Good day and welcome to the Elanders AB conference call. At this time, I would like to turn the conference over to Magnus Nilsson, CEO of Elanders. Please go ahead, sir.
Thank you. Welcome, everyone. Yes, this is Magnus Nilsson speaking, and together with me, I also have Andréas Wikner, our CFO. I will start now with our presentation, and I will now go directly to slide number four and talk about four major growth areas that we have identified at, 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. For Elanders is e-commerce actually contributing with two growth factors. Number one is the underlying market growth that expects to be around 10% yearly in the coming five years, both in Europe and North America.
The second growth factor is that when the customer goes from retail to e-commerce, will their turnover for us actually increase with 3-10 times because of activities like pick and pack of single items, single shipments, and then on top of that, also return handling. The second growth opportunity we have identified is contract logistics. That the trend, in general, with increased outsourcing continues, which creates an underlying yearly growth for contract logistics services with around 4%.
The third growth opportunity is in the area we call life cycle management, where we take care of the complete life cycle of a product. A good example of that is when it comes to laptops and servers, where we are involved already in the manufacturing process, to distribution of the finished product, and then we do take-back of second-hand equipment. We will service them and sell with the target to double the lifespan of the product. It contributes very positively from a sustainability perspective. The fourth growth area is the area of online print. That is one of the few areas in commercial print that can show yearly growth.
In this area is Elanders one of the leading production partners in Europe to different online print companies, and we're also selling direct to markets via our own online print brands for both consumers and companies. In this area, there is an expected yearly growth of around 10%. If we then go to slide number five, you can see how the split of our major customer segments now looks like when we include our latest acquisitions. Including Bergen Logistics that we acquired last year with Fashion & Lifestyle, actually now be Elanders' biggest customer segment at around 30% of sales, followed by electronics at around 27%. This also means that around 65% of Elanders sales now are non-cyclical customers, which will, over time, make Elanders more resistant to swings in the global economy.
If we then go to slide number seven and look at the first quarter. The first quarter was very challenging for us. First, we had very high sick rates in January and February because of COVID, especially then in Europe. This was normalizing in March, but then as everyone knows, in March, the war in Ukraine started, and that especially affected our automotive customers in a negative way, but also increased costs for material, fuel, and energy. Despite these challenges, we could see a strong performance from Supply Chain Solutions, and the weaker demand we could see in Europe was compensated by strong growth in North America and also a very stable demand in Asia.
The Packaging Solutions had a very challenging quarter and was negatively impacted by continuing increased material and freight costs. You could also see low demand for some online print products like photo books, calendars, and other similar products. Despite the overall challenging situation in Europe, did we manage to increase our EBITDA result with 32%, and we could also show an organic growth of 2%. The improved results shows that Elanders strategy with a diversified customer base and a wider global footprint works very well.
We also improved our operating cash flow to SEK 300 million compared to SEK 107 million the year before. Our ratio for net debt and adjusted EBITDA, excluding IFRS 16 and one-off items, but including pro forma results from acquisitions, amounted to 2.7. If we then go to slide number eight, to look at our business areas first quarter, and look at Supply Chain Solutions, and you can see that we could show a very strong growth in both sales and results. We also managed to improve our EBITDA margin to 6.3% compared to 5.4% the year before. Bergen Logistics is, of course, the major reason for the growth, but we could also show an organic growth of 10% in Supply Chain Solutions in the first quarter. If we then look at Print & Packaging Solutions, we can see a decline in sales, but that is because of less trading of freight in U.S.
If we take that away, we actually grow also 10% organically in the print and packaging area. The growth is partly driven by increased material prices and increased freight costs, and unfortunately decreased our margins because of what I mentioned before, you know, the increased cost for material and freight costs, but also disturbances in our customers' order flow because of lack of components.
As I mentioned before, also lower demand of photo books, calendars, children books, and other similar products. Important for us now going forward is to transfer the increased cost to our customers. If we then go to slide number nine, to look at our sales by customer segments in the quarter, and look at automotive, you can see that, even if it was a bit challenging for us, that sales was improved compared to last year. Our customers underlying demand continues to be strong. The first quarter, with the high sick rate and the war in Ukraine was putting lots of pressure on automotive.
We can now see that our customers are finding new supply ways for products coming from Ukraine before, and we expect them, in April, to run in more normal levels. Electronics customers continues to show a very strong demand, even if they also were affected by the war in Ukraine because of the global logistics flow, especially with railroad through Russia was closed down, and the need to reroute volumes via sea instead. There were some effects of that, but that will also normalize going forward, what we can see.
If we then go to slide number 10 and look at fashion lifestyle, you can see, of course, a very strong growth compared to last year, and that growth comes mainly from Bergen Logistics, but also a continued stable demand in Europe. If you look at healthcare life science, we can show good growth, and we can see an underlying strong increased demand from our customers. We have also added a new customers, and we're also starting up a new med tech site in Germany or have started up a new med tech site in Germany in the first quarter.
