Fuel for Thought
Endress+Hauser Holds its Own in a Difficult Environment, But See a Decline in their Oil and Gas Revenue
May 10 2017 Comments 0
Compared to the industry, the Endress+Hauser Group performed well in 2016. While sales grew based on local currencies, the Group experienced a slight decline when consolidated in euros. The earnings situation is solid and the workforce increased slightly from the prior year. The Swiss specialist for measurement and automation engineering continues to invest heavily in its future.
Net sales fell in 2016 by 0.2 percent to 2.139 billion euros. “Currencies created a headwind for us last year,” said CEO Matthias Altendorf at the company’s annual media conference in Basel, Switzerland. Foreign exchange rate effects drove down sales by 50 million euros. “Based on local currencies, we grew sales by 2.1 percent.” When calculated in Swiss francs, the holding company’s actual reporting currency, revenues increased by 2.2 percent.
Endress+Hauser clearly lagged behind its own expectations. Matthias Altendorf nevertheless emphasised: “When compared to overall industry growth, however, we held our own.” Most companies in process automation felt the impact of slower global economic development and fundamental structural changes in the worldwide economy. Private consumption drove business growth in many regions. “Despite a healthy economy, companies were cautious about investing in industrial goods in 2016,” said the CEO.
While Endress+Hauser performed well in Europe, sales in the Americas declined. In Asia-Pacific, business stagnated, but Africa and the Middle East experienced solid growth. Non-cyclical sectors such as food and beverage, life science and water and wastewater performed well, in addition to the power & energy industry outside Germany. Business declined in cyclical industries such as oil and gas, chemical, primaries & metals.
“Two-thirds of our sales centers showed solid growth,” explained Matthias Altendorf. Sales in individual regions, including large markets, fell, however. Dependence on the oil & gas industry negatively impacted growth in the US. In Germany, Endress+Hauser felt the effects of weak exports and internal restructuring. Additionally, the company purposely avoided business outside the strategic focus. China was able to offset declines in large-scale projects through an increase in smaller orders.
Changes in markets and business caused greater price pressures and shrinking margins. Furthermore, extraordinary effects and one-time write-offs negatively impacted operating profit (EBIT) with a 14.2 percent decrease to 215.5 million euros. Despite higher costs related to foreign currency hedging, profit before taxes (EBT) declined less by 7.2 percent to 217.3 million euros. A somewhat more favorable tax rate reduced net income by only 6.8 percent to 153.5 million euros.
Return on sales fell by 0.7 points to 10.2 percent. “We failed to meet our expectations here, but for the industry it still represents a good result,” emphasized Chief Financial Officer Dr Luc Schultheiss during the presentation of the 2016 financial results. Productivity – defined as net value added relative to personnel expenditures – declined from 1.30 to 1.26. With this result the company also failed to reach its strategic objective, but is according to the CFO still operating “at a solid level”.
The equity ratio fell slightly by 0.8 points to 72.2 percent due to unfavorable interest rate and currency effects. Endress+Hauser nevertheless continues to enjoy a solid financial footing. The company has cash and cash equivalents of 454.4 million euros in contrast to bank loans of only 7.4 million euros. “This ensures that we are not reliant on outside sources of funding,” said Luc Schultheiss.
Endress+Hauser invested 148.8 million euros in new buildings, plant and machinery last year. Expansion of the centre of competence for flow measurement engineering in Reinach, Switzerland, was completed, which was at 49.5 million Swiss francs the largest project. Over the next few years, the level and pressure measurement technology production center in Maulburg, Germany, will be gradually expanded at a cost of 40.5 million euros.
“We continue to invest in people,” said Matthias Altendorf. Employment at the family-owned company remained stable. All apprentices were offered positions. Endress+Hauser had a workforce of 13,003 at the end of 2016, an increase of 51 over the previous year. The actual increase was higher due to the divestiture of the Analytik Jena optics business, which resulted in the loss of more than 100 positions. The subsidiary is now focusing on analytical instruments and bioanalytical systems.
“Our analytics strategy has been validated by the market,” said Matthias Altendorf. Demand for advanced analysers increased significantly and the field of liquid analysis experienced strong growth. “This correlates with the needs of our customers who want the capability to measure product quality online in the process.”
The acquisition of German SensAction AG in early 2017 also ties in with Strategy 2020+ which was rolled out last year. The company, headquartered in Coburg, manufactures innovative systems for measuring concentrations in liquids. Endress+Hauser is tackling the challenges of digitalization by bundling a number of activities. A new subsidiary in Freiburg in Breisgau, Germany, is working exclusively on products, solutions and services related to the Industrial Internet of Things (IIoT).
The significance of digitalisation can also be seen in the growing number of patent registrations. There were 273 first filings in 2016. The intellectual property rights portfolio thus boasts more than 7,000 active patents. R&D spending rose to 7.8 percent of sales. Endress+Hauser introduced 64 new products to the market. “We are investing in innovation for our customers,” underlined the CEO.
Endress+Hauser is targeting a single-digit increase in net sales for the current year. The company also wants to improve profitability. 161 million euros have been set aside for new buildings, plant and machinery and the company intends on creating up to 150 new jobs globally. “We are currently ahead of plan related to incoming orders,” said Matthias Altendorf. Despite growing political uncertainties around the world, the CEO is confident the Group can achieve sustainable growth again in 2017.
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