Bufab AB (publ)

Good morning and good afternoon, everyone, and warm welcome to Bufab's Q3 report. My name is Erik Lindén, and I'm president and CEO of Bufab Group, and together with me here today, I have Per Iskog, my CFO. This presentation will be recorded, and by attending to this meeting, you agree to the recording. I will start this presentation to go through the highlights of the quarter, and then I will leave the word over to Per for some financial details before I sum up the performance in each region, and then at the end we will have time for Q&A. But before we start, I would like to share some insights about the background pictures you will see on today's presentation. At our last report in Q2, we showed pictures from our offering and services, and today you will see background pictures from our end customer products. As you all know, we create peace of mind in all kinds of industries and applications, and today's presentation will get the favor of the broad diversification we have by serving customers in more than 30 different industrial segments. And this picture you can see here on the screen is from our customer Respo in the Baltics. If we then go to the Q3 highlights to sum up the quarter, I would like to start to say that I'm overall pleased with our performance in the quarter, given the market situation. The demand in the quarter remained cautious, but we continue to see a large variation between different industries and regions. Our organic growth amounted to minus 2.6%, which is an improvement if compared to Q2 in all regions. We can see a decline in order intake, and this is explained by the divestment we did in July of Vufablan and Halborn. And if I adjust for this divestment, the water intake is in line with net sales for the group. I'm very pleased with our gross margin, and up on all-time high level, up by 1.6 points, reaching 30.6%. And this is in line with our strategy launched last year to gradually improve our customer product mix, develop our value creation for our customers. And in this quarter, we also saw some purchasing savings. We delivered a strong cash flow in the quarter, and we also improved our net debt EBITDA ratio, which is now on a level at 2.4. And we have a balance sheet that is ready for acquisitions. And what we do is also that we continue to invest in our customer offering, and we have done so also in this quarter. And at the end of this presentation, I will share one example on how we create value to our customers through our logistics solutions. I will now leave the word over to Per for some financial highlights. Please, Per.

Thank you. Good morning, everyone. Some more details then on the financials. We start with net sales. We ended up at 1880 million SEC in the quarter, which is in total 9.2% lower than quarter three last year. where 2.6 is from negative organic growth, which is an improvement compared to organic growth in previous quarters. We also have a negative current impact of 3.1 and also then the effect of divestment of Bufabland and Hallborn. Then, next slide, please. Then, have a closer look at the gross margin. As Erik explained, we have an improvement of 1.6 points versus quarter three last year, and also a gradual improvement the last three quarters. And then if we look at the adjusted EBITDA and adjusted EBITDA margin, we can also see a gradual improvement in the last four quarters. Now ending up at 12.7, which is a result of focused work on our product mix and customer mix and also incoming sourcing savings. If we in the 12.7 Q3 number, UFA Blan and Halvon is not any longer in the consolidated number. that have an effect of 0.2% improvement because of the divestment of Bifurblan and Hallborn. Next slide, please. Then if we look at the operating expenses, they are gradually being reduced. This is an effect of our focus cost reduction activities that we've been working on the last four quarters. But we also have some one-time effects. We have a positive effect in quarter three this year from a remeasure of purchase consideration and also a negative impact in the comparison period last year of minus 40. So if we exclude these remeasures, the OPEX in percent of sales was 17.3 in the quarter versus 16.5. Yeah, next slide. Then going to cash flow, we had a stable cash flow coming from a solid operating profit, but also that we continue to see a networking capital reduction in the month. So in all in all, our cash flow from operating activities ended up at 322 million SEC in the quarter, which represents a cash conversion of 121%. Yet to date, our operating cash flow from operating activities was 974 million SEK, a cash conversion of 119%. And then in the investing activities in the cash flow statement, we also have the positive net effect from the divestment of Bufablanden Hallborn, which was 110 million SEK. Yeah, I move to the next slide, please. So looking at our net debt, it has been reduced by 380 million SEK in the quarter, which is a result of our solid cash flow, but also then from the cash effect from Bufablan Hallborn. Our leverage ended up at 2.4, an improvement versus last year of 2.7, but also versus last quarter 2.8.

