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AQ Group

Earnings Release Aug 17, 2017

3002_ir_2017-08-17_25b434fa-c343-4887-a0cc-7c4f293c3a12.pdf

Earnings Release

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V ä s t e r å s , A u g u s t 1 7 , 2 0 1 7

AQ Group AB (publ), Second quarter, 2017

Second quarter, April- June 2017 in brief

  • Net sales increased by 25% to SEK 1 077 million (860)
  • Operating profit (EBIT) decreased by 19 % to SEK 74 million (92)
  • Profit after financial items (EBT) decreased by 22 % to SEK 70 million (91)
  • Profit margin before tax (EBT %) 6.5% (10.6)
  • Cash flow from operating activities increased by 3 % to SEK 79 million (76)
  • Equity ratio 60 % (60)
  • Earnings per share after tax decreased by 23 % to SEK 3.20 (4.18)

Six months, January - June 2017 in brief

  • Net sales increased by 25% to SEK 2 079 million (1 661)
  • Operating profit (EBIT) decreased by 5 % to SEK 161 million (169)
  • Profit after financial items (EBT) decreased by 2 % to SEK 163 million (167)
  • Profit margin before tax (EBT %) 7.8% (10.0)
  • Cash flow from operating activities decreased by 44 % to SEK 94 million (168)
  • Earnings per share after tax decreased by 3 % to SEK 7.40 (7.64)

Group overview, key figures

2017 2016
Q1 Q2 Q1 Q2 Q3 Q4 Full year
Net turnover, SEK thousands 1 001 898 1 077 380 801 834 859 584 723 223 904 575 3 289 215
Operating profit (EBIT), SEK thousands 86 813 74 397 76 712 92 326 52 646 59 669 281 353
Profit after net financial items (EBT), SEK thousands 92 258 70 478 75 954 90 758 53 050 59 583 279 344
Operating margin (EBIT %) 8,7% 6,9% 9,6% 10,7% 7,3% 6,6% 8,6%
Profit margin before tax (EBT %) 9,2% 6,5% 9,5% 10,6% 7,3% 6,6% 8,5%
Liquid ratio 142% 140% 157% 153% 164% 142% 142%
Debt/equity ratio 60% 60% 60% 60% 64% 60% 60%
Return on total assets 2) 13,2% 12,3% 12,6% 14,0% 14,5% 13,1% 13,1%
Return on equity excl. Tax 2) 18,0% 16,4% 16,0% 18,1% 18,1% 17,9% 17,9%
Number of employees in Sweden 1 021 1 065 815 803 791 1 005 1 005
Number of employees outside Sweden 4 198 4 319 3 817 3 865 3 888 4 158 4 158
Key indicators per share, SEK 1)
Profit for the period 4,19 3,20 3,46 4,18 2,58 2,79 13,01
Equity 84,38 84,85 68,82 71,56 75,79 79,98 79,98
Number of shares, thousands 3) 18 294 18 294 18 034 18 034 18 034 18 294 18 294

1) There are no instruments that could lead to share dilution.

2) Calculated based on 12 months rolling amounts.

3) In connection with the acquisition of Gerdins Industrial System AB, October 3 2016, 260 000 shares of the same category was issued.

A word from the CEO

Market

The second quarter was our 91st consecutive quarter with profit. AQ's second quarter with a turnover exceeding a billion SEK. The highest turnover in the history of the group. We have increased our turnover every year since the start October 1, 1994 i.e. for 22 years.

We are satisfied with the growth and cash flow is better than in the first quarter 2017, but we are not satisfied with the margin (EBT) 6.5%. We need to work on improving the margin.

The organic growth for the quarter was 10.1% compared to 6.2% the second quarter of 2016.

The second quarter of 2017 shows our margin sliding

downwards, partly because of additional costs in conjunction with increasing utilization and partly because we haven't succeeded in increasing our prices in the same pace as raw material prices have increased. It is important that we quickly adjust prices to our customers when prices of raw material are increasing. We still have work to do here. We are also intensifying our work to get our supplier base to be more competitive. Our goal is to have an EBT margin of 8%. As we have previously communicated, the second quarter of 2016 had a number of unusually profitable projects in telecom.

There is an economic expansion in the industry. Several of AQ's leading industrial customer show good growth. This partly explains AQ's high organic growth in the second quarter. In parallel I believe that we are gaining market shares in several business areas.

Gradually during the year, several of our production units have had increasing utilization rate and we see a need of increased investments in production capacity in several areas. We have signed an agreement to buy adjacent real estate to our production unit in Hungary. We are negotiating more production space in Poland and we are planning for expansion space in Mexico. This is obviously a good sign that our customers have a good order backlog and that our customers have confidence in AQ.

We have had some late deliveries to our customers, which have cost a lot of money in express shipments, overtime and extra personnel. Late deliveries don't only cost money, the biggest cost is that it affects our customers' confidence and it's contrary to our value "We are reliable" and intense improvement work is ongoing.

The cash flow from operating activities during the second quarter 2017 was better than the first quarter 2017 and we are working to reduce the capital tied up in accounts receivable and inventory. There is still a pressure from customers to extend credit terms though.

Acquisitions

Gerdins was acquired on October 3, 2016. It is our biggest acquisition so far when it comes to turnover. The subsidiaries of Gerdins have been integrated into AQ's existing business areas, the EBT margin is however still below AQ's goal. We have gained competent and dedicated employees and exciting customers so we are looking positively at the future for "Gerdins"

We are always looking at a number of acquisition opportunities. We would like to strengthen our presence and capabilities in the growth areas where we are already present. We also work to follow some of our important customers to completely new geographic regions.

Organisation

Our focus is always to adapt to customers' requirements and real demands. It's a strategy we will continue to follow, to be fast movers and adaptable no matter of market conditions. Our organisation is built on entrepreneurship and it is a foundation of our core values.

