ARBONIA AG Press release
Half-year result 2019 | Further increase in revenue and profitability
Arbon, 13 August 2019 - The revenue of the Arbonia Group rose by 6.6% to CHF 688.4 million in the first half-year of 2019 (previous year: CHF 645.6 million). The business of the Belgian radiator manufacturer Vasco Group, which has been consolidated since 1 June 2018, contributed to the result for the first time in the entire reporting period. Revenue growth after adjustment for acquisition and currency effects was 1.4%. Without one-time effects, including the IFRS 16 effect, EBITDA grew to CHF 52.3 million from CHF 40.5 million compared to the same period in the previous year (+29%). EBITDA with one-time effects increased from CHF 44.2 million in the same period last year to CHF 48.3 million (+9%) in the first half-year of 2019. EBIT without one-time effects grew from CHF 8.4 million to CHF 11.5 million (+37%). EBIT with one-time effects fell from CHF 12.1 million to CHF 7.5 million (−38%). Operating cash flow increased by CHF 18.1 million to CHF 1.6 million from CHF -16.5 million in the same period last year. The Group result after tax without one-time effects amounted to CHF 7.0 million compared to CHF 2.7 million in the same period last year (+158%).
Adjusted net indebtedness rose compared to year-end 2018 by around CHF 54 million to CHF 171 million, excluding the IFRS 16 effect (CHF 225 million incl. IFRS 16 effect of around CHF 54 million). The increase is due on the one hand to the investments made for further development and on the other hand to the payment of the dividend. Shareholders' equity decreased slightly by CHF 18.6 million compared to year-end 2018, reducing the equity ratio from 58.7% to 54.5%.
General market environment
In the first half-year of 2019, the global economic climate was characterised by trade disputes between China and the United States with tightened sanctions, as well as growing protectionism and tensions in the Persian Gulf area. A weakening momentum in Europe and the continuing uncertainties about the Brexit increase the probability that the European Central Bank will loosen its monetary policy again. In this environment, it is to be assumed that the Swiss franc will remain strong against the euro. An ongoing industry-specific challenge is the shortage of skilled workers for industrial production, but especially of construction workers in European countries where Arbonia's important sales markets and production plants are located. The significant slowdown in the automotive industry is also having an indirect impact on Arbonia: The Group is already feeling the effects of the various plant closures in this sector partly in Eastern Europe. Due to the work uncertainty, planned construction projects are partly postponed and already started projects are temporarily stopped.
In Germany, rising prices and shortages of craftsmen and available building plots have been hampering the construction boom for some time now. Nevertheless, there is still a high demand for new housing. Residential construction developed strongly in the first half-year of 2019, despite a 2.8% decline in building permits in 2018. However, due to the high backlog in the refurbishment of old buildings while new construction activity remained unchanged, a slight shift from new construction to renovation business is foreseeable. As Arbonia's product portfolio offers comprehensive solutions for both areas, it also benefits from these freed-up capacities, which can increasingly be used again in the important renovation market.
In Switzerland, the domestic market, residential construction activity has been at a high level for years, but incoming orders and the number of building permits declined in the reporting period. The very low interest rates and the hunt for returns among professional investors still make real estate attractive compared to other asset classes, even though risks have increased and banks are applying stricter financing requirements. There has been a significant increase in vacancies of rental apartments outside urban centres. On the other hand, there is growth potential in the remaining building construction and in the large number of old buildings that have to be refurbished.
Poland remains one of the most dynamic economies in the European Union (EU). In the medium term, lower growth is expected here, due to demographic developments and the associated shortage of skilled workers, but also due to insufficient labour productivity. After a record year in 2018, Polish residential construction got off to a good start in 2019. Slovakia and the Czech Republic are also among the fastest growing countries in the EU, with similar challenges in terms of demographics, shortages of skilled workers and future salary increases that productivity is not keeping pace with. In all three countries, the authorities are making efforts to facilitate the recruitment of employees from countries outside the EU. There continues to be strong demand for residential space in Eastern Europe. Arbonia is present here with state-of-the-art production facilities and sees these countries as already existing and significant future sales markets.
Developments by divisions
For the first half-year of 2019, the HVAC Division reports net revenue of CHF 274.6 million (including Vasco and Tecna), which corresponds to an increase of 22.3% compared to the same reporting period of the previous year (CHF 224.5 million). Growth after adjustment for acquisition and currency effects was 2.6%. EBITDA without one-time effects rose from CHF 21.8 million in the previous year to CHF 24.6 million. EBIT without one-time effects developed from CHF 12.2 million in the previous year to CHF 11.0 million.
In the first half-year of 2019, the Sanitary Equipment Division generated revenue of CHF 71.7 million (-3.3% compared to the previous year: CHF 74.2 million). Growth after adjustment for currency effects declined slightly by 0.6%. However, at CHF 6.5 million, EBITDA without one-time effects is up by 11% on the previous year (CHF 5.8 million). EBIT without one-time effects grew slightly from CHF 3.7 million in the previous year to CHF 3.8 million.
During the first half-year of 2019, revenue in the Windows Division was 3.9% lower compared to the same period in the previous year, at CHF 159.3 million (previous year: CHF 165.7 million). Revenue growth after adjustment for currency effects was negative at −2.1%. EBITDA without one-time effects, however, grew to CHF 4.3 million (previous year: CHF −2.5 million) and EBIT without one-time effects rose to CHF −7.5 million (previous year: CHF −11.5 million).
In the first half-year of 2019, the Doors Division, in turn, recorded a pleasing business trend with an increase in profitability. Revenue also developed positively. It rose by 0.9% from CHF 181.1 million in the previous year to CHF 182.8 million. Adjusted for currency effects, revenue grew by 4.1%. EBITDA without one-time effects rose from CHF 20.6 million to CHF 22.4 million, while EBIT without one-time effects rose from CHF 10.1 million to CHF 10.4 million.
Outlook
Arbonia expects the positive revenue and profit development of the first half-year of 2019 to continue in the second half of the year. This is despite the aforementioned political and economic uncertainties, which among other things could lead to a further strengthening of the Swiss franc, as well as the problems in the Eastern European markets regarding the shortage of skilled workers.
Arbonia continues to expect organic growth of 3% for the full year 2019. It continues to see EBITDA within the range of CHF 128 million to CHF 136 million, thus confirming the guidance published in March 2019.
In order that profitability can be increased further and that the business models can also continuously be adapted to the environment, Arbonia is planning a replacement investment ratio at Group level of around 4% of revenue for the coming years. In addition, it focuses on increasing operating free cash flow, before considering M&A transactions and profitability enhancing expansion investments, in addition to free cash flow, which forms the basis for a continuous, profit-based dividend distribution.
In the second half-year of 2019, Arbonia will follow the strategic directions taken and will work on further increasing the productivity of its production plants, expanding its market leadership and increasing customer benefits with new products and services.
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