Bufab AB (publ)

Good morning and good afternoon everyone and warm welcome to this presentation of Bufab Q1 report. My name is Erik Lundén, President and CEO of Bufab Group and together with me here I have Per Iskog, my CFO. This presentation will be recorded and by attending to the meeting you agree to the recording. I will start this presentation to go through the first quarter highlights, and then I will leave the word over to Per Iskog for some financial highlights. After that, I will take you through the different regions' performance in the quarter, and at the end, we will have a slide about the situation in the U.S. and tariffs before we ramp up, sum up the quarter and outlook. So, let's start with the first quarter highlights. I think it was a good start of the year. If we start with the top line and sales growth, we had a sales growth of 1.6% in a quarter after several quarters of negative growth. Our organic growth was minus 0.1%. This is an improvement versus Q4 when we have minus 1.5%. Region Asia-Pacific showed strong organic growth of 17.2%, led by China. If you look at the market demand, we see continued cautious market out there. It's still a large variation across industries. We continue to see very strong development in energy, defense, and also in medical, while agriculture, automotive, furniture had weaker demand. General industry, construction, mobile home and our trailer segment in US then were stable. If we continue down and look at the gross margin, we had a strong gross margin in the quarter reaching 30.3% compared to 29.1% last year's Q1. And this is driven mainly by our trading business. We have now for the last seven quarters have gradually strengthened our gross margin compared to comparative quarters. And this is something I'm very pleased to see. For us, the gross margin is a driving factor reaching a profitability target next year and also a clear signal that we are continuing creating value for our customers. If you look at the cost base, our underlying cost base in the quarter was lower than last year, if we adjust for one-offs, restructuring cost and currency effect in the quarter. And then if you look at our operating margin, also improved, ending up at 12.7% versus 12.1% last year, also a step in the right direction to reach our profitability target. I will then leave the word over to Per for some financial highlights.

Please, Per. Good morning and good afternoon. Per Iskog here. I will take you through the financial highlights then, starting with sales. Our net sales is up by 1.6%, amounting to 2,184,000,000 SEK in quarter one, which is a trend break after several quarters of negative growth. The 1.6% is built up of a negative organic growth of 0.1%. We had a positive currency effect of 0.6%. And then we had the effect of both Vital, the acquired company we acquired in Q4 last year, but also that we sold Halvon and Lann last year. So the net effect is positive 1.1%. Our gross profit ended up at 30.3, which is an improvement of 1.2 points versus Q1 last year, but also an improvement of 0.6 versus Q4 our last quarter in Q2034. The improvement is mainly driven by our traditional trading business. And then moving to EBITDA adjusted on the right side, we see also an improvement there, ending up at 12.7%. A clear improvement from Q4 last year, but also a 0.6% improvement versus Q1 2024. Then coming to our operational expenses, we have an improvement on the underlying cost level compared to last year when we adjust for one offs and restructuring costs and currency effect. We continue to place a strong focus on cost control across the organization and several measures have been implemented to reduce our cost base. And we will have additional minor restructuring costs during the upcoming quarters. Our cost level ended up at 17.2% in quarter one compared to 17.0. The underlying cost level after adjusting for these one-offs ended up at 16.7%. Then moving over to the cash flow. Our cash flow ended up at 164 million SEC in quarter one. The main reason for the lower cash flow versus Q1 last year is less reduction in inventories. Last year in Q1, we had a quite big reduction in our inventory that contributed to very strong cash flow. We don't see And as previously communicated, we don't see the same level of reduction in inventories going forward. We have had an overstock the last two years and we have gradually reduced that. And now we are we are coming to a more normal situation. Yeah. And then moving over to our debt, our net debt has been reduced to the leverage to 2.5. And the reason for that is reduction in our loans, partly coming from real reduction in loans, but also from positive currency effect on our foreign loans.

