Substantial profit growth for Datwyler

(PresseBox) ( Altdorf, )
In the first half of 2016, the Datwyler Group increased its net revenue by 7.3% to CHF 621.1 million, with both divisions contributing to growth. The EBIT margin continued to rise and exceeded the target range for the first-ever time at 13.2%. The net result went up significantly by 34.4% to CHF 56.6 million. For the year as a whole, Datwyler is confident of achieving its revenue target in the region of CHF 1,250 million for the existing business and operationally delivering an EBIT margin clearly within the upper half of the 10% to 13% target range. Regarding the existing acquisition offer for Premier Farnell, Datwyler is currently considering how to proceed in view of the higher offer submitted by Avnet, and will communicate in due course.

Thanks to the strategic and operational optimisation measures of recent years, the Datwyler Group significantly increased its revenue and, in particular, its profits in the first half of 2016. Despite a challenging market environment, the Technical Components Division proved that it has turned the corner, with the new shared infrastructure platform offering potential for the acceleration of growth and implementation of further efficiency enhancements. The Sealing Solutions Division continued to benefit from its leading positions in dynamic global market segments. Operating profit margin exceeds the target range for the first-ever time
The Datwyler Group increased its net revenue year-on-year in the first half of 2016 by 7.3% to CHF 621.1 million (previous year CHF 579.1 million). In contrast to preceding years, the company benefited from favourable currency rates. Adjusted for positive currency and acquisition effects, the Group achieved organic growth of 2.9%. The operating result (EBIT) was up by 21.2% to CHF 81.7 million (previous year CHF 67.4 million), with the EBIT margin consequently exceeding the target range at 13.2% (previous year 11.6%). The net result rose by 34.4% to CHF 56.6 million (previous year CHF 42.1 million).

Expansion and strengthening of the portfolio

Following successful changes to the portfolio in recent years, Datwyler has been focusing for some time on expanding and strengthening its two divisions. Following implementation of the shared infrastructure platform, emphasis within the Technical Components Division is on achieving optimum size in order to deliver the necessary economies of scale. With respect to the potential acquisition of Premier Farnell, in light of the higher offer submitted by Avnet on 28 July, Datwyler is currently considering its options and how to proceed and will make an announcement as appropriate in due course. Also as communicated previously, should the offer proceed, it would turn Datwyler into a leading high-service electronic components distributor with a combined annual revenue of some CHF 1.8 billion. Should the Board of Directors decide not to pursue the acquisition further, one-off transaction costs of around CHF 4 million to CHF 8 million would be incurred and included in EBIT. There would also be one-off costs of approximately CHF 35 million to CHF 40 million related to currency hedging and exchange rate losses, which would encumber the financial result. In the event of a successful transaction, these one-off costs would be assigned to the purchase price and, as such, would not appear in the income statement.

The Datwyler Sealing Solutions Division is already a leading global supplier in its Automotive, Health Care, Civil Engineering and Consumer Goods market segments. To accelerate organic growth, Datwyler aims to access new geographical markets, as well as new technologies and niche markets, through targeted acquisitions within this division. The respective acquisitions of Columbia Engineered Rubber in the US in 2014 and of Origom in Italy in 2015 provide an early illustration of this strategy, while the communicated acquisition of German firm Ott (annual revenue of CHF 33 million) is another good example. Ott, a specialist in producing injection moulding applications made from thermoplastic and liquid silicone using single- and multi-component technology, is the ideal match for Datwyler’s existing technologies and offers the company the opportunity to increase the depth of its added value and tap into new niche markets with potential for growth. Datwyler also sees potential in combining acquired technologies with existing Datwyler technologies, with a view to devising innovative solutions. The acquisition of Ott is expected to be completed at the beginning of September 2016.

The Technical Components Division’s shared infrastructure platform is now in operation

The Technical Components Division delivered significant operational enhancements in the first half of the year, with the successful completion of strategic integration projects to create a shared infrastructure platform. Continuous improvements in product availability as well as shorter delivery times were attributable to the increased stability of structures and processes. The further optimisation of search functions and product information in the online shop also helped to improve the customer shopping experience. Thanks to progress against operational performance indicators, the division managed to increase its revenue by 4.8% to CHF 238.0 million (previous year CHF 227.0 million) despite demanding operating conditions. Adjusted for currency effects, this equates to organic growth of 1.8%. The improved operating result (EBIT) and EBIT margin – CHF 9.2 million (previous year: CHF 5.3 million) and 3.9% (previous year 2.3%) respectively – also prove that the division has turned the corner.

