Earnings Call: Q1 2021

Apr 28, 2021

Good day, and welcome to the Alandis AB Conference Call. Today's conference is recorded. And at this time, I'd like to turn the conference over to Magnus Nielsen, CEO of Alandis. Please go ahead, sir. Thank you. Hi, everyone. This is Magnus Nielsen. Together with me here is also Andreas, speaking of CFO. I will now start my presentation. I will now go directly to Slide number five and talk about our performance in the first quarter. The strong recovery from second half of last year continued in the first quarter, and we managed to perform an EBITA margin of 5.2% compared to 3.1% the year before, which means that we achieved EBITA result that was 75% higher than last year despite the negative effect on EBITDA of DKK 11,000,000 because of a stronger Swedish krona. You can see a stable and good demand from almost all customer segments, and our net sales grew organically with 15% in the first quarter. And the main drivers behind organic growth were mainly Supply Chain Solutions and our subscription box business in The U. We continue to see a low demand from our retail customers because of different COVID-nineteen restrictions, but we managed to compensate even overcompensate this with a higher demand from different e commerce channels. Print and packaging are still negatively impacted by COVID-nineteen restrictions, but we managed to compensate lower sales with higher margins because of cost cuts done in 2020. In the first quarter, we also made an additional acquisition in the area of the Newtek of the Swedish company, Weuse IT, and this will make Enambas one of the leading players in the Swedish market for this service. If we then go to Slide six in the presentation. The shortage of semiconductors created some disturbance in production for some of our customers during the quarter. And it appears like these disturbances will continue during the second quarter as well. Some of our customers have indicated that it looks better in the third and fourth quarter. And almost existing credit facility agreement expires during the first quarter in twenty twenty two, and refinancing discussions are already underway with the intention of having a new agreement in place in the second quarter of twenty twenty one. If we then go to Slide number seven, then you can see that we continue to have a very strong financial position and our adjusted net debt to EBITDA, exclusive IFRS 16, is now at EUR 1.59 compared to EUR 2.96 in 2019. And our net gearing is at EUR 0.41 compared to EUR 0 point 7 4 percent in 2019. If we then go to Slide eight, look at our different business areas for the first quarter, and you can see that Supply Chain Solutions managed to improve the EBITA margin to 5.4% compared to 3%, and they actually improved their results with 91% compared to the year before. And the improved results came mainly from our European part of Supply Chain Solutions as a result of the cost saving program we did in 2019 and also focusing on improving low margin business. As mentioned before, management in Packaging Solutions increased the result despite negative effects on the sales because of COVID-nineteen. And their EBITA margin increased to 5.7% compared to 4.6 and they actually improved their results with 25%. If you then go to Slide nine, look at our sales by customer segment in the quarter. You can see that automotive showed a better demand than the year before, even if some of our automotive customers was affected by the lack of semiconductors. The demand from our electronic customers continued to be very stable. And in Q1 twenty twenty one, grew PC shipments worldwide with 32%, which had a positive effect on some other customers. We also expect that the demand from electronics will continue to be stable going forward. If we then go to Slide 10 and look at Fashion and Lifestyle, you can see that we had a very strong growth compared to last year because of the growth in subscription box fulfillment in U. S. And also a very strong growth in e commerce that could overcompensate for the downturn in demand from retail. We expect that the actions done in different countries connected to COVID-nineteen will continue to put some pressure on retail sales, at least in the second quarter of twenty twenty one, but we expect to continue to compensate this with increased e commerce volumes. Healthcare Life Science had a stable demand in Q1, and we have managed to add some additional customers in this area, and we are actually launching a new site for this segment in the second half of twenty twenty one. If we then go to Slide 11 and look at Industrial, you can see that demand declined compared to the year before. The reason is partly because of lack of semiconductor and partly because of our focus on improving margins, which has resulted in that we have exited some low margin projects in this area. So if we then go to Slide 12, look how things will be going forward. We are very happy to see that our strong recovery in the second half of twenty twenty continue in Q1 and that our actions taken in the end of twenty nineteen continues to pay off and improve margins. You can also see that the market continues to normalize, and we have lots of interesting