Elanders AB (publ)

Hello and welcome to the Elanda's AV conference call. Please note this conference is being recorded and for the durations of the call, your lines will be on listened only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Magnus Nilsson, to begin today's conference. Please go ahead, sir.

Thank you. Welcome, everyone, to Lando's conference call. Together with me here is also Ösa Wilson, our CFO. And I will now go directly to our presentation, and I will start with slide number five and talk about our second quarter. The demand continued to be weak from several customer segments, but we could overall see that demand was improving compared to the first quarter, which resulted in an unchanged organic growth, which was a positive improvement compared to the first quarter when we had a negative growth of 9%. Also, our adjusted EBITDA margin improved compared to the first quarter, and it came in at the same level as previous year. And during the second quarter, Alando secured a very important contract with one of our biggest electronic customers, and this contract would give us the opportunity to open our first contract logistics site in Thailand, which is in line with our strategy growth in Southeast Asia, It will also be an important tool for us to capture volumes that are now moving out from China. If we then go to slide number six and look at our cash flow and cash conversion development, you can see that we continue to have a very strong cash conversion with 120% so far here. And we have also managed to decrease our working capital this year with around 264 million crowns. If we then go to slide number seven, look at supply chain solutions, you can see that we improved compared to the first quarter. And our organic growth was unchanged compared to a negative growth of 9% in the first quarter. We could also see an improvement in our EBITDA margin that came out at 6.6%. compared to 5.4 the first quarter and 6.2 previous year. And we also continue to have a very strong cash conversion in the supply chain solutions area. And in order to adjust our capacity to the current market situation, we also, during the quarter, decided to consolidate Dragon Logistics Pennsylvania volumes to their site in Atlanta, which, yeah, If we then go to slide number eight to look at print and packaging solutions, we also have here a recovery in demand compared to the first quarter, and organic growth was also unchanged compared to last year, which was a positive improvement compared to the negative growth of 7% in the first quarter. Our adjusted EBITDA margin was slightly lower than last year, but our cash conversion improved a lot for print and packaging solutions. We then go to slide number nine and look at the development of our different customer segments in the quarter and start to look at fashion. In fashion, we see some recovery compared to our first quarter, but organic growth was still negative with around 12%. The recovery was mainly in Europe with the help of our two new big customers, but also a recovery from some of our existing customers. but the demand in North America remained also very weak in the second quarter. When it comes to electronics, the picture is more positive, and we could see an organic growth of around 6% in the second quarter, despite that the demand from some product areas like office printers, heat pumps, and TVs is still very soft. The growth comes mainly from laptops and servers, but also from several other products and our lifecycle management services. We expect that the positive trend will continue going forward the second half year for electronics. If we look at automotive, we could see big fluctuations in demand during the quarter. Our customers closed down more than usual in connection with the Pentecost in May. Overall, this resulted in a negative organic growth of around 7%. Industrial could show an overall stable demand in the second quarter. even if it fluctuates quite a bit between different product areas, organic growth was unchanged compared to last year. When it comes to healthcare, we continue to see a good recovery from our existing customers, but also very positive development from new customers, and we had an organic growth of around 16% in the second quarter. Outdoor show growth driven by online print, And in other, there's also contribution from Canvax customers in the food and beverage sector. If we then go to slide number 10 and look at how things will be going forward, we still expect demand to gradually improve during the second half of the year. But the market remains very uncertain, and we continue to have a very high focus on new sales to support our growth. And a new contract is secured in Thailand. It's an important result of this work. We also continue to optimize our cost structure. And in the second quarter, we exited one big warehouse in the UK. And as I mentioned before, we decided to consolidate back in Pennsylvania, Williamsville, Atlanta. And we also have done a reduction of personnel in several locations. Parallel with this, we are focusing on reducing our net debt by optimizing our working capital and investment, and also improve our cash flow. As a result, our working capital decreased by 370 million crowns in 2023, and as I mentioned before, a third of 264 million crowns in the first half year. That was everything for me, and now I open up for questions.

Thank you. If you'd like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. Our first questions come from Derek from ABG Sundar Kholia. Your line is open. Please go ahead.

