Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's presentation of the Q1 result call, conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone and wait for your name to. I must advise you that this conference is being recorded today, the twenty-sixth of April, two thousand and eighteen. I would now like to hand the conference over to your first speaker today, Mr. Jörgen Rosengren. Please go ahead, sir.
Thank you. So good morning, everybody, and thanks for joining us for this conference call. My name is Jörgen Rosengren. I'm the CEO of Bufab, and I will be presenting Bufab's first quarter result here today, together with Bufab's CFO, Marcus Andersson, who's here with me as well. I'll get some mechanics of this call first, some housekeeping issues. We will be taking questions at the end of the call, and then the operator will give you instructions at that time on how to ask a question. Until then, your lines will be placed on mute.
Throughout this call, we'll be referring to a PowerPoint presentation, which is available on our website under the Investors tab, bufab.com, then the Investors tab, and then there's a tab called Presentations and Audio, where you can locate this presentation. Throughout, we'll also be referring to the page numbers of that presentation, so you know where to look. Now, turning then to page two and getting into the meat of this call, we're happy today to be able to announce what we think is a very good and successful quarter for Bufab, the first quarter of 2018. The highlights of that quarter are outlined on page two. It starts with what we think is good growth, strong growth, in fact.
The growth was both organic and acquired, and it was spread across both of our operating segments, both international, our largest segment, and Sweden. It was underpinned then by strong organic growth, and the organic growth was all the more pleasant since it took place in spite of some negative calendar effects due to the location of Easter this year relative to last year. We also had order intake, which was in line with net sales, which is, I guess, not a bad sign, at least. We had higher underlying demand in both segments. We took market share, shares in both segments.
And these fewer working days, which appeared to have a bigger effect in our operating segments in Sweden, were not able to then quench the, the organic growth. So all in all, a good growth quarter. Our margins in the quarter were stable, if we look at year-on-year, but then it has to be remembered that the first quarter of last year, of 2017, was a very good quarter for us, with a big uptick in, in, on all lines of the PNL. But compared with that with that quarter, where our margins on most lines are stable, but the margins are significantly higher than the margins we recorded under the, late, latter end, at least, of 2017. The second half, I guess, is a good way to put it.
These improvements done over the tail end of 2017 are due, when it comes to the gross margin, to the price increases that we have implemented since the end of last year. And also to some extent, to positive currency effect, which we'll get into more in detail later. The EBIT margin has improved over the tail end of last year, due to the growth, naturally, also due to the improved gross margin. But it is also burdened to some extent by increased costs, in absolute numbers, increased costs. And those, to some extent, are due to the investments that we're making in what we call leadership. That is to say, our strategic objective to be the best in our industry in 2020.
Looking across the segments, I guess, profit-wise, international shows a really solid development, and Sweden shows a good development. But then it has to be remembered that Sweden had a record year and, a very good year, at least, in the first quarter of last year. It's also good to see that our acquisitions continue to contribute well. That is true both for the acquisitions that have now been a few years in Bufab, but also actually for the, most recent acquisitions that we made, for instance, the newly acquired company, Kian Soon, in Singapore. And looking to our customer side, those of you who follow industrial companies across Europe know that there is a lot of talk about, bottlenecks in the industry, right now because of the generally high demand that we're experiencing.
And therefore, it's particularly gratifying that we are able, in a quarter when there is such high pressure on demand, to show good operating performance and good delivery performance and good quality performance. And thus, solving our customers' headache rather than adding to them. That's good. Looking ahead, price increases remain a big, important thing for 2018 because we have still taken raw material-driven cost increases, which we have not yet been able to fully offset by price increases to customers, so that remains a priority. That's the quadrant outline. I will turn over to Marcus Andersson, our CFO, who will take you through the financial numbers for the group and for our two operating segments. Please, Marcus.
Thank you very much, Jörgen. If you turn to page three, we will start by going through the financial highlights of the group. As you can see, total group had a strong order intake in the period. We were up about 16% compared to last year. Net sales was also up 16% to SEK 945 million, and as Jörgen said, the organic growth was good, 9% for the group as total.
The gross margin was slightly strengthened compared to Q1 2017, but it significantly outperformed the final quarter of 2017, which is explained by the implemented price increases to customers, and as Jörgen said, also by a favorable euro versus the other currencies. Our operating expenses was slightly increased due to investment in strategic initiatives for Leadership 2020. But despite this, our EBITDA grew with 16% from SEK 91- SEK 106 million, corresponding to an EBITDA margin of 11.2%.
