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

Hello, and welcome to the Elanders AB conference call. My name is George, and I'll be your coordinator for today's event. Please note that this conference is being recorded. [Operator Instructions] I'd now like to hand the call over to your host today, Mr. Magnus Nilsson, to begin today's conference. Please go ahead, sir.

Thanks, George. Welcome, everyone, to Elanders conference call. And together with me is also our CFO, Asa Vilsson. And I will now go directly to Slide #5 and talk about our fourth quarter. Demand continued to improve in several of our customer segments, but was offset by negative growth from the Automotive segment, which is facing major structural changes. This, combined with continued soft demand from our Fashion customers in North America resulted in an unchanged organic growth, but it also affected our adjusted EBITA margin negatively compared to previous year. In order to meet the decline from Automotive and the other uncertainties when it comes to future demand, we decided to reduce overall cost and we carried out additional restructuring measures in the fourth quarter on top of the earlier communicated CapEx in our road transportation operations in Germany. These actions will reduce our exposure towards Automotive, but also in general, lower cost structure and will lead to yearly savings of around SEK 50 million starting in 2025. In total, also our operating results in the fourth quarter negatively impacted by one-off items of SEK 52 million, which mainly refer to structural measures and revaluation of additional consideration for Kammac. If we then go to Slide #6 in the presentation and look at our cash flow and cash conversion development, we can show that we continue to deliver very strong cash conversion, which ended at 90% for the full year. And we also managed to reduce our working capital with SEK 145 million. If we then go to Slide #7 to look at Supply Chain Solutions, we can see that our organic growth slowed down compared to the third quarter and ended at 1% in growth compared to a growth of 5.2% in the third quarter. The low growth rate was mainly due to the slowdown from Automotive in Europe and also continued soft demand from Fashion in North America. The rest of our customer segments continued their positive trend and showed organic growth in the fourth quarter. And we continue to see a very strong inflow of new customers and projects in our Fashion segment in North America. Our adjusted EBITA decreased to 5.9% compared to 7.3% in the previous year. And the major reason for the low margin is the unexpected reduction of automotive volumes, which we couldn't compensate in such a short notice and also the continued soft demand from Fashion in North America. In the quarter, we continued to reduce our cost base and increase our share of value-adding services by reducing low-margin business like road transportation business in Germany. And this combined with the continued positive trend in demand from several customer segments makes the outlook for supply chain look much more positive in 2025. If we then go to Slide #8, look at Print & Packaging Solutions, we can see that we had a very challenging quarter with a negative growth of 5%, despite a very strong quarter from online print customers and also some recovery from packaging and marketing material. The main reason to the negative growth was the Automotive segment that decreased organically with around 28% for print in the quarter. Positive was that they still delivered a strong asset EBITA margin at 8.9%. And to balance the growth from Automotive, we've done several cost cuts during the year, but we also continued the transformation of going from traditional print production to digital print, which open up for growth -- continued growth in online print, but also in publishing, packaging and marketing materials. If we then go to Slide #9, look at the development of our different customer segments in the quarter and we start look at Fashion, we continued recovery in Europe. But as I mentioned before, the demand in North America remained on a low level than previous year. And together, it resulted in a negative organic growth of 11%. Positive is that we continue to acquire new customers and the number of new requests has actually accelerated in January after the decision for Mexico to stop the possibility to deliver Fashion products from Mexico duty-free to e-com customers in U.S. As a result of this, with fashion brands before the new warehouse volumes from Mexico to U.S.A., which we expect to give us an increased demand from Fashion clients. When it comes to Electronics, the picture continues to be overall very positive. We see a strong organic growth of around 9% in the quarter because of continued increase in laptop and server volumes, but also other products like office printers that has been suffering before. The growth was also supported by continued growth in our life cycle management services as well. If we then look at Automotive, it was the fourth quarter, very challenging for both supply chain and print. And several of our Automotive customers started already in November to reduce their production. And in December, they reduced their production much more than previous year and this resulted in a negative organic growth of around 17%. Industrial continues to show an overall stable demand, even if it continues to fluctuate quite a lot between customers. And we managed to deliver an organic growth of around 3%. When it comes to Health Care, we continue to see recovery from our existing customers, but also a very positive development from new customers. And this recovery started already in the fourth quarter last year, so the organic growth this quarter was around 2%. Other continues to show growth contribution both from our FMCG customers in the U.K., combined with continued growth from our online print segment. If we then go to Slide #10 and look at how things will be going forward, if we then exclude Automotive, we expect to see continued gradual improvement in demand from our different customer segments, combined with the growth with newly acquired customers. When it comes to Automotive, we expect continued swings in demand, which makes it very hard to predict the automotive demand in 2025. To counteract this uncertainty, we have implemented several structural measures during 2024, like the decision to discontinue large parts of our road transportation operations in Germany, but we also do the consolidation of capacity in both our business areas to reduce our exposure towards Automotive, but also overall lower costs, which will help to improve our margin. Positive is that we continue to see from -- continue to see a recovery from our other customer segments, combined with the continued inflow of new Fashion customers. And it's also very positive that our new and first facility in Thailand are now up and running and have started to deliver, which will have a positive contribution to our earnings in 2025. Thanks. That was everything from me. And now we open up for questions.

