Good day, everyone. Welcome to the Elanders conference call. At this time, I would like to turn the conference over to Magnus Nilsson, the CEO of Elanders. Please go ahead.
Yes, welcome, everyone. This is Magnus Nilsson, and together with me is also Andréas Wikner, Elanders' CFO. I will now start with our presentation. For you that have the presentation, I will now move to slide number five, because the first slide is more about general information about Elanders. I will start to talk about how it looks on the market for our biggest customer segments. If we start with automotive, which the primary market for Elanders is in Europe, we have seen a slight negative trend for car sales volumes in Europe, and we can also see the same trend for Elanders, even if our product mix are helping us to balance some of the downtrend.
But we could see that especially December was particularly slow, and that was because lots of our main customers in the automotive segment decided to close some extra days in connection with Christmas and the New Year. If we now look at electronics, we have a different picture, and in electronics area, Elanders is more acting worldwide. And if you look at two big segments we are working with, then we could see that PC sales volumes continued to increase in 2019, but printer volumes was going down. And we can also see that there's a trend that volumes are shifting to other countries due to the trade war between U.S. and China.
This will maybe change now when there is partial agreement in place, but we don't really know yet how it could affect Elanders. We also had the growth in some of our new clients that we acquired in electronics in end of 2018. If we now look at fashion lifestyle, where our main markets are Europe and U.S., then we can see that sales of clothes and lifestyle products continues to increase, and Elanders has many customers within this segment, and it's mainly working directly with the brands and not as a third-party logistics solutions provider. We can see here that Elanders is following the trend, and we could show growth in this area during 2019.
If we then look at the industrial area, where our main market is in Europe, we have seen different pictures from our industrial clients. But if you look at Germany, we have seen a decline in volumes from one of our biggest customers in the second half of 2019. But then in the same time, we could now see in the Purchasing Managers' Index for the manufacturing service sector in Germany, that it increased to 51.1 from 50.2 in December 2019, which is five-month high. And then also the sub-index for the manufacturing sector increased to 45.2 from 43.7. So we can see some light in Germany, and we hope that it will come back during 2020.
Then if I go to slide number seven, and I will then go through some highlights and results for 2019. And if one- off items and IFRS 16 effects are excluded, then Print and Packaging Solutions had their best year ever, an increase to earnings with 28%, and they increased the EBIT, EBITA margin to 7.1% compared to 6.3%. And we think this is very good news for us because the market is still very challenging, but we can see that our concept works very fine, and it's really good margins to be in the print and packaging area. If we then look at our Asian part of Supply Chain Solutions, our daughter company, Mentor Media, also had a very good year with both increased profit and improved margins.
Elanders continues to have a very strong cash flow in 2019, and the net debt actually decreased by SEK 397 million in 2019, if we exclude IFRS 16 effects. If I now go to slide number eight, as we communicated before, we put a new CEO in place for our big daughter company in Germany, LGI, in July 2019, and that was Bernd Schwenger, that before joining Elanders, was responsible for building up Amazon's logistics operations in Germany. And then Bernd's first target was to simplify the structure of LGI and to also decentralize power from LGI's head office down to each business area to get a clear ownership of the customer's result and margin.
And in connection with this reorganization, we identified huge cost savings, and we then initiated a cost-saving program, resulting in one-off cost of around SEK 92 million, which should give yearly savings of around SEK 75 million. Another consequence of the restructuring of LGI was that we found an error in one of their transportation management system, which resulted in one-off cost of SEK 87 million, whereof SEK 57 million being from before 2019. The adjustment have no negative effect on the cash flow. And the EBITDA for the full year, 2019, was in total affected with SEK 150 million. If you combine the restructuring program and the problems in the transportation management system.
If we then look at the PNL for January to December, and if we then look at the fourth quarter, our sales increased to SEK 2.9 billion compared to SEK 2.89 billion, but it was actually a slight decrease in organic growth with -4%. If you look at EBITDA, it was SEK 160 million compared to SEK 169 million the year before. If you look at the total for the whole year, our sales went up to SEK 11.25 billion compared to SEK 10.74 billion, which was a slight organic growth of 0.3%. Our adjusted EBITDA went up to SEK 527 million compared to SEK 523 million the year before.
