Troax Group AB (publ)

STO:TROAX

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, thank you all for standing by, and welcome to today's presentation, Q4 report for 2020. [Operator Instructions] I must advised you all that this conference is being recorded today, Thursday, the 11th of February 2021. Without any further delay, I would like to hand the conference over to our speaker for today, Mr. Thomas Widstrand. Please go ahead, sir.

[Thomas Widstrand, CEO, President & Director]

Thank you, and thank you all for listening in. I will try as usual to present on our latest quarter what has happened and what perhaps not has happened also for Troax Group AB. And as usual, I will follow then the short presentation that we normally are presenting, which you will find then on our own homepage, on the Troax page, and you will find it under Investors. And under Investors, you will then find Presentations. And under Presentations, hopefully you will find the presentation for the fourth quarter dated of today. And I'll start then with the introduction, talking about then that, as you know, Troax is the world-leading company, and our vision is to have to also to speak to become more safe. So we have a motto, which is called safer worldwide. And besides having safety in every aspect, you probably remember, and that if you go to Page 3, that we are working a lot with three different segments. The first one is called machine guarding, which is the biggest one, approximately 60%, 65%. And as you can see from the picture, those of you who are looking into that picture, some of you have seen it before, it's normally then something connected with different production lines, where we, of course, safeguard then people who are working then in this sort of environment, making, in other words, a hazardous or a possible hazardous environment into a safe one. I go to the next page, talking briefly about the second segment that we have, which is called warehouse partitioning. It's also, of course, safe handling, but it's more then obviously from a warehouse point of view, where you also can have a lot of moving objects, like you have in this picture here, you have a lot of forklift trucks or other things. But it's normally then based on some sort of warehouse, where they have pellet tracks or some sort of the basis of it. A variant of this I will come to in a second called an automated warehouse. As I said, this is maybe 20%, 25% of our turnover. Last and actually least but nevertheless quite important for us is what we call property protection and is more of what I call static safety. You don't take care of people who are working in this environment, but you take care of your bicycles, luggage, whatever kind of gear that you want to have protected from burglars. There are different sort of burglar, let's say, levels that can withstand burglars, which you can buy from us. But basically, you're talking about the case then, which normally is stored in a cell or, in some cases, in the attic. We call it storage solutions then in addition to property protection. We're talking here about some 15% of our turnover, something like that. Then I come to what we don't have yet, at least as a segment. It's a combination of what we're doing in the machine guarding and also in the warehouse part. And we call it the automated warehouse. And actually, in the last 2, 3 years, this is the one which has been growing most organically. And it's, of course, combined by a lot of the drive coming from e-commerce. This was existing long before COVID was perhaps invented. But it, of course, being even stressed even more now with COVID because of obvious then change of purchasing behavior from people like you and me, who today are buying a lot of the goods that we used to buy in stores we buy today through the e-commerce channel. And this is something which, for us, is quite important. And especially, in the fourth quarter of last year, we got a lot of very good, interesting orders in this sector. A little bit about Troax in brief for 2020. Then if you look at the lower left corner of the next page, we had quite a good orders received, especially then in the fourth quarter, which I will come to in a second. So totally, despite the problems we've been having during 2020 with the COVID effects, we actually -- we got an organic growth of 6%, which we think is quite a good achievement. Whereas on the sale side, it was not on that level, so we actually received a 3% decrease, which, of course, is nothing which we should be proud of. But I think that based on the general development in the world with COVID and customers not working or at least postponing investment, this is not actually a bad development at all. Due to the fact then that we had a little bit lower sales for 2020, this also created a slightly lower operating profit. I wouldn't say that there are anything extraordinary in this, it's just combined with that the volumes then didn't increase in the way, of course, we hoped it to do. And that means also that operating margin is slightly lower than last year, coming up to a level of almost 19% or 18.8% to be exact. Earnings per share, slightly lower in the same way as last year. Whereas then the dividend, the proposal to the Annual General Meeting is, of course, to increase that substantially since, as you might remember, we took a rather cautious approach to dividend during 2020 and paid out 50% of what is normally our goal. It was 50% of the ordinary 50% we have as a target. And this proposal is now 50% of the net profit for 2020. If you go to the right, you see then the different sales for the different regions. Nothing -- there's not a lot that has changed during this year. So you can say that the new markets are going in the right way, albeit still on small figures. And it's probably where we still need a lot of work in the coming years. Otherwise, it