Ladies and gentlemen, welcome to the full- year 2021 results conference call and live webcast. I'm Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Alex Waser, CEO of Bystronic Group. Please go ahead, sir.
Welcome to our full- year results 2021. We are very excited and proud to present you our first annual report in the name of Bystronic. Please take note of the disclaimer for our presentation. Now let me briefly provide an overview of today's agenda. I will present you the highlights of 2021, our market environment and strategy execution. Beat will then provide you with more details of our financial performance, and I will wrap up with our outlook for 2022. I'm very proud of the transformation we completed last year. This wouldn't have been possible without the commitment and engagement of our 3,500 employees. We had a very successful year, both in terms of the transformation and when looking at our numbers. Let me touch on a few highlights.
We experienced a strong recovery in order intake, and our sales are back to pre-pandemic levels. We delivered strong EBIT growth despite 2021 being a year of investments. For example, we expanded our regional presence and invested in the service organization with additional service technicians, as well as in our Smart Factory software suite. Overall, we are well on track for our confirmed midterm targets. Beat will later elaborate on the numbers in more detail. Before we look into our own performance, let me discuss our market environment in 2021. We experienced a very positive industry dynamic, as you can see on the left. For example, demand within the European machine tool industry recovered strongly. Our customers were very cautious in their investment behavior in 2020, but they have gained confidence for economic growth in 2021 again and hence increased demand.
At the same time, transport capacities were still very limited as a consequence of the pandemic. This resulted in strong price increases. Industry dynamics were positive across our regions, but the sentiment in China cooled down in the second half. Given our market environment, let us now take a closer look at our performance across industries and regions. All our industries performed strongly except for the automotive sector, where we have only a small exposure. Looking at our regions, they all posted double-digit growth. Americas led growth in order intake as it doubled compared to last year. This also shows that our expanded local presence and investments are paying off. Our Strategy 2025 centers around the three pillars: systems, software and solutions, and service. In all areas, we made good progress. In the systems business, we continued to focus on innovation and further expanded our different market segments.
Let me provide you one highlight. We see an increasing demand for automated systems. Therefore, we invested further in a competence center for automation in China in the silver segment and expect to launch first products actually this year. In software and solutions, we are continuing to test our Smart Factory software suite with several customers globally, ready for market launch later in H1. In service, we successfully launched our modular service packages. This resulted in sales growth of 30% for this part of the business. I'm very pleased that we are now selling more than 90% of our new systems in gold and silver segment with the service package. We have a strong portfolio for our core applications, like cutting and bending. As a part of our strategy, we are screening M&A opportunities to further strengthen our offering.
In line with this, we acquired Kurago and Antil. Kurago is our specialist when it comes to software development located in Spain. We have operated a joint innovation partnership since 2019 and have now fully taken over the company. Antil is located in Italy and offers automation solutions. We have already had a 70% stake in the business and acquired the remaining 30% in November last year, followed by full integration in Bystronic. Now let me hand over to Beat for a more detailed financial review. Beat?
Thank you very much, Alex. Good morning also from my side. I'm pleased to present to you our financial results for the year 2021 in more detail. To provide you with a transparent apples-to-apples comparison, we have split our financials in the annual report into Bystronic's continuing operations, as well as the discontinued operations. On the next few slides, I'm referring to Bystronic standalone figures. Please note that we had to make certain adjustments to the Bystronic 2020 figures and integrated some Conzzeta-related costs that historically were reported separately, and not as part of the sheet metal segment on the Conzzeta. Now with regards to 2021. Our order intake grew by more than 50% to CHF 1.2 billion. This is both a combination of real underlying growth and some pandemic catch-up effects.
We estimate that a bit less than half of this increase was due to postponed investments and thus a catch-up impact. With such a high order intake, our net sales developed strongly to CHF 939 million, an increase of 17%. This is at a slower pace than the growth for order intake due to capacity constraints for components, as well as inbound and outbound transportation. We also do see a trend away from single machines towards integrated solutions, which have a longer delivery and installation time. The time from order intake to net sales has increased. Both our systems business as well as the service business performed well. As Alex mentioned, we hired an additional 80 service technicians and launched our modular service packages. We achieved a 30% sales growth to CHF 205 million.
