SFS Group AG (SFSN) Earnings Call Transcript & Summary

So good morning, and welcome, everyone, to the presentation of the full year 2024 results. Today's speakers are as usual, Volker Dostmann, CFO; myself, Jens Breu, CEO of the SFS Group. The annual report is also -- and this presentation is also available on the SFS website for you. The agenda, we want to talk about today covers the positioning of the SFS Group, the key takeaways for the year, the segment development, the development of the key financials, the outlook for 2025, certainly the opportunity for Q&A. And then later on, we will gain a deeper insight into the segment P&L by sharing a showcase example in collaboration with our valued customer and industrial neighbors, Stadler Rail [indiscernible] together with Martin Reichenecker from SFS will provide a comprehensive view on this joint development. Especially here on site, St. Margrethen, it's an impressive story. In 2016 Stadler Rail had 800 employees. Today, they have around 1,800 employees, and it's good to see also in our neighborhood, successful industrial companies, which we can support with our products. And as it is usually, yes, our products are maybe not so shiny, which go and specified our -- in the customer products and then usually our customers have the products. Everyone knows, the consumer knows, for instance. Another comparison, Stadler Rail has around 270 customers. The SFS Group has around 270,000 customers. Besides that, we both have roughly around 14,000 to 15,000 employees. So special tank goes to Stadler Rail for hosting this year's presentation of the annual SFS results, and we greatly appreciate the support and the partnership. Now I will start with the positioning of the SFS Group. SFS, as you know, our companies usually unnoticed 24 hours, 7 days a week reliably through everyday life. Our mission-critical precision components, mechanical fastening systems and quality tools for selected niche applications are embedded in the successful products and processes of our customers and fulfill their service with high reliability in the required precision and cost effectiveness. In relation to the total cost of the customer product, the direct cost of SFS products embedded or used in the production process accounts often for less than 1%. However, the associated costs on the customer side, such as the procurement, the logistic costs are several times higher. Those -- the focus on optimizing the direct cost of SFS products offers a little room for improvement. Therefore, we always strive to understand the customers application and to reduce the total cost for our customer, thanks to an individual and innovative solution along our claim inventing success together. In the Engineered Components segment, the SFS Group operates as engine partner for customer-specific precision components, assemblies and fastening solutions. The segment serves the end markets, automotive, electronics, medical and industrial specials. The Fastening Systems segment develops, manufacturers and markets, application-specific mechanical fastening systems as a solution provider to the construction industry. And in the Distribution & Logistics segment, the SFS Group is a system supplier of quality tools, fasteners and other C-parts for customers in industrial manufacturing. To strengthen customer focus in key end markets, SFS reorganized its fastening systems and D&L segment effective January 1, 2025. The D&L segment previously split into D&L Switzerland and D&L International was merged to better leverage cross-selling potential in industrial fastening systems and procurement solutions now fully focusing on the industrial manufacturing customers. The construction-related business area from D&L Switzerland from the past was transferred to the Fastening Systems segment which now has a sharper end market focus on the construction market. Martin Reichenecker leads the D&L segment, while Thomas Jung formally Head of Construction now heads the Fastening Systems segment. Additionally, Iso Raunjak transitioned from leading D&L Switzerland to serving as Chief Human Resource Officer overseeing all the corporate communication and ESG. I continue with the key takeaways which can be best summarized as stable positioning. Despite the challenging economic environment, SFS achieved good results and met most of its set targets. Third-party sales of CHF 3.039 billion was generated, minus 1.7% versus previous year. Organic sales growth of 0.1% demonstrate successful market positioning besides persistently strong negative currency effects of minus 1.9%. Operating profit EBIT of CHF 350.2 