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AFG Arbonia-Forster-Holding AG continues its dynamic growth
Growth in revenue significantly above repeat double-digit growth in sales – increased dividends and increase in capital stock planned
Arbon, 20 March 2007. – AFG Arbonia-Forster-Holding AG, the leading international supplier to the construction industry, has had another successful fiscal year. For the fourth time since its majority takeover by Edgar Oehler, an industrialist from Eastern Switzerland, the company has again achieved double-digit growth in 2006, mainly from organic sources. Against the backdrop of a favourable – but still extremely competitive – construction industry, AFG managed to increase net sales by 10.7% to CHF 1243.4 million (previous year: CHF 1123.6 million). Happily, profitability more than kept pace with sales and EBIT increased very strongly by 29.0% to a total of CHF 93.9 million (previous year: CHF 72.8 million). With an EBIT margin of 7.5%, AFG is approaching the target level for the coming year of 8%. With the exception of the Kitchens & Refrigeration Division, which suffered from over-capacity in the Warendorf works (Germany), all divisions contributed to this significant increase in revenue and operating profit. Group profits increased compared to the previous year by 28.4% and also achieved a new record figure of CHF 66.2 million (previous year: CHF 51.5 million). As a result of this positive development the Board of Directors has recommended an increase in dividends from CHF 7.00 to CHF 10.00 per bearer share and from CHF 1.40 to CHF 2.00 per registered share to the upcoming Annual General Meeting.
Edgar Oehler, President and Delegate of the Board of Directors, is pleased with how business progressed in 2006: "Most of our high expectations were fulfilled or even exceeded. This means that our 'One Building – One Stop' strategy is increasingly appreciated by the market." In addition, AFG has again succeeded in raising its international profile and increased sales outside its two domestic markets of Switzerland and Germany from 20% in 2005 to 22% in 2006. During the previous year major efforts were made to develop and extend the global presence of AFG, particularly in the areas of heating, sanitary installations and kitchens, which will bear fruit over the medium to long term. However, the strong growth of the Group forced changes to the infrastructure of the divisions and the Corporate Center. Significant worldwide investment was undertaken last year in the expansion of production capacities, IT, logistics, sales organisation, training and marketing.
Solid development of the divisions
All four divisions benefited during the previous year from the favourable economic conditions in their domestic markets of Switzerland and Germany. Despite the positive economic situation throughout Europe, business in the various markets was uneven. This was caused, amongst other things, by the very different levels of maturity in the European marketplace, including in the Eastern European markets which have only recently become part of a united Europe. There is a great deal of development potential for AFG in the Eastern European markets, which is to be developed systematically by means of region-specific strategies.
The first successes with this strategy have been made in the Heating Technology & Sanitary Equipment Division. After a disappointing 2005, this division recovered its traditional strength during the year under review. The pleasing 10.2% increase in sales from CHF 530.9 million in 2005 to CHF 585.3 million was overshadowed by a 70.1% increase in EBIT. With the acquisition of Schmidlin ASCO Swiss AG, the division also achieved strategic benefits over the medium/long term. ASCO Swiss possesses technologies that are suitable for both heating and room cooling, which could well be of significant commercial importance in this age of rapid climate change. The takeover of ASCO Swiss is one of the many investments across all locations designed to ensure continued improvement in the competitiveness of the division's products and services.
Kitchens & Refrigeration: Significant investment in development and new markets
The growth of the Kitchens & Refrigeration Division was uneven across different countries. Whereas the Swiss market and the export sector showed a pleasing increase in sales, the division failed to exploit the potentials offered by a strengthening German economy. The main causes for this were management and capacity utilisation problems in the Miele works in Warendorf (Nordrhein-Westfalen) and the growing number of own-brand products that place pressure on high-priced brands such as Miele Kitchens. Despite an extremely impressive 18.1% increase in sales (CHF 282.0 million) compared with the previous year, 2006 saw a halving of EBIT, down from CHF 9.3 million to CHF 4.6 million. The costs involved in the development of innovative kitchen furniture and the development of European markets require high levels of investment. Other contributory factors to the unsatisfactory revenue situation were the increasing price of metals and costly semi-finished products and raw materials.
Windows & Doors: Capacity limits reached again
The Windows & Doors Division once more put in a very solid performance. In a competitive market it again succeeded in increasing its sales by more than the sector average and gained a greater share of the market. Its net revenue growth to CHF 232.8 million represented a 5.5% increase over the previous year's result. Earnings before interest and taxes (EBIT) were CHF 21.6 million (previous year: CHF 20.5 million), resulting in an unchanged EBIT margin of 9.3% compared with the previous year. While the output of windows remained at the previous year's record level, sales of doors grew by 26%. One of EgoKiefer's great strengths is the division's market proximity. Considerable resources have been invested in this aspect both at the headquarters in Altstätten (Canton St. Gallen) as well as at the new Zurich Regional Office in Wallisellen and at the new Thalwil Sales Office. The logistics infrastructure of the division has been improved significantly with the introduction of a state-of-the-art quotation and order management system and the online linking of all sales offices.
