Ferronordic Company Presentation August 2020
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Ferronordic
Company Presentation
August 2020
Introduction to Ferronordic
Who is Ferronordic? Development
Service and sales company in the areas of construction
2010 (start) Q2 2020
equipment and trucks
Dealer of Volvo Construction Equipment and certain Employees ~160 1,352
other brands in all of Russia and Kazakhstan1)
Revenue (SEKm)2) 1,184 4,245
Aftermarket partner of Volvo Trucks and Renault Trucks
in parts of Russia
Outlets 6 95
Business partner that offers contracting services, where
we own and operate equipment for our customers
New machine revenue by customer type (2019, Russia/CIS)
Dealer of Volvo Trucks and Renault Trucks in parts of
Oil & Gas
Germany from January 2020 Quarries & 5%
Aggregates
12% Mining
Ferronordic started operations in 2010 and now has 23%
approx. 100 outlets and about 1,400 employees
Road
Vision to be regarded as the leading service and sales Construction
18%
company in our markets
General
Shares in Ferronordic AB (publ) are listed on Nasdaq Forestry
Construction and
Other
Stockholm. 14% 28%
1) In Kazakhstan, Ferronordic is a dealer of Volvo CE and Mecalac since January 2019.
2) Annualized. 2
Russia/CIS: A market opportunity
Russia overview Import of construction equipment to Russia (units)3)
Population: ~144 million1) 21 009 20 573
Area: 16.4 million sq. km1)
11th biggest economy in the world1) 13 568
Rich in oil and minerals; top 3 producer of oil, natural gas and gold 11 766 11 725
10 310
World’s largest forest land 8 426
Strong balance sheet and approx. USD 569 billion2) in international
3 573 4 354
currency reserves plus USD 131 billion2) in gold
12.5% government debt/GDP ratio (nominal 2019)
Underinvested infrastructure 2012 2013 2014 2015 2016 2017 2018 2019 LTM
Road density in Russia and Kazakhstan is low Russia’s National Projects – infrastructure and roads
Road density (km road per 100 sq. km land area)1)
192
172 180
2% Roads
129 132 14% Railways
Waterways
67 USD Airports
43
23
20% 155 bln4) 63%
6 14
4
Kazakhstan
Finland
China
Poland
USA
Canada
Sweden
Russia
UK
Germany
France
1) World Bank. 2) Russian Central Bank. 3) Russian import statistics (until April 2020) compiled by Volvo CE. 4) Based on a USD/RUB rate of 73.
3
Strategic objectives
Leadership within the Expansion into related
market for construction business
equipment and trucks areas
Aftermarket absorption
rate of at least 1.0 x
Further development of
Geographic expansion contracting
services
4
Product offering
Brand
Volvo & Renault Volvo & Renault
Volvo CE Gensets Dressta Rottne Mecalac
Trucks Trucks
Example
product
Year
2010 (Russia) 2017 (Russia)
2019 (Kazakhstan)
2020 2012 2014 2016 2016 2019 (Kazakhstan)
Product
Full Volvo & Own labelled
Bulldozers and Forwarders and
Full VCE range Renault Trucks Aftermarket diesel generators Backhoe loaders
pipe layers harvesters
range (gensets)
~20% of German
Area
All of Russia & 11 locations in All of Russia &
market for heavy All of Russia All of Russia All of Russia
Kazakhstan Russia Kazakhstan
trucks
~57% of 6M 2020 ~22% of 6M 2020
~11% of 6M 2020 revenue
revenue revenue
5
RussiaNationwide coverage
and Kazakhstan coverage
Egvekinot
Murmansk
Kirovsk
St .Petersburg Petrozavodsk
Arkhangelsk
Velikiy Novgorod
Cherepovets
Tver Vologda Karpogory
Smolensk Velsk
Kaluga Yaroslavl Koryazhma Norilsk Yagodnoe
Vorkuta Labytnangi
Moscow Sharya Syktyvkar
Tula Ryazan Noviy Urengoy Magadan
Belgorod Kirov Ust-Omchug
N.Novgorod Udachniy
Voronezh Saransk Cheboksary
Kazan
Perm Sovetskiy
Rostov-on-Don Naberezhnye
Krasnodar Samara Ufa Berezovskiy Surgut Mar-Kuel
Chelny
Armavir Ekaterinburg
Tyumen Kyumba Aldan
Mineralnye Vody Chelyabinsk Elga
Orenburg Varna
Makhachkala Novotroitsk Neryungri
Tomsk Vysochaishy
Aktobe Ust-Ilimsk
Kemerovo Bratsk
Belovo Krasnoyarsk Yuzhno-Sakhalinsk
Karaganda Blagoveshchensk
Khabarovsk
Chita
Artyom
Almaty
(84) Ferronordic outlets in Russia and Kazakhstan as of June, 2020
6
Nationwide coverage
Germany coverage
