Presentation 1H2019 results Heerbrugg, 19 July 2019 Todays speakers - - PowerPoint PPT Presentation

Presentation 1H2019 results Heerbrugg, 19 July 2019

Presentation 1H 2019 results | 19 July 2019

Welcome to the presentation on our 1H 2019 results Today’s speakers

Jens Breu Chief Executive Officer Rolf Frei Chief Financial Officer

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Table of contents

1. Key takeaways Jens Breu 2. Development by segment Jens Breu 3. Development of key financials Rolf Frei 4. Updated guidance 2019 Rolf Frei 5. Q&A Jens Breu/Rolf Frei

Presentation 1H 2019 results | 19 July 2019 3

Key takeaways

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Modest growth in a challenging environment

• Strong position with customers confirmed with ongoing successful acquisition of major new

projects

• Sales increased in 1H 2019 by 1.4% to CHF 867.8m
• Market position in the US strengthened by acquisition of Triangle Fastener Corporation;
• verall positive consolidation effects of 4.6%
• Organic development at –2.4% burdened by weaker economy and trade tensions
• Earnings marked by mix effects and demand-driven fluctuations in capacity utilization
• Adjusted EBIT margin at 12.6% (PY 13.6%), one-time effects of CHF –3.7m
• Measures implemented to strengthen profitability
• Successful commissioning of new manufacturing platform in Nantong (China)
• Overall expect slightly better development in 2H 2019

Key takeaways

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Development by segment

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• Sales decreased to CHF 454.2m, –3.6% in

local currencies to strong PY period

• Decline driven by challenging Automotive and

Electronics market conditions started Q4/2018

• Continued dynamic growth of Medical division
• Profitability burdened by mix effects and

fluctuations in capacity utilization. Corrective actions to recover margins taken

• Strong position with customers confirmed by

attractive new project wins

• CAPEX –16.0% compared to PY (Nantong)
• Sales expected to increase in 2H

Headlines Engineered Components segment Challenging markets burden performance

Presentation 1H 2019 results | 19 July 2019

Key figures Engineered Components in CHF million (unaudited) 2019 1H +/– PY 2018 1H Third party sales Sales growth comparable 454.2 –4.0% –3.6% 473.2 EBITDA As a % of net sales 96.4 21.0 –14.3% 112.5 23.6 Operating profit (EBIT) adjusted As a % of net sales 73.9 16.1 –11.9% 83.9 17.6 ø Capital Employed 680.6 8.9% 624.8 Investments 44.3 –16.0% 52.8 Full-time equivalents (FTE) 7,310 10.8% 6,600 ROCE in % 21.7 26.9

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• Global car sales down –8 to –6% in relevant

segments and adjustments in the supply chain that took longer than expected impacting 1H performance

• Ramp-up of innovative customer projects on

track with limited impact due to weak demand

• Sales of Automotive division in 1H at –4.3% to

PY, +4.0% compared to 2H 2018

• Stable innovation trends and strong position

as engineering partner fueled project pipeline

• 1H 2019 EBIT increased vs. 2H 2018 by 4.9%
• Business expected to remain flat during 2H

Key messages Automotive division Weak demand, but attractive new projects acquired

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• Demand stabilized below levels of the PY

period (relevant smart phone shipments expected to land at –14% yoy, HDD drive builds at –15% yoy)

• Impact expected to be offset with new

product line introductions on full year basis

• Successfully defended profitability thanks to

capacity adjustments and productivity gains

• Commissioning of new manufacturing

platform in Nantong completed as planned

• hosting all SFS core technologies
• serving as strategic hub also for Automotive
• providing ample capacity for future growth

