Financial review
as at June 30, 2022
1) In the 2020 financial year, Feintool received a loan of USD 8.4 million under the PPP program in the United States to mitigate the impact of the COVID-19 pandemic. In the first half of 2021, the government assured the company that this loan would not have to be repaid. Feintool also received CHF 3.0 million in immediate aid from the Swiss government in the first half of 2021 to mitigate the effects of the COVID-19 pandemic. In addition, due to capacities no longer required at one plant, the company recognized an impairment loss on manufacturing equipment totaling CHF 8.3 million. The EBITDA, EBIT, group result, and profit margin figures are presented in this overview excluding these effects.
BUSINESS PERFORMANCE
General information
This half-year report applies to Feintool International Holding AG and all its subsidiaries. It encompasses the period from January 1 to June 30, 2022. The same period during the previous year is used for comparative purposes. In the case of balance sheet figures, the comparative reporting date is December 31, 2021.
On March 1, 2022, Feintool fully acquired the German company Kienle + Spiess GmbH together with its subsidiary Kienle + Spiess Hungary Kft. These companies generated sales of EUR 35.1 million and an operating loss before interest and taxes (EBIT) of EUR 1.1 million in the first two months of the 2022 financial year, during which they were not yet part of Feintool.
To increase transparency, the System Parts segment will be divided into the regions Europe, USA, and Asia as of the first half of 2022. The previous year’s figures will also be presented in this way for the purpose of comparison. The Technology segment will continue to be managed as a separate operating segment.
One-off effects during the previous year
The first half of 2021, which serves as the comparative period for the consolidated statement of comprehensive income for the first half of 2022, included the following one-off effects.
In 2020, Feintool received a loan of USD 8.4 million under the PPP program in the United States to mitigate the impact of the COVID-19 pandemic. In the first half of 2021, the government assured the company that this loan would not have to be repaid. This resulted in other operating income of CHF 7.6 million.
In Switzerland, Feintool submitted an application for emergency aid for COVID-19 hardship cases in the first half of the year. The Canton of Bern’s Office of Economic Affairs approved this application and Feintool received a credit of CHF 3.0 million in total.
In the 2021 financial year, Feintool began implementing its Strategy 2030. A key element of this strategy is for the company to capitalize on the rapid growth of battery-electric vehicles. In this context, Feintool conducted an impairment test of its production facilities in the first half of 2021. In the process, systems were identified which, as expected, can no longer be fully utilized due to the company’s transformation. This led to impairment losses on manufacturing equipment totaling CHF 8.3 million in the System Parts segment in Europe in the first half of 2021. At the EBIT level, this resulted in a net positive one-off effect of CHF 2.4 million in the previous year.
Orders received and orders backlog, expected releases
The System Parts Europe, USA, and Asia segments’ parts business is conducted over the 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 in the supply chains and as a result of 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 orders received in the Fineblanking Technology segment fell by 34.8 % to CHF 14.9 million in the reporting period (previous year: CHF 22.9 million). Orders received from intracompany business declined by 34.6 % to CHF 2.3 million (previous year: CHF 3.6 million). As such, the value of third-party orders totaled CHF 12.6 million (previous year: CHF 19.3 million), equal to a decline of 34.9 %. The low number of orders received reflects the fact that the market situation in the capital goods business remains challenging.
As of June 30, 2022, the Fineblanking Technology segment had an order backlog with a total value of CHF 18.1 million (previous year: CHF 13.1 million). This represents a 38.3 % increase in the value of the order backlog compared with the same date last year. Compared to December 31, 2021, the value of the order backlog increased by CHF 1.4 million. The existing order backlog is not fully utilizing existing production capacities, however.
Net sales
Consolidated sales increased by 36.0 % to CHF 411.5 million in the reporting period (previous year: CHF 302.6 million). Sales generated by Kienle + Spiess amounted to CHF 82.4 million, resulting in inorganic sales growth of 27.2 %. Organic growth thus came to approximately 13.3 %. Organic growth was once again driven by price growth, however. Currency effects negatively impacted sales by CHF 13.7 million. As a result, Feintool recorded an increase in net sales of 40.5 % expressed in local currency.
The System Parts segment’s sales in the reporting period increased by 55.0 % to CHF 255.0 million (previous year: CHF 164.5 million). This increase was driven by the acquisition of Kienle + Spiess. The negative currency effects totaled CHF 16.6 million, resulting in a 65.1 % increase in the segment’s sales expressed in local currency. Sales generated by the System Parts USA segment grew by 22.3 % to CHF 101.6 million (previous year: CHF 83.1 million). Adjusted for currency effects, sales in the United States increased by 18.3 %. In the System Parts Asia segment, sales increased by 13.0 % to CHF 42.8 million (previous year: CHF 37.9 million), equal to an increase of 14.2 % in local currency terms. In addition to inorganic growth, the increase in sales in the parts business was driven by price growth in Europe and the USA. On average, quantities sold by the fineblanking and forming plants were down slightly compared with the first half of 2021.
