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ADMINISTRATION REPORT

1 April 2020 – 31 March 2021

The Board of Directors and the CEO of Addtech AB, company ID number 556302-9726, hereby submit the annual and consolidated accounts for the 2020/2021 financial year. Comparisons in parentheses refer to the corresponding period of the previous year, unless stated otherwise.

Because, in terms of its size, Addtech exceeds the limit set out in item 6:10 of the Swedish Annual Accounts Act, the Administration Report shall include a Sustainability Report. The company has chosen to present its Sustainability Report separately from the Administration Report, in accordance with item 6:11 of the Annual Accounts Act. In accordance with items 6:12 – 14 of the Annual Accounts Act, the Sustainability Report is included as an integral part of the front sections of the published Annual Report, Our strategic playing field, Sustainable business, Sustainable organisation and Sustainable supply chain, in the risks and uncertainties section here in the Administration report as well as in the sustainability notes in the rear sections of the Report.

Operations

Addtech is a Swedish publicly listed group consisting of approximately 140 independent companies which under their own brands sell hightech products and solutions to customers primarily in the manufacturing industry and infrastructure. The subsidiaries have strong positions in selected and well-defined niches with a high degree of technological knowledge. The Group has approximately 3,100 employees in 20 countries and has a turnover of just above SEK 11 billion. Addtech generates optimal conditions for the profitability and growth of its subsidiaries. The Addtech share has been listed on Nasdaq Stockholm since 2001.

The year in brief

On the whole, we can assert that Addtech demonstrated a favourable resilience and, given the high pace of business and good cost control, we managed to maintain a respectable operating margin, despite the COVID-19 pandemic that affected the whole world. We also carried out several successful acquisitions in attractive niche areas.

The business climate over the year was weak in several of the Group’s markets, with demand recovering sequentially. Overall, sales and earnings for the full year decreased for comparable units. Adjusted for the sharp slowdown in scrubber-related sales, and with the sales and profits contributed by completed acquisitions, both sales and earnings increased, with an improved margin.

For the full-year, cash flow was significantly better than for the preceding year, at SEK 1,503 million (1,117), thanks to stable margins and measures for more efficient working capital. We managed to achieve a P/WC of 52 percent (56) despite the fact that the accumulated operating profit for the year decreased. Our liquidity remains good, and we have satisfactory credit head room for continued investment opportunities. No repayments are planned for the upcoming 12-month period.

The acquisition rate was high with 14 completed acquisitions, together contributing annual sales of about SEK 1,140 million.

Market development over the year

In particular, the pandemic posed challenges for our units operating in the marine, special vehicles and mechanical industry segments. At the same time, other segments with great development potential performed well, such as transmission, wind power and the forest and sawmill industries. The business situation was generally stable in electronics, data and telecom as well as in medical technology. Towards the end of the financial year, the business situation normalised, and demand increased in most of the Group’s important market segments.

Geographically, Sweden and Denmark had a stable development, viewed over the full year. Finland was negatively affected by the deteriorating business situation, particularly in the mechanical industry, and Norway by the lack of willingness to invest in oil and gas. Countries outside the Nordic region were hit the hardest by pandemic shutdowns and restrictions. However, over the second half of the financial year, the market situation for our companies with operations in these markets improved sequentially.

Throughout the year, the units experiencing a deteriorating business situation worked actively with measures on costs and working capital. These measures are ongoing and, in total, the adjustments have encompassed approximately 250 employees. The measures entail a cost level better adapted to current sales volumes and will offset the costs that are expected to recur as the companies’ marketing activities gradually increase as volumes improve. At the end of the financial year approximately 120 employees were affected by short-term lay-offs.

Effects of the COVID-19 pandemic

For the group in total EBITA was marginally positively affected during the fourth quarter and during the year there has been a positive effect of approximately the equivalent of 0.4% of sales due to governmental support measures. These grants are recognized under other operating income, or as a reduction in personnel expenses.

Sales are estimated to have been moderately negatively affected by approximately -7 percent during the year as a whole, with a gradual improvement after the first six-month period. No significant write-downs have been done due to the current pandemic.

Development by business area over the year

The division into business areas reflects Addtech’s internal organisation and reporting system. Addtech reports its business areas as operating segments. During 2020/2021, Addtech was organised into the following five business areas: Automation, Components, Energy, Industrial Process and Power Solutions. For further information on the Group’s operating segments, see Note 5.

AUTOMATION
Net sales by Automation during the financial year amounted to SEK 2,384 million (2,425), while EBITA amounted to SEK 245 million (267).

