AQ Group AB (publ)

Okay, it's nine o'clock and we are going to have AQ Group's presentation for the second quarter of 2025. We start with a beautiful picture from Czech Republic. It is outside of our factory in Trutnov, which is our latest acquisition. It's a beautiful little village church and then you can see uh the billboard on the right with aq nice logo and and aq branded this is typically a typical example of aq cost efficiency we haven't changed the billboard we just put a sticker with aq logo on top of the old brand and made it in a very cheap way a very effective uh marketing board. Also beautiful picture with nice weather. I was there a couple of weeks ago. It's a very nice factory, I can tell you. Let's go on with the report. Normally, we say why we think you should invest in EQ Group. We have an earnings per share CAGR of 14% over the past 10 years. We made profit every quarter since the foundation in 1994. We have exposure to industrial market segments with underlying growth, meaning electrification, railway, defense, medtech. We also have a long history of acquisitions. We buy two to four factories per year, and the latest one being Emdex factory in Czech Republic, where we've just been, and an engineering company in Germany. Also, Mikael Lidl Trafobau in Ilsofen in Germany. were acquired in quarter one. We have an extremely strong balance sheet with the net cash position and on the right you can see the development of sales and profits over the 30 years we have been existing. Some quick facts about Deque. We're 8,000 employees, about 8.5 billion second turnover. We have seven different product areas, and we work in more than 15 market segments with production in 17 countries. We have more than 4,000 customers globally, and we made profit every quarter for 30 years, as I said. And then we're part of UN Global Compact since 2012, which is our sustainability initiative. So, to the numbers. Second quarter was okay. We increased our net sales with 4% to 2.3 billion SEK. It is below our target of 15% growth. We'll come to that later. We made an operating profit EBIT. It decreased with 2% to 218 million. We had a very strong Q2 last year. And then profit after financial items, EBT, increased with five percent to 228 million and our profit margin before tax ebt was 9.7 and profit after tax was 189 million which is our best quarter ever in terms of profit after tax and cash flow from operating activities was 232 million a little bit lower than last year and earnings per share increased to 2.06 also that the highest that we have ever had in aq for the first six months our net sales has increased with three percent to 4.6 billion sec with an operating profit That decreased with 3% to 433 million. Profit after financial items decreased with 1% to 432 million and profit model before tax was 9.3%. And profit after tax was 335 million for the first six months. The cash flow from operating activities was 476 million, and earnings per share before dilution was 3.87, a little bit lower than the first six months of 2024. Our CAGR is still 14%. Considering the rolling 12 months of 2025, I expect it to be, I hope it will be better when we summarize the full year. And our target is to double the earnings per share every five years, meaning an increase of 15% per year. Net sales development, after a little bit of a bleak trend, we're starting to increase again, and the growth was 4%, and their organic was plus 0.3 percent so slight organic growth currency was minus four and eight percent positive was M&A growth in the quarter compared to last quarter same quarter last year sorry so organic growth we're seeing it coming back now but we are still far away from our target we still we have had a very low demand from buses in north america in our factory in new york and mexico but a new customer called new flyer is starting with we're starting ramp up there in quarter three which is nice so um it is new flyer what is that if you're a nordic investor but it's one of the biggest bus manufacturers in north america so we're happy that they are starting to work with us And then we're growing in trucks in Europe. We have won some new business for the electrical trucks. And then we are growing in construction equipment. We won a lot of new business, both sheet metal and wire harnesses for the new electrical construction equipment machines. and then electrification with Hitachi ABB are still growing and then railway and defense are also great markets to be in at the moment in especially in Europe I would say. Some recent new customer project wins so on the top left we have an inverter cabinet that we are now in full swing in serial production But we have won also the serial production for the next version of this product that we will start with. We have started to deliver already in Q2, but in Q3 it will be more volume and we believe that we can get more market share with this customer. So that is great. We have done a really good job with delivering great quality products from our factory in Bulgaria. Then we have won some special transformers for offshore cranes that you can see on the middle picture there. It is a not very well-known company that do these huge offshore cranes, but they're the one that have built the biggest