AQ Group AB (publ)

Welcome to Eki Groups investor presentation for Q3 2024. Maybe since we have not started yet I can talk a little bit about this picture on the presentation. This is the first Eki factory outside of Sweden. It is in Godet in Bulgaria and here we manufacture inductors and components for the railway industry and for the electromechanical industry. on power grid. And here we have installed recently a new solar part. It's presenting the report to reduce the CO2 footprint, but also to reduce cost, because when it is, it can be very expensive. And let's go into the presentation for the quarter. First, why invest in AQ? Normally I have this in every presentation, so we still have an unexpected failure of 15% over the past 10 years. We made profit every quarter since the foundation in 1994. We have exposure to industry segments with underlying growth, such as an expansion rate, the value in defense, and so on. We have a long history of acquisitions, two or four factories per year, and this year so far we have acquired five factories, one engineering and a prototype office. We have an extremely strong balance sheet, and when you go up to the value, you can see why we should investigate you. Some quick facts. We are actually now a little bit less than 8,000 employees. Last year we had about 9 billion. turnover, we have 7 different business areas with different products, we have 15 plus marketplaces that we deliver to, we are manufacturing now in 16 countries, we deliver globally, and we make profit every quarter for now 30 years. We have, as I said before, 15% on this particular area for the last 10 years, and we make acquisitions, and we have been registered as a member and supporter of the UN Global Compact in 2015. So the third quarter numbers, you have read them. We see net sales dropped 9% to 1.9 billion SEK. We have operating profit EBIT which has decreased with 6% compared to the same quarter last year. Our EBIT also decreases with 9% to 177 million and our profit margin before tax EBITDA was 9.1%, which is exactly the same as last year. And profit after tax amounted to 146 million, which is 172 million a year till this year. Cashless operating activities is extremely good in the quarter, and it is normally like that when EBITDA is. And in the first year, before, the valuation was 1.6 million per share, compared to 1.87 billion before. I will comment all of these things later on. And then the first nine months, net sales had decreased by about 5% to 6.4 billion. Operating profit had increased by 6% to 633 million. And profit after financial items had increased by 7%. The profit margin before tax was 96%. After the first nine months, this is 16 years long. And our profit after tax was 511 million, also higher than the previous year. And cash flow from operating activities is a record high in the queue of 908 million after nine months. before valuation was 5.58 and our equity ratio is extremely strong at 65% 25% above our target we go into earnings per share growth which is the most important thing for any investor and you can see if we look at the rolling 12 months that it's almost flat versus 2023 it is of course not what we want to do But could we bring the extreme growth in honest share in 2023 versus 2022? Maybe it is normal, even though we are not satisfied with this number. So the honest share growth was minus 14% versus Q3 last year and minus 19% versus the last quarter of Q2 2034 and there are some of course some reasons I mean we have decreased volume so with the same margin meaning we decreased the profit in the quarter of last year and we have also hooked where there are higher taxes depending on where the profits are being made because there's different taxes in different countries that in turn impact. Net sales we can see in the quarterly growth I'd like to comment a little bit that the growth in net sales was minus nine percent and there minus two percent was then currency and also the acquired growth was 3.5% in the quarter versus last year and the organic growth is actually lower and it is 10.67% I believe that the decrease is in organic sales I think we have a high activity in our sales team working very hard to replace and increase the scale of existing products and new products and also to explain a little bit about half of the organic decrease in the quarter is related to these energy storage projects that we had in Q3 2023. It's an explanation but on the other hand if we would have had that customer spill which we communicated in 44 of last year that we lost them and then maybe this picture will be missed so it's a failure from the outside and And then we had, as I said in the report, education demand from construction equipment in Europe, tax buses, but also some other market statements that we exposed to, and especially I would say German customers. move to next slide it is with the same picture as I have told you so organic growth was under 11% which is 21% below our target which is not something that you can be happy about battery system business lost compared to same quarter last year is 100 million so it's been 5% and we see a small decrease also in inductors which was really in the peak for frequency drives last year and then what i told you about before transport engine and then germany We see however positive things in the port there, it increases in electrification, this type of customer is already done for that type of customer. The trans-industry, rainway and marine, is increasing, but is not able to compensate for the decrease elsewhere. and so i'd like to present some new customer wheels that we have i write a little bit about it in the report and that we