Ladies and gentlemen, welcome to the Addtech Interim Report 1st April to 30th June 2020 webcast. Today, I am pleased to present Niklas Stenberg, President and CEO, and Malin Enarson, CFO. For the first part of this webcast, all participants will be in listen-only mode, and afterwards there will be a question and answer session. I will now hand you over to Niklas Stenberg. Please go ahead.
Yes. Hello everyone, and welcome. Sorry for short delay. It was some technical issues in the webcast. Let's start up. Let's see. I hope the pictures are moving also for you. First, some highlights from the quarter. I must say that when we entered the quarter, we were very cautious about how it would be, both due to corona and also we had very strong comparisons from last year. I'm very pleased that we managed to end the quarter a little bit brighter than we feared. Net sales fell less than expected, about 4%, and also we were able to defend a strong EBITDA margin. That is, of course, a good proof on our ability to quickly adapt to new situations and to keep good cost control. We saw a very diverse situation when it comes to business climate.
It really varied depending both on geographies and segments, and we suspect or expect that this will continue also further on. I will come back to that. As you have noticed in the quarterly report, the board concluded yesterday to propose a dividend. It's a little bit lower dividend share than we usually give out as a balance of a fair return on investment, but also to secure resilience considering the insecure environment. Looking a bit deeper into sales, we can see that organic growth fell with 7%, while added 4% from acquisitions. On an overall level, demand for components to mechanical industry and special vehicles were hit hardest by the pandemic. On the other hand, we saw good demand in medical technology, electronics, wind power, infrastructure, et cetera. The mix we always talk about in Addtech really proved again this quarter.
Short to mention development month-over-month, April was definitely the weakest month, demand down 15% year-over-year. Improved in May and clearly stabilized in June when the customers started to reopen operations again. That said, volumes are coming from lower levels, at least in some segments. Sorry. Let's see what's happening here. EBITDA margin, as I said, remained very good, 10.9%, only decreased to 0.7% compared to last year. As I said, this is a result of dedicated work to keep control of costs and especially short-term cost effects, governmental support measures and less traveling and these kind of things has helped the margin. Long-term cost measures that we have initiated have not really got the full effect, of course, yet. If we look into the business areas, starting up with Automation. Net sales decreased by 1% and not so much impacted by COVID-19.
Nordic engineering sector mostly hit here. Especially we can see a tendency that small and medium-sized customers were more hardly affected than the larger customers. In Automation, we have some of the bigger companies outside of Nordics, they had, of course, great challenges due to shutdowns, et cetera. On the positive side, fiber installation, medical, et cetera. It's a bit difficult to change pictures here. I'm not sure what's happening. Components decreased sales by only 2%. The total COVID-19 effect was pretty moderate. On one side, special vehicles and engineering sector are important for Components, hardly hits. On the other hand, quite a lot of medical and electronic sector that had rather a boost due to the pandemic. All in all, quite stable. Geographically, Finland had the best market due to a lot of medical. Sweden faced the greatest challenges.
Denmark, Norway, quite stable all in all. We move on to Energy, something that doesn't really work here.
It seems that it's a problem with the pictures for the audience.
If we have maybe some operator listening. I don't think that the audience can see the pictures.
I will continue. I am now on slide seven, Energy. If you have problems, take the presentation from webpage instead. Energy stood out very well this quarter and increased sales by 10%, and also very good incremental margins on that sale. Very limited COVID-19 effects for Energy, primarily those companies working with sales to OEM industry, but both wind power, that had a very good development, and also installation. The grid sector that we usually talk about had very good both demand and sales. I'm really sorry, it's something very strange with the presentation. Industrial Process, as you know had very strong figures for last year, tough headwinds, alongside of that other effects of COVID-19, quite heavily impacted. Some comments on scrubber installation.
It was quite slow, as we write in the report, about half of the sales from Q1 last year. Q1 last year was when scrubber really took up to speed. The main factors are uncertainty on the oil price and, of course, also a little bit extra of the pandemic. Even if we get some positive signals from our customers, I would say that there are quite a lot of uncertainties surrounding this market. We will have tough headwinds for scrubbers also going forward. On the positive side for Industrial Process, we had good demand in the forest industry, especially projects in sawmills, where we had very good demand. This is also where we have the newly acquired Valutec with interesting developments. I'm trying to change page now. Finally, Power Solutions. Also quite mixed situation.
