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Good morning, and welcome to the Third Quarter 2022 Presentation for Elopak. My name is Mirza Koristovic, and I'm Head of Investor Relations. Today's presentation will be held by the CEO, Thomas Kormendi; and the CFO, Bent Axelsen. The presentation will last for approximately 25 minutes and is available on live webcast on our webpage under the IR section. We will have a Q&A session after the presentation, where there will be a possibility to ask questions for the audience here in Oslo and also for the webcast audience through the chat function. So with that, I leave the word to the CEO, Thomas Kormendi.
Thank you, Mirza, and Good morning to everyone. Welcome to all of you here in Oslo and everywhere where you may be following. We're very happy to present this quarter to you. It's a strong quarter. And let me just start off by giving you a few words about who we are as Elopak. So for those of you who haven't seen us before, we are, in fact, the #1 player in fresh liquid carton packaging around the world. We are currently selling around 14 billion packs spread around mainly, what we would say is, Europe and Americas and servicing right now somewhere around 70-plus markets in these geographies. Most of our sales relates to the European region consisting of Europe and MENA. And the remainder is in Americas, which is consisting of Canada, U.S. and Central America. As you can see, we also provide our fresh portfolio as well as an aseptic portfolio that I'll be describing very shortly. Over the years, we've seen solid growth, and we're happy to note that this is one more quarter of very solid growth figures. Now what is important for us and drives everything we do is actually our vision and mission. And our mission statement is very much related to both people and nature. Sustainability is a fundamental part of what we do. And specifically, we are totally and completely committed to fiber packaging fiber solutions. We do this in a number of different ways, continuously developing these fiber solutions and expanding the range of content that we can use these solutions for. Overall, leaving the world unharmed is something that drives our innovation, our operations and our activities around the world. So before we start on the quarter and the business this year, let me just start with a kind of definition and specification here. The figures you're about to see have been deconsolidated with Russia that we have been exiting and we have been informing the stock market that we did this earlier this year. So we have deconsolidated the figures in '21 as well in order to make a proper comparison when it comes to P&L, but not on the balance sheet. So you will see when Bent will address the balance sheet that these still consists of Russia in '21. So how did we do? First of all, you can say we saw another quarter of very good growth and margin recovery. And this is what we have been seeing this quarter is that not only did we see the growth in our areas around the world, but we also saw that now the margin recovery that we have explained earlier is happening despite the continued very high cost level we are seeing. We see a 26% year-on-year growth, out of which 15% is organic. We see a EBITDA level of just shy of 12% and we see a significant amount of that organic growth being delivered in EMEA region, in Europe, with price increases consisting of roughly half of the organic growth that was delivered in the period. And what we also see and I come back to that, Americas providing yet another very, very strong quarter. And overall, you can see that the business we're in, the food packaging business is really resilient, has proven to be resilient in the types of products we are packing, typically liquid dairy products, juices and related products. So on the revenue side, it's interesting to note that we see a very strong growth of 56% -- EUR 56 million or 26%. Now if you take -- part of that is clearly translation effect from the U.S. dollar. So if we look at the organic part here, we are seeing EUR 33 million growth in the quarter generated partly by EUR 18 million in price increases in Europe, partly by the volume increase and the volume growth we've had in Americas. And if you then say -- if we disregard -- if you can disregard the pricing impact, then the organic growth we are seeing is above actually the guideline we did for the midterm targets, which you remember was around 3%. We are looking at a growth level above that, even without the impact of the pricing. On an EBITDA level, we are seeing a margin level that is below what we had third quarter last year, but is recovering nicely and we actually see an EBITDA level in the absolute terms is above what we have last year. So 7% growth in EBITDA level. Income -- sorry, input costs remain high, even though they have come down from the very peak, they are still at a very, very high level. Meanwhile, we have other input costs, which have continued to grow excessively, I would say. One of these is energy. And despite that, we've managed to actually recover margin nicely, thanks to -- thanks to very much the price increases that we've