If we take a look at the bridge down in the right corner, you can see that currencies contribute with SEK 4 million when it comes to EBITDA. SEK 16 million was because of high volumes, and SEK -13 million was due to price-cost mix and other. And as Jörgen mentioned, the acquisitions made last year contributed well. Thunderbolt and Kian Soon added about SEK 8 million to the EBITDA. If you turn to page four, and we can see at the financial development for group, you can see that we now have had growth, actually, for impressively 19 consecutive quarters. Not only growth, but also organic growth, even if it was at low levels during Q3 2015.
If you take a look at the graph at the right, we can see that the positive trend of EBITDA versus net sales is continuing, and that the relation between EBITDA and net sales is going in the right direction. If we turn to page number five and look at segment international, we can see that the order intake was in line with net sales. It was strong, but in line with net sales. The net sales grew impressively 21%, and came in at about SEK 648 million, and 9% of the increase was organic. And the organic growth you can say in general was driven by higher underlying demand and by increased market shares.
As Jörgen mentioned also, we are glad to say that the gross margin percentage was higher than last year, actually the highest we have seen in the International segment for a very long time. And this was accomplished mainly due to implemented price increases versus customers during 2017 and also during 2018, and also due to favorable euro. In total, the good growth and good leverage led to good and strong margin and EBITDA improvement. And as mentioned earlier, the acquisition of Thunderbolt and Kian Soon contribute well and stood for about 50% of the total EBITDA increase in the quarter. If you look at the EBITDA bridge down in the right corner, we can see that SEK 4 million come from positive currency effects.
SEK 13 million comes from higher volumes. SEK 9 million is related to higher price-cost mix and other, and as I said, SEK 8 million comes from acquisitions. If we turn to page six, we can see that segment international has now actually shown growth for 20 consecutive quarters, and both organic and through acquisitions. If you take a look at the right graph, you can see that both of the dotted lines are going in the right direction, especially the one showing EBITDA, which during the last two quarters have taken a rather big jump, you can say, upwards, driven by higher net sales, increased gross margin percentage, and a good leverage.
If we turn to page seven and take a look at segment Sweden, we can see that segment Sweden had an order intake that was in line with net sales, up 6%. Net sales grew with approximately 7%, which was all organic, driven by higher underlying demand and by increased market shares. The gross margin was negatively affected mainly due to higher purchase prices during 2017, but also during 2018. And we have also seen effects by the weak Swedish krona versus mainly the US dollar, which is hitting the gross margin as well.
The decrease share in operating expenses was not. We were not fully able to offset the negative impact of the decreased gross margin, resulting in an EBITDA margin that was not really in level with last year. But in absolute terms, the EBITDA grew from SEK 41 - SEK 42 million. If we take a look at the EBITDA breakdown in the right corner, we can also see that the increased EBITDA corresponds to SEK +3 million relating to increased volumes, and also SEK -2 million relating to higher price-cost mix, and other. And if you turn to page eight, we can see that we've now, in segment Sweden, have seen growth for eight consecutive quarters. Really nice to see.
If we look at the right graph, we can see that the EBITDA has been a bit up and down during recent years due to various reasons, but we now can see that we once again see a trend shift upwards for the second quarter in a row, driven by good growth and good leverage.
Okay, so that's something about the financial development. On the next page, page nine, you can see some logos of acquisitions that we've made in the past three years, I guess we should say now. We made six acquisitions in those years, and I think it's correct to say that all six of them are performing well and are adapting well to the administration within Bufab and are appreciated now as what we call sister companies in Bufab. Looking ahead, of course, we have, as many of you know, a strategy to continue to make what we call win-win acquisitions. That's definitely a good part of our strategy also going forward.
We are working on it in a systematic way, we feel, and when we find companies that are well managed and that bring growth synergies to Bufab and where we can make a value-creating deal for both them and us, we will continue to make acquisitions. That's definitely our ambition also going forward. On the next page, page 10, you can see in percentage the development of the net working capital profile of Bufab. We have two lines there, and the more solid one, the darker one, excludes the acquisition Apex, which has a different business model and different net working capital profile about than the rest of the group for comparability. As you can see, we made a good improvement last year of the net working capital and also the year before that.
But now our net working capital development goes a bit in the wrong direction. It's driven, naturally by growth and by our, not, not the least, by customer receivables, but also inventory. And of course, this is a number that we need to continue to watch so that we can continue to drive a good development also on this metric. Wrapping up all the numbers, we have on page 11 made an EBITDA bridge, which bridges then last year's results to this year's results for the first quarter. And as you can see, for the group, we had last year SEK 91 million in EBITDA, and, this year we've now added to that, SEK 4 million in currency and SEK 16 million driven by, volume.
