Welcome to today's third quarter report from Bulten. With me to present, I have President and CEO, Axel Berntsson, as well as CFO Anna Åkerblad. The presentation will end with a Q&A, and if you're calling in and want to ask a question, press star nine to raise your hand and star six to unmute yourself. With that said, I give the word over to you, Axel.
Thank you very much. Let's go ahead and dive into this presentation that we have labeled A Stronger Business, Ready for its Next Chapter. And obviously, this is then related to that we are performing a bit better than we have been historically, and that we have divested a quite large chunk of our business, and therefore, we feel that we are prepared to move on to the next chapter. We're trying to change pages here, but we have a bit of an issue. Just give us a second. There we go. All right, so this is the agenda for today's call. We have three different little sections. The first section is where we go through the Q3 itself with some highlights and talk a bit about the divestment that we have now executed and so on.
Anna will come in and give you some flavor of the financials of the quarter, and then I will end with some forward-looking thoughts. With that said, let's move into the Q3 highlights. When we look at the Q3 highlights, I think it's important to remember the Q3 that we had last year, and that, of course, has created a bit of funny comp numbers. For those of you who remember well, we had a quite major issue with one of our largest customers last year that had a cyber attack, and that obviously had a large impact on our sales and our profits and so on. But it also created quite big timing swings on our cash flow. But that aside, I see this as a fairly strong quarter that goes in the right direction.
We had a good sales growth also comparing to the last couple of quarters that we have had, and we have had a few years now of declining volume, so it's nice to see that the volume started to tick up again. We also see a sequential improvement in our profitability that have now improved for a few quarters straight. So we're happy with that and hope that we can continue that trend going forward. And we had a very good conversion from EBIT to cash flow. So overall, from a financial point of view, I find this to be a good quarter and clearly in the right direction. Then obviously the key event from last quarter is that we have concluded a divestment that we communicated before the summer, where we handed over the keys to our European manufacturing operations to Maelir here on October 1st.
On the 16th of October, we handed over the keys to our Tianjin factory in China to Mr. Chen and his friends. Then in December, we will hand over the keys for our real estate in Hallstahammar to Maelir as well. I think we are quite happy with this. These are important big steps in our transformation that we wanted to execute, and these are also the largest and probably not final, but there is nothing major in the transformation box that remains. We are very happy that we have gone through the first larger part of our plan to create a more resilient, stronger, and better-performing company of Bulten.
Very happy with that, and also want to take the opportunity to thank both Maelir and Mr. Chen for good collaboration around these businesses, and we will continue to have a relationship with them going forward as customers. We also wish them best of luck in their continued operations. The business then that remains, as you can see, margin has improved. In Q1, we had 7.6%, Q2, 8%, Q3, 8.1%, and we look forward to continuing that trend going forward. On the larger highlights, we are having some big progress or large move forwards in Asia. We have fairly good growth on some key customer segments. Particularly, we are quite happy with the development that we have in India, where we are building a new plant for micro screws and micro fasteners in general. That project is moving forward well.
We are also having quite large operational improvement in our operations. We still have a couple of factories in the group. We have a factory in Wuxi, we have a factory in Shenzhen that we co-own, and we have a factory in Taiwan, all of which are moving the right direction, improving their operations in a good way. Happy with that. We have also been able to capture a few opportunities in the AI space. Obviously, when we speak about AI, it is not about large language models and things like that. We are talking about the infrastructure side, where we have customers that are in the energy supply and so on of this sector, and we have won some quite large new projects for that, also related to then the semiconductor business connected into the AI as well. We are happy with that development.
We see that we keep broadening our verticals that we make business with and become less and less depending on each one of those. That is very nice to see, and that is something that we will continue with going forward. Happy with the development overall in new verticals in the operations in Asia and overall a stable operations also elsewhere in the world. With that, I hand over to Anna to give us some flavor of the numbers.
Thank you, Axel. Net sales for continuing operations amounts to SEK 831 million in the third quarter, and that is a significant increase compared to last year. Last year's quarter was heavily affected by a major customer's production stoppage.
