ANNUAL REPORT 2018

FEINTOOL GROUP

Sales increase by 11.0 %;
Net income above CHF 30 million.

Key figures at a glance

(ongoing operations only)

2018

2017

2016

2015

2014

01/01/–12/31/18

01/01/–12/31/17

01/01/–12/31/16

01/01/–12/31/15

01/01/–12/31/14

Operating figures

in CHF m

.

Expected releases – high volume parts manufacturing

286.1

264.0

240.9

209.6

213.9

Orders received third (investment goods)

87.7

82.7

57.2

77.2

86.7

Orders backlog third (investment goods)

31.0

38.3

19.1

36.0

32.9

Net sales

679.6

612.3

552.2

508.9

503.4

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

89.7

83.2

76.0 1)

61.4

62.9

Operating profit (EBIT)

47.5

46.3

41.3 1)

32.9

35.1

Net earnings

30.5

27.7

26.6 1)

20.1

24.6

Return figures

in %

EBITDA margin

13.2

13.6

13.8 1)

12.1

12.5

EBIT margin

7.0

7.6

7.5 1)

6.5

7.0

Net return on sales

4.5

4.5

4.8 1)

3.9

4.9

Cash flow and balance sheet statistics

in CHF m

Cash flow from operating activities

66.0

38.5

74.1

40.1

50.8

Cash flow from investing activities (net)

-121.0

-77.1

-59.4

-29.9

-12.1

Free cash flow

-55.0

-38.6

14.7

10.2

38.7

Total assets

705.3

600.4

530.7

426.9

427.4

Equity

320.8

255.2

229.9

207.9

202.9

Liabilities

384.5

345.1

300.8

219.0

224.6

Net debt

147.9

81.9

16.2

11.1

9.3

Equity ratio

45.5 %

42.5 %

43.3 %

48.7 %

47.5 %

Gross investments

101.2

60.1

74.9

31.8

43.4

Key figures per share

in CHF

Earnings per share (basic)

6.63

6.22

5.97 1)

4.51

5.53

Dividend per share

2.00 2)

2.00

2.00

1.50

1.50

Equity per share

65.26

57.19

51.61

46.72

45.55

Other

Number of employees at year-end (excl. apprentices)

2 697

2 485

2 239

2 049

1 987

1) In financial year 2016, the Swiss pension fund approved an amendment to the regulations, which, according to IAS 19, had a positive impact on the consolidated statement of comprehensive income in the previous period to the tune of kCHF 7 083 (amount excl. deferred taxes of kCHF 1 629). The EBITDA, EBIT, net earnings, net return on sales as well as earnings per share are shown in this overview without this effect.

2) Board of Directors’ proposal

Feintool increases its sales by 11 percent in financial year. The profit before depreciation (EBITDA) increases to CHF 90 million.



1) In financial year 2016, the Swiss pension fund adopted a change in policy that had a positive effective of kCHF 7 083 on the statement of comprehensive income in accordance with IAS 19. The EBITDA and EBIT are shown in this overview without this effect.

Financial Review

as at December 31, 2018

BUSINESS PERFORMANCE

General

The consolidated financial statements for 2018 apply to Feintool International Holding AG and its subsidiaries. They cover the period January 1 to December 31, 2018.

On July 31, 2018, Feintool Holding GmbH, Bayreuth, acquired 100 % of the German company Stanzwerk Jessen GmbH, located in Jessen, Saxony-Anhalt, Germany, with its subsidiaries Jela GmbH, SLTJ GmbH and Stanz- und Lasertechnik Jessen GmbH. SLTJ GmbH was subsequently merged with Stanz- und Lasertechnik Jessen GmbH. The name of the company was then changed to Feintool System Parts Jessen GmbH. In the final five months of 2018, these companies generated sales of CHF 18.1 million and EBIT of CHF 1.5 million.

On April 13, 2017, Feintool 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.

