Good morning, everyone, and welcome. It gives me great pleasure to introduce you to the Q4 2023 results from Envipco. I'm Simon Bolton, CEO of Envipco, and I'm joined in this presentation by Bob Lincoln and Mikael Clement. The normal disclaimer: it's been a fantastic, a fantastic quarter for Envipco. We've had record group revenues of EUR 35.4 million, that's 165% over Q4 2022. Combination of volume and also increasing gross margin of the quarter to 35.5% has meant that we've trebled gross profit to EUR 12.6 million. The combination of, of this volume and also, our operational investments, leveraging our operational investments that we've been talking about over the last few years, means that we've had an all-time high EBITDA of this quarter of EUR 5.9 million. That's 16.6%, relative to sales. Also, this quarter we've seen really good, strong working capital management.
If those who we talked with in Q3 remember that that was one of our focused areas for Q4, and receivables and inventory, that's now come through to cash. So overall cash has increased to EUR 9.9 million by the quarter end. So fantastic, busy quarter for the business. For those who may be joining for the first time, just a reminder, so we're a recycling technology business. We've been around 40 years, started in the U.S. where we have a fantastic platform and high market share business, but we've also now increased into the high growth market of Europe. And really, Europe is increasing because of legislation. So obviously concern as citizens has led through to political processes, directives and regulations, which are strengthening, is really driving now the recovery of beverage containers. And that's our business.
We're a pure-play technology company looking at reverse vending machines, so automating the recovery of beverage containers. And this is really this is really driving our growth. And so overall for the year then, adding the very strong Q4, we're EUR 87.6 million, which is 2.3x what we had in 2021. Again, those who have joined us for the last few quarters know that in 2021 we set out some very clear targets. We wanted to grow the business 4x-6x. We've already got 2.3x, and we're well on our way to that. We're focusing on greenfield markets. So these new European markets that are coming up, and we'll go through a few of those in a little bit more detail on the next slide. That's our real focus. It's a level playing field, and we have really our best chance of success.
And we've really got some proof points what we've done on that, which we'll go through. So 30% on new markets. And you can see that our gross margin is increasing. So we're at 35.5% for the quarter. Our target, as we end 2025, is to be at 40%. Again, ambitious targets set out in 2021, and we're well on our way. Taking a slightly longer term view, our business, as said, we've got a very strong and stable business in the U.S., but you'll see in the last few years this acceleration in Europe. So three or four years ago we had one market in Europe, which was Sweden. Fantastic case study for the bulk feed innovative Quantum product. Now we operate in seven European countries, all generating revenue.
P articularly, Greece, Romania and Hungary are some key markets that have been contributing in 2023 and will continue in 2024 and 2025. A little bit more detail on those. So Greece actually is interesting. It's a so-called kind of pre-DRS market. So at the moment there's no DRS, deposit return scheme legislation in Greece. However, the government is committed to increase the recovery rate of these containers, and so are using our Quantum with one of our glass machines for municipal recycling centers. And that's proving very popular. Over 270 of those recycling centers installed so far, and really fantastic opportunities in 2024 and 2025.
In Hungary, as we reported on previous periods, we were successful in winning the contract with MOHU, and we have installed over 700 units in Hungary, and certainly we have a great runway to complete the contract to 2,300 during this year and possibly the extension order of 2,000. Romania started very well; we've installed units there. Then Ireland, that Bob will talk about in a little bit more detail, we've won a frame agreement for the largest independent retailer, which again is a fantastic base of business. Really though, if we look slightly broader, driven through European legislation, this market is going to be a vast opportunity. At the moment there's roughly 100,000 reverse vending machines operating in the world, of which Envipco has, you know, slightly over 10%. In the next few years, industry estimates think there'll be another 200,000 needed.
