AQ Group AB (publ)

Okay, somebody turned off my microphone. Sorry for that. I start again. So, net sales decreased in the first quarter with 1% to 2.2 billion. Operating profit increased by 15% to 223 million and the profit after financial items increased by 20% to 221 million. Profit module before tax EBT was 9.9%, which is a record for EQ and profit after tax was 185 million. And then the cash flow was really good at 244 million and profit per share for the first time was about 10 sec per share. And the board for the AGM that will be held later today has proposed a dividend of 6.66 krona per share and a share split of five to one. So it's a double dividend that is proposed. So it's really good, I think.

And

Hopefully you heard it. But the earnings per share growth for AQ has over the last 10 years been 15%. But if we take this rolling 12 month after Q1, it will actually lower to 14% CAGR. uh it's still really solid uh and if we look at the onion special growth versus first quarter 2023 it was 17 and um compared to the quarter four in 2023 it was 37 so it's um i would say really good improvement and uh In quarter one, we had a net sales of 2.2 billion, as I said, and it is a slight decrease compared to the same quarter last year. We see and there also we had the positive effect of 1% of currency as well. So really a volume decline of 2%, which is not that much, but it's still a decline compared to the increases that we've had previously. We see that capacity and demand are more balanced. We are starting to catch up on our deliveries and also our productivity then becomes higher affecting the margin. And we have a little bit of a decreased order backlog now compared to the same period last year. If you look at organic growth, as I said, it was minus 2%, which is below our target of 10% growth. and we have lost some business in our battery systems factory in bulgaria as i communicated already in quarter four and then we have some lower sales in in certain market segments we can see some decreases in inductors for frequency drives also mechanics for that and components for construction equipment vehicles then the increases are mainly in because we are increasing in several market segments as well and we see increases still in electrification, defense, industry and railway and marine, which is positive. Acquired growth, we have zero still. The acquisition of JITMEC that was announced in quarter one will be within the aq family from quarter two and we expect that it will add about one percent growth in 2024 and we get more to that later on in the presentation we have a lot of prospects in the pipeline as always but we are very picky with what we buy but i hope that we can close some more deals during the year it's our target at least And margin-wise it is our best margin that we have ever had in AQ, earnings before tax. We are happy with that. It is due to we have lower cost for late deliveries and quality non-conformities in the quarter. We have implemented several process improvements to improve our delivery performance and our productivity and also our quality. see big improvements in Finland and China in the quarter and it has been also hard work from our purchasing departments which have a great impact in the quarter where we still have some sites that we can still improve but as I have said previously with AQ you can expect a stable But margin between 6 and 10 percent. And it is very clear that if you look on these quarters that are in the picture, you see that the margin is really in between there. We have now been several quarters, five, where we have been above our target of 8 percent. But in the picture, it's actually more quarters that are below. So we are still fighting for our margins, you can say. even though the margin in this quarter was really good. Inventory value and turnover development, I think it's very steady. And we are seeing a little bit increased inventory in the quarter. We have several projects that are supposed to be delivered out in quarter two. uh yeah i think it looks good even though our target is of the inventory turnover is 3.5 we are 3.1 and i think we will see improvements during the quarter we have a very delicate team that is working on this and we see that we have made improvements before so we will continue with our improvement work and it's really important to for our cash flow but also for the risk of the companies a lot of the balance sheet is in the inventory so we we should work hard with this it's really super important for us And net cash from operating activity is very solid. We usually say that we should be around EBIT and it is really close to EBIT here in the quarter or net cash from operating activities. So we see also that our net debt is actually not a debt anymore. It's that we have more money in the bank than we have debt. So it's really stable and good. but you should know that in quarter two now we plan to pay a dividend of about 122 million SEK and also do the payment for JITMEC of 40 million SEK so then we will be about zero. But this is a really strong balance sheet and I see that we have a lot of dry powder to invest in growth with our current customers but also to buy other companies I mean to acquire them. So that's really good situation to be in, I believe. Quality and delivery precision. We've been looking at the delivery precision and we see that it is getting better and better. It is still very far from our target, but we are happy with the improvement that we are doing. We still have a number of companies that we focus very a lot on that they should get back on track. I am i really believe that we we will have maybe two companies left after q2 that still are struggling but we are working hard to improve all our companies to reach our target of 98 and it is i think super important also for our customer list that we are improving and it is happy to see that it's going in the right direction uh some examples on future growth then uh i want to show you a little bit about uh our uh newly acquired company we we as announced only this week we were approved by the authorities as well so so now we can go ahead and acquire gitmec as planned and then gitmec is is a supplier of big welded and machined components for demanding industrial customers. And when I say big, it's quite big components that they are doing and it is new for EQ. We don't have really a workshop that do these type of big products. It's low volume, high mix. Customers are in electrification, defense industry and agriculture automation. And the customers are in the north of Sweden. JITMEC has very high technical competence and they work extremely closely with the customers R&D to develop this product that they produce. I would say that they have good and well-maintained equipment machines with factories in Robertfors and Örnsköldsvik where Robertfors makes medium-sized parts and Örnsköldsvik makes really big parts. and about 75 employees had a net sales of 130 million with profitability in line with the group and it is a cash out for 40 million at closing for aq and as i said they will be included in our group after q2 and it you can say when when going to this factory this is the type of products you will see that you see on this photo and it is really You really fall in love with the people and the products that they produce, because they are super difficult to make these type of parts. And the people are dedicated and really passionate about what they are doing. You can see also on the customers that there are a lot of customers here that are similar to what the EQ Group have today. Here we add something more and I think together we can come with some financial firepower and invest more in these people up here in the north of Sweden and then we will grow this company a lot. So this is really exciting opportunity for us and we're very happy with this acquisition and they're doing crazy things. You see this yellow part here on the bottom. it is a contact for connecting underwater sea cable and you can imagine how difficult that is that six meter long connection welded part which is for one of the customers and yeah it is really cool cool products that they do and and super nice and and smart people up there dedicated oh it's fun so very happy with this acquisition so our acquisition team have done a lot of good things so Now, I tried to today also to speak a little bit about the electrification. Electrification can be so many things, but some of these things we have shown before. But we on the on the on the top left, we call it Project Korvkiosk or hot dog stand. If you are in the UK because it looks like a hot dog stand. But it is it is a big cabinet for for for inverter for solar. solar power and wind power and it is a new product that we will start to deliver in Q2 and from our factory in Pernik and it's a lot of welding, painting. It is a really cool product and it will go to Germany. In the end the customer is there. On the top right we have a nice battery system or a battery module I would say. that we are now working with several customers to sell. We bought the IP really cheaply for like one million SEK from a Gothenburg based company that went bankrupt and we see a good potential in selling this product to several of our existing customers. So this is really nice and we have met several and it's a big interest in fact so we think that it is really fun. In the middle is also batteries and that is enclosures and batteries for data centers where we have the first order now for those red enclosures there. But we are also offering wire harnesses and copper bus bars to these customers. It's also in Germany. And on the bottom left is also a kind of a battery, it's a rack for a super capacity that we are doing for one of our customers here in Sweden. But they have won their first projects now and we believe that we will start to deliver those racks by the end of the year but it will be a lot of this type of racks so it's really fun and then on the bottom we have a battery for an electrical bike and it is the Bosch electric bike and we are doing the complex parts the end parts there you can see both ends and we have one now three more projects from them from our factory in Hungary and it's plastic injection molding in this case A lot of battery storage in this picture here, but in different forms, so to speak, what we do. If we go to the next slide, we have, and this is an accident actually, but almost all the trains here are red and white. It is funny, but these are projects that are ongoing at the moment where we have a lot of content, both electrical cabinets, drive controls and inductive components. So it's a SGR 250 on the top left. It's a Trax locomotive on the bottom left. It's an Italian train on the bottom right for Hitachi Rail and then it's on the top it is Deutsche Bahn German train where we deliver a lot of sheet metal boxes, electrical cabinets and hopefully also the driver desk.