And if you look at our adjusted earnings before tax, EBT, that went up to SEK 395, compared to SEK 366. And adjusted profit per share, in, and also excluding the IFRS 16, was actually 7.77 SEK compared to 7.16 SEK the year before. And as mentioned before, we continue to have a very strong cash flow, which ended up with an operating cash flow, excluding IFRS 16, at SEK 746 million in 2019, compared to SEK 548 million the year, the year before. If I then go to slide nine, there we are showing the historic data about our operating cash flow and the net debt.
We are now very pleased with our net debt, which went down to SEK 2.1 billion in Q4 2019, compared to SEK 2.5 billion in Q4 2018. Actually, for just one and a half years ago, our net debt was SEK 2.9 billion. And this also shows that Elanders has a very underlying strong cash flow, and we can handle temporary increases in net debt in connection with acquisitions or bigger investments. If I then go to slide number 10, and if you look at our two business areas, and then we have also come with the numbers excluding IFRS 16 effects on one- off items.
If we then look at the sales for the whole year, the sales for Supply Chain Solutions was SEK 8.77 billion compared to SEK 8.52 billion the year before, which was actually -2% in organic growth. EBITDA was 379 compared to 401. And the reason to the lower result is mainly connected to very slow market in Germany, especially then in Q4. And it's also interesting to know that the whole saving package we have now done in the restructuring program will all connected to our German operation. And then if you look at Print and Packaging Solutions, where we had a really strong year, our sales went up to SEK 2.56 billion compared to SEK 2.24 billion, which is actually an organic growth of 14%.
Our EBITDA results went up to SEK 182 compared to SEK 142, which is an increase of 28%. Then if I go to slide number 11, and just look at the turnover of our different customer segments the last quarters. And as I mentioned before, we could see in the fourth quarter that several of our automotive customers closed down the production some extra days in connection with Christmas, New Year. And this also shows in our sales for automotive, that was weaker in the fourth quarter, 2019 compared to 2018. If you then look at electronics, you could see an increase year-over-year, and this increase came mainly from both new customers, but also new projects to existing customers, and also fashion and lifestyle increased compared to last year.
We have also continued to acquire some new interesting customers in this area in 2019. As I mentioned before, there was our volumes going down from our biggest customer in Germany, in the industrial area, but we managed to compensate this with some new customers. So that means that industrial was in line compared to last year. Then slide number two, it's just more for information to show you the different levels of results, both adjusted and not adjusted, and also the effects of IFRS, IFRS. If I then go to slide number 13, we have also decided in today's board meeting to change our financial goals.
We have, we had a goal before for sales growth of 2%-3% per year, and we will continue with this same goal going forward. We also had an EBITA margin target of 7%, and we will keep that on the same level as well. Then we had a net debt EBITA ratio target of three. We now, because of the strong cash flow, have decided to change that target, and the new target for net debt EBITA is now 2.5. We have decided to take away the target regarding return on capital employed, because of we get so high effects from IFRS 16 in that number. If I then go to slide number 14, and we have some comments about going forward.
We must say that the Print and Packaging Solutions looks very stable going forward. We can see that our setup that we have with high volume production in low-cost countries and the focus on digital print in more high-cost countries, and the consolidations we have done, that we are in a really good shape, and we are now taking lots of volumes from competitors in a declining market. And then if I just comment about Mentor Media, then we know Mentor Media, as I said, made a really good year in 2019. But as we have some challenge with our customers due to the long trade war between U.S. and China, which has pushed these companies to make some changes in their supply chain in Asia.
Now, we're not sure anymore if there will be any bigger effect, but because of the trade agreement. But also, at the same time, we have now started to invest in the healthcare sector, in this company, and we will, during 2020, set up a clean room facility in Singapore to be able to do what we call kitting service also for medical companies. And then, of course, there's a new problem coming up now, is the coronavirus. And, for the moment, it's hard for us to estimate an effect of the coronavirus, but of course, we are monitoring it closely. And as you maybe know, we have 11 sites in China, and we need to follow the development of this as well.
