Elanders AB
STO:ELAN B
Elanders AB
STO:ELAN B
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Good day, and welcome to the Elanders AB conference call. At this time, I would like to turn the conference over to Magnus Nilsson. Please go ahead.
Thank you. Welcome, everyone. This is Magnus Nilsson, CEO of Elanders. And together with me is also Andréas Wikner, our CFO.I will now go directly to Slide #5 in our presentation and talk about our performance in the first quarter. The strong recovery from second half of last year continued in the second quarter, and we managed to perform an EBITA margin of 5.2% compared to 2.8% the year before, which means that we managed to double our results despite the negative effect on EBITA of SEK 11 million because of the stronger Swedish krona.You could see a solid demand from almost all our customer segment, but the shortage of semiconductors continue to create some disturbance in production to some of our customers. These disturbances resulted in canceled and changed shift patterns with very short notice, which makes it hard for us to adjust our capacity and cost structure.Our net sales grew organically with 6%, and the growth came mainly from our business area Supply Chain Solutions and also the subscription box business in U.S. that continues to grow.In the beginning of July, we made an acquisition of the German print company Schätzl to strengthen our offering online print, which is one of few areas in print that can show yearly growth. Together with Schätzl, Elanders will be one of the leading suppliers in Europe when it comes to online print. If we then go to Slide #6. During the second quarter, we also renewed a very important print contract, and the new contract is valid for 5 years with a yearly sales value of around SEK 150 million to SEK 200 million. The new contract also includes other services than print like sourcing and supply chain services. And compared to the old one, this means that we have doubled the turnover per year.The refinancing of the group is now in place, and the new contract is valid for 3 years with a potential to prolong it for 2 years -- 2 more years. And the new agreement have better terms compared to the old one, which will lower our financial costs and also give us more flexibility when it, for example, comes to acquisitions.If we then go to Slide #7, then you can see that we continue to have a very strong financial position and our adjusted net-debt-to-EBITDA exclusive of IFRS 16 is now at 1.5. And then if we go to Slide #8 and look at our 2 different business areas, then you can see that Supply Chain Solutions managed to improve the EBITA margin to 5.9% compared to 4% last year, and they actually improved their results 43%. The improved margin came mainly from our European part of the Supply Chain Solutions as a result of the cost-saving program we did in 2019. And we had an organic growth in the quarter of 4%, and that was despite that we last year had a positive effect on sales of around $45 million because of delivery of personal protective equipment to hospitals. If we then look at Print & Packaging Solutions, we can also see that they have a very strong recover because they were very affected by COVID-19 last year. They reached an EBITA margin of 4.4% compared to minus 1.5% the year before, and they had an organic growth of 10%. If we then go to Slide #9, look at our sales by customer segments in the quarter. If we look at Automotive, the sales of Automotive was last year very heavily affected by COVID-19. We could show a strong recovery with organic growth of more than 70%. Unfortunately, they are still affected by the lack of semiconductors, which I mentioned before, affects our efficiency negatively and creates some additional costs. Our customers expect it to continue in the second half of the year.If we then look at Electronics, you can see that the demand from our Electronics customers continued to be -- that were strong during the whole COVID-19 crisis also show some slight decrease in the second quarter because of some shortage of semiconductors also affected their manufacturing capacity negatively, but we managed to compensate the lower production volumes by growing other services like rework and service of the product, which actually resulted in organic sales in line with last year.If we then go to Slide #10 and look at Fashion & Lifestyle, you can see that we continue to show a very strong growth in this area and our organic growth in the quarter was actually over 30% compared to last year and the second quarter was the biggest part of the growth, coming from our activities in Europe. And the reasons for the growth was continued strong demand for e-commerce deliveries, but also the reopening of shops in Europe. We also continued to see growth in our subscription box fulfillment business in the U.S.If we then look at Health Care & Life Science, they had a huge increase in sales last year because of the deal regarding protective -- personal protective equipment deliveries that had a positive effect on sales with $45 million last year. Underlying demand continues to look very good, and we have acquired some new interesting customer projects that will start later this year.We then go to Slide #11 and look at Industrial. You can see that sales recovered compared to last year, and we had an organic growth of around 20%. Some of our customers in this area are also affected by the lack of semiconductors, but it has a very low negative impact on the service we are doing.If we then go to Slide #12, we look at how things will be going forward. We are very happy to see that our strong recovery in the second half of 2020 continue in the second quarter. You can also see that the market continues to normalize, and we have lots of interesting requests from both existing and new customers. And we have managed to gain several interesting new customers in the last 6 months. We're also very pleased to see that we continue to grow within e-commerce services for both existing and new customers in Fashion & Lifestyle. And you can also see that our global footprint is a strong enabler to gain new customers. And this is the reason why we have managed to get in 3 new Scandinavian brands as customers just in the second quarter. And the reason is that they're growing rapidly outside Scandinavia and they need a partner that can support them globally.Our strong financial position, together with our new financing agreement, enable us to continue to do acquisitions. And we have the last 3 -- 9 months already made 3 acquisitions that support our growth in both life cycle management and online print. COVID-19 and the lack of semiconductors and the stronger Swedish krona continued to put some pressure on our sales and results, which will continue in the second half of the year.Okay. That was my presentation. And now we are opening up for questions.
