Datwyler reports solid profitability in extraordinary times

Datwyler had to contend with some extremely challenging developments within the markets it serves in the first half of 2020 due to the Covid-19 pandemic. With measures being taken at an early stage, it was possible to protect employees’ health and combat the spread of the Covid-19 virus. Despite the restrictions imposed by the authorities to contain the Covid-19 virus, Datwyler was able to guarantee supplies at all times and keep serving its customers. However, the company was not immune to the massive collapse in demand within the global automotive industry and the negative impact of a strong Swiss franc.

REVIEW

Focus on system-critical elastomer components implemented.

Notwithstanding the challenges associated with Covid-19, Datwyler switched its focus, as announced, to high-quality, system-critical elastomer components during the first half of the year. This meant selling the Distrelec and Nedis distribution companies in March and the civil engineering business in May. Taking into account the companies sold, net revenue for the first half of 2020 amounted to CHF 545.7 million. The sale of the subsidiaries resulted, as announced, in a non-cash loss of CHF 464.5 million in total. This led in turn to a reported operating result (EBIT) of CHF –399.4 million. Before taking into account the loss from the sale, this equates to an EBIT margin of 11.9%. The reported net result was CHF –421.7 million. Further reporting will be based on continuing operations for the two business areas Healthcare Solutions and Industrial Solutions as well as the online distributor Reichelt.

High demand for Healthcare, Food & Beverage and Reichelt.

At an operational level, Datwyler coped well despite the negative impact of the Covid-19 pandemic. The new organisational structure, with the two business areas Healthcare Solutions and Industrial Solutions and the two Group functions Technology & Innovation and Finance & Shared Services, has certainly proved its worth already during the Covid-19 pandemic. The increased focus on the respective markets helped Datwyler respond to changing market conditions and customer needs with speed and agility. Thanks to strong market positions and high demand Datwyler only suffered a 10.3% decline in net revenue, which amounted to CHF 488.6 million (previous year: CHF 544.7 million). Adjusted for the negative impact of a strong Swiss franc, this equates to a 5.2% organic decline. Despite the massive slump in the automotive and oil industry markets, Datwyler still managed to cope well.

Early action to maintain profitability.

With the automotive industry contracting, Datwyler had already introduced efficiency improvement programmes as early as 2019. During the first half of the year, these were reinforced in the Industrial Solutions business area by additional cost-saving measures. By taking action early, Datwyler managed to achieve EBIT of CHF 64.5 million (previous year: CHF 92.1 million) and maintain profitability with an EBIT margin of 13.2% (previous year: 16.9%). Adjusted for the start-up costs of CHF 8.1 million for the new Healthcare plant in the USA, the adjusted EBIT margin was 14.9%. This in turn meant a net result of CHF 43.5 million (previous year: CHF 70.7 million).

"Diversification across several market segments has proven its worth in tough times such as the Covid-19 pandemic. With the Healthcare Solutions and Food & Beverage units and the online distributor Reichelt, we earn more than 70% of our revenue in low cyclical markets that are growing steadily."

CEO Dirk Lambrecht

MARKET UNITS

Healthcare Solutions enjoys strong order volumes.

The Covid-19 pandemic has left the Healthcare Solutions business area with additional costs, but demand is up too. Organic revenue growth of 5.7% was offset by negative currency effects. In Swiss francs, the strong performance of the same period last year was almost replicated, based on revenue of CHF 201.1 million (previous year: CHF 202.1 million). Although all Datwyler Healthcare plants have been classed as essential production facilities in their respective countries, the measures imposed by the authorities to contain the Covid-19 virus had reduced production capacity at the same time. Productivity has been steadily increasing since the end of April, however, and revenue growth is accelerating all the time. The product mix is also changing to good effect, with a significant increase in the percentage devoted to coated components with higher margins. The operating result (EBIT) amounted to CHF 35.5 million (previous year: CHF 42.4 million), which corresponds to an EBIT margin of 17.7% (previous year: 21.0%). Various additional costs to manage the impact of Covid-19, as well as higher depreciation and start-up costs for the new Healthcare plant in the USA, meant that margins were squeezed in the first half of the year. Adjusted for the start-up costs of CHF 8.1 million, the adjusted EBIT margin was 21.7%. Customer validation of the new US Healthcare plant has been accelerated by the additional need for production capacity for Covid-19 medicines and vaccines.

Industrial Solutions faced with sharp decline in automotive demand.

