Ependion AB

Welcome to the Bayer Electronics Group Q1 Report 2023 conference call. For the first part of this call, all participants will be in the listen-only mode. And afterwards, there will be a question and answer session. Today, I am pleased to present Ms. Yenny Siudal, President and CEO, and Mr. Joachim Loren, Executive Vice President and CFO. Speakers, please begin.

Thank you very much. Hi, everyone, and welcome to this quarter one 2023 report for Bayer Group. So next slide, please. So the ones present in this call from our side is myself, Jenny Sjödahl, and Joakim Laurén, as mentioned previously. So next slide. Agenda for today is, as usual, I will start with the general business update, and then Joakim will dig deeper into the financial performance. And after that, we will have the concluding notes and also outlook. And after that, you will have the chance to ask questions. So let's get started. Next slide. So to summarize the first quarter of this year, we are happy to conclude that this was the new record quarter for the group. managed to get the delivery situation significantly improved, meaning that we had a record in sales. And thanks to that and the volume leverage that we get from that, we also had a very strong earnings in the quarter. When it comes to the demand side, we do see that the customer demand in general continues to be stable. We see continuously strong demand on the Vestimo side, whereas the Bayer Electronics business entity, especially compared to the very strong quarter one of last year, is a little bit weaker in terms of order intakes. But nevertheless, another quarter with an order intake level above 600 million Swedish kronor. I mentioned the sales number at the new record level. We have never been above 600 million before, so we are happy to see that we reached 623 million Swedish kronor. The main reason behind that is that we do see an improved component availability finally, which is, of course, very, very nice. And that has especially helped the Vestimo business entity to ship out a lot of products in the quarter, whereas Bayer Electronics has also performed on a stable level in terms of sales. And as mentioned, when we do get good volumes out, we see the volume leverage working actually quite well. And we reached an all-time high earnings level of 13.7% for the quarter, which is a significant step towards our financial goal of reaching 15%. And what is also very good to see for us is that both business entities are performing on a high and stable level here. Record high EBIT level for Vestamo at 16.4% and Bayer Electronics another very stable quarter with an EBIT of 15.1%. During the quarter, we have also made a small acquisition. It was the Bayer Electronics business entity that acquired a German company called Smart HMI, a software company specialized in web-based HMIs. So that's really a very nice complement technology and product offering-wise to our portfolio. As we all know, the geopolitical situation and the economic development are still uncertain. And as usual, we follow the development and we are prepared for different scenarios. Next slide, please. So if we talk a little bit more about the two business entities, as I mentioned, we see a continued strong demand in Vestimo with a new all-time high order intake. And in this quarter, that was driven mainly by the trade segment. And as we mentioned in our report as well, there is an effect in the quarter where our order intake in Vestimo is boosted somewhat by a larger customer actually extending its order horizon. Most other customers are now kind of shortening their order horizons again after this very turbulent period. But this particular customer is extending the order horizon and that gives an effect on the order intake for Vestimo in the quarter. Very good progress when it comes to increasing the delivery capacity and new record level of sales. And what I'm pleased with about that of course is that we are starting to serve our customers in a better way. We are starting to take down the late deliveries to our customers and that is of course a very, very good thing. I mentioned that the component situation has improved in general. There are less components and less suppliers causing issues. The problem is not completely gone yet. There are a few components still remaining challenging. And that has impacted our cost side in the quarter this time as well at approximately the same level as it did in quarter four. And it also continues, unfortunately, to drive up our inventory levels. But we have prioritized to be able to ship products to our customers. And then, of course, we need to work really hard on managing the inventory side of things. But despite these increased costs that are very clearly there as well in this quarter, we see a record level for the operating margin thanks to the nice volume development. When it comes to Bayer Electronics, another very stable quarter in terms of revenue and profit, as I mentioned, and actually a new record there as well for the operating margin. The order side, lower than last year. We had a very, very strong beginning of the year in 2022, thanks to customers extending their order horizons and also some last time buy effects from older product ranges. And compared to that, we are seeing a weaker demand side. We see that customers are going back to more normal order horizons, so that has an effect in combination with some uncertainty in the market. And we know that Bayer Electronics is somewhat following the general economic industrial development. So this is kind of expected in today's economic environment. And we also see that this effect is mostly present in Asia. I'm also very pleased that Christine Lindbergh has started now, taken office as the new CEO for the electronic business entity. She came in the 3rd of April and has already started in a very, very good way. Next slide, please. So if we look at this in a more graphical format, starting with the order side, you can see that, again, compared to the very strong quarters in 2022, we are down by 7% compared to the same quarter last year. But sequentially, we are actually slightly up in order intake. So a stable development there, I would say. What I really like is the right hand graph here. If you look at the sales side, as I mentioned, where we have the wheels are turning faster now and we managed to get deliveries out on a very good level from both business entities. So plus 42% in sales. That's a pretty strong number actually. We have some FX effects in the quarter on the order side, adding on 3% and on the sales side, 6% percentage points in the quarter compared with last year. And it's also worth mentioning that our backlog is still at the very high level of 1.5 billion Swedish kronor. This quarter, ordering, taking, sales were, you can say, almost imbalanced. So the backlog remains at the same level. So with that, I hand over to you, Joakim. Thank you.