was relatively stable during the year compared with the year before. And again, if you look at then, as I said, this division between the different segments, you see that for 2020, machine guarding was 65%; property protection, 14%; and warehouse partitioning, 21%, so slight change but not a lot. Next page then, we have also included the full year 2020. And you see then that we are normally then a growth company. We've had quite a good growth organically over many years. But in the last years then, it's been a little bit of, I would say, a weaker market development, which, of course, has certain impact also on us. So we hope, of course, that when the COVID is over or at least starting to get over with, we will come back to the organic growth that we are used to and that we also are aiming for, for obvious reasons. We still have a very good position in the value chain. And approximately 30% or 1/3 of our people are working in sales. And in this niche market, which is not a huge market, we talk about EUR 1 billion or something like that, we are the global market leader of what we call indoor perimeters protection or, in other words, mesh panel solutions. Going to the next page, we talk about the financial targets. And those of you who have been around before, you recognize it very well. We have not, as regards to sales growth, put up a specific figure. But we are saying that if we should exceed the growth, that the market is growing. And since we are saying then that the market over a business cycle under normal circumstances should increase with 4% to 6% per year, and then on top of that, we have a target of increasing our market share, we should have a figure then of maybe something which has been similar to what we have been growing historically, which has been somewhere in the range of 8%, 9%, depending on how you calculate it. So for 2020, the organic growth in sales was not actually negative. But we still think that we've been taking some market share here and there since we believe that the total market has been going down more than this due to the obvious COVID influence. And then we had a slight positive influence on the M&A side in the last 2 months because we bought then a company called Natom Logistics in Poland, which I will come back to. And that was consolidated from November 1, 2020. Regarding profitability, our target is to have an operating margin in excess of 20%. And we're on 18.8%, so we're close but not close enough. So obviously, we want to get in excess of that for the future. For the capital structure, we have quite a good balance sheet, I would say. So we have a target of being below 2.5 in the relationship between net debt compared to EBITDA. And we have, at the end of 2020, including the new IFRS rules, a relationship of only 1.4, which shows that we have a stable situation. And this also includes then the purchase value of Natom to a big extent. So I would say that this is again, as I call it, a stable situation. And regarding dividend, we have suggested then 52% of the net profit last year. So we are following then the dividend policy, as explained before. Going to next page, I want to introduce a little bit then to some comments for Q4 and a few comments, of course, on the year also. But in summary of the quarter 4, you can say that it was a much more stable quarter. And there were increases in many areas, especially then from order point of view, not so much the sales point of view. And we did then this interesting acquisition in November. So I think we've taken another step then towards then further organic growth with this kind of improvement. We reached, nevertheless, a similar EBITDA result and margin in quarter 4 of 2020 despite still some negative effects, of course, of the coronavirus. We still had a number of countries maybe which were not shut down during quarter 4. But they were at least shut down to a certain extent. And this obviously had a certain effect then of the activity level generally in the market. Nevertheless, I would say there have been a good sales level or you would probably say order levels in some markets. And I would point out then what we call the new markets, which, for instance, includes China, where we have set some improvements actually during the year. And we have seen some improvement of the market activities, which is quite positive even if, of course, that they were probably the first to go into the COVID problems and the first to go out of the COVID problems. If they have -- if that now is the case, that means also then that there are some possibilities also for other regions, of course, to come back to more market activities as soon as the COVID disappears or at least gets substantially improved. Generally speaking, in the market from the third quarter 2020, we have seen a continued reduction of the market activities, especially towards then, as we write here, the smaller- and medium-sized customers. And it's probably so then that the bigger customers, they have had their investment plans and they have been trying to pursue this, regardless of the COVID effects or at least what's been possible to do. So I think, in some cases, you can say that we have been, let's call it, lucky because we've been able to continue now with a number of these investment projects, which, of course, has had a healthy impact on our orders during the year. Earnings per share for the quarter was on the same level as last year. And we can also go to directly to the next issue, which is Folding Guard. And the improvement process, as we call it, has been continuing also in quarter 4. And the result for the whole year of 2020 has now been substantially improved compared to 2019, even if it's still not on to the level where we think it can be. So we still have some upside, of course, during 2021 to reach an even improved figure. But it's been quite improved during 