Good day and welcome to the Elanders AB conference call. At this time I would like to turn the conference over to Mr. Magnus Nilsson. Over to you, sir.
Thank you. Welcome everyone. This is Magnus Nilsson here at Elanders. Together with me I have Andreas Wikner, our CFO. For you that had the presentation material, I would go to slide number 5 and talk about our different market segments. If we start looking at automotive we can see that car sales volume is going down dramatically because of the coronavirus. And there's also a lack of components which has forced the car manufacturers to close down their factories. And this trend we could see in the second half of March and they were not closed almost all of April as well the majority of the car manufacturers. And then as an example you can also see that Daimler went down by 15% the first quarter. But most of the car manufacturers have now announced that they will reopen again soon.
Some of them have started up this week and we expect that the majority will be up and running from next week, at least in Europe. But we expect that they will run with limited capacity at least the first week. If we then look at electronics, that is Elanders' biggest area, we can see we are expecting a much more stable demand in the second quarter if we compare to automotive. And the reason is that we can see an increased demand for laptops, network equipment, and accessories due to many people working from home and also a lot of students at homeschooling. So we expect electronics to be one of the more stable segments for us in the second quarter.
If we then look at fashion and lifestyle, we can see there a dramatic drop in sales for retail stores due to the pandemic. The drop started in Asia, especially in China, in February. But then it moved on to Europe in March. We can see some increase in online sales, but it can't compensate for the whole drop in retail. As an example, Adidas sales went down 19% in Q1, and we also expect a drop of around 40% in Q2. Elanders could still show growth in Q1, but the growth comes mainly from our fulfillment of subscription boxes in the U.S. But we expect that the second quarter will be very tough for the fashion and lifestyle segment.
If we then look at the industrial area was also affected by the corona pandemic. But the impact was not as hard as for automotive at least not in Q1. The end of the quarter, some of our customers closed down their factories but some of them have already started again and others are on their way. That was a bit about the markets. Again if you look at operational highlights and financials for Q1 I go to page seven. Our Asian operations through the supply chain was affected heavily by the outbreak of corona in the beginning of the quarter. But was able to recover quickly and actually had a pretty strong end of the quarter.
but the outbreak in Asia also created disruptions in the supply chain for both electronics and fashion and lifestyle which affected our sales both in Asia and in Europe. The real negative impact of the coronavirus came when Europe was affected on a larger scale. I mean our customers they are starting to close down their production and their sales went down. And that was especially in the second half of March. If you look at our net sales in the business area Supply Chain Solutions, there was a decrease by 17% organically as a consequence of the corona. But also from us being more selective in the business which we keep. And that affected mainly the sales within electronics, automotive and industrial.
If you look at Print & Packaging Solutions, we couldn't see any significant effects by the coronavirus in the first part of the quarter. Organic net sales increased by 12% mainly coming from the subscription box business in the US. But we could see an increase in print volumes in Europe in the second half of March. If you then look at the numbers, you can see that our sales went down to SEK 2.57 billion compared to SEK 2.80 billion the year before. Our EBITDA went down to SEK 88 million compared to an adjusted EBITDA of SEK 113 million the year before. Results per share went down to 0.40 compared to 1.70 the year before. Positive in the quarter was that we continued by the very strong operating cash flow.
The net debt increased by SEK 50 million despite a negative currency effect of some SEK 220 million. If I then go to page 8 and look more at our operating cash flow and net debt, then we can see that Elanders continues to have the first reduction in net debt to EBITDA. That is, if we exclude IFRS 16, it is still around 3. And you can also see that our cash flow will come on the compression in Q2. But for the moment, we are in a very strong financial position and expect that we can handle it in a very good way. If I then go to slide number 9, I look at our different business areas.
