Financial review
as at June 30, 2019
1) Includes the operating result before depreciation and amortization, (net) financial income and income tax.
2) Includes the operating result before (net) financial income and income tax.
BUSINESS PERFORMANCE
General
This half-year report applies to Feintool International Holding AG and all its subsidiaries. It encompasses the period from January 1 to June 30, 2019. The same period during the previous year is used for comparative purposes.
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. As a result, the comparative figures for the previous year do not include any figures for these companies.
Orders received and orders backlog, expected releases
The System Parts segment’s parts business is short-term. Customers can postpone or even cancel orders that they have already entered into our ordering systems. As of June 30, 2019, Feintool's customer are expecting releases amounting to CHF 271.4 million (previous year: CHF 295.9 million) over the next six months. This corresponds to a decrease of 8.3 % compared to the same period last year. Without the acquisition of the electrical lamination stamping business, the corresponding figure would have actually been 12.0 % lower than the comparable figure for the previous year. Although this figure only constitutes an early indication, it is clear that market expectations have declined significantly compared to the previous year. Overall, the market relevant to Feintool has decreased around 7 % compared to the previous year.
The value of orders received by the Fineblanking Technology segment fell by 45.5 % to CHF 31.6 million in the reporting period (previous year: CHF 57.9 million). Orders received from intracompany business fell in the reporting period by 34.8 % to CHF 4.5 million (previous year: CHF 7.0 million). Orders received from third-party business thus totaled CHF 27.0 million (previous year CHF 50.9 million), a decline of nearly 50 %. The massive decline in orders received reflects the current market situation, which reveals a sharp slowdown in the capital goods business.
As of June 30, 2019, the Fineblanking Technology segment had an orders backlog with a total value of CHF 25.8 million (previous year: CHF 47.2 million). This represents a 45.4 % decline in the value of orders backlog compared with the same period last year and a 30.9 % decline compared with December 31, 2018. In the long-term press business, the existing orders backlog represents only three to four months of guaranteed capacity utilization.
Net sales
Consolidated net sales fell by 1.6 % to CHF 331.9 million in the reporting period (previous year: CHF 337.3 million). Currency effects negatively impacted sales by CHF 2.3 million. In local currency terms, Feintool posted a decline in net sales of only 0.9% thanks to the acquisition of the electro lamination stamping business and a number of new start-ups, which bucked the market trend. The aforementioned acquisition effect totaled CHF 19.5 million, equal to 5.8%. The System Parts segment generated 89.7 % of third-party sales, Fineblanking Technology contributed 10.3%. Taking intracompany sales into account, the capital goods business still accounted for 13.0 % of total net sales. The stronger decline in the capital goods business reflects this segment’s greater volatility.
Thanks to the acquisition and new orders, the System Parts segment’s parts business grew by 1.4 % to CHF 299.4 million (previous year: CHF 295.2 million). Negative currency effects totaled CHF 2.4 million. In local currency terms, the segment therefore grew by 2.2 %. The acquisition of the electro lamination stamping business in the previous year impacted growth by 6.6 percentage points. Sales generated in Europe totaled CHF 177.2 million. Adjusted for currency effects, this corresponds to growth of 6.8 % (+ 3.8 % in the reporting currency). The acquisition effect totaled 11.4 %. Despite several new orders, sales in Europe also fell by 4.8 %. Currency-adjusted sales generated in the United States fell by 3.1 % to CHF 91.7 million, due in particular to falling steel prices. Not adjusted for currency effects, sales generated in the United States stood at the previous year’s level. Sales generated in Asia fell to CHF 31.7 million, a decrease of 3.8 % in local currency terms (4.5 % in reporting currency terms). Thanks to receiving many new orders, the decline in net sales generated in Asia is significantly smaller than the overall market decline (China: -12.4 %).
