Envipco Holding N.V. (ENVI) Earnings Call Transcript & Summary

Okay. Good morning, everyone. It gives me great pleasure to welcome you to the Q1 2025 Results Presentation of Envipco. My name is Simon Bolton, CEO of Envipco, and I'm joined by my colleague, Mikael Clement, Chief Strategy and IR Officer, to run you through the highlights of the quarter this morning, followed by a Q&A. Highlights for Q1. Following a record end to 2024 and as anticipated and as mentioned last quarter, somewhat slower start to 2025. Group revenues EUR 21 million, 23% down year-on-year. Gross margins continue to develop well. We've had obviously a target of 40% -- getting to 40% gross margins and we continue on that journey with really good productivity and also cost efficiency in addition to good work in -- on the commercial side. Overall, EBITDA with costs under control this quarter at EUR 0.5 million. And then the cash balance, which Mikael will go through in a little bit more detail later, ending the quarter at just over EUR 20 million. We continue to strengthen our business. I think for those who followed the business for some time, you know that we're positioned in this space, really unprecedented market opportunity ahead of us, driven by EU regulation, which mandates introduction of a deposit return scheme, so a small fee on bottles or cans to return them to recycling point, which needs our technology, our services and our skills to make the whole system work. So we continue to develop our organization, our technology and our capabilities so that we can be ready to deliver all those opportunities when they come. We have announced continued excellent wins and progress in Romania. So 2 specific wins were announced this quarter. And in addition, in Romania, we had the pleasure of opening up our Engineering Center of Excellence in Cluj-Napoca last month. And I will talk a little bit more about Romania later on. Again, we continue to invest in the team, the markets and products and also our operational and administrative processes so that, that grows to take -- to really take these opportunities in addition to grow with efficiency. For those who may be just joined for the first time, a reminder, we are a global recycling technology business. Again, we are set for rapid growth with these market opportunities ahead of us. We have, over the last few years, captured leading position in these European growth markets. And as I said, we continue to invest in building our business, executed by a developing seasoned team. Over the last few years, we've seen significant growth and sustained profitability, and we expect that to continue in the future. A little bit more detail here. What we see is 2 key parts of our business. North America, really a 40-year business, but which is set for decent growth over the next few years and then a higher growth European business with this year, new markets principally being Poland and Portugal. One of the things we do want to highlight is where our center of operations are. So we actually have 4 centers of production where we make our reverse vending machine products. North America. So that's in Connecticut, Naugatuck in Connecticut. And then in Europe, in Sebes in Romania, Athens, Greece and Osnabruck in Germany. This allows us to have a very decentralized production base with ample capacity. And if you look on the right-hand side of the slide, that's just a view -- that's just an assessment of our installed capacity at the moment versus what we've actually sold over the last couple of years. So we are ready and we are set to deliver on these growth opportunities. Also, of course, depending on what's happening in the world, by having decentralized production centers with very localized supply chains means that we can respond effectively and produce in market for market. Romania has become a real important part of our growth strategy. We've actually been in Romania over 10 years, supplying components to the rest of the Envipco Group. And more recently, in 2021, we started to develop our growth strategy and growth plan for Romania as the country was heading towards a deposit return scheme. That was launched in '23. And over time, we've built up a very solid commercial position team and also loyal customer base within the country. Now, we've on a clear path to be 30% plus, which is our market share target. And we continue to see opportunities in the future. Examples, the follow-on orders that we announced in Q1 and also potentially new market segments where recycling centers are put in municipal locations. So a very exciting market, very important part of our growth story. Good. And now to go through a little bit more detailed numbers, Mikael. Mikael?

