Bufab AB (publ)
STO:BUFAB

Watchlist Manager
Bufab AB (publ) Logo
Bufab AB (publ)
STO:BUFAB
Watchlist
Price: 434.8 SEK -0.23% Market Closed
Market Cap: 16.5B SEK
Have any thoughts about
Bufab AB (publ)?
Write Note

Earnings Call Transcript

Earnings Call Transcript
2018-Q2

from 0
Operator

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to presentation of the Q2 results conference call. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, the 19th of July 2018.And now I'll hand over the conference over to Jörgen Rosengren. Please go ahead.

J
Jörgen Rosengren
Chief Executive Officer

Thank you, operator. Hello. Good morning, everybody, and thanks for joining this conference call regarding the second quarter 2018 results for the Bufab Group. My name is Jörgen Rosengren. I'm the CEO of Bufab. And I'm joined here by Marcus Andersson, our CFO.And we'll be taking you through the results updates here today.Throughout this call, we will be referring to a PowerPoint presentation, which we had made available on our website, www.bufab.com, under the Investor Relations tab. And that presentation has page numbers, and we will be referring to those also throughout the call.So again, thanks for joining. And let me then start on Page 2 of our presentation entitled, second quarter 2018 in brief. And we can say I think that the second quarter 2018, in absolute terms, is quite a good quarter. We had starting from the top down quite strong growth of 19% on the 20%, which was driven both by organic and acquired growth. We had what we think is quite solid organic growth, but to some extent, of course, helped by calendar effect this year versus last year. The placement of Easter was such that we had a calendar effect [ based ] in growth. But nevertheless, quite organic growth. And that was driven by markets being quite strong and also by continued market share gains actually in both our operating segments.We saw, in the quarter, also an order intake, which was in line with net sales, that is more or less what we saw also last year. So I guess in the same pattern and, as such, I guess also a good segment.Our margins improved relative to last year. In fact, just a little, and that was -- but however, they were slightly lower than we had in the first quarter of the year. And it was a mixed bag there of various things.In the gross margin, we have improved our pricing situation by excluding a quite large number of price increases to customers. And those price increases are necessary in order to offset the effect that we had on the cost side due to raw material prices increases. Yes, but there we're [ not quite the ] [indiscernible] to keep up the gross margin trend that we saw in the first quarter. And we've also helped some gross margin [ sides ] by currencies being in our favor, especially due to a very strong euro to the dollar rate.Yes. On the OpEx side, we saw a growth of about the same rate as we had in on sales, which is a little bit on the high side of the teens. That's due mainly to 2 factors. One is our continued investment in our strategy for leadership in 2020 throughout the company. Secondly, also due -- rather a high cost in that -- to our costs in segment Sweden, which were due to both underlying and also one-off effects which will come on separately for that segments.Nevertheless, the EBITA margin was up in pricing, about 0.5 point. The EBITA itself grew by no less than 26%, which has to be considered a very strong result. Product improvement generally on all lines of their P&L was also due to our acquisitions continued to contribute to [indiscernible], which is quite gratifying, of course. And we are taking this very strong performance as proof that our strategy is working and delivering the results that we have intended and also as a sign that we can continue with executing the strategy, including the investments that we are making and plans to continue to make in reaching the leadership well in 2020.I'll comment a little bit more on the outlook for the group at the end of this presentation. But right now, I'd like to hand over to Marcus Andersson, our CFO, who will take you through the financial results starting on Page 3, called financial highlights.

