Ependion AB

Welcome to the Bayer Electronics Group conference call. For the first part of the conference, all participants will be in listen-only mode, so there's no need to mute your own individual lines. And afterwards, there'll be a question-and-answer session. Today, I am pleased to present Per Samuelsson, President and CEO, and Joachim Loren, Executive Vice President and CFO. Please begin your meeting.

Thank you very much. Everybody welcome to this quarter report where we will present quarter four for 2021. We will do as we normally do. I will go through a summary of the quarter and the year, and then Joakim will come in and go through the financials for the total and for the different entities. And then I'm coming back with a sort of wrap-up, sum-up in the end of the call. First of all, if you look at the slide, I hope you can see it, everybody. You can see that we, and if you see the report as well, that we are quite happy to announce and to show that we have a continuous growth during last year, and the demand situation continues to be very, very good. We passed two billion in order intake, and compared to the size of our company, that's a big number. And also, quarter four was close to 600 million in order intake. And those of you that follow us knows that we were quite happy with the 500 level quarter two and quarter three, which means that now the quarter four have taken another step up. I will give you a couple of minutes on the demand situation because this is, of course, the most important thing in the report here. We said when the pandemic started, I would say quarter two, when we announced quarter two, I think it was 2020, and it started to be, you can call it the downturn because of the pandemic. First of all, we never believed it would take this long. That's one for certain. But we said already from the beginning that the objective is to keep product development on a good level, that we should continue to work close with customers, even though it was digital. We also said that our objective is to keep sales organization and service organization intact so we could get out of the pandemic in a good way. And the internal objective was to, how should I put it, get out of it in a better situation than we got into it, if you understand what I'm saying here. We started to realize that that was a good strategy, I think, beginning of last year. And we can see now during 2021, we have got several, and I would say it's more than 10 different big customers that have been coming to us and thanked us for the way we have handled the situation. And you can also then see in the order intake during the year that it's a very good order intake, as I have said. Of course, there could be some sort of change of behavior when customers are ordering, meaning that they are perhaps placing a little bit longer-term orders compared to how they did it before. But it's not a big thing, and I would say that if we talk to customers, you can see that they, in their turn, have a good demand situation and that they deliver more or less the products directly when they get our product in. So we can see that there is a good quality in the order intake as well as the backlog that now is up to close to 1 billion when we go out to 2021. I would state and say that there is at the moment and at present and with all the information we have today, there is a good demand situation. It's also important to state that it goes all over the regions, meaning Asia Pacific, Europe, as well as the U.S., It's contributing in a good way, and it's also in all the three entities, and within the entities, also within the segments. So we can see that there's a good spread in the order intake over the year, which also gives good feedback. The challenges has, of course, been, as we have said a lot of quarters now, that the component situation has been a sort of problem because we can't get as many components as we want to. And we also took a very conscious decision mid of last year that we should do whatever we can to make sure that we get the components so we can deliver to our customers. And before trying to get heavy increases on prices to the customers, so we concentrate on getting materials. During quarter four, we see that we have an increase of cost on components that is 20 million. And that is, of course, not good because it hits the result. However, we have during the quarter also gone through all customers with new negotiations when it comes to customer prices. And we are ready with all markets, all customers. So when we go into 2022, you will see step by step during quarter one and quarter two, increased prices to the customers, which means that we will compensate those 20 million step-by-step during the beginning of this year, 2022. So once again, margin will definitely step-by-step increase during the first half of 2022. And you can all go back and forward how you should handle those situations. We took this decision and we concentrated on trying to get get material for the customers before having the quick price increases. If that's right or wrong, but that's what we have done. Also, another comment here is, of course, that we, having said this, we were successful in increasing sales in quarter four. So the increased, we compared to before, we were on the 400, 420 level. Now we got up to 460 level. And hopefully we'll be able to increase the sales going forward in 2022. One other comment here is that we're happy also to announce that we're starting to give dividend again. So the board will take that as a proposal to the shareholders. And that is, of course, I think it's a good signal that we start to be a company paying dividend again. I have already said and commented on the segments, and I will say that the sequential sales increase also was roughly around more than 10%. But if we then take into account the component cost and adjust for the extra cost, we are now close to the 10% profitability on the EBIT margin in the quarter. There are also one other thing I want to take up, and that is that we have a breakthrough order in Taiwan where Korenix and Bay Electronics together has been fighting to get into a very important customer over there. And it also proves for us that the combined offer that Bay Electronics now will do together with Korenix, it works. And that is, of course, also quite important for us. During 2022, there will be a big focus on continuing on the price management and, of course, also on the component sourcing, so we can continue to increase sales quarter by quarter. But I also want to state that it's still – we are not through the component shortage, so we foresee that still the first half of 2022, there will still be How should I put it? Shortages on the component side, and that could also be, how should I put it, price increases because we need to buy on the spot market, as we have been doing the last six months. Here we have some slides, and of course, those ones you want to show every day in the week. And if you can see that at Q4 on the orders on the left side, you can see that if we have been moving around 350, 400-ish, and then you can see that quarter two, 2021, it started to increase up to the 500, and now we are up to the 600 in quarter four, and that is, of course, quite happy to see. When you then look at the sales, I have said a couple of times before that normally it takes a couple of quarters before the order intake transfers into sales. But you can see very clearly that now also sales are coming up to at least the 450 level, and hopefully we will be closing up and coming closer to the 500 level once we come further into 2022. And as I have already stated, the backlog is now up to close to $1 billion. And when we started the year, it was a little bit more than $500 million. By that, I hand over to Joakim, and he will now go through some of the figures for the group.

