HALF-YEAR REPORT 2020

Financial review

as at June 30, 2020

2020

2019

Key figures, first half year

Change vs. prev. year

01/01/–06/30/20

01/01/–06/30/19

Operating figures

in kCHF

Net sales

-36.0 %

212 263

331 855

Earnings before interest, taxes, depreciation and amortization (EBITDA)1)

-77.0 %

7 997

34 815

Operating profit (EBIT)2)

-265.3 %

-17 421

10 541

Net earnings

-476.1 %

-17 527

4 660

Orders received third (investment goods)

-56.2 %

11 838

27 032

Orders backlog third as at 30.06. (investment goods)

-48.2 %

12 308

23 771

Return figures

in %

EBITDA-Margin1)

3.8

10.5

EBIT-Margin2)

-8.2

3.2

Net return on sales

-8.3

1.4

Other

Number of employees (excl. apprentices)

-13.3 %

2 363

2 725

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 semiannual report applies to Feintool International Holding AG and all its subsidiaries. It encompasses the period from January 1 to June 30, 2020. The same period during the previous year is used for comparative purposes.

COVID-19

Feintool has been significantly affected by the COVID-19 pandemic worldwide, albeit to varying degrees both regionally and over time.

At the end of January – during the Chinese New Year – the Chinese government initially restricted people’s freedom of movement within China. As a result of government orders, the scheduled closure of both Feintool plants for the holiday was extended from one week to around four weeks. Although production could have been resumed at the end of February, the plants weren’t able to achieve a stable level of production until the second half of March due to gaps in the supply chain. From April on, both the situation on the Chinese market and production stabilized. Export demand from Europe and the United States was almost completely nonexistent until the end of May, however.

Due to the various government orders issued as a result of the COVID-19 pandemic and the massive slump in car sales, every single European automaker closed its factories over the course of March. Production was halted for between four and six weeks. The lack of demand forced Feintool to cut back its own production and even led to the closure of entire factories. Just like in China, the subsequent ramp-up was extremely sluggish. Production did not return to more or less steady levels until the end of May, albeit with output much lower than usual.

On the last weekend of March, many US states issued “stay-at-home” orders. If a company wasn’t deemed essential, production was halted. This order also applied to the states of Ohio and Tennessee, where Feintool’s US plants are located. As a result, production in North America was suspended until the end of May. Unlike in Europe, however, the ramp-up in June was relatively swift, especially at the Tennessee plant, which mainly produces products for SUVs and light trucks – models that sell particularly well in the United States.

The last plants affected by the pandemic were the two sites in Japan. Although production there did continue uninterrupted throughout the pandemic, the lack of export demand meant that sales virtually failed to materialize in the months of May and June.

Feintool attempted to compensate for the loss of contribution due to the slump in sales by cutting costs at all locations. In Europe, the company primarily reduced labor costs through the implementation of short-time work arrangements. In the United States, three-quarters of employees had to be laid off or furloughed. Despite all of these measures, the company was unable to fully compensate for the lack of contribution.

Orders received and orders backlog, expected releases

The System Parts segment’s parts business is short-term. Feintool’s customers continuously send the company the expected releases for the next six months. Customers have the ability to postpone or even cancel releases that they have already entered into our ordering systems, however. In times of considerable uncertainty and, as a result, increased volatility, this early indicator becomes less reliable. As such, Feintool has decided not to publish this key figure at the present time.

The value of new orders received by the Fineblanking Technology segment fell by 39.9 % to CHF 19.0 million in the reporting period (previous year: CHF 31.6 million). Incoming orders from intracompany business increased by 57.0 % to CHF 7.1 million (previous year: CHF 4.5 million). Incoming orders from third-party business thus totaled CHF 11.8 million (previous year: CHF 27.0 million), equal to a decline of 56.2 %. This massive decline in incoming orders reflects the current market situation, which reveals a sharp slowdown in the capital goods business.

As of June 30, 2020, the Fineblanking Technology segment had orders backlog with a total value of CHF 18.6 million (previous year: CHF 25.8 million). This represents a 28.0 % decline in the value of orders backlog compared with the same period last year and a 19.2 % decline compared with December 31, 2019. Current orders backlog are not fully utilizing existing production capacities. As a result, short-time work schedules have been introduced on a large scale at the Jona Press Competence Center and the Lyss site since March 2020.

