Bulten AB
STO:BULTEN
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
61.3809
91.5
|
| Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Bulten AB
You don't have any saved screeners yet
[Audio Gap]Senior Vice President Corporate Communications. Presenting, therefore, today are Bulten's President and CEO, Tommy Andersson; and our Executive Vice President and CFO, Helena Wennerström. [Operator Instructions] Please go ahead, Tommy.
Thank you, Kamilla. So we'll start here, car sales within EU has been extremely volatile during September due to new regulations of what they call worldwide harmonized light vehicle test procedure, in short, WLTP. Bulten has, due to ramp-up in contracts, managed the situation well and are still on a strong growth.Before that, we'll come to the agenda today, which is Bulten in brief, market development, third quarter 2018 and our plans going forward.Then going on to Page 3, Bulten in brief. Bulten's business concept is getting stronger every day, and during the year, we have been involved in successful launches of several new cars and model shifts with flawless execution. Investments in quality, engineering, logistics as well as dedicated vehicle are a key to this performance. As mentioned in this -- this is the reason for maintaining strong growth also in a volatile market.Bulten's mission to support the global automotive industry with state-of-the-art fastener technology and services as well as developing the FSP concept into perfection has been the main reason for Bulten to be a leader in this highly competitive industry.Moving on to Page 4. Bulten has a lean and well-positioned operation and the entry into the U.S. market will open doors into new customers, but more importantly, strengthening the flexible positioning on global platforms to customers we already are supplying. There are not so many in our industry that can offer local content in Europe, U.S.A., China and Russia. We have, today, the largest fastener operation in the industry in a low-cost country, Poland, and we are planning to expand it further. We have also a big portion of outsourced production, approximately 40%, which also creates the flexibility. And regarding volumes, Bulten has proven that we can adjust to volume fluctuation, both up and down.So going on to Page 5. Bulten has many customers with potential for further growth when consolidation and need for strong FSP suppliers will be required to sell the cars and engines in the most cost-effective way. Cars remain scarce in the market within automotive, as it is also for Bulten. And Bulten's 3 largest customers are Ford, JLR and Volvo.Once again, the raw material prices increased in Q3, however, Bulten has, despite difficult raw material situation, maintained good customer relations. Raw material prices will remain on the same level as in Q3 during the fourth quarter and no further increases are announced.Coming to market development, I'm going on to Page 7, market shares. Bulten is growing and continue to take market shares. Bulten's market share was 17% during 2017, and Bulten is defending its position as the leading FSP supplier well. We had a 60% share in 2017. The growth we're planning for 2018 and '19, to a large extent, coming from FSP contracts.Going to Page 8, market development. Car sales within EU dropped to 23% during September, and LMC Automotive is reporting a forecast for 2018 for light vehicle production in Europe of 0.6% growth. Heavy commercial vehicle is forecasted to grow 1.6% with estimated Bulten's mix of forecasted market growth of 0.7%. The LMC forecast has been lowered since the Q2 report within sales from WLTP and also Brexit.Still growth of car sales in our home market, Europe, with sales growth of 2.5% for the first 9 months 2018 according to ACEA. However, it's been a volatile market for the last few months and more about that later.Going on to Page 9. Looking in a longer perspective, LMC Automotive estimated a gradual improvement of production of cars in Europe in the years to come with an increase of 0.7% in 2019 and 3.5% in 2020. Looking at the same scene for heavy commercial vehicles, they estimate an increase of production of around 3.3% for 2019 and 4.1% for 2020.Going on to Page 10, talking a little bit about market volatility. As we commented in our report today, the industry has been quite volatile in the last few months. In some markets, car sales have surged certain months and fallen the months after. This is due to several factors. The new global test procedure for new cars, called WLTP, is more strict in terms of CO (sic) [ CO2 ] emissions. This has given incentives -- gives for heavy discounts for cars sales prior to the new test procedure was