2020. Regarding working capital, it's on the expected level. The inventory part is a little bit increased to handle most of the negative effects of the coronavirus, meaning that lead times are longer, especially then on the raw material side. And to a certain extent, also we've had to increase the inventory because of the effect of the Brexit implications, which we now see in quarter 1. So we have been preparing for that by increasing the inventory to a certain extent. Generally speaking, regarding investments, they are working according to plan. And the biggest part of the already communicated investments are in principle finalized or at least in the finalization phase. And I would say that there are no -- nothing to communicate thereabout which is not more or less following the plans. A part of this investment is, of course, what we call a new factory in Italy, a bit outside of Milan. And it's continuing to run very well. They have done quite a good job during 2020 to not only to get started to run in a quite difficult period, when there was COVID all over the place in Italy, but we've been continuing to run that in an improved way during the year. So I would say that they are on a very good standard now when we are exiting 2020. The factory in Chicago, which we got when we bought Folding Guard, is also improving in efficiency and output, but they have a little bit more being hit by some absence due to corona in the fourth quarter and also have had some problems with deliveries of steel, which a little bit has had some effect. Financially, I wouldn't say that, that is too big. But we can see a certain impact of that in the fourth quarter. The ongoing story about automotive is the same. Unfortunately, it's continuing to be a weak segment. And it's been now so for quite a long time. We've had some small orders, and I think we are expecting that it will improve somewhat during 2021. But I don't think we will start to take off next quarter. But it will take some time. But I said it already last year, and I probably had to realize then that COVID has had, of course, a deteriorating effect on this. But right now, we see that automotive, when demand for automotive vehicles are increasing, so there should be a potential for us to come back to good orders in these segments, as I said, not in maybe in the next quarter but over the end of 2021 and certainly into 2022. When we then talk about the good things in the fourth quarter, I would say that it's mainly coming from what we call the automated warehouse business, which, as I said, is a combination of products, which are both supplied from what we call machine guarding and also from the warehouse part. But it, perhaps more from a customer point of view, seemed to be more connected then with the moving objects, which we normally call machine guarding. And that's been very good during fourth quarter. We've had a number of both smaller but mainly bigger orders from very renowned and important customers that we have been working with for quite a long time. And these are projects which have been going on for a long time. So I think that the COVID, if anything, will help further in this longer term but not directly, and I think has had an impact on this during the fourth quarter. But it's clearly then, as I said, connected with the changing of the purchasing and also distribution pattern that the customers are investing a lot more heavily then in trying to make the warehouse activities with pick and pack and distribution much more automated compared with before. So again, this has been very positive in the fourth quarter. And I don't think that we might expect this kind of order intake every quarter in the coming quarters. So without giving any gloomy forecast in any way, I would just like to say that this kind of development you can't expect every quarter. Then I jump to Poland, where we acquired this Natom Logistics. It was acquired as per 1st of November. And they're not really a competitor of ours. I would say that they add more of, as we write here, a complementary product range to us. And they will actually be utilized as some sort of manufacturing unit long term, whereas then we see that the product ranges will be sold both through the existing Natom distribution channel, which is mainly connected with European customers, but also will, of course, be utilized through the Troax sales units. So we will see how fast that will go. But it's a good opportunity for further growth. The turnover of this acquisition was approximately EUR 20 million. And there were 180, 190 employees, something like this, split over 2 physical units in the vicinity, so to speak, of Poznan in the western part of Poland. I go to the next page, you see the results, which you probably have looked into before. And I've talked a little bit about it before. So we've had then, as we said, a very good increase of the order intake. If you exclude then the acquired company, Natom, we are still on a rather healthy 22%, I think, increase of orders. So it was, nevertheless, regardless of the acquisition, a very good order intake. Sales was on same level, more or less same level as last year, the same with gross profit and margin. And I already got a question on the margin. And I would say that it's quite a stable development. We've had good utilization in most of our factories, which, of course, means then that we get good coverage of fixed costs. So of course, that will have a certain positive impact on the gross margin. So operating margin in the quarter was more or less similar to last year, slightly lower, 19.2% compared to 19.6%. And as you see on the -- in the middle there, you see then the full year of 12 months 2020, where we reached then in sales, EUR 163 million and EUR 178 million in orders and the operating profit of EUR 31 million, which unfortunately then is slightly lower than last year. Then I think