one in the world. And we're very happy that they are buying our kind of special transformers that we build. We have taken one transformer, one inductor, put it together into one cabinet to make the footprint smaller. So we save costs for our customers and can make their product more efficient. So it's been designed in Finland and produced in China for this customer. And then we have these electrical vehicles from Volvo Construction Equipment. They have launched their new dumpers and excavators and they're launching products almost every month and we are a big part of that. I think our team has done a great job with all the prototyping and now small serial volumes are coming. We hope it will continue to increase and that they will sell more electrified vehicles because that is good for Volvo but good for the world and also good for AQ. On the bottom left we see one of our customers that are producing satellites. So we are doing the wire harnesses you can see on which are marked in red for the solar panels. It's very complicated flat wire harnesses that we have made in our factory in the UK. And we have won a big contract to supply these cables to European satellites that will, or many European satellites that will be launched. So that is fun, we think, with equiparts going into space. And then we have the data center UPS cabinets in the middle. We have secured now volumes so that we will have full production in three sites already from quarter three, quarter four, quarter one next year. It will be full swing in that and it's very exciting for us. Our customer believes a lot in this product and we hope that we will be successful with that together. And then we have received the first orders for ABB from Siemens for big train project but also we have one additional train business that will be delivered to Norway in quarter two. So railway is also going strong as I said before. In terms of acquired growth we have Emdex which we bought in January and we have a couple of other companies that we also bought last year that impacts the growth and The M&A growth and we have several targets that we are negotiating with but it's very hard to close at the price that EQ is satisfied with. So negotiations are ongoing and we will see if we manage to close any more acquisitions this year but we are working hard on it but let's see if we will manage to do any deals this year. A little bit update on Emdex and Ridel. So we had the turnover was affected especially in Ridel by a hail storm in Ilshofen that made holes in the roof. we made us lose like two weeks of production there and the roof is repaired now and most of the cost will be taken by our insurance company but it impacted the invoicing in needle negatively in the quarter um car what the vit system is done monitor er implementation will be done in first of january 2026 um refinancing and factoring and external loan we have started this work and we will complete some of it in q3 and some of it in q4 and it will impact the margin positively and we will merge MDX Veja and Paderborn hopefully we believe it will be completed by 2025 it doesn't mean that we will move all the people and so on it will more or less we will reduce the cost of administration and also make it simple to run this company I mean it's two companies doing the same thing really and we can we have the same manager today so it makes sense to merge it together And then we have implemented new purchase prices according to AQ agreements with copper wire, aluminum wire, and also grain-oriented electrical steel suppliers. And of course, Emdex had inventory when we bought it, so it takes some time before that really shows in the P&L when the new price, when we start to buy the components on the new prices. It doesn't mean we have changed the suppliers. It just means that we have changed the agreement with the current supplier. So they have the same supplier as AQ had before, but we have managed to get them into the AQ agreements. It's good also and will also improve the profit in Emdex. And then we're working with productivity improvements in Emdex, especially in Emdex in Trutnov and in Veje. There is things to do in the workshops and there are things to do in the office where we can get more efficient and get more out of our people. That can mean also that they do more work for other AQ companies and so on, but also it could mean that we reduce some people as well. The margin development, we look at the EBT margin, and now we have 10 consecutive quarters above our EBT target of 8%. We think it's great work from all people involved. We must, however, say that the sale of one of our real estate buildings, we only have one, we only had one, In Gävle improved the EBT margin with about 1% in the quarter. We made a really good profit. I think it was like 6 million in the books and we sold it for 26. So we got like, I think we got 22 million positive effect in the quarter, which is great. I think it is a good deal. this property is centrally in Gävle which is quite expensive place and we think that a professional real estate company can do more with this property than we could they need they will need to do a lot of things with this property and we did not want to spend our money on that but we are renting it now