At an average sales price of EUR 20,000, that's EUR 4 billion market opportunity. That is that is driven by these strong legislative tailwinds, demand by consumers to really tackle this this waste and increase the recovery of beverage containers. This momentum is then driving EU countries that already don't have a scheme to put one in place. With billions of containers operating in all of these countries, they need to automate that. To automate that, they'll need the products and services that we, as Envipco, supply. We're already working in Romania, Hungary and Ireland, as you see on this chart. We have a group of countries, Poland, Austria, UK, Portugal, that that have plans to go live with DRS in the next few years.
And then thereafter, we have some very large countries, Turkey, Spain, France, and so on, who also, we anticipate, to go live with DRS. And there's a number of other countries, Czech Republic, Bulgaria, and so on, that are not on this slide but are now in active discussions to look at planning deposit return schemes. So fantastic opportunity for the business and to go through a little bit more detail on operations. I'd like to hand over to Bob. Bob?
Thank you, Simon, and good morning, afternoon everyone. I think Simon has laid the framework that we have really significant growth in front of us. The question becomes, how are we going to gain our share of market? We state, we want 30%+. Ambitiously we want well more than that, but the reason we're winning and feel we'll continue to win is we have a very strong value proposition. If you look at our product portfolio, it's arguably the broadest product portfolio in the space. We go from very small applications in Flex all the way out to hypermarkets. We launched this new Modula project, which is our backroom system, which is a fantastic product, and Quantum, which has proven to be, you know, a paradigm shift in the way consumers interact with it, and it's been a very important product for us.
We've been at this for a while and we've gained some very significant customers, all global. Our retention rate is huge. We, you know, have 95+ retention rate. That's because we're performing. The technology performs. The service we provide for our suite of equipment is also incredibly important, and very few companies understand what it takes to actually service thousands of machines, and we're very good at that. Production capacity is very key because these markets are huge, and you're dealing with tier one retailers that have appetite for thousands of machines at a time. We have to prove we have the production capacity to meet that demand, and I'll talk a little bit about that in the next slide. The last point is we have a very good go-to-market strategy in terms of how we approach customers. We're very consultative in nature.
We want to understand what the customer needs are first, then we design the technology solution, then we test that solution with the customer. So when we get to the RFP stage, yes, we're going to be competitive on pricing, but we're right there at the finish line in all these debates. In most cases we're going to cross that finish line at 30+ share. We've done better than that, 50 share, and in some markets even better than that. So we're well positioned to execute on these growth opportunities. Regarding production, we have three primary plants. We have a plant in Romania, which is perfectly sited to attack these European markets. That plant builds our standalone equipment, which is Flex and Optima. It's a mirror plant to our plant in Connecticut, in Naugatuck, Connecticut. Those two plants can scale to 30,000 machines a year. That's very significant.
We believe we're one of only two RVM companies that can actually Flex production to that level. The middle view here is our Modula and Quantum facility in Osnabrück, Germany, and that can scale to 3,000. These are high-tech, large format machines, and that is a very impressive number, 3,000. Combined there's no opportunity we can't tackle in terms of production scale. A little deeper dive on Europe. We're certainly very pleased with the performance in Europe, up 500% for the quarter, 200% year-over-year. This is coming from machine sales, and all of our target markets are contributing to that revenue line. The big movers are Romania, Hungary and Greece, but all markets are helping produce revenue for the quarter and going into 2025. In terms of development, you know, Greece has been a great story.
We expect that to continue to be a momentum story going into this year in Greece. Ireland launched in February. We're in the midst of a rollout right now in Ireland. That rollout will commence during the first half of this year and pretty much through all of 2024. So we're very, you know, happy with the Irish opportunity and the potential in that market going forward in 2024. The Modula, which is our backroom system, has been a fantastic product. It's been launched with customers in Romania. Romania itself has done very well in the quarter and is also a growth story in 2024, but the Modula platform really has proven itself to be a high-quality, very competitive platform for us. And lastly, Quantum. You know, Quantum now is in five markets for us.
