Bossard Holding AG

Welcome to our annual Financial Analyst and Media Conference 2023, this time without breakfast, unfortunately. We are streaming this event and will make it available later this afternoon. Stefan Zehnder, our CFO, and I would like to guide you through the following agenda. I will start with some highlights 2022. Stefan Zender will then navigate through the financials before I will close with a follow-up on our strategy 200 and an outlook for 2023. So let me start with the highlights. The Bossert Group has cracked the 1 billion Swiss franc sales mark, closing with a record sales of 1.15 billion Swiss francs and an EBIT of 141.5 million Swiss francs. We successfully implemented a new group ERP system in Denmark and Sweden as the first two pilots. Availability of products was provided throughout the crisis. We could always deliver thanks to our multiple sourcing strategy, which we have been practicing for many years. We scaled our proven productivity services, namely smart factory logistics and smart factory assembly, These services were in special demand to increase productivity for our customers due to inflation and shortage of skilled labor. We followed the implementation of our Strategy 200 initiatives, namely in the areas of sustainability, sales engine, and Together We Create, our cultural initiative to emphasize global collaboration. And last but not least, we expanded our market presence in Canada through the acquisition of Penn Engineered Fasteners, a local brand distributor in Toronto. Our continued focus throughout 2022 on added value services beyond Fasteners has strengthened our brand and perception as a strategic partner for fastening technology and smart factory solutions to OEM customers globally. Stefan Zender, our CFO, will now elaborate on how the year presented itself in financial terms. So Stefan, please.

Good afternoon, ladies and gentlemen. Bossert looks back on another convincing business year. The broad-based growth of the Bosser Group, which began in the fourth quarter of 2020, continued in the financial year 2022. All three market regions achieved new records. While the demand in Europe stabilized at the high level over the course of the year, America posted impressive double-digit growth rates during the entire year. Asia also maintained double-digit sales growth despite repeated lockdowns in China. The strong global demand only led to a slight improvement of the tense situation of the procurement market last year. As a result, delivery capability and inventory levels continued to play a key role also in 2022. Nevertheless, the result achieved in the past financial year underlines the fact that Bostrad was able to hold its own well and took advantage of market opportunities also in 2022, despite the given market environment, which were no less demanding than in 2021, though things were easening. We are therefore pleased to present to you today results that are remarkable in the Bostrad's history. For the first time, Bostrad exceeded the billion mark. Sales totaled at 1.54 billion Swiss francs in 2022, an increase of 15.9% compared to the prior year, despite a negative currency effect of minus 2.5% due to the appreciation of the Swiss franc. Organically, sales growth was disproportionately high, with a double-digit increase of 15%. The acquired companies Javeca in the Netherlands consolidated since October 2021, and Penn Engineered Fasteners in Canada consolidated since 2022, contributed 3.4% to the group's sales increase. Thanks to its consistently high delivery capability, Bossert benefited also in 2022 from the strong global economic demand. As a result, BOSSER was able to report again double digit growth rates in all three market regions. The continued focus on growth industries such as electromobility, railway, robotics and automation and electronics paid off as those segments developed particularly well and sustainably. Due to the experienced supply chain challenges during the pandemic, inflation but also the trend toward nearshoring increased the demand for smart factory logistics and smart factory assembly solutions, which had a positive impact on our business performance. Despite the higher cost base, the strong growth resulted in an increase in earnings. EBIT grew by 18.2 million Swiss francs to a record high of 141.5 million, which is representing an increase of 14.7%. The EBIT margin was 12.3%, thus remaining at the prior year's level in spite of the inflationary environment. Let me briefly comment on the income statement. The drop of the gross profit margin from 31.9% to 31.2% was mainly due to rising raw material prices, higher freight costs and capacity bottlenecks, which overall resulted in higher procurement costs. The increase in sales and administration expenses is the result of year on year higher number of employees, but also the normalization of the business activities past COVID. as well as our investments in the organization as part of our Strategy 200. Regardless of the volatile market conditions, paired with significant cost increases both in raw material prices as well as operating expenses, we managed to keep the EBIT margin at the level of last year, thus remaining the group's earning power. This shows how solid the group performed in an environment which was no less difficult than in 2021. The positive underlying condition also had a positive impact on the profit, though financial costs increased due to the higher required capital, rising interest rates and negative foreign currency valuations. The above average increase in taxes was mainly driven by the regional profit mix, which also had an impact on the compounded tax rate. Compared to the prior year, net income grew from 98 million Swiss francs to 105.6 million. The return on sales amounted to 9.2% compared to 9.8% in 2021. The Bossa Group achieved not only its best result ever, but also profit over 100 million Swiss franc for the first time in history. Another milestone which we're all proud of. The look on the sales development in the individual market regions shows that demand remains strong throughout the year. In America, sales increased by strong 36.8% to 309.4 million Swiss franc or 31% in local currency. The positive business environment was driven by dynamic and broad-based economic growth and sustainably and successfully growing share of the growth industries. In the electromobility sector, exciting commercial projects were implemented. The acquisition of pen-engineered fasteners in Canada contributed to gratifying sales performance. The acquisition is in line