Earnings Call: Q1 2021

Apr 21, 2021

Ladies and gentlemen, welcome to the presentation of Beja Electronics Group AB Q1 Report. Today, I'm pleased to present Peer Samuelson, President and CEO and Joachim Lorraine, Executive Vice President and CFO. Speakers, please begin your meeting. Okay. Thank you very much. And all of you, very welcome to the presentation of Berg Group today. And we will do as we normally do. I will start up, and then Joakim will come in and get through the results. And then I will come back I'm concluding remarks. And so let's start up then. I should just change slide. If we start with the headlines we have here, you can see that the good thing in quarter 1 is that we really now see signs of the market recovery in the quarter. We indicated in end of Q4 That we started to see upturns, but now we can really see during quarter 1 that there is a better situation at the market. And a lot of our customers or most of our customers are now starting to be quite active again. And you can see that also then on the order intake that It's a couple of I think it is end of 2019, beginning of 2020 that we had these levels. But now we have a good order intake in the quarter. And also I'm a little bit happy to say that it's this time is driven by Bayer Electronics. Electronics have had some tough times during 2020, but we can now see that they are coming back. And you can see later in the presentation That their order intake actually in the quarter was from the level of NOK 220,000,000, which is quite a good level for Bayer Electronics. We still and we have an electronic component shortage And I think a lot of other companies have the same situation. And an estimation from our side is that we have lost In the quarter, roughly 8% to 10% in volumes. I mean, if we wouldn't have had any problems with components. So what we're saying then, the sales would have been something like 8% to 10% higher. That's what we're trying to say with this sentence. The good news is, of course, that we are not losing the business. So hopefully, we will get that back in Q2 and Q3. And I will come back a little bit on comment with comments on the electronic component shortage. But together with the order intake and together with the demand situation, that's why we are so that's why we are optimistic going forward. I would also make one other comment here in this And that is that during 2020, then you can say that what has limited the sales has been the sales situation And then the order intake and the sales from customers. Now the next, I would say, quarters, The limits on the sales would be more supply chain issues. So that means that now it's a very it's a big fight in supply chain to get In components and get them out to customers. So that little bit will be the limits going forward, but I will comment that a little bit later in this presentation. We have had, as those of you who follow us, they know that during 2020 has lowered the cost base. And we can see that even though that the sales was On the low side compared to where we should be, we still could make a small profit. From 1st April, we now have another company coming into our group and that's the German company called Eltek that we acquired. And we are very, very happy to welcome Eltek into the group. And this really Also fits very well into the Vestimo We Grow strategy, and it complements the offer to the train industry in a very good way. I mean, we have said before That Eltek is very good in the onboard systems to trains. And once again, they will be consolidated into the into our figures from 1st April. When we look into Bay Electronics and the order bookings, We can that is what I also like here is that it's all regions. We normally divide our in Pay Electronics sales into Asia Pacific, Europe and U. S. And in quarter 1, I would say that all three unit has contributed with increases in the order intake. And that is, of course, good going forward. Vestomo, once Again, those of you that have followers us knows that Vistamo now and then gets bigger orders Especially on the train side. Now during quarter 1, there is no large specific orders that have been coming in. But I think that once again, I mean, if you look at the model business model of Vestamoo, we follow very closely The different the pipelines that we have and also where we are where we get specified by customers. And we know and we are quite Positive about that situation because we know that there is a very strong pipeline. And I foresee in the next 2 or 3 quarters, You will probably see some big orders coming in. And of course, then also that the agreement we signed beginning of the year with the Alstom company, that is €250,000,000 agreement. Step by step, even Alstom will then, of course, come in with orders going forward. So Vestimo, even though they are a little bit weaker quarter that I'm not being awake at night of yesterday, I know that will come back in profits. The smaller unit Kurenix has during Several quarters had been in red. But now with the increased order intake and with the sales that we foresee, Going forward, we think we will be able to have small pluses on kronex going forward, and that is, of course, also Full focus on capturing the growth as well as increasing Supply capacity. Here, we're trying to tell you that we see now that the market is turning up. But as I said before, The limitations we have is in supply chain. We now see that quarter 2, we will have a better capacity than quarter 1. But since we still foresee increases in order intake, there will still be some, I would say, The layman is the way I guess it, but we will have a higher capacity Q2 than Q1, and that is, of course, important For you to understand, which means that we foresee then higher sales in Q2. But I'm not the right person to speculate in when this component shortage is getting Out of the question, so to say. The problem is