Thanks to the acquisition of the electro lamination stamping business, the share of sales generated by the European locations once again increased to 59.0 % (previous year: 57.7 %). In contrast, the share of sales generated by US locations fell to 30.5 % (previous year: 31.1 %), with the varying fluctuations in the value of the euro and the US dollar also having an impact. Sales generated in Asia fell to 10.5 % (previous year: 11.2 %). Feintool calculates the breakdown of sales by region based on the customer’s location. Many of the parts produced by Feintool, having been incorporated into modules or entire vehicles, are then exported to other countries/continents as part of these modules or vehicles. As a result, the parts manufactured by Feintool are likely to be used more or less equally in the three regions of Europe, America, and Asia.
Net sales generated by the Fineblanking Technology segment fell by 18.9 % to CHF 43.2 million (previous year: CHF 53.3 million). Intracompany sales declined by 12.9 %. Third-party sales thus fell by 20.4 % to CHF 34.1 million (previous year: CHF 42.9 million). Lower press sales were the primary cause of this disappointing sales performance. In addition, net sales from the sale of tools totaling CHF 4.1 million were allocated to the other segment for organizational purposes. The spare parts and service business remained stable.
Overall, the Feintool Group generated third-party sales of CHF 192.7 million, equal to 58.1 %, in Europe (previous year: CHF 187.0 million and 55.5 %, respectively). Europe thus once again gained in importance. With sales of CHF 96.0 million, or 28.9 % of total sales (previous year: CHF 91.5 million or 27.1 %), North America gained 1.8 percentage points in the geographical breakdown of sales. Sales generated in Asia fell to CHF 43.2 million, equal to a 13 % share of the total (previous year: CHF 58.7 million or 17.4 %). The slowdown in the Chinese market is having a direct impact here. With sales of CHF 5.1 million or 1.5 % (previous year: CHF 4.4 million or 1.3 %), the Swiss market is only of marginal importance to Feintool.
Gross margin
Feintool’s gross margin fell significantly by 2.7 percentage points to 36.2 % year over year; gross profit in the reporting period therefore totaled CHF 120.1 million, declining by CHF 2.1 million due to volume factors. Changes in the product mix, individual production disruptions, and, in particular, contractually negotiated discounts granted to customers had a negative impact of CHF 9.0 million.
The Fineblanking Technology segment’s gross margin fell significantly to 31.2 % (previous year: 36.1 %). An increase in the share of press sales, product mix changes, and geographical shifts caused this decrease.
The System Parts segment achieved a gross margin of 36.4 %, which was also well below the previous year’s figure of 38.8 %. Efficiency increases and, in some cases, slightly lower steel prices in the reporting year could not adequately compensate for the contractually negotiated discounts granted to customers.
Key cost items
At CHF 149.6 million, material costs are by far the company’s greatest expense item. As a percentage of net sales, these declined from 46.6 % to 45.1 %. However, taking changes in inventories into account, materials accounted for 47.6 % of sales, up from 45.8 % a year earlier. The contractually negotiated discounts and product mix changes were the primary reasons for this increase. Personnel expenses rose by CHF 4.8 million to CHF 102.4 million and now account for 30.9 % of net sales (previous year: 28.9 %). In the Fineblanking Technology segment, the ratio of personnel expenses to revenues fell slightly to 25.5 % (previous year: 26.8 %). This is due to the organizational change that toolmaking in Europe – as in the other regions – is now allocated to the System Parts business unit. In the System Parts business unit, this ratio increased significantly to 29.2 % (previous year: 26.9 %). Salary increases in Germany and the aforementioned organizational change accounted for most of this increase. Declines in orders delivered intensified the effect. The increase in personnel at the new facilities in Most, Oelsnitz, and Tianjin (China) also had a negative impact. Other net operating expenses fell to CHF 38.2 million, while the efficiency ratio fell to 11.5 % of net sales.
Earning before interest, taxes, depreciation and amortization (EBITDA)
Earnings before interest, taxes, depreciation, and amortization (EBITDA) fell by CHF 10.6 million or – adjusted for foreign currency effects – 23.2 % to CHF 34.8 million in the reporting period. The EBITDA margin fell to 10.5 %. In the capital-intensive parts business (System Parts), the EBITDA margin fell to 11.9 % (previous year: 15.3 %). Contractually negotiated discounts on some large-scale projects, advance payments to expand capacity at the new facilities, and a significant decrease in orders shipped resulted in this decline. In the capital goods business (Fineblanking Technology), the EBITDA margin fell significantly from 8.4 % to 4.9 %, partly as a result of lower revenues.
