Good day, and welcome to the Elanders AB conference call. At this time, I would like to turn the conference over to CEO, Magnus Nilsson. Please go ahead, sir.
Thank you. Welcome, everyone, and together here with me is also Andréas Wikner, our CFO. I will start directly to go to our presentation, and I will go to slide number 5, and where I will talk about our the result for our fourth quarter and also our yearly result. After a very strong third quarter, we actually managed to perform even better in the fourth quarter, and we achieved an Adjusted EBITDA margin of 8.9% compared to 5.8% the year before, which means that we achieved a result that was actually 51% higher than last year.
The strong recovery in demand and Supply Chain Solutions, combined with the actions we made in 2019 to lower our cost base and also to improve our productivity, was the biggest driver for the improved result in the fourth quarter. But also, Print and Packaging Solutions managed to improve the result in the quarter compared to the year before. In the fourth quarter, we could see a continued strong recovery in almost all customer segments, and net sales grew organically by 5.5%. We could see some downtrend in demand from retail, but we managed to compensate this with higher demand from our e-commerce customers in fashion and lifestyle.
To meet up the increasing demand we can see in e-commerce and also to develop our offer in this area, we are now opening up an additional site in Oberhausen in northwest Germany, and this site will mainly focus on e-commerce solutions for fashion and lifestyle segment, where we, for the moment, can see a very high activity with lots of RFQs coming in from both existing and new customers. Thanks to the strong result in the last six months, we actually managed to achieve the yearly result higher than the year before, even after a very challenging first half year. Our adjusted result per share increased to SEK 8.12, compared to SEK 7.16 the year before.
We also continued to show a very strong cash flow, which has resulted in a lower leverage, which means that we can benefit from lower interest rates going forward, and it also increases our capacity to do more acquisition. If we then go to slide number 6, we look at our financial position, then you can see that our adjusted net debt EBITDA, exclusive IFRS 16, is actually now down to 1.52, compared to 2.96 in 2019. We have also improved our net gearing, which is down to 0.38, compared to 0.74 in 2019.
If we then go to slide number 7 to look at our different business areas, in the fourth quarter, you can see that Supply Chain Solutions managed to improve the adjusted EBITDA margin to 8.1%, compared to 4.2% the year before, and they actually improved their result with 87% compared to last year. Also, Print & Packaging Solutions managed to increase their EBITDA margin and improve their result with 10%, and they actually made a fine EBITDA margin of 12.1%. Majority of our print companies could see a stable recovery in the fourth quarter, but it was mainly our German operations that were the drivers behind the improved results. Because of increased web-to-print volumes of both photo books, calendars, and market materials, for both private persons and companies.
This is a very growing area for us. If we then go to slide number 8, to look at the different customer segments, if we just then start to look at automotive, they could show a very strong recovery in the fourth quarter, and our customers didn't do any additional closures during the holidays and were running on normal levels. Our customers also in automotive area indicates stable demands going forward, even if the COVID-19 actions could put some pressure on the sales, because mainly all of them have still rather high backlogs in the order books that they need to produce. Some of our customers could be affected of the lack of electronic components, but for the moment, we don't have any signals from the customers for the different models and brands we are serving.
So we don't think it should have any bigger impact on our volumes. If we then look at electronics, our sales was lower in the fourth quarter compared to last year, but the reason is that we have taken away some low-margin buy and sell business that we were doing in, in 2019. But the underlying demand was actually very strong, and we expect that the demand for electronics products will continue to be high going forward, especially when it comes to laptops and TVs. And we also see lots of opportunities in this area to grow in the area, what we call life cycle management. If we then go to slide number nine and look at fashion and lifestyle-...
You can see that we had a very strong growth compared to last year, and that the reason behind it was continuous growth in our subscription box business fulfillment in U.S., but also a strong growth in our e-commerce area as well, and this e-commerce area as well. We expect that the actions done in different countries connected to COVID-19 will continue to put some pressure on the retail sales, at least in the first quarter in 2021. But we expect at least partly be able to compensate this with increased e-commerce volumes. If you then look at healthcare and life science, we had a strong boost in the second quarter, and part also in the third quarter, due to one- f business relating to personal protective equipment for the North and South American market.