million versus last year, CHF 358.6 million was significantly impacted by mix effects, lower capacity utilization in Fastening Systems and Distribution & Logistics segment and elevated cost base due to the inflation and ongoing appreciation of the Swiss franc. A solid EBIT margin of 11.6% in the previous year, 11.7% was achieved in light of the economic environment. Earnings per share of CHF 6.21 resulted versus in the previous year CHF 6.84 burdened by economic environment, currency and tax effects, which we'll explain later in detail. With CHF 148.9 million versus in the previous year CHF 174 million in growth-related investments, substantial reduction in CapEx could be achieved while continuously ramping up key projects. The SAP migration to S/4HANA was completed successfully with a high-quality standard and the third organizational changes to strengthen customer focus were initiated. In 2024, SFS Group reduced also its Scope 1 and 2 emissions by minus 74.6% compared to the 2020 reference year. That means SFS has moved another step closer to its target of reducing the intensity of direct greenhouse gas emissions by at least 90% by 2030. The interim target for renewable electricity has already been met and the share of renewable electricity stands at 75.2%, which has greatly improved after -- 2 years ago, the energy crisis had a little bit of an effect on us in terms of availability of sustainable electricity. This certainly has been solved by now. With the social targets, we can conclude the dual training objectives were secured, but the accident rate is slightly higher. In the year under review, SFS increased the percentage of permanent employees enrolled in dual education and training programs to 6.3% from 5.1% in the previous year. Well-trained, motivated and satisfied employees achieved the best results and create added value. The accident rate rose slightly to 4.1 accident per million working hours in the previous year, 4.0 with the Vision Zero initiatives launched in 2024 we are making great efforts to reduce the accident rate and achieve the ambitious target of 0 accidents by 2030. I continue with the segment development. Starting with the headlines of the Engineered Components segment, which had a positive financial development. Good organic growth and distinct rebound in profitability was achieved in a challenging environment. The development in the second half was slightly below expectations, mainly due to the developments in the European automotive end market. A strong recovery in demand for Nearline HDD for data centers was seen. The ramp-up of major strategic product groups in Automotive and Electronics is continuously ongoing. Investments in capacity expansion projects in Automotive, Switzerland, Electronics, China, medical and industrial specials in Costa Rica are largely concluded. Looking forward, we see good positioning and growth potential based on existing ramp-up projects and new initiatives. In the Fastening Systems segment, the market access has been further expanded, a challenging market environment, only improving in Q4 of last year, resulting in organic sales decline versus previous year. Despite market conditions, segment's EBIT margin expectation was met. Market access in Europe and North America were expanded by the acquisition of Etanco in Spain as of May 1, the acquisition of EPRO in Slovenia, October 1 and the acquisition of Pro Fastening Systems United States as of November 1. The manufacturing capacity expansion in United States, Exeter, also started to locally produce flat roof fasteners. Important new product launches were also successfully introduced. And as said, as of January 1, 2025, the Construction division was disbanded and transferred to the Fastening Systems segment under the leadership of Thomas Jung. In the Distribution & Logistics segment, the strategic position was further strengthened. Restrained market momentum throughout the entire financial year was partially offset by the onboarding of the European distribution partners warehouse activities. Profitability remains solid thanks to prudent cost management and the extensive range of products and services offered. This besides an ongoing strong drive for innovation and high focus on market introduction of new digital solutions. The 2 divisions of the segment have been merged into the Distribution & Logistics segment as of January 1, 2025, under the leadership of Martin Reichenecker. Onboarding of 2 additional European distribution partners is planned and currently implemented as we speak. With that, I hand over to Volker Dostmann for the development of the key financials.

