AQ : Q2 Report 2023

V ä s t e r å s , J u l y 1 4 , 2 0 2 3

A Q G r o u p A B ( p u b l ) S e c o n d q u a r t e r , 2 0 2 3

www.aqgroup.com

Second quarter, April-June 2023 in brief

• Strong growth with good profitability
• Net sales increased by 36% to SEK 2,345 million (1,721)
• Operating profit (EBIT) increased by 90% to SEK 203 million (107)
• Profit before tax (EBT) increased by 80% to SEK 195 million (108)
• Profit margin before tax (EBT %) was 8.3% (6.3)
• Profit after tax increased by 98% to SEK 172 million (87)
• Cash flow from operating activities amounted to SEK 177 million (22)
• Earnings per share before dilution amounted to SEK 9.30 (4.71)

Six months, January-June 2023 in brief

• Net sales increased by 37% to SEK 4,598 million (3,367)
• Operating profit (EBIT) increased by 81% to SEK 398 million (220)
• Profit before tax (EBT) increased by 69% to SEK 380 million (225)
• Profit margin before tax (EBT %) was 8.3% (6.7)
• Profit after tax increased by 84% to SEK 330 million (180)
• Cash flow from operating activities amounted to SEK 403 million (65)
• Earnings per share before dilution amounted to SEK 17.91 (9.75)
• Equity ratio was 58% (55)

Group overview, key figures

		2023			2022
SEK M unless otherwise stated	Q1	Q2	YTD	Q1	Q2	Q3	Q4	Full year
Net turnover	2,253	2,345	4,598	1,646	1,721	1,711	1,974	7,053
Operating profit (EBIT)	194	203	398	113	107	123	148	491
Profit before tax (EBT)	184	195	380	116	108	121	137	482
Profit for the period	159	172	330	93	87	100	134	413
Total equity	3,391	3,671	3,671	2,756	2,865	3,010	3,180	3,180
Operating margin (EBIT), %	8.6	8.7	8.6	6.9	6.2	7.2	7.5	7.0
Profit margin before tax (EBT), %	8.2	8.3	8.3	7.1	6.3	7.1	6.9	6.8
Liquid ratio, %	146	152	152	125	128	131	140	140
Debt/equity ratio, %	55	58	58	56	55	56	56	56
Return on total assets, % 1)	10.9	12.1	12.1	10.1	9.9	10.3	10.2	10.2
Return on equtiy after tax, % 1)	15.6	17.3	17.3	13.8	12.9	13.3	14.2	14.2
Number of employees in Sweden	860	862	862	834	853	847	851	851
Number of employees outside Sweden	6,716	6,868	6,868	6,233	6,269	6,293	6,371	6,371
Key indicators per share, SEK
Profit for the period before dilution	8.61	9.30	17.91	5.04	4.71	5.41	7.27	22.43
Equity	185.38	200.66	200.66	150.65	156.62	164.52	173.82	173.82
Number of shares, thousands	18,294	18,294	18,294	18,294	18,294	18,294	18,294	18,294

1. Calculated based on 12 months rolling amounts.

A word from the CEO

High rate of change in all its simplicity

The first half of the year is going as planned. We have strong organic growth and improved profitability compared to 2022. Our net sales increase by 36% compared to the second quarter of previous year. We are increasing above all in electrification, defense industry, railways and commercial vehicles. But demand remains strong in all markets to which we are exposed. During the quarter, we have won several new customer orders for both existing and new customers in railways in Europe, India and USA as well as new projects and customer orders in commercial electric vehicles. At the same time, our customer Nova Bus has

announced the closure of its factory in USA in a little less than two years. This means a potential reduced turnover for us in USA by SEK 100 million. However, the demand for wiring systems is high so we believe that we can replace this lost volume with other new customers.

Our delivery precision to customer was 90% in the quarter, which is not good. We have several factories with ongoing improvement projects to increase capacity and productivity.

Implemented changes during the quarter

Our rate of change is high thanks to our decentralized leadership model. During the second quarter, we have taken the decision to shut down our manufacturing unit in Falköping and have also moved the customer projects that were manufactured there to other AQ factories. Our new factories in Bulgaria and Lithuania are now fully completed and delivering as we intended. Our project to reduce working capital starts to take effect and our inventory is decreasing slightly despite a strong increase in turnover. The expansion of our wiring systems factory in Lodz, Poland is going according to plan and will be completed in the third quarter of this year. During the quarter, we have installed new energy-efficient punching machines in Finland, Estonia, Bulgaria, and put into use welding robot cells for large products in Estonia and Sweden. We have also decided on investments in four new injection molding machines to produce components for the automotive industry in Anderstorp, Sweden. These measures aim to increase our competitiveness, improving our delivery precision and our inventory turnover rate.

We are doing everything we can to work smarter, automate, increase the number of employees and acquire additional production capacity. It's great to see that our fantastic customers are so strong in their markets. We see many opportunities to continue growing organically and through acquisitions.

Cash flow and balance sheet

During the quarter, we continued our work on increasing our inventory turnover rate. Several of our companies are showing improvements, which results in a better cash flow from operating activities, which was SEK 177 million during the quarter. We continue to have a low net debt, which enables continued investments in expanded production capacity.

The power of AQ

AQ's employees are doing a fantastic job of delivering components and systems to demanding industrial customers. Our customers deliver world-leading products that are critical for our transition towards a more sustainable society. We are proud that we can contribute with our excellence in how to manufacture these components and systems in the most resource-efficient way possible. It is our fantastic employees who help our world-leading customers to succeed and that we through entrepreneurship, toil and forward thinking manage to create more value with each passing year. It makes me full of confidence that we will continue to grow, make a profit and have fun!

