, so we can capture our fair share. And as they have, then you see that's propelled our growth over the years. We, of course, still have a strong and stable U.S. North American business, which Mikael will talk a little bit more detail about. Whilst the number of deliveries was relatively modest this quarter, having production capacity is important. And we deliver North American products in North America from our North American operations in Connecticut. And then European markets, we service through 3 facilities that we have: Romania, Germany and Greece. This is important. It allows us to serve the customer efficiently and quickly. And also that capacity that we've developed over the last few years allows us to respond when customers maybe make decisions later than we anticipated. So a number of these markets, there's still work going on in the market to frame them and to organize them, particularly in Poland. But when those decisions are made, then we have the capacity, we have the ability to serve those customers very quickly. And we think that's important, particularly as we head towards the regulation target of 2029. Okay. With that, Mikael, I'll hand over to you for a financial review. Thank you.

Thank you, Simon. Good morning. I'll take you through some of the financial highlights of the second quarter of '25. Starting out with the profit and loss. Revenues in Q2 were EUR 23.1 million, a decline of 13% from Q2 last year of EUR 26.6 million. The key driver behind that decline are lower RVM sales to Europe. As we continue to deliver on existing markets, whereas in the second quarter last year, we were still in the buildup phase in some of those DRS market introductions. 36.6% gross margins this quarter reflect underlying improvements in our production and supply chain activities, offset by lower utilization in our assembly facilities as we sold out older inventories, finished goods inventories previously produced. Operating expenses EUR 10.4 million in Q2, up from EUR 8.8 million in Q2 last year. The increase, both on a sequential and a year-over-year basis is driven by increased headcount, as Simon mentioned, 505 employees exiting Q2 this year, up from 416 employees Q2 last year. EBITDA in the second quarter, EUR 0.4 million versus an EBITDA of EUR 2.6 million in Q2 last year, with net profit at minus EUR 2.5 million in Q2. For the year-to-date figures, Envipco posted group revenues of EUR 44.1 million, a decline of 18% from EUR 54 million in the first half last year. Gross margins in the first half of this year were 37%, up 170 basis points from 35.3% in the first half last year. Operating expenses, first half of this year, EUR 20.2 million, up from EUR 17.6 million in the first half last year with EBITDA of EUR 0.9 million, down from EUR 5.6 million in the first half of '24. Drivers behind our revenues. Europe is a market that we are focusing on as new markets continuously are introducing and rolling out new deposit return schemes. Revenues in the second quarter were EUR 14.5 million in Europe, down 16% from EUR 19.9 million in the second quarter last year. We continue to deliver on markets. This quarter, Romania, once again, very strong performance. We are continuing to deliver in Hungary, but at a lower rate and where Greece started out very -- or quite soft in the first quarter, has built momentum into the second quarter, but is expected to continue to build momentum into the second half of the year. Our reverse vending machine sales in the second quarter in Europe were EUR 12.8 million, down from EUR 16.4 million in the second quarter last year. Program services increasing still at a low level as we still are in warranty periods for a majority of our installations, EUR 1.7 million, near doubling from EUR 0.9 million in the second quarter last year. Our North American operations are stable. In the second quarter this year, revenues were EUR 8.6 million, down 7% year-over-year from EUR 9.3 million in the second quarter last year. We've had a weakening of the dollar versus the euro. So adjusted for that, the underlying growth is 3%. The driver behind the decline are lower sold volumes and therefore, also lower collected volumes in the North American markets. Program services declined 4% year-over-year. They comprise the largest share of our U.S. business -- excuse me, North American business to EUR 7.5 million. RVM sales in North America in the second quarter were EUR 1.1 million. Our operating cost, EUR 10.4 million in the second quarter, up 17% year-over-year, and as explained, largely driven by the increase in our headcount. Envipco will continue to invest to meet anticipated market growth in the quarters and years ahead. This goes in a wide variety of our activities from market and business development through R&D, developing our technology and delivery platform further, our administrative capacity and systems. Including other income, total operating costs in the quarter were EUR 10.3 million. Moving over to our balance sheet. Balance sheet total declined marginally from EUR 122.6 million at the end of Q1 to EUR 121.1 million at the end of Q2. Noncurrent assets were EUR 39.2 million, down from EUR 41.2 million at the end of Q1. Major components PPE, EUR 21.2 million, and intangible assets of EUR 14.2 million. Roughly half of the intangible assets are made up of capitalized R&D. Current assets were totaled EUR 81.8 million, fairly stable from EUR 81.4 million at the end of Q1. Taking out the cash balance of EUR 18.9 million. Inventories were EUR 33.1 million at the end of Q2, up from EUR 31.5 million, with the increase being driven by raw materials, offset by a decline in finished goods inventory. Accounts receivables were EUR 29.9 million and versus EUR 29.3 million at the end of Q1. Equity stood at EUR 57.9 million for an equity ratio of 48%. Noncurrent liabilities were EUR 16.1 million, flat sequentially, with borrowings at EUR 6.8 million, down from EUR 7.6 million in Q1. Current liabilities were EUR 47.1 million, up from EUR 42.6 million at the end of Q1, with trade creditors at EUR 17.8 million and borrowings at EUR 15.6 million, up from EUR 10.5 million at the end of Q1. Total borrowings on the balance sheet exiting Q2 was EUR 22.4 million, up from EUR 18.1 million at the end of Q1. Moving then over to the cash flow for the second quarter. We exited the quarter with EUR 18.9 million in cash, down from EUR 20.7 million at the end of Q1. Cash from operating activities were a negative EUR 4.6 million, with EBITDA of EUR 0.4 million being offset by a working capital build of EUR 5.3 million. Higher inventories, higher receivables, key driver behind that build. Cash from investing activities were EUR 1.5 million negative, with capital expenditures of EUR 1.1 million and capitalized R&D at EUR 0.4 million, key drivers. Cash from financing was a positive EUR 4.6 million, with FX effects of EUR 0.4 million negative. That was driven by an increase in borrowings of EUR 5.2 million, while lease liabilities came down EUR 0.5 million during the quarter. Since Q2, now in August 5, we announced a new consolidated working capital facility with ABN AMRO Bank, thereby collecting financing arrangements have in different markets that the company has had over time and built over time to a collective facility. This facility gives us a flexible capacity currently up to EUR 21 million. As part of this arrangement, we have repaid all USA-based financing, which then in sum, gives us net of these repayments and increase in working capital capacity of EUR 10 million. A very important stepping stone for the company as we continue to move ahead towards new growth opportunities. With that, I think I'd like to give the word back to you, Simon, for a few comments on our outlook.

