Grundfos in 2005
In the year of its 60th jubilee, the Grundfos Group achieved its largest ever pre-tax profit of DKK 1,254m, despite relatively high prices of materials and a weak US dollar. That made 2005 the third consecutive year of record earnings.
The primary reason for the good result is strong sales growth of DKK 1.3 billion, corresponding to 10.4 per cent. This has taken the Group’s sales growth to another level and, at the same time, helped maintain a high level of earnings corresponding to 9.3 per cent on turnover. The Group’s overall turnover was DKK 13,422m.
All Grundfos business areas contributed to the sales growth, which, however, varied from one region to another, with high growth rates in new markets like Eastern Europe, Russia and Asia and a more moderate development in Western Europe. Growth in sales was 20 per cent in Eastern Europe, over 40 per cent in Russia, and Asia showed an overall growth of 16 per cent. Intense focusing on the North American market resulted in a 13 per cent growth for that particular market.
High earnings, combined with efficient control of the working capital, made for a very positive development in the Group’s cash flow and a reduction in the net interest-bearing debt of DKK 172m. Thus, Grundfos was able to self-finance capital investments in the excess of DKK 1 billion and acquisitions of companies amounting to approx. DKK 300m, which is very satisfactory.
Long-term investments were also given high priority in 2005. R&D costs amounted to DKK 590m, which is the highest ever, and capital investments again exceeded DKK 1 billion. A considerable part of these were spent on establishing new factories in China, India, Russia an Hungary with a total production area of 55,000 m2.
Group President Jens Jørgen Madsen is delighted that Grundfos has been able to accelerate sales growth further during 2005, and at the same time manage to maintain the current high level of earnings.
”We have reached our earnings target and have, at the same time, invested record amounts in the future, Furthermore, we again achieved a two-digit sales growth, which keeps us firmly on course to reach our 2007 target for sales of EUR 2 billion, says Jens Jørgen Madsen. The good results confirm that our growth strategies are working, and the high earnings and strong cash-flow mean that we are well-prepared for the challenges of the future.”
The main elements of the growth strategy will remain a considerable and focused investment in research and development, a further globalisation of the Group’s production facilities and a continued expansion of Grundfos’ global sales network.
The primary focus is on organic growth, but acquisitions are still seen as an important supplement to Grundfos’ organic growth strategy. In the last two years, Grundfos has thus bought four well-run pump companies, which represent a total turnover of DKK 650m. The acquired companies have all developed satisfactorily and thus contributed considerably to sales growth as well as earnings in 2005.
”Based on a very positive second half of 2005, we have entered 2006 full of optimism, and so far, we have had a very strong start with an increase in turnover during the first two months of 13 per cent. The outlook for the coming months is also fairly positive, so we are well on our way to maintaining high sales growth for 2006, as well,” says Jens Jørgen Madsen.
”Our next important goal is to reach a turnover of DKK 15 billion in 2007 and, at the same time, maintain the high level of earnings. Our 2006 investment budget of over DKK 1.1 billion clearly reflects the many initiatives we have planned, and which will have a negative effect on results in the short term, but help to ensure long-term profitable growth for the Group. In this balance between optimising short-term earnings and long-term business development, it is our goal that pre-tax profit be in the range of 8 to 10 per cent.
Our target for 2006 is to reach a turnover of approx. DKK 14.5 billion and earnings that match the 2005 result. So we are firmly on course to reach our objective of a 2007 turnover of DKK 15 billion, and thus realise the second important goal we announced at the beginning of 2003,” concludes a satisfied Jens Jørgen Madsen.