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

Hello, and welcome to 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 turn the call over to your host today, Mr. Magnus Nilsson, to begin today's conference. Please go ahead, sir.

Thank you. Yes, welcome, everyone. It's Magnus here. And together with me also, Asa Vilsson, our CFO. Okay. I will start with our presentation, and I will now go directly to Slide #5 and talk about our second quarter. Demand decreased for the majority of our customer segment, which resulted in a negative organic growth of 5%. And if we look at our different regions, it was only Asia that performed better than previous year, with an organic growth of 2%. Remaining regions came in lower and with negative growth. Despite the lower sales in the second quarter compared to the first quarter, we managed to improve our adjusted EBITA margin to 5.5% compared to 4.1% in the first quarter. This was a result of our cost saving measures that we implemented in the first quarter. To meet the soft market, we continue to focus on sales, and we're also taking additional actions on the cost side. And during the quarter, Florian Beck replaced Bernd Schwenger as CEO for Elanders largest subsidiary, LGI. 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 very strong cash conversion, which ended at 106% in the second quarter. We also managed to continue to reduce our working capital, which went down with SEK 189 million in the first half year. The decrease in working capital combined with the strengthening of the Swedish krone, reduced our net debt, excluding IFRS 16 by SEK 254 million in the first half year despite dividends of SEK 147 million in the second quarter. Including IFRS 16, our net debt was reduced by SEK 888 million in the first half year. If we then go to Slide #7, look at Supply Chain Solutions. You can see that organic growth slow down compared to the first quarter and decreased with 4% compared to 1% in the first quarter. Europe was in line with previous year in the first quarter, came in with a negative growth in the second quarter. And also North America remained weak. As I've mentioned before, Asia showed growth. And our new site in Thailand continues to go as planned. And in terms of customer segments, was it only electronics that could show organic growth in the second quarter. Our adjusted EBITDA margin improved compared to the first quarter, but came in lower compared to last year. And -- but our cash conversion continues to be very strong in supply chain and came in better than last year. Structural measures of SEK 18 million were implemented in the quarter with a focus on additional cost savings in Germany and also the change of CEO at LGI. If we then go to Slide #8, look at Print and Packaging solutions. You can see that our results recovered very positively compared to the first quarter with an adjusted EBITDA margin of 5.4% compared to 3% in the first quarter despite continued negative organic growth of 5%. This was a result of the cost savings we executed in the first quarter. And we were also successful in our strategy to be part of the consolidation of the German print market. And managed to take over a yearly print volume of EUR 5 million from an external print company that was forced to close down. If we then go to Slide 9, to look at the development of our different customer segments in the quarter, and we start looking at electronics. The picture continues overall to be very positive, and we could see an organic growth of around 7% in the quarter because of continued increased demand both in Europe and Asia. If you look at fashion, fashion continues to see a recovery in Europe, but at a slower pace and couldn't compensate for continued soft demand in North America, and this resulted in a negative organic growth of 6%. But as reported before, continues our pipeline with both new prospects and gaining new customers look good, but the uncertainty in the market makes the closure and the implementation process of new customer projects slower than normal. If we then look at Automotive, they continued a negative trend and shows a negative organic growth of 13%. It looks like the European market is now stabilizing, but our customers continue to see negative growth regarding exports to both North America and China. Also, other that has been stable, previous quarters showed a negative organic growth of 5%, mainly as a result of lower demand from our customers in the food and beverage area, but also online print was slowing down in the second quarter. Industrial showed a stable demand last year and some negative growth of 3% in the first quarter, continued a negative trend and came in with a negative growth of 12% in the second quarter. When it comes to Health Care, we could see a negative growth of 8%, but overall 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. We can see that the ongoing trade negotiations creates a great deal of uncertainties, which affects the majority of our customers very negatively and it also slowed down potential new prospects in the decision process. But it's, of course, very hard for them to make strategic decisions in a market that constantly change. And this makes it also very difficult to see when there will be an improvement in demand from our customers. And we can also see that their forecast are, for the moment, very uncertain. To meet this challenging market, we continue to have a high focus on lowering our cost base, but also to improve our efficiency and increase the share of optimization, both in our administration and in operations. The appointment of our CEO, Beck and Charles Ickes to the new role as Group COO is a very important part of this process. Charles is already today heading the development of our internal warehouse management system, CloudX and he and his team at last year added several AI functionalities that increases our internal efficiency. And it also makes us to offer a much more attractive offering to our customers. With this new role now, we will speed up the rollout of the system, the functionalities in the whole group. And we still think that over time, the trade barriers create opportunities for global logistics players like Elanders by partly breaking up the global supply chain and then replace them with a combination of more global and regional logistics chain. Okay. Thank you. That was everything for me. Time for questions.