we continue to the next page. You see then the regional development of the order intake and sales. And as I normally say, don't take too much or don't read in too much of the figures for 1 single quarter because I think you have to look at Troax a little bit longer period to draw any conclusions. But nevertheless, you can see here that it was a very, very strong order intake, especially in the United Kingdom and in North America. And they were -- I would say that, especially in U.K., it's, of course, connected a lot with the e-commerce business, whereas in North America, it's not only e-commerce. It's also connected partly actually there with automotive but also in some cases, with some other customer segments, so it's very strong there in this quarter. Also in the new markets, we've had a slight improvement, even, of course, as you see, the figures are on substantially lower level than the others. A bit weak in Continental Europe, which I would say partly is connected with automotive but, of course, also connected to that, especially in South Europe, you will see then that the market activity were a bit lower in quarter 4, primarily, I would say, because of the COVID situation. So totally, 22% up. And then we have the acquisition. So technically then or mathematically, we reached an order intake, which is, I would say, quite extraordinary figure of plus 39% compared with the year before. On the sales side, you don't have this effect. You see more than the effect of the COVID on the normal sales, which is a much more, I would say, normal market development figure you see here. We're minus 6% in sales, which, of course, influenced then by the lower sales in the Nordic region and United Kingdom as well as actually in North America and positive in new markets. But since we have a very good order book, so to speak, to take us into the quarter 1 of 2021. These figures will, of course, be improved also in sales invoice, mainly in quarter 1 but also partly spilling over into quarter 2 with what we know today. So if you look at the whole year of 2020, the 12 months, you can see that there is a certain reduction in Continental Europe. I would say it's the same conclusion as I told you before, Nordic region very stable in orders, U.K. and North America in orders, very, very strong. And actually, also in new markets, we are improving quite good, at least from a percentage point of view. Whilst in sales, it's still so that with the exclusion of new markets and North America, I would say that this shows more than how the market development has been developing during 2020. All right. That was to try to explain a little bit the regional development. Now we come to some sort of what we call conclusion. And then afterwards, as usual, you will have the opportunity -- after I've gone through a few more slides, you will have the opportunity, of course, as normal to put questions. But there's a few more conclusions. I would like to comment again, it was a rather stable market in the fourth quarter, especially when compared with the expectations that we had during the COVID quarter of quarter 2. I wouldn't say it was a good quarter from a market point of view, far from it, but I think it was rather stable. And in a stable market, it's, of course, easier to pursue then different activities. But again, as I already said, especially smaller- and mid-sized customers are a little bit waiting, I think, to commit to new orders. Continued low demand from automotive, but on the other hand, was very positive in the quarter from what we call then the automated warehouse business. In North America, both the Troax, Inc., which is the Troax brand, and also the Folding Guard brand were continuing to develop well and showed a continued improved result, both of them. There has been stable but a somewhat lower activity in Continental Europe and Nordic compared to the same quarter last year but very strongly, and as I said and was noted, especially in Great Britain and North America. All factories in the group, I would say, were developing well, maybe with a small deviation somewhere. And there were obviously no support whatsoever anywhere in this quarter. We did the acquisition then, as I said, 1st of November. And I would say that, in total, it was a stable development with a similar result as in 2019. I go to the next page, where you will find then the few descriptions then of this Natom. For those of you who have not listened to me regarding this before, I would say that this EUR 20 million is split up in these kind of markets, which you see here on the map as in primarily what we called previously West European countries with the addition then, of course, of Poland. And the major part of their sales is actually outside of Poland. And we think it's going to continue like that for the coming years. They are quite a good provider of e-commerce, let's say, products. Maybe the products are not that advanced, we're talking about mesh shelves and rack protectors and barriers of different sorts. But they are done in a very good way, very efficiently, cost-efficient with a very good design. So for the customers, I think that they have -- the reason why they bought a lot from Natom and hopefully will continue to buy is then that is a good combination of the specification, the safety, the price, the delivery terms and the accessibility, which, of course, hopefully will be even better now when the Troax sales channel will be made available to the Natom products. So the products that you see here on these photos are mainly the ones then that Natom is producing then, let's say, the core of the production. Growth factors for us. You heard it before. It's -- regardless of COVID, it's the increased industrial automation. And regardless, I would say, when COVID will go out, the automation will continue and, if anything, I think, will increase even further. So I'm