Ependion AB

Ladies and gentlemen, welcome to the presentation of Bezier Electronics Group AB Financial Statement 2020. Today, I'm pleased to present Pierre Samuelson, President and CEO, and Joachim Lorrain, Executive Vice President and CFO. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question and answer session. Speakers, please begin.

Thank you very much, and all of you listening in, welcome to this report, a presentation of the report. This is the last quarter of 2020, and in one way I hope that we will not see the same situation in 2021 as we have seen in 2020. I hope and I'm sure all of you know what I mean by that. But we are going to do this presentation as we normally do between me and Joakim, And so I start, then Joakim comes in, and then I end up summarizing the end. If I start on the business update, a couple of words around the end of the year. We are, of course, not happy with the situation that we reported a small loss in the quarter four, because you never, in either of our positions, want to have this anywhere. But there are, as we tried to explain, we'll try to explain several positive signs and also substantial important things that have happened in the other year that makes us positive going forward. And we will try to explain that in this half an hour. First of all, we are still affected by the COVID-19 situation. And it's mainly, it's in all units, but it's mainly Bay Electronics that has gone, we have seen real effects on the volume side. Vestamer has, during this situation, they have been a little bit lower than expected, but still making profit every quarter and a decent level. And also, we had a tough situation in the beginning of the year, and I'm not talking about beginning of 2020 for Carenex, But step by step, they have improved, and we are happy to show a small profit, actually, after a couple of losses quarter in CoreNX. But the most important thing for us in a business like this is to look at the order situation. And we had some tough quarters, especially quarter two and quarter three last year. But now quarter four, we start to see now we are coming back up to levels where we should be. And as you can see in the second point there, that the orders increased by 28% compared to quarter three. And we, as you can see later on here, we are close to the 400 million that is important for us to come up to in the quarter. It's also extremely positive to see that Vestomu, they have now entered a supply agreement after the quarter four, that is in January 2021, with the train manufacturer Alstom. And that is, and you can see the value here, it's a five year contract and it's a 200, at least 250 million Swedish value on that one. This is also quite strategic for us because of course it's a nice figure for us. But it's also, some of you is aware of the fact that Alstom is in the process of acquiring Bombardier's train side. And there was a preliminary okay from EU authorities around this thing. And for us, of course, then this signals that we have a good position in Alstom and we have a good position in Bombardier already before. So for Vestamo and for Bay Group, this is quite important for us to get that signature, if I put it that way. We said already when this pandemic started, let's say March, April last year, we said in the call of the quarter one that we will concentrate on the financial situation, cash flow, debt, and so on, so that we don't come into problems on that side. And I'm happy to say that we have had, I mean, positive cash flows every quarter. especially now the last quarter with the 45 million. And given the circumstances, that I think is good. And that also means that we have lowered the net debt during this pandemic situation. So even though we had a negative result, a little bit hit by currency and things like that, there are also positive signs going forward. If we then go into a couple of words on the entities, I have already said that we see that Westomu, we have already stated, all the times we have stated that if business goes down, it goes down quicker in Bayer Lekonisk, but it also goes up quicker. And Westomu is a little bit more, a little bit down, a little bit up. And you can see that during 2020, that was exactly what happened. And Westomu has... Yeah, they are also back up on the order side. They have been profitable every quarter, and we can see also that there is a good backlog going forward. Bayer Electronics has been a little bit hit by, especially in the quarter four, that it's different things at the same time. I mean, a little bit mixed, a little bit higher levels of sales in the Asia-Pacific, lower in the U.S., And also, you can call it also a little bit on the product mix side. But the good news there is that now we can see the order intake going up in Bay Electronics. We can see that that will be balanced up again going forward. So there will be a better balance between the geographic regions coming into 2021. And then you will also probably see margins going up again in the Bay Electronics. I have already covered CoreNICs. I'm happy to say that they now start to be on the black side. I mean, they are making small, but a profit after several quarters in the red. We have said during the pandemic all the time here that we want to safeguard competence. We don't want to lose competence when it comes to development, but also sales side. And we have put a lot of emphasis into meeting customers digital during the whole period during 2020. And there I'm quite proud of the organization, that we feel that we have still very good customer contacts around the world, which means that as soon as the customer starts to order again, we will get up again because, as you know, when customers order, we get the business from them, so to say. And we have done some also improvements on the product side, so we are coming out of 2020 with a very good product portfolio, even better than compared to when we entered into 2020. We had confirmation, and I will tell you a little bit at the end of this presentation, that the long-term strategy remains. We can also see that overall market trends with digitalization, connectivity, and so on, even perhaps speeding up. So I think we still believe that the products that the markets we are in are good going forward. And also based on what we have seen end of quarter four, but also now beginning of quarter one, and based on the insights we have of today, we expect a market recovery in 2021, especially second half of the 2021. But it's also important to note that we have a good backlog going into 2021. The slide and the comment about COVID-19, the way we see it here is that, without going through all the details here, but we see that we will still be affected by the COVID-19 when it comes to travel, when it comes to how to communicate internally and with customers. That will be In our view, that will continue during the first half of 2021. So we see a little bit, I don't hope it's only wishful thinking, but we hope that coming to summer and after summer, we will be able to start to meet each other again. I would say as the CEO, if it takes longer time, you start to get the challenge to lead a company like this when you can't meet people. But hopefully the vaccine and things like that will make that happen. But also now important going forward, we have now said internally, we don't want to talk about the COVID-19 as an excuse not doing business, because this is a sort of a new normal when it comes to do business, which means that we hope and could see signs of that. Even first half, it will be improvements, but especially second half, we can see improvements in the business side. If we go into just a summary of the order and the sales situation, the most important thing is actually the order intake. Everybody realizes first you get an order, then it becomes sales, and then, of course, if you have higher sales, they get profit. But the order intake in quarter four, for me, it's the most important figure in the report. And you can now see that, in reality, we now have the same order intake Q4 as we had Q4 2019, especially if you're correct for the currency things. And also important is that the overall backlog that we have that you can see there is 492 million is also in the same level as it was 12 months ago. So we are coming out of 2020 in an okay position, if I put it that way. By that, I hand over to Joakim, and he will go through the financial situation.

