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

Hello, and welcome to today's Finwire broadcast presentation with Bulten. [Operator Instructions]. With that said, I'll hand the floor to you. Please go ahead.

Thank you, and welcome, everybody, to our Q2 call here at Bulten. I look forward to an engaging session at the end with some Q&A. Hopefully, there are some questions from you in the audience who are listening in, and we will get back to them at the end as we said. So today, we will talk about our second quarter, but also have a bit of a touch point on the transformation that we are undergoing at the moment. As you have heard, we have announced the news that we are divesting our [ Chennai ] plant which is an automotive contract manufacturing business and also our 4 plants in Europe that are contract manufacturing businesses focused on automotive. It is quite a big step for Bulten. We will focus on that first, then go into the Q2 highlights and speak a little about the future portfolio and some financials and then we open up for Q&A in the end. So for those of you who follow Bulten more closely, you may remember that last year around this time, we announced that we will undergo a strategic review of our business. We'll talk about that we want to have a look at our industrial footprint to see what makes sense to keep for us as Bulten. We were targeting a group with a bigger share of value-adding activities. We were looking to become a bit more asset light and find a way to become a company that generates more profit and more cash. And that review has been going on sales. I think the first step for us is that we decided to have a look at our Indian operations, where we had a JV up in Jamnagar that we were not too satisfied with. We just built a new plant. We did not really appreciate how that process went. So we decided to exit that JV and build our own plant down in Chennai. And that is now almost finished. That's a big first step we did. In February, we announced that we will stop manufacturing in Ohio in the U.S. and that manufacturing has now been exited. We have now announced that we are divesting our Tianjin plant, and we have announced that we are divesting our European manufacturing. And this basically concludes the larger strategic view that we have, even though those will obviously be small things going on and changes coming in the future as well. But these are the more larger steps that we had planned that are more restructuring oriented and we are now moving into more of an offensive move goal for growth and profit generation. As you might have seen in our Q2 report, we are now reporting our business as assets held for sale. So they are quite different numbers than what you are used to looking at. And this is to give you a fair view of what the new business will look like that is today called Bulten but in the future will have a different name. So the business that we now have had a revenue around SEK 800 million per quarter. We do around 8% EBIT margin, and we are cash positive. And I will come back to you with some more details around this, but we are quite happy right now that we have a group with good profit generation, it's good cash generation. We will have a good return of capital employed in this business and a fairly sound balance sheet that puts us in a very good position for profitable growth going forward, both organically, which is the main part, but we'll also support that with M&A activities when that fits the strategy and the timing. So there have been 2 different deals announced here then. If we do not spend more time on the U.S. and India today, so we have decided to sell the European business to Maelir. Maelir is a Swedish investment company based out of Stockholm that own a various set of businesses. They are in the largest shareholder in Viking Line. They also agricultural businesses, they own industrial businesses and real estate businesses, with a strong balance sheet and are a long-term type of owner. And we are quite happy to have found this type of owner for the European business. It is an on long-term perspective. It will give the business opportunity to not be in a listed environment which I think is a key success factor for this type of industry. The contract manufacturing business is, in many ways, a nice business. It is stable. The volumes are stable over time. It is a lower profit margin business than what we want to have as a group. But it's -- there are good opportunities to make money in this business. The most of the successful businesses here are family held out of the stock markets and invest with a very long time horizon. And I do hope that this is what the Maelir will bring to this business. So we're quite happy with that. We have sold the shares of 6 different legal entities. And it is an external -- or is -- this will reduce our sales as a group with about SEK 1,900 million, SEK 