Okay, thank you and good morning. I wanted to ask firstly on... On Camac here, how far would you say that the company is from operating at sort of normalized levels? Like any indications when you think you can recover to normalized margins for that subsidiary?

I think Camac had a very weak first quarter. It was also pretty soft in the second quarter. But we have some new deals coming in, but it takes some time. And I must say the UK market is still very soft for us. We could see the same in Bishopsgate, but Bishopsgate is much more niched and they manage very strong numbers because of new sales. So I think Camac is hard to say. We think there will be a gradual improvement also now starting in Q3. And then that will take more speed in Q4. But it's still pretty soft to market. And lots of their customers are exposed to consumers. And so the demand is much lower than last year, actually. But there are some good signs, but it will take some time. So starting recovery in Q3 and more up to better margins in Q4. That is our expectations.

Okay, great. I appreciate the clarity. And on that point, are you seeing any, what are your expectations for the UK market in general here going into H2? I understand you're saying it's soft, but are you seeing any indications that it's sort of bottomed out or similar?

Yeah, you can see some indications in the end of the second quarter that some of our customers indicate more positive signals. But I think UK is, for us, it's a bit like US. It's much more soft in both US and UK than the rest of Europe, for example. I think lots of people in the U.K. and the U.S. are talking about that the interest rates need to go down a bit to give more confidence to people. So it's hard to predict, but I think if there will be some changes in the interest rates and then also when you enter all the second half of the year, you're getting closer to Black Friday and things like that. No, but it's hard to say. I must say both the U.S. and the U.K. For us, for the moment, they are very slow, both markets.

Okay, I was going to ask on fashion there in the U.S., I suppose it's sort of the same conclusion. I think you mentioned that it's weak, but maybe some indications that that has troughed as well, I suppose.

I must say fashion in the U.S., for the moment, we don't see any indications for improvement. It's very slow. It's still around 20% lower than last year. But in the U.S., things can change so quickly. It's hard to predict. But for the moment, very slow. Wow. But in Europe, on the other hand, we could see a good improvement in fashion in the second quarter, both from our existing customers and new customers. So there it feels like we actually had a growth in Europe. So that could balance North America a bit.

Very helpful. Thank you. And I was wondering if you could – provide any comments on the pricing situation or are you seeing price pressure in the market and in that case how are you responding to this?

Well the price pressure continues to be pretty high because there is lots of overcapacity in the logistics sector for the moment but we are always very reluctant to go down too much in price so That is also one of the reasons for companies like Carmack as well, that we still try to protect the pricing and be a bit careful. Of course, you can take some short-term contracts with lower price, but there's still a pretty strong price pressure. But that's on all our markets. But that normally changes very quickly when the demand is recovering, because then suddenly there's no overcapacity. It's a For us, we see it as a temporary problem. But, of course, we look at our cost structure, and this was also one of the reasons that we decided to close down in Pennsylvania, transfer the volumes to Atlanta, because that will give us yearly savings of around $3.5 million. And we consolidate also personnel, and we are more slim. So in some sense, that is also a tool you do to meet more, you know, the price pressure on the market. But still... We try to keep our margin level. You need to have a balance of patience and being aggressive in the market like this.

Yeah, got it. On a general basis here, can you say something about the development in demand, the trends during the quarter? Is it fair to say that it... sort of started out a bit sluggish after Q1 and then gradually improved, or how should we view that?

Yeah, I think the thing that's very important for us, because this is one of our absolute biggest customer segments, is electronics, and we always have electronics and healthcare together on And there we could see already in Q4, they were recovering, and they were the first going into the lower demand cycle. So they are continuing to improve, and we see a high activity of customers who are more confident. So they will be an important area for us in the second half of the year. And also industrial is still also very solid for us. That's also good. And also that fashion in Europe now shows signals to come back. So overall, it's much better now in Q2 than Q1. But it's still a bit slower than we and our customers expected when we entered Q1, for example. But there is some good signals from some of our areas. Automotive is much harder to predict because it fluctuates a lot between different car models. Electric cars are very soft and hybrids are going better and normal ones go well. It's still a bit low visibility.