Overall, quite difficult for Power Solutions due to special vehicles, which is the main segment for Power Solutions. Basically all OEM customers responded quickly to the pandemic and closed down. Decreasing sales about 25% of special vehicles for Power Solutions. Now we see in June that they are slowly opening up again, but it's with reduced capacity and still a slow demand. On the other side, battery solutions, power supply, wind power segment kept up very good. I think especially the margin that we managed to keep up such good margin, even if we lose special vehicle segment, where we usually have high margins. I think this is a strong development. To summarize the effects from COVID-19, not as bad as we initially feared. Our estimate is that approximately 7% have been affected due to the pandemic.
As I said, also a little bit positive trend in demand during end of quarter. Hopefully this trend is continuing. When it comes to employees, about 120 have been made redundant, and about 800 have been affected by short-term layoffs, more or less in percentage. The big question is, of course, what will come next? What's the new normal? That is certainly difficult to answer since there are a lot of uncertainties. Development, as all of you know, is dependent on many factors outside of our control. That said, if we look at our order intake during Q1, and also that we foresee an even slower summer period than usual. Since some of our customers and suppliers are having a slower speed in the summer, we believe that Q2 will be a bit tougher affected than Q1.
We have to remember that Q2 last year was very strong. If I remember right, I think we have 17% organic growth. That's, of course, tough. With that said about the coming quarter being tough, I think it's important that we remember Addtech's long-term developments. We have been through crisis before, and we are good in taking us through it. It's our firm belief that we will do it again. We have a robust business model, good finance, as Malin will talk about later, and also our spread today in segments and geographies gives a good balance. I can also mention that our internal ambition is to be able to keep a margin above 10% also in the new normal, if I put it that way. Quick look at acquisitions before Malin say a little bit more about finances.
We made three acquisitions in the beginning of the quarter. Elkome in Finland, Peter Andersson, a small add-on to Energy, and Valutec, one of the biggest acquisitions that we have made. As we wrote in the quarterly report, we have focused on internal work and liquidity and cash flow. That's why we haven't continued publicly with any further acquisitions. Considering the situation we are right now and the processes we have ongoing, it's my absolute belief that we will continue doing acquisitions going forward now. Okay. Malin?
Yes. Some highlights from the financial position. We have a strong cash flow despite decreasing profits. Key financial indicators remain strong. Our liquidity is good with comforting headroom in credit facilities. Even though our running profits decreased during the first quarter, and we are obviously affected by large acquisitions during the beginning of the quarter, our cash flow remains strong. Profitable working capital remain at 54%, which is very good and mainly due to our ability to work efficiently with our working capital. Obviously, there are greater risk of uncertainties within our receivables right now, but we have not experienced any loss due to customer liquidity problems. Our inventory levels are on a stable level, but the situation differs a lot between companies, depending on their business model. Some have higher levels than normal due to the uncertainty around the supply chain. Very important to keep close attention to this.
Our core ability to work efficiently with our working capital is now more important than ever. Besides the profitable working capital, we follow our equity ratio, our leverage, and gearing closely. Even though affected by acquisitions, it is still within normal range. We will probably see our leverage going up during this year due to the fact that we plan to keep our acquisition pace for sustainable growth, even though we will see our EBITDA decline in short term. Our gearing is more stable over time, even though it is not a straight line. It's reasonable to believe that this will be around one or slightly above during this year. We would like to say that all in all, comforting financial position with a lot of confidence in future long-term growth potential with efficient cash flow.
Thank you, Malin. We're almost ready for question. I just want to take a minute to present our sustainability vision. You can read more about it in our annual report that we released earlier today. You can read on many interesting examples of sustainable business, et cetera. Shortly, as you can see, we have four major visions that we want to achieve. We want all our sales to contribute to sustainable development. We aim to reduce carbon dioxide intensity by 50% and also to increase women in leading position, and also to focus even more of the sustainable supply chain. I think next picture you have seen before. I think we run over to questions.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press 01 on your telephone keypad now. If you wish to withdraw a question, you may do so by pressing 02 to cancel. Our first question comes from the line of Oskar Vikström from ABG. Please go ahead. Your line is now open.