M
Marcus Andersson
Chief Financial Officer

Thank you, Jörgen. Let us all look at the financial highlights in group on Page 3. We can see that net sales, as Jörgen said, increased with about 19% compared to last year. About 9% of that was due to organic growth and about 4% due to currency translation effects. And also we had our acquisitions that contributed about 6% of the total.If we look at the gross profit, we can see that it's up a bit compared to last year, mainly due to that Q2 last year was -- had an impact of the raw material price increases that we have seen more or less than last quarters as well. However, we have been able to offset that effect a bit by increasing prices to customers and also by having a somewhat favorable currency rate when it comes mainly to the euro versus the Swedish kronor.If you take a look at the operating expenses, you can see that they are up a bit compared to last year, but the OpEx percentage related to net sales is more or less unchanged, so to say.This, all in all, gives us an EBITA increase of about 106% going from SEK 78 million to SEK 98 million, giving us an EBITA margin of 10% compared to 9.5% last year.If we take a look at the bridge, we can see that about SEK 6 million of the total increase of SEK 20 million comes from currency effects. SEK 27 million comes from increased volumes. Minus SEK 22 million comes from price, cost, mix and other. And acquisition contributed well last year, Jorgen said, with SEK 8 million during the quarter.If we turn to Page 4, we can see some of the historical development. We have now had a 20 solid consecutive quarters of growth not only acquired growth, but also organic growth. Last quarter, of course, had a bit by the positive currency effects I mentioned.If we look at the right graph, we can also see that the positive trend when it comes to EBITA percentage, it's also going in the right direction, driven mainly by the increased gross margin compared to last year but also due to operational leverage on the cost side.If we turn to Page 5 and we take a look at segment International, we can see that segment International is more or less showing positive figures on each and every world region say that the -- our net sales was up with solid 25%, whereof about 11% is organic and 5% come from currency effects, mainly the euro, such as, and also Kian Soon and Thunderbolts, our latest acquisitions, contributed about 9% when it comes to growth.The gross profit, up for what needs to be considered as a good or a real good level for the segment, the highest we have seen actually. And this mainly has to do with the price increases to customers, so to say, offsetting the negative effects of raw material prices, but also a positive effect from the euro as is such.Operating expenses, we can see that we have a positive operational leverage when it comes to operating expenses both compared to last year and also when -- if you look at it, that was half year, 2018 versus 2017.And this, all in all, gives us an impressive, we have to say, EBITA development from SEK 50 million to SEK 77 million quarter-to-quarter.If we take a look at the EBITA bridge, we can see that the increase of SEK 27 million comes from: currencies were about SEK 9 million; volumes were about SEK 18 million; price, cost, mix and other, minus SEK 8 million; and acquisition, SEK 8 million.If we go to Page 6, we take look at the financial development for International. We can also here see that we have had growth for many quarters, actually 21 consecutive quarters. A very good development in International, we have to say, both recent years and the last quarters. Good growth. Good gross profit development helped by the currency, of course, but also a good operational leverage and well-managed acquisitions, giving us actually a really good development when it comes to EBITA margin.If we take a look at segment Sweden, we can see that segment Sweden showed a growth of about 8%, whereof all of those 8% were organic, somewhat lower gross profit. Segment Sweden is affected, of course, by that increase in raw material prices, but also the Swedish kronor has been pretty weak, especially against both the euro, but also the U.S. dollar. And we buy a lot of good from [indiscernible] the U.S. dollar, so that's affecting segment Sweden a bit more than International. So we need to work well on that.And when it comes to operating expenses, they were pretty high in the quarter, which was also explained in the report. We had some extra high costs when it comes to revaluation of reserves and also when it comes to currency effects in OpEx, mainly related to revaluation of accounts payable settled at year-end and also accounts receivable, some ledgers during the period.When it comes to the EBITA, of course, the lower gross margin and the low -- and the higher costs is giving us a decrease in EBITA of about SEK 3 million from SEK 37 million to SEK 34 million.If we take a look at the EBITA bridge, we can see that currencies had a negative impact on EBITA with about SEK 3 million in the quarter; volume, positive was SEK 9 million; price, cost, mix and other, minus SEK 9 million, giving us an EBITA for Q2 of SEK 34 million.If we take a look at Page 8, we can also say that in the financial development for Sweden that we have now seen growth for 9 consecutive quarters in a row, telling us that the growth strategy is actually working. But on the other hand, we are, of course, struggling a bit when it comes to the gross profit and also on the cost side. And that we need to continue working on that. But at least, we see growth in the segment.And by that, I give the floor to Jörgen commenting on acquisitions.

