Bufab AB (publ) (BUFAB) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Bufab's Q4 2021 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, CEO Johan Lindqvist. Please go ahead.

Thank you very much, operator. So very welcome, everybody, to Bufab's Q4 and year-end report for 2021. In this call it's me, Johan Lindqvist, CEO of Bufab Group; and Marcus Soderberg, the CFO of Bufab Group. You will find the presentation that we will go through in our web page under the section for investors. So let's start. We can look back on a really good year, 2021 and also Q4. Bufab reported a high sales, the highest operating profit and also earnings per share ever for the full year. As in Q3, we also have a really strong demand in Q4 across all the segments, you can say. The organic growth was up 19%, driven by strong underlying demand, improved market share but also price increases. And it's also very nice to see that we have an order intake that's in excess of the sales. We still, as we also had, I think, during the full year of 2021, an operational challenging situation, continued with problems, you can say, in the supply chain. For example, with freights, there is a big lack of the chauffeurs in Europe for distribution and so on. So we will still see that also in the beginning of 2022, I think. But despite this, we have a strong improvement of EBITA, plus 40%, and also net profit of plus 51%. Maybe the weak point of this report is the cash flow during the year, especially in the Q4, but it's also a result, you can say, of the strong organic growth. And we're starting this year with a really low inventory level, and we also have these price increases and long lead times to affect that. During the year, we have also made 3 acquisitions. We have 2 in Q4, all of them adding totally on a yearly base, SEK 500 million around that. The Board will also propose a dividend of SEK 3.75 per share. It's a plus of 36% from last year. And as we have mentioned in the end of last year, we don't have the new CEO in place, Staffan Pehrson. He [indiscernible] so to say. Since then, I will continue as an acting CEO for Bufab Group until we have a permanent solution placed. So now, I leave the word to Marcus, and we will go to Page 2, I think.

