Elanders AB

STO:ELAN B

Earnings Call Transcript

[Operator]

Good day, and welcome to the Elanders Quarterly Results Conference Call. At this time, I would like to turn the conference over to Magnus Nilsson, CEO of Elanders. Please go ahead, sir.

[Magnus Nilsson, President, CEO, Acting President of E]

Welcome, everyone, to Elanders conference call. This is Magnus Nilsson, CEO of Elanders, speaking and here with me here is also Andréas Wikner, our CFO. And I will start with some comments about further -- the third quarter. And those who have the presentation ahead, I go to Slide #2. We're -- actually, we mentioned in the second quarter, we could see a recovery in the end of second quarter, and this positive trend continued in the third quarter. And we have also -- as we have mentioned before, we have had 3 customer projects in the business area of Supply Chain Solutions where we had higher implementation and start-up cost that was much higher than expected, in Q3, Q4 last year and Q1. We have now managed to get all 3 projects under control. One of them, we have actually closed down, and the other 2 projects, we have managed to do -- negotiate new price levels with our customers and we've also made some changes with them -- together with them in the processes. And this combined together also helped us to make much stronger Q3 this year than last year. We can also see that the strong organic growth is continuing and that was 9% in the third quarter, and that is mainly driven by the business area of Supply Chain Solutions, but also the Subscription Box business we have in Print & Packaging in the U.S.During the quarter, we also initiated a new customer project with the yearly sales value of around SEK 100 million, and the implementation went really well, and we could see that this project was profitable from Day 1. We could have all seen a very strong demand from all our customer segments during the third quarter. We can only see there was a slight downtrend in Fashion & Lifestyle, which was mainly connected through the very warm summer in Europe and -- but we could see in the end of the quarter, that also was picking up. And then in October 15, we also announced that the Edelmann Group, a German packaging company, will acquire Elanders' packaging operations in Beijing, China. And we expect the transaction should be finalized during the fourth quarter, and will have a positive effect on the cash flow, but only a small negative effect on the result.Then I go to Slide #3, and then if we look at the quarter, July to September, if we look at the highlights. So net sales increased by 20% to SEK 2.8 billion compared to SEK 2.3 billion the year before. As mentioned before, whereof 9% was organic. EBITA increased to SEK 154 million compared to SEK 55 million year before, which corresponds to an EBITA margin of 5.5% compared to 2.3% the year before. And the net result increased to SEK 75 million compared to SEK 14 million the year before. And the result includes one-off items of SEK 0 million this year, but last year we had SEK 28 million in one-off costs. And that was mainly, primarily what's caused redundancies last year. We also improved cash flow. The operating cash flow increased to plus SEK 52 million to minus SEK 6 million the year before. And then if I go to Slide #4, and we look at the accumulated numbers for January to September. General net sales increased by 16%, whereof 10% was organic growth. EBITA is now ahead of last year and increased to SEK 353 million compared to SEK 269 million, which corresponds to an EBITA margin of 4.5% compared to 4% the year before. Net result increased SEK 115 million compared to SEK 120 million the year before. And the net result was affected negatively by one-off deferred tax cost of SEK 11 million, when deferred tax assets were revaluated using the new corporate tax rate in Sweden. And operating cash flow improved to plus SEK 144 million compared to minus SEK 119 million the year before.If we then go to Slide #4 and look at Elanders' absolute biggest business area, Supply Chain Solutions, that now has share of 75% of our sales. And this is the business area that is the main driver for organic growth. And in third quarter, their growth was 9%. And as mentioned before, we could see a strong improvement in several of these projects, we had lot of start-up costs the last 12 months. We have also had a couple of new customers' agreements secured the last 12 months, which will have a positive effect on the sales the coming years. And implementation of these new projects are going according to plan. And as I mentioned before, one of them is already up and running and generating positive numbers. If we then look at the third quarter for Supply Chain Solutions, then sales was almost SEK 2.2 billion compared to SEK 1.8 billion the year before. And EBITA profit was only -- almost doubling, it was SEK 137 million compared to SEK 71 million the year before. And EBITA margin in the third quarter was 6.2% compared to 3.9%. So -- and all this improvement is -- a lot of -- the big part of this improvement are connected to the -- these projects we have talked before, but also other parts of the business are starting to run very well. So overall, a very strong quarter from Supply Chain Solutions. And this means also that they are now all ahead of last year with an EBITA of SEK 286 million compared to SEK 247 million. If we then go to Page 6, and we look at Print & Packaging Solution. So the market continues to be rather tough, with price pressure and overcapacity. But we still managed to make a rather strong quarter with improvements. And our operations in the USA shows really strong improvement, both in sales and profitability and in both our traditional printing business area and the Subscription Box business. The latter has gone from almost 0 in sales in 2016 to $18 million in 2017. And the first 9 months this year, we have reached sales of USD 32 million for this Subscription Box business. And that is actually the driver for the sales growth you can see in the Print & Packaging area. But the last year, we also had a one-off cost of some SEK 16 million, finally connected to redundancies in Sweden. So if you look at the third quarter for Print & Packaging, sales was SEK 609 million compared to SEK 520 million, EBITA was SEK 24 million compared to SEK 4 million last year, and the EBITA margin went up to 4% compared to 0.7%. And -- so this means also that Print & Packaging accumulated numbers is also clearly ahead of last year, and there was EBITA result of SEK 89 million compared to SEK 67 million. And they also managed to improve the accumulated margin to 4.8% compared to 4.2%.But then go to Slide #7. If you look at the e-commerce solution, which is a very small area for Elanders, it's only 2% of the sales. We're happy to see that result has continued to improve, and the cost cutting measures we have done has been -- has worked very well combined with efficient marketing. And the fourth quarter is always by far the strongest quarter and it's normally the quarter all around actions of the whole year are made. We continue to do the strategic overview of this area and to see where the future should be for it in the Elanders Group. So if we look at the numbers, we're also happy to see that sales -- we're not going down in sales anymore, it's almost in line with last year. And in the third quarter, the sales was SEK 39 million compared to SEK 36 million, and EBITA was minus SEK 4 million compared to minus SEK 10 million the year before. And accumulated EBITA result is now at minus SEK 9 million compared to minus SEK 20 million last year. So if you go to the last slide, I think now when we have lots of the temporary problems we had under control, we are now -- feel we have a strong foundation going forward. And now we are continuously working with actions to improve our margins, we're also working hard to improve our cash flow and decrease the working capital. And the aim for the -- we aim for business with high added value. We look into -- to developing -- develop more sophisticated contract logistics and omni channel solutions. We're also developing our areas in the value recovery and after sale service. We think that to strengthen this kind of service we will, over time, be able to improve our margins and also improve our return on the capital employed. And we also with our strong organic growth -- also gives us the ability to be more selective when we acquire new business and prioritize margin instead. And that is a strong message from us to all our group companies to really focus on the margins and to use this strong growth to be more selective and to prioritize business with high margins. Okay, that was the summary for the third quarter, and we now open up for questions.