Thanks a lot, Per. I will then continue and take you through the regional highlights, and I will start with the biggest region, and that is Europe North and East. Total growth in the region was minus 11%, and the organic growth was positive, 0.8%. The difference then between the total growth and organic growth is divestment of Bufablan and Halborn that took place in Q3 last year. The market situation remains uncertain in the region, and there's also big variation between countries and different customer segments. We could see that Finland also continued weak development while before Poland saw improvement in their demand in the quarter. Gross margin ended up very strong in the quarter, up by 3.6 points, and this strength in gross margin in the region is due to Improved customer product mix, as well as consideration of purchasing volumes, which generate the savings. And this is part of our updated strategy as well, according to our sourcing. If you look at the OPEX, it lowered in the quarter, mainly due to revelation of additional purchase considerations. That is the divestment of Bufablanden-Halborn and also Karen's effect. We have a very strong operating margin in the region of 14.2% versus 10.6% last year. If we continue with the Europe West, total growth amounted to 22.7% and organic growth was minus 2.3%. Here, the difference between the total growth and organic growth is the acquisition of Vital. The lower organic growth is due to lower activity levels in the automotive and construction industries in the West. Stable gross margin up by 0.2 points, and OPEX was in line with last year. The adjusted operating margin improved in the region, ending up at 13.4%. And also the... Maybe worth to mention that integration of Vital goes according to plan in the region. And Vital has contributed positively to the margin improvement for West in the quarter. Then continue with the region Americas. The total growth in the region amounts to minus 1.5%. And the organic growth was minus 4.2%. Demand was stable for our important RV and trailer market in the US, which is big then for ABS. We saw lower demand in the automotive industry that is impacting the CSG operation in the US. Automotive manufacturers are trying to navigate US tariffs, which is causing some factories slowing down the production that's impacting CSG in a negative way. Our gross margin decreased by one point, driven by the automotive industry and also the general uncertainty in the market. The gross margin for ABS, though, have strengthened during the quarter as expected. Lower share of OPEX in the region due to good cost control and the adjusted operating margin ended up on 12.5%. And I will later on talk more about, give some more insights about U.S. and the impact of the U.S. tariffs. If we then continue with the region UK and Ireland, total growth amounted to 0.4%, and organic growth was minus 1.7%. The decline in the region was attributed to lower market prices for apex in stainless, And also, to a certain extent, lower demand in the manufacturing industries that are impacting Bufab UK and Bufab Ireland. We saw a decrease also in the gross margin, 0.5% points, mainly driven by price pressure within stainless that's impacting Apex. We had a higher OPEX versus last year, 11 million, but this was impacted by a bad debt expense of 6 million. And also some restructuring costs that we have taken in the region. Adjusted for this, operating expenses increased by 4 million. And all in all, we ended up then on operating margin on 9.5%. If we then exclude the bear debt, our adjusted operating margin ended up at 11% for UK Island in the quarter. And then finally, we go through the region of Asia and Pacific that performed very well in the quarter. The total growth amounted to 19% and organic growth was 17.2%. We saw strong organic growth in all companies, but mainly driven by China, beef of Shanghai business. We also had good development on the gross margin side, up 0.6 points. This is driven by purchasing savings and also active work with value-based pricing in the region. We had some higher share of OPEX compared to last year, mainly driven by investments in sales. but also some negative currency effects for the region. And if you look at the adjusted operating margin ended up at 16.1, a small improvement versus Q1 last year. I will then take you through a little bit about the situation in the US and the impact from the US tariffs as well. So, first of all, I would like to start to talk a little bit about our U.S. business to give you some context. In U.S., as of today, we have two niche companies, and that is ABS and CSG Group. ABS, as you know, are very strong in the mobile home and trailer market, and CSG are heavy within automotive, EV vehicles, and SUV and trucks. If you look at the total sales in the Bufa Group, 12% is coming from our U.S. operation as of 2024. If we then look at the impact from the tariffs that have been taking place now the last couple of weeks and start with how we're sourcing in the U.S. as of today, ABS sourced 38% and CSG 8% from China. And for us, we don't expect any impact or negative impact on Bufa's margin now due to the tariffs. But, of course, with those high tariffs on China goods, it could lower the demand in the US, especially for CSG. But we also see some positive things about the tariffs. We expect that the bias market will continue from China, so that we continue to have low prices from China to the rest of the world. And if we look at the overall risk with the tariffs, we see that on the global economy, that if this continues, that that could impact the global economy. But we're not that worried in the longer run for Bufab. We see ourselves, and we are also within our niche industries, a large and stable player in the U.S. market. And we are often better at handling those types of disruptions better than competition or small local players. Of course, we take actions to handle the situation in the best possible way. First of all, we put price increases passed on to the customers in line with the tariffs. That's the reason why we don't see any margin decline in our U.S. operation. We do our best to prepare ourselves for different Tavish scenarios in the coming weeks. And also what we do is that we're looking at alternative sources when needed. U.S. sourcing is generally not an option. It's not developed in U.S., so they are dependent on sourcing from Asia. But, of course, in some small cases, we do find alternative sources. And also what we do, and we've done that also the last couple of years, is the building up. other alternative sources outside China and Asia as well, like India and Turkey. And also what we do is, of course, working closely with different stakeholders, such as suppliers, customers, and border control to ensure that everyone knows what's going on and understand how we are best mitigating negative impact of the situation in U.S. and the tariffs. But to sum up, all in all, I'm not that concerned about this. We focus on things we can control. And so far, I think we have done a good job. And we are, of course, monitoring the situation and development very closely also going forward. If we then sum up the quarter and also say a few words about outlook and our priorities. Once again, I would like to emphasize that I'm pleased with the start of the year. I'm very happy to see that we continue to improve our gross margin and also delivering a stable operating margin in the quarter. And also that organic growth is continuing the right way. And we're getting very close now to show positive organic growth. We continue to take actions when it comes to our cost base. That helped us now in Q1, and we'll continue to take actions also in the coming quarters. That will give positive effect on our cost level in the continuum of the year, but also in 2026. There are still a lot of uncertainty in the market, that's for sure. But we are optimistic about the future. As I said many times, tough times is also market share times for a player like Bufab. So we do our best to ensure that we take market share, continue to invest in sales where it makes sense. And of course, focus on things that we have within our control, how we work with offering and our cost base and taking market share. I'm pleased how we have during 2024 also in Q1 have executed our strategy and that work will continue during the rest of 2025. As I mentioned, continue to secure new business and take a market share that will help us to grow later on when the market bounce back. And continue to work on our margin improvement, focus on strength and gross margin that should continue to improve in the coming quarters, but also, of course, ensure that we have our cost base under control. And continue to work on our networking capital, mainly then focus on our inventory levels and also secure a solid and strong cash flow in the coming quarters. That was my final slide for today. I will now leave the floor open for Q&A. 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 Henrik Hintze. Welcome to ask your question.

