AQ Group AB (publ), interim report January - September, 2018
Third quarter, July – September 2018
in brief
- Continued good growth both organically and through acquisitions. Net sales increased with 23.2% to SEK 1 137 million (923)
- Positive result despite major extraordinary costs for AQ Segerström & Svensson. Underlying profit margin before tax, adjusted for items affecting comparability of SEK 66 million, was 7.6%.
- Operating profit (EBIT) decreased by 65.5 % to SEK 22 million (64)
- Profit after financial items (EBT) decreased by 65.3 % to SEK 21 million (61)
- Profit margin before tax (EBT %) was 1.9 % (6.6)
- Profit margin before tax (EBT %) adjusted for items affecting comparability was 7.6 % (6.6)
- Cash flow from operating activities decreased by 31.2 % to SEK 39 million (57)
- Equity ratio 56 % (62)
- Earnings per share after tax decreased by 99.6 % to SEK 0.01 SEK (2.77)
Nine months, January – September 2018
in brief
- Net sales increased by 14.9 % to SEK 3 451 million (3 002)
- Operating profit (EBIT) decreased by 32.7 % to SEK 151 million (225)
- Profit after financial items (EBT) decreased by 35.2 % to SEK 145 million (224)
- Profit margin before tax (EBT %) was 4.2 % (7.5)
- Profit margin before tax (EBT %) adjusted for items affecting comparability was 6.1 % (7.5)
- Cash flow from operating activities decreased by 27.5 % to SEK 109 million (151)
- Earnings per share after tax decreased by 44.1 % to SEK 5.68 (10.17)
A word from the CEO
After seven weeks as President and CEO of AQ Group, it is with great humility and joy that I have the privilege of writing these words to our report for the third quarter of 2018.
I have spent my first weeks in the group visiting more than half of our production units to meet employees, customers and other stakeholders. It has been fun to meet many of the talented employees who carry AQ and make us what we are.
It has also been interesting to take part of all the customer cases that are behind our strong organic and acquisition driven growth.
There is a lot to bring with us in our continued journey. I have seen many fine examples of actionable entrepreneurship that have given us new business, but also things we can improve together, such as capital tied up, delivery capacity and continued efficiency improvements.
It is also good that we can report a positive result in the quarter despite the major extraordinary cost, SEK 66 million we have in connection with the bankruptcy of our subsidiary AQ Segerström & Svensson AB. If we exclude this extraordinary cost, the profit margin before tax is 7.6%, which is a percentage point better than the third quarter last year.
The biggest event in the quarter for AQ Group was that the board of our subsidiary AQ Segerström & Svensson filed an application for bankruptcy on August 20, as there were no preconditions to run the business further. Note 5 and 6 of this quarterly report detail how this event affects our earnings. The operating loss in addition to this, in AQ Segerström & Svensson amounts to SEK 28.8 million, of which SEK 1.7 million in the third quarter. AQ Group supports the bankruptcy administrator on a continuous basis to contribute to the best possible solution for customers, employees and suppliers.
The work to wind down AQ’s operations in Thailand continues according to plan and it has moved to one of our units in China. The production in Ludvika has moved to other AQ units in Bulgaria and Sweden. We have also opened a smaller unit in Smedjebacken to be able to competitively carry out production that needs to be close to customer and should not be moved. Operating losses for these two discontinued plants amounts to SEK 23.2 million in 2018, of which SEK 9.9 million in the third quarter.
The organic growth in the quarter comes from both larger existing and new smaller customers. Customer segments that significantly contribute to the growth are marine applications, commercial vehicles, railway, medical technology and material handling. Our units in China, Hungary and Sweden have also succeeded to find new customers to partly compensate the decline in telecom and power generation. Our wiring systems business grows significantly with several different customers.
Our suppliers have increased their prices of raw material during the last years. We have worked hard for a long time to transfer these price increases to our customers. We are slowly starting to see improvements, even if a lot of work remains.
Production is at high pressure in most of our production units. We continue to have challenges with long lead times for components, which sometimes lead to delayed deliveries and additional costs. However, the biggest cost is that it affects our customers’ confidence and it’s contrary to our value “We are reliable”. We are not satisfied, and we work hard to come back to where we want to be. We also work to increase our capacity in the units where we are closest to the capacity ceiling.
The work to reduce capital tied up in inventory and accounts receivable continues. For example, the production unit that carried out our pilot project has managed to stabilize and slightly reduce its inventory even though production has increased by more than 30%. We continue this project with two other companies in the Group.
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 now 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
AQ’s organisation is built on strong local entrepreneurs in each company, who are close to the customers’ requirements and real demands. This way we can quickly seize the opportunities that appear no matter of market conditions. This is a strategy we will continue to follow
Outlook
Our guideline is to be a stable, growing and profitable company long term with a profit margin of 8 % and a strong financial position. We have made a big effort and spent a lot of money to get units in order that haven’t delivered acceptable results over time. Now we can focus on business with focus on the customers. 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 long term and reliable supplier to leading industrial customers.
Anders Carlsson
CEO
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For further information, please contact:
Anders Carlsson, CEO, telephone +46 70-513 42 99 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 Anders Carlsson for publication at 08:00 hours CET on October 25, 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, provides 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 SEK 4.0 billion and the group has since its start in 1994 shown profit every quarter.
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