Trade tensions impacting behavior Key messages Electronics division

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• Overall slightly negative trend, individual

business areas developing unevenly

• Aircraft business returned to growth track as

expected due to ramp up of Airbus A350

• Strong capabilities in micro injection molding

providing growth opportunities in

• dental applications
• drug delivery products
• Site expansion project at Stamm (CH, plastic

injection molding) to be completed until 2021

• Expect stable development in 2H

Key messages Industrial division Growth returned to Aircraft business

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Continued dynamic sales momentum Key messages Medical division

• Strong sales trend of 2018 confirmed and

accelerated in 1H

• Successful customer project launches in the

application areas of sports medicine, urology, and vascular surgery

• Improvements in productivity supporting

margin development

• Standardized production machine park at

multiple sites confirmed to be a competitive advantage

• Based on robust project pipeline expect

positive trend to continue in 2H

Presentation 1H 2019 results | 19 July 2019

Sports medicine Vascular surgery

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• Strong sales growth of 16.6% to CHF 248.3m

driven by consolidation of HECO & TFC (20.4%)

• Organic development (–1.8%) and FX impact

(–2.0%) negative

• Divergent trends among the divisions
• Construction: Stable demand in construction

industry and positive consolidation effects

• Riveting: Significant drop in demand from

automotive- & industrial customers

• EBIT margin at 9.4% matching PY level
• Continued strong project pipeline
• Expect stable development of business in 2H

Presentation 1H 2019 results | 19 July 2019

Headlines Fastening Systems segment Market position in the US strengthened

Key figures Fastening Systems in CHF million (unaudited) 2019 1H +/– PY 2018 1H Third party sales Sales growth comparable 248.3 16.6% –1.8% 213.0 EBITDA As a % of net sales 34.1 13.4 –15.6% 29.5 13.3 Operating profit (EBIT) As a % of net sales 24.0 9.4 15.5% 20.7 9.4 ø Capital Employed 294.8 18.8% 248.1 Investments 9.1 10.6% 8.2 Full-time equivalents (FTE) 2,459 22.2% 2,012 ROCE in % 16.3 16.7

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• Organic growth momentum continued at

slower pace than 2018, supported by several business units including flat-roof applications

• Division clearly benefiting from close

collaboration with TFC and HECO by

• significantly strengthened position in USA
• expansion of product portfolio with inno-

vative solutions like in timber construction

• Trends to greater safety, energy efficiency

and building automation continue to be key areas of innovation and further growth

• Positive trend expected to continue in 2H

Ongoing positive development Key messages Construction division

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Strategic rational of TFC acquisition

• Add direct access to local installers and

contractors (about 6000 active end customers)

• Leverage direct customer access for cross-

sales of Construction division’s portfolio

• Significantly strengthens SFS’ competitive

position in the US construction market Key Figures

• Sales of > USD 70m in 2018
• 200 employees and 23 proprietary sales
• ffices in 15 states

Acquisition completed and integration started Triangle Fasteners Corporation (“TFC”)

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• Significant exposure to automotive- and

industrial markets and uncertainty due to Brexit strongly impacting business

• Corresponding shifts in capacity utilization

rate impacting earnings

• Capacity adjustment measures taken to

mitigate impact on earnings

• Strong competitive positioning maintained
• Urs Langenauer, former Head of Automotive in

North America, replaced Thomas Bamberger

• Due to unchanged challenging markets flat

business trend expected in 2H

Key messages Riveting division Development burdened by weak demand

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• Slightly positive organic growth of +0.3% to

strong previous year period resulting in sales

• f CHF 165.3m
• Development attributed particularly to tools

business, e-shop and retail stores

• Divestment of security system business and

FX headwinds impacting sales (totally –2.9%)

• Positive 2018 earnings trend maintained with

adjusted EBIT margin of 7.9% (+70 bps yoy)

• Reported earnings benefited from book gain
• n sale of property
• Expected positive trend to continue in 2H

