Bufab AB

Annual Report • Feb 8, 2019

Year-end report 2018

Continued strong growth in sales and profit. Acquisition of Rudhäll Industri AB in October. Board proposes raised dividend.

Fourth quarter of 2018

• Net sales rose by 17 percent to SEK 966 million (828), of which 4 percent was organic
• Order intake increased by 14 percent and was higher than net sales
• Operating profit (EBITA) rose to SEK 82 million (72), corresponding to an operating margin of 8.5 percent (8.7)
• Earnings per share was SEK 1.65 (1.39)
• Rudhäll Industri, with sales of approximately SEK 210 million in Sweden and China, was acquired

Full-year 2018

• Net sales rose by 18 percent to SEK 3,786 million (3,201), of which 8 percent was organic
• Order intake increased by 17 percent and was higher than net sales
• Operating profit (EBITA) rose to SEK 367 million (311), corresponding to an operating margin of 9.7 percent (9.7)
• Earnings per share was SEK 6.79 (5.61)
• The Board of Directors proposes raised dividend to SEK 2.50 (2.25) per share

THE GROUP IN BRIEF

	Quarter 4		Δ	Jan-Dec		Δ
SEK million	2018	2017	%	2018	2017	%
Order intake	982	863	14	3,798	3,256	17
Net sales	966	828	17	3,786	3,201	18
Gross profit	271	238	14	1,088	917	19
	28.1%	28.7%		28.7%	28.6%
Operating expenses*	-189	-166	14	-721	-606	19
	19.6%	20.0%		19.0%	18.9%
Operating profit (EBITA)*	82	72	14	367	311	18
	8.5%	8.7%		9.7%	9.7%
Operating profit	79	69	14	358	304	18
	8.2%	8.3%		9.5%	9.5%
Profit after tax	62	53	17	255	213	20
Earnings per share, SEK	1.65	1.39	19	6.79	5.61	21
Dividend per share, SEK	-	-		2,50**	2.25	11

*For definitions, see page 18, definitions key figures.

*Proposed by Board of Directors.

SALES GROWTH +17% OPERATING MARGIN (EBITA)

Strong end to a good year

Bufab reported 17-percent growth during the quarter. This was primarily due to strong contributions from acquisitions, but also exchange rates and market shares. Demand was unchanged compared with the third quarter, but lower than in the strong fourth quarter of 2017. Accordingly, Bufab's organic growth for the quarter ended at 4 percent.

We saw no signs of a substantial slowdown in the economy, but did note increased caution among our customers. This drove a certain postponement of volumes until after the end of the year, which, on the other hand, led to a healthy start for sales in January 2019.

The gross margin was considerably weaker than in the same period last year, and also weaker than in the third quarter. This is entirely due to the performance of segment Sweden. For the entire year, the segment was under the pressure of high purchasing prices and a weak Swedish krona. During the fourth quarter, the segment was also impacted by a lower gross margin in a newly acquired subsidiary. However, despite there being explanations, the performance is not good enough. We are determined to change this trend in 2019.

The consolidated gross margin remained unchanged in 2018. We have implemented major price increases for our customers in both segments, thereby fully offsetting the higher purchasing prices. At the end of 2018, the increases in the prices of raw materials levelled off. The prerequisites are thus favourable for purchasing savings to be made this year. As always, our ambition is to present a stable gross margin over time.

Overall, Bufab had a strong end to a good year. For the third consecutive year, we were able to note Bufab's highest ever full-year sales, operating profit and net profit. Since we launched our growth strategy in 2012, our sales have increased by an average of 11 percent per year and operating profit by 14 percent. We see this as a clear indication that our strategy is working.

Two years ago, we established a new long-term target for Bufab - "Leadership 2020". This implies that we will become the strongest player in our industry and thus the preferred choice for customers, suppliers, acquisition candidates and talents. This was our highest priority in 2018, and will remain so in 2019.

We captured market shares throughout 2018. This was not a matter of a few random successes, but of many hundreds of new customers across all of our markets. Such a broad increase would not have been possible without the focus in prior years on recruitment, personal development, processes and tools in our sales organisation. We also significantly increased the pace of our purchasing by appointing a person in Group management in charge of this and, under her leadership, invest in our organisation, tools and processes.

In parallel, we continued our work on digitalisation, thereby making the knowledge and work approach contained in "Bufab Best Practice" simpler to use, more efficient and more precise. Our digital integration with customers and suppliers increased. The work on sustainability issues advanced. We have financed all of these, to some extent costly, measures using organic growth, thereby retaining a stable operating margin.

"Leadership" is also important for acquisitions. Our newly acquired companies gain access to our global platform and also performed strongly in 2018. Toward the end of the year, we made an additional acquisition, Rudhäll Industri, and, as usual, we have our sights set on others acquisitions.

