James Ahrgren: It's 9:00. Welcome to AQ Group investor presentation for Q3 2026. What you see on the picture is our newly acquired
Operator: [Foreign language]
James Ahrgren: It is our beautiful new transformer manufacturing site in the US. Why to invest in AQ Group? As we see it, earnings per share CAGR of 14% over the past 10 years. We've made profit every quarter since the foundation in 1994. We've exposed to industrial market segments with high underlying growth, such as electrification, where we include also data centers, defense, medtech. We have a long history of acquisitions.
James Ahrgren: We buy two to four factories per year. This year we have bought more than two factories. We have a strong balance sheet and a net cash position. Some quick facts. We are about 8,000 employees. We are on a rolling 12-month basis. We have almost SEK 10 billion in turnover. We have seven business areas, 15 plus market segments, and manufacturing in 17 countries with 4,000 customers globally. We made profit, as I said, every quarter for 30 years.
James Ahrgren: The rest I have already mentioned. Now to Q3. Net sales increased by 21% to SEK 2.5 billion. Operating profit increased by 36% to 259 million compared to the same quarter last year. The profit after financial items that we measure increased with 38%, and the profit margin before tax was 10.0%, which is in line with our target.
James Ahrgren: Profit after tax amounted to 205 million, and cash flow from operating activities was okay on 269 million. Earnings per share before dilution was 2.23 compared to 2.06 same quarter last year. For the first 9 months, we have increased sales by 11% to 7.5 billion SEK. Operating profit increased with 18% to 739 million, and after financial items it increased to 736 million. Profit margin before tax was 9.8%, and after tax, we had a profit of 586 million.
James Ahrgren: The cash flow from operating activities was decent on 631 million. Earnings per share was 6.39 compared to 5.54 a year earlier. Our equity ratio was 68%, way above our target. Highlights in the quarter. I am very proud that we have doubled the earnings per share since 2021 from 4 SEK to 8, above 8 actually, if you look at a rolling 12-month basis and adjust for the split 1 to 5 that we did a couple of years ago.
James Ahrgren: We see high growth in the US and China in inductive components and electrical automation, especially for data center and power grid electrification. Our growth in data centers and defense continued to accelerate and all our data center factories are on full throttle, especially the inductive components ones, but also in sheet metal fabrication. We believe we take market share from others, but that is nothing I can really prove.
James Ahrgren: Together with our customer, I am sure we are, but I am not sure if we take market share at our customers. Defense sales also continued strong in Northern Europe especially, which we include Sweden, Norway, and UK. We have made a couple of acquisitions in the quarter. We bought Gumboda Stålteknik in Robertsfors to increase production capacity towards power grids and defense in Sweden.
James Ahrgren: It is basically an organic growth acquisition, you can say, because we buy a building and we get some employees so that we can fit more machines to accommodate our continued growth in that factory that we bought in 2024, which was AQ JIT Mech. This will be a bolt-on for AQ JIT Mech. I think the enterprise value for this acquisition was 5 million SEK, so it is not a huge acquisition, but it will help us to continue to grow.
James Ahrgren: We also made a bigger acquisition where we bought the assets of Norlake in Cleveland, Ohio to double our production capacity of Made in America inductive components. We can say we have a factory in Virginia. I think turnover this year will be close to $50 million in that factory. It is basically full. We had an option that we considered to extend that factory.
James Ahrgren: We have already extended it a bit. We will probably extend it even more. One of our customers came to us and said, "We have this company that we buy inductive components from. They have a financial problem." Basically they had run out of cash. They stopped paying their employees. We came in, we restarted the factory with the former owners. We gave them a loan to get the employees back.
James Ahrgren: We did a quick due diligence over the summer, then we made the acquisition in Q3. This adds a lot of capacity. We get a lot of machines and other equipment that you need to make inductive components. Also, you get skilled operators, which we need.
James Ahrgren: We can say basically every quote we send out for inductive components in the US, we win, meaning there is a big demand there. We believe that we can make this factory great again by just filling it up with AQ customer orders. We can utilize our sales and design team in Roanoke in the US as well to increase the growth in this company.