quite positive over this. And the next one is number three here on this list is growth in e-commerce, which I think will remain for a number of years. We have not seen the peak of this yet. The other things which are still having a good effect on the market, like onshoring of manufacturing, taking home manufacturing to Europe or the United States from other countries, safety awareness, regulation are also, to a certain extent, important. But if you compare with industrial automation and the growth in e-commerce, they are far behind, so to speak, in importance. In this market, you've seen before, we haven't really been able to evaluate if there has been any major changes during 2020. So these figures, you have seen before. And I think that our judgment so far is that there has not been a big change in this during 2020 that might have been small here and there since I'm claiming that Troax has continued to take some market share. So generally speaking, we still think we have some 25% market share in Europe and some maybe 15% worldwide. And some assessment, next page, of the competitive situation. I won't go through this because I don't think it has changed a lot during 2020. On the production units, we've added -- and as you see to the right, we've added then Poland. And they have a capacity then which is utilized to a rather high extent. So we do intend to increase the investment there to a certain extent, just like we've been doing for some time in the Troax and Satech and the Folding Guard plants in order to increase the machine capacity. So that means that there will be a continuous flow of some investment going off into the manufacturing in Poland. Otherwise, not a lot has changed in this picture compared to what we have shown you before. In our group, obviously, work together for a safer world and for a safer tomorrow. And talking about safer tomorrow, what we focus on is, of course, a lot about the environment and also other things connected with the ESG. So we work a lot, just to pick out a few then, a lot with climate compensating program for the transportations. We try to continuously decrease the energy consumption, at least 2% per year. And we are quite happy to say we reached that in the main unit in Sweden for 2020. And we will continue to work with this. To go a little bit further down, I think the main thought, otherwise, which has become more and more clear for us is that we have to work even more with getting the purchase of steel from recycled steel. We're saying we should have minimum 30%. And that's absolutely something which we have -- where we have to increase the target in the years to come, which we see when we calculate the impact on the, for instance, CO2. That's what our products and how manufacturing is doing. The major part is coming from the purchased steel. And that's, of course, something which we, to a certain extent, can influence. But it will probably take some time for us to get it where we want to. And then of course, we are also proud to say that in the new investment we did in Italian factory starting 1 year ago, we have invested also solar panels on the roof. So actually 50% approximately are covered then in the energy consumption of these solar panels. We're working on the innovation center with the R&D, next page. And I will show you very briefly, very quickly just a few examples of that, which was introduced last year. And that was what we call a Smart Post, just one example then, where we have integrated control and push buttons, which, of course, makes it not only the most stylish and nice design for customers who doesn't want to have a lot of cables running around, but it's also more, I would say, secure installation for the customers. Next one is what we call the small splice. In some cases, where we have to do then -- we have to build then the fence that's higher up, then, of course, we have to extend then both the panels and the post. And we have done, I would say, a clever solution so that when we can do some splicing for tall posts, we have actually a patent pending for this, we simplified high assembly and that is very good for the customer because it's significantly faster, easier and stronger. During, I think, fourth quarter, also we released a complete new Rapid Fix, which is one of our connectors for our guarding system, which especially allows quick maintenance access. And this not only is then introduced in such a way which -- where it increases then the assembly or decreases the assembly time for the customer, but it also increases then the impact value when we do testing. So it's a stronger assembly. It will be a stronger assembly. And it will also be a bit quicker compared to before. This is, I would say, quite a good achievement. We continue to be certified in order for the processes to be not only Troax at a certain way, we say also then that what we release is being certified so that the customers can trust that we are not sailing with this. And I think that, that is quite a good thing for the customers that don't have to rely only on Troax. Next page, I'm coming to the end now, for those of you who wants to put questions. You see here the main factory, steel main factory in Sweden, where we have done a lot of expansions in the last years and we put in new lines and are also now working with improving the flow as regards to the internal transport and picking and packing. Right now, we have a lot of snow here. But otherwise, it looks similar to what you see on the page. And we have been the original since 1955. And we intend to keep the flag high towards the customer and utilize, of course, the strengths that we have all over the world. So with this, I want to end then by saying we continue to make your world safe. And with that, I would like to introduce then -- I go back to the operator and ask him then to introduce you to put some questions to me.

