Aalberts Industries strengthens market position and realises operating profit (EBITA) of EUR 107.4 million

Headlines

• Market position strengthened through extra marketing and sales efforts
• Increase in capital expenditure of 33% to EUR 57.7 million
• Added-value margin increased to 60.3%
• Revenue and results in second quarter substantially better than the first
• Revenue EUR 1,017 million with EBITA of EUR 107.4 million (-5%)
• Net profit before amortisation EUR 73 million; per share EUR 0.67
• Industrial Services realises lower revenue but maintains good profitability
• Flow Control maintains revenue and operational margin in more difficult circumstances

Key figures
in EUR million

 *comparative figures restated following the adoption of IAS 19R

Wim Pelsma, Chief Executive Officer: 'In the first six months, we invested a great deal to strengthen our market position through extra marketing and sales efforts and the introductions of additional products in market conditions that were often more difficult than in the first half of last year. Also, our focus remains targeted at the further improvement of (production) efficiency and has been broadened with new projects for cost reduction and increased added-value. Increasing our speed of innovation and the development of additional products in combination with a more efficient and stronger (sales) organisation directed at the end user, remain to be essential. Our capital expenditure increased by 33% to EUR 58 million. We realised a revenue of EUR 1,016.5 million with an increase of the added value margin to 60.3%. Operating profit (EBITA) came out at EUR 107.4 million with an EBITA margin of 10.6%. This includes the costs incurred for the purposes of additional product line introductions, extra marketing and sales efforts and start-up costs for the greenfield projects. The net profit achieved was EUR 73 million with earnings per share of EUR 0.67. Orders, revenue and profit increased monthly. The second quarter was thus substantially better than the first. With our improving order position, an increase in revenue in new products, the continuous focus on strengthening the organisation, marketing and sales approach, and realisation of the many efficiency projects to improve the operational margin and to reduce costs, we will further improve our market position and results.'

Financial results
Revenue  Revenue amounted to EUR 1,016.5 million (1H2012: EUR 1,029.6 million), a decrease of 1%.

Added-value  The added-value (revenue minus raw materials and work subcontracted) remained virtually the same: EUR 613.1 million (1H2012: EUR 613.3 million). The already high level of added-value margin could be improved to 60.3% of revenue (1H2012: 59.6%).

Operating profit  Operating profit before depreciation and amortisation (EBITDA) decreased by 3% to EUR 147.1 million (1H2012: EUR 151.3 million), 14.5% of revenue (1H2012: 14.7%). Operating profit after depreciation and amortisation (EBITA) decreased by 5% to EUR 107.4 million (1H2012: EUR 113.1 million), 10.6% of revenue (1H2012: 11.0%).

Net interest expense  Net interest expense amounted to EUR 8.0 million, 25% lower than in 1H2012 (EUR 10.7 million).

Balance sheet ratios  Total equity in mid-2013 amounted to 46.1% of balance sheet total (1H2012: 43.0%). Net debt was EUR 668.3 million, compared to EUR 684.0 million in mid-2012. During the last 12 months the primary financial ratios improved as follows:
§ Leverage ratio: Net debt/EBITDA (12-months' rolling) from 2.34 to 2.27;
§ Interest cover ratio: EBITDA/net interest expense (12-months' rolling) from 12.8 to 16.5;
§ Gearing: Net debt/total equity from 0.8 to 0.7.

Net profit  Net profit before amortisation decreased by 7% and amounted to EUR 73.0 million (1H2012: EUR 78.1 million) and earnings per share decreased by 7% to EUR 0.67 (1H2012: EUR 0.72), partly due to an increase in the number of outstanding shares and a higher tax rate of 27.0% (1H2012: 26.1%).

Capital expenditure and cash flow  Capital expenditure amounted to EUR 57.7 million (1H2012: EUR 43.3 million). Net working capital amounted to EUR 498.5 million (1H2012: EUR 466.5 million) and the cash flow (net profit plus depreciation plus amortisation) amounted to EUR 112.7 million (1H2012: EUR 116.3 million).

