CONCENTRIC INTERIM REPORT JANUARY – DECEMBER 2017

FOURTH QUARTER

•  Net sales: MSEK 503 (473) – up 12% y-o-y, after adjusting for currency (–6%).
•  Operating income: MSEK 108 (86), generating an operating margin of 21.4% (18.2). Underlying operating margin was 19.6% (17.4), adjusting for restructuring and pension related items affecting comparability. 
•  Earnings after tax: MSEK 82 (64); basic EPS of SEK 2.08 (1.57). 
•  Cash flow generated from operating activities: MSEK 132 (100) driven by tighter management of working capital over the last quarter. 
•  Dividend: Based on the Group’s earnings and strong financial position, the Board of Directors intend to propose a total dividend of SEK 3.75 (3.50) per share and to renew the current mandate for share buybacks. 

FULL YEAR

•  Net sales: MSEK 2,104 (2,004) – up 6% y-o-y, after adjusting for currency (–1%). 
•  Operating income: MSEK 404 (341), generating an operating margin of 19.2% (17.0). Underlying operating margin was 18.7% (16.8), adjusting for restructuring and pension related items affecting comparability. 
•  Earnings after tax: MSEK 303 (246); basic EPS of SEK 7.54 (6.01). 
•  Cash flow generated from operating activities: MSEK 360 (409) – down y-o-y mainly due to increase in working capital.
•  Group’s net debt: MSEK 185 (300); gearing ratio of 21% (35) mainly due to pension remeasurement gains this year.

President and CEO, David Woolley, comments on Q4 2017 interim report.

Sales development
Group sales for the fourth quarter were up 12% year-on-year in constant currency, slightly above the latest published market indices. The increased activity levels in the fourth quarter reflect strong demand across our core regions of North America and Europe. The largest year-on-year improvements for the quarter were achieved in medium- and heavy-duty Truck sales and sales made into the off-highway sectors of Agricultural Machinery and Construction Equipment.

Overall, 2017 was characterised by steady and stable market development in our four principal end sectors. The largest end sector for Concentric continued to be Trucks, representing 43% of the group's sales, concentrated primarily in North America and Europe. Class 8 Truck sales in North America showed the largest year-on-year growth, as the region recovered from the low point in 2015. European demand for medium- and heavy-duty Trucks in 2017 showed steady improvement, in line with the trend of the previous year. The end sectors of Construction Equipment and Industrial Applications also showed improvement in all geographic areas. Whilst demand for Agricultural Machinery remained relatively low, there were signs of improvement for heavier machinery, particularly in South America. India continues to gain in importance for Concentric, underpinned by the strengthening Indian economy. As a result, group sales for the full year were up year-on-year by 6% in constant currency.

Operational excellence and business improvement

The culture within Concentric to achieve continuous improvement is firmly embedded. The key drivers are to achieve absolute satisfaction of our customers and employees. The Concentric Business Excellence programme (“CBE”) has enabled the teams to efficiently increase our capacity and output across the globe to meet a growing demand.

The restructuring plans initiated and executed during the second half of 2016 delivered cost savings in 2017 in line with expectations. The CBE-programme has continued to improve the group’s profitability, and the reported operating margin for the fourth quarter and the full year increased to 21.4% (18.2) and 19.2% (17.0) respectively. Adjusting for the restructuring and pension related items, the operating margin improved to 18.7% (16.8) for the full year.

We are constantly seeking, monitoring and acting upon the feedback received from our stakeholders and we are pleased with the survey results for 2017. Continuous improvement is, by definition, an ongoing process and the business has well defined roadmaps for 2018 and beyond.

Technology : Acceleration in the Development of Electric and Hybrid Vehicles and Machines

Concentric´s “Technology + Innovation = Sustainability” has never felt more relevant than now. Concentric already has world-class technology that is well recognised in the areas of heavy duty diesel engines and hydraulic systems in both on- and off-highway markets.

Legislative forces that drive emissions reductions has been a recurring theme over the past decade, but in 2017 we saw OEMs stepping up their development activity for both electric and hybrid vehicles. Concentric announced a number of new business wins within this increasingly important market, including nominations for electrically driven water-pumps, oil-pumps and electro-hydraulic steering pumps. Our product and application engineers have successfully combined our durable, high performance and efficient pumping technology with market leading DC brushless motors and intelligent control systems. The net result is that Concentric has extended its reputation for technology and innovation into the growing low-emission vehicle market.

Our internal team and external advisor network continue to review potential acquisition targets that enhance our technology offering and/or geographical presence alongside our global customers.

Outlook

Looking forward, the level of orders received in the fourth quarter indicate that sales in the first quarter 2018 will be slightly ahead of sales in the fourth quarter, even after taking account of a seasonal adjustment for the fewer working days in the fourth quarter. Based upon the activity levels experienced towards the end of 2017 and considering the market indices weighted for our end markets, 2018 has the potential to support further growth. The adoption of higher technology solutions that reduce emissions will be an important contributor to this growth. As we look into the coming year, medium- and heavy-duty Truck markets seem capable of sustaining the current strong demand levels. The market outlook for Construction Equipment and Industrial Applications also appears stable. The global Agricultural Machinery market is still recovering but from a comparatively low base and this may offer further potential for growth. We have a great team in place that are highly motivated and look forward to the opportunities and challenges of 2018. Concentric remains well positioned both financially and operationally, to fully leverage our market opportunities.

For further information, please contact:
David Woolley (President and CEO) or David Bessant (SVP Europe and Rest of the World) at Tel: +44 121 445 6545 or E-mail: info@concentricab.com

The information in this report is of the type that Concentric AB is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Markets Act. The information was submitted for publication, through the agency of the contact persons set out above, at 08.00 CET on 7 February, 2018.