[Operator]

[Operator Instructions] The first question comes from the line of Kenneth Toll.

[Kenneth Toll Johansson, Financial Analyst]

I was surprised to see the very, very strong order intake in the fourth quarter, which is nice, of course. And you said that quite a lot of them, those orders came for automated warehouses. So I was wondering when deliveries of those are expected. I mean, generally, you have a shorter, yes, order time. But for those, you usually have somewhat longer. So is it the first half year or...

[Thomas Widstrand, CEO, President & Director]

It's basically this first half year. I will say that then what we have got in so far in this -- by the end of December, the big chunk of that, we believe, have, from March on, so March, April, May, I would say, will be the heavy months from invoicing and delivering point of view.

[Kenneth Toll Johansson, Financial Analyst]

Okay. And then the steel prices are going up quite sharply right now. Historically, you have managed to increase your prices to compensate for this? And is that the plan this time as well?

[Thomas Widstrand, CEO, President & Director]

It's absolutely. So we are right now increasing prices, unfortunately. And unfortunately meaning then that there's a lot of turbulence in the market. So it's difficult to assess what the enterprise increase has to be, so -- but we are right now, during February, increasing our pricing in order to compensate for the steel price. But it's so turbulent that we don't exactly know what's going to happen in the second quarter. So we don't know if we have to go out in second quarter with maybe another change of pricing. But we are doing right now the compensation in the same way as we have been doing before. But of course, it is so that just because we're increasing prices right now, it still means, of course, that the orders, which were in the backlog there, will come with a slightly lower margin, for obvious reason, because we can't go back and renegotiate already taken orders.

[Kenneth Toll Johansson, Financial Analyst]

Great. And then for the Natom acquisition, the Troax business is depending very much on a direct sales model. At Natom, do they have a similar model? Or do they rely more on distribution or...

[Thomas Widstrand, CEO, President & Director]

Not really distribution. They have a similar model in the way that they don't have so many salesmen, obviously. But they do go direct to customers. And I think the customers that we're talking about, which are mainly bigger customers in the warehouse integration field, I think, they value then the direct contact with a producer like Natom. So we intend to continue with that.

[Kenneth Toll Johansson, Financial Analyst]

And over time, you might sort of trim the product range that they offer and combine them with your products?

[Thomas Widstrand, CEO, President & Director]

Yes. Correct. Yes, absolutely.

[Kenneth Toll Johansson, Financial Analyst]

Yes. Okay. Great. But your balance sheet is still very strong, even though you paid for this acquisition in Q4. So if there were another acquisition opportunity coming by during 2021, do you think you would be prepared to act on that one?

[Thomas Widstrand, CEO, President & Director]

Yes. I would say that the integration of Natom is not considered at all to be in the same sort of, let's say, difficulties like we experienced with Folding Guard. This is much more of an addition to what we were already doing. So we don't expect this kind of long stretch to improvement time. So from that respect, we are clearly prepared to do it. And as is already said from a financial point of view, we are fully prepared to do that. So if something interesting comes up, we are surely interested to pursue that.