Thank you, Simon. Good morning, all. Let's start out by moving into the profit and loss statements. Revenues in the first quarter of 2025 were EUR 21 million. This is down 23% from the first quarter last year. Gross profit was EUR 7.8 million, with gross margins at 37.3%, an increase of 220 basis points from the first quarter last year, driven by operational improvements in our own assembly and production, as well as in the supply chain. Operating expenses, EUR 9.8 million, driving EBITDA of EUR 0.5 million in Q1, down from EUR 2.7 million in Q1 last year. EBIT, negative EUR 2 million, down from EUR 1.1 million last year, with net profit at minus EUR 2.4 million in Q1. Europe remains our largest region of revenues also in this quarter, but revenues were down on a year-over-year basis, as well as down sequentially following a record Q4 '24. Europe revenues were EUR 12.3 million, down 38% from Q1 last year, largely on shifts -- quarterly shifts in revenues. Specifically, this quarter, Greece was soft coming off a very strong Q4. Our RVM sales in Europe were EUR 11 million, down from EUR 19.2 million in Q1 last year. Romania was our largest market in Q1 this year, followed by Hungary. Romania sales were up strongly from Q1 last year. Program services in Q1, EUR 1.3 million, nearly double EUR 0.7 million in Q1 last year. Program services comprise services, lease throughput revenues, continue to make up a very small share of our European revenue base as our growth primarily will be driven by new installments of equipment. North America, solid growth this quarter, 16% year-over-year growth to EUR 8.7 million. Program services were up 4% to EUR 7.4 million, our largest share of business in the U.S., while RVM sales increased solidly to EUR 1.3 million on various installations across the country with various accounts. Operating costs this quarter were EUR 9.8 million. This is down from reported OpEx of EUR 11.3 million in Q4 and adjusted OpEx of EUR 10.7 million in the quarter. The drop sequentially comes from lower personnel costs and professional fees. Year-over-year, our OpEx was up by EUR 1 million, primarily driven by higher personnel costs on higher head count. Envipco will continue to invest in our business to ensure that we have the footprint and the organization ready to take on the anticipated growth in years to come. Then moving over to the balance sheet. This quarter, our total assets were down by roughly EUR 10 million to EUR 119.9 million, driven primarily by on the asset -- or excuse me, debt and equity side of lower borrowings and equity. On the asset side, noncurrent assets were EUR 38.7 million, down by about EUR 1 million, primarily made up of PPE and intangible assets. Current assets totaled EUR 81.2 million, down from EUR 89.5 million in Q4. The drop is largely explained by a lower cash balance coming down from EUR 30.7 million to EUR 20.7 million at the end of Q1. Inventories up slightly EUR 31.3 million with accounts receivables at EUR 29.3 million. Equity ratio was 54% this quarter. Noncurrent liabilities, EUR 15.6 million, down a tad from EUR 16.4 million at the end of Q4. Current liabilities were EUR 39.9 million, down from EUR 45.4 million at the end of Q4, with total borrowings short and long term at EUR 15 million, down from EUR 19.4 million at the end of Q4. Finally, the cash flow in the first quarter. We started out the quarter with EUR 30.7 million in cash. Our cash from operations were down by EUR 4 million, primarily driven by a working capital build on higher inventories moving into higher activity in the second quarter. Interest and tax paid was in excess of EUR 1 million in the quarter. Cash from investing activities were EUR 1.1 million in Q1. Capital expenditures were EUR 0.7 million with capitalized R&D at EUR 0.5 million. Finally, cash flow from financing activities were negative EUR 4.8 million with a reduction of borrowings and lease liabilities this quarter, paying down on financing facilities for a total net change in cash of EUR 10 million and an ending cash balance of EUR 20.7 million. Then, Simon, let's move into the outlook.

Right. Great, Mikael. Thank you. So last couple of slides before Q&A. So yes, so as we see these countries coming through to introduce deposit return schemes, as I mentioned, that will drive the market and the demand for our products and services. So this is just a quick snapshot going back a few years, our revenue development and what we expect to continue in the next few years. Also, how much of the population of European countries are covered by what's happened and what's coming ahead? So over the last few years, deposit schemes have covered about -- have covered countries with about 42 million of population. In the next few years, that will be 278 million people and possibly another 150 million on top of that for those countries that are covered by EU regulation but maybe go later '28, '29. So a very significant market opportunity in this deposit return scheme second wave to hit the continent. This is something we've showed before, but really here, these countries then are starting to firm up on their plans on the preparation for introduction of a deposit return scheme. So we're in the throes of final commercial discussions in Poland and Portugal. We had great news from the U.K. a couple of weeks ago, the operator of the scheme, so-called DMO in the U.K. That has been announced. That's very positive. And U.K. remains on track to be a very significant market for us in the future. And then we have other countries that are also starting to develop and discuss schemes to put things in place before the deadline of 2029. What does this mean? Well, this means, obviously, as we are positioning for this growth, both in Europe, but also continuing a strong business in North America, means top line growth of the business, work that we are doing to continue to develop margins. We know that's important. And, obviously, as we grow and we will continue to invest in the business, but we expect operational leverage as we expand in the time ahead. So that was update of Q1. Just a reminder, 13th of August is our Q2 results. And I think with that, Mikael, we will open everything up for Q&A. Thank you.