for and we have signed a rental agreement for i think three plus three years let's see how that goes In the quarter we have had cost control in focus but we need to continue with that. There is plenty of opportunities to save every day and it is really important if we are going to remain on this high margin we need to continue to reduce our costs. That is a message to everyone really in EQ. We really need to work on our cost. There is an opportunity to improve operationally in a few of our production sites where we can get more productive, improve efficiency, as I said, both in the office and in the manufacturing. And then, as we mentioned in the report, MDEX dilutes also the margin with about 1% in the quarter. It will improve sequentially. We wrote that also in quarter one for those of you who are into the details with AQ. And then it was 0.5%. So hailstorm had a big impact and also a little bit other things that we have done in order to improve the productivity have cost a little bit. But we believe it will only get better from here. And year-to-date in Emdex and Riedel is still 0.5%. So it's a little bit higher cost in this quarter. Inventory value and turnover and inventory turnover development. So our inventory turnover target is 3.5. It has had a little bit of a declining trend. It's positive to see that it is now turning upwards. The addition of the acquired companies, of course, have an impact. I think it's like 0.1, 0.2. It has a negative impact because we calculate the COGS rolling 12 months back. So the longer an acquisition is part of AQ, the better the inventory turnover will be. Despite this, we have done a lot of things now to improve our inventory turnover in several of our sites. I'd like to mention a few. Eke Magnit in Bulgaria has improved their inventory turnover from, I think, 2.2 to 3 over the past 12 months. We have Eke Transformer Solutions, which I think in 2023 had an inventory turnover of 1.6 and now we're above 5. And we have EQ Trofotec in Finland, who had a lousy inventory turnover, who are now one of the better in the group. So our employment project is working, but we still have several companies where we can get better. We have electric in Bulgaria, we have wiring systems in Canada and US. We have our UK newly acquired company, AQ Rockford. We have AQ India and Mexico, and we want to get them all above three. It will release more cash, but also improve or lower the risk in inventory and also and improve our productivity because if you have less material in the warehouse it's easier you don't need to count them as many times when you do audits and so on so it's a it is super important this in order to keep our costs down Net cash from operating activities, of course, are impacted by the inventory turnover, but also the profit. And the profit levels are quite good and the inventory turnover is quite good. So then we get good cash flow into the business and our net debt is still low. And then in the quarter, we had paid for a real estate acquisition in the US where we bought a factory there. We have paid dividends. Of course, it's not part of the net cash flow from operations, but of course, it will impact the net debt. So I think we're in a really good position. We will see a little bit negative effects on the working capital, or it will be increased working capital when we stop the factoring in MDEX, but it will have a great impact on our margin, so it's still worth it. regarding quality delivery position which we always report i'm really happy to see that on an average in quarter two we are on i think 94.68 meaning we we are if you round it up really 95 in the quarter which is much better than one year ago And the quality level is still stable and the inventory turnover is still good, meaning we are really improving towards our customers, which is great. And despite that, we still have several companies that can be better. We have Rockford in the UK. We have just implemented Monitor there to get a better overview and to be able to improve our inventory turnover and on-time delivery there. it will have a big effect on that company I can say because now everybody can see what the problems are. We still need to improve in JITMEC and we've done some changes there in one of the sites. I think we will see it getting even better despite I'm very happy with that acquisition because they really one of the best companies in sweden when it comes to machining extremely difficult parts and and and welding those both for for the power grid but also for defense transforming solutions in u.s inductives hungary can also improve we need to improve the capacity there so hungary i think it's sold now when we have bought truth no transforming solutions in the u.s there we are constantly doing an investments there and in order to get more products out of the workshop because it's a great demand for transformers and inductors especially bigger ones and for defense in the us and and we still have challenges to deliver on time in india even though it has gotten much better over the past year and quality is on a good level and i think that is that so i um Let's do some questions. Carl Norén was the first one who raised his hand. Can you unmute and ask your question, please? Yes, can you hear me?