requests from both existing and new customers. We're also very pleased to see that we continue to grow within e commerce for our fashion lifestyle customers and our new site in North Germany is now up and running, which makes it possible for us to add even more e commerce customers. Our strong financial position enable us to continue to do acquisitions, which is an important tool for us to both develop our services for our customers and over time to improve our margins. Main focus is on small and midsized companies with a high added value, but also to grow in our area life cycle management, where we take care of our customers' products' complete life cycle, which also aims to lower our and our customers' carbon dioxide emissions. COVID-nineteen and the lack of semiconductors and the stronger Swedish krona will continue with some pressure on our sales and results, but we are still very confident going forward based on performance the last three quarters. That was everything from me. And now I'm opening up for We will now take our first question. Please go ahead, caller. Your line is open. Good morning. It's Karl here from Nordea. So a few questions from my side. You wrote that component issue is hampering the recovery somewhat. Have you so my question is, have you experienced a more challenging situation at the end of the quarter going into Q2? Or and would you say that the electronic side is more of a problem compared to automotive? Or how should we look at that between the segments or sub segments? Good morning, Karl. No, actually, we have seen a take much more in automotive and industrial than in electronics. It looks like the majority of our electronics customers have secured the same conductors still managed to deliver what they want to deliver. So it was more in automotive and industrial sector, and it was I was a bit more in the end of the first quarter in March, actually. There were some reductions in shifts and but it's really hard to predict in the second quarter. We think that there will be some similar issues, but hopefully not bigger than the sales process. We should be able to absorb it. Everyone tried to produce, but they go down in shifts and they make some temporary closing and then open up again. But overall, automotive and industrial. Electronics, for the moment, it's not so impacted. Yes. So if we look at the whole automotive market, if we look at one or a few of your bigger customers, would you say that it's a positive thing or a negative thing to be working with niche models such as S Class and so on? Are they prioritized or not? Or how should we look at that? Yes, that's absolutely correct. I think we are lucky there that we work with the more exclusive model. So and they have highest priority. So if we have been working more with high volume, medium class cars, we should be impacted much more. So so both of you work with a higher rate, and we also have some other customers that do really high end cars, and that we have seen very small impact. So they have managed to prioritize. So we are also And we have also seen a few new or at least one of them a new model launch. I mean, it already in the numbers thinking about the new S Class, for instance? Or is it still to be seen later on in 2021? Or is it how should yes, a new model launch? Guess it's at least in the beginning a positive impact. Yes. I think S Class is actually the even in the ramp up phase. I think it was running very high volumes in the end of the first quarter. But we expect this class will go very strong, I think, even rest of the year. So yeah, it's a very important model for Daimler, and I think they will prioritize it very hard. Okay, perfect. Maybe you touched upon it, but we saw sales contraction from Electronics in Q1 in absolute numbers at least. And how should we look at the growth possibilities for this segment in the coming quarters? I mean, as you said, you had some tailwind from the work from home trend and the forced digitalization, especially if we adjust for the buy and sell volumes. I mean, what should we expect here coming quarters? Think we should I think there is also a currency effect, Andreas, on the when you Partly. Partly. So I think we are not maybe even slightly higher than last year. And I don't know. But it we have still have some buy and sell deal in q one last year that disappeared in q two. So I think going forward, electronics should be rather similar than last year. How to predict it, it will go even higher, but I think it looks it looks stable. So I think it will be at least on the same level or even up. There is some seasonality also in the numbers if you look at the last quarter and comparing that to the first quarter. So it is more and more it's better to compare it to the first quarter twenty twenty. But then you have you get you have also the seasonality effect. Because then sales was EUR $743,000,000 and it was EUR $729,000,000 this first quarter. And then you have the currency effect. So it was actually higher than in Q1 this year. Okay, perfect. And the final one from my side is a little bit on M and A. You have done two acquisitions in fairly short time. Your balance sheet is on par with the pre LGI levels. And I mean, could you