also a little bit around transportation. So once we have the supply agreements, then you should need to transport it. And I think that will it will take 1 or 2 more months before that is clarified as well. If we then look into a little bit the order intake, and this is what I have mentioned before, but you can see here on the slides that The order intake in Q1 2021 now starts to is over the 400 again. And after 3 week quarters during 2020, you can see that we're starting to get back up again. And Also, if you have €400,000,000 plus during several quarters, sooner or later that will turn into sales. So if you see now that the order intake is 417 and you compare that with a sales level on 350, That tells us that going forward, the sales will increase. And that is, of course, important for us. 3rd point, the backlog. Now we have we were a little bit eating on the backlog during 2020. But now we are building the backlog up again. And the backlog on 565, that is actually all time high for us. And so that's, of course, good. Otherwise, I leave the stage for So, Joachim, and he will go through the results here. Hello, everyone. This is Joachim here. We will start with the group. The headline saying that sales moving sideways and the result is back in black. If we look at the upper left corner, you notice that the order intake, as Per mentioned, EUR 470,000,000 sales, €351,000,000 and EBIT on 4.6% or 1.3%. If you look at sales, as Per mentioned, we came in similar level as we saw in Q4. And the shortage or the impact of the component shortage is around 8% to 10%. We see this impacting both Bayer Electronics and Kreniks and Westemu. Somewhat more in Bayer Kreniks than Investemu. Bottom line EBIT, SEK 4.6 billion. It's not, of course, where we want to be driven Or the reason for it being that the sales level is where it is. However, we should also Notice or you should notice that we have lowered the cost base during 2020 via the restructuring program. We talked about that in the last report. And of course, generally we keep tight on the cost spending in every entity within the group, giving us a small positive result. When it comes to the currency impacts in total, We have somewhat of a headwind, minus €1,400,000 in the quarter, and it's mainly then transactional variances that's Behind it. Bottom, bottom line or the net income also positive, small number, SEK 1,600,000. Then the last point, looking at the cash flow. Unfortunately, we are somewhat negative, minus 18, But that is then, of course, the reason for it is that relatively speaking, the profit generation is Not where we wanted to be, but it is the increases in working capital. And with the supply chain Challenges that we are facing, we see somewhat of inventory increases And also then some increases in accounts receivables, but no dramatic things here. But going forward, Of course, we want to see positive cash flow. Let's move into Westemu. Here we are basically seeing result wise or sales and results similar levels that we saw in the last quarter of last year, Moving sideways, order intake SEK 172,000,000 sales SEK187,000,000 and EBIT SEK 17 or 9.1%. We should remember, and you can see that on the sales graph in the lower left corner, That Q1 that we are comparing with was a really record quarter for Vestamil. And all comparisons are then, of course, very tough as we are now experience It's a pandemic situation compared to where we were at that time. But if we compare to end of last year, The result, I said it was moving sideways. Actually, if we are looking more into the details, the sales is somewhat better, the result is somewhat better. But there is also then an impact of the component shortage or an element of that, that has impacted the estimate during the quarter. Pat talked about the lack of larger orders in the quarter, But still, as Per said, we are confident in moving forward. We also want to highlight that You that follow us, the We Grow strategy, meaning that we are focusing on the energy segment and So the track and track side segment, activities are ongoing and that will eventually show also in good development in the business. And Pam mentioned also that Eltek is joining Westemayo and Bay Group then from 1st April. Let's move to Bayer Electronics. The heading here, strong order bookings. Order intake, euros 220,000,000 sales, euros 144,000,000 and an EBIT of minus €500,000,000 just below 0 then. Per also mentioned that all the geographical regions, Americas, EMEA and APAC, they all show good growth. And Looking at the number here, it says 17% if we compare to Q1 last year. There is a currency element in this. If we look at the fixed rates comparison, it's actually 25%. And the good thing is that All regions here, Americas, EMEA and APAC, they are all above 20% to growth. So that is a really good thing. We have talked about the hampering of the sales due to the component shortage. And So if we summarize the quarter, we end up on the same kind of sales level as we had in the end of last year. And that then lead to the EBIT that comes just below 0. But we should be clear that We have lowered the cost base significantly in their electronics. So moving forward, we believe that we have a Good possibility to increase profit generation. And the last point, we have talked about that for quite some quarters now. We continue cooperation between Krennix and Bayer Electronics according to our plans. Last, we are but not least, maybe we talk about GOREENIX. Here we also see a good order intake And the lower cost base as well. Order intake, euros 27,000,000 sales, euros 22,000,000 and EBIT of minus €1,400,000 for the quarter. We are happy to notice that we see a positive order development here. And we are more than 30% up compared to last year Q1. Maybe you remember that Kuremics, they were hit already in Q1 last year of the pandemic. So here we see a growth, but also if we