Yep. Great. Good morning and congrats to really solid numbers here. Thank you. First question here is if it's possible to give some more flavor on which segments where you did not see any growth in the quarter Because I mean, in the report, I think you mentioned the trucks and the construction equipment is now back to growth and electrification and defense continue. So what other than buses is it where you're not seeing good growth with trains and processing food or yeah, would be interesting.

So buses in North America, we mentioned in the report, It is, I mean, Nova Bus closed their factory in New York a couple of years ago, one year ago or something like that. And now we're getting new bus business in there. We have decreased sales a lot in Mexico to buses as well. So that's really poor in the quarter. I would say food industry as well, really poor for us in the quarter and the full year this year, equipment for that. You can also say that we have a decrease in big equipment for medtech, but instead we have sold a lot of our own products and single use items. So the net effect on the turnover is just a little bit lower in the quarter. but it's not growing anyway. I would say defense is growing as I've said before and then trucks is growing a little bit and construction equipment is growing a little bit. What we are happy with is that we have managed to take a lot of newly won projects both we won a lot in quarter four and quarter one which are now starting to deliver out you can see also maybe vending machines has been quite poor as well this year parking meters and this kind of equipment has not been great to name a few yeah no that's that's very clear and just a follow-up on on trucks i guess which we have discussed a bit but i mean

We have seen some warnings of lower demand and some profit warnings from the big truck OEMs. I mean, are you still seeing that growth can continue here in the second half or are you taking a more conservative view?

I would say trucks. I don't know. We don't like to give forward-looking statements. Let's see how it will how this will play out because it's a quarter especially quarter three is the trickiest quarter to to to forecast because customers are buying a little bit before the summer then factories are closing during the summer then people come back late and and then the orders have come during the summer so it might be that they need a lot of parts or they don't need so many parts so it's hard to predict quarter three for us always and it's always our worst quarter but in general I don't believe it will be a big growth I think we have been good at winning new business for trucks

and we hope to continue to win more business and then let's see how the market develops we cannot influence that anyway fair fair and on on the acquisitions you made late last year in in germany our mdex and riddle i mean a little bit more negative margin impact here as you mentioned somewhat driven by the hail storm but would you say also that it's slightly more challenging to improve these companies than you previously fought or do you still believe that you can can reach a better margin here quite soon or how should we think?

I mean we have very high ambitions when it comes to the turnaround than if we are as fast as we want to be or a little bit slower doesn't really matter i mean we are here we we buy this for the long term and i as i said i was there a couple of weeks ago i mean this is in in i was in mdex a couple of weeks ago i mean it's a great team there it's super experienced the check team uh i super impressed by the factory, how they have planned it. We need definitely more volume there, we will get some volume with these UPSs, but we for sure need more volume as well. But on the other hand, we are EQ and we are very, how to put it, we fight for every single penny and We need to get that culture into these companies as well to start to fight for every single krona or dollar or whatever check currency you want to talk about. In terms of Ridel, it's a super nicely run company. We see also that there we can, they have actually, it's like 75% transformer and inductor sales, and then it's 25% electrical cabinet sales. So we see the good opportunity to also grow the electrical cabinet business in Germany from that perspective. And we have done that quite successfully in Sweden over the years where we have had three sites in Sweden doing electrical cabinets working closely with project managers from our big OEMs for electrical automation and then for bigger projects using AQ Electric in Bulgaria now we have an opportunity to do the same in Germany which is of course a bigger market where we can work with big OEMs and when they have small things we do it in Lidl When they have bigger things, bigger orders, we can do it now both in Trutnov in Czech Republic and in electric in Bulgaria. And I think it will be a very cost efficient and good offering for our customers that can grow our business in the German market with machine builders and other automation companies. So we think that looks good.

Yeah, sounds good. And it sounds like you have a lot to do here going forward. So that's also good. Yes, the final one. That's good. Yeah, on the acquisition side, I mean, you still hold a very strong balance sheet with net cash. I know you're out there scouting for new growth opportunities, but can you say anything about what's in the pipeline and how you're thinking on M&A?

