Hello, welcome to Bulten's 2018 Q4 Presentation. My name is Kamilla Oresvärd, Senior Vice President, Corporate Communications. Presenting the report today are Bulten's President and CEO, Tommy Andersson, 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. First, with us today is Anders Nyström, who will take up the position as Bulten's new President and CEO as of tomorrow. Anders, can you please say a few words about yourself before we start the Q4 presentation?
Yes, absolutely. Thank you, Kamilla. Tomorrow is my first day as the President and CEO of Bulten. Tommy has served the company for almost two decades. I have a lot of respect for what he and his team have done, especially in the last five years. As some of you know, I've served most of my career on the OEM side of the business. I'm a mechanical engineer by training and started in quality in Volvo Cars, moved on to product development, to purchasing. I stayed with Volvo Cars for 27 years, of which six were in different purchasing management roles for Ford Motor Company, both in North America and in Europe, while Volvo Cars was part of the Ford family. When I left Volvo Cars, I was responsible for all materials and components purchasing. That was back in 2011.
I joined Kongsberg Automotive, where I had the opportunity to run a global business unit with customers and manufacturing facilities around the globe. I did have a short stint with the IAC Group as well before being asked the question whether I would be interested in leading this fine company, which Bulten is. I've been looking forward to get to work ever since the day in June when I signed the contract. In the last few weeks and months, I've had the chance to shadow Tommy and start to understand the business and the organization.
I have to say that we have good people, we have good technology, a wealth of knowledge in the company, a global presence to capitalize from. My observation so far is that we have a very solid foundation to continue to build the company from. I now hand over to Tommy and Helena for the Q4.
Okay. Thank you, Anders. I'm convinced that you will do a great job in your position there. Now going to the fourth quarter and full-year outcome. Car sales within EU has been extremely volatile during Q4 due to new regulations, what we call Worldwide Harmonized Light Vehicle Test Procedure, in short, WLTP. Bulten has due to ramp up on new contracts, managed this situation well and are still on a growth pace. Coming to agenda for today, Bulten in brief, market development fourth quarter 2018, and our plans going forward. Going on to page four, Bulten in brief. Bulten's business concept is getting stronger every day, and during the year, we have been involved in successful launches of several new cars and model shifts with flawless execution. Investments in quality engineering, logistics, as well as dedicated people are the key to this performance.
As mentioned, this is the reason for maintaining growth also in a volatile market. Bulten's vision to support the global automotive industry with state-of-the-art fastening technology and services, as well as developing the FSP concept into perfection, has been the main reason for Bulten to be a winner in this highly competitive industry. Going on to page five. Bulten has a lean and well-positioned operation, and entry into the U.S. market will open doors into new customers, but more important, strengthens Bulten's position on global platforms to customers we are already supplying. There are not so many in our industry that can offer local content in Europe, U.S.A., China, and Russia. We are today the largest fastening operation in the industry in the low-cost country, Poland, and we are planning to expand it further. We have also a big portion of outsourced production, approximately 40%, which also creates flexibility.
Regarding volumes, Bulten has proven that we can adjust to volume fluctuations both up and down. Going on to page six. Bulten has many customers with potential for further growth when consolidation and each strong FSP supplier will be required to assemble the cars and engines the most cost-effective way. Cars are the main fastening market within automotive, as it is also for Bulten, and Bulten's three largest customers are Ford, JLR, and Volvo. Coming to market development, page eight, market volatility. As we commented in our report today, the industry has been quite volatile the last few months. In Europe, car sales have decreased each month since September, and in December, EU car sales were down 8%, according to ACEA. This is due to several factors. The new global test procedure for new cars, called WLTP, is more strict in terms of CO2 emission.
This has created distortion in many EU countries. This has created a demand for cars produced prior to the new test procedure was introduced, and the trend towards more CO2-friendly cars, hybrids, and electric vehicles is in a long-term perspective, however, positive for Bulten. Concerns about Brexit has had an impact, especially in the U.K. We can see a drop in car sales in Europe of 7%-8% during the fourth quarter, while Bulten managed to remain almost unchanged due to new business. As you can see in the graph, car sales in many key markets were down in December. Raw material prices will remain in the same level as in Q4 during the first quarter 2019. No further increases are announced. Going on to page nine, market development for production.
