Hello, and welcome to Bulten's 2019 Q4 presentation. My name is Kamilla Oresvärd , senior vice president, corporate communications. Presenting the report are Bulten's President and CEO, Anders Nyström, and our Executive Vice President and CFO, Helena Wennerström. After the presentation, it will be possible for you to ask questions, both on the web as well as in the telephone conference. If we turn to the next slide, before we go into the earnings call, I would like to remind you of our Capital Markets Day on the 20th of February in Stockholm. You'll find the invitation on our website, bulten.com, or you can send me an email, and I will forward it to you. Now, let's start the presentation. Please go ahead, Anders.
Thank you, Kamilla. Welcome everybody. The agenda for today will be a brief overview of Bulten, the development in our market, the result for the fourth quarter, and some words about our acquisition of PSM, as well as finally, some comments about our future. We dive into it, flipping to page four in the presentation. Some words about Bulten and our position. It's now almost exactly one year since I took up the position of CEO of Bulten, and it's been a very exciting year indeed, where we worked hard to map out the future of the company. The result of this work is starting to become visible now in the expansion of our business through the contracted acquisition of PSM.
We'll give you some more insight into our strategic direction during the Capital Markets Day in Stockholm on the 20th of February, and I'll encourage you all to attend. Bulten already has a lean and well-positioned operation with a global presence. We have about 1,400 very competent employees, all real professionals in their trade. We offer local content in Europe, U.S., China, and Russia, which is unique in our competitive set. Through the acquisition of PSM, we'll add to our geographical presence and become more of a global company. We balance our production between approximately 40% outsourcing and 60% in-house production, and can thereby be flexible and cost-efficient. Go to page five. Bulten has many customers with potential for further growth when consolidation and need for strong FSP suppliers will be required to assemble cars and engines the most cost-efficient and sustainable way.
Our customers focus on sustainability improvements every day, and it increases every day, and we will play an even more important role in that perspective in the future. The automotive fasteners market is dominated by the light vehicle segment. The same goes for Bulten, and we also have sales to heavy commercial vehicle manufacturers, as well as to the suppliers of the vehicle industry. Bulten's three largest customers are Ford, Jaguar Land Rover, and Volvo Cars. We flip to page seven. It comes as no surprise to anyone that the automotive market in many aspects is undergoing a structural change. This change is influenced by several long-term trends. Some of them, such as sustainability and electrification, are today involved in all our customer dialogues.
Moreover, these trends, in combination with digitalization and new legislation, makes the industry more complex, and suppliers like Bulten need to pay close attention to that development. We need to help our customers to become more effective and more sustainable, and luckily, Bulten has the capabilities to do this. We can always improve further, and as everyone knows, change always means opportunity. Page eight. Some words about the market in the short-term view. In 2019, the light vehicle market amounted to about 95 million units. The largest markets are China, followed by the U.S. and Western Europe. It was a turbulent year for the industry as a consequence of new regulations, the political climate influencing the terms of trade in many countries, and the uncertainty surrounding Brexit. The fourth quarter was no exception.
With lower volumes, especially in the Chinese market, we maintained our market shares in 2019, and going forward, we will focus on growing globally. New tax regulations linked to CO2 emissions introduced in a number of European countries during 2020 also add to some uncertainty. Looking into the first quarter, we all read the news daily regarding the coronavirus and how this affects different businesses around the world, in China and worldwide. Of course, we follow and monitor this situation very closely. For Bulten, the ramp-up of new contracts has compensated for a somewhat hesitant market in quarter four. Go to page nine. Looking in the longer perspective, the industry forecasting company, LMC Automotive, estimates a gradual improvement of production of vehicles in the years to come.
LMC forecasts a global increase of 1.1% for 2020 compared to 2019 for light vehicles. A decrease of 7.3% for heavy commercial vehicles in 2020. Weighted for Bulten's exposure, the global market impact for Bulten equals a decrease of 0.1%. Now we turn to page 10. We'd like to underline that we have a good pipeline of won contracts. This is important to know. On this updated slide, you can see the different ramp-up contracts and in what phase of implementation they are. During 2019, several contracts went into full pace and newer contracts have entered into ramp-up phase, which have balanced the effect of market volatility and model shifts. Still, we have EUR 47 million of new contracts signed that did not go into production yet. This will support Bulten growth even further in the years to come.
