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, this call is being recorded, and for the duration of the call, 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 AB, to begin today's conference. Thank you.
Thank you, Laura. Welcome, everyone, and together with me, here is also Andréas Wikner, our CFO. I will now go directly to slide number 5 and talk about our fourth quarter. The market continues to be very challenging, and the majority of our customers show low demand compared to the previous year, which was a very strong quarter for Elanders. And this resulted in a negative organic growth of 11% in the quarter, but the large part of the decrease is because of normalized freight prices within Air and Sea. Despite this challenging market and a negative growth, could we show an EBITA margin of 8.1%, which was in line with the year before.
And our continued focus on lowering our working capital and improving our cash flow resulted in a very strong operating cash flow and a cash conversion of 104% in the quarter, and a cash conversion for the full year of 110%, compared to 65% in 2022. And if we adjust for dividend payment, currency effects, and acquisitions, our net debt, excluding IFRS 16 effects, actually decreased by almost SEK 500 million this year, and our working capital has decreased with over SEK 370 million. If we then go to slide number 6, to look at our business area, Supply Chain Solution, we show a negative organic growth, partly due to the normalized freight prices within Air and Sea, but also, demand.
Our latest acquisition, Kammac, contributed with two months in the fourth quarter and made a positive contribution to our margin, but was unable to compensate all the way for the weaker demand for overcapacity, which resulted in us not being able to match last year's adjusted EBITA margin, and we came in with a slightly lower margin. On the other hand, continuing our actions to improve cash flow and lower our working capital to have a very positive effect, and Supply Chain Solutions could show cash conversion of 148.6% compared to 105.7% the year before. If we then go to slide number 7, look at Print & Packaging Solutions. We show continued improvement when it comes to our adjusted EBITA margin.
That actually went up to 11.3% compared to 10.1% the year before, despite also here a negative growth. The main reason for the improved margin was a strong demand from our online print customers, but also price increases and stabilized energy and material costs. Print and Packaging can also show strong improvement when it comes to cash conversion, which was 95.2% compared to 78% the year before. If we then go to slide number 8, to look at the development of our different customer segments in the quarter, and if we start with fashion, we continued low demand from existing customers in both Europe and North America. But in the same time, are we seeing a stable inflow of new potential customers.
But for the moment, is the pace of this inflow enough to compensate lowering demand from our existing customers and also our existing overcapacity. When it comes to electronics, it was a rather challenging past quarter with low demand in both Asia and Europe. The market is showing a very mixed picture, and some of our customers are showing signs of recovery, while others are in continued decline. The positive is that our Lifecycle Management service, which delivers an installation of high-tech devices, continues to grow despite challenging market. If we then look at the automotive segment, it was almost in line here, but continues to show very fluctuating demand. Main reason for low sales is because of exited unprofitable road transportation. The demand from the industrial segment continues to be stable, but for some customers we can see some signs of weakened demand.
The main reason for low sales in this area is also because of exited, unprofitable road transportation. When it comes to healthcare, it's a similar picture like industrial, with a more stable demand, but here we can also see a softer demand from some clients. Main reason for the higher sales is the acquisition of Kammac. Auto showed a growth, mainly driven by growth in print, but also contribution from Kammac, that's affecting this area, auto. If we then go to slide number 9, I want to update you on the acquisition of Kammac. Kammac has yearly sales around GBP 90 million, positive EBITA margin, and they have developed a very unique concept with a cluster of seasonal warehouses in the northwestern part of England.
And their cluster concept makes it possible them, for them to offer their customers maximum flexibility in storage, and they're offering both short-term and long-term, and they can normally onboard a new customer in just a couple of days. The cluster concept makes it also possible for them to maximize utilization of the company's resources, because they're able to move both the customer's goods between the warehouses, but also more, very importantly, they can also move their employees between the different warehouses to maximize the utilization of their workforce. And several of their warehouses offer services like bonded warehouses, temperature-controlled environment, and they also hold several important licenses that enable them to manage medical devices, pharmaceuticals, human consumables, and beverage. And they're also licensed to perform both import and export of customer products.
If you think of slide number 10, and look for things moving forward, we think that over time, with the acquisition of Kammac help us to improve the, the group's EBIT margin, but they will also strengthen our offering by, by being an important engine in our efforts to fill up our excess capacity, which is currently putting some pressure on our profitability. And with our strong underlying cash flow, we felt confident in financing the acquisition with debt, even if it's in the short term, will of course put some pressure on our earnings per share because of increased financial costs. Going forward, we will continue to focus on cash flow generation, and we will regularly review our cost levels and also act if necessary. That was everything from me, and now we open up questions.
