CONCENTRIC INTERIM REPORT JANUARY - DECEMBER 2023

REDDITCH, England, Feb. 7, 2024 /PRNewswire/ --

FOURTH QUARTER 2023

• Net sales: MSEK 945 (1,033), reported sales were down 9% year-on-year with no major foreign exchange movements.
• Operating income: MSEK 105 (172), generating an operating margin of 11.1% (16.7). After adjusting for the cost associated with the cost reduction programme of MSEK 10, the operating margin before items affecting comparability was 12.1% (16.7).
• Net income for the period: MSEK 87 (111), basic EPS of SEK 2.31 (2.92).
• Cash flow from operating activities: Strong cash performance for the quarter, cash flow from operating activities was MSEK 227 (200).

FULL YEAR 2023

• Net sales: MSEK 4,205 (4,056), reported sales were up 4% year-on-year. After adjusting for the impact of currency +5%, sales were down 1%.
• Operating income: Operating income was MSEK 595 (677), generating an operating margin of 14.2% (16.7). After adjusting for the cost associated with the cost reduction programme of MSEK 10 and the closure of Itasca of MSEK 12, the operating margin before items affecting comparability was 14.7% (16.5).
• Net income for the period: MSEK 417 (501), basic EPS of SEK 11.00 (13.20).
• Cash flow from operating activities: Cash flow from operating activities was MSEK 615 (529), with a profit to cash conversion ratio of 141%.
• Group's net debt: Group's net debt reduced to MSEK 617 (925), with an associated gearing ratio of 28% (45).
• Dividend: Based on the Group's earnings and strong financial position, the Board of Directors proposes a dividend of SEK 4.25 (4.00) per share for the financial year 2023 and to renew the current mandate for share buy-backs.

President and CEO, Martin Kunz, comments on the Q4 2023 Interim Report.

Sales impacted by market decline and customer destocking, necessitating further operational cost reductions, while successful execution of electrification and growth agenda continues.

Financial Performance

Trading conditions remained challenging in Q4, with our Hydraulics end-markets declining by 10%, while demand in the Engine end-markets held steady. Although the published market indices suggest that production rates blended to the Group's end­markets and regions remained flat, our customers continued to destock their component inventory in response to the weaker economic outlook and to return to the inventory levels similar to before the supply chain crisis.

This quarter, our Group's reported net sales were MSEK 945 (1,033), down by 9%. The destocking activity and a weaker ­market have significantly impacted our sales. Our operating income before items affecting comparability was MSEK 115 (172), corresponding to an equivalent operating margin of 12.1% (16.7). There were minimal year-on-year foreign exchange movements. In response to weakening demand from our customers, we have further cut operational costs during the quarter. The full financial benefit from this activity will be visible in the first quarter of 2024. However, restructuring costs associated with the cost reduction program were expensed this quarter, totalling MSEK 10.

Both of our reporting divisions were affected by a combination of a generally weaker market and ongoing customer destocking activities. While our engines division sales are down year-on-year similar to levels in the previous quarter, the situation in our hydraulics division has deteriorated further. Both divisions' operating margins are impacted by lower sales volumes and higher capacity and labour costs relative to reported sales.

Despite tough trading conditions, our cash flow from operating activities remained strong with a cash inflow of MSEK 227 (200) for the quarter and MSEK 615 (529) for the full year. This represents a profit to cash conversion ratio of 141% for the full year, benefiting from a reduction in working capital, particularly in the final quarter of the year.

Sales and Market Development

Sales for our global end-market applications were lower in the comparative quarter of 2023, with the construction equipment and industrial application sectors being the most affected, down by double-digit percentages. Although sales in both of our core geographical territories were down year-on-year, we observed that our European customers were more affected than their North American counterparts. Despite these market headwinds, we experienced strong demand for electric products, with net sales amounting to MSEK 227, which is equivalent to 24% of Group sales. Additionally, the book-to-bill ratio for e-products remained above 100%.

Excellent progress in executing our strategy

We have made excellent progress in executing our electrification strategy. I am delighted to report that we have achieved our key target set in 2019, which was to have sales of e-products exceed 20% of Group sales by 2025. This target has been achieved this year; two years earlier than initially anticipated.

We have also been successful in diversifying our electrification business into new end-market segments. This is confirmed by a new, important business win in the fast-growing energy storage market, our first customer application in the emerging market of liquid cooling solutions for data centres, and an exciting new, power train agnostic solution in the electrification of trailers for heavy-duty trucks.

This year, we have won new business in both our base business and our electric business. We have invested in our facilities to support these growth projects, including the ramp-up of our market-leading high-voltage solutions in North America.

Finally, I am pleased to welcome Dr. Roger Ingemey, who has joined Concentric as SVP of Hydraulics on February 1, 2024, and will be a member of my senior leadership team.

Outlook

The environment going into 2024 remains uncertain. Based on the available information, we estimate that our end­markets will be weaker during 2024. As a result, we expect net sales in the first quarter of 2024 to be slightly lower than the net sales achieved in the fourth quarter of 2023.

In Q4, we took measures to align our cost base with the reduced demand from our customers. This will enable us to return to improved levels of profitability. If we experience further reduction in sales going into 2024, we will take additional actions in a timely manner.

For further information, please contact:
Martin Kunz (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 7th February 2024.

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SOURCE Concentric AB