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, President and CEO of Elanders. Please go ahead, sir.
Okay. Welcome, everyone, to Elanders Quarterly Call. It's Magnus Nilsson speaking, and together with me is Åsa Vilsson, our CFO. I will start by going to 2, page 2 in the presentation, and talk about the numbers for the second quarter and the first six months. And I will make my comments based on excluding IFRS 16 to make it more easy to compare the numbers. So if we start, look at the second quarter and net sales. The net sales for second quarter was SEK 2.72 billion compared to SEK 2.61 billion in 2018. Our EBITA results went up to SEK 122 compared to SEK 116, and we also continue to have a rather strong operating cash flow that was positive SEK 77 compared to SEK 127 the year before. And our return on capital employed improved to 8.3% compared to 7.3% the year before.
So if we then look at the accumulated numbers for the first six months, our sales is now at SEK 5.52 billion compared to SEK 5 billion in 2018. Our EBITA results is up to SEK 237 compared to SEK 199. If we look at accumulated operating cash flow, it's now positive of SEK 297 million compared to SEK 92 million the year before, and return on capital employed is at 8% compared to 6.4% the year before. If I move to page number three to make some comments about the second quarter, the customer demand was very strong in April and May but decreased in June, and that was mainly due to the vacation period in Germany, that this year was in June and that was in May last year.
We also have some effect about the Easter because last year the Easter was in the end of March but this year in mid-April. This had a positive effect on sales in the first quarter and a negative effect on the sales in the second quarter in comparison to last year, as some of our Automotive clients closed down their production for a few extra days during Easter. The activity continues to be very high regarding customers' requests for quotes and information. We also, as we mentioned before, we have lots of existing business out for tender, and we managed to retain the majority of this existing business during the second quarter. The organic growth was slightly positive but close to zero in Q2 2019, but the subscription boxes in the US within Print & Packaging Solutions continues to drive organic growth.
The organic growth year to date is now at 5%. In 2018, Elanders started to implement the factoring program without recalls. The factoring program had no significant effect on the cash flow in the second quarter. We expected to have a bigger impact in the third quarter. So then if I go to page 4 and talk about Elanders' different customer segments, and then I will mainly focus on the second quarter. If I then start with automotive, we managed in second quarter to grow our automotive business with 5.7%. Also in Electronics, we had a growth of 5.4%, and we had a very strong growth in our area Fashion & Lifestyle that went up with 19% in Q2. In the Industrial segment, we had a decline of 10%. Overall, the customer segment was running pretty well in the second quarter.
If I then look a bit more about automotive, we could see good growth in April and May, but then we had a downturn in June, but that was mainly due to the vacation period in Germany. Some of our electronic customers also had some problems with our supply chain and the supply of certain components, which had a slight negative effect on our sales, but that was compensated as we had a growth in new customers in the area. So we still could show growth in electronics. And if we look more at fashion and lifestyle, we could see a pretty strong growth in almost all our big customers in the period. But in industrial, we had a decline in volume, especially for one of our main customers in Germany.
If I then go to page 4 and look more at the business area Supply Chain Solutions, Supply Chain Solutions, sales-wise was roughly in line in the second quarter with the year before with the sales of SEK 2.1 billion compared to SEK 2.08 billion the year before. Supply Chain Solutions continues to be our biggest area, and the share of sales is now at 79%. I think it was the same in the first quarter. If we then look at the results for the second quarter, our EBITA results went up to SEK 107 compared to SEK 96. If we look at accumulated numbers, we are now at the sales of SEK 4.36 billion compared to SEK 3.98 billion, and our EBITA result is up to SEK 205 compared to SEK 155 the year before.
As I mentioned before, the demand was strong in April, May, but it was more slow in June during the quarter. We got some new interesting business in the supply chain solutions area in Q2, and that is for a customer who's selling in fashion and lifestyle, who's selling luxury goods. We will now make a combined solution for them where we will have a big hub in Germany via LGI, our subsidiary LGI, and then our other subsidiary, Mentor Media, will run their hub for Southeast Asia out of Shanghai. This is a concept we think can attract much more companies in the Fashion & Lifestyle area. That was an important breakthrough for us. We also launched we made a successful launch of our extended Value Recovery Service .
We used IT equipment where we help our customers to maximize the value and minimize their environmental impact from the equipment during the entire lifecycle. And we added a couple of new customers, and we now have a new platform up and running to handle this type of project. So that was Supply Chain Solutions. And then if I go to page six in Print & Packaging Solutions, then we can see in Print & Packaging that the positive trend in Q1 continued in Q2, and there we again could show an organic growth in the second quarter. And sales went up in the second quarter to SEK 605 million compared to SEK 544 million the year before. And we also managed to improve the results. The EBITA result went up to SEK 33 million compared to SEK 28 million.
