We conclude the 2019/2020 financial year as highly successful. Despite the cautious mood of the market, an extensive cyberattack in the third quarter and the end of the financial year being pervaded in many ways by the outbreak of the COVID-19 pandemic, we delivered strong profitable growth, both organically and through acquisitions of several new companies in different technical niches.
FOURTH QUARTER – A STRONG FINALE IN TROUBLED TIMES
The outbreak of the COVID-19 pandemic had a limited effect on the outcome for the quarter. Sales increased by6 percent, of which organic sales decreased by almost 1 percent, compared with the very strong organic growth of the preceding financial year. We achieved a 32-percent growth in profit and the EBITA margin improved to13.4 percent (10.8). All business areas contributed to the growth in profit. Non-recurring effects and revaluations of contingent purchase considerations had a positive impact on earnings totalling approximately SEK 50 million. Thanks to the amazing efforts of our employees and the strong support of our customers, the financial effects of the cyberattack were not as extensive as previously feared. We experienced no negative impact on sales and direct expenses amounted to about only SEK 10 million in the fourth quarter.
FULL-YEAR – CHALLENGING BUT PROVING THE STRENGTH OF OUR BUSINESS MODEL
Given the year’s challenges, we can be particularly satisfied with exceeding our own ambitious targets for the year. I cannot express adequately how immensely impressed I am by all of our employees. Again my warmest gratitude for your invaluable efforts during the year!
Sales increased by 16 percent, distributed evenly between organic and acquired growth. We continued to deliver profitable growth, where margin improvements in organic sales contributing in particular to an increase in total operating profit by 28 percent and a record-high EBITA margin of 11.6 percent (10.7). All business areas contributed to growth in sales and earnings, with Industrial Process at the fore.
Our cash flow strengthened significantly, mainly due to improved margins and effects from changes in working capital. Cash flow from operating activities amounted to SEK 1,117 million (524). We also secured an extension of our credit framework by a net SEK 1,300 million to a total of SEK 3,800 million in the fourth quarter. We have no repayments planned for the upcoming 12-month period.
In most geographical markets, underlying demand was generally favourable throughout the financial year. In the Nordic region, we had the strongest growth in Finland and Norway, while growth was stable in Sweden and Denmark. Outside the Nordic region, the market situation varied. Our units in central Europe developed positively overall, while political and economic uncertainties in the UK resulted in a weak trend in our operations there.
In terms of customer segments, demand for production components and solutions for special vehicles and the engineering sector levelled off, while demand in electronics, medical technology and wind power increased. Demand for aftermarket products for the forestry and process industries remained, on the whole, stable, while sales to the manufacturing industry declined. Sales were strong for products in the areas of emissions measurement and purification, scrubber solutions in particular, which accounted for slightly more than half of the Transport segment. Demand for scrubber solutions decreased gradually over the year, mainly due to the decreasing price difference between various fuels. Sales of electricity-related products to building & installation customers was stable, while demand for infrastructure products increased.
The cyberattack put our business model and our employees to the test. Once again, our decentralised model and entrepreneur-driven culture, showed tremendous strength, with their amazing capacity for initiative and strong local customer connections. Combined with an increased spread, both geographically and across different market segments, this helps us handeling with the varying challenges we face. Right now, the foremost challenge confronting us is the ongoing COVID-19 pandemic. Towards the end of the financial year, all units have again demonstrated their capacity for adaptation by preparing plans of action to be ready to act if and when required.
ACQUISITIONS – CENTRAL ELEMENT OF GROWTH STRATEGY
Acquisitions of successful, market-leading companies in various technical niches represent a key part of our growth strategy. During the financial year, a total of 12 companies were acquired, four of which were closed in the fourth quarter, while three more were acquired after the end of the financial year. In total, these acquisitions contribute to annual sales of approximately SEK 1,200 million, and adding some 260 new employees to the Group. It is worth noting that several of these acquisitions have a clear connection to sustainability, including our largest acquisition to date, the Valutec Group, which is a world-leading manufacturer of timber kilns to the forest industry, and Caligo Industria OY, which delivers proprietary flue gas purification and heat recovery systems. Despite the uncertainty around the world, we are keeping our acquisition process active, although we have temporarily slowed the pace. In the longer term, we are continuing to see good acquisition opportunities in several geographic markets.
OUTLOOK – CONTINUED OPPORTUNITIES DESPITE AN UNCERTAIN WORLD
At the end of March, several units experienced reduced demand due to the COVID-19 pandemic, particularly in special vehicles and parts of the engineering sector. Other units experienced increased demand instead, driven by customers with medical technology products for which demand increased due to the pandemic, and customers securing their inventories in preparation for anticipated shortages of components. This trend continued in April. Our sales declined for comparable units by about 5 percent month-on-month and demand for comparable units declined by about 15 percent. Parts of the decrease are also explained by lower activity in scrubber installations. Despite all of the prevailing uncertainty, we are receiving deliveries from suppliers worldwide, we are continuing to deliver products and solutions to our customers, and we have a good order backlog.
Future development depends on many factors beyond our control, such as the spread of infection and political decisions. At this time, our main focus is on the health of our employees, on keeping our expenses in line with demand and on safeguarding our earnings and, not least, our cash flow. The Board of Directors also feels that it bears a significant responsibility in securing the Group’s liquidity and cash flow and has therefore chosen, for the time being, to postpone the decision regarding the proposal on dividend due to the current uncertainty. The units noticing a slowdown have already put measures in place to protect their margins, liquidity and cash flow. We are proceeding on the basis of different conceivable future scenarios and are well prepared to respond effectively based on how the situation develops.
In times of crisis, companies with stable business models and strong financial positions are able to benefit from new opportunities that arise. For this reason, it is important that we continue to focus on our long-term goals, even during such times as the present. We have a favourable underlying momentum in the Group, with good positions in structurally driven areas of development, such as energy conversion and electrification. Over the year, we also clarified our long-term Sustainability Vision 2030, which supports the Paris Agreement and the UN 2030 Sustainable Development Agenda, reflecting our ambitious approach to halving our carbon dioxide emissions and increasing the proportion of women in the Group.
Finally, I would like to point out that Addtech has, over the years, successfully dealt with many difficult and uncertain situations through its strong corporate culture and ability to rapidly adapt. Accordingly, I am firmly convinced that we will also navigate through this societal crisis, continuing our long-term, sustainable and profitable growth.
President and CEO