Depreciation and Amortization
Due to the significant capital expenditures in the System Parts business unit in recent years, depreciation and amortization rose by CHF 4.6 million to CHF 24.3 million in the reporting period. CHF 1.4 million of this increase is due to the acquisition of the electro lamination stamping business. For the first time in a long time, capital expenditures are on par with depreciation and amortization.
Operating profit (EBIT)
Feintool generated an operating profit (EBIT) of CHF 10.5 million and an EBIT margin of 3.2 % in the reporting period. This corresponds to a decline of 59.7 % in local currency. The downturn in the market had a significant, negative impact on both segments.
The Fineblanking Technology segment was unable to maintain the positive trend of the previous year. Significantly lower revenues ultimately resulted in an operating profit (EBIT) of CHF 1.2 million (previous year: CHF 3.8 million). In this context, Feintool continued to invest heavily in research and development as an investment in the future.
The System Parts segment’s EBIT fell significantly by CHF 13.7 million or 53.5 % (in local currency) to CHF 12.3 million (previous year: CHF 26.1 million). This figure also includes CHF 1.2 million from electro lamination stamping. On the other hand, the slowdown in orders delivered to customers, initial costs for new products, costs for two new production facilities, and discounts on various products caused this decline. The EBIT margin fell accordingly to 4.1 % compared to 8.8 % in the previous year. The European locations contributed CHF 3.7 million to the result, which corresponds to a decline of 75.6 % year over year, expressed in local currency. This decline was primarily due to lower sales and preproduction costs for the facilities in Oelsnitz and Most. The American locations contributed an EBIT of CHF 8.4 million (adjusted for foreign currency effects: -17.6 %) to the result. Asia generated an EBIT of CHF 0.2 million. Due to the weak Chinese market, the expected recovery in Asia has not yet occurred.
The costs incurred by the nonoperating segments totaled CHF 3.4 million. Strong spending discipline and fewer projects resulted in savings of CHF 1.0 million compared with the same period last year.
Net financial result
Net financial expenses increased significantly to CHF -3.6 million (previous year: CHF -1.7 million). Net interest expenses (including financing costs) grew to CHF 1.7 million (previous year: CHF 1.5 million) as a result of the significantly higher level of debt. Feintool recorded net currency losses of CHF 1.5 million in the reporting period (previous year: currency gains of CHF 0.3 million).
Taxes
The Feintool companies’ tax expenses totaled CHF 2.4 million in the reporting period, corresponding to a tax rate of 32.7 %. This includes withholding taxes of CHF 0.5 million on intragroup dividend payments.
Net income
The group generated consolidated net income of CHF 4.7 million (previous year: CHF 16.9 million). As a result, the net profit margin fell from 5.0 % to 1.4 %.
CONSOLIDATED BALANCE SHEET
Total assets increased by 2.8 % to CHF 725.4 million (December 31, 2018: CHF 705.3 million). CHF 11.6 million or 1.6 % of this total is the result of the first-time application of the new IFRS 16 standard governing leases and is therefore not a result of operations.
Current assets increased by a total of CHF 11.0 million to CHF 249.8 million, with all subitems increasing slightly. Cash and cash equivalents increased by CHF 3.3 million to CHF 34.2 million. Receivables increased by CHF 4.3 million to CHF 105.6 million. The value of receivables that do not need to be recognized on the Statement of Financial Position and were sold within the scope of factoring programs decreased to CHF 10.6 million (December 31, 2018: CHF 11.4 million). Inventories and net contract assets increased by CHF 3.5 million to CHF 103.3 million. Accrued income remained unchanged at CHF 6.7 million.
