Decline in sales –
slight increase in EBIT

During the first half of 2020, the Zehnder Group’s sales fell by 9% (-10% organically) to EUR 283.9 million as a result of COVID-19. Despite this, the immediate countermeasures that were launched and the consistent steps the Group continued to take with the aim of enhancing profitability made it possible to increase the operating result (EBIT) by 2% to EUR 17.5 million. The EBIT margin rose by 0.7 percentage points to 6.2%. Net profit was EUR 12.7 million (previous year: EUR 13.2 million).

Dear shareholders,

Zehnder turns 125 years old this year – but the novel coronavirus has meant that, instead of celebrating, we have been focusing our attention on protecting our employees against infection while continuing to serve our customers as effectively as possible. By introducing some countermeasures as an immediate response to the COVID-19 pandemic, we have managed to keep the negative impact on our operating result to a minimum. Although we still have some challenging months ahead of us, our outlook remains upbeat. The strong innovation and constant change we have seen over our 125-year history is testament to our position as a company that recognises and seizes opportunities. We take a long-term view and adopt sustainable approaches – and we will keep striving to achieve the very best indoor climate for our customers in the future.

“125 years of Zehnder – a history steeped in major innovation and constant change. The Zehnder Group thinks on a long-term, sustainable basis. It remains innovative and will continue to strive to achieve the very best indoor climate for its customers in the future.”

Sales 9% below previous year due to COVID-19

All of the markets in which the Zehnder Group is active have been affected by the coronavirus pandemic. Quickly moving employees to home offices, introducing protective measures in production areas, and establishing new digital methods of contacting customers and dealing with service needs allowed the Zehnder Group to keep its operation running and its supply chain largely intact. Despite this, the situation inevitably had a negative impact on sales during the first half of 2020. Sales revenues dropped by 9% (-10% organically) to EUR 283.9 million, with 56% achieved in the ventilation business area and 44% in the radiator business area (50% per area in the previous year).

2020 got off to a good start in the Europe segment, but the consequences of the pandemic resulted in sales beginning to drop significantly from mid-March. The sharpest decline was seen in April, which recorded a figure amounting to 30% below the same month of the previous year. Cumulatively, sales revenues in the Europe segment fell by 8% (-8% organically) to EUR 239.9 million during the first six months of the year.

Sales figures in the Netherlands and Poland – where ventilation is the Zehnder Group’s primary business area – recorded a positive performance. In the Netherlands, the Group benefited from increased demand for ventilation units with heat recovery in the stable new-build market. New-build projects stagnated in Poland, but the Zehnder Group managed to increase its market penetration.

Germany, which is the Zehnder Group’s largest sales market, and Switzerland recorded slight declines in sales due to factors including delays on building sites and projects being postponed in the wake of COVID-19. Business was also negatively affected by lockdown measures in Belgium. Despite this, the healthy first quarter and the recovery that began in May compensated for the falls in sales.

Sales revenues were hardest hit by the coronavirus pandemic in France – our most important radiator market – and in the United Kingdom and Italy. Lockdown measures led construction sites to close for approximately two months, significantly impairing the business activities of our companies.

In the China & North America segment, sales fell by 19% (-20% organically) to EUR 43.9 million.

In China, sales figures put in a particularly weak performance in the first quarter of 2020 due to the strict lockdown measures that had been imposed. Our companies were gradually able to resume operations from early March and project business in the area of ventilation started gaining momentum again during the second quarter, although larger-scale radiator projects failed to materialise. The first half of the year in China ended with sales of EUR 18.6 million, representing a decline of 30% (-30% organically).

In North America, COVID-19 restrictions were introduced at the end of March. The radiator plant in Ward Hill, Massachusetts (USA), was forced to suspend production for five weeks and this had a negative impact on radiator sales, which account for around three quarters of sales in North America. Operations at the remaining locations were able to continue with restrictions in place and the ventilation business area recorded a significant increase in sales. In total, North America’s sales revenues during the first half of the year amounted to EUR 25.3 million – 8% below the previous year (-10% organically).

Effective measures – improvement in operating result

During the first half of 2020, the Zehnder Group continued to pursue its profitability-enhancing programme and made significant progress in areas including purchasing and efficiency improvements. In response to the COVID-19 pandemic and the decline in sales experienced as a result, the Zehnder Group also launched immediate measures in March to minimise the negative impact on the operating result and ensuring liquidity. This included reducing the salaries of the Board of Directors and Group Executive Committee members by 10% from April 2020, cutting back on temporary staff and reducing employees’ holiday and overtime entitlements. Major cost savings were also achieved by postponing projects, introducing short-time work and significantly reducing travel and marketing activities. However, targeted staffing measures in the areas hardest hit by the pandemic did incur some additional costs. The number of staff fell to 3312 full-time equivalents from 3434 in the previous year.

These measures enabled the Zehnder Group to achieve a slight increase in its operating result for the first half of 2020 in spite of the reduced sales compared with the same period in the previous year. EBIT amounted to EUR 17.5 million (previous year: EUR 17.1 million). This resulted in a 0.7 percentage point increase in the EBIT margin to 6.2% (previous year: 5.5%). EBIT in the Europe segment came to EUR 14.3 million (previous year: EUR 12.9 million). The EBIT figure achieved in the China & North America segment was EUR 3.2 million (previous year: EUR 4.2 million).

“Despite falls in sales relating to COVID-19, the Zehnder Group managed to increase its EBIT margin by 0.7 percentage points to 6.2%. This was thanks to the immediate countermeasures that it launched and the rigorous steps it continued to take with the aim of enhancing profitability.”

