Kloten/Stein am Rhein, 29 October 2020. The Phoenix Mecano Group set new records in the third quarter of 2020.
All three divisions bottomed out, significantly improving their performance compared with the weak second quarter, which was hit by the COVID-19 crisis. The largest division, Mechanical Components, generated the strongest growth and exceeded the previous year's result by some margin.
The Phoenix Mecano Group succeeded in bringing gross sales in the first nine months of 2020 back to the previous year's level and increasing incoming orders, despite the COVID-19 pandemic.
The DewertOkin product area serves a structural growth market in electrically adjustable furniture in Asia and North America. Keen to leverage this opportunity, Phoenix Mecano is pushing ahead with strategic investments in the DewertOkin Technology Group in China.
The Group's consolidated gross sales in the third quarter rose by 12.8% from EUR 173.9 million to EUR 196.2 million. Organic growth in local currency was 15.5%. Net sales totalled EUR 195.2 million (previous year EUR 172.5 million), while incoming orders increased by 22.4% in Q3, from EUR 176.3 million to EUR 215.7 million. The book-to-bill ratio for the third quarter was 110.0% (previous year 101.4%).
The quarterly operating result was up by 58.5% from EUR 9.5 million to EUR 14.9 million, while the operating cash flow rose by 43.1% from EUR 15.7 million to EUR 22.4 million. The cumulative operating result was EUR 21.3 million, 18.1% below the previous year (compared with 61.5% below at the end of H1). This includes EUR 2.3 million of delayed one-off items from the 2019 package of performance enhancement measures.
The result of the period after taxes in Q3 was EUR 10.2 million, up 116.1% on the previous year (EUR 4.7 million), while the cumulative result was EUR 11.4 million, down 29.8% on the previous year (EUR 16.3 million).
Development of the Group's divisions
In the Enclosures division, third-quarter sales were down by 9.6% year-on-year to EUR 44.4 million. Adjusted for acquisitions and measured in local currency, they were down by 10.1%. The operating result declined by 11.0% to EUR 5.0 million, while the operating margin remained in double digits at 11.3% (previous year 11.5%).
New project inquiries were received in the human-machine interface segment, and in the industrial customers market there were signs of an upturn in rail business. Project business involving enclosures with enhanced IP ratings for use in potentially explosive environments developed sideways due to the current reluctance to invest in the oil and gas sector.
The Mechanical Components division achieved a record result in the third quarter. Gross sales climbed by 31.2% to EUR 122.7 million (previous year EUR 93.5 million) and incoming orders rose by 36.1% to EUR 142.7 million (previous year EUR 104.8 million). Organic, local-currency gross sales were up by 35.6%. The operating cash flow increased by 55.3% to EUR 12.8 million and the operating result by 68.8% to EUR 9.6 million.
The Rose & Krieger industrial segment made a tentative recovery after a slump in the second quarter, with the situation varying by application field and region. While the export-oriented mechanical and plant engineering segment was hit by travel restrictions, investment confidence was high in medical technology, pharmaceuticals and the semiconductor sector.
For DewertOkin, the dip in demand in the North American furniture market, its largest end market, was only short-lived. The structural growth trend resumed at full speed in the third quarter and was even given a boost by the COVID-19 pandemic as people spent more time at home, and so invested in their living space and upgraded their home offices. As a result, demand for electrically adjustable comfort furniture and height-adjustable desks soared, and DewertOkin was barely able to keep pace in its manufacture of fittings and actuators in Asia.
In the ELCOM/EMS division, gross sales in Q3 were down by 7.0% to EUR 29.1 million, or 6.3% on an organic basis and in local currency terms. By contrast, incoming orders rose by 20.1% to EUR 29.3 million and were almost back up to the level recorded in the first quarter of 2020. The operating cash flow was EUR 1.8 million, compared with EUR 0.1 million in same quarter last year. The operating loss shrank from EUR 1.6 million to EUR 0.6 million.
Project business in the Electronic Packaging product area picked up again, whereas business activity in electrotechnical components and transformers continued to be affected by the recession.
