Good day, and welcome to the Elanders AB quarterly results 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. This is Magnus Nilsson speaking, and beside me here, I also have Andreas Wikner, the CFO of Elanders. Now, we will start off our quarterly call, and for everyone that follows our presentation, I'm now moving to slide number 2, where we go through the numbers for fourth quarter and the full year. If we start with the fourth quarter, we could see that we continue the strong positive trend from the third quarter. If I start to look at the turnover for the fourth quarter, it was SEK 2.89 billion, compared to SEK 2.68 billion the year before. And if you look at EBITDA, it increased to SEK 169 million, compared to SEK 103 million the year before, which was an increase with 64%.
We also show a strengthened EBITDA margin of 5.9%, compared to 4% the year before. We, we also ended the year with a very strong operating cash flow that was positive of SEK 395 million, compared to SEK 5 million the year before. If we then look at the full year, 2018, our turnover increased to SEK 10.74 billion, compared to SEK 9.34 billion the year before, and that was an organic growth of 9%. Our EBITDA increased to SEK 725 million, compared to SEK 563 million, and EBITDA increased to SEK 523 million, compared to SEK 371 million the year before. We could also show a strong improvement in earnings per share.
That went up to SEK 7.18, compared to SEK 4.65 the year before. And the full year operating cash flow ended at SEK 538 million, compared to minus SEK 115 million the year before. And we also managed to improve our net debt/EBITDA ratio, and we are now down to 3.5, compared to 4.7 at the end of 2017. If we then move on to slide number 3 and look at some other highlights in 2018, we can see that the strong organic growth in 2018 was mainly driven by the business area, Supply Chain Solutions, and the subscription box business in U.S. within Print & Packaging Solutions.
We have also signed a new three-year agreement with the group's main banks, and we started to implement a factoring program in the fourth quarter without recourse, which had a positive effect on the cash flow of some SEK 85 million. We expect that in total, some SEK 350 million-SEK 400 million will be utilized of the EUR 50 million credit facility, and the expected remaining amount of SEK 265 million-SEK 350 million should be utilized and have a positive effect on the cash flow during the first half year of 2009, when the working capital decreases. Then I move to slide number four.
In the fourth quarter, we also divested our print and packaging operation in Beijing, and also the majority of our shares in LogWorks as a part of our process to improve margins and improve cash flows. The divestments will have a negative effect on annual sales with some SEK 100 million, but in the same time, it will have a small positive effect on the results the coming year. If we then move to slide number 5, to look more in detail on the business area, Supply Chain Solutions. We can see that Supply Chain Solutions continue to be our biggest business area and is now 75% of our total sales, compared to 74% of the year before. And Supply Chain Solutions is, as mentioned before, a strong... Can also show a very strong organic growth.
We could also see in Q3 and Q4 that the loss-making customer projects that we had problem with in the last half year in 2017 and in the beginning of 2018, are now in balance, which also is reflected in the result. We have also managed to acquire several new strategically important customer projects in the last 12 months, and the implementation of these projects are going according to plan. And, as we have communicated earlier, Bernd Schwenger, who was coming to us from Amazon, that is now heading divisions, Automotive and Electronics. In LGI, we'll take over as the CEO of LGI in the middle of 2019.
And then, if I go down and look at the numbers, so net sales in Q4 2018 went up to SEK 2.17 billion, compared to SEK 1.89 billion the year before. And EBITDA could show a very strong increase and ended in SEK 160 million, compared to SEK 55 million the year before, and there was also strong improvement in the EBITA margin that went up to 5.3% compared to 2.9% the year before. And if we look at for the whole year, for the Supply Chain Solutions, net sales ended at SEK 8.12 billion, compared to SEK 7 billion the year before. And EBITA increased to SEK 402 million, compared to SEK 302 million, and the EBITA margin went up to 4.9%, compared to 4.3% the year before.
