Good day and welcome to the Elanders AB Conference Call. At this time, I would like to turn the conference over to Magnus Nilsson, CEO. Please go ahead, sir.
Thank you. Hi everyone. This is Magnus Nilsson. Together with me here, I also have Andreas Wikner, the CFO of Elanders Group. I will now start my presentation, and I will now go directly to Slide 5 and talk about the result in the third quarter. The result in the third quarter was actually the best quarter we have had, and we achieved an adjusted EBITDA margin of 6.8% compared to 5.6% the year before. Our results before tax increased with 25%. In the third quarter, we could see an increased activity from our customers when it comes to requests for quotes, especially in the Fashion Lifestyle segment. We could also see that our saving actions in 2019 resulted in improved margins for our business area Supply Chain Solutions when sales came back to more normal levels.
We have also renewed several important customer contracts with an annual sales value of around SEK 500 million-SEK 700 million. We also continue 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. We could also see a strong recovery in our business area Print and Packaging Solutions, and they are now almost back on the same level like the year before. Also during the period, they have managed to gain some additional market share. We continue to focus on growing the area of lifecycle management, and in October, we acquired the Swedish company Azalea IT that was specialized in value recovery service, where they managed the entire chain from purchasing used IT equipment to restore it, reset it, and then to sell it to a network of customers.
By doing this, we prolong the lifespan of IT equipment, which gives major environmental gains compared to recycling of products that still work. If we then go to Slide 6, there you can see that they have strengthened our financial position. And if we look at our adjusted Net Debt/EBITDA, exclusive IFRS 16, it's now down to around 2.5 compared to 2.96 in 2019. We have also improved our Net Gearing, which now is down to 0.55 compared to 0.74 in 2019. And then if we go to Slide 7, if we look at the accumulated numbers for business areas, you can see that Supply Chain Solutions are almost in line, accumulated with the year before, and they actually managed an EBITDA margin of 7.6% in the third quarter compared to 5.9% the year before.
And it was in this business area the major part of our cost-saving program in 2019 was implemented, and that resulted in much stronger margins. If we look at Print and Packaging, they are still behind last year, but in the third quarter, the result was almost in line with the year before. And they are now entering their strongest period of the year in the fourth quarter and looks pretty good going forward. If we then go to Slide 8 , if we look at how sales have developed for different customer segments in the quarter. Automotive showed a very mixed picture in the third quarter with a very strong demand in July, but then much lower than normal in August because lots of our customers closed down because of holiday period in Germany and much longer than normal.
But then in September, the demand recovered again and they had a very strong margin. The demand going forward for Automotive is still rather uncertain, and some of the car manufacturers are expecting that the market also in 2021 can be a bit challenging. If we then look at Electronics, the sales actually decreased a bit in the third quarter, but that was partly probably a consequence of the high volumes in the second quarter when the demand increased because of people working from home and also studying more from home. We still expect the volumes from Electronics to be stable going forward. Important in the quarter was that we managed to renew one of our most important contracts for another 5 + 2 years with a yearly sales value of around EUR 40 million-EUR 50 million.
In Fashion Lifestyle, we could see a growth compared to last year, which was partly due to growth in the Subscription Box Fulfillment business in the U.S. combined with the recovery from our retail customers in Europe. We could also see that the demand for our E-Commerce customers continues to grow, and we have lots of requests from new customers. We recently secured a new important customer with a yearly sales value of around EUR 3 million. For Fashion Lifestyle, we expect the demand to be stable going forward if not new COVID-19 restrictions, for example, lockdowns, affect the volumes negatively. If we then look at Healthcare and Life S cience, we had a strong boost in sales in the second quarter because of the sales of personal protective equipment for the North and South American Markets.
