Elanders AB (publ)

Good day and welcome to today's eLanders ABE conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. You may submit your question by pressing star 1 on your telephone keypad at any time during the call. At this time, I'd like to hand the call over to Ms. Magnus Nilsson, CEO. Please go ahead, sir.

Welcome, everyone, to Alambo's conference call. This is Magnus Nilsson speaking. Together with me, I also have our acting CFO, Elsa Wilson, as well. I will now start with our presentation, and I will go directly to slide number five and talk about our first quarter. As expected, continuing the market to be very challenging in the first quarter, and several of our customers showed lower demand compared to the previous year, which resulted in a negative organic growth of 9% in the quarter. Of this 9% of negative organic growth, the normalized shipping prices within air and sea was roughly 2%. It was mainly customers exposed to end consumers that showed a downtrend compared to last year. But our continued focus on lowering our working capital and improving our cash flow resulted in a very strong operating cash flow, and we had a cash conversion of 137% in the quarter, and a cash conversion in the last 12 months of 114%. And if we adjust for dividend payment, currency effects, and acquisitions, our net debt excluding IF-16 effects actually decreased by 200 million crowns in the first quarter, and we managed to lower our working capital with 241 million crowns. As expected, our two recent acquisitions increased our debt. And our financial costs are negatively affected by both the higher debt, but also the higher interest rates, which of course put some pressure on our net profit. But despite this soft result in the first quarter, could we show a rolling 12-month net debt EBITDA, excluding IFRS 16, and also including performance results from our two acquisitions of 3.2%. If we then go to slide number six and we look at the supply chain solutions, we had a negative organic growth of 9%, and this was mainly due to weaker demand from our customers, especially exposed to consumable goods and durable goods like automotive and fashion. But also our newly acquired company, CAMAC, was affected by this downtrend. This combined with an almost very soft amount resulted in a low margin compared to previous year. But on the other hand, continuous actions to improve cash flow and to lower working capital have a very positive effect, and supply chain solutions could show a cash conversion of 133% compared to 79% the year before. If we then go to slide number seven, To look at print and packaging solutions, could we see a similar effect when it comes to negative organic growth, which was 7% for print? They were also affected by a lot of soft market. But despite this, could the business area show a significant improved EBITDA margin of 7.5% compared to 4.1% previous year? And this is a result that we continue to grow in the online print area, but also an effect of the price increases we did last year. And we also have good effects of stabilized energy and material prices. If we then go to slide number eight to look at the development of our different customer segments in the quarter, and if we start with fashion, We did expect a lower demand from our fashion customers, but it was clearly lower than expected, and we could actually see a drop of around 20% in both Europe and in North America. But we think that this was an extra negative effect, that lots of our customers really tried to push out their products in Q4, and there was also a discount, and that We expect in the coming quarters that we will see some improvement from existing customers. And we're also ramping up to two new major customers in Germany that we have talked about before. We'll be ramping up in the second quarter. So we think it will be step-by-step improved, but still a very soft demand in the fashion part. That is a lot of biggest customer segments. When it comes to electronics, The other picture is actually more positive, and we could see an organic growth of 4% in the first quarter, and that was despite the demand from some product areas like office printers, heat pumps, and TVs is still very soft. But then on the other hand, we could see a growth that already started in the fourth quarter when it comes to laptops and servos, but also from several other product areas in the electronics area. And our lifecycle management services also continues to show growth. And so if we summarize this, we expect that this customer segment will continue to have a positive trend going forward. If we look at the automotive segment, we could see a very slow start in January and February, a good recovery in March, and we expect that it will continue on more stable levels the coming quarter. And if we look at the demand from the industrial segment, it continues to be rather solid except in one area, and that is where we deliver heat pump systems for our customers, which was very weak demand also in the first quarter. If we then look at healthcare, Could you see a similar positive trend like in electronics? And we had it on the Gannic world for 3%. And, of course, we also had an increased sales in this customer segment because of the newly acquired companies, Camac and Bishopgate. That also increased our sales compared to previous year. And if we then look at Adore, we continue to grow in Adore because there we have the online print. But we also have contribution in this segment from CarMax customer segment in retail and food, in both retail and but also food and beverages. If we then go to slide number nine, I want to update you on our very important acquisition of the UK-based company Bishopsgate that was done in February. Bishopsgate has a yearly sales of around 27 million pounds. with double-digit EBITDA margin, and they are the absolute market leader in the UK and Ireland when it comes to what we call technical logistics, which is part of what we call in the landlord's lifecycle management. Their customers are mainly active in electronics, healthcare, retail, and the bank sector. For these customers, they handle storage, distribution, installation, take-backs, refurbishment, and also do service of valuable equipment like it could be medical devices, big digital printing machines, data centers, but also charging stations, and also things for retail like parcel lockers, vending machines, and also some refrigerators. Customers who demand this type of service usually have the same needs in several different countries. And by complementing Elambor's existing capabilities with Bishopsgate, we can now offer complete solutions for both EU and UK. And Bishopsgate, for you who remember, is very similar to the Dutch company, Eigenhausen, that we acquired in 2021. And then if I go to slide number 10 and look how it looks forward, even if the first quarter was very challenging, we expect that the demand will gradually improve during the year as a result of recovery from our existing customers, but also newly acquired customers, We are also at the moment having a very strong pipeline when it comes to ongoing inquiries. So as we see it, it's thought to be a recovering Q2, but we expect that it will be much better in the second half of the year. But, of course, you need to be prepared. So in parallel with the high level of activity on the sales side, We are continuously reviewing our costs and working on various solutions, such as consolidation of warehouse facilities. We look at short-term rentals and also subletting to reduce our open capacity. And in the end of 2023, we were consolidating two warehouses in the Netherlands. In Q1 now, we have done some consolidation in the UK, so we are working actively also to try to lower the overcapacity if the market should continue to be very soft. We also continue to focus on reducing our net debt by optimizing our working capital and improving cash flow. And as a result, our working capital decreased by 370 million crowns in 2023. And as mentioned before, we managed to reduced its total by 241 million in the first quarter of 2024. Okay, now I open up for questions.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. And please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. So the first question comes from Derek. Lalibert from ABG Sondal Collier. Please go ahead.