Thank you, Magnus. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now take our first question from Gustav at Nordea. Your line is open. Please go ahead.
Yes, good morning. It's Gustav here from Nordea.
Hi, Gustav.
Just, hi. Just to start off, I think just generally within the electronic space, I mean, we hear quite a mixed picture in the space, and I understand it's a quite volatile business for you, but you specifically comment in the report that electronics is weak. So is it possible to expand this a bit and sort of what you see in the market?
Yeah, you know, we can see electronics. We are exposed to that area both in Asia and Europe. Asia, we are mainly supporting them with supply chain solutions for manufacturing, and we can see that their production levels are still behind normal. It's clearly lower in volume-wise. So Asia was continuing to be soft for us in Q4. When it comes to Europe, it's a more mixed picture, because there we handle, you know, products coming into Europe, and then we distribute them. And positive in the quarter was that we could see that the volumes of laptops and also big office printers was recovering. But at the same time, we have some other big electronics customers that do more other types of products, and also even including the heat pumps, was much lower than expected in Q4.
So, that's why we say it's a very mixed picture. There were some positive signals in November, December from, if you look at laptops and printers, services also pretty stable, but some other electronics, customers was much weaker than expected in Q4.
Yeah, okay.
Just clarifying, but it's a very mixed picture for the moment, so yeah.
No, no, I get that. I get that. And then in terms of fashion and lifestyle, for the greater part of 2023, I mean, it sounded like the high-end segment sort of held up fairly well. And what are you seeing here? Is it weak across the board, or is it specific regions, or any flavor here could be helpful?
No, I think that both North America and Europe is very similar for the moment. So for some customers, the demand is still stable, but if you look at, you know, like, Black Friday and the Christmas, it's not in the levels like last year, because then normally we have a huge peak, which of course has a high contribution for the results. It was not the same picture this year, so I don't think it's so bad. It's around, you know, 5, 10, 5% down and for lots of our customers. So, but I think our biggest problem is that we had a very high growth in 2022, and we're building capacity.
But it's a mix for us that we sit with too much capacity, and then our customers is down with averages 5%, and we had expected maybe a growth of 10%-15%. So it's not so dark actually on fashion, but it's—there's no growth, and there's slightly negative growth.
Yeah, okay. Perfect. And then maybe if we can just stick to the cost of that, I mean, in terms of expenses related to sales and admin, I mean, I mean, sales is down a bit from last year, but gross profit is up 3%. So are you looking to reduce these expenses to sort of strengthen the margins? Or, what do you see here? Or are you waiting for demand to pick up again?
... No, we do lots of actions on the cost. Been doing that during all 2023. So we try to adjust our cost as much as possible, and we will also exit some facilities next year. So, we are continually try to push down our costs and to compensate for the soft market.
Great. Then, I mean, in terms of Bergen and, North America, you, you comment on sort of, weaker demand from customers, but you comment still seeing inflow of customers. Are, are you seeing a net inflow, would you say, or?
No, for the moment, the inflow is too weak to compensate the decrease from the other customers. But, it starts to look a bit more stable. But I think the biggest, it's always, you know, in Q4, people always spend in the end. So I think it will be show more in, you know, now we enter a new year or like Q1, Q2, how it looks like. But I must say, Bergen was still doing a bit better than we expected in Q4, not in the same level as the year before. But I must say, it's really hard. It's a very, very mixed picture at the moment. So, I think it depends lots of what happens with interest rates and, because we need higher consumption, of course.
Yeah, okay. Great. And then just maybe the last one here. In terms of net financials, just to clarify, are there any one-off items in there, or, I mean, is it fair to assume that with a full quarter, with the Kammac or the new leverage with Kammac involved, would we see net financials north of SEK 94 million in the short term, would you say?
On the quarterly basis, you say, Gustav, or?
Yeah, on a quarterly basis. Yeah. Yeah, yeah, yeah.
Um-
Because you only had two months with the new leverage structure, right?
We had some positive effects from currency in the fourth quarter, which are reported in finance, not from operations, but from the long-term liabilities and long-term receivables. But so there are some one-off, positive one-off effects because the krona strengthened against dollar and euro by the end of the year, and then you had the other effect in the beginning of 2024. So it, I would say it could be a few million SEK higher, I would say, the quarterly benefits with Kammac included and the loans for Kammac. Because you don't have a full period also for Kammac, yeah, for the acquisition.
