ANNUAL REPORT 2019

FEINTOOL GROUP

Significant decline in sales due to market uncertainties
Net income of CHF 11 million.

Key figures at a glance

(ongoing operations only)

2019

2018

2017

2016

2015

01/01/–12/31/19

01/01/–12/31/18

01/01/–12/31/17

01/01/–12/31/16

01/01/–12/31/15

Operating figures

in CHF m

Expected releases – high volume parts manufacturing

265.2

286.1

264.0

240.9

209.6

Orders received third (investment goods)

50.5

87.7

82.7

57.2

77.2

Orders backlog third (investment goods)

18.5

31.0

38.3

19.1

36.0

Net sales

632.7

679.6

612.3

552.2

508.9

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

67.7

89.7

83.2

76.0 1)

61.4

Operating profit (EBIT)

18.9

47.5

46.3

41.3 1)

32.9

Net earnings

10.7

30.5

27.7

26.6 1)

20.1

Return figures

in %

EBITDA margin

10.7

13.2

13.6

13.8 1)

12.1

EBIT margin

3.0

7.0

7.6

7.5 1)

6.5

Net return on sales

1.7

4.5

4.5

4.8 1)

3.9

Cash flow and balance sheet statistics

in CHF m

Cash flow from operating activities

82.0

67.0

38.5

74.1

40.1

Cash flow from investing activities (net)

-51.8

-121.0

-77.1

-59.4

-29.9

Free cash flow

30.2

-54.0

-38.6

14.7

10.2

Total assets

706.3

705.3

600.4

530.7

426.9

Equity

309.9

320.8

255.2

229.9

207.9

Liabilities

396.4

384.5

345.1

300.8

219.0

Net debt

140.8

147.9

81.9

16.2

11.1

Equity ratio

43.9 %

45.5 %

42.5 %

43.3 %

48.7 %

Gross investments

56.3

101.2

60.1

74.9

31.8

Key figures per share

in CHF

Earnings per share (basic)

2.17

6.63

6.22

5.97 1)

4.51

Dividend per share

1.00 2)

2.00

2.00

2.00

1.50

Equity per share

63.05

65.26

57.19

51.61

46.72

Other

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

2 641

2 697

2 485

2 239

2 049

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.

Financial Review

as at December 31, 2019

BUSINESS PERFORMANCE

General

The consolidated financial statements for 2019 apply to Feintool International Holding AG and its subsidiaries. They cover the period from January 1 to December 31, 2019.

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. Stanz- und Lasertechnik Jessen GmbH was then renamed Feintool System Parts Jessen GmbH.

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

Due to the global economic slowdown, orders received in the Fineblanking Technology segment, which operates in the capital goods business, fell by 40.6 % year over year to CHF 60.7 million (previous year: CHF 102.3 million), with CHF 10.2 million of this total generated by the System Parts segment (previous year: CHF 14.6 million). As a result, third-party orders received fell by 42.4 % to CHF 50.5 million (previous year: CHF 87.7 million). With a share of 16.9 % (previous year: 14.3 %), the importance of the System Parts segment once again increased and it remains the largest single customer.

The order backlog fell by a total of 38.4 % to CHF 23.0 million (previous year: CHF 37.3 million). The order backlog for internal orders fell slightly to CHF 4.5 million. The third-party order backlog thus stood at CHF 18.5 million (previous year CHF 31.0 million). The current order backlog is insufficient and represents a workload of less than three months. At the beginning of 2020, reduced working hours were introduced at the assembly plant in Jona until further notice.

Expected releases in the high-volume parts segment over the next six months totaled CHF 265.2 million (previous year: 286.1 million). This figure thus fell by 7.2 % year over year.

Net sales

The global economic slowdown and the various uncertainties within the automotive sector also had an effect on Feintool’s results. Consolidated sales in the reporting currency fell by 6.9 % to CHF 632.7 million (previous year: CHF 679.6 million). During the reporting year, currency effects had a negative impact of CHF 7.1 million, equal to 1.1 percentage points. The acquisition of the electrolamination stamping business contributed CHF 22.9 million (in the first seven months). Accordingly, acquisitions contributed 3.4 percentage points to total sales growth. As a result, in local currency Feintool recorded an organic sales decline of 9.2 %. Both segments suffered a significant decline in sales: the press and tool business shrank – adjusted for currency effects – by 30.2 %, the parts business declined organically in local currency by 4.9 %. The System Parts segment generated 90.1 % of third-party sales (previous year: 86.0 %), the highest figure since Feintool was founded.

