Bulten AB
STO:BULTEN
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Bulten AB
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Hello, and welcome to Bulten's Q1 2022 Presentation. My name is Ulrika Hultgren, and I'm the SVP, Corporate Communications and Investor Relations. Presenting the report are Bulten's President and CEO, Anders Nyström; and our CFO, Anna Åkerblad.
As usual, you will be able to ask questions after the presentation, both on the web as well as in the telephone conference.
We can turn to Page 3. The agenda for today will be a brief overview of Bulten, the market development, the result for the fourth -- for the first quarter and finally, some words about our focus for 2022 and going forward.
I will now hand over the word to Anders Nyström. Please go ahead, Anders.
Thank you, Ulrika. And once again, welcome, everyone. 2022 started off with both old and new types of disruptions. January was a weak month with big COVID-related shutdowns in our customer plants. But despite the war in Ukraine, volumes recovered towards the end. And from that background, we had a decent top line and fall through to the EBIT line.
Due to the situation with the war in Ukraine and the deteriorating business climate in Russia, we made a decision in early March to exit Russia and our engagement in the joint venture company, Bulten Rus. After the end of the quarter, we announced that we signed a contract to sell Bulten Rus. The impact of the write-downs of assets as well as transactional costs are included in the result for the quarter. And we'll come back to the specifics of that further on in the presentation.
If you turn to Page 4 for a brief overview of the company. And as you know, Bulten is a supplier of fasteners. Our primary customer group is like vehicle OEMs. Customers categorized as automotive suppliers, and customers outside of the automotive industry are continuing to grow in share of our business. But we don't just supply the hardware. To many of our customers, we are a partner for product development support, innovation, procurement and logistics. Bulten's 3 largest customers are still Ford, JLR and Volvo Cars. To be an approved supplier to these many customers is a strength and clearly facilitates further growth.
Next slide, please, and we turn to Page 6 for the market overview. It is a truly turbulent world where we're operating in. In January, we still saw COVID-related customer plant shutdowns in Europe. Since then, COVID situation in Europe has improved. But instead, we see a worsening situation in China with many regions affected by various degrees of shutdowns.
The semiconductor shortage is still not gone. And the war in Ukraine has also caused disturbances for some of our customers, and we still have to work hard to offset the effects of cost inflation.
Next slide. For automotive-related statistics on volumes, we -- and the outlook into the future, Bulten looks to the independent forecaster, LMC. In quarter 1, according to LMC, light vehicle sales fell 5.9% compared to Q1 2021.
In terms of outlook for the rest of the year, we turn to Page 8, where you can see the graphics and LMC's global vehicle production outlook for the full year, and 2022 is somewhat mixed still. Light vehicle production volumes are forecasted to decrease 7.1% -- increase, sorry, 7.1%. This is a good growth rate, but it's somewhat lower than what was predicted a quarter ago. Heavy commercial vehicle production is predicted to drop 5.2%, which is down from plus/minus 0 on the last quarter's outlook.
It's important to remember that the global outlook here is weighted across regions and OEMs and that Bulten's customer mix may or may not perform differently.
Next slide, please. The price of raw materials is still on the rise. The primary raw material for Bulten is wire rod steel, and the graph in this picture shows the development. Wire rod steel is now at EUR 1,200 per tonne, which is an unprecedented level.
As said before, we're being compensated in sales prices to customers through the raw material clauses in our contracts, but there is always a time lag, which means that we get a negative impact on our margins as long as prices are on the rise.
Next slide, please. And now to Page 11 for a brief overview of quarter 1. The events during the quarter. The shortage of electronic components in the auto industry is well known. It did impact us in the quarter. I'm pleased that we managed to offset a good portion of the cost increases from steel, freight, energy, et cetera, during the quarter. We're applying the raw material compensation agreements we have with our customers as well as working to improve efficiency.
We continue to win new business, and we signed 2 major contracts along with a multitude of smaller ones. The 2 large wins in the quarter are worth SEK 175 million annually at full production. And it's especially encouraging that our sustainability offer played a big part in being nominated for this business, one of which is based on our new FSPs business model.
In the quarter, we announced our intention to withdraw from all activities in Russia. And after the quarter, we also announced that we have a contract to sell our portion of the Russian operations. The sales is being finalized at this time.
