Earnings Call: Q1 2021

Apr 28, 2021

And welcome to Bolton's Q1 2021 Presentation. My name is Camilla Oresud, Senior Vice President, Corporate Communications. Presenting the report are Boston's President and CEO, Anders Nystrom and our new CFO, Anna Wachiblad. Anna, would you like to make a short presentation of yourself? Yes. My name is Anna Ockelaard, and I have worked as CFO for International Manufacturing Companies for the last 15 years. Most recently, I worked for Appsalent Group, and prior to that, I worked many years at AXIS Christiansen. I also have a background from auditing and consulting as manager at Deloitte. I'm excited to be part of the bolt on journey and get to know all the great people. I'm really looking forward to this. Thank you, Anna. As usual, you will be able to ask questions after the presentation, both on the web as well as in the telephone conference. I will now hand over the word to Anders Nystrom. Please go ahead, Anders. Thank you, and welcome, everybody. This Q1 of 2021 has been a very good one for bolt on in which we have demonstrated what bolt on looks like In a normalized market, it's important to know that the results delivered is the product of hard work By Wilton employees and the trust placed in us by the Board and the shareholders. Before we start to go through the results And the numbers are quarter 1. Let me briefly present Wilton to those of you who aren't familiar with the company. So next slide please, Page 4. As most of you know, Bilton is a supplier of fasteners, primarily to the automotive industry. But we don't just supply the hardware to many of our customers. We are a partner for product development support, Innovation, Procurement and Logistics. In other words, we're a full service provider of fasteners. As you can see in this slide, Wilton has a broad customer base with light vehicle producers as the largest customer group. Wilton's 3 largest customers are Ford, Jaguar Land Rover and Volvo Cars. When acquiring PSM during the Q1 of last year, we added a number of automotive customers, primarily Tier 1 suppliers, but also customers outside of the auto industry. To be an approved supplier to this many customers is a strength. Customers value the way we cooperate with them and recognize us for our service. Most of the customers in built in space have potential for further growth. Next slide, please. Our geographical footprint is definitely a unique advantage of bolt on. None of our competitors have This is geographical coverage. Wilton's value chain is balanced between in house and outsourced And we can thereby be flexible and cost efficient. Including PSM, we have about 1600 employees. We offer local production in Europe, U. S, China, Taiwan and Russia, which is unique in our competitive set. Through the acquisition of PSM, we have an even more comprehensive geographical coverage than before. Next slide please and turn to Page 7 For a review of the global production statistics, while Bilton's share of non automotive business It's growing. A vast majority of our business still remains dependent on the vehicle market. Vehicle production in 2020 was, as Everybody knows heavily impacted by COVID-nineteen, the 16% drop in vehicle production corresponds 2018. So 2020 was not a high year for light vehicle production. For heavy commercial vehicles, the movements were less dramatic with a 6.4% drop in units produced in 2020 versus 2019. For 2021, LMCA predicts a bounce back of light vehicle production volumes with an increase north of 15% And then a more normalized growth of approximately 6% to 7% in 2022. Heavy Commercial Vehicles is predicted to increase Same production rate about just below 4% in 2021 versus 2020 and then grow slightly in 2022 by just over 1%. It should be noted that the recovery in 2021 is uncertain, Especially in quarter 23, vehicle production is highly challenged by the shortage of semiconductors, And we should expect fluctuations before the capacity situation is resolved and the supply chain balance is restored. So we'll flip to Page 9. As mentioned, quarter 1 was a very good one for Bilton. The strong momentum we gained in quarter 4 of last year continued As the market came back to more of a normal and our customer mix had a particularly good development. As mentioned in our last quarterly presentation, we utilized the downturn last year well and drove efficiencies in our value chain. This helped us to realize higher margins and the leverage from record high volumes also resulted in record profits. We made improvements to our manufacturing footprint. Now in January, we held the grand opening of our new production facility in Taipei, Taiwan. And we're also happy to have welcomed Anna Okeblad as our new CFO and member of the group management. She took up her position in March. So this is her first quarterly presentation in her new role. And by that, I'll actually leave the word to Anna to go through the financial numbers. Thank you, Anders. On Page 9, you can see our quarterly net sales development. And as Anders mentioned, the upturn in the second half of twenty twenty continued in Q1 with a continued strong demand for our products. Net sales for the group in the Q1 amounted to SEK1103 1,000,000 compared to SEK821 1,000,000 the same period last year, an increase of 34%. It's a new record level for bolt in the Q1. Net sales improvement is explained by strong growth, partly coming from the contract