Financial commentary of Daniel Wüest (Group CFO)


The financial year 2022 was once again characterised by a dynamic, complex, and simultaneously challenging environment. Continuously changing framework conditions as well as existing and new exogenous factors had both a positive and negative impact on Arbonia’s operational and financial course of business. At the beginning of the year, the markets and companies started off full of confidence because of initial signs that the direct and indirect negative effects of COVID-19 would stabilise and even already ease to some extent. However, this optimistic mood was brought to an abrupt stop by the Russian invasion of Ukraine at the end of February.

In the first half of the financial year, there were further increases in material costs and energy prices, and the supply chains for various materials, especially electronic components, were not completely functioning yet, which delayed and increased the cost of production processes. The implemented price increases had still also not achieved their full impact. The second half-year was characterised by further sharp increases in energy costs and an unprecedented destocking by wholesalers in Germany, especially in the fourth quarter, which negatively impacted the sales of radiators, shower enclosures, and standard doors in particular. As a result of consistently applied price increases, it was possible to maintain the revenue for radiators compared to the previous year, for example, despite a volume decrease of over 20%. Nevertheless, the missing volume had a substantial negative effect on profitability and the underlying margins. The massive increase in energy costs (especially electricity and natural gas) over the course of the year led to higher prices compared to the previous year of around CHF 14 million in the Group, most of which had to be borne by the HVAC Division, and lowered the EBITDA margin of the Group by more than 1 percentage point and that of the HVAC Division by around 2 percentage points.

In mid-July 2022, the Doors Division acquired joro türen GmbH in order to expand its product range with high-quality special doors for contract sales. The purchase price amounted to CHF 23.1 million. In the financial year 2022, Joro contributed CHF 4.3 million to the net revenue and CHF 1.1 million to the Group profit. Otherwise, the net revenue would have been CHF 8.7 million and the net profit CHF 1.5 million for the entire year. At the beginning of December 2022, the HVAC Division acquired the Portuguese company Cirelius S.A., a distributor of HVAC system solutions, for a purchase price of CHF 26.4 million, in order to expand its geographic, product and customer presence on the Iberian Peninsula. Since the acquisition took place at the end of the year, the income statement of Cirelius was not consolidated for the financial year. Had the acquisition taken place on 1 January 2022, the net revenue would have been CHF 23.2 million and the net profit CHF 2.9 million.

In the financial year 2022, one-time effects impacted the consolidated financial statement with net CHF –4.1 million on the EBITDA level and with CHF –3.2 million on the net profit level. A large part of this concerned the Glass Solutions Business Unit of the Doors Division in connection with the closure of the Vlotho site in Germany.

Since 2020, a subsidiary of Arbonia has operated a steel panel radiator plant in Russia, which has a capacity of around 650 000 steel panel radiators per year for the Russian market. Until the outbreak of the war against Ukraine, there was a high demand for radiators and the production therefore ran at full capacity. Since the outbreak of the war, demand has declined by more than 50% and the partial lack of personnel and the limited financing possibilities within the Group has impaired operations. Arbonia is intensively observing and evaluating the situation.

Revenue development

In the reporting year 2022, Arbonia achieved a net revenue of CHF 1202.1 million, which represents an increase of 1.3% compared to the previous year (CHF 1186.2 million). When adjusted for currency and acquisition effects (organic), growth was 5.5% compared to the previous year. This means that the guidance of > 5% organic growth for the financial year 2022 and the med-term guidance of an organic growth of 5% per year by 2026 were achieved despite a demanding environment. The HVAC Division thus achieved an impressive organic growth of 7.0% (previous year: 16.1%) in view of the sharp volume decrease of over –20% for radiators and even around –25% for steel panel radiators, which was more than offset by growth products (ventilation, heat pumps, and underfloor heating). Meanwhile, the Doors Division grew organically by 3.8%, slightly below the medium-term target value of 5% (previous year: 6.9%) while the organic growth of the Wood Solutions Business Unit (standard and functional doors) was 6.1%, and Glass Solutions (primarily shower enclosures) negatively affected the organic growth of the division with a decrease of –1.9%. In both divisions, price effects considerably outweighed volume effects in respect to organic growth.