Outlook

My assessment is that we are gaining market shares in several areas and we are also entering new markets. However, one shall be aware of the fact that AQ is acting in a global competition with subsequent price pressure.

With operations in 12 countries and more than 5 000 employees it is important for us to maintain our simplicity and speed in our decision making and to minimise bureaucracy which can easily occur in a larger organisation.

AQ is well positioned for new acquisitions from a financial as well as from a management view.

With strong relations to world leading customers and engaged employees I am looking positively at the future with continued growth with a stable profit level. An important part of this is our core values and our efforts to be a reliable supplier to leading industrial customers.

Claes Mellgren CEO

Group's financial position and results

Second quarter

Net sales for the second quarter was SEK 1077 million (860), an increase of SEK 217 million compared to the same period in the previous year. The increase in turnover is due to acquisitions SEK 108 million (Gerdins Industrial System AB with subsidiaries and Magnetica). In addition, net sales in Sweden, Poland, Bulgaria, Estonia and India have increased compared to the same period last year. The total growth in the quarter was 25.3 %, of which organic growth 10.1 %, growth through acquisitions 12.6 % and currency effects of 2.7 %. The currency effect of 2.7 % corresponds to about SEK 22.8 million and is mainly with the currencies EUR, PLN and HUF.

Operating margin (EBIT) in the second quarter was SEK 74 million (92), a decrease of SEK 18 million. The decrease can partly be explained by costs for raw material, consumables and personnel being higher than the same period in the previous year. During the second quarter in the previous year AQ had a number of unusually profitable projects.

Goodwill has increased with SEK 26 million compared to the same period in the previous year, which is due to the acquisitions of Gerdins, Magnetica in Italy and Serbia and currency translation effects.

Investments in material assets in the quarter in the group was SEK 33 million (45). Investments were mainly made in more efficient production machines to increase production capacity.

Interest bearing debts of the group are SEK 222 million (195) and cash and cash equivalents amount to SEK 103 million (117), which means that the group has a net debt of SEK 119 million. In the same period last year, the group had net debt of SEK 78 million. The increase is due to a short term credit facility in conjunction with the acquisition of Gerdins and increased usage of the operating credit.

Cash flow from operating activities was SEK 79 million (76). Cash flow is more or less at the same level as the second quarter last year.

Cash flow from investing activities was SEK -30 million (-45), which relates to investments in fixed assets.

Cash flow from financing activities was SEK -69 million (-65) which relates to amortizations of bank loans, reduction of operating credit and payment of dividends.

Equity at the end of the period was SEK 1 552 million (1 291) for the group.

First six months

Net sales for the first six months was SEK 2 079 million (1 661), an increase of SEK 418 million compared to the same period previous year. Increase in net sales can be explained by acquisitions (Gerdins Industrial System AB with subsidiaries and Magnetica). In addition, sales in Sweden, Poland, Bulgaria, Estonia, India and Lithuania have increased compared to the same period last year. In the first six months the total growth was 25.1 %, of which organic growth 9.4 %, growth through acquisitions 13.8 % and a currency effect of 1.9 %. The currency effect of 1.9 % corresponds to about SEK 32 million and is mainly with the currencies EUR, PLN and HUF.

Operating margin (EBIT) in the first six months was SEK 161 million (169), a decrease of SEK 8 million. The decrease can partly be explained by costs for raw material, consumables and personnel being higher than the same period in the previous year. During the first six months in the previous year AQ had a number of unusually profitable projects.

Goodwill has increased with SEK 26 million compared to the same period in the previous year. The increase is due to the acquisition of Gerdins and Magnetica in Italy and Serbia and currency translation effects.

The investments of the group in tangible fixed assets in the first six months were SEK 53 million (63). Investments were mainly made in more efficient production machines to increase production capacity.

Interest bearing debts of the group are SEK 222 million (195) and cash and cash equivalents amount to SEK 103 million (117), which means that the group has a net debt of SEK 119 million. In the same period last year, the group had a net debt of SEK 78 million. The increase is due to a short term credit facility in conjunction with the acquisition of Gerdins and increased usage of the operating credit.

Cash flow from operating activities were SEK 94 million (168). Cash flow is lower than the same period last year due to capital tied up in accounts receivable and inventory.

Cash flow from investing activities was SEK -51 million (-63), which relates to investments in fixed assets.

Cash flow from financing activities was SEK -100 million (-126) which relates to amortizations of bank loans, reduction of operating credit and payment of dividends.

Equity at the end of the period was SEK 1 552 million (1 291) for the group.

Significant events during the first six months

First quarter

On January 5, 2017 Nasdaq Stockholm's listing committee approved the trading of the shares of AQ Group AB (publ) on Nasdaq Stockholm's main market. First trading day of the company's shares on Nasdaq was January 16, 2017.

AQ Group AB (publ) has prepared a prospectus due to the listing, which has been approved and registered by the Swedish Financial Supervisory Authority (Sw. Finansinspektionen). The prospectus is available on AQ Group's website (www.aqg.se) and on the Swedish Financial Supervisory Authority's website (www.fi.se/Register/Prospektregistret).

Second quarter

After an inspiring and exclusive visit by Percy Barnevik, AQ decided to support the charity organisation " Hand in Hand" with SEK 175 000 in 2017 and SEK 175 000 in 2018. The money will go to a village in India near our factory in Pune. The money will be used for training in entrepreneurship for women in self-aid groups and to successively help expanding their companies.

Legal merger of AQ Industrial Systems AB and AQ Group AB.

To simplify business in China with import and export of material the board has decided to establish a company in Hong Kong.

Significant events after the end of the period

There have been no significant events after the end of the period.

Goals

The goal of the group is continued profitable growth. The Board of directors are not giving any forecast for turnover or profit. Statements in this report can be perceived as forward looking and the real outcome can be significantly different.

