Bufab AB (publ)

Good morning and good afternoon everyone, and a warm welcome to Dufab's Q2 report. My name is Erik Sjölin, President and CEO of the Dufab Group, and together with me here today, I have Markus Hjelberg, Group CFO. By attending this meeting, you accept that this meeting will be recorded. I will stop this presentation to go through our highlights in the quarter, and then leave the word over to Markus for some financial details. After that, I will sum up our performance in each region, some group news, and then at the end, sum up the quarter and also time for Q&A. If we then start with the highlights in the quarter, I'm overall pleased with our performance. We did a good job with the growth. We continue to execute very well on our strategy, with a clear focus on value creation for our customers. We have growth at a strong 5.3%, in line with our growth targets, and with a positive development in all regions. The growth was mainly driven by increasing market shares, with positive contributions from a previously communicated larger project. Underlying demand remained cautious during the quarter, so good demand in sectors such as energy due to infrastructure and defense, while demand in construction, kitchen and bathroom, and automotive industry remained weak. Both gross margin and operating margin reached high levels in the quarter, The gross margin improved by 2.1 percentage points and reached high 33.2%. Over the 12th last quarter, we have an improved gross margin compared to comparison quarters, and we expect this trend to continue throughout 2026. The drafted operator margin amounts to a strong 14.7%, which means that we now have consistently improved our probability compared with the previous uh, year over the past seven quarters. All regions and almost all of our sister companies improved their results compared to last year. At the beginning of July, we announced the acquisition of DCIron, one of UK's leading distributors of ironwork parts. This acquisition is in line with our strategy of acquiring profitable companies in attracting niches within C-parts and technical components.

And I will come back with more details on this ecosystem later in this course.

I will now leave the word over to Marcus from Financial Highlights.

Thank you, Erik. So, we start by having a look at the development in terms of growth. Total growth in the quarter amounted to a strong 11.7%. We see this be a gradual improvement of organic growth throughout the quarter, which makes Now, with this quarter, the fourth consecutive quarter, where we see organic growth. The growth was mainly driven by market and also by the community, the larger projects. What's really nice to see in this particular quarter is that it's actually organic growth in all our segments. The acquisition of Novia, that developed in accordance with the plan within the core growth in the quarter, while the strength of the Swedish krona had a twice-negative impact in the quarter. The June 2025 communicated investment within a component solutions group within segment Americas had a minor negative effect on growth, with 0.3 percentage points. Order intake, the subsidy mentioned, was in line with necessities in the quarter. If we look at gross margin and OPEX development, we are very satisfied with the gross margin development in the quarter, which increased compared to the comparative quarter, and reached strong levels of 33.2% compared to 31.1% in previous year, an increase of 2.1 percentage points. All regions and most companies increased their gross margin in the quarter, which is really nice to see. The increased gross margin is a result of the focused work to continue to improve both our customer and product mix, as well as landed purchase savings in the quarter. Some positive currency effects compared to the comparable quarter, as well as certain price adjustments made. Over the past 12 quarters now, we have seen strong momentum in the gross margin development, a development that we expect to continue throughout the rest of 2026. Operating expenses in comparison net sales amounted to 18.5%. It's slightly higher than previous year. We still have quite a big focus on strong cost control, but at the same time, we continue to invest in certain growth opportunities and initiatives in selected companies. All in all, a growing top line in combination with a continued strong growth model development. pair with good cost control led to a clear improvement in both absolute adjusted operating profit and margin in the quarter. Adjusted operating profit increased with 65 million SEK or 24.2% versus the comparative quarter and landed in on 333 million SEK. Adjusted operating margin increased with 1.6 percentage points to 14.7 percentage points compared to 13.1 last year. What's really nice to see is that all segments increased both their adjusted operating profit in absolute figures as well as their adjusted operating margin quarter to quarter. Given the strong first half of the year, we now are well on track to reach our long-term margin targets for the full year of 2026. Cash flow-wise, the cash flow increased versus the comparative quarter, a direct result of the improved underlying result. Cash flow was also somewhat supported by a reduction in important capital, The build-up of accounts receivables fueled by the strong organic growth in the quarter was more than offset by inventory reductions and somewhat higher accounts payable. What deserves to be mentioned is the increased non-cash item figure in the cash flow statement versus the comparable quarter. It's mainly driven by an accrual build-up related to CBAM costs. CBAM, as some of you might know, that much about this EU's new carbon border adjustment mechanism, which affects our European companies from January 1st, 2026. And since the cost that we carry due to this new regulation has not yet been paid out, they have been increasing the non-cash item in the cash flow compared to previous year. And according to current regulations, the accumulated CBAM provision is expected to be settled during the first three quarters of 2027. net debt and net debt versus EBITDA wise will remain at a solid 2.4 multiple despite dividend payment and currency effects as you know we made some dividend payments in late April and that's together with some unfavorable foreign exchange effects on our acquisitions loans in the quarter led to a slightly increased debt which was in fully basically offset by the increased EBITDA strong development in the quarter, meaning that we stayed on the leverage of 2.4. And the stable leverage level was supported, as said, by the strong underlying EBITDA growth, demonstrating the strength of the group's earnings development and cash generation in the quarter. With that, I leave the world over to you, Eric.

