Hello, and welcome to the Beijer Electronics Q2 2022 report. For the first part of this call, all participants will be in a listen only mode, and afterwards there will be a question- and- answer session. Today, I'm pleased to present Jenny Sjödahl, President and CEO, and Joakim Laurén, Executive Vice President and CFO. Please begin the meeting.
Thank you very much, Nas. Hi, everyone, and welcome to this quarter two report meeting. I will start with a general update of the quarter, and then Joakim Laurén here, who is sitting beside me, will go a little bit deeper into the numbers. Let's get started. This is what the agenda looks like. Business update, financial performance, some concluding notes, and an outlook, and of course, a Q&A session in the end. Looking at the second quarter of 2022, we are very pleased to see that the strong customer demand that we have been seeing now basically since quarter two of last year actually continues. Everything starts at the end of the day with orders, so we are very happy about that.
We did record another record order intake quarter now, not by much, but still higher than quarter one of this year, SEK 667 million. That confirms the growth strategy that we have been working on executing for the last years. As you know, we have had some issues with the sales lagging behind order intake, and therefore we are happy to see that we managed to reach a sales level in this quarter of SEK 533 million, and that is the first time that we are above SEK 500 million .
This sales record sales level was mainly driven, as you might have seen in the report, by the Beijer Electronics business unit, who really managed to get a lot of products out of their factory in the quarter. Whereas Westermo was still struggling with the component shortages. All in all, we came in at a good level, which gives us confidence for the future as well. Thanks to this good sales number, we also managed to significantly improve the earnings for the whole group. We landed at 7.7% for the whole group, which is of course not where we would like to be long term, but it's a step forward compared to where we're coming from.
I'm very, very pleased to see that the Beijer Electronics business unit now took this huge step up in terms of profitability, thanks to their good volumes. We can see that the volume leverage that we have been talking about for quite some time now actually works, and that unit came in with EBIT margin in the quarter. We are very happy about that. As I mentioned, the component issues continued to hamper Westermo sales, and especially early in the quarter, we had several production stops, which we were unable to catch up with later in the quarter. We have a very strong pipeline going forward, a lot of customer activity in both our business entities.
We are happy that we can start to see customers again, and we are participating in a lot of customer events and so on. That's very positive. However, we know that the macroeconomic situation is of course uncertain due to many different reasons, and we are monitoring that closely, obviously. Okay, moving into the business entities from an overview level, and Joakim will dive deeper into the numbers in just a minute. Starting with Westermo, we see good demand across all our segments and geographies, and we had a third quarter in a row now with an order intake above SEK 300 million. However, as I already mentioned, component shortages are continuing to disturb us.
Due to the lower sales volumes and also high costs for material in the quarter, you could see that the profitability took quite a serious hit in this quarter. However, nothing has changed in terms of Westermo's business model and the stable earnings capacity that we have, and we are expecting improved delivery capacity in the coming quarters. Again, Beijer Electronics performance very, very strong in the quarter. Both order intake-wise, we are seeing a strong demand there, very, very strong invoicing, and with that, a significant profitability step up, very close actually to the target that we have set for our business units of 15% EBIT margin.
What is very good to see also for Beijer Electronics is that basically all of their competitors in the market for panels are struggling big time in terms of delivery capability, which means that customers are turning to us because we can actually deliver. We are winning market shares thanks to our good delivery capability. Orders and sales on an overview level here, as you can see in the graph, a new record order intake even though it was quite close to the last quarter.
You can also see their rolling 12 months level is now above SEK 2.4 billion, which is of course, very, very strong. Sales are lagging behind somewhat, but this graph also shows that there is a significant step up in terms of invoicing in this quarter compared to previous quarters. This means that we have a backlog, which is at an all-time high of SEK 1.4 billion, which gives us a lot of confidence, of course, for the coming quarters. There is a favorable FX effect in the quarter, as you can see there in the comments, with the Swedish krona weakening against basically all other currencies. Okay. With that, Joakim, I hand over to you for some more details.
Thank you, Jenny. We start with group, and as you understand, it was a good quarter despite the challenges that we have related to the component shortages. The order intake at SEK 667 million, sales at SEK 533 million, and then an EBIT level of almost SEK 41 million or 7.7%. Orders, yes, all-time high. Sales, all-time high. EBIT, all-time high. EBIT level, all-time high. It was a good quarter with the weaker Swedish krona and lots of sales in U.S. dollars and euros. We have had a contribution of SEK 8 million on the EBIT level, SEK 2 million is translation and about SEK 6 million is in transactional variances. We talked about the stop in customer that we had early in the quarter. We'll touch base on the coming slide.