Thank you. This is Henrik from ABG. So starting off with your comment that the general market has shown some signs of stabilization, but still remains cautious. Taking this in combination with that, you know, the organic growth trend has been positive for the past few quarters. Is it fair to say that you think this will continue based on that?

Yes, we expect this trend to continue. We do not expect any major differences versus the last couple of quarters, but more or less the same trend is what we can see right now.

Yeah, all right. And one question on the tariffs as well. Growth in the America segment was still negative, but quite a bit better than the previous quarter. Do you see any pre-buying effect in Q1? And how did this shift in April, if you can give any comment on that?

Yeah, it's a good question, but difficult to answer how much impact we saw in the numbers. We think there could be some positive impact on the sales numbers in the end of the quarter linked to the US tariffs. But it's difficult to tell, obviously, but most likely it is a partly helping situation. Having said that, we have seen that The underlying trend and looking at forecasts and others also was going in the right direction for the RV industry. So it's also something that we saw before this thing started with the tariffs, but most likely, yes, some impact. And when it comes to the beginning of the quarter, I don't have any comments there to share about the start of the Q2 period. But what I said is that we at least don't expect in the short term any big impacts. That's what I can say.

Okay, thank you. And then finally from me, the gross margin continued to improve year on year. How happy are you with the development so far and how much do you think remains to be done here on the gross margin?

I am pleased with the development. I've said that many times before. I think that what I want to happen is that we're gradually improving and working on our offering and value that we give our customers. And if we do that in the right way, our gross margin should gradually continue to improve every quarter. And I don't see any end to this after this quarter. I think we still have a lot of work to do here and a lot of potential. And we are very strong in our offering and how we serve our customers. So gradual improvement I expect also in the coming quarters.

All right. Thank you very much for that.

Thank you.

Carl Norén, welcome to Ask a Question.

Yes, good morning. Question from my side here as well. I'm just wondering a bit on, you just mentioned a bad debt expense here in the quarter. Just wondering, did you adjust for that in the adjusted EBITDA or is that not adjusted for rights?

No, that's not part of adjusted EBITDA. That's what we call one-off. But it's not part of adjustments.

okay yeah that's clear uh and if we specified the adjustments uh or yeah yeah yeah i saw it i just wondered if it was included or not but that's that's a good clarification then uh good and then now with the stronger swedish krona here i'm just wondering how long will it take before we see it in your numbers in terms of you know lower purchasing prices And how are you positioned to strengthen the gross money out of that or will you need to lower prices or how do you see it on that scale?

