Bufab AB (publ)
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STO:BUFAB
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Price: 389 SEK 1.25% Market Closed
Market Cap: 14.7B SEK
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Earnings Call Transcript

Earnings Call Transcript
2019-Q2

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Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's presentation of the Q2 results conference call. [Operator Instructions] I must advise you that this conference is being recorded today, Thursday, 18th of July, 2019.I would now like to hand the conference over to your speaker today, Mr. Jörgen Rosengren. Please go ahead, sir.

J
Jörgen Rosengren
President & CEO

Yes. Good morning, everybody, and thanks for joining us here in the middle of the summer for this Bufab second quarter result update conference call. I'm here with Bufab's CFO, Marcus Andersson. And we'll be taking you through these results today. Throughout this call, we'll be referring to a PowerPoint presentation, which is available on bufab.com under the Investors tab. And we will also be referring to page numbers in that presentation. And we'll start on Page 2 of the presentation called Q2 2019 in Brief. Let me start by summarizing the second quarter in the following way that we had good growth. Our sales were up 11%, but the growth was slightly lower than the growth we've enjoyed in the past several quarters. We saw a little bit of an underlying demand weakening year-on-year and also actually had lower underlying demand than the previous quarters. And also the order intake was a little bit below sales. And despite these 2 negatives, we managed to achieve organic growth of 3%, all of which and EBIT was due to increased market share in our business. This growth also led to an operating profit increase over a very strong second quarter last year. The gross margin this year was a bit lower as it has been now for a couple of quarters. But we also had significantly lower operating percentage -- operating cost percentage, which meant that the EBITA was possibly improved in both segments, even though the margin was slightly down from 10-ish -- from 10% flat to 9.5% this year. In our 2 operating segments, we enjoyed a good result in International but a slightly lower margin and also a lower profit improvement rate than what we've seen in the previous quarters. And in segment Sweden, we had a recovery in the gross margin sequentially, which was quite good for us to see, and good cost control. And therefore, also in that segment, we managed to increase the EBITA. The cash flow was strong in this quarter and also year-to-date. And in the quarter also, we negotiated and agreed on the acquisition of a company called HT BENDIX in Denmark, which has round about SEK 500 million in sales, good margin. And this week actually, we closed that acquisition, so we will be reporting this acquisitions result, which we hope will contribute positively to earnings per share from the third quarter of 2019. Throughout the quarter, as we have known for 2 years almost, we have continued rather a significant investment in our Leadership 2020 strategy, which we've spoken about elsewhere and also in our annual report. And that, of course, costs money, which is in the result, but also we hope will give a good result for the future. I'll get back to that later in this call. Now I would like to ask Marcus Andersson, our CFO, to take us through the financial highlights. So go ahead, Marcus, please, and then we'll be turning to Page 3.

M
Marcus Andersson
Chief Financial Officer

Thank you, Jörgen. Yes, let's start by turning to Page 3 and then we can see the financial highlights for the group. And as we can see, the order intake was up about 10% compared to last year, but it was about 1% lower than the actual net sales that was up with 11% compared to last year. The net sales development was driven by somewhat lower underlying demand compared to the preceding year. It was actually higher in segment International but lower in segment Sweden. The market share is expected to have increased in International, but it remained unchanged in segment Sweden. If we look at the gross profit development, you can see that we are down about 1 percentage point compared to last year. This drop is in fully more or less attributable to the negative development in segment Sweden that we have seen since last year. And about half of that negative development in Sweden is attributable to the acquisition of Rudhäll Industri and weak Swedish krona, which we'll talk more about when coming to the segment page for segment Sweden. The negative development in the gross margin was however offset by a good development in the OpEx percentage as Jörgen mentioned. So good operational leverage helped a bit. So in fully, we increased the EBITA with about SEK 5 million or 5%, meaning EBITA margin of 9.5% compared to 10.0% in the conforming quarter last year. If we take a look at the bridge down in the left corner, you can see that currencies added with about SEK 3 million; volumes with about plus SEK 7 million; price/cost/mix and other with minus SEK 4 million; and acquisitions with minus SEK 1 million. And in those minus SEK 1 million, you also have the acquisition cost for HT BENDIX. If we turn to Page 4, we can now see that we have seen growth for the group as a total for 24 consecutive quarters, both organic growth and acquired growth and currency growth, so to say. If we take a look on the right graph, you can also see that we have had a good trend growth-wise and also a good trend when it comes to the profit development, even though the development in -- along 12-month EBITA has not really kept up with the development in, let's say, for the last couple of quarters. If we turn to Page 5 and take a look at segment International, we can see that segment International's order intake was up with 7%, which is also 1% lower than the net sales development in the quarter. The net sales development -- the organic growth was plus 5%. It was driven by somewhat higher underlying demand and increased market shares. The gross margin was just slightly down with 0.3 percentage point and OpEx was a bit up mainly due to the investments in the strategic areas within Leadership 2020. And all in all, the EBITA was increased with SEK 2 million or 3%, leaving us with an EBITA margin of 10.9%. If we take a look on the bridge at the lower right corner, you can see that currencies added about SEK 2 million to the EBITA volumes with SEK 13 million; price/cost/mix and other, minus SEK 14 million; and acquisition was 0 in the quarter. If you turn to Page 6, we can now see that we have seen growth actually for 25 consecutive quarters, both organic growth and acquired growth. If we take a look on the graph on the right side, you can see that we have had a really good development profitability-wise in segment International the last couple of quarters. But due to a slightly lower gross margin and a slightly higher OpEx cost, it's pushing down the positive trend just a bit. If you turn to Page 7 and look at segment Sweden, we can see that the order intake in segment Sweden was up with 17%, which is 1 percentage point lower than net sales increase of 18%. Most of the net sales increase was, of course, driven by the acquisition of Rudhäll. The organic growth in the segment for the quarter was minus 1%, mainly driven by lower underlying demand but an unchanged market share. The gross margin, as you can see, is down quite much compared to the comparable quarter last year. About half of the drop is corresponding to the acquisition of Rudhäll Industri. As we have talked about in earlier quarterly reports, Rudhäll Industri has a lower gross margin but a comparable EBITA margin as Bufab as a whole. About the rest of the half of the drop in the gross margin is corresponding to the weak Swedish krona we have seen more or less for quite many quarters now. And it has been continuing to be quite weak or being weaker, so to say. We have, of course, offset some of this negative effect with a quite hefty price increase to customers. And that is work that is ongoing even going forward. However, something that is really positive is the OpEx percentage trend, as you can see, down with almost 2 percentages, giving us a really good operational leverage. And that is also the explanation for the EBITA to actually increase with 3% -- or sorry, SEK 3 million or 8%, giving us an EBITA margin of 10.2%. If you take a look on the lower right corner, you have the EBITA bridge. You can see that currency has added about SEK 1 million to the quarter; volumes with minus SEK 6 million; price/cost/mix and other, plus SEK 7 million; and acquisitions, mainly Rudhäll, added about SEK 2 million in the quarter.If we turn to Page 8, we can see that before this quarter, segment Sweden had a -- showed growth of -- and also organic growth for 13 consecutive quarters. We did show growth but unfortunately a negative organic growth with about 1%. And if you look at the right graph, you can also see that the net sales trend has been really positive for many quarters. And we also now see a trend shift when it comes to the EBITA development, turning back upwards, which is, of course, really positive and, of course, driven by increased net sales and good operational leverage. By that said, we turn to Page 9 and I leave the word over to Jörgen.

