Good day, and welcome to the Elanders AB conference call hosted by Magnus Nilsson, CEO, and Åsa Vilsson, CFO. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and we'll be connected to an operator. I will now hand you over to your host, Magnus Nilsson, to begin today's conference. Thank you.
Thanks, Ben. Welcome, everyone, to Elanders' quarterly conference call. I will now go directly to slide number five in our presentation and talk about our third quarter. We could see in the third quarter that our underlying demand improved, and if we adjust for declining prices in the Air and Sea forwarding area, we had a negative organic growth of 2% compared to 5% in the second quarter. The recovery in demand was mainly driven by improved sales in September. If we look at our adjusted EBITDA margin, it continues to improve, and it came in better than both the previous quarter and last year, reaching 7.3% compared to 6.6% last year, and this is a result of our actions to lower our cost base.
In the third quarter, we also decided to carry out further restructuring costs in our biggest subsidiary, LGI, as a result of the outcome of our new CEO's review of the company. These measures are mainly affecting their overhead cost but also some conservation of warehouse space, but they will still, after these actions, still have capacity for future growth. Positive in the quarter was that North America came back to organic growth, and Asia continues to be stable for us. Europe had negative organic growth, but that was mainly because of lower prices in the Air and Sea area. That was especially affecting the trade lines between Asia and Europe. If we then go to slide number six and look at our cash flow and cash conversion development, we can continue to show that we deliver very strong cash conversion.
In this quarter, it ended at 73% compared to 4% last year. We also managed to continue to use our working capital, which went down by SEK 189 million in the first nine months. The decrease in working capital, together with strengthening Swedish crown, reduced our net debt by SEK 280 million in the first nine months, despite dividends of SEK 147 million in the second quarter. Including IFRS 16, our net debt has this year been reduced by SEK 907 million. If we then go to slide number seven to look at Supply Chain Solutions, you can see that organic growth decreased by 4% compared to a negative growth of 3% in the second quarter. If we adjust for Air and Sea, it was only negative by 1%.
In the third quarter, North America turned to positive organic growth, which was mainly driven by bagging logistics, and Asia remained stable, while Europe had some negative growth, but that was also mainly because of Air and Sea. Our adjusted EBITDA margin improved both quarter by quarter and year over year as a result of our cost-side measures and came in at 7.9% compared to 7.2% last year. Supply Chain Solutions continues to have a very strong cash conversion and came in at 105% compared to 47% last year. We also had structural measures of SEK 80 million in the quarter, and this was mainly in our biggest subsidiary, like I mentioned before, in LGI. LGI has now implemented a new, more efficient organization that will give us savings, especially in the overhead and without reducing the company's future capacity.
If we then go to slide number eight to look at Print & Packaging Solutions, you can see that our result continues to recover despite lower sales, and Print came in with an EBITDA result of SEK 36 million compared to SEK 32 million the year before. Their EBITDA margin improved to 6% compared to 4.9% last year, despite a negative organic growth of 4%. Print started the quarter with very low demand, but they could see a rather strong recovery in September. In the quarter was the additional new yearly sales volume of around €5 million coming from our consolidation activities in the German print market. They were implemented successfully in Germany, and this was one of the reasons for the recovery in September, combined with improvements in other new sales.
If we then go to slide number nine to look at the development of our different customer segments in the quarter and start looking at electronics, the picture continues overall to be positive, even if organic growth was only 1% as a result of electronics being the first customer segment to recover already in Q3 last year when they had an organic growth of 5%. Overall, continued good demand from electronics. Fashion had a negative organic growth of 5%, but if we just wait and see, we actually had an organic growth of 1%, mainly driven by the positive recovery I mentioned before in North America by bag logistics that could show an organic growth of 4% in the quarter. The demand in Europe was in line with last year.
If we look at automotive, they continued that negative trend but improved compared to previous quarters and showed a negative growth of 6% compared to 13% in the second quarter. At the moment, it looks like demand is starting to stabilize from our customers, and we can also see that their forecasts are now more accurate than before. Also, other improved with a negative organic growth of 3% compared to 5% in the previous quarter, and the improvement here came mainly from Print & Packaging Solutions with increased publishing and packaging volumes. If we look at industrial, they had a negative organic growth of 7% compared to 12% in the second quarter. If we adjust for Air and Sea, we could see a slight growth in the natural segment of Supply Chain Solutions, but print that is exposed to global truck sales showed a negative growth.
