Letter to the Shareholders

After five formative years of comprehensive restructuring, which not only involved relocations with a completely different competitiveness but also an urgently required high level of investment, Arbonia has created a strong and competitive foundation for future growth and a continuous increase in profitability.

Dear Shareholders
Dear Ladies und Gentleman

In the 2019 reporting year, the Arbonia Group once again achieved solid results, even though the year was marked by economic and political uncertainties as well as the continuing shortage of skilled workers in the installation trade.

Arbonia increased the net revenue compared to the previous year (CHF 1374.0 million) by 3.1% to CHF 1416.0 million. In operational terms, Arbonia increased its EBITDA without one-time effects by 17% from 2018 to 2019 from CHF 115.1 million to CHF 134.8 million. EBITDA without one-time effects at the HVAC Division rose by 7.7%, at the Sanitary Equipment Division by 21.5%, at the Windows Division by 69.3%, and at the Doors Division by 9.2%. While the one-time effects in the reporting year were largely due to the closure costs of three production plants and were therefore negative (just under CHF 10 million), on the other hand, the one-time effects in 2018 were positive at just under CHF 26 million due to the sale of property no longer required for operations. The EBITDA with one-time effects decreased from CHF 130.5 million to CHF 125.4 million due to the described negative effects of the production plant closures and restructuring in 2019 and the positive effects in 2018. Despite a 32% increase in depreciation due to investments and acquisitions, the EBIT without one-time effects rose from CHF 47.8 million to CHF 52.3 million, which represents an increase of 9.5%. The EBIT with one-time effects fell from CHF 61.0 million to CHF 39.7 million. Arbonia achieved a group result without one-time effects of CHF 36.5 million. In the previous year, this figure was CHF 23.8 million. The group result with one-time effects amounted to CHF 26.2 million (previous year: CHF 38.7 million).

Derived from these positive earnings figures, cash flow from operating activities increased by 60.7% from CHF 69.6 million to CHF 111.8 million and the free cash flow by CHF 62.2 million from CHF –53.8 million to CHF 8.4 million.

The sound financial basis allows Arbonia to continue its sustainable dividend policy, which is why it is proposing a 10% higher dividend of CHF 0.22 per registered share to its shareholders for the 2019 financial year.

Market environment

The trade war between the United States and the People's Republic of China continued during the reporting year. Although the United Kingdom has now left the EU, the discussions about Brexit influenced the markets in 2019. The negotiations about a trade agreement between the EU and the United Kingdom will continue to shape the markets in 2020. This and the political pressure in the direction of electromobility have had a significant impact on the economy, so that European demand has drastically affected the automotive industry and its suppliers. However, as economic indictors, the steel industry and plant construction also deplored massively declining business trends. In this environment, the central banks either cut their interest rates further or, like the Federal Reserve in the United States, abruptly abandoned their course of raising interest rates and cut interest rates again.

In Arbonia's most important market, Germany, residential construction increased by 3.5% compared with the previous year, even though the environment has continued to be hampered by the lack of skilled workers and by the fact that the great demand for residential construction (new constructions and renovations) is still not being met. This positive trend in residential construction continues to prevail in an increasingly gloomy and uncertain economic climate, which is being caused by the German automotive and mechanical engineering sector. The renovation market is stagnating in this environment. The legislative package on climate protection of the German federal government, that was passed at the end of the year, should prove to be good for Arbonia. This will have a significant impact on new construction and renovations in Germany. It can therefore be assumed that the trend towards enhanced insulation and thermal insulation, residential ventilation and efficient heating systems will grow in the renovation sector as well.

In the company's domestic construction market, Switzerland, the uncertain economic situation has also already resulted in a slowdown in construction activity, though this development is distinctly regional. In towns, flats are still in great demand, while the rest of building construction continues to grow due to a few large-scale projects (such as "The Circle"). In terms of Switzerland as a whole, the revenue growth in the residential construction sector is declining (–2.5%) due to the relatively high vacancy rates in peripheral locations; however, it remains an attractive sector due to low interest rates. The vacancy rate is also inhibiting the renovation market for flats, which is also declining (–0.9%).