James Ahrgren: It will take basically a little bit more than a year, I guess, before we see the volumes that we have indicated in the press release, which is like, let's see how fast it goes. But we believe that we have at least equipment and buildings to accommodate $35 million in sales in the Norlake asset that we have bought.
James Ahrgren: Some lowlights in the quarter. We are not happy with everything. We feel we need to improve both quality and productivity in our inductive components factory in India. We have changed the leadership there now, and we believe it will get better in time. We have also some delays in certain defense projects due to delayed equipment. We are taking action there and I think we will be back on track by the end of this quarter, Q4.
James Ahrgren: We also have some backlog in data center deliveries that need to be recovered in Q4. Despite the organic growth was really impressive, I think in Q3, we still have some more orders that we would have liked to ship out. This will need to be recovered in Q4. We have a challenge there, but I think we will be able to do it.
James Ahrgren: We have had some issues to get all the equipment in place in Finland. It will be in place now in October and I think we will be able to go at full speed in order to catch up this quite small delivery backlog, I would say. We have also low capacity utilization in Mexico and New York in our wire harness factories. I think New York is on the verge of becoming better.
James Ahrgren: We have won some new orders there. Mexico also increasing a little bit, but we need to do more. We are not happy with the performance there. Time 24 that we bought in Q2, we think the output is okay, but not as we want.
James Ahrgren: We have a backlog there and we want to get back on track there because we see that these semiconductor equipment companies that they have as customers are growing very rapidly and we want to get back on track with the deliveries there. We believe we can make more money in this company if we just improve. We have put in some new people in that team. But we need to do more there as well. On-time delivery needs to improve in several sites. We are down to 91% in the quarter.
James Ahrgren: It's a little bit due to the high growth that we have, but also I think that we can do better and we should do better. We have work to do there. As I said, we had some backlog issues in some sites already mentioned. We also want to do more acquisitions, of course. That was the lowlights.
James Ahrgren: Earnings per share growth, we see it's after a couple of years where it's been a little bit flat. We see it start to grow again, which is really nice. We have a target to double the earnings per share every 5 years. We have done it now from 2021 now to 2026, but we want to double it again now until 2031. Net sales in the quarter was pretty much in line with what we saw in Q2, but it's much higher than Q3 2025.
James Ahrgren: Normally, for AQ, since we have a big European footprint, there is what we call in Sweden industrial holiday, where our customers and our factories close down, reducing the net sales. In this quarter, we have seen that our Chinese and American factories are running on full speed, which compensates for this industrial vacation in the European companies. It's really good to get.
James Ahrgren: Hopefully, we can get a more balanced output over the full year now instead. Organic growth in the quarter was 17%, roughly, and acquired growth around 2%. The acquired growth is below the target. We'll get into that later. We have some sales growth and investment activities ongoing. Inductive components for electrification, including data centers, grew 60% compared to the same quarter in 2025. It is a massive growth there. We are assisted by the acquisition of mdexx, which was a half-full factory.
James Ahrgren: Now we are also buying Norlake to increase the capacity further to continue this fantastic momentum that we have in this area. We have also done very fun new prototypes for a new solid-state transformer for a data center application for a leading electrification customer. This product, our customer believes a lot in.
James Ahrgren: They will start to sell it maybe 2027, 2028. We don't know when the full volumes come, but if the projections are like they believe it is, then we get into a new really nice product which uses more power electronics to do the switch from medium voltage to 800 volt DC inside the data center, which is really, I think, the technology going forward. We also see increased momentum in power grid projects in Q3, but I think it will be even better in Q4.
James Ahrgren: To sum it up, all our business areas and market segments basically grew compared to the same quarter last year. Of course, the main growth is in data centers, power grid electrification, and defense. Another fun thing is that we have won a new wire harness contract and some sheet metal parts as well for a new EV truck customer in Europe.