During the first quarter the greatest negative impact was on demand from the Nordic engineering sector, particularly in the units exposed to small and medium-sized customers. The units outside the Nordic region experienced major challenges in terms of restrictions and closures. The units exposed to the medical technology sector, the defence industry and the data and telecom sectors developed positively. Net sales amounted to SEK 583 million (591) and EBITA amounted to SEK 50 million (60).

The business situation was favourable in medical technology, the defence industry, as well as in data and telecom during the second quarter. The level of activity remained low among the companies exposed to the Nordic engineering industry, particularly larger OEM customers that have put new investments on hold, although some recovery was noted in September. The business situation among the companies operating in the markets outside the Nordic region remained affected by shutdowns and restrictions. Net sales in Automation increased by 2 percent to SEK 562 million (552) and EBITA increased by 7 percent to SEK 60 million (57).

During the third quarter, demand increased for the companies exposed to the Nordic engineering sector. In other segments of importance for the business area, such as medical technology, the defence industry and the data and telecommunications segment, the market situation remained positive with stable sales. The business situation among the companies operating in the markets outside the Nordic region remained affected by shutdowns and restrictions. Net sales increased by 6 percent to SEK 625 million (588) and EBITA increased by 13 percent to SEK 58 million (51).

Very tough comparisons with last year’s final quarter and fewer planned deliveries of projects meant that sales decreased sequentially during the fourth quarter. Demand was good in the engineering industry, while the business situation was stable in other important segments such as medical technology, the defence industry, and data and telecom. The market situation among the companies operating in the markets outside the Nordic region remained affected by shut-downs and restrictions, although the market situation improved sequentially. Profit was affected positively in the quarter by a revaluation of contingent purchase considerations by approximately SEK 10 million, the margin was also being positively affected as a result of the year’s streamlining measures. Net sales amounted to SEK 614 million (694) and EBITA amounted to SEK 77 million (99).

Overall, the Automation business area was affected marginally negatively by COVID-19 during the financial year.

COMPONENTS
Over the financial year, net sales by the Components business area amounted to SEK 2,015 million (2,082) and EBITA amounted to SEK 196 million (218).

During the first quarter of the year the units in special vehicles and the engineering sector experienced the greatest negative impact due to the deteriorated business climate. The units exposed to the medical technology and electronics sectors developed favourably, with sales of components and solutions for which demand increased due to the pandemic. Geographically, Finland had the best market situation while Sweden faced the greatest challenges. Nonetheless, Denmark and Norway experienced a stable business situation in the market segments in which the companies operate. Net sales amounted to SEK 496 million (504) and EBITA amounted to SEK 50 million (54).

The business situation in Denmark was stable during the second quarter, while operations in Norway were negatively affected by both currency effects and low oil prices, with a resulting low rate of investment in the oil and gas market segment. The market situation in Finland and Sweden was negative, impacted primarily by the automotive and engineering industries, although there was some recovery late in the quarter. Net sales amounted to SEK 487 million (511) and EBITA amounted to SEK 50 million (58).

During the third quarter the market situation in Denmark and Sweden was favourable, in Norway it was stable, while in Finland the business situation was varied. Demand remained favourable in the wind power market and the automotive and engineering industries saw a certain degree of recovery from low levels, while the business situation in electronics was stable. Currency effects, product mix and non-recurring items in the form of restructuring costs had a negative effect on outcomes and margins. Net sales increased by 2 percent to SEK 498 million (489) and EBITA amounted to SEK 37 million (41).

The Components business area ended the financial year stably despite tough comparisons with the fourth quarter of the preceding year. The market situation in Denmark was favourable in the quarter and stable in Sweden and Finland, while the business situation in Norway was weak due to the low willingness to invest in oil and gas. Demand remained good in the wind power market, as well as in electronics, and the recovery continued in the special vehicle and engineering industries. This year’s cost savings have had an effect on the margin trend, which was back to normal levels for the quarter. Net sales amounted to SEK 534 million (578) and EBITA amounted to SEK 59 million (65).

Overall, the Components business area was affected moderately negatively by COVID-19 during the financial year.

ENERGY
During the financial year, the Energy business area’s net sales increased by 6 percent to SEK 2,566 million (2,412) and EBITA increased by 16 percent to SEK 329 million (282).

The business situation was very positive in the Energy business area in the first quarter. Sales of infrastructure products for national and regional grids and for wind power, held at high levels and the market situation remained stable throughout the quarter. The units that are active in sales of niche products for electrical power distribution, as well as construction and installation experienced clear effects of the pandemic through decreased demand. Net sales increased by 10 percent to SEK 683 million (619) and EBITA increased by 21 percent to SEK 81 million (67).