This business continued in the beginning of the third quarter but was significantly less than before. Underlying business continues to show very stable demand, and we have secured a new 10-year contract with our biggest customer in this segment. If we then look at Industrial, we could see that almost all our customers recovered in the third quarter, but the forecast also for this area going forward is still a bit uncertain because of COVID-19. If we then go to Slide 11 and look at how things will be going forward, we think after our strong recovery in Q3 and the improved financial position, we are actually carefully optimistic going forward. We have also shown that our existing business model with both a diversified customer base and a geographical spread that we can handle very challenging market conditions.
However, COVID-19 will continue to make the market condition a bit uncertain, which we need to be prepared for. We will continue to focus on generating strong cash flows to be able to handle these challenges. For the moment, it's the group's cash and cash equivalent together with a neutralized credit facility. It's now amounting to more than SEK 1.4 billion. From a financial position, we are actually stronger than we were before we entered the COVID-19 pandemic. We can also see that the pandemic creates new opportunities, and we have been approached by several potential customers that they have not worked with before who want a more stable and reliable partner in these uncertain times. We can also see that some of our competitors, especially in the print area, have become insolvent, which already has benefited us with additional volumes from some of our customers.
Yep, that was everything from me, and now we are opening up for questions.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. We have one question. Your line is open. Please go ahead.
Hello. Good morning, Magnus and Andreas. So impressive quarters, and the margins were really impressive. And the restructuring you have done seems to have been effective. But I just wonder how much of this we can extrapolate and if you're now expecting to be at the 7% margin goal going forward if the volumes are solid.
Yeah. If the sales would go up to more and stay at normal levels, we will actually be able to be around this margin. But then, of course, we also have some quarters that are stronger than other ones. But for example, the third quarter and also the fourth quarter, it should be possible to be in these levels. So now it looks pretty good. But the problem is the COVID-19 still that makes the volumes a bit volatile. So it depends if the volumes are stable or they're going more up and down. But if they continue to be like in the fourth quarter and in all our business areas, then it's absolutely in reach to be around 6%-7%. Yep.
Yeah. Nice. Just to follow up, and I know you don't give a forecast for the rest of the year due to the uncertainty, but could you comment on the momentum for October? Has it been good volumes this past month?
I think the momentum for the moment looks very stable for us. But as you know, there are lots of lockdowns in Europe now and restrictions. So the important for us is that they don't start closing down retail shops for fashion or shops for car dealers or some things like that. So if the restrictions are not affecting this kind of sales activities, we expect that the fourth quarter will be very stable for us. And for the moment, it looks fine. I think the uncertainty is December. We expect that October and November will run rather smoothly. And then the big question will be in December if our customers decide to close down for a longer period than normal because of the Christmas season. But otherwise, for the moment, it looks very good for us. Yeah.
Okay. Good. And for this quarter, Electronics was definitely the weakest. And I guess you're seeing a vacuum from the working-at-home trend in H1. And you said that we should expect a lower level than Q2 going forward. But I'm just wondering if we should be expecting a decline year-over-year or more of a return to normal?
I think it will be more of a return to normal. But at the same time, we had one big business in Electronics that we don't have anymore, but that was with lower margins. So we think even if sales would be lower for Electronics, we think it will not affect our earnings, actually, because in Electronics, we have improved our margins. So that's why we say that we look at Electronics from a very stable perspective. So from a profitability, it will be very good for us even if sales would be a bit lower than last year. So the earnings will be actually better.
Yeah. Okay.
Because we had a big, what do you call it, bulk business that was very low margin that we don't have anymore. Yeah.
How much of sales was this if you could?
I think that was it, Andreas. The sales was $40 million. I think it was around $40 million, $40-$50 million buy and sell.
All right.
Buy and sell business. Yeah. But then we have gained additional business in electronics that we maybe compensate half of it roughly, I think.
Okay. And then moving on to subscription boxes, it has clearly been a strong driver for growth all of the year. And I think it would be helpful if you could just inform us what's going on in that market right now and for Elanders as it's become quite a large share of the group.