Presentation 1H 2019 results | 19 July 2019

Headlines Distribution & Logistics segment Continuous growth of customer base

Key figures Distribution & Logistics in CHF million (unaudited) 2019 1H +/– PY 2018 1H Third party sales Sales growth comparable 165.3 –2.6% 0.3% 169.7 EBITDA As a % of net sales 21.2 12.6 38.1% 15.4 8.9 Operating profit (EBIT) adjusted As a % of net sales 13.3 7.9 7.4% 12.4 7.2 ø Capital Employed 138.5 –3.2% 143.2 Investments 1.6 –49.4% 3.2 Full-time equivalents (FTE) 618 0.0% 618 ROCE in % 19.2 17.4

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• To ensure efficient and competitive future

logistics operations:

• Transfer of management responsibility and

sale of logistics infrastructure in Emmen- brücke to service provider by year end

• Subsequent relocation of further logistics
• perations from Bäretswil to Emmenbrücke
• All Allchemet based logistics activities will be

consolidated at one site

• New concept will result in reduced number of

customer shipments

• Envisaged set-up planned to be fully
• perational beginning 2022

Key messages Distribution & Logistics segment Optimization of logistics operations initiated

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Development of key financials

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500 600 700 800 900 1'000

1H 18 Organic Scope FX 1H 19

• Reported growth of 1.4% (PY 9.9)
• –2.4% organic business (PY 7.1)
• 4.6% scope (PY –0.3)
• –0.8% FX impact (PY 3.1)
• Main influencing factor
• challenging economic environment in

automotive and electronics industry

• Like-for-like growth by segment
• –3.6% in Engineered Components (PY 7.6)
• –1.8% in Fastening Systems (PY 6.9)
• 0.3% in D&L (PY 5.8)

Sales bridge Heco and TFC added 4.6% to overall growth of 1.4%

CHF million

856 –20 39 –7 868

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Organic sales growth Growth stabilized against strong PY at Ø of –2.4%

Presentation 1H 2019 results | 19 July 2019

7.5% 6.7% 4.2%

• 1.1%
• 3.1%
• 1.8%
• 5%

0% 5% 10% 15%

• 10

10 20 30 Q1.18 Q2.18 Q3.18 Q4.18 Q1.19 Q2.19

Organic growth in CHF million yoy Organic growth in % yoy

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by End Markets

Sales breakdown by end markets Construction and Medical increase their share

Presentation 1H 2019 results | 19 July 2019

21.2%

PY 21.7%

7.5%

PY 6.2%

15.5%

PY 17.7%

30.0%

PY 26.3%

25.8%

PY 28.1%

Automotive Construction Electronics Medical Others (trade,

capital goods, aircraft)

• Construction up by 370 bps to 30%
• driven by slight organic growth and

first time consolidation of Heco and TFC

• Medical up by 130 bps to 7.5%
• strong double digit organic growth
• Automotive down 230 bps to 25.8%
• Electronics down 220 bps to 15.5%
• both impacted by challenging economic

environment and lower demand from customers

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by Regions

Sales breakdown by regions America benefits from TFC and organic growth

Presentation 1H 2019 results | 19 July 2019

42.0%

PY 42.7%

20.2%

PY 20.8%

16.6%

PY 18.9%

21.2%

PY 17.6%

America Asia, RoW Switzerland Europe

• America up 360 bps to 21.2%
• first time consolidation of TFC
• strong organic growth Medical division
• favorable USD currency development yoy
• Asia, RoW down 230 bps to 16.6%
• reflects situation in Electronics division

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• Adjusted EBIT margin of 12.6% impacted by
• changes in the sales mix due to varying

growth in the end markets

• insufficient capacity utilization due to lower

customer demand

• One time effects reduced EBIT by CHF 3.7m
• –CHF 8.5m relocation expenses in CN
• +CHF 4.8m book gains from sale of

property in CH

• Reported EBIT at CHF 105.5m

Mix effects and lower customer demand burden EBIT Operating profitability

174.3 210.1 233.3 243.1 116.0 109.2 12.6% 14.6% 14.3% 14.0%

50 100 150 200 250 300 350 400

0% 2% 4% 6% 8% 10% 12% 14% 16%

2015 2016 2017 2018 1H18 1H19

13.6% 12.6%

in % of net sales in CHF million

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Operating profitability EBIT in 2nd half year tends upwards against 1st half