In Eastern Europe, the markets developed in different ways: Poland is still the country with the highest expected economic growth in Europe and therefore also has a booming construction industry. However, even this growth is easing off now due to a lack of skilled workers, rising personnel costs and real estate prices. In contrast, the influence of the automotive sector can be felt in Slovakia. This has already led to changes in production volumes, short-time working and dismissals in the automotive sector and at their suppliers. This resulted in private construction projects being stopped completely or postponed. Despite all this, the residential construction sector still enjoyed significant growth in 2019. With the weakening of exports in the Czech Republic, particularly in the key automotive sector, the pressure has eased off in the labour market. This in turn has improved the capacity bottleneck in the construction industry. As a result, there continued to be no capacity for renovations, but the residential construction sector was able to gain a lot more ground.

In Italy and Spain, the construction industries were able to decouple themselves from the overall economic weakness last year and thus further recover in the new residential construction and renovation segments. While renovation is subsidised by the state on the one hand, on the other hand, vacancies are absorbed and make these construction markets attractive in the future as well.

In Belgium and the Netherlands, which are especially important markets for the HVAC Division, the construction market did not grow as strongly as last year, thus following the trend of declining economic momentum. In addition, the Dutch market in particular is increasingly hampered by capacity bottlenecks at developers, local governments and construction companies. In Belgium, on the other hand, no such impediment exists and construction activity, especially in the field of renovation, should continue to grow strongly as demand for high-quality housing increases.

Cross-divisional integration and restructuring activities of the Arbonia Group

In the 2019 financial year, Arbonia focused primarily on the integration of Vasco, which operates in the Benelux countries and has four production plants, and Tecna of Spain, as well as on improving the operating performance of its divisions. As part of the integration of Vasco and for the planned reduction of overcapacity in the European market for steel panel radiators, Arbonia announced and implemented the restructuring of the Vasco site in Dilsen (BE) at the beginning of the year and completed the closure of the production plant in Zedelgem (BE). Wertbau Elemente GmbH, which combined the facade business of Wertbau, was also closed last year. In the future, a large proportion of the affected employees will be employed in the manufacturing area of wood/aluminium windows, which are in great demand. A further measure to increase the vertical integration was the extension for a painting line at the special door manufacturing facility in Roggwil (CH). On the one hand, this system saves logistics costs and on the other hand, it optimises the production process. The construction of a new office building including a modern product exhibition at Bekon-Koralle in Dagmarsellen (CH) also represents an investment in the future.

Another important project for the Arbonia Group in this financial year was the construction of the new production plant for steel panel radiators in Stupino (RUS). This was opened in October 2019 and has since started production. The new production plant will enable Arbonia to supply the Russian market locally and that of its neighbouring countries cost-effectively from this new production facility. In addition, this not only eliminates logistics costs but also the retooling costs that became necessary at other division locations after a different sheet thickness was prescribed for new radiators in Russia. The government issued this requirement to protect domestic radiator manufacturers against foreign providers. As a locally based provider, Arbonia will be able to participate more in domestic construction projects in the future.

In addition, ARBONIA DIGITAL commenced operations in the financial year. ARBONIA DIGITAL was founded as a service provider and competence centre for Arbonia to advise the Group and its divisions on issues relating to digitisation and to implement projects together with them.

Strategies and developments by divisions

It took a five-year period to restore Arbonia to a completely healthy industrial base with sustainable competitiveness. During these years of intensive restructuring, seven manufacturing facilities were relocated to so-called "best-cost country" locations. Arbonia has invested over CHF 400 million from 2015 to the present; on the one hand, to make up for missed investments and, on the other hand, to invest in the most modern production technologies, a greater vertical integration and thus the restoration of competitiveness. After the necessary high investment requirements of recent years, Arbonia is now approaching a level slightly above the annual depreciation in order to preserve its capital stock. Only in the Doors Division is an investment programme for a significant capacity expansion of around 40% still pending as part of a comprehensive four-year programme. These groundbreaking investments, with a focus on frame production at the German site in Weinsheim in 2020/2021, are necessary above all to increase efficiency and expand capacity, to achieve a sustained increase in profitability and to maintain and expand market shares.

