Semcon Interim Report January-March 2022

Continued strong growth and profitability.

First quarter 

• Net sales of SEK 495 million (418), up 18.2% 
• The operating profit excluding non-recurring costs related to the separation project amounted to SEK 65 million (46), yielding an operating margin of 13.2% (11.0)
• The operating profit amounted to SEK 62 million (46), yielding an operating margin of 12.6% (11.0)
• Profit after tax amounted to SEK 47 million (34) 
• Earnings per share (EPS) after dilution amounted to SEK 2.65 (1.96)
• Net cash excluding lease liabilities amounted to SEK 235 million (259)

Comment from CEO Markus Granlund: 

Digitalisation and the green transition facing companies in all industries are supporting high demand for Semcon’s specialist services in innovative and sustainable product and production development as well as digital aftersales solutions. Growth was strong in the quarter, driven by high demand and acquisitions, at the same time as a highly favourable profitability trend was reported. We welcomed even more new colleagues and further strengthened our position in sustainability through the acquisition of Goodpoint. The separation project is proceeding as planned and in parallel, preparations for a possible listing of Product Information are ongoing.

Sustained high demand

During the first quarter, the Group reported sales of SEK 495 million (418), corresponding to total sales growth of 18.2 per cent. Organic growth amounted to 4.4 per cent. I can see that the willingness to invest in research and development remains high in all industries. For the rolling twelve month (RTM) period, sales growth was 15 per cent, which is well in line with our financial objective.

Adjusted operating profit amounted to SEK 65 million (46), yielding a margin of 13.2 per cent (11.0). The internal separation to split Semcon’s business areas into two stand-alone companies is well under way and operating profit was SEK 62 million and margin 12.6 per cent, including non-recurring costs for the project. The Group’s RTM adjusted operating margin was 10.9 per cent, up 0.7 percentage points on the full year 2021. I am pleased that the positive trend from 2021 has continued and view this as additional confirmation that our strategic shift in terms of our offering and industry diversification has positioned us well.

Top class sustainability offering

During the quarter, we completed a long-awaited and exciting acquisition when we welcomed Goodpoint into the Semcon family. Goodpoint is one of Sweden’s leading consulting companies in sustainability and has broad expertise in the entire area, from social sustainability to climate and the environment. Through a combination of expertise in sustainability and innovative technology, we cover the entire lifecycle for sustainable product and production development and I look forward to expanding our cooperation as we move forward. Together, we will become an even stronger partner for companies that must future-ready their operations. 

We have now completed four acquisitions in less than 12 months, and these businesses make a total contribution to the Group’s annual sales of approximately SEK 200 million. All of these contribute new competences that strengthen our expertise in strategically prioritised areas, such as sustainability, digital services and learning. Integration work linked to the acquisitions of Squeed, Tedsys and Walkgrove is progressing as planned and we are creating new business opportunities through positive collaborations. Net cash at the end of the quarter was SEK 235 million, a strong financial position that provides scope for further strategic acquisitions.   

Strong growth and earnings improvement 

The Engineering & Digital Services (EDS) business area grew by 25.1 per cent during the first quarter, of which 6.6 per cent was organic growth. Demand was high from customers in all industries. We deliver many exciting development projects to our customers. These include a new strategic collaboration with Thule, where our cross-functional team is supporting its product development. Operating margin for the business area was 13.4 per cent (10.0), remaining at a record level, driven by healthy demand and a high level of productivity in operations. Completed acquisitions also made a positive contribution to sales and earnings. The labour market continued to be mobile for engineers and system developers, but we receive many applicants for our job vacancies and maintain a high level of new recruitments. 

Retained high operating margin

The Product Information business area reported total growth of 7.7 per cent for the quarter, with a positive contribution from the acquisition of Walkgrove and from currency effects. Organic growth amounted to 1.7 per cent. There was strong demand for digital product information and learning, yielding healthy growth, particularly in Sweden. Growth was slowed due to the high level of mobility in the labour market, with the clearest impact in Germany and China. During the quarter we signed a new and interesting agreement with the global train manufacturer Talgo, whereby we are supporting the company with digital maintenance documentation for its high-speed trains. Operating margin was 16.2 per cent (16.6), remaining at a very high level. Growth, high productivity in deliveries and a lower cost level, partly due to remote working, continues to drive healthy profitability. 

One step closer to separate listing

The internal separation is proceeding as planned and we expect to have crucial parts, such as two independent IT environments and finance functions, in place at the end of the second quarter. Alongside of this, work is ongoing to prepare for a possible listing of the Product Information business area. As previously announced, the intention is to propose a distribution and listing in the fourth quarter of 2022.

Moving forward

Currently, I can see that demand remains at the same high level and we have not noted any slowdown to date relating to the effects of Russia’s deeply tragic invasion of Ukraine. Semcon has no sales to or employees in the countries in question. Many companies must still, and some even more than ever before, future-proof their operations and prioritise investments in research and development. 

As we communicated in December, volumes will decrease to an automotive customer in Product Information’s operations in the UK from the second quarter. We have been able to retain most of the employees affected by the lower volumes by increasing volumes to existing customers and through additional assignments. Sales in the UK are therefore expected to decline slightly less than previously announced.

Non-recurring costs for the separation and listing project are expected to rise in the future and from the second quarter additional costs will also gradually be incurred for double IT environments and new and expanded functions to support the new Group.

Global uncertainty has increased, but in total, I remain optimistic about the market, see good momentum in the business and a high level of energy in the organisation. I am proud of our successful strategic shift in recent years, which resulted in another record quarter with strong growth and profitability.

Göteborg, 29 April 2022
Markus Granlund, President and CEO

Telephone conference and audio cast

Today at 10:00 a.m. CET, Semcon’s president and CEO, Markus Granlund, and CFO, Björn Strömberg, will present the report and host a Q&A session. For more information about the audio cast, please visit https://semcon.com/investor-relations/.

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This information is such information as Semcon AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact person set out below, at 08.00 a.m. CET on 29 April 2022.
 

For more information, please contact:

Björn Strömberg, CFO
Tel: +46 (0) 70-835 44 80 Email: bjorn.stromberg@semcon.com

Semcon is an international technology company. We turn technology into excellent user experiences by combining digital edge and engineering expertise. With diverse multi-disciplinary teams we add new perspectives creating sustainable and competitive businesses. Regardless if you aim to recharge a current product or service, reinvent new technology or reimagine future needs, our focus is always on human needs and behaviour in order to develop solutions with the clearest benefits to people and our planet. By combining our 40 years of advanced engineering, strategic innovation, digital services and product information solutions, we drive transformation in a wide range of industries with approximately 2,000 dedicated employees based in seven different countries. Read more on semcon.com