SFS Group AG (SFSN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Half Year Results 2021 Conference Call and Live Webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Jens Breu, Chief Executive Officer. Please go ahead, sir.

Good morning, and welcome to the presentation of our first half 2021 results. Today's speakers are Volker Dostmann, CFO; and Jens Breu, CEO of SFS Group. The agenda over the next 60 minutes will be key takeaways, development by segment, development of key financials, updated guidance 2021, group priorities, Q&A before closing. I will start with the key takeaways first half 2021, which can be best summarized as convincing sales and profitability improvement realized. Strong first half 2021 results were achieved, supported by dynamic market environment, retain capacity and capabilities to fulfill customer requirements as well as continued attention to employee health. SFS has taken advantage of driving market demand. First half 2021, gross sales amounted to CHF 957.8 million plus 23.8% versus prior year, driven mainly by segment Engineered Components and Fastening Systems. High capacity utilization, proactive price management and cost consciousness led to operating profit margin peaking at 17.1%. Progress on the infrastructure projects were achieved as planned with most recently announced expansion of production platform in Nantong, China planned to be commissioned in autumn 2023. Highlights, noteworthy from the May published sustainability report for the period 2020 are: number of work-related accidents reduced by another 13.3%, 5% of workforce enrolled into an education program, implementation of a CO2 road map, containing measurable targets for reducing CO2 emissions. Let us for a moment further focus on sustainability, what are now the key elements to improve sustainable development. First and foremost, it's the management attention on regular reporting on progress. The management remuneration being tied to ESG KPIs, focusing of the organization on the core KPIs aligned with the materiality analysis of economic performance, occupational health and safety, training and education, emission reduction, socioeconomic compliance. Another element, the regular public reporting as well as the establishment of a CO2 road map to reduce CO2 emission per scope 1 and 2 by greater than 90% by 2030, scope 3 greater than 90% by 2040. As well as the last element, continued focus on the set goals and update of the materiality assessment in 2021. The materiality analysis according to GRI, as just mentioned, identified the priorities, like the milestone to reduce our emission by greater than 90% through the known SFS value engineering approach. By 2030, we expect to consume less than 10% nonrenewable energy compared to today before potentially buying any certificates. An important lever will be the switch to green electricity as electricity consumption is the main trigger for the emission in scope 1 and 2. With that, strongly underlying that sustainable thinking and acting is part of our DNA from our value proposition as of today; two, a holistic view on sustainability for direct and indirect costs are considered for social, health and safety-related risks as well as the use of resources, production of emissions, waste and disposals. Until today, society in general has not considered cost for environmental pollution in product pricing. But as we see an experience currently, this is being changed by legislation and therefore, will help us to quantify and argue such important cost elements with our customers in future in much more detail, hence further helping us in improving the meaning and the relevance of our value proposition to our customers. Continuing with the development by segment. Starting with the headlines of the Engineered Components segment, which participated at a strong market recovery. Due to that recovery, we can report positive development in most end markets resulting in a first half 2021 reported sales of CHF 492.1 million, representing a plus 29.5% year-over-year growth and a plus 8.3% versus first half of 2019 year growth. Pronounced recovery in automotive and most industrial markets is progressing as well, electronics is moving forward with continued strong demand patterns. The local for local strategy supported largely high delivery performance and allowed for selective market share gains. The global medical platform positioning has been positively received by customers, new projects, especially for our Malaysian site are in discussions with potential new and existing customers. The high utilization of production capacities resulting in a strong EBIT margin of 18.7%. The key message of the division Automotive pent-up demand driving market environment further underlines the just mentioned development of the segment. The recovery in demand across regions and applications is ongoing, however, dampened by shortages in semiconductor supply. Ongoing electrification of vehicles continue to be the major engine for innovation and growth of the division evidenced by new substantial project wins in the area of electric brake applications as expected and initially envisioned for the year 2021. The building expansion project for electric brake systems production in Heerbrugg, Switzerland is developing as planned and will be essential to provide the needed space for the just mentioned recent project wins. Project conditions -- market conditions are expected to largely remain unchanged, supporting the SFS Automotive division's position to outgrow the market. The key message of the division Electronics, stable growth across all applications of end users and supply chain in electronics alliance. Continued growth in the areas of mobile devices and lifestyle electronics is supported by the COVID-19 related ongoing push for home office work. The positive demand pattern for HDD applications is stimulated by cloud and enterprise computing. Shortages in semiconductor supply, creating some degree of volatility. The needed expansion of the Nantong platform is approved and in planning stage. For fiscal year 2021, we expect new positive development versus previous year. The expansion of the production platform, Nantong, China, as visualized on the slide, will therefore provide the needed capacity for future growth. The platform combines all SFS core technologies under one roof and was occupied in 2018. Ongoing growth of mobile devices, lifestyle electronics and demand from other divisions requiring the expansion. Floor space will increase by approximately 70% to totally 130,000 squared meters and shall be ready for occupation in autumn 2023. Total investment spending is budgeted for around CHF 32 million. The key message from the division Industrial continued recovery in most niche markets underlines the return to the growth track. However, development of demand is still varying across individual business units. Currently, we see strong demand for furniture, cutting tools and general industrial applications. The aircraft business is still expected to continue to operate in stabilized, but challenging environment for the next 12 to 24 months, at least. The expected ongoing good demand in the second half of the year will enable the division to return back to organic growth in fiscal year '21. The key messages of the division Medical can be summarized with positive customer sentiment to the global platform development. However, currently, the division is still experiencing a challenging market environment for orthopedic products due to continued postponement of elective surgeries. Besides, for the other roughly 3/4 of the business, the division is experiencing an ongoing positive development in this application area. The buildup of the global manufacturing platform continues as planned. Positive customer feedback and good project inflow in Europe and Asia is observed. Still only slightly positive development for fiscal year '21 is expected, hampered by the mentioned orthopedics business and phase out of some lower margin products. We're coming now to the headlines of the Fastening Systems segment, where the 2 divisions clearly have taken advantage from the dynamic market environment. Continued high demand in construction and industrial manufacturing industries and pent-up demand in automotive markets resulted in the first half 2021 reported sales of CHF 293.1 million, representing a plus 25.3% year-over-year growth and a plus 18% growth versus first half 2019. The currently high market demand, food supply chains and material prices under considerable stream. The strong performance orientation of the involved 2 divisions allowed them to navigate well through the challenging environment and helped them to benefit from market opportunities. High capacity utilization and thorough cost management resulted in a record EBIT of 17.7%. Looking into the details on the development with the Construction division, we can probably best summarize it by strong demand and capacity utilization. The fast relevant European and North American construction market continued its positive development, driven by rebound effects and moved up orders. Extraordinary demand in all application areas across Europe and North America resulted in historically high sales. Increasing signs of overheating is expected to result in a slowdown of construction projects and potentially normalization of demand in the second half of the year. Nevertheless, the division expects dynamic growth in the fiscal year 2021. In addition, the Construction division broadened its market access in Denmark by the acquisition of Jevith. Jevith is a Denmark-based provider of fastening solutions, publications in high-quality building envelope. The acquisition allows the Construction division, expansion of market access into the Danish construction industry. High technology and application competence, including specific services are at the core of the acquired capabilities. The key figures for the fiscal year 2020 are sales of approximately EUR 5 million and a core staff of 10 employees. First-time consolidation will be after July 1, 2021. Coming to the key messages of the Riveting division, continued improvement of performance. Pent-up demand in automotive market and recovery of industrial manufacturing industry drove growth across all application areas. Some automotive customers have been, however, negatively impacted by shortage in semiconductor supply. The concluded sale of the Chinese production site, Nansha, and the associated relocation to our Nantong manufacturing hub is expected to yield further efficiency gains. Looking forward, the market environment is expected to remain stable, resulting in organic growth for the fiscal year 2021. Last but not least, the headlines of the Distribution & Logistics segment for an ongoing positive development has been achieved. Overall, good market demand continued in first half '21 and resulted in reported sales growth of CHF 30 million, representing a plus 8.1% year-over-year growth and a plus 4.4% growth versus first half 2019. Strong demand from construction customers has been observed, along with some work still challenging environment in the milling and machining end market. High market demand put supply chains and price levels under considerable strain, which is expected to result increasingly in constraints of availability of selected product categories in the second half of the year. The segment expects organic growth for fiscal year 2021. With that, I conclude my explanations and will now hand over to Volker for covering the development of the key financials.