Strategic focus on the DewertOkin Technology Group (DOT)
The DewertOkin product area has been generating sustainable and profitable growth for almost a decade. This structural growth market has been driven by an unbroken upward trend in the use of electrically adjustable comfort furniture in private homes, as well as rising demand for care furniture in hospitals and for home care as a result of an ageing society. While the COVID-19 crisis slowed growth temporarily, cocooning and the increase in working from home are now fuelling demand once again.
DewertOkin is a leading provider of system solutions in these markets. With its global production network, international sales strategy and high level of in-house added value, it is excellently positioned both strategically and operationally.
Phoenix Mecano wants to leverage the current market dynamics to expand its market share and generate profitable growth.
The planned industrial complex in China will offer scope for future growth, and the Group is pressing ahead with its construction at top speed. Work on the site in Jiaxing (greater Shanghai area) began in August. The area is home to a technology cluster of global players in the upholstered furniture industry, manufacturers of components for electrically adjustable seating and reclining furniture, and their suppliers.
The Group is set to invest approximately EUR 100 million at the site over a period of around five years.
However, this commitment could not be covered by the Group's current cash flow without withholding funds needed for the development of other business areas. To fund the industrial complex in Jiaxing and current growth opportunities, the Phoenix Mecano Group has analysed various forms of growth financing, and is now focused on the option of a partial listing of the DewertOkin product area on the technology exchange STAR Market in Shanghai. The partial flotation would take place in 2022 at the earliest, in conjunction with a capital increase. In the medium term, Phoenix Mecano intends to control a majority stake of at least two thirds of the shares.
With a view to this possible partial flotation, Phoenix Mecano will hive off DewertOkin into a separate business area called DewertOkin Technology Group with effect from 1 January 2021 and will adjust the Group's division structure accordingly. To comply with the associated regulatory requirements, the Group sold its national subsidiary in Turkey in the third quarter and, at the start of the fourth quarter, reduced its shareholding in its Australian subsidiary to a minority interest.
Despite the steady recovery in the third quarter, global economic activity has not yet returned to pre-COVID-19 levels. Leading economic indicators suggest that the improvement in the Phoenix Mecano Group's main markets could continue in the months ahead. Much depends on the outcome of the presidential elections in the United States and how this affects the China-US trade conflict, as well as on the subsequent course of the COVID-19 pandemic.
The dynamic performance of the Mechanical Components division in the third quarter, the sequential improvement in all divisions and the Phoenix Mecano Group's (12-month) book-to-bill ratio of 107% point to a continued improvement in business activity.
At a strategic level, the focus is very much on exploiting the growth window in the DewertOkin product area. To this end, the Group's priorities are the capacity expansion at the new industrial park and the option of a partial flotation. Phoenix Mecano will continue to push ahead resolutely with these activities.
Visibility with regard to sales and profitability remains low for the second half of 2020 due to the existing uncertainties. Phoenix Mecano's management and Board of Directors are convinced that the Group can only deal optimally with the opportunities and risks of the continuing volatile economic environment on the basis of flexibly adapted structures. The emphasis is on preparations for the reorganisation of the DewertOkin business area as well as further optimisation measures in other business areas. In this context, the Group anticipates possible one-off expenses of about EUR 6 million in the fourth quarter.
Including these possible one-off expenses, Phoenix Mecano's management and Board of Directors expect the full-year operating result for 2020 to lie within the target range of EUR 21–26 million.
About Phoenix Mecano
The Phoenix Mecano Group is a global player in the enclosures and industrial components segments and is a leader in many markets. Headquartered in Stein am Rhein, Switzerland, the Group employs around 7,000 people worldwide and generated sales of EUR 680 million in 2019. It is geared towards the professional and cost-effective manufacture of niche products for customers in the mechanical engineering, measurement and control technology, medical technology, aerospace technology, alternative energy and home and hospital care sectors. Phoenix Mecano was founded in 1975 and has been listed on the Swiss stock exchange since 1988.
For more information, please contact:
Phoenix Mecano Management AG
Dr Rochus Kobler, CEO
Lindenstrasse 23, CH-8302 Kloten
Tel.: +41 (0)43 255 4 255