look sequentially compared to last quarter Q4 2020, We see a sequential growth of another 14% now in this quarter. So it's good. Sales, It is improvement compared to last year, but somewhat lower than end of last year. And That is we shouldn't put too much into that. That moves between How customers want to have their deliveries, it's been Chinese New Year and all that and also added to that the component shortages. So with that somewhat lower sales, unfortunately, we came in on a negative result. It's still an improvement, but the lower sales is driving the loss. As said, the costs we have significantly also lowered the cost situation in KureneX. So it's catered for better results moving forward. And as said before, the cooperation between Bayer and Krennic continues. And as a reminder, we are using the sales channels of Bayer Electronics to also Sell the Koremics assortment. And we are coordinating supply chain activities, so that we are Getting as smooth and cost efficient operations as possible. That kind of concludes the total and the business So over to you, Par. Thank you very much. A couple of slides a little bit on the strategy that we Want to put in? Because you can hear now on the from me and Joakim that it sounds in our tones a little bit positive. And it is also because when we are selling our products and services, there is normally, I would say 6 to 3 years process with the technical discussions. Normally then, if we then win these discussions, then we will be specified in to the customers' products. It could be system integrators, OEMs and so on. And the most important thing for us is then to get Okay. Yes, you are specified in our products. And we have seen now the last, I would say, 2 to 3 years That with the product portfolio that we have, we are now getting specified into a lot of the customers' new products, which is also quite important. 2nd point here, high degree of repetitive revenue creates stability over time. That means that We now know in our pipeline and I'm now talking about all 3 units that the next couple of years, We will see orders coming in that we haven't seen before because that we know that we are specified in. And once you are specified, that means that every time the customers are selling their products, they will sell our products as well. And that is A very key question for us. Then you all know that we are decentralized organization also. And that is, of course, meaning that we are all close to the customers and that's why we have the optimism we have in Joakim at the moment. And that means also that the growth targets, we have mentioned now a couple of times that we foresee that the 3 units that we have in the They have good opportunities to grow organically at least 10% per year going forward. And if they do that, Then they have a definitely potential to have an EBIT level of 15. That we can see now clearly now when we're starting to come into 2021. Another thing that I have come into that is important to when you try to understand our group Is that we have been in the historically, we have been spending a lot of money into the R and D. And also the free units That we have bought now Investomu is also you can call it high-tech companies with relatively speaking high R and D. But the important thing is that, if you see in this slide that we get good payback, we call it ROI In 2 to 3 years, as a payback in 2 to 3 years in this thing. So we think that it's well spent money. We also state on this slide that 2 third or 6 to 7 percent of our product portfolio now, and I would Probably say that's a little bit more than that even. It's now a modern product and it's now so that will last for the next 5 to 10 years. And that is, of course, also important. And you can also see as an information, I think we have Specify that as well, but we have at the moment 200 development engineers, so which 120 is in software. And if you then look into, we are 800 employees. So this company is actually 25% of the business, of the people here is working with development. And that also and they are good people, by the way. Going forward, You can hear on us that we from now on, we have good possibilities To make sure that we increase profit going forward. And we have then that it offers Berg Group very good potential to Better financial performance 2021 than 'twenty. And of course, now we are coming into 3 weeks quarters after 2020. It was 3 weeks Quarters, but 'twenty during rest of 2021, our aim now is to getting back into good profit situation step by step. Because of the supply chain constraints that we have, I don't dare to say what happens Q2 or Q3 or Q4, but I'm quite sure that during this year, you will see improved profits Step by step. And coming into 'twenty two and 'twenty three, we I would argue and say that we are quite well positioned for the future. And normally now when we talk to investors and also this is the 5 major reasons for The thing we think after the five reasons to invest in Bey Group. You can see now that the I would say that one of the Few positive things with the pandemic is that you can see that the digitalization is actually the trends there are is improving. We are now we dare to say that we have leading products in our initiatives, and we have strong growth opportunities, And as I have said, attractive product portfolio and with good people in different business units In my position, I'm quite optimistic going forward. So that's the message that we want to send. So by that, We end the presentations and open up for questions. Thank you. And as there seems to be no questions, I'll hand it back to the speakers. Thank you very much. Then I just want to, I mean, Joakim, want to thank all of you for calling in. And I wish you a good day and hopefully some better Weather going forward and also that the pandemic goes in the right direction going forward. Thank you very much. Thank you.