Ependion AB

Ladies and gentlemen, welcome to the presentation of Beja Electronics Group ABQ1 report. Today, I'm pleased to present Pia Samuelsson, 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 your meetings.

Okay, thank you very much, and all of you, very welcome to the presentation of Bay Group today. And we will do as we normally do. I will start up, and then Joakim will come in and get through the results, and then I will come back with some concluding remarks. And so let's start up then. I should just change slide. If we start with the headlines we have here. you can see that the good thing in quarter one is that we really now see signs of the market recovery in the quarter. We indicated in end of Q4 that we started to see upturns, but now we can really see during quarter one that there is a better situation at the market. And a lot of our customers, or most of our customers, are now starting to be quite active again. And You can see that also then on the order intake that it's a couple of, I think it is end of 2019, beginning of 2020 that we had these levels, but now we have a good order intake in the quarter. And also, I'm a little bit happy to say that this time is driven by Bayer Electronics. Bayer Electronics have had some tough times during 2020, but we can now see that they are coming back. And you can see later in the presentation that their order intake actually in the quarter was at the level of 220 million, which is quite a good level for Bay Electronics. We still have an electronic component shortage situation, and I think a lot of other companies have the same situation. The estimation from our side is that we have lost in the quarter roughly 8% to 10% in volumes. I mean, if we wouldn't have had any problems with the components to what we're saying, then the sales would have been something like 8% to 10% higher. That's what we're trying to say with this sentence. The good news is, of course, that we're not losing the business, so hopefully we will get that back in Q2 and Q3. And I will come back a little bit with comments on electronic component shortage. But together with the order intake and together with the demand situation, that's why we are optimistic going forward. I would also make one other comment here, and that is that During 2020, then you can say that what has limited the sales has been the sales situation and the order intake and the sales from customers. Now the next, I would say, quarter, the limits on the sales would be more supply chain issues. So that means that now it's a big fight in supply chain to get in components and get them out to customers. So that little bit will be the limits going forward. but I will comment that a little bit later in this presentation. We have had, as those of you who follow us, they know that we're doing 2020, it has lowered the cost base, and we can see that even though that the sales was on the low side compared to where we should be, we still could make a small profit. From 1st of April, we now have another company coming into our group, and that's the German company called Eltech that we acquired. And we are very, very happy to welcome Ailtech into the group. And this really also fits very well into the Vestamo WeGrow strategy, and it complements the offer to the train industry in a very good way. I mean, we have said before that Ailtech is very good in the onboard systems to trains. And once again, they will be consolidated into our figures from 1st of April. When we look into Bay Electronics and the order bookings, what I also like here is that it's all regions. We normally divide Bay Electronics sales into Asia Pacific, Europe, and U.S. In quarter one, I would say that all three units have contributed with increases in the order intake. That is, of course, good going forward. Vestamo, once again, those of you that follow us knows that Vestamo now and then gets bigger orders, especially on the train side. Now, during quarter one, there is no large specific orders that have been coming in, but I think that once again, if you look at the business model of Vestamo, we follow very closely the different pipelines that we have and also where we get specified by customers. And we know and we are quite positive about that situation because we know that there is a very strong pipeline. And I foresee in the next two or three quarters, you will probably see some big orders coming in. And of course, then also that the agreement we signed beginning of the year with the Alstom Company, that is 250 million agreement, Step by step, even Alstom will then, of course, come in with orders going forward. So Vestamo, even though they are a little bit weaker quarter, that I'm not being awake at night because of Vestamo. I know they will come back in profits. The smaller unit, Corenex, has during several quarters had been in red, but now with the increased order intake and with the sales that we foresee, Going forward, we think we will be able to have small pluses on core endings going forward, and that is, of course, also good. Full focus on capture and growth, as well as increasing supply capacity. Here we're trying to tell you that we see now that the market is turning up, but as I said before, the limitations we have is in supply chains. We now see that quarter two, we will have a better capacity than quarter one, but since we still foresee increases in order intake, there will still be some, I would say, delayments, the way I guess it, but we will have a higher capacity Q2 than Q1, and that is, of course, important for you to understand, which means that we foresee then higher sales in Q2. But I'm not the right person to speculate in when this component shortage is getting out of the question, so to say. The problem is also a little bit around transportation. So once we have the supply agreements, then you need to transport it. And I think that it will take one or two more months before that is clarified as well. If we then look into a little bit the order intake, and this is what I had mentioned before, but you can see here on the slides that the order intake in Q1 2021 now is over the 400 again. And after three-week quarters during 2020, you can see that we're starting to get back up again. And also, if you had 400 million plus during several quarters, Sooner or later that will turn into sales. So if you see now that the order intake is 417 and you compare that with the sales level on 350, that tells us that going forward the sales will increase. And that is of course important for us. Third point, the backlog. Now we have, we were a little bit eating on the backlog during 2020. but now we are building the backlog up again. And the backlog on 565, that is actually all time high for us. So that's of course good. Otherwise, I leave the stage for Joakim and he will go through the results here.

