Interim report January - June 2012

Second Quarter 2012

• Sales revenue amounted to EUR 69.9 m (74.7m)*
• Revenue decrease of 6% Y-o-Y
• Operating profit amounted to EUR 1.1m (4.8m)
• The Operating margin was 1.6% (6.4%)
• EBITDA amounted to EUR 3.4m (6.2m)
• The after-tax result amounted to EUR -3.6m (2.0m)
• Cash flow from operating activities amounted to EUR -10.1m (12.1m)

January - June 2012

• Sales revenue amounted to EUR 127.5 m (116.8m)
• Revenue growth of 9% Y-o-Y
• Operating profit amounted to EUR 0.3m (4.4m)
• The Operating margin was 0.2% (3.8%)
• EBITDA amounted to EUR 4.9m (7.2m)
• The after-tax result amounted to EUR -4.0m (1.3m)
• Cash flow from operating activities amounted to EUR -0.5m (-5.5m)

*Comparative figures for last year are in brackets.

Ferronordic Machines’ CEO Lars Corneliusson comments:
Ferronordic Machines achieved a 9% revenue growth during the first half of 2012 with the number of new machines sold increasing 19% to 648 units. The growth in revenue was slower than the unit growth due to a shift towards smaller machines in the product mix. Revenue from parts and service grew almost 20% and revenue from the rental business grew significantly. EBITDA for the first half 2012 was EUR 4.9m, a decrease with EUR 2.3m compared to H1 2011. The lower earnings were primarily related to increased selling, general and admin expenses as the business and organization expanded throughout Russia and a changed product mix. Cash flow from operating activities was almost breakeven and cash used in investing activities was EUR 5m, resulting in an ending net debt position of EUR 70m.

In the second quarter, the Company experienced for the first time a decline in revenue compared to the same period the year before. Both revenue and new units were below the year before with revenue decreasing 6% and new units 2%. The slowdown in revenue from machine sales was primarily related a slower than expected market development.

We mentioned in our Q1 report published in May 2012 that there were indications of an increased market growth in mid-June. This did not happen and we currently do not anticipate any major changes of the market demand short-term.

The uncertainty created by the Euro crisis has also had an impact on the Russian market and clearly negatively affected the short-term spending decisions among our customers. We continue to monitor the situation closely.

The oil price also dropped significantly during the second quarter from USD 125 / barrel in the beginning of April to approximately USD 90 / barrel during the last few days of June. Since the low point on June 22 when the oil price closed at USD 88.5 / barrel, the price has increased 23% and closed at USD 108.9 / barrel on August 3. In addition, and adding to the uncertainties during the quarter, there were significant changes in the ruble rates vs. major currencies. The difference between the high and low rate versus the EUR was 9% and 15% versus the USD. The closing rates on June 30 had the RUB at almost the weakest rate during the quarter.

Despite the uncertainties and the slowdown in the retail market, the import statistics for construction machines for the first half 2012 have shown stronger numbers than ever before. This has of course led to several distributors, including ourselves, building up fairly high inventory levels. We expect to normalize these levels during the next few months.

The Company has continued to grow throughout Russia, both in terms of number of outlets as well as employees, albeit at a lower pace and more selective than in previous periods. The main driver for opening up new location is the existence of a local population of machines, providing for possibilities for profitability already in a very short term horizon. We have today 62 outlets throughout Russia compared to 53 in the beginning of the year. Number of employees has also increased, from 540 at the end of 2011 to 615 at the end of the quarter.

There are mixed signals from the market as to the situation. Whereas our direct competitors report exactly the same pattern as we do, other closely related industries are not experiencing any signs of a slowdown, not even in the construction segment. In addition, as mentioned above, the oil price is now moving upwards again.

It is currently difficult to estimate the short- and medium term market development. Underlying long-term market fundamentals are strong, but uncertainty is higher than before, thus leading to higher variances in working capital. The increased working capital need together with our lower than expected sales performance during three consecutive months have made us continue and intensify our efforts in consolidating our organization and making it more efficient in order to even better serve our large customer base. Our aim is that these efforts will improve our cash flow and overall profitability of the Company already in 2012.

For further information, please contact:
Anders Blomqvist, Chief Financial Officer, Ferronordic Machines AB, Tel: +46 70 7766 485
Ferronordic Machines AB, Hovslagargatan 5B, 111 48 Stockholm, Sweden.

Ferronordic Machines is the Authorized Dealer of Volvo Construction Equipment in Russia. The Company began its operations in June 2010 and has since then shown strong growth:

• 2011 revenue of EUR 268m vs. EUR 74m in 2010
• 62 own outlets vs. 6 in June 2010
• 615 employees vs. 162 in June 2010

Ferronordic Machines has expanded all across Russia through its 62 outlets and is today well established in all seven federal districts. In addition to distributing and providing aftermarket support to Volvo CE machines, the Company has also been appointed Aftermarket Dealer for Volvo Trucks in Archangelsk in North-western Russia and in Eastern Moscow Region, as well as Dealer for Volvo Penta in Archangelsk and the Ural Region. The company has also signed up some other high quality brands such as LogSet, Logmax and several attachment manufacturers. The company intends to become a leading sales- and service company in the CIS markets.