Looking at the production of cars in Europe during Q4, the most relevant statistics for Bulten, LMC reports a clear drop. This is of course a result of lower sales, a result of lower exports of cars to other continents like China, the market that has, as mentioned, also weakened in Q4. According to LMC, especially Germany and U.K. production went down in Q4. It's obvious that Bulten managed to keep production volumes at a good level during the quarter. LMC Automotive has reported an estimate 2018 for light vehicle production in Europe of 0.2% growth and heavy commercial vehicles to grow 4.7%, which is with Bulten's mix an estimated market growth of 0.3%. The LMC estimate has been lowered since the Q3 report with influence from WLTP and Brexit. Page 10.
LMC Automotive estimated bumpy production of cars in Europe the years to come with a decrease of 0.5% in 2019 and an increase of 3.5% in 2020. Looking at the same thing for heavy commercial vehicles, this estimate an increase of production of around 2.1% for 2019 and 4.1% for 2020. For Bulten's mix, - 0.1% for 2019 and 3.6% for 2020. Page 11, market shares and what about our market and position? Bulten is growing and continue to take market shares. Bulten's market share was 18% during 2018. Bulten is defending its position as the leading FSP supplier well, we increased our market share from 60%- 65% in 2018, mainly due to a new major FSP contract. The growth we are planning for 2019 is to a large extent coming from FSP contracts.
The fourth quarter and operational highlights, page 13. Bulten is growing even though the market was down in the quarter, an effect of our continued ramp-up on new contracts in the quarter. The order intake decreased due to a weak market as well as a tough comparable last year. The profitability decreased somewhat during the quarter due to irregular production caused by the volatile market, high level of prices on raw material, negative currency effects. We continue to take new contracts within the quarter as well as after the quarter. Two new FSP contracts for drivetrain to electric vehicles of SEK 7 million and one new FSP contract of SEK 30 million after the quarter. The board is proposing a dividend of SEK 4 for 2018, increased from SEK 3.75, 2017. I will now hand over to Helena for some financials.
Thank you, Tommy. Bulten shows its sales for SEK 747 million in the quarter, up 1% compared to comparable quarter last year. Our EBIT amounted to SEK 48 million, operating margin was lower compared to the comparable quarter last year, an effect of irregular production due to market volatility, high raw material prices, and currency effects. Looking to our EPS, it decreases with 34% during the quarter. This drop mainly relates to our financial net, which for SEK 10 million is lower than Q4 previous year, which basically the most of it relates to currency effects. More comments about earnings in just a minute. Page 15, some comments on the net sales and order intake. Thanks for the quarter, we're up 1%. However, adjusted for currency, the organic growth was down 3.3%.
In an overall market perspective, our performance comes from increasing volumes related to previously announced contract wins and overall good demand from our customers. The market has been volatile, especially in December, but the situation differs from customer to customer. Looking at our order intake, it was down 11.7%. This also, of course, is a result of market volatility, but as importantly, the tough comparable quarter 2017. That was boosted by ramp-up of contracts. The speed of ramp-up of contracts in Q4 2018 has been somewhat affected by the market situation. Page 16. Our EBIT margin for the fourth quarter amounted to 6.4% compared to 7.5% comparable quarter last year. Looking at the underlying profitability, excluding currency, the difference is much lower, with a margin of 6.8% in the quarter 2018 compared to 7.1% the previous year.
In addition, we also need to take into account the higher level of raw material prices compared to a year ago. During the quarter, we also started to see some costs for our started relocation of production in China. As a result of volatile market, we have just started adjustment of our production levels with some lead time. As mentioned previously, and as you can see on the right chart, our earnings on an EPS level was down in the quarter, but much less if we disregard the currency effects. Page 17. The cash flow from operating activities was mainly affected by the operational results. Our total cash flow was, of course, also impacted by the high investment level as we are in the phase preparing for growth and increasing our capacity.
Our investment in efficiency continues as we aim to become the industry's most cost-effective prosperous manufacturer. Our balances and financial position remain strong, and we have a net debt by the end of the quarter of SEK 101 million, which equal to 0.65 EBITDA. Page 18. Our return on capital employed has decreased down to 12.8%, mainly due to the margin development, but also our return on equity is impacted by this and amounts to 9.9%. Capital turnover times was, however, at the same level compared to the full year 2017. The equity ratio was on a level 64.8% at the end of the quarter. Page 19. On this slide, we continue to give you some short guidance regarding some key figures for Bulten, and as always, these guidance are not to be considered as financial targets. Average net working capital in relation to 12-month sales amounted to 23%.
