Half-Year Report 2017

Financial review

as of 30 June 2017

2017

2016

Key figures, first half year

Margin

Change vs. prev. year

in CHF 1000

in CHF 1000

Net sales

6.6 %

296 805

278 508

Earnings before interest, taxes, depreciation and amortization (EBITDA)

13.5 %

8.1 %

40 025

37 021

Operating profit (EBIT)

7.6 %

5.1 %

22 466

21 376

Net earnings

4.7 %

0.9 %

14 012

13 889

Expected releases - high volume parts manufacturing

7.6 %

238 614

221 758

Orders received third (investment goods)

24.8 %

39 170

31 383

Orders backlog third as at 30.06. (investment goods)

-13.8 %

27 723

32 164

Number of employees (excl. apprentices)

8.3 %

2 409

2 225

BUSINESS PERFORMANCE

General

This half-year report applies to Feintool International Holding AG and all its subsidiaries. It covers the period from January 1 to June 30, 2017. The comparison period is the same period of the previous year.

On April 13, 2017, Feintool International Holding AG, Lyss, acquired Schuler (Tianjin) Metal Forming Technology Center Co., Ltd. in Tianjin (China). The name of the company was then changed to Feintool Automotive System Parts (Tianjin) Co., Ltd. The sales of this company since acquisition have been insignificant at CHF 1.5 million. There is thus no need to separately show the acquisition effect.

Orders received and orders backlog, expected releases

The parts business of the System Parts segment varies at short notice. Customers can postpone or even cancel releases that they have already entered in the order systems. As of June 30, 2017, Feintool’s customers expect releases amounting to CHF 238.6 million for the next six months (previous year CHF 221.8 million). This represents an increase of 7.6 % compared with the same time in the previous year, or 8.6% after currency adjustment.

14.8 %

Increase in order entry

in the investment goods business

Orders received in the Fineblanking Technology segment increased by 14.8 % in the reporting period, to CHF 49.3 million (previous year CHF 43.0 million). Intra-group orders received fell in the reporting period by 12.4 % to CHF 10.1 million (previous year CHF 11.6 million). Third-party orders received thus amounted to CHF 39.2 million (previous year CHF 31.4 million) and rose accordingly by 24.8 %.

As of June 30, 2017, the orders backlog in the Fineblanking Technology segment amounted to CHF 47.2 million, representing an increase of 10.1 % compared with the previous year (CHF 42.9 million); compared with December 31, 2016, this represents a significant increase of 34.6 %. This orders backlog is equivalent to around eight months of work for the long-term press and tool business. The third-party orders backlog decreased by 13.8 % to CHF 27.7 million. Compared to December 31, 2016, however, the value increased by 45.2 %.

Net sales

Consolidated Group sales rose by 6.6 % in the reporting period to CHF 296.8 million (previous year CHF 278.5 million). Currency movements had a negative influence of CHF 2.4 million on sales. In local currency, Feintool therefore recorded a 7.4 % growth in sales; this value includes sales of CHF 1.5 million of an acquired company. The System Parts segment generated 89.6 % of external sales – similar to the previous year. Fineblanking Technology thus contributed 10.4 %. Taking into account internal sales figures, the share of sales of the parts business amounts to 87.8 %.

The parts business of the System Parts segment grew by 9.9 % in the reporting year to CHF 266.0 million (previous year CHF 242.1 million). The negative currency effects totaled CHF 2.4 million. Growth in local currency thus reached 10.8 %. The fineblanking business in Europe achieved sales totaling CHF 95.1 million. Currency-adjusted, this represents 17.7 % growth (+ 16.2 % in the reporting currency). The Forming Europe area benefited from new orders and generated sales amounting to CHF 55.3 million, which corresponds to 23.5 % growth in local currency (+ 21.3 % in the reporting currency). Business in the United States stabilized at a high level with sales of CHF 91.5 million. Currency-adjusted growth totaled 1.3 % (+ 1.6 % in the reporting currency). Sales in Asia totaled CHF 25.2 million, which represents a 3.6 % increase in local currency (+ 2.1 % in the reporting currency). The new forming plant in Tianjin contributed CHF 1.5 million to these sales figures. The share of sales of the European plants rose sharply to 56.3 % (previous year: 52.6 %). On the other hand, the share of the plants in the United States fell once again, this time to 34.3 % (previous year 37.2 %), sales generated in Asia sank to 9.4 % (previous year 10.2 %). The underlying business performed well in every region, albeit to varying degrees. The regional sales distribution is based on the customer’s residence. After being installed in assemblies or vehicles, many of the parts manufactured by Feintool are exported to other countries/continents. Accordingly, the components manufactured by Feintool are likely used to roughly the same extent in the three regions of Europe, America and Asia.

