Bufab AB (publ)

Hi everyone and warm welcome to this Q4 and year end report for Bufab. My name is Erik Lundén and I am president and CEO of the 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 would like to start this presentation to give some group news today before I jump into the full year highlights and Q4 results.

So

let's start with some

group news.

And

the first

thing I would like to talk about today is the acquisition of Vital, a leading Italian sea parts distributor. In November last year we acquired Vital, that is one of the leading players in the Italian market with the head office in Milan. They have a net sales of 48 million euros last year, sorry in 2023 and operating profit above Bufab's 2026 profitability target. We see Vital as a platform acquisition. We have two types of acquisitions in Bufab, platform and add-on and this is a typical platform acquisition. By acquiring Vital we have deepened our presence now in a very important market for us in southern Europe. And by doing this we can increase our service level to current customers that we have, that have operations in Italy, but of course also help new customers in the Italian market. And we believe that Vital is a perfect fit to Bufab. They can learn from Bufab and the other way around and therefore we think that this partnership will be adding a lot of value to Bufab shareholders. The former owners will stay in management positions and we have an earn-out structure linked to this acquisition. If we then jump into the full year highlights and Q4 results and I would like to start to talk about the full year performance. If we sum up 2024 is another good year for Bufab. We delivered a stable result despite weak demand in the market overall and I think this year we are demonstrating our resilience in that challenging market. Total growth was minus .4% on the full year and organic growth was minus 5.4%. We delivered a record strong gross margin reaching .7% and this is a good indicator that the value that we create to our customers are improving. We delivered also stable adjusted operating margin at .9% and also solid cash flow and the board proposed a dividend of 5.25%. This increase versus 5 sec per share last year. If we then also look back on the execution of a strategy that we launched at our capital at the end of 2023. I am overall pleased with execution of our strategy. First of all I would like to mention how we have strengthened our value proposition. We have expanded our service and product portfolio and becoming more of a full range supply C parts provider to our customers. One example is for example that we have during 2024 delivered a record number of logistics solutions for our customers. We are convinced that this value we provide to our customers will help us to increase our organic growth rate and I think also what was seen in the GP development in the last couple of quarters is an indicator that we do the right things here when it comes to value selling to our customers. We also have a clear focus on possible growth. We aim to gradually improve our customer product mix and I think we are taking good steps in the right direction throughout 2024 but more to come here. I think also we have stepped up when it comes to sustainability and gone to our next level when it comes to sustainability. From a lot of internal focus to actually now go over to how we can add value to our customers through sustainability. We have improved our offering when it comes to sustainability and we can see that this is a driver for us to take market share especially in Europe as of today and more and more offering within this area will be developed in the coming quarters. I also like the way we have improved our operating model in Bufab. As you all know we are running with full P&L in the different sister companies and we are very keen to have tailor-made plans for each sister's needs. So this implies operating model is strong performance management and I think we are taking good steps in 2024 and have a more solid platform and better positioned sister companies than one year back. Another big milestone is of course how we have decided to focus on what we call trading and niche businesses. In 2024 we divested Bufab Larn and Halborn, our manufacturing companies and instead acquired Vital and this is an example of how we will also do going forward by investing in companies that we think have bigger potential for profitable growth going forward. And all in all I think we put ourselves in a strong position to deliver our financial targets in the coming years. If we then jump over to the fourth quarter of 2024 and start to talk a little bit about the market situation. We still continue to see a cautious market out there and there is a large variations across industries. The strongest development was noted in energy and defence like previous quarters. The important mobile home and trailer industry for our US market remains challenging and also we see still a challenging trend when it comes to construction, automotive, bath and kitchen and outdoor. But having said that we see some lights in the tunnel and the organic growth is improving. In Q4 we end up on organic growth of minus .5% and that is an improvement over Q3 and we had organic growth of minus 2.6%. Another positive thing is that we continue to do a good job when it comes to our gross margin. It improved by .4% points reaching 29.7 in Q4 and this is mainly driven by our trading business that had really solid development in also Q4. If we look at our operating expenses it was higher in Q4 driven by one offs and currency effects. If we look at underlying cost base it is actually a reduction in Q4 versus Q4 last year. All in all then we end up on an adjusted operating margin of 10.8%. I will then leave the word over to Per for a few financial highlights. Please Per. Thank