Net sales

Consolidated sales fell by 36.0 % to CHF 212.3 million in the reporting period (previous year: CHF 331.9 million). Currency effects negatively impacted sales by CHF 9.0 million. As a result, Feintool recorded a sales decline of 33.3 % expressed in local currency. The System Parts segment generated 91.8 % of third-party sales, with Fineblanking Technology responsible for the remaining 8.2 %. Taking intracompany sales into account, the capital goods business accounted for 10.8 % of total net sales in the first half of 2020. This segment’s greater volatility is reflected in the stronger decline in the capital goods business.

The System Parts segment’s sales in the reporting period fell by 34.0 % to CHF 197.5 million (previous year: CHF 299.4 million). Negative currency effects totaled CHF 9.0 million. In local currency, sales thus shrank by 31.0 %. The European business generated sales of CHF 120.8 million, a decline of 28.5 % after currency adjustments (31.9 % in the reporting currency). Sales in the United States fell by 39.9 % to CHF 53.3 million. Excluding currency effects, sales in the United States in fact shrank by 41.9 %. In Asia, sales fell to CHF 24.5 million, a decrease of 18.9 % in local currency (equal to 22.7 % in the reporting currency). Thanks to receiving many new orders, the decline in sales generated in Asia is significantly smaller than the overall market decline as well as the sales decline in other regions.

The European locations’ share of sales again rose slightly to 61.1 % (previous year: 59.0 %). In contrast, the share of sales generated by US locations fell to 27.0 % (previous year: 30.5 %), with the varying fluctuations in the value of the euro and the US dollar also having an impact. The share of sales generated in Asia increased to 12.4 % (previous year: 10.5 %). 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.

Sales generated by the Fineblanking Technology segment fell by 47.0 % to CHF 22.9 million (previous year: CHF 43.2 million). In local currency, the sales decline was slightly lower, though still stood at 46.8 %. Intracompany sales declined by 39.6 %. Third-party sales thus fell by 48.9 % to CHF 17.4 million (previous year: CHF 34.1 million). In contrast to previous recessionary environments, not only did press sales fall, but so did income from service and spare parts. The travel restrictions/bans had a massive impact, particularly on the service business.

Overall, the Feintool Group generated third-party sales of CHF 124.0 million in Europe, equal to 58.4 % (previous year: CHF 192.7 million and 58.1 %, respectively). As such, Europe was able to reaffirm its importance. With sales of CHF 56.6 million, or 26.7 % of total sales (previous year: CHF 96.0 million or 28.9 %), North America gained 2.2 percentage points in the geographical breakdown of sales. Although sales in Asia fell to CHF 31.7 million, the percentage share rose to 14.9 % (previous year: CHF 43.2 million or 13.0 %). The new business of parts production in the Chinese market was responsible for this increase. With sales of CHF 1.2 million or 0.6 % (previous year: CHF 5.1 million or 1.5 %), the Swiss market is only of marginal importance to Feintool.

Key cost items

At CHF 90.9 million, material costs are by far the company’s greatest expense item. As a percentage of revenues, these declined from 45.1 % to 42.8 %. However, taking changes in inventories into account, materials accounted for 46.1 % of revenues, down from 47.6 % a year earlier. This development was caused by the disproportionately high decline in sales in the lower-margin technology segment.

Labor costs decreased by CHF 25.0 million to CHF 77.4 million and now account for 36.5 % of sales (previous year: 30.9 %). It was not possible to reduce human resources in line with the decline in sales in all areas; while direct labor costs declined largely in line with sales trends, cost-cutting measures only partially kept pace with indirect labor costs. There were also delays in staff reductions and the introduction of short-time work schedules. In some countries, the government does not pay employees their full salary when on a short-time work schedule. In the Fineblanking Technology segment, the ratio of labor costs to sales grew significantly to 36.3 % (previous year: 25.5 %). A deliberate decision was made not to scale back research and development activities – since these represent an investment in the future.

In the System Parts segment, this ratio also increased to 33.1 % (previous year: 29.2 %). Wage increases in Germany and the incomplete compensation for salaries during as well as the delayed introduction of short-time work arrangements caused this negative effect. The decline in sales caused by the COVID-19 pandemic coincided with the increase in staff levels at the new plants in Most, Oelsnitz, and Tianjin, China, where a number of new products are essentially waiting to be launched.

