Growth in sales and net income - full-year earnings on track (19/08/2003)
Targeted measures and acquisitions improve cost structure
Excluding foreign exchange impact, the sia Group’s sales increased 8.8% to CHF 129.6 million in the first half of 2003. In Swiss francs, net sales totaled CHF 123.8 million, up 3.9%. Operating income before interest, taxes, depreciation and amortization (EBITDA) rose 27% to CHF 20.2 million and net income even soared 62.4% to CHF 10.3 million. Operating income before interest and taxes (EBIT) grew 14.6% to CHF 13.1 million. Capital expenditures on jumbo roll manufacture and conversion will generate the planned cost savings, while targeted measures and acquisitions will also bring the company further cost advantages.
sia Abrasives held up well in the harsh economic climate during the first half of 2003. The Group increased sales once again through gains in market share and acquisitions. Excluding foreign exchange impact, revenues improved 8.8% over the same period of last year, reaching CHF 129.6 million. Half of this growth was organic and half resulted from acquisitions. In Swiss francs, net sales totaled CHF 123.8 million, up 3.9%. In early June, the sia Group sold the Saffron Walden property in the UK, formerly the headquarters of sia Abrasives (G.B.) Ltd., realizing a gain of CHF 4.6 million.
Operating income before interest, taxes, depreciation and amortization (EBITDA) grew 27% to CHF 20.2 million and net income even soared 62.4% to CHF 10.3 million. As a result, the return on sales improved to 8.3% from 5.3% in 2002. Operating income before interest and taxes (EBIT) rose 14.6% to CHF 13.1 million. The operating profit margin was 10.6% compared to 9.6% in 2002.
Earnings for the first half of 2003 were adversely affected by a number of one-time factors – increased material consumption due to changes in production, installation of new standard software, and amortization of intangible assets – totaling CHF 2.0 million. Before recognizing the effects of these factors, sia Abrasives recorded operating income before interest, taxes, depreciation and amortization (EBITDA) of CHF 16.4 million and net income of CHF 7.3 million, representing increases of 2.9% and 15.2% respectively. The better performance was due in part to growth in sales, boosted by cost savings resulting from capital expenditure projects, lower relative labor costs following the centralization of the UK facilities, and improved net financial earnings. Operating income before interest and taxes (EBIT), adjusted to exclude special effects, was CHF 10.5 million compared to CHF 11.5 million in the same period a year ago. The decline is primarily due to negative currency effects to the tune of CHF 1.0 million arising from fluctuations in the US dollar, British pound and Brazilian real. Without this factor, EBIT would have matched the prior year level. Overall, sia Abrasives demonstrated its resistance to cyclical swings during a difficult six months. This strength is the result of worldwide presence and broad-based activities spanning different industries and customer segments.
Capital spending and acquisitions generate cost savings
The projects launched in 2000 to spend CHF 43 million on the Frauenfeld jumbo roll manufacturing and conversion facilities will be largely completed in 2003. sia Abrasives spent CHF 28 million up to the end of June. All in all, the capital expenditures will cut the sia Group’s annual costs by CHF 8 million from 2005 onward.
The centralization of the UK companies at the site of sia Fibral Ltd. in Greetland will generate annual cost savings of CHF 2 million from this year onward.
By acquiring CAPCO in January 2003, the sia Group made a strategically important move to push expansion in the American coated abrasives market. Still under the same management as before, the company was rapidly integrated into the sia family culture. Feeling the effects of the weak dollar and continued sluggish economic conditions, CAPCO fell slightly short of its first half sales expectations. The two US companies, sia CAPCO and sia Abrasives, Inc. USA, are working to exploit the potential for synergy. They are transferring their conversion know-how, which will step up productivity and generate cost savings.
Solingen-based Weck Schleifmittel GmbH, the German company acquired in mid-2002, met the first half budget expectations, with sales slightly below the prior year level.
On track to reach targets
While it is hard to gauge the strength of the economy in the second half of 2003, sia Abrasives is not counting on an economic rebound in the near term. This scenario is reflected in the rate of new order bookings. Positive sales trends are being seen in Canada, Spain, almost all Eastern European countries and Australia. If the Swiss franc remains strong, sia Abrasives expects full-year sales, excluding foreign exchange impact, to grow 6% to 8%. Results are on track.
® Correct nomenclature for sia Abrasives Holding AG
As there are other companies and organizations that use the same abbreviation as our company, we would be grateful if you could help to avoid any misunderstandings by always writing our name as follows: sia Abrasives (never just sia by itself).
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