FA 02 Euro crisis rattles sector - How are valve makers dealing with current uncertainties?

Each and every valve maker will have found himself thinking about the euro crisis at least once a day. Fortunately, no one is experiencing sleepless nights and orders are also not in decline. The future, however, is still a mystery - and one that can’t be foreseen. Owing to future uncertainty, the crisis is still present and is unsettling the valve sector.

German valve makers currently have nothing to complain about. „The sentiment is good“, declares Christine Lindenau from the German Engineering Federation (VDMA) valve group. Weak domestic demand is not having any impact, either. In the first quarter, exports in the valve sector grew 5,7 per cent compared to the same period one year ago. High demand for industrial products had the greatest impact on year-over-year growth. Makers of industrial valves even experienced double-digit growth.

 

„Project Europe is in danger“
Nonetheless, the euro crisis is a major topic within the VDMA, and one that is making the umbrella organisation, of which numerous valve makers are member, rather nervous. „Europe and the euro are in a state of crisis. The great European project is in danger“, states the VDMA. Everyone is looking for a solution. „No one knows how the crisis can be solved“, Hans-Peter Keitel, president of the Federation of German Industry, told German news agency dpa. „I myself have no silver bullet.“

A solution will have to be found by the European Parliament in Bruxelles, whatever measures it may consist of. This uncertainty surrounding both the solution and the future of the individual crisis states is a cause for unease and is making itself felt in companies. The Linde Group’s gases division is an example: „Business performance was adversely affected by unfavourable economic conditions in the euro zone“, the corporation reported in its interim report. Group sales in the first six month however rose 5,9 per cent from 6,77 billion, whereas profits climbed to 591 million euro, compared to 566 million euro in the first six months of 2011. The balance sheet profited from high demand in Eastern Europe and the Middle East. The Linde Group has the right strategy: „"Our global footprint and well-balanced spread across different sectors enable us to compensate for faltering demand in some markets or the weakness of certain currencies", declares CEO Dr. Wolfgang Reitzle.

 

Dampening effect for companies
Air Liquide also profited from its global presence. Turnover in the first half grew 5,9 per cent to 7,5 billion euro, the profit also marked an upturn. „In the first half of 2012, activity levels reflect the caution of many of our customers around the world, in the context of an economic environment which is still affected by the sovereign debt crisis in Europe and by further slackening of global grow“, stated Benoît Potier, chairman and CEO Air Liquide. Both Linde Group and Air Liquide are striving for growth this despite, the ongoing euro crisis.

The crisis is also making itself felt at valve maker RS Roman Seliger Armaturenfabrik. „We have been seeing signs for a cooling down or even decline in the market in our traditional business areas over a longer period“, states CEO Dr. Jens Reppenhagen. The euro crisis was having a dampening effect on the company. He nonetheless sees no cause for concern for his company: „Compared to the previous years, the euro crisis is not making itself felt thanks to the new business activities“.

 

Tapping potential
The right strategy is a great help. RS Roman Seliger Armaturenfabrik is experiencing a boom in business, thanks to new products and new business activities, and especially thanks to high exports. „We for instance were able to effectively double our share of exports compared to the previous twelve months.“ This shows to us the great market potential outside of Germany, which we have been actively tapping for just five years “, says Reppenhagen.

The company doesn’t expect further problems from crisis countries, in which the company has smaller trading partners, and appears unimpressed. „We will keep on continuing our activities in these regions just as before and will not implement additional safety measures beyond the usual scope“.

RS Roman Seliger Armaturenfabrik however did feel effects of the euro crisis when importing certain semifinished products „which we procure from Asia“. Costs increased because of the weak euro. „We were and still are able to offset currency effects through hedging. The perspective however shows us that we will have to prepare ourselves for higher costs of material compared to previous years”, Reppenhagen added.

 

Unaffected by developments
MIT‘s (Moderne Industrietechnik) only southern suppliers are situated in Italy. There, one has to see and wait how things develop, explained CEO Hans-Dieter Tenhaef. In view of the difficult situation, the company is preparing itself to adapt to changes in payment behaviour. „We will be more proactive in terms of payment.“ Or, simply put: cash in advance, thank you.