been obliged to execute during this year. And as we've said before, in U.S. in the Americas market, we have a special setups thanks to the past through contracts that are available there. So let's focus then on EMEA. Now an EMEA is really an area that has been dominated by the pricing initiatives that have been made throughout the quarter. And as you can see, we have an impact of the acquired businesses, which in this case relates to the Naturepak business in MENA region of around EUR 12 million, which leaves us an organic growth around 13% or EUR 22 million, out of which EUR 18 million relates to the pricing effect done during this period. What is also noteworthy is that during this period, in Europe, milk consumption has been challenged, and we've actually seen declines in some parts in milk consumption. But that consumption has been mitigated in our case by higher growth in south, essentially both in aseptic milk and also in juice-related products. Additionally, we've seen here in Europe, a very solid growth under our Roll Fed portfolio we're around 6% of generating a strong organic growth quarter for us in Europe. All in all, in a profitability that is satisfactory given the circumstances they win. Now Americas is a -- and I've been reporting this now a few times, yet another very strong quarter for Americas. We have a very clear strategy in Americas related to growth, related to the way we build our business in terms of product offering and services that we are offering. And clearly, it's not often you have the chance to report 50% growth in a quarter in any specific region, but that's what we do. So on an organic level, we are talking about 26%, which is also a fantastic development, both on the revenue side and the EBITDA side. Now the revenue growth here clearly also in Americas relates partly to pricing. And again, you have pass through contracts in Americas, but also relates to broader portfolio, executing on the strategy when it comes to juices, when it comes to our filling machine portfolio. And we're very happy to note and report that our product offering on the filling machine side has been received exceedingly well from the market, and we are contracting more and more filling machines, leading us to a, let's say, a very significant share of the new filling machines contracted during this period in Americas. All of that, I can say, actually, for those of you who followed us during the IPO is well ahead of the ambition that we presented at that time. And talking of IPO, this is the slide I've been using and some of you who've been following us will have seen this a few times. This actually illustrates the strategy that we're executing and the areas that is currently delivering the results and growth that we are seeing. Now I just described Americas and the results that we have been seeing for a number of quarters now. Essentially, this is all about ensuring that we have the adequate and the fit-for-purpose portfolio to address both milk and juice, which we're doing now deliver the filling machines that we are doing and the services and caps and closures around this. The aseptic road map is very much related to the EMP, the Elopak machine platform, which we now have renamed Pure-Fill and the roll-out of that. I'm coming back to that specific point in just a second. And of course, our MENA strategy relates to driving the business, growing the business in the Middle East, North Africa through our acquisitions now in Casablanca and Dammam, but also extending that into India with the -- a plant we have now outside of Delhi, together with GLS as our partner. And finally, the plastic to carton is essentially delivering on the megatrend that we all see of reducing the plastic in our daily life and which is exactly in par with our vision and strategy, delivering solutions that can make that happen, both in our current categories as well as in other categories. And finally, the last part really relates primarily in this year to the work we've done around adjusting pricing, ensuring that we have a -- we're ensuring that we can run our plants in an optimal way and drive the efficiency through our systems. So that are the 5 pillars that constitute our growth plan here. So let me give you some examples of how that actually pans out in this quarter and I'm happy to say -- we've talked about the EMP for a number of times and you've been asking me, when is this happening? Well, it is happening now. We have now placed our first EMP Pure-Fill machine with maybe one of the best known iced teas in Europe, [ Fana ]. Fana has the 2-liter iconic carton, which is sold across almost the world, many, many countries around the world, you will find it. And we have now installed with them the first Pure-Fill line, the first 2-liter fully aseptic line anywhere in the world in our gable-top system. The other one, the second one really is about aseptic strategy, but also about reducing plastics. This is the story around how we, on one hand, can drive strategy to deliver on our vision and mission to expand fiber and yet also drive for our customers cost savings, better TCOs, more attractive products. This is the case of [ Fedacu ]. Fedacu