A strong 2011 sees strategic moves to
strengthen our international position
During 2011 the NIBE Group grew its sales by a total of 25.0%, with organic growth totalling 4.6%. In comparison, overall growth in 2010 was 13.2% and organic growth was 7.3%.
Over the year as a whole demand remained stable or showed a modest rise in Northern and Central Europe, North America and Asia, while remaining weak in Southern Europe.
In the fourth quarter, however, overall demand in our product areas was somewhat lower than in the corresponding period in 2010. The reason for this would appear to be widespread caution arising from the uncertainties within the economic system, combined with an unusually mild autumn and early winter across Europe.
In view of the current situation in the world around us, it is gratifying to be able to report that all three of our business areas have continued to consolidate their positions in the market. Much of this success can be attributed to our resolute, long-term focus on developing high-quality, high-performance products and to the integrity and objectivity of our marketing.
The customary process of stock-building for NIBE Energy Systems and NIBE Stoves during the first six months was well matched to this year’s needs and, together with a temporary increase in the production workforce during the second half of 2011, enabled us to maintain good levels of delivery reliability throughout our peak sales period.
Operating profit was 24.5% up on the figure for 2010, thanks chiefly to higher sales volumes, improved productivity and a continued firm grip on costs. It has, however, been a roller-coaster ride for material costs: after a troublesome start to the year with steep increases, material prices fell slightly in the third quarter, only to begin climbing once again as the fourth quarter drew to a close. When translated at Group level, exchange rate trends have had a negative impact on the figures for both sales and earnings. In addition, profits for the year have also been charged with acquisition expenses of SEK 61.8 million.
Profit after net financial items rose by 26.3% compared with the figure for 2010 – primarily as a result of exchange gains of SEK 16.3 million on the repayment of bank loans in foreign currencies.
Scope for expansion
Investments in existing operations totalled SEK 333.4 million. This is somewhat higher than depreciation according to plan for the year, which amounted to SEK 274.5 million. While the investment rate in 2009 and 2010 was well below depreciation according to plan, we anticipate that the rate of investment for the current year will be on a par with depreciation according to plan.
This points to consistently satisfactory levels of quality and productivity at our production facilities and paves the way for further expansion.
Stronger international position
To date, 2011 has been the most intensive year in NIBE’s history in terms of acquisitions. Through these acquisitions we have continued to pursue our strategic objective of gradually strengthening our position in the international arena. The companies acquired will add close to SEK 3 billion a year to the Group’s net sales and contribute good and stable levels of profitability.
NIBE Energy Systems has been strengthened by one major acquisition and two smaller partial ones. The takeover of the Schulthess Group AG, a heating technology company listed on the Swiss stock exchange, was finalised in late July. Schulthess is one of Europe’s leading suppliers of heat pumps sold under the Alpha-InnoTec and Novelan brands. The Schulthess Group also manufactures high quality, energy-efficient products for cooling, ventilation and solar energy, as well as washing machines and tumble dryers under the KKT Kraus, Genvex and Schulthess labels. The Group has annual sales of approximately SEK 2,250 million, a profit margin averaging well in excess of 10% and a workforce of just over 1,000. This acquisition advances our positions in the market and broadens our product base.
Elsewhere, thanks to two partial takeovers, the business area’s operations in Russia conducted through CJSC EVAN have been wholly owned by NIBE since April 2011, and a bridgehead has been established into the North American heat-pump market as a result of a 10 percent stake in the US heat pump manufacturer, Enertech Global LLC, with an option to acquire the remaining shares in the company. Enertech’s annual sales total just over SEK 200 million and the company has an operating margin of slightly over 5 percent.
NIBE Element has acquired three lines of business with aggregate sales of approximately SEK 580 million a year. Early in 2011 the business operations of the UK company Thermtec Ltd were acquired and integrated into NIBE Element’s existing operations in the UK. Therm-tec sales total approximately SEK 20 million a year and the company’s operating margin averages around 6 percent. In March NIBE acquired the Element Division of Electrolux Professional AG of Switzerland, with annual sales of approximately SEK 75 million and an operating margin averaging around 10 percent.
