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, this conference is being recorded. [Operator Instructions] I'd like to hand you over to your host today, Mr. Magnus Nilsson, to begin today's conference. Please go ahead, sir.

Thanks, George. Welcome, everyone. Magnus speaking. And together with me is also our CFO, Asa Vilsson. And I will now go directly to Slide #5 in our presentation and talk about our first quarter. The demand decreased for the majority of our customer segments, which resulting in a negative organic growth of 2%. It was mainly Print & Packaging Solutions that felt the effects of decline in volumes and Supply Chain was able to withstand better. In response to the decline in demand and the uncertainty in the market, we acted very quickly and implemented structural measures of around SEK 87 million. And these actions will reduce Elanders' annual cost base with around SEK 145 million, whereof SEK 81 million in -- already in 2025. And as a consequence of the decline in sales and market turmoil, the adjusted EBIT margin came in at 4.1% compared to 5.5% the year before. If we then go to Slide #6 and look at our cash flow and cash conversion development, we can show that we continue to deliver a very strong cash conversion, which ended at 138% in the first quarter. We also managed to continue to reduce our working capital, which went down with SEK 119 million. And the decrease in working capital, combined with the strengthening of Swedish krona, reduced our net debt, excluding IFRS 16 by SEK 345 million, and including IFRS 16, our net debt was reduced by SEK 862 million. If we then go to Slide #7 to look at Supply Chain Solutions, you can see that our organic growth slowed down compared to the fourth quarter and decreased with 1% compared to a growth of 1% in the fourth quarter. Europe was in line with the previous year despite low demand from the majority of our customer segments for growth in Life Cycle Management and also in the Fashion segment. North America, on the other hand, had a very soft quarter with negative growth but the inflow of new customers continued to be positive, but we could also see a slowdown in the end of the quarter. Asia that is very exposed towards electronics continued its positive trend with organic growth, and our new site in Thailand continues to grow just as planned. And our adjusted EBITA decreased to 4.8% compared to 5.5% (sic) [ 5.4% ] in the previous year. The major reason for the lower margin is the continued reduction of automotive volumes and the continued soft demand from Fashion in North America. We also had an extensive system change at one of our biggest sites in Europe that affected the results negatively. This is now completed and will not have any negative effect going forward. Structural measures of SEK 31 million were implemented in the quarter with a focus on adjusting our costs related to the automotive customer segment. Cash conversion continues to be very strong and improved compared to last year. If we then go to Slide #8 to look at Print & Packaging Solutions, you can see that they had a very challenging quarter with a negative organic growth of 6%, which resulted in an adjusted EBITDA margin of 3% compared to 7.5% last year. Print was clearly more affected by a weaker market, and this combined with a very uncertain market outlook made us act both quickly and substantially on the cost side. And we decided to consolidate 2 production sites to 1 in the U.K. and close down our offset production in Hungary and concentrate these volumes to Poland. These actions impacted our result negatively with SEK 56 million (sic) [ SEK 57 million ]. If we then go to Slide #9, look at the development of our different customer segments in the quarter and start to look at electronics, the picture continues to overall be positive, and we could see an organic growth of around 4% in the quarter because of continued increased demand and also growth in Asia. Improving demand in the Life Cycle Management area in Europe was also supporting the growth. Fashion continued to see recovery in Europe and compensated for lower demand in North America, which resulted in an organic growth in line with previous year. The trend we have seen in the last month in North America with a lot of new requests, new customers slowed down in the end of the quarter as a consequence of the ongoing trade disputes especially between the U.S. and China. Despite the turmoil in the market, we continue to see a high volume of new requests, and we have also secured new customers that will be implemented in the second and third quarter. If we look at Automotive, continued the negative trend from previous year with a negative organic growth of 12%. And for Print & Packaging, it was even worse with negative growth of 16%. Supply Chain came in slightly better with a negative growth of 11%. Other was stable in the quarter with an organic growth in line with previous year. And Industrial that showed a stable demand last year turned to negative growth of 3% in the first quarter. When it comes to Healthcare, we see negative growth of 5%, but the segment continues to look positive going forward with lots of new requests from both existing and new customers. If we then go to Slide #10 and look at how things will be going forward. So to meet the uncertainty in the market, we continue to have a high focus on lowering the group's cost base and to consolidate capacity when possible. In parallel with this, we have a very high activity on the sales side to secure new customers. And we think that over time, can trade barriers create new opportunities for global logistics company as Elanders by breaking up global logistics chains and replacing them with more regional and local logistics -- small logistics chains, which will increase the need of warehousing. This will also increase the need for smart solutions that make it easier for companies to quickly redirect their inventory volumes to different markets. And here, Elanders has an advantage with our own WMS system, CloudX, which with just one integration makes it possible to utilize our global capacity. And to support this even further, we will increase the tempo in developing more AI functionality in the system. We also continue to work with reducing our net debt by optimizing our working capital investments and cash flow. And as a result, we managed to reduce our working capital with SEK 634 million in the last 2 years. And that was everything from me. And now I hand over to the operator to handle questions.

[Operator Instructions] First question is coming from Mr. Markus Almerud of Carnegie.

Markus Almerud here at Carnegie. My first question is on the system change that you had. Was that impact big? And then which end user segments did that affect?