Yeah, on the currency rates, we saw a big strengthening of the SEC in March. But in January, February, we had a weaker SEC. So it's going both directions and it's hard to tell what will happen. But of course, with the weaker, if that stays, it has an impact on us, of course. But it's hard to tell. We don't know where it will go. Yeah. On the sourcing prices.

Weaker USD, I guess, should be quite positive for repurchasing prices, especially from China, I guess. Yes.

Correct. If it stays, yes.

Yeah, if it stays. Yeah, let's see. And just on the US business as well, I mean, have you already raised prices in ABS and CSG? And when you say no impact on margins, do you mean that already in Q2 you should have compensated for that or how should we see it?

Yeah, we didn't do any adjustments in the Q1, but starting in Q2, we've done adjustments to ensure that we don't get any negative impact on the margin side.

Good, good. And on the U.S. again, I mean, I guess you're making quite large price increases given that the tariffs are quite high for Chinese goods. But I was wondering, do you think that will lead to better organic growth in the U.S.? Or do you think that demand will shrink quite a lot as well? I'm just curious to understand the net effect there.

Yeah, and I think that's a very good question that's very difficult to answer. So I think it depends a lot on how the development will be in the coming weeks that is outside our control. So I don't want to guess here what will happen. But what I can say is that there's not much alternatives outside Asian sourcing for customers. So they are dependent on Asian sourcing for most of the items. And that will not change in the quarter or the coming quarters.

I can add to that answer, Carl. Our organic growth definition is not the volume definition. It's including price as well, actually. We don't separately report price changes. So, of course, if we increase prices related to tariffs, it will be shown in the organic growth as well.

Yeah, of course. And then just one final one on region west, where you now have included Vital in the numbers here. I mean, can you say anything about how much of the margin improvement that comes from Vital? Because I think that has quite a high margin compared to the overall segments.

We don't disclose separate companies, but we can say that it has a positive. It has a higher margin than average, so it has a positive impact.

Okay. Yeah. Good. Thank you.

Thanks. So, Marcus Debelius, welcome to Ask a Question.

Yes, thank you. Hello, Erik and Per. I'm going to stick to the theme and talk about the US business, specifically the sourcing. 12% of the group sales is in the US. Sourcing is much lower, and you mentioned it briefly there. But could you please give some more color here? Why sourcing is generally not an option in the US? Do you have a strategy to increase it slightly? What are you doing here?

The main reason is because the majority of the product doesn't have any production for it in the U.S. That is the reason why it's not an option. There are production for, for example, certain items for CSTU and automotive that are sourcing in the U.S., but here we already do sourcing in the U.S. and have a good network. So that's the simple answer. What we can see is that we have moved some sourcing from China to Taiwan to mitigate impact due to tariffs, as it is lower tariffs on Taiwan than on China, for example. So those kinds of alternative sources we have been doing now in the last couple of weeks, and that we'll continue doing when needed to mitigate impact for us and for our customers.

Okay, and then a quick follow-up on the lower demand in automotive and CSG operations. Did you see this accelerate by the end of the quarter due to the tariff situation? Was it stable throughout the quarter? Can you say something there?

Yeah, what we can say about automotive industry is that there's been actually a disappointment after the election. There were a lot of... People estimated that the automotive industry in the US should bounce back after the election, but that didn't happen. And so not in the end of Q4 and not in Q1 either. And, of course, the situation with the tariffs didn't help either. But what I can say is that's been a quite general low level in the Q1, so not any major impact in the last couple of weeks or so. It was quite a similar level, actually, throughout the quarter.

Okay. Thank you. Those were my questions.

Thank you.

Sino Engdalen. Welcome to Ask a Question. Thank you.

Thank you and good morning. If we jump over to another region, Asia Pacific showed strong organic growth and you mentioned that all companies performed well there. Can you describe a bit more about the underlying drivers that sets this region apart from the others?

Yeah, I think as I mentioned also the main driver behind the strong development in the region is China. And here the team have done a good job and grabbing market share. And that is now paying off in the numbers. So that's the main driver. On top of that, I think... The region had a quite tough 2024, and now we see improvement happening also in the rest of the region, for example, India and for Kiansoon in the Singapore region and Southeast Asia. So they are also bouncing back from a little bit lower demand. India, possibly impacted by... the election that took place last year and some stronger demand after that. And in Kian Soon and in Singapore, we also see small but gradual improvement also in demand. But the main driver for the good numbers