Ahead of 2019, there is unusually large macroeconomic uncertainty. However, regardless of how the market performs, we will continue to work towards our goal: to be the strongest company in our industry in 2020.

Jörgen Rosengren President and CEO

The Group in brief

FOURTH QUARTER

Order intake amounted to SEK 982 million (863), which was higher than net sales. Net sales rose by 17 percent to SEK 966 million (828). The Group's organic growth was +4 percent, comprising +1 percent for segment Sweden and +5 percent for segment International.

Underlying demand was unchanged compared with the third quarter, but lower than in the strong fourth quarter of 2017. The market share is considered to be somewhat higher.

During the quarter, Rudhäll Industri AB was acquired, with annual sales of about SEK 210 million and operations in both Sweden and China. For more information, see page 16.

The gross margin was 28.1 percent (28.7). The decline was fully attributable to segment Sweden and was due to continued negative effects of rising raw materials prices and a weak Swedish krona, as well as a lower gross margin in Rudhäll Industri. However, the Group as a whole fully offset the cost increases by corresponding price increases for its customers.

EBITA rose to SEK 82 million (72), equal to a margin of 8.5 percent (8.7).

Compared with the preceding year, exchangerate fluctuations impacted operating profit positively by SEK +3 million, volumes positively by SEK +6 million, the price/cost/mix/other negatively by SEK -6 million and acquisitions positively by SEK +6 million.

JANUARY-DECEMBER

Order intake was SEK 3,798 million (3,256), which was higher than net sales. Net sales rose by 18 percent to SEK 3,786 million (3,201). The Group's organic growth was +8 percent, comprising +6 percent for segment Sweden and +9 percent for segment International.

Underlying demand is considered higher in both segments compared with last year and the market share is considered to have increased in both segments.

Gross margin was in line with the preceding year. Negative effects of rising raw material prices were offset during the year by price increases to customers.

EBITA rose to SEK 367 million (311), equal to a margin of 9.7 percent (9.7).

Compared with the preceding year, exchangerate fluctuations impacted operating profit positively by SEK +18 million, volumes positively by SEK +66 million, the price/cost/mix/other negatively by SEK -60 million and acquisitions positively by SEK +31 million.

FINANCIAL ITEMS AND TAX

The Group's net financial items amounted to SEK -4 million (-4) for the fourth quarter, of which exchangerate differences accounted for SEK +4 million (+1). For the full year, net financial items amounted to SEK -29 million (-25), of which exchange-rate differences accounted for SEK -2 million (-2). The Group's profit after financial items was SEK 76 million (65) for the quarter and SEK 329 (278) for the full year.

The tax expense for the quarter was SEK -14 million (-12), which implies an effective tax rate of 18 percent (18). The full-year tax expense was SEK -74 million (-65), implying an effective tax rate of 22 percent (23).

CASH FLOW, WORKING CAPITAL AND FINANCIAL POSITION

		Quarter 4		Jan-Dec
SEK million	2018	2017	2018	2017
Operating profit	79	69	358	304
Depreciation/amortisation and impairment	14	11	51	43
Other non-cash items	11	3	13	2
Changes in working capital	-11	4	-169	-105
Cash flow from operations	94	87	253	244
Investments excluding acquisitions	-31	-29	-78	-61
Operating cash flow	63	58	175	183

Operating cash flow amounted to SEK 63 million (58) for the quarter. Operating cash flow for the full year was SEK 175 million (183).

Average working capital in relation to net sales deteriorated to 35.7 percent (35.4).

On 31 December 2018, the Group's net debt totalled SEK 1,178 million (1,015). Despite positive operating cash flow, net debt increased due to acquisitions carried out, dividends paid, share repurchases, and disbursed purchase considerations in the past 12 months.

On 31 December 2018, the debt/equity ratio was 74 percent (72).

Segment International

Fourth quarter

Order intake amounted to SEK 668 million (568), which was higher than net sales.

Net sales rose by 15 percent to SEK 644 million (560). Organic growth was 5 percent, which was due to higher market shares and a somewhat higher underlying demand compared with the corresponding period last year.

Gross margin rose to a solid 30.6 percent (29.3). The reasons for this are favourable exchange rates and that it has been possible to compensate for rising purchasing prices with price increases for customers.

EBITA totalled SEK 68 million (54), equal to a margin of 10.6 percent (9.7).

Compared with the preceding year, exchange-rate fluctuations impacted operating profit positively by SEK +6 million, volumes positively by SEK +4 million, the price/cost/mix/other negatively by SEK -2 million and acquisitions positively by SEK +6 million.

January-December

Order intake was SEK 2,648 million (2,172), which was higher than net sales.

Net sales rose by 22 percent to SEK 2,615 million (2,144). Organic growth was 9 percent, due to higher market shares and higher underlying demand compared with last year.

Gross margin rose to a solid 30.1 percent (29.1. The reasons for this are favourable exchange rates and that it has been possible to compensate for rising purchasing prices with price increases for customers.