You know, it's been in Malta, Greece, Sweden, but we're starting to see that this product really is going to play a very significant role, not only in Europe, but in North America as well. Moving to North America, you know, our revenues are down 15%. That's on lower RVM sales. Program Services is down slightly, but if you take out the effect of material prices, which we participate in the U.S., our Program Services revenues are actually slightly up. What that says is that our lease portfolio, our volume metric business in North America is very strong. It's a very good base. We're going to be building on that base because Connecticut passed a doubling of the deposit in January. We're seeing a lot of volume come through our platform because of that change. Massachusetts and New York are also looking to expand to $0.10.
That has a big impact on volume. Massachusetts we're quite optimistic on. New York might lag. We should know something about Massachusetts this year. California has been a recent very strong focus point for the company, and I'll just take you quickly through what's happening there. There's a substantial law change in California that occurs in January 2025. The cumulative effect of these law changes, we believe, is going to drive more volume to centralized locations. That, of course, advantages our Quantum platform significantly, and we're targeting launching Quantum in California this year. This picture shows a live installation we've done in California with our Optima platform for smaller collection locations. Difficult market. We've communicated that before, but we are very committed to cracking the code and making sure that we're present in this very large market opportunity. With that, I will turn it over to Mikael.
Thanks, Bob. Let's dig a little deeper into the financials for this quarter. We'll start out with the Q4 revenues, as Simon mentioned, EUR 35.4 million, growth of 165% year-over-year. So it's been a fantastic year, and we've seen an accelerating growth quarter-over-quarter throughout 2023. Gross margins continue to trickle up, 35.5% in Q4, up from 31.2% in the corresponding period in 2022. Gross earnings, EUR 12.6 million, up more than 200%. Operating expenses coming down as a percentage of sales, driving EBITDA of EUR 5.9 million for a margin of 16.6%, a record for the company. For the year as a whole, as Simon mentioned, we're on a very good trajectory towards our targeted goals in 2025. Record group revenues in 2023 of EUR 87.6 million, up 55% year-over-year. Actually, over the last two years, our CAGR in revenues is at more than 50%.
Europe, a key revenue driver for the year, representing close to two-thirds of our group revenues. Gross margins continue to increase 35% for the year, up from 32.8% in 2022. While revenues are up 55%, our OpEx increases 22%, showing the operating leverage that we are striving towards. EBITDA comes in at EUR 8.8 million for a margin for the year of 10%, and we post a positive net profit of EUR 1.4 million, up from a loss of EUR 4 million in 2022. Envipco has been investing in building a strong, scalable organization in recent years to capture new growth opportunities in greenfield markets. This means that we've been building the team. We have been building production capacity. We've been building sales and service organizations, and these investments have continued through 2023. At the same time, the company has shown strong and solid operating leverage.
In Q4, we reported OpEx of EUR 8.8 million. This is up 34% year-over-year, while sales were up 165% year-over-year. The largest component of OpEx is G&A expenses, up 41% year-over-year to EUR 7.2 million, the largest drivers being increased activity levels and IT implementation costs. Sales and distribution costs were flat year-over-year at around EUR 1 million, and R&D expenses are slightly up. Moving on to the balance sheet. Total assets, EUR 96.3 million, up from around EUR 79 million at the end of 2022. Non-current assets at EUR 30.6 million, the largest components being PP&E at EUR 17.5 million and activated development costs of EUR 9.2 million. Gross working capital is up year-over-year, but down from Q3 at EUR 55.8 million. We ended the year, as Simon mentioned, with a strong cash balance of EUR 9.9 million.
Total borrowings on the balance sheet is EUR 16.7 million for a net debt of EUR 6.8 million at year-end 2023. And we had total equity of around EUR 43 million for an equity ratio of 44%. Finally, a look at the cash flows. We ended the year on a very strong note, and in Q4, we had cash flow from operations of EUR 13 million driven by a positive EBITDA of close to EUR 6 billion, in addition to working capital release as we sold off inventory and converted receivables. Cash flow from investments in the final quarter of the year was at around EUR 4 million. Cash flow from financing, negative EUR 3 million for a net change in cash of EUR 5.9 million and ending cash balances of EUR 9.9 million.
