Technology + Innovation = Sustainability David Woolley (CEO) & - - PowerPoint PPT Presentation

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Technology + Innovation = Sustainability

David Woolley (CEO) & David Bessant (CFO)

Q3 2012 Interim Report 18 October 2012

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Agenda

18 October 2012

• Q3-12 Highlights

DW

• Summary of financial results

DB

• Economic head wind and de-stocking

DW

• New business, new customers

DW

• FY-12 Outlook

DW

• Q&A

DW & DB

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Q3-12 Highlights

18 October 2012

• Global trading conditions in our end-markets became more

difficult through the quarter globally

• US end-market also started to slow down
• Economic ‘head wind’ reported in Q2-12 persisted and was

compounded by de-stocking of product by the original equipment manufacturers

• The reduction in underlying demand, combined with the

de-stocking, has created a ‘bull whip effect similar, but not as severe, as that experienced in the 2008-09 recession

• Sales down -18% in constant currency (Q3-12 vs. Q3-11)

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Q3-12 Highlights (continued)

18 October 2012

• Concentric has responded rapidly and decisively, using the

flexibility retained from the last slowdown

• The Concentric Business Excellence programme has prepared

the business well to respond effectively to the current lower activity levels

• See ‘Economic head wind and de-stocking’ for further details
• f the management actions taken
• Q3 results achieved from these management actions

(consistent with our targets over the business cycle):-

• EBIT margin of 13.4% maintained
• Cash inflow from operations of MSEK 61
• Gearing reduced to 8%

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Q3-12 Highlights (continued)

18 October 2012

• New Euro 6 contracts:-

In addition to the new orders announced for Alfdex and the Concentric variable flow oil pump in Q4-11 and Q1-12, respectively:

• New customer – Water pumps on 13-litre Euro 6 / US EPA 13

engine, worth MSEK 74 per annum on mature volumes

• New customer – Fuel transfer pump on 9-litre engine, worth

MSEK 21 per annum on mature volumes

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Summary of financial results

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Q3-12 & YTD-12 Results

18 October 2012

MSEK

Jul-Sep Jan-Sep

2012 2011 Change 2012 2011 Change Net Sales 492 593

• 101

1,698 1,706

• 8

Change in constant currency

• 18%

20%

• 4%

30% Gross income 130 165

• 35

461 463

• 2

Operating income (1) 63 83

• 20

236 225 12 Operating margin (1) 12.8% 14.1% 14.0% 13.2% Reported EBIT 66 83 227 201 Net financial expenses

• 5
• 4
• 22
• 27

Net income 45 52 143 116 Adjusted EPS (1) (SEK) 0.95 1.19 3.36 3.02 Reported EPS (SEK) 1.01 1.19 3.24 2.63 Capital employed 1,234 1,224

ROCE (1) 25.7% 22.9% ROE 21.7% 22.2%

Net debt 78 220 Gearing (Debt/Equity) 8% 25%

(1) Earnings before items affecting comparability

MSEK 2,241 Enterprise value based

• n 30-Sep-12

share price SEK 49.20

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Sales & Operating margin development

18 October 2012

Strong profitability as demand weakens:

• Latest market indices are still

predicting growth in 2012, in stark contrast to Q3 sales

• As noted last quarter, market

data tends to lag order intake experience by 3-6 months

• Difficult to separate de-stocking

effect from the underlying build rates

• Benefits from Concentric

Business Excellence programme and ongoing cost management have been vital to sustaining

• perating margins under

pressure from lower sales volumes

1,500 1,600 1,700 1,800 1,900 2,000 2,100 2,200 2,300 2,400 2,500 2,600 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0% Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12

Sales & Operating income margins

(rolling 12 months)

Operating margin (Actual) Sales (Actual) Market growth (Restated) Market growth (Reported) Sales (Constant currency)

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• Market data for Q3-12 (+3%*), whilst in line with last quarter, does

not seem to align with current sales and order trends from our customers

• Published indices for North America, in particular, do not

represent recent customer sentiment (CAT and Cummins)

• Agricultural machinery is the only end-market holding up (in

relative terms)

• Europe continues to soften from weaker sales of Construction

equipment and Medium / Heavy Trucks

• It is evident that part of the sales decline in Q3-12 relates to

customer de-stocking but it is difficult to quantify this effect

• FY-12 forecast in Q3-12 (+3%*) looks unrealistic, re-enforcing our

assertion that indices lag order intake by 3-6 months

Overview of Market indices

Key messages

* Blended growth rate using Concentric’s sales mix by end-market and customer location

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Q3-12 Regional Results

Americas

18 October 2012

Q3-12 Q3-11 Change Amounts in MSEK Net sales - total (including inter-regional sales) 289 331

• 13%

Operating income 33 36

• 9%

% Operating margin 11.6 11.1 0.5 Return on capital employed (1) 40.6 28.2 12.4

(1) The quarterly ROCE has been calculated on a rolling 12 month basis.