10.8 %

Sales growth

in the system parts segment

Sales in the Fineblanking Technology segment sank – due to weak press sales – by 16.4 % to CHF 37.1 million (previous year CHF 44.4 million). While the spare parts and service business developed steadily, the tools business was not always able to fully utilize available capacities. Sales will increase significantly in the second half of the year thanks to positive development in orders received. Internal sales sank slightly in the reporting period, with the result that external sales decreased by 15.3 % to CHF 30.8 million (previous year CHF 36.4 million).

Overall, the Feintool Group generated 53.3 % of external sales in Europe, amounting to CHF 158.3 million (previous year CHF 146.1 million or 52.5 %). Thus Europe once again made slight gains in significance. With sales of CHF 91.1 million, a share of 30.7 % (previous year CHF 88.2 million or 31.7 %), North America lost roughly one percentage point in geographical sales distribution. Sales in Asia rose to CHF 47.4 million, which represented a slight increase to 16.0 % (previous year CHF 44.3 million or 15.8 %). This Swiss market is of only marginal significance for Feintool, with sales of CHF 3.6 million or 1.2 % (previous year CHF 4.8 million or 1.7 %).

Gross margin

The gross margin increased by 0.9 percentage points over the previous year, up to 40.2 %; gross profit amounted to CHF 119.2 million in the reporting period. Gross profit was up by CHF 7.2 million owing to volume-related factors. Changes to the product mix, slightly higher value creation, continued improvement in capacity utilization and better cost structures in the most important plants had a positive effect amounting to CHF 2.4 million.

The gross margin in the Fineblanking Technology segment rose to 41.0 % (previous year 39.9 %) despite a decline in sales. Changes to the product mix and geographical shifts – increased press sales in Europe – were responsible for the growth.

The System Parts segment achieved a gross margin of 39.5 %, which is slightly above the level from the previous year (previous year 38.9 %). Slightly improved utilization of individual plants, slightly higher value added at certain locations and cost optimization at all locations resulted in this positive effect.

Key cost items

At CHF 133.7 million, material costs represented the largest expense item. Relative to sales, material costs sank from 45.7 % to 45.0 %, even though the market saw a massive price increase for steel. However, Feintool succeeded in transferring these price increases in part to our customers. Increased value added and a changed product mix ultimately led to this percentage cost reduction. Personnel expenses rose by CHF 4.8 million to CHF 88.1 million and now amounts to 29.7 % of sales (previous year 29.9 %). At Fineblanking Technology, the share of personnel costs rose to 37.9 % (previous year 32.5 %). This is ultimately a result of a further increase in development expenditures for new products and a significant drop in sales. In the System Parts segment, the share sank slightly to 26.3 % (previous year 26.8 %). Greater capacity utilization did not compensate for the wage increases in Germany, additional expenditures for product relocations in Europe and increased personnel in the new plants in Oelsnitz and Tianjin (China). Other net operating expenses rose to CHF 37.4 million. The ratio to sales remains unchanged at 12.6 %.

13.5 %

EBITDA margin

of Feintool Group

Earnings before interest, taxes, depreciation and amortization (EBITDA)

Earnings before interest, taxes, depreciation and amortization (EBITDA) rose in the reporting period by CHF 3.0 million or – adjusted for currency effects – 9.2 % to CHF 40.0 million. The EBITDA margin is now 13.5 % (previous year 13.3 %). In the capital-intensive parts business (System Parts) the EBITDA margin increased to 16.5 % (previous year 15.4 %). In the investment goods business (Fineblanking Technology), the margin sank from 6.7 % to 1.2 % due to insufficient capacity utilization.

Depreciation

As a result of the high level of investment in the System Parts segment, depreciation increased by CHF 1.9 million to CHF 17.6 million in the reporting period. This trend will continue in the coming months, as once again the investments amounting to CHF 30.5 million greatly exceeded depreciation in the reporting year. Furthermore, additional depreciation resulted from the acquired forming plant in China.