Thank you, Jens. Good morning, and a warm welcome from my side to everybody to this event. With a challenging environment, as described from a point of view of the end markets, we are reporting good results and stable development in, as I said, difficult environment. This is the work of 13,689 employees who contributed here, and we thank all of them for their contribution. We start with the sales bridge where we see the bespoke CHF 3 billion, which is a 2-point growth adversely affected from the FX, 1.9% to the tune of CHF 58 million in the prior year. The underlying growth is supported by acquisition effects of CHF 4.6 million asset. Currency exposure mainly in the U.S. dollar and euro in the segments varies between minus 2.2% to minus 1.6% according to the mix of these individual segments. The financial year showed especially Engineered Components good growth and improvements in profitability. At the same time, volumes in Fastening Systems suffered from the difficult construction end market, only picked up in Q4 and the demand kept fluctuating. D&L segment showed sales, which reflect restrained end markets throughout the full year while the customer partially, were running austerity programs, we were able to onboard the partners business in logistics city and counterbalance the effect with that. Looking into geographical end markets, we are stable with a clear weight in Europe at 57.8%. Relative weight of Switzerland remains at 11.6%. North America, 17.1% and Asia of 13.5%. Sales breakdown by industry shows stable situation with industrial manufacturing at 27.2%, automotive and construction, slightly above the 20%. This distinct positioning in a local-for-local concept remains a strategic pillar. While with this setup, we deem ourselves well sheltered against the tariffs and customs discussion in the current global geopolitical environment. As per today, we see a volume of approximately 30 million to 40 million of trade volumes potentially affected and follow the developments on a daily basis closely, but see ourselves as good positioned. Operating profitability, we report CHF 350.2 million of EBIT, 11.6% of sales. EBITDA of shy to CHF 480 million, 15.7% for the financial year '24. The sales performance, as described and the pattern we had to manage utilization which was, to some extent, unsatisfactory or uneven and impacted profitability in financial year. Performance Management in Automotive showed effect while ramp-ups go according to plan. Second half year performance was slow as the pickup in Fastening Systems only showed effect in Q4 and ramp-up of projects subdued second half year profitability. Earnings per share is at CHF 6.21 per share, which is a decrease of minus 9.2% versus prior year. Let me expand a bit on the effects that are underlying. The earnings per share is apart from the nominal EBIT that is lower by 2.3% burdened by financial results, which again are driven by the exchange rate development, particularly Swiss franc, euro, dollar and Swiss franc dollar were significant in the variance between balance sheet date, '23 to balance sheet date '24. So we look at the translation effect. And furthermore, we took the decision to depreciate the tax asset in Turkey in full. So that gives us another hit in the tax result. So with that, we have adverse effects of minus CHF 0.76 on the earnings per share. So based on this performance, the Board will propose to the general assembly dividend of CHF 2.5 per share, which is in half paid out from privileged capital reserves, which is a favorable payout for individuals residing in Switzerland. This payout is in the bandwidth of larger than 35% of distributable profits. And therefore, we pursue the aim to deleverage further the balance sheet and go forward with that trend. Net working capital management allowed us to maintain a flattish level in a challenging environment. We managed to maintain net working capital, especially in inventories and overall on a 28.1% of sales ratio, which is underpinning our cash flow performance. Same goes with CapEx. Investments for the year is at 4.9%. This moves towards our level of D&A at 4.3% and normalizes the situation after an expansion phase which is coming towards an end. We are confident to remain within the bracket of CapEx, 4% to 6% going forward. As earlier mentioned, the substantial expansion projects, namely in Heerbrugg and in Nantong in China, are coming to an end of the investment cycle, the important ERP migration for the production environment, which needed investments during the past years has been successfully mastered. I take the opportunity to give a bit of background on that. We are happy to have concluded this major ERP initiative in a true SFS manner; on time, below cost and in scope. With more than 43 man years invested, we took beginning of January a total of 2,300 users live together with 20 countries, 40 plants, 29 warehouses in 1 step. With that big bang, truly big bang, we included all the processes from make-to-stock, order-to-cash, purchase-to-pay, CRM, product life cycle management and quality management. Evening of the second day after go live, all the sites were on a current level, up to date with all customer deliveries. Only 4 days after go live, we fully demobilized the hypercare organization, brought them back and went back to standard normal help desk structures. Our production was ongoing during the whole operation -- during the whole cutover. We had no interruptions. At this point, I'm happy to take the opportunity to thank the team for that smooth transition, which is an outstanding achievement and gives us a very solid position to go forward. Let me go back into financials. Operating free cash flow is at CHF 226 million, reflecting a conversion of EBITDA of 47.1%. The conversion compared to net income is at 93.1%. With this, we are back to prior year levels, demonstrate strong ability to generate cash. With ongoing net working capital management, diligent CapEx decision and profitable growth, we see ourselves in a position to keep the cash generation up, reconfirm target bandwidth of 40% to 50% of EBITDA. Having leveraged the equity position, on the acquisition in D&L, we since continuously drive equity ratio back to our intended ratio of above 60% with 59.7%, we are almost there. The existing cross-currency swap on our bonds that we use to finance the acquisition account for a positive effect of CHF 47.2 million in equity directly. We strive to deleverage the balance sheet further and move further into the bandwidth above 60% of equity ratio. With that, I come to the guidance '25. The guidance of '25, we stated as EBIT margin expected to be around prior year's level. The outlook continues to be shaped by considerable uncertainty, placing the highest possible focus on customers, pushing further ahead innovation projects, ensuring efficient and profitable business processes, retain top priority in this volatile environment. Therefore, for the financial year '25, SFS expects an EBIT margin around the previous year's level. The guidance reflects the challenging geopolitical and economic environment paired with low visibility. First 2 months do not indicate, yet the chances are fully intact and markets are still hesitant so we need to be cautious here. Due to the described environment, we further honed our strategic priorities. Carefully focusing on our main strengths and chances, we prioritize 2025, the strategy execution, foster high team motivation, capitalize on opportunities and lay foundation for future growth, conduct disciplined reviews and execute strategic options meticulously. The megatrends we understand and monitor anticipate changes and that strategies to reap from them remain competitive, focus on applications areas with strong underlying growth drivers based on the global development. As said, we remain with the local to local concept and through balanced emphasis on different regions, end markets and distribution channels, close customer relationship and value proposition, achieve our superior supply reliability and be careful to maintain that. We focus on technology, integrate processes in AI, machine learning, IoT, improve automation, update, standardized processes, systems and equipment to mitigate risk and continuously enhance our flexibility. Last but not least, we built the whole strategy on a solid financing emphasizing on strict cost discipline, response to challenging market conditions as we do these days, maintain good profitability and robust balance sheet achieve the continued increase in the equity ratio that gives us the freedom to do so. With that, I come to the end of the presentation for the full year 2024. And we come -- we are now available for your questions. First, we take the questions from the participants in the room. When we then go into the chat. Please wait for the microphone to be provided to you. So the participants from the chat can follow us in full. Thank you very much.