Sharp decline in sales from last quarter and year on year

• Sales in constant currency were down -16% in Q3-12 vs. Q2-12 and Q3-11, driven by a combination
• f a reduction in underlying demand and de-stocking experienced across all end-sectors
• Average sales on a working day basis were down to MSEK 4.7 (5.3)

Operating margins continue to improve

• Operating margins for the quarter were up despite the decrease in sales volumes due to the

benefits of the Concentric Business Excellence program and effective cost management

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Q3-12 Regional Results

Europe & RoW

18 October2012

Q3-12 Q3-11 Change Amounts in MSEK Net sales - total (including inter-regional sales) 228 298

• 24%

Operating income 33 47

• 31%

% Operating margin 14.3 15.7

• 1.4

Return on capital employed (1) 21.8 20.0 1.8

(1) The quarterly ROCE has been calculated on a rolling 12 month basis.

Demand continues to soften

• In constant currency, sales were down -21% in Q3-12 vs. Q3-11, driven by the continued market

decline and de-stocking experienced across all end sectors

• Average sales on a working day basis were down to MSEK 3.7 (4.7)

Operating margins under pressure

• Adjusting for one-off pension items, underlying operating income and margins were 31 and 13.6%.
• Under severe market pressure, the region continued to work hard to flex its cost base and maintain

margins

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Robust Financial Position

18 October 2012

Amounts in MSEK Q3-12 Q3-11 Balance Sheet Working Capital 72 61

As % of annualised sales 3.1% 2.9%

Capital Employed 1,234 1,223 Net Debt 78 220 Equity 944 876

Gearing (Debt/Equity) ratio 8% 25%

Cash Flow EBITDA 296 263 Net CAPEX

• 31
• 35

Cash in flow before financing 159 87 Dividends paid

• 88
• Buy-back own shares
• 12
• Comments

Strong working capital disciplines maintained Available facilities of c. MSEK 360 Very low gearing Continued strong cash conversion

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• As noted in previous interim reports, under the ‘corridor

method’, the Group had unrecognised defined pension liabilities

• f MSEK 419 (79), as at 31 December, 2011
• As a result, the Group has booked pension amortisation charges of

MSEK -18 for the first nine months of 2012

• Under the amended standard applicable for 2013 reporting,

2012’s results will be restated to reflect the full liability (and associated deferred tax asset) in the opening balance sheet as at 1 January 2012, and reverse these amortisation charges

• In an effort to reduce the deficit on the Group’s UK pension

schemes, management have initiated an ongoing programme to selectively buy-out certain defined pension obligations from members using existing scheme assets, which generated curtailment gains of MSEK 8 (nil) recognised in Q3-12

Pensions update

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Economic Head Wind and De-stocking

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Economic Head Wind and De-stocking

18 October 2012

• Global economic slowdown worsened in Europe and Asia; the US market

moved into negative growth more recently

• Engine product (early cycle) was first affected, followed by vehicle / end

application of the hydraulic product

• End-sectors:-
• Construction reduced slightly (but already at a low base)
• Truck markets have been impacted between 15-20%
• Industrial applications have reduced but are later cycle
• Agriculture is seasonal but has held up best in year-on-year

comparisons

• De-stocking by our customers has magnified the impact on the demand

seen by Concentric - the ‘bull whip’ effect

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Flexible business model excels

18 October 2012

• Each of our businesses has built in a range of plans and measures to

reduce minimise the effects of downturn:-

• Shift patterns reduced, overtime work excluded (All plants).
• Release of temporary contract workers (US, UK and Germany)
• Redundancies of permanent contract workers (UK)
• Short-time working / short-term lay-offs (US and India)
• Combined effect of these (Q3-12 vs. Q3-11) :-
• Direct labour headcount reduced by 13%
• Maintained ratio of direct labour cost to sales
• Total personnel cost reduced by 12%

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Flexible business model excels (continued)

18 October 2012

• Concentric Business Excellence programme – ongoing improvements have

continued to streamline processes and reduce costs without compromising customer support and quality