James Ahrgren

CEO

Group's financial position and results

Second quarter

Net sales for the second quarter was SEK 2,345 million (1,721), an increase of SEK 624 million compared to the same period in the previous year. The total growth in the quarter was 36.3%, of which organic growth 28.2% and currency effects of 8.1%. The currency effect corresponded to SEK 139 million and was mainly driven by the currencies EUR, PLN and BGN.

During the second quarter, the increase in net sales compared to the second quarter of the previous year mainly comes from components and systems for the storage of renewable energy, wiring system for trucks, buses and vehicles in the defense industry as well as inductive components for electrification and for the marine segment.

Operating profit (EBIT) in the second quarter was SEK 203 million (107), an increase of SEK 97 million. We have continued to improve the operating profit in the units that contributed weakly to the operating profit in the corresponding period last year, and increased the efficiency in the factories that are growing strongly with new orders and projects. Net financial items in the quarter amounted to SEK -8 million (2) and was negatively affected by unrealized exchange rate losses and increased bank interest rates. The EBT margin was 8.3%.

Cash flow from operating activities was SEK 177 million (22) and has primarily been affected by the improved operating profit and our activities to improve the inventory turnover rate in our companies, while the increased accounts receivable has a negative impact.

SEK M
2,500
2,250
2,000
1,750
1,500
1,250
1,000
750
500
250
0
Q2	Q3	Q4	Q1	Q2
2022	2022	2022	2023	2023
SEK M				%
200				10.0
175				9.0
150				8.0
			7.0
125				6.0
100				5.0
75				4.0
50				3.0
			2.0
25				1.0
0				0.0
Q2	Q3	Q4	Q1	Q2
2022	2022	2022	2023	2023

Cash flow from investing activities was SEK -67 million (-45), which relates mainly to replacement and capacity investments of tangible assets of SEK 66 million (-43).

Cash flow from financing activities was SEK -182 million (-11) and mainly refers to repayments of bank loans and leasing liabilities of SEK -117 million and dividend of SEK -61 million (-61).

First six months

Net sales for the first six months was SEK 4,598 million (3,367), an increase of SEK 1,231 million compared to the same period in the previous year. The total growth during the first six months was 36.5%, of which organic growth 29.6% and currency effects of 6.9%. The currency effect corresponded to SEK 234 million and was mainly driven by the currencies EUR, BGN and PLN.

The increase in net sales is primarily attributable to our electrical cabinet factories in Bulgaria and Estonia, our wiring systems factories in Lithuania, Poland, Sweden, USA and Canada as well as our factories for inductive components globally.

Operating profit (EBIT) for the first six months was SEK 398 million (220), an increase of SEK 178 million. The organic growth has been very high throughout the first half of the year in basically all of our companies, which has resulted in higher and capacity utilization, which, together with measures in our low-performing companies, has had a positive effect on the operating result. Net financial items amounted to SEK -18 million (5) and has been negatively affected by unrealized exchange rate losses and increased bank interest rates. The EBT margin was 8.3%.

Interest-bearing liabilities of the Group was SEK 940 million (924) and cash and cash equivalents amounted to SEK 289 million (217), which means that the Group have a net debt of SEK 651 million (707). The Group's interest-bearing liabilities without regard to leasing liabilities amounted to SEK 692 million (715), which means a net debt adjusted for leasing liabilities of SEK 403 million (498).

Cash flow from operating activities was SEK 403 million (65) and has primarily been positively affected by the improved operating profit and our activities to improve the inventory turnover rate in our companies, while the increased trade receivables have a negative effect in the other direction.

Cash flow from investing activities was SEK -133 million (-121), which relates mainly to replacement and capacity investments of tangible fixed assets of SEK -132 million (-119). The single largest investments are a new factory building and production equipment in Bulgaria of SEK 31 million and new production equipment in Lithuania of SEK 15 million.

Cash flow from financing activities was SEK -223 million (-20) and mainly refers to repayments of bank loans and leasing liabilities of SEK -160 million and dividend of SEK -61 million (-61).

Equity at the end of the period amounted to SEK 3,671 million (2,865) for the Group.

Significant events during the first quarter

The first half of the year continues to be characterized by high organic growth, continued capacity investments in our factories and activities to increase the inventory turnover rate. In Lithuania and Bulgaria, last year's large new orders are in full serial production and the action programs in our problem companies continue to have an effect.

The Annual General Meeting on April 20 made a decision in accordance with the nomination committee's proposal to reduce the number of board members to six and re-elected board members Per Olof Andersson, Ulf Gundemark, Gunilla Spongh, Claes Mellgren and Lars Wrebo, as well as newly elected board member Kristina Willgård. Claes Mellgren was newly elected as chairman of the board. The meeting also decided to newly elect the auditing company Ernst & Young AB as auditor for the period until the end of the Annual General Meeting in 2024.

Significant events after the end of the period

No significant events have occurred after the end of the reporting period.

Goals

The goal of the Group is continued profitable growth. The goal is a profit margin before tax (EBT) of at least 8%. The Board of Directors is 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 with 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.

		Jan-Jun	Jan-Jun	Full year
	Target	2023	2022	2022
Product quality, %	100	99.6	99.6	99.6
Delivery precision, %	98	90.5	90.5	90.0
Equity ratio, %	>40	58	55	56
Profit margin before tax (EBT), %	8	8.3	6.7	6.8
Growth, %	15	36.5	26.2	28.9