you. I will share with some more financial details. Let's start with the sales. We ended up at ,000,000 SEC in the quarter which is a reduction of 4.1%. That is explained by we have a negative organic growth of 1.5%, a positive currency effect but also the effect of both the acquisition of the tall by divestment of halvol land. That explains the 4.1%. And the .5% organic growth is improvement quarter over quarter less negative. We had .6% in Q3 and we had minus .6% in Q2. So gradually we are getting closer to zero. Next, then looking into the gross profit margin we ended up at .7% which is an improvement of .4% compared to Q4 last year. Mainly driven by our focus on delivering a customer value, product and customer mix but also sourcing savings. Our adjusted EBITDA ended up at .8% which is a reduction compared to last year. It's mainly explained by lower sales in the quarter compared to last year but also one of in OPEX which I will explain on the next couple of slides. So then going over to OPEX, we ended up at ,000,000 in operational expense in the quarter which is a slight reduction compared to Q4 last year but last year we had a big re-evaluation of an earn out. So the underlying cost base last year was 340. I will come back to that explanation on the next slide. The quarter was having an impact of a couple of one-offs and some adjustments. Obsolescence reserve, acquisition cost, and restructuring cost and some negative currency effects. But adjusting for all this we have the underlying cost base under control and actually a reduction. We continue our work and effort to have a focus on cost control and savings throughout the whole business going forward as well. Next slide. Yeah, thank you. So here is an effort to explain the OPEX development starting on last year. Starting on the left side we had ,000,000 in OPEX but in that number we had this earn out adjustment of 48 and earn out related to TINCO. So adjusting for that we had an underlying cost base of ,000,000 SEC. And then in Q4 we had some one-offs and adjustments explaining the increase to ,000,000. We're starting with the increase of obsolescence reserve. This reserve is related to a specific product group we have. And then also we have ,000,000 SEC inflation, salary inflation compared to Q4 last year. We have some negative current effect, translation effect. And then we had acquisitions cost, etc restructuring cost amounting to ,000,000 SEC. Then our effort that throughout the year 2024 we have been working on cost reduction and the effect in Q4 was actually minus 23 offsetting the inflation and also reducing the cost base in total. Adjusting for these one-offs. Next slide please. Then moving on to the cash flow. We had a cash flow of ,000,000 SEC in the quarter. It's lower than previous quarters and it's explained by we have a negative change in networking capital. If you have been following us for a while you know that last couple of quarters we had a positive effect by reducing our inventories but in Q4 we actually invested in inventories in a couple of big units explaining the lower cash flow in the month. Sorry in the quarter. Next slide. Moving over to the net depth. We saw an increase in Q4 in our net depth and that is related to the acquisition of Vital. We increased our euro loan base there to finance within the debt facility, loan facility. We ended up on the on a leverage of 2.8 versus then 2.4 previous quarter and 2.6 Q4 last year and in this 2.8 you should keep in mind that we have one month of the Vital result but we have the full effect of the balance sheet from Vital. So this of course will gradually be reduced as we get more month of Vital result in the numbers. Next.