introduced. Simultaneously, car sales were driven in countries prior to the introduction of higher taxes linked to cars with higher CO2 emission and lower taxes for cars with lower emissions.According to LMC estimates, the surge of car sales in August will be canceled out during the autumn months. In the long-term perspective, however, the trend towards more hybrids and electric vehicles is positive for Bulten. Raw material prices have increased continuously since the first quarter of 2017. This is, of course, challenging for many players in the value chain. However, raw material prices will remain in the same level as in Q3 during the fourth quarter and no further increases were announced.Going to the third quarter and to the Page 12, operational highlights. Bulten is growing faster than the market with a continued ramp-up of new contracts in the quarter. This has also affected our order intake positively, even though the order intake in the Q3 last year, it's a tough comparable. The profitability decreased somewhat during the quarter due to both irregular production caused by a volatile market and higher prices on raw materials. We have received the reward for the best annual report in Sweden in the mid-cap segment, and after the quarter, Bulten won electric vehicle drive technologies an FSP contract. And today, we also announced that we will relocate our production in China and more about that on the next page, on Page 13.As we announced today, Bulten has decided to relocate its plant in China from Beijing to Tianjin. The aim is to expand in the local Chinese markets, where volumes and growth opportunities increase considerably from a previously relatively low level for Bulten. The plant will be relocated to Tianjin Industrial Park, which is about 150 kilometers from our existing plant in Beijing. The relocation will start in 2018 and be finalized in the end of 2019. The relocation includes an investment of approximately SEK 25 million and the most -- and the cost is estimated to amount to SEK 16 million to SEK 20 million, distributed over the moving period and the main part in 2019.And then, I will now hand over to Helena for some financial data.
Thank you, Tommy. And we go to Page 14. Bulten's sales were SEK 722 million in the quarter, up 14.5% compared to the comparable quarter last year, and our EBIT amounted to SEK 38 million. The operating margin was slightly lower compared to comparable quarter last year; however, we met our earnings targets on our rolling 12 months basis, and our EPS increased this quarter. No comment [ on payment ].Page 15. Some comments on the net sales and order intake. Sales for the quarter were up 14.5%. This quarter, once again, was positively affected by currency in the top line and adjusted for that, the organic growth was at 5.8%. Growth is concerned, gradually increasing volumes related to previously announced contract wins and overall good demand from our customers. And the market is, however, rather volatile and this is especially from customer to customer. And the contracts that we are now ramping up also affect our order intake positively, with an increase of 4.7%. The slower increase compared to the second quarter is due to market volatility and the strong order intake in third quarter 2017 from an earlier ramp-up of new contracts and model shifts.Page 16, earnings development. Our EBIT margin for the third quarter amounted to 5.2% compared to 5.5% comparable quarter last year. We were once again negatively affected by higher raw material cost during the quarter and a more volatile market also resulted in a more uneven production pace during the quarter. Additional to that, we also had a negative currency effect about SEK 4 million. And adjusted for currency, EBIT margin was at 5.8% compared to 6.1% previous year.As I mentioned earlier, our EPS increased this quarter. And on an EPS level, the negative impact on the EBIT level from currency effect turns back positive now in our financial net. Adjusted for currency, our EPS were up to SEK 1.40 compared to SEK 1.34 comparable quarter 2017.Page 17, cash flow. As the cash flow has been affected mainly by operational result and the growth, we are in a phase where we pay up some net working capital, mainly [ nonreceivable ], which has an impact on the cash flow. Higher investment level as we are in a phase preparing for growth, and our investment and efficiency continues as a way to become the industry's most cost-effective automotive manufacturer.Our balance sheet and financial position remains strong, and we have a net debt by the end of the quarter of SEK 164 million, which is equal to 0.5x EBITDA.Page 18, key indicators. We have a return on capital employed of 14%. The