The Industrial Solutions business area was badly hit by the negative economic impact of the Covid-19 pandemic in the Mobility, Oil & Gas and General Industry business units. For example, many Mobility customers had pretty much closed their plants worldwide for several weeks. The number of facilities actively involved in oil extraction declined by over 60% in the USA due to the low price of oil during the first half of the year. Only the Food & Beverage business unit was able to buck the negative trend and accelerate growth compared with the previous year. Overall, the business area’s revenue declined to CHF 212.0 million (previous year: CHF 280.5 million). This corresponds to an organic decline of 18.4%. Datwyler was quickly able to adjust certain cost structures to reflect the new situation, at the sites concerned, by introducing short-time working, making people take holidays and overtime, dismissing temporary staff and making savings in respect of other operating costs. The adjusted operating result (EBIT) amounted to CHF 21.2 million (previous year: CHF 41.3 million). This equates to an adjusted EBIT margin of 10.0% (previous year: 14.7%).

Online distributor Reichelt enjoying strong growth.

During the first half of the year, the online distributor Reichelt profited from the growing popularity of online shopping. There was particularly strong demand for electronic devices and accessories for use in a home office or home schooling setting. The strong growth in the business-to-consumer segment more than compensated for the decline in the business-to-business segment. Thanks to its attractive value for money proposition, Reichelt achieved organic growth of 10.8% in a contracting market and increased revenue to CHF 89.6 million (previous year: CHF 85.8 million). The low cost base helped to increase the operating result (EBIT) by 15.6% to CHF 7.4 million (previous year: CHF 6.4 million). The EBIT margin improved to 8.3% (previous year: 7.5%).

OUTLOOK

Industrial Solutions: significant decline in revenue and profit.

Datwyler is expecting conditions in the markets it serves to be completely different in the second half of the year as well. The Mobility, Oil & Gas and General Industry business units will continue to have to contend with significant uncertainty for the foreseeable future. The company believes that demand will only recover slowly in these markets. It will probably take until 2022 before revenue is back up to the 2019 level. In view of this, Datwyler is forced to further adjust capacity and cost structures in line with lower demand. This will probably lead to one-off restructuring costs in the mid single-digit million range. By contrast, Datwyler is confident that revenue growth will remain high in the Food & Beverage business unit. In order to cope with order volumes for 2020 and the next few years, we are investing in additional production capacity.

Healthcare Solutions: acceleration in profitable growth.

In the Healthcare Solutions business area, Datwyler is expecting the growth trend to continue in the second half of the year – given the high volume of incoming orders. Due to payments from foundations and public authorities, and given the market potential, some pharmaceutical companies are planning to produce medicines and vaccines to combat the Covid-19 virus before they actually have the relevant approval for these. This development has been prompting additional orders of Datwyler components from as long ago as May. In order to cope sufficiently quickly with the additional volume in 2021 and over the next few years, Datwyler will be investing to expand capacity further at the existing Healthcare plants. Thanks to a healthy balance sheet with an equity ratio of over 60% and high liquidity, Datwyler is able to take advantage of profitable growth opportunities at any time and thereby emerge from the Covid-19 crisis in a strong position.

Generally confident about the second half of the year – subject to any unforeseen impact of the pandemic.

We are generally confident about the second half of the year as we are also expecting demand to remain strong for the online distributor Reichelt – besides the high order volumes for the Healthcare Solutions and Food & Beverage areas. However, the ongoing uncertainty regarding the impact of the Covid-19 pandemic on our markets, particularly for the Mobility and Oil & Gas units, makes it difficult, to come up with a quantitative forecast for the year as a whole.

Datwyler uses certain financial performance measures including adjusted key figures, that are not defined by Swiss GAAP. The definition of these alternative performance measures and adjustments are published under: https://datwyler.com/…

The figures in the (German) Interim Report 2020 are binding. The Interim Report and this press release contain forward-looking statements. These statements reflect the Group’s current assessment of market conditions, economic developments and future events. However, these forward-looking statements are subject to economic, regulatory and political risks, uncertainties, assumptions and other factors over which Datwyler has no control. Unforeseen events could therefore cause actual developments and results to differ materially from those anticipated and from the information published in this release. To that extent, all forward-looking statements contained in this release are qualified in their entirety and Datwyler cannot guarantee that they will prove to be correct. Datwyler is under no obligation, and assumes no liability, to update any such forward-looking statements. This document is neither an offer nor a solicitation to buy or sell Datwyler securities.