Ferronordic : November 2020 Company Presentation

Company Presentation

November 2020

Introduction to Ferronordic

Overview

Russia/CIS

• Dealer of Volvo Construction Equipment
• Dealer of Terex, Dressta, Rottne and Mecalac
• Aftermarket dealer for Volvo Trucks and Renault Trucks in parts of Russia
• Sales of new and used construction equipment
• Service and technical support
• Sales of used trucks
• Growing contracting services business
• CIS markets currently include Kazakhstan2) from Q1 2019

Germany

• Dealer of Volvo Trucks and Renault Trucks in parts of Germany from January 2020
• Sales of new and used trucks
• Service and technical support

Group

• Founded in 2010
• Listed on Nasdaq Stockholm since 2017

Development

		2010 (start)		Q3 2020
Employees	~160	1,387
Revenue (SEKm)1)	1,184	4,410
Outlets	6	95

New machine revenue by customer type (2019, Russia/CIS)

Quarries &	Oil & Gas
5%
Aggregates	Mining
12%
	23%

Road

Construction

18%

	General
	Construction and
Forestry	Other
14%	28%

1)	Annualized.	2
2)	In Kazakhstan Ferronordic is a dealer of Volvo CE and Mecalac from January 2019.

Value pyramid

3

Russia/CIS: Vast market with long term potential

Russia at a glance

Russia's GDP development5)

• Population: ~144 million1)
• Area: 16.4 million sq. km1)
• Rich in oil and minerals
• World's largest forest land
• A significant portion of the Federal Government income relates to oil and gas
• Strong balance sheet and approx. USD 583 billion2) in international currency reserves and gold
• 12.5% government debt/GDP ratio (nominal 2019)

3,4%					1,5%	2,3%			2,8%
	1,3%				1,3%
	0,6%
				-0,7%
			-3,8%					-4,1%
2012	2013	2014	2015	2016	2017	2018	2019	2020e	2021e

Oil production (% of total)3)

17,9%
	12,4%	12,1%
			5,9%	5,0%	4,2%	4,0%	3,7%	2,0%
USA	Saudi Arabia	Russia	Canada	Iraq	UAE	China	Iran	Kazakhstan

Natural gas production (% of total)3)

23,1%
	17,0%
		6,1%	4,5%	4,5%	4,3%	3,8%	2,9%
							0,6%
USA	Russia	Iran	Qatar	China	Canada	Australia	Norway	Kazakhstan

Coal reserves (% of total)3)

23,3%
	15,2% 13,9% 13,2%
				9,9%
					3,7%	3,4%	3,2%	2,4%
USA	Russia	Australia	China	India	Indonesia	Germany	Ukraine	Kazakhstan

Gold reserves (% of total)4)

20,0%

10,6%

6,4%	6,0%	5,2%	4,8%	4,2%	4,0%
					2,0%

Australia

Russia

South Africa

USA

Indonesia

Brazil

Peru

China

Kazakhstan

Sources: 1) World Bank 2) Russian Central Bank 3) BP Statistical Review of World Energy, June 2020 4) US Geological Survey, Mineral Commodity Summaries, February 2020 5) Including IMF, World Bank and OECD (October 2020)	4

Significant need to improve infrastructure

Road density in Russia and Kazakhstan is low

Road density (km road per 100 sq. km land area)1)				180	192
											172
									129	132
								67
						23	43
4	6	14
		Kazakhstan		Russia	Canada	Finland	China	USA	Sweden	Poland	UK	Germany	France

High need for increased infrastructure investment

Infrastructure spending levels in relation to GDP3)

Rail density is low too

Rail density (km railway per 1,000 sq. km of land area)2)				122
													96
												75
										53	61
							17	20	24
5	5	6	7
	Russia		Canada		Kazakhstan	China	USA	Finland	Sweden	France	Poland	Slovakia	Germany	Czech Rep.