[Operator Instructions] Our first question today is coming from Gustav Berneblad of Nordea.

It's Gustav from Nordea. Maybe if we can just start here on the margin in Q4, specifically for Supply Chain Solutions. I mean you comment on negative effects here from Automotive, but also Bergen Logistics. I mean are there any other effects that is also hiding in there? Or if you can elaborate a bit on that?

No, I think the main reason that we couldn't match the margin last year was that we still last year had high level -- high levels of Fashion volumes in North America, and that is a very important company for us when it comes to margin and the levels was still much lower this year. And then on top of that, the massive closure in the Automotive operations which was unexpected, which then we ended up with overcapacity in both personnel and other things. And so that was -- these 2 things was the main reason that the margin couldn't match the year before. And that's why it's very positive for us now that we can see that North America now really start to recover. And then the automotive thing just need to handle during the year by cost savings and adjustment if it doesn't recover.

Yes. Okay. Great. But is it possible to say anything on the margin for Bergen Logistics today compared to when it was acquired?

The margins are still -- they have a very flexible business model. So their margins are -- even when it's a very low demand, it's still a good margin, close to double digits anyway. But if I say like that, when they are more fully loaded, they do double digit still, but in a much higher range. Yes.

Okay. That's clear. And then if we move to the Fashion here in Europe, I mean, if we sort of exclude the 2 new customers you're ramping up, are we still seeing a positive growth?

Yes, we actually do. It's been a bit surprising for us, but we -- it feels like our customers are doing pretty well. So one of our existing customers have really strong growth, one of the big ones in Q4. So it was not just the 2 new customers, it's also underlying we had a growth in Europe. So see, here, I'm just looking -- I think as we said, negative growth for Fashion was around 11%, but then it's still compensated by at least double-digit growth in Europe. So that looks good.

Okay. Interesting. Is that sort of -- is it low end, high end, mid-end? Is there any driver in the specific sort of segments there?

It's more the low, mid-end this is doing well. It's not the expensive. The expensive products still have big challenges. We can see that, but low midrange is doing well. And also, we have some big retail business in Germany that is doing really well as well. So it's both e-com and retail.

That's very clear. And then maybe just the last one here on the Other segment. I mean 19% organic growth year-over-year looks like it's driven by Fast Moving Consumer Goods. But is that due to easy comps from last year? Or is there anything else we're missing here?

No, it is -- it's like you say, it's growth from FMCG, especially in U.K. and then also online print that is driving growth. So we are looking at to separate it more for the next year's reporting, but we had -- both of them was -- we can see recovery now in U.K. That was also partly -- I didn't mention that on your first question on the margin in Q4. It's also still a bit more soft in U.K., but now it's -- we could still see an increased demand. So it's FMCG and online prints driving the growth here.

Yes, that's perfect. And then just -- sorry, just one final one. I mean it looks like you have some spots where you are seeing quite solid growth. I mean Electronics as well. Are there any areas where you are sort of starting to see an inflection point to the negative, so to say, in these sort of positive areas?

No, I think overall, in our industrial customers, it's -- as I said, it really differs from company to company, business to business. But in that area, we have -- it's both trucks and -- but also industrial products and things like that. So overall stable, looks good. We have some customers that are doing farming equipment that was really poor in Q4, but was compensated by other industrial clients. So for the industrial clients, it's really a mix depending on what kind of product they are delivering. So it's not fully -- it's more that we have a good balance in our area. And also, we had some customer exposed to house construction that was improving a bit in Q4, and we do some big heat pump systems that was recovering a bit and things like that. So yes.

[Operator Instructions] We'll now move to Markus Almerud of Carnegie.