You can also see that two of our last three major business wins were for electric vehicles. Turning to page 12. Before moving into quarter four figures, let us give you a quick recap of what happened in 2019. All in all, 2019 was a muted year, clouded by shrinking market and postponed new vehicle launches, all caused by factors that we previously mentioned. In the midst of this, we carried through on a number of actions to make Bulten stronger. We transferred China production successfully from the old plant in Beijing to a new facility in Changchun with a grand opening in November. We also completed the purchase of land in Poland. In quarter three, we initiated a restructuring of our German operations and balanced manning to demand for the product supplied from our Bergkamen plant.
During quarter two, we initiated a right-sizing of our inventory levels, which had accumulated during the slowdown. Thus under absorption of fixed costs. This was necessary. Finally, just before Christmas, we announced the agreement for an acquisition of PSM as a strategic move to accelerate growth and provide scale in regions outside of Europe. These actions put Bulten in a much stronger position and more ready for growth and earnings in 2020 and beyond. Turn to page 13. The PSM deal is a milestone for Bulten since it has been many years since we did an acquisition last. PSM is a global supplier of fasteners with distribution centers in 22 countries. The customer base is mainly the auto industry, PSM also deliver to consumer electronics companies and home appliances industry.
PSM turnover is approximately SEK 400 million, about 50% of its sales is in Asia Pacific and 30% in the U.S. EBITDA margin was last year 14%, the company has about 350 employees with production in China, Taiwan, and the U.K. On page 14, we feel absolutely comfortable that we've acquired PSM on a decent price level, we see a lot of advantages and synergies between PSM and the current Bulten group. Bulten will get a broader customer base in important growth markets like China and North America. In addition, Bulten's strong position will open doors for PSM in Europe. For Bulten, PSM adds to the group's production capacity and product offer. We see synergies both in terms of revenue and cost. All in all, we expect this acquisition to contribute positively to Bulten's development and earnings.
Now over to Helena for the financial development during the quarter.
Thank you, Anders. We are happy to report a bounce back to growth again in the fourth quarter. Our sales were up 5% as new contracts are starting to ramp up. This is also visible in our order intake. That was up 13.6% compared to last year. Our earnings were affected by the events Anders just mentioned, and our EBIT ended up at SEK 27 million, adjusted for acquisition costs and relocation in China. EBIT was, however, SEK 42 million, a corresponding EBIT margin of 5.4%. Our full year earnings per share dropped quite substantially as a consequence of efficiency and growth measures taken. However, the board still suggests an unchanged dividend of SEK four a share, divided into two payments. Page 16. Some more comments on net sales and order intake. Sales for the quarter were up 5%, and adjusted for currency, the sales were up 1.6%.
The overall market demand effectively negatively at our contracted business have now started to ramp up in a higher pace than in quarter three. Looking at our order intake, it was up 13.6%, which is a true sign on the ramp-up effect. This is of course a good sign. However, the uncertainty about the economic situation, the outcome of Brexit, and the effects of coronavirus make the development in coming months quite difficult to predict. Page 17. Now some more comments about earnings performance. Our EBIT margin for the fourth quarter amounted to 3.5% compared to 6.4% comparable quarter last year. The earning levels in quarter four are explained by the relocation and acquisition cost of SEK 15 million in total, and adjusted for these events, EBIT amounted to SEK 42 million or 5.4% EBIT margin.
This means that our underlying profitability has improved compared to earlier deal levels this year, but we are still a way to go before reaching 2018 levels. Page 18. The quarterly cash flow from operating activities before changes in working capital amounted to SEK 34 million and has mainly been affected by the operational result, including cost of acquisition and relocation. Additionally to this, we had a positive cash flow effect from change of working capital with SEK 64 million, and the main reason is change in the stock by SEK 25 million during the quarter. Cash flow from investing activities amounted to minus SEK 50 million, and we have a higher investment level as announced earlier. During the quarter, we have finalized the purchase of land in Poland and the investment connected to relocation in China.
