Financial and press releases
INDUS Group operating business performing well
- Plus in sales of 10.7% in the first nine months of 2022
- EBIT adjusted for non-cash effects up on previous year
- Impairments mainly due to higher cost of capital and SMA expenses: one-time effects impact EBIT
In the first nine months of 2022, the portfolio companies of INDUS Holding AG grew their sales by 10.7% to EUR 1,434.9 million (previous year: EUR 1,296.4 million). The organic growth of 8.3% more than offset the decline in sales in the Automotive Technology segment, which was due to the sale of the WIESAUPLAST Group in late 2021. The most recent acquisitions in the Engineering and Construction /Infrastructure segments contributed 2.4% to the increase in sales.
As previously announced, the Group’s operating result (EBIT) was influenced by non-cash one-time effects, which resulted in EBIT of EUR 11.2 million (previous year: EUR 78.6 million) and an EBIT margin of 0.8% (previous year: 6.1%). Background information: In connection with the self-administration proceedings initiated by SMA, a portfolio company, expenses from valuation adjustments in the amount of EUR 37.1 million were recognized in the third quarter. Increased capital costs resulting from the ECB’s interest rate hikes and more conservative assessments of future prospects in a challenging macroeconomic environment had an impact on the company valuations: as a result of the annual impairment test, non-cash impairment losses of EUR 39.8 million were recognized in the third quarter, mainly on goodwill. Adjusted for these and other non-operating effects, the INDUS Group generated adjusted EBIT of EUR 92.7 million in the first nine months (previous year: EUR 86.8 million). In the third quarter of 2022, adjusted EBIT amounted to EUR 37.0 million (previous year: EUR 30.4 million). The adjusted EBIT margin stood at EUR 6.5% at the nine-month stage (previous year: 6.7%).
“In purely operational terms, we are above the same period of the previous year. Four of our five segments – i.e. excluding the losses in the Automotive Technology segment – achieve an overall EBIT margin before impairment of 11.5%”, said Dr. Johannes Schmidt, Chairman of the INDUS Board of Management. “In the coming months, we will be able to build on these stable operating results and on the fact that the burden on income in the Automotive Technology segment will decrease noticeably from end of October.”
Good operating results in the three largest segments – Increased EBIT before impairment
The companies in the Construction/Infrastructure segment increased their nine-month sales by 17.5%. Besides broad-based organic growth, this increase was also driven by WIRUS, a portfolio company acquired in 2021. In spite of material shortages and increased material prices, the EBIT margin before impairment again reached a high level of 15.0% (previous year: 16.0%). Impairment losses of EUR 12.7 million had to be recognized on goodwill, mainly due to the higher cost of capital. The EBIT margin thus stood at 11.8% (previous year 16.0%).
Sales in the Engineering segment grew strongly in both organic and inorganic terms by a total of 22.0%. In 2021 and 2022, the segment was strengthened further by a total of four acquisitions. At 11.3%, the EBIT margin before impairment reached a very good level (previous year: 11.5%). Impairment losses of EUR 13.8 million essentially made necessary by the increased cost of capital weighed on the segment’s earnings, resulting in an EBIT margin of 7.7% (previous year: 11.5%).
The Metals Technology segment grew its sales by 8.5% and thus more than offset the shortfall in sales resulting from the shutdown of BACHER. At 11.8%, the EBIT margin before impairment losses clearly exceeded the prior year level (8.6%), not least due to one-time effects. The higher cost of capital resulted in impairment losses on goodwill of EUR 1.6 million also in the Metals Technology segment. At 11.3%, the EBIT margin nevertheless exceeded the prior year level (8.6%).
In the first nine months, the portfolio companies in the Automotive Technology segment were operationally heavily affected by high material and energy prices as well as supply chain problems. EBIT remained clearly negative at EUR -92.2 million. This figure includes impairment losses as well as valuation adjustments at SMA. The fact that series supplier SMA has applied for self-administration proceedings is expected to result in non-cash expenses in the total amount of approx. EUR 61 million in the financial year 2022 – of which EUR 37.1 million were already recognized in the third quarter. At the same time, however, the operating losses incurred by SMA no longer have to be borne by INDUS as of 24 October 2022, which means that the adverse impact on income in the segment will be reduced noticeably. The restructuring of the remaining series supplier in the portfolio continues to proceed according to plan, with sales expected to increase and losses expected to decrease as of 2023 a new series will be started at the new location abroad.
As had been expected, the Medical Engineering/Life Science segment showed a moderate performance, with sales picking up by 5.4% and the EBIT margin before impairment losses at 6.8% (previous year: 8.1%). Income was impacted by higher procurement costs that could not be fully passed on to customers as well as by expenses for the implementation of the EU Medical Device Regulation (MDR) and for the relocation of production facilities. In view of the significant increase in capital costs, impairment losses of EUR 11.7 million were recognized on goodwill. As a result, the EBIT margin stood at -3.3% (previous year: 8.1%). The Board of Management now projects an EBIT margin before impairment of 5-7% for the full year.
Inventories deliberately kept at high levels as supply chain problems persist
With a view to cushioning material price increases and the persisting supply chain problems, the portfolio companies have deliberately built up inventories. Receivables also increased due to the pick-up in business activity. At EUR 618.1 million, working capital was thus higher than on 31 December 2021 (EUR 457.5 million). Consequently, operating cash flow declined to EUR 0.1 million (previous year: EUR 74.1 million). Cash and cash equivalents amounted to EUR 130.8 million (31 December 2021: EUR 136.3 million). Due to the strong increase in total assets and the decline in equity – which was essentially attributable to the non-cash impairment losses – the equity ratio stood at 37.5% as of 30 September 2022 (31 December 2021: 42.4%).
Forecast adjusted to reflect the non-cash effects
“In the first nine months of 2022, which were clearly marked by the high macroeconomic risks, our portfolio companies showed a very respectable performance,” said Dr. Johannes Schmidt. “This good operating performance should continue until the end of the year.”
The Board of Management continues to project sales of between EUR 1.90 billion and EUR 2.00 billion for the full year 2022. In line with the forecast dated 3 November 2022, EBIT are expected to come in at between EUR 15 million and EUR 30 million. This is due to non-cash expenses from valuation adjustments in connection with the self-administration proceedings initiated by SMA, expenses from impairment tests and other non-operating effects. Adjusted for the above effects, the Board of Management projects EBIT of between EUR 115 million and EUR 130 million.
The full interim report is available here. An overview of the key performance indicators is available here.