But we have also had price-cost mix effect, primarily due to raw material price increases relative to last year's first quarter of -13. So the net of all of this so far then is, is 20 minus 13, that's +7 and on the +7 , we then add eight more of increased EBITDA, which comes from acquisitions, bringing the total profit improvement up to 15, and that's bridging from 91 to 106. And you can see in the other columns how that is split over our operating segments and over the group other parts. So to wrap it all up, I think we can look at page 12, and I will not repeat the summary because it's the same summary that was on the first page of this presentation.
I just want to say that Q1 was what we like to think of as quite a successful quarter, and it came, it showed a good improvement over last year's first quarter, which was also quite a successful quarter. And in total, the net of all of this is that we posted our best quarterly sales, our best quarterly EBIT, EBITDA, and also our best quarterly earnings per share ever, which is of course nice. If we look ahead, we see that we've had strong demand now in the beginning of the year, and that our order intake in the beginning of the year again was in line with net sales. We don't know what the demand is going to be ahead, but we have not seen yet signals of a weakening demand.
And actually, being optimistic people, we then hope that this will continue. On the order intake, maybe you can say that the signals this quarter were slightly less positive than the signals the two quarters preceding this quarter. So but, but at least, signaling, I guess, thing. The continued raw material prices that we saw in the end of 2017, we have not yet been able to completely offset, and therefore, we need to focus on further price increases also in 2018. And we're focusing on our strategic target, which is to be the strongest player in our industry in 2020, under the heading Leadership 2020, and that remains, of course, a priority also for the remainder of this year.
With that, operator, I would like to turn over to Q&A. If you could please instruct your participants how to ask a question. Operator?
Hi, George. So ladies and gentlemen, we will now open our question and answer session. So if you wish to ask a question, you can press star one on your telephone and wait for your name to be announced. So your first question comes from the line of Alan Mayer. Please ask your question.
Operator, it seems they can't hear me.
I can hear you fine now.
I'll repeat it.
Ah, apologies. Great. Hi there. First of all, congratulations on such a strong quarter. Very good to see. Two questions, if I could. The first is, could you give us sort of a sense of how you're managing to offset the bottlenecks and sort of the extended lead times you're seeing in your own supply chain? And how, you know, obviously, the danger is that will at some point impact your own service to your own customers. So it'd be good just to hear about how you're managing to offset that. And the second one, if I could, is could you remind us the kinds of things you're investing in for your Leadership 2020 initiative? Thanks very much.
Sure. Those are good questions. Regarding the bottlenecks, I guess that's what you would call our core business. We take over the responsibility for the sourcing and quality assurance from our customers for the key parts that they have, but we also take over the responsibility for the logistics. And logistics, in that case, does not only mean trucks and moving things, but it very much means also managing the forecasts from our customers, our own assessment of those forecasts, and projecting or propagating them to our suppliers, and then managing that whole thing.
And when there is a lot of demand from the customers, which is the case now, then the customers also tend to face bottlenecks, and that tends to lead to replanning and changing of the production schedules and so on, and that naturally places a strain on our supply chain. But that is where our experience and our tools and our processes and the best of best practice come in. We have been doing this for 40 years. It's what we do all day long, and therefore, we believe that we are doing it well, very well. And anyway, it's a fact that we have not experienced big bottleneck issues ourselves in the delivery to our customers in this last quarter, and that's, I think, a sign of strength, which we're happy about.
Regarding the investments for leadership, the three main areas that we're looking at there is, A, to continue to invest in our partnerships with our customers, to become more relevant to the customers, and thereby driving more growth. And that, for instance, means developing the offering, the services and product range, and so on, that we offer to our customers, so that we are a more relevant partner for them going forward. That's area one. Area two is that we're putting a lot of effort into further improving our supplier base, and we have said that in three years' time, in 2020, it should be the world's best supplier base in this niche.
And the third area is that we're investing in what we call the build our best practice, that is to say, the work methods, the processes, the tools, the IT, and also the teams and the education of the teams around the world, so that we can perform our things like the ones your first question referred to at a very high level of professionalism and precision. So those are the three main areas where we're investing when it comes to build our best practice.
That's great. Thank you so much.
Your next question comes from the line of Robert Redin. Please ask your question.
Yeah, hi. Three questions, if I may. So I read about these Easter effects, 3% on top line. Would you say that. So what would the gross margin on that lost sales, would you say, would it be similar to your group gross margin? And a second question on Easter would be if these Easter effects have any impact on order intake as well? So can I start there, maybe.
Yeah. So, your first question is, is the gross margin on the 3%, quote, unquote, lost sales, similar or different from the group gross margin?
Yeah, something like that. What do you think that impact is on gross profits?
