Bufab AB (publ)

Good morning and good afternoon everyone and warm welcome to Bufab's Q1 report. My name is Erik Lindén and I'm president and CEO of the Bufab Group and together with me here today I have Per Iskog, our CFO. I will start this presentation and give you a highlight of the quarter and then I will move over to Per for some financial highlights. at the end i will give you some details about the different regions and then at the end we'll open up for q a this presentation will be recorded and by attending to this meeting you agree to the recording but before we jump into the first quarter i would like to share with you guys that we have a new video setup effective from 1st of january 2024 uh as communicated our capital markets day in december last year we have decided to go from a segment set up to a regional setup in bufab in order to in a more efficient way execute our new strategy discovering the next solution um we uh will with a new region have a new setup have five regions Region North and East will be the biggest, approximately 3.4 billion in turnover. That will be 39% of the total sales in Bufab and consists of 10 countries in Northern Europe and Eastern Europe. The second biggest region will be West Europe, almost 2 billion turnover, 22% of the group's total turnover and eight countries in Western Europe. UK and Ireland, 1.7 billion in turnover, almost 20% of total sales in the group and two countries. Americas, 1.2, 14% of total sales and two countries. And then regional Asia Pacific, 440 million in turnover and 5% of total sales and consists of seven countries in Asia Pacific region. And the new regional setup are effective from 1st of January. So let's continue with some Q1 highlights then. If we sum up the quarter we think we delivered a solid profitability and stable cash flow in a challenging market. If we start to look at the demand in the market it is tougher now and we see lower demand year on year. uh total growth was minus 9.9 percent and our organic growth was minus 10.6 and we can see the lower demand across all regions and we should also have in mind that we're up against very strong comparative numbers uh we see a mixed bag when it comes to demand uh we still still very favorable development in energy oil and gas and defense while we see weaker development and lower demand in sectors such as construction, kitchen and bathroom, outdoor and also general industry. Our order intake in the quarter was in line with the net sales. If we look at the margin, I'm very pleased to see that we continue our journey with our gross margin with a strong improvement to 29.1% versus 28.3% in Q1 last year. and the improvements in all regions. And the main reason behind this improvement is that we are continuing to do a good job when developing our product and customer mix in the different regions, but also we start to see some sourcing savings coming in as well. When it comes to our operating expenses, the share of those increased compared to last year, obviously due to the low demand, but also inflation pressure we have seen in the quarter. some restructuring costs and then also in some companies we see big growth potential in the coming quarter and we continue to invest for further market share growth. We have also taken some actions in some companies on the cost side to adjust to a lower demand and also in some cases we'll receive room for improvement. So some cost adjustments are made in the quarter and you see at the operating margin level adjusted went up on 12.1 percent of course impacted by the lower volumes in the quarter. If you look at the cash flow we will deliver a strong or solid at least cash flow in the quarter. Our operating cash flow amounted to 259 million SEK and corresponding to a cash conversion of 95 percent. What we've seen now for a few quarters is that we continue to strengthen our financial position and that we have now a balance sheet ready for acquisitions in the coming quarter. I will now leave the word over to Per for some financial highlights.

Yes. Hello. Good morning. Good afternoon. So let's look at some more numbers and graphs. Let's start with the net sales, the graph to the left. Our net sales in the quarter was 2 billion 149 million SEK, which is a reduction of 9.9% compared to Q1 last year, but somewhat better than the last two quarters. If you break down the 9.9%, minus 10.6 came from organic growth and we had a positive currency effect of 0.7% and no effects from acquisitions this quarter. If you look at the gross margin, we ended up on 29.1% in gross margin, an improvement of 0.8 compared to Q1 last year. A stable improvement throughout the last couple of years. If we move over to the EBITDA, we had a 259 million SEK EBITDA profit adjusted in the quarter. reduction compared to q1 last year the operating margin adjusted was 12.1 compared to 13.6 but slightly improved from q4 last year and then we look at the opex operation operating expenses um we ended up on an opex of 365 million second a quarter a share in percent of sales of 17 percent that should be compared to then q1 last year an increase of 14 million sec the increase is mainly coming from inflation but also minor restructuring costs in the quarter but also some additional cost as eric mentioned that we invest in growth If you compare the OPEX in percent of share, it's a slight improvement from Q4 and Q3. And then we go to cash flow. We believe we had a stable cash flow in the quarter, 259 million SEK. It's 42 million SEK lower than Q1 last year. The main difference is from the underlying earnings. The cash flow was positively affected by 15 million positive change in net working capital. And then looking at the net debt and the leverage, we continue to reduce our net debt compared to Q4 last year, we reduced it by 106 million SEK. And compared to Q1 last year, we reduced the net debt with 242 million SEK. The leverage ends up at 2.7 compared to 2.7 last year, Q1.

Thanks Per.