[Operator]

Your next question comes from the line of Herman Eriksson.

[Herman Eriksson, Research Analyst]

So I just have some short questions regarding the strong order intake. So first of all, can you say anything about the customers behind the strong demand in e-commerce? And also, can we expect a higher order intake going forward? Or do you expect it would be more in line with your historical numbers?

[Thomas Widstrand, CEO, President & Director]

I'm not giving out any forecast. But to answer your question number two, so to speak, we already indicated that we think that the order level in the fourth quarter, perhaps you shouldn't call it extraordinary, but it's on a very high level that you can't expect to get every quarter. So in other words, I'm saying that there will be, I would say, during 2021, under the normal conditions, there will be a more normal order development. If nothing like this occurs again, which you -- which might happen. But you should calculate with the more normal order intake, I think, in the coming quarters. Regarding the first question, which customers. In some cases, we are -- it's not possible for us to give this out externally. We have promised to keep it secret. But I can say that we are working with most of the world's biggest customers in this respect. So you will all know about them when you read about them in the newspapers. And I guess, that's what I can say at this very moment.

[Herman Eriksson, Research Analyst]

Great. And then just looking at the income statement, you can see that your admin expenses have increased quite a lot during the quarter. So I was just wondering, is all of this related to the acquisition of Natom? Or is there something else in those numbers?

[Thomas Widstrand, CEO, President & Director]

No, there are a few other things in those numbers. You're absolutely right with this. We are investing, for instance, in digitization to a certain extent, and we continue to do that. And there are, of course, some acquisition costs for Natom and then you have Natom in itself. So there are a few things like that. So I would say that also from costing in the fourth quarter, if you now want to calculate for the future, these are a little bit higher, I would say, and not representing perhaps a normal development in administrative costs over a full year.

[Operator]

[Operator Instructions] Your next question comes from the line of Jon Hyltner.

[Jon Hyltner, Fund Manager of Equities]

Jon here, I hope you can hear me.

[Thomas Widstrand, CEO, President & Director]

Jon, I can hear you very well.

[Jon Hyltner, Fund Manager of Equities]

Super. I was just wondering around the order intake, as you just mentioned, was a bit high and not supposed to be expected each quarter. But were those orders on a few number of customers, perhaps one or two big orders? Or were they spread out across several?

[Thomas Widstrand, CEO, President & Director]

They were spread out both among several customers. And within those several customers, they're also spread out among several projects. So it's not one or two really big projects, it's more like I would say, for us, it's quite substantial amounts. We're talking here about projects of EUR 300,000, EUR 400,000, EUR 500,000, which for us is quite big. But it's -- as you can understand then, we talk about a number of those projects to, of course, to pile up to this kind of order intake that we're showing now for the fourth quarter.

[Jon Hyltner, Fund Manager of Equities]

Okay. And given that the orders are a bit bigger than usual, I guess that they will come with a bit lower gross margin but perhaps the same EBIT margin as on group level or perhaps even better. Do you care to comment any on the margins level there?

[Thomas Widstrand, CEO, President & Director]

Right now, it's a bit difficult since we have these issues, as we mentioned before, on the steel pricing. So it's a bit difficult to see how this will influence now during quarter 1. But I would say that, generally speaking, not referring to what might come out in quarter 1, but otherwise, you're right, Jon, that you might expect a slightly lower gross margin. But since the sales costs are also a little bit lower, we don't expect any major negative figures in -- when you come down to the EBIT level.

[Jon Hyltner, Fund Manager of Equities]

So when you get these type of bigger orders, you will be able to keep the EBIT margin level more or less on the normal average due to the lower SG&A in relation to the sales?

[Thomas Widstrand, CEO, President & Director]

That is how we are, let's say, planning it. Yes, correct.

[Jon Hyltner, Fund Manager of Equities]

Super. And then it seems like orders were good, and you mentioned warehousing in particular. Can you say anything about the auto industry in addition to what you wrote in the report? But is there anything happening in that industry?