Okay, thank you very much for taking my questions and good afternoon. So I'd like to start by asking... Hello, Magnus. So I'd like to ask here on... I mean, it seemed clear even from before that Q1 was going to be weaker. But I must say I was quite surprised by the lower margin here in supply chain solutions. So I was wondering if you could maybe explain a little more what actually drove this, like how much of it was perhaps a worsening of the overcapacity? Maybe there's a mix between the segments here affecting and how much was Kamak having a weaker quarter?

I think compared to last year, the absolute biggest negative effect on supply chain solutions was actually the fashion segment. You know, the fashion segment is one of our high margin areas. And even U.S. that has been more resistant before was also suffering with the downturn of 20%. And even if they deliver rather good numbers, of course, it also ends up that they have overcapacity. And But it was even more painful in Europe because there also was 20%, but they don't have the same flexibility. So fashion, absolutely. But the good news on the other side is just in Europe. It's in Europe as well. We will now ramp up these two bigger clients that we talked about before. We start implementing in QS and ramp up in Q2. Then, of course, we have expected a stronger contribution from CAMAC than what we got. And I think because they're also very exposed to end consumer. And I must say, UK market was really soft in Q1. And we could see it both in CAMAC, but also in our existing Land of UK facilities. And even Bishopsgate that we acquired in February that normally is not so sensitive with the lifecycle management, so it's also reported that it was really quiet. But if you look compared to last year, fashion was the most painful and also automotive that was going very strong for us last year. January was totally dead and lots of our customers just closed down and February was a slow start. Very good marsh, but you couldn't compensate it. And so it was a mix. And also industrial, you know, heat pumps was a big thing for us so far last year. And that affects both industrial and also even electronics, where we also have heat pumps. So it was a pretty big mix.

Very helpful. I appreciate the clarity there. And specifically on the overcapacity, I mean, have you been able to sort of start filling it a bit apart from the bigger customers here? And also, are you sort of experiencing maybe some customers leaving or going bankrupt or similar in the quarter as well?

I think we have now in the Netherlands, we closed one facility at the end of the year and consolidated with a good result in Q1. And Germany, I talked about it before, they have started to absolutely look better because we are now working a bit with the camera concept there where we combine short-time volumes with long-term volumes. There we are seeing an improvement. The U.S. was Tough for us, really tough, because there we also have overcapacity, and when the volumes then go down with 20%, that was painful. But there we also have some ideas, and it's always a balance, how quick should you cut down capacity or not. And we are now looking at different ways to maybe consolidate some warehouses in the U.S. as well. because it feels like the market maybe will be softer longer than we think in fashion, so that will be one of our actions. It always needs to be a balance, so I think we've come a long way, but Q1 was very tough. But if you look at for us in the results, January, February was very bad, and I must say that March was much better, so that's why we can say that we think that it will be we will start to recover in Q2, and then it will be better going forward. But I must say it was a perfect storm in Q1. It was too much.

Got it. Too bad. Okay. No, okay.

So I got it okay January, February, extremely weak, and an improvement in March continuing into April. And then for, I suppose, for the second half, what needs to happen. I mean, the visibility, I mean, you get the indications, I suppose, from the clients you have and the contracts ramping up that you should have fairly good visibility of the second half being at least much better than the first half and not only sort of just being dependent on, let's say, some miracle happening in the market, so to speak.

