Bulten AB
STO:BULTEN
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Bulten AB
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Hello, and welcome to Bulten's 2019 Q4 Presentation. My name is Kamilla Oresvärd, Senior Vice President, Corporate Communications. Presenting the report are Bulten's President and CEO, Anders Nyström; and our Executive Vice President and CFO, Helena Wennerström. [Operator Instructions]If we turn to the next slide, before we go into the earnings call, I would like to remind you of our Capital Markets Day on the 20th of February in Stockholm. You'll find the invitation on our website, bulten.com, or you can send me an e-mail, and I will forward it to you. Now let's start the presentation. Please go ahead, Anders.
Thank you, Kamilla, and welcome, everybody. The agenda for today will be a brief overview of Bulten, the development in our market, result for the fourth quarter and some words about our acquisition of PSM as well as finally some comments about our future. So we dive into it, flipping to Page 4 on the presentation. Some words about Bulten and our position. It's now almost exactly 1 year since I took up the position of CEO of Bulten. And it's been a very exciting year indeed, where we worked hard to map out the future of the company. The result of this work is starting to become visible now in the expansion of our business through the contracted acquisition of PSM. And we'll give you some more insight into our strategic direction during the Capital Markets Day in Stockholm on the 20th of February. And I will encourage you all to attend. Bulten already has a lean and well-positioned operation with a global presence. We have about 1,400 very competent employees, all read professionals in their trade. We offer local content in Europe, U.S., China and Russia, which is unique in our competitive set. Through the acquisition of PSM, we will add to our geographical presence and become more of a global company. We balance our production between approximately 40% outsourcing and 60% in-house production and can thereby be flexible and cost efficient. Go to Page 5. Bulten has many customers with potential for further growth when consolidation and need for strong FSP suppliers will be required to assemble cars and engines, the most cost-efficient and sustainable way. Our customers' focus on sustainability improvements every day, and it increases every day. And we will play an even more important role in that perspective in the future. The automotive fasteners market is dominated by the Light Vehicle segment. The same goes for Bulten. And we also have sales to heavy commercial vehicle manufacturers as well as to the suppliers of the vehicle industry. Bulten's 3 largest customers are Ford, Jaguar Land Rover and Volvo cars. So we flip to Page 7. It comes as no surprise to anyone that the automotive market in many aspects is undergoing a structural change. This change is influenced by several long-term trends, some of them, such as sustainability and electrification are today involved in all our customer dialogues. Moreover, these trends, in combination with digitalization and new legislation, makes the industry more complex and suppliers like Bulten need to pay close attention to that development. We need to help our customers to become more effective and more sustainable. And luckily, Bulten has the capabilities to do this, but we can always improve further unless everyone knows change always means opportunity. Page 8. Some words about the market in the short-term view. In 2019, the light vehicle market amounted to about 95 million units. The largest markets are China, followed by the U.S. and Western Europe. It was a turbulent year for the industry as a consequence of new regulations, the political climate influencing the terms of trade in many countries and the uncertainty surrounding Brexit. The fourth quarter was no exception, with lower volumes, especially in the Chinese market. We maintained our market shares in 2019, and going forward, we will focus on growing globally. The new tax regulations linked to CO2 emissions, introduced in a number of European countries during 2020, also add to some uncertainty. Looking into the first quarter, we all read the news daily regarding the coronavirus and how this affects different businesses around the world, in China and worldwide. Of course, we follow and monitor this situation very closely. For Bulten, the ramp-up in new contracts has compensated for a somewhat hesitant market in quarter 4. Go to Page 9. Looking in the longer perspective, the industry forecasting company, LMC Automotive estimates a gradual improvement -- production of vehicles in the years to come. LMC forecasts a global increase of 1.1% for 2020 compared to 2019 for light vehicles and a decrease of 7.3% for heavy commercial vehicles in 2020. Weighted for Bulten's exposure, the global market impact for Bulten equals to decrease of 0.1%. And we turn to Page 10. We'd like to underline that we have a good pipeline and won contracts. This is important to know. On this updated slide, you can see the different ramp-up contracts in what phase of implementation they are. During 2019, several contracts went into full pace and newer contracts have entered into ramp-up phase, which have balanced the effect of market volatility