Chief Executive's Review

2020 – a turbulent year

After 5% growth in the first quarter, the situation changed completely with the pandemic triggering an abrupt decline in demand. There was considerable uncertainty about the consequences of the pandemic and a series of activities was carried out to create as safe a working environment as possible and maintain the required level of service to our customers. The impact of the pandemic on the Group's operations varied among industries and markets. Some entities reported a drop in sales of more than 35% in the second quarter and the decline in sales overall was 10%.

There was a reduction in numbers of infections in the third quarter and demand gradually improved. The sales activities gradually got back to normal and the decrease in sales levelled off at 2%, although several entities continued to contend with a significant slump.

As the numbers of infections rose in the fourth quarter, the health of our organisation once again became a top priority. Each organisation had settled into new routines and found effective ways of conducting sales activities suited to the situation.

Economic activity continued to pick up and sales in the 2020 quarter grew by 5% year on year, which meant that full-year sales were on a par with last year.

Throughout the challenges of this past year, the Group has once again demonstrated that it has the agility and strength to navigate difficult situations. Thanks to the creativity, loyalty and hard work of our operations, our customers have continued to receive a high level of service and our full-year sales are comparable with the previous year's.

”I am greatly impressed by the way in which the level of service to our customers has been maintained.

Earnings trend

This proved to be another year of record earnings, with profit before tax up 10% to sek 401 million. The ebita margin also reached a new record level of 12.9%. The strong performance can be attributed to a number of cost-cutting measures that were implemented in the second quarter, along with significant reductions in travel and marketing costs. In addition to this, several companies in Sweden and other countries received government financial support, mainly paid out in the April to August period when economic activity was particularly slow.

Growth across the regions

Thanks to a strong fourth-quarter performance, Region Sweden succeeded once again in delivering its best results and highest sales ever. Sales increased by 2% excluding the impact of foreign currency exchange rate fluctuations and ebita rose 6%. During the year, ATC Tape Converting and Elektro Elco reported a 35% increase in demand and 24% rise in sales figures. oem Automatic, the Group's largest company, which has a broad customer base and is thus a good bellwether of the economic health of Swedish industry, reported a 3% year-on-year decline in sales.

Despite the pandemic, region Finland, the Baltic states and China, which was already suffering a slowdown in the latter part of 2019, managed to deliver sales figures that were on a par with the previous year.

The operations in China reported a 4% increase in sales, while other entities in Finland and the Baltic States posted a drop in sales. Cost-cutting measures and, to some extent, government support grants boosted ebita by 18%.

In Region Denmark, Norway, the UK and East Central Europe, the impact of the pandemic was generally stronger and net sales fell by 5%, with an 8% drop in organic sales. Two acquisitions that have been made boosted sales by 6%.

The operations in Norway and Hungary fared best, with 19% and 10% growth in sales respectively. The operations in Norway posted 3% positive growth even if the impact of the acquisition that was made in the autumn of 2019 is deducted. The operations in Slovakia, Denmark and the UK were most severely affected by the pandemic. In this region, ebita rose 4%, also because of cost-cutting measures and some government support grants.

Acquisitions

In early 2020, the UK company Zoedale Ltd was acquired. The company offers a range of valves and actuators and, at the time of acquisition, was generating annual net sales of sek 37 million. This is an excellent example of a complement to an existing company and it strengthens the product offering in the UK market.

Acquisition activities were suspended during the spring due to the outbreak of the pandemic, but were resumed in the autumn. The pandemic has had some impact on the acquisition process as it has been less possible to physically visit potential takeover targets. Acquisitions continue to be an important part of oem's growth strategy and our activities in this area will be ramped up when circumstances have improved.

Digitalisation is more important than ever

We have been progressing towards a more digitalised environment for several years and our digital operations played a vital role in keeping our business moving during the pandemic. Employees have been able to work from home and interact with others through video meetings, which has meant that most areas of our business have continued to operate with the same momentum. From a longer-term perspective, we need to meet physically and visit various businesses to maximise the development opportunities of the Group. But it has been very impressive how the organisation has adapted to the new situation and new ways of working. Thanks to the new models of working created during the pandemic, we will be operating more efficiently and effectively in many areas in the future.

Investment in digital platforms has been a priority and will remain a central element of the Group's development plans.

Dividend

oem's dividend philosophy is that dividends shall be paid to the extent considered reasonable, taking into account the financial position and any need for investments and potential acquisitions. Due to the uncertainty throughout the spring of 2020, it was decided there would be no dividend for the 2019 financial year.

The proposal for the 2020 financial year is a dividend of sek 7.50 per share combined with a redemption share of sek 12.50 per share. The dividend is equivalent to 55% of earnings per share after tax and a direct return of 2.4% based on oem's year-end share price. The proposed dividend means that oem has raised its dividend by an average of 15% every year over the last 12 years except for 2019.

Highly-efficient business model

What we have experienced in the past year is unlike anything we have seen before. The uncertainty in the market created by the pandemic has forced the operations to keep making adjustments to their plans and activities. I am greatly impressed by the way in which the level of service to our customers has been maintained and by the creativity, loyalty and dedication shown by the organisation. Many of oem's operations have gained new market share during the pandemic and we are a stronger Group today.

Tranås, March 2021

Jörgen Zahlin

Managing Director and CEO, OEM International AB.