The board of directors of AQ Group has set goals for the group. The goals mean that the group is managed towards good profit, high quality and delivery precision with strong growth and a healthy financial risk level. The dividend policy is to have dividends corresponding to about 25 % of profit after tax over a business cycle. However, the Group's financial consolidation must always be considered.

Goal Jan-June 2017
Product quality 100 % 99.6 %
Delivery precision 98 % 92.2 %
Equity ratio >40 % 60 %
Profit margin before tax (EBT %) 8 % 7.8 %

Transactions with related parties

The parent company has a related party relationship with its subsidiaries. There are some sales activities concerning goods between the operating group companies. The parent company is charging a management fee to the subsidiaries. All invoicing is according to market level prices and results in claims and debts between the companies which are settled regularly. There are some long-term loans between the parent company and a few subsidiaries. These loans are given with market level interest rates. Most companies in the group are part of cash pool in the parent company. The companies are charged/given interest rates at market level.

There have been no other transactions between AQ and closely related parties which significantly affected the position or result of the company. There are no loans to members of the board of directors nor to anyone in leading positions.

At the annual general meeting on April 27, 2017 it was decided that a yearly fee of SEK 160 000 shall be paid to the members of the board of directors and a fee of SEK 400 000 to the chairman of the board. For the chairman of the Audit Committee, the remuneration shall be SEK 70,000 and to the other members of the Audit Committee, SEK 40,000. For the chairman of the Remuneration Committee, the remuneration shall be SEK 50,000 and to the other members of the Remuneration Committee, SEK 30,000. There are no other remunerations to the board of directors. There is no remuneration paid after a board assignment is completed.

People in management positions are paid a fixed salary and a variable element calculated in % of the group's profit maximized to one-year salary. There are no other benefits in addition to pension benefits for work performed via the employment contract. In individual cases and where there is special justification, the Board shall have the option of deviating from the above guidelines.

Risks and uncertainties

AQ is a global company with operations in twelve countries. Within the group there are a number of risks and uncertainties of both operational and financial characteristics, which were described in the annual report of 2016. No additional significant risks have been identified since the annual report of 2016 was published. In addition to the commented factors the real outcome can be affected by for example political events, business cycle effects, currency and interest rates, competing products and their pricing, product development, commercial and technical difficulties, delivery problems and large credit losses at our customers.

The risks that are most evident in a shorter perspective are risks related to interest rates and currency. The exposure to risks related to interest rates are low and relates to the group's financing with credit institutions and are currently with floating interest, connected to the base interest of the bank which is connected to the interest rate of Sweden's central bank.

Transactions and assets and debts in foreign currency are managed centrally within AQ in order to create balance in the respective currency thereby achieving highest possible levelling effect within the group in order to minimize currency differences.

AQ is not buying any direct raw material, but only intermediate goods for further production such as sheet metal of steel and aluminium, cables, insulated wire etc. The risk is minimized through customer agreements with price clauses.

Raw material price risk refers to the change in the price of material and its impact on earnings. The company's purchase of materials to different processes is significant. There is a risk of sharp price increases for raw materials where the Company is not able to compensate price increases, which may affect the Company's earnings negatively.

The group's credit risks are mainly connected to receivables from customers.

The parent company is indirectly affected by the same risks and uncertainties.

Future reporting dates

Interim report Q2, 2018 April 26, 2018 at 08:00

Interim report Q3, 2017 October 26, 2017 at 8:00 Year-end report 2017 February 22, 2018 at 8:00

Financial information

The information of this interim report shall be made public according to the Securities Market Act of Sweden. AQ Group AB (publ) is listed on Nasdaq Stockholm's main market.

The information was made public on August 17, 2017 at 8.00 AM. This report has not been reviewed by the company's financial auditors.

Further information can be given by AQ Group AB: CEO, Claes Mellgren, telephone +46 70-592 83 38, [email protected] or via CFO, Mia Tomczak, telephone +46 70-833 00 80, [email protected] or via IR, Glen Nilsson, telephone +46 70-654 40 03, [email protected]

Financial reports and press releases are published in Swedish and English. If there are discrepancies between the two, the Swedish version shall prevail. They are available at www.aqg.se .

Certification

The Chief Executive Officer certifies that the interim report gives a true and fair overview of the Group's and the parent company's operations, financial position and results and describes material risks and uncertainties facing the parent company and the companies that form part of the Group.

Västerås, August 17, 2017

Claes Mellgren, CEO

P-O Andersson Ulf Gundemark Patrik Nolåker Chairman Board member Board member

Gunilla Spongh Hidayet Tercan Lars Wrebo Board member Board member Board member

Financial reports, summary

Summary income statement for the Group

Rolling 12 months
SEK thousands Apr-Jun 2017 Apr-Jun 2016 Jan-Jun 2017 Jan-Jun 2016 Jul 2016 - Jun 2017 Full year 2016
Net sales 1 077 380 859 584 2 079 278 1 661 418 3 707 075 3 289 215
Other operating income 16 681 8 384 27 363 19 618 55 395 47 650
1 094 061 867 967 2 106 641 1 681 036 3 762 471 3 336 866
Change in inventory and work in progress 14 223 3 223 24 401 -10 178 32 159 -2 420
Raw material and consumables -555 360 -418 407 -1 061 909 -782 367 -1 854 804 -1 575 262
Goods for resale -32 612 -8 216 -41 803 -16 038 -69 012 -43 247
Other external expenses -132 833 -108 752 -256 332 -213 822 -481 795 -439 285
Personnel costs -283 234 -221 364 -548 101 -430 675 -990 540 -873 114
Depreciation and amortisation -23 656 -17 769 -46 519 -35 667 -90 796 -79 944
Other operating expenses -6 192 -4 358 -15 167 -23 251 -34 157 -42 241
-1 019 664 -775 642 -1 945 431 -1 511 999 -3 488 945 -3 055 513
Operating profit 74 397 92 326 161 210 169 037 273 525 281 353
Net financial income/expense -3 919 -1 568 1 526 -2 326 1 843 -2 008
Profit before tax 70 478 90 758 162 736 166 712 275 368 279 344
Taxes -11 641 -15 192 -26 974 -28 734 -41 906 -43 666
Profit for the period 58 837 75 565 135 762 137 978 233 463 235 678
PROFIT FOR THE PERIOD ATTRIBUTABLE TO:
Parent company shareholders 58 601 75 354 135 334 137 686 232 914 235 265
Non-controlling interests 236 212 427 292 549 413
58 837 75 565 135 762 137 978 233 463 235 678
Earnings per share 1) 3,20 4,18 7,40 7,64 12,77 13,01

1) There were no transactions during the year that might result in dilution effects.