Hello, everyone. This is Joakim. I will take you through more of the financials for the group and the three business entities. We start with the group. As you can see, the order intake was 392 million in Q4. The sales were 350, and unfortunately, we had a loss of minus 5 million for the quarter. The main reasons for the loss is, of course, the lower sales, as Perve indicated, and the fact that COVID is impacting mainly Bayer Electronics, but also, of course, impacting Vestamo and CoreNX. We have the foreign exchange against us. The impact on EBIT is around 6 million. and for the full year actually it's 20 million. So we've had an uphill kind of situation with the currency. You that follow us, you know that in Q1 we announced the restructuring program and we can now tell you that we have basically finalized that one according to plan and it will give what we said as well with around 25, 30 million savings this year, sorry, 2020, and the yearly effect of around 40 to 45 going forward. So that one is done, we can say. Looking at below EBIT on the financial net, there we also have a currency impact by the stronger corona by the end of the year. It's around 4.5 million. And the total number for the year is 8.2, actually. Net income negative, yes. Per stated the good thing is the cash flow, 45 million in the quarter and 70 million for the full year. Let's go into the business entity estimate. Heading here is order growth that Per mentioned earlier. and performance basically moving sideways. Similar numbers to what we saw in Q3. Order intake, 214 million. Sales 183 and an EBIT of plus 15 million or 8% for the quarter. And the order intake, I mean, we have landed a few, not a lot, but a few larger orders mainly on the train side. in the quarter, so it's good to see. It's not only one or two orders, it's in quite a few places, which we are happy to note. And Pär has already mentioned the Alstom contract. That is nice to see, and that is also providing for going forward with decent volumes. Earnings at 8%, as I said, full year at 11%. giving a pandemic year decent is the way we described it. We should also remember that we have continued to have the focus on our strategy, invest the more that we grow strategy, including focus on the segments power distribution track side that will cater for somewhat better growth going forward as well. And we also state that we have been working with the product and then our offerings, as Per said. We have developed a service concept also in Vestamo that we believe will add on going forward as well. So, yeah, all in all, good with the order growth in Vestamo. Barrel electronics, yeah, the heading here, continued impact of the pandemic. Order intake 159 million, sales 145, and a loss of 11 million in the quarter. The good thing here is that if you look at the sequential view on the order inside, the 159 million is actually a growth compared to Q3 with 24%. That is good to see. What we can say on the regional side is that we still see a tough time business climate or a challenging business climate in the U.S. and partly in EMEA, while Asia is actually showing a small increase. So there are lights in the tunnel for sure on that side. In terms of the loss, Pam mentioned it, we do have an unfavorable regional and by that product mix in the invoicing that's been done in the quarter. We have lower margins on the Asian side compared to the Americas and EMEA, and that has hit us in the quarter, giving the loss. We should be aware that we have taken down the cost, partly then related to the restructuring program that I mentioned before, but it's around 50 million lower level of cost in Bayer Electronics this year compared to the year before. We have before talked about the cooperation between Bayer Electronics and CoreNX. That has continued basically as planned, and we are coordinating the sales channels in EMEA and US, and we are working with the supply chains as well. And there are more to do on this matter, and that one we have in focus that we'll continue to work with. Finally, corenics. It's good to see that we have a positive sign, as Per said, positive development, turning it into the black numbers. Also here we see a sequential growth of orders compared to Q3. Good to see. Sales is also up compared to what we have seen earlier this year. Cost level we have taken down, and now with the somewhat higher volume, we do see the profit. So that one we are happy to note. We also want to highlight that during the last two years, basically, we have been having a relatively high level of development because we have... during this period, redesign the hardware platforms and also the software or the new operating systems for all the products in CoreNX during these years. And that means that going forward, we will actually release quite a few new products. So in these tough times, we have continued to invest, and that's important also to have in mind going forward. And as I said, the cooperation with Bayer Electronics continues with Forenix. That basically concludes my part, so over to you, Per.

