Bulten AB (publ) (BULTEN) Earnings Call Transcript & Summary

Hello, and welcome to Bulten's presentation for the Third Quarter this year. My name is Ulrika Hultgren, and I am the SVP for Corporate Communications and Investor Relations here at Bulten. Presenting the report are Bulten's Acting President and CEO, Christina Hallin and our CFO, Anna Alerbald. As usual, you will be able to ask questions after the presentation, both on the web as well as in the telephone conference. So I will now hand over to Christina or Tina.

Thank you, Ulrika, and welcome, everyone. For you who possibly are new to Bulten, I will give a short description of our business. We are a supplier of fastener solutions. Our main customer group is light and heavy vehicle OEMs, but the automotive suppliers and customers outside automotive industry are continuing to grow their share of our business. Examples of customers outside automotive or in consumer electronics segment. We serve customers in three regions, Europe, Asia and North America. We don't just supply hardware or fasteners. To many of our customers, we are a partner for procurement, logistics, product development and innovation. Our aim is to join early in our customers' development phases and be a valuable partner. Bulten's three largest customers are Jaguar, Land Rover, Volvo Cars and Ford, but worth to note this is that our fifth large customer is now automotive. And all the numbers in the slides here are for the full year of 2023. Let's look at the market trends, and we use global data of our source and following that over time. And for the first time in many quarters, we see a small drop in the vehicle production. The vehicle production outlook shows a negative development for both light and the heavy vehicles. Applying this forecast to the Bulten mix of customers indicates a forecasted market-driven drop of minus 1% for the rest of 2024. However, we come from a couple of years with very strong market growth in the automotive sector. And at this stage, we are not too concerned. We see slight settling in the market, but not a dramatic drop. Then let me give you a short update on the third quarter. And as I just stated, we can see a slight drop in the sales to the automotive OEMs, but of course, this is the million-dollar question right now in automotive business in Europe, and we are following this with interest. The good thing for our business is that we are less depending on whether it is an electric or a combustion engine vehicle that is sold. And that is, of course, impacting the trend setting here also. The positive news is that we have improved our operating results, even if it isn't at the level that we want to be, it is an improvement and particularly as the third quarter often is a weak quarter due to the summer holiday. The biggest reason to the improvement is the work being done in our factories and regions with the aim to create a more flexible and more stable operation at the same time. And I'm very grateful for the hard work, even though the work is far from over. This is a continuous improvement work that will continue to go up. That said, we still keep a strict cost control, especially to be prepared if production volumes goes down. This quarter, we have introduced a reduction in working hours in a couple of our factories and we have, since last quarter, a higher increase in terms of euros, especially within support functions. We have also started to review some of our nonprofitable businesses and are also ready to terminate accounts when necessary. We can no longer afford to have business with negative contribution as we need to improve our total EBIT margin. So finally, a highlight from this quarter. This summer, we announced the new President and CEO of Bulten. I'm very happy that Axel Berntsson will take on this role at the latest in January 2025. He has a solid experience from working in a global environment with knowledge in both manufacturing and sales. Finally, he also has experience from segments outside of automotive, which is a key for Bulten in order to grow in new customer groups. Altogether, I believe he has what it takes to develop Bulten into a great future. And I will take region by region. And as you might remember, we set a new regional organization in the earlier this year, and let's start with Europe, which is our biggest region in terms of business also. The work to find activities to improve operations has continued. We believe the operations are at a more stable level now coming from a quite intense year, 1.5 years before. And this is a never-ending job to balancing the delivery position with inventory levels, with the cost with flexibility. And obviously, we are striving for excellence in this field. As I said, the volumes have started to drop. However, this gives the region a chance to find new customers and develop new product groups that also can give higher margins. And another parameter for us to balance is what we make in-house versus what we trade. Finally, a big focus area for Europe as for all regions has been and still is safety. Safety in our plants and all over is a priority, and I will not be satisfied until our accident levels drops dramatically. Asia, we see a slight decline in sales also in Asia, even though this level is still very strong. Sectors that are growing are consumer electronics and electric vehicles. Here, we see big potential to increase sales and also to improve margins. The work with setting up the new micro screw plant in India is continuing. Hopefully, we will see production there in the beginning of next year. I also want to mention the improved quality levels from our biggest plant in China is essential to gain trust by customers, and we see a really nice recovery trend during this year. A word about North America. Our aim is still to grow in this market. We have lately had difficulties with increasing our production due to our existing automotive customers there. This is mainly due to the fact that some of our automotive customers in the U.S. are not calling off according to the production plans that we have received. And as a result of this, the team is now investigating and approaching new businesses opportunities inside and outside of automotive. And then we have Exim that is not the region, but it's the stand-alone distributing business that we have. And there are some examples of activities in the slides here, but I would say that this year is a year of consolidation under the new management of Exim. While expanding the business into new markets and segments, internal processes are redefined for productivity and safeguard profit margins. And it is truly amazing to see the energy in this thing. I also want to say something about the innovation work. Due to lower production volumes, we have a great opportunity to speed up our innovation and technology work. On the product development side, we have a few examples like self-locking fasteners with an integrated patch or a self-sealing fasteners with an integrated [indiscernible] or a low weight where we can save weight up to above 30%. And on the technology development side where we are in the early phases, and we strive to increase competence in unexplored fields. We now start to test ALUe, which is based on the same methodology as the BUFOe, meaning we are skipping the heat treatment phase, and it's really exciting to start -- being able to start to test that. Our vision is to be in the forefront of sustainability and innovation. We are doing a good job, but now we have the chance to do even more since we can try more things in our production facilities due to low demand. That said, I will hand over to Anna.

