Year-end report 1 January-31 December 2013

1 JANUARY – 31 December 2013

  • Order intake rose 7% to SEK 9,014 million (8,444). For comparable units the increase was 2%.
  • Net sales rose 5% to SEK 8,831 million (8,384). For comparable units the increase was marginal.
  • Operating profit before amortisation of intangible non-current assets attributable to acquisitions (EBITA) rose 9% to SEK 990 million (905), corresponding to an EBITA margin of 11.2% (10.8%).
  • Profit after tax rose 3% to SEK 587 million (569). The comparative figure for 2012 includes a one-time effect of SEK 30 million attributable to the lowered tax rate in Sweden.
  • Earnings per share were SEK 14.68 (14.23). The one-time effect of the tax reduction on earnings per share in 2012 was SEK 0.75.
  • Cash flow from operating activities amounted to SEK 859 million (519), corresponding to SEK 21.48 per share (12.98).
  • The Board of Directors proposes a dividend of SEK 7.05 per share (7.05), corresponding to a dividend payout ratio of 48%. The Board today set new financial targets, entailing among other things that the dividend payout ratio shall be in the interval of 30%-60% of net profit.

FOURTH QUARTER 2013

  • Order intake totalled SEK 2,317 million (2,038), an increase of 14%. For comparable units the increase was 8%.
  • Net sales rose 4% to SEK 2,352 million (2,267). For comparable units net sales decreased by 1%.
  • Operating profit before amortisation of intangible non-current assets attributable to acquisitions (EBITA) rose 9% to SEK 283 million (260), corresponding to an EBITA margin of 12.0% (11.5%).
  • Profit after tax decreased by 8% to SEK 178 million (193). The comparative figure for 2012 includes a one-time effect of SEK 30 million attributable to the lowered tax rate in Sweden.
  • Earnings per share were SEK 4.45 (4.83). The one-time effect of the tax reduction on earnings per share in the fourth quarter 2012 was SEK 0.75.

CEO’s message

The total market for Indutrade’s companies improved gradually in 2013. Through the month of June, organic growth was negative. Starting at mid-year, organic change in order intake was clearly positive for two successive quarters, at 11% and 8%, respectively. The variation between the last two quarters does not indicate a trend, but is a result of how project orders are structured in certain companies.

This performance can be interpreted that we are seeing the start of an upswing in the market. However, growth is unevenly distributed: certain segments/markets are showing no growth at all, while others are showing very favourable growth. This mix clearly illustrates the uncertainty that still exists in many segments, even though I think the bottom has passed. The drop in demand in 2009 is still a fresh memory among many boards and company managements. Coupled with the lingering uncertainty in the world market, this explains why many remain very cautious with respect to investments and inventory purchasing.

Despite the generally uncertain market climate, 2013 was a good year for Indutrade, with a strong finish in order intake and invoicing. Geographical markets like Switzerland, the UK and Ireland, the energy market segment, and acquisitions together make up the mix that mainly explains the Group’s positive performance.

I am particularly happy to note that Ireland became a new market for us during the year.

Fourth quarter

Order intake during the quarter was on par with net sales, but 14% higher than the corresponding quarter in 2012. It is gratifying to note that most of this growth was organic. Four of the five business areas had higher order intake than the corresponding period a year ago. Only Engineering & Equipment, which is active in the Finnish market, had slightly lower order intake during the quarter.

In the Nordic countries, development was weak particularly in Finland and Denmark. Sweden experienced more positive performance, with growth in several segments. Outside the Nordic countries, our operations in Switzerland, the UK and Ireland continue to show strong growth. Other important countries like Germany and Benelux are stable.

Our determined effort to grow outside the Nordic region has increased stability and earnings in the Group. The same applies for the share of sales of proprietary products, which is now 38%. In the year prior to our stock market introduction, 2004, this share was 9%. Traditionally it could be feared that having a high share of proprietary products with a higher level of fixed costs than in the distribution operations would result in more volatile business, but for Indutrade the opposite is true. Due to our choice of companies together with competent company presidents, both earnings and stability are higher than for many companies that work strictly with distribution.

Net sales during the fourth quarter rose 4%. Excluding completed acquisitions, sales would have decreased by 1%.

For Flow Technology, the increase in order intake during the period was at the same level as at the end of the third quarter. This increase is not general. There are still several segments that have not begun growing. Earnings for the quarter were hurt mainly by low volumes in most segments.

Order intake for Fluids & Mechanical Solutions increased by 8%. Several companies showed growth, and the previously weak hydraulics sector changed over to growth during the period. Earnings were hurt by lower net sales that could not be fully compensated by cost-cutting.

Industrial Components continued its strong performance. Order intake grew 14% during the quarter. Growth was both organic and acquisition-driven. Most companies showed growth, particularly in the med-tech, mechanical components and chemical products for the engineering industry segments. In short, we are seeing a positive trend in Sweden’s engineering industry. Most of the earnings improvement during the quarter is attributable to higher volumes for comparable units, and acquisitions with favourable performance.

Special Products continued its strong performance. Order intake increased by 32%, and net sales rose 14%. Earnings for the quarter were level with the same period a year ago. This is attributable to project deliveries, which can impact the results of individual quarters. For Special Products, high-margin invoicing during the fourth quarter of 2012 changed over to sales from companies with lower margins in 2013. The business area’s profitable energy segment performed very well throughout the year, with strong order intake.

Margins

The Group’s gross margin remains stable and was level with 2012 for the year as a whole.

The EBITA margin was 12.0% for the quarter (11.5%) and 11.2% accumulated (10.8%), which exceeds the Group’s target of a minimum 10% EBITA margin over a business cycle. 

Acquisitions

Four acquisitions were carried out during the quarter: Medexa (Sweden) med-tech products; Kin Pompentechniek (Netherlands), a distributor of pumps; Verplas (UK), a manufacturer of ventilation products; and AP Tobler (Switzerland), a specialist in surface treatment of products for the pharmaceutical industry. Possession of the latter company will take place in January 2014.

Outlook

During the last two years, many customers expected to see the market gain momentum, especially during the second half of 2012 and in 2013. Growth forecasts were subsequently adjusted downwards based on reality. During the autumn of 2013 Indutrade showed a distinct improvement in order intake for a number of companies, but far from all.

Sometimes it is hard to determine if growth is attributable to greater market shares or to growth in the total market. Despite all of the varying indicators in different indices that go up and down from week to week, there appears to be signs of the start of an upswing in certain segments. Hopefully this will spread to more.

Indutrade’s companies are cautiously optimistic about 2014.

Johnny Alvarsson, President and CEO