Elanders AB (publ) ($ELANB)

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

Thank you, Josh. Welcome, everyone, to Eland's one conference. And together with me here is also our CFO, Asa Vilsson. Okay. I will now go directly to Slide #5 and talk about our first quarter. We could see that the positive trend with improved demand continued from the fourth quarter. And we also had an organic growth in the quarter of 1% and adjusted for Air & Sea was actually 2% organic growth. Organic growth came mainly from Asia, but also North America could show growth. Europe had a negative growth, but if we adjust for Air & Sea, they were in line with last year. Also, our adjusted EBITDA result continues to improve and despite negative currency exchange rates, which affected results negatively with SEK 17 million, it increased to SEK 172 million compared to SEK 133 million the year before. and this was an improvement with 29%. And our adjusted EBITDA margin improved to 6.2% compared to 4.1% the year before. If we then go to Slide #6 and look at our cash conversion, we show a weaker conversion than last year, but this was a consequence of the increased sales in the end of the quarter, which tied up working capital. In January and February, the demand was pretty soft for us, but there was a really strong demand in March. So that was the reason for the bit softer cash conversion. If we then go to Slide #7 to look at Supply Chain Solutions, our organic growth was positive at 2%. And if we adjust for A&C, we actually had an organic growth of 3% in Supply Chain Solutions. Asia was the main driver and came in with an organic growth of 8% -- if you look at the result, we can show a very positive development with both improved EBITDA margin and EBITA result and our adjusted EBITDA margin came in at 7.3% compared to 4.8% last year. And our adjusted EBITDA result was SEK 162 million compared to SEK 126 million last year, which also was an improvement with 29%. If we then go to Slide #8 to look at Print Pfacturing Solutions. There you can see we had a more challenging quarter, especially in Print, we had a very soft demand in January and February. It was recovering in March, but it couldn't compensate for the weak start, which resulted in a negative organic growth of 2%. But despite the lower sales was our adjusted EBITDA result in line with last year and our adjusted EBITDA margin improved improved. In the end of the quarter, we signed a 5-year agreement with one of our online print customers, which has a potential to reach a total sales of EUR 140 million -- EUR 140 million per year the coming 5 years. If we then go to Slide #9 to look at the development of our different customer segments in the quarter. I will comment organic growth by customer segment, excluding A&C. If we start to look at electronics, the picture continues overall to be very positive. And in the quarter, we could see an organic growth of 8% because of strong demand in Asia and stable demand in Europe. Fashion was stable in the quarter and came in with an organic growth of 1% because of growth in North America and Europe was in line with last year. And if we look at other, that is mainly online print and FMCG, we had a sales in line with last year. And if we look at automotive, the negative trend from last year stopped in Q1, and sales was actually in line with last year. Industrial showed a negative growth of 4%. And here, EU was in line with last year, but U.K. had a negative growth in the quarter. When it comes to Healthcare, we could see a good demand and an organic growth of 2.5%. If we then go to Slide #10 and look how things will be going forward. I must say that the positive start of the year makes us feel more optimistic for the rest of the year. continues to be challenging for both us and our customers. But we could see in the quarter a stabilization in demand and also improved sales in Germany, which is the group's largest market. And this, combined with our strong organic growth in Asia makes us more confident even if it still is a bit challenging times. When it comes to Asia and especially Southeast Asia, we can see lots of opportunities for growth. We are now planning for adding capacity in Thailand, but also expansion into Malaysia and Vietnam. And as maybe everyone knows that Southeast Asia has a predicted yearly growth of around 4% to 6%, and this creates lots of opportunities for us, which we want to fish. In U.S. and U.K., we continue to have overcapacity. We are pushing hard for new sales to fill it up. but also we have subleasing. And in the beginning of 2027, we can exit 2 major contracts in U.K., which will be very helpful for us when it comes to next year. Okay. That was everything for me. Thank you for listening.

Now we open up for questions. Our first question today is coming from Markus Almerud, DNB Carnegie.

Yes, a number of questions. Maybe starting with the new contracts that you're referring to that you took during the quarter. Can you talk a little bit more about those contracts and maybe in which areas and what is that just elaborate about those new contracts.

You mean contracts in general or you mean this Germany contract or you.

No. You mentioned in your prepared remarks that you have won several important contracts during the quarter, which drive sales. Just curious what you're referring to.

Yes. But now it's pretty interesting. We can see now that, for example, in automotive have been very challenging for us, especially last year and challenging our customers. We can also see now that our customers realize that they need to have good suppliers. So we have managed to secure and renew several important contracts on that side and also get some additional contracts. And -- but also on the fashion side, we have some new important contracts start to be some more growth in U.S., even if it goes back and forth all the time. And overall, we're very positive. But also in the industrial side, especially in Germany, we can see that we -- even if the market there is still a bit soft, we can see that we are gaining customers, we are renewing existing agreements. which is very important for us.

