Hello, and welcome to the Elanders AB conference call. Please note this conference is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Magnus Nilsson, to begin today's conference. Please go ahead, sir.
Thank you. Welcome, everyone, to Elanders conference call. Together with me here is also Peter Thylesen, our CFO, and I will now go directly to our presentation, and I will start with slide number five and talk about our second quarter. The demand continued to be weak from several customer segments, but we could overall see that demand was improving compared to the first quarter, which resulted in an unchanged organic growth, which was a positive improvement compared to the first quarter, when we had a negative growth of 9%. Also, adjusted EBITDA margin improved compared to the first quarter, and it came in at the same level as previous year.
During the second quarter, Elanders secured a very important contract with one of our biggest electronic customers, and this contract will give us the opportunity to open our first contract logistics site in Thailand, which in line with our strategy growth in Southeast Asia, and will also be an important tool for us to capture volumes that are now moving out from China. If we then go to Slide 6 and look at our cash flow and cash conversion development, you can see that we continue to have a very strong cash conversion with 120% the first half year, and we have also managed to decrease our working capital this year with around SEK 264 million.
If we then go to slide number 7, look at Supply Chain Solutions, you can see that we improved compared to the first quarter, and our organic growth was unchanged compared to a negative growth of 9% in the first quarter. We could also see an improvement in our EBITDA margin that came out at 6.6% compared to 5.4 the first quarter and 6.2 previous year. And we also continue to have a very strong cash conversion in the Supply Chain Solutions area. And in order to adjust our capacity to the current market situation, we also, during the quarter, decided to consolidate Bergen Logistics Pennsylvania volumes to their site in Atlanta, which, yeah.
If we then go to Slide 8, to look at Print & Packaging Solutions, could we also here see a recovery in demand compared to the first quarter, and organic growth was also unchanged compared to last year, which was a positive improvement compared to the negative growth of 7% in the first quarter. Our Adjusted EBITDA margin was slightly lower than last year, but our cash conversion improved a lot for Print & Packaging Solutions. If we then go to Slide 9 and look at the development of our different customer segments in the quarter and start to look at fashion. In fashion, could we see some recovery compared to our first quarter, but organic growth was still negative with around 12%.
The recovery was mainly in Europe, with the help of our two new big customers, but also a recovery from some of our existing customers. But the demand in North America remained also very weak in the second quarter. When it comes to electronics, the picture is more positive, and we could see an organic growth of around 6% in the second quarter, despite that the demand from some product areas like office printers, heat pumps and TVs is still very soft. The growth comes mainly from laptops and servers, but also from several other products and our life cycle management services. We expect that the positive trend will continue going forward the second half year for electronics.
If you look at automotive, we could see big fluctuations in the demand during the quarter, and our customers closed down more than usual in connection with the Pentecost in May. Overall, this resulted in a negative organic growth of around 7%. Industrial could show an overall stable demand in the second quarter, even if it fluctuates quite a bit between different product areas. Our organic growth was unchanged compared to last year. When it comes to healthcare, we continue to see a good recovery from our existing customers, but also a very positive development from new customers, and we had an organic growth of around 16% in the second quarter. Others show growth driven by online print, and in others, there is also contribution from Kammac customers in the food and beverage sector.
If we then go to slide number 10 and look at how things will be going forward, we still expect demand to gradually improve during the second half of the year, but the market remains very uncertain, and we continue to have a very high focus on new sales to support our growth. The new contract we secure in Thailand is an important result of this work. We also continue to optimize our cost structure, and in the second quarter, we exited one big warehouse in the U.K. As I mentioned before, we decided to consolidate the Pennsylvania volumes to Atlanta, and we also have done a reduction of personnel in several locations. Parallel with this, we are focusing on reducing our net debt by optimizing our working capital and investments, and also improve our cash flow.
As a result, our working capital decreased by GBP 370 million in 2023, and as I mentioned before, a further GBP 264 million in the first half year. That was everything for me, and now I open up for questions.
Thank you. If you'd like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. To withdraw your question, please press star two. Our first question comes from Derek from ABG Sundal Collier. Your line is open. Please go ahead.
Okay, thank you, and good morning. I wanted to ask, firstly on Kammac, here, how far would you say that the company is from operating at sort of normalized levels? Like, any indications when you think you can recover to normalized margins for that subsidiary?