signed in July as well as positive market development. Next slide, please. On this page, you can see our financial summary of the Q1. As mentioned previous, Ulfton performed a record high net Sales with improvement on both gross profit and strong leverage on EBIT level compared to same period 2020. Overall, the numbers are strong and the profitability development is mainly driven by volume, positive outcome of efficiency initiatives and increased capacity utilization. Earnings per share is calculated to SEK3.21. The order book increased by 47% compared to the same period last year. However, last year was affected by COVID situation and today we have uncertainty regarding the shortage of semiconductors. Next slide, please. Our earnings performance was affected by the improved volumes in the quarter. EBIT amounted to SEK 98,000,000 in the quarter. Our EBIT margin for the 1st quarter amounted to 8.9%, an improvement compared to quarter last year of almost 4 percentage points. The EBIT improvement is coming from good customer mix and increased capacity utilization. When adjusting the EBIT margin for currency effects, the improvement for the Q1 this year compared to last year is even somewhat better. Next slide, please. During the last year, a strong focus has been on cash management and our net working capital. The cash flow from operating activities Before changes in working capital amounted to SEK 115,000,000 in quarter 1. Cash Flow from the change in working capital amounted to minus SEK 22,000,000. Increased sales has led to increased working capital for the period. Cash flow from operating activities amounted to SEK 93,000,000. Cash flow from investing Activities amounted to minus SEK 16,000,000 in the quarter, again, a much lower level than before as we have, as you know, halted operational and property investments during this uncertain time. In total, the cash flow for the quarter was negative and amounted to minus SEK 59,000,000 with a cash position of SEK 185,000,000 at the end of the quarter. Cash flow from financing activities amounts to minus SEK 136,000,000 where the majority refers to repayment of loans. Our net debt, excluding lease liabilities, has reduced since the beginning of the year and amounted to SEK 42,000,000 at the end of the quarter. Next slide, please. Our key indicators have improved in quarter 1 compared to the same quarter last year and also compared to the full year 2020. This is, of course, a satisfying trend, but also an effect of that 2020 was greatly affected by the COVID-nineteen situation. We have an adjusted return on capital employed of 8.2%, excluding financial lease. Our net debt to EBITDA ratio adjusted for lease liabilities This is at minus 0.1% at the end of the quarter. This, in combination with an equity ratio of 57% at the end of the quarter, shows that Volcan Financials is on a very solid level. Next slide, please. On this slide, you can see our financial targets as well as some of the guidelines regarding relevant key figures for both of them. In terms of reaching our financial targets, we are now clearly moving in the right direction. On a quarterly basis, we are above Our financial targets when it comes to growth and profitability. In the right hand table, you can see some guidelines for some other key figures. Our guideline for average net working capital in relation to 12 month sales is about 20% to 25% depending on the growth pace. At the end of March, we had a level of 23%, which is in line with our guidelines. The guideline for capital expenditures as a Percentage of 12 month sales are 2% to 3% for maintenance of equipment and an additional up to 2% for capacity depending on the market development. At the end of March, we are at a level of 1.7%, But as mentioned before, we have halted investments which will have an effect on this key ratio going forward. The guideline for depreciation as percentage of 12 month sales is 4% to 5%, considering IFRS 16. Without IFRS 16, it has been in a level of 2% to 3%. At the end of March, we are in line with our guidelines. The guideline for our group weighted tax rate is 24% to 28% as a percentage of 12 month sales. At the end of March, the average tax rate was 30.1% and is recovering from the COVID situation last year. Now back to you again, Anders. Thank you, Anna. And we turn to Page 17, please. Some words about our focus for 2021, The rest of the year. As you've seen in this presentation, our quarter 1 had strong momentum. The underlying demand for our customers' products and for built in products is very healthy. Having said that, we're faced with a somewhat new set uncertainties, our customers' production is hampered by the shortage of microprocessors and that will have an effect on our sales going forward. Steel prices are at the high level now and will most likely continue to rise in quarter 2. We are, of course, closely monitoring all of these factors And maintain strict cost and cash flow control. We will continue to work on margin improvements, which we have successfully done recently. There are still synergies to be realized with PSM and in sort of initiatives are being executed as we speak. We continue to ramp up our activities in technology and innovation to stay determined to remain a leader In sustainable fastening solutions, we have important steps taken to that effect, not the least through the launch of BufoE And our collaboration with TensionChem for a