CONCENTRIC INTERIM REPORT JANUARY - DECEMBER 2021

SKÅNES FAGERHULT, Feb. 16, 2022 /PRNewswire/ --

FOURTH QUARTER

• Net sales: MSEK 695 (380) - reported sales were up +83% year-on-year. After adjusting for the impact of currency (-2%), Allied Enterprises (+5%) and EMP (+44%), sales on a like for like basis, in constant currency year-on-year were up +36%.
• Operating income: Operating income was MSEK 87 (104) generating an operating margin of 12.5% (27.4). After one-off items including costs relating to the acquisition of EMP (MSEK 18) and the closure of Chivilcoy (MSEK 22) Operating income before items affecting comparability was MSEK 127 (99) with a corresponding margin of 18.2% (26.0).
• Net income for the period: MSEK 90 (88); basic EPS of SEK 2.36 (2.32) and diluted EPS of SEK 2.35 (2.32).
• Cash flow from operating activities: Cash flow from operating activities was MSEK 43 (118).
• Acquisition: As previously announced, the transformational acquisition of EMP was completed on 30 October 2021 and therefore forms part of our consolidated Q4 result, including two months of trading.

FULL YEAR

• Net sales: MSEK 2,115 (1,502) - reported sales were up +41% year-on-year. After adjusting for the impact of currency (-8%), Allied Enterprises (+6%) and EMP(+12%), sales in constant currency were up +31%.
• Operating income: Operating income was MSEK 403 (276), generating an operating margin of 19.1% (18.4), operating margin before items affecting comparability was 20.9% (19.4).
• Net income for the period: MSEK 338 (205); basic EPS of SEK 8.91 (5.43) and diluted EPS of 8.88 (5.42).
• Cash flow from operating activities: Strong cash management given the circumstances has resulted in cash flow from operating activities of MSEK 260 (337).
• Group's net debt: MSEK 1,192 (86); gearing ratio of 82% (8).
• Dividend: Based on the Group's earnings and strong financial position, the Board of Directors intend to propose a dividend of SEK 3.75 (3.50) per share for the financial year 2021 and to renew the current mandate for share buybacks.

President and CEO, David Woolley, comments on the Q4 2021 Interim Report.

Following the acquisition of EMP, Concentric is set to accelerate growth within the sectors of electric vehicles and renewable energy. This will be the next step in creating further shareholder value.

Market and sales development

Published market indices suggest production rates, blended to the Group's end-markets and regions were down -15% year-on-year in the fourth quarter, with both the indices for Americas and Europe and RoW reporting negative growth this quarter. The global pandemic affected all end-market applications and geographical regions throughout 2020 making year-on-year comparisons, and particularly by quarter difficult. However, the full year published market indices suggest production rates, blended for the Group's end-markets and regions increased by +20% during 2021.

Group sales in constant currency and excluding Allied Enterprises and EMP were up +33% year-on-year for the fourth quarter and +31% for the full year. Reported sales, for the fourth quarter and the full year were up year-on-year +82% and +41% respectively.

Our reported sales, excluding EMP, this quarter were consistent with previous market guidance that sales for the fourth quarter would be broadly similar to sales in the third quarter. Demand from our end market applications and all geographic regions remains strong, however, the general industry supply chain has continued to struggle to meet this new level of demand, albeit with some improvements, resulting in an increase in our sales order backlog. We expect disruption in the supply chain to continue for at least the first half of 2022.

Concentric Business Excellence - managing operating margins and cash

The recovery from the pandemic continues to apply pressure to our supply chain, both inflationary pressures on many of the components the group purchases and the availability of some critical components. Our commercial teams, working through the Concentric Business Excellence program, ensured we were able to pass on these cost increases to our customers, albeit with a quarters delay. This ensured the operating margin for Concentric excluding EMP before items affecting comparability was maintained at strong levels for both the quarter, 23.9% (26.0) and the full year, 22.7% (19.4%).

In addition to the existing Concentric business, the fourth quarter result also contains:

• two months of trading for EMP;
• the impact from the inventory fair value adjustment which fully unwound in the fourth quarter (MSEK 6); and
• two months amortisation of the intangibles acquired and depreciation of the fair value uplift (MSEK 9).

This results in an operating margin before items affecting comparability for the fourth quarter of 18.2% (26.0) and the full year of 20.9% (19.4) respectively. The annual amortisation of the intangible assets and the depreciation charge of the fair value uplift of tangible fixed assets is estimated to be MSEK 56.

We have recently announced two significant events, the closure of our facility in Chivilcoy, Argentina and the transformational acquisition of EMP. The costs associated with both of these activities were MSEK 22 and MSEK 18 and classified as items affecting comparability. Therefore, the reported operating margin for the fourth quarter and the full year was 12.5% (27.4) and 19.1% (18.4).

Cash flow from operating activities for the period was MSEK 43 (118). With all of the uncertainty in the global supply chain Concentric increased the stock of critical components to ensure we continue to meet the needs of our customers, which increased our investment in working capital by MSEK 64.

Cash and cash equivalents decreased to MSEK 440 (505) following the quarters trading performance and the acquisition of EMP. This level of cash and cash equivalents is more than sufficient to meet our short and medium term operational needs.

EMP - the transformational acquisition

This quarter is the first trading quarter which includes our recently announced acquisition of EMP. Our teams are excited by the potential of combining our businesses and are now busy integrating EMP into Concentric. Following the acquisition of EMP, Concentric is set to accelerate growth within the sectors of electric vehicles and renewable energy. This will be the next step in creating further shareholder value.

David Woolley's final CEO letter in role, journey to creating shareholder value

In June 2011, Concentric AB listed on the Stockholm exchange with an initial share price of SEK 36 and over the last 43 reporting quarters Concentric has created shareholder value, increasing the share price from its initial offering to the current value, SEK 281 (30 Dec 2021) whilst paying dividends of SEK 32 per share over the same period. Achieved through a combination of new customers, new products, product mix management, implementing lean manufacturing principles through the Concentric Business Excellence program and business acquisitions. None of course would have been possible without the tremendous support of our employees, past and present.

The future is bright, as our markets electrify, new technologies will be created to meet regional emission legislation offering new and exciting opportunities for Concentric. Following the acquisition of EMP, Concentric is positioned to exploit the commercial opportunities offered from the electrification of our markets, creating further shareholder value. We welcome Martin Kunz who joins the Company as CEO at this exciting juncture and wish him well to continue the success of Concentric.

Outlook

Market indices suggest that production volumes blended to Concentric's end markets and regions will conservatively increase by +6% during 2022, as demand from our customers for both our engine and hydraulic products continues to increase.

Concentric and EMP have made great progress to date integrating the businesses and the functional teams will continue this valuable work throughout 2022. The Q1-2022 interim report will contain three months of trading for EMP rather than just two in the Q4-2021 interim report.

The availability of critical raw materials will continue to influence our sales during the first quarter and into 2022 as our industry supply chain stabilises to meet the new market demand. The ongoing shortage of raw materials and components continues to have an inflationary effect, both from the metal indices and general supplier economic price increases. We have been successful passing these cost increases onto our customers, albeit with a quarters delay, and we will continue to pass on costs increases to our customers during the first quarter of 2022 to maintain our strong trading margins. As the supply constraints ease during the first half of 2022 so will the working capital investment, particularly our investment in inventory.

The orders received, and expected to be fulfilled during the first quarter of 2022 were broadly similar to the reported sales for the fourth quarter of 2021, when adjusted for one additional month's trading for EMP. 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 first half of 2022.

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: [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 16 February 2022.

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SOURCE Concentric AB