Technology + Innovation = Sustainability

Transcription

1 Technology + Innovation = Sustainability David Woolley (CEO) & David Bessant (CFO) Q Interim Report 1

2 Agenda 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 2

3 Q3-12 Highlights 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 recession Sales down -18% in constant currency (Q3-12 vs. Q3-11) 3

4 Q3-12 Highlights (continued) 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 of 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% 4

5 Q3-12 Highlights (continued) 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 5

6 Summary of financial results 6

7 Q3-12 & YTD-12 Results MSEK Jul-Sep Jan-Sep Change Change Net Sales ,698 1,706-8 Change in constant currency -18% 20% -4% 30% Gross income Operating income (1) Operating margin (1) 12.8% 14.1% 14.0% 13.2% Reported EBIT Net financial expenses Net income Adjusted EPS (1) (SEK) Reported EPS (SEK) Capital employed 1,234 1,224 ROCE (1) 25.7% 22.9% ROE 21.7% 22.2% Net debt Gearing (Debt/Equity) 8% 25% (1) Earnings before items affecting comparability MSEK 2,241 Enterprise value based on 30-Sep-12 share price SEK

8 Sales & Operating margin development 22.0% 20.0% 18.0% 16.0% Sales & Operating income margins (rolling 12 months) 2,600 2,500 2,400 2,300 Strong profitability as demand weakens: Latest market indices are still predicting growth in 2012, in stark contrast to Q3 sales 14.0% 12.0% 10.0% 2,200 2,100 2,000 As noted last quarter, market data tends to lag order intake experience by 3-6 months 8.0% 6.0% 4.0% 2.0% 0.0% Q4-10 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Operating margin (Actual) Market growth (Restated) Sales (Constant currency) Sales (Actual) Market growth (Reported) 1,900 1,800 1,700 1,600 1,500 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 operating margins under pressure from lower sales volumes 8

9 Overview of Market indices Key messages 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 * Blended growth rate using Concentric s sales mix by end-market and customer location 9

10 Q3-12 Regional Results Americas Amounts in MSEK % Q3-12 Q3-11 Change Net sales - total (including inter-regional sales) % Operating income % Operating margin Return on capital employed (1) (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 of 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 10

11 Q3-12 Regional Results Europe & RoW Amounts in MSEK % Q3-12 Q3-11 Change Net sales - total (including inter-regional sales) % Operating income % Operating margin Return on capital employed (1) (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 October2012

12 Robust Financial Position Amounts in MSEK Q3-12 Q3-11 Balance Sheet Working Capital As % of annualised sales 3.1% 2.9% Capital Employed 1,234 1,223 Net Debt Equity Gearing (Debt/Equity) ratio 8% 25% Cash Flow EBITDA Net CAPEX Cash in flow before financing Dividends paid Buy-back own shares Comments Strong working capital disciplines maintained Available facilities of c. MSEK 360 Very low gearing Continued strong cash conversion 12

13 Pensions update As noted in previous interim reports, under the corridor method, the Group had unrecognised defined pension liabilities of 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 Q

14 Economic Head Wind and De-stocking 14

15 Economic Head Wind and De-stocking 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 15

16 Flexible business model excels 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% 16

17 Flexible business model excels (continued) 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 output and performance of our existing business 17

18 New Customers, New Business 18

19 New Customers, New Business 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

20 FY-12 Outlook 20

21 FY-12 Outlook 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 our 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 21

22 Any Questions? 22

23 Appendix Market Data 23

24 Q3 & YTD 2012 Market Data End-markets & Regions 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 Q update 24

25 Q3 & YTD 2012 Market Data Applied to Concentric 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 Q update Applying our sales mix by endmarket 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-onyear in constant currency, taking YTD sales down -4%. FY-11 Sales by end-market 25% Con Equip 17% Ag Mach 27% Trucks 31% Ind Apps FY-11 Sales by customer location 6% Sweden 9% UK 18% Other 14% Germany 53% USA 25

26 FY 2012 Market Data End-markets & Regions Agricultural machinery FY-12 vs. FY-11 North Europe America China/ India Diesel engines +3% -1% +10% Construction equipment Truck Diesel engines +27% -6% +6% Hydraulic equipment +7% -1% n/a 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 Q update Applying our sales mix by endmarket 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. 26