One challenge that we are facing now with these component shortages, it is the fact that we still have increasing working capital levels. We need to have or take positions of certain sub-supply components and that is raising the capital level. The cash flow in the quarter came out negative of about -SEK 20 million. Bottom line net income guidance, and then earnings per share almost at SEK 1 for the quarter. Let us move. Good order bookings, but then sales impacted by shortage, as you understand. SEK 350 million in orders, SEK 219 million in sales, and then an EBIT of just below SEK 8 million or 3.4%.
As said earlier, I mean, if we look at the fifth consecutive quarter where we grow and three quarters above SEK 300, it is a good demand situation for Westermo. Obviously, the Westermo strategy, it confirms that we are doing the right things here. As said, the component shortage led to production stops, and if we look at SEK 219 and we take away the FX contribution, you could say, of the numbers, it is 1% compared to last year. It was a low level, and with that, of course, we have had an impact on the result.
We want to point out that, in the quarter, we have had extra component costs and then an unfavorable mix due to the stops in the quarter that is impacting the bottom line of about SEK 13 million. We want to guide you so you understand the impact of this quarter. However, going forward, we are expecting, as Jenny said, gradual increase of delivery capacity, going forward in the coming quarters. We also want to point out that we have changed the prices with a general price increase, implemented now the first of July for Westermo. Let's go to Beijer Electronics. Significant profitability step up and closing in on the targets.
We had an order intake of SEK 355 million, sales of SEK 317 million, and an EBIT of SEK 44 million in the quarter or 14%. For sure, if we look at orders, I mean, we do see a good development on the order side, and we have highlighted in the report also that we have also managed to close some really good orders in the energy segments. We want to point out that the growth and the traction is wide, and it's basically in all our segments. We want to highlight the energy segments here.
The delivery situation, obviously, we have handled the component situation really good in Beijer Electronics, and we have managed to get above the SEK 300 million level, and it's an all-time high in the sales in this quarter. Jenny pointed out also that, due to the fact that we have competitive delivery times, we are gaining market share from our competitors, and it's good to note, of course. This high level of sales then really confirms what we have been pointing out, that we have a good volume leverage in this activity, and it's of course comforting to see that we come up to these kind of levels. When we have then sales on the what we have seen in this quarter.
We want to point out that the COVID-19 has impacted. We have organizations in China and Taiwan, but still, you know what? In Taiwan, we have our production entity, and in China, a sizable sales activity. We have had really good performance. China is one of the stars, you could say, when it comes to growth in Beijer Electronics, and they have developed really good. And then our supply chain that is based in Taiwan, despite the fact that they've had quite some restrictions in the quarter, they have still managed to produce and deliver and ship to our customers, which is, of course, very good to see.
The last point here, as we have talked about earlier, we are now integrating Korenix, the previous business entity, the smaller one, that is now being integrated in Beijer Electronics, and there's more synergies to be realized going forward. That concludes. Over to you, Jenny.
Yeah. Thank you very much for that. To summarize, all this then, again, very strong order bookings, and we see continued high customer activity levels and strong pipelines, going forward as well. The highlight of the quarter is the very strong performance of the Beijer Electronics business entity. Some of you have seen, some analysts have been calling Westermo the golden egg of the Beijer group. Now we can see that we actually have two golden eggs in the group with the Beijer Electronics. That's good. That's good to see. The component shortage situation remains challenging. It's not over. We are working hard every week, every day to manage the situation.
The teams are doing a good job, but we see that these issues will at least persist for the rest of this year, and then we will see into 2023. We are having a lot of focus on managing that situation. As I mentioned before, of course, the macroeconomic situation is more uncertain than ever. It's the same for everybody, and we are, of course, monitoring that closely. With that, we do see a good potential to continue to improve our profitability further. As Joakim mentioned, we are improving, but we are not where we want to be yet. With that, just clarifying the outlook then, our assessment is that the group will achieve a significantly better financial performance in 2022 than in 2021.
That concludes our presentation. Let's move into the Q&A session then.
Thank you. If you have a question for the speakers, please press zero one on your telephone keypad, and you'll enter a queue. After you're announced, please ask your question. Our first question comes from the line of Mark Siöstedt from Redeye. Please go ahead.
Thank you. Hello, Jenny and Joakim. Thanks for taking my questions, and I have a handful of them. Also congrats to a strong quarter, of course, not least from the profitability side. First, the current gains we are seeing from Beijer Electronics, how sustainable are they in the near to medium term? You write in the report that the business entity is consolidating its market position by securing deals where competitors do not have the delivery capacity. Could you expand on this a little bit and also on the exceptional Chinese demand? Thank you.