Thanks Marcus, and I will continue then with some highlights from each of the regions, and I will start with the region Europe, North and East. Total growth in the region was 3.8%, of which organic growth was 3.8%. Market conditions continue to vary across countries and customer segments in the region. We saw positive development in Norway, Poland and in Denmark due to increased market share. The furniture and kitchen sector for AC Bendix continued to face low demand, whereas demand in defense, diesel infrastructure, and electrification was strong in the quarter. The gross margin was very strong, reaching 35.1% in an improvement by 3.9 percentage points, driven by a better customer product mix and consideration of purchasing volumes and the currency effect. Operating expenses increased quarter to quarter, mainly as a result of currency losses and higher personal costs in the region. Overall, this resulted in an improved and strong adjusted operating margin of 16.4% compared to 14% last year. If we then continue with the region Europe West, the total growth in the quarter for the region was 35.8%, a very strong number. The growth was largely driven by acquisition of Novagroup last year, which contributed by 26.6%, while organic growth came in at a strong 10.1%. The organic growth was driven by strong development at Flos in the Netherlands, Biffa Spain and Biffab Czech, supported by increasing market shares in several markets, including positive contributions from our big project with a seeding conductor player in the Netherlands. and also better product mix in the region. The demand was particularly strong in sectors such as mechatronics, aerospace, and defense in the region. The gross margin improved by 1.3 percentage points, driven by improved product mix and higher added value in new projects. The cost level was low, lower than last year. As a result of the strong growth, improved gross margin and low cost base, the adjusted operating margin improved to 13.8%, compared to 11.8% last year. The newly acquired Nova Group performed a quality plan during the quarter. Continue then with the region Americas. The total growth was minus 3.2%, which organic growth was positive 2.6%, and organic growth was mainly driven by price increases driven by CSG. The demand in the RV and trailer market, which is an important segment for ABS, remained stable but on a low level. We saw longer than usual plant closures during American holidays in the quarter, and low demand continued in the automotive industry, which particularly impacted CSG. The gross margin improved by 1.6 percentage points, The improvement was mainly driven by general price adjustments and a successful turnaround within our sister company, CSG. The cost level was lower compared with last year, mainly due to the investment of CSG's production facility, combined with continued good cost control in the region. Overall, this resulted in a strong improvement in the adjusted operating margin, which increased to 21.1% compared with 19.3% in the comparative quarter. Let's continue then with region UK Ireland. The total growth in the region was minus 2.3%, with organic growth of positive 0.3%. We continue to see a weak demand in the construction industry, impacting Tinku in the region. Rising market prices of stainless steel impacted Apex in a positive way, and Riff of UK benefited from increased market share. The gross margin improved by 2.2 percentage points, mainly driven by rising prices on stainless steel, sourcing savings, and somewhat lower trade costs in the region. The total cost level was higher compared with last year. This was explained by positive foreign currency translation, and underlying cost development continues to be corrected by good cost control overall. This resulted in improvement in adjusting operating margin to 12.3%, compared with 10.8% in the competitive period. Finally, region Asia-Pacific, the total growth amounted to 14.6%, with strong organic growth of 14.9% for the region. The strong growth was mainly driven by Beef of Shanghai and Beef of India, and impacted by strong growth within energy in industrial automation. The growth model improved by strong 3.5 percentage points. The improvement was driven by continued active work with implementation of value-based pricing, improved customer product mix, as well as purchasing savings. The cost level was lower compared with last year, primarily as a result of higher volumes, currency fakes, but also thanks to continued good cost control in the region. A strong development in all levels led to impressive improvement of the adjusted