Concentric Interim Report January - September 2020

SKÅNES FAGERHULT, Sweden, Nov. 4, 2020 /PRNewswire/ --

THIRD QUARTER

• Net sales: MSEK 324 (463) - sales were down -30% y-o-y. After adjusting for impact of currency (-6%), sales in constant currency were down -24%.
• Operating income: Operating income was MSEK 57 (91), generating an operating margin of 17.5% (19.8).
• Net income for the period: MSEK 40 (64); basic EPS of SEK 1.06 (1.67).
• Cash flow from operating activities: MSEK 51 (98); cash generation affected by lower sales.
• Dividend: The Board of Directors of Concentric AB will propose a dividend distribution of SEK 3.25 for the financial year 2019, at an extraordinary general meeting on 9 December 2020.

FIRST NINE MONTHS

• Net sales: MSEK 1,122 (1,582) - sales were down -29% y-o-y. After adjusting for impact of currency (-1%), sales in constant currency were down -28%.
• Operating income: MSEK 192 (338), generating an operating margin of 15.3% (21.4). Excluding a restructuring charge of MSEK 20 in Q2 2020, the operating margin before items affecting comparability was 17.1% (21.4).
• Net income for the period: MSEK 117 (250); basic EPS of SEK 3.11 (6.49).
• Cash flow from operating activities: MSEK 219 (328); cash generation affected by lower sales and working capital unwind.
• Group's net debt: MSEK -69 (207); gearing ratio of -6% (20).

President and CEO, David Woolley, comments on the Q3 2020 Interim Report.

Market and sales development

The year-to-date published market indices suggest production rates, blended for the Group's end-markets and regions declined by -32% with both the Americas and Europe & RoW reporting negative growth for the fifth successive quarter. The quarterly market indices, whilst overall showing the markets continue to contract by -7% present a mixed picture, with some geographic regions and end market applications showing signs of economic recovery, whilst most continue to report substantial year-on-year reductions.

The Group's reported sales continued to be affected by the overall market slowdown and the effects of the COVID-19 pandemic with year to- date sales down -29%. Sales for the third quarter were down -30% and were affected by the Swedish Krona strengthening against most major currencies during the quarter, particularly against the US Dollar. Group sales in constant currency were down year-on-year during the third quarter by -24% and -28% for the first nine months of the year, and were broadly in line with year-to-date published market indices.

Constant currency sales in Europe and Rest of World were down -19% whilst the Americas were -23% year-on-year for the third quarter. Europe & RoW has seen an improvement in demand this quarter across all four end market applications for engine products, but most notably from the medium- and heavy-duty truck sector. Demand in the Americas for engine products improved but remains weak. Both geographical regions were affected by weaker demand for hydraulic products, which historically lags any reduction in demand for engine products by a quarter. Sales to all end-market applications remained lower in the third quarter year-on-year in both of our core reporting regions.

Global pandemic and rightsizing the business

The effects of the COVID-19 pandemic continue to impact our business with the reduction in demand from our customers continuing in the third quarter. However, all of our eight facilities globally are fully operational and have each introduced stringent sanitising processes and health and safety procedures to minimise the risk to employees whilst at work.

Our programs to manage the cost of capacity with short-time working arrangements in many of our facilities, furloughing employees or extending plant shutdowns continued this quarter. Government employee support programs were accessed during the third quarter in Argentina, Germany and the UK with grant income from these schemes amounting to MSEK 3. Concentric will seek loan forgiveness from the US government during the final quarter of this year, converting the MSEK 10 loan received in the second quarter to grant income.

We have also completed the business rightsizing exercise in the US, UK and Germany this quarter and aim to complete the retrenchment program in India before the end of the year.

Concentric Business Excellence - managing operating margins and cash

Concentric Business Excellence has been key in our ability to adapt operations to lower demand and thereby defend our margins. All parts of the business participate in this programme, driving continuous improvement in customer service levels, employee motivation and operational excellence. This program and our employee's resilience and ability to adapt to an ever changing environment has ensured the operating margin was maintained at good levels despite a -30% reduction in sales. The year-on-year profit drop-out was limited to 24% and the operating margin for the third quarter was 17.5% (19.8).

Managing the liquidity of the business continues to be a critical activity this quarter ensuring only essential capital projects are approved, controlling inventory levels and ensuring customers continue to pay to terms. Operating cash flow for the period was MSEK 51 with an operating income to operating cash conversion ratio of 89%. Inventory levels have remained stubbornly high during this quarter because of the reduction in demand for hydraulic products and holding safety stocks for critical components sourced through extended overseas supply chains. Our teams aim to reduce inventory in the fourth quarter.

Cash and cash equivalents increased during the quarter by MSEK 28 to MSEK 659, and with no external bank debt we are confident Concentric has sufficient cash to meet our operational needs and strategically prepared for the economic recovery.

Extraordinary General Meeting - Dividend Proposal

The Board of Directors of Concentric AB have continued to assess both the visibility of the market and the liquidity of the business throughout the crisis caused by the Covid-19 global pandemic. The Board now believes the economic conditions have improved sufficiently to convene an extraordinary general meeting on 9 December 2020 to propose a resolution on an ordinary share dividend distribution of SEK 3.25 per share for the financial year 2019, equal to a total dividend of MSEK 123.

Outlook

The overall published market indices blended to Concentric's mix of end market applications and locations suggest the market for the full year will be down -23% and indicate there will be some recovery during the fourth quarter of 2020.

Demand for our engine products has improved throughout the third quarter and we expect this to continue during the fourth. We also expect demand for hydraulic products will now start to improve during the coming quarter in both the North American & European markets. The level of orders received in the third quarter indicate that sales in the fourth quarter 2020 will be slightly higher, after a seasonal adjustment for more working days.

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: [email protected]

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 4 November, 2020. 

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SOURCE Concentric AB