Thank you very much, Jens. Good morning, and welcome, everybody, to this webcast. The positive start into the year held strongly into second quarter with slight acceleration on promising levels. Our team managed a high utilization and the demanding supply chain, making their best to honor our commitment towards our customers. This resulted in stark contrast to first half year in 2020 in a significant improved financial performance. In order to put the performance into perspective, as done already by Jens, I shall give occasional your reference to first half year 2019 figures, which we consider as before the pandemic. Although first quarter '21 showed still impact of reduced capacity due to COVID-19 pandemic, we report an overall growth for the first 6 months of plus 23.8% versus prior year. In the decomposition, this is predominantly organic growth as foreign exchange impacts and changes in scope balance nearly out. With a slight acceleration in the second quarter, the group reached an annual growth since 2019 of approximately 5% year-over-year, which is well in the bracket of our 3% to 6%, which we aim for mid long term and which we achieved historically through the cycle. The growth is broadly based and as a consequence, no short-term work regime or reduction on capacities in place anymore throughout the group, the only exception being one side in aircraft components. Along with the development of the global economy, we have seen negative to flattish growth pattern from 2018, quarter 1 to 2020, when the COVID-19 pandemic [indiscernible]. However, end of Q3 '21, rebound '20, rebound '18. Since SFS refrained predominantly from making redundancies during the pandemic, very swift adaptation of capacity to the new market needs allowed us to own our contract and thus confirming our position as being a reliable partner across our customer base. Particularly the automotive industry came back strong despite some volatility due to the supply chain issues, especially in semiconductor. As mentioned before, demand supports the volumes in electronics. In construction, we see historical high levels of sales that have been accomplished partially based on rebound effect, moved up orders and restocking by our customers. We expect to normalize during second half of this year and slow down slightly. Riveting managed to build up on the recovery in industrial and automotive markets, and we've seen also attractive growth in our segment P&L. Overall, the supply chain management of highest attention in order to access reliable partners to our customers. Sales breakdown by end market shows the recovery is visible in most end markets with construction making just short of 1/3 of the overall, automotive on 23.6% and electronics at 17.8%. Medical remaining in the 7% to 9% corridor for the aforementioned region. All end markets, apart from orthopedics and aircraft components, see solid growth. From a regional perspective, Europe being hit hard in first half 2020, came back considerably to 39.2% followed by America and Asia, which is gaining importance theme of 100% -- 110 basis point. High utilization, cost discipline and decisive pricing initiatives drove EBIT to a normalized level of CHF 161 million or 16.8% for the first half of 2021. EBITDA is at CHF 215 million or 22.4%. Workforce has on a like-for-like basis increased by 124 FTEs or 1.2%, which is slower than our overall growth. This leverage is made possible through successful optimization efforts in [indiscernible] various plants. To optimize production footprint, division Riveting transferred its production in China from Nansha to our site in Nantong. Subsequently, the plant and the respective land rights have been sold, -- an extraordinary additional book gain of CHF 3.1 million has been normalized for the reported EBIT of CHF 164 million or 17.1%. As shown on Slide 24, we have experienced considerable dynamics in our end markets during the last 3 quarters. Given the significant pent-up demand paired with material cost increases, which will impact predominantly the second half of the year, we are carefully monitoring profitability as we go forward. Uncertainties stemming from volatile automotive demand and construction industry with signals of overheating, influence our guidance, which will be presented to the latter of this presentation. The seasonality, which we reported comparing first half to second half year over the last years might not hold as pronounced as in the past. For some end markets, it may even not supply in 2021. For 2020 year-end, we presented the long-term compound average growth rate for the group, which was impacted by the 2020 slowdown to a level of 5.3%. Today, we can confirm our statement that the growth through the cycle holds firm and is around 6% and an EBITDA margin, which is well within the targeted bandwidth. Along with the [indiscernible] top line, the net working capital came down to 31.3% of net sales or 113 working days. Seasonality in the net working capital is usually higher at midyear. Demand drove inventory levels with the mentioned need for high attention on on-time delivery to our customers. Further receivables management successfully avoided any increase in debt treasury. Infrastructure projects at Stamm in Hallau, Switzerland and for the automotive infrastructure, Hall 6 here in Heerbrugg as well as improvements in machinery and equipment continue. The project of migrating our ERP environment to S/4HANA, particularly -- partially is recognized as capital expenditure under the bracket quarter. The majority of these projects will be visible and recognized as CapEx in second half year, and we expect our capital expenditure to be approximately at 7% of sales for the full year. The announced expansion in Nantong will only start in 2022. Free cash flow is compared to prior half year results significantly higher, the reasons being twofold. In absolute terms, operational cash flow reached CHF 136 million, and this impacts seasonally from payables and receivables. Second influencing factor is to continue strong demand. That, as I said, has meanwhile strained our inventory level. We have reached already at half year a conversion rate of 41.3% versus EBITDA, which in comparison to prior years is considerably higher. As a result, our equity base has further strengthened and the cash position raised by CHF 35 million versus year-end 2020 to CHF 180 million. Included our cash flows from our divestiture, mainly the onshore building and the payout of dividends, which were prior -- at prior year level. Returns on capital employed increased based on the back of the strength in EBIT, reflecting utilization of our infrastructure. Calculating on a flat tax rate of 17.5%, we show a return on invested capital of 12%, which brings us into the targeted range of return. The differentiation between return on invested capital and return on capital employed can we be decompositioned into tax effect of 5% and the capital impact from goodwill of 11.3%. Let me summarize the financial key figures as a demonstration of stability in the crisis on one hand, on the other hand, the ability to temporarily drive down capacity and cost for swiftly ramp up again. The group is generating cash with speed and reliability standing on a sound balance sheet. With that, I thank you for your attention and hand back to Jens, who will present you the guidance as well as the priorities for the near future.