Other net operating expenses fell to CHF 30.0 million, while the operating ratio grew to 14.1 % (previous year: 11.5 % of sales). Many components of this item, such as leases, insurance, or IT costs, are not linked to sales.

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

Earnings before interest, taxes, depreciation, and amortization (EBITDA) fell by CHF 26.8 million, equal to three-quarters, down to CHF 8.0 million in the reporting period. The EBITDA margin fell to 3.8 %. In the capital-intensive parts business (System Parts), the EBITDA margin fell to 7.3 % (previous year: 11.9 %). The relatively significant increase in labor costs and operating costs independent of sales caused this margin decline. The capital goods business (Fineblanking Technology) was even forced to report an EBITDA loss of CHF 2.8 million as a result of the slump in sales.

Depreciation and Amortization

Depreciation increased slightly in the reporting period by CHF 1.1 million to CHF 25.4 million. The slow decline in capital expenditures in the previous period slowed down the increase in depreciation. At CHF 21.5 million, capital expenditures in the reporting period again lagged slightly behind depreciation and amortization.

Operating profit (EBIT)

Feintool generated an operating loss (EBIT) of CHF 17.4 million in the reporting period. This corresponds to a decline of CHF 28.0 million. The slump in sales caused by the COVID-19 pandemic had a significant negative impact on both segments.

In the Fineblanking Technology segment, significantly lower sales ultimately resulted in an operating loss (EBIT) of CHF 3.6 million (previous year: profit of CHF 1.2 million). In this context, Feintool continued to invest heavily in research and development as an investment in the future.

The System Parts segment also suffered an EBIT loss in the first half of the year. Operating earnings fell significantly by CHF 21.6 million to CHF -9.3 million (previous year: profit of CHF 12.3 million). The European locations generated a loss of CHF 7.3 million. Due to the large number of locations in Europe, the company did not manage to sufficiently transform fixed labor costs into variable labor costs. The American plants contributed a positive EBIT of CHF 0.4 million, despite an equally massive drop in sales. Asia was responsible for an EBIT loss of CHF 2.4 million. While EBIT in Japan fell by CHF 1.9 million, in China EBIT only declined by CHF 0.7 million. This shows, on the one hand, that the Chinese market is slowly recovering, but also that Feintool is benefiting from the launch of many new products.

The costs incurred by the nonoperating segments totaled CHF 5.0 million. The increase over the comparable period resulted from individual projects and additional expenses in connection with the COVID-19 pandemic.

Net financial result

Net financial expenses declined significantly to CHF -2.5 million (previous year: CHF -3.6 million). Net interest expenses (including financing costs) remained largely unchanged at CHF 2.2 million (previous year: CHF 2.2 million). Feintool recorded net currency losses of CHF 0.4 million in the reporting period (previous year: CHF 1.5 million).

Taxes

As a result of the losses at most locations, Feintool generated deferred tax assets of CHF 2.4 million. In countries with short deduction periods for losses carried forward or other significant hurdles to deducting losses carried forward, these were recognized very conservatively. As such, the deduction rate was recognized at a comparatively low level of 12.1 %.

Net income

The group generated a consolidated net loss of CHF 17.5 million (previous year: profit of CHF 4.7 million).

CONSOLIDATED BALANCE SHEET

Overall, total assets decreased by 2.9 % to CHF 686.1 million (December 31, 2019: CHF 706.3 million).

Current assets decreased by a total of CHF 7.9 million to CHF 225.2 million, whereby some of the individual items moved in opposite directions. Cash and cash equivalents increased by CHF 19.4 million to CHF 62.9 million. This increase is partly related to the use of government loans in connection with the COVID-19 pandemic. In the United States, Feintool received a loan of CHF 7.8 million, although the funds are only needed over the medium term. Receivables decreased by CHF 23.4 million to CHF 66.0 million. Inventories and net contract assets increased by CHF 7.0 million to CHF 87.2 million. Prepaid expenses increased by CHF 3.1 million to CHF 9.2 million.