Okay. Mikael, thank you very much indeed. Great. Just a reminder, obviously, on the webcast, you can enter questions, send questions to us. And after this outlook, we will then take those Q&A, so please do send in your questions. Good. Right. Outlook, we wanted to highlight again the opportunity facing us. So we are recycling technology business. We produce reverse vending machines and services and systems that support the recovery of beverage containers. And that recovery is now very strongly written and driven in legislation, both the EU packaging and packaging waste regulation, which mandates 90% recovery by 2029 and also additional legislation in other countries, for example, the U.K., which is mandating the introduction of deposit return scheme in the U.K. by October 2027. Very powerful pieces of legislation which are driving activity in this market and of which, of course, we want to take -- we are positioning ourselves to take our fair share. A different way of looking at this is in terms of coverage of population. So last few years, roughly 40 million, 50 million people have been covered in those countries that have recently introduced a deposit scheme. In the next 3 years, there's another kind of 270, 280 people. And then in the next 5 years, potentially another 150 million people and roughly the number of reverse vending machines, our products that you need to cover a population is proportional. So huge opportunity, and we've expressed this differently before to say there's about 100,000, 110,000 units operating globally at the moment. And to cover all of these deposit schemes, we need another 200,000. So about 300,000 units will be needed in the next few years. This additional 200,000 units is a market opportunity of about EUR 4 billion. So very significant, very exciting. But timing is a challenge that we face. And if we look at this slide, which we keep updated. And by the way, thanks for the feedback, people find this very useful. These are the markets that are finishing off a deposit scheme, so Romania, Hungary and Ireland. These are markets we're still delivering units in, as Mikael mentioned. Hungary, in particular, for example, has done most of the installation last year. So that is being delivered at a slightly lower rate. And year-on-year, we delivered less in Q2 '25 than we did in Q2 '24. Romania has a longer tail, lots of local independent stores have moved and want an RVM, which is great. So sequentially, actually year-on-year has seen growth. And Ireland and so on is filling in. And then we have Poland and Portugal, which, for those who follow the business several quarters, are really key markets for us during this year and next. And whilst there's still a lot of activity in both of those markets, there are some things that need to be -- continue to be defined and sorted out. So Poland, there's interoperability questions which are being worked through between multiple operators, retailers in the beverage industry are still working on their final plans. And this uncertainty, therefore, is pausing somewhat some of the very final decisions of retailers, our customers when they buy RVMs. So we're seeing that move slightly into the latter part of 2025 and potentially even to 2026. Good thing is we've now been there a few years. We have a fantastic business development team. We've won the first agreement, which is great. We have pilots operating in many countries -- in many areas of Poland, which is exciting, and we're ready to win when the customers make those final decisions. Portugal is smaller market. And certainly, there's been no official announcement from SDR Portugal, the operator, on the go-live date, but we expect that to be in the first of 2025. Again, a slight delay has caused a slight delay from some of our customers. Again, great team on the ground, lots of piloting, and we do expect still in both those markets to win our fair share, which is 30% plus. The other markets are starting to come through. Greece, which Mikael mentioned, we've got a fantastic footprint in Greece through work with a great partner. And as Greece starts to transition between pre-DRS and DRS, then clearly, there's some things that need to be organized before that gets going again. So overall, we continue to see really exciting momentum in new markets. It's a multibillion dollar euro market in Europe. And we have, obviously, outside of Europe, continued interest in different markets and obviously, potential growth within North America. The timing and character of these will influence final procurement decisions and delivery. We're ready. We have the team. We have the products. We know we can do it. We've proved we can do it, and we're just waiting for that final go before launching those products onto the market. We continue to deliver on a tail of very substantial launches, particularly in Romania and Hungary. We have our first agreements in Poland and Portugal. And we're working hard with other customers on their final decision points. And look, we're confident about the future. We're confident about the market, our ability to capture our fair share. So we will continue to invest to be ready for when those decisions are made so we can deliver excellent products and services to those customers. So that's the end of kind of the Q2 update. We'll take Q&A in a moment. Just a reminder, we are holding our very first Capital Markets Day update in Oslo, 9th of September. So those who are in Oslo or want to travel to Oslo, you are more than welcome. Please register and let us know. For those who can't make it live, then we will be webcasting it live on envipco.com, and it will be between 1 and 4 Central European Time. So hopefully, look forward to seeing many of you there live, should be exciting update. And obviously, the few hours gives us longer to go into a bit more detail about the business, about our targets and as we look slightly further ahead to 2030. In terms of the next specific event on quarters, we have Q3 results. That will be on the 12th of November. And with that, I'll say thank you very much for your attention. And Mikael, I think if we have any questions, it's over to Q&A.

