CONCENTRIC INTERIM REPORT JANUARY – SEPTEMBER 2022

THIRD QUARTER 2022

• Net sales: MSEK 1,068 (515) – reported sales were up +107% year-on-year. After adjusting for the impact of currency +14% and EMP +84%, sales in constant currency year-on-year were up +9%.
• Operating income: MSEK 175 (114), generating an Operating margin of 16.3% (22.2). Operating income in the third quarter includes the profit from the sale of our Argentine business of MSEK 9 leading to a Operating income before items affecting comparability of MSEK 166 (114).
• Net income for the period: MSEK 126 (91); basic EPS of SEK 3.32 (2.39).
• Cash flow from operating activities: MSEK 163 (69); cash conversion increases to 108% in Q3.

FIRST NINE MONTHS 2022

• Net sales: MSEK 3,023 (1,420) – reported sales were up +113% year-on-year. After adjusting for the impact of currency +13% and EMP +79%, sales in constant currency were up +21%.
• Operating income: Operating income was MSEK 505 (316), generating an Operating margin of 16.7% (22.3).
• Net income for the period: MSEK 390 (248); basic EPS of SEK 10.28 (6.54).
• Cash flow from operating activities: MSEK 329 (217); cash generation has been affected by increases in working capital to support increased sales.
• Group’s net debt: MSEK 1,005 (–136); gearing ratio of 45% (–10). Pension liabilities continue to reduce as discount rates increase, resulting in a net remeasurement gain of MSEK 26 (–5) in the third quarter and a total gain of MSEK 217 (80) year to date.

President and CEO, Martin Kunz, comments on the Q3 2022 Interim Report.

Concentric continues to perform strongly in a challenging environment.

Financial Performance

The Concentric Group continued to perform well in Q3 2022 with year-on-year sales growth and strong operating margins despite inflationary supply chain pressures. Net sales were up 107% to MSEK 1,068 with Engineered Machine Products (EMP) accounting for +84% of the year-on-year sales growth, whilst underlying sales growth and foreign exchange rates increased sales by +9% and +14% respectively. The Operating income for the third quarter was MSEK 175 (114) achieving an operating margin of 16.3% (22.2), which included a better-than-expected profit of MSEK 9 following the sale of our Argentine business. Cash performance for the Group improved this quarter, cash flow from operating activities was MSEK 163 (69) with a profit to cash conversion ratio of 108% for the quarter and a year-to-date ratio of 85%. Inventory remains the drag on cash generation and we will continue to focus on reducing our current inventory levels as the supply chain stabilises.

Sales and Market Development

Our global end-markets offer a mixed picture, particularly the important North American and European markets. Most of our end-markets in North America offered growth opportunities, whilst in Europe, these same markets are flat or declining. We have a strong market presence in the Indian construction equipment sector and its pleasing to see that this market remains buoyant. China’s economy however is slowing as it adapts to a punishing zero-Covid strategy and weakening global demand, impacting our Alfdex business in particular. Overall, the published quarterly market indices suggest the market has decreased -2% year-on-year whereas our sales have grown +9% in constant currency, indicating the continued timing difference between our sales and the market indicies.

Sales of electric products this quarter were MSEK 200 which equates to 19% of group sales. Whilst electric products are of strategic importance, we also wish to develop sales opportunities for our existing mechanical products, in particular in Emerging Markets such as India, where Concentric has been present for over 30 years. It is for this reason we were delighted to announce two new business nominations in the on-highway truck sector for water pumps required on new engine platforms designed to meet the stringent Bharat VI emission standard. These are the first business nominations with a domestic OEM in the on-highway sector and is a significant step in developing our market position in this important emerging market.

The stability of global supply chain continues to improve with the exception of electrical components required for our e-Products, which remain difficult to source to meet the end-market demand. Whilst the global supply chain has improved over the last three quarters there remains critical bottlenecks, that continue to limit sales and increase the order bank.

The global market for our engines products was on par with last year and in line with our underlying sales performance for the quarter. Sales by geographic region were mixed as we enjoyed strong sales in North America, in particular to the agricultural machinery sector, whilst sales to our European truck sector customers were down. Net sales of our Engines division for the quarter were MSEK 712 (252) with an Operating margin of 14.2% (31.1). EMP increased sales for Engines by +171% and foreign exchange rates increased sales by a further +11%, meaning underlying sales were flat year-on-year. Lower sales of Alfdex products to China continues to impact the Engines Operating margin.

Demand for our Hydraulics products remains strong across our core geographic markets and all end-market applications. Net sales of our Hydraulics division for the quarter were MSEK 356 (263) with an Operating margin of 18.1% (13.7). Underlying sales increased +17% and foreign exchange rates increased sales by a further +18%.

Outlook

Looking into the fourth quarter of 2022, we currently estimate net sales to remain consistent with the sales performance achieved during the third quarter. We expect that the high level of volatility in the markets will continue with the ongoing war in Europe, high inflation, a risk for further Covid-19 related restrictions in China and supply chain bottlenecks. Our Concentric Business Excellence programme will continue to support our strong trading margins in the current climate and improve our cash performance by reducing inventory during the coming quarter.

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 3 November 2022.

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.