The business situation in the Energy business area remained highly favourable in the second quarter. Sales of infrastructure products for upgrading and building out national and regional grids and for wind power, maintained at high levels and the market situation remained stable throughout the quarter. The units that are active in sales of niche products for electrical power distribution and for building and installation continued to experience declining demand due to the pandemic. Net sales in Energy increased by 7 percent to SEK 633 million (593) and EBITA increased by 5 percent to SEK 79 million (75).

The business situation in the Energy business area remained highly favourable also in the third quarter. Sales of infrastructure products for upgrading and building out national and regional grids and for wind power, maintained high levels and the market situation remained stable throughout the quarter. The market situations for the units that are active in sales of niche products for electrical power distribution and for building and installation were stabilised during the quarter after a long period of declining demand due to the pandemic. Net sales increased by 10 percent to SEK 657 million (596) and EBITA increased by 42 percent to SEK 87 million (62).

The market situation in infrastructure products for the rebuilding and expansion of national and regional grids remained favourable during fourth quarter, although the inflow of new projects decreased from very high levels, as expected. Long permit periods and lack of consulting capacity affect how quickly the build-out can occur. In wind power, demand remained at high levels and the market situation continued to recover for the units active in sales of niche products for power distribution, as well as in building and installation. A minor revaluation of contingent purchase considerations and currency differences have had a positive effect on the margin for the quarter. Net sales amounted to SEK 593 million (604) and EBITA increased by 4 percent to SEK 82 million (78). Overall, the Energy business area was affected marginally negatively by COVID-19 during the financial year.

INDUSTRIAL PROCESS
Over the financial year, net sales by the Industrial Process business area amounted to SEK 2,785 million (3,204) and EBITA amounted to SEK 288 million (445).

The market situation for the companies in the forest industry was very positive during the first quarter, but otherwise demand decreased in most market segments, primarily in special vehicles, the engineering sector and in the marine segment. Demand for solutions for scrubber installations remained low due to the uncertainty surrounding the oil price and the prevailing pandemic, and sales decreased by approximately 50 percent compared with the corresponding period last year. Net sales amounted to SEK 669 million (807) and EBITA amounted to SEK 73 million (103).

The demand for solutions for scrubber installations remained low during the second quarter due to low oil prices and the prevailing pandemic, and this sales decreased by approximately 75 percent compared with the corresponding period last year. The market situation for the companies in special vehicles and the engineering industry continued to be perceived as weak in the second quarter, although there was some recovery late in the quarter. Demand was high for projects in the forest industry. Net sales amounted to SEK 680 million (865) and EBITA amounted to SEK 77 million (134).

In the process industry, the business situation was stable and demand for projects in the forest industry remained high during the third quarter. Demand for solutions for scrubber installations remained low and sales decreased by approximately 80 percent compared with the corresponding period in the preceding year. The market situation developed favourably for the companies within special vehicles and the engineering sector. Net sales amounted to SEK 707 million (800) and EBITA amounted to SEK 86 million (95).

During the fourth quarter the low demand for scrubber installation solutions continued, and sales decreased by about 80 percent compared with the same period in the preceding year. The market situation for the companies in special vehicles and the engineering industry continued to develop positively. The business situation in the process industry and demand for projects in the forest industry also remained favourable. Profits were negatively affected by a revaluation of contingent purchase considerations of approximately SEK 31 million for the quarter. Net sales amounted to SEK 729 million (732) and EBITA amounted to SEK 52 million (113).

Overall, the Industrial Process business area was affected strongly negatively by COVID-19 during the financial year.

POWER SOLUTIONS
During the financial year, the Power Solutions business area’s net sales amounted to SEK 1,606 million (1,630) and EBITA amounted to SEK 209 million (231).

During the first quarter the sharply declining market for special vehicles was what most affected the business area as a whole, with sales decreasing by approximately 25 percent because of the prevailing situation. The market situation otherwise remained favourable for customised battery solutions and for the companies operating in power supply and wind power. The business situation in data and telecom developed positively over the quarter. Net sales amounted to SEK 381 million (417) and EBITA amounted to SEK 50 million (65).

The declining market for special vehicles continued to be what affected the business area the most as a whole during the second quarter, with sales decreasing by approximately 30 percent due to the prevailing situation although a clear recovery was noted in September. The market situation was stable for customized battery solutions and for the companies operating in power supply. The business situation in wind power and in data and telecom remained favourable over the quarter. Net sales amounted to SEK 365 million (402) and EBITA amounted to SEK 46 million (62).

The market situation for the operations within special vehicles stabilised and demand increased in the third quarter. Demand was favourable for customised battery solutions and for the companies operating in power supply. In wind power the business situation remained favourable over the quarter and in data and telecommunications it was stable.

Sales of power supply systems were lower, while demand for components for the wind power industry was stable. Net sales increased by 6 percent to SEK 398 million (377) and EBITA increased by 38 percent to SEK 50 million (36).

