Elanders AB (publ) (ELANB) Earnings Call Transcript & Summary

Good day, and welcome to the Elanders AB conference call. Today's conference is recorded. And at this time, I'd like to turn the conference over to Magnus Nilsson, CEO of Elanders. Please go ahead, sir.

Thank you. Hi, everyone. This is Magnus Nilsson, and together with me here is also Andréas Wikner, our CFO. I will now start my presentation and I will now go directly to Slide #5 and talk about our performance in the first quarter. The strong recovery from the second half of last year continued in the first quarter and we managed to form an EBITA margin of 5.2% compared to 3.1% the year before, which means that we achieved EBITA result that was 75% higher than last year despite the negative effect on EBITA of SEK 11 million because of a stronger Swedish kroner. You can see a stable and good demand from almost all customer segments, and our net sales grew organically with 15% in the first quarter. And the main drivers behind organic growth were mainly supply chain solutions and our subscription box business in the U.S.A. We continue to see a low demand from our retail customers because of different COVID-19 restrictions, but we managed to compensate, even overcompensate this with a higher demand from different e-commerce channels. Print and packaging are still negatively impacted by COVID-19 restrictions, but we managed to compensate loss with higher margins because of cost cuts done in 2020. In the first quarter, we also made an additional acquisition in the area of renewed tech of the Swedish company, ReuseIT, and this will make Elanders one of the leading players in the Swedish market for this service. If we then go to Slide #6 in the presentation. The shortage of semiconductors created some disturbance in production for some of our customers during the quarter, and it appears like these disturbances will continue during the second quarter as well. Some of our customers have indicated that it looks better in the third and fourth quarter. Elander's existing credit facility agreement expires during the first quarter in 2022 and refinancing discussions are already underway, with the intention of having a new agreement in place in the second quarter of 2021. If we then go to Slide #7. Then you can see that we continue to have a very strong financial position and our adjusted net debt to EBITDA, exclusive IFRS 16, is now at 1.59 compared to 2.96 in 2019. And our net gearing is at 0.41 compared to 0.74 in 2019. If we then go to Slide #8, look at our different business areas for the first quarter. And you can see that Supply Chain Solutions managed to improve their EBITA margin to 5.4% compared to 3%, and actually improved the results with 91% compared to the year before. And the improved result came mainly from our European part of Supply Chain Solutions as a result of the cost-saving program we did in 2019 and also focusing on improving low-margin business. As mentioned before, management and packaging solutions (sic) Print & Packaging Solutions increased their results despite negative effects on our sales because of COVID-19. And their EBITA margin increased to 5.7% compared to 4.6%. And they actually improved their results with 25%. If we then go to Slide #9, look at our sales by customer segment in the quarter. You can see that Automotive showed a better demand than the year before, even if some of our Automotive customers was affected by the lack of semiconductors. The demand from our Electronics customers continued to be very stable and in Q1 2021, grew PC shipments worldwide with 32%, which had a positive effect on some of our customers. We also expect that the demand from Electronics will continue to be stable going forward. If we then go to Slide #10 and look at Fashion & Lifestyle, you can see that we had a very strong growth compared to last year because of the growth in subscription box fulfillment in the U.S. and also very strong growth in e-commerce that could overcompensate for the downturn in demand from retail. We expect that the actions done in different countries connected to COVID-19 will continue to put some pressure on retail sales, at least in the second quarter 2021, but we expect to continue to compensate this with increased e-commerce volumes. Health Care & Life Science had a stable demand in Q1, and we have managed to add some additional customers in this area, and we are actually launching a new site for this segment in the second half of 2021. If we then go to Slide #11 and look at Industrial. You can see that demand declined compared to the year before. The reason is partly because of lack of semiconductors and partly because of our focus on improving margins, which has resulted in that we have exited some low-margin projects in this area. So if we then go to Slide #12, look how things will be going forward. We are very happy to see that our strong recovery in the second half of 2020 continued in Q1 and that our actions taken in the end of 2019 continues to pay off in improved margins. You can also see that the market continues to normalize, and we have lots of interesting requests from both existing and new customers. We are also very pleased to see that we continue to grow within e-commerce for our Fashion & Lifestyle customers. And our new sites in North Germany is now up and running, which makes it possible for us to add even more e-commerce customers. Our strong financial position enables us to continue to do acquisitions, which is an important tool for us to both develop our services for our customers and, over time, to improve our margin. Main focus is on small- and mid-sized companies with a high added value, but also to grow in our area Life Cycle Management, where we take care of our customers' products complete life cycle, which also aims to lower our own and our customers' carbon dioxide emission. COVID-19 and the lack of semiconductors and the stronger Swedish krona will continue to put some pressure on our sales and results, but we are still very confident going forward based on our performance the last 3 quarters. That was everything from me. And now I'm opening up for questions.