And then if you look at Supply Chain Solutions you can see there that we were affected both at sales and results levels by corona. And our sales went down to SEK 1.9 billion compared to SEK 2.23 billion the year before. And our Adjusted EBITDA went down to SEK 58 million compared to SEK 88 million. If we then look at Print & Packaging Solutions which we could show stable results in the year before. But our margin was affected because of the downtrend in print in the second half of March. Which means that net sales came in at SEK 686 million compared to SEK 599 million and EBITDA adjusted was SEK 42 million compared to SEK 43 million the year before.
If I then go on to slide number 10 and look at the sales for different customer segments, you can see that automotive decreased compared to the same period last year. Especially in the end of the quarter, several customers decided to close down their production due to disruptions in the supply chain resulting in lack of components because of the coronavirus. Electronics decreased also compared to last year. Outbreak of corona had a negative effect on net sales both in Asia and in Europe for a major part of the quarter. Lack of components resulted in disruptions in our customer supply chain. At the same time we also got rid of some buy-and-sell business with low margins. If we look at fashion and lifestyle, we can see an increase compared to last year despite the drop in sales for retail.
But the increase mainly comes from our subscription box business in the USA which showed significant growth. And we couldn't see any effect on this business because of corona. We could also see some increase of online sales but we could not compensate the drop in retail. If we then look at industrial that was actually in line with last year. But in the end of the quarter several customers decided to close down their production due to lack of components. But as we mentioned before some of them are already up and running again. That was our customer segment. If we then go to slide 11 and talk about going forward we can see that the cash and cash equivalents together with undrawn credit facilities actually amount to more than SEK 1.2 billion.
This puts us in a very good position to manage the consequences of our customers closing down their production during a longer period. Even though this closure would have a negative effect on results. But we feel we can handle some tough months going forward with our strong liquidity skills. In order to also strengthen our liquidity, our board has also decided to explore an existing dividend proposal. Instead, they will now propose that no dividends will be paid out. We have taken several measures to reduce costs and to meet the temporary decrease in demand. This includes short work for almost 2,000 of our employees. We are also heavily reducing the number of temporary workers and, in parallel, we are strengthening our liquidity by postponing investments, also minimizing costs that are not considered critical to operations.
In the end of March and beginning of April we have to cease production in some of our smaller sites in Italy and India due to government restrictions associated with the coronavirus. In Italy we are now about to stop our production again but we are still closed down in India. In the second quarter several sites in Europe will operate with reduced capacity as a consequence of customers keeping the factories closed or running at low speed. This will of course heavily impact this quarter's results for the second quarter. But we expect that we can balance this in a rather good way because of the short work and we will ramp up step by step as our customers are increasing their capacity. We can also see that the coronavirus actually creates some new opportunities.
We have been approached by many potential customers that we have not worked with before who want a more stable and reliable partner in different times. And this we can especially see in the print and packaging area. Our competitors are small and privately owned, and it will be very hard for them to survive during a more tough second quarter. And we expect that this will give us some nice opportunities going forward. Okay, thank you. That is everything from me. And now we open up for questions. Operator, can you open up for questions?
Sure, sir. Thank you. Participants, if you would like to ask a question, please signal by pressing star one on the telephone keypad. I again repeat, please press star one on the telephone keypad to ask a question.
We'll just give a moment for everyone an opportunity to signal for questions. Thank you. We now take our first question.
Hi, it's Carl here from Nordea. Can you hear me?
Yeah, we can hear you, Carl. Okay.
Hello. Perfect. Perfect. So first of all, could you say whether you had any impact from government support programs in your Q1 numbers?
Yes, we had some impact because of support in China and Singapore, but it's not any bigger amounts. But we have got some support. We think that the bigger part will come in Q2 because the short work support we would gain in Europe.
Okay, perfect. And could you perhaps give any indication of the last weeks of March and beginning of April, how in terms of demand situation and yeah, more or less a trading update?