Maybe I start, and then you can fill in, Joakim. Well, what is happening now is that basically all Beijer Electronics competitors are struggling and are confirming delivery times of up to 12 months, which means that we are seeing customers both in the U.S. but also in China coming to us and ask us if we can deliver these products. Of course, there is some work involved in changing supplier because you need to reconfigure and make new applications, so to say, for your panel. So it's not like you can switch from one day to the other.
Thanks to that, the fact that you need to do some work in order to switch, we do believe that once customers have done that work and started buying from Beijer Electronics, hopefully we can serve them well. Therefore we believe that at least a portion of them, or hopefully most of them, will actually stay with us once they have tried to work with us. We are quite confident that it's not just one time off, so to say, but that we will actually gain or win new customers to this. The Chinese demand, Joakim, maybe you would like to comment on that.
We have had. We changed the way we're operating in China some years back, and obviously now we see a good traction. We have a good organization. We have a good offer. We have kind of changed the segments that we're approaching from previously what it was more on the basics and more on the low end. Now we are selling more value add, which is really what we're offering in Beijer Electronics also in the Chinese market. That pays off. Obviously there's a good demand of our products here. It has worked even though we've had quite a lot of lockdowns in China during the quarter, but they are managed in a good way.
We believe that will continue to be a good market for Beijer Electronics, the Chinese market.
All right. Could you give us an update on the redesigns, especially for Westermo? How are these activities progressing, and are you able to sell some products today that were severely limited half a year ago?
Yes, definitely. I mean, the redesigns have been going on for 12 months now, and then we have redesigned in the range of maybe 20-30 different circuit boards, so to say, to make sure that we could continue to deliver most of our products. There are a few quite big redesigns that we are working on right now for some important product lines that will be ready by the end of quarter three, beginning of quarter four. So those will be important for us to get done. I think the work is proceeding well. The R&D team has been working in a very good way to do this.
Of course, we have not been able to manage all the critical situations that we have had, which then led to these stops. Given the circumstances, I think that the teams have done a good job.
Okay. Could you also comment a bit on your gross margin given the price and volume increases, and perhaps also on your efficiency level status with ongoing supply chain issues? How is this melting pot impacting the final result?
Yeah. You wanna take that one, Joakim?
Yeah. I mean, obviously, when, as we have stated in the report, we have had some high costs for sourcing components in Westermo, that is then obviously impact in short term. Those extreme, you could say, purchases that we have needed to take is not nothing that you can compensate with the price increases during a quarter. Over time, though, and as we pointed out, we are also now increasing prices further in Westermo. We believe over time that we will be able to compensate.
We have also stated that in the report, when we have this, you could say challenging situation for the supply chains, where they need to reprioritize, replan on a very frequent basis, sometimes many times during a week, of course, that is not an efficient way to operate. Going forward, when we have more stable, more and more stable sourcing of components, of course, there will be efficiency gains to be realized.
All right. A follow-up on this, like how sticky are these price increases? Let's say we have a scenario where the sourcing is becoming more normal and the prices go down, could these price increases permanently boost your gross margin, a bit?
Yeah. I think they could. I mean, there's nothing, all this, all the price increases that we have implemented are until further notice, so to say. There is no time limit on them. I do believe that once the situation stabilizes, we should be able to see better gross margins. Then of course, depending on what the world will look like then, the pressure from customers to take down costs will, of course, also come back. Overall, I see that we should at least come back to the gross margin level where we used to be, so to say, before this whole thing started.
That's definitely a good potential when it comes to the efficiency gains.
Mm-hmm.
I think that we cannot emphasize that enough. I think that's a lot of things there.
Yeah. All right. Also, on the gross margin, how does it look on the new products compared to older products that have been out in the markets for three to five years? Are there any differences between the gross margins, and are you increasingly able to charge for, the expanding software share of your offering?
That's two questions there. If we take new products, of course, when we are releasing new products to the market, we aim to have an improved gross margin with solutions with designs that are making us realizing better gross margins for the products. That is normal part of new development of new products.
Mm-hmm. When it comes to the software side, I mean, we are moving towards a business model where we will be able to charge in a better way for software. That's what we are aiming for. Up until now, it's quite a limited impact actually overall. We are not there yet, so that's still something to work with and to help improve our margins going forward.
Okay. Another, given the energy prices in Europe, have you noticed any changes in the willingness to invest? Does this impact different end customers? I mean, for example, manufacturers should bear some brunt from this, I guess. Your power distribution products could gain from this. Correct me if I'm wrong, but it would be interesting to hear your thoughts about this.