Yeah, it's amazing how many companies it is that is for sale, really. So that is fascinating, I think. What we can say is that we do not want to overpay because that will be so hard to fix it. So we are negotiating and negotiating and negotiating. And it can take time sometimes and sometimes it goes faster. I believe that we will continue to buy companies when it will happen. I don't know. But I think we have a couple of nice ones that we are looking at at the moment. But all the pieces in the puzzle have to come together before we make a deal and move forward. We are active in this market and we believe that we will find factories that we buy.

Do you still see good prices or that you can get good, okay-ish prices for the companies that you look to acquire?

I think that, yes, there is, of course, companies that we can acquire to a good price. Yes, like there are shares in the stock market that you can acquire to a good price. So I think there's always opportunities where the sellers and we both think they're doing a good deal. I mean, that is where you have to, in a way, come to. So, I mean, we continue to work and, yeah, I'm positive. Yeah.

no that's great and that's all my questions uh good to see you back in organic growth again and uh yeah keep up the good job thank you call who is next and i can actually not see you jacob baby can you unmute uh yes do you hear me

Yes, I do. Yes, good morning and thanks for taking my question and thanks for pleasant reading this morning. Yes, when we last talked in the Q1 presentation, we're talking a bit about the sequential development across the first quarter. Can you talk somewhat about what you've seen starting from April, kind of a special month perhaps, and how that has then progressed during going into May and going into June? Do you hear something different? Do you feel that customers are more confident, less confident, or what's your view on that if you have some sort of aggregated view.

Oh, so hard to, I have to just use my stomach feeling and maybe that's not always right. I think that we, we, we, I think in general, our customers are quite positive. Uh, then, then again, there, there are always things that, uh, maybe not going their way. Um, but, uh, we, uh, you can say like this also i mean our customers are world leading in their market um markets with with fantastic products and i believe they will be successful then if it will be if they will start to if all of them will start to grow next quarter actually i have no idea i think we we have plenty of work to do in our factories of course we always want to have more to do and it's also up to us to have a cost competitive offering so that they choose us every time so yeah I think that's a tricky one yeah it's a tricky one and of course people are getting people are affected by the media and I mean People are writing about these Trump tariffs. I mean, it's crazy about him. And it makes, of course, business leaders a bit unsecure. But, I mean, we have these moms in Sweden, which is like a tax on all the people. It's a tariff on all the people. And nobody talks about that. And EU is putting on regulations like every month to increase the burden for big companies. Now we're talking about a new tax for big companies. And the media is not writing at all about that. And it's frustrating. But then again, maybe it's better that the media don't write anything because then people will continue to invest and believe in the future. And then it will be better for everyone. So I think yeah it it's it's really quite tricky to say uh really what what's ahead of us but i think our customers are so good at what they do so they will continue to grow and there will be bumps here and there but they will continue to grow and we in aq are really good at what we do so we will also continue to grow uh going forward both organically and through acquisitions

Yeah, that makes sense. It's a difficult one, but good explanation. Yes.

Sorry for that. A little bit strange, maybe.

A complicated question gets complicated answers, ultimately. But just the final one for me, then back to the MDEX and how that profitability will continue on from here. You're talking about a bit of sequential developments. Are we supposed to interpret this as more of a linear movement? Are there certain points in time where there'll be a larger uptick or what's your view on that considering all these implementations that you will go through with from here?

It's quite difficult to say really exactly when it will be it's like what I said in my presentation about we are implementing our AQ agreements then we need to consume the copper that they had in stock before those new prices come into play So it's quite hard to say exactly when everything is implemented. So I would say it will go a little bit by little bit and eventually it will all be implemented so it will not be any any huge step then then again of course when we pay off some of the loans that they had with local banks of course then you get an immediate effect on that loan but but i think like we have written uh in the presentation and so on it will be um a couple of percent here and there and we will march forward towards uh our targets uh so so i think in the end it will be it will be a good margin in this business but we have to do a lot a lot of work in order to get there i mean we need to improve the productivity a lot in the offices both in truth now and in germany we need to improve the productivity also in the workshop and we have done a lot of work already in the workshop maybe now we need to do more uh work in the in the offices

thank you for that yes perhaps a final bit stupid question but can you just remind me about the food processing business that you have how much of the sales would you say that is on the normal level on what type of business areas are involved in that so it's a broad aq exposure towards it the the biggest one is machines for food packaging equipment where we build and