Thanks a lot, Per. I will then continue with some regional highlights and I would like to start with the region Europe Northeast. The total growth in the region was minus .4% and organic growth was minus 0.6%. In the region we see continued weak demand in kitchen and bathroom but also in the Gulf of Finland while Tilke, that is strong in defense, had a very strong demand in the quarter. Very strong gross margin in the region up to 0.7 points due to active work on customer offering, improved customer product mix and also some savings coming in. And here we see a higher share of OPEX and this mainly to obsolescence reserves linked to one customer in the region then. We also have negative currency effects in the region for the quarter. All in all end up on an adjusted operating margin of 10.5%. If we then continue with region Europe West, total growth amounted to .1% and organic growth was .1% so almost slattest there. The total change in sales, .4% was attributed to the acquisition of the TAL in Q4 last year. In the region we can see that the energy industry continued to developing very well, especially then in Bufa France but also Bufa Czech had a very strong development in the quarter. We see in the West quite low activity of automotive and also in construction industries. Gross margin was up also in for Europe West 0.4 points due to purchasing savings, price increases and improved customer mix in the region. The OPEX was in line with last year and the adjusted operating margin improved to .1% water. If then go over to Americas, here we had a negative growth, .3% and organic growth was 11.3%. The reason behind this decline was the low demand in the mobile home and trailer market for ABS but also we see low demand in the automotive industry which is impacting our CSG sister company in Americas. We also had decreased the gross margin 1.8 points due to price reduction and that is for customer actually that had quarterly pricing for ABS that's impacting and also higher share of OPEX due to lower sales in the quarter. The adjusted operating margin declined to .6% and I also like to briefly comment about the political situation in US. We think overall that we are well positioned to manage the uncertainty in the market in Americas in terms of tariffs and other potential threats and we will of course carry on tariffs and others to end customers and we are in a good position to do that but it could be some turbulence in the short horizon when it comes to Americas. Also then UK and Ireland, here we see a growth of 5.1%. Here we see a decline linked to market prices for OPEX but also for TIMCO. We had a big drop in gross margin 3.8 points and this is driven by higher global freight rates which peaked during the previous quarter and this is mainly for TIMCO. Operating expenses decreased in the quarter as Q4-23 was impacted by a negative effect from remeasurement of additional purchase consideration as Pär pointed out before. Adjusted for this the share of operating expenses to sales were in line with last year and to sum up then the adjusted operating margin was .0% for the quarter. And then finally region Asia-Pacific, total growth amounted to .4% so really strong growth in Asia and organic growth was 27.4%. Here we can see strong demand in all companies led by Giazono but also China had very strong development in the region. We also saw positive development on gross margin improved 1.3 points due to purchasing savings in combination with a favorable customer product mix. We also saw lower share of OPEX compared to last year impacted positively by currency effects and also good cost control throughout the business in region Asia-Pacific. All in all ended up in a very strong operating margin to 16.5%. If then take and sum up the year and quarter then also look at outlook and priorities and I would like to start with the quarter. We see a continued improved gross margin in the quarter mainly driven by trading business. We see really strong development and a little bit weaker for our niche companies. We also have a lower results in the quarter and this is driven by one-offs and currency. And also as I mentioned initially we are proud to have now having Vital on board Bufa Group. When it comes to the market and outlook there are still uncertainty in the market. However, we see indications of improved demand especially from the general industry that will come in now in 2025. We have done a lot of efforts to strengthen our gross margin in 2024 and this work will continue and we'll expect the gross margin to continue to have favorable development. As we see this is one of the key key PIs for a trading business to improve the margin going forward also on EBITDA level. Combined with working on improvement of gross margin we will put a lot of focus on cost control and savings to ensure that we are in a really strong position once the market rebounds and we get higher top line. And to sum up our priorities they remain the same. I think we've taken a good step this year on execution of strategy and hopefully we will take another step in 2025. We will continue to be very active on the market to grab market share. I'm pleased with the work here we have done in 2024 with really good activity. I also would like to continue improving our margin. As I mentioned the key thing will of course be to continue strengthening our gross margin and drive value to our customers that will give us higher gross margin also going forward. But then of course also balance that with good work with our cost control and cost savings where it makes sense in the organization. Finally continue working on network and capital and secure strong cash flow. I'm overall pleased with the cash flow in 2024. In the end of the year we decided to invest in inventory for future growth in a few sisters and that impacted our cash flow in the quarter. But all in all I'm pleased with the performance in 2024 but more to come in the coming quarters. That was it for today. We will now open up for questions 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. So we start with the first question from Carl Nourian. Welcome to ask your question.

