Financial commentary of Daniel Wüest (CFO)

Dear Readers

When you read the consolidated financial statement of the Arbonia Group, you will notice that it is presented differently to the previous year. The reason for this is that the Climate Division (formerly HVAC) is presented as a discontinued operation. In precise terms, this means that, in the Consolidated Income Statement, the result of the Climate Division is included in the group result of the Arbonia Group as a single line item on account of it being a discontinued operation. In addition, the assets and liabilities of the Climate Division are reported in the balance sheet as "A held for sale" and "Liabilities associated with assets held for sale" respectively.


Following a very challenging financial year in 2022, Arbonia began the new 2023 financial year with optimism, and this got off to a good start. However, it soon became apparent that 2023 could turn out to be at least as challenging as the previous year. Most material prices underwent positive development, with price levels falling during the year. In addition, pressures on delivery chains eased, as all raw materials were once again available promptly and no more delivery delays occurred. By contrast, the continuing huge decline in new construction and renovation activity in residential construction in Arbonia’s markets had a severe negative impact on sales volumes in both divisions. The reduction in volumes was attributable, on the one hand, to high interest rates, construction costs, and energy costs, which meant that building new homes or renovating existing ones was not an attractive financial proposition. Another reason was the continued destocking seen among wholesalers, who continued to reduce their stocks to an absolute minimum on account of declining construction activity and high interest rates. An additional factor was the strength of the Swiss franc, which over the year appreciated over 6% against the euro and to an even greater extent against most Eastern European currencies relevant to Arbonia.

In the 2023 financial year, Arbonia made a small acquisition in relation to the Doors Division. In October, it acquired 100% of Interwand GmbH at a purchase price of CHF 5.3 million. The acquisition is set to expand the product range with glass office partition walls and industrial walls. In the 2023 financial year, Interwand contributed CHF 1.8 million to the revenue and CHF 0.3 million to the group result. In April 2023, the Doors Division also acquired a 17.2% share in the leading German door handle manufacturer Griffwerk GmbH for a purchase price of CHF 12.2 million, which was paid almost exclusively in the form of Arbonia shares repurchased in the market. A cooperation agreement was concluded with Griffwerk in the course of the transaction. In addition, the shareholding in KIWI was increased from 34.0% to 49.9% for a purchase price of CHF 1.8 million.

In the 2023 financial year, substantial one-time effects were incurred which impacted continuing and discontinued operations at the EBITDA level with net figure of CHF –15.6 million and CHF –16.0 million with respect to the result after income tax. Most of these one-time effects related to the Climate Division and the closure and relocation of the Belgian special radiator production plant in Dilsen, which was announced in July 2023 and incurred one-time effects of CHF –11.4 million at the EBITDA level. In relation to the Doors Division, one-time effects of around CHF –2.2 million were incurred on account of the personnel measures that were implemented.

The subsequent explanatory notes to the income statement and balance sheet focus on the continuing operating activities, i.e. primarily on the Doors Division. Where mentioned, the continuing operations are discussed without one-time effects for the purposes of illustration and comparison. It is important to note that the full holding costs are allocated to the continuing operating activities and this is reflected in increased expense items and, accordingly, lower profitability figures.

Revenue development

In the 2023 reporting year, Arbonia achieved a net revenue of CHF 504.6 million, which represents a decrease in Swiss francs of 9.2% compared to the previous year (CHF 555.9 million). This was due to substantially lower volumes for interior doors and shower stalls caused by the slump in new construction and renovation activity in residential construction combined with negative exchange rate effects. When adjusted for currency and acquisition effects (organic), the decrease amounted to 8.2% compared to the previous year, with slightly positive price effects seen alongside strongly negative volume effects.

As discontinued operations, the Climate Division achieved a net revenue in the same period of CHF 576.6 million, which represents a decrease of 10.8% compared to the previous year (CHF 646.2 million). Organic growth was also negative for the Climate Division and amounted to –9.8% in the financial year; here too, a slightly positive price effect was seen alongside a high negative volume effect.

Declining volumes, high energy and interest costs, and negative currency effects impact profitability

The group result was negative in the financial year at CHF –17.2 million compared to CHF 19.1 million in the previous year, resulting in a loss of CHF –0.25 per share (previous year: CHF 0.28 profit).

On the cost side, pressure regarding costs for raw materials and semi-finished goods eased moderately in the 2023 financial year, which was due to improvements in delivery chains and falling material prices. As a result, the materials cost ratio fell by 3.4 percentage points from 43.0 % to 39.6 %. Despite the fact that personnel costs decreased from CHF 12.6 million due to the changes to staffing levels that were introduced and implemented, the corresponding personnel expenses ratio increased by 1.2 percentage points from 35.7 % to 36.9 %, as volumes and, accordingly, revenue declined more significantly and faster than the introduced personnel measures could demonstrate their effectiveness. Other expenses increased by CHF 7.1 million from CHF 89.2 million to CHF 96.3 million, which is why the corresponding expense ratio increased by 3.1 percentage points from 16.0 % to 19.1 %. Other expenses were negatively influenced above all by higher one-off electricity costs of around CHF 8 million as well as generally higher logistics costs.

Despite an improved product mix and moderately lower material costs, EBITDA decreased in the reporting year by CHF 18.0 million from CHF 49.7 million to CHF 31.7 million, which represents a decrease of 36.2%. The EBITDA margin decreased as a result from 8.9% to 6.3%. The huge decline in volumes for interior doors and shower enclosures, salary increases, energy costs and losses in productivity due to reduced volumes had a negative impact.

