Letter to the shareholders

During the financial year, the Arbonia Group (Arbonia) was exposed to a historic slump affecting the construction industry in its markets, which resulted in a volume decrease of up to 30% for our products in individual markets.

In addition to inflationary increases in construction costs and sharp increases in interest rates, the construction industry was also subjected to political turmoil in Germany, which peaked with divisive negotiations within the "traffic light" coalition government regarding the German Buildings Energy Act (GEG). As a result, possibly record-breaking sales were posted for oil and gas heating systems in the 2023 financial year due to the political uncertainty. Yet at the same time, the market for energy-saving heat pumps headed for collapse, particularly in the fourth quarter of the year.

A shift in this trend is not expected until the second half of 2024 and subsequent years, due to weakening inflation and falling interest rates on long-term financing activities. In the long term, the markets in which we operate are anticipated to grow considerably based on the acute shortage of housing and due to the need for energy efficiency renovations on existing building stock – not least on account of the EU Emissions Trading System, which is set to include natural gas used to heat buildings from 2027.

Financial figures for 2023

Consequently, Arbonia recorded a decrease in revenue of –10.1% from CHF 1 202.1 million in the previous year to CHF 1 081.2 million in the 2023 financial year for continuing and discontinued operations. Without currency and acquisition effects (organic), the decline was –9.0%. On account of the negative influences on business performance that have been described, Arbonia initiated cost reduction measures during the summer, which included making changes to staffing levels and relocating the design radiator production facilities from Dilsen (BE) to Stříbro (CZ). These measures have had a one-time effect on the result at the EBITDA level to the amount of around CHF 11.9 million and are set to yield an improvement in earnings of over CHF 10 million per year from the middle of 2024. Arbonia also fully implemented its cost-cutting program to reduce its workforce by 600 employees at the end of 2023, ahead of schedule. EBITDA with one-time effects amounted to CHF 73.1 million (previous year: CHF 108.3 million). This corresponds to a decrease in the EBITDA margin with one-time effects from 9.0% to 6.8%. With one-time effects, EBIT amounted to CHF –4.7 million, compared with CHF 37.0 million in the same period last year, meaning that the corresponding EBIT margin with one-time effects fell from 3.1% to –0.4%. With one-time effects, the group result fell from CHF 19.1 million to CHF –17.2 million).

On 27 February 2024, Arbonia announced that the Board of Directors had received several unsolicited expressions of interest in the purchase of the Climate Division (formerly HVAC), triggered by transactions in the market with comparable companies. After careful consideration and with a view to achieving a sustainable increase in value for shareholders, the Board of Directors decided to carry out a structured sales process with several strategic potential buyers with the involvement of investment banks. Without knowing at this stage whether and when the negotiations will lead to a conclusion, the relevant IFRS guidelines (IFRS 5) require the Climate division to be recognised as discontinued operations in the consolidated financial statements as soon as a sale is classified as highly probable. This was the case at the end of 2023. It should be noted that the entire holding costs are allocated to the continuing operations, which leads to increased expense items and has a negative impact on the profitability figures.

Revenue of the continuing operations decreased in the reporting year by 9.2%, from CHF 555.9 million to CHF 504.6 million. Without currency and acquisition effects (organic), the decrease in revenue amounted to 8.2%. EBITDA without one-time effects fell from CHF 53.3 million to CHF 34.0 million; this corresponds to a decrease of 36.3%. EBITDA with one-time effects fell by 36.2% to CHF 31.7 million (previous year: CHF 49.7 million). Accordingly, the EBITDA margin without one-time effects fell from 9.6% to 6.7%; with one-time effects, the EBITDA margin amounted to 6.3%, compared with 8.9% in the previous year. EBIT without one-time effects fell from CHF 16.2 million to CHF –6.6 million. EBIT with one-time effects amounted to CHF –8.9 million, compared with CHF 12.4 million in the previous year. The corresponding EBIT margin without one-time effects fell from 2.9 % to –1.3%; with one-time effects, it decreased from 2.2% to –1.8%. 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 with one-time effects totalled CHF –14.2 million (previous year: CHF 0.5 million) .

Market environment 2023

Throughout Europe, as well as in Arbonia’s most important markets, financing costs have increased significantly as a result of central banks' efforts to combat inflation, which has constrained investments in new buildings. Added to this, various European markets have seen subsidies for the energy efficiency renovation of building stock come to an end or political debates rage on the subject of introducing new subsidies. Consequently, the forecasts for the development of the construction industry in most markets have a negative outlook in the short term due to the difficulties described here and the general economic uncertainty.

