Strong resilience in challenging times
Comment from CEO Markus Granlund:
It is highly gratifying that we, despite a challenging market situation and significant restructuring costs due to COVID-19, have reported an operating profit and strong cash flow in the second quarter. Decisive factors in achieving this were the constructive collaboration with our customers, the swift transition to remote working while retaining productivity, the rapid pace of the restructuring measures taken and efficient cost control. I am impressed by the commitment and decisiveness shown by my colleagues at this difficult time, with the rapid switch to a new market situation. The strategy shift in recent years to new fields of technology, industry diversification and the efficiency measures to increase profitability have been crucial elements in our greater resilience in a less favourable business environment.
Operating profit was burdened by restructuring costs of approximately SEK 37 million, which is slightly higher than previously communicated. The measures are largely attributable to our decreased exposure towards the automotive industry and entail an acceleration of our strategic transformation through a skills shift and industry diversification. During the quarter, we reduced our costs by approximately SEK 26 million through state support, primarily related to short-time working. We expect demand to steadily increase and that our employees who are subject to short-time working will gradually return to full working hours over the coming quarters.
Our offerings and cutting-edge expertise, not least in digital services and aftermarket, have great potential to streamline our customers' operations - particularly in the current market. The Product Information business area noted a positive impact on earnings, with a operating margin of 15.3 per cent for the quarter - more than double the operating profit in the year-earlier period. As approximately 75 per cent of sales are generated from long-term managed service contracts, the business area has to date noted only a relatively limited impact from the change in the market. Demand from customers in the telecom sector and the manufacturing industry has been at high levels during the period. The interest for digital training and e-learning has also been substantial and our delivery capacity was strengthened through the acquisition of Xtractor earlier this year. At the end of the quarter, we were also contracted by Lynk & Co to develop all technical training for the European workshop network in its preparation for the launch of a new car model. During the first half of the year, the rate of productivity in a number of larger projects and profitability in the business area was higher than normal, but the same high levels are not expected to continue in the second half of 2020.
Even if several customers have slowed the pace of some product and production development projects during COVID-19, the Engineering & Digital Services business area has, despite the challenging market situation, continued to generate favourable earnings when adjusted for restructuring costs. The business area successfully implemented measures to counter a declining market and accelerate our strategic shift. For example, the percentage of sales to Life Science continued to increase significantly. During the quarter, we extended our cooperation with Getinge, initiated a project with Novavax to develop a COVID-19 vaccine, and began developing a world-unique proton treatment for cancer together with Kongsberg Beam Technology. We are proud to be one of the leading consultancy firms in the Nordic region in Life Science.
Our customers' needs to enhance efficiency and embrace technology shifts have not decreased due to COVID-19, though in the short term it has resulted in a slight restraint in investments from the hardest hit customers. The market remains highly uncertain, and we were quick in taking the necessary measures to adapt operations, though we are still prepared to make additional adjustments in the future if required. Our stable finances and strong position in product development, production optimisation and aftermarket solutions have provided us with the right conditions to gain new market shares in prioritised areas to generate gradually increased and profitable growth.
This information is such information as Semcon AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Swedish Securities Markets Act. The information was submitted for publication, through the agency of the contact person set out above, at 08.00 a.m. CET on 15 July 2020.
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