CEO’s comment on Interim Report Jan-March 2020:
The year began in much the same way as 2019 ended – with further improvements in earnings and an operating margin over 10 per cent. Rising demand for product information solutions in service and aftermarket, a successful shift towards new fields of technology and greater industry diversification in combination with earlier efficiency measures were major contributing factors to the positive figures for the first quarter. In these uncertain times, it is reassuring that we have started the year with a healthy cash flow and that the Group’s net cash is increasing even after completed acquisition. Rolling 12 months, our earnings were in line with our financial objective of an 8 per cent operating margin.
Demand for digital aftermarket solutions remained strong at the beginning of the year as our customers, among other activities, improve and streamline their service businesses. The Product Information business area reported a sharp increase in operating profit for the quarter year-on-year and achieved an operating margin of 15.9 per cent. In March, we completed the acquisition of the digital training company Xtractor, with customers in, for example, the public sector, which has further strengthened our offering in aftermarket and product information. The acquisition is expected to have a positive impact on both the business area’s operating margin and Semcon’s earnings per share in 2020.
At the start of the year, customer demand was at positive levels for services in product development and production optimisation using, for example, digitisation, electrification and autonomous applications. Demand in the Engineering & Digital Services business area was particularly strong, predominantly from Life Science and the public sector, while order levels from the automotive industry are substantially lower in comparison with previous periods. Despite changes in market conditions and a slowdown towards the end of the quarter, due to the spread of covid-19, the business area reported an operating margin of 9.2 per cent.
The measures we have implemented in response to the dramatic change in the market, with lower demand from the automotive industry and greater uncertainty in the manufacturing industry caused by the spread of covid-19, are mainly short-time working for staff, further efficiency enhancements and postponed investments. We quickly switched to remote working and increased the use of digital working tools in all geographic markets, which was achieved with maintained productivity in our operations. However, we can see that certain projects that were terminated at short notice will have a long-term impact on some competences and positions, which led us to restructure operations primarily in Göteborg, Stockholm and Södertälje in April, resulting in a reduction of the workforce by approximately 150 people. The restructuring will lead to a non-recurring cost of about SEK 30 million, which will be charged to the second quarter of 2020. The measures means an acceleration of our strategic competence shift and industry diversification.
Semcon is well placed and has a strong financial position, which is important in the weaker market we are faced with. What differentiates this crisis from previous crises is that we are in a time when all of our customers are affected by significant technology changes and need specialist expertise to avoid risking their competitiveness. We continue our strategic shift by strengthening our position in new fields of technology and further streamlining operations while achieving even greater industry diversification to gain market shares in strategically prioritised areas.