It's a lot of new products and fun stuff.

and then the last slide for today is that we have secured a lot of orders in china for electrical cabinets for roro ships it is a existing customer to us that build this the in these kind of ships you can lower and and higher the floor and the electrical automation for that we are delivering the electrical cabinets from our plant in China. You can see Höga Auto Liners there. They're delivering a lot of cars and then you need this kind of roll-on, roll-off technology. And on the right you see the nice beautiful Vasaline hybrid ship which lowers the carbon emissions from this ferry line in Finland by 50% by using batteries in the propulsion. And we have delivered both the big transformers for this ship, but also the inductive components for the drive units for Danfoss. So it's really nice. You can watch films of this on Danfoss website. It is really a nice ship and it is good also for the environment. We believe that we will grow in this year quite a lot in the shipping business, in our shipping business, marine business. And that was the last one. So why to invest in a group? I think we will continue to try to to increase earnings per share with 15 percent like we have done over the past 10 years. You can see also that we are increasing the profit per share also in quarter one. we have been very stable and showed profit every quarter since the foundation in 1994 you can say that it it shows that we have good control of our company and and yeah we are very fast to act when things happen up and down and then we have exposure to this underlying growth segments and companies that i have told you about just now and we will continue to acquire factories and that will be fun and then we have an extremely strong balance sheet as well so it's really a low risk investment and then we move on to maybe the most exciting part the questions so if you raise your hand then then we will try to answer your questions

Carl, please go ahead.