No, I think Kammac, you know, had a very weak first quarter. It was also pretty soft in the second quarter, but we have some new deals coming in but it takes some time, and I must say the U.K. market is still very soft for us. We could see the same in Bishopsgate, but Bishopsgate is much more niched and they manage very strong numbers because of new sales. So I think Kammac, it's hard to say. We think there will be a gradual improvement also now starting in Q3, and then that it will take more speed in Q4. But it's still pretty soft, the market, and also their customers are exposed to consumers, and so the demand is much lower than last year, actually.
But there are some good signs, but it will take some time. So starting recovery in Q3 and, more up to better margins in Q4. That is our expectation.
Okay, great. Appreciate the clarity. On that point, are you seeing any what are sort of your expectations for the U.K. market in general here going into H2? I understand you're saying it's soft, but are you seeing any indications that it's sort of bottomed out or similar?
Yeah, you can see some indications in the end of the second quarter that some of our customers indicate more positive signals. But I think U.K. is for us, it's a bit like U.S. It's much more soft in both U.S. and U.K. than rest of Europe, for example. So I think lots of people in U.K. and U.S. are talking about, you know, that interest rates need to go down a bit to give more confidence to people. So it's hard to predict, but I think if there will be some changes in the interest rates, and then also when you enter all the second half of the year, you're getting closer to Black Friday and things like that. So it's no, but it's hard to say.
I must say both the U.S. and U.K., it's... For us, for the moment, they are very slow, both, both markets.
Okay, yeah, and I was going to ask on fashion there in the U.S. I suppose it's sort of the same, yeah, conclusion. I think you mentioned that it's weak, but maybe some indications that that does draft as well, I suppose.
Well, I must say fashion U.S., for the moment, we don't see any indications for improvement. It's very slow. Still around 20% lower than last year. But in the U.S., things can change quickly, so it's hard to predict. So, but for the moment, very slow. But in Europe, on the other hand, we could see a good improvement in fashion in the second quarter, both from our existing customers and new customers. So there it feels like we actually had a growth in Europe, so that could balance North America a bit.
Very helpful. Thank you. And then I was wondering if you could provide any comments on the pricing situation. Are you seeing price pressure in the market? And in that case, how are you responding to this?
No, the price pressure continues to be pretty high because there is lots of overcapacity in the logistics sector for the moment. But we are always very reluctant to go down too much in price, so that is also one of the reasons for companies like Kammac as well, that we still try to protect the pricing and be a bit careful. So of course, we can take some short-term contracts with lower price, but there's still a pretty strong price pressure, but that's on all our markets. So but that normally changes very quickly when the demand is recovering, because then suddenly there's no overcapacity. It's so as we see it, that's a temporary problem.
But of course, we look at our cost structure, and this was also one of the reasons that we decided to close down in Pennsylvania, transfer the volumes to Atlanta, because that will give us yearly savings of around $3.5 million. And we consolidate also personnel, and we are more slim. So in some sense, that is also a tool we do to meet the more, you know, the price pressure on the market, but still we try to keep our margin level. You need to have a balance of patience and being aggressive in the market like this.
Yeah, yeah. Got it. And on a general basis here, can you say something about the development in demand, the trends during the quarter? Is it fair to say that it sort of started out a bit sluggish after Q1 and then gradually improved, or how should we view that?
Yeah, no, I think the thing that's very important for us, because this is one of our absolute biggest customer segments, is electronics, and we always have electronics, healthcare together. And there we could see already, you know, in Q4, they were recovering, and it feels like, and they were the first going into the lower demand cycle. So they are continuing to improve, and we see high activity. Our customers are more confident. So they will be an important area for us in the second half of the year. And also, industrially, still also very solid for us, that's also good. And also, that fashion in Europe now shows signals to come back.
So overall, it's much better now in Q2 than Q1, but it's still a bit slower than we and our customers expected when we entered Q1, for example. So it's but there is some good signals from some of our areas. Automotive is much harder to predict because it's very, it fluctuates a lot between different car models. You know, electric cars are very soft, and hybrids are going better, and normal ones goes well. So it's still a bit still low visibility.
Okay, great. Sounds promising, though. Finally, back to asking, I know it's not major for you, but on the heat pump side, what are you experiencing there?