We build a complete machine to put a straw on a juice packet, for instance, for one of our customers. That is the biggest part of that business. And we also do electrical cabinets for filling machines of beverages and so on. and we do things for ovens and so on but this business has been declining for several years and last year was quite a good year because we got some big orders for wrapping machines and this year is a little bit not as good I would say in this area or it has declined so you can see But it's not a huge part of our business that you cannot say.

No, that was perfect. That was all for me. And once again, thank you a lot for taking my questions.

Thank you so much. Forbes, maybe? Yes, hi. Good morning. Hi. Good morning.

Just a couple of questions here from me as well. First one, could you maybe talk a little bit about uh price and make i mean uh volumes versus price here in the quarter you're back to organic growth do you have any uh what how does that look like from a volume point of view so i would say that the organic growth in the quarter in volume is it is mainly volume i would say it is not pricing at all

in the quarter and then we have of course the negative effect of the currencies that influence it but but the organic process is volume driven but yeah but i would would not say that it's it is not price increases

And could you maybe just recap what you have been doing in terms of price increases the last couple of years and if you have any plans to use that going forward?

I mean, we are constantly, we have our price development plans and we constantly look on our assortment or the parts that we sell and the customers that we have. And if we need to do price adjustments, we do them. But if you look, for instance, 22, 23, it was a much bigger, you could say a broad range inflation that pushed us to increase the prices and now I would say that it is a bit mixed that in some cases we are increasing prices for sure and in some cases even costs are going down a little bit because we have been good at finding efficient way of doing things and we are sharing that with our customers so I think it's a mix maybe this year complete year i could maybe it is i don't know maybe let's say like that i'm not sure because it would be like maximum one percent but not on the full assortment no so maybe it's better to say that price increases this year have been quite flat for us I mean, meaning some parts have increased, some parts have not increased, some parts have decreased. So it becomes totally a flat picture.

Great. Right. And a final one from me. It would be on the margins. And I mean, even considering the M&A dilution, they look really strong and stronger compared to what they have been historically as well. and anything we should be thinking about here in terms of for instance mix that is the supporting margins here or anything in the sales mix that can have a material impact here going forward. I'm thinking maybe of... It appears like trucks and construction equipment will maybe see some more growth now in the second half compared to the rest of the assortment. Will that maybe have an impact on the margins? Or, you know, that's counterbalanced, of course, by defence and maybe healthcare. But any comments regarding

the margin and mix implications here would be quite interesting yeah i think we are we are growing in in as the defense business should have a great margin i think and but but also our inductive components because we have a lot more engineering input into that so that should also have a uh good margin uh better than our target if i may say so our goal um and it has grown substantially over the years as well so that is of course good but then on the other hand where we have um we i mean for trucks and yellow machines you can also have good margins if you have really high productivity and good control of your costs which i believe we have in several of our sites so it's i would say that i'm happy that we are growing all of i mean we want to go all our market segments and we don't really see that we have any bad market segments because then we will not be in those market segments So, of course, it is a mixed thing. Some products are better profit than others, but it is also in the transformer segment. You can find better products there and worse. Same as you can find in the market segments versus trucks and yellow machines and so on. So, of course, we try to sell more of the most profitable things. That's not sure, but I wouldn't say that it's negative for us with growth. It will not impact the margin negatively that we grow in those segments.

Okay, good to hear and great work. Have a nice holiday and talk to you soon.

Thank you. Thank you. Any more questions? Seems like all the questions have been asked.

Then it's vamos a la playa and maybe some vacation for some of us. And we will continue to work and looking forward to see you again in quarter three. Thank you so much.