|RISK/DESCRIPTION||ADDTECH’S RISK MANAGEMENT|
|Economy and market|
|Demand for Addtech’s products and services is greatly influenced by macroeconomic factors beyond Addtech’s control, such as growth and investment appetite in the manufacturing industry, the state of the economy in general and conditions in the global capital market. A weakening of these factors in the markets in which Addtech operates could have adverse effects on its financial position and earnings.||With a large number of subsidiaries focusing on different niche markets and add-on sales of technical service, support and consumables, Addtech may be less sensitive to economic fluctuations in individual industries, sectors and geographical regions. Addtech also strives continuously to develop businesses that are less dependent on a specific market and to align expenses with specific conditions.|
|Globalisation, digitalisation and rapid technological development drive structural change among customers. Developments may increase demand for Addtech’s advanced services but can also result in Addtech’s customers disappearing through mergers, closures and relocations, to low-cost countries for example.||Addtech’s clear and unique added value services with their high technology content, specialisation in advanced technical advisory services, outstanding service and strong presence in niche markets offset price competition, Addtech’s competitiveness also enables the Company to deliver beyond its immediate geographical region. Combined with the fact that no customer accounts for more than 2 percent of consolidated sales, the Group’s exposure to a large number of sectors constitutes a certain degree of protection against adverse impacts on earnings.|
|Most of Addtech’s subsidiaries operate in sectors that are vulnerable to competition. In addition, consolidation may occur among suppliers in the sector, and larger merged suppliers may have a broader offering, which could result in pressure on prices. Future competitive opportunities for the subsidiaries will depend on their ability to be at the leading edge of technology and to respond quickly to new market needs. Increased competition or a decline in the ability of a subsidiary to meet new market needs could have a negative impact on Addtech’s financial position and earnings.||Addtech strives to offer products and services for which price is not the sole deciding factor. By working closely with both suppliers and customers, we are continuously developing our know-how and competitiveness. We add value in the form of wide-ranging technological knowledge, reliability of de-livery, service and availability, limiting the risk of customers decreasing their demand. To reduce the risk of competition from suppliers, Addtech focuses continuously on ensuring that collaboration with the Group is the most profitable sales strategy.|
|Changed environmental legislation could affect product sales, goods transports and the way in which our customers use the products. An inability to meet customers’ increased environmental requirements can affect sales. There is also a risk that the corporate ID number of a Group subsidiary could entail a historical liability for the company under the Swedish Environmental Code.||Addtech’s subsidiaries are primarily engaged in commerce and operations with limited direct environmental impact. The Group conducts limited production. The Group monitors operations and environmental risks through its sustainability reporting and all companies comply with the Group’s Code of Conduct. In conjunction with acquisitions, Addtech con-ducts an analysis of the potential target’s corporate ID number to counter the risk of being held liable for historical environmental issues.|
|Ability to recruit and retain staff|
|Addtech’s continued success depends on being able to retain experienced employees with specific skills and to recruit skilled new people. There are a number of key individuals, both among senior executives and among the Group’s employees in general. There is a risk exists that one or several senior executives or other key individuals could leave the Group at short notice, for reasons of stress, working environment or development opportunities, for example. In the event that Addtech fails to recruit suitable replacements, or to find skilled new key individuals in the future, this could have a negative impact on Addtech’s financial position and earnings.||Addtech prioritises building favourable conditions for employees to develop within the Group and to enjoy their work. The Group’s acquisition strategy includes ensuring that key individuals in the companies are highly motivated to continue running their companies independently within the Group. The Addtech Business School is aimed at both new employees and senior executives and serves to increase internal knowledge transfer, promote personal development among employees and develop the corporate culture. The Group’s regular employee surveys serve to ascertain how employees view their employers and their work situation, and what might be improved and developed.|
|Acquisitions and goodwill|
|Historically, Addtech has, for the most part, grown through acquisitions. Strategic acquisitions will continue to represent an important part of our growth. However, there is a risk that Addtech will not be able to identify suitable objects for acquisition due, for example, to competition with other buyers. Expenses attributable to acquisitions may also be higher than expected, and positive impacts on earnings may take longer to realise than expected. The risk of goodwill impairment arises when a business unit under-per-forms in relation to the assumptions that applied at the time of valuation, and any impairment may adversely affect the Group’s financial position and earnings. Further risks associated with acquisitions include integration risks and exposure to unknown commitments.||Addtech has many years of solid experience in acquiring and pricing companies. All potential acquisition targets and their operations are examined carefully before implementing the acquisition. There are well-established procedures and structures for pricing and implementing the acquisition, as well as for integrating the acquired companies. In the agreements, an effort is made to obtain the necessary guarantees limiting the risk of unknown liabilities. The large number of companies acquired entails a significant distribution of risk.|
