CEO’s comment on Interim Report Jan-Sept 2020:
Improved operating margin and strong cash flow
Following the implementation of restructuring in the second quarter, we are beginning the autumn with an improved operating margin of 8.5 per cent in the third quarter. The Group’s growth within prioritised areas, good demand for aftermarket solutions delivered with high productivity from the Product Information business area and extensive cost savings are the main reasons for the strengthened operating margin. The Product Information business area has almost doubled its operating profit so far this year, reaching an operating margin of 15.3 percent in the quarter. In addition, it is satisfying to report a strong cash flow and robust financial position with net cash amounting to SEK 186 million. This provides us with favourable conditions for both organic and acquisition-driven growth as we move forward. Our ongoing and strategically important industry diversification was accelerated during the quarter through strong demand from both life science and telecom as well as significantly lower revenue primarily from the automotive industry. The share of the Group’s total revenue from the automotive industry amounted to 34 per cent in the quarter, the majority of which included digital services, electrification and aftermarket solutions.
Resilience in a less favourable business environment
We have successfully transitioned to remote working while retaining productivity during the present pandemic. This was achieved through close and constructive collaboration with our customers. The breadth of our operations, skills mix, good cost control and industry diversification also helped to increase our resilience in a poorer economic climate. For example, demand for our offering in digital aftermarket solutions remained strong, particularly through long-term managed service contracts and recurring income, where the proportion for the Product Information business area has now risen to 75 per cent of revenue. We witnessed rising demand for digital training solutions, and our offering has been strengthened with the recent acquisition of Xtractor. Demand from the railway industry and telecom sector was also at positive levels.
Sales growth in life science
The restructuring of the Engineering & Digital Services business area during the second quarter has entailed a more focused offering, one important element of which is to help customers with their digital transformation. We noted growing interest in our services within, for example, electrification and autonomous applications. One good example is the recently initiated project to increase efficiency at the Port of Gävle using autonomous solutions. It is also gratifying that the business area’s sales in life science rose 23 per cent compared with the year-earlier period.
Healthy demand for sustainable offerings
In conclusion, I can note that demand for Semcon’s offering, which combines physical and digital solutions with a clear link to sustainability in product development, production optimisation and aftermarket solutions, remains healthy despite an uncertain market. Improved profitability together with our robust financial position mean we are optimistic about the future. Our work with industry diversification and growth in prioritised areas is continuing in the Engineering & Digital Services business area and we anticipate that Product Information will continue to report strong earnings at the end of the year.