AQ Group AB (publ), interim report January - June, 2022
Second quarter, April-June 2022 in brief
- Strong demand but low margin
- Net sales increased by 26.4% to SEK 1,721 million (1,361)
- Operating profit (EBIT) decreased by 9.3% to SEK 107 million (118)
- Profit after financial items (EBT) decreased by 5.0% to SEK 108 million (114)
- Profit margin before tax (EBT %) was 6.3% (8.4)
- Cash flow from operating activities decreased by 73.9% to SEK 22 million (84)
- Earnings per share after dilution decreased by 9.8% to SEK 4.71 (5.22)
Six months, January-June 2022 in brief
- Net sales increased by 26.2% to SEK 3,367 million (2,668)
- Operating profit (EBIT) decreased by 8.1% to SEK 220 million (239)
- Profit after financial items (EBT) decreased by 6.4% to SEK 225 million (240)
- Profit margin before tax (EBT %) was 6.7% (9.0)
- Cash flow from operating activities decreased by 73.1% to SEK 65 million (244)
- Earnings per share after dilution decreased by 12.3% to SEK 9.74 (11.11)
- Equity ratio was 55% (57)
A word from the CEO
Growth, but low margin
In accordance with our strategy, we have continued strong growth, which in the second quarter amounted to 26%, of which 21% was organic. Approximately half of the organic growth are due to price increases. Our goal is to grow 15% per year and we are well above the target. Growth is fun. It gives us opportunities to invest in our employees, new manufacturing technologies and it proves that we are competitive. We have never in the company's history had such growth as now. We take this as if we and our customers like each other. Almost all customers want to buy more from us. That is good.
The profit margin for the quarter was 6.3%. That is far from our target of 8%. It is weak. It is obvious that we have too low prices for some of our customers. We are still working hard to adjust prices due to changed costs for both materials and services, as well as expected cost increases for e.g. energy and transport. Since April, we have had extra follow-up with some of our companies to increase the pace with the introduction of new prices. Primarily, it is in relation to automotive customers that we have not succeeded in receiving full compensation for increased costs. We also fall short on productivity since increased volumes has led to recruitment of new employees in a short time. This affects our margin negatively.
At AQ, we act long-term, and we value our long-term relationships with our customers. I feel confident that we will reach the goal with the necessary price adjustments also to our automotive customers without damaging their trust in us.
We work more intensively with some of our companies in the Group as they deliver poor results. Currently, it is our company in Mexico and our two transformer companies in China. Measures are currently being implemented. Above all, we continue to have major challenges in Mexico, where the measures we have implemented haven’t had impact yet, while I am more hopeful that we will achieve good results in China more quickly.
As I mentioned earlier, we have had problems with material shortages in several factories. It is somewhat better in our business area Wiring Systems, while it is still difficult to get deliveries in our business areas Electrical Cabinets and System Products. Our delivery precision in the quarter was 90%. That is lower than our target of 98%. In addition to lack of materials, our delivery precision is affected by the fact that we have several factories that are growing rapidly. In those factories we are now investing in extended capacity.
During the quarter, we have moved our transformer factory in India, to gain enlarged production area. We have strong growth in transformers in India for trains and for wind power. During April, we have put our new Wiring Systems factory in Lithuania into operation, which means a sharp increase in capacity for wiring systems in Europe. At the same time, we have invested in additional machine capacity in several of our factories in Sweden, Finland, Bulgaria and Lithuania. An example is the Group's first tube laser for SEK 7 million in Bulgaria.
Customers
During the second quarter, our factory in Bulgaria received orders for EUR 12 million from a customer who provides battery storage systems for the grid. Our company in Lithuania has also signed an agreement with an existing customer on wiring harnesses for EUR 9 million per year. Serial deliveries will begin during the third quarter.
The demand from our existing customers is strong. We see good growth in all business areas and market segments. However, we are vigilant and prepared to act quickly if our customers' demand suddenly declines.
Investments in continued growth and acquisitions
We have evaluated many acquisition candidates during the quarter to find suitable acquisitions that fit into our growth strategy. At the end of June, one of our subsidiaries in Bulgaria signed an agreement to acquire a property in Pernik, Bulgaria of 22,000m² for EUR 5 million. This new factory will produce sheet metal housings and do the electrical integration of large battery systems for storage of energy for the grid. This will enable continued growth in our business areas Electrical Cabinets and System Products in Europe.
It has now been a year since we acquired three factories from Schaffner. Our integration is going according to plan. The units in Hungary and the USA have high occupancy and contribute positively to our result. The factory in China has challenges in terms of profitability. The restructuring activities previously announced has had an effect, but more measures are needed to increase profitability. During the quarter, earnings were affected by SEK -4 million since the factory in Shanghai was closed down due to local Covid restrictions. During the quarter, the acquisition contributes with a 6.4% increase in our net sales and with 0.2% in profit before tax.
Cash flow and balance sheet
We have high organic growth and inventory build-up during the quarter. We have many large customer projects with several new customers that initially have a negative effect on our cash flow. We continue to have a low debt ratio, which means that we can focus on our customers and continue to invest and grow together with them.
Employees and core values
What makes AQ successful is that we have fantastic employees who work in accordance with our core values. We have no patents or complicated contracts. Our decentralized model means that our leaders dare to make difficult decisions quickly in collaboration with suppliers and customers. During the quarter, we held our annual CEO conference in Bulgaria. It gave a great deal of energy and inspiration to our entrepreneurs. It is our entrepreneurs at all levels in the company who make all the difference. They are the ones who create growth, profit, and have fun together!
James Ahrgren
CEO
This disclosure contains information that AQ Group is obliged to make public pursuant to the EU Market Abuse Regulation (EU nr 596/2014). The information was submitted for publication, through James Ahrgren, on 15-07-2022 08:00 CEST.
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For further information, please contact:
James Ahrgren, CEO, +46 76 052 58 88 or
Christina Hegg, CFO, +46 70-318 92 48
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AQ in brief
AQ is a global manufacturer of components and systems 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, provides cost effective solutions in close cooperation with the customer.
The Group headquarter is in Västerås, Sweden. AQ has, on December 31, 2021, in total about 6,500 employees in Sweden, Bulgaria, China, Estonia, Hungary, India, Italy, Lithuania, Mexico, Poland, Serbia, Finland, Canada, USA, Brazil and Germany.
In 2021 AQ had net sales of SEK 5.5 billion and the group has since its start in 1994 shown profit every quarter.
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