EBITA amounted to SEK 290 million (203), equal to a margin of 11.1 percent (9.5).

Compared with the preceding year, exchange-rate fluctuations impacted operating profit positively by SEK +27 million, volumes positively by SEK +47 million, the price/cost/mix/other negatively by SEK -19 million and acquisitions positively by SEK +31 million.

	Quarter 4		Δ Jan-Dec			Δ
SEK million	2018	2017	%	2018	2017	%
Order intake	668	568	18	2,648	2,172	22
Net sales	644	560	15	2,615	2,144	22
Gross profit	197	164	20	788	623	26
	30.6%	29.3%		30.1%	29.1%
Operating expenses	-129	-110	16	-498	-420	19
	20.0%	19.6%		19.1%	19.6%
Operating profit (EBITA)	68	54	28	290	203	43
	10.6%	9.7%		11.1%	9.5%

Net sales, SEK million Operating profit (EBITA) SEK millions

SHARE OF TOTAL SALES

Segment Sweden

Fourth quarter

Order intake amounted to SEK 314 million (295) and was lower than net sales.

Net sales rose by 20 percent to SEK 322 million (268). Organic growth was 1 percent and the remaining 19 percent is attributable to Rudhäll. Market demand is considered to be somewhat lower than previously during the year as well as the corresponding period last year. The market share is considered to have increased somewhat.

The gross margin declined to 25.1 percent (29.4), which was very low for the segment. About half of the decline was attributable to the acquisition of Rudhäll. Rudhäll has a lower gross margin, but an operating margin that is comparable with the rest of the segment. Organically, the segment's gross margin was unchanged compared with the third quarter of 2018. The organic decline compared with the preceding year was attributable to rising purchasing prices in recent quarters and a heavily weakened Swedish krona relative to the fourth quarter of 2017. Despite significant price increases to our customers, we have not succeeded in sufficiently offsetting this trend. Some price increases remain to be made in the first part of 2019. In addition, the trend in rising raw materials prices was broken at the end of 2018. Accordingly, we have intensified our work purchasing savings aimed at restoring the segment's gross margin over time.

Operating profit (EBITA) amounted to SEK 28 million (35), corresponding to an operating margin of a very weak 8.7 percent (13.1).

Compared with the preceding year, exchange-rate fluctuations impacted operating profit negatively by SEK -3 million, volumes positively by SEK +2 million, the price/cost/mix/other negatively by SEK -9 million and acquisitions positively by SEK +3 million.

January-December

Order intake was SEK 1,149 million (1,089), which was lower than net sales.

Net sales rose by 11 percent to SEK 1,172 million (1,057), of which 6 percent was organic. The high organic growth was a result of increased market shares and improvements in underlying demand during the first three quarters of the year.

The gross margin declined to 27.6 percent (29.5). The lower gross margin was attributable to rising raw materials prices in recent quarters and a weak Swedish krona, which were not sufficiently offset by price increases for customers.

EBITA amounted to SEK 126 million (139), equal to a margin of 10.7 percent (13.2).

Compared with the preceding year, exchange-rate fluctuations impacted operating profit negatively by SEK -9 million, volumes positively by SEK +19 million, the price/cost/mix/other negatively by SEK -27 million and acquisitions positively by SEK +3 million.

	Quarter 4		Δ
				Jan-Dec		Δ
SEK million	2018	2017	%	2018	2017	%
Order intake	314	295	6	1,149	1,089	6
Net sales	322	268	20	1,172	1,057	11
Gross profit	81	79	2	323	312	4
	25.1%	29.4%		27.6%	29.5%
Operating expenses	-53	-44	19	-198	-173	14
	16.5%	16.4%		16.7%	16.4%
Operating profit (EBITA)	28	35	-19	126	139	-10
	8.7%	13.1%		10.7%	13.2%

SHARE OF TOTAL SALES

Consolidated Income Statement

		Quarter 4		Jan-Dec
SEK million	2018	2017	2018	2017
Net sales	966	828	3,786	3,201
Cost of goods sold	-695	-590	-2,698	-2,284
Gross profit	271	238	1,088	917
Distribution costs	-134	-122	-512	-446
Administrative expenses	-55	-43	-220	-166
Other operating income	10	10	50	32
Other operating expenses	-12	-13	-48	-33
Operating profit	79	69	358	304
Profit/loss from financial items
Interest income and similar income items	5	2	3	1
Interest expenses and similar expenses	-9	-6	-32	-27
Profit after financial items	76	65	329	278
Tax on net profit for the period	-14	-12	-74	-65
Profit after tax	62	53	255	213

