Burckhardt Improved Operating Income

Source: www.gulfoilandgas.com 6/8/2022, Location: Europe

• Significantly higher order intake of CHF 976.6 mn, +44.3% year-on-year
• Sales amounted to CHF 650.7 mn, similar level to the previous year
• Increased EBIT margin from 9.2% to 10.8%
• Earnings per share to Burckhardt Compression Shareholders rose by 14.0%, from CHF 13.00 to CHF 14.82
• Proposed Dividend increase of 15.4% to CHF 7.50
• Clear increase in activities around new energy segments, such as for our compressor application for solar panel production and hydrogen energy and mobility solutions
• Guidance for fiscal year 2022: sales to grow to between CHF 720 mn and CHF 760 mn at Group level, thus exceeding the target of CHF 700 set in the Mid-Range Plan. Due to one off costs related to the tightening of sanctions after the year-end-closing, as well as a changed business mix towards the Systems-business, Group operating margin is expected to be at a similar level as in fiscal year 2021 and therefore within the Mid-Range Plan target range of 10% to 15%.

Orders strongly driven by energy transition in Asia, USA and Europe
In the year under review, global markets benefited from the global transition towards more sustainable and secure energy sources. Thanks to Burckhardt Compression’s positioning along these trends, order intake increased significantly. The sharp rise in solar panel production in China strengthened the demand for compressors in the Low Density Polyethylene (LDPE), Ethylene- Vinyl-Acetate (EVA) and polysilicon plants applications, driving the growth in the Petrochemical and Industrial Gas markets. The demand for hydrogen fuel stations in Europe and the USA, as well as the ongoing investments in hydrogen liquefaction plants, drove orders in the Hydrogen Mobility and Energy markets, while the demand for LNG-fueled ships (Liquefied Natural Gas), LNG carriers and LPG carriers (Liquefied Petroleum Gas) stimulated growth in the Transport and Storage business. The Services market in Asia Pacific (excluding China), North America and Europe benefited from a lifting of most pandemic-related lockdowns and travel restrictions during the year, with positive impacts especially on the maintenance and repair business. Engineered solutions and spare parts continued to grow.

Market and business challenges
The various lockdowns in China, as well as the Chinese energy shortages in the fall of 2021, impacted the business partially. Global challenges in the supply chain could so far be averted thanks to a diversified supply network and framework agreements with various suppliers. During fiscal year 2021, the related increasing raw material and logistic prices could be passed on or mitigated. Due to the war in Ukraine, Burckhardt Compression is not accepting new orders from the Russian market since mid-March 2022. In the past few years, 2% to 5% of sales were attributable to business with Russia. The tightening of sanctions, after the year-end closing, will affect the execution of the backlog of Russian projects. Many of these challenges are expected to continue in 2022.

Group: significantly higher order intake, clear growth of profitability
In fiscal year 2021, the Group increased its order intake significantly by 44.3% to CHF 976.6 mn. Sales amounted to CHF 650.7 mn, similar to the previous year. Gross profit was up 14.9%, to CHF 190.8 mn, yielding a significantly higher gross profit margin of 29.3% (previous year: 25.2%). The consolidated operating profit (EBIT) rose 15.7%, to CHF 70.3 mn (previous year: CHF 60.8 mn), corresponding to an EBIT margin of 10.8% (previous year: 9.2%). Net profit of CHF 50.4 mn exceeded the previous year figure (CHF 47.2 mn) by 6.8%, while earnings per share attributable to Burckhardt Compression Group shareholders rose by 14.0%, from CHF 13.00 to CHF 14.82. Selling, marketing and general administrative expenses amounted to CHF 106.9 mn (16.4% of sales). Research and development expenses increased by CHF 4.3 mn to CHF 19.7 mn in order to develop innovative solutions for the marine as well as hydrogen mobility and energy markets. Other operating income (net) was at CHF 6.1 mn, or CHF 3.0 mn above the previous year, primarily due to non-recurring effects. Total assets at the end of March 2022 were reported at CHF 837.8 mn, 10.5% higher than in the previous year. This rise is attributable mainly to the strong increase in advance payments from customers and the growth in inventories. The net financial position at the end of fiscal year 2021 amounted to CHF –56.8 mn (CHF –82.4 mn at the end of fiscal year 2020). Work in progress prefinanced by customer advance payments improved to CHF 52.0 mn (end of March 2020: CHF 11.5 mn) as a result of the strong growth in order intake. Total equity improved to CHF 242.9 Mio. (+23.3 Mio.), while the equity ratio of 29.0% is unchanged from the previous year and slightly below the target level of over 30% – attributable to higher total assets and the offsetting of goodwill against the equity from the acquisition of Mark van Schaick BV.