In the fourth quarter, there was almost no effect on sales from this business, but we could actually see some organic growth from our other services in this area. If you then go to slide number 10 and look at industrial, you can see that the demand was back at normal levels in the fourth quarter, and we actually managed to show a slight increase in sales. Our customers in this segment have indicated that they will continue to have stable demands going forward, if the actions against COVID-19 will not be too extensive and advanced. So if you then go to slide number 11 and see how things looks for Elanders going forward. After a strong recovery in Q3, which was followed up with an even stronger Q4, which confirmed that our restructuring actions in 2019 really has paid off in improved earnings.
This, together with our improved financial position for the group, makes us, of course, very confident that we will be able to perform at some good levels in 2021. We can also see that the activity when it comes to new RFQs is back to normal levels, and we are looking at several interesting projects from both existing and new customers. The COVID-19 pandemic will, of course, continue to put some pressure on our operations and customer demands, and we also expect that the strength in Swedish krona might put some pressure on our results, as almost all of our net earnings are in euros and US dollars. But after a very challenging 2020, we think we have showed that Elanders is on right track, and we expect to be able to continue developing Elanders in a very positive direction.
And with our strong financial position, should we also be able to do more acquisitions going forward, with the focus to increase our share of business with high added value, and also to develop new services. That was everything for me. Operator, please open up for questions.
Certainly, sir. Thank you. Ladies and gentlemen, if you would like to ask a question over the phone at this time, please signal by pressing star one on your telephone keypad. Please note, if you're using a speakerphone, to make sure your mute function is turned off, just allow your signal to reach our equipment. A voice prompt on your phone line will indicate when your line is open. Please state your name before posing your question. Once again, ladies and gentlemen, that is star one to ask a question, and we'll pause for just a brief moment to give everyone an opportunity to signal for questions. We'll now move to our first question over the phone. Please go ahead, caller, your line is now open.
Good morning, it's Carl Ragnerstam from Nordea. I have a few questions. Firstly, a question on Supply Chain Solutions, and just if you could help us understand the margin improvement year-over-year. I mean, how much that comes from cost savings, and how much comes from a positive mix effect, perhaps, as you mentioned, you have phased out quite a chunk of business from Mentor Media's buy and sell volumes. So could you please help us with that, firstly?
Yeah, I think, of course, there's been lots of ups and downs this year, and, and, in the first half year, we had, you know, big negative effects, on sales of supply chain solutions in Europe. And, and all the the majority of the cost savings programs was actually for our European supply chain, business. But when, then when sales came back, on normal levels, the second half of the year, we could really see really strong improvements in our European supply chain business. And, also, a good result that we have taken away some low margin business. We have managed also to increase prices in some business.
So I think the second half of the year, the biggest driver for the improvement was actually European business, and then also Asia continued to go, you know, on really good levels. So I think, of course, the first half year, we had this GP business that was driving good sales and margins for Asian supply chain business that lifted our results. But if you look at more the clean numbers, that is, more Q3, Q4, we can really see that there are strong improvements in margins in European, but also that Asia kept up the normally rather good levels.
Okay, perfect. And also, I mean, just looking at Q4. You obviously managed to take out some SG&A yet again, by roughly 220 basis points, if you take it against sales. So my question is, how much of the SG&A reductions would you say will come back as restriction eases, and we'll go back to more normalized society? And how much do you define as the sort of long-term sustainable level of the SG&A? It might be a difficult question, but
Yeah, that was. I think this is Andréas here, but I think you have two reasons behind the lower SG&A. I mean, it's both from the governmental support, but you also have last year, we had the restructuring costs also in the SG&A from our European operations. There's not really. You're not comparing. It's not easy to compare apple to apples. You have both effects from both, I would say, in the numbers. But the biggest effect is from the restructuring costs in last year's cost. But because we have gone down in number of employees as well, of course, in the structuring programs, there is, yeah, lower side costs as well.