Okay, great. Sounds promising though. Finally, I know it's not major for you, but on the heat pump side, what are you experiencing there?

For one of our customers, we could see some recovery in Q2, and for one of our customers, it was still slow. They work with different systems. But the one that is more in the German market, we could see some improvements from our customer in the second quarter. But our other customer that is more delivering for all Europe is still very slow in Q2. Great.

Those were all my questions. Thank you.

Thank you, Derek.

Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad now. We will take our next questions from Marcus Almirud from Carnegie. Your line is open. Please go ahead.

Yeah, good morning. Marcus Almirud here. I would like to just continue maybe on the demand question. So you're talking about demand being better. And just just. From what I understand, you're also talking about sequential improvement from Q1. If you look at the poor segments, automotive and fashion, what do they look like sequentially? I understand there's a big drop year-on-year, but if you look at sequential trends for those two segments in particular?

I think for those two segments, if you look sequentially, of course, if you look at 2023, Q1 was pretty stable for them still, and then we had a big drop in Q2, and now we are roughly in the same line. So sequentially, you can say that the negative trend stopped in Q2, but it's not a really big growth because it's more like the same level as 2023 in Q2. Okay, okay.

So it's kind of floating around at the bottom and not moving downwards and not moving upwards. Is that the right way to see it?

Yeah, yeah. It's pretty stable. So I think the last four quarters, everything has been falling, but now the falling has stopped for that two areas. And for electronics, there's even then a sequential growth. But electronics was entering this low demand much earlier than fashion did, for example. So in electronics, it's sequential growth then, yeah.

And if I look at fashion, I understand the whole segment is soft, but what kind of discussions are you having about new customers? I know that when we went into the soft and the fashion, you had a big pipeline of new fashion customers coming along. What are those discussions? Where are you on those discussions?

If we start with Europe, where we work with more bigger customers, You know, we've got two big new customers, and we are still looking for some very interesting projects there. So I think there the pipeline looks very stable. And then, of course, there's price pressure on the market. But we have also acquired a couple of new customers in the second quarter that is not so big like the other ones, but there's still a good momentum. So there the trend looks much better for Europe. For U.S., we still have a high pipeline, but there we work with lots of small, medium-sized fashion customers. We have a pretty high show. I think there is still a trend. Lots of them go bankrupt. So an average of four customers per month is going bankrupt. But then we have also an inflow of customers that but the demand is lower. So the inflow is still good, but the demand is too low for the existing one, and we still are losing customers that are actually disappearing from the market. So that's why they're more complex. I must say fashion is absolutely more positive in Q2 in Europe, but Europe was also entering the low demand earlier than the U.S., because the U.S., we didn't So it's like a cycle here. So I think U.S. is one quarter behind Europe now when it comes to fashion. We hope to see a recovery in Q4 more in U.S., North America. We have different cycles from region and customer segments. You can really see differences, but you need to have in mind when they were entering Europe, the decrease in demand, and when the recovery comes. So the cycle is around one year for all our segments, actually.

And when we had this call three months ago after Q1, and you compared to right now, do you have the same expectations? Because we were also then talking about the recovery in the second half. Would you say that... certainty or uncertainty has decreased or increased during this quarter? Has it changed?

No, I must say it's slightly more uncertain than compared to Q1, because those of our customers in Q1 had high expectations for the second half of the year. Now they still expect gradual improvement, but they think it will be a bit slower. So I think it's... Slightly lower expectation than I had in Q1, but I think more it's about timing here. I think the trend has changed, so there will be improvement. The question is about the speed in the recovery for almost all our segments. Okay.

And then finally, just on freight prices, I assume they're stable now.

Yeah, they are stable. For us, we are in line with last year. We don't see any bigger effects there.

Okay, excellent. Thank you very much. Thanks, Markus.

Thank you. It appears there are no further questions at this time. I will now hand you back to Magnus Nielsen for any additional or closing remarks. Please go ahead, sir.

Okay, I just want to say thank you, everyone, for listening to our phone conference, and I hope that everyone will have a great summer. Thank you very much. Bye-bye.

Thank you for today's joining. You may now disconnect.