Elanders AB (publ)

Hello, and welcome to the air-handlers of the conference hall. 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 the call, you guys will be in the listen-only mode. However, you have the opportunity to ask questions towards the end of the presentation, and this can be done by pressing star 1 on your tablet keypad to ask your question. If you require assistance at any point, please press star 0, and you will be connected to an operator. to begin today's conference. Please go ahead. Thank you, Josh.

Welcome, everyone, to the Lambos conference call. Together with me here, I also have Elstar Wilson, the Group CFO, and I'm also having Florian Beck here that will take over as CEO for the Lambos Group, 1st of September. And now I will go directly to slide number five in our presentation and talk about the second quarter. In the second quarter, we could see that the positive trend with improved demand continued, and we could show an organic growth of 3%. And if you adjust for RNC, the organic growth was 2%. And organic growth came mainly from Asia. but also Europe and North America showed growth, which was a very positive indication for us, and which makes us, it makes things look better when we go into the second half of the year. Also, adjusted EBITDA results continues to improve, and it increased to 181 million crowns compared to 167 the year before, and this was an improvement with 8%. and our adjusted EBITDA margin improved to 6.2% compared to 5.5 the year before. In Quarto, we also managed to renegotiate a huge large, sorry, a large lease agreement in the U.S. which combined with the opportunity to exit two other lease agreements in the U.K. in the beginning of the next year will give us the possibility to lower our cost base in 2027 with around 80 million crowns. If we then go to slide number six and look at our cash conversion, you can see that we showed a very strong cash conversion of 113%, which resulted in us bringing up around, bringing up 92 million crowns from our working capital, which helped us to lower our net debt, excluding IRA 16 with 19 million crowns. despite that we made a dividend of 24 million crowns, and we also had a negative currency effect of 56 million crowns on the net debt in the quarter. If we then go to slide number seven, look at supply chain solutions, we can show a strong organic growth of 4%, and if we just see it was still positive with 3%, Asia continues to be the main driver, but as mentioned before, very positive in the quarter was also that both Europe and North America could show organic growth. And if you look at the result, we can show continued positive development with both improved EBITDA margin and EBITDA result. And our adjusted EBITDA margin came in at 7% compared to 5.8% last year. and adjusted EBITDA result was 166 million crowns compared to 144, which was actually an improvement with 15%. If we then go to slide number eight to look at minimum packaging solutions, you can see that we had a challenging portal, which resulted in negative organic growth of 3%. and this had a negative effect on our adjusted EBITDA margin, which came in at 4.2% compared to 5.4% last year. The negative growth comes mainly from our German operations that has a very high exposure towards the German car manufacturers, which know that all of them are struggling with their sales, and that, of course, results in lower volumes of manuals. But on top of that, they're also doing cost saving programs that affect the number of pages in the manuals,

which have an extra negative effect for us.

On the other hand, you can see continued growth in online print, and also our publisher segment is growing, and this should, over time, be able to compensate for the decreased manual volumes. If we then go to slide number nine to look at the development of our different customer segments in the quarter, I would comment organic growth for customer segments excluding R&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 5% because of stable demand in both Asia and Europe. But on the other hand, we could also see in the second quarter that our customers' laptop volumes are affected by the memory shortage, and this creates some fluctuations in the demand, which affected us actually both in Asia and Europe. Fashion was stable in the quarter, and organic growth was unchanged, but we could see again more positive signs of recovery both in Europe and North America in the end of the quarter. Very positive in the quarter was that other showed a very strong organic growth of 9%, and that is partly because of recovering demand from FMCD customers in the UK and continued organic growth when it comes to online print. If we then look at automotive, it's a very mixed picture for us with an organic growth of 4% for supply chain, but on the other hand, a negative organic growth of 14% for print and consolidated organic sales was in line with last year. But still very positive that we managed to grow in the supply chain despite a very challenging market. Industrial showed negative growth of 7%. Here, EU was in line last year, but UK has had a negative growth for us. When it comes to healthcare, we continued to see stable demand, and we could show organic growth of 2%. We can then go to slide number 10, and we'll talk things will be going forward. I must say that the positive start of the first half year continues to make us carefully optimistic when it comes to the rest of the year, especially when we see the continued organic growth and improved EBITDA result in the supply chain solutions that is our absolute biggest area. We also continue to have lots of interesting requests in the pipeline from both existing and new potential customers, but we should of course don't forget that the world around us continues to be very challenging for both us and our customers. When it comes to our markets, can we see a continued improvement in demand in Germany, which is our absolute biggest market? And also, a couple of tough years in the UK, could we see some recovery in the second quarter, especially in the lifecycle management segment, but also in the FMCG segment? This combined with continued growth in Southeast Asia gives a very good momentum going forward. Even if North America still is a bit challenging with rather switching demand for us, the positive is that the churn rate at least is extremely low now in North America, and again that the new sales pipeline is picking up in speed again. We're also starting to see an improvement with the higher utilization of our warehouses. which, over time, will lower our overcapacity, and the successful negotiation of the major rental contract, as I mentioned before, and the ability to exit two other agreements in the beginning of next year, will help us even further to optimize our utilization, but we will still have capacity for organic growth. That was everything from me, and I hand over to the operator for questions.

