AQ Group AB (publ)

All right, welcome everybody to AQ Group's year-end report. On the picture we see a beautiful transformer and inductor in an enclosure that is produced by Emdex in Trutnov for a German railway customer. Beautiful products that we will produce going forward. Now let's go to some fancy numbers. First, we'd like to talk about why you should invest in Acre Group. So we have an earnings per share-taker of 14% over the past 10 years. We've made profit every quarter since the foundation in 1994. We have exposure to industrial market segments with underlying growth, meaning electrification, railway defense, medtech. And we also have a long history of acquisitions, two to four factories per year. And in 2024, we bought a lot more. We bought JITMEC, two factories, Rockford, three factories in the UK, Techroy with engineering and prototype office in the west coast of Sweden. We also signed an agreement in 2024 to buy Emdex and Mikael Riedel in Czech Republic and Germany who produced Transformers and Inductor for demanding industrial customers. We have an extremely strong balance sheet with the net cash position and we have a very nice track record of more than 30 years of profit. Some quick facts from AQ. We're 8,000 employees. We have a turnover of 8.5 billion SEK. We have seven business areas, more than 15 market segments, manufacturing now in 17 countries with 4,000 customers globally. We have made profit every quarter, as I said, for 30 years, and we have increased the earnings per share with a little bit more than 14%. every year for the last 10 years and we make acquisitions and we're part of UN Global Compact since 2012 which is our sustainability initiative. So to the fourth quarter then. Net sales decreased by 4% to 2.1 billion compared to 2.2 billion in the year previously and operating profit increased with 7% to 206 million and the profit with after financial items increased with 14 percent to 209 million which makes it gives us a profit margin in the quarter which is not eight percent which is extremely strong um we have also good profit after tax and a very nice cash flow in the quarter and this gives some earnings per share before dilution of 1.69 per share which is an increase compared to previous year, which was 1.46%. For the full year, our net sales decreased with 5%, which is way below our target. We aim to increase 15% per year. We will come back to that. Operating profit increased at 6% and EBT increased with 9%. And our profit margin before tax was 9.6%. Cash flow from operating activities was for the first time in EQ's history over 1 billion SEK, almost 1.2 billion SEK and earnings per share before dilution was 7.27 krona per share. Our equity ratio is way above our target at 67% and the board proposes a dividend of 1.60 krona per share which is an increase from 1.33 krona per share the year in 2023. Here is the nice chart with earnings per share growth I think this is important because this will drive share price increase but also make us make it possible for us to actually invest in the business going forward and we have been very successful in growing this quite a lot over the past 10 years. The net sales development is a bit disappointing, I must say. Growth was negative with 4% and organic growth was minus 9%. We'll dig deeper into that a little bit later. Currency almost zero and then we're happy to add about 5% through acquisitions. We see a decrease in demand from our market segments in trucks, construction equipment, buses, agriculture and food, and particularly in Europe. We still see strong increases in electrification, power electrification and defense. And here is the organic growth chart. um we we maybe it is so that in 2023 it was a little bit too good organic growth as well but anyhow we try to counter the headwinds that we have and we try to win new business and i will come to a little bit what we are trying to do In the recent quarter, we have won big projects from several customers. So on the two pictures on the left, we see one electrical cabinet for pantograph charging of electrical buses that we have won to one of our larger customers. This is a first order for us, and we will deliver a number of pieces to North America from our factory in Europe. We believe that this can be a big volume going forward because these electrical buses need charging and this customer is very strong in that sense. On the picture below we see a number of people from because we have won a big contract with one customer that do a high voltage direct current transfer of energy and they are producing the control or they are designing the control cabinets for that and we have won a big contract for 2025 which we believe is good. In the middle, we have three new tools of plastic parts for one of our biggest customers. This is a breakthrough because we have never delivered. There are more tools to be won, but these are the first three tools. We are very happy with that, winning new products from existing customers. On the top right is an electrical truck from Volvo. We love Volvo, they're a fantastic company and they deliver, they produce and design a lot of nice new products and we have won a lot of parts to the new Volvo electric trucks in sheet metal especially over both in 24 but also now in already now in 2025 we have won a number of new contracts for new parts. In the bottom middle is a transformer cab with an enclosure that we have designed in our design office in Germany, and we have delivered quite a lot of this in 2024. But we see a big growth of this product in 2025. Our customers sell this to data centers and it is a way to get uninterrupted power for one more second if the power for the data center is interrupted which enable other power systems to be able to kick in so