James Ahrgren: It is not a substantial volume, but we are happy to see that we also growing in these business segments. The organic growth for the year is way above our target. On the other hand, we have been a little bit below in the start of the year, so for the full 9 months, we are in line with the target. I think I have commented already on what is growing, so we can stop it there.
James Ahrgren: Regarding acquired growth, then we have acquired Time 24 in Q2. The integration work is ongoing. We have recruited a new operations person from our sister company, AQ Rockford. We are recruiting a new finance person. We are adding management capabilities there to improve the performance. It is not too bad.
James Ahrgren: We have done much worse turnarounds than Time 24, but we need to get up to speed with the deliveries. That is our key, because then we will double the sales there and we will also start to make good money as well. Gumboda Stålteknik acquisition already mentioned, and Norlake I will get into on the next slide as well, so let's not mention it here. The integration and turnaround of mdexx I consider now complete, that we are in line with AQ margins and it is growing very rapidly.
James Ahrgren: We are filling it up with new business and also increasing sales with the old customers. We are very happy with the team there. We can do even better and even more, but they have done an amazing job. It is fun to see that they are now into full swing. Some things more about Norlake. We acquired this company on 21 September.
James Ahrgren: I told you a little bit about the story. We didn't pay so much. This is not a share deal. We bought certain assets and including real estate as well in Cleveland. You can see on the pictures there, it is a normal dry-type transformer factory, can do low voltage to medium voltage products. All the equipment is in place.
James Ahrgren: It is basically just to start to fill it up with the existing customers that have a big demand, but also to get enough people there to be able to produce that demand. This is a typical AQ opportunity there, where we can go in with capital and knowledge and expertise and really make this company beautiful again.
James Ahrgren: It is a really fun opportunity for our managing director in the US, Dan Day, who is an excellent person and has done fantastically well with our transformer solution site in Virginia. Now he gets some more capacities to sell. He is super excited, I can say. Then we can also utilize our design and sales team in Roanoke and also the experience we have from our fantastic team in Virginia. They are key in making Norlake successful.
James Ahrgren: It will be fun to see these two now sisters to grow up together and become even better. It is very similar to the opportunity we had with mdexx, where they have very nice customers in Norlake. They were undercapitalized, and maybe we saw a lot of improvements that could be done. We will try to do the same.
James Ahrgren: Let's see if we can be successful also this time. As a comment also, this acquisition had no real impact in Q3 results. It is in the balance sheet, but there was basically no external sales from this company after the acquisition on 21 September. Acquired growth is still a little bit low, even though we have bought some companies. Norlake figures doesn't come in here.
James Ahrgren: I hope that we can get maybe up to 5% in Q4, but let's see if we can make it happen. We have also lost some opportunities in the quarter. It is always hard to agree. They should like us, we should like them. Prices should match. We maybe lost some opportunities in the quarter also, but we have a pipeline.
James Ahrgren: We continue to work, and we will continue to do acquisition also next year. I am not too worried about that. We can find good investment opportunities in the market. That is for sure. Regarding margin development, we have now an EBIT margin in Q3 of 10%, which is really nice. It is in line with our target. I think our cost control remain very good.
James Ahrgren: We have good sales and capacity utilization in US and China who compensate for the normal downs, as I said, in Europe in the third quarter. But we have also several factories which have a potential for improvement, which you saw on the low light slide that I presented earlier. Also remember this journey that we are on to deliver more technology content into our customer. More difficult parts should bring more and better margins.
James Ahrgren: I think we are seeing it, and we will hopefully continue to see it going forward. Regarding inventory value and turnover development, this is calculated on a rolling 12 months backwards, and when we grow very rapidly, normally this goes down. I am not too disappointed with 2.9, actually. The cash flow in the quarter is quite good despite the fact that we are growing at a really rapid pace.
James Ahrgren: I think we have plenty of cash to follow our customers and to continue to grow with them and invest in equipment, machines, people and new companies as well. Cash flow and net debt. We do not have a debt, so we have a net cash position, and we do not need to have that. We just need to find more opportunities to invest in.