Yes. And questions are coming in here.

Thick and fast, I hope.

Yes, yes, absolutely. Okay. Well, let's just start on top. Could you comment on what is driving sales of the Quantum in the U.S.? How the characteristics of this machine fits the U.S. market?

Yes, great. Look, I think one of the things is that the deposit schemes are -- have been established in the U.S. for a long time since the 1980s. But as we have announced before, and as you've seen in our numbers, Connecticut as a state has refreshed their bottle bill, which has increased the number of containers, which are coming back to the scheme. We're also seeing increased volume in places like New York. The Quantum machine is fantastic for high volume. We've seen that in Europe. And now we're introducing that technology into the U.S. Actually, the photo that you see here is, in fact, the U.S. machine. And so we're putting these machines in recycling centers, which can be used by the public, can be used by people in those recycling centers, the team of those recycling centers, and they've been really well received. And we've got lots of inquiries for other machines. And so we feel very positive about Quantum as a product platform in the U.S.

Yes, absolutely. And we're looking at producing it as well.

Yes. I mean it's a big unit. I mean, for those who have had the pleasure of using it, one of the things that customers like is not only it's good for their consumers and the people who use their shops, it's very efficient, but it stores a lot of material. And it's easy to take that material which means you need a big box. And shipping boxes across the sea is not the best thing to do. And there's lots of people who make good boxes in the U.S. So one of the benefits, of course, of having a dispersed manufacturing strategy and having factories that are ours that we control allows us to be very flexible. So just like we have done in Greece to localize the Quantum product, that localization, we can also do in the U.S., which allows us to be highly flexible. And of course, particularly in the current regime, very cost effective.

Yes. Can you provide a bit more color on if you are expecting Poland and Portugal orders to come into the P&L in Q4 this year? Or is it more split between Q3 and Q4?

Yes. Look, I think we wanted to highlight the timing of these opportunities. I think we still -- it's not a matter of if it's going to happen, it's going to happen. Both of those are -- those schemes will happen in the next short period. It's the timing of those. Now certainly, we've announced the 2 new agreements. We expect those to be delivered during the course of the second half of the year before the end of the year. And clearly, we are working hard to add to that. So far, because of the work still going on to solidify and clarify some elements of the schemes in both countries, there's been really no more announcements or conclusions by customers anywhere. We're ready to obviously jump on those as soon as they -- as soon as those decisions are made, and they want the product. But certainly, we do expect an influence of Poland and Portugal in the second half of the year to revenue. The extent of that, again, is the extent of timing. And yes, so we're basically ready to go.

But more in Q4 than in Q3, it's only reasonable that sounds.

Yes, I think so. I mean, here we are, we're mid-August now, and I think it's reasonable that, as we've said, we see momentum building as we go through the year. But like we've seen in the last couple of years, we do expect Q4 to be quite busy.