The development of the construction industry in Arbonia’s largest market, Germany, was heavily influenced in 2023 by the rising costs of financing and construction, persistent inflation and uncertainty over which heat generators will be permitted for use and eligible for funding in future. As a consequence, demand both for single-family and two-family houses, and for renovations, has declined significantly. Although projects that have already been started will continue to undergo construction, building permits have decreased by approximately one third, meaning that the construction industry in the near future will have to live off the large number of pending projects and that have yet to be started. Given that clear regulations and funding rates for the renovation of existing heating systems and the installation of new ones were only finalised at the end of 2023, this is likely to mean that the market will remain challenging in 2024, particularly with regard to new construction, despite record high levels of demand for housing.

In Arbonia’s second domestic market, Switzerland, the development of the construction industry has stabilised following several quarters of steadily declining demand. However, this does not extend to residential construction, which, after reaching record levels in 2017, is continuing to decline and, despite price rises, is recording investment volumes last seen in 2010. As a result, excess demand, especially in metropolitan areas, is continuing to rise. Furthermore, rising financing and construction costs are also impacting Swiss residential construction. However, recovery is anticipated for the coming years, both in the renovation and new construction segments, as the result of financing costs that are regarded as low in an international context combined with falling interest rates and high demand.

In the Eastern European markets of Poland and the Czech Republic, inflation and, consequently, interest rates are at the highest levels seen in the EU. The costs of financing have risen sharply, meaning that new residential construction has come entirely to a halt. By contrast, the renovation and other building construction sectors have performed very robustly, primarily due to subsidies and government investments in educational and healthcare buildings. Furthermore, demand for industrial buildings remains high. The relatively better performance of other building construction is likely to continue in the current year, coupled with the improved development of the residential construction sector from 2025 onwards.

Arbonia’s Southern European target markets (Italy, Spain and Portugal) have performed robustly despite being faced with very similar problems to those of other European markets. This is due, on the one hand, to continued good absorption of new buildings in residential construction and, on the other, to EU funding being focused on the energy efficiency renovation of residential and other building construction on the Iberian Peninsula. The same applies to Italy; here, however, renovations of residential buildings in particular declined dramatically in 2023 following the boom that this sector had experienced in recent years due to the "superbonus" government subsidy. As a result of demographic change, the renovation boom and rising prices, savings have decreased, however, meaning that this market is also expected to decline in future. Only new construction and renovations of non-residential buildings are likely to perform better, due to high demand from the tourism sector and government investments in education, for example.

Strategy and development of Arbonia

In the Climate Division, 2023 was characterised by historic volume decreases in large parts of the product and country portfolio. In the case of traditional heat exchanger products in particular, continued inventory reduction at wholesalers in the first half of the year and the slump in new construction and renovation activity had a negative impact on sales development. It was only possible to maintain profitability – or even increase it slightly – and thus offset the sharp rise in wages by optimising prices in conjunction with successful cost-saving initiatives and further progress in process and production efficiency. Currency effects also had a negative impact – particularly the strong Swiss franc – as the majority of revenue is generated in the eurozone.

The global impairment to supply chains that dominated the year 2022 gradually eased towards the end of 2022. This enabled delivery capacity to be largely restored in the first half of 2023, with many orders being delivered. The energy shortage feared due to the war in Ukraine did not materialise either – although energy costs remained high. As a result, the situation for the division remained cautiously optimistic in the first half of the year despite a sharp decrease in radiator volumes. Over the course of the year, the picture became bleaker due to further increases in construction costs, rising interest rates and ongoing uncertainty regarding government regulations and funding opportunities in the building sector. A prime example of this are the Benelux countries, where sales nosedived across all products. The resulting reluctance to invest also affected growth segments such as heat pumps in the second half of the year, with sales virtually coming to a halt in Germany and Austria during this period, primarily due to uncertainty regarding funding.

Business in Southern Europe was driven more by commercial construction projects and its development over the course of the year was positive. Although momentum weakened somewhat towards the end of the reporting year, this business area nevertheless proved to be robust. The division therefore benefited from its diversified positioning with solutions for both new builds and modernisation projects in residential construction as well as commercial and industrial construction.

The significant decline in residential construction in Germany, the most important market, had a disproportionate impact on the wholesale business of the Doors Division, since trade customers reduced their inventory further due to lower demand and higher interest rates, with the aim of reducing capital lockup. The lower demand of wholesalers also led to many small orders, which required more flexibility in production and led to additional costs in all areas of the company, from fulfilment to manufacturing to logistics. Despite this challenging market situation, Prüm and Garant were able to acquire further market shares in Germany. A volume decrease was also felt in the Swiss market, but not to the same extent as in Germany. The new logistics centre at RWD Schlatter in Roggwil (CH), in which standard doors from Prüm, among other things, can be called up quickly, allowed the division to increase revenue with specialist partners. It was also possible to increase revenue via the new sales organisation in Western Switzerland. The Polish company Invado positively changed its customer structure in the reporting year: it succeeded in entering the construction market and cooperating with selected wholesalers in Germany. In addition, it increased its revenue in Central Europe and in Italy.