Our investment in efficiency continues as we aim to become the industry's most cost-effective fasteners manufacturer. In total, the cash flow for the quarter was positive and amounted to SEK 25 million. Page 19. We have a return on capital employed of 5.5%. The higher investment level have an impact as well as the margin development, and also our return on equity is impacted by this and amounts of 3.5%. Capital turnover times was also at a lower level compared to full year 2018. Our equity ratio ended up in a level of 55.2% in the end of the quarter, affected of the outcome of the year and still on a very solid level. Page 26. On this slide, we continue to give you some short guidelines regarding some key figures for Bulten. As always, these guidelines are not to be considered financial targets.
Average net working capital in relation to 12-month sales amounted to 25.5%, which is above our guidelines, but reduced since quarter three, and activities are still ongoing to reduce that level even further. Capital expenditures as percentage of 12-month sales were in a level of 7.1%, and that is an evidence of that we invest in our future growth activities. These investments will, however, improve Bulten's production efficiency even further. Depreciation of 3.3% of 12-month sales, excluding the IFRS 16 financial lease, is somewhat in line with our guidelines. Our average tax rate was 41.7% rolling 12 months, which is above our guidelines, and the high tax rate is mainly caused by the relocation and negative results in China for the period, which has an overall impact on the tax calculation for the group. Excluding for that, we are in a level of 26.3%.
The tax rate will vary from quarter to quarter going forward. Page 21, financial targets. In this perspective, we are looking at the figures excluding the items that can affect the comparability. Our rolling 12-month sales are down by approximately 1% - 1.2%, but with our pipeline of contracts, we are in a good position to continue to take market shares going forward, PSM will also add to our growth, of course. Our profitability with an adjusted operating margin of 4.8% on a rolling 12 months basis is affected by our stock for short term, relocation, restructuring, and acquisitions. Adjusted return on capital employed of 8.1% is lower than our target due to the lower profitability and the higher investment level. If we also adjust for IFRS 16, we end up in 8.5%.
Today, the board also suggests an unchanged dividend of four SEK a share, divided into two payments in May and October. Back to Anders again.
Thank you, Helena. That means that we flip to page 23 to look at what's in focus for 2020. Of course, delivering on our synergy plans with PSM will be a prime focus from day one after the transaction. Executing on the ramp-up plans for new contracts as well as winning new business is a priority. We also have a number of initiatives, both small and large, with the aim to improve our efficiency and productivity. These will, of course, always be in focus. As we are now taking title to the land intended for expansion in Poland, we will make sure that that goes to plan. We're in a product-focused business, so we'll step up our innovation activities in order to provide both functionality and sustainability to our customers. This concludes our presentation, and we're ready for questions.
Thank you. Ladies and gentlemen, if you have a question, could you please press zero and then one on your phone keypad now in order to enter the queue? After I announce you, just ask that question. If you find that question has been answered before it's your turn to speak, just press zero and then two to cancel. There'll be a brief pause while the questions are being registered. Okay. Our first question from the phones is from Mats Liss at Kepler Cheuvreux. Please go ahead, Mats. Your line is now open.
Yeah. Hi, thank you. A couple of questions. First, I guess, I'm a bit excited about this PSM acquisition. If you just could give some flavor there regarding why there is a profitability difference as you see it between you and that acquisition, and also, if you could say something there about what extent they produce their own fasteners or trade-in, starting with those two.
Okay. The difference between Bulten and PSM in product range is quite. We have some overlap in our product portfolio, but most of it is actually complementary, which makes PSM a very interesting value proposition for us. You could say, if we look strictly at the product range, PSM are in M6 and down, and some internal thread, as well as external, and Bulten is basically in M6 and up. There's a very good complementary product range that will benefit us going forward. Also from a geographical standpoint, there is a difference. The strength, really, where PSM is strong is in China, where we are still in the early stages. Where we are dominant in Europe is where PSM has the least amount of sales. In North America, we more or less double our sales in North America by the acquisition. It's a perfect match, actually.
The difference in profitability, is that due to the difference in geographical exposure?
Well, that's difficult to tell because they're in a very different customer segment. Primarily, they have not that much OEM direct business. Our business is dominated by OEM customers. They have a much more diverse customer base, and there may be an explanation in that. The geographical differences may also have contributed to that, it's difficult to tell, Mats.
Okay. Good. Coming back to the report. You mentioned the ramp-up of the remaining full service contracts. It's EUR 47 million there. Do you also indicate when you say so that the other contracts are fully ramped up now, or are they in a ramp-up phase still that will continue to contribute to your top line?
