Financial Commentary by Felix Bodmer

In the 2016 financial year, Arbonia recorded net revenue of CHF 995.3 million, equating to an increase of 5.7 % in comparison to the previous year. When adjusted for currency and acquisition effects, growth came to 0.9 % (previous year: – 4.4 %). The positive acquisition effect arising from Wertbau and Koralle was 4.1 %, while the currency effect amounted to 0.7 %. This was not enough to compensate for the negative currency effect of – 7.9 % that came about in 2015 as a result of the minimum euro exchange rate being abolished, but the Swiss franc did at least weaken slightly in relation to other currencies, particularly the euro. Organic growth during the first half of 2016 amounted to 2.3 %, while it was slightly negative in the second half, at – 0.3 %. As was the case with other building suppliers, this was primarily due to weakening in some western European markets during the third quarter of 2016.

In the annual financial statements as of 31 December 2016, Koralle had been included for three months, but not the Looser Group (acquired in December 2016) for materiality reasons. In the balance sheet as of 31 December 2016, the Looser Group was included with provisional figures.

Following the record loss in the previous year, the 2016 financial year saw a small profit of CHF 7.6 million. Without one-time effects, the Group result amounts to CHF 12.2 million (previous year: CHF – 14.5 million). The strategic measures introduced in 2015 were implemented as planned. In particular, these related to the window production relocations from Altstätten (CH) and Villeneuve (CH) to Slovakia and eastern Germany respectively, and the relocation of special radiator production from Arbon (CH) to Stříbro (CZ). We expect the process of restructuring the Group to have been largely completed by the end of 2017, allowing us to take as much advantage as possible of the positive effects arising from this in 2018.

Group restructuring on course

The 2016 financial year yielded the first rewards from the measures we have introduced, especially where our relocation projects were concerned. As a result of this, material expenses, personnel expenses and other operating expenses improved as a percentage of net revenue compared with the difficult previous year. Lower raw materials prices also contributed to the improvement in the materials ratio.

As a result of cost reductions, EBITDA increased during the 2016 financial year to 6.9 % of net revenue (previous year: 2.8 %) or CHF 68.7 million in absolute terms (previous year: CHF 26.6 million). Even EBITDA without one-time effects – at 6.6 % of net revenue – represented a significant improvement over the previous year (6.0 %). However, the EBITDA figures reported by the Windows (formerly Building Envelope) Division and the Doors (formerly Building Security) Division remained unsatisfactory. The Building Technology Division, on the other hand, is on course towards achieving its aim for 2018 – something that has been aided by the acquisition of Koralle. EBIT without one-time effects rose to 2.9 % of net revenue (previous year: 1.8 %). Expressed in absolute figures and with one-time effects factored in, EBIT amounts to CHF 29.1 million. It does not make sense to compare this with the previous years figure (CHF – 158.4 million) due to the 2015 impairments posted to goodwill and restructuring costs.

The net financial expense figure of CHF 13.5 million (previous year: CHF 23.2 million) performed significantly better during the 2016 financial year due to the markedly lower net indebtedness that prevailed on average over the year, and the bond repayment in May 2016. While the Looser Group takeover did have a negative impact on interest expenses, this result was tempered by the fact that it did not occur until mid-December. The accumulation of liabilities from the early takeover of the remaining shares in Sabiana, plus the bank charges associated with restructuring financing activities following the takeover of the Looser Group, must be taken into account as special effects that had a negative impact on the net financial expense figure for the 2016 financial year. Without these special effects, the net financial expense figure for the 2016 financial year would have been 2016 CHF 7.3 million (previous year: CHF 18.7 million).

Under IFRS, there was a tax charge of CHF 8.0 million compared with a tax income of CHF 4.5 million in the previous year. The weighted average tax rate for the 2016 financial year amounts to 34.1 %. This is primarily the result of the high proportions of profits contributed by foreign companies subject to significantly higher tax rates, offset against losses incurred by some Swiss companies subject to much lower tax rates. The weighted average tax rate of around 25 % is not likely to normalise until 2018 onwards.

High shareholders equity ratio following Looser takeover

Arbonia’s total assets as of 31 December 2016 rose as a result of the Looser Group takeover and the associated capital increase to CHF 1 522.7 million (previous year: CHF 900.5 million). This led to the equity ratio on the balance sheet date rising to 47.9 % (previous year: 39.1%). At the same time, goodwill and intangible assets increased to CHF 226.0 million (previous year: CHF 41.1 million) and CHF 215.1 million (previous year: CHF 57.9 million) respectively. Additional amortisation of intangible assets is set to impair EBIT in the future.

Free cash flow (cash flow from operating activities and investing activities) for the 2016 financial year amounts to CHF – 67.3 million (previous year: CHF 16.0 million). The major influences on this were the acquisitions of Looser and Koralle, plus the sale of property at Industriestrasse in Arbon (CH). Without these, plus some smaller-scale one-time effects, the free cash flow would have been CHF – 25.8 million. The net cash outflow was the result of the relatively weak cash flow from operating activities and the significantly higher investment figure of CHF 57.7 million (previous year: CHF 20.9 million). Investments for 2017 and 2018 are likely to rise considerably once again.

Thanks to the financing activities for the Koralle acquisition through share placement and the payment of the major part of the Looser transaction using treasury shares, it was possible to limit net indebtedness to CHF 225.1 million (previous year: CHF 21.7 million). Without the acquisition of the Looser Group, Arbonia’s net indebtedness would have been CHF 45.2 million. The net indebtedness ratio (net indebtedness / EBITDA) on 31 December 2016 amounted to – 1.91 (previous year: – 0.77). All key financial indicators are maintained. Through the sale of Looser’s coatings business, announced in August 2016, it is likely that Arbonia will achieve a significant improvement in both net indebtedness and the net indebtedness ratio.