Kloten/Stein am Rhein, 24 April 2019. The Phoenix Mecano Group's consolidated gross sales increased by 3.7% in 2018, from EUR 627.6 million to EUR 650.8 million. Organic growth in local currency was 5.4%. All divisions grew organically.
The operating result increased by 49.2% from EUR 30.7 million to EUR 45.8 million. Adjusted for one-off items, the operating result grew by a disproportionately high 8.2%, from EUR 39.7 million to EUR 43.0 million. In 2017, the one-off items included expenses for adjustments to the product portfolio and production infrastructure in the ELCOM/EMS division totalling EUR 9.0 million. In the reporting year, a one-off gain of EUR 2.8 million was generated by the sale of Wijdeven Inductive Solutions B.V. in the Netherlands. The operating margin (before non-recurring items) increased from 6.3% to 6.6%. The operating cash flow before one-off items was up by 7.1% to EUR 71.7 million.
Result of the period
The result of the period increased by 47.1% from EUR 21.9 million to EUR 32.3 million. The net margin rose from 3.5% to 5.0%.
Equity ratio and net indebtedness
Thanks to the improved result of the period, the equity ratio climbed to 59.1% (previous year 57.2%). Net indebtedness fell from EUR 38.1 million to EUR 33.9 million in the reporting year. As a percentage of equity, net indebtedness was 11.9% (previous year 14.1%).
The Enclosures division saw sales increase by 1.6% to EUR 186.6 million. Adjusted for currency effects, gross sales were up by 2.9%. The operating result fell by 8.8% to EUR 22.2 million owing to slightly disproportionate cost increases and future-oriented development costs in human-machine interfaces.
The Mechanical Components division grew its gross sales by 5.6% (7.9% in organic terms) to EUR 327.9 million. The operating result was EUR 23.9 million, down 8.6% on the previous year's record figure. The division is being hit by the simmering US-China trade conflict, which is impacting customs and logistics expenses, as well as weak demand for linear drives for the comfort and healthcare furniture market in Europe.
Gross sales in the ELCOM/EMS division rose by 2.2% to EUR 136.3 million, with an organic increase of 2.9%. For the first time in several years, the ELCOM/EMS division posted a positive operating result of EUR 3.0 million. Even without one-off income, the operating result was positive (EUR 0.2 million). This success was achieved despite the continued high impact from amortisation of acquisition-related intangible assets totalling EUR 4.6 million.
First quarter of 2019
The economic environment for industrial components had already deteriorated sharply in the fourth quarter of 2018. This trend continued in the first quarter of 2019, resulting in a subdued start to the current financial year for Phoenix Mecano.
The Phoenix Mecano Group's gross sales in Q1 2019 were EUR 156.7 million (previous year EUR 169.7 million), a decline of 7.7%. In local currency and excluding consolidation effects, sales were down by 7.6%.
Incoming orders fell by 13.2% year-on-year to EUR 157.3 million (previous year EUR 181.2 million). The book-to-bill ratio of 100.4% points to a stabilisation of sales performance.
The slight increase in gross sales and the more moderate decline in incoming orders compared to Q4 2018 (+2% and -1.4% respectively) suggest that the current downturn in market conditions may have bottomed out.
The operating result fell by a disproportionately high 33.1% to EUR 9.2 million, following a strong performance of EUR 13.8 million in the same quarter last year. Phoenix Mecano focuses on structural growth markets, avoiding short-term, procyclical measures on the cost side. The Group's management prioritises forward-looking projects to develop attractive long-term earnings potential.
However, if the downturn does intensify in the coming quarters, the company has appropriate sets of measures that it can take to safeguard its result. The operating margin was 5.9% (previous year 8.1%).
The result of the period was EUR 6.9 million, down 26.3% year-on-year.
Looking at the individual divisions, Enclosures generated gross sales of EUR 49.2 million, a rise of 0.8% (or 0.2% in local currency) compared to the same quarter last year. Its operating result decreased by 6.3% to EUR 6.5 million.
Mechanical Components, our strongest sales division, was not immune to the effects of the US-China trade conflict in the first quarter of 2019. Its gross sales were down by 11.3% (12.2% in local currency) to EUR 75.0 million. Following a strong performance in Q1 2018, the operating result fell by 41.1% year-on-year to EUR 4.5 million, driven by the double-digit decline in sales. The acquisition of Chinese furniture fittings manufacturer Mei Hui Machinery Co., Ltd. took place as scheduled on 1 April 2019. The company, with its strong MyHome brand, offers attractive growth potential. In conjunction with our OKIN drive and control technology, it will make us the leading manufacturer of motorised system components for upholstered furniture manufacturers.
Amid the downturn in industrial activity, the ELCOM/EMS division posted gross sales of EUR 32.5 million, down 10.6% on the same period last year (7.2% in organic terms).The operating result for the division as a whole was EUR -0.8 million (previous year EUR 0.2 million). Excluding acquisition-related amortisation of intangible assets, the operating result was EUR 0.3 million (previous year EUR 1.4 million).
In contrast to recent years, when the division faced structural issues, the Phoenix Mecano Group's Board of Directors and management believe that ELCOM/EMS is now well positioned to benefit disproportionately from an upturn in industrial activity. Naturally, we will go on taking a range of steps to continuously improve the division's performance.
Geopolitical risks steadily increased in late 2018 and early 2019, weakening the already fragile state of global capital goods activity.
However, Phoenix Mecano, with its geographically and technologically diverse structure, is able to develop new areas of business and tap into new markets even at times of economic weakness and technological upheaval.
In the ELCOM/EMS division, the foundations for organic growth have been laid, enabling it to achieve economies of scale and improve its earnings performance continuously and sustainably.
With its current takeover, the Mechanical Components division is pursuing a clear strategy: to systematically increase vertical integration in system components for motorised upholstered furniture and local value creation in growth regions.
In the short term, Phoenix Mecano is preparing for a volatile economic situation amid growing geopolitical uncertainty. The management and Board of Directors believe that there is still every possibility that the economy will stabilise in the second half of 2019. The improved base effect is expected to reduce the year-on-year gap in operating result in percentage terms. For 2019 as a whole, we currently anticipate an operating result slightly below the previous year's figure (excluding one-off items).
In line with our shareholder-friendly dividend policy, the Board of Directors will propose to the Shareholders' General Meeting of 17 May 2019 an increase in dividend from CHF 16 to CHF 17 per share.
Link to the annual report 2018:
Link to the annual accounts 2018 and current business Q1 2019: