Comments by the President and CEO
Increased focus on core business
The 2015/2016 financial year has been very eventful for Addtech. Demand has varied greatly among the different markets, we distributed the Life Science business area to shareholders as the company AddLife and we made a number of interesting acquisitions.
PROFITABILITY MAINTAINED IN VARIED MARKET CLIMATE
Overall, the business situation during the year was relatively stable, though we experienced a large variation between our different markets. The Group was heavily affected by the decline in investments in oil and gas in Norway. The negative effect impact on profits was significant because these sales had a margin exceeding the Group average. While it is still too early to say when the market for oil and gas in Norway will recover, our companies operating there have experienced stabilising demand in the fourth quarter, albeit at a low level. The business situation in our other customer segments in the Norwegian market was relatively stable and some indications suggest that demand may increase in these segments.
In Sweden, the level of activity from manufacturing customers continued to be solid and demand in electricity infrastructure, building and installation increased. Market conditions are also good in Denmark, where we experienced positive sales growth. In Finland, we successfully maintained sales at a good level despite reduced demand in several market segments. In our markets outside the Nordic region the overall business situation improved towards the end of the year.
We continue to focus on increasing profitability and replacing decreased sales with new businesses that can contribute to our earnings growth. During the year, we initiated a number of cost rationalization projects, which had a limited effect during the financial year. We expect that these initiatives will have a progressively greater impact during the financial year 2016/2017.
NEW PLATFORM FOR PROFITABILITY AND DEVELOPMENT
We have been working for some time to create the conditions necessary to list the Life Science business area separately on Nasdaq Stockholm. The acquisition of Mediplast in June 2015 gave the Life Science business area, now AddLife, a sustainable size and in March 2016 we were proudly able to distribute AddLife to Addtech shareholders.
The streamlining initiative will increase focus on value-adding technology trading with industrial customers
Both Addtech and AddLife gain greater visibility as a result of this streamlining initiative, allowing us to focus on our respective core markets and providing better conditions for continued long-term profitable growth. Addtech will now be able to increase its focus on value-adding technology trading with industrial customers as a result of the streamlining initiative. Greater concentration on the Company’s core markets will benefit our relationship with suppliers, customers and employees while increasing our ability to attract the right acquisition candidates. We also increased our potential for growth through acquisitions since we decreased our gearing ratio following the distribution of AddLife.
As a result of the distribution of AddLife the figures in this annual report represent our remaining operations for the 2015/2016 financial year.
The separate listing of AddLife has led to changes in our organisation. We formed a strong new management team consisting of our business area managers with extensive experience from Addtech, supplemented by Christina Kassberg, who was externally recruited to serve as CFO. Internal recruitment is an important tool for Addtech’s supply of managers and our three new internally recruited business area managers show that our efforts to train and promote talented employees produce results.
CONTINUED HIGH PACE OF ACQUISITIONS
Acquisitions play a key role in Addtech’s strategy to maintain long-term profitable growth. The goal is to reach market-leading niche positions in our selected segments and geographic markets. Acquired companies are incorporated into Addtech, but continue to operate under their own established company names and brands. The subsidiaries have great freedom in how they run and develop their businesses, combined with support from Addtech’s network and collective expertise. Our acquisitions are generally small, allowing us to spread our risks while simplifying integration of new companies into the Group. We also gain talented new entrepreneurs through these acquisitions, which promotes development in our organisation. All parts of the Group are constantly on the lookout for profitable companies that fit into Addtech.
For the financial year, I am pleased to note that our established acquisition strategy continues to be highly effective and our activity level was high. We completed ten acquisitions, which add annual sales of approximately SEK 640 million. In addition, we have completed four acquisitions in 2016/2017 to date, with annual sales of approximately SEK 200 million.
All parts of the Group are constantly on the lookout for profitable companies that fit into Addtech.
SUSTAINABILITY FOCUS THAT CREATES VALUE
Our vision is to be the leading value-adding tech provider. The vision entails a long-term focus on developing the business by constantly being a value-adding knowledge provider. Global and local requirements to reduce emissions and increase sustainability in society are creating new business opportunities. Our subsidiaries are dedicated to meeting this demand by developing and offering solutions that increase our customers’ energy efficiency and reduce their environmental impact. Our subsidiaries already provide technical value creation that reduces customers’ energy consumption and makes them more sustainable. By continuing to develop sustainable solutions for our customers we increase our competitiveness while contributing to a sustainable society.
Addtech has long-standing and close relationships with its suppliers, and sustainability work has always been conducted at the subsidiary level based on market requirements, ethics and environmental consideration. During the year we also continued to work with our supplier audits, internal training and career development for our employees.
STRONG STARTING POSITION MOVING FORWARD
Despite the market situation being difficult to assess, we have a strong starting point and I am convinced that Addtech will prosper over the next few years. Both opportunities and challenges lie ahead, but with great commitment and understanding of our customers’ business, we see continued growth potential. Through a continued focus on business skills and increased cooperation among our subsidiaries, we have great potential to succeed in increasing our margins and growth rate. In addition, our focus on profit/working capital provides a good cash flow and a strong financial position, which will allow us to maintain our high pace of acquisitions in order to achieve market-leading niche positions in a growing number of market segments.
As we leave this intensive year behind us, I would like to thank all of our employees for their important contributions. Your commitment and knowledge are crucial for the subsidiaries and thus for Addtech to continue to grow. This combination of commitment, expertise and business acumen is what makes us a world-class technology trading group.
Johan Sjö, President and CEO, Addtech AB