But I'm not saying it also helps us to analyze, like Andréas is saying, but I think we will see it more easily going forward in Q1 and Q2. But there is absolutely savings there. There is.
So, one could say that you are running your business on a quite sustainable SG&A level currently, then, at least looking at Q4 and so on?
Yes.
Yeah.
In Q4, you can say.
Yeah, yeah.
Okay, perfect. Also a question regarding the freight rates. They have increased recently. I mean, in the short term, would it have a negative impact on you? I mean, in the longer term, at least, I know that you're pushing it to your customers, but would you see an effect in the short term?
Yeah, we could actually see already in Q4 that our, you know, RMC part, that is part of Supply Chain Solutions, you know, sales went up, but it didn't materialize in margins because of the really high freight prices, and there was also some negative currency effects. So you can see that RMC didn't help us so much in Q4, and we expect there will be some negative effects in Q1, but after that, people expect that it will stabilize. So there is a number of capacity now, so it's extremely overheated, and it's really hard also to push the cost to your customers as well, so-
Yeah.
But it's not a big part of Elanders, and we expect it to be more normal in from Q2 going forward.
Okay, perfect. And the final one from my side, probably for you, Andréas. And, I mean, looking at the cash flows, yet again, quite solid. And by looking into 2021, how should, how should we look at working capital, and how much you will sort of tie up, given a more normalized market, if you will?
Yeah. Yeah, the cash flow is amazing this year. I think you have some timing effects there also. So going back to your question, Carl, I think there will be a swing back a little bit in the Q1 on the working capital. Because I think we can see that normally we should not have that really that sort of a trend down in our cash flow or in our net debt in one quarter. So I think there are timing effects around the year-end. So we will have a backswing. I think the working capital will go up a little bit in Q1, which will affect the cash flow negatively.
It should not be so strong, the trend backwards, I think, so we should still have a positive effect on the net debt anyway, from normal operating cash flow, unless there are any other sort of things happening, so...
Yeah, I think we expect that we should manage to continue to be under the net debt EBITDA, including IFRS 16. Anyway, so it looks very good for the moment, yeah.
Okay, perfect. Thank you very much.
Thank you, Carl.
Thank you. We'll now move to our next question over the phone. Please go ahead, caller. Your line is now open.
Hi, this is Eric from ABG. Carl asked a lot of good questions, but I have two more. You mentioned that there was an increase of online sales for your customers, and that you focused on increasing that portion of your business, but could you tell us how much it is right now? And also, how much it will be after these new contracts you mentioned, that are going to be in the numbers for 2021.
I don't see. We don't have the... We can say the exact numbers. It's hard to estimate, but it's
The new contract will not add on so much sales. I think it's when it's up and running to 100%, it will probably around EUR 10 million, or SEK 100 million.
Yeah, that we add 100 million SEK in sales. And, and some of our customers is a mix of e-commerce and retail, so we haven't really managed to get out the numbers. But we could see the fashion lifestyle area in Europe was mainly affected by the retail, that the sales actually went up, even if some customers went down. So, I don't think we can give a—I think we can come back after Q1, when things are more normal. We can start to comment on that one.
... Okay, thank you. And I, I understand. And then it also seems like subscription boxes has kept growing at about 40%, but feel free to correct me if that's wrong. Is this just growth with your existing customers, or are you adding new ones as well?
It's mainly from existing customers, especially from two big clients, but both of them have had really strong growth. So we actually don't have, haven't had any capacity to add on some new customers. We have actually been almost overheated, and because of the restrictions also in U.S. about work those systems, and so we, you know, we have been totally crowded with the volume. So for us going forward, that business is to try to focus to improve productivity and things like that. And maybe also open up some more capacity to grow. But,
The running rate for that one is now roughly SEK 65 million-SEK 70 million per month-
Yeah
-in sales.