Overall, our service business accounts for 22% of net sales in 2021. Our EBIT grew by 67% to CHF 70 million, and our net result nearly doubled to CHF 57 million. Given our asset light business model, we improved the operating free cash flow to CHF 65 million, and our return on net operating assets stood at 25.5%. With regards to dividends, the board of director proposes a dividend of CHF 60 per Class A registered share. Now let us take a look closer at the P&L. First of all, our underlying EBIT development. In 2020, we achieved a 5.2% EBIT margin. Last year, we grew EBIT by 67%, which resulted in a reported EBIT margin of 7.5%.
As you might recall, we previously communicated an expected EBIT margin between 8%-9% for 2021, and our reported figures are slightly below this range. There are two main reasons for this. First of all, we recorded a one-time provision of CHF 6 million at year-end. This resulted from reassessment of assets and liabilities, where we took a more conservative approach. The large share of the CHF 6 million relates to provisions for tax liabilities outside of Switzerland, and the rest to valuations of inventories for spare parts. Secondly, supply chains were very challenging in 2021, especially in the second half. Costs for material and transportation increased considerably. Overall, excluding the CHF 6 million provision, our underlying margin would have been within the previously communicated EBIT margin range. Now let me provide you with some details to understand the EBIT performance.
Key to our business is the material quota, which we calculate as the combination of material expenses, net of changes in inventories. From 2020 to 2021, the material quota improved from 47.3% to 44.9%. We regularly negotiate procurement prices with our suppliers and had expected further savings in the second half. However, due to supply chain constraints, these didn't fully materialize. While we recorded some improvements in a few categories, especially, costs for electronic components increased. In addition, due to strong sales and order intake, some volume arrangements we have exceeded, and therefore, new higher prices from our suppliers had to be accepted. Personnel expenses overall grew less than proportionally. Please note that the first half of 2021 included still some costs from the former Conzzeta organization.
Other operating expenses increased, with an unfavorable impact on our profitability. The overall increase of CHF 41 million can be split into 23 million volume impact, 12 million higher other operating expenses, and the CHF 6 million one-time provision I previously mentioned. Variable costs for us means mainly transport, warranty costs and installation capacity. Our priority, especially towards the year-end, was to deliver and to install the systems with our customers. Even though it came with a higher cost and a considerable margin impact as we decided to engage external installation support. In the second half of 2021, in direct relation to the sales volumes, transportation costs were higher than in the first half. However, in addition, we were confronted with higher freight rates of some CHF 5 million, which translates into about 1 percentage point of EBIT margin.
Our other operating expenses increased due to resumed travel and representation costs, as well as costs for our global expansion. Below the EBIT, let me make a remark on the net result. Our tax rate of 18% is lower than last year due to the corporate tax reform in Switzerland and a favorable country mix. Going forward, we expect tax rates of 21%-23%, given that we're growing our business outside of Switzerland over proportionally where we face higher tax rates. I'm very pleased with our cash generation last year. Operating cash flow was strong due to our business growth and diligent net working capital management. A key driver for our cash flow development is our strict policy to collect advance payments from customers. As indicated previously, we spent nearly CHF 30 million or 3% of sales on CapEx.
In 2021, we invested in new brand experience centers in China and Korea and a new facility for silver level automation, as previously mentioned by Alex, in China. Given the divestments of Foam Partner and Mammut, we recorded a cash inflow of CHF 320 million. This resulted in a free cash flow of CHF 356 million. Our liquid assets on December 31, 2021, amounted to nearly CHF 500 million. One of our key strengths and foundation for our growth strategy is our strong balance sheet. Total assets have increased to CHF 1.235 billion, an increase of CHF 274 million. This mainly relates to an increase in liquid assets by CHF 241 million.
Despite our 17% sales growth, our net operating assets have declined from CHF 231 million at year-end 2020 to CHF 219 million at year-end 2021. As I already mentioned, this is due to our well-established and strictly applied policy to collect advance payments from customers upon order intake. We take up to 4 payments from our customers from order intake until sales recognition. These advanced payments now amount to over CHF 150 million on a year-over-year increase of over CHF 100 million, and well overcompensate the CHF 70 million increase in inventories. Basically, this allows us to grow cash neutral. Overall, our solid net working capital management resulted in a high return on net operating assets of 25.5%.
