Hello and welcome to the Elanders AB conference call. My name is Laura, and I will be your coordinator for today's event. Please note that 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 you will be connected to an operator. I will now hand you over to your host, Magnus Nilsson, CEO of Elanders, to begin today's conference. Thank you.
Thank you, Laura. Welcome everyone to Elanders conference call. This is Magnus Nilsson speaking, and together with me is also Andréas Wikner, Elanders CFO. I will start my presentation. For you that are following the presentation material, I will now go directly to slide number five and talk about our first quarter. The market continues to be rather challenging and especially customers that are exposed to consumers shows a declining demand. It's also very short visibility when it comes to future demand. On the positive side is that the global supply chain continues to improve, and we can also see that prices for raw materials, fuel and energy have stabilized. During the first quarter for Elanders we had some low sales from several customers, but that was largely compensated by Elanders' diversified customer base, but also newly acquired customers.
This together with price increases and efficiency improvements raised our adjusted EBITA by 16% and also improved our EBITA margin to 6% compared to 5.5% last year. Net financial items on other hand were negatively impacted by the higher interest rates, resulting in lower adjusted earnings per share compared with previous year. Activities aimed at lowering our working capital and improving our cash flow resulted in improved operating cash flow in the quarter. These activities are very important tools for us in our work to reduce our net debt and will continue going forward. During the period, one-off items of - SEK 67 million were charged in operating results connected to the previously announced adjustment in one of the group's companies in U.S.A.
Then go to slide number six and look at Supply Chain Solutions, we show a slightly negative organic growth, but in the same time we made a strong improvement in our EBITA margins, and the negative growth was due to low demand from our electronics customers in Asia. The improved results came from continued growth in North America, but also with the help of improved profitability in Europe. Overall, a very good quarter for Supply Chain Solutions. Then go to slide number seven to look at Print and Packaging Solutions, can we see a strong improvement in sales compared to last year, and we could show an organic growth of 6%. Our majority of our print companies actually improved their results, but this was offset by weaker underlying results in our site in Atlanta.
Our important segment Online Print continued to grow in the first quarter. We then go to slide number eight to look at the development of our different customer segments in the quarter. If we start with fashion, we could see continued growth in North America that was mainly driven by Bergen's business model that enable us to constantly add new and small medium-sized customers as a compensation for lower sales to some existing customers. Our development in Europe in fashion was still flat despite a rather challenging market in Q1. When it comes to electronics, it was a rather challenging quarter with declining demand, especially in Asia, where we are rather dependent on manufacturing volumes of laptops. The global laptop market was actually down to 29% in Q1.
In Europe, we had a better situation because of our wider customer base and could compensate lower demand from some customers with stronger demand from other customers. Especially our Lifecycle Management Service is focusing on delivery and installation of high-tech devices was developing very well. If we look at our automotive customers, we could see a lot of stable demand in the first quarter. Despite continued disruptions in the production, we were able to increase both sales and earnings as a consequence of price increases. We negotiated agreements with better terms. The demand from the industrial segment was stable and in line with last year. The same applies to the healthcare segment.
This growth was mainly driven by increased Online Print volumes connected to a new big customer that was announced in Q2 2022. We then go to slide number nine. I want to update you on some important business development projects for the group that we have been working with and implementing in 2023. Regarding our rollout of the bagging concept, we opened a new facility in Atlanta, U.S.A., and one in Newcastle in Q1 2023. We are also planning to open two new MedTech sites during the second half of the year. One of them concerns a cleanroom facility in Indiana, U.S.A., and the other site is in Eastern Germany with a focus on factory logistics for a major newly contracted MedTech manufacturer.
As a result of the nearshoring trend, we will also expand our capacity with a new site in Mexico. We also were proud to announce that we have launched a platform for managing game equipment and rolling out of new equipment throughout Europe. This platform focus prime on high-value products such as MedTech and IT equipment. With the help of this platform, we gained two new important customers during 2022. We also continue our work to closing down loss-making road transportations in Germany. This will be completed in Q3. If we go to slide number 10, a look of how things will be going forward. We can see that the Elanders global footprint and diversified customer base really helps us in a challenging market.
Decreasing demand for some of our products can often be compensated by increasing demand from other products. We are also benefiting from the nearshoring trend, especially when it comes to our European customers that are now moving parts of their sourcing from Asia to Europe, which increases their demand for supply chain services in Europe. As mentioned before, our biggest challenge for the moment is increased interest rates. That puts pressure on the results, and we have several activities ongoing to offset this as much as possible. Possibilities that materials, fuel and energy prices stabilize. We are also ready in almost all countries when it comes to salary increases, and it looks like that will be around 4%-5% globally to us, and that is manageable, and that was also what we expected in our budget.
