Culture and values closely aligned to the Group’s strategy
BEIJER GROUP is making a new start after the past year dominated by the spread of Covid-19. Even if the pandemic isn’t over yet, and uncertainty persists for the short term, BEIJER GROUP is emerging strongly from the economic crisis.
The actions we took in 2020 created a solid platform for profitable growth once demand regathers momentum. Our program of measures had the intended effect, reducing our long-term cost level. Our selective product development initiatives went to plan, and we maintained a high level of customer activities. Nor did the Group loose any major customers. Cash flow progressed strongly, even if the Group reported lower EBIT for the full year. Our financial position improved, and net debt decreased.
Retained Long-term Strategy as a Pure Technology Group
We’re staying with the strategy we formulated in 2016. BEIJER GROUP has evolved into a pure technology group, with products developed ourselves, as well as services, mainly implemented as software and hardware, now representing over 90% of sales. Our strategy is that the Group’s current and potential future corporate holdings offer products and services with high technology content. Most of our sales in 2020 were of new products developed in the past four years.
We are continuously identifying growth markets whose main common growth driver is digitalization, which may also be accelerated by the pandemic. The Group’s business entities are focusing on selected segments like infrastructure, transportation and energy, which often operate in harsh and exposed environments. This is why the Group’s solutions are robust and specifically developed to satisfy customers’ demanding standards for available and secure systems, because they are mission critical for the customer. The organic growth of our business entities keeps pace with investments in selected segments; our markets are in minimum long-term yearly growth of 10%.
Our revenue model is founded on close partnerships with customers on long-term development projects. Finished products, which integrate hard and software, are specific for, and built into, customers’ complete solutions with lifecycles up towards ten years. This generates repeat and stable revenues for the long term. Future
software updates also present an opportunity to expand business.
Minimum organic growth of 10%, with an EBIT margin of 15%
Overall, this translates to all BEIJER GROUP’s holdings having the capacity to return minimum yearly organic growth of 10%, and the potential to achieve an EBIT margin of 15%.
Our financial results in the pandemic year 2020 were a blip in the curve after three years of average yearly growth of 12%. Covid-19 affected the whole global economy, reducing demand, which meant that BEIJER GROUP also reported reduced order intake and sales in the year. Lower sales volumes impacted earnings, which were also charged with expenses for our program of measures, as well as negative currency effects.
Despite the challenges, Westermo showed good stability
Despite the challenges, Westermo was able to demonstrate good stability. Order intake and sales increased in the year, because of acquisitions in 2019. Although earnings did decrease somewhat, Westermo still reported an acceptable EBIT margin in the circumstances of just over 11%. The business entity is also maintaining the tempo of its strategic initiatives, launching the first product in the next generation of industrial Ethernet switches, new software versions with more functionality, as well as new wireless routers. Westermo opened an extension of its facility at Stora Sundby, Sweden, in the year, an expansion that has freed up space in the production plant, creating room for the further efficient expansion of manufacturing capacity.
The Beijer Electronics business entity had a tough year with reduced demand, especially in the US. Sales also decreased in Europe, but increased in Asia. This resulted in an unfavorable product mix, causing a narrower gross margin. Thus, earnings were impacted by lower volumes and a narrower margin. Savings could not fully compensate for the earnings downturn, with the business entity reporting a loss for the full year.
The Korenix business entity made an improvement in the fourth quarter, and was able to turn around a loss. But full-year earnings were negative due to lower sales.
Our people dealt well with the challenges of the pandemic
Overall, we’re not satisfied with sales and earnings in 2020, although essentially, they are due to external factors. At the beginning of 2020, we took a strategic decision to reduce our cost level through a program of measures, while simultaneously keeping our development and sales organizations intact so we didn’t sacrifice our tempo long term, but this did impact earnings in the short term. Our development expenditure increased somewhat in the year, but our previous investments do indicate fairly short payback times.
I’d also like to highlight how well our organization has dealt with the challenges of the pandemic. BEIJER GROUP has a decentralized structure consisting of independent business entities. What the Group and business entities share is safeguarding the Group’s skills.
The efforts and skills of our people was decisive to mitigating the effects of Covid-19 and economic crisis as far as possible. Individual professional performances, backed by mutual support and access to the Group’s resources, generate our results. The guiding principle is freedom with responsibility. Individual freedom offers room for creativity, but also entails 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. It’s also worth pointing out that our products and services, often built in to our customers’ solutions, contribute to a more sustainable world, including more efficient processes that reduce the consumption of energy and materials, water treatment solutions and equipment for wind power and solar energy. Please read our complete Sustainability Report, which is published separately, with a summary in this Annual Report.
Priorities for 2021
There is short-term uncertainty about onward progress in 2021, although there are a number of positive signals. In January, Westermo entered a significant supply agreement with train manufacturer Alstom worth at least 250 MSEK over a five-year period. This deal is evidence of Westermo’s international competitiveness, and involves increasing deliveries through the coming years. Westermo will be completing investments in its new priority segments of power distribution and rail infrastructure, and its goal is to complete the integration of Virtual Access. Westermo is also enhancing its services concept by offering customers service level agreements (SLAs).
Beijer Electronics and Korenix went into the new year with lower overheads. Beijer Electronics’ collaboration with elevator manufacturer Otis has gone to plan, and batch shipments started in the second half-year 2020. These deliveries will progressively increase going forward. The Otis deal involves deliveries of display solutions worth some 150 MSEK over a three-year term. In 2020, Korenix introduced the first products based on its new platform—the Korenix OS Platform. The business entity will be developing and launching another 30-plus products through the coming years, and will be adapting existing products to the new platform in 2021.
The partnership between Beijer Electronics and Korenix intensified in 2020. Sales to Korenix’s European customers are managed by Beijer Electronics’ sales resources, which can now market and sell Korenix’s products, as well as a combination of the business entities’ product ranges. A coordination of sales in the US and Asia was also initiated and implemented in 2021. The business entities coordinated supply chains in Europe and Taiwan, while Korenix’s inventory management transferred to Beijer Electronics’ European central warehouse. This partnership is expected to enable more rationalization gains in 2021. What’s most important to both business entities is restoring profitability.
Outlook for 2021
Overall, we look to the future with confidence. With the information available so far in 2021, we think the market may recover in the year. This offers BEIJER GROUP good potential to report improved financial results for 2021 compared to 2020.
President and CEO