is a very well-known quality supplier of UHT milk in Spain. And they have then started as this first milk -- UHT milk Company to supply customers with gable-top packaging without closures, without the use of plastic closures, which, on one hand, saves plastic and additionally, of course, saves a lot of cost by not adding these closures to the pack. These packs are now being offered in this case, this particular example is in Africa, but it's an example of how you can meet both sustainability and cost targets in one attempt. And the final example on this page is really because as we have been explaining or describing a few times, we are looking at the plant-based area as a huge area for growth. In this particular case, we're very happy that Tesco in U.K. chose our Pure-Pak system to expand in their wide portfolio of vegan products, which is sold under the name of Wicked, it's about 70 different products. And out of this as well, you have now a lineup of Barista plant-based products. And the reason this is interesting is, of course, beyond the fact that we're very happy that they chose our product is also that plant-based is a strong growth category and it's also a [ carry ] that is essentially only in carton. And we are now seeing more and more companies and businesses that are looking at the -- our Pure-Pak systems to drive that business in a way for them. So with this, I think I will hand over to you, Bent, and ask you to go through the financials.
Thank you, Thomas. So yes, my name is Bent Axelsen. I'm the CFO, Elopak. Consequently, I will take you through the financials. So we are reporting, as Thomas mentioned, an adjusted EBITDA for continuing operations of EUR 32 million, which is then EUR 2 million higher than last year. So let me remind you that the P&L items are excluding the Russia business. So let's then start with the segments here. I think the underlying achievement that we are the most happy about is our ability to increase the prices in EMEA. We said in the Q2 earnings call that our ambition was to increase the prices broadly in line with the raw material cost and we are really happy to kind of confirm that now the numbers are showing our ability to do so. So if we go to Americas, that's where we have the biggest financial improvement where we go from EUR 10 million to EUR 14 million. This is very much driven by the growth that Thomas explained. In addition, we are also very pleased by the result of our JV businesses in Americas, where we have improved the profit by almost EUR 1 million compared to same quarter last year. That is more than a doubling. And what we are seeing in the joint venture is a recovery from COVID with school milk program coming back on stream, at the same time with active price management, we're also managing and improving the margin in those joint ventures. We have a positive currency effect on the EBITDA level of EUR 2 million in the Americas business as well for the same reason that Thomas explained. And finally, we have the protection from the commercial pass-through clauses in Americas. So this is the segments. Let me now take you through the bridge taking [ off ] from EUR 30 million last year to EUR 32 million this year. So what we are looking at here is, finally, we are seeing a net revenue mix that is higher than the raw material impact. So let me break it down. $24 million is the price and volume impact in Europe. It is the gross margin impact in Americas. It is the gross margin from the newly acquired business in MENA and India, totaling EUR 24 million. And remember then out of these EUR 24 million, EUR 18 million is the price increases linked to the EMEA segment. So that's the net revenue part. Now the next component is the raw material impact in EMEA only. EUR 17 million, and that is one of the highest raw material deviations we've seen in a quarter. So what we have observed and we talked about that in the second quarter, even if you've seen a softening of PE prices, all the prices throughout the quarter, given the inventory turnover effect, we are seeing a high realized cost of [ PEN RO ] because as you remember, there is a time lag between observed market prices until it hits the cost of goods sold in Elopak. Another element is the energy prices, where we have seen a significant increase in energy prices compared to -- both compared to last year, obviously, but also compared to the second quarter. I think the energy prices is the one also to look out for when we are, say, looking at the future is [ they say they most say ] that factor that has the highest level of uncertainty among our input factors. If we move on to the operations, we see a negative deviation of EUR 6 million. That is related to a number of reasons. One, we have a much higher activity level this year with traveling and activity in general. I think the quarter last year was still very much, say, dampened by the pandemic. Two, we have strengthened the organization central function after being a listed company. We are including all the operations costs from the newly acquired businesses in MENA and India. And also remember, India, we consolidate 100%. We also have some operational challenges following