Business performance

With net sales of EUR 1,327.1 million, the Wilo Group slightly exceeded the precious year’s record by another 0.8 percent. The company thus increased its net sales for the seventh time in a row. This is all the more remarkable because the depreciation of numerous important currencies for the Wilo Group, the failure of the hoped-for economic recovery to materialise and the increased uncertainty in certain markets put a significant strain on the Wilo Group’s business activities. Adjusted for the negative balance of the exchange rate effects, the growth in net sales was 3.9 percent and thus slightly below the increase of up to 5 percent originally anticipated for the year under review.

The 2016 financial year was again dominated by an extremely volatile and challenging macroeconomic environment. The Russia-Ukraine crisis is still unresolved and the conflicts in the Middle East linger on. Over the course of the year, the unexpected Brexit vote and the attempted coup in Turkey led to further uncertainty among market participants, which was not without consequences for the global economy and thus for the economic performance of the Wilo Group.

The targeted expansion of the market presence and regional diversification of the Wilo Group in line with the corporate strategy was again an important factor in the company’s positive economic performance in the past year. For example, the sometimes substantial variations in regional development and growing risks and uncertainties were squared successfully. The Wilo Group grew solidly and sustainably in Asia and the German-speaking region. Strong growth was achieved for example in China and Korea, in certain emerging economies of Africa and in the Gulf States. In other countries such as Russia and India, local growth was robust but diluted by the depreciation of the local currency against the euro. In the Europe region, the growth in the German-speaking countries, Scandinavia and the Mediterranean region was countered by declines in Eastern Europe, France and the UK. Business in Turkey developed only modestly as a result of the crisis, while net sales in Southeast Asia fell due to a weak industrial sector. While the Southeast Asian subsidiaries performed positively overall, direct business in this region declined. The Wilo Group had no problem absorbing these varying developments in individual countries and markets and negative exchange rate effects in 2016. This is thanks to the broad regional and sectoral positioning of the business. Diversification is a strategic factor for Wilo’s success, which successfully minimises risks while providing opportunities in individual markets.

With EBIT of EUR 107.1 million and consolidated net income of EUR 76.0 million, the Wilo Group fell short of the good earnings of the previous year. Certain growth-oriented investments and projects to safeguard the Wilo Group’s future prospects for the long term were initiated or continued as planned despite macroeconomic and geopolitical uncertainty. This especially relates to projects in connection with the digital transformation and strategic location development in Dortmund. Important research and development projects were likewise carried out as planned. In line with the revised corporate strategy Ambition 2020+, M&A activities were also stepped up.

Similarly, the Wilo Group made systematic investments in long-term growth markets such as Russia, Southeast Asia, Africa and Latin America, thereby reinforcing the basis for accelerated growth outside its established European markets. In addition, shifts in the product sales mix caused profitability (EBIT margin) to fall from 9.2 percent in the previous year to 8.1 percent. Profitability thus remained high. In light of the various influencing factors, the EBIT margin originally targeted for the 2016 financial year of 9.0 percent was nevertheless unattained. 

The objective of the Wilo Group’s long-term, sustainable investment policy is to allow it to continue the development of its profitable growth in future in line with its corporate strategy. In 2016, EUR 109.5 million was therefore invested in new manufacturing technologies and the construction and expansion of new and existing sales and production locations, among other things. The investment priority was again the strategic location development project at the headquarters in Dortmund. The new production site including administrative buildings in Noginsk in the Moscow region was completed and came into operation in June 2016.

