Statement from the President and CEO
THE YEAR 2018: Strong growth and intensified focus on increased efficiency
Market conditions in our main markets remained good and we have strengthened our customer relationships further through successful initiatives. Our consistent efforts to make our customers’ everyday lives easier have shown results.
Strong sales growth
Good market conditions with growth in all market segments, combined with successful initiatives, enabled us to achieve total net sales growth of 14% in 2018. Organic growth accounted for 7% of this. The strong organic growth was driven by a continuing high construction investment level, increased infrastructure investments and good development within industry. In addition, several years of strategic sales initiatives have brought us continuing strong growth, both with new and existing customers, who appreciate the value of our customer offering. Our total net sales amounted to MSEK 31,291 (27,484). We estimate that we have grown about seven percentage points faster than the market, thereby confirming our position as the Nordic market leader within technical distribution.
Acquisitions are part of our DNA
Just as in 2017, the acquisition rate was high throughout the year. Of our growth in 2018, five percentage points came from acquisitions. While we have fully focused on realising synergies in line with those we have historically achieved from completed acquisitions, we have also worked at a high ambition level to add further acquisitions. We signed agreements to acquire nine companies with total annual sales of approximately MSEK 960. Several of the acquisitions were made in the “Tools & Supplies” product segment, and more specifically within personal protective equipment (PPE). One example is the acquisition of the Norwegian company Bekken & Strøm, with annual sales of MSEK 415, which was finalised in February. The acquisition made Ahlsell a market leader in personal protective equipment in Norway. This is a very positive development, as we see an ever growing focus on protective equipment and safety from our customers.
The overall good market development created a solid basis for strong demand for our products. However, given the good conditions, the most important factor is how we respond to our customers’ needs in the best possible way, to further strengthen our position. To name a few examples:
- Our successful e-commerce channel, which accounts for about 28% of sales, has strong growth of around 20%.
- We are gaining ground with our range of services and are involved in several exciting projects, such as Karlatornet in Gothenburg.
- By working closely together with our suppliers, we have successfully launched even more sustainable products and services for our customers.
- The investment in the central warehouse in Hallsberg has continued according to plan, despite record high sales volumes.
- Being a world-class distributor means delivery precision and efficient management of working capital. We are therefore proud to have handled a strong increase in volumes during the year without tying up more inventories.
Increased focus on profitability
We have a stable and resilient business model, but the very strong growth does not just have advantages. For example, our acquisitions had a dilutive effect on the margin for much of the year. However, towards the end of the year, after making progress in integrating the acquisitions, they had a margin in line with the average for the Group. We also noted a weakening of the gross margin during the year, which was mainly an effect of strong growth in customer and product segments with a lower margin as well as increased costs for handling high volumes, particularly in Norway. We needed to strengthen our resources, primarily in logistics and transport, to maintain a high level of service to customers. In the short term, this has had an adverse effect on earnings. Our adjusted EBITA amounted to MSEK 2,587 (2,405), corresponding to a margin of 8.3% (8.8). However, we see good opportunities to improve our profitability and we therefore intensified our focus on cost-saving and efficiency-improving measures in our main markets in the second half of 2018. These measures are expected to bring overall savings of approximately MSEK 160 in in 2019. We already saw positive effects from the measures taken in our Swedish operations at the end of the year. The coming year will be a year in which we, in addition to already ongoing efficiency-improving measures, also intensify our focus on an improved sales mix. We are well aware that the chosen route towards increased profitability can affect the growth rate.
We must be the best option
To ensure that we remain a natural part of our customers' everyday life in an ever changing world also in the future, we must continuously make their everyday life easier. We need to be close – not just locally through branches or through our sales staff, but wherever and however the customer prefers to reach us. We must also ensure that we can deliver the right products and services, i.e. the most sustainable, efficient, smart and safe ones, exactly when the customer wants them. Ahlsell has the most competent and committed employees in the market. To ensure that we attract, retain and develop our employees also in the future, we place great emphasis on competence development and increased diversity. The combination of these factors above will lead to improved customer satisfaction, more business and better profitability for Ahlsell.
Delisting of Ahlsell
As our major owner CVC, through the company Quimper AB, acquired more than 90% of outstanding shares after their public takeover bid, Ahlsell was delisted in March 2019. The Board's previous proposal for a dividend of SEK 1.84 per share has changed as a result of the new ownership. The new proposal implies that all profits are balanced and that no dividend is paid. For us at Ahlsell, a new form of ownership does not means any change to our focus on creating value for our customers. We have been around for more than 140 years and have constantly refined our business model to create value.
Our broad exposure to several market segments with different cyclical patterns means that we enter the new year in a strong position. I am confident that the positive development within industry and infrastructure will continue. The current solid development in construction is also expected to continue, with stronger growth in renovation and new construction of premises than in new residential construction, which is expected to slow down. Overall, I expect good demand and continuing growth for 2019, albeit at a somewhat lower level than in recent years.
Stockholm, March 2019
Johan Nilsson, President and CEO