And we go to the next page, and I'll leave the word to Anna for the financials.
Thank you, Anders. On Page 12, you can see an overview of our quarterly sales the last 2 years, including 12 months growing sales. We had very strong sales in our first quarter despite the weak start of the year. We saw continued sales growth in automotive suppliers and other industries outside the automotive sector. We had lower sales to light vehicle manufacturers as a consequence of partly uneven production due to COVID-19 and semiconductor shortage. The drop is related to external factors and not losing market share.
Next slide, please. On Page 13, it is satisfying to see that our efforts to grow in the industries outside automotive and with automotive suppliers have given a result in increased sales. Other industries outside automotive is now contributing with 10.1% of total sales compared to 8.8% at year-end. Automotive suppliers are contributing with 16.1%, a slight increase compared to year-end. Our main customer group is still OEM light vehicles with almost 64%.
Next slide, please. Our earnings performance for the first quarter was affected by the divestment of our Russian business with minus SEK 83 million. The adjusted EBIT amounted to SEK 72 million in the quarter. Customer compensations are starting to have effect, but there is still some delay in timing.
Our adjusted EBIT margin for the first quarter amounted to 7%, which is down from the comparable quarter last year. However, quarter 1 last year was the best quarter ever, a quarter which was relatively free from disruptions in material supply and pandemic-related restrictions. Taking into consideration the currency effect, the adjusted EBIT margin for quarter 1 2022 amounts to 7.4%.
And we turn to Page 15. On this page, you can see our financial summary of the first quarter. As mentioned previously, Bulten delivered strong sales for the first quarter with an adjusted EBIT of SEK 72 million and EBIT margin of 7%. Adjusted earnings per share amounted to SEK 2.07 in the quarter and SEK 5.70 rolling 12 months.
Next slide, please. On Page 16, you can see that the cash flow from operating activities, including change in working capital amounted to SEK 94 million in quarter 1. Cash flow from investing activities amounted to minus SEK 75 million in the quarter, a key figure affected by the start of the construction of the new facility in Poland in May last year.
Cash flow from financing activities amounts to minus SEK 100 million. Total cash flow for the quarter was negative and amounted to minus SEK 81 million with a cash position of SEK 164 million at the end of the quarter.
Our net debt, excluding lease liabilities amounted to minus SEK 390 million at the end of the quarter, which is a slight improvement compared to year-end.
Next slide, please. On Page 17, you can see our adjusted rolling 12 months key indicators 2022 have improved compared to last year's rolling 12 months, except for net-debt-to-EBITDA ratio. Our net-debt-to-EBITDA ratio is at minus 1.1% at the end of the quarter and our equity ratio at 48.4%.
Next slide, please. On Page 18, you can see our financial targets as well as some of the guidelines regarding relevant key figures for Bulten. Comparing with last year, which we already mentioned, was the strongest quarter ever, the growth in sales is somewhat negative. Adjusted margin for the quarter is on 7% level.
In the right-hand table, you can see some guidelines for some other key figures, and we are very much in line with our guidelines. Our guideline for average net working capital in relation to 12-month sales is about 20% to 25% depending on the growth phase.
At the end of the quarter, we had a level of 21.2%, which is in line with our guidelines. The guideline for capital expenditures as a percentage of 12-month sales are 2% to 3% for maintenance of equipment and additional as 2% for capacity depending on the market development.
At the end of the quarter, we are at the level of 6.3%. As mentioned before, we started the construction of the new facility in Poland in May last year. Postponed capital expenditure due to the pandemic has also an impact on these figures when starting up again.
The guideline for depreciation as a percentage of 12-month sales is 4% to 5%, considering IFRS 16. Without IFRS 16, it has been in a level of 2% to 3%. At the end of quarter 1, we are in line with our guidelines.
And now back to you, Anders.
Thank you, Anna, and I'll ask you to turn to Page 20, please. Some words about our focus for the rest of 2022. The underlying demand for our customers' products and for Bulten's products is very healthy. Having said that, we're faced with constantly changing uncertainties. Key for Bulten right now is to stay flexible.
