Elanders AB (publ)

Welcome to the Landers AB conference call. My name is Alan and I will be your coordinator for today's event. Please note this call is being recorded and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad. If you require assistance at any time, please press star zero and you'll be connected to an operator. I'll now hand you over to your host Magnus Nelson to begin today's conference. Thank you.

Thank you, Allan. Welcome everyone to Landolt's conference call. And together with me here I also have Elsa Wilson, Landolt CFO. And now I will go to our presentation and I will go directly to slide number five. Look at the third quarter and And we could see in the third quarter that demand continued to improve, like we also could see in the second quarter. And we could also see that several of our customer segments continued to improve, and the improvement was mainly in Europe and Asia. But North America, that has very high exposure towards fashion, continued to remain weak. But all in all, this resulted in an organic growth of 3.9% for the group. And if you look at our adjusted EBITDA result, it also improved and came in 12% higher than previous year. And it was mainly our business area supply chain solution that was the driver behind both the growth but also the improved result. Our non-adjusted result was positively impacted by one of items of 149 million crowns. and this was mainly connected to a revaluation of the earn-out for CAMAC. When we acquired the UK company CAMAC, we paid two-thirds upfront, and the size of the payment for the remaining third was based on the outcome of the results for the full year of 2024. And even if we now can see that CAMAC has started to perform better and it looks much more positive going forward, with still that soft start of the year result in an earn-out payment that is lower than expected. If we then go to slide number six and look at our cash flow and cash conversion development, our year-to-date figures went down to 86%, and that was a result of organic growth in the third quarter that resulted in an increased working capital growth. If we then go to slide number seven, look at supply chain solutions, you can see that we managed to grow organically with 5.2% compared to 0% in the second quarter. And the growth came mainly from our activities in Europe, but also Asia could show a pretty good recovery. As I mentioned before, North America continued to be very soft. But in the end of the quarter, could we see an improvement in the share of prospects that was converted to new customers? And we have also seen in the third quarter that we have a lower shown, and that means that we have lower amount of small, medium-sized customers that goes insolvent or exit us because of financial problems. So we could see a stabilization in that area as well. We also managed to improve our adjusted EBITDA results with 23%, and our adjusted EBITDA margin increased to 7.2% compared to 6.7% previous year. We can see now when sales recovers that our strategy to increase the share of more value-adding services, the discontinuing of low-margin deals, and acquiring companies with higher margins results in improved margins. If you look at the market going forward, it continues to be rather soft, and our customers' forecasts continue to change regularly, and it's hard to predict how the demand will look like the coming quarters, but overall, for us, it's a trend more positive than before, and we continue to have a good inflow of requests from new potential customers. If we then go to slide 23, Number eight, to look at Princeton packaging solutions, you can see that we had a very challenging quarter. As normally, it was always very soft, but the big difference compared to last year was that also September was very soft, especially regarding demand from our automotive customers. But it was also lower volumes of market materials because of lower marketing activities from our customers. And this resulted in negative growth of 2% and an adjusted EBITDA margin of 4.9% compared to 6.5% the previous year. But on the other hand, if you look at the year-to-date, the adjusted EBITDA margin is still better than previous year, and we continue to focus on increasing our share of online print, which over time will make us more robust to changes in demand of traditional print and improve our margins. And we will also now enter the most important quarter for the whole year, the fourth quarter for print. So we hope that we can see some recovery also from that point of view. If we then go to slide number nine to look at the development of our different customer segments in the quarter and start to look at fashion, we could see some continued recovery compared to our second quarter. even if our organic growth was still negative with around 7%. The recovery is mainly in Europe, with the help of new customers and also recovery from some of our existing customers, which actually resulted in an organic growth of 15% in the fashion segment in Europe. But as I mentioned before, the demand in North America remained pretty weak, and they had a negative organic growth of 19%. But as I mentioned before, we could see a better conversion of prospects and new customers in the end of the quarter. And we should also have in mind that it was in Europe that we started much earlier. I think at least nine months before we could see downturn in demand in Europe, and North America was nine months later. So I think there's some delay in the recovery process. It was positive to see the better trend in Europe, and then we hope that North America will start to improve, especially during next year. And when it comes to electronics, the picture continues to overall be positive, and we could see an organic growth of around 5% in the quarter, despite the demand from some product areas like office print and heat pumps are still pretty soft. And the growth comes mainly from laptops and servers, but also from several other products. And our lifecycle management servers continue to have a positive trend. And we also expect that this positive trend for electronics will continue going forward. If you look at automotive, what's the third quarter, very challenging, especially for our print divisions, because their sales is very connected to the number of cars that are built and in the quarter resulted in a negative organic growth of 18% for print and packaging. Our supply chain activities are much less sensitive to the number of cars that are built, because we are also providing lots of different services, and their negative organic growth was only 3%, which resulted in a total negative growth of around 7% for the group. Industrial continues to show an overall stable demand, and even if it fluctuates quite a lot between different product areas, we managed to deliver an organic growth of 2%. When it comes to healthcare, we continue to see recovery from our existing customers, but more importantly, also very positive development from new customers, and we had an organic growth of around 16% in the quarter. Auto continues to show growth. There was a contribution from Camax customers in the food and beverage sector. And in other words, we have online print that also continues to grow but was in a bit slower pace compared to before. If we then go to slide number 10 and look at how things will be going forward, I think I mentioned it before, but we continue to expect a gradual improvement of the demand in the coming quarters, even if the market continues to be very uncertain. And we need to calculate with some setbacks from some of our customers and also that there will be continued swings in the demand. But still we think it will be improving for us step by step. So over time balance these swings and to gradually improve our results, we are continuously working with optimizing our cost structure, and we also had a big push to drive new sales. And when it comes to new sales, we saw the positive results, and this was also an important reason that we could show a growth in Europe in the quarter. UK, that has been more challenging, even more challenging for us throughout the year. It's now starting to develop in a more positive direction, and we have started to convert more of our prospects to new customers in UK as well. We have also started the establishment of our first country logistics facility in Thailand, which is a very important step in our strategy to fetch volumes moving out of China and also to grow in Southeast Asia. And this will also help us to support our organic growth during next year. Overall, can we also see that our actions on the coast side, more focus on business with higher margins, gives a very positive result on our margin as soon as sales is recovering. Thank you. And now we 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. You'll be advised when to ask your question. We will take our first question from Derek Laliberte, ABG Sandor Collier. Your line is open, please go ahead.