Statement of Comprehensive Income

	Quarter 4
SEK million	2018	2017	2018	2017
Profit after tax	62	53	255	213
Other comprehensive income
Items that cannot be reclassified to profit or loss
Actuarial gains and losses, net after tax	-	-1	-	-1
Items that may be reclassified subsequently to profit or loss
Translation differences / Currency hedging net after tax	-10	25	47	11
Total other comprehensive income	-10	24	47	10
Total comprehensive income	52	77	302	223
Total comprehensive income attributable to:
Parent Company shareholders	52	77	302	223

Earnings per Share

	Quarter 4		Jan-Dec
SEK	2018	2017	2018	2017
Earnings per share	1.65	1.39	6.79	5.61
Weighted number of shares outstanding, thousands	37,467	37,776	37,554	37,979
Diluted earnings per share, SEK	1.65	1.39	6.79	5.61
Weighted number of shares outstanding after dilution, thousands	37,467	37,776	37,554	37,979

Consolidated Balance Sheet

SEK million	31 Dec 18	31 Dec 17
ASSETS
Non-current assets
Intangible assets	1,179	1,134
Property, plant and equipment	221	164
Financial assets	21	23
Total non-current assets	1,421	1,321
Current assets
Inventories	1,315	1,093
Current receivables	814	740
Cash and cash equivalents	144	120
Total current assets	2,273	1,953
Total assets	3,694	3,274

EQUITY AND LIABILITIES

Equity	1,600	1,416
Non-current liabilities
Non-current liabilities, interest-bearing	1,247	1,080
Non-current liabilities, non-interest bearing	89	102
Total non-current liabilities	1,336	1,182
Current liabilities
Current liabilities, interest-bearing	74	55
Current liabilities, non-interest-bearing	684	621
Total current liabilities	758	676
Total equity and liabilities	3,694	3,274

Consolidated Statement of Changes in Equity

SEK million	31 Dec 18	31 Dec 17
Equity at beginning of year	1,416	1,297
Comprehensive income
Profit after tax	255	213
Other comprehensive income
Items that will not be reclassified in profit or loss
Actuarial loss / profit on pension obligations, net after tax	-	-1
Items that may be reclassified in profit or loss
Translation differences / Currency hedging net after tax	47	11
Total comprehensive income	302	223
Transactions with shareholders
Issued call options	4	3
Repurchase of own shares	-37	-31
Dividend to shareholders	-85	-76
Total transactions with shareholders	-118	-104
Equity at end of period	1,600	1,416

Consolidated Cash Flow Statement

	Quarter 4			Jan-Dec
SEK million	2018	2017	2018	2017
Operating activities
Profit before financial items	79	69	358	304
Depreciation/amortisation and impairment	14	11	51	43
Interest and other finance income	1	-	2	-
Interest and other finance expenses	-5	-4	-31	-25
Other non-cash items	11	3	13	2
Income tax paid	-26	-5	-93	-68
Cash flow from operating activities
before changes in working capital	75	74	300	256
Changes in working capital
Increase (-)/decrease (+) in inventories	-70	-57	-170	-142
Increase (-)/decrease (+) in operating receivables	40	-1	-20	-79
Increase (+)/decrease (-) in operating liabilities	19	62	21	116
Cash flow from operating activities	64	78	131	151
Investing activities
Acquisition of intangible assets	-4	-	-4	-
Acquisition of intangible assets/property, plant and equipment	-27	-29	-74	-61
Company acquisitions including additional purchase considerations*	-73	-97	-98	-132
Cash flow from investing activities	-104	-126	-176	-193
Financing activities
Dividend paid	0	-	-85	-76
Call options	0	-	4	3
Repurchase of own shares	0	-	-37	-31
Increase (+)/decrease (-) in borrowings	-2	63	182	142
Cash flow from financing activities	-2	63	64	38
Cash flow for the period	-42	15	19	-4
Cash and cash equivalents at beginning of period	187	103	120	122
Translation differences	-1	2	5	2
Cash and cash equivalents at end of period	144	120	144	120

*See page 16 under "Acquisitions" for more information.

The Group's segment reporting

	2017				2018
International SEK million	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Net sales	536	541	507	560	648	676	647	644
Gross profit	156	155	148	164	192	202	197	197
	29.2%	28.1%	29.2%	29.3%	29.7%	29.9%	30.4%	30.6%
Operating expenses	-101	-105	-103	-110	-121	-125	-124	-129
	18.8%	18.9%	20.3%	19.6%	18.7%	18.5%	19.2%	20.0%
Operating profit (EBITA)	55	50	45	54	71	77	73	68
	10.3%	9.2%	8.9%	9.7%	11.0%	11.4%	11.3%	10.6%

	2017				2018
Sweden SEK million	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Net sales	279	282	228	268	297	304	248	322
Gross profit	86	81	66	79	89	87	67	81
	30.9%	28.9%	28.9%	29.4%	29.9%	28.6%	27.0%	25.1%
Operating expenses	-45	-44	-40	-44	-47	-53	-45	-53
	16.1%	15.6%	17.5%	16.4%	15.8%	17.4%	18.1%	16.5%
Operating profit (EBITA)	41	37	26	35	42	34	22	28
	14.8%	13.2%	11.4%	13.1%	14.1%	11.2%	8.9%	8.7%