with the strategic approach to further expand Bossart's capabilities in America. Sales in Europe increased by 8.7% to 624.2 million Swiss francs, whereas in local currency, a double-digit increase by 14.4% was achieved. Overall, demand remained at the high level in spite of the continuing geopolitical tensions and the resulting challenges out of it. Despite the strong Swiss franc, we achieved above average growth in the aerospace, electronics, and the mechanical engineering sector. In an environment marked by inflation and shortage of skilled labor, Bossert Smart Factory services drew even more attention from customers. The acquisition of Yeveka in 2021 also contributed to the positive development in 2022. Adjusted for acquisitions, annual sales totaled at 593.5 million Swiss francs. Despite the repeated lockdowns in China, we were able to hold our double-digit growth path in Asia. At 220.2 million Swiss franc, sales were 13% above prior year and plus 14.4% up in local currency. Bossert achieved above average growth, especially in the growth segments of electromobility, electronics and railway. Strong growth rates were noted, especially in Malaysia, India, Korea and Taiwan. With a view to the balance sheet, the above average growth, but also the investment activities of the group led to another significant increase in total assets. Compared to prior year, total assets increased by 17.8% to 910 million Swiss francs. Despite the high profitability, the equity ratio fell from 45.2% in the prior year to 41.7%. though remaining above the long-term target of 40%. The reason for the decline was the disproportionate rise in the operating networking capital and the goodwill offset from the acquisition of PEN-engineered fasteners against the equity. The substantial increase in total assets was driven by higher customer receivables as a result of the substantial increase in sales on the one hand, and then on the other hand, by the higher level of inventories. While the increase in receivables were disproportionately low compared to the sales growth, the increase in inventories was above average. Besides the higher sales volume, the increase was due to higher raw material prices and freight costs. Furthermore, in the light of the persistent market uncertainties and long delivery times, we deliberately did hold more inventory to ensure the best possible delivery capabilities to our customers. Last but not least, the acquisition of pen-engineered fasteners contributed to the increase in total assets. In relation to sales, the operating net working capital increased strongly from 43.8% in the prior year to 48.1%. As a result of the high level of investment activity and accelerated growth, net debt increased from 217 million Swiss franc in 2021 to 319 million. The gearing net debt measured against equity recorded an increase to 0.8 versus 0.6 in the prior year. The debt factor net debt in relation to EBITDA increased due to the higher capital employed to 1.9 times after 1.5 times in the prior year. Nevertheless, Bolsa continues to have solid balance sheet ratios in the context of its strategic objective, which allows room for further growth and investments. Also in 2022, we invested in various areas in order to keep pace with the current and planned growth ahead. In total, we invested 41.2 million Swiss franc, which is actually the highest amount which BOSSET invested in a single business year in its operation. Thereof, around 8 million Swiss franc relates to our two ongoing infrastructure projects in France and Taiwan. We will be finalizing both projects in 2023. As mentioned last year, in France, we are currently expanding existing capacities and in Taiwan, we are investing in a completely new office and warehouse building. Hereby, we more than double our logistic capacities in both cases. In view of the demand for proven productivity solutions, we invested 6.4 million CHF into smart devices. which were installed at our customer premises as part of our smart factory logistics solutions. This means that we have further solidified our partnership with our customers and contributed to their efficiency and productivity last year. About 12 million Swiss franc was spent for replacement investments in ongoing operations. We invested around 15 million Swiss franc in digitalization, The biggest share of this investment was dedicated to our new group-wide ERP system. After successful rollouts in Denmark and Sweden last June, we have other rollouts ahead of us in Singapore, Malaysia and Thailand this year. As also already communicated last year, in total, we will invest about 70 million Swiss francs in the new ERP system and the global rollout over five to six years. The growth of the business had also a positive impact on our cash flow from operations before changes of networking capital, which increased from 126 million in the prior year to 137.7 million or by 9.3%. By contrast, the cash flow from operating activities after changes of networking capital fell from 65.9 million Swiss francs in the prior year to 6 million. As already mentioned, this is mainly due to the operating net working capital, particularly caused by the increase of the inventory. Cash flow from investing activities decreased from 92.3 million in 2021 to 68.1 million Swiss francs. On the one hand, this was owing to the lower outflow of funds from business acquisitions compared to prior years. which was on the other hand partly offset by higher investments in property, plant and equipment and intangible assets. Mainly as a result of the significant increase in the operating network and capital, Bossart also reports a negative free cash flow of 62.1 million in 2022, after a negative free cash flow of 26.4 million in the prior year. Under the assumption that the supply chain will further normalize and that demand will remain stable in 2023, we will expect an underproportional increase of our operating net working capital and therefore having a positive impact on our free cash flow in 2023. As always and finally, a word to the dividend. As you know, our dividend policy provides a 40% payout of net income to the shareholders. Accordingly, the Board of Directors will propose a gross dividend of 5 Swiss franc 50 per registered A share at the 2022 Annual General Meeting of Shareholders after 5 Swiss franc 10 in the prior year. This corresponds to an increase of 7.8%. Ladies and gentlemen, with this brief review, I conclude my remarks on the financial year 2022. Thank you very much for your attention and with pleasure, I hand over to you again, Daniel. Thank you.

