6460 Altdorf, ch
Silvio A. Magagna
+41 (41) 87513-04
Profitable Growth – Successful Portfolio Realignment
The Daetwyler Group continued to grow during the first half of 2008 and increased profit from continuing operations once again, outpacing the record level set in the same period last year. Strategically, the Group resolutely moved ahead with the realignment of its portfolio. Following the sale of the Precision Tubes Division at the end of 2007, Daetwyler acquired the Swedish ELFA Group at the end of April 2008, very promptly and selectively reinvesting the available funds in an attractive business. This successful portfolio realignment has shifted the focus of operations away from cyclical and capital-intensive industrial manufacturing towards high-margin, less cyclical business-to-business distribution.
Focus on niches fuels strong demand Bolstered by the Daetwyler companies' consistent focus on attractive market niches, all four divisions again benefited from continuing strong demand in the first half of 2008. Net revenue rose to CHF 648.1 million from CHF 597.7 million in the same period last year, an increase of 8.4%. Prior year net revenue and all comparatives below have been adjusted to exclude the figures of the discontinued Precision Tubes Division and reflect continuing operations. Organic growth slowed down somewhat due to the base effect of the strong preceding years. 4.7% or CHF 28 million of the revenue growth came from the two-month consolidation of the ELFA Group. Excluding negative currency effects of CHF 10.5 million, organic growth was 5.5%.
Profits continue to rise With capacity utilisation remaining good and the ongoing efforts to enhance productivity, the Daetwyler Group was able to improve on the high profit figures posted last year. This performance was achieved even though the rising prices of petroleum-based elastomeric materials and negative one-off effects of strategic projects in specialist distribution weighed on margins. Operating profit (EBIT) increased to CHF 70.8 million, up 9.4% from CHF 64.7 million in the same period last year and raising the EBIT margin from 10.8% to 10.9%. Profit for the period from continuing operations soared 30.9% year on year to CHF 62.3 million from CHF 47.6 million, due in part to the positive impact of financial items and lower tax expense.
Cables Division improves profitability again The Cables Division, operating as Daetwyler Cables, continued to advance during the first half of 2008, with net revenue for the first six months up 6.7% to CHF 141.1 million from CHF 132.3 million a year ago. Local currency growth was 8.8%. Due to slower construction activity, the rate of growth in the main European markets was slightly lower than last year. In contrast, Daetwyler Cables benefited from the groundwork laid in export markets, in particular the Middle East and Asia, and once more recorded disproportionately high growth in those regions.
The increase in revenue was accompanied by a continued upturn in profitability. Operating profit (EBIT) rose 20.5% year on year to CHF 10.6 million from CHF 8.8 million, lifting the EBIT margin from 6.7% to 7.5%. This was partly a result of the productivity enhancement programmes implemented at the manufacturing facilities in Altdorf (Switzerland) and in Shanghai and Suzhou (China). In addition, a marked improvement in performance was seen in the first half of the year following the restructuring of the Chinese company in Shanghai, coupled with a realignment of the local management, sales force and distribution network.
For the second half of the year, Daetwyler expects the Cables Division to post another moderate increase in revenue, with sustained improvement in earnings.
Rubber Division sustains performance The Rubber Division, operating as Daetwyler Rubber, built on last year's performance during the first six months of 2008. Net revenue increased 2.6% to CHF 80.0 million from CHF 78.0 million a year ago even though Daetwyler Rubber had to contend with a decline in automotive activity in the USA and weaker construction activity in Europe. Added to that, the same period last year included revenue from the sheet product segment that was sold. Despite adverse currency effects and rising prices for petroleum-based elastomeric materials, operating profit (EBIT) was also up, improving 3.2% year on year to CHF 6.7 million from CHF 6.5 million. The EBIT margin remained constant at 8.4% compared with 8.3% a year ago.
The work to gear up for the major contract from the consumer goods industry, announced a year ago, went ahead on schedule. Full mass production will get underway in the second half of 2008. In its operations with moulded rubber components for the automotive industry, Daetwyler Rubber is grappling with difficult market conditions in the USA. The new factory being set up in Mexico has progressed according to plan and is scheduled to come into operation in the third quarter of 2008. As announced, an expiring third-party manufacturing contract is forcing the division to reduce the workforce at the Czech plant by some 90 people by the end of the year. Daetwyler Rubber won additional attractive contracts for special gaskets and seals for tunnelling projects in Eastern Europe, India and the USA, while demand for construction seals increased again towards mid-year.
With the healthy order book, Daetwyler is confident that the Rubber Division will be able to grow revenue and profit for the second half of the year. To combat upcoming increases in raw material costs, Daetwyler Rubber is raising its prices, optimising the product mix and implementing further efficiency enhancements.
