Good day, and welcome to the Elanders AB conference call. At this time, I would like to turn the conference over to Mr. Magnus Nilsson. Please go ahead, sir.
Thank you. Welcome, everyone. This is Magnus Nilsson, CEO of Elanders. Together with me, I have also Andréas Wikner, CFO of Elanders AB. I will now go directly to slide number three in our presentation to talk about four major growth areas that we have identified and that will be our focus areas going forward. The first one is e-commerce, where we can continue to see a very stable growth and also very high activity when it comes to requests from both existing and new customers. Elanders e-commerce actually contributing with two growth factors. Number one is the underlying market growth that is expected to be around 10% the coming five years per year in both Europe and North America.
The second growth factor is that when one of our customers goes from retail to e-commerce, the turnover for us actually will increase with 3x-10x times because of several extra activities like pick and pack of single items. We need to do single shipments, and then on top of that, we have the whole return handling as well. The second growth opportunity that we have identified is contract logistics, where the trend continues with increased outsourcing, and we can see an expected growth per year the coming five years, this area is actually around 4%. The third growth opportunity is in the area, what we call Lifecycle Management, where we take care of the complete lifecycle of a product.
A very good example of this is when it comes to laptops and servers, where we are involved already in the manufacturing process, we take care of the distribution of the finished products, and then we work with takeback of secondhand equipment that we later on refurbish and sell with the target to double the lifespan of the product, which contributes very positively from a sustainability perspective as well. The fourth growth opportunity is for our area of print and packaging, and that is the area we call online print. That is one of few areas in commercial print that actually can show a yearly growth of around 4%-5%.
In this area, Elanders is one of the leading production partners in Europe for different online print companies, and we're also selling direct to the market via our own online print brands for both consumers and companies. If we then go to slide number four in our presentation, I want to talk about our recent acquisition of the American company, Bergen Logistics, that are actually active in two of our identified growth areas, e-commerce and contract logistics. Bergen is mainly focusing on providing omnichannel solutions for small and medium-sized fashion lifestyle brands and have developed a unique platform that enables them to handle often more than 100 customers in one site and still deliver strong profitability.
They're also covering both West Coast and East Coast in U.S., and they also have a site in Canada, which means that Elanders now with our existing footprint in Europe and Asia and Bergen Logistics can offer both existing and new customers global solutions in the three biggest markets. If we then go to slide number five and look at our second acquisition in the fourth quarter, that this was the Dutch company, Eijgenhuijsen, that will help us to grow our services when it comes to Lifecycle Management. Eijgenhuijsen is offering complete Lifecycle Management solutions for high-value products like medical equipment and digital printing machines. They offer value-added service like specialized transportation, they do installations, they do service, and they also do takebacks and refurbishment of their customers' equipment.
If we then go to slide 6, you can see how the new split look like for our major customer segments, when we add pro forma for Bergen Logistics. Including Bergen with Fashion & Lifestyle actually be Elanders' biggest customer segment at around 30%, followed by electronics at around 27%. This also means that with the new setup, that around 65% of Elanders' sales now are belonging to non-cyclical customers, which will over time make Elanders more resistant to swings in the global economy. If we then go to slide 8 and look at the fourth quarter. In the Q4 , continued the underlying demand from our customers to be very strong. Despite very challenging market conditions, could we show a very strong recovery compared to Q3.
The shortage of semiconductors was lower in Q4, but it still resulted in fluctuations in customer demands, which requires an extraordinary flexibility, which of course then results in some additional costs. On top of that, we could also see that material and freight costs continues to increase. We are now step by step increasing our prices to our customer, especially for material, and but also when it comes to freight costs. Normally we have in our agreements with our customers, there's a three-month delay. We do an analysis of the price increases in the quarter, and then you can increase the price the quarter after that one. In the end of December, we could see a small increase in sick leaves because of Omicron outbreak, which has accelerated now in January.
We hope that this will not last too long. You could see now numbers from, for example, the East Coast in the U.S. that the sick, you know, the sick numbers have gone down with almost 90%, and they are around two-three weeks ahead of us in Europe. If we go to slide number 9 and look at the numbers, you can see that we despite the challenging H2 of 2021 and a slightly lower result in Q4, reached the full year result before tax that was 16% higher than the year before. If we exclude one, of course, was it actually 20% higher. We also managed to achieve an organic growth in net sales for 2021 of 7%.