have one among those new things so we have one new contract from our newly established or newly acquired business in uk we want to be contacting norway for the first customer there which we are very happy about will increase their sales from 2025 and onwards. We have also won contracts for rye harnesses and sweet metal parts to the French customers including Czech Republic and Slovakia which will come in Q4. We have also secured more over the for mechanical enclosures, for a big inverter, German inverter company. I'm also very happy to see that we're starting to gain a new contact in our master controller and success business that we do in Westeros in Sweden. We have a new bus customer in North America. It is very good. It will replace some of the volume that was lost when Nova Bus stopped to produce their bus in Plattsburgh and then we have a big order for inductive components for renewable hydrogen plants in Germany which is done we don't deliver to the plant directly we deliver in this case to one of our existing electro examples so we deliver to them and then they will install this but it's it wants to be part of the hydrogen movement as well. And then we should double volume for about three years, so gas has been part from our factory in Hungary to a big German gas turbine manufacturer. Acquired growth, we see that we are rich and we have acquired a number of companies this year, and it is starting to move a little bit. We are still quite far from our target, but I believe we will get closer to our target going forward. Of course we have many projects in the pipeline that we want to do. So that's one. A little bit update on DeepNet. So we see still strong growth in all the multi segments where they operate. and the profitability is in line with expectations. The integration is going at a good pace, we believe, and we like the people, we like the company, and we like the customers that are operating there. And we have bought, recently, a new fire-active machine. It was installed in the summer to increase capacity, because this factory has a bit of delivery issues, because we had drawn about 100% last year. and and we have also bought a new big machine we already talked about flash water but this will increase the capacity even further and this is mostly for power grid and the transport that we have very happy with this acquisition it's going well with the weather so yeah that's fun and then we acquired the 80 rockford we've been working together with them almost seems like this 20 could spin or something like this. It has been a long journey before we managed to achieve it. It took place that you can see on the picture on the right the man closest who was the owner of this beautiful company and we were surprised actually because this was we didn't believe that this was going to be so high profit as it has been the first couple of months And also the volume has been much higher than we anticipated. So it's really, really fun. And because we are also on the fourth day, we are on a military expedition in the UK, or as the French industry expedition, I should say. And... and with some people from our old ATT, so to speak, and all the people from the new ATT, we face towards our new customers. I believe integration is going very well and as I said, we have a lot of new contacts in New Zealand at the time, customers for different parts and yeah, I'm surprisingly happy and the distribution is great. You see huge opportunities to sell more into the UK defense market from our factories in Europe and also from the factories that we now have in UK. We also announced now that we have signed the agreement with the owners of Crestroy AB to acquire two of their subsidiaries in Trollhättan, Sweden. And it is sort of a bolt-on acquisition with AT Engineering, and this is our engineering company in Sweden, where we do design and development for demanding industrial customers in Sweden. This gives us access to a number of nice customers that Tech12 used to have. but also an extremely nice prototype workshop because actually it solves all the prototype workshops so we have a lot of nice equipment and still people that do prototypes both for car industry but mostly for other type of industries actually but the skill to make prototypes is not so easy because we normally use different tobacco methods than when we do serial tobacco and we of course hope that after we make nice prototypes we can do it in various in our factories in Europe So we think that this will be a data consistent. However, this company has been a little bit caught in this COVID tax issue. So they have had liquidity problems and we are not able to take them over yet due to Sweden's bureaucracy with the FBI rule. So I think hopefully we can take them into AC now. in quarter four and solve the liquidity problems and start to work together with them because it would be great. So past the deposition we need more than 100 engineers in Sweden working directly with demanding investment customers. That would be fun. We believe it would be a great asset in terms of adding more technical to our value proposition in Sweden. I think it's an okay margin in the quarter. It is the same margin as last year, despite that we have lost a lot of sales on the top line. I think our cost control is really good. I think this shows that our decentralized model works. We have decreased approximately 1,000 headcounts, including and it's mostly temps. since Q3 last year and as you can see we are quite used to doing this this is normal course of business for AQ we are scaling up fast and we are scaling down fast when we need to prices versus Q3 last year almost flat I think they