[Operator Instructions] Our very first question this morning is coming from Markus Almerud calling from DNB Carnegie.

My first question is just a technical one. But in the discontinued operations business that you have, the SEK 140 million, is that what's rest of the buy and sell? There is no -- the road businesses, they will be closed down as of Q3, right?

Which will -- what will be closed down in Q3?

The road transportation business.

Yes. It was the last month, so it was in June, so that will go away in the third quarter.

Yes. So it's what rest of the buy and sell business is in the discontinued businesses that you have right now? And that is also out. There's nothing left of that. So in Q3, it will only be the road transportation business that will be sort of closed down businesses impacting sales?

Yes. It should be. I think also the subscription box business has gone in -- mainly in Q3.n It should be just a marginal adjustment. But you're right, this should be mainly DSD business, yes.

Okay. And then my second question is on Fashion in the U.S. You still have new customers coming in. But what -- can you talk a little bit about the status of these new businesses? I know there is hesitation as such. But what is the status on Fashion in the U.S?

Yes, we have secured, as I mentioned before, some new projects, there will be -- couple of them will start in the second half year. And one big one will start -- that will start in January 2026. So we can see there's been some delay in the movement from the other suppliers -- existing suppliers. But we can see that we have secured more orders this year than last year. And also our pipeline is bigger this year than last year. But the process is a bit slower, but the customers are still a bit uncertain and waiting about -- they're looking to see how they trade. Negotiations will end up. But some of them will start now in the second half of the year and some will start in Q1 2026. But the trend is much more positive than last year, but it's still a bit slow. It's a bit slow implementation and everything.

Okay. And then on Automotive, which fell 13%. Can you talk a little bit about maybe the differences in that Automotive segment. So you have the road transportation, which is coming out as of Q3, but that's still part of it. If you look at kind of that part and the part which will be left, what does it look like then?

I think that the part that will be left will have a less negative decline, if I say like that, because in the GSP, the Road business is also part of the negative growth in Automotive. And that part is actually bigger than the part that we will keep because the part we will keep is lots of center around manufacturing in Germany. I think -- and the European market now starts to look more stable. So for the car models that we are supporting that are not so much export driven to U.S. will be more stable. Some of them go to U.S. that is still a bit up and down. But I think this trend around 12%, 13% will slow down. I think it would be more normalized step by step in the second half of the year. Because in the GSP business, we are solving all models that our customers are building because we are taking components from different countries. So you have a bigger organic impact on that one. So hopefully, it will stabilize in the second half of the year.

Okay. And then on industrial, maybe if you can give us some granularity on that one as well. It was a bit sharper fall than I might have expected in industrial. So if you can just give us some more granularity on -- if there's anything sticking out there or is it across the board?

Yes. I must say industrial was also a bad surprise for us in the second quarter because, as you know, they have been very stable the last 2 years, not so much growth, but no negative growth. And then there was a slight negative growth in Q1, but you could see in Q down that lots of slowing down and lot of our customers. If you look at trucks, for example, but also other industrial customers are slowing down. So it feels like they are more impacted now than before. So it was -- yes, it was overall, I must say, it was -- yes, a lot of the manufacturing industrial companies that have as customers was slowing down in Q2. And maybe still I would say it's a trend, but I think they are also now feeling the pain of the trade war and they're slowing down some projects and things like that. So -- but it's hard to predict. I think also the customers was a bit surprised about the slowdown in Q2.

Yes. And then finally, maybe on U.K. How is the U.K. going? Are there any signs of an improvement? Or is it continuously difficult?

No. U.K. continues to be hard. We are doing -- we are gaining some new customers especially on the Kammac side, but we could see in Q2, it was slowing down again also for our more take the logistics part. It's really a bit up and down in U.K. Still -- we cannot still see a stable trend in improvement. So one quarter they are improving and then they go down in another quarter. So it's still hard in U.K. We are more positive going forward in Germany where we're very big. We cannot see it yet, but, I must say, it's much more positive atmosphere in Germany when we talk with our customers and the market as well. So I think Germany will be -- hopefully, will be driving more growth for us, maybe not this year, but next year. Of course, you can see a lot of the investments that will be done in Germany. So that seems more positive.

[Operator Instructions] Mr. Nilsson, we do not appear to have any questions coming in. I'd like to turn the call back over to you for any additional or closing remarks. Thank you.

Okay. Thank you, everyone, for listening to our conference call. And I hope everyone will have a great summer. Thank you, everyone. Bye-bye.

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