Vkr Holding A/S

MANAGEMENT REVIEWA RECORD YEAR INTURBULENT TIMESDue to an incredible effort by every employee, theVKR Group set another new record for top-line and bottom-line results, with DKK 26.1 billion in revenue and DKK 5.0billion in net profit. The increase in revenue was driven byboth organic growth and by acquisitions. Furthermore, thereturn on the financial portfolio improved significantly,resulting in higher profit.2021 was yet another year with COVID-19and, once again, the VKR Group’s employeesdid a fantastic job under difficult circum-stances . Thanks to their efforts, the Groupoutdid last year’s record performance . Thisdevelopment is considered very satisfactory.2021 was also a year of celebration . TheVKR Group observed its 80th anniver-sary and our largest shareholder VILLUMFONDEN celebrated its 50th anniversary.Because of last year’s sound results, theVKR Group was able to mark the anniversa-ries by distributing a higher dividend of DKK2 .0 billion . In addition, VELUX FONDEN andthe VKR Group’s Employee Foundation heldtheir 40th and 30th anniversaries, respec-tively. To commemorate these occasions,THE VELUX FOUNDATIONS granted almostDKK 2 billion for scientific, environmental,social and cultural purposes in Denmark andabroad .Still, it was a turbulent year for many busi-nesses, including the VKR Group . The worldwas affected by COVID-19 variants andsubsequent restrictions . Following a winterof high infection rates and new lockdowns,the introduction of vaccines led to increasedoptimism and a reopening of many countriesin the first half of the year.Despite these constraints, the demand forhome improvements was robust throughoutthe year. The business areas skilfully han-dled the constantly changing circumstancesby maintaining good relations with suppliersand by adjusting production and delivery tobest serve customers .Business activity remained sound and actu-ally grew, even though global supply chainswere disrupted by transport delays, short-ages of raw material, and price increases,especially during the second half of the year.In both business areas, positive developmentslowed somewhat during the summer, butrecovered slightly by year’s end . For 2021,total revenue growth was 15 .4%, of which9 .4% was organic growth .The DOVISTA Group successfully deliveredon its M&A strategy. In 2021, the DOVISTAGroup announced the acquisition of the win-dow division of the Swiss company, Arbonia .This was stated in last year’s annual report .The purchase was approved by CompetitionAuthorities in the summer of 2021 . Dur-ing 2021, the DOVISTA Group executed onanother opportunity by acquiring one of theleading vertical window manufacturers inGermany, Weru Group . The existing busi-ness and the two acquisitions are a perfectmatch .As a result of the new acquisitions, theDOVISTA Group nearly doubled in size and isnow the largest Vertical window manufac-turer in Europe . The new acquisitions alsoexpanded the DOVISTA Group’s portfoliowith brands with strong local roots . Knowl-edge of local building styles and traditionsis critical to understanding customer prefer-ences and to competing in the local market .Beyond organic growth, the VKR Group willcontinue to pursue an active acquisitionstrategy and to embrace opportunities thateither strengthen the strategic position ofexisting business areas or result in a newand independent business area within theGroup .In November, VKR Holding announcedthe establishment of KOMPAS, a venturecapital fund focused on sustainability andtechnological innovation in real estate andconstruction . KOMPAS will invest DKK 1billion in technology start-ups which developbreakthrough solutions for a more sustaina-ble future, all the while generating top finan-cial returns .VKR Holding is the cornerstone investor ofKOMPAS, which operates independently. Thefund will build a portfolio of direct invest-ments in Europe, Israel and the US whilemaintaining a long-term vision .