Do you see anything significant with regards to the decrease in North American sales? Well, as we explained, program services were down. Q2 this year, lower sequential seasonal growth than we've seen in previous years. From what we gather, the sell in of new beverages has been lower, weather, partly explaining that specifically in North East. Lower sold volumes also then results in lower collected volumes. So all in all, the North American market for us is still looking as a stable market, a moderate growth. It will vary on a quarterly basis, but that's still what we see. There's no difference structural or in the North American market for us. Do you expect working capital build to reverse over the course of Q3 and Q4? We've seen -- in terms of seasonality, we've seen a build in Q2 over the last few years. We will have a higher activity level moving into Q3 and even higher activity level into Q4. That will drive receivables. We have different types of contracts with different types of customers. And of course, the mix of that could be changing that dynamic. In terms of our financing capacity, we're very comfortable with what we have to deliver on what's to come for the Portugal and Poland. We have a strong focus on our working capital, but we also need to have an availability to deliver on the opportunities that are arising. So let's see here. Can you provide any further color on the Netherlands win and how big this could be for 2026? Do you expect to win any further orders in other existing markets? In other words...

Certainly, we -- one of the things that we have put in the report, a subsequent event is we're very pleased to announce the kind of frame agreement with Statiegeld Nederland, the operator of the Dutch system to kind of formalize some of the pilots and some of the work we've done over the last 6 months in terms of introducing Quantum to the Dutch market. As we presented before, the Dutch market has grown from big bottles and then introduced small PET bottles and now introduced cans and cans is a huge fraction of the overall beverage containers in the market in the Netherlands. And so this has created kind of an issue, also created an opportunity for us to introduce Quantum. And we've had several fantastic pilots by private groups, which have also been supported by Statiegeld Nederland, and that's now culminated in recognizing that technology has a huge potential and investment and program that lifts the Netherlands towards the 90% recovery target. So yes, we do expect, of course, follow-on orders both during the course of this year and during next. It will be step by step. As we talked about just before, in the U.S., these are big machines. It needs planning permission and zoning and so on and so forth. But certainly, everyone is very excited. We've got now a team focused on that brownfield opportunity in Netherlands. We have technical support and so on. And certainly, our -- the feedback from customers, the feedback from Statiegeld Nederland is very positive, so yes. And in general, what you see, and hopefully, we try and communicate as best as we're able through these quarterly updates is you see a spread of Quantum. I think you go back 2 or 3 years, really Quantum was only in Sweden, but step by step, now we see Quantum pretty much existing in every market that we're working in. It's a very -- it's a great product, unique product to the market. Consumers love it. It's very quick. It's very efficient. They don't have to stand there putting bottles in one by one. And our customers, retailers or even private individuals like gas stations, they like it because it's high footprint. It drives footfall to their facility and of course, with very high volume, they get a lot of handling fees. So overall, a fantastic product, which we will -- is important for us, and we'll continue to develop and also apply in other markets.

Yes. Could you please explain the gross margin decline sequentially? Q2 production was lower than in Q1. So it's utilization factor. So lower utilization of our assembly facilities. So in other words, part of the sales in Q2 was sell-out of previously produced finished goods inventory. That's the explanatory factor. Let's see here. I'm just trying to see which questions may be overall lapping. Could you maybe elaborate on your performance in Romania?

Yes, sure. Yes, look, we wanted to highlight Romania. It's actually our biggest single market in Q2 and showed very strong both sequential and also year-on-year growth. Yes, as I mentioned, I think, in the presentation briefly, we've been working in Romania now for quite some years, initially just as a supplier of our compactors, very high-quality, very efficient. And then we've built out that business both from a production point of view. Now we fully make the whole product in Romania and the full range to also then supporting the Romanian deposit return scheme. And we've made several announcements over the course of the quarters in terms of key wins that we've had with international retailers, but also, more importantly, we have a very active local sales team and commercial team that look at the much wider opportunity of local and regional retailers. And we've built, therefore, into that market. They really like the fact that they can get the product quickly. It's simple to use. It works. It's effective. It's a good price point for them. And so that has developed our market share and we've surpassed now 30% and we feel we can continue. And this is an interesting dynamic because we see similar dynamics in some other markets like Poland probably being even more like this, so 10%, 15% maybe of retailers are kind of international retail groups or large groups. And then you have the majority being these smaller chains, smaller local retailers, which are very effective at what they do in those markets. But maybe start off with manual collection, then they have an RVM, a reverse vending machine, later in the process. So this market share builds over time. So we've been working in Romania now commercially for well over 2 years. But it shows commitment to the country, commitment to the market, a great team on the ground clearly allows us to have a very nice solid business and ultimately build up to a good market share.

Then we're through all the questions.

Very good. Okay. Excellent. Well, thank you, Mikael. Thank you, everyone. Thanks very much for your attention as ever. Again, a reminder, September 9, do put it in your calendar, it's the Envipco very first Capital Markets Day either online or of course, warm welcome to Oslo. And then we'll see you again for Q3 update in November. With that, we'll sign off saying thank you very much for your attention. Have a fantastic day. Bye-bye.