AQ : Annual Report 2023

www.aqgroup.com

AQ Group AB

Annual Report 2023

WE ARE RELIABLE

Customer

FocusSimplicity

Our business is production, we have a long term view and we fully commit ourselves to live up to customer expectations for quality, delivery performance, technological development and service.

Simplicity	Cost
Courage
Efficiency	and
Respect

Table of Contents

About AQ Group Business Concept History

A word from the CEO Core values Business model Goals and strategies Market segments System Component

Growth and geographical markets Acquisitions

The purchasing function

4

5

6

8

10

11

13

14

15

18

19

20

The front page photo is taken by AQ employee Aimar Laadi

Governance and control

Sustainability Report 21

The share and ownership 29

Corporate Governance Report 32

-Board 36

-Group Management 37

Director´s Report 38

Financial reports

Consolidated company accounts Parent company accounts

Notes to the financial statements

Auditor´s report

44 45 49 53 81

Additional information

Definiftions 84

Group key figures 85

Parent Companys key figures 86

Group structure 87

Financial calendar 89

AQ Group´s Business Concept

AQ Group

is a global manufacturer of components and systems for industrial customers with high demands.

The business consists of the System and Component segments. The System segment includes our Electric Cabinets and System Products business areas. The Component segment encompasses our business areas of Injection Molding and Precision stamping, Inductive Components, Wiring Systems, Sheet Metal Processing as well as Special technologies and Engineering.

Business activities take place in these specialised business areas through operating companies, which of- fer our customers cost-efficient solutions. The consoli-dated knowledge within AQ Group, combined with a global presence, offers unique benefits for customers all over the world. Quality is always central to everything we do and is something we strive constantly to develop.

In our world, quality and efficiency go hand in hand.

Since its inception in 1994, AQ Group has reported steady, rapid growth with good profitability. The Group has approximately 8,000 employees in total, whereof 89% in countries outside of Sweden. Net sales is SEK 9 billion. The company is listed on Nasdaq Stockholm's main market since January 16, 2017.

BUSINESS CONCEPT

To develop, manufacture and assemble compo-nents and systems for industrial customers with high demands.

With our commitment to total quality our custo-mers become long-term partners.

SYSTEM ■ Electric cabinets ■ System products

COMPONENT

• ■ Injection molding and Precision stamping

• ■ Inductive components

• ■ Wiring Systems

• ■ Sheet metal processing

• ■ Special technologies and Engineering

Simplicity	Cost
Courage
Efficiency	and
Respect

History

AQ:S WORLD

AQ currently has operations in:

Sweden, Bulgaria, Hungary, Estonia, Poland, Lithuania, Mexico, Italy, India, China, Finland, USA, Canada, Brazil and Germany.

HISTORY IN BRIEF

1994

1995

AQ Group is founded via a merger of Aros Kvalitetsplast and the transformer division of ABB The AQ Group consists of AQ Plast, AQ Komponent and AQ Trafo

1996

Acquisition of a transformer factory in Bulgaria, AQ Magnit

1997

Acquisition of three companies in electric cabinets in Sweden, AQ Elautomatik

2001

2003

AQ's stock listed on Aktietorget on June 6. Acquisition of a company in medical technology in Uppsala, AQ M-Tech Acquisition of a company in Bulgaria in mechanical components and electric cabinets, AQ Electric

2004

Acquisition of two companies in sheet metal and injection molding, with operations in Sweden and China, AQ Enclosure Systems and AQ Plast

2006

2008

Acquisition of companies in sheet metal with operations in Sweden and in Pärnu, Estonia, AQ Special Sheet Metal and AQ Lasertool Acquisition of transformer manufacturer in Suzhou China, AQ Electric

2010

Acquisition of a company in wiring harness manufacturing in Poland, AQ Wiring Systems