	2017						2018
Other* SEK million	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Net sales	-	-	-	-	-	-	-	-
Gross profit/loss	-4	-1	-5	-5	-4	-7	-5	-7
Operating expenses	-2	-7	4	-12	-3	-6	-9	-8
Operating profit (EBITA)	-6	-8	-1	-17	-7	-13	-14	-15

*Other includes unallocated costs of a Group-wide nature

	2017			2018
Group SEK million	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4
Net sales	815	823	735	828	945	980	895	966
Gross profit	238	232	209	238	277	282	259	271
	29.2%	28.2%	28.4%	28.7%	29.3%	28.8%	28.9%	28.1%
Operating expenses	-147	-154	-139	-166	-171	-184	-178	-189
	18.0%	18.7%	18.9%	20.0%	18.1%	18.8%	19.9%	19.7%
Operating profit (EBITA)	91	78	70	72	106	98	81	82
	11.1%	9.5%	9.5%	8.7%	11.2%	10.0%	9.1%	8.5%

Consolidated Key Figures

	Quarter 4		Δ		Jan-Dec
	2018	2017	%	2018	2017	%
Order intake, SEK million	982	863	14	3,798	3,256	17
Net sales, SEK million	966	828	17	3,786	3,201	18
Gross profit, SEK million	271	238	14	1,088	917	19
EBITDA, SEK million	93	79	18	408	347	18
Operating profit (EBITA), SEK millions	82	72	14	367	311	18
Operating profit, SEK million	79	69	14	358	304	18
Profit after tax, SEK million	62	53	17	255	213	20
Gross margin, %	28.1	28.7		28.7	28.6
Operating margin (EBITA), %	8.5	8.7		9.7	9.7
Operating margin, %	8.2	8.3		9.5	9.5
Net margin, %	6.4	6.4		6.7	6.7
Net debt, SEK million	1,178	1,015	16
Debt/equity ratio, %	74	72
Net debt/EBITDA*, multiple	2.9	3.4
Working capital, SEK million	1,473	1,212	22
Average working capital, SEK million	1,405	1,142	23
Average working capital in relation to net sales, %	35.7	35.4
Equity/assets ratio, %	43	43
Operating cash flow, SEK million	63	58	9	175	183	-4
Earnings per share, SEK	1.65	1.39	19	6.79	5.61	21

*Paid purchase prices have been charged in full to net debt while EBITDA has only been credited from the acquisition date.

For definitions, see page 18.

Parent Company Income Statement

	Quarter 4			Jan-Dec
SEK million	2018	2017	2018	2017
Administrative expenses	-4	-4	-14	-14
Other operating income	2	2	7	6
Operating loss	-2	-2	-7	-8
Profit/loss from financial items
Interest expenses and similar expenses	-	1	-	-
Loss after financial items	-2	-1	-7	-8
Appropriations	68	89	68	89
Tax on net profit/loss for the period	-14	-18	-14	-18
Profit/loss after tax	53	70	47	63
Other comprehensive income	-	-	-	-
Total comprehensive income	53	70	47	63

Non-current interest-bearing liabilities

Current non-interest-bearing liabilities

Parent Company Balance Sheet

SEK million	31 Dec 18	31 Dec 17
ASSETS
Non-current assets
Financial assets
Participations in Group companies	845	845
Total non-current assets	845	845
Current assets
Receivables from Group companies	77	166
Other current receivables	8	-
Cash and cash equivalents	-	1
Total current assets	85	167
Total assets	930	1,012
EQUITY AND LIABILITIES
Equity	801	872
Untaxed reserves	122	128

Other non-current liabilities - - Total non-current liabilities 0 0

Other current liabilities 7 12 Total current liabilities 7 12

Total equity and liabilities 930 1,012

Other information

ACCOUNTING POLICIES

This interim report has been prepared pursuant to IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act. The Parent Company's financial statements were prepared in accordance with the Swedish Annual Accounts Act, Chapter 9 and the Swedish Financial Reporting Board's recommendation RFR 2.

The accounting policies applied correspond to the accounting policies and measurement principles presented in the 2017 Annual Report. The 2017 Annual Report is available at www.bufab.com.

As of January 1, 2018, Bufab applies IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.

IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 has had no material impact on the consolidated financial statements.

IFRS 15 contains a single model for revenue recognition relating to customer contracts not covered by other standards. IFRS 15 has had no material impact on the consolidated financial statements and no transitional effects have arisen.