1.9 billion, and it's about 1,000 employees that will follow this transaction. If we look at the Chinese business, that is a bit different. We have been struggling as bolted in China to win volume in the automotive space as a very small plant European home. We have not been able to have the right traction with the Chinese car manufacturers. Now we have found an owner that is well connected in the Chinese automotive fastener business. And we think that they will be a good home for this business and have a good fundamentals for developing this business further. So it should be a good home for our employees, and we look forward to following their journey. Overall, we will keep buying parts on both of these companies. So for the FSP business that we have primarily in the U.K. that serves JLR, we will keep buying parts from these factories but also to Exim and to PSM, we will buy some components from these factories in the future. So the ongoing relationship is important to us, and we will value it highly. You might have heard me speak in different forums that we have 4 different businesses within Bulten. I think we have touched on this in the calls here as well a couple of times. Basically we have Exim that we acquired about, I think, 3 years ago or something like that, which is a c-parts distribution business based out of Singapore. It's a very asset-like sourcing and distribution business that have a lot of value-added services. We do a lot of kitting or DMI. We did a lot of supply chain services such as testing validation, R&D support to our customers. It is a business that has a fairly good profit fundamentals in here. It's a good role to this business. And we are positioned very well in some high-growth markets. It's a nice business. We have PSM. PSM Is more of a business where you have a lot of IP in your products. We produce parts with very high precision and very tight tolerances. We provide part for automotive as well. We do a lot of parts going to the energy packs or energy powertrains of the electrical vehicles, you report for the electronics part of cars and so on. but mostly, we serve consumer electronics, med tech and those type of markets with these parts. It's also a type of business where given that you have a high portion of and high portion of -- high tolerances. You can have good fundamentals for good margins and good return on invested capital. So it's a nice business from that perspective. Our FSP business is a little bit different. It's fairly high volume. It is a little bit slimmer on margin side, but it is a decent cash generation and a fairly stable business. The good thing is it's a very sticky business with good customer integration, and we have a strong team that provides a lot of value-added services for our customers, which makes this attractive for us. Then we have our contract manufacturing, which we are now then transitioning out. What we're doing is not too dissimilar from what Hexagon did with Octave, what SKF does with their automotive business basically, we think that the sum of all our parts in both that is worth a lot more than what we are giving credit for on the stock market. And when we divest this contract manufacturing, we believe that the value of the remaining parts will be shown and that we will be giving a better value for our shareholders on the stock market for this business. The automotive contract manager, as I said, is a nice business. It's stable volumes, but it's fairly high capital intensity. And obviously, you have a fairly high volume dependency. So when the plants are filled when they run well, you have a decent margin. When the volume goes down, have a more challenging situation. But we have good plans. They are well run, and I think they will be performing very well under new ownership. So what you will see is that the remaining portfolio that we have will be a higher profit type of business. We would have a better cash flow and a better return of capital employed in businesses that we then retain here, which is the things that kind of hold them together from a business point of view. And then something else that's worked on. It's also kind of a front side and the back side of the value chain. So the precision manufacturing often supplies into the distribution type of businesses. And over time, we will add more businesses that make sense to feed the more fun side of the business where you have the distribution. So as the distribution side grows, we think we will find quite a few pockets where we will be quite good to own the supply side of the business, and then we will keep adding those to the business model. So it's a good logic to keep these together. With that said, hopefully, that explains the logic of what we're trying to do. I will hand over to Anna to give us some highlights of the Q2 results and explain some more details about the numbers that may not be obvious on time.