Systems Division: markedly higher order intake, lower sales, EBIT and gross profit margins substantially up
After a strong first half-year, order intake of the Systems Division continued to grow in the second half of the year, reaching CHF 651.1 mn for the full year (+60.9%). This amount includes an exceptionally high number of large orders received for LDPE, EVA and polysilicon applications, ending up in a total amount of around CHF 150 million order intake. The invoicing of these projects will be spread over the next two fiscal years. Sales of CHF 372.7 mn was 9.1% below the previous year figure, due to the corona-related weak order intake in the first half of 2020. Gross profit was up 20.7% to CHF 71.3 mn, resulting in a gross profit margin of 19.1% (previous year: 14.4%), mainly due to a favorable product mix and a higher capacity utilization. Price increase in certain material categories were compensated by procurement savings and by professional project management. Thanks to a strong second half-year, the division significantly improved its EBIT margin to 5.7% (previous year: 3.9%) despite the lower sales volume.

Services Division: significantly higher order intake and sales, higher EBIT
Orders received by the Services Division rose by a strong 19.6% to CHF 325.5 mn, comparing to a previous year, which included a long-term marine service contract over a period of ten years in the low double-digit million range. Sales increased by 11.8% to CHF 278.0 mn. Gross profit grew by CHF 12.5 mn to CHF 119.6 mn, resulting in a gross profit margin of 43.0%, unchanged from the previous year. EBIT rose by CHF 7.1 mn to CHF 58.4 mn thanks to higher sales and resulted in an EBIT margin of 21.0% (previous year 20.6%). Arkos Field Services (USA) clearly improved, and the integration of the acquired Mark van Schaick BV business in the Netherlands is well underway.

First successes with digital solutions
In the reporting period, Burckhardt Compression integrated digital service solutions into its service portfolio under the name UP! Solutions. UP! Remote Support, the first service of its kind, supports customers on site in real time with a HoloLens (augmented reality glasses) or a tablet. The experts of Burckhardt Compression guide the on-site technician with precise instructions through each individual work step, diagnose problems, and propose solutions. Additional services based on data analysis and artificial intelligence are currently in development and will be tested with pilot customers in the current fiscal year.

First sustainability report in accordance with GRI standards
Burckhardt Compression made significant progress in systematically integrating sustainability into its strategy and business processes. The company has strengthened its management approaches to the material sustainability topics in cross-functional teams and defined key performance indicators, which are presented in the sustainability report, following the GRI standards. Strengthening the sustainability performance and contributing to the energy transition is a longterm commitment and will play an integral role in the development of the new Mid-Range Plan for 2023 to 2027.

New CEO Fabrice Billard
On April 1st, 2022, Fabrice Billard, previously president of Systems Division, succeeded Marcel Pawlicek as CEO. While providing continuity for the execution of the last year of the current midrange plan, the new management will focus on building a new strategic plan, capitalizing on the future market opportunities related to the global energy transition and to the reduction of CO2 and other greenhouse gas emissions at customer facilities.

Outlook for fiscal year 2022; new mid-range plan in 2023
Burckhardt Compression expects to continue to benefit from the positioning in applications related to the global transition towards more sustainable and secure energy sources. Based on the order intake of the past two fiscal years and on the challenges in the supply chains, the company currently expects sales to grow to between CHF 720 mn and CHF 760 mn at Group level for the fiscal year 2022, thus exceeding the target of CHF 700 set in the Mid-Range Plan. Due to one-off costs related to the tightening of sanctions towards Russia after the year-end closing (EBIT impact of CHF 5 to 7 mn expected), as well as a change in business mix towards the Systems Business, the operating margin is expected to be similar to the prior year and therefore within the Mid-Range Plan target of 10% to 15%. This is assuming that global challenges in the supply chain and geopolitical developments will not significantly impact the business activity levels going forward. The new Mid-Range Plan for 2023 to 2027 will be prepared in the current fiscal year and is expected to be externally communicated in November 2022.

Dividend
Earnings per share attributable to Burckhardt Compression Group shareholders rose by 14.0%, to CHF 14.82. The Board of Directors will propose to the Annual General Meeting a dividend of CHF 7.50 per share (previous year: CHF 6.50), an increase of 15.4% compared to fiscal year 2020. This corresponds to a payout ratio of 50.6% of earnings per share attributable to shareholders of Burckhardt Compression (previous year: 50.0%), remaining at the lower end of the target range of 50% to 70% in order to further strengthen the equity ratio towards the target of 30%.


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