Then if we look at the first half year, sales is now up to SEK 1.2 billion compared to SEK 1 billion the year before, and EBITA is up to SEK 66 compared to SEK 54. And as I mentioned before, the organic growth comes out of the subscription boxes in the US, but even if we take that away, we could show an organic growth of 4% in Q2 in the Print & Packaging area. And we can see that our concept with the combination of high output inkjet production in high-cost countries combined with our low-cost production in Poland and Hungary is still very attractive to our customers. And this is one of the reasons that we can drive an organic growth. But we can also see that, especially in Germany, that lots of our competitors have now went bankrupt, which has increased our volumes.
So we can see we are gaining more market share. The share of Print & Packaging Solutions is now 21% of total sales. Then if we look at focus areas going forward, I think it's the same that we have talked about before. We are now focusing a lot on business with high added value like sophisticated contract logistics and omnichannel solutions. I think the omnichannel solutions a good example is this customer I talked about where we would take care of their merchandise and all their luxury goods just both in Europe and in Asia. Also value recovery and after-sales service is an area that we have high priority in. And this will, over time, help to improve margins and to increase return on capital employed.
We also continue to focus more on margin and growth, and we try to be more selective when we acquire new business and prioritize margin before sales. It is still very important for us to say no to low-margin business with low Return on Capital Employed and to focus on high-margin business. Okay. That was everything from me, and now we hand over to questions.
Well, ladies and gentlemen over the phone, if you wish to ask a question over the phone, please press star one on your telephone keypad. Please ensure that the mute function is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. A voice prompt will indicate when your line is open to ask a question. Please state your name before posing the question. Once again, it's star one to queue up to ask a question over the phone. We will pause for just a moment to allow everyone to signal. Okay. We will now take our first question. Please go ahead, caller. Your line is now open.
Hi. It's Carl Ragnerstam. Can you hear me?
We can hear you, Carl.
Okay. Perfect. I have a couple of questions. First, regarding the automotive market, you said that in the beginning of the quarter was solid but declined in June. How much of the decline was related to holidays, and how much was related to weakening demand situation? And could you perhaps also quantify the holiday effect in the quarter?
I think for us, as we see it, it's mainly a holiday, I think, because in June, there was a big holiday in Germany, and lots of the companies almost closed down for two weeks. That was longer time than we expected, but in the same time, the demand was strong in April and May. I don't know to quantify it, Andréas. I think maybe the sales was down for automotive with 10% in June compared to the year before, but then it was the same amount stronger in April and May. It's really hard for us to see if it was connected to the holiday or to the demand because in our numbers, we still have a growth. If you look at our main automotive customer, Daimler, their sales went down with 4.6%.
They went down with 4.6% the first half year, but we are still up in Daimler as well. If you look at Porsche, we can see no decline. There's even a growth. Audi was slightly down. For us, it's still a balance. It's still a positive growth for us. The signals from our automotive clients is that in July and August, it should be business as usual volume-wise. We don't see any warnings yet.
Okay. I mean, Daimler communicated preliminary results, and they talked about weaker car markets, lower product ramp-up. I mean, how will that affect you, and can you perhaps offset that by your R&D contracts?
For the moment, it looks like we can offset it because if you look, their sales is down with, like I said, 4.5%. And Porsche is not down. It's slightly up. The other automotive customers is also down. But for the moment, we can offset it with doing more services for them. And we actually also have a lot of strong growth in the print for the automotive clients. That also gives a positive effect for us because our main competitor went bankrupt in Germany. So today, we are almost a single producer for lots of the German car brands. So I think for the moment, we can compensate with doing more service for them and also some growth from Porsche as well.
Okay. So you're on board for H2.
We have tried to predict it yeah. We have tried to predict it before, but it's a bit hard for us. We think if the car manufacturers go down with 5%, it will affect us with maybe the half. But for the moment, it's zero negative effect for us.
I have a couple of them more, if I may. Can you also give some flavor on the electronic market situation? You talked a little bit about Asia being weak, I guess. How's that outlook for H2?
I think also electronics is a bit interesting to look at because if we look at our main clients, HP Inc. and Dell Inc., they're both HP companies and Dell in electronics, we could see in the latest report for the worldwide PC sales that in Q2, HP Inc. went up with 2.6% and Dell with 2.1%. And the whole market also went up with 1.5%. So it looks like the underlying PC market is very stable for the moment. So what we could see was in June that for PC deliveries, at least where we are responsible in Europe and some parts of Southeast Asia, the volumes went down. But our customers say there's a we cannot find there's not enough of CPUs, and it's the same comments from companies that are following the demand.
