AQ Group: Year-end report 2017
Full year 2017 in brief
- Net sales increased by 22 % to SEK 4 020 million (3 289)
- Operating profit (EBIT) decreased by 6 % to SEK 263 million (281)
- Profit after financial items (EBT) decreased by 8 % to SEK 256 million (279)
- Profit margin before tax (EBT%) 6.4 % (8.5)
- Cash flow from operating activities decreased by 52% to SEK 140 million (290)
- Equity ratio 61 % (60)
- Earnings per share after tax decreased by 14 % to SEK 11.14 SEK (13.01)
- The Board of Directors proposes a dividend of 2.75 SEK (2.75)
Fourth quarter, October – December 2017
- Net sales increased by 12 % to SEK 1 017 million (905)
- Operating profit (EBIT) decreased by 35 % to SEK 39 million (60)
- Profit after financial items (EBT) decreased by 47 % to SEK 32 million (60)
- Profit margin before tax (EBT) 3.1 % (6.6)
- Cash flow from operating activities decreased by 120% to SEK -11 million (55)
- Equity ratio 61 % (60)
- Earnings per share after tax decreased by 65 % to SEK 0.97 SEK (2,79)
A word from the CEO
Firstly, let us be clear, the profit and the cash flow in the fourth quarter is a disappointment. The fourth quarter was our 93rd consecutive quarter with profit. We have increased our turnover every year since the start October 1, 1994 i.e. for 23 years.
The organic growth in the quarter was 12.5 % compared to -4,6 % in the same period in 2016. The growth in the quarter is good, but also challenging
We must work harder to improve our margins. In the fourth quarter our profit margin before tax (EBT%) was 3.1 %. Our goal is 8% and accumulated for the full year the EBT margin was 6.4%, which means that we are well below our goal. We have some subsidiaries, which have had problems with profitability for a longer time. We have been too patient with this.
Our company AQ Welded Structures in Ludvika has shown losses for a long time. The company showed a big loss in 2017. When one of our customers announced a move of a product family abroad, we will lose more volume. As a consequence, we have called for negotiations with the unions for a restructuring of the company, which has 51 employees.
We have problems with profitability in our sheet metal and plastic components business to commercial vehicles in Sweden. The ongoing action program has given improvement, but it will take more time to get the business to a satisfactory profitability.
In the fourth quarter we have seen raw material prices continue to increase, e.g. within the steel and plastics areas. On this matter we have to be self-critical. We have been too ”nice” and too slow to transfer the increased prices to our customers. During Q1 this have to come into full effect especially to our automotive customers.
We have seen a move of our product mix during the year. The volume to the automotive industry has increased. During 2017, our customers in China e.g. in telecom have seen reduced turnover, which has decreased our volume and significantly reduced our profit for AQ in China. The global demand of large gas turbines has decreased, which has affected our company in Hungary negatively. On the positive side we have started to delivered to smaller gas turbines and doing repair of components for jet engines. Our company in India is still expanding, but it hasn’t reached break-even yet.
There is an economic expansion in the industry. Several of AQ’s leading industrial customers show good growth. This partly explains AQ’s high organic growth in the fourth quarter. In parallel I believe that we are gaining market shares in several business areas. Some examples are:
- We won a completely new business of supply of wire harnesses to Scania Bus
- Started our first project with inductive components to new Shinkansen trains in Japan
- We won new important deals where we also make design on behalf of the customer
- Signed an agreement with Northvolt, where AQ is part of the industrialization of their future products within energy storage
- Awarded several projects for driver desks to trains and metros
- Our business with a customer in marine environment technology is growing significantly
Successively during the year several of our production units have had increased utilization. We see a need in increased investment in production capacity in several areas. Therefore, during the year we have:
- Increased personnel with 350 people
- Acquired another production facility in Hungary
- Started investments in new production facilities in Poland
- Inaugurated a new production facility in Bulgaria
- Decided to expand production space in India
This is of course a positive sign, that our customers have a good order backlog and that they have confidence in AQ.
During the fourth quarter we continued to have challenges with increased lead-time of raw material and components, which causes delays of deliveries to our customers. This costs a lot of money in express transports, overtime and extra personnel. However, the biggest cost is that it affects our customers’ confidence and it’s contrary to our value “We are reliable”.
Inventory has grown significantly quicker than the growth of our sales. Therefore, we have started an inventory reduction project to reduce the tied-up capital and to improve our procedures. The work is well under way with the first subsidiary.
Altogether our ongoing activities shall give increased margins and a better cash flow approaching our goals.
After our introduction on Nasdaq in 2017 the inflow of acquisition opportunities has increased, especially from abroad.
The integration of ”Gerdins”, which was acquired in 2016 has gone according to plan and is now completed.
We are always looking at a number of acquisition opportunities. We would like to strengthen our presence and capabilities in the growth areas where we are already present. We also work to follow some of our important customers to completely new geographic regions. The reason that we haven’t closed any deals is that in some cases we have viewed the purchase price being too high and in some cases that their earnings haven’t been according to plan.
Our focus is always to adapt to customers’ requirements and real demands. It’s a strategy we will continue to follow, to be fast movers and adaptable no matter of market conditions. Our organisation is built on entrepreneurship, which is a foundation in our core values.
It is important to continue investing in knowledge and new technology, which means that we:
- Inaugurated our new investment in a paint facility (ED), the first in Bulgaria
- Offer more design work for our customers
- Introduce rationalization of administrative routines such as electronic invoicing, IT security etc
- Take new initiatives in additive manufacturing
- Use an in-house developed laser for machining of ceramic materials
Right now we are working to eliminate our sources of loss, increase our prices and reduce the capital tied up.
Our guideline is to be a stable, growing and profitable company long term. We have a strong financial position and we have entrepreneurs working in our subsidiaries. We like doing business. We have customer focus. Our employees and leaders are doing a good job and it will also in the future give new business and a stable profit.
AQ is well positioned for new acquisitions from a financial as well as from a management view. With strong relations to world leading customers and engaged employees we shall work hard with continued growth, cash flow and a stable profit level. An important part of this is our core values and our efforts to be a reliable supplier to leading industrial customers.
For further information, please contact:
Claes Mellgren, CEO, +46 70 592 83 38 or CFO, Mia Tomczak, telephone +46 70-833 00 80
AQ Group is required to make the information in this press release public in accordance with the EU Market Abuse Regulation. The information was released by CEO Claes Mellgren for publication at 08:00 hours CET on February 22, 2018.
AQ in brief
AQ is a leading supplier to demanding industrial customers and is listed on Nasdaq Stockholm’s main market.
The Group consists mainly of operating companies each of which develop their special skills and in cooperation with other companies, striving to provide cost effective solutions in close cooperation with the customer.
The Group headquarter is in Västerås, Sweden. AQ has, on December 31, 2017, in total about 5,100 employees in Sweden, Bulgaria, China, Estonia, Hungary, India, Italy, Lithuania, Mexico, Poland, Serbia and Thailand.
In 2017 AQ had net sales of SEK 4.0 billion and the group has since its start in 1994 shown profit every quarter.
AQ has the highest credit rating AAA according to Bisnode.