Regarding metal prices, we don't see a short-term relief. We'll most likely face historical highs for quite some time, coupled with historical high rates for freight and energy. In order to offset these effects, we're working intensively with margin improvement actions.
We're gaining momentum in our technology and innovation activities and stay determined to remain the leader in sustainable fastening solutions. We've taken important steps to that effect. And the recent new contract wins were very much enabled by the progress in these areas.
As communicated in our Capital Markets Day in February, we're actively looking for acquisition targets in North America in order to give ourselves scale and improve operational efficiency. Our sales force are using our track record of successful new contract launches to accelerate new business wins and generate additional organic growth.
Turn to Page 21. Finally, this is to remind everyone of our strategy and our financial targets, which we still stand by to be a SEK 5 billion company, delivering 8% EBIT and 15% ROCE in 2024. We're on track to deliver on these targets, and we have the building blocks in place.
And that concludes the presentation, and we're ready for questions.
[Operator Instructions] Our first question comes from the line of Kenneth Toll of Carnegie.
Can you talk a little bit more about the FSPs business model, please? You have been running the FSP business model a long time. But what is the addition? What does the S stands for? And I mean -- how, -- what does it mean in practice?
Absolutely, I can do that. You're familiar with the FSP, of course. It's a model that we've been applying and that's been the growth engine for Bulten for the last 10, 15 years. What we've done now is we added a substantial portion of sustainability elements to FSP and that's what we call FSPs. S stands for sustainability.
And what we're doing is that we collaborate with the customers in that model to help them to reach their targets. So we're looking at every aspect of sustainability. Everything from the CO2 emissions in the process -- in our manufacturing process, CO2 emissions from raw materials. We look at lightweight materials to help improve tail pipe emissions. We're looking at things like packaging materials to go to renewables. And also, things like health and safety in the workplace for our -- in our sequence centers. And we sort of -- in short, every aspect of sustainability. And we set targets together with the customer for what we should achieve within a certain time frame.
And many of these elements, they require also close collaboration with the customer engineers, for instance, in order to make changes to specifications. And others, we can deliver on our own more independently.
But we were starting to apply this model now with customers, and there's a great interest in it. And as I mentioned, we've won business on the back of this model because it's actually a unique selling point for Bulten. And the customer feedback we get is extremely positive, and they confirm that we're actually the only ones doing this. So that's what it is. Does that answer your question?
Is it also linked to -- yes. But is it also linked to pricing? I mean if you set the target for KPIs that you should deliver, and you deliver them or you don't deliver them. What are the consequences?
No. The KPIs themselves and the target fulfillment, they're not connected to pricing. You could say that the model as such is attractive to the customers because it helps them fulfill their targets and us fulfill our targets on sustainability. But there is a willingness for some customers now. We can see increasingly that they're willing to pay a premium for sustainable solutions. So they realize, of course, that if we take emissions out of our process, that's going to mean less tax rate on their vehicles because vehicles will be taxed on life cycle emissions rather than tail pipe. So that drives the interest and the willingness to pay a premium for.
And so it's more a way to -- from the beginning when you set the contract that you also set the common interest of achieving those goals. So I mean -- so that also, the product development department as the customers take this -- take your suggestion seriously. And is that a better way to look at it rather than yes, getting a bonus if you meet the target?
Yes, exactly.
Okay. Perfect. But then also on the chart -- on the Slide #9, that goes through the price development of steel, we can see that the steel price was pretty stable between the third and the fourth quarter. And if I remember correctly that the adjusted EBIT margins was a bit weak in the fourth quarter, and then it was better again in the first quarter. So is it fair to assume that when steel prices goes up, you are hit with a month lag, and then -- sorry, a quarter lag. And then it takes some time for you to compensate for those steel prices.
Yes. In principle, your thinking is right. But I just caution you that time lags will be different for different materials and time lags stand for, let's say, components -- we -- as you know, we have about 40% of our sales is based on purchase components. And then there's a whole other dynamic coming into effect as well as the price compensations. So these all sort of come together at different points in time. So I just caution you a little bit to try and oversimplify it because it's not that simple.
Yes. So my next question was going to be -- I mean, with the sharp increase again now in the first quarter in the steel price if it will be more challenging in the second quarter to get your prices up to offset that than it was in the first quarter.