are roughly 2% increased year over year, mostly to compensate for increased costs in terms of material and labor cost increases. We still see that we have opportunities to improve, recently in one site in India where we have done a lot of Q&A activities and it's getting better but it's not as we want it to be. But the margin is really quite okay, I mean Q3 normally is our worst quarter so I think this is quite okay. inventory value and inventory turnover here not really super happy we should be going back a little bit from 3.1 to 3 in the quarter and our target for this year is 3.5 you can see we are a little bit affected about the ads of course inventory when we buy companies and the calculation model we are using and we are not We'll kick this a little bit for that, but it's not the reason. I think we need to work harder in turning our material faster. It's of course harder when the volumes are going down, but we need to be better. We have an improvement program. We think it's going maybe a little bit too slow. We need to be faster and do more activities here. We still see a big improvement opportunity. But I believe that we are better than most of our socialist peers in this area. It is fun, of course, but we want to get even better. Medcash and operating activities is of course extremely well and good because working capital is decreasing when sales are going down it is so natural you can say but anyhow I think we are quite skilled at maintaining and getting paid from our customers and also turning the material and then again we have a good margin of also help of course So now we have a very big negative net debt, excluding the IFRS 16, about over 400 million, and of course this gives us a very good situation to be in. If you see that market statements that you're in are going down a little bit, then you know that peers that don't have this good financial situation, you maybe have some problems then you can really take market share but also it gives an opportunity to acquire companies and I can say price level and competition for the positions we are looking for is much lower now than it was like in 2021 when everybody was buying everything so it is nice situation to be in and as I write in the report we have history of buying a lot of things when markets are bad so we like to be compliant here and for instance I mentioned some market segments that are going down then of course we looked in those market segments because then there are companies with problems temporary problems there and also maybe geographical markets that should Then some investments that we made. I mentioned it in the report. It might be very hard for an investor to understand what the hell I'm talking about in the report, because I write something about electromagnetic pulse crimping machines, but it is a new technology to crimp contact cable. And the main reason why you would use this technology is that you get a super good crimp. around the cable around the copper of the cable and the biggest problem you can find in high voltage application is that you get corrosion between the contact and the copper wires and this will can cause serious problems in the vehicle and it can even cause fire eventually so this is a great advancement and we have bought our first machines very expensive but it's of course a demand from our customer that we need this type of things so we have already started to produce and prototype the vehicle in the construction truck and bus We are very proud that we are one of the first to have this type of equipment and now it is actually on the basis in Lithuania. We believe that this will be a new business going forward, that we have this type of equipment already now and get the chance to learn it. And then, as I wrote in the report and in the first slide, we invested in a small solar plant in Grodno, Bulgaria. We've had the solar plant here many years, but it's much smaller. First we bought, I think, four solar panels. And then on the top left of the solar panel is a light gray solar panel. So that is the second solar part that we built. Very small one. But we try a little bit and then we learn and then we buy a bigger one. So now we buy a bigger one and it covers around 10% of the energy consumption of this factory that produces inductors and transformers, mostly for the railway industry. I would say it's one of the top three in Europe to manufacture this type of if you travel in the subway in paris or in stockholm you are indirectly using our components and it's funny because it's a small village in bulgaria with almost no people and they can be in wordpress or something it's really funny so we're very proud of this factory but also it's good of course that we reduce the greenhouse gas emissions but also we reduce cost because energy in bulgaria is very expensive something about quality and delivery precision. The trend in delivery precision is going the right way. However, it doesn't help that we buy companies that have struggled to deliver on time. So those we look for are pulling down our performance. But despite that, the trend is going upwards. And we are not happy. We still have some issues. We have several sites that have delivery issues still. depending on different reasons but I think we are improving in this area and we will continue to improve and it is actually very tightly connected to our inventory turnover because if you have good inventory turnover normally you have also good on-prem delivery so it's more about what they are and management in the factory than anything else quality level is very high and stable and I believe we are very good at delivering high quality barracks to our customers

