Aalberts Industries achieves growth both in organic revenue and in operating profit (EBITA)

Strong second half-year; revenue +3% (organic >4%) and EBITA >10%

2013 Headlines

• Revenue EUR 2,040 million; organic revenue growth 1.2%  

• Operating profit (EBITA) +3% to EUR 225 million; EBITA margin amounted to 11.0% 

• Net profit before amortisation EUR 152 million; per share EUR 1.38 

• Capital expenditure EUR 106 million in line with 2012 

• Increase of dividend payout percentage to 30%, entirely in cash (+17%) 

Key figures
in EUR million

* Comparative figures 2012 restated following the adoption of IAS 19R

Wim Pelsma, CEO:
"We once again realised a good year in 2013. Especially in the second half-year, the orders in various markets increased strongly. This development translated itself into revenue growth of 3% (organically +4.1% at constant exchange rates) and an EBITA growth of more than 10% for the same period. Over the entire year, revenue rose to EUR 2,040 million (organic +1.2% at constant exchange rates). Also the operating profit (EBITA) increased, by 3% to EUR 225 million; the EBITA margin amounted to 11.0%.
The additional expenditure for supplementary product-line introductions, additional marketing and sales efforts, the many efficiency projects and the start-up costs for a number of greenfield projects are included in this result. The net profit amounted to EUR 152 million and the earnings per share EUR 1.38. The capital expenditure of EUR 106 million remained at a high level. The solid balance sheet ratios have again continued to improve.

 

Our focus during the coming years will also continue to be aimed at strengthening our market positions close to the end user and realising sustainable profitable growth. We continue to invest in strengthening our marketing and sales activities and further completing our product and technology portfolio, organically and by means of acquisitions. Cross-selling within and between the various business segments, joint key account management, and innovation speed, as well as increased cooperation within the company, all encourage this process. The acquisitions of GF-Flamm-Metallspritz, GtO Slovakia, and BSM Valves that were realised during the reporting year have further strengthened our portfolio. The number of projects to improve the (production) efficiency and reduce costs continued to increase in 2013. There is a continuous improvement process aimed at increasing our operating margin (EBITA), and achieving a higher return on capital employed (ROCE).

 

After a good 2013, thanks to the enormous efforts of our employees, focus remains on the continuous strengthening of the market positions and realising sustainable profitable growth. As a result of this focus, the increased order position, and the strong motivation to bring the many improvement plans to successful results, it is expected that further progress will be made in 2014 and subsequent years. Additional acquisitions can continue to strengthen our market positions.

 

We will propose to the General Meeting that the dividend for 2013 is to be set at EUR 0.41, to be paid in cash per share. This means Aalberts Industries is adjusting its dividend policy and appropriating some 30% of the net profit before amortisation for dividend payment, entirely in cash. This implies an increase of 17% compared to 2012."

 

Financial results
Revenue  Revenue amounted to EUR 2,040.0 million (2012: EUR 2,024.5 million), an increase of 0.8%. Organic growth was 1.2% (at constant exchange rates).

Added-value  The added-value (revenue minus raw materials and work subcontracted) amounted to EUR 1,223.3 million, or 60.0% of revenue (2012: EUR 1,197.1 million, or 59.1% of revenue).

Operating profit  The operating profit before depreciation and amortisation (EBITDA) increased by 3% to EUR 304.5 million (2012: EUR 296.1 million). The EBITDA margin amounted to 14.9% of revenue (2012: 14.6%), at Flow Control 13.6% (2012: 13.0%) and at Industrial Services 18.1% (2012: 18.6%). Depreciation and amortisation amounted to EUR 97.4 million (2012: EUR 94.0 million).

The operating profit after depreciation and before amortisation (EBITA) increased by 3% to EUR 224.6 million (2012: EUR 219.1 million). The EBITA margin amounted to 11.0% of revenue (2012: 10.8%). Flow Control achieved an EBITA margin of 10.4% (2012: 9.8%) and Industrial Services achieved an EBITA margin of 12.6% (2012: 13.4%).

Net finance cost  Net finance cost amounted to EUR 21.4 million (2012: EUR 20.2 million); net interest expense was EUR 16.0 million (2012: EUR 20.5 million). This decrease was thanks to the average lower interest rates and lower surcharges of the banks because of the improved leverage ratio.

Tax on profits  The total tax on profits was EUR 49.8 million (2012: EUR 45.9 million); the effective tax rate was 26.8% (2012: 25.2%).

Net profit  Net profit before amortisation amounted to EUR 151.7 million (2012: EUR 152.1 million). Earnings per share before amortisation were EUR 1.38 (2012: EUR 1.40).

Dividend proposal  It will be proposed to the General Meeting that the dividend for 2013 be set at EUR 0.41 per share (entirely in cash). This implies an increase of 17% compared to 2012 (EUR 0.35).