For the year, cash from operations, EUR 0.6 million with a positive EBITDA of EUR 8.8 million being offset by working capital buildup of EUR 8.3 million. Total investments, cash from investments for the year, EUR 7.8 million with PP&E investments at around EUR 6 million and activated R&D at around EUR 2 million. Cash flow from financing came in at a positive EUR 1 million with additions from the private placement late 2022 being offset by debt reductions, ending the year, as mentioned, with EUR 9.9 million in cash balances. And with that, I think we'll leave the word for Simon for a few concluding remarks.
Okay, Mikael, thanks very much. Okay, final slide, just to summarize. So again, a fantastic final quarter of the year and overall a fantastic year. I think hopefully we've demonstrated and you can see that we're delivering on our growth strategy. So the plans that we set out in 2021, the investments we've made, the products that we've designed and released, the markets that we've initiated are now starting to come through in real revenue and real results of the business. So group revenues, 2.3x versus 2021 and 55% year- on- year, 2023 versus 2022. We, as Michael said, we've increased our gross margin quarter-over-quarter actually last year, and we continue to head to 40%. And there's a real promising outlook for 2024 and beyond. Even this week, for those who've seen in the media, a lot of discussion about the plastics and plastics waste regulation. Again, locking in clear targets, mandating DRS for countries to really get a grip on the recovery of these beverage containers and reusing that material to the brand holders in their new packaging.
This is fundamentally driving an explosion in the market, which we want to take our fair share of 30%. Great result with new market, with new and expanded markets of Romania, Greece and Hungary in 2023, and we expect those to continue in 2024 and beyond. Overall, very, very positive momentum for this business as we look at working with all those customers for our RVM technology and services. Overall, that finishes the presentation, and there's, I think we've got good time, Mikael and Bob, to take some questions. Thanks very much, and we'll go over to the questions.
Okay. We will see here. You have announced firm orders of 2,300 RVMs and extension orders of 2,000 RVMs in Hungary.
Right.
You mentioned you delivered some volume last year. What's the outlook for deliveries in Hungary?
Yeah, great. Yeah, good question. So the Hungarian deposit return scheme went live as planned 1st of January. As you say, Mikael, we delivered over 700 units last year, and this is part of the phase one committed order of 2,300 units. So we're working hard with the customer. The scheme is accelerating. So we expect during the course, mainly of the first half of this year, to deliver the remainder of that 2,300 units with possibly a little bit of spillover into the second half. The indications from the customer are very positive, and likelihood is that they will engage with the second phase, which is another 2,000 units. And we expect that to be delivered second half of 2024 and then into 2025 as they fill out different areas, non-traditional locations for machines, rural areas, and so on. So very positive and excellent work from MOHU and the Hungarian group to really get DRS living in that country.
Good. A couple of questions on the EU here. Let's see if I can try to collect them. What are your thoughts on the agreement reached by the EU Council and Parliament earlier this week? Is the outcome better or worse than you expected?
I'll take that. Yeah, I think the language that's been agreed to in Brussels is very powerful in the sense that it's mandating DRS schemes. The targets of 80% recovery are very ambitious for a country to reach that without a deposit return scheme. The language has been agreed to. That's an important dynamic, but this has not yet been ratified. As a consequence of that, we're going to be cautious and wait till it actually goes to a vote and these regulations are ratified. That should happen in the next several weeks.
Okay, good. California, how would you quantify the California opportunity? How many installations and how are we to think about timing?
California, we believe will start to accelerate really in 2025 when these laws come into effect or these changes come into effect. Essentially, the biggest event in California is retailers can no longer opt out of taking containers in store. The current status is they can just pay the state a stipend and not have to do anything. Well, that's changing in 2025. What's going to happen, though, is more volume is going to be concentrated in essentially redemption centers. And as a consequence of that, we're going to have large-scale redemption opportunities with Quantum and our primary standalone lines. But it won't be a traditional every store has an RVM. But I would say we'll start to see traction the middle part of 2025 on the commercial case. There's still a lot to do in California, but we're becoming a bit more optimistic that we can figure out a sustainable model in California.