This growth comes mainly from the business area Supply Chain Solutions and then especially from our European activities that continues to receive lots of requests from both existing and new customers. If we then go to slide number 10 and look at our business areas for the quarter, you can see that Supply Chain Solutions managed to show a growth in sales, but the result was negatively impacted by one-off costs of around SEK 60 million. The margin was affected by increased costs connected to what I said before, fluctuations in demand, but also increased freight costs. If we then look at Print & Packaging Solutions, you can see that they went down both in sales and results. Despite much lower sales, they still managed to deliver an EBITDA margin almost in line with the year before.
The main reason for their lower sales is less trading of freight for our subscription box business in the U.S. If we then go to slide number 11 to have a look at our sales by customer segments in the quarter, and then look at the sales for automotive, you can see that sales improved compared to last year. All of our customers continue to see a strong underlying demand. We expect that as soon as they have enough semiconductors, that they will increase the production capacity. If we now look at our electronics customers, we can show a very strong growth compared to last year. It looks now that they have overcome the lack of semiconductors much better than the automotive sector, which resulted in a very strong Q4.
All we could see a high demand in both Europe and Asia. If we then go to slide number 12 and look at Fashion & Lifestyle, we can see a very strong growth compared to last year. The growth comes mainly from Bergen Logistics, but also a continued organic growth in Europe. Sales of subscription boxes in U.S. continues to decline because of less trading of freight for our customers, which have a negative effect for this business area. If we then look at healthcare and life science, we show a really good growth, because of increased demand, but also we have managed to add some new customers as well. If we then go to slide number 13 and look at industrial, we can see that their sales continues to be affected negatively compared to last year because of lack of semiconductors.
One reason is also that we have exited some low margin projects. If we then look at other sales, you can see there's a strong growth, but that is mainly driven by the acquisition of the German online printing company Schätzl. That is a big supplier when it comes to online print. If we then go to slide number 14 and look at how things will be going forward, we continue to see a very strong underlying demand, and we also continue to receive lots of requests from both existing and new customers. The growing e-commerce market continues to drive growth for both Supply Chain Solutions, but also when it comes to online print for Print & Packaging Solutions. With the acquisition of Bergen Logistics, we should be able to capture an even bigger share of the growth from e-commerce.
2021 has been a strong year for Elanders when it comes to acquisitions, and we have actually acquired companies with a total yearly sales of around SEK 1.2 billion with an average EBITA of around 10%. All of the acquisitions are in potential growth areas, and we expect them to contribute positive to our future growth and also over time, make Elanders less sensitive for swings in the global economy. We still expect that shortage of semiconductors and higher freight and material prices will put some pressure on results in 2022. Apart from this, we are carefully optimistic going forward. As soon as the market normalizes, we should be able to capitalize from our customers' strong underlying demand and organic growth. That was everything for me, and now we open up for questions.
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Hi, it's Carl here from Nordea. A couple of questions from my side. Firstly, I think you said in the report at least that some customers are trying to sort of catch up for a period of supply chain issues and lower volumes with increased production. In what sub-segments do you see it, and will it be seen already in Q4?
I think the customer segment with the absolute biggest backlog is automotive, where we know that the customers have the huge underlying demand. It's been hard to predict. You know, in the beginning of Q4, they had a better flow of semiconductors, then had some problems again in December. That is one area that we expect, you know, as soon as they have, you know, components enough, they will increase the capacity a lot. And also good signal for us was electronics in Q4, where we could see a strong recovery, at least when it comes to laptops and servers. If they can continue to fill up with the components, we expect that they could grow as well.
You haven't seen a worsening situation for electronics when entering 2022, or is it-
No.
Quite stable on a better level?
It looks like they're on better level. I think they have a. Of course, they have a bigger buying power when it comes to semiconductors than automotive. They use much more. What I understand, they're also using more, sophisticated semiconductors where they have a better supply, and automotive is using more of the older versions of the semiconductors, which is harder to get. That is what we understand from our customers, yes.
Okay, perfect. Also, of course, volatility negatively impacted the Supply Chain Solutions margins, as you said. I guess maybe it's tough to adjust for, but what would you say if you were to try to adjust at least for it? What would you say that sort of the underlying margin could be in Supply Chain Solutions if we take away sort of the volatility, just so we can get the sense where we are with the previous cost savings, et cetera?
Yeah, I think if we look at Q4, we made an EBITDA margin of 6%, and last year it was 8%. I think, you know, it's really hard to calculate, but I think it's around 1%-2%. Do you think, Andréas?
Yeah. one, two.
How it hurts our margin with this volatility and increased costs and it's actually a bit same for print as well, for the material costs, where we now manage to increase. I think 1%-2%.
Mm.