J
Jörgen Rosengren
Chief Executive Officer

Yes. So turning then to Page 9 of the presentation called acquisitions since 2014, we've made -- in the past 3 years, we made 6 acquisitions, about 3 year then. And it's -- within the journey, the acquisitions have -- are picked with care. They turned out well to be good companies in reality, not just some paper. And they have contributed well to our financial development, but they've also strengthened us in various ways. And a good example of that is the acquisition of Kian Soon, which we made in November, December, thereabouts in Singapore, and we're now working very closely together with their team to use the combined stand that [indiscernible] from -- in the Southeast Asia region in order to become more relevant to our customers there and even serve them better.Then and I guess it's, of course, quite nice to see that, that is happening. And it's also giving us confidence that we can continue to make further acquisitions, and that indeed, of course, is also part of our strategy and also part of our daily work to have a pipeline of acquisition candidates also for the future.Now we're also quite determined not to make any acquisitions that we will regret. And therefore, we're very careful to pick such candidates that we believe will really strengthen the income going forward. And that makes hard for the investments, we will make more acquisitions that we're pretty sure that we will continue to make acquisition as right in part of our development also going forward.The next page, Page 10, comments on network capital. And you can see that if we follow the [indiscernible] line which represents this, excluding the acquisition of Apex. Apex is a company which we acquired a few years ago and which had a different net working capital profile from the rest of the group and also had some other aspects of its business model, which are different. And for that reason, I'd like to urge you to look at the blue line where you can see that we had a -- had development here in '14 and '15, which are being corrected. But also you can see that now the improvement that we had for some years had flattened out a bit. But that is, of course, not our intention because we intend to guide this number down further, and we're hoping that a continued work with a systematic process is in the company, especially relative to our suppliers who make that possible. That's what we are envisioning.And then to summarize the quarter, we have on Page 11 an EBITA bridge. From last year's SEK 78 million EBITA, that's this year is SEK 98 million. As you can see, currency and price, cost, mix, other, those 2 items need to be seen together in some way because the currency effects on any of the transaction side, those contributed minus SEK 16 million, whereas volume contributed plus SEK 27 million. And that explained the profit increase. And then our more acquisitions that we had made since last year, those are 2 of them, Thunderbolts and Kian Soon. They contributed another SEK 8 million, bringing the total up to SEK 21 million from SEK 78 million to SEK 98 million, which we take, of course, as a, being a 25% increase, as a solid number to [indiscernible].And then summary, outlook. Also on Page 12, you can see that the second quarter was characterized by good growth, driven both by underlying demand, by our increased market share and by our acquisitions. So in fact, all parts of our strategy.We improved our margins over last year. So especially, the EBITA margin was up about 0.5%, that's good. But margins, remember, are lower than in Q1, and that's of course not good and calls for action in various areas.International enjoyed a good -- not to say, a very good performance. And Sweden enjoyed a less good performance, mainly due to somewhat gross margin -- relative to gross margin and OpEx was just too high. And our acquisition continue to contribute well.Looking ahead, and I guess that's a point of interest to our investors, there's no use in pretending that there is not an increased uncertainty about the economic development going forward. That's something that both we and our customers have to face. And we don't know, of course, what's going to happen to the general economic development, and it doesn't seem like anybody else knows anything about it either. However, it's somewhat comforting to see that we have not yet seen any effect of this uncertainty in order demand picture. We saw in the quarter a continued strong demand, and we saw in the quarter a continued strong order intake.And what will happen during the fall, we would just have to wait and see. We're, of course, aware of it. And we're ready to react to signs of a decline in demand, big or small. But on the other hand, we'll also continue to aim for a continued market share gains by continuing to bringing young, many small new businesses with many customers in many markets. And that, we intend to be able to do also going forward, of course. There remains a necessity to increase prices to offset the high raw material prices, which have been prevalent for the last 6 quarters or so. And that's, of course, especially important in segment Sweden and has a special focus there.We are realizing price increases. In fact, by much price increases in both our segments and have been realizing price increases for quite some time now. But we are not yet at the level where we can say that we are comfortable with the gross margin development, again, especially in segment Sweden.And like I said in the beginning of the this talk, we're continuing to invest in initiatives that underpin our strategy to become the strongest company in our business in 2020, called it Leadership 2020. And those initiatives, we are financing, of course, with the growth and the general price improvements. But they also require that we continue to improve our efficiency throughout our production team. And that, too, is something that we will -- that happened here, and we hope to be able to continuously do also going forward.And with those remarks, that concludes the said piece of this presentation. And therefore, I'm turning it you, operator, please, to open up for any questions there may be.

Operator

[Operator Instructions] There seems to be no question at this stage. Please continue.

J
Jörgen Rosengren
Chief Executive Officer

Okay. Thank you, operator. In that case, I conclude that everything was an impressive here. And I would like to thank all of you for attending this Q2 conference call for Bufab in 2018. Enjoy yourselves, please, and we'll come back another time. Thank you. Goodbye.

Operator

Thank you. Ladies and gentlemen, now that concludes our conference for today. Thank you all for participating. You may now disconnect.