Thank you, Volker, and welcome back. As mentioned to the guidance for the full year 2021, our expectations have been raised, thanks to organic growth and dynamic business performance. Assuming a continued positive development in the second half of the year, SFS expects organic sales growth to a level of around CHF 1.9 billion for the 2021 financial year at an EBIT margin of approximately 15%, as we have communicated in June. This corresponds to an annual sales growth of approximately 5% since 2019, which is in line with the original before COVID-19 crisis announced midterm guidance. Nevertheless, due to persisting COVID-19 pandemic, the outlook for the full financial year 2021 remain subject to risks and uncertainties. Arriving at the last slide of the active part of our presentation and covering the SFS Group priorities, continued focus on the organic growth path. As strongly rooted in our DNA win to follow tightly identified and relevant mega trends, which means strengthening of the innovation, in particular in the megatrends digitization and autonomous driving. Under the key priority growth, we focus on further investments in future growth projects, in particular in the MedTech, Automotive and Electronics sectors. On the employee side, we continue with the important preventive measures to protect our employees health and safety. On the profitability, we focus on balancing production capacity with demand, ensuring full supply capabilities while keeping costs under control. Sustainability, as already mentioned, means continued focus on the set goals and an update of the materiality assessment. With that, we are at the end of the active presentation of the first half year results 2021 and now available for your questions. First, we take the questions from the call. And after that, switch to the ones from the chat.

