CEO report

Comment from VBG Group´s President & CEO, Anders Birgersson:

Record-high sales for the Group

In the first quarter of 2022, VBG Group achieved quarterly sales of over one billion Swedish kronor for the first time: SEK 1,156 M, with an EBITA of SEK 164 M. The high level of net sales is attributable to record-high sales of the Group’s products, strengthened by favorable currency effects in combination with sales from the acquired company Carlyle Johnson Machine.

Operating earnings were also the best in the Group’s history, but the EBITA margin of 14.2% (16.6) was subject to downward pressure. The first quarter of 2021 was a tough comparison quarter as a result of the pandemic, but beyond that we have margin pressure caused by increasing overheads during the first quarter.

INCREASING OVERHEADS

Early in the year, many of our employees were sick or quarantined owing to the fourth wave of the pandemic. Sick leave in the first weeks of 2022 were the highest that VBG Group had experienced since the outbreak of COVID-19, which impacted our delivery capabilities. To ensure customer deliveries without compromising the health and safety of our employees, the overheads for personnel and logistics rose.

The price increases we saw in 2021 – primarily on raw product, materials and freight – continued during the first quarter. We are working continually on compensating for the increased costs, but we are seeing a continued lag in our own price increases.

THE CONFLICT IN UKRAINE

In the middle of the quarter, we noted a decrease in the effects of the pandemic on our operations. At the same time, Russia invaded Ukraine. We followed the course of the war with a great deal of concern during the quarter.

As a Group, VBG Group has a minuscule share of direct sales to Russia, Ukraine or Belarus. We have indirect sales that are more difficult to oversee, but even these constitute a limited share of total sales. Our operations are impacted primarily by the continued rise in prices for raw materials, energy and freight, as well as the cost inflation that the war contributes to in general.

The conflict in Ukraine, as well as the pandemic, have compelled us to take extraordinary measures and to continually adapt our operations to new conditions. I am extremely proud of the creativity and flexibility displayed by our entire organization in solving problems and delivering to our customers.

LONG-TERM STRATEGY

VBG Group stands for sustainable, profitable growth. Working on our long-term strategy despite the prevailing circumstances over the last few years is important.

In the first quarter, we adjusted our profitability target. The Group’s new objective is to achieve an EBITA margin of at least 15%. The continued work on profitability in Mobile Climate Control is crucial to achieving this objective. During the first quarter, we completed a modern new facility for the division’s bus operations in the US. In the second quarter, the bus operations will be consolidated into the new facility at York, Pennsylvania.

Another part of the profitability initiatives is the integration of the newly-acquired Carlyle Johnson Machine into Ringfeder Power Transmission. This work progressed in accordance with plans during the quarter and provides increased opportunities for consolidating the division’s operations into fewer locations in the US.

The sustainability initiatives remain central to our long-term strategy. In March, VBG Group was admitted as a member of the United Nations Global Compact, the world’s largest sustainability initiative for reinforcing corporate social responsibility. As a member, VBG Group undertakes to work actively on sustainability issues and to submit annual progress reports on these efforts to the UN. This is an important membership for us, and during the quarter we worked actively on defining sustainability targets for the future that further clarify our ambition going forward.

THE FUTURE

It is with mixed feelings that I sum up the first quarter of the year. It is gratifying to be able to report record-high figures in both net sales and operating earnings. Order bookings during the quarter remained high: 21% higher than in the first quarter of 2021, which shows that the need for transportation and industry solutions remain significant.

The conflict in Ukraine, cost inflation and threats to the climate are all creating concern about the future, however. At present, it is difficult to foresee the consequences of the current situation.

We had hoped to keep pace with the price increases early in the year, but under the current circumstances price compensation is something we will need to continue working on for the rest of the year since the pressure on supply chains, cost inflation and shortcomings in the system will remain.

In conclusion, I want to extend my deepest sympathies to all the people suffering because of the devastating war in Ukraine. After two years of pandemic, I would have wished a period of greater stability for all our employees. Unfortunately, this does not look like it will be the case. I would like to thank all our employees for their excellent work during the quarter despite all the challenges, and hope that we will see a brighter future soon.

 

Anders Birgersson
Managing Director and CEO

Q1 VBG Group interim report January – March 2022 (PDF)