Comments by the President and CEO
HIGH ACQUISITION RATE AND ADVANCED MARKET POSITIONS
With strong organic growth and eleven acquisitions, we advanced our market positions within and beyond the Nordic region, and can confirm that we continue to perform well above our financial targets.
Strong year exceeding financial targets
2017/2018 was a strong year for Addtech, marked by high activity, a favourable business climate and stable to rising demand in most of our markets. We are proud to say that we exceeded our financial targets once again. Sales surpassed SEK 8 billion, with growth of 12 percent, including 5 percent organic growth. Our profit growth, measured as EBITA, was 17 percent and our focused work on continuous development, while keeping costs under control, raised the EBITA margin from 10.0 to 10.5 percent. Return on working capital (P/WC) amounted to 53 percent, an excellent cash flow from operations.
Good order brings profitability throughout the Group
Our long-term focus on profitable growth, both organically and through acquisitions, has paid off. Profitable growth generates a larger cash flow, which in turn can be invested for additional growth. Our good cash flow growth over the years has enabled us to increase the dividend to our shareholders and to continue to acquire profitable companies. Looking back to September 2001 and Addtech’s stock exchange listing, the results are clear. Since then, our profit has increased on average by more than 15 percent annually, which in turn has had a corresponding positive effect on our share price.
The basis for profitability is good order, which allows more time to be devoted to creating value for our customers and ourselves. It is important to focus on what is essential and makes a difference. Thorough profitability analyses aimed at identifying essential activities are conducted in our subsidiaries. The regular analyses tell us where our margins and growth are strong and where they are poorer. This methodical approach enables us to invest where we are doing well and to reduce our focus on areas not contributing to long-term growth. In this way, we continue to build value for our shareholders, customers and employees, providing them with interesting growth opportunities.
High acquisition rate as we methodically build the Group
Our well established basic philosophy of building the Group from relatively small, flexible businesses with in-depth technical expertise, working close to the customer and able to respond rapidly to market changes, stands firm. We are methodically building the Group and every acquired company represents a unique building block that fits into the Group structure and contributes with new business opportunities and employees who want to develop. The acquisition process itself may take time we are careful to learn as much as we can about the company, its people and its culture but in return, integration is much faster. Our acquisition rate remained high during the year. We made a total of eleven carefully selected acquisitions that contributed annual sales of approximately SEK 700 million.
We have long known that our business model appeals to owners and entrepreneurs in the Nordic countries. Now we see that it is equally appealing to companies outside the Nordic region. Until recently, we have mainly focused on Nordic businesses, but over the past two years we have acquired a total of five businesses outside the Nordic region. With our exports from the Nordic countries to other markets, total sales outside the Nordic region amount to 24% of sales, or almost SEK 2 billion.
Sustainable business development with a focus on employees and entrepreneurship
We continue to work towards our common vision of being a leader in value-adding technology trading. We aim to continually improve our customer offering, supplier cooperation and internal procedures and organisation. Our employees play a key role here. Consequently, our business development and sustainability initiatives largely involve organisational and employee development. All employees in the Group should feel that they are part of a successful team and able to exercise significant influence over their own development. At Addtech, this is expressed in our corporate culture, which can be summarised in five words: Simplicity, Efficiency, Change, Responsibility and Freedom. The decentralised responsibility in particular is a key component of our philosophy.
We are convinced that the organisation performs best when our entrepreneurs and subsidiaries have great freedom in how they manage and develop their business, underpinned by support from Addtech’s network, accumulated expertise and financial resources. Our sustainability initiatives are based on the same approach. Addtech’s business school is an important platform for spreading the corporate culture and helping our employees to grow. The business school offers employees training pro- grammes adapted to their experience and duties and is aimed at both new employees and senior executives in Group companies. At the same time, Addtech supports other aspects of business development and sustainability by providing tools and procedures for initiatives such as supplier assessments and quality and environmental management. This work strengthens our independent, often relatively small entrepreneurial businesses, making them more attractive, while reducing our risks.
A corporate culture that drives success
In writing my final CEO comments for the annual report, I would like to conclude where I began in my first CEO comments ten years ago, by recognising the Group’s 2,300 employees who together maintain and enhance our business-driven corporate culture. What distinguishes our employees, then, as now, is their technical expertise, entrepreneurial spirit, focus on profitability and willingness to take decentralised responsibility. That is also what makes our many subsidiaries, and therefore Addtech, successful. I would like to warmly thank all of our employees, colleagues and business relations for yet another strong year, but above all because I had the privilege of sharing this time with you.
I am convinced that my successor, Niklas Stenberg, is the right person to take the helm and further develop not only the successful business operations currently in the Group, but also the outstanding corporate culture that makes Addtech unique.
Johan Sjö
President and CEO, Addtech AB