If we look at the different areas, if we look at automotive, it worked pretty well to the middle of March and then they are closed down. So we went from 100% to zero orders the last two weeks in March. So that was a big impact. As I said before, they have closed down in April. And the question is how quick they will ramp up in May and going forward. Electronics was a very mixed picture of course. We were hit very hard in February because of the closing down in China. That also affected both our operations in Asia but also in Europe because we are driving a huge hub for electronics in Europe. So also went from 100% to zero for a couple of weeks.
But then in March we could see a good increase in electronics both in Asia and in Europe actually. So and we expect that the demand from electronics will be pretty good going forward in Q2. So that should be pretty stable. Fashion and Lifestyle is much more, I think it's the most complex one because there was of course a hit in Asia locally but also lots of the customers we are serving out of Europe. We are doing shipments to Asia and take care of the supply for all the retail business in Asia. And that was hurt already in Europe in February. And then when China was recovering then governments closed all retail shops in Europe. So Fashion and Lifestyle had a really bad March in that sense.
especially our more important clients if it comes from a sales and earnings perspective. And the outlook for fashion and lifestyle is really hard to say. We are now; they have opened up some smaller shops in Germany, which is good. Smaller retail shops are allowed. Hopefully other countries will follow, but we should expect a very tough second quarter for fashion and lifestyle, just like for automotive. Industrial for us, I think, will be a bit hit. We will have some hit in Q2 but not as big as fashion and automotive. That is the outlook I can give. And everything is really uncertain. So it's really hard for us to put it in numbers actually.
Okay, perfect. Very helpful. And could you also set.
Right now, are you receiving compensation for at least minimum volumes from some of your customers? I mean, is that possible given the financial situation that some of them might be in?
I think that will be, of course, a balance. We can see from some customers in the automotive area we will get some compensations in the second quarter, especially when we drive some in-house operations for them. We will also see some compensation in fashion and lifestyle. And so, but of course, it's a balance there in the fashion side. I think if the customer is in a weak position, we need to be a bit more flexible. But we will see some compensations.
But I think the biggest saving for us is the short work especially then in Germany. That is the most important for us. And that we, regarding German regulations, can take people back step by step and that the government there is covering all the costs when there are short work.
Okay, perfect. And the final one for me, could you perhaps remind us of your fixed cost base or at least what portion of your cost base that is variable? And can you also elaborate on what measures you are taking in order to adjust your cost base to the new situation?
I think if you go for the easiest part is of course that we have slowed down investments and we only do critical investments.
We have sent home almost all temporary workers. That has a big effect. Then of course it comes down to salaries. If you look at the supply chain business in Europe, salaries can be around 40-50%. Of course when you can put a big amount of people on short work, that's a huge saving. Then of course we still have lots of fixed costs in rents and things like that. If you go to our print operations, salary part is more down to 20-25%. You don't have the same effect and you have more fixed costs in the equipment. The biggest cost-saving impact is when we can have lots of supply chain personnel in Europe on short work.
That's why we have been very active in that one and sent home around 2,000 people.
And can we also expect more of a long-term or mid- to long-term measures in terms of cost cutting if you have a more yeah more bearish outlook short-term at least?
I think for the moment we don't see the need for any in a bigger cut in employees. We will do some of course some adjustments in some of our sites especially in countries when short work is not allowed or there's no subsidies around it. But if you look at Germany that we had the biggest hit of the corona impact the short work regulations are actually very good and you can run it for more than 12 months. So for us it's and the government is covering the costs.
So for the moment it's much better for us to just have them in short work and to be prepared to increase capacity step by step as long as our customer are increasing. But of course if we go into Q3 and you can see there are some major trends in that consumption goes down. If there's too big unemployment and the measures the governments are taking is not working then of course we will see if we need to do any more long-term things that's like sending people home. But for the moment we are in a very flexible good position with our high exposure to the German market.
Okay perfect. Thank you.
Thank you. Thank you sir. We now take our next question from Mr. Edvard Akman from ABG Sundal Collier. Hi this is Edvard from ABG. Can you hear me?