Thank you very much. If I start up with a sort of outlook, you can see here that we say that although there is a short-term uncertainty regarding the ongoing progress, With information currently available, and here we say that, I mean, as we're sitting here today, and if we look at how it looks like in the order intake and so on today, it looks like that we will have an improvement, steady improvement during 2021. But of course, if there is a third wave in the pandemic and so on, everybody realizes that then we have perhaps another situation, but we can't see that sitting here today. And that means that we should have a good potential 2021 to be able to improve quite a lot during 2021 versus 2020. And I would say that and argue that the biggest change should come in the Bay electronics during 2021 compared to 20 as such. We have had a board meeting and the board proposed to have, unfortunately to say, zero kronor as a dividend. And this is that we still feel that there is an uncertainty and we want also to have cash available for smaller investments and so on. So there is a sort of a safeguarding of that one. But it's important to state that we want to be back to be a company giving dividend. So the definitely objective is to next year, so 2022, we should definitely start paying out dividends again. That's a clear ambition from everybody in the group here. A couple of words around the Bay Group strategy. We are saying that Bay Group, we state that we're a leading technology company providing secure solutions for a connected world. And the philosophy is based on a high degree of decentralization and also that independent subsidies with profit responsibility, they are then managed with the help of clear values and central follow-up. I mean, here we are saying that we are really a decentralized unit, but we have very clear follow-up systems and so on. So we really know what's going on more or less every day when it comes to the other side and so on. But it's important also for all the investors that are following us to understand that the business model is, of course, based on close long-term collaboration with customers. and the finished products that we have is both hardware and software, and that they have a long lifecycle. And it also provides, you can say, recurring or repeat and stable income for a long time. Once we are specified at the customer side, and you can see now the Alstom order, that once we are specified into their trains, for instance, then we will get business from those type of customers as long as they are selling their products. And I think that is extremely important to understand when it comes to our business model. And then, of course, in addition, future software updates provide opportunities for expanded business, which means that if you get another two, three, four years ahead, I'm quite sure that we will also see more and more software sales from our side. We have also said internally that the Bay Group business entities target target a growth by at least 10% organic growth on each entity, and it should have a potential to have at least an EBIT on 15%. And so this is what we want to work with. I mean, both the existing entities, I mean, the three entities we have today, should be able to have an organic growth of at least 10%, and they should have a potential in not so long for a future to have an EBIT on at least 15%. Then we also state that a large part of the growth should be organic, but we could supplement it by acquisitions, as we have seen during 2019, where we made two acquisitions. And that, of course, could be complementary to existing units, but also new independent business entities. By that, I want to end the presentation. And as a summary, I would say the following is that we don't like to present losses as we did in Q4. But there is now, step by step, a lot of things that is positive for us going forward. So we are looking forward to come into 2021 with a lot of good opportunities going forward. Thank you very much. And therefore, after that, we open up for questions.

Thank you. If you have a question for the speakers, please press 01 on your telephone keypad and you'll enter a queue. After you announce, please ask your question. Our first question comes from the line of Nicholas Haspia from TQT. Please go ahead.

Hello, Pearl. Regarding Vespamo and acquisitions, if I remember correctly, you had two acquisitions that were counted in. And in the report, you mentioned that the order intake excluding the acquisitions is minus 8%. Is that the only business unit that is affected by acquisitions? So it means in that unit, the organic growth is minus 8%. Is that correct?

Yeah, Niklas, that's correct. I mean, you can call it the old Vestamo without acquisition is minus 8%. That's correct. And so that's, you can call it, that's the effect, pandemic effect on Vestamo 2020. So that's correct. And both acquisitions belongs to Vestamo. So that's correct.