sensorization of threaded joints following our minority stake acquisition last year. Our sales force are using our track record of successful new contract launches as well as the greater customer exposure that comes from The combined customer base of Bilton and PSM to accelerate new business wins and generate additional organic growth. Next page please, Page 18. Just want to conclude with this presentation to remind everyone of our Stronger24 strategy, The road map for how we will go about reaching our targets presented exactly a year ago, just before the COVID outbreak. It's divided into 4 building blocks. To start with, we have a strong position with the uniqueness that has taken Wiltun to what it is today. Our clear ambition 3 years from now is to have further advanced our position when it comes to quality and technology leadership. The second block is growth. We now have growth momentum both organically through the contracts we've ramped up And non organically through the acquisition of PSM. Despite the past year's turbulence, we hold on to the aim for sales SEK5 billion in 2024. And I think you can see that we're ahead of that curve with our current sales pace. The same applies to our profitability efforts. And our strategy is to improve the obvious synergies with PSM, Improved exposure to customers in North America and China accelerated initiatives to improve efficiencies in production and distribution And through launching new technologies with a value add for customers. And we aim for an EBIT margin above 8%. You also have a strong financial position. It's something that we really want to emphasize. To summarize, the global downturn that We experienced last year has not eroded the validity of our strategy. Our position is strong. We stand by our targets And we stay committed to all the building blocks in the strategy to get there. And this concludes our presentation, and we're Ready for Q and A. Thank And our first question comes from the line of Kenneth Toll of Carnegie. Please go ahead. Your line is open. Yes. Thank you. So a couple of questions here. You increased your production quite a lot in this quarter. And as I understand that it was higher rates in Q1 even than in Q4. So are you starting to run into capacity issues in your own production? Hi, Kenneth. Actually, no. If we look at the machine The technical capacity that's installed, we still have headroom to grow further. But of course, we're balancing With the manning in our workshop. So if we would increase Production more than we will probably need to hire a few operators. But in terms of the technical installed capacity And if you're sort of thinking of investments needed, the answer is that we still have headroom to grow further. Sounds great. Also, you talked a lot about or let's take steel prices first. We have all seen steel prices come up quite a lot, and I fear that there will be more of a negative impact on your earnings already In the Q1, but do you see that steel prices might have a more severe negative impact in the second Quarter compared to the Q1? We will see more of that run through the books in quarter 2 and then quarter 3, that's right. But we already had an effect in quarter 1 as well. But still margins were very, very good. So How much worse do you think it could be? Could it be double the negative effect In the second and third quarter, could be 3x as bad or I don't want to Guide you on that. You probably have a difficulty finding the baseline there for that calculation as well. But all I can say is that the I mean, we've had progressive increases in steel prices already from quarter 4 last year. And What that's going to look like when we go into quarter 3, we don't know that. So Okay. Then also you talked a bit about your strong balance sheet And also that you stopped a lot of investment last year. So are you thinking about reinitiating those investments, like the new plant in Poland, For example? We're, of course, considering that. And I know this is sort of a question mark. When will we sort of Restart that project again, and my answer would be that as soon as we've made the decision to start breaking ground In Poland, we'll let you know. Okay. And then also it was, Well, about a year ago now that or even more that since you acquired PSM and that Seems to have been a very successful acquisition. So are you looking for more acquisitions now as well? It's a valid question. We will not go on a shopping spree, that's for sure. But Given our strategic direction, we will look for possibilities To acquire companies that have a good fit into our strategy. And we're open to that for sure. But if it happens and when it happens, you know about it. Yes, I guess so. Then finally, you talked about taking market Shares and so on. So are there any larger FSP contracts out That is discussed right now, where you have a good chance of getting more business? If you're thinking of the one that we won mid last year, I'd say that there is nothing out there of that magnitude. But there's a number of smaller ones for sure that we're discussing with customers. And we're always looking to win new business. I mean, we're very focused on organic growth right now. And Whether it's FSP or not FSP, we're chasing the contracts that are out there. I guess one great opportunity to get in to become a supplier is when the core model change Changes, and then you can change supplier. So are there a lot of sort of