Yes hello good morning. I hope you can hear me. Couple of questions here. Maybe if we start on this inventory write-downs or reserves that you're taking here. I'm just wondering is this purely related to Q4 and we should not see any impact of this going forward in 2025 in the numbers?

Yeah so what we've done now is a specific type of products mainly for one customer that impacted in Q4. So this is not something you should see as the standard going forward.

Okay that's clear and then just on the gross margin I mean the sequential weaker here versus Q3 and it's related I guess to Americas and UK. Can you say some problems here with higher freight rates? Is that expected to impact also the coming quarters or have they now raised prices to offset this?

Yeah so first of all if you look at the overall development of GP you can say that the trading part of the business the majority is doing very well in the quarter. We will see challenges in the Q4 was mainly driven as you said by that have you can say short term challenges and the same thing then for ABS that was a short term challenges for on the gross margin. So all in all I can say that I'm pleased with the development and how we're doing gross profit but of course we want to avoid situations like we had now impacting for two seasons actually that is making the overall situation of developing as good as it was in Q3.

But do you think it will improve I mean gradually yeah but maybe a bit weaker in Q1 or the coming quarter as well? I think it

will be gradually improvement so gradually improvement we expect.

Okay and then question on organic growth as well I mean continued sequential improvement here do you feel that the momentum is continuing to build up and we should expect further sequential improvement here in Q1 or what's the general feeling?

Yeah first of all I think that it's still you know uncertainty in the market that have not changed but having said that what we see now for a couple of quarters is gradually improvement and we don't see any indicators that should not continue even if we don't have any huge changes in the market but best guess is gradually improvement.

Okay that's very clear I guess the what to say the Nordics Europe is trending in there or the North and East is trending in the right direction also West and then you have Americas a bit softer and also maybe Apex I guess but can you say anything about Americas that are having continued to have quite negative organic growth and you mentioned a price decrease to a customer as well there in the report just be interesting to hear what's going on.

Yeah what's going on is that in Americas as you know we have two sister companies and the biggest ABS has you know a lot of sales to the RV and mobile home industry that is right now on a very low demand. I think ABS doing a good job in the within their control so to say managing situation but the overall demand is on a very low level. We see indicators on improvement but we will not expect them to come in the coming quarter or so but we don't think we're getting worse and combined with that the overall situation for the automotive industry has also been tough in the US in 2024. Of course linked to uncertainty before the election and also actually some uncertainty after election as well that's also impacting the bond in automotive where CSG has a quite strong position. So you can say that our niche focus in the two segments in Americas is impacting the situation and then as I also pointed out the biggest impact on the gross profit here is actually just linked to one specific customer for ABS and that also we expect to gradually improve. We have in this case quarterly pricing and this will gradually improve also in 2025.

Yeah that's all for me thank you Rick and have a good day. Thank you.

Henry Kintfe, welcome to ask your question.

Yes thank you this is Henry here so I just wanted to ask you said you invested in inventory in the quarter is that a reflection of your expectation that the organic trend will continue to improve sequentially or how should we read that?

Yeah you know we're coming from a situation where we had a lot of inventory around the globe after the pandemic and we have as one of our key targets in 2024 gradually decreased our inventory levels in many sisters and now we are coming to a stage that there are a couple of handful sister companies that need to build up inventory again because the levels are on too low level and in some cases also because of Chinese New Year was also giving some extra reason for building up some inventory and the demand for those sisters has been in a tough market been I would say good and holding up volumes very well for example Timco and therefore we see the need to build up some inventory to be able to offset the demand from our customers. So quite natural after many quarters of building down you can say inventory that we also in a few cases gradually to build some inventory up but there are a few sisters we're talking about.

Yeah that makes sense. On the M&A and restructuring costs that you adjusted for I think it was 22 million if I remember correctly eight of those 22 were for Vital could you just give some comments on what the remaining costs were about there?

Yeah it's a combination of acquisition costs but also some divestment costs related to Halvåland and also restructuring costs we have taken in Q4 mainly related to some severance pay or layoff pay but also we are in UK closing down three warehouses building up a new one replacing the three this in we'll provide a lot of efficiency improvements and also cost savings but of course during this transition period we have some extra cost related to that that hit Q4.