How many machines do you have in the field at this moment, and how many of those are Quantums?
That's a good one. So maybe I'll take that. So I think, as we mentioned when we talked about the size of the market, total volume of RVMs worldwide is about 100,000, and we have north of 10% of that market. In terms of Quantums, we have a significant installed base in Sweden, so about 200+ units. We have nearly 300 in Greece. And then, as Bob says, we have Quantums operating in a number of other countries. So now we have well over 500 Quantums. And I think what's interesting is, as Bob was saying, this bulk technology, which for those who don't know it, instead of standing by the machine and feeding this in one by one, you just take a huge bag of mixed cans and plastic bottles and basically split the bag and feed it into the machine.
The machine does the work for you. It's super quick. End users love it. Particularly where there's a favorable handling fee as there is in Sweden, then the economics for the retailer is very, very powerful. We have now customers coming back, loving the machine, and buying the second one, buying the third one. We see both the concept and also the platform accelerate in terms of use. We expect that to continue in the future. As Bob said, even the U.S., California, could be a really exciting market for Quantum.
Yeah, good. Have you received any confirmation for execution of the extension order in Hungary?
We haven't received any confirmation, but certainly the progress there is really positive. The expectation is that MOHU, as there's a number of machines needed to have a very effective and full coverage of the country, that they will need these machines to achieve that objective. So we're working very closely with them, how best to do it, what locations, what type of machine, and so on. And of course, because we, for those reminder, we've got about 50% of that contract. We have the vast majority of the number of units, and we really have our standalone machine. So the small Flex, as Bob was saying, is a great small footprint to use in these non-traditional locations, which we think is going to be necessary to fill out the country. So no confirmation yet, but we feel very positive about that part of the contract.
Good. U.K., what are your thoughts on the progress in the U.K.'s DRS? If the four nations agree on system specifications, how much time is required to implement in the U.K.?
Yeah, I think there's been significant progress on making sure all of the UK is organized under one scheme. We expect an announcement on that cooperation on the scheme. Nothing's changed in terms of DEFRA. The government itself is sticking to this October 2025 date. Obviously, we believe that's ambitious, and it's going to slide probably into late 2026. But it's a huge market. So the commercial case, even if it slips to 2027 or 2028, the commercial case has to occur 18 months prior to that at a minimum. So we think 2025 is unduly optimistic, and we think it's going to be more 2027 and perhaps Q1 2028.
Maybe just to add to that, obviously 2023, as we've talked about before, we were disappointed about Scotland. However, I think Scotland proves our commercial case in the UK, and those engagements are still very active. So we're still in dialogue with all of those customers. And of course, they have about 10% of their volumes in Scotland. So 90% is in the rest of the UK. So we feel still in a very good position. There's still active machines and programs in addition to, obviously, interaction that we have with DEFRA.
Exactly.
Yeah.
We have good prospects in the UK.
Yes, definitely. Thank you, Mikael.
How big will the market potential be in the UK, given a DRS?
I think that market will certainly land at 30,000 RVMs. It could be close to 40,000. It's a huge opportunity. And as Simon said, the scale of this, because we did such a good job in Scotland, we're communicating with our customers today on what it means to roll out to the UK. But it's thousands and thousands of locations by tier one account. But I think you could argue 30,000 is certainly achievable in all the UK.
Yep.
I saw a question here on Poland. Can you give an update on Poland when you expect to be able to announce orders in Poland?