Hello everyone, this is Joakim here. We will start with the group. The headline saying that sales moving sideways and the result is back in black. If we look at the upper left corner, you notice that the order intake, as Pam mentioned, 417 million. Sales, 351 million and EBIT on 4.6 or 1.3%. If you look at sales, as Pam mentioned, we came in Similar level as we saw in Q4. And the shortage or the impact of the component shortage is around 8% to 10%. We see this impacting both Bayer Electronics and Carenix and Vestamu. Somewhat more in Bayer Carenix than in Vestamu. Bottom line, ABIT 4.6. It's not, of course, where we want to be. driven or the reason for it being that the sales level is where it is. However, we should also notice, or you should notice, that we have lowered the cost base during 2020 via the restructuring program. We talked about that in the last report. And of course, generally, we keep tight on the cost spending in every entity within the group. giving us a small positive result. When it comes to the currency impacts in total, we have somewhat of a headwind, minus 1.4 million in the quarter, and it's mainly then transactional variances that's behind it. Bottom, bottom line, or the net income, also positive, small number, 1.6 million. Then the last point, looking at the cash flow. Unfortunately, we are somewhat negative, minus 18, but that is then, of course, the reason for it is that, relatively speaking, the profit generation is not where we want it to be, but it is the increases in working capital. And with the supply chain challenges that we are facing, We see somewhat of inventory increases and also then some increases in accounts receivables. But no dramatic things here. But going forward, of course, we want to see positive cash flow. Let's move into Vestamu. Here we are basically seeing result-wise or sales and results similar levels that we saw in the last quarter of last year, moving sideways. Order intake 172 million, sales 187 million, and EBIT 17 or 9.1%. We should remember, and you can see that on the sales graph in the lower left corner, that Q1 that we are comparing with, was a really record quarter for Vestamo. And all comparisons are then, of course, very tough, as we are now experiencing a pandemic situation compared to where we were at that time. But if we compare to end of last year, The result, I said, it was moving sideways. Actually, if we are looking more into the details, the sales is somewhat better, the result is somewhat better, but there is also then an impact of the component shortage or an element of that that has impacted the estimate during the quarter. Per talked about the lack of larger orders in the quarter, but still, as Per said, we are confident in moving forward. We also want to highlight that you that follow us, the WeGrow strategy, meaning that we are focusing on the energy segment and also the track site segment. Activities are ongoing and that will eventually show also in a good development in the business. And Pam mentioned also that LTEC is joining Vestamo and Bay Group then from 1st of April. Let's move to Bayer Electronics. The heading here, strong order bookings. Order intake 220 million, sales 144 million, and an EBIT of minus 0.5, just below zero then. Pat also mentioned that all the geographical regions, America, SMA, and APAC, they all show good growth. And looking at the number here, it says 17% if we compare to first quarter last year. There is a currency element in this. If we look at the fixed rates comparison, it's actually 25%. And the good thing is that All regions here, America, SMA, and APAC, they are all above 20% growth. So that is a really good thing. We have talked about the hampering of the sales due to the component shortage. And so if we summarize the quarter, we end up on the same kind of sales level as we had in the end of last year. And that then leads to the EBIT that comes just below zero. But we should be clear that we have lowered the cost base significantly in Bayer Electronics. So moving forwards, we believe that we have a good possibility to increase profit generation. And the last point, we have talked about that for quite some quarters now. We continue cooperation between Corenex and Bayer Electronics according to our plans. Last, but not least maybe, we talk about Greenix. Here we also see a good order intake and a lowered cost base as well. Order intake 27 million, sales 22 million, and EBIT of minus 1.4 million for the quarter. We are happy to notice that we see a positive order development here. and we are more than 30% up compared to last year's first quarter. Maybe you remember that CoreNex was hit already in Q1 last year of the pandemic. So here we see a growth, but also if we look sequentially compared to last quarter, Q4 2020, we see a sequential growth of another 14% now in this quarter. So it's good. Sales, it is improvement compared to last year, but somewhat lower than end of last year. And that is, we shouldn't put too much into that. That moves between how customers want to have their deliveries. It's been Chinese New Year and all that, and also added to that the component shortages. So with that somewhat lower sales, unfortunately, we came in on a negative result. It's still an improvement, but the lower sales is driving the loss. As said, the costs, we have significantly also lowered the cost situation in CoreNex. So it's catered for better results moving forward. And as said before, the cooperation between Bayer and Coremix continues. And as a reminder, we are using the sales channels of Bayer Electronics to also sell the Coremix assortment. And we are coordinating supply chain activities so that we are getting as smooth and cost-efficient operations as possible. That kind of concludes the total and the business entities, so over to you, Pah.