Sales in the Fineblanking Technology segment fell by 31.9 % to CHF 14.4 million (previous year: CHF 21.1 million). Expressed in local currency, the sales decline stood at 32.1 %.In particular, the overcapacity in the market for fineblanking presses is having a negative impact on Feintool’s capital goods business.
Overall, the Feintool Group generated third-party sales of CHF 251.3 million in Europe, equal to 61.1 % of total sales (previous year: CHF 165.8 million or 58.4 %). With sales of CHF 108.7 million, or 26.4 % of total sales (previous year: CHF 85.1 million or 28.1 %), the share of sales generated in North America increased by 1.7 percentage points. Sales in Asia declined slightly to CHF 51.6 million, causing the region’s share of total sales to decrease to 12.5 % (previous year: CHF 51.7 million, equal to a 17.1 % share).
Key cost items
At CHF 221.7 million, material costs are by far the company’s greatest expense item. In relation to net sales, this figure rose from 45.9 % to 53.9 %, caused by the sharp increase in steel prices and the significant percentage of materials used by Kienle + Spiess. Taking changes in inventories into account, the cost of materials accounted for 52.1 % of sales, up from 41.5 % a year earlier. In June, steel could still be sourced at more favorable conditions, so Feintool built up its stock.
Labor costs rose by CHF 16.2 million to CHF 111.3 million. The labor-to-sales ratio now stands at 27.0 % (previous year: 31.4 %). In relation to output (net sales plus changes in inventories), the labor-to-sales ratio decreased from 30.1 % to 26.6 %. In addition to automation, the lower labor-to-sales ratio was driven by sales price growth.
Other net operating expenses increased to CHF 43.5 million, while the operating ratio grew to 10.6 % (previous year: 9.0 % of sales). The comparative year of 2021 included two one-off effects. Feintool USA received a loan of CHF 7.6 million under the PPP program that it now no longer has to repay. In addition, Feintool Technologie AG in Switzerland received CHF 3.0 million in emergency aid. Both of these amounts are recognized as other operating income. Excluding these two one-off effects, other net operating expenses in 2021 amounted to CHF 37.8 million (12.5 %). This shows that the company was also able to reduce other operating expenses from 12.5 % to 10.6 %.
Earnings before interest, taxes, depreciation, and amortization (EBITDA)
Earnings before interest, taxes, depreciation, and amortization (EBITDA) fell to CHF 43.2 million in the reporting period. The EBITDA margin stood at 10.5 %. Taking the one-off effects into account, earnings before interest, taxes, depreciation, and amortization (EBITDA) amounted to CHF 55.3 million, corresponding to an EBITDA margin of 18.3 %. Excluding these one-off effects, EBITDA in the previous year totaled CHF 44.7 million (14.8 %). As such, EBITDA from operations in the first half of 2022 stood 4.3 % lower than in the same period last year. This was primarily due to the lower quantities delivered in the parts business and the associated drop in capacity utilization at the plants.
Depreciation, amortization, and impairment losses
Depreciation and amortization increased in absolute terms by CHF 3.1 million to CHF 28.6 million in the reporting period, driven by the acquisition of Kienle + Spiess. The depreciation and amortization rate, however, decreased from 8.4 % to 7.0 %. The decline in capital expenditures in the past period led to lower depreciation and amortization rates. In addition, Kienle + Spiess’ business is also less capital intensive. This also has a positive impact on the depreciation and amortization rate. At CHF 12.4 million, capital expenditures in the reporting period again lagged clearly behind depreciation and amortization. Due to overcapacities at a European manufacturing site, the company recognized one-off impairment losses of CHF 8.3 million in the first half of 2021.
Operating profit (EBIT)
In the reporting period, Feintool generated operated profit (EBIT) of CHF 14.6 million. This corresponds to an EBIT margin of 3.5 %. Including the one-off effects EBIT in the previous year stood at CHF 21.5 million, corresponding to an EBIT margin of 7.1 % (excluding one-off effects: CHF 19.2 million, equivalent to 6.3 %). As such, EBIT from operations in the first half of 2022 stood 2.8 % lower than in the same period last year. The EBITDA margin that stood 4.3 % lower was thus reduced at the EBIT level as a result of the lower depreciation and amortization rate.
Financial result
Net financial expenses decreased to CHF -2.5 million (previous year: CHF -3.0 million). Net interest expenses (including other financial expenses) increased to CHF 3.9 million (previous year: CHF 2.7 million) due to the financing costs for the bridge loan for the acquisition of Kienle + Spiess. However, Feintool recorded net currency gains of CHF 1.3 million in the reporting period (previous year: loss of CHF 0.4 million).
Taxes
The Feintool companies’ tax expenses totaled CHF 3.5 million in the reporting period, corresponding to a tax rate of 29.0 %.
Net income
All in all, the Feintool Group generated net income of CHF 8.5 million (previous year: net income of CHF 13.2 million including the one-off effects).
CONSOLIDATED BALANCE SHEET
Total assets increased by 37.3 % to CHF 939.6 million (December 31, 2021:
CHF 684.4 million). This increase was driven by the acquisition of Kienle + Spiess. As of June 30, 2022, Kienle + Spiess’ total assets amounted to CHF 267.8 million, which would have resulted in an increase of 39.0 %. As a result, total assets would actually have declined slightly in organic terms.