Pharmaceutical Packaging Division grows profitably The Pharmaceutical Packaging Division, operating as Helvoet Pharma, continued to grow profitably during the first half of 2008. Net revenue was up 8.1%, rising to CHF 147.7 million from CHF 136.6 million in the same period last year. In local currencies, Helvoet Pharma posted organic growth of 13.3%, once again clearly outpacing the general market growth for pharmaceutical products (5% to 6%). Operating profit (EBIT) kept pace with the revenue growth, also increasing 8.5% to CHF 20.4 million from CHF 18.8 million a year ago, even though the steeply rising prices for petroleum-based elastomeric materials and energy weighed noticeably on margins. To maintain profitability, Helvoet Pharma raised prices in all sales markets, launched higher-end products and initiated programmes to enhance efficiency. These measures enabled the division to maintain the EBIT margin at an unchanged 13.8%.
The capital expenditure programme underway at the Belgian facility is going according to plan, with the new production capacities set to come on stream on schedule at the beginning of 2009. The high-tech clean room production concept and envisaged quality standards are being communicated at targeted information events and receiving great attention from customers. At the US manufacturing facility, Helvoet Pharma has started to install a state-of-the-art purification system for pharmaceutical packaging components.
For 2008, Daetwyler is optimistic that the measures being taken and the strong order book will allow the Pharmaceutical Packaging Division to substantially beat last year's revenue and profit figures.
Technical Components Division makes desired strategic acquisition During the first half of 2008, operating performance in the Technical Components Division lagged behind the significant strategic progress. While net revenue increased 10.7% to CHF 279.7 million from CHF 252.7 million in the same period last year, operating profit (EBIT) slipped 8.2% year on year to CHF 25.6 million from CHF 27.9 million. As a result, the EBIT margin fell to 9.2% versus 11.0% a year ago.
The decline in profit was due to the specialist distribution business, operating as Maagtechnic, which was in the process of implementing two important strategic projects: installing a new ERP system and transferring the plastics centre from Basel to France. Some problems encountered during project execution caused unexpected supply and capacity bottlenecks. Despite the rising demand and high level of orders, the sales revenue stagnated. In addition, the one-off costs of the relocation and migration work and of setting up the new processes and structures were higher than expected. As a result, the profit contribution from the traditionally very profitable Maagtechnic halved in the first six months of 2008. The problems have been identified, and appropriate corrective measures are being taken. Daetwyler is convinced that Maagtechnic will already return to its previous profitability before the end of the year. Supported by the new, group-wide ERP system and the central plastics centre in France, the company has a strong operational base with a competitive cost structure for further expansion. In mid-August, Maagtechnic took over the distribution of Shell lubricants in Switzerland and Liechtenstein from Shell Lubricants Switzerland AG, continuing to strengthen its position in the Swiss market.
Strategically, Daetwyler was able to make a desired acquisition in its mail order distribution business, taking over the Swedish ELFA Group at the end of April 2008. ELFA is the leading catalogue distributor for industrial electronics and automation in Scandinavia, the Baltic and Eastern Europe, and has successfully focused on high-margin product segments. Employing some 450 people, the group generates annual revenue of approximately CHF 180 million and EBITDA of about CHF 35 million. Geographically, the ELFA Group ideally complements Daetwyler's already existing catalogue distributor, Distrelec. This makes Daetwyler the Number Two catalogue distributor for industrial electronics and automation in Continental Europe and the leading supplier in the rapidly growing East European markets. On the market side, Distrelec and ELFA have an optimum platform for organic growth. And on the cost side, they have substantial potential to realise synergies in purchasing, inventory management, product management, catalogue production and electronic media in the future. The integration work is going according to plan. During the first two months of consolidation, the ELFA Group already contributed CHF 4.0 million to EBIT.
For the full year, Daetwyler believes that the Technical Components Division will significantly improve on last year's revenue and profit figures.
Outlook: marked increase in profit from continuing operations Daetwyler is confident that the Group's profit from continuing operations for the 2008 financial year will be well up on last year (CHF 86.3 million). With the addition of the ELFA Group consolidated since May 2008, the Group expects profit for the year to increase by approximately 30%.
So far, a drop in demand has hardly been felt in the market niches served by Daetwyler. However, in most of the businesses, the foreseeable horizon only extends to a few months. The pace of organic expansion will be dampened somewhat by the base effect of the already very good preceding years and the impact of foreign exchange rates. While the rising raw material costs will also continue to weigh on profitability, the Daetwyler Group's portfolio offers distinctly higher margins than a year ago following the sale of the Precision Tubes Division and the acquisition of the ELFA Group. The target range for the EBIT margin is now between 8% and 12% over the economic cycle, as compared with the previous 6% to 10%. Daetwyler is convinced that, with the new portfolio, the Group has the right strategic focus to sustain continued profitable growth.
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