Thank you. To start off, I wanted to discuss a bit on the EBITDA margin. You mentioned that the sort of long-term initiatives that you've been working for this quarter haven't really paid off yet. I wanted to see when you expect to see the effect of these, and also perhaps these SEK 25 million in positive EBITDA impact from governmental support. How do you see them play out over the coming quarter here? Will it be around the same level, or how should we think about that? Thank you.
Okay. Thank you, Oskar. The first question, we have of course, been working quite heavily the last quarter on looking into profit protection and the long-term initiatives, because certainly, depending on how long time this pandemic will impact the market, we have to look on long-term costs. How it works with the reduction of employees, it takes usually a year before you have the full effect. We will start to get the effect quite instantly. Among the people that we have already been discussing with, part of them are not with us today. I think, also linked to your second question, this will link with each other quite well. It's difficult to say how long time the governmental support will last. As many thing else during this pandemic, things are changing. In some of the countries, they talk about ending it in September, October.
Some countries talk about keeping it for the rest of our financial year. It's a bit difficult to say, but I think these two short-term versus long-term will more or less take out each other. When the short-term effect goes down, the long-term effects will step in.
Okay, I see. We should expect at least then a somewhat significant relief on EBITDA for the coming quarters as well, too?
Yes.
Yeah. All right. Secondly, very strong development in the Energy segment there. You're mentioning grid infrastructure as well as wind power being big drivers here. Is this driven by any particular large projects, or is it more sort of normal flow business, or is there anything particular in this quarter that would make you think that the next one wouldn't be as strong? How should we view the segment coming into Q2, Q3?
Yeah, it's a good question. I would say that the main answer is that it's a good growing market. A lot of projects. It's nothing in this quarter that really sticks out. It's been full activity, and it's relating to stabilizing and enlarging the grids in the Nordics that we've been talking about for a long time. It's not any peculiar situations in the quarter that has passed. What might be a little hindrance for future growth, and I really say might, as my business area manager for Energy told me, is that with the low energy price we have, the willingness for investment might be affected. We don't really see it in Q1.
Yeah, understood. Thanks. Another question, just final question from me here. In terms of scrubbers, could you just remind us, last Q2, how much of the growth for Industrial Process was pretty much all scrubber growth? You had really strong organic growth there last quarter.
Yes. I don't know, Malin, maybe if you can pick up. I don't have it in the back of my head, but you're absolutely right that scrubber had a huge impact. It was, at least so far, the peak of sales for scrubber for us was in Q2. The peak in demand was in Q1 last year, and peak in sales was in Q2. How much of the growth that was linked to scrubber, I really don't remember.
Last year.
Last year, yes. We did have a good growth in many of the other sectors as well. I remember that both Automation and Components had a little bit weak Q1 but came back very strong in Q2, so we are looking.
Oh, yeah. Thanks.
Thank you. Our next question comes from the line of Johan Dahl from Danske Bank. Please go ahead. Your line is now open.
Yes. Thank you. Hi, Niklas and Malin. Just a few questions. Firstly, Niklas, I was just wondering what leads you to this slightly cautious statement regarding Q2 growth compared to Q1. Can you mention any certain areas that you note this weakness?
Yes. Hi, Johan and Oskar. I will come back to your question later. I don't know why you were interrupted. Johan, well, I would say it's more of a general feeling based on the order intake in Q1. If we look on the good sales we had in Q1, it was partly thanks to good order intake in Q4. We ended up Q4 with very good amounts. Now in Q1, we see the main effects of April and May being very slow. Even if June is now picking up and we definitely see a positive trend, as I mentioned, we rather have to look on Q3, Q4 before we see that positive trend coming out. That's more of a general perspective.
Yeah.
I would say that the two areas where we face the toughest headwinds is special vehicles and scrubbers. These two segments is also segments where we have had very good margins last year. That is also part of why we are quite cautious of the coming quarter.
I got you. That makes sense. Just trying to understand also, you're referring to at the end of the quarter, it seems as if 30% of your employees, give and take, are affected by either furloughs or redundancies. It seems like just quite a massive amount, considering that organic sales was only down 7% in the first quarter.
Yes. That's correct. What I can say about that is that now we see that quite a lot of companies are releasing part of the furloughs. Many companies are taking back. When we were in beginning of April and everything was total black, nobody understood what's happening. Of course, all of our companies took their decentralized responsibilities and did everything they could. From that perspective, I can totally agree. When we now see the outcome of this quarter, 800 out of 3,000 is on the upper scale, definitely.