And then if you look at LGI, then we can see that they will go into 2020 with a much lower cost base, which prepare them for another market situation. But of course, if there will be continued downtrend in Germany, it could be that some of the savings will not get full effect on the results, so we hope now that Germany is coming back. And we also estimate that we will continue to have a very strong cash flow going forward, and we will be able to go down even further in net debt during 2020.
And then if you look at the acquisition side, we are now looking more on small to medium-sized companies with good margins and attractive service that enables us to grow in our customers' value chain and also in our area we call life cycle service. Okay, that was everything from me, so we are now opening up for questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star and then one on your touchtone phone at this time. You will hear a voice prompt letting you know when your line has been opened. If you could introduce yourself before posing your question. Again, that is star and then one. We'll take our first question.
Hi, it's Carl Engström here from Nordea. I have a few questions. First of all, I mean, given the extended automotive production closure in December, due to Christmas and New Year's Eve, and so on, I mean, can we expect slightly higher production levels in January, or is it still a slow start to Q1?
It seems like it's coming back, but also the closing days is also affecting the first week of January. But, it's a bit of a mixed picture, but if you saw Daimler was releasing data where the sales is pretty good. So but, we are hoping, but it's always hard to estimate in January, because January is always a slow month for automotive, so it's still a bit uncertain for us to estimate anything.
Okay, perfect. And, I mean, we have seen your new CEO making some restructuring initiatives for LGI, but can you sort of share some further measures that you probably plan to implement during 2020? I mean, you have your financial objectives of 7% EBITA margin. I mean, can you discuss a little bit also about how you will... What needs to be done in order to reach that long-term goal? And also, can you do it in this market?
Okay. Yeah, the thing we have done in LGI, it's a big change. It was before six different business areas with six different heads. And also the transportation was separated from the contract logistics part. And the thing we have done now, we have gone down from six business areas to just three business areas. That means that we can take away a lot of, you know, of course, top management, but also we have a clearer direction. So if we then look at automotive, the guy who is head of automotive today, both owns the transportation part and the contract logistics part, and that makes it easier for us to give more clear margin targets of each business area. So we think that will make a big effect.
Then also we have some really nice areas in LGI with very good margins, and of course, in the new setup we are making, we will prioritize business with higher margins. It will be a balance going forward. We will have a slim organization, more clear ownership of PNL, and everyone has a push to grow and develop business with the right margins, and then we will maybe let some business, we let it go when the margin is not good enough. And we think we should be able to reach 7%. It will take some time, but if you look at 2019, actually then both print and packaging and our other parts and supply chain and media reached over 7%, and both of them are also working in very competitive markets, so it must be possible to do it.
It will take some time. It's a big company, but I think with the measures we are doing, and also the targets we are giving them, so we think it's doable.
Okay, perfect. Thank you. And also, given your new financial objective with the lower and net debt EBITDA ratio, I mean, I wonder, do you feel comfortable with making bold acquisitions already in 2020, despite the fact that you are still above your financial target, or are we rather talking about 2021 in terms of acquisitions?
So we lost you in the middle there. You said, are you comfortable with-
Okay, sorry. Do you hear me?
Yeah, yeah, we hear you now, but-
Okay, perfect. I can, I can try to do it again. In terms-
Yeah.
I mean, you lowered your net debt EBITDA ratio, and, I mean, are you comfortable with making acquisitions already in 2020, or is it more of a 2021 thing, or how should we see that?
As I see it, we are already now prepared to do some acquisitions in 2020, if they're not big. You know, if you go for medium size, then we will go more for, you know, companies with high added value and higher margins, then in the same time, when you acquire them, you will also get an increase in your EBITDA as well. So, it should work. So, and of course, the target 2.5 is over time, so we will not let it stop us to make maybe a bigger acquisition. But, if you don't make any acquisitions, we will be very close to the target 2020, but it doesn't matter if it will be 2021 for us, because we also need, we see a need of...
There's also a way to improve margins for LGI, which is to speed up the transformation of them. It could be to do some acquisitions in areas that have a higher margin than 7%, of course. It also makes it easier. So the 2.5 is a target over time, and I think we can reach it with some acquisitions. If there's a big one, it will be, of course, a bit delayed, but, yeah.
Okay, perfect. Thank you.