• Construction equipment market is expected to capitalize on the long-term growth in Russia and Kazakhstan

	70							5%	
	60							4%
	50
b	40							3%
USD	30							2%
	20							1%
	10
								
	0							0%
	2015	2016	2017	2018	2019e	2020e	2021e	2022e
		Prevailing investment level			Investment gap

Prevailing investment as % of GDP

Total investment needed as % of GDP

An important driver will be the need to improve aging infrastructure, the bulk of which was built in the Soviet era and needs to be upgraded

• Russia is ranked 99 out of 141 countries in terms of road quality2)
• Kazakhstan is ranked 93 out of 141 in terms of road quality2)

Signs that the government intends to create economic growth by increased infrastructure spending

Sources: 1) World Bank 2) Global Competitiveness Report 2019 3) Global Infrastructure Outlook, World Bank, Company estimates.	5

National Projects

Environment

[USD 64 bln]

Healthcare

[USD 27 bln]

							Designed to transform the economy and
							promote economic growth
							Recently signed July Decree is extending
Demography							the terms of achieving the plan from 2024
						to 2030 and updating the previous platform
[USD 49 bln]				2%			Detailed program prepared and is to be
	Roads
		14%				approved by the President
	[USD 75 bln]
						Almost half of the budget earmarked for
National						
						infrastructure, including the road network
Projects	20%	USD 175 bln	63%		Planned investment into roads and
[USD 400 bln]				infrastructure amounts to approx. 10% of
	Infrastructure						GDP
Housing,	[USD 100 bln]						Aim to transform regional roads to improve
						links between Russian cities
trade, digital
economy and							The railway program includes
others						
[USD 90 bln]							high-speed rail and increase of the freight
Roads	Railways	Waterways	Airports		capacity between key logistical hubs
							Waterways development plan aims at
							growing sea port capacity and developing
							the Northeast Passage

Source: The Russian Government.	6

Pent-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

gains momentum

18 627

17 489

13 525	13 568	Market starts to recover
		after 2014-2015 economic	11 766
		downturn
		10 310	10 296

																	8 004													8 426
	Mainly local machines of
			lower quality
							4 436																			3 573	4 354
						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 August 2020) compiled by Volvo CE.	7
Note: Excluding Chinese brands, bulldozers, rigid dump trucks and forestry machines.

Germany - Europe's largest truck market

Heavy truck registrations in Germany (units)

80 000

70 000

60 000

50 000

67 797		66 441	68 450
		65 280
	60 218	61 940
	58 574

55 167

55 215

48 827

		115
70 264		110
		105
	49 878	100

40 000

30 000

20 000

10 000

0

40 322

95

90

85

80

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 September 2020). Federal Statistical Office Germany (Destatis).	8
* 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.

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 expansioncontracting services

9

Strategic cornerstones

CUSTOMER ORIENTATION

• Customer centricity
• Leading service and product availability
• Tailored customer solutions (including contracting services)
• Financial services offerings
• Developed trade-in system
• Fleet and residual value management

BUILD ON STRONG BRAND - VOLVO

• World leading manufacturer of trucks and construction equipment
• Leading brand position in Russia
• Development through additional strong brands

GREAT TEAM

SUPERIOR INFRASTRUCTURE

• High density network - many points of presence
• Mobile workshops and service vans/trucks
• Well equipped, purpose-build facilities in select locations
• Infrastructure to be used for all brands and business areas

OPERATIONAL EXCELLENCE

• Strong teams and high employee engagement
• Safety and sustainability
• Continuous improvement of practices and processes
• Business driven digitalisation solutions
• Close cooperation with manufacturers

10

UN Sustainable Development Goals

• Anti-corruptionprogram consisting of policies, procedures, trainings and zero tolerance policy
• Code of Conduct
• Swedish Corporate Governance Code
• Minimum emissions and waste
• High-quality,long-life,fuel-efficient machines
• Maximizing uptime for efficient production
• Recycling (Component rebuild

center)