Net sales development in the individual regions was as follows in the 2016 and 2015 financial years:


Net sales development by region

EUR million 2016 2015 Change %
Europe 744.0 744.7 -0.1
Asia Pacific 359.6 344.6 4.4
EMEA 187.8 190.1 -1.2
Others 35.7 37.7 -5.3
Total 1,327.1 1,317.1 0.8

The four reportable segments, Europe, Asia Pacific, EMEA and Others, consist of the following countries:
– Europe: All European states except Russia, Belarus and Ukraine
– Asia Pacific: India, China, South Korea, Southeast Asian nations, Australia and Oceania
– EMEA: Russia, Belarus, Ukraine, Caucasus nations, Gulf nations, African nations
– Others: Nations of the American continent

EBIT development in the individual regions was as follows in the 2016 and 2015 financial years:


EBIT development by region

EUR million 2016 2015 Change %
Europe 80.8 95.1 -15.0
Asia Pacific 15.8 15.6 1.3
EMEA 14.9 15.2 -2.0
Others -4.4 -4.7 6.4
Total 107.1 121.2 -11.6


The allocation formula for oncharging intragroup services to the individual regions changed as of 1 January 2015. The comparative figures for the 2014 financial year have been restated accordingly.

Regions

EUROPE The Wilo Group came close to the high level of the previous year in the Europe region with net sales of EUR 744.0 million. The increases in net sales in the German-speaking region, Scandinavia and the Mediterranean countries were countered by declines in Eastern Europe, France and the UK, which were nearly offset. The sharp depreciation of the British pound as a result of the unexpected Brexit vote and the depreciation of the Polish zloty had an adverse effect on the Wilo Group’s business activities in the Europe region. Adjusted for exchange rate effects, net sales rose by a moderate 0.9 percent. Meanwhile, developments in specific countries in the region varied widely.

In the German-speaking region, net sales were significantly increased by 4.2 percent as against the previous year. On the German market, which is the Wilo Group’s largest individual market, net sales rose by 2.5 percent, with all three market segments generating growth. The Water Management market segment distinguished itself with strong project business. The acquisition of GVA Gesellschaft für Verfahren der Abwassertechnik mbH & Co. KG also contributed to the positive business performance. In the Building Services market segment, the very good market position was built upon further.

In Switzerland, the Wilo Group increased its net sales by over 25 percent year on year. This is attributable in particular to growth in project business in the Water Management and Building Services market segments. A harmonised brand presence and the promotion of joint marketing activities as a result of EMB Pumpen AG’s renaming as WILO Schweiz AG also supported business activity significantly. After adopting the entire Wilo product range, the Swiss national organisation now acts as an all-round provider. In Austria, too, business activity developed extremely positively due to strong project business in the Building Services market segment.

In the Mediterranean region, net sales increased by 3.3 percent year on year. The economic recovery in the formerly crisis-stricken countries continued. In Greece, market share was acquired in the Building Services market segment, and net sales therefore climbed over 8 percent compared with the previous year. On the Italian market, project business in the Building Services market segment likewise developed extremely positively. For example, Fiumicino Airport in Rome and Generali Tower in Milan were equipped with Wilo products. In addition, a considerable growth contribution was made by the successful restructuring and expansion of the sales organisation. Overall, net sales were increased by 4.1 percent in Italy. In Spain, growth was also achieved in the Building Services and Industry market segments despite the intensified competitive situation. Net sales growth amounted to 3.0 percent here.

On the Scandinavian market and in the Baltic states, an increase in net sales of 4.9 percent was generated in 2016. In Scandinavia, the construction industry continued to develop positively. Significant increases in net sales were achieved in the Building Services and Water Management market segments. Although declines in net sales were reported in the Baltic states, they were more than offset by the growth in Scandinavia. The Baltic market bided its time, as access to subsidies from the European Union – including for infrastructure and energy efficiency measures – was granted only sluggishly.

Altogether, net sales in the UK and Ireland fell by 8.4 percent. This decline is due exclusively to the sharp depreciation of the British pound. Adjusted for exchange rate effects, net sales in these two countries increased by 1.3 percent in total. The expansion of the sales organisation pursued in recent years, its greater concentration and the good construction industry made a significant contribution to this positive development. Growth in project business was achieved in the Water Management market segment. 