The significantly weaker market environment caused the System Parts segment’s sales to decline by 2.2 % to CHF 573.9 million (previous year: CHF 586.9 million). Negative currency effects totaled CHF 7.2 million, while the positive effect from acquisitions amounted to CHF 22.9 million. The segment’s sales decline in local currency thus stood at 1.0 %, or excluding acquisitions, at 4.9 %. Thanks to the acquisition of the electrolamination stamping business, sales in Europe fell by only 2.7 % to CHF 332.7 million (previous year: CHF 342.1 million). Without the appreciation of the Swiss franc against the euro, the company would have even reached the previous year’s level. The acquisition effect of CHF 22.9 million amounted to 6.7 percentage points. Excluding currency and acquisition effects, parts sales in Europe thus stood 6.6 % below the comparable prior-year figure. Rising quantities of new products only partially compensated for the market downturn and price reductions agreed to with customers. Business in North America declined in the reporting currency by 4.8 % to CHF 173.6 million. The currency effect of the US dollar in the amount of CHF 2.7 million had a positive impact on sales, resulting in a 6.3 % sales decline in local currency. Lower steel prices, which Feintool passes on to its customers, are reflected in this decrease in sales. Sales in Asia rose by 10.2 % to CHF 71.1 million. Currency effects had a small negative impact of CHF 0.4 million. Business in Asia, adjusted for currency effects, grew by 10.9 % overall. A displacement of CHF 2.5 million from Japan to China also took place during the reporting year. Due to many localization projects by Japanese automakers, vehicle production in Japan has been stagnating for several years. With net sales of CHF 38.5 million, China has, for the first time, also become the most important Asian market for Feintool in the parts business. In the parts business, net sales by region changed only marginally. Europe generated 57.6 % of sales (previous year: 58.1 %), and thus was once again responsible for more than half of all parts sales. The share posted by the U.S. plants fell slightly to 30.1 % (previous year: 30.9 %). Asia’s share of sales rose to 12.3 % (previous year: 11.0 %) thanks to growth in China due to new products.

Net sales in the Fineblanking Technology segment fell sharply – by 30.1 % – to CHF 74.7 million (previous year: CHF 106.9 million). The translation effects of foreign currencies are negligible in the capital goods segment. Intragroup sales with the System Parts segment remained unchanged at CHF 12.0 million, but increased as a percentage of the total to 16.0 % (previous year: 11.4 %). Sales to third-party customers decreased by CHF 31.9 million, or 33.7 %, to CHF 62.8 million.

Overall, the Feintool Group sold products and services with a total value of CHF 356.7 million in Europe, increasing the region’s share to 56.4 % (previous year: CHF 371.7 million or 54.7 %), largely thanks to the acquisition in the field of electrolamination stamping. With sales of CHF 181.3 million, or 28.6 % of total sales (previous year: CHF 184.8 million or 27.2 %), the percentage of sales generated in North America increased. Asian sales fell overall to CHF 94.7 million, equal to a 15 % share (previous year: CHF 123.0 million, equal to 18.1 %) – despite the significant increase in the parts business. Sales in Switzerland amounted to CHF 6.9 million or about one percent.

Gross margin

The gross margin fell by 1.8 percentage points compared with the prior year to 36.9 %, while gross profit decreased by 11.2 % and totaled CHF 233.3 million in the financial year. Without the acquisition in the field of electrolamination stamping, the decline would have been at 13.6 %.

