Elanders AB (publ)

Hello and welcome to the L&R's ABE conference call. My name is George. I'll be your coordinator for today's event. Please note this conference is being recorded and for the duration of call your lines will be in the listen only mode. However, you will have the opportunity to ask questions towards the end of the presentation and this can be done by pressing star 1 on your default keypad to register your question. If you require assistance at any time, please press star 0 and you will be connected to an operator. I'd like to hand you over to your host today, Mr. Magnus Nielsen, to begin today's conference. Please go ahead, sir.

Thanks, George. Welcome, everyone. Magnus speaking, and together with me is also our CFO, Elsa Wilson. And I will now go directly to slide number five in our presentation and talk about our first quarter. The demand decreased for the majority of our customer segments, which resulted in a negative organic growth of 2%. It was mainly print and packaging solutions that felt the effects of declining volumes, and supply chain was able to withstand better. In response to the declining demand and uncertainty in the market, we acted very quickly and implemented structural measures around 87 million crowns, and these actions will reduce Alambo's annual cost base with around 145 million crowns, whereof 81 million crowns in already in 2025. And as a consequence of the declining sales, the market turmoil, the adjusted EBIT margin came in at 4.1% compared to 5.5 the year before. If we then go to slide number six and look at our cash flow and cash conversion development, we can show that we continue to deliver a very strong cash conversion, which ended at 138% in the first quarter. We also managed to continue to reduce our working capital, which went down at 190 million crowns. And the decrease in working capital combined with the strengthening of the Swedish crown reduced on net debt, excluding IFRS 16 by 345 million crowns, and including IFRS 16 on net debt was reduced by 862 million crowns. If we then go to slide number seven, look at supply chain solutions, you can see that our organic growth slowed down compared to the fourth quarter and decreased with 1% compared to a growth of 1% in the fourth quarter. Europe was in line with the previous year despite low demand from the majority of our customer segments through growth in lifecycle management and also in the fashion segment. North America, on the other hand, had a very soft quarter with negative growth, but the inflow of new customers continued to be positive, but we could also see a slowdown in the end of the quarter. Asia that is very exposed towards electronics continues positive trend with organic growth, and our new site in Thailand continues to grow just as planned. And our adjusted EBITDA decreased to 4.8% compared to 5.5 the previous year. The major reason for the low margin is the continued reduction of automotive volumes and the continued soft demand from fashion in North America. We also had an extensive system change at one of our biggest sites in Europe that affected the result negatively. This is now completed and will not have any negative effect going forward. Structural measures of 1 million crowns were implemented in the quarter with a focus on adjusting our costs related to the automotive customer segment. Cash conversion continues to be very strong and improved compared to last year. We can then go to slide number eight to look at print and taxing solutions. You can see that they had a very challenging quarter with a negative organic growth of 6%, which resulted in an adjusted EBITDA margin of 3% compared to 7.5% last year. Print was clearly more affected by a weaker market, and this combined with a very uncertain market outlook made us act both quickly and substantially on the cost side. and we decided to concentrate two production sites, one in the U.K., and close down our offset production in Hungary and concentrate these volumes to Poland. These actions impacted our results negatively with 56 million crowns. If you then go to slide number nine, look at the development of our different customer segments in the quarter, and start to look at electronics. The picture continues to overall be positive, and we could see an organic growth of around 4% in the quarter, plus a continued increased demand and also growth in Asia. Improving demand in the lifecycle management area in Europe was also supporting the growth. Fashion continued to see recovery in Europe and compensated for lower demand in North America, which resulted in an organic growth in line with previous year. The trend we have seen the last month in North America with lots of new requests, new customers, slowed down in the end of the quarter as a consequence of the ongoing trade disputes, especially between U.S. and China. Despite the turmoil in the market, we continue to see a high volume of new requests, and we have also secured new customers that will be implemented in the second and third quarter. If you look at automotive, continued a negative trend from previous year with a negative organic growth of 12%. And for print and packaging, it was even worse with a negative growth of 16%. Supply chain came in slightly better with a negative growth of 11%. Outer was stable in the quarter with an organic growth in line with previous year. and industrial that showed a stable demand last year turned to negative growth of 3% in the first quarter. When it comes to healthcare, we could see negative growth of 5%, but the segment continues to look positive going forward with lots of new requests from both existing and new customers. If you then go to slide number 10 and look at how things will be going forward, So to meet the uncertainty in the market, we continue to have a high focus on lowering the group's cost base and to consolidate capacity when possible. In parallel with this, we have a very high activity in the sales side to secure new customers. And we think that over time can trade barriers create new opportunities for global logistics companies as a landlord by breaking up global logistics chains and replacing them with more regional and local logistics smart logistics chains, which will increase the need of warehousing. This will also increase the need for smart solutions that make it easier for companies to quickly redirect their inventory volumes to in different markets. And here, Alambos has an advantage with our own WMS system, CloudX, which with just one integration makes it possible to utilize our global capacity. And to support this even further, we will increase the tempo in developing more AI functionality in the system. We also continue to work with reducing our net debt by optimizing our working capital, investments, and cash flow. And as a result, have we managed to reduce our working capital with 634 million crowns the last two years. And that was everything for me. And now I hand over to the operator to handle questions. Please, operator, go on.

Sorry about that, sir, the microphone. Ladies and gentlemen, as a quick reminder, if you have any questions, please press star 1 and just make sure that your line is not muted to allow your signal to reach your equipment. So, it's star 1 for questions. Today's first question is coming from Mr. Marcus Anirudh Al-Kharnegi. Please go ahead. Your line is open, sir.

Yeah, hi, I'm Marcus Anders here at Carnegie. My first question is on the system change that you had. Was that impact big and then which end-user segments did that affect?