Thank you, Stefan. Another amazing year behind us. I would like now to provide a brief review of our Strategy 200 and our strategic achievements in 2022. For those who are new, Strategy 200 is not a 200 year strategy, but a strategic journey until 2031 when BossArt turns 200 years old. We have been following accelerated, profitable and sustainable growth based on our proven business model. The base for our business model is the fact that our customers are facing the challenge to manage the complexity of C parts or small parts. A typical customer product, for example a car, consists of more than 50% C-parts. Those parts need to be specified, a supplier needs to be selected, each part needs to be ordered on a frequent base, put on stock, taken from stock, transported to the point of assembly, and finally all parts need to be assembled. This creates a lot of process costs. which we also show as invisible cost in our iceberg model. This is what we call the hidden potential of fastening solutions. From a customer perspective, only 15% of total cost are visible cost and attributable to a fastener or hardware. 85% are associated process costs or invisible costs connected to product design, supplier selection, logistics, and assembly of fasteners. And this is where the biggest savings potential for customers can be found. If we save customers 10% on the visible cost of the fastener price or the fastener price, it makes them only 1.5% more productive. But if we save customers 10% on the invisible process costs, it makes them 8.5% more productive. And usually it is much more than that. An example is a Swiss coffee machine producer. They used fasteners in the value of 50,000 Swiss francs for a coffee machine line a year. Through assortment optimization and lean smart factory logistics in production, we save the customer more than 150,000 Swiss francs a year, more than three times as much as to spend on product cost. This created long-term customer loyalty and is a great reference to win new business. And this leads me to our business model with proven productivity at its core. Our aim is to make customers more productive. Bossart has proven this time and again over the last decades, not to say for the last 192 years. And it is therefore called proven productivity. The offering over a million different products, assembly technology, expert services such as design engineering support and smart factory solutions in logistics and assembly help customers to stay competitive. Proof of the value that smart factory logistics solutions can generate is the fact that we have installed 437,000 smart devices at 1,100 customers globally over the last 22 years, with a recent growth rate in 2022 of 7.5%. Bossart has been pioneering the industry since more than 20 years, and we are still perceived as the market leader in digitalization. The growth rate of our latest service, Smart Factory Assembly, shows that smart assembly solutions are in high demand as well. The service, which provides digital work instructions to customers' assembly lines, ensures traceability and allows easy onboarding of workers to perform failure-free mounting started three years ago. The number of customers increased from 15 in 2021 to 39 in 2022, and we expect another significant growth this year. The growth in workstations shows a similar pattern, and the main driver for this is the fact that customers look for digital solutions to make their assembly more efficient. This leads me to explaining the strategic importance of services. product solutions are still and by far the biggest revenue driver for Bossart. Yet, while we sell product solutions to purchasing, smart factory solutions are sold to production and logistics specialists. Instead of a low product price, they want a smooth and lean production and logistics flow. Likewise, we sell assembly technology expert services to the designers and developers who need innovative and safe solutions instead of a cheap product. And finally, we aspire to sell our complete service package to P&L owners, usually the C-level, to demonstrate the full potential for total cost savings. Hence, our services are creating customer value and loyalty. They serve as a shoehorn, if you will, to sell product solutions and ensure we are perceived as a strategic partner. Our business model helps us to expand organically, but besides this, we also aspire to grow through acquisitions. A good example here is the acquisition of Penn Engineered Fasteners in Toronto, Canada in 2022. Besides our existing operation in Montreal, it allows us to expand our market presence in Ontario, an industrial area with a focus on key industries like electric vehicles, energy and agriculture. Our acquisition journey will continue. The main focus will be on acquiring market share in key markets or obtain know-how in the form of new innovative product or service solutions. Overall, We want to grow two-thirds organically and one-third through acquisitions by 2031. Our profitable and sustainable growth strategy should help us to achieve relevant market shares in our key markets. One way to do this is by focusing on sunrise industries, as we call them, or industrial segments