Steel Technology: Growth exceeds market norm
With a 6.3 % increase in revenue to CHF 156.2 million, the Steel Technology Division once again grew more quickly than the market. This achievement is even more impressive as – in contrast to previous years – there was no increase in the price of steel. Profitability also rose in the Steel Technology Division (up 36.7% to CHF 15.4 million) thanks to a number of productivity improvement programmes and cost reduction measures. The largest growth was seen in the automotive sector in which the division had invested systematically over the previous years.
Thanks to its focus on higher-value products in the steering, chassis and drive train sectors, AFG is today one of the top suppliers to many automobile manufacturers. Forster Profile Systems also profited from the market launch of products with additional value-added and successfully introduced a new profile system for thermally insulated windows and doors onto the market.
Construction of new AFG Corporate Center and implementation of SAP system
The AFG Corporate Center, which acts as a service centre for "front-line" divisions, took responsibility during the year under review for the implementation of the SAP operating system across all parts of the company. This has already led to noticeable improvements in terms of the management and control of processes. The start of the project to create the new AFG headquarters in Arbon is a significant milestone. From November 2007 all staff in the various administrative sections (approx. 250 employees) will be combined in the new AFG Corporate Center.
Total assets break 1 billion Swiss Franc barrier for the first time
Total assets at the end of the year rose for the first time in the history of AFG to over CHF 1 billion (CHF 1058.8 million), primarily as a result of an increase in sales revenue. Key balance sheet indicators also showed positive growth. The net debt of the Group was reduced to CHF 223.4 million (previous year: CHF 247.2 million). There was also a corresponding improvement in the equity ratio to 35.6% compared with 32.4% in the previous year.
AFG's financial indicators were only marginally influenced by the new acquisitions. The reduction in material costs from 46.6% in the previous year to 44.9% was mainly due to a normalisation of steel prices, whereas the major efforts to expand and develop the sales organisation were reflected in an increase in personnel costs from 31.4% to 31.8% of net revenue.
Continuing to move forward
The first two months of 2007 were characterised by a new, forward-looking dynamic approach within AFG. The takeover of STI Surface Technologies International Holding AG, one of the leading international companies in galvanic, chemical and mechanical surface treatments, has given AFG a broader base for future growth and has reduced its dependency on the ups and downs of the construction sector. The high-margin STI, which achieves sales of approx. CHF 90 million with a workforce of around 600, is forming the fifth division within the AFG Group. Similarly to the Steel Technology Division, it is primarily technology and process-driven and is therefore able to position its products and services more highly and to command higher prices.
With the takeover earlier in 2007 of the leading Swiss door manufacturer RWD Schlatter AG, AFG and EgoKiefer AG have succeeded in taking a further important step in the strategic expan5 sion of the company. The division is now the undisputed leader in the development and production of high-quality windows and doors on the Swiss market. The integration within the AFG Group of RWD Schlatter, which will continue to operate independently in the market place, offers a wide range of synergies. For instance, EgoKiefer will be able to abandon its existing expansion plans for door manufacturing and in future concentrate door production at RWD Schlatter. This will give it the space it urgently requires for window manufacturing.
Facing the future with confidence
The current economic situation, leaner structures at AFG and still-favourable capital costs allow an optimistic view of the future. The acquisition of STI/Hartchrom and RWD Schlatter have certainly resulted in a considerable change in the position of the Group. The two companies still need to be integrated within the AFG Group in terms of organisational and financial aspects. However, both companies open up new and attractive perspectives for AFG. The first positive results from the takeover of STI/Hartchrom and RWD Schlatter will be seen in the 2007 accounts.
Increase in share capital needed
In order to continue the expansion of AFG, the Board of Directors is to ask the Annual General Meeting on 20 April 2007 to approve an increase in authorised capital of CHF 1,890,063 (25% of the current share capital). The first tranche involves the issue of shares valued at approx. CHF 100 million. This will enable the repayment of the short-term funds borrowed for the acquisitions and will give AFG the financial flexibility necessary for future growth. The remaining authorised capital still available after this transaction can be used for further acquisitions and additional investment, which will enable the Group to pursue an active strategy of internal and external growth. The registered shares and bearer shares will rank equally in this capital increase and will be offered for subscription to existing shareholders by means of subscription rights. The details of this transaction will be determined by the Board of Directors and it is planned to publish them on the day of the Annual General Assembly, 20 April 2007.
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