Year-end Report January - December 2011
October - December 2011
- Sales revenues amounted to EUR 77.6m (40.3m).
- Operating profit amounted to EUR 0.8m (-2.1m).
- The Operating margin was 1.0% (-5.3%).
- EBITDA for the fourth quarter was EUR 2.8m (-1.0m).
- The after-tax result amounted to EUR -0.2m (-2.5m).
- Excluding the amortization of acquisition related intangible assets, the after tax result was EUR 0.8m (-1.4m).
- Cash flow used in operating activities amounted to EUR -16.3m (-6.1m).
January - December 2011
- Sales revenues amounted to EUR 268.0m (73.9m).
- Operating profit amounted to EUR 3.4m (-5.7m)*.
- The Operating margin was 1.3% (-7.6%)*.
- EBITDA for the twelve months amounted to EUR 12.3m (-1.4m)*.
- The after-tax result amounted to EUR -1.8m (-5.8m)*.
- Excluding the amortization of acquisition related intangible assets and negative goodwill, the after tax result was EUR 2.7m (-3.2m).
- Cash flow from (used in) operating activities amounted to EUR -51.1m (6.2m).
Note: Comparative figures in parenthesis related to the same period in 2010.
*2010 numbers exclude the effect of negative goodwill of 18.6m related to the takeover from Volvo in June 2010.
Ferronordic Machines’ CEO Erik Eberhardson commented:
Expansion delivered all-time high for Volvo CE in Russia
Ferronordic Machines delivered exceptionally strong growth in 2011, increasing number of sales- or service locations from 12 to 53, employees from 326 to 540 and providing sales of more than 1,300 VCE machines in Russia which is all time high for Volvo CE in the country.
Revenue for the year was EUR 268 million compared to EUR 74 during the 7 months we operated in 2010.
Profitability for the full year was higher than in 2010, however somewhat lower than during the first half of 2010. EBITDA for the full year was EUR 12.3 million, representing a 4.6% margin. The main reason for lower profitability in the second half is the slower than expected market growth which lead to higher inventory levels, high pre-delivery (rebuild) costs and higher relative selling expenses. Other reasons were product and customer mix, shorter payment terms to Volvo and unrealized F/X losses. Further, some cumulative costs associated with sales were recorded in the second half of the year. The consensus forecast for the GDP development of the Russian economy in 2012 remains one of the highest in the World, driven by the continued demand for natural resources and metals from other emerging markets, but the financial instability in the Eurozone has still slowed down the strong growth of the Russian construction equipment market. For purposes of speed and cash preservation, the main strategy for network development is based on rented locations with select capital investments in real estate.
The somewhat slower than expected market development during autumn however led to higher than forecasted inventory levels and put increased pressure on working capital as well as prices, adversely affecting the overall profitability of the business. This was addressed in a close dialogue with Volvo CE on pricing and inventory management as well as through efforts to advance our efficiency and capacity in machine sales, aftermarket service and parts sales. The level of inventory was significantly reduced in December, thanks to very strong sales.
In addition to inventory management, price management and cost control, the implementation of the company’s strategy to increase profitability by growing parts and service revenues through continued expansion of the dealer network remain key focus areas for management. In addition, investments in improvements of processes and IT systems as well as training programs for personnel in sales, aftermarket and management in all areas of our business will allow us to achieve additional efficiencies.
Overall, we remain cautiously optimistic as we look forward into 2012, but continue to follow the key risks created by the international economic instability and the potential effects on business conditions in Russia.
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Ferronordic expands to the USA – acquires one of the country’s largest Volvo Construction Equipment dealers
Ferronordic has entered into an agreement to purchase Rudd Equipment Company, Inc. (“Rudd”), one of the largest dealers of Volvo CE in the United States with operations in all or parts of nine states. Ferronordic thereby takes its first step to expand into the important US market. The purchase price amounts to USD 95.0m, corresponding to 5.8 x 2022 adjusted earnings before tax. In 2022, Rudd had sales of USD 308.3m with an operating income of USD 16.5m and earnings before tax of USD 16.4m (both adjusted to IFRS). In addition, Ferronordic acquires two real properties for USD 10m, currently rented by Rudd.