And thank you very much for sitting with us. Ladies and gentlemen, once again, as a reminder, if you have any questions, please press star one and just make sure that your line is not muted, or I assume I'll reach out for that. Our very first question today is going to be from Gustav, that is not calling from Nordea. Please go ahead, Gustav, your line is open.

Yeah, thank you very much for taking my questions. It goes away from Nordea. Hi, Gustav. I thought maybe just, hello, hello. I thought maybe just to start off here, if you can just help us dissect the lease contract renegotiations here. Maybe we can just start with America here, or North America. Is it possible to quantify this? And also if we should see a positive effect already in Q3 for this region?

You know, this was a huge facility that we don't even utilize anymore, and we actually had a contract running until 2031. But we have managed to negotiate, so we will exit the contract in late December this year, which means we don't have any cost starting 2027. And we don't know yet if we will get any benefits this year, but we know that next year it will give us saving around $3 million in U.S. Perfect.

Will there be any more?

Sorry, that will, of course, improve the result and the margin in U.S., because there we have suffered a lot because of overcapacity.

Yeah, that's perfect. Perfect. And then if we move to the UK there, I guess there were additional lease contracts there. You mentioned 80 million SEK starting 2027. Is that from 1st of January we should expect those savings to come through fully?

No, the first quarter is the savings from US, the yellow 3 million dollars. And then for UK, that is actually possible saving of around 4 or 5 million pounds, that will start in Q2. Because we have two contracts that we can exit, you know, because the contract is running out. It's a perfect opportunity for us. If we don't fill it up, we just exit them, and then we have a saving of 4 or 5 million pounds starting in Q2. If you're lucky, the sales are thriving, then we fill them up, but then it will give us a saving anyway, because it's also empty space. That is how it looks like.

So that's around $18 million in savings.

And Yale is $195 million, you can say. Yep. Got it. Got it.

And then just on electronics there, I mean, you commented on memory prices affecting sales somewhat still. I mean, you commented 5% positive organic growth. Can you just elaborate a bit on the demand situation in that and what you see here going forward?

Yeah, I think, you know, we still saw a nice growth of 5%, but our customers could sell much more if they didn't have memory shortage. So, You know, still good growth for us, but I think our growth could easily be to be still the 8% like in Q1 in electronics, even if it's been for the memory shortage. So, of course, it affects our customers, and then it affects us. And how it looks going forward is hard to predict. We think there will be some challenges to come in quarters, but I work really hard to find members, of course, and... But the good thing is the underlying demand for personal computers, you know, like laptops, is really strong. So it's more shortage. It's a bit like when we had the semiconductor shortage in the automotive industry a couple years ago. But it, of course, will affect us, but we could have grown much better in electronics. Perfect.

And then when you look at the overall business you have not just electronics but overall have you experienced any trend shifts during the quarter here?