Some of them, the one that was in ramp-up phase previous year, they are now fully implemented in figures 2019. Now you can see that we have moved one of this that was red colored before, that was not yet started. Now they have started to be implemented by 20% and 30% of the value, still have 70% and 80% to go, you still have some of the contractors not yet being started.
You can say that the SEK 20 million that was moved into production is now in our run rate.
Okay. The EUR 42 million is a good estimate for how much the full service contracts will contribute in the next two years.
In the coming year, yes, EUR 47 million. Yeah.
Yeah, 47.
Yeah.
Good. If you just could indicate, you have implemented some savings and measures, and if you compare to the run rates in 2019 - 2020, what's the difference there, if you have a ballpark figure?
Can you repeat the question, Mats?
Yeah. You implemented some savings measures in 2019. Could you just indicate what the run rate is if you make a comparison?
You're talking about the restructuring program, or?
Yeah. How much you have reduced the cost base in France?
As we mentioned in the press release, we took the cost for taking the restructuring in Germany, and that will be approximately SEK 25 million in full year and coming from this very start.
Good. Finally, just about the tax rate. I guess it was quite high in the fourth quarter there, but you indicate that it will be reduced going forward due to China and so on. Should we expect it to be quite high in the first couple of quarters of this year as well?
I would say this is a little bit depending on the outcome of the first quarter and the prediction of the coronavirus and such things. I think you bear that in mind, and then do your best judgment, I would say.
Okay. Thank you.
Okay. Before going to the next line, which is Kenneth Toll at Carnegie, if anyone else has any questions on the phones, please press zero and then one now. Kenneth, over to you.
Thank you. I was thinking about this acquisition of PSM. Does it interfere with your joint venture in the U.S. that you have already?
No, I wouldn't say so. We have clear purpose and understanding what that JV is for, and no, that's nothing that's threatening or contradicting that. It's very complementary, I would say.
Good. Also on the CapEx side, you made quite a lot of investments last year. You still have the Polish project ongoing, but how much CapEx do you have left to do that is not related to maintenance CapEx? Of the things you decided, it's Poland, but are there more things than Poland?
No, I would say that the main CapEx going forward is of course the maintenance one that you mentioned. It is the property and the added value investment in Poland, the surface treatment line that we have in mind going forward.
How much is it in Poland in total?
We have announced, it is approximately EUR 6 million for the surface treatment. We have ended up in a little bit higher level regarding the property, as we mentioned before, and we have not totally done with the negotiation. I need to come back with exactly the figures, but it's about a little bit more than EUR 200 million, I would say.
Okay. SEK 200 million?
Yes.
Okay. Also one thing that I got wrong last year was the timing of these new contracts, that they were being ramped up. Last year, I thought that you would benefit already in the beginning of the year from the new contracts that you were delivering on. It was very limited effects, and maybe you have some effects here in the fourth quarter. I was wondering on the contracts that you have still left, both the green ones with 70% and 80% that you have left to ramp up, and also then the red ones, when will they start to give meaningful contribution? Is it already from the first quarter of 2020, or is it more back-end loaded?
I think it is quite visible now with our order intake that came in with the 13.6%, that these are now in our schedules. I'm talking about the green one. These you can definitely see from now on ongoing. The red one will come little bit different timing during the year. You can partly take that into consideration as well.
Okay. The red ones are more Q3, Q4 then, rather than Q2 one?
Yes. I would say it's a little bit different timing for them, actually.
Okay.
I think the most important ones is the green one.
Yeah.
They are the biggest one.
Yeah. The timing between the orders that you report in the report and when that turns into revenues for you, is that one quarter or?
We are measuring the backup orders for 100 days. When they are visible within that, they are shown as a order intake.
Okay.
Yeah.
Okay, great. That's all from me.
Good.
Okay. At this stage, there are no questions from the phones. Are there any questions via the web?
No. We don't have any questions from the web.
In that case, Mattias, pass the call back to you for any closing comments.
I hope you found this session informative. I just want to, again, before we hang up, throw in a commercial for the Capital Markets Day in Stockholm on the 20th of February. Mentioned that three times now during this broadcast. You're more than welcome to attend, and I think you will find that very interesting. Thanks for listening.
This now concludes today's session.