Orders received and order backlog in the capital goods business; expected releases in high-volume parts production

Orders received in the Fineblanking Technology segment, which operates in the capital goods sector, increased by 1.7 % over the very strong previous year to CHF 102.3 million (previous year CHF 100.6 million), with CHF 14.6 million stemming from the System Parts segment, which was again less than in the previous year (CHF 17.9 million). Third-party orders thus rose by 6.1 % to CHF 87.7 million (previous year CHF 82.7 million). However, with a 14.3 % share (previous year 17.8 %), the System Parts segment remains the largest individual customer.

Order backlog fell by a total of 17.9 % to a still good CHF 37.3 million (previous year CHF 45.4 million). The order backlog for internal orders fell slightly to CHF 6.3 million. The third-party order backlog thus stood at CHF 31.0 million (previous year CHF 38.3 million). The current order backlog means six to eight months of unfulfilled orders for the long-term press business. As a result, press building has a good starting position also for the 2019 financial year.

Expected releases in the high-volume parts segment for the next six months amount to CHF 286.1 million. This represents an increase of 8.4 % over the previous year, with CHF 10.5 million relating to the new “electro sheet stamping” unit. Although considerably lower sales were recorded for the months of November and December 2018, this value remains at a high level.

Net sales

Consolidated sales rose in the reporting currency by 11.0 % to CHF 679.6 million (previous year CHF 612.3 million). In the year under review, currency effects bolstered growth with an impact of CHF 8.6 million, or 1.4 percentage points. Acquisition of the “electro sheet stamping” unit contributed CHF 18.1 million, and the Chinese forming plant acquired in the previous year, CHF 3.0 million (in the first three months). Accordingly, the contribution by acquisitions to sales growth stood at 3.4 percentage points. In local currency, Feintool thus posted organic sales growth of 6.1 %. The striking recovery of the press and tool business, along with an economic upturn in the automotive sector that remained good into the third quarter, made this development possible. The System Parts segment generated 86.0 % of third-party sales (previous year 89.4 %). At 14.0 %, the share of sales generated by the capital goods business rose for the first time in about ten years.

Despite the considerably worse market environment in the fourth quarter, sales for the System Parts segment rose by 7.2 % in the financial year to CHF 586.9 million (previous year CHF 547.4 million). The positive currency effects amounted to CHF 8.6 million, and the positive effect from acquisitions totaled CHF 21.1 million. The segment’s growth in local currency thus reached 5.6 %, or still 1.8 % excluding acquisitions. Sales in Europe rose by a total of 8.3 % to CHF 342.1 million and included a positive currency effect of CHF 8.6 million and an acquisition effect of CHF 18.1 million. Excluding currency and acquisition effects, parts sales in Europe thus came in at the previous year's level (-0.2 %). Rising quantities of new products compensated for the market downturn and price reductions agreed to with customers. Business in North America rose in the reporting currency by 6.1 % to CHF 182.3 million. The currency effect of the U.S. dollar in the amount of CHF 0.7 million had a negative impact on sales, thus resulting in growth in local currency of 6.5 %. Considerably higher steel prices, which were largely able to be passed on to customers, are included in this sales increase. Sales in Asia rose by 5.8 % to CHF 64.6 million. The acquisition of the forming plant in China had a positive effect in the amount of CHF 3.0 million, and positive currency effects amounted to CHF 0.7 million. Asian business excluding currency and acquisition effects thus again remained at the previous year’s level, with a shift of CHF 2.3 million from Japan to China. Due to many localization projects by Japanese automakers, vehicle production in Japan has been stagnating for several years. In the parts business, the regional sales shares changed only minimally. Europe posted a share of 58.1 % (previous year 57.7 %) and thus again contributed more than half of parts sales. The share posted by the U.S. plants fell slightly to 30.9 % (previous year 31.4 %). The Asian share remained nearly unchanged at 11.0 % (previous year 10.9 %).