which are growing above market average. Those are namely electromobility, where we saw a growth of 58% in 2022. This segment includes manufacturers of electric vehicles like cars, buses, scooters, but also producers of batteries and charging stations around the globe. Railway, where we grew by 9% last year, including manufacturers of coaches, locomotives and railway infrastructure, indeed a globally booming segment, Not at last, since this is a sustainable mobility technology and governments will spend billions for infrastructure over the next decades, for example, in India. Electronics, where Bossart grew by 14% in 2022. This includes producers of robots, automation systems, as well as computer infrastructure and computer chip machine manufacturers to support the global trends towards more digitalization and cloud computing. healthcare with a maybe surprising negative growth in 2022 by minus 9% compared to the prior year. The reason for the negative growth is that this industrial segment grew by more than 30% due to COVID related manufacturing peaks in 2021 and normalized in 2022. We still expect the industry to grow above market average in the coming years. Currently, 37% of our global sales is attributable to those sunrise industries. Besides the focus on our business model, growing organically and through acquisitions, and to achieve relevant market share in key markets, we are basically following seven strategic initiatives. We presented them in detail at our last Capital Markets Day, And you can also find them described in our investor's manual, all available online. Just to pick a few of the initiatives. Together we create. We create an environment in which we enable our people and the organization to unleash the full potential. Talent management and leadership development are key elements in this. Finally, we aim to cultivate and improve global collaboration across regions, functions and hierarchies significantly. Sales engine, we emphasize digital lead generation and create a new, more effective global sales organization. Operations engine, we introduce a new digital platform, Microsoft Dynamics 365, from supply chain management to sales. This will allow us to increase global transparency and efficiency. Sustainability, We capture our global footprint, CO2 emissions, define global and local long-term targets and implementation programs. The midterm results of our strategic activities after a phase of investments should be an organic sales growth of bigger than 5% year-on-year, an operating profit margin of 12% to 15%, an equity ratio of bigger than 40%, And the dividend payout ratio of 40% of net income. Now, what do we expect for 2023? There are numerous environmental factors that we cannot influence. The pandemic, for example, is mostly over, even in China, although there is an inherent risk of new waves and lockdowns. Geopolitically, the tragic war in Ukraine, as well as the pending China-Taiwan conflict, still leave uncertainties and can lead to further supply disruptions. Yet, we do not expect major negative impacts for our business in 2023. Reshoring, manufacturing shifts from China and Eastern Europe to Western Europe and the Americas. We regard this rather as an opportunity than a risk because customers will incur higher production costs and will look for total cost savings, hence a great and open window for our proven productivity services. The energy crisis, mostly a European phenomenon, possibly resulting in production stops, although the risk has faded in the last months. In fact, we rather see this as a great opportunity to follow renewable energy industries. Inflation probably poses the biggest risk, namely the wage inflation on the cost side for our business units. Yet, since our customers face exactly the same challenge, it's again a great opportunity for us to sell proven productivity services. Besides the given environment, there are a number of things that we can influence and will focus on in 2023. Sunrise industries, which pose above average growth potential. Proven productivity services, as mentioned many times, which help customers to reduce costs through automation. Sustainable, profitable growth, active cost and margin management will be equally as important as top line growth. We will continue our ERP system rollouts and invest further. We will continue our sales engine development, investing in digital marketing and in training our global sales organizations. And last but not least, we'll have a special emphasis on our Together We Create initiative to foster global collaboration. For those who have not been here last time, we also created a comic book, so you're welcome to take one, which explains our guiding principles on Together We Create. Finally, our glass for 2023 is half full. But in any case, whether it is half empty or half full, we can always refill. We can refill by following the Sunrise Industries, focusing on proven productivity services and profitable growth. So we are optimistic to close with another successful 2023. And with this and some greetings from my colleagues on the picture, I'd like to thank you for your attention and open up for questions. Thank you very much.