Continued double-digit growth and record profitability.
Comment from CEO Markus Granlund:
The fourth quarter was a new show of strength for the business and for the third consecutive quarter we reported double-digit sales growth. The growth is based on healthy organic development, where we are well-positioned to meet trends such as sustainability and digitalisation, combined with acquisitions. Concurrently, each business area noted a record level of profitability for the quarter - and we have achieved our financial objective for the full year. As a next step following the decision to separate the Product Information business area, the Board of Directors has resolved to initiate preparations for a listing of the business area. The intention is to propose a Lex Asea distribution and subsequent listing during the fourth quarter of 2022. For 2021, the Board of Directors proposes a dividend of SEK 4.00 per share, which leaves room for further acquisitions.
Strategic shift yields results
Many industries are investing in new technology and innovative solutions, in part as a growing number of companies are setting new, ambitious sustainability targets. To achieve these targets, many of them need additional expertise in product, production development and digital aftersales solutions. During the fourth quarter, the Group reported sales of SEK 477 million (401), corresponding to an increase of 19 per cent compared with the same period of 2020, of which organic growth was 8 per cent. Sales for the full year amounted to SEK 1,711 million (1,627) and growth to 5 per cent.
I am pleased that our strategic shift in the offering and industry diversification has continued successfully during the year. The shift accelerated due to the swift measures introduced at the onset of the pandemic in spring 2020, which offered us an excellent position when the market situation improved in 2021. Several quarters of growth in line with our financial objectives reflect the strong momentum we have in our operations.
Operating profit for the quarter amounted to SEK 56 million (49) and for the full-year to SEK 175 million (130), yielding an operating margin of 11.8 per cent (12.1) and 10.2 per cent (8.0), respectively. I am proud to note that we improved profitability in 2021 by more than two percentage points and reported a new record for the full-year. This means we have already in the first year achieved the higher profitability target set by the Board of Directors at the beginning of 2021.
Our strategic shift also has a positive impact on profitability, in part as our contribution moves higher up in the customers' value chain. In addition to strategic solutions in, for example, electrification and automation, the shift also includes an expanded offering in digitalisation and learning. Part of the profitability improvement is due to lower costs as a result of remote working, but I can see that our new, flexible working methods, which were formalised during the year through a new company policy, mean we will retain a lower cost level compared with before the pandemic. Cash generation was strong for the quarter and, after paying for the two most recent acquisitions, we end the year with net cash of more than SEK 200 million.
High demand and record operating margins
The Product Information business area reported organic growth of 11 per cent for the quarter, which reflects healthy demand for both digital product information and digital learning as well as positive effects of completed projects. Operating margin was 16.5 per cent (14.9), which is the highest margin reported by the business area for a single quarter. Profitability was highly favourable in all markets and was positively impacted by high productivity, which was partly a result of our successful multi-site strategy and lower cost levels due to remote working. I am impressed by the positive growth trend and the margin improvements made in the business area in recent years - and note that for the second consecutive full year the business area has reported an operating margin exceeding 15 per cent.
Demand was also high for services in Engineering & Digital Services (EDS), which grew by 24 per cent during the quarter, of which 8 per cent organically. It is gratifying to see that we, despite a mobile labour market for engineers and system developers, are attracting many new talented employees. The November employee survey provided confirmation that Semcon's employees enjoy their work, as our employee Net Promoter Score (those who would recommend Semcon as an employer) increased to a new high for EDS and the Group. It is inspiring to work at a company that helps to make the solutions of the future, such as the project with Ortoma where we are providing support in the development of AI-based software for efficient healthcare. Operating margin for the business area was a record 13.3 per cent (12.2) for the quarter and 10.2 per cent (5.3) for the full-year, driven by healthy demand and a high level of efficiency in operations. Acquisitions concluded and the divestment of Yeti Move also made a positive contribution to profit for the quarter. I am proud of the fantastic projects and the team effort made to achieve an operating margin for the business area of over 10 per cent for 2021.
Three acquisitions in eight months
Last year, I wrote about our ambitions for new acquisitions and our updated financial objectives took this into account. During the fourth quarter, we acquired both the Swedish IT company Tedsys and, at year-end, Walkgrove in the UK, which strengthens our offering in professional digital learning. Together with the acquisition of Squeed in May, we have added three outstanding companies to Semcon in eight months, contributing annual sales of SEK 177 million. All of these additions possess expertise that complements our existing operations and develop our offering in digital and physical solutions. Our balance sheet is strong and we aim to continue to make further strategic acquisitions in 2022.
Preparations for split-up
Work to split Semcon's business areas into two separate companies is progressing as planned. The aim of the split is to increase focus on each separate business and to leverage growth opportunities in the best way possible. No material costs have been charged to earnings for the preparatory work to date.
The Semcon Board resolved - in parallel with the internal separation - to initiate preparations for a Lex Asea distribution and listing of the Product Information business area. The ambition is to conclude the separation in 2022 and the Board intends, assuming the circumstances at the time are deemed suitable, to propose the distribution and subsequent listing at a general meeting during the fourth quarter of 2022.
Exciting times ahead
In conclusion, 2021 was a show of strength when the business grew at the same time as we reported record profitability. The positive outlook combined with a new structure that underpins further growth mean I can see excellent opportunities for sustained long-term value creation.
In the short term, I expect a healthy market and continued good growth in the Group at the beginning of 2022. The Board of Directors proposes a dividend of SEK 4.00 per share, which is aligned with Semcon's dividend policy but also leaves cash funds available for further bolt on acquisitions. I am looking forward to the rest of the year, with exciting times ahead of us!
Göteborg, 9 February 2022
Markus Granlund, President and CEO
Telephone conference and audio cast
Today at 10:00 a.m. CET, Semcon's president and CEO, Markus Granlund, and CFO, Björn Strömberg, will present the report and host a Q&A session. For more information about the audio cast, please visit https://semcon.com/investor-relations/.
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