HVAC Division

Over the past four years, the Heating, Ventilation and Air-Conditioning Technology (HVAC) Division has relocated its radiator manufacturing from Switzerland to the Czech Republic and integrated the Vasco and Tecna companies acquired in 2018. It thus expanded its product portfolio in the area of surface heating and its market presence in Belgium, the Netherlands, Poland as well as on the Iberian Peninsula. In the course of the integration, the division closed a radiator plant in Zedelgem (BE) in order to transfer production volumes to the existing production plants in Plattling (D) and Tubbergen (NL). With the acquisition of Vasco, the division also went from being a dealer of underfloor heating products to a manufacturer. During the reporting year, it restructured this site in Dilsen (BE) and invested in the manufacturing of underfloor heating. In 2019, the newly built radiator plant in Russia went into operation, which not only provides access to local projects but also improves competitiveness through fast delivery times, shorter transport routes and flexible reaction capability.

On the one hand, the division is pursing a strategy of consolidation and process optimisation in all production plants to increase their competitiveness and production efficiency. On the other hand, the cornerstone for future growth lies in the product groups of underfloor heating, heat pumps and residential ventilation. The division is focusing on building up these businesses, both organically and inorganically, and is moving further towards becoming a system provider: The climate packages of the European countries provide for tax depreciation and subsidies for the modernisation of houses and especially heating systems in order to reduce CO2 emissions. The HVAC Division is intensively pursuing the strategy of offering an integrated heating system with solutions ranging from efficient heat generation to energy-conscious heat transfer and energy storage. For the latter, the division is in discussions with various suppliers for a possible partnership.

Sanitary Equipment Division

The integration of the Koralle Group, which was acquired in 2016, into the Kermi organisation was completed, with the result that the construction of a new office building, including exhibition and training rooms, was started at Bekon-Koralle in the reporting year. Together with the modernisation of the manufacturing facilities in Dagmarsellen (CH), the division invested in its service offering during the reporting year and implemented various measures to improve results and further increase productivity. This sustained cost discipline and the yield from the investments made have created very good conditions for 2020. The division is further expanding its strategic purchasing and at the same time professionalising the data connection with suppliers. In the future the forces in the area of research and development (R&D) will also be bundled.

The course has been set in the areas of production and development as well as in sales and service, and a good starting position has been created for generating sustainable growth and profit.

Windows Division

The Windows Division has achieved the most impressive turnaround. Since 2015 it has relocated four manufacturing facilities from Switzerland to competitive locations in Eastern Europe and increased its EBITDA from CHF 7 million to almost CHF 30 million within this time horizon. In addition the investments released in these years have meant that the three production centres in eastern Germany, Slovakia and Poland now boast a high level of automation and a greater vertical integration. After this intensive restructuring phase, the division has returned to a sustainably healthy level of profitability and will continue to gain market shares with its product range.

In light of the constant high demand for wood/aluminium windows, the capacities will be significantly increased again in 2020 as part of the optimisation and increases in productivity at the wood competence centre in Langenwetzendorf (D). To eliminate bottlenecks, only one further fully automatic profiling system will be put into operation. At the location in Slovakia, the division is developing new profile geometries that will set its products apart from the competition. Digitisation remains an important focus of the Windows Division. The aim here is to exploit the possibilities offered by new technologies and digitisation along the entire vertical integration.

For the Windows Division, too, the CO2 reduction target will become an increasingly important topic in the coming years. This is because, in addition to reducing the energy consumption of heating systems, insulation by the building envelope using windows also plays a decisive role in an energy efficient building.

Due to the highly diversified and broad-based network of specialist trade partners and the still very high demand for renovation in all core markets, the Windows Division can still expect to achieve good growth.

Doors Division

Following the acquisition of the Looser Group in 2016, the Prüm, Garant and Invado companies were fully integrated into the Doors Division. The subsequent overall objective is a multi-year investment programme at Prüm's Weinsheim (D) site. On the one hand, this is to make up for investments not made in the past and, on the other hand, to enable the division to maintain its market shares as the leading door manufacturer and to expand them further thanks to the strong market growth.

This extensive investment programme is implemented in a four-year plan, so that there will be an operationally optimised door manufacturing and a separate frame manufacturing facility at the end of the period. According to the current forecast, the investment volume amounts to EUR 68 million. This will not only increase productivity and improve delivery performance, but is also expected to result in a capacity expansion of 40%, which will increase the EBITDA margin by 4 percentage points.

