AQ Group AB (publ)

Okay, it's time. So welcome to AQ Group investor presentation from quarter two, 2024. Let's go. First, as usual, I'd like to show why we should invest in AQ Group. We have CAGR of 15% over the past 10 years. We make profit every quarter since the foundation in 1994. We have exposure to industrial market segments with underlying growth. And we will talk about JIT, MEC and ROC for today, which is our acquisitions. And then we will talk a little bit about electrification, railway and marine as well. We have a long history of acquisitions, two to four factories per year. And currently this year we have added five factories. And we have a strong balance sheet. And then in short, we're about 8,000 employees with 9 billion second turnover, seven business area, 15 plus market segments and now manufacturing in 16 countries when adding UK. We have deliveries globally and we have made profit every quarter for 29 years. And as I said, 15% earnings per share CAGR and we buy some factories every year. And then we have our sustainability initiative UN Global Compact that we've been part of since 2012. Let's go into the quarter then. So net sales decreased by 4% to 2.2 billion SEK. And it is much lower than our target of 15%. We'll come to it later. We had an EBIT which increased by 9% to 222 million. And then we made profit after financial items, EBT. It increased with 11% to 280 million with the profit margin before tax of 9.7%, which was much better than the same quarter last year. And our profit after tax was 181 million. And then our cash flow from operating activities was record high at 301 million in the quarter. Really good. And the earnings per share was a little bit lower than the previous quarter at 1.97. We continue with the first six months where net sales decreased 3% to 4.479 million. And operating profit increased with 12%. And profit after financial items increased with 16%. And profit margin before tax was 9.8%. It is very much higher than our target of 8%. And profit after tax was 366 million and cash flow from operating activity was at a record high 545 million for the first half year. And our earnings per share before dilution was 3.98 SEK per share. And our equity ratio is very much above our target of 40%. earnings per share growth so we had this six percent earnings per share growth versus the same quarter in 2023 but a decline of two percent versus quarter one get back to it so some comments regarding the sales so we have and organic growth or non-growth of 6%, whereas we acquired growth of 1.7% and we had some positive currency gains in the quarter. We have a high activity in our sales pipeline, you can say, and we have many nice projects coming in, but we're not really seeing it in the turnover just yet. a lot of it has to do with that we had a lot of these energy storage projects last year but also that we see a decline in volumes from trucks and yellow machines as well as for drives or inductors for drives for transformers. So that is it's a little bit mixed a little bit more normal picture I would say than it was in the previous quarters where we had an extreme growth in all market segments. It's very much the same picture as we painted already in quarter one, I would say. The organic growth is disappointing at minus six, very much below our target. I've already commented on what is decreasing. A little bit we see the increases still in electrification. In defense industry and railway and marine and somewhat in vending machines as well we see an increase but it cannot compensate for the decrease in the other market segments so therefore we see an organic decline and the decline is I would say mostly in Europe actually. US and North America is doing fine, China is doing fine, India is okay, Europe is a little bit more down than the others. and acquired growth happy to see a small bar there it would have been a little bit more if we would have a full quarter with with yet make acquisition and then i will come back to the rockford acquisition that we made now two days ago it will add another one percent from q3 onwards and as i write in the report we have more prospects in the pipeline and i hope that we can finish or close some of the deals before the year end And the margins are really high. We're happy with margins in the quarter. Our cost control is really good. So despite having one-off costs in India, where we wrote down some inventory of 10 million in one of the plants there, we still have a really, really good margin. And we see that there are still big opportunities to improve in this site in India, but also in one site in Sweden, we see big opportunities to improve going forward. Inventory turnover a little bit down compared to the top level last year. This really becomes a smiley mouth, but we have a training program now that we're launching with and we're focusing on the sites where we see the biggest improvement potential. I think we can still release quite a lot of cash from the inventory going forward, despite a little bit lower volumes, which is good. balance sheet I will almost not comment I mean we have excluding IFRS 16 we have a net cash position so it's looking really good and we're able to withhold the good cash flow that we started already in Q4 in 2022 so it's really good we have a fantastic cash position say but we want to do more acquisitions and we want to grow more with our customers so we have to put the cash into use as well Regarding delivery position, we see that we have capacity constraints in the acquired unit, JITMEC, in both of their factories. Therefore, we have announced today also that we are buying machines for about 30 million SEK to accommodate the growth in electrification and in defense industry. One of the machines already in place, but it will take, I think, July also to get it started. The second machine will take roughly, I would say a year before it's in place. This floor milling machine, which is a huge milling machine that will be used for electrification and defense projects going forward that we have already won. We also see a challenging delivery situation in Mexico and India towards some of our high growth customers, but we have also some problems in generally in inductive components where we see a huge demand for railway components so therefore some of the sites have an issue to deliver on time we are working on it and it's better than the quarter last year but still it's very disappointing with 92 to be honest we will continue to work to improve this then quality is on an extremely good level i would say we're very happy with that i mean we have a target of 100 but 99.7 of the of the goods that we deliver is of good quality that the customer is happy with and this is more important than the delivery performance because if you deliver something on time but the quality is bad then still the delivery time is is crap so so this is a really important metric for us Let's talk a little bit about our acquisitions. I write about it in the report. JITMEC, we see a very strong growth there. Last year, they had a turnover of 130 million. This year, the tack for the first six months is around 200 million per year. Therefore, we have then bought a number of new machines. And you can see on the bottom right there, this Juristi floor milling machine that we will be very happy with when it's installed in Örnsköldsviken. It will support our customers to continue to build more products that they need. So I'm very happy with that one. We want to get now in place as soon as possible. But in general JITMEC acquisition running better than expected both on the turnover and on the profit side. Then we have our newly announced acquisition Rockford. It is I would say quite it's not a huge acquisition but they have three manufacturing sites or Some of them are design and prototyping, but the main manufacturing site is in Workshop, which is in Nottinghamshire. It is quite close to Sheffield, you can say. And then in the south, we have a customer site which do prototypes and work very closely with some customers in Salisbury. And then there is what you could call a head office in Erendisham on the east coast. They are extremely well positioned with customers that we really appreciate. Some of the customers we have in other parts of the world but some of the customers are also brand new for us. They have a lot of customers within the defense vehicle industry on land and mainly on land and air. And we believe that we can bring a lot of production knowledge to this company, improving their production equipment, but also to finance their working capital needs in order to facilitate the growth going forward. And as we write in the report, we put one of our managing directors that has been with us in China and India for several years, Andreas Björk, he will be managing this company and we believe that they will have a strong growth going forward. I think I mentioned most of it, but yeah, I mean, I will not mention anything more. It's better that we can go to the questions instead. We have a group we have had, so let's go into the Q&A. So please raise your hand and we will open the microphones for you.

