CONCENTRIC INTERIM REPORT JANUARY –MARCH 2021

FIRST QUARTER

• Net sales: MSEK 432 (456) – sales were down –5% year-on-year. After adjusting for impact of currency (–10%) and Allied Enterprises (+5%) sales year-on-year remained flat.
• Operating income: MSEK 95 (87), generating an operating margin of 21.9% (19.1).
• Net income for the period: MSEK 72 (60); basic EPS of SEK 1.90 (1.60).
• Cash flow from operating activities: MSEK 73 (81); continuing strong cash generation.
• Group’s net debt: MSEK –90 (27); gearing ratio of –7% (2). Net remeasurement gain on pension liabilities of MSEK 115 drove the reduction in net debt.

President and CEO, David Woolley, comments on the Q1 2021 Interim Report.

Market and sales development
Published market indices suggest production rates, blended to the Group’s end-markets and regions were up by +18% year-on-year in the first quarter suggesting our key end-markets, Europe and North America continue to recover from the global pandemic. Group sales in constant currencies and excluding our recent acquisition were broadly flat year-on-year, with sales growth in Europe and Rest of World and a small sales decline in the Americas. Reported sales continue to be affected by the strength of the Swedish Krona against most of the major currencies, in particular the US Dollar, therefore reported sales for the first quarter were down year-on-year by –5%.

Whilst demand from our end market applications has continued to increase, the general industry

supply chain has struggled to meet the new demand during quarter one, resulting in an increase in our sales order backlog. Our purchasing and production teams have done an incredible job this quarter managing the volatility in our customer order schedules to satisfy their near term demands, and we expect to catch back the order backlog during the coming months.

Our underlying sales in constant currencies this quarter are MSEK 40 or +10% higher than the fourth quarter 2020 driven by the improving demand for both our engine and hydraulic products. With the inclusion of our recent acquisition, Allied Enterprises, our reported sales increased by a further MSEK 21, which was consistent with our expectations.

Concentric Business Excellence – managing operating margins and cash

As demand for our products continues to increase, our Concentric Business Excellence program ensured we were able to meet the increase in customer demand whilst controlling the cost of capacity. This program and our employee’s resilience and ability to adapt to an ever-changing environment ensured the reported operating margin was 21.9% (19.1) for the first quarter.

Operating cash flow for the quarter was MSEK 73 with a good operating income to operating cash conversion ratio. As sales grow, so does our working capital investment and during this quarter there was a slight increase quarter-on-quarter of MSEK 4, driven by an increase in inventory. Cash and cash equivalents also increased during the quarter from MSEK 505 at the end of the 2020 to MSEK 578 (582) and we report a gearing ratio of –7% (2) at the end of Q1 2021.

Electrification – continuing to win e-Pump orders

Customers continue to drive towards CO2 neutrality and zero emissions and Concentric has the technology and innovation to support these developments with world-class e-Pump solutions. Our critical success factor has been to develop and offer a wide range of high performance, high efficiency pumps with low to high pressure capability along with the ability to integrate these pumps seamlessly with electric motors, controllers and software that delivers world-class reliability, low energy use and full diagnostic capability.

Over the last three years Concentric has issued numerous press releases announcing new customer nominations for our e-Pumps, and whilst individually the contract awards are modest, when aggregated they have a strategic importance. They demonstrate Concentric continues to be successful in the increasingly important electrification sector that offers exciting long-term sustainable growth opportunities.

Over the last two months, Concentric has announced five new customer nominations for either our electrohydraulic steering system or oil e-Pumps. The total contract value over a five year period of all the published electrification customer nominations now totals MSEK 500. We reiterate our guidance first published in December 2019, sales of e-Pumps are expected to amount to as much as 20% of Group sales by 2025.

Outlook

Demand for both our engine and hydraulic products continues to improve quarter-on-quarter. A key factor affecting our reported sales during the first quarter was the availability of critical raw materials. We expect our industry supply chain to stabilise meeting the new demand during the second quarter, but there will continue to be some isolated disruption. India also remains a concern, the recent escalation of Covid-19 cases means there could be disruption in our component sourcing from that region, and of course for our employees in our Pune facility. We will continue to monitor the situation closely.

The orders received, and expected to be fulfilled during the second quarter of 2021, were slightly ahead of the sales levels of the first quarter in 2021. We also expect the majority of the sales order backlog, predominantly relating to our North American businesses, will be supplied to our customers during the second quarter.

Market indices suggest that production volumes blended to Concentric’s end markets and regions will be up +9% year-on-year for 2021. The financial position of Concentric remains strong, both capital structure and liquidity and Concentric remains committed to meeting our customers’ requirements.

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 contact persons set out above, at 08.00 CET on 5 May, 2021.

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, China and Argentina. 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. The Group has a turnover of circa MSEK 1,500 and circa 700 employees.