and model shifts. Still, we have EUR 47 million of new contracts signed and -- that did not go into production yet. This will support Bulten growth even further in the years to come. You can also see that 2 of our last 3 major business wins were for electric vehicles. Turning to Page 12. Before moving into quarter 4 figures, let us give you a quick recap of what happened in 2019. All in all, 2019 was a [indiscernible] year clouded by shrinking market and postponed new vehicle launches, all caused by factors that we previously mentioned. In the midst of this, we carried through on a number of actions to make Bulten stronger. We transferred China production successfully from the old plant in Beijing to a new facility in Tianjin with a grand opening in November. We also completed the purchase of land in Poland. In quarter 3, we initiated restructuring of our German operations and balanced manning to demand for the products supplied from our Bergkamen plant. During quarter 2, we initiated rightsizing of our inventory levels, which had accumulated during the slowdown. This means lower production rates, but thus, under-absorption of fixed cost. This was necessary. Finally, just before Christmas, we announced the agreement for an acquisition of PSM as a strategic move to accelerate growth and provide scale in regions outside of Europe. These actions put Bulten in a much stronger position and more ready for growth and our earnings in 2020 and beyond. Turn to Page 13. The PSM deal is a milestone for Bulten since it has been many years since we did an acquisition last. PSM is a global supplier of fasteners with distribution centers in 22 countries. The customer base is mainly the auto industry, but PSM also delivered to consumer electronics companies and home appliances industry. PSM turnover is approximately SEK 400 million, and about 50% of its sales is in Asia Pacific and 30% in the U.S. EBITDA margin was last year 14%, and the company has about 350 employees with production in China, Taiwan and the U.K. Turn to Page 14. We feel absolutely comfortable that we've acquired PSM on a decent price level. And we see a lot of advantages and synergies between PSM and the current Bulten Group. Bulten will get a broader customer base in important growth markets like China and North America. In addition, Bulten's strong position will open doors for PSM in Europe. And for Bulten, PSM adds to the group's production capacity and product offer. We see synergies, both in terms of revenue and cost. All in all, we expect this acquisition to contribute positively to Bulten's development and earnings. Now over to Helena for the financial development during the quarter.
Thank you, Anders. We are happy to report a bounce back to growth again in the fourth quarter. Our sales were up 5%, as new contracts are starting to ramp up. This is also visible in our order intake, that was up 13.6% compared to last year. Our earnings were affected by the events Anders just mentioned, and our EBIT ended up at SEK 27 million. Adjusted for acquisition cost and relocation in China, EBIT was, however, SEK 42 million and corresponding EBIT margin 5.4%. Our full year earnings per share dropped quite substantially as a consequence of efficiency and growth measures taken. However, the Board still suggests an unchanged dividend of SEK 4 a share divided into 2 payments. Page 16. Some more comments on net sales and order intake. Sales for the quarter were up 5%. And adjusted for currency, the sales were up 1.6%. And the overall market demand affected negatively, but our contracted business have now started to ramp up in a higher pace than in quarter 3. And looking at our order intake, it was up 13.6%, which is a true sign on the ramp-up effect. And this is, of course, a good sign. However, the uncertainty about the economic situation, the outcome of Brexit and the effects of coronavirus make the development in coming months quite difficult to predict. Page 17. Now some more comments about earnings performance. Our EBIT margin for the fourth quarter amounted to 3.5% compared to 6.4%, comparable quarter last year. And the earning levels in quarter 4 are explained by the relocation and acquisition cost of SEK 15 million in total. And adjusted for these events, EBIT amounted to SEK 42 million or 5.4% EBIT margin. And this means that our underlying profitability has improved compared to earlier levels this year, but there is still a way to go before reaching 2018 levels. Page 18. The quarterly cash flow from operating activities before changes in working capital amounted to SEK 34 million and has mainly been affected by the operational result, including cost of acquisition and relocation. Additionally to this, we had a positive cash flow effect from change in working capital with SEK 64 million, and the main reason is change in the stock by SEK 25 million during the quarter. Cash flow from investing activities amounted to minus SEK 50 million, and we have a higher investment level, as announced earlier. And during the quarter, we have finalized the purchase of land in Poland and the investment connected to relocation in China. Our investment in efficiency continues as we aim to become the industry's most cost-effective fasteners manufacturer. In total, the cash flow for the quarter was positive and amounted to SEK 25 million. Page 19. We have a return on capital employed of 5.5%. The higher investment levels have an impact as well as the margin development. And also, our return on equity is impacted by these, an amount of 3.5%. Capital turnover times was also at the lower level compared to full year 2018. And the equity ratio ended up in a level of 55.2% in the end of the quarter, affected of the outcome of the year and still in a very solid level. Page 19 -- Page 20, sorry. 