Interim report January - September 2012

Third Quarter 2012

• Sales revenue amounted to EUR 80.3m (73.6m)*
• Revenue growth of 9% Y-o-Y (6% in local currency)
• Operating profit amounted to EUR 1.3m (0.6m)
• The Operating margin was 1.7% (0.8%)
• EBITDA amounted to EUR 3.9m (2.3m)
• The after-tax result amounted to EUR -1.7m (-2.8m)
• Cash flow from operating activities amounted to EUR 2.5m (-24.4m)

January - September 2012

• Sales revenue amounted to EUR 207.9m (190.4m)
• Revenue growth of 9% Y-o-Y (7% in local currency)
• Operating profit amounted to EUR 1.6m (5.0m)
• The Operating margin was 0.8% (2.6%)
• EBITDA amounted to EUR 8.8m (9.5m)
• The after-tax result amounted to EUR -5.7m (-1.5m)
• Cash flow from operating activities amounted to EUR 2.1m (-29.9m)

*Comparative figures for last year are in brackets.

Lars Corneliusson, the CEO of Ferronordic Machines comments:

Improved Q3 results despite uncertain market

With revenues amounting to EUR 208m, Ferronordic Machines achieved a 9% revenue growth during the first nine months of 2012 compared to the same period 2011. The number of new machines sold increased by 15% to 1,039 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 15% and revenue from the rental business more than tripled. EBITDA for the first nine months 2012 was EUR 8.8m, a decrease with EUR 0.7m compared to the same period in 2011. The lower earnings were primarily related to increased selling, general and administrative expenses as the business and organization expanded throughout Russia. Net income, excluding amortization of transactions related intangibles, for the first nine months was negative EUR 2.1m, primarily due to EUR 1.2m of unrealized FX losses and higher financial costs as a result of the Company’s higher financial indebtedness. Cash flow from operating activities was 2,1m and cash used in investing activities was EUR 5.8m, resulting in an ending net debt position of EUR 75.7m.

In the third quarter, the Company experienced a 9% increase in revenue compared to the same period the year before. During the period, 391 new units were sold, a 9% increase over the third quarter 2011. Revenue from parts and service increased 9% and revenue from the rental business doubled. The Company achieved an EBITDA of 3.9m, a 70% increase compared to the same period in 2011. Net income, excluding amortization of transactions related intangibles, for the period was negative EUR 0.5m, primarily due to the same reasons as during the first nine months. The Company’s net debt position increased EUR 5.5m during the three months ending September 2012.

I am very pleased that the strategy of growing our presence throughout Russia is now showing positive effects on our ability to capture market opportunities in geographical areas previously operated by smaller independent dealers with low market shares, outside of traditionally stronger territories for VCE in Russia (mainly North West Russia. We now have a widespread footprint of sales and service points in all seven federal regions of Russia. The two regions which have been historically weakest for VCE sales, Far East and Siberia, are expected to show strong revenue growth over the next few years. During the first nine months, approximately 40% of our revenue was generated in regions where we did not have our own outlets at the time of the takeover from VCE in 2010 (Urals, Volga, South, Far East and Siberia). In 2010, the corresponding number for VCE products was around 15%. We are in a good position to continue to rebalance our sales as the regions show different patterns of market development.

As mentioned in our Q2 report, the market growth expected in mid-June did not materialize and we still do not see any major changes in the overall market sentiment. Also as discussed in the Q2 report, the uncertainty created by the Euro crisis has had an impact on the Russian market and clearly negatively affected the short-term spending decisions among our customers. In addition, there is a clear over-stocking in the market today which of course could have an impact on the pricing and hence our profitability in the short-term. However, in summary, despite numerous uncertainties, we see that the market has stabilized somewhat.

Following a significant drop in the oil price during Q2 when the price reached a low of USD 88.5 / barrel on June 22, it has now recovered and was at USD 111 / barrel at the end of September. There is usually a strong correlation between the oil price level and the spending in the construction equipment market and hence our revenue generation. We continue to monitor the oil price development closely.

During the quarter we have worked hard in consolidating our organization and making it more efficient in order to even better serve our large customer base. We have been more selective in opening new outlets, and in recruiting new personnel and we were in September at similar levels as at the end of June, 621 employees (615 in June) and 63 outlets (one more than in June). Our focus on competence development is continuing and I am happy to announce that our training center in Moscow is now fully operational. I would also like to mention that we have been able to recruit a new, highly competent individual, Onur Gucum, as Commercial Director. Onur has a long and broad experience in the construction equipment market, having worked for both VCE and a competitor for a number of years. Onur has since his start in July already made a significant contribution to our Company.

It is currently difficult to estimate the short- and medium term market development. Underlying long-term market fundamentals are strong, but uncertainty is high, thus leading to higher variances in short-term profitability and working capital.

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
• 65 own outlets vs. 6 in June 2010
• 617 employees vs. 162 in June 2010

Ferronordic Machines has expanded all across Russia through its 65 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.