• Customer support, training and contracting services for most efficient use

• Zero injury objective
• 6,810 hours invested in Health & Safety trainings
• 57,000 hours of training and development
• Equal opportunities employer: proportion of women in management positions increased from 13% to 17%
• Contributing to economic growth and social development
• Contributing to employment in remote regions
• Providing service and equipment for building critical infrastructure

11

Strategic development

2010-2013: Phase I - establishing

platform

12 outlets		75 outlets
326 FTEs		731 FTEs

			2 421			2 403	2 483
1 1841)
			3.9%						3.6%
					2.8%
2010	2011			2012	2013
		Revenue (SEKm)			Operating margin2)

• Processes and procedures established
• Establishment of countrywide platform
• Building market awareness and market share

2014-2016: Phase II - streamlining

to handle market decline

75 outlets		73 outlets
767 FTEs		782 FTEs

2 335

1 658

1 469 7.9%

5.9%

4.4%

2014	2015	2016
	Revenue (SEKm)		Operating margin2)

• Increased aftermarket focus
• Reduction of unprofitable outlets
• NWC efficiency focus
• Adding brands and services

2017 and onwards: Phase III - leveraging market recovery and company

maturity

74 outlets		79 outlets		92 outlets		95 outlets
847 FTEs		1,032 FTEs		1,239 FTEs		1,387 FTEs
											4 410
							3 747
			3 241
2 567
							9.5%
				8.4%							8.1%
	7.3%

2017	2018			2019	LTM
		Revenue (SEKm)			Operating margin
 Digitalisation		 Growing		 Continued
	contracting		aftermarket
focus
	services		focus
 Leveraging		 High market		 Expansion of
		geography and
existing
	potential		customer
organization
					offering

1) Annualized 2) 2011-2016 refer to adjusted EBIT, i.e. operating profit excluding amortization of transaction-related intangible assets and write-downs of non-current assets in Q4 2016.	12

Product offering

Brand

Volvo CE

Volvo & Renault		Volvo & Renault
Trucks		Trucks

Gensets Dressta Rottne

Mecalac

Example Area Product Year product

2010 (Russia)

2019 (Kazakhstan)

Full VCE range

All of Russia &

Kazakhstan

~57% of 9M 2020

revenue

2020

Full Volvo &

Renault Trucks

range

~20% of German market for heavy trucks

~22% of 9M 2020

revenue

2012

Aftermarket

11 locations in

Russia

2014		2016		2016
Own labelled		Bulldozers and		Forwarders and
diesel generators
	pipe layers		harvesters
(gensets)
All of Russia		All of Russia		All of Russia

~12% of 9M 2020 revenue

2017 (Russia)

2019 (Kazakhstan)

Backhoe loaders

All of Russia &

Kazakhstan

13

Russia and Kazakhstan coverage

							Murmansk
							Kirovsk
St .Petersburg				Petrozavodsk
Velikiy Novgorod						Arkhangelsk
	Cherepovets		Vologda		Karpogory
Smolensk	Tver
				Velsk
Kaluga	Moscow	Yaroslavl	Koryazhma	Vorkuta
			Sharya		Syktyvkar
Belgorod Tula	Ryazan		Kirov
Voronezh		N.Novgorod	Cheboksary
Saransk
Rostov-on-Don				Kazan		Perm	Sovetskiy
Naberezhnye
Krasnodar		Chelny	Samara Ufa		Berezovskiy
Armavir							Ekaterinburg
							Tyumen

Mineralnye Vody		Chelyabinsk
Orenburg	Varna
Makhachkala
Novotroitsk
	Aktobe
		Karaganda

Almaty

Norilsk

Labytnangi

Noviy Urengoy

Udachniy

Surgut

	Kyumba
Tomsk		Ust-Ilimsk	Vysochaishy
Kemerovo	Bratsk

Belovo Krasnoyarsk

Chita

Egvekinot

Yagodnoe

Ust-OmchugMagadan

Mar-Kuel

Aldan

Elga

Neryungri

BlagoveshchenskYuzhno-Sakhalinsk

Khabarovsk

Artyom

(84) Ferronordic outlets in Russia and Kazakhstan as of September, 2020

14

Germany coverage

 Ferronordic expanded to become dealer for Volvo and Renault Trucks in Germany in January 2020

