Stable margins and resolute internationalisation
– despite a weaker second half
Group sales rose by 12.9% in 2012. However, as acquired growth for the year amounted to 19.4%, this means that sales contracted by 6.5% in organic terms. In 2011 sales rose by 25.0% and organic sales by 4.6%.
Demand has fluctuated wildly over the past year. There were already signs of a slowdown back in the fourth quarter of 2011, but the market recovered somewhat in the first six months of 2012 and even generated some organic growth. In the third quarter, however, the downturn was unmistakable with a 13% fall in organic sales. This was then followed by a fall of 11% in organic sales in the fourth quarter. The effect of the decrease in volumes was compounded by the negative impact on earnings of a strong Swedish krona.
There has been a marked downturn in the vast majority of markets and in most product segments. Nevertheless, Central Europe – Germany, in particular – Eastern Europe and North America have proved to be relatively robust in withstanding the economic headwinds.
In contrast, the Swedish market has seen a significant drop in demand compared with 2011 in all three business areas. Not since the early 1990s has demand been so weak in our segments of the domestic market. The main reasons for this are the extremely low number of new builds, lower electricity prices and, of course, the financial uncertainty that has rattled nerves throughout the year.
It is gratifying, therefore, to be able to report that we have succeeded in improving our own market shares despite the worrying market situation both here at home and internationally. The main reasons for this success are good quality, a consistent distribution strategy and a product range offering outstanding technical performance.
In view of the weak market trends we have successively adapted production capacity and reduced our fixed costs. Neither of these measures, however, has necessitated any reduction in our R&D or sales workforce.
Stockbuilding for NIBE Energy Systems and NIBE Stoves, which traditionally takes place over the first six months in order to meet peak-season demand in the second half of the year, was less extensive in 2012. Instead there was a greater focus on introducing more flexible seasonal working hours for production staff. The results of this modified approach to production needs have been so positive in terms of productivity and delivery reliability that we intend to continue with this system in the future.
Operating profit improved by 5.0% compared with 2011, while the operating margin of 11.3% was lower than the previous year’s figure of 12.2%. The strong Swedish krona had a negative effect on the year’s operating profit, but it should also be noted that earnings for 2011 were charged with SEK 61.8 million in acquisition costs as opposed to a figure of just SEK 14.5 million in 2012.
Profit after net financial items improved by 7.1%, but the profit margin of 11.0% was below the level of 11.6% reported in 2011. Net financial items in 2012 were affected positively by exchange rate gains of SEK 27.8 million relating to the repayment of bank loans in foreign currencies. Corresponding exchange rate gains for 2011 totalled SEK 16.3 million.
In connection with the acquisition of the Schulthess Group, a target was set to achieve synergy effects totalling SEK 84 million before the end of 2013. Following synergy effects of just over SEK 30 million on the Group’s operating profit in 2012, we now anticipate achieving around a further SEK 30 million in synergies in 2013 and the remainder during the course of 2014.
Product development is key
In late autumn the Swedish Energy Agency published the results of extensive tests of the ground-source/geothermal heat pumps and exhaust/air heat pumps available on the domestic market. The findings clearly demonstrate that NIBE ground-source/geothermal and exhaust-air heat pumps perform best in the vast majority of benchmark tests and offer homeowners the best value for money.
This is an important endorsement of our long-term commitment to product development, and it confirms that our efforts in this regard are also bearing fruit.
Well-invested production facilities
The year’s investments in existing operations totalled SEK 251.5 million; this means that the rate of investment in 2012 was well below the figure of SEK 368.4 million for depreciation according to plan. In 2011, on the other hand, the level of investment was slightly above the planned rate of depreciation for the year.
Investment for the current year is anticipated to be on a par with depreciation according to plan. This means that the levels of quality and productivity in our production plants will continue to be highly satisfactory, and that there will also be significant capacity within the current organisation for further increases in volumes.
Despite the challenging market situation we have continued to pursue our strategy of expanding our business through international acquisitions.
In June NIBE reached an agreement to acquire the Eltwin Group of Denmark, which produces steering and control technology for the energy sector. Eltwin reports annual sales of some SEK 85 million and an operating margin of approximately 9%.
In August NIBE acquired 70% of the shares in Akvaterm Oy of Finland, a manufacturer of accumulator tanks. Akvaterm has annual sales of approximately SEK 60 million and an operating margin of around 15%. It was consolidated into the NIBE Energy Systems business area in September. Agreement has been reached to acquire the remaining 30% stake in 2015.
At the end of December NIBE acquired the element manufacturing operations of Springfield Wire Inc., with annual sales of approximately SEK 330 million and an operating margin of approximately 4%. The main focus of business activities, which are carried out in the USA, Mexico and China, is the manufacture of tubular elements for use in white goods and various industrial applications. The North American units will be integrated into the NIBE Group’s existing operations, while the Chinese business will continue to function independently.
At the end of January 2013 NIBE acquired a 60% stake in the English wood-burning stove manufacturer, Stovax Heating Limited, which has annual sales of some SEK 380 million and an operating margin of approximately 15%. With a product range that includes both wood-fired and gas-fired stoves, Stovax commands a leading position in its domestic market. Agreement has also been reached on the acquisition of the remaining 40% of shares in the company in 2016.
These four acquisitions are all strategically appropriate and have the added advantage of making NIBE less vulnerable to fluctuations in demand in the Swedish market.
Continued expansion – the NIBE way
For most people and most companies in Europe, the mood of restraint and economic uncertainty that is currently permeating more or less the entire continent, is a source of real adversity. However, despite this situation we intend to continue to take a proactive role in the processes of consolidation that are deemed to be necessary in the three sectors in which we do business.
It is our opinion that, in a time of transition and change such as we are experiencing, the NIBE corporate culture will play a decisive role in the success of our endeavours.
A corporate culture built on:
- a genuine entrepreneurial spirit, balanced by a responsible approach to business
- values that speak for themselves – such as thriftiness, common sense, honesty, perseverance, simple solutions and a long-term outlook – combined with sustainable value creation and the best quality throughout the entire value chain
- the realisation that good profitability is the most important factor behind long-term success and sustained growth.
Based on so firm a foundation as this, we remain resolute in our objective to build an even stronger NIBE Group with good market coverage in Europe and throughout the rest of the world.
Outlook for 2013
Our corporate philosophy and our product programme with their focus on sustainability and saving energy are well suited to the times in which we are living.
In terms of markets, most of our exposure is towards countries with strong economies.
Our financial position remains robust, which means that we are well placed to make new acquisitions.
While we wait for demand to pick up once again, our operational focus will be on defending our margins through continual initiatives to improve productivity and by observing great caution with regard to our fixed costs.
Markaryd, Sweden – March 2013
Managing Director and Chief Executive Officer