Then I move on to slide number six, to talk more about the business area of Print and Packaging Solutions. As mentioned before, of course, the price pressure is continuing, continuing in the market, and also there's a high overcapacity. But we still managed to even show a small organic growth in Q4, and we also worked further to consolidate our production capacity in 2018. We also closed down the offset production in Sweden, which was an important part for us to take away some additional costs and to optimize our capacity. Our operations in the U.S. continues to show a very strong improvement, both in sales and profitability, and this is for both the traditional printing business and also the subscription box business.
The latter has gone from almost zero sales in 2016 to $45 million in 2018. Then if I go to look at the quarter, net sales improved to SEK 658 million compared to SEK 628 million. EBITA improved to SEK 45 million, compared to SEK 36 million, and also the EBITA margin went up to 6.8%, compared to 5.7% the year before. If we look at the numbers for the whole year, net sales improved to SEK 2.5 billion, compared to SEK 2.2 billion, and EBITA improved to SEK 134 million compared to SEK 103 million. The EBITA margin ended at 5.3% compared to 4.6%.
Print and Packaging Solutions is now 23% of the total sales of the group. We can then move to slide number 7, to talk about e-Commerce Solutions. We could see that, for the whole year, the results improved clearly compared to the year before, because of the cost-cutting measures and also more efficient marketing. And as you know, the fourth quarter is always by far the strongest, and we managed to achieve roughly the same result as the year before. And as we have communicated, in 2019, e-Commerce Solutions will cease to exist as a separate business area, and instead it will be integrated into Print and Packaging Solutions. If we then look at the fourth quarter, net sales went down slightly to SEK 92 million, compared to SEK 101 million.
EBITA ended up SEK 17 million, compared to SEK 18 million the year before, and EBITA margin was 17.9%, compared to 18.1%. Then if you look at the full year, net sales ended at SEK 205 million, compared to SEK 208 million, and EBITA went up to SEK 8 million in profit, compared to -SEK 1 million the year before, and the EBITA margin ended at 3.8%. Okay, that was everything from me now, and now we open up for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Again, press star one to ask a question. We will take our first question. Your line is open. Please go ahead.
Good morning. Can you hear me?
Yes, we can hear you.
Yeah. Okay, perfect. So I have a couple of questions. First, you're a bit cautious in your comment regarding the market outlook. Can you provide some or a little bit more flavor regarding that comment then? And also, on what geographical market or end market you might see a slowdown?
Yeah. I think it's hard to be clear about the market outlook, because it differs a lot from our different customers and customers' areas. If we look at, for example, fashion and lifestyle and healthcare, the demands was very strong in the end of the year, and we haven't seen any decline. If we then look at automotive, that is a big area for us, we can see that some of our automotive clients are a bit worried for 2019, but we don't have any clear estimates. So for automotive, there are some, let's say, clouds in the sky, but we realize that some of our customers are uncertain. And if we look at electronics, we could see that our customers had strong sales in November, but was weaker in December than normally.
But we are not sure if that is because of the Black Friday effect, that they sell more in November instead of December. It's also really hard to predict. So there is some uncertainties regarding the market outlook in the different segment, but it differs a lot from segment to segment. And then, of course, some of our customers did worry about the trade war between China and U.S. So I think that is out of our control, of course. But I think when that settles down, we will understand more maybe about the direction.
And also, looking sequentially on your customer segment, it looks like the automotive segment dropped by 30%. Is it due to seasonal variation or just a market slowdown, or how should we see that?
It slowed down with 30%?
Sequentially, yeah, on the automotive segment, if you look at print, supply chain solutions.
Mm.
Yeah, and we will come back to that later on. We'll check.
Yeah, no worries. I have a couple of more, if I may.
Yeah.
Can you also give us a guidance on the level of flexible cost in your cost structure, maybe compare it with a few years back, and also the way you can absorb a revenue drop, basically?