ROOF WINDOWS & SKYLIGHTSRobust business activity and a new Group strategywith ambitious growth targets within Roof windows& skylights.Once again, the VELUX Group experiencedan increase in demand for Roof windows &skylights in 2021 . This resulted in strongsales and an excellent business perfor-mance . The ongoing challenges caused byCOVID-19 did not appear to negatively affectbusiness . Rather, the pandemic seemedto increase focus on the need for homeimprovements .Despite global supply chain disruptions,transport delays, shortages of raw materialsand subsequent price increases, businessactivity remained robust . Both the Residen-tial business and the Commercial businesscontributed to the overall growth in businessactivity.In 2021, the VELUX Group finalised a busi-ness restructuring which began the yearbefore . The purpose was to streamline thebusiness in order to clarify roles and respon-sibilities, and to make the Group more effi-cient and ready for growth .By Autumn, the VELUX management teampresented its four-year strategy at theVELUX World Conference in Evian . TheGroup’s new purpose is to: Create well-beingfor people and planet by transforming spacesusing daylight and fresh air.The new strategy forwards a strong growthplan driven by expectations of a continuedincrease in product demand . Expectedgrowth is based on several factors . Increas-ingly green energy requirements will spurenergy improvements to the ageing buildingstock in Europe, and homes will continue tobe remodelled . At the same time, the waypeople use their indoor spaces has changedunder the pandemic . To reflect this latterdevelopment, the VELUX Group will focuson the ability of roof windows to transformspaces into favourite places, using daylightand fresh air.The VELUX Group strongly prioritises sus-tainability and has integrated sustainabilityinto every aspect of business . In 2021, theGroup took significant steps towards imple-menting its ambitious sustainability targets .This included launching a number of greenenergy initiatives and cooperating withsuppliers to reduce carbon emissions . In itsefforts to become lifetime carbon neutral,the Group also began its first forest projectin Uganda .The VELUX Group established the followingfour business priorities of its new strategyredefine the use of the roof through desirablesolutions, take active responsibility for theindividual customer journey, visibly lead theway on sustainability, and develop internalcapabilities and culture . To ensure an evenstronger focus on the development of peopleand organisation across the VELUX Group inthe new strategy, Iben Schmidt Helbirk, SeniorVice President, People & Organisation joinedthe VELUX Management Group .In 2021, the VELUX Group delivered growthin revenue, which was primarily attributed tosignificant growth during the first half of theyear. In the second half of the year, growthwas affected by shortages of componentsand by the increased prices of raw materials .This resulted in a net profit below the highlevel of 2020 . All in all, the developmentin 2021 was better than expected, which isconsidered satisfactory.VERTICAL WINDOWSWith two new acquisitions, DOVISTA became thelargest manufacturer of Vertical windows in Europe.In 2021, the DOVISTA Group successfullyexecuted on its M&A strategy by finalisingthe acquisition of the window division of theSwiss company, Arbonia . Subsequently, theDOVISTA Group acquired one of the leadingvertical window manufacturers in Germany,the Weru Group . As a result, the DOVISTAGroup established a leading footprint in Cen-tral Europe, with strong market positions inGermany, Poland, Slovakia and Switzerland .Due to these new acquisitions, the DOVISTAGroup is now the largest manufacturer ofVertical windows in Europe .The existing business and the two acquisi-tions complement each other well, includingin the areas of technology, products, factoriesand market footprint . The result is an exten-sive product portfolio with strong brands .This allows the DOVISTA Group to meet anydemand for Vertical windows and exteriordoors within most European markets .The DOVISTA Group’s brand portfolioincreased by the following five new brandsDobroplast, EgoKiefer, Slovaktual, Wertbauand Weru . Currently, the DOVISTA Group hasa portfolio of 14 brands, including the fivenew ones . These brands have strong localroots which permits the Group to benefitcustomers in every market by meeting dis-tinct national and cultural preferences .Today, the DOVISTA Group is nearly dou-ble in size and comprises more than7,500 employees across 11 countries . Themanagement team also expanded as theDOVISTA Group became more international .This was necessary to strengthen cooper-ation and growth moving forward . NicolasCasanovas, former CEO of Arbonia’s windowdivision, will assume the new position ofChief Commercial Officer, and Hanne Blumewill serve as Chief Human Resource Officer.In 2021, the DOVISTA Group’s organicgrowth in revenue exceeded expectations .All main markets experienced growth . Atthe same time, operating profit increaseddue to improved sales, despite higher pricedraw materials . In these turbulent times, itis impressive that the DOVISTA Group man-aged to acquire two large window manufac-turers while the existing business performedbetter than expected .The underlying development in net profitbefore one-off costs related to post-mergerintegration emerged better than expected,also when compared to the previous year.The results for 2021 are considered satis-factory.DEVELOPMENT INFINANCIAL POSITIONAND ACTIVITIESThe VKR Group achieved another year of increasingbusiness activities and emerged with record highrevenue and profit.The Group’s revenue growth