If we then go to slide number 11 and look at industrial, we can see some stable demand in the first quarter, despite also some negative effects from the crisis in Ukraine. Other sales shows a growth, but lower than expected because of these decreasing sales of online print products. If we then go to slide number 12 and look at how things will be going forward. You know, as everyone knows, the war in Ukraine and humanitarian disaster, and for Elanders have been very important to help our Ukrainian employees that we have both in Poland and especially in Poland, but also in Germany.
The focus for us in the first quarter has been to helping our employees and their families that have fled Ukraine to arrange living quarters for them in both Poland, Hungary, and Germany. We have also dedicated three trucks that are driving necessities to the Ukrainian border on a regular basis As I say, as everyone understands, if the war continues, there's a risk, of course, that cost of material, energy, and fuel will continue to be on a high level which we need to transfer to our customers. There's also an obvious risk that the war will have negative effect on the general consumption, at least in Europe, which could have some negative effect on our customers.
Positive on Elanders side is that we can now see that we have much less negative effects from COVID-19, and our sick rates are back now on normal levels. A big challenge going forward is, of course, China's zero-tolerance policy, which will put pressure on a global supply chain of components and products, but also on the manufacturing itself in China. We have, as everyone know, also some manufacturing logistics services in China. I think despite all these challenges, are Elanders in a very strong position, which we also could show already in Q1.
For the moment, we can balance the challenging European market with a very strong growth in North America and continuing stable demand in Asia. We also continue with our growth plans, and in the second quarter, we will open a new facility in Atlanta to support our expansion in fashion lifestyle segment in U.S. We are also now investigating the possibility to expand our new facility in Oberhausen in Germany, to handle all the you know the big volumes of RFQs and that was coming in from our customers. Despite, you know, a very challenging environment, we can see that the new Elanders works very well. You know, we have a really nice diversified customer base now, and we're also very diversified in a geographic sense, which make us stronger to handle ups and downs in the economy.
Okay, thank you everyone. Now we open up for questions.
Ladies and gentlemen, if you would like to ask a question, you can do so now by pressing star one on your telephones. That's star one, if you would like to ask a question. We will now take our first question from Alexander Vilval from Erik Penser Bank. Please go ahead.
Hello, good morning. I would like to-
Hello.
Hello. Start with Bergen Logistics. Obviously, they have contributed to the quarter for Elanders, but can you elaborate a little bit on how their organic growth, what makes Bergen themselves grow now, in terms of customers and perhaps new capacity and so on?
We can see that Bergen has a very strong organic growth and we think it's you know they have a really nice niche in the fashion lifestyle segment where they focus on small and medium-sized brands and they can see a huge increase still continuing growth in e-commerce. They also you know they also do lots of omni-channel solutions.
Even if e-commerce you know go more flat then it grows in retail instead and they have a huge demand. For us now it's more about capacity to speed up to handle all the RFQs. They have to open up a new site in Pennsylvania last year. Now we will open up a new site in Atlanta. As we say they have a double-digit growth. You know, I don't think we don't comment it in exact numbers, but it's their growth has really surprised us, and it looks very promising going forward.
How much can this fulfillment in Atlanta? How much does it mean for Bergen in terms of sort of volumes?
It also always takes some time to fill it up. You know, you need you rent a new facility, you need to install, you know, shelves and equipment, taking customer step by step. You know, I think as you look at customer demand, you know, they can grow easily with 20%. It's more about filling up the capacity to handle it. With the new facility in Pennsylvania, that is not 100% full yet, and then we are ramping up Atlanta. You know, it's more capacity management actually for the moment for us to handle setting up the new sites.
All right.
We are really happy with the acquisition. It's always nice that the companies that you acquire are delivering what they were promising you when you acquire them. For the moment, it looks very good.
Great. Regarding the new MedTech site in Germany, it's up and running. Can you tell us a little bit about what they're doing and what kind of business they expect to do in this year and next year?
Yeah. It's a really sophisticated site because when we work with the MedTech customers, especially in Germany, we always offer them the whole life cycle, which means in this facility, we are storing their consumables, we are storing their technical equipment, we are delivering their equipment, we do pre-installation of the equipment, we are delivering consumables to their customers, but we also do service on site for our customers. We do take back and refurbishment, and we also have a service center with our own engineers that are serving their equipment.
There we have also a big customer there that is growing really good, and we added a new, very interesting customer in the end of last year that we're now ramping up. For us, this is a very important part for our future growth. We can see now when COVID is more going down that normal investments in healthcare is picking up speed and we can see that the demand from our customers is very high. We will step by step develop that area that still is pretty small for Elanders, around 5%, but a very interesting area for the future.
Would you see it possible to expand into further similar sites in other geographical locations?