IFRS 16 Leases is applied as of 1 January 2019. IFRS 16 addresses the recognition of rental contracts and leases for both lessors and lessees. The implementation of this standard entails that nearly all leases will be recognised in the lessee's balance sheet, since no difference is made any longer between operational and financial leases. According to the new standard, an asset (the right to use a leased asset) and a financial liability covering the obligation to pay lease fees are to be recognised. Exceptions are made for shortterm leases and leases for which the underlying assets have a low value. Bufab will apply the new standard prospectively, but will restate the right-ofuse assets retrospectively with the total effect of an initial application as an adjustment of the opening amount of retained earnings on 1 January 2019. Accordingly, comparative information will not be restated.

The new standard will have a material impact on Bufab's total assets, partly in relation to the right-ofuse assets, which will increase Bufab's property, plant and equipment, and regarding the lease liabilities that are now recognised in the balance sheet and will increase Bufab's interest-bearing liabilities.

The impact on the balance sheet at the beginning of 2019 is expected to be as below:

Balance sheet items	SEK million
Right-of-use assets*	+283
Deferred tax	+ 5
Prepaid expenses	- 6
Retained earnings	-18
Lease liabilities, interest-bearing	-300

*Most of the increase in right-of-use assets relates to buildings and land.

The effect on the consolidated income statement will not be material and the effect on net income in the near future are expected to be marginal.

RISKS AND RISK MANAGEMENT

Exposure to risk is a natural part of business activity and this is reflected in Bufab's approach to risk management. The aim is to identify and prevent risks and to limit any loss or damage from these risks. The main risks to which the Group is exposed relate to the impact of the economy on demand.

During the third quarter of 2018, the Group increased its hedging of net assets in foreign currencies by borrowing in the corresponding currency with the aim of reducing the impact of currency exposure on the Group's equity. Total borrowing in foreign currencies defined as hedging instruments amounted to EUR 35 million and GBP 26 million, respectively, at 31 December 2018.

For further information regarding risks and risk management, see Note 3 of the 2017 Annual Report.

SEASONAL VARIATIONS

Bufab has no significant seasonal variation in its sales, but sales over the year vary based on the number of production days in each quarter for customers.

RELATED-PARTY TRANSACTIONS

During the second quarter of 2018, the CEO and senior executives subscribed for call options within the framework of the long-term share-based incentive programme adopted at the Annual General Meeting under the terms outlined under the heading Long-term share-related incentive programs. No other material related-party transactions occurred.

LONG-TERM SHARE-BASED INCENTIVE PROGRAMME

The 2018 Annual General Meeting resolved to adopt a long-term share-based incentive

programme based on call options, comprising the CEO, senior executives and other key employees within the Group. The programme comprises a maximum of 350,000 call options, corresponding to approximately 0.9 percent of the total number of shares in the company. The purchase price for the call options has been set at SEK 13.34 through a Black-Scholes valuation, corresponding to the market value of the options at the date of transfer. Each call option entitles the holder to acquire one share in Bufab during the period 17 May 2021 – 15 November 2021. The purchase price per share is SEK 133.90, corresponding to 115 percent of the volume-weighted average price paid for the company's share on Nasdaq Stockholm during the period 27 April 2018 and 2 May 2018.

To encourage participation in the programme, the Board of Directors has resolved on a subsidy in the form of gross salary additions to participants who remain as employees of the company in 2021, which may correspond to not more than the price paid for the call options.

To hedge Bufab's delivery of shares, the Annual General Meeting also resolved to authorise the Board of Directors to repurchase a maximum of 350,000 shares in the company, and approved the transfer of a maximum of 350,000 of the company's repurchased shares to the participants of the programme. During the year, 308,850 shares were repurchased.

REPURCHASE OF OWN SHARES

During the second quarter, the company repurchased 308,850 own shares corresponding to an acquisition price of approximately SEK 37 million. In other respects, no other related-party transactions occurred during the year.

ACQUISITIONS

The following acquisitions were made during 2017- 2018.

		Net
	Date	sales*	Employees
Thunderbolts	24 May	32	19
Group Limited	2017
Kian Soon	1 December	105	64
Mechanical	2017
Components Pte
Ltd
Rudhäll Industri	5 October	210	76
AB	2017

*Estimated annual net sales at the date of acquisition

On 5 October 2018, Bufab acquired 100 percent of the shares in Rudhäll Industri AB with subsidiaries in Sweden and China. The purchase consideration was unconditional and amounted to SEK 100 million, based on the Enterprise Value.

The acquisition added SEK 53 million to the Group's accumulated net sales since the transfer. The net impact, after acquisition costs, on accumulated operating profit in the quarter was SEK 0 million and the effect on profit after tax was SEK 0 million.

These acquisitions would have positively impacted the Group's net sales by an estimated SEK 210 million, operating profit by about SEK 23 million and profit after tax for the period by about SEK 16 million had they been implemented on 1 January 2018.