Working capital has been driven by positive developments for one half of quarter was also impacted by regional volume development in the left part of the quarter. Capital expenditures as percentage of 12-month sales clearing a level of 5.3%. An evidence of that we invest in future growth activities. We predict that we would end up over this level in coming years. More about this on the next slide. Depreciation of 2.9% of 12-month sales is within the range of our guidance. Our average tax rate was 29% rolling 12 months, which is above our guidance. During this year, we can see an effect of revelation of deferred taxes due to coming new tax rates in Sweden, but also other changes in tax regulations, mainly in Poland, which also affects the average tax rate. The tax rate will vary from quarter to quarter going forward.
Page 20. Just one short review of our investment strategy in the coming years. Our guidance is to invest 2%-3% of 12-month sales into daily business. On top of that, to handle the growth pace, we will invest more in the years to come, as previously announced. We will invest in new capacity, value-added production, as well as a new production plant in Poland. This investment has, however, been delayed due to negotiations regarding land development and the building, and will entail some additional investment compared to earlier estimates, but it is still under negotiation. We also see some delays in finalizing our plans of a treatment line in Poland due to the reason that I just mentioned. In connection with the release of our Q3 report, we announced the relocation of our production facility in China from Beijing to Tianjin with purpose to catch growth opportunities.
The move has started, we will be finalized by the end of 2019 with associated investment of SEK 25 million. All in all, this investment will improve Bulten's production efficiency even further. Page 21, financial targets. We are growing more strongly than the industry average with 9.7% for the full year 2018 versus a forecasted market growth of 0.3%. We continue to have a good profitability with an operating margin of 6.7% on a rolling 12 months basis, even though raw material prices and a volatile market has made the environment more challenging.
Return on capital employed of 12.8% or 14.6% if we adjust for goodwill, reduced mainly due to the margin development. EPS developed negatively, mainly to the financial net inflation effects, also due to higher average tax rate, as mentioned earlier. Our board will propose to the AGM an ordinary dividend of SEK 4 per share, an increase compared to SEK 3.75. Back to Tommy again.
With that, going forward, going to page 23. Bulten continue to perform better than the market in Q4. The main part of this growth is coming from ramp-up on new contracts. On this slide, you can see the updated different ramp-up contracts and what phases of implementation they are in respectively. Moreover, contracts signed but not yet entered production will support Bulten growth even further in the years to come. The market situation, of course, will have an impact on Bulten and for Bulten's mix to market according to LMC is estimated to be flat during 2019. To that, you have to add ramp-up of new contracts that have started as well as new business not yet started together totaling over EUR 65 million yearly.
Going on to page 24. Going forward there, the European car market dropped from 7%- 8% during Q4 compared to previous years, but Bulten remain on the same level as Q4 2017 due to ramp up from new contracts. Strong financial position and an increased dividend is proposed. Preparing for future growth through investments and continued streamlining to become the most cost-effective FSP supplier in the industry. Finally, we are also in a good position to win new contracts when the industry is changing for more environmental friendly drivetrains. The long-term trend towards hybrids and electric cars works in our favor. I hope you all got a clear picture of the opportunities within Bulten, and I think we are now ready for Q&As. Thank you.
Ladies and gentlemen, if you do wish to ask a question, please press zero one on your telephone keypad. If you wish to withdraw your question, you may do so by pressing zero two to cancel. Our first question comes from the line of Kenneth 12 from. Please go ahead.
Thank you. Yeah. First, you commented a bit-
Hello, Kenneth.
Yeah. Hello. You commented a bit on the Polish project that there are some delays there, but the project for capacity increases in Hallstahammar and the moving China, are those moving according to plan?
Yeah. They are moving on according to plan. They're setting it up now in Hallstahammar. The machines are there, and they are following the plan. It's just the negotiation regarding land and buildings in Poland that takes some time. They're on plan.
Okay, great. I was curious, on the new contracts and the ramping up you are doing, how is that working operationally? Is it smooth, or do they incur extra costs and so on?
I think you have seen over the years that we are really skilled to implement new contracts. We don't incur a lot of extra cost. We are doing it with quite a good execution, so I don't expect it to be anything special there. It's a ramp-up period, of course, in some cases, and a little bit of maybe under observation with machinery, but we are quite good on ramping up new contracts.
Finally, the raw material prices have gone up during 2018 and now seem to stabilize. Over the long term, you are usually good in adjusting your own prices. This year you have been, or last year, 2018, you were hurt a bit from higher raw material prices. Do you think that you can still increase some prices from the level you had in Q4 in order to mitigate for some of the increases last year?
