Bulten AB
STO:BULTEN
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Bulten AB
Earnings Call Analysis
Summary
Q4-2023
Bulten closed 2023 with robust sales over SEK 5.7 billion, marking a nearly 29% year-on-year growth, and Q4 sales up by 18%. Despite this, operational inefficiencies due to insufficient production capacity squeezed the margins, with an EBIT margin of only 2.1%. The company aims to enhance this below-target margin by improving European plant operations, growing the Exim business, and exploring acquisitions, particularly in North America. Challenging yet stabilizing market conditions are anticipated in 2024, with a modest market-driven growth forecast of just over 1%. Bulten is also shifting towards regionalization, with new endeavours like a joint venture in India to produce micro screws by end-2024. The company experienced a CEO change, with a commitment to meet operating margin and ROCE targets despite the current shortfall. Financially, Bulten ended the year with SEK 340 million in cash and a net debt increase attributable to acquisitions. Adjusted return on capital employed is at 8.5%, and net debt to EBITDA at -2.4%. Key financial metrics are in line with guidelines, with a net working capital to 12-month sales ratio at a favourable 17% and capital expenditures at 2.6% of sales.
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Hello, and welcome to Bulten's presentation for the fourth quarter and full year of 2023. My name is Ulrika Hultgren, and I'm the SVP for Corporate Communications and Investor Relations. Presenting the report are Bulten's President and CEO, Anders Nyström; and our CFO, Anna Akerblad. As usual, we'll be able to ask questions after the presentation, both on the web as well as in the telephone conference. And I will now hand over to Anders. So please go ahead, Anders.
Thank you, Ulrika. I will turn to Slide 3 for an overview of Bulten. 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. 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 are Ford, Jaguar Land Rover and Volvo Cars. They are and will remain important, but we have a number of new customers with strong growth in our base, and that's something we welcome.
The 2023 full year sales reached more than SEK 5.7 billion, which is almost 29% year-on-year growth from 2022. Turning to Slide 4. The vehicle production outlook in 2024, provided by Global Data, the forecast maker that we take our forecast from, is relatively stable issue to issue and shows minor growth of about 1% for light vehicles and about 2.5% for heavy commercial vehicles. Applying this forecast to Bulten's mix of customers will indicate a forecasted market-driven growth of just over 1% in 2024. This is following a previous year 2023 with very strong market growth in both categories.
Slide 5, please. Each quarter, we develop Bulten towards the next milestones in its strategic path. The fourth quarter was no exception, with another record sales of beyond SEK 1.5 billion. The downside in the quarter was the continued operational inefficiencies originating from inadequate production capacity caused disappointing margins. But events, which will be important for Bulten's future success or the formation of a joint venture in India for manufacturing and sales of micro screws and the transition from a global functional organization to a regional one. More about all of that in the coming slides.
Let me turn to Slide 6. I also want to remind everyone of some of the other milestones in 2023. The opening of our surface treatment plant in Poland, Bulten's 150-year anniversary, our increased stake in [ tension can ] and the acquisition of Exim. To Slide 7, please. While record high demand is very positive. A combination of factors have created a constrained situation among automotive fastener suppliers in some regions of the world. Reshoring of previously offshore production in combination with the shortage of skilled labor, longer than normal lead times for new production equipment and the increasing demand from customers has caused growing pains for much of the fastener industry. And this is also true for Bulten, with the rapid organic growth that we have experienced over the last quarters.
Turn to Slide 8. Being a supplier to the automotive industry, we're obliged to follow our customers' delivery schedules. In order to cope with the steep ramp-up of customer production during 2023, we've taken a number of containment actions to keep customer plants running. These containment actions have caused significant extraordinary costs in our operation amounting to SEK 50 million in quarter 4 and SEK 170 million in the calendar year. Permanent solutions to increase capacity have taken longer to implement than anticipated. These solutions are having effect, and the run rate of extraordinary cost is improving. A slower growth rate in customer demand is also helping to balance capacity with demand in 2024 and return to a normal utilization of our production assets.
Next slide, please. Micro screws is a relatively new product group in Bulten's offer. They are primarily used in electronics applications and this market is booming, especially in India throughout Southeast Asia. In 2021, Bulten established a joint venture with a highly qualified Chinese partner in order to start production of micro screws for the local market in South China. This has been very successful, and more and more electronics production is established in India. We also want to offer micro screws to the customers there. The pull from customers as well as the Indian government for domestic supplier parts to the Indian industry creates an excellent environment for this new joint venture, where we are teaming up with our Chinese partner, ZJK, and investors from well-established Indian screw manufacturers, Radium. A greenfield operation is currently under construction by an Indian landlord for the joint venture to take up on a leasing contract. Bulten holds a 51% stake in the JV, and a series of production deliveries are planned for the end of 2024.
Let's turn to Page 10. A milestone in the development of Bulten in 2023 was the acquisition of Exim, a Singapore-based fasteners and seaports distribution company. Bulten's strategic direction is - as many of you surely know - to get a more balanced customer portfolio, making Bulten less dependent on the automotive industry. Since most of the nonautomotive industry buy its fasteners through distributors, a key enabler to deliver on that strategy is to have a distribution platform to build on. Exim provides an excellent platform from which we can grow and diversify our business, both in Southeast Asia, which is the home turf of Exim and in other regions.