Yeah. I think medium to long term, definitely it will further increase the urgency that I think most countries in Europe and in the U.S. and everywhere already feel regarding the need to upgrade and strengthen the power grids. I think there is already a big sense of urgency everywhere, and there are big investments going on. Of course, this situation further emphasizes that and strengthens the incentive even more to invest to modernize and extend the grid. Yeah, it's, and of course, the operators will have more funds available to do that with higher energy prices in a way. Yeah, it's. I don't think that short term it's influencing anything, but mid to long term, yes, it strengthens the case, so to say.
All right. I've taken up a lot of time, but thank you very much for answering my questions.
No worries. Thank you, Mark.
Thank you.
We have one more question from the line of Markus Almerud from Erik Penser Bank. Please go ahead.
Yeah. Hi, Markus here from Erik Penser Bank. A couple of follow-ups to Mark's questions. Firstly, maybe talking about the uncertainties. Just to confirm that there are no impact on numbers as I mean as of yet of the uncertainty. The uncertainty is still sort of spoken about but not materialized. Is that correct?
Yeah, that is correct, Markus. We are not seeing, as of now, any impact.
Yeah. In terms of the component shortages, have you seen any signs of easing of these at all? Yeah, I'll start, and then I have a follow-up on the same topic.
I would say that we have seen a little bit of an improvement in that there are less new issues coming up now compared to maybe six months ago. The issues that we still have are of a very serious nature and difficult to solve, so to say. Fewer issues, which is, of course, good because then we can focus on the complicated ones, but the ones that we have are of serious nature. I think you can put it that, like that. We don't see any improvements overall in the component markets in lead times and so on. It's still 12-18 months lead time on almost all active components.
Of course, with the PC demand now starting to go down, maybe there will be, you know, some improvement in the coming six to 12 months, but we haven't seen any yet.
The ability is increasing to deliver in the second half is more of a catch-up kind of. I mean, you have all these components sort of on the way, and you saw delays, and then you will kinda get them during the second half, and you will be able to catch up some of what you weren't able to deliver in second quarter. Is that how I see it?
That we are clearly indicating when it comes to Westermo, because Westermo had a really Q2.
Yeah.
You should not see that everything is hunky-dory in Beijer Electronics.
Yeah.
They have challenges, also. Obviously in this quarter, we managed to deliver much better than we did in the first quarter.
Mm-hmm.
It's not over in Beijer Electronics either. They have challenges also. We are, as we are stating in the outlook also, we see an improved or increased optimism when it comes to our ability going forward as a group. It's not over. Absolutely not. It's still a challenge. Our organizations are doing a really, really good job, I must say.
Okay. When it comes to Westermo, because, I mean, they've had these problems for some time now, even though the problems seem to have escalated in second half, or at least the impact of them seems to have escalated. There's no impact on orders or discussions or anything like that on the back of this so that people are more hesitant to, you know, place orders or anything like that?
No, not really. You can almost be surprised that the patience that our customers are showing, so to say. I think that's due to the fact that and we know that our competitors are having exactly the same issues as we do. There's nobody out there who actually has normal lead times. Everybody is struggling in a similar way as us. I guess that's why our customers are, you know, they understand the situation. They are dependent on other electronic components or products containing electronic components as well and are seeing the same pattern from other suppliers. I think there's a general understanding of the situation right now.
Mm-hmm. Mm-hmm. Okay. My next question is on electronics. You highlight the broad kind of upturn, but you also highlight the electronic segment. Energy segment, sorry. Could you be a little bit more specific what part of the energy segments were you seeing this strength? Would be interesting to hear.
Yeah, we have seen, especially now in the second quarter, and that is of course, we are very happy about that, large orders for electric vehicle charging infrastructure customers. Several of those have placed large orders in the quarter and also energy storage applications, which are of course all in line with the you know, energy conversion and electrification and so on, where we think that we can help and support that. That's the areas where Beijer Electronics have seen strong order intake in the quarter.
Okay. Brilliant. Finally, maybe just a question on working capital. Just what we should expect going forward. I think you were talking a little bit about it easing in the second half of the year, but just guide us a little bit on what we should expect towards the end of the year in terms of working capital.
Well, what we can say is that when it comes to inventories, basically or mainly, I think we are peaking now. We don't foresee that we will need to increase those. In terms of cash flow, we expect a positive development in the coming quarters.
Okay, excellent. Thank you very much for that.
Thank you, Markus.
As there are no further questions, I'll hand it back to the speakers.
Okay. Well, thank you all very much for joining and have a good summer.
Thank you.
This concludes our conference call. Thank you all for attending. You may now disconnect your lines.