 Germany is Europe's largest trucks market with 70,000 registrations in 2019

 Ferronordic's sales area covers approx. 20% of the German market for heavy trucks

 The area includes some of the busiest and

most developed parts of Germany, like Hannover and Frankfurt Rhine-Main, the second largest metropolitan region in the country

 It also includes a large part of Eastern Germany with fast growing cities, like Leipzig and Dresden

(11) Ferronordic outlets in Germany as of September, 2020

15

Moving towards further customer integration

Complexity of customer demand

Ferronordic offering

16

Aftermarket focus

Share of sales (9M 2020) - Russia/CIS	Share of sales (9M 2020) - Germany
Contracting services	Other 1%	Other 8%
12%
Aftermarket		Aftermarket
24%		28%
	Machine sales	Truck sales
	62%	65%

1 000	Aftermarket sales (SEKm)
900
800
700
600
500
400
300
200
100

0

2015	2016	2017	2018	2019	9M 2020
		Russia/CIS	Germany

Aftermarket sales

• Proactive customer coverage based on real-time data from the existing machine population
• Proprietary system transforms machine telematic signals (e.g. VCE's CareTrack) into sales leads on the mobile devices of sales and service staff
• Ferronordic's presence in all Russian regions allows for fast delivery of parts and timely customer support

Offering

• Spare parts delivery
• Telematics - through Care-Track; fuel efficiency control, operator efficiency, fleet management
• Operator training
• Preventive maintenance service
• Planned and unplanned repair
• Overhaul
• Providing new life to older machines
• Diagnostics of machines
• Remanufacturing of vital parts

17

Focus on connectivity and digitalisation to grow sales

We are in the forefront of using a system that utilizes telematics systems to maximize sales and increase customer satisfaction and fleet efficiency

18

Contracting services

Integrating with our customers

Parts Machine

Traditional method		Outsourcing method:
	Contracting services

•	Part of strategy of becoming increasingly integrated
	in the business of our customers
•	In addition to supplying and maintaining machines,
	we provide customers with operators to carry out
	specific works
•	Current projects cover excavation and

Payments Operators Service

or the customer

or the customer

Provided

by:

The customer

Cost of machine, parts

and service

Provided

by:

Volume based (per tonne,

cubic meter, etc.)

	transportation of earth and rock for mining
	customers
•	Payment is based on volume of earth and rock
	transported
•	Common in other parts of the world but relatively
	undeveloped in our markets. We believe demand
	may grow
•	Machines used by contracting services are on
	Ferronordic's balance sheet (PP&E)
•	Contracting services projects should be ROIC
	accretive to Ferronordic

19

Contracting services - case study

Client: GV Gold, top 10 gold mining company in Russia

Location: Irkutsk region, Golets Vysochaishy, Vysochaishy mine

Project staff: 173 people (as at end of September 2020)

Fleet size: 43 units (35 haulers, 1 grader, 7 excavators)

20

Machine and component rebuild center

• Opened in Ekaterinburg in Q4 2019
• Capacity expansion launched in Q3 2020
• Rebuild of used machines
• Rebuild of engines and gearboxes for Volvo CE and Volvo and Renault Trucks
• Chop-offand recycling of parts
• Components to be resold to customers with a warranty from Ferronordic or installed in used machines in "Volvo Certified Rebuild" program
• Part of the center's capacity is expected to be used by Ferronordic's contracting services business
• Recycling of used equipment, broader product offering, and increased local market access

21

Volvo and Renault Trucks Russia

• Authorised aftermarket dealer for Volvo and Renault Trucks in parts of Russia
• • Currently operating in 11 locations
  • Network capacity utilization
  • Cross-sellingand customer service
• Used trucks business launched in 2019
• • Purchasing, restoring and selling used trucks
  • Mainly Volvo and Renault Trucks
  • Small scale but with potential to grow
  • 48 units sold in 9M 2020
  • Potential synergies with Germany

