Comments by the CEO
Strengthened sustainability initiatives, continued focus on cost control and the continuous work with Addtech’s culture. According to CEO Niklas Stenberg, these will be among the most crucial key factors over the upcoming year.
The 2019/2020 financial year truly showed two different faces. On the one hand, it was a highly successful year. The numbers speak for themselves: sales rose by 16 percent, divided equally between organic growth and contributions from acquisitions, operating profit increased by 28 percent and the EBITA margin reached a record high of 11.6 percent. On the other hand, we encountered the toughest possible circumstances in the second half of the financial year – initially in the form of a large-scale cyberattack and later in the form of the COVID-19 pandemic that has shaken up the entire global economy.
In the first half of the year, we saw demand evening out at a high level in certain customer segments, particularly traditional industry and special vehicles. In the marine scrubber segment, demand fell sharply in the second quarter. At the same time, we fortified our favourable positions in a number of structurally driven growth areas, such as automation, infrastructure, green energy and electrification. One of the most important strengths of Addtech companies is the ability to capture trends and identify growth niches at an early stage – a capacity we are constantly developing.
We continued to increase the value we add for the market and we also broadened our presence both geographically and in various customer segments during the year, helping us spread the risks and increase the stability of our operations. Our cash flow improved significantly and, with stable finances, we have a solid foundation on which to continue our successful journey of acquisition.
During the year, we have continued our strategy of investing in successful, well-managed, market-leading niche companies with potential to generate profitable growth. We welcomed a total of 12 new companies to the Group, with three more joining us after the end of the financial year. In total, they contribute about SEK 1,200 million in annual sales. It is worth highlighting that several of them are clearly linked to sustainability, and with their own, strong brands.
We definitely see a growing ambition to offer sustainable products and services, not least from our own companies, but also from our customers and by means of demands and ambitions expressed by society in general. This drives technological development, opening opportunities for us. Even today, a large proportion of our businesses have developed solutions with strong links to sustainable development. Looking ahead, we will work even harder in identifying sustainable business opportunities, both by developing business in existing companies and through acquisitions, and we will keep explaining the efforts being made in the subsidiaries. We also want to take greater responsibility in society by contributing to the green transition in industry and infrastructure. For this reason, the Board of Directors and Group Management have chosen to express Addtech’s ambitions more clearly by developing a new sustainability vision that supports the UN 2030 agenda. Areas of particular importance for us are reducing our carbon footprint and increasing the diversity of our labour force by, for example employing more women in decision-making positions. We are also focusing additionally on supplier evaluations, where our subsidiaries are already doing a good job, but where we as a Group need to increase our efforts.
I am certain that developing the profitability of our business is how we, like industry and society in general, will succeed with the green transition. The annual report that you are currently reading represents part of that process, since we this year have decided to partially integrate our Sustainability Report with the annual review, to increase transparency regarding where we stand in our work on sustainability.
For us, transparency is key, which is also linked to how we acted in the cyberattack to which we were exposed in the third quarter. The attack affected 80 of our 130 companies, corresponding to half of our annual sales. The attackers encrypted our central IT environment and then demanded a ransom to reinstate it. For us, the natural course of action was to explain openly what had happened to us. Cybercrime is a growing problem in society and we can help stem the trend by raising awareness of the problem and sharing our experiences.
The cyberattack served as a supreme test of our decentralised culture. Each of our companies are headed by entrepreneurs who know their markets, customers and suppliers well and who are also used to accepting their own responsibility. Their capacity to resolve issues enables the entire Group to realign very quickly. We have seen many examples of this over the years, although this crisis stands out somewhat in my view. Our companies’ capacity to both tackle a cyberattack and, at the same time, largely continue conducting their operations, is simply amazing and would have been entirely impossible without a culture strongly characterised by entrepreneurship and small scale operations.
This year, we truly had the opportunity to demonstrate the power of the Addtech model, with the cyberattack more or less giving way to a new crisis: the COVID-19 pandemic. The consequences of the pandemic remain difficult to review at the time of writing. What we do know is that this is a different crisis, in which development is dependent on factors beyond our control, such as contagion and political decisions. Accordingly, we have prepared carefully for several different scenarios. While striving to protect our employees and others from infection, we are also focusing strongly on cost control to safeguard profits and cash flow.
But we can also see opportunities. Major external events often lead to technological innovation, generating opportunities for us. Technological development will not halt, our strategy is firm, and we also know that companies with stable business models and robust finances have better opportunities to act when opportunities arise. It is my belief that our role in the market will instead be strengthened by the changes currently taking place in the world. For this reason, we must dare to be progressive, hitting the accelerator and the brakes at the same time. This is already part of our entrepreneurial culture and, in the future, we will work in a number of ways to further consolidate and strengthen our positions.
In conjunction with this year’s Annual General Meeting, our 19th, our Chairman, Anders Börjesson, will step down. Anders has been Chairman of the Board of Addtech since its public listing in 2001 and is, to a large extent, the founder of the entire Addtech philosophy. He has also meant a lot to me personally. Although he has now chosen to hand over the baton of the Chairmanship, I look forward to having him nearby both myself and Addtech also in the future, as a major owner and as a highly inspiring mentor.
Finally, I would like to extend a huge and sincere thank you to all of our employees for their sometimes almost superhuman efforts during the year. Thank you for taking your full decentralised responsibilities! I look forward to taking on the new challenges of the current financial year alongside you.
Niklas Stenberg
President and CEO
Addtech AB