• Importance of strong working capital disciplines continues to increase -

gearing has been reduced to 8%

• Ongoing strategic review of manufacturing footprint – consideration of

expansion into South America, but also looking at how to maximise

• utput and performance of our existing business

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New Customers, New Business

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New Customers, New Business

18 October 2012

After 3 years of intensive development and testing, Concentric has been awarded long-term supply contracts:

• Global truck and engine manufacturer
• 13-litre engine to comply with Euro 6 / US EPA 13 legislation
• High efficiency water pump and coolant control module
• Multi-year contract with volumes of 60,000 units per year (MSEK 74)
• Job 1 is 1 January 2014, but ramps up through 2013
• Global fuel injection system manufacturer
• Innovative, high pressure common rail fuel injection system
• Precision tolerance and integrated fuel transfer pump
• Multi-year contract with volume of 55,000 units per year (MSEK 21)
• Job 1 is 1 January 2014, but ramps up through 2013

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FY-12 Outlook

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FY-12 Outlook

18 October 2012

• Orders received during the third quarter of 2012 were slightly below

sales, indicating that activity levels will be slightly lower in the fourth quarter because of a combination of lower demand and de-stocking

• We anticipate that the trend of weaker demand in both the US and

Europe will continue.

• Latest current customer order trends have not yet been reflected in

market indices for full year forecasts for 2012

• Today’s announcement of two new multi-year supply contracts on Euro 6

and US EPA13 engine launches for global truck manufacturers reaffirms

• ur ambition to outperform the underlying market trend
• We continue to see further opportunities for growth from our leading

technologies addressing the key market drivers of emissions legislation and reduced fuel consumption

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Any Questions?

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Appendix – Market Data

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Q3 & YTD 2012 Market Data

End-markets & Regions

18 October 2012

Q3-12 vs. Q3-11 YTD-12 vs. YTD-11 North Europe China/ North Europe China/ America India America India

Agricultural machinery Diesel engines +3%

• 2%

+9% +2%

• 3%

+6% Construction equipment Diesel engines +27%

• 7%
• 15%

+24%

• 8%

+3% Hydraulic equipment +8%

• 5%

n/a +9%

• 4%

n/a Truck Light vehicles +3% n/a n/a +2% n/a n/a Medium / Heavy vehicles +8%

• 7%
• 14%

+7%

• 7%
• 14%

Industrial applications Other Off-highway +3%

• 6%

+8% +1%

• 8%

+5% Hydraulic lift trucks

• 4%

0% n/a +4% +2% n/a

Source: Based on statistics from Power Systems & Research, Off-Highway Research and International Truck Association Q3 2012 update

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Q3 & YTD 2012 Market Data

Applied to Concentric

18 October 2012

Q3-12 vs. Q3-11 YTD-12 vs. YTD-11 North Europe Group North Europe Group America & RoW America & RoW

Blended market rates +7%

• 4%

+3% +6%

• 4%

+2% Concentric actual rates

• 16%
• 21%
• 18%
• 1%
• 8%
• 4%

Source: Based on statistics from Power Systems & Research, Off-Highway Research and International Truck Association Q3 2012 update

31%

Ind Apps

27%

Trucks

17%

Ag Mach

25%

Con Equip

53%

USA

14%

Germany

9%

UK

6%

Sweden

18%

Other

FY-11 Sales by end-market FY-11 Sales by customer location Applying our sales mix by end- market and customer location, the blended market growth rate for Q3-12 was 3%, taking the blended market growth rate for YTD-12 to 2%. In comparison, Q3-12 actual sales were down -18% year-on- year in constant currency, taking YTD sales down -4%.

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FY 2012 Market Data

End-markets & Regions

18 October 2012

FY-12 vs. FY-11 North Europe China/ America India

Agricultural machinery Diesel engines +3%

• 1%

+10% Construction equipment Diesel engines +27%

• 6%

+6% Hydraulic equipment +7%

• 1%

n/a Truck Light vehicles +3% n/a n/a Medium / Heavy vehicles +8%

• 6%
• 12%

Industrial applications Other Off-highway +3%

• 5%

+8% Hydraulic lift trucks +3% 0% n/a

Source: Based on statistics from Power Systems & Research, Off-Highway Research and International Truck Association Q3 2012 update

Applying our sales mix by end- market and customer location, the blended market growth rate for FY-12 is forecast to be +7% for the Americas region and -2% for the Europe & RoW region, aggregating to +3% for the Group, i.e. the same as last quarter’s forecast. As noted in previous quarters, movements in the market indices tend to lag our order intake experience by three to six months.