At Group level, organic growth was 1.1% in the second half of the year compared to 9.8% in the first half of the year. The decline in organic growth recorded in the second half of the year is due to the massive inventory reduction ("destocking") of traditional products (radiators, shower enclosures, and standard interior doors). This could not be offset by the price increases for these products, which were sometimes substantial, and the strong demand for growth products in the HVAC area (heat pumps, underfloor heating, ventilation units). The HVAC Division therefore recorded a decrease in organic growth of –1.2% in the second half of the year, while the Doors Division achieved a positive organic growth of 4.0%.

The distribution of revenue according to markets (countries) did not change significantly in the reporting year compared to the previous year. In 2022, Germany accounted for around half, exactly 49% (previous year: 50%), of the revenue, followed by Switzerland with 14% (previous year: 14%), Southern Europe with 10% (previous year: 9%), Eastern Europe with 8% (previous year: 8%), and Benelux with 7% (previous year: 8%), as well as the remaining countries with 12% (previous year: 11%).

Special factors impact profitability

The Group result without one-time effects decreased by 42.0% to CHF 23.9 million compared to the previous year (CHF 41.1 million). The reported Group result (with one-time effects) decreased from CHF 27.5 million to CHF 20.7 million compared to the previous year, which means a decline of –24.9%. The comparable profit per share thus amounted to CHF 0.30 (previous year: CHF 0.40).

On the cost side, there were higher prices for raw materials and semi-finished goods, which caused the materials cost ratio to increase by 3.1 percentage points from 46.3% to 49.4% in the reporting year. In addition, the other operating expenses ratio (without one-time effects) increased by 0.4 percentage points from 14.6% to 15.0% but also included massively increased energy costs compared to the previous year. Further increased productivity, which caused the personnel ratio (without one-time effects) to decrease by 1.5 percentage points from 30.8% to 29.3%, was able to partially cushion the negative effect on the EBITDA margin. It also helped that material price increases could be passed on to customers. Nevertheless, EBITDA without one-time effects declined from CHF 134.3 million to CHF 112.4 million in the reporting year, which corresponds to a decrease of –16.3%. The EBITDA margin decreased from 11.3% to 9.4%. The one-time effects of CHF –4.1 million incurred on the EBITDA level were mostly due to personnel expenses (closure of the Vlotho site). For this reason, EBITDA with one-time effects amounted to CHF 108.3 million (previous year: CHF 124.7 million), which corresponds to a margin of 9.0% (previous year: 10.5%). The strong appreciation of the Swiss franc against nearly all European currencies relevant to the Arbonia Group had a negative effect of around CHF –7 million on EBITDA.

Both divisions suffered a decline in EBITDA and the EBITDA margin without one-time effects. While the Doors Division achieved EBITDA of CHF 62.2 million (previous year: CHF 76.3 million) and a margin of 11.3% (previous year: 13.8%), the HVAC Division reported EBITDA of CHF 59.2 million (previous year: CHF 70.6 million) and an EBITDA margin of 9.2% (previous year: 11.2%). Both divisions suffered from the inventory reduction of wholesalers, with the HVAC Division in particular unable to realise a double-digit CHF million amount of EBITDA from steel panel radiators, since around 600 000 fewer steel panel radiators were sold than in the previous year. In addition, the HVAC Division was affected by an increase of around CHF 13 million in energy costs, which was also reflected in EBITDA. At the Doors Division, EBITDA was negatively affected not only by the negative quantity effects for shower enclosures and standard doors but also by the high raw material prices in combination with a time-delayed transfer of price increases.