Yeah, yeah, yeah.
So that's correct, Gustav.
Oh, that's very helpful. Perfect. That's, that's all for me. Thank you.
Thank you.
Thank you. We'll now move on to our next question from Derek at ABG Sundal Collier. Your line is open. Please go ahead.
Okay, good morning, and thank you for taking my questions. First, with regards to Kammac, could you give some nuance specifically on that, how it performed in Q4, or rather the two months that it was included in terms of growth or and margins, or if you have any other comments around that? Thank you.
Well, the thing we can say that they were delivering roughly the demand as we were expecting, and we only got November, December. We didn't see any growth in sales. Also in UK, it's a bit soft, but that was we were expecting in Q4. But margin-wise, it looked good, and yeah, nothing, yeah. Not more to say, actually, but it's a good acquisition, and we are very happy that we can manage to do this acquisition without... with just debt, without any, we don't need any external cash, and we think it will be very important contribution for us going forward.
Oh, yeah, that's, that's very helpful, and, and, yeah, looks very exciting. Also, if I, if I could continue just on, on Kammac, if you could give some comment on, on the distribution among the segments there. I, I know you mentioned in the presentation here, contributions in, in, in the healthcare and other segments, but, but I was also expecting some in industrial and, and fashion, I think. So, so any comments that you have on that would be helpful.
Yeah, I think the difference here with Kammac from our other supply chain companies, that it's more niched. You know, Bergen do mainly fashion, and LGI do all of, all of our areas, and, Mentor Media is more in electronics and healthcare. So Kammac works in a totally another way. They work a lot with both retail, they handle dry food, they handle medical substances, some parts in automotive as well. So, so that's why they are giving us a big push in other. I think how much the effect, you know, it's, I think in other they are, what we call other is more than 35-40%, isn't it, Andréas?
Yeah.
But healthcare is around 20%, that they are contributing with. So then you have industrial, it's around 20% as well. If you say the biggest area is healthcare around 25, industrial 20, and other, we have around 40%.
Yeah. Great. Now, that's very helpful. Thanks indeed.
Somehow it makes them more robust, somehow, because they are very, you know, they are licensed to handle so much different things, you know, from food to you know, pharmaceuticals and medical equipment, and they do import, export, you know, and all these bonded warehouses they have, it's, it's a big strength for them, because that's important in the U.K.
Yeah. Got it. Got it. Well, that's, no, it looks very exciting, the acquisition, I think. And, on, could you comment—I know you mentioned some comments about this, but, could you share some color on the different regions, like Europe and the U.S., for example, how that has sort of changed the market situation in Q4 versus the previous quarter, Q3, what you're seeing there?
I think for the moment, it's very similar. So if you look at 2023, in Q1, we had a strong, still a strong Q1, and that was because of the U.S., because Europe was going down already in Q4, 2022. But after that, also, the U.S. has gone down, so it's very similar picture. I think when we talk with our customers, both in Europe and in North America, is that they expect, you know, a slow start of the year, and but they're very positive when it comes to the second half of the year, because everyone is waiting for the interest rates to go down, stimulate the economy. And the picture is a bit similar in Asia as well, because that is more manufacturing for Europe and the U.S.
So of course, if the demand goes down in Europe and in North America, they slow down. So I think overall it's the same picture. It's you know, it's not dramatic down, but there's no growth. And I think electronics has been the toughest area for us, going down absolutely much more than all the other areas, so. But there we are hoping to see a recovery step by step in 2024. It feels like there will be a recovery, so that will be very important for us. And automotive is very hard to analyze for the moment, because they have been running you know, in 60%-70% production speed since 2022.
So for us, we think the picture there will be roughly the same, but there we have done lots of improvements in our earnings with new contracts and things like that, so. It's a bit soft everywhere.
All right. I know that's fair, and that is very helpful to understand the situation better. Then I was going to ask you also about the overcapacity, maybe primarily in the U.S. I know you mentioned that the new inflow of customers start to compensate for the outflow currently. But with regards to filling this overcapacity, is that sort of progressing above or below or according to the plan that you have, and what you were expecting?