Good. Okay. So let's see here. Yes, we're starting to get some questions. I guess, we can just jump straight into this first question. Is the 4 to 6x 2021 revenue target still in place? What's your degree of visibility on timing? Has this visibility improved during the last quarter?

Yes. Yes. So, one of the things we set out when we developed kind of the first growth plan in 2021 was a revenue target, 4 to 6x, and we've set up the business to be able to deliver that. And we're still in a position to execute on that. Obviously, it's dependent on new markets. And I think we've been very clear that the growth of the business is around these new markets being organized, opening up commercial processes with our customers, which is mainly retailers concluding and then, obviously, delivery installation of the products. So we have certainly the capability. We have the organization to do that. It's really on timing of contracts. So this year, it will be around, of course, Poland and Portugal. So depending on the size of those, the timing of those will obviously dictate the final outcome.

Yes. And to touch in on a different question here is also that visibility in that regard. I mean, has that changed over the last months?

Yes. Look, I think we maintain the view as we have done probably for the last couple of quarters that we should expect news flow during the summer. And we should expect deliveries certainly in those 2 markets in the second half of the year, probably more back-ended to Q4. And so, those commercial processes, obviously, we're engaged in. And so, we know what they are. It's again just the timing of when those customers will make the final decision and when they actually want the products. It's that timing. And clearly, what doesn't get delivered in '25 will then build a backlog for delivery in 2026, which we expect to also be a very busy year.

Yes. Exactly. So, I mean, it's reasonable to say that we're more comfortable in terms of that assessment in regards to the news flow and the activity in the second half now than what we were a few months ago.

Yes, I would say so, definitely.

Good. Why was service revenues down in Europe from -- sequentially? Well, our service revenues as a program service revenues are driven by service, by lease and by throughput. We have a very few throughput deals, specifically in Romania. Q1 lower on volumes drives a share of that reduction. We expect our program services revenues in Europe to remain as a very small share of our revenue base, but to grow sequentially also through the current year. When do you expect licensing of system operators in Poland?

This is a good question. One of the things that obviously is required is a well-structured system with operators in place. I think for those who follow the development of these systems, the Polish structure is that, you can have multiple operators, and there's still work and confirmation going on to define the final set of operators and also how they're going to work together. I think what's clear is that, the system will go ahead. And certainly, from the point of view, our customers, they're continuing to follow the commercial processes. And ultimately, they will then associate themselves with one of the operators that's -- one of the several operators that's finally chosen.

Yes. Yes. Why was your debt repayment so much higher this quarter than previous quarter? Well, it's not a major uptick in debt repayments. It's more a payment on overdraft facilities this quarter. So it's short-term facilities that are being paid down. So -- and that will move up and down in the quarters ahead. So no major shifts. With the current European market activity, should we expect Q2 revenues in line with Q1 revenues this year? Well, we tried to give some perspectives on that in the outlook statement, also in the reports. We do expect a sequential increase in revenues in the second quarter over the first quarter. Romania, we've announced some major orders. They will increasingly come into effect. We do expect Greece to show increased activity in Q2 over Q1. We're positive to the developments we're seeing and the needs we're seeing in the Hungary market. So Q2 higher than Q1.

And I think generally, just maybe to add to that, Mikael, we've been quite clear that this year is also -- it's -- we expect a very busy H2, right? So we expect continued development and momentum building through the year as, again, some of these new markets go from finishing their commercial processes to orders then to deliveries.

Yes. Exactly. Exactly. Why is your annual report delayed?