[Operator Instructions] The first question comes from Alessandro Foletti from Octavian.

I have two -- and then a small understanding one. When I look at your guidance for the full year, maintaining the 15% margin after such a strong margin in H1, obviously, implies a decline of the margin. Now I wonder if you expect to come out with this guide, if you expect a reduction of the capacity utilization, in particular, in Engineered Components. And if yes, I would like to understand where this capacity utilization sort of reduction comes from?

Okay. Yes, Alessandro. I will take this question, Jens, and I will be answering first half. We see challenges in the second half of the year, potential challenges ahead of us in Engineered Components, first half, in the Automotive segment, I think we have seen a pronounced shortage in semiconductors. Until now, we assume that the total annual car build will be reduced by 2 million cars due to semiconductor shortages. At this point in time, we believe it will be higher. It will be probably around 5 million cars, which will not be built this year due to the shortages, which then later on also result in lower orders from our customers and lower capacity utilizations in our plants in division, Automotive. Secondly, as we already also know the Industrial division usually follows the trend of the Automotive division by a delay of around 1/4, 3 months. So as we still have seen driving demand in Industrial, we would also expect in second half of the year, there will be a certain normalization of the demand pattern in Engineered Components. In Fastening Systems, as we have seen, we have particularly strong demand patterns in the Construction division. Also there, we expect the normalization in the second half of the year. We have not seen that our customers expanded their crews or their capacity in the market. So we believe the strong first half of the year was mainly a refilling, restocking of inventory, maybe some prebuying ahead due to increasing price levels or increasing price expectations in construction. And we already have seen that also some -- in some regions, construction markets have stopped expanding the buildings and waiting until price levels come further down. The Riveting division is also tied to Industrial and Automotive, as just mentioned before. So these are the major challenges we see ahead. So we certainly have seen a strong first half of the year. We expect a normalization in the second half of the year and with that also a lower utilization of our manufacturing plants, which, hence, naturally is pushing or is taking down the EBIT of Engineered Components and Fastening Systems alike.