In conjunction with the acquisition of Gerdins Industrial System AB on October 3, 2016, 260 000 shares of the same kind were issued.

Statement of comprehensive income for the Group

Rolling 12 months
Jul 2016
SEK thousands Apr-Jun 2017 Apr-Jun 2016 Jan-Jun 2017 Jan-Jun 2016 - Jun 2017 Full year 2016
PROFIT FOR THE PERIOD 58 837 75 565 135 762 137 978 233 463 235 678
OTHER COMPREHENSIVE INCOME
Items that cannot be transferred to the profit for the period
Revaluation of defined benefit pension plans -303 -303
Items transferred or that can be transferred to the
profit for the period
Translation difference transferred to the profit 6 737 6 737 6 737
Translation difference for foreign operations 44 7 835 3 610 16 770 28 145 41 304
Other comprehensive income for the period after tax 44 14 572 3 610 23 507 27 842 47 739
Comprehensive income for the period 58 880 90 137 139 372 161 484 261 305 283 417
COMPREHENSIVE INCOME FOR THE
PERIOD ATTRIBUTABLE TO:
Parent company shareholders 58 605 89 876 138 910 161 120 260 692 282 902
Non-controlling interests 275 261 462 364 613 515
58 880 90 137 139 372 161 484 261 305 283 417

Summary balance sheet for the group

SEK thousands 30/06/2017 30/06/2016 31/12/2016
ASSETS
Goodwill 150 121 124 148 148 393
Other intangible assets 81 037 55 722 84 181
Tangible assets 508 083 432 467 495 915
Financial assets 2 024 2 092 2 147
Deferred tax assets 12 530 12 283 9 448
TOTAL NON-CURRENT ASSETS 753 794 626 712 740 084
Inventories 624 954 486 061 581 332
Trade and other receivables 947 782 749 032 805 186
Other current receivables 161 748 170 376 160 179
Short term investments - 200 204
Cash and cash equivalents 103 003 116 631 162 812
TOTAL CURRENT ASSETS 1 837 487 1 522 300 1 709 712
TOTAL ASSETS 2 591 281 2 149 012 2 449 796
EQUITY AND LIABILITIES
Equity attributable to parent company shareholders 1 549 057 1 287 974 1 460 455
Non-controlling interests 3 201 2 603 2 739
TOTAL EQUITY 1 552 257 1 290 577 1 463 195
Non-current liabilities to credit institutions 91 653 105 842 107 779
Non-current non-interest-bearing liabilities 82 788 76 317 84 241
Total non-current liabilities 174 441 182 158 192 020
Interest-bearing current liabilities 130 614 89 178 164 034
Trade and other payables 414 437 306 639 351 986
Other current liabilities 319 532 280 460 278 562
Total current liabilities 864 583 676 277 794 582
TOTAL LIABILITIES 1 039 024 858 435 986 601
TOTAL EQUITY AND LIABILITIES 2 591 281 2 149 012 2 449 796

Statement of changes in Equity for the Group

Equity attributable to parent company shareholders
Share capital Other Translation Retained Subtotal Non-controlling Total equity
contributed reserve earnings incl. interests
SEK thousands capital Profit
Equity, 01/01/2016 36 068 34 014 24 303 1 073 044 1 167 430 2 307 1 169 737
Profit for the year 137 686 137 686 292 137 978
Translation differences in foreign operations 23 434 23 434 73 23 507
Other comprehensive income 23 434 - 23 434 73 23 507
Total comprehensive income 23 434 137 686 161 120 364 161 485
Changes in non-controlling interests -68 -68
Dividends paid - -40 577 -40 577 - -40 577
Transactions with shareholders - - -40 577 -40 577 -68 -40 644
Equity, 30/06/2016 36 068 34 014 47 738 1 170 154 1 287 974 2 603 1 290 577
Equity, 01/01/2017 36 588 84 194 72 236 1 267 437 1 460 455 2 739 1 463 195
Profit for the period 135 334 135 334 427 135 762
Translation differences in foreign operations 3 576 3 576 34 3 610
Other comprehensive income 3 576 3 576 34 3 610
Comprehensive income for the period 3 576 135 334 138 910 462 139 372
Dividends paid -50 309 -50 309 -50 309
Transactions with shareholders -50 309 -50 309 -50 309
Equity, 30/06/2017 36 588 84 194 75 812 1 352 462 1 549 057 3 201 1 552 257

All shares, 18 294 058 pcs, are A-shares with equal voting rights and equal rights to the results. In conjunction with the acquisition of Gerdins Industrial System AB on October 3, 2016, 260 000 shares of the same kind were issued.