mobile changes Being prepared right now that, that could trigger change in suppliers. I'm thinking a little bit about Last year, it was a very difficult year for the automotive industry. So maybe some projects have been And so on. So do you see that the planned projects are coming back? Or is it too early for, getting awarded contract for sort of new car models and so on this There's a multitude of opportunities out there. And as you know, the whole industry is facing a Technology shift, which results in sourcing of new platforms and new programs, sure. And there's a lot of activity for sure. Okay, great. Thanks a lot. Thank you. Our next question comes from the line of Mats Liess of Kepler Cheuvreux. Please go ahead. Your line is open. Yes. Hi. Thank you. Congrats on the Strong quarter. Just coming back first to Kennet's question about steel prices. I guess you have this raw material costs within your contracts And pass on those steel price increases gradually. But could you just Indicate the delay there, potentially potential delay in the first one. Yes. Hi, Mats. Yes, you're right. We do have a high degree Of the material clause coverages in our contracts. And As you probably know, there's always a time lag between material prices actually taking effect For us and actual compensation coming in from the customer base. And I mean, it's a variety of update frequencies In those contracts, but I'd say on an average that's 3 to 4 months Yes, average. So but I guess you will be compensated By and large, at the end of the year, so it's It's a standard progress that you sort of handle these countries, I guess. To a high degree, we will. Yes. Okay. Thank you. And then the Semiconductor, so it's I guess you have explained some sort of production stops indication from your customers. And is that sort of balanced to some extent by customers sort of Trying to build some extra inventors just to pick the bag when On this shortage sort of lease, so to say? Well, I think all customers that are now or all OEMs that Now sort of losing production because of semiconductors are paying a lot of Tension to their inventory to make sure that once The capacity on non semiconductors is catching up that they won't have any other shortages or any other Disturbances in the value change. So I think there are a lot of lessons learned From this, and we're certainly determined that We're ready to supply our customers once they start to catch back, If that's the answer to your question. Yes. I guess it helps somewhat from your position. Yes. That's my depreciation anyway. Okay. And then, well, the full service contract, There are opportunities out there. But you also have some I missed the side you used to have when you make the presentations, But remaining part of the full sales contract that you're sort of ramping up, Could you sort of indicate how much left you have there in the year to come? Well, I think we mentioned that in the last Report as well the Q4 that the contracts that we've 1, the big contracts that we won are basically ramped up. So they're now sort of following the Generic market fluctuations rather than being in a ramp up phase. There are, of course, A few small programs that we still have to ramp up. There are a couple that are postponed in time That we still need to SOP. But From 10,000 feet, you could say that our volume fluctuations are going to be in line with the market fluctuations So we don't have a major program to start up in 2021. Okay, great. Then you also mentioned about the electrification trend that is Sort of was it the deal then that was sort of supported more than your but Can't make it but electrification is sort of helping you at the moment in the car So the use of FNS, is it also an increased content per car? Or is it more like The ramp up of production of electric cars that you sort of indicate? Yes. As you know, The first wave of electrification is hybridization, where we actually multiply the number Of powertrains in the vehicle. So and having 1 ICE and 1 powertrain in the vehicle is fantastic for the fastener suppliers. Then as that migrates into more of Pure electric vehicles, and that sort of goes back more towards a normal customer count again. And we cannot expect that to happen. However, At what rate? Many have speculated in sort of Not the migration rate is going to be into Pure Electrics, but we're certainly ready for it and We're bidding for a number of electrical vehicle programs and we're doing quite well on EVs, I have to say, at the moment. Okay. But you don't disclose every contract that you receive there. It's more the larger ones than you answer them. That's correct. We don't disclose every contract. And we're still winning business, which we're not disclosing. Okay. And finally, just as well, Kenneth touched upon that also regarding the capacity utilization. I mean, last year, you received this huge Full service contracts, are you able to take on another one of that size? Or do you need to sort of expand capacity? I mean this €107,000,000 contract that you received last year? We can still absorb more in house production. We can. Okay. Good. All right. Thank you very much. Thank you, Jessica. Thank you. Okay. There There's no further questions on the phones. I'll hand back to our speakers for the closing comments. All right. Thank you. So yes, thanks everyone for listening in. And I'll if not before, I'll speak to you in a quarter's time.