[Thomas Widstrand, CEO, President & Director]

Yes. We see now that they have come over, a lot of the main problems they had in last year with a lot of restructuring and layoffs of people, et cetera. And now they look forward to improvements or starting do a lot of CapEx again because there is a need for a lot of CapEx. We saw during quarter 4 also that the demand and the purchase, of course, were starting to get up in. So I think that the industry there, even if it's still rather squeezed, I would say, from a CapEx point of view, are seeing some sort of light in the tunnel, at least as far as we can see from our point of view. So I would expect that the CapEx and the investments from them will continue to grow from now on, even if, as I said, for us, I don't expect maybe major orders coming in during the first half year, at least.

[Jon Hyltner, Fund Manager of Equities]

And just a final one on the auto industry. Do you see any signs of that the automakers are even more working on building cars on the same platforms and then perhaps they can increase the number of models but stay on the same production line and that perhaps would lead to lower demand for your fences as they don't need to change them as much? Or do you think the normal pattern will come back as soon as they start investing in new production lines?

[Thomas Widstrand, CEO, President & Director]

I think in itself, the pattern, the normal pattern will come back, but perhaps not to the same extent as before. Because obviously, a bigger percentage of what's coming tomorrow will be electrical cars or at least hybrid cars. And those will not demand, to the same extent, safety in the same way as the traditional engine because there are a lot less moving parts. So there will be a slight reduction, I would say, in the demand, generally speaking, for our type of product because of this change in, let's say, customer demand. But it's not a significant change.

[Operator]

The next question comes from the line of [indiscernible].

[Unknown Analyst]

Just a question, it will be a follow-up from Jon question on the auto sector. Can you just remind us what was the size of the market when it was at the top for you, something like I expect like...

[Thomas Widstrand, CEO, President & Director]

No, it was in 2015, it was at the top because that's when we went to stock exchange. And also, it was above 30%, which was coming from automotive. And last -- not last year, 2019, we will recalculate this figure now for the annual report. But for 2019, we said, officially, it was between 10% and 15%. And my guess is that for 2020, it will be an even lower figure.

[Unknown Analyst]

Okay. And just a comment regarding Folding Guard and the spread between Folding Guard and Troax margin. Can you give us a little bit more details on it or...

[Thomas Widstrand, CEO, President & Director]

We don't -- it is still clearly below what the Troax is. But as I said, this has substantially improved compared with before. So it's somewhere in between, if you see my point.

[Unknown Analyst]

And does it mean that you need more volume from the automotive industry to get back to...

[Thomas Widstrand, CEO, President & Director]

It's, of course, quite helpful. But I would say that with the continuous improvement we are still working on, we will be able also with the present volume or at least a normal volume development to further increase the profitability during 2021. We still won't come up to the Troax level because there are some structural differences between Folding Guard and Troax, if I generalize. But nevertheless, there's a clear potential of further improvement during 2021, regardless of automotive or not.

[Unknown Analyst]

Okay. And then just a final question on China. I noticed that you were slightly positive on China even if it's still low volumes.

[Thomas Widstrand, CEO, President & Director]

Yes.

[Unknown Analyst]

Is it European players are asking you to work with them? Or is it more local players and then you see that you're taking market share from small local players?

[Thomas Widstrand, CEO, President & Director]

It's a very good question, [indiscernible], unfortunately, so it's still mainly European or international players, which is the core of our business in China. We still have much too little turnover into the Chinese distribution network. They still think that our products are too good. And obviously, indirectly, they are saying it's too expensive. So I think that's still a matter in China.

[Operator]

No further questions at this time. Please continue, sir.

[Thomas Widstrand, CEO, President & Director]

Okay, then thank you very much, and I appreciate your questions, et cetera. We like to hear that you're, of course, interested. With this, I'd like to end this and say that I look forward to talk to you together with you in April, where we have the Annual General Meeting. And in connection with that, we will have this kind of telephone conversation again. I think it's the 26th of April or something like that. So thank you very much for listening in and for your interest. Take care all of you, and looking forward to see you again in April. Bye-bye.

[Operator]

Thank you. That does conclude our conference for today, sir. Please stand by, participants. You may now all disconnect. Thank you all for joining. Stay safe, everyone.