Presentation 1H 2019 results | 19 July 2019

88.9 121.2 110.9 122.4 116.0 127.1 109.2

12.9% 16.2% 14.2% 14.3% 13.6% 14.4% 12.6% 8% 10% 12% 14% 16% 18% 25 50 75 100 125 150 175 200 225 250 1H2016 2H2016 1H2017 2H2017 1H2018 2H2018 1H2019

EBIT adjusted in CHF million EBIT adjusted margin in %

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• Operating expenses in Swiss francs
• all time low share of 38% of group OPEX
• target range below 40%
• Drivers for strategically targeted reduction
• international M&A
• improved productivity in CH
• relocations to sites outside CH
• higher growth outside CH
• natural hedging

Opex in Swiss francs further decline Swiss franc exposure

22.9% 22.4% 20.1% 19.6% 46.1% 44.3% 39.8% 40.2% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

2015 2016 2017 2018 1H18 1H19

Sales invoiced in Swiss francs Opex in Swiss francs 38.0% 41.3%

% share

Presentation 1H 2019 results | 19 July 2019

21.0% 19.1%

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• NWC higher at 32.7% of net sales
• equals 119 working days
• measured at end of period
• Days outstanding up 2 days yoy
• accounts receivable down 3 days
• inventory up 5 days

Seasonal peak at mid year as seen in the past Net working capital

113 114 113 111 117 119

31.0% 31.2% 31.1% 30.3%

25 50 75 100 125 150 175

0% 5% 10% 15% 20% 25% 30% 35%

2015 2016 2017 2018 1H18 1H19

in % of net sales

Presentation 1H 2019 results | 19 July 2019

in days

32.0% 32.7%

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• CAPEX spending at 6.5% of net sales
• to increase capacity, efficiency, productivity
• to support future growth
• lower as Nantong site was completed 2018
• CAPEX spending by region
• 42% Switzerland (PY 36)
• 15% Europe (PY 17)
• 13% Americas (PY 11)
• 30% Asia (PY 36)
• CAPEX by segment
• 79% EC (PY 78)
• 16% FS (PY 11)

Spending back to “normal” Capital expenditure

90.4 84.6 132.8 149.1 69.5 56.4 6.6% 5.9% 8.1% 8.6%

50 100 150 200 250

0% 2% 4% 6% 8% 10%

2015 2016 2017 2018 1H18 1H19

8.1% 6.5%

in CHF million in % of net sales

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• Stable and strong cash flow from operations
• 105m cash from operations (PY 104)
• –56m CAPEX (PY 69)
• 49m free cash flow (PY 34)
• Conversion rate at 31.9% of EBITDA
• driven by CAPEX and NWC increase
• seasonally low with
• clear upside potential in 2nd half year
• target range 40–50%

Cash flow fully financed CAPEX and NWC Operating free cash flow

121 157 94 114 35 49 47.6% 51.2% 29.0% 34.4%

50 100 150 200 250 300

0% 10% 20% 30% 40% 50% 60%

2015 2016 2017 2018 1H18 1H19

• FCF CHF million
• FCF in % of EBITDA

Presentation 1H 2019 results | 19 July 2019

21.8% 31.9%

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128 1 35 59

• 52

78.4% 67.2% 71.6% 74.4%

• 60
• 30

30 60 90 120 150 180 210

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

2015 2016 2017 2018 1H18 1H19

• Equity ratio remains strong and healthy
• solid ratio at 69.5%
• equity value at CHF 1.1bn
• Net debt at CHF 52m, expect strong

improvement in 2H

• Financial flexibility for growth secured by
• cash in hand
• annual operating free cash flow
• unused credit facilities
• available debt capacity

