Finally, summer, with continued challenges ahead…
The last few years have been subject of global challenges in many ways. The pandemic was, and may still be, a battle of life and death. History seemed to repeat itself 100 years later with the Spanish flu, which started in the US, and the destructive impact related to that. Unlike in 1918, governments and central banks acted, which in the short term addressed the most urgent issues, but the consequential risks that followed in reconsideration, were far too large and lasted way too long. These measures in conjunction with structural logistics problems triggered a high and sustainable inflation rate.
The same inflation problem appeared shortly after the pandemic commenced. In the fall of 2020, the Production Price Index (PPI) started to elevate and already in the summer of 2021 the index was 10% up on an annual basis. In addition, energy developed to be a scarce resource. The amount of renewable energy provided is not sufficient for a rapid phase-out of fossil energy sources. The energy issue was further worsened by the war in Ukraine. Unfortunately, the energy issue will persist, and will certainly lead to higher energy prices than before the pandemic and the war, in both the short and long term.
It was not surprising that the stated factors would contribute to a high general inflation. The central banks waited way too long and hoped that the situation would somehow be resolved. Finally, central banks had to act with aggressive interest rate increases. The federal reserve raised the interest rate up to 5%, and I was along with many others surprised that it went so well considering the global indebtedness.
We are now beginning to see that production prices have levelled out, and in some countries even have begun to fall, which in the long run is a prerequisite for the general inflation to stabilize and revert to a more normal level. For example, producer prices in China are down 5% on an annual basis. In a global perspective, the measures executed by the central banks have been beneficial for relatively few, while the high inflation had negative impact with all of us. Hence, it is instrumental that central banks and states work resolutely to return to price stability as soon as possible.
For AEM (Ankarsrum Electric Motors) as a company, the last few years have certainly been most challenging, although I think we have addressed and managed the problems in a constructive and firm manner. During this period, the company made the largest investment in the plant for over 25 years. Even in a period of uncertainty, a company must plan, work out, and implement measures for the future. The board, management team and staff members at AEM have also been working towards further consolidating and developing the AEM business model. This work has required commitment, high effort, and patience from everybody involved. We have gained new customers and are working on several projects to develop new electric motors and applications with both existing customers and new prospects. I believe strongly that our excellent staff members in conjunction with the extended product portfolio have enormous potential to capture new orders and grow the business.
The demand for our products has held up well, especially B2B. We also see a clear trend among larger companies to increase production locally in Europe and reduce the dependence with China and structural Asian countries. I believe that more robust supply chains and closer collaborations with emphasis on product development will be a focus area for the future. As a company, we have high ambitions to honor the long and sustainable industry history of Ankarsrum, which started in 1655.
Finally, I would like to wish all customers, employees, and stakeholders a really good and restful summer.