KB Components AB (publ) (KBC) Earnings Call Transcript & Summary

Hello, and warm welcome to today's broadcast with KB Components, who will present the report for the Second Quarter of 2026. With us, we have CEO, Magnus Andersson; and CFO, Michael Grindborn. A warm welcome to you both. [Operator Instructions] And with that said, I hand over to you, guys. The floor is yours.

Thank you very much. This is Magnus Andersson here and broadcasting the Q2 report of KB Components. So welcome.

Yes and Michael Grindborn as well.

So in today's agenda, we will start with a brief introduction of the KB Components Group, followed by an update on quarter 2, the financials, some view on the markets we operate in and then moving on to quarterly results, the regional update and then financial position and ending with concluding remarks. So KB Components, a brief introduction to the company. We are a leading supplier of high-tech and sustainable polymer components with a global footprint, a company founded in 1947 in [ Eskilstuna ], Sweden, making us one of the oldest companies within this industry, and we are now spread around the world, which we will see on the following slide as well. Our vision is to be a world leader in technically advanced and sustainable polymer products. We have 3 overarching strategic goals that is growth, profitability and employee engagement, 10% growth per year, 10% profitability on EBIT level and employee engagement measured at over 75% in a specific way of measuring. Our main customer segments are in automotive, electronics and general industries. We also operate in the medical segment and some other specific industries in our sites around the world. We are present in multiple locations around the world, making sure we are close to our customers and that we can quickly and efficiently respond to their product needs and needs of developing new components together with us. And looking at the group, here, you see on the map that we have a presence in Asia, Europe and North America through several sites, and we are also having an expanding footprint coming primarily from our M&A activity where we have our latest acquisition happening in May of this year in Poland with the introduction of Rabugino into the KB Group, which happened on May 7. Our strategy is based on 3 pillars, that is technological leadership, operational excellence and global presence. So looking at quarter 2 as such to give some insight into what we saw during the quarter. So we summarized it as a stable quarter in Europe and Asia and the start of a production ramp-up in North America. So the second quarter is characterized by just that stable growth in Asia and Europe and as expected, a gradual volume improvement in North America during the later part of the quarter. We are in the ramp-up phase of volumes to Rivian's R2 model, a product that launched in April, and we have started production, and we have seen gradual increases in volume on those components. In Europe, we've had a lot of focus on realizing synergies with the acquired units as of late, the 3 units in Germany coming on board in October 2025 and now also our Polish entity coming on board in May of this year. And here, we are working on various integration activities, initiatives and also production consolidation, which we mentioned in the last quarter and which we will talk more about on the next slide. In Asia, the focus is on growth, automation and expansion, and we're very happy with the development of our Asia segment, where we have seen good growth and good profit improvement in this quarter as well as in previous quarters. Common for all regions during quarter 2 has been focused on managing raw material supply and availability and also passing on price increases on raw materials that were caused by increased oil prices coming from the crisis or the war in the Middle East. So far, we deem that this activity has been successful in the form of maintaining our margins in the business. Yes, the acquisition made in May, Rabugino, just outside of Warsaw in Poland was completed on May 7. This is around SEK 200 million of turnover that enters the group and also a company with an interesting pipeline of new business coming into production. A wholly owned factory facility in Warsaw that we will develop as a part of KB Group, which we see as a big positive in this important and interesting market that is in Poland and surrounding countries. We also continue to work on profitability improving structural projects in the group. We are relocating production from our production unit in Zweibrücken in Germany to our units in Slovakia and Lithuania. This is a project that has been ongoing for a couple of months and which we expect to complete by December of 2026. And similarly, in North America, we are also working on relocating some labor-intensive production from our Canada entity down to the better cost locations we have in Mexico, in [ Puebla ] and [indiscernible]. So we look at the various market segments in a bit more detail. So KB Components in Canada, as we have talked about before, this entity is in a transition period where we're moving away from a high ratio of tool sales for new business won to primarily the Rivian R2 model into the start of component production. So this has started now in Q2. We are seeing, of course, low start-up volumes in April, but see some stable growth during May and June, and this is a trend that we expect to continue to ramp up through the rest of the year. The Mexico business continues to deliver good results. But in this quarter, we saw a slightly lower demand in this business coming from Volvo Cars and also Volkswagen who had a -- yes, in the quarter, some lower volumes. KB Components in the U.S., here, we have gradually improved our sales and earnings during the quarter. The base business have seen an increasing demand if you compare to quarter 1 and also the more project-oriented business, which we reported was under some pressure in the first quarter due to higher raw material prices. This has improved with raw material prices coming back down, and we see now that some of these projects are starting to come back. So we see that as being recovering during the second half of this year. Business in Europe is stable in the quarter. We have an organic growth of 3% and an acquired growth of 19% in the quarter. Profitability is also stable with an adjusted EBITDA margin around the 15% mark, similar to the same quarter of last year. And given the focus that has been placed on integration activities as well as customer price activities linked to raw materials, we consider this a very good result in this environment. And then coming to Asia, KB Components in China delivers very good results in the quarter, good organic growth and reporting winning business both with existing and new customers. And KB Components in India, who has been a part of the group since January of 2025 continues to develop very well. We are very pleased with how this is developing. Sales volumes are increasing, new customers as well as increasing demand from existing customers and efforts in operational excellence, automation, process improvements is also delivering good profitability and improving profitability. So that is a very good development in that entity. Michael, do you want to take it further?

