Bulten AB (publ)

Hello and welcome to today's Finwire presentation with Bulten. After the presentation, there will be a question and answer session. So if you have any questions, you can submit them in English using the form on the right. With that said, I'll hand the floor to you. Please go ahead.

Thank you and welcome everybody to our Q2 call here at Bulten. I look forward to an engaging session at the end with some Q&A. Hopefully there are some questions from you in the audience you're listening in and we will get back to them at the end, as we said. So today we will talk about our second quarter, but also have a bit of a touch point on the transformation that we are undergoing at the moment. As you have heard, we have announced the news that we are divesting our Tianyin plant. which is an automotive contract manufacturing business, and also our four plants in Europe that are contract manufacturing businesses focused on automotive. This is quite a big step for Bulten. We will focus on that first, then we'll go into the Q2 highlights and speak a little about the future portfolio and some financials, and then we open up for Q&A in the end. So for those of you who follow Bulten more closely, you may remember that last year around this time we announced that we will undergo a strategic review of our business. We talked about that we want to have a look at our industrial footprint to see what makes sense to keep for us as Bulten. We were targeting a group with the biggest share of value adding activities. We were looking to become a bit more asset light and find a way to become a company that generates more profit and more cash. And that review has been going on since. I think the first step for us is that we decided to have a look at our engine operations where we had a JD up in Jamnagar that we were not too satisfied with. We just built a new plant. We did not really appreciate how that process went. So we decided to exit that JD and build our own plant down in Chennai. And that is now almost finished. So that's a big first step we did. In February, we announced that we will stop manufacturing in Ohio in the US. and that manufacturing has now been exited. We have now announced that we are divesting our Tianjin plant and we have announced that we are divesting our European manufacturing. And this basically concludes the larger strategic review that we have, even though those will obviously be small things going on and changes coming in the future as well. But these are the more larger stuff that we had planned that are more restructuring oriented and we are now moving into more of an offensive move going for growth and profit generation. As you might have seen in our Q2 report, we are now reporting our business as assets held for sale. So they're quite different numbers than what you are used to looking at. And this is to give you a fair view of what the new business will look like that is today called Bullsden, but in the future will have a different name. So the business that we now have, have a revenue around 800 million per quarter. We do around 8% EBIT margin and we are cash posited. And I will come back to you with some more details around this, but we are quite happy right now that we have a group with good profit generation, it's good cash generation. We will have a good return of capital employed in this business and a fairly sound balance sheet that puts us in a very good position for profitable growth going forward, both organically, which is the main part, but we'll also support that with M&A activities when that fits the strategy and the timing. So there have been two different deals announced here then, if we do not spend more time on the US and India today. So we have decided to sell the European business to Mäli. Mäli is a Swedish investment company based out of Stockholm that own a various set of businesses. They are the largest shareholder in Viking Line. They own some agricultural businesses. They own industrial businesses and real estate businesses. They have a strong balance sheet and are a long-term type of owner. and we are quite happy to have found this type of owner for the European business. It is an owner with long-term perspective. It will give the business an opportunity to not be in a listed environment, which I think is a key success factor for this type of industry. The contract manufacturing business is In many ways, a nice business. It is stable. The volumes are stable over time. It is a lower profit margin business than what we want to have as a group. But there are good opportunities to make money in this business. Most of the successful businesses here are family held out of the stock markets and invested with a very long time horizon. And I do hope that this is what Mallier will bring to this business. So we're quite happy with that. We have sold the shares of six different legal entities and it is an external or this would reduce our sales as a group with about 1900 million SEK or 1.9 billion and it's about a thousand employees that will follow this transaction. If we look at the Chinese business, that is a bit different. We have been struggling as Bulletin in China to win volume in the automotive space as a very small plant, European owned. We have not been able to have the right traction with the Chinese car manufacturers. Now we have found an owner that is well connected in the Chinese automotive fastener business and We think that they will be a good home for this business and have good fundamentals for developing this business further. It should be a good home for our employees and we look forward to following their journey. Overall, we will keep buying parts from both of these companies. So for the FSP business that we have primarily in the UK that serves JLR, we will keep buying parts from these factories, but also to Exim and to PSM, we will buy some components from these factories in the future. So the ongoing relationship is important to us and we will value it highly. You might have heard me speak in different forums that we have four different businesses within Bulten. I think we have touched on this in the calls here as well a couple of times. So basically we have Exim that we acquired about three years ago, something like that, which is a seed parts distribution business based out of Singapore. It's a very asset-like sourcing and distribution business that have a lot of value added services. We did a lot of kitting, a lot of VMI. We did a lot of supply chain services such as testing validation R&D support to our customers. It's a business that has a fairly good profit fundamentals in here. It's a good role. So this business and we are positioned very well in some high growth markets. That's a nice business. We have PSM. PSM is more of a business where you have a lot of IP in your products. We produce parts with a very high precision and very tight tolerances. We provide parts for automotive as well. We do a lot of parts that go into the energy packs or the energy power trains of the electric vehicles. We do parts for electronics parts of cars and so on. But mostly we serve consumer electronics, medtech and those type of markets with these parts. It's also a type of business where given that you have a high portion of IP and high portion of high tolerances, you can have good fundamentals for good margins and good return of your invested capital. So it's a nice business from that perspective. Our FSP business is a little bit different. It's fairly high volume. It is a little bit slimmer on margin side here, but it is a decent cash generation and a fairly stable business. The good thing is it's a very sticky business with good customer integration and we have a strong team that provides value added services for our customers, which makes this attractive for us. Then we have our automotive contract manufacturing, which we are now then transitioning out. And what we're doing is not too dissimilar from what Hexagon did with Octave and what SKF does with their automotive business. Basically, we think that the sum of all our parts in Bolten is worth a lot more than what we are given credit for on the stock market. And when we divest this contract manufacturing, we believe that the value of the remaining parts will be shown and that we will be given a better value for our shareholders on the stock market for this business. The automotive contract manufacturer, as I said, is a nice business. It's stable volumes, but it's fairly high capital intensity. And obviously, you have a fairly high volume dependency. So when the plants are filled, when they run well, you have a decent margin. When the volume goes down, you have a more challenging situation. But we have good plants, they are well run, and I think they will be performing very well under new ownership. So what you will see is that the remaining portfolio that we have will be a higher profit type of business. We will have a better cashflow and a better return of capital employed in businesses that we then retain here, which is the things that kind of hold them together from a business point of view. And then something else that's worth knowing is also kind of front side and the back side of the value chain. So the precision manufacturing often supplies in to the distribution type of businesses. And over time, we will add more businesses that make sense to feed the more front side of the business where you have the distribution. So as the distribution side grows, we think we will find quite a few pockets where it would be quite good to own the supply side of the business, and then we will keep adding those to the business model. So it's a good logic to keep these together. With that said, hopefully that explains the logic of what we're trying to do. I will hand over to Anna to give us some highlights of the Q2 results and explain some more details about the numbers that may not be obvious this point in time.