However, when comparing with previous quarters this year, the sales is stable and increasing. The continuing business is delivering a stable and positive profitability for the third quarter, and the quarterly EBIT amounts to SEK 67 million , which is equal to 8.1% margin. The EBIT comparison between the years is also affected by the customer stoppage last year that we mentioned. The performance during the year reflects a more favorable business mix, more competitive cost base, and disciplined operational execution. It's positive to see the stable profitability. Our key indicators for continuing operations are steadily improving on both return on capital employed and net debt/EBITDA. They are quite positive compared to full year 2025. The equity/assets ratio is, however, affected by the write-down due to the divestment.
The discontinued operations had an effect on equity with approximately SEK - 1,200 million , and this was mainly due to impairment charge, but also some current result for the business. The expected cash effect from the transaction in Q4 is approximately SEK 545 million . Now back to you, Axel.
Thank you, Anna. I think it's good to see that when you look at those debt ratios and so on, obviously, that does not include the cash that will come into Q4. That will then help us improve those numbers as we close Q4 and move forward. Just to make sure everybody's aware of that. If we look at the business going forward, I think obviously we have had these large divestitures. The top priority is to make sure that that runs smoothly, as that carve-out work now is in full speed. The largest part here is obviously separating the physical flows between the businesses, and that has more or less been concluded. Then we have some IT stuff and so on that needs to be completed that are the largest work streams at the moment.
The team is doing a very good job with that, and very happy with how that is proceeding at the moment. If you go down to more practical priorities for the remaining business, the profitability is key. We can see that this is a business that overall performs much better than the full business that we have had before, with some kind of base level here now around 8% EBIT. We do want to improve that significantly going forward, so obviously we have a lot of work to do with driving the right type of business into the company that has a more favorable gross margin and more favorable EBIT. We also need to continue to work on our cost base so we stay competitive and disciplined in our operational execution.
The growth side is obviously super exciting at the moment, both when it comes to organic and inorganic growth. On the organic side, we have, as many other businesses, a very favorable growth connected to anything that has to do with infrastructure or AI. We also see favorable growth numbers when it comes to consumer electronics, so that is also moving in the right direction. We see in the automotive side very stable volumes. So overall, the mix is improving and the overall performance is quite strong. We do believe that there are good opportunities going forward to convert a large portion of our earnings into cash. As you can see in this quarter, we moved more than all of the EBIT into cash. That will not be the situation going forward always. Obviously, you have some losses in between.
We do foresee that we will have a good cash conversion, and we will have a high focus on that area going forward. India is a key piece in our long-term puzzle. We are making a fairly large bet on India, maybe not CapEx wise, but effort wise, it is a big piece for us. We have a high belief in the Indian market in general, and especially in the consumer electronics related space and AI infrastructure space. We are just about finalizing our new factory. For those of you who have followed us a while, we used to have a factory in northwest of India that was just completed when we decided to move it down to Chennai to be much closer to the key area here for consumer electronics and AI infrastructure production. So we decided to move that factory.
Now we are building a new factory that is now completed. We have ordered a lot of new equipment that we expect to install during Q4, and hopefully, we will start to then be operational during the beginning of next year. So super excited for that, and our team is doing a great job pushing through on that timeline. So great to see and a very exciting opportunity for us going forward. With that, we hand over for questions. I hope there are a lot of questions from the team here today, but please raise your hand and ask any questions that you have, and we will do our best to answer.
Thanks for that presentation. I am just going to say once again, for those who are in the call, star nine to raise your hand and star six to unmute. Before that, we have got some questions been sent in. The first one here. Other revenue increased by 48% year-on-year. How much of this reflects underlying growth in non-automotive segments, and to what extent is the increase driven by easier comparables following the JLR cyber attack?
A quite large portion of that is driven by the cyber attack. I think we still have a good growth number underlying, but it is no 40% growth, of course, that we are seeing. I do not have the exact split, so you need to interpret what you can from the numbers that we have given you. There are some splits under, I think it is one of the notes where you see some of the splits that you can look into, and I will refer to those numbers for you on that question.
Thanks. Now we have Mats Liss has called in. If you want to unmute. Mats Liss from Kepler.
Yeah. Hi. Thank you.
Perfect.
