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

Hello and welcome to today's webcast with Bulten, where CEO of Axel Berntsson; and CFO, Anna Akerblad, will present the year-end report for 2024. [Operator Instructions] And with that said, I hand over the word to you, Axel.

All right. Hello, everybody. Thank you all for joining the call today. I will assume that most of you do not know me from Bulten agenda. I joined the Bulten here on the 22nd of January, just short of 2 weeks ago. I'll give you a short introduction of myself before we move over and talk about Bulten and our Q4 and full year results. So before joining Bulten, I ran another listed company, called Absolent Air Care Group listed on First North. And before that, I worked for a company called ESAB, they do welding products. So a lot of consumables for welding and also machinery for that. Way back, I went to Chalmers and started industrial engineering and management, after which I went into consulting and workload with cost down projects as such. As you can see, I decided to invest a little bit in the business kind of -- from the start here and have bought a few stock options, and I hope that we together will continue to build a good share price development of the Bulten share over the next few years. If we move over and talk about Bulten then, so I will assume that most of you listening to the call know Bulten much better than I do, but I'll -- for those of you who do not, I'll give a short introduction to the business. So basically what we do, most of our business is fasteners for the automotive business. But we also provided quite a lot of logistics services. So it's not only parts that we produce ourselves, but we also trade in quite a bit of products. And we also have a couple of other business segments, where micro screws is a fairly big one and also C parts management from companies that we have acquired through -- as part of Exim and PSM in the past. If you look at the total business, we have a turnover of around SEK 5.8 billion and just a little bit over last year by just short of 1%, and we have operating margins of around 5.2%, which is also a good improvement over last year, even though it was not in line with the targets that we have as a business, and we'll come back to that later on in the presentation. The largest customers that we have is automotive OEMs. So it's a Ford, Jaguar Land Rover and Volvo Cars. The fourth largest customer that we have is in electronics manufacturing, for example, but still automotive is a very big piece of what we do. If -- given that the automotive business is still the biggest portion of our business, we tend to look at that as some kind of future outlook for the business. And this is data that we get from a company called GlobalData. And what we can see is that 2024 is projected to have been a fairly slow year for the automotive industry, where the passenger vehicles or light vehicles shrunk by about 0.4%, whilst heavy commercial vehicles shrunk by about 5% over the prior year. I think our development is fairly much in line with this. We follow the market more or less on the big picture. And it's good to know then that we are quite heavily geared towards light vehicles within Bulten. If we take a look at the full year summary. As mentioned, we did about SEK 5.8 billion, so a slight growth over the year before. And overall, given that the market is really fluctuating. I think to have some kind of growth this year when you're primarily a European supplier, I think that has a pretty decent outcome as such. And we were also facing quite a lot of issues around an explosion of a furnace down in Poland. I think the team here did really good to manage that and make sure we were able to keep the volumes flowing out of the factories. And obviously, we are also very happy that nobody got injured in this accident, and we're happy with that. We could see that our margins improved from about 4% to a bit north of 5%, also a step in the right direction, but clearly not good enough from where we want to be as a business. We have expanded our new ventures. So Exim, for example, and going into new markets with them, and we are opening up the old PSM business going further out into the world with that. And have set up a JV in Vietnam, and we are also expanding a JV in India with that business. Worth mentioning is that the TensionCam business, which is kind of an early-stage investment that we did for a new technology a couple of years ago now has its first orders. We're happy for that, even though it's not something that has significant impact on our full year numbers. We're also quite proud of the sustainability work that we do as a business. I think this is an area where we've been trying to lead for quite a few years. I think this year, we got a very nice award from EcoVadis with the Platinum award, which is given to the top 1% of businesses when it comes to sustainability. So very well done from the team in this regard. So to sum up Q4, I think the most exciting part is that we established these micro screw and businesses in Vietnam and in India or expanded India, I should say and that the results were below what we expected or what was expected on us, mainly due to extra costs that we have of about SEK 55 million, mainly this is related to the closure of a logistics center in Poland and startup of these new businesses in Asia, so in India and Vietnam and major maintenance work that we had to do here in Sweden. With that, I pass the baton over to Anna, our CFO, to give you some more details.