James Ahrgren: I think we have a good organic growth momentum now where we will continue to invest in our current operations, which is costing a little bit money in capital expenditure. I think we have done most of it, but we will do a bit more, of course. But then in working capital, it really sucks cash from us. It costs basically the same as when we do acquisition.
James Ahrgren: We will also try to see if we can make some more acquisitions, maybe end of this year or beginning of next year. Again, then why to invest in AQ Group and went through it. I think most of you know us, so I will not go through it again. Then I leave for Q&A. Please raise your hand and then we will try to. Okay. We start with Johnny then. If you unmute yourself, maybe if you can.
[Analyst 1]: Yes. Thank you. Good morning, James and Christina. I hope you can hear me.
James Ahrgren: Yeah.
[Analyst 1]: Just want to start a little bit with the very strong organic growth here, which is obviously very good to see. I just want to break down
James Ahrgren: Yeah
[Analyst 1]: a little bit further and starting with data center. I know you talked about this a lot, but could you say something how much data center was of the quarter, roughly would you say?
James Ahrgren: We don't go out with that number. I think I said if you look at what I said on the sales growth slide, I said we grew 60% in inductive components year over year. That is data center growth, I can say. But then, of course, we don't only do data center in that. We are growing there and in power grids, but the majority of that is data center.
[Analyst 1]: Okay. That is good. I know you also talked about this, but we talked about all the stuff that is growing. That sounds very promising. We just want to clarify a little bit, are there any effect of positive timing effect that could sort of benefit this, or is this an accurate picture of what you see of assess this underlying demand for you right now, would you say? Also, is there any sort of material pricing effect in this quarter?
James Ahrgren: It is maybe a small pricing effect. I would not say. It is in line with inflation, I would say. So I would not say that it is surprising effect. It is a true picture, I would say. I think we hope that we can deliver and continue to deliver like this. So we see this is the true demand that we see now.
[Analyst 1]: Sounds promising. Do you expect more pricing effects going forward the coming quarters, or is this sort of the-
James Ahrgren: No, I do not think so. I think we will be pretty much in line with inflation, I would assume.
[Analyst 1]: Okay. Just one final one from my side, and that is on the component side. I feel like you are still, you can correct me if I am wrong, but I feel like you are still quite confident in your supply chain in the near term. Is that correct?
James Ahrgren: Yes
[Analyst 1]: Yes. Okay, that is good. What do you hear from your customers? Do they see any sort of bottlenecks in their end markets that could impact deliveries, or is this something that we should think about?
James Ahrgren: Not that I have heard so far this quarter, so we would have to get back on that. But we do not really see any of our customers slowing down because of lack of components at the moment anyway.
[Analyst 1]: Okay. That is good. Thank you, James and Christina, and have a great day.
James Ahrgren: Thank you so much, Johnny. Maybe we take Albin Nordmark, if you unmute.
[Analyst 2]: Yes. Thank you, and good morning, Christina and James. Very good reports, of course, but if we try to find some negatives here, gross margin, looking at that, 50% down 3 percentage points here year-over-year and also sequentially. Can you try to help us here break it down and is this anything we should think about? Any color there would be helpful.
James Ahrgren: I would say it is mostly product mix in this case. When we sell more transformers, there is more material in the delivery. I would say that is the main reason. It is copper, aluminum, and electrical steel. They are heavy, bulky products, so the material share is higher. I would say it is product mix-related mainly.
[Analyst 2]: Yeah, that makes sense. Thanks. Also, if we talk about Norlake, you were talking about this, but you win every time you send out now in the US for inductive components. How come that Norlake had such a bad utilization and performance? What was the main reason behind that?
James Ahrgren: They had run out of money. It is maybe a long story, but they delivered a lot of transformers in inductors to the oil and gas industry. I do not remember which year it was, but several years ago the oil prices dipped, and they stopped delivery to that.
James Ahrgren: They had some customer that went bankrupt, and then COVID came in the US as well, impacted them negatively. Then when the oil and gas was really high, the deliveries that they had, they had invested quite a lot in buildings and new capacity. I would say they have tried their best, but they have not been successful.