All right.
For the subscription box.
Given that the capacity is full now, could you grow in H1, or kind of how should we think about adding capacity to that business?
I don't think we will see so much growth this year than last year. No, I don't think so, because there's still so much restrictions in the Atlanta area where we operate this. It's hard for us to expand as well, because it's really complicated, and we need to use subcontractors now, and we don't want to increase the share of subcontractors. I think we will take care of the business we have, and but of course, if our existing customers grow, then we need to follow them. So, there still will be some growth for half year compared to the year before, but I think it's in a way to stabilize now. But it's this business has surprised us all the time. It's crazy it can grow like it's growing, so.
During now, the COVID-19, I think, it's just have added volumes because people cannot go to shops and things like that, so more people have adapt to subscriptions to this kind of products.
That business margin is low single digits, you could say.
Yeah.
So it's we mainly want to focus on improving the profitability for that business now, perhaps not growing so much more, because we have a lot of corona restrictions also regarding the workplace and how people can work, because we cannot stand too tightly and things like that. So it's more about improving effectiveness and productivity going forward, I would say, instead of growing.
Yeah.
Okay, perfect. Perfect. Thank you very much, guys. That's all for me.
Thank you.
Thank you, Eric.
Just as one further reminder, ladies and gentlemen, it is star one on your telephone keypad to ask a question on today's call, and we'll now move to our next question over the phone. Please go ahead, caller. Your line is now open.
Hello, my name is Andreas Lindström , Erik Penser Bank. Let me ask you-
Hello?
Hello. The fact that e-commerce in fashion and lifestyle has compensated for a weak side on retail, this sort of internal move in a specific customer segment, do you see any similarities when it comes to other segments, where one form of business can sort of compensate for perhaps an older business model, when it comes to your other exposures, besides fashion and lifestyle?
Yeah, we can actually see in the automotive area now that the car brands also have reacted because they had, you know, lots of pain in the second quarter when the car dealers was closed down, and then lots of them could actually not sell any cars. So we have seen both in UK and also from Germany now that you can actually connect with the car sales guy via virtually your mobile phone. They go around and show you different cars. They show specifications. If you want to test drive, they send the car home to you, and you can test drive it and pick it up. So you can see lots of adjustments also on the automotive side, and I think that will, they will speed it up as much as they can.
I know that Daimler is doing lots of campaigns now, buy your new car via the internet instead. So, everyone is adjusted, and I think it would stay as well for a long time. You know, I think lots of other customer segments have learned now, if you cannot sell via the internet, you know, e-commerce, then you have huge problems when things like the COVID-19 happen, so. But absolutely, we can see the trend also outside fashion, lifestyle, especially automotive. And also electronics have always been very strong in e-commerce, so we were expecting that we should have a downtrend, for example, in Europe, where we're running huge hubs for one of our electronics customers, actually two huge hubs. And they have not had any pain because of retail going down, then they upsell their e-commerce instead.
So I think that's why Atlanta also have managed to go pretty strong in 2020. And then also, of course, on the print side, you also have had a change, but that's been going on for many years, that people order print their e-commerce solutions instead, and that's also one area. That's also one of the reasons that our print and packaging, especially in Germany, could make a tremendous Q4, because people were ordering, also companies was ordering into material, via e-commerce instead.
When it comes to print, given the strong development there, and, Josh mentioned in the report that, you are looking at more opportunities when it comes to M&A, could print be part of, perhaps, could acquisitions in print be a possibility, or is it strictly supply chain solutions where you're looking into the future when it comes to acquisitions?
I think the main focus is, of course, supply chain, to develop that. But sometimes you can find some print companies with very special products that will not disappear because of the structural changes. Could also be some companies that are developed when it comes to the web-to-print area. So we don't close the door for that, but I think our focus is supply chain solutions. But if something interesting comes up in print that can strengthen our business going forward, it could be a possibility, yeah.