operating margin, reaching 20.9 percent compared with 13.7 in the comparative quarter. I will, after that, continue with some group news, and I'd like to start to talk about the acquisition of DCIron that we signed in the beginning of July. And DCIron is a UK-based distributor of ironwork parts. The company supplies products to fencing gate systems, iron components, and key clamps systems to fabricators, aniline companies, and contractors across the UK. East Lagerand had a turnover of £14.8 million last year, with margins significant above Bufab's profitability target of 14% on EBITDA level. The company is based in Newcastle, UK, and has 40 employees. The former owner and MD, Scott Collins, will continue as MD after the acquisition. And of course, it is great for me to welcome Scott and his team to Bufab. We acquire 100% of the shares with a three-year earnout, and DC Iron will be reported as a niche company within region UK and Ireland. So why do we acquire DC Iron? We see DC Iron as a strong fit for Buthbhab. It is aligned our strategy of acquiring profitable companies and attracting niches within seaports and technical components. The company operates in an attractive and resilient niche market, and are one of the leading players within their niche. They have a strong product range, low customer concentration, with end customers in segments such as infrastructure, public, indoor, and safety. Looking back, Lisa and I believe in excellent growth and profit, and we see great opportunities in the boost of families to continue this positive trend. To conclude, we see a strong culture and commercial fit for Bluetrub and acquisition fully in line with our long-term strategy. Finally, on the group news, I'm happy to share that Bluetrub Shanghai has been awarded as Excellent Cooperative Supplier by Schneider Electric at Schneider Electric Supplier Day 2026. Bilbao has been working closely with Schneider globally for many years, and we have today a strong collaboration with Schneider globally, but also in China. In China, Bilbao Shanghai has gradually been growing with Schneider, and is today supporting 20 of Schneider's 23 manufacturing sites in China, and are today seen as a long-term partner to Schneider. Bilbao Shanghai got an award for the tailor-made end-to-end solutions, including VMI services, R&D support, and strong customer service. For me, this recognition demonstrates our ability to support customers throughout the value chain, from product development to efficient and resilient supply chain solutions. We will, of course, continue our value creation journey with our customers and ensure that we build long-term partnerships through our services in line with our strategy in the IFAD family. I will then end this call with sum up the quarters and say a few words about our outlook and priorities. To sum up, I'm overall pleased with our performance in the second quarter. We continue to execute very well on our strategy, and we deliver strong organic growth, clear improvements in both flot and operating margins. and all regions and almost all of our sister companies improve the results year on year. Over the past 12 quarters, we have seen a strong momentum in our gross margin, a development we expect to continue during 2026. We have, over the last couple of years, worked actively with our value creation for our customers, implement more value-based pricing across the organization, gradually improving our custom product mix, and this has clearly started to pay off. and we are well on track to achieving our margin target for the year. As previously communicated, we have not been affected directly by the Iran war and the disruption in the Strait of Hormuz, but we continue to see cautious market and cautious approach among our customers, and somewhat increasing purchasing prices from Asia lately. Our focus going forward remains the same, and that is to focus on things we can control, and continue to execute well on our strategy, with a clear focus on value creation for our customers. This includes continuing to gain market shares, gradually improving our gross margin, and a good cost control, and, of course, delivering a strong cash flow. If we do a good job here, this will put us in a good position when the market demands returns. Despite the continued uncertainty in the world, we remain optimistic about the future and believe that we have a strong momentum for the future. That was my final slide for today. I will now open up the floor for Q&A. 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 Johnny Yin, and he is from SEB. Please ask your question.