And this I talked about, so now I go over to Q&A. You can raise your hand if you want to ask a question, and then we will open the microphone for you.

We have call. See if we can open. I think now. Can you hear me? Yes, we can hear you. Good. Good morning. Good morning. I have a couple of questions. This is on the demand side. I mean, organic growth now down double digits, I guess. As you mentioned, related to the Vexilla natural systems, but on the other side, the rest of the business, have you seen organic growth being weaker towards the end of the quarter? Or has it been quite stable after the summer? Or how would you phrase it? I think July is always a 50 month for us. It was even more 50 this year and then it has been quite stable, I would say, the rest of the two months of the quarter. I mean we are close to this, everything doesn't go up in our existing business but we try to focus on what we can affect and that's what makes us sell more and as I write in the report I'm not satisfied with my own performance in getting this news because there is a lot of opportunities out there and we are not getting them into the factory as quickly as I want so we need to work harder actually right but the general volumes are yeah they are quite okay i think if if we would compare i think And our peers, if you remove this energy storage project, then it's maybe quite OK. But still, we like to grow every year. We have only had one year where we haven't had growth, and that was 2020. So we are disappointed. Yeah, yeah. And just on the growth engines, I mean, electrification, marine, and railways, which you mentioned, for example, and the fans. Is it possible to quantify what is the growth rate in Q3 approximately? I guess we differ a little bit, but it is interesting to hear. Yeah, I can say one of the big power grid customers that we have in north of Sweden really had a huge problem because we implemented SAP during the summer. So they couldn't place orders and they couldn't do anything really. So they are a huge issue during the summer and I mean they have an order book which is several years in the future. So the orders are coming and now because they've sorted their problems. Sometimes I wonder why companies implement SAP honestly because I've never heard a company writing, now that the internet is SAP, now we make a lot more profit. But anyway, you can understand sometimes why they have it. But to try to answer your questions, I would say, I think the power grid segment is growing and will grow for us about 20%. I think the defense segment will grow for us, but this is percent on a number maybe that we don't publish, so it may be hard to say, but I think the defense segment is growing very fast, so it's more about our ability to catch the weather and make pieces of it. I mean, some of the defense products we own, our customers are using, I mean, retired people that used to do these type of products in the 70s, because there is no knowledge. So the projects are quite challenging for our customers and for us, actually, because we haven't done them in a very, very long time. And some of them we haven't done at all, because we're really new things as well. But I believe that they will continue to grow. I think marine that has been growing very good for us will flatten out now. And I think all the railway companies in Europe at least, they are completely booked now. So there's a lot of volume there, a lot of growth there, but it's a project business, so it can be a bit bumpy between the quarters. When the volume comes for us, it's going to be postponed, and then they will take out more, and then they will postpone, and so on, based on their beliefs. But we like to be in there, because we believe it's a good business, very demanding, and hard to believe it. Yeah, sorry. Sorry for the difficult question. Yeah. It's okay. And then there's a question on the battery forage. Is it possible to quantify how much trades you had towards the customer that you lost in Q4 last year? Yes, it was roughly 50 million last year in Q4. Okay. So a little bit better in the comparison base going forward. Yeah. And then there's the last question. I just noticed that in your segment reporting, if you look at the unallocated costs, it seems like that segment came in with a positive EBIT of 80 million. which visually is a bit negative. I guess it's like Christina's question. But it looks a bit... It doesn't look as it used to look.

So I'm just wondering if there's anything there that one should be aware of. No, I wouldn't say it's tight.

It's related to... I mean, there are a lot of elevated costs and they have had some uh warranty provisions also on the group level so that can might explain the uh the effects in the exporter okay that's clear uh thank you and have a good day thanks karl do you have anyone else who want to ask a question then we will open the mic for you

since there was not so many questions.

Maybe I answered everything in my glory presentation. But then I wish you all a great day and thank you so much for listening.