Okay, thank you and good afternoon. So I was wondering if you could give some more details on North America here. You mentioned the market remains soft due to the high share of fashion customers, but you do see an improvement in signing new clients. Does this mean that you also see demand among existing customers, for example, starting to slowly improve towards the end of the quarter and into Q4 here?

Yeah. Hi, Derek. Yes, we could see, I think, very important for us because we have lots of small and medium-sized customers in North America. I think it's around 450 to 500 customers. And very importantly, like I mentioned, is that we could see now that the customer's that we have looks much more stable and much more, a bit more optimistic for the future. So we don't have so much customers going insolvent. And we could also see that some of our customers start to pick up speed. It's not like normal year, I must say, because normally you fill up all the warehouses during third quarter to be able to be prepared for Black Friday, Cyber Monday and Christmas is still lower than normally, but it's still a good trend. It's not so strong yet, but it's still a positive trend. And also very importantly for us, we always handle lots of prospects every month. And now we could see that the conversion rate, especially in September, also was much higher than before. And that will maybe not result so much for us in Q4, but it is promising for us in entering next year.

Okay, great. That's very helpful. And on the UK, here the market is fairly challenging, but you're seeing this improvement. I assume this mainly relates to CAMAC or Q4. or which segments are trending positively in the UK right now?

I think the UK is absolutely for CalMac that works a lot with Overflow, but also our company, Bishopsgate, that works with lifecycle management that is also normally very stable, has also seen a very soft market. We could also even see it in our print activities. So UK has been overall... very soft for us during this year, but now we see, we see some signs of recovery, but, uh, especially we see lots of number of, of queues coming into us. And, uh, so we can see much more higher activity from new requests and things like that. So it's, um, it feels like UK is, is also show signs of recovery now.

Sounds promising. And, uh, And on the industrials, customer segments are kind of a mixed picture. But can you perhaps shed some light on which types of products, for example, are doing better and which are doing worse in terms of the customers?

In which segment? I missed what you said.

Sorry, the industrials segment.

Yeah, I know, industrials. No, I think in the industrial sector, we work with lots of, you know, thermal technology. We work with power tools and things like that. And we can see now that also thermal technology is improving and where we have, you know, big heat pump systems and other heating systems. We can see some improvements there, but we can also see improvements in things like power tools that is more going both to consumers and to small construction companies. So I think it starts to look more stable, and we also have managed to increase some volumes, new projects for our customers, and we also have some brand-new customers coming in. So it's a mix of new customers, new projects, But I must say the market starts to look better for us. And this is mainly Germany, actually, because we are the absolute biggest in the industrial segment. Yeah. Oh, sorry. Yeah. But I can say in industrial, on the print side, we could see a bit softer demand when it comes to... But that's on the print side for heavy equipment and, like, trucks and things like that. That was a bit softer, yeah. Okay.

