FUCHS Group says it will continue with planned investments in 2020
Germany’s FUCHS Group said it expects growth in sales revenues of between +0% and +4% for the year 2020, based both on organic volume growth and external growth. The latter is mainly due to the acquisition of Nye Lubricants, a manufacturer of synthetic high-performance lubricants in the U.S., which was completed at the end of January 2020. FUCHS also expected a slight increase in earnings of between +0% and +4% before interest and taxes (EBIT). FUCHS prepared its annual financial statement on 4 March, so the effect of the novel coronavirus (COVID-19) on its lubricants business has not been factored in.
The world’s largest independent lubricant manufacturer said “they will at least temporarily lead to significant declines in sales and earnings.”
The FUCHS Group reported sales revenues of EUR2.6 billion (USD2.9 billion) at previous year’s level in 2019, while EBIT were EUR321 million (USD364.3 million), 16% lower than the previous year. On a comparable basis, excluding the one-off effect from the sale of the trading joint venture in Switzerland in 2018, EBIT is -13% or EUR50 million (USD56.7 million) below the previous year. The decline in earnings at constant sales is due to the planned increase in the cost base, the growth and investment program and the decline in volume, as a result of the weak economic environment.
The company said that extensive investments in production plants and IT infrastructure will continue as part of its growth strategy, and research and development activities will also be strengthened, although it emphasised that “strict cost management will continue, and new hires will be kept to a minimum.”
In pursuing its planned investments, the company’s objective is to actively shape the increasingly complex requirements of the future. “Given the profitability and financial strength of the Group, this process, which temporarily involves higher cost increase than earnings increase, will continue despite the slowdown in the global economy.”
FUCHS said it plans to invest EUR120 million (USD136.2 million), particularly in Germany, the U.S.A., China, South Africa, Russia and Sweden. Capital employed will continue to increase and the net working capital required for the growing volume of business will also rise. For the 2020 financial year, FUCHS anticipated a free cash flow before acquisitions of EUR130 million (USD147.5 million) when the 2019 financial statements were prepared on 4 March 2020. This expectation also does not take into account the negative effects of the coronavirus on the global economy.
In 2019, FUCHS continued its investment program started in 2016 for the fourth year. As planned, investments, primarily in property, plant and equipment, rose to the record level of EUR154 million (USD174.8 million) in the reporting year.
Europe, Middle East and Africa (EMEA) region was the focus of the expansion and modernization measures, accounting for around 60% of the expenditure. The largest single investment in the region was in Sweden where the construction of a new plant is underway. In Kaiserslautern, the construction of a new high-bay warehouse, new production and office space was completed, and work continued on a new polyurea specialty grease plant, with which Kaiserslautern will further expand its position as a location for specialty lubricants. In Mannheim, Germany, work continued on optimizing internal processes in various ways and the tank farm was modernized and expanded. The UK continued the construction of its new raw material warehouse, while in Russia, construction work began on plant expansion.
Investments of EUR31 million (USD35.2 million) were carried out in Asia-Pacific. FUCHS opened one of its most modern production plants with an automated high-bay warehouse and fully automated production in Wujiang, China. It replaced the previous plant in Shanghai and has almost twice the capacity. The administration and research and development laboratories remaining in Shanghai were expanded in 2019.
Around EUR22 million (USD25 million) was invested in North and South America. In the U.S., work at the Harvey site continued on a plant for the production of lubricants for OEM customers as well as the modernization of the metalworking fluids plant, and investments were made in additional office space. In Kansas City, Kansas, the modernization of the site continued.
Against the background of the spreading coronavirus and the current nationwide ban on events, FUCHS PETROLUB SE will not hold the Annual General Meeting on 5 May 2020 as planned in order to protect the health of all participants. Subject to the further development of the corona pandemic and related regulatory requirements, the Annual General Meeting will probably take place in the second half of June.