So who has the microphone, yes. It's back there. So first question in the room, who has a question right there? You don't hear it in the room. It's -- the room is...

You had it there on the slide with the upcoming bond maturity in June. Do you have any intention to refinance that over the capital markets? Or how do you want to proceed?

These days with the current environment and our ability of cash production, we have not decided yet, but we have a strong preference for refinancing that through our established revolving credit facility in full.

And the revolving -- these are the CHF 600 million that you have? And what part is used?

We are, at the moment, at the net cash EBITDA ratio, which is below 0.7.

Yes. Hello. This is Alessandro Foletti from Octavian. Good morning, everybody. I have several questions, but maybe I'll ask 3 and then go back in line, if that's okay for you. You mentioned Jens in your speech that you met almost all targets last year. So which did you not meet?

Do you have more questions to come? You said you have 2 to 3.

Yes, let's take them one by one.

Okay. Good, good. First, overall, I believe the ramp-up of the new programs, we have not yet met the full potential. That means we have on the side of smartphones, but also the side on driving brakes, electric driving brakes, we had certainly the plan from our customers to have more demand. And so there, we have seen some delays, some volatility. I think that has not been met overall in detail. Secondly, I believe the recovery in general of the industrial activities in the second half of year. We expected to come in and be maybe not strong but visible and that has not happened. So due to that, also the underlying business has not recovered from the sideward movement, which we have seen mainly in the first half of the year and slightly before. And then probably number 3 has been that in the construction and industrial end market, I think, on a sales level -- daily sales level, we have not seen that in industrial, this has burdened out. We would have expected that probably by third quarter, order intake would start increasing again. This was not the case. It took a little bit longer. And also in the Construction segment, we also here expected order income to recover earlier. So what we see out there is still, I would say, some uncertainty and consumer confidence has also not gained as expected, which are an important driver for us. So the world, as we see it, still in a mode of holding on and waiting to see.

That was very interesting. The second question then, you mentioned new initiatives in Engineered Components. Maybe you can indicate a little bit what that is?

