Hello, and welcome to the Elanders AB conference call. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen-only mode. However, you'll have an 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 questions. If you require assistance at any point, please press star zero, and you'll be connected to an operator. I will now hand over the call to your host, Mr. Magnus Nilsson, to begin today's conference. Thank you.
Hi, everyone, Magnus Nilsson here, together with me is also Andréas Wikner, the CFO of Elanders, and I will now go through our presentation, the third quarter. I will now go directly to slide number five and talk about the quarter. The market continues to be very challenging, and we can all see a decrease in all our markets, but also in the majority of our customer segments. Positive is that we continue to receive lots of RFQ requests from potential new customers, but for the moment, the inflow can't compensate for the lower demand from existing customers. If we look at the growth, we had a negative growth in the quarter, but the last part of it is because of normalized freight prices within Air & Sea.
And despite the negative growth, we show an improved EBITA margin as an effect of our actions to improve margins, like exiting low-margin business, cost cuts, and also price increases. We also continue to focus on lowering our working capital and improving our cash flow, which resulted in a very strong operative cash flow and a cash conversion of 106%, compared to 59% the year before. And if we adjust for dividend payments and currency effects, as our net debt, excluding IFRS 16 effects, actually decreased by more than SEK 400 million this year, and our working capital has decreased with SEK 200 million. If we then go to slide number 6, look at supply chain solutions.
We show a negative growth, but that is mainly due to normalized freight prices within Air & Sea, but we could also see a weaker demand in the third quarter. Positive in the quarter was that we managed to improve our EBITA margin, despite the weaker demand and the overcapacity that we have in Europe and U.S. at the moment. This is a result of our decision to exit non-profitable road transportation in Germany, but it's also a result that we have decreased our buy and sell volumes in Asia. We continue to gain new customers and work very hard to fill up our warehouses in Europe and U.S., but it's moving slower than expected as a result of declining demand from our existing customer base.
Our actions to improve cash flow and to lower working capital continues to have a very positive effect, and Supply Chain Solutions could show a cash conversion of 119%, compared to 57% the year before. If we then go to slide number seven and to look at Print & Packaging Solutions, we could see a continued improvement when it comes to both our earnings and adjusted EBITA margin. That actually went up to 6.6%, compared to 5.4% the year before, despite a negative growth. The market for traditional print continues to be soft, but online print continues to go strong, and this, combined with very successful price increases, but also stabilized material and energy prices, was the main drivers to the improved margin.
If we then go to slide number eight, to look at the development of our different customer segments in the quarter, and if we start with fashion, we continue to see a softer demand from existing customers in both Europe and North America. But in the same time, we're seeing a continued stable inflow of new potential customers. But as I mentioned before, the moment isn't the pace of this inflow enough to compensate lowering demand from our existing customers. If we then look at Electronics, it was a rather challenging quarter, with a low demand in both Asia and in Europe. And the signs of recovery that we could see in the end of the second quarter changed back to a more negative trend, again in the third quarter.
On a positive note is that our Lifecycle Management Service, focusing on deliveries and installations of high-tech devices, continues to grow despite a very challenging market. If we look at Automotive segment and adjust for the road transportation we're taking away, they're all in, almost in line with last year. And our customers still looks to have a lot of solid backlog, but their production is still not running full because they still have some problem with lack of components and material, but at least not worse than last year. So for the moment, Automotive is one of our more stable customer segments. If we look at the Industrial segment, this also continues to be more stable, but we could see for some customers in the third quarter, a bit softer demand.
The main reasons for our lower sales in this area is also because of exited unprofitable road transportation. When it comes to Healthcare, it's a bit similar picture like for Industrial, with a more stable demand. But here we can also see a softer demand from some clients, which combined with normalized prices for Air & Sea transportation, lowered our sales compared to last year. Other shows a decrease, but online print, as I mentioned before, continues to show a good growth for us. If we then go to slide number one, we want to update you on important business development projects that we have and are working to implement in 2023. And regarding our rollout of the buying concept, have introduced the concept in three of our sites this year, and we are now investigating where the next implementation will be made.