All right. If I may ask just a quick add-on here. What I don't understand so much is that if you will reach the CHF 1.9 billion in sales, then you are very likely to have 2 half years with the same sales level, plus/minus with CHF 10 million difference. So why should the capacity utilization be so much lower at the same sales level?

That's a good point. It's -- one is capacity, but then the other is the cost of raw materials, which are increasing. The first half year, we benefited from still having inventory rated at a lower cost level. In second half of the year, we would see that material flows in at a higher pricing point, that's a topic. And then secondly, especially in Engineered Components, the price increases on the raw material side, between 20%, 50% and sometimes 100% of raw material price increases have been only announced to start at the end of Q2. So meaning in Q3 and Q4, we will see a substantial increased pricing level, costing level of the raw materials, which we usually fairly quickly utilize and consume. So this is the second element, lower utilization of the plants and then secondly, also much higher cost on the raw material side in all 3 segments.

All right. But then maybe this would be my very small understanding question on your slide, I think it was to be precise, I think 27 I wrote down where you indicate the seasonality of the EBIT. That slide with the two arrows, one pointing up and one pointing down for the EBIT in H2, is there early to tell us that this time, it will not happen as normal? Or actually, it's been a chance that it ends up at CHF 180 million is the second because then?

Yes, certainly. We expect that the arrow, the arrow goes down. On the other hand, I think when we assumed 2021 development of the year and COVID-19, we were wrong. We expect that by now, the COVID-19 crisis is behind us. And we understand and see this is not the case. So we remain open here. We may be misunderstanding the development and maybe see an upward trend even though we expect a downward trend. I think that's the message on this slide. We expect downward. But on the other hand, you never know we could also see an upward trend that maybe it's further accelerating in construction. And maybe the slowdown in Automotive is not as pronounced as we expect it at this point in time. But as you know, SFS, I think we usually come out with a guidance which is probably tilted a little bit more to the conservative side and which represents usually top line and the bottom line results, which we are comfortable to achieve.

All right. If I may, one last one maybe for the CFO. Since there's a new one now here in charge, I was wondering about the cash-to-cash cycle. We've been speaking about that in the past already. Now you're at 109 days. What is your view here? Where can this go?

I think the cash-to-cash cycle at the moment, benefited from very much strained inventory levels and is on a more lower end of the bandwidth. We're looking at the more important business portion going into Asia with larger electronics customers, where we face still negotiation on longer payment terms, which we, at the moment, can depend. But I think we are seeing us towards the lower end of the bandwidth at the moment just because of inventory effect. And low inventories potentially harming our delivery, on-time delivery, we must not go into a risk area there. So that's why I will see that lower end.

The next question comes from Andreas Müller from ZKB.

I've also two or three. One was really on the restocking comment you did. I mean the volumes were immensely growing this quarter. But can you gauge us a bit how much was really underlying demand and how much restocking of these industries, particularly construction or maybe also Automotive?

Yes. Thank you, Andreas Müller, for your question. Yes, that's certainly a challenge we have overall in business that visibility is not very high in the construction market. Usually, our orders -- our customers order 24, 48 hours ahead of time. So from that point of view, there's not a lot of visibility we have. And from that point of view, we have to assume it that probably half of the sales growth we have experienced in the first half of the year in construction is due to restocking. But although it's probably due to customers, new customers not being able to find the products with their existing sources. So meaning the growth roughly has to be divided in half on the construction side. One half is probably sustainable, plus/minus the other half is probably restocking and new customers, which have not been satisfied with their existing resources. When we talk about the Automotive division, I think overall there we have seen the majority of the restocking already in the second half of 2020. So the demand pattern as we have seen it now in the first half of '21 is what we charge through an actual demand pattern, meaning cars being built and there's hardly any space or place between us and the car manufacturers to build up inventory. So in Automotive, we see this as real and true demand. But we have also seen consistently over the last few months, that the order level or order placement level has come down slightly, as mentioned. That's why we believe that the recovery in the car market has -- when we went into the year, we expected a 12% recovery in the cars to be built, we expect this now below 10%, probably maybe around 8%, maybe even 7% at lower 7%. The recovery in cars built year-over-year between 2020 and '21.

