Overall economic environment
The global economy is on volatile ground due to the spread of the novel coronavirus. As a result, it is currently virtually impossible to forecast the growth outlook for individual economies. The following forecast report takes account of the experts’ predictions up until the cut-off date of 18 March 2020. Experts are cautious as they look ahead to the rest of 2020. While the global economy had stabilized somewhat at the start of the year, the tables were turned in February, prompting the IMF to revise the forecasts for the current year that had only just been announced in January 2020. The reason: the coronavirus. The OECD estimates that global economic growth could even be reduced by half in the worst case scenario: from 2.9 percent in 2019 to only 1.5 percent in 2020, which would send some economies into recession. The rapid spread of the coronavirus has brought manifold consequences, such as production downtimes, a slump in tourism, cancellations of major events, closed borders, and the shutdown of public life. As the situation is expected to escalate further, with an exponential increase in virus infections predicted in some cases, it is impossible to develop any clear forecasts in the current situation.
After experts had predicted an end to the downward spiral in the German economy at the beginning of the year, they now expect to see a recession. Following weak growth of only 0.6 percent last year, German economic output is now expected to contract by 0.1 percent in 2020, marking the first year of negative growth since the financial crisis in 2009. As a result, the forecasts for Germany, the Würth Group’s biggest sales market, are anything other than rosy. Above all, the coronavirus pandemic and its implications are leading to the emergence of a dystopian scenario. The restrictions on the global economy, weak demand in China, a moratorium on investment, and the shutdown of public life across the globe are certainly the main reasons behind the economic downturn. But the negative trend is also being fueled by issues that are enjoying less media coverage at the moment, such as the impact, which is still impossible to predict, of the conflict between the US and Iran on commodity prices, the fundamental transformation process in the automotive industry, the crisis in Syria, the consequences of Brexit, and global climate change.
Prior to the spread of the coronavirus, sustained high levels of consumption and the flourishing construction industry were expected to be the growth drivers for 2020. General consumption is currently being cut back dramatically, and the construction industry has also failed to escape the impact of the pandemic unscathed. The German Federal Association of the Construction Industry (Bundesvereinigung Bauwirtschaft) has revised its previous assumption of 5.5 percent sales growth downward to 4.0 percent, corresponding to EUR 142.7 billion (2019: EUR 137.2 billion). Declining production and investment moratoriums could, however, hit the construction industry even harder.
The Würth Group generates most of its sales in the eurozone. With growth of 1.2 percent, GDP in the EMU countries grew at a slower rate in 2019 than in the previous year (2018: + 1.9 percent). As far as 2020 is concerned, experts are now predicting a decline in economic output of –1.0 percent. The authorities in Brussels go further, forecasting a – 2.5 percent drop in GDP in 2020. The Spanish economy will also contract as a result of the coronavirus. Experts predict negative growth of –1.2 percent (2019: + 2.0 percent). Italy, currently the country in Europe that the coronavirus has hit the hardest, will have to expect GDP to stagnate in 2020 (2019: + 0.2 percent). France, too, is expected to return negative economic growth of – 0.9 percent in 2020 (2019: + 1.2 percent). The coronavirus has taken hold of the European economy.
The UK is also still faced by uncertainty surrounding Brexit. The Bank of England predicts that economic output will increase by 1.1 percent in 2020 (2019: + 1.4 percent).
In the US, the economy lost momentum in 2019, reporting growth of 2.3 percent. There are no signs of the situation easing in 2020 either, with the US economy set to weaken by a further 0.4 percentage points to 1.9 percent.
Growth in China and India was significantly weaker in 2019. China’s economy was hit by the impact of the trade conflict with the US, expanding by only 6.1 percent. In its latest forecast for 2020, the IMF has made a significant downward revision to its growth forecast for China due to the total production stoppage in early 2020. The IMF expects to see the Chinese economy grow by only 5.6 percent in 2020, with the OECD going as far as to predict a figure of only 4.9 percent, as against the 6.0 percent predicted in January. This would be the weakest growth rate witnessed since the early 1990s. India can look back on a 2019 that brought significantly weaker economic growth (+ 4.8 percent). Experts do not expect this situation to change in 2020 either (+ 4.9 percent). It is also, however, the case that the impact of the coronavirus is only just starting to emerge.
Experts predict that, after a brief lull in 2019, Latin America will bounce back in 2020. Although the anti-government protests look set to continue this year and raw material exports to China in particular are being hit hard by the coronavirus, GDP is expected to increase by 1.1 percent (2019: + 0.1 percent).
Following the government shake-up at the start of the year, there were signs that Russia was on the brink of a turnaround that would see it move towards a big-spending, more growth-enhancing economic policy. Due to the pandemic, experts now expect the economy to contract by – 0.6 percent.
Development of the Würth Group
- Another sales record set
- Expansion of manufacturer expertise
- Focus on innovation in key business fields
With sales of EUR 14.3 billion and an operating result of EUR 770 million, the Würth Group set a new sales record in 2019, with a lower operating result. The increase in sales comes to 4.8 percent, while the operating result contracted by 11.5 percent. Our new sales record demonstrates that our customers value the quality of our products and the vast range of services we offer, and that they have firmly established Würth as a supplier in their operating processes. One of the reasons behind the lower operating result is the gross profit margin, which came under pressure. It was not always possible to pass on rising purchase prices to the customers on the market. In addition, the Würth Group continued to invest in expanding its business model and in growth initiatives. The Würth Group was also hit by economic influences in its high-yield business units, primarily those emerging in the automotive and mechanical engineering industries.
