Addtech’s profit and financial position, as well as its strategic position, are affected by various internal factors within Addtech’scontrol and various external factors over which Addtech has limited influence. The most important risk factors for Addtech are the state of the economy, structural changes, competition and changes in exchange rates.
State of the economy
The markets in which Addtech is active largely follow overall industry trends. Through the Addtech Life Science business area, trends in the national economy have assumed greater importance for the Group, as these trends influence investment and consumption in health-care and research. Addtech’s sensitivity to the economy is reduced 1) industry diversity, in that the customers of Addtech's 90 or so subsidiaries operate in different phases of the business cycle, and 2) focusing on multiple niche markets.Addtech’s significant sales of technical service, support and consumables to the aftermarket, as well as to laboratories and health care, further reduce the Group’s sensitivity to the economy as a whole.
Structural changes among customers
Structural changes among and consolidation by customers accentuate demands for added value in offerings from suppliers. To meet these demands, business units active in the market must have sufficient financial strength as well as significant service content and product offerings. In many industries, parts of production are subcontracted. This involves risks as well as opportunities for Addtech, because a contract manufacturer could choose other suppliers, or new business opportunities could materialise.
The effects of increased internationalisation, by which production is relocated to different countries, have been limited, except in the early 2000s as telecommunications and electronics firms relocated. The Group’s exposure to a large number of industries and the fact that no single customer accounts for more than about three percent of consolidated revenue reduce the potential impact of individual companies deciding to relocate abroad. Clear value added and the unique quality of Addtech’s offering to customers generate opportunities to deliver outside the immediate geographic area.
Competitive situation
Change and consolidation within the value-added technology trading industry are constantly altering the competitive situation. Economies of scale may pressure prices, but Addtech’s strategy includes achieving market-leading positions in specific niches, by offering products and services for which price is not the sole deciding factor.
Future level of capital spending
During the past three years, investments in property, plant, equipment and intangible non-current assets have totalled SEK 148 million, mostly in IT support, machinery and equip-ment. During the same period, investment in business combinations (corporate acquisitions) totalled SEK 432 million. Over time, the key determinant of the future level of capital expenditure is the pace of corporate acquisitions.
Seasonal variations
Overall, Addtech’s business has limited vulnerability to seasonal variations. Business activities normally follow the seasonal pattern of manufacturing, which means lower sales during the summer months. Based on historical results, less than half of the revenue is generated in the first two quarters of Addtech’s financial year (April–September), more than half in the last two quarters (October– March). Major deviations from this pattern may occur if general business conditions change rapidly during the course of a year. In individual business areas, such as Addtech Life Science, seasonal variations can be substantial.
Changes in volume of sales
A small increase in volume in any business of the Group can be expected to improve operating profit in line with the gross margin in that business. However, once volume has increased a certain amount, a level is reached at which resources must be expanded. In that case, incremental effects tend to reduce the marginal income from additional volumes to a level that eventually approaches the operating margin. When volumes decline, the short-term negative effect on operating income may be greater than the analogous positive effect of greater volumes. Actions must be taken to deal with this negative effect so that, in the slightly longer term, it approaches the operating margin. It should also be noted that the Group’s different businesses operate under varying conditions with respect to gross margins and capacity utilisation, for instance.
Thus different operations have different abilities to cope with volume growth, depending on existing resources, or to reduce resources in the event of decreasing volumes. The effects reported should be seen as indications only and do not include any effects of offsetting actions the Company would take in such eventualities.
Employees
Human capital is Addtech’s most important competitive asset. The Company uses a variety of tools ranging from reward and remuneration structures to skills development and internal career opportunities to be able to recruit, keep and further develop the Group's employees. The Group's deeply rooted decentralised corporate culture is also a key success factor in this respect. In conjunction with acquisitions, the Group places particular emphasis on motivating and ensuring long-term commitment from key people in the acquired company.