Capital expenditure and cash flow  Capital expenditure amounted to EUR 106.1 million (2012: EUR 103.6 million), of which EUR 39.7 million was at Flow Control and EUR 66.4 million was at Industrial Services. At the end of 2013, net working capital amounted to EUR 373.3 million, 18.3% of revenue (at the end of 2012: EUR 370.0 million, or 18.3%).
The cash flow from operations increased by 6% to EUR 286.8 million (2012: EUR 271.4 million). The cash flow (net profit plus depreciation and amortisation) increased by 1% to EUR 231.6 million (2012: EUR 229.1 million). This clearly indicates the strong cash flow generating ability of Aalberts Industries.

Balance sheet ratios  At the end of 2013, total equity amounted to EUR 1,054.4 million (2012: EUR 950.0 million), 52.8% of the balance sheet total (2012: 48.3%). Solid balance sheet ratios were thus maintained, which is also evidenced by the development of the three ratios important for the company: the leverage ratio improved from 1.8 to 1.6; the interest cover ratio went from 14.4 to 19.0, and the gearing was 0.5 compared to 0.6 in 2012.

Financing  The net debt at the end of the year amounted to EUR 480 million (2012: EUR 542 million) and consists of bank loans amounting to EUR 252 million. At the end of 2013 the repayment schedule is as follows: EUR 111 million to be repaid in 2014, EUR 81 million in 2015, and another EUR 60 million afterwards.

Flow Control  Revenue slightly increased by 0.7% to EUR 1,438.7 million (2012: EUR 1,429.3 million). The organic revenue growth amounted to 1.5% (at constant exchange rates). The operating profit (EBITA) amounted to EUR 149.0 million (2012: EUR 139.5 million), an increase of 7% -including the additional marketing and selling expenses and costs for many efficiency projects- with an EBITA margin of 10.4% of revenue (2012: 9.8%). Capital expenditure decreased by 16% to EUR 39.7 million (2012: EUR 47.1 million).

Industrial Services  At Industrial Services, revenue increased by 1.0% to EUR 601.3 million (2012: EUR 595.2 million). The organic revenue growth amounted to 0.3% (at constant exchange rates). The operating profit (EBITA) amounted to EUR 75.6 million (2012: EUR 79.6 million) -including efficiency projects and the start-up expenses of new production facilities- or 12.6% of revenue (2012: 13.4%). Capital expenditure increased by 18% to EUR 66.4 million (2012: EUR 56.5 million), partly as a result of the acquisition, expansion, and new construction of various factory buildings and new greenfield projects.

Operational developments

Building Installations Europe
2013 was a challenging year, particularly as a result of the continuing difficult conditions in both the residential market and the market for commercial buildings. In the Netherlands, France and Eastern Europe (except Hungary and Russia) a deteriorated market situation was noticeable in comparison with 2012. There was a gradual improvement during the year in the United Kingdom, Germany and Scandinavia. The markets in Southern Europe remained difficult.
Much has improved under our own power; the market positions have been strengthened, the portfolio has been expanded, and the profitability has increased.

The end user has an ever-increasing need for a complete system offering for heating, cooling, (drinking) water and gas, swiftly installed and guaranteed to operate properly from day one. Aalberts Industries responds to this with specific product-lines that enable the installer to mount them more easily, quickly, safely, and therefore more economically. The push and press connection systems in combination with regulator valves showed strong growth. To further enhance the added-value to the end user, an increasing amount of optimal installation solutions are being offered on the basis of local application knowledge and the complete portfolio.

Considerable capital was invested during 2013. This included capital expenditure on additional product introductions, strengthened marketing efforts, the training of end users and own employees, the setting up of new customer relationship systems, the improvement of the project management, and the intensification of internal cooperation, including the exchange of regional expertise. Many projects are in the implementation and/or start-up phase, aimed at improving the (production) efficiency and reduction of costs.

Building Installations North America
The developments showed a changing picture for each market segment. The housing market showed a gradual improvement during the year. The revenue from plastic connection systems increased, and an improved product-line of metal push connections and an additional programme of regulator valves with low lead content also contributed positively.

While there was a good development in the retail market segment, the market for commercial buildings remained challenging. Nevertheless, growth was realised thanks to considerable marketing and sales efforts; in particular, the introduced metal press connection system in combination with regulator valves sold well. With this system, which is put on the market under a joint brand name and uses an ever-increasingly applied connection technology, installers can significantly accelerate their work. For the production and assembly of the metal connection systems, use is made of technology that has already been applied previously at European production locations. Additional product-lines to strengthen this product group are being developed.

