Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Concentric AB (FRA:2DN, Financial) reported strong sales in its electric product segment, which accounted for 23% of total sales, up from 18% in the same quarter last year.
- The company made significant progress in its electrification strategy, including the development of an e-Pump solution for data center cooling, expected to launch in early 2025.
- Concentric AB's joint venture, Alfdex, secured two new business wins valued at SEK1.3 billion, strengthening its position in the global truck and off-road markets.
- The company reported a significant improvement in cash flow from operations, with a cash conversion ratio of 137% for the quarter.
- Concentric AB is actively investing in its Pune facility to prepare for growth in the Indian market over the next three to five years.
Negative Points
- Net sales for the quarter decreased by 13% to SEK955 million, with both the engines and hydraulics divisions experiencing declines.
- The company made a SEK100 million provision for a customer warranty claim, impacting its financial performance.
- The book-to-bill ratio was 89%, indicating weaker demand and suggesting further sales declines in the upcoming quarter.
- Concentric AB is facing challenging market conditions, particularly in the agriculture and construction segments, which make up about 50% of total sales.
- The company is implementing cost-saving measures to maintain margins amid expected lower sales volumes, indicating ongoing market pressures.
Q & A Highlights
Q: Can you provide more details on the demand situation for your largest end markets?
A: We are seeing a stronger than expected weakening in agriculture and construction, which together represent about 50% of our total sales. This decline is reflected in the announcements and actions of our major customers in these sectors. Agriculture is currently the most critical market in terms of decline, followed by construction.
Q: Could you comment on the margin expectations and cost adjustments?
A: We are actively implementing cost-saving measures to adjust to the expected lower sales levels. This includes reducing capacity costs and exploring pricing adjustments where possible. However, we cannot provide specific margin guidance for the upcoming quarter.
Q: Regarding the two large orders in Alfdex, can you discuss the margins?
A: The margins for these orders are in line with Alfdex's average margins. Alfdex has strengthened its market position due to its innovative electric separator, allowing it to maintain good margins despite reduced competition.
Q: How are you addressing inventory levels amid the current demand situation?
A: We have made progress in reducing inventory in the second quarter and are continuing aggressive inventory reduction actions. This is necessary to align inventory levels with the expected business volume for the coming quarters.
Q: Can you elaborate on the new markets, particularly the data center business?
A: We are making significant progress with our inaugural customer in the data center market, aiming for a launch at the end of Q1 next year. Our solution focuses on direct-to-chip cooling, which aligns with the trend towards liquid cooling in data centers. We are also exploring additional customers to expand in this market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
