CONCENTRIC INTERIM REPORT JANUARY – JUNE 2019

SECOND QUARTER

•  Net sales: MSEK 553 (603) – sales were down –8% y-o-y. After adjusting for impact of currency (+4%), sales in constant currency were down –12%.
•  Underlying sales development: Underlying Group sales, both for the second quarter and the first six months, were constant when excluding the effect of the previously announced decision by a global OEM customer to dual source components during 2019.
•  Operating income: MSEK 121 (126), generating an operating margin of 21.9% (20.9).
•  Earnings after tax: MSEK 92 (94); basic EPS of SEK 2.39 (2.36). 
•  Cash flow from operating activities: MSEK 128 (142); cash generation affected by lower sales. 

FIRST SIX MONTHS

• Net sales: MSEK 1,119 (1,206) – sales were down –7% y-o-y. After adjusting for impact of currency (+5%), sales in constant currency were down –12%.
• Operating income: MSEK 247 (246), generating an operating margin of 22.0% (20.4).
• Earnings after tax: MSEK 186 (183); basic EPS of SEK 4.82 (4.62). 
• Cash flow from operating activities: MSEK 230 (253); cash generation affected by lower sales. 
• Group’s net debt: MSEK 102 (132); gearing ratio of 10% (14).
• Effects of new accounting principles for Leases – IFRS 16: The effects in the income statement are not material (EBIT margin –0.1%; EBITDA margin +1.1%). Cash flow from operating activities was affected with MSEK +12. Other effects per 30 June were; total assets MSEK +92; net debt MSEK +95; gearing ratio +9%.

President and CEO, David Woolley, comments on the Q2 2019 Interim Report.

Market and sales development
Group sales in the second quarter were broadly in line with previous guidance, underlying sales were constant for the first six month’s year-on-year. The reported sales for the second quarter and the first six months were down year-on-year by 12% and 12% respectively in constant currency when including the effect of the previously announced decision by a global OEM customer to dual source components during 2019. Published market indices suggest production rates, blended for the Group’s end-markets and regions were up by 2% year-on-year in the second quarter. We can see that market growth has slowed from reported levels of 5% in the first quarter. Last quarter we discussed how our customers were managing risk and reducing stocks as the outlook became more uncertain, that trend has continued in the second quarter. On a group level we are seeing a slight decrease in demand, primarily due to a softer market in North America. The levels of orders received and to be fulfilled during the third quarter of 2019 are behind the sales levels of the second quarter 2019. The largest end sector for Concentric continued to be trucks, representing 44% of the Group’s sales. Market demand for medium- and heavy-duty trucks in North America declined by 2% year-on-year in the second quarter, whilst European demand continued with low single digit growth. Sales to the Agricultural Machinery end sector were mixed, the market declined in North America and India whilst the European market remained relatively buoyant. The Construction Equipment end sector continued to be challenging, particularly in North America and emerging markets. The Indian market has been affected by the general election which ran throughout the quarter and published market indices show the market declined in all four sectors, and most notably in medium- and heavy-duty trucks. However, the outcome of the general election offers stability and continuity with a progressive business agenda.

Concentric Business Excellence optimising our operational cost base

The key objectives of the Concentric Business Excellence programme (“CBE”) are to achieve absolute satisfaction of our customers and employees. The CBE programme has enabled the teams to efficiently reduce our cost of capacity and output to meet current demand, optimising our operational cost base. The CBE-programme has managed to strengthen the Group’s operating income levels by increasing the reported operating margin for the second quarter and the first six months to 21.9% (20.9) and 22.0% (20.4) respectively.

Electrification of mobile and non-mobile platforms offers opportunities for Concentric

There is an increasing momentum towards the electrification of mobile and non-mobile platforms. As Concentric enters this growing market we see various opportunities as we transition from a supplier of mechanical components to a supplier of intelligent systems. During the quarter, Concentric has won five contracts for next generation steering systems for electric trucks as well as hybrid and electric buses. These nominations are strategically important since we expect that local city regulation will drive increased demand for electric commercial vehicles going forward. Concentric is targeting its customers’ next generation platforms by offering a range of electric water, oil and fuel pumps as well as EHS systems for both hybrid and fully electric platforms. Importantly, these products also constitute a greater share of the value on hybrid and electric vehicles compared to on internal combustion engines.

Acquisition Opportunities

We continue to explore acquisition opportunities that will offer either geographical expansion, product expansion or technologies that will enhance our current engine and hydraulic product lines to provide us with an even greater presence alongside our global customers.

Outlook

The underlying sales order book remains at strong levels, but the orders received in the second quarter indicate that sales in the third quarter 2019 will be slightly lower than previous quarter after a seasonal working day adjustment. During the second quarter the full year forecast published market indices were revised and now suggest that production volumes blended for Concentric’s end-markets and regions will remain soft during the second half of the year. The full year market forecast for 2019 has therefore been reduced from 4% to 2%. Our expectation remains that demand for medium- and heavy duty trucks, particularly in North America could weaken towards the end of 2019. The business remains vigilant to potential changes in customer behaviour such as destocking and is ready to adapt to any market changes. 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 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 agency of the contact persons set out above, at 08.00 CET on 24 July, 2019.