Exactly, we have the -- the initiatives are to be going on is on the automotive side with the ball screw drive technologies, going into the electric driving break here, we have a ramp-up in Switzerland for the next 2 years, we have ramped up in U.S. for the next 2 years. And then we have a ramp-up in China also continuing for the next 2, maybe even 3 years. So that's good growth potential. Secondly, also smartphone, stamping technology implementation. Also there, we have still over the next 3 to 4 years, the opportunity to expand the business and grow it more substantial in size. And thirdly, what we have is on the aerospace side, a project to do a larger step into aerospace fastener manufacturing, which we also would expect by '27, '28, we should see a single-digit million sales number resulting from our capability implementation and then ambition, so to speak, will be that by 2030, we have doubled our aerospace sales from today's year -- or this year. This is maybe what we expect looking out, looking forward. Then in Fastening Systems, we have the onboarding of the M&A in the year 2025. And then in Distribution & Logistics, we still have 2 partners, which come on the LogisticCity platform and if we add it all together, say roughly CHF 40 million in sales rampup this year in EC and maybe CHF 40 million in sales, including inclusion due to M&A in Fastening Systems and probably CHF 60 million third-party ramp-up in D&L, it amounts to 4.5% growth potential overall. So with new programs, we are not, I would say, we're not negative, we're optimistic, we are positive. The question is, what will the legacy business do out there, which is already specified in into the products and solutions and where does the consumer confidence go at the end? That's where it is. Well consumers come back and stop the saving rate and come back and spend the money or not, they will come. Question is when?

Okay. Thank you. I've already started to answer the last -- the next question. On the outlook, obviously. So we have these initiatives that add a little bit of sales, some uncertainty on maybe these legacy products. But I'm a little bit surprised to hear from you -- a still a lot of uncertainties. I mean the last reports from the old Industrial has been okay with some indication for transitional '25, but all still hoping for some growth at least. So -- right. Okay. So you also hope for growth, but...

I believe we are probably a little bit more conservative and clear in the messages which we give out and hand out also starting in the year '25, we see same development as we have seen last year, the sideward movement, not a clear direction. And more importantly, I mean, we have all the orders placed, which we need to have placed, the big ticket item are all there. But the question is then what will happen on a weekly basis, will the inside salespeople then make the call and say ship as expected this week, this quantity or will it be slightly less? and this is the answer, which is still out there. When you ask a costumer today, he cannot give you a clear indication on his plan for the year. And when you add that together, accumulate it, then you just see overall, it's -- there's no clear direction. There are exemptions, but in broad, there's not a clear direction. Most people will see and wait until, I would say, also their information hardens up, firms up.

Okay. So -- and the German CHF 500 billion, if it comes, it doesn't seem to me like very already, I would say, written in stone, but EBIT comes, will you profit from that? Or is more the sentiment around recovery in Germany that might be triggered by that?

Capacity expansion will certainly be appreciated for our development. I mean, if those orders are placed, capacities in those industries will need to be expanded. And for that, they will need tools, they need equipment, they need certain infrastructure to support them. And also, I assume most of it will be in Europe, produced locally nearshore, not too far away. And that also means that, especially in Europe, the defense industry will need to build up further capacities.

So the next question?

Torsten Sauter, Kepler Cheuvreux. I would have 2 questions. Firstly, turning to Alessandro's questions. You highlighted this potential of potentially adding 4.5% growth from these projects and M&A. What are the known unknowns to the negative? I mean there's probably some product pruning, which is ongoing, right? And maybe you can quantify a little bit the ForEx headwinds that would be interesting just to see what's visible right now. And then on the other side, an additional topic is, of course, the tariffs. To what extent do you see your business affected by board adjustment taxes and tariffs?