You will notice that this already meets the first of our three midterm financial targets. We are very pleased with this. However, we want to achieve a RONOA of 25% consistently over the years. Also note that the number can fluctuate somewhat depending on the levels of order intake. With 66% equity ratio, we continue to have a very solid balance sheet with no debt. If I recall the exchanges I had with some of you over the past months, one of your key question always centered around capital allocation and dividends. Here is the answer. For 2021, the board of directors proposes a dividend of CHF 60 per Class A registered share. The past few years have been characterized by the transformation, and our shareholders always participated from our divestments.
For the period 2019 to 2022, we will have distributed an amount of CHF 435 million. Under the assumption you were a shareholder on January 1, 2019, this results in a 27% return from dividends. We now have completed the transformation, and going forward, Bystronic plans to pay out between one third to 50% of the yearly net profit as ordinary dividend. Even though the payouts to shareholders were attractive in the past years, we remain well capitalized for our future growth strategy. Of our total free cash flow from CHF 356 million in 2021, we distribute CHF 124 million to shareholders.
This means that liquidity remains high for Bystronic, with CHF 370 million of cash and an equity ratio of 62% after the proposed dividend payment. As Alex already has mentioned, we are looking to expand our portfolio with the remaining liquidity, and I'm convinced that we can generate even more value for our shareholders by increasing this money into our business. With this, I will now hand back to Alex.
Thank you, Beat. Let me summarize this. We delivered a good performance in 2021 and have a strong market position. This is the foundation for further growth in 2022. Our market environment remains challenging. Especially along our supply chains, we experience constraints when it comes to availability of components and transport capacities. We expect that the constraints from the second half of 2021 will continue in the first half of this year. For us, this means longer delivery times and higher costs, especially in procurement and for transport. As countermeasures, we have implemented several price increases in 2021, mostly in the second half. Given our high order backlog, this will materialize with a time lag.
On the basis of this high backlog, we expect a sales growth of 10%-12%, adjusted for an unfavorable FX translation impact and an EBIT margin of 8%-9%. This is under the assumption that the situation on the procurement market normalize throughout the year. With this, we are well on track to reach our ambitious mid-term targets. Thank you. We will now move on to the Q&A session. Before we do so, let me share a quick video as an update from our software solutions. Thank you.
What's up, Eric?
Ugh, I'm stuck. Business is booming, but production just can't keep up. Bottlenecks, chaotic shop floor, no communication between manufacturers.
That was me a few years ago. Let's face it, I don't like change, but I saw how fast the industry was changing around me, and I didn't want to get left behind.
It's not change I'm afraid of. I just don't know where to start. I'm overwhelmed with business operations, and my customers are demanding shorter delivery times. I really need help. That's why I asked you here.
Let me show you. Bystronic's Smart Factory combines end-to-end solutions and service for any size business. This smart ecosystem lets you make real-time changes, keeping you in control, connecting even third-party systems. I now adapt quickly to changing environments, accelerating my business, and delight my customers. In fact, I've really increased my business performance and have the data I need. Our implementation methodology and proven systems enable you to accelerate operations on request. Being more agile to adapt to customers' needs gives you market advantage over the competition.
Setting that up must be a nightmare.
No. The best part, Bystronic walked me through my business transformation journey step by step. They gave me the tools I needed and were there to answer any questions.
Like a real partner.
Exactly. Visit our website or speak to your local Bystronic representative to find out how we can accelerate your sheet metal business, adapting quickly in order to shorten your lead time, taking your profits to the next level and beyond.
The first question is from Walter Bamert from Zürcher Kantonalbank. Please go ahead.
Good morning, everybody. Three questions, if I may. The first is on order development. You mentioned that you think that about half of the orders in the last year were from pent-up demand. Does the order intake you experienced in January and February give you some evidence on this? Or how did that perform? Because I think Q4 was still at a very high level. The second is, could you remind me of the price increases you made last year and what you expect this year? The third one is on seasonality. Do you expect in the order development some atypical or typical seasonality this year?