[Operator Instructions] We now move to the first question.
It's Carl here from Nordea. A couple of questions from my side. First, if you could give us an update on the semicon issue by segment and if you expect Q3 to have a greater impact compared with Q2. Let's start with that.
Carl, no, I think, when it comes to the semiconductor, it's mainly our area Automotive that is affected. And it doesn't affect sales so much. It's more about that our production is it's gone very up and down. With very short notice, some of our customers maybe take away a shift and then they add a shift the week after. That put some pressure on our margin in that business area.But I think, for the moment, in the other areas like Electronics, we have managed to balance it with other services as well. So -- but it hasn't been so hard for us to handle this lack of semiconductors. And going forward, I must say it's really hard to predict if it will be in the same level or if it would be more serious. The only information we get from our customers is that they think there will be some pressure also the second half of the year.So it's really hard. But hopefully, for us, if it's on the same level, then we should be able to balance it in a pretty good way. But of course, if it should be a more serious lack of it, who knows, I don't know.
Yes, exactly. But no drama here in the short term, at least?
No, there's no drama indication. It's just -- it's just an ongoing headache, I think, for our customers.
Yes. And also, with the reopening of societies, people are gradually returning to offices. How do you expect it to impact the Electronics business?
What we can hear from our customers in Electronics, there's still a huge demand. One of our biggest customers, they even made a statement that they could actually deliver -- sell 25% more laptops if they could produce them. So -- and there is now -- I mean, we can also see it in our business where we do take backs of secondhand computers and things like that. It's a really hard market. Everything we can get in we can sell immediately.So I think also it's a change now because lots of companies will offer people to work from home. And in a lot of countries, you have, let's say, more normal desktop computer. And I think more companies now are changing that all their employees should have laptops so they could also work from home. So the expectation from us and our Electronics customer is that they can sell what they can do. So it's much more about semiconductors.
Okay. Perfect. And a question probably for you, Andréas, regarding the refinancing you mentioned. Could you give us -- maybe give us any of the terms or at least the changes from the previous ones and also maybe the impact on net financials going forward?
Yes. Yes, sure. For one thing we're going from 2 banks to 3 banks. We will have 1 more international European banking constellation. And we are adding -- sorry, with the new agreement, there will be a little bit more favorable margins on the interest rates from our side, so it will have some positive effect on the result, but it's not significant.And the new agreement will also give us the possibility to acquire companies and sort of be compensated for the EBITDA effect on the results historically. I mean, we can -- we'll have an acquisition with -- where we can include the EBITDA for the acquisition when they are made or not get only the effect on the net debt when we acquire them. So they are some of the things that we have in the new agreements that we didn't have in the old, for example.
Okay. Perfect. And the final one from my side. I mean, your -- prior to the pandemic, you implemented cost reductions, cost-out programs in LGI. Would you say that there's more to be done? Or are you satisfied with the current cost level or -- for LGI, that is?
No, no. I think there's still more to be done, but that is more about coming to some of our customer contracts that has too low profit. I think when it comes to the cost structure now with the new organization in LGI, we are really happy with the new setup, and the performance is much higher. So -- but as we have mentioned before, we still have some longer contracts in transportation area that we are trying to renegotiate.We'll leave some contracts also this year, so -- but it's more about customer contracts as we try to increase prices or we exit them. So otherwise, we are very happy with the structure and the setup. So there shouldn't be any more big one-off costs connected to that.
Perfect. Very clear.
We now move to the next question.
Alexander Vilval here at Penser. I think most of my questions have been answered, but regarding acquisitions and new financing, you mentioned that you can take into account basically acquired EBITDA. How much additional potential buying power does this add, would you say? Is this a big step for you when it comes to potential acquisitions? If you would like to sort of expand on that a little bit.
Yes. I think that, of course, give us some additional space. With the new bank agreement, we have also more flexibility when it comes to increasing debt. So -- but it's important that -- the most important thing is that we still can do a lot of acquisitions and be on the net debt-to-EBITDA of around 2 if we do smaller ones.I think, to do small acquisitions, we have a capacity now to do around, I don't know, EUR 20 million, EUR 30 million per year, and still we are under 2 in net-debt-to-EBITDA. And -- but we also, with the new agreement, of course, can do some bigger acquisitions and then temporarily go up to around 2.5. 3, 3.5 even. So the new agreement gives us power to do lots of small ones without increased cost, and we can also go bigger. So no, it's very good.