Summary cash flow statement for the Group

SEK thousands 1 Apr - 30 Jun, 2017 1 Apr - 30 Jun, 2016 1 Jan - 31 Jun, 2017 1 Jan - 31 Jun, 2016 Full year 2016
Profit before tax 70 478 90 758 162 736 166 712 279 344
Adjustment for non cash generating items 25 363 20 508 44 776 52 582 162 081
Income tax paid 2 295 -12 227 -23 540 -30 973 -45 182
Cash flow from operating activities before change in
working capital 98 135 99 038 183 972 188 321 396 243
Increase (-)/decrease (+) in inventories -7 264 -253 -40 121 5 938 -19 927
Increase (-)/decrease (+) in trade receivables -25 312 -53 676 -138 718 -69 362 -42 936
Increase (-)/decrease (+) in other receivables
Increase (+)/decrease (-) in trade payables
12 568
12 436
-1 821
28 021
6 050
61 827
-3 874
18 946
-66 030
15 448
Increase (+)/decrease (-) in other liabilities -11 943 4 693 20 678 28 296 7 452
Change in working capital -19 514 -23 037 -90 284 -20 056 -105 993
Cashflow from operating activities 78 621 76 002 93 688 168 264 290 251
Aquisitions of shares in subsidiaries 113 34 -64 035
Acquisition of intangible non-current assets -463 -376 -1 258 -590 -1 922
Acquisition of tangible non-current assets -32 939 -44 902 -53 167 -62 684 -119 436
Sale of tangible non-current assets 3 508 70 3 585 70 1 793
Purchase/Sales of short-term investment in securities 205 204
Cashflow from investing activities -29 689 -45 094 -50 635 -63 169 -183 600
New borrowings 436 50 39 715
Amortisation of loans -14 103 -7 487 -24 795 -14 975 -32 101
Amortisation of loans (leasing) -1 082 -466 -2 032 -936 -2 786
Change in bank overdraft facilities -3 319 -16 456 -23 828 -69 823 -47 887
Dividends to the parent company shareholders -50 309 -40 577 -50 309 -40 577 -40 577
Other changes in financial activities 73 11 104 46 -58
Casflow from financing activities -68 740 -64 976 -100 424 -126 216 -83 693
Increase(Decrease) in cash and cash equivalents -19 808 -34 068 -57 372 -21 120 22 958
Cash and cash equivalents at the beginning of the year 125 316 147 614 162 812 135 602 135 602
Exchange rate difference in cash and cash equivalents -2 505 3 086 -2 437 2 149 4 252
Cash and cash equivalents at the end of the year 103 003 116 631 103 003 116 631 162 812

Parent company development

Parent company

The parent company, AQ Group AB, focuses primarily on managing and developing the Group. As in previous years, the parent company's turnover consists almost exclusively of the sale of administrative services to subsidiaries. There are no purchases of any substance from subsidiaries.

Summary income statement for the Parent company

Rolling 12 months
Jul 2016
SEK thousands Apr - Jun 2017 Apr - Jun 2016 Jan-Jun 2017 Jan-Jun 2016 -Jun 2017 Full year 2016
Net sales 12 427 13 174 24 770 26 440 54 026 55 696
Other operating income 998 181 1 323 395 4 622 3 695
13 425 13 356 26 092 26 835 58 649 59 391
Other external expenses -4 511 -6 007 -8 063 -10 401 -18 832 -21 169
Personnel costs -5 507 -2 713 -10 398 -7 460 -20 639 -17 701
Depreciation and amortisation -74 -153 -543 -390
Other operating expenses -42 -110 -109 -291 -233 -415
-10 135 -8 830 -18 724 -18 152 -40 247 -39 675
Operating profit 3 290 4 526 7 369 8 683 18 402 19 716
Net financial items 40 848 12 022 84 285 14 066 168 577 98 358
Earnings after net financial items 44 139 16 548 91 654 22 749 186 979 118 074
Appropriations 2 350 2 350
Profit before tax 44 139 16 548 91 654 22 749 189 329 120 424
Taxes -587 -2 464 -2 765 -2 204 -5 299 -4 738
Profit for the period 43 551 14 084 88 889 20 544 184 031 115 686

Second quarter

Net sales for the second quarter was SEK 12.4 million (13.2), SEK 0.8 million lower than the same period in the previous year. Other external expenses were SEK 4.5 million (6.0).

Personnel costs were SEK 5.5 million (2.7), a part of the increase is due to an adjusted accrued salary cost in 2016 which made the cost in 2016 lower than normal. Operating profit (EBIT) was SEK 3.3 MSEK (4.5). Net financial items were SEK 40.8 million (12.0), of which SEK 42.2 million is tax free dividends from subsidiaries.

First six months

Net sales for the first six months was SEK 24.8 million (26.4), SEK 1.6 million lower than the same period in the previous year. Other external expenses were SEK 8.1 million (10.4). The difference is due to costs last year in conjunction with the list change from Aktietorget to Nasdaq.

Personnel costs were SEK 10.4 million (7.5). Operating profit (EBIT) was SEK 7.4 MSEK (8.7). Net financial items were SEK 84.3 million (14.1), of which SEK 79.9 million is tax free dividends from subsidiaries.

Summary balance sheet for the Parent company

SEK thousands 30/06/2017 30/06/2016 31/12/2016
ASSETS
Tangible assets 1 068 - 1 354
Financial fixed assets 704 185 639 082 785 990
Deferred tax assets 581 3 494 512
TOTAL NON-CURRENT ASSETS 705 833 642 576 787 856
Other current receivables 225 432 181 748 251 503
Cash and cash equivalents - - -
TOTAL CURRENT ASSETS 225 432 181 748 251 503
TOTAL ASSETS 931 265 824 324 1 039 360
EQUITY AND LIABILITIES
Restricted equity 37 745 37 225 37 745
Non-restricted equity 309 375 209 496 357 931
Total equity 347 120 246 720 395 676
Untaxed reserves 44 100 41 300 44 100
Other provisions 7 708 - 7 000
Interest-bearing non-current liabilities 75 472 104 274 90 439
Total non-current liabilities 83 180 104 274 97 439
Interest-bearing current liabilities 442 870 427 587 491 327
Trade and other payables 1 709 2 108 2 040
Other current liabilities 12 287 2 335 8 778
Total current liabilities 456 866 432 030 502 146
TOTAL LIABILITIES 540 046 536 304 599 584
TOTAL EQUITY AND LIABILITIES 931 265 824 324 1 039 360

The increase in financial fixed assets compared to the same period previous year is related to the acquisition of Gerdins. The decrease compared to December 31, 2016 is due to reduction of shares in subsidiaries because of the merger of AQ Industrial System AB into AQ Group AB.

