Financial commentary
In 2018, Arbonia AG recorded net revenue of CHF 1374.0 million, equating to growth of 10.3% in comparison to the previous year (CHF 1245.6 million). When adjusted for acquisition and currency effects, this amounted to growth of 2.5%. The HVAC Division in particular experienced especially encouraging development, with growth of 5.0% when adjusted for acquisition and currency effects. Overall, growth of Arbonia tailed off considerably in the second half of 2018 compared with the first half of the year. This can primarily be attributed to the implementation of IFRS 15 (revenue from customer contracts) for the first time in the 2018 financial year as well as the anticipatory effects in Russia in the first half of 2018 which resulted from new regulations regarding the panel thickness of radiators.
Arbonia's Consolidated Financial Statements include the Belgian Vasco Group from 1 June 2018 and Spanish firm Tecna from 1 September 2018. The Coatings, Industrial Services (Condecta) and Profile Systems Business Units which were sold in 2017 are now only included in the Group result from discontinued operations.
Stable income situation
At CHF 46.0 million, the Group result in the 2018 financial year remained at almost the same level as the previous year (CHF 46.4 million). The Group result from continuing operations saw encouraging growth, rising to CHF 38.7 million (previous year: CHF 37.5 million). However, as expected, the Group result from discontinued operations of CHF 7.4 million fell short of the figure for the previous year (CHF 8.8 million). Excluding discontinued operations and special effects in both financial years, the Group result after tax increased slightly from CHF 22.8 million in the previous year to CHF 23.8 million. The main special effects in the 2018 financial year concerned profits from the sale of properties that were not required for operational purposes as well as restructuring expenses in relation to the intended closure of the Belgian Vasco Group's site in Zedelgem.
In the income statement for 2018, the rise in raw material prices and higher average exchange rates led to a higher material ratio. Excluding special effects, the personnel ratio improved slightly compared with the previous year and other expenses remained stable as a percentage of net revenue. As expected, the relocations had a positive impact on personnel expenses, even though the delay in starting up wood/aluminium window production at Langenwetzendorf (D) and rising wages as a result of full employment at almost all locations have moderated the effect to a large extent. Overall, price increases established over the last two years have for the most part been able to offset increases in material prices and wages.
Due to operational improvement and the generally positive special effects, the EBITDA in the 2018 financial year improved to CHF 130.5 million (previous year: CHF 120.3 million). At 9.5%, the EBITDA margin was more or less retained (previous year: 9.7%). Without one-time effects, the EBITDA increased significantly in the 2018 financial year to CHF 115.1 million compared with the previous year (CHF 101.3 million). The increase in revenue resulting from acquisition activities in particular meant that the increase in the EBITDA margin from 8.1% in the previous year to 8.4% in 2018 was less pronounced. The Windows and Doors Divisions achieved an improvement in their margins, whereas the Sanitary Equipment Division was unable to sustain the level of the previous year due to falling revenue in the German and French markets. Considerably higher depreciations meant that the EBIT of CHF 61.0 million in the 2018 financial year remained at the same level as the previous year (CHF 61.3 million). Without special effects, Arbonia achieved an encouraging increase in EBIT, with a figure of CHF 66.7 million (previous year: CHF 61.7 million), while the EBIT margin of 3.5% remained at virtually the same level as the previous year (3.4%).
At CHF 11.2 million, the net financial expense figure for 2018 was at approximately the same level as the previous year (CHF 10.9 million). Without the book losses on intercompany loans of CHF 5.0 million that were recorded on the effective date of 31 December 2018 due to lower exchange rates, the net financial expense figure would have decreased significantly. This can be attributed not least to the lower than average net indebtedness and the bonded loan that was issued in April. The continuing low interest rates have also curbed financial expenses in the 2018 financial year.
Although the Group result before tax remained at the same level, the tax expenses under IFRS decreased slightly to CHF 11.1 million in the 2018 financial year (previous year: CHF 12.8 million). As a result, the effective tax rate also improved to 22.3% (previous year: 25.5%) and is now back within the target range of 20 – 25% for the first time. At the same time, the effective tax rate and the weighted average tax rate (22.4%) were virtually identical, meaning that an end to the Group restructure is in sight, at least in relation to taxes.
Continuing high equity ratio and low net indebtedness
The total assets of Arbonia as of 31 December 2018 increased to CHF 1 511.9 million due to the acquisition of the Vasco Group and Tecna (previous year: CHF 1 416.6 million). As a result of these transactions and the negative currency translation differences on the balance sheet date, the equity ratio fell to a still very high figure of 58.7% (previous year: 60.9%).
Free cash flow (cash flow from operating activities and investing activities) for the 2018 financial year amounted to CHF –53.8 million (previous year: CHF +190.4 million). Cash flow from operating activities remained virtually unchanged compared with the previous year. However, investments of CHF 134.7 million which were once again higher (previous year: CHF 104.6 million) had a highly detrimental effect on cash flow from investing activities. Free cash flow was also affected greatly by special effects. The sale of properties and profile systems in particular made a positive contribution in this regard. Free cash flow was negatively affected above all by the two acquisitions that were made. Without one-time effects, the free cash flow would have been CHF –65.1 million (previous year: CHF –35.8 million). Investments are also expected to amount to something over CHF 100 million in 2019.
In 2018, the negative free cash flow led to an increase in net indebtedness. As of 31 December 2018, it had increased to CHF –116.8 million (previous year: CHF –43.3 million). The net indebtedness ratio (net indebtedness/EBITDA) therefore increased to –0.87 (previous year: –0.34); however, this is still a very good figure. All key financial figures are maintained. The higher net indebtedness was financed by the long-term bonded loan, which was issued in April 2018.