The financial result was impacted by negative currency effects. Net profit came out at EUR 12.7 million (compared to EUR 13.2 million in the previous year).

Investments focused on growth for ventilation and efficiency for radiators

Ensuring liquidity is of vital importance against the backdrop of the coronavirus crisis. A range of investment projects were either postponed or withdrawn altogether as a precautionary measure. Consequently, the amount invested during the first half of 2020 came to EUR 9.1 million, representing a figure below the previous year’s value (EUR 10.0 million). EUR 7.4 million of this amount was invested in the Europe segment, compared to EUR 8.0 million in the previous year. A new painting line was installed in the bathroom radiator factory in Manisa (Turkey), which means that the facility no longer needs to outsource this work. Our plant in Vaux-Andigny (France) is replacing its painting line for radiators with a line that is much more efficient and resource-friendly than its predecessor. In the China & North America segment, investments worth EUR 1.7 million (previous year: EUR 2.0 million) were made. A large share of this went into completing the new factory for ventilation units in the city of Pinghu, around 100 km south-west of Shanghai. The new facility, which houses research and development, production, sales, and service activities, opened its doors in June. The Zehnder Group had previously carried out its production work in a nearby rented building, but now benefits from a factory that is perfectly positioned to accommodate further growth in China.

Expenditure on research and development amounted to EUR 8.6 million during the first half of the year (previous year: EUR 9.2 million), with the bulk absorbed by ventilation products in the pipeline. There are plans to make some major launches on the market in 2021. A noteworthy product launch in the first half of 2020 came in the form of the Zehnder ComfoFlow, a basic heat recovery residential ventilation system for multi-family houses. This product closes the gap between comfort ventilation and extract air solutions, and gives building developers an alternative to a straightforward extract air system at an attractive price, and with superior technology and comfort. The new Zehnder ComfoAir 225 comfort ventilation unit with passive house certification was launched in July. It combines space-saving wall or ceiling installation options with outstanding room air comfort within a compact ventilation unit, and has been designed specifically for renovation and residential construction projects.

High cash flow – solid balance sheet

Cash flow from operating activities amounted to EUR 40.6 million in the reporting period (previous year: EUR 0.9 million). In China, trade accounts receivable fell by around EUR 11 million due to not only lower sales, but also the timely settlement of accounts receivable from major customers. At the end of June 2020, there was a net liquidity¹ amount of EUR 51.3 million (previous year: net debt of EUR 1.4 million). Additionally, the Zehnder Group has confirmed but unused credit facilities amounting to EUR 76 million. Equity at the end of June 2020 was EUR 307.7 million (previous year: EUR 282.4 million). This equates to another high equity ratio of 64% (previous year: 62%).

¹ For further information please refer to: Alternative Performance Measures.

Strategy remains unchanged

The Zehnder Group remains on the same strategic course. In the ventilation business area, the Group aims to reinforce its strong market position by making further investments in both market and product development. Its focus is on generating organic growth. Opportunities to make further acquisitions to complete the product portfolio or increase market or geographical presence are being investigated. The issue of clean, healthy air in indoor areas has gained a high profile as a result of the COVID-19 pandemic. Additionally, the European Union has set itself the goal of making Europe the first climate-neutral continent by 2050 through its European Green Deal. Increasing energy efficiency in buildings and using energy-efficient solutions will have a major role to play in achieving this, and the Zehnder Group can offer the right products for residential applications.

For the radiator business area, the Zehnder Group is pursuing a harvest strategy. As part of this, it is focusing on continually optimising its operating procedures through measures including targeted investments designed to increase productivity and achieve competitive advantages as a result. The aim is to expand market shares – specifically in the areas of bathroom radiators and multicolumn radiators – through active market development. Jörg Metzger took up his position as Head of the Competence Center Radiators in mid-May 2020 and is also now a member of the Group Executive Committee. He will be further expanding the radiator business area and focusing on profitable growth and process efficiency.

Impact of the coronavirus crisis on the second half of the year difficult to gauge – medium-term goals remain intact

It remains difficult to gauge how the COVID-19 pandemic will continue to develop and what impact it will have on the Zehnder Group’s business activities in its various markets. The area of ventilation is dependent on new buildings, and there are indications that building projects which had been started will now be completed, albeit subject to delays in some cases. However, the extent of the coronavirus situation’s impact on new projects remains unclear. In the radiator business area, September to November are key months from the perspective of sales and profitability.

The coronavirus crisis has caused a setback in the Zehnder Group’s efforts to achieve its medium-term goals of 5% average sales growth and an EBIT margin of 8%, but recent months have shown that the Group is in a strong position to react quickly to change.

“The medium-term goals of achieving average sales growth of 5% and an EBIT margin of 8% remain intact, as does the Zehnder Group’s strategy. The Zehnder Group is in a strong position to react quickly to change.”

A big thank you

The COVID-19 pandemic has presented us with significant new challenges and continues to do so. We would like to express our deepest thanks to our employees, whose flexibility and sincere commitment have enabled our business activities to continue efficiently over the past few months. We also want to thank our customers, suppliers and business partners for the understanding and excellent cooperation they have demonstrated during these extraordinary times. As well as this, we want to take this opportunity to extend our thanks to you, our valued shareholders, for the trust and sense of loyalty that you have shown to the Zehnder Group.

Hans-Peter Zehnder

Chairman of the Board of Directors

Matthias Huenerwadel

Chairman of the Group Executive Committee, CEO

Decline in sales –slight increase in EBIT