kind of getting out of Russia. We have some complexity costs related to finding our way dealing with production and allocation after the closing of the Russia operations and also, say, some sick leave related to COVID. And finally, we are also seeing the inflation starting to attack the fixed cost base as well. And then finally, we have the EUR 2 million in currency and translation effect, which is basically taking the EBITDA from the Americas operation, and that's a translation effect from dollar to euro. Now we have a new slide compared to earlier quarter, which is the cash flow. So let me take you through that. First, we have a -- well, first, I need to say that the cash flow statement does include Russia. So here, we do not distinguish between continuing operations and discontinued operations. There it's all in. So let's start with the cash flow from operations, which is EUR 25 million. We start with EUR 14 million profit before tax and interest paid, a rather low level, impacted by the impairment in both Russia and Ukraine. Then we add back EUR 57 million, which is the depreciation of the existing assets, the depreciation of the newly acquired assets, the impairments that I just talked about. And then we move on to operating capital that has increased by EUR 46 million. What is important to remember is that this is very much a result of higher prices and inflation. It is really a natural mathematical consequence. On a run rate basis, our revenues are increased around EUR 150 million, if you do an annualization of the year-to-date numbers. That revenue growth needs to be financed by operating capital. So this is explaining the majority of these EUR 46 million. Then we have more operating capital also from having a larger footprint in both MENA and India. The operating capital turnover, if you're measuring the revenues versus operating capital, the turnover is actually better compared to same quarter last year, where we do say, have a underlying higher operating capital level would be for the inventory of filling machine and that is explained by the fact that we need to be prepared to install all these machines that Thomas talked about next year. So we need to have that -- all those on stock. And we do also have some delays in commissioning of filling machines in Europe because of supply chain challenges, both for the customers, partly also for us. That leaves us to the cash flow from investments, which is minus EUR 122 million. This is one, the acquisition of Naturepak and India joint ventures of EUR 297 million. Then we have investments in maintenance in our plants. We have CapEx related to the filling machines that we are leasing out totaling to EUR 29 million, which is a normal level, I would say. The next part, cash flow from financing is EUR 92 million. This is basically our dividend payment of EUR 20 million that we did beginning of the year and basically it's a proceed from loans in order to balancing the cash back to EUR 25 million. That takes me to the financial position where we report a leverage rate of 3.3. I would like also to remind here that Russia is excluded from the -- for the last 4 quarters. So from Q4 onwards, Russia is out. So we have -- we report a leverage ratio of 3.3 in the third quarter. This is actually an improvement versus second quarter. The main driver for that is an improved operating capital position compared to the second quarter. And also, we have also the improved EBITDA that also improves the situation. For a very sharp eye, you probably ask, so why did you show 3.6 in second quarter? Well, in the second quarter, we reported 3.4, including Russia. If we restate without Russia, the leverage ratio is 3.6. So it's simply a result of the restatement related to Russia. Let's then talk about what will happen in Q4. So as we have informed in notes in earlier quarterly -- or quarterly reports and also in the prospectus, we do have a project that we call High Bay Warehouse, which is a super exciting project. This is a lease arrangement that will give us increased lease liability in Q4. This is around EUR 22 million and will hit the net debt in fourth quarter. So it's basically say an IFRS 16 impact adding that we have to add on top of the net debt. Consequently, we also have in our revolving credit facility, we have amended the covenants to make room for that. And if you need more information about what that covenants say pass look like, please look into the stock notice from June 22. Now to the outlook. So in the second quarter, we said that we expected our revenues to be around EUR 1 billion. So now we are saying that the -- we expect the revenues to be slightly above EUR 1 billion for the continued operations. So that -- those revenues estimates still without Russia. On the margin side, there is still uncertainty around the input cost and particularly on energy. So we expect that the Q4 adjusted EBITDA margin will be in line with the Q3 margins. And finally, as any company, we, in a way, are concerned about the geopolitical and macroeconomic uncertainties. That is a concern. We are in a resilient business, and Thomas will talk more about that in the summary. So back to you, Thomas.