Sales of products in special vehicles developed positively in the fourth quarter, with demand increasing. Demand was favourable for customized battery solutions, as well as in data and telecom, medical technology and defence. The business situation in wind power was stable during the quarter, while sales decreased for the companies operating in power supply. Margins have recovered to normal levels thanks to cost savings and the recovery in special vehicles. Net sales increased by 6 percent to SEK 462 million (434) and EBITA amounted to SEK 63 million (68).

Overall, the Power Solutions business area was affected strongly negatively by COVID-19 during the first and second quarter and moderately negatively during the third and fourth quarter.

Acquisitions

Addtech is constantly on the lookout for companies to acquire and is engaged in discussions with a number of potential companies. During the financial year Addtech completed 14 acquisitions, diversified in terms of their markets and geographies. All business areas completed acquisitions during the year.

Since becoming a listed company in 2001, Addtech has completed more than 140 acquisitions. The following companies were acquired during the year:

Elkome Group Oy
On 1 April, Elkome Group Oy, Finland, was acquired to become part of the Automation business area. Elkome develops, integrates and delivers solutions for applications in industrial IoT primarily for industrial production, smart cities and infrastructure. The offering includes customized computer systems, test systems, info kiosks, software, sensors and industrial communication. The company has sales of about EUR 8 million and 38 employees.

Peter Andersson AB
On 2 April, Peter Andersson AB, Sweden, was acquired to become part of the Energy business area. Andersson System supplies both trading products and own products within electrical accessories for office and kitchen environments, to the Swedish and Norwegian markets. The products are sold through retailers of office furniture, office interiors, AV equipment, computer accessories and kitchen furnishings. The company has sales of about SEK 30 million and 9 employees.

Valutec Group AB
On 8 April, Valutec Group AB, Sweden, was acquired to become part of the Industrial Process business area. Valutec is one of the world’s leading manufacturers of timber kilns to the forest industry. The company has sales of about SEK 350 million and 45 employees.

Fluidcontrol Oy
On 1 September, Fluidcontrol Oy, Finland, was acquired to become part of the Components business area. Fluidcontrol develops, delivers and installs solutions of actuators and valves for applications primarily towards machine builders and the process industry. The company has a sales of about EUR 4 million and 20 employees.

Kaptas Oy
On 1 September, Kaptas Oy, Finland, was acquired to become part of the Automation business area. Kaptas develops and delivers automation systems primarily to customers in pharmaceutical industry, metal, plastic, electronics and food industry. The company has a sales of about EUR 4 million and 27 employees.

Elsystem i Perstorp AB
On 1 September, Elsystem i Perstorp AB, Sweden, acquired to become part of the Automation business area. Elsystem delivers automation solutions primarily for industrial production, automated warehouses, process industry and heating plants. The company has a sales of about SEK 40 million and 18 employees.

Martin Bruusgaard AS
On 7 September, Martin Bruusgaard AS, Norway, acquired to become part of the Industrial Process business area. Bruusgaard delivers a unique turnkey portable gas detection solution, providing its customers in the marine industry increased safety and reduced cost and transportation through standardised instruments, routines, training and procurement. The company has a sales of about NOK 110 million and 30 employees.

Satco Komponent AB
On 1 October, Satco Komponent AB, Sweden, was acquired to become part of the Components business area. Satco Komponent sells hightech electronic components such as electromechanical, RF and cooling components. Satco Komponent has two employees and annual sales of around SEK 18 million.

Skyltar & Märken Gruppen AB
On 2 October, Skyltar & Märken Gruppen AB, Sweden, was acquired to become part of the Energy business area. Skyltar & Märken Gruppen AB is a market leader in its niche providing innovative and customized signs and traffic safety solutions for the Swedish market. The Group has 23 employees and annual sales of around SEK 60 million.

OF-Beteiligungs AG
On 1 December, OF-Beteiligungs AG, Switzerland, was acquired to become part of the Power Solutions business area. OF Group is providing solutions for special vehicles such as driver seats and powertrain in central Europe and Italy. OF Group has a turnover of approximately EUR 16 million with 35 employees.

Synective Labs AB
On 4 January, Synective Labs AB, Sweden, was acquired to become part of the Automation business area. Synective Labs are specialized in high performance systems, creating optimized hardware and software designs within FPGA and ASIC designs. The company has 27 employees and sales of around SEK 30 million.

Powernor AS
On 5 January, Powernor AS, Norway, was acquired to become part of the Power Solutions business area. Powernor is based in Norway, where they specify, design and deliver complete UPS systems with battery backup in demanding applications for hospitals, infrastructure and industry. Powernor has a turnover of approximately NOK 35 million and have 6 employees.