22

Volvo and Renault Trucks Germany

• Authorised dealer for Volvo Trucks and Renault Trucks in parts of Germany
• Ferronordic services and sells Volvo and Renault trucks, trades and restores used trucks and manages a trucks rental business
• Ferronordic will invest to grow and improve network in area
• Plan to apply Ferronordic's business model to grow revenue and profitability
• Opportunities to grow Volvo and Renault Trucks market shares and increase share of aftermarket sales and improve profitability
• 259 employees in Ferronordic Germany; mostly sales representatives and mechanics

23

Russia/CIS: Strong resilience and growth in market with upside

	450%
	400%									425%
	350%								381%
	300%
								291%
in 2011	250%
200%
= 100
						199%		155%	151%
Index								134%
150%
	113%	110%	109%		140%	106%
		92%
	100%
	99%	103%	96%		69%			63%
	100%	61%		55%	55%
			95%	73%			45%
	50%	71%
		19%	23%
	0%
	2011	2012	2013	2014	2015	2016	2017	2018	2019	LTM

Market (units)1)		Operating profit (SEK)2)		Revenue (SEK)

1)	Source: Russian import statistics (until August 2020) compiled by Volvo CE.	24
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.

Development of revenue and operating profit

Revenue

Operating profit and operating margin1)

5 250

4 500

3 750

3 000

SEKm

2 250

1 500

750

0

	4 410
3 747	749

		3 241
		2 567
	1 658	3 661
1 469

2015

2016

2017

2018

2019

LTM

	400						20%
						358	358
	350
	300				274		15%
	250
SEKm	200			187		9,5%	10%
		8,4%
		132			8,1%
			7,3%
	150
	87	7,9%
	100	5,9%					5%
	50
	0						0%
		2015	2016	2017	2018	2019	LTM

Russia/CIS Germany

1) 2015-2016 refer to adjusted EBIT, i.e. operating profit excluding amortization of transaction-related intangible assets and write-downs of non-current assets in Q4 2016.	25

Cash flow and capital allocation

Working capital development

Net debt/(cash) development

	800	675	734	660			25%
	700
						20%
	600
		20%		476
	500	18%			15%
SEKm				354
400
		13%			10%
300
			10%
	200				8%	5%
	100
	0	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020	0%
			NWC	NWC as % of LTM revenue*

SEKm

600			593	531
500		411
400
300					230
200
100						83
0
	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020

Capital expenditure development

Comments

	200		187	173			10%	•
	175			165			•
				150	8%
	150					•
	125		5%
SEKm	96
100		3%	3%		5%	•
		3%
	75	3%
					3%	•
	50
	25
	0	Q3 2019	Q4 2019	Q1 2020	Q2 2020	Q3 2020	0%	•
			LTM capex	LTM capex as % of LTM revenue*			•

Focus on working capital efficiency and return on invested capital Asset light core business. Contracting services more capital intense

Increased working capital in 2019 mainly due to inventory build-up, partly due to transition to take over importation from Volvo

Working capital and net debt decline during 9M 2020

Capex increase in 2019 and 2020 mainly driven by investment in machines for contracting services and expansion to Germany in Q4 2019

IFRS 16 lease liabilities of SEK 82m as at Q3 2020 Net debt/EBITDA at 0.2 x as at Q3 2020

* LTM revenue for Germany annualized.	26

	Return on capital employed
48%
• Decline in 2019 related to working
43%	capital build-up and IFRS 16
• German expansion added assets at
38%	end of 2019
	• 9M 2020 includes negative
33%	contribution from Germany
28%
23%

18%

13%

8%

Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
14	14	14	14	15	15	15	15	16	16	16	16	17	17	17	17	18	18	18	18	19	19	19	19	20	20	20

Return on capital employed1)

1) Operating profit plus financial income (LTM) in relation to capital employed (equity and interest-bearing liabilities) (average LTM)	27
Note: 2014-2016 refer to adjusted EBIT, i.e. operating profit excluding amortization of transaction-related intangible assets and write-downs of non-current assets in Q4 2016.