J
Jörgen Rosengren
President & CEO

Okay. So let me speak a moment about the acquisitions. We have made now 1, 2, 3, 4, 5, 6, 7, 8 acquisitions since 2014, in fact since 2015, I believe. And we are constantly scouting for more value-added acquisitions. As you know, most of you, we have 3 criteria: they need to be well managed; they need to have growth synergies with Bufab; and we need to be able to get reasonable price both for the seller and for Bufab. And all these 3 criteria were amply fulfilled in the case of this latest acquisition, HT BENDIX, which is a Danish full-service supply chain partner with a focus on furniture and kitchen industries. This acquisition complements us very well in the Nordic area and also maybe in the Northern European area. So we foresee good opportunities for growth synergies with HT BENDIX and are very happy to be able to complete that acquisition. The development -- the contribution of this acquisition, we hope, will be good towards earnings per share. And it will be reported in segment Sweden, starting, as I said before, in quarter 3 of this year. To finalize the comments about the quarter then, I turn to Page 10 in the presentation. And there, you can see the EBIT bridge that Marcus has already gone through. But just to look at the summary to the left on the group level, you can see that we had a good effect of currencies and volume, about plus SEK 10 million, which was somehow dampened by price/cost/mix and other and the acquisition costs. And net all of this, we had a SEK 5 million EBIT improvement in the quarter, which was good but not quite as good as we had in the past several quarters. What is good about this quarter is that we're now seeing a profit improvement in both our operating segments, a trend that, of course, we hope to be able to continue as we go forward. To then look a little bit into the future, we can turn to Page 11. And then regarding the second quarter, we continue to execute our strategy and made significant continued investments in the Leadership 2020 strategy. In this quarter, we saw a little bit of a low organic growth and also order intake. But nevertheless, we managed to achieve an improved operating profit in both segments and a strong cash flow. We have, therefore, looked into our projects going forward and slightly shifted those. We are continuing to invest in our Leadership 2020 strategy, but we have shifted the focus now to implementation of the things we have already developed and to achieving results from them. And a good example of such areas is our sourcing organization, which is now much stronger and also bigger than it was before and has more tools to work with. And that investment, we're now hoping to turn to a good profit in the area of sourcing savings, which we hope will strengthen our case going forward. And we're also looking to realize our potential that we know is there for efficiency gains. Bufab has grown quite a bit over the past several years. And when you grow, you build up inefficiencies. And those inefficiencies, we now believe that we're in a better position to work out than before due to the investments we've made in various tools and processes throughout the company. And so these 3 things: the continued investment in leadership; focus and implementation of results; and more focus in internal efficiency, together with the acquisition of HT BENDIX, give us very good confidence that we'll have the possibility to show a continued good development, really no matter what the market does but also in generally speaking maybe a slightly more uncertain market environment. And with that, operator, I would like to open up for questions. So operator, please? Operator, please?

Operator

Hello, sorry, I didn't hear you. Yes.

J
Jörgen Rosengren
President & CEO

Yes. Can we open up for questions now, please?

Operator

Yes, sure.

Operator

[Operator Instructions] We have no questions for the moment. You can continue.

J
Jörgen Rosengren
President & CEO

Okay. So since there are no questions, then I will conclude the call here, and thank you for attending. And I wish all of you a very nice summer. Thank you, and goodbye.

Operator

And this concludes our conference for today. Thank you for participating. You may all disconnect. Speakers, please standby, I'll place you back in the private room.