Net operating working capital rose by CHF 9.9 million from December 31, 2018, to CHF 105.1 million, representing 15.8 % of projected annual revenue (previous year 13.0 %). The strongest negative effects were caused by the increase in receivables by CHF 4.3 million and in inventories and net contract assets by CHF 3.5 million, as well as the decrease in non-interest-bearing liabilities by CHF 13.4 million. Increasing deferred income (+ CHF 8.5 million) and increased accruals (+ CHF 3.0 million) had a positive effect on net working capital.
Fixed assets increased by CHF 9.1 million to CHF 475.5 million. Property, plant, and equipment increased by CHF 8.4 million to CHF 355.4 million, of which CHF 11.6 million resulted from the first-time application of the new IFRS standard governing leases; without this technical change, property, plant, and equipment would have decreased by CHF 3.2 million. Intangible assets decreased by CHF 2.2 million to CHF 99.0 million. Financial assets remained virtually unchanged at CHF 1.8 million. Deferred tax assets increased by CHF 19.4 million (December 31, 2018: CHF 16.5 million).
On the liabilities side, total debt increased by CHF 33.6 million to CHF 418.1 million. Accounts payable and other liabilities decreased by CHF 13.4 million to CHF 64.8 million. Deferred income, current and noncurrent provisions, and deferred tax liabilities increased by CHF 9.5 million to CHF 78.0 million. In this context, accrued expenses and deferred income were impacted by the higher value of accounts payable at the end of the reporting period. Liabilities for employee benefits (IAS 19) increased significantly in the reporting period to CHF 66.4 million as a result of the declining discount rate
Interest-bearing debt increased by CHF 30.2 million to CHF 208.9 million, CHF 11.6 million of which resulted from the first-time application of IFRS 16 (leases). CHF 106.3 million of the interest-bearing debt is of a long-term nature.
Net debt rose to CHF 174.8 million in the reporting period (December 31, 2018: CHF 147.9 million) due to the increase in net working capital and the first-time application of IFRS 16 (leases). On the other hand, Feintool has CHF 54.1 million in cash and cash equivalents as well as unused credit lines available.
Shareholders’ equity totaled CHF 307.3 million on June 30, 2019 (December 31, 2018: CHF 320.8 million). As a result, the equity ratio fell from 45.5 % to 42.4 %. The Statement of Changes in Equity shows that consolidated earnings increased shareholders’ equity by CHF 4.7 million. In contrast, the dividend distributed reduced equity by CHF 9.8 million. Currency conversion differences totaling CHF 3.2 million recognized directly in equity as well as actuarial losses of CHF 5.6 million from pension plans (IAS 19) had a significant negative impact. The other items had little impact.
CONSOLIDATED STATEMENT OF CASH FLOWS
At CHF 17.1 million, cash flow from operating activities was lower than in the same period last year (CHF 24.9 million) due to the decline in earnings before interest and taxes. This decrease is a consequence of the considerably lower EBIT of CHF 32.2 million (previous year CHF 46.9 million). Net working capital increased at a lower rate in the reporting period than in the comparative period. At CHF 22.6 million (previous year: CHF 50.1 million), cash flow from investing activities was significantly lower than in the previous year. For the first time in quite a while, depreciation and amortization exceeded capital expenditures for the corresponding period. Overall, this resulted in an operating cash outflow of CHF 5.5 million (previous year: CHF 25.2 million). The cash outflow from the dividend totaled CHF 9.8 million.
EMPLOYEES
The number of employees* (excluding vocational trainees) has increased by 28 to 2 725 since December 31, 2018. In addition, 90 young people are currently completing a vocational training program at our company (December 31, 2018: 82). The System Parts segment has created 30 new jobs since December 31, 2018. In total, 2 519 people now work in the parts business. In Europe, the number of employees grew by 50 to a total of 1 567. In Asia, the number of employees decreased by 12 to 361, while in North America the number of employees rose by 8 to 592. The Fineblanking Technology segment employed 177 people (+ 3), 29 of whom work in nonoperating departments.
Altogether, Feintool employs 1 712 people in Europe (plus 79 vocational trainees), 417 of them in Switzerland (plus 37 vocational trainees). A total of 601 people are employed in the United States (plus 11 vocational trainees) and 384 in Asia.
* calculated as full-time positions