When it comes to healthcare, we had a negative growth of 12%, but that was mainly as a result of two discontinued disc customers, and the other customers showed stable demand. If we then go to slide number 10 and look at how things will be going forward, the ongoing trade negotiations continue to create a great deal of uncertainties. Despite this, we can see a higher activity regarding new inquiries in the quarter, and we also gained new customers, and we also managed to renew several important customer projects, especially in the supply chain area. In the quarter, we were also able to see the result of our measures on the cost side, resulting in improved adjusted EBITDA margins compared to last year.
With the additional actions taken in the third quarter, we expect to enter next year at a much lower cost base but with continued capacity for growth. Parallel with these actions, we continue to have a high tempo in our rollout of the group's global warehouse platform, CloudX, and also the implementation of AI solutions, which over time will lower our cost base even further but also increase our efficiency and create even more competitive solutions for our customers. We also still believe that the trade barriers over time will create opportunities for global players such as Elanders by breaking up global logistics chains and replacing them with more regional and local logistics chains. That was everything from me. We open up for questions.
Thank you very much. Ladies and gentlemen, as a reminder, if you would like to ask a question or contribute on today's call, please press star one now on your telephone keypad. To withdraw your question, please press star two. The first question comes from the line of Markus Almerud calling from DNB Carnegie. Please go ahead.
Hi, Magnus. Hi, Åsa. Markus here.
Hi.
A couple of questions. Maybe first one, if you look at the U.S and fashion, is it old customers coming back, or is it new customers, the new customers that we have been talking about for some time, which never came in? Is it that that's bringing it up, or is it old customers who are kind of recovering?
It's actually a combination. I think the shown rate that we have talked about before that was very high was stabilizing already in the last quarter and continued this quarter, so that was good. It's also new customers. We added new customers that start to contribute in Q3. It was a mix of more underlying performance by our customers but also new sales.
What does the pipeline look like now in the fashion?
The pipeline continues to look good. Lots of the customers we had in the pipeline before that were pausing the negotiations are coming back again. For us, it looks more promising now. We are hoping to close some more deals in Q4, and some of the deals we closed in Q3 will start first in January next year. It looks like there's more interest in the market. Customers are more open to move to other suppliers and start to find ways to deal with the duties in the U.S.
On the structural measures, impressive margin that you showed. How much of that is, is it mainly the road transportation business, which was closed down from this quarter, or is it a mixture of cost savings and the road transportation business?
I think actually more is the cost savings. Of course, we have some effects of the road transportation business, but not so. I think the biggest impact comes of lower cost base, higher efficiency. We have renegotiated several customer contracts as well, and lots of operational improvements in several of our supply chain companies. It was a very good signal for us.
Okay. Okay. In the UK, how is Kammac ? Any light?
The UK is still a struggle for us. You know, our company in technical logistics, Bishop’s Move, continues to do well, even in a very tough environment. Kammac is still more challenging. We managed to get a new, bigger customer in Q3. We had improvements on the cost side. We have lots of actions on the sales side. Slowly, but I must say, in general, the UK market is the toughest market for us at the moment.
Okay. I'm just curious on the digitalization that we've been talking about before as well. Have you seen, you haven't spoken about this or brought it up for some time, and now you mention it. Is it something triggering that? I mean, do you see any more of those kind of things going on, or is it the same as before?
You know we see an increased tempo in this area, and you know both when it comes to increased productivity and things like that with the help of AI, but also optimization in our operations. In our annual meeting, I was showing robots, one of our customers in Germany. We were implementing the same solution for another big customer in Germany this year that is working really, really fine. We try now to increase the tempo, especially by rolling out our CloudX platform that we developed by ourselves. We are increasing the tempo in that one. That's why we have the new role as Global COO as well. I think it's very important because especially when you do omnichannel, your salary cost can be 50% of your cost, 50, 60%. There's lots of things to save if you can improve your digitalization, both with systems but also with robots in the warehouses.
Value chains, which are kind of, I mean, there's been speculation for some time about the breakup of the value chains, which is more of a longer-term trend, which should benefit you as you need more warehouses like across Europe, for instance. Is anything, I mean, is that something that is speeding up as well, or is it still a discussion that it should happen?