The supplier of solutions for the process industry, which also includes industrial valves, nonetheless maintains a positive outlook for the future, despite of all uncertainties. „We are in a good mood in our company, despite the euro crisis! We are concentrating ourselves on our work to 100 per cent and want to bring our company right to the top.“

German company Leser has customers situated in the states hit by the euro crisis. „We are present in all countries, through longstanding business relationships with dealers“, says CEO Mirko Engel. Yet the maker of safety valves has no worries. „We are continually expanding our global market position, thanks to new products and a broad international presence.“ Investments in products and processes secure the company‘s ongoing economic success, allowing it to be unaffected from developments in single countries.

 

Spain lucrative for solar industry
Leser also doesn’t let itself be scared off, far from it. „We will not hesitate to strengthen our commitment in these countries, within the limits of commercial prudence“, underscores Engel. There are numerous, promising developments in the countries affected by the euro crisis „which we want to support with our solutions. One example is Spain’s solar industry, which we supply with application oriented safety valves.“

The supply situation for its own products is no problem either. „We procure internationally, so there are no negative effects for us“, says Engel.
WP ARO also has customers based in Spain. „There are no delayed or deferred payments, but business with Spain is slower“, explains industrial engineer Wolfgang Väth.

Yet the company, which counts constriction-hose valves and pumps to its products, naturally is monitoring the situation. „We would have to adapt payment modalities should securities detoriate, but otherwise we will naturally supply Spanish customers.“

 

Increasing market presence
WP ARO currently sees the situation „carefully positively“. Nonetheless, the outlook is affected by great uncertainty, „as it seems that we will shoulder the debt of other EU member countries as the price for exports and growth in Germany”, adds Väth. The company places value on its market presence and increasing customer visits.

Crane is another company not all too concerned. „We can rectify problems there relatively fast, as we have lots of suppliers from all over the world“, explains Aneta Stephens, director of global marketing Crane Co., chempharma, energy & nuclear. The same applies to customers, „as we are active globally.“

Leser thinks overhasty reactions are uncalled for. „We aim for long-term success“, says CEO Mirko Engel. Already during the 2008/2009 crisis, the company not only kept the number of employees on a precrisis level, but also continued to invest a high percentage of revenue into new products and processes.

The last economic crisis proved that „we ourselves can handle dramatic situations in the market well and safely enough“, states Dr. Jens Reppenhagen, CEO RS Roman Seliger Armaturenfabrik, confidently. The company feels well prepared for all eventualities. „We profit from the mental strength we gained during the last crisis.“

 

React flexibly
What do valve makers expect for the future? „We don’t really give any forecasts“, says Reppenhagen. „Just this much: as a company, we need to be able to react flexibly to fast-changing conditions.“ This could include sudden drops in demand, as well as demand peaks – „and all accompanied by strong currency fluctuation and highly volatile prices for raw materials.“

As basic prerequisites for flexibility, companies need a solid capital base, and well-trained, motivated and capable employees.

„The boom will carry on until the end of this year, but next year there will be a slump“, forecasts Wolfgang Väth of WP ARO. Germany will also be hit hard.„We still see growth“ for 2012 explains Christine Lindenau of the VDMA’s valve group. The German association still reckons with revenue growth of about three per cent nominally.

In whichever way the sector will find itself heading, the euro will play a major way. „The euro is our commercial basis within Europe. Saying goodbye to the euro would be a step back in the wrong direction, with major consequences“, believes Leser CEO Engel. MIT’s CEO Hans-Dieter Tenhaef sees the situation the same. „There is no sensible alternative.“

 

„Disbanding the euro is risky“
Tenhaef thinks it would be „very risky“ to disband the euro. Engel also believes it would be a devastating regression. Väth of WP ARO doesn’t believe in a single euro anymore. Instead, a clear cut ought to be made, „perhaps with two currencies – a financial euro and a commercial euro.“

This would create new possibilities in regard to the productivity and efficiency of the various economies within the EU. What would happen should the euro collapse? „From our point of view, failure would be undesirable. However, as a flexibly positioned company in the globalised world, we could presumably handle it well.“

The euro crisis would become dangerous should it turn into a worldwide recession. Such a recession would create problems for companies, even if they have positioned themselves globally.

It is therefore high-time for action. „We need a political framework in order to stabilise the euro“, as VDMA economics expert Olaf Wortmann has been saying for a long time. As always, the answer must be answered in the political sphere. In regards to a solution however, politicians are divided.