Thank you. Good morning, Erik and Marcus. Hope you can hear me. I have a couple of questions. I want to start with the strong organic growth, which is good to see, but I want to break down this a little bit further. So starting in West here, 10% organic growth, a clear pickup here. Is that a reflection... on previously one contract that is now being fully ramped up, or is it even more to come in the near term, or is it sort of other market share gains you're taking in in the quarter? Maybe elaborate there.

Sure. Good morning, Jonny. Yes, it's a combination. We are doing well overall in the region, and we have several companies that are performing well and grabbing market share. And as On top of that, we also have a very good momentum in Netherlands with the big semiconductor player that is ramping up. So that is also contributing positively to the organic growth. So it is a mix between overall good performance in many sisters and that they're ramping up semiconductor partnership that we have in Netherlands with a big semiconductor player.

Understood. Is it still ramping, or is it sort of this level?

Yes, we still have the ramping up phase. So, still it's in the ramping up, and hopefully more to come.

Understood. Sounds promising. Then I want to move to Asia a little bit, also very strong growth. What is happening there? Is there any sort of project sales impacting positively here in this quarter, or is it pure regular market share gains there as well?

No, it's, I think, regular market share gains. As I mentioned when I talked about the region's performance, we see really strong momentum in China, and we've seen that for quite many quarters. We do a good job with many of our customers there. And on top of that, we also see very good performance from India in the quarter. And that combined puts us in a very strong performance in the quarter. So it's a is driven by good performance in India and China.

Understood. And then UK here, also very positive jump. It's nice to see that it's now positive trajectory again, or territory. Do you see like sort of a general market stabilization in UK from here, or can we, was something special impact in UK in this quarter, or is it only, yeah, markets again there as well?

Well, the market remains cautious, I would say, in... in the UK. So, Timkur at Operating Construction is facing a tough market condition out there still, so no improvements whatsoever. What we see, some slightly positive effect is the prices on stainless that impacts Apex in a positive way. That gives some impact in a positive way for Apex. But the overall market I understand.

And the price effect here of organic growth in this quarter, I mean, has price effect already started to show, the accelerating price effect in this quarter, or is the acceleration in this quarter mainly a reflection of volume, would you say? Mainly volume.

Okay. Okay.

And then the gross margin, I mean, yeah, obviously very strong again and impressive. It's strong also in all regions, which I understand is a reflection of your, yeah, strategy execution and mix. But in America specifically, 42.4% gross margin seems very strong here, despite tough comparables. So besides these structural changes, were there any temporary effects impacting America's gross margin in this quarter? No. Okay, that's clear. And then on tariffs, I mean, some companies are receiving tariffs refunds from the U.S. now. Is that something you are expecting as well?

No, not what we have seen so far. So let's see what will happen, but we have not seen it so far.

I understand, I understand. Just one final question, but in segments north and east here, you mentioned some increased personal costs due to growth initiatives here. What is that more specifically? I mean, are you... having a new contract you're preparing to ramp up, or is that something special you want to mention?

No, that's mainly linked to bonus accruals, I guess, because we saw development in the quarter.

Yeah, I mean, most of the cost is obviously coming from the people's side, given that that's the biggest part of the open in the pub. So it's investments within that area in the last couple of quarters.

Understood. That was all for me. Thank you very much and have a great summer. Thank you. Thank you.

Since there seems to be no further questions, I hand over to Erik to close the meeting.

Okay, so thanks everyone for joining this call. I wish you all a nice day and summer. So thanks for joining. Bye-bye.