Yes, hi Edvard. Hi. So when you talk about the recovery in Asia, is it mainly the electronics or have you seen any recovery for fashion and lifestyle trends there as the society is opening up?
Yeah, I think it's mainly electronics, but we could see some other parts also for other things we are doing in Asia like fashion in the end of the quarter. So we could see stabilization. But also we do lots of export out of Asia of course that goes to the US and that is it, especially in fashion and lifestyle the demand is lower for the moment. But we could see now that they indicate that they are ramping up in May as well. So it looks like for us in May that all our operations in Asia will be up and running.
Luckily for us, you know, we have almost 500 employees in Singapore and Singapore is in a total lockdown. But our business is considered as critical because we also do both electronics and healthcare. So we are allowed to be up and running. And also our big customers, so knock on wood. But for the moment it looks like we can run our Asian operations at 100% in the second quarter, which will be very important for us.
Okay, that's good to know. So just a follow-up on the demand outlook for electronics. Is this in line with 2019's level or levels or is it solid given the circumstances we are in at the moment?
I think, yeah, I think it could be pretty in line with 2019.
We have taken away some buy and sell deal with low margins. So maybe slightly down but from a profit perspective we will be in line. But that you cannot see of course. We are a lot of profit. But from a profit perspective we should be in line with 2019. Some slight down maybe in sales but not not so much.
I see. And about the subscription boxes in the US have they still kept going as people are staying home here in April? Or how's the outlook on on that segment?
Yeah the demand is actually even growing. And our only our problem is to deliver the demands because we have lots of regulations in in US. So we need special distance between our employees. We cannot really run in 100% capacity, but the the demand from the customer is the same.
Hopefully they will soon change this so we can ramp up a bit more in more shifts. But there's no downtrend. It was actually a big growth in Q1.
Okay. And you mentioned that the layoffs regarded both permanent and temporary workers, right?
Yeah, yeah, we mentioned, but we mainly used the short work. So we don't do any; we don't do so much permanent layoffs.
All right. I see. Then you answered my question. That's thank you. That was all for me.
Thank you.
Thank you, sir. We now take our next question from Dag Marius Nereng from Protector Forsikring ASA.
Thank you. Hi, most questions have been answered already. But you have a cost savings program that you initiated in the fourth quarter, saving SEK 75 million annually. Did you have any effects of those cost cuts already in this Q1 numbers?
We could see some as planned effects in March but the main effect should come in Q2. So of course it will help us in this situation but it will be hard to of course for us to quantify it. What do you say, Andreas? It's 'cause that was lost in personnel and now we have 2,000 people on short work. So it's but of course it helps us anyway in but I think we will help us even more when things start to normalize and we can see a ramp up from our clients in Q3 and Q4.
Yep. Okay, thank you.
Thank you. Thank you. I repeat, participants, please press star one on the telephone keypad to ask a question. Now take our next question.
Hello, it's David Wilson here from Canaccord. Hello, Magnus. Hello, Andreas.
Just a quick question.
Hi David.
Could you clarify your statement about the liquidity buffer? When I look at the balance sheets I can see that I think you have gross cash at 31 March of SEK 873 million. So does that mean that when you say that your liquidity buffer is more than SEK 1.2 billion does that mean that you actually have unutilized credit lines of maybe SEK 300 million or SEK 400 million because you're adding the gross cash to the unutilized credit lines to calculate the liquidity buffer?
Yes that's correct David. So we have EUR 300 million and oh I think it's roughly EUR 35 million in revolving credit facilities that are not drawn for the moment.
And then of course we also have the factoring program where we're not using the whole facility line but we haven't included that in the SEK 1.2 billion.
Okay. Thank you. That's fine. Thanks very much.
Thank you. No problem.
Thank you sir. There are no further questions at this moment sir. Would like to hand over the call back to you.
Yes please. Okay thank you everyone. Please remain on the line for our conference call. Thank you. Bye-bye.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect your line.