Yeah, thank you. Thanks, Per. I will then go into each of the regions, and I would like to start with Europe, North and East. The total growth amounted to minus 12% for the region, driven then by the divestment of Byfablanden-Hallborn, and organic growth was minus 0.9%. Order intake was affected by the divestment of Bufabland and Halborn. If we adjust for that, the order intake was slightly higher than net sales for the region. We continue to see weak demand in Bufab Poland and Bufab Finland, while improvement in demand for Atibendix, and also we see good levels from Bumax, mainly driven by new distribution agreements. We had a strong gross margin in the region, improved by 2.6 points, reaching 29.4. Mainly thanks to Sweden and due to our focus on developing the added value we deliver to our customers. And in addition to purchasing savings also in the region. We had a lower share of OPEX at 14.1%. Cost was impacted by a positive, we measured additional purchase considerations of 8 million SEK. Adjusted for this, the share of OPEX was 15.3%. And looking at operating margin, adjusted level was really good for the region and up on 14.2% compared to 11.5% in Q3 last year. If we continue then to region Europe and West, the total growth amounted to minus 6.8% with an organic growth of minus 2%. Defense and energy segment have continued to develop very well in the region. And we've also seen some higher activity from the automotive industry in the quarter. Weak demand for Bufab Germany, Jenny Waltlin, Austria, and Bufab Floss, but really strong performance and demand for Bufab Czech and France. Also here we can see gross demand improvement, 1.0 percentage points up, reaching 25.6% in the quarter. due to sourcing savings, price adjustments, and improved customer and product mix. We saw also a lower OPEX in absolute numbers, thanks to our cost reduction efforts in the region, and as a share of sales marginally higher at the 12.0. The adjusted operating margin improved to 13.7% for the region. If we then continue with America's tough demand for America's total growth amounted to minus 60% with an organic growth of minus 8.9%. What we see here in the region is continued weak demand in RV and trailer segment. but also in the automotive, especially then for our sister company, CSG. Also here, gross model improvement, one point reaching 35.2, mainly due to improved customer product mix. Lower OPEX in absolute numbers due to focus on cost reduction activities, but in relation to sales, OPEX was two points higher, reaching 22.7%. And the adjusted operating margin declined in the region to 12.5. If then go to region UK, Ireland, total growth amounted to 7.2 negative, and organic growth was negative 5.9. The decline was due to market prices, mainly for Apex and Timco, while before Ireland and before UK noted good demand in the quarter. Gross margin, marginally higher than last year, reaching 33.1%. And looking at the OPEX with a lower share at 20.6 due to revelation of additional purchase considerations last year of 40 million SEC. Adjusted for this, OPEX was in absolute numbers in line with last year. And here we end up on an operating margin adjusted of 12.5%. If we then finally go through the performer for Asia-Pacific, here we saw positive growth amounted to 10.4 and really strong organic growth of 13.2. In the region, we see strong demand in all sister companies, but especially China performed very well in the quarter. Both of India have had a challenging year before the election that took place in the fall now in India, but the markets are now stabilized after the election. And also Kian Soon in Singapore noted good demand and is showing growth numbers. Gross margin was lower than last year at 30.6 due to customer product mix. And looking at OPEX, it was a higher share of 21.6, mainly due to inflationary effects and investments in our customer offering, but also negative currency impact. Our adjusted operating margin declined to 9% for the region. So before we go and sum up the quarter, I would like to share some insights from the group, and this time I will talk about our logistics solutions. As I mentioned in my intro, we continue to invest in our offering to be able to create more value to our customers. And one way we're doing this is through our logistic solutions that we tailor-made for our customers. And our logistic solutions, we create peace of mind by helping them with their replenishment and keeping the right stock levels for our customers. And what we do is that we help them with sourcing, purchasing, and deliver each component to match our customers' consumption. Ensure that they don't need to do any manual ordering and don't need to do any inventory counts. They can enjoy a careful replenishment and they can focus on their core business while we take care of their sea parts completely. And it's very clear for us that our customers will appreciate our tailor-made logistic solutions. When we have those in place with our customers, we grow twice as fast. And it's also very clear that it strengthens our cooperation with our customers and increases our stickiness when we have those in place. And so far, 2024 has been a record year when it comes to the installment of logistic solutions. We have never installed as many logistic solutions as we've done year-to-date 2024. And of course, this is something we'll continue to invest in also going forward. And to give you an idea of what we can offer, you can see on this slide. And starting up to the left, we have our easy track. That is our cloud service that we provide to our customers. And that, you can say, is the heart of our solutions. With our solutions, we can easily find a cost-effective solution that fits each customer's situation. We also have our easy scan that the customer scans the empty bin and the order is sent to Bufab. We have our easy scale solutions that automatically order solutions by weight. And then we have RFID solutions, that is the bin. So the customer stacks the bin on a rubber mat. And then we're in an easy drop and the order is placed to Bufab and we take care of the rest. And also we have easy label. Automatically updated labels enables orders to be sent directly from the label with a simple keystroke. And the beauty here is that we tailor made our solution. So in the right corner here, you can see a local solution made by, in this case, by ABS in US to ensure that each customer gets what they need. And of course, those solutions is one way of adding more value to our customers and have helped us to also improving our gross margin during 2024. If we then sum up the quarter, look ahead and also our priorities. Once again, I'm really pleased with our performance this quarter, considering the quotients in the market. We deliver a strong gross margin, an all-time high level, but also a stable operating margin. We had a strong cash flow in the quarter, and we improved our net EBITDA ratio, reaching 2.4%. If you look at the demand in the market, there's still a lot of uncertainty in the market. However, we still see indications of improved demand from general industry, but most likely this will happen the first half of 2025. Looking ahead, we will continue to execute our strategy. So far, I'm pleased with the way we are executing our strategy during 2024 so far. And we will ensure that we continue taking market share now when it's a tough time for our customers and they often need to lower the total cost base and do consultations and see part suppliers. Continue to improve our margin. Focus, of course, to strengthen our gross margin by continuing to serve our customers and really add value to them. But also to ensure that we continue working on cost-saving initiatives where it makes sense. And then, of course, continue working on networking capital and secure a strong cash flow. That was it for today. I will now leave the floor open for Q&A.