All right very good. You gave some comments on potential effects of tariffs on your Americas operations could you just walk us through a bit exactly how that would affect you and your supply chain and what you would be doing to counter any effects?

Yeah if it happens we will pass on tariffs to the end customers that is what we aim to do and so and if you look at the mid-term horizon and so on I'm not we are not that worried about disturbance when it comes to tariffs and other things that could happen in the US market we are even if you're a small player in US we are much bigger than majority of our competitors that we compete with on those segments and often when we see turbulence like this smaller players struggle more than bigger players so what we do now is prepare ourselves for different you know options that could happen depending on what the president decides and be well prepared to take actions to minimize the impact for American business then so we feel that we are quite well positioned to manage this potential turbulence that could happen if something will happen in the coming weeks.

All right and then finally from me on the very strong organic growth could you just give some comments on whether that is mainly market driven or if your companies there are doing something particularly good?

I would say that they do something particularly good as we have pointed out for a couple of quarters now we have seen very strong development in China and driven by market share growth and also we have seen improvement now in Cansoon that is based in Singapore and operating in Southeast Asia we also see improvement in terms of sales coming from a lower starting point so it's a combination of a really good job done by the sisters there and also that yeah for Cansoon they're a bit softer comparison numbers to compete with they were up against very tough numbers also during the pandemic time there so but all a good job done by the team in Asia Pacific.

Yeah okay thank you that's all for me.

Gustav Bernablard welcome to ask your question.

Yes thank you it's Gustav here from Nordia maybe just to build on the tariffs there it would be interesting to hear if you have seen or noticed any effects of sort of pre-ordering here in the quarter?

No there's not been much of pre-ordering or changes everyone seems to wait to see what happens so to be honest not much have actually happened more than a lot of speculations.

Perfect and then it would be interesting also I mean how fast can you pass on the prices just think about the dynamics here if sort of the tariffs have implemented?

Quickly if normally we're doing that in a quite quick way of course it depends because contracts looks different but all in all we are as I said well positioned to do kind of changes.

Okay perfect and then regarding sort of the the obsolescence there in the reserves I mean you say it's related to one customer does this mean that you lost this customer or is that a risk?

No I said mainly one customer no it's not lost you know we had a situation for quite some time after the pandemic we will build up inventory for several customers that had a very strong development and now we have a specific case where we still have a good relationship with the customer but that is now come up in situation with the lower demand we have decided to make these adjustments or reserve in the Q4 but it's not a lost customer and it's not something that is an overall you can structure problem it's more related to a specific product and customer the biggest part of this obsolescence.

Yeah okay that's very clear and then just the last one here on America and there are comments on prices I mean do you think that this will be isolated to America's and you say it's related to one customer so it would just be interesting to hear how confident you are that this will be isolated there and also if you can say anything about the magnitude.

Are you talking about the the gross profit impact?

Yeah exactly.

Yeah so it is only in the Q4 if you compare the Q4 versus Q4 last year it is only related to one customer that have quarterly pricing that make the big impact on the on the on the GP for the quarter so that is how it looks and then of course the overall situation for our America's business has been tough due to low demand and in the market but as I pointed out before I think ABS in this case is the biggest player and also impact with GP have done a good job to manage that keeping up the the margin in a very challenging situation so the time will help them so we expect gradual improvement but as I said it's not it won't be something dramatic that will happen on demand but we hope to see a gradually improvement in demand for ABS as well but it's just one customer that's impact on this GP for in America's.

All right but it doesn't sound like we should expect you entering a new phase where you expect price where you expect your customers to demand price decreases in other regions it's just very isolated here.