Thank you very much, Johan. So if you turn to Page 3 -- 2, like Johan said, and we'll start by looking at the financial highlights for the group. You can see, if we start with the order intake, that order intake increased with approximately 25% and actually came in higher than net sales in the quarter. Net sales itself, grew by 29% to approximately SEK 1.6 billion. Of the total growth of 29%, 19% was organic and 10% came from the recent acquisitions. If we look at the gross margin, as you can see, the gross margin strengthened, with approximately 1.6 percentage points. The main reason for this or part of the reasons for this, is the successful efforts to push price increases on raw materials and transports over to customers during the quarter. And part of it is due to higher volumes in general and a slight advantageous product/business mix in the quarter. If we take a look at the OpEx in relation to net sales, you can see that it came in around 17.1% compared to 16.3% previous year, so a slight adjustment cost-wise. But if you adjust for revaluation of additional purchase consideration that we have done in the quarter, and those are connected to the earlier acquisition of American Bolt & Screw, if you adjust for those and the acquisition cost for Jenny | Waltle and Tilka, OpEx, in relation to net sales actually came in at 16.2%, so more or less unchanged compared to previous year. The higher volumes that we have seen, the strengthened gross profit, together with good cost control and good operational leverage, leads the operating profits to increase by nearly 40% or, in absolute figures, SEK 46 million. And if you adjust for the revaluation of additional purchase consideration and acquisition costs, EBITA actually increased to SEK 185 million, corresponding to an operating margin of 11.5%, so very strong quarter indeed. If we can zoom out and read the quarter, as such, and just take a quick view on the full year figures, you can see that, just like Johan mentioned in the beginning of the call, really had a strong year. To summarize it, you can say that we had continuous strong growth, both in sales and in profit on most levels and that we also delivered our highest ever full year results. And it goes all the way down to earnings per share, as you can see, which increased by itself with 56% year-on-year. With that, we turn to Page #3 (sic) [ Page #4 ] , you may have a look at the graph of quarterly net sales growth and net sales and [indiscernible] 12-month figures. And we start with the left graph. Here, you can see that we are now seeing growth for 6 consecutive quarters and the growth also steady and during the last couple of quarters, a really strong organic growth. We had a debt growth-wise in the second quarter of 2020 as most companies. Before that, we actually had, if I remember correctly, 28 consecutive quarters of growth and most of them also with organic growth, so a good historical track record growth-wise. If we turn to the right part of the page and look at the dotted lines, you can see that the blue dotted line, net sales is steady, and the trend is really strong during the last 25 quarters, fueled by both organic growth but also through the acquisitions that we have made during recent years. But the most noticeable graph is, of course, the gray dotted one, which since the second quarter or the third quarter of 2020, really have taken some big leap upwards. And this, of course, is a combination of higher volumes, increased gross profit through successful leverage in pushing price increases that we have seen over to our customers, together with good operational leverage and good cost controls. And that leaves us with a significantly increased EBITA and also EBITA margin during the last couple of quarters. So a really nice development, we have to say. With that said, we turn to Page #4 (sic) [ Page #5 ], and we'll start to have a look at the development in each of the segments. And I will not go into details on every figure here, but I will keep it more on an overall level. As you can see in segment North, order intake increased compared to previous year, but this was slightly lower than net sales. Net sales, however, increased with 15%, almost all of it was organic, or 14%. Gross profit also had a healthy development, mainly due to higher volumes and successful efforts in pushing price increases over to customers. Costs in control. Segment North has, however, during the last couple of quarters, invested in their own organization, which is the reason for the cost level going up slightly. On top of that, you should always take into consideration that the comparable figure of 14% OpEx in terms of net sales previous period or the comparable period was exceptionally low. But going forward, the mission for segment North will be to leverage on the investments made and to focus on accelerating growth and continue to grow the market share. If we look at segment West, also segment West had a good and strong quarter, especially in terms of order intake. Order intake was significantly higher than net sales. Net sales came in 19% stronger than previous year. 10% of that growth was due to organic growth. And most of that came through the acquisition of Jenny | Waltle. Gross profit, on the other hand, didn't really have a good development in the period, as we have seen in some of the quarters during this year. But however, even if it's lower than the comparable quarter, it's stronger than the previous quarter, the third quarter of 2021. But main reason for low gross margin is due to price pressure and that they haven't really been successful in increasing over all the price increases on raw material and transport to customers. So that's the main priority going forward. On the other hand, good cost control, as you can see, and all in all, this leads them with an increased EBITA of 26% or SEK 29 million in absolute figures and also an increased operating margin. Focus going forward, as said, price adjustments and also to continue to invest in their own organization to ensure long-term profit growth. If we turn to Page #6 (sic) [ Page #7 ] and have a look at segment East, you can see that segment East had a really strong quarter. Net sales increased with 32%, organic growth actually up strong 34% and, on top of this, a steady gross margin and, on top of that, good cost control level, as you can see. And this, of course, led to a very strong profit increase in the quarter. Operating profit increased with very strong 113%, ended up at SEK 34 million, corresponding to an operating margin of 14.6%. When looking at those figures, you should remember that segment East experienced some one-off costs during the fourth quarter last year, which makes the operating expenses in percentage of net sales being slightly high. And also, it affected operating profit last year. But anyway, it's a very strong result development for segment East in the quarter. Focus going forward is to continue to invest in order to grow in investment and to gain market shares. Finally, segment UK/North America, also had, as you can see, a very strong development. Net sales came in 68% stronger than the comparative period. And the order intake was more or less in line with net sales. The gross profit increased with about 1 percentage point. And operating expenses was significantly higher in percentage of net sales, but the main reason for that is -- as we talked about in the beginning, the reason for it is additional purchase consideration revaluation of approximately SEK 14 million. And if you just look at the strong growth that they had during the quarter, it's most noticeable, mainly in 2 of the larger companies in that segment. And that is American Bolt & Screw, who is a bit more focused into the RV segment, which has been strong during the full year of 2021 and also in the fourth quarter. And on top of that, also our sister company, APEX in U.K. who was more focused on stainless steel products, also saw a very strong quarter. So organic growth, 31% out of those 68% in total growth, meaning that CSG, as you can understand, also had a good development, or creative -- Component Solutions Group also had a good development during the quarter. Going forward, segment UK/North America will also -- they focused to continue to invest in their business and to continue to grow their market share. That leaves us with the result for the segment, and we turn to Page #8 (sic) [ Page #9 ], and we'll have a look at operating cash flow together with net debt to EBITA. And as we said, we saw a strong development, more or less, on most levels in the P&L during the quarter. One thing that we are not that happy with is, of course, the very weak cash flow. But there are, of course, reasons to this. I mean, there is net working capital we're talking about and mainly inventory increases. And the reason for this is, like Johan said, the strong organic growth that we have seen during the year builds up net working capital in our balance sheet. Also on top of that, inventory levels were really low in the beginning of 2021. And there is a normalization ongoing and has been ongoing for the last couple of quarters. And also, of course, the strained supply chain that we have seen during the full year of 2021 has caused many suppliers to increase their lead times, which has forced us to adjust safety stops, et cetera, and that's the effect we see in our cash flow statement in this quarter. We think that this normalization will be ongoing for a later quarter but that it will flatten out and that we will see a strengthened cash flow at the end of -- or somewhere during the first half or at the end of the first half of 2022. If we take a look on the right graph, net debt to EBITA, you can see that we still, even though we made those 3 acquisitions during the last 4 months, are down at decent multiples in terms of net debt to EBITA. And that brings us good future outlook in terms of a strong balance sheet, meaning that we have still quite much room for a strong execution of our acquisition strategy also going forward, which is, of course, nice to see. My last page is Page #9 (sic) [ Page #10 ]. It's just a quick view of the EBIT bridge. As you can see, we start with the quarter, currencies had a negative impact of approximately minus SEK 1 million in the quarter. Volume, strong contribution by SEK 66 million. Cost price, mix and other, negative impact was SEK 17 million. And acquisition, together with acquisition costs and revaluated additional purchase consideration, had a net effect of minus SEK 1 million. And as you can see in the segment bridge, you can see that we saw strong contribution from more or less all segments during the quarter: North, SEK 11 million; West, SEK 6 million; East, SEK 18 million; and UK/North America, SEK 11 million. And for the year, just quickly, currency, bigger negative impact in the beginning of the year for the full year, minus SEK 21 million. Volumes, very strong contribution of SEK 327 million. Cost price, mix and other, minus SEK 61 million. And acquisitions, acquisition cost and revaluated additional purchase consideration had a quite big negative effect of approximately SEK 32 million. And yes, as you can see, the segment bridge for the full year, very strong contribution from North SEK 60 million. Good contribution from West SEK 37 million (sic) [ SEK 35 million ]. East, also strong contribution SEK 47 million. And UK/North America, a very good contribution of SEK 78 million. So I guess that leaves us going over to Page 10, and I will leave the word over to you again, Johan, to talk a bit about our acquisition strategy.