Thank you, Axel. Net sales for the retained business then amounts to SEK 779 million, and that's a decrease of 7% compared to second quarter last year, but sales remains stable compared to last quarter. And looking at 12 months rolling net sales is now around SEK 3 billion. The retail business delivered an EBIT of SEK 62 million, which is equal to 8% EBIT margin in the second quarter. And compared to same quarter last year, we have taken operational measures, reduced personnel and have a more focused business mix, which shows in the numbers. Quarter 3 last year was heavily affected by the cyberattack at one of our largest customers. But as you can see, the last 3 quarters have been at a stable 8% despite the lower volumes. When it comes to the key indicators with a rolling 12 months numbers, the calculations are correct, but a bit theoretical. They are calculated with a new retained result, but the old balance sheet numbers, which then makes the indicators a bit skewed. So -- and we have not made any adjustments to these. Yes, back to you, Axel.

Thank you. So what does this mean for us? I think the -- where we are right now, the first thing that's most important is to ensure that we have a smooth transition of our employees first and foremost, and then our customers and our suppliers. So we will have a high focus on making sure that these carve-outs work really well and that our customers are happy employees are happy and that the business will continue as it should. Then we have kind of concluded the most important part of our restructuring of the business, and we will now move to more of an offensive game plan where we try to scale faster, grow faster but also make sure that we scale in the right places where we make money, and we have a good return on capital on employees. The PSM business that we have, which is then around is precision component. We will put even more focus on getting our genomic plant up and running. This is a very high potential for us both when it comes to the Indian market for consumer electronics, but also to be an export hub to North America and to other parts of the world, for us at the parks. So we're super excited about that. I think the business case is great for this factory, and we look forward to getting that fully operational and starting to grow in business. We have our c-parts business. We are spending a lot of time with the Exim business in expanding that. They are experiencing very heavy growth in some sectors, especially around AI infrastructure and yes, those type of customers that we have. Also around renewable energy is a high-growth area, and we need to make sure that we manage that scaling in a good way so that we keep earning good money in that and having a good return of our investments. it's very exciting to have a business with good growth potential. We also have our full service business in the U.K., where we are expanding our offerings. We are adding more services into that, and we will also put a lot of emphasis on broadening the customer group that they are serving. So this is probably an area where we will start to look for more acquisitions and to find local customers really fast. We will also make sure that we have a strong balance sheet after all this is done. And with a strong balance sheet, that opens up opportunities for investments. We will invest both organically and in acquisitions going forward. Obviously, we will not announce anything around that until we are done, but there are a lot of opportunities in the market that we will go after and chase and I think that gives a lot of energy in the team. And we are quite excited to internally start to talk about what the new company will be. And obviously, we -- as I mentioned earlier, we will need to change the name. That is something we will not go to a general meeting with the shareholders and vote for. But it would also change the culture that we have, it will change the DNA of our business, even though we will take the important pieces of heritage with us, but it's a milestone day for Bulten and we look forward to where this will bring us going forward. That said, we open up for questions. I know there have been some sent in and some people calling in as well with questions and looking forward to see your feedback and you are curious on.

Thank you, Axel and Anna, for your presentation. [Operator Instructions]. The first one is from Andrew is asking, what are the key drivers behind the Q2 2026 revenue growth? And what is the outlook for the second half of the year?

Okay. So there was no revenue growth in Q2. So I would assume that the question is more about profit growth, but that was quite heavy in Q2, I guess. And as Anna mentioned earlier on, most of this has to do that we have been quite good at making these businesses more efficient. We have also been able to change the customer mix in there, to go more towards customers where we have a larger portion of value add and can have a higher margin. We have also done a restructured headquarter, which is a quite important part of this where our costs have gone down, which means that we are loading the subsidiaries with less cost. And that, of course, helps in generating more profit for the business. When it comes to giving forecasts for the future, we don't do that. We don't have any -- unfortunately, that we made public, so I will pass on that question for today.

Thank you so much. Now we go with questions from this number that ends up with 1262.

Mats Liss from Kepler Cheuvreux. A couple of questions. First, maybe keeping -- I mean it's a pretty large impairment charge. And what will the tax impact be on that going forward?

The tax impact there will be minimal.

So will this sort of reduced tax you need to pay on future earnings. I mean is it a tax loss carryforward treated?

Yes. Yes, there will be a -- this is no taxes going forward. So it will be -- we will be having a lower tax rate when it comes to the total effective rate going forward. That is what it will mean in reality.

Yes. Okay. Great. And regarding sort of your potential future our ability to distribute dividends, will this be affected? I mean, you have a pretty substantial change in equity on the back of this measures.

We don't foresee that this will massively limit our opportunity to give dividends because of that. Obviously, it will be up to the shareholders to vote for a dividend in the future. And let's see if they want us to distribute to monitor the owners or investment in the business going forward. I cannot comment that at the moment, but we don't see that it will be a limiting factor for us at the moment.