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 financial targets. Average net working capital in relation to 12-month sales amounted to 25.5%, which is above our guidelines but reduced since quarter 3 and activities are still ongoing to reduce that level even further.Capital expenditures as a percentage of 12-month sales were in level of 7.1%, and that is an evidence of that we invest in our future growth activities. And these investments will, however, improve Bulten's production efficiency even further. Depreciation of 3.3% of 12% -- in 12-month sales, excluding the IFRS 16 financial lease, is somewhat in line with our guidelines. Our average tax rate was 41.7% rolling 12 months, which is above our guidelines and the high tax rate is mainly caused by the relocation and negative results in China for the period, which has an overall impact on tax calculation for the group. Excluding for that, we are in level of 26.3%. And the tax rate will vary from quarter-to-quarter going forward. Page 21, financial targets. In this perspective, we are looking at the figures, excluding the items that can affect the comparability. And our rolling 12-month sales are down by approximately 1 2 -- 1.2%. But with our pipeline of contracts, we're in a good position to continue to take market shares going forward. And PSM will also add to our growth of course. And our profitability with an adjusted operating margin of 4.8% on a rolling 12-month basis is affected by our stock efforts, short-term, relocation, restructuring and acquisition. Adjusted return on capital employed of 8.1% is lower than our target due to the lower profitability and higher investment level. And if we also adjust for IFRS 16, we end up in 3.5%. And today, the Board also suggests an unchanged dividend of SEK 4 a share divided into 2 payments in May and October. Now back to Anders again.
Thank you, Helena. That means that we flip to Page 23 to look at what's in focus for 2020. Of course, delivering on our synergy plans with PSM will be a prime focus from Day 1 after the transaction. Executing on the ramp-up plans for new contracts as well as winning new business is a priority. We also have a number of initiatives, both small and large, with the aim to improve our efficiency and productivity. And these would, of course, always be in focus. As we have now taken title to the land intended for expansion in Poland, we'll make sure that, that goes to plan. And we're in a product-focused business. So we'll step up our innovation activities in order to provide both functionality and sustainability to our customers. This concludes our presentation, and we're ready for questions.
[Operator Instructions] Our first question from the phone is from Mats Liss at Kepler Cheuvreux.
A couple of questions. First, I guess, I'm a bit excited about this PSM acquisition. If you just could well give some flavor there regarding, well, why there is a profitability difference as you see it between you and that acquisition. And also, if you could say something there about -- at what extent they produce their own fasteners or rolled threading, starting with those 2?
Okay. The difference between Bulten and PSM in product range is quite where we have some overlap in our product portfolio. And -- but most of it is actually complementary, which makes PSM a very interesting value proposition for us. You could say -- if we look at strictly at the product range, PSM are in M6 and down and some internal thread as well as external, and Bulten is basically in M6 and up. So there's a very good complementary product range that will benefit us going forward. And also, from a geographical standpoint, there is a difference, I mean, that the strength really where PSM is strong is in China where we are still in the early stages. Where we are dominant in Europe is where PSM has the least amount of sales. And in North America, we were sort of more or less double our sales in North America by the acquisition. So it's a perfect match, actually.
And the difference in profitability, is that due to the difference in geographical exposure?
Well, that's difficult to tell because it's a very different -- they're in a very different customer segment. Primarily -- I mean, they have not that much OEM direct business. Our business is dominated by OEM customers. So they have a much more diverse customer base, and there may be an explanation in that. The geographical differences may also have been a significant contributor to that, but it's difficult to tell much.
Okay. Good. Then coming back to the report, I mean, you mentioned the ramp-up of the remaining full-service contracts. It's EUR 47 million there. Do you also indicate in the -- when you say so that the other contracts are fully ramped up now or are they in sort of ramp-up phase still that will sort of continue to contribute to your top line?