Yes. Markus at Carnegie here. A couple of questions. Starting maybe with Automotive. So you talked about the structural change in the Automotive sector. And then just if you could just elaborate a little bit how you're going to change this and how you're going to meet this change? Is there -- do you need to change to be able to meet that? Or do you expect Automotive volumes to come back in this kind of a temporary situation? Because yes, you can change cost and keep cutting costs. But if you can just, yes, elaborate a little bit on your thoughts there.

No. But of course, it's really hard to estimate if it will come back and how big it will come back and things like that. We are more handling it, if I say, in a very careful way. And if we look at the group today, Automotive is -- was going down in 2024 is around 18%. But this big change we do in Germany for road transportation will actually -- when that has a full year effect, Automotive will go from 18% to 12% for the whole group. And so for us, for the moment, we handle it like it could go down around 8%, 10%, and that's why we do adjustments on the cost side, both in supply chain and print because I don't think it's really hard for anyone to predict, and there was lots of positive news coming out also today about closure of factories and package and things like that. So we will -- of course, we take care of all the contracts we have, but we are handling it very careful, and we will adjust very quickly if we see there's not a recovery or it continues to decrease. And I must say it's very complicated because there's no clear outlook. So it's a very careful approach and better for us to adjust too much and then adjust if it should recover more than expected. So that is how we look at it.

And if I look at the Automotive business that you have left after you closed the road transportation business, I mean, is it very different also within that segment? Or is it kind of across the board bad?

No. I think road transportation has always been very competitive, and we would see there's almost no margins left. That's why we exited it. But the contract logistics in supply chain is still a good business for us. And so that is something we are -- we'll continue to work with in supply chain. More tricky is the exposure in our print division where roughly also 17%, 18% print because that there is -- the volume is connected to number of cars. So if the number of cars continue to go down, we need then to adjust our capacity there. And -- but that is something we have been working with moving to online print, develop other digital print and things like that. So it's -- so there, we are more prepared to see that it will go down step by step. And we are also having an approach to handle that. In supply chain, we still think the contract logistics is a good business. As long as we can do reasonable good margins, good business, we will continue in that area. But in the same time, we are not requiring so much new customers. So I think the other areas will grow. So I think in just 2 years, Automotive could be under 10% of the group. Yes.

But the way we should see it is maybe that it's not a business that will grow, but it will grow relative to the others. And then it will be kind of hopefully stable over time, the business that you do have, the contract logistics business.

Yes. I think that's the good thing to be working in like we do in -- actually both print and supply chain is that we are not just the sole supplier for automotive, we can handle all type of products. So of course, we will continue to push for growth in Electronics, Fashion. Health Care is very important for us. And FMCG as well start to be an interesting area for us. So we will just use the same resources, but for other customer segments to find growth and to compensate.

And moving over to Fashion and Fashion in the U.S. in particular, you mentioned that you saw some positive signs in January and more client requests coming in, in January. Did you see that trend? Was it a trend that continued from the fourth quarter? Or is it so that you saw the same kind of pattern in the fourth quarter? Or is it completely new for this year?

No, no. We have seen already in third quarter an increase of requests, and we also gained new customers in Q4 that will start this year. So we already have a positive trend. And then in January, after this decision by Mexico, it really accelerated. So the first weeks in January, we have lots of requests of customers. So I think that's -- we will anyway see growth. I think this Mexico effect can even speed it up even more.

Perfect. And then finally, maybe on the U.K. where you also saw some -- if I remember right, you saw some signs of recovery in the fourth quarter and it's been -- I mean, U.K. has been difficult. And now it sounds like it's going a little bit better. If you can elaborate a little bit on the U.K.

Yes, we could see, especially in Kammac, that's very dependent on volume and consumption. We have started to see more requests and also -- we could also see some sales growth for the first time this year in Q4. And so we could see some good signs there. And also Bishopsgate, they are more in technical logistics that have managed to do very well anyway. But they also signal now that it starts to look better in the U.K. There was lots of uncertainties after the election, but it starts to look better. But it's still a challenging market, still yes. Operator, is there any more questions? Or should we...

Yes. Sir, I'm just having problems opening my microphone, so please -- there are no further questions, sir.

Okay. Then we thank everyone for calling in to our conference call. Thank you very much. Bye-bye.

Thank you. Thank you much, sir. Ladies and gentlemen, that conclude today's conference. Thank you much of your attendance. You may now disconnect. Have a good day, and goodbye.