Q2 2015 Interim Report David Woolley (CEO) & David Bessant (CFO) 1
Agenda Half year and Q2 2015 Highlights DW Summary of financial results DB Q3 2015 Outlook DW Q&A DW & DB 2
Highlights for H1 & Q2 2015 H1 2015 was a combination of continued positive market developments in some sectors and some increasing headwinds from others, particularly Ag and Construction, more noticeable in the Americas than in Europe/Rest of World. We continued to see very positive translational currency gain benefits based on the relative weakness of the Swedish Krona. Sector activity the heavy duty trucks in both the US and now in Europe, helped to support the results of the business. The midrange and lighter trucks have shown slight softening. Our customers in the Ag market continued to reduce forecasts for 2015. This was visible in our order book. Construction was relatively flat (slightly lower in the US). Industrial Applications remained comparatively level. 3
Highlights for H1 & Q2 2015 (continued) H1 sales, excluding Alfdex, were MSEK 1243 (1023), down 2% y-o-y after currency (+19%) and the acquisition of GKN Pumps (4%). H1 operating income was MSEK 205 (161) including MSEK 15 negative goodwill and one-off expenses of MSEK 14 related to the acquisition of GKN Pumps. Underlying operating margin 16.4% (15.8%). Q2 sales, excluding Alfdex, were MSEK 620 (527), down 5% y-o-y after adjusting for currency (+18%) and the acquisition of GKN Pumps (5%). Q2 operating income in Q2 was MSEK 88 (84) including one-off expenses of MSEK 14 from the acquisition of GKN Pumps. Underlying operating margin was 16.5% (16.0%). Q2 cash flow from operating activities was strong at MSEK 114 (94). Gearing ratio was 49% (56). Following dividend payout of MSEK 127 (121) and own share buy-backs of MSEK 42 (50) in Q2. 4
Summary of financial results 5
Q2 & H1 2015 Results MSEK Apr-Jun Jan-Jun 2015 2014 Change 2015 2014 Change Net Sales 620 527 93 1,243 1,023 220 Δ in constant currency (1) -5% 2% -2% 5% Gross income 165 146 19 337 280 57 Underlying operating income (2) 102 84 18 204 161 43 Reported operating income 88 84 4 205 161 44 Reported operating margin 14.2% 16.0% 16.5% 15.8% Earnings before tax 84 79 198 149 Net income 62 60 151 113 Underlying basic EPS (SEK) (2) 1.78 1.39 3.53 2.59 Basic EPS (SEK) 1.45 1.39 3.55 2.59 Underlying ROCE (2) 28.9% 26.0% ROCE 29.0% 26.0% ROE 33.8% 28.8% Net debt 455 440 Gearing (Debt/Equity) 49% 56% (1) Adjusted for sales derived from acquisitions (2) Adjusted for MSEK 14 of one-off expenses in Q2 2015 and MSEK 15 of negative goodwill in Q1 2015 re: GKN Pumps 6
Q2 2015 Market Data End-markets & Regions >+5%>+2%>0%>-2%>-5%> Agricultural machinery Diesel engines Construction equipment Diesel engines Hydraulic equipment Q2-15 vs. Q2-14 North Europe China/ America India n/a Truck Light vehicles n/a n/a Medium/Heavy vehicles Industrial applications Other Off-highway Market development 1.Weak global demand in Agricultural machinery market persisted in Q2-15 2.NA outlook for Construction equipment, Light trucks and Industrial Applications have all softened during Q2-15 3.Strongest end-market still Medium/Heavy trucks; growth now evident in both NA and Europe Hydraulic lift trucks n/a Source: Power Systems Research, Off-Highway Research and ITA Q2 2015 updates 4.All end-markets in China and India remain down in Q2-15 7 28 April 2015
H1 & FY Market development Key messages Overall, latest market indices indicated demand was flat* y-o-y for H1, consistent with Concentric s actual H1 sales, including Alfdex sales and after adjusting for currency and GKN Pumps. At a regional level Concentric s performance in Europe was better than the latest market indices, up 3% y-o-y. This has compensated for the continued weak demand in North America for hydraulic products, linked to Concentric s reliance on Caterpillar and John Deere. Market forecasts for the full year 2015 anticipate that the current trend experienced in H1 will continue (i.e. FY 2015 flat* y-o-y). * Blended growth rate using Concentric s sales mix by end-market and customer location 8