[Operator]

[Operator Instructions] You have a question in the queue. Please go ahead.

[Unknown Analyst]

This is [ Dag Naranian ] for the [indiscernible]. One question on decrease in working capital. What kind of measures are you taking on that area?

[Andréas Wikner, Chief Financial Officer]

I think we're looking to -- this is Andréas speaking. But I think you'd rather see different scenarios. I mean, of course, we are looking into factoring, it could be a loan type of financing that we could use if we cannot get good, I would say, financial conditions from that till we're -- of course, we also need to sort of make an, let's say, incentive model, I think, to our management only -- in our companies also to sort of work more actively to reduce the working capital. Right now, we have incentive model, it's another type of, I would say, measurement. So we need to include that also into the incentive model that will also drive the change with it.

[Magnus Nilsson, President, CEO, Acting President of E]

And I was thinking in the same time that with an organic growth of 10%, it's -- of course, we'd be lacking working capital. And -- so that's one effect as well when we have a very strong growth.

[Operator]

And we'll move to our next question.

[Emmi Östlund, Analyst]

This is Emmi Östlund from ABG. Can you hear me?

[Magnus Nilsson, President, CEO, Acting President of E]

Yes. We can hear you well.

[Emmi Östlund, Analyst]

Yes, okay. Good, good, sorry. So I mean, Daimler just warned again and sort of -- we have a sort of bearish sentiment in terms of automotive. Have you seen any of these effects in this quarter? And how do you look on it going forward?

[Magnus Nilsson, President, CEO, Acting President of E]

I think regarding Daimler, I think what they announced was also low result because of lots of costs for the -- this new regulations and also about this, I think, the diesel scandal, or what you call it. So I think lots of it's actually cost from out and not so much on the volume base. And for us, during Q3, we haven't seen any weaknesses in the demand of the service we are doing for Daimler. So it's not really easy for us to predict how the future looks like. Because it is so many kinds of service for them, and we are also supplying their main factory in Germany where they are doing lots of development works for the new platforms and things like that, but also generates lots of volumes for us. So, of course, it's -- yes, very hard to say. But we haven't seen any signs. And our automotive clients, all of them -- the first 9 months have increased in sales value for us. So -- but it's hard to say. For the moment, the business is very stable for us, all our automotive clients.

[Emmi Östlund, Analyst]

Got you. And another question on the subscription business because I think you mentioned in the previous report that it would reach USD 40 million. And now you're sort of saying that it's more than double. I'm just checking here. There's no change here. It's just the change in wording, right?

[Andréas Wikner, Chief Financial Officer]

Sorry, you...

[Magnus Nilsson, President, CEO, Acting President of E]

So in the last report, you said EUR 40 million? Or what did you say?

[Emmi Östlund, Analyst]

I think you said, sort of, that the Subscription Box business would reach USD 40 million previously, and now you said it's going to more than double. It's just a bit of difference in sort of wording, but it's the same message?

[Andréas Wikner, Chief Financial Officer]

Yes, it's just a difference in wording, I would say because it's -- if you look at the run rate, we're already at USD 32 million in 9 months, so...

[Emmi Östlund, Analyst]

Yes. And you don't expect that to change?

[Andréas Wikner, Chief Financial Officer]

No. No, nothing really including that.

[Operator]

[Operator Instructions] And gentlemen, at this time, we have no further questions. I'll turn the conference back over to you for any concluding remarks.

[Magnus Nilsson, President, CEO, Acting President of E]

Okay. Thank you, everyone, for calling in and listening to Elanders' conference call. Doesn't look like to be any more questions. So thank you very much from me and Andréas. Thank you.

[Operator]

And that does conclude today's conference. Again, thank you for your participation.