Materials are by far the largest cost component for Feintool. In the reporting year, the material to sales ratio increased slightly from 46.3 % to 46.9 % – taking changes in inventories into account – and the cost of materials totaled CHF 296.8 million (previous year: CHF 314.3 million). Materials costs also include costs for external processing of parts, such as hardening or coating. The reporting year was marked by extremely volatile steel prices. Steel prices remained at record levels, especially in the first two quarters. Owing to price escalation clauses in many customer contracts and intensive negotiations, Feintool was able to pass on most of these fluctuations to its customers. Costs with a time lag and a change in the product mix ultimately caused the slight increase in the material to sales ratio. Despite the sales decline, direct labor costs were unchanged at CHF 102.6 million (previous year: CHF 102.5 million). As a result, the ratio of direct labor costs to sales rose from 15.1 % to 16.2 %. The increase in this ratio of 1.1 percentage points is a result of higher added value as well as the lead time for hiring personnel during production ramp-ups or at new locations (especially in Most).

The System Parts segment achieved a gross margin of 37.2 %, well below the previous year’s figure (previous year: 38.9 %). Increases in efficiency at many plants and greater vertical integration in the case of some products had a positive effect. Nevertheless, these effects could not fully offset the impact of price discounts agreed upon with customers and additional costs due to some technical difficulties.

In the Fineblanking Technology segment, the gross margin fell to 32.0 % (previous year: 36.0 %). This was due to both changes in the product mix on the one hand and significantly lower throughput on the other hand.

Key cost items

All in all, labor costs totaled CHF 194.4 million (previous year: CHF 194.9 million). As a result, the labor costs to sales ratio rose significantly from 28.7 % to 30.7 %. Wage increases as well as additional employees at the locations in China and the Czech Republic and reduced staff numbers as a result of the market downturn largely balanced each other out.

In the System Parts segment, labor costs increased by CHF 3.9 million to CHF 166.1 million. Of this increase, CHF 5.5 million was attributable to the acquisition. In addition, starting June 1, 2018, tool making in Lyss was integrated into the parts business for organizational reasons. This resulted in labor costs in the amount of CHF 4.0 million. Accordingly, the ratio of labor costs to sales rose from 27.6 % to 28.9 %. 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 labor costs as a percentage of sales. Moreover, the increase in vertical integration through additional work steps, such as tempering, is likewise associated with training expenses and a corresponding increase in the headcount.

In the Fineblanking Technology segment, labor costs fell by CHF 4.7 million to CHF 20.7 million, with CHF 4.0 million resulting from the reclassification of tool making. As a percentage of net sales, labor costs increased significantly from 23.8 % to 27.7 %. The massive sales decline is the main reason for this increase.

Thanks to extensive cost-cutting measures, other operating expenses fell by CHF 7.6 million to CHF 78.2 million. As a percentage of sales, these expenses fell slightly to 12.4 % (previous year: 12.6 %). Other operating income fell slightly to CHF 2.0 million. As a result of the ongoing focus on core activities, income from general services and income from real estate 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) fell significantly by CHF 22.1 million, equal to 24.6 %, to CHF 67.7 million for the reporting year. The currency effect in the amount of CHF 0.8 million intensified the decline. The EBITDA margin stood at 10.7 % for the financial year, 2.5 percentage points lower than in the previous year. Feintool was only partially and insufficiently able to compensate on the cost side for the significant sales decline as a result of the economic downturn and the price concessions granted to customers.

Depreciation and impairment

Amortization/depreciation rose sharply in the reporting year, namely by 15.6 % to CHF 48.8 million. The acquisition effect on amortization/depreciation totaled CHF 1.6 million. Significant capital expenditures in recent years caused amortization/depreciation to increase by CHF 5.0 million, or 11.8 %. Relative to sales, amortization/depreciation rose from 6.2 % to 7.7 %. The company’s capital expenditures of CHF 56.3 million only slightly exceeded amortization/depreciation for this financial year.

Operating profit (EBIT)

Feintool generated earnings before interest and taxes (EBIT) of CHF 18.9 million (previous year: CHF 47.5 million). The negative currency effect at the EBIT level amounted to an insignificant CHF 0.2 million. This unsatisfactory result was caused by the decline in gross profit due to the sharp drop in sales, high labor costs, and rising depreciation/amortization.

