Financial commentary of Daniel Wüest (CFO)

Revenue development

On 4 January 2021, Arbonia announced the sale of the Windows Division. As a result of the sale, Arbonia will receive around CHF 350 million in cash and cash equivalents at the time of closing (expected at the beginning of Q2 2021). In return, around 25% of group revenue and EBITDA will be deconsolidated as of the closing of the transaction. In accordance with the accounting standards of IFRS, the 2020 consolidated financial statement already shows only the three remaining divisions ("continuing operations"), while the result of the Windows Division is shown as a "result from discontinued operations" and the assets and liabilities as "assets/liabilities held for sale".

On the basis of the continuing operations, Arbonia achieved net revenues of CHF 1038.4 million in the reporting year 2020, which represents a decrease of –1.8% in comparison to the previous year (CHF 1057.8 million). Adjusted for currency effects, growth was 2.0% (organic), which is a remarkable achievement given the restrictions due to COVID-19. This growth was largely due to price effects and to a lesser extent to volume effects. The Doors Division and Sanitary Equipment Division achieved strong organic growth of 5.0% and 4.0% respectively. The HVAC Division recorded slightly negative organic growth of –0.4%, whereby the indirect sales business unit achieved organic growth of 2.0% while the direct sales business unit, which is heavily active in Italy and Belgium and was thus strongly affected by the COVID-19 restrictions, suffered organic growth of –6.9%. At group level, organic growth was 5.8% in the second half of the year compared to –1.7% in the first half of the year. The main drivers of the good revenue growth were the German and Swiss markets, where, with a few regional exceptions, construction sites remained open and demand for building materials was high due to the positive environment (low interest rates, high savings rate, temporary reduction of VAT in Germany, renovation needs, and CO2 subsidies), which more than compen-sated for the negative impact of COVID-19. Arbonia expects that most of these supportive factors will also continue in 2021 and thus a good environment will still prevail. However, this is in a still challenging market environment and provided that the COVID-19 measures are not tightened further and restrictions are eased over the year.

In the 2020 financial year, Arbonia increased its shareholding in KIWI, a provider of keyless locking systems in Germany, to over 20% as part of another financing round together with Deutsche Wohnen. The price for the increase in shareholding was around CHF 4.9 million. The KIWI locking system will be installed exclusively in the wooden doors of Arbonia's Doors Division. In December 2020, it also acquired the remaining 65% of Webcom Management Holding for around CHF 6.7 million.

Accelerated increase in earnings

Group result at net profit level improved by 71% to CHF 44.9 million compared to the previous year (CHF 26.2 million). This corresponds to earnings per share of CHF 0.65.

On the cost side, the weaker euro and the Eastern European currencies had a positive effect on the costs that were mainly incurred in these currencies. While the personnel costs ratio remained unchanged (33.3%), the cost of materials ratio and the other operating expenses ratio decreased slightly. The cost of materials ratio decreased by 1.2 percentage points to 43.7% due to insourcing and even lower material costs in the first half-year, while other operating expenses decreased by 0.7 percentage points to 14.1%, mainly due to lower travel and marketing expenses. Without one-time effects, the personnel ratio was marginally higher.

Due to operational improvements, the increase in vertical integration through insourcing of production steps, as well as a more favourable product, price, and country mix, EBITDA from continuing and discontinued operations with one-time effects increased by 25.9% to CHF 157.8 million (previous year: CHF 125.4 million) in the 2020 financial year, whereby the EBITDA margin improved from 8.9% to 11.3%. All four divisions achieved an EBITDA margin of over 11% and were able to increase it by 1.2 percentage points (Sanitary Equipment Division) up to 4.9 percentage points (Windows Division) compared to the previous year. EBITDA from continuing operations with one-time effects amounted to CHF 116.3 million (previous year: CHF 100.7 million), which corresponds to an increase of 15.5%. Without one-time effects, EBITDA from continuing operations amounted to CHF 114.5 million (previous year: CHF 107.7 million) and an increase of 6.3%.