Okay. If you haven't had these trends in the supply chain, I mean what could have been kind of an indication of revenue if you would have fulfilled every order you have. Can you gauge us here a bit?

Up to now, we can say we have -- we had only minor delays in the supply chain to our customers, meaning we had still good delivery service to our customers, maybe 2, 3 days delay to their expectations overall. We did not have customer orders, which were completely unsatisfied to this level. In the second half of the year, we also expect further delays, and we also expect that we can satisfy the customer demands overall. Usually, we have seen that some competitors, they were not able to deliver on time or within a certain time period of the demand when it was raised. And due to that, we had some tactical wins over competitors. Second half of the year will be certainly interesting to see the development, will some of this so-called new customers remain with us, especially in the Construction division or will they fall back on their regular sources as they used in the years before. That's still an unknown to us, and that's still also an unknown we have put and built into the guidance for the full year 2021.

All right. And maybe last question on the HDD component part, which was lowering I guess, this first half, is the medium-term outlook unchanged on that one?

Yes, that's probably a hard question you asked us here. We have been truly surprised that year-over-year, we see the TAM development, the total annual drive build is stable. This is the first time, probably in the last 5 years where we have not seen a decline. I would assume we will see a stable year 2021, maybe even a stable 2022, but sooner or later, the annual build drive demand were further being reduced because the HDD drives, they are enhanced year-by-year with more capacity. So hence, less drives are being built and used. But overall, and this is what we see with the sales development in HDD that it returned back to a slight organic growth again because the value content increased in those how this drives. And that's something we have to particularly monitor in the year '22, '23. We believe that maybe we could have a stable, maybe slightly increased sales trend in HDD due to the change of value in those how this drives. But once again, early development, early signs of this development, not yet ready to confirm that trend.

[Operator Instructions] Gentlemen, there are no more questions from the phone.

Then we continue with questions from the chat. The first question comes from Torsten Sauter from Kepler Cheuvreux. Considering the strong first half year performance, do you think there is a risk that SFS will see top line decline in financial year 2020?

Thank you, Torsten, for your question here. Yes, when we look out into the year 2022, we still expect that we perform according to our midterm guidance of meeting the 3% to 6% organic growth. I think when we take a look into the different end markets, which we have, we certainly see a good pipeline of new projects which should support this assumption for the year 2022. On the construction side, certainly some challenges since we don't know where the construction market will continue to go. At this point in time, we expect as long as the national banks remain expensive that there will be enough money available for consumers, enough credits available for consumers to further invest into the environment and where they spend time. And since this is not traveling, it's probably home improvements and new homes. So we are also fairly confident that on the construction side, we will see a stable development. That's probably the biggest answer going into 2022 besides that one, again, we would expect that we perform along the 3% to 6% midterm growth expectation.

Then we continue with a question from Marta Bruska from Berenberg. Given the strong results, how sustainable do you view EBIT margin level for [indiscernible] what areas have driven the strong increase?

So we -- for the Fastening Systems segment stay with our guided range of 12% to 14%, the EBIT margin levels that we still are confident that they are feasible over the cycle. Clearly, automotive end markets drove utilization of our infrastructure asset, construction which makes 1/3 of the overall contributed heavily in pushing our profitability here. So both were part of that strong increase. But we, as mentioned now several times, we are looking with a clear focus on the sales levels in construction. Inventories are ramped up with our customers, and we are expecting and we see first signals of sales levels normalizing out here. So both contribute and construction is beginning to flat now and of the most it shows significant volatility due to their supply chain issues.

Then we continue with the next question from Torsten Sauter from Kepler Cheuvreux. What's the mechanic to rising input cost to the markets, namely civil costs. What sort of headwinds do you expect for 2H? And is this the reason for the conservative 2H March guidance?