In France and the Benelux countries, net sales fell slightly by 1.8 percent as against the previous year. The deterioration in the business climate in France continued to adversely affect project business in the Building Services market segment. Although the latest statistical analyses show a slightly positive trend for the construction sector, this has not yet made itself felt in the Wilo Group’s business performance. In addition, government infrastructure projects in the Water Management market segment were scaled back. Due to the overall decline in project business in France, competition and therefore price pressure increased. In contrast, the amplification of the ErP Directive (ErP effect) had an extremely positive effect on OEM business in the Building Services market segment. Since 1 August 2015, the Directive has also applied to glandless circulation pumps that are integrated into heat generators and other products (OEM). While a positive quantity effect due to advance demand was already observed in the first half of 2015 in relation to inexpensive models, the growth in 2016 resulted primarily from a positive price effect. In Belgium and the Netherlands, business activity was adversely affected by a low stock turnover rate in wholesale and increasing price pressure in project business.

Net sales in the Eastern European EU countries fell by 9.7 percent. In past financial years, the Wilo Group benefited greatly from the European Union’s infrastructure projects in the Water Management market segment. These subsidy programs expired at the end of 2015. The preceding periods were consequently dominated by anticipatory effects. New subsidy measures will be launched from 2017, so many projects were postponed until the next few years. In contrast, the OEM business developed positively, especially as result of the ErP effect. In Poland, the Wilo Group’s largest market in Eastern Europe, net sales declined by 7.3 percent. The depreciation of the Polish zloty made a significant contribution to this reduction. Adjusted for exchange rate effects, net sales declined by only 3.3 percent. The difficult political conditions curbed both public and private investment, which had a negative effect on project business. In addition, access to EU subsidies for infrastructure projects was also delayed in Poland, which led to a decline in the Water Management market segment.

Earnings before interest and taxes (EBIT) in the Europe region fell by 15.0 percent or EUR 14.3 million to EUR 80.8 million. The EBIT margin declined from 12.8 percent to 10.9 percent. The fall in the gross margin was due firstly to changes in the product sales mix. In particular, the lower-margin OEM business grew disproportionately strongly. In contrast, the comparatively higher-margin business in the Water Management market segment declined considerably. Secondly, price pressure increased in project business in particular. The growth-oriented and future-proofing expenses relating to digitalisation and the location project in Dortmund, which were intensified as planned, and higher research and non-capitalised development costs likewise reduced EBIT in the Europe region in 2016.

ASIA PACIFIC The Asia Pacific region remained the Wilo Group’s primary growth driver in 2016. Net sales increased by 4.4 percent or EUR 15.0 million to EUR 359.6 million. Adjusted for exchange rate effects, net sales increased by 7.3 percent.

On the Chinese market, net sales climbed by 7.0 percent, or as much as 13.2 percent when adjusted for exchange rate effects. Although the growth momentum in the Chinese economy and the construction sector has slowed somewhat on the whole, business activity in China continued its rapid expansion. Strong growth was generated in all market segments. Higher market coverage was achieved by expanding the dealer network. In addition, the Chinese government imposed stricter regulations on the use of coal-fired boilers. In the future, these will have to be replaced by more environmentally friendly electric, gas or oil-fired boilers, which already benefited the OEM business in 2016.

In Korea, net sales fell by 6.9 percent as against the previous year. In local currency, the increase in net sales was 9.4 percent. The more sharply focused sales strategy in the premium and medium product segment made a significant contribution to this very good development. In addition, there was a palpable increase in construction activity in Korea, which benefited the Building Services and Water Management market segments. The sales organisation in the project and exchange business was expanded further in the year under review in order to secure future growth in the long term. 