Operating profit (EBIT)

Feintool generated earnings before interest and taxes (EBIT) of CHF 22.5 million, which equates to an EBIT margin of 7.6 % (previous year 7.7 %). This is equivalent to an increase of 6.2 % in local currency. Improved capacity utilization at several plants compensated for the decline in profit in the investment goods business as well as additional costs for the acquisition of the Chinese forming plant. Without the acquisition, the EBIT margin would have increased by 0.3 percentage points to 7.9 %.

The Fineblanking Technology segment suffered an operating loss of CHF 0.5 million (last year CHF 2.1 million profit) due to the decline in sales. Despite the decline in sales and the foreseeable operating loss, expenditures for research and development were maintained at a high level – as an investment in the future. The emerging sales growth for the second half of the year points to a greatly improved second semester.

The operating results of the System Parts segment rose strongly by CHF 4.4 million or 20.2 % (in local currency) to CHF 27.1 million (previous year CHF 22.7 million). New products that started or ramped up production in the reporting period, the consistently strong automotive market, and a further increase in capacity utilization led to these improvements. The EBIT margin rose to 10.2 %, compared with 9.4 % in the previous year. The American plants made the biggest contribution to earnings with an EBIT of CHF 9.8 million (currency-adjusted + 5.4 %). The European fineblanking plants improved by CHF 1.5 million or 25.6 % (currency-adjusted) to CHF 8.1 million. The good results from all other locations compensated the loss of the new plant in Oelsnitz, which resulted from several new launches. The new production location in Most (CZ) generated only minor costs. The Forming Europe area earned an operating profit of CHF 7.8 million (currency-adjusted + 94.1 %). Asia earned an EBIT of CHF 1.4 million. A decline in sales in Japan and losses from the new forming plant in China were responsible for this result.

The costs of units not directly involved in operations amounted to CHF 4.6 million. This development is based on slightly higher personnel costs that support the strong growth.

Net financial income/finance costs

The net financial results in the amount of CHF -2.1 million (previous year CHF -1.3 million) worsened significantly. Net interest costs (including finance costs) sank to CHF 1.4 million (previous year CHF 1.8 million). Slightly lower interest and lower currency hedging costs were responsible for this minor improvement. On the other hand, Feintool recorded net currency losses amounting to CHF 0.8 million in the reporting period (previous year currency gains of CHF 0.5 million).

Taxes

The total tax expenditure of Feintool companies was CHF 6.3 million in the reporting period. This equates to a tax rate of 31.1 %. Feintool is primarily active in countries which have a relatively high tax burden. As the loss carryforwards from the crisis years are largely used up, the tax burden could well continue to rise in the next few years.

Net income

Net income is CHF 14.0 million (previous year CHF 13.9 million), which equates to a net return ­on sales of 4.7 %. This slightly lower net return on sales is the result of higher financial costs.

CONSOLIDATED BALANCE SHEET

Strong growth in the System Parts segment and the acquisition of the Chinese forming plant had a considerable effect on individual items on the balance sheet. Total assets increased by 4.9 % to CHF 556.9 million (December 31, 2016: CHF 530.7 million).

Current assets declined by a total of CHF 17.8 million to CHF 238.1 million. The Chinese acquisition was largely financed by the existing promissory note loans. As a result, cash and cash equivalents decreased by CHF 45.2 million to CHF 47.6 million. The other items in currency assets increased, sometimes significantly. Receivables rose by CHF 15.1 million to CHF 103.0 million. CHF 3.1 million came from the acquisition. Total receivables sold within the framework of the factoring programs – which are not required to be included on the balance sheet – increased to CHF 11.1 million (December 31, 2016 CHF 10.5 million). The inventories and net assets of work orders increased by CHF 9.4 to CHF 81.6 million, with the bulk (CHF 8.2 million) representing the effects of the acquisition. Accrued income increased to 6.0 million.

Operating net working capital increased by CHF 19.9 million to CHF 80.6 million compared with December 31, 2016, thus totaling 13.6 % of annual turnover (previous year 11.0 %). The most significant negative effects were caused by the increase in receivables by CHF 15.1 million and the inventories by CHF 9.4 million, as well as the reduction in non-interest-bearing liabilities amounting to CHF 4.8 million. Increasing deferred liabilities (+ CHF 7.4 million) and increased provisions (+ CHF 2.3 million) had a positive effect on net working capital. The net working capital of the forming plant in China was CHF 4.0 million at the time of the acquisition.