Because last year in Q3, Q4, then everything was running optimal, and then we even managed to make 8% in Supply Chain Solutions. That was optimal. If it run optimal, 1%-2%.
Mm. And, and on print-
Maybe more.
On Print and Packaging a bit, there you had a negative margin development year-over-year. I guess on one hand, I guess you would have a positive margin mix impact from sort of the insourced logistics from your subscription box customer. I imagine that it's a low-margin business. Is raw material the negative delta in margin year-over-year, or is it the photo book business dragging a bit or?
Some from the photo books, but I think the biggest impact is from material. We have had paper price increases with 20%-25%. Of course, for some jobs, paper can be 40%-50% of the cost we have. That has been very painful for us. That's why it's important for us now to increase the prices. The majority, the major impact, is material costs. Otherwise, like you say, with the lower freight costs or subscription box business, we should see a stronger improvement in margin. I think we are in a really good position for Print & Packaging. When we manage to get pricing, you know, to send price increases to our customers, we will see an improvement in margin. We will continue this year to have less trading of freight as well. That was mainly in the second half, 2021. Now we are very optimistic for our Print & Packaging area.
Great. When do you think that you are fully compensated for higher freight rates, as you mentioned, the material inflation, both for supply chain as well as print and packaging?
I think for material, for packaging, that will be step by step. Because, you know, around 40%-50% is no contract customers. They go quicker and then, I think that will be step by step. Hopefully, you know, already in Q1 we see effects and then better in Q2. When it comes to freight cost, I must say it's really hard to estimate somehow because a tricky thing is that China have this zero tolerance to COVID. If they start again to close down harbors, then there will be again lack of components and you will need to move freight from sea to air, and that will drive freight costs again.
I think one of the worst things is actually the zero tolerance in China that people should be aware of could hurt the global economy. If they don't decide to just let it go like all the rest of the world.
No major solutions in the short term, it sounds like, right?
Yeah, no, but we-
For your part with price increases, right?
No, but we will see now in the Q1 , we will get price increases from more customers for freight. That is good because now there was very high, you know, diesel costs in Q4, and that will be able to adjust from first of January. That is good. We will still see improvements for us step by step. Also for our air and sea part, we can also see that we are now month by month can capitalize actually on the higher prices and gain better margin. I think even if there will be lots of disturbances, we should see step-by-step improvements there as well.
The final one from my side is a bit on Bergen Logistics. I guess it will be a good platform for your European e-commerce customers to expand into the U.S. Is it too early days, or have you started cross-selling initiatives between ITG and Bergen?
No, we already have several cross-selling activities. We're actually very close now to get one of our Bergen's U.S. clients in Europe. They have started off quicker than our European guys. We have one and also a bigger European client that we're now discussing for U.S. I expect that this will go in a rather good tempo. I must say Bergen is very, you know, they have a very good style in their company, very aggressively pushing for more sales. Already in 2020, they opened a site in Netherlands for their European clients. Now they can offer all markets almost in Europe, the bigger markets like Germany and U.K. as well from our side. We are very optimistic for that.
Sounds promising. Thank you very much.
Thank you, Carl.
Thank you. As a reminder, if you wish to ask a question, please signal by pressing star one. We will take our next question. Caller, please go ahead. Your line is open.
Hello, good morning, Markus Almerud.
Hello.
Quick follow-up first on print. You talked about hurting margins a little bit, but looking over the EBITDA line, margin seems to be a little bit higher actually than last year. Would you say that it's more an effect when it comes to volumes and demand rather than you having problems in achieving margins product by product?
Well, we also of course are still affected by the, you know, the corona restrictions in print. So there is, you know, normally there's lots of marketing activities that still is a big part for us that has not been running. You know, it started, you know, in the beginning of the year going more normally, but then now in the H2 they closed down, you know, lots of marketing activities. So that is one reason. Of course in print we still deliver lots of manuals for the car industry and their demand is much lower than the year before because of the semiconductor issue. So it's from the weakness in sales, it comes mainly from the manuals and from marketing activities. We expect that it should be bit better. Then of course
Yeah.
We have shipping as well is impacted our Q4 .
Yeah.
Positively.
Product by product, it seems that margins are quite healthy still.
Absolutely.
Albeit on a little bit lower level when it comes to overall demand.
Yeah, absolutely.
A follow-up also on Bergen Logistics. As you said, you have seemed to be gotten to a great start, primarily possibly when it comes to the Americans coming over here. How is it, how do you see the future with Bergen and the possibilities for other segments to benefit from your footprint in the U.S.?