I'm referring this number, the 800 plus the 120 in redundancies. You're talking about it being end of June, right? As you exit the quarter. It just seems a lot if things have stabilized slightly in June, which we should talk about.
Yeah, never mind.
Now how it works with redundancies or these furloughs is that you make an agreement with the trade unions. You make a package with the unions where you decide upon dates, et cetera. It's not that you can decide from one day to another that, "Okay, now we want to take back 50 people." You're a little bit stuck in these agreements, and many of the agreements ended end of June, and that's why many of our companies have decided not to continue because they do see a positive trend.
I understand. Yeah, that's useful. Just finally on Norway, quite significant movements on energy prices, which you talked about, and the Norwegian krone as well. I remember last time Norway was weak. It required a bit of work from your side. What's your judgment on Norway today, looking forward, if possible?
Yes. I don't know, when you refer to last time, you mean the meeting in May, I guess. I think what I said then.
Basically 2015, 2016 with the low oil prices, et cetera.
Exactly. The information I get on the Norwegian situation is that the projects in the oil and gas sector are slow, but the rest of the market is keeping up quite well. The market positions we have in Norway, which is to a large extent electrical installation markets, electrical ferries, these kinds of markets, are still keeping up quite well. Our direct exposure to oil and gas sector, as you know, is quite low. From our side, Norway, all in all, has been stable, I would say. Going down quite rapidly in April, coming from very high expectations from the Norwegian side, but has picked up quite well during the quarter.
Okay. Just finally, on Valutec.
Yeah.
It seems to be a very good and profitable business. I just saw that the contribution from acquisitions to operating earnings was nothing in the quarter. Is that a very seasonal business or is there any explanation behind that?
No, it's not seasonal business, but it's a project-based business, which means that it can vary quite a lot quarter by quarter. Only thing I can say about Valutec is that the project inflow and the general feeling of the forest market, also when I talk to the Valutec management, is that that market seems to have picked up quite well. Even if it was, as you say, Valutec has done an okay quarter, but not compared to what they are used to. That's why, to summarize, as you say in the report, the EBIT doesn't look too good. I don't have any fears about that at all. It still feels very positive.
Excellent. Thank you.
Okay. Should we address Oskar's question from earlier? Last year, about half of the organic growth in the second quarter was related to the scrubber business, if that was the question.
I think so. I don't know if Oskar can answer, but.
That is the answer from our side, so we can take the next question.
Yeah.
Oskar's line is unmuted.
Yeah, that was exactly what I was looking for. Thanks.
Okay.
Thank you.
Thank you. Just as a reminder, if you would like to ask a question, please press 01 on your telephone keypad now. Our next question comes from the line of Johan Sundén from Carnegie. Please go ahead. Your line is now open.
Yeah, thank you. Actually, my question has already been answered, so I can go back in line. Thank you.
Okay. Thank you, Johan.
Thank you. We have a follow-up from Johan Dahl from Danske Bank. Please go ahead. Your line is now open.
Oh, thanks. Malin, just a quick question on the parent company and group items. It was positive SEK 2 million. I just didn't understand the reason for that. I'm sure you can enlighten me there.
Come again, please. In the mother company, you say?
Yeah. You do an excellent split up here of earnings per business area. This quarter, you add up all the divisions, and there's a parent company and group items, which was positive SEK 2 million in the quarter. It's usually negative by, yeah, a fairly sizable number. I'm just wondering why it was positive in this quarter, if there is anything else we should know regarding the earnings.
I think really if you should understand that, it's in the first quarter, we don't really have the exact specific amount of management fees and everything in line. I think that is why it can depend in the first quarter. I would say that it's nothing unusual.
All right. Thanks.
Thank you. As we do not have any further questions, I will hand the word back to our speakers for the final comments. Please go ahead.
Okay. Thank you for your questions. No, I just want to summarize that we are quite happy with the outcome of this quarter. In the longer future, we see still very positive on our positions. I'm sure that we will be able to handle the coming quarter. That will be tough, but we'll be able to handle it in a cost-efficient way. With that said, I hope you have a great summer, and we talk again and hopefully meet sometime also. Thank you. Bye-bye.
This now concludes today's webcast. Thank you for attending. You may now disconnect your lines.