Solid equity and strong financial flexibility Balance sheet

Equity ratio in % CHF million net cash/debt

Presentation 1H 2019 results | 19 July 2019

71.1% 69.5%

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20.6% 27.8% 25.9% 22.7% 7.5% 9.9% 9.5% 9.7% 0% 5% 10% 15% 20% 25% 30%

2015 2016 2017 2018 1H18 1H19

9.0% 8.6%

• Average capital employed (Ø CE)
• ROCE at 19.5% (PY 21.7%)
• EBIT adjusted in % of Ø Capital Employed
• target range of >20%
• Return on invested capital
• ROIC at 8.6% after tax (PY 9.0%)
• EBIT adjusted less tax in % of invested

capital*

• below target range of >12%

* Equity before goodwill offset less net cash / plus net debt

Sideward development with potential for improvement Return on capital

Return in %

Presentation 1H 2019 results | 19 July 2019

21.7% 19.5%

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Well-positioned in spite of a challenging environment

In CHF million

1H 2019 % 1H 2018 % yoy

Sales

867.8 855.9 1.4%

EBITDA margin

152.6 17.6% 159.5 18.7% –4.3%

EBIT adjusted margin

109.2 12.6% 116.0 13.6% –6.0%

Net income margin

88.6 10.2% 88.9 10.4% –0.3%

Equity ratio

1,139.2 69.5% 1,103.9 71.1% 3.2%

Net cash

• 51.9

–0.4

Capex % net sales

56.4 6.5% 69.5 8.1% –18.9%

Free cash flow conversion rate

48.7 31.9% 34.8 21.8% 40.4%

ROCE

19.5% 21.7%

Presentation 1H 2019 results | 19 July 2019

KPI summary

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Updated guidance 2019

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Updated guidance FY2019 Slightly positive business trends expected

Presentation 1H 2019 results | 19 July 2019

Expected sales growth & EBIT % adjusted for FY2019

2019G (March) 1H19A 2019G (July) Sales Organic Scope FX 3–5% 1.4% –2.4% 4.6% –0.8% 3–6% 0–2% 4–5% ~–1% EBIT adj. 13–15 % 12.6% ~13%

• Expect volatile environment (political /

economic) and trade tensions to persist in 2H

• Against this background, SFS has reviewed

its forecasts and expects only a slight increase in sales in 2H

• As stated earlier, SFS expects extraordinary

effects to burden reported EBIT by a high single-digit to a low double-digit CHF m amount due to

• commissioning of new manufacturing

platform in Nantong (negative)

• sale of properties (positive)

A = Actual G = Guidance

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Presentation 1H 2019 results | 19 July 2019

Focus on cost control and new project acquisition

• Continue selective hiring freeze and adjustment of capacity were needed
• Carrying forward on ramp-up of growth projects while meeting profitability targets
• Increase offering with digitization solutions, along grow revenues as percentage of sales
• Identification of next-generation applications in our core markets with above-average growth

potential based on underlying megatrends

• Pursue suitable M&A add-ons

SFS Group priorities

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Q&A

Presentation 1H 2019 results | 19 July 2019 35

Presentation 1H 2019 results | 19 July 2019

Any questions? Q&A

Jens Breu Chief Executive Officer Rolf Frei Chief Financial Officer

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Thank you for your attention

Presentation 1H 2019 results | 19 July 2019 37

Presentation 1H 2019 results | 19 July 2019 38

This presentation includes forward looking statements. These statements reflect the SFS Group's current assessment of market conditions and future events. The statements are therefore subject to risks, uncertainties and assumptions. Unforeseen events may lead to deviations of the actual results from the forecasts and estimates made in this presentation and in other published

• information. To this extent all forward looking statements in this presentation are subject to such

limitations.

Disclaimer

Presentation 1H 2019 results | 19 July 2019 39