I think it's overall looks very good and I think especially you know Germany that is still our biggest market you know in supply chain we are even growing automotive even if it's challenging time for customers because we are getting some new projects we are doing well We can also see fashion in Europe is now starting to look better. We are improving earnings. Customers are starting to look better. And the investment segment is also good in Germany. We can see now that power tools, heat pumps, things like that are going better. And also, if you look at the UK, Thank you very much. China seems overall more stable, even if the world continues to be this up and down.

That's perfect. And if we then just jump to the print business that you also mentioned here, can you just elaborate a bit more on the review you have there, potentially even cost savings in that part?

Yeah, I know, you know, as you know, we always, we have been expecting car manuals step by step going down. That's why we have, you know, made this agreement with Talia the publishing. We are growing an online print, so, you know, we have a good plan to bridge it. But we couldn't predict the brutal effect that the market has on the German car industry now. And in print, we work with all the German brands, so... So overall, the volumes is going down quicker than we expected. And with the cost pressure they have, they are now making the manuals very quickly, you know, less pages, which is less value for us. And we know we will grow and bridge with online print and publishers, but we can now see it will take some time. So we are now looking through our biggest facility in Germany very carefully. It could be that we would do some actions, some restructuring, to more quick, you know, to make our suits more in the right size, if I say like that. But over time, still good growth, online print publishers. Our other printing companies was really doing well in the second quarter, but the German one is our biggest one, and that's why it's affected our number. So we are looking for it now. I cannot say any numbers about it, but we go through everything carefully, you know, every customer, all the costs we have, doing analysis.

No, that's perfect. Very clear. I think that was all for me.

No, thank you, Gustav.

Thank you for your question, sir. Ladies and gentlemen, once again, for questions, please press star 1. We'll go to Marcus Amirud of DMV Carnegie. Please go ahead, you might as well.

Yes, hi, Marcus here from DMV Carnegie. Can you hear me? Yes, Marcus. Hi, Marcus. Hi, perfect. Well, let me start with some follow-up questions on, maybe on the leases, I'll start there. So, the 80 million in savings, or 80 to 95, you said 95 million annualized, is that just the savings from the contract per se, or do you also include the savings that you will make from filling up and from capacity flexational rule? I would guess that's what's included in the 80 to 95, right? I think I can give that to Åsa.

Yes, we have, because you discontinued all the expenses, so we re-evaluated the IFRS effect. I think we lowered the liability with around 78 million SEK, and that kicks in right away now, because we know that the contract will end this year.

Okay, but was it included in these numbers, so in the queue? Yes, yes, yes.

Okay. Okay. Okay. Okay. Okay. Okay. Okay. Perfect.

And then the trend that you see in both Asia and Europe, I mean Asia is strong and Europe is turning and it's positive. You talk about Germany being positive. Is it, can you talk a little bit about trends, I mean how they have progressed throughout the continent and what you've seen in the summary, you expressed some confidence about, you know, the poll, etc. So can you just elaborate a little bit on the movement throughout the timeframe?

Yeah, I think a good trend for us is that if you look at the numbers, country by country, like UK and Germany, there's still almost no growth in consumption, but still we can see growth, so And I think it's a combination there. We have been very successful in gaining new customers, especially in Germany. The last year, you know, we made a big restructuring, but we have been really good in gaining new customers, gaining new customers in the fashion segment. And also then in the UK, that also is a big market for us. We could really now see a liftoff in lifecycle management. We actually had a We don't show that in the report, but they actually had a growth of over 20% in the second quarter. That was really impressive in lifecycle management. But also FMCG, even in the UK. UK shows now some growth, but I think we could see we were gaining some really new customers. I think Europe overall in supply chain, we're in good shape. Also in Sweden, we're not so big there, but we gained also some new customers in supply chain. We're looking at several projects in more eastern parts of Europe. So things is happening, so they're all good for us. And Asia, then we have our plans, you know, Thailand. That was a very successful greenfield operation for us. They're doing really well. They're getting more volumes. You know, now in discussions about Vietnam, about Malaysia. China is still good for us. And as I said, South America, Mexico, plus it's more North America has been really up and down, you know, the last year. Every quarter we see now it's, oh, the pipeline looks better, then it slows down. But I think it's been lots about, you know, the trade war as well that's made for customers, especially in fashion, very hard to handle the U.S. But the good thing now if you look at North America, U.S. and Canada is the show rate is almost gone. We're calculating lots of projects. It feels like our customers start to navigate around all these challenges with the customer duties and things like that. So even if you cannot see maybe so much growth in the market, but for us it looks like we're in a good position. And also all the savings we did in supply chain last year also helps our margins to grow. And second half of the year is always our most important part of the year, so... Which I've had over to Flora and Elsa to take care of, but... No, I must say, it looks overall good for us. And of course, it's challenging times, you never know. The memory shortage... Who knows, but without it, we should do even better. So we hope it doesn't get worse, because that could affect us negatively.