high investment levels have an impact as well as the margin development. Also, our return on equity is impacted by this and amounts to 11.3%. The capital turnover times is slightly up compared to the full year 2017. And the equity ratio was in a level of 65.1% at the end of the quarter.Page 19. On this slide, we continue to give you some short guidelines regarding some key figures for Bulten, and as always, these guidelines are not to be considered as financial targets. The average net working capital in relation to 12-month sales amounted to 21.8%, which is above our guidelines, but it is due to increased volumes. Capital expenditures as percentage of 12-month sales, they are on a level of 4.9% and evidence of the 3 investing future growth activities and we predict that we would end up over this level in coming years, but more about that in the next slide.And our depreciation of 2.8% of 12-month sales is within the range of our guidelines as well as our average tax rate of 26.4% rolling 12 months. FX rate will, however, vary from quarter to quarter.Page 20, investments going forward. Let me show you a short-term view of our investment strategy in the coming years. Our guidelines is to invest 2% to 3% of 12-month sales into daily business. But on top of that, to handle the growth state, we will invest in more in the years to come as previously announced. Until 2021, we will invest in new capacities, value-added production as well as some new production plants in Poland. And as we announced earlier today, we have also decided to move our production facility in China from Beijing to Tianjin with a purpose to catch growth opportunities. The move will be finalized by the end of 2019 with associated investment of SEK 25 million. And these investments will improve Bulten's production efficiency even further. And all in all, Bulten is in a clear investment phase to set up growth in the years to come.Page 21, financial targets. Our financial key ratios continues to be on a good overall level, close to or above our financial targets. We are growing more stronger than the industrial average, with a back of our orders to underline this. We continue to have a solid profitability with an operating margin of 7% on a rolling 12-month basis, even though raw material prices and a volatile market has made the environment more challenging. Return on capital employed of 14% or 16% if you adjust for goodwill. And our ordinary dividend increased to SEK 3.75, corresponding to 47% of 2017 earnings after tax.Now back to Tommy again.
Okay. Thank you, Helena. And then we come into going forward, and we're now going on to Page 23. Bulten continued to have a growth faster than the market in Q3, which confirms that we now have continued our phase of growth. A major part of this growth is coming from ramp-up of new contracts. On this slide, you can see different ramp-up contract and what phases of implementation they are in, respectively. Moreover, contracts signed but not yet entered production will support Bulten's growth even further in the years to come.The market growth of Bulten's mix is about 0.7%. To that, you have to add ramp-up of new contracts that have started as well as new business not yet started, together totaling over SEK 600 million yearly.Going on to Page 24. Bulten will continue to grow during 2018. Contracts already signed under ramp-up in the coming years give us long term and very solid organic growth potential. In the quarter, we managed to grow even though the market was more volatile, which together with a tough comparable quarter reflected our order intake.We have a strong financial position and preparing for future growth through investments and continued streamlining to become the most cost-effective FSP supplier in the industry. Finally, we still see potential in taking our new business and contracts. The long-term trends toward hybrids and electric cars works in our favor.I hope you all got a clear picture of the opportunities within Bulten. And we are now ready for Q&A. Thank you.
[Operator Instructions] And our first question comes from the line of Mats Liss of Kepler Cheuvreux.
Just coming back to China there and you've mentioned the costs involved with the move and, I guess, you have some thoughts behind this move and how it could -- it sounds as if it's more like an improving phase, it's not reducing your cost, though. Could you say something about this?
We're growing in China, so we need to have capability to grow. We need more space. And so I think, it's a stat we need to -- I mean, we are part of -- we have[Technical Difficulty]
Do you still expect the supplies to be substantially higher in an electric vehicle than in combustion engine car?