that they don't interrupt the power to the data center. We believe that this product will be increasing a lot in volume in 2025 and we also will produce half of the volume in our new factory in Trutnov because we are lacking capacity in our factory in Hungary. On the bottom right is a bus from a company called New Flyer who deliver buses to and in North America. We have won a wire harness contract which in a way will replace a little bit of the lost volume when Nova Bus closed its factory in Plattsburgh last year. So this is a good new contract for us with a new customer. So we're happy and we believe we are already now one contract for our Canadian factory, our US factory, but also we believe that we will start deliveries from our Mexican factory soon. These are some new customer wins. Despite these, we are not able to counter the decrease in volume that some of our customers have seen in 24. But we believe in 25 will be a good year. Acquired growth, we're starting to get closer to our target. And I believe in quarter one, we will, if you just calculate, we will be above our target in acquired growth, which is good. We have managed to seal a lot of nice deals. and I will speak particularly about some of them. This is just a summary of all the deals we made in 2024. We made four deals adding roughly 900 million SEK in sales on an annualized basis and we paid about 300 billion SEK for that. We still have a good pipeline with companies that are interesting but we're not really close to doing any deals in the first quarter I would say. If we go into a little bit about Emdex and Mikael Riedel that we signed an agreement just before Christmas and now at the end of January we managed to close this deal because we got the approval from German competition authorities to go ahead So they're the number one company in Germany to design and manufacture custom drive transformers and inductors for industrial drives, railway, robots, electrical automation. There is a big design office in Weyer, Germany, design and sales, I should say, with about 30 sales and design engineers. and the manufacturing in Trutnov in Czech Republic is a modern factory with good equipment and a lot of capacity that we can now utilize because we have sales people all over the world that can sell this capacity so we're very happy to get this factory they are very good also you can see on the bottom right that they have been the Siemens supplier of the year two years in a row and that is because they have very good delivery performance and quality so it will be a great asset in the AQ portfolio going forward and the people seem very engaged we have met them now and they are very hungry for new business so it will be fun and this will increase our net sales together with Mikael Riedel in Ilsofen which is also beautiful a small transformer factory and will increase our net sales with about 50 million euro in 2025. and we will by this acquisition become then of course number one in Germany because we were maybe number two or three before but now together with these two companies we will be the biggest supplier of this dry type transformers in Germany which is fun this is also just to show a little bit on the development in our inductive components segment and the difference with this segment compared to many of the other AQ segments is we have a lot of design content here The map shows our design offices where they're located. So in every product we sell here, we also do the design. even though we don't own the product in many cases. So for instance let's say Siemens come to us they want to have a design they will give us a specification then we will do the design for them do a type test and then if it's qualified then we will start the delivery. Once that is done it's very seldom that a product gets changed because if you pass the design and the testing it's very hard to change. We see an extremely good CAGR in this business segment and we will continue to try to grow this business area going forward. And as you can see on the map, we are quite weak in both US and in Asia, despite that we have three factories in Asia and only one now in the US. So there's good ample opportunity to continue to grow with these demanding industrial customers. We're very happy with this acquisition. On the margin then, is it sustainable or not? I don't know but I think we have been able to show that we are very quick in adapting our costs based on our demands. And we will continue to do that going forward as well. I believe our cost control is good and we have an asset like manufacturing, so it's quite easy for us to scale up and down and doesn't cost that much. We have, despite our really good margin in quarter four, still have opportunities to improve operationally in a few of our companies, and we will do that in 2025. MDEX acquisition we can say that the factory in Trudnod combined with the design center in Veje was not very profitable because they were unutilizing the factory there so we will make sure that we fill up that volume but also we will implement the aq culture of cost consciousness in this company and it will improve the margin sequentially over the year but we believe still that the margin will if we if we don't succeed in changing anything then it would be a diluted margin because of this acquisition with 0.5 percentage points. Inventory and turnover development it is not so easy to increase the inventory turnover in a declining when you have declining volumes but still We are on a decent level at three even though our target is 3.5. We see a lot of good possibilities to improve this going forward and we still have our project to improve and we are learning by by the month really and several of the companies who have gone through our program have