And both those acquisitions were counted in from 2020? So they affect 2020. But on the other hand, if I remember correctly, you had some major orders that were delivered in 2019. So the comparables are a little bit tougher. So it's not fully as bad as the minus eight, I guess.

Now, I mean, that's a valid comment, Nicolas, and that's exactly the way it is. I mean, we had to invest or move. If I remember right, also some 18, but mainly 19, some very big orders coming in. So, of course, when you compare 20 with 19, it's a little bit tough. Hopefully, we'll see, because we still have potential for 21. And we got one or two quarter four bigger orders coming in investor move, quarter four 2020. But let's see now what happens during 2021. But you're correct. It's a tough number to compare with. Yes. Okay.

Thank you.

Thank you.

And the next question comes from the line of Mark Schuster from Red Eye. Please go ahead.

Hello, and thank you for taking my call. I see a lot of initiatives of getting closer to the customers, like you launched United, the new partner program. And I see also Science in Vestamo, your new service concept, supplementary revenue model. Could you spread some light on these initiatives?

Yeah, I mean, some of us, unfortunately, have been around for a long time, if I put it that way. And to use bad times and also to use the situation where you can't travel and you actually get some more time in a lot of areas, then we decided directly that let's spend and do as much as we can to develop different ways customer activities both digital but also elsewhere so we you can call it we speeded that up and that means that the united there we we really have a sort of a you can call it a customer club where you really interact between different customers and ourselves and and that we could see starting that up that that's a good way to do it and then of course we can also see that we have opportunities on the service side when it comes to Vestamo. But I think the most important thing is to try to have different ways of communication with customers ongoing. Because the worst thing that could happen is that you're quiet for half a year, you don't have an interaction. So you need to find different ways and also where the customers find value to have the discussion with us. I think the most important thing with the competence that we have is that Our way of selling is to show the customers that we have a knowledge, that our knowledge about the customers' solutions and products are extremely important, are very good. So I think it's around those themes. And some people here on this call, like I said, they know me well enough to realize that I really see opportunities when it's bad times to come out of the bad times in good situations. So we shouldn't start now with customer interaction. We have had them during the whole 2020. So now 2021, and you normally can say invest in bad times and earn money in good times. And this is really what we are trying to do now, that we are really preferred on supply chain, customer interactions, and so on, to really, really, really selling and supplying during 2021. It was sort of a long answer on a short question, but that's the way I want to say it.

Yeah, thank you. And I see that you have maintained focus on product development and you have quite high investment levels. How is the pipeline looking like and the specified process?

A couple of comments I could make on that one is that, first of all, if you take Vestomu, You know that we, a couple, one and a half year ago, entered into, we stated that we start to focus on the energy sector and the power distribution side. Here, you will see products that have come out end of 20, but also during 2021. So we start to have a good certified portfolio to that segment that is important. And not even if the smallest units, I could also tell you about CoreNICS. I think Joachim touched upon the R&D on the CoreNICS side, but during 2021, we will have, I would say, 2025 up to 30 smaller and bigger product releases from that development side. So also CoreNICS starts to be ready on that side. And then we can also see that, as we stated in the report, that Bay Electronics have made an upgrade on the IEX software that may, as I said, a combination of the IX software and the X2 panels is now quite in a good situation. So yes, we are going into 2021 with a good portfolio.

Okay, and one last question. You stated that digitalization is one of the primary drivers behind the organic growth, and more and more software is a part of revenues. Is it possible to estimate more or less how much is software versus hardware right now in your product offering?

To put it this way, this is a question we are thinking about how to handle when it comes to information. But short-term, we can't specify like that. But the indication I could give is that when we have development ongoing, I would say that 65-70% of our development budgets are software. And 30, 35% is hardware. And that tells you a little bit about how the product looks like. Even though we supply a box or a HMI, the value of that box or HMI is more than half of it is the software solutions, actually. So that's why we say that we are delivering a hard and a software product every time we deliver something. But as it is today, we are still charging for the units, so to say. But we have now opened up for, especially in the Baleronics business models, that they, from now on, they could start to sell licenses also on the software. But there is no significant sale on that at the moment. But let's come back one or two years from now and see what happens there.

Okay. Thank you very much.

Just as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad now. And as there seems to be no further questions, I'll hand it back to the speakers for closing remarks.

Okay, then thank you very much for listening in, and I'm looking forward to a very nice 2021, both when it comes to the pandemic, but of course also business-wise. So once again, thank you very much for listening.

This concludes our conference call. Thank you all for attending. You may now disconnect your lines.