Financial commentary by Felix Bodmer

The net revenue from continuing operations of the Arbonia AG (without Condecta and Forster Profile Systems) increased in 2017 by 35.9% to CHF 1 245.6 million. On a pro forma basis (including Looserʼs doors business and the Koralle Group), Arbonia achieved a growth of 2.6%, when adjusted for currency and acquisition effects. This growth was achieved in a financial year that was marked by production facility relocations, rising raw material prices and the integration of Looserʼs doors business and the Koralle Group.

Arboniaʼs net revenue including discontinued operations (Condecta and Forster Profile Systems) reached CHF 1 378.5 million in 2017, which corresponds to an increase of 38.5% in comparison to the previous year. When adjusted for currency and acquisition effects, growth came to 1.5%. The companies of the Looser and Koralle Group, which were consolidated for the full year for the first time, contributed significantly to the solid performance.

In the annual financial statements as of 31 December 2017, the income statement was adjusted due to the sales of the Industrial Services Division (Condecta) and Forster Profile Systems Business Unit. The income statement for the 2017 financial year includes both segments and the Coatings business, which also originates from the Looser Group, as a total in the group result from discontinued operations. The income statement for the 2016 financial year had to be adjusted insofar that due to the sale Forster Profile Systems was allocated to the group result from discontinued operations. The Coatings business and Industrial Services Division are no longer included in the balance sheet as of 31 December 2017 because they were deconsolidated as a result of closing. Forster Profile Systems, on the other hand, is still included in “Assets held for sale” and “Liabilities associated with assets held for sale” because the closing was only completed in January 2018. Adjustments to the balance sheet as of 31 December 2016 resulted solely from the final purchase price allocation of the Looser Group.

Group restructuring remains on course

After the small profit of the previous year (CHF 7.6 million), a profit of CHF 46.4 million resulted in the 2017 financial year. Net income from continuing operations amounted to CHF 37.6 million (previous year CHF 5.4 million). Discontinued operations contributed CHF 8.8 million (previous year CHF 2.2 million) to the group result after deducting the costs of sale. Without one-time effects the group result from continuing operations amounts to CHF 22.8 million (previous year CHF 9.4 million). The strategic measures introduced in 2015 were implemented as planned in the 2017 financial year. This applies in particular to the relocation of the wood/aluminium window production from Altstätten (CH) to Langenwetzendorf (D) and the relocation of the shower partition wall production of the Koralle Group, acquired in 2016, from Vlotho (D) to Plattling (D). The relocation of the plastic window production to Pravenec (SK) and the special radiator production to Stříbro (CZ) was already completed in 2016. Due to personnel shortages in all Eastern European countries and the resulting delays in ramping up production, as well as due to other projects such as the construction of a panel radiator plant in Russia or the startup of insulating glass production for plastic windows in Slovakia, we do not expect the Groupʼs restructuring to be completed until the end of 2018. Nevertheless, Arbonia is expected to make further significant progress in the 2018 financial year.

As in the previous year, the income statement for the 2017 financial year is affected by a number of special effects resulting from the restructuring of the Group. This includes income from the sale of property, in particular the sale of the EgoKiefer site in Altstätten (CH), as well as reductions in pension obligations, but also additional expenses resulting from the sale of divisions and various relocation projects. Overall, the one-time effects had a clearly positive effect on the group result.

Due to the operational improvement and various effects, EBITDA from continuing operations in the 2017 financial year increased to 9.7% of net revenue (previous year 7.1%) or to CHF 120.3 million in absolute terms (previous year CHF 65.3 million). Including the discontinued operations, Arbonia even generated EBITDA of CHF 140.6 million. EBITDA from continuing operations without one-time effects – at 8.1% of net revenue – represented a significant improvement over the previous year (6.7%). All three divisions improved compared to 2016. In the Doors Division, the acquisition of the companies of the Looser Group made a significant contribution to this improvement. EBIT from continuing operations without one-time effects rose to 3.4% of net revenue (previous year 2.8%). In absolute figures and with one-time effects, EBIT amounts to CHF 61.3 million (previous year CHF 27.2 million).

The net financial expense figure of CHF 10.9 million (previous year CHF 13.9 million) performed significantly better during the 2017 financial year despite the markedly higher net indebtedness. This is due to the fact that there were no significant capital increases in 2017 and interest rates remained at a low level. The stronger euro had a slightly negative impact.

The tax expenses under IFRS increased to CHF 12.8 million (previous year CHF 8 million) due to the higher group result. Due to the improved results of the Swiss Group companies, the effective tax rate of 25.5% almost reached the 20–25% target range expected for 2018. The weighted average Group tax rate of 24.5% for the 2017 financial year is now only slightly below the effective tax rate.

High shareholdersʼ equity ratio with sharply reduced net indebtedness

Due to the sale of business units of the former Looser Group and real estate, the balance sheet total of Arbonia as of 31 December 2017 decreased to CHF 1 416.6 million (previous year CHF 1 526.9 million). This led to the equity ratio on the balance sheet date rising further to 60.9% (previous year 47.7%). Even if goodwill had been deducted from shareholdersʼ equity and the balance sheet total, the equity ratio would have been 54%.

Free cash flow (cash flow from operating activities and investing activities) for the 2017 financial year amounts to CHF 190.4 million (previous year CHF –67.3 million). In addition to the inflows from the sale of business units and real estate, a strong improvement in cash flow from operating activities also contributed to the good cash flow. Without one-time effects from these sales, the free cash flow would have been CHF –35.8 million (previous year CHF –25.8 million). It was burdened by the further increase in investments of CHF 104.6 million (previous year CHF 57.7 million). Investments are likely to remain at a similarly high level in 2018 and 2019.

Thanks to the sale of the Coatings business and the Industrial Services Division of the former Looser Group and the sale of real estate, net indebtedness was reduced from CHF 225.1 million to CHF 43.3 million as of 31 December 2017. Including the sale of the Forster Profile Systems Business Unit, which was closed in January 2018, net indebtedness would have been practically CHF 0 million. The net indebtedness ratio (net indebtedness/EBITDA) was reduced to –0.34 (previous year –1.91). All key financial indicators are maintained.