Q2 & H1 2015 Results Americas Region Amounts in MSEK Q2 H1 2015 2014 2015 2014 External net sales 333 261 664 508 Underlying operating income 46 39 91 77 Reported operating income 34 39 94 77 Reported operating margin % 10.3 15.1 14.2 15.2 Reported ROCE % 52.4 47.1 North American end-markets weakened in Q2 Sales in constant currency were down 8% for Q2 and down 5% for H1 y-o-y. Softening demand in Agriculture, Construction and Light trucks has particularly affected NA sales of hydraulic product. However, with the translational benefits derived from currency, average sales on a working day basis actually increased to MSEK 4.9 (4.1) for Q2 and MSEK 5.0 (4.1) for H1. Like-for-like operating margins maintained for H1 Adjusting for one-off items and the margin dilution affect of GKN pumps, like-for-like operating margins were actually up to 15.7% for Q2, and maintained at 15.2% for H1 2015. 9
Q2 & H1 2015 Results Europe & RoW Region Amounts in MSEK Q2 H1 2015 2014 2015 2014 External net sales (including Alfdex sales) 334 305 673 593 Operating income 58 45 116 85 Operating margin % 17.3 14.7 17.1 14.3 Return on capital employed % 21.8 19.0 European demand remained stable Sales were up 1% in Q2 and 3% in H1 y-o-y, including our 50% share of Alfdex sales, after adjusting for the impact of currency and the acquisition of GKN pumps. Average sales on a working day basis were MSEK 5.4 (4.7) for Q2 and MSEK 5.3 (4.4) for H1. Operating margins continued to improve The operating margin improved to 17.3% for Q2 and 17.1% for H1, reflecting a drop-through rate of 43% and 38% respectively on the y-o-y additional sales in Q2 and H1. The additional benefits from the consolidation of the European hydraulics business have continued to be realised in Q2 2015. 10
Robust Financial Position 30 June Amounts in MSEK 2015 2014 Balance Sheet Working Capital 89 85 As % of annualised sales 3.9% 4.3% Capital Employed 1,344 1,230 Net Debt 455 440 Shareholders equity 929 782 Gearing ratio 49% 56% Cash Flow H1-15 H1-14 Underlying EBITDA 248 208 Cash inflow from op activities 177 159 Net investments -18-9 Cash outflow from financing -185-189 Net cash flow for period -26-39 Comments Working capital management solid. Net debt and equity include MSEK 244 (nil) of actuarial gains recognised in Q2. Including MSEK 127 (121) dividends paid and MSEK 42 (50) own share buy-backs. 11
Q3 2015 Outlook 12
Q3 2015 Outlook Orders received during the second quarter 2015 were lower than sales, taking into account the fewer working days and assuming constant currency. Additional market headwinds experienced in North America during Q2 2015 are expected to persist for the remainder of the year and will not be fully compensated by the relative strength of the medium/heavy truck markets in both North America and Europe. Latest published indices predict that FY 2015 will be flat y-o-y, blended across our end-markets and regions. The latest proposals for Phase 2 of GHG legislation just reinforce the importance of our ongoing customer development programmes for our variable flow pump technology. Despite the market headwinds, Concentric remains well positioned, both financially and operationally, to fully leverage our market opportunities. 13
Any Questions? 14
Appendix Market Data 15
Q2 & H1 2015 Market Data End-markets & Regions Q2-15 vs. Q2-14 H1-15 vs. H1-14 North Europe China/ North Europe China/ America India America India Agricultural machinery Diesel engines -11% -16% -4% -10% -13% -7% Construction equipment Diesel engines -13% 4% -13% -4% 1% -11% Hydraulic equipment 3% 3% n/a 4% 3% n/a Truck Light vehicles -21% n/a n/a -9% n/a n/a Medium/Heavy vehicles 9% 6% -8% 9% 3% -8% Industrial applications Other Off-highway -2% 1% -5% -2% 1% -6% Hydraulic lift trucks 1% 1% n/a 0% 1% n/a Source: Based on Power Systems Research, Off-Highway Research and International Truck Association Q2 2015 update 16
Q2 & H1 2015 Market Data Applied to Concentric Q2-15 vs. Q2-14 H1-15 vs. H1-14 North Europe Group North Europe Group America & RoW America & RoW Blended market rates -2% 2% 0% 0% 0% 0% Concentric actual rates -8% 1% -3% -5% 3% 0% Source: Based on Power Systems Research, Off-Highway Research and International Truck Association Q2 2015 update Applying our sales mix by end-market and customer location to these indices, the blended market growth rate for Q2 and H1 was flat. In comparison, Concentric s actual sales were down 3% in Q2 and flat in H1 y-o-y including the sales from Alfdex, adjusted for currency and the acquisition of GKN Pumps. The latest market indices suggest the full year 2015 will be flat y-o-y, blended across our end-markets. As noted in previous quarters, movements in the market indices tend to lag our order intake experience by 3-6 months. 17