(11) Ferronordic outlets in Germany as of June, 2020
7
Aftermarket focus
Aftermarket sales (SEKm) Share of sales (6M 2020) - Russia/CIS
Other 1%
Contracting services
1 000 12%
900
800 Aftermarket
25%
700
Machine sales
63%
600
500
Share of sales (6M 2020) - Germany
400 Other 7%
300
200
Aftermarket
26%
100
0 Truck sales
2015 2016 2017 2018 2019 6M 2020 67%
Russia/CIS Germany
8
Focus on connectivity and digitalization
Focus on connectivity and digitalisation to grow sales
to create additional sales
We are in the forefront of using a system that utilizes telematics systems
to maximize sales and increase customer satisfaction and fleet efficiency
9
Moving towards further customer integration
Complexity of customer demand
Ferronordic offering
10Focus on connectivity and digitalization
Contracting services - case study
to create additional sales
Client: GV Gold, top 10 gold mining company in Russia
Location: Irkutsk region, Golets Vysochaishy,
Vysochaishy mine
Project staff: 161 people (as at end of June 2020)
Fleet size: 43 units (35 haulers, 1 grader, 7 excavators)
11Component rebuild center
• Opened in Ekaterinburg in Q4 2019
• Rebuild of machines for customers
• Rebuild of engines and gearboxes for Volvo
CE and Volvo and Renault Trucks
• Chop-off and rebuild of machines planned
• Part of the center’s capacity is expected to be
used by Ferronordic’s contracting services
business
• Components to be resold to customers with a
warranty from Ferronordic or installed in used
machines in “Volvo Certified Rebuild” program
• First rebuilt articulated haulers completed in
Q2 2020
• Recycling of used equipment, broader value
offering, and increased local market access
12Strong
Russia/CIS: development
Strong resiliencedespite low level
and growth market
in market with upside
450%
400%
408%
381%
350%
300%
291%
250%
Index = 100 in 2011
200%
199% 155% 154%
150% 134%
113% 110% 109% 106%
140%
92%
100%
100% 99% 103% 96% 69% 63% 63%
61% 55%
95% 45%
50% 71% 73%
19% 23%
0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 LTM
1)
Market (units) Operating profit (SEK)2) Revenue (SEK)
1) Russian import statistics (until April 2020) compiled by Volvo CE.
2) 2011-2016 refer to adjusted EBIT, i.e. operating profit excluding (i) amortization of transaction-related intangible assets and (ii) write-downs of non-current assets in Q4 2016. 13COVID-19 response
Employee Customer Costs and
Health Service Cash
and
Safety
• Strict health and safety • All workshops remained • Reduced headcount and
protocols operational working hours
• Protective equipment for • 24/7 coverage • Temporary and voluntary salary
employees • Remote and virtual support cuts
• Work from home initiatives • Longer rotations for operators • Travel and marketing expenses
when possible in contracting services decline
• Good on-site facilities
• Split team shifts for • Focus on customer uptime and • Minimum capex
mechanics to reduce staff productivity • Tight credit controls
overlap and manage risks
• Improved liquidity position
14Best second quarter to-date despite COVID-19
Unit sales in Russia/CIS grow even as market declines sharply
Robust aftermarket and contracting services performance
Operating profit up on revenue resilience and cost control
Sales in Germany decline quarter-on-quarter in line with market
Strong operating cash flows and lower net debt
9% 7% 8.7% 4%
revenue increase operating profit operating margin EPS increase
growth
15Q2 2020 highlights
Russia/CIS unit sales up 6% despite sharp market
Q2 2020 %
decline in Q2 2020
Q2 2019 Russia / Q2 2020 Q2 2020 change
SEK MM Group CIS Germany Group Group Germany unit sales down QoQ in line with market
New units sold 280 296 146 442 58% Total revenue of SEK 1,203m (+9%)
1,100 958 245 1,203 9%
80% Russia/CIS and 20% Germany
Revenue
64% Equipment and trucks, 24% aftermarket
Gross Profit 221 190 16 207 -6% and 10% contracting services
SG&A expenses as share of revenue was 9.4% in Q2
% Margin 20.1% 19.9% 6.7% 17.2% -2.9pp
2020 vs.10.1% in Q2 2019
Operating profit 98 120 -15 105 7% SG&A in Russia/CIS declined 28% YoY and 14%