Depreciation and amortisation remained practically unchanged compared to the previous year and resulted in a disproportionate increase in EBIT. Considering continuing and discontinued operations with one-time effects, EBIT increased by CHF 33.6 million or 84.6% from CHF 39.7 million to CHF 73.3 million, which corresponds to an EBIT margin of 5.2%. EBIT from continuing operations with one-time effects increased by CHF 13.8 million or 34.4% from CHF 40.1 million to CHF 53.9 million. Without taking into account one-time effects, EBIT increased by CHF 3.0 million or 5.9% from CHF 49.1 million to CHF 52.1 million.

The net financial expense figure increased in 2020 from CHF 6.0 million to CHF 12.9 million, due on the one hand to offsetting currency losses compared to the previous year and on the other hand to costs in connection with the refinancing of the syndicated loan (see below). Lower commitment fees and interest margins in the new syndicated loan in combination with a reduced net debt will lead to lower interest expenses in the future.

Income tax expense decreased slightly to CHF 11.2 million (previous year: CHF 11.6 million) in the 2020 financial year, despite a higher operating profit and thus also higher group earnings before taxes (EBT). The effective tax rate of 27.4% (previous year: 33.9%) decreased due to the use of previously non-capitalised loss carryforwards and, in contrast to the previous year, positive effects of tax charges from previous years.

Significant increase in cash flow underscores operational progress and performance

The free cash flow amounted to CHF 52.5 million in the 2020 financial year (previous year: CHF 8.4 million). The positive development is due to the cash flow from operating activities, which was around CHF 30 million higher than in the previous year and rose to CHF 141.3 million in the reporting year (previous year: CHF 111.8 million). In addition, as in the previous year, investments in property, plants, and equipment as well as in intangible assets decreased further from CHF 113.0 million to CHF 95.5 million, which corresponds to an investment rate (investments/revenue) of 6.8% (previous year: 8.0%). Until the completion of the new frame production and the associated capacity expansion at the German production site Prüm of the Doors Division, the expansion investment ratio will remain high until 2022.

Higher equity ratio, lower net debt, and increase in the dividend

The total assets of Arbonia as of 31 December 2020 decreased only negligibly to CHF 1515.2 million compared to the previous year (CHF 1534.4 million). This is mostly due to the exchange rate conversions of assets and liabilities held in foreign currencies as of the balance sheet date. However, despite negative exchange rate effects, shareholders' equity increased to CHF 893.2 million (previous year: CHF 873.3 million), which is due to the high net profit and the deferred dividend for the 2019 financial year. Consequently, the equity ratio also increased from 56.9% to a very solid 59.0% at the end of the year.

The net debt decreased as per 31 December 2020 by around CHF 40 million to CHF −140.6 million (previous year CHF −180.6 million). The leverage ratio (net debt/EBITDA) fell to −0.9x (previous year: −1.4x), which is well below the defined value of the covenant, so that Arbonia has sufficient strategic and financial leeway. In addition, Arbonia renewed the syndicated loan of CHF 350 million, which expires in 2021, ahead of schedule in November 2020. The firmly committed syndicated loan facility now amounts to CHF 250 million and thereby reflects the improved and solid financial situation of Arbonia. In addition, more favourable terms and conditions were agreed with the banking syndicate as part of the renewal of the facility, which will reduce the financial expense by several hundred thousand Swiss francs per year. The term is once again five years – with the possibility of extending it twice by one year each time. The only covenant is the leverage ratio.

The solid balance structure even before the inflow of funds from the sale of the Windows Division and the further increase in profitability allow Arbonia to increase the distribution to shareholders further for the third year since the resumption of dividend payments for the 2018 financial year. The Board of Directors will propose to the General Meeting to distribute a dividend of CHF 0.25 per registered share for the 2020 financial year, half from retained earnings and half from capital contribution reserves. In addition, the dividend of CHF 0.22 for the 2019 financial year, which was postponed due to COVID-19, is to be paid out, so that the shareholders will receive a total gross distribution of CHF 0.47 after the General Meeting on 23 April 2021.