Sales by the Fineblanking Technology segment rose considerably by 16.9 % to CHF 106.9 million (previous year CHF 91.4 million). The translation effects of foreign currencies are negligible in the capital goods segment. Internal sales with the System Parts segment fell to CHF 12.2 million and thus amounted to just 11.4 %. Sales to third-party customers increased by CHF 29.7 million, or 45.8 %, to CHF 94.7 million.

Overall, the Feintool Group sold CHF 371.7 million of its products and services in Europe, with the percentage share of 54.7 % remaining constant compared with the previous year (CHF 334.7 million or 54.7 %). With sales of CHF 184.8 million, or 27.2 % (previous year CHF 171.8 million, or 28.1 %), growth of sales in North America was slightly weaker than in the other regions. Asian sales increased to CHF 123.0 million, or 18.1 % (previous year CHF 105.8 million, or 17.2 %). Sales in Switzerland amounted to just CHF 6.4 million, or less than 1 %.

16.9 %

Growth in local currency
of the capital good business

Gross margin

The gross margin fell by 1.4 percentage points compared with the prior year to 38.7 %, while gross profit increased by 7.0 % and amounted to CHF 262.8 million in the financial year.

Materials are by far the largest cost component for Feintool. In the year under review, the materials share of sales rose from 45.7 % to 47.3 %, and the cost of materials amounted to a total of CHF 321.6 million (previous year CHF 279.9 million). Materials costs also include costs for external processing of parts, such as hardening or coating. Steel prices, which in some cases rose sharply (particularly in the U.S.), had the largest impact on the change in the materials share in the year under review. Owing to price escalation clauses in many customer contracts and intensive negotiations, Feintool was able to pass on most of these increases to its customers. Direct personnel expenses totaled CHF 102.5 million, or 15.1 % of sales. The percentage increase in direct personnel costs by 0.3 percentage points is a result of higher added value and improvements in lead times for personnel deployment during production ramp-ups or at new plants (particularly in Most and Tianjin).

The System Parts segment achieved a gross margin of 38.9 %, which was slightly below the previous year’s figure of 39.4 %. It was not possible to fully compensate for the lower margin due to higher steel prices. Increases in efficiency at many plants and greater vertical integration in the case of some products had a positive effect but will still need to be significantly enhanced in the coming months.

In the Fineblanking Technology segment, the gross margin fell to 36.0 % (previous year 38.3 %). This trend was caused, on the one hand, by changes in the product mix and, on the other, by a shifting of press sales to Asia – usually with a lower degree of extras (closer to the standard) and therefore with a slightly lower margin.

Key cost items

Personnel expenses increased overall by CHF 15.0 million, or 8.4 %, to CHF 194.9 million, or 28.7 % of sales (previous year 29.4 %). While direct personnel expenses increased by 13.4 % to CHF 102.5 million, or 15.1 % of sales, indirect personnel expenses increased at a below-average rate of just 3.2 % to CHF 92.4 million The share of sales thus fell to 13.6 %.

In the System Parts segment, personnel expenses rose by CHF 21.6 million to CHF 162.1 million. Of this increase, CHF 4.4 million was attributable to acquisitions. In addition, starting June 1, 2018, tool manufacturing in Lyss was integrated into the parts business for organizational considerations. This resulted in personnel expenses of CHF 4.7 million. The increase in personnel expenses from operating business thus amounted to CHF 12.5 million, or 8.9 %. In all, personnel expenses as a percentage of sales thus increased from 25.7 % to 27.6 %. Feintool's investments in the future, such as the construction of the two production plants in China, the plant in Oelsnitz and the establishment of the new plant in the Czech Republic, contributed to the rise in personnel expenses in percentage terms. Moreover, the increase in vertical integration through additional work steps, such as “hardening”, is likewise associated with training expenses and a corresponding increase in the headcount.

In the Fineblanking Technology segment, personnel expenses fell by CHF 3.4 million to CHF 25.4 million, or 23.8 % (previous year 28.8 million, or 31.5 %). The shifting of personnel-intensive tool making had a positive effect here of CHF 4.7 million.