Thank you, Bent. And just then summing up on this quarter, it's clear that, as Bent said, we are living very, very extraordinary times. And there's no question, I think we all understand that it is challenging environment to operate in. But we're happy to say that we're delivering growth, we're delivering profitability and continuing to develop the company along with the plans that we have outlined previously. In these challenging and extraordinary times we live, we also know that we are in a resilient business. It's -- we are proven to be in a resilient business in the kind of products that we are packing, in the kind of business that we're working with. And that, of course, gives us confidence to continue to push even during this period in that direction. And it's very clear to see that the strategy implementation we cannot -- is on track. America is delivering exceedingly well, again for a quarter. Although our aseptic roll-out was somewhat delayed with the availability of components and parts, et cetera, that has been an issue in the world, we are now happy to say that our first EMP Pure-Fill 2-liter machine is in the market, it's with a customer and it's with a very, very iconic noted iced tea supplier in Europe. Our business in North Africa and the MENA is delivering according to our sales plans. We are selling and delivering across all of these markets as we had intended when we set up the business case. On the other hand, India is doing a lot better, frankly, than what we thought when we started off. And after a very, very short time in the market, we are exceedingly optimistic around where that business can go in the coming period. And then finally, of course, we were obliged to increase prices as the very, very high raw materials hit our industry as well. And we can only note that we are happy about the successful implementation so far on how that's panned out. So all in all, we are looking at a quarter that we are very pleased with and I am then looking forward to your questions, both here in the room and elsewhere.
Thank you, Thomas and Bent, for your presentation. And we'll now go on to the Q&A session. We'll begin with the audience here in Oslo before we take on the ones from webcast. And for the journalists present here today, we will set aside time immediately after the Q&A session. So let's begin. I would like to kindly ask you to please state your name and the company you're representing, and please use the microphone. All right. I can begin with the question from the webcast, from Robin Santavirta in Carnegie. Do you plan further sales price increases in EMEA? If so when and in what amount?
Right. So I can -- what I can say is -- we are, of course, continuing to live with very, very high cost input. This is true for the PE, for the alu foils, but it's also true for the general inflation that we're all experiencing, which is impacting our fixed cost, as Bent said as well. So the answer -- short answer is yes. The other short answer is I'm not going to say how much it is. And the third answer is that it would be in the New Year.
Thank you. And another question from Robin. How will you input -- how will your input costs develop in Q4? Will the declined spot prices of PE and aluminum be visible already in Q4?
Yes. So I think that we will say, benefit from the softening of PE and alu for -- regarding our cost of goods sold. But the energy cost will -- we expect to stay at a high level and is an x factor. So that is also, say, why we are, say, careful with the margin guidance and say that the margin will be approximately at the same level. So I think you can assume that, say, the raw material cost in general will be similar to Q3 because the energy and the PE, alu there will -- to some extent, say, working against each other.
Thanks, Bent. And one more question from the audience on the webcast from [ Thomas Ungerman ]. Please, can you give more details about the debt maturity profile, interest rates profile and the development of interest costs going forward?
So I think we can come back to you on the kind of the whole, say, structure on our RCF. So we will say follow that offline on -- because there is a ladder. So what we said in the stock notice from June is that we have extended our, say, facility until May 2024 and that is the status at the moment. And we will come back to you on how kind of that profile looks like one-to-one.
Good. And from Moomal Irfan in Goldman Sachs. She has a question regarding growth from new fillers given the high interest rates and Europe going into the recession. Do you expect customers to be cautious regarding new filler investments?