I was muted, sorry. Good morning, James. And congrats on a strong margin here in the quarter. So I was wondering a little bit on the margin side here, since it was surprisingly strong. If you could talk a little bit about how sustainable you think the margin is given. Yeah, lower sales and

much is maybe driven by mix that some of your maybe larger customers with lower margins are decreasing more uh so to say no but i mean it's a lot of factors affecting the margin of course but i think that we try to say it in the quarter we have screwed up less in the quarter, which improves our margin. So we have been delivering on time with better quality. And then we get also higher productivity when we have control of our production processes in the shop floor. It's really easy to lose 1% of the margin by not doing the right things in the factory. So I think that is good. But of course, there are different margins in different segments as well. But I think in general, it's more of a productivity thing this quarter. And I think, as I've said before, we promise to be between 6 and 10% because that's what we have done over the long term. and then we are of course trying to move ourselves upwards so that we can have stability between eight and ten but we want to prove that so so it's maybe not answer your question but i i we will of course try to to remain to keep this margin because i think the more there is in a way also that we're trying to shift to do more difficult parts all the time i mean get more demanding customers that have more demanding parts and then i think we add more value and then we should be able to have a higher margin in the long term but it is a it's a long journey so yeah there's no like one of the quarter impact in the margin positively No, there are no one of us in the quarter. And we would have said so.

Yeah, that's great. And then I was wondering a little bit on the sales situation on the demand side. What are you seeing right now? I mean, are you seeing that sales are continuing to weaken or is it at quite stable levels right now, you would say?

It's a very big mix between the different market segments. I think that it is easy for you to read in our customers reports we can say that i mean construction equipment for volvo is not good at the moment it is clear i think I think buses are quite good for Volvo. The trucks are quite stable, I would say. I mean, that is a big part. And then Penta is quite low. So I think that's... And then if you listen to ABB and look at them, they are still increasing the sales in quarter one. And they are, of course, our second biggest customer. And then we have Hitachi, which is growing like They should go five times I think over the coming three years so I think there are a lot of growth potential there but it's mostly down to us to be able to catch the new business and work with our customers and win new things and increase our market share. We are still not big enough to just say that it's market up and down. It is down to us to win new business really. So we have to run and fight with the competitors and be good at what we do.

Just on the pricing side, is it possible to quantify how much price contributed to your organic growth here in Q1?

It is a little bit tricky. I think we still have some spillover at some customers, but I would say it is quite flat in the quarter compared to the same quarter last. So we're not decreasing, not increasing. So it is volume 2% down, I would say. That is what you read in the report.

Okay. And then just the last one from myself on receivables was up quite a bit year over year. I noticed in the balance sheets despite lower net sales. Is it a specific reason for this?

I think that we are learning from our customers that we need to work on our... Sorry, receivables, you said. No, but we are working hard to get them. It is different payment terms with different customers, I would say. So I think that is the main reason. So it is a little bit... That is correct.

Okay, that's all from me. Thank you.

Johan, please.

Good morning, everyone. James, a question on the order book. You talked about lower order book year on year. If you were to sort of adjust for that energy storage business that is not in the books, I guess, is it still down approximately by much, would you say?

But I would say that, as I tried to explain in Carl's question, I think some of our customers have lower sales and some are increasing. But if you adjust for the lost customer, I think it is 2% exactly. So then we are quite flat versus less. But it's more going back to normal after having two years where all our market segments, all our geographies except China, and we won a lot of new projects, made us grow over 30% in, or 27, I think it was in 22, and then quite a lot in last year. It's not the same now. So some things are down, some things are really strong. It's more back to normal, I would say.

Got you. It just seems as many of your clients, the way they place orders have pretty much normalized. Would you say that visibility has decreased for you guys compared to one year ago?

I would say yes. All right. We still have the forecast and so on, but the orders for the big projects are not placed as far ahead as they were a year ago.

Okay, just the final one on the margins. It just seems as if delivery precision, you know, it's extremely important for your margins, just looking, you know, the year-on-year progression. And still, you know, a significant opportunity to continue to improve on delivery precision. I'm just curious why you're not, you know, more optimistic on margins in that sense, as there seem to be, you know, significant improvement potentially here.

