Concentric AB has released its Interim Report for January-December 2016.
- Net sales: MSEK 473 (504) – down 7% year-over-year (y-o-y), after adjusting for currency (+1%).
- Operating income: MSEK 86 (83), generating an operating margin of 18.2% (16.4) – underlying operating margin was 17.4% (16.9), adjusting for restructuring expenses and pension related items affecting comparability.
- Earnings after tax: MSEK 64 (54); basic EPS of SEK 1.57 (1.32).
- Solid cash flow generated from operating activities: MSEK 100 (127) driven by continued tight management of working capital.
- Dividend: Based on the group's earnings and strong financial position, the Board of Directors intend to propose a total dividend of SEK 3.50 (3.25) per share and to renew the current mandate for share buybacks.
- Net sales: MSEK 2,004 (2,306) – down 10% y-o-y, after adjusting for currency (–3%).
- Operating income: MSEK 341 (381), generating an operating margin of 17.0% (16.5) – underlying operating margin was 16.8% (16.6), adjusting for restructuring expenses and pension related items affecting comparability.
- Earnings after tax: MSEK 246 (271); basic EPS of SEK 6.01 (6.45).
- Strong cash flow generated from operating activities: MSEK 409 (366).
- Group's net debt: MSEK 300 (488); gearing ratio of 35% (57) – own share buybacks of MSEK 85 (142) during the year.
The group's sales for the fourth quarter and the full year were down y-o-y by 7% and 10% respectively in constant currency, which was broadly in line with published market indices. The primary reason for the decline in sales was the 20% reduction in end-customer demand and 30% reduction in production of Class 8 heavy-duty trucks following the peak in the U.S. replacement cycle during 2015 and a subsequent correction of inventory levels. European truck sales softened in the second half of 2016 as the demand for trucks in Southern Europe was satisfied. Commodity prices continued to strengthen in the fourth quarter and, whilst it has not impacted demand yet, there is some evidence of increased activity within raw material production areas. However, demand for construction equipment in North America and Europe remained soft with the macro economic uncertainty.
Addressing the market conditions
Growth remains the highest priority for Concentric and during the year it has continued to invest in product development and strengthen both its sales team and engineering resources. At the same time, it cannot disregard the current tough market conditions in Europe, North and South America. Concentric therefore recently announced the impact of the restructuring plans initiated during the second half of 2016 as a direct response to the sustained weak outlook for end-markets in these regions. The restructuring corresponds to a 7% reduction of the group's total workforce, primarily affecting operations in Chivilcoy, Argentina, and Hof, Germany. Additionally, warehousing facilities will be rationalized. All in all, these measures will result in annual savings corresponding to MSEK 30 as of 2017.
All parts of the business also continue to participate in the Concentric Business Excellence program (CBE) and this has also provided a framework for the restructuring plans. The successful implementation of CBE has continued to support the consolidated results, ensuring that the underlying EBIT margin for both the quarter and the full-year actually improved to 17.4% and 16.8% respectively, in spite of the market headwinds.
New product launches
Concentric recently exhibited at the IAA 2016 where Concentric presented its extensive range of pumps, including new product developments such as the Mid-range 2-speed controllable cooling pump, which received a lot of positive feedback.
The company also continues to explore acquisition opportunities for enabling technologies that will enhance its solutions for variable displacement pumps and provide an even greater presence alongside its global customers.
Last year (2016) was a rather tough year due to suppressed prices for many commodities and a down-turn for trucks sales. Looking ahead, the increase of public spending in the U.S. on infrastructure investments promised by the new Trump administration could have a positive impact in 2017 for most end-markets in the region. Concentric will continue to focus on CBE to enable it to respond to the prevailing market conditions. Market indices suggest that production volumes blended to Concentric's end-markets and regions will be flat y-o-y for 2017. The company has seen a number of truck OEMs recently release their financial results and it notes that the sales development in Europe was generally stronger, and that Volvo Trucks raised its guidance for truck sales in Europe in 2017. This more favorable development in Europe is naturally also beneficial to Concentric's outlook. Concentric remains well positioned both financially and operationally, to fully leverage market opportunities.