SFS shows clear improvement in operating results in the second half

News – 24 January 2020

SFS Group returned to organic growth in the second half – in the face of continuing adverse market conditions – thanks to project ramp-ups. Group profitability also showed a strong improvement over the course of the year. Sales for the full 2019 financial year increased by 2.5% and was fueled primarily by the first-time consolidation of Triangle Fasteners Corporation (TFC). Adjusted operating profit amounted to approx. CHF 239 million, which corresponds to 13.4% of net sales.

Guided by its clear focus on customer needs and innovation trends, SFS is well positioned and was able to defend its competitive positions despite the continuing challenging environment in key markets. This achievement was supported by the ramp-up of major projects, especially during the second half. Sales increased by 3.5% in the second half compared to the figure for the prior-year period, of which 1.1% was organic growth. Organic sales growth in the first half was a negative –2.4%.

Consolidated sales for the full financial year of 2019 amounted to CHF 1,781.4 million. This corresponds to an increase of 2.5% from the previous financial year. Changes in the scope of consolidation had a positive effect of 4.4% on sales growth. Foreign currency translation had a negative effect of –1.3%. In organic terms, full-year sales showed a slight decline of –0.6%.

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Engineered Components: Challenges well mastered
The improvement in SFS Group’s operating performance in the second half was driven in particular by the Engineered Components segment, which accounts for more than half of SFS Group's total sales. This segment’s sales rose by 10.7% in the second half compared to the first half. Its significant growth was broadly based and supported by the seasonal ramp-up of several projects as well as a recovery in the Electronics sector.

Full-year 2019 sales for the Engineered Components segment amounted to CHF 957.1 million. Taking the negative currency translation effect of –1.2% into consideration, organic sales growth was slightly positive at 0.2%. The overall flat sales growth is attributed to weak market demand. SFS nevertheless defended or even strengthened its position with its customers in all of its business areas. Its sustained strong competitive position is also reflected in the acquisition of substantial new projects and the healthy project pipeline.

Fastening Systems: Market position further expanded
Sales at the Fastening Systems segment amounted to CHF 498.3 million, an increase of 14.0% from the previous financial year. The aforementioned first-time consolidation effects contributed 18.5% to sales growth. In organic terms, sales growth was slightly negative at –2.1%. The Construction division profited from a stable market environment and generated slightly positive organic growth. Sales in the Riveting division, by contrast, were pressured by the very challenging situation in the German and British automotive markets. Currency effects reduced reported sales by –2.4%.

Thanks to innovative products and the successful acquisition of TFC (in April 2019), the segment strengthened its competitive position in the construction business.

Distribution & Logistics: Solid course of business achieved
Organic sales in the D&L segment declined slightly by –0.8% from the previous year. Reported sales amounted to CHF 326.0 million.

The reason for the slightly negative growth is a general downturn in demand over the course of the year, especially from customers in industrial sectors. D&L is focused on the Swiss market and its market position was strengthened through the acquisition of new customers and intensified multi-channel activities. Changes in the scope of consolidation led to a –1.3% decline in sales while the stronger Swiss franc reduced sales by –0.4%.

Sales by region: Share of sales from Americas region significantly increased
SFS had a broad geographic sales exposure. Some regions showed slightly lower sales due on the one hand to negative currency effects and on the other hand to a weakening of global economic momentum. The disproportionate increase in sales from the Americas region is attributable to the acquisition of TFC and to the organic growth in the construction and, in particular, the medical device industries. Total sales in the Americas rose a sharp 25.0% (organic 5.0%) and accounted for 21.6% of consolidated sales.

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Adjusted second-half operating profit significantly increased
With an adjusted EBIT margin of 14.2%, SFS Group achieved a significant improvement in the second half. Compared to the first-half EBIT margin, this represented an increase of 160 basis points. Higher profitability was fueled by sales growth in the Engineered Components segment and measures taken to strengthen the profitability throughout SFS Group as well as by positive seasonal effects.

Based on the available preliminary results, SFS estimates that its adjusted operating profit will amount to approx. CHF 239 million (previous year, adjusted: CHF 243.1 million). The corresponding adjusted EBIT margin of 13.4% exceeds the projection given at mid-year 2019.

Reported EBIT for 2019 was additionally impacted by several expected non-recurring effects. On the positive side, profits from the sales of real estate in Switzerland. On the negative side, costs related to the transfer of operations to the new site in Nantong (China). These costs were significantly lower than budgeted. The sum of these effects in the financial year was a net negative figure of approx. CHF 2.8 million.

At the bottom line, net income will be positively impacted by a one-term effect of approx. CHF 17 million arising from the recognition of deferred tax assets. The expected significant improvement in the operating results of the North American activities led to the use of tax-loss carry-forwards and the amortization of goodwill for tax purposes. A change in Swiss tax rates also had a positive effect on net income.

The detailed and audited financial statements for the 2019 financial year will be presented at a conference for analysts and the media on 6 March 2020.