No. It's application of contracts. So the challenge is constant, you could say.
We have one further question in the queue. [Operator Instructions] And that next person is Mats Liss from Kepler Cheuvreux.
Yes. Well, let's follow up there on Kenneth's question, I guess. But I guess it's difficult to go to the margin. Margin have been if you had, well, managed to fully compensate for the increase in steel price. Is it possible to give some indication there?
No. No. I wouldn't be in a position to do that. That would be disclosing information I wouldn't disclose [indiscernible].
Okay. Great. And then we have the shutdown on part of China there. And what will happen there to you? How are you affected?
Well, in the beginning of quarter 1, in January, we actually -- we have problems maintaining production in our Tianjin plant. That was quite short-lived though. We're back on track pretty quickly to produce in Tianjin. Now the problem is that our customers have shut down. Some of the customers are in the Shanghai region. Other customers that are in places like Chengdu or Chongqing, they have suppliers in the Shanghai region. So it is really -- it's almost back to where we were in Europe in quarter 2 of 2020 in terms of impact on the vehicle production. So we're just waiting for things to get back to normal. There's very little we can do. And we're in the same boat as everybody else, I'd say, in China right now.
Yes. Great. And then you received this new FSP contract. And was this a new or an existing customer?
Just curious. [indiscernible]
I'm sorry, I didn't catch that. Can you repeat that?
No. FSP order was from new or existing customer? I guess it could be [ a new customer. ] ...
The latest 2 are from existing customers that we mentioned in the quarter.
Yes. And then on CapEx, could you give some kind of guidance there for the full year? I guess 6% is a bit high for the full year or should we...
Yes, I can answer on that, Mats. We have the project in Poland, of course. That is in full speed right now as we started last year. And we also have the effect of the postponed CapEx that was postponed in 2020 and also did in 2021. That is more in full speed now. So that is a ramp-up effect, so to say.
And then what...
The run rate is a bit high.
Okay. So could you give some sort of indication for the full year, by and large?
At the full year, we'll be around...
I have to do the math. Sorry.
It's around -- it's somewhere around 5%.
And we have phone question from Kenneth Toll at Carnegie.
Yes. I was just thinking about the other industry segments that grow strongly. And I remember from the Capital Markets Day, you wanted to grow that business more. We know how the contracts work on the automotive side that you get the contract and you start delivering, you ramp up, and it's there for a couple of years and so on. But the dynamics in other industries, are you using more -- is it only direct sales? Or are you using distributors as well? Or -- and is it the same sort of a platform-based deliveries? Or can you talk a little bit about that side of the business, how you get business and yes, ramping up and so on?
Good question. When we look for alternative sectors, we sort of look for those that are a good fit with the way we are set up as a company, the back [ sizes ] and the lead times and things like that. So actually, the contracts were -- even if they may be a little bit shorter lead time than in the automotive world, you ramp them up quicker and the product life cycle is a bit shorter.
We're into consumer electronics heavily, as we've said in the past, and that is pretty much platform-based as well. So it's a product that gets launched, and you get sourced for a number of parts or for all parts on that platform.
And I think the only difference -- the only major difference that we see is that the product life cycle is shorter. Now these products, they live for maybe 2 years or 3 years and then hopefully, you get latched on to the next platform as well instead of in the automotive world is like 7 years and commercial trucks, it's 15. That's the difference, I should say.
Yes. But it's the same thing that when you have a working relationship and so on, you are very likely to gain more business and get repeat business and so on. So it's -- there are no distributors in between and you sort of develop a relationship over time [indiscernible] from that point of view.
There's no distributors.
No.
No distributors. So we're selling directly to manufacturers. And yes, once you have it, it's yours to lose, right? So unless we -- as long as we perform well, we have a good chance of getting the follow-up program as well.
Are they focused on sustainability of the automotive players? Or are they a bit behind?
Not yet. It's coming. We could see it, but they're, I would say, a couple of years behind.
[Operator Instructions] Okay. There seems to be no further questions from the phones at this time. So I'll hand the floor back to our speakers.
And there are no questions on the web as well.
All right. So thank you, everyone, for listening in. And I wish you a good evening.