Hello, everyone. As Paul said, I will take you through the finance numbers. And you see the heading there. as Pat stated, record volumes, but the component cost limits the profitability leverage that we have been talking about many times before. Order intake 597, sales of 466, and an EBIT at 22 million for the quarter. As Pat said, it's been a conscious decision to focus on the supply And obviously, it pays off, as you can see, that the sales in the quarter is still up 30% compared to last quarter. And the price increases that has been implemented and done. There are lead terms before we see that in the numbers, and that's why we see the somewhat low profitability in the quarter compared to where we want to be. Added to this, we have had some headwind with regards to currencies. It's actually 7 million in the quarter, relatively high. One part of that is actually the Turkish Lira. As you know, we have a Turkish entity, and we've had a deterioration of that currency, and that has actually impacted us quite significantly in the quarter. Overall, the activity level has somewhat increased in the quarter. Some travels have been done compared to where we have been earlier in the year. Some fairs have been taking place. So somewhat higher activity, but not any dramatic increases in the quarter. The bottom line, net income positive, almost 11 million for the quarter. In terms of cash flow, you know that we have had tough times during this year with increased working capital as part of focusing on deliveries and making sure that we have some components and forcing ourselves to take some spot purchases of some components. Now, in the fourth quarter, we came to a positive cash flow. Still, however, the full year is still somewhat negative. And the final point, As some of you remember, we bought the company Virtual Access in 2019. There we had an earnouts set up. That has been finalized in this quarter with a result impact of zero for the quarter or for this transaction. That was Group. Let's go into Vestamu. Strong demand. As on the total, and it's been a record order level in Vestamo and for the full year, but still the challenge with supplies is, of course, also impacting Vestamo. Order intake, about 300, 317 to be exact. Sales of 234 and an EBIT of 22 for the quarter. And We should maybe say also that in the 317 million of order intakes that we've had in Q4, we have not had any of the larger orders. And with larger orders, we talk about 30, 40, 50 million Swedish krona. So it's widespread. It's all the segment, as Per pointed out, and that is, of course, a strength. We've had a challenge to source components, but I still want to highlight, if you look at the graph in the left corner, you see that there's been an upshift in delivery in the last quarter. So we have been able to increase the deliveries to our customers, but of course then to the fact that we have been forced to pay somewhat higher costs for some components. We want to state that the Eltech acquisition that we did by 1st of April in this year, sorry, 2021, continued to develop in a good way. Let's move on to Bayer Electronics. Kind of similar heading here. I mean, we have a wide order growth also in Bayer Electronics. and we've also been able to step up the deliveries in Bayer Electronics. Order intake, 234 million, the sales of 208, and an EBIT of 11 million. Also here, all segments, all regions are going, showing a good strength, and also in Bayer Electronics, we have had some higher costs for some of the components that has been impacting the profitability in short term for in the quarter. In terms of activity level, also in Bayer, we've had somewhat higher activity level, but no drama and it's been balanced. But somewhat more moving around and meeting customers, we start to do that. And we have been talking about the cooperation between Carenix and Bayer, and I think the order that Per mentioned before, and that we even have on the front page of the report, giving a good example of we are doing the right thing to cooperate. And as communicated during the quarter, we will have a joint reporting of Bayer Electronics and Carenix as of beginning of 2022. So that's the structure going forward when it comes to the business entities. So let's move on to then Carenix. It's almost a double order intake in the quarter. It's order intake of 52 million in the quarter compared to the 26 that we had last year. The sales of 29 and an EBIT that's just below zero. So the breakthrough order, 24 million actually, is something that we are very happy to to conclude that we have been able to take. Also in CoreNX we have had some component shortages that's been challenging us in our deliveries compared to what our customers would like to have. And also here we have the time lag in the price increases. And that has then led to that we end up just below breakeven and not in black numbers. That kind of concludes the go-through of the numbers, and I hand over to you, Pat, to take the concluding notes.