Yeah. We have actually, before we only did it in Europe and Germany, but we also now moved one of our MedTech customers to Netherlands, to our new facility there. We will also have a special MedTech part there to also expand because both Netherlands and Germany are very big markets when it comes to especially MedTech equipment. In our expansion now, we move one big customer to Netherlands, and we will develop it from there. We also have activities in Singapore when it comes to healthcare with clean room capabilities. We do hospital logistics. We're also trying to grow in that area in Asia as well.
Okay. Thank you very much.
Thank you.
Thank you. We will now take our next question from Adrian Gilani from ABG Sundal Collier. Please go ahead.
Hi, it's Adrian here from ABG. I'd just like to start off with a question on the current trading. You mentioned in the report that you saw sort of a bit of a slowdown in demand in Europe towards the end of the quarter. Is this something that you've seen sort of continue or even accelerate into Q2 so far?
No, we haven't because the slowdown was mainly from our automotive clients because we realized rather quickly that there are 65,000 people in Ukraine working for doing parts for the automotive industry, so especially cable trees. So the big effect was that automotive closed down, you know, several shifts, but they are now up and running in April again. We could see some fashion lifestyle slowing down a bit in Germany. We don't know if it was temporary or an effect of low consumption. For the moment, it looks more stable again, 'cause March was hit hard by the automotive area. They have found out other sourcing ways now.
Obviously, I mean, you talk a lot about the issues you had in Q1, but margins held up a lot better than we had expected, and you even increased the margins year-over-year. Should we assume that you sort of managed to move on a lot of your input price increases during Q1 towards your customers and that you're doing that in Q2 as well?
Yeah. I think so. We can, especially in Supply Chain Solutions, we have managed to transfer lots of additional costs, and we have also managed to earn more when we are trading freight now. In Supply Chain Solutions, I think the trend will continue with improved margins. In the Packaging Solutions, really challenging for the moment. I think everyone has realized now that during COVID, lots of paper mills was closed down, and the industry was closing down more than what the underlying demand is. And this Ukraine crisis also fueled that even more. Paper price just continues to go up, but it's also really hard to find paper. We know we need to buy when we can buy.
We need to say, "No, thank you," to Europe, to some Europe. Supply Chain Solutions, they will continue to be improved in margins. The only risk we see there on Supply Chain Solutions is the zero tolerance of COVID in China. We also have facilities around the Shanghai area that they have closed down for the moment. If it doesn't last so long, I think we can absorb that. It also could affect, of course, our electronics customers that manufacture in China, and that we cannot really see the effect of that one. It looks still pretty good. We also have the growth in North America that helps us, so yeah.
You mentioned sort of the zero-tolerance policy in China, and that was actually gonna be my next question. First of all, we saw during Q1, there was the Shenzhen lockdown, and as I understand, that didn't have too much of an effect, but you can probably elaborate a bit on that. The Shanghai one, sort of how much operations do you actually have in Shanghai?
Yeah. The Shenzhen one didn't hurt us so much. It was more hurting, I think, shipments out, but our customers managed to balance that. Shanghai area is much tougher for us. We have four sites in and around that area, and they have been temporarily shut down now in April. Now they indicate we can open them again.
If it stays with that, everything should be fine. I think we are more worried about the impact on all the electronics manufacturing that we can't really see, but they're also spread out. It will depend for us a lot if they're closing down next step in Chongqing or in you know in Chengdu or whatever. Also, China is big. I think it's a bit stressful for everyone, for our customers and, especially with shipments, if they close down the harbors. I think now the harbors are running again, so yeah. Let us hope that it will work. The signal now is that we can open up again now at the end of April for Shanghai sites.
Just one final question on my end. You also talked a bit about sort of the rising paper prices, and you mentioned the lack of paper. There's obviously been major strikes at Finnish pulp mills recently.
Yep.
Has this been purely sort of a margin effect for you, that you've managed to get all the paper but at a higher price? Or have you actually lost sales because there's no paper to be bought?
No. We are also. It's both. We're also losing sales, especially on, you know, normally in the print industry, there's a lot of what we would call, you know, one-off jobs or spot jobs. Lots of those jobs are canceled. We have managed to secure paper for our big customers, but we have needed to build very high stocks in paper. The signals are that the market should normalize in the second half of the year. Hopefully this, the strike in Finland will be over soon because that also affects. We're also now managing to push lots of price increases to our customers, so they understand the problem. They have been... The problem is when it's increased, you know, month by month, you need to go to the customer every month, so. Hopefully it will be normalized, and we will catch up with increased prices, and then it should be fine.
Okay. Thanks so much. That was all my questions.
Thank you.
Thank you. As a final reminder, if you'd like to ask a question, please press star one now. There are currently no questions in the queue at this time. I will turn the call back to your host.
Okay. Thank you, everyone, for calling in and listening to our conference call.
Thank you. Bye-bye.
Ladies and gentlemen, that will conclude today's conference. You may now all disconnect.