AQ Group AB (publ), interim report January - March, 2018
First quarter, January – March 2018 in brief
- Continued good growth, but improvement work is still required concerning margins and cash flow
- Net sales increased by 8.8 % to SEK 1 090 million (1 002)
- Operating profit (EBIT) decreased by 17.6 % to SEK 72 million (87)
- Profit after financial items (EBT) decreased by 25.8 % to SEK 68 million (92)
- Profit margin before tax (EBT %) was 6.3 % (9.2)
- Cash flow from operating activities increased by 129 % to SEK 35 million (15)
- Equity ratio 61 % (60)
- Earnings per share after tax decreased by 25.3 % to SEK 3.13 SEK (4.19)
A word from the CEO
Profit margin 6.3% and cash flow in the first quarter is higher than the fourth quarter of 2017 (3.1%), but we have some way to go.
The first quarter 2018 was our 94th consecutive quarter with profit. As I have mentioned earlier, the first quarter of 2017 had some unusually profitable projects.
Increasing inventory is still a challenge.
We must continue the work to improve our margins. In the first quarter our profit margin before tax (EBT %) was 6.3 %. Our goal is 8 % which means that we are below our goal. We have some subsidiaries, which have had problems with profitability for a longer time. We have now increased the pace to correct this.
AQ Welded Structures, with production in Ludvika, has shown losses for a long time, and also for the first quarter this year. Actions to wind down the company and to transfer products to a number of other subsidiaries are ongoing. Operations are expected to be discontinued during the year.
During the period our customers in China in e.g. telecom have decreased their sales, which has caused decreased volumes and sharply reduced earnings from 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 deliver to smaller gas turbines and doing repair of components for jet engines. The company in Thailand has decreasing volumes in telecom and continues to show losses.
We continue to have problems with profitability in our sheet metal and plastic components business to commercial vehicles in Sweden. The ongoing action program has given minor improvements, but it will take more time to get the business to a satisfactory profitability.
There is an economic expansion in the industry. Several of AQ’s leading industrial customers show
good growth, which partly explains our continued high organic growth. In parallel I believe that we are gaining market shares in several business areas. Our company in Mexico has a new managing director and they are planning to move to new and larger premises during June. Our business in the medical technology sector is growing and is developing well. During the quarter we have complemented the business with a minor acquisition, which strengthens our position in the area.
Our company in India is growing and is approaching break-even. Our business in inductive components in India is expanding heavily going forward and because of this we have chosen to move this business into a separate company for increased focus.
In the first quarter we have seen raw material prices continue to increase and during April the price of aluminium has increased with 20%! We have improved in transferring higher prices of raw material to our customers, but further actions are required.
During the first quarter 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 is well under way with the first subsidiary. It’s important that we achieve a better way of working as well as building increased competence in this area.
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 operations in Estonia complements AQ’s operations in Pärnu in a very good way. We are also happy to get a company on the growing Finnish market.
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.
We continue working to eliminate our sources of loss, transfer increased material prices to our customers and reducing our capital tied up in inventory.
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 April 26, 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 5,500 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.