Good. I will take the first question and then probably Volker take the other 2 questions. Yes, what is known, what is unknown; when we go into the different projects, I mean, the technology, when we go into Engineered Components, the technology, the equipment, the capabilities all there. It's usually a matter of customer schedule, whether it's following through or not following through. Today, as per our expectation, green light. We see the projects are coming. We see the orders are placed. We see the programs are moving forward on the customer side. That's most important. And maybe the customer, customer also has the platform already in place and implemented. So from that side, Engineered Components, we are fairly optimistic. But as we also know, it can be maybe a little bit bumpy sometimes that maybe some ramp-ups are delayed by a quarter or two and maybe that the volume are 5% to 10% below the initial expectation, but we got to keep in mind the lifetime of such programs is usually 10 years plus. So initially, it depends on the environment, sometimes can be a little bit bumpy. And that may take here and there a slower approach overall. In Fastening Systems, it's the onboarding of the new partners, the new sites. There, we are optimistic because also what we see in Fastening Systems that overall the daily sales momentum is starting to improve slightly. We had a strong winter in the U.S. in some areas in Europe. So after February -- it's maybe too early to give a clear indication, but we believe that step-by-step also there, we should see more activity again inventory adjustment cycles through in Fastening Systems. And in Distribution & Logistics, it's pretty much a similar story. We see also that step by step here and there, the opportunities is there, that order intake, order income is slightly improving. Certainly not stepping up, but maybe slightly improving. And the partner business is a known quantity to us. So the number I mentioned with around CHF 60 million is already a conservative one. If we go to a normal industrial environment, more probably booming, growing, this will also further increase.

And probably to the latter of your question. I mean, FX projections is a very difficult thing to do. We take it as a 2% appreciation of the Swiss francs against the dollar and the euro roughly. But you know how erratic these things can be. Just remember ourselves 31st of December '23 to 31st of December '24, just U.S. dollar peaked 8.1%. I mean it's just -- it is a volatile environment. We have from the transaction point of view, very strong hedging at -- in place as we do always, we are sheltered there. We have from the translation point of view, as I indicated in the financial result, we have to face the set valuation differences. And we are very confident that we can bring back any assets in local currency as we are fairly well naturally hedged from that perspective. But still, it is a translation effect, right? To the third part of your question, the tariffs, I said CHF 30 million to CHF 40 million of trade volumes are impacted -- potentially impacted, I have to say, as we do not know what the impact really will be in scope. And there, we started analyzing the respective parts and materials that would be covered by potential taxes and tariffs and that is mainly the streams Asia to U.S., U.S. to Canada, Mexico, U.S. to Europe. We are very well positioned in Europe to China, China to Europe. And given the size of the company, the group, we are seeing the CHF 30 million to CHF 40 million being potentially impacted as a relative small part, right, stemming from our local for local, we therefore say we are well sheltered. Did that help?

Next question from the room. Alessandro here.

So I take the opportunity to ask a couple of more questions maybe for you, Volker. The -- below the EBIT, is it going to normalize like financial income and expense was kind of impacted by one-off and taxes as well?

Yes. I mean if we quickly stay with financial results, there, we have interest expenses that are going absolutely according to plan. As you know, we are stably financed with the bond and the revolver. The revolver has a clear margin grid. And there, we are well positioned. So that's going to be the bandwidth. Where we are exposed, that is the translation effect coming from the positions that we have. Naturally, we have larger positions in the U.S. dollar. I mean, with beyond CHF 500 million, CHF 520 million activity in the U.S. in the dollar market, we have the respective assets there and same goes with Europe. And there, we will remain exposed. Our work on the tax rate is ongoing. We have there just to state that some of the countries have introduced tax raises. Some have even introduced like progressive taxes. We see taxes more being pushed into the nonprofit depending realm. So fixed taxes that we have. And we took the one-off that we made explicit the CHF 2.8 million in Turkey. So there, we will see where we go from here. But there, we are very much depending on the tax jurisdictions. We have not a big exposure from a minimal tax point of view. That is a minimal exposure.

But the tax rate has been going up steadily. Now we are at 25.6%. Yet, for example, for the return on invested capital, you calculated 17%. So I don't know, between 17% and 26% is kind of a big jump.

We definitely will come back to that question in a structured way. I mean, that imbalance is becoming obvious, and we are contemplating on how to address that.

Right. But for the moment, kind of we're going to stay in the 25%?

Yes. We were -- we moved out of the tax shield in the U.S. We indicated that. During the last couple of years, we melted that off constantly. We create there profits. We also create there considerable cash which is again positive, but which exposes us to the taxes there in full. We ended the privileged tax regimes in Asia, namely in Singapore, that came to an end. So we are coming back to standard taxes. And we see also that China operation is more and more coming to normal tax rates back. And our exposure in Europe is rising. Profits in Europe just in the mix come more to the taxable profits.