Impact Air Systems Ltd. och Impact Technical Services Ltd.
On 21 January, Impact Air Systems Ltd. and Impact Technical Services Ltd., Great Britain, was acquired to become part of the Industrial Process business area. Impact provides waste and trim extraction and separation systems to various industries and recycling facilities around the world. The company´s bespoke solutions contribute to a more sustainable management of waste and the circular economy. The company has 33 employees and sales of around GBP 8 million.

Fairfield Trading Company Ltd.
On 2 March, Fairfield Trading Company Ltd., Great Britain, was acquired to become part of the Power Solutions business area. Fairfield Trading Company Ltd. is a distributor specialising in the supply of batteries for a wide range of markets. The company has sales of about GBP 3 million and 8 employees.

Financial development

Net sales and profit
Over the financial year, the net sales of the Addtech Group amounted to SEK 11,336 million (11,735). The organic effect amounted to -8 percent and acquired growth amounted to 7 percent. Exchange rate changes had a negative effect of 2 percent on net sales, corresponding to SEK 298 million.

EBITA for the financial year amounted to SEK 1,251 million (1,364). Operating profit amounted to SEK 989 million (1,161) and the operating margin amounted to 8.7 percent (9.9). Net financial items were SEK -52 million (-56) and profit after financial items amounted to SEK 937 million (1,105). Profit after tax for the financial year amounted to SEK 729 million (873) and the effective tax rate amounted to 22 percent (21). Earnings per share before dilution for the financial year amounted to SEK 2.60 (3.20).

Profitability, financial position and cash flow
The return on equity at the end of the financial year was 23 percent (32), and return on capital employed was 15 percent (21).

Return on working capital P/WC (EBITA in relation to working capital) amounted to 52 percent (56).

At the end of the financial year the equity ratio amounted to 35 percent (36). Equity per share, excluding non-controlling interest, totaled SEK 11.95 (11.25). The Group’s net debt at the end of the financial year amounted to SEK 2,798 million (2,253), excluding pension liabilities of SEK 336 million (332).

The net debt/equity ratio, calculated on the basis of net debt excluding provisions for pensions amounted to 0.8 (0.7).

Cash and cash equivalents consisting of cash and bank equivalents and approved but non-utilised credit facilities amounted to SEK 2,119 million (2,407) at 31 March 2021.

Cash flow from operating activities amounted to SEK 1,503 million (1,117) during the financial year. Company acquisitions and disposals including settlement of contingent consideration regarding acquisitions implemented in previous years amounted to SEK 1,219 million (430). Investments in noncurrent assets totaled SEK 90 million (109) and disposal of non-current assets amounted to SEK 11 million (6). Repurchase of treasury shares amounted to SEK 0 million (42) and repurchase of call options amounted to SEK 23 million (23). Exercised and issued call options totaled SEK 48 million (39). Dividends paid to the shareholders of the Parent Company totaled SEK 269 million (336), corresponding to SEK 1.00 (1.25) per share. The dividend was paid out in the second quarter.

Risks and uncertainties

Business operations are always associated with risk. Addtech’s profit and financial position, as well as its strategic position, are affected by various internal factors within Addtech’s control and a number of external factors where opportunities to affect the course of events are limited. Effective risk assessment unites Addtech’s business opportunities and performance with the demands of shareholders and other stakeholders for stable long term value growth and control. When assessing the future development of Addtech it is therefore important to consider not only the opportunities for positive development, but also the various risks in the operations. Naturally, not all risk factors can be described in this section, for which reason an overall assessment must also include other information in the annual report, as well as a general assessment of external circumstances.

Addtech works with risk management on both a strategic and operational level. Risk management involves identifying and measuring risks and preventing them from occurring, as well as continually making improvements to mitigate future risks. The Addtech Group has guidelines and policies to identify deviations that could develop into risks. The level of risk in the operations is followed up systematically at Board meetings and in monthly reports, in which deviations or risks are identified and remedied. The risk factors of greatest significance to Addtech are the economic situation, or other events affecting the economy, such as the worldwide COVID-19 pandemic, in combination with structural changes and the competitive situation. Addtech is also affected by financial risks, such as transaction exposure, translation exposure, financing and interest rate risk, as well as credit and counterparty risk. See Note 3 for a more detailed description of how Addtech manages financial risks.