Thank you, Axel, you can see an overview of our quarterly sales the last years, including 12 months rolling sales. And the sales volumes for quarter 4 was down 6% versus the same quarter last year. We had overall stable sales volumes for the full year in a more volatile market, and we are still in line with previous years, sales. According to the waterfall on the left side, you can see sales rolling 12 months, and there is a positive growth in other industries and a slight decrease in the rest of the customer groups. On the right side, you can see that as a proportion of year-to-date sales as of December, sales to other industries outside automotive amounts to 13%, which is an increase compared to last year. Our main customer group, OEM light vehicles amounts to 62% of total sales and is in line with last year. The fourth quarter delivered an EBIT of SEK 20 million, equal to 1.4 percentage EBIT margin. This is not a satisfactory level, as Axel already mentioned, and we had the extra cost, for example, related to startup in India and Vietnam as well as closing down our warehouse facility in Poland. However, the full year EBIT improved over last year and ended at 5.2%, and our target remains at 8%. Earnings per share for the quarter was at around 0 following the unsatisfactory result. But looking at the full year, our earnings per share improved versus last year. We reached SEK 6.45 compared to SEK 4.89. Cash flow for the fourth quarter is positive compared to same period last year, and cash position is in line with same period last year. Cash flow for the full year improved at minus SEK 8 million versus minus SEK 103 million last year. Net debt, excluding lease liabilities, is almost about the same level this year compared to last year. Our key indicators for 12 months have all improved versus last year. Return on capital employed, including financial lease, is 9.2%. Our adjusted net debt and adjusted EBITDA ratio is at minus 2.1 at the end of the year, and our equity assets ratio, excluding financial leases, is at 44.9%. Our guidelines for average net working capital in relation to 12-month sales is about 20% to 25%, depending on the growth pace. At the end of the quarter, our rolling 12 months are at a level of 17.1%, which is a good level and in line with last year. CapEx as a percentage of sales is slightly above the guidelines, and this is related to catch-up of previous years where CapEx were held at a low level. Depreciation as a percentage of sales is in line with our guidelines. And now back to you, Axel.

All right. So talking about strategy. I mean we have had strategic targets and direction for the business that ran up to 2024. And obviously, one of the first things that I will do here together with the team is to figure out where we go for the next 5-year period. So we'll ask for some time and some patience for us to work that through and come back with new targets and a new direction for the business or if any. If we take a follow-up and look at how we executed on the strategy we have had, the first part of that was to get a stronger position. And with that, we meant that we wanted to expand our FSP concept, we want to get closer to customers and take a step forward in innovation and sustainability. And I think we have succeeded fairly well in that. We have established businesses in India and Vietnam, as we spoke about. We have acquired a presence in Taiwan, and we have come in much stronger to the United States as well. So we are getting closer to the customers where they are, and I think that's a very important step for us. We have improved in our sustainability and move forward quite a bit on those metrics. That's a good step forward during this period. If we look at growth, we had set a target to read SEK 5 billion by the end of 2024, and we are closer to SEK 6 billion. So I would say that we have overachieved on that target. If you look at the third and fourth targets here, that are fairly connected. So we targeted to get to an operating margin of above 8%, which then should lead to a rose above 15%, and we have failed on the operating margin targets. We landed at 5.2% as we have mentioned previously, which is way below where we expected it to be. And going forward, it's needless to say that, that will be a key part of the next 5 years period to figure out how do we get substantially more profitable than what we are today. But we will come back to the plan behind that and how we move that forward. If we look at our 2025, obviously, profit, as you can see at the end of this is the big focus. We need to make more money. It's as simple as that. And I think every shareholder will agree with that, that is a very important area of this business. So that is the heart of what we do. And then obviously, it is to get a plan for how to do that. and expand on some of the really attractive opportunities that then should lead to part of this profit, which is the micro screw business in India, Vietnam as an example. We have a few other things that we're working on as well. And there are good opportunities to improve here, but we need to make it happen and deliver a better profit overall. So now we will open up for questions. I know there have been a few sent in writing and probably a few in by phone as well. So let's open up for questions.

[Operator Instructions] And we have a first questionnaire here, and it's Mats Liss, Kepler Cheuvreux.

Okay. Can you hear me?

Yes.

Coming back to the quarter and the one-offs that you have on SEK 55 million regarding the Polish warehouse and others regarding Asia and start-up costs, I guess. Could you say something about the mix there? And maybe if we expect to see a further one-off there in 2025 regarding these issues.

Well, we have not made public any details or breakdown of that, and we -- that means we will not do that here either. Obviously, there can be continued with some smaller start-up costs if we expand businesses in new countries. It's nothing that we are willing to disclose today, however, so I will give that boring answer here, Matt. Sorry.

Yes. And do you expect to see any payback, I guess, or cost decreases due to these measures? Or is it also something that you don't want to talk?

We will not quantify anything that is not in the report. But obviously, the exiting the warehouse will give a saving. It is a cost measure that we do because we have been able to use our footprint in a more efficient way, and therefore, we do not need that premises anymore. So there will be some savings related to that. And when it comes to opening up new businesses, the businesses that we are opening up, we project them to have a reasonably high profit level. If we are successful in expanding those customer accounts that we are following into those countries. So obviously, we have an ambition there to improve profit, but yet to be seen.