Current assets increased by a total of CHF 112.4 million to CHF 365.5 million, whereby some of the individual items moved in opposite directions. Cash and cash equivalents increased by CHF 24.5 million to CHF 76.3 million. Accounts receivable and other receivables increased by CHF 29.9 million to CHF 122.8 million. Inventories and net contract assets increased by CHF 53.1 million to CHF 155.8 million. Prepaid expenses and accrued income increased by CHF 3.5 million to CHF 6.9 million.
Net working capital increased by CHF 68.8 million to CHF 153.2 million compared to December 31, 2021. The increase in inventories by CHF 48.2 million and the increase in trade receivables (+CHF 31.4 million) had a negative impact on net working capital. In contrast, the increase in deferred income (+CHF 9.8 million) was the primary item that had a positive impact on net working capital.
Fixed assets increased by CHF 142.8 million to CHF 574.1 million. The acquisition resulted in an increase in non-current assets of CHF 162.8 million (as of June 30, 2022). Excluding the acquisition effect, non-current assets would therefore have declined slightly compared with the end of 2021. Property, plant and equipment increased by CHF 81.8 million to CHF 412.9 million. Intangible assets increased by CHF 60.9 million to CHF 146.8 million. Financial assets increased by CHF 1.3 million to CHF 6.2 million. Deferred tax assets decreased by CHF 1.1 million to CHF 8.2 million (December 31, 2021: CHF 9.3 million).
On the liabilities side, total debt increased by CHF 49.7 million to CHF 395.7 million. The acquisition resulted in additional debt of CHF 188.7 million (as of June 30, 2022). Trade payables and other liabilities increased by CHF 8.2 million to CHF 91.3 million. Deferred income, tax liabilities, current and non-current provisions, and deferred tax liabilities increased by CHF 30.0 million to CHF 97.5 million. This increase was driven by deferred tax liabilities, which increased by CHF 15.3 million. Liabilities for employee benefits (IAS 19) increased to CHF 73.3 million in the reporting period as a result of the acquisition of Kienle + Spiess.
Interest-bearing liabilities decreased by CHF 38.9 million to CHF 133.6 million, despite the addition of CHF 73.6 million in debt from the acquisition of Kienle + Spiess. The cash outflow from the acquisition of Kienle + Spiess was significantly overcompensated for by the equity offering that led to inflows of approximately CHF 200 million. CHF 116.0 million of the interest-bearing debt is of a long-term nature.
Net debt decreased to CHF 57.3 million in the reporting period (December 31, 2021: CHF 120.7 million) due to the equity offering which was around CHF 200 million. As a result, Feintool has CHF 246.0 million in cash and cash equivalents as well as unused lines of credit available.
Shareholder’s equity stood at CHF 543.9 million on June 30, 2022 (December 31, 2021: 338.4 million). As a result, the equity ratio increased from 49.4 % to 57.9 %. The Statement of Changes in Equity shows that consolidated earnings increased shareholders’ equity by CHF 8.5 million. Losses from translation differences recognized directly in equity totaling CHF 7.3 million and actuarial gains from employee benefits (IAS 19) totaling CHF 10.5 million also had an additional net positive impact. The other items had much less impact.
CONSOLIDATED STATEMENT OF CASH FLOWS
At CHF 7.2 million, cash flow from operating activities came in clearly lower than in the same period last year (CHF 35.0 million). Net working capital had a negative impact of CHF 31.6 million in the reporting period (previous year: negative impact of CHF 18.8 million). A similar disproportionate increase in net working capital at the half-year point also occurred in the years 2021 and 2020. At CHF 6.5 million (previous year CHF 23.0 million), cash flow from organic investing activities stood significantly lower than in the previous year. The total cash flow from investing activities stood at CHF 58.7 million, with CHF 52.2 million corresponding to the purchase price of Kienle + Spiess less the cash and cash equivalents held by the company at the time it was acquired. Depreciation and amortization thus significantly exceeded ordinary capital expenditures in the corresponding period. Overall, this resulted in a free cash flow of CHF -51.5 million (previous year: CHF 12.0 million). Excluding the acquisition of Kienle + Spiess (CHF 52.2 million), free cash flow would have been positive despite the seasonal increase in net working capital. As such, Feintool was once again able to finance its capital expenditures from its operating business.
EMPLOYEES
The number of employees* (excluding vocational trainees) increased by 1 009 to 3 487 since December 31, 2021. The acquisition of Kienle + Spiess added 952 employees (plus 12 vocational trainees) as of June 30, 2022. In addition, 98 young people are currently completing a vocational training program at our company (December 31, 2021: 89). Adjusted for the acquisition of Kienle + Spiess, the number of employees thus remained at approximately the same level as at December 31, 2021. In total, Feintool has 2 473 employees (plus 43 vocational trainees) in Europe, 322 of whom work in Switzerland (plus 34 vocational trainees). The company employs a total of 547 people (plus 14 vocational trainees) in the United States, as well as 467 in Asia (plus 7 vocational trainees).
* Calculated as full-time equivalents on the reporting date