NET SALES AND EBITA MARGIN
EBITA AND RETURN ON WORKING CAPITAL, P/WC
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 or, as during 2020/2021, outbreaks of pandemics affecting the business climate. 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.
Structural changes  
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 approx 4 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.
Competition  
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 delivery, 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
Environment  
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 conducts an analysis of the potential target’s corporate ID number to counter the risk of being held liable for historical environmental issues.
Climate risks  
Climate change entails both transitional risks and physical risks that can have a negative impact on Addtech and its subsidiaries. Relevant transition risks are higher taxes on carbon dioxide-intensive products and services, revolutionary changes in the market and increased raw material prices. Relevant physical risks are increased operating and capital costs, as a result of more frequent damage to our operations caused by the effects of climate change, such as more extreme weather. For Addtech, the management of climate-related risks is an important parameter for future business development, and we have carried out scenario analyses to identify financial risks linked to climate change. Risks linked to climate change are part of our analysis of potential acquisitions. The Group works to integrate climate risks into major investments.
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 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.
Organisation  
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.
Seasonal effects  
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, customer 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 it is clearly communicated in our internal Code of Conduct. 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.
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 underperforms 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.
Financial risks  
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 expensive. 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 4 percent of consolidated net sales.
IT security and cyber risks  
Throughout society, the digital risks are continuously rising. Like most companies, Addtech and its subsidiaries rely on various information systems and other technologies to manage and develop their operations. Unplanned outages and cyber security incidents, such as data breaches, viruses, sabotage and other cybercrimes, can result in both loss of revenue and loss of reputation. IT events or cyber incidents among third parties, including suppliers or customers, can affect Addtech’s capacity to deliver products and services and to generate profits. To safeguard stable IT environments and prevent incidents, Addtech conducts regular risk assessments, as well as maintenance and reviews of the IT security at both the Group and subsidiary levels. Addtech work with systematic analysis to identify and assess IT risks. Addtech also engages external cyber security experts to ensure that the level of security is adjusted and updated on the basis of prevailing threat scenarios and customers’ increasing cyber security demands.

Employees and development

Employees
At the end of the financial year, the number of employees was 3,133, compared to 2,981 at the beginning of the financial year. During the financial year, completed acquisitions resulted in an increase of the number of employees by 321. The average number of employees in the latest 12-month period was 3,068.

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2020/2021 2019/2020 2018/2019
Average number of employees 3,068 2,913 2,590
Proportion of men 74% 74% 74%
Proportion of women 26% 26% 26%
Age distribution up to 29 years old 10% 11% 11%
30-49 years 48% 48% 48%
50 and older 42% 41% 41%
Average age 46 år 45 år 45 år
Personnel turnover 12% 10% 12%
Average length of employment About 10 years About 9 years About 9 years

Research and development
The Addtech Group conducts limited research and development. The Group’s business model is to offer high-tech products and solutions to customers primarily within manufacturing industry and infrastructure.

Future prospects and events after the reporting period

Principles for remuneration of senior executives
The Board of Directors has resolved to propose that the Annual General Meeting in August 2021 approve the same guidelines as in the preceding year:

The guidelines do not cover remunerations determined by the Annual General Meeting. For employment relationships subject to non-Swedish regulations, appropriate adjustments may be made regarding pension benefits and other benefits to comply with mandatory regulations or established local practices and to satisfy, as far as possible, the overall intention of those guidelines. 

The guidelines shall apply to the remuneration of the CEO and other members of Addtech’s Group Management. The guidelines also apply to Board members to the extent that they receive remuneration for services rendered to the company beyond their Board assignments. Where appropriate, the provisions applicable to the company also apply for the Group. 

How the guidelines foster the company’s business strategy, long-term interests and sustainability 
Successfully implementing the company’s business strategy and advancing its long-term interests, including its continuity, require Addtech to recruit and retain qualified employees. This requires the company to be able to offer competitive overall compensation, which these guidelines allow. Overall remuneration shall be market-based and competitive and shall be set in relation to responsibilities and powers.

The forms of compensation, etc. 
Remuneration shall be market-based and include the following components: fixed salary, any variable salary under separate agreements, pensions and other benefits. In addition, the Annual General Meeting may, independently of these guidelines, determine share and share price-related remunerations. 

Fixed salary
Fixed salary shall consist of fixed cash salary and shall be reviewed annually. The fixed salary shall be competitive and reflect the requirements of the position in terms of expertise, responsibility, complexity and the manner in which the position contributes to the achievement of business objectives. The fixed salary shall also reflect the executive’s performance and should therefore be specific to each individual and differentiated.