Yeah, maybe I'll take that. So certainly, we're very encouraged with developments in Poland. So we already have a team on the ground. We're already piloting products with major retailers. There is a little bit of discussion with the law. So there's a little bit of kind of clarification needed. But certainly, and the go-live date in the law is still January 2025. So I think the industry view is that is likely to move backwards slightly through maybe late 2025, but still big market. And we feel we have the right products. And now we have a team on the ground ready to tackle that market. So in terms of orders, I think commercial activity probably towards the back end of this year, going into next year, and then more orders and deliveries we expect next year. Clearly, with our production capacity, we're ready to go. So if the Polish scheme really wants to drive to go-live early 2025, then we're ready to take those orders, and we're ready to support that program and deliver those products this year. But we think that's probably unlikely.
How do you see the cash flow in 2024? I guess I can address that as we've announced today. I mean, we have expectations of relatively flat CapEx for the current year. With the very positive prospects for growth, the operating leverage, and EUR 10 million in the bank at the beginning of the year, we feel very comfortable in our position to handle the expected growth in 2024.
Yep, yep, absolutely.
Are there any plans to challenge TOMRA in Norway? Here we are.
Yeah, we're in Norway. So we're going to install a Quantum this afternoon. So look, I think, as we've said before, of those 100,000 units already in the market, there's some existing markets in Europe. So Norway is one. Germany is another that's big. Our focus right now is for the new greenfield markets. We feel that gives us the best chance of really showing what we can do, really working with new customers as they try and figure out how to cope with deposit return schemes, how to cope with the logistics, and so on, of all the waste that's coming back into their store. So that's our best chance. And therefore, we feel that we can quickly build and efficiently build a 30%+ market share, which gives us a good size of business in the country.
Of course, it gives us the opportunity to really service those customers directly. So look, who knows? Maybe we'll be back here actively with RVMs. But right now, there's so many great opportunities at greenfield. We think that's where we should keep our focus.
Good. Could you elaborate on the Romanian market? Is your 30% market share based on sales with retailers, or are there also sales with municipalities?
Yep, shall I take that? Yep. So please add. So really, and I think we have mentioned this in previous presentations, so we're obviously very committed, in general, to the Romanian market, both deposit return scheme. And of course, we have one of our main manufacturing plants in Romania by Alba Iulia. And so we employ a lot of people. We use a lot of local products and suppliers. So very committed to the market. DRS went live at the end of 2023, which we are very excited about, which is great. It's a soft start. So they're still building up volume. But we've participated, and the orders we've won so far have been within the international retail space. Romania is interesting because there's kind of three parts of the market. That's the first part.
The other two parts of the market are local smaller retailers who need an RVM and also municipalities. We believe being in the country, understanding the country is really important for those second two markets, which probably account for two-thirds, will account for two-thirds of the total volume of units and RVMs needed for Romania. We're working very closely with local retailers, and we're seeing order flow already from those at the moment. Then municipalities, we've been working in the municipality space for already two and a half years. We already have in nearly 10 city municipalities already working prototypes, which has been very favorably received by them and also the country. We feel in those two segments positively positioned. We feel that this target of 30% is achievable when the market matures in all of those three segments.
Good. We have time for one more. How do you see the competitive landscape evolving? Are there competitors, new entrants to the market? Do you expect to see a consolidation in the markets?
Yeah, I mean, there are new entrants, and we take them seriously. But to actually perform at the level of quality and follow through on service and production, it's really down to only a handful of players. But we take new entrants seriously. We don't really see consolidation. That's not part of it. I mean, we're sticking to our commercial strategies. But we don't see a significant threat beyond what we deal with today on new entrants.
Good. I think that brings us to an end on Q&A. Would you like to have some concluding remarks?
Yeah. So first of all, thanks very much for dialing in, watching us. Again, it's been a fantastic year, 2023, for the business. We're well set up. We're going to continue to do what we're doing. And we expect a fantastic Q4, sorry, 2024. Just a reminder, Q1 results are in May 2021. So again, thanks very much for your interest in the company. Been great to present to you this morning or this afternoon, wherever you're dialing in from. And we look forward to seeing you again soon. Thanks very much.