Yes, we do. I think in this case, I mean, if looking to -- it's nothing -- all the new contracts we are signing right now on electric cars, there are more customers and, of course, it's also driven by -- there is a lot of hybrids. But there is a lot of fasteners in a car, in the battery, for example. That, I mean, if you take in a mobile phone, you'll be able to put the parts together. But in a car, it's 500 kilograms. You have to put a lot of fasteners into it to assemble the batteries and also put them in the car. So we still -- of course, there will be probably rationalizations coming. But as far as we can see with the products getting outer in the next year -- in the next couple of years, there will be more fasteners, mainly, of course, driven by hybrids. The volumes for few electric cars is not that higher. And that will take time to build up the battery capacity. But they -- as I say, for a battery, for a fully electric car, there is a lot of fasteners in it.
Do you think or do you aim at gaining more full-service contracts compared to what you already have in the combustion engine segment? Is it easier for you to leverage that business in a more electrified world?
I think -- right now, I think the whole industry is working on an electrified world. So I mean, I expect more contracts to come on the electrified world, probably a little bit of the old combustion engine and probably a little bit put on hold. But we are working with a number of different electric or hybrid projects right now that is in the pipeline.
Good. And just touch upon U.K. and, I guess, you have a couple of large customers there. Do you have any sort of indication or how to handle the Brexit or...
Of course, we have a plan how to handle it. I mean, we're coming to the end of March when there officially will be a Brexit. And, of course, we can do small things to make sure we can continue for a while. And then -- but to be honest, I think the whole industry is not absolutely sure. Nobody knows exactly what's going to happen. But there is a big car industry in U.K. that will probably -- some of them are protesting. Of course, there need to be some sort of solutions for it. But unfortunately, what we can do now is plan for a more custom duty and so on or customary procedures, so to say, and we are planning for it and see what we can do. But as I say, nobody can really tell exactly how Brexit will look in this case. We have no production in U.K., of course, but, of course, we sell a lot of products to the customer, but we have no production in U.K., which is probably making it a little bit easier.
Yes. Then you mentioned raw material prices and, I guess, there are some few tariffs involved in some markets. How do you sort of -- are you able to pass those on as well?
As I -- I mean, I say, as I always used to do, it takes some time to pass them on. And after all this so many quarters of increase, that you're almost behind all the time, but, I mean, the possibilities are right now in Q4 where there will be no increase and with what you see in the market, I think, there is going to be pressure on the raw material. I mean, we have had a number of years with increases right now in volume spent and that is probably flattening out a little bit. And so -- and now I think everybody will take some time for us to get some compensation on the raw material and also, of course, we have outer material with many customers, as I mentioned for you. But so many quarters in a row is quite -- I've never seen it before increasing like that. But it's today and now. So hopefully, we will catch up.
Just a follow-up. Do you have any impact of steel tariffs -- the tariffs, or is it more like...
Very, very limited there. The tariffs, I mean, we produce the parts mostly where we -- in the continent where they are used. There are marginal effects there. There are some areas with some special materials we buy, but very marginal.
And finally, you mentioned the volatility in car production during the quarter and it could, well -- and you have been affected. Could you make some indication how much or is it difficult to assess that?
I mean, of course, we have seen the effect, relatively in the media saying what's happening in the car industry. It's, of course, quite dramatic. But I think, we have managed that pretty well with the growths we have in our pipeline and so on. And going forward, I mean, we see a small -- the increase in the market is going down to 0.6%. But I think everybody is right now expecting it to come back when this WLTP thing is over, and the market is coming back. Then I think, it's also going to be cars with a lot of more content. But, I mean, it has been quite turbulent in the last months, I would say, especially after this WLTP interest in Europe, which was expected to some extent. And it was not so extreme for both, and we were marginally affected by it. So I think it's...
Do you feel the market is coming back now? I mean, WLTP has been placed and things start...
I mean, now if we look into what LMC is reporting us, the market is still continuing on a reasonable level. We don't see any -- I mean, LMC is not seeing any major drop. It's just as we can see it right now as the short-term play because it was very high in August. But, of course, we have to follow this, but that's what we can see at the moment.
[Operator Instructions] And there are no further questions on the line. So please go ahead, speakers.
Okay. So thank you for listening, and thank you for the time, and goodbye.
Thank you.
This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.