The investments in the two new door leaf edging lines for Prüm and Garant are nearing completion. These systems are the industry's first series systems for edging the door rebate with zero-joint technology. At the same time, a new frame jamb line was installed at the production plant in Weinsheim (D). At the production plant in Ichtershausen (D), a new special frame production line will be delivered in the first quarter of 2020. The capacity in the special doors segment will be significantly expanded with the investments in one new double machining centre each at both German production plants. In addition to the capacity expansion, the investments will already contribute significantly to reducing delivery times for technical doors in 2020. Another focus at the Prüm production plant is the expansion of the logistics. The modernisation of the second high-bay warehouse is currently in the project planning phase.

The location in Poland also focused on increasing efficiency and capacity as well as increasing quality and thus achieving a better coverage of the growing demands of consumers in Poland, the Czech Republic and Slovakia.

In Switzerland, RWD Schlatter worked on increasing the vertical integration in 2019 and in the future. To this end, the division is constructing an extension that will create space for its own paint shop and an additional door processing centre.

In addition to investments in state-of-the-art production capacities to increase efficiency and optimise processes, the topic of digitisation is also being advanced at a great pace by the Doors Division.


For the coming year, there are widely diverging expectations for economic development. While some experts expect a noticeable recovery, others assume that the economic environment will remain difficult. This economic uncertainty and the specific subsidy conditions for mitigating climate change that have been planned but not yet published in European countries already led companies to postpone investments in 2019. This development is likely to continue in the current year. In the medium and long term, the climate package in Germany as well as the programmes of the European Union for reducing CO2 emissions offer considerable growth opportunities for Arbonia.

In all markets and above all in Germany, the limited numbers of tradespeople in the construction industry continue to curb the potential for growth. Other factors that are gaining in importance are increasing transport costs, especially in Germany with the expansion of the lorry toll, and rising energy prices in Eastern Europe.

For the core market Germany, Arbonia does not expect any slowdown. On the contrary, Arbonia expects a robust market environment due to the high demand for residential space in the metropolitan areas and the continuing low interest rate policy. Arbonia offers an ideal product range for the necessary redensification and renovation in cities. Arbonia is well positioned with this, for the announced German climate package, and in particular with the products of the HVAC Division.

Although investment activity in the commercial and industrial sectors is expected to decline and there is a large number of empty apartments on the periphery, construction is taking place in Switzerland due to low interest rates. Arbonia assumes a flat market volume in the overall view.

In the Eastern European target markets of Poland and the Czech Republic, Arbonia expects the development of the construction industry to remain strong in the coming year. In Slovakia, on the other hand, there is a reluctance to invest in real estate in general and in owner-occupied homes in particular due to the dependence on the automotive industry. These countries, which are also important production sites for Arbonia, are characterised by rising labour costs. This development has so far been compensated for by targeted investments in the degree of automation of the production plants.

In the southern European markets of Italy and Spain, Arbonia also anticipates a good demand for new buildings. The need for renovation will follow in these countries as well.

Belgium and the Netherlands, which probably have the strictest environmental regulations in Europe, also offer strong growth opportunities for Arbonia. For example, the steps taken so far to gradually tighten the regulation of energy consumption of houses in Belgium have already led to increased construction activity. With its resource- and energy-saving products, the HVAC Division in particular offers solutions for this complex issue.


For 2020, we expect organic revenue growth of ~3% and an EBITDA margin without one-time effects of 10%, assuming a stable market environment and stable exchange rate conditions. We are pursuing a dividend policy with an annual increase of ~10% and will invest across all divisions in the next three years to the amount of approximately 110% of depreciation and amortisation. At the General Meeting, the Board of Directors will propose to pay a dividend of CHF 0.22 per share for the 2019 financial year.


Five years ago, we started an ambitious restructuring and repositioning phase with Arbonia. Today we can proudly say that we have successfully completed this intensive transformation of Arbonia and thus created a solid foundation. In 2019, we also set the course for other issues that will concern us in the future, including climate protection and efficiency as well as digitisation.

On behalf of the entire Board of Directors and Group Management, we would like to take this opportunity to thank our many employees for their perseverance and flexibility. We would also like to thank our suppliers and customers for their loyalty and especially you, our esteemed shareholders, for your continuous trust.

Alexander von Witzleben

Chairman of the Board of Directors CFO and CEO

Daniel Wüest