Thank you Tina. On Page 11, you can see an overview of our quarterly sales the last years, including 12 months rolling sales. Sales volumes for the third quarter decreased with 3.3% compared to same period last year and amounted to SEK 1,333 million. We saw lower demand in the automotive sector. Next slide, please. At the third quarter -- the third quarter delivered an EBIT of SEK 91 million, equal to 6.8% EBIT margin. The EBIT margin has improved compared to both quarter 3 last year as well as quarter 2 this year. The EBIT is, however, positively impacted by onetime effect of approximately SEK 20 million. The effect is mainly related to insurance compensation for machine equipment in Poland. This is a timing effect where we have received revenue in September, but costs will be taken as depreciation over the lifetime of the machine, which is approximately 30 years. So the underlying EBIT run rate is, therefore, 5.3%. Next slide, please. According to the waterfall, you can see that there is an increase in all customer groups, except OEM light vehicles on a rolling 12-month period. The decrease in OEM light vehicles is, however, coming from high levels. Next slide. As a proportion of 12-month sales, other industries outside automotive amounts to 13%, which is an increase compared to previous period. Automotive suppliers have also increased compared to previous periods. Our main customer group is still OEM light vehicles, but has decreased percentage-wise compared to previous period. Next slide, please. Here, you can see that our adjusted earnings per share for the third quarter amounted to SEK 1.56 compared to minus SEK 1.49 last year. Rolling 12 months has increased compared to last year. Next slide. The cash flow for the period is negative compared to same period last year as well as the cash position. Inventory levels are higher due to both customers not taking out their orders as well as bigger manufacturing batches in production to create stability and flexibility. However, total net working capital in relation to sales is still at a good level of 18.4%. Net debt, excluding liabilities, is at about the same level this year compared to last year. Next slide, please. Our adjusted key indicators for 12 months are in line with last year's numbers. The adjusted return on capital employed, excluding financial lease, is at close to 11%. Our adjusted net debt adjusted EBITDA ratio for 12 months is at minus 2.2. And our equity assets ratio, excluding financial lease is at 44%. Next slide. Our guideline for average net working capital in relation to 12-month sales is about 20% to 25%, depending on growth pace. And at the end of the quarter, our rolling 12 months are at the level of 18.4%, which is a good level. Both CapEx and depreciation as a percentage of sales are in line with our guidance. And now back to you, Tina.