So there was a downtrend in electronics, but in the same time, we acquired two new big projects in Asia this year. And last year, we also acquired a big customer in Panasonic in Germany. So that was offsetting the negative impact from some of our products we are serving. So we think it will be pretty stable going forward because the statistics shows that they are growing, our customers. So it should not affect us so much. But June was a bit slow in both areas.
Got it. Probably a final one for me. We have earlier talked about that you see Value Recovery Services as an interesting growth area going forward. Do you plan to grow organically or via acquisitions in order to get a strong footprint?
The plan for us now is to grow organically because we have been doing this business for a while in Germany and Singapore. But now we have developed a platform that makes it possible for us to do this business global. So our idea now is to go to existing big global customers but also new ones and offer them a global solution for value recovery. And we think we had a very attractive offer. And during the second quarter, we acquired two new big companies where we will start in Germany as the first step, and then the idea is to grow out. It's mainly organically because our competitors are mainly small local players, and we can use our existing infrastructure to do the disk wiping and this thing that we can do in our existing logistics hubs.
That's why we are putting lots of effort in the IT software to handle the pricing for the equipment, handle the certificates, handle the production, and the deliveries and logistics. So that target for us is organic growth.
Okay. Perfect. Sorry. I have one more. You mentioned that you won most over the business network for a tender. Can you say something about the pricing discussions? I mean, do you usually need to lower prices when renegotiating contracts, or how does it work?
Yeah. That's always discussions. But I think normally, we can keep up the prices and also add some margin because this is mainly in the supply chain. And they understand that you have increasing salary costs and other costs. So normally, you can do an increase in pricing. And for us, especially, we had one huge hub in Germany that was up for tender that we now have secured. That was very important for us. And price-wise, it looks pretty okay. And we also will have some more flexibility in our setup. We are changing a bit in the setup. So overall, I think the tenders we have now acquired look good going forward. And we also have some huge.
This is on a three-year basis? Sorry.
Yeah. That was three-year basis. And we also have some huge tenders in the network solution transportation where we managed to increase prices starting the second half of the year. So that's also pretty good.
Okay. Thanks. All from me.
Thank you.
Thank you. No further questions in the queue at this time. But just as a reminder, ladies and gentlemen, it's star one. If you wish to queue up for a question, we will pause for just a couple more seconds. Great. We will now take our next question. Please go ahead, caller. Your line is now open.
Yes. Good morning, Karl-Johan Bonnevier from DNB Markets. Just if you could give me a short update on how the disposals or the joint ventures with LogWorks, Adecco, and Elanders have impacted on the numbers and how they have progressed operationally.
We haven't had so much effect on the numbers from the joint venture, actually. I think for us, it was good to make the joint venture because we could see there was decreasing demand, at least the first half year because of the new regulations in Germany. We think together with Adecco, we'll improve step by step. There's no major impact on our numbers. I think it was pretty neutral the first six months. We hope together with Adecco that the business can improve it going forward. It's still very important for us to be able to use temporary employees. That's a big part of our flexibility.
That's no major impact, basically. I guess is it the slow ending of June that made factoring being less of a business driver in Q2 for you?
No. I think the factoring was more delayed by technical issues, actually. It wasn't that bad. Much more technical things about setting up accounts and yeah. There are six different ERP systems that we need to feed our partner with, and we need to separate the invoices for each customer because some customers are in the factoring program. So it makes it a little bit more a little bit tricky. So it's about getting the technical resources to make the adjustments to the ERP systems. That's taking time.
But we hope now we can.
Do you think you can release during the second half?
I mean, the aim and the forecast we have received from our colleagues is that they should be able to use EUR 40 million. And currently, we are using EUR 12 million for the moment. And EUR 40 million is sort of the average value that they would be using. Then, of course, we'll have swings in it also over the year. So we want to push we are pushing them to get it through because it sort of helps us also, the financing cost, because the yeah. The rates are cheaper, a lot lower than our existing ones for the other credit facilities. So that's why we're pushing it from headquarters. So if everything goes like planned, we should add at least SEK 250 million, roughly, in factoring, yeah, during the second half.
Excellent. And just one final thing. You mentioned also in the industrial segment that you saw, say, declining volumes in Germany. Do you think that's also related to this holiday effect, or is that anymore, say, recurring item happening there?