I think the difference is if we look at Elanders, before we moved into the supply chain area, when it was 100% print and packaging, then of course, lots of our cost was fixed cost because there we have heavy investments in machinery, which creates also depreciation. And so the salary part is a much smaller part of the turnover in print and packaging, and that means even if you adjust your personnel, you still have rather high costs in facilities and equipment and these things. And if we then look at the newer Elanders, where 75% of our sales is in supply chain solutions and print is down to 23%, if we then look at supply chain solutions, we have much less investment in equipment.
The big cost driver there, especially if you look at it in Germany, is salaries. That's why we can adjust much more if the volumes go down from our customers. Then even if, of course, we have a rental agreement, that is still the smaller part of the cost structure. The main cost structure is the salary, and that gives us a much higher flexibility.
Okay, great. And also on e-Commerce Solutions, you mentioned that it will be integrated into Print and Packaging Solutions. Should we interpret that as the integration is a result of your strategic review, and that we should definitely exclude the divestment?
No, I don't think we should exclude the investment. I think that is still one of the options for us. But in the same time, e-commerce is very integrated with our German print and packaging operation, and now it's down to 2% of our sales, so we felt it's not really a point to show it separately. We are now running it like ongoing business. We are integrating a bit slower to drive more volumes, but in the same time, we are still looking for the opportunity to disinvest it.
Okay, and the last one for me, if I may. One potential margin driver we talked about before could be to phase out some less profitable contracts within freight and transportation business. Are you working on that now? And if so, when can we expect to see results from that? Thanks.
Yeah. Yeah, yeah, we are continuing working with that. And we have done lots of things during the autumn here, and there we could see an effect in the results for in supply chain, like you see, and a big part of the improved result is actually coming out of LGI. So we are working with the transport part. An important part was also to sell the majority of the LogWorks, where we rent out the employees, because that's not so profitable in Germany anymore with new regulations, so that will also strengthen our margin. So we have continuously worked with the freight part. We have actually taken away lots of personnel, and we have taken away some of the business. We will continue that process this year as well.
Okay, yeah.
Once again, if you would like to ask a question, please signal by pressing star one. We'll pause for just a moment.
While we're waiting, I can go back to the question about the Q4 against Q3 when it comes to automotive. It's about seasonality, mostly, I would say. And also we had some automotive customers, because the Christmas shutdown was this year, they closed down the production in December for a couple of weeks in the end of the month.
We increased the volumes in Q3 and decreased in Q4.
Yeah.
Okay. Yeah, please.
We will now take our next question. Your line is open. Please go ahead.
Yes. Hi. Can you hear me?
We can hear you now.
Perfect. Yes, I was also wondering about the automotive segment and also the fashion and lifestyle regarding supply chain solutions. As mentioned earlier, we could see a sequential decline in both automotive and fashion and lifestyle, down 27%, respectively 35%. I was wondering if this might be a seasonal effect or if it says something about the demand in the sector during this quarter, and also, what can you say about the outlook for the coming quarters? Thank you.
Thank you. I think for fashion and lifestyle, it's, it's seasonal differences because, I think this year our accumulation was bigger than ever in fashion and lifestyle, and we have acquired some new clients that are increasing now. So we don't have so much worries about that area. And automotive, I think Andreas just explained, that because of the Christmas, we closed down more in December and had higher volumes in, in earlier instead. So... But I think the outlook for us going forward, for, for the moment, it, it feels pretty stable. It's, it's the, the whole thing we need to predict, I think, is the, is the automotive segment, that it's, that is more uncertain for us, and that is around 25% of Elanders.
I think the rest is, for the moment, looks very stable and the demands, we haven't seen any clear warnings in the downtrend there. So it's mainly automotive, but it's really hard to predict because we are not 100% connected to the number of cars. For example, for one of our biggest clients, we're also supplying them with services for their R&D, and at the moment now, they are building lots of prototype cars. There's a big development in electric cars. So I think both Daimler and Porsche is now pushing even harder, and invest even more in Germany for the new generation of cars. So even if car sales goes down with, I don't know, 10%, maybe it only affect us with around 5%-7%.