The amounts of the assets and liabilities included in the acquisitions according to the preliminary acquisition analysis were as follows:

Rudhäll Industri AB	Fair value
Intangible assets	9
Other non-current assets	18
Inventories	39
Other current assets	36
Cash and cash equivalents	12
Deferred tax liabilities	-10
Other liabilities	-40
Acquired net assets	63
Goodwill	23
Purchase consideration* Less: cash and cash	86
equivalents in acquired operations Less: unconditional	-12
purchase consideration	-1
Effect on the Group's cash and	73
cash equivalents

* The consideration is stated excluding acquisition expenses

The acquisition analysis above is preliminary. Goodwill arising in connection with the acquisition is attributable to the knowledge accrued in the acquired company and the established and consolidated market positions and the anticipated profitability related to it. In addition to the net impact on the Group's cash and cash equivalents of SEK - 73 million relating to the acquisition of Rudhäll AB, a total of SEK 25 million was paid during the year in additional purchase considerations for previous acquisitions.

EMPLOYEES

The number of full-time employees in the Group as of 31 December 2018 was 1,253 (1,119), 76 of whom stem from the acquisition of Rudhäll Industri AB.

CONTINGENT LIABILITIES

There were no significant changes to the company's contingent liabilities during the interim period.

2018 ANNUAL GENERAL MEETING

The Annual General Meeting of Bufab AB (publ) will be held in Värnamo, on 25 April 2019 at 2:00 p.m.

Notice of the 2018 AGM will be available on Bufab's website as of 25 March 2019 at www.bufab.com.

The Annual Report for 2018 will be published no later than 1 April 2019. To order a hard copy of the annual report, send an e-mail to investor.relations@bufab.com.

The Board of Directors proposes a dividend of SEK 2.50 (2.25) per share for 2018, corresponding to a total dividend of SEK 94 million (85). The proposed record date is 29 April 2019 and the expected payment date for dividends is 3 May 2019. It is proposed that the share be traded without dividend entitlement as of 26 April 2019.

ORGANISATION

During the quarter, Johan Sandberg was appointed Global Business Development Director. Johan will be a member of Bufab's Group Management as of 1 January 2019.

AUDIT REVIEW

This interim report has not been examined by the company's auditors.

FINANCIAL REPORTING DATES

Interim report for the first quarter of 2019 25 April 2019

2018 Annual General Meeting 25 April 2019

Interim report for the second quarter of 2019 18 July 2019

Interim report for the third quarter of 2019 25 October 2019

Year-end report 2019

11 February 2019

Värnamo, 8 February 2019

Jörgen Rosengren President and CEO

Definitions of key figures

Gross margin, %

Gross profit as a percentage of net sales for the period

EBITDA

Operating profit before depreciation, amortisation and impairment

Operating profit (EBITA)

Gross profit less operating expenses.

Net debt

Interest-bearing liabilities less cash and cash equivalents and interest-bearing assets, calculated at the end of the period

Debt/equity ratio, %

Net debt divided by equity, calculated at the end of the period

Net debt/EBITDA, multiple

Net debt at the end of the period divided by adjusted EBITDA in the last twelve months

Operating expenses

Total distribution costs, administrative expenses, other operating income and other operating expenses excluding depreciation, amortisation and impairment of acquisition-related intangible assets

Working capital

Total current assets less cash and cash equivalents less current non-interest-bearing liabilities, calculated at the end of the period

Average working capital

Average working capital calculated as the average of the past four quarters

Average working capital in relation to net sales, %

Average working capital as a percentage of net sales in the last twelve months

Equity/assets ratio, %

Equity as a percentage of total assets, calculated at the end of the period

Operating cash flow

Operating profit adjusted for depreciation/amortisation, impairment and other non-cash items less changes in working capital and investments

Earnings per share

Profit after tax for the period divided by the average number of common shares

Performance measures not defined in accordance with IFRS

Bufab uses certain performance measures not defined in the rules for financial reporting adopted by Bufab. The purpose of these performance measures is to provide a better understanding of the performance of the operations. It should be pointed out that these alternative performance measures, as they are defined, are not fully comparable with other companies' performance measures with the same name.

Organic growth

Because Bufab has operations in many countries with different currencies, it is essential to provide an understanding of the company's performance without current effects when translating foreign subsidiaries. In addition, Bufab has an important strategic objective in carrying out value-generating acquisitions. For these reasons, growth is also recognised excluding currency effects when translating foreign subsidiaries and excluding acquired operations within the term Organic growth. This performance measure is expressed in percentage points of last year's net sales.

		Quarter 4			Jan-Dec
2018, %	Group	Sweden	International	Group	Sweden	International
Organic growth	4	1	5	8	6	9
Currency translation effects	3	0	5	3	0	5
Acquisitions	10	19	5	7	5	8
Recognised growth	17	20	15	18	11	22

		Quarter 4			Jan-Dec
2017, %	Group	Sweden	International	Group	Sweden	International
Organic growth	14	15	13	8	9	7
Currency translation effects	-1	0	-1	0	0	1
Acquisitions	5	0	8	4	0	6
Recognised growth	18	15	20	12	9	14

Operating cash flow

In order to improve its total cash flow, Bufab continuously measures the cash flow generated by operations in all its companies. This is expressed as Operating cash flow and defined below.