The market for sanitary products suffered a further decline in 2023 due to the cost-related postponements of new construction projects and bathroom renovations. Furthermore, an extreme shortage of skilled workers, especially fitters, was intensified by the attractive funding situation for HVAC products and poses further difficulties for the sector. Glass products in particular are also affected by price increases, since their production is extremely energy-intensive. This trend will continue as long as high subsidies are paid for sustainable heat generators and the energy costs remain at this currently high level. In the Glass Solutions Business Unit, cost savings programmes such as staff reduction were also initiated and structures adapted to compensate for the revenue decreases. In addition, it was possible to boost productivity further through increased efficiency.

Intensification of sustainability

In line with its commitment to continuous improvement, Arbonia has made strategic changes in order to improve the quality and relevance of its sustainability reporting. The Swiss Code of Obligations, an important driver for Swiss companies in this regard, has prompted Arbonia to recalibrate its reporting methods. This legal framework underlines the importance of precise, comprehensive reporting which ensures that all stakeholders have the information they need to make well-founded decisions. Furthermore, the 2023 report includes information in accordance with the requirements of the Taskforce on Climate-Related Financial Disclosures (TCFD) for the first time.


Although existing challenges will not be fully resolved in the 2024 financial year, there are grounds for optimism. For a start, the German Buildings Energy Act (GEG) is in force. This and the fact that oil and gas boilers are allowed to be used for at least another two years should allow the renovation business – particularly with regard to heating system replacements – to return to normal. This is timely given the increase in capacity at the heat pump plant in Opočno (CZ) in 2024. Furthermore, interest rates have stabilised, meaning that financing costs for clients will once again be calculable. Initial interest rate decreases in 2024 are also likely to help improve profitability for building owners, stimulating growth in new construction and renovations.

By contrast, recovery in the new construction sector as a whole is not anticipated in the coming year. This is primarily due to the constrained overall economic situation. A decline in economic output is assumed for the important German market, among others. Added to this is the trend regarding building permits in Germany. In 2023, these were around 30% below the previous year, meaning that fewer projects can be started in the future. Although there are a large number of approved construction projects that have yet to be started, it remains to be seen how many of them will actually come to fruition under the current conditions (financing and material costs). In the long term, however, demand in the metropolitan areas and in Germany especially remains so high that this gap in the availability of homes will have to be filled. In light of this situation, fewer people are moving house because they cannot find a home within their price range. As a result, current housing remains occupied and unable to be renovated, causing the renovation sector to be constrained even further. Another factor here is the fact that a large proportion of the buildings in Europe were built after the Second World War and, in general, were last renovated around 30 years ago. In addition, the huge demand for housing allows renovations to be carried out in order to increase rental yield.

Irrespective of the economic conditions, Arbonia is in an excellent position to stand firm in this environment and profit from a recovery in the construction industry. For a start, it will benefit from the combined heat and power (CHP) plant that has been put into operation at the Prüm door plant, from the second large plant at Garant that is to start operating at the end of 2024 or beginning of 2025, and from expanding the provision of photovoltaic systems. In addition, it is set to achieve significant cost reductions in the high single-digit million range through a structured energy purchasing programme and general falls in energy prices, which should have a positive impact on the divisions' margins.

Changes to staffing levels, primarily as a result of natural fluctuation and reducing temporary workers, will also have a positive impact on profitability. Although these changes are also associated with costs, they have, for the most part, already been recorded in the income statement for the 2023 financial year.

On 27 February 2024, Arbonia announced in its press release on the occasion of the 2023 annual results that the Board of Directors of Arbonia had received several unsolicited expressions of interest in the purchase of the Climate Division (formerly HVAC) and had subsequently decided to examine these carefully with the assistance of investment banks.The process and negotiations with several potential strategic buyers are currently at an advanced stage. Following the conclusion of a potential transaction, the Board of Directors intends to utilise a significant portion of the proceeds, in addition to the reduction of net debt, to the shareholders. At the same time, the remaining Doors Division will be strategically developed and further strengthened through targeted acquisitions.

Following the successful completion of the transaction, Arbonia would focus entirely on the door business and the implementation of its strategy. The division continues to work towards the goal of expanding its leading position as a Central and Eastern European supplier of wooden doors and glass solutions. Based on the largely completed, comprehensive investment program in capacity and productivity increases and by increasing market share in its home and adjacent target markets, the Arbonia Door Group is aiming for above-average market growth in the future. Building on the investments made and with the help of digital solutions, the Arbonia Door Group is positioning itself as an innovative full-range supplier and cost leader.

Alexander von Witzleben
Executive Chairman
of the Board of Directors

Daniel Wüest
Group CFO