So, I must say it's really hard to predict, but for the moment, the business areas looks stable, some warnings about automotive, and there are still some uncertainties about the trade war, US and China. So, lots of our electronic clients are, of course, manufacturing in China and do export out of China. And, that could, of course, in the long run, if there will be continuous trade war, could be there, could be some movement of production out of China. Then, of course, our target is to follow that up, but there is some uncertainties about that. But in general, it's, it feels still pretty stable.
Okay. Thank you. Could I also ask about the margins? We could see a big improvements this quarter, and as referred to in the CEO comment, we could see big improvements, thanks to projects that has suffered problems that are now out of the picture. Can we see margins in for the coming quarters as well improving due to problems going away?
Yeah, I think if there is not any downtrend in volumes, customer volumes, we expect to see a continuous improvement in the margins. It will be, of course, step by step, but I think we have a lot of clear plan now, and we can see that the consolidation of the print and packaging operations, the sale of Beijing, that was actually loss-making business for us. That should strengthen the print and packaging area, and if you look at supply chain, we can see that Mentor is continued delivering good, and we are now doing lots of actions in LGI. And LGI is one of the drivers in improving margin. They are around 50% of the group, and so we expect them to continue to improve.
We have lots of things going on, and we will now take away additional costs and things like that. So we expect if everything is the same, and as we should see a step-by-step improvement in our margins, and also in return on capital employed as well.
We will now take our-
Okay.
Next question. Your line is open, caller. Please go ahead.
Good morning, Magnus and Andreas.
Good morning.
Have a great minute. Hi. A quick question on the net debt. Could you just explain, is there any adjustments to be made from factoring to the net debt? You reported net debt of SEK 2.539 million. Should we add anything to that to include the factoring debt as well? Thank you.
The line was not so good, sorry. I could not really hear what you... You asked about-
Sorry.
-adjustments in?
Yeah. You report net debt of SEK 2.539 million. Is there any factoring debt as well in addition to that?
I think, I think you mean about the net debt, that it went down to 2.5?
Yeah, hang on a minute. All right, can you hear me now?
Yeah, it's much better. Thank you.
It's better, the line is better.
Okay. It's the net debt. Is there a... What is the factoring volume that you've done? Yeah, you have net debt of SEK 2.539 million.
Yeah. So far-
Is this a factoring debt?
The factoring debt is not seen in the net debt, of course, it's without any cost.
Yeah.
It's the facility we have used so far that have had a positive effect on both the cash flow and the net debt is EUR 8 million.
Yeah.
We are planning, as it looks like, we will be able to probably use SEK 38 million of the factoring facility.
Okay.
We will have another positive, positive effect with the EUR 30 million on the, on both the cash flow and the, and the net debt going forward.
Okay.
We're working on getting the files in place for everything, for all the information that we can handle it automatically. But a part of it, we have done in Q4, the remainder will come during the first-
Okay
quarter of 2020.
So it will actually push down the net debt around 2.2-2.3, then?
Given the situation right now, yes.
Yeah, the situation right now, if it should be fully utilized, yeah.
Okay. So on the 31 of December 2018 , how much factoring was there?
EUR 8 million.
8 million. Okay, got it. Okay, now that's clear. Thank you, sir.
So the underlying cash flow was really strong, even if we exclude the factoring effect.
Yeah. Yeah, got that. Good. Okay, thank you.
Thank you.
We will now take our next question. Your line is open, caller. Please go ahead.
Thank you and good morning, Karl Bokvist from ABG here. My first question concerns... We've heard a few scattered data points here and there, concerning supply chain issues over the years across several industrial segments. My question is, have you seen any of this in your operation, and has it benefited your proposition, so to say, that you have had more customers willing to engage in outsourcing of these processes?
Yeah, I think we can actually see that. I think we have had a, as you can see in our organic growth as well, we have, especially in our company, LGI, there's been high pressure on new RFQs, and we are looking at lots of new projects. We actually have reacted several projects as well, but we can see that is that there's a really strong trend, and I think especially in, if you look at fashion or lifestyle that is then connected to e-commerce, we can also see that there's a big push for outsourcing more and more logistics. But in the same time, in the e-commerce era, you need to act a bit careful as well, because it's a very complex supply chain.