And in the Supply Chain Solutions, are there any specific sort of sub-segments where you would tend to look when it comes to acquisitions, or is it more an opportunistic approach?
No, I think it's for us, it's what we call life cycle management, and where we want to focus our acquisitions and supply chain. And for us, life cycle management is when we take care of the whole, you know, end-to-end solution for customers. You know, we get the products from their manufacturing unit, we store it, we deliver it, but we also install it, we do service. And then in the end, we do what we call this unique IT, you know, value recovery. We take back their equipment, we refresh it, we sell it for them on the, let me say, second-hand market. So, and of course, in this area, there's much more added value, it's much more of a service.
So that is our main target when we look at acquisitions and Supply Chain Solutions, and there's lots of interesting opportunities there for growth.
All right.
And we can also, we can actually see a trend. We can also see a trend that lots of big companies that before had their own service engineers now also decide that they want to outsource this part. So for one of our MedTech customers, we are growing now, and we are taking care of their service, of their lab equipment in more and more countries. So yeah, so it's, that's an interesting area, both for electronics and healthcare.
All right. I wonder, sort of, about the print side, where do you see capacity utilization about being in your print business? Are you running full, or can you grow in that business with the capacity you have, or is it?
Yeah, no, we can still grow. You know, some of our countries or sites was not running full in the fourth quarter. So some of the sites was only running at maybe 70% capacity. So, for us, it's rather easy for us to add more volumes without driving up investments too much. So, if we can find the volumes, we can absolutely grow. But it's a tough business, the print business, so. But I must say, the good thing has been with the COVID-19, in that sense, is that especially in Germany, there have been lots of companies going bankrupt, that actually resulted that we have got more volumes also from existing customers. So, yeah, we still see lots of opportunities there.
Yeah. But, I mean, there are some healthy margins there, and those are not sort of by any means peak margins, if we say you could add more volume and have more volume in the capacity you have, given that there are perhaps competitors in worse shape and perhaps are losing some business.
Yeah, but I think we have a very strong concept where we, you know, we produce bigger volumes in low-cost countries in Europe, and then we have a very sophisticated, what we call digital print, to handle the small and quick runs in Europe. I think that's one of the reasons we are one of the more profitable print groups in the world, I think. But then we should not forget that the fourth quarter is always the best quarter for our print business, and it normally slows down in Q1. And also our photo business, our own brand that is included in the print packaging, was actually doing very well also in the fourth quarter. You know, it's we have really strong sales in photo products for consumers also, from our own brand.
It's a good combination. Just to point out, fourth quarter is always the absolute best for the print and packaging-
Yeah
... solutions area.
Great. One final question, please. Regarding the comment on requests from both new and existing customers for new business, are there any segments that stand out, and is it that apply to both print and supply chain?
I think it's actually especially in fashion and lifestyle in Supply Chain Solutions we have lots of RFQs. But also in the electronics area, you can see new RFQs, and also automotive is coming back now with some new projects and things like that, especially when it comes to electric cars. It's almost over the whole line. And for print, there is also especially in the web-to-print area, where we have more and more partners. You know, we both have our own solutions in web-to-print, but we also serve other big players that sell print via internet. So, but you can see now that people have adapted, that we, you know, to the new situation.
So, you know, digital customer meeting is working much, much better, and companies cannot postpone anymore the, you know, to buy the new RFQs, the new projects, and things like that. So it's, now it's, it works much better now compared to the first half year.
Great. Thank you very much.
Thank you. Thank you very much.
Mr. Nilsson, there are no further questions queued at this time, sir. I'd like to turn the conference back over to yourself for any additional closing remarks.
Okay. No, thank you everyone for listening in, and also thank you for very good questions. So yeah, thank you. Bye-bye.
Pardon my interruption, sir. We do have one further question queued.
Okay.
No, they ha-
Okay.
They have now removed themselves from the queue now, sir. I do apologize.
No problem.
Ladies and gentlemen, this does conclude today's call. Thank you for your participation. You may now disconnect.