AQ Group AB (publ), interim report January-March 2022

First quarter, January-March 2022 in brief

 

• Record sales once again, but the continued rapid price increases for raw materials and supplies have affected profitability
• Net sales increased by 26.0% to SEK 1,646 million (1,307)
• Operating profit (EBIT) decreased by 6.9% to SEK 113 million (121)
• Profit after financial items (EBT) decreased by 7.7% to SEK 116 million (126)
• Profit margin before tax (EBT %) was 7.1% (9.6)
• Cash flow from operating activities decreased by 72.8% to SEK 44 million (160)
• Earnings per share after tax decreased by 14.4% to SEK 5.04 (5,89)
• Equity ratio was 56% (56)
• The Board of Directors proposes a dividend of SEK 3.33 /share to the AGM (0.00)

 

A word from the CEO  

     

Growth, Profit and Fun

At AQ, we have fantastic employees. It is difficult to grow as much as we do. Compared with the same quarter last year, growth is 26% and in comparison, with the fourth quarter last year, it is almost 10%. I am proud of our employees who are struggling to deliver more products of good quality to our demanding industrial customers. Also, this quarter we delivered a record in terms of sales. Our growth agenda is unchanged, and we work intensively together with our customers to do more for them in the future. It is fun.

 

Our profit in the first quarter is declining and we are below our target of a profit before tax of 8%. We are not satisfied with that. We need to work harder to transfer increased costs for raw materials, energy, wages, and transport to our customers. We have now started to work more proactively and reviewing our larger customer agreements to be able to adjust prices more quickly in these times of strong inflation. The profit also declines due to lower productivity caused by the material disruptions we continue to see in our business areas Electric cabinets, Wiring systems and System products. At the same time, we are growing strongly within several product areas, and it takes time before all new operators reach normal productivity.

 

Life is not just about growth and profit; we should have fun too. It is not easy in these times. Russia has initiated a war in Ukraine, and we have many employees from Ukraine in our factories in Poland and the Baltics. Our employees in Poland and the Baltics have made great efforts to help refugees from Ukraine. They have carried out collections of food, clothes and medicines and assisted with housing. At the same time, AQ has contributed with purchase of medicines that we have delivered to Ukraine.

 

In China, the number of Covid-19 cases is increasing, and we have had to close our factory in Shanghai during the last week of the quarter due to restrictions in Shanghai. We believe that more shutdowns will occur during the second quarter. Increased Covid restrictions in China in combination with the war in Ukraine will worsen the material shortages for us, our suppliers, and customers. We also believe that prices for components, energy and transport will continue to rise.

 

In summary, a messy quarter with high growth, lower profit, too little fun and an upcoming quarter with uncertain prospects despite well-stocked order books.

 

The quarter

During the quarter, we succeeded better than the previous quarter in delivering more products to our customers. We still have spare production capacity in some factories, but are still limited by the availability of components, especially in our business areas Electrical cabinets, System products and Wiring systems. We have a growth of 26%, of which 20.9% is organic and 7.5% growth attributable to acquisitions. During the quarter, we have worked intensively to transfer cost increases from raw materials, energy, transportation, and personnel to our customers. However, our measures have not been sufficient enough and we need to work more proactively to renegotiate our agreements so that prices are adjusted more quickly.

 

The shortage of components we have had in the quarter affect the delivery precision to our customers, which in the quarter is 91.6% compared with the target of 98%. We work together with our customers to minimize disruptions in their production. During the quarter, we also made several investments in increased capacity. We have invested in additional machine capacity in several of our factories in Bulgaria, Lithuania, Estonia, and Poland to increase our delivery capacity.

 

Our work to improve our Wiring system unit in Mexico continues. We continue to have problems and we disrupt our customers. During the quarter, we appointed a new CEO to increase the pace of improvement. We have reduced our workforce in Germany, where we design transformers and have changed SAP to a more cost-effective and flexible ERP-system in our new units in the USA, China and Hungary. This will increase our profitability in these units.

 

Customers

During the first quarter, one of our factories in Bulgaria delivered the first order to a customer who provides battery storage systems for the electricity grid. We have also won new orders for the same customer. We increase our capacity in welding, painting, and assembling to be able to deliver more to this customer. We have also started serial deliveries of aluminum frames to the manufacturer of the world's largest wind turbines from our unit in Estonia. We have received several inquiries from new and existing customers who want to move their purchases of wire harnesses from Russia and Ukraine to our factories. We have already started the production of these for an existing customer from our factory in Lithuania.

 

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 the war in Ukraine or the development of Covid restrictions in China will change the situation.

 

Acquisitions

We work continuously to identify potential acquisitions that fit into AQ. We are very careful that the acquisitions we make will contribute and develop the Group in the long term. Our strong financial position and equity ratio mean that we have freedom of action to act when we find attractive acquisition opportunities. From 1 July 2021, the three factories we acquired from the Schaffner Group are now part of AQ. The units in Hungary and the USA have high utilization and contribute positively to our profit. The factory in China and the sales office in Germany have challenges in terms of utilization and profitability. During the quarter, we restructured the operations in Germany and changed ERP-systems in all units to reduce costs. We have transferred the production of several products from other AQ units with a lack of capacity to the unit in Hungary. During the quarter, the acquisition contributes with a 7.5% increase in our net sales and with -0.8% in profit before tax.

 

Environment

AQ has environmental management systems at all our operational manufacturing units. These contain concrete goals, metrics, and activities to reduce our environmental impact. In our sustainability report for 2021, we reported our carbon dioxide emissions and targets for reduction.

 

Cash flow and balance sheet

Our cash flow right now is weak. The organic growth is high, and inventory levels have increased during the quarter. Our low debt ratio means that we can focus on our customers and continue to invest and grow together with them, while at the same time we can act quickly and acquire companies that would complement AQ in a good way.

 

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. That is what makes the difference between us and our competitors. For this to work, we need top-class leaders. It is thanks to our leaders and employees that we continue to grow, make a profit and have fun.

 

 

 

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 21-04-2022 08:00 CET.