And if you read the reports, lots of the e-commerce companies, even if they do good sales, they have problems, of course, in the supply chain. But sometimes that is positive for us, because then, if there's lots of returns, we get paid for the returns. And, I know for some of our customers in Germany, return rates can be up to 40%-50%. So, so that drives, of course, more volumes to us. It's more that you need to be careful how to handle the peaks, that puts a tremendous pressure on the organization, like Friday or Christmas and things like that. But, but underlying, it feels like the supply chain logistics part is really growing.
Not just because of e-commerce, we can also see in our, in our automotive that the companies want to outsource more and more to have a more flexible fixed cost by themselves. So, so a, a decline in automotive could actually also result that they outsource more of their services, like, doing, assembly in their factory, like we are doing today for some of the customers. So, so for the moment, it looks like the demand will increase with supply chain services, yeah.
Okay, thank you. And, you already touched upon my next question. I mean, if we were to see substantial declines in your end markets, would you still believe that you could mitigate at least a part of this through this trend of going more towards outsourcing? Or do you experience that when customers tend to lose a substantial amount of volumes, that they sort of protect themselves and they choose to keep their operations in-house, or do they still make these decisions even when businesses are not going as well?
Yeah, they, they will continue to outsource. I think they maybe even can increase the speed if it goes, goes bad in the, in, in their sales, actually. Both in, especially in electronics and automotive, there, I don't think there's any way back, and there are... In electronics, everything is outsourced, and, they want to outsource more, actually. But there, there's one thing there, maybe, that can be a bit thing, that we need to balance in electronics, that they also want to outsource. They don't want to have, have anything in their own balance sheet. They want to push their stock to us.
But that could also be an opportunity if it also creates value-added services. So, we don't think that will, will be a negative effect in that sense.
Okay, thank you. And a final operational question from me then would be the subscription boxes that have been performing very, very well. Do you see any acceleration or deceleration in terms of growth? I mean, it has increased at a very rapid pace, but are you seeing that it's decelerating or accelerating even further?
It's hard to predict, but we think it should slow down a bit now, because the growth has been so tremendous for this kind of business in all U.S. So it's hard to predict, but, you know, our growth has been tremendous, but we think it should more slow down a bit and normalize. It's because the growth has been amazing the last three years in all this area. We think it will slow down a bit.
Yeah, perfect. Thanks. Then just a financial question. You said that you had perhaps EUR 30 million left to utilize. Could we expect to see this in a larger one-off effect in the next quarter? Or will this be spread out over the entire 2019 period? My second question would be in terms of tax, where do you feel that your, I mean, two- to three-year long-term tax rate should be? Thank you.
Regarding the factoring, I would say that, hopefully, I cannot guarantee anything, but hopefully everything will come in the first quarter. We are looking. It's the systems and the information that we are sort of sharing with our partner, that we need to make sure that we can handle everything automatically, so we don't have to do it manually. So that's what we're working with right now. But hopefully, the first quarter, but worst case, it might spill over a little bit on the second quarter, but hopefully it will be a one, just one one-off item. So it will be easier to handle from our side also. And regarding, what's the second?
Tax.
Tax.
Long term.
The problem is right now that we're facing is that a large part of our business is in Germany. And in Germany, they add back, you could say, lease system and rents on the tax base. So it means that we pay a higher effective tax on our income in Germany. So that's something we are looking at, and of course, in the long run, we expect the taxes, the tax rate to go down, effective tax rate, but it might take some time. So it's for a period, we might have to live with the higher tax rate than where we are right now.
Okay, that's all for me. Thank you very much.
Thank you.
Yes, there are no further questions at this time.
Okay, so thank you everyone for calling in to Elanders' quarter report. Thank you very much. Thank you. Bye.
This concludes today's conference call. Thank you for your participation. You may now disconnect.