Yes. As mentioned in the beginning, we have made 3 acquisitions during 2021 here. This is CSG, Component Solutions Group in U.S., a company placed in head office in Dayton, U.S., and it was a really good complement to the ABS business that we already acquired couple of years ago. We strengthened our position in the American market, and this is one part of our strategy there. We also bought a smaller company in Sweden, Tilka Trading, a company that we talked to, and that is the case also with CSG. We've talked to them since 2013. So it's a long relationship before we bought them. But also, we see that Tilka had a good possibility to grow inside the Bufab family, and Tilka is located in Sweden. And then we have Jenny | Waltle, located in Austria, a company that's a complement to the West segment, mainly focusing on casting and aluminum. That could be also a good contribution to all Bufab Group to add on the new product segment, you can say. So all in all, it's a 3 great acquisitions that were made during 2021. And of course, we will continue to look at acquisition targets also in the future. That is one part of our strategy. Let's go to Page 11 (sic) [ Page 12 ] then, and make a summary and outlook. We still have this operational challenge during the quarter, but continued strong growth in sales and profit, really nice to see, of course. We see the demand improvement in all segments and increased market share. That will be a strong focus also forward. We're now -- after a lot of regulations and COVID are taken away from the country, so to say, we can start with our customers. That will be super great, I think. We will continue to have the supply chain distribution -- disruptions, meaning we'll fight for the containers and ships and the freight, for example, but also higher inflation, and also energy. Power is a problem in some parts of this world right now. But it's also nice to see that we delivered the highest ever sales, operating profit and earnings per share for the full year. So it's a really strong report, I think. The outlook then. As we mentioned here, we think we have a still strong demand in January, and that indicates for us, at least, a good Q1 here. It's, of course, hard to predict for the year. But as we see January, we think that Q1 will be good as far as we can see. We have talked about the handling of the supply chain problems. We continue, at least, I think, in the first half year with the challenges there, but I think we can handle them quite good. I think we serve the customer well compared to others here. So I think, in general, our customers are really happy even if that being a really tough time, I think. Focus going forward then, we will invest, and we have started in some segments, to invest in further growth, meaning that we will continue to add people in the sales department and marketing side. We will continue this, first, I think, half year also to put some costs to our customers. We will also focus on productivity because this is the demand from our customer side that we will get more and more efficient here to serve in the best way that to normalize, of course, the cost level and the inflation that we see also. And then, of course, we will continue with the strategy of acquisitions. We have a quite strong pipeline, I think, and hopefully, we can also do something good there during 2022, I think. That is all, I think, from us. I don't know, Marcus, if you would like to add something.