James Ahrgren: It is hard when you are a single company and you run out of cash, then you take on maybe debt that you shouldn't, you sell your accounts receivables and so on, and then you can get into a bad spiral, and that is really what happened here. I have nothing but respect for the previous owners.
James Ahrgren: They do really nice products, I must say, but they had, it is hard to say bad luck, but they had some market activity against them, and then they failed to recuperate from that. Then we can come in, of course, with our strong balance sheet and support them with that, but also with new sales resources and customers that they maybe didn't have as well. I think it will be a good combination, I think.
[Analyst 2]: Okay, thanks, and congrats on a great quarter. That is all for me. Thanks.
James Ahrgren: Thanks, Albin. Okay, should we take maybe Markus? You unmuted. Thank you.
[Analyst 3]: Yes. Hello. Can you hear me?
James Ahrgren: Yeah.
[Analyst 3]: Very good. Looking sharp, James. I really like the slide there. Just coming back to the organic growth question that we had, 18% very strong. Can you maybe help us understand the split between data centers, defense, power grid?
James Ahrgren: We do not really do that. What we say in the report is that all our market segments are growing, and then the biggest growers are data centers, defense, and power grids. Maybe if I give a little bit more flavor, then it is data centers that is growing absolutely the fastest for us. It is not one customer, it is several customers that we have in this area.
[Analyst 3]: Very good. Maybe if you stick to that data center growth, could you share how much of the sequential UPS growth is driving this? What capacity now for the UPS?
James Ahrgren: We have said before that we are aiming to build such, we have a capacity of 100 per month, and I think in the quarter, we delivered 150.
[Analyst 3]: Very good. Looking into 2027, do you expect that to ramp up
James Ahrgren: Yes
[Analyst 3]: in the same sort of speed that we've seen?
James Ahrgren: I believe so, but I cannot guarantee anything. I believe that this will continue to increase. It's a fantastic product that our customer have developed, and we believe that they will be successful in selling it, and then we will get more orders.
[Analyst 3]: Okay. Thank you very much. Those were my questions.
James Ahrgren: Thank you, Markus. Good questions. Maybe if we take Hans then.
[Analyst 4]: Yes. Hi, and good morning. Just some quick follow-ups here. You mentioned that you had some problems to get out all of the orders in defense and data centers. Can you elaborate a bit more on this, try to quantify the magnitude? It seems like you were quite confident that this was pushed into Q4.
James Ahrgren: Yeah. Of course I can, but I do not want to because it is some volume. It is not a huge amount. On the other hand, you can see in the report also our delivery performance going down, meaning that we have more delays than we would like.
James Ahrgren: There is some backlog that we would have liked to deliver out this quarter, but now we will deliver out it. Maybe backlog is already delivered out, but now it will be delivered out in Q4 instead. As I said, I think easiest is to say that we will continue to grow. I think that is the easiest way to say it, and we will try to get back on track with the deliveries.
[Analyst 4]: Okay, perfect. You commented on this before as well, that you see quite solid momentum outside of the defense data center power grid area. Any specific end market that stands out a bit there? It has been weaker in recent quarters and now picking up.
James Ahrgren: No, I think except the three that we have mentioned, it is single-digit growth numbers across the board, and it is varying a little bit between different market segments, but I think it is solid growth from our customers. They show that they are doing well. More than that I do not like to get into really. But it is a good, nice growth and it is different a little bit from the previous quarter this year where we have been a little bit more certain market segments that have been growing. Now it seems more or less everything is growing.
[Analyst 4]: Okay, that is very clear. I think that was all for me. Thanks a lot.
James Ahrgren: Thanks, Anton. Do we have any more questions? Then please raise your hand. I cannot see any. No, then I think we can close the meeting there. I think it is a solid quarter from us. We will continue to grow in this momentum and we will do everything we can to continue to increase our output. Thank you so much for listening and I wish you all have a great day in the stock market.
Operator: [Foreign language]
James Ahrgren: [inaudible]
Operator: [Foreign language]