All right. Okay. And then I wanted to ask on the SAP introduction. I figure it went well overall. So question number one, you're finished with that?

We're finished with that. I mean we were -- day #4, we were there and we said, okay, we're finished. We will now go in a mode of rolling out, right? We have covered, as I said, a couple of countries still remained open. But now it's more the work of rolling it out and that is more a standard process as if you kick off with new processes, yes.

It went extremely well. We're truly satisfied.

So but in this case, there is no cost savings for now?

It's always a difficult question with that. We managed the implementation at the very low cost we deem with CHF 38 million invested in that arena, we see others -- other projects being much more costly. But basically, we are pushed from an SAP R/3 world into an S/4HANA SAP world, which as such does not give you direct benefits. As new base for the future optimization, you have now much more standard and here and there more modern processes. But still, you have to reap the benefits ongoing right?

Can you repeat how much you said?

CHF 38 million.

Thank you. I was a little bit surprised with the stagnant proportion you have for Medical with the 6.2%. So I guess these are roughly CHF 190 million of sales. But for building that up, you have invested quite a bit. I'm just looking at the 2017 report, you invested roughly CHF 200 million for this Tegra Medical. And can you elaborate a little bit on how that is going with the entire platform? And what percentage of sales you want to achieve with that?

Good question. First off, yes, we acquired Tegra Medical back in time and acquired it in a state where also, I would say, all localized facilities if not clean and clear strategy, but a good platform to implement in the SFS Group, an organization and over the last years, what we have done is we have worked on a coherent global strategy. Secondly, then we approached performance improvement programs in those facilities. And thirdly, we then expanded those activities with activities in Europe, China, Singapore, Malaysia, that's where we stand. So it's a global platform, which we are establishing. We can say we have improved EBIT substantially. Today, we can say medical EBIT is above EC, and it used to be substantially below EC. So there was this performance improvement project, which we had to go through. Secondly, we also pruned out customers and product lines, which we do not believe have fit for the future. And thirdly, we are working on new customer programs and expect 6% to 7% organic growth on an annual basis. Certainly, we also look always at M&A. Ambition is certainly to grow this business substantially. And maybe at one point in time, be around 10%, 12%, 15% of group sales, that will be certainly the ambition and we focus on organic growth because this is just more efficient for the time. Other questions from the room? Otherwise, we go into the chat and see whether there are some questions. Yes, there are a few questions and maybe Benjamin is reading out loud, and then we answer.

So we take the first question from the chat. It is from Joern Iffert from UBS. How do you see the average selling prices and gross margin development in the various end markets in 2025? And the second question from Joern Iffert is, is your incremental self-help on revenues ending in 2025? Or are there strong market share gain projects in 2026 ahead.

When we look at '25 and margin development, we would certainly see price increases depending on the tax, tariffs and inflation movements. That would certainly be one of the focus. As we indicated on the profitability we see our PEX-OpEx ratio as burdening our profitability. Therefore you can take it that we will work on that arena in coming to efficiency gains and therefore, also maintaining or even try to little expand the contribution margins from the end markets in 2025. I would say, that is the aim. And given the volatility of the end markets as they behave, we certainly stay there very close.

Good. And on the second question in terms of self-help, yes, we had some self-help projects to increase revenue. This is the in-sourcing or warehouse activities from our third-party partners in Germany, if we can declare that as self-help, our own initiated project that will phase out in the year 2025 and then further beyond that, it will certainly be back to new projects to generate revenue growth. And there, I believe we have a good portfolio of projects in all segments, we are working on there, we expect to go back to organic growth. The question will be how much will the environment around us support us? We are today not concerned about organic growth. That's not the point. Enough projects, organic projects in the pipeline. And so we believe that the year '24 has been an unusual one. And year '25, I think there's still a lot of opportunities out there, but definitely in '26, we should see good organic growth again.

Then the next question comes from Christian Bader from ZKB. Which development do you expect from your main customer industries in 2025?