We could see, for one of our customers, we could see some recovery in Q2, and for one of our customers, it was still slow. But they work with different systems, but the one that is more in the German market, we could see some improvements from our customer in the second quarter. But our other customer that is more delivering for all Europe, still very slow in Q2.
Great. Those were all my questions. Thank you.
Thank you, Derek.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad now. We will take our next questions from Markus Almerud from Carnegie. Your line is open. Please go ahead.
Yeah, good morning, Markus Almerud here. I would like to just continue maybe on the demand question. So you're talking about demand being better, and just from what I understand, you're also talking about sequential improvement from Q1. If you look at the poor segments, automotive and fashion, what do they look like sequentially? I understand there's a big drop year-over-year, but if you look at sequential trends for those two segments in particular.
I think for that two segments, if you look sequentially, it's, of course, if you look at 2023, Q1 was pretty stable for them still, and then we had a big drop in Q2, and now we are roughly in the same line. So sequentially, we, you can say that the negative trend stopped in Q2, but it's not a really big growth because it's more like the same level as 2023 in Q2.
Okay. Okay. So it's kind of floating around at the bottom and not moving downwards and not moving upwards. Is that the right way to see it?
Yeah, yeah. It's pretty stable. So I think, you know, the last four quarters, everything has been falling, but now the falling has stopped, for that two areas. And for electronics, there's even then a sequential growth, so-
Uh-
But then electronics was entering, you know, this lower demand, much earlier than fashion did, for example.
Yeah.
In electronics, it's sequential growth then. Yeah.
If I look at fashion, the new customers, I understand the whole segment is soft, but what kind of discussions are you having about new customers? I know that when we went into the softness in the fashion, you had a big pipeline of fashion new fashion customers coming along. What are those discussions? Where are you on those discussions?
If we start with Europe, where we work with more bigger customers, you know, we got two big new customers, and we are still looking for some very interesting projects there. So I think there, the pipeline looks very stable. And then, of course, there's price pressure on the market, but we have also acquired a couple of new customers in the second quarter that is not so big like the other ones, but there's still a good momentum. So there, there the trend looks much better for Europe. For U.S., we still have a high pipeline, but there we work with lots of small, medium-sized fashion customers, and, you know, we have a pretty high churn. I think there is, you know, there is still a trend, lots of them go bankrupt.
So on average, four customers per month is going bankrupt. But then we have also an inflow of customers, but the demand is lower. So the inflow is still good, but the demand is too low for the existing one, and we still are losing customers that are actually disappearing from the market. So there, that's why it's more complex. I must say, fashion, absolutely more positive in Q2 in Europe. But Europe was also entering the lower demand earlier than U.S., because U.S., we didn't... So it's like a cycle here. So I think U.S. is one quarter behind, Europe now when it comes to fashion. We are-
Yeah.
We hope to see a recovery in Q4, more in U.S., North America, then.
Mm-hmm.
So we have different cycles from region and customer segments. You can really see differences, but you need to have in mind when they were entering the decrease in demand and when the recovery comes. So the cycle is around one year for all our segments, actually. Yeah.
Mm-hmm. And, and when we, we had this call three months ago after Q1, and you compared to right now, do you have, do you have the same expectations? Because we were also then talking about the recovery in, in the second half. Would you say that that certainty or, or uncertainty has decreased or increased during this quarter? Has it changed?
No, I must say it's slightly more uncertain than compared with Q1, because those were customers in Q1 had high expectations for second half of the year. Now, they still expect gradual improvement, but they think it will be a bit slower. So I think it's slightly lower expectation than I had in Q1. But I think more it's about timing here. So I think, you know, the trend has changed, so there will be improvement. The question is about the speed in the recovery.
Mm-hmm.
For almost all our segments, yeah.
Okay. And then finally, just on freight prices, I assume they're stable now.
Yeah, they are stable. There's no, for us, there's, we are in line with, with last year, so we don't see any bigger effects there.
Okay, excellent. Thank you very much.
Thanks, Markus.
Thank you. It appears there are no further questions at this time. I will now hand you back to Magnus Nilsson for any additional or closing remarks. Please go ahead, sir.
Okay. I just want to say thank you, everyone, for listening in to our phone conference, and I hope that everyone will have a great summer. Thank you very much. Bye-bye.
Thank you for joining today. You may now disconnect.