We will then go through some highlights from the different regions and we will start with the region Europe Northeast. So the total growth amounted to minus 10% in the region with organic growth of minus 11% with similar performance in both Northern Europe and Eastern Europe. What we see in the region is that we have weak demonic construction, kitchen and bathroom, as well as outdoor. and still very strong demand in defense and oil and gas, mainly in Norway. The gross margin improved slightly to 27.2% and is driven by improved customer product mix, but also some sourcing savings coming in in the quarter. We see a higher share operating expenses due to lower sales than high obsolescence provisions, some restructuring costs and investments in growth in some of our sister companies. And our operating margin in the region declined to 10.6 percent. To then continue with region Europe West, total growth minus 10 percent, nine percent was organic. Demand remained favorable in defense and aerospace and we start to see some decline in automotive and construction in the region. We continue to have very strong development in France and Czech Republic and Turkey while Austria and Netherlands which is frost and ultra continuous soft market development. Increased gross margin also in Europe West and up on 25.1% and also here we see improvement in our product and customer mix in the region. Also a little bit higher share of operating expenses due to the lower volumes and end up on an operating margin of 13.1 percent in the quarter. Continuing with region UK-Ireland, total growth amounted to minus seven, organic growth minus 11 and this was mainly driven by the lower demand in the stainless steel business where we have an apex operation in UK but also very strong compared to numbers and um we see a strong improvement in gross margin ending up on 32.8 percent versus 29.9 last year and here once again is the favorable customer mix but also that we do a good job in working with a customer and the product mix in the different companies so good improvement on the gross margin uh share operating expenses increased due to uh lower volumes but also some in it investments in that in the region uh looking at the operator margin declined and ended up on 12.2 percent. Then we have region Americas, total growth of minus 12, which all was organic. Here we see the decline mainly driven by the mobile home industry and a generally a bit softer market. Strong improvement also here in the gross margin and up on 35.2 percent compared to 3.9 last year. And once again, we're doing a good job with our customer and product mix, but also then, of course, taking care of the price also on new products and offering. We also see some sourcing savings in the region in the quarter. Higher share operating expenses, if you adjust for re-measurement of some purchase considerations, we end up on an adjusted operating margin of 12.9 in the quarter. And then finally we have Asia-Pacific, total growth amounted to minus 11, organic growth was minus 8 and here we see a general software market mainly driven by biomedical, energy, railway and some general industry. Slightly high gross margin also in Asia-Pacific due to customer and product mix. And the share operating expenses increased due to lower volumes and ended up on an operating margin of 16% in the quarter. Also a few words about M&A. As I mentioned initially, we now have a balance sheet ready for acquisitions. So what we've seen in the recent quarter is that we have more activity in the overall market, but also then for us in Bufab. So we are continually looking and have dialogues with potential acquisition targets and hopefully we can have something to share in the coming quarter when it comes to M&A. Finally then, if we can sum up the quarter, look a little bit ahead and also a few words about our focus areas going forward. So let's start with sum up the quarter. As I mentioned initially we think it's a solid profitability in the quarter and stable cash flow but in a weaker market. It's a challenging market out there with lower demand year on year. I'm very pleased to see that we continue to improve our gross margin which of course is a very important part in the trading business and also for us to in the long run reach our EBITDA target. So 29.1% I'm pleased with and how we're working in each of the regions with improving our product and customer mix. The operating margin was solid considering the lower volumes ending up on 12.1% and stable cash flow and we have now as I said a strong financial position that we can put us in good position for acquisitions going forward. outlook um we will say that the outlook remains uncertain and if you look at our comparative figures for also for next quarter uh it will be tough because it's a strong quarter we're up against and we don't see any change in in demand it is still a mixed bag what we see in the market with some sectors doing well and others are struggling with lower demand What we do is that we look at each individual company and have plans in place to either invest if that is needed or adjust our cost base if that is needed. That has worked as ongoing all the time and we already have taken actions in Q4 and Q1 and we'll continue to do that in Q2 as well to ensure that we're in the right position for the future. All in all, we think that we're in a good position. We have a large and well-diversified customer article portfolio with good diversification in different industry markets. And we still have a lot of work we can do to improve how we work with our customer and product mix. So that work will continue also in Q2. if you look at our focus areas going forward as you all know we implemented our new strategy last year discovering the next solution with focus on profitable growth and adding more value to to our customers and that work is ongoing and i'm pleased with the start um if you look at one of the first priorities we have now is to ensure that we in this market conditions securely business and taking market share we have a new organization up and running and a partly new way of working and that is working well and we also feel that we have good activity in the market times like this when it's cost pressure and lower demands in many sectors it's a good opportunity to take market share and what we see is that our offering gets more and more relevant every day so we try to capture this potential now and grabbing market share for the future We also will continue to invest in selected companies where we see bigger growth potential. But as I said, also that we are obviously taking actions for companies where we think that is needed to adjust our cost base. Our work also to gradually improve our margins will continue also in Q2. Continue working on our customer product mix to continue with the gross margin journey that we think is possible and that we aim to also continue doing Q2. We also have a new updated sourcing strategy and that work is also ongoing according to plan and we hope to see continued good sourcing savings coming in in the coming quarter and then also of course work with our efficiency overall in the group and make cost reductions where it's needed. And finally we have also communicated that is one big focus for us is our networking capital and this work is ongoing we have improvement plans in place in each booth of company and that work is ongoing as we speak. That was the last slide from our end so now I will leave the floor open for questions so please

So welcome to this Q&A session. I would like to ask you to use the function raise your hand if you have a question and don't forget to unmute when it's your turn. We start with the first question from Johan Skoglund at DNB. Please ask your question.