On the Indian market, net sales were increased by 3.4 percent in the local currency. However, the depreciation of the Indian rupee means that there was a slight decline in net sales of 1.3 percent in the Group currency. The strong growth in the Building Services and Water Management market segments were unable to fully offset the declines in the Industry market segment. The business of the Wilo subsidiary in India, which has so far operated primarily in the Industry market segment, was adversely affected by the general weakness of the industrial sector. The oil and gas industry’s reduced and temporarily shelved investments due to the low oil price had a particularly negative effect. In India, Wilo continues to focus on a further expansion of the sales organisation in the Building Services and Water Management market segments in order to better compensate for future sector-specific fluctuations and take more market opportunities.

Net sales in Southeast Asia fell by around 11 percent. While the Southeast Asian Wilo subsidiaries performed positively there overall, direct business in this region declined. Here, too, the temporary weakness of the industrial sector – especially in oil and gas – had a considerably negative effect.

Earnings before interest and taxes (EBIT) in the Asia Pacific region improved by 1.5 percent to EUR 15.8 million in the year under review and thus at a slightly lower rate than the growth in net sales. The EBIT margin therefore declined slightly, from 4.5 percent in the previous year to 4.4 percent. This was largely attributable to the slight year-on-year reduction in the gross margin.

EMEA Net sales in the EMEA region were close to the previous year’s level at EUR 187.8 million. The slight decline by 1.2 percent or EUR 2.4 million in the Group currency was essentially due to the sharp depreciation of the Russian rouble and the Turkish lira. Adjusted for exchange rate effects, net sales in the EMEA region increased by 6.8 percent year on year. Overall, development in the region was mixed. In Russia, market development increasingly stabilised and provided good opportunities in individual areas. High growth rates were achieved in parts of Africa. In contrast, business in Turkey suffered from the political situation becoming increasingly strained over the course of the year. 

In Russia, net sales climbed slightly by 0.7 percent as against the previous year, or by 7.4 percent when adjusted for exchange rate effects. At the same time, business activity in the Building Services and Water Management market segments developed extremely positively despite the ongoing adverse macroeconomic conditions. The subsidiary in Russia acquired significant infrastructure projects in connection with the upcoming World Cup in Russia. The successful opening of the new production site in Noginsk, near Moscow, in 2016 puts the Wilo Group in a good position to serve the local market efficiently and according to requirements and to benefit from the increasing trend towards localisation. 

Net sales in Turkey fell by 9.2 percent. This decline is due primarily to the sharp depreciation of the Turkish lira. Adjusted for exchange rate effects, net sales are on a par with the previous year. The strained political situation was exacerbated even further by the attempted coup. The resulting uncertainty among market participants impeded investment, which had an adverse effect on the Wilo Group’s business activity in the Turkish market. Overall, the short-term conditions for the pump business have deteriorated following a sharp downturn in construction activity. 

Net sales growth of 13.3 percent was achieved on the African continent. The construction sector developed very dynamically in all regions, although business performance in the oil-producing states was negatively affected by the persistently relatively low oil price. In Nigeria and Algeria, for example, many publicly subsidised infrastructure projects in the Water Management market segment were suspended, which curbed business performance there. Overall, however, strong growth was achieved in the Building Services and Water Management market segments in Africa, which more than compensated for the declines in the Industry market segment. In South Africa, the very dynamic growth was curbed by the depreciation of the South African rand. Net sales growth of over 30 percent was generated in local currency. In the Group currency, the increase in net sales was 17.0 percent.

In the Gulf region, the net sales growth was 4.4 percent. The momentum in the construction sector waned somewhat due to the deterioration in the economic environment as a result of the lower oil price. The same was true of the industrial sector. The Wilo Group further expanded and focused the sales organisation in the region as planned. The growth thus achieved in the Building Services and Water Management market segments compensated for the decline in net sales in the Industry market segment.

Earnings before interest and taxes (EBIT) in the EMEA region were kept virtually stable at EUR 14.9 million. EBIT sank slightly by EUR 0.3 million or 1.8 percent, while the EBIT margin likewise declined only slightly from 8.0 percent to 7.9 percent. This decline was due primarily to a lower gross margin. Planned, temporary start-up costs at the new production site in Russia had a negative effect. Profitability there will gradually improve as capacity utilisation increases. The gross margin was also reduced in 2016 by certain large-scale projects in the Water Management market segment with lower margins. In contrast, a positive impact was made by exchange rate gains from operating business.