Yes. Look, this is something we're not happy with. Certainly, we also had a delay last year. And so, we made some -- we've made improvements in those processes, in that team. We've continued to make improvements. So you will have seen we announced a new CFO has joined the business with an excellent skill set to develop a finance function, the organization, the processes to cope with our growth and to grow in line and develop in line with our growth. And also, we have started a new auditor also this year. So there are some new things coming in. The process is still on track. So as per our announcement, it's something we are not happy with. It's something that we don't want to be repeated, and we're certainly going to make good steps to make sure that doesn't happen.

Let's see. Have you had any sales to Poland yet?

Really, we haven't announced any sales. So no, we're doing a lot of piloting. We're very active. So I think we've announced before that we have our business -- we have our largest business development group Envipco in Poland at the moment. They're doing great work. We're excited about the opportunities, but certainly no sales yet. Coming soon.

Coming soon. Your revenues were down significantly in the first quarter. Are there any structural issues? Or are you losing market share?

No. This is -- it's really -- it's part of the business. These -- when a market goes live, these are kind of big projects. So timing of markets, when that market open up and then gets delivered will mean there will always be quarter-by-quarter fluctuations, particularly us, which is, we have a smaller-sized business. So these projects that we're going for are very significant, which is exciting, but it creates some quarter-over-quarter kind of lumpiness. However, overall, you would have seen from the history, and we also predict going forward that overall that we will see a solid growth trajectory.

Yes. How is Envipco affected by proposed tariffs and potential trade war? Well, as Simon showed, I mean, we have an operational setup, production setup regionally. So we have production assembly and supply chain in North America, largely serving the North American market and the same then in Europe, largely serving European customers. There are few cross-regional shipments of components and/or finished products. So in our assessment, we are very limited in terms of the exposure to any tariffs. And then I saw here -- let's say here, is there anything new to report on the North American markets?

Yes. I mean, you would have seen this quarter, good growth, good growth in North America, both program services and RVM sales. We -- I think we continue to see and we expect steady growth in North American market, really great base of program services, well developed over time. It's really a mature market. We reported, obviously, the Connecticut change and refresh of the deposit legislation a couple of years ago now. That's fed through last year. We're still seeing the positive effects of that. And the neighbors, New York and Massachusetts, we hope to do the same soon. There's other new markets such as California that we've mentioned before. Things are taking time. I think that still is a medium-term opportunity for us. And we also see opportunities to introduce new technology like the quantum. So we have our first few quantums now operating in North America, very successfully, really fantastic customer feedback. And so, we would see potentially good growth using that technology platform in North America, U.S.

Yes. Good. Let's see here. Consensus EBIT margin for '26 and '27 is 17% to 18%. Are you confident that you can reach those margin levels? Yes, sure. I mean, we have not guided on EBIT margins, so we won't comment on that directly. What we have said is that, we target a plus 30% market share overall in markets -- new greenfield markets that we enter into. And we see, as Simon went through today, some significant growth opportunities in the years ahead, not only in the current year, but also in the years ahead. And we have targets of reaching 40% gross margins. We're on a very strong trajectory towards that target, up 220 basis points year-over-year this quarter. And, of course, that eventually will trickle through. Having said that, we also comment that we will invest in our organization to be able to handle the anticipated growth. So we will see an increase in OpEx, but target an operating leverage and thereby widening margins as we move ahead.

Yes, absolutely.

Let's see here. One more here. Poland and Portugal, what's your outlook in regards to news flow and commercial activity?

Yes. Good. So as I said, we are heavily involved in those 2 countries. We remain very positive about both. Commercial processes take time. We've been in those countries now some time. So we've done a lot of piloting. We're coming to the end of those commercial processes. So we would expect kind of -- we still expect news flow kind of over the summer. And because of the go-live in the back end of the year or right at the beginning of next year, then those to naturally flow through into deliveries in the second half of the year. Probably a little bit more Q4 than Q3. But nevertheless, we expect H2 to be a very busy half and busier than the first half of the year. So positive about both countries and certainly expect news flow in the coming months.

Good. And that takes us to the end of Q&A.

Well, fantastic. Mikael, everyone, thanks very much. Thank you very much for your continued interest in the business. And once again, we look forward to welcoming you to go through the second quarter results in the 13th of August. So with that, we'll say thanks very much, and have a great day. Bye-bye.