Record result and strong cash flow

Strong unit sales growth despite lower market in Russia/CIS

Organic sales growth partly hidden by weaker ruble

Solid operating profit due to revenue mix and cost control

Unit sales in Germany flat as market remained weak

Strong cash flows and lower net debt

EGM approved SEK 4.25 per share dividend payout

17%	1%	9.5%	9%
revenue increase	operating profit	operating margin	EPS increase
	decline

28

Q3 2020 Income statement

		Q3 2020			%
	Q3 2019	Russia /	Q3 2020	Q3 2020	change
SEK MM	Group	CIS	Germany	Group	Group
New units sold	242	292	151	443	83%
Revenue	964	900	229	1,129	17%
Gross Profit	206	199	23	221	7%
% Margin	21.4%	22.1%	9.8%	19.6%	-1.8pp
Operating profit	109	124	-17	107	-1%
% Margin	11.3%	13.8%	-7.3%	9.5%	-1.8pp
Result	74			81	9%
EPS	5.09			5.57	9%
EBITDA	150	155	-8	147	-2%

• Total revenue of SEK 1,129m
• • 80% Russia/CIS and 20% Germany
  • 62% Equipment and trucks, 26% aftermarket and 11% contracting services
• Gross margin declined 1.8pp to 19.6% mainly on consolidation of Germany
• SG&A in Russia/CIS declined 19% Y-o-Y and 3% Q-o-Q
• Group SG&A expenses as share of revenue were 10.3% in Q3 2020 vs.10.0% in Q3 2019
• Operating margin stood at 9.5% despite negative contribution from Germany
• Operating profit decreased 1% to SEK 107m
• Lower financial costs on lower net debt
• Record net income

29

Revenue and margin development

• LTM revenue in Russia/CIS decreased to SEK 3.7b, mainly due to depreciation of RUB against SEK by 23%
• Revenue from German operations contributed an incremental SEK 229m in Q3 and SEK 749m in 9M 2020
• Q3 2020 consolidated gross margin declined by 1.8pp Y-o-Y to 19.6%
• Q3 2020 consolidated operating margin1) declined by 1.8pp to 9.5%, mainly due to -7.3% negative margin contribution from Germany as the Russia/CIS margin reached 13.8%

4500						Revenue trends
4000
3500
3000
2500
2000
1500
1000						Revenue Russia/CIS (Rolling 12 months)
500
					Revenue Consolidated (Rolling 12 months)
0
Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
16	16	16	16	17	17	17	17	18	18	18	18	19	19	19	19	20	20	20
25%						Margin trends
20%

15%

10%

5%
				Gross margin Russia/CIS					Operating margin Russia/CIS
0%					Gross margin Group					Operating margin Group
Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
16	16	16	16	17	17	17	17	18	18	18	18	19	19	19	19	20	20	20

1) 2016 refer to adjusted EBIT, i.e. operating profit excluding amortization of transaction-related intangible assets and write-downs of non-current assets in Q4 2016.	30

Development of cost and return on capital employed

• LTM SG&A expenses to revenue were up by 0.4pp Y-o-Y to 10.5% and were flat Q-o-Q
• LTM SG&A expenses to revenue in Russia/CIS decreased 0.3pp Y-o-Y and Q-o-Q to 9.8%
• In Germany SG&A to revenue increased to 16.8% in Q3 2020, partly on restructurings, and stood at 14.2% in 9M 2020
• ROCE1) was 25% in Q3 2020
• Decline in ROCE in 9M 2020 mainly related to higher capital employed and operating loss in Germany