No, I think it was slower. We were expecting it to go a bit quicker, especially in Q4, but it was still flat. But we think that this year we will step by step be able to fill it up. So it's taking a bit longer time than we expected, because the churn of existing customers has been higher than expected. And we, you know, we work with lots of small and medium-sized customers, and lots of them has actually went out of business, because they run out of cash. So and that was a higher percentage than we expected. So but we have now a lot of cooperation between our European companies and also with Kammac there to find volumes also from the European customers.
So it's a high focus for us now, both for Bergen, but also for ITG and LGI to fill up space. But we expect we will do it step by step this year, unless we have a big impact for us when we manage that.
Got it. And I have a couple of more questions. I'm not sure exactly how relevant this is for you, but there seems to be a pending strike among Finnish paper workers. I mean, do you have any reflections on how this potentially could affect the print and packaging solutions? Because it seems historically, at some point, this has had somewhat of an impact on margins.
For the moment, we don't see any impact of that. For the moment, you know, the special traditional print volumes are going down, so there, there's no problem to get paper material, and also the paper prices has actually even started to go down a bit, because they were increased, going up a lot in 2022. No, we don't see any impact from that.
Okay. And on another external, I suppose, subject and factor here, reading about this shipping disruptions in the Red Sea, affecting Asia to Europe because of the situation in that region. Wondering if you have any, yours—what you're seeing in with regards to this and how this potentially could impact you here in the beginning of the year?
We still, we don't have any of our big customers reporting any, any problems with our flows of components and goods, so... But of course, it depends how, how long it will be, and... But then, but so that, that could be a small downside and that they don't fill up their, their warehouses or things like that. But on the other hand, other hand, we have our air and sea division, and that could be an upside, because if that slows down, then the prices will go up, for both air and sea, and that, that there could be an upside for us. So, so for the moment, we don't see any big negative impact from that.
Great. That's very, very, very useful. Okay, thank you very much, guys, and those were all my questions.
Mm-hmm. Thank you, Derek. Thank you, Derek.
Thank you. We'll now take our next question from Thomas Nilsson at Analysis Guide. Your line is open. Please go ahead.
Good morning.
Good morning.
Despite the challenges in the market, the Print and Packaging Solutions segment showed improved profitability. Could you perhaps provide some insight into the drivers behind this improvement? And also, how do you plan to sustain and grow this segment, given the increasing number of bankruptcies in the industry and the shift towards online print products? Thank you.
Thank you. No, I, I, you know, margins comes out of what we call online print, but also digital print in general. So we have been very successful in that area, where you do much more shorter runs, both for companies and then, you know, just one item for consumers. So that's a very prioritized area for us, and we have had a really good growth, and there you can make much better margins. So, but if we then look at the traditional print, we can see that the decrease is continuing, and it's a challenge for us, but we are used to that since many years, so we will continue to consolidate our more traditional production.
Then we are planning to grow in what we call online print, but also, you know, digital print for companies and things like that. For us, it's sometimes good when it's tougher times, because then our competitors, but also now just local competitors, go bankrupt and sort of get out of market. I think we have a really good position in print, and we think we will be able to continue to strengthen our margins there. I think we have a very unique position.
We are one of the few still global players around, but it's also that we are global when it comes to digital and online print, and so we mainly compete with small local ones, and they have problem to handle when the volumes are growing too much and the complexity is high. So we are very positive to the print packaging area, despite it's a very tough market. So we have our strategy very clear to consolidate traditional capacity volume, and then to step by step, to grow in online print area by aiming to get more customers and to be the absolute number one supplier in that area.
Okay. Thank you.
Thank you.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now take our next question from Marcus Almerud at Carnegie. Your line is open. Please go ahead.
Hi, this is Marcus Almerud at Carnegie. Can you hear me?
Hi, Marcus.
Yes. So let's, my first question is on electronics. You were talking a little bit about good signs in December for laptops and printers. Could you elaborate a little bit on those signs? And that's, And then also, can you talk a little bit about sequentially what you see in electronics, if it's actually gotten, if there's been a big change sequentially from Q3 to Q4, or if it's been fairly stable?
Sorry, Marcus, your line is really hard for us to hear. Could you follow Andréas? It was really hard. We can...
Yeah.
Can you try again and,
Yeah. Can you hear me better now?
Now it's better, yeah.
Yeah. Okay. So, so my first question is on electronics. So can you please elaborate a little bit? You were talking about good signs in December from on laptops and printers, if you could elaborate a little bit on that. And then also, in terms of sequential change from Q3 to Q4, was it fairly stable, you would say, in electronics, or has it gotten worse?