Thank you very much. A couple of slides a little bit on the strategy that we want to put in. Because you can hear now from me and Joachim that we sound in our tones a little bit positive, and it is also because when we are selling our products and services, There is normally, I would say, six to three years process with technical discussions. And normally then, if we then win these discussions, then we will be specified in to the customer's products. It could be system integrators, OEMs, and so on. And the most important thing for us is then to get the okay. Yes, you are specified in our products. And we have seen now the last, I would say, two to three years that with the product portfolio that we have, we are now getting specified into a lot of the customers' new products, which is also quite important. Second point here, high degree of repetitive revenue creates stability over time. That means that we now know in our pipeline, and I'm now talking about all three units, that the next couple of years, we will see orders coming in that we haven't seen before because we know that we are specified in. And once you're specified, that means that every time the customers are selling their products, they will sell our products as well. And that is a very key question for us. Then you all know that we are a decentralized organization also. and that is, of course, meaning that we are close to the customers, and that's why we have the optimists as we have me and Joakim at the moment. And that means also that the growth targets, we have mentioned now a couple of times that we foresee that the three units that we have in the portfolio today, they have good opportunities to grow organically at least 10% per year going forward, and if they do that, then they have definitely potential to have an EBIT level of 15. That we can see now clearly now when we're starting to come into 2021. Another thing that I have come into that is important when you try to understand our group is that we have been, historically, we have been spending a lot of money into the R&D, and also the free units that we have bought now in Vestamo is also, you can call it high-tech companies with relatively speaking high R&D. But the important thing is that if you see in this slide that we get good payback, we call it ROI in two to three years, as a payback in two to three years in this thing. So we think that it's well-spent money. We also state on this slide that two-thirds or 67% of Our product portfolio now, and I would probably say that it's a little bit more than that even, is now a modern product, and it's now, so that will last for the next five to 10 years. And that is, of course, also important. And you can also see as an information, I think we haven't specified that as well, but we have at the moment 200 development engineers, of which 120 is in software. And if you then look into, we are 800 employees. So this company is actually 25% of the business, of the people here, is working with development. And that's also, and they are good people, by the way. Going forward, you can hear on us that from now on, we have good possibilities to make sure that we increase profit going forward. And we have then that it offers a very good potential to achieve better financial performance in 2021 than 2020. And of course, now we are coming into three-week quarters after 2020. It was three-week quarters. But during the rest of 2021, our aim now is to getting back into a good profit situation step by step. Because of the supply chain crisis, constraints that we have. I don't dare to say what happens Q2 or Q3 or Q4, but I'm quite sure that during this year you will see improved profits step by step. And coming into 22 and 23, I would argue and say that we are quite well positioned for the future. Normally now when we talk to investors and also this is the five major reasons for people to, the thing we think are the five reasons to invest in Bay Group. You can see now that the, I would say that one of the few positive things with the pandemic is that you can see that the digitalization is actually, the trends there is improving. We are now, we dare to say that we have leading products in our niches. And we had strong growth opportunities and, as I have said, attractive product portfolio. And with good people in different business units, in my position, I'm quite optimistic going forward. So that's the message that we want to send. So by that, we end the presentations and open up for questions.

Thank you. Ladies and gentlemen, if you have a question for the speakers, please press 01 on your telephone keypad and you're on to a queue. After you're announced, please ask your question. And just as a final reminder, that was 01 on your telephone keypad if you wish to ask a question. And as there seems to be no questions, I'll hand it back to the speakers.

Thank you very much. Then I just want to, me and Joachim, want to thank all of you for calling in, and I wish you a good day and hopefully some better weather going forward and also that the pandemic goes in the right direction going forward. Thank you very much. Thank you.

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