Yeah. I think this business has continued to surprise us because we have had no effect of COVID-19. It's even increased even more. So that is very positive for us. So the volume has been growing a lot and turnover and things like that. The challenge we have now, actually, is that the number of delivered consumers in the U.S. because of COVID-19 are extremely high. So there are some challenges when it comes to the pricing from FedEx and other companies working there. So for us now, the biggest challenge is to balance the volumes to get the right price for the freight, actually. So we are under some pressure there because of COVID-19. But hopefully, that will stabilize, again, going forward. But if we take away that problem, otherwise, it looks like it's just growing. And we have several customers that are just growing.
I think the concept works really fine. But the challenge in the fourth quarter will be to balance the freight prices. But yeah, the sales-wise, it's really amazing. We have had sales of $75 million the first nine months this year. So it's a really interesting business for us.
Yeah. Certainly. And then just on the renewed contracts of SEK 500 million-SEK 700 million, I guess you said. This is very good, of course. And I'm just wondering if you're happy with the terms when it comes to margins and if these terms have had any effect on bargaining dynamics when it comes to these contracts.
No. I must say we are very pleased with the agreements. And both of them are actually belonging to LGI, our German supply chain company, where we also did lots of the saving program in 2019. And we also have improved efficiency and the margin for several customers. And these two agreements are one of two of our most important customers for LGI. And we are very happy with the contracts. They are back to back, especially the 10-year contract for the healthcare customer that we have had a long and really good relationship with. It's also proof for us to see that LGI are doing a really good job. So yeah. So both of the contracts are very important for us, both from a margin perspective and a sales perspective. Yeah.
Great. And just lastly from me, I didn't see any comments on furloughs in the report. So I guess everyone's back to work right now.
I think the furlough, if you look at support in the third quarter, was pretty low for us. In total, we got SEK 11 million in the furlough support and other kinds of support compared to SEK 35 million in Q2. So it didn't have so big effect on our result in Q3. So I must say Q3, like you said, is our best quarter ever. And it was mainly because of underlying improvement in our normal business. And lots of the improvements came out of Germany from LGI, actually, that made the best quarter ever.
All right. Thank you very much, Magnus. That's all from me.
Thank you. Thank you.
As a reminder, if you wish to ask a question, please press star one. We are taking our next question. Your line is open.
Hi. This is Magnus Våhlin.
Hi, Magnus.
Can I ask you on cash flow? You are now down to SEK 1.6 billion in net debt on actual net debt. Are there any sort of one-off effects in this cash flow, maybe from working capital, or is this sort of the real level now going forward? And is there any reason for us not seeing you coming down towards SEK 1 billion during maybe not towards the end of next year, but sort of thereabouts?
I mean, of course, in the cash flow, this is Andreas here. In the cash flow, we have some one-off effects from the working capital because the sales are shrinking a little bit. It has been shrinking a little bit. So we have some positive effects from Accounts Receivables. And the factoring is also up to EUR 23 million right now. So it's also been going up a little bit the last six months. But I would say the level of Net Debt, it should continue to go down, not down to SEK 1 billion next year, but in a few years, it absolutely should unless we do any acquisitions or unless anything else sort of dramatic happens. But the.
You pay around 2% on that, or?
Yeah, roughly, I would say, about 2%. But not only 1.6 because we also have the cash in our sort of the available cash also that we have to add on. So what we are using roughly right now is 2.6, 2.4, between 2.4 and 2.6 in credit facilities. So that's what we are paying the 2% on. But now the 2% will go down with 25 Basis Points the coming quarter. And if we were really lucky and if we had some help during this quarter, we might even go down with it even after this quarter, also another 25 Basis Points. We're not sure. The next level is 2.5 for additional reduction in the interest rates.
That's great. Thanks.
You're welcome.
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Okay. There's not any more questions. We will close this conference call. Thank you, everyone, listening in. Yeah, thank you. Bye-bye.
This will conclude this conference call. Thank you for your participation. You may now disconnect.