We have several mechanics to pass on price increases in construction that's more of a short term price agenda that we are having with our key customers and with our mid and small sized customers. So the mechanic there goes through price increases that we can directly implement in our long term agreements. With larger customers, we have price closes that allow us to pass on raw material increases. On the other hand also, raw material decreases should [indiscernible] to pass that on to our customers with a 3- to 6-month delay once the bandwidth of plus minus, whatever is defined, is less. And therefore, we see their time lagging in ending over price increase. When you ask me about the headwinds we are expecting, our bill of material is shaped in that we are having 12% to 15%, 17% of raw material input depending on the arena we are in. We are expecting headwinds, yes, and it's been mentioned before. Depending on the quality of raw material we are buying, we are looking at 20%, 50% or even more percent of price increases that have been announced starting Q3 and further out into Q4. And yes, it is factored into our guidance, we expect that raw material is playing a more important factor in the second half of the year, namely also because the attention on the supply chain, allowing us to deliver on time will increase and will demand additional measures in order to securitize our delivery to the customer. I hope that helped.

We continue with the next question from Tobias Fahrenholz from Stifel. With regards to price management, could you please provide an estimate on the impact of price increases on top line in first half year and also expected in the second half year? And also highlight the most impacted division?

Yes. Good morning, Tobias. Jens speaking. Certainly, a broad question you're asking us here. I will be able to answer it by segment. Roughly, we can say that in the first half of the year, we have increased pricing in Fastening Systems and in Distribution Logistics segment to our customers. I would broadly state probably in the range between 3% to 6%, prices have been increased in the first half of the year. Segment Engineered Components have not seen price increases in the first half of the year because there the special higher quality raw materials we use there, there we have only seen price increases towards the end of second quarter. That's why we see the price increases in Engineered Components in the second half of the year and probably a more flattish price development in Fastening Systems and Distribution Logistics only minor adjustments for specific products where they will still have price increases. That's overall and in general, the trend, I said, 3% to 6% in Engineered Components, due to the lower raw material content, the price increase will be probably -- below that range, will be probably in the range between 1% to 4%, depending on the customer, the raw materials and the raw material content overall. Besides that, we have not seen a special EBIT gain on the back of lower valued inventories that we could recognize. I think it's division by division. We have seen it bearing here and there between the product lines -- But overall, we have not seen a specific major step up. Overall, I think we can conclude that probably around 5% EBIT increase is max due to raw material price increases we have seen.

Then we continue with a question from Marta Bruska from Berenberg. Can you provide a rough estimate on revenues in the first half of 2021 from the major customer of the Electronics division?

Yes. Overall, we can state that in the Electronics division, we profited from a better H1 development in general because last year, second half of 2020 that the ramp-up of the new programs have been delayed due to COVID-19 and some of that demand has been pushed over into the year '21. That's the reason why we have seen throughout electronics overall, an improvement compared to previous year in the top line sales. At this point in time, we believe and we changed our opinion. We -- first half, we expect that for the second half of the year less driving electronics environment. We changed this opinion here when we analyzed first half year results and looked out further into the second half of the year. COVID-19 is still around. Home office guidelines are still around. We expect that the push for electronics gadgets is continuing in the second half of the year with that yielding in a more positive development of electronics than what we expected initially for the year. In general, we can also say that the development is broad throughout all customers we have in the Electronics division, it's not tied to a specific product program line or specific customers. Once again, it's a broad development within Electronics.

Then next question comes from Manuel Bottinelli from AMG Fondsverwaltung. Can you please elaborate a bit more about ramping up the medical platform. What are the expectations going to the second half of the year and an outlook into 2020, '22?

We see that Medical division overall, as you're probably familiar, we acquired Tegra Medical in North America. We got access to the MedTech customer groups there strongly and now we utilize this access in Europe and Southeast Asia, where we have good capabilities for all the larger volume products and components. So first off, the second half of 2021, we expect that orthopedics and market will start to rebound again. So we would expect that the utilization in Medical will also improve and increase on that side of the business. Secondly, we still have some low-margin product lines where we are in discussions with customers and potentially phase them out in the second half of the year. That's the assumption at this point in time. In the year 2022, we see that we have good product wins. That's why we also need the building extension in Hallau, for instance, in Switzerland, but we also see that we have need for building extension in Malaysia, for instance, where we also have won considerable new medical programs for local customers. In general, we have a good pipeline of new products, which will bring to the market. So from that point of view, we would also expect in the Medical end market next year growth probably in 2022 of around 6% as a very early indication. Besides that, we are certainly working on a few more projects, which then may be coming in 2022 or maybe 2023 for medical customers into the Medical division.

We continue with the question from Torsten Sauter from Kepler Cheuvreux. Can you please guide on CapEx in the second half year and full year 2022? Why have investments into intangible assets increase and what a sustainable level of intangible CapEx from here on?