29.0 

Capital expenditures (in CHF Mio.)

in property, plant and equipment

Assets increased by CHF 44.0 million to CHF 318.8 million. Property, plant and equipment increased by CHF 22.3 million to CHF 259.7 million, with CHF 15.5 million resulting from the acquisition. At CHF 29.0 million, investments in property, plant and equipment were significantly above the previous year's figure (CHF 24.6 million). Intangible assets rose significantly by CHF 22.9 million to CHF 41.2 million, with CHF 23.0 million resulting from the acquisition. This amount is split between goodwill and other items, which are set to be amortized over the next few years. Financial assets increased by CHF 0.6 million. Deferred tax assets decreased to CHF 15.6 million (December 31, 2016: CHF 17.3 million).

On the liability side, debt increased by CHF 26.1 million to CHF 326.9 million. Trade payables and other liabilities decreased by CHF 3.8 million and now total only CHF 71.9 million. Accrued expenses, short- and long-term provisions as well as deferred tax liabilities increased by CHF 10.2 million to CHF 63.4 million. The accrued expenses and deferred income are affected by the higher level of outstanding payable invoices as of the key date. Liabilities for the pension fund (IAS 19) sank slightly to 60.3 million in the reporting period and now amount to 34.7 % of non-current liabilities.

Interest-bearing liabilities rose by CHF 22.4 million to CHF 131.3 million. CHF 99.5 million of the interest-bearing liabilities are long-term. The purchasing price payment for the forming plant in China totaling 24.7 million largely consisted of cash and cash equivalents. Feintool also took on debts totaling CHF 12.7 million, which negatively affected interest-bearing liabilities.

On June 13, 2017, Feintool signed a syndicated loan agreement with six banks totaling CHF 90 million. This agreement has a term of five years and contains standard covenants. All covenants of all loan agreements have been complied with as of the reporting date.

Net debt increased in the reporting period to 83.8 million (December 31, 2016: CHF 16.2 million) due to the acquisition (CHF 37.5 million), the increase in net working capital and high investment. On the other hand, Feintool has CHF 136.5 million in cash and cash equivalents, and available, unused lines of credit.

Equity stood at CHF 230.0 million as at June 30, 2017 (December 31, 2016: CHF 229.9 million). The equity ratio fell slightly from 43.3 % to 41.3 %. The statement of changes in equity shows that the consolidated profit increased equity by CHF 14.0 million. The dividend distribution reduced equity in turn by CHF 8.9 million. Conversion differences charged directly to equity amounting to CHF 7.4 million in total also caused a negative effect. Actuarial gains of CHF 2.1 million came from the employee benefit liabilities (IAS 19). The other items hardly had any effect.

CONSOLIDATED STATEMENT OF CASH FLOWS

The cash flow from operating activities was roughly the same as the previous year at CHF 32.8 million. The major increase in net working capital by CHF 27.7 million (previous year: CHF 11.2 million) reduced the positive effect. The cash flow from investing activities is once again very negative at CHF 52.5 million (previous year CHF 21.2 million), also influenced by the acquisition, which alone required funds of CHF 24.7 million. At CHF 26.3 million, investments in property, plant and equipment once again increased. Overall, this resulted in an operational cash flow totaling CHF 47.4 million (previous year: inflow of CHF 2.7 million). The cash outflow resulting from the dividend was CHF 8.9 million. Cash and cash equivalents sank by CHF 45.2 million to CHF 47.6 million (December 31, 2016, CHF 92.8 million).

EMPLOYEES

The number of employees* (excluding trainees) has increased by 170 to 2 409 since December 31, 2016. In addition, 59 (December 31, 2016: 68) young people are currently with our company as trainees. Through the acquisition of the Chinese forming plant, 52 employees came to the Group. The System Parts segment has created 124 new jobs since December 31, 2016 as a result of strong growth and now employs 2 139 people. In Europe the number rose by 96 to 1 190. Twenty four new jobs were created in Asia. The number of employees in North America remained virtually unchanged. The Fineblanking Technology segment employed 234 people (-8): Thirty six members of staff are employed in units not directly involved with operations. Overall Feintool has 1 425 employees in Europe (plus 53 trainees), of whom 400 (plus 30 trainees) are employed in Switzerland. There are 642 people working in the United States (plus six trainees) and 342 employees in Asia.

* calculated as full-time equivalents