2011

2012

Start of a new company in wiring systems and mechanical components in Pune India, AQ Mechanical & Electrical Acquisition of a company in wiring systems manufacturing with operations in Lithuania and Mexiko, AQ Wiring Systems

2013 2014 2015 2016 2017 2018 2019 2021

Acquisition of bankruptcy estate active in the assembly of packaging machines in Falköping, AQ Enclosure Systems Acquisition of bankruptcy estate within special silencers in Lyrestad, AQ Special Sheet Metal

Acquisition of companies in injection molding and assembly in Bulgaria, AQ Plastronic Acquisition of surface treatment company (ED) in Estonia, AQ Lasertool

Acquisition of a company in injection molding and advanced mechanical components in Hungary, AQ AntonAcquisition of a Group within wiring systems and mechanical manufacturing, AQ Wiring Systems and AQ Components The share admitted to trading on Nasdaq Stockholm's main list, Mid Cap

Acquisition of mechanical manufacturers in Finland and Estonia, AQ Mecanova

Acquisition of wiring systems manufacturers in Canada and the USA, AQ Wiring Systems Canada, Inc and AQ Wiring Systems NY, Inc.

Acquisition of manufacturer of inductive components in Finland, Estonia, China, Brazil and Germany, AQ Trafotek Acquisition of company specialized in sales of connection technology products in Sweden, AQ MiniConAcqusition of manufacturers of inductive components - AQ Inductive Components Germany (Germany), AQ Inductives Hungary (Hungary), AQ Transformer Solutions (USA) and AQ Power Magnetics Shanghai (China)

Equity per share, SEK

Earnings per share before dilution, SEK

Net sales and profit before tax, SEKm

Net turnoverProfit before tax

A Word from the CEO

AQ Group 2023

• ■ Turnover and profit record once again

• ■ Focus on improved inventory turnover rate which have resulted in strong cash flow

• ■ Serie production of several large customer project within electrification, commercial vehicles and ships

• ■ Expansion of the wiring systems factory in Poland for the production of wiring systems for commercial vehicles

• ■ New deals in electrification, electric vehicles, renewable energy, medical technology, and energy storage

MARKET

AQ has since the foundation in 1994 worked with electrifi-cation. We now see a strong growth with our customers that manufacture technical solutions for transfer, store and transform energy in an efficient way. This means that during the year we saw a strong increase in volume within our business areas for Inductive components, Sheet metal pro-cessing, Electrical cabinets and Wiring systems. Our net sales increases on all geographical markets except China. Our sales from Eastern Europe has shown the fastest in-crease during the year.

Net sales increased by 27% in 2023, of which 21% was organic growth. We grow organically in all business areas and market segments, but above all in components and systems for electrification, the defense industry and com-mercial vehicles.

During the year, we have started deliveries of battery storage systems for the storage of renewable energy as well as wiring systems for cabs to demanding industrial customers. We have also increased our deliveries of induc-tive components to leading suppliers of frequency conver-ters and transformers for ships.

During the year, we won new orders for components for vehicles and ships in the defense industry, as well as a lar-ge number of orders for electrical cabinets and sheet metal processing for the transmission of electricity. By the end of 2023, we have also completed prototypes for fast chargers for heavy commercial vehicles and sheet metal cabinets for frequency converters for large solar parks.

Unfortunately, in 2023 we have completed all projects in energy storage for our customer in Bulgaria and do not see any additional projects in 2024.

PROFIT AND CASH FLOW

Profit before tax (EBT) increased by 57% to SEK 757 m and our profit per share increased by 54% to 34.57 kr. The profit improvement comes from high organic growth, and productivity improvements at our factories which in 2022 had low profitability. Our profit margin before tax was 8.4%. That is higher than our target of 8%. Cash flow from current operations was SEK 980 m in 2023. This is a record. This is due to the improvement project that we started in the se-cond part of 2022 to increase the inventory turnover rate throughout the group.

