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Datwyler with further consolidated foundations for future growth
Based on continuing operations, the Datwyler Group managed to achieve organic revenue growth of 1.8% (adjusted for currency effects) during 2015. Net revenue amounted to CHF 1'165.2 million (previous year: CHF 1'212.6 million). The strong Swiss franc resulted in negative currency effects of CHF 95.4 million or -7.9% following translation of revenue from abroad. The two divisions felt the effects of the strong Swiss franc in very different ways. Thanks to its strong position in global niche markets, the Sealing Solutions division was able to maintain its profitable growth trajectory during 2015. By way of contrast, the strong Swiss franc and ongoing integration projects affected the Technical Components division harder than expected and led to a loss of market share. Given the decrease in revenue, Datwyler had to accept another highly unsatisfactory EBIT margin in the distribution business.
Slight EBIT increase at the previous year’s exchange rates
Also at Group level, the strong Swiss franc had a negative translation impact on the operating result (EBIT) in the year under review, reducing it by some CHF 11.5 million. The reported EBIT was CHF 126.1 million (previous year: CHF 133.8 million), which means the EBIT margin of 10.8% almost remained the same (previous year: 11.0%). At previous year’s exchange rates Datwyler managed to increase EBIT slightly to CHF 137.6 million. These figures also include a negative transaction effect relating to net foreign exchange losses and one-time costs associated with the Technical Components division totalling around CHF 12 million. The net result fell to CHF 82.2 million (previous year: CHF 99.4 million) due to the significant currency losses and a higher tax rate. The previous year's figures quoted above are based on continuing operations without Maagtechnic. Given the solid profitability and the highly promising prospects for the future, the Board of Directors will propose to the General Meeting of Shareholders an unchanged cash dividend of CHF 2.20 per bearer share and CHF 0.44 per registered share. This equates to a distribution rate of 44.0%.
"Although we are only exploiting our full potential in the Sealing Solutions division, as a Group we were again comfortably inside our target range for EBIT in 2015. The encouraging early indicators from the Technical Components division make us confident that the new shared infrastructure platform is putting us back on track for growth," explains CEO Paul Hälg.
Technical Components: pressure on margins due to lack of revenue, strong franc and one-time costs
Under its new management team, the Technical Components division worked successfully on rapidly implementing its strategic integration projects in 2015. Thanks to significant improvements in product availability, shorter delivery times and higher satisfaction rates, Distrelec managed to increase the number of active customers and revenue during the last quarter. Although net revenue from continuing operations fell by a further -2.4% in organic terms in 2015 despite encouraging early signs, this is due in part to the challenging market environment for distributors of electronic goods as well as Distrelec’s unsatisfactory supply capability in the first half year. Another factor was the rising Swiss franc, which had a greater-than-expected impact on performance in Switzerland and resulted in negative currency effects worth CHF 54.8 million or –10.4% following conversion of foreign revenue. Reported net revenue thus dropped to CHF 459.3 million (previous year: CHF 526.5 million for continuing operations excluding Maagtechnic).
The reported operating result (EBIT) fell to CHF 0.3 million (previous year: CHF 24.0 million for continuing operations excluding Maagtechnic). Aside from the lack of sales volume and the negative effects associated with translation into Swiss francs, this is mainly due to provisions on existing stock and price reductions in Switzerland as a result of the rising franc. Datwyler also incurred one-time costs in a bid to accelerate its integration projects. Excluding these negative extraordinary effects, adjusted EBIT stood at CHF 13.1 million, which equates to an adjusted EBIT margin of 2.5%.
