Feintool Group: well placed for the upturn af-ter a weaker first half

The Feintool Group faced a difficult economic environment in the first half of the 2001/02 financial year, the companies active in the field of capital goods being worse hit than those engaged in the manufacture of components. Consolidated net sales declined by 7.4% (14.8% when acquisitions are excluded) to CHF 202.5 million (previous year: CHF 218.6 million). Despite restructuring measures, short-time working at some plants and increases in efficiency, in-come from operations fell from a surplus of CHF 16.8 million in the same period of the previous year to a loss of CHF 2.6 million. At the net income level, the group posted a half-year loss of CHF 4.1 mil-lion (previous year: profit of CHF 13.4 million). When making this comparison, however, it must be borne in mind that the excellent first half of our last financial year (1.10.00 to 31.3.01) fell within a period of global economic stability. As of 31.3.02 there were 1826 employees (1938). Group management is more confident for the second half-year, and the 2002/03 financial year is expected to see renewed growth in sales.

The Fineblanking/Forming segment accounted for some 56% (58%) of group sales, which was in line with expectations. The Assem-bly/Automation Technology segment, which now includes all the activi-ties of the Afag companies acquired on 1 January 2001, contributed 30% (27%) of consolidated sales. This segment was the one most seri-ously affected by declining sales in the telecoms and automotive sec-tors. The Plastic/Metal Components segment, which was faced with de-ferred calls of high-margin orders, contributed 14% (15%) of sales.

Restructuring was initiated and profit-boosting measures taken to coun-ter declining business. Although these will impact on this financial year's operating result, they will have a positive effect on earnings when the economic upturn materialises. New orders improved towards the end of the second quarter, so sales can be expected to be rather stronger in the second half of the financial year. The target range for full-year sales is CHF 410-430 million, with income from operations just in positive terri-tory and the net result in balance. The following financial year, 2002/03, can be expected to bring increased sales and substantial improvements in both our operating result and net profit.

Details on the individual segments:

Fineblanking/Forming: a solid mainstay

The core Fineblanking/Forming segment posted sales of CHF 112.6 mil-lion (CHF 127.8 million). The decline of 11.9% was principally due to in-sufficient capacity utilisation at Schmid, our second press brand. Busi-ness with Feintool presses, the technology centre (including toolmaking) and services was just under budget. Component-manufacturing opera-tions in Europe and the USA are on track, though below the previous year's level. The Japanese facility exceeded expectations.

New direction for Systems business

The market success of the new HFAplus hydraulic series led to a decline in new orders for Schmid, the second brand. This is why capacity utilisa-tion at the Jona works is insufficient. Countermeasures are being imple-mented: production of the Feintool MFA press series has been trans-ferred to Jona from Osterwalder, our former partner in Lyss, and steps are being taken to differentiate the Feintool and Schmid ranges. Duplica-tion is being eliminated by amalgamating various Feintool and Schmid activities in the areas of customer service, spare-part service, press overhauls and administration. We are pushing ahead with the develop-ment of new presses and the refinement of existing products. All these measures will strengthen earnings in the press and plant-construction fields.

Positive outlook for parts and components

Component-manufacturing operations in Europe and the USA were be-low the previous year's result, though in line with expectations. In Japan, in spite of difficult economic conditions, results both exceeded expecta-tions and were higher than in the previous year. New orders for high-volume start-ups in Europe and the USA will generate considerable growth, beginning in the next financial year. This will increase capacity utilisation, in America especially, thus improving the margin.

Assembly/Automation segment: suffering from a dearth of invest-ment

The Assembly and Automation segment was affected most of all by economic weakness in the telecoms and automotive sectors. Even though the full consolidation of the Afag companies, which were taken over on 1 January 2001, generated a 4.4% increase in sales from CHF 58.8 million to CHF 61.4 million, both divisions - Automation Sys-tems and United Components - were substantially below expectations.

Lower spending on automation systems

Economic uncertainty led many customers to postpone or even cancel orders for automated assembly systems. Despite an extensive project list, new orders remain at an unsatisfactory level. Structural measures currently under way are aimed at eliminating duplication at the three fa-cilities in Aarberg, Amberg and Berlin. In conjunction with capacity ad-justments, this will prepare us for qualitative growth in this field

Good potential for United Components

Now conducted under the United Components umbrella, business in automation components and modules is also running below expecta-tions. Though not fully utilised at present, the structures built up to im-plement our growth strategy must be largely retained in view of the vol-umes expected when the economy recovers. The production centres in Huttwil (assembly and handling modules), Pfäffikon (riveting systems and presses) and Amberg (feed systems) are launching promising new products, while sales companies in Europe and America are intensifying their marketing activities. This business will derive significant benefit from an upturn in terms of both sales and earnings.

Plastic/Metal Components segment: new management team

The Plastic/Metal Components segment was below its targets in the first half of the year, sales declining by 11.6% from CHF 32.0 million to CHF 28.3 million. Customers of Mühlemann in Biberist are proving slow to call for the delivery of high-margin orders, which is affecting its operat-ing result. Launch costs and start-up delays are having a negative effect this year, but starting in the next financial year their impact on sales will be positive. The new facility in Tennessee is on budget.

Shaping a positive future with a new management team

A thorough review of Mühlemann's order structure and process organi-sation was carried out with external specialists at Biberist in order to create the right preconditions for future growth. In spite of its current problems, Mühlemann has a high degree of specialist competence and a well-motivated workforce, which together form a sound basis for future business development. Measures to streamline processes and adjust capacities are being implemented. A new management team is stream-lining the order portfolio and increasing operating efficiency. In view of the difficult environment, however, a successful turnaround will take longer than originally planned. The objective of making the Plastic/Metal Components business a mainstay of group profitability has top priority.

Key figures and outlook

Key balance-sheet figures within the target range

The balance sheet at 31 March 2002 shows an internal-financing ratio of 38.4%. At CHF 84.4 million, net indebtedness was within the budgeted range - as was gearing, at 59.6%. CHF 62.5 million was raised by issu-ing a convertible bond 2000-2005. Dependence on short-term capital providers is thus at a reasonable level.
Cash flow from ordinary business operations in the last half-year totalled CHF 8.5 million. These funds were mainly used for investment in con-nection with start-up activities related to new production orders.

Positive outlook in the medium term

Despite the present bleak economic environment, group management remains confident about Feintool's future development. Having imple-mented measures to adjust capacity and improve structural processes, the group will be well placed to benefit from a recovery.
A slight improvement in business is anticipated in the second half of the financial year, with full-year sales expected to be within the CHF 410-430 million range. Despite the costs of restructuring, we expect the op-erating margin to be just into the black and the net result to be in bal-ance.
Although it is difficult to make any firm forecasts at present, we expect sales to grow in the 2002/03 financial year. Once the economic recovery materialises, the various measures we have taken will lead to a substan-tial improvement in both our operating margin and the net result. Man-agement is thus confident about the future of the Feintool Group.