The system change was affecting us in Europe, you know, one of our absolute biggest warehouses, one of our biggest electronics customers. So it meant that during the whole month, the customer lowered the volumes, and we need to have doubled personnel. I think it's affected our results in supply chain solutions with around 1 million euro, roughly.

So it was rather a bottom-line result effect rather than a top-line effect.

Yeah, it was mainly bottom-line, yeah, on EBITDA levels.

And then on fashion in the US, did I get you right that you've had good inquiries, a good amount of inquiries for some time and you saw slowdown, but there's still a good amount of inquiries. So we should all else equally at least turn into new orders, see new sales coming in approximately when from these inquiries do you expect?

Yeah, you know, the new customers we have gotten there will, you know, some of them will start in Q2 and then in Q3. So that trend will continue, and we still have lots of requests. But the thing we could see now, especially in the end of the quarter, is that our customers start to get worried how they should handle the high duties between China and U.S. So there is, of course, a risk for us that that will fall. push down the volumes overall for our customers. We are a bit uncertain now when we can see the effects. What we realize is that roughly, of our fashion customers in the US, 90% of their volumes are actually coming from China to the US. So of course, it complicates things for them.

Yeah. Mm-hmm. I mean, I know you don't give out any forecasts or anything like that, but maybe you, is it possible to say anything? Things are moving very, very fast. And I mean, the bulk of the tariff discussions has been in April, but is it possible to say anything about the mood out there and what are your customers saying? How did April start? Have you seen, is it too early to say about any impact from this or anything about how the quarter has started?

It's a bit too early to say. I think everyone is very careful for the moment. And even if there are some positive signals, we could see that some of our customers even stopped their export to U.S. overall. We have to wait and see. So it's a bit too early to say. But it goes ups and downs from day to day. But I think it's really hard for everyone to navigate. And... The thing we discussed a lot with our customers in the U.S. is that we can offer them special, we can offer them bonded warehouses. So we have the capability to take in their goods without paying any duty, and then you pay duty at delivery for customers. And there we see lots of requests. There could be some, you know, temporary volume increases, but I must say it's I have not decided yet. Everyone is asking for it, but there are lots of boats waiting outside the coast from the U.S. with goods from China. They don't go into harbor. They wait outside. I must say it's really hard to see the effects. But it's still soft, I think.

And then maybe lastly on the Krona effect on the debt. Is that... Per 31st of March, how does it work when this revaluation is made? And, yeah, I'll start there.

Yeah, on the debt side, then the revaluation is made every month, end of month. So the Swedish crown became stronger compared to the dollar and euro.

But it is effectively some sort of March, you can say.

Yeah, exactly. Just so I know what I mean. It's difficult to say what it would have been using the current FX rates, but if it continues to weaken, then it's better if it was a March. That was basically my question. Okay. Thank you very much. I'll get back in line. Thanks. Thanks, Michael.

Sorry, sir. Thank you for your question, sir. Ladies and gentlemen, once again, if you have any questions, please press star 1. And just once again, please make sure that your line is not muted. As a final reminder, please press star 1 for questions. Okay, Mr. Nielsen, we do not appear to have any further questions in the queue. We turn the call back over to you for any additional. Oh, one second, please. We have Marcus coming back from Carnegie with a follow-up question. One more, please.

Yeah, hi. I had a couple more, so I'll take the opportunity to ask him. Maybe the demand trend in print, what are you seeing there, and especially throughout the quarter, and then it seems to be mostly automotive. But then also if you can talk a little bit about online print and what you're seeing there. You talk about the slowdown in growth. But is it negative? What do you think is behind it, et cetera? Is it just general economy?

I think in print, we were, you know, it was a really bad surprise in Q1. It was absolutely automotive, like you say. They continue to go down. And you can see especially cars exported to China also continue to go down, where we do lots of the manuals. But also industrial clients are softening in Q1. For industrial clients, that has been pretty stable. You know, 2024 was also getting softer. And then online print, we had growth, but not in the same size like last year. So I think overall, lots of our products we are doing in print are slowing down. Even some of the packaging we do for the candy industry, things like that was affected. It was a tough quarter for print. That's why we... we took two really big actions immediately to be prepared. Hopefully it was, you know, a bit of a temporary thing and because it's very connected to products, I think customers may be waiting on what happens with this duty, you know, the trade war, what would happen with their products. So it was a big slowdown everywhere.

And if you look throughout the quarter, I mean, was this overall the entire quarter or was it accelerating throughout the quarter or how did it look?

No, it was pretty bad the whole quarter.

And on industrial, is it any regions sticking out? Maybe you said during the call, but was it mostly industrial in print or was it industrial overall where you saw softening?

It was absolutely more in print. There were some in some in, let's look here, there was some in industrial as well. So I think, no, I think it was both, affecting both. Okay. Slightly more in the supply chain, actually, when I look here in our numbers, yeah.

Okay. And then, finally, maybe, you talk about the need for consolidation in print, or that may come in I mean, happen faster with what's going on in print and seeing the trends. Is this something that you will, that you might participate in, or were you just talking about consolidation of the sites?

No, we are, of course, we consolidate our own capacity, but I think especially in the German market, where we are really strong, we are actually looking to do consolidation together with other print suppliers. So, yeah. It's something we are investigating. I think there would be opportunities because I think the whole print industry was feeling the lower volume. So for the German market, it could be interesting for us to find, you know, partnership and things to find ways to consolidate capacity.

Okay, perfect. Thank you very much. Thank you, Markus.

Thank you for your question, sir. Mr. Knudson, at this point, we have no further questions. I'll turn the call back over to you, sir. Thank you.

Okay. 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 very much for your attendance. You may now disconnect. We wish you a good day and goodbye.