[Operator Instructions] We will now take our first question. Please go ahead, caller. Your line is open.

It's Carl here from Nordea. So a few questions from my side. You wrote component issue is hampering the recovery somewhat. So my question is, have you experienced a more challenging situation at the end of the quarter going into Q2? Or -- and would you say that Electronics side is more of a problem compared to Automotive? Or how should we look at that between the segments or subsegments?

Carl, no, actually, it's -- we have seen effect much more in Automotive and Industrial than in Electronics. It looks like the majority of our Electronics customers have secured semiconductors and still managed to deliver what they want to deliver. So it was more in Automotive and Industrial sector, and it was -- it was a bit more in the end of the first quarter, in March actually. There were some reductions in shift and -- but it's really hard to predict in the second quarter. We think that there will be some similar issues, but hopefully not bigger than the first quarter, so we should be able to absorb it. So -- so everyone tried to produce, but they go down in shift, they make some temporary closing and then open up again but, overall, Automotive and Industrial. Electronics, for the moment, it's not impacted.

Yes. So if we look at the whole automotive market, if we -- if we look at one or a few of your bigger customers, would you say that it's a positive thing or a negative thing to be working with a niche model such as S-Class and so on? Are they prioritized or not? Or how should we look at that?

Yes, that's absolutely correct. I think we are lucky there that we work with the more exclusive models. So -- and they have highest priorities. So if we have been working more with high-volume, medium class cars, we should be impacted much more. So both that we work with the higher grade, and we also have some other customers that were really high-end costs, and there we have seen very small impact. So they have managed to prioritize. So we are

And we have also seen a few new or at least one of them, a new model launch. I mean, is it already in the numbers? Thinking about the new S-Class, for instance. Or is it still to be seen later on in 2021? Or is it -- how should -- yes, a new model launch, I guess it's at least in the beginning a positive impact.

Yes. I think S-Class is actually even in the ramp-up phase. I think it was running very high volumes in the end of the first quarter. But we expect S-Class will go very strong I think even rest of the year. Yes, it's a very important model for Daimler, and I think they will prioritize it very hard.

Okay. Perfect. And maybe you touched upon it, but we saw sales contraction from Electronics in Q1 in absolute numbers, at least. I mean how should we look at the growth possibilities for this segment in the coming quarters? I mean, as you said, you had some tailwind from the work-from-home trend, the forced digitalization. Especially if we adjust for the buy-and-sell volumes, I mean, what should we expect here in coming quarters?

I think we should -- I think there is also a currency effect, Andréas, on the -- when you compare.

Partly.

Partly. So I think we are not maybe even slightly higher than last year, I don't know. But we still have some buy-and-sell deal in Q1 last year that disappeared in Q2. So I think going forward, electronics should be rather similar than last year. And hard to predict if it will go even higher. But I think it looks stable. So I think it will be at least on the same level or even up.

There is some seasonality also in the numbers, if you look at the last quarter and comparing that to the first quarter. So it is more and more -- it's better to compare it with the first quarter 2020. But then you have -- can get -- you have also the seasonality effect a little bit.

Yes, because then sales was SEK 733 million and was SEK 729 million this first quarter. And then we have the currency effect. So it was actually higher than in Q1 this year.

Okay. Perfect. And the final one from my side is a little bit on M&A. You have done 2 acquisitions in fairly short time. Your balance sheet is on par with pre-LGI levels. And I mean, could you elaborate a bit on your ambitions in terms of acquired sales in percentage or in absolute numbers over the time at least? And how many companies do you have on your short list? And then this -- I think you said it, but you are primarily focusing on life cycle services, I guess. Or do you look even into acquiring more Automotive or Electronics volumes as well? Or how should we see the M&A side?