In mid-September NIBE acquired Emerson Heating Products, the element manufacturing division of Emerson Electric Co. in the USA. The division has annual sales of approximately SEK 485 million and around 1,100 employees in the USA, Mexico and China. This acquisition expands the NIBE Element product portfolio to include new climate control technology and adds extensive manufacturing and sales operations in North America and China.
All three acquisitions will make a positive contribution to the business area’s profitability while also reinforcing our market positions and technology base. In this context it is pleasing to report that NIBE Element has now established a firm foothold in the North American market.
Poised for new acquisitions
Our financial position remains robust, which means that we are well placed to make new acquisitions.
From the time that NIBE shares were first listed on the stock market, the Group has traditionally financed all acquisitions of small and medium-sized companies through a combination of bank loans and its own financial assets. In early 2011, however, financing for the takeover of the Schulthess Group, by far our largest acquisition to date, was for the first time raised in part by using NIBE shares to cover 40 percent of the purchase cost.
There are two distinct advantages to the strategy of financing acquisitions through a combination of cash and the company’s own shares: it strengthens the acquiring company’s balance sheet by increasing equity, while also helping to reinforce commitment among the owners of the acquired company by giving them a financial interest in their new parent.
A passion for business built on an entrepreneurial spirit
We never tire of explaining the importance of maintaining companies intact in the locations and environments where they were originally established. More often than not, this provides optimal conditions for companies to continue to grow, while also developing the communities in which they have their home. However, this requires a combination of responsible, long-term ownership, positive encouragement from all levels in the local community and genuine entrepreneurial passion.
That NIBE has grown as much as it has done and, in doing so, has survived several major downturns in national and global economies, owes much to the entrepreneurial spirit that flourishes in the company, with a passion for business and the satisfaction and sense of responsibility that ownership involves. And this entrepreneurial spirit is where our future lies – continuing to encourage curiosity, creativity and commitment as well as motivating employees to take a greater share of ownership in the NIBE Group.
We are convinced that the traditional values we hold dear here in the southern Swedish province of Småland – a long-term outlook, common sense, simple solutions, honesty and perseverance – will never go out of fashion. Instead they form the basis of a corporate culture that will make us strong and resilient regardless of the state of the economy or wherever in the world we choose to operate.
Creating sustainable value
While sustainability and sustainable value creation are relatively new terms, the concepts they represent have always been part of the way we work at NIBE. Careful use and husbanding of nature’s resources has always come naturally to us. Combined with our business idea of developing energy-efficient products, this makes sustainability and sustainable value creation cornerstones of our approach to business.
We report our sustainability performance in accordance with the international standard, Global Reporting Initiative (GRI). We already meet the criteria for GRI level C, but in the longer term our sights are firmly set on achieving level A status. As part of this commitment we launched a major information campaign in 2011 to reach every single one of the Group’s employees. This includes two brochures describing our business principles and our values that have been printed in 14 languages to make sure that every NIBE employee can participate in our sustainability work, regardless of where in the world they are.
15 years as a listed company
Over the years our financial objectives have frequently been dismissed as far too ambitious in the long term.
That makes it all the more satisfying to summarise our achievements during our first 15 years as a listed company: average annual sales growth of 18.7 percent compared to the target of 20 percent; average operating margin well in excess of the target of 10 percent; average return on equity in excess of the target of 20 percent; and an average equity/assets ratio well above the 30 percent target.
The same applies today as it did 15 years ago: neither the market for our products, nor the potential for acquisitions set any real limits for the company’s profitable growth. Instead, our future success is predicated on our ability to liberate ourselves from ‘thinking small’ and to recognise the opportunities that are always there and which true entrepreneurial thinking can always transform into success.
Cautiously optimistic about 2012
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.
Although the financial markets remain in turmoil, our own strengths, high oil prices and hints of a recovery in optimism in various parts of the world encourage us to be cautiously optimistic about the prospects for 2012.
Markaryd, Sweden – March 2012
Gerteric Lindquist
Managing Director and Chief Executive Officer