SFS looks back on a solid financial year in 2018

News - 8 March 2019

SFS Group achieved sales growth of 6.5% in 2018. This attractive growth was broadly based in terms of end markets and geographies. The Fastening Systems segment's above-average performance is particularly pleasing. Operating profit reached 14.0 % of net sales and stays with CHF 243.1 million 4.2% above the comparable prior-year figure.

SFS Group achieved solid sales growth of 6.5% in the 2018 financial year, lifting its consolidated sales to CHF 1,739 million. Sales growth was driven by organic growth of 5.0% in the Group's core business activities (4.3% including the Engineered Components segment's trading activities). This growth reflects SFS’ strong position as a provider of customer-specific solutions in selected niche markets. Growth for the period was broadly based and the Fastening Systems segment showed the strongest development. Growth in the second half was slower than in the first half. This can be traced to the challenging comparison base – sales growth in the prior-year period was strong – and to an unexpected decline in demand during the fourth quarter, especially from customers in the automotive and electronics industries.

Changes in the scope of consolidation contributed 0.8% to top-line growth, which mostly reflects the first-time consolidation of HECO in the second half. Currency movements had a positive effect of 1.4% on reported sales growth.

Operating profit increased by 4.2% to CHF 243.1 million

Operating profit increased by 4.2% on a comparable basis to CHF 243.1 million. Profitability improved considerably during the second half (EBIT margin of 14.4%) compared to the first half (EBIT margin of 13.6%). The EBIT margin for the year as a whole stood at 14.0%, which is slightly below the comparable year-ago margin of 14.3%. This contraction is primarily attributed to sales mix effects arising, for example, from the stronger growth rates of the Fastening Systems and Distribution & Logistics segments and the strong decline in demand during the final quarter of the year. Net profit for the year rose by 21.9% to CHF 193.9 million, which corresponds to 11.2% of net sales.

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Broadly based growth

SFS continues to expand its position in key application areas. Broadly based sales growth led to a robust sales mix in terms of regions and end markets. Sales growth in Europe (+9.6%) stemmed from solid organic growth as well as positive consolidation and currency effects. The good performance in Americas (+9.3%) can be traced to strong demand in the construction, industrial and medical device sectors. Sales growth in Switzerland (+3.8%) was fueled by innovation and promising new customer wins. Due to subdued market demand in the electronics sector, sales rose 1.1% in Asia.

Engineered Components segment – growth in all four divisions

The Engineered Components segment generated sales of CHF 967.0 million despite a challenging market environment. This increase of 4.4% from the previous year was largely driven by the ramp-up of new projects. A significant improvement in the second-half EBIT margin resulted in an attractive full-year margin of 18.2% (previous year 19.8%, adjusted).

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Fastening Systems segment – strong progress achieved

Thanks to its innovative products, the Fastening Systems segment continued to strengthen its competitive position and captured more market share. Sales grew by 13.8% year-on-year to CHF 437.1 million. The launch of new products was a strong sales driver, with additional support coming from the good market environment. SFS increased its stake in HECO, a specialist for structural timberwork, to 51% to further strengthen this strategic partnership. HECO has been fully consolidated by SFS Group since 1 July 2018 and it contributed 5.8% to the segment's sales growth. Fastening Systems made considerable progress towards improving its profitability during the period under review. At 9.8% (previous year 7.6%), the segment's EBIT margin for the reporting period nearly reached the targeted mid-term margin of 10%.

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Distribution & Logistics – acceleration in growth

Sales in the Distribution & Logistics segment rose by 3.6% year-on-year to CHF 334.5 million. Organic sales growth, taking into consideration the divestment of the segment’s security systems' business unit, amounted to 5.1%, which clearly exceeds the growth rate of Switzerland's gross domestic product. Tools and the construction-related product groups displayed particularly strong growth. Profitability improved during the year under review. EBIT rose to CHF 25.8 million, which corresponds to an EBIT margin of 7.6% (previous year 6.9%, adjusted).

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Dividend payment shall be increased by 5.3%

In view of the robust earnings, the very solid balance sheet with an equity ratio of 74.4%, and the guardedly optimistic outlook for future business activity, the Board of Directors will propose an increase in the payout to CHF 2.00 per share (previous year: CHF 1.90) at the pending Annual General Meeting. The distribution will include the remaining capital contribution reserves (CHF 1.66 per share) and an ordinary dividend payout (CHF 0.34 per share) from retained earnings. The payout from capital contribution reserves is not subject to withholding or income tax for natural persons whose tax domicile is in Switzerland.

Negotations on a strategic collaboration with Triangle Fasteners

Since October 2018 SFS Group has been engaged in discussions on a strategic collaboration with Triangle Fasteners Corporation in USA. The negotiations are well advanced. SFS expects final results in the next few weeks.

Outlook for financial year 2019

SFS expects the market environment in 2019 to be volatile given the trade tensions between the US and China and the recent slowdown in global economic activity. Thanks to its healthy project pipeline, SFS expects to achieve top-line growth of 3% ─ 5% despite the challenging environment. Taking into consideration the uncertain economic situation, SFS expects the adjusted EBIT margin for financial 2019 to be in a range from 13% ─ 15%. Expenditures in connection with the commissioning of the new manufacturing platform in Nantong (China) will result in one-off costs in the low double-digit millions in 2019. Conversely, accounting gains on the disposal of real estate are likely to be recognized. The negative net effect of these one-off effects on reported EBIT for 2019 is likely to range from the high single-digit to low double-digit million amount.