Acquisitions and strategic agreements boost growth
Last year, BEIJER GROUP put several pieces of the strategic plan it staked out three years ago into place, and took more forward steps. We completed two acquisitions—Neratec of Switzerland and Virtual Access of Ireland. We also secured a major new global customer through a long term, substantial supply agreement with US elevator manufacturer Otis. We launched a range of new strategic products, including the Lynx series, Westermo’s new generation of Ethernet switches, and acciro+, Beijer Electronics’ new IoT solution.
Notably, our operations continued their positive progress, with sales up by 10%, passing 1.5 billion SEK. Our EBIT was over 100 MSEK, and profit after tax increased by 50%.
First and foremost, the Group’s sales and earnings growth were driven by Westermo in 2019. This business entity performed convincingly, setting new order intake, sales and earnings records in 2019, thereby representing some 45% of the Group’s sales, and 65% of our business entities’ combined EBIT. Undeniably, Westermo’s goal-oriented strategic initiative, which began in 2015, has really paid off, with average yearly organic growth of 18%, and an average yearly boost to EBIT of 43% overa three-year period.
The Beijer Electronics business entity is largely following its long-term plan, and was able to report increased sales and better earnings in 2019. The transition to the new X2 series and phase-outs of old products impacted order intake, sales and earnings for the full year. After a good first half-year, performance was slower in the second half-year.
The Korenix business entity did not achieve the sales volumes necessary for profitability in 2019, partly due to some customers deciding to defer their shipments till after year-end. Korenix has a fairly high share of products in projects, which means that financial performance is often irregular.
The Group’s strategic orientation is a good fit with current market trends. Digitalization, urbanization, growing demand for IIoT solutions, and energy transitions to solar and wind power are major factors, among many others, driving growth. BEIJER GROUP is a focused technology Group at the cutting edge in this direction of market progress in industrial digital technology.
Our people create a stronger organization
In recent years, we’ve progressively built a stronger, more stable organization that delivers, actions and solves problems as they occur. Westermo’s way of addressing high demand, which caused delivery problems in 2018 and the first half-year 2019, is evidence of this. The business entity expanded its capacity and overcame bottlenecks, enabling more consistent production, shorter lead-times and more secure shipments with positive effects on sales and earnings.
Being at the leading edge of technology and addressing professional, global customers set specific requirements on organizations and people. Beijer Electronics’ collaborative and supply agreement with Otis demonstrates that our organization is capable of satisfying the stringent standards that major global corporations set.
In this context, I’d like to emphasize the importance of our people’s efforts and skills especially. Individual professional performances, backed by mutual support and access to the Group’s resources, generate our results. Individual freedom offers room for creativity, but also requires individual responsibility for compliance with laws, regulations and our guidelines for managing a sustainable business.
Sustainability is an important component that should be integrated into BEIJER GROUP’s operations. In 2019, we achieved our targets of auditing key suppliers in sustainability. In 2020, we’ll focus on training all our people in the environmental segment. Our complete Sustainability Report will be published separately, with a summary published in this Annual Report.
By mid-2020, some 65% of our sales will come from new products developed in the last 3-4 years. The group’s strategy and focus on extensive product regeneration, more focus on customer-oriented marketing and sales resources, and streamlining production and logistics, have been successful. But this could, and will, get even better. We’re well prepared for this, with complete staffing and skilled people in place. As in any business, there are also a lot of challenges to face. Each business entity has its own key priorities for 2020.
Priorities for 2020
Westermo will continue to coordinate the operations of its acquired companies Neratec and Virtual Access. Primarily, this is about coordinating marketing & sales, so these companies can benefit from Westermo’s global sales resources. Product launches in the new segments of power distribution and rail infrastructure will also involve moving into a growing market. Westermo will also continue its work on continuing to streamline its supply chain, with progressive improvements to procurement, inventory and production flows. Beijer Electronics is facing the task of completing older product phase-outs, and realigning customer demand increasingly to deliveries of the new X2 series. This business entity will also start shipments to Otis, and ensure that acirro+, its new IoT platform, sets its stamp on sales.
Beijer Electronics will also be expanding its offering to the market through more coordination with the Korenix business entity. These two business entities are convergent, and customers increasingly want more complete solutions integrating Beijer Electronics’ digital solutions and Korenix’s network products. The business entities are also investigating coordination gains in segments including manufacturing and supply chain.
With more coordination, Korenix will gain access to Beijer Electronics’ stronger European marketing organization. A successful outcome will mean more sales for Korenix, which can then reduce its dependency on projects. At the same time, the business entity is in an intensive development phase of a new platform—the Single Korenix Switch OS platform—whose software and hardware are based on a modular design. All products will be upgraded for this new platform in 2020 and 2021.
Since we set our strategic direction in 2016, BEIJER GROUP has achieved yearly organic growth of 11%, and turned an operating loss into a positive EBIT of over 100 MSEK in 2019. We should also remember that we’ve raised our level of ambition, focusing more on development and marketing, to take the Group to the next level. This did cause increasing costs, which will slow our earnings gains for the short term. Nevertheless, we should be pleased with our cash flow improvement in the year, especially in the fourth quarter, thanks to more efficient management of capital.
From our perspective, the longer-term trend is most important in terms of creating shareholder value. Some of the Group’s customers have project-related business, which is reflected in BEIJER GROUP’s order intake, sales and earnings, which can vary between individual quarters, and between different years. Technology transitions and new product generation launches can also cause blips in the curve, but if correctly managed, benefit us for the long term. In 2019, we launched several new products, completed two acquisitions and signed a five-year strategic supply agreement with our customer Otis. So we have good potential for high and stable growth for the long term.
In the short term, there are always uncertainties that figure in our view of the future. The rapid spread of the coronavirus early this year has been the dominant factor, overshadowing most other things at the time of publication of this Report. Border closures, heavy stock market falls, nations in quarantine, emergency measures etc. indicate a crisis. At present, how this will impact on the global economy, and the effect it will have on the Group, is very hard to assess.
As always, BEIJER GROUP will adapt its cost levels to prevailing market conditions, while the Group protects its long-term skills. Over the past four years, we have realigned the Group. This process involved a skills succession and created a sharper organization, as well as significant investments in product development and rationalization end to end in our supply chain. This means our organization is well prepared to address a harsher business climate. Once this crisis is over, we will still be attractive to employees and customers.
Outlook for 2020
At present, it is impossible to assess the effects of the spread of the coronavirus on society and the global economy. This means that BEIJER GROUP is not making any estimates regarding underlying financial performance for the full year 2020.
President and CEO