First-half operating results show steady improvement
The sia Group, a global player in the coated abrasives market, is clearly setting the stage for continued growth with its solid earnings performance in the first six months of 2005. Local currency sales increased 3.4%, leading to significantly higher operating results: EBITDA up 7.6%, EBIT up 14.8% and net income up 17.1%. For the current year, sia Abrasives is confident of achieving its target of 4% to 6% sales growth and meeting its EBITDA and EBIT expectations of 15% to 17% and 10% to 12% of operating revenues respectively. The resulting increase in free cash flow will allow the company to further reduce net debt and strengthen the equity base.
Excluding the impact of foreign currency translation, the sia Group recorded 3.4% growth for the first half of 2005 compared to the same period a year ago. In Swiss francs, the increase was CHF 3.6 million or 2.9%. The operating results improved steadily, reflecting cost savings realized through the capital spending and rationalization programs implemented in past years. Operating income before depreciation, amortization, interest and taxes (EBITDA) rose CHF 1.4 million or 7.6% to CHF 20.3 million. The EBITDA margin as a percentage of operating revenues was 15.3% compared to 14.7% a year ago. Operating income before interest and taxes (EBIT) increased 14.8% or CHF 1.8 million to CHF 14.1 million. Due to a change in IFRS accounting standards, the financial statements for the first half of 2005 do not include any goodwill amortization because the CHF 8.8 million of goodwill recorded in the balance sheet is recoverable. The EBIT margin increased to 10.7% in the first six months of this year from 9.6% last year. This includes the impact of the IFRS change, which accounted for 0.4 percentage points. Net income climbed 17.1% to CHF 9.1 million, or 6.9% of operating revenues. Free cash flow was up 8.0% or CHF 0.5 million.
Sales increase in all major markets
Local currency sales increased in all application areas. Higher-than-average growth of 8.7% was seen in the ART (automotive paint and bodywork) segment. This was due partly to new products launched for composites and partly to the successful strategy for selling additional health and safety products. Expansion into the specialty vehicle and rail car manufacturing markets and successes in the aerospace industry brought new customers. As an example, coated abrasive discs recently developed by sia Abrasives are used for finishing the outer skin of the Airbus A380. Sales varied from one region to the next. Revenues in Switzerland were up more than 13%. This extremely positive performance was driven by the company’s focus on customers’ needs, high delivery capability, and superior and consistent product qua lity. Revenues in Latin America grew 11.2%. This is due partly to the healthy economic climate in the South American market in the first two quarters and partly to the favorable currency movements, especially the firmer Brazilian real. Sales in Europe, excluding Switzerland, were mixed. While Spain and East European countries have continued to show above-average growth, regions like Italy and Scandinavia are stagnating. In Germany, the sia Group has enjoyed positive growth although the economic environment is still difficult. The restructuring measures put in place there have started to yield results that will have a sustained impact when the two facilities are combined as planned. In Asia/Australia, sales were 2.2% ahead of the prior year period. Solid growth in China, Indonesia and the Philippines more than made up for the slightly below-average trend in Taiwan, Malaysia and Thailand. Sales by the Group company in the USA, sia CAPCO, are thriving, fueled especially by catalog business, thus compensating for the adverse exchange rate effects.
Innovative products and partnerships add value
In the first half of this year, sia Abrasives successfully launched innovative products on various markets. Early in the year, it rolled out the new “TopTec” line of wide belts that guarantee an even cleaner, more dust-free abrasive process and more homogeneous surface finish. In the panel segment, sia Abrasives’ innovative new sanding pad was well received and boosted system revenues. After a successful year of testing, the “Synergy” project was implemented in Italy. Together with partner SIKA, the sia Group can offer one-stop shopping solutions for ART applications, giving customers a distinct competitive edge. The company engineered and launched optimized products to meet the specific requirements for machining composites, the materials of the future for building vehicles, aircraft and wind energy systems. Its collaboration agreement with AG Cilander for finishing backings for abrasives has already led to the first deliveries. This is reducing the company’s dependence on suppliers in fabric sourcing. To enhance flexibility and further improve the quality of supply to customers, it invested in a new, fully automated dividing machine for its conversion operations. Various measures were also taken to further speed up jumbo roll manufacturing processes, thereby increasing production flexibility and capacity.
sia Group key data (CHF amounts in thousands)
Six months ended June 30, 2005
Six months ended June 30, 2004
+/–
Net sales
130,139
126,522
+2.9%
Operating revenues
132,284
128,157
+3.2%
Operating income before depreciation and amortization (EBITDA)
20,284
18,845
+7.6%
EBITDA as % of operating revenues
15.3%
14.7%
Operating income (EBIT)
14,134
12,313
+14.8%
EBIT as % of operating revenues
10.7%
9.6%
Net income (EAT)
9,077
7,754
+17.1%
EAT as % of operating revenues
6.9%
6.1%
Net cash provided by operating activities
9,862
8,519
+15.8%
Capital expenditures (gross)
3,517
2,883
+22.0%
For further information
Peter A. Schifferle, CEO and Executive Director Gerhard Mahrle, CFO and Investor Relations Phone: +41 52 724 45 75 Fax: +41 52 724 45 70 E-mail: ir@sia-abrasives.com Internet: http://www.sia-abrasives.com/
® 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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