|The Group is exposed to various financial risks. Currency risk is the risk of exchange rates having an adverse impact on Addtech’s financial position and earnings. Transaction exposure is the risk that arises because the Group has incoming and outgoing payments based on payment flows in foreign currencies. Translation exposure arises because the Group, through its subsidiaries, has net investments in foreign currencies. The Group is also exposed to financial risk, that is, the risk that financing of the Group’s capital requirements is made more difficult or ex-pensive. Interest rate risk is the risk that unfavourable changes in interest rates have an adverse impact on Addtech’s financial position and earnings.||Addtech strives for structured and efficient management of the financial risks that arise in its operations, in accordance with the financial policy adopted by the Board of Directors. The financial policy expresses the ambition of identifying, minimising and controlling financial risks, and establishes responsibility for managing how such risks are to be delegated within the organisation. The aim is to minimise the impact of financial risks on earnings. See Note 3 for a more detailed description of how Addtech manages financial risks.|
|Suppliers and customers|
|To deliver products, Addtech is dependent on the ability of external suppliers to fulfil agreements in terms of volume, quality, delivery date, etc. Deliveries that are erroneous or delayed, or that do not occur, may have an adverse impact on Addtech’s financial position and earnings. Addtech’s reputation is also dependent on its suppliers’ ability to maintain a high level of business ethics, in terms of, for example, human rights, working conditions and the environment. Agreements with customers vary, for example in terms of contract length, warranties and limitations of liability. In some supplier relationships there are no written supplier agreements, which could result in legal uncertainty regarding the content of the agreement.||Addtech’s numerous and favourable relationships with carefully selected suppliers reduce the risk of Addtech not being able to deliver as promised. To ensure that the Group’s high standards in terms of business ethics are maintained, all suppliers are also required to observe Addtech’s Code of Conduct for Suppliers. Most of the companies also perform specific supplier reviews. In a longer-term perspective, Addtech is not dependent on any individual supplier or customer. Addtech’s largest customer accounts for about 3.5 percent of consolidated net sales.|
|Addtech’s decentralised organisation is based on subsidiaries bearing extensive local responsibility for their operations. This imposes high standards on financial reporting and monitoring, with shortcomings in this regard potentially leading to inadequate control of the operations.||Addtech controls its subsidiaries through active board participation, Group-wide policies, financial targets and instructions regarding financial reporting. By being an active owner and monitoring the development of the subsidiaries, risks can quickly be identified and addressed in accordance with the Group’s internal guidelines.|
|There is a risk that Addtech’s operations, earnings and cash flow could be affected by strong seasonal effects driven by customer demand.||No significant seasonal effects are associated with Addtech’s sales of high-tech products and solutions to companies in the manufacturing and infrastructure sectors. However, the number of production days, custom-er demand and the willingness to invest may vary from one quarter to another.|
|Business ethics and human rights|
|Addtech’s continued success is strongly dependent on our good reputation and business ethics. Human rights violations in the Group’s own operations or those of its suppliers would have a negative impact on the Group’s reputation among employees, customers and other stakeholders and influence demand for the Group’s products.||Internally, the Group works with business ethics through initiatives including the Business School and compliance with anti-corruption and human rights regulations is reviewed annually. Addtech’s many favourable relationships with carefully selected suppliers reduce the risk of human rights violations occurring among our suppliers. To ensure that the Group’s high standards in terms of business ethics are maintained, all suppliers are also required to observe Addtech’s Code of Conduct for Suppliers and specific supplier audits are conducted.|
Employees and development
At the end of the financial year, the Group had 2,759 employees, compared with 2,358 at the beginning of the financial year. During the financial year, implemented acquisitions increased the number of employees by 271. Over the past 12-month period, there were an average 2,590 employees.
|Average number of employees||2,590||2,283||2,133|
|proportion of men||74%||74%||75%|
|proportion of women||26%||26%||25%|
|Age distribution-up to 29 years old||11%||10||10%|
|50 and older||41%||40%||37%|
|Average age||45 years||46 years||45 years|
|Average length of employment||about 9 years||about 10 years||about 10 years|
Research and development
The Addtech Group conducts limited research and development. The Group’s business model includes continuous dialogue with and feedback to the Group’s suppliers, who conduct most of the research and development relevant to the Group’s product range.
Principles for remuneration to senior executives
The Board of Directors has resolved to propose that the Annual General Meeting in August 2019 approve the same guidelines as in the preceding year:
The guidelines are to relate to remuneration of the CEO and other members of Addtech Group Management (“Group Management”).
Addtech seeks to offer an overall remuneration package that is both reasonable and competitive, and thus able to attract and retain skilled employees. The overall remuneration, which varies in relation to the performance of the individual and the Group, may include the various components stated below.
Fixed salary forms the base of the overall remuneration package. This salary shall be competitive and reflect the responsibilities of the position. Fixed salaries are reviewed annually. Variable salary can be based on factors including the Group’s earnings growth, profitability and cash flow. On an annual basis, the variable component may amount to at most 40 percent of the fixed salary. Retirement pension, health insurance and medical benefits are to be structured in accordance with applicable rules and market norms. Where possible, pensions are to be based on defined-contribution plans.