And some update of the quarterly results and starting with the whole group. Net sales amounted to SEK 737 million, up from SEK 694 million last year. Here, acquired growth was 10%. The currency effect was minus 2% and organic growth in total was minus 2%. Project sales from tooling decreased by SEK 25 million compared to last year. Adjusted EBITDA amounted to SEK 95 million compared to SEK 98 million last year, and it corresponds to an adjusted EBITDA margin of 12.9% in the quarter compared to 14.1% last year same period. And our operating -- adjusted operating result EBIT amounted to SEK 52 million, same as last year and corresponds to an adjusted EBITDA margin of 7.1% compared to 7.5% last year. Adjusted earnings per share amounted to SEK 0.50 compared to SEK 0.53 last year and earnings per share amounted to SEK 0.41. Our cash flow was strong in the second quarter just as last year and amounted to SEK 100 million in this year and SEK 186 million it was last year. And have a little bit more detailed look in our 3 regions and starting with North America. Here, net sales amounted to SEK 283 million compared to SEK 304 million last year, and this corresponds to 38% of our total net sales. Currency effect in North America was minus 2%. Organic growth was minus 5%. And here, the decrease in sales coming from less sales of project sales in tooling that decreased with SEK 25 million. Adjusted EBITDA amounted to SEK 21 million compared to SEK 34 million last year, and it corresponds to an adjusted EBITDA margin of 7.3% compared to 11.2% last year. Our adjusted operating result on EBIT margin -- EBIT level amounted to SEK 4 million compared to SEK 17 million last year, and it corresponds to adjusted operating margin of 1.5% compared to 5.6% last year. Europe, here, net sales amounted to SEK 415 million compared to SEK 344 million last year, and it corresponds to 55% of our total net sales. The acquired growth was 19%. Currency effect was minus 1% and organic growth was 3%. Adjusted EBITDA amounted to SEK 61 million compared to SEK 52 million last year, and it corresponds to an adjusted EBITDA margin of 14.8% compared to 15.1% last year. Adjusted operating result amounted to SEK 40 million compared to SEK 30 million last year, and this corresponds to an adjusted operating margin of 9.6% compared to 8.7% last year. And Asia net sales increased to SEK 54 million compared to SEK 45 million last year, corresponding to 7% of our total net sales. Currency effect in Asia was minus 9%, but the organic growth was very strong 30%. Adjusted EBITDA amounted to SEK 13 million compared to SEK 11 million last year, corresponding to an adjusted EBITA margin of 24.1% compared to 24.4% last year, so very good. Our adjusted operating result amounted to SEK 8 million compared to SEK 5 million last year and a strong operating margin of 15% compared to 11.1% last year. And the financial position of the group, our total assets has increased to SEK 2.567 billion, and the increase is coming from both the acquisition of Rabugino, and then we have also higher both inventories, trade receivables and also higher cash and cash equivalents and corresponding on the liability side, higher trade payables and also higher liabilities to credit institutions. Equity amounted to SEK 550 million compared to SEK 570 million last year. And our equity to asset ratio amounted to 21.4%. Our net debt, excluding leasing debt amounted to SEK 810 million and our interest-bearing net debt, excluding leasing liabilities and leasing amortization in relation to adjusted EBITDA amounted to SEK 2.7 million compared to SEK 1.7 million last year. And we have a 3-year credit facility agreement with [ GNB ] and an extension option for additional 2 years.