Market segments

Net sales development in the individual market segments was as follows in the 2016 and 2015 financial years:


Net sales development by market segment

EUR million 2016 2015 Change %
Building Services 1,044.7 1,014.6 3.0
Water Management 173.0 302.5 4.9
Industry 109.4 137.6 -20.5
Total 1,327.1 1,317.1 0.8

BUILDING SERVICES In the Building Services market segment, net sales increased by 3.0 percent or EUR 30.1 million to EUR 1,044.7 million. Once again, Asia Pacific accounted for the largest net sales growth of over 8 percent. A clearly focused sales strategy in Korea and the expansion of the dealer network in China contributed to the very positive business development. High growth was also achieved in India. In the Europe region, the 1.4 percent increase in net sales in the Building Services market segment was largely based on an expansion of the OEM business, which was supported primarily by the ErP effect. The EMEA region was again negatively impacted in 2016 by the recession in Russia, the uncertain political situation in Turkey and the depreciation of the currencies of these countries. Nonetheless, net sales in the Building Services market segment in the EMEA region were increased by 3.4 percent. Very strong project business in Russia made a major contribution to this positive development. 

In the mature economies, the general public and companies are becoming increasingly conscious of sustainability in practically every area of life and business. Particular emphasis is laid on energy efficiency and the responsible use of natural resources. This long-term trend is being driven by new and more ambitious political objectives and requirements on CO2 reductions. Against this backdrop, there is steady growth in demand for energy-efficient products and applications.

The Wilo Group can benefit from this thanks to its strong market position and presence. In addition, energy efficiency is also becoming increasingly significant in the dynamic emerging economies. Faced with sometimes massive environmental problems, even emerging economies such as China are now advancing stricter regulatory requirements on CO2 savings. As heating and energy costs are to rise in the medium and long terms, the savings potential offered by energy-efficient products is a growing priority. This is also amplifying demand for such modern products and solutions.

WATER MANAGEMENT AND INDUSTRY Net sales in the Water Management market segment rose by 4.9 percent or EUR 8.1 million to EUR 173.0 million. At the same time, business activity in the Water Management market segment developed very positively in virtually every market. It was only in the Eastern European EU countries that net sales fell significantly. In the previous year, these countries benefited especially from the continuation of the EU-subsidised water management infrastructure projects. Once these subsidies expired, far fewer projects were implemented in 2016. Moreover, the market bided its time until the realisation of new projects, as the European Union’s next subsidy programmes are starting from 2017. By acquiring GVA Gesellschaft für Verfahren der Abwassertechnik mbH & Co. KG and renaming it WILO GVA GmbH, the Wilo Group augmented its activities in the wastewater sector and increased its application expertise in the 2016 financial year. WILO GVA GmbH specialises in the development and production of system technologies and components for biological wastewater treatment. 

In the Industry market segment, net sales fell by 20.5 percent or EUR 28.2 million to EUR 109.4 million in the 2016 financial year. The business performance suffered from weak industrial activity in 2016. Net sales declined in nearly every market in the year under review, in some cases sharply. The oil and gas industry in particular went through a phase of economic weakness as a consequence of the low oil price and significantly scaled back its investment activity accordingly. This mainly affected the Wilo activities in India and Russia. Business performance in Russia was also negatively affected by the recession and the depreciation of the Russian rouble.

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WILO SE
Corporate Communications
Nortkirchenstraße 100
44263 Dortmund
T +49 231 4102-0
F +49 231 4102-7363

Contact

WILO SE
Corporate Communications
Nortkirchenstraße 100
44263 Dortmund
T +49 231 4102-0
F +49 231 4102-7363