Next slide, please. I will then take you through some of the details in the financials. As you can see, we have ordering take of 617, sales of 623 and an EBIT of 85 million representing the 13.7% EBIT margin. As Jenny stated, I mean, stable order bookings. And as also said, the fifth quarter in a row with orders above the 600 million with this underlying mixed picture where we have prolonged order horizons in Vestamo and shortened order horizons in Bayer Electronics. And as also stated, more time high on the sales level than very much driven by the improved component availability, but also the fact that our organizations have been able to ramp up in a very good way and also handle the situation because we still have challenges when it comes to the component availability. And it's nice to see that we can deliver a good result with the increased volume and the 85 million tripled compared to the same quarter last year. Worth looking at the LTM graph, we're going in the right direction. We are above the 11% mark on the last 12 months rolling trend. If we look at FX impact with the weaker corona, that is helping us as we have quite a lot of revenue in dollars and in euros. The EBIT effect is 7.6 million positive in the quarter. Unfortunately, the situation with the component availability that we are still having challenges with, that means that we have been forced to actually increase our inventory levels. We need to increase our safety inventories on some critical components and that has affected the cash flow that was negative in the quarter of minus 39. The bottom line 56 million significant step up compared to the 16 that we delivered last year and the EPS improved nicely to 1.95 for the quarter. Next slide please. If we dig somewhat deep into Vestamo, you can see that the order intake was 356 million, the sales 335, so still higher in order intake than the sales. giving an EBIT of almost 55 million or 16.4. It is a very high level, good growth on the sales, sorry, on the orders. And it has been then boosted, as Jenny said, by one customer, one larger customer extending their order horizon impacted them, the quarter number. We have talked about the sales step up. very nice to see and the fact that it's then giving the nice 16.4 EBIT margin in the quarter despite the fact that we have had spot purchases of some components as you have seen in the previous quarters. So despite this, Nice to see the good profitability in Vestamil. And we just wanted to remind you that we are continuing our activities when it comes to developing our products according to the strategies that we are working so that we can continue to see growth going forward with an attractive offer for us. Let's go to Bayer Electronics. Next slide, please. Bayer Electronics came in with orders at 265 million, sales of 291, and an EBIT of 44 or 15.1%. It is a lower level of orders, as stated. The last year was really high or record levels, so the comparison is very hard. It is expected that we will come in somewhat lower than this. And we do see order horizon being more normal in Bayer Electronics combined with what Jenny laid out earlier, that we see some market uncertainty, especially then in Asia, that we also highlighted earlier. last quarter. Asia is basically moving sideways, similar level as we saw last quarter. Deliveries on a good, stable level. We do see challenges in the component situation also in their electronics, but it has been handled well and no major effect on the deliveries. It's a stability. And it's also very nice to see that we have been able to deliver another quarter with good profitability now on 15.1 level, which is actually a record. And it's due to that we work well with price management and also with a mix that's favorable for us. But stability is the key word here. Also here, we continue to develop our products and our offering going forward. We have informed about we are setting up a new supply unit in Sweden. That is fully according to plan, and it will be operational in the last quarter of this year. And Jenny talked earlier about the acquisition that was done. Early April we acquired the company Smart HMI. That kind of concludes the financials. So over to you, Jenny. Next slide, please.