Other current receivables consist of tax receivables of SEK 10 million and receivables from subsidiaries of SEK 215 million. The increase compared to the same period previous year consists mainly of an increase of receivables from subsidiaries. During May the parent company received SEK 11 million back from preliminary paid taxes.

The change in non-restricted equity compared to December 31, 2016 is partly due to dividends of SEK 50.3 million, SEK 88.9 million result of the period and SEK 87.1 million from results of the merger of AQ Industrial System AB into AQ Group AB.

Other provisions of SEK 7.7 million consist of the calculated earnout payment due to the acquisition of Gerdins. A revaluation of this payment has affected the quarter negatively by SEK 0.7 million.

The change of interest-bearing non-current liabilities is partly due to a yearly amortization of SEK 30 million.

Interest-bearing current liabilities have increased compared to the same period previous year, and consist of overdraft credit of SEK 30 million, usage of operating credit and debt to the subsidiaries in the cash pool.

Notes

Note 1. Accounting principles

The summary interim report has been prepared in accordance with the Swedish Annual Accounts Act as well as IFRS, applying IAS 34, Interim Financial Reporting. The interim report for the parent company has been prepared in accordance with Swedish Annual Accounts Act, chapter 9 Interim report. For the group and the parent company the accounting and valuation principles applied are the same as used in the latest annual report.

The total sum in tables and calculations do not always sum up of the parts due to rounding differences. The objective is that every interim row shall conform with the original source resulting in rounding differences.

AS of July 3, 2016, ESMAs (European Securities And Markets Authority) "Guidelines – Alternative performance measures" are applied. In accordance with these guidelines information about financial numbers have been added that are not defined by IFRS.

Note 2. Segment reporting

The Group operates in two business segments: Component, which produces transformers, wiring systems, mechanical components, punched sheet metal and injection-moulded thermoplastics and System, which produces systems, power and automation solutions and assembles complete machines in close collaboration with the customers.

Q2 2017 Component System eliminations Group
Net sales, external 848 381 228 999 1 077 380
Net sales, internal 86 760 43 287 -130 046
Total net turnover 935 140 272 286 -130 046 1 077 380
Material costs, excl. purchases own segment -478 825 -215 311 120 386 -573 749
Depreciation -21 833 -1 749 -74 -23 656
Other operating expenses/income -369 226 -47 282 10 931 -405 578
Operating profit 65 257 7 944 1 196 74 397
Net financial items -3 919 -3 919
Profit before tax 65 257 7 944 -2 723 70 478
Other comprehensive income plus tax -11 597 -11 597
Comprehensive income for the period 65 257 7 944 -14 320 58 880
Q2 2016
Net sales, external 658 609 200 974 0 859 584
Net sales, internal 64 344 41 279 -105 624
Total net turnover 722 954 242 254 -105 624 859 584
Material costs, excl. purchases own segment -348 236 -171 298 96 135 -423 399
Depreciation -17 052 -999 282 -17 769
Other operating expenses/income -293 316 -48 796 16 022 -326 090
Operating profit 64 350 21 161 6 815 92 326
Net financial items -1 568 -1 568
Profit before tax 64 350 21 161 5 247 90 758
Other comprehensive income plus tax -621 -621
Comprehensive income for the period 64 350 21 161 4 627 90 137

Second quarter

For the segment Component, the total net sales for the second quarter was SEK 935 million (723), of which SEK 848 million (659) is external sales. The increase of the external sales of totally SEK 189 million is partly due to the acquisition of Gerdins.

For the segment System, the total net sales for the second quarter was SEK 272 million (242), of which SEK 229 million (201) is external sales. The increase of the external sales of SEK 28 million is due to increased demand of assembly of packaging machines.

Operating profit (EBIT) was in the second quarter SEK 65 million (64) for Component, which was SEK 1 million better than the same period last year. Operating profit (EBIT) for System was SEK 8 million (21), which was SEK 13 million lower than the same period in the previous year.

In the column" Unallocated and eliminations" there are items which have not been allocated to the two segments, mainly real estate companies, parent company and group eliminations.

Unallocated and
YTD 2017 Component System eliminations Group
Net sales, external 1 647 729 431 548 2 079 278
Net sales, internal 161 876 85 899 -247 775
Total net turnover 1 809 605 517 447 -247 775 2 079 278
Material costs, excl. purchases own segment -929 574 -381 915 232 177 -1 079 312
Depreciation -43 208 -3 159 -153 -46 519
Other operating expenses/income -710 294 -102 036 20 094 -792 236
Operating profit 126 529 30 338 4 343 161 210
Net financial items 1 526 1 526
Profit before tax 126 529 30 338 5 869 162 736
Other comprehensive income plus tax -23 364 -23 364
Comprehensive income for the period 126 529 30 338 -17 495 139 372
YTD 2016
Net sales, external 1 284 232 377 186 1 661 418
Net sales, internal 110 044 81 719 -191 763
Total net turnover 1 394 277 458 904 -191 763 1 661 418
Material costs, excl. purchases own segment -677 490 -313 987 182 893 -808 584
Depreciation -33 949 -2 072 354 -35 667
Other operating expenses/income -557 991 -96 855 6 716 -648 130
Operating profit 124 846 45 991 -1 800 169 037
Net financial items -2 326 -2 326
Profit before tax 124 846 45 991 -4 126 166 712
Other comprehensive income plus tax -5 227 -5 227
Comprehensive income for the period 124 846 45 991 -9 353 161 484

First six months

For the segment Component, the total net sales for the first six months was SEK 1 810 million (1394), of which SEK 1 648 million (1 284) is external sales. The increase of the external sales of totally SEK 364 million is partly due to the acquisition of Gerdins.