was driven byorganic growth and the effect of acquisitionsfinalised by the DOVISTA Group in the sec-ond half of 2021 . The improvement in thebottom line was due to a considerable yieldon the financial portfolio . Operating profitperformed almost at the same level as lastyear. It was affected by higher raw materialand logistics costs which were not fully miti-gated by increased sales prices .REVENUE AND OPERATING PROFITIn 2021, the VKR Group’s revenue totalledDKK 26 .1 billion compared to DKK 22 .6 bil-lion the previous year. The growth in revenuewas 15 .4% . Organic growth was 9 .4% whichexceeded expectations . Growth from acqui-sitions contributed with 6 .0%-points .Growth occurred across all major markets,including Western Europe, Central and East-ern Europe, and North America .Revenue in 2021 was positively affected byexchange rates, particularly the GBP, SEKand NOK .In 2021, profit before depreciation (EBITDA)was DKK 4 .8 billion, which is similar to lastyear. The higher revenue was offset by theincreased costs of raw materials and logis-tics, due to the global disruption of supplychains . The increased prices of raw mate-rials were only partially mitigated becausehigher sales prices were not fully imple-mented in 2021 . The low fixed cost level in2020, due to the COVID-19 pandemic, was tosome extent continued in 2021 .Profit before goodwill amortisation (EBITA)in 2021 was DKK 4 .1 billion as compared toDKK 4 .2 billion in 2020 . This developmentwas affected by higher depreciations .OPERATING INVESTMENTSThe VKR Group invested a net total of DKK0 .6 billion in tangible fixed assets in 2021,corresponding to 2 .4% of revenue . Invest-ments were, therefore, slightly higher com-pared to last year, and at the level expectedby the business areas .In 2021, the VELUX Group’s investmentswere mainly directed towards improvingfactory efficiency and enhancing productioncapacity. In addition, investments were madeto ramp-up production of new products andto improve energy efficiency in the supplychain as part of ongoing efforts to reduceCO2 emissions .In 2021, the DOVISTA Group primarily under-took maintenance investments to ensureoperational stability and quality. In addition,investments were made for the enhance-ment of digitised processes, performancemanagement and industrialised productionflow.CASH FLOWS FROM OPERATINGACTIVITIES AND WORKING CAPITALIn 2021, cash flows from operating activitiesbefore taxes amounted to DKK 3 .8 billioncompared to DKK 5 .9 billion in 2020 . Thisdecline was expected . 2021 was a more nor-mal year compared to 2020, which resultedin a drag on working capital when the activ-ity level increased . Furthermore, workingcapital was affected by a higher level ofinventory, particularly because the VELUXGroup experienced challenges in finishingand shipping some product groups due toraw material shortages . Cash flows fromoperating activities after taxes declined toDKK 2 .6 billion in 2021, compared to DKK5 .0 billion the previous year.FINANCIAL INVESTMENTSVKR Holding owns a substantial portfolio offinancial investments . In any given year, thereturn from these investments can signifi-cantly affect results .In 2021, the return on VKR Holding’s finan-cial portfolio was DKK 2 .6 billion, corre-sponding to a 19% rate of return . This wassignificantly better than expected . In fact,it was a record high, beating the previousrecord from 2019 .The return in 2021 was primarily driven byunrealised capital gains on listed sharesand by illiquid investments . Return on fixedincome assets was slightly negative due torising interest rates .In general, the financial markets werecharacterised by optimism due to the reo-pening of the economy and to financialstimuli provided by governments and centralbanks . Towards the end of the year, infla-tion emerged as a concern . But it remainsunclear whether this inflation is temporaryor persistent .In 2021, the portfolio strategy generated avery satisfactory return .TAXATIONIn 2021, the annual tax amounted to DKK1 .4 billion, compared to DKK 1 .1 billion theprevious year.NET PROFITThe VKR Group reported a new record witha net profit of DKK 5 .0 billion in 2021, com-pared to DKK 3 .7 billion in 2020 .This development can be attributed to arecord high return on financial investmentswhich significantly exceeded the previousyear. Expectations for the 2021 results werecautious and on par with the year before .Management considers this year’s net profitto be very satisfactory.FINANCIAL RESOURCESOn 31 December 2021, the VKR Group’sfinancial resources amounted to DKK 14 .6billion compared to DKK 13 .4 billion in 2020 .This increase primarily reflects additionalinvestments and unrealised capital gainson listed shares that more than offsets theextraordinary dividend of DKK 2 .0 billion in2021Total assets in the VKR Group increasedconsiderably. At year end, it reached DKK35 .0 billion as compared to DKK 27.3 billionin 2020 . The higher asset level was partiallydue to the acquisitions .On 31 December 2021, equity in the VKRGroup amounted to DKK 25 .3 billion . This isan increase compared to DKK 22 .0 billionthe previous year. The equity ratio decreasedfrom 80 .5% in 2020 to 72 .3% in 2021 . This isdue to external financing of acquisitions .The VKR Group manages a large stockof cash that can be used to invest in theGroup’s existing companies and to financepotential acquisitions . For optimisation pur-poses, external financing is taken into con-sideration when acquiring companies .Following the annual general meeting inMarch 2021, an extraordinary dividendof DKK 2 .0 billion was distributed . At theannual general meeting in March 2022, adividend of DKK 1 .0 billion will be proposed .