Annual Report 2005 - Walter Meier

Summary of the reporting year 2005
Income statement
Income rebounds despite lower sales
Increased business activity in the second half-year raised performance indicators in
all business segments above the previous year’s values.
Thanks to positive market conditions and greater internal efficiency, WMH Heating
increased both sales and EBITA. WMH Tools withdrew from business with
inadequate margins in the American market, which caused sales to fall but sharply
increased EBITA. WMH Air Conditioning fell short of last year’s performance
indicators due to the still difficult market situation in the UK as well as weak air
conditioning business caused by poor weather.
Sales: Withdrawal from low-margin business
The 2.5% fall in Group sales to CHF 690.0 million is mainly caused by withdrawal
from low-margin business in the North American market and reduced sales in the
air conditioning segment due to poor weather. Net of exchange rate and consolidation
effects, Group sales fell by 2.3%.
There was pleasing growth of 3.2% (net of consolidation effects 6.3%) in WMH
Heating. Both the sales and the service organizations contributed equally to this
encouraging improvement in performance.
Activities in air-inlet cooling for gas turbines partly compensated for lower sales of
unit air conditioners caused by poor weather. Sales of unit humidifiers and humidification
systems also increased, a significant contribution to the increase coming
from adiabatic systems. In total, WMH Air Conditioning suffered a net sales reduction
of 1.1% (net of exchange rate effect 1.5%).
Efforts to improve margins with American home centers caused sales of WMH
Tools to drop sharply by 6.6% (net of exchange rate effect 7.1%). On the other
hand, sales to American specialist distributors rose slightly. In Europe, there was
another pleasing increase in sales of woodworking and metalworking tools. Business
in CNC machine tools also slightly increased.
EBITA increases by 25.4%
Thanks to a pleasing increase in profitability in the second half-year, EBITA at
CHF 33.6 million and return on sales at 4.9% were both higher than last year.
A consistent focus on improving the margins of sales to American home centers,
process optimization measures in WMH Tool Group, and improved performance at
Walter Meier Group raised EBITA of WMH Tools to CHF 4.3 million.
EBITA of the WMH Air Conditioning manufacturing companies was higher than
last year. The performance indicators of the distribution companies did not match
those of the previous year for the reasons already stated. Furthermore, the weak
air conditioning business made additional value adjustments necessary on inventories.
Thanks to positive market conditions and increases in internal efficiency, WMH
Heating produced a steep rise in EBITA of 27.5%.
Low goodwill amortization for impairments
The annual impairment test at Axair Climate showed an impairment caused by
the still difficult market conditions in the United Kingdom. The residual goodwill
of this company had to be completely amortized. The total amount of goodwill
amortization resulting from impairments was CHF 1.3 million.
Net income up sharply by CHF 30.5 million
Although sales were lower, good cost management and lower interest expense
offset by a higher tax rate brought net income of CHF 21.3 million.
Balance sheet
Bank loans reduced
Restructuring of bank loans to take account of expiry of the syndicated credit in
July 2006 caused short-term liabilities to increase. Interest-bearing liabilities declined
by CHF 8.3 million despite acquisition of the minority interests of WMH Tool Group.
Current assets: Lower liquidity, higher receivables
The increased level of sales in the second half-year caused receivables to increase
by CHF 10.8 million. Cash fell by practically the same amount. Inventories increased
only slightly by CHF 2.2 million.
Non-current assets: Slight increase caused by exchange rate effects
Non-current assets rose by CHF 4.3 million to CHF 82.9 million. The increase is
mainly the result of exchange rate fluctuations. The annual impairment test caused
goodwill totaling CHF 1.3 million to be amortized, most of this amount relating to
the complete amortization of goodwill at Axair Climate.
Liabilities: Syndicated credit expires on July 20, 2006
Short-term bank loans increased by CHF 58.6 million due to expiry in July 2006 of
the syndicated credit. Most of the credit that was utilized in USD was hedged up to
the expiry date at the end of 2004.
Other short-term liabilities increased slightly by CHF 2.8 million while long-term provisions
increased by CHF 2.2 million.
Equity ratio climbs to 39.2%
Mainly thanks to the good result in 2005 of CHF 21.3 million and positive exchange
rate effects of CHF 13.2 million, shareholders’ equity excluding minority interests
increased by a total of CHF 38.0 million. This brought the equity ratio up to 39.2%
(28.9%).
Interesting-bearing liabilities less cash expressed as a percentage of shareholders’
equity including minority interests remained unchanged at 20% despite acquisition
of the minority interests of WMH Tool Group amounting to USD 20.0 million.
Group cash flow
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WMH Financial Report 2005
Free cash flow of CHF 18.6 million
Cash flow from operating activities was CHF 27.5 million (CHF 47.3 million). The
decline relative to the previous year was caused mainly by an increase of CHF 8.0
million in non-cash net current assets as compared with the decrease of CHF 19.5
million last year.
After net investments of CHF 8.9 million, the resulting free cash flow was
CHF 18.6 million.
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