FIRST QUARTER – GOOD COST CONTROL GAVE STABLE MARGIN DESPITE TOUGH MARKET CONDITIONS
The first quarter of the financial year was strongly marked by the effects of the worldwide COVID-19 pandemic. As the comparative figures for the quarter were also very strong, we had relatively cautious expectations. The outcome was, however, somewhat better than we had feared at the beginning of the quarter. Sales fell by 4 percent and organic sales decreased by 7 percent compared with the corresponding period last year. Our companies have once again demonstrated their ability to act quickly and efficiently and have taken measures to adapt their costs to lower business volumes. A combination of long-term savings measures and effects from short-term cost reductions in the form of short-term furloughs and reduced travel expenses resulted in an EBITA margin of 10.9 percent, a decrease of only 0.7 percentage points compared with the corresponding period last year. Looking at development over the quarter, April was the weakest month, while there was some improvement in May and a clear stabilisation during the month of June as an effect of more customers reopening production.
The business situation varied between both geographies and segments. In terms of customer segments, the negative impact of the pandemic was most evident in demand for production components for the mechanical industry and special vehicles, in which many customers closed their production during the quarter. Although several customers in the segment began to re-open production at the end of the quarter, it is with a lower production rate and continued weak demand. Conversely, in other segments, we experienced increased demand, particularly in medical technology, but also in electronics, wind power, defence and infrastructure products for national and regional grids. The marine segment was already in a mode of caution at the start of the pandemic, and demand for new scrubber installations fell sharply compared with the corresponding period last year, when demand was at its strongest. We still make the assessment that the long-term underlying demand for scrubber installations remains, although there is considerable uncertainty about when, and to what extent, demand will pick up again. In the forest industry, and in sawmills in particular, demand during the quarter was very good.
We were also fortunate to have well functioning supply chains to a substantial extent during the quarter, which meant, in turn, that we were able to maintain favourable precision in deliveries to our customers.
In terms of our geographical presence, we perceived the business situation as most favourable in Denmark, while the business situation in the other Nordic countries was weak. We experienced consistent weak development in Switzerland, the Benelux countries, the United Kingdom and the United States, which were substantially affected by extensive lock-downs.
We have managed to maintain a P/WC of 54 percent, despite decreased operating profit thanks to an improved trend in working capital. Liquidity is good and cash flow from operating activities amounted to SEK 324 million, which is an improvement compared with the preceding year. To date we have not been impacted by any problems of customer losses and put great focus on working actively with our working capital to continue to generate good cashflow.
Early in the financial year, we conducted three acquisitions, adding annual sales of approximately SEK 465 million. As always, we have a large number of acquisition processes at various stages of progress. Due to the uncertainty caused by the pandemic, we chose not to complete additional acquisitions during the quarter, although we perceive favourable opportunities to continue our successful programme of acquisitions over the upcoming quarters.
OUTLOOK - CONTINUED DIFFICULTIES BUT MAKING GOOD SPEED
It is extremely difficult to foresee the pandemics future course and its long-term impact on our markets. We are applying various scenarios and revising our impact assessments on an ongoing basis. As I mentioned earlier, our units implement measures on an ongoing basis to manage the situation and the balance between cost savings and long-term profitable growth is an issue we discuss daily. In my view, we must get used to the idea that it will take time to return to normal levels, at least in some customer segments of importance to us, such as special vehicles. In our best current assessment, we will experience a greater negative impact on volumes in the second quarter than in the first, compared with last year, given our order intake to date and the summer months ahead, with more extensive closures than normal among customers and suppliers alike.
Despite all of the uncertainty, our future outlook remains fundamentally positive. Our focus on growing in niche markets affords us opportunities in a number of interesting segments, even in the deep economic downturn currently impacting the world. The pandemic is likely to accelerate several mega-trends, already in progress, where we hold favourable positions such as environment-improving technologies, electrification and infrastructure. We have great belief in our own capacity and strategies and, for the long term, continue to aim for our ambitious targets.
President and CEO