Availability for our customers remained a top priority for us in 2019. With the continued roll-out of the Würth24 concept, we are moving even closer to our customers, offering them maximum flexibility in covering their immediate needs. The concept combines digital and stationary trade. Customers can use a QR code to access the pick-up shop via the Würth App. State-of-the-art technology electronically tracks products and orders. This is allowing us to make opportunities offered by product and service digitalization available to our customers, enhancing conventional models in the process.
The key factor for us is that we want to make our customers’ lives easier. We aim to do everything we can to support them in their day-to-day work. So it is irrelevant to us where our customers are, or how or when they want to place an order or get in touch with us—we offer the right channel for each individual customer. Our sales force, as central and personal points of contact, is a crucial factor in our success, and remains the backbone of the company. We bundle our professional expertise in our sales force and our pick-up shops, while at the same time ensuring geographical proximity to our customers. To make their lives as easy as possible, we offer digital services to complement our conventional sales channels. These include not only our online shop, but also automatic ordering systems that independently place repeat orders for C parts such as screws, or digital services such as various online planners and configurators, for example to measure anchors.
We have been producing our cordless power tools for professional tradespeople ourselves since December 2018. In 2019, we continued to systematically expand our own M-CUBE® cordless interface, introducing new power tools. Other examples, such as the RELAST® reinforcement system, are also testimony to just how much manufacturing and development expertise the Würth Group has at its disposal. TOGE Dübel GmbH & Co. KG, a Nuremberg-based subsidiary of the Würth Group, developed the system, which was approved by construction supervisory authorities in 2019. RELAST® allows complex renovation work on bridges, multi-story parking lots, tunnels, underpasses, and buildings to be performed in a manner that is straightforward, fast and efficient, without the need for closures.
The Würth Group will be celebrating a very special anniversary in 2020: Adolf Würth GmbH & Co. KG and, as a result, the Würth Group as a whole will be turning 75. At the same time, Reinhold Würth will be celebrating his 85th birthday after marking 70 years with the company in 2019. From day one, he has shaped the corporate culture of the Würth Group, which is now steeped in tradition, based on modesty, visionary thinking and mutual respect.
Expansion of logistics
In May 2020, we will be officially opening our new transshipment depot directly next to the A6 highway. This hub for flows of goods throughout Europe is based on a completely new logistics concept that Würth developed from the customer’s perspective. Based on the motto “all in one package”, we will bundle orders so that the customer receives exactly one shipment, reducing the number of packages and the volume of filling material required. The total amount invested comes to EUR 73 million. This further logistics investment made by the Würth Group is, first of all, a sign of the company’s clear commitment to the further development of the Hohenlohe region and, second, signals expectations of further growth at Adolf Würth GmbH & Co. KG. The warehouse offers 74 docking stations for trucks and covers a surface area of some 50,000 square meters. There are three warehouse zones with 12,800 pallet bays and 4,000 meters of rack length for long goods, such as installation rails measuring up to 6 meters long, and more than 10,000 square meters of block storage space for bulky items such as wheelbarrows. The center will employ around 300 employees and will operate on a two-shift schedule.
The Würth Group is continuing to focus on implementing its worldwide e-business strategy. The central online shop, app and e-procurement solutions are now used by more than 60 companies and are being multiplied further to create a uniform technical basis, and also to allow the company to scale innovations and enhancements quickly on an international level. The online shop has since been singled out as the best B2B shop in Germany, Austria and the Netherlands for example by the renowned industry magazine Internet World Business. A range of digital strategies with different designs are being implemented in the various business units of the Würth Group based on this technology. They include, by way of example, regional recruitment and budget plans, close cooperation with digital marketing agencies, tech start-ups or software manufacturers, as well as intensive in-house and external training programs. Within the Würth Line, e-procurement solutions and cooperation with platforms is becoming increasingly important as a way of optimizing and automating customer procurement processes in a holistic manner. Within this context, specialized teams are being set up and trained worldwide to provide proactive advice to major customers and to implement customized solutions. Big Data is another key approach allowing digital marketing activities in particular to be automated based on data and used for specific target groups. In addition to a specialized team in Berlin, data scientists and analysts have been recruited by several individual companies in order to develop sales activities based on our customers’ purchasing and information behavior, and to develop new service components.
Overall statement on the future development of the Würth Group
Profitable growth is the driver behind all the activities of the Würth Group, making it a strategic objective. A specific set of measures has been identified for each business unit so that this objective can be achieved. These measures have one thing in common across all of our business units: the expansion of our sales team to bring us closer to our customers and to ensure that we can identify and meet their needs even better and even faster. In the Würth Line, the largest business unit, accounting for 57 percent of sales, we are focusing on the further expansion of our multi-channel approach, consisting of our sales force, our pick-up shops and e-business. This multi-channel approach is also being used increasingly abroad, where our market shares are still smaller than they are in Germany.
Economic experts are very cautious as they look ahead to the rest of 2020. The reason: the coronavirus. At the time this report was prepared, the coronavirus was continuing to spread further across the globe on a daily basis and the number of new infections was increasing rapidly. The main task lies in ensuring that the virus spreads as slowly as possible so that as many people as possible have access to medical care.
In light of this ongoing pandemic, it is impossible to develop any valid plan for our KPIs in 2020. Instead, securing the liquidity of the Würth Group will be our top priority. Before the outbreak of the coronavirus pandemic, the Würth Group had predicted a growth rate running into the mid-single digits and a proportionate increase in the operating result for 2020 in response to signs of a slight upswing. The economic implications of the pandemic will be considerable and are currently completely impossible to predict. Thanks to its good rating, prudent financial policy and radical spending discipline, the Würth Group is well positioned to weather the crisis and, particularly once it is over, to be available to our customers with all of our products and services. Our growth strategy will also include exploiting any acquisition opportunities that arise as a result of, or after, the crisis in line with the acquisition approach we have pursued to date.