Swiss Forbo with impact of strong Swiss currency in half year of 2015
The Forbo Group – a leading manufacturer of floor coverings, building and construction adhesives, as well as power transmission and conveyor belt solutions – reported net sales of CHF 554.8 million in the first half of 2015 (prior-year period: CHF 603.0 million). In local currencies, this is equivalent to organic growth of 0.7 %, however, translated into Swiss francs it represents a decline of 8.0 %.
Negative currency effects had a significant impact on both sales and earnings. Operating profit (EBIT) decreased by 11.3 % to CHF 57.9 million (prior-year period: CHF 65.3 million). Adjusted for currency effects, however, it rose by 3.7%. The EBIT margin came to 10.4 % (prior-year period: 10.8 %). Group profit from continuing operations amounted to CHF 45.8 million (prior-year period: CHF 53.6 million), which is equivalent to a decline of 14.6 %. After adjustment for currency effects, it reached the previous year’s level despite lower financial income.
As expected, because of the strong Swiss franc, the first half of 2015 overall proved to be very challenging for Forbo. In addition, the two divisions have shown very differing developments. Whereas Movement Systems chalked up a record first half in local currency terms, Flooring Systems faced tough market conditions in certain markets and could not quite reach the previous year’s performance in local currencies.
In the wake of the Swiss National Bank discontinuing its minimum euro exchange rate in January 2015, both sales and earnings in the corporate currency were severely impacted by currency effects. The Swiss franc firmed significantly against most of the currencies important for Forbo such as the euro, the pound sterling and the Japanese yen, clearly leaving its mark when local currency results were translated into the corporate currency. Sales were down by about CHF 50 million and operating profit (EBIT) was about CHF 10 million lower as a result of the strong Swiss Franc.
Forbo continued to expand also in the period under review the attractive product portfolios of both divisions with new, globally launched offerings, invested further in the development of high-quality products and continued to strengthen its distribution channels, especially in growth markets. Owing to the ongoing situation on the foreign exchange markets, Forbo initiated a series of additional cost optimisation measures in order to offset the currency effects as far as possible by an even better operating performance.
In the first half of 2015, Forbo generated net sales of CHF 554.8 million (prior-year period: CHF 603.0 million), representing an increase of 0.7 % in local currencies. Owing to the severely negative currency effects, this comes to minus 8.0 % in the corporate currency. The sales of Flooring Systems declined by 2.1 % in local currency terms (-12.2 % in the corporate currency). Movement Systems reported a significant increase in sales of 8.1 % in local currencies (+3.1 % in the corporate currency).
Movement Systems increased sales strongly in both local currencies and Swiss francs thanks to its broader presence in growth markets and the lower exposure to exchange rate fluctuations owing to the geographic weighting of its activities.
Forbo has continued to invest in recent months in capacity expansion, the optimization of business processes and growth projects. Despite these expenditures, which were higher than the previous year, Forbo succeeded on balance in raising profitability further in local currencies. The contributory factors were the ongoing optimization of cost structures adjusted to current market conditions together with further specific productivity gains all along the value chain.
Operating profit before depreciation and amortisation (EBITDA) came to CHF 73.6 million (CHF 83.2 million), corresponding to a decline of 11.5 %. The EBITDA margin stood at 13.3 % (13.8 %). Operating profit (EBIT) came to CHF 57.9 million, compared with CHF 65.3 million in the comparable period of 2014, thus a decrease of 11.3 %. The EBIT margin amounted to 10.4 % (10.8 %). After adjustment for currency effects, however, operating profit (EBIT) rose by 3.7%.
Group profit from continuing operations amounted to CHF 45.8 million (CHF 53.6 million), which reflects a decrease of 14.6 %. After adjustment for currency effects, however, it reached the previous year’s level despite lower financial income.
Forbo Flooring Systems division reported net sales of CHF 383.9 million in the first half of 2015 (prior-year period: CHF 437.2 million), which is equivalent to a decrease of 2.1% in local currencies (-12.2 % in CHF). The division could not maintain the positive sales trend it has reported since mid-2013, owing to weaker demand in core markets such as France, the Netherlands, Great Britain and the USA. No real recovery is yet in sight in various markets of key importance to Forbo. Compared with the prior-year period, the building and construction adhesives activity managed to maintain its sales level amid unchanged challenging market conditions.
Operating profit (EBIT) decreased by 17.6 % to CHF 43.4 million (CHF 52.7 million) owing to the decline in sales and the strongly negative currency effects. The EBIT margin amounted to 11.3 % (12.1%). In order to better offset the decrease in sales and the currency effects, the division initiated a series of optimization projects and measures to adapt cost structures to current market conditions. The focus in the coming months will be on further implementing the initiatives for profitable growth by intensive marketing of the extensive new collections and new launches introduced during 2014 as well as this year. At the same time Flooring Systems will concentrate on the steady expansion of its distribution structures in growth markets.
Forbo Movement Systems division reported net sales of CHF 170.9 million in the first half of 2015 (CHF 165.8 million), which is equivalent to a significant increase of 8.1 % in local currencies (+3.1 % in CHF). All regions contributed to drive the substantial growth and the related gains in market share. Although the business environment in Europe is still mixed, most companies performed better than in the comparable period the previous year. Demand in America remained buoyant owing to successful projects with major accounts in various customer segments, while Asia/Pacific stayed on the growth path, even though the first signs of a market slowdown were seen in China.
The systematic implementation of the strategy with demanding targets in all parts of the business had a very positive effect on operating profit (EBIT), which rose sharply by 20.0% to CHF 20.4 million (prior-year period: CHF 17.0 million). The EBIT margin was increased to 11.9% (prior year period: 10.3%). In the second half of the year, Movement Systems will continue to systematically implement the strategic initiatives by extending its product portfolio in specific areas and strengthening its distribution structures, especially in Asia/ Pacific and the Americas, with additional points of sale.
Given the current currency situation and market volatility, it is very difficult to make a forecast for the full year at this point.
For the year 2015 as a whole, Forbo expects sales in local currencies to come in approximately at the previous year’s level. However, sales and earnings in the corporate currency will be eroded substantially once the local results are translated into the strong Swiss franc. Forbo will continue to further optimize its cost structures and offset the negative currency effects as far as possible with innovative and high-quality products. Barring any further deterioration in the current economic conditions, in particular the currency situation, Forbo expects Group profit from continuing operations in 2015 to be slightly lower than the previous year in Swiss francs.