Mr. Bamert, good morning. Very happy to start with this. The order development actually that we have seen is pretty much in line with what we communicate in the past. You know, the CHF 1.2 billion order intake that we have seen last year, you know, included catch-up as Beat has mentioned. We can see that actually now how we're getting back to a, let's say, more normal level. However, January and February has actually been better, a bit better than last year than we expected. We feel actually confident that we have seen a bit of a catch-up, but we do see a nice incline of our order development, and we are happy to see this in January and in February. Second question was, I think, in terms of price increases. I'm not sure. Do you wanna say something, Beat?
Yeah, good morning also from my side, Mr. Bamert. With regards to price increase, I think we need to split this into three elements. One being on the spare parts and on the service side. There we have taken, you know, multiple price increases last year and, you know, we continue to do this this year. That is one element. We do see price pressure on our entry-level segment, you know, continue to see that in China. There it's very difficult to increase prices. It's basically, you know, reducing the decline. Then the second one being or the third one being on our silver and gold segment, and there we have taken, you know, also multiple price increases actually more to the latter half of 2021.
We will see the effect, you know, only trickling in, you know, kind of towards the second half, given the strong order intake, towards the second half of 2022. We'll take another price increase now at the beginning of this year. But again, due to the order intake, and the backlog being very high, this will only then, you know, trickle through on our financials in yeah, 2021 in the latter half and then, you know, also to 2023. With regards to seasonality?
Yeah, I'm happy to talk about the seasonality quickly. We have different elements of seasonality, you know. Let's start with that part where we see less seasonality, and that's probably around project, larger projects. And that's also not that much around software projects. Where we see historically or where we have seen historically, seasonality is more on the single machine type of business. All in all, I think we see what we've seen in the last years. Because our mix of orders is going towards a bit more software, but certainly much more larger systems, we see actually a bit less seasonality in our opinion, especially the first couple of months of this year. Mr. Bamert, I hope we have answered your three questions.
Perfect. Thank you much.
The next question is from Tobias Fahrenholz from Stifel. Please go ahead.
Yes. Hello, gentlemen. Thanks for taking the questions. Let me start again with the outlook. Could you provide here some further flavor? Wouldn't you regard the sales target as slightly conservative in view of the booming order intake and the rising prices which you mentioned? Have you built in some kind of safety discount here, which is obviously fair in the current environment? When it comes to the margin, you were splitting out the special costs for last year. You're looking for 89% EBIT margin. What have you considered for headwinds in the area of supply chain and logistics? That would be my first bucket for me.
Shall I take-
Would you?
Yeah.
Why don't you take it?
Shall I take on the margin?
That's okay.
We do see an annualization effect obviously of the transportation cost, right? I mentioned in, you know, on one of my slides that, you know, we have seen this coming. It's inbound and outbound, unfortunately, and only some of the outbound, we can pass through to our customers. You know, that annualization effect will take place also this year. It was 1 percentage point on the half year, 2021, so that will continue to happen this year. We don't see any one-time costs with regards to, you know, transformation or any accruals, et cetera. That is all behind us. We do see challenges on components.
We continue to see that. We, you know, we don't have the crystal ball, but what we have built into our forecast is that it will, you know, improve in the second half of 2021, so that we do get, you know, a flattening out of the component costs.
Okay. Do you also have some concrete signs that it's really getting better in the supply chain, or can you somehow re-engineer your product? Maybe you could also speak a little bit about Russia, Ukraine. What's the sales exposure? I know there are also suppliers of yours producing in this area. Are you also sourcing directly from this area?
Do you wanna take the ICT question?
Yeah. Yeah, of course. I mean, obviously, the Russia and Ukraine story has many secondary impacts, actually. Maybe I talk a little bit about the re-engineering very quickly before I go to some of our suppliers or partners. The re-engineering part is a part of what we're doing. We have done that in the last month. We continue to do this. Unfortunately, some of our key suppliers haven't really lived up to our expectations because that's the main bottleneck. We are going different ways now when it comes to changing to other suppliers, changing components in terms of re-engineering it or finding other ways.
One of the questions we get very often asked is the question on our main supplier or partner, that is IPG Photonics. As you can imagine, that's our biggest partner that we have. We have worked with him since many years. We know the people very well. We are almost in daily contact. We see that they have, they had issue or have issue currently in their plant in Russia. We also see that the key, some of the key components that are being built in Russia, they're also built in Germany and U.K., and obviously some of the key components, when it comes to the grown crystals, all also in Boston. You know, they are sending us confident messages that they can manage the situation.