Net working capital increased by CHF 4.3 million to CHF 75.4 million compared to December 31, 2019. The decrease in non-interest-bearing liabilities by CHF 39.2 million had the strongest negative impact. The increase in prepaid expenses and deferred tax assets also led to a rise (CHF + 5.5 million). On the other hand, receivables decreased by CHF 20.2 million and inventories and net contract assets by CHF 7.0 million. An increase in deferred income (CHF + 4.4 million) also had a positive impact on net working capital.

Fixed assets decreased by CHF 12.2 million to CHF 460.9 million. Property, plant and equipment decreased by CHF 11.1 million to CHF 346.8 million. This decline is a direct consequence of lower capital expenditures (CHF 21.5 million) and lower exchange rates against the Swiss franc. Intangible assets decreased by CHF 3.8 million to CHF 92.0 million. Financial assets remained virtually unchanged at CHF 2.6 million. Deferred tax assets increased by CHF 19.5 million (December 31, 2019: CHF 17.1 million).

On the liabilities side, total debt increased by CHF 7.0 million to CHF 403.4 million. Accounts payable and other liabilities decreased significantly by CHF 39.2 million, down to only CHF 43.4 million. Deferred income, current and noncurrent provisions, and deferred tax liabilities increased by CHF 4.2 million to CHF 67.9 million. Liabilities for employee benefits (pursuant to IAS 19) increased slightly in the reporting period to CHF 66.7 million as a result of unsatisfactory returns on the bond and equity markets.

Interest-bearing debt increased by CHF 41.1 million to CHF 225.4 million. CHF 173.2 million of the interest-bearing debt is of a long-term nature.

Net debt rose to CHF 162.5 million in the reporting period (December 31, 2019: CHF 140.8 million) due to operating loss, increased net working capital, and yet still substantial capital expenditures. Feintool was able to increase its credit lines with various banks to help cushion the effects of the COVID-19 pandemic. Among other measures, the syndicated loan with six banks was increased from CHF 90 million to CHF 120 million. As a result, Feintool has CHF 130.9 million in cash and cash equivalents as well as unused credit lines available.

Shareholder’s equity stood at CHF 282.8 million on June 30, 2020 (December 31, 2020: 309.9 million). As a result, the equity ratio fell from 43.9 % to 41.2 %. The Statement of Changes in Equity shows that the consolidated loss reduced shareholders’ equity by CHF 17.5 million. Currency conversion differences totaling CHF 7.3 million recognized directly in equity as well as actuarial losses of CHF 1.7 million from pension plans (pursuant IAS 19) had a significant negative impact. The other items had much less impact.

CONSOLIDATED STATEMENT OF CASH FLOWS

At CHF 0.4 million, cash flow from operating activities was lower than in the same period last year (CHF 17.6 million) due to the operating loss. This decrease is a consequence of the considerably lower EBIT of CHF 6.2 million (previous year: CHF 32.7 million). Net working capital had a negative impact of CHF 5.8 million in the reporting period (previous year: negative impact of CHF 15.1 million). At CHF 19.4 million (previous year: CHF 22.6 million), cash flow from investing activities was lower than in the previous year, but still high for the current market situation. Thanks to available capacities, the company was able to stop new capital expenditures or postpone them into the future. Depreciation and amortization exceeded capital expenditures in the corresponding period. Overall, this resulted in an operating cash outflow of CHF 19.0 million (previous year: CHF 4.9 million).

EMPLOYEES

The number of employees* (excluding apprentices) has increased by 278 to 2 363 since December 31, 2019. In addition, 78 young people are currently completing a vocational training program at our company (December 31, 2019: 91). In total, Feintool has 1 601 employees (plus 70 apprentices) in Europe, 385 of whom work in Switzerland (plus 32 apprentices). The company has 394 employees in the United States (plus 2 apprentices) and 368 employees in Asia (plus 6 apprentices).

The System Parts segment has reduced its workforce by 11.1 % (-272 employees) since December 31, 2019. In total, 2 170 people now work in the parts business. In Europe, the number of employees declined by 85 to a total of 1 435. In Asia, the number of employees decreased by 38 to 346. In North America, the number of employees decreased by 149 to 389. The Fineblanking Technology segment employed 164 people (-5), 29 of whom work in nonoperating departments.

* Calculated as full-time equivalents on the reporting date

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