[Operator Instructions] We'll now move to the next question.
Magnus and Andréas, so first off, I would like to understand the lower-than-expected gross margin and the sort of downtick from previous quarters. Was all of it driven by increased costs related to supply chain problems and sort of unpredictable shifts of capacity? Or was it something else as perhaps sales mix as well?
I think that could be a bit of a mix because I also think the gross margin is affected by that. We are still continuing to grow with this subscription box business in U.S. That has pretty low contribution in gross margin because there's a big share of transportation costs. And then, of course, it still affects Automotive area with the problem with semiconductors, where we have a big organization. And when we cannot utilize it in an optimal way, it also affects the gross margin. So I think mainly that is the 2 reasons.
Okay. But it seems like -- I think Fashion & Lifestyle was down almost 20% sequentially within Print & Packaging. And I guess that implies a drop for subscription boxes. And the margin is down sequentially as well. So maybe, first off, is it correct to assume that subscription boxes is down 20% almost? And if so, what's the reason? And is it still...
No, no, no. So I think subscription box business is still in the same margin level like last year. There's no change. This could not be that effect. So -- of course, also -- I don't know, Andréas -- it can also be depending which trading and what buy-and-sell deals we have done in...
And the PPE business as well.
And also, yes, last year, we had the PPE business all there with very good gross margin.
Yes.
They had a very high gross margin, so I think that also distorts it when you compare it. So on the subscription box business, the margin level is actually the same like last year. So still growing. So I don't know if it's the currency.Of course, currency doesn't affect the margin, but it looks -- if you look at the sales, that's not -- I mean there is a positive organic growth in the subscription box business within Print & Packaging Solutions.
Okay. But thinking sequentially, I'm looking at the numbers here, and it says SEK 294 million in sales within Fashion & Lifestyle last quarter and now down to SEK 239 million within Print & Packaging. So I'm just wondering if that subscription box is mostly in and what's sort of going on in that area.
At the moment, it says Fashion & Lifestyle -- yes, I mean it's down in Print & Packaging. Fashion & Lifestyle, it's slightly down sequentially from Q1. There are other from Q1...
19%. So I was just wondering if that volume is sort of dropping off.
You can see that the growth has slowed down for the subscription box business. The growth rate is much lower than last year, but we still have grown with 10% for 6 months. Yes, I -- the figures -- if you have more questions -- Andréas is trying to look for more details. And we can come back to that question. Do you have some other questions?
Yes, I have one more and looking at sort of the customer segment level as well. There was a fairly large pickup of health care volumes this quarter as well. Is this some kind of a nonrecurring contract? Or should we expect a similar level going forward?
You can expect the similar level going forward. We have good development, underlying development in the health care part because we are growing this business in -- both in Asia and we are doing well in Europe. And we will add new big customers as well that will come in, in the second half of this year. So we are now setting up a new health care center in Germany as well with more capacity, so we expect to grow that there as one of our priorities.
Okay. So are these volumes, in any way, COVID-19-related? Or will it continue when things return to normal as well?
No, it will continue because it's more related to the other health care services that is now recovering when the hospitals can do other things than treating COVID-19 patients as well. So we are mainly in health care working with other -- for other kind of equipment that you use for daily use, both consumables and the operations and also lab equipment and things like that. So we expect that they will come back now actually, yes.
Okay. Perfect. That was all the questions I had today.
You're right about the sales in subscription boxes from Q2 to Q1. So there is a drop sales between Q1 -- sorry, Q2 and Q1.
They have between there -- yes, there is a drop, yes, but it's still higher than the year before.
Yes.
That's correct.
And I actually...
And why did it drop? I mean, are your customers losing their customers? Or what's sort of going on?
No, I actually know the reason now I think about it. Because it is -- we are trading all the freight for the customer. And one of our biggest customers have started to trade some freight by themselves. So it's pure, let's say, trading freight. So if it comes to number of deliveries of boxes, the number is increasing. So it's more that we are moving some part of the freight to the customer directly. And we want to do it as well. Because if we manage that, we will increase our margins instead.
Okay. So I guess the EBITDA effect is very minor from this one?
Yes.
Yes. But if we move more freight to the customer, the EBITA margin can go up in the long run.
Yes, yes.
There are no further questions in the queue at this time. [Operator Instructions] There are no further questions in the queue. I'll hand the call back over to your host for any additional or closing remarks.
Okay. Thank you, everyone, for calling in to our conference call, and I hope all of you will have a nice summer. Thank you very much. Bye-bye.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.