actually improved their inventory turnover but then again we add new companies that maybe have a great inventory turnover to our portfolio so then we need to teach them as well. So it is a ongoing struggle but I think we show in our cash flow that we have a good turnover of our inventory. So we come to the cash and the cash flow is really on a very good level. I would say we are continuing to generate cash from the profits that we make, but also from turning the inventory in our factories. And this gives that we have a fantastic, I would say we have the best financial position of all the contract manufacturers in the north and Europe that are stock listed and that I know about. This gives us, of course, opportunity to buy companies, but also to give a good dividend and also to invest together with our customers when they need increased capacity in some market. So I think as a shareholder in IQ, I'm very proud to have a net cash position. gives stability for the future and who knows what will happen next year with everything that goes on so then it's good to have some cash to be able to do funny things. Regarding investments we are going to move one of our factories in Tallinn They have grown a lot. This is EQ TrafoTech Estonia. They have grown a lot over the years since we took them over in 2019. And now we found an opportunity with actually a Swedish rental partner that they will build a factory for us and we will move there and it will actually not impact our costs at all but we will get more space and be able to build a more optimized flow in that factory. This is a very well-run company. The gentleman on the picture, Terro, he is the managing director there. And he is an extremely good operations guy and running this company in a very efficient way. So it will be great for him to be able to set up his dream factory now. And we believe that we will be able to get more volume out of this factory without increasing the costs going forward. It is a nice project and it is of course the building the red and gray building in the back that is going to be our new factory building there in Tallinn and this will be up and running in quarter three with full speed and we don't expect any extraordinary costs or adjustments or so because of this. We have bought a new mass sack 15 kilowatts it's actually a used machine but it's almost no running hours. We bought it for 10 million. This will enable us to grow in and insource some of our sheet metal that we are buying externally in northern Europe and also enable us to cut thicker material for defense customers that we have a lot. This will also reduce the energy consumption compared to our old CO2 laser machine that we will put into retirement. This machine will be up and running in quarter one this year and it will be a good boost to us but primarily to our customers because we have been lacking a little bit capacity in this area so it will be great. have also invested in 2024 quite a lot in renewable energy we will continue to invest even more this is a requirement from several of our customers that we reduce our co2 footprint and we are continually doing that and the focus is of course to reduce the co2 where the energy mix in the country is not great. So on the picture you can see an installation that we have in India. The middle picture and the right picture is from one of our factories in Bulgaria. Of course, in these countries where they have dirty energy, the energy is also more expensive. So the payback for these installations is very short. All of these installations are a mix of own installations where we own the equipment and in some cases where we just buy the energy. So in the Indian case for instance we buy the energy from the supplier for five years and then we own the equipment. In the Bulgarian site we have bought the equipment. It depends on which business case is best and where we can reduce cost the most. All of these installations that we will do and that we have done have a return of investment of less than five years. So it makes sense to do that. But also, of course, we reduce our CO2 consumption, which is great. And the customers love that. Quality and delivery precision. I see a small spelling mistake there. It should be January to December, but on time delivery has improved quite significantly compared to 2020. three however we are not satisfied and you can say also that we have added some companies that maybe didn't have enough capacity and we're lacking a little bit cash so we are investing in them it is rockford eatmec but also in transformer solutions inductives hungary we're investing in order to increase our capacity in order to meet our customers demand on the quality level i think we're extremely good and of course we have We are not perfect, but we can still improve, but we are on a very high level. And that is super important for our customers. I believe that our on time delivery will continue to increase next year and this year in 2025. And we are. really working hard to make it better and one example of that is our Mexican factory that is now 100% on time with the deliveries which they have struggled for a while. But we still have companies that need to improve this and we have customers, most of our customers are happy with our performance but we still need to be better because we want to exceed our customers expectations when it comes to delivering on time. And then we get back to why you should invest in a group. You can read it by yourself. I know your time is precious and there's a lot of things that you want to do. So let's get into the questions instead. If you want to ask a question, then please raise your hand and then we will try to unmute you.

If we can. Hopefully we can. I can. OK.

Now, Carl, you can unmute yourself now.