Good morning, Erik. Good morning, Per. Johan from D&B here. I have a couple of questions and then I get back in line. So the first one is, if you could comment on the pacing of order intake and sales through the quarter. I mean, did you notice a difference between the beginning and end, like January and March? And could you perhaps comment on how you see customer destocking? Sure.

Hi, Johan. No, we don't see that big difference in the quarter. It's more driven by different sister companies' position and how the customer base look like. So not a big difference in the different months in the quarter. Was that the only question you had?

No, on this talking as well.

Now I think I've commented this before, if you look at the de-stocking I think that's something that's taking place for different companies throughout quite many quarters to be honest. So it's very difficult to tell any specific trend or so. So very much depending on which sector we're talking about and to a certain extent which regional market. So yeah, not much more to comment on that actually.

Okay, thank you. And then a question on gross margins. They are strong and you mentioned better product mix, purchasing savings, some price adjustments as well. Could you perhaps update us on how the price hikes are moving along in the less profitable contracts you talked about before and if the organic decline is mainly volume driven?

Yeah, I think as I said that we do a good job on the gross margin in general and there are a few aspects of that.

First of all what we try to address in actually all the companies is to ensure that we have a solid customer and product mix for the future where we address customers and articles that is not favorable going forward and do that by raising price tag and and in some cases also uh changing a bit the the product mix of different companies so that we have plans in in the different sister companies and that work is ongoing and this i think is something that will be ongoing for quite some quarters to honest because this is a long work that we can work with but so far i think that's that's work has paid off well and we see that both in the in some of the companies are doing very well now and others are also struggling so across the board we see improvement when it comes to our gross margin and then what was your second question now you asked me about the organic yes the organic sales decline is that mainly volume driven then

yes it is yes it is it's volume okay and then just a final short question then and you talked about restructuring costs in the north and east could you please elaborate what this consists of is it possible to quantify that and can we expect this to only be in q1 or for q2 and q3 as well

Yes, we have that mainly in the region North East but also some minor also in other regions. So what we do like always in Bufab that we try to address companies where it's needed and sometimes there is a cost behind that and in this quarter there were a couple of sister companies in Northern East and we took some actions and ended up in some cost. uh that could also happen in the in the coming uh quarters um and we're not talking about any major amounts but uh yes it could happen also in in the coming quarters for sure okay thank you that was all from me and good luck with q2 thank you so carl noreen at feb please ask your question yes good morning a couple of questions from myself as well if we start on the operating expenses side

just wondering what you're aiming for here during 2022 for 2024 uh it increased around five percent i think in q1 here do you think you can keep it flat during full year or should we expect this like five percent up for the full year on opex yeah we we as eric explained we address uh

our cost base where needed so we will see some some further reduction but we will also invest in in in in the market activities so all in all um i i think we will we will see a flat development maybe a little bit uh reduced uh in in absolute terms and yeah okay so so we're basically flat

operating costs in 2024 versus 2023 is what you're saying yeah slightly reduced yeah yeah that's good uh very clear and then i have a question on the easter impacts in in q1 here i guess you have some less work in this year over here so is it possible to say how much that you you estimate that the impact of the growth in the quarter or can you repeat that question

the easter impact i guess that uh the easter being in q1 yeah it was not that big impact we had one day less uh sales in the quarter so uh maybe 30 million seconds 30 million okay so not a lot no and uh

just a question also on the i mean you said that there was no changes during the quarter and now we're moving into the in sales and now we're moving into the second quarter here uh i mean you mentioned that the comparison figures are tough but i mean it was still down five percent in q2 2023 so i mean the comparables are at least getting easier as i see it uh so yeah correct yeah so uh i mean

organic growth should improve sequentially right yeah so what you can say uh is that if you look at the different quarters compared to quarters we had a toughest in q1 and then a little bit easier in q2 and then even uh further uh going down in q3 and q4 so that is how it looks like but look at all in all and how the market situation looks like in um q2 last year versus uh how it looks right now i would say that it is a more softer demand in the market as we speak uh because back then we had more sectors that still had a quite uh strong demand in the market versus how it looks like as of today yeah yeah that's good and on the acquisition side you mentioned that we maybe should expect some acquisitions coming up here in the coming quarters just a question on the net debt level you're at 2.7 times right now

would you say is kind of the the max range you can go at in a in a tougher market so to say yeah we we have our financial targets where we say we should not go about 3.5 on the leverage so that's the space we we play with okay yeah that's good and all for me i think thank you guys thanks paul

okay if no further question thanks a lot for joining our call and have a good day thanks everyone