We have not seen any signals different, to be honest. We see a potential issue of products that are built in Russia being sent to our China plant in Shenzhen. However, there we do have a second supplier that immediately can step in and is stepping in currently also to deliver some laser source components. So from that standpoint, you know, so far we don't know what's gonna happen for the months to come, but for our products only, I cannot talk for all of the products, for IPG Photonics. For our product, it looks fairly stable right now. Also the outlook for the next three months, we are being told, and again, we have another session, you know, within a day or two, is stable. So that's what I can say from that front.
I'm not sure whether the question was related also to Russia and Ukraine, but maybe I can say two or three words about the business. You know, Russia and Ukraine are obviously two completely different markets. They account for approximately CHF 20 million in sales. I would say underperforming profitability, so we are not too concerned about that part of it. Obviously, we have suspended both. You know, we have about 10 employees in Ukraine and about 19 in Russia. We're trying to follow through the current situation there. We don't think that with the size of what these two markets are representing to us that changes anything in our story, either this year or 2025. Now, I hope I have answered all the question, Mr. Fahrenholz.
Yes. Yes. Thanks for your transparency.
Yes. Thank you.
The next question is from Charlie Fehrenbach from AWP. Please go ahead. Mr. Fehrenbach withdraws his question. Now we go on with Serge Rotzer from Credit Suisse. Please go ahead.
Yes. Good morning, everybody. Can you remind me how much sales did you mention you have in Russia, Ukraine? I was not understanding this correctly. This would be question one. Question two would be about the backlog. Can you explain to me, do you have any frame contracts with your customers? Can you increase prices on the existing backlog? If yes or no, how much is the exposure of that? Secondly, you said that you have increasing lead times. Can you give me a indication, lead times last year to this year, for example? Lastly, what is the FX impact on the backlog, you know? Given the appreciation of the Swiss francs, can you express the current backlog, what's the downside or the FX impact? Lastly, do you have any transaction impacts on the backlog, and then where does this come from?
Okay. Thank you. Thank you very much. I think I'm gonna cover the sales in Russia and Ukraine if that wasn't and talk a little bit about the lead times, and maybe Beat wanna talk some of the other elements, the five questions. Sales in Russia, combined Russia and Ukraine, are approximately CHF 20 million, CHF 15 million-CHF 20 million, out of, let's call it CHF 1 billion for this year, CHF 1 billion- plus this year. When it comes to increasing lead times, you know, we have seen two things happening. One is obviously in some areas, our partners or suppliers have delivered, but they have delivered in much lower growth rates what we need. That actually has built up the backlog.
When the backlog goes up, you know, as a consequence of that, the delivery times become longer. That's one effect of it. You know, we don't need, you know, 10% or 5% more components in certain areas. We need, like, 50% more components in certain areas. That has been the main issue of it. It's actually less our own capacity than getting components to build our products and deliver it to our customers. The other effect of longer lead times is an effect of mix. You know, while in the past we had a much higher mix of, let's say, single machines or systems, we see more and more larger systems coming towards us, and they have, as per definition, longer delivery times.
Sometimes delivery times are not even driven by us. Sometimes they are driven by a customer finishing a plant or opening a plant, et cetera. We have many projects, they are actually timed towards the customer, not towards us. Maybe that's the two feedback from my side. Then there was a FX impact question and a backlog question, on the pricing. Maybe, Beat, you want to say something on that?
Let me cover that, Mr. Rotzer. If you look at our currency exposure from a translational side on the top line, there's basically 3 main currencies that we're operating in. The U.S. dollar, then we do have the euro, and the Chinese renminbi. The U.S. dollar accounts for about $300 million, EUR about the same, and then about CNY 100 million in Chinese yuan. If you look at it, at the backlog, it's about half of that. It would be about CHF 15 million in terms of impact, unfavorable, with regards, and that mainly comes from the euro, obviously, which have devalued against the Swiss francs.
On the other hand, there is a positive impact on the U.S. dollar. That, that's basically it. Your question was also on the transactional side. There we actually do see a slightly positive impact at the moment. The reason is on the euro, we have a pretty good natural hedge, you know, which almost flattens out. On the U.S. dollar, you know, slightly favorable given that the U.S. dollar has strengthened. On the renminbi side, because it's kind of, you know, on the inside China, it's also very good natural hedge. Overall, about CHF 15 million on the backlog.