For the segment System, the total net sales for the first six months was SEK 517 million (459), of which SEK 432 million (377) is external sales. The increase of the external sales of SEK 55 million is due to increased demand of assembly of packaging machines.

Operating profit (EBIT) was in the first six months SEK 127 million (125) for Component, which was SEK 2 million better than the same period last year. Operating profit (EBIT) for System was SEK 30 million (46), which was SEK 16 million lower than the same period in the previous year.

In the column" Unallocated and eliminations" there are items which have not been allocated to the two segments, mainly real estate companies, parent company and group eliminations.

Note 3. Personnel

Number of employees (full time yearly equivalents) in the Group per country.

Jan-Jun 2017 Jan-Jun 2016 Jan-Dec 2016 Jan-Dec 2015
Bulgaria 1 051 978 981 966
Sweden 1 065 803 1 005 812
Lithuania 680 674 688 647
China 484 515 498 539
Poland 954 587 873 508
Hungary 444 415 447 411
Estonia 369 369 349 379
India 131 139 134 146
Mexico 145 130 127 94
Italy 12 23 24 4
Thailand 22 18 20 12
Serbia 27 17 17 0
5 384 4 668 5 163 4 518

Note 4. Acquisitions

AQ's strategy is to grow in both segments. During the first six months there were no acquisitions or divestments.

On May 17 AQ Industrial Systems AB (556937-6576) was merged into AQ Group AB.

Note 5. Financial instruments

Financial instruments that are shown in the balance sheet include on the assets side mainly cash or cash equivalents, receivables from customers and other receivables. On the liabilities side they consist mainly of payables to suppliers, other payable and credit debts.

Real value is not separately shown as it is our assessment that the values shown are an acceptable estimation of the real value because of the short terms. Real value of assets is established from market prices. Real value is based on the listing at brokers. Similar contracts are being traded on an active market and the prices are reflecting actual transactions of comparable instruments.

The Group is only in exceptional cases using derivatives to reduce currency risks. As per June 30 the market value of the derivatives was SEK -2.7 million (-1.4) valued according to level 2.

The earnout payment for the acquisition of Gerdins SEK 7.7 million has been valued at real value according to level 3. The earnout is based on 50% of the profit after tax 2016 of the acquired Gerdins group.

Note 6. Events after end of the reporting period

Information about events after the end of the reporting period are presented on page 6.

Note 7. Calculation of key figures and definitions

2017 2016
Q1 Q2 YTD Q1 Q2 Q3 Q4 Full year
Operating margin, (EBIT %)
Operating profit 86 813 74 397 161 210 76 712 92 326 52 646 59 669 281 353
Net revenue
Operating margin
1 001 898
8,7%
1 077 380
6,9%
2 079 278
7,8%
801 834
9,6%
859 584
10,7%
723 223
7,3%
904 575
6,6%
3 289 215
8,6%
Profit margin before tax, (EBT %)
Profit before tax 92 258 70 478 162 736 75 954 90 758 53 050 59 583 279 344
Net revenue 1 001 898 1 077 380 2 079 278 801 834 859 584 723 223 904 575 3 289 215
Profit margin before tax 9,2% 6,5% 7,8% 9,5% 10,6% 7,3% 6,6% 8,5%
Liquid ratio, %
Trade and other receivables 922 728 947 782 947 782 687 538 749 032 697 938 805 186 805 186
Other current receivables 184 722 161 748 161 748 159 750 170 376 166 477 160 179 160 179
Cash and cash equivalents 125 316 103 003 103 003 147 614 116 631 118 960 162 812 162 812
Current liabilities 865 301 864 583 864 583 633 744 676 277 598 307 794 582 794 582
Liquid ratio 142% 140% 140% 157% 153% 164% 142% 142%
Debt/equity ratio, %
Total equity 1 543 686 1 552 257 1 552 257 1 241 016 1 290 577 1 366 832 1 463 195 1 463 195
Total assets 2 593 111 2 591 281 2 591 281 2 066 851 2 149 012 2 130 582 2 449 796 2 449 796
Debt/equity ratio 60% 60% 60% 60% 60% 64% 60% 60%
Return on total assets, %
Profit before tax, rolling 12 months 295 648 275 368 275 368 231 604 265 145 274 539 279 344 279 344
Financial expenses, rolling 12 months -12 669 -15 652 -15 652 -12 570 -13 160 -14 962 -12 977 -12 977
Total equity and liabilities, opening balance for 12 months 2 066 851 2 149 012 2 149 012 1 798 487 1 828 465 1 861 878 2 024 282 2 024 282
Total equity and liabilities, closing balance 2 593 111 2 591 281 2 591 281 2 066 851 2 149 012 2 130 582 2 449 796 2 449 796
Total equity and liabilities, average 2 329 981 2 370 147 2 370 147 1 932 669 1 988 738 1 996 230 2 237 039 2 237 039
Return on total assets 13,2% 12,3% 12,3% 12,6% 14,0% 14,5% 13,1% 13,1%
Return on equity after tax, %
Profit for the period after tax, rolling 12 months 250 191 233 463 233 463 188 327 216 778 227 944 235 678 235 678
Total equity, opening for 12 months 1 241 016 1 290 577 1 290 577 1 119 233 1 110 539 1 155 688 1 169 736 1 169 736
Total equity, closing 1 543 686 1 552 257 1 552 257 1 241 016 1 290 577 1 366 832 1 463 195 1 463 195
Total equity, average 1 392 351 1 421 417 1 421 417 1 180 125 1 200 558 1 261 260 1 316 465 1 316 465
Return on equity after tax 18,0% 16,4% 16,4% 16,0% 18,1% 18,1% 17,9% 17,9%
Net cash / Net debt
Cash and cash equivalents 125 316 103 003 103 003 147 614 116 631 118 960 162 812 162 812
Non-current interest bearing liabilities 100 757 91 653 91 653 113 449 105 842 98 341 107 779 107 779
Current interest bearing liabilities 139 998 130 614 130 614 106 402 89 178 53 088 164 034 164 034
Total interest bearing liabilities 240 755 222 267 222 267 219 851 195 020 151 430 271 812 271 812
Net cash / Net debt -115 439 -119 264 -119 264 -72 237 -78 389 -32 470 -109 000 -109 000
Growth, %
Organic growth
Net revenue 1 001 898 1 077 380 2 079 278 801 834 859 584 723 223 904 575 3 289 215
- Effect of changes in exchange rates 8 945 22 944 31 890 -8 615 -15 435 -6 759 10 357 -20 452
- Net revenue for last year 801 834 859 584 1 661 418 715 216 758 819 654 561 803 281 2 931 878
- Net revenue for acquired companies 121 766 108 181 229 947 69 287 68 926 61 495 128 095 327 803
= Organic growth 69 353 86 671 156 023 25 946 47 274 13 926 -37 158 49 986
Organic growth divided by last year net revenue, %
Growth through acquisitions
8,6% 10,1% 9,4% 3,6% 6,2% 2,1% -4,6% 1,7%
Net revenue for acquired companies divided by last
year net revenue, % 15,2% 12,6% 13,8% 9,7% 9,1% 9,4% 15,9% 11,2%