Yeah, no, I absolutely agree. I think, you know, we indicated already in the fourth quarter that we expected the first one should be really tough and the second is more recovery. But the good thing, I must say, is on several markets, I must say, the activity is extremely high. So we have so many RFQs and lots of really big ones where we look at now. So there starts to be a big movement in the markets. which is promising for us. And I must say also that electronics is now after, you know, electronics went down already in 2022. So after more than one year, now we can see recovery, and that's a very important segment for us. And we also think automotive will be more stable. So it will come back. We have lots of things here, lots of indications.

Sounds promising. And finally, if you could just remind us on some of the phase-out of these sort of less profitable businesses, also the normalization related to Air and Sue, that should all, by April now, basically, we should have better year-on-year comparisons. Is that correct? Yeah.

Yeah, that's absolutely correct. And another comment is also that, you know, if you look at, you know, the problems with the inflation and things last year, we were not so affected in Q1 because then we still were strong in the U.S. I think this was a tough quarter to compare with last year because then the trend hadn't started in the same way. So, yeah.

Got it. Okay. Thank you very much and have a great weekend.

Thanks, Derek. Thank you. We'll now take our next question from Gustav Bernenblatt from Nordea. Please go ahead.

Hi, it's Gustav from Nordea. Hello. Just in terms of to build on the fashion here, I mean, You comment on Europe being down some 20% and so forth, but is it possible to say anything? Have you lost a mid-sized or larger customer, or is it just a volume drop by your current customers, would you say?

No, we haven't lost any customers. It was really a drop. And one interesting thing was there was a special big drop on... a bit more expensive products and also in e-commerce. And the customers that is more in the, you know, more similar segment like H&M and those, they were doing pretty well. But the rest was, so it was more over the whole line. And it was the same trend in North America and in Europe. It was 20% down from existing customers. So it was, yeah.

Yeah, okay, perfect. That's very clear. And then maybe to jump on the U.S. here, I mean, you commented just shortly there on potentially having some ideas regarding the overcapacity in the U.S. What is that exactly?

No, you know, we have, you know, even if Bergen is extremely robust and can earn money, even if the only one warehouse is filled to 50%, you know, we had, when we acquired them, they have just set up a new site in Pennsylvania, and then they also set at the new site in Atlanta, and both of them are not, you know, they're almost half-filled or 50%, 30%, and they still don't have money. So it could be that we think about consolidating partly these two warehouses or we rent out half of the warehouses, things like that, to temporarily get down in cost, to go down in cost. That is the things we look at. Because now, suddenly on the market, there's lots of logistics buildings available. So if volume comes, we can quickly get a new facility and then ramp it up instead. So that's why.

Okay, that's great. And then maybe, I mean, you comment also a lot in the report. I mean, electronics growing organically in the quarter. Is it possible to give any more on this? I mean... You comment on sort of laptops and printers, but are you seeing any other products specifically or any geographies, if you can give any more nuance to this?

Yeah, another that I can give is that this was still soft in Asia, but it's Europe that is really improving, especially as I said, laptops and so forth. But, you know, we have lots of other customers. You know, we have... The famous Swedish customer do security cameras. We have company customers who do roll printers or wall art or whatever. Lots of them were also recovering because all of them also had a tough year. So also lots of these medium-sized customers was improving. But heat pumps and big office printers and also TVs because we haven't handled TVs, and that was still very, very soft.

Yeah, okay, that's very clear. And then when you talk about growing organically, we are talking about low single digits, or am I wrong there? What do you mean when I say organic? When you talk about the positive organic growth in electronics in the quarter, we are seeing probably low single digits from last year, or...? Mm-hmm.

But the thing, when I say organic, is that I adjust for, because in currency as well, and I take away, you know, because now we acquire companies, so they are putting in volumes in electronics. And then, of course, I adjust for the buy and sell. The buy and sell had a huge impact on electronics in sales. So when I take away, you know, the buy and sell, you adjust for acquisitions. Then we can compare. Then we can see that we have a growth of 4%. compared to last year.

Yeah, okay, that's very clear. Thanks. And then just a quick one on the print. I mean, very impressive margins compared to your history, especially at Q1. Would you say, I mean, you give a lot of good reasons for why stable raw materials and input prices and so forth, but would you say that this is a margin that is sustainable given sort of all else equal or?

I think you need to look at our normal trend from the other year. So really good Q1 and Q1, but normally Q2, Q3 maybe a bit slow, and then Q4 is always extremely strong. But overall a good start, and we have done lots of actions on the cost side. So now I'm very optimistic about print. I think if you look at the margin for the whole year, I think we will see a strong improvement there. this year compared to last year.

Yeah, okay. That's great. I think that was all for me. Thank you very much.

Thank you. Thank you, Gustav. Thank you. And as a reminder, to ask a question, please signal by pressing star 1. We'll pause for just a moment to allow you to signal. And it looks like there are currently no other questions at this time. With this, I would like to hand the call back over to Magnus Nilsson for any additional or closing remarks. Over to you, sir.

Thank you. Thank you, Sergei. Thank you, everyone, for listening to our conference call, and I hope everyone has a great weekend. Thank you very much. Bye-bye.

Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.