Next slide, please. Earlier this year, we communicated a new organizational structure for Bulten. The drivers behind this change are twofold. Firstly, that the world is becoming increasingly regionalized in terms of both trade and geopolitics. And this is also reflected in how our customers are organizing and interacting with their supply base. Secondly, the growth and development of Bulten has driven a need for faster decision-making and clear responsibilities closer to where the business happens, and that's in the regions. Each region has its special business dynamic. So, this structure will enable a more nimble and efficient Bulten for the years to come.
Next slide. Being a supplier of fastener solutions is about both products and services. On the product side, most of the volume supplied to our customers are defined by standards and are, to a degree, commoditized. However, with an increasing focus on sustainability throughout the value chain and for new functionalities, for instance, in electric vehicle battery packs, Bulten has taken steps in the last 2 years to sharpen its capability to innovate and bring forth new product concepts and materials. In order to also become more competitive in serving our customers in their product development programs with Applied Technology, we now merged innovation, application and process engineering into one group under Emmy Pavlovic, who is appointed Chief Technical Officer. This closer loop between real-time customer development programs and our innovation brainpower will provide new value-add solutions to our customers.
Next slide. As also communicated, I will leave my position as the CEO of Bulten effective tomorrow. I am pleased that Christina Hallin has accepted to take up the role of interim CEO. Christina brings a wealth of experience from various industrial companies and knows Bulten well from having served on the Board of Bulten since 2020. And now I leave the word to Anna for a review of the quarter financials.
Thank you, Anders. On Page 14, you can see an overview of our quarterly sales the last years, including 12 months rolling sales. Sales volumes increased in the quarter with almost 18% compared to the same period last year, and the full year increase was almost 29%. The order book increased with 10%(sic) [ 10.1% ] compared to same period last year, and the full year increase was 22%. We saw strong sales in all sectors, but especially in the light vehicle sector. Next slide, please. According to the waterfall on the left side, you can see the positive growth in rolling 12 months in all customer groups. On the right side, you can see that as a proportion of the year-to-date sales as of December, sales to other industries outside automotive amounts to almost 11%. Our main customer group, OEM light vehicles had a good growth and amounts to 63% of total sales.
Next slide, please. The fourth quarter delivered an EBIT of SEK 33 million, equal to 2.1% EBIT margin compared to last year of adjusted 8.5%. The EBIT margin is not in line with our strategic target. As already mentioned, this is mainly related to capacity constraints in the European plants, which have caused increased costs for airfreight overtime and contracted personnel. The EBIT impact in the fourth quarter amounts to approximately SEK 50 million. Next slide, please. On Slide 17, you can see that our adjusted earnings per share for 2023 amounted to SEK 5.51 compared to SEK 7.48 last year.
Next slide, please. The cash flow from operating activities, including change in working capital amounted to SEK 89 million in the fourth quarter, and this is the fifth quarter with positive cash flow from the operations. Cash flow from investing activities amounted to minus SEK 27 million in the quarter and the full year figure includes the acquisition of Exim. We have SEK 340 million in cash at the end of the year, and the net debt has increased compared to last year related to the acquisition. Next slide, please. Our adjusted key indicators for 12 months are impacted by the acquisition and the European capacity constraints. The adjusted return on capital employed, including financial lease, is at 8.5%. Our adjusted net debt and adjusted EBITDA ratio is at minus 2.4% at the end of the year, and our equity assets ratio, excluding financial lease, is at 42.2%.
Next slide, please. On Slide 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 approximately 18%(sic) [ 17.6% ], and the margin is affected by the capacity constraints in the European plants and return on capital employed is at 8.5%. In the table to the right, you can see some guidelines for some other key figures, and we are very much in line with these guidelines. The guideline for average net working capital in relation to 12-month sales is about 20% to 25%, depending on growth pace. And at the end of the year, the level is at 17%, which is positive. The guideline for capital expenditures as a percentage of 12-month sales are 2% to 3% for maintenance of equipment and additional after 2% for capacity depending on the market development. At the end of December, the rolling 12 months level is at 2.6%. 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%, and we are in line with our guidelines. And now back to you, Anders.
Thank you, Anna. We turn to Slide 21. Those of you who have followed Bulten through the last few years are already familiar with our 2024 strategy and targets. The sales target of SEK 5 billion is already over delivered. Our operating margin and ROCE targets are still not met, but they are very possible to meet with the operational improvement actions that we mentioned earlier in this presentation. The targets stand and the Bulten management are committed to meet them. Next slide, please. Priority #1 for Bulten right now is short-term margin improvement. The key to achieve targeted margins is operational efficiency in our European plants, as previously described. Further margin improvements will come through growth of the Exim business. Exploration of possible new acquisitions that support our strategy is also ongoing with the primary focus on North America. Our new joint venture in India is scheduled to start production of micro screws in the end of 2024 and to finalize construction furnished to plant with new machinery and close customer contracts in India is also a priority as well as to continue the commercialization of the [ tension can ] technology. And with that, we're ready for questions.