elaborate a bit on your ambitions in terms of acquired sales in percentage or in absolute numbers or retirement lease? And how many companies do you have on your shortlist? And then this I think you said it, but you are primarily focusing on life cycle services, I guess? Do you look even into acquiring more automotive or electronics volumes as well? Or how should we see the M and A side? I think when it comes to Lifecycle Management, we are mainly looking at small and midsized. That could be, of course, a bigger one. But if you are around the small and mid sized, I think we have, you know, we have a capacity, you know, with our cash flow and everything to do at least acquisitions of, you know, around 200 to £300,000,000 per year. We can do an acquisition of around 50 per quarter roughly. And then, of course, expect to see some bigger opportunities come around the corner, both in Lifecycle Services, but another area that we are looking more closely into is actually the fashion and lifestyle. Of course, we have a very strong growth in that area in Europe. We are adding lots of new customers and could be a benefit for us to find, you know, a bit of a similar business in in North America, for example, or or in Asia. So I think we will do any bigger acquisitions in the automotive and industrial area. We are pretty happy where we are in that area, and that's where it is. Okay. So so, basically, a bolt on to to ITG then, I guess. Yeah. It is. Yeah. Yeah. Okay. Perfect. Okay. Thank you. Thank you. Thank you. We will now take our next question. Please go ahead caller, your line is open. Alex from Rival here at Exane Bank. Good morning. Good morning. I would good morning. First of all, regarding print side, how would you define the sort of competitive landscape right now? You obviously have a strong performance. Where do you see your competitors? And could this also be perhaps an area when it comes to M and A? Or is that also the question? I think when it comes to the print side, I think actually, we are one of the winners there when it comes to the COVID-nineteen situation last year that was pushing down print volumes. I think it was we talked about numbers of 20% down in the market last year. And I think because of our unique solutions that we work both with also with industrial and automotive clients, our global presence and also that we have a good growth in online printing, both with our own solutions and as a supplier. I think our position is even better now than last year. Even if we lose a bit in sales, we continue to improve our margins. So it's not to be and you can also see now in RFQs coming now that we have a very strong position. Our competitors are very weak. So this looks very promising. And normally, don't do any acquisitions in the print side. But, of course, if it comes, you know, a very specialized company that fits well to develop our service when it comes to digital print or an online print and things like that, we are We are open even to do acquisitions in that area. Right. Another question on shipping capacity globally. You have a lot of exposure to e commerce and obviously that is continuing to be very strong. Do you see among your customers any constraints when it comes to shipping capacity in the global sort of e commerce landscape? No, we haven't seen it so much, not at least in the fashion side. It looks like they have managed to get their volumes to Europe. And And as soon as it's in Europe, there is no lack of capacity to ship it inside Europe. And we also ship a lot to U. S. For customers, and we have managed it. The only thing that happened is that it drives turnover because it's the cost goes up, but we can push that cost to our customers. And but we we do mainly last mile services, and there we cannot it it still works fine there. So there was and we had S. Last year with capacity for last mile service, but it's more stable now. Okay. Thank you. Thank you. Thank you. We will now take our next question. Please go ahead caller, your line is now open. Yes, hello. This is Thomas Nelson from analyst guidance. I just wanted to hear a bit about the LGI segment in Germany. For you to achieve your long term margin goals, taking out more costs in LGI is an important step. Could you talk about a bit about how this is proceeding LGI in Germany? Thank you. Thank you. No, I think it's going forward in a very good way. Like we say in our report, the European supply chain solution that was a big part of driving the improved results compared to last year and also the increased margin. So we are really happy with actions we have taken there and we are working very actively to improve step by step. So it goes like planned. And of course, we have some with longer agreements that we are still working with. Some contracts will run out this year, and we have some contracts running into 2022. But everything is moving according to plan, even slightly better. So it looks very good. Thank you. Thank you. There are currently no questions in the queue at this time. Okay. But then I think we close the conference call, and thanks to everyone for calling in. Thank you. Ladies and gentlemen, that will conclude today's conference, and you may now all disconnect.