Bulten AB
STO:BULTEN
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Bulten AB
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Hello, and welcome to Bulten's Q3 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 Akerblad.
As usual, you will be able to ask questions after the presentation, both on the web as well as in the telephone conference. The agenda for today, we can go to the next slide, the agenda for today will be a brief overview of Bulten, the market development, the results for the third quarter and finally, some words about our focus for the rest of the year. I will now hand over the word to Anders Nyström. Please go ahead, Anders.
Thank you, Ulrika, and welcome, everyone. I will begin with an overview of Bulten for those of you who may not be familiar with our company. So if we turn to Page 4, please. As most of you know, Bulten is a supplier of fastener solutions. Our primary customer group is light vehicle and commercial vehicle OEMs. But customers categorized as automotive suppliers and customers outside of the automotive industry are continuing to grow their share of our business.
It's important to know that 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 still are Ford, Jaguar and Volvo Cars. [ Today the proved supply ] to these many customers has already clearly helped us to grow in the past years, and we're continuously adding new customers.
Next slide, please, and some words about the market development. We turn to Page 6. We continue to rely on LMC Automotive for statistics and forecasts in the vehicle sector. Quarter 3 was a strong quarter for light vehicle production globally. The full year 2022 is forecasted by LMC to show a 6.8% recovery over 2021 for light vehicles, and a drop of 15.7% for commercial vehicles. For Bulten's mix, this corresponds to a 4% -- 4.2% market recovery on a full year basis. It should be noted that the full year light vehicle recovery is driven by North America and China, with our main market, Europe, actually showing much weaker recovery rates than the rest of the world.
Turn to Page 7. In this graph, you can see how LMC's global vehicle production forecasts have changed over time, with the light vehicle recovery being slightly stronger in 2022 versus the prior version and commercial vehicles deteriorating forecast to forecast. The next slide, please.
Our raw material costs continued to rise in quarter 3. We base our production primarily on steel wire rod, and this graph is the official price statistics from Deutscher Schraubenverband. The price is now at an all-time high. This index is one of the ones we use to regulate our customer pricing. However, pricing is normally updated in the next quarter, which means that increases paid in 1 quarter are reducing our margins, with a reverse positive effect in times when prices go down. We have now had a 2-year period with sharp increases in which prices have more than doubled, which have eaten into our margins.
On to Page 9, please. Normally, wire rod pricing is following the price of cold-rolled flat steel with some time lag. Here, we can see that cold-rolled has dropped since quarter 2, and we expect this to give effect on wire rod pricing as well going forward.
Turn to Page 10. Energy price is a well-known issue in the entire society in Europe, and Bulten is no exception. Natural gas, which is used in some of our European heat treatment lines, saw a sharp increase in quarter 3 with a peak in September. Compensation for these types of inflationary costs are subject to negotiation with our customers and are only covered after the fact.
So a few words about the third quarter. We can turn to Page 12, please. Our growth in the third quarter is really encouraging, being by far the highest third quarter to date for Bulten. The supply chain disturbances have continued for our customers to a higher degree than what we expected when we went into the quarter, leading to continued difficulties for Bulten regarding material and production planning, keeping our inventory levels at much higher levels than what we actually need. The raw material prices have started to flatten, but we still saw increases in quarter 3. This, coupled with inflationary cost increases that have put a lot of pressure on our margins.
Page 13. Very encouraging news in the quarter was that Bulten was awarded a comprehensive package of business on a new electric vehicle platform with a producer in China. Bulten also entered into a collaboration with Polestar on their groundbreaking concept, Polestar 0, which is aimed at producing an entire electric car in a fully climate-neutral value chain. In this project, Bulten will have a unique network of other partners to work with to develop climate-neutral fasteners. That's a big challenge, but it's not an impossible one. This fits perfectly with our strategy to be the absolute leader in innovative and sustainable fastening solutions.
And now I leave the word to Anna for more on the financial numbers in the quarter.
Thank you, Anders. And if we turn to Page 14, you can see there an overview of our quarterly sales the last years, including 12 months rolling sales. We had our second highest sales ever in the third quarter, and we have exceeded SEK 4 billion in 12 months rolling sales for the first time. We saw higher sales growth to automotive OEMs and continued sales growth in other industries outside the automotive sector in the quarter.
Next slide, please. On Page 15, it is satisfying to say that our effort to grow in industries outside automotive have given result in increased sales. This customer group is now contributing with over 10% of total sales year-to-date September compared to 7% year-to-date last year. When focusing on the third quarter, this customer group contributed with 12% of total sales compared with 10% the same quarter last year. Our main customer group is still OEM light vehicles with 64% of total sales year-to-date September.
Next slide, please. [ The to ] SEK 47 million in the quarter is equal to a 4.3% margin. Taking into consideration the currency effect, the EBIT margin amounts to 3.9%. We improved the EBIT in challenging times but we have been impacted by continued increase in costs for commodity goods and energy, which is only partly compensated.
Next slide, please. On Page 17, you can see our financial summary of the third quarter. And adjusted earnings per share amounted to SEK 0.65 in the quarter and SEK 5.19 for rolling 12 months. Next slide, please. The cash flow from operating activities, including change in working capital, amounted to minus SEK 27 million in the third quarter. Cash flow from investing activities amounted to minus SEK 69 million in the quarter. Key figures affected by the start of the construction of the new facility in Poland in May last year.
Cash flow from financing activities amounts to SEK 145 million. The total cash flow for the quarter, [ SEK 187 million ] at the end of the quarter. The increase in total assets compared to both last year and year-end relates to increase in inventory and the construction of new facility in Poland and new leasing contracts. [ Our on hand ] we have been tying up capital in inventory and have now taken additional measures to increase the activities to release capital.