Variable salary
In addition to fixed salary, the CEO and other senior executives may from time to time and in accordance with separate agreements, receive variable salary on meeting pre-agreed criteria. Any variable salary shall consist of annual cash salary and may not exceed 40 percent of fixed annual salary. In addition, an additional premium of 20 percent may be paid on variable salary used by the executive to acquire shares in Addtech AB. To avoid unhealthy risk-taking, there should be a fundamental balance between fixed and variable remuneration. Fixed salary shall account for a sufficient portion of the senior executive’s total remuneration to allow the variable portion to be reduced to zero. Variable salary shall be tied to one or more predetermined and measurable financial criteria established by the Board of Directors, such as the Group’s earnings growth, profitability and cash flow. By linking the remuneration of senior executives to the company’s results, variable remunerations promote the implementation of the company’s business strategy, long-term value creation and competitiveness. The terms and calculation bases for variable salary are to be determined for each financial year. Compliance with variable salary payment criteria shall be measurable over a period of one financial year. Variable salary is settled in the year after which it was earned. 

At the end of the measurement period for compliance with variable salary criteria, it shall be assessed to what extent the criteria have been met. The Board of Directors is responsible for the assessment of variable cash remuneration for the CEO. The CEO is responsible for the assessment of variable cash remunerations to other senior executives. Where financial targets are applied, the assessment shall be based on the financial information most recently published by the company. 

The terms for variable salary may be designed such that, under exceptional economic circumstances, the Board of Directors retains the option of limiting variable salary or refraining from paying it if such a measure is deemed reasonable. In designing variable remunerations for senior management, the Board of Directors shall consider introducing reservations that (i) condition the payment of certain portions of such remuneration to the services on which the vesting is based proving sustainable over time, and (ii) allow the company to recover any such remuneration disbursed based on information subsequently proven to be manifestly incorrect.

Additional variable cash compensation may be paid under extraordinary circumstances, provided that such extraordinary arrangements are limited in time and are made only at the individual level, for the purpose of either recruiting or retaining executives, or as compensation for services rendered beyond the ordinary duties of the individual. Such remuneration may not exceed an amount equal to 40 percent of fixed annual salary and shall not be paid more than once a year and per individual. Such remunerations shall be approved by the Board of Directors following a proposal by the Remuneration Committee.

Pension
For the CEO and other senior executives, pension benefits are paid in accordance with individual agreements. As a general rule, pension benefits, including health insurance, shall take the form of defined-contribution solutions, the amount of pension disbursed being determined by the outcome of the pension insurance policies taken out. Defined-benefit pension solutions may occur in individual cases, however. Variable salary can be pensionable. Premiums for defined-contribution pension solutions shall not exceed 40 percent of pensionable salary. Pensionable salary corresponds to fixed monthly salary multiplied by a factor of 12,2 and, where appropriate, variable salary. Wage waivers can be used to enhance occupational pension by means of individually determined pension provisions,
provided that the total cost to the company is rendered neutral.

Other benefits
Other benefits, potentially including a company car, travel benefits, supplementary health and care insurance, as well as occupational health and wellness allowances, shall be market-based and constitute only a limited part of the total remuneration. Premiums and other costs related to such benefits may total at most 10 percent of fixed annual salary. 

Terms and conditions of termination 
All senior executives must observe a notice period of six months. In the event of termination by the company, a notice period of at most 12 months shall apply. In the event of termination by the company, senior executives may (in addition to salary and other employment benefits during the period of notice) be entitled to severance pay equal to at most 12 months’ fixed salary. This severance pay is not offset against other income. No severance pay shall be paid in the event of resignation by the
employee. 

In addition to severance pay, compensation for any restriction of competition may be paid. Such compensation shall compensate for any loss of income and shall be paid only to the extent that the former executive is not entitled to severance pay. This compensation shall be based on the fixed salary at the time of dismissal and shall not exceed 60 percent of the fixed salary at the time of termination (subject to mandatory collective agreement provisions) and shall be paid for the period of the commitment to restrict competition, which shall not extend beyond 12 months after the termination of employment.

Remuneration of Board members 
In specific cases, it shall be possible, for a limited period of time, to pay elected members of Addtech’s Board of Directors for work within their respective areas of expertise that does not constitute Board work. Market- based fees shall be payable for such work (including services performed through a company wholly owned by the Board member), provided that such work contributes to the implementation of Addtech’s business strategy and the safeguarding of the company’s long-term interests, including its sustainability. Such consultancy fees may never exceed the annual Board fee paid to each Board member. 

Salary and conditions of employment for employees I
n preparing the Board’s proposal for these remuneration guidelines, the remuneration and conditions of employment of the company’s employees have been considered. This has been done by including information on employees’ overall remuneration, the components of that remuneration, as well as increases in remuneration and the rates of increase over time, in the decision-making processes of the Remuneration Committee and Board of Directors in assessing the fairness of the guidelines and the limitations they impose.