I think we're always working with our customer to get compensation for raw material, and as I mentioned before, a lot of our customers have what we call out to material. It just takes some time before it's getting in there. The problem we have had is so many quarters in a row with increases, but I would also expect now when the market is slowing down a little bit, that we will have some more leverage on the raw material suppliers.
If the current raw material prices stay flat for the remainder of 2019, then the difference between your pricing and the raw material pricing would be more favorable in 2019 than what it was in 2018?
It should be.
Yeah. Okay, great. Thank you.
It's quite natural. When the market is up at a high demand, the raw material prices increase, and the opposite is going down. Of course, we always lose a little bit when it's going up.
As long as you will not have further increases, it will not be the delay effect, of course.
No.
Yeah. One thing, you are selling quite a lot of products in the U.K., and there might be a Brexit coming. How are you preparing for deliveries in the U.K. in the case of a hard Brexit?
First of all, we have no production in U.K., so that will help us. It's basically a logistics. Of course, we are looking over the situation to build up inventory in case there is a stop for us, so we are not a showstopper or what will happen. That's basically what we can do right now. Of course, we have looked over all our flows, what we can do if there is something that's going to U.K. that we don't need to send there and things like that.
That's basically, we just make sure that we can maintain the production. Of course, if something is getting really bad, which I don't think it will, then, of course, there were probably other things that stopped the car. We are prepared. Of course, it might hurt us. It's for sure it could hurt us if the production stops, hopefully that will not happen.
Okay. Thank you very much.
Thank you, Kenneth. Thank you.
The next question comes from the line of Mats Liss from Kepler Cheuvreux . Please go ahead.
Hello, Mats.
If you could unmute your line, Mats?
Thank you.
Hello, Mats.
Hello. Now you can hear me. I was slow on the mute button there.
I can hear you now.
You're talking about the slowdown there late in the quarter, I expect the same situation have continued during the beginning of the year. Is that so?
I think it's quite a mix. Of course, it continue on a slower pace. WLTP made a lot of people buying cars before, and then they just if you take Sweden, for example, it dropped 34% in December, but it's back only dropped 10% in January. There is quite a change in the market right now. Of course, you're right. As I mentioned on the LMC report, it's almost a 0.5%, 0.3% with our mix. Of course, it is a weaker market than we are used to with the market growth.
The best guidance is, of course, the order intake you had in the fourth quarter to be delivered during the first quarter now.
Yeah. On the other hand, as we also said, the order intake there was somewhat affected by a very high order intake the year before. It was maybe indicating a little bit more. I don't know if you want to add anything, Helena.
You're talking about the absolute amount.
Yes. Yeah. Of course, it is, let's say 78% down, and you probably can expect things like that to continue.
Yeah. Okay. The delays there in Poland, do that affect your ability to ramp up the new FSP contract you have?
No, we are still managing that. As it is right now, with the volumes a little bit going down, so we are still managing that, and we expect it to be negotiated in time, so we are not hurting there. I think that contract is just starting to ramp. I was starting to go in by the end of the year, I think we have time to ramp it up. I don't think it will affect that.
About the FSP contract you are gradually ramping up now. Expecting unchanged car production in 2019, how much would you outgrow the underlying market then, given the contracts you have are ramping up?
We are not giving forecasts in that way. You could see that we, of course, outgrown the market. The market was down 8% in the fourth quarter, and then we're almost flat. The only thing we have these EUR 65 million that will be in ramp-up and things like that. Exactly to say how and when they will go in is a little bit difficult to say.
Okay.
It's too uncertain now to give a number. Of course, we don't give forecast. We just reference to the LMC report.
Yeah.
You nodding, Helena. You have anything else?
No, I'm nodding.
Just briefly on the tax rate, it was a bit high in the quarter. You write something of the Polish tax.
Yeah.
Regulation.
Yeah. Changes in what is deductible and different kind of changes that affects now when we're adapting to the new regulations. We can see an effect here.
That's a temporary impact. In 2019, you will have a sort of within the indication, the 24%-28%.
We will adapt to the new regulation. Absolutely.
Okay. Thanks a lot.
Okay. Thank you.
Just as a reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. There'll be a brief pause while any other questions are being registered. As there are no further questions, I'll hand back to the speakers.
Yeah. This was my last report for Bulten, and I want to thank you all for listening in, and I wish you all the best for the future. Thank you