The joint marketing and sales approach is increasingly acquiring more shape. This is especially evident in the increased cross-selling of products between Europe and North America, and the local market introduction of innovative products. The increasingly more complete system offering strengthens the market position and thus has a clearly positive effect on continued profitable growth. Again a lot of capital expenditure was applied in additional capacity for specification sales and marketing in 2013. We will continue this approach during the coming years, assuming that an increasing demand will accelerate the profitable growth in these areas.

Climate Control
In 2013, the system portfolio -consisting of complete heating and cooling systems that provide the distribution of (hot) water from energy source to emission- continued to be completed and mutually aligned. In various regions, a complete system is offered to the specifying bodies, firms of architects, project developers and building managers, aimed at measuring and saving energy costs and increasing the comfort. These target groups are approached, informed and trained at an early stage. The sharing of system knowledge with these users requires a lot of attention in combination with the setting up of customer relationship systems and the following up of renovation and new construction projects in the various countries.

The system portfolio is developing strongly. Examples of market launches in 2013 include a new product-line of thermostatic valves, control systems for climate regulation, smart metering systems for taking and recording meter readings easily, and measurement systems for larger sizes for ultrasonic heat measurements.
Revenue developed favourably, particularly in Germany, Russia and South Africa. The joint marketing and sales approach strengthened in Scandinavia, France, the Benelux, and the United Kingdom. In 2014, this approach is being further extended to countries in Eastern Europe, China, and the Middle East.

Flow Control Industrial
The business development showed a mixed picture in 2013. After a good start, the order flow slowed down in Russia in the second quarter. This was, in particular, the result of the reduction of the government budgets for gas and district energy projects. The district energy activities in Western Europe showed a stable picture. BSM Valves, acquired at the start of 2013, made a slow start, but orders and revenue increased during the year. Various new customers were welcomed and the first joint group orders were realised in North America. The oil and gas project teams in North America and Eastern Europe also made use of the materials and engineering expertise of BSM Valves in the area of high-pressure regulator valves for special applications. This knowledge sharing and cooperation will be further intensified during the coming years. In the third quarter, the new production location of BSM Valves was started up in the Netherlands, including advanced testing facilities.

The industrial market in North America showed an upward trend during the year. The number of projects increased steadily, mainly due to the increasing demand for larger sized steel and stainless steel regulator valves, for which the production capacity in North America was expanded in 2012. Various additional products are in development. These are aimed particularly at higher pressures and more demanding specifications to further complete the product portfolio.

Sales of high-pressure gas regulator vales, used in various industries including the German automotive industry, progressed positively. Both revenue and result of the operations for the beer and soft drinks market showed excellent development.

Industrial Services
After a slow start, the activities gradually increased during the year. A lot of capital expenditure was applied in the expansion of the sales and engineering capacity, the putting into operation of new technologies, products and processes, and the initiation of greenfield projects in China, India and Poland. The existing locations in Poland and Slovakia were also expanded in response to the growing demand in this important growth market. The acquisition of GtO Slovakia has further strengthened the market position in this strategic region. In 2013, many efficiency projects were implemented and newly started up to reduce costs and concentrate the activities more.

The activities for the semiconductor industry also had a cautious start, especially compared to the first half of 2012, but subsequently they increased. In particular, the activities for vibration control systems, developed and manufactured in the new, significantly expanded production location in Germany, enjoyed a good year. With strengthened sales efforts, many new customers were acquired for the high purity gas systems. This also includes a large order from the solar energy industry in the Middle East. The activities for the LED production lines still showed no signs of recovery.

There was a good stable level in the automotive activities in Germany. The globally active key accounts in France showed a gradual increase in activities. This was mainly the result of the many new development projects that have started. In these projects intensive use is made of the engineering and manufacturing locations in France, Germany, Poland, Slovakia, China and India.

The machine building activities in Germany developed well, partly as a result of the capital expenditure of recent years. In the first half of 2013, the turbine industry had to cope with a delay of a number of projects, which was followed by a gradual recovery. GF-Flamm-Metallspritz, acquired in January 2013, realised a good year. The various companies active in the aerospace industry did well in France, the Netherlands, United Kingdom and North America. Capital expenditure was applied in the expansion and improvement of the production locations, particularly in France and the United Kingdom.

For various markets, new, joint key account agreements have been entered into, with a longer duration, making use of the worldwide network of production locations. Knowledge and expertise in the area of key account management is being adapted and exchanged between the various subsidiaries to an increasing extent.

Organisation and Personnel
The average number of employees grew from 12,399 to 12,489. At the 2013 year-end, the number of employees was 12,311 (2012: 12,048).

Outlook
After realising good results again in 2013, the focus remains on continuous strengthening of the market positions and achieving sustainable profitable growth. As a result of this focus, the increased order position, and the strong motivation to bring the many improvement plans to successful results, it is expected that further progress will be made in 2014 and subsequent years.