Some of them that was in ramp-up phase previous year, they are now fully implemented in figures 2019. And now you can see that we have more won of this that was red colored that was not yet started. Now they have started to be implemented by 20% and 30% of the value, but still have 70% and 80% to go. And then you still have some of the contract that's not yet been started.
You can say that EUR 20 million that was moved into production is now in our run rate.
Okay. So -- well, the EUR 42 million is sort of -- well, a good estimate for the -- how much the full-service contracts will contribute in the next 2 years?
In the coming years, yes. EUR 47 million.
Yes. EUR 47 million. Good. Then if you just could indicate you have sort of implemented some savings and measures. And if you compare to the run rate in 2019 to 2020, what's the difference there, if you -- a ballpark figure?
I'm not sure. Can you repeat the question once?
Once more, yes.
Yes. I mean, you implemented some saving measures in 2019. Could you just indicate what the run rate is, if you sort of make a comparision...
You're talking about the restructuring program or...
Yes. How much you have sort of reduced the cost base in 2020?
As we mentioned in the press release, we took the cost for taking the restructuring in Germany, and that will be approximately EUR 25 million in full year and coming from this very start.
Good. And finally, just about the tax rate, I guess, it was quite high in the fourth quarter there, but you indicated that will be reduced going forward when you -- due to China and so on. But should we expect it to be quite high in the first couple of quarters of this year as well?
I will say, this is a little bit depending on the outcome of the first quarter and the prediction of the coronavirus and such things. So I think you would bear that in mind and to your best judgment, I would say.
The next line is Kenneth Toll of Carnegie. [Operator Instructions]
I was thinking about this acquisition of PSM, does it interfere with your joint venture in the U.S. that you have already?
No, I wouldn't say so. I mean, we have a clear purpose and understanding what that JV is for. And, no, that's nothing, that's threatening or contradicting that. It's really complementary, I would say.
Okay, good. Then also on the CapEx side, you made some quite a lot of investments last year. You still have the Polish project ongoing. But how much CapEx do you have left to do that is not related to maintenance CapEx of the things you decided? It's Poland, but are there more things than Poland?
No. I would say that the main in CapEx going forward is, of course, the maintenance, one that you mentioned. But then this is the property and the added value investment in Poland, the surface treatment line that we have in mind going forward.
So how much is it in Poland in total?
As we have announced, it is approximately EUR 6 million for the surface treatment, and we are now -- we have ended up in a little bit higher level in -- regarding the property, as we mentioned before. And we have not totally done with the negotiation. So I need to come back with that, exactly the figures, but it's about a little bit more than SEK 200 million, I would say.
Okay. SEK 200 million or...
Yes.
Okay. Then -- yes, also the one thing that I got wrong last year was the timing of these new contracts that they were being ramped up. Last year, I thought that you would benefit already in the beginning of the year from the new contracts that you were delivering on but it was very limited effects, and maybe you have some effects here in the fourth quarter. So I was wondering on the contracts that you have still left, both the, yes, the green ones with 70% and 80% that you have left to ramp up and also then the red ones. When will they start to give meaningful contribution? Is it already from the first quarter of 2020? Or is it more back-end loaded?
I think it is quite visible now with our order intake that came in at a level 13.6% that these are now in our schedules. And then I've been talking about green one. So these you can yourself see from now ongoing. But the red one will come a little bit different timing during the year, but you can partly take that into consideration as well.
Okay. But the red ones are more sort of Q3, Q4 than -- rather than Q2 and...
Yes. It's a little bit different timing to all of them actually. But I think the most important ones is the green one because they are the biggest one.
Yes. Then the timing before -- between the orders that you report in the report and when that turns into revenues for you, is that one quarter or...
We are measuring the backlog of orders for 100 days. And when they are visible within that, they are shown as an order intake.
At this stage, no questions from the phones. Are there any questions via the web?
No, we don't have any questions from the web.
In that case, may I please pass the call back to you for any closing comments.
Okay. I hope you found this session informative. And I just want to, again, before we hang up through in the commercial for the Capital Markets Day in Stockholm on the 20th of February, mentioned that 3 times now during this broadcast, and you're more than welcome to attend. And I think you will find that very interesting. So thanks for listening.
This now concludes today's session. So thank you, all very much for attending, and you may now disconnect.