Preparation and decision-making process 
The Board of Directors has resolved to establish a Remuneration Committee. The Committee’s tasks include preparing principles for the remuneration of senior executives and the proposed guidelines for the remuneration of senior executives approved by the Board of Directors. The Board of Directors shall draw up proposals for new guidelines at least every four years and submit its proposals for adoption by the Annual General Meeting. The guidelines shall apply until new guidelines are adopted by the General Meeting. The Remuneration Committee shall also monitor and evaluate programs for variable remunerations for senior executives, the application of guidelines for the remuneration of senior executives and current remuneration structures and levels within the company. Remunerations for the CEO shall be determined by the Board of Directors following preparation and recommendation by the Remuneration Committee within a framework of approved principles. Following proposals by the CEO, the Remuneration Committee determines remunerations for other members of Group Management. The Board of Directors is informed of the Remuneration Committee’s decisions. The Board of Directors does not address or determine matters of remuneration not involving the CEO or other senior executives, to the extent that they are affected by such matters.

Share-based incentive programmes determined by the Annual General Meeting
Each year, the Board of Directors shall assess the need for share-based incentive programs and, if necessary, submit proposals for resolution by the Annual General Meeting. Decisions on possible share and share price-related incentive programs aimed at senior executives shall be made by the Annual General Meeting and shall contribute to long-term value growth.

Departure from the guidelines 
In individual cases and where there are specific reasons for doing so, and where a deviation is necessary to satisfy the company’s long-term interests (including its sustainability) or to safeguard the company’s financial viability, the Board of Directors may decide to partially or entirely waive these guidelines. As stated above, the Remuneration Committee’s is tasked with preparing decisions by the Board of Directors on matters of remuneration, including decisions on deviations from the guidelines. Decisions on deviations from the guidelines shall be presented at the ensuing Annual General Meeting. For further information on remuneration to senior executives, see also Note 6 Employees and personnel expenses. 

Dividend 
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 1.20 (1.00) per share to the Annual General Meeting in August 2021. The dividend corresponds to a total of SEK 323 million (269), corresponding to a payout ratio of 46 (31) percent.

Parent Company
The operations of the Parent Company, Addtech AB, include Group Management and the Group’s reporting and financial management staff units. Parent Company net sales amounted to SEK 58 million (71) and profit after financial items was SEK 378 million (-41). Net investments in non-current assets were SEK 0 million (0). The Parent Company’s financial net debt was SEK 286 million (341) at the end of the financial year.

Future prospects and events after the reporting period

Future prospects
Addtech operates in an international 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.

We have a favourable underlying momentum in the Group, with good positions in structurally driven areas of development, such as energy conversion and electrification. In times of crisis, companies with stable business models and strong financial circumstances are able to benefit from new opportunities that arise. For this reason, it is important that we continue to focus on our long-term objectives.

The risk and uncertainty factors are otherwise the same as in earlier periods. The Parent Company is indirectly affected by the above risks and uncertainties through its function in the Group.

Events following the close of the financial year
On 1 April, ESi Controls Ltd., Great Britain, was acquired to become part of the Power Solutions business area. ESi (Energy Saving Innovative) Controls is a UK based company designing and delivering energy efficient electronic controls for heating and smart building applications. ESi Controls Ltd. has a turnover of approximately GBP 8 million and have 15 employees.

On 1 April, Hydro-Material Oy, Finland, was acquired to become part of the Components business area. Hydro-Material delivers hydraulic solutions and cooling systems to primarily the market segments special vehicles and the manufacturing industry. Hydro-Material Oy has sales of approximately EUR 5 million and 5 employees.

On 3 May IETV Elektroteknik AB, Sweden, was acquired to become part of the Energy business area. IETV Elektroteknik AB is a knowledge company that offers qualified services in power supply to railways, hydropower and industry. IETV Elektroteknik AB has 38 employees and has annual sales of approximately SEK 80 million.

On 11 May, AVT Industriteknik AB, Sweden, was acquired to become part of the Automation business area. AVT designs and manufactures industrial automation equipment primarily for the manufacturing, pharma and automotive industry. The offering includes electrical and mechanical design, programming of PLC and industrial robots, vision technology, installation and service. The company has 42 employees and sales of around SEK 70 million.

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Proposed allocation of earnings 2020/2021
The following amounts are at the disposal of the Annual General Meeting of Addtech AB: 2020/2021
Retained earnings SEK 192 million
Profit for the year SEK 587 million
TOTAL SEK 779 million
The Board of Directors and the CEO propose that the funds available be allocated as follows:
That a dividend of SEK 1.20 per share be paid to shareholders* SEK 323 million
To be carried forward SEK 456 million
TOTAL SEK 779 million
* Calculated based on the number of shares outstanding at 30 June 2021. The total dividend payout may change if the number of repurchased treasury shares changes prior to the proposed dividend record date of 1 September 2021.

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