A couple of questions. First here, you have the margin here in the third quarter of 8%, and it seems to be you have higher ambitions going forward. But given the current business mix you have, is it fair to say that there are opportunities to fine-tune this mix and maybe accomplish even higher than the 8% you did there in the third quarter?
I would say that the mix in general is fairly average as we see right now. I don't see the mix short term moving a lot. Obviously long term, this mix will change. We have one large customer in the automotive space, as most of you are aware in here. Obviously the margin for that business is in general lower than what we have for the average. So as we continue to grow everything else in the business, there are good opportunities to improve the average margin that we are showing. But the pace we're currently having outside the mix that we have in the Q3 is fairly as such.
The mix, you indicated automotive is still a quite high portion of sales and there aren't any sort of pent up impact from the problems you had last year. It's more on a stable, normal level currently.
Yes. The customer's running well. I think most of the factories are running at the speed where they want to run it, and we don't see any major fluctuations from that anymore. I think they have done a really good job recovering well from the massive attack that they had. So everything seems to be quite okay with them at the moment. I do think it's important though, to reflect on the business model that we have related to this industry at the moment. For those of you who have followed us for a while, you would have typically seen a very low margin in Q3 due to a lot of stoppages in the other automotive customers that we had. Given that we had a large portion of fixed assets, that means that the margins go downward fairly fast when the volumes drop.
Today, we don't have that, say, liability of large fixed assets anymore. Now we are in a pure trading model with very low fixed assets, which means that we are much more resilient to volume fluctuations and have a much more attractive business model with less risk today than what we used to have before the divestment of the factories.
Yep. Good. While you mentioned the divestment procedure that you get in the fourth quarter, and I guess gearing will be improved quite substantially. Should we expect you to sort of continue growing the business through acquisitions or are there more sort of organic strategy you are sort of focusing on coming years or could you say something about that?
Yeah. I think a sound business strategy does not rely on acquisitions alone when you're an industrial business. That is more of a tool for us to achieve the targets that we want to achieve. We do have a quite large focus on making sure that our businesses organically perform better and stronger every year. That is the foundation of what we do. Then we see very good opportunities to buy distribution businesses in certain places, where we feel that it's a good opportunity to do that. But we also look to acquire production of certain type of products, typically products where there's a make-to-spec products, C-parts in that area, where we think that the suppliers have a bit too much say in where the margins should lay, and therefore we would prefer to have them as part of our supply chain instead.
We will look to acquire both on the front end on the distribution side, and on the back end on selected suppliers.
Okay. Okay. Thank you very much. I step back in line.
Thank you, Mats.
Thank you, Mats. Now we got a lot of questions sent in via YouTube, and the first one here is: When can we expect the new financial targets and the potential name change to be announced? What has caused the delay, and is there a new timeline?
I am not sure there is a delay given that we just sold the factories here a few weeks ago. I do not see a delay. I think that needed to be done first before we could communicate any external targets. Now this task sits with our board. We had a board meeting today, of course, where this was discussed and when the board is ready, we will communicate new targets to the market. I do not have a date for that, as we have not communicated a date yet. When it comes to the name change, that is an interesting process.
Obviously, we know what name we would like to have, and we have applied for certain names in certain areas that we would like to use, but there is an approval process to go through. Once that is concluded and we have a name that is approved, we will call for extra shareholders meetings to vote for a new name, because that is something we cannot just do by ourselves. You will know that at least a month in advance when that is getting ready.
Thanks. Next question here. Q3 has historically not been the strongest quarter. Should we read the 8% margin as the floor for the new group? How much could volume and mix drive the margin from here?
I do not really want to comment if that is the floor or not. Whoever wrote this question is right. We typically would have had in the past, quite large drops in profitability in Q3, but not really because of the mix that we now have in the business. The historical mix has been much more skewed towards direct sales of contract manufactured parts to the automotive side, where we had those large fixed assets that we just talked about, and therefore that affected the margins. Going forward, we do not have that in the business, and therefore the margins should be more stable in general. As I also said before, we have a large focus on growing a lot of other areas than automotive. As that grows, we do believe that these other verticals will have, in general, higher margins, and that should push the margins upwards.
But until we have any financial targets, I will not speak about any kind of levels where that will end up or what ambition we have for that.