And this contract you're talking a little bit about the EUR 140 million, just to make sure, was it -- is it total over 5 years or per year?

No, it's total over 5 years. So -- but it's still big when it comes to print. And this customer was planning a huge expansion in -- to expand in Europe, they are mainly now in Germany, but we will expand to Poland, production in Poland, Scandinavia. So they have a good growth plan, and we have had a custom of years and they have had a good growth on 20% per year. But now they will go even more aggressive into a growth path. So in total over 5 years.

And the new customers, it's incremental or is it the entire 14 million.

No, that will be mainly new sales actually. Because of their expansion, yes.

And then on your comments about the improved demand towards the end of the quarter, was that in both different areas? I mean you point out to print in particular, but do you see the same thing in supply chain also that you see the improved situation towards the end of the quarter?

Yes, it was. It was much more in print because print was really bad January and February and strong in March. Supply chain was more soft in January and start recovering in February, but they also ended strong in March. So I must say March was a very positive surprise for us. Underlying demand was very strong, of customers. So that was good.

And it feels like that trend has continued?

Hard to say, but I think it's going to continue better because normally January, February is our weakest month, especially January every year. So I think it was a good platform for the coming quarters. And overall, I think the picture is pretty good for the moment, yes.

And then I would assume that the working capital that you built on that you say because of high sales in March will also reverse in coming quarters, you will normalize.

Yes, yes. We should see a reverse in Q2. But that was mainly driven by March that was so strong.

And then finally, maybe a detailed question, but on electronics grows quite nicely with 8% organic growth. Do you see any impact in your sales or in orders from the memory shortage? From there? -- memory shortage.

Yes, we see it actually because I think our customers in the storage side, they could sell even more. So for the moment, they can balance the shortage of memory. So we think that it will be pretty stable. It will be a bit up and down, but the signals we get if we think it will be stable, they can manage. It's more that they have a possibility to grow more, but they cannot grow more because of the shortage. So it doesn't feel like the problem we had in automotive some years ago when everything stopped. So I think they will be able to manage, and we expect the volumes to be pretty solid, but a bit of a fluctuation from month to month.

We now go to Engle.

Can you hear me?

Yes.

Starting Off here, you talked about you implemented price hikes here during the quarter. If you look at Supply Chain Solutions, of the 3% here, how much is driven by price hikes and how much is volume growth in the organic print here?

The majority is still growth -- organic growth. So yes, especially in organic growth. I think the price increases has more helped us on the margin side because there were some contracts with low earnings. So -- but if you look at the growth, that's more driven by organic growth.

Price.

Okay. And looking forward here, the same kind of dynamics, the growth should be mainly from volumes rather than price hikes here for the coming quarters as well?

Yes, that's correct, yes.

Okay. Perfect. And on the end markets here and the pickup in demand that you alluded to here at the end of the quarter, is there any specific end market that sticks out here, maybe on the positive and negative side?

Yes. No, I think the really strong end market for us is Southeast Asia. We have 3% growth there in Q4. And now in Q1, we had even 8% growth. So Southeast Asia for us, strong growth North America, some growth, a bit reluctant it's up and down and Europe is, for the moment, more flat. It's more flat in Europe. So to manage growth in Europe, we need to gain new customers, new volumes because our existing ones, the demand is still pretty soft.

Okay. Perfect. And then the overcapacity, which we've seen here for a while, are you happy with the current situation now when you see volumes slowly pick up again? Or is it more like volume decrease to do here on the overcapacity side?

Well, I think we are coming in a good way with overcapacity because in Germany, where we had overcapacity, there's almost no overcapacity left because of gaining new customers. So that is absolutely under control, but we still have capacity for growth in Germany. That is our biggest market. Now our challenge is, especially in U.S. and U.K. because especially U.K. is really slow market still. But there we have a great opportunity to exit 2 huge buildings in the beginning of 2027. So we are not so stressed about that one because that will give us a good push. And so in U.S., it's the more where we work really hard to find new volumes. We have some subleases on its way. So -- and if we need more capacity to grow, it's easy to find in the market for the moment. It's very easy. So...

Yes.

Perfect. And then going back a bit to the working capital question, as you said before, it's an effect from the pickup at the end of the quarter. But is it any other like more structural effect here to consider?

No.

No, it was the acceleration in March.

So this...

It should

Mr. Nilsson, we do not have any further questions in the queue. I will turn the call back over to you for any additional or closing remarks.

Okay. Thank you. 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 for your attendance. You may now disconnect. Have a good day, and goodbye.