Operating margin, EBIT %

Calculated as operating profit divided by net sales.

This key figure shows the achieved profitability in the operative business of the company. Operating margin is a useful measure to follow up profitability and efficiency of the business before deduction of tied up capital. The figure is used internally for controlling and managing the business as well as a benchmark towards other companies in the industry.

Profit margin before tax, EBT%

Calculated as profit before tax divided by net sales.

This key figure shows the profitability of the business before tax. Profit margin before tax is a useful measure to follow up profitability and efficiency including tied up capital. The figure is used internally for controlling and managing the business as well as a benchmark towards other companies in the industry.

Liquid ratio, %

Calculated as current assets (excl. inventory) divided by current liabilities.

This key figure reflects the company's short term solvency as it sets the company's current assets (except inventory) in relation to the short term liabilities. If the liquid ratio exceeds 100%, it means that the assets exceed the liabilities in question.

Equity ratio, %

Calculated as adjusted equity divided by balance sheet total.

This key figure reflects the company's financial position and its long term solvency. To have a good equity ratio and thus a strong financial position is important for being able to manage business cycles with varying sales. To have a strong financial position is also important for managing growth.

Return on total assets, %

Calculated as profit/loss after financial items divided by the average balance sheet total.

This key figure also shows the achieved profitability in the operative business. This number complements the operating margin as it includes tied up capital. It means that the number gives information on the return the business is given in relation to the capital tied in it. (Financial investments and cash and cash equivalents are also considered and the profit they give in the form of financial income.)

Return on equity after tax, %

Calculated as profit/loss after tax divided by average equity including minority interest.

This is a key figure showing the return of the capital that the owners have invested in the company (including retained earnings) after other stakeholders have received their dividends. This key figure shows how profitable the company is for its owners. This return also has significance for the company's opportunities to grow in a financial balance.

Operating profit, SEK thousands

Calculated as the profit before tax and financial items.

Operating profit shows the result generated by the operative business and is used together with operating margin and return on total assets for evaluating and managing the operative business.

Profit before tax / Profit after financial items (EBT), SEK thousands

Calculated as the profit before tax.

The key figure shows the result generated by the operative business and financial income taking into account payments to creditors for the capital they are contributing to finance the business. The figure shows remaining profit to the owners taking into account that part of it will be deducted for tax payments.

Net cash/Net debt, SEK thousands

Calculated as the difference between interest bearing debts and cash and cash equivalents.

This key figure is reflecting how much interest bearing debts the company has taking into account in cash and cash equivalents. The figure gives a good picture of the debt situation. Net cash means that cash and cash equivalents exceeds interest bearing debts. Net debt means that interest bearing debts exceed cash and cash equivalents.

Growth, %

The company is using two key figures to describe growth; 1) organic growth and 2) growth through acquisitions.

Organic growth is calculated as the difference between the net sales of the current period and the net sales of the previous period, excluding currency effect and net sales of acquired units.

Organic growth in % is calculated as the organic growth divided by the net sales in the same period in the previous year. Growth through acquisitions is calculated as net sales of acquired companies divided by the net sales in the same period in the previous year. Growth is an important component in the company's strategy as growth is required to be a leading actor in the markets where the company is operating. Growth is partly through acquisition and partly organic. It's important to follow up and to present the different ways of achieving growth as it is two different ways to grow. Acquisitions are done when opportunities are given to expand the business in a certain geographic market or in a certain product area (in line with the company's strategic plan). Organic growth often has the character of a continued expansion within the existing operations.

Dividend per share, SEK

Dividend per share is decided at the Annual General Meeting where the annual report is approved for the fiscal year. Number of shares are the thousands of shares issued at the set date for payment of dividends.

AQ in brief

AQ is a leading supplier to demanding industrial customers and is listed on Nasdaq Stockholm's main market.

The Group consists mainly of operating companies each of which develop their special skills and in cooperation with other companies, striving to provide cost effective solutions in close cooperation with the customer.

The Group headquarter is in Västerås, Sweden. AQ has, on December 31, 2016, in total about 5,100 employees in Sweden, Bulgaria, China, Estonia, Hungary, India, Italy, Lithuania, Mexico, Poland, Serbia and Thailand.

In 2016 AQ had net sales of SEK 3.3 billion and the group has since its start in 1994 shown profit every quarter.

AQ has the highest credit rating AAA according to Bisnode.

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