Okay, that was everything for me. Now I open up for questions.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll take our first question from Adrian Gilani at ABG Sundal Collier. Your line is open. Please go ahead.
Yes. Hi, this is Adrian at ABG. I guess starting off, if you could just comment a bit on current trading, particularly perhaps for the customer segments like electronics, where you mentioned that you're seeing softer demand. Is there a risk that this trend of slowing demand could accelerate into Q2?
No, I don't think it will accelerate. I think it will be rather similar to Q1. Then our, you know, the indications from our big global customers is that they expect that Q1 will be slow like Q4 last year and Q1, and they expect a recovery in Q3 and Q4. We don't think it will accelerate. It will be rather on the same level, and then hopefully it will catch up more in Q3, Q4.
Okay, that's clear. Also regarding input costs, you just say that input costs have stabilized. To me, that statement seems a bit conservative, given that both fuel prices and paper prices have come down a lot. Shouldn't your input costs be sort of notably decreasing at this point?
Okay, yeah. The fuel cost, we can see there is decreasing. That also helped us in the first quarter, of course. Paper prices is still, you know, is more stable. It's easy for us to get paper, but the price decreases are still slow. We're expecting them hopefully to come, but in the same time, lots of paper manufacturers still announce closing down of capacity. It's still flat for us. We don't see any upside in that one. Fuel absolutely an upside.
Okay. In the print segment, you have fairly flat adjusted EBITDA development year-on-year. We also know that last year's figures include these wrongly reported numbers in that subsidiary. You've given us the full year correction for 2022, half of SEK 70 million. Are you able to give us the specifically the Q1 effect from that accounting error so that we can assess the year-on-year improvement in Q1 for print?
You know, we cannot say really exactly to that. If you look at the Print and Packaging, the adjusted EBITA was 2024 compared to 2025. You know, there's an effect of at least around SEK 5 million-SEK 10 million. As to us, there is a strong organic improvement. This Elanders thing is helping us when we compare.
Yeah, I understand. Just follow up on that one-off. In the preliminary release, you said that the SEK 70 million one-off figure was your best guess at the time, but not an exact figure. Just to clarify, have you now taken the SEK 67 million? Is that the exact figure, or is it still possible that you have to take additional one-offs in coming quarters?
No, we don't think there will be any additional. We can see now that's why we also went from SEK 70 million-SEK 67 million. We feel well safe, but there's lots of things that need to be validated, but we don't expect any extra bad news from that one.
All right. Just a final question from my end regarding the cash flows. You've previously stated or said that we could expect roughly SEK 400 million sort of working capital release for the full year 2023. We had SEK 55 million in this quarter. Is it still your expectation to be able to release SEK 400 million for the full year?
Yes, we still expect that.
Okay. Perfect.
We can see now that we can go down in inventory. There's lots of other things happening. We still believe in that one.
Okay. In that case, that was all for me, so thank you.
Thank you, Adrian.
Thank you. We'll now move on to our next question from Carl at Nordea. The line is open. Please go ahead .
Good morning. It's Carl here from Nordea. Firstly, back a little bit to the accounting error in the U.S. I acknowledge, of course, that you're running a decentralized organization, but as it's the second time around, I mean, I wonder a bit if you could elaborate on your plans to strengthen or maybe reorganize your internal control functions in order to prevent these things to happen again. Also the second part is this, of course, with the issue in Atlanta, I guess, profitability underlying is much lower than you previously thought, at least. Is it up for divesture or discontinuation, or is the cash generation, I guess, with negative working capital good enough for a valid reason to keep it?
Hi, Carl. Yeah, okay. No, of course, you know, this is always bad when things like happen with like Elanders. We have, you know, developed several functions to strengthen internal control, and we are now also doing a post-mortem on this one, how we can improve even more. The thing started in 2019, and as the company has, you know, been checked by auditors, 2019 and 2021, and they couldn't find anything. Of course, we will now try to learn as much as possible from this one. We have, you know, just added just a month before this happened, additional resource and internal control just to focus on this smaller company. We will do everything we can improve.