Other operating expenses rose by CHF 7.7 million to CHF 85.8 million. Relative to sales, these expenses fell slightly to 12.6 % (previous year 12.8 %). Systematic cost management was able to slow down the increase in costs. Other operating income rose slightly to CHF 2.7 million. As a result of the ongoing focus on core activities, income from secondary services and income from properties no longer in use were at a low level.

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

Earnings before interest, taxes, depreciation and amortization (EBITDA) rose by CHF 6.5 million, or 7.8 %, to CHF 89.7 million in the year under review. The currency effect in the amount of CHF 1.3 million had a positive impact. The EBITDA margin of 13.2 % in the financial year was lower than in the previous year by 0.4 percentage points.

Depreciation and impairment

Depreciation increased by 14.2 % to CHF 42.2 million in the year under review, with the acquisition effect amounting to CHF 2.0 million. High investments in recent years caused depreciation to increase by CHF 3.3 million, or 8.9 %. Relative to sales, depreciation rose from 6.0 % to 6.2 %. At CHF 101.2 million, investments significantly exceeded depreciation in the financial year, meaning that this expense item will continue to grow in the coming years.

Operating profit (EBIT)

Feintool generated an operating profit (EBIT) of CHF 47.5 million (previous year CHF 46.3 million), corresponding to a slight increase of 2.6 %. The positive currency impact on EBIT was CHF 0.7 million. In local currency, operating earnings (EBIT) thus rose by 1.2 %. Stanzwerk Jessen GmbH which was acquired at the end of July 2018, made a positive contribution to EBIT – after deduction of acquisition costs – of CHF 0.7 million, whereas the Chinese forming plant in Tianjin caused a negative acquisition effect of a similar size. Overall, Feintool achieved an EBIT margin of 7.0 % (previous year 7.6 %).

The operating earnings of the System Parts segment fell significantly by CHF 9.2 million, or 17.4 % (in local currency, 18.7 %), to CHF 43.5 million (previous year CHF 52.6 million). The decline in sales in the fourth quarter led to under-utilization of production at some plants. Moreover, some plants are preparing for new products, which resulted in considerable ramp-up costs. Overall, the EBIT margin in the parts business fell by 2.2 percentage points to 7.4 %.

Despite the acquisition in the “electro sheet stamping” area, the European plants posted a striking decline in EBIT of CHF 7.2 million. Nevertheless, this area made the largest contribution to EBIT, i.e. CHF 25.6 million. The U.S. plants contributed EBIT of CHF 17.8 million to results, a value comparable to that for the previous year. In Asia, EBIT in the parts business fell once again, coming in at just CHF 0.1 million in the year under review.

By contrast, the Fineblanking Technology segment more than doubled its operating profit to CHF 9.8 million (previous year CHF 4.0 million). The margin rose sharply year-on-year to 9.2 % (previous year 4.4 %). The main reason for this development were considerably higher sales. Research expenses were similar to the previous year, coming in at CHF 4.8 million. Expenses in this area were continuously intensified as an investment in the future.

The non-operating units incurred costs of CHF 7.5 million (previous year CHF 9.0 million). This includes one-off costs of CHF 0.8 million in connection with the purchase of Stanzwerk Jessen GmbH. On the other hand, costs of CHF 2.0 million were incurred in the previous year in connection with focusing measures. Excluding special effects, the results for the non-operating units are comparable to previous years.

9.2 %

EBIT margin
in the capital goods business

Financial result

The net financial result improved significantly to CHF -3.5 million (previous year CHF -6.2 million). This includes currency gains of CHF 1.2 million (previous year currency losses of CHF 2.9 million). Thus, excluding currency effects, the negative net financial result increased by CHF 1.4 million to CHF -4.7 million. This increase is a direct consequence of higher net debt, namely from CHF 81.9 million to CHF 147.9 million. Prior to the capital increase in September, net debt amounted to as much as CHF 200 million at times. The ratio of net debt to EBITDA was 1.6 at the end of the year.