Other benefits may be provided to individual or all members of Group Management and are structured to reflect market norms. These benefits may not account for a material portion of an individual’s total remuneration package.
The Board of Directors will evaluate annually whether or not a long-term incentive scheme should be proposed to the Annual General Meeting and, if it should, whether the proposed long-term incentive scheme should include the transfer of Company shares or not. Members of Group Management must observe a notice period of six months on resigning and are entitled to a notice period of at most 12 months on termination of employment by the Company. On termination of employment by the Company, in addition to salary and other employment benefits during the notice period, members of Group Management are entitled to severance pay corresponding to at most 12 months’ salary. No severance pay is payable on resigning.
The Board of Directors is entitled to waive the above guide-lines for remuneration in individual cases and if there are particular reasons for doing so. In the event of any such deviation, information about this and the reasons for the deviation shall be reported at the next Annual General Meeting.
The Remuneration Committee appointed by the Board of Directors pre-pares and submits proposals for the remuneration of the CEO to the Board, which decides on the matter. Based on a proposal by the CEO, the Remuneration Committee determines the remuneration for the other members of Group Management. The Board of Directors is informed of the Remuneration Committee’s decision.
See also Note 6 Employees and personnel expenses.
Addtech’s dividend policy is to propose a dividend that exceeds 30 percent of average Group profit after tax over a business cycle. In proposing a dividend, the Group’s equity, long-term financing and investment needs, growth plans and other factors are taken into account that the Company’s Board of Directors consider important. The Board of Directors has resolved to propose dividend of SEK 5.00 (4.00) per share to the Annual General Meeting in August 2019. The dividend corresponds to a total of SEK 336 million (269), corresponding to a payout ratio of 51 (52) percent.
The operations of the Parent Company, Addtech AB, include Group Management and the Group’s reporting and financial management staff units.
The Parent Company’s net sales for the financial year amounted to SEK 62 million (58) and its loss after financial items was SEK 16 million (11). Net investments in non-current assets were SEK 0 million (0). The Parent Company’s net financial liabilities were SEK 175 million (69) at the end of the year.
Future prospects and events after the reporting period
Addtech operates in an international technology trading market in which demand is largely influenced by macroeconomic factors. Group companies operate in different but carefully selected niches, resulting in a smoothing effect between sectors, geographical markets and customer segments. Our independent companies work continuously to adapt to changes based on their markets and competitive situation.
Historically, Addtech’s continuous pursuit of profit growth, profitability (P/WC) and development have provided favourable average value growth. Our cash flow and financial position form a stable foundation for continued long-term profitable growth based on the same business concept.
Events following the close of the financial year
A reorganisation was implemented effective 1 April 2019, with a fifth business area, Automation, being formed by dividing the Components business area.
On 1 April, Omni Ray AG was acquired in Switzerland and joined the Automation business area. Omni Ray is a technology trading and services company, with a strong position in the Swiss market for automation solutions in industry, infrastructure, transport and medical technology. The company has 65 employees generates annual sales of SEK 330 million.
On 1 April, Thurne Teknik AB was acquired in Sweden and joined the Industrial Process business area. Thurne Teknik is a leading supplier of components, equipment and advanced process systems primarily to the chemical and pharmaceutical industry in the Nordic region and the Baltic states. Thurne Teknik has 19 employees and generates annual sales of approximately SEK 100 million.
On 1 April, AB N.O. Rönne was acquired in Sweden and joined the Industrial Process business area. N.O. Rönne’s principal operations consist of manufacturing special customised gaskets and seals through punching and cutting. The company has four employees and generates annual sales of SEK 8 million.
On 6 May, Best Seating Systems Walter Tausch GmbH was acquired in Austria and joined the Power Solutions business area. The company is a niche player that supplies ergonomic driver’s seats and peripheral components for machines, buses and trains in Central Europe. The company has five employees and generates annual sales of SEK 23 million.
On 12 June, Thiim A/S was acquired in Denmark and joined the Automation business area. The company develops and supplies components and solutions in industrial automation, customised electronics and electromechanics. The operations mainly target the OEM industry, automation and infrastructure. The company has 15 employees and generates annual sales of approximately SEK 70 million.
Proposed allocation of earnings 2018/2019
|The following amounts are available for distribution by the Annual General Meeting of Addtech AB:|
|Retained earnings||387 SEKm|
|Profit for the year||203 SEKm|
|The Board of Directors and the CEO propose that the funds available for distribution be allocated as follows:|
|A dividend paid to shareholders of SEK 5.00 per share 1)||336 SEKm|
|To be carried forward||254 SEKm|
* Calculated based on the number of shares outstanding at 31 May 2019. The total dividend payout may change if the number of repurchased treasury shares changes prior to the proposed dividend record date of 2 September 2019.