When it looked also to the profitability of Elanders, we cannot really say it for the moment because what we can see is that they didn't increase prices enough during last year to compensate the material price increases. We have a team on place to really understand. The first thing we need to understand, can we, you know, rather quickly turn it around again to make money again? One of the biggest parts that was there was the subscription box business, but that is already transferred from 1st of January to Bergen. That is under control, and that was most of the problems coming out from that as well. Now it's the print operations. Now we need to go through clearly to see, you know, can we easily turn it around?
Can we, you know, do some price increases and improvements? Otherwise, really, we need to consider how we what we should do with it. It's too early on this stage. If it's not profitable, then we need to take actions, but we don't really know yet. Take some time to go through all the customers, the pricing and things like that.
The run rate losses of the print operation, could you quantify them?
The run rate was not so good in Q1. That was around - $200,000 per month. There was also a one-off cost and things like that. I think the run rate is not so bad, and for us, we are pretty big now, so I don't think it will be so material. We never accept any company don't, to not earn money. I actually, I think we will know more in the coming months about the run rate, but it could be that the company makes maybe losses around $100,000 per month. We need to do some quick action, especially on the pricing side and the productivity side. It should be pretty fast for us to turn it to zero, you know, zero results.
Zero results is not good enough, so we need to analyze can we make it profitable, reasonable margin? Otherwise, we need to take some bigger actions.
Okay. Very good. Also on Bergen Logistics, you said they continue to grow double digits. I wonder if you could elaborate on the margin development. With the obviously good growth, do you get a decent drop-through, or is it diluted in any way? Obviously, you consolidated the subscription box, but if you exclude that to start off with. Also just so we can know what impact it had on Supply Chain margins during the quarter.
I think the impressive thing with the Bergen is that they are in a very, you know, high expansion phase with the new site in Atlanta. They were taking over this low-margin subscription box business. In the same time, they will start to feel, you know, a downturn in demand from some customers. They had expected to grow more than they had grown. We think they really grow really well, but they were more aggressive in their plans. They still keep up the same margins. There's a slightly down on margins on their side, but that is connected to the new big site in Atlanta. It costs a lot to build up a new huge site. Now they are performing really well.
They have a very impressive, you know, business model, how they can have a very flexible break even. Yeah. What I say, they are really doing very well. They can feel also a downturn in the demand. But luckily they could, you know, onboard 65 new customers last year, so. Their biggest client is only 3%. Even if some customer goes down, they can add more. As the former owner says, "Then when the economy comes back, you have more customers, and then hopefully all of them grow." Yeah. It's. So the improvement of margin comes mainly actually from Supply Chain Solutions. It's that Bergen is more flat margin-wise, but LGI has improved in Europe.
You can see really good improvements on their side, especially on the automotive industrial part.
You had no impact from the discontinuation of the rural business in Germany in Q1, or is it a small impact, perhaps, or?
There's still some small negative impact from that one.
Yeah.
You know, we made it reserved last year, but it's, looks like it will take to Q3 before we can close it completely down. That's not benefiting us. It's some negative impact still.
This is the final question from me. It's on your guidance on lower volumes from electronic customers in Asia. Obviously, with all the laptop sales that you referred to. But to what degree would you say that the demand is or the volumes is hit by maybe you taking on lower amount of buy and sell volumes during the quarter? Or did it maybe-
Yeah.
It's not relevant. Yeah.
No, no, but you can say, you know, we have, as we have said before, we are really aiming for lower the amount of buy and sell deals, especially in Asia. We are going down on that one. That is one of the reasons that we didn't have any organic growth in supply chain as well, because Asia is down, so it's a combination. The problem is with this manufacturing logistics, it's much more added value. We lost lots of added value in Q1, and we still have some buy and sell. We have to keep it up. For us, we expect Asia to be weak the first half of the year, and then we expect improvements. We are still taking away buy and sell businesses step by step.
In Asia, we will have a, you know, declining growth, hopefully improved margins. The timing is tough for us, you know, but the share of high added value services are going down. In the same time, we try to get take away low-margin business. That was very challenging for us. If you have that in mind, we are really happy with the Supply Chain Solutions result in Q1. There was tough times in Asia, but strong in Europe and North America that could help us balance it.
Okay, very good. That's all for me. Thank you.
Thanks, Carl.
Thank you. We have no further question in the queue currently. As a reminder, if you would like to ask a question, please press star one on your keypad now. Thank you. I don't see any further questions in queue. I will now hand it back over to you, Magnus, for any closing remarks. Thank you.
Okay. Thank you, Laura. No, thank you, everyone, for listening to our conference call. Thanks from both me and Andréas, and we wish you a nice weekend. Thank you. Bye-bye.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. Continue to stay safe. You may now disconnect.