Thank you, Abseth. Net sales for the retained business then amount to 779 million SEK and that's a decrease of 7% compared to second quarter last year, but sales remains stable compared to last quarter. And looking at 12 months rolling net sales is now around 3 billion SEK. The retained business delivered an EBIT of 62 million SEK, which is equal to 8% EBIT margin in the second quarter. And compared to the same quarter last year, we have taken operational measures, reduced personnel and have a more focused business mix, which shows in the numbers. Quarter three last year was heavily affected by the cyber attack at one of our largest customers. But as you can see, the last three quarters have been at a stable 8% despite the lower volumes. And when it comes to the key indicators with the rolling 12 months numbers, the calculations are correct, but a bit theoretical. They are calculated with a new retained result, but the old balance sheet numbers, which then makes the indicators a bit skewed. And we have not made any adjustments to these. Yeah, and now back to you, Axel.

Thank you. Okay, so what does this mean for us? I think that where we are right now, the first thing that's most important is to ensure that we have a smooth transition of our employees, first and foremost, and then our customers and our suppliers. So we will have a high focus on making sure that these carve outs work really well and that our customers are happy, employees are happy, and that the business will continue as it should. Then we have kind of concluded the most important parts of our restructuring of the business. And we will now move to more of an offensive game plan where we try to scale faster, grow faster, but also make sure that we scale in the right places where we make money and we have a good return of capital employed. The PSN business that we have, which is done around these precision components, we will put even more focus on getting our China plant up and running. This is a very high potential for us, both when it comes to the Indian market for consumer electronics, but also to be an export hub to North America and to other parts of the world for these type of parts. So we're super excited about that. I think the business case is great for this factory and we look forward to getting that fully operational and starting to grow in the business. We have our CPaaS business. We are spending a lot of time with the Exim business in expanding that. They are experiencing very heavy growth in some sectors, especially around AI infrastructure and Those type of customers that we have also run for new, but energy is a high growth area and we need to make sure that we manage that scaling in a good way so that we keep earning good money in that and having a good return of our investments. But it's a very exciting type of business with good growth potential. We also have our full service business in the UK where we are expanding our offerings. We are adding more services into that. And we will also put a lot of emphasis on broadening the customer group that they are serving. So this is probably an area where we will start to look for more acquisitions and to find local customers really fast. We will also make sure that we have a strong balance sheet after all this is done. And with a strong balance sheet that opens up opportunities for investments, we will invest both organically and in acquisitions going forward. Obviously, we will not announce anything around that until we are done. But there are a lot of opportunities in the market that we'll go after and chase. And I think that gives a lot of energy in the team. And we are quite excited to internally start to talk about what the new company will be. And obviously, as I mentioned earlier, we will need to change the name. That is something we will not go to a general meeting with the shareholders and vote for. But it would also change the culture that we have. It would change the DNA of our business, even though we will take the important pieces of our heritage with us. But it's a milestone day for Bulletin and we look forward to where this will bring us going forward. That said, we open up for questions. I know there have been some sent in and some people calling in as well with questions and looking forward to see your feedback and what you are curious on.