DIVIDEND

This year, the board has proposed a dividend of SEK 6.66 per share. We basically have no net debt and strong cash flow. Therefore, the Board proposes to double the dividend compared to previous year. Despite this, we continue to have a good financial position and have good opportunities to carry out acquisitions and invest in new production capa-city for our customers as well as necessary investments to reduce our carbon footprint.

DELIVERY CAPABILITY & CAPACITY

During the year, our ability to deliver has been poor. We have had problems delivering due to our strong growth. We have not managed to increase our capacity at the same rate as our customers' demand. In 2023, we delivered 90% of our orders on time. It's not good enough. To improve this, we have invested in increased production capacity during the year.

Some of the important initiatives we carried out during the year;

• ▪ Investment in real estate and production equipment to increase the production capacity of wiring systems in Po-land.

• ▪ Increased our production capacity of transformers for ships in Finland.

• ▪ Doubled our production capacity for engineering servi-ces, wiring systems and sheet metal components for the defense industry in Sweden and Poland.

• ▪ Employed additional 500 people in our factory in Lithua-nia for wiring systems production for heavy vehicles.

ACQUISITIONS

We work continuously to identify potential acquisitions that fit into AQ. We are very careful that the acquisitions we car-ry out contribute to and develop the group in the long term. At the end of 2023, we held lengthy discussions with some companies about acquiring them.

ENVIRONMENT

We need to do more to reduce our carbon dioxide emis-sions. Within AQ Group, we have chosen to do so within the framework of our environmental management systems in our operational production units. In these there are concre-te targets, metrics and activities to reduce our environmen-tal impact and in our Sustainability Report for 2023 we re-port our carbon dioxide emissions according to scope 1 and 2 as well as targets for reduction. Our carbon dioxide emis-sions according to scope 1 and 2 in relation to net sales have decreased by 12% during the year. Our goal is to con-tinue to reduce these by 4% per year going forward.

Customer	Entre-
Focus	preneurial
business

Simplicity	Cost
Courage
Efficiency	and
Respect

A Word from the CEO

During the year, we invested in new production equip- ment that is more energy-efficient, optimized several of our painting facilities to reduce energy consumption, and decided to invest in solar cells on production properties in Bulgaria and India. At the same time, we have extra focus on taking advantage of the opportunities we have to produce components and systems for our customers' products that improve the environment. Some examples of this are our production of electrical automation for power transmission, production of inductive components for battery-electric trains and aluminum components for wind turbines.

ORGANISATION

AQ Group has a culture with a decentralized leadership and strong values in customer focus, simplicity, entre- preneurship, cost efficiency as well as courage and res-pect. We run our business in independent companies with talented leaders and employees who work closely with our customers and have a mandate to make quick decisions to help our customers. In this way, we can be swift and take advantage of the opportunities that exist together with our customers. This, in combination with the fact that we can identify synergies in sales, purchas-

ing, IT and finance at group level, means that we can continue to grow, our company, our employees, our turnover and our profit.

OUTLOOK

We want to be a long-term, growing and profitable com- pany with a profit margin before tax of at least 8% and with a strong financial position. We enjoy doing business with demanding industrial customers. With strong rela-tionships with world-leading customers and committed employees, we must do everything to create organic growth and implement new acquisitions. An important part of this is our values and our aspiration to be a long-term and "reliable" supplier to leading industrial custo-mers. In the long term, we see an even greater focus on driving solutions to make us all independent of fossil en-ergy. This leads to an increased focus on AQ's custo-mers in renewable energy, electromobility and electrifca-tion.

AQ's strategy and core values are fixed. We work long-term with demanding industrial customers who have high demands on quality and delivery reliability. We constantly want to do the "little extra" for our custo-mers and help them be successful in their markets. Thekey to this is talented employees who work in decentralized com-panies led by strong entrepreneurs. We are simple and cost-ef-fective, which means we are competitive. Finally, we dare to go our own way and say it like it is, which helps us to grasp the problems and opportunities that arise in each company.

