THIRD QUARTER – Clear recovery in demand and strong cash flow
The outcome for the third quarter was on the whole in line with our expectations. Sales were 1 percent higher than in the preceding year and we experienced a recovery in demand from the lower levels we endured in the first half of the year. In interpreting the development of the market situation in the third quarter, the outcome should be adjusted both for the cyber attack suffered in the preceding year and the sharp decline in sales of scrubber-related products. In addition there was still a certain negative impact from COVID-19, as well as positive contributions from acquisitions. Combined, this means that the underlying operations experienced favourable market development for the first quarter this year.
Our companies’ capacity to adapt quickly to the prevailing situation and to benefit from business opportunities is impressive, to say the least. Despite reduced business volumes in segments with good margins, negative currency effects and some non-recurring expenses, we achieved an EBITA margin of 10.6 percent. This confirms that we have had good control of our expenses and that our efforts to adjust our operating expenses to lower business volumes continued to have the desired effect. Our acquired companies also experienced favourable earnings.
Although we noted a broad and clear recovery in demand, substantial variations between customers, segments and geographic markets remain. In the mechanical industry, the market situation improved sequentially, although we perceived some restraint regarding capital investments and new projects. In special vehicles, we saw a clear recovery in demand and sales were almost in line with the preceding year. In electronics and medical technology, the business situation was stable while demand in the marine segment remained weak. Demand in the forest industry, especially the sawmill market, was very good and sales in wind power and infrastructure products for national and regional grids was strong.
We noted a continued recovery in most of our geographic markets, albeit to varying degrees. Overall, the strongest recovery in the third quarter was among the companies in Sweden and European markets outside the Nordic region, although the increase in demand among the latter geographies was from very low levels. In Denmark, Finland and Norway, the recovery in the business situation was somewhat weaker, although it did improve compared with the second quarter.
We had very good cash flow during the quarter thanks to stable margins and a positive trend in working capital – accordingly, we managed to maintain a strong P/WC of 54 percent despite that the accumulated operating profit for the year have decreased. Cash flow from operating activities amounted to SEK 483 million, which is a sharp improvement compared with the preceding year and means that our liquidity has remained favourable.
As previously communicated, our ambition has been to maintain a strong pace in acquisitions, including during the ongoing pandemic. Three acquisitions were made during the quarter, and another three were made after the end of the quarter. Over the financial year to date, we have acquired 13 companies whose combined annual sales are approximately SEK 1,100 million. The market situation for acquisitions is favourable and we perceive attractive acquisition opportunities in the Nordic region, as well as in other select European markets. Many entrepreneurs see Addtech as an attractive buyer allowing them to retain decentralised responsibilities while receiving support in developing their operations from an active, long-term owner. Our organisational model, which is divided into strategic business units, also create conditions for various forms of collaborations in the networks formed by these units.
To some extent, the uncertainty regarding developments surrounding the ongoing pandemic is still impacting visibility as well as customers’ willingness to place project call-offs as planned. At the time of writing, we expect demand to continue gradually normalising, however the final quarter of the preceding financial year reflected a very strong trend.
Naturally, the start of the financial year was pervaded heavily by short-term efforts to mitigate the effects of the COVID-19 pandemic. Over the third quarter and looking ahead, we will be focusing on long-term strategic efforts to streamline the operations and to adapt to an environment in which the trend towards more sustainable solutions and digitalisation will play an increasingly central role in all that we do. At the same time, we continue to balance the precautionary measures necessary and maintaining good cost control with benefiting from the attractive growth opportunities that lie ahead.