Thanks. Are you to update the financial targets for the new structure, and will there be a Capital Markets Day?
Yes to both those questions. We will update targets, and we will have a Capital Markets Day, most likely, in fairly tight connection to putting those numbers out there.
Perfect. PSM and Exim, do you have any plans on purchasing the rest of the shares in your minority investments?
In Exim, we own 100% of the shares, to my knowledge. So there are no outstanding shares that we do not own today. We had a JV in India that we have now acquired, so we own all of that. I would love to buy the rest of the shares in our JV with ZJK. I think it is a great business that we have together, and if the owner would be willing to sell, we would be willing to buy probably. But let us see where that takes us in the future. It is a very nice business and we have a good collaboration today. So if the current status quo stays, we are also happy with that. And then we have some other smaller JVs in Japan and Italy and so on. And if they would be for sale, we would be interested in discussing that as well.
They're nice businesses with good people, well run, so we're happy with them and happy to support the local management as well.
Thanks. Other industries grew 48% year-on-year to 33% of sales. How much came from the phone program, Exim wins, and AI infrastructure? How large is the AI pipeline beyond Lam Research, and is Lam on track for 2027 deliveries at full run rate?
There were a lot of questions in that. Let's see if we can break them down. I think we are on track with most customers in this space. I don't see anyone deviating from the growth path that they have. If you look at all those customers in the AI space, when you talk to them, most of them are public, which means that you can go and check on their webpages and from their earnings calls what kind of growth they are expecting. Particularly, those growth numbers are very high. When they grow, we typically grow. So we're happy to follow them, but they need to speak for their own deviations. I don't want to speak on their behalf on anything, basically. I probably missed some part of that question. Was there anything else in there that I should answer to?
No, I think that was a good answer. Next question here. Other players in fastener space, Bufab, for example, have considerably higher margins, both gross margins wise and EBIT wise. How do you explain this gap, and what are you planning to do to decrease this gap?
That is a very good question. I do not like that question, but it is a good question. I hope that one day it is the opposite, where they have to explain why they are behind us, but that is not where we are today. I think the main difference is the mix. If we look at the part of our business that is outside of automotive, they have more favorable margins, both on GP and EBIT level. I think to some extent, there is a mix difference that we see. I think as we continue to broaden our mix, we will have more favorable margins. Can we reach Bufab's levels? I would say yes. Will we do it? I do not know. I do not see any reason why we would be less good than they are at anything.
I think we beat them in many cases when we are going head to head with the distribution businesses that we have. We are confident in our ability to go toe to toe and win on our service levels. But it is to be seen. We are smaller, but we are just getting a reset where we can start to chase players like Bufab or Bossard or others. But we are up for the challenge and look forward to shrinking the gap.
Thanks. Have the board considered buybacks instead of M&A, given the valuation of the stock?
I do not know. I have not been in any such discussions where there has been a real topic of discussion for that purpose. I think the board, at least the discussions that I have been in, are quite excited about the opportunities that we have ahead, both in investing in organic growth and inorganic growth. Any other discussions I have not been part of is difficult to say, but I think we are all excited about the opportunities ahead.
Thanks. Now over to the last question here. Could you provide some more color on your growth in Exim and PSM? It is quite hard to value those parts without knowing more about separate growth rates. Are you planning on showing segment revenues in the future?
To be discussed. Let's say that given that we don't show the numbers, that means that I don't want to talk about them in a call like this either. Then we should probably have that as public information. I think we are just getting a reset of our business, and we need to look at what is the right cut to have in this. If it makes sense in the future to have segments reporting, we need to get back to that as we get to know the business in more details and also can understand where our acquisition path takes us. I don't really see exactly what split that would be today, and we need to get back to that as we have developed the business further.
Okay. Thanks for the Q&A and the presentation. That was all for today, and if you want to hand over some last words.
I want to thank everybody for the questions. I think that is nice to see all the engagement from shareholders and potential shareholders, and I would just like to end with the last word and thank Anna. I think you have been a great colleague, and will be missed in the business, and we wish you best of luck in wherever you end up next. It'll be exciting to follow.
Thank you.
Okay. With that said, thank you, everybody.
Thank you.