	Quarter 4		Jan-Dec
SEK million	2018	2017	2018	2017
EBITDA	93	79	408	347
Other non-cash items	11	3	13	2
Changes in inventory	-74	57	-174	-142
Changes in operating receivables	32	-1	-28	-79
Changes in operating liabilities	25	62	27	116
Cash flow from operations	88	87	247	244
Investments excluding acquisitions	-25	-29	-72	-61
Operating cash flow	63	58	175	183

EBITDA

EBITDA is an expression of operating profit before depreciation, amortisation and impairment. The key figure is defined below.

	Quarter 4		Jan-Dec
SEK million	2018	2017	2018	2017
Operating profit	79	69	358	304
Depreciation/amortisation and impairment	14	11	51	43
EBITDA	93	79	408	347

EBITA

Bufab's growth strategy includes the acquisition of companies. For the purpose of illustrating the underlying operation's performance, management has chosen to monitor EBITA (operating profit before depreciation, amortisation and impairment of acquired intangible assets). The key figure is defined below.

	Quarter 4		Jan-Dec
SEK million	2018	2017	2018	2017
Operating profit	79	69	358	304
Depreciation, amortisation and impairment of intangible assets	3	3	9	7
EBITA	82	72	366	311

Operating expenses

Operating expenses is an expression of operating expenses before depreciation, amortisation and impairment of acquired intangible assets. The key figure is defined below.

	Quarter 4		Jan-Dec
SEK million	2018	2017	2018	2017
Distribution costs	-134	-122	-512	-446
Administrative expenses	-55	-43	-220	-166
Other operating income	10	10	50	32
Other operating expenses	-12	-13	-48	-33
Depreciation, amortisation and impairment of intangible assets	2	3	9	7
Operating expenses	189	-166	-721	-606

Working capital

Because Bufab is a trading company, working capital represents a large share of the balance sheet's value. In order to optimise the company's cash generation, management focuses on the local company's development, and thereby the entire Group's development, of working capital as it is defined below.

	31 Dec	31 Dec
SEK million	2018	2017
Current assets	2,273	1,953
Less: cash and cash equivalents	-144	-120
Less: current non-interest-bearing liabilities excluding liabilities for additional purchase prices	-656	-621
Working capital on balance-sheet date	1,473	1,212

Net debt

Net debt is an expression of how large the financial borrowing is in the company in absolute figures after deductions for cash and cash equivalents. The key figure is defined below.

	31 Dec	31 Dec
SEK million	2018	2017
Non-current interest-bearing liabilities	1,247	1,080
Current interest-bearing liabilities	74	55
Less: cash and cash equivalents	-144	-120
Less: other interest-bearing receivables	0	0
Net debt on balance-sheet date	1,178	1,015

CONFERENCE CALL

A conference call will be held on 8 February 2019 at 10:00 a.m. CET. Jörgen Rosengren, President and CEO, and Marcus Andersson, CFO, will present the results. The conference call will be held in English.

To participate in the conference, use any of the following dial-in numbers: +44 2071 928 000, UK 08 445 718 892, Sweden 08 506 92 180 or the US 163 151 074 95. Conference code: 2188974.

Please dial in 5–10 minutes ahead in order to complete the short registration process.

CONTACT

Jörgen Rosengren President and CEO +46,370 69 69 00 jorgen.rosengren@bufab.com

Marcus Andersson CFO +46,370 69 69 66 marcus.andersson@bufab.com

This information is such that Bufab AB (publ) is obliged to disclose in accordance with the EU's Market Abuse Regulation and the Swedish Securities Market Act. The information was submitted for publication by the aforementioned contacts on 8 February 2019 at 7:30 a.m. CET.

Bufab AB (publ) Box 2266 SE-331 02 Värnamo, Corp. Reg. No. 556685-6240 Tel: +46 370 69 69 00 Fax +46 370 69 69 10 www.bufab.com

About Bufab

Bufab AB (publ), Corporate Registration Number 556685-6240, is a trading company that offers its customers a full-service solution as Supply Chain Partner for sourcing, quality control and logistics for C-Parts (screws, nuts, etc.). Bufab's Global Parts ProductivityTM customer offering aims to improve productivity in the customers' value chain for C-Parts.

21 of 21 Bufab was founded in 1977 in Småland and is an international company with operations in 27 countries. The head office is located in Värnamo, Sweden, and Bufab has about 1,200 employees. Bufab's net sales for the past 12 months amounted to SEK 3.8 billion and the operating margin was 9.7 percent. The Bufab share is listed on Nasdaq Stockholm, under the ticker "BUFAB". Please visit www.bufab.com for more information.