Without one-time effects of CHF –2.2 million, which were incurred primarily in relation to personnel expenses resulting from changes made to production capacity, EBITDA amounted to CHF 34.0 million (previous year: CHF 53.3 million), which corresponds to a margin of 6.7% (previous year: 9.6%).

The strong appreciation of the Swiss franc against nearly all European currencies relevant to Arbonia had a negative effect of around CHF 1 million on EBITDA.

The Doors Division suffered from the huge decline in renovation and new construction activity and the resulting lower demand from wholesalers, who relentlessly continued to reduce their stocks. Despite having a good product mix, this meant that the division was unable to offset the substantial volume decreases for interior doors and shower enclosures, primarily due to only slight reductions in material costs, exceptional one-off energy costs of over CHF 8 million, and productivity losses arising from lower production volumes.

Due to the lower EBITDA and the increase in depreciation and amortisation of around CHF 3.1 million compared to the previous year, EBIT fell by CHF 21.3 million from CHF 12.4 million to CHF –8.9 million. As a result, the EBIT margin decreased by 4.0 percentage points to –1.8% (previous year: 2.2%). Taking into account one-time effects, the reported EBIT decreased by CHF 22.8 million compared to the previous year – from CHF 16.2 million to CHF –6.6 million. The group result from continuing operations amounted to CHF –14.2 million (previous year: CHF 0.5 million). The group result from continuing operations without one-time effects amounted to CHF –12.5 million, compared with CHF 3.2 million in the previous year. The group result from discontinued operations after taxes amounted to CHF –3.0 million, resulting in a total group result of CHF –17.2 million.

Compared to the previous year, the net financial expense figure increased significantly by CHF 8.0 million from CHF 7.2 million to CHF 15.2 million. The reasons for this were considerably higher interest expenses due to increased drawing on the revolving credit facility combined with higher interest rates and margins. In addition, largely non-cash currency losses affected aspects such as inter-Group loans to the value of around CHF 6 million. As of 31 December 2023, CHF 120 million and EUR 15 million of CHF 250 million was drawn on the syndicated loan.

Due to the negative earnings before tax, the tax charge was positive at CHF 9.8 million, compared with CHF –4.7 million in the previous year.

During the reporting year, the Climate Division generated a net revenue of CHF 576.6 million (previous year: CHF 646.2 million), representing a decline of 10.8% (when adjusted for currency and acquisition effects –9.8%). EBITDA amounted to CHF 42.8 million (previous year: CHF 58.6 million), which corresponds to a margin of 7.4% (previous year: 9.1%). In the 2023 financial year, one-time effects of CHF 12.0 million were incurred at the EBITDA level for the Climate Division. The division achieved EBIT of CHF 5.5 million (previous year: 24.6 million), which corresponds to a margin of 1.0% (previous year: 3.8%). The result after income tax amounted to CHF –16.8 million (previous year: CHF 11.6 million).

Reduction in net working capital and strategic reduction of the investment rate lead to a positive cash flow from operating activities and free cash flow

The huge improvement in cash flow from operating activities compared to the previous year (CHF 101.0 million vs CHF –25.8 million the previous year), which was achieved through a targeted focus on working capital management and by decreasing investments of CHF 93 million (investment rate for 2023 of 8.6% of the net revenue of continuing and discontinued operations vs 12.4% in the previous year) as well through the acquisition of Interwand (CHF 3.0 million), by increasing the shareholding in KIWI (CHF 1.8 million), and by making deferred purchase price payments of CHF 1.4 million from earlier acquisitions, led to a positive free cash flow of CHF 2.4 million (previous year: CHF –245.5 million). The free cash flow would have been substantially higher if not for the fact that heat pump sales virtually came to a halt in the second half of the year due to the political and regulatory reasons outlined previously, meaning that, at the end of the year, semi-finished and finished heat pump products negatively impacted the net working capital by around CHF 20 million.

Both divisions achieved a positive cash flow from operating activities, with the Climate Division achieving CHF 48 million (previous year: CHF –17 million) and the Doors Division CHF 35 million (previous year: CHF –5 million).

A slight decline in total assets and shareholders’ equity, increase in net debt – dividend distribution following potential sale of the Climate Division

As of 31 December 2023, Arbonia’s total assets decreased compared to the previous year by around CHF 37 million to CHF 1 482.6 million (previous year: CHF 1 519.5 million). The reduction occurred due to currency-related devaluations of balance sheet items as a result of the strong Swiss franc and the dividend payment of CHF 20 million. In absolute terms, shareholders’ equity decreased by around CHF 67 million to CHF 921.0 million, and in relative terms the equity ratio decreased from 65.0% to 62.1% by the end of 2023, which means that Arbonia still has an exceptionally strong equity ratio.

The net debt of CHF 184 million at the end of the 2022 financial year increased by CHF 25 million to CHF 209 million as a result of the dividend payment (CHF 20 million) and the purchase of treasury shares (CHF 3 million) as well as a slight increase in leasing liabilities with a slightly positive free cash flow. The leverage ratio without one-time effects is therefore around 2.3x at the end of 2023 (with one-time effects 2.9x). In addition, a mortgage amounting to CHF 15 million was taken out as announced in order to independently finance the investment property in Arbon. This financing activity is also included in the reported net debt.

The strong balance sheet and the positive development of the cash flow also enables a dividend to be distributed for the 2023 financial year. In view of the fact that negotiations are ongoing regarding the potential sale of the Climate Division, the Board of Directors has decided to include the ordinary dividend for the 2023 financial year, the amount of which has yet to be determined, on the agenda at an Extraordinary General Meeting following the closing of a potential sale of the Climate Division. This agenda would also include further capital repayment instruments for shareholders (such as nominal value repayment, share repurchase and special dividend).