June 06, 2017 | Ad hoc announcement pursuant to Art. 53 LR
Fiscal 2016 a difficult year
Burckhardt Compression, the world’s leading manufacturer of reciprocating compressor systems, looks back on a fiscal year that did not meet its expectations. Orders received fell well short of the figure reported for the previous fiscal year, sales growth came solely from acquisitions, and the margins were unsatisfactory, even including a substantial nonrecurring positive effect. A dividend of CHF 7.00 per share will be proposed at the Annual General Meeting.
Order intake: Growing services business, steep fall in Systems Division
Consolidated order intake amounted to CHF 474.9 mn, which corresponds to a year-on-year decline of 9.2%. Excluding currency translation effects, sales declined by 8.6% and were down 26.0% excluding acquisition activity. The Systems Division accounted for CHF 280.6 mn of total order intake, or 20.1% less than in the previous year. This decline is largely attributed to the weak marine compressor business in gas transport and storage markets. Meanwhile, orders received in the Services Division rose by 13.1% to CHF 194.3 mn, fueled primarily by the spare parts business.
Sales growth driven by acquisitions
Burckhardt Compression Group achieved further growth in the fiscal year 2016, booking CHF 557.7 mn in sales (plus 14.5%). Both the Systems (plus 10.5%) and Services (plus 23.1%) division contributed to the sales growth. Excluding currency translation effects, sales were up by 15.0%; excluding acquisition activity, they were down 4.7%.
Significantly lower operating and net profit
Gross profit of CHF 130.5 mn was 14.0% below the figure reported for the previous year (CHF 151.7 mn) and the gross profit margin amounted to 23.4% (31.1% in the previous year). The gross margin for the Systems Division fell by more than half, from 22.0% to 9.9%, primarily due to a change in product mix and unusually intense market competition. Gross profit in the Services Division was sharply higher, rising from CHF 78.7 mn to CHF 94.0 mn, and its gross profit margin came in at 49.4%.
Consolidated operating income declined by 16.3%. Reported operating income includes a gain of CHF 15.2 mn from pension plan adjustments. The Systems Division incurred a loss of CHF –3.6 mn at the EBIT line compared to a positive CHF 35.3 mn in the preceding fiscal year, whereas the Services Division reported sharply higher operating income of CHF 53.1 mn, an increase of CHF 17.3 mn compared to the previous fiscal year. Acquisitions (Shenyang Yuanda Compressor) contributed CHF 2.0 mn to operating income, which includes a writedown of CHF 8.1 mn within the scope of the purchase price allocation.
Consolidated net income after minorities amounted to CHF 37.9 mn, 31.6% less than in the previous fiscal year. Net income per share amounted to CHF 11.20 (previous year CHF 16.34).
Significant change in balance sheet structure
Total assets at the end of the reporting period amounted to CHF 927.2 mn, which represents an increase of 31.0% over the preceding 12 months, largely due to acquisition activity. Shareholders’ equity, conversely, rose by only 0.6%, primarily due to the recognition of a put option granted to Shenyang Yuanda Compressor’s minority shareholders with a carrying value of CHF 54.7 mn. That and the partially debt-financed acquisition of the interest in Shenyang Yuanda Compressor lowered the equity ratio to 38.5%, from 50.2% at the end of the fiscal year 2015. Non-current assets increased by a total of CHF 126.6 mn to CHF 373.8 mn during the period under review, mainly due to the acquisition of Shenyang Yuanda Compressor. The positive net financial position of CHF 93.2 mn reported at the end of the fiscal year 2015 declined by CHF 160.4 mn, mainly due to the acquisition of Shenyang Yuanda Compressor, and the resulting net financial position at the end of March 2017 was a negative CHF 67.2 mn.
Market position defended
Despite the difficult market environment, Burckhardt Compression successfully defended its market leading position in the reciprocating compressor systems market. The process of integrating Shenyang Yuanda Compressor after acquiring a 60% interest in the company is nearly complete and the collaboration with Arkos Field Services (40% interest) is proceeding as planned. Arkos now occupies part of the new factory in Houston, where it has set up a modern, highly capable service and repair center. These transactions and the acquisition of IKS Industrie- und Kompressorenservice GmbH in September have strengthened Burckhardt Compression’s local presence as a compressor services provider, particularly in its three core markets of China, the US and Germany.
More flexible organization and optimized costs
With its new organizational structure introduced in June 2016 establishing the two divisions of Systems and Services, Burckhardt Compression is able to address the differing needs of its customers even better than before. Various projects were initiated to reduce and optimize operating costs and raise profitability in the long run. Global sourcing activities are being intensified, for instance, and the centers of excellence are being aligned more closely with their specific markets. Operating processes are also being standardized across multiple company sites. In the Services Division, regional sales teams are being strengthened and new geographical markets are targeted, given that the services business is decidedly regional and that requires both short response times and organizational agility.
Outlook for the fiscal year 2017
The main markets will remain very challenging in the fiscal year 2017. This is particularly true for the marine compressor business within the gas transport and storage markets. From today’s standpoint, the positive development in the Services Division is expected to continue, whereas the Systems Division is not expected to experience a positive trend in orders received until fiscal year 2018 at the earliest. Burckhardt Compression expects sales for the fiscal year 2017 at previous year level and an operating margin between 6% and 9%. Burckhardt Compression expects the EBIT margin to be higher from fiscal year 2018 on.
Dividend
The Board of Directors will propose a dividend of CHF 7.00 per share (CHF 10.00 in the previous year) at the annual general meeting. This corresponds to a payout ratio of 62.5% of net income (previous year 61.2%), which is within the targeted range of 50% to 70%.
Accounting standards changed to Swiss GAAP FER
The Board of Directors of Burckhardt Compression Holding AG has decided to switch the company’s accounting standard from IFRS to Swiss GAAP FER, effective April 1, 2017. The registered shares of Burckhardt Compression Holding AG will remain listed on the SIX Swiss Exchange and will remain part of the Swiss Performance Index (SPI). The Board’s decision is attributable to the increasingly complex, time-consuming and extensive detailed requirements imposed by IFRS. Swiss GAAP FER is an internationally recognized accounting standard that is less complex, easier to follow and, therefore, more cost-effective. It meets all the needs of an international group like Burckhardt Compression and its shareholders. Burckhardt Compression’s consolidated financial accounts under Swiss GAAP FER will continue to be of utmost quality and provide a “true and fair view” of its financial performance and position.