The system change was affecting us in Europe, one of our absolute biggest warehouses for one of our biggest electronics customers. So it meant that during the whole month, the customer lowered the volumes, and we need to have doubled personnel. I think it's affected our results in Supply Chain Solutions with around EUR 1 million roughly.

So it was rather a bottom line result effect rather than a top line effect.

Yes, it was mainly bottom line, yes, on the EBITDA level.

And then on Fashion in the U.S., did I get you right that you've had good inquiries -- a good amount of inquiries for some time, and you saw a slowdown, but there's still a good amount of inquiries. So we should, all else equal, if these turn into new orders, see new sales coming in approximately when from these inquiries do you expect?

Yes. The new customers we have gotten there was some of them will start in Q2 and then in Q3. So that trend has continued, and we still have lots of requests. But the thing we could see now in -- especially in the end of the quarter is that our customers start to getting worried how they should handle the high duties between China and U.S. So there is, of course, a risk for us that, that will push down the volumes overall for our customers. We are a bit uncertain now when we can see the effect. And -- but what we realize is that roughly of our fashion customers in the U.S., 90% of their volumes are actually coming from China to U.S. So of course, it complicates things for them. Yes.

And then, I mean, I know you don't give out any forecast or anything like that. But maybe you -- is it possible to say anything, things are moving very, very fast. And I mean, the bunch of -- the bulk of the tariff discussions has been in April. But is it possible to say anything about the mood out there, what are your customers saying? How did April start? Have you seen -- is it too early to say about any impact from this or anything about how the quarter has started?

It's a bit too early to say. I think everyone is very careful for the moment. And even if there are some positive signals, we could see that some of our customers even stopped their export to U.S. overall. We have to wait and see. So it's a bit too early to say. But it goes up and down from day to day, but I think it's really hard for everyone to navigate. And the thing we discuss a lot with our customers in U.S. is that we can offer them special -- we can offer them bonded warehouses. So we have the capability to take in their goods without paying any duty and then you pay duty at delivery for customers. So -- and there, we see lots of requests. So there could be some temporary volume increases. But I must say it's -- they have not decided yet. Everyone is asking for it, but there's lots of boats waiting outside the coast from U.S. with goods from China. They don't go into harbor, they wait outside. So it's -- I must say it's really hard to see the effects. But it's still soft, I think, yes.

And then maybe lastly on the krona effect on the debt. Is that per 31st of March? Or how does it work when this revaluation is made? And yes, I'll start there.

Yes. On the debt side, then the revaluation is made every month, end of month. So the Swedish krona became stronger compared to the dollar and euro.

So this is effective from 31st of March, you can say.

Yes, exactly. Just what -- I mean, it's difficult to say what it would have been using the current FX rates. But if it's continued to weaken, then it's per 31st of March. That was basically my questions.

[Operator Instructions] Mr. Nilsson, we do not appear to have any further questions in the queue. I'd like to turn the call back over to you for any additional -- one second, please. We have Markus coming back from Carnegie with a follow-up question.

I had a couple of more, but -- so I'll take the opportunity to ask them. Maybe the demand trend in Print, what are you seeing there and especially throughout the quarter and then it seems to be mostly automotive. But then also if you can talk a little bit about online print and what you're seeing there. You talked about the slowdown in growth, but is it negative? What do you think is behind it, et cetera? Is it just general economy?

I think in Print, we were sort of really that surprised in Q1. It was absolutely Automotive, like you say, they continue to go down. And you can see especially cars exported to China starts also continue to go down where we do lots of the manuals. But also industrial clients was softening in Q1. So industrial clients that has been pretty stable during 2024 was also getting softer. And then online print, we had growth, but not in the same size like last year. So I think overall, lots of our products we are doing in Print was slowing down, even some of the packaging we do for the candy industry and things like that was affected. So it was a tough quarter for Print. That's why we took 2 really big actions immediately to be prepared. Hopefully, it was a bit of a temporary thing and because it's very connected to products, I think customers are maybe waiting now what happens with this duty, the trade war, what will happen with their products. And so it was a big slowdown everywhere.

And if you look throughout the quarter, did -- I mean, was this overall the entire quarter? Or was it accelerating throughout the quarter or -- how do they look?

No, it was pretty bad the whole quarter.

And on Industrial, is it any regions sticking out? Maybe you said during the call, but was it mostly Industrial in Print? Or was it Industrial overall, which -- where you saw softening?

It was absolutely more in print. There were some in -- let's look here, there was some in industrial as well. So I think -- no, I think it was both, affecting both. Okay. Slightly more in the supply chain actually when I look here in our numbers. Yes.

Okay. And then finally, maybe you talk about the need for consolidation in print or that may come in -- I mean, happen faster with what's going on in print and seeing the trends. Is this something that you will -- that you might participate in? Or are you just talking about consolidation of the sites?

No, we are -- of course, we consolidate our own capacity. But I think especially in the German market where we are really strong, we are actually looking to do consolidation together with other print suppliers. So yes, it's something we are investigating. I think there will be opportunities because I think the whole print industry was feeling the lower volume. So for the German market, it could be interesting for us to find partnership and things to find ways to consolidate capacity.

Mr. Nilsson, at this point, we have no further questions. I will turn the call back over to you, sir. Thank you.

Okay. Thank you, everyone, for listening to our conference call. Thanks. Bye-bye.

Thank you. Ladies and gentlemen, that will conclude today's conference. Thank you very much for your attendance. You may now disconnect. We wish you a good day, and goodbye.