In the end of Q3, we opened our new MedT ech site in Germany, which is focusing on logistics services for manufacturers of MedTech equipment. This is a new type of service that we have developed for the Healthcare, Healthcare segment, based on our long experience of manufacturing logistics for Automotive and electronic customers. And as a part of our strategy to develop sustainable solutions, have we, together with Kjell & Company , developed a solution for the reuse of private individuals IT equipment. The private person values very easily the equipment via web solution that is developed by an Elanders subsidiary, Reuse IT, and then they hand in it to the closest Kjell & Company store. After that, the equipment is processed by Reuse IT, and later on, sold via both Reuse IT and Kjell & Company 's web shops.
If we then go to slide number 10 and look how things will be going forward, we can see that Elanders' global footprint and diversified customer base helps in a challenging market, and decreasing the amount of some products can often at least partly be compensated by increasing or stable demand from other product areas. We can also see that even if the market is challenging, are there still lots of opportunities for future growth, and we are, for the moment, working with several important RFQs. Our investment in additional capacity with important global rollout of the diagnostic cap concept will be an important ending for the future. We're also very happy to see that the improvements we have managed when it comes to improved cash flow, and that will be, of course, the continued focus going forward.
We're also, of course, always looking to find cost cuts in our operations to compensate for the lower demand. Okay, that was everything from me, and then we open up for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take the first question from line, Derek Laliberte from ABG Sundal Collier. The line is open now. Please go ahead.
Okay, good afternoon, and thank you very much. I'd like to start by coming back to a question last quarter about price and volume. Wondering what the price component of the organic growth decline of 11% was in this quarter? Thank you.
Now, the price component was around of the 11% in negative organic growth. That was around 5-6%. Roughly around half was the price component.
Okay, great. That's clear. And just on the sales decline in Electronics, it did appear to have sort of bottomed out. Just wondering what was going on there since it seemed like it improved, if I remember correctly, towards the end of Q2. So is this something that sort of deteriorated at the end of Q3, or was there more of a continuous weakening throughout the quarter? And also, how much of the decline is due to the discontinuations of the low profitability businesses? Thanks.
I think when it comes to the third quarter, it was not low in the whole quarter. It was actually going a bit up and down, but in September, it was much more slower than in August, and that was. You could see it both in Asia, but also the volumes in Europe as well. You know, lots of volumes was coming in, but not so much volumes shipped out. And that is main. Then we talk about, you know, things like printers, laptops, computers, and things like that. And when it comes to how big part of that is buy and sell, Andréas, I think you asked about that.
Mm-hmm.
I think that's in the report.
Should be in the table.
It's on the table.
It is combined with the GSP business.
Yeah, because we have SEK 526 million less in business we have exited in the quarter, and I think the buy and sell is around, I think that's around SEK 300 million.
Yeah, roughly.
Yeah, roughly SEK 300 million that affect the sales in the electronic segment.
Okay. Now, that's thanks a lot for that, those details and flavor. Then, I mean, you mentioned quite a bit about the sort of the overcapacity in Europe and the US. I was wondering if you could expand a bit more on the US here, how the progress with acquiring new customers has gone? Because you said that it has, you've acquired many new customers, but has been lower than your expectation. And on the existing front, is it just generally weaker demand, or has there been a lot more bankruptcies, et cetera, among the smaller customer groups?
I think, I think actually the main thing is weak, and in general, weaker demand from our existing customers. So the inflow continues to be good, but you know, and interest in North America was you know, strong in Q4 last year, Q1, and started to be a bit soft in Q2, but it was more going down to the, we say, Europe, Asia level in Q3. So overall, pretty soft, and our customers are, for the moment, very careful to drive volumes. It's more about very soft demand. So and for us, then we are a bit squeezed with our overcapacity we created in North America because we have so enormous growth in 2022, so that puts some pressure on our results.
For the moment, it's more an overall weaker demand in U.S. as well.
All right, I understand. And on the other segment here, I suppose then it's fair to look at the Automotive, Industrial, and Healthcare. It seems like you also there, I suppose you saw weakening demand from, primarily from September in those segments as well, in rough measures.
Yeah, no, I think in the other segment, it's been most roughly the same during the quarter. It was more Electronics that was hit harder in September. The other one was more roughly soft the whole quarter, so nothing dramatic actually. It's more like they have been the other quarters before, so, yeah. For the moment, it's Electronics that can really change from month to month. The other ones are more, yeah, more soft overall.