17%

16%

15%

14%

13%

12%

11%

10%

9%

8%

50%

45%

40%

35%

30%

25%

20%

15%

10%

SG&A development

LTM S,G&A Expenses to Revenue

Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
16	16	16	16	17	17	17	17	18	18	18	18	19	19	19	19	20	20	20

ROCE1)

				Return on capital employed Russia/CIS				Return on capital employed Group
Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1	Q2	Q3
16	16	16	16	17	17	17	17	18	18	18	18	19	19	19	19	20	20	20

1) Operating profit plus financial income (LTM) in relation to capital employed (equity and interest-bearing liabilities) (average LTM)	31
Note: 2016 refer to adjusted EBIT, i.e. operating profit excluding amortisation of transaction-related intangible assets and write-downs of non-current assets in Q4 2016.

Q3 2020 Balance sheet

	30	30	30
SEK MM	September	June	September
2019	2020	2020
Property, plant &	519	582	515
equipment
Cash & cash equivalent	210	733	539
Debt	397	749	443
Lease liabilities	224	214	179
Net Debt / (Cash)	411	230	83
Working capital	675	476	354
% of Revenue	18%	10%	8%
Shareholder equity	837	883	848
Total Assets	2,343	2,975	2,552
Equity / Assets	36%	30%	33%

• PP&E decreased Q-o-Q on depreciation and negative forex translation
• Russia/CIS
• • Working capital decreased from SEK 400m to SEK 286m Q-o-Q on forex and lower inventory
  • Net cash attributable to Russia/CIS increased from SEK 47m to
    SEK 205m Q-o-Q
• Germany
• • Working capital decreased from SEK 75m to SEK 67m Q-o-Q on lower inventory and receivables
  • Net debt in Germany increased from SEK 280m to SEK 291m Q-o-Q
• Working capital at 8% of LTM revenue (annualized for Germany) vs 18% in Q3 2019
• Net debt decreased to SEK 83m and net debt/EBITDA decreased to 0.2x

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Financial objectives and dividend policy

KPI	Objective	Q3 2020 LTM
Revenue	Triple 2016 revenue in	2.2 x
Russia/CIS by 2021	2016 revenue
Operating margin	6-8%	8.1%
Net Debt / EBITDA	0-2 x	0.2 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

33

OUTLOOKOutlook- 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 and parts of 2021, we may face various degrees of disruption in supply, demand and customer interfacing.

In October, the business trends seen in Q3 2020 have continued. Our business adapted well to the challenges related to COVID-19. As cases again pick up and restrictions are reintroduced, we recognise that the future remains uncertain and visibility is low. Currently, we however expect the markets in Russia/CIS and Germany to start to recover next year. In a longer perspective, we are also positive as we believe that the underlying fundamentals and business opportunities in our markets are strong."

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Ferronordic in the capital market

		2010	2011	2013	2017
		Volvo CE Russian	3-year SEK 400m bond	SEK 500m preference	Ordinary shares listed
		distribution business	issued and listed on	shares issued and listed	on Nasdaq Stockholm
		was taken over	Nasdaq Stockholm	on Nasdaq First North	and SEK 200m raised in
				Premier	IPO

Ferronordic statistics

• Shares outstanding: 14,532,434
• Listing: Nasdaq Stockholm
• Market cap. as at 30 September 2020: SEK 2,386m
• Net debt as at 30 September 2020: SEK 83m
• Enterprise value: SEK 2,469m
• Estimated effective free float: 60%
• Dividend policy: 25% subject to capital allocation alternatives

Analyst coverage

Bank	Analyst	Contact
Carnegie	Kenneth Toll	+46	734 17 89 11
		[e-mail]
ABGSC	Ofelia Aspemyr	+46	8 566 286 31
	Karl Bokvist	[e-mail]
	+46	8 566 286 33
		[e-mail]
Nordea	Carl Ragnerstam	+46	101 562 817
	Victor Hansen	[e-mail]
	+46	101 561 327
		[e-mail]

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Worksite Applications_2_Machine Performance 271114