Well, I think it was also both holiday, but also there is a negative trend because also in Q1, they went down. And I think especially a bit surprising for us is that the big volume in the thermal technology was going down. So not industry so much connected to automotive but more for construction. What do you call it? Yeah. Construction.
Yeah. Building and construction.
Yeah. Because it's heat systems and things like that. So we don't know yet if our customer's losing market share or if the construction market is cooling down in Germany. There was some effect. And we also could see some delays from some other industrial clients. So a bit uncertainty for us there. Our customers are also private companies, so they are not so transparent. The only information we get is what they give to the market as well. So we don't know yet.
If I understand your general comment, is that you see it stable, growing from a solid base, basically? If you take the whole mix that you're exposed to, then obviously, swings are swinging back and forth in the microsegment.
Yeah. Yeah. I think we have a very stable platform now because our automotive is around 25%. But at the moment, we can keep up even if they are going down. And then in electronics, like we said, we also have acquired new clients. So yeah. We have a growing demand. And fashion and lifestyle, for the moment, goes really strong for us. That's a really strong growth. And we have lots of new projects we're looking at. So it's almost up. I think it's up 19% compared to last year. So we think we can balance with our portfolio there. And it's also like that for some of the industrial clients, we actually want to get out as well because some of it's very low-margin business.
Some part of the decline is actually also us pushing out by increasing prices to lose the business if we cannot earn good enough money on it.
Excellent. Thank you very much for the extra color.
Thank you.
Thank you. We will now take our next question. Please go ahead, caller. Your line is now open.
Yes. Hello. Magnus Nilsson, Andréas. This is Mattias from DNB Markets. Can you hear me?
Yep. We can hear you, Mattias. Yeah.
Perfect. Well, I just have one question since the previous questions answered the other ones I had. But you state that you have gained some new businesses and that there is high activity responding to new quotation requests from both new and existing customers. I was wondering how these new contracts differ from your current contract base regarding profitability and volume?
I think for one of the big ones that we talked about in Germany, the good thing with the new agreement there is that we managed both to adjust pricing. But also in the deal with the customer, we will get additional volumes. So we will have a better business of scale there. We have a huge hub there. It's around 60,000 square meters. And now, we will even expand it. So that is also a way for us to increase earnings, to push our customers to give us more volumes. And we will now be their only supply chain provider in Europe for that part of the business. So that was important for us. And I think the other two big business that we gained, especially in Asia, was really good margins and really nice business. So that has been good.
And also in the fashion and lifestyle, we have secured some new business with high profits. We are much more tough there with our subsidiaries now. There was also actually some bigger business that we let go because we thought the margin was too low. That is the focus we are doing now. Every time there's an RFQ now, we have a strong demand that we need to improve margin. Otherwise, we should be open to let it go. That is how we are working with it now.
Okay. Thank you. And also, I was wondering regarding June. You said that growth was dampened in June. Does this change your internal growth outlook for the full year, or how do you see this quarter affecting your full-year numbers?
We are still at 5% organic growth. I think we had had so strong growth last year and the year before. And because of our focus on margin, we have been aiming to be around 5% in organic growth. And we are still at 5%. And normally, third and fourth quarter are pretty strong for us in sales. So we still believe, I think, Andreas, we will be there around. Yeah. I think so, especially since some major customers said that it will be business as usual after vacation or holiday now. So there's no indication so far from our customers. I mean, of course, we are very dependent on their volumes and how they perform. So yeah.
It's mainly only in Sweden that July is the big holiday period. Normally, in Germany, in Asia, everyone is working 100% in July and August. So there are some holidays in August as well. But yeah. We still believe that we will be around there. If there's not any business that we don't like that we get rid of, maybe we will have some effect. But we should be around 5%.
Okay. Perfect. And also, your margin target for the full year is also it also remains intact, you think, or?
I think the margins. We think we're on the right way. It takes some time. We have some tough discussions with some customers, with some projects. It also depends how they are ending. We can see some positive trends in the margin in some areas. In some areas, it's been more slightly negative because of the demand, especially in the industrial that has gone down with 10%. Then you get too close to your break-even. That has some effect. We still think we can improve margin step by step. Yeah. That's the target.
Okay. Perfect. Thank you. That's all from me. Thank you.
Thank you. Thank you, Mattias.
Thank you. There are no further questions in the queue at this time. I would like to hand it back over to you, Mr. Nilsson, for any additional or closing remarks.
Okay. Thank you, everyone, for calling into our conference. I wish everyone a nice summer. Thank you very much. Bye-bye.
This will conclude today's conference. Thank you all for your participation. You may now disconnect.