AQ Group AB (publ), interim report January - June, 2018
Second quarter, April – June 2018
in brief
- Continued good growth mainly through acquisitions, but improvement work is still required concerning margins and cash flow
- Net sales increased by 13.6 % to SEK 1 224 million (1 077)
- Operating profit (EBIT) decreased by 22.4 % to SEK 58 million (74)
- Profit after financial items (EBT) decreased by 21.4 % to SEK 55 million (70)
- Profit margin before tax (EBT %) was 4.5 % (6.5)
- Cash flow from operating activities decreased by 54.9 % to SEK 35 million (79)
- Equity ratio 54 % (60)
- Earnings per share after tax decreased by 20.6 % to SEK 2.54 SEK (3.20)
Six months, January – June 2018
in brief
- Net sales increased by 11.3 % to SEK 2 314 million (2 079)
- Operating profit (EBIT) decreased by 19.8 % to SEK 129 million (161)
- Profit after financial items (EBT) decreased by 23.9 % to SEK 124 million (163)
- Profit margin before tax (EBT %) was 5.4 % (7.8)
- Cash flow from operating activities decreased by 25.2 % to SEK 70 million (94)
- Earnings per share after tax decreased by 23.2 % to SEK 5.68 SEK (7.40)
A word from the CEO
Market
Aligned with our strategy we have a continued strong growth, which in the second quarter was 13.6 %, of which 2.3 % is organic.
I would have liked to deliver my last report with better profit margin and cashflow. Profit margin was 4.5 % and the cash flow was weak due to the growth and higher inventories. We have initiated action programs to improve also these key figures going forward.
We have two companies in winding down processes, which are estimated to be finished in September, AQ Welded Structures and “AQ Thailand”. We have another company with big problems with deliveries and profitability. A number of actions are ongoing with heavy rationalization plus price increases towards the customers, but we have a long way to acceptable delivery precision and profitability. If we exclude these three companies, our margin would be 7 %.
Our goal is 8 %, which means that we are below our goal.
In China we have written down a customer debt with SEK 5 million. The case is now handed over for collection. It is unusual for us to have credit losses. We normally have long payment terms, some are paying late, but they pay.
AQ Welded Structures, with production in Ludvika, has shown losses for a long time, also for the first half of this year. The operations is expected to be closed during September. A department in AQ Components Västerås has been established for products with advanced welding. Other products are moved to other AQ units.
AQ started operations in Thailand to follow an important customer. The sales of the customer has decreased. Reduced volumes and continued losses has led to a closing of the operations during September and AQ will supply the customer with production in our Chinese company AQ Components.
Our business in telecom in China is decreasing, but we are happy that we are winning new business to e.g. components for automotive safety.
The global demand of gas turbines is still low, which continues to affect our company in Hungary negatively. On the positive side we have started to deliver to smaller gas turbines and doing repair of components for jet engines.
We continue to have problems with profitability in high volumes of sheet metal components to commercial vehicles in Sweden. There is an action program ongoing, but it will take a long time to reach satisfactory delivery precision and profitability.
Our company in Mexico has a new managing director and it opened a new production facility in June.
Our business in the medical technology sector is increasing and it is developing very well.
Our business in inductive components in India is expanding heavily and because of this we have chosen to move this business into a separate company for increased focus.
We have also in the second quarter seen efforts from a number of suppliers to increase their prices.
During the first six months we continued to have challenges with increased lead-time of raw material and components, which causes delays of deliveries to our customers. This cost 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 continued to grow significantly quicker than the growth of our sales. The work with a specific inventory reduction project has now finished a pilot project in one of our Polish companies. We are now evaluating the results and during August we will make a decision on how to move on. It’s important that we achieve a better way of working as well as building increased competence in this area.
Acquisitions
Acquisitions are a significant part of AQ’s strategy to strengthen the presence and ability in the product areas and geographical areas where we see opportunities for growth and improved profitability. Another central part of the acquisition strategy is to follow our customers to new geographical regions.
On April 3 we acquired Mecanova Oy with a factory in Nivala, Finland and Mecanova Oü with a factory in Pärnu, Estonia. Mecanova has a good reputation among the customers, but has suffered with a weak balance sheet. The balance sheet is now improved, and the confidence of the suppliers is increasing. The operations in Estonia is being integrated with our original company in Estonia. It complements AQ’s operations in Pärnu in a very good way. We are also happy to get a company on the growing Finnish market.
The acquisition of the B3CG companies in USA and Canada gives us a strong platform for further expansion in North America. What was extra positive was that the acquisition took place in consultation with one of our largest global customers. The companies have developed according to plan during the quarter.
Organisation
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.
Outlook
We are working to wind down two companies and putting extra efforts with one specific company to improve delivery precision and productivity. During the fall we will continue the work to reduce our capital tied up in inventory.
It is important to see all the good things that are being done in other parts of the group in addition to our problem companies. We have after the period invested in a new 3D laser in Lyrestad to increase our competitiveness in e.g. prototype manufacturing. In Bulgaria, Mexico, some Swedish sites and soon in Poland we have built capacity for increased production.
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.
Claes Mellgren
CEO
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For further information, please contact:
Claes Mellgren, CEO, telephone +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 July 19, 2018.
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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 5,500 employees in Sweden, Bulgaria, China, Estonia, Hungary, India, Italy, Lithuania, Mexico, Poland, Serbia and Thailand.
In 2017 AQ had net sales of about 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.
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