No, we see big benefits with that one because they are, you know, even if they're mainly focusing on fashion and lifestyle, they also do some small electronics customer. So I think especially for us in the electronics area, where we are also very big. We have had opportunity in the history in U.S., but we haven't been able to cover it or manage it. So for us of course the first focus is to grow fashion and lifestyle, but it's also now to, you know, go to all our electronics customers to say that now we are covering both East and West Coast and Canada. So, with that, with their sophisticated platform and everything.
Now it's a great opportunity, and we also now have. If I could say, like, you know, much higher standard of the management in U.S. with the people Bergen is bringing in. There could be lots of opportunities for the future.
Would that be something to look forward to more when it comes to perhaps next year and go forward and not the first priority, or how do you sort of prioritize those efforts?
No. I think 2022 we will focus a lot on the low-hanging fruits that is Fashion & Lifestyle. I think the year after that we will start also to you know to look more into other customer segments. I think it's mainly electronics. We don't see any you know growth for industrial or automotive. It's not in our strategy in North America, but electronics is very interesting.
All right. Great. You mentioned the contract-based three months delay in price increases in certain contracts. Which specific prices are impacted by this, and how are those terms in contracts general for most of your customers, or can you elaborate a little bit on that?
Yeah. It's if it comes to transportation, it's normally cost that you can, you know, follow an index. For example, you know, the diesel cost that's going up dramatically, you know, the last quarter as well. In our contracts you look at the average price of diesel in the fourth quarter, then we are allowed to apply that from first of January. That is very straightforward. It's also for some of our printing customers when it comes to paper prices. There need to be a quarter, and then they will look at paper price index, and if that we can show it 20% increase, we will then, starting from January, increase our paper cost with 20%. Then there is the more.
The harder one is, you know, when the problem that's been on transportation side, that there suddenly is no drivers, everyone is sick, you need to buy from another supplier, and then the suppliers use the momentum to increase their prices temporarily, like 10, 20, 30%. That's much harder because it's really hard to show, you know, some data behind it. Hopefully this will normalize because lots of this is also connected to the latest Omicron outbreak. If that stabilizes and countries are opening up to have less quarantine days, we think that should be normalized a bit. That you cannot push forward to your customers. Not easy.
Great. When it comes to overall demand, it seems that it's very strong pretty much across the board from your customers. There are certain factors which cause them to have problems and there are some hiccups in the supply chain and so on. Which segments do you see that where demand is clearly higher than you actually can deliver right now?
I think it's especially for us in automotive. You know, we are working with the premium car manufacturers in Germany, and we know that one of our customers, they have a, for some models, a backlog of two years. For them it's everything, you know, if they can. Also one of our other customers, and we could see in December, they prioritized their most expensive model, of course. They were running that in extra shifts. All their standard models, they closed production for almost three weeks. Of course, there's still a demand for those cars. They can lose some volumes to competitors, but lots of our customers are doing premium cars, so there is an enormous backlog.
Even if they lose 50%, they have maybe sometimes one year to catch up. We have to wait for that one. Yeah. Electronics, we could see they are more improving a lot in Q4, at least for laptops and servers. Printers is not back on normal levels because they prioritize laptops and servers. It's more margin, but that could also. There's actually a backlog waiting there.
Okay. Also a final question, just regarding tax rate. Whereabouts do you see the tax rate for 2022 about on corporate level?
I gave that to Andréas.
We are estimating because it was very, very high in Q4. We're still investigating it a little bit, the reason for it, but we expect it to be around 29%, 20%-29% in 2022. Effective tax rate.
Okay. Great. Yeah. Okay. Thank you very much.
Thank you.
As a quick reminder, it is star one to ask a question. We will take our next question. Caller, please go ahead.
Hello. This is Mikael Danielsson from Brejn . I have a question regarding your financial targets when it comes to EBITDA, which we have a target of 7%. When considering you acquired businesses with turnover of SEK 1.2 billion in 2021, that had EBITDA margins around 10%. When it comes to your own target, could you give us a hint as to when in time you think you will reach the 7%? Could this happen in 2022 or 2023?
I think with, you know, with our latest acquisitions that are, like you say, around 10%, and we have done lots of cost improvements, that is hard to see now with all the challenges. If things normalize together with the acquisitions, I think we should be able to do it 2023.
Okay. Interesting.
Of course we are.
Thank you very much.
Yeah.
Yeah.
Welcome.
At this time, we have not received any further telephone questions. I would like to hand the conference back to our hosts for any additional or closing remarks.
Okay. Thank you everyone for calling in to our conference call. Thank you. Bye-bye.
This will conclude today's conference call. Thank you all for your participation. You may now disconnect.