Taxes

Tax expenses for the Feintool companies totaled CHF 13.5 million. The effective tax rate of 30.7 % is comparable to the value for the previous year (30.8 %). Feintool's important markets – Germany and Japan – have high tax rates. As in previous years, effective tax expenses are influenced by losses in countries (especially China) in which loss carryforwards become time-barred relatively quickly and as a result are not capitalized. In the year under review, the tax effect from non-capitalized losses amounted to CHF 3.4 million. Excluding this effect, the tax rate would be 23.1 % and thus even below the theoretical tax rate of 24.1 %. Non-capitalized loss carryforwards once again increased in the year under review by CHF 8.7 million to CHF 30.8 million, corresponding to a tax effect of CHF 8.2 million.

Net income

Consolidated net income rose by 9.9 % year-on-year to CHF 30.5 million (previous year CHF 27.7 million). The return on sales remained unchanged at 4.5 %.

9.9 %

Growth in consolidated net income

CONSOLIDATED BALANCE SHEET

The acquisition of the “electro sheet stamping” area and another round of very high investments once again caused a significant increase in balance sheet assets and liabilities. Total assets rose by CHF 104.9 million, or 17.5 %, to CHF 705.3 million.

Current assets declined by a total of CHF 19.5 million, or 7.5 %, to CHF 238.8 million. In this regard, the individual items trended differently. As a result of good receivables management, and influenced in part by weaker business in the fourth quarter, receivables fell by CHF 10.5 million to CHF 101.0 million – despite an increase of CHF 4.9 million from the acquisition of the “electro sheet stamping” area. In the year under review, Feintool succeeded in having to make hardly any more advance payments to suppliers. The reduction of such advance payments had an influence on total receivables of CHF 10.5 million. Relative to sales, receivables fell from 18.2 % to about 14.9 %. The age structure of receivables hardly changed in the year under review. Total receivables sold as part of factoring programs – which are not required to be included on the balance sheet – decreased slightly to CHF 11.4 million (previous year CHF 13.3 million). By contrast, inventories and contract asset balances increased by CHF 12.2 million to CHF 99.8 million, with CHF 4.7 million coming from the acquisition. Prepaid expenses and accrued income amounted to CHF 6.8 million. Cash and cash equivalents fell by CHF 21.5 million to CHF 30.9 million owing to good cash management.

Operating net working capital rose by CHF 17.1 million to CHF 95.1 million, amounting to 14.0 % of sales (previous year 12.8 %). The main reason for this increase is the change in inventories and net contract asset balances, which rose by CHF 12.2 million. Also having a negative impact was the decline in liabilities and the decrease in accrued liabilities and deferred income by a total of CHF 11.1 million. On the other hand, receivables declined by CHF 10.5 million. Feintool continues to make consistent use of the discounts and rebates granted by a number of important suppliers, which inevitably reduces its flexibility with regard to its liabilities.

As a result of another round of high investments and the acquisition of Stanzwerk Jessen GmbH, fixed assets rose by CHF 101.2 million, or 36.4 %, to CHF 466.5 million. The acquisition caused fixed assets to increase by CHF 76.1 million. Excluding the acquisition effect, the increase in fixed assets would be just 14.1 %. Property, plant and equipment rose by CHF 67.0 million – CHF 12.4 million due to the acquisition – to CHF 347.0 million. Intangible assets increased by CHF 57.5 million to CHF 101.2 million, with CHF 63.7 million resulting from the acquisition. The items capitalized research and development costs and software did not change materially in the year under review. Financial assets remained virtually unchanged at CHF 1.8 million. Deferred tax assets of CHF 16.5 million likewise changed little.