Thank you, Anna. And then the focus for the upcoming periods and no surprises here. We have obviously a lot of things going on, but the #1 priority is still to improve our profitability, especially the one from automotive industry in Europe. Since this is still our key customer group and still our biggest market. There are a number of things we actually can do to be stable on a higher margin, not only when it comes to improve our own operations, but also in commercial aspects. With the reduced demand, we have advantages. We can spend more time on customers and customer groups that, over time, can be more attractive and give us better margins. We can also identify and exit contracts that aren't profitable. Also, as I stated earlier, it gives us an opportunity to focus more on innovation, which is key for us as we want to be a strong partner to our customers in the future. Before I open up for questions, I would also like to thank everyone for a good collaboration during my time as an Interim President and CEO at Bulten. I will stay for some more time, but that next quarter, Axel Berntsson will take you through the presentation. With this, I would like to thank you for listening and open up for questions.

[Operator Instructions] The next question comes from Mats Liss from Kepler Cheuvreux. Please go ahead.

I just had some -- well, I was interested in hearing somewhat more about how you see the finish of the year. I guess third quarter is normally a seasonally slow quarter and now Europe running in September, October, and it seems that, well, you mentioned that markets are listable, should we expect, I mean, the question is probably should we expect the normal seasonal pattern that I mean, Q4 is maybe not the strongest quarter of the year, but it's sequentially normally somewhat better than the third quarter.

. I think that sales-wise, we probably foresee a somewhat lower also in Q4. I'm not saying it's huge, it's low single digit lower, I would guess or we are anticipating. Then it's all the question of how much we are able to get out and really get sold during the quarter.

You mean lower sales compared to Q4 '23. Okay. And are you still sort of suffering somewhat from too high [indiscernible] too high demand? I mean you mentioned trying to get out as much as possible. did you have sort of a backlog that's still not -- are a bit behind.

No, the backlog is really shrinking. It's -- we have some backlog, but you always have some backlog. So it's not really the question. I think it's more a making sure that our customers actually are taking what they are asking us to produce .

And regarding sort of the productivity and efficiency in your operation is -- are you still sort of -- are there any low-hanging fruits to pick there, I mean, to improve things or you sort of as efficient as...

No. I still think we have -- maybe not as low as they were before, but they are still in the mid-high of things to pick there. So yes, we have things to do there. They are all in reach, if I put it like that. So it's maybe not the lowest anymore, but it's in reach .

Yes. And then again, you mentioned in the quarter somewhere that the 8% margin target you are -- that was sort of announced several years ago, is probably not within reach for this year, but it still sounds as if -- it sounds it's not too far out to be reached.

No. And I think it's a reasonable target. And I will obviously leave for the Axle and the new team and the new setup to actually propose and have a decision in the Board on new strategic targets as it moves along into the next year. But I think that is not too far off as a target.

Okay. Great. Thank you, and congrats on a good set of numbers.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

We have two questions on the web here. I will read them, Anna and Tina, you can answer. SEK 29 million in other operating income in Q2 and now SEK 49 million in this quarter. Could you explain this as well as to give us an idea on how we should think about it going forward? Will it be somewhat recurring? Does it drive cost of sales .

I can answer on that one here. The other operating income is mainly related to insurance and the positive net effect is shown there in the quarter, of course, as we already mentioned, with the SEK 20 million. So we will have further insurance claims coming in as revenue and then we have the gross accounting. So the costs are in other lines in the P&L. So the net effect is evening out going forward. So I would say that the big effect that we have this quarter is a bit unlikely.

Okay. And we have another question here and will try to read did -- how are you seeing the development in between in-house and outsourcing production that you mentioned? And how much is this possibly affected margin development going forward. We're taking -- we're talking about 1% to 1.5% that's points? Or is this more about fine-tuning? .

I think it's a tricky question. It's -- there are quite a few elements connected to this in and outsource because we have customers and the approval of where we produce, et cetera. So it's more to it than just calculate in and outsourcing EBIT margin that or impact on that. So I will actually not give a number of that as we sit here. But there is at least an opportunity for us to revisit and to see which are the products that we can can make in-house or if we have more capacity and take back home rather than to let it be outsourced, but I will avoid making an assumption or sitting here today.

And no more questions on the web, but I don't know if there are any other questions in the call. It doesn't seem like it. So I will hand over to Tina for some closing comments.

Thank you, and thank you for listening. It's been an exciting period of being part of this side of the Bulten business. So I hope to see you somewhere else in another context somewhere. Thank you. Have a good day. Thank you. Bye-bye.