Yeah, but it is always hard with statistics because we see that the delivery performance is improving in percentage, but I would say the delivery performance is improving more if we count the days that we are late. so so so so and as you say there is a big improvement potential there to both improve the inventory turnover but also to to him to to i mean even get more happy customers if i say like that by improving the delivery position more excellent thank you the one okay cindy

Yes, good morning James. Congrats with good results and fantastic profitability. Just touching up on actually here the same topics as as Karl and Johan did, but also listening to your peers, which most of them have alluded to decreasing demand and also less visibility, as you do. But they're all pointing to destocking among customers, partly as opposed to, let's say, real underlying demand. And what's your take on on that situation is it is it more a demand issue or is it more like just a kind of inventory correction i would say it's not we we are delivering so it

a little bit to where they can be. Let's say for small motor drives, they can be a destocking effect in a way. But I mean, there is no stock of trucks or buses or construction equipment, really. There is no destocking effects there. It is demand driven. And the same with the trains and ships. There is no stock of that either. So I think the customer products that we have is not what you would carry in stock So I don't believe it is a destocking effect in our case, at least.

Okay, great, thanks. Just on capacity utilization, I mean, I believe this is the first quarter with negative organic growth at least since 2020. Should we be worried about capacity utilization in any of your factories and then leading to under absorption of costs?

We are fast in decreasing our costs if the volumes would turn down then we are quick to adapt to new situations and we have a flexible cost base so I think we showed it in 2020 when the volumes was quite low that we were we were really good at adapting our cost base. So I don't... You never know what happens, but I'm confident that we will be very quick and resilient in that case. And then, of course, we have some capacity now to sell as well, because we have invested quite a lot during 22 and 23. So that's a good situation to be in as well, because there is still a lot of companies that I've tried to show that want to buy significant volumes of parts and that are searching for suppliers. I didn't even mention the defense segment because I have done it now a number of quarters in a row, but I mean, it is growing like crazy. So I think there are opportunities where we can fill our factories with more difficult products, especially then electrification, defense, and these kind of things.

A final from me on M&A. During the past six months, you've been, let's say, quite forward-leaning about closing acquisitions before the end of the second quarter, and now you did a JITMEC acquisition. That looks very interesting, but at the same time, as you have grown rapidly, it's only like 1% of the turnover. Is that the one you have had in mind or should we expect to see more acquisitions in the near future?

My team here, we are working very hard to close more deals. That's what I can say. But then again, it's very hard to promise if we were able to close them or not. I mean, we want to make good deals. for ourselves because we don't want to be sitting with shit afterwards so we cannot be too stressed either that okay we need to grow in quarter two or something we need to buy nice companies that we will want to have in AQ for 20 years more and that will continue to grow so I think we have opportunities and we are finding opportunities and we are trying to make deals so that's what all I want to say but yeah for sure I want to I have said that I will eat my hat if we are not 10 billion SEC turnover in 2024 with 10% EBT margin. This is internal target and let's see if I get to eat this hat on my wall or not, but I will try my best not to. That's what I can say.

Okay, because that was my final final, the 15%

growth target which you clearly expressed like at least no more than three to six months ago how does that look now in light of let's say recent market deceleration no but of course it will be super tough for us to do it and uh i think i i have expressed it before as well but we will fight and do everything we can to reach the target great keep on fighting james thanks

Thank you. Any more questions?

Very good questions today. Fun.

Hi, Carl again here. May I ask a question regarding China? Yes. You were quite positive about, or quite positive, but you said that you expect China to turn around during 2024. Yes. Last time we met. Are you seeing improvements in China? Yes. Can you say?

Yes, the team in China have done a fantastic job in adapting the cost base, working with the customers, and I think China looks much better, in much better shape. It is really fun to see, but we expect also that we will start to grow in China again. So that is still on the cards, but operational-wise, it looks really good, I think. So it's fun.

then just a question i know it's hard for you to answer this maybe but on the electrification side you mentioned you have you know several growth products etc is it possible to say what electrification your electric creation offering how much it grew here in q1 um i i draw no i can't say actually so so so sorry about that but it is no problem it's growing

yeah yeah it is really it is really growing so so that is that is really that is a very good segment to be in and i would say especially this power uh in in the power grid segment it's it's really there is a lot of business to be won and it it will continue to grow as well so so we are very positive in that regard so i i think that yeah yeah that's good yeah thank you

Any more questions?

So with that, I can only say that the AQ is celebrating 30 years this year and we have our annual general meeting today and it will be a pleasure. I hope I will meet several of you there. So, yeah, wish you a great day. Thank you. Bye bye.