Technical Components: development of the new platform
With the shared infrastructure platform for several brands, we have the right strategy at the Technical Components division. Following the move to relocate the German warehouse and logistics organisation to the central distribution centre in the Netherlands in late 2014, its Swedish counterpart was also transferred successfully by early November 2015. At a stroke, this effectively revolutionised the delivery process, the SAP solution and the webshop for no fewer than 14 countries across northern and eastern Europe. It must be said that the integration projects following the acquisitions of Elfa, Reichelt and Nedis have required far more time and resources to implement than originally planned. But we are now confident about the future. This is because the new platform offers customers a much improved shopping experience, with a user-friendly webshop, better product availability and shorter delivery times. The target organic growth, coupled with economies of scale, will enable us to achieve an EBIT margin in excess of 10% again from 2017 onwards. The shared infrastructure platform will also enable Datwyler to integrate the businesses it acquires more easily in future and make the most of any potential synergies. There are plenty of suitable takeover targets in the electronic distribution market, which is experiencing a period of consolidation. Thirty years after the boom period when lots of companies were founded, many providers are now having to manage successions and are often too small to survive on their own.
Systematic exploitation of the potential for synergies and growth
The Sealing Solutions division is on course for profitable growth. It managed to increase net revenue for 2015 to CHF 705.9 million (previous year: CHF 686.4 million). At constant exchange rates this equates to growth of 8.8%. Adjusted for foreign currency translation and acquisition effects, the resulting organic growth in revenue was 4.9%. The main contributions were made by the Health Care and Consumer Goods market segments. Thanks to consistent implementation of strategic objectives, high capacity utilisation and favourable raw material prices, the operating result (EBIT) increased disproportionately to CHF 125.8 million (previous year: CHF 109.8 million). This equates to an EBIT margin of 17.8% (previous year: 16.0%).
The positive trend as far as margins are concerned is the result of targeted strategic and operational optimising measures over the past few years. During the year under review Datwyler was able to bring about additional synergy effects from the merger of the former divisions. In particular, the positive effects expected as a result of the merger are starting to materialise in the Health Care market segment. With a view to generating further synergies, the Sealing Solutions division has launched a project intended to harmonise and optimise all internal processes. This will enable Datwyler to become even more competitive and achieve its target growth by ensuring any increase in costs is disproportionately low. Profitability will also be supported in future by focusing on higher-value products and the ongoing expansion of sites based in low-wage countries.
Sealing Solutions: expanding into new niche markets through acquisitions
For some time now, with an EBIT margin of over 15%, we have been reaping the rewards of the strategic and operational groundwork within the Sealing Solutions division. In the global market segments of Health Care, Automotive, Civil Engineering and Consumer Goods, Datwyler is among the leading providers of high-quality sealing solutions. Thanks to our strong market positions and leading expertise in terms of materials, engineering and processes, we should be able to grow faster than the market across all segments where we are active. Datwyler will also be tapping into potential development and growth opportunities by means of targeted takeovers. This will enable us to offer new technologies and products to existing customers and gain access to new niche markets. We also see potential in combining acquired technologies with existing Datwyler technologies with a view to devising novel solutions. An early example of this strategy was the takeover of the Italian company Origom (CHF 23 million annual revenue) in September 2015. As a specialist provider of precision O-rings, Origom gives the Datwyler Group – besides the automotive industry – access to the hydraulics and pneumatics industry in particular, as well as other interesting industries. We are confident we will soon be able to tap into further new technologies and highly promising niche markets by means of further takeovers.
Confident about the prospects for 2016
We are confident going into 2016 based on the potential for growth which exists within both divisions. The Sealing Solutions division should again profit from a gratifying level of demand in the global market segments in 2016. Furthermore, Datwyler is confident that it will soon be able to tap into further new technologies and promising niche markets by means of further takeovers. In the Technical Components division the new shared infrastructure platform ought to stimulate growth. Provided the Swiss franc does not become even stronger, we are expecting to achieve revenue in the region of CHF 1'250 million for 2016. In terms of the EBIT margin, we are optimistic that 2016 will see us comfortably reach the target range of 10% to 13% once more. During the past fiscal year Datwyler has proven it is able, as a Group, to make solid profits even when the Swiss franc is strong. Looking ahead to 2020, the Datwyler Group is still targeting revenue of CHF 2 billion and an EBIT margin of 12% to 15% by this time. Datwyler intends to secure more than half of the shortfall in revenue via acquisitions. With liquidity reserves (cash resources and available credit lines) worth CHF 630 million, the Group has the potential to finance the acquisitions it aims to make.
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