We have a call. Kristina, can you open the microphone? I hope it's possible.

Hello, can you hear me now? Good morning, James and Kristina. Some questions from my side. The first one is related to the energy storage, the delta year-over-year. Is that around 100 million in lost revenues? In the quarter, yes. where just for that organic growth should be like minus two percent then yes something like that okay and then i just have one question on the trucks and the construction equipment which you mentioned are seeing continued weaknesses would you say that this even more weakness compared to q1 or is it similar levels i would say that it is similar levels to q1 but i would expect it to become weaker going forward okay And then a question on the newly acquired Rockford acquisition. I mean, JITMEC is looking to be tracking quite good in the books here. And just a little bit on what you expect there going forward. You said that the margins should be in line with the AQ group in one year. But on the top line side, do you expect similar kind of growth in Rockford as in JITMEC or?

No, I think it will take a little bit longer time to get into growth. This company is, they have had, I would say, they haven't had enough money to facilitate their growth for quite some time. So we will need to put in the resources to support them in growing. I think we have a good opportunity to support them with growth from our factories in Poland, Lithuania, Sweden and Estonia, but the main rationale here is that we get a lot of competent people and we get access to these customers that we don't have today. We will be able to deliver a lot of products to them going forward, but it will take some longer time than for JITMEC, had a lot more in the pipeline already when we acquired them.

Yeah. And then on the margin topic, I mean, you're now two quarters in a row where you're doing 10% around. I mean, if you adjust for the 10 million inventory write-down, you're doing a better quarter now than in Q1. I don't know if you should adjust for it, but still. I'm just wondering a little bit on how you view your margins here, if you see them as sustainable or You're doing very good margins compared to your historical margins.

That is correct. Of course, we will try to maintain these margins, but we don't really do forward-looking statements. On the other hand, we are trying to move up so that we can be more stable consistently above 8% in margin and being between 8% and 10% in the long term. I would say that We will do everything that we can to maintain this profitability. That is for sure.

Yeah, that is good. I think that was all of my questions I have right now. So thank you and good luck. Thanks, Carl. Have a good summer.

Yeah, same to you. Any other questions on the call? Please raise your hand in that case.

And we will open the mic for you.

Maybe Karl here again, if I can take one more on pricing.

Sure.

I'm just on price increases, et cetera. If you are still seeing that prices, your selling prices are still up year over year, is that correct? And that is like 2%, 3% or?

I would say it's around that.

Yeah. And can you give us any kind of your purchasing prices? Are they down, you would say, over here?

It is very mixed. I would not say, no, I wouldn't say. I would say they are quite stable. There are still some increases going on in some commodities, but I would say they're quite stable. Neither going up or down.

Yeah, that's good. Thank you. Thanks. Anyone else who want to have a question? We have plenty of time. I know it's a very busy reporting day for many of you. Maybe we should leave it there. Please raise your hand if you have a question.

Three, two, one. Okay. Then I thank everybody for listening and I wish everybody a good summer. We will continue to work to increase our earnings ratio. That's all from AQ side. Thank you. Bye.

Thank you. Have a nice summer. Thank you.