No, I think you summarized it quite well. I think we can leave over for questions now, operator, if any.

[Operator Instructions] Your question comes from the line of Rasmus Engberg from Handelsbanken.

Congratulations to a very strong set of numbers and a very strong growth rate. I was wondering if it's possible, in any way, to think about how much of the organic growth that, in some way, is volume and how much is kind of price compensation for higher input costs on the top line?

Rasmus, that's, of course, a good question and, unfortunately, not really an easy question to answer. It's really so that when looking at -- first of all, it's hard to calculate. That's the reason for not giving out a figure for it, so to say. And why it's hard to calculate is due to that. We're running approximately 150,000 different items to 15,000 customers, and some of those customers also buy the same items, meaning that the number of items are actually really much higher than those 150,000. And to keep track on each and every price increase, et cetera, it's very hard. But it's just like you indicate here, of course, during the year of 2021, price increases has become a bigger and bigger portion of total organic growth, but I can, unfortunately, not give you a percentage figure. We still see a very strong underlying demand in terms of volume increase. But as you said, price increases adds to the organic growth as well, but we do not have a split for it, which -- that I can't give you, unfortunately.

And can I rephrase the question? As you look forward, are price increases continuing to -- you said you anticipated further increases. Do you think that we are in a phase where price increases continue to be a larger part of the growth recorded or less? I mean, I know it's a difficult question given all the stuff, but what's your basic feeling for that?

Maybe, me, Johan, should answer that. I think we still have something in front of us. But hopefully, as we see today, at least, it's maybe during the first half year. But it's also tricky because -- for example, the question about energy and so on, [indiscernible], so to say.

And also, I mean, what we saw during 2021 was increased raw material prices and freight costs, so to say. Those are still on a high level, but they have flattened out a bit. But since the last quarter or so, other things tend to pop up as a challenge, not just increased inflation rates and energy prices and things we've had as well, which given the development going forward might be news to take into consideration. We're talking about prices as well. But I mean, we don't know, but we are, of course, monitoring the development carefully.

[Operator Instructions] There are no further questions at this time. Please continue.

Okay, then. If no further questions, so I will thank you for participating in this presentation. So thank you from us.

Thank you.

Bye-bye.

And have a nice day. Bye.

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.