On the liabilities side of the balance sheet, debt rose significantly by CHF 39.4 million to CHF 384.5 million, with the acquisition accounting for CHF 46.2 million of the increase, meaning that, excluding the acquisition, debt would have fallen slightly owing to the capital increase that was carried out. Trade payables, tax liabilities and other liabilities fell by CHF 9.5 million and totaled CHF 78.2 million, and excluding the CHF 5.4 million resulting from the acquisition, the decline would be even higher. Accrued expenses and deferred income, current and non-current provisions and deferred tax liabilities increased by CHF 4.8 million (CHF 6.5 million from the acquisition) to CHF 68.5 million. Pension liabilities (IAS 19) remained virtually unchanged at CHF 59.0 million.

Interest-bearing liabilities rose sharply by CHF 44.5 million – CHF 34.3 million of which being attributable to the assumption of debts from the acquisition of Stanzwerk Jessen GmbH – to CHF 178.7 million. CHF 73.8 million of the interest-bearing liabilities are short-term. Non-current interest-bearing liabilities amounted to CHF 105 million in the year under review. The syndicated loan of CHF 90.0 million that had been signed in the previous year was able to be extended in the year under review by one year until June 17, 2023. Taking into account existing cash and cash equivalents, net debt thus stood at CHF 147.9 million (previous year CHF 81.9 million). With CHF 86.8 million in cash and cash equivalents and available, confirmed bank lines, Feintool has sufficient financial flexibility, despite high investments and the acquisition (CHF 134.1 million).

On September 20, 2018, Feintool successfully carried out a capital increase for the purpose of partially financing the acquisition. In this regard, 451 871 shares were sold at an issue price of CHF 112.50, resulting in an inflow, less corresponding costs, of CHF 50.0 million. Equity thus stood at CHF 320.8 million as at December 31, 2018 (previous year CHF 255.2 million). The equity ratio rose from 42.5 % to 45.5 %. The statement of changes in equity shows that from operating business, consolidated profit increased equity by CHF 30.5 million. The distributed dividend in turn reduced equity by CHF 8.9 million. Currency translation differences totaling CHF 5.2 million and the repurchase of treasury shares in the amount of CHF 2.1 million further reduced equity. The other items were of only minor significance.

CONSOLIDATED STATEMENT OF CASH FLOWS

The cash flow from operating activities was CHF 66.0 million, or 71.4 % higher than in the previous year (CHF 38.5 million). This gratifying result is attributable to cash flows from operating activities of CHF 91.0 million (+CHF 15.8 million), which had an effect on liquidity, and a considerably lower increase in net working capital of CHF 12.7 million (previous year CHF 24.2 million). The cash flow from investing activities was strongly negative at CHF 121.0 million (previous year CHF 77.1 million), with CHF 39.6 million being attributable to the cash purchase price for Stanzwerk Jessen GmbH and CHF 81.4 million (previous year CHF 50.3 million) being invested in property, plant and equipment. Overall, therefore, this resulted in negative cash flow from operating activities of CHF 55.0 million (previous year positive CHF 38.6 million). Feintool was not able to finance the very high investments from its operating business in the year under review.

EMPLOYEES

The number of employees (excluding trainees) increased by 212 to 2 697 in the financial year. Of these employees, 196 worked at Stanzwerk Jessen GmbH at the time of acquisition. In addition, 82 (previous year 81) young persons are currently with our company as trainees. The System Parts segment had 2 489 employees, an increase of 283. The 196 employees from the acquisition, as well as the organizational shifting of tool making in Lyss – reclassification from capital goods to the parts area – which affected 68 people, had a decisive impact on this increase. As a result of sales growth, 19 new positions were created. The Fineblanking Technology segment had 174 employees at the end of the year (-65 compared with the previous year), of whom 68 were shifted to another segment for organizational reasons. Thirty-four people (-6) were employed in units not directly involved with operations. At the end of 2018, Feintool had 1,692 employees (63 % of the workforce) in Europe, which was 202 more than in the previous year. Of these, 422 (previous year 419) worked in Switzerland. In the U.S., the headcount fell by 12 to 608 employees (22 % of the workforce), while in Asia the number rose by 22 to 397 (15 % of the workforce).