At AQ, we deliver shareholder value. We therefore have no adjusted profit measures, but choose to focus on the profit accru-ing to the shareholders. We have increased earnings per share by an average of 16% per year for the past 10 years and with the last quarter of the year we have reported profitability for 117 consecutive quarters. We are proud of the development AQ has had since its inception in 1994 and will do everything in our power to continue increasing our sales and profit. Together with our fantastic employees and customers, we leave 2023 stronger and aim for 2024, the year when AQ turns 30, to be better.

James Ahrgren CEO

Core values

Core values

Our core values form an important basis for our business and unites AQ's companies worldwide. Our building blocks Customer focus, Simpli- city, Entrepreneurial business, Cost efficiency and Courage and Respect are based on a fundamental respect for our customers, employees and partners. We have a decentralised organisation to strengthen the driving forces within innovation and ambition.

CORE VALUES

The core values help to create a unique corporate culture. They have been around since the start in 1994 and continue to permeate throughout the company. The values are based on a fundamental respect for the individual and a belief in people's abilities to take initiative. There is an openness to new ideas and a desire for continuous improvement throughout the com- pany. Simplicity, cost efficiency and courage and respect are other examples of values that contribute to our prestigeless culture. By sharing core values, colleagues from all parts of the world can work together in a fast pace, rely on each other's knowledge and skills, develop together and create customer value the best way.

In 2023, we have continued to implement the core values in our units. The CEO and HR Manager have, for example, to-gether met the management teams and gone through eve-rything from AQ's history to AQ's core values. Our values are documented in sixteen different languages. Our business is characterised by "We Are Reliable" no matter where or with whom at AQ that you meet.

EMPLOYEES

Commitment by employees is the key to AQ's success worldwi-de. The primary basis for AQ's success is all our dedicated and talented employees with widely diverse backgrounds and na-tionalities. This combination of competencies is a prerequisite for AQ's future development in a challenging market. Each employee makes a difference in the workplace to create the best offering and best experience for customers. Everyone can contribute with their own ideas and new perspectives.

We target customers who are world leaders in their respec-tive niches. For them to be world leaders, they must work with world-leading suppliers. AQ shall be the world leader in cost efficiency, quality, delivery precision, flexibility and service.

This is the meaning of "We Are Reliable". AQ has no great pa-tents or other protection, we live on the fact that we have the best employees. To deserve motivated and committed employ-ees we must be honest, open, interested, have courage, give feedback and welcome views and ideas. The responsibility for this lies with everyone. Managers at AQ have an additional re-sponsibility to lead by example and ensure good communica-tion with employees.

" Together we will be the world´s best supplier!

"

Våra värderingar

Respect

WE ARE RELIABLE

Customer	Simplicity
Focus
Entre-	Cost	Courage
preneurial	and
Efficiency
business	Respect

Business model

Business model

AQ's customers are often world leaders in what they do. Some of our largest customers are the dri- ving force in the development of electric power transmissions, commercial and rail vehicles, off-road and telecom equipment. They depend on getting components and systems of good quality, delivered on time, from AQ. At the same time, they place high demands on us so that we produce our products in a sustainable way. AQ adds customer value in essentially four different areas.

Design	Industrialization
AQ can, thanks to its long experien-ce in manufacturing, help customers with the design of components and systems. This works best when AQ is involved early in the product develop-ment process.	In many cases, AQ helps its custo-mers with industrializing a prototype. It basically means that we set up an optimal production structure as close to customer markets as possible in one of our many factories.

Purchasing/Logistics

Through our global presence, we of- ten help our customers find an equi-valent component alternative at lower prices internally within AQ, but also externally. This allows us to reduce the total cost for our customers.

Serial production

AQ's many manufacturing units are focused on delivering the desired quality on time and as efficiently as possible. We often say that we sell reliability. It is our understanding that this is what our customers value most.

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