I think it's a mix. You know, our new warehouse in Thailand that we not so long ago opened up, we are now seeing more and more volumes coming out of China to Thailand, so that's positive. Also, in Mexico, we can see growth now, even if there's lots of discussions between Mexico and the U.S. There are things happening. We haven't seen so much in Europe yet, but I think it will come in Europe. You can see also Asian and also Chinese companies moving into more of the eastern part of Europe. It should come. It takes some time, but I think it will come more and more.
Okay. Perfect. Thank you very much.
Thank you, Marcus.
Ladies and gentlemen, we currently have no questions coming through. As a final reminder, if you would like to ask a question, please press star one now. The next question comes from the line of Gustav Berneblad calling from Nordea. Please go ahead.
Thank you very much. It's Gustav here from Nordea.
Hey, Gustav.
Maybe just to build on Marcus' question there on the road transportation business and the cost savings from that. Can you just remind me, do we see full effect from this now in Q3?
Yeah, we see that, yeah, for the cost savings, yes. There was no sales as well from that business in Q3, so yeah.
Oh, that's perfect, sir. Just on the demand situation, you are commenting on seeing sort of signs improving here at the end of the quarter. It would be interesting to hear you just elaborate a bit on this. Do you think that it might be just a catch-up effect from a sort of weaker summer month, or is it generally a better demand picture, would you say?
No, but I think in general, it's better because especially if we look at contract logistics, and if we adjust there for Air and Sea, there was only a small negative growth and much better than the second quarter and the first quarter, actually. We can see that the underlying demand in contract logistics was better. Growth in the U.S., Europe overall pretty stable, Asia stable. We can also see that the forecast, like I mentioned before, is more accurate from our automotive and industrial customers. For the moment, this feels more stable. I don't think it's a catch-up effect because even if September was very strong and July and August were weak, if you summarize the quarter compared to the other quarters, it feels better. It's still very hard to predict in this market. Also, the signals, more of queues, we have more requests from our customers.
Activity is a bit higher. It feels like customers, existing but also new ones, now are ready to move. Before, lots of things stopped for at least two quarters, but it feels like companies are adjusting now and starting to move forward. Yeah.
Oh, very interesting. When you look at your overall capacity situation, I mean, you've done a lot of work here, but do you see potential for further cost savings and reduction to streamline operations even further, or are you sort of satisfied at these levels?
No, I think we are, for the moment, pretty satisfied. It feels like we want to, you know, catch up and see all the effects of all the savings we have done. I don't expect any major things now. We are pretty slim now in lots of our companies, especially when it comes to admin and personnel. We are in good shape. We still have overcapacity in space, but at the same time, we want space as well when the market returns. We are in a pretty good spot now, and we are excited to see how things develop going forward.
Oh, that's very clear. Just the last one here on Supply Chain Solutions. I mean, again, you've done a lot of work here, but given sort of a normalized market, where do you see sort of the longer-term margin potential in this business going forward, if you were to reason?
Yeah, I know, but if we look at the third quarter, now we did 7.9% EBITDA margin, and the third quarter is pretty, yeah, August is a big holiday month in Germany, in the UK. It's we don't have so much seasons in supply chain, but I think that was a really good signal that we, you know, we can be around 8% in supply chain overall.
No, that's clear. That's clear. Yeah, thank you. That was all for me.
Thank you, Gustav.
The next question comes from the line of Dag Nehren calling from Protector. Please go ahead.
Thank you. Just a couple of questions for me. The structural measures taken in LGI, what kind of quarterly savings do you expect that to be?
What will the savings be going forward?
Yep.
Yeah, the latest ones?
Yep.
Yeah, we expect they will give a yearly saving of €7 million.
Do you expect anything of that to come already in the Q4 numbers?
There will come some already in Q4, but not the full effect because of timing and because it's lots of people we are releasing. The full effect will be starting in January, you know, with the yearly saving. There will be some savings also in Q4, but not 100%.
Okay. Thanks. Last one, on net finance, what should we expect the quarterly amount to be?
On net finance, you mean on the debt side, or?
Yeah, on the total. Was it 118 this quarter?
Yeah, the finance cost, I would say, I think that should be roughly the same. Yeah, yeah, it should be roughly the same.
Yep. Thank you. That's all for me.
Thank you.
Ladies and gentlemen, we currently have no question coming through. As a final reminder, if you'd like to ask a question, please press star one at any time. There are no further questions, so I will hand you back to your host to complete today's conference. Thank you.
Okay. Great. Thanks, everyone, listening to our conference. Thank you. Bye-bye.
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