Net indebtedness including IFRS 16 fell by CHF 26.3 million from CHF 224.9 million to CHF 198.6 million compared with the first half-year of 2019. The slight increase compared with the end of 2019 is due to the seasonality of the underlying business.

The equity ratio was 55% on 30 June 2020.

Market environment
Although the German government had imposed a wide range of measures, such as an extensive curfew for non-essential activities, the construction industry in Germany remained almost unaffected. Approved construction projects that had not yet been started are likely to be postponed, especially in commercial construction, but not in residential construction. Construction activity was slowed down less by construction site closures than by high sickness rates and a lack of employees due to border closures. At the moment it looks as if the domestic economy of Germany, which is Arbonia's largest market, will be able to cope well with the pandemic. The export-dependent economy is particularly vulnerable to the global economic slowdown, but this should not have a lasting negative impact on the development of the construction industry. The latter is more affected by the conservation of financial resources and delayed construction progress due to hygiene regulations. By contrast, the continuing favourable financing environment, the scarcity of investment opportunities, the high demand for residential space in urban centres, and the subsidy programmes for energetic retrofitting of buildings are having a positive effect. Arbonia should benefit from its products for residential construction, a key area for the company. Arbonia should benefit from its products for residential construction, a key area for the company, which accounts for ~70 % of its revenue.

In its second domestic market, Switzerland, the COVID-19 pandemic is hitting an environment in which residential construction was already stagnant or slightly in decline due to relatively high vacancy rates. In other areas of building construction, Switzerland has benefited in recent years above all from a few major projects that have either been completed now or whose completion is being delayed by hygiene concepts. In addition, the closure of construction sites in Ticino, as well as at selected locations in the cantons of Vaud and Geneva, combined with strict controls on hygiene regulations, led to great uncertainty in the local construction industry. Due to this uncertainty, many construction companies announced short-time working, but this was only partially implemented. The number of building applications submitted in March and April also declined only slightly. For this reason, Arbonia expects a moderate decline in building completions this year, which will also continue next year. Nevertheless, a favourable environment for the renovation of residential buildings continues to exist in Switzerland.

The important Eastern European target markets for Arbonia developed very differently in the first months of the year. In Poland, the construction industry is still expected to grow slightly in the current year. This is partly due to the relatively minor impact of the COVID-19 pandemic on construction activity in Poland, which was characterised by a further increase in building permits and a new record in construction volume and completions in the first quarter. However, the start of new construction projects declined in the first half-year. It is expected that the record level of new construction, together with lower productivity on construction sites, will lead to a partial shift in construction activity, which will not result in a decline until 2021. In the Czech Republic and Slovakia, by contrast, a significant decline is already expected for the current year, as these countries are heavily dependent on the automotive industry. In Slovakia – as in other countries – there is also reduced construction activity, which is characterised by delays in completions, construction starts, and building permits. Productivity in the Czech Republic is also hampered by labour shortages: It is estimated that around a quarter of all foreign construction workers have returned to their home country. However, with their relatively high national incomes, a high proportion of owner-occupied homes, and equally favourable financing opportunities, all three countries offer medium-term opportunities in new residential construction and renovation.

Developments by division

For the first half-year of 2020, the HVAC Division reports net revenue of CHF 246.1 million, which represents a decrease of –10.4% compared to the same reporting period of the previous year (CHF 274.6 million). Growth after adjustment for currency effects was –5.1%. EBITDA without one-time effects fell from CHF 24.6 million in the previous year to CHF 21.3 million, which was partly due to negative translation effects. EBITDA with one-time effects increased from CHF 20.2 million in the previous year to CHF 21.3 Mio. EBIT without one-time effects developed from CHF 11.0 million in the previous year to CHF 6.8 million. EBIT with one-time effects improved from CHF 6.7 million in the previous year to CHF 6.8 million.

In the first half-year of 2020, the Sanitary Equipment Division generated a revenue of CHF 68.5 million (–4.5% compared to the previous year with CHF 71.7 million). By contrast, growth after adjustment for currency effects was 0.1%. At CHF 6.2 million, EBITDA was below the previous year (CHF 6.5 million). EBIT fell from CHF 3.8 million in the previous year to CHF 3.2 million.

During the first half-year of 2020, revenue in the Windows Division was –4.3% lower compared to the same period in the previous year, at CHF 152.4 million (previous year CHF 159.3 million). Revenue growth after adjustment for currency effects was negative at –1.5%. However, EBITDA without one-time effects was increased significantly to CHF 10.2 million (previous year CHF 4.3 million). EBITDA with one-time effects increased from CHF 3.7 million to CHF 9.1 million. EBIT without one-time effects also improved significantly to CHF –0.5 million (previous year CHF –7.5 million) and with one-time effects to CHF –1.6 million (previous year CHF –8.1 million). The result reflects the division's strategy of weighting profitability higher than revenue growth.

In the first half-year of 2020, the Doors Division, in turn, recorded a very pleasing business trend with an increase in profitability. Revenue in Swiss francs declined slightly. It fell by –2.6% from CHF 182.8 million in the previous year to CHF 178.0 million. Nevertheless, currency-adjusted revenue grew by 2.6%. EBITDA rose from CHF 22.4 million to CHF 23.4 million, while EBIT rose from CHF 10.4 million to CHF 11.2 million, despite the negative impact of the strong Swiss franc on the profitability of the division.

Outlook
Assuming that no further significant restrictions due to the COVID-19 pandemic in Arbonia's production and sales markets will be imposed and assuming further similar currency relations, Arbonia expects revenues for the full year 2020 to be slightly lower than in the previous year due to COVID-19, but an EBITDA margin at least at the previous year's level (previous year 9.5 %).

In the second half-year of 2020, Arbonia will continue to follow the taken strategic directions and work on further increasing the productivity of the production plants, expanding the market leadership, and increasing customer benefits with new products and services. For the full year 2020, Arbonia expects an increase in free cash flow before considering M&A transactions compared with the previous year.

The Board of Directors of Arbonia has decided not to propose a dividend distribution for the 2019 financial year and therefore not to hold an Extraordinary General Meeting in autumn 2020. The Board of Directors came to this decision, on the one hand, in view of the continuing uncertainty in the market and, on the other, because of potential attractive acquisition opportunities. In such an environment, a strong balance sheet such as that of Arbonia is a considerable competitive advantage. Moreover, the costs and expenses of the Extraordinary General Meeting are disproportionate. The Board of Directors will decide in what form and amount a combined dividend for the financial years 2019 and 2020 should be proposed to shareholders at the General Meeting in April 2021.

Arbonia will announce the guidance for the 2021 financial year and a medium-term outlook for the following years on 2 March 2021 when the results for the 2020 financial year will be published.