Okay, gotcha. And just could you give a number on when it comes to the closure of operations, both the, I suppose, both the road transportation and the Buy and Sell, what would you say, what's the overall impact on the group margin on the EBITA level, for example, in the quarter?
I think, if we then look at supply chain, because I think the margin improvement from 6% - 6.7% actually comes out of the less buy and sell and the road transportation. All of it.
Okay.
Okay.
Yeah, that's great. Thank you. Thank you very much. And finally, on the working capital, fantastic cash flow here in the quarter. Just wanted to confirm whether you're still confident on releasing up to SEK 400 million- SEK 500 million on the full year since we're looking at a pretty big release implied in the fourth quarter.
Yeah, we are really hoping that we can see a big release in Q4. Then, of course, sometimes it can be a timing thing as well, how our customer pays like that, but it should be a pretty strong release in Q4.
Okay, perfect. Thank you. Those, those were all my questions.
I just want to add there, the Buy and Sell business is roughly around SEK 400 million in Q4. So Q3, sorry, Q3. So a little bit more than SEK 300 million, that's minus indicated.
Great. Great. Thank you, Andréas.
Thank you.
Thank you. Thank you. As a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take the next question from line, Gustav Bernberg from Nordea. The line is open now. Please go ahead.
Yeah, good day. Good afternoon, it's Gustav here. Just.
All right.
Just on the in regards to Electronics here, did you say that you saw a worsening sequential worsening in September, or?
Yeah, we said, but at the same time, August was rather good, and then September was very weak. So sometimes can also be a bit timing, but September was very soft for us, yeah.
Okay, perfect.
It's really hard to predict if it would be the same going forward, because, the visibility is really low to see in the market.
Yeah, got it. Got it. And then, regards to the overcapacity in North America, I guess that's primarily related to Bergen. But what is the plan for the overcapacity? Or will you be able to sort of offset these costs, or do we have to wait until you fill it up with new customers?
No, we are also, of course, always working with some parallel actions. So, so we can... If we see that the inflow goes too slow, we can also sublease space to offset the cost, and we haven't done that before, but we are preparing for that as well. And we're also working with some changes in the price model for the volumes we have there and some other actions. So, so for us, it's, of course, to try to eliminate any negative effects out of it. And then the next thing would be to fill up to get positive effects on the results. So, we expect the coming months, that we will do different actions to soften the negative impact.
... Yeah. Okay, perfect. And then if we go to Automotive, you have commented several quarters now for the interruptions in terms of material or component flow and so on. Are you hearing any improvement here, or what do you expect ahead?
I think it's really hard because, you know, lots of our customers is, of course, also public companies. So, we cannot see any details. We can see the flow that their shift patterns is changing all the time, and that they don't run so many shifts that they normally do. So, we actually are not really sure. But still, we can hear on the market that there is still some struggling with components, and also especially, I think, semiconductors. You know, there are still some cars you cannot get all functions when you order them, and we do, you know, so it's really hard to say.
But I must say for us, we have normalized the lead level, and, as I said, it's a very stable area for us, and if they will then increase manufacturing, you know, volumes, it will be a very positive effect for us, so. But I, but I must say it's, it's really hard to say. But we know that they have our customers have a pretty, you know, big backlogs. We feel, we feel pretty safe with that business area or customer segment.
Yeah, okay, perfect. And then, on Industrial, you commented on some signs of weakening demand. Is it possible to pinpoint sort of more, more specifically, what is weaker here?
I think it's several product areas that are, that are weaker, you know. Also, even some of the heat pump business we are doing was also a bit slow because now they're building much less houses, also down in Europe. So, and that's also affect cooling systems and, and things like that. So that was also a bit of a mixed picture. I think overall, overall, pretty soft, in all areas.
Yeah. Okay.
Yeah.
Yeah, yeah, yeah. And then maybe, maybe the last one, just, so I understood you correctly, you had a negative organic growth of 11%, and roughly half of the negativity there was driven by the lower freight rates, or how should I interpret it?
Yeah. Yes, that's correct.
Okay, perfect. That's all for me. Thank you.
Thank you.
Thank you. There's no further question at this time.
Okay. Thanks, everyone, for calling in. Thank you.
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