In the first half of 2016, Distrelec was able to buck its negative revenue trend, increase the average order value and the number of active customers, and improve its gross profit margin. Targeted marketing, sales price adjustments, the harmonisation of discounts, and an analysis of freight costs were among the factors contributing to this performance. In order to raise efficiency further, Distrelec expanded the shared service centre in Latvia, rationalised sales structures and intensified digital marketing activities. These ongoing improvements and optimisations entailed one-off costs of CHF 1.5 million during the first half of the year, but will have a positive impact on margins in the future.

Nedis improved its performance again year-on-year, albeit in what was still a demanding market environment. Margin pressure partly offset efficiency-enhancing measures. Nedis anticipates growth potential through new supply agreements with notable customers.

At Reichelt, the focus is on growth through enlargement of the product range and expansion at international level. Accordingly, the company has significantly extended its storage capacities. In its new markets Switzerland and the United Kingdom, revenue performance exceeded expectations, underpinning profitable growth in the first half of the year.

Datwyler believes that the market environment will continue to be challenging for the Technical Components division in the second half of 2016. Irrespective of economic developments, margin improvements on the basis of revenue-increasing and cost-cutting measures are of primary importance. The launch of new products as well as a new own brand for all business units will provide additional impetus for growth, while the new shared infrastructure platform will facilitate the implementation of further efficiency enhancements. Processes and procedures at the central distribution centre in the Netherlands also offer extra scope for optimisation.  
Improved margins for the Sealing Solutions Division

The Sealing Solutions Division remains on its profitable growth path. Thanks to its leading positions in attractive global market segments, Datwyler managed to increase net revenue in the first half of 2016 by 8.8% to CHF 383.1 million (previous year CHF 352.1 million). Adjusted for acquisition and currency effects, the division achieved organic growth of 3.6%.

Good capacity utilisation, ongoing efficiency enhancements, favourable raw material prices and the systematic optimisation of the product mix in delivering higher-quality products led to another distinct improvement in the operating result (EBIT), which rose by 16.7% to CHF 72.5 million (previous year CHF 62.1 million). The EBIT margin increased to 18.9% (previous year 17.6%).

The marketing and quality offensive (‘zero-defect philosophy’) that began last year has had a positive impact on demand in the Health Care market segment, with high-quality seal solutions for prefilled syringes and drug delivery systems seeing the biggest growth. The transfer of production facilities from the US to India has been delayed, meaning that the associated cost savings will not take full effect until the second half of 2017.

Revenue and margin performance in the fastest-growing Automotive market segment was encouraging in all geographical regions. In particular, the increased focus on exhaust after-treatment components (selective catalytic reduction) on diesel vehicles has resulted in an excellent volume of incoming orders. The change in name to Datwyler marked the successful completion of the integration of Columbia Engineered Rubber, the company acquired in 2014. Thanks to Columbia’s existing network in the US automotive industry, Datwyler has managed to achieve much greater market penetration – which is already translating into increased revenue and new projects. The integration of Origom, which was acquired in 2015, is going according to plan. Datwyler believes that this will help to accelerate O-ring-related revenue growth from 2017 onwards.

Revenue in the Civil Engineering market segment fell short of expectations in the first half of the year. However, the level of new orders is promising and should lead to improved business in the second half of the year. The Nespresso order in the Consumer Goods market segment continues to perform well. Negotiations to extend existing agreements are ongoing. For the second half of the year, Datwyler is confident about all the market segments in the Sealing Solutions division.

Datwyler Group’s operating activities on track for the full year

Conditions in the European markets are likely to remain demanding for the Technical Components division. Thanks to the strong positions that the Sealing Solutions division occupies in dynamic global market segments, Datwyler is nonetheless confident of achieving the revenue target in the region of CHF 1’250 million for the full year for the existing business. In light of the strong results in the first half of the year, the EBIT margin for the existing business should also end up clearly within the upper half of the 10% to 13% target range before the aforementioned possible effect of one-off transaction costs.

The figures in the (German) Interim Report 2016 are binding. The Interim Report and this press release contain forwardlooking statements that reflect the Group’s current expectations regarding market conditions and future events and are therefore subject to a number of risks, uncertainties and assumptions. Unanticipated events could cause actual results to differ from those predicted and from the information contained in this release. All forward-looking statements in this press release are qualified in their entirety by the foregoing.


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