Yeah yeah I mean if you look at the the price pressure from that point of view globally that have then taken place for quite some time and that I think we have shown in their resilience overall that our value and how we now are able to show customers the real value and what we can provide is actually helping us to improve our gross profit as we have seen in a couple of quarters so that I don't see as any problem in that sense that will continue. When we have the niche companies some of them they'll be different when we don't when they have a different kind of operating model and business model so that in those cases we can see more price pressure in a few niche companies but for the training business where we more create peace of mind and do consultation and don't have a specific market price it's a different situation. So no I'm not I'm not worried that we're getting worse I think that we have had already that for the last couple of quarters or years actually.

Yeah okay that's very helpful thank you very much.

Thank you.

Marcus Develius welcome to ask

Yes thank you most of my questions have been already asked but quick follow-up on working capital can you maybe talk this is more a general question but talk about your efforts to improve your working capital profile. We saw inventory coming up slightly in Q4 so my question is relating on how efficient or well-oiled the BlueFab machine is could you maybe spend some time there and talk about where this could be going in the next year and so on.

Sure we often said when we got this question last couple of quarters that there are two different phases that we have been going through first of all if we're looking after the pandemic we have a situation we build up a lot of inventory around the globe and that has and then we've done a good job I think last 12 18 months or so to gradually decrease our inventory levels to come to a solid level and here I think we have gone far on that journey. The second phase as we call it is to get better working when it comes to net from capital into our DNA and here we are not where we want to be and that work is not a quick fix that is to ensure that the whole chain you can say starting with the sales guys how they work forecast with customers throughout the whole operation in BlueFab becomes more efficient and better and here I would say we are in a quite early phase and still will work on improvement and that's what we continue and we hope to be better at this in the coming quarters and be able to release more cash actually and to serve in a more efficient way our customers and be equally good on net from capital especially inventory as you are in other areas so this work will continue in the in the coming quarters.

Okay and then a quick follow-up on on Americas it was quite soft but there's maybe a bit more basic question but looking at the gross margin Americas is much higher than the rest of the regions why is this the case can you spend some time there?

Yes I can when it comes to Americas there's a little bit different kind of exposure for us versus other parts of the world in Americas we only have two companies yet and that is ABS and CSG and you can say both of them are more of a niche type of companies where ABS is then strong in mobiles and our industry and the CSG are actually mainly in the automotive if you look at other regions around the globe we have more of a base of trading business we consolidate all types of parts and for our customers and help them create peace of mind and a broader scope and that is also impacting how the GP structure and model look like in in the different yeah versus Americas for example so that was we'll say it's the main reason behind you a different GP structure for Americas versus the rest of the of the world.

Okay those were my questions thank you very much.

Thank you.

Carl did you have a follow-up question?

Yeah I have a follow-up just on the acquisition of Vital here I can see it looks to be quite profitable here with an 18% EBT margin profit before tax margin here pro forma for 2024 I'm just wondering if that's what we can expect also going forward or if it was any specifics here in this year for Vital?

Yeah we don't disclose specific companies profitability like that but it is as we have said a profitable company well in line or actually above BUFAB overall profitability and those numbers you refer to is from 2024 and yeah we expect them to deliver high profit if it on that level we will not disclose here.

Okay but the earnouts are they based on kind of

an earn out structure that is built on both increased profit in absolute terms but also in margin year over year and it's a cap also to the the earn out.

Sounds good thank you for that.

Henrik did you have a follow-up question?

Yeah just a small housekeeping question Last quarter you got a negative effect on order intake from the divestment did you choose not to to do that the same way but in reverse with Vital now or how did you do that in this quarter?

No we added their order book when they now reported for the first time so they should be in the numbers.

Okay thank you. Stephanie Bobchard please ask your

question. Yes please could you comment on the order intake decline to 9% in Q4 how should we read that into Q1 when you mentioned you expect sequential organic improvement in Q1 so how do we read this order intake decline in Q4? Thank you.

Yeah I don't think you should put too much thoughts around the order intake because we look at our different sisters many of our sisters actually or intake will not help you to guide you on how the future will look like as it is for other companies so I should be not spending too much time on the order intake numbers and compare that to how the outlook for Q1 will look like.

Okay I think that was the

final question so thanks everyone for joining this call wish you a nice day ahead. Thank you.