And looking at the fourth quarter numbers, again, I mean, cash flow is pretty good, and it seems that you have been able to reduce inventory or working capital. If the other -- does that mean that you have some -- have grown production at a lower level or tempo and thereby having had some underabsorption of fixed costs.

No. We have not seen any effects related to that. This is not a volume-driven change. Even though when you speak about working capital, there are some of the things that naturally move up and down. I mean you get your receivables and payables and there's always a timing issue related to those. It's a natural variation. But there's nothing here that is related to a volume change in practice.

Okay. And well, one question here, I mean regarding the trade war or tariffs coming up there. Could you say something about how you for that or if you expect to see any impact? Or is it more a wait-and-see gain currently?

If you look at our direct exposure, obviously, when there's something like this comes up is something that we speak about fairly immediately. And our direct exposure is very limited to this. I think is the indirect effects that are more difficult to quantify and see. So for example, then how are our largest customers affected by this in the end, meaning how much of volume will they pull through which factory and so on and that we have not seen and we have not had any indication of any changes from our customers yet to my knowledge.

We will continue now with some questions that have been sent to us. The first one is, why didn't you communicate the additional costs in advance?

Anna here, yes, we normally only communicate when it's a big structural change like this. So we don't communicate these kind of things.

Your peers Bossard and Bufab are valued at P/E ranges between [ 25 ] and [ 40 ]. What do you think is needed for Bulten to reach such valuations, just diversification?

I think there are 2 parts of that question or the answer to that question. I think the first one is the risk profile. In general, automotive-oriented suppliers or tiers are valued lower, especially in Europe, I think that's something you see if you go and value them all across. So I think we need the diversification for that to change or a major change to the European car manufacturer, which is less likely. So diversification will be one part. And the other one, we need to make a lot more money. Simply, we need a much higher profit profile of this business to justify those type of valuations. And which is why we have focused on profit as one of the absolute main priorities going forward.

Could you please elaborate on the additional cost of SEK 55 million? Are those cost a one-off and not recurring in 2025?

Yes. These are not recurring as such in 2025. They are related to the fourth quarter.

Is the joint venture in India in production yet? Or is it still in the upstart phase?

Well, it's about definition. I'm not sure if we have produced the first part yet, but it's just about to start the production of the first pieces, but it will take some time until we have proper volume in that factory.

How big is the first TensionCam order? What you think about that and what do you think about the rest of 2025?

It's a small one in relation to Bulten numbers. But we see -- yes, we are -- let's see what comes more, but we think that there is good speed in this business.

I think this is one of the things that are quite similar to many other when you come to a new technology to market. You can speak to some customers and the interest is huge. They want to buy hundreds of systems of this, but then it takes years to implement it. So it's really difficult to judge the pace of growth that we will get from this type of technology. I think the only thing we can really see is a proper interest in the market for it. I think that's where we kind of have to leave that one, I believe.

What target would your percentage of nonautomotive business be, say, from 13% to 25% over a period of next few years?

We don't have a target of that. And I think this is something that our strategy process will have to show. So we need to come back. But if we connect it to the questionnaire that we've had before about valuation, if we want to have a valuation move for the business because we have a lower risk profile, I think the shift needs to be much larger than 13% to 25%.

Are you still looking for acquisitions in the U.S.? You have previously communicated that current scale is not sufficient to achieve good profitability.

I think in general, we are open to acquisitions. I think we need to understand also that we have a financial profile that gives a certain space for acquisitions. If you look at the debt levels that we have and how much cash we have. So I think it is more we need to find the right opportunity to buy so that we can afford it without taking on too much risk for the business. So let's see what it is. Obviously, U.S. is one of the top priorities. We want a bigger market in the U.S. but also other areas that are quite interesting when it comes to the diversifying the business. So we need to prioritize where we spend our money.

Moving on to the last question here. Can you -- can you also give some information about major maintenance and start-up costs in Asia?

Okay. So if we speak about the start-up costs in Asia, so when you set up a new company, let's say, what we do in India, we -- there's a new factory being built and you put new equipment in. So there are start-up costs related to that -- and it puts quite a lot of cost to get that going. And that's what we see in this quarter as well that we have realized some of that cost. When it comes to the maintenance, I don't have any more details to give you at this point in time. It's more larger maintenance work that has been done that we don't normally do, and it hit this quarter.

Thank you so much for answering all our questions here, and that was all the questions we had. So I will now hand over the word to you, Axel, for some closing remarks.

I think a couple of things. Really nice to be here. I've been looking forward to this day for quite some time, and I'm super excited to get going with the team and working on the Bulten 2.0 strategy. So let's continue this discussion and come back the next quarter with, hopefully, some nice points to show where we are going.