I would say that the impact on the gross profit is just as you say, the same level as the gross margin we have on the other sales that we have reported in the quarter, so to say. So I wouldn't say it's a difference between the calendar-affected net sales compared to the reported net sales, so to say, when it comes to gross margin.
All right, very good.
Robert, say your second question again, please.
Yeah. If the order intake in the quarter. Beause, I mean, the order intake and book-to-bill has a bit of seasonality in it, and does this Easter sort of impact the order intake as well?
Yeah, I don't know that we have an opinion about that. I mean, that's really hard to say if that's then a fraction higher or a fraction lower or whatever. I mean, that's such small numbers, Robert, that I don't think we have an opinion about that.
Okay.
All in all, we expect it to move more or less the same as sales, I guess.
Okay, very good. And then on these price hikes, I mean, you mentioned that, you know, you still have to lift prices to compensate, and of course, you had that SEK -13 million in the EBIT bridge from price-cost mix, and other. So, maybe it's sensitive to talk about, but how far do you think you've come in terms of the price hikes? How a re you halfway, or given that everything stays the same from here, or could you say something about the process, the lifting prices?
Well, I mean, I can say it's painful. We can say it's a painful process for everybody involved, but I think it's like this, that we can only go to customers and talk about things that have already happened. We cannot talk about things that are going to happen. So all through 2017, we did implement price increases and also got good effect from those price increases. And our own feeling is that we compensated, give or take, for the price hikes that we were forced to accept from our suppliers in the beginning of 2017, during 2017. However, for obvious reasons, we did not, in those price talks, compensate for the price hikes which we were forced to accept during the second half of 2017.
That work remains to be done now, right? So, we feel that we're caught up until, I guess, after summer or something like that last year, with our incoming goods. But now we're faced, of course, with effects of the continued raw material rally, which took place during the tail end of 2017, right?
Yes.
So it's more a question of a lag than of a question that we're not able to do it. It's just that, for natural reasons, we have to do it after the fact, not before the fact.
Yeah, right. Also on that, I mean, I noticed in the bridge that the price-cost mix other line was significantly negative in international, right? Where you did see gross margins improving and not so negative in Sweden, where gross margins were still down year-over-year or was that... Am I wrong? How is that?
Well, put it like this, in Sweden, we don't have a positive currency effect. We're able to more or less stay afloat relative to the tail end of 2017. But of course, we were quite negatively influenced to the beginning of 2017. In international, actually, we're relatively happy with the gross margin development. I think the gross margin now is the best it has been for a very long time, maybe the best ever. And that is partly because of the euro effects that Marcus was speaking about before, but also because we have implemented price increases. So I think you can say that in both segments, we have implemented price increases. In both segments, we have had to accept cost increases as well.
But in Sweden, the situation is worsened by a strong US dollar, and in international, it's eased by a strong euro, right? So that is what is the biggest difference between the gross margin developments in those two segments.
Okay, yeah. Because, for instance, in the international segment, gross margin is up 50 basis points year-over-year, but the price-cost mix other effect is SEK 9 million, so it's 1.5 percentage points or something negative year-over-year.
Yes.
So whereas in Sweden, it's different, but okay. Sorry, the last,
On the, you could also say in international, the EBIT margin is up. So, I mean, it's also true that there is a negative price-cost mix in international, and it's driven, of course, among other things, about, by the expansion that we're doing there, right? So.
Okay, yeah. All right, sorry, last question from me. Your acquisitions in the pipeline there, do you feel that it has, you know, strengthened or weakened, or is it the same compared to, say, a quarter or two quarters ago? Are there any developments there in market becoming harder to, or is it the same, still?
No, we were happy about it a few quarters ago, and we're happy about it now, too. It has weakened in the sense that we made an acquisition in December, and that was there last time we spoke, I guess, but not there now anymore, right? But, we're of course trying to fill it up with other things further down the line. So, we're happy, we were happy about it then, we're happy about it now.
You must be happy about the acquisitions as well, because, if I'm, if I have the numbers right, they must have reported 20% or something, EBIT margin in the quarter.
Well, but then you're reading numbers that I'm not reading. So I mean, it's just we have good contribution from our acquisitions. Yes, we're happy about that.
Perfect. All right, thanks.
Again, ladies and gentlemen, if you wish to ask a question, press star one on your telephone and wait for your name to be announced. Again, if you wish to ask a question, you can press star one on your telephone and wait for your name to be announced. So there are no further questions at this time, sir, please continue.
Okay. But then I would like to thank everybody who participated for your time and your interest in Bufab, and wish you a good day. Goodbye.
That concludes our conference call today. Thank you for all participating. You may all disconnect. Speaker, please stand by.