Segment reporting

Industrial Services  Revenue at Industrial Services decreased by 3% to EUR 302.3 million (1H2012: EUR 313.0 million). Organic revenue growth was 4.3% negative (at constant exchange rates). Operating profit (EBITA) amounted to EUR 37.7 million (1H2012: EUR 43.1 million), or 12.5% of revenue, compared to a strong first half year 2012 (13.8%). Capital expenditure increased by 58% to EUR 35.3 million, partly due to the purchase and new build of various factory buildings and a number of greenfield projects.

Flow Control  Revenue amounted to EUR 714.2 million, in line with 1H2012 (EUR 716.6 million). Organic revenue growth amounted to 0.5% negative (at constant exchange rates). Operating profit (EBITA) amounted to EUR 69.7 million, virtually the same as last year including increasing marketing and sales expenses (1H2012: EUR 70.0 million), or 9.8% of revenue (1H2012: 9.8%). Capital expenditure increased by 7% to EUR 22.4 million.

Operational developments

Building Installations Europe
In the regions The Netherlands, France, Eastern Europe and Russia, the market situation weakened with respect to last year. In the United Kingdom and Scandinavia, the market conditions remained challenging, with the exception of Norway. There was a slow start in Germany, partly due to the long period of frost. The markets in Southern Europe remained sluggish. The order position grew gradually, supported particularly in recent months by many new and additional product lines. The end user is becoming more and more interested in a complete system offering for heating, cooling, (drinking) water, sprinklers and gas for various applications, all to be installed in as short a time as possible. Aalberts Industries takes advantage of this with a complete system offering, specific product lines that make it possible for the end user to install more quickly and straightforwardly, and an intensification of training, marketing and sales efforts. This led to a strengthening of the market position and solid growth in the specific product lines, based on new and improved connection systems. The production capacity of these product lines was increased at several locations. Much was invested in additional product introductions, trade shows, marketing, training of end users and own staff, setting up a customer relations management system, project tracking, and more internal cooperation. The projects to improve (production) efficiency in order to increase the operational margin and reduce costs have continued in various locations and new ones have been started. The objective is to increase the return on capital employed.

Building Installations North America
The market picture is different in each sub-segment. The residential market displayed a gradual recovery. This was particularly visible through the increased revenue in plastic connection systems where the production capacity was increased last year. Also successful was an improved product line of metal connection systems (with low lead content) introduced at the end of 2012, in combination with control valves that significantly increase the system installation speed for the installer. The production capacity for this improved product line has also been expanded in the meantime. Much has been invested in extra capacity for specification sales and marketing. In the retail sub-segment, driven by increasing residential building activity, good growth was realised. The commercial building segment remained challenging. Growth was realised through much marketing and sales efforts. In particular, the metal press connection system introduced last year, in combination with control valves, demonstrated decent growth in the first six months. This system also increases the speed of installation for the installer, and is sold under a strong shared product brand name. Additional product lines to strengthen this product group are currently in development. For the assembly of the metal connections, use is made of technology that is already applied in European manufacturing locations. There was good development in the irrigation market mainly through the expansion of the specification sales team. Through the collaboration in North America, good progress was made, which is stimulating further profit growth that will accelerate with an increasing market demand.

Climate Control
In this activity, where complete heating and cooling systems are supplied - from the energy source to the emission of heat and/or cooling - much attention is being paid to the completion and combining of the system portfolio. In various regional areas, sales platforms have been merged in order to allow a complete system to be offered to specifying bodies, architects' bureaus, project developers and installers, targeted at the measurement and reduction of energy costs and at increasing comfort in building installations. These target groups are approached, instructed and trained at an early stage. The transfer of system knowledge to these users demands much attention in combination with setting up customer relations management systems and the tracking of renovation and new-build projects in the different countries. The system portfolio is undergoing strong development with a newly developed product line of thermostatic valves, control systems for climate regulation, smart measurement systems for the straightforward monitoring and recording of meter readings, and larger sizes for ultrasonic heat measurements. Good progress was achieved; particularly in Eastern Europe and Russia there was good revenue development. In the meantime, the first orders have been booked in China and other markets are being tapped such as the Middle East. In North America too there is much interest in Climate Control systems; the first products have already been put on to the market.