No, absolutely not getting worse in Q4. It's been, you know, rather mediocre for us in, I think, six quarters now. It started already the first half of second half of 2022. So, so, absolutely, absolutely not worse, but we were hoping for, you know, a recovery in Q4 and Q3, but it was not coming, and now we think it will be a bit delayed. So, but interesting was that printers and laptops have been being up and down, but both in November and December, we could see a stable demand, much better demand. But then on the other hand, you know, we have lots of other electronic customers that makes everything from TVs to cameras, whatever, and they were much slower than in Q4 than we expected. So they were taking...
But now on the same level, roughly.
Mm-hmm. Okay.
No, nothing dramatic. It's just a bit, it's, it's just continues to be slow-
Okay.
-over in general.
Okay. And then to continue on fashion, and we've already talked about the intake of new or inflow of new customers in North America, in particular. We've been talking about the past couple of quarters since you lost some customers in the second quarter, and that's been slower than you had expected. Can you tell us a little bit about Europe? Because I think initially you were saying that, or you were thinking that you would see new flow of customers in Q4 in North America, and then it would come in the first half in Europe. If you could talk a little bit about the picture in Europe.
Yeah. So the picture in Europe, I think overall our customer is down with around 5%. Existing customers, and then we also had the overcapacity problem. But the positive thing for us in Europe is that we have two big customers that we acquired in 2023 that will now ramp up in Q1 and Q2. Two big, really big customers, so that will help us in Europe. And we can then also fill up a bit of the excess space in North Germany, I think we start to be in a good position. So it's, we must say in Europe, it's still stable.
It's more that we need inflow and, but with these two customers, hopefully they ramp up in the, in the speed that they have said, and, so then it starts to look better. And,
And-
It's more that we miss growth. You know, we built muscles both in Europe and in U.S. for growth, and that was instead of. So that is our main problem. Because if you look at, you know, profitability per customer and sites that are fully loaded, it still looks very good for us. It's more that's the problem.
Mm-hmm. Mm-hmm. And in terms of Kammac, I mean it, it's based in the UK. What's their international business? And I mean, buying and selling internationally, and do you expect that to grow, or is it more domestically?
No, I think it's the interesting for us with Kammac, you know, even if they're very strong locally in UK, the majority of their customers are big international customers. So we have already now, you know, lots of cooperation between Kammac, LGI, Mentor, and Bergen. Of course, then we will want to offer their customers also in a global way. And also we have had during the years, lots of our big RFQs for UK in supply chain, but we have not been able to handle them. So now with Kammac, we can go with our, you know, customers we have in Germany, for example, and offer them a stronger footprint in UK. So and UK has been a weak spot for us all the time, and in Germany, you know, we are really strong. We are strong in Netherlands.
For us to grow in UK, it's really interesting from both a local but also global perspective.
Mm-hmm. And then finally, I guess, on the net debt to EBITDA levels, if you could just give us some hint about what net debt to EBITDA we'll be looking for moving forward including Kammac. Because I assume that, I mean, the whole net debt effect is in there, but not EBITDA.
Yeah, I know. I think we measured to the banks. It's a pro forma then. So,
Yeah.
Pro forma.
Yeah.
Excluding one-offs. And excluding one-offs. So, that looks really good in Q4. What was it, Andréas? 2.80-
Eighty-four.
84. Better than expected, but we also had some help of the Swedish with the currency there, because the krona was a bit stronger.
Mm-hmm.
You know, but you know, that is a strategic decision for us. You know, with our strong cash flow, you know, we told the market that we should lower the working capital with SEK 300-400 million, 2023, and we lowered to SEK 370 million. You know, we generate strong cash flow. So even if we will go up, you know, in some quarter to 3.3, 3.5, for us, that was a strategic decision, and we can handle that. And then we will be able to push it down, and then when the interest rate is going, we have an upside of that one, so.
Mm-hmm.
On pro forma basis.
On pro forma basis, yeah.
Yeah, and the 2.8 is excluding IFRS 16 impacts, I assume?
That's correct, Marcus.
Okay, perfect. Well, thank you very much.
Okay, thank you!
I don't see any questions in queue. As a final reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. There are no further questions in queue. I will now hand it back to Magnus for closing remarks. Thank you.
Okay. Thank you everyone for listening to our conference, and have a good day. Thanks. Bye-bye.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.