Consolidated gross sales rose by 10.1% in the first half of 2017, from €292.4 million to €322.0 million. Corrected for negative currency effects, sales were up by 10.4%. Organic growth was 8.3%. Net sales totalled €319.0 million (previous year: €289.7 million). Incoming orders increased by 9.7% from €289.5 million to €317.4 million, corresponding to a book-to-bill ratio of 98.6% (previous year: 99.0%).
In the prior-year comparison, non-recurring income and expenses entailing a net income of €0.4 million from the sale of a building and a provision for the site closure at Platthaus in Q2 2016 must be taken into account. In the first half of 2017, the integration of newly-acquired Ismet into the ELCOM/EMS division generated one-off expenses of €1.5 million. Adjusted for these effects, operating cash flow rose disproportionately by 11.2% from €32.0 million to €35.6 million and operating result by 11.5% from €20.2 million to €22.5 million.
The result of the period after taxes was €14.3 million, up 4.7% on the previous year (€13.7 million). The financial result improved by €0.5 million year-on-year. Owing to growth, net indebtedness increased to €45.1 million (30 June 2016: €39.3 million), corresponding to 16.8% of equity. The first quarter saw the Group take out a five-year promissory note loan (Schuldschein) for EUR 35 million and USD 13.5 million. This and the equity ratio of 55.8% mean that the Group still has considerable scope for strategic development.
Development of the Group's divisions
The Enclosures division increased its gross sales by 7.7% to €96.2 million. Operating result rose disproportionately by 23.9% to €12.9 million, with a corresponding increase in operating margin from 11.6% to 13.4%. In an investment-friendly economic environment with robust demand in core European markets and in the US, sales rose by 5.1% in Europe and by 5.8% in North and South America. The highest percentage growth was achieved in Asia, at 23.2%, driven by project successes in the Far East oil and gas business.
The Mechanical Components division saw a 10.9% increase in gross sales, to €158.0 million. Operating result rose by 7.1% to €13.6 million, while the operating margin stood at 8.6%, compared with 8.9% the previous year. In the Rose & Krieger industrial segment, the positive sales and earnings performance continued in Q2, driven by high levels of investment in the renewal of production facilities and in automation projects. The higher-volume DewertOkin product area benefited from continuing dynamic growth in comfort and reclining furniture in Asia and North America. Weak demand in Europe and sustained price pressure in the furniture and care market impaired the division's margin performance in the second quarter.
The ELCOM/EMS division recorded a 12.0% increase in gross sales to €67.8 million. Adjusted for acquisitions, growth was 3.1%. Operating result was -€3.1 million (previous year: -€3.0 million). This includes amortisation on acquisition-related intangible assets totalling €2.1 million (previous year: €1.3 million). Operating cash flow improved further and stood at €1.8 million, compared to €0.8 million the previous year.
The Power Quality business area weighed on the division's result owing to the integration costs of the fast-paced merger between loss-making Platthaus and the Ismet Group acquired in 2016. New project commitments for instrument transformers used in the expansion of HVDC infrastructure confirmed the positive outlook for this growth market.
The two profitable business areas, Electromechanical Components and Electronic Packaging, were able to slightly increase their result. The latter expanded its range of components for customised industrial computer systems thanks to the acquisition of a majority stake in US-based Orion Technologies LLC, in which the Group previously held a minority interest.
Package of measures for the ELCOM/EMS division
On 14 August 2017, the Board of Directors of the Phoenix Mecano Group adopted a package of measures designed to radically streamline the ELCOM/EMS division's product portfolio and global production infrastructure.
Taking into account the one-off integration costs incurred at Ismet in the first half of the year (€1.5 million), non-recurring expenses of around €8-9 million are expected for 2017 as a whole, of which €6-7 million are likely to affect the cash position.
Management expects achievable cost savings of €2-3 million per annum in subsequent years as a result of these measures.
This global consolidation of facilities will see production capacity adjusted, manufacturing technologies and development activities pooled, logistics and sales structures pared down and product ranges streamlined. Only ELCOM/EMS business areas (in particular Power Quality and Electromechanical Components) will be affected. These measures will lead to productivity gains and improvements in earnings and ensure that the division's short- and medium-term profitability targets are met.
The economic barometers relevant to Phoenix Mecano, such as purchasing managers' indices (IHS Markit PMI) and the German Ifo Business Climate Index, are on the up and promise further robust growth globally. This should be bolstered in the second half of the year by demand for our industrial components and system solutions, which are used in capital goods in various fields of application and sectors. Linear actuators for industrial automation and our world-leading electrical drive solutions for the comfort furniture and care industry (DewertOkin) show signs of continued market growth.
The management and Board of Directors expect further sales progress for the Group as a whole in the second half of 2017, although this is likely to be less strong than in H1 owing to the robust performance in the same period last year.
The drive to streamline the ELCOM/EMS portfolio and facilities will accelerate that division's successful transformation, with attractive future potential in current and voltage measurement, industrial computing and innovative electromechanical components. The operational risks associated with these forward-looking and radical measures are not insignificant and will be a central focus of the Group's management and Board of Directors during the implementation phase.
In the current environment, the Phoenix Mecano Group still expects an operating result in the target range of €36-40 million in 2017. This does not include the above-mentioned one-off costs for achieving the Group's ambitious savings targets from 2018.
A detailed semi-annual report will be available for downloading as a PDF file from our website http://www.phoenix-mecano.com/en/investor-relations/annual-reports/semi-annual-reports from 15 August 2017.
For further information, please contact:
Phoenix Mecano Management AG
Dr. Rochus Kobler, CEO
Tel.: +41 (0)43 255 4 255