Sounds promising overall. And, yeah, finally, from my side, I was wondering if you could also comment on your financial position here with leverage being quite high at three points. seven times. Is this in line with your anticipated development for the year and what you see going forward?

No, we were expecting to be more around 3.5, 3.6, but also we were surprised by the strong organic growth. It was mainly 200 million in working capital. that affected us, and that will come back because some of that deals will come back. So it was a temporary up, and we expect that this will start to go down again with start in Q4. But at the same time, it's very positive when it's because of organic growth. So it was mainly working capital, yeah.

Yeah, sure. No, that sounds good. Okay. Thank you very much, and have a nice weekend. That was all.

Thank you. Nice weekend.

Once again, if you'd like to ask a question, please press star 1 on your telephone keypad now. We will take our next question from Gustav Bernerblatt, Nordia. Your line is open. Please go ahead.

Yes. Hi. It's Gustav from Nordia. Maybe just to start with the fashion here in Europe. I mean, obviously, very strong growth. I think you said 15% organically. But if we sort of exclude the two larger customers you're ramping up, are you growing the underlying business?

Yeah, surprisingly, I must say. Even if we take away the two new big customers, we could see actually a really good demand. And I must say, especially from our retail customers – E-commerce, I must say, is still more soft and much more volatile, but the retail part in Germany has been very stable for us, and we could even see growth compared to last year. We have a good mix in Europe for retail and e-commerce and on-the-channel solutions, but it was surprisingly good.

Okay, great. Is it possible to be more specific in terms of is it low-end fashion or is it high-end?

We have some big customers in Jom. I should say, you know it better than me, I think it's more like H&M type price-wise. It's more low-medium size that's doing well. I think high fashion... It's more tough. It's harder. So more expensive products, and that's why also I think it's tougher for us in North America because lots of our customer there is in the upper price range. So in Europe, we have more low, medium, yeah.

Yeah, okay, that's very clear. If we then go to print and packaging, I mean... Could you just be a bit more specific in what is really driving the weekly margin? Is it only volumes or is it something else?

No, it was mainly volumes. So, you know, August is always a bit soft for us because of the holiday period and we have recovery in September. But September was very soft. And it was really tough for us in the automotive segment. You know, the downtrend in marketing material has been going on for decades. maybe two quarters, and I think that would be some recovery. So automotive was surprisingly weak for us in Q3. It was tough.

Yeah, okay, I understood.

And in Q3, it's normally online print is pretty soft, so now we're going into that stronger period, and normally in third quarter, we rely more on the automotive industrial customers. That was A bit softer than normal. And also for trucks and also for, what do you call it, excavators and big equipment that we also do in the U.S. was also very soft for print.

Yeah, okay. But it looks also, if we look at the reported numbers, it looks like print is also, or sorry, fashion is also weak in print, or?

That's what we call a redistribution, because we are preparing now to break up other in more areas because of Carmack and online print next year. And print have a customer there that they said that it was fashion before, but it's actually not. It's more belongs in other areas. It's a reclassification. It's not volume.

Ah, okay. Yeah, yeah, yeah. Okay, okay, okay. I see, I see. That's perfect. And then just looking ahead, is there anything pointing or giving you indications of Q4 for print not being as seasonally strong as it should be?

No, I don't think so. We still are very optimistic for Q4. That is extremely important for us. So, yeah. And some of our customers then in the automotive side, they closed down extra in September, so we think they will run more like normal in October, November, and they always soft in December. But in December, we have huge volumes of online print. So, yeah, we are still positive for the print side in Q4.

Yeah, okay, perfect. And then just the last one, it sounds to me like Kammack is still performing quite well and that the threshold for the earn-out was rather put very high instead of the business being weaker, right?

I think it's a combination. When we acquire them, we know that they're, of course, very sensitive for swings in demand because they work a lot with high flexibility and overflow. When we evaluated the company, we said, okay, fine, but we will pay two-thirds. And to give you one-third in the same multiple, you need to have a very high performance this year. And their performance has been very soft in Q1 and Q2. And now, even if you could see it's picking up speed, it's still based on the full year. So it's just our model. which is good for us because they didn't perform as we expected, and then the burnout goes down, and hopefully they will then pick up speed for next year, and then in the end it will be very positive for us.

That's very clear. That was all from me. Thank you very much, and have a nice weekend.

Thank you, Gustav. Nice weekend.

As a final reminder, if you'd like to ask a question, please press star 1 on your telephone keypad now. We'll pause for just a moment to allow everyone an opportunity to signal for questions. There are no further questions on the line, so I will now hand you back to your host for closing remarks.

Okay. Thank you, everyone, for listening, and I hope everyone has a great weekend. Thank you very much.

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