You're losing on the existing backlog margin, huh? Because the prices are fixed and you have higher material prices. Is this the reason for the low EBIT margin? Otherwise, I don't know what is going wrong because FX has a positive impact, you have leverage, you have more projects, so this means software sales, service sales coming later. What makes it that cautious on the margin? Because you already guided 8%-9% margin last year and again this year, and the underlying margin was 8.9%, 8.1%. Can you help me there?
Yeah. It's material cost and transportation, basically. That's that will trickle through. We were very optimistic until about Q3 last year. Then really it hit us also with real shortages, not only increases in prices. That unfortunately will continue into 2022, and we will have the full- year effect in 2022. That's basically what the impact is.
Okay. Thank you.
You know, we will continue and want to continue to invest into our service organization. We don't wanna hold back, you know, on executing our strategy. There will be, you know, an additional 100 service employees that we'd like to hire this calendar year.
The next question is from Daniel Koenig, from Mirabaud Securities. Please go ahead.
Oh, sure. I had three questions actually. I was wondering, you know, of all the regions, which region is now performing the best? Or maybe if the Americas is performing the best. And then I was wondering how DNE Laser is performing. And then my third question was just to make sure I understood this correctly. January and February, the order intake was better than last year. Did I understand this correctly? That's all. Thanks.
Maybe I gonna cover them all. Well, what I tried to say is January and February in 2022, the order intake was better than January, February of 2021. Not compared with the full- year, but with the same months, the same period one year ago. That is correct, yes.
Thank you.
In terms of regions, we have had a slide where you can see how the regions are performing in terms of sales and order intake. Order intake is obviously very strong in the U.S. or was very strong in 2021. We see actually a really good situation also now with projects coming through. It's clearly the Americas, and within the Americas, it's clearly the U.S. where we see positive trends in the business, you know, investment appetite. We see that our customers do have work, significant work and wanna invest in highly productive systems. That may be the answer for the regions.
DNE Laser is, I think I mentioned that in the past, is actually nothing else than, let's say, a Westernized DNE system for the entry level. We have just launched that, actually in the U.S. and are launching it now in other Eastern European countries as well as in other markets.
We actually have quite positive feedback from that. That's a market we haven't really known that well outside of China, because obviously, you know, DNE is very much focused in China itself with the biggest part. We think we have actually hit there a really interesting new market that we are covering now. We also think that not only the fact that we are able to open a market like that, but we also think that those customers will mature over time. Obviously, that's a really interesting part for us then to take them into the Bystronic world once they get a little bit bigger and are looking for automation. Was there another question? I think that is what I have noted, Mr. Koenig. Did I answer your question?
Actually, yeah, thanks.
Thank you.
Okay, thanks.
Thank you.
The next question is from Philipp Schwenke from EWS. Please go ahead.
Yes, good morning. Just one question on the pricing and hedging strategy going forward. With the experience you now have and the negative impact on costs for this year, you change your pricing and hedging policy going forward. Thanks.
You wanna take this?
Yes. No, if you wanna take that.
Okay.
Yeah. You know, with regards to pricing, it's a challenging situation we're currently in, but one thing we definitely wanna look at is, you know, looking into how our contracts are established. You know, we don't think that, you know, the inflation will go away soon. At least that's, you know, if we look into the crystal ball, that's kind of what we think. You know, that's something we're looking into changing the contracts, you know, linking our pricing to some sort of index. You know, continue to negotiate on the inbound side, continue to negotiate with our suppliers, you know, to kind of absorb that. You wanna add something to that?
That's not like-
Yeah, sorry.
That's not hedging, right? You're not starting to hedge costs as such. It's more like static price negotiations with your suppliers.
Yes.
Rather than forward.
Yes.
Yeah, that's it.
Yep, absolutely. Yep.
Okay, thanks.
Thank you, Mr. Schwenke.
There are no more questions from the phone.
Okay, with this, I would like to thank you all for this, for your attendance and your time. If there are no more questions, we would like to close this session. Thank you very much, and have a great day. We close it with this. Thank you.