Mm-hmm. And maybe a follow-up on the UK and then on the US. If I look at life science and FMCG in the UK, how big a part of the business are those two segments?

You mean how big FMCG is in the UK?

Life science and FMCG.

Ooh, life science.

Let's give it a second here. Life science.

is around 30 million pounds and FMCG and FMCG could that be that should be around 25 million pounds roughly in the UK

Okay, okay. So like for last year, right? Or in the quarter?

No, no, it's for year.

Yeah, yeah. Okay, and on the US and particularly in fashion, because fashion has been difficult, but it's good to hear that the churn rate is almost gone. And how's Because you phrase fashion as still challenging. Is it mostly that... Oh, I lost you. You know, accelerating, but the churn is gone. Can you just explain a little bit?

I mean, some of the words, but I think I captured it. I think in North America, you know, for a while we had a problem with the churn rate was really high and it was low and then it came, you know, the trade war things and it went up again, but now it's stable, so that is very low, it's a good base. And the good signal with that one is also that we can see that the pricing now is stabilizing. For a while, you know, a competitor's stock that was extremely aggressive was offering, you know, 20 or so percent lower price than market price because of empty space. And so hopefully that now is that they don't need us anymore and the utilization is going up. And we can also see that we have more SKUs now than we have had in a couple of quarters. So we are calculating offers and prices on several customers. And we can also see that some of our existing customers even show some growth. But I must say, we cannot It's really hard to say. I've said this before. It's been changing quarter by quarter in North America. But for the moment, it looks better again. But we also are working hard to sell more in the lifestyle segment as well. And a good thing for us, the last quarters, we have managed to gain more customers in cosmetics and other products. So we are also trying to open up other verticals more to compensate for fashion. Because we are still with, we don't think it's a big boom in fashion in America. So new verticals is important for us, you know, especially in omni-channel that we are good at. But we also look in other areas as well. So, yeah.

Mm-hmm. But if you look at the churn rate, because the churn rate has been high. When did this start? Is it quite recent that it started to almost disappear? Or has that been going on for a while?

Well, it's pretty recent. It started to trend in Q1. In Q2, there was almost no churn. But even in Q4, Q3, Q4 was hard for customers to leave. But last year in Q2, Q3, we had a high churn rate. So it's been much more stable this year.

It looks better. Perfect. And then finally, maybe, if you can talk a little bit about the timing of the printer packaging review. When do you expect to see the results of that? Or when will the review be done?

That will be, the plan is to have it done in two or three. Okay, so after analyzing it carefully to go through it, if you need to do your actions, it will be in Q3.

Okay, perfect. That's all for me. Thank you very much. Thank you very much, Markus. Thank you.

Thank you, sir. Ladies and gentlemen, as a final reminder, if you have any questions or follow-up questions, please press star 1. We'll give you a chance to take them all. Mr. Nielsen, we have no further questions at this time. We're just going to call back over to you for any additional closing remarks. Thank you.

Thank you, George. That was my 69th quarterly report and the last one for Lambert. So I want to thank everyone that has been listening to me during the years. And it feels really good to hand over to Florian and Elsa, so I feel confident that we will have a good future. So thank you, everyone, and have a great summer. Thank you.

Thank you very much, sir. Ladies and gentlemen, that concludes today's conference. Have a good day and goodbye.