Earnings power impacted by extraordinary operating effects
Although significant progress has been made, extraordinary operating effects continued to weigh on profitability during the first half of 2018, as had been forecast in the presentation of the annual results 2017. These temporary operating effects related to the sharp increase in the cost of materials, which was passed through to customers with a time lag, substantial advance outlays for pending growth projects, and additional costs associated with the sharpening of production profiles. Against this backdrop, EBIT amounted to CHF 116.0 million, which corresponds to an EBIT margin of 13.6% (prior-year period: 10.4%; adjusted 14.2%). Whereas the second half of the financial year 2017 was distinguished by weak results – due to the above-mentioned extraordinary effects – SFS expects the opposite pattern in the current financial year.Profitability is forecast to improve significantly during the second half of the year thanks to the measures taken, the positive seasonal effects in the second half, as well as the passing on of price increases to customers.
Net income for the period amounted to CHF 88.9 million or 10.4% of the net sales.
Major investments in future growth
Capital expenditure on property, plant and equipment amounted to CHF 69.5 million, which corresponds to an increase of 44.0% from the previous-year period. Most of these investments (75.9%) were made in the Engineered Components segment, which also displays the highest return on capital employed.
The high level of capital expenditure, triggered by key customer projects, will continue during the second half of the year. SFS expects capital expenditure for the year as a whole to equal over 8.5% of net sales.
Entrepreneurial freedom thanks to solid balance sheet
SFS’ balance sheet remains familiarly solid. The equity ratio stood at 71.1% (31 Dec. 2017: 71.6%). Net debt amounted up to CHF -0.4 million.
Engineered Components Segment: Growth maintained
The healthy growth momentum witnessed during the preceding fiscal year continued into the first half of 2018. Organic growth amounted to 7.6%. Supported by positive currency effects, reported sales of CHF 473.2 million were up 10.5% over the figure from the prior-year period. As in 2017, the two key contributors to this growth were the Automotive and the Electronics divisions.
The earnings power of Engineered Components continued to be pressured in the first half of 2018 by high levels of advance outlays in preparation for future growth projects and by increased raw material costs. EBIT amounted to CHF 83.9 million, or 17.6% of net sales (prior-year period: 12.7%, adjusted 19.6%). SFS expects margins to recover during the second half of 2018, thanks to the pass-through of the higher costs to customers, which has taken longer than expected to achieve, and new product launches.
Fastening Systems Segment: Growth driven by innovation
The sales momentum from the previous fiscal year was maintained during the period under review. Sales amounted to CHF 213.0 million, 12.0% more than in the first half of 2017. Organic growth amounted to 6.9%. Fastening Systems continued to strengthen its market position amid a robust market environment, thanks to its offering of compelling products and services. Both divisions contributed broadly to overall sales growth.
Due to good progress on the operating front, reported EBIT of CHF 20.7 million for the first half of 2018 topped the previous-year figure by 12.2%. The EBIT margin stood at 9.4% (prior-year period: 9.3%). SFS expects segment sales and earnings to show positive trends in the second half of 2018.
Thanks to the increase in SFS’s stake in HECO to 51%, growth and synergy potential and the core competencies of each partner are now being exploited even more effectively. HECO has been fully consolidated by SFS Group since 1 July 2018.
Distribution & Logistics Segment: Accelerated growth
The Distribution & Logistics (D&L) segment reported faster sales growth than in 2017. Sales amounted to CHF 169.7 million, which corresponds to an increase of 5.9% compared with the previous-year period.
D&L’s distinctive offering in several market segments was profiled more effectively during the period under review. Examples here are the launch of the new online shop, a more focused offering for specialty retailers and the sale of the security systems business that belonged to the unit of architectural hardware operations.
Sharply higher procurement costs continued to impact D&L's profits in 2018. These increased costs on the supply side were passed through to customers after a longer-than-expected time lag. Nevertheless, segment operating profit rose by 9.2% y-o-y to CHF 12.4 million. The EBIT margin came in at 7.2% (prior-year 7.0%). SFS expects a positive trend in the second half of 2018.
In order to ensure an orderly succession process, the Board of Directors announced that Iso Raunjak will succeed Josef Zünd as Head of the D&L segment. In this role Iso Raunjak will also become a member of the Group Executive Board of SFS Group AG on 1 January 2020.
Positive developments expected
On the assumption that the general economic environment remains basically unchanged, SFS expects sales to continue to grow in the second half of 2018 and full-year sales growth to amount to 7–9% over the previous financial year. Due to the subsiding impact of the above-mentioned extraordinary operating effects and the positive seasonal trends in the second half, profitability should improve and SFS reiterates its projection of an EBIT margin in excess of 14.3% for the financial year 2018.
The half-year report for 2018 can be downloaded at: www.sfs.biz/investorrelations