QoQ
% Margin 8.9% 12.5% -6.1% 8.7% -0.2pp Operating margin declined to 8.7% on negative
contribution from Germany
Result 73 76 4%
Operating profit increased 7% to Q2 record SEK
5.03 5.24 4%
105m as a result of resilient revenue, cost control and
EPS a one-off customs refund
Strong cash flows from operations as net working
capital decreased to 10% of revenue
126 156 -4 152 21%
EBITDA Net debt declined to SEK 230m
16Financial objectives and dividend policy
KPI Objective Q2 2020 LTM
Triple 2016 revenue in 2.2 x
Revenue
Russia/CIS by 2021 2016 revenue
Operating margin 6-8% 8.5%
Net Debt / EBITDA 0-2 x 0.4 x
• Ambition to distribute at least 25% of the result to shareholders
Dividend Policy • Board takes several factors into consideration when proposing
the dividend level, including expansion opportunities, financial
position and investment needs
17OUTLOOKOutlook
– CEO COMMENT
“The outbreak and the measures to contain the spread of COVID-19 have caused
great uncertainty across our markets. For the rest of 2020, we may continue to
face various degrees of disruption in supply, demand and customer interfacing.
Looking ahead, we are confident that our business model, which is built on a
great team and a robust aftermarket business, will remain resilient. While we
expect our markets to decline in 2020, we believe that we may have seen the
lows. In a longer perspective, we remain positive as we believe that the
underlying fundamentals and business opportunities in our markets are strong.”
18Q&A
19Appendix
20Significant need to improve infrastructure
Road density in Russia and Kazakhstan is low Rail density is low too
Road density (km road per 100 sq. km land area)1) Rail density (km railway per 1,000 sq. km of land area)2)
122
192
180
172
96
129 132
75
61
53
67
43 24
20
17
23
14 7
6 5 5 6
4
Canada
USA
Finland
France
Poland
Russia
China
UK
Germany
Sweden
Kazakhstan
USA
Czech Rep.
Canada
Finland
France
Poland
Russia
China
Germany
Sweden
Kazakhstan
Slovakia
Sources: 1) World Bank 2) Global Competitiveness Report 2019
21Strategic
Nationalobjectives
Projects
Demography
[USD 49 bln] 2%
Environment Roads
14%
[USD 64 bln] [USD 75 bln]
National
Projects USD 175 bln
[USD 400 bln] 20% 63%
Healthcare Infrastructure
[USD 27 bln] [USD 100 bln]
Housing, trade,
digital economy
and others
[USD 90 bln]
Roads Railways Waterways Airports
Source: Russian Government Information Bulletin, February 2019.
Note: based on a USD/RUB rate of 63.5 22Pent-up demand
Import of construction equipment to Russia (units)
Young market – sales of high-quality construction equipment only took off 2006/2007
21 009 20 573
Import of high-quality brands 18 627
gains momentum 17 489
13 525 13 568 Market starts to recover
after 2014-2015 economic
downturn 11 766 11 725
10 310
8 004 8 426
Mainly local machines of
lower quality
4 436 4 354
3 573
2 655
1 685 1 649
1 131
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 LTM
Import of construction equipment to Russia (units)
Source: Russian import statistics (until April 2020) compiled by Volvo CE.
Note: Excluding Chinese brands, bulldozers, rigid dump trucks and forestry machines. 23Pent-up demand
Germany - Europe’s largest truck market
Heavy truck registrations in Germany (units)
80 000 115
67 797 70 264
70 000 66 441 68 450 110
65 280
60 218 61 940
60 000 58 574 105
55 167 55 215
52 972
48 827
50 000 100
40 322
40 000 95
30 000 90
20 000 85
10 000 80
0 75
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 LTM
Heavy truck registrations Average truck toll mileage index*
Source: Germany registrations data compiled by Volvo Trucks (until June 2020). Federal Statistical Office Germany (Destatis).
* Truck toll mileage index is a fixed base index that traces the development of the mileage of heavy trucks (with four or more axles) on German federal motorways and is calculated from digital process data from the truck toll collection system. 24Worksite Applications_2_Machine Performance 271114
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