Investment pays off for pump manufacturer

Grundfos, the Danish-based manufacturer of water pumps widely used in the food and beverage industry, has reported growth in turnover of 5 per cent for the 2002 financial year.

Although the growth has slowed compared to recent years' results, flexible budgets and an early intervention to reduce costs meant the group made DK726 million (€97.7m) which marks an increase after taxes of 17 per cent - almost DK100 million - compared to the previous year. With this, Grundfos​ took a significant moved considerably closer to achieving the group's earnings target of a profit before tax of 10 per cent.

When the budget for 2002 was planned, group management acknowledged that the global development might move in other directions than had originally been anticipated and had incorporated a number of alternative plans of action. This meant that when the development in turnover slowed down in the beginning of 2002 it was only a matter of instigating one of the plans.

The quick intervention took effect and by the end of the year a sound balance between the growth in turnover and profit was not only restored but also improved - by the last quarter there was even a growth in turnover of 7 per cent while there was no development in costs compared to the previous year. For the year as a whole, costs increased by 3 per cent.

Despite the continued uncertainty in the global economy, and generally difficult market conditions in most of Grundfos' markets, 2002 became a fairly good year for the group. The growth in turnover from DK10.214 million to DK10.703 million is seen as satisfactory, and resulted from Grundfos' continued global capture of market shares.

The company said it was also satisfied with a profit before tax of DK726 million, which is 6.8 per cent of turnover. That is a significant gain compared to 6.1 per cent in 2001.

In recent years, Grundfos has focused on ensuring a large share in the growth in the new Eastern European and Far Eastern markets. This strategy has once again proved fruitful - approximately 40 per cent of the group's total growth in turnover was generated there. This compensated partly for the low growth in the large markets such as Germany, Japan and the US.

In 2002 Russia produced the highest growth in turnover with 40 per cent. This means that Russia is now a significant market for Grundfos and is considered to hold a major growth potential. This applies to all of the Eastern European region, which is why a considerable part of Grundfos' sales and marketing investments in the next few years will be made there.

Apart from Japan, the growth in the Far Eastern markets reached 13 per cent. Also in this region - and especially in China - Grundfos says it aims to increase its growth rates over the next years.

The group said that due to the tense international situation, it had created flexible budgets with alternative plans of action to be implemented if things go better or worse than anticipated in the cost budgets.

The group budget 2003 includes a continued focus on cost control - this, however, does not apply to costs on research and development. On average, they will increase in parallel with the turnover.

The budget for the year ahead contains record new investments of DK950 million. A large part of that will be spent on a number of new products to be introduced in 2003 and another important part will be spent on the expansion of the group's factories in Hungary and China and the establishment of a production site in Russia.

The growth in turnover for 2003 is predicted to remain on the same level as that of 2002, whereas the company predicts that profit before tax will increase to 20 per cent. The company says that it considers the growth in profit a prerequisite of the group's continued ability to self-finance its ambitious plans of investments in product development and aggressive marketing.

The two economic main objectives for the Grundfos Group over the next years is to reach a profit before taxes of 10 per cent in 2005 and to reach a turnover of €2 million by 2007.