Thanks for the question, Torsten Sauter. We see 2 trends now. We said the CapEx in first half year has been a bit deferred down as we're going to the larger infrastructure projects like the Hall 6 projects or the build-out of the platform in all out. We are seeing CapEx for the full year '21, around 7% as these projects accelerate. What you see in intangibles is our capitalization of our ERP project S/4HANA, where we do of the 20 years of having SPR through younger commission, we are doing that bridge over. Looking also at the broadening of the ERP to areas where we have been on other ERP systems and also on our core systems. Now this will continue, certainly for the next year, expect it to be in the same range at the same speed roughly. And we are going into rollout during 2022, starting 2022. And then this trend will be capped and will not go into '23, certainly not as pronounced as now.

Then we have a final question in the chat from Torsten Sauter. Unlike last year, the financial results in the first half of the year was positive. Yet there is a gross debt. How should we plan for the full year for these lines?

Not sure whether I fully understood the question. The net cash position when we compare to first half year last year, increased by CHF 191 million. And we repaid third-party debt. We have third-party debt out there in connection with financing structure and balance sheet hedging, which is more on the technical side. But we are not expecting to raise that significantly nor to fully cancel that out. What I said, I'm not sure whether I understand your question. If not fully answered, please feel free to reach out to us after the call and we'll discuss.

Since there are no more questions at this point in time in the...

Sorry to interrupt, sir. We have some questions on the phone.

Okay. We come back to the questions on the phone, yes, sorry.

The next question is from Bernd Pomrehn from Vontobel.

You mentioned some market share gains. Is it fair to say that customers in Automotive are more loyal than in Construction? And what can you do to more effectively bind customers to SFS? That would be my main question. And then the second question, just quickly, can you provide any tax rate guidance for the full year?

Okay. So I will answer the first question, and then Volker will answer the question on the tax. Yes, absolutely. On the Automotive side, customers have to be more loyal because the components and products are specified in an approved usually with the Tier 1s and the OEMs. So customers are usually not that quick and flexible in switching sources. But quite often, there are maybe 2 or 3 sources for specific products or program, which is specified in, and then the customer can switch the allocation from 1 source to the other source usually within a certain band. And this is what we have seen also in this rebound that we had customers, which gave us higher allocation because the other source was not able to ramp up in time or not able to provide the right quality. That's why we had also technical gains in the Automotive division to some degree. But certainly, in the Construction division, roughly half of the growth we have seen in the first half of the year came with customers, which had no sales with us or no dealings with us over the last 12 to 24 months. So their customer loyalty is probably not as high because the customer can switch more easily since a large number of those products are not specifically specified from which source it needs to come from. So that's why those Construction customers are a little bit more flexible.

So to your question on the tax rate guidance, we are restating shyly over 19% for half year, which is driven by considerable FX gains on equity loans which inflates the taxation. We expect this figure to remain roughly stable, tendency to go slightly down towards the year end, so staying below 19%. Bear in mind that we have there a balance sheet is [indiscernible] which inflates it when you compare it to the 16% you have in mind out of our last year's full results.

[Operator Instructions] The next question is a follow-up question from Mr. Alessandro Foletti from Octavian.

Can you hear me?

Yes.

Okay. Great. Another question on construction market in reality. Your comments regarding the potential normalization of growth in second half year. So are more related to the Distribution and Logistics part or both the Construction business also within Fastening Systems?

The comment was more to construction industry as we see that the capacities in the construction industry are not significantly expanded. And as we see that we had distinct higher demand during first half year, which now comes slightly back. We take it as a signal that the restocking effect and the moving off of orders is fading out and real underlying demand is shown that was more targeted towards construction end market. We see signals of overheating. We see larger construction site being stopped because of prices or availability of other raw materials not being granted or stable, budget constraints start to kick in. So we are expecting that this fading out of the rebound will bring us to more normal levels for the second half of the year.

All right. But that would apply to both Distribution and Logistics as well as Fastening Systems.

Less to Distribution and Logistics more to Construction as Distribution and Logistics is also nicely exposed to the Industrial and other end markets are not predominantly console.

Gentlemen, so far there are no more questions.

Okay. Since there seems to be no more questions in the chat or by the call, we thank you all for your interest. Wish you a good summer. We'll talk to you soon again. Bye-bye.

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