Thank you Axel and Hanna for your presentation. Now we open up for questions. As a reminder, if you are following the report at the phone, you can ask a question by dialing star 9 on your telephone keypad to raise your hand and star 6 to lower it. Meanwhile, we can start with some written questions that we received. The first one is from Andrew. He's asking, what are the key drivers behind the Q2 2026 revenue growth? And what is the outlook for the second half of the year?

Okay. So there was no real revenue growth in Q2. So I would assume that the question is more about profit growth. That was quite heavy in Q2, I guess. And as Anna mentioned earlier on, most of this has to do that we have been quite good at making these businesses more efficient. We have also been able to change the customer mix in there to go more towards customers where we have a larger portion of value add and can have a higher margin. And we have also done restructured headquarter, which is a quite important part of this, where our costs have gone down, which means that we are loading the, the subsidiaries with less cost. And that of course helps in generating more profit for the business. When it comes to giving forecasts for the future, we don't, don't do that. We don't have any, unfortunately that we make public. So I would pass on that question for today.

Thank you so much. Now we go with the questions from this number that ends up with 1262. Please go ahead and unmute yourself.

Thank you very much. Just a couple of questions. First, it's a pretty large impairment charge. What will the tax impact be of that going forward? The tax impact there will be minimal. So will this sort of reduce the tax you need to pay on future earnings. I mean, if it's tax loss carry forward traded.

There will be no taxes going forward. So we will be having a lower tax rate when it comes to the total effective rate going forward. That is what it will mean in reality.

Yeah. Okay, great. And regarding sort of your potential future ability to distribute dividends, will this be affected? I mean, you have a pretty substantial change in equity on the back of this measures.

We don't foresee that this will massively limit our opportunity to give it dividends because of that. Obviously it will be up to the shareholders to vote for a dividends in the future. And let's see if they want us to, you know, distribute the money to the owners or invest them in the business going forward. I cannot comment that at the moment, but we don't see that it will be a limiting factor for us at the moment.

Yeah, and what about, I mean, you have sort of exiting or factories, I think you said, in Europe. Does that include Halstahammar as well?

It does. It includes the factory in Halstahammar. It's the factory in Bergkamen in Germany, and two factories in Poland, in Bielska nearby.

Okay, great. All right. And while you have this 8% margin in the second quarter, and it seems that you're aiming higher, I mean, that was the old built-in target of 8%. This change of structure, is it sort of making, well, is there an upside in that number or do we have sort of difficulties with current volumes to to scale that further.

This is probably a very important question for everybody, but we will come back. Now that we have concluded this, we will come back and we will come with new public targets for the group that our board will set for us. And I expect that to come early autumn, so I will not set any new targets in this call for us. But I'm happy to see that we now over three quarters straight have been delivering in this type of business context on that 8% target that has been set earlier on the group set. This is the first time that we can do that. And where we go from here, obviously there's better potential. There's always potential to make a higher margin, but the targets needs to be set by our board. And we will come back to what those targets will be and what timeframe they will be set on.

Okay, great. Well, that's all for me. Thank you very much. Thank you, Max.

Thank you so much. As a reminder, if you are following the report at the phone, you can ask a question by dialing star 9 on your telephone keypad. But now we go on with some written questions that we received. Next one is from Camilla. She's asking, how will the sale affect the factory in Hallstamnar in Sweden?

Thank you. Next question from Okan.

is what was the actual transaction price for the contract business which you just divested. I can only find your write-down. Is it paid for in cash? Are there any remaining obligations for Bulten?

I think all this is public in the press release on this. So I will refer to the press release that says the enterprise value. It says how much cash we get at closing and all the payment mechanisms have been disclosed. So I will refer to the person that asked the question who can here to read the press release on it.

Thank you. Next question from Kate is how big is the share of sales to JLR in the remaining business? Thinking about earlier dependence of one major customer.

It is still a very big customer. The share of business they have with us is not public, so I will not disclose that number today either. But obviously they were a big customer before and they become an even bigger customer today, given the size of the group is smaller.

Thank you. There are no more questions at this time, so I give the word to you for some closing remarks.

Well, excellent. Thank you everybody for calling in. I think that's the first thing. I like the engagement. I hope we get more and more questions here on these calls in the future. I think that's the most important part. And I would just like to run up the call and thank everybody, all our employees that have been part of this transaction, done all the work to get where we are. And we look forward to a very exciting future for the remaining business.