EBIT generated by the System Parts segment fell by CHF 20.3 million, or 46.6 %, to CHF 23.2 million (previous year: CHF 43.5 million). The sales decline and the significantly slower introduction (i.e. ramp-up) of new products led to the underutilization of production capacity at some plants. New products will also be launched at some plants in the early months of 2020. The associated preparations continued to cause high capital expenditure and considerable preparation costs. Overall, the EBIT margin in the parts business fell by 3.4 percentage points to 4.0 %.

The European plants suffered a marked decline in earnings, with the result that this region only contributed CHF 5.8 million to total EBIT. The American plants contributed an EBIT of CHF 14.1 million to total earnings, making it the Feintool Group’s most successful region for the first time. In Asia, EBIT and the corresponding margin in the parts business increased; earnings for the reporting year stood at CHF 2.3 million. The two Chinese plants showed a significant improvement, with higher sales thanks to new products.

The Fineblanking Technology segment, on the other hand, suffered from the slump in sales and posted earnings of only CHF 0.7 million (previous year: CHF 9.8 million). The margin fell sharply year over year to a modest 0.9 % (previous year: 9.2 %). Research expenses were similar to the previous year, coming in at CHF 4.4 million. Activities in this area were continuously intensified as an investment in the future.

The nonoperating units incurred costs of CHF 6.5 million (previous year: CHF 7.5 million). Prior years’ expenses were negatively impacted by special items (cost of acquisitions etc.). Such items were virtually nonexistent in the reporting year. Accordingly, the result of the nonoperating units improved significantly.

Financial result

The net financial result of CHF -3.7 million is comparable with the previous year (CHF -3.5 million). Despite the steady rise in the value of the Swiss franc, currency gains of CHF 0.6 million (previous year: CHF 1.2 million) were recorded in the reporting year, albeit slightly lower than in the previous period. As a result, adjusted for currency effects, the negative net financial result decreased by CHF 0.4 million to CHF -4.2 million. Despite higher average net debt, interest expenses fell slightly. At the end of the year, net debt stood at CHF 140.7 million, slightly lower than at the end of the previous year (CHF 147.9 million), also thanks to the introduction of an asset-backed securitization program (ABS program). This is despite the fact that the first-time adoption of the IFRS 16 standard applicable to leases impacted net debt by CHF 11.6 million. The ratio of net debt to EBITDA nevertheless rose to 2.1× at the end of the reporting period due to the significantly lower EBITDA at the end of the year.

Taxes

Tax expenses for the Feintool companies totaled CHF 4.5 million. The effective tax rate of 29.9 % fell slightly year over year (previous year: 30.7 %). This includes withholding taxes of CHF 0.5 million on intragroup dividend distributions. Without this effect, the tax rate would have been at around 27 %. Markets important to Feintool such as Germany and Japan have high tax rates. As in previous years, the effective tax expense is influenced by losses in countries (especially China and the Czech Republic) in which loss carryforwards lapse relatively quickly and are therefore not capitalized. In the reporting year, the tax effect from non-capitalized losses amounted to CHF 1.8 million. As such, this effect amounts to 1.1 percentage points.

Net income

The group result fell to CHF 10.7 million (previous year: CHF 30.5 million). As such, the net profit margin accounted to 1.7%.

CONSOLIDATED BALANCE SHEET

In contrast to previous years, there was hardly any change to total assets, which increased minimally from CHF 705.3 million to 706.3 million despite the first-time adoption of the new IFRS standard on leases.

Current assets decreased by a total of CHF 5.7 million, or 2.3 %, to CHF 233.1 million. In this regard, the individual items trended differently. Thanks to effective receivables management, the introduction of an ABS program, and in part influenced by the weaker business, receivables fell by CHF 16.1 million to CHF 85.0 million. As a percentage of sales, receivables once again fell from 14.9 % to about 13.4 %. The age structure of receivables hardly changed during the reporting year. On the other hand, inventories and credit balances from contractual assets fell disproportionately by CHF 5.7 million to CHF 94.2 million. As in the previous year, prepaid expenses and accrued income totaled CHF 6.1 million. On the other hand, cash and cash equivalents increased by CHF 12.6 million to CHF 43.5 million due to numerous received payments in the closing days of the reporting year.