[Operator Instructions] The next question comes from Mats Liss from Kepler.
Yes. Thank you. A couple of questions. First, looking at -- well, looking at the market, as you see it, I mean, you indicated 1% growth given your mix there. And my question, I guess, is also relating to the -- I mean, you have had this portfolio of full-service provider contracts and should we expect those contracts to continue to ramp up and maybe make you outgrow the total market development?
Hi, Mats, as you know, we have a history of outgrowing the market. And the 1% growth that we showed in the graph that are coming from global data is very much aligned with what we think the market is going to be in the -- in at least the next 6 months or so, we have visibility. The FSP contracts, they are long-term contracts. They will stay in effect, and they will deliver business throughout 2024 and beyond. So, there is no change there.
And so, I guess you -- well, you don't want to give any sort of indication about the potential impact of the full-service contracts, but they will contribute somewhat.
Yes, they will contribute. Yes.
Then again, I mean, you mentioned that, well, orders are very solid here in the fourth quarter. And I guess I see this is an indication of what will happen in the first quarter. And could you say something there? I mean, you still have a lot of cost here in the fourth quarter. And will there be any sort of -- should we expect them to continue on the same level? Or is there any relief to be expected in the first half?
I think we can be honest and say that the effect of the permanent solutions that we put in place have taken longer than anticipated. Much of that is because we've had kind of an uphill battle with -- which is positive in itself -- with growing volumes. And as you can see, quarter 4 was another record. So that's contributed to sort of the difficulty to catch up. So that's -- that we're not at all satisfied with that. And we have to get back on track. And the effects that we see from the actions that we put in place are positive. The extraordinary costs are diminishing as we speak. They will not be completely gone in quarter 1, but the situation will be better.
Okay. Great. Then I had a question there regarding raw material costs and so on. Could you say something about how they could be expected to develop here in the first half of the year? For the core level -- for you, I mean --
Yes, I understand. Well, we don't see any big fluctuations in raw material costs in the next coming year. There are -- there is going to be some ups and downs quarter-to-quarter, but it's not going to be significant.
Okay. Good. And just a touch more here on the sort of extra costs you had during the last few quarters. Is this something that you could have done differently, do you think? Or is it more related to these lead times to hire people and install equipment and so on? Which you haven't, sort of -- well, it's [indiscernible] sort of.
Admittedly, with a better crystal ball, we could have acted earlier, of course, but you never do have a crystal ball. So, we acted as quickly as we possibly could when we saw that the volumes were really creeping up quickly. And we were in a different market at that point in terms of access to labor and access to machinery.
Just a reflection also, I mean, in other suppliers, we have seen inventory corrections affecting sales negatively. But in your segments, you don't see that kind of development at all. Is that right?
Do you mean inventory corrections have --
In the supply chain. I mean, Volvo sort of at least the truck have sort of announced a cut in production here to adapt to a more normalized market situation, which means that -- well, as a supplier, you'll get this full whip impact that things are slowing down more severely than what everyone tried to reduce working capital to get more cash, I guess. But you don't see that in your supply change at all? Or is it. --
Not really. I would say in terms of production volumes going forward in the next few months where we have visibility, it's not a drop versus the previous run rate. It's more a slower growth. Let's put it like that. And in terms of the impact of inventory on the component side with the OEMs, I mean, they don't have much inventory anyway. So, we're more or less just in time on all our products to all customers. So, if they would decide to reduce inventory on -- in the components, we don't see that. It doesn't have an impact on us.
Okay. Great. And looking at further down the P&L there, we see net interest are sort of affecting you, of course, you have increased debt and so on. Is that fourth quarter a good guidance going forward for what will happen in the financial net?
Those rates that are in fourth quarter, of course, they are quite relevant, I would say.
[Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for written questions from the webcast and closing comments.
We have one web question so far. So I will read it: "with so much debt and expansion plans, why not skip dividends?"
Well, it's a good question, but it's one that I will refer to -- in the end of the day to the Annual Shareholders Meeting. It's their decision. The Board makes a recommendation and the AGM decides. So it's not for me to have an opinion on, right now.
So far, we don't have any more questions. So -- and please, if you have any questions after the call, please don't hesitate to reach out to us. And before ending this call, I guess maybe our CEO want to say a couple of closing words?
Yes, absolutely. I just wanted to thank everyone online your investors, analysts, media, who showed an interest in Bulten over the last few years. So thank you for the confidence. Thank you for the trust and the interest you've shown we've built a very different Bulten over the last few years. I used the analogy of a fortress when I joined exactly 5 years ago. I think that fortress still stands. We haven't torn anything down. We've added a lot of things. We use it as a foundation and developed the company has been extremely simulating. I've enjoyed it a lot even though the environment has been extremely challenging over the last few years. But we endured, prevailed, and we come out stronger. And I'm absolutely confident that Bulten will come out even stronger after this year than it was before; and huge confidence in the management of this company. So, I just want to say thank you, and goodbye and the best to everyone.