Yes. I think that is actually honestly a bit too early to say from our perspective. We are seeing a solid backlog on fillers. What we have experienced and I think I mentioned that during the last quarter is that we have some delays in installation driven mainly because our customers and their facilities did not manage to get ready in time, deliveries and other processing and other elements they need were delayed. So with that delay, our backlog is solid on the filler side when it comes to fillers beyond that horizon. It's too early to say whether we will see any softening in the figures. So far, in Americas as well, we continue to see very strong demand on our -- the equipment that we are providing in Americas.
And you could say just to add to that, I think we have signed [indiscernible] machines in America. Those will be commissioned next year. So that is this done business. Those are sales in Europe. There's a mix between lease and sales. So I think that is also important to remember for, say, the aseptic strategy, delivering on aseptic growth strategy. It's quite normal in this industry that we lease the machines, which means that, say, the cash and the CapEx will be on -- for Elopak in order to kind of drive that growth. And when it comes to the fresh replacement program, if you need the machine, you need a new machine and it's really [ out ] also a necessity as well.
Thank you. And from Niclas Gehin in DNB. What energy cost increase quarter-over-quarter do you assume when saying that you expect flat EBITDA margin into Q4?
I don't have any specifics on kind of energy and PE, alu, say, separately. But I think what I can say is that kind of whatever we are seeing in softening on alu and PE is going to more or less, say, neutralized by the way we look at the energy market. I think the challenging thing with energy is that while we have an inventory turnover for PE, alu, it's easier for us to kind of project the cost base for energy is so volatile and it hits the P&L immediately. So it's a very difficult driver to predict, but I would say the short answer is that whatever we gain from PE, alu will probably be, say, eaten up by energy.
Thanks. And another one from DNB is that you mentioned operational challenges affecting operational costs in Q3. Do you expect any of these to also have an effect in Q4?
I think much of the complexity issues related to, say, managing the closure of Russia is things that we are stabilizing and I think we will manage to improve on that in the fourth quarter. I think as many companies report, there's still -- there's been some sick leave related to COVID and that maybe is a little bit difficult to predict the effect of sick leave because if we have more, say, cases in the fourth quarter, that could be a factor that could drive, say, the costs somewhat, but it's not a big, big number.
Thanks. And from Mr. Santavirta in Carnegie. Have you seen any changes to the demand driven by the weakened macroeconomic environment in any of your segments?
What we are seeing is maybe more of the obvious, what we're seeing is that some of the branded typically somewhat higher-priced products will be exchanged with lower-priced private label products. But to the resilience of our industry, it's maybe a choice between various types of milk, but essentially, of course, we all need to eat and drink even during recession times. So as such, we cannot see any decrease in consumption, but maybe changes in consumption pattern. Clearly, what you would expect in periods like this is also that home consumption will increase. Typically, that is what happens and that will normally also mean higher family consumption and products that cater in that market will normally see some level of growth.
Okay. And from Hakon Fuglu in SEB. How will the filling equipment deliveries be distributed over the next year?
how will the filling equipment...
Deliveries.
The timing.
So the timing.
It's the -- well, it's a little bit difficult question to answer. What we are doing right now when -- and this is actually quite for this industry new compared to earlier years, is that because there's been delivery issues on capital equipment, filling equipment, we are now seeing that contracts are made with a very, very long lead time, much longer than we had before. And to Bent's point, in Americas, we have made the contracts which are made for installation in next year and even the year beyond that during '24. Similarly, we're seeing that in Europe. So the distribution I think will be reasonably even during next year. We have a backlog for that and again, longer lead times in the contracts than what we have experienced before.
Thank you. Last chance from the audience in Oslo. Any questions? No. I do not see any more questions on the webcast either. So that concludes our session for today. Thank you very much for your attention, and have a nice day.
Thank you very much. Thank you.
Thank you.