Due to the lower EBITDA and the higher depreciations and amortisations of around CHF 4 million compared to the previous year, EBIT without one-time effects fell by CHF 25.6 million from CHF 67.0 million to CHF 41.4 million, which corresponds to a percentage decrease of –38.2%. As a result, the EBIT margin fell by 2.2 percentage points to 3.4%. Taking into account one-time effects, the reported EBIT decreased by CHF 16.3 million from CHF 53.3 million to CHF 37.0 million compared to the previous year.

The net financial expense figure was significantly lower compared to the previous year with CHF 7.2 million vs. CHF 9.4 million. Although larger but non-cash currency losses affected the inter-Group loans, the financial result was relieved by the positive profit contribution of the KIWI investment as well as the absence of leasing interest and compounding costs from the early repurchase of the Corporate Center. Towards the end of the year, higher interest costs were incurred due to temporary drawing on the revolving credit facility and bilateral credits. As of 31 December 2022, EUR 55 million of CHF 250 million was drawn on the syndicated loan.

The reported tax expense decreased to CHF 9.1 million (previous year: CHF 16.4 million) due to the lower operating profit and thus also a lower Group result before taxes (EBT) in the reporting year. The effective tax rate therefore significantly decreased to 30.7% compared to 37.3% in the previous year. In the medium term, tax rates are anticipated to decrease to the expected target range of 25 – 27%.

Increase in net working capital and investment rate are shown in free cash flow

The investment rate of 12.4% (14.5% incl. early repurchase of the Corporate Center) of net revenue, which was in line with the strategy and has been this high for the last time in the financial year 2022, the increase in net working capital of CHF 117 million and the purchase price of around CHF 44 million for the two acquisitions of Joro and Cirelius resulted in a high negative free cash flow of CHF –245.5 million, compared to a free cash flow of CHF 252.7 million in the previous year. However, it should be noted that the cash inflow of CHF 334.1 million from the sale of the Windows Division had a positive impact on the free cash flow in the last financial year.

In line with the strategy, the majority of investments were made in the "production plant of the future" of the Doors Division, which will cause investments and consequently the investment rate to substantially decrease when this project is completed in 2023.

The cash flow from operating activities was negatively affected by the increase in net working capital of CHF 117 million and the lower operating result and was even negative in the financial year 2022 with CHF –25.8 million (previous year: CHF 92.8 million).

Decreased total assets and shareholders’ equity, increase in net debt and unchanged dividend of CHF 0.30

As of 31 December 2022, Arbonia’s total assets decreased compared to the previous year by around CHF 104 million to CHF 1 519.5 million (previous year: CHF 1 623.3 million). The reduction occurred on the one hand due to the cash outflow for investments, acquisitions, and dividend payments and on the other hand due to currency-related devaluations of balance sheet items as a result of the strong Swiss franc. In absolute terms, shareholders’ equity decreased by around CHF 57 million to CHF 988 million, but in relative terms the equity ratio increased from 64.3% to 65.0% by the end of 2022, which means that Arbonia still has a strong equity base.

The net liquidity position of CHF 93.2 million at the end of the financial year 2021 became net debt to the amount of CHF –184 million due to the cash outflow in the financial year. In addition to investments totalling CHF 174 million, in particular the acquisitions of CHF 44 million, the cash outflow from operating activities, and the dividend were the main contributors to net debt. In the reporting year, Arbonia also exercised the second extension option granted as part of the renewal of the firmly committed syndicated credit facility of CHF 250 million to extend the facility by an additional year to 2027.

For the financial year 2022, the still strong balance sheet and the achieved net profit allow an unchanged dividend payment of CHF 0.30 per registered share (CHF 0.30 for the financial year 2021) to be distributed to shareholders for the fourth consecutive year since the start of dividend payments. This corresponds to a distribution rate of around 108%. For this reason, the Board of Directors will propose to the General Meeting on 21 April 2023 to distribute a cash dividend of CHF 0.30 per registered share for the financial year 2022, half from retained earning and half, tax-neutral for Swiss shareholders, from capital contribution reserves.