Thank you.
We'll take our next question.
Hi, Magnus and Andréas, this is Edvard Hagman from ABG.
Hey, hello, hello.
Thank you for the presentation. I thought I would reintroduce myself as I'm taking over the coverage after Matthias.
Okay.
And I have a few questions for you. Could you maybe shed some light on the freight and transportation revenue stream, as it's down 18% year-over-year and 14% sequentially? Is this a result of your strategy with a reduction in less profitable contracts, or is it a question of lower demand or competition?
Yeah. No, I think the... A big part of it is actually that we are taking away bad business, and we also closed down some part of our road freight. But there's also some effect on our air and sea company that the air and sea volumes have went down the last six months because of the global economy. But I think the main part is connected to the things we have done on the transportation side. And I think you can see there could be some more reductions going forward as well. But there are some, there were some signs in the air and sea part, but transportation also went down, and which is a lot of good business for us.
Okay. Thank you. You recently expanded the restructuring program and announced the annual savings from SEK 60 million to SEK 75 million that you would expect occurring in 2020. Do you expect this to occur already in the first quarter, or will the savings impact arrive later this year?
We think that the bigger parts will start coming in Q2. It's we'll have some effect in Q1, but starting in Q2, we say a bigger effect of the saving package.
All right. Thank you. And as the German automotive sector is seeing declines in volumes, is this something you see impacting the profitability level on new automotive contracts? Or how do you deal with this matter ahead, as you are more restrictive with new contracts?
I don't think that we haven't seen it so much in new contracts. I think the main problem for us have been that the volumes goes up and down. I think the main problem is there's not a clear trend that volume is going down. So our customers are acting very up and down the last six months. You know, there are some weeks we are running extra shifts, some weeks they close some extra days. And so that's why it's affected our results more than it normally should do, because if you look at supply chain, what we have is mainly personnel. So if you can see a continuous downtrend, we can adjust our cost, and then it will not affect the result so much.
But during Q3 and Q4, the problem for us has been with our customers going up and down, so been very uncertain. So it has affected our results negatively in Q4. So I think, yeah, that's the main part of our result that was lower in Q4 was because of the automotive area.
Mm-hmm.
For us, it's very important now, if it stabilize on a level, it doesn't matter so much if it doesn't grow anymore, or it goes down a bit. But if the demand gets more stable, we can adjust our cost structure more easily.
Okay, thank you. You have earlier mentioned the flexible costs in Germany, thanks to regulations and favorable short-time labor. Have you or are you planning on utilizing the German labor system that enables you to reduce the labor hours while the government is covering for the shortfall in the wages?
We have made some preparation, but it's also connected to, to my comment before, that then you need to have a continuous downtrend. You cannot use it if you call in your personnel extra one week and you send home them another week. So to utilize, you know, to use this system, that is, it's a very good system, you need to say... you need to be able to say, "Okay, coming six months or 12 months, we want to reduce working time to 20%." And for the moment, we haven't been able to do it because of the ups and downs in, in the demand from the automotive area. But if you see- if it continues within automotive industrial, this is something, a tool we will absolutely use, because it's very good.
Okay, thank you. That was all for me.
Thank you.
Once again, ladies and gentlemen, that is star and then one, if you would like to ask a question today. It appears that we have no further questions. Oh, I spoke too soon. I'm sorry. We'll take our next question.
I've just got a quick question on your new sales growth target. Can you elaborate on that? Because I think you mentioned something else in the report. The new target being 3%-5%, and in the PowerPoint presentation, you say 2%-3%.
Sorry, did you mean the growth in turnover or yearly growth, 5%?
On page 13 in the presentation, you say, "New goals, financial goals, sales growth of 2%-3% per year.
Sales, 2%-3%. Sorry, it should be 3%-5%.
Yes. Okay. Thanks for clarifying.
Sorry for that.
Okay. And again, as a final reminder, ladies and gentlemen, that is Star, and then one, if you'd like to ask a question. It appears we have no further questions, gentlemen. I would like to turn the conference back over to our speakers for any concluding remarks.
Okay. Thank you, everyone, for calling in to Elanders' quarterly call. Thank you. Bye-bye.
Once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.