Thank you, Michael. So some concluding remarks on that. So our view for the upcoming quarter is that we continue to see a generally stable market across all segments. We expect to see continued gradual improvement in North America related to the ramping up of volumes for Rivian as well as improvements in the U.S.-based project operations. Focus in Europe also for coming quarter will be on the integration and synergy of capturing the synergies of the acquired entities, including the structural improvements that we are working on right now. In Asia, we continue to focus on organic growth and efficiency improvements. And relative to the raw material situation, we would say that the availability and rising raw material prices that we saw in the second quarter seems to have stabilized a bit for now, but there is still uncertainty in the region and in the market. And of course, this is something we are closely monitoring and acting on to protect our margins if needed. So -- but it seems to have stabilized here during the summer months, July and August primarily. So that was our final slide. So thank you for your attention.

Yes. Thank you for that presentation. And we open now for a short Q&A session. [Operator Instructions]

Okay. Sorry, this is Hampus from Handelsbanken. So a couple of questions from me. Firstly, on the European side, would it be possible for you to maybe add some more color on where you are in terms of synergies, even if we see earnings improving? And maybe how far into that you are and how we should expect an incremental on that going forward? Secondly, if I look at the Canadian business for you guys with the R2 ramp-up, at least the way I'm looking at it, it will be twice the size in Q4 on R2 compared to Q3. I am kind of correct on that ballpark when I look at how that will develop for you guys? And then also if you had to make any adjustments on Rivian's upward revision on full year range for their sales. That's my 2 questions.

Yes. Okay. So thank you. So starting with the first question on European synergies. As we mentioned here, one of the key initiatives that we're doing is this relocation of production from [ Schlismayjo in Sbuken ] in Germany into our sites in Slovakia and Lithuania. And that is a project started a couple of months ago. We're well underway with that project. We're relocating tools and machines, and we plan for that to be completed by the end of December. And we are, at the same time, also releasing costs in our German plant. So it will be a transition period, but we should be seeing the effects of that yes, I would say, in December and into January of 2027 really as profit improvement goes. So that is the main thing when it comes to the integration of our new Polish entity. There, we are not talking about or any production moves or anything like that. And that is -- so that is more about making some initiatives in terms of pricing quality as well as operational excellence and benchmarking of operations measures and so on. So that is work ongoing that we will see gradual improvement from, I would say, over the coming months. But there is a profit improvement activity going on there as well, but it will take 3 to 6 months before we start seeing the effects of that. And then if I move to your second question regarding the Canada and the R2 volume ramp-up, I think you are right. The Q4 volumes, yes, should be at least 2x the volumes that we have seen in Q3, I would say. So that is a new car model. It's out on the market. They have had some delay in their ramp-up volumes caused by other sub-suppliers. And -- but volumes are gradually increasing, and we should see them ramping up quicker in Q4 than what we have seen in Q3 is our assumption based on conversations with Rivian. And yes, I hope I've touched on all your questions there, but did I miss anything?

Yes. No, no, no. That was -- just one more question for me then. Just a clarification on the price increases that you've been implemented to offset the higher raw material. Are you -- should we assume that you are fully compensated in second quarter? Or is there a lag into Q3? Or is that a small thing? Or how should we think about that?

I mean it is a varied picture between all the sites that we have around the world, of course. And there's also various degrees of problem, if we call it that. But I would say that we have managed both with buying raw material at the right time and forwarding price increases managed to neutralize the margin effect to a large degree here in Q2. I think with the stabilization we're seeing in the raw material prices, I think we have pricing at the right levels for Q3. So I don't think there is any major upside waiting for us in Q3, but also not any negatives that will hit us if raw materials are indeed stabilized as we think now.

We go now to next caller, which number ends in 8567.

This is [ Markus ] from DNB Carnegie. Can you hear me?

Yes. Hello, [ Markus ].