Flow Control Industrial | Oil & Gas
The picture here was varied. After an initially good start in Russia, the order stream slowed down during the second quarter, particularly through reductions in the available government budgets for gas and district energy projects. Less revenue was achieved in these sub-segments through the postponement of various projects. Some recovery is now observable. The extensive portfolio with larger sizes will be introduced in its entirety in the second half of the year and this will generate more revenue. The district energy activities in Western Europe are displaying a stable picture. At BSM Valves, consolidated as of January 2013, there was a slow start, with an increase in the number of orders during recent months. Various new customers were gained and the first joint orders with sister companies were realised. The gas activity for high-pressure valves, applied in many industries (including the automotive industry) experienced solid development with growth in both revenue and results. The industrial market in North America experienced a slow start in the early months of the year. Thereafter the number of enquiries displayed an upward trend. Particularly the demand for larger-sized steel and stainless steel control valves, for which the production capacity was expanded last year, demonstrated substantial growth. The activities of the beer and soft drinks market did well, both in revenue and in result.

Industrial Services
There was a slow start and a gradual increase in activity, partly through the investments made last year and also the strong increase in the numbers of new projects and customers. Much was invested in sales and engineering capacity, new technologies, products and processes, and the purchase of a number of existing factory buildings and the (further) startup of three greenfield projects in Poland, India and China. Also, the existing locations in Poland and Slovakia were expanded due to the increase in revenue in this important growth market. The recently made acquisition of GtO Slovakia will further strengthen the market position. In various locations, efficiency projects were carried out to reduce costs and to concentrate activities to improve the results. Additional efficiency projects have been started and the management organisation has been strengthened to realise more rapid and greater yield from investments. The activities in the semiconductor industry grew gradually but suffered a slow start, certainly in comparison with the strong first half of last year. Through an increase in sales efforts, new customers were recruited in the field of high purity gas systems. The activities for the LED manufacturing market were at a lower level than for the same period last year. The automotive industry in Germany remained at the same strong level as last year, in contrast to France where the market conditions stayed difficult. This was compensated for by a strong growth in the number of new development projects, with globally active key accounts that collaborate closely with various Industrial Services engineering and manufacturing locations in France, Germany, Poland, Slovakia, China and India. The machine build activities in Germany developed well, particularly through the investments made in previous years. The turbine industry experienced a slow-down in the number of projects in the early months, but revenue gradually recovered. Flamm, acquired in January 2013, made a good start. The aerospace industry did well, particularly in France. Activities in the oil and gas market had a slow start; this situation improved gradually during the first six months.

Change in Management Board responsibilities
Following the Annual Meeting, to be held on 22 April 2014, the founder of Aalberts Industries, Mr J. (Jan) Aalberts, will stand down from the Management Board. Mr Aalberts will remain linked to the company as shareholder.
During this meeting the Supervisory Board intends to appoint Mr O.N. (Oliver) Jäger as executive director, responsible for Industrial Services activities. Oliver Jäger was born in 1967, is of German nationality and has been employed with Aalberts Industries since early 2009 as group director for Material Technology.

After this change, the Management Board of Aalberts Industries N.V. will consist of:
- Wim Pelsma, Chief Executive Officer
- John Eijgendaal, Chief Financial Officer
- Oliver Jäger, Executive Director

Outlook
Revenue and operating profit (EBITA) will increase and earnings per share for the whole of 2013 will stay in line with 2012 - barring unforeseen circumstances. Capital expenditure will reach the same high level as last year.