Annual report 2008 - Munters

Board of Directors’ report
43
MCS division
The MCS division reported favorable sales growth during the
year. Very strong sales and operating income were noted in the
US during the second half of the year as a result of weatherrelated
events. In the European market, Munters continued
to capture market share, in part due to new framework agreements
and strengthened partnerships with existing customers.
However, the division’s earnings were affected by continued
inflationary cost pressures with respect to salaries and
fuels, although some relief was noted toward the end of the
year. Costs for the MEP 2 program concluded in December
amounted to SEK 55 M. The program comprised implementation
of the mobile IT system Field.Link and introduction
of sharply improved processing of accounts receivable that
included write-downs of outstanding receivables in line with
the new credit policy for MCS. Nonrecurring costs of SEK 45
M, primarily relating to preparations for the phase-out of certain
operations, were also charged against the year’s earnings.
The long-term consolidation trends with a constantly
increasing proportion of fixed framework agreements continued,
and several new framework agreements were signed during
the second half of the year with major insurance companies
in all regions. In conjunction with the introduction of the
mobile IT system Field.Link in more markets, the number of
depots is being decreased, while certain central functions are
being established in each country. The new business model will
enable productivity to be sharply improved over time.
Significant events after the end of the fiscal year
During the first quarter of 2009, Munters will be implementing
a number of measures within all three divisions to adapt
operations in response to the weaker market conditions.
These measures, which are expected to entail personnel
reductions of about 250 persons, will result in nonrecurring
costs in the order of SEK 30–45 M, which will be charged
against first-quarter earnings. Further information is available
in Note 31, Events after the closing date.
Order intake and net sales
During the year, the Group’s order intake increased by 2 percent
(unchanged after adjustments for currency effects, acquisitions
and disposals of operations) to SEK 6,515 M (6,407). The
Dehumidification and MCS divisions experienced favorable
order growth during the year, while HumiCool’s order intake
declined. The order backlog increased by slightly more than 15
percent and was SEK 1,330 M (1,152) at year-end.
Net sales increased during the year by 5 percent (3 percent
adjusted) to SEK 6,570 M (6,262). The Dehumidification and
MCS divisions increased sales, while HumiCool’s net sales
decreased, particularly during the final quarter of the year.
Gross earnings
Gross earnings declined somewhat to SEK 1,716 M (1,759).
The gross margin fell to 26.1 percent (28.1).
Indirect costs
Sales and administration costs increased by 14 percent to
SEK 1,277 M (1,117), corresponding to 19.4 percent (17.8)
of net sales. Research and development costs amounted to
SEK 85 M (70), corresponding to 1.3 percent (1.1) of net
sales. Development costs in conjunction with customer order
projects are reported as a cost in ongoing operations.
Earnings
EBIT decreased by 36 percent to SEK 362 M (566). All
divisions reported a decline in operating earnings, compared
with the preceding year: Dehumidification SEK 201 M (234),
HumiCool SEK 155 M (251) and MCS SEK 48 M (129). The
operating margin declined to 5.5 percent (9.0).
Charges against full-year earnings were impacted by SEK
86 M in costs for the MEP 2 program and SEK 68 M in costs
for confirmed and anticipated credit losses, quality problems
in purchased components and closure and merger costs. The
MEP 2 program is now completed.
Earnings before depreciation of acquisition-related intangible
assets and nonrecurring costs amounted to SEK 525 M
(597).
Financial items
Net financial items declined to an expense of SEK 77 M
(expense: 40), primarily due to increased indebtedness on
a full-year basis in combination with higher interest rates.
Capital distribution and acquisitions implemented during the
second half of 2007 did not achieve full effect in increasing
interest expenses for the full-year 2007, compared with 2008.
Earnings trend
SEK M
9,000
7,500
6,000
4,500
3,000
1,500
0
Net sales Operating earnings Earnings after financial items
1.2
60
Taxes
1.0
Investments
6,000
2,000
1,000
0
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
SEK M
600
Tax expenses for the year amounted to SEK 120 M (190),
corresponding 0.8 to an effective tax rate of 42 percent (36). The 40
increase in the tax burden was almost entirely attributable to
0.6
30
changed tax rules in Italy, which is one of the Group’s major
manufacturing 0.4
countries. The outcome of several tax audits 20
completed during the year also contributed to a minor portion
of the increase. In other respects, the high effective tax
0.2
10
rate 0.0 is the result of a significant portion of the Group’s profits 0
2004 2005 2006 2007 2008
being generated in subsidiaries in countries with higher tax
rates than Sweden, non-income related taxes in certain countries
and costs that are non-deductible for tax purposes.
The Group’s investments in tangible fixed assets during the
5,000
period amounted to SEK 145 M (185), of which a large portion,
SEK 4,000 49 M (82), pertained to investments in MCS equipment.
The remaining increase was primarily attributable to investments
in production equipment in existing plants.
3,000
Investments
500
400
300
200
100
0
50
9000
7500
6000
4500
3000
1500
0
1,2
1,0
Munters Annual Report 2008
0,8
0,6
0,4
0,2
0,0
6000
5000