Operative net working capital decreased significantly by CHF 24.1 million to CHF 71.0 million and thus amounted to 11.2 % of sales (previous year: 14.0 %). The main reasons for this decline were the reduction in receivables in part due to the introduction of an ABS program, the decrease in inventories, and the significant increase in trade payables. 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.

Total noncurrent assets rose slightly by 1.4 % from CHF 56.3 million to CHF 473.1 million as a result of further substantial capital expenditures. Property, plant, and equipment grew by CHF 10.9 million to CHF 357.9 million. This increase largely corresponds to the increase in fixed assets due to the first-time adoption of the new IFRS 16 standard for leases, which resulted in an increase in total noncurrent assets of CHF 11.6 million. Intangible assets decreased by CHF 5.4 million to CHF 95.8 million. This decline was primarily due to the decrease in goodwill (translation effect of the acquisitions made in Germany) and the scheduled depreciation of capitalized customer benefits (from acquisitions) and land use rights. Financial assets remained virtually unchanged at CHF 2.3 million. Deferred tax assets of CHF 17.0 million likewise changed little.

On the liabilities side, debt increased by CHF 11.9 million to CHF 396.4 million. Trade payables, tax liabilities, and other liabilities increased by CHF 5.1 million and totaled CHF 83.3 million. On the other hand, accrued expenses and deferred income, current and noncurrent provisions, and deferred tax liabilities fell by CHF 4.8 million to CHF 63.7 million. Liabilities for employee benefits (IAS 19) increased significantly by CHF 6.1 million to CHF 65.1 million.

Interest-bearing debt increased by CHF 5.5 million to CHF 184.2 million. CHF 11.6 million of this total were the result of the first-time adoption of the IFRS 16 standard. CHF 39.9 million of the interest-bearing liabilities were of a short-term nature, whereby the syndicated loan in the amount of CHF 44.5 million is presented as long-term in line with economic conditions. Noncurrent interest-bearing liabilities totaled CHF 144.3 million for the reporting year. Taking available cash and cash equivalents into account, net debt fell by CHF 7.2 million to CHF 140.7 million (previous year CHF 147.9 million). With CHF 89.0 million in cash and cash equivalents and available, confirmed lines of credit, Feintool has sufficient financial flexibility (previous year: CHF 86.8 million).

Shareholder’s equity stood at CHF 309.9 million on December 31, 2019 (previous year: CHF 320.8 million). The equity ratio fell from 45.5 % to 43.9 %. The statement of changes in equity shows that net income from operating business increased equity by CHF 10.7 million. On the other hand, the distributed dividend reduced equity by CHF 9.8 million. Currency translation differences of CHF 8.3 million and the revaluation of employee benefit obligations of CHF 4.4 million had a significant negative impact on equity. The other items had a small positive effect (CHF 1.1 million).

CONSOLIDATED STATEMENT OF CASH FLOWS

At CHF 82.0 million, cash flow from operating activities was 22.4 % higher than in the previous year, despite the significantly lower result. This welcome result is based on a CHF 13.9 million decrease in net working capital compared with an increase of CHF 25.0 million in the same period last year. Cash flow from investing activities also fell sharply to CHF 51.8 million (previous year CHF 121.0 million). This amount primarily flowed into property, plant, and equipment. Overall, this resulted in positive operating cash flow of CHF 30.2 million. Feintool was able to finance both its significant capital expenditures and the dividend from its operating business in the reporting period.

EMPLOYEES

The number of employees (excluding trainees) decreased by 56 to 2 641 in the financial year. In addition, 91 (previous year 82) young people are currently with our company as trainees. The System Parts segment employed 2 442 people, a decrease of 47 employees. While the plants in China and the Czech Republic hired 37 new employees due to new projects, the number of employees at the other locations fell by 84 due to the market downturn. The Fineblanking Technology segment had 170 employees at the end of the year (-4 compared to the previous year). A total of 30 employees (-4) work in units that are not directly involved in the operating business. Feintool had 1 688 employees in Europe at the end of 2019, equal to 64 % of the total workforce, and five fewer than in the previous year. Of these, 405 were employed in Switzerland (previous year: 422). In the United States, the number of employees fell by 62 to 546 (or 21 % of the total workforce), while in Asia the number increased by ten to 407 (15 %).

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