CONCENTRIC INTERIM REPORT JANUARY – DECEMBER 2022

FOURTH QUARTER 2022

• Net sales: MSEK 1,033 (695) – reported sales were up +49% year-on-year. After adjusting for the impact of currency +11% and EMP +34%, sales in constant currency year-on-year were up +4%.
• Operating income: MSEK 172 (87), generating an Operating margin of 16.7% (12.5).
• Net income for the period: MSEK 111 (90); basic EPS of SEK 2.92 (2.36).
• Cash flow from operating activities: MSEK 200 (43); cash conversion increases to 158% in the fourth quarter.
   

FULL YEAR 2022

• Net sales: MSEK 4,056 (2,115) – reported sales were up +92% year-on-year. After adjusting for the impact of currency +12% and EMP +65%, sales in constant currency were up +15%.
• Operating income: Operating income was MSEK 677 (403), generating an Operating margin of 16.7% (19.1).
• Net income for the period: MSEK 501 (338); basic EPS of SEK 13.20 (8.91).
• Cash flow from operating activities: MSEK 529 (260); cash conversion for the full year was 102%.
• Group’s net debt: MSEK 925 (1,192); gearing ratio of 45% (82). Pension scheme revaluation has resulted in a net liability of 261 (361).
• Dividend: Based on the Group’s earnings and strong financial position, the Board of Directors intend to propose a dividend of SEK 4.00 (3.75) per share for the financial year 2022 and to renew the current mandate for share buybacks.

President and CEO, Martin Kunz, comments on the Q4 2022 Interim Report.

Strong trading performance and the acquisition of EMP increases full year net sales to SEK 4.1B, a 92% increase on the prior year.

Financial Performance

This has been a transformational year for Concentric following the successful acquisition and integration of EMP, which combined with an overall strong trading performance has increased our net sales for the full year to SEK 4.1B, the highest in the Company’s history. However, this has also been a challenging year with the war in Europe, the energy crisis, continued instability in the global supply chain and general inflationary pressures, but despite these challenges Concentric has delivered robust operating margins each quarter throughout 2022, mainly through the commitment and dedication of our employees.

Net sales for the quarter were up +49% to MSEK 1,033 with Engineered Machine Products (EMP) accounting for +34% of the year-on-year sales growth, whilst underlying sales growth and foreign exchange rates increased sales by +4% and +11% respectively.

The Operating income for the fourth quarter was MSEK 172 (87) achieving an operating margin of 16.7% (12.5). A stronger trading performance in the fourth quarter by Alfdex, our joint venture with Alfa Laval offset production and supply issues in the Hydraulics division.

Increased focus and a concerted effort across all our operating entities this quarter has resulted in a cash flow from operating activities of MSEK 200 (43) with a profit to cash conversion ratio of 158% for the quarter and a full year ratio of 102%.

The cash flow benefitted from a reduction in working capital, which reduced as a percentage of sales by 4 percentage points to 10% from the previous quarter. In absolute terms this benefitted the cash flow in the quarter by MSEK 51.

Sales and Market Development

Our important North American market continued to grow year-on-year in the fourth quarter across all four end- market applications, whilst the European end-markets were down by single digit percentages, with the exception of the medium and heavy-duty truck sector, which grew modestly. The India construction equipment market continues to offer some growth; however, the agricultural machinery and industrial applications sectors contracted. Overall, the blended published quarterly market indices suggest the market has grown 1% year-on-year and is broadly consistent with our reported underlying sales growth.

The global market for our engine products remained at a sustained high with reported market indices suggesting the market increased +1% year-on-year. Net sales of our Engines division for the quarter were MSEK 695 (432) with an Operating margin of 17.0% (18.2). EMP increased sales by +55%, foreign exchange rates increased sales by +6% and underlying sales were flat. Operating margins increased quarter-on-quarter because of Alfdex’s stronger trading performance.

Net sales of our Hydraulics division for the quarter were MSEK 338 (263) with an Operating margin of 16.1% (18.3). Underlying sales increased +10% and foreign exchange rates increased sales by a further +18%. Whilst demand for our hydraulic products remains consistent, sales were down quarter-on-quarter, particularly in North America because of supply chain constraints and labour availability, negatively impacting the operating margin.

Sales of electric products this quarter were MSEK 178 and for the full year MSEK 678, equating to 17% of Group sales for both this quarter and the full year. Alfdex has developed an electric disc separator for use in commercial diesel truck internal combustion engines to meet Euro VII emission standards and we were pleased to recently announce the second significant business nomination starting in 2025 with a contract term to 2035. This is another significant step in our electrification journey.

Outlook

Whilst the global macroeconomic situation remains uncertain for the coming year, near-term demand from our customers across all four end-market applications remains consistent with demand we have enjoyed throughout 2022. Therefore, we currently estimate sales in the first quarter of 2023 to be similar to the sales performance achieved during the fourth quarter of 2022.

Economic uncertainty will continue from the war in Europe, ongoing inflationary pressures and the economic situation in China, however Concentric will continue to maintain our strong trading margins through our Business Excellence program and enhanced capabilities built up during the past year. With the global supply chain stabilising further, we also aim to reduce inventory levels during 2023.

For further information, please contact:
Martin Kunz (President and CEO) or Marcus Whitehouse (CFO) 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 contact persons set out above, at 08.00 CET on 8 February 2023.

Concentric AB is an innovator in flow control and fluid power, supplying proprietary systems and components to the world’s truck, agricultural machinery, construction equipment and industrial applications end-markets. The company has a global manufacturing presence including in the UK, USA, Germany, Sweden, India and China. Concentric’s focus is to develop world class technology with innovative solutions that meet the sustainability needs of our customers. Concentric offers engine products including lubricant, coolant and fuel pumps, hydraulic products encompassing gear pumps and power packs, and finally several key technologies for the fast growing market for electrical and hybrid powertrains. In 2021, The Group had a turnover of MSEK 2,115 and circa 1,100 employees. At the end of October 2021, The Group acquired Engineered Machined Products, Inc. ("EMP"), a leading US producer of electric and mechanical water and oil pumps, electric fans, thermal management systems and precision machined components. In 2021, EMP had over 400 employees and a turnover of  SEK 1,011 million. Including EMP for the whole year 2021, Concentric would have had a combined turnover of SEK 2,958 million.