Our net debt including lease liabilities was also impacted by the new lease contract of [ 100 ] [indiscernible]. Our adjusted rolling 12 months key indicators 2022 are affected by cost increases in raw material, energy and transport as well as tied-up capital in inventories already mentioned. However, last year's rolling 12 months included the 2 best quarters in respect to the EBIT margin ever, which were Q4 2020 and Q1 2021. Our adjusted net debt to adjusted EBITDA ratio is at minus 1.8 at the end of the quarter and our equity ratio excluding financial lease at 49.1%.
Next slide, please. On Page 20, you can see our financial targets as well as some of the guidelines regarding relevant key figures for Bulten. Comparing with the same quarter last year, the growth in sales is 43%. In the right-hand table, you can see some guidance for some other key figures. We are very much in line with our guidance. Our guideline for average net working capital in relation to 12-month sales is about 20% to 25%, depending on the growth pace. At the end of the quarter, we had a level of 24.7%, which is at the upper level of our guidance. And additional measures are taken to decrease tied-up capital, as already mentioned.
The guideline for capital expenditures as a percentage of 12-month sales are 2% to 3% for maintenance of equipment and additional up to 2% for capacity depending on the market development. At the end of the quarter, we are at a level of 6.5%. And as mentioned before, we started the construction of the new facility in Poland in May in 2021, and this, of course, affects this figure.
And we also have postponed capital expenditure due to the pandemic. That will also impact this figure when we start up again. The guideline for depreciation as a percentage of 12-month sales is 4% to 5%, considering IFRS 16. Without IFRS 16, that has been in a level of 2% to 3%. At the end of Q3, we are in line with our guidelines. And now back to you, Anders.
Thank you, Anna, and we turn to Page 22 for some words about what's in focus for the rest of the year. The #1 priority for us right now in the next coming weeks and months is to convert our inventory into cash. Many actions had been implemented to this effect before, but more actions are being taken. We continue to negotiate with customers also to recover the dramatic cost increases accumulated during this year in order to improve margins.
These are tactical measures that are very necessary for us in order to create financial headroom to also execute on our strategic plans of driving innovation, expand in new markets through the right M&A activities and to be competitive and continue to grow organically.
Turn to Page 23. Finally, it is appropriate to remind everyone to be a SEK 5 billion company delivering 8% EBIT and 15% ROCE in 2024. 2022 so far has been another tough year but with strong growth. Now we are very determined to turn that tide on margins and cash flow. That concludes our presentation, and we're ready for questions.
[Operator Instructions]
Our first question comes from the line of Mats Liss from Kepler Cheuvreux.
A couple of questions. Well, first, you mentioned on there your focus on passing on costs. Then again, you also mentioned that demand is good and it's expected to continue well into 2023. So I guess the question is more that well, given the pretty good demand, how do you rate what chances are of passing on cost? I guess steel is one thing and should be sort of contractual agreed, so to speak. And maybe you can also touch upon how much those costs are in -- compared to the others like energy and trade and so on, that maybe I think you also.
Mats, yes, just to comment on the steel, I think you asked what's our possibilities to actually forward those costs to the customers. They're very good, I should say. It's just that we -- the negotiations, when it comes to both steel and inflation, they are taking longer than we had anticipated. We are closing negotiations with customers at a pretty rapid pace now. And that will come into play in quarter 4. However, quantifying those numbers to you in the call would be to give guidance, and I should refrain from doing that as you know.
Yes. Yes, that's probably good advice now. But then again, coming back to the good demand there, I guess you see -- I mean, the good demand is more related to customers having more production plans and you see pretty good long term. Is that the case or is it more the LMC Automotive Guide that you relate to when you're talking about good demand?
No, I think we see that still customer order books are very full, and delivery times on new vehicles are long. And I'd say that the backlog or pent-up consumer demand will carry us way into 2023. Even if we would have a weakening of demand in the consumer link in the chain now, there's still a backlog in the OEM order books that will carry us for a pretty long time.
And I guess already, we have this season where they close down during the Christmas holidays. And should we expect to be somewhat less to announce this year? Or is it more normal that customers like to catch up a bit on their order backlogs?
That's a good question. I think there are more working days in December this year than there normally is. Now historically, we do see shutdown days around Christmas, I mean, not the least for maintenance of plants. And last year, it was due to semiconductor shortages and they sort of took the opportunity to close down plants. But we don't have any notification of extended shutdowns in December this year, but [ you know that ].
Looking at some of the costs, I guess you have the cost -- energy cost there, and I was just wondering how -- could you say something about how you hedge those costs?
Yes, we -- it's -- that will be a long story because we have a number of plants around the world and the market dynamics for energy is quite different depending on whether you're in China or Poland or Germany and Sweden. But we do have various stages of hedging or fixed prices on energy for electricity and gas. They have different expiry dates, and we're sort of -- what I can say is gas is, of course, our biggest issue in Europe. And that's something we have in common with most of the industry.
Yes, great. And then a couple of one further down the P&L. Looking at the financial net, you had some currency-related charges. Yes, noninterest anyway, what did they relate to and the finance...
It's unrealized exchange gains or losses then. So it's different currencies, local currency. And it's mainly related to the Poland -- to the Polish plant.
Okay, great. And finally, about the tax line there, it's a bit above guide, well, looking at the quarter, anyway. Is it sort of -- will it sort of decline going forward or should we expect it to be on this level for a couple of more quarters?
It will -- the new time next year, so to say. So it would remain on this level this year. But then we have a new year next year and a new level.
Thank you, Mats.
Thank you.
And as there are currently no further questions, I will hand the word back to the speakers for any final comments. Please go ahead.
Okay. Well, thank you for listening in. I appreciate your interest in our company, and I wish you a nice evening.