Which development overall main customer groups, I think when we go to the -- on start to the right of our organization chart, take a look at distribution and logistics, I think we see mainly in the DACH region, German-speaking region, it's a lot of cost-saving initiatives. Our customers are going through in Europe, it's the larger trend. There was a probably too much automotive and industrial manufacturing capacity around. So we see capacity being reduced as we speak. Everyone is in a saving mode. And we would expect that also in '25 partially, that will be the story. Besides that, there are also customers which have a momentum, which gain, which have successful products, which are in need as we currently speak, there, we will certainly have the expectation to grow. And thirdly, also gain market share. I mean, today, a little bit difficult to talk about it and prove it in some cases, but we win customers as we speak, and that's the basis for future growth overall. In Fastening Systems, I would assume a similar development, construction customers, I think we'll see a slightly better environment. Interest rates have come back. There's still a strong, strong, strong need for housing building overall, no matter where you go, so the market demand is there. The question is, is the consumer they invest for ready to spend the money. And also here, thirdly, to say we gain new customers. That's the nice part even in a challenging environment. New custom add-ons because of a strong supply chain, which we have and innovative differentiated products. And in Engineered Components, it's probably a little bit the most challenging part for this time, what will be the implication due to this geopolitical development on the smartphone side, on the car manufacturing side, that's a little bit difficult to see. Certainly, what we can say is that our direct customers, for instance, in automotive, the tiers, they have good market access in all areas. I mean our main German tiers, for instance, they have well more than 50%, 60% market share in China. So the question is about the OEMs. And within those OEMs on those different cars, usually the same aggregates, the same solutions are being specified in. So not too, I would say, cautious about our development. That's why we also heavily invest into new applications, new solutions in China, Europe and North America because we see this is the new technological trend, which is setting itself and then the question is just what type of car that will be. And there certainly market share changes happening. I think the only unknown at this point in time, which we see is just the general industrial market, which we also serve. Will there be soon a need for capacity expansion? That's the big question. The big unknown for the year, will the industry go back sooner or later on expand capacity again? And that will be certainly a good sign because then we would start into a new economic cycle.

Good. And then we have 2 questions from Fabian Piasta from Jefferies. First question, would you mind providing details on mix effects affecting EBIT and sustainability of this shift? And the second question comes back to this German infrastructure package, which is in the media so far, currently. Where do you see SFS benefiting from the recently announced German infrastructure package with your approximately 30% Germany exposure? Could you please answer that from a division and segment perspective?

Good. So if I may jump into first part mix effects. I mean if we look at the fundamentals, we see 3.0 top line, roughly similar sales in D&L, but slower profitability for the reasons we gave, right? We have utilization topics. We have seen very muted, as opposed to our expectations very muted and restrained end markets. And given the size, the effect on the EBIT is considerable. Whilst we've seen in Fastening Systems, a drop in EBIT percentage of 0.8 points. Still, given the size, again, does not boost the mix in EBIT. So that's what we referred to when we relate as EBIT impacted by mix effect. It's just that we have in the 3 segments, different EBIT expectations and different rates. Now you ask of is that sustainable, and we deem that we will see the growth as indicated. We say that in 2025, we remain at prior year levels but we are certainly focusing on the individual pillars to improve going forward, be it that we do it optimized utilization and from a sales point of view and/or other means, right? In the second part, well, how should we -- or how can we benefit from CHF 500 billion that are in the media. Now first thing is, I think if they come to a conclusion, it relates to what Jens alluded to the general industry will somehow need to provide that need, right? We'll need to deliver against that need. And as we have the general industry as one of our most important end markets, especially in Europe, there will be buckets that open up from a D&L point of view because they have sheer need of consumables of all the items that you hopefully see how we deliver them into general industries on site here later in the day. The other is they will still need parts. They will need buildings and that comes to the capacity expansion that Jens mentioned. Then as soon as that filters through, yes, we are sure we can